SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
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, 1997
or
_ Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-10768
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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
(Issuer's telephone number)
Securities registered under
Section 12(b) of the Act:
<PAGE>
THE REGISTRANT HEREBY AMENDS ITEMS 6 AND 7 AS FOLLOWS:
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
satisfied pursuant to a promissory note issued to Continental, originally due
November 30, 1996. On October 28, 1996 the promissory note was amended,
providing among other things, an extension of the due date to August 1, 1997.
The promissory note was further amended, effective July 21, 1997, to provide
for a reduced principal amount to $4,196,000 and extended payment terms. The
second amendment requires quarterly principal payments of $150,000 commencing
October 31, 1997, with the balance due November 30, 1998, or earlier based
upon a change in control or refinancing by the Company and a reduction in the
interest rate to 8.5% payable monthly. The Company will review the financing
needs of this promissory note and general cash requirements on an ongoing
basis. It is expected that the Company will require additional sources of
liquidity to fund the payment of this promissory note along with other
financing needs including potential acquisitions.
The Company entered into a service agreement with Continental as of the
acquisition date which requires the Company to perform functions in satisfying
various in-process customer contracts, collection of Continental accounts
receivables and other activities related to fulfilling post-acquisition
Continental obligations. The service agreement provided that the Company
would retain 30% of the monies collected on the receivables which the company
services plus $1,237,000. In connection with the amendment to the promissory
note, the service agreement with Continental was also amended on July 21,
1997. The amended service agreement allows the Company to retain 100% of
accounts receivable amounts collected after the amendment date which had not
been invoiced by Continental prior to the acquisition date. The promissory
note was reduced by $437,000 (to $4,196,000) through the application of the
amount owing from Continental to the company for completed services in
accordance with the service agreement. Total fiscal 1997 revenues recorded
from this service agreement approximate $1.2 million.
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 $5,500,000.
Total expense for the June 1996 private placement aggregate $568,000. In
order to provide for general cash needs, the Company completed in August,
1997, a private placement of its securities. The Company sold 400,000 shares
of its common Stock for $6.00 per share and issued warrants to purchase 40,000
shares of Common Stock at $6.00 per share (as part of its placement fee). The
Company has agreed to register the shares sold in the private placement with
the Securities and Exchange Commission. Total proceeds before expenses were
$2,400,000. Expenses of the August 1997 private placement and registration of
the securities are estimated to be approximately $310,000.
The Company's cash and cash equivalent position at June 30, 1997 was
$1,935,000, a decrease of $569,000 from fiscal year end 1996. At June 30,
1997 the net working capital was $2,487,000 and the current ratio was 1:4-1.
The impact of the August, 1997 private placement on the Company's cash and
working capital position is shown (as if it had occurred on June 30, 1997) on
an unaudited Pro Forma balance sheet in the financial statements (see Note M
to the Financial Statements). The Pro Forma cash and cash equivalent position
is $4,025,000; the Pro-Forma net working capital was $4,577,000 and the Pro
Forma working capital ratio was 1.7 to 1. The Pro Forma balances are not
prospective information. Actual cash and working capital amounts at the time
of the private placement made differ significantly from such Pro Forma
amounts.
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 along with promissory notes
to purchase shares of common stock, exercisable at $0.50 per share and 129,695
warrants exercisable at $1.25 per share. During fiscal year 1996, the company
repaid $120,000, leaving a balance of $1,179,000. 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 the acquisition of
Pharmakon and JAC. In September of 1997, $325,000 of these $1,179,000
borrowings balance was repaid to individuals whose Notes were not subordinate
to the continental promissory Note. Effective September 15, 1997 these note
holders agreed to reduce the interest on this unpaid amount from 12% to 9%
leaving the unpaid balance of $854,000 owing to two directors and another
person.
The Company has procured a line of credit from a bank in the total sum of
$75,000. As of June 30, 1997, there were no balances outstanding under this
facility.
Material Changes in Results of Operations: Fiscal 1997 vs. Fiscal 1996
Changes in Results of Operations: Fiscal 1997 vs. Fiscal 1996
- - ----------------------------------------------------------------------
During the year ended June 30, 1997, because of billing errors that were
undetected by supervisors, the Company did not timely invoice certain service
revenues that it was legally entitled to bill. The error was detected by an
internal management analysis of sales, and confirmed a thorough review of
contract administration files. As a result, $181,935 of revenues, that had not
been recorded in the fiscal quarters in which they had been earned, were
originally recorded in the 4th quarter. The company has restated the amounts
originally reported to reflect the revenue in each of the quarters of the year
ended June 30, 1997 (see Note O to the financial statements). These adjustments
had no impact on net earnings for the year ended June 30, 1997. The Company
has also taken appropriate action to assure that it has not failed to record
other billings and that it will not similarly experience this problem in
the future.
In addition, the Company, having acquired an entity in June 1996, discovered
that the prior owners had not billed certain contractual software maintenance
revenues to some of its customers. While the Company continued to provide the
contracted maintenance support to these customers, it chose not to bill such
revenues on a going forward basis until it had established that such billing
would be collectible. However, the Company actively began a program to support
its ability to bill and collect the revenue for those maintenance contract,
and during the quarter ended December 31, 1997, it achieved satisfactory
indications (i.e., it had established a sufficiently credible reputation for
service with the customers, had developed new and additional products upon
which these customers now relied, and had specifically discussed and agreed
collection schedules for the billings with the customers) that revenue was now,
in fact, collectible. Accordingly, it recognized in that quarter the cumulative
effects of those events. It has now revised its prior quarterly information to
record the contract revenues (net of an appropriate reserve for
uncollectibility) into the fiscal quarters in which they should have been
earned, and by reversing the reserve in the quarter ended December 31, 1997,
has recognized the income effect of that event in that quarter (See Note N to
the financial statements). These adjustments had no impact on net earnings
previously reported.
Total revenue increased by $8,471,000 or 81% from $10,432,000 in fiscal
1996 to $18,903,000 in fiscal 1997. The increase is primarily attributable to
the Pharmakon and JAC acquisition ("Acquisition"). Pharmakon and JAC
contributed $163,000 or less than one month in revenue in fiscal 1996 and
$7,931,000 for a full year in fiscal 1997.
System sales increased by $448,000 or 8% from $5,781,000 to $6,229,000 in
fiscal 1997. Pharmakon and JAC system sales increased $1,361,000 in fiscal
1997 from the prior year. The sales increase from the Acquisition was offset
primarily from a decrease in Hemocare system sales. Hemocare shifted pricing
focus from initial system dollar revenue to increased long-term maintenance
and support service revenue.
Service revenues increased 173% or $8,023,000 in fiscal 1997 vs. fiscal
1996. Service revenue increases in fiscal 1997 vs. fiscal 1996 were
principally due to the Pharmakon and JAC Acquisition, which recorded an
increase of $6,407,000. Included in this increase is $384,000 in service
maintenance revenue related to a change in billing policy (see note N).
Additionally, Hemocare service revenues increased by $1,018,000 in fiscal 1997
over the prior year due largely to a focused marketing emphasis on increasing
service revenues.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufacturers for delivery to
clients with related transportation costs. As a percentage of related sales,
cost of systems increased 4% from 35% in fiscal 1996 to 39% in fiscal 1997.
This increase reflects a higher proportion of third party software and
computer hardware in fiscal 1997 vs. fiscal 1996 which is sold at lower gross
margins than company produced product sales.
Cost of services include salaries of client service personnel,
communications expenses, unreimbursed travel, and training expenses along with
related office and other direct expenses. Cost of Services increased
$1,510,000 or 108% in fiscal 1997 as compared to fiscal 1996. As a percentage
of service revenue, cost of services decreased 7% from 30% in fiscal 1996 to
23% in fiscal 1997. The increase in expense is principally due to the
Acquisition. Due to the relatively fixed staffing and other expense within
cost of services, the increase in corresponding service revenues resulted in
higher gross margins.
Software development costs include salaries, documentation, office and
other expenses incurred in product development along with amortization of
software development costs. Software development costs increased 50% or
$717,000 in fiscal 1997 vs. fiscal 1996. This increase is primarily the
result of the Pharmakon and JAC acquisition. Pharmakon and JAC development
expenses were $761,000 in fiscal 1997 and $21,000 in fiscal 1996 (from under
one month of activity in fiscal 1996). Total expenditures for software
development, including both capitalized and non-capitalized portions for
fiscal 1997 and fiscal 1996 were $2,591,000 and $1,452,000. These amounts
exclude amortization. Capitalized software cost additions were $929,000 and
$496,000 for fiscal 1997 and fiscal 1996 respectively. The increase in the
percentage of costs capitalized is primarily due to WORx product software
development. The WORx development project reached technical feasibility in
early fiscal 1997. During fiscal 1996, the Company recorded a charge to
operations of $3,891,000 for acquired research and development from the
Pharmakon acquisition. There was no such charge in fiscal 1997. Management
expects continued increases in software development in the future.
Selling, general and administrative expenses include marketing and sales
salaries, commissions, travel and advertising expenses. Also included is bad
debt expense; legal, accounting and professional fees; salaries and bonus
expenses for corporate, divisional, financial and administrative staffs;
utilities, rent, communications and other office expenses; and other related
direct administrative expenses. Selling, general and administrative expenses
increased 73% or $3,637,000 from $4,960,000 in fiscal 1996 to $8,597,000 in
fiscal 1997. The Pharmakon and JAC acquisition accounted for the majority, or
$3,308,000, of this increase.
Net interest expense increased $457,000 or 226.% from $202,000 in fiscal
1996 to $659,000 in fiscal 1997. This increase is primarily due to the
promissory note issued in connection with the Acquisition.
In fiscal years ended 1997 and 1996 the Company reported income tax of
$85,000 and $6,000 or an effective rate of 3.9% in fiscal 1997 (fiscal 1996
was a loss year). Income tax for both years has principally been state and
local. The Company utilized net operating loss carry forwards in fiscal 1997
(see note I to the Financial Statements). The Company has a deferred tax
asset of $3,781,000 at June 30, 1997 which is fully reserved as the likelihood
of its future utilization cannot be presently determined. Future utilization
of the deferred tax asset is dependent upon the Company's future profitability
as well as the outcome of various acquisition and other strategies and planned
increased software development activities both of which management expects
will result in future tax deductions reducing or eliminating any taxable
income.
The Company had net earnings of $2,081,000 or $0.35 per share in fiscal
1997. In fiscal 1996, the Company's reported net (loss) of ($3,491,000) or
($1.24) per share, which included $3,891,000 of acquired research and
development write-downs.
<TABLE>
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ITEM7. FINANCIAL
CONTENTS
PAGE
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CONSOLIDATED FINANCIAL STATEMENTS
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<FN><C>
Independent auditors' report F-2
Balance sheet as of June 30, 1997 F-3
Statements of operations for the years ended June 30, 1997 and 1996 F-4
Statements of stockholders' equity for the years ended
June 30, 1997 and 1996 F-5
Statements of cash flows for the years ended June 30, 1997 and 1996 F-6
Notes to financial statements F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
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 of June 30, 1997 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, 1997. 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 as of June 30, 1997 and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the two-year period ended June 30, 1997 in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
August 28, 1997
With Respect to Note N
April 29, 1998
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
PRO FORMA
HISTORICAL (NOTE M)
------------- -------------
(UNAUDITED)
<S> <C> <C>
<C> <C>
ASSETS (NOTE E)
Current assets:
Cash and cash equivalents (Note H) $ 1,935,000 $ 4,025,000
Accounts receivable, less estimated doubtful accounts
of $666,000 (Notes A, J, N and O) 6,357,000 6,357,000
Inventories (Note A) 56,000 56,000
Prepaid expenses and other current assets 304,000 304,000
------------- -------------
Total current assets 8,652,000 10,742,000
Fixed assets, at cost, less accumulated depreciation
of $1,572,000 (Notes A and C) 752,000 752,000
Capitalized software costs (Notes A and D) 1,448,000 1,448,000
Excess of cost over fair value of net assets acquired, net
of accumulated amortization of $732,000
(Notes A and B) 6,419,000 6,419,000
Other assets 78,000 78,000
------------- -------------
$ 17,349,000 $ 19,439,000
============= =============
LIABILITIES
Current liabilities:
Accounts payable $ 713,000 $ 713,000
Accrued expenses and other current
liabilities (Note F) 2,032,000 2,032,000
Advances from customers (Note A) 2,106,000 2,106,000
Current portion of capital leases payable 102,000 102,000
Notes payable (Note E) 1,212,000 1,212,000
------------- -------------
Total current liabilities 6,165,000 6,165,000
Notes payable, less current portion (Note E) 4,600,000 4,600,000
Capital leases payable, less current portion 60,000 60,000
------------- -------------
Total liabilities 10 ,825,000 10 ,825,000
------------- -------------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY (NOTE G)
Preferred stock - $.01 par value; authorized 10,000,000
shares; none issued and outstanding
Common stock - $.10 par value; authorized 12,000,000 shares;
5,056,486 shares issued and outstanding 506,000 510,000
Additional paid-in capital 13,621,000 15,707,000
Unearned compensation (91,000) (91,000)
Cumulative foreign currency translation adjustment 36,000 36,000
(Deficit) (7,548,000) (7,548,000)
------------- -------------
Total stockholders' equity 6,524,000 8,614,000
------------- -------------
$ 17,349,000 $ 19,439,000
============= =============
</TABLE>
See notes to financial statements F-3
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
---------------------
1997 1996
---------------- ------------
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<C> <C>
Revenues:
System sales $ 6,229,000 $ 5,781,000
Services 12,674,000 4,651,000
---------------- ------------
Total revenues 18,903,000 10,432,000
---------------- ------------
Costs and expenses:
Cost of systems 2,413,000 2,023,000
Cost of services 2,913,000 1,403,000
Purchased research and development (Note B) 3,891,000
Software development costs 2,155,000 1,438,000
Selling, general and administrative 8,597,000 4,960,000
---------------- ------------
Total costs and expenses 16,078,000 13,715,000
---------------- ------------
Earnings (loss) before interest and
provision for income taxes 2,825,000 (3,283,000)
Interest income 81,000 14,000
Interest (expense) (740,000) (216,000)
---------------- ------------
Earnings (loss) before provision for income taxes 2,166,000 (3,485,000)
Income tax provision (Notes A and I) 85,000 6,000
---------------- ------------
NET EARNINGS (LOSS) $ 2,081,000 $(3,491,000)
================ ============
EARNINGS (LOSS) PER SHARE (NOTE A) $ 0.35 $ (1.24)
================ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES 5,917,441 2,817,405
================ ============
</TABLE>
See notes to financial statements F-4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNEARNED
PORTION OF FOREIGN
ADDITIONAL COMPENSATORY CURRENCY
COMMON STOCK PAID-IN STOCK TRANSLATION
SHARES AMOUNT CAPITAL OPTIONS (DEFICIT) ADJUSTMENT
------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
BALANCE-JULY 1, 1995 2,596,410 $260,000 $8,147,000 $(6,138,000)
Shares issued to directors 86,040 9,000 86,000
Exercise of warrants 495,025 49,000 198,000
Shares issued in connection with
private placement (Note G) 1,723,076 172,000 4,891,000
Shares issued as fees for acquisitions
(Note B) 30,769 3,000 97,000
Net loss (3,491,000)
------------
BALANCE-JUNE 30, 1996 4,931,320 493,000 13,419,000 (9,629,000)
Shares issued to directors (to be
delivered during fiscal 1998) 25,000 3,000 91,000
Exercise of stock options 100,166 10,000 125,000
Compensatory stock options issued 117,000 $ (91,000)
Registration costs incurred in connection
with private placement (Note G) (131,000)
Foreign currency translation $ 36,000
Net earnings 2,081,000
------------
BALANCE-JUNE 30, 1997 5,056,486 $506,000 13,621,000 (91,000) (7,548,000) 36,000
========= ======== ========== ======== =========== ======
TOTAL
------------
<S> <C>
<C>
BALANCE - JULY 1, 1995 $ 2,269,000
Shares issued to directors 95,000
Exercise of warrants 247,000
Shares issued in connection with
private placement (Note G) 5,063,000
Shares issued as fees for acquisitions
(Note B) 100,000
Net loss (3,491,000)
------------
BALANCE - JUNE 30, 1996 4,283,000
Shares issued to directors (to be
delivered during fiscal 1998) 94,000
Exercise of stock options 135,000
Compensatory stock options issued 26,000
Registration costs incurred in connection
with private placement (Note G) (131,000)
Foreign currency translation 36,000
Net earnings 2,081,000
------------
BALANCE - JUNE 30, 1997 $ 6,524,000
============
</TABLE>
See notes to financial statements F-5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
---------------------
1997 1996
---------------- ------------
<S> <C> <C>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 2,081,000 $(3,491,000)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Shares issued to directors 94,000 95,000
Compensatory stock options issued to consultants 26,000
Provision for doubtful accounts 645,000 162,000
Depreciation and amortization 1,058,000 709,000
Purchased research and development 3,891,000
Changes in operating assets and liabilities,
net of effects from purchase of Pharmakon & JAC:
Accounts receivable (3,113,000) (620,000)
Inventories 152,000 (53,000)
Prepaid and other assets (151,000) (28,000)
Accounts payable, accrued expenses
and customer advances 1,209,000 665,000
------------- ------------
Net cash provided by operating activities 2,001,000 1,330,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (262,000) (127,000)
Capitalized software costs (929,000) (496,000)
Purchase of Pharmakon and JAC, net of cash acquired (3,893,000)
------------
Net cash used in investing activities (1,191,000) (4,516,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (1,383,000) (129,000)
Proceeds from exercise of options and warrants 135,000 247,000
Proceeds (expenses) of private placement (131,000) 5,063,000
------------- ------------
Net cash provided by (used in) financing activities (1,379,000) 5,181,000
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (569,000) 1,995,000
Cash and cash equivalents - beginning of year 2,504,000 509,000
------------- ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 1,935,000 $ 2,504,000
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 582,000 $ 64,000
Income taxes $ 46,000 $ 6,000
Noncash transactions:
Equipment acquired with capital leases $ 120,000 $ 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
============
</TABLE>
See notes to financial statements F-6
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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.
[1] CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments purchased with
a maturity of three months or less to be cash equivalents.
[2] REVENUE RECOGNITION:
Revenues are derived primarily from the sale of clinical information systems
along with related service activities. Service activities generally include
installation, training, maintenance, and support. The Company also derives
revenue from the sale of computer hardware.
System sales contracts generally include the licensing of the company's
information system software, services related to the training and installation
of the software and sale of computer hardware. Pre-packaged software revenue
is recognized upon delivery. Computer hardware revenue is recognized upon
shipment. Training and system installation revenue is recognized when
services are performed. Support and maintenance revenue is recognized on a
pro-rata basis over the period of the contract. Contracts for the Pharmakon
software that pre-dated the acquisition of Pharmakon (Note B) are recognized
as revenue using the percentage-of-completion method provided that
collectibility is determinable.
[3] 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.
[4] 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.
[5] 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 $1,662,000 and $956,000 for the years ended June 30, 1997 and 1996,
respectively. Software development costs reported on the consolidated
statements of operations include amortization (Note D).
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] 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 management's plans for future products and operations, market
position and continual acceptance, recent operating results and projected
undiscounted cash flows.
[7] 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.
[8] INCOME TAXES:
The Company utilizes the method of accounting for income taxes prescribed by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Pursuant to SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect at the balance
sheet date. The resulting asset or liability is adjusted to reflect enacted
changes in tax law.
[9] EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share are based on the weighted average number of shares
outstanding during each year. Stock options and warrants are included as
share equivalents using the modified treasury stock method.
Earnings per share are computed on a primary basis since the fully diluted
basis does not result in further dilution.
[10] USE OF ESTIMATES:
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] IMPAIRMENT OF LONG-LIVED ASSETS:
During the year ended June 30, 1997 the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable assets, and goodwill related to those assets. The
adoption of SFAS 121 had no effect on the Company's financial statements.
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] FINANCIAL INSTRUMENTS:
The carrying amounts of accounts receivable, accounts payable, accrued
expenses, capitalized lease obligations and long-term debt approximate their
fair value as the interest rates on the Company's indebtedness approximate
current market rates and due to the short period to maturity of these
instruments.
[13] STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation". SFAS 123 encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for its
employee stock-based compensation plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees" and disclose the pro forma effects
on net and earnings (loss) per share had the fair value of options been
expensed. Under the provisions of APB 25, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of the grant over the amount an employee must pay to
acquire the stock (see Note G).
[14] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share".
This new standard requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the statement of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculation. This statement will be effective for the second quarter of
the Company's 1998 fiscal year and will require retroactive restatement of
previously reported per share data. The Company has not yet quantified what
effect the adoption of SFAS 128 will have on its earnings per share of common
stock.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income", and No. 131, "Disclosures about Segments of an Enterprise and Related
Information". These statements will be effective for the Company's 1999
fiscal year. Implementing SFAS 130 and SFAS 131 will not effect the Company's
financial position or results of operations.
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") on that date.
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.
NOTE B - ACQUISITIONS (CONTINUED)
Digimedics also incurred acquisition costs of $238,000 in cash (of which
approximately $76,000 was to a related party see Note K) and issued 30,769
shares of common stock valued at $100,000 as a fee to related parties.
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:
<TABLE>
<CAPTION>
<S> <C>
<C>
Purchase price:
Cash $ 3,666,000
Note payable 6,000,000
Costs of acquisition 338,000
------------
$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
============
</TABLE>
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.
Pro forma summary consolidated results of operations, based on the original
agreement, assuming the acquisition of Pharmakon and JAC had taken place on
July 1, 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1996
---------------
(UNAUDITED)
<S> <C>
<C>
Revenue $ 18,965,000
===============
Net earnings $ 26,000
===============
Earnings per share $ .01
===============
</TABLE>
NOTE C - FIXED ASSETS
Fixed assets consist of the following as at June 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
<C>
Computer, machinery, and office equipment $1,996,000
Furniture 310,000
Leasehold improvements 18,000
----------
2,324,000
Less accumulated depreciation 1,572,000
----------
$ 752,000
==========
</TABLE>
NOTE D - CAPITALIZED SOFTWARE COSTS
<TABLE>
<CAPTION>
JUNE 30,
-----------
1997 1996
----------- -----------
<S> <C> <C>
<C> <C>
Balance, beginning of year (net of accumulated
amortization) $1,012,000 $ 998,000
Additions 929,000 496,000
Amortization (493,000) (482,000)
----------- -----------
Balance, end of year (net of accumulated amortization) $1,448,000 $1,012,000
=========== ===========
</TABLE>
NOTE E - NOTES PAYABLE
At June 30, 1997 the Company has outstanding notes payable as follows:
<TABLE>
<CAPTION>
<C>
<C>
Promissory note issued in connection with the acquisition of Pharmakon and
JAC (the "Acquisition Note") (Note B) guaranteed by the Company,
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) $4,633,000
Notes issued during the years ended June 30, 1995 and 1994,
bearing interest at 12% per annum, due on demand, collateralized by the
trade accounts receivable of Digimedics (including $804,000 owed to
directors) (2) 1,179,000
----------
5,812,000
Less current maturities 1,212,000
----------
Balance due during fiscal year ending June 30, 1999 $4,600,000
==========
</TABLE>
NOTE E - NOTES PAYABLE (CONTINUED)
(1) On October 28, 1996 the Acquisition Note was amended to provide for an
extension of the original due date to August 1, 1997. The extension agreement
provided 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 and 8.25% on the remaining
$1,237,000. The agreement provided for the monthly payments to be first
applied to the interest on the $1,237,000 portion of the loan and the
remainder applied to the interest, then principal, of the portion of the loan
which bears interest at 15%.
Effective July 21, 1997, the Acquisition Note was further amended. The second
amendment provides for (i) a reduction of the principal balance by $437,000,
which amount was owing by Continental to Digimedics pursuant to a service
agreement (Note J), (ii) extended payment terms which require quarterly
principal payments of $150,000 commencing October 31, 1997 with the balance
due on November 30, 1998, or earlier in the event of a change in control or
refinancing by the Company as described in the amended agreement, and (iii) a
reduction in the interest rate to 8.5% payable monthly. The note is
classified in the accompanying financial statements based on the amended
payment terms.
(2) Of these notes, $854,000 are subordinated to the Acquisition Note and
are accordingly classified as long-term debt. 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. 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, 1997:
<TABLE>
<CAPTION>
<S> <C>
<C>
Wages and related benefits $ 895,000
Professional fees (including $96,000 due to a related party see
Note K) 205,000
Interest (including $323,000 due to directors) 469,000
Income tax 42,000
Other 421,000
----------
$2,032,000
==========
</TABLE>
NOTE G - STOCKHOLDERS' EQUITY
[1] STOCK OPTIONS AND WARRANTS:
Pursuant to the Company's Stock Option Plan (the "Plan") the number of shares
which may be issued is equal to twenty percent of the outstanding shares of
common stock, except that no more than 500,000 shares may be issued pursuant
to incentive stock options. 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 511,519 additional options may be issued
under this plan.
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[1] STOCK OPTIONS AND WARRANTS: (CONTINUED)
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 or 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.
In November 1996, the Company granted a director of the Company options to
purchase 75,000 shares of common stock at $3.50 per share pursuant to a
consulting agreement. The options are exercisable at a rate of 25,000 options
per annum commencing November 1, 1997 and expire on November 1, 2001. The
Company determined the fair value of these options to be approximately
$117,000 which is being charged to operations over three years.
The following table sets forth summarized information concerning the Company's
stock options:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------------------- --------- -------- ---------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Options outstanding at beginning
of year 601,674 $ 1.37 578,565 $ 1.42
Granted 226,669 $ 3.22 80,002 $ 1.14
Exercised (100,166) $ 1.35 - 0 -
Cancelled (27,355) $ 2.29 (56,893) $ 1.54
-------------------- --------
Options outstanding at end of year 700,822 $ 1.93 601,674 $ 1.37
==================== ========
Options exercisable at end of year 408,915 $ 1.56 438,060 $ 1.50
==================== ========
</TABLE>
The following table presents information relating to stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE LIFE IN EXERCISE
EXERCISE PRICE SHARES PRICE YEARS SHARES PRICE
- - --------------- ---------- --------- --------- ----------------- ---------
<C> <S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
$ 1 - $1.76 460,124 $ 1.13 6.01 363,217 $ 1.17
$ 2.80 - $3.625 211,669 $ 3.22 7.55 16,669 $ 3.625
$ 5.25 29,029 $ 5.25 2.00 29,029 $ 5.25
------------------------ -------------------
700,822 $ 1.93 6.31 408,915 $ 1.56
</TABLE>
The Company 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).
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[1] STOCK OPTIONS AND WARRANTS: (CONTINUED)
The weighted-average fair value at date of grant for options granted during
the year ended June 30, 1997 and 1996 was $1.89 and $0.73 per option,
respectively. The fair value of options at date of grant was estimated using
the Black-Scholes option pricing model utilizing the following assumptions:
<TABLE>
<CAPTION>
JUNE 30,
-----------
1997 1996
----------- ---------
<S> <C> <C>
<C> <C>
Risk-free interest rates 5.6% - 6.5% 5.9% - 6%
Expected option life in years 3 - 8 3 - 8
Expected stock price volatility 50% 80%
Expected dividend yield - 0 - - 0 -
</TABLE>
Had the Company elected to recognize compensation cost based on the fair value
of the options at the date of grant as prescribed by SFAS 123, net earnings
(loss) for the years ended June 30, 1997 and 1996 would have been $2,010,000
and $(3,521,000) or $0.34 per share and $(1.25) per share, respectively.
[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 gross proceeds of approximately $5,550,000. In connection with the
private placement and the related registration of the securities (pursuant to
registration rights granted to the investors) the Company incurred costs
aggregating $568,000 (of which approximately $118,000 was paid to a related
party) ( see Note K). The Company recorded $437,000 of these costs during the
fiscal year ended June 30, 1996 and $131,000 during the fiscal year ended June
30, 1997. The Company also issued 30,768 shares of common stock to related
parties as a placement fee valued at $100,000.
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:
<TABLE>
<CAPTION>
Year Ending
June 30,
- - -----------
<S> <C>
<C>
1998 $ 489,000
1999 245,000
2000 191,000
2001 170,000
2002 48,000
Thereafter 97,000
----------
$1,240,000
==========
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)
[1] OPERATING LEASES: (CONTINUED)
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, 1997 and 1996
aggregated $442,000 and $213,000, respectively.
[2] SOFTWARE LICENSE AGREEMENT:
In September 1990, the Company entered into an agreement to acquire a
perpetual license for a computerized information system for hospital operating
rooms. The Company is required to pay royalties of 5% to 15% of sales of the
product.
[3] CONTINGENCY:
Mediware Information Systems, Inc., ("Mediware") its wholly owned subsidiary,
Digimedics, and Continental have been named as co-defendants in a litigation
which has been commenced by a former customer of Continental. The litigation
arises out of a contract between Continental and the customer, under which
Continental was to install certain computer equipment and software. The
plaintiff alleges that computer equipment and software were not operational,
and that the contract the plaintiff had with Continental was assigned without
its consent to Digimedics when it acquired Continental's Pharmakon Division
(see Note J). The plaintiff also alleges that Digimedics failed to honor the
contract and that Mediware did not fulfill its promise to install and support
the software as prescribed in the contract. The plaintiff's claims against
Digimedics are for breach of contract, intentional interference with contract,
and negligent interference with contract. The plaintiff's claims against
Mediware are for promissory estoppel, intentional interference with contract,
and negligent interference with contract. The plaintiff is seeking
unspecified compensatory, consequential, and punitive damages. Management
believes that the claims against the Company are without merit and is
vigorously opposing those claims, however, the outcome is presently
undeterminable. In the opinion of management any potential liability with
respect to this litigation will not materially affect the Company's financial
position or results of operations.
[4] OTHER MATTERS:
Substantially all of the Company's cash is held at two large financial
institutions.
NOTE I - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1997 1996
-------------------- ------
<S> <C> <C>
<C> <C>
Federal $ 28,000
State 51,000 $6,000
Foreign 6,000
--------------------
$ 85,000 $6,000
==================== ======
</TABLE>
NOTE I - INCOME TAXES (CONTINUED)
The principal components of deferred tax assets, liabilities and valuation
allowance are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
<C>
Net operating loss carryforwards $ 2,312,000
Business tax credit carryforwards 359,000
Purchased research and development 1,449,000
Valuation reserves and accruals deductible in different periods 242,000
Other 28,000
------------
4,390,000
Valuation allowance (3,781,000)
------------
609,000
------------
Deferred tax liabilities:
Software cost capitalization 579,000
Amortization differences 30,000
------------
609,000
------------
Net deferred tax asset $ - 0 -
============
</TABLE>
The Company has recorded a valuation allowance for the amount by which
deferred tax assets exceed deferred tax liabilities as the likelihood of its
future realization cannot be presently determined.
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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1997 1996 *
--------------------- ------------
<S> <C> <C>
<C> <C>
Income tax provision (benefit) - statutory rate $ 736,000 $(1,187,000)
Provision for state income taxes (benefit) -
net of federal benefit (expense) 134,000 (181,000)
(Reduction) increase in valuation allowance on
deferred tax assets (857,000) 1,374,000
Nondeductible items 66,000
Other 6,000
---------------------
$ 85,000 $ 6,000
===================== ============
* Reclassified to be comparative to the current year.
</TABLE>
At June 30, 1997 the Company has available net operating loss carryforwards to
reduce future federal taxable income of approximately $5,780,000. At June 30,
1997 the Company also has available general business tax credit carryforwards
to reduce future current federal income tax expense of approximately $359,000.
The net operating loss carryforwards and business tax credit carryforwards
expire in various amounts through 2009 and 2012, respectively.
NOTE J - SERVICE AGREEMENT
Concurrent with the acquisition of Pharmakon, 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 was to be
paid approximately $1,237,000 plus 30% of amounts collected for performing the
foregoing services.
Effective July 21, 1997 the above agreement was modified to provide that
Digimedics will be entitled to retain 100% of any amounts collected after July
21, 1997 with respect to accounts receivable which had not been billed by
Continental prior to the acquisition date. In addition, the amount to be paid
by Continental to Digimedics was reduced from $1,237,000 to $437,000. Such
amount ($437,000) was effectively received as of July 21, 1997 by the
reduction of the principal amount of the Acquisition Note. This payment was
for work performed to date for servicing the various customers and is included
in accounts receivable at June 30, 1997 (Note E).
NOTE K - RELATED PARTY TRANSACTIONS
During the years ended June 30, 1997 and 1996 approximately $183,000 and
$166,000, respectively, was incurred for legal fees provided by a firm, a
counsel to which is also a director of the Company. The majority of these
fees represent costs incurred in connection with the Company's acquisitions
referred to in Note B and the private placement of the Company's securities
referred to in Note G.
NOTE L - INFORMATION ON BUSINESS SEGMENTS
The Company operates in only one business segment, specifically engaging in
development, installation and maintenance of computerized information systems
for hospitals. The Company's worldwide activities consist of operations in
the United States and the United Kingdom. Revenue, income and identifiable
assets by geographical area as at and for the year ended June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
United United Consolidated
States Kingdom Total
----------- ----------- -------------
<S> <C> <C> <C>
<C> <C> <C>
Revenues from unaffiliated customers $16,952,000 $1,951,000 $ 18,903,000
Net earnings (loss) 2,099,000 (18,000) 2,081,000
Identifiable assets 15,936,000 1,413,000 17,349,000
</TABLE>
NOTE M - PRO FORMA BALANCE SHEET DATA (UNAUDITED)
In August 1997 the Company completed a private placement of its securities and
issued 400,000 shares of its common stock for $6.00 per share. The Company
also issued warrants to purchase 40,000 shares of common stock at $6.00 per
share as a placement fee and agreed to file a registration statement with the
Securities and Exchange Commission registering the private placement shares
within 30 days of the filing of its Annual Report on Form 10-KSB for the year
ended June 30, 1997 and to use its best efforts to have the registration
statement declared and maintained effective for a specified period of time.
Costs of the private placement and the filing of the registration statement
are estimated to be $310,000. The pro forma balance sheet gives effect to
this private placement as if it occurred on June 30, 1997.
NOTE N RESTATEMENT OF REVENUE AND EXPENSES
Subsequent to a June 1996 acquisition, the Company recorded maintenance
revenue on contracts with the acquired company's customers in a manner that
was consistent with the policies followed prior to the acquisition.
Subsequent to the acquisition, the Company's management discovered that the
acquired company had not consistently billed certain contractual software
maintenance revenues. For the quarter ended December 31, 1997 the Company
obtained satisfactory indications (i.e., it had established a sufficiently
credible reputation for service with the customers who had not previously been
billed, had developed new and additional products upon which these customers
now relied, and had specifically discussed collection schedules for the
billings with the customers) that such revenue was, in fact collectible, and
accordingly, it recognized in that quarter the cumulative effects of the
economic event. After discussions with the accounting staff of the Securities
and Exchange Commission on April 29, 1998, the Company elected to restate the
financial statements of periods following the acquisition to record the
revenues and corresponding expenses which include provisions for doubtful
accounts in the quarters in which the services were provided. This
restatement, which has no effect on net income, increased both revenue and
selling, general and administrative expenses by $384,000 from the amounts
previously reported for the year ended June 30, 1997.
<PAGE>
NOTE O YEAR-END ADJUSTMENTS AND RESTATEMENT OF QUARTERLY RESULTS OF
OPERATIONS (UNAUDITED)
During the quarter ended June 30, 1997, the Company detected and corrected an
error with respect to its previous under billing for services under certain
software maintenance contracts, and as a result, it recorded and billed those
revenues for that quarter. The Company is restating its previously issued
fiscal 1997 quarterly financial statements to reflect the revenues and the
related expenses, including the provision for doubtful accounts, in the
quarters in which the revenues ought originally to have been billed. In
addition, the Company is restating its fiscal 1997 quarterly financial
statements to reflect the adjustments resulting from the matter discussed in
Note N above. These corrections, which have no effect on net income for the
year ended June 30, 1997, result in changing previously reported revenues, net
income and per share amounts for the fiscal 1997 quarters as shown below:
<TABLE>
<CAPTION>
Quarter Ended *
9/96 12/96 3/97 6/97
------ ------ ---------------- ----------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
(in thousands, except per
share amounts)
REVENUES:
As originally reported $4,359 $4,672 $ 4,427 $ 5,061
Increase (decrease) 120 128 150 (14)
------ ------ ---------------- ----------
As restated $4.479 $4,800 $ 4,577 $ 5,047
====== ====== ================ ==========
NET INCOME:
As originally reported $ 446 $ 625 $ 482 $ 528
Increase (decrease) 20 27 46 (93)
As restated $ 466 $ 652 $ 528 $ 435
====== ====== ================ ==========
EARNINGS (LOSS) PER SHARE:
As originally reported $ .08 $ .11 $ .08 $.09
Increase (decrease) .01 (.02)
As restated $ .08 $ .11 $ .09 $ .07
====== ====== ======= ======
</TABLE>
- - - The selected quarterly financial data has not been audited or
- - - reviewed by the Company's independent auditors.
<PAGE>
PART II
ITEM 6. Exhibits and Reports On Form 8K
Exhibits
- - --------
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 reported dated August 28, 1997 (with respect to Note N, April 29,
1998) on the financial statements as of and for the year ended June 30, 1997
which is included in Amendment No. 1 to the annual report on form 10-KSB for
the year ended June 30, 1997.
May 20, 1998 Richard A. Eisner, & Company, LLP.
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIWARE Information Systems, Inc.
(Registrant)
By: /s/ George J. Barry
--- --------------------
George J. Barry, CFO
[ARTICLE] 5
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] DEC-31-1997
[CASH] 1935
[SECURITIES] 0
[RECEIVABLES] 6357
[ALLOWANCES] 666
[INVENTORY] 56
[CURRENT-ASSETS] 8652
[PP&E] 2324
[DEPRECIATION] 1572
[TOTAL-ASSETS] 17349
[CURRENT-LIABILITIES] 6165
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 506
[OTHER-SE] 6018
[TOTAL-LIABILITY-AND-EQUITY] 17349
[SALES] 18903
[TOTAL-REVENUES] 18903
[CGS] 5326
[TOTAL-COSTS] 16078
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 740
[INCOME-PRETAX] 2166
[INCOME-TAX] 85
[INCOME-CONTINUING] 2081
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 0
[EPS-PRIMARY] 2081
[EPS-DILUTED] .22
</TABLE>
