Note 1 - The Company and a Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Mediware Information Systems, Inc. and subsidiaries (“Mediware” or the “Company”) develops, markets, licenses, implements and supports clinical management and performance management information software systems used primarily by hospitals, long-term care, alternative care, and behavioral health facilities and blood and blood plasma centers.  The Company's systems are generally designed to automate certain clinical departments of a hospital, namely, the blood bank and pharmacy, to serve blood and plasma centers and other health facilities and to provide performance information to hospital management.  A system consists of the Company's proprietary application software, third-party licensed software, computer hardware and implementation services, training and annual software support.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Mediware Information Systems, Inc. and its wholly owned subsidiaries, Mediware Blood Management LLC, Mediware Medication Management LLC, Mediware Clinical Management LLC, Mediware Alternate Care Solutions, Inc., Advantage Reimbursement LLC, Mediware Information Systems, BV (“Mediware BV”), Digimedics Corporation, Informedics, Inc. and Digimedics Corporation’s wholly owned subsidiary JAC Computer Services, Ltd. (“JAC”).  All significant inter-company transactions and balances have been eliminated in consolidation.  Certain costs previously included within cost of system sales are included within costs of services for the period ended June 30, 2012.  Prior periods have been reclassified to conform to current period presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Actual results could differ from those estimates.  The Company’s significant areas of estimation include determining the allowance for uncollectible accounts, revenues to be recognized, valuing certain accrued liabilities and determining whether the carrying value of goodwill and capitalized software development costs is impaired.

Revenue Recognition

The Company derives revenue from licensing its proprietary applications software and sublicensed software, sale of computer hardware, transaction fees from software use, and the services performed related to the installation, configuration, training, consultation and ongoing support of the software.  Software license revenue that is not subscription or term license-based is generally recognized when evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, collectability is probable, vendor-specific objective evidence of the fair value of any undelivered element exists, and no other significant obligations on the part of the Company remain.  For its subscription products, Mediware recognizes start-up fee revenue upon completion of the customer installment and configuration services associated with the fee.  Monthly subscription fees for software and maintenance are recognized ratably over the subscription period.  The Company combines the software and maintenance associated with the subscription fee into a single element for purposes of applying revenue recognition principles, as the Company does not sell software subscriptions or maintenance services on a standalone basis.  Revenue from the sale of hardware is generally recognized upon shipment.  Fees for installation, training and consultation are recognized as the services are provided.  Support and maintenance fees, typically sold on an annual renewal basis, are recognized ratably over the period of the support contract.

The Company considers many factors when applying accounting principles generally accepted in the United States of America related to revenue recognition.  These factors include, but are not limited to:

- contract terms, such as payment terms, delivery dates, and pricing of the various product and service elements of a contract

- availability of products to be delivered

- time period over which services are to be performed

- creditworthiness of the customer

- the complexity of customizations and integrations to the Company’s software required by service contracts

- discounts given for each element of a contract and

- any commitments made as to project milestones

Each of the relevant factors is analyzed to determine its impact, individually and collectively with other factors, on the revenue to be recognized.  Management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards, as well as whether or not each factor complies with such standards.  Any misjudgment or error by management in its evaluation of the factors and the application of the standards, especially with respect to complex or new types of transactions, could have a material adverse effect on the Company’s future revenues and operating results.

The Company is recognizing revenues for large, fixed fee contracts, and for contracts requiring significant customization of the software or services that are essential to the functionality of the software, on a percentage of completion basis based upon the ratio of the effort completed during the reporting period compared to its estimate of the total effort required to complete the project.  Percentage-of-completion is measured based primarily on input measures such as hours incurred to date compared to estimated total hours at completion, with consideration given to output measures, such as contract milestones, when applicable.  Significant judgment is required when estimating total hours and progress to completion on these arrangements which determines the amount of revenue we recognize as well as whether a loss is recognized if expected to be incurred upon project completion.  The Company is required to recognize the entire anticipated loss immediately as soon as it becomes evident.  Revisions to hour and cost estimates are incorporated in the period the amounts are recognized if the results of the period have not been reported; otherwise, the revision of estimates are recognized in the period in which the facts that give rise to the revision become known.

Advertising Costs

Costs of advertising are expensed as incurred and amounted to $914,000, $772,000 and $685,000 for the years ended June 30, 2012, 2011 and 2010, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

The Company extends payment terms to customers who meet pre-established credit requirements.  Generally, the Company does not require collateral when trade credit is granted to customers.  Accounts receivable represent recorded revenues that have been billed or that are billable at future dates under the terms of a contract with a client. Billings and other consideration received on contracts in excess of related revenues recognized are recorded as advances from customers within deferred revenue.

Accounts receivable consisted of the following at June 30 (in thousands):

	2012		2011
Billed, net	$	10,798	$	16,822
Unbilled		1,975		3,009
Total accounts receivable, net	$	12,773	$	19,831

Allowance for Doubtful Accounts

The Company sells its products directly to end-users, generally requiring an up-front payment with the remaining payments due over time when not subscription-based.  Receivables from customers are generally unsecured.  The Company regularly monitors its customer account balances and actively pursues collections on past due balances.

The Company maintains an allowance for doubtful accounts based on historical collections and specific collection issues.  If actual bad debts differ from the reserves calculated, the Company records an adjustment to bad debt expense in the period in which the difference occurs.  Such adjustment could result in additional charges to the Company’s results of operations.

Inventory

Inventory consists primarily of third-party software licenses and computer hardware held for resale.  Both are valued at the lower of cost (first-in, first-out or “FIFO”) or market.  Cost is determined based on the specific identification method.  Inventory consists of the following at June 30 (in thousands):

	2012		2011
Software Licenses	$	953	$	278
Computer Hardware		92		130
	$	1,045	$	408

Fixed Assets

Furniture, equipment and leasehold improvements are recorded at cost. Depreciation for furniture and equipment is provided on the straight-line method over their estimated useful lives, which are generally three to five years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining lease period.

Capitalized Software Costs

Capitalized computer software costs consist of expenses incurred in creating and developing computer software products. In accordance with GAAP, once technological feasibility has been established the costs associated with software development are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on estimated current and future revenue for each product with an annual minimum equal to the straight-line amortization over the estimated economic life of the software, which ranges from five to seven years. Amortization expense for the years ended June 30, 2012, 2011 and 2010 was $4,048,000, $4,586,000 and $4,966,000, respectively.  Capitalized software costs consisted of the following activity (in thousands):

	For the Year Ended June 30,
	2012			2011
Beginning of year	$	62,923		$	57,780
Additions		5,653			5,143
		68,576			62,923
Less accumulated amortization		(54,070	)		(50,014	)
	$	14,506		$	12,909

Goodwill and Other Intangible Assets

Accounting guidance requires that goodwill and identifiable intangible assets be tested for impairment at least annually or more often if events and circumstances warrant.  The Company evaluates goodwill for impairment by comparing the fair value of the Company, a single reporting unit, to its carrying value including goodwill.  To determine fair value in the current evaluation the Company used a combination of two market approaches and the income approach under which the Company calculates fair value based on the estimated discounted cash flow method as well as other generally accepted methodologies.  The Company’s cash flow assumptions are based on historical and forecasted revenue, operating costs, and other relevant factors.  The Company also considered its market capitalization.  No impairment was indicated by the Company’s analysis as of June 30, 2012.   Accounting guidance also requires that intangible assets with finite useful lives be amortized over their respective estimated useful lives and reviewed for impairment.  As of June 30, 2012, management believes no such impairment has occurred.

Goodwill represents the excess of purchase price over the fair value of the assets acquired. These business acquisitions include Digimedics Corporation in May 1990, Informedics, Inc. in September 1998, certain assets of Information Handling Services Group, including its Pharmakon and JAC divisions, in June 1996, certain assets of Integrated Marketing Solutions, LLC (“IMS”) in October 2007, certain assets of Hann’s On Software, Inc. (“HOS”) in November 2008,  certain assets of SciHealth, Inc. in June 2009, certain assets of Advantage Reimbursement, Inc. (“ARI”) and the stock of Healthcare Automation, Inc. (“HAI”) acquired in December 2009, certain assets of CareCentric, Inc. acquired in April 2011, certain assets of Transtem, LLC, acquired in January 2012 and assets associated with Cyto Management System (“CMS”) acquired in April 2012.

Goodwill was reduced by certain income tax benefits amounting to $232,000 for each of the years ending June 30, 2011 and 2010.

Foreign Currency Translations

The functional currency for the Company's JAC and Mediware BV subsidiaries is the British pound and Euro, respectively.  Assets and liabilities of JAC and Mediware BV are translated to U.S. dollars using the exchange rate in effect at the balance sheet date.  Results of operations are translated using weighted average exchange rates during the year.  The net gain or loss resulting from these foreign currency translations is reported as other comprehensive income or loss in the accompanying consolidated financial statements.  The Company recorded foreign currency translation (losses) gains of ($223,000), $200,000 and ($249,000) in 2012, 2011 and 2010, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with accounting guidance.  Accordingly, the provision for income taxes includes deferred income taxes resulting from items reported in different periods for income tax and financial statement purposes. Deferred tax assets and liabilities represent the expected future tax consequences of the timing 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 the tax law.

Earnings Per Common Share

Basic earnings per share is computed by dividing the income available to common shareholders by the weighted average number of common shares outstanding.  Diluted earnings per share include the dilutive effect, if any, from the potential exercise of stock options using the treasury stock method, as well as the dilutive effect from outstanding restricted common stock awards.  The weighted average shares outstanding used in the calculations of earnings per share were as follows (in thousands):

	For the Year Ended June 30,
	2012			2011			2010
Shares outstanding, beginning		8,085			7,967			7,694
Weighted average shares issued		110			60			144
Weighted average shares repurchased		(17	)		(15	)		-
Weighted average shares outstanding – basic		8,178			8,012			7,838
Effect of dilutive securities		237			181			120
Weighted average shares outstanding – diluted		8,415			8,193			7,958

Potential common shares not included in the calculation of net income per share, as their effect would be anti-dilutive, are as follows (in thousands):

	For the Year Ended June 30,
	2012		2011		2010
Stock Options		122		387		358

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their relatively short term maturity.

Stock-Based Compensation

The Company measures stock-based compensation to employees and directors at the grant date and recognizes compensation expense over the requisite service period.

Comprehensive Income

Total comprehensive income represents the net change in stockholders’ equity during a period from sources other than transactions with stockholders and, as such, includes net income and other specified components.  The only component of comprehensive income other than net income for the Company is the change in the cumulative foreign currency translation adjustments recorded in stockholders’ equity.

Recently Issued Accounting Guidance

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Testing Goodwill for Impairment” (ASU 2011-08).  Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount.  If an entity believes, as a result of its qualitative assessment that the fair value of a reporting unit is greater than its carrying amount, performing the current two-step impairment test is not required.  The guidance also includes a number of events and circumstances that an entity needs to consider in conducting the qualitative assessment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted, if an entity has not yet issued financial statements for the most recent annual or interim period, provided the entity has not yet performed its annual impairment test.  The adoption of this guidance did not have a material impact on the Company’s financial statements.

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2012-02 “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU No. 2012-02”), to simplify the testing for a drop in value of intangible assets such as trademarks, patents and distribution rights.  Under ASU No. 2012-02, an entity has the option of first performing a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired before proceeding to the quantitative impairment test in ASC 350-30 under which it would calculate the asset’s fair value.  When performing the qualitative assessment, the entity must evaluate events and circumstances that may affect the significant inputs used to determine the fair value of the indefinite-lived intangible asset.  ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted.  The Company does not expect this guidance to have a material impact on our financial statements.