<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 0-12471
COLORADO MEDTECH, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0731006
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6175 LONGBOW DRIVE, BOULDER, COLORADO 80301
(Address of principal executive offices)
(303) 530-2660
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 1996, the Company had 6,901,762 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
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COLORADO MEDTECH, INC.
FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheet -
September 30, 1996 3
Consolidated Statements of Operations -
Three-months ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Three-months ended
September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 9
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 587,230
Short-term investments 4,466,078
Accounts receivable, net 3,989,814
Inventories, net 2,245,486
Deferred income taxes and other
current assets 908,072
-------------
Total current assets 12,196,680
-------------
EQUIPMENT AND FURNITURE, net 452,672
-------------
LAND, DEFERRED INCOME TAXES
AND OTHER ASSETS 776,327
-------------
TOTAL ASSETS $ 13,425,679
-------------
-------------
The accompanying notes are an integral part of this balance sheet.
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<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES:
Accounts payable $ 1,893,605
Accrued salaries and wages 768,262
Accrued product service costs 460,113
Customer deposits 1,921,940
Other accrued expenses 1,378,363
-------------
Total current liabilities 6,422,283
-------------
SHAREHOLDERS' EQUITY:
Common stock 3,713,652
Retained earnings 3,289,744
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Total shareholders' equity 7,003,396
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,425,679
-------------
-------------
The accompanying notes are an integral part of this balance sheet.
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COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
------------ ------------
SALES AND SERVICE $ 5,288,302 $ 4,219,235
COST OF SALES AND SERVICE 3,533,717 2,735,683
------------ ------------
GROSS PROFIT 1,754,585 1,483,552
------------ ------------
COSTS AND EXPENSES:
Marketing and selling 246,834 262,444
Operating, general
and administrative 918,139 979,018
Research and development 63,432 2,291
------------ ------------
Total operating expenses 1,228,405 1,243,753
------------ ------------
EARNINGS FROM OPERATIONS 526,180 239,799
OTHER INCOME, NET 52,153 179,078
------------ ------------
EARNINGS BEFORE INCOME TAXES 578,333 418,877
Provision for income taxes 125,000 110,000
------------ ------------
NET INCOME $ 453,333 $ 308,877
------------ ------------
------------ ------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(Primary and Fully Diluted) $ . 05 $ .04
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING
- Primary 11,011,962 7,100,278
------------ ------------
------------ ------------
- Fully Diluted 11,011,962 7,147,430
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements.
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COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
--------- ----------
OPERATING ACTIVITIES:
Net income $ 453,333 $ 308,877
Adjustment to reconcile net income
to net cash flows from operating activities-
Deferred tax benefit (80,000) --
Depreciation and amortization 93,663 109,177
Gain on sale of product line -- (121,986)
Change in assets and liabilities-
Accounts receivable, net (432,118) 366,227
Inventories, net (542,850) (231,656)
Prepaid and other assets (46,826) (20,626)
Accounts payable and accrued expenses 287,769 (529,969)
Customer deposits (531,944) (62,198)
--------- ----------
Net cash flows from operating activities (798,973) (182,154)
--------- ----------
INVESTING ACTIVITIES:
Decrease (increase) in short-term
investments, net 942,184 (27,321)
Proceeds from sale of product line -- 250,000
Capital expenditures (170,630) (20,789)
--------- ----------
Net cash flows from investing activities 771,554 201,890
--------- ----------
Net change in cash and cash equivalents (27,419) 19,736
Cash and cash equivalents, beginning 614,649 2,144,384
--------- ----------
Cash and cash equivalents, ending $ 587,230 $2,164,120
--------- ----------
--------- ----------
The accompanying notes are an integral part of these statements.
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COLORADO MEDTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The financial information is unaudited and should be read in conjunction with
the consolidated financial statements filed with Form 10-KSB on September 27,
1996. The accounting policies utilized in the preparation of the financial
information herein presented are the same as set forth in the Company's
annual consolidated financial statements filed with the Form 10-KSB, except
as modified for interim accounting policies which are within the guidelines
set forth in Accounting Principles Board Opinion No. 28. Certain amounts
have been reclassified in the prior year financial statements to be
consistent with the current year presentation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
Company's financial position as of September 30, 1996, the results of its
operations and its cash flows for the three-month periods ended September 30,
1996 and 1995. All of the adjustments were of a normal and recurring nature.
The following sets forth the supplemental disclosures of cash flow
information for the three-month periods ended September 30, 1996 and 1995,
respectively:
1996 1995
---- ----
Cash paid for interest $ 9,024 $ 16,891
Cash paid for income taxes $55,000 $200,000
NOTE 2 - DEBT
On October 30, 1996, the Company extended a financing arrangement with a bank
that provides for a $3 million revolving line of credit at prime plus .5%
through November 30, 1996. The Company is currently in the process of renewing
this financing agreement for a one year term. This credit facility is secured
by all accounts, general intangibles, inventory and equipment. The agreement
contains various restrictive covenants which include, among others, maintenance
of certain financial ratios, maintenance of a minimum tangible net worth and
limitations on annual investments, dividends and capital expenditures. No
amounts had been advanced under the credit facility as of October 31, 1996.
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NOTE 3 - EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average shares
outstanding during each period and dilutive common equivalent shares for
stock options and warrants. Primary and fully diluted earnings per share for
the three-month periods ended September 30, 1996 and 1995 are computed under
the treasury stock method. For the three-months ended September 30, 1996, net
income is increased by approximately $54,000 (primary) and $53,000 (fully
diluted) of interest income, net of income taxes, from the investment of
proceeds from assumed exercise of options/warrants in excess of proceeds used
to repurchase outstanding shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As an aid to understanding the Company's operating results, the following
table indicates the percentage relationships of income and expense items to
total revenue for the line items included in the Consolidated Statements of
Operations for the three-month periods ended September 30, 1996 and 1995, and
the percentage changes in those items for the three-month period ended
September 30, 1996, from the comparable period in 1995.
<TABLE>
Percentage Change From
As a Percentage of Total Revenues Prior Year's Comparable Period
--------------------------------- ------------------------------
Three Month Period Three Month Period
Ended September 30, Ended September 30,
------------------------- -------------------
1996 1995 LINE ITEMS 1996
----- ----- ---------- --------
<S> <C> <C> <C>
% % %
100.0 100.0 Sales and Service 25.3
66.8 64.8 Cost of Sales and Service 29.2
----- ----- -------
33.2 35.2 Gross Profit 18.3
----- ----- -------
4.7 6.2 Marketing and Selling (5.9)
17.4 23.2 Operating, General and (6.2)
Administrative
1.2 0.1 Research and Development 2,668.7
----- ----- -------
23.3 29.5 Total Operating Expenses (1.2)
9.9 5.7 Earnings from Operations 119.4
1.0 4.2 Other Income, Net (70.9)
----- ----- -------
10.9 9.9 Earnings Before Income 38.1
Taxes
2.3 2.6 Provision for Income Taxes 13.6
----- ----- -------
8.6 7.3 NET INCOME 46.8
----- ----- -------
----- ----- -------
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS
The Company reported net income of $453,333 for the three-months ended
September 30, 1996, compared to $308,877 for the same period in the prior
year. Earnings per share for the three-months ended September 30, 1996 were
$.05 calculated on 11,011,962 fully diluted weighted average common share
equivalents outstanding compared to $.04 for the same period in the prior
year calculated on 7,147,430 fully diluted weighted average common equivalent
shares.
Revenues for the three-month period ended September 30, 1996 were $5,288,302, up
25% as compared to the same period in the prior year. The increase in sales is
attributable to an increase in backlog of orders for services and shipment of
products at June 30, 1996 compared to June 30, 1995 and an increase in sales of
proprietary products in the three-month period ended September 30, 1996 compared
to the same period in 1995.
Gross margins decreased to 33% from 35% for the three-month period ended
September 30, 1996 compared to the same period in the prior year. The decrease
in the Company's margin is a result of the shifting composition of the Company's
revenues between services and products and increased project expenses associated
with design and development services.
Marketing and selling expenses decreased 6% for the three-month period ended
September 30, 1996, as compared to the same period in the prior year. Marketing
and selling expenses as a percentage of total revenues were approximately 5% for
the three-month period ended September 30, 1996 compared to approximately 6% for
the same period in the prior year. During the quarter ended September 30, 1995,
the Company reduced its direct sales staff as a result of the sale of the
cardiopulmonary product lines in August, 1995.
Operating, general and administrative expenses decreased 6% for the three-month
period ended September 30, 1996, as compared to the same period in the prior
year. As a percentage of revenues, operating, general and administrative
expenses decreased to 17% from 23% compared to the same three-month period in
the prior year. The decrease in the operating, general and administrative
expenses is due to reclassification of certain personnel to research and
development, the reduction of staff and to overall expense management.
Research and development expenses increased by $61,141 for the three-month
period ended September 30, 1996 compared to the same three-month period in 1995.
The increase is a result of the Company's greater emphasis on developing
proprietary products. Research and development expenses are attributable to the
respiratory product lines. Consistent with the Company's operating plans, the
Company continues to pursue the acquisition or development of new or improved
technology or products. Should the Company identify such opportunities, the
amount of future research and development expenditures may increase.
Other income decreased to $52,153 for the three-month period ended September 30,
1996. The decrease is due to the Company having a gain of approximately
$122,000 from the sale of the cardiopulmonary product lines in the three-month
period ended September 30, 1995.
The provision for income taxes decreased to 22% of earnings before income taxes
for the three-month period ended September 30, 1996 compared to 26% for the same
three-months in the prior year. The Company's provision for income taxes as a
percentage of earnings before income taxes is less than the ordinary combined
Federal and state tax rate of approximately 38% due to the fact that the Company
reduced the valuation
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allowance on the deferred tax assets for the utilization of net operating
losses in the three-month periods ended September 30, 1996 and 1995.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have consisted of cash flow from
operations, cash deposits received from customers related to contracts, proceeds
from debt borrowings and the cash proceeds from private placements of stock.
The Company has a bank financing arrangement that provides for a $3 million
revolving line of credit at prime plus .5% which matures November 30, 1996. The
Company is currently in the process of renewing the financing agreement for a
one year term. This credit facility is secured by all accounts, general
intangibles, inventory and equipment of the Company. The agreement contains
various restrictive covenants which include, among others, maintenance of
certain financial ratios, maintenance of a minimum tangible net worth and
limitations on annual investments, dividends and capital expenditures. No
amounts had been advanced under the credit facility as of October 31, 1996.
The ratio of current assets to current liabilities was 1.9 to 1 at September 30,
1996, compared to 1.8 to 1 at June 30, 1996. The Company's working capital
increased approximately $341,000 since June 30, 1996. Working capital increased
primarily as a result of continued profitability of the business. The average
number of days outstanding of the Company's accounts receivable at September 30,
1996 was approximately 66 days, compared to 63 days at June 30, 1996. The
increase in the number of days outstanding is a result of extended payment terms
granted to two customers, which increased the average number of days outstanding
of the Company's accounts receivable by 9 days as of September 30, 1996.
Management believes that these accounts will be brought back into terms during
the next quarter.
The Company used approximately $799,000 of cash for operations during the
three-month period ended September 30, 1996 primarily for the purchase of
inventory to support new orders and the use of customer deposits to fund
certain programs.
During the three-months ended September 30, 1996, the Company made capital
expenditures of approximately $171,000 of property and equipment consisting
principally of computer and manufacturing equipment. The Company has no
present material commitments for capital expenditures.
FORWARD -- LOOKING STATEMENTS
Statements contained herein which are not historical facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in or implied by such forward-
looking statements.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Colorado MEDtech, Inc.
--------------------------------------
(Registrant)
DATE: November 12, 1996
/s/ John V. Atanasoff II
---------------------------------------
John V. Atanasoff II
Chief Executive Officer
DATE: November 12, 1996
/s/ Bruce L. Arfmann
---------------------------------------
Bruce L. Arfmann
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
11.1 Computation of Fully Diluted Earnings Per Share for the Quarter 14
Ended September 30, 1996
27 Financial Data Schedule for the quarter ended September 30, 1996 15
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<PAGE>
Exhibit 11.1
COLORADO MEDTECH, INC.
Statement Re: Computation of Primary and Fully Diluted Earnings Per Share
for the Three Months Ended September 30, 1996
Primary Fully
Diluted Diluted
------- -------
Net income $ 453,333 $ 453,333
Interest income from investment of proceeds from
assumed exercise of options/warrants in excess
of proceeds used to repurchase outstanding
shares (see below), net of income taxes
(investment assumed to be made in U.S.
government securities) 54,368 53,183
----------- -----------
Adjusted net income $ 507,701 $ 506,516
----------- -----------
Weighted average common shares outstanding 6,901,762 6,901,762
Plus - Common stock equivalents 5,490,552 5,490,552
Less - use of proceeds from assumed exercise of
options/warrants to repurchase outstanding
shares at the yearend market price not to exceed
20% of the outstanding shares (1,380,352) (1,380,352)
----------- -----------
Adjusted weighted common shares outstanding 11,011,962 11,011,962
----------- -----------
Fully diluted net income per share $ .05 $ .05
----------- -----------
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB FOR QUARTER ENDED 9/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 587,230
<SECURITIES> 4,466,078
<RECEIVABLES> 3,989,814
<ALLOWANCES> 0
<INVENTORY> 2,245,486
<CURRENT-ASSETS> 12,196,680
<PP&E> 452,672
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,425,679
<CURRENT-LIABILITIES> 6,422,283
<BONDS> 0
0
0
<COMMON> 3,713,652
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,425,679
<SALES> 5,288,302
<TOTAL-REVENUES> 5,288,302
<CGS> 3,533,717
<TOTAL-COSTS> 1,228,405
<OTHER-EXPENSES> (52,153)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 578,333
<INCOME-TAX> 125,000
<INCOME-CONTINUING> 453,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453,333
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
