<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 0-12471
-------
COLORADO MEDTECH, INC.
--------------------------------------------------
(Exact name of issuer as specified in its charter)
COLORADO 84-0731006
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6175 LONGBOW DRIVE, BOULDER, COLORADO 80301
-------------------------------------------
(Address of principal executive offices)
(303) 530-2660
---------------------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the preceding 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, 1998, the Company had 10,633,431 shares of Common Stock
outstanding.
<PAGE>
COLORADO MEDTECH, INC.
FORM 10-Q
PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements:
Consolidated Balance Sheets -
December 31, 1997 (Unaudited) and June 30, 1997 3
Consolidated Statements of Operations (Unaudited)-
Three and six-months ended
December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited) -
Six-months ended
December 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
-----------------
Item 2. Changes in Securities 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
December 31, 1997 June 30, 1997
----------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,764,229 $ 1,670,821
Short-term investments 4,006,061 10,293,101
Accounts receivable, net 9,815,634 5,240,107
Inventories, net 5,179,120 2,390,267
Deferred income taxes and other
current assets 1,083,609 990,942
----------- -----------
Total current assets 22,848,653 20,585,238
----------- -----------
EQUIPMENT AND FURNITURE, net 1,433,380 678,404
----------- -----------
GOODWILL, net 2,764,779 1,628,326
----------- -----------
LAND, DEFERRED INCOME TAXES
AND OTHER ASSETS 1,156,817 961,465
----------- -----------
TOTAL ASSETS $28,203,629 $23,853,433
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
3
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND
SHAREHOLDERS' EQUITY
<TABLE>
December 31, 1997 June 30, 1997
----------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,460,489 $ 3,075,225
Accrued salaries and wages 1,962,864 1,805,770
Accrued product service costs 404,436 373,629
Customer deposits 3,398,612 3,175,530
Other accrued expenses 732,123 1,031,045
----------- -----------
Total current liabilities 9,958,524 9,461,199
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 11,322,290 9,076,206
Retained earnings 6,922,815 5,316,028
----------- -----------
Total shareholders' equity 18,245,105 14,392,234
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $28,203,629 $23,853,433
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
4
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES AND SERVICE $12,182,985 $5,777,072 $19,443,215 $11,065,374
COST OF SALES AND SERVICE 8,175,402 3,733,673 12,669,909 7,233,713
----------- ---------- ----------- -----------
GROSS PROFIT 4,007,583 2,043,399 6,773,306 3,831,661
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Marketing and selling 446,836 265,594 779,194 512,428
Operating, general and administrative 1,964,112 971,542 3,470,999 1,923,343
Research and development 460,026 70,381 505,650 133,826
----------- ---------- ----------- -----------
Total operating expenses 2,870,974 1,307,517 4,755,843 2,569,597
----------- ---------- ----------- -----------
EARNINGS FROM OPERATIONS 1,136,609 735,882 2,017,463 1,262,064
OTHER INCOME, net 61,470 58,852 255,325 111,005
----------- ---------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 1,198,079 794,734 2,272,788 1,373,069
Provision for income taxes 255,000 303,000 666,000 428,000
----------- ---------- ----------- -----------
NET INCOME $ 943,079 $ 491,734 $ 1,606,788 $ 945,069
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
NET INCOME PER SHARE
Basic $ .09 $ .07 $ .16 $ .14
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Diluted $ .08 $ .06 $ .13 $ .11
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,466,997 6,909,649 10,174,084 6,905,705
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Diluted 12,156,124 8,888,584 11,987,737 8,814,422
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
COLORADO MEDTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,606,788 $ 945,069
Adjustment to reconcile net income
to net cash flows from
operating activities-
Deferred tax benefit (198,000) (80,000)
Depreciation and amortization 440,233 193,570
Non-cash consulting services 53,298 -
Change in assets and liabilities-
Accounts receivable, net (2,388,711) (104,736)
Inventories, net (578,739) (339,820)
Deferred income taxes and other assets 122,742 (127,076)
Accounts payable and accrued expenses 274,241 588,952
Customer deposits 223,082 (505,031)
----------- ----------
Net cash flows from operating activities (445,066) 570,928
----------- ----------
INVESTING ACTIVITIES:
Cash paid for purchase of Erbtec, net (5,392,731) -
Decrease in short-term investments, net 6,287,040 638,872
Capital expenditures (727,665) (259,768)
Other long-term investments (200,000) -
----------- ----------
Net cash flows from investing activities (33,356) 379,104
----------- ----------
FINANCING ACTIVITIES:
Issuance of common stock 1,571,830 135,347
----------- ----------
Net cash flows from financing activities 1,571,830 135,347
----------- ----------
Net change in cash and cash equivalents 1,093,408 1,085,379
Cash and cash equivalents, beginning 1,670,821 614,649
----------- ----------
Cash and cash equivalents, ending $ 2,764,229 $1,700,028
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
COLORADO MEDTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
(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 26,
1997. 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, 1997 and the results of its
operations and its cash flows for the six-month periods ended December 31,
1997 and 1996. 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, 1997 and 1996, respectively:
1997 1996
---- ----
Cash paid for interest $ 14,849 $ 26,854
Cash paid for income taxes $673,000 $375,000
NOTE 2 - DEBT
On October 30, 1997, the Company was approved for a three year revolving line of
credit for $5 million the first year, $7 million the second year and $9 million
the third year. The credit facility is at the bank's prime lending rate through
the term of the agreement and is secured by all accounts receivable, 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 this credit facility as of December 31, 1997.
NOTE 3 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", which was
effective December 15, 1997. This statement establishes standards for computing
and presenting earnings per share. Basic earnings per share are computed on the
basis of the weighted average shares outstanding during each period. Diluted
earnings per share are computed on the basis
7
<PAGE>
of the weighted average shares outstanding during each period, including
dilutive common equivalent shares for stock options and warrants.
Had this statement not been adopted as of December 31, 1997, primary and
fully diluted earnings per share for the three and six-month periods ended
December 31, 1997 and 1996 would be computed using the treasury stock method,
under the Accounting Principles Board Opinion No. 15, "Earnings Per Share".
For the three and six-month periods ended December 31, 1996, net income would
be 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.
No such adjustment is required for the six-months ended December 31, 1997.
Under the prior method, earnings per share would have been as follows:
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary earnings per share $.08 $.05 $.13 $.10
Fully diluted earnings per share $.08 $.05 $.13 $.10
</TABLE>
NOTE 4 - STOCK AND STOCK OPTIONS
During the quarter ended December 31, 1997, the Company issued 568,400 incentive
stock options to certain employees, including three officers of the Company.
The options to purchase the Company's common stock were issued at exercise
prices ranging from $6.41 to $6.94 per share, which were the fair market values
of the Company's common stock on the dates of the grants. The options are
exercisable for a period of five or six years from the date of grant. During
the quarter ended September 30, 1997, the Company issued 250,000 incentive stock
options to an officer of RELA, Inc. ("RELA"), a subsidiary of the Company. The
options to purchase the Company's common stock were issued at an exercise price
of $5.47 per share, which was the fair market value of the Company's common
stock on the date of the grant. These options are exercisable for five years
from the date of grant.
The Company had 229,530 stock options exercised by certain employees and
consultants, including two officers of the Company, during the six-months ended
December 31, 1997. The stock options were exercised at a price per share
ranging from $1.04 to $3.03, resulting in cash proceeds to the Company of
approximately $207,000 and cancellation of 20,310 shares of previously issued
common stock that were used in lieu of cash to exercise the options.
During the six-months ended December 31, 1997, 144,695 Director and consultant
warrants were exercised for common stock. The warrants were exercised at prices
per share ranging from $1.25 to $3.00, resulting in cash proceeds to the Company
of approximately $244,000.
8
<PAGE>
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.
During June 1997, the Company called all of the private placement warrants that
had not previously been exercised. During fiscal 1997, 2,070,000 of these
warrants were exercised for approximately $4,631,000. The remaining 930,000
warrants were exercised during July and August of 1997 at a price per share
ranging from $1.41 to $2.68, resulting in cash proceeds to the Company of
approximately $1,121,000 and cancellation of 142,505 shares of previously issued
common stock that were used in lieu of cash to exercise the warrants.
NOTE 5 - ACQUISITIONS
In October 1997, the Company completed the acquisition of the operating assets
of Erbtec Engineering, Inc. ("Erbtec"). Erbtec, located in Boulder, Colorado,
had annualized revenues of approximately $12.0 million and income before taxes
of approximately $2.0 million. Erbtec's main products are high power radio
frequency (RF) amplifiers, power supplies and systems for Magnetic Resonance
Imaging (MRI) equipment. The purchase was completed for $5.35 million cash and
issuance of 88,708 shares of common stock, resulting in a total purchase value
of approximately $6.0 million, including acquisition costs. The purchase price,
less the net assets acquired, resulted in goodwill of $1.23 million that will be
amortized over a 5-year period. The accompanying consolidated financial
statements include the operating results of Erbtec since October 1, 1997, the
effective date of the acquisition. The total purchase price and net cash used
for the acquisition of Erbtec are as follows:
<TABLE>
<S> <C>
Assets acquired:
Cash $ 8,882
Accounts receivable 2,186,816
Inventories 2,210,114
Equipment and furniture 373,227
Other assets 12,757
Goodwill 1,230,773
-----------
Total purchase price 6,022,569
Less:
Stock issued (620,956)
Cash acquired (8,882)
-----------
Net cash paid for purchase of Erbtec: $ 5,392,731
-----------
-----------
</TABLE>
In February 1997, the Company completed the acquisition of Novel Biomedical,
Inc. ("Novel"), located in Plymouth, Minnesota, which specializes in the custom
design, development, and manufacture of unique disposable medical devices,
primarily catheters, used in angioplasty, minimally invasive surgery,
electrophysiology and infertility. The Company acquired Novel for $1,899,196,
which included cash, the
9
<PAGE>
issuance of 70,000 shares of common stock, and the grant of 294,211
non-qualified stock options. The stock was valued at the fair market value
on the date the Agreement and Plan of Reorganization was entered into between
CMED and Novel. The non-qualified stock options were valued using the
Black-Scholes option pricing model. The purchase price, less the net assets
acquired, resulted in goodwill of $1,661,557 that is being amortized over a
25-year period. The accompanying consolidated financial statements include
the operating results of Novel since January 3, 1997, the effective date of
the acquisition.
The following unaudited pro forma results of operations of the Company for
the six-months ended December 31, 1997 and 1996 assumes that the acquisitions
of Erbtec and Novel had both occurred on July 1, 1996. These pro forma
results are not necessarily indicative of the actual results of operations
that would have been achieved nor are they necessarily indicative of future
results of operations.
<TABLE>
Six-Months Ended December 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues $22,895,000 $19,138,000
Net Income $ 1,800,000 $ 1,651,000
Net Income Per Share (Diluted)
$ .15 $ .18
</TABLE>
10
<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, 1997 and 1996, and the
percentage change in those items for the three and six-month periods ended
December 31, 1997, from the comparable periods in 1996.
<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,
------------------ ------------------ ------------------ ------------------
1997 1996 1997 1996 LINE ITEMS 1997 1997
---- ---- ---- ---- ---------- ---- ----
% % % % % %
<S> <C> <C> <C> <C> <C> <C>
100.0 100.0 100.0 100.0 Sales and Service 110.9 75.7
67.1 64.6 65.2 65.4 Cost of Sales and Services 119.0 75.2
32.9 35.4 34.8 34.6 Gross Profit 96.1 76.8
3.7 4.6 4.0 4.6 Marketing and Selling 68.2 52.1
16.1 16.8 17.9 17.4 Operating, Gen'l and Admin 102.2 80.5
3.8 1.2 2.6 1.2 Research and Development 553.6 277.8
23.6 22.6 24.5 23.2 Total Operating Expenses 119.6 85.1
9.3 12.8 10.4 11.4 Earnings from Operations 54.5 59.9
.5 1.0 1.3 1.0 Other Income, Net 4.4 130.0
9.8 13.8 11.7 12.4 Earnings Before Income Taxes 50.8 65.5
2.1 5.3 3.4 3.9 Provision for Income Taxes (15.8) 55.6
7.7 8.5 8.3 8.5 NET INCOME 91.8 70.0
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
Revenues increased to $12,182,985, or by 111%, and to $19,443,215, or by 76%,
for the three and six-month periods ended December 31, 1997, as compared to the
same periods in the prior year. The increase in revenues is attributable to the
core business growth of RELA, Inc. ("RELA") which had increases in revenues of
41% and 36% for the three and six-month periods ended December 31, 1997,
compared to the same periods in 1996. This increase in revenues is a reflection
of the increase in the backlog of orders for services and shipment of products
at June 30, 1997, compared to June 30, 1996. The Company's revenue growth also
was the result of the acquisition of Novel Biomedical, Inc. ("Novel"), effective
January 1997, and of Erbtec Engineering, Inc. ("Erbtec") in October 1997, which
contributed approximately $4,206,000 and $5,085,000 of revenue during the three
and six-month periods ended December 31, 1997.
Gross margins decreased to 33% from 35% for the quarter ended December 31, 1997,
compared to the same quarter in the prior year. The decrease in the Company's
margins is a result of the shifting composition of the Company's revenues
between products and service. Gross margins remained at 35% for the six-months
ended December 31, 1997, compared to the same period in 1996.
Marketing and selling expenses increased 68% and 52%, respectively, for the
three and six-month periods ended December 31, 1997, as compared to the same
periods in the prior year. Marketing and selling expenses as a percentage of
total revenues were approximately 4% for the three and six-month periods ended
December 31, 1997 compared to approximately 5% for the same periods in the prior
year. The increase is attributable to the growth in sales and the acquisitions
of Erbtec and Novel.
Operating, general and administrative expenses increased 102% and 80% for the
three and six-month periods ended December 31, 1997, as compared to the same
periods in the prior year. As a percentage of revenues, operating, general and
administrative expenses decreased from 17% to 16% and increased from 17% to 18%,
compared to the same three and six-month periods in the prior year. The
increase is attributable to the acquisitions of Erbtec and Novel, expenses
incurred in August 1997 in moving the RELA manufacturing facility from Boulder,
Colorado to Longmont, Colorado, the addition of executive personnel at RELA and
the overall growth of the Company.
Research and development expenses increased by $389,645 and $371,824,
respectively, for the three and six-month periods ended December 31, 1997,
compared to the same three and six-month periods in 1996. Research and
development expenses are attributable to the respiratory product line and to new
products at Erbtec. 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 increased to $61,470 and $255,325, respectively, for the three and
six-month periods ended December 31, 1997. The increase is due to the Company
having on average approximately $5 million more of investment capital during the
quarter ended September 30, 1997, compared to the same period in 1996.
The provision for income taxes is 21% and 29% of earnings before income taxes
for the three and six-month periods ended December 31, 1997, compared to 38% and
31% for the same periods in the prior year. The Company's provision for income
taxes, as a percentage of earnings before income taxes, has been less than the
12
<PAGE>
ordinary combined Federal and state tax rate of approximately 38% due to the
fact that the Company reduced the valuation allowance on a net operating loss
carryforward. At December 31, 1997, the Company's valuation allowance
associated with net operating loss carryforward was approximately $392,000.
The Company reported net income of $943,079 and $1,606,788, respectively, for
the three and six-month periods ended December 31, 1997, compared to $491,734
and $945,069 for the same periods in the prior year. Earnings per share for the
three and six-month periods ended December 31, 1997 were $.08 and $.13,
respectively, calculated on 12,156,124 and 11,987,737 diluted weighted average
shares outstanding, compared to $.06 and $.11 for the same period in the prior
year calculated on 8,888,584 and 8,814,422 diluted weighted average shares.
This increase in net income is attributed to the 111% and 76% growth in the
Company's revenues during the three and six-month periods ended December 31,
1997, while having a 2% decrease in the gross margin for the three-month period
ended December 31, 1997, compared to the same period in the prior year, and
maintaining the gross margin for the six-months ended December 31, 1997,
compared to the same period in 1996. Expense as a percentage of revenues
increased 1% for the three and six-month periods ended December 31, 1997,
compared to the same period in 1996.
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 and cash
proceeds from the issuance of common stock. Historically, the Company has also
utilized proceeds from debt borrowings.
The Company has a bank financing arrangement that provides for a three year
revolving line of credit for $5 million the first year, $7 million the second
year and $9 million the third year. The credit facility is at the bank's prime
lending rate through the term of the agreement and is secured by all accounts
receivable, 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 this credit facility as of December 31, 1997.
The ratio of current assets to current liabilities was 2.3 to 1 at December 31,
1997, compared to 2.2 to 1 at June 30, 1997. The Company's working capital
increased approximately $1.8 million since June 30, 1997. Working capital
increased primarily as a result of continued profitability of the business and
the proceeds from the issuance of common stock. The average number of days
outstanding of the Company's accounts receivable for the three and six-months
ended December 31, 1997 was approximately 66 and 71 days, compared to 57 days
for the year ended June 30, 1997. The increase in the number of days
outstanding is a result of extended payment terms granted to customers, which
increased the average number of days outstanding of the Company's accounts
receivable by 12 and 11 days for the three and six-month periods ended December
31, 1997, and the slow payment of several large customers. Management believes
that the average days outstanding will return to historical levels by the end of
the current fiscal year.
The Company used approximately $445,000 of cash for operations during the
six-month period ended December 31, 1997, primarily for the purchase of
inventory to support new orders and due to the increase in days outstanding
of accounts receivable.
13
<PAGE>
During the six-months ended December 31, 1997, the Company made capital
expenditures of $727,665 of property and equipment consisting principally
of computer and manufacturing equipment.
The Company had no material commitments for capital expenditures at December 31,
1997.
FORWARD -- LOOKING STATEMENTS
The statements contained in this report 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 forward-looking statements including, but not limited to, the risk
that a downturn in general economic conditions may tend to adversely affect
research and development budgets of potential customers upon which the Company
is dependent, the risk that the Company's project-oriented revenues could be
delayed or adversely affected if new contracts are not in place when existing
contracts are completed, and the risk that the nature of bidding and performing
research and development-type contracts may result in short-term fluctuations in
revenue or expense that could adversely affect quarterly results.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) The Company sold the following unregistered securities in the three-month
period ended December 31, 1997.
On October 1, 1997, the Company issued 88,708 shares of common stock to
the controlling shareholder of Erbtec Engineering, Inc., as part of the
consideration for the acquisition of that business. The Company believes
this sale was private in nature and was exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Section 4(2) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K during the second quarter of the Company's fiscal year
ending June 30, 1998:
1. Form 8-K, dated October 1, 1997 filed on October 10, 1997, reporting the
acquisition of Erbtec Engineering, Inc.
2. Form 8-K/A, dated October 1, 1997, filed on December 9, 1997, with
financial statements resulting from the acquisition of the assets of
Erbtec Engineering, Inc.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Colorado MEDtech, Inc.
(Registrant)
DATE: February 9, 1998
/s/ John V. Atanasoff II
-------------------------------
John V. Atanasoff II
Chief Executive Officer
DATE: February 9, 1998
/s/ Bruce L. Arfmann
-------------------------------
Bruce L. Arfmann
Chief Financial Officer
16
<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. (E)
10.32 Employment Agreement between Colorado MEDtech, Inc. and
John V. Atanasoff, II. (F)
10.33 Standstill Agreement dated June 30, 1994 between Vencor, Inc.
and Colorado MEDtech, Inc. (G)
10.34 Product Development Agreement dated June 30, 1994 between
Vencor, Inc. and Colorado MEDtech, Inc. (G)
10.35 Employment Agreement between Colorado MEDtech, Inc. and
Bruce L. Arfmann (H)
10.37 Employment Agreement between Colorado MEDtech, Inc. and
Lockett E. Wood (H)
10.38 Extension of Employment Agreement between Colorado MEDtech, Inc. and
John V. Atanasoff, II (I)
10.39 Agreement and Plan of Reorganization among Colorado MEDtech, Inc.,
Novel Biomedical, Inc. and Jonathan Kagan (J)
10.40 Employment Agreement between Novel Biomedical, Inc. and Jonathan Kagan
(K)
10.41 Employment Agreement between Colorado MEDtech, Inc. and Lee Erb (L)
10.42 Colorado MEDtech, Inc. 1996 Employee Stock Purchase Plan as Amended on
November 21, 1997, Effective as of January 1, 1998
10.43 Asset Purchase Agreement by and among Colorado MEDtech, Inc. Erbtec
Engineering, Inc., and Lee Erb dated October 1, 1997 (M)
21.1 Subsidiaries of Small Business Issuer (K)
27.1 Financial Data Schedule for the six-months ended December 31, 1997
</TABLE>
(A) Filed as an 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 Proxy Statement for for the November
22, 1996 Annual Meeting of Shareholders.
(F) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
June 21, 1993
(G) Filed as an exhibit to Schedule 13D Amendment No. 2 dated July 18, 1994
filed by Vencor, Inc.
(H) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1994.
(I) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1996.
(J) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
February 28, 1997.
(K) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1997.
(L) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(M) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 1, 1997.
17
<PAGE>
COLORADO MEDTECH, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED AND RESTATED ON NOVEMBER 21, 1997
EFFECTIVE AS OF JANUARY 1, 1998
1) PURPOSE
This Employee Qualified Stock Purchase Plan (the "Plan") is intended to
serve as an incentive and to encourage stock ownership by all eligible employees
of Colorado MEDtech, Inc. (the "Company") and participating subsidiaries (as
defined in Section 17 hereof) so that they may share in the fortunes of the
Company by acquiring or increasing their proprietary interest in the Company.
The Plan is designed to encourage eligible employees to remain in the employ of
the Company. It is intended that options issued pursuant to the Plan shall
constitute options issued pursuant to an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
2) ELIGIBLE EMPLOYEES
All employees of the Company or any of its participating subsidiaries who
have completed three (3) months of employment with the Company or any of its
participating subsidiaries ("Eligible Employees") prior to the beginning of any
Payment Period (as hereinafter defined) (or July 1, in the case of new
Participants or Participants electing to increase their participation in the
second half of any Payment Period) shall be eligible to receive options under
the Plan to purchase the Company's Common Stock, no par value (the "Stock"). In
no event may an employee be granted an option if such employee, immediately
after the option is granted, owns stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or of its parent corporation or subsidiary corporation, as the terms "parent
corporation" and "subsidiary corporation" are defined in Section 424 (d) of the
Code shall apply and all stock which the employee may purchase under outstanding
options (notwithstanding that such options may not be presently exercisable)
shall be treated as stock owned by the employee.
For purposes of this Article 2, the term "employee" shall not include an
employee whose customary employment by the Company or participating subsidiary
is twenty (20) hours or less per week or is for not more than five (5) months in
any calendar year.
3) STOCK SUBJECT TO THE PLAN
The stock subject to the options issued under the Plan shall be shares of
the Company's authorized but unissued shares of Stock or shares of Stock
reacquired by the Company. The aggregate number of shares which may be issued
pursuant to the Plan is 240,000 subject to increase or decrease as provided
herein by reason of stock split-ups, reclassifications, stock dividends,
<PAGE>
changes in par value and the like. The maximum number of shares available
during each annual Payment Period shall not exceed 80,000 shares. If the
total number of shares to be purchased by all Participants on any exercise
date exceeds the number of shares then available for issuance under the Plan,
a pro rata allocation of the shares available shall be made in a uniform and
equitable manner.
4) PAYMENT PERIODS AND STOCK OPTIONS
The annual period, January 1 to December 31 is a payment period during
which payroll deductions will be accumulated under the Plan ("Payment
Periods"). The Plan will be implemented in three (3) annual Payment Periods
beginning January 1, 1997. Each Payment Period includes only regular pay
days falling within it.
One time each year, on the first business day of each Payment Period (or
July 1, in the case of new Participants, or Participants electing to increase
their participation in the second half of any Payment Period, but only to the
extent of such increase), the Company will grant to each eligible Employee
who has elected to participate in the Plan (a "Participant") an option to
purchase on the last day of such Payment Period, at the Option Price
hereinafter provided, such number of full shares of the Stock reserved for
the purposes of the Plan as his/her accumulated payroll deductions on the
last day of such Payment Period will pay for at such Option Price, provided
that such employee remains eligible to participate in the Plan throughout
such Payment Period. If the Payment Period terminates on a Saturday, Sunday
or legal holiday, then the last day of the Payment Period shall be the last
business day prior to December 31. The Option Price for each Payment Period
shall be the lesser of (i) 85% of the fair market value (as hereinafter
defined) of the Stock on the first business day of the Payment Period (or
July 1, in the case of new Participants, or Participants electing to increase
their participation in the second half of any Payment Period, but only to the
extent of such increase); or (ii) 85% of the fair market value of the Stock
on the last day of the Payment Period, in either case rounded up to avoid
fractions other than 1/8, 1/4, 1/2 and 3/4. In the event of an increase or
decrease in the number of outstanding shares of Stock through stock
split-ups, reclassifications, stock dividends, changes in par value and the
like, an appropriate adjustment shall be made in the number of shares and
Option Price per share provided for under the Plan, either by a proportionate
increase in the number of shares and a proportionate decrease in the Option
Price per share, or by a proportionate decrease in the number of shares and
proportionate increase in the Option Price per share, as may be required to
enable an Eligible Employee who is then a Participant in the Plan as to whom
an option is exercised on the last day of any then current Payment Period to
acquire such number of full shares as his/her accumulated payroll deduction
on such date will pay for at the adjusted Option Price. The determination of
what constitutes an "appropriate adjustment" shall be made by the Board of
Directors, whose determination thereof shall be final.
For purposes of this Plan the term "fair market value" means, if the
Stock is listed on a national securities exchange, the average of the high
and low prices of the Stock on such exchange or if the Stock is traded in the
over-the-counter securities market, the mean between the closing bid and
asked prices of the Stock.
2
<PAGE>
No employee shall be granted an option which permits his/her rights to
purchase Stock under the Plan and any other employee stock purchase plans of
the Company or any parent or subsidiary corporations to accrue at a rate
which exceeds $25,000 in fair market value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time. A right to purchase Stock under the Plan "accrues"
on the last day of the Payment Period. The purpose of the limitation in the
preceding sentence is to comply with Section 423(b)(8) of the Code.
5) EXERCISE OF OPTION
Each Participant who fails to withdraw from participation in the Plan on or
prior to the last business day of a Payment Period shall be deemed to have
exercised his/her option on such date and shall be deemed to have purchased from
the Company such number of full shares of Stock reserved for the purpose of the
Plan as his/her accumulated payroll deductions on such date will pay for at such
Option Price. If a Participant is not an employee on the last day of a Payment
Period, he/she shall not be entitled to exercise his/her option.
6) UNUSED PAYROLL DEDUCTIONS
Only full shares of Stock may be purchased. Any balance remaining in a
Participant's account after a purchase will be reported to the employee and will
be carried in the employee's account towards the purchase of additional shares
in the next Payment Period.
7) AUTHORIZATION FOR ENTERING PLAN
An Eligible Employee may elect to participate in the Plan by completing,
signing and delivering to the Company's Human Resources Manager an
authorization:
(a) stating the amount to be deducted regularly from his/her pay;
(b) authorizing the purchase of Stock for him/her in each Payment Period
in accordance with the terms of the Plan; and
(c) specifying the exact name in which stock purchased for him/her is to
be issued as provided under Article 11 hereof.
Such Authorization must be received by the Human Resources Manager at least
ten (10) days before the beginning date of a Payment Period (or July 1, in the
case of new Participants or Participants electing to increase their
participation in the second half of any Payment Period) to be effective for that
Payment Period.
Unless a Participant files a new Authorization or withdraws from the Plan,
his/her deductions and purchases under the Authorization he/she has on file
under the Plan will continue as long as the
3
<PAGE>
Plan remains in effect.
The Company will accumulate and hold for the Participant's account the
amounts deducted from his/her pay. Interest earned, if any, will be credited to
the Participant's account for the purchase of additional shares.
8) MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS
An employee may make lump sum contributions (but not later than the first
day of a Payment Period or July 1, in the case of new Participants or
Participants electing to increase their participation in the second half of any
Payment Period) or authorize payroll deductions spread evenly over a Payment
Period in any even dollar amount up to, but not more than, ten percent (10%) of
his/her regular base pay in any payroll period, over that Payment Period;
provided, however, that the minimum deduction in respect of any payroll period
shall be Five Dollars ($5.00) (or such lesser amount as the Board shall
establish).
9) CHANGE IN PAYROLL DEDUCTIONS; LUMP SUM CONTRIBUTION
Deductions may be decreased only once in a Payment Period. In addition, an
employee may make lump sum contributions to the Plan (but not later than the
first day of a Payment Period or July 1, in the case of new Participants or
Participants electing to increase their participation in the second half of any
Payment Period) or elect to increase payroll deductions in the second half of a
Payment Period. A new Authorization will be required and must be received by
the Human Resources Manager at least ten (10) days before the end of the payroll
period for which it is to become effective. A new Authorization to increase
deductions or make a lump sum contribution in the second half of a Payment
Period must be received by the Human Resources Manager at least ten (10) days
before the beginning of that half of such Payment Period
10) WITHDRAWAL FROM THE PLAN
A participant may withdraw from the Plan in whole but not in part, at any
time prior to the fifteenth (15th) calendar date prior to the end of each
Payment Period or, if such day is not a business day, then the next succeeding
business day, by delivering a Withdrawal Notice to the Human Resources Manager,
in which event the Company will promptly refund the entire balance of his
deductions not theretofore used to purchase Stock under the Plan.
A Participant who has withdrawn from the Plan shall be treated as an
employee who has never elected to participate in the Plan. To re-enter the Plan
a new Authorization must be filed at least ten (10) days before the beginning
date of a Payment Period, which Authorization will not become effective before
the beginning of the next Payment Period.
11) ISSUANCE OF STOCK
4
<PAGE>
Certificates for Stock issued to Participants will be delivered as soon as
practicable after each Payment Period.
Stock purchased under the Plan will be issued only in the name of the
Participant, or if his/her Authorization so specified, in the name of the
Participant and another person of legal age as joint tenants with rights of
survivorship.
12) NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan may not be transferred to, assigned to,
or availed of by, any other person. Any option granted to an employee under
this Plan may be exercised only by him/her during his/her lifetime.
13) TERMINATION OF EMPLOYEE'S RIGHTS
An employee's rights to participate in, and a Participant's rights under,
the plan will terminate when he/she ceases to be an employee because of
retirement, resignation, layoff, discharge, death, change of status, or for any
other reason. A Withdrawal Notice will be considered as having been received
from a Participant on the day his/her employment ceases, and all payroll
deductions not used to purchase Stock will be refunded to him/her.
If a Participant's payroll deductions are interrupted by any legal process,
a Withdrawal Notice will be considered as having been received from him/her on
the day the interruption occurs.
14) TERMINATION AND AMENDMENTS TO PLAN
The Plan may be terminated at any time by the Company's Board of
Directors. It will terminate in any case when all or substantially all the
unissued shares of Stock reserved for the purposes of the Plan have been
purchased. If at any time shares of Stock reserved for the purposes of the
Plan remain available for purchase but not in sufficient number to satisfy
all then unfilled purchase requirements, the available shares shall be
apportioned among participants in proportion to their options and the Plan
shall terminate. Upon such termination or any other termination of the Plan,
all payroll deductions not used to purchase Stock will be refunded.
The Board of Directors also reserves the right to amend the Plan from time
to time, in any respect; provided, however, that no amendment shall be effective
without prior approval of the shareholders entitled to vote thereon, which would
(a) except as provided in Articles 3 and 4, increase the number of shares of
Stock to be offered under the Plan or (b) change the class of employees eligible
to participate in the Plan. Further, no amendment shall be made without prior
approval of the shareholders of the Company if such amendment would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934 or with Section 423 of the Internal Revenue Code.
5
<PAGE>
15) LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN; TAX MATTERS
Each Participant who is subject to Section 16(a) promulgated under the
Securities Exchange Act of 1934 (i.e., officers of the Company), will agree upon
entering the Plan to hold the Stock for a period of six (6) months after its
acquisition. Because of certain federal tax law requirements, each Participant
will agree upon entering the Plan, promptly to give the Chief Financial Officer
of the Company notice of any Stock disposed of within two (2) years after the
date of the first day of the Payment Period during which the Stock was purchased
under the Plan showing the number of such shares disposed of. The employee
assumes the risk of any fluctuations in the price of such Stock.
SATISFACTION OF WITHHOLDING OBLIGATIONS. The Company or participating
subsidiary may take such steps as it may deem necessary or appropriate for the
withholding of any taxes or funds which the Company or the participating
subsidiary is required by any law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with any Company stock received hereunder (collectively, "Withholding
Obligations"). Such steps may include, by way of example only and not
limitation, (i) requiring a Participant to remit to the Company in cash an
amount sufficient to satisfy such Withholding Obligations; (ii) allowing the
Participant to tender to the Company shares of Company stock, the fair market
value of which at the tender date the Committee determines to be sufficient to
satisfy such Withholding Obligations; (iii) withholding shares of Company stock
otherwise issuable upon the exercise of a stock option and which have a fair
market value at the exercise date sufficient to satisfy such Withholding
Obligations; or (iv) any combination of the foregoing.
NOTIFICATION OF INQUIRIES AND AGREEMENTS. Each Participant shall notify
the Company in writing within 10 days after the date such Participant (i) first
obtains knowledge of any Internal Revenue Service inquiry, audit, assertion,
determination, investigation, or question relating in any manner to the value of
Company stock or options purchased or granted hereunder; (ii) includes or agrees
(including, without limitation, in any settlement, closing or other similar
agreement) to include in gross income with respect to any Company stock or
option received under this Plan (A) any amount in excess of the amount reported
on Form 1099 or Form W-2 to such Participant by the Company, or (B) if no such
Form was received, any amount; (iii) exercises, sells, disposes of, or otherwise
transfers an option acquired pursuant to this Plan; or (iv) sells, disposes of,
or otherwise transfers stock acquired pursuant to the Plan within the
Disqualified Period. Upon request, a Participant shall provide to the Company
any information or document relating to any event described in the preceding
sentence which the Company (in its sole discretion) requires in order to
calculate and substantiate any change in the Company's Tax liability or
withholding obligations as a result of such event.
16) COMPANY'S PAYMENT OF EXPENSES RELATED TO PLAN
The Company will bear all costs of administering and carrying out the Plan.
17) PARTICIPATING SUBSIDIARIES
6
<PAGE>
The term "participating subsidiaries" shall mean any subsidiary of the
Company which is designated by the Board of Directors to participate in the
Plan. The Board of Directors shall have the power to make such designation
before or after the plan is approved by the stockholders.
18) ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors of the Company or
by a committee composed solely of two or more directors (the "Committee") each
of whom is a Non-Employee Director. A "Non-Employee Director" is a person who
satisfies the definition of a "non-employee director" set forth in Rule 16b-3,
as in effect from time to time, under the Securities Exchange Act of 1934, as
amended. The Board of Directors may from time to time, remove members from, or
add members to, the Committee. Vacancies on the Committee, however caused,
shall be filled by the Board of Directors. The Committee shall select one of
its members as Chairman, and shall hold meetings at such times and places as it
may determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee.
The interpretation and construction of any provision of the Plan and
adoption of rules and regulations for administering the Plan will be made by the
Committee, subject, however, at all times to the final jurisdiction which shall
rest in the Board. Determinations made by the Committee and approved by the
Board with respect to any matter or provision contained in the Plan will be
final, conclusive and binding upon the Company and upon all Participants, their
heirs or legal representatives. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it. No member of the
Committee shall be eligible to participate in the Plan while serving as a member
of the Committee.
19) OPTIONEES NOT STOCKHOLDERS
Neither the granting of an option to an employee nor the deductions from
his/her pay shall constitute such employee a stockholder of the shares covered
by an option until such shares have been purchased by a certificate representing
such shares has been issued to him/her.
20) GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver shares of the Stock under this
Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such stock.
21) EFFECTIVENESS OF THE PLAN
The Plan shall become effective September 27, 1996, the date of its
adoption by the Board of Directors, subject to the approval of the holders of a
majority of the securities of the Company
7
<PAGE>
entitled to vote, which approval must occur within the period beginning
twelve (12) months before the ending twelve (12) months after the date the
Plan is adopted by the Board of Directors. Anything to the contrary
notwithstanding, no Stock may be issued under the Plan until such shareholder
approval is obtained.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,764,229
<SECURITIES> 4,006,061
<RECEIVABLES> 9,815,634
<ALLOWANCES> 0
<INVENTORY> 5,179,120
<CURRENT-ASSETS> 22,848,653
<PP&E> 1,433,380
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,203,629
<CURRENT-LIABILITIES> 9,958,524
<BONDS> 0
0
0
<COMMON> 11,322,290
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,203,629
<SALES> 19,443,215
<TOTAL-REVENUES> 19,443,215
<CGS> 12,669,909
<TOTAL-COSTS> 4,755,843
<OTHER-EXPENSES> (255,325)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,272,788
<INCOME-TAX> 666,000
<INCOME-CONTINUING> 1,606,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,606,788
<EPS-PRIMARY> .16
<EPS-DILUTED> .13
</TABLE>
