Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
__________________
FORM
10-Q
x
QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the Quarterly Period Ended September 30, 2008.
o
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.
(Exact
name of registrant as specified in its charter)
Colorado
|
|
84-1116894
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
12600
West Colfax, Suite C-420, Lakewood, Colorado
|
|
80215
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(303)
238-2000
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements
for
at least the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer,” and “small
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company x
|
|
(Do not check if a smaller
|
|
|
|
reporting company)
|
|
|
|
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
Yes
o
No
x
As
of
November 7, 2008 the registrant had 33,956,632 common shares
outstanding.
GLOBAL
MED TECHNOLOGIES, INC.
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER
30,
2008
TABLE
OF CONTENTS
|
|
|
|
PAGE NO.
|
Part
I – Financial Information
|
|
|
|
|
|
|
|
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
a.
|
Unaudited
Condensed Consolidated Balance Sheets as of September 30, 2008
and
December 31, 2007
|
|
3
|
|
|
|
|
|
|
b.
|
Unaudited
Condensed Consolidated Statements of Operations for the nine
months ended
September 30, 2008 and 2007
|
|
5
|
|
|
|
|
|
|
c.
|
Unaudited
Condensed Consolidated Statements of Income for the three months
ended
September 30, 2008 and 2007
|
|
6
|
|
|
|
|
|
|
d.
|
Unaudited
Condensed Consolidated Statement of Stockholders’ Equity for the nine
months ended September 30, 2008
|
|
7
|
|
|
|
|
|
|
e.
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the nine months
ended
September 30, 2008 and 2007
|
|
8
|
|
|
|
|
|
|
f.
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
|
10
|
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
operations
|
|
24
|
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
32
|
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
32
|
|
|
|
|
|
Part
II – Other Information
|
|
33
|
|
|
|
|
|
|
Item 1.
|
Legal
Proceedings
|
|
33
|
|
|
|
|
|
|
Item 1A
|
Risk
Factors
|
|
33
|
|
|
|
|
|
|
Item 2.
|
Unregistered
sales of Equity Securities and Use of Proceeds
|
|
33
|
|
|
|
|
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
|
33
|
|
|
|
|
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
|
33
|
|
|
|
|
|
|
Item 5.
|
Other
Information
|
|
34
|
|
|
|
|
|
|
Item 6.
|
Exhibits
and Reports on Form 8-K
|
|
35
|
|
|
|
|
|
Signatures
|
|
36
|
PART
I.
FINANCIAL
INFORMATION
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands)
|
|
September
30,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,519
|
|
$
|
6,748
|
|
Marketable
Securities
|
|
|
517
|
|
|
—
|
|
Accounts
receivable-trade, net
|
|
|
4,264
|
|
|
3,029
|
|
Accrued
revenues, net
|
|
|
1,757
|
|
|
822
|
|
Prepaid
expenses and other assets
|
|
|
1,025
|
|
|
316
|
|
Deferred
tax asset
|
|
|
1,871
|
|
|
740
|
|
Total
current assets
|
|
|
15,953
|
|
|
11,655
|
|
|
|
|
|
|
|
|
|
Equipment,
furniture and fixtures, net
|
|
|
1,243
|
|
|
342
|
|
Intangibles
|
|
|
1,707
|
|
|
—
|
|
Goodwill
|
|
|
5,692
|
|
|
—
|
|
Software,
net
|
|
|
4,226
|
|
|
173
|
|
Total
assets
|
|
$
|
28,821
|
|
$
|
12,170
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In
thousands)
|
|
September
30,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,461
|
|
$
|
322
|
|
Accrued
expenses and other current liabilities
|
|
|
4,703
|
|
|
3,377
|
|
Deferred
revenue
|
|
|
5,031
|
|
|
4,475
|
|
Litigation
accrual
|
|
|
667
|
|
|
—
|
|
Obligation
to Inlog’s sellers, current
|
|
|
1,162
|
|
|
—
|
|
Capital
lease obligation, notes payable, and lines of credit, current
portions
|
|
|
877
|
|
|
36
|
|
Total
current liabilities
|
|
|
13,901
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
Litigation
accrual
|
|
|
1,004
|
|
|
1,004
|
|
Obligation
to Inlog’s sellers, less current portion
|
|
|
1,086
|
|
|
—
|
|
Capital
lease obligation, notes payable, and lines of credit, less current
portion
|
|
|
7,066
|
|
|
26
|
|
Total
liabilities
|
|
|
23,057
|
|
|
9,240
|
|
|
|
|
|
|
|
|
|
COMMITMENT
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock Series A, $.01 par value:
|
|
|
|
|
|
|
|
Authorized
shares – 100; 7 and 8 outstanding at September 30, 2008 and December
31, 2007, respectively
|
|
|
7,100
|
|
|
7,735
|
|
Convertible
Preferred Stock Series BB, $.01 par value:
|
|
|
|
|
|
|
|
Authorized
shares – 675; none outstanding
|
|
|
|
|
|
—
|
|
Preferred
stock, $.01 par value: Authorized shares - 5,725; None
issued or outstanding
|
|
|
|
|
|
—
|
|
Common
stock, $.01 par value: Authorized shares – 90,000;
Issued and outstanding shares – 32,356 and 26,674 at
September 30, 2008 and December 31, 2007, respectively
|
|
|
324
|
|
|
267
|
|
Additional
paid-in capital
|
|
|
58,715
|
|
|
54,288
|
|
Accumulated
deficit
|
|
|
(59,076
|
)
|
|
(59,360
|
)
|
Comprehensive
income
|
|
|
(328
|
)
|
|
—
|
|
Currency
translation adjustment
|
|
|
(971
|
)
|
|
—
|
|
Total
stockholders’ equity
|
|
|
5,764
|
|
|
2,930
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
28,821
|
|
$
|
12,170
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share information)
|
|
Three
months ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,940
|
|
$
|
4,094
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
2,759
|
|
|
1,172
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,181
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,682
|
|
|
875
|
|
Sales
and marketing
|
|
|
1,055
|
|
|
670
|
|
Research
and development
|
|
|
1,214
|
|
|
783
|
|
Depreciation
and software amortization
|
|
|
348
|
|
|
47
|
|
Total
operating expenses
|
|
|
4,299
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(118
|
)
|
|
547
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
27
|
|
|
42
|
|
Interest
expense
|
|
|
(191
|
)
|
|
(3
|
)
|
Total
other income (expense)
|
|
|
(164
|
)
|
|
39
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income tax
|
|
|
(282
|
)
|
|
586
|
|
Income
tax (expense) benefit
|
|
|
54
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(228
|
)
|
$
|
552
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted net income per common share
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
$
|
0.02
|
|
Diluted
|
|
$
|
(0.01
|
)
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
|
|
30,754
|
|
|
25,600
|
|
Diluted
|
|
|
30,754
|
|
|
44,469
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
(228
|
)
|
|
552
|
|
Other
comprehensive loss
|
|
|
(1,299
|
)
|
|
—
|
|
Comprehensive
loss
|
|
|
(1,527
|
)
|
|
552
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(In
thousands, except per share information)
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,378
|
|
$
|
11,782
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
6,177
|
|
|
3,566
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
10,201
|
|
|
8,216
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
3,747
|
|
|
2,415
|
|
Sales
and marketing
|
|
|
2,430
|
|
|
1,943
|
|
Research
and development
|
|
|
2,722
|
|
|
2,541
|
|
Depreciation
and software amortization
|
|
|
462
|
|
|
128
|
|
Total
operating expenses
|
|
|
9,361
|
|
|
7,027
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
840
|
|
|
1,189
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
86
|
|
|
167
|
|
Interest
expense
|
|
|
(212
|
)
|
|
(9
|
)
|
Total
other income
|
|
|
(126
|
)
|
|
158
|
|
|
|
|
|
|
|
|
|
Income
before provision for income tax
|
|
|
714
|
|
|
1,347
|
|
Provision
for income tax expense
|
|
|
(430
|
)
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
284
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income per common share
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.01
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
28,546
|
|
|
24,035
|
|
Diluted
|
|
|
46,898
|
|
|
41,052
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
284
|
|
|
1,298
|
|
Other
comprehensive loss
|
|
|
(1,299
|
)
|
|
—
|
|
Comprehensive
loss
|
|
$
|
(1,015
|
)
|
$
|
1,298
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
|
|
Accumulated
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid-in Capital
|
|
Deficit
|
|
Income
(loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
|
8
|
|
$
|
7,735
|
|
|
26,674
|
|
$
|
267
|
|
$
|
54,288
|
|
$
|
(59,360
|
)
|
|
—
|
|
$
|
2,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
associated with issuance of options for services to employees or
consultants, (unaudited)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
253
|
|
|
—
|
|
|
—
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options for cash (unaudited)
|
|
|
—
|
|
|
—
|
|
|
606
|
|
|
6
|
|
|
452
|
|
|
—
|
|
|
—
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
exercise of options (unaudited)
|
|
|
—
|
|
|
—
|
|
|
545
|
|
|
5
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with the Inlog acquisition
(unaudited)
|
|
|
—
|
|
|
—
|
|
|
451
|
|
|
5
|
|
|
563
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with the eDonor acquisition
(unaudited)
|
|
|
—
|
|
|
—
|
|
|
1,180
|
|
|
12
|
|
|
1,488
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
exercise of warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
—
|
|
|
—
|
|
|
695
|
|
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants for cash (unaudited)
|
|
|
—
|
|
|
—
|
|
|
1,308
|
|
|
13
|
|
|
948
|
|
|
—
|
|
|
—
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants in connection with financing (unaudited)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series A Preferred Stock to common shares (unaudited)
|
|
|
(1
|
)
|
|
(635
|
)
|
|
882
|
|
|
9
|
|
|
626
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income -Net unrealized gains (losses)
(unaudited)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(328
|
)
|
|
(328
|
)
|
-Translation
adjustments (unaudited)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(971
|
)
|
|
(971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (unaudited)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
284
|
|
|
—
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
$
|
7,100
|
|
|
32,356
|
|
$
|
324
|
|
$
|
58,715
|
|
$
|
(59,076
|
)
|
$
|
(1,299
|
)
|
$
|
5,764
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
284
|
|
$
|
1,298
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
462
|
|
|
128
|
|
Financing
costs
|
|
|
39
|
|
|
—
|
|
Bad
debt expense
|
|
|
47
|
|
|
83
|
|
Common
stock, options and warrants issued
|
|
|
|
|
|
|
|
for
services and other, net
|
|
|
281
|
|
|
174
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable-trade, net
|
|
|
512
|
|
|
1,089
|
|
Accrued
revenues, net
|
|
|
1,094
|
|
|
(304
|
)
|
Prepaid
expenses and other assets
|
|
|
(97
|
)
|
|
41
|
|
Escrow
deposit
|
|
|
—
|
|
|
1,004
|
|
Deferred
tax asset
|
|
|
328
|
|
|
—
|
|
Accounts
payable
|
|
|
631
|
|
|
219
|
|
Accrued
expenses and other current liabilities
|
|
|
(1,504
|
)
|
|
127
|
|
Deferred
revenue
|
|
|
(963
|
)
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,114
|
|
|
3,371
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of equipment, furniture and fixtures
|
|
|
(267
|
)
|
|
(224
|
)
|
Capitalized
software development
|
|
|
(148
|
)
|
|
—
|
|
Acquisitions,
net of cash acquired
|
|
|
(9,464
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(9,879
|
)
|
|
(224
|
)
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(In
thousands)
|
|
Nine
months ended
|
|
|
|
September
30, 2008
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing,
notes payable and principal payments on debt and capital lease
obligations, net of financing costs
|
|
|
7,231
|
|
|
(24
|
)
|
Exercise
of options and warrants for cash
|
|
|
1,421
|
|
|
68
|
|
Net
cash provided by financing activities
|
|
|
8,652
|
|
|
44
|
|
Effect
of exchange rate changes on cash
|
|
|
(116
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(229
|
)
|
|
3,191
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
6,748
|
|
|
2,554
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
6,519
|
|
$
|
5,745
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
Conversion
of Series A Preferred Stock to common shares
|
|
$
|
635
|
|
$
|
2,015
|
|
Fair
value of common stock issued in connection with Inlog
acquisition
|
|
|
568
|
|
|
—
|
|
Fair
value of obligation to sellers related to Inlog
acquisition
|
|
|
2,248
|
|
|
—
|
|
Fair
value of common stock issued in connection with eDonor
acquisition
|
|
|
1,500
|
|
|
—
|
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
1.
BASIS OF PRESENTATION
Basis
of Consolidation
The
accompanying unaudited condensed consolidated financial statements of Global
Med
Technologies, Inc. (“Global”) and Subsidiaries (the “Company” or “Global Med”)
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 their financial position as of September 30, 2008 and
the
results of their operations and cash flows for the three and nine months ended
September 30, 2008 and 2007 have been included. Global Med’s consolidated
financial results include Inlog S.A., a French Company (“Inlog S.A.” or “Inlog”)
and its subsidiaries, for the period from June 26, 2008 through September 30,
2008. Global Med’s consolidated financial statements also include the results
for substantially all of the assets associated with Blueridge Solutions, L.C.’s
blood bank management software business which will herein be referred to as
“eDonor.” The results for eDonor are included for the period from August 1, 2008
through September 30, 2008.
While
management believes the disclosures presented are adequate to prevent misleading
information, it is suggested that the accompanying unaudited consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto contained in the Company’s Annual
Report on Form 10-KSB for the year ended December 31, 2007, as filed with the
Securities and Exchange Commission. The interim results of operations for the
three and nine months ended September 30, 2008 are not necessarily indicative
of
the results that may be expected for any other interim period of 2008 or for
the
year ending December 31, 2008.
Critical
Accounting Policies
The
Company's software products typically have warranties. These warranties
generally require that the Company make changes to the software due to defects
or other factors that might impact the Company's regulatory compliance after
the
date of product shipment. Generally, the Company does not accrue for product
warranties but defers revenue recognition on a component of the original
software fee that is associated with the correction of errors and continued
updates to regulatory requirements during the warranty period. The Company
believes this
allocation adequately
reflects the timing of revenues and costs associated with these warranties.
For
those
customer accounts for which revenue has been earned with the exception that
collectability of the amount is not deemed reasonably assured, the Company
recognizes revenues related to these accounts in the period cash is received.
The Company may make changes to its revenue recognition practices with respect
to specific customers as its assessment of collectability changes. These changes
are typically not material to the financial statements.
Fair
Value Measurements
Effective
January 1, 2008, the Company adopted the fair value measurement and disclosure
provisions of Statement of Financial Accounting Standards No. 157 (“SFAS
157”). SFAS No. 157 establishes a framework for measuring fair value and
requires enhanced disclosures about fair value measurements. SFAS No. 157
clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. SFAS No. 157 also requires disclosure
about how fair value is determined for assets and liabilities and establishes
a
hierarchy for which these assets and liabilities must be grouped, based on
significant levels of inputs as follows:
Level
1:
quoted
prices in active markets for identical assets or liabilities;
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
Level
2:
quoted
prices in active markets for similar assets and liabilities and inputs that
are
observable for the asset or liability; or
Level
3:
Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
The
determination of where assets and liabilities fall within this hierarchy is
based upon the lowest level of input that is significant to the fair value
measurement. The following is a listing of the Company’s financial assets and
liabilities required to be measured at fair value on a recurring basis and
where
they are classified within the hierarchy as of September 30, 2008 in
$(000s):
|
|
Level
1
|
|
Level
2
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents
|
|
$
|
919
|
|
|
—
|
|
$
|
919
|
|
Short-term
investments
|
|
|
286
|
|
|
—
|
|
|
286
|
|
Marketable
equity securities
|
|
|
231
|
|
|
—
|
|
|
231
|
|
Total
|
|
$
|
1,436
|
|
|
—
|
|
$
|
1,436
|
|
Marketable
equity securities: At
September 30, 2008 the fair value of our marketable equity securities are based
upon quoted market prices for the securities owned by Global Med. The Company
has classified these marketable securities as available for sale securities
in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115 (“SFAS 115”), “Accounting for Certain Investments in Debt and
Equity Securities,”
SFAS No.
115 specifies that unrealized gains and losses on available for sale securities
that are other than permanent flow through the statement of shareholders’
equity.
Significant
Customers
During
the nine months ended September 30, 2008 and 2007, there were no customers
accounting for more than 10% of revenues. Although the Company had no individual
customers accounting for more than 10% of revenues, one of the Company’s
marketing partners that sells the Company’s
products directly to its customers accounted for 18.1% and 27.5% of revenues
for
the nine months ended September 30, 2008 and 2007, respectively. In addition,
this same marketing partner accounted for 6.5% and 56.3% of gross accounts
receivable as of September 30, 2008 and December 31, 2007, respectively.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled. A valuation allowance is required to the extent any
deferred tax assets may not be realizable. While the Company has net operating
loss (“NOLs”) carryforwards related to certain tax jurisdictions, the Company
has limited or no NOLs in others.
Prior
to
the fourth quarter of 2007, the deferred tax asset related to the net operating
loss carry forward was fully reserved by a valuation allowance due to the
uncertainty of the Company generating future taxable income. During the fourth
quarter of 2007, the Company reassessed its valuation allowance and decreased
it
by $740 thousand to reflect higher than anticipated net deferred tax asset
utilization. As a result of this reassessment in the fourth quarter of 2007
and
the reduction in the valuation allowance, the Company’s provision for income
taxes increased significantly for the nine months ended September 30, 2008
when
compared with the comparable period in 2007.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
Effective
January 2007, the Company adopted the provisions of FASB Interpretation
No. 48, Accounting
for Uncertainty in Income Taxes
(“FIN 48”). In accordance with FIN 48, the Company is required to
disclose its practice related to recognizing interest and/or penalties related
to tax positions taken with uncertainty. The Company records interest and
penalties related to tax positions with uncertainty in income tax expense.
The
Company had no such interest or penalties for the nine months ended September
30, 2008 and 2007.
Foreign
Currency Translation
The
Company’s Inlog subsdiary operates in Europe where the Euro is considered the
functional currency. Inlog’s accounts are translated into U.S dollars using the
exchange rate at the balance sheet date for assets and liabilities and the
weighted average exchange rate for the period for revenues, expenses, gains
and
losses. Translation adjustments are recorded as a separate component of
comprehensive income (loss). Gains or losses resulting from foreign currency
transactions are included in other income (expense).
Other
Comprehensive Income (Loss)
Other
comprehensive income (loss) includes net income (loss) plus the results of
certain changes in shareholders’ equity that are not reflected in the results of
operations. The Company’s comprehensive income (loss) consisted of changes in
foreign currency translation adjustments and unrealized gains and losses on
available for sale marketable securities.
Industry
Segments and Foreign Revenue
The
Company operates in one industry segment: the design, development, sale and
support of information management software products for blood banks, hospitals,
centralized transfusion centers and other health care-related facilities.
Revenues are derived from the licensing of software, maintenance, the provision
of consulting and other value-added support services, and the resale of software
obtained from vendors. For the three months ended September 30, 2008, revenue
from customers in foreign locations was 37.0% from Europe, the Middle East
and
Africa. For the nine months ended September 30, 2008, revenue from customers
in
foreign locations was 16.7% from Europe, the Middle East and Africa.. Revenue
from customers in foreign locations for the three month and nine month periods
ended September 30, 2007 was negligible.
Recently
Issued Accounting Standards
In
May
2008, the FASB issued Staff Position No. APB 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including
Partial Cash Settlement) ("FSP 14-1"), which clarifies the accounting for
convertible debt instruments that may be settled in cash (including partial
cash
settlement) upon conversion. FSP 14-1 requires issuers to account separately
for
the liability and equity components of certain convertible debt instruments
in a
manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing
rate when interest cost is recognized. FSP 14-1 is effective for fiscal years
beginning after December 15, 2008. The Company has not yet determined the
impact if any the adoption of FSP 14-1 may have on its consolidated financial
statement.
In
April
2008, the FASB issued Staff Position No. FAS 142-3, Determination
of the Useful Life of Intangible Assets
(“FSP
FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life
of
a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under
SFAS
142 and the period of expected cash flows used to measure the fair value of
the
asset under SFAS 141(R) and other applicable accounting literature. FSP FAS
142-3 is effective for fiscal years beginning after December 15, 2008. The
Company has not yet determined the impact if any the adoption of FSP FAS 142-3
may have on its consolidated financial statement.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
In
March
2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities
(“SFAS 161”), which amends and expands the disclosure requirements of FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS 133”), with the intent to provide users of financial statements with
an enhanced understanding of: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations;
and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows. SFAS 161
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts and gains and
losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative instruments. This
statement applies to all entities and all derivative instruments.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The Company has
not yet determined the impact if any the adoption of this standard may have
on
its consolidated financial statements of the adoption of SFAS No.
161.
In
December 2007, the FASB issued SFAS No. 141 (R), Business
Combinations (“SFAS
No. 141 (R)”, and SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements (“SFAS
No. 160”). SFAS No. 141 (R) requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in
the
acquiree at their fair values on the acquisition date, with goodwill being
the
excess value over the net identifiable assets acquired. SFAS No. 160 clarifies
that a noncontrolling interest in a subsidiary should be reported as equity
in
the consolidated financial statements. The calculation of earnings per share
will continue to be based on income amounts attributable to the parent. SFAS
No.
141 (R) and SFAS No. 160 are effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption is prohibited.
The Company has not yet determined the impact if any the adoption of SFAS No.
141 (R) or SFAS No. 160 may have on its consolidated financial
statements.
Reclassifications
Certain
prior period amounts have been reclassified to conform with the current period
presentation.
2.
ACQUISITIONS
Acquisition
of Inlog (Acquisition A)
On
June
26, 2008 (the “Acquisition Date”), Global completed its acquisition (the “Inlog
Acquisition”) of 100% of the capital stock of Inlog pursuant to the Stock
Purchase Agreement (“Purchase Agreement”) signed on March 26, 2008. Inlog was
acquired for a maximum purchase price of $11.5 million in a combination of
cash,
stock and earn-out payments as discussed further below.
Inlog’s
product line consists of five (5) primary products: EdgeBlood (for the donor
center marketplace), EdgeTrace (for the hospital transfusion marketplace),
EdgeLab (a laboratory information system “LIS”), EdgeCell (cellular therapy for
tissue banks, stem cell centers and cord blood centers) and SAPA (supports
regulatory compliance and document management). Inlog is ISO 9001:2000 certified
and its products have received the NF/ISO 25051/12119 certification guaranteeing
the highest level of quality regarding the design, testing and validation of
its
software, its documentation quality and the quality of its product support
and
maintenance.
Inlog
has
been developing, implementing, and supporting its blood bank information
management solutions since 1992 and supplies over 800 sites in fifteen (15)
countries with its products. Inlog recently completed the national installation
of its EdgeBlood product in France. All 2.5 million French blood donations
flow
through Inlog’s products in France including blood collections, infectious
disease testing, component manufacturing and distribution.
In addition to France, Inlog provides its software applications in Germany,
Austria, Belgium and Switzerland, as well as installations in Greece and Monaco.
Global Med believes that the acquisition of Inlog is strategically important
as
Inlog’s existing international marketplace may provide a platform for the
Company’s continued growth in revenues and net income.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
The
total
preliminary purchase price for Inlog, inclusive of contingent payments, was
$10.832 million as of the Acquisition Date. The $11.5 million maximum purchase
price is comprised of $10.019 million in non-contingent consideration and $1.481
million in contingent consideration associated with an earn-out. The earn-out
is
based on 20% of operating income over the five-year period from the Acquisition
Date. The contingent consideration is fixed at no more than €2 million but may
be less based on the value of exchange rates in effect when the consideration
is
calculated. Based on the exchange rates in effect as of the Acquisition Date,
and due to the $11.5 million purchase price cap, the earn-out payment is
currently capped at $1.481 million but is subject to change.
The
Acquisition Date purchase price is comprised of the following:
|
|
In
($000s)
|
|
Consideration
paid on the Acquisition Date
|
|
|
|
|
Payment
of cash at the Acquisition Date
|
|
$
|
6,891
|
|
Value
of common stock issued at the Acquisition Date
|
|
|
568
|
|
|
|
|
|
|
Future
consideration to be paid
|
|
|
|
|
Payment
of cash one year from the Acquisition Date (1)
|
|
|
629
|
|
Cash
payment to be made two years after the Acquisition Date
(1)
|
|
|
629
|
|
Common
stock to be issued one year after the Acquisition Date (2)
|
|
|
651
|
|
Common
stock to be issued two years after the Acquisition Date
(2)
|
|
|
651
|
|
|
|
|
|
|
Total
non-contingent consideration associated with the acquisition,
undiscounted
|
|
$
|
10,019
|
|
|
|
|
|
|
Acquisition-related
costs (estimated) (3)
|
|
|
1,067
|
|
|
|
|
|
|
Discount
on future consideration
|
|
|
(254
|
)
|
|
|
|
|
|
Total
fixed consideration
|
|
$
|
10,832
|
|
On
the
Acquisition Date, the Company paid the shareholders of Inlog $6.891 million
in
cash and issued common stock valued at $568 thousand. Global Med is required
to
make two additional cash payments to the sellers in the amount of €400 thousand,
one and two years after the Acquisition Date. The euro-based discounted future
cash payments convert to $583 thousand and $544 thousand, respectively, based
on
the exchange rates in effect as of the Acquisition Date. This future cash
consideration has been discounted to reflect the inherent imputed interest,
because these future payments are non-interest bearing. The total Global Med
common shares issued or to be issued is currently estimated as
follows:
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
|
|
Value of
Common Shares
in ($000)
|
|
Number of Common
Shares Issued or
Contingently Issuable
in (000s)
|
|
Common
shares issued at Acquisition Date
|
|
$
|
568
|
|
|
451
|
|
Common
shares to be issued one year after the Acquisition Date
(2)
|
|
|
651
|
|
|
517
|
|
Common
shares to be issued two years after the Acquisition Date
(2)
|
|
|
651
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,870
|
|
|
1,485
|
|
(1)
Underlying payments are to be made in Euros, which have been converted to U.S.
dollars as of the Acquisition Date.
(2)
As
part of the consideration to be paid to the sellers, the Company is required
to
issue common stock valued at this amount. The number of common shares to be
issued is based on the average closing market price of the stock 10 days prior
to the date the shares are due. For the purposes of this calculation, the
Company used the value of the common stock for the 10 days preceding the
Acquisition Date. In the event that the price of the Company’s common stock is
less than $1.26 per share for the 10-day period preceding the issuance date,
the
common shares are due, the Company will issue common shares based on the $1.26
value. The Company, at its option, can elect to pay cash instead of issuing
the
common shares. Because the Company can elect to pay cash instead of common
shares, the common stock to be issued on the first and second anniversary has
not been included in the calculation of the Company’s basic common shares, but
it has been included in its diluted common share count. Therefore, the
calculation of common shares to be issued in the future is subject to change.
This represents the undiscounted value of the payment. The payments are
discounted in the balance sheet.
(3)
Inlog
Acquisition related transaction costs include estimated legal and accounting
fees and other external costs directly related to the acquisition.
Inlog
Preliminary Purchase Price Allocation
The
total
preliminary purchase price was allocated to Inlog’s net tangible and
identifiable intangible assets based on their estimated fair values as of the
Acquisition Date as set forth below with residual amounts allocated to goodwill.
The purchase accounting is preliminary and subject to material change. The
preliminary allocation of the purchase price was based upon a preliminary
valuation and our estimates and assumptions are subject to material change
which
could result in material amounts being allocated among the current allocations
or to goodwill. In addition, upon the finalization of the combined company’s
legal entity structure, additional adjustments to deferred taxes may be
required.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
|
|
(in $000s)
|
|
Cash
and marketable securities
|
|
$
|
2,783
|
|
Trade
receivables and unbilled receivable, net
|
|
|
3,809
|
|
Intangible
assets
|
|
|
860
|
|
Goodwill
|
|
|
3,660
|
|
Software
|
|
|
2,861
|
|
Equipment,
furniture, fixtures, leasehold improvement
|
|
|
853
|
|
Deferred
tax assets, net
|
|
|
1,345
|
|
Other
assets
|
|
|
714
|
|
Accounts
payable and other liabilities
|
|
|
(3,840
|
)
|
Deferred
revenues
|
|
|
(1,393
|
)
|
Debt
|
|
|
(820
|
)
|
Total
preliminary purchase price
|
|
$
|
10,832
|
|
Inlog
Intangible Assets
In
performing our preliminary purchase price allocation, the Company considered,
among other factors, the intention for future use of acquired assets, analyses
of historical financial performance and estimates of future performance of
Inlog’s products. The preliminary fair value of intangible assets was based, in
part, on a valuation completed by a third party valuation firm using an income
approach and estimates and assumptions provided by management and is subject
to
material change. As noted above, no amounts have yet been allocated to goodwill.
The rate used to discount the net cash flows was 15%. This represents the
Company’s estimated cost of capital. The following table sets forth the
components of intangible assets associated with the acquisition at the
Acquisition Date in ($000s):
|
|
Preliminary
Fair Value
|
|
Accumulated
Amortization
|
|
Currency
Translation
Adjustment
|
|
Net Book
Value
|
|
Estimated
Useful Life
|
|
Non-compete
agreements, customer relationships, and other
|
|
$
|
860
|
|
|
(33
|
)
|
|
(78
|
)
|
$
|
749
|
|
|
5-10 years
|
|
Inlog
Pre-Acquisition Contingencies
The
Company is aware of certain pre-acquisition contingencies related to Inlog
related to lawsuits for which there is an accrual of $667 thousand in the
consolidated financials statements. We are currently assessing the merits of
these cases.
Acquisition
of eDonor (Acquisition B)
Effective
August 1, 2008 (the “eDonor Acquisition Date”), Global completed its acquisition
(the “eDonor Acquisition”) of certain assets of eDonor pursuant to the Asset
Purchase Agreement (“Asset Purchase Agreement”) signed on July 31, 2008. eDonor
was acquired for approximately $5 million in a combination of cash and
stock.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
eDonor
is
a web-based donor relationship management system that integrates recruitment,
scheduling, retention and fulfillment for national as well as local community
blood centers. The
acquisition is designed to complement Global Med’s strong line of international
blood management and laboratory information software and service
solutions.
The
eDonor purchase price totaling $5 million is comprised of the
following:
|
|
In
($000s)
|
|
|
|
|
|
Cash
consideration
|
|
$
|
3,500
|
|
Common
stock issued (1.18 million shares at $1.27 per share)
|
|
|
1,500
|
|
Total
cash and stock consideration
|
|
$
|
5,000
|
|
|
|
|
|
|
Estimated
acquisition-related costs
|
|
|
25
|
|
|
|
|
|
|
Total
purchase price
|
|
$
|
5,025
|
|
eDonor
Preliminary Purchase Price Allocation
Under
business combination accounting, the total preliminary purchase price was
allocated to eDonor’s net tangible and identifiable intangible assets based on
their estimated fair values as of the eDonor Acquisition Date as set forth
below
with residual amounts allocated to goodwill. The excess of the purchase price
over the net tangible and identifiable intangible assets was recorded as
goodwill, because the purchase accounting is preliminary and subject to material
change. The preliminary allocation of the purchase price was based upon a
preliminary valuation and our estimates and assumptions are subject to material
change. The purchase price allocation is preliminary for all areas and not
yet
finalized, and there could be material changes to these allocations which could
include material amounts being allocated among the current allocations or
additional amounts allocated to goodwill. In addition, upon the finalization
of
the combined company’s legal entity structure, additional adjustments to
deferred taxes may be required.
|
|
(in $000s)
|
|
Cash
|
|
$
|
201
|
|
Unbilled
receivables, net
|
|
|
14
|
|
Intangible
assets
|
|
|
970
|
|
Software
|
|
|
1,510
|
|
Equipment,
furniture, fixtures, leasehold improvement
|
|
|
70
|
|
Goodwill
|
|
|
2,360
|
|
Other
assets
|
|
|
27
|
|
Deferred
revenues
|
|
|
(127
|
)
|
|
|
|
|
|
Total
preliminary purchase price
|
|
$
|
5,025
|
|
eDonor
Intangible Assets
In
performing our preliminary purchase price allocation, the Company considered,
among other factors, the intention for future use of acquired assets, analyses
of historical financial performance and estimates of future performance of
eDonor’s products. The preliminary fair value of intangible assets was based, in
part, on a valuation completed by third party valuation firm using an income
approach and estimates and assumptions provided by management and is subject
to
material change. The rate used to discount the net cash flows was 15%. This
represents the Company’s estimated cost of capital. The following table sets
forth the components of intangible assets associated with the acquisition at
the
eDonor Acquisition Date in ($000s):
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
|
|
Preliminary
Fair
Value
|
|
Accumulated
Amortization
|
|
Net
Book
Value
|
|
Estimated
Useful
Life
|
|
Trade
names and customer relationships
|
|
$
|
970
|
|
|
(12
|
)
|
$
|
958
|
|
Trade
name, indefinite, customer relationships, 9 years |
|
eDonor
Pre-Acquisition Contingencies
The
Company is not aware of any pre-acquisition contingencies related to the
purchase of eDonor.
Pro
forma Financial Information
The
unaudited financial information in the table below summarizes the combined
results of operations of Global Med, PeopleMed, Inlog, and eDonor on a pro
forma
basis, as though the companies had been combined as of the beginning of each
of
the periods presented. The pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the results
of
operations that would have been achieved if the acquisitions and associated
debt
financing had taken place at the beginning of each of the periods presented.
The
pro forma financial information for all periods presented also includes the
business combination accounting effect on historical Inlog’s and eDonor’s
amortization charges from acquired intangible assets, adjustments to interest
expense and related tax effects.
|
|
Three Months Ended
September
30,
|
|
Nine Months Ended
September
30,
|
|
(in
$000s, except per share data)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Total
revenues
|
|
$
|
7,129
|
|
$
|
7,329
|
|
$
|
24,272
|
|
$
|
23,535
|
|
Net
(loss) income
|
|
$
|
(238
|
)
|
$
|
926
|
|
$
|
235
|
|
$
|
1,448
|
|
Basic
net (loss) income per share
|
|
$
|
(0.01
|
)
|
$
|
0.03
|
|
$
|
0.01
|
|
$
|
0.06
|
|
Diluted
net (loss) income per share
|
|
$
|
(0.01
|
)
|
$
|
0.02
|
|
$
|
0.00
|
|
$
|
0.03
|
|
3.
PEOPLEMED.COM INC.
During
1999, Global Med formed a subsidiary, PeopleMed.com, Inc. (“PeopleMed”), a
Colorado corporation, which is approximately 83% owned by the Company, to
develop a software application designed to give HMO providers and other third
party payers access to clinical information for chronic disease patients. This
application allows doctors and other medical employees access to a patient's
history. Late in 2007, PeopleMed began offering Validation Services. Validation
Services include documenting and testing systems to enable the customer to
conform their use of the software system to conform with regulations and
requirements. The remaining 17% of PeopleMed is owned by third parties and
certain officers and directors of Global Med. There is no minority interest
reflected in the September 30, 2008 or December 31, 2007 balance sheets because
PeopleMed had a stockholders’ deficit as of those dates.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
4.
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
In
September 2002, Global Med filed a lawsuit against Donnie L. Jackson, Jr.,
Global Med’s former Vice President of Sales and Marketing. Global Med alleges,
among other things, that prior to his resignation in July 2002 Mr. Jackson
misappropriated certain trade secrets of Global Med. After leaving Global Med,
Mr. Jackson became a management employee of one of Global Med’s competitors. On
March 30, 2005, the Superior Court of the State of California in and for
the County of El Dorado granted the motion for summary judgment for Donnie
L.
Jackson, Jr. On September 1, 2005, the Company deposited $1.004 million
with the Superior Court in the State of California in the County of El Dorado.
This deposit represented potential fees and attorneys’ costs the Company could
be required to pay in the event the Company did not prevail on appeal. The
$1.004 million is classified as a “Deposit in escrow” on the Company’s balance
sheet as of December 31, 2006. Based on external evidence and the advice of
legal counsel, the Company determined that it was more likely than not that
the
Company would be required to pay the $1.004 million. As a result, the Company
expensed the amount of the “Deposit in escrow” and set up a liability for $1.004
million during 2005. In December 2006, the summary judgment was reversed by
the
California Court of Appeals and the matter was remanded to the trial court.
In
May 2007, the $1.004 million Deposit in escrow was returned to the Company
along
with $80 thousand in accrued interest. As of September 30, 2008, the Company
reclassified the Deposit in escrow as a long-term liability based on the
prevailing circumstances of the case. As of September
30, 2008, the Company has determined that the return of the deposit and other
circumstances surrounding the case prohibits the Company from reversing the
accrual of the $1.004 million under SFAS 5, “Accounting for Contingencies”. The
Company intends to continually re-evaluate the facts and circumstances
surrounding the case and the related accounting.
5.
FINANCING AGREEMENTS
On
June
17, 2008, Global and its subsidiary, PeopleMed, entered into a Loan and Security
Agreement (the “Loan Agreement”) with Silicon Valley Bank. The purpose of
entering into the Loan Agreement was to finance the acquisition of Inlog. The
Loan Agreement provides for (i) a revolving line of credit (“LOC”) in an amount
of up to $1 million, and (ii) a term loan (“Term Loan”) in an amount of up to $5
million. Global and PeopleMed together are referred to as the “Borrower.” As of
September 30, 2008, the entire $6 million amount under the Loan Agreement had
been borrowed.
The
LOC,
subject to certain limitations, can be used (i) to borrow revolving loans,
(ii)
to obtain letters of credit, (iii) to enter into certain foreign exchange
contracts and (iv) for certain cash management services. Borrowings under the
LOC may be repaid and re-borrowed until September 17, 2011, at which time all
amounts borrowed must be repaid. Interest under the revolving line of credit
accrues at a floating per annum rate equal to the greater of 0.50% above the
prime rate, or 5.50%, with interest payable on a monthly basis.
Interest
under the Term Loan accrues at a per annum rate equal to the greater of 2.00%
above the prime rate fixed at the time of funding, or 7.00%. The Term Loan
is
payable in 60 consecutive equal monthly installments of principal plus monthly
payments of accrued interest beginning on January 1, 2009. Prior to January
1,
2009, only accrued interest is payable on the Term Loan. The Term Loan may
be
prepaid, except that prepayment of the entire amount of the outstanding Term
Loan will be subject to, among other things, a make-whole premium. The Loan
Agreement also provides for the payment of an annual amount equal to 25% of
the
Borrower’s excess cash flow for the immediately preceding fiscal year until the
earlier of December 1, 2013 or all amounts owed under the Term Loan have been
paid in full; provided, that for the first excess cash flow payment only, such
amount will be based on excess cash flow for the semi-annual period beginning
on
July 1, 2008 through December 31, 2008.
The
LOC
and Term Loan under the Loan Agreement are secured by a first priority security
interest in certain assets of the Borrower. In addition, on June 17, 2008,
the
Borrower entered into an Intellectual Property Security Agreement (the “IP
Security Agreement”) with Silicon Valley Bank. Pursuant to the IP Security
Agreement, the Borrower granted Silicon Valley Bank a security interest in
certain intellectual property of Borrower.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
The
Loan
Agreement contains affirmative and negative covenants, including covenants
that
limit or restrict the Company’s ability to, among other things, dispose of
certain assets, undergo a change of control, incur certain indebtedness, make
certain investments or acquisitions, pay cash dividends and enter into certain
transactions with affiliates. The Company obtained a waiver from its lenders
for
its failure to comply with its Free Cash Flow covenant for the three
months ended September 30, 2008.
Events
of
default under the Loan Agreement include, among other things, non-payment,
violation of covenants, bankruptcy and insolvency events, material adverse
change, cross default to certain other indebtedness, certain judgments rendered
against Borrower and inaccuracy of representations and warranties. The
occurrence of an event of default could result, among other things, in the
acceleration of obligations under the Loan Agreement.
On
July
18, 2008, the Borrower entered into a Loan and Security Agreement (the “Second
Loan Agreement”) with Partners for Growth II, L.P. (the “Lender”). The Second
Loan Agreement provides for a term loan (“Second Term Loan”) in an amount of
$1.5 million.
The
loan
bears interest at a rate equal to the prime rate from time to time (floating)
plus 3% per annum, 8% as of July 18, 2008. So long as the Borrower maintains
a
minimum specified monthly liquidity ratio, the Borrower is only required to
pay
interest on the outstanding principal amount of the loan until July 18, 2011,
on
which date any unpaid principal plus any accrued and unpaid interest shall
be
due and payable. In the event that the Borrower does not maintain the monthly
liquidity ratio, the Lender may require Borrower to amortize the loan over
36
months. The Second Term Loan may be prepaid without penalty or
fees.
A
default
interest rate applies to the loan during an event of default under the Second
Loan Agreement at a rate equal to the lesser of 18% per annum and the maximum
rate of interest that may lawfully be charged to a commercial borrower. The
Borrower is also obligated to pay certain commitment fees and bank
expenses.
The
Second Term Loan is subordinate to the Term Loan and it is secured by certain
assets of the Borrower, including all of the Borrower’s intellectual property,
all of Borrower’s equity interests in its domestic subsidiaries and up to 65% of
Borrower’s equity interests in any foreign subsidiary.
The
Second Loan Agreement contains affirmative and negative covenants, including
covenants that limit or restrict the Company’s ability to, among other things,
acquire or dispose of certain assets, undergo a change of control, incur certain
indebtedness, make certain investments or loans, pay cash dividends, acquire
certain shares of its own stock and enter into transactions outside the ordinary
course of business. The
Company obtained a wavier from its lender for its failure to comply with its
Free Cash Flow covenant for the three months ended September 30,
2008
Events
of
default under the Second Loan Agreement include, among other things, non-payment
of the loan or certain other obligations, violation of certain covenants,
failure to perform certain obligations, bankruptcy and insolvency events,
material adverse change, cross default to certain other indebtedness, and
inaccuracy of representations and warranties. The occurrence of an event of
default could result, among other things, in the acceleration of obligations
under the Second Loan Agreement.
In
connection with the Second Term Loan, Global agreed to issue to the Lender
a
warrant to purchase 105 thousand shares of the common stock of Global at a
price
of $1.25 per share. The warrant expires on July 17, 2013.
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
6.
STOCK-BASED COMPENSATION
The
following summarizes the Company’s stock options activity for the nine months
ended September 30, 2008:
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Number
of shares under option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
10,823,602
|
|
$
|
0.82
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,150,651
|
)
|
|
0.85
|
|
|
|
|
|
|
|
Canceled
or expired
|
|
|
(1,023,915
|
)
|
|
0.78
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
8,649,036
|
|
$
|
0.83
|
|
|
4.3
|
|
$
|
7,157,104
|
|
Exercisable
at September 30, 2008
|
|
|
7,722,180
|
|
$
|
0.
80
|
|
|
4.0
|
|
$
|
6,163,302
|
|
Options
to purchase 1.151 million shares were exercised during the nine months ended
September 30, 2008. The total intrinsic value of options exercised during the
nine-months ended September 30, 2008 was approximately $1.110 million.
The
following summarizes the activity of the Company’s stock options that have not
vested for the nine months ended September 30, 2008.
|
|
Shares
|
|
Weighted
Average
Fair
Value
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2008
|
|
|
1,117,703
|
|
$
|
0.93
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Canceled
or expired
|
|
|
(5,880
|
)
|
|
1.15
|
|
Vested
|
|
|
(184,967
|
)
|
|
0.74
|
|
Nonvested
at September 30, 2008
|
|
|
926,856
|
|
$
|
0.84
|
|
As
of
September 30, 2008, there was $777 thousand of total unrecognized compensation
cost related to nonvested share-based compensation arrangements granted under
existing stock option plans. This cost is expected to be recognized over a
weighted-average period of 4 years. The total measurement fair value of shares
vested during the nine months ended September 30, 2008 and 2007 was $253
thousand and $142 thousand, respectively.
The
Black-Scholes option pricing model is used by the Company to determine the
weighted average fair value of options. The fair value of options at date of
grant and the assumptions utilized to determine such values are indicated in
the
following table:
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
Weighted
average fair value at date of grant for options granted during
the
period
|
|
$
|
—
|
|
$
|
119,000
|
|
Risk-free
interest rates
|
|
|
—
|
|
|
4.42
|
%
|
Expected
stock price volatility
|
|
|
—
|
|
|
363
|
%
|
Expected
dividend yield
|
|
|
—
|
|
|
0
|
|
No
options were granted during the nine months ended September 30,
2008.
Under
SFAS 123R forfeitures are estimated at the time of valuation and reduce expense
ratably over the vesting period. This estimate is adjusted periodically based
on
the extent to which actual forfeitures differ, or are expected to differ, from
the previous estimate. As of September 30, 2008, the Company anticipates all
outstanding options will vest.
The
following summarizes the Company’s restricted stock activity for the nine months
ended September 30, 2008:
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2008
|
|
|
—
|
|
$
|
—
|
|
Granted
|
|
|
132,667
|
|
|
1.27
|
|
Vested
|
|
|
(15,168
|
)
|
|
1.27
|
|
Nonvested
at September 30, 2008
|
|
|
117,499
|
|
$
|
1.27
|
|
As
of
September 30, 2008, the future pre-tax stock-based compensation expense for
restricted stock is $140 thousand, to be recognized over the remainder of 2008
through 2010. The Company had expensed approximately $28 thousand related to
restricted stock for the nine months ended September 30, 2008.
7.
NET INCOME PER SHARE
Basic
earnings per share is computed by dividing the net income by the weighted
average number of common shares outstanding for the period. Diluted shares
outstanding is calculated factoring in stock options, and warrants outstanding,
and their equivalents are included in diluted computations through the “treasury
stock method” unless they are antidilutive. Convertible securities are included
in diluted computations through the “if converted” method unless they are
antidilutive.
The
following tables set forth the computation of basic and diluted weighted average
number of commons shares outstanding for the nine months ended September 30,
2008 and 2007, respectively, (in thousands):
GLOBAL
MED TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
Weighted
average number of shares used in the basic
|
|
|
|
|
|
|
|
Earnings
per share computation
|
|
|
28,546
|
|
|
24,035
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Common
stock options
|
|
|
3,010
|
|
|
1,744
|
|
Common
stock warrants
|
|
|
4,563
|
|
|
2,235
|
|
Restricted
stock
|
|
|
22
|
|
|
—
|
|
Preferred
stock convertible securities
|
|
|
10,419
|
|
|
13,038
|
|
Contingently
issuable shares associated
|
|
|
|
|
|
|
|
with
Inlog acquisition
|
|
|
338
|
|
|
—
|
|
Dilutive
securities
|
|
|
18,352
|
|
|
17,017
|
|
Adjusted
weighted average number of shares used in diluted earnings per
share
computation
|
|
|
46,898
|
|
|
41,052
|
|
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
Forward
Looking Statements
Certain
statements in this Quarterly Report on Form 10-Q are forward-looking in nature.
These statements can be identified by the use of forward-looking terminology
such as “believes,” “expects,” “may,” “will,” “should,” “anticipates,” or
negative comparable terminology or by discussion of strategy.
The
risks
and uncertainties are discussed in greater detail in the Company’s other filings
with the Securities and Exchange Commission, including, most recently, its
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. There
may be additional risks of which the Company is not presently aware or that
it
currently believes are immaterial which could have an adverse impact on its
business. The Company makes no commitment to revise or update any
forward-looking statement in order to reflect events or circumstances that
may
change.
Overview/Outlook
On
June
26, 2008 (the “Acquisition Date”), Global completed its acquisition (the
“Acquisition”) of 100% of the capital stock of Inlog pursuant to the Stock
Purchase Agreement (“Purchase Agreement”) signed on March 26, 2008. Inlog was
acquired for a maximum purchase price of $11.5 million in a combination of
cash,
stock and earn-out payments. The results of operations for the three and nine
months ended September 30, 2008 discussed below reflect the inclusion of Inlog
results for the entire three months ended September 30, 2008 (the “Three Month
Acquisition Period”) and the period from June 26, 2008 through September 30,
2008 for the nine months ended September 30, 2008 (the “Acquisition Period”).
Effective
August 1, 2008 (the “eDonor Acquisition Date”), Global completed its acquisition
(the “eDonor Acquisition”) of certain assets associated with the eDonor business
pursuant to the Asset Purchase Agreement (“Asset Purchase Agreement”) signed on
July 31, 2008. eDonor was acquired for approximately $5 million in a combination
of cash and stock. The results of operations for the three and nine months
ended
September 30, 2008 discussed below reflect the inclusion of eDonor for the
period from August 1, 2008 through September 30, 2008 (the “eDonor Acquisition
Period”).
The
Company posted record revenues for the nine months ended September 30, 2008
of
$16.4 million including $3.094 million from acquisitions. In addition for the
nine months ended September 30, 2008, the Company posted operating income of
$840 thousand and operating cash flows of $1.114 million.
Global
Med designs, develops, markets and supports information management software
products for blood banks, hospitals, centralized transfusion centers and other
health care related facilities. Revenues are derived from the licensing of
software, maintenance, the provision of consulting and other value added support
services, and the resale of software obtained from vendors.
Global
Med sells various core products and their related components through its
Wyndgate division: SafeTrace®, SafeTrace Tx®, and its ElDorado™ product suite.
SafeTrace is used to assist community blood centers, hospitals, plasma centers
and outpatient clinics in the U.S. in complying with the quality and safety
standards of the U.S. Food and Drug Administration (the “FDA”) for the
collection and management of blood and blood products. SafeTrace Tx is a
transfusion management information system that is designed to be used by
hospitals and centralized transfusion centers to help insure the quality of
blood transfused into patient-recipients. SafeTrace Tx provides electronic
cross-matching capabilities to help insure blood compatibility with
patient-recipients and tracks, inventories, bills and documents all activities
with blood products from the time blood products are received in inventory
to
the time the blood products are used or returned to blood centers. SafeTrace
Tx
complements SafeTrace, because the combined SafeTrace Tx and SafeTrace software
system is now able to integrate hospitals with blood centers and provide a
“vein-to-vein”Ò
tracking
of the blood supply.
SafeTrace,
SafeTrace Tx, and ElDorado Donor and Donor Doc have been cleared by the FDA
for
sale in the United States. The Company’s development efforts are focused on
developing new software products as well as continuously improving its existing
products. The Company plans to continue to commit significant development
resources to the development of its ElDorado product suite. Some of these
additional products are considered medical devices by the FDA. The Company
will
be required to obtain FDA 510(k) clearance for these medical devices prior
to
their sale or introduction into the U.S. market.
Inlog’s
product line consists of five (5) primary products: EdgeBlood (for the donor
center marketplace), EdgeTrace (for the hospital transfusion marketplace),
EdgeLab (an LIS), EdgeCell (cellular therapy for tissue banks, stem cell centers
and cord blood centers) and SAPA (supports regulatory compliance and document
management). Inlog is ISO 9001:2000 certified and its products have received
the
NF/ISO 25051/12119 certification indicating the highest level of quality
regarding the design, testing and validation of its software, its documentation
quality and the quality of its product support and maintenance.
Inlog
has
been developing, implementing, and supporting its blood bank information
management solutions since 1992 and supplies over 800 sites in 15 countries
with
its products. Inlog recently completed the national installation of its
EdgeBlood product in France. All 2.5 million French blood donations flow through
Inlog’s products in France including blood collections, infectious disease
testing, component manufacturing and distribution. In addition to France, Inlog
provides its software applications in Germany, Austria, Belgium and Switzerland,
as well as installations in Greece and Monaco.
eDonor
is
a web-based donor relationship management system that integrates recruitment,
scheduling, retention and fulfillment for national as well as local community
blood centers. The
eDonor acquisition is designed to complement Global Med’s strong line of
international blood management and laboratory information software and service
solutions with customers located in the United States.
With
the
Company’s acquisitions of Inlog and eDonor, the Company’s software applications
will have a presence in 20 countries (including the United States, Canada,
Caribbean, European Union, Africa, French Polynesia, and New Caledonia). The
Company believes that the acquisition of Inlog and eDonor are strategically
important as Inlog’s existing international marketplace and eDonor’s existing
market place in the United States may provide a platform for the Company’s
continued growth.
The
Company plans to continue to commit significant research and development
(“R&D”) resources to the development of its ElDorado suite of products. In
May of 2007, the Company’s first module of ElDorado, Donor Doc™, received 510(k)
clearance from the FDA. Donor Doc is an electronic history questionnaire that
assists in the blood donor screening process. On February14, 2008, the Company
received 510(k) clearance from the FDA for ElDorado Donor. ElDorado Donor is
intended as a comprehensive blood management software application designed
to
provide for the information system needs of blood banks and donor centers.
The
software is designed to manage, automate, and control activities associated
with
donors, donor collections, testing, manufacturing, inventory, and distribution.
ElDorado Donor was developed with scalability in mind and is designed to manage
the system needs of diverse facilities, from small hospital blood banks to
community blood centers, to regional and national centers, both domestically
and
internationally. The blood management software has been designed with guidance
from the Company's technology workgroup, comprised of leading industry
representatives from around the world. Throughout the ElDorado Donor development
process, the work group's contributions assisted the Company in delivering
a
feature-rich and user-friendly solution.
In
1999,
Global Med introduced PeopleMed. PeopleMed supports chronic disease management
as an ASP. PeopleMed’s system uses the Internet to coordinate sources of
information and users of a patient’s clinical information, including laboratory,
pharmacy, primary and specialty care providers, claims, and medical records.
PeopleMed began offering validation services to the blood bank industry late
in
2007. Validation services include documenting and testing systems to enable
the
user of these systems to conform to specific requirements and regulations.
In
fall of 2007, PeopleMed’s services were expanded to include validation
activities and offering of quality-certified resources to help clients and
non-clients perform FDA-required user validation testing on blood bank software
systems prior to Go-Live. In addition to Go-Live activities, PeopleMed
also offers independent services for system revalidation for clients who are
upgrading to newer versions.
The
decision to purchase a new blood bank system is driven in large part by one
or
all of the following: replacing antiquated technology, upgrading the laboratory
information system (“LIS”) of the hospital, which typically includes the
purchase of a blood bank system, and replacing existing products that have
been
sunsetted. The Company believes that because the purchase of an LIS by a
hospital is a significant driver in the decision to purchase a blood bank
system, the Company is heavily reliant on its relationships with its channel
partners that sell their LIS systems in combination with the Company’s blood
bank products.
Entities
that plan to purchase blood bank products primarily have two choices:
•
|
|
Upgrade
their current system with their existing vendor,
or
|
•
|
|
Select
a replacement system from an alternative
vendor.
|
Overall,
Global Med’s revenues for the nine months ended September 30, 2008 increased
$4.596 million or 39.0% to $16.378 million from $11.782 million from the prior
comparable period in 2007. Cost of revenues increased $2.611 million or 73.2%
for the nine months ended September 30, 2008 to $6.177 million from $3.566
million for the prior comparable period in 2007. For the nine months ended
September 30, 2008 and 2007, operating expenses were $9.361 million and $7.027
million, and net income was $230 thousand and $1.298 million, respectively.
For
the
nine months ended September 30, 2008 operations provided $1.114 million in
cash.
For the comparable period in 2007, Global Med’s operations provided $3.371
million in cash. The decrease in cash flow from operations is primarily due
to
the fact that the Company received $1.004 million related to the deposit in
escrow during the nine months ended September 30, 2007. In addition, payments
for income taxes increased by $759 thousand for the nine months ended September
30, 2008, when compared with the comparable period during 2007.
The
Company believes that its current customer base and projected backlog of
business, as well as sales to new customers, will be sufficient to fund
operations which include its planned software development activities, and likely
will generate positive cash flows from operations and negative cash flows from
investing activities through 2008, and possibly thereafter.
Management
of the Company is focused on increasing its revenues and cash flows through
direct sales efforts, increasing its marketing footprint through adding
additional channel partners and strategic alliances, and developing new products
and enhanced functionality to its existing product mix to attract potential
customers. The Company continues to review opportunistic business acquisitions.
The
Company has been engaged in a legal action involving a former officer and
employee. Refer to the Legal Proceedings section for further
discussion.
As
of
September 30, 2008, the annual recurring maintenance revenues that will be
generated once all of the Company’s current customers have implemented the
software will be approximately $16.1 million, exclusive of Inlog and eDonor.
Significant future revenue growth for the Company is contingent upon continued
new system sales and successful implementation of the Company’s software at
existing and future sites.
The
Company plans to continue to develop and submit additional ElDorado modules
to
the FDA.
Revenue
by Geographic Regions: We sell the majority of our software and services in
the
United States and European countries. The break-down of revenue for the three
and nine months ended September 30 was as follows:
|
|
Europe, Middle East
& Africa
|
|
United States
|
|
Total
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
2008*
|
|
$
|
2,568
|
|
$
|
4,372
|
|
$
|
6,940
|
|
2007
|
|
|
-
|
|
|
4,094
|
|
|
4,094
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
|
2008*
|
|
$
|
2,742
|
|
$
|
13,636
|
|
$
|
16,378
|
|
2007
|
|
|
-
|
|
|
11,782
|
|
|
11,782
|
|
*Substantially
all of the Company’s revenues outside of the United States come from Inlog.
Balance
Sheet Changes
As
of
September 30, 2008 compared with December 31, 2007, there were significant
changes in the Company’s balance sheet primarily as a result of the acquisitions
of Inlog and eDonor. Exclusive of the debt assumed in the acquisitions of Inlog,
the Company’s debt and obligations to the former shareholders of Inlog (the
“Sellers”) increased by approximately $7.4 million and $2.248 million,
respectively. The $2.2 million obligation to Sellers includes the future payment
of cash and issuance of stock to the Sellers as outlined in notes 2 and of
the
accompanying financial statements. Additional paid-in capital increased by
approximately $4.4 million primarily as a result of the issuance of stock valued
at approximately $2.1 million to the Sellers and the former owners of eDonor,
and the exercise of warrants and options and conversion of preferred stock
to
common stock during the period.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
2007
Revenues.
Revenues are comprised primarily of license fees, maintenance and usage fees,
and implementation and consulting services revenues.
Revenues
for the three months ended September 30, 2008 increased by $2.846 million or
69.5% to $6.940 million from $4.094 million for the comparable period in 2007.
For the three months ended September 30, 2008, revenues from acquisitions
accounted for $2.962 million of the increase over the prior year’s period. The
Company’s Wyndgate and PeopleMed revenues were $117 thousand lower in the three
months ended September 30, 2008 than in the comparable period in 2007. This
decrease was primarily the result of a decrease in software license fees of
$492
thousand.
The
table
below shows the percentage of our total reported revenues for the period.
|
|
2008
|
|
2007
|
|
Maintenance*
|
|
|
53.2
|
%
|
|
42.1
|
%
|
Consulting
services*
|
|
|
23.0
|
%
|
|
24.4
|
%
|
Software
license fees*
|
|
|
21.1
|
%
|
|
31.4
|
%
|
PeopleMed*
|
|
|
2.7
|
%
|
|
2.1
|
%
|
Total
Revenue
|
|
|
100
|
%
|
|
100
|
%
|
Cost
of revenue.
Cost of
revenue as a percentage of total revenues was 39.8% and 28.6% for the three
months ended September 30, 2008 and 2007, respectively. Cost of revenues
increased $1.587 million or 135.0% to $2.759 million for the three months ended
September 30, 2008 from $1.172 million for the comparable period in 2007. The
primary reason for the increase was the acquisition of Inlog and eDonor which
accounted for $1.266 million for the period.
Gross
profit.
Gross
profit as a percentage of total revenue was 60.2% and 71.4% for the three months
ended September 30, 2008 and 2007, respectively. Gross profit increased $1.259
million or 43.1% to $4.181 million for the three months ended September 30,
2008
from $2.922 million for the comparable period in 2007. As a result of the Inlog
and eDonor acquisitions, the Company expects its gross margins to decrease.
This
is due in part to the revenue mix at those entities and lower software license
fees from the Company’s Wyndgate division and PeopleMed in the amount of $492
thousand for the three months ended September 30, 2008 when compared with the
similar period in 2007.
General
and administrative.
General
and administrative expenses increased $807 thousand or 92.2% to $1.682 million
for the three months ended September 30, 2008 compared to $875 thousand for
the
comparable period in 2007. The acquisitions of Inlog and eDonor accounted for
$529 thousand of the increase. In addition, the Company’s legal and accounting
costs for the quarter increased by approximately $245 thousand, primarily
related in part to start-up activities associated with the acquired entities
that could not be capitalized.
Sales
and marketing.
For the
three months ended September 30, 2008, sales and marketing expenses increased
$385 thousand or 57.5% to $1.055 million for the three months ended September
30, 2008 compared to $670 thousand for the comparable period in 2007. The
increase in sales and marketing expenses was primarily associated with the
acquisitions of Inlog and eDonor.
Research
and development.
Research
and development expenses increased $431 thousand or 55.0% to $1.214 million
for
the three months ended September 30, 2008 compared to $783 thousand for the
comparable period in 2007. The acquisitions of Inlog and eDonor accounted for
$545 thousand of the increase. The Company capitalized $88 thousand in software
development costs during the quarter.
Depreciation
and Software Amortization.
Depreciation and software amortization costs for the three months ended
September 30, 2008 and 2007
were
$348 thousand and $47 thousand, respectively. Combined, Inlog’s and eDonor’s
combined depreciation and amortization expense was $285 thousand.
Income
(loss) from operations.
The
Company's loss from operations during the three months ended September 30,
2008
was $(118) thousand and the Company had income from operations of $547 during
the comparable period during 2007. The Company’s loss from operations for the
three months ended September 30, 2008 is due in part to reduced gross profit
margins and the increased amortization expense associated with the acquisitions’
purchase accounting.
Interest
income.
Interest income for the three months ended September 30, 2008 and 2007 was
$27
thousand and $42 thousand, respectively.
Interest
expense.
Interest expense was $191 thousand and $3 thousand for the three months ended
September 30, 2008 and 2007 respectively. Interest expense increased primarily
as a result of the additional debt associated with financing the Inlog
acquisition.
Income
tax expense (benefit).
For the
three months ended September 30, 2008, the Company’s income tax benefit was $54
thousand and the expense for the comparable period in 2007 was $34 thousand.
Net
(loss) income.
The
Company’s net loss for the three months ended September 30, 2008 was $(228)
thousand compared to net income of $552 thousand for the three months ended
September 30, 2007. The additional amortization expense and certain costs
associated with the acquisitions were the primary reasons for the change.
RESULTS
OF OPERATIONS
NINE
MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2007
Revenues.
Revenues are comprised primarily of license fees, maintenance and usage fees,
and implementation and consulting services revenues.
Revenues
for the nine months ended September 30, 2008 increased by $4.596 million or
39%
to $16.378 million from $11.782 million for the comparable period in 2007.
Inlog’s and eDonor’s revenues for nine months ended September 30, 2008 were
$3.136 million. For the nine months ended September 30, 2008, the Company’s
Wyndgate division and its PeopleMed’s subsidiary’s revenue increased $1.460
million.
The
table
below shows the percentage of our total reported revenues for the period.
|
|
2008
|
|
2007
|
|
Maintenance
|
|
|
47.3
|
%
|
|
42.3
|
%
|
Consulting
services
|
|
|
27.1
|
%
|
|
25.5
|
%
|
Software
license fees
|
|
|
22.0
|
%
|
|
29.6
|
%
|
PeopleMed
|
|
|
3.6
|
%
|
|
2.6
|
%
|
Total
Revenue
|
|
|
100
|
%
|
|
100
|
%
|
Cost
of revenue.
Cost of
revenue as a percentage of total revenues was 37.7% and 30.3% for the nine
months ended September 30, 2008 and 2007, respectively. Cost of revenues
increased $2.611 million or 73.2% to $6.177 million for the nine months ended
September 30, 2008 from $3.566 million for the comparable period in 2007. From
the Acquisition Period to September 30, 2008, Inlog added $1.235 million in
costs and for the eDonor Acquisition Period eDonor added $123 thousand in
costs.
Gross
profit.
Gross
profit as a percentage of total revenue was 62.3% and 69.7% for the nine months
ended September 30, 2008 and 2007, respectively. Gross profit increased $1.985
million or 24.2% to $10.201 million for the nine months ended September 30,
2008
from $8.216 million for the comparable period in 2007. The increase in gross
profit was primarily associated with the $1.425 million contribution from Inlog.
As a result of the Inlog and eDonor acquisitions, the Company expects its gross
margins to decrease. This is in part due to the revenue mix at those entities.
General
and administrative.
General
and administrative expenses increased $1.332 million or 55.2% to $3.747 million
for the nine months ended September 30, 2008 compared to $2.415 million for
the
comparable period in 2007. Exclusive of Inlog and eDonor, the primary reasons
for the increase in expenses was an increase of $252 thousand in
employee-related labor items, $73 thousand associated with hiring, $245 thousand
in legal and accounting, $55 thousand in travel, $51 thousand in directors’
compensation, and $40 thousand in education, which is exclusive of increases
that resulted from the acquisition of Inlog. Inlog’s General and administrative
costs were $428 thousand during the Acquisition Period and eDonor general and
administrative costs were $132 thousand during the eDonor Acquisition Period.
Sales
and marketing.
For the
nine months ended September 30, 2008, sales and marketing expenses increased
$487 thousand or 25.1% to $2.430 million for the nine months ended September
30,
2008 compared to $1.943 million for the comparable period in 2007. The increase
in sales and marketing expenses during the nine months ended September 30,
2008
compared to the nine months ended September 30, 2007 partially reflects
increased costs following the additions of Inlog and eDonor, which accounted
for
$380 thousand and $13 thousand of the increase, respectively.
Research
and development.
Research
and development expenses increased $181 thousand or 7.1% to $2.722 million
for
the nine months ended September 30, 2008 compared to $2.541 million for the
comparable period in 2007. This increase was primarily related to the inclusion
of Inlog’s research and development costs which were $495 thousand and $79
thousand related to eDonor. The Company capitalized $148 thousand in costs
during the nine months ended September 30, 2008 and none in the comparable
prior
period.
Depreciation
and Software Amortization.
Depreciation and software amortization costs for the nine months ended September
30, 2008 and 2007
were
$462 thousand and $128 thousand, respectively. The amortization expense related
to the acquired entities produced substantially all of the increase.
Income
from operations.
The
Company's income from operations during the nine months ended September 30,
2008
and 2007 was $840 thousand and $1.189 million, respectively. The Company’s loss
from operations for the nine months ended September 30, 2008 is due in part
to reduced gross profit margins and the increased amortization expense
associated with the acquisitions’ purchase accounting.
Interest
income.
Interest income for the nine months ended September 30, 2008 and 2007 was $86
thousand and $167 thousand, respectively. The decrease in interest income was
primarily associated with the receipt of $80 thousand in interest income during
the nine months ended September 30, 2007 in connection with the return of the
$1.004 million escrow deposit.
Interest
expense.
Interest expense was $212 thousand and $9 thousand for the nine months ended
September 30, 2008 and 2007, respectively. The increase in interest expense
is
primarily associated with the additional debt used to finance the acquisitions
of Inlog and eDonor.
Income
taxes.
For the
nine months ended September 30, 2008 and 2007, the Company’s income tax expense
was $430 thousand and $49 thousand.
Net
income.
The
Company’s net income for the nine months ended September 30, 2008 was $284
thousand and $1.298 million for the same period in 2007.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company had cash and cash equivalents of $6.519 million as of September 30,
2008
compared to $6.748 million at December 31, 2007, none of which was restricted.
The
Company had net working capital of $2.088 million as of September 30, 2008
and
$3.445 million at December 31, 2007.
The
Company had shareholders’ equity of approximately $5.8 million and approximately
$10.191 million in debt and capital lease obligations, or obligations to the
Sellers in the Inlog Acquisition as of September 30, 2008. Of this amount,
$2.248 million represents obligations to the Sellers in the Inlog Acquisition
to
provide either cash or common stock in the future. The Company believes that
it
will generate positive cash flows from operations through 2008, and possibly
thereafter.
While
the
Company’s plans may change, the Company currently intends to spend between $450
thousand to $550 thousand during 2008 on capital equipment which may result
in
negative cash flows for investing activities. The Company’s cash flows from
operations should be sufficient to meet its current cash requirements exclusive
of acquisitions.
The
Company has never paid and has no intention of paying dividends to the common
shareholders in the foreseeable future.
Cash
flows from operations provided $1.114 million in cash for the nine months ended
September 30, 2008. The cash provided during the nine months ended September
30,
2008 consisted primarily of the net income of $230 thousand net of non-cash
changes which provided $829 thousand, and changes in operating assets and
liabilities which used $55 thousand. The primary source of the Company’s
operating cash inflows is its billings to customers for the sale of software,
services, and maintenance and support. The Company’s cash outflows from
operations consist primarily of three components, payroll, vendor-related
expenses. Payroll related expenses typically range from 50%-60% of the Company’s
cash outflows from operations with vendor payments typically making up the
majority of the remaining amount. The Company believes that the cash flows
from
its recurring customer base, accounts receivable, backlog, and new system sales
will provide for positive cash flows from operations on an annual basis in
2008
and possibly thereafter. As a result of the debt and capital lease obligations
acquired as part of the Inlog Acquisition and to finance the Inlog Acquisition,
the Company’s annual debt expense and interest payments, exclusive of any debt
added after September 30, 2008, are estimated to be approximately $600 thousand.
The Company obtained a waiver from its lenders for its failure to comply with
its Free Cash Flow covenant for the three months ended September 30,
2008.
While
we
believe that our current cash and cash equivalents, marketable securities and
cash generated from operations will be sufficient to meet our working capital,
capital expenditures, contractual obligations and investment needs, we are
currently assessing the impact of the, if any, of current global economic and
financial and credit market events.
Recent
Financing Activities
On
June
17, 2008, Global and its subsidiary, PeopleMed, entered into a Loan and Security
Agreement (the “Loan Agreement”) with Silicon Valley Bank. The purpose of
entering into the Loan Agreement was to finance the acquisition of Inlog. The
Loan Agreement provides for (i) a revolving line of credit (“LOC”) in an amount
of up to $1 million, and (ii) a term loan (“Term Loan”) in an amount of up to $5
million. Global and PeopleMed together are referred to as the “Borrower.” As of
September 30, 2008, the entire $6 million amount under the Loan Agreement had
been borrowed.
The
LOC,
subject to certain limitations, can be used (i) to borrow revolving loans,
(ii)
to obtain letters of credit, (iii) to enter into certain foreign exchange
contracts and (iv) for certain cash management services. Borrowings under the
LOC may be repaid and re-borrowed until September 17, 2011, at which time all
amounts borrowed must be repaid. Interest under the revolving line of credit
accrues at a floating per annum rate equal to the greater of 0.50% above the
prime rate, or 5.50%, which interest is payable on a monthly basis.
Interest
under the Term Loan accrues at a per annum rate equal to the greater of 2.00%
above the prime rate fixed at the time of funding, or 7.00% . The Term Loan
is
payable in 60 consecutive equal monthly installments of principal plus monthly
payments of accrued interest beginning on January 1, 2009. Prior to January
1,
2009, only accrued interest is payable on the Term Loan. The Term Loan may
be
prepaid, except that prepayment of the entire amount of the outstanding Term
Loan will be subject to, among other things, a make-whole premium. The Loan
Agreement also provides for the payment of an annual amount equal to 25% of
the
Borrower’s excess cash flow for the immediately preceding fiscal year until the
earlier of December 1, 2013 or all amounts owed under the Term Loan have been
paid in full; provided, that for the first excess cash flow payment only, such
amount will be based on excess cash flow for the semi-annual period beginning
on
July 1, 2008 through December 31, 2008.
The
LOC
and Term Loan under the Loan Agreement are secured by a first priority security
interest in certain assets of the Borrower. In addition, on September 17, 2008,
the Borrower entered into an Intellectual Property Security Agreement (the
“IP
Security Agreement”) with Silicon Valley Bank. Pursuant to the IP Security
Agreement, the Borrower granted Silicon Valley Bank a security interest in
certain intellectual property of Borrower.
The
Loan
Agreement contains affirmative and negative covenants, including covenants
that
limit or restrict the Company’s ability to, among other things, dispose of
certain assets, undergo a change of control, incur certain indebtedness, make
certain investments or acquisitions, pay cash dividends and enter into certain
transactions with affiliates. The Company obtained a waiver from its lenders
for
its failure to comply with its Free Cash Flow covenant for the three months
ended September 30, 2008.
Events
of
default under the Loan Agreement include, among other things, non-payment,
violation of covenants, bankruptcy and insolvency events, material adverse
change, cross default to certain other indebtedness, certain judgments rendered
against Borrower and inaccuracy of representations and warranties. The
occurrence of an event of default could result, among other things, in the
acceleration of obligations under the Loan Agreement.
On
July
18, 2008, the Borrower entered into a Loan and Security Agreement (the “Second
Loan Agreement”) with Partners for Growth II, L.P. (the “Lender”). The Second
Loan Agreement provides for a term loan (“Second Term Loan”) in an amount of
$1.5 million.
The
loan
bears interest at a rate equal to the prime rate from time to time (floating)
plus 3% per annum, 8% as of July 18, 2008. So long as the Borrower maintains
a
minimum specified monthly liquidity ratio, the Borrower is only required to
pay
interest on the outstanding principal amount of the loan until July 18, 2011,
on
which date any unpaid principal plus any accrued and unpaid interest shall
be
due and payable. In the event that the Borrower does not maintain the monthly
liquidity ratio, the Lender may require Borrower to amortize the loan over
36
months. The Second Term Loan may be prepaid without penalty or
fees.
A
default
interest rate applies to the loan during an event of default under the Second
Loan Agreement at a rate equal to the lesser of 18% per annum and the maximum
rate of interest that may lawfully be charged to a commercial borrower. The
Borrower is also obligated to pay certain commitment fees and bank
expenses.
The
Second Term Loan is subordinate to the Term Loan and it is secured by certain
assets of the Borrower, including all of the Borrower’s intellectual property,
all of Borrower’s equity interests in its domestic subsidiaries and up to 65% of
Borrower’s equity interests in any foreign subsidiary.
The
Second Loan Agreement contains affirmative and negative covenants, including
covenants that limit or restrict the Company’s ability to, among other things,
acquire or dispose of certain assets, undergo a change of control, incur certain
indebtedness, make certain investments or loans, pay cash dividends, acquire
certain shares of its own stock and enter into transactions outside the ordinary
course of business.
Events
of
default under the Second Loan Agreement include, among other things, non-payment
of the loan or certain other obligations, violation of certain covenants,
failure to perform certain obligations, bankruptcy and insolvency events,
material adverse change, cross default to certain other indebtedness, and
inaccuracy of representations and warranties. The occurrence of an event of
default could result, among other things, in the acceleration of obligations
under the Second Loan Agreement.
In
connection with the Second Term Loan, Global Med issued to the Lender a warrant
to purchase 105 thousand shares of the common stock of Global Med at a price
of
$1.25 per share. The warrant expires on July 17, 2013.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We
are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide information under this
item.
ITEM
4. CONTROLS AND PROCEDURES.
Evaluation
Of Disclosure Controls And Procedures
The
Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Acting Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating
the
cost-benefit relationship of possible controls and procedures.
As
of the
end of the period covered by this report, the Company’s management carried out
an evaluation, under the supervision and with the participation of the Company’s
Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness
of the design and operation of the Company’s disclosure controls and procedures.
The Company’s Chief Executive Officer and Acting Chief Financial Officer have
concluded that the Company’s disclosure controls and procedures were effective
at the reasonable assurance level as of the end of the period covered by this
report.
Changes
In Internal Controls Over Financial Reporting
During
the fiscal quarter ended September 30, 2008, there were no changes in the
Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting. The Company acquired Inlog on June 26, 2008
and eDonor on August 1, 2008. The Company has not yet performed the procedures
necessary to evaluate if Inlog’s or eDonor’s internal controls over financial
reporting are effective. The Company plans on reviewing Inlog’s and eDonor’s
controls over financial reporting within one year from the acquisition dates.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In
September 2002, Global Med filed a lawsuit against Donnie L. Jackson, Jr.,
Global Med’s former Vice President of Sales and Marketing. Global Med alleges,
among other things, that prior to his resignation in July 2002 Mr. Jackson
misappropriated certain trade secrets of Global Med. After leaving Global Med,
Mr. Jackson became a management employee of one of Global Med’s competitors. On
March 30, 2005, the Superior Court of the State of California in and for
the County of El Dorado granted the motion for summary judgment for Donnie
L.
Jackson, Jr. On September 1, 2005, the Company deposited $1.004 million
with the Superior Court in the State of California in the County of El Dorado.
This deposit represents potential fees and attorneys’ costs the Company could be
required to pay in the event the Company did not prevail on appeal. The $1.004
million is classified as a “Deposit in escrow” on the Company’s balance sheets
as of December 31, 2007 and September 30, 2008. Based on external evidence
and
the advice of legal counsel, the Company determined that it was more likely
than
not that the Company would be required to pay the $1.004 million. As a result,
the Company expensed the amount of the “Deposit in escrow” and set up a
liability for $1.004 million. On December 2006, the summary judgment was
reversed by the California Court of Appeals and the matter was remanded to
the
trial court. In May 2007, the $1.004 million Deposit in escrow was returned
to
the Company along with $80 thousand in accrued interest.
ITEM
1A. RISK
FACTORS
We
are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide information under this
item.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEEDS
On
July
31, 2008, the Company issued 1,180,173 shares of Common Stock to BlueRidge
Solutions, L.C., a Virginia limited liability company d/b/a/ eDonor, in partial
consideration for the Company’s acquisition of certain assets from eDonor.
Exemption from registration under the Securities Act of 1933 was based on the
grounds that the issuance of such securities did not involve a public offering
within the meaning of Section 4(2) of the Securities Act.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
Not
applicable.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable
ITEM
5. OTHER
INFORMATION
Appointment
of Chief Financial Officer
Effective
as of November 17, 2008, the Board of Directors of the Company has appointed
Karen Davis to the position of Chief Financial Officer. Ms. Davis
will be the principal financial officer and principal accounting officer of
Global Med. Prior to joining the Company, from October 2007 to May 2008.
Ms. Davis, age 52, was the Chief Financial Officer of Visionary Integration
Professionals LLC (“VIP”), a privately-held global management consulting,
technology services and outsourcing company. Prior to VIP, Ms. Davis served
as
the Chief Financial Officer and Corporate Secretary of Digital Music Group,
Inc.
(NASDAQ:DMGI), a digital media company, from March 2006 until July 2007 and
Interim Chief Executive Officer, Chief Financial Officer and Corporate Secretary
from July 2007 to October 2007. DMGI merged with The Orchard, a privately-held
digital media company in November 2007. She served as Chief Financial Officer
of
TASQ Technology, Inc., an outsource provider of point of sale equipment and
services, and a wholly-owned subsidiary of First Data Corporation (NYSE: FDC)
from September 2004 to March 2006. From April 2001 to June 2004, Ms. Davis
was the Director of Financial Reporting and Investor Relations of Premcor Inc.
(NYSE: PCO), an independent oil refiner acquired by Valero Energy Corporation
(NYSE: VLO) in September 2005. At Premcor, Ms. Davis assisted with the
company’s initial public offering, secondary offering and multiple debt
offerings. Prior to Premcor, Ms. Davis was a self-employed management
consultant and served in Chief Financial Officer capacities at two public
companies, following ten years in accounting and auditing at Price Waterhouse
LLP (now PricewaterhouseCoopers LLP). Ms. Davis has a BS degree in Business
Administration from California State University at Chico and became a licensed
CPA in California in 1983.
On
November 3, 2008, Global Med entered into a one-year employment agreement (the
“Employment Agreement”) with Ms. Davis. The employment agreement has an
initial term from November 3, 2008 through November 3, 2009, which initial
term
automatically renews for additional one year periods Ms. Davis will receive
(i) an initial annual base salary of $210,000; (ii) an annual incentive
compensation opportunity of 30% of her annual base salary if the Company
achieves its 2009 plan and 50% of her annual base salary of the Company exceeds
its 2009 plan; (iii) a restricted stock grant of 5,000 shares of Global
Med’s common stock that vests ratably over three years; and (iv) an option
to purchase 200,000 shares of Global Med’s common stock at $0.99 per share, the
fair market value of Global Med’s common stock on the date of grant, vesting
over five years with 20% of such option shares vesting at the end of each
calendar year beginning on December 31, 2009 as long as Ms. Davis remains
employed by the Company. All unvested restricted shares and stock options would
immediately vest upon a Change of Control, as defined in the Employment
Agreement.
In
the
event that Ms. Davis’ employment is terminated by the Company for cause or if
Ms. Davis resigns without good reason then Ms. Davis would be entitled to her
base salary through the date of termination, including any accrued but unused
vacation time. In the event that Ms. Davis’ employment is terminated without
cause or Ms. Davis terminates her employment for good reason after the
employment agreement’s first renewal term, then
she will
be entitled to (i) continued payment of her base salary for a period of six
months, increasing to twelve months after the first renewal of the agreement;
(ii) continuation of benefits through the remainder of the term of the
agreement; (iii) a pro rata share of any annual incentive bonus that she
would have otherwise been eligible to receive; and (iv) immediate vesting
of any unvested restricted shares. The Employment Agreement includes provisions
that prohibit Ms. Davis from disclosing Global Med’s confidential
information and trade secrets, assigns all intellectual property developed
by
her in the course of employment to the Company and prohibits her from soliciting
the Company’s employees during the term of the agreement and for a period of one
year following termination of employment. The Employment Agreement also requires
the Company to indemnify Ms. Davis in her capacity as an officer of Global
Med
to the maximum extent permitted by applicable law.
Earnings
Release
On
November 13, 2008, Global Med Technologies, Inc. issued a press release
announcing its earnings for the quarter ended September 30, 2008.
ITEM 6. EXHIBITS
Exhibit
No.
|
|
Description
|
3.1
|
|
Bylaws,
as amended |
10.97
|
|
Executive
Employment Agreement dated November 3, 2008 between the Company and
Karen
Davis
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
|
Certification
of the Acting Chief Financial Officer pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
|
Certification
of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
99.1
|
|
Press
release issued by Global Med Technologies, Inc. on November 13, 2008
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
November 13, 2008
|
GLOBAL
MED TECHNOLOGIES, INC.
|
|
A
Colorado Corporation
|
|
|
|
/s/
Michael I. Ruxin, M.D.
|
|
Michael
I. Ruxin, M.D. Chairman of the Board
|
|
and
Chief Executive Officer
|
|
|
Date:
November 13, 2008
|
/s/
Darren P. Craig
|
|
Darren
P. Craig, Acting Chief Financial
Officer
|