Colorado Medtech 8-K Acquisition or disposition of assets

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report: January 24, 2003

COLORADO MEDTECH, INC.

(Exact name of registrant as specified in its charter)

Colorado	000-12471	84-0731006
(State or other jurisdiction of incorporation)	(Commission File Number)	I.R.S. Employer Identification No.)

345 S. Francis St.,
P.O. Box 819
Longmont, Colorado 80502-0819

(Address, including zip code, of principal executive offices)

(303) 530-2660

(Registrant’s telephone number,
including area code)

TABLE OF CONTENTS

	Item 2. Acquisition or Disposition of Assets.
	Item 7. Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
EX-2.1 Purchase Agreement dated January 24, 2003
EX-2.2 HEI, Inc. Subordinated Promissory Note
EX-2.3 Registration Rights Agreement

Item 2. Acquisition or Disposition of Assets.

     On January 24, 2003, Colorado MEDtech, Inc. sold its Colorado operations to HEI, Inc. pursuant to a Purchase Agreement by and between Colorado MEDtech, Inc. and HEI, Inc. The Colorado operations provided medical device and imaging component outsourcing services, including development and manufacturing of electronic and electromechanical devices and instrumentation, and also provided system components to medical imaging original equipment manufacturers. The operations sold were at the Company’s Boulder facility, and the sale did not affect the Company’s CIVCO Medical Instruments subsidiary.

     Pursuant to the Purchase Agreement, Colorado MEDtech transferred to HEI the operating assets associated with its Colorado operations, including inventory, property and equipment, unbilled services, prepaid and other expenses, and a total of $5.6 million of cash. In return, Colorado MEDtech received from HEI 1,000,000 shares of HEI common stock and a subordinated debenture in the amount of $2,600,000. In addition, HEI assumed certain obligations, including the lease for the Colorado operations facility, warranty obligations and certain customer deposit obligations.

     In connection with the transaction, HEI agreed to use its reasonable best efforts to register the shares of HEI stock that Colorado MEDtech received by May 24, 2003. The debenture has an interest rate of 10% (increasing to 12% on July 24, 2003 and to 14% on January 24, 2004) and matures September 30, 2004.

     The unaudited pro forma combined condensed balance sheet and statement of operations filed with this report are presented for illustrative purposes only. The pro forma balance sheet as of December 31, 2002 is not necessarily indicative of the financial position of Colorado MEDtech had Colorado MEDtech sold its Colorado operations as of December 31, 2002. The pro forma results of operations are not necessarily indicative of the results of operations for future periods or the results that actually would have been realized had Colorado MEDtech sold its Colorado operations as of June 30, 2001. The pro forma statements, including the notes thereto, are qualified in their entirety by reference to, and should be read together with, the historical financial statements of Colorado MEDtech included in Colorado MEDtech’s Form 10-K for the year ended June 30, 2002, and the unaudited financial statements filed in Forms 10-Q for the periods ended September 30, 2002 and December 31, 2002.

     The description of the Purchase Agreement contained herein is qualified in its entirety by reference to the Purchase Agreement, attached hereto as Exhibit 2.1, and incorporated herein by reference. The description of the subordinated debenture contained herein is qualified in its entirety by reference to the Subordinated Promissory Note, attached hereto as Exhibit 2.2, and incorporated herein by reference. The description of the registration rights associated with the HEI stock received by the Company contained herein is qualified in its entirety by reference to the Registration Rights Agreement, attached hereto as Exhibit 2.3, and incorporated herein by reference.

Item 7.	Financial Statements and Exhibits.
	(b) Pro forma financial information.	Page Number
	Pro Forma Condensed Consolidated Balance Sheet (Unaudited) -
	December 31, 2002	F-2
	Pro Forma Condensed Consolidated Statements of Operations (Unaudited) -
	year ended June 30, 2002 and six months ended December 31, 2002 and 2001	F-4

-2-

(c)  Exhibits.
No.	Description
2.1	Purchase Agreement dated January 24, 2003, by and between Colorado MEDtech, Inc. and HEI, Inc. As permitted by Item 601(b)(2), Exhibits and Schedules listed in the Purchase Agreement have been omitted, but will be provided to the Commission upon request.
2.2	HEI, Inc. Subordinated Promissory Note in the principal amount of $2,600,000.
2.3	Registration Rights Agreement dated January 24, 2003 by and between Colorado MEDtech, Inc. and HEI, Inc.

-3-

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 hereunto duly authorized.

     DATED, this 10th day of February, 2003.

COLORADO MEDTECH, INC.
By:	/s/ Peter J. Jensen
	Peter J. Jensen
	Vice President

-4-

To present information about the continuing impact of this transaction, the Company has included pro forma information to show how the transaction might have affected historical financial statements if the transaction had been consummated at an earlier date. These pro forma financial statements were prepared under the guidelines provided by the Securities and Exchange Commission for pro forma financial statements. These pro forma statements are not intended to present what the actual financial condition or results of operations would have been had the Company previously disposed of these assets and liabilities nor are they necessarily indicative of results of operations to be achieved in future periods.

F-1

The following unaudited pro forma statements represent the December 31, 2002 balance sheet adjusted to reflect the sale of the assets and liabilities of the Colorado operations to HEI as if such sale had taken place on December 31, 2002:

				Consolidated			Pro Forma				Pro Forma
ASSETS				December 31, 2002			Adjustments				December 31, 2002
CURRENT ASSETS:
	Cash and cash equivalents			$	9,296,000		$	(5,315,000	)	a	$	3,981,000
	Short-term investments				595,000			—				595,000
	Accounts receivable, net				5,703,000			—				5,703,000
	Unbilled receivables				385,000			(340,000	)	a		45,000
	Inventories				5,048,000			(2,688,000	)	a		2,360,000
	Income taxes receivable				3,280,000			3,760,000		d,k		7,040,000
	Deferred income taxes				1,558,000			(1,152,000	)	k		406,000
	Prepaid expenses and other				595,000			(328,000	)	a		267,000
		Total current assets			26,460,000			(6,063,000	)			20,397,000
NON- CURRENT ASSETS:
	Property and equipment, net				6,099,000			(1,822,000	)	a		4,277,000
	Goodwill and intangibles, net				6,172,000			—				6,172,000
	Investment in HEI stock				—			2,483,000		b,c		2,483,000
	Promissory note, HEI				—			2,600,000		b		2,600,000
	Land held for sale				500,000			—				500,000
	Deferred income taxes				1,227,000			(522,000	)	k		705,000
			Other assets		315,000			(80,000	)	a		235,000
		Total non-current assets			14,313,000			2,659,000				16,972,000
		TOTAL ASSETS		$	40,773,000		$	(3,404,000	)		$	37,369,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	3,053,000		$	1,025,000		e,f	$	4,078,000
	Accrued product service cost				386,000			(376,000	)	a		10,000
	Accrued salaries and wages				1,705,000			800,000		h,i		2,505,000
	Other accrued expenses				1,750,000			(290,000	)	g		1,460,000
	Customer deposits and deferred revenue				1,342,000			(515,000	)	a		827,000
	Capital lease obligation				11,000			—				11,000
		Total liabilities			8,247,000			644,000				8,891,000
SHAREHOLDERS’ EQUITY
	Common stock				16,883,000			—				16,883,000
	Accumulated other comprehensive loss				(2,000	)		—				(2,000	)
	Notes receivable — related parties				(610,000	)		—				(610,000	)
	Retained earnings				16,255,000			(4,048,000	)	j		12,207,000
		Total shareholders’ equity			32,526,000			(4,048,000	)			28,478,000
		TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY		$	40,773,000		$	(3,404,000	)		$	37,369,000

F-2

Pro forma adjustments to reflect the sale of the Colorado operations to HEI:

a.	assets and liabilities sold to HEI under the purchase agreement
b.	subordinated promissory note ($2.6 million) and common stock ($2.6 million) received by the Company as consideration for the Colorado operations
c.	payment to landlord of $117,000 paid in the form of HEI common stock
d.	taxes receivable resulting from the loss on the sale of the Colorado operations, carried back against taxable gains earned in the last five years of approximately $2,086,000
e.	investment banking, legal and accounting fees incurred and accrued as part of the transaction of approximately $950,000
f.	Colorado MEDtech’s portion of the sales and use taxes on the transaction of approximately $75,000
g.	relief of accrued future rent obligation for the Colorado operations’ leased facility
h.	Colorado MEDtech holdback for employees leased to HEI for one week $300,000
i.	severance accrued for additional personnel reductions $500,000
j.	loss on HEI transaction, assuming the transaction occurred on December 31, 2002
k.	deferred tax assets that will become income tax receivables as a result of the sale of Colorado operations

F-3

The following pro forma and unaudited statement of operations for the twelve months ended June 30, 2002, represents the results of operations as if the sale to HEI occurred on June 30, 2001:

										Pro Forma
			Twelve Months Ended			Pro Forma				Twelve Months Ended
			June 30, 2002			Adjustments				June 30, 2002
NET REVENUE
	Outsourcing services		$	27,574,000		$	(27,574,000	)	l	$	—
	Medical products			43,079,000			(18,697,000	)	l		24,382,000
		Total net revenue		70,653,000			(46,271,000	)			24,382,000
COST OF PRODUCTS AND SERVICES
	Outsourcing services			25,764,000			(25,764,000	)	l		—
	Medical products			25,249,000			(13,705,000	)	l		11,544,000
		Total cost of products and services		51,013,000			(39,469,000	)			11,544,000
GROSS PROFIT				19,640,000			(6,802,000	)			12,838,000
				28	%		8	%			53	%
OPERATING EXPENSES
	Research and development			3,357,000			(2,638,000	)	l		719,000
	Marketing and selling			3,889,000			(2,607,000	)	l		1,282,000
	Operating, general and administrative			14,947,000			(10,597,000	)	l		4,350,000
	Other operating expense			2,629,000			(2,567,000	)	l		62,000
		Total operating expenses		24,822,000			(18,409,000	)			6,413,000
NET INCOME (LOSS) FROM OPERATIONS				(5,182,000	)		11,607,000				6,425,000
OTHER INCOME (EXPENSE)
	Other income			228,000			(133,000	)	m,n		95,000
Unrealized holding gains (losses) in HEI Stock				—			(382,000	)	o		(382,000	)
Interest income on subordinated note from HEI				—			286,000		p		286,000
		Total other income (expense)		228,000			(229,000	)			(1,000	)
INCOME (LOSS) BEFORE TAXES				(4,954,000	)		11,378,000				6,424,000
INCOME TAX EXPENSE (BENEFIT)				(1,854,000	)		4,267,000				2,409,000
NET INCOME (LOSS)			$	(3,100,000	)	$	7,111,000			$	4,015,000
NET INCOME (LOSS) PER SHARE
		Basic	$	(.24	)	$	.54			$	.31
		Diluted	$	(.24	)	$	.54			$	.31
WEIGHTED AVERAGE
	SHARES OUTSTANDING
		Basic		13,053,966			13,053,966				13,053,966
		Diluted		13,053,966			13,067,101				13,067,101

F-4

Pro forma adjustments:

l.	elimination of Colorado operations, CIVCO had a G&A charge of $2,160,000 during the year that would cover remaining corporate G&A
m.	removal of interest on the $5,600,000 cash paid to HEI at an average rate of 2% per annum
n.	removal of interest on officer loans for executives who were no longer with Colorado MEDtech after the transaction
o.	change in HEI stock price, based on $2.6 million of stock purchased This is the change of the HEI stock price on 955,000 shares (beginning of the year 6/29/01 = 9.10, end of the year 6/28/02 = $7.70)
p.	interest on the subordinated debt of $2,600,000, 10% first six months, 12% next six months

F-5

The following unaudited pro forma statement of operations for the six months ended December 31, 2002, represents the results as if the sale to HEI occurred on June 30, 2001:

									Pro Forma
			Six Months Ended		Pro Forma				Six Months Ended
			December 31, 2002		Adjustments				December 31, 2002
NET REVENUE
Outsourcing services			$	7,222,000	$	(7,222,000	)	q	$	—
	Medical products			21,455,000		(7,773,000	)	q		13,682,000
		Total net revenue		28,677,000		(14,995,000	)			13,682,000
COST OF PRODUCTS AND SERVICES
	Outsourcing services			7,820,000		(7,820,000	)	q		—
	Medical products			12,869,000		(6,035,000	)	q		6,834,000
		Total cost of products and services		20,689,000		(13,855,000	)			6,834,000
GROSS PROFIT				7,988,000		(1,140,000	)			6,848,000
OPERATING EXPENSES
	Research and development			947,000		(624,000	)	q		323,000
	Marketing and selling			1,892,000		(1,171,000	)	q		721,000
	Operating, general and administrative			4,427,000		(1,661,000	)	q		2,766,000
	Other operating expense			494,000		(494,000	)	q		—
		Total operating expenses		7,760,000		(3,950,000	)			3,810,000
NET INCOME (LOSS) FROM OPERATIONS				228,000		2,810,000				3,038,000
OTHER INCOME (EXPENSE)
	Other income, net			71,000		(50,000	)	r,s		21,000
	Unrealized holding gains (losses) in HEI Stock			—		(1,228,000	)	t		(1,228,000	)
	Interest income on subordinated note from HEI			—		182,000		u		182,000
		Total other income (expense)		71,000		(1,096,000	)			(1,025,000	)
INCOME (LOSS) BEFORE TAXES				299,000		1,714,000				2,013,000
INCOME TAX EXPENSE (BENEFIT)				119,000		651,000				770,000
NET INCOME (LOSS)			$	180,000	$	1,063,000			$	1,243,000
NET INCOME (LOSS) PER SHARE
		Basic and diluted	$	.01	$	.08			$	.09
WEIGHTED AVERAGE
	SHARES OUTSTANDING
		Basic and diluted		13,169,262		13,169,262				13,169,262

F-6

Pro forma adjustments to reflect the sale of the Colorado Operations to HEI:

q.	elimination of operating results of the Colorado operations
r.	removal of interest income on the $5,600,00 of cash sold to HEI at an average rate of 1.5% per annum
s.	removal of interest income on officer loans for officers who left Colorado MEDtech as a direct result of the sale of the Colorado operations
t.	change in HEI stock price from $7.70 per share at June 30, 2002 to $3.20 per share at December 31, 2002, based upon the purchase of $2,6 million of stock at June 30, 2001
u.	interest income on subordinated promissory note from HEI, Inc. at approximately $182,000

F-7

The following unaudited pro forma statement of operations represents the results for the six months ended December 31, 2001, had the sale to HEI occurred on June 30, 2001:

			Six Months Ended			Pro Forma				Six Months Ended
			December 31, 2001			Adjustments				December 31, 2001
NET REVENUE
	Outsourcing services		$	13,282,000		$	(13,282,000	)	v	$	—
	Medical products			21,426,000			(10,033,000	)	v		11,393000
		Total net revenue		34,708,000			(23,315,000	)			11,393,000
COST OF PRODUCTS AND SERVICES
	Outsourcing services			12,286,000			(12,286,000	)	v		—
	Medical products			12,699,000			(7,248,000	)	v		5,451,000
		Total cost of products and services		24,985,000			(19,534,000	)			5,451,000
GROSS PROFIT				9,723,000			(3,781,000	)			5,942,000
OPERATING EXPENSES
	Research and development			1,868,000			(1,546,000	)	v		322,000
	Marketing and selling			1,954,000			(1,392,000	)	v		562,000
	Operating, general and administrative			8,141,000			(6,078,000	)	v		2,063,000
	Other operating expense			1,067,000			(1,033,000	)	v		34,000
		Total operating expenses		13,030,000			(10,049,000	)			2,981,000
NET INCOME (LOSS) FROM OPERATIONS				(3,307,000	)		6,268,000				2,961,000
OTHER INCOME (EXPENSE)
	Other income same change as above			136,000			(67,000	)	w,x		69,000
	Unrealized holding gains (losses) in HEI Stock			—			(546,000	)	y		(546,000	)
	Interest income on subordinated note from HEI			—			130,000		z		130,000
		Total other income (expense)		136,000			(483,000	)			(347,000	)
INCOME (LOSS) BEFORE TAXES				(3,171,000	)		5,785,000				2,614,000
INCOME TAX EXPENSE (BENEFIT)				(1,207,000	)		2,198,000				991,000
NET INCOME (LOSS)			$	(1,964,000	)	$	3,587,000			$	1,623,000
NET INCOME (LOSS) PER SHARE
		Basic	$	(.15	)	$	.28			$	.13
		Diluted	$	(.15	)	$	.28			$	.13
WEIGHTED AVERAGE SHARES OUTSTANDING
		Basic and diluted		12,967,347			12,967,347				12,967,347
		Diluted		12,967,347			12,981,463				12,981,463

F-8

Pro forma adjustments to reflect the sale of the Colorado operations to HEI:

v.	Elimination of the operating results of the Colorado operations
w.	Removal of interest income on the $5,600,000 of cash sold to HEI at an average rate of 2% per annum
x.	Removal of interest income on officer loans who left Colorado MEDtech as a direct result of the sale of the Colorado operations
y.	Change of HEI stock based on $2.6 million of stock purchased on June 30, 2001 at $9.10 per share, December 31, 2001 price was $7.10
z.	Interest income on the subordinated promissory note with HEI of approximately $130,000

F-9

EXHIBIT INDEX

No.	Description
2.1	Purchase Agreement dated January 24, 2003, by and between Colorado MEDtech, Inc. and HEI, Inc. As permitted by Item 601(b)(2), Exhibits and Schedules listed in the Purchase Agreement have been omitted, but will be provided to the Commission upon request.
2.2	HEI, Inc. Subordinated Promissory Note in the principal amount of $2,600,000.
2.3	Registration Rights Agreement dated January 24, 2003 by and between Colorado MEDtech, Inc. and HEI, Inc.