<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 DECEMBER 31, 1995
[ ] 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.
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(Exact name of small business issuer as specified in its charter)
COLORADO 84-0731006
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6175 LONGBOW DRIVE, BOULDER, COLORADO 80301
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(Address of principal executive offices)
(303) 530-2660
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(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 January 31, 1996, the Company had 6,901,762 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes _____ No ___X___
<PAGE>
COLORADO MEDTECH, INC.
FORM 10-QSB
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<CAPTION>
PART I FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheet -
December 31, 1995 3
Consolidated Statements of Operations -
Three and six-months ended
December 31, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Six-months ended
December 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 9
</TABLE>
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,743,009
Accounts receivable, net 3,293,916
Inventories, net 1,172,695
Deferred income taxes and other
current assets 838,352
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Total current assets 10,047,972
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EQUIPMENT AND FURNITURE, net 378,241
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LAND, DEFERRED INCOME TAXES
AND OTHER ASSETS 659,327
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TOTAL ASSETS $11,085,540
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</TABLE>
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 DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
LIABILITIES AND
SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,216,256
Accrued salaries and wages 778,701
Accrued product service costs 524,383
Customer deposits 1,833,385
Other accrued expenses 1,135,115
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Total current liabilities 5,487,840
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SHAREHOLDERS' EQUITY:
Common stock 3,713,653
Retained earnings 1,884,047
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Total shareholders' equity 5,597,700
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,085,540
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</TABLE>
The accompanying notes are an integral part of this balance sheet.
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<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES AND SERVICE $ 4,931,220 $ 4,605,753 $ 9,150,454 $ 8,916,258
COST OF SALES AND SERVICE 3,242,258 2,973,127 5,977,940 5,768,226
----------- ----------- ----------- -----------
GROSS PROFIT 1,688,962 1,632,626 3,172,514 3,148,032
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Marketing and selling 216,467 411,388 447,523 782,878
Operating, general and
administrative 1,032,579 814,090 2,042,985 1,630,145
Research and development 15,945 11,641 18,236 27,386
----------- ----------- ----------- -----------
Total operating expenses 1,264,991 1,237,119 2,508,744 2,440,409
----------- ----------- ----------- -----------
EARNINGS FROM OPERATIONS 423,971 395,507 663,770 707,623
OTHER INCOME, net 107,390 3,571 286,468 4,048
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 531,361 399,078 950,238 711,671
Provision for income taxes 196,000 148,500 306,000 264,000
----------- ----------- ----------- -----------
NET INCOME $ 335,361 $ 250,578 $ 644,238 $ 447,671
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE
Primary $ .05 $ .04 $ .09 $ .06
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully Diluted $ .04 $ .04 $ .08 $ .06
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING
Primary 7,201,385 6,930,040 7,151,257 7,037,619
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully Diluted 8,392,462 6,930,040 8,383,466 7,037,619
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 644,238 $ 447,671
Adjustment to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization 211,318 171,791
Gain on sale of product line (121,986) --
Change in assets and liabilities-
Accounts receivable, net (222,101) (76,527)
Inventories, net (250,958) (143,056)
Prepaid and other assets 25,848 13,403
Accounts payable and accrued expenses (514,876) (95,180)
Customer deposits 38,898 39,904
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Net cash flows from operating activities (189,619) 358,006
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INVESTING ACTIVITIES:
Proceeds from sale of product line 250,000 --
Acquisition of equipment and furniture (54,431) (238,831)
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Net cash flows from investing activities 195,569 (238,831)
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FINANCING ACTIVITIES:
Repayment of notes -- (896,893)
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Net cash flows from financing activities -- (896,893)
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Net change in cash and cash equivalents 5,950 (777,718)
Cash and cash equivalents, beginning 4,737,059 3,727,260
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Cash and cash equivalents, ending $4,743,009 $2,949,542
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</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
COLORADO MEDTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX-MONTHS ENDED DECEMBER 31, 1995 AND 1994
(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 28,
1995. 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 December 31, 1995, the results of its
operations for the three and six-month periods ended December 31, 1995 and
1994 and its cash flows for the six-month periods ended December 31, 1995 and
1994. All of the adjustments were of a normal and recurring nature.
The following sets forth the supplemental disclosures of cash flow
information for the six-month periods ended December 31, 1995 and 1994,
respectively:
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Cash paid for interest $ 36,571 $ 41,480
Cash paid for income taxes $495,000 $450,000
</TABLE>
NOTE 2 - DEBT
On October 30, 1995, the Company renewed a financing arrangement with a bank
that provides for a $3 million revolving line of credit at prime plus .5%
which matures October 31, 1996, and a $500,000 nonrevolving equipment line of
credit at prime plus 1% that converts to a term note on April 30, 1996. The
term note requires monthly principal and interest payments through the April
30, 1999 maturity. 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.
NOTE 3 - SALE OF PRODUCT LINE
In June 1995, the Company entered into an agreement to sell its
cardiopulmonary product lines to a competitor (the "Purchaser"). The
transaction closed on August 16, 1995. The sale included all inventories,
intangible property rights, customer lists, and tooling associated with the
cardiopulmonary product lines as well as the trade
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<PAGE>
name Cybermedic. In addition, the Purchaser assumed the warranty and service
obligations related to these products. The Purchaser has placed
noncancellable orders with the Company for additional manufactured units. The
gain on this transaction of approximately $122,000 has been classified as
other income in the accompanying consolidated statements of operations.
NOTE 4 - STOCK OPTIONS
During the quarter ended December 31, 1995, the Company issued 153,000
incentive stock options to certain employees, including an officer of the
Company. The options to purchase the Company's common stock were issued at an
exercise price of $1.72 per share, which was the fair market value of the
Company's common stock on the date of grant. The options are exercisable for
five years from the date of grant.
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<PAGE>
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 and six-month periods ended December 31, 1995 and
1994, and the percentage change in those items for the three and six-month
periods ended December 31, 1995, from the comparable periods in 1994.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE FROM
AS A PERCENTAGE OF TOTAL REVENUES PRIOR YEAR'S COMPARABLE PERIOD
- ---------------------------------------- ----------------------------------------
THREE-MONTH PERIOD SIX-MONTH PERIOD THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED DECEMBER 31,
- ------------------ ------------------ ------------------ ------------------
1995 1994 1995 1994 LINE ITEMS 1995 1995
---- ---- ---- ---- ---------- ---- ----
% % % % % %
<C> <C> <C> <C> <S> <C> <C>
100.0 100.0 100.0 100.0 Sales and Service 7.1 2.6
65.8 64.6 65.3 64.7 Cost of Sales and Services 9.1 3.6
34.2 35.4 34.7 35.3 Gross Profit 3.5 .8
4.4 8.9 4.9 8.8 Marketing and Selling (47.4) (42.8)
20.9 17.7 22.3 18.3 Operating, Gen'l and Admin 26.8 25.3
.3 .3 .2 .3 Research and Development 37.0 (33.4)
25.6 26.9 27.4 27.4 Total Operating Expenses 2.3 2.8
8.6 8.5 7.3 7.9 Earnings from Operations 7.2 (6.2)
2.2 .1 3.1 .1 Other Income, Net 2,907.3 6,976.8
10.8 8.6 10.4 8.0 Earnings Before Income Taxes 33.1 33.5
4.0 3.2 3.3 3.0 Provision for Income Taxes 32.0 15.9
6.8 5.4 7.1 5.0 NET INCOME 33.8 43.9
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS
The Company reported net income of $335,361 and $644,238 for the three and
six-month periods ended December 31, 1995, compared to $250,578 and
$447,671 for the same periods in the prior year. Earnings per share for
the three and six-months ended December 31, 1995 were $.04 and $.08
calculated on 8,392,462 and 8,383,466 fully diluted weighted average common
share equivalents outstanding compared to $.04 and $.06 for the same period
in the prior year calculated on 6,930,040 and 7,037,619 fully diluted
weighted average common equivalent shares. Net income for the six-months
ended December 31, 1995 included approximately $122,000 of gain from the
sale of the cardiopulmonary product lines in August of 1995. The Company
has net operating losses available to offset the tax impact of this gain,
which reduced the Company's effective tax rate.
Revenues increased to $4,931,220, or by 7%, and to $9,150,454, or by 3%,
for the three and six-month periods ended December 31, 1995, as compared to
the same periods in the prior year. The increase in sales is attributable
to growth in custom development and manufacturing services, net of the loss
of sales from the disposition of the cardiopulmonary product lines sold in
August, 1995. Gross margins remained at 34-35% for the three and six-
month periods ended December 31, 1995 and 1994, respectively.
Marketing and selling expenses decreased 47% and 43% for the three and six-
month periods ended December 31, 1995, as compared to the same periods in
the prior year. Marketing and selling expenses as a percentage of total
revenues were approximately 4-5% for the three and six-month periods
ended December 31, 1995 compared to approximately 9% for the same periods
in the prior year. 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, 1995. Management believes that the Company
can continue to market and sell the remaining product lines with a reduced
direct sales staff.
Operating, general and administrative expenses increased 27% and 25% for
the three and six-month periods ended December 31, 1995, as compared to the
same periods in the prior year. As a percentage of revenues, operating,
general and administrative expenses increased from 18% to 21% and from 18%
to 22% compared to the same three and six-month periods in the prior year.
The increase in the operating, general, and administrative expenses is due
to reclassification of certain sales and marketing personnel and increased
operating expenses associated with Company sales growth.
Research and development expenses are attributable to the respiratory
product lines and range between 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.
In addition to the gain from the sale of the cardiopulmonary product lines,
other income currently reflects the increase in interest income earned from
temporary investments of the Company's cash. The Company retired all of
its debt in September, 1994, thus reducing interest expense.
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<PAGE>
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have consisted of cash flow from
operations and cash deposits received from customers related to contracts.
Historically, the Company has also utilized proceeds from debt borrowings
and cash proceeds from private placements of stock to supplement its cash
resources.
The Company renewed its bank financing arrangement during October of 1995
that provides for a $3 million revolving line of credit at prime plus .5%
which matures October 31, 1996, and a $500,000 nonrevolving equipment line
of credit at prime plus 1% that converts to a term note on April 30, 1996.
The term note requires monthly principal and interest payments through the
April 30, 1999 maturity. 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 have been advanced under this credit facility as
of December 31, 1995.
In June 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 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 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.
The ratio of current assets to current liabilities was 1.8 to 1 at December
31, 1995, compared to 1.6 to 1 at June 30, 1995. The Company's working
capital increased approximately $820,000 since June 30, 1995, primarily as
a result of the sale of the cardiopulmonary product lines and an increase
in customer accounts receivable. The average number of days outstanding of
the Company's accounts receivable at December 31, 1995 was approximately 56
days, compared to 54 days at June 30, 1995. The increase in the number of
days outstanding is a result of extended payment terms granted to certain
customers and an increase in the number of slow paying customers
attributable to the cardiopulmonary product lines that were sold in August,
1995. Management believes that these accounts will be brought back into
terms during the next quarter.
The Company used approximately $190,000 of cash for operations during the
six-month period ended December 31, 1995 primarily for the purchase of
inventory to support new orders and the reduction of certain year end
liabilities.
During the six-months ended December 31, 1995, the Company acquired
approximately $54,000 of property and equipment consisting principally of
computer equipment. The Company has no present material commitments for
capital expenditures.
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<PAGE>
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: February 13, 1996
/s/ John V. Atanasoff II
----------------------------
John V. Atanasoff II
Chief Executive Officer
DATE: February 13, 1996
/s/ Bruce L. Arfmann
----------------------------
Bruce L. Arfmann
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,743,009
<SECURITIES> 0
<RECEIVABLES> 3,293,916
<ALLOWANCES> 0
<INVENTORY> 1,172,695
<CURRENT-ASSETS> 10,047,972
<PP&E> 378,241
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,085,540
<CURRENT-LIABILITIES> 5,487,840
<BONDS> 0
0
0
<COMMON> 3,713,653
<OTHER-SE> 1,884,047
<TOTAL-LIABILITY-AND-EQUITY> 11,085,540
<SALES> 9,150,454
<TOTAL-REVENUES> 9,150,454
<CGS> 5,977,940
<TOTAL-COSTS> 2,508,744
<OTHER-EXPENSES> (286,468)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 950,238
<INCOME-TAX> 306,000
<INCOME-CONTINUING> 644,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 644,238
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
