File No. 33-
As filed with the Securities and Exchange Commission on December 19, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDIWARE INFORMATION SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
NEW YORK 7372 11-2209324
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No)
of Incorporation Code Number)
of Organization)
1121 Old Walt Whitman Road, Melville, New York 11747-3005
(516) 423-7800
(Address and Telephone Number of Principal Executive Offices)
1121 Old Walt Whitman Road, Melville, New York 11747-3005
(Address of Principal Place of Business or Intended Principal Place of Business)
Les N. Dace
President and Chief Executive Officer
Mediware Information Systems, Inc.
1121 Old Walt Whitman Road
Melville, New York 11747-3005
Tel. No. (516) 423-7800
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jonathan H. Churchill, Esq.
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Tel. No. 212-858-1000
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Approximate Date of Proposed Sale to the Public: From time to time
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
______________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ___________________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Title of Each Class Dollar Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Aggregate Price Per Aggregate Offering Registration Fee
Registered Unit Price
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<S> <C> <C> <C> <C>
Common Stock 2,089,255 shares $3.50* $7,312,392.50* $2,522
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* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. Based on the last reported sale price for the
shares of Common Stock on December 17, 1996.
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The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED December 18, 1996
PROSPECTUS
2,089,255
Shares
MEDIWARE INFORMATION SYSTEMS, INC.
COMMON STOCK
-----------------------------------
This Prospectus may be used by persons ("Selling
Shareholders") who have received or will receive shares of Common Stock (par
value $.10 per share) (the "Common Stock") of Mediware Information Systems, Inc.
(the "Company" or "Mediware") covered by this Prospectus in connection with (i)
the exercise of warrants and options to purchase Common Stock and (ii) the
purchase of such Common Stock in a private placement in June 1996.
Selling Shareholders may sell shares of Common Stock from time
to time privately in negotiated transactions or publicly in open-market
transactions on the Nasdaq Smallcap Market or otherwise, in one or more
transactions, as described more fully herein. See "Plan of Distribution".
Selling Shareholders and broker-dealers that participate with Selling
Shareholders in such sales of Common Stock, and any brokers or finders who
receive Common Stock as fees, may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933 (the "Act"), and any
commissions or fees received by them and any profit on the resale of shares of
Common Stock may be deemed to be underwriting compensation. The Company will not
receive any of the proceeds of the sale of shares of Common Stock by any such
person.
The Company may agree to indemnify the Selling Shareholders
and/or broker-dealers against certain civil liabilities, including liabilities
under the Act, and to reimburse them for certain expenses in connection with the
sale of Common Stock.
The outstanding shares of Common Stock are currently listed on
the Nasdaq SmallCap Market under the symbol "MEDW". The last reported sale price
on Nasdaq on December 11, 1996 was $3.50 per share.
------------------------------------
See "Risk Factors" on page 3 herein for a discussion of
certain risks which should be considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________________, 1996
<PAGE>
No dealer, salesperson or other person has been authorized to given any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with an offer made by
this Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or by any other
person, underwriter, dealer or agent. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create an implication
that there has been no change in the affairs of the Company since the date
hereof or thereof or that the information contained herein is current as of any
time subsequent to the date hereof. This Prospectus does not constitute an offer
or solicitation by anyone in any State in which such offer or solicitation is
not authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
Pursuant to Rule 174 under the Act, dealers effecting transactions in
the registered securities, whether or not participating in this distribution,
are not required to deliver a prospectus, except that dealers have the
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
TABLE OF CONTENTS
AVAILABLE INFORMATION................................. 2
RISK FACTORS.......................................... 3
THE COMPANY........................................... 5
USE OF PROCEEDS....................................... 7
CAPITALIZATION........................................ 7
DIVIDEND POLICY....................................... 7
DESCRIPTION OF THE BUSINESS........................... 8
PROPERTIES............................................ 14
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................... 14
DESCRIPTION OF CAPITAL STOCK.......................... 19
MARKET FOR REGISTRANT'S COMMON
EQUITY.............................................. 20
SECURITY OWNERSHIP.................................... 20
DIRECTORS............................................. 23
EXECUTIVE OFFICERS.................................... 25
EXECUTIVE COMPENSATION................................ 27
SHARES ELIGIBLE FOR FUTURE SALE....................... 29
CERTAIN TRANSACTIONS.................................. 30
INDEMNIFICATION OF OFFICERS
AND DIRECTORS....................................... 30
PLAN OF DISTRIBUTION.................................. 31
LEGAL MATTERS......................................... 32
EXPERTS ............................................. 32
FINANCIAL STATEMENTS.................................. 33
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 ("1934 Act") and in accordance therewith files
reports, proxy statements and other information (collectively, "1934 Act
Reports") with the Securities and Exchange Commission (the "SEC"). Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, 7 World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a web site
(http://www.sec.gov.) that contains reports, proxy and information statements
and other information regarding the Company. Certain securities of the Company
are listed on the Nasdaq SmallCap Market, and reports, proxy material and other
information concerning the Company may be inspected at the office of Nasdaq.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus is delivered, upon written or oral request of
such person, a copy of any or all of the information that was incorporated by
reference in this Prospectus, other than exhibits to such documents not
specifically incorporated by reference herein. Requests for such copies should
be directed to Office of the Secretary, Mediware Information Systems, Inc., 1121
Old Walt Whitman Road, Melville, New York 11747-3005, Tel. No. (516) 423-7800.
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RISK FACTORS
The shares offered hereby represent a speculative investment
and involve a high degree of risk. Each prospective purchaser should carefully
consider the following risks among other factors before making an investment in
the shares offered hereby.
Past Operating Losses. For the fiscal years ended June 30,
1996 and 1995, the Company has operating revenues of $10,432,000 and $8,079,000,
respectively, and a net loss of $3,491,000 and net income of $90,000,
respectively. The Company had net earnings in only two of the last five fiscal
years. Previous losses have been funded in part with proceeds from bridge
financings, in connection with which the Company issued promissory notes and
warrants to purchase Common Stock.
Working Capital Deficiency; Restrictive Covenants. In
connection with the Acquisition (described more fully herein, see "The Company"
and "Description of the Business"), the Company issued a promissory note to the
seller of the acquired divisions, which, as amended, is due August 1, 1997. As a
result, the Company has a working capital deficiency on September 30, 1996 of
$3,789,000. The Company will require additional sources of liquidity to fund the
balance of up to $4.6 million due August 1, 1997 on this note, as well as the
$1,179,000 balance due on the promissory notes due August 1, 1997 which were
issued in bridge financings. The promissory note issued in connection with the
Acquisition is collateralized by all of the issued and outstanding capital stock
of Digimedics and JAC, subsidiaries of the Company engaged in its pharmaceutical
information business, and all of the assets of Digimedics. The note is also
guaranteed by the Company and restricts numerous corporate activities of the
Company. See "Description of Capital Stock".
Variability of Quarterly Operating Results. The Company
expects its revenues and profitability to fluctuate widely from quarter to
quarter and, to a lesser extent, from year to year, because of the small number
of information systems sold relative to the purchase price of the systems.
Revenues and earnings may also vary significantly depending upon the timing of
deliveries, installation schedules, variability of hospital decision cycles and
the availability to hospitals of funding for capital expenditures.
Hospital Purchase Procedures. Under hospital financial
procurement procedures, the Company's products are treated as capital items. As
such, the sale of new systems can be a lengthy and expensive process, requiring
from six to eighteen months and approval at several levels of hospital
management.
Acquisition. The realization of the benefits anticipated by
management from the acquisition of the Pharmakon and JAC divisions in June 1996
described in "The Company - Pharmacy Division - Digimedics and Pharmakon" and
"Description of the Business - Products - Pharmacy Division - Digimedics and
Pharmakon" is subject to the acceptance of the Company by the acquired company's
customers and other risks typical of business acquisitions.
Competition. Competition in the hospital computer software
industry is intense. In sales of the Hemocare system, the Company currently
competes principally with one other specialty vendor of stand-alone blood bank
systems (which is of comparable size) and two substantially larger vendors of
laboratory information systems that contain a blood bank subsystem. The Pharmacy
Division competes with numerous companies, including some of the leading vendors
of healthcare information systems. The competitors of Surgiware have
significantly larger installed bases. These competitors have substantially
greater technical, marketing, financial and other resources than the Company and
have established reputations for success in developing and selling hospital
information systems. There can be no assurance that the Company will be able to
compete successfully in its markets. See "Description of the Business -
Competition."
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Technological Obsolescence. The computer software industry is
characterized by rapid and significant technological advances. These advances
often result in partial or total obsolescence of programs within a short time.
Consequently, it is necessary to enhance a system continuously and to modify it
for use on new computer systems and in new technical environments. There can be
no assurance that the Company will be able to develop or acquire new products or
product updates at a rate sufficient to keep them competitive or that such new
products or product updates will achieve market acceptance.
Product Protection. The Hemocare and Digimedics systems are
not patented but have been copyrighted. Certain features of the licensed
Surgiware software are covered by a patent held by the licensor. To protect its
proprietary software, the Company relies upon the law of trade secrets,
nondisclosure agreements with employees, and restrictions on disclosure and
transferability incorporated into agreements with customers. Notwithstanding
these safeguards, it is possible for competitors of the Company to obtain its
trade secrets and to imitate its products. Furthermore, there can be no
assurance that others will not independently develop software products similar
to those developed or planned by the Company.
Government Regulation. The adequacy of blood bank information
management and record keeping is subject to inspection and review by the Food
and Drug Administration ("FDA") which is in the process of developing new
guidelines which it intends to apply to blood bank information systems and to
the inspection of vendors of such systems. Hemocare and the Company are subject
to the jurisdiction of the FDA as suppliers of medical devices. The Company has
dedicated substantial time and resources in its attempts to comply with
applicable guidelines and regulations and believes that it is in substantial
compliance therewith, but cannot predict whether it will be in compliance with
any future guidelines, regulations or inspection procedures. Non-compliance
could have a material adverse effect on the operations of the Company. Any of
the Company's other activities could also become subject to Congressional or
governmental agency efforts to establish or expand governmental agency
jurisdiction. See "Description of the Business - Government Regulation."
Dependence Upon Key Employees. The success of the Company will
depend, in part, on its continuing ability to attract and retain key employees.
If the Company loses the services of its key employees, or if the Company is
unable to attract and retain additional qualified personnel, its business could
be materially adversely affected.
No Dividends. The Company has no present intention of paying
cash dividends on its Common Stock. Future earnings, if any, will be used to
finance the development and continued expansion of its business. See "Dividend
Policy."
Shares Eligible for Future Sale. The holders of substantially
all of the outstanding shares of Common Stock are free to sell their shares
and/or in some instances have the right to have their shares included in one or
more registration statements under the Securities Act. The possibility that
substantial amounts of Common Stock may be sold in the public market may
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adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Shares Eligible for Future Sale."
Authorized Preferred Stock. The Company is authorized to issue
10,000,000 shares of preferred stock, the terms of which may be fixed by the
Board of Directors. The effects of any issuance of preferred stock upon the
rights of holders of Common Stock could be negative, depending upon the terms of
the preferred stock. Such effects might include: (a) reduction of the amount of
funds otherwise available for, and restrictions on, the payment of cash
dividends on Common Stock; (b) dilution of the voting power of the Common Stock;
and (c) inability to share in the assets of the Company upon liquidation until
satisfaction of liquidation preferences of preferred stock.
THE COMPANY
Mediware Information Systems, Inc. (together with its
subsidiaries, the "Company" or "Mediware") develops, sells and supports
computer-based management information systems for use in various clinical
departments of hospitals. The systems are designed to automate the data these
departments provide hospital management and therefore increase productivity,
reduce operating costs, enhance revenues and improve quality assurance and
patient care. These benefits are of critical importance to hospital
administrators who face increasing financial and regulatory pressures. At
present, the Company offers systems for three different departments: the blood
bank, the pharmacy and the surgical suite. With the completion of the
Acquisition referred to below the installed base of clinical information systems
has increased to approximately 825 clients.
The Company was incorporated in 1980. The Company's
headquarters are located at 1121 Walt Whitman Road, Melville, New York 11747,
telephone (516) 423-7800.
HEMOCARE
The Company's cornerstone product is one of North America's
leading blood bank information systems, and is sold either "stand-alone" or as
part of an integrated "LAB/Blood Bank" system. The system was designed in
collaboration with Memorial Sloan-Kettering Cancer Center in New York City.
Hemocare's software programs are organized into subsystems performing over 200
functions of which the major ones (a) manage and control blood inventory; (b)
perform long-term donor and transfusion record keeping; (c) store and manage
characteristics of blood products to be transfused; (d) maintain patient and
transfusion records; (e) maintain the records of patient test results; and (f)
automate billing and workload recording. The Hemocare system is installed in
approximately 250 hospitals which range in size from 100 beds to over 1,600
beds.
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PHARMACY DIVISION - DIGIMEDICS AND PHARMAKON
In May of 1990, the Company acquired Digimedics Corporation,
one of the country's leading vendors in information management systems for
hospital pharmacies. Digimedics had been developing and selling products and
services to hospital pharmacies since 1976. In the mid-1980's, Digimedics
introduced the first open systems version of a comprehensive pharmacy
information management system. Digimedics Corporation is a wholly owned
subsidiary of the Company. Over 130 Digimedics systems have been installed at
121 hospitals (some hospitals have separate systems for inpatient and outpatient
pharmacies).
By the end of 1996, Digimedics intends to introduce a new
client server pharmacy system called "Digimedics/WORx", which will have a
complete Microsoft Windows based graphical user interface, which the Company
feels will increase the attractiveness of the system.
The Acquisition. On June 17, 1996, Digimedics Corporation
acquired certain assets of the U.S. based Pharmakon division ("Pharmakon") and a
pharmacy management system operating in the United Kingdom, JAC Computer
Service, LTD. ("JAC"), of Continental Healthcare Systems, Inc. (the
"Acquisition"), which are being incorporated into the Company's Digimedics
operation. The addition of Pharmakon and its client base has increased the
Company's installed base of clinical information systems to approximately 825
(over 500 of which are pharmacy system installations). This places the Company
in the position of providing the largest number of stand-alone pharmacy
information systems in the country. The Acquisition also provides the Company
with an international presence; JAC has approximately 180 pharmacy information
systems installed in the United Kingdom.
SURGIWARE
In September of 1990, the Company licensed the right to market
and relicense the Surgiware system for use in surgical suites. Surgiware is a
comprehensive information system for managing the human resources, facilities,
equipment and supplies required for surgery. The Surgiware system integrates
clinical data capture, inventory and equipment control scheduling, quality
assurance and report writing. For example, the system contains a program that
presents a proprietary, real time moving schedule on a color graphics display
allowing the user to visually identify potential scheduling conflicts based upon
what is happening in the surgical suite at the moment, and to test alternative
solutions on the system. The core of the system is in its unique ability to
gather and disseminate data at the point of care, providing unique advantages to
hospitals in need of timely, accurate data on their surgical activities.
Additional modules and functions can be added, such as a clinical data module
that keeps track of all aspects of a patient's treatment, including
pre-operative and post-operative control.
The Company's marketing is concentrated on the approximately
1,000 hospitals that have more than 300 beds and 10 operating rooms, where
studies indicate that approximately 80% of all surgical services in this country
are performed. The Company has installed 25 Surgiware sites.
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USE OF PROCEEDS
There will be no proceeds to the Company from any sale of
shares by Selling Shareholders.
CAPITALIZATION
The following table sets forth the consolidated capitalization
of the Company at September 30, 1996:
Short-term debt....................................................$7,199,000(1)
-----------
Long-term debt .................................................... 37,000
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Shareholders' equity:
Preferred Stock, $.01 par value - 10,000,000 shares authorized,
none issued and outstanding
Common Stock, $.10 par value -- 12,000,000 shares authorized,
4,939,344 shares issued and outstanding (2).................. 494,000
Additional paid-in capital.........................................13,430,000
(Deficit)..........................................................(9,183,000)
-----------
Total shareholders' equity.......................................4,741,000
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Total Capitalization .............................................$11,977,000
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(1) $6,199,000 as at October 31, 1996.
(2) Does not include (a) up to 608,358 shares reserved for future issuance
upon exercise of outstanding options under the Company's 1982 Stock Option
Plan, the 1992 Equity Incentive Plan and the Stock Option Plan for
Non-Employee Directors or (b) up to an aggregate of 674,695 shares
issuable upon exercise of outstanding warrants, each number as of
September 30, 1996. See "Executive Compensation," "Directors -
Compensation of Directors". See also "Certain Transactions".
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and has
no present intention to pay cash dividends on its Common Stock. Earnings, if
any, will be used to finance the development and continued expansion of the
Company's business. The Company is prohibited from paying dividends so long as
the promissory note issued to Continental in the Acquisition remains
outstanding.
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DESCRIPTION OF THE BUSINESS
The Company develops, sells and supports computer-based
management information systems for use in various clinical departments of
hospitals. The systems are designed to automate the data these departments
provide hospital management and therefore increase productivity, reduce
operating costs, enhance revenues and improve quality assurance and patient
care. These benefits are of critical importance to hospital administrators who
face increasing financial and regulatory pressures. At present, the Company
offers systems for three different departments: the blood bank, the pharmacy and
the surgical suite. With the completion of the Acquisition referred to below the
installed base of clinical information systems has increased to approximately
825 clients. The Company's operations are within one industry segment.
Products
HEMOCARE - The Company's cornerstone product is one of North
America's leading blood bank information systems, and is sold either
"stand-alone" or as part of an integrated "LAB/Blood Bank" system. The system
was designed in collaboration with Memorial Sloan-Kettering Cancer Center in New
York City. Hemocare's software programs are organized into subsystems performing
over 200 functions of which the major ones (a) manage and control blood
inventory; (b) perform long-term donor and transfusion record keeping; (c) store
and manage characteristics of blood products to be transfused; (d) maintain
patient and transfusion records; (e) maintain the records of patient test
results; and (f) automate billing and workload recording.
Hemocare's core technology is the UNIX operating system and the
"C" programming language, allowing it to run on multiple hardware platforms.
Current versions of the system are ported to the IBM RS/6000, as well as Intel
PC technologies. The scalability of these platforms allows Hemocare to address
the needs of virtually any size hospital. Hemocare has been the first to attempt
to market innovative product enhancements such as Validation Templates, Video
Validation, Standard Integration Module and Mock Regulatory Inspection. At this
time Hemocare is the only blood banker to offer these products, which assist
customers in their efforts to remain compliant with regulatory agency
guidelines. The Standard Integration Module was instrumental in the growth of
laboratory vendors, who have integrated and remarketed this product. The Company
currently has remarketing agreements with HBO and Company, Citation Computer
Systems, Inc., Dynacor, Inc., Keane, Inc., NLFC, Inc. and Shared Medical
Systems, Inc.
The Hemocare system is installed in approximately 250 hospitals
which range in size from 100 beds to over 1,600 beds.
PHARMACY DIVISION - DIGIMEDICS AND PHARMAKON - In May of 1990,
the Company acquired Digimedics Corporation, one of the country's leading
vendors in information management systems for hospital pharmacies. Digimedics
had been developing and selling products and services to hospital pharmacies
since 1976. In the mid-1980's, Digimedics introduced the first open systems
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version of a comprehensive pharmacy information management system. Digimedics
Corporation is a wholly owned subsidiary of the Company.
The benefits of Digimedics include (a) potential customer
savings through the automation of drug formulary and perpetual inventory; (b)
potential enhanced revenues through more accurate and complete patient billing;
(c) improved patient care by more accurate drug dispensing, automatic checking
of adverse drug-drug interactions and automatic checking of previously recorded
drug allergies; and (d) interfacing with other hospital information systems,
drug wholesalers, and various dispensing machines, such as PYXIS and the
automated Pharmacy System robotics devices.
The current version of Digimedics, called "Digimedics XA for
Windows," is based on the UNIX operating system, the "C" programming language,
and the UNIFY relational database management system. Although largely a
"character based" application, certain Microsoft Windows features have been
included, offering the Company certain sales advantages by providing customers
and prospective customers with the type of graphical user interface they prefer.
By the end of 1996, Digimedics intends to introduce a new client
server pharmacy system called "Digimedics/WORx". WORx (Windows, Open, Rx) will
have a complete Microsoft Windows based graphical user interface, which the
Company feels will increase the attractiveness of the system. Also, new
technologies include integration features such as the Informix relational
database management system, point and click Windows based ad-hoc report writing,
and an integrated inpatient/outpatient database.
Other WORx features will include:
o Support of clinical pathways.
o A clinical database and drug monographs.
o Incorporation of an extensive array of clinical drug alerts concerning
allergy, diagnosis, dose, food, IV incompatibility, interaction and
therapeutic duplication.
o Foreign-language patient education monographs.
o Customization to meet community standards.
By taking advantage of its open architecture, WORx is capable of
linking with expert systems, decision-support software and clinical databases.
WORx will act as the central hub of information in the pharmacy and will provide
specialized tools for all aspects of pharmaceutical care including order entry,
distribution, outcomes, billing, utilization evaluation, education, critical
pathways, purchasing and research.
WORx can adapt into a diversity of hardware and networking
environments. Utilizing technologies such as the UNIX operation system, C++
programming language, Informix, and Microsoft Windows 95, WORx is positioned as
a state of the art client/server solution.
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Over 130 Digimedics systems have been installed at 121 hospitals
(some hospitals have separate systems for inpatient and outpatient pharmacies),
including the University of California Medical Center, San Francisco; University
Medical Center, Las Vegas; Columbia-Presbyterian Medical Center, New York City;
Shands Hospital at the University of Florida, Gainesville; University of Kansas
Medical Center, Kansas City; and the University of Michigan Hospitals and
Clinics, Ann Arbor.
As noted above, on June 17, 1996, the Company acquired certain
assets of the U.S. based Pharmakon division and the U.K. based JAC from
Continental Healthcare Systems, Inc. ("Continental"), which are being
incorporated into the Company's Digimedics operation. The addition of Pharmakon
and its client base has increased the Company's installed base of clinical
information systems to approximately 825 (over 500 of which are pharmacy system
installations). This places the Company in the position of providing the largest
number of stand-alone pharmacy information systems in the country. The
Acquisition also provides the Company with an international presence; JAC has
approximately 180 pharmacy information systems installed in the United Kingdom.
Pharmakon and JAC, which generated sales and service of
approximately $8.4 million in the fiscal year ended November 30, 1995, markets a
management information system for hospital pharmacies. The Acquisition has added
approximately 415 hospital systems and 235 hospitals to the Company's customer
base in the United States and an additional 180 customers in the United Kingdom.
Pharmakon had been providing pharmacy systems for almost twenty
years. Management has begun its efforts to convert Pharmakon's U.S. customers to
the Digimedics WORx system. Pending this conversion, the Company has assumed the
existing support and maintenance contracts and expects to generate approximately
$3.4 million per year in service revenues by continuing to service the newly
acquired customers. Through the Acquisition, the Company will also acquire
certain technologies which are currently under development and are expected to
be integrated into future systems offerings of Digimedics.
The Company's management team believes there exists strong
parallels between its current Digimedics customer base and that of Pharmakon,
both of which include not only large university hospitals and multi-site acute
care facilities, but also progressive community, municipal, and long-term care
facilities. Management has retained approximately 43 of Pharmakon's 75 employees
in the U.S.
SURGIWARE - In September of 1990, the Company licensed the right
to market and relicense the Surgiware system for use in surgical suites.
Surgiware is a comprehensive information system for managing the human
resources, facilities, equipment and supplies required for surgery. The
Surgiware system integrates clinical data capture, inventory and equipment
control scheduling, quality assurance and report writing. For example, the
system contains a program that presents a proprietary, real time moving schedule
on a color graphics display allowing the user to visually identify potential
scheduling conflicts based upon what is
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happening in the surgical suite at the moment, and to test alternative solutions
on the system. The core of the system is in its unique ability to gather and
disseminate data at the point of care, providing unique advantages to hospitals
in need of timely, accurate data on their surgical activities. Additional
modules and functions can be added, such as a clinical data module that keeps
track of all aspects of a patient's treatment, including pre-operative and
post-operative control.
The benefits of a fully-implemented system include (a)
improvement in the efficiency and output of operating rooms; (b) improvement in
the management of staffing, equipment and supplies; (c) improvement in inventory
controls; and (d) incremental billings resulting from procedures that, without
Surgiware, might be overlooked for billing purposes because they either were
unplanned or fall outside the billing category for the planned procedure.
Surgiware also integrates clinical data capture, and equipment control,
scheduling, quality assurance and report writing. These benefits can translate
into significant revenues and savings since the surgical suite usually produces
more revenue than any other department and is the greatest cost center in the
hospital. The record keeping functions of Surgiware can also be of significant
benefit in the areas of quality assurance, risk management, and the
accreditation of physicians.
Surgiware uses the UNIX operating system, the "C" programming
language, the INFORMIX SQL 4th generation relational database manager, and a
fault-tolerant architecture that allows the personal computer that is placed in
each operating room to operate independently in the event of a failure of the
central Surgiware computer. The system has been ported to the IBM RS-6000 and
the Data General AViiON series, and to 386, 486 and Pentium IBM compatible
personal computers.
The Company's marketing is concentrated on the approximately
1,000 hospitals that have more than 300 beds and 10 operating rooms, where
studies indicate that approximately 80% of all surgical services in this country
are performed. The Company has installed 25 Surgiware sites.
In 1992, the licensor of Surgiware commenced an arbitration
against the Company which, in late 1994, led to a decision in favor of the
Company which confirmed the Company's license for the Surgiware product,
including improvements developed by the licensor. The arbitral panel confirmed
the Company's right to retain exclusivity for the Surgiware product and to
license another generic hospital scheduling software product developed by the
licensor upon the payment of additional royalties. The Company determined in
early 1995 that the benefits of exclusivity and the generic hospital product did
not justify the required additional royalty payments. The Company has initiated
negotiations with the licensor of the Surgiware system to replace the existing
royalty arrangement with a fully paid-up license, requiring additional royalty
payments only in the case of a simultaneous sale by the Company of multiple
sublicenses. In the course of these negotiations the licensor has asserted that
the Company has breached the existing license agreement. The Company believes
that this assertion is meritless and is being made for negotiating purposes
only.
11
<PAGE>
Sales and Marketing
The Company's three products are sold directly by ten full-time
sales people, as well as four Company officers, with the assistance of seven
clinical specialists who demonstrate the systems and address technical
questions. The Company continues an on-going, in-house lead generation program
that generates numerous sales leads. Sales leads and support are received from
certain hardware manufacturers, especially IBM Corporation and Data General
Corporation, whose products the Company sells as a Value Added Reseller ("VAR").
The Company's products are also sold increasingly through remarketers who are
vendors of laboratory and other information systems that offer Company systems
as subsystems of their product. The Company has entered into agreements with
vendors such as HBO and Company (for both STAR and ALS product lines), Citation
Computer Systems, Inc., Dynacor, Inc., Keane, Inc., NLFC, Inc. and Shared
Medical Systems, Inc.
Software Support and Hardware Maintenance Services
The Company provides comprehensive service to its installed base
of customers through its own service organization. Virtually all of the
Company's customers enter into software support agreements with either the
Company or its resellers which are renewed either annually or at longer
intervals but, in the case of former Pharmakon customers, may be canceled by
either party on 60 days notice. These agreements generally provide for 24-hour
access to customer support staff, as well as periodic product enhancements and a
limited product warranty, for which the customer pays a monthly fee subject to
cancellation after a specified notice period. Some of the Company's customers
have also entered into agreements for hardware maintenance, which the Company
generally subcontracts to hardware manufacturers. As of June 30, 1996, the
Company had software support and hardware maintenance agreements providing for
periodic payments totaling approximately $7.94 million on an annualized basis,
including the revenues of Pharmakon.
HEMOCARE and DIGIMEDICS are trademarks of the Company and its
subsidiary, Digimedics Corporation, respectively.
Competition
The competition in the market for clinical information systems
is intense. The principal competitive factors are the functionality of the
system, its design and capabilities, site references, reputation for ongoing
support, the potential for enhancements, price and salesmanship. Different
dynamics and competitors, however, affect each of the Company's products.
HEMOCARE -- The Company currently competes principally with one
other specialty vendor of stand-alone blood bank systems (Western Star, Inc.),
which is a company of comparable size, and with two vendors (Cerner Corporation
and Sunquest Information Systems, Inc.) of laboratory information systems
("LIS") that contain a blood bank subsystem.
12
<PAGE>
The LIS vendors are much larger companies with greater technical, marketing,
financial and other resources than the Company, and have established reputations
for success in developing and selling hospital information systems.
PHARMACY DIVISION -- The Company currently competes with
numerous companies, including some of the leading vendors of healthcare
information systems. As a result of the Acquisition of Pharmakon, the Company
believes that it has the largest number of stand-alone hospital pharmacy systems
in its market. Many competitors have established reputations for success in
developing and selling medical information systems and have far greater
resources than the Company. The principal competitors of the Pharmacy Division
are believed to be Cerner Corporation, BDM Corp., HCS Corp. and Pharmacy
Computer Systems, Inc., as well as numerous providers of complete healthcare
information systems.
SURGIWARE -- The competitors of Surgiware have significantly
larger installed bases and have substantially greater technical, marketing,
financial and other resources than the Company and have established reputations
for success in developing and selling hospital information systems. The
principal vendors competing with the Surgiware system are believed to be Serving
Software Incorporated, a wholly owned subsidiary of HBO and Company, Enterprise
Systems Incorporated, and Atwork Corporation, a wholly owned subsidiary of
Medaphis Corporation.
Copyright, Patents and Trade Secrets
The Company has relied primarily on copyright, trade secret
protection and confidentiality agreements for protection of its software
systems. Certain features of the Surgiware system are covered by a patent held
by the licensor.
Government Regulation
The hospitals that comprise the primary market for the Company's
products must comply with various federal, state and local statutes and
regulations. The adequacy of blood bank information management and record
keeping is subject to inspection and review by the FDA. Hemocare and other blood
bank systems are also subject to regulation by the FDA as medical devices.
Consequently, the Company and its competitors who provide blood bank information
management systems are also subject to the jurisdiction of the FDA as suppliers
of medical devices. The Company has dedicated substantial time and resources in
its attempts to comply with applicable guidelines and regulations and believes
that it is in substantial compliance therewith. Legislation has been introduced
in Congress seeking to expand the jurisdiction of the FDA, and the FDA is in the
process of developing new guidelines which it intends to apply to blood bank
information systems and to the inspection of vendors of such systems. The
Company cannot predict whether it will be in compliance with these new
guidelines or any future guidelines, regulations or inspection procedures.
Non-compliance with any such guidelines, regulations or procedures could have a
material adverse effect on the operations of vendors of blood bank information
systems, including the Company. Any of the Company's other activities could
13
<PAGE>
also become subject to Congressional or governmental agency efforts to establish
or expand governmental agency jurisdiction.
Miscellaneous
The Company's software development expenditures were as follows:
during fiscal 1996 -- $1,438,000; during fiscal 1995 -- $1,387,000; and during
fiscal 1994 -- $1,791,000. These expenditures included write-downs and
amortization of software development costs. In addition, software costs of
$496,000, $356,000 and $367,000, respectively, were capitalized in each year. In
addition, the Company purchased $3,891,000 of research and development in the
Acquisition of Pharmakon and JAC, which upon acquisition were charged to
operations.
The Company's business is not dependent on a single customer or
a few customers. The Company considers that its market area and customer base is
the United States and Canada. However, the Company intends to market its
products in the United Kingdom in fiscal 1997 through JAC.
Employees
As of June 30, 1996, the Company had 138 full-time employees and
12 part-time employees, including 27 in sales and marketing, 92 in customer
support and product development, and 19 in administration. No employees are
represented by a labor union and the Company considers its employee relations to
be good.
PROPERTIES
The Company's corporate headquarters are in Melville, New York,
where the Company occupies approximately 5,738 square feet under a lease that
expires on July 31, 1998. The Digimedics division is headquartered in Scotts
Valley, California, where the Company occupies approximately 11,646 square feet
under a lease expiring on May 1, 2001. The Pharmakon Division is headquartered
in Overland Park, Kansas, where the company occupies approximately 13,683 square
feet under a lease expiring on September 30, 1998. The United Kingdom group is
headquartered in Basildon, Essex, where the Company occupies approximately 2,567
square feet under a lease expiring on September 26, 2004. The Company believes
that its facilities are adequate for its current needs and that, if necessary,
it will have no difficulty in securing alternate facilities at the expiration of
its current leases.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Internal and External Sources of 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. The total purchase price, net of acquisition costs,
14
<PAGE>
was approximately $9.7 million, $3.7 million of which was paid in cash and the
remaining $6.0 million of which was paid in the form of a promissory note issued
to Continental bearing interest at Citibank N.A.'s base rate due November 30,
1996. On October 28, 1996, the promissory note was amended to provide for an
extension of the due date to August 1, 1997. The amendment provides for a
payment in October 1996 of $1.0 million and monthly payments of $100,000 for
principal and interest and an increase in the interest rate to 15% on
approximately $3,763,000 of the note (with the original rate remaining on
$1,237,000). At September 30, 1996, the oustanding balance of this liability,
$6.0 million (before the above-mentioned $1.0 million payment), is classified as
current. The Company will require additional sources of liquidity to fund the
balance of up to $4.6 million of this debt due August 1, 1997.
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 $5,500,002.
The Company had a working capital deficiency of $3,789,000 at
September 30, 1996 reflecting the purchase money note due in August 1997 issued
in June 1996 to Continental in partial payment for the Acquisition.
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 Company directors. As part of
the financing package, such investors received 1,040,025 warrants at $0.50 per
share and 129,695 warrants at $1.25 per share. During fiscal year 1996 the
Company repaid $120,000, leaving a balance of $1,179,000 due August 1, 1997. The
Company will require additional sources of liquidity to fund this balance due.
In May of 1996 some of the investors exercised 495,025 of the $0.50 warrants for
a total of $247,512. A portion of these funds was used by the Company for
Acquisition expenses.
The Company has acquired a credit facility of $75,000 from its
bank in New York. As of September 30, 1996, the facility has $75,000 available.
The Company currently is seeking additional sources of credit and equity in
order to fund the reduction of its obligations under the above mentioned note.
However, it cannot be assured at this time that it will be successful.
Material Changes in Results of Operations: Three Months Ended September 30 1996
vs. Three Months Ended September 30, 1995:
System Sales Revenue increased by $286,000, or 19%, to
$1,818,000 for the first three months of fiscal 1997 ended September 30, 1996
compared to $1,532,000 for the comparable period a year earlier. The increase
was due to continued strong performance from the Hemocare product center, as
well as system sales produced by Pharmakon and JAC.
15
<PAGE>
Service Revenues increased by $1,555,000, or 157%, to $2,541,000
for the three months ended September 30, 1996 versus $986,000 for the comparable
period in 1995. This increase is due primarily to the revenues realized from the
addition of the Pharmakon and JAC divisions, fulfilling Pharmakon's obligation
to provide services to customers, new systems installed in the first quarter and
increases in annual support revenues from the installed base. In connection with
the acquisition described below, the Company entered into an agreement with
Continental to perform certain of Continental's obligations to provide services
for customers of Continental, including the installation of systems, customizing
systems, and providing hardware. The agreement also provides for the Company 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. For performing these services, the Company is to be paid
approximately $1,237,000 plus 30% of the amounts collected for Continental. In
the fiscal quarter ended September 30, 1996 the Company recognized $215,000 of
such service income based on the percentage of completion method.
Cost of Systems increased by $338,000, or 77%, to $775,000 for
the three months ended September 30, 1996 compared to $437,000 for the same
period last year. This increase is due to additional system installations
performed by the Pharmakon and JAC divisions, and a significant number of
hardware installations from the Hemocare product center, which resulted in
higher cost of sales as a percentage of sales.
Costs of Services increased by $326,000, or 72%, to $774,000 for
the three months ended September 30, 1996 compared to $448,000 for the same
period last year. This increase was due primarily to the addition of the
Pharmakon and JAC divisions.
Software Development costs increased by $264,000, or 77%, to
$605,000 for the three months ended September 30, 1996 compared to $341,000 for
the same period last year. The increase was due to the additional costs of
development from the Pharmakon division.
Selling, General and Administrative (S.G.A.) costs increased by
$652,000, or 68%, to $1,606,000 for the three months ended September 30, 1996
compared to $954,000 for the same period last year. This reflects the increased
S.G.A. expenses of the Pharmakon and JAC divisions, as well as increased
commissions and employee incentive bonus expenses.
Interest Expense increased by $101,000, or 168%, to $161,000 for
the three months ended September 30, 1996 compared to $60,000 for the same
period last year. This increased interest is due primarily to interest paid to
Continental pertaining to the seller's note for the purchase of the Pharmakon
and JAC divisions.
Net Earnings increased by $168,000, or 60%, to $446,000 for the
three months ended September 30, 1996 compared to $278,000 for the like period
last year. The increased earnings are due to continued strong earnings from the
Hemocare product center, as well as profits produced by the Pharmakon and JAC
divisions of Mediware including fulfilling Pharmakon's obligation to provide
services to customers.
16
<PAGE>
Material Changes in Results of Operations: Fiscal 1996 vs. Fiscal 1995:
Total revenues increased by $2,353,000, or 29%, to $10,432,000
in fiscal 1996 from $8,079,000 in fiscal 1995. This increase was due primarily
to the improved performance of the Hemocare product center.
System sales increased by $1,957,000, or 51%, to $5,781,000 in
fiscal 1996 from $3,824,000 in fiscal 1995. This was attributable to increased
sales of new systems by the Hemocare product center in conjunction with its
remarketers and an aggressive upgrade program which took advantage of the
pressure on hospitals to consolidate onto current product revisions.
Service revenues increased by $396,000, or 9%, to $4,651,000 in
fiscal 1996 from $4,255,000 in fiscal 1995. This was due primarily to an
increase in service contracts from newly installed systems and modules.
Cost of systems increased by $787,000, or 64%, to $2,023,000 in
fiscal 1996 from $1,236,000 in fiscal 1995. This was due primarily to the large
numbers of upgrades by the Hemocare product center that included sales of
hardware purchased from third parties, as opposed to sales of software.
Cost of services increased by $163,000, or 13%, to $1,403,000 in
fiscal 1996 from $1,240,000 in fiscal 1995. This increase is due to the
Company's increase of the number of personnel and other related costs of the
customer support organization in the three product centers.
Software development costs increased by $51,000, or 4%, to
$1,438,000 in fiscal 1996 from $1,387,000 in fiscal 1995, due to an increase in
software engineering personnel.
Selling, general and administrative increased by $830,000, or
20%, to $4,966,000 in fiscal 1996 from $4,136,000 in fiscal 1995. This was due
primarily to increased cost of product marketing, product consulting and
incentive commission payouts.
Interest expense of $216,000 for fiscal 1996, decreased by
$33,000, or 13%, as compared to interest expense of $249,000 in fiscal 1995. The
decrease is primarily due to the fact that fiscal 1996 did not include a debt
discount as did fiscal 1995, coupled with interest incurred in fiscal 1996 on
outstanding loans.
The Company had a net loss of $3,491,000 in fiscal 1996, or
$1.24 per share, as compared to net earnings of $90,000 in fiscal 1995, or $.04
per share, which reflects the charge to operations of acquired research and
development of $3,891,000 from the Pharmakon Acquisition. If this charge were
excluded, however, net income would result in $400,000, or $.12 and $.11 per
share on a primary and fully diluted basis, respectively, in fiscal 1996.
17
<PAGE>
Material Changes in Results of Operations: Fiscal 1995 vs. Fiscal 1994:
Total revenues decreased by $198,000, or 2%, to $8,079,000 in
fiscal 1995 from $8,277,000 in fiscal 1994. This decrease was due to the sales
of more software-only systems and to slower sales of the Surgiware Product,
reflecting uncertainties resulting from an arbitration that concluded in fiscal
1995 (as described in "Description of the Business", above).
System sales decreased by $906,000, or 19%, to $3,824,000 in
fiscal 1995 from $4,730,000 in fiscal 1994. This was due to a decrease of sales
of hardware as a system component and a larger number of software only systems
sold, and decreases in Surgiware's sales due to the arbitration, which caused
uncertainties in the marketplace in fiscal 1995.
Service revenues increased by $708,000, or 20%, to $4,255,000 in
fiscal 1995 from $3,547,000 in fiscal 1994. This was due primarily to product
maintenance increases relating to an increased installed base.
Cost of systems decreased by $858,000, or 41%, to $1,236,000 in
fiscal 1995 from $2,094,000 in fiscal 1994. This decrease was due primarily to a
larger number of software-only systems in fiscal 1995 as compared to sales
software and hardware in fiscal 1994.
Cost of services increased by $151,000, or 14%, to $1,240,000 in
fiscal 1995 from $1,089,000 in fiscal 1994, as the Company had increased the
number of personnel and other related costs of the customer support
organization.
Software development costs decreased by $404,000, or 23%, to
$1,387,000 in fiscal 1995 from $1,791,000 in fiscal 1994. The decrease is
primarily due to a decrease in Surgiware development and the result of the
write-off of $242,000 of capitalized software in fiscal 1994.
Selling, general and administrative increased by $277,000, or
7%, to $4,136,000 in 1995 from $3,859,000 in 1994. The increase is due primarily
to increased payroll and travel expenses, commissions, professional fees and
employee health insurance claims.
The Company expensed costs of $1,222,000 in connection with the
arbitration in fiscal 1994. Such costs included $208,000, which the Company
intended to pay the licensor to retain exclusivity; the balance was principally
legal fees and expenses in connection with the arbitration. During fiscal 1995
the Company, after review of the then current circumstances, decided not to
elect to make the payments required to maintain exclusivity. Accordingly, the
$208,000 accrued expense recorded in the prior year was eliminated, resulting in
increased income.
Interest expense of $249,000, including approximately $100,000
in debt discount, for fiscal 1995 was incurred on the interim financing from
investors referred to above and the loans to the Company from the chairman of
the board.
18
<PAGE>
The Company had a net profit of $90,000 for fiscal 1995, or $.04
per share, compared to a net loss of $1,902,000, or $.75 per share, in fiscal
1994. The net profit is due to the elimination of arbitration costs in fiscal
1995 and the improvement in gross profits.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 12,000,000 shares of Common
Stock, par value $.10 per share, of which 4,939,344 shares of Common Stock were
issued and outstanding as of October 31, 1996, held of record by approximately
209 persons. The Common Stock presently outstanding is fully paid and
non-assessable.
Each outstanding share of Common Stock entitles the holder to
one vote on all matters requiring a vote of shareholders. There is no right to
cumulative voting; thus, the holders of 50% percent or more of the shares
outstanding can, if they choose to do so, elect all Directors of the Company.
Subject to the rights of holders of any series of preferred
stock that may be issued in the future, the holders of Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. See "Dividend Policy". In the event of a
voluntary or involuntary liquidation of the Company, all shareholders are
entitled to a pro rata distribution of the assets of the Company remaining after
payment of claims of creditors and liquidation preferences of any preferred
stock. Shareholders have no preemptive rights to subscribe for additional
shares.
The Transfer Agent for the Common Stock of the Company is
American Stock Transfer and Trust Company, 40 Wall Street, New York, NY 10005.
The Company is also authorized to issue 10,000,000 shares of
preferred stock, the terms of which may be fixed by the Board of Directors. It
is not possible to state the actual effect of any authorization of one or more
series of preferred stock upon the rights of holders of Common Stock until the
Board of Directors of the Company determines the respective rights of the
holders of one or more series of the preferred stock. Such effects might,
however, include: (a) reduction of the amount of funds otherwise available for
payment of cash dividends on Common Stock; (b) restrictions on the payment of
cash dividends on Common Stock; (c) dilution of the voting power of the Common
Stock, to the extent that any series of issued preferred stock has voting rights
or is convertible into Common Stock; and (d) the holders of Common Stock not
being entitled to share in the assets of the Company upon liquidation until
satisfaction of liquidation preferences, if any, in respect of any outstanding
series of preferred stock.
The Board of Directors' ability to approve the issuance of
authorized shares of capital stock might discourage a takeover attempt. To the
extent that issuance of additional shares might impede attempts to acquire a
controlling interest in the Company, the existing authorization of shares of
preferred stock may serve to entrench management. The Company is not aware of
19
<PAGE>
any effort to accumulate its Common Stock or obtain control of the Company by a
tender offer, proxy contest or otherwise, and the Company has no present
intention of using shares of preferred stock for anti-takeover purposes.
As discussed elsewhere herein (see "Management's Discussion
and Analysis of Financial Condition and Results of Operations"), the Company has
issued a promissory note to the seller of Pharmakon and JAC. The promissory note
contains several restrictive covenants limiting certain of the Company's
corporate activities, such as limitations and/or restrictions on: the creation
of liens; the incurrence of indebtedness; the payment of dividends and
distributions; consolidations, mergers and sales of assets; the making of
investments; guarantees; and the creation of subsidiaries.
MARKET FOR REGISTRANT'S COMMON EQUITY
The Company's Common Stock is traded and quoted on the Nasdaq
SmallCap Market under the symbol MEDW. Prior to August 1991, there was no
established trading market for the Company's Common Stock. The table below
indicates the high and low of quoted bid market prices as reported by Nasdaq for
the Company's Common Stock for each quarter during the fiscal years ended June
30, 1995 and 1996, and the first quarter of fiscal 1997.
<TABLE>
<CAPTION>
1st quarter 2nd quarter 3rd quarter 4th quarter
ended 9/30 ended 12/31 ended 3/31 ended 6/30
-------------------- -------------------- -------------------- --------------------
High Low High Low High Low High Low
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997 4 1/8 3 3/4
Fiscal 1996 1 1/8 5/8 1 1/2 7/8 3 5/8 7/8 4 1/4 3
Fiscal 1995 1 3/8 11/16 1 3/8 11/16 1 9/16 13/16 1 1/4 13/16
</TABLE>
Such over-the-counter quotations reflect inter-dealers prices,
without retail mark-ups, mark downs or commissions, and may not represent actual
transactions. The reported trading volume is low.
The Board of Directors of The Nasdaq Stock Market has an
announced proposed changes to its maintenance standards for listing which, if
adopted in the form proposed, would impose a net tangible assets test at the end
of a phase-in period which the Company would not meet without the infusion of
additional capital. The Pacific Stock Exchange, on which the Common Stock is
listed, has informed the Company that the Company will not meet its newly
imposed listing maintenance criteria based on tangible net assets and will be
delisted.
SECURITY OWNERSHIP
The following tables set forth the beneficial ownership of the
Company's Common Stock as of October 31, 1996, by (i) each Selling Shareholder,
(ii) each person who is known by the Company to own beneficially more than 5% of
the Company's Common Stock, (iii) each of the executive officers named in the
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<PAGE>
Summary Compensation Table included elsewhere herein, (iv) each director of the
Company and (v) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Share Ownership by Selling Shareholders
Shares Beneficially Shares Shares Beneficially
Owned Prior to Sale of Being Owned if Registered
Registered Shares Registered Shares are Sold
Name Number %<F1> Number %<F1>
<S> <C> <C> <C> <C> <C>
Oracle Partners, L.P. 575,000 11.6 575,000 0 0
Oracle Institutional 93,000 1.9 93,000 0 0
Partners, L.P.
GSAM Oracle Fund, Inc. 449,736 9.1 449,736 0 0
Medcap I Corp. 123,077 2.5 123,077 0 0
Promed Partners, L.P. 30,769 * 30,769 0 0
The Travelers Insurance 236,110 4.8 236,110 0 0
Company
Soditic Asset Management, 30,769 * 30,769 0 0
S.A.
Bruce Brewster 125,000 2.5 50,000 75,000 1.5
Stephen Gardos and 54,835 1.1 25,025 29,810 *
Barbara Gardos
Chandra Panchmia and 50,000 1.0 50,000 0 0
Sushila Panchmia
Clarion Capital Corp. 100,000 2.0 100,000 0 0
Joseph Delario<F2> 167,685<F3> 3.4 157,769<F4> 84,916 1.7
Douglas N. Thompson 106,819 2.2 50,000 56,819 1.2
Robert Sargenti 63,970 1.3 20,000 43,970 *
James E. Lineberger 54,910 1.1 25,000 29,910 *
Leon Lebensbaum 25,051 * 25,000 51 *
Barbara Delario 40,000 * 40,000 0 0
Mary K. Cabala 10,000 * 5,000 5,000 *
Helen Richards 4,600 * 3,000 1,600 *
- ----------------------------
<FN>
<F1> Based on the number of shares outstanding at October 31, 1996, plus, for
each person or group, shares acquirable within 60 days of October 31,
1996.
<F2> Mr. Delario is a director of the Company.
<F3> Includes 8,197 shares which may be acquired upon exercise of options
granted pursuant to the Plan which are exercisable within 60 days of
October 31, 1996. Does not include 75,000 shares which may be acquired
upon exercise of an option granted in November 1996. See "Certain
Transactions."
<F4> Includes the 75,000 shares referred to in note 3 above.
* Represents less than 1% of the Company's outstanding common stock.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Share Ownership by Principal Shareholders, Directors, Named Executive
Officers and Directors and Executive Officers as a Group
Number of Such Shares
Total Number of Acquirable within Percentage of
Names<F1> and Addresses<F2> Shares Beneficially Owned<F3> 60 Days<F4> Class owned<F5>
- --------------------- -------------------------- ------------------- -------------
<S> <C> <C> <C>
Oracle Partners, L.P., 1,117,736 0 22.6%
Oracle Institutional
Partners, L.P.,
GSAM Oracle Fund, Inc.
Lawrence Auriana<F6> 993,281 712,1997<F7> 17.6%
Jonathan H. Churchill 25,221 8,197 *
Roger Clark 18,702 10,002 *
Les N. Dace 57,500 57,500 1.2%
John Frieberg 40,278 37,778 *
Walter Kowsh, Jr. 39,249 10,002 *
Hans Utsch 106,452 10,002 2.2%
Clinton G. Weiman 834 834 *
John Esposito 51,100 50,000 1.0%
Thomas Mulstay 50,000 50,000 1.0%
All Directors and Executive
Officers as a group 1,552,802 954,711 26.3%
(12 persons)
- ------------------------
<FN>
<F1> For share ownership of Joseph Delario, a director of the Company, see
previous chart.
<F2> Addresses of directors and officers are as follows: Lawrence Auriana:
140 East 45th Street, 43rd Floor, New York, NY 10017. Jonathan
Churchill: One Battery Park Plaza, New York, New York 10004. Roger
Clark: 330 Elm Street, Unit #1, New Canaan, CT 06840. Les Dace: 1600
Green Hills Road, #105, Scotts Valley, CA 95066. Joseph Delario: 77
Independence Way North, Edgewater, NJ 07020. John Frieberg: 4402 South
St. Andrew's Lane, Spokane, WA 99223. Walter Kowsh, Jr.: 64-08 136th
Street, Flushing, NY 11367. Hans Utsch: 140 East 45th Street, 43rd
Floor, New York, New York 10017. Clinton Weiman: 2 Roberta Lane,
Greenwich, CT 06830. John Esposito: 1121 Old Walt Whitman Road,
Melville, NY 11747-3005. Thomas Mulstay: 1121 Walt Whitman Road,
Melville, NY 11747-3005.
<F3> Includes shares which may be acquired by the shareholders upon exercise
of options and warrants which are exercisable within 60 days of October
31, 1996.
<F4> Reflects the shares which may be acquired by the shareholders upon
exercise of options and warrants which are exercisable within 60 days of
October 31, 1996.
<F5> Based on the number of shares outstanding at October 31, 1996, plus, for
each person or group, shares acquirable within 60 days of October 31,
1996.
<F6> Mr. Auriana is also Chairman of the Board, Treasurer and Secretary of
the Company.
<F7> Includes 674,695 warrants which were granted to Mr. Auriana for his
loans to the Company in the bridge financings of the Company in fiscal
1995 and fiscal 1994.
* Represents less than 1% of the Company's outstanding common stock.
</FN>
</TABLE>
22
<PAGE>
DIRECTORS
The Board of Directors is divided into three classes, with each
director to serve a three-year term. The directors of the Company are as
follows:
Class II Directors
(Term Expires at the Annual Meeting Following
the 1996 Fiscal Year)
Joseph Delario, age 62, was President and Chief Executive Officer
of Quadrocom, Inc., a business consulting firm, until December 31, 1992, and
since then has been a business consultant and private investor in and active in
the management of several computer service companies. Mr. Delario provided
financial advisory services to the Company during the Company's last fiscal
year, and the Company proposes to retain such services in the future. See
"Certain Transactions". Mr. Delario received a B.A degree from Fairleigh
Dickenson University in 1956.
Walter Kowsh, Jr., age 47, has been a director since 1990. He is a
consultant programmer specializing in Client/Server database systems. He was a
Senior Programmer Analyst with Brown Bros. Harriman & Co. from 1989 to 1992.
From 1986 to 1989, he was a computer consultant with Howard Systems
International. He received a B.A. degree from Queens College and an M.B.A. from
the New York Institute of Technology, and is a diplomate of New York University
in Computer Programming and Systems Design.
John C. Frieberg, age 62, was President, C.E.O. and Chief
Financial Officer of the Company from 1992 to July 1995, and has been a director
since 1993. Mr. Frieberg joined Digimedics Corporation, which later became a
wholly owned subsidiary of the Company, as President in October 1989. Prior
thereto, he was President of Caelus, Inc., an information system company, from
1988 to 1989; President of Synergy Computer Graphics Corp., a computer
peripheral equipment company, from 1984 to 1988; and President of NCR/DPI Inc.,
a computer systems manufacturing company, from 1972 to 1982. Mr. Frieberg
received a B.S. degree in Industrial Engineering from the University of
California at Los Angeles.
Class III Directors
(Term Expires at the Annual Meeting Following
the 1997 Fiscal Year)
Lawrence Auriana, age 52, has been Chairman of the Board of the
Company since 1986 and a director since 1983. He has been a Wall Street analyst,
money manager and venture capitalist for over 20 years. Since 1986, he has been
Chairman, a director and, together with Mr. Hans Utsch, also a director of the
Company, Portfolio Co-Manager of The Kaufmann Fund, a mutual fund that invests
in small and medium-sized growth companies. He received a B.A. degree from
Fordham University, studied at New York University Graduate School of Business,
and is a senior member of The New York Society of Securities Analysts.
Jonathan H. Churchill, age 64, has been a practicing attorney in
New York City since 1958 and is currently Counsel at Winthrop, Stimson, Putnam &
23
<PAGE>
Roberts. Mr. Churchill was a partner of Boulanger, Hicks, & Churchill, P.C.,
from January 1990 to May 1996. Boulanger, Hicks, & Churchill P.C. and Winthrop,
Stimson, Putnam & Roberts rendered legal services to the Company during the last
fiscal year, and the Company has retained and proposes to retain Winthrop,
Stimson, Putnam & Roberts during the current year. Mr. Churchill received a B.A.
from Harvard College and an L.L.B. from Harvard Law School.
Clinton G. Weiman, M.D., age 71, has been a director since June
1996. From 1961 to January 1993 he was Corporate Medical Director, Senior Vice
President of Citicorp/Citibank. Since January 1996, Dr. Weiman has been
independently engaged as a consultant with the Federal Reserve. From 1956 to
1970 Dr. Weiman was engaged in private practice in New York, New York. Dr.
Weiman received a B.A. degree from Princeton University and a medical degree
from Cornell University Medical College. His appointments have included Clinical
Associate Attending Physician at New York Hospital and Associate Professor,
Clinical Medicine at Cornell University Medical College.
Class I Directors
(Term Expires at the Annual Meeting Following
the 1998 Fiscal Year)
Roger Clark, age 62, has been a director since 1983. From 1980 to
1987, he held a series of managerial positions in the computer products area
with Xerox Corporation. Since 1987, he has been independently engaged as a
micro-computer consultant and programmer. Mr. Clark is the author of seven books
on micro-computing and a director of The Kaufmann Fund.
Hans Utsch, age 58, has been a director since 1985. He has been
independently engaged in money management and investment banking for over 20
years. Since 1986, he has been President and, together with Mr. Lawrence
Auriana, Portfolio Co-Manager of The Kaufmann Fund. He received a B.A. degree
from Amherst College and an M.B.A. from Columbia University.
Les N. Dace, age 50, was appointed President and C.E.O. in July
1995. He joined the Company in November 1992 as General Manager for the
Digimedics and Surgiware Product Centers. Prior thereto, he was Vice President
of Sales and Marketing for PRX Pharmacy Systems, a Colorado- based company
providing hospital pharmacy management systems and home health software
solutions. From 1983 to 1987, he was employed by NBI, Inc. as divisional
President for its computer peripherals and office supplies company. Mr. Dace has
a B.S. degree in Electrical Engineering from the University of Missouri.
There are no family relationships between any of the directors.
The Certificate of Incorporation provides that no director shall
be removed from office except for cause and that the total number of directors
shall not be increased without the vote of at least 80% of the outstanding
shares or by the unanimous resolution of the Board of Directors.
The Certificate of Incorporation and the By-Laws provide that the
respective provisions related to the classified Board structure, i.e., the
number, classification, term of office, quorum for meetings, qualifications,
election and removal of directors and the filling of vacancies and newly created
directorships, may only be amended or repealed (unless an amendment or repeal of
24
<PAGE>
By-Law shall not take effect for three years) by (a) supermajority vote (80%
of the outstanding shares) unless the Board of Directors unanimously recommends
the action or (b), with respect to the By-Laws, by unanimous vote of the entire
Board.
The classified Board structure has the effect of making changes in
control of the Board of Directors more difficult and increases the period of
time required to effect a change in control of the Board of Directors.
Shareholders who do not agree with the policies of the Board would find it more
difficult to replace a majority of directors. The classified Board may also have
the effect of discouraging tender offers and other takeover attempts that many
of the Company's shareholders might deem to be in their best interests, and
could prevent them from benefiting from transactions which the incumbent Board
opposes. Since the classification could have the effect of discouraging
accumulations of large blocks of the Company's stock by purchasers whose
objective would be quickly to obtain control of the Company, it might reduce the
temporary fluctuations in price that such accumulations could cause.
Shareholders might therefore be deprived of an opportunity to sell their shares
at a temporarily elevated market price. The classified board structure would,
however, also deter inadequately priced or coercive tender offers.
Compensation of Directors
It has been the Company's practice, starting in 1987, to conserve
cash by compensating directors for their services primarily through the grant of
stock options and shares of Common Stock. In 1991 a Stock Option Plan for
Non-Employee Directors (the "Plan") was adopted. Under the Plan, options to
purchase 1,667 shares are granted annually on July 1 of each year until 1997 to
each non-employee director of the Company (except for the Chairman, who is to
receive options to purchase 5,000 shares). Options will be exercisable at 100%
of fair market value of the Company's Common Stock on the date of grant, and
payment may be in cash, the Company's Common Stock, or a combination thereof. An
aggregate of 150,000 shares of Common Stock are subject to the Plan. Options
granted under the Plan are not intended to qualify under Section 422 of the
Code.
Pursuant to the Plan, each director in office on July 1, 1995,
received for services as director during the ensuing 1996 fiscal year a grant of
1,667 options (5,000 shares in the case of the Chairman) exercisable at $1.00,
which was the fair market value of the Company's Common Stock on June 30, 1995.
These options vested and became exercisable in equal monthly installments during
fiscal 1996. Also, each director in office on July 1, 1996, received for
services as director for the 1997 fiscal year a grant of 1,667 options (5,000
shares in the case of the Chairman) exercisable at $3.625, which was the fair
market value of the Company's Common Stock on July 1, 1996. These options vest
and become excerisable in equal monthly installments during fiscal 1997.
Each director in office on July 1, 1995 also became entitled to
receive a total of 2,500 shares of Common Stock (7,500 in the case of the
Chairman), issuable on July 1, 1996, for his services during fiscal 1996.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position
Lawrence Auriana.........52 Chairman of the Board and Secretary
25
<PAGE>
Les Dace.................50 President, CEO, CFO and General Manager -
Surgiware
Rodger Wilson............46 Vice President and General Manager - Pharmacy
Division
Thomas Mulstay...........44 Vice President and General Manager - Hemocare
John Esposito............37 Vice President - Sales - Mediware
-------------------
Lawrence Auriana has been Chairman of the Board of the Company
since 1986 and a director since 1983. He has been a Wall Street analyst, money
manager and venture capitalist for over 20 years. Since 1986, he has been
Chairman, a director and, together with Mr. Hans Utsch, also a director of the
Company, Portfolio Co-Manager of The Kaufmann Fund, a mutual fund that invests
in small and medium-sized growth companies. He received a B.A. degree from
Fordham University, studied at New York University Graduate School of Business,
and is a senior member of The New York Society of Securities Analysts.
Les N. Dace was appointed President and C.E.O. in July 1995.
He joined the Company in November 1992 as General Manager for the Digimedics and
Surgiware Product Centers. Prior thereto, he was Vice President of Sales and
Marketing for PRX Pharmacy Systems, a Colorado-based company providing hospital
pharmacy management systems and home health software solutions. From 1983 to
1987, he was employed by NBI, Inc. as divisional President for its computer
peripherals and office supplies company. Mr. Dace has a B.S. degree in
Electrical Engineering from the University of Missouri.
Rodger P. Wilson joined the Company on June 30, 1996 as Vice
President/General Manager of the Pharmacy Division. He was President and Chief
Executive Officer of PRX Pharmacy Systems, Inc., from 1982 to 1992. Mr. Wilson
was Vice President of Operations and Chief Information Officer of Concepts
Direct, Inc., from 1992 to 1996. Mr. Wilson received a B.S. degree from the
University of Wyoming School of Pharmacy and an M.S. degree from the University
of Colorado Graduate School of Pharmacy.
Thomas Mulstay joined the Company as Vice President and was
appointed General Manager, Hemocare in 1992. From 1989 to 1990, he was with
Spectrum Healthcare Solutions, a joint venture of IBM, Inc. and Baxter
Healthcare International, engaged in various sales positions. From 1986 to 1989
Mr. Mulstay was employed by Baxter Healthcare International, first as a Regional
Sales Manager, then Regional Manager, then Regional Vice President. Previously
he was a District Sales Manager at Terrano Corporation, a vendor of laboratory
information systems to hospitals, National Hospital Marketing Manager at Metpath
Laboratory, and a sales representative at Abbott Laboratories.
Mr. Mulstay holds a B.S. degree from Assumption College.
John Esposito joined the Company as Vice President - Sales in
June 1990. From May 1986 to June 1990, he was employed in various sales
positions by the Healthcare Division of Data General Corporation. He is a
two-time member of Data General's Million Dollar Club, and was recognized in May
1990 as Data General's outstanding healthcare sales representative. Prior to
joining Data General, he worked in a technical capacity in the Information
26
<PAGE>
Systems Department at the New York Public Library. He is a graduate of Syracuse
University, with a B.S. degree in Marketing and Management Information Systems.
EXECUTIVE COMPENSATION
The following tables sets forth the compensation of the Chief
Executive Officer of the Company and each of the other most highly compensated
executive officers whose total annual salary and bonus was over $100,000 for the
fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Fiscal Salary Bonus sation Awards Options Payouts sation
Name and Principal Year ($) ($) ($) ($) SARs(#) ($) ($)
Positions<F1> ------- ------- ----- -------- ---------- ---------- ------- --------
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Les N. Dace 1996 110,000 52,560 -- -- 50,000 -- 262
President, CEO and CFO 1995 75,000 60,731 -- -- -- -- 262
1994 75,000 34,426 -- -- 30,000 -- 262
John Esposito 1996 70,000 71,795 -- -- -- -- 262
Vice President, Sales 1995 70,000 50,595 -- -- -- -- 250
1994 70,000 36,183 -- -- 30,000 -- 241
Thomas Mulstay 1996 75,000 130,313 -- -- -- -- 232
Vice President & General 1995 75,000 90,662 -- -- -- -- 215
Manager, Hemocare 1994 75,000 59,011 -- -- 30,000 -- 205
- ------------------------
<FN>
<F1> The amount of salary and bonus for fiscal 1996 for the other executive
officers did not meet the threshold reporting requirement under the
rules of the Commission.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning
options to purchase Common Stock in fiscal 1996 granted to the individuals named
in the Summary Compensation Table. No stock appreciation rights were granted in
fiscal 1996.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Base Price Date
<S> <C> <C> <C> <C>
Les Dace 50,000<F1> 100% $1.00 July 1, 2005
John Esposito -- -- -- --
Thomas Mulstay -- -- -- --
- ------------------------
<FN>
<F1> Options are exercisable 25%, 50%, 75% and 100% on July 1, 1996,
July 1, 1997, July 1, 1998 and July 1, 1999, respectively.
</FN>
</TABLE>
27
<PAGE>
Fiscal 1996 Option/SAR Exercises and Value
of Outstanding Options at June 30, 1996
The following table sets forth options exercised by the named
executive officers during fiscal 1996 and the number and value of options held
by them at June 30, 1996. No stock appreciation rights were granted and there
were no outstanding stock appreciation rights at June 30, 1996. The fair market
value on such date was $3.75 per share.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of
Shares Unexercised Unexercised
Acquired on Value Options at End In-the-Money Options
Name Exercise Realized of Fiscal Year End of Fiscal Year
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Les N. Dace -- -- 45,000 50,000 $112,350 $137,500
John Esposito -- -- 50,000 0 122,300 0
Thomas Mulstay -- -- 50,000 0 122,300 0
</TABLE>
Employment Agreements
Messrs. Dace, Esposito and Mulstay have employment agreements
or understandings with the Company providing for minimum compensation levels of
$110,000, $70,000 and $75,000, respectively, plus bonuses based on percentages
of 5%, 2% and 1%, respectively, of defined gross profits (of the Hemocare
Division in the case of Mr. Mulstay). Additionally, Mr. Mulstay's agreement
provides for additional bonuses based on percentages of additional measures of
performance, such as net profits, gross profit on new sales and reseller sales.
Mr. Esposito and Mr. Mulstay's agreements have non-compete and confidentiality
covenants. All three agreements also provide for grants of stock options and for
three months' (two months' in the case of Mr. Esposito) severance pay in case of
involuntary termination.
1982 Employee Stock Option Plan
In 1982, the Company adopted an employee stock option plan
(the "1982 Plan") for officers and other key employees, not including directors.
Options are non-transferable except in the case of death. Options currently
outstanding under the 1982 Plan generally vest and become exercisable in monthly
installments over a two or three-year period, with each installment remaining
exercisable for a five-year period after it vests. No options intended to be
incentive stock options under the Internal Revenue Code of 1986 ("Code") are
currently outstanding. No options may currently be granted under this Plan. The
expiration of certain options previously granted under this Plan whose terms
would have ended in fiscal 1996 have been suspended pending the satisfaction of
legal requirements preventing their exercise.
1992 Equity Incentive Plan
Awards granted under the 1992 Equity Incentive Plan (the
"Equity Incentive Plan") include a wide range of Common Stock-based awards.
28
<PAGE>
Officers and other management employees of the Company are eligible to
participate in the Equity Incentive Plan. The maximum number of shares of Common
Stock which may be issued under the Equity Incentive Plan at any time is 20% of
the outstanding shares of the Company's Common Stock, except that no more than
500,000 shares may be issued pursuant to incentive stock options. No awards may
be granted after the year 2002. The term of each stock option is to be
determined by the Compensation Committee but may not exceed ten years from the
date of grant. The option price of each stock option is payable in cash, in
shares of the Company's Common Stock, or by a combination thereof. The option
agreements granted to date provide that, in the event of a change of control of
the Company, the exercise of such options may be accelerated by the Committee.
Stock Option Plan for Non-Employee Directors
The Stock Option Plan for Non-Employee Directors is described
above under "Directors - Compensation of Directors."
SHARES ELIGIBLE FOR FUTURE SALE
In the event of the sale of all the shares covered by this Prospectus,
the Company would have 5,014,344 shares of Common Stock outstanding. Of these
shares, the 2,089,255 shares covered by this Prospectus will be freely tradeable
without restriction or further registration under the Securities Act.
Substantially all of the shares of Common Stock of the Company not included in
this Registration Statement were issued more than three years ago. A person who
has not been an affiliate of the Company for at least the three months
immediately preceding a sale and who has beneficially owned shares of Common
Stock for at least three years is entitled to sell such shares under Rule 144
without regard to the volume limitations described below.
A person (or persons whose shares are aggregated under the terms of
Rule 144), including an affiliate of the Company, who has beneficially owned
restricted shares of Common Stock for at least two years is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (a) 1% of the total number of outstanding shares of Common Stock or
(b) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the sale as reported by Nasdaq, subject to certain
restrictions on the manner of sale, notice requirements and public availability
of current information. The directors and officers of the Company, who may be
deemed to be affiliates of the Company for purposes of Rule 144, beneficially
own an aggregate of over 500,000 shares of Common Stock as to which the two-year
period under Rule 144 has been satisfied.
The effect, if any, of public sales of the such shares of Common Stock
or the availability of such shares for future sale on prevailing market prices
cannot be predicted. Nevertheless, the possibility that substantially all
outstanding shares of Common Stock may be resold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
29
<PAGE>
CERTAIN TRANSACTIONS
On November 11, 1996, the Board of Directors of the Company adopted an
arrangement whereby Joseph Delario would receive options to purchase 75,000
shares of Common Stock, subject to shareholder approval at the 1996 annual
meeting of shareholders. The options will vest and become exercisable as
follows: Options to purchase 25,000 shares will vest on November 1, 1997,
options to purchase an additional 25,000 shares will vest on November 1, 1998,
and options to purchase the final 25,000 shares will vest on November 1, 1999.
The options will remain exercisable until November 1, 2001, unless earlier
terminated. The exercise price is $3.50 per share, the closing market price of
shares of Common Stock on November 8, 1996. In the event of a transaction
constituting a change of control of the Company (including a change of control
occurring within six months of termination of management and financial services
or twelve months of death or incapacity), all outstanding options would become
exercisable.
In 1991, the Company agreed with Bowling Green Securities, Inc., an
investment banking firm owned by Mr. Utsch and in which Messrs. Auriana and
Utsch are principals, and with Mr. Delario, who became a director of the Company
in 1992, that such firm and Mr. Delario would render investment banking advice
to the Company and that, if any merger, acquisition, divestiture or analogous
transaction is successfully consummated as a result of their efforts, the
Company would pay a total fee related to the value of the company acquired or
divested on the basis of 5% of the first $2 million, 4% of the second $2
million, 3% of the third $2 million, 2% of the fourth $2 million and 1% of any
additional amounts. In connection with the Acquisition by Digimedics
Corporation, a wholly owned subsidiary of the Company, from Continental of
Continental's Pharmakon division and JAC for a consideration of $10,000,000, and
the related financing, Mr. Delario became entitled to a fee of $150,000, which
he agreed at the Company's request to accept in the form of 46,153 shares of the
Company's Common Stock. Bowling Green waived payment of any fee. Mr. Delario has
terminated his future participation in this agreement in light of the
arrangements specified in the previous paragraph.
See also "Plan of Distribution."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article X of the Company's by-laws as amended provides that the Company
will indemnify to the fullest extent permitted by the New York Business
Corporation Law (the "NYBCL") any officer or Director of the Company. Article X
of the Company's by-laws further requires the advancement of expenses and
permits the maintenance of insurance in connection with claims for
indemnification by officers and Directors. Other provisions of Article X contain
procedures to be followed by Directors and officers claiming indemnification and
by the Company's representatives in determining an indemnitee's entitlement. The
indemnification of officers and Directors under Article X of the Company's
by-laws is intended to be as extensive as is permitted under applicable law. No
statute, charter provisions, by-laws, contract or other arrangements that
insures or indemnifies a Director or officer of the Company affects his or her
liability in such capacity.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
30
<PAGE>
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
This Prospectus may be used by the Selling Shareholders who
may wish to sell shares of Common Stock covered by this Prospectus from time to
time, with the consent by the Company, under circumstances requiring or making
desirable its use. The Selling Shareholders comprise certain of the shareholders
who have received, or who will receive, shares of the Common Stock as described
in the following two paragraphs.
In 1995 and 1994, in connection with bridge financings
utilized by the Company to finance its operations, the Company issued promissory
notes to several persons, including directors of the Company. 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 warrants to purchase
129,695 shares of common stock for $1.25 per share, exercisable through
September 30, 2004, which the Company agreed to register under the Act. During
May 1996, 495,025 of the $0.50 warrants were exercised for 495,025 shares of
Common Stock (including warrants held by a director of the Company). 445,025 of
such shares are included in this Registration Statement. In November 1996, the
Company issued options to purchase 75,000 shares of Common Stock to Joseph
Delario, a director of the Company. See "Certain Transactions." All of the
shares issuable upon exercise of such options are also included in this
Registration Statement.
At the time of the financing of the Acquisition on June 17,
1996, whereby a wholly owned subsidiary of the Company acquired JAC and certain
assets of Pharmakon from Continental Healthcare Systems, Inc., the Company
issued an aggregate of 1,692,308 shares of Common Stock to nine persons
(including the Chairman of the Company, who purchased 138,462 of these shares)
and entities in a private placement exempt from registration pursuant to
Regulation D under the Act, which the Company agreed to register under the Act.
In connection with the Acquisition and the related financing, the Company also
issued 61,537 shares of Common Stock as fees, which the Company agreed to
register under the Act. 1,569,230 of such shares are included in this
Registration Statement.
The Company's consent to use of this Prospectus by the Selling
Shareholders may be conditioned upon such terms and conditions as the Company,
in its sole discretion, may determine, including, without limitation, such
persons' or entities' agreeing not to offer more than a specified number of
shares during a particular period of time or agreeing that any such offering be
effected in an organized manner through registered securities dealers.
Sales of shares of Common Stock by persons or entities other
than the Company by means of this Prospectus may be made from time to time
privately at negotiated prices or publicly in one or more transactions (which
may involve crosses or block transactions) on the Nasdaq Smallcap Market
("Nasdaq") or otherwise, in special offerings, sales pursuant to Rule 144 under
the Securities Act of 1933 (the "Act"), exchange distributions or secondary
distributions pursuant to and in accordance with the rules of Nasdaq, or a
combination of such methods of sale, at prices at or reasonably related to
market prices at the time of sale or at negotiated prices. The Selling
Shareholders may effect such transactions by selling shares to or through
broker-dealers, which may act as agent or as principal and, when acting as
31
<PAGE>
agent, may receive commissions from the purchasers as well as from the sellers
(if also acting as agent for the purchasers). Selling Shareholders and brokers
or dealers selling shares of Common Stock for Selling Shareholders or purchasing
such shares for purposes of resale may be deemed to be underwriters under the
Act, and any compensation received by any of them may be deemed underwriting
compensation (which compensation may be in excess of customary commissions). The
Company will not receive any of the proceeds of the sale of shares of Common
Stock by any such person.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain
other legal matters will be passed upon for the Company by Winthrop, Stimson,
Putnam & Roberts, One Battery Park Plaza, New York, New York 10004. Jonathan H.
Churchill, a counsel of such firm, owns 17,024 shares of Common Stock and
options to purchase 9,030 shares of Common Stock.
EXPERTS
The audited financial statements of the Company for the fiscal
year ended June 30, 1996 and June 30, 1995 included in this Prospectus have been
audited by the firm of Richard A. Eisner & Company, L.L.P., independent
auditors, as set forth in their report appearing herein, and are included herein
in reliance upon the report of said firm given upon their authority as experts
in accounting and auditing.
32
<PAGE>
FINANCIAL STATEMENTS
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-1
CONSOLIDATED BALANCE SHEET AS AT
JUNE 30, 1996 F-2
CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1996 AND JUNE 30, 1995 F-3
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY FOR THE YEARS
ENDED JUNE 30, 1996 AND JUNE 30,
1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND
JUNE 30, 1995 F-5
NOTES TO FINANCIAL STATEMENTS F-6
THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED):
CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1996 (UNAUDITED) F-17
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 F-18
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 F-19
NOTES TO (UNAUDITED) FINANCIAL STATEMENTS F-20
33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
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 at June 30, 1996 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, 1996. 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 at June 30, 1996 and the
results of their operations and their cash flows for each of the years in the
two-year period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
- ------------------------------------
New York, New York
August 23, 1996
With respect to Note E(1)
October 28, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
A S S E T S
(Note E)
Current assets:
<S> <C>
Cash and cash equivalents (Note G) .......................................... $ 2,504,000
Accounts receivable, less estimated doubtful accounts
of $188,000 (Note A) ...................................................... 3,509,000
Current portion of contract installment receivable
(Note A)................................................................... 252,000
Inventories (Note A)......................................................... 208,000
Prepaid expenses and other current assets ................................... 166,000
-----------------
Total current assets ................................................. 6,639,000
Long-term contract installments receivable, less current
portion (Note A)............................................................. 155,000
Fixed assets, at cost, less accumulated depreciation of
$1,364,000 (Notes A and C)................................................... 576,000
Capitalized software costs (Notes A and D)...................................... 1,012,000
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $372,000
(Notes A and B) ............................................................. 6,737,000
Other assets ................................................................... 38,000
-----------------
T O T A L............................................................. $ 15,157,000
=================
L I A B I L I T I E S
Current liabilities:
Accounts payable............................................................. $ 483,000
Accrued expenses and other current liabilities (Note F)...................... 1,775,000
Advances from customers (Note A)............................................. 1,379,000
Current portion of capital leases payable ................................... 15,000
Notes payable (Note E)....................................................... 1,451,000
-----------------
Total current liabilities............................................. 5,103,000
Notes payable, less current portion (Note E).................................... 5,728,000
Capital leases payable, less current portion ................................... 43,000
-----------------
Total liabilities..................................................... 10,874,000
-----------------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY
(Note G)
Common stock - $.10 par value; authorized 12,000,000
shares; 4,931,320 shares issued and outstanding ............................. 493,000
Additional paid-in capital ..................................................... 13,419,000
(Deficit)....................................................................... (9,629,000)
-----------------
Total stockholders' equity ........................................... 4,283,000
-----------------
T O T A L............................................................. $ 15,157,000
=================
The accompanying notes to financial
statements are an integral part
hereof.
</TABLE>
F-2
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
1996 1995
------ -----
Revenues:
System sales..................................$ 5,781,000 $ 3,824,000
Services...................................... 4,651,000 4,255,000
--------------- -------------
Total revenues.......................... 10,432,000 8,079,000
---------------- -------------
Costs and expenses:
Cost of systems............................... 2,023,000 1,236,000
Cost of services.............................. 1,403,000 1,240,000
Purchased research and development
(Note B).................................... 3,891,000
Software development costs.................... 1,438,000 1,387,000
Selling, general and administrative........... 4,966,000 4,136,000
Arbitration (income) (Note H)................. (208,000)
--------------- -------------
13,721,000 7,791,000
Earnings (loss) before interest income
and expense................................... (3,289,000) 288,000
Interest income.................................. 14,000 51,000
Interest (expense)............................... (216,000) (249,000)
--------------- -------------
NET EARNINGS (LOSS)..............................$ (3,491,000) $ 90,000
=============== =============
Earnings (loss) per share (Note A)...............$ (1.24) $ .04
=============== =============
Weighted average number of common and common
equivalent shares............................. 2,817,405 2,569,447
=============== =============
The accompanying notes to financial
statements are an integral part
hereof.
F-3
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-in
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance - July 1,
1994........................ 2,521,743 $ 252,000 $ 8,083,000 $ (6,228,000) $ 2,107,000
Release of escrow
shares...................... 74,667 8,000 43,000 51,000
Issuance of
warrants.................... 21,000 21,000
Net earnings................... 90,000 90,000
------------ ------------ -------------- -------------- --------------
Balance - June 30,
1995........................ 2,596,410 260,000 8,147,000 (6,138,000) 2,269,000
Shares issued to
nonemployee
directors................... 86,040 9,000 86,000 95,000
Exercise of
warrants.................... 495,025 49,000 198,000 247,000
Shares issued in
connection with
private
placement
(Note G).................... 1,723,076 172,000 4,891,000 5,063,000
Shares issued as
fees for
acquisitions
(Note B).................... 30,769 3,000 97,000 100,000
Net (loss)..................... (3,491,000) (3,491,000)
------------ ------------ -------------- -------------- --------------
BALANCE - JUNE 30,
1996........................ 4,931,320 $ 493,000 $ 13,419,000 $ (9,629,000) $ 4,283,000
============ ============ ============== ============== ==============
The accompanying notes to financial
statements are an integral part
hereof.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1996 1995
------ -----
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss)............................................................ $ (3,491,000) $ 90,000
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Shares issued to nonemployee directors..................................... 95,000
Provision for doubtful accounts............................................ 162,000 128,000
Depreciation and amortization.............................................. 709,000 735,000
Purchased research and development......................................... 3,891,000
Proceeds from contract installments receivable............................. 20,000 7,000
Changes in operating assets and liabilities, net
of effects from purchase of Pharmakon & JAC:
(Increase) in accounts receivable...................................... (640,000) (314,000)
(Increase) in inventories.............................................. (53,000) (13,000)
(Increase) decrease in prepaid and other assets........................ (28,000) 14,000
Increase (decrease) in accounts payable,
accrued expenses and customer advances............................... 665,000 (406,000)
--------------- ----------------
Net cash provided by operating activities............................ 1,330,000 241,000
--------------- ----------------
Cash flows from investing activities:
Acquisitions of fixed assets................................................... (127,000) (101,000)
Capitalized software costs..................................................... (496,000) (356,000)
Purchase of Pharmakon and JAC, net of cash acquired............................ (3,893,000)
---------------
Net cash (used in) investing activities.............................. (4,516,000) (457,000)
--------------- ----------------
Cash flows from financing activities:
Proceeds from note payable and warrants........................................ 334,000
Repayment of debt.............................................................. (129,000) (23,000)
Proceeds from exercise of warrants............................................. 247,000
Proceeds from private placement................................................ 5,063,000
---------------
Net cash provided by financing activities............................ 5,181,000 311,000
--------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,995,000 95,000
Cash and cash equivalents - beginning of period................................... 509,000 414,000
--------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD......................................... $ 2,504,000 $ 509,000
=============== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 64,000 $ 47,000
Income taxes............................................................... 6,000 3,000
Noncash transactions:
Shares released from escrow, recorded as additional
purchase price........................................................... 51,000
Equipment acquired with capital leases..................................... 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
=================
The accompanying notes to financial
statements are an integral part
hereof.
</TABLE>
F-5
<PAGE>
(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.
As discussed in Note E, the Company has $5,728,000 of long-term debt which is
due on August 1, 1997. The Company will have to refinance this indebtedness.
There is no assurance that it will be able to do so on acceptable terms.
[1] Cash equivalents:
The Company considers all highly liquid short-term investments
with a maturity of three months or less to be cash equivalents.
[2] Revenue recognition:
Revenue from the sale of systems is recognized upon delivery,
although payment may be due upon completion of other contractual obligations.
Service revenue is recognized on a straight-line basis over the life of the
service agreements.
[3] Long-term contract installments receivable:
Contract installments receivable arising from sales of systems
with extended payment terms bear interest at rates from 7% to 16% and are due in
monthly installments through 1999.
[4] 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.
[5] 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.
F-6
<PAGE>
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[6] 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 $956,000 and $951,000 for the years ended June 30,
1996 and June 30, 1995, respectively. Software development costs reported on the
consolidated statements of operations include amortization (Note D).
[7] 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 acquisition of Digimedics, Pharmakon and JAC, is being
amortized on a straight-line basis over twenty years.
[8] 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.
[9] Earnings (loss) per share:
Earnings (loss) per share are based on the weighted average
number of shares outstanding during each year.
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.
F-7
<PAGE>
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[11] Change in accounting principle and recently issued accounting
pronouncements:
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 121 requires, among
other things, that entities identify events or changes in circumstances which
indicate that the carrying amount of an asset may not be recoverable. SFAS 123
requires, among other things, that companies establish a fair value based method
of accounting or disclosure for stock-based compensation plans. These statements
are effective for the Company's fiscal year commencing July 1, 1996. The Company
believes that adoption of SFAS 121 and SFAS 123 will not have a material impact
on its financial statements. The Company expects to continue to account for
employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," using intrinsic
values with appropriate disclosures using the fair value based method. The
Company has not elected to adopt SFAS 123 early.
(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"). 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. Digimedics also incurred
acquisition costs of $238,000 in cash (of which approximately $26,000 was to a
related party) and issued 30,769 shares of common stock as a fee valued at
$100,000 to related parties.
F-8
<PAGE>
(NOTE B) - Acquisitions: (continued)
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:
Purchase price:
Cash.................................... $ 3,666,000
Note payable............................ 6,000,000
Costs of acquisition.................... 338,000
------------------
T o t a l........................ $ 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
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 of consolidated operations, based on the original agreement,
assuming the acquisition of Pharmakon and JAC has taken place on July 1, 1994:
Year Ended June 30,
1996 1995
-------------------- ------------
(Unaudited)
Revenue.............. $ 18,965,000 $ 17,526,000
==================== ====================
Net income........... $ 26,000 $ 37,000
==================== ====================
Earnings per share... $ .01 $ .01
==================== ====================
F-9
<PAGE>
(NOTE B) - Acquisitions: (continued)
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
is to be paid approximately $1,237,000 plus 30% of amounts collected for
performing the foregoing services.
(NOTE C) - Fixed Assets:
Fixed assets consist of the following as at June 30, 1996:
Computer, machinery, and office
equipment.......................... $ 1,614,000
Furniture................................... 310,000
Leasehold improvements...................... 16,000
------------
T o t a l......................... 1,940,000
Less accumulated depreciation............... 1,364,000
-----------
B a l a n c e..................... $ 576,000
===========
(NOTE D) - Capitalized Software Costs:
June 30,
1996 1995
Balance, beginning of year
(net of accumulated amortization).... $ 998,000 $ 1,079,000
Additions............................... 496,000 356,000
Amortization............................ (482,000) (437,000)
--------------- ---------------
Balance, end of year (net of
accumulated amortization)............ $ 1,012,000 $ 998,000
=============== ================
F-10
<PAGE>
(NOTE E) - Notes Payable:
At June 30, 1996 the Company has outstanding notes payable as follows:
Promissory note issued in connection with the
acquisition of Pharmakon and JAC (the
"Acquisition Note") (Note B) bearing interest
at Citibank N.A.'s base rate 8.25% at June 30,
1996 payable monthly commencing July 31, 1996,
due on or before November 30, 1996,
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).................................... $ 6,000,000
Notes issued during the years ended June 30, 1995
and June 30, 1994, bearing interest at 12% per
annum, due on or before August 1, 1997,
collateralized by the trade accounts
receivable of Digimedics which has a balance
at June 30, 1996 of $1,069,000, net of
estimated doubtful accounts of $66,000,
(including $804,000 issued to directors) (2)....... 1,179,000
-----------
7,179,000
Less current maturities................................... 1,451,000
-----------
$ 5,728,000
===============
(1) On October 28, 1996 the promissory note was amended to provide for an
extension of the due date to August 1, 1997. The extension agreement
provides 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 with the original rate
remaining for $1,237,000. The agreement provides for the monthly
payments to be first applied to the interest on the portion of the loan
subject to the original rate. The remainder is to be applied to the
interest, then principal, of the loan subject to 15%. As a result of
this amendment, $4,549,000 of this liability is classified as long-term
debt.
F-11
<PAGE>
(NOTE E) - Notes Payable: (continued)
(2) These notes are subordinated to the acquisition note. 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. The Company recorded debt discount and additional paid-in
capital. The debt discount was expensed in prior years since the notes
were initially due prior to the current fiscal year. During May 1996,
495,025 of the $0.50 warrants were exercised.
(NOTE F) - Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities consist of the following at June
30, 1996:
Wages and related benefits........................$ 562,000
Private placement costs........................... 282,000
Interest.......................................... 312,000
Acquisition costs................................. 133,000
Other............................................. 486,000
-----------
T o t a l................................$ 1,775,000
===========
(NOTE G) - Stockholders' Equity:
[1] Stock options and warrants:
Pursuant to the Company's Stock Option Plan (the "Plan") the
number of shares reserved for issuance is equal to the lower of twenty percent
of the outstanding shares of common stock or 500,000 shares. 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 107,772
additional options may be issued under this plan.
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 and 60,685 additional options may be granted under 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.
F-12
<PAGE>
(NOTE G) - Stockholders' Equity: (continued)
[1] Stock options and warrants: (continued)
The following table sets forth summarized information
concerning the Company's stock options:
Number of
Shares Exercise Price
Outstanding - July 1, 1994............... 622,266 $1.00 - $5.25
Options granted.......................... 35,004 $1.00 - $1.19
Options canceled......................... (78,705) $1.00 - $1.76
----------
Outstanding - June 30, 1995.............. 578,565 $1.00 - $5.25
Options granted.......................... 80,002 $1.00 - $1.76
Options canceled......................... (56,893) $1.00 - $1.76
----------
Outstanding - June 30, 1996.............. 601,674 $1.00 - $5.25
==========
Exercisable.............................. 438,060 $1.00 - $5.25
==========
The Company had outstanding warrants for the purchase of
87,000 shares of its common stock at $5.775 per share which expired on August 5,
1996. The Company also 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).
[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 net proceeds of approximately $5,063,000 after expenses
totaling approximately $437,000 (of which approximately $65,000 was to a related
party). The Company also issued 30,768 shares to related parties as a placement
fee valued at $100,000.
F-13
<PAGE>
(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:
Year Ending
June 30,
1997 . . . . . . . . . . . . . . . . $ 477,000
1998 . . . . . . . . . . . . . . . . 487,000
1999 . . . . . . . . . . . . . . . . 228,000
2000 . . . . . . . . . . . . . . . . 174,000
2001 . . . . . . . . . . . . . . . . 153,000
Thereafter . . . . . . . . . . . . . 101,000
--------
T o t a l. . . . . . . . . $1,620,000
==========
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, 1996 and June 30, 1995
aggregated $213,000 and $212,000, respectively.
[2] Software license agreement:
In September 1990, the Company entered into an agreement to
acquire a perpetual exclusive license for a computerized information system for
hospital operating rooms for $750,000. In addition to the purchase price, the
Company was required to pay royalties of 5% to 15% of sales of the product. To
maintain exclusivity, the Company was required to pay cumulative royalty
payments of $675,000, by September 1995 ($375,000 by September 1994 and an
additional $300,000 by September 1995).
Subsequently, the licensor asserted a variety of breach of
contract and other violations of the agreement and commenced an arbitration
proceeding in June 1992. On November 7, 1994 the arbitral panel rendered an
award confirming the Company's exclusivity for its Surgiware product, and its
license for another hospital scheduling software product developed by the
licensor. The award also established December 31, 1994 as the due date for the
Company to make the payment of $375,000 due September 1994 to retain its
exclusivity.
F-14
<PAGE>
(NOTE H) - Commitments and Contingencies: (continued)
[2] Software license agreement: (continued)
During the fourth quarter of the year ended June 30, 1994 the
Company expensed costs of $1,222,000 in connection with the arbitration. Such
costs included $208,000 which the Company intended to pay to the licensor to
retain exclusivity; the balance is principally legal fees and expenses in
connection with the arbitration. During the year ended June 30, 1995 the Company
elected not to make the payments required to maintain exclusivity. Accordingly,
the liability recorded in the prior year was reversed.
[3] Release of common shares held in escrow:
On November 10, 1994 the Company was informed by the Superior
Court of California that it would be required to release 74,667 shares of its
common stock, which were being held in escrow, to former stockholders of
Digimedics Corporation, a wholly owned subsidiary. Upon releasing the shares the
Company increased its number of common shares outstanding and, accordingly,
recorded additional capital and increased the excess of cost over fair value of
net assets acquired, by approximately $51,000 which is being amortized over the
remaining life of such asset.
[4] Other matters:
Substantially all of the Company's cash is on deposit at a
major metropolitan bank.
(NOTE I) - Income Taxes:
At June 30, 1996 the Company has available net operating loss
carryforwards to reduce future federal taxable income of approximately
$7,500,000 which is limited as to the amount which may be used in any one year.
At June 30, 1996 the Company also has available general business tax credit
carryforwards to reduce future current federal income tax expense of
approximately $321,000. The net operating loss carryforwards and business tax
credit carryforwards expire in various amounts through 2009 and 2011,
respectively.
SFAS 109 requires the recognition of deferred tax assets and
liabilities for both the expected future tax impact of differences between the
financial statements and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. SFAS 109 additionally requires the establishment of a valuation
allowance to reflect the likelihood of realization of deferred tax assets. At
June 30, 1996 the Company has total deferred tax liabilities of approximately
$396,000 and total deferred tax assets of approximately $5,034,000. The Company
has recorded a valuation allowance for the amount by which deferred tax assets
exceed deferred tax liabilities and, as a result, the Company has not reported
any liability or asset for deferred taxes at June 30, 1996.
F-15
<PAGE>
(NOTE I) - Income Taxes: (continued)
The major deferred tax asset (liability) items at June 30,
1996 are as follows:
Net operating loss carryforwards............$ 3,019,000
Business tax credit carryforwards........... 321,000
Software cost capitalization................ (396,000)
Purchased research and development.......... 1,551,000
Other....................................... 143,000
--------------
4,638,000
Valuation allowance........................................... (4,638,000)
--------------
$ - 0 -
=============
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:
Year Ended June 30,
1996 1995
Income tax provision (benefit) -
statutory rate..........................$ (1,187,000) $ 30,000
Provision for state income taxes
(benefit) - net of federal
benefit (expense)....................... (187,000) 7,000
(Reduction) increase in valuation
allowance on deferred tax assets........ 1,374,000 (37,000)
--------------- ---------------
$ - 0 - $ - 0 -
=============== ==============
F-16
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1996
(unaudited)
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 2,314,000
Accounts receivable, less estimated doubtful accounts of $230,000 at
September 30, 1996 5,121,000
Current portion of contract installment receivable 243,000
Inventories 69,000
Prepaid expenses and other current assets 220,000
-------------------
Total current assets 7,967,000
Long-term contract installments receivable, less current portion 101,000
Fixed assets, at cost, less accumulated depreciation of $1,384,000 at 603,000
September 30, 1996
Capitalized software costs 1,060,000
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $470,000 at September 30, 1996 6,639,000
Other assets 164,000
TOTAL $ 16,534,000
====================
LIABILITIES
Current liabilities:
Accounts payable $ 520,000
Accrued expenses and other current liabilities 2,458,000
Advances from customers 1,579,000
Current portion of capital leases payable 20,000
Notes payable 7,179,000
Total current liabilities 11,756,000
Capital leases payable, less current portion 37,000
-------------------
Total liabilities 11,793,000
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; 494,000
4,939,344 shares issued and outstanding
Additional paid-in capital 13,430,000
Accumulated Deficit (9,183,000)
Total stockholders' equity 4,741,000
TOTAL $ 16,534,000
===================
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
September
1996 1995
------------------ -----------------
Revenues:
<S> <C> <C>
System sales $ 1,818,000 $ 1,532,000
Services 2,541,000 986,000
----------------- -----------------
Total revenues 4,359,000 2,518,000
Costs and expenses:
Cost of systems 775,000 437,000
Cost of services 774,000 448,000
Software development costs 605,000 341,000
Selling, general and administrative 1,606,000 954,000
----------------- -----------------
3,760,000 2,180,000
----------------- -----------------
Earnings before interest and taxes
599,000 338,000
Interest income 27,000 --
Interest (expense) (161,000) (60,000)
----------------- -----------------
Earnings before Taxes $ 465,000 $ 278,000
Provision for Income Taxes 19,000 --
NET EARNINGS $ 446,000 $ 278,000
================= =================
Earnings per share $ 0.08 $ 0.08
Weighted average number of common and
common equivalent shares 5,848,764 3,933,200
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
September 30,
1996 1995
----------------------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 446,000 $ 278,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for doubtful accounts 42,000 15,000
Depreciation and amortization 230,000 203,000
Issuance of common stock as directors' fee 64,000
Proceeds from contract installments receivable 63,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,654,000) (535,000)
Decrease (Increase) in inventory 139,000 (63,000)
(Increase) in prepaid and other assets (180,000) (35,000)
Increase in accounts payable, accrued expenses and
customer advances 919,000 399,000
---------------- ---------------
Net cash provided by operating activities 5,000 326,000
---------------- ---------------
Cash flows from investing activities:
Acquisitions of fixed assets (47,000) (100,000)
Capitalized software costs (160,000) (92,000)
---------------- ---------------
Net cash (used in) investing activities (207,000) (192,000)
---------------- ---------------
Cash flows from financing activities:
Common stock issued 12,000
Repayment of long-term debt (1,000)
Net cash provided by (used in) financing activities 12,000 (1,000)
---------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH (190,000) 133,000
EQUIVALENTS
Cash and cash equivalents, beginning of period 2,504,000 509,000
---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,314,000 $ 642,000
================ ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 144,000 $ 21,000
Income taxes $ 9,000 $ 3,000
</TABLE>
F-19
<PAGE>
Mediware Information Systems, Inc., & Subsidiary
Notes to Unaudited Financial Statements
1. Financial Statements:
In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments (consisting only of
normal recurring 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 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 and notes thereto for the year
ended June 30, 1996 included in the Company's annual report filed on Form 10-KSB
and elsewhere herein.
The results of operations for the three months ended September 30, 1996
are not necessarily indicative of the results to be expected for the entire
fiscal year.
2. Earnings Per Share:
Earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each period. Common share equivalents
relating to shares which may be issued upon exercise of stock options and
warrants are included in the computation when the results are dilutive.
3. Income Taxes:
The tax expense is minimal due to the carry forward benefit from the net
operating loss.
4. Related Party Transactions:
During the three months ended September 30, 1996 the Company incurred
legal fees of approximately $57,000 with a firm of which a director of the
Company is counsel, primarily relating to the acquisition of Pharmakon and JAC.
In the same period the Company incurred $21,132 of interest expense on notes
held by a director.
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article X of the Company's by-laws as amended provides that the Company
will indemnify to the fullest extent permitted by the New York Business
Corporation Law (the "NYBCL") any officer or Director of the Company. Article X
of the Company's by-laws further requires the advancement of expenses and
permits the maintenance of insurance in connection with claims for
indemnification by officers and Directors. Other provisions of Article X contain
procedures to be followed by Directors and officers claiming indemnification and
by the Company's representatives in determining an indemnitee's entitlement. The
indemnification of officers and Directors under Article X of the Company's
by-laws is intended to be as extensive as is permitted under applicable law. No
statute, charter provisions, by-laws, contract or other arrangements that
insures or indemnifies a Director or officer of the Company affects his or her
liability in such capacity.
ss.721-726 of the NYBCL provides authorization for broad indemnification
of directors and officers by New York corporations. ss.721 of the NYBCL provides
that rights granted to officers and directors pursuant to the NYBCL shall not be
deemed exclusive of any other rights which a director or officer may have by
specific corporate authorization, except that a corporation may not, by the
certificate of incorporation or the by-laws, indemnify a director or officer for
acts that were committed in bad faith or were the result of deliberate
dishonesty. A director or officer may, however, still be indemnified for such
acts by separate contract or by other law. ss.722 of the NYBCL is the operative
section of the statute that contains the broad grant of authority for
corporations to indemnify directors and officers for losses and expenses,
including attorneys' fees. ss.723 of the NYBCL provides that a person who has
been successful in the defense of a civil or criminal action or proceeding as an
officer or director of a corporation shall be entitled to indemnification even
if indemnification was not specifically authorized by the corporation. ss.724 of
the NYBCL provides that a person who is entitled to indemnification pursuant to
ss. 723 may seek such indemnification in court. ss.725 of the NYBCL provides
that expenses which were advanced to a person in defending a civil or criminal
action in connection with services performed as an officer and director shall be
returned if it is ultimately determined that such person was not entitled to
indemnification.
Item 25. Other Expenses of Issuance and Distribution.
Description Amount(1)
Securities and Exchange Commission filing fee .................... $ 2,522
Printing and engraving ............................................ 5,000
Legal Services .................................................... 19,000
Accounting Services ............................................... 8,000
Miscellaneous ..................................................... 5,478
-----
Total(1) .......................................................... $40,000
======
- ---------------------
(1) All fees are estimated except for the Securities and Exchange Commission
filing fee.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Company sold securities that were
not registered under the Securities Act of 1933 (the "Securities Act") in the
transactions described below.
Between December 13, 1993 and March 2, 1994, in connection with a
bridge financing utilized by the Company to finance its operations, the Company
issued promissory notes in the aggregate principal amount of $495,025 to ten
individuals, including a director of the Company, accompanied by warrants to
purchase 495,025 shares of Common Stock for $0.50 per share. From July 15, 1993
through August 22, 1994, also in connection with the bridge financing, the
Company issued promissory notes in the aggregate principal amount of $545,000 to
the Chairman of the Company, accompanied by warrants to purchase 545,000 shares
of common stock for $0.50 per share, and on February 15 and May 11 of 1995, in
connection with a second bridge financing, the Company issued promissory notes
in the aggregate principal amount of $259,390 to the Chairman, accompanied by
warrants to purchase 129,695 shares of common stock for $1.25 per share. All of
the above warrants are exercisable through September 30, 2004. All of such
issuances were exempt from registration pursuant to Section 4(2) under the
Securities Act of 1933.
On May 8, 1996, the Company issued 495,025 shares of Common Stock
pursuant to the exercise by warrantholders of 495,025 of the above-mentioned
warrants at $0.50 per share. Total proceeds to the Company were $247,512. The
issuance was exempt from registration pursuant to Section 4(2) under the
Securities Act of 1933. No underwriting discounts or commissions were paid as a
result of this issuance.
On June 17, 1996, in connection with the financing of an
acquisition, the Company issued an aggregate of 1,692,308 shares of Common Stock
to a total of nine persons (including the Chairman of the Company) and
institutional investors for $3.25 per share, in a private placement exempt from
registration pursuant to Regulation D under the Securities Act of 1933. The
total net proceeds to the Company were $5,063,000. Smith Barney Inc. was paid a
placement fee of $300,000. Also on June 17, 1996, in connection with such
acquisition financing, the Company issued 61,537 shares of Common Stock to two
individuals, including a director of the Company as fees for services rendered,
which issuance was exempt from registration pursuant to Section 4(2) under the
Securities Act of 1933.
Item 27. Exhibits
An Exhibit Index, containing a list of all exhibits to this
registration statement, commences on page II-5.
Item 28. Undertakings
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
II-2
<PAGE>
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director,officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Scotts
Valley and State of California, on the 18th day of December, 1996.
MEDIWARE INFORMATION SYSTEMS, INC.
By:/s/ Les Dace
--------------------------------
Les N. Dace
President and CEO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Les Dace
- ------------------------------------- President, CFO & CEO December 18, 1996
(Les Dace) Director (Principal Executive
Officer, Principal Financial
Officer and Principal
Accounting Officer)
/s/ Lawrence Auriana Chairman of the Board and December 18, 1996
- ------------------------------------- Director
(Lawrence Auriana)
* Jonathan H. Churchill
- ------------------------------------- Director December 18, 1996
(Jonathan H. Churchill)
* Roger Clark
- -------------------------------------- Director December 18, 1996
(Roger Clark)
* Joseph Delario
- ------------------------------------- Director December 18, 1996
(Joseph Delario)
* John C. Frieberg
- ------------------------------------- Director December 18, 1996
(John C. Frieberg)
- ------------------------------------- Director
(Walter Kowsh, Jr.)
/s/ Hans Utsch
- ------------------------------------- Director December 18, 1996
(Hans Utsch)
* Clinton Weiman
- ------------------------------------- Director December 18, 1996
(Clinton Weiman)
* By Les Dace
- --------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Certificate of Incorporation Incorporated by Reference
to Exhibit No. 4 to the
Registration Statement
(the "1996 Registration
Statement") on Form S-8
(File No. 333-7591)
3.2 By-laws *
5 Opinion of Winthrop, Stimson, Putnam &
Roberts
10.1 Agreement between the Company and **
Intellimed Corporation dated September 25,
1990
10.3.1 Asset Purchase Agreement dated June 17, ***
1996 among Digimedics Corporation and
Continental Healthcare Systems, Inc. and
Information Handling Services Group, Inc.
10.3.2 Stock Purchase Agreement dated June 17, ***
1996 among Digimedics Corporation and
Holland America Investment Corporation and
Information Handling Services Group, Inc.
10.3.3 Amended and Restated Secured Promissory *
Note of Digimedics Corporation dated October
28, 1996 in the principal amount of
$5,000,000 to Continental Healthcare Systems,
Inc.
10.3.4 Pledge Agreement dated June 17, 1996 ***
between Mediware and Continental Healthcare
Systems, Inc.
10.3.5 Charge dated June 17, 1996 between ***
Digimedics Corporation and Continental
Healthcare Systems, Inc.
10.3.6 General Security Agreement dated June 17, ***
1996 between Digimedics Corporation and
Continental Healthcare Systems, Inc.
10.3.7 Guaranty dated June 17, 1996 by Mediware in ***
favor of Continental Healthcare Systems, Inc.
10.7 Letters outlining terms of engagement for Les *
Dace, Thomas Mulstay, and John Esposito
10.8 Employee Stock Option Plan, 1982, as **
amended
II-5
<PAGE>
10.9 Form of Stock Option Agreement under 1982 **
Plan
10.10 Form of Stock Option Agreement with **
Quadrocom, Inc.
10.13 1992 Employee Stock Option Plan Incorporated by reference
to Exhibit C to Company's
Proxy Statement dated
December 17, 1991
10.14 Stock Option Plan for Non-Employee Incorporated by reference
Directors to Exhibit B to Company's
Proxy Statement dated
December 17, 1991
10.15 Form of Stock Option Agreement under 1992 *
Employee Stock Option Plan
10.16.1 Form of Note for Interim Financing *
10.16.2 Form of Warrant for Interim Financing *
10.17 Form of Stock Option Agreement for Joseph
Delario
21 Subsidiaries of the registrant *
23.1 Consent of Winthrop, Stimson, Putnam &
Roberts (Contained in Exhibit 5)
23.2 Consent of Richard A. Eisner & Company,
LLP
24 Powers of Attorney
- ------------------------
* Incorporated by reference to the Exhibit bearing the same designation in
the Company's Annual Report on Form 10- KSB for the fiscal year ended June
30, 1996.
** Incorporated by reference to the Exhibit bearing the same designation in
the 1991 Registration Statement.
*** Incorporated by reference to Exhibits 2(a), 2(b), 2(c), 2(d), 2(e), 2(f)
and 2(g), respectively, in the Company's Current Report on Form 8-K, filed
on July 1, 1996.
<PAGE>
Exhibit No. 5
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Telephone: (212) 858-1000
December 16, 1996
Mediware Information Systems, Inc.
1121 Old Walt Whitman Road
Melville, NY 11747-3005
Attn: Mr. Les Dace
President
Gentlemen:
As special counsel to Mediware Information Systems, Inc., a
New York corporation (the "Company"), in connection with the registration under
the Securities Act of 1933 (the "Act"), of up to 2,089,255 shares of the
Company's Common Stock, par value $.10 per share (the "Common Stock"), to be
sold by certain selling shareholders ("Selling Shareholders") from time to time,
we have examined the registration statement on Form SB-2 (the "Registration
Statement") filed under the Act, including the prospectus which is a part
thereof. As to the shares of Common Stock heretofore issued to the Selling
Shareholders, we have been advised by Company officers that the Company has
received payment therefor in accordance with the authorization for such shares,
and we have examined such further documents as we have considered necessary for
the purposes of this opinion. Based upon such examination and advice we are of
the opinion that:
(1) The Company is a corporation validly organized and duly
existing under the laws of the State of New York.
(2) The shares of Common Stock covered by the Registration
Statement which have been issued as of the date hereof to certain Selling
Shareholders are validly issued, fully paid and non-assessable, except to the
extent, if any, provided in Section 630 of the New York Business Corporation Law
("BCL").
(3) The 75,000 shares of Common Stock covered by the
Registration Statement which may be issued to a Selling Shareholder pursuant to
a stock option agreement will be validly issued, fully paid and non-assessable,
except to the extent, if any, provided in Section 630 of the BCL, if the steps
enumerated in paragraph (4) shall have been taken.
<PAGE>
Mediware Information Systems, Inc.
December 16, 1996
Page 2
(4) The steps referred to in paragraph (3) are: (a) the
Company's board of directors shall have authorized the entering into of the
stock option agreement, (b) the Company's shareholders shall have authorized the
issuance of the associated stock options provided for by the stock option
agreement, (c) the associated stock options shall have been duly exercised in
accordance with their terms and (d) the shares issued upon exercise of the stock
options shall have been paid for in accordance with the terms of the stock
option agreement.
We are members of the bar of the State of New York. In
rendering the foregoing opinion, we express no opinion as to laws other than the
laws of the State of New York and the Federal laws of the United States.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to our firm under "Legal
Matters" in the prospectus constituting part of the Registration Statement. In
giving such consent, we do not hereby admit that we are within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/Winthrop, Stimson, Putnam & Roberts
---------------------------------------
<PAGE>
EXHIBIT 10.17
MEDIWARE INFORMATION SYSTEMS, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the 11th day of November, 1996, by
and between Mediware Information Systems, Inc., a New York corporation having
its principal place of business at 1121 Old Walt Whitman Road, Melville, New
York 11747 (hereinafter called the "Corporation"), and the individual whose name
and residence appear on the last page of this Agreement (hereinafter called
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a director and member of the
executive committee of the Corporation; and
WHEREAS, the Optionee has rendered valuable services to the
Corporation of a managerial and financial advisory nature and, pursuant to this
Agreement, the Optionee has agreed to remain available to continue to render
such services in consideration of an option to purchase shares of common stock
of the Corporation.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth and for other good and valuable consideration, the parties
hereto hereby agree as follows:
<PAGE>
1. Grant of Option: The Corporation hereby grants to the
Optionee, under the terms and conditions set forth in this Agreement, as of the
date hereof (the "Grant Date"), an Option ("Option") to purchase the 75,000
shares of common stock, par value $.10 per share, of the Corporation subject to
adjustment in accordance with the terms of this Agreement (which shares are
hereinafter called "Option Shares"). The Option Shares may be purchased by
exercising this Option in accordance with the terms of this Agreement, at the
price of three dollars and fifty cents ($3.50) per share, which price is not
less than the fair market value of a share of such common stock as reported for
the close of business on the last trading day before the Grant Date.
2. Number of Shares and Other Terms of Option. The
Option and exercisability of the Option shall be subject to the
following terms and conditions, and all other terms and con-
ditions set forth elsewhere in this Agreement:
The Option shall become exercisable to the extent of 331/3%,
662/3%, and 100% of the Option Shares on November 1, 1997, November 1, 1998 and
November 1, 1999, respectively, subject to acceleration as provided herein. The
Option shall remain exercisable until November 1, 2001 unless earlier terminated
as provided herein.
It is not intended that this Option shall be an incentive
stock option for purposes of the Internal Revenue Code of 1986.
3. Transferability. This Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in
-2-
<PAGE>
any manner other than by will or the laws of descent and distribution or to a
member of Optionee's immediate family or Partnership or Trust or other similar
entity all of the members or beneficiaries of which are members of the
Optionee's immediate family. The Option may be exercised during the lifetime of
the Optionee only by Optionee or by his or her guardian or permitted transferee.
The Optionee may designate a Beneficiary.
4. Agreement to Serve; Exercisability.
(a) Agreement to Serve. The Optionee hereby agrees to
render services to the Corporation of a managerial and financial advisory
nature, similar to the services heretofore rendered by Optionee. During the
effectiveness of this Agreement, Optionee shall continue to remain available to
the same degree as heretofore to render such services to the Corporation. The
Optionee's obligation to render such services shall remain effective until death
or total incapacity of Optionee or until he gives notice of termination of
obligation to the Company (which may only be given after February 28, 1997).
(b) Exercisability. An Option may be exercised by the Optionee
only during the continuance of his obligation to render services and for the
additional periods described below.
(c) Termination of Obligation. If the Optionee's obligation to
render service is terminated by notice given at the election of Optionee for any
reason other than death or total incapacity, all exercisable installments which
are exercisable on the date of such notice shall be exercisable by the Optionee
for a period of six (6) months after notice.
-3-
<PAGE>
(d) Death; Incapacity. If an Optionee dies or becomes totally
incapacitated, all exercisable installments of the Option which are exercisable
on the date of death or incapacity shall be exercisable by the Optionee or his
representative for a period of twelve (12) months following such death or
incapacity.
(e) Change of Control. In any event constituting a Change of
Control occurs prior to the expiration of the six month or twelve month periods
referred to in clauses (c) and (d) of this paragraph, the Optionee shall be
entitled to exercise his Option with respect to all Option Shares, and any
acceleration, modification, or other action taken pursuant to paragraph 7(b)
shall be effective for all Option Shares then unexercised.
(f) Other. Any such exercise shall be subject to the
satisfaction of all other conditions to exercise contained in this Option.
5.Solicitation of Employees; Confidential Information.
(a) To the extent enforceable under applicable law, the
Optionee hereby agrees that he or she will not, for a period of (12) twelve
months directly or indirectly, employ, or knowingly permit any company or
business organization directly or indirectly controlled by him or her to employ,
any person who is employed by the Corporation or in any manner seek to induce
any such person to leave his or her employment by the Corporation or in any
manner seek to induce any such person to leave his or her employment with the
Corporation.
-4-
<PAGE>
(b) The Optionee hereby agrees that he will not at any time,
whether during or after the termination of the Optionee's employment, reveal to
any person or entity any of the trade secrets or confidential information
concerning the products, services, organization, business or finances of the
Corporation or of any third party which the Corporation is under an obligation
to keep confidential (including but not limited to trade secrets or confidential
information respecting inventions, designs, methods, know-how, techniques,
systems, processes, software programs, works of authorship, customer lists,
projects, plans and proposals), except as may be required in the ordinary course
of performing the duties as an Optionee of the Corporation, and the Optionee
shall keep secret all matters entrusted to him and shall not use or attempt to
use any such information in any manner which may injure or cause loss or may be
calculated to injure or cause loss, whether directly or indirectly, to the
Corporation.
(c) Any unexercised Options shall be forfeited immediately
upon a breach of the undertakings, contained in this paragraph 5 as determined
by the Board, any such determination to be final and binding on all parties.
6. No Right to Dividends, Distributions or Voting.
The Optionee shall not have any rights as a shareholder
with respect to any Option Shares until the date of issuance of stock
certificate for such Option Shares upon due exercise of this Option. Until the
issuance of stock certificates, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to Option Shares
-5-
<PAGE>
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other rights for which the record date is prior to the date the
stock certificate is issued except as provided in Section 7 hereof.
7. Adjustment in Option Shares; Change of Control.
(a) Adjustment. If all or any portion of this Option is
exercised subsequent to any stock dividend, split-up, recapitalization,
combination or exchange of shares, merger, consolidation, acquisition of
property or stock, spin-off, reorganization or liquidation, as a result of which
shares of any class shall be issued in respect of outstanding shares of common
stock or shares of common stock shall be changed into the same or a different
number of shares of the same or another class or classes, the person or persons
so exercising this Option shall receive, for the aggregate price payable upon
such exercise of this Option, the aggregate number and class of shares which, if
shares of common stock (as authorized at the Grant Date) had been purchased at
the Grant Date of this Option for the same aggregate price (on the basis of the
option price per share provided in this Option) and had not been disposed of,
such persons or persons would be holding at the time of such exercise, as a
result of such purchase and any such stock dividend, split-up, recapitalization,
combination or exchange of shares, merger, consolidation, acquisition of
property or stock, spin-off, reorganization or liquidation; provided, however,
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that no fractional share shall be issued upon any such exercise. If any such
adjustment shall result in the Optionee being entitled to exercise this Option
with respect to a fractional share, the number of shares subject to this Option
shall be reduced to the next lower number of full shares.
In the event of any such change in the outstanding common
stock of the Corporation, the aggregate number and class of shares reserved by
the Corporation for exercise of options to purchase common stock shall be that
number and class which a person, to whom an Option had been granted for all of
such reserved shares of common stock on the date preceding such change, would be
entitled to receive as provided in the first sentence of this Section 7.
(b) Change in Control. For the purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any of the following events and
shall be deemed hostile unless the Board of Directors declares by resolution
adopted prior to the occurrence of such event that the Board consents to such
event:
(i) a third "person", including a "group", as those
terms are used in Section 13(d) of the Securities Exchange Act
of 1934 ("Exchange Act") is or becomes the beneficial owner
(as that term is used in said Section 13(d)) of stock having
thirty percent (30%) or more of the total number of votes that
may be cast for the election of members of the Board;
(ii) all or substantially all of the assets and
business of the Company are sold, transferred or
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assigned to, or otherwise acquired by, any other entity
or entities;
(iii) as a result of, or in connection with, any cash
tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "Transaction"),
the persons who are members of the Board before the
Transaction shall cease to constitute a majority of the Board
of the Company or any successor to the Company; or
(iv) unless the Board otherwise directs by resolution
adopted prior thereto, if a third "person", including a
"group" (as those terms are used in Sections 13(d) of the
Exchange Act) is or becomes the beneficial owner (as that term
is used in Section 13(d) of the Exchange Act), directly or
indirectly, of stock having 20% or more of the total number of
votes that may be cast for the election of directors or a
proxy contest occurs, and, during the period of twenty-four
months following such event, the individuals who at the
occurrence of such event constituted the Board cease for any
reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of
at least three-quarters of the directors then still in office
who were directors at the occurrence of such event.
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If, in connection with any Change of Control, any Option is
not proposed to be assumed by the surviving corporation or the purchaser in a
manner which will carry out the intention of this Agreement in view of the Board
then, (i) the date on which such Option, or any part thereof not then
exercisable shall be exercised may be accelerated to a date, to be fixed by the
Board, earlier than the Transaction constituting a Change of Control, or a
limited period of exercisability may be so established, or (ii) the terms of
such Option shall be modified so as to permit the acquisition by the Optionee
(during the same period of exercisability as provided under this Agreement) of
any cash, property or securities which would be receivable by him if he owned
the total number of Option Shares immediately prior to such event, (iii) such
other action, if any, shall be taken by the Board through amendment of this
Agreement or otherwise, including surrender for value and/or the grant of rights
to acquire cash, property or securities, as may be necessary or appropriate to
carry out the intent of this Agreement; and/or (iv), in the event of a hostile
Change of Control, if none of the foregoing action is taken, the Option shall
become exercisable as to all Option Shares upon the completion of the Change of
Control.
8. Exercise. This Option shall be exercised by written notice
to the Corporation at its principal place of business, accompanied by full
payment of the purchase price, which notice shall:
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(a) state the election to exercise the Option, the
number of shares in respect of which it is being exercised,
the person in whose name the stock certificate or certificates
for such shares of common stock is to be registered, his
address and social security number (or if more than one, the
names, addresses and social security numbers of such persons);
(b) contain such representations and agreements
as to the holder's investment intent with respect to
such shares of common stock as may be satisfactory to
the Corporation's counsel;
(c) be signed by the person or persons entitled to
exercise the Option and, if the Option is being exercised by
any person or persons other than the Optionee, be accompanied
by proof, satisfactory to counsel for the Corporation, of the
right of such person or persons to exercise the Option.
Payment of the purchase price of any Option Shares shall be by
certified or bank cashier's or teller's check. The Corporation shall withhold
all income or other taxes required to be withheld by applicable law and shall
remit them to the appropriate taxing authority. To the extent that the
Corporation is required to withhold funds for the payment of income or other
withholding taxes or is legally responsible for the payment of income taxes of
any party exercising the Option or any portion thereof, the party exercising the
Option shall also pay to the Corporation the amount of any withholding tax
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associated with the exercise of the Option net of any amounts otherwise
withheld. The certificate or certificates for shares of common stock as to which
the Option shall be exercised shall be registered in the name of the person or
persons properly exercising the Option.
9. Compliance with Laws and Regulations. The grant and
exercise of this Option, and the Corporation's obligation to sell and deliver
stock hereunder, are subject to such approvals by any regulatory or governmental
agency as may be required and shall comply with all relevant provisions of
applicable Federal and state laws, rules and regulations, including, without
limitation, the Securities Act of 1933, the Securities Exchange Act of 1934,
state securities laws, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange or of any quotation association or
organization upon which the Option Shares may then be listed or quoted, and
shall be further subject to the approval of counsel for the Corporation with
respect to such compliance. The Corporation may imprint any legends on the
Options Shares restricting their subsequent sale or transfer which may be
required by state or Federal law, and the Option Shares shall be subject to
appropriate stop-transfer orders.
No shares shall be delivered upon exercise of the Option until
all laws, rules, regulations and undertakings which the Board may deem
applicable have been complied with.
The Corporation shall not be required to issue shares or
deliver any certificates for shares prior to (i) the listing of such shares on
any stock exchange or quotation system on which the shares may then be listed
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or quoted and (ii) the completion of any registration, qualification, approval
or authorization of such shares under any federal or state law, or any ruling or
regulation or approval or authorization of any governmental body, stock exchange
or organization providing market quotations for securities which the Board
shall, in its sole discretion, determine to be necessary or advisable.
By accepting this Option, the Optionee represents and warrants
for himself and any other person or persons properly exercising this Option that
any and all shares purchased hereunder shall be acquired for investment and not
with a view to distribute such shares. As a condition to the exercise of this
Option in whole or in part at any time, the Optionee or other person or persons
properly exercising the Option shall deliver to the Corporation a written
representation that the shares being purchased are being acquired for investment
and not with a view to distribution, and a consent that the certificate
representing such shares be endorsed to indicate such representation.
The Corporation shall not be liable in the event it is unable
to issue or sell shares of common stock or other securities to the Optionee if
such issuance or sale would be unlawful, nor shall the Corporation be liable if
the issuance or sale of shares of common stock or other securities to an
Optionee is subsequently invalidated.
10. Engagement Rights. Nothing contained in this
Option shall confer upon the Optionee any right to remain as a director of the
Corporation or interfere in any way with the right of the Corporation or any
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subsidiary to terminate any agreement or relationship otherwise terminable.
11. Notice of Disposition. Optionee or his estate or
legal representative shall immediately notify the Corporation in the event of
any disposition of any kind of Option Shares acquired pursuant to this Option.
12. Notices. Any notice to be given under the terms
of this Option shall be addressed to the Corporation or to the Optionee at the
addresses appearing on the first and last pages of this Agreement, or at such
other address as either party may hereafter designate in writing to the other.
13. Interpretation of this Agreement. Any dispute regarding
the interpretation of this Agreement may be submitted by the Optionee or by the
Corporation forthwith to the Board for resolution, which shall review such
dispute at the time of its next regular meeting. The decision of the Board, as
the case may be, with regard to such dispute shall be final and binding upon the
Corporation and upon the Optionee.
14. Successors and Assigns. Except as otherwise
provided herein, the provisions of this Agreement shall inure to the benefit of,
and be binding upon, the successors and assigns of the Corporation and the
administrators, heirs and legal representatives of the Optionee.
15. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
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16. Amendments. No provision of this Agreement shall
be modified, amended, extended or waived except in writing signed
by the parties hereto.
17. Effectiveness. This Agreement is subject to due
authorization by the shareholders of the Corporation at the next
annual meeting.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be duly executed in duplicate by its duly authorized officer, and Optionee
has executed this Agreement in duplicate, all as of the date and year first
above written.
MEDIWARE INFORMATION SYSTEMS, INC.
By___________________________
Chairman of the Board
Optionee
-----------------------------
-----------------------------
Name and Address
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration
Statement on Form SB-2 of our report dated August 23, 1996 (October 28, 1996
with respect to Note E[1]) on the consolidated financial statements of Mediware
Information Systems, Inc. and Subsidiaries for the year ended June 30, 1996. We
also consent to the reference to our firm under the caption "Experts" in the
Prospectus.
/s/ Richard A. Eisner & Company, LLP
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New York, New York
December 18, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
of Mediware Information Systems, Inc. (the "Company") constitutes and appoints
Lawrence Auriana and Les Dace, and each of them, singly or jointly, with full
power of substitution, to act for him in any and all capacities, including
director, principal executive officer, as principal financial officer and/or
controller or principal accounting officer of the Company to sign on his behalf
any and all Reports on Form SB-2 and any amendments or supplements thereto of
the Company, and to file the same with all exhibits thereto with the Securities
and Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or their substitute or substitutes may do or cause to
be done by virtue hereof.
Dated November 27, 1996
/s/ Les Dace
-----------------------------
Les N. Dace
------------------------------
Lawrence Auriana
/s/ Jonathan Churchill
-----------------------------
Jonathan Churchill
/s/ Roger Clark
-----------------------------
Roger Clark
/s/ Joseph Delario
-----------------------------
Joseph Delario
/s/ John Frieberg
-----------------------------
John C. Frieberg
------------------------------
Walter Kowsh, Jr.
------------------------------
Hans Utsch
/s/ Clinton Weiman
-----------------------------
Clinton G. Weiman
<PAGE>
