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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 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.
(Name of small business issuer in its charter)
COLORADO 84-0731006
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6175 LONGBOW DRIVE, BOULDER, COLORADO 80301
(Address of principal executive offices, including zip code)
(303) 530-2660
(Registrant's Telephone Number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $19,130,979
The aggregate market value of the voting stock held by nonaffiliates
computed by reference to the average bid and asked prices of such stock as of
August 31, 1996 was $10,183,055.
The number of shares outstanding of the issuer's Common Stock as of August
31, 1996 was 6,901,762.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's definitive Proxy Statement to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 is incorporated by reference in
Part III of this report.
Transitional Small Business Disclosure Format (Check One):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Colorado MEDtech, Inc. ("CMED") and its wholly-owned subsidiary, RELA,
Inc. ("RELA") (collectively, "the Company") is a leading full-service
provider of advanced medical products, technologies and services which
increase the efficacy and lower the cost of health care. CMED was
incorporated in 1977 as a Colorado corporation to develop, manufacture,
market and service computerized diagnostic and testing instrumentation. RELA,
a Colorado corporation, was incorporated in 1977. RELA is an integrated
custom product development and manufacturing services company specializing in
the design, development and manufacture of electronic and electro-mechanical
medical products and software systems.
PRODUCTS AND SERVICES
The Company employs engineers, scientists, technicians, manufacturing
specialists, and assembly workers. The Company believes its experience in
applying its proven methodologies and advanced technologies to the
development of innovative new products gives its clients an advantage in
their marketplace by providing them with state-of-the-art, quality products
in a timely and cost-effective manner. The Company designs, develops, and
manufactures healthcare products for a broad range of customers that include
major pharmaceutical and medical instrumentation companies. In addition to
development, the Company performs product definition services, conducts focus
groups and performs software verification and validation ("V&V") activities
necessary for Food and Drug Administration ("FDA") approval. The Company
received EN ISO 9001 and EN 46001 certification during 1996 and is a
Registered Device Manufacturer with the FDA and meets the agency's Good
Manufacturing Practices requirements.
Additional services include:
- Feasibility studies
- Market research
- Product modeling, graphic design and trade show support
- Industrial design and human factors engineering
- User interface design and usability testing
- Electronic design and development
- Software development, verification and validation
- Electronic packaging and printed-circuit design
- Mechanical design and engineering
- Machining and modeling services
- Disposables engineering
- Prototype development
- Design for manufacturability and reliability engineering
- Pilot, short- and long-run production
- Quality assurance and testing
- Product service and sustaining engineering
Rapidly advancing technologies, heightened world competition and the
demands of an increasingly sophisticated marketplace have created pressures
on companies, both domestic and international, to develop high quality,
world-class products in time to meet the narrowing windows of opportunity in
the marketplace. These conditions have produced opportunities for companies
that can react to those market needs. Such companies need to have the
technology, experience and ability to develop high quality,
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state-of-the-art products. The Company believes it is uniquely positioned to
provide its clients, within a single integrated structure, the valuable
product development and manufacturing resources they need to satisfy the
requirements of a worldwide marketplace.
CMED was organized to develop, manufacture, market and service
computerized diagnostic and testing instrumentation. The Company's
respiratory product lines include metabolic assessment instruments, computers
and computer software for the measurement of metabolic parameters and
respiratory filters.
Metabolic analysis is performed noninvasively on the MetaScope-TM- by
means of the science of indirect calorimetry. The MetaScope-TM- provides
physicians with precise nutritional information that assists in monitoring
patient recovery. Cardiac output measurements based on oxygen consumption
can also be computed with this instrument.
The Company received FDA approval in 1991 for the NeoScope-TM-, a
metabolic analyzer designed for use on neonates. The Company has not yet
marketed the product commercially.
The Company received FDA approval in April 1994 to market a disposable
Heat and Moisture Exchange ("HME") filter intended for use in mechanical
ventilation and anesthesia applications. The Company shipped initial orders
of the filter to several hospitals in June 1995 and was in low rate initial
production. During initial use of the filter, potential problems were
identified which made it necessary to stop production until more testing
could be performed and design improvements incorporated. The Company
announced a formal recall of the product in September 1995. The Company has
continued testing on the HME filter and is anticipating release of an
improved filter during fiscal 1997.
Prior to August of 1995 the Company's product lines included lung
analyzers, exercise/stress testing equipment, infection control filters,
computers and computer software for the comprehensive analysis of lung
functions, and database management of patient information. These products
were used primarily in hospital pulmonary laboratories, at the patient
bedside in critical care and intensive care environments, in offices of
pulmonary physicians or allergists, industrial clinics and sports medicine
laboratories, and also had applications in the pediatric, internal medicine
and general practice markets.
As part of a new market focus, in June of 1995, the Company entered into
an agreement to sell the Company's cardiopulmonary product lines to a
competitor, Warren E. Collins, Inc. (the "Purchaser"), a Braintree,
Massachusetts-based company specializing in the sale and distribution of
pulmonary equipment. The transaction closed on August 16, 1995. The sale
transaction included all inventories, intangible property rights, customer
lists and tooling associated with cardiopulmonary product lines as well as
the trade name Cybermedic. In addition, the Purchaser assumed the warranty
and service obligations related to these products. The Purchaser had placed
noncancelable orders with the Company for additional manufactured units. All
of the units related to this contract were shipped during fiscal year 1996.
The Company has continued to sell, service and develop its metabolic, HME
filter and other respiratory products.
In May of 1994, the Company entered into a distribution agreement with
Erich Jaeger GmbH & Co. KG ("Jaeger"), a German company, whereby the Company
obtained the right to distribute Jaeger products for the pulmonary
marketplace in Canada and the United States. As part of the new market
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focus mentioned above, in August 1995, the Company terminated its
distribution agreement with Jaeger, and will no longer sell or service those
products.
MARKETING
The Company markets its services through a direct sales program and
nationwide network of independent manufacturers' representatives. The
Company promotes its services through advertising, direct mail and attendance
at industry trade shows.
The Company's respiratory products are sold primarily to Vencor, Inc.
("Vencor"), a large hospital and nursing home organization and to other
hospitals, clinics, and private physicians throughout the continental United
States, and on a limited basis in Canada, Japan, Mexico and several other
foreign countries. The Company distributes these products through its own
support organization.
For the period ended June 30, 1996, two customers accounted for
approximately 27% and 13%, respectively, of total revenues of the Company and
foreign sales were less than 10% of the Company's total sales. The loss of a
significant customer could have a material, detrimental impact on the
Company's operations. Most sales are on net thirty day credit terms. At June
30, 1996, the Company's backlog of orders for services or shipment of product
in fiscal 1997 was approximately $16,000,000 compared to approximately
$9,800,000 at June 30, 1995.
RESEARCH AND PRODUCT DEVELOPMENT
The Company intends to continue to improve current products and to develop
new products and services. In addition to internal development efforts, the
Company may acquire related technology and/or products from others.
In June of 1994, the Company signed a product development agreement with
Vencor to develop mutually agreed upon products that Vencor would purchase
exclusively from the Company, while the Company is unrestricted in its rights
to sell the products. The Company has agreed to expend at least $800,000
toward development of products during the term of the agreement.
While the Company employs approximately 70 engineers, scientists and
technicians in research and development activities, these employees' efforts
are primarily devoted to contract work for customers. Research and
development expenses historically are attributable to the metabolic and
filter product lines and range between 8-10% of revenues for those product
lines. No research and development expenditures are currently attributable to
RELA. For fiscal years 1996 and 1995, the Company incurred approximately
$97,000 and $60,000, respectively, for research and development activities.
Consistent with the Company's operating plans, the Company is
continuously pursuing the acquisition and development of new or improved
technology or products. Should the Company identify any opportunities that
would be commercially viable, the amount of future research and development
expenditures may increase.
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COMPETITION
The Company's present and future competition comes from a variety of
sources. These sources include commercial product development and manufacturing
companies. There are a number of firms which provide services similar to the
Company's. These vary from small consulting operations offering a small subset
of the Company's services to a few integrated service companies. Frequent
competitors include SeaMed Corporation and Kollsman Manufacturing Company.
On a lesser scale, the Company also competes with commercial and
university research laboratories. There are both for-profit and
not-for-profit organizations nationwide that perform services similar to the
product development aspect of the Company's business. These include
Battelle, Inc., Stanford Research Institute, Arthur D. Little Center for
Product Development, Southwest Research Institute and the research
capabilities within the nation's leading universities.
CMED's MetaScope-TM- has three major competitors. Puritan-Bennett has a
unit dedicated for use with their line of hospital ventilators. Sensormedics
Corporation and Medical Graphics Corporation both produce instruments that
compete directly with the Company's product. Jaeger also produces a product
that has not been released for sale in the United States. The Company's HME
filter faces competition from approximately twelve other filter manufacturers.
As the Company develops and manufactures other proprietary products,
such as the HME filter, it can expect to encounter additional competitors,
many of which may be larger and in a stronger financial position than the
Company. As cost containment efforts continue in the healthcare marketplace,
competition will continue to be intense in the future.
MANUFACTURING
The Company manufactures its products and customer products at its
facility in Boulder, Colorado. Most products are fabricated as standard
products, while others are built in response to specific customer purchase
orders. The manufacturing process consists primarily of assembly, test and
packaging of both custom and commercially available components from outside
sources.
Most of the materials and components used in the Company's products are
available from a number of different suppliers. The Company generally
maintains multiple sources for most items, but some components are single
source. The Company is dependent upon its suppliers for timely delivery of
quality components.
PRODUCT WARRANTIES AND SERVICE
The Company warrants its products, generally, for 90 days, but in
limited cases for up to one year against defects in materials and
workmanship. The Company has established a provision for estimated expenses
of providing service under these warranties. Nonwarranty service is invoiced
to the customer as performed.
Extended service contracts are also sold to customers, with the revenue
recognized over the term of the extended coverage.
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GOVERNMENT REGULATION
The Medical Device Amendments of 1976 to the Food, Drug and Cosmetic Act
(the "Act") and regulations issued or proposed thereunder, including the Safe
Medical Devices Act of 1990, provide for regulation by the U.S. Food and
Drug Administration ("FDA") of the marketing, design, manufacturing,
labeling, packaging and distribution of medical devices. These regulations
apply to the Company's products and many of the Company's customers'
products. The Act and the regulations include requirements that
manufacturers of medical devices register with and furnish lists of devices
manufactured by them to the FDA. Prior to marketing a medical device, FDA
approval must be obtained. Tasks to be performed for approval range from
bench-test data and engineering analysis to potentially expensive and
time-consuming clinical trials. The types of tasks for a particular product
submission are indicated by the classification of the device and previous
approvals for similar devices. There are also certain requirements of other
federal laws and of state, local, and foreign governments which may apply to
the manufacture and marketing of the Company's products. To date, the
Company has not experienced significant difficulty in complying with the
requirements imposed on it by the FDA or other governmental agencies.
The FDA's "Good Manufacturing Practices for Medical Devices" ("GMP")
sets forth standards for the Company's design and manufacturing processes
that require the maintenance of certain records and provide for unscheduled
inspections of the Company's facilities. The Company does not expect to make
significant expenditures as a result of these requirements. The Company's
procedures and records were reviewed in 1987, 1990 and 1995 by the FDA during
routine general inspections. The inspections resulted in some procedural
changes that are intended to assure continued compliance with current GMP.
The Company received EN ISO 9001 and EN 46001 certification in June of
1996. The ISO 9001 series of quality management and quality assurance
standards has been adopted by 90 countries. ISO standards require that a
quality system be used to guide work to assure quality and to produce quality
products. ISO 9001, the most comprehensive of the standards, covers 20
elements. These elements include management responsibility, design control,
training, process control and servicing. ISO 9001 is the quality systems
standard used by companies providing design, development, manufacturing,
installation, and servicing.
There are no material costs or expenses associated with the Company's
compliance with federal, state and local environmental laws.
PATENTS
The Company has a patent on the HME filter. The Company believes that
the conduct of its business is not dependent upon its ability to obtain or
defend patents.
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EMPLOYEES
As of June 30, 1996, the Company had 153 employees, of which 131 are
full-time. All of the Company's employees are employed at its principal
offices and headquarters in Boulder, Colorado. No employees are represented
by labor organizations and there are no collective bargaining agreements.
Employee relations are believed to be good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company operates out of leased facilities located at 6175 Longbow
Drive, Boulder, Colorado. The three-year lease, which expires on June 30,
1997 but has an additional three-year renewal option, is with an unrelated
party and covers the entire building consisting of 51,936 square feet. The
lease calls for average monthly payments over the term of the lease of
$31,811. In addition, the Company is responsible for certain expenses,
including property taxes, insurance and maintenance. The Company's
manufacturing, engineering, service and administrative operations are
conducted at this facility.
In April of 1987, the Company purchased a 10.91 acre parcel of
industrial-zoned vacant land in Louisville, Colorado (the "Louisville
Parcel") for future development from Dr. Lockett E. Wood, an officer of the
Company. The acquisition was approved by the Company's shareholders at the
annual meeting held on February 25, 1987. The Company's title in the
Louisville Parcel is in fee simple. In connection with a prior financing
arrangement with a partnership whose general partner is also a shareholder of
the Company, the Company granted an option to purchase the Louisville parcel
at a purchase price of $640,968. The option is exercisable at any time during
the five years ending March 18, 1998. It is the opinion of management that,
as the Louisville Parcel is vacant land, it is not necessary to provide
insurance coverage for the property. The Company had intended to construct a
facility on this parcel, however, the Company has since decided not to
construct a facility at the present time. The land is currently held for
investment or future development. Notwithstanding the Company's ownership of
the Louisville Parcel, it is not the policy of the Company to invest in real
estate or interests in real estate, real estate mortgages, or securities of
or interests in persons primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of shareholders during the
last quarter of the fiscal year ended June 30, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company has been traded on the Nasdaq (National
Association of Securities Dealers Automated Quotations) Small-Cap Market
since the Company's initial public offering in July 1983. The following
table sets forth the range of high and low closing bid prices of the
Company's common stock as reported by Nasdaq during fiscal years 1996 and
1995:
Fiscal Year Ended June 30,
---------------------------------------
1996 1995
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High Bid Low Bid High Bid Low Bid
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First Fiscal Quarter $1.56 $1.31 $1.88 1.31
Second Fiscal Quarter 2.50 1.38 1.50 1.00
Third Fiscal Quarter 2.75 1.81 1.03 .88
Fourth Fiscal Quarter 3.63 2.25 1.63 .91
The foregoing quotations represent quotations between dealers without
adjustment for retail markups, markdowns or commissions and may not represent
actual transactions.
At June 30, 1996 the Company had approximately 1,100 shareholders of
record. The Company has never paid a dividend, and does not anticipate the
payment of dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 research and
development and manufacturing contracts, proceeds from debt borrowings and
the cash proceeds from private placements of stock.
The Company renewed its bank financing arrangement during October of 1995
that provides for a $3 million revolving line of credit at prime plus 1/2%
which matures October 30, 1996. 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. As of June 30, 1996, no amounts were outstanding under the
credit facility.
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In June of 1994, the Company completed the private placement of 1,500,000
units, each unit consisting of one share of no par common stock and two
warrants. The units were offered at the greater of $1.00 or 75% of the
average of the closing bid and ask price of the common stock for the five
days prior to subscription. The warrants issued are callable by the Company,
and expire after five years. In accordance with the private placement
memorandum, 1,500,000 of the warrants were priced at 125% of the average of
the closing bid and ask price of the common stock on the date of purchase of
the units, and an additional 1,500,000 warrants were issued with an exercise
price equal to 175% of the average of the closing bid and ask price of the
common stock on the date of purchase of the units. The exercise prices of
the warrants range from $1.41 to $2.68. The proceeds from this offering were
approximately $1.5 million.
In December of 1993, the Company completed the private placement of 500,000
shares of no par common stock at an offering price of $1.00 per share. The
net proceeds from this offering were approximately $493,000.
Of the 2,000,000 shares sold in the above transactions, 1,500,000 were sold
to a wholly owned subsidiary of Vencor, a Louisville, Kentucky-based operator
of intensive care hospitals and nursing homes that specialize in treating
patients with catastrophic illnesses. The Company entered into a standstill
agreement with Vencor in June of 1994 whereby Vencor will not acquire more
than 40% of the Company's common stock for five years from the agreement date.
The Company previously had secured bank debt of approximately $897,000 with
annual interest rates of prime plus 1.5%. This secured debt was retired in
September 1994 and the Company has not utilized any material debt financing
since that date.
The Company's working capital increased to $5,433,000 at June 30, 1996 from
$3,741,000 at June 30, 1995. The increase in working capital occurred
primarily because of the Company's cash flow from operations and the sale of
the Company's cardiopulmonary product lines. The average number of days
outstanding of the Company's accounts receivable was approximately 63 days at
June 30, 1996 and 54 days at June 30, 1995.
During the year ended June 30, 1996, the Company acquired approximately
$232,000 of property and equipment consisting principally of computer
equipment. The Company has no present material commitments for capital
expenditures.
The ratio of current assets to current liabilities was 1.8 to 1 at June 30,
1996, compared to 1.6 to 1 at June 30, 1995. The liabilities to equity ratio
was 1.0 to 1 at June 30, 1996, compared to 1.2 to 1 at June 30, 1995.
Cash provided by operations during the year ended June 30, 1996 was
$1,268,000 and decreased approximately $1,075,000 compared to fiscal 1995, as
a result of the increase in the average number of days outstanding of the
Company's accounts receivable and an increase in the amount of inventory
carried to support the backlog of orders at June 30, 1996.
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RESULTS OF OPERATIONS
The Company recorded net income of approximately $1,597,000 for the fiscal
year ended June 30, 1996 compared to approximately $1,037,000 for the fiscal
year ended June 30, 1995.
Revenues were $19.1 million for the year ended June 30, 1996, compared to
$19.8 million for the prior year. The decrease in revenues is attributable
to the sale of the pulmonary product lines which were sold to an unrelated
third party in August 1995. Gross margins remained at 35% for the years
ended June 30, 1996 and 1995, respectively.
Marketing and selling expenses decreased by 43% for the year ended June 30,
1996, as compared to the prior year. Marketing and selling expenses as a
percentage of total revenue were approximately 5% for the year ended June 30,
1996 compared to approximately 9% for fiscal 1995. During the quarter ended
September 30, 1995, the Company reduced its direct sales staff as a result of
the cardiopulmonary product lines sold in August of 1995. Management
believes that the Company can continue to market and sell its remaining
product lines with a reduced direct sales staff.
Operating, general and administrative expenses increased by approximately
$414,000, or 12% for the year ended June 30, 1996, compared to the prior
year. The increase over the prior year in operating, general and
administrative expenses is due to reclassifications of certain sales and
marketing personnel. As a percentage of revenues, operating, general and
administrative expenses increased from 17% to 20%, respectively.
Research and development expenses for the year ended June 30, 1996 compared
to the prior year increased by approximately $37,000, or 61%. 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 and range from 8-10% of revenues for those 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 any such opportunities, the amount of
future research and development expenditures may increase.
Net other income and expenses increased approximately $373,000 to $450,000
for the year ended June 30, 1996 compared to $77,000 for the year ended June
30, 1995. The increase is attributable to the gain from the sale of the
cardiopulmonary product lines, increased interest income due to higher
investment balances during fiscal 1996 than in fiscal 1995, and the
retirement of all of the Company's debt in September of 1994, thus reducing
interest expense.
The fiscal 1996 statement of operations contains a net tax provision of
$684,000. The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, which requires
recognition of deferred income tax assets and liabilities for the expected
future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets,
liabilities and carryforwards. SFAS No. 109 requires recognition of deferred
tax assets for the expected future effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards. Deferred tax
assets are then reduced, if deemed necessary, by a valuation allowance for
any tax benefits which, based on current circumstances, are not expected to
be realized. In fiscal year 1996, the Company reduced its valuation
allowance by $178,000 for the
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utilization of prior years net operating losses in the current year and
certain deferred tax assets that the Company now believes will be fully
utilized.
The Company evaluated its overall business in fiscal 1996 and, as a result,
sharpened its market focus. Targeted markets are: Diagnostic and Laboratory
Instruments; Respiratory Care Products; Therapeutic Instruments and Software.
Each area represents a U.S. market of $2 billion or more per year, with
annual growth of approximately 8% to 15%. The Company has experience in
these markets which it plans to utilize. Generally, the marketplace for
contract product development and manufacturing is expected to remain strong
and competitive, with significant opportunity for companies that can develop
low-cost, quality products in a timely manner. Management is dedicated to
improving operating results through consistent performance, improved sales
levels and cost reductions. There are no assurances that management will be
successful in achieving improved operating results.
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ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Statements and Schedules:
Page
Number
------
Report of Independent Public Accountants F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
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ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Colorado MEDtech, Inc.:
We have audited the accompanying consolidated balance sheet of COLORADO
MEDTECH, INC. (a Colorado corporation) and subsidiary as of June 30, 1996,
and the related consolidated statements of operations, shareholders' equity
and cash flows for the years ended June 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colorado MEDtech, Inc. and
subsidiary as of June 30, 1996, and the results of their operations and their
cash flows for the years ended June 30, 1996 and 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 23, 1996.
F-1
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Page 1 of 2
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 614,649
Short-term investments 5,408,262
Accounts receivable-
Trade - less allowance of $175,000 for uncollectible accounts 3,375,658
Unbilled 182,038
Inventories, net 1,702,636
Deferred income taxes 786,000
Prepaid expenses 30,246
-----------
Total current assets 12,099,489
-----------
PROPERTY AND EQUIPMENT:
Computer equipment 1,812,981
Office furniture and fixtures 823,171
Leasehold improvements 304,760
Manufacturing equipment 441,002
-----------
Total property and equipment 3,381,914
Less- Accumulated depreciation and amortization (3,006,210)
-----------
Property and equipment, net 375,704
-----------
INVESTMENT IN LAND 500,000
-----------
DEFERRED INCOME TAXES 224,000
-----------
OTHER 17,327
-----------
$13,216,520
-----------
-----------
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
F-2
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Page 2 of 2
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,616,907
Accrued product service costs 385,113
Accrued salaries and wages 1,118,156
Other accrued expenses 1,032,397
Customer deposits 2,453,884
Income taxes payable 60,000
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Total current liabilities 6,666,457
-----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 5,000,000 shares
authorized; none issued -
Common stock, no par value; 25,000,000 shares
authorized; 6,901,762 issued and outstanding 3,713,652
Retained earnings 2,836,411
-----------
Total shareholders' equity 6,550,063
-----------
$13,216,520
-----------
-----------
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
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COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
---- ----
NET SALES AND SERVICE $19,130,979 $19,820,512
COST OF SALES AND SERVICE 12,341,217 12,982,327
----------- -----------
GROSS PROFIT 6,789,762 6,838,185
----------- -----------
COSTS AND EXPENSES:
Marketing and selling 991,508 1,751,553
Operating, general and administrative 3,870,181 3,456,573
Research and development 97,059 60,131
----------- -----------
Total operating expenses 4,958,748 5,268,257
----------- -----------
INCOME FROM OPERATIONS 1,831,014 1,569,928
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (59,945) (67,729)
Interest income and other, net 509,533 144,412
----------- -----------
Total other income (expense) 449,588 76,683
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,280,602 1,646,611
PROVISION FOR INCOME TAXES 684,000 610,000
----------- -----------
NET INCOME $ 1,596,602 $ 1,036,611
----------- -----------
----------- -----------
EARNINGS PER SHARE (Note 2):
Primary $.21 $.15
----------- -----------
----------- -----------
Fully diluted $.17 $.15
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary 7,766,805 6,948,301
----------- -----------
----------- -----------
Fully diluted 10,692,702 7,124,587
----------- -----------
----------- -----------
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-4
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
COMMON STOCK
-------------------------- RETAINED
SHARES AMOUNT EARNINGS
--------- ---------- ----------
BALANCES, June 30, 1994 6,901,762 $3,713,652 $ 203,198
Net income - - 1,036,611
--------- ---------- ----------
BALANCES, June 30, 1995 6,901,762 3,713,652 1,239,809
Net income - - 1,596,602
--------- ---------- ----------
BALANCES, June 30, 1996 6,901,762 $3,713,652 $2,836,411
--------- ---------- ----------
--------- ---------- ----------
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-5
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,596,602 $1,036,611
Adjustments to reconcile net income to net cash
flows from operating activities-
Deferred tax benefit (91,000) (113,662)
Depreciation and amortization 391,405 603,339
Gain on sale of product line (121,986) -
Changes in assets and liabilities-
Accounts receivable (485,881) (320,535)
Inventories (780,899) 156,541
Prepaid expenses and other assets 56,954 44,158
Accounts payable and accrued expenses 43,242 510,073
Customer deposits 659,397 425,813
----------- ----------
Net cash flows from operating activities 1,267,834 2,342,338
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (231,982) (435,646)
(Increase) decrease in short-term investments, net (2,815,587) 235,505
Proceeds from sale of product line 250,000 -
----------- ----------
Net cash flows from investing activities (2,797,569) (200,141)
----------- ----------
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-6
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt $ - $ (896,893)
----------- ----------
Net cash flows from financing activities - (896,893)
----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,529,735) 1,245,304
CASH AND CASH EQUIVALENTS, at beginning of period 2,144,384 899,080
----------- ----------
CASH AND CASH EQUIVALENTS, at end of period $ 614,649 $2,144,384
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 59,767 $ 71,629
----------- ----------
----------- ----------
Cash paid for income taxes $ 885,000 $ 840,000
----------- ----------
----------- ----------
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-7
<PAGE>
COLORADO MEDTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(1) ORGANIZATION AND OPERATIONS
Colorado MEDtech, Inc. ("CMED" or the "Company") was incorporated in 1977 as a
Colorado corporation to develop, manufacture, market and service computerized
diagnostic and testing instrumentation.
RELA, Inc. ("RELA"), a Colorado corporation and wholly owned subsidiary of CMED,
was incorporated in 1977. RELA is an integrated custom product development and
manufacturing services company specializing in the design, development and
manufacture of electronic and electro-mechanical products and systems.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements reflect the consolidated results of CMED
and RELA (collectively, the "Company"). All significant intercompany
transactions and accounts have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVESTMENTS
The Company accounts for its investments, which are primarily U.S. Treasuries,
in accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
The Company has classified its investments, which are stated at market, as
"held-to-maturity" securities.
F-8
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The cost of inventories includes material, labor and manufacturing
overhead. As of June 30, 1996, inventories consisted of:
Raw materials $1,221,789
Work-in-process 473,000
Finished goods 7,847
----------
$1,702,636
----------
----------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided principally on the straight-line method over the estimated useful life
of the asset.
CAPITALIZED SOFTWARE COSTS
Software development costs are expensed until technological feasibility has been
established. Costs incurred from that time until the product is available for
general release to customers are capitalized. Costs of enhancing existing
products are capitalized, while routine maintenance of existing products is
charged to expense as incurred. Capitalized software costs are amortized on a
product-by-product basis at the greater of either (a) the ratio that current
gross revenues for a product bear to the total of current and anticipated future
gross revenues for a product, or (b) the straight-line method over three years.
Amortization of capitalized software costs was approximately $102,000 for the
year ended June 30, 1995. All capitalized software costs were fully amortized
as of June 30, 1995.
ACCRUED PRODUCT SERVICE COSTS
The Company warrants its products against defects in materials and workmanship,
generally for 90 days, but in limited cases for up to one year. Estimated costs
of product service are accrued at the time of sale.
CUSTOMER DEPOSITS
Customer deposits result from cash received in advance for future contract work
or extended service and support on certain products. Revenue derived from the
sale of service agreements is deferred and amortized over the terms of the
individual agreements.
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. Fully diluted earnings per share for the year ended
June 30, 1996 is computed under the treasury stock method whereby net income is
increased by approximately $180,100 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.
F-9
<PAGE>
REVENUE RECOGNITION POLICY
The Company recognizes revenue for manufacturing services upon shipment of the
related products and recognizes revenues for engineering contract services as
work is performed and contract requirements are met. Unbilled receivables
result from revenue recognized for contract services in excess of billings.
Unanticipated losses on engineering contracts are provided for, in full, when
determinable.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), which requires recognition
of deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets, liabilities and carryforwards.
SFAS 109 requires recognition of deferred tax assets for the expected future
effects of all deductible temporary differences, loss carryforwards and tax
credit carryforwards. Deferred tax assets are then reduced, if deemed
necessary, by a valuation allowance for any tax benefits which, based on current
circumstances, are not expected to be realized (see Note 6).
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(3) SALE OF PRODUCT LINES
In June of 1995, the Company entered into an agreement to sell the Company's
cardiopulmonary product lines to a competitor (the "Purchaser"). The
transaction closed on August 16, 1995. The sale transaction included all
inventories, intangible property rights, customer lists, and tooling associated
with cardiopulmonary product lines as well as the trade name Cybermedic. In
addition, the Purchaser assumed the warranty and service obligations related to
these products. The Purchaser placed noncancellable orders with the Company for
additional manufactured units. All of the units related to this contract were
shipped to the Purchaser during fiscal year 1996.
(4) BORROWINGS
The Company has a financing commitment from a bank that provides for a
$3 million revolving line of credit at prime plus 1/2% which matures October 30,
1996. 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. The Company did not utilize
this credit facility during fiscal 1996.
F-10
<PAGE>
(5) SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company's shareholders have authorized 5,000,000 shares of no par value
preferred stock, to be issuable from time to time in such series and to have
such rights and preferences as the Company's board of directors may designate.
As of June 30, 1996, no shares of preferred stock have been issued.
COMMON STOCK
The Company's shareholders have authorized 25,000,000 shares of no par common
stock, of which 6,901,762 are issued and outstanding as of June 30, 1996.
OPTIONS
On June 25, 1992, the board of directors approved a Key Employee Stock Option
Plan (the "Plan"). The Plan provides for the grant of both incentive and
nonstatutory stock options as defined by the Internal Revenue Code of 1986,
stock appreciation rights and supplemental bonuses at the discretion of the
board. Under the terms of the Plan, the purchase price of the shares subject to
an incentive option will be the fair market value of the Company's common stock
on the date the option is granted. If the grantee owns more than 10% of the
total combined voting power of all classes of stock on the date of grant, the
purchase price shall be at least 110% of the fair market value at the date of
grant and the exercise term shall be up to five years from the date of grant.
All other options granted under the Plan are exercisable up to 10 years from the
date of grant. Under the Plan, 1,400,000 shares of common stock are reserved
for options. As of June 30, 1996, there are approximately 25,000 options that
will require shareholder approval to be included in the Plan. Vesting periods
for options issued are determined by the board at date of grant and currently
vest over three to seven years. Activity under the Plan was as follows:
Number of Shares
----------------
BALANCE, June 30, 1994 582,303
Granted during period 242,500
Forfeited during period (69,986)
-----------
BALANCE, June 30, 1995 754,817
Granted during period 788,000
Forfeited during period (156,868)
---------
BALANCE, June 30, 1996 1,385,949
-----------
-----------
Exercise price per share $.94 - $3.25
Exercisable at June 30, 1996 447,060
-----------
F-11
<PAGE>
In January of 1995, the Company issued nonqualified stock options to purchase
up to 10,000 shares of the Company's common stock in exchange for employment
recruiting services. The exercise price of the options is $1.04 per share,
which was the fair market value of the Company's stock on the date of grant.
The options are currently exercisable and have a three-year term.
In January of 1994, the board of directors granted 424,440 nonqualified stock
options to certain employees, including two officers of the Company. The
options to purchase the Company's common stock were issued with exercise prices
between $1.25 and $1.44 per share, which was the fair market value of the
Company's stock on the date of grant. The nonqualified options are exercisable
for five years from the date of grant.
WARRANTS
The board of directors grants warrants to the outside directors as compensation
for serving on the board. Warrants were issued in February of 1993 to purchase
a total of 120,000 shares of the Company's common stock at $1.63 per share and
additional warrants were issued in November of 1993 to purchase 90,000 shares of
the Company's common stock at $1.50 per share. Also, in June of 1995, warrants
were issued to purchase 180,000 shares of the Company's common stock at $1.59
per share. As of June 30, 1996, 285,000 warrants were vested. The warrants
have a five-year term.
In June of 1994, the Company completed the private placement of 1,500,000 units,
each unit consisting of one share of no par common stock and two warrants. The
warrants issued are callable by the Company, and expire after five years. The
exercise prices of the warrants range from $1.41 to $2.68.
In connection with a prior borrowing in March of 1993, the Company issued
100,000 warrants to purchase the Company's common stock at an exercise price of
$1.50 per share. All 100,000 of these warrants are vested. The warrants have a
five-year term. In May of 1994, the Company changed the warrant price to $1.25
per share.
In March of 1993, the Company issued an additional 100,000 warrants with a five-
year term in connection with a purchase option on the Company's land (see
Note 8). These warrants are exercisable at $2.00 per share from March 1996
through March 1997 and at $2.25 per share thereafter. These warrants vest only
if the land purchase option is exercised.
In November of 1993, the Company issued warrants to its attorneys to purchase up
to 100,000 shares of the Company's common stock. These warrants vest 25% per
year beginning November of 1993, and are exercisable at the average of the bid
and ask prices of the Company's common stock as of the vesting date. The
warrants vested in 1993, 1994 and 1995 are exercisable at $1.50, $1.25 and $1.81
per share, respectively.
NEW ACCOUNTING PRONOUNCEMENT
In October of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 establishes accounting and reporting standards for
stock-based employee compensation plans and for equity instruments issued to
acquire goods or services from non-employees. The Company will be required to
adopt the provisions of SFAS 123 in fiscal 1997. The Company expects to
continue accounting for stock-based compensation in accordance with APB Opinion
No. 25 and therefore will be required to make the pro forma disclosures required
by SFAS 123 in fiscal 1997.
F-12
<PAGE>
(6) INCOME TAXES
The Company's effective income tax rate was different than the statutory federal
income tax rate as follows:
June 30, June 30,
1996 1995
--------- ---------
Federal income tax provision at
statutory rates $ 775,000 $ 560,000
State income tax provision, net of
federal tax effect 75,000 22,000
Nondeductible expenses 12,000 28,000
SFAS 109 valuation allowance reduction (178,000) -
--------- ---------
Effective tax $ 684,000 $ 610,000
--------- ---------
--------- ---------
In accordance with certain provisions of the Internal Revenue Code, a change in
ownership of greater than 50% of a company within a three-year period results in
an annual limitation on the Company's ability to utilize its net operating loss
carryforwards from tax periods prior to the ownership change. Such a change in
ownership occurred with respect to the Company on October 19, 1992.
Accordingly, the NOL carryforwards at October 19, 1992 are restricted to annual
cumulative amounts of approximately $105,000 subject to the expiration of these
carryforwards, or approximately $1,575,000. As of June 30, 1996, the Company
had net operating loss carryforwards available of approximately $1,515,000. The
Company's NOL's expire beginning in 1999 through 2007. The Company also has
research and development and investment tax credit carryforwards totaling
approximately $140,000 expiring from 1999 through 2007.
Deferred taxes are determined based on estimated future tax effects of
differences between the amounts reflected in the financial statements and the
tax basis of assets and liabilities given the provisions of the enacted tax
laws. Deferred tax assets include the tax effect of net operating loss and tax
credit carryforwards. The net deferred tax assets and liabilities as of
June 30, 1996 are comprised of the following:
Deferred tax assets:
Tax effect of net operating loss carryforwards $ 559,000
Tax credits 140,000
Allowance for doubtful accounts 65,000
Accrued vacation and severance 102,000
Depreciation for book in excess of tax 224,000
Deferred service revenue 19,000
Reserves 571,000
----------
1,680,000
Valuation allowance (670,000)
----------
Deferred tax asset, net $1,010,000
----------
----------
Current portion $ 786,000
----------
----------
Long-term portion $ 224,000
----------
----------
F-13
<PAGE>
The Company has established a valuation allowance due to the uncertainty that
the full amount of credits and operating loss carryforwards will be applied
against future taxable income. Although management expects continuing growth in
taxable income, it emphasized past performance rather than growth projections
when determining the valuation allowance. During 1996, the Company reduced the
valuation allowance by $178,000 for the utilization of NOL's in the current year
and certain deferred tax assets that the Company now believes will be fully
utilized. Future adjustments to the valuation allowance deemed appropriate will
be recognized as a separate component of the provision for income tax. The
balance of the valuation allowance at June 30, 1996 and 1995 was $670,000 and
$848,000, respectively.
(7) COMMITMENTS AND CONTINGENCIES
LEASE
The Company leases its operating facilities and certain computer and test
equipment pursuant to operating lease arrangements. The Company incurred rent
expense of $511,000 and $515,200 for the years ended June 30, 1996 and 1995,
respectively.
At June 30, 1996, future minimum lease payments under leases having an initial
or remaining noncancelable term of one year or more were approximately $460,000
in 1997, $37,000 in 1998, $37,000 in 1999 and $34,000 in 2000.
EMPLOYMENT AND COMPENSATION AGREEMENTS
In June 1993, the Company entered into an employment agreement with the
Company's Chairman, Chief Executive Officer and President, which had a three-
year term. The agreement fixed the employee's compensation. In connection with
and as a condition of the employment agreement, the employee executed a
noncompetition agreement in which he agreed not to engage in competitive
activities for a period of two years after his employment with the Company is
terminated, whether voluntarily or involuntarily. The Company also agreed to
grant an incentive stock option to purchase up to 300,000 shares of the
Company's common stock at a purchase price of $1.25 per share. The option
vested 100,000 shares per year over three years. Each portion of the vested
option is exercisable for five years after the date each portion has vested.
The Company and the employee extended the employment agreement in November 1995
and May 1996 through June 2002. The Company agreed to grant an incentive stock
option to purchase up to 300,000 shares of the Company's common stock at a
purchase price of $1.84 per share and another 260,000 shares at a purchase price
of $3.25 per share, in consideration of the extended employment agreement. The
options vest 100,000 shares per year over three years. The remaining 260,000
shares vest in year seven, however, earlier vesting can occur if the Company
achieves certain targeted stock prices by September 2000. If the Company
terminates employment at any time prior to June 2002, no vesting of the option
shall occur after the date of termination, but the employee will be entitled to
receive a severance payment amounting to compensation through the lesser of 24
months or the unexpired term of the agreement. If the employee terminates his
employment prior to June 1999, no further vesting of the stock option shall
occur, and the unexercised portion of the option, whether or not vested, shall
terminate. Subject to these restrictions, each portion of the vested option
shall be exercisable for five years after the date such portion has vested.
F-14
<PAGE>
The Company's other two officers have also entered into employment agreements
with the Company. These agreements provide for a severance payment equal to one
year's salary if the officer's employment is terminated as a result of loss of
officer status, relocation of the Company or for reasons other than cause and
two years salary if the officer's employment is terminated as a result of a
significant ownership change in the Company. These agreements have no fixed
term, and may be terminated by either party at any time.
On October 19, 1992, the Company entered into a three-year representative
agreement with an agency whose majority shareholder was also a director and
shareholder of the Company. Such agreement provided territory and commission
arrangements consistent with agreements entered into with other sales
representatives of the Company. This agreement expired by its own terms on
October 19, 1995.
OTHER
In connection with an equity offering in June of 1994, the Company entered into
a standstill agreement with a corporation that owns 1,500,000 shares of the
Company's common stock. The standstill agreement limits the corporation to not
more than a 40% ownership of the Company. The standstill agreement expires in
June of 1999.
The Company has also entered into a product development agreement with the same
corporation discussed above. This agreement provides for the Company to expend
$800,000 over the term of the agreement to develop mutually agreed upon products
that the corporation would purchase exclusively from the Company, while the
Company is unrestricted in its rights to sell the products. The Company had
sales to this corporation of approximately $381,000 and $193,000 in 1996 and
1995, respectively. As of June 30, 1996, the Company had an accounts receivable
balance of $304,000 related to these sales.
(8) INVESTMENT IN LAND
The Company acquired a parcel of land from a director, shareholder and officer
of the Company in 1987. The parcel comprises 10.91 acres of industrial zoned
land located within the city boundaries of Louisville, Colorado. The Company
purchased the parcel for $631,750, the price established by an independent
appraisal. During 1992, the Company obtained an independent appraisal for the
parcel which indicated a decline in the valuation of the property. The property
is valued at the appraisal value in the accompanying balance sheet. In
connection with a previous borrowing arrangement, the Company granted an option
to purchase the land at a purchase price of $640,968. This option is
exercisable at any time before March of 1998.
(9) MAJOR CUSTOMERS
Various customers accounted for more than 10% of total sales and service
revenues for the years ended June 30, 1996 and 1995, as follows:
Customer 1996 1995
-------- ---- ----
A 27.3% 26.5%
B 12.8% 12.2%
C 8.2% 12.1%
F-15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company's definitive Proxy Statement to be filed pursuant to
Schedule 14A under the Securities Exchange Act of 1934 is incorporated herein
by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The Company's definitive Proxy Statement to be filed pursuant to
Schedule 14A under the Securities Exchange Act of 1934 is incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company's definitive Proxy Statement to be filed pursuant to
Schedule 14A under the Securities Exchange Act of 1934 is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's definitive Proxy Statement to be filed pursuant to
Schedule 14A under the Securities Exchange Act of 1934 is incorporated herein
by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Financial Statements - See Index to Financial Statements and Schedules
(Part II-Item 7)
(b) Reports on Form 8-K during the last quarter of the Company's fiscal year
ended June 30, 1996 - None
(c) Exhibits - See Index to Exhibits
-13-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: September 27, 1996. COLORADO MEDTECH, INC.
By: /s/ John V. Atanasoff, II
-----------------------------------
John V. Atanasoff, II
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John V. Atanasoff, II Chief Executive Officer, September 27, 1996
- ------------------------- President and Director
John V. Atanasoff, II (Principal Executive Officer)
/s/ Dean A. Leffingwell Director September 27, 1996
- -------------------------
Dean A. Leffingwell
/s/ Vern D. Kornelsen Director September 27, 1996
- -------------------------
Vern D. Kornelsen
/s/ Robert L. Sullivan Director September 27, 1996
- -------------------------
Robert L. Sullivan
/s/ Clifford W. Mezey Director September 27, 1996
- -------------------------
Clifford W. Mezey
/s/ Michael R. Barr Director September 27, 1996
- -------------------------
Michael R. Barr
/s/ John E. Wolfe Director September 27, 1996
- -------------------------
John E. Wolfe
/s/ Bruce L. Arfmann Chief Financial Officer September 27, 1996
- ------------------------- (Principal Accounting Officer)
Bruce L. Arfmann
-14-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation; Complete Copy, as Amended. (A)
3.2 Bylaws, as Amended. (B)
4.2 Specimen of Common Stock Certificate. (C)
10.22 Promissory Notes payable to Lockett E. Wood and Deeds of Trust
with respect to Louisville, Colorado property acquisition. (D)
10.31 Colorado MEDtech, Inc. Stock Option Plan. (A)
10.32 Employment Agreement between Colorado MEDtech, Inc. and
John V. Atanasoff, II. (E)
10.33 Standstill Agreement dated June 30, 1994 between Vencor, Inc.
and Colorado MEDtech, Inc. (F)
10.34 Product Development Agreement dated June 30, 1994 between
Vencor, Inc. and Colorado MEDtech, Inc. (F)
10.35 Employment Agreement between Colorado MEDtech, Inc. and
Bruce L. Arfmann (G)
10.37 Employment Agreement between Colorado MEDtech, Inc. and
Lockett E. Wood (G)
10.38 Extension of Employment Agreement between Colorado MEDtech, Inc.
and John V. Atanasoff, II (H)
11.1 Computation of Fully Diluted Earnings Per Share for the Year Ended
June 30, 1996
21.1 Subsidiary of Small Business Issuer (G)
27.1 Financial Data Schedule for the year ended June 30, 1996
</TABLE>
(A) Filed as exhibit to the Company's Current Report on Form 8-K, dated
May 14, 1993.
(B) Filed with Registration Statement (No. 2-83841-D) on Form S-18 on May 17,
1983, with amendment filed as exhibit to the Company's Annual Report on
Form 10-K for the year ended October 31, 1984.
(C) Filed with Registration Statement (No. 2-83841-D) on Form S-18 on May 17,
1983.
(D Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1987.
(E) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
June 21, 1993.
(F) Filed as an exhibit to Schedule 13D Amendment No. 2 dated July 18, 1994
filed by Vencor, Inc.
(G) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1994.
(H) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1996.
-15-
<PAGE>
EXHIBIT 11.1
COLORADO MEDTECH, INC.
STATEMENT RE: COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
FOR THE YEAR ENDED JUNE 30, 1996
NET INCOME $ 1,596,602
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) 180,106
-----------
ADJUSTED NET INCOME $ 1,776,708
-----------
-----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,901,762
PLUS-Common stock equivalents 5,171,292
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)
-----------
ADJUSTED WEIGHTED COMMON SHARES OUTSTANDING 10,692,702
-----------
-----------
FULLY DILUTED NET INCOME PER SHARE $ .17
-----------
-----------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 614,649
<SECURITIES> 5,408,262
<RECEIVABLES> 3,557,696
<ALLOWANCES> (175,000)
<INVENTORY> 1,702,636
<CURRENT-ASSETS> 12,099,489
<PP&E> 3,381,914
<DEPRECIATION> (3,006,210)
<TOTAL-ASSETS> 13,216,520
<CURRENT-LIABILITIES> 6,666,457
<BONDS> 0
0
0
<COMMON> 3,713,652
<OTHER-SE> 2,836,411
<TOTAL-LIABILITY-AND-EQUITY> 13,216,520
<SALES> 19,130,979
<TOTAL-REVENUES> 19,130,979
<CGS> 12,341,217
<TOTAL-COSTS> 4,958,748
<OTHER-EXPENSES> (509,533)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,945
<INCOME-PRETAX> 2,280,602
<INCOME-TAX> 684,000
<INCOME-CONTINUING> 1,596,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,596,602
<EPS-PRIMARY> .21
<EPS-DILUTED> .17
</TABLE>
