SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
FOR QUARTER ENDED SEPTEMBER 30, 1998
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND 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
(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
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As of September 30, 1998, there were 6,051,000 shares of Common Stock, $0.10
par value, of the registrant outstanding.
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MEDIWARE INFORMATION SYSTEMS, INC.
INDEX
Part I. Financial Information Page
----
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and June 30, 1998 (audited) 2
Consolidated Statements of Operations
for the three months ended
September 30, 1998 & 1997 (unaudited) 3
Consolidated Statements of Cash Flows
for the three months ended
September 30, 1998 & 1997 (unaudited) 4
Notes to Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Signature Page 9
Exhibit 11
Schedule of Computation of Net Income per Share 10
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<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1998
(UNAUDITED)
<S> <C> <C>
<C> <C>
Sep-30 Jun-30
------------ ------------
ASSETS 1998 1998
-------- ------------ ------------
Current assets:
Cash and cash equivalents $ 4,897,000 $ 4,681,000
Accounts receivable, less estimated doubtful accounts of
$489,000 at September 30, 1998 and $490,000 at June 30, 1998 9,160,000 7,485,000
Inventories 463,000 331,000
Deferred Tax Asset 550,000 550,000
Prepaid expenses and other current assets 508,000 514,000
------------ ------------
Total current assets 15,578,000 13,561,000
Fixed assets, at cost, less accumulated depreciation of $2,184,000
at September 30, 1998 and $2,058,000 at June 30, 1998 1,493,000 1,170,000
Capitalized software costs 2,772,000 2,444,000
Excess of cost over fair value of net assets acquired, net of
accumulated amortization of $1,183,000 at September 30, 1998
and $1,091,000 at June 30, 1998 6,690,000 5,853,000
Purchased technology less accumulated amortization of $2000 at
September 30, 1998 496,000
Other assets 133,000 719,000
------------ ------------
$27,162,000 $23,747,000
============ ============
LIABILITIES
-------------
Current liabilities:
Accounts payable $ 1,250,000 $ 1,176,000
Notes payable 4,450,000 4,600,000
Accrued expenses and other current liabilities 3,410,000 2,618,000
Advances from customers 4,673,000 3,132,000
Current portion of capital leases payable 9,000 9,000
------------ ------------
Total current liabilities 13,792,000 11,535,000
Advances from customers - long term 10,000 7,000
Other liabilities - long term 106,000
Capital leases payable, less current portion 13,000 15,000
------------ ------------
Total liabilities 13,921,000 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; 6,051,000 shares at September 30, 1998 and
5,591,000 shares at June 30, 1998 605,000 559,000
Unearned compensation (41,000) (51,000)
Cumulative foreign currency translation adjustment 48,000 36,000
Additional paid-in capital 20,953,000 16,264,000
(Deficit) (8,324,000) (4,618,000)
------------ ------------
Total stockholders' equity 13,241,000 12,190,000
------------ ------------
$27,162,000 $23,747,000
============ ============
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<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30,
---------------------------------
(unaudited)
1998 1997
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REVENUES:
System sales $ 2,923,000 $1,863,000
Services 3,205,000 3,096,000
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Total revenues 6,128,000 4,959,000
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COSTS AND EXPENSES:
Cost of systems 901,000 665,000
Cost of services 907,000 747,000
Purchased research and development 4,553,000
Software development costs 663,000 584,000
Selling, general and administrative 2,608,000 2,191,000
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Total Costs & Expenses 9,632,000 4,187,000
Earnings (loss) before interest and taxes (3,504,000) 772,000
Interest and other income 41,000 45,000
Interest (expense) (93,000) (156,000)
------------- -----------
Earnings (loss) before taxes (3,556,000) 661,000
Provision for income taxes 150,000 38,000
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NET EARNINGS (LOSS) ($3,706,000) $ 623,000
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Basic earnings (loss) per share ($ .66) $ .12
Diluted earnings (loss) per share ($ .66) $ .10
Weighted average shares outstanding 5,630,000 5,086,000
============= ===========
Average shares outstanding assuming
dilution 5,630,000 6,312,000
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<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
--------------------
<S> <C> <C>
<C> <C>
Sep-30 Sep-30
1998 1997
-------------- ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($3,706,000) $ 623,000
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities: (excluding Informedics acquisition)
Purchased research and development 4,553,000
Shares issued to directors 25,000
Compensatory stock options issued to consultants 10,000
Provision for doubtful accounts 3,000 109,000
Depreciation and amortization 399,000 196,000
Changes in operating assets and liabilities
Accounts receivable (1,319,000) (963,000)
Inventory (117,000) 8,000
Prepaid and other assets (156,000) (147,000)
Accounts payable, accrued expenses and customer
advances 916,000 1,450,000
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Net cash provided by operating activities 608,000 1,276,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (396,000) (78,000)
Cash received from acquisition of Informedics 653,000
Capitalized software costs (519,000) (192,000)
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Net cash (used in) investing activities (262,000) (270,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 10,000 32,000
Proceeds of private placement 2,160,000
Repayment of debt (152,000) (902,000)
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Net cash (used in) provided by financing
activities (142,000) 1,290,000
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Effect of exchange rate changes on cash 12,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 216,000 2,296,000
Cash and cash equivalents, beginning of period 4,681,000 1,935,000
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,897,000 $ 4,231,000
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 79,000 $ 197,000
Income taxes $ 62,000 $ 26,000
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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, 1998 included in the Company's annual
report filed on Form 10-KSB.
The results of operations for the three months ended September 30, 1998
are not necessarily indicative of the results to be expected for the entire
fiscal year.
2. EARNINGS (LOSS) 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. In Fiscal 1998, 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 Fiscal 1999, common
stock equivilents are not included in the calculation of loss per share as the
effect would be anti-dilutive.
3. ACQUISITION:
------------
In September, 1998, the Company acquired Informedics, Inc.
("Informedics") in exchange for 439,525 shares of the Company's common stock
on the basis of 1 Company share for each 6.3 Informedics shares. Informedics
is developing a Web-enabled software system technology and also develops,
markets and supports a line of stand-alone computer-based management
information systems for use in the blood bank and clinical departments of
hospitals. The cost of the acquisition, which was accounted for as a
purchase, aggregated $7,100,000, including acquisition costs of $801,000,
assumed liabilities of $1,599,000 and $4,700,000 of common stock issued and
options assumed based on the market price of the Company's common stock in
December 1997, when the acquisition agreement was entered into. Assets
acquired aggregated $2,547,000 including $917,000 of goodwill, $498,000 of
technology and $653,000 of cash.
<PAGE>
The following unaudited pro forma financial information gives effect to the
merger as if it had occurred at the beginning of the first quarter of fiscal
years 1998 and 1999. A non-recurring charge of approximately $4,553,000 for
in-process research and development which was recorded by the Company on
consummation of the acquisition and the fiscal 1998 reversal of net tax assets
on Informedics financial statements has not been considered in the pro forma
results. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the acquisition taken place
during such periods.
<TABLE>
<CAPTION>
Quarter Ended September 30,
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1997 1998
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<S> <C> <C> <C>
<C> <C> <C>
Revenue: $ 5,710,000 $6,747,000
============ ==========
Net earnings $ 540,000 $ 848,000
============ ==========
Basic earnings per share .10 .14
Diluted earnings per share .08 .13
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS:
--------------------------------------
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."
Accordingly the Company has adopted SOP 97-2 in its financial statements
for the quarter ended September, 1998. Such adoption had no effect on the
Company's results of operations.
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. Certain of 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:
During the quarter the Company acquired Informedics, Inc.
("Informedics"). Informedics develops, markets and supports a line of
stand-alone computer-based management information systems for use in the blood
bank and clinical departments of hospitals. Additionally, Informedics has
been developing a Web-enabled software system technology called IntraMed.net.
This internet/intranet oriented software is intended to provide the ability to
extract data from installed legacy computer systems and then store, download
or manipulate the data. While no assurances can be made, the Company believes
that Informedics' Web-enabling technology, when implemented and sold to future
and existing customers, will expand the reach of the three clinical
departments (Blood Bank, Pharmacy and Surgical Suite) Mediware currently
addresses. The acquisition was completed in September, 1998, and was
accounted for as a purchase. The Company consolidated the acquired balance
sheet and results of operations in the first quarter of fiscal 1999. The
Company's operating results include the results of operations of Informedics'
from the date of acquisition which consisted of revenues of $47,000 and
operating expenses of $40,000. Additionally, the Company recorded a one-time
acquisition related charge of $4,553,000 for in-process research and
development related to the estimated fair value of the IntraMed.net technology.
Total Company revenues increased by 23.6% or $1,169,000 for the first
three months of fiscal 1999 as compared to the same period in fiscal 1998.
This increase was impacted by all product lines but was significantly related
to revenue gains in the Company's Blood Bank Division.
System sales increased by 56.9% or $1,060,000 in the first quarter of
fiscal as compared to the same period in the prior year. For the period
ended September 30, 1998 the increase is primarily due to increased system
sales in the Company's Pharmacy and Blood Bank Divisions.
Services revenues increased 3.5% or $109,000 to $3,205,000 in the first
three months of fiscal 1999 as compared to $3,096,000 for the same period last
year. The increase is primarily due to increased service revenues at the
Company's Hemocare Division.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufacturers by Mediware as
part of its complete system offering. 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 were
30.8% of related system sales for the first three months of fiscal 1999 as
compared to 35.7% of related system sales for the same period in fiscal 1998.
Cost of systems increased by 35.5% or $236,000 from $665,000 in the first
quarter fiscal 1998 to $901,000 in the same period in fiscal 1999. This
increase in cost is principally due to the change in mix between proprietary
licensed software (which is at a higher gross margin) and third party
software/hardware (which has a lower gross margin) within the Pharmacy
division.
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 $160,000 from $747,000 in the
first three months of fiscal 1998 as compared to $907,000 in the same period
of the current fiscal year. Cost of services were 28.3% of related revenue
for the three months ended September 30, 1998 vs. 24.1% of related revenue for
the same period a year earlier. This increase in cost primarily reflects an
increase in technical field installation activities related to the Company's
Pharmacy division.
Software development costs include salaries, consulting, documentation,
office and other expenses incurred in product development along with
amortization of software development cost. Software development costs
increased $79,000 or 13.5% from $584,000 in the first three months of fiscal
1998 to $663,000 in the same period in fiscal 1999. Expenditures (amounts
including both capitalized and non-capitalized expenditures and excluding
capitalized software amortization) for software development for the first
three months of fiscal 1999 were approximately $991,000 as compared to
$709,000 in the first three months of fiscal 1998. 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 Web-based
communications technology.
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 $417,000 or 19.0% from $2,191,000 in the first three months of
fiscal 1998 to $2,608,000 in the same period in fiscal 1999. This increase in
cost is due to higher communications, travel, administrative, marketing, legal
and professional costs. This increase reflects the cost of managing and
growing the Company. Additionally, the increase reflects the higher
commission costs related to increased sales volume.
Net interest expense decreased $59,000 or 53.2% in the first three
months of fiscal 1999 vs. the same period a year ago. For the three-month
period the reduced interest expense is due to the $600,000 decrease of notes
payable from September 30, 1997 to September 30, 1998.
Net earnings were directly affected by the $4,553,000 one-time charge for
in-process research and development resulting in a net loss of $3,706,000.
Excluding this one time charge, net earnings for the quarter ended September
30, 1998 increased by 36.0% or $224,000 from $623,000 for the first quarter of
fiscal 1998 to $847,000 for the same period in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's cash and cash equivalent position at September 30, 1998 was
$4,897,000, an increase of $216,000 from June 30, 1998. At September 30, 1998
the current ratio was 1.1:1. Current liabilities include $4,450,000 in notes
payable, of which $3,600,000 is owed to Continental Healthcare Systems, Inc.
("Continental"). The Continental note is due November 30, 1998. The balance
in notes payable at the end of September 30, 1998 was owed to two directors
and another person. The Company is currently in negotiation with several
leading institutions seeking to obtain favorable terms in borrowing rates on
refinancing portions or all of the Continental note. While no assurances can
be made, it is anticipated that this promissory note payment will be
substantially financed through a commercial long-term loan at rates comparable
to the existing note. In addition to refinancing of the promissory note, the
Company will review other financing needs and general cash requirements on an
on-going basis. The Company may require additional sources of liquidity to
fund potential acquisitions, expanded research and development costs along
with other financing needs.
<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)
November 19, 1998 By: /s/ John Esposito
(Date) John Esposito
President and CEO
November 19, 1998 By: /s/ George J. Barry
(Date) George J. Barry
Chief Financial Officer
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MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
Three months Three months
ended ended
September 30, September 30,
<S> <C> <C>
<C> <C>
1998 1997
--------------- ---------------
Net Income $ (3,706,000) $ 623,000
--------------- ----------
Weighted Average Share
Outstanding 5,630,000 5,086,000
Effect of Dilutive
Securities: Common -------------- ----------
Stock Equivalents
(Options & Warrants) 5,630,000 6,312,000
Average shares
Outstanding assuming
dilution ($ .66) $ 0.12
-------------- ----------
Basic earnings per share
Diluted earnings per
share ($ .66) $ 0.10
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