<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, 1999
[ ] 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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of April 30, 1999, the Company had 10,856,574 shares of Common Stock
outstanding.
<PAGE>
COLORADO MEDTECH, INC.
FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1999 (Unaudited) and June 30, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and nine-months ended
March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine-months ended
March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 10
Item 3. Quantitative And Qualitative Disclosures About Market Risk 14
PART II OTHER INFORMATION
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>
March 31, 1999 June 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,166,953 $ 2,499,072
Short-term investments 13,252,967 12,144,005
Accounts receivable, net 12,015,310 7,813,973
Inventories, net 4,321,262 4,225,680
Deferred income taxes and other
current assets 1,930,432 2,566,487
------------- -------------
Total current assets 34,686,924 29,249,217
------------- -------------
PROPERTY AND EQUIPMENT, net 2,110,345 1,734,272
------------- -------------
GOODWILL, net 1,680,589 1,724,796
------------- -------------
LAND, DEFERRED INCOME TAXES
AND OTHER ASSETS 1,128,997 1,298,997
------------ -------------
TOTAL ASSETS $ 39,606,855 $ 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>
March 31, 1999 June 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,063,928 $ 4,426,172
Accrued salaries and wages 3,473,499 3,126,671
Accrued product service costs 360,298 291,566
Customer deposits 3,876,688 2,804,450
Other accrued expenses 2,161,763 1,169,004
Income taxes payable - 466,788
------------ -------------
Total current liabilities 13,936,176 12,284,651
------------ -------------
SHAREHOLDERS' EQUITY:
Common stock 10,612,918 11,879,456
Retained earnings 15,022,761 9,808,175
Unrealized gain on available-for-sale
investment 35,000 35,000
------------ -------------
Total shareholders' equity 25,670,679 21,722,631
------------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 39,606,855 $ 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 Nine Months Ended
March 31, March 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES AND SERVICE $ 17,150,071 $ 13,449,571 $ 46,312,291 $ 32,892,786
COST OF SALES AND SERVICE 10,437,279 8,653,451 28,612,086 21,324,911
------------ ------------ ------------ ------------
GROSS PROFIT 6,712,792 4,796,120 17,700,205 11,567,875
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Marketing and selling 555,520 504,636 1,702,491 1,283,830
Operating, general and
administrative 2,317,932 2,024,269 6,482,489 5,493,717
Research and development 423,846 508,245 1,400,165 1,013,894
------------ ------------ ------------ ------------
Total operating expenses 3,297,298 3,037,150 9,585,145 7,791,441
------------ ------------ ------------ ------------
EARNINGS FROM OPERATIONS 3,415,494 1,758,970 8,115,060 3,776,434
OTHER INCOME, net 138,882 60,474 287,526 315,799
------------ ------------ ------------ ------------
EARNINGS BEFORE
INCOME TAXES 3,554,376 1,819,444 8,402,586 4,092,233
Provision for income taxes 1,349,000 490,000 3,188,000 1,156,000
------------ ------------ ------------ ------------
NET INCOME $ 2,205,376 $ 1,329,444 $ 5,214,586 $ 2,936,233
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Basic $ .20 $ .12 $ .49 $ .28
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted $ .18 $ .11 $ .42 $ .24
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 10,775,433 10,677,117 10,672,154 10,346,148
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted 12,538,202 12,377,906 12,390,464 12,125,453
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,214,586 $ 2,936,233
Adjustment to reconcile net income
to net cash flows from
operating activities-
Deferred tax benefit - (400,000)
Write down of investment 200,000 -
Depreciation and amortization 937,160 738,312
Non-cash consulting services - 79,947
Change in assets and liabilities-
Accounts receivable, net (4,201,337) (2,672,684)
Inventories, net (95,582) (83,755)
Deferred income taxes and other assets 705,615 (39,092)
Accounts payable and accrued expenses 1,976,818 1,076,693
Customer deposits 1,072,238 562,863
----------- -----------
Net cash flows from operating activities 5,809,498 2,198,517
----------- -----------
INVESTING ACTIVITIES:
Cash paid for purchase of Eclipse assets, net (505,759) -
Cash paid for purchase of Erbtec, net - (5,392,731)
(Increase) Decrease in short-term investments, net (1,108,962) 3,224,579
Capital expenditures (763,267) (895,216)
Other long-term investments (30,000) (200,000)
----------- -----------
Net cash flows from investing activities (2,407,988) (3,263,368)
----------- -----------
FINANCING ACTIVITIES:
Issuance of common stock 1,441,996 1,953,863
Purchase of common stock (4,175,625) (190,551)
----------- -----------
Net cash flows from financing activities (2,733,629) 1,763,312
----------- -----------
Net change in cash and cash equivalents 667,881 698,461
Cash and cash equivalents, beginning 2,499,072 1,670,821
----------- -----------
Cash and cash equivalents, ending $ 3,166,953 $ 2,369,282
----------- -----------
----------- -----------
</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, 1999 AND 1998
(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-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 condensed
consolidated financial statements contain all adjustments necessary to
present fairly the Company's financial position as of March 31, 1999 and the
results of its operations and its cash flows for the three and nine-month
periods ended March 31, 1999 and 1998. 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, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash paid for interest $ 20,720 $ 14,849
Cash paid for income taxes $ 2,275,000 $ 1,417,003
</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 March 31, 1999.
7
<PAGE>
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.
A reconciliation between the number of shares used to calculate basic and
diluted earnings per share is as follows:
(In Thousands, except earnings per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 2,205 $ 1,329 $ 5,215 $ 2,936
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common shares
outstanding (shares used in basic earnings
per share computation) 10,775 10,677 10,672 10,346
Effect of dilutive stock options and warrants
(treasury stock method) 1,763 1,701 1,718 1,779
------- ------- ------- -------
Shares used in diluted earnings per share
computation 12,538 12,378 12,390 12,125
------- ------- ------- -------
------- ------- ------- -------
Basic earnings per share $ .20 $ .12 $ .49 $ .28
----- ----- ----- -----
----- ----- ----- -----
Diluted earnings per share $ .18 $ .11 $ .42 $ .24
----- ----- ----- -----
----- ----- ----- -----
Options and warrants that were of an antidilutive
nature that were outstanding but not included in
the shares used in diluted earnings per share 1,207 1,205 1,355 1,458
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
8
<PAGE>
NOTE 4 - STOCK AND STOCK OPTIONS
During the nine-months ended March 31, 1999, the Company issued 485,600
incentive stock options to certain employees, including two officers of the
Company. The options to purchase the Company's common stock were issued at
exercise prices ranging from $8.94 to $14.25 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 dates of
grant.
The Company had 662,403 stock options exercised by certain employees and
consultants, including two officers of the Company, during the nine-months
ended March 31, 1999. The stock options were exercised at prices per share
ranging from $1.25 to $6.94, resulting in cash proceeds to the Company of
$999,879 and cancellation of 37,335 shares of previously issued common stock
that were used in lieu of cash to exercise the options.
During the nine-months ended March 31, 1999, 90,000 Director and consultant
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 $140,400.
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 were 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 $301,717.
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 $4,175,625 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 - ACQUISITIONS
The Company acquired certain operating assets of Eclipse Automation
Corporation ("Eclipse") on February 4, 1999. Eclipse was an automation
services company located in Longmont, Colorado. The Company is operating the
acquired assets as the CMED Automation Division. The purchase price for the
assets was approximately $506,000. The fair value of the purchased assets
was approximately $309,000. The acquisition created goodwill of
approximately $197,000 that will be amortized over a two-year period. 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 nine-month periods ended March 31,
1999 and 1998, and the percentage change in those items for the three and
nine-month periods ended March 31, 1999, from the comparable periods in 1998.
<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,
- ------------------ ------------------ ------------------ -----------------
1999 1998 1999 1998 LINE ITEMS 1999 1999
- ------ ------- ------ ------ ------------------ -----------------
% % % % % %
<S> <C> <C> <C> <C> <C> <C>
100.0 100.0 100.0 100.0 Sales and Service 27.5 40.8
60.9 64.3 61.8 64.8 Cost of Sales and Service 20.6 34.2
----- ----- ----- ----- ------ -----
39.1 35.7 38.2 35.2 Gross Profit 40.0 53.0
----- ----- ----- ----- ------ -----
3.2 3.7 3.7 3.9 Marketing and Selling 10.1 32.6
13.5 15.1 14.0 16.7 Operating, Gen'l and Admin 14.5 18.0
2.5 3.8 3.0 3.1 Research and Development (16.6) 38.1
----- ----- ----- ----- ------ -----
19.2 22.6 20.7 23.7 Total Operating Expenses 8.6 23.0
19.9 13.1 17.5 11.5 Earnings from Operations 94.2 114.9
.8 .4 .6 1.0 Other Income, Net 129.7 (9.0)
----- ----- ----- ----- ------ -----
20.7 13.5 18.1 12.4 Earnings Before Income Taxes 95.4 105.3
7.9 3.6 6.9 3.5 Provision for Income Taxes 175.3 175.8
----- ----- ----- ----- ------ -----
12.9 9.9 11.3 8.9 NET INCOME 65.9 77.6
----- ----- ----- ----- ------ -----
----- ----- ----- ----- ------ -----
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
Revenues increased to $17,150,071, or by 28%, and to $46,312,291, or by 41%,
for the three and nine-month periods ended March 31, 1999, respectively, 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 29% and 31% for the three and nine-month periods ended March 31,
1999, compared to the same periods in 1998. The Company's revenue growth was
also attributable to its emphasis on 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. Collectively, Erbtec and
BioMed contributed approximately $4.6 million and $12.9 million of revenue
during the three and nine-month periods ended March 31, 1999, 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 39% and 38% for the three and nine-month periods
ended March 31, 1999, respectively, compared to 36% and 35% for the same
periods in the prior year. The increase in the Company's gross margins is a
result of the shifting composition of the Company's revenues between products
and services.
Marketing and selling expenses increased 10% and 33%, respectively, for the
three and nine-month periods ended March 31, 1999, as compared to the same
periods in the prior year. The increase is attributable to the growth in
sales and the additions of Erbtec, BioMed and CMED Automation. Marketing and
selling expenses as a percentage of total revenues decreased to 3% from 4%
for the three-month period ended March 31, 1999 compared to the same period
in 1998. Marketing and selling expenses as a percentage of total revenues
were 4% for each of the nine-month periods ended March 31, 1999 and 1998.
Operating, general and administrative expenses increased 15% and 18% for the
three and nine-month periods ended March 31, 1999, respectively, as compared
to the same periods in the prior year. The increase is attributable to the
additions of Erbtec, BioMed and CMED Automation, and the overall growth of
the Company. As a percentage of revenues, operating, general and
administrative expenses were 14% and 14% of revenues for the three and
nine-month periods ended March 31, 1999, respectively, compared to 15% and
17% for the same periods in the prior year.
Research and development expenses decreased by $84,399 for the three-month
period ended March 31, 1999, compared to the same three-month period in 1998,
primarily due to a reduction of research and development activities
associated with respiratory products. These expenses increased by $386,271,
for the nine-month period ended March 31, 1999, compared to the same
nine-month period in 1998. This increase is primarily attributable to the
acquisition of Erbtec in October 1997. Research and development expenses are
attributable to the Erbtec, BioMed and 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 increased to $138,882, or by 130% for the three-month period
ended March 31, 1999, compared to the same period in the prior year. The
increase for the three-month period is due to the Company having, on average,
approximately $5.5 million more of investment capital during the quarter
ended March 31, 1999 compared to the same quarter in 1998. Other income
decreased to $287,526, or by 9%, for the nine-month
11
<PAGE>
period ended March 31, 1999. The decrease is primarily due to the write down,
during the quarter ended December 31, 1998, of $200,000 in an investment in
an early stage, drug delivery company that was behind schedule in developing
its proprietary technologies and was in the process of raising additional
funding.
The provision for income taxes is 38% and 38% of earnings before income taxes
for the three and nine-month periods ended March 31, 1999, respectively,
compared to 27% and 28% for the same periods in the prior year. During 1998,
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 its deferred tax assets.
The Company reported net income of $2,205,376 and $5,214,586, respectively,
for the three and nine-month periods ended March 31, 1999, compared to
$1,329,444 and $2,936,233 for the same periods in the prior year. Earnings
per share for the three and nine-month periods ended March 31, 1999 were $.18
and $.42, respectively, calculated on 12,538,202 and 12,390,464 diluted
weighted average shares outstanding, compared to $.11 and $.24 for the same
periods in the prior year calculated on 12,377,906 and 12,125,453 diluted
weighted average shares outstanding. This increase in net income is
attributed to the 28% and 41% growth in the Company's revenues during the
three and nine-month periods ended March 31, 1999, and an increase in gross
margins for the three and nine-month periods ended March 31, 1999, compared
to the same periods in the prior year. Operating expenses as a percentage of
revenues decreased 3% for each of the three and nine-month periods ended
March 31, 1999, compared to the same periods in 1998.
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 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 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, 1999.
The ratio of current assets to current liabilities was 2.5 to 1 at March 31,
1999, compared to 2.4 to 1 at June 30, 1998. The Company's working capital
increased approximately $3.8 million 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 through exercise of
options and warrants. The average number of days outstanding of the Company's
accounts receivable as of March 31, 1999 was 65 days, 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 two major customers, which
increased the average number of days outstanding of the Company's accounts
receivable by 9 days at March 31, 1999, and slow payment of several other
large customers. Management believes that the average days outstanding will
improve by the end of the current fiscal year.
Cash provided by operations during the nine-months ended March 31, 1999, was
$5,809,498, an increase of $3,610,981 over the same period in the prior year.
The increase is a result of improved profitability.
12
<PAGE>
During the nine-months ended March 31, 1999, the Company made capital
expenditures of $763,267 for property and equipment consisting principally of
computer and manufacturing equipment.
The Company had no material commitments for capital expenditures at March 31,
1999.
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 21 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
and the Company is planning to test the system by September 30, 1999. 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 is utilizing 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 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
$50,000 as of March 31, 1999, 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
13
<PAGE>
compliant and by potential interruptions of utility, communications or
transportation systems as a result of Year 2000 issues.
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 complete
its contingency plan by September 30, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as part of its cash management strategy, had short-term
investments at March 31, 1999 consisting of approximately $13.3 million in
U.S. Treasury and government agency securities. The Company has the intent
and ability to hold these short-term investments to maturity and thus has
classified these investments, which are stated at amortized cost, as
"held-to-maturity". All of the short-term investments mature in less than
one year. The Company has completed a market risk sensitivity analysis of
these short-term investments based upon an assumed 1% increase in interest
rates at April 1, 1999. If market interest rates had increased by 1% on
April 1, 1999, the Company would have had an approximate $27,000 loss on
these short-term investments. Because this is only an estimate, any actual
loss due to an increase in interest rates could differ from this estimate.
The Company does not believe there have been any material changes in the
reported market risks faced by the Company since the end of its most recent
quarter ended March 31, 1999.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the nine months ended March 31, 1999
(b) Reports on Form 8-K during the quarter ended March 31, 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: May 6, 1999
/s/ John V. Atanasoff II
-------------------------
John V. Atanasoff II
Chief Executive Officer
DATE: May 6, 1999
/s/ Bruce L. Arfmann
-------------------------
Bruce L. Arfmann
Chief Financial Officer
16
<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-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,166,953
<SECURITIES> 13,252,967
<RECEIVABLES> 12,015,310
<ALLOWANCES> 0
<INVENTORY> 4,321,262
<CURRENT-ASSETS> 34,686,924
<PP&E> 2,110,345
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,606,855
<CURRENT-LIABILITIES> 13,936,176
<BONDS> 0
0
0
<COMMON> 10,612,918
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,606,855
<SALES> 46,312,291
<TOTAL-REVENUES> 46,312,291
<CGS> 28,612,086
<TOTAL-COSTS> 9,585,145
<OTHER-EXPENSES> (287,526)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,402,586
<INCOME-TAX> 3,188,000
<INCOME-CONTINUING> 5,214,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,214,586
<EPS-PRIMARY> .49
<EPS-DILUTED> .42
</TABLE>
