SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM 10-QSB
ON FORM 10-QSB/A
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
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ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 2
Signature Page 7
This Amended Quarterly Report on Form 10QSB/A is filed to provide information
under the caption "Year 2000 Issues." No other information has been changed
or updated from the original filing on November 20, 1998. For more recent
information regarding "Liquidity and Capital Resources," you are referred to
the Company's Proxy Statement dated January 11, 1999.
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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: AS OF NOVEMBER 20, 1998
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's operating results include
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: AS OF NOVEMBER 20, 1998
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.
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YEAR 2000 ISSUES: AS OF JANUARY 27, 1999
Pharmacy Division
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WORx: The problems of date-protocol compatibility in the Year 2000
are somewhat different for each of the Company's software information systems.
In the case of the Pharmacy division's WORx system, this client/server
software application has been designed by the Company to meet conditions for
date protocol compatibility by the Year 2000. As a client/server application,
several layers of software manipulate data. This data is stored within an
Informix relational database, which supports dates beyond December 31, 1999.
The WORx application runs under Microsoft Windows, uses it's date formats, and
will support dates beyond December 31, 1999. Although WORx has been designed
to be Y2K compatible, Mediware is currently developing a certification process
for the product, which it hopes to complete during the first quarter of 1999.
Digimedics XA: The Company's Pharmacy division has completed development
of its Y2K compatible Digimedics XA pharmacy system. This software, version
3.0, is currently in internal alpha testing, and if testing is successful,
will be made available to its beta clients during the first quarter
of 1999.
Pharmakon "Mini" (Unix based): The Company's Pharmacy division has
completed both internal and external testing of its "Unix based" Pharmakon
pharmacy system and plans to make this new Y2K compatible release, version
3.5, available to its installed client base during the first quarter of 1999.
Pharmakon "Mainframe": The Company's Pharmacy division has also completed
its own internal testing of its "mainframe based" Pharmakon pharmacy system.
This Y2K compatible software, version 5.0, is currently in external beta
testing, and if testing is successful, will be made available to its installed
client base during the first quarter of 1999.
These three new software release versions (Digimedics XA, Pharmakon
"Mini", and Pharmakon "Mainframe"), which incorporate the upgrade of the
Company's application software systems necessary for Year 2000 compatibility,
will be distributed to customers under the Company's normal software support
contract procedures. The Y2K compatible software application revision upgrades
will be provided by the Company without cost to the hospital; however, the
computer and operating system platforms of a number of hospitals will not
accommodate the Y2K compatible software revisions distributed by the Company,
and these hospitals must acquire, and bear the cost of new computer hardware
and associated operating systems and pharmacy data bases.
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JAC
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The Company's United Kingdom subsidiary, JAC, started early in 1998
notifying its clients concerning appropriate steps they must take to ensure
their entire computer system meets all aspects of the National Health Service
(NHS) directive for Y2K compatibility. The NHS directive requires each Trust
(hospital) to have either upgraded to be Y2K compatible, have a plan to
upgrade, or have contingency plans, ready by 12/31/1998. Although the JAC
stock control pharmacy system has been internally and externally certified Y2K
compatible, JAC has been notifying all of its clients in writing, verbally by
telephone, using articles in its newsletter, and raising the issue at its
National and Local User Group meetings, that some clients will have to upgrade
certain components of their computer hardware and associated operating systems
and pharmacy data bases to ensure full compatibility.
Surgiware
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The Company's Operating Room division has completed its own internal
testing to determine whether the application meets Y2K compatibility
standards, and as a result of the testing believes that the operating room
information system meets the conditions for date-protocol readiness. A new
Year 2000 compatible revision is being offered to hospitals as part of the
normal support procedures of the Company. However, the computer platforms of a
number of hospitals will not accommodate the updates necessary to become Year
2000 ready, and these hospitals must bear the cost of new computer hardware
and associated operating systems and operating room data bases.
Blood Bank Division
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Hemocare: In the case of the Company's Hemocare blood bank system, the
Company has completed its own internal testing of its application software,
release 5.2, which is ready for release to customers. Mangement believes this
new Hemocare release meets Y2K compatibility standards. The application
software runs under a UNIX based operating system and the application software
was designed utilizing absolute Julian dates. The absolute Julian start date
for the Hemocare blood banking application is Jan.1, 1968. That specific date
is known as Julian day 1. Each day after Jan. 1, 1968 causes the Julian date
to increase by one. Therefore, Feb. 1, 1968 has a Julian date of 32, since
that was the 32nd day after Jan. 1, 1968. On Jan. 1, 1969, the Julian date was
367, representing 367 total days since Jan. 1, 1968, including the leap day.
In a similar fashion, the Julian date for Jan. 1, 2000 will simply be one
greater than the Julian date for Dec. 31, 1999. The fact that the last two
digits of the year 2000 are 00 will not impact Hemocare's date calculations or
comparisons, since the dates are not stored in a complex form made up of
years, months, and days. However, it may be necessary for some client
hospitals to upgrade their computer platforms, and associated operating
systems, or the BIOS of their current hardware, to be Year 2000 ready.
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Informedics LifeLine: The Company has also completed internal testing of
a new version of the LifeLine product, version 4.3, which, based on the
testing, meets Y2K compatibility issues. However, because older versions of
the LifeLine product now in use are not Year 2000 compatible, it will be
necessary for Informedics' customers to upgrade their systems with the new
version 4.3 release. The Company has contacted all current and prior customers
of versions of the LifeLine product to inform them of the actions they must
take in order to achieve Year 2000 compatibility.
Informedics StarPath: The Company has completed testing of a new version of
its StarPath pathology product, version 6.4C, which now meets Y2K
compatibility issues. This product will be made available to all StarPath
customers during the month of April 1999.
Internal
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The Company has assigned a project team to examine relationships with all
of its vendors, including suppliers of both IT and non-IT Systems regarding
Y2K readiness. Any vendor that supplies the Company with information,
processes information for the Company, and all internal systems using a
microprocessor will be queried as to their ability to meet Y2K compatibility
guidelines. The Company expects to complete its initial assessment of such
areas during the first quarter of 1999. Following such initial assessment, the
Company will undertake Year 2000 remediation and testing of these
applications. The Company cannot determine, at this time, the number of non-IT
systems that will require remediation; however, based on the current state of
its investigation, the Company knows of noYear 2000 problems which it expects
to become material.
General
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The Company is performing Year 2000 date-protocol tests and providing
remedial action for all of its products along with examining its relationships
with third parties. This review includes suppliers of hardware, data base
providers, network operating systems and utility programs, whose failure to be
Year 2000 compatible could have a material adverse effect on the Company. The
incremental costs to the Company in achieving Year 2000 compatibility cannot
be accurately predicted and will depend upon the timely completion of tasks by
both the Company and its customers. The Company must ensure Year 2000
compatible, third party components, timely release of its upgraded application
software, databases, its ability to schedule and install Y2K compatible
upgrades, and other factors. Customers must ensure that hardware, operating
systems, computer BIOS, and networking software are Year 2000 compatible, and
have the ability to schedule and install upgraded software versions provided
by the Company. Failure to successfully meet any or all of these conditions
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The suppliers of the computers, operating systems and data bases necessary
to operate the current versions of the Company's software products have
indicated to the Company that those products either are Year 2000 compatible
or theywill be by the end of 1999. The Company has conducted tests of such
computers, operating systems and data bases with the Company's products
now being marketed and currently has no reason to believe that the Company's
products are not Year 2000 compatible when operated with such computers,
operating systems and data bases.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIWARE Information Systems, Inc.
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(Registrant)
January 27, 1999 By: /s/
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(Date) John Esposito
President and CEO and CFO
