SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
FORM 10-KSB
on
FORM 10-KSB/A
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
or
|_| Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-10768
MEDIWARE INFORMATION SYSTEMS, INC.
(Exact name of small business issuer in its charter)
New York 11-2209324
(State of other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1121 Old Walt Whitman Road
Melville, New York 11747-3005
(Address of Principal (Zip Code)
Executive Offices)
(516) 423-7800
(Issuer's telephone number;
including area code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.10 per share Nasdaq SmallCap Market
The Pacific Stock Exchange,Inc.
Securities to be registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 part 90 days.
Yes x No
---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $10,432,000.
The aggregate market value of the voting stock held by non-affiliates on October
25, 1996 was approximately $12,270,864.
Number of shares of Common Stock outstanding at October 25, 1996: 4,939,344
shares.
Documents Incorporated by Reference:
The Proxy Statement for the Registrant's 1996 Annual Meeting of Shareholders is
incorporated by reference in Part III of this Report.
<PAGE>
The Registrant hereby amends Items 6 and 7 as follows:
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Internal and External Sources of Liquidity and Capital Resources
- ----------------------------------------------------------------
In June of 1996, Digimedics Corporation, a wholly owned
subsidiary of the Company, purchased the Pharmakon division and JAC, a U.K.
affiliate, from Continental Healthcare Systems, Inc. ("Continental"). The total
purchase price, net of acquisition costs, was approximately $9.7 million, $3.7
million of which was paid in cash and the remaining $6.0 million of which was
paid pursuant to a promissory note issued to Continental, due November 30, 1996.
On October 28, 1996 the promissory note was amended to provide for an extension
of the due date to August 1, 1997. The amendment provides for an immediate
payment of $1.0 million and monthly payments of $100,000 for principal and
interest and an increase in the interest rate to 15% on approximately $3,763,000
of the note (with the original rate remaining on $1,237,000). As a result of
this amendment, $4,549,000 of this liability is classified as long-term debt.
The Company will require additional sources of liquidity to fund the $4,549,000
debt payment due August 1, 1997. Management believes that they will be able to
reduce this liability by approximately $1,237,000 by providing services under an
agreement entered into in connection with the Acquisition.
To finance the cash portion of the acquisition, the Company
made a private placement of 1,692,308 shares of its Common Stock in June of
1996, at a price of $3.25 per share, for total proceeds before expenses of
$5,500,002.
The Company's cash and cash equivalent position at June 30,
1996 was $2,504,000, an increase of $1,995,000 from fiscal year end 1995. At
June 30, 1996 the net working capital was $1,536,000 and the current ratio was
1.3 - 1.
In order to cover its cash needs during fiscal years 1994 and
1995, the Company carried out financing programs under which it borrowed an
aggregate of$1,299,000 from investors, including directors. As part of the
financing package such investors received 1,040,025 warrants at $0.50 per share
and 129,695 warrants at $1.25 per share. During fiscal year 1996 the Company
repaid $120,000, leaving a balance of $1,179,000 due August 1, 1997. The Company
will require additional sources of liquidity to fund this balance due. In May of
1996 some of the investors exercised 495,025 of the $0.50 warrants for a total
of $247,512.50. A portion of these funds was used by the Company for acquisition
expenses.
The Company has procured a line of credit from its bank in New
York City in the total sum of $75,000. As of June 30, 1996, there were no
balances outstanding under this facility.
<PAGE>
Material Changes in Results of Operations: Fiscal 1996 vs. Fiscal 1995:
- -----------------------------------------------------------------------
Total revenues increased by $2,353,000, or 29%, to $10,432,000
in fiscal 1996 from $8,079,000 in fiscal 1995. Approximately 80% of this
increase was due to the improved performance of the Hemocare product center.
System Sales increased by $1,957,000, or 51%, to $5,781,000 in
fiscal 1996 from $3,824,000 in fiscal 1995. Almost 80% of this increase was
attributable to increased sales of new systems by the Hemocare product center in
conjunction with its remarketers and an aggressive upgrade program which took
advantage of the pressure on hospitals to consolidate onto current product
revisions.
Service Revenues increased by $396,000, or 9%, to $4,651,000
in fiscal 1996 from $4,255,000 in fiscal 1995. Approximately 60% of this
increase was due to increases in service revenues from newly installed systems
and additional modules added to existing customer's systems. The remainder of
the increase was provided by Pharmakon.
Cost of Systems increased by $787,000, or 64%, to $2,023,000
in fiscal 1996 from $1,236,000 in fiscal 1995. Of this increase, 66% was due to
the increase in the cost of sales by the Hemocare product center that included
sales of hardware and 25% was due to an increase in system costs at Digimedics.
Cost of Services increased by $163,000, or 13%, to $1,403,000
in fiscal 1996 from $1,240,000 in fiscal 1995. Almost all of this increase is
due to additional personnel and other related costs of providing customer
services, specifically in the Hemocare product center.
Software Development costs increased by $51,000, or 4%, to
$1,438,000 in fiscal 1996 from $1,387,000 in fiscal 1995, due to an increase in
software engineering personnel and development costs from Pharmakon.
Selling, General and Administrative increased by $830,000, or
20%, to $4,966,000 in fiscal 1996 from $4,136,000 in fiscal 1995. Each of the
product centers had increased costs due to product marketing, product consulting
and incentive commission payout. Approximately 64% of these increases was
provided by the Hemocare product center.
Interest Expense of $216,000 for fiscal 1996, decreased by
$33,000, or 13%, as compared to interest expense of $249,000 in fiscal 1995. The
decrease is primarily due to the fact that fiscal 1996 did not include a debt
discount as did fiscal 1995, coupled with interest incurred in fiscal 1996 on
outstanding loans.
The Company had a net loss of $3,491,000 in fiscal 1996, or
$1.24 per share, as compared to net earnings of $90,000 in fiscal 1995, or $.04
per share, which reflects the charge to operations of acquired research and
development of $3,891,000 from the Pharmakon Acquisition. If this charge were
excluded, however, net income would result in
-2-
<PAGE>
$400,000, or $.12 and $.11 per share on a primary and fully diluted basis,
respectively, in fiscal 1996. The fiscal 1996 loss of the Surgiware division was
comparable to that in fiscal 1995.
Material Changes in Results of Operations: Fiscal 1995 vs. Fiscal 1994:
- -----------------------------------------------------------------------
Total revenues decreased by $198,000, or 2%, to $8,079,000 in
fiscal 1995 from $8,277,000 in fiscal 1994. This decrease was due to the sales
of more software-only systems and to slower sales of the Surgiware Product,
reflecting uncertainties resulting from an arbitration that concluded in fiscal
1995 (as described in " Description of the Business", above).
System Sales decreased by $906,000, or 19%, to $3,824,000 in
fiscal 1995 from $4,730,000 in fiscal 1994. This was due to a decrease of sales
of hardware as a system component and a larger number of software only systems
sold, and decreases in Surgiware's sales due to the arbitration, which caused
uncertainties in the marketplace in fiscal 1995.
Service Revenues increased by $708,000, or 20%, to $4,255,000
in fiscal 1995 from $3,547,000 in fiscal 1994. This was due primarily to product
maintenance increases relating to an increased installed base.
Cost of Systems decreased by $858,000, or 41%, to $1,236,000
in fiscal 1995 from $2,094,000 in fiscal 1994. This decrease was due primarily
to a larger number of software-only systems in fiscal 1995 as compared to sales
software and hardware in fiscal 1994.
Cost of Services increased by $151,000, or 14%, to $1,240,000
in fiscal 1995 from $1,089,000 in fiscal 1994, as the Company had increased the
number of personnel and other related costs of the customer support
organization.
Software Development costs decreased by $404,000, or 23%, to
$1,387,000 in fiscal 1995 from $1,791,000 in fiscal 1994. The decrease is
primarily due to a decrease in Surgiware development and the result of the
write-off of $242,000 of capitalized software in fiscal 1994.
Selling, General and Administrative increased by $277,000, or
7%, to $4,136,000 in 1995 from $3,859,000 in 1994. The increase is due primarily
to increased payroll and travel expenses, commissions, professional fees and
employee health insurance claims.
The Company expensed costs of $1,222,000 in connection with
the arbitration in fiscal 1994. Such costs included $208,000, which the Company
intended to pay the licensor to retain exclusivity; the balance was principally
legal fees and expenses in connection with the arbitration. During fiscal 1995
the Company, after review of the then current circumstances, decided not to
elect to make the payments required to maintain exclusivity. Accordingly, the
$208,000 accrued expense recorded in the prior year was eliminated, resulting in
increased income.
-3-
<PAGE>
Interest Expense of $249,000, including approximately $100,000
in debt discount, for fiscal 1995 was incurred on the interim financing from
investors referred to above and the loans to the Company from the chairman of
the board.
The Company had a net profit of $90,000 for fiscal 1995, or
$.04 per share, compared to a net loss of $1,902,000, or $.75 per share, in
fiscal 1994. The net profit is due to the elimination of arbitration costs in
fiscal 1995 and the improvement in gross profits.
-4-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-1
CONSOLIDATED BALANCE SHEET AS AT
JUNE 30, 1996 F-2
CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1996 AND JUNE 30, 1995 F-3
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY FOR THE YEARS
ENDED JUNE 30, 1996 AND JUNE 30,
1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND
JUNE 30, 1995 F-5
NOTES TO FINANCIAL STATEMENTS F-6
-5-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Mediware Information Systems, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheet of Mediware
Information Systems, Inc. and subsidiaries as at June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of
Mediware Information Systems, Inc. and subsidiaries at June 30, 1996 and the
results of their operations and their cash flows for each of the years in the
two-year period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
August 23, 1996
With respect to Note E(1)
October 28, 1996
F-1
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
================================================================================
A S S E T S
(Note E)
Current assets:
Cash and cash equivalents (Note G) ............................ $ 2,504,000
Accounts receivable, less estimated doubtful accounts
of $188,000 (Note A) ........................................ 3,509,000
Current portion of contract installment receivable
(Note A)..................................................... 252,000
Inventories (Note A)........................................... 208,000
Prepaid expenses and other current assets ..................... 166,000
------------
Total current assets ................................... 6,639,000
Long-term contract installments receivable, less current
portion (Note A)............................................... 155,000
Fixed assets, at cost, less accumulated depreciation of
$1,364,000 (Notes A and C)..................................... 576,000
Capitalized software costs (Notes A and D)........................ 1,012,000
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $372,000
(Notes A and B) ............................................... 6,737,000
Other assets .................................................... 38,000
------------
T O T A L............................................... $ 15,157,000
============
L I A B I L I T I E S
Current liabilities:
Accounts payable............................................... $ 483,000
Accrued expenses and other current liabilities (Note F)........ 1,775,000
Advances from customers (Note A)............................... 1,379,000
Current portion of capital leases payable ..................... 15,000
Notes payable (Note E)......................................... 1,451,000
------------
Total current liabilities............................... 5,103,000
Notes payable, less current portion (Note E)...................... 5,728,000
Capital leases payable, less current portion ..................... 43,000
------------
Total liabilities....................................... 10,874,000
------------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY
(Note G)
Common stock - $.10 par value; authorized 12,000,000
shares; 4,931,320 shares issued and outstanding ............... 493,000
Additional paid-in capital ....................................... 13,419,000
(Deficit)......................................................... (9,629,000)
------------
Total stockholders' equity ............................. 4,283,000
-------------
T O T A L................................................$ 15,157,000
============
The accompanying notes to financial statements
are an integral part hereof.
F-2
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
----------------------
1996 1995
------ -------
Revenues:
System sales................................... $ 5,781,000 $ 3,824,000
Services....................................... 4,651,000 4,255,000
------------ ------------
Total revenues.......................... 10,432,000 8,079,000
------------ ------------
Costs and expenses:
Cost of systems................................ 2,023,000 1,236,000
Cost of services............................... 1,403,000 1,240,000
Purchased research and development
(Note B)..................................... 3,891,000
Software development costs..................... 1,438,000 1,387,000
Selling, general and administrative............ 4,966,000 4,136,000
Arbitration (income) (Note H).................. (208,000)
------------ ------------
13,721,000 7,791,000
------------ ------------
Earnings (loss) before interest income
and expense.................................... (3,289,000) 288,000
Interest income................................... 14,000 51,000
Interest (expense)............................... (216,000) (249,000)
------------ ------------
NET EARNINGS (LOSS)............................... $ (3,491,000) $ 90,000
============ ============
Earnings (loss) per share (Note A)................ $ (1.24) $ .04
============ ============
Weighted average number of common and common
equivalent shares.............................. 2,817,405 2,569,447
============ ============
The accompanying notes to financial statements
are an integral part hereof.
F-3
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Additional
Paid-in
Capital
Shares Amount (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance - July 1,
1994........................ 2,521,743 $ 252,000 $ 8,083,000 $ (6,228,000) $ 2,107,000
Release of escrow
shares...................... 74,667 8,000 43,000 51,000
Issuance of
warrants.................... 21,000 21,000
Net earnings................... 90,000 90,000
------------- ------------ -------------- -------------- --------------
Balance - June 30,
1995........................ 2,596,410 260,000 8,147,000 (6,138,000) 2,269,000
Shares issued to
nonemployee
directors................... 86,040 9,000 86,000 95,000
Exercise of
warrants.................... 495,025 49,000 198,000 247,000
Shares issued in
connection with
private
placement
(Note G).................... 1,723,076 172,000 4,891,000 5,063,000
Shares issued as
fees for
acquisitions
(Note B).................... 30,769 3,000 97,000 100,000
Net (loss)..................... (3,491,000) (3,491,000)
------------- ------------ -------------- -------------- --------------
BALANCE - JUNE 30,
1996........................ 4,931,320 $ 493,000 $ 13,419,000 $ (9,629,000) $ 4,283,000
============= ============ ============== ============== ==============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-4
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1996 1995
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................................................ $ (3,491,000) $ 90,000
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Shares issued to nonemployee directors..................................... 95,000
Provision for doubtful accounts............................................ 162,000 128,000
Depreciation and amortization.............................................. 709,000 735,000
Purchased research and development......................................... 3,891,000
Proceeds from contract installments receivable............................. 20,000 7,000
Changes in operating assets and liabilities, net
of effects from purchase of Pharmakon & JAC:
(Increase) in accounts receivable...................................... (640,000) (314,000)
(Increase) in inventories.............................................. (53,000) (13,000)
(Increase) decrease in prepaid and other assets (28,000) 14,000
Increase (decrease) in accounts payable,
accrued expenses and customer advances............................... 665,000 (406,000)
--------------- ----------------
Net cash provided by operating activities............................ 1,330,000 241,000
--------------- ----------------
Cash flows from investing activities:
Acquisitions of fixed assets................................................... (127,000) (101,000)
Capitalized software costs..................................................... (496,000) (356,000)
Purchase of Pharmakon and JAC, net of cash acquired. (3,893,000)
--------------- ----------------
Net cash (used in) investing activities.............................. (4,516,000) (457,000)
--------------- ----------------
Cash flows from financing activities:
Proceeds from note payable and warrants........................................ 334,000
Repayment of debt.............................................................. (129,000) (23,000)
Proceeds from exercise of warrants............................................. 247,000
Proceeds from private placement................................................ 5,063,000
--------------- ----------------
Net cash provided by financing activities............................ 5,181,000 311,000
--------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,995,000 95,000
Cash and cash equivalents - beginning of period................................... 509,000 414,000
--------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD......................................... $ 2,504,000 $ 509,000
=============== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 64,000 $ 47,000
Income taxes............................................................... 6,000 3,000
Noncash transactions:
Shares released from escrow, recorded as additional
purchase price........................................................... 51,000
Equipment acquired with capital leases..................................... 41,000
The Company made acquisitions for $3,893,000 of cash
in the year ended June 30, 1996. The purchase
price was allocated to the assets acquired and
liabilities assumed based on their fair value as
indicated in Note B........................................................ 10,004,000
Less cash acquired........................................................... (11,000)
Promissory note issued....................................................... (6,000,000)
Common stock issued.......................................................... (100,000)
---------------
$ 3,893,000
===============
The accompanying notes to financial statements
are an integral part hereof.
</TABLE>
F-5
<PAGE>
(NOTE A) - The Company and its Significant Accounting Policies:
The consolidated financial statements include the accounts of Mediware
Information Systems, Inc. and its wholly owned subsidiary, Digimedics
Corporation ("Digimedics") and its subsidiary J.A.C. Computer Services Limited
("JAC"). All significant intercompany transactions have been eliminated in
consolidation.
Mediware Information Systems, Inc. and subsidiaries (the "Company") develops,
installs and maintains computerized information systems for hospital blood
banks, pharmacies and surgical suites.
As discussed in Note E, the Company has $5,728,000 of long-term debt which is
due on August 1, 1997. The Company will have to refinance this indebtedness.
There is no assurance that it will be able to do so on acceptable terms.
[1] Cash equivalents:
The Company considers all highly liquid short-term investments
with a maturity of three months or less to be cash equivalents.
[2] Revenue recognition:
Revenue from the sale of systems is recognized upon delivery,
although payment may be due upon completion of other contractual obligations.
Service revenue is recognized on a straight-line basis over the life of the
service agreements.
[3] Long-term contract installments receivable:
Contract installments receivable arising from sales of systems
with extended payment terms bear interest at rates from 7% to 16% and are due in
monthly installments through 1999.
[4] Inventories:
Inventories, which consist of equipment purchased for resale,
are valued at the lower of cost or market. Cost is determined by the specific
identification method.
[5] Fixed assets:
Furniture and equipment are depreciated by the straight-line
method over their estimated useful lives of five years. Leasehold improvements
are amortized by the straight-line method over the remaining terms of the
respective leases.
F-6
<PAGE>
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[6] Software development costs:
In accordance with Statement of Financial Accounting Standards
No. 86, the Company capitalizes certain costs associated with the development of
computer software. Such costs, in addition to costs of purchased software, are
amortized over the software's estimated useful life of five years. Management
periodically evaluates the recoverability of capitalized software development
costs and write-downs are taken if required.
Costs to maintain developed programs and other development
costs incurred prior to achievement of technical feasibility are expensed as
incurred. Such costs were $956,000 and $951,000 for the years ended June 30,
1996 and June 30, 1995, respectively. Software development costs reported on the
consolidated statements of operations include amortization (Note D).
[7] Excess of cost over the fair value of net assets acquired:
The excess of cost over the fair value of net assets acquired,
which arose from the acquisitions of Digimedics, Pharmakon and JAC, is being
amortized on a straight-line basis over twenty years. Management continually
reevaluates the appropriateness of the amortization periods and related carrying
amount. Goodwill is adjusted if events and circumstances indicate that an other
than temporary decline in value below the current unamortized historical cost
has occurred. Several factors are used to evaluate goodwill, including but not
limited to: mangement's plans for future products and operations, market
position and continual acceptance, recent operating results and projected
undiscounted cash flows.
[8] Advances from customers:
Advances from customers represent contractual payments
received by the Company. Such amounts are recorded as income upon delivery of
the system with respect to system revenues or over the life of the service
agreement with respect to service revenue.
[9] Earnings (loss) per share:
Earnings (loss) per share are based on the weighted average
number of shares outstanding during each year.
Earnings per share are computed on a primary basis since the
fully diluted basis does not result in further dilution.
[10] Use of estimates:
F-7
<PAGE>
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[11] Change in accounting principle and recently issued accounting
pronouncements:
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 121 requires, among
other things, that entities identify events or changes in circumstances which
indicate that the carrying amount of an asset may not be recoverable. SFAS 123
requires, among other things, that companies establish a fair value based method
of accounting or disclosure for stock-based compensation plans. These statements
are effective for the Company's fiscal year commencing July 1, 1996. The Company
believes that adoption of SFAS 121 and SFAS 123 will not have a material impact
on its financial statements. The Company expects to continue to account for
employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," using intrinsic
values with appropriate disclosures using the fair value based method. The
Company has not elected to adopt SFAS 123 early.
(NOTE B) - Acquisitions:
On June 17, 1996, Digimedics and Information Handling Services Group, Inc.
("IHS") and its wholly owned subsidiary, Continental Healthcare Systems, Inc.
("Continental"), entered into an Asset Purchase Agreement whereby Digimedics
purchased from Continental its Pharmakon division ("Pharmakon"). Also on June
17, 1996, Digimedics purchased from Holland America Investment Corporation, a
wholly owned subsidiary of IHS, all of the issued and outstanding capital stock
of JAC, a United Kingdom corporation. Pharmakon and JAC develop, install and
maintain computerized information systems for hospital pharmacies. Digimedics
paid an aggregate of $3,666,000 in cash and issued a $6,000,000 secured
promissory note (Note E) for both acquisitions. Digimedics also incurred
acquisition costs of $238,000 in cash (of which approximately $26,000 was to a
related party) and issued 30,769 shares of common stock as a fee valued at
$100,000 to related parties.
F-8
<PAGE>
(NOTE B) - Acquisitions: (continued)
The purchase price has been allocated to the assets acquired, including cash of
$11,000, and liabilities assumed based on their fair values as follows:
Purchase price:
Cash......................................................... $ 3,666,000
Note payable................................................. 6,000,000
Costs of acquisition......................................... 338,000
------------
T o t a l............................................. $ 10,004,000
============
Assets acquired and liabilities
assumed:
Current assets............................................. $ 638,000
Fixed assets............................................... 248,000
Other assets............................................... 151,000
Purchased research and development......................... 3,891,000
Excess of cost over fair value
of net assets acquired................................... 5,873,000
Current liabilities........................................ (797,000)
------------
$ 10,004,000
============
The purchased research and development was charged to operations upon
acquisition. The acquisitions have been accounted for as a purchase and,
accordingly, the accompanying financial statements include the accounts of
Pharmakon and JAC from date of acquisition.
As a result of the above-mentioned purchase, the Company has $2,017,000 of
assets in the United Kingdom. The balance of the assets are in the United
States.
Pro forma summary of consolidated operations, based on the original agreement,
assuming the acquisition of Pharmakon and JAC has taken place on July 1, 1994:
Year Ended June 30,
1996 1995
------ -----
(Unaudited)
Revenue................................. $ 18,965,000 $ 17,526,000
============= =============
Net income............................... $ 26,000 $ 37,000
============= =============
Earnings per share...................... $ .01 $ .01
============= =============
F-9
<PAGE>
(NOTE B) - Acquisitions: (continued)
Digimedics entered into an agreement with Continental to perform Continental's
obligation to provide certain services for customers of Continental, such
services to include installation of systems, customizing systems, and providing
hardware. The agreement also provides for Digimedics to assist Continental in
the collection of certain billed and unbilled accounts receivable, principally
due from the customers who will receive the above mentioned services. Digimedics
is to be paid approximately $1,237,000 plus 30% of amounts collected for
performing the foregoing services.
(NOTE C) - Fixed Assets:
Fixed assets consist of the following as at June 30, 1996:
Computer, machinery, and office
equipment............................................... $ 1,614,000
Furniture........................................................ 310,000
Leasehold improvements........................................... 16,000
-----------
T o t a l.............................................. 1,940,000
Less accumulated depreciation.................................... 1,364,000
-----------
B a l a n c e.......................................... $ 576,000
===========
(NOTE D) - Capitalized Software Costs:
June 30,
1996 1995
Balance, beginning of year
(net of accumulated amortization)................ $ 998,000 $1,079,000
Additions........................................... 496,000 356,000
Amortization........................................ (482,000) (437,000)
---------- ----------
Balance, end of year (net of
accumulated amortization)........................ $1,012,000 $ 998,000
========== ==========
F-10
<PAGE>
(NOTE E) - Notes Payable:
At June 30, 1996 the Company has outstanding notes payable as follows:
Promissory note issued in connection with the acquisition
of Pharmakon and JAC (the "Acquisition Note") (Note B)
bearing interest at Citibank N.A.'s base rate 8.25% at
June 30, 1996 payable monthly commencing July 31, 1996,
due on or before November 30, 1996, collateralized by
substantially all of the assets of Digimedics and all
of the issued and outstanding stock of Digimedics and
JAC. The loan agreement, among other matters, restricts
the Company with respect to incurring any lien or
encumbrance on its property or assets, entering into new
indebtedness and paying any dividends (1)................... $ 6,000,000
Notes issued during the years ended June 30, 1995 and
June 30, 1994, bearing interest at 12% per annum, due
on or before August 1, 1997, collateralized by the
trade accounts receivable of Digimedics which has a
balance at June 30, 1996 of $1,069,000, net of estimated
doubtful accounts of $66,000, (including
$804,000 issued to directors) (2)........................... 1,179,000
7,179,000
Less current maturities.......................................... 1,451,000
---------
$5,728,000
==========
(1) On October 28, 1996 the promissory note was amended to provide for an
extension of the due date to August 1, 1997. The extension agreement
provides for an immediate payment of $1 million and monthly payments of
$100,000 for principal and interest. In addition, the interest rate was
increased to 15% on approximately $3,763,000 with the original rate
remaining for $1,237,000. The agreement provides for the monthly
payments to be first applied to the interest on the portion of the loan
subject to the original rate. The remainder is to be applied to the
interest, then principal, of the loan subject to 15%. As a result of
this amendment, $4,549,000 of this liability is classified as long-term
debt.
F-11
<PAGE>
(NOTE E) - Notes Payable: (continued)
(2) These notes are subordinated to the acquisition note. In conjunction
with the issuance of these notes the Company issued warrants to
purchase 1,040,025 shares of common stock for $0.50 per share and
129,695 shares for $1.25 per share, exercisable through September 30,
2004. The Company recorded debt discount and additional paid-in
capital. The debt discount was expensed in prior years since the notes
were initially due prior to the current fiscal year. During May 1996,
495,025 of the $0.50 warrants were exercised.
(NOTE F) - Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities consist of the following at June
30, 1996:
Wages and related benefits.................................... $ 562,000
Private placement costs....................................... 282,000
Interest...................................................... 312,000
Acquisition costs............................................. 133,000
Other......................................................... 486,000
-----------
T o t a l............................................ $ 1,775,000
===========
(NOTE G) - Stockholders' Equity:
[1] Stock options and warrants:
Pursuant to the Company's Stock Option Plan (the "Plan") the
number of shares reserved for issuance is equal to the lower of twenty percent
of the outstanding shares of common stock or 500,000 shares. The options entitle
holders to purchase shares of common stock at an exercise price not less than
the fair value of the common stock at the date of grant. Up to 107,772
additional options may be issued under this plan.
The Company also has options outstanding pursuant to a 1982
Stock Option Plan (the "1982 Plan") and a Non-Employee Directors Stock Option
Plan (the "Non-Employee Directors Plan"). No additional options may be granted
under the 1982 Plan and 60,685 additional options may be granted under the
Non-Employee Directors Plan. The options under the Non-Employee Directors Plan
entitle the holders to purchase shares of common stock at a price equal to the
fair value on the date of grant.
F-12
<PAGE>
(NOTE G) - Stockholders' Equity: (continued)
[1] Stock options and warrants: (continued)
The following table sets forth summarized information
concerning the Company's stock options:
Number of
Shares Exercise Price
--------- --------------
Outstanding - July 1, 1994........................ 622,266 $1.00 - $5.25
Options granted................................... 35,004 $1.00 - $1.19
Options cancelled ............................... (78,705) $1.00 - $1.76
--------
Outstanding - June 30, 1995....................... 578,565 $1.00 - $5.25
Options granted................................... 80,002 $1.00 - $1.76
Options cancelled................................. (56,893) $1.00 - $1.76
--------
Outstanding - June 30, 1996....................... 601,674 $1.00 - $5.25
========
Exercisable....................................... 438,060 $1.00 - $5.25
========
The Company had outstanding warrants for the purchase of
87,000 shares of its common stock at $5.775 per share which expired on August 5,
1996. The Company also has outstanding warrants for the purchase of 545,000
shares of its common stock at $.50 per share and for the purchase of 129,695
shares at $1.25 per share exercisable through September 30, 2004 (Note E).
[2] Private Placement:
During June 1996, the Company completed a private placement of
its securities. The Company issued 1,692,308 shares of its common stock for
$3.25 a share, yielding net proceeds of approximately $5,063,000 after expenses
totaling approximately $437,000 (of which approximately $65,000 was to a related
party). The Company also issued 30,768 shares to related parties as a placement
fee valued at $100,000.
F-13
<PAGE>
(NOTE H) - Commitments and Contingencies:
[1] Operating leases:
Rental commitments for the remaining term of the Company's
noncancellable leases relating to office space expiring at various dates through
2004 are as follows:
Year Ending
June 30,
1997 . . . . . . . . . . . . . . . . $ 477,000
1998 . . . . . . . . . . . . . . . . 487,000
1999 . . . . . . . . . . . . . . . . 228,000
2000 . . . . . . . . . . . . . . . . 174,000
2001 . . . . . . . . . . . . . . . . 153,000
Thereafter . . . . . . . . . . . . . 101,000
----------
T o t a l. . . . . . . . . $1,620,000
==========
Certain leases provide for additional payments for real estate
taxes and insurance and contain an escalation clause for increases in utilities
and services. Rental expense for the years ended June 30, 1996 and June 30, 1995
aggregated $213,000 and $212,000, respectively.
[2] Software license agreement:
In September 1990, the Company entered into an agreement to
acquire a perpetual exclusive license for a computerized information system for
hospital operating rooms for $750,000. In addition to the purchase price, the
Company was required to pay royalties of 5% to 15% of sales of the product. To
maintain exclusivity, the Company was required to pay cumulative royalty
payments of $675,000, by September 1995 ($375,000 by September 1994 and an
additional $300,000 by September 1995).
Subsequently, the licensor asserted a variety of breach of
contract and other violations of the agreement and commenced an arbitration
proceeding in June 1992. On November 7, 1994 the arbitral panel rendered an
award confirming the Company's exclusivity for its Surgiware product, and its
license for another hospital scheduling software product developed by the
licensor. The award also established December 31, 1994 as the due date for the
Company to make the payment of $375,000 due September 1994 to retain its
exclusivity.
F-14
<PAGE>
(NOTE H) - Commitments and Contingencies: (continued)
[2] Software license agreement: (continued)
During the fourth quarter of the year ended June 30, 1994 the
Company expensed costs of $1,222,000 in connection with the arbitration. Such
costs included $208,000 which the Company intended to pay to the licensor to
retain exclusivity; the balance is principally legal fees and expenses in
connection with the arbitration. During the year ended June 30, 1995 the Company
elected not to make the payments required to maintain exclusivity. Accordingly,
the liability recorded in the prior year was reversed.
[3] Release of common shares held in escrow:
On November 10, 1994 the Company was informed by the Superior
Court of California that it would be required to release 74,667 shares of its
common stock, which were being held in escrow, to former stockholders of
Digimedics Corporation, a wholly owned subsidiary. Upon releasing the shares the
Company increased its number of common shares outstanding and, accordingly,
recorded additional capital and increased the excess of cost over fair value of
net assets acquired, by approximately $51,000 which is being amortized over the
remaining life of such asset.
[4] Other matters:
Substantially all of the Company's cash is on deposit at a
major metropolitan bank.
(NOTE I) - Income Taxes:
At June 30, 1996 the Company has available net operating loss
carryforwards to reduce future federal taxable income of approximately
$7,500,000 which is limited as to the amount which may be used in any one year.
At June 30, 1996 the Company also has available general business tax credit
carryforwards to reduce future current federal income tax expense of
approximately $321,000. The net operating loss carryforwards and business tax
credit carryforwards expire in various amounts through 2009 and 2011,
respectively.
SFAS 109 requires the recognition of deferred tax assets and
liabilities for both the expected future tax impact of differences between the
financial statements and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. SFAS 109 additionally requires the establishment of a valuation
allowance to reflect the likelihood of realization of deferred tax assets. At
June 30, 1996 the Company has total deferred tax liabilities of approximately
$396,000 and total deferred tax assets of approximately $5,034,000. The Company
has recorded a valuation allowance for the amount by which deferred tax assets
exceed deferred tax liabilities and, as a result, the Company has not reported
any liability or asset for deferred taxes at June 30, 1996.
F-15
<PAGE>
(NOTE I) - Income Taxes: (continued)
The major deferred tax asset (liability) items at June 30,
1996 are as follows:
Net operating loss carryforwards................ $ 3,019,000
Business tax credit carryforwards............... 321,000
Software cost capitalization.................... (396,000)
Purchased research and development ............. 1,551,000
Other........................................... 143,000
-----------
4,638,000
Valuation allowance............................................ (4,638,000)
-----------
$ - 0 -
========
The difference between the tax provision and the amount that
would be computed by applying the statutory federal income tax rate to income
before taxes is attributable to the following:
Year Ended June 30,
1996 1995
Income tax provision (benefit) -
statutory rate................................... $ (1,187,000) $ 30,000
Provision for state income taxes
(benefit) - net of federal
benefit (expense)................................ (187,000) 7,000
(Reduction) increase in valuation
allowance on deferred tax assets................. 1,374,000 (37,000)
----------- ---------
$ - 0 - $ - 0 -
========== =========
F-16
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
A list of the Exhibits is set forth in the Exhibit Index,
which index precedes such Exhibits, and which is incorporated herein by this
reference thereto.
Reports on Form 8-K
-------------------
A report on Form 8-K was filed July 1, 1996 reporting as Item
2 the acquisition of the Pharmakon Division ("Division") of Continental
Healthcare Systems, Inc. and JAC Computer Services Ltd. ("JAC"). Amendment No. 1
to the report on Form 8-KA was filed on September 13, 1996, which included, as
Item 7, audited financial statements of the Division and JAC for the fiscal
years ended November 30, 1994 and November 30, 1995, for the five months ended
April 30, 1996 for the Division and JAC, and consolidated proforma financial
information (i) combining the statement of operations for the Company for the
nine months ended March 31, 1996 with the statement of operations for the
Division and JAC for the nine months ending April 30, 1996 and (ii) combining
the statement of operations for the Company, the Division and JAC for the twelve
months ended June 30, 1996. Amendment No.2 to the report on Form 8-K/A was filed
on January 31, 1997, to reflect the inclusion of the signature line of the
Report of Independent Auditors of Richard A. Eisner & Company, LLP.
-6-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Mediware Information Systems, Inc.
----------------------------------
(Registrant)
By: /s/ Les N. Dace
__________________________________
Les N. Dace, President
Dated: January 31, 1997
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Les N. Dace President, CFO & CEO January 31, 1997
- ------------------------ Director (Principal Executive
(Les N. Dace) Officer, Principal Financial
Officer and Principal
Accounting Officer)
/s/ Lawrence Auriana Chairman of the Board; January 31, 1997
- ------------------------ Director
(Lawrence Auriana)
* Jonathan Churchill Director January 31, 1997
- ------------------------
(Jonathan Churchill)
* Roger Clark Director January 31, 1997
- ------------------------
(Roger Clark)
- ------------------------ Director
(Joseph Delario)
* John Frieberg Director January 31, 1997
- ------------------------
(John Frieberg)
- ------------------------ Director
(Walter Kowsh, Jr.)
* Hans Utsch Director January 31, 1997
- ------------------------
(Hans Utsch)
* Clinton G. Weiman Director January 31, 1997
- ------------------------
(Clinton G. Weiman)
* By Les N. Dace
Attorney-in-fact
-7-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Restated Certificate of Incorporation Incorporated by Reference
to Exhibit No. 4 to the
Registration Statement
(the "1996 Registration
Statement") on Form S-8
(File No. 333-7591)
3.2 By-laws ***
10.1 Agreement between the Company and **
Intellimed Corporation dated September 25,
1990
10.3.1 Asset Purchase Agreement dated June 17, *
1996 among Digimedics Corporation and
Continental Healthcare Systems, Inc. and
Information Handling Services Group, Inc.
10.3.2 Stock Purchase Agreement dated June 17, *
1996 among Digimedics Corporation and
Holland America Investment Corporation
and Information Handling Services Group,
Inc.
10.3.3 Amended and Restated Secured Promissory ***
Note of Digimedics Corporation dated
October 28, 1996 in the principal amount
of $5,000,000 to Continental Healthcare
Systems, Inc.
10.3.4 Pledge Agreement dated June 17, 1996 *
between Mediware and Continental
Healthcare Systems, Inc.
10.3.5 Charge dated June 17, 1996 between *
Digimedics Corporation and Continental
Healthcare Systems, Inc.
10.3.6 General Security Agreement dated June 17, *
1996 between Digimedics Corporation and
Continental Healthcare Systems, Inc.
10.3.7 Guaranty dated June 17, 1996 by Mediware *
in favor of Continental Healthcare Systems,
Inc.
10.7 Letters outlining terms of engagement for ***
Les Dace, Thomas Mulstay, and John Esposito
-8-
<PAGE>
Exhibit
No. Description
- ------- -----------
10.8 Employee Stock Option Plan, 1982, as **
amended
10.9 Form of Stock Option Agreement under 1982 **
Plan
10.10 Form of Stock Option Agreement with **
Quadrocom, Inc.
10.13 1992 Employee Stock Option Plan Incorporated by reference
to Exhibit C to Company's
Proxy Statement dated
December 17, 1991
10.14 Stock Option Plan for Non-Employee Incorporated by reference
to Exhibit Directors B to
Company's Proxy Statement
dated December 17, 1991
10.15 Form of Stock Option Agreement under 1992 ***
Employee Stock Option Plan
10.16.1 Form of Note for Interim Financing ***
10.16.2 Form of Warrant for Interim Financing ***
21 Subsidiaries of the registrant ***
23 Consent of Richard A. Eisner & Company,
LLP
24 Powers of Attorney ***
27 Financial Data Schedule ***
- ------------------------
* Incorporated by reference to Exhibits 2(a), 2(b), 2(c), 2(d), 2(e),
2(f) and 2(g), respectively, in the Company's Current Report on Form
8-K, filed on July 1, 1996.
** Incorporated by reference to the Exhibit bearing the same designation
in the 1991 Registration Statement.
*** Previously filed.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 of Mediware Information Systems, Inc. and
subsidiaries of our report dated August 23, 1996 (October 28, 1996 with respect
to Note E(1)) which is included in the annual report on Form 10-KSB/A for the
year ended June 30, 1996.
/s/ Richard A. Eisner & Company, LLP
New York, New York
January 29, 1997
<PAGE>
