SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
For Quarter ended March 31, 1997
Quarterly Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
Commission File Number 1-10768
MEDIWARE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 11-2209324
(State of other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1121 Old Walt Whitman Road
Melville, New York 11747-3005
(Address of Principal Executive Officer) (Zip Code)
(516) 423-7800
(Registrant's telephone number, including area code)
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 March 31, 1997, there were 4,957,973 shares of Common Stock, $0.10 par
value, of the registrant outstanding.
<PAGE>
MEDIWARE Information Systems, Inc.
Index
Part I. Financial Information Page
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
(audited) and March 31, 1997 (unaudited)............................2
Consolidated Statements of Operations
for the three months and nine months ended
March 31, 1997 & 1996 (unaudited)...................................3
Consolidated Statements of Cash Flows
for the nine months ended
March 31, 1997 & 1996 (unaudited)...................................4
Notes to Financial Statements.......................................5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................5 - 8
Signature Page...............................................................9
EXHIBIT 11
Schedule of Computation of Net income per Share.............................10
EXHIBIT 27
Financial Data Schedule.....................................................11
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MEDIWARE Information Systems, Inc. and subsidiary
Consolidated Balance Sheets
March 31, 1997 June 30, 1996
(unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,043,000 $2,504,000
Accounts receivable, less estimated doubtful accounts of $264,000 at March 31, 5,363,000 3,509,000
1997 and $188,000 at June 30, 1996
Current portion of contract installment receivable 188,000 252,000
Inventories 119,000 208,000
Prepaid expenses and other current assets 252,000 166,000
------------ -----------
Total current assets 7,965,000 6,639,000
Long-term contract installments receivable, less current portion 37,000 155,000
Fixed assets, at cost, less accumulated depreciation of $1,804,000 at March 31, 635,000 576,000
1997 and $1,364,000 at June 30, 1996
Capitalized software costs 1,180,000 1,012,000
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $639,000 at March 31, 1997 and $372,000 at June 30, 1996 6,470,000 6,737,000
Other assets 72,000 38,000
----------- -----------
TOTAL $16,359,000 $15,157,000
=========== ===========
LIABILITIES
-----------
Current liabilities:
Accounts payable $452,000 $483,000
Accrued expenses and other current liabilities 1,773,000 1,775,000
Advances from customers 2,230,000 1,379,000
Current portion of capital leases payable 16,000 15,000
Notes payable 5,955,000 1,451,000
----------- -----------
Total current liabilities 10,426,000 5,103,000
Notes payable, less current portion 5,728,000
Capital leases payable, less current portion 34,000 43,000
----------- -----------
Total liabilities 10,460,000 10,874,000
STOCKHOLDERS' EQUITY
--------------------
Common stock - $.10 par value; authorized 12,000,000 shares; issued and outstand- 496,000 493,000
ing 4,957,973 shares at March 31, 1997 and 4,931,320 shares at June 30, 1996
Additional paid-in capital 13,457,000 13,419,000
Cumulative foreign currency translation adjustment (47,000)
Accumulated Deficit (8,007,000) (9,629,000)
----------- -----------
Total stockholders' equity 5,899,000 4,283,000
----------- -----------
TOTAL $16,359,000 $15,157,000
=========== ===========
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MEDIWARE Information Systems, Inc. and subsidiary
Consolidated Statements of Operations
Three Months Ended March 31, Nine Months Ended March 31,
(unaudited) (unaudited)
1997 1996 1997 1996
------------------------------------------------------------------------------------
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Revenues:
System sales $ 1,142,000 $ 1,495,000 $ 4,543,000 $ 4,519,000
Services 3,285,000 1,216,000 8,915,000 3,214,000
------------------------------------------------------------------------------------
Total revenues 4,427,000 2,711,000 13,458,000 7,733,000
------------------------------------------------------------------------------------
Costs and expenses:
Cost of systems 386,000 608,000 1,474,000 1,375,000
Cost of services 832,000 459,000 2,440,000 1,350,000
Software development costs 525,000 429,000 1,661,000 1,185,000
Selling, general and
administrative 2,001,000 1,122,000 5,781,000 3,093,000
------------------------------------------------------------------------------------
3,744,000 2,618,000 11,356,000 7,003,000
Earnings (loss) before other
income, interest income,
interest expense, and 683,000 93,000 2,102,000 730,000
income taxes
Other income 7,000 7,000 -
Interest income 17,000 3,000 63,000 3,000
Interest (expense) (197,000) (42,000) (551,000) (150,000)
------------------------------------------------------------------------------------
Income before income taxes 510,000 54,000 1,621,000 583,000
Income tax (21,000) - (61,000) (3,000)
------------------------------------------------------------------------------------
NET EARNINGS 489,000 54,000 1,560,000 580,000
====================================================================================
Net income per share of
common stock:
Primary $0.08 $0.02 $0.27 $0.19
====================================================================================
Assuming full dilution N/A N/A N/A $0.16
==============
Weighted average common
shares outstanding:
Primary 5,897,000 3,899,000 5,870,000 3,884,000
====================================================================================
Assuming full dilution N/A N/A N/A 4,037,000
==============
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MEDIWARE Information Systems, Inc. and subsidiary
Consolidated statements of cash flows
Nine Months Ended March 31
(unaudited)
-----------------------------------
1997 1996
-----------------------------------
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Cash flows from operating activities:
Net earnings $1,560,000 $580,000
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 85,000 14,000
Depreciation and amortization 774,000 490,000
Proceeds from contract installments receivable 182,000 22,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,939,000) (506,000)
Decrease (Increase) in inventory 89,000 (115,000)
(Increase) in prepaid and other assets (120,000) (99,000)
Increase in accounts payable, accrued expenses and
customer advances 810,000 321,000
-----------------------------------
Net cash provided by operating activities 1,441,000 707,000
-----------------------------------
Cash flows from investing activities:
Acquisitions of fixed assets (256,000) (109,000)
Capitalized software costs (478,000) (351,000)
-----------------------------------
Net cash (used in) investing activities (734,000) (460,000)
-----------------------------------
Cash flows from financing activities:
Common stock issued 41,000 63,000
Repayment of long-term debt (1,224,000) (120,000)
-----------------------------------
Net cash (used in) financing activities (1,183,000) (57,000)
-----------------------------------
Effect of exchange rate changes on cash and cash equivalents 15,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (461,000) 190,000
Cash and cash equivalents, beginning of period 2,504,000 509,000
--------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,043,000 $699,000
======================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $445,000 $29,000
Income taxes $8,000 $3,000
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MEDIWARE Information Systems, Inc., & Subsidiary
Notes to Unaudited Financial Statements
1. Financial Statements:
In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
of the Company and its results of operations and cash flows for the interim
periods presented. Such financial statements have been condensed in accordance
with the applicable regulations of the Securities and Exchange Commission and
therefore, do not include all disclosures required by generally accepted
accounting principles. These financial statements should be read in conjunction
with the Company's audited financial statements for the year ended June 30, 1996
included in the Company's annual report filed on Form 10-KSB.
The results of operations for the nine months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
2. Earnings (Loss) Per Share:
Earnings (Loss) per share is computed on the basis of the weighted
average number of common shares outstanding during each period. Common share
equivalents relating to shares issuable upon exercise of stock options and
warrants and are included in the computation when the results are dilutive.
3. Income Taxes:
The tax expense is minimal due to the carry forward benefit from the net
operating loss.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements:
Certain statements made in this Report are or imply forward-looking
statements. Such forward looking statements are not guarantees of future
performance and are subject to risks and uncertainties that could cause actual
resu1ts to differ materially from those expressed or implied in the
forward-looking statements. These risks and uncertainties are expressed in the
Risk Factors discussed in the Prospectus included in the Registration Statement
on Form SB-2, File No. 333-18277, especially those under the headings "Working
Capital Deficiency; Restrictive Covenants", "Variability of Operating Results",
"Hospital Purchase Procedures", "Acquisition", "Competition", "Technological
Obsolescence; Marketing and Acceptance of New Products", "Product Protection"
and "Government Regulation".
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Results of Operations:
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996.
Company revenues increased by $1,716,000 or 63% to $4,427,000 from
$2,711,000 for the three-month period ended March 31, 1997 as compared to the
same period in 1996. The increase was due to continued strong performance from
the Hemocare product center, add-on system sales produced by the Pharmakon and
JAC divisions, and a continued large service revenue component.
System sales revenues decreased to $1,142,000 from $1,495,000 for the
three-month period ended March 31, 1997 as compared to the corresponding period
in 1996. A smaller number of hardware systems sold in this period was the major
factor in the decrease. Gross profit increased to 66 % in this 1997 period
compared to 59% in the same period a year ago. The Company introduced its new
state-of-the-art hospital pharmacy system known as WORx during this period, and
is experiencing a substantial backlog. It also ended shipments of the WORx
predecessor, know as Digimedics XA.
Service revenues are comprised of hardware and software support fees,
implementation fees, and training charges for new and existing customers.
Service revenues increased by $2,069,000 or 170% to $3,285,000 from $1,216,000
in this three-month period ended March 31, 1997 as compared to the same period
in 1996. This increase was due to the increase in the Company's installed client
base and maintenance rate increases.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufacturers by Mediware as part
of its application sub-system. Cost of systems was 33% of system sales in the
third quarter of 1997 and 40% of system sales in the comparable period in 1996.
Such costs, as a percent of revenues, vary as the mix of revenue varies between
higher margin proprietary software and lower margin hardware and sublicensed
software components changes from period to period. Costs of systems decreased by
$287,477 to $386,356 in this period as compared to $673,833 for the same period
a year ago. The decrease in actual cost was attributable to hardware being a
smaller component of system sales. The increase in margin in 1997 is due to
software being a larger component of system sales in the third quarter of 1997
compared to the third quarter of 1996.
Cost of services includes the cost of providing hardware and software
maintenance to the Company's installed base as well as sublicensed support
subcontracted to manufacturers. Cost of services was 25% of service revenues in
the third quarter of 1997 and 37% of service revenues in the comparable period
in 1996. This increase in margin is due to a decrease in costs related to
support of the installed client base. Costs of Services increased by $281,526 to
$831,700 in the third quarter of 1997 compared to $ 550,174 for the same period
a year ago. This increase is due to the addition of the Pharmakon and JAC
divisions and the support of their installed client bases.
Software development costs include salaries, documentation and other
direct costs incurred in product development, as well as amortization of
software development costs previously capitalized. Software development costs
were $525,000 and $429,000 for the third quarter of
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1997 and 1996, respectively. Aggregate expenditures for software development in
1997 increased due primarily to the product development for the Company's new
state-of-the-art hospital pharmacy system known as WORx.
Selling, general and administrative expenses include salaries for
corporate, financial, sales, administrative staffs, utilities, communications
expenses, professional fees, as well as other items. These expenses as a percent
of total revenues were 45% and 41% in the third quarter of 1997 and 1996,
respectively. Total general and administrative expenses for the third quarter of
1997 and 1996 were $2,001,000 and $1,122,000, respectively. The increases are a
reflection of the increased S.G.A. expenses of the Pharmakon and JAC divisions,
as well as increased commissions and employee incentive bonus expenses.
Interest expense increased by $155,000 to $197,000 for the three months
ended March 31, 1997 compared to $42,000 for the same period last year. This
increased interest expense in the quarter was due to interest paid on the
outstanding note issued in the acquisition of Pharmakon and JAC from Continental
Healthcare Systems.
Net earnings increased by $435,000 or 806% to $489,000 for the three
months ended March 31, 1997, compared to $54,000 for the like period last year.
The earnings increase resulted primarily from the acquisition of Pharmakon and
JAC, and an increase in support revenues from installed systems and other
revenues.
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996.
The Company's revenues increased 74% from $7,733,000 for the nine-month
period ended March 31, 1996 to $13,458,000 for the nine-month period ended March
31, 1997. The earnings increase resulted primarily from the acquisition of
Pharmakon and JAC, as well as an increase in support of installed systems and
other revenues.
System sales revenues had a slight increase from $4,519,000 for the
nine-month period ended March 31, 1996 to $4,543,000 for the corresponding
period in 1997.
Service revenues increased 177% from $3,214,000 during the first nine
months of fiscal 1996 to $8,915,000 during the same period in 1997. This
increase was due primarily to the increase in the Company's installed client
base and maintenance rate increases.
Cost of systems was 32% of system sales in the first three quarters of
fiscal 1997 and 30% of system sales in the comparable period in 1996. Such
costs, as a percent of revenues, typically are varied as the mix of revenue
(software and hardware) components carrying different margin rates changes from
period to period. The decrease in margin is due to hardware being a larger
component of system sales in the first and second quarters of 1997 compared to
the same period in 1996.
Cost of services was 27% of service revenues in the first three quarters
of 1997 and 42% of service revenues in the comparable period in 1996. This
increase in margin is due to a decrease in costs related to support of the
installed client base.
Software development costs were $1,661,000 and $1,185,000 for the first
three quarters of 1997 and 1996, respectively. The increase in aggregate
expenditures for software development in 1997 was due to WORx product
development.
-7-
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Selling, general and administrative expenses as a percent of total
revenues were 42% and 39% in the first nine months of 1997 and 1996,
respectively. Total general and administrative expenses for the nine months of
1997 and 1996 were $5,781,000 and $3,093,000, respectively.
Interest expense increased by $401,000 to $551,000 for the nine months
ended March 31, 1997 compared to $150,000 for the same period last year. This
increased interest in the first nine months of fiscal 1997 was due to interest
paid on the outstanding note issued in the acquisition of Pharmakon and JAC from
Continental Healthcare Systems.
Net earnings increased $980,000 or 170% to $1,560,000 in the nine months
ended March 31, 1997 from $580,000 in same period a year ago.
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. 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 in the form of a promissory
note issued to Continental bearing interest at Citibank N.A.'s base rate 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
provided for a payment of $1.0 million for principal reduction (which payment
was made in October, 1996) and monthly payments thereafter of $100,000 for
principal and interest (required payments to date have been made) and an
increase in the interest rate to 15% on approximately $3,763,000 of the note
(with the original rate remaining on $l,237,000). At March 31, 1997, the
outstanding balance of this liability, approximately $4.8 million, is classified
as current.
At March 31, 1997 and June 30, 1996 there were outstanding bridge loans
in the principal amount of $1,179,000, due August 1, 1997. As noted below the
Company will require additional sources of liquidity to fund this balance due.
The Company had a working capital deficiency of $2,461,000 at March 31, 1997
reflecting notes due in August 1997.
The Company has acquired a credit facility of $75,000 from its bank in
New York. As of December 31, 1996, the facility has $75,000 available. The
Company will require additional sources of liquidity to fund a net balance of up
to $4.6 million of debt due August 1, 1997. The Company currently is seeking
additional sources of credit and equity in order to fund the reduction of its
obligations under the above-mentioned notes. However, it cannot be assured at
this time that it will be successful.
Recently Issued Accounting Standards
The Financial Accounting Standards Board has recently issued
statements, which are not yet effective for the Company. SFAS No.123 will
require the Company to make additional disclosures related to stock-based
compensation. SFAS No.128 will simplify the Company's computation of earnings
per share.
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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.
MEDIWARE Information Systems, Inc.
----------------------------------
(Registrant)
May 14, 1997 By: /s/ Les N. Dace
- ------------------ ----------------------------------
(Date) Les N. Dace, President CEO
May 14, 1997 By: /s/ Les N. Dace
- ------------------ ----------------------------------
(Date) Les N. Dace, CEO
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MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
Three months Three months Nine months Nine months Nine months
ended ended ended ended ended
March 31, March 31, March 31, March 31, 1996 March 31, 1996
--------- --------- --------- -------------- --------------
1997 1996 1997
---- ---- ----
Primary Fully Diluted
----------------------------------------------------------------------
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Modified treasury stock method
adjustment to net income:
Net income $489,000 $54,000 $1,560,000 $580,000 $580,000
Reduction in interest expense from retiring debt 25,000 143,000 83,000
----------------------------------------------------------------------
$489,000 $79,000 $1,560,000 $723,000 $663,000
Modified treasury stock method
adjustment to common stock:
Weighted average shares outstanding 4,951,000 2,655,000 4,942,000 2,655,000 2,655,000
Add: Net shares from exercise of options/warrants:
Assumed exercise of options 1,324,000 1,775,000 1,324,000 1,760,000 1,760,000
Assumed repurchase of shares 378,000 531,000 396,000 531,000 378,000
----------------------------------------------------------------------
Incremental shares 946,000 1,244,000 928,000 1,229,000 1,382,000
----------------------------------------------------------------------
Adjusted shares 5,897,000 3,899,000 5,870,000 3,884,000 4,037,000
======================================================================
EARNINGS PER SHARE $0.08 $0.02 $0.27 $0.19 $0.16
======================================================================
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,043
<SECURITIES> 0
<RECEIVABLES> 5,551
<ALLOWANCES> 188
<INVENTORY> 119
<CURRENT-ASSETS> 7,965
<PP&E> 2,439
<DEPRECIATION> 1,804
<TOTAL-ASSETS> 16,359
<CURRENT-LIABILITIES> 10,426
<BONDS> 0
0
0
<COMMON> 496
<OTHER-SE> 5,401
<TOTAL-LIABILITY-AND-EQUITY> 16,359
<SALES> 13,458
<TOTAL-REVENUES> 13,458
<CGS> 3,914
<TOTAL-COSTS> 11,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551
<INCOME-PRETAX> 1,621
<INCOME-TAX> 61
<INCOME-CONTINUING> 1,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,560
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
