<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 MARCH 31, 1998
[ ] 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 Securities Exchange Act of 1934
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 April 30, 1998, the Company had 10,756,247 shares of Common Stock
outstanding.
1
<PAGE>
COLORADO MEDTECH, INC.
FORM 10-Q
PART I FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1998 (Unaudited) and June 30, 1997 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and nine-months ended
March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine-months ended
March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 11
of Financial Condition
and Results of Operations
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,369,282 $ 1,670,821
Short-term investments 7,068,522 10,293,101
Accounts receivable, net 10,099,607 5,240,107
Inventories, net 4,684,136 2,390,267
Deferred income taxes and other
current assets 1,827,344 990,942
----------- -----------
Total current assets 26,048,891 20,585,238
----------- -----------
EQUIPMENT AND FURNITURE, net 1,381,457 678,404
----------- -----------
GOODWILL, net 2,686,175 1,628,326
----------- -----------
LAND, DEFERRED INCOME TAXES
AND OTHER ASSETS 1,169,458 961,465
----------- -----------
TOTAL ASSETS $31,285,981 $23,853,433
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
COLORADO MEDTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,392,710 $ 3,075,225
Accrued salaries and wages 2,523,980 1,805,770
Accrued product service costs 428,436 373,629
Customer deposits 3,738,393 3,175,530
Other accrued expenses 949,781 1,031,045
----------- -----------
Total current liabilities 11,033,300 9,461,199
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 12,000,420 9,076,206
Retained earnings 8,252,261 5,316,028
----------- -----------
Total shareholders' equity 20,252,681 14,392,234
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $31,285,981 $23,853,433
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
COLORADO MEDTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- ---------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
SALES AND SERVICE $13,449,571 $ 8,483,157 $32,892,786 $19,548,531
COST OF SALES AND SERVICE 8,653,451 5,636,423 21,324,911 12,870,136
----------- ----------- ----------- -----------
GROSS PROFIT 4,796,120 2,846,734 11,567,875 6,678,395
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Marketing and selling 504,636 346,872 1,283,830 859,299
Operating, general and
administrative 2,024,269 1,277,792 5,493,717 3,201,138
Research and development 508,245 130,505 1,013,894 264,330
----------- ----------- ----------- -----------
Total operating expenses 3,037,150 1,755,169 7,791,441 4,324,767
----------- ----------- ----------- -----------
EARNINGS FROM OPERATIONS 1,758,970 1,091,565 3,776,434 2,353,628
OTHER INCOME, net 60,474 70,892 315,799 181,897
----------- ----------- ----------- -----------
EARNINGS BEFORE
INCOME TAXES 1,819,444 1,162,457 4,092,233 2,535,525
Provision for income taxes 490,000 490,746 1,156,000 918,746
----------- ----------- ----------- -----------
NET INCOME $ 1,329,444 $ 671,711 $ 2,936,233 $ 1,616,779
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME PER SHARE:
Basic $ .12 $ .10 $ .28 $ .23
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ .11 $ .08 $ .24 $ .18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 10,677,117 7,040,248 10,346,148 6,949,898
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 12,377,906 8,764,926 12,125,453 8,824,380
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
COLORADO MEDTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,936,233 $ 1,616,779
Adjustment to reconcile net income
to net cash flows from
operating activities-
Deferred tax benefit (400,000) (80,000)
Depreciation and amortization 738,312 311,983
Non-cash consulting services 79,947 -
Change in assets and liabilities-
Accounts receivable, net (2,672,684) (2,227,846)
Inventories, net (83,755) (447,709)
Deferred income taxes and other assets (39,092) (135,834)
Accounts payable and accrued expenses 1,076,693 2,354,724
Customer deposits 562,863 76,033
----------- -----------
Net cash flows from operating activities 2,198,517 1,468,130
----------- -----------
INVESTING ACTIVITIES:
Cash paid for purchase of Novel, net - (1,126,363)
Cash paid for purchase of Erbtec, net (5,392,731) -
Decrease in short-term investments, net 3,224,579 586,242
Capital expenditures (895,216) (407,867)
Other long-term investments (200,000) -
----------- -----------
Net cash flows from investing activities (3,263,368) (947,988)
----------- -----------
FINANCING ACTIVITIES:
Issuance of common stock 1,953,863 239,932
Purchase of common stock (190,551) (138,884)
----------- -----------
Net cash flows from financing activities 1,763,312 101,048
----------- -----------
Net change in cash and cash equivalents 698,461 621,190
Cash and cash equivalents, beginning 1,670,821 614,649
----------- -----------
Cash and cash equivalents, ending $ 2,369,282 $ 1,235,839
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
COLORADO MEDTECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The financial information is unaudited and should be read in conjunction with
the consolidated financial statements filed with the Company's Form 10-KSB for
the year ended June 30, 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 March 31, 1998 and the results of its operations and
its cash flows for the three and nine-month periods ended March 31, 1998 and
1997. All of the adjustments were of a normal and recurring nature.
The following sets forth the supplemental disclosures of cash flow information
for the nine-month periods ended March 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash paid for interest $ 14,849 $ 28,970
Cash paid for income taxes $1,417,003 $ 845,000
</TABLE>
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 March 31, 1998.
7
<PAGE>
NOTE 3 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS 128"),
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 of the weighted
average shares outstanding during each period, including dilutive common
equivalent shares for stock options and warrants. As a result of adopting SFAS
128, reported earnings per share for the three and nine-month periods ended
March 31, 1997 were restated. The effect of this accounting change on
previously reported earnings per share was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary and fully diluted earnings per share
(as reported under the prior method) $.11 $.06 $.24 $.16
Effect of SFAS 128
on basic earnings per share $.01 $.04 $.04 $.07
----- ----- ----- -----
Basic earnings per share $.12 $.10 $.28 $.23
Effect of SFAS 128
on diluted earnings per share ($.01) ($.02) ($.04) ($.05)
----- ----- ----- -----
Diluted earnings per share $.11 $.08 $.24 $.18
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
A reconciliation between the number of shares used to calculate basic and
diluted earnings per share is as follows:
(In Thousands of Shares)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding (shares used in basic earnings
per share computation) 10,677 7,040 10,346 6,950
Effect of stock options and warrants
(treasury stock method) 1,701 1,725 1,779 1,874
------ ------ ------ ------
Shares used in diluted earnings
per share computation 12,378 8,765 12,125 8,824
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
8
<PAGE>
NOTE 4 - STOCK AND STOCK OPTIONS
During the nine-months ended March 31, 1998, the Company issued 873,400
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 $5.47 to $8.00 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.
The Company had 314,693 stock options exercised by certain employees and
consultants, including two officers of the Company, during the nine-months ended
March 31, 1998. 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
$291,000 and cancellation of 32,695 shares of previously issued common stock
that were used in lieu of cash to exercise the options.
During the nine-months ended March 31, 1998, 207,204 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 $354,000.
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.
In January 1998, the Company issued 75,526 shares of stock that where purchased
through the Company's Employee Stock Purchase Plan for the plan year ended
December 31, 1997. These shares were purchased at $2.50 per share, resulting in
cash proceeds to the Company of approximately $189,000.
During the quarter ended March 31, 1998, the Company purchased 29,900 shares of
common stock, which decreased the Company's equity by approximately $191,000.
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,
9
<PAGE>
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 treatment. The Company acquired Novel for
$1,899,196, which included cash, the 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
nine-months ended March 31, 1998 and 1997 assume 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>
<CAPTION>
Nine-Months Ended March 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $36,345,000 $30,505,000
Net Income $ 2,927,000 $ 2,692,000
Net Income Per Share (Diluted) $ .24 $ .30
</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 nine-month periods ended March 31, 1998 and 1997, and the
percentage change in those items for the three and nine-month periods ended
March 31, 1998, from the comparable periods in 1997.
<TABLE>
<CAPTION>
Percentage Change From
As a Percentage of Total Revenues Prior Year's Comparable Period
--------------------------------- ------------------------------
Three-Month Period Nine-Month Period Three-Month Period Nine-Month Period
Ended March 31, Ended March 31, Ended March 31, Ended March 31,
--------------- --------------- -------------- ---------------
1998 1997 1998 1997 LINE ITEMS 1998 1998
---- ---- ---- ---- ---------- ---- ----
% % % % % %
<C> <C> <C> <C> <S> <C> <C>
100.0 100.0 100.0 100.0 Sales and Service 58.5 68.3
64.3 66.4 64.8 65.8 Cost of Sales and Services 53.5 65.7
----- ----- ----- ----- ----- -----
35.7 33.6 35.2 34.2 Gross Profit 68.5 73.2
----- ----- ----- ----- ----- -----
3.7 4.1 3.9 4.4 Marketing and Selling 45.5 49.4
15.1 15.1 16.7 16.4 Operating, Gen'l and Admin 58.4 71.6
3.8 1.5 3.1 1.3 Research and Development 289.4 283.6
----- ----- ----- ----- ----- -----
22.6 20.7 23.7 22.1 Total Operating Expenses 73.0 80.2
13.1 12.9 11.5 12.1 Earnings from Operations 61.1 60.5
.4 .8 .9 .9 Other Income, Net (14.7) 73.6
----- ----- ----- ----- ----- -----
13.5 13.7 12.4 13.0 Earnings Before Income Taxes 56.5 61.4
3.6 5.8 3.5 4.7 Provision for Income Taxes (.2) 25.8
----- ----- ----- ----- ----- -----
9.9 7.9 8.9 8.3 NET INCOME 97.9 81.6
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
Revenues increased to $13,449,571, or by 59%, and to $32,892,786, or by 68%, for
the three and nine-month periods ended March 31, 1998, respectively, as compared
to the same periods in the prior year. The increase in revenues is attributable
to the acquisition of Novel Biomedical, Inc. ("Novel"), effective January 1997,
and of Erbtec Engineering, Inc. ("Erbtec") in October 1997, which contributed
approximately $4,627,000 and $9,712,000 of revenue during the three and
nine-month periods ended March 31, 1998, respectively. The Company's revenue
growth also was the result of the core business growth of RELA, Inc. ("RELA")
which had increases in revenues of 14% and 27%, respectively, for the three and
nine-month periods ended March 31, 1998, compared to the same periods in 1997.
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.
Gross margins increased to 36% and 35% from 34% and 34% for the three and
nine-month periods ended March 31, 1998, respectively, compared to the same
periods in the prior year. The increase in the Company's margins is a result of
the shifting composition of the Company's revenues between products and services
and the increase in sales of proprietary products.
Marketing and selling expenses increased 45% and 49%, respectively, for the
three and nine-month periods ended March 31, 1998, as compared to the same
periods in the prior year. The increase is attributable to the growth in sales
and the acquisitions of Erbtec and Novel. Marketing and selling expenses as a
percentage of total revenues were approximately 4% for the three and nine-month
periods ended March 31, 1998 and 1997.
Operating, general and administrative expenses increased 58% and 72% for the
three and nine-month periods ended March 31, 1998, respectively, as compared to
the same periods in the prior year. As a percentage of revenues, operating,
general and administrative expenses were 15% and 17% of revenues for the three
and nine-month periods ended March 31, 1998, respectively, compared to 15% and
16% for the same 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, increased recruiting and hiring costs
of new employees and the overall growth of the Company.
Research and development expenses increased by $377,740 and $749,564,
respectively, for the three and nine-month periods ended March 31, 1998,
respectively, compared to the same three and nine-month periods in 1997.
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 decreased to $60,474 for the three-month period ended March 31,
1998. The decrease for the three months ended March 31, 1998 is due to a loss of
approximately $23,000 from the sale of a respiratory product line that occurred
in January 1998. Other income increased to $315,799 for the nine-month period
ended March 31, 1998. The increase for the nine-month period 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.
12
<PAGE>
The provision for income taxes is 27% and 28% of earnings before income taxes
for the three and nine-month periods ended March 31, 1998, respectively,
compared to 42% and 36% 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 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 March 31, 1998, the Company's valuation
allowance associated with net operating loss carryforward was approximately
$190,000.
The Company reported net income of $1,329,444 and $2,936,233, respectively, for
the three and nine-month periods ended March 31, 1998, respectively, compared to
$671,711 and $1,616,779 for the same periods in the prior year. Earnings per
share for the three and nine-month periods ended March 31, 1998 were $.11 and
$.24, respectively, calculated on 12,377,906 and 12,125,453 diluted weighted
average shares outstanding, compared to $.08 and $.18 for the same period in the
prior year calculated on 8,764,926 and 8,824,380 diluted weighted average
shares. The diluted weighted average shares outstanding increased by
approximately 3,613,000 and 3,301,000 shares for the three and nine-month
periods ended March 31, 1998, respectively, compared to the same period in 1997
due to the exercise of 3,000,000 private placement warrants and the exercise of
options and Director and consultant warrants.
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 March 31, 1998.
The ratio of current assets to current liabilities was 2.4 to 1 at March 31,
1998, compared to 2.2 to 1 at June 30, 1997. The Company's working capital
increased approximately $3.9 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 through exercise of options and
warrants. The average number of days outstanding of the Company's accounts
receivable for the three and nine-months ended March 31, 1998 was 67 and 65
days, respectively, 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 11 and 10 days for the three and nine-month
periods ended March 31, 1998, respectively, 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.
Cash provided by operations during the nine-months ended March 31, 1998, was
$2,198,517, an increase of $730,387 over the same period in the prior year.
The increase is a result of improved profitability and an increase in
customer deposits.
13
<PAGE>
During the nine-months ended March 31, 1998, the Company made capital
expenditures of $895,216 for property and equipment consisting principally of
computer and manufacturing equipment. The Company had no material commitments
for capital expenditures at March 31, 1998.
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 did not sell any unregistered securities in the
three-month period ended March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K during the third quarter of the Company's fiscal
year ending June 30, 1998:
None
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: May 8, 1998 /s/ John V. Atanasoff II
---------------------------
John V. Atanasoff II
Chief Executive Officer
DATE: May 8, 1998 /s/ Bruce L. Arfmann
---------------------------
Bruce L. Arfmann
Chief Financial Officer
16
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
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 (N)
0.43 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 nine-months ended
March 31, 1998
</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.
17
<PAGE>
INDEX TO EXHIBITS
(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.
(N) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997.
18
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,369,282
<SECURITIES> 7,068,522
<RECEIVABLES> 10,099,607
<ALLOWANCES> 0
<INVENTORY> 4,684,136
<CURRENT-ASSETS> 26,048,891
<PP&E> 1,381,457
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,285,981
<CURRENT-LIABILITIES> 11,033,300
<BONDS> 0
0
0
<COMMON> 12,000,420
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,285,981
<SALES> 32,892,786
<TOTAL-REVENUES> 32,892,786
<CGS> 21,324,911
<TOTAL-COSTS> 7,791,441
<OTHER-EXPENSES> (315,799)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,092,233
<INCOME-TAX> 1,156,000
<INCOME-CONTINUING> 2,936,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,936,233
<EPS-PRIMARY> .28
<EPS-DILUTED> .24
</TABLE>
