<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 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 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, 1997, the Company had 7,007,876 shares of Common Stock
outstanding. Transitional Small Business Disclosure Format (Check One):
Yes _______ No ___X___
<PAGE>
COLORADO MEDTECH, INC.
FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Consolidated Balance Sheet - December 31, 1996 3
Consolidated Statements of Operations - Three and
six-months ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows - Six-months
ended December 31, 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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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,700,028
Short-term investments 4,769,390
Accounts receivable, net 3,662,432
Inventories, net 2,042,456
Deferred income taxes and other current assets 930,241
-----------
Total current assets 13,104,547
-----------
EQUIPMENT AND FURNITURE, net 441,902
-----------
LAND, DEFERRED INCOME TAXES AND OTHER ASSETS 834,408
-----------
TOTAL ASSETS $14,380,857
-----------
-----------
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, 1996
(UNAUDITED)
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,138,638
Accrued salaries and wages 835,101
Accrued product service costs 468,026
Customer deposits 1,948,853
Other accrued expenses 1,359,760
-----------
Total current liabilities 6,750,378
-----------
SHAREHOLDERS' EQUITY:
Common stock 3,848,999
Retained earnings 3,781,480
-----------
Total shareholders' equity 7,630,479
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,380,857
-----------
-----------
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>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
SALES AND SERVICE $ 5,777,072 $4,931,220 $11,065,374 $9,150,454
COST OF SALES AND SERVICE 3,733,673 3,242,258 7,233,713 5,977,940
----------- ---------- ----------- ----------
GROSS PROFIT 2,043,399 1,688,962 3,831,661 3,172,514
----------- ---------- ----------- ----------
COSTS AND EXPENSES:
Marketing and selling 265,594 216,467 512,428 447,523
Operating, general and
administrative 971,542 1,032,579 1,923,343 2,042,985
Research and development 70,381 15,945 133,826 18,236
----------- ---------- ----------- ----------
Total operating expenses 1,307,517 1,264,991 2,569,597 2,508,744
----------- ---------- ----------- ----------
EARNINGS FROM OPERATIONS 735,882 423,971 1,262,064 663,770
OTHER INCOME, net 58,852 107,390 111,005 286,468
----------- ---------- ----------- ----------
EARNINGS BEFORE INCOME TAXES 794,734 531,361 1,373,069 950,238
Provision for income taxes 303,000 196,000 428,000 306,000
----------- ---------- ----------- ----------
NET INCOME $ 491,734 $ 335,361 $ 945,069 $ 644,238
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
Primary $ .05 $ .05 $ .10 $ .09
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Fully Diluted $ .05 $ .04 $ .10 $ .08
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING
Primary 11,122,548 7,201,385 11,067,254 7,151,257
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Fully Diluted 11,122,548 8,392,462 11,067,254 8,383,466
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</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, 1996 AND 1995
(UNAUDITED)
1996 1995
---------- ----------
OPERATING ACTIVITIES:
Net income $ 945,069 $ 644,238
Adjustment to reconcile net income to net
cash flows from operating activities-
Deferred tax benefit (80,000) -
Depreciation and amortization 193,570 211,318
Gain on sale of product line - (121,986)
Change in assets and liabilities-
Accounts receivable, net (104,736) (222,101)
Inventories, net (339,820) (250,958)
Prepaid and other assets (127,076) 25,848
Accounts payable and accrued expenses 588,952 (514,876)
Customer deposits (505,031) 38,898
---------- ----------
Net cash flows from operating activities 570,928 (189,619)
---------- ----------
INVESTING ACTIVITIES:
Decrease (increase) in short-term investments, net 638,872 (576,897)
Proceeds from sale of product line - 250,000
Capital expenditures (259,768) (54,431)
---------- ----------
Net cash flows from investing activities 379,104 (381,328)
---------- ----------
FINANCING ACTIVITIES:
Issuance of common stock 135,347 -
---------- ----------
Net cash flows from financing activities 135,347 -
---------- ----------
Net change in cash and cash equivalents 1,085,379 (570,947)
Cash and cash equivalents, beginning 614,649 2,144,384
---------- ----------
Cash and cash equivalents, ending $1,700,028 $1,573,437
---------- ----------
---------- ----------
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, 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 December 31, 1996, the results of its
operations for the three and six-month periods ended December 31, 1996 and
1995 and its cash flows for the six-month periods ended December 31, 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 six-month periods ended December 31, 1996 and 1995,
respectively:
1996 1995
-------- --------
Cash paid for interest $ 26,854 $ 36,571
Cash paid for income taxes $375,000 $495,000
NOTE 2 - DEBT
On October 30, 1996, the Company renewed a financing arrangement with a bank
that provides for a $4 million revolving line of credit at the lender's prime
rate through October 30, 1997. 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
January 31, 1997.
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<PAGE>
NOTE 3 - EARNINGS PER SHARE
Earnings per share are 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 and six-month periods ended December 31, 1996 and 1995 are computed
under the treasury stock method. For the three and six-month periods ended
December 31, 1996, net income is increased by approximately $56,000 and
$110,000 respectively (for both primary and fully diluted earnings per share)
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.
NOTE 4 - STOCK OPTIONS
During the quarter ended December 31, 1996, the Company issued 271,700 incentive
stock options to certain employees, including two officers of the Company. The
options to purchase the Company's common stock were issued at an exercise price
of $3.03 per share, which was the fair market value of the Company's common
stock on the date of the grant. The options are exercisable for five years from
the date of grant.
The Company had 102,782 stock options exercised by certain employees, including
an officer of the Company, during the quarter ended December 31, 1996. The
stock options were exercised at a price per share ranging from $1.25 to $1.66.
The exercise of the stock options for common stock increased the equity of the
Company by $135,347.
NOTE 5 - PROPOSED ACQUISITION
The Company announced in December, 1996 that it had entered into an agreement to
acquire Novel Biomedical, Inc. (Novel). The transaction is expected to close by
the end of February, 1997.
Novel, a privately-held company located in Minnesota, specializes in the custom
design, development, and manufacture of unique disposable medical devices,
primarily catheters, used in angioplasty, minimally invasive surgery,
electrophysiology, and infertility. Novel has annual revenues of approximately
$2 million.
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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, 1996 and
1995, and the percentage change in those items for the three and six-month
periods ended December 31, 1996, from the comparable periods in 1995.
<TABLE>
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,
- ------------------- ------------------ ------------------ ------------------
1996 1995 1996 1995 LINE ITEMS 1996 1995
----- ----- ----- ----- ---------- ---- ----
% % % % % %
<C> <C> <C> <C> <S> <C> <C>
100.0 100.0 100.0 100.0 Sales and Service 17.2 20.9
64.6 65.8 65.4 65.3 Cost of Sales and Services 15.2 21.0
35.4 34.2 34.6 34.7 Gross Profit 21.0 20.8
4.6 4.4 4.6 4.9 Marketing and Selling 22.7 14.5
16.8 20.9 17.4 22.3 Operating, Gen'l and Admin (5.9) (5.9)
1.2 .3 1.2 .2 Research and Development 341.4 633.9
22.6 25.6 23.2 27.4 Total Operating Expenses 3.4 2.4
12.8 8.6 11.4 7.3 Earnings from Operations 73.6 90.1
1.0 2.2 1.0 3.1 Other Income, Net (45.2) (61.3)
13.8 10.8 12.4 10.4 Earnings Before Income Taxes 49.6 44.5
5.3 4.0 3.9 3.3 Provision for Income Taxes 54.6 39.9
8.5 6.8 8.5 7.1 NET INCOME 46.6 46.7
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS
The Company reported net income of $491,734 and $945,069, respectively, for
the three and six-month periods ended December 31, 1996, compared to $335,361
and $644,238 for the same periods in the prior year. Earnings per share for
the three and six-months ended December 31, 1996 were $.05 and $.10,
respectively, calculated on 11,122,548 and 11,067,254 fully diluted weighted
average common share equivalents outstanding, respectively, compared to $.04
and $.08 for the same period in the prior year calculated on 8,392,462 and
8,383,466 fully diluted weighted average common equivalent shares.
Revenues increased to $5,777,072, or by 17%, and to $11,065,374, or by 21%,
for the three and six-month periods ended December 31, 1996, as compared to
the same periods 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 six-month period ended December 31, 1996 compared
to the same period in 1995. Gross margins remained at 34 - 35% for the three
and six-month periods ended December 31, 1996 and 1995.
Marketing and selling expenses increased 23% and 15%, respectively, for the
three and six-month periods ended December 31, 1996, as compared to the same
periods in the prior year. Marketing and selling expenses as a percentage of
total revenues were approximately 5% for the three and six-month periods
ended December 31, 1996 compared to approximately 4 - 5% for the same periods
in the prior year.
Operating, general and administrative expenses decreased 6% for the three and
six-month periods ended December 31, 1996, as compared to the same periods in
the prior year. As a percentage of revenues, operating, general and
administrative expenses decreased from 21% to 17% and from 22% to 17%
compared to the same three and six-month periods in the prior year. The
decrease in the operating, general and administrative expenses as a
percentage of revenues is due to the relatively fixed nature of these
expenses and the growth in sales during the three and six-month periods ended
December 31, 1996 compared to the same periods in the prior year.
Research and development expenses increased by $54,436 and $115,590,
respectively, for the three and six-month periods ended December 31, 1996
compared to the same three and six-month periods in 1995. The increase is a
result of the Company's greater emphasis on developing proprietary products.
Research and development expenses are attributable primarily to the Company's
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 $58,852 and $111,005, respectively, for the three
and six-month periods ended December 31, 1996. Included in other income is a
gain of approximately $122,000 from the sale of the cardiopulmonary product
lines in the three-month period ended September 30, 1995 and gains of
approximately $47,000 on two dispute settlements during the three-month
period ended December 31, 1995.
The provision for income taxes is 38% and 31% of earnings before income taxes
for the three and six-month periods ended December 31, 1996 compared to 37%
and 32% for the same periods in the prior year. The
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<PAGE>
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% for the six-months ended December 31, 1996 and 1995, due to
the fact that the Company reduced the valuation 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 renewed a bank financing arrangement on October 30, 1996 that
provides for a $4 million revolving line of credit at the bank's prime
lending rate, which matures October 30, 1997. 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 January 31, 1997.
The ratio of current assets to current liabilities was 1.9 to 1 at December
31, 1996, compared to 1.8 to 1 at June 30, 1996. The Company's working
capital increased approximately $921,000 from June 30, 1996 to December 31,
1996. Working capital increased primarily as a result of increased inventory
to support the backlog of orders and increases in accounts receivable due to
the growth in sales during the six-months ended December 31, 1996. The
average number of days outstanding of the Company's accounts receivable for
the six-month period ended December 31, 1996 was approximately 60 days,
compared to 63 days for the year ended June 30, 1996. The decrease in the
number of days outstanding is a result of an increased emphasis by the
Company on timely collection of accounts receivable. The Company has granted
extended payment terms to two customers which increased the average number of
days outstanding of the Company's accounts receivable by 8 days for the
six-month period ended December 31, 1996.
Cash provided by operations during the six-months ended December 31, 1996 was
approximately $571,000, an increase of approximately $761,000 compared to the
same period in the prior year. The increase in cash provided is a result of
the decrease in the average number of days outstanding of the Company's
accounts receivable and an increase in accounts payable and accrued expenses.
During the six-months ended December 31, 1996, the Company acquired
approximately $260,000 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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<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 12, 1997
/s/ JOHN V. ATANASOFF II
------------------------------------
John V. Atanasoff II
Chief Executive Officer
DATE: February 12, 1997
/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 Primary and Fully Diluted Earnings 14
Per Share for the Three and Six-Month Periods
Ended December 31, 1996
27 Financial Data Schedule for the Six-Month Period 15
Ended December 31, 1996
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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 and Six-Month Periods Ended December 31, 1996
<TABLE>
Three-Months Ended Six-Months Ended
December 31, 1996 December 31, 1996
Primary and Primary and
Fully Diluted Fully Diluted
------------------ -----------------
<S> <C> <C>
Net income $491,734 $945,069
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) 55,528 109,846
---------- ----------
Adjusted net income $ 547,262 $1,054,915
---------- ----------
---------- ----------
Weighted average common shares outstanding 6,909,649 6,905,705
Plus - Common stock equivalents 5,594,829 5,542,690
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 (1,381,930) (1,381,141)
---------- ----------
Adjusted weighted common shares outstanding 11,122,548 11,067,254
---------- ----------
---------- ----------
Fully diluted net income per share $ .05 $ .10
---------- ----------
---------- ----------
</TABLE>
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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 12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,700,028
<SECURITIES> 4,769,390
<RECEIVABLES> 3,662,432
<ALLOWANCES> 0
<INVENTORY> 2,042,456
<CURRENT-ASSETS> 13,104,547
<PP&E> 441,902
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,380,857
<CURRENT-LIABILITIES> 6,750,378
<BONDS> 0
0
0
<COMMON> 3,848,999
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,380,857
<SALES> 11,065,374
<TOTAL-REVENUES> 11,065,374
<CGS> 7,233,713
<TOTAL-COSTS> 2,569,597
<OTHER-EXPENSES> (111,005)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,373,069
<INCOME-TAX> 428,000
<INCOME-CONTINUING> 945,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 945,069
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
