SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
FOR QUARTER ENDED MARCH 31, 1998
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, 1998, there were 5,527,722 shares of Common Stock, $0.10 par
value, of the registrant outstanding.
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC.
INDEX
Part I. Financial Information Page
----
<S> <C> <C>
<C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and June 30, 1997 (audited) 2
Consolidated Statements of Operations
for the three months and nine months ended
March 31, 1998 & 1997 (unaudited) 3
Consolidated Statements of Cash Flows
for the nine months ended
March 31, 1998 & 1997 (unaudited) 4
Notes to Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Signature Page 8
Exhibit 11
Schedule of Computation of Net Income per Share 9
Exhibit 27
Financial Data Schedule 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1998
(UNAUDITED)
ASSETS Mar-31 Jun-30
1998 1997
------------ ------------
<S> <C> <C>
<C> <C>
Current assets:
Cash and cash equivalents $ 4,061,000 $ 1,935,000
Accounts receivable, less estimated doubtful accounts 7,783,000 6,357,000
of $410,000 at March 31, 1998 and $666,000 at June 30, 1997
Inventories 192,000 56,000
Prepaid expenses and other current assets 538,000 304,000
------------ ------------
Total current assets 12,574,000 8,652,000
Fixed assets, at cost, less accumulated depreciation of $1,814,000 951,000 752,000
at March 31, 1998 and $1,572,000 at June 30, 1997
Capitalized software costs 2,038,000 1,448,000
Excess of cost over fair value of net assets acquired, net of 6,138,000 6,419,000
accumulated amortization of $1,013,000 at March 31, 1998 and
$732,000 at June 30, 1997
Other assets 620,000 78,000
------------ ------------
$22,321,000 $17,349,000
============ ============
LIABILITIES
- ----------------------------------------------------------------------
Current liabilities:
Accounts payable 684,000 $ 713,000
Notes payable 4,750,000 1,212,000
Accrued expenses and other current liabilities 2,503,000 2,032,000
Advances from customers 3,501,000 2,106,000
Current portion of capital leases payable 7,000 102,000
------------ ------------
Total current liabilities 11,445,000 6,165,000
Notes payable, less current portion 0 4,600,000
Capital leases payable, less current portion 18,000 60,000
------------ ------------
Total liabilities 11,463,000 10,825,000
------------ ------------
STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------
Preferred stock - $.01 par value; authorized 10,000,000 shares;
None issued and outstanding
Common stock - $.10 par value; authorized 12,000,000 shares;
issued and outstanding; 5,527,722 shares at March 31, 1998
and 5,056,486 shares at June 30, 1997 553,000 506,000
Unearned compensation (61,000) (91,000)
Cumulative foreign currency translation adjustment 27,000 36,000
Additional paid-in capital 15,822,000 13,621,000
(Deficit) (5,483,000) (7,548,000)
------------ ------------
Total stockholders' equity 10,858,000 6,524,000
------------ ------------
$22,321,000 $17,349,000
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, Nine Months Ended March 31,
---------------------------------------- -----------------------------
(unaudited)
1998 1997 1998 1997
-------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
REVENUES:
System sales $ 1,985,000 $1,142,000 $ 5,046,000 $ 4,543,000
Services 3,197,000 3,435,000 9,503,000 9,313,000
----------------- ------------- ------------- ------------
Total revenues 5,182,000 4,577,000 14,549,000 13,856,000
----------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Cost of systems 670,000 386,000 1,701,000 1,474,000
Cost of services 828,000 832,000 2,306,000 2,440,000
Software development costs 716,000 525,000 1,898,000 1,661,000
Selling, general and administrative 2,188,000 2,105,000 6,193,000 6,086,000
----------------- ----------- ------------ ------------
Total Costs & Expenses 4,402,000 3,848,000 12,098,000 11,661,000
Earnings before interest and taxes 780,000 729,000 2,451,000 2,195,000
Interest income 56,000 17,000 161,000 63,000
Interest (expense) (152,000) (197,000) (426,000) (551,000)
----------------- ----------- ------------ ------------
Earnings before taxes 684,000 549,000 2,186,000 1,707,000
Provision for income taxes 35,000 21,000 121,000 61,000
NET EARNINGS $ 649,000 $ 528,000 $ 2,065,000 $ 1,646,000
$ 0.12 $ 0.11 $ 0.38 $ 0.33
Basic earnings (loss) per share
Diluted earnings (loss) per share $ 0.10 $ 0.09 $ 0.32 $ 0.28
Weighted average shares outstanding 5,523,250 4,951,000 5,417,036 4,942,000
================= =========== ============ ============
Average shares outstanding assuming 6,708,069 5,897,000 6,565,318 5,870,000
dilution
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
Mar-31 Mar-31
1998 1997
------------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,065,000 $ 1,646,000
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Compensatory stock options issued to consultants 30,000
Provision for doubtful accounts 128,000 373,000
Depreciation and amortization 1,088,000 774,000
Changes in operating assets and liabilities
Accounts receivable (1,529,000) (2,155,000)
Inventory (136,000) 89,000
Prepaid and other assets (801,000) (120,000)
Accounts payable, accrued expenses and
customer advances 1,837,000 834,000
------------------- ------------
Net cash provided by operating activities 2,682,000 1,441,000
------------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (639,000) (256,000)
Capitalized software costs (957,000) (478,000)
------------------- ------------
Net cash (used in) investing activities (1,596,000) (734,000)
------------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 47,000 41,000
Cumulative foreign currency translation adjustment (9,000) 15,000
Proceeds of private placement 2,201,000
Repayment of debt (1,199,000) (1,224,000)
Net cash (used in) provided by financing
activities 1,040,000 (1,168,000)
------------------- ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS 2,126,000 (461,000)
Cash and cash equivalents, beginning of period 1,935,000 2,504,000
------------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,061,000 $ 2,043,000
=================== ============
</TABLE>
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC., & SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS:
---------------------
In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all 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 ("SEC") 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, 1997 included in the Company's annual
report filed on Form 10-KSB, Amendment No. 1.
The results of operations for the three months and nine months ended
March 31, 1998 are not necessarily indicative of the results to be expected
for the entire fiscal year.
2. EARNINGS PER SHARE:
--------------------
The Company adopted the provisions of the Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" in the preparation
of the financial statements included in this Quarterly Report on Form 10 QSB.
In accordance with the provisions of SFAS No. 128, the Company is required to
report both "basic" and "diluted" earnings per share and to restate previously
reported earnings per share amounts to conform to the provisions of SFAS 128.
Basic earnings per share have been computed using the weighted average number
of shares of common stock of the Company ("Common Stock") outstanding for each
period presented. The dilutive effect of stock options and other common stock
equivalents is included in the calculation of diluted earnings per share using
the treasury stock method. For the periods presented, the diluted earnings
per share amounts are the same as the earnings per share amounts previously
reported by the Company.
3. SERVICE MAINTENANCE REVENUE
-----------------------------
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
prior owners had not consistently billed certain contractual software
maintenance revenues. Pending an evaluation of the collectibility of such
contracts, the company conservatively elected to continue to follow that
policy. 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 SEC on
April 29, 1998, the Company has now elected to restate (1) the financial
statements of prior quarters to record the revenues and corresponding
provisions for doubtful accounts in the quarters in which the services were
provided and (2) the financial statements for the quarter ended December 31,
1997. Accordingly, the Company has decreased both revenues and selling,
general and administrative expenses, (the latter representing a reversal of
the allowance for doubtful accounts) from amounts previously reported by
$480,000 for the three months ended December 31, 1997 and by $384,000 for the
six months ended December 31, 1997. These adjustments had no effect on net
income previously reported for such periods. In addition, revenue and net
income were respectively increased by $150,000 and $46,000 for the three
months ended March 31, 1997 and by $398,000 and $93,000 for the nine months
ended March 31, 1997 from amounts previously reported to reflect the above and
other adjustments described in Note O to the Company's amended form 10 KSB.
4. INCOME TAXES:
-------------
The tax expense is minimal due to the carry forward benefit from the net
operating loss.
5. RECENT ACCOUNTING PRONOUNCEMENTS:
----------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," and Statement of Financial Accounting Standards No. 131 (SFAS 1310,
"Disclosure about Segments of an Enterprise and Related Information." The
adoption of both statements is required for fiscal years beginning after
December 15, 1997.
SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. It requires that a
company classify items of their comprehensive income, as defined by accounting
standards, by their nature (i.e. unrealized gains or losses on securities) in
a financial statement, but does not require a specific format for that
statement.
SFAS 131 changes current practice under SFAS 14, "Financial Reporting of
Segments of a Business Enterprise," by establishing a new framework on which
to base segment reporting (referred to as the management approach) and also
requires interim reporting of segment information.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2).
SOP 97-2 is effective for transactions entered into in fiscal years beginning
after December 15, 1997. "Retroactive application of the provisions of SOP
97-2 is prohibited."
The Company is studying the implications of these new statements and has
yet to determine the impact of their implementation, if any, on its
consolidated financial statements.
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
results 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."
Results of Operations:
Total Company revenues increased by 5.0% or $693,000 for the first nine
months of fiscal 1998 as compared to the same period in fiscal 1997. This
increase is primarily due to revenue gains in the Company's Pharmacy and
Surgiware Divisions. Total Company revenues increased by 13.2% or $605,000
for the three-month period ended March 31, 1998. As with the year-to-date
comparison with the prior fiscal year, these gains in revenue were principally
due to the Company's Pharmacy and Surgiware divisions.
System sales increased by 11.1% or $503,000 for the three-quarters ended
March 31, 1998 as compared to the same period in the prior year. System sales
for the quarter ended March 31, 1998 increased by 73.8% or $843,000 from the
same quarter a year earlier. For both the nine month and the three month
periods compared the increase is primarily due to increased system sales in
the Company's Pharmacy and Surgiware Divisions. System sales growth for
both the nine and three month periods compared, is primarily due to recently
introduced products including PCCWIN, the Company's operating room periopertive
system along with the Company's Pharmacy client server drug management system,
WORx. Fical 1998 third quarter system sales increase was $302,000 or 674.0%
for the Surgiware Division and $578,000 or 100.0% for the Pharmacy Division as
compared to the same period of the Fiscal Year 1997.
Services revenues increased 2.0% or $190,000 in the first nine months of
fiscal 1998 as compared to the same period last year. The increase is
primarily due to increased service revenues at the Company's Hemocare
Division. Service revenues decreased by 6.9% or $238,000 in the third quarter
of fiscal 1998 as vs. the third quarter of fiscal 1997. This decrease is
principally due to the Company's Pharmacy Division which has substantially
completed it's service contract agreement which covered various Pharmakon post-
acquisition service obligations held by the seller.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufactures by Mediware as part
of its application sub-system. These costs can vary as the mix of revenue
varies between high margin proprietary software and lower margin computer
hardware and sublicensed software components. Cost of systems increased by
$227,000 or 33.7% of related system sales for the first nine months of fiscal
1998 as compared to 32.4% of sales for the same period in fiscal 1997. Cost of
systems increased $284,000 but remained at 33.8% of related sales for both the
quarter ended March 31, 1998 and the same quarter a year earlier.
Cost of services includes the salaries of client service personnel and
communications expenses along with the direct expenses. The cost of services
will vary with technical employee activity changes between client services and
software development. Cost of services increased $134,000 or 24.3% of related
revenue for the nine months ended March 31, 1998 vs. 26.2% of related revenue
for the same period a year earlier. This percentage decrease primarily reflects
an increase in technical employee activities from client services to software
development. Cost of services decreased slightly by $4,000 from $832,000 in
the quarter ended March 31, 1997 to $828,000 in the quarter ended March
31, 1998.
Total expenditures (amounts including both capitalized and non-
capitalized expenditures and excluding capitalized software amortization) for
software development for the first nine months of fiscal 1998 were
approximately $2.5 million dollars. This amount approximates the total
software development expenditure for fiscal 1997. Spending on development has
increased among all company divisions but is principally focused on the
Company's Pharmacy division's enhancements to its WORx product line. The
Company expects to continue this level of development spending with increased
focus on continued product enhancements and integration of intra/internet web
communications technology. Software development cost includes salaries,
consulting, documentation, office and other expenses incurred in product
development along with amortization of software development cost. Software
development costs increased by $237,000 or 14.3% in comparing the first
three-quarters of fiscal 1998 to the same period a year ago. In the third
quarter of fiscal 1998, Software Development costs increased by $191,000 or
36.4% as compared to the same quarter in fiscal 1997. The increase costs for
both periods compared is principally due to Pharmacy Division contracting of
programming consultants to aid in the enhancements of the WORx product line.
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
expense for corporate, divisional, financial and administrative staff;
utilities, rent, communication and other office expenses; and other related
direct administrative expenses. Selling, general and administrative expenses
increased by $107,000 or 1.8% in comparing the first nine months of fiscal
1998 to fiscal 1997. This increase includes higher communications, travel,
administrative, marketing, legal and professional costs which were partially
offset by reduced bad debt expense. Selling, general and administrative
expense increase by $83,000 or 3.9% for the quarter ended March 31, 1998
vs. the quarter ended March 31, 1997. This increase reflects the cost of
managing and growing the Company.
Net interest expense decreased $223,000 or 45.7% in the first three
quarters of fiscal 1998 vs. the same period a year ago. The March 31, 1998
quarter's net interest expense decreased $84,000 or 46.7% from the March 31,
1997 quarter. For both the nine month and three month periods compared the
reduced interest expense is due to the $1,230,000 decrease of notes payable
from March 31, 1997 to March 31, 1998.
Net earnings increased $419,000 or to $2,065,000 from $1,646,000 for the
first nine months of fiscal 1998 vs. the same period in fiscal 1997. Net
earnings increased by $121,000 or 22.9% for the quarter ended March 31, 1998
as compared to the same quarter in the prior year.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's cash and cash equivalent position as March 31, 1998 was an
increase of $2,126,000 from $1,935,000 at June 30, 1997. At March 31, 1997
the current ration was 1.1 to 1. In addition to $2,682,000 in cash provided
by operations in the first nine months of fiscal 1998, the current working
capital position was improved by an August 1997 private placement providing
approximately $2,100,000, net of expenses.
In this August, 1997 private placement, 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 registered the shares sold and warrants issued in the private
placement with the Securities and Exchange Commission.
During the first nine months of fiscal 1998, the Company paid down
$1,199,000 in principle on various promissory notes held by both private
investors and Continental Healthcare Systems, Inc. At March 31, 1998 a
balance of $854,000 in promissory notes was held by two directors and another
person. The principle balance on the Continental promissory note at March 31,
1998 was $3,896,000, which is due November 30, 1998 or earlier based upon a
change in control or refinancing by the Company. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIWARE Information Systems, Inc.
-------------------------------------
(Registrant)
May , 1998 By: /s/
---------------- ---
(Date) Les N. Dace, President CEO
May , 1998 By: /s/
------------------ ---
(Date) George J. Barry, CFO
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
Three months Three months Nine months Nine months
ended ended ended ended
March 31, March 31, March 31, March 31,
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
1998 1997 1998 1997
Net Income $ 649,000 $ 528,000 $ 2,065,000 $1,646,000
------------------- ------------------ ------------------- ----------
Weighted Average Share
Outstanding 5,523,000 4,951,000 5,417,000 4,942,000
Effect of Dilutive
Securities: Common 1,185,000 946,000 1,148,000 928,000
Stock Equivalents
(Options & Warrants) 6,708,000 5,897,000 6,565,000 5,870,000
Average shares
Outstanding assuming
dilution $ 0.12 $ 0.11 $ 0.38 $ 0.33
------------------- ------------------ ------------------- ----------
Basic earnings per share
Diluted earnings per
share $ 0.10 $ 0.09 $ 0.32 $ 0.28
</TABLE>
<PAGE>
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] MAR-31-1998
[CASH] 4061
[SECURITIES] 0
[RECEIVABLES] 7783
[ALLOWANCES] 410
[INVENTORY] 192
[CURRENT-ASSETS] 12574
[PP&E] 2765
[DEPRECIATION] 1814
[TOTAL-ASSETS] 22321
[CURRENT-LIABILITIES] 11463
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 553
[OTHER-SE] 10305
[TOTAL-LIABILITY-AND-EQUITY] 22321
[SALES] 5182
[TOTAL-REVENUES] 5182
[CGS] 4007
[TOTAL-COSTS] 12098
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 152
[INCOME-PRETAX] 2451
[INCOME-TAX] 121
[INCOME-CONTINUING] 2065
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2065
[EPS-PRIMARY] 0
[EPS-DILUTED] 32
</TABLE>
