<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, 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 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, 1999, the Company had 10,788,088 shares of Common Stock
outstanding.
1
<PAGE>
COLORADO MEDTECH, INC.
FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
December 31, 1998 (Unaudited) and June 30, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and six-months ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six-months ended December 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLORADO MEDTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1998
----------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,120,588 $ 2,499,072
Short-term investments 6,661,052 12,144,005
Accounts receivable, net 13,706,414 7,813,973
Inventories, net 4,205,527 4,225,680
Deferred income taxes and other
current assets 2,289,578 2,566,487
----------- -----------
Total current assets 30,983,159 29,249,217
----------- -----------
PROPERTY AND EQUIPMENT, net 1,692,024 1,734,272
----------- -----------
GOODWILL, net 1,574,036 1,724,796
----------- -----------
LAND, DEFERRED INCOME TAXES
AND OTHER ASSETS 1,098,997 1,298,997
----------- -----------
TOTAL ASSETS $35,348,216 $34,007,282
----------- -----------
----------- -----------
</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>
December 31, 1998 June 30, 1998
----------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,425,949 $ 4,426,172
Accrued salaries and wages 2,552,688 3,126,671
Accrued product service costs 324,927 291,566
Customer deposits 4,109,386 2,804,450
Other accrued expenses 2,267,112 1,169,004
Income taxes payable -- 466,788
----------- -----------
Total current liabilities 12,680,062 12,284,651
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 9,815,766 11,879,456
Retained earnings 12,817,388 9,808,175
Unrealized gain on available-for-sale investment 35,000 35,000
----------- -----------
Total shareholders' equity 22,668,154 21,722,631
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $35,348,216 $34,007,282
----------- -----------
----------- -----------
</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 Six Months Ended
December 31, December 31,
------------------------------- ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C>
SALES AND SERVICE $15,753,799 $12,182,985 $29,162,220 $19,443,215
COST OF SALES AND SERVICE 9,740,680 8,175,402 18,174,807 12,669,909
----------- ----------- ----------- -----------
GROSS PROFIT 6,013,119 4,007,583 10,987,413 6,773,306
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Marketing and selling 595,085 446,836 1,146,971 779,194
Operating, general and administrative 2,184,902 1,964,112 4,164,555 3,470,999
Research and development 488,728 460,026 976,317 505,650
----------- ----------- ----------- -----------
Total operating expenses 3,268,715 2,870,974 6,287,843 4,755,843
----------- ----------- ----------- -----------
EARNINGS FROM OPERATIONS 2,744,404 1,136,609 4,699,570 2,017,463
OTHER (EXPENSE) INCOME, net (29,095) 61,470 148,643 255,325
----------- ----------- ----------- -----------
EARNINGS BEFORE
INCOME TAXES 2,715,309 1,198,079 4,848,213 2,272,788
Provision for income taxes 1,025,000 255,000 1,839,000 666,000
----------- ----------- ----------- -----------
NET INCOME $ 1,690,309 $ 943,079 $ 3,009,213 $ 1,606,788
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME PER SHARE
Basic $ .16 $ .09 $ . 28 $ .16
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ .14 $ .08 $ . 25 $ .13
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic 10,502,745 10,466,997 10,621,637 10,174,084
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 12,204,133 12,156,124 12,275,528 11,987,737
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
COLORADO MEDTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,009,213 $ 1,606,788
Adjustment to reconcile net income to net
cash flows from operating activities-
Deferred tax benefit -- (198,000)
Write down of investment 200,000 --
Depreciation and amortization 731,035 440,233
Non-cash consulting services -- 53,298
Change in assets and liabilities-
Accounts receivable, net (5,892,441) (2,388,711)
Inventories, net 20,153 (578,739)
Deferred income taxes and other assets 634,656 122,742
Accounts payable and accrued expenses (201,956) 274,241
Customer deposits 1,304,936 223,082
----------- -----------
Net cash flows from operating activities (194,404) (445,066)
----------- -----------
INVESTING ACTIVITIES:
Cash paid for purchase of Erbtec, net -- (5,392,731)
Decrease in short-term investments, net 5,482,953 6,287,040
Capital expenditures (538,027) (727,665)
Other long-term investments -- (200,000)
----------- -----------
Net cash flows from investing activities 4,944,926 (33,356)
----------- -----------
FINANCING ACTIVITIES:
Issuance of common stock 1,046,619 1,571,830
Purchase of common stock (4,175,625) --
----------- -----------
Net cash flows from financing activities (3,129,006) 1,571,830
----------- -----------
Net change in cash and cash equivalents 1,621,516 1,093,408
Cash and cash equivalents, beginning 2,499,072 1,670,821
----------- -----------
Cash and cash equivalents, ending $ 4,120,588 $ 2,764,229
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
COLORADO MEDTECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX-MONTH PERIODS ENDED DECEMBER 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 Form 10-K on September 28,
1998. 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-K, 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, 1998 and the results of its
operations and its cash flows for the six-month periods ended December 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 six-month periods ended December 31, 1998 and 1997,
respectively:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash paid for interest $ 20,720 $ 14,849
Cash paid for income taxes $1,615,000 $ 673,000
</TABLE>
NOTE 2 - DEBT
The Company entered into a bank financing agreement on October 30, 1997, 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, 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 December 31, 1998.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share are computed on the basis of the weighted average
common 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.
7
<PAGE>
A reconciliation between the number of shares used to calculate basic and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
(In Thousands, except earnings per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 1,690 $ 943 $ 3,009 $ 1,607
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common shares
outstanding (shares used in basic earnings
per share computation) 10,503 10,467 10,622 10,174
Effect of stock options and warrants
(treasury stock method) 1,701 1,689 1,654 1,814
------- ------- ------- -------
Shares used in diluted earnings per share
computation 12,204 12,156 12,276 11,988
------- ------- ------- -------
------- ------- ------- -------
Basic earnings per share $.16 $.09 $.28 $.16
------- ------- ------- -------
------- ------- ------- -------
Diluted earnings per share $.14 $.08 $.25 $.13
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
NOTE 4 - STOCK AND STOCK OPTIONS
During the quarter ended December 31, 1998, the Company issued 410,100
incentive stock options to certain employees, including one officer of the
Company. The options to purchase the Company's common stock were issued at
an exercise price of $8.94 per share, which was the fair market value of the
Company's common stock on the date of the grants. The options vest over a
four year period and are exercisable for a period of five or six years from
the date of grant.
The Company had 475,476 stock options exercised by certain employees and
consultants, including two officers of the Company, during the six-months
ended December 31, 1998. The stock options were exercised at a price per
share ranging from $1.25 to $6.94, resulting in cash proceeds to the Company
of approximately $652,000 and cancellation of 25,051 shares of previously
issued common stock that were used in lieu of cash to exercise the options.
During the six-months ended December 31, 1998, 60,000 Director warrants were
exercised for common stock. The warrants were exercised at prices per share
ranging from $1.50 to $1.59, resulting in cash proceeds to the Company of
approximately $93,000.
8
<PAGE>
The Company issued 53,365 shares of stock that were purchased through the
Company's Employee Stock Purchase Plan for the plan year ended December 31,
1998. The shares where purchased at either $5.50 or $7.38 per share,
depending on when the employee entered the plan, resulting in cash proceeds
to the Company of approximately $302,000.
On November 3, 1998, Vencor Operating, Inc., a subsidiary of Vencor, Inc.
("Vencor"), sold 3,560,000 shares of Colorado MEDtech, Inc. common stock held
by Vencor. The Company purchased and retired 655,000 shares of its own stock
for $6.38 per share. The Company used approximately $4.2 million of its
short-term investments to complete this transaction. A number of
institutional investors purchased the remaining 2,905,000 shares. Prior to
the transaction, the 3,560,000 shares held by Vencor represented
approximately 33% of the outstanding common stock of the Company.
NOTE 5 - SUBESQUENT EVENT
The Company acquired certain operating assets of Eclipse Automation
Corporation ("Eclipse") on February 4, 1999. Eclipse is an automation services
company located in Longmont, Colorado. The purchase price for the assets was
approximately $500,000. The Company assumed no liabilities or obligations.
Prior to the sale, Eclipse had annualized revenues of approximately $6.0
million.
9
<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 Condensed Consolidated
Statements of Operations for the three and six-month periods ended December
31, 1998 and 1997, and the percentage change in those items for the three and
six-month periods ended December 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 Six-Month Period Three-Month Period Six-Month Period
Ended December 31, Ended December 31, Ended December 31, Ended December 31,
- ------------------ ------------------ ----------------- ------------------
1998 1997 1998 1997 LINE ITEMS 1998 1998
---- ---- ---- ---- ---------- ---- ----
% % % % % %
<S> <C> <C> <C> <C> <C> <C>
100.0 100.0 100.0 100.0 Sales and Service 29.3 50.0
61.8 67.1 62.3 65.2 Cost of Sales and Services 19.1 43.4
38.2 32.9 37.7 34.8 Gross Profit 50.0 62.2
3.8 3.7 3.9 4.0 Marketing and Selling 33.2 47.2
13.9 16.1 14.3 17.9 Operating, Gen'l and Admin 11.2 20.0
3.1 3.8 3.3 2.6 Research and Development 6.2 93.1
20.7 23.6 21.6 24.4 Total Operating Expenses 13.9 32.2
17.4 9.3 16.1 10.4 Earnings from Operations 141.5 132.9
(.2) .5 .5 1.3 Other Income, Net (147.3) (41.8)
17.2 9.8 16.6 11.7 Earnings Before Income Taxes 126.6 113.3
6.5 2.1 6.3 3.4 Provision for Income Taxes 302.0 176.1
10.7 7.7 10.3 8.3 NET INCOME 79.2 87.3
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
Revenues increased to $15,753,799, or by 29%, and to $29,162,220, or by 50%,
for the three and six-month periods ended December 31, 1998, as compared to
the same periods in the prior year. The increase in revenues is attributable
to the growth of outsourcing services, which had increases in revenues of
32% and 34% for the three and six-month periods ended December 31, 1998,
compared to the same periods in 1997. The Company's revenue growth was also
attributable to it's emphasis in proprietary products represented by the
acquisition of Erbtec Engineering, ("Erbtec") in October 1997, and the
start-up of BioMed Y2K, Inc. ("BioMed") in April 1998. Erbtec and BioMed
contributed approximately $4.4 million and $8.3 million of revenue during the
three and six-month periods ended December 31, 1998, respectively. The
increase in revenues is also a reflection of the increase in the backlog of
orders for services and shipment of products at June 30, 1998, compared to
June 30, 1997.
Gross margins increased to 38% and 38% from 33% and 35% for the three and
six-month periods ended December 31, 1998, compared to the same periods in
1997. The increase in the Company's gross margins is a result of the shifting
composition of the Company's revenues between products and service and the
increase in sales of proprietary products.
Marketing and selling expenses increased 33% and 47% for the three and
six-month periods ended December 31, 1998, as compared to the same periods in
the prior year. The increase is attributable to the growth in sales and the
addition of Erbtec and BioMed. Marketing and selling expenses as a
percentage of total revenues remained at 4% for the three and six-month
periods ended December 31, 1998, compared to the same periods in the prior
year.
Operating, general and administrative expenses increased 11% and 20% for the
three and six-month periods ended December 31, 1998, as compared to the same
periods in the prior year. The increase is attributable to the addition of
Erbtec and BioMed, and the overall growth of the Company. As a percentage of
revenues, operating, general and administrative expenses decreased to 14% and
14% from 16% and 18%, compared to the same three and six-month periods in
the prior year.
Research and development expenses increased by $28,702 and $470,667,
respectively, for the three and six-month periods ended December 31, 1998,
compared to the same three and six-month periods in 1997. Research and
development expenses are attributable to the Erbtec, BioMed and 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 by $90,565 and $106,682, respectively, for the three
and six-month periods ended December 31, 1998, compared to the same three and
six-month periods in 1997. The decrease is primarily due to the write down
of $200,000 in an investment of an early stage, drug delivery company that is
behind schedule in developing it's proprietary technologies and is in the
process of raising additional funding as of December 31, 1998. Based upon
these adverse factors the Company reduced the investment to its estimated
realizable value of $25,000.
11
<PAGE>
The provision for income taxes is 38% and 38% of earnings before income taxes
for the three and six-month periods ended December 31, 1998, compared to 21%
and 29% for the same periods in the prior year. During 1997, the Company's
provision for income taxes, as a percentage of earnings before income taxes,
was less than the ordinary combined Federal and state tax rate of
approximately 38% due to the reduction of the Company's valuation allowance
on certain of it's deferred tax assets.
The Company reported net income of $1,690,309 and $3,009,213, respectively,
for the three and six-month periods ended December 31, 1998, compared to
$943,079 and $1,606,788 for the same periods in the prior year. Earnings per
share for the three and six-month periods ended December 31, 1998 were $.14
and $.25, respectively, calculated on 12,204,133 and 12,275,528 diluted
weighted average shares outstanding, compared to $.08 and $.13 for the same
periods in the prior year calculated on 12,156,124 and 11,987,737 diluted
weighted average shares outstanding. This increase in net income is
attributed to the 29% and 50% growth in the Company's revenues during the
three and six-month periods ended December 31, 1998, and an increase in gross
margins by 5% and 3% as a percentage of revenues for the three and six-month
periods ended December 31, 1998, compared to the same periods in the prior
year. Operating expenses as a percentage of revenues decreased 3% for the
three and six-month periods ended December 31, 1998, compared to the same
period in 1997.
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.
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, 1998.
The ratio of current assets to current liabilities was 2.4 to 1 at December
31, 1998, and at June 30, 1998. The Company's working capital increased
$1,338,531 since June 30, 1998. 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,
1998 was approximately 65 and 68 days, respectively, compared to 50 days for
the year ended June 30, 1998. The increase in the number of days outstanding
is a result of extended payment terms granted to a customer during a contract
negotiation, which increased the average number of days outstanding of the
Company's accounts receivable by 9 and 10 days for the three and six-month
periods ended December 31, 1998, respectively, and slow payments by several
large customers. The majority of these past-due and extended terms were paid
and brought current in February 1999. Management believes that the average
days outstanding will return to historical levels by the end of the third
fiscal quarter.
The Company used $194,404 of cash for operations during the six-month period
ended December 31, 1998, primarily due to the increase in days outstanding of
accounts receivable.
12
<PAGE>
During the six-months ended December 31, 1998, the Company made capital
expenditures of $538,027 for property and equipment consisting principally of
computer and manufacturing equipment.
The Company had no material commitments for capital expenditures at
December 31, 1998.
The Company purchased and retired 655,000 shares of its own stock for $6.38
per share on November 3, 1998. The Company used approximately $4.2 million
of its short-term investments to complete this transaction.
INFORMATION SYSTEMS AND THE YEAR 2000 ISSUE
As is the case for most other companies using computers in their operations,
the Company and its subsidiaries are in the process of addressing the Year
2000 problem. The Company is currently engaged in a comprehensive project to
upgrade its information technology and manufacturing computer software to
programs that will consistently and properly recognize the Year 2000. Many
of the Company's systems include new hardware and packaged software recently
purchased from vendors who have represented that these systems are already
Year 2000 compliant. During the past 18 months, the Company has replaced or
added new equipment to its inventory of network and systems computers. This
hardware includes the Company's organization-wide network system and servers,
telephone systems and personal computer equipment. In addition, the Company
has upgraded its organization-wide accounting and management information
computer software. This new software will operate the Company's accounting
and operational systems and will be functional at each of its facility
locations. The vendor has warranted that the software is Year 2000
compliant. The primary purpose of acquiring this system is to provide
improved functionality in the area of consolidated financial reporting,
financial project control and management reporting. In addition, the Company
is presently upgrading its telecommunication system to make it Year 2000
compliant. The Company is also in the process of obtaining assurances from
vendors that timely updates will be made available to make all remaining
purchased software Year 2000 compliant. The Company will utilize both
internal and external resources to test and reprogram or replace all of its
software for Year 2000 compliance.
The Company does not believe that its proprietary products or any of its
outsourcing services involve any material Year 2000 risks. In addition to
reviewing its internal systems, the Company has begun formal communications
with its significant vendors concerning Year 2000 compliance. There can be
no assurance that the systems of other companies that interact with the
Company will be sufficiently Year 2000 compliant so as to avoid an adverse
impact on the Company's operations, financial condition and results of
operations.
The Company does not presently anticipate that the costs to address the Year
2000 issue will have a material adverse effect on the Company's financial
condition, results of operations or liquidity. Present estimated cost for
remediation is less than $100,000. The Company has spent approximately
$40,000 as of December 31, 1998, on the Year 2000 issue.
The Company presently anticipates that it will complete its Year 2000
assessment and remediation by the end of fiscal year 1999. However, there
can be no assurance that the Company will be successful in implementing its
Year 2000 remediation plan according to the anticipated schedule. In
addition, the Company may be adversely affected by the inability of other
companies whose systems interact with the Company to become Year 2000
compliant and by potential interruptions of utility, communications or
transportation systems as a result of Year 2000 issues.
13
<PAGE>
Although the Company expects its internal systems will be Year 2000 compliant
as described above, the Company intends to prepare a contingency plan that
will specify what it plans to do if it or important external companies are
not Year 2000 compliant in a timely manner. The Company expects to prepare
its contingency plan during fiscal year 1999.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of shareholders of the Company
at the Annual Meeting of Shareholders held November 21, 1998:
The following members were elected to the Board of Directors to hold office
until the next annual meeting:
<TABLE>
<CAPTION>
Nominee For Withheld
- ------- --- --------
<S> <C> <C>
John V. Atanasoff, II 9,570,663 50,013
Ira M. Langenthal 9,475,688 144,988
Dean A. Leffingwell 9,572,701 47,975
Clifford W. Mezey 9,472,613 148,063
Robert L. Sullivan 9,572,716 47,960
John E. Wolfe 9,572,476 48,200
</TABLE>
ITEM 5. OTHER INFORMATION
On November 3, 1998, Vencor Operating, Inc., a subsidiary of Vencor, Inc.
("Vencor"), sold 3,560,000 shares of Colorado MEDtech, Inc. common stock held
by Vencor. The Company purchased and retired 655,000 shares of its own stock
for $6.38 per share. The Company used approximately $4.2 million of its
short-term investments to complete this transaction. A number of
institutional investors purchased the remaining 2,905,000 shares. The
Company's repurchase of 655,000 shares replaced the Company's previously
announced plan to repurchase 300,000 shares in open market transactions.
Advest, Inc. acted as managing agent for the sale.
Prior to the transaction, the 3,560,000 shares held by Vencor represented
approximately 33% of the outstanding common stock of the Company. The
transaction decreased the number of total shares outstanding from 10,804,512
to 10,149,512.
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, 1999: 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: February 9, 1999
/s/ John V. Atanasoff II
----------------------
John V. Atanasoff II
Chief Executive Officer
DATE: February 9, 1999
/s/ Bruce L. Arfmann
----------------------
Bruce L. Arfmann
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
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)
10.35 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 (M)
10.43 Asset Purchase Agreement by and among Colorado MEDtech, Inc.,
Erbtec Engineering, Inc., and Lee Erb, dated October 1, 1997 (N)
10.44 Loan Agreement, Commercial Security Agreement, and Promissory Note
dated October 30, 1997 between Colorado MEDtech, Inc. and Bank One,
Colorado N.A. (E)
21.1 Subsidiaries of Business Issuer (E)
27.1 Financial Data Schedule for the six-months ended December 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 Annual Report on Form 10-K for the
year ended June 30, 1998.
(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.
17
<PAGE>
(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 Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997.
(N) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 1, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 4,120,588
<SECURITIES> 6,661,052
<RECEIVABLES> 13,706,414
<ALLOWANCES> 0
<INVENTORY> 4,205,527
<CURRENT-ASSETS> 30,983,159
<PP&E> 1,692,024
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,348,216
<CURRENT-LIABILITIES> 12,680,062
<BONDS> 0
0
0
<COMMON> 9,815,766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,348,216
<SALES> 29,162,220
<TOTAL-REVENUES> 29,162,220
<CGS> 18,174,807
<TOTAL-COSTS> 6,287,843
<OTHER-EXPENSES> (148,643)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,848,213
<INCOME-TAX> 1,839,000
<INCOME-CONTINUING> 3,009,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,009,213
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.25
</TABLE>
