SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
_x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
or
_ Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-10768
-------
MEDIWARE INFORMATION SYSTEMS, INC.
(Name of small business issuer as specified in its charter)
New York 11-2209324
(State of other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1121 Old Walt Whitman Road
Melville, New York 11747-3005
(Address of Principal Executive Offices) (Zip Code)
(516) 423-7800
(Issuer's telephone number, including area code)
Securities registered under
Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.10 per share NASDAQ SmallCap Market
The Pacific Stock Exchange, Inc.
Securities registered under Section 12(g) of the Act: None
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Issuer's revenues for its most recent fiscal year were $20,530,000
-----------
The aggregate market value of Common Shares of the issuer held by
non-affiliates at October 12, 1998, was approximately $29,732,000
-----------
Number of Common Shares outstanding at September 2, 1998: 5,602,000 shares.
---------
Documents Incorporated by Reference:
The Proxy Statement for the Registrant's 1998 Annual Meeting of Shareholders
is incorporated by reference in Part III of this Report.
<PAGE>
PART I
CAUTIONARY NOTE:
Certain statements made in or incorporating this 10-KSB are
forward-looking statements, such as descriptions of Mediware's intentions to
market new products, extend existing products, acquire or develop new
products, and utilize new channels of distribution. Such forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties that could cause actual results to differ materially from
those expressed or implied in the forward-looking statements. These risks and
uncertainties include: (i) Mediware's significant indebtedness, a portion of
which comes due in November 1998, and the restrictive covenants contained in
the Company's promissory note for such indebtedness, (ii) the wide variability
of Mediware's operating results, (iii) the market's acceptance of the
Company's WORx product, (iv) the intense competition in the hospital computer
software industry (v) the rapid and significant technological advances in the
computer software industry, which renders the obsolescence of computer
programs, including the Company's, within a short time, (vi) the effect of
governmental regulation on the Company, (vii) the Company's dependence upon
its key employees, (viii) the Company's ability to manage its rapid growth and
(ix) the risks associated with the Company's international operations.
Amplification of such risks may be found in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section herein and
in the "Risk Factors" section of Mediware's Prospectus contained in the
Registration Statement on Form S-4, File No. 333-57693, especially those under
the headings "Significant Indebtedness and Restrictive Covenants,"
"Variability of Operating Results," "Market Acceptance of new WORx Product,"
"Competition," "Technological Obsolescence; Continual Need for Successful
Marketing and Acceptance of New Products," "Product Protection," "Dependence
Upon Key Employees," "Management of Growth", "Risks Associated with
International Operations" and "Government Regulation." Mediware does not
intend to update publicly any forward-looking statements.
ITEM 1. BUSINESS
Mediware markets and supports stand-alone computer-based management
information systems for use in various clinical departments of hospitals. The
computer-based systems typically consist of peripheral hardware (such as disk
drives and printers), local area network ("LAN") hardware and software (which
the Company purchases and resells), and Mediware's own proprietary application
software which it has developed. The systems are designed to automate the
data these clinical departments provide to hospital management and thereby
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, Mediware offers systems for three different
departments, the blood bank, the pharmacy and the surgical suite. The Company
has approximately 1,000 systems installed in the U.S., Canada, the U.K., and
elsewhere.
See "Financial Statements" for information about the Company's revenues,
operating profit and loss and assets. The Company's operations are within one
industry segment.
The Company's product lines are managed through three operating
divisions: Hemocare Division (blood bank), Pharmacy Division (WORx,
Digimedics and Pharmakon), and Surgiware Division (surgical suite).
See "Acquisition of Informedics" below for a description of an
acquisition that took place following the end of the fiscal year.
Product Lines
- --------------
HEMOCARE -- The Company's cornerstone product is one of North America's
leading blood bank information systems in the markets in which it is sold:
either as a "stand-alone" system or as part of an integrated "Lab/Blood Bank"
system. The system was originally 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 or blood center. Hemocare
markets innovative product enhancements such as Validation Templates, Video
Validation, Standard Integration Module, and Automated Patient Backup Card
System. At this time Hemocare believes that it is the only blood bank system
to offer this suite of products, which assist customers in their efforts to
remain compliant with regulatory agency guidelines. The Standard Integration
Module (a set of comprehensive, pre-packaged interface programs) was
instrumental in Mediware's ability to recruit laboratory vendors who have
integrated and remarketed the Hemocare system. The Company currently has
remarketing agreements with Citation Computer Systems, Inc., Dynamic
Healthcare Technologies, Inc., HBOC and Company, Keane, Inc., NLFC, Inc., and
SMS, Inc.
Hemocare has contracts with approximately 290 hospitals that range in
size from 100 beds to over 1,600 beds.
ACQUISITION OF INFORMEDICS -- In September 1998, the Company acquired
Informedics, Inc. Informedics develops and markets a line of computer
software applications designed for blood bank data management systems. The
blood bank data management systems, called LifeLine, are modular yet fully
integrated, software systems which have been designed for the modern blood
bank and hospital transfusion service to monitor donor records, unit
inventory, and patient test and transfusion history. There are three primary
applications of the LifeLine system. The first application supports the needs
of the community blood bank whose activities include drawing and managing
blood donors as well as testing, processing and distributing blood products.
The second application meets the needs of a hospital transfusion service,
which does not, as a rule, draw blood from donors. The third provides the
features required by a hospital which draws blood from donors, manages blood
product inventory and maintains related patient test and transfusion
information.
Informedics' product, IntraMed.net, represents a new class of application
software, one that uses World Wide Web technology as its model with a
three-component architecture; a Web client, a Web server, and an industry
standard database. IntraMed.net provides participants rapid, cost effective
access to information about patient eligibility, care plan coverage and
benefits, plus an electronic messaging system for pre-authorizations and
referrals. Because of its Internet and World Wide Web-based technology,
IntraMed.net can be used as a physician interface to laboratory, pharmacy,
radiology, hospital, and surgical scheduling systems. This allows physicians
to access their existing computer systems from their clinic offices or remote
locations via a standard personal computer with Web browser and Internet
access. The Company believes that the national growth of managed care,
along with the related consolidation and integration of healthcare delivery,
offers a significant opportunity for this technology.
The pathology data management systems, called StarPath, are modular, yet
fully integrated, software systems that are designed to fully automate a
pathology department. Each application allows the pathology group to have
direct control over the content and arrangement of work lists, labels and
reports. There are two primary applications of the StarPath system. The
first application automates the record keeping functions of a pathology
department in the areas of surgical pathology, cytology and autopsies. The
second application is similar to the first application except that it also
includes the area of histology.
Informedics has contracts with approximately 260 facilities including
blood banks and hospitals that range in size from 100 beds to over 1,000 beds.
PHARMACY -- In May of 1990, the Company acquired Digimedics Corporation,
one of the country's leading vendors of 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. Over 150 Digimedics systems have been
installed at 125 hospitals (some hospitals have separate systems for inpatient
and outpatient pharmacies).
In June of 1996, Digimedics Corporation acquired certain assets of the
U.S. based Pharmakon division ("Pharmakon") and a pharmacy management system
company operating in the United Kingdom, JAC Computer Services, LTD. ("JAC")
from Continental Healthcare Systems, Inc. ("Continental"). The Pharmakon
operation has been subsequently merged with the Digimedics operation to form
the Pharmacy Division of the Company. The combination of client bases
increased the Company's installed base of clinical information systems to
approximately 1,000 (over 500 of which are pharmacy system installations).
Installations that were already in existence in Canada together with the
addition of the JAC client base provide the Company with an international
presence.
Clients include leading research institutions such as the University of
California Medical Center, San Francisco; Columbia-Presbyterian Medical
Center, New York City; University of Kansas Medical Center, Kansas City;
University of Michigan Hospitals and Clinics, Ann Arbor; and the Royal Free
Hospital, London.
During fiscal 1997, the Pharmacy Division introduced a new client/server
pharmacy system known as WORx. This advanced system features a Microsoft
Windows-based graphical user interface, point-and-click ad-hoc report writing,
integrated inpatient/outpatient profiles, and a relational database management
system. The Company believes this system will be a major factor in the next
generation of drug therapy management systems. Installation of this next
generation system began in Fiscal 1997. By the close of Fiscal 1998, more
than 30 institutions were either using or were in the process of installing
this new product.
Other WORx features include:
- - A clinical database and drug monographs (including foreign language
monographs).
- - An extensive array of drug therapy monitoring including drug
interactions, allergy monitoring, dose range checking, therapeutic
duplication, and drug alerts.
- - An advanced, Windows-based ad-hoc report writing sub-system that may be
tailored to local practice standards.
- - Support for multiple drug delivery mechanisms.
- - Extensive integration with registration and financial systems, clinical
data repositories, interface engines, drug dispensing systems, laboratory and
other clinical systems, and robotic systems.
By taking advantage of its open architecture, WORx is capable of linking
with expert systems, decision-support software, and clinical databases. WORx
acts as the central hub for drug therapy information throughout the healthcare
enterprise and provides specialized software tools for most aspects of
pharmaceutical care.
Utilizing features such as the "Mobility Server," clinicians have access
to drug therapy data using standard Web browsers anywhere and anytime they
need it, thus broadening access to patient's clinical information such as lab
values or life time clinical record while providing the lower cost benefits of
"browser-based technology."
Mediware also announced a strategic partnership with Baxa Corporation of
Englewood, Colorado to use "ActiveX" standards.
WORx can adapt to a diversity of hardware and networking environments.
Utilizing technologies such as UNIX, Powerbuilder, C++ programming language,
Informix Online Dynamic Server, Microsoft Windows 95, NT and Microsoft Active,
WORx is positioned as a state of the art client/server solution.
SURGIWARE -- In September 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 that 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 has recently
introduced PCCWIN, a complete Microsoft Windows system that offers in-suite
charting as well as pre-operative and post-operative charting. Due to the
modular design of PCCWIN, Mediware can connect this module to other scheduling
systems on the market.
The benefits of a fully-implemented system include (a) cost reduction (b)
improvement in the efficiency and output of operating rooms; (c) improvement
in the management of staffing, equipment, and supplies; (d) improvement in
inventory controls; and (e) increased patient charges 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, usually,
the surgical suite 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" and "C++" programming
languages, the Informix SQL 4th generation relational database management
system, 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 in hospitals with over 6
operating rooms and with a focus on perioperative charting. By the close of
Fiscal 1998, over 30 institutions were either using or were in the process of
installing the Surgiware system.
Sales and Marketing
- ---------------------
The Company's three systems are sold in North America directly by eight
full-time sales people, as well as by two National Sales Managers and one
Company officer, with the assistance of six clinical specialists who
demonstrate the systems and address technical questions. In Europe sales are
supported by one full-time sales manager along with a part-time sales person.
Sales leads and support are received from trade shows, direct mail, Mediware's
Web page, industry consultants, and Mediware's marketing partners (such as
Compucare, HBOC, SMS, Tempus Software, etc.), along with certain hardware
manufacturers, especially IBM Corporation and Data General Corporation, for
whose products the Company acts as a value added reseller. The Company's
products are also sold through remarketers who are vendors of laboratory and
other information systems that offer Company systems as subsystems of their
product suites. The Company has entered into agreements with vendors such as
Citation Computer Systems, Inc., Creative Socio-Medics, Dynamic Healthcare
Technologies, Inc., HBOC, Keane, Inc., NLFC, Inc., SMS, Inc., Tempus Software,
Triple G, and Compucare.
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 annually or at longer intervals,
but which 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 or annual 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 the hardware
manufacturers.
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 -- Three vendors (Cerner Corporation, Soft Computer Consultants
and Sunquest Information Systems, Inc.) of laboratory information systems
("LIS") that contain a blood bank subsystem compete with both Hemocare and
Informedics product lines. 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. With the acquisition of Pharmakon, the Company believes that it has
the largest number of hospital pharmacy systems in the 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 WORx Drug Therapy Management System are believed
to be BDM Corp., Cerner Corporation, Pharmacy Data Systems, Inc., HBOC, Health
Care Systems, Inc., and SMS 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 division are believed to be Atwork
Corporation, a wholly owned subsidiary of Medaphis Corporation, Enterprise
Systems of HBOC, Serving Software Incorporated, a subsidiary of HBOC, and
Surgical Information Systems, Inc.
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 Division 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.
Hemocare experienced its first regular on-site FDA inspection in July
1997. The FDA recommended minor changes to the in-house developed call
tracking system to allow for a more precise method of problem identification,
tracking and trending. These changes were put into practice on August 1,
1997. The Company had previously identified a notice of system limitation,
which it had updated in its user manual. This change to "documentation" was
considered a labeling change by the FDA and was therefore classified as a
"recall." A labeling recall does not require the customer to discontinue its
use of the system, but the vendor is required to update its medical device
documentation with a more accurate description of its intended use. However,
as the Hemocare Product Center had already made such update as part of its
standard operating procedures at the time of its initial notification to
customers in July 1997, the issue was resolved without further action by
Mediware.
The FDA initiated a recall action on the Hemocare Blood Bank Data
Management Computer System, Revisions 5.1 and 3.1 on May 13, 1998. This
action was based on Mediware's Hemocare Product Center's distribution to its
customers of notifications in September 30, 1997 and December 15, 1997 which
described certain system limitations which FDA considered to meet the formal
definition of a Class II recall. The FDA required that all affected customers
be notified. To meet FDA's recall guidelines requirements, on May 22, 1998
the Product Center reissued under the FDA's urgent notification procedure the
previously issued notifications. The Company believes that full compliance
with this requirement has been achieved.
Based upon discussions that the Company had with the FDA, the Company
submitted a pre-market notification 510(k) report in the fall of 1998 for its
Hemocare Revisions 5.2 product, and withdrew the 510(k) report submission
it had previously made to the FDA for the Revisions 5.1 product. The Company
believes that the new submission will result in a positive determination by
the FDA; however, if it does not, Mediware's ability to market this product
may be adversely affected. The Company has been discussing with the FDA
regarding whether and to what extent the Company will need to notify customers
under the FDA's recall procedure of certain issues relating to Revisions 5.1.
In 1995, the FDA notified Informedics that prior distributions of certain
LifeLine software updates "meet the formal definition of a recall."
Informedics brought closure to the recall in early 1996 when it issued a new
release of the LifeLine product which addressed all outstanding issues.
In December 1997, Informedics received a request from the FDA for
additional information and clarifications regarding its Section 510(k)
submission. The FDA requested Informedics identify additional safety critical
functions, clarify the hardware platform on which its LifeLine product is
used, and expand its beta test information. Informedics responded to the FDA
requests on March 26, 1998. On July 1 1998, Informedics received 510(k)
clearance from the FDA to market its LifeLine Blood Bank Data Management
System, Release 4.2.
The FDA has developed new design control regulations, effective in June
1998, as part of its quality system regulations adopted in October of 1996
that apply to blood bank information systems and to the inspection of vendors
of such systems. Although Mediware is updating its internal quality system to
comply with new guidelines adopted under these regulations, it cannot predict
whether it will be fully in compliance with these 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 clinical information system vendors of blood bank
information systems, including Mediware.
FDA Modernization Act of 1997 was enacted on November 21, 1997 and became
effective on February 20, 1998. Under this legislation FDA is directed to
consider the extent to which reliance on post-market controls could expedite
the pre-market notification review process and the classification of devices.
The legislation also requires FDA to ensure that Good Manufacturing Practices
conform, to the extent practicable, with internationally recognized standards
for medical devices. Neither of these provisions appear on its face to
contemplate regulation which would have a material adverse effect on the
Company's blood bank information system operations; however, the legislation
will expand the jurisdiction of the FDA and the Company is unable to predict
the effect of any resulting applicable future regulation. Any of the Company's
other activities could also become subject to Congressional or governmental
agency efforts to establish or expand governmental agency jurisdiction.
<PAGE>
Miscellaneous
- -------------
The Company software development expenditures were $3,523,000 during
fiscal 1998 and $2,591,000 in fiscal 1997 including $1,556,000 and $929,000,
respectively, which were capitalized . These costs exclude write downs and
amortization of software development costs. The Company anticipates that it
will continue to commit substantial resources to software development and
acquired research and development in the future.
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
United States, Canada and, through JAC Computer Services, Ltd, the United
Kingdom.
Employees
- ---------
As of June 30, 1998, the Company had 138 full-time employees and 7
part-time employees, including 26 in sales and marketing, 93 in customer
support and product development, and 26 in administration. None is
represented by a labor union and the Company considers its employee relations
to be good.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are in Melville, New York, where the
Company occupies approximately 6,900 square feet under a lease that expires on
November 30, 2001. The Digimedics Division is headquartered in Scotts Valley,
California, where the Company occupies approximately 8,830 square feet and
subleases to another party approximately 2,816 square feet in an agreement
expiring May 1, 2001. The Pharmakon Division and corporate administration is
headquartered in Lenexa, Kansas, where the Company occupies approximately
17,000 square feet under a lease expiring August 31, 2003. The United Kingdom
group is head quartered in Basildon, Essex, where the Company occupies
approximately 3,850 square feet under a lease expiring 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. On January 28, 1998, Mediware, Digimedics, and
Continental executed a settlement agreement for an action, Cedars-Sinai
------------
Medical Center vs. Mediware Information Systems, Inc., et al., which commenced
- -------------------------------------------------------------
on March 26, 1997 in Los Angeles County Superior Court and arose out of a
contract between Continental and a customer. Pursuant to the settlement
agreement, the plaintiff will receive $500,000. Mediware agreed to contribute
one-third of this total amount and Continental agreed to contribute two-thirds
of this amount. However, each of Mediware and Continental has reserved its
respective rights to seek indemnification from each other for these payments.
Mediware is not aware of any proceedings contemplated by government
authorities that would have a material adverse effect on the Company or its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of its fiscal year ended June 30, 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over the counter market and
is quoted on The Nasdaq Small Cap Market ("Nasdaq") under the symbol MEDW. It
is also traded on the Pacific Stock Exchange under the symbol MIS. 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, 1998 and 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
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
Fiscal 1998 9 1/2 5 1/8 12 7 6/16 11 1/2 8 9 1/2 7
Fiscal 1997 4 1/8 3 3/4 4 5/8 3 1/8 4 3/4 3 1/4 6 1/8 2 5/8
</TABLE>
Such over-the-counter quotations reflect intra-dealers prices, without
retail mark-ups, mark downs or commissions, and may not represent actual
transactions.
The reported trading volume is low. As of June 30, 1998, the approximate
number of shareholders of record of the Company's Common Stock was 300.
The listing maintenance standards of Nasdaq include a requirement that a
company satisfy either a net tangible assets, market capitalization or net
income test. The Company currently meets two of these tests. There can be no
assurance that the Company will continue to meet the criteria for continued
listing of Mediware Common Stock on The Nasdaq SmallCap Market. If this
listing is terminated because of failure to meet the applicable criteria, the
liquidity for Mediware Common Stock will be severely imparied in the absence
of the development of a meaningful alternative.
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. As discussed elsewhere herein, the Company has issued a
promissory note to the seller of Pharmakon and JAC. The promissory note
contains several restrictive covenants limiting certain of Mediware'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, merger and sales of assets; the making of
investments; guarantees; and the creation of subsidiaries.
Recent Sales of Unregistered Securities
- -------------------------------------------
On August 27, 1997, the Company sold 400,000 shares of its Common Stock
in a private placement exempt from registration under the Securities Act of
1933 under Section 4(2) of said Act. Oscar Gruss & Son Incorporated acted as
placement agent. The total offering price was $2,400,000. The Company paid a
placement fee to Oscar Gruss of $240,000, plus a warrant to purchase 40,000
shares of Common Stock at $6.00 per share. The warrant is exercisable until
August 26, 2000.
Such shares were registered in December 1997.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, was
approximately $9.7 million, $3.7 million of which was paid in cash and the
remaining $6.0 million of which was satisfied pursuant to a promissory note
issued to Continental, originally due November 30, 1996. On October 28, 1996
the promissory note was amended, providing among other things, an extension of
the due date to August 1, 1997. The promissory note was further amended,
effective July 21, 1997, to provide for a reduced principal amount of
$4,196,000 (as described below) and extended payment terms. In fiscal 1998
$887,000 in principal was paid down on this promissory note leaving a balance
$3,746,000 at the end of fiscal 1998. On November 30, 1998, the balance of
$3.7 million is due. While no assurances can be made, it is anticipated that
this final promissory note payment will be financed through a commercial
long-term loan at rates comparable to the existing note. The Company is
currently in negotiation with several lending institutions seeking to obtain
favorable terms and borrowing rates on this refinancing. In addition to the
refinancing of the promissory note, the Company will review other financing
needs and general cash requirements on an ongoing basis. The Company may
require additional sources of liquidity to fund potential acquisitions along
with other financing needs.
The Company entered into a service agreement with Continental as of the
acquisition date which requires the Company to perform functions in satisfying
various in-process customer contracts, collection of Continental accounts
receivables and other activities related to fulfilling post-acquisition
Continental obligations. The service agreement provided that the Company
would retain 30% of the monies collected on the receivables which the Company
services plus $1,237,000. In connection with the amendment to the promissory
note on July 21, 1997, the service agreement with Continental was also
amended. The amended service agreement allows the Company to retain 100% of
accounts receivable amounts collected after the amendment date which had not
been invoiced by Continental prior to the acquisition date. The promissory
note was reduced by $437,000 (to $4,196,000) through the application of the
amount owing from Continental to the Company for completed services in
accordance with the service agreement. Total revenues recorded from this
service agreement approximated $1.2 million in fiscal 1997 and were
insignificant in fiscal 1998.
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 $5,500,000.
Total expense for the June 1996 private placement aggregated $568,000. In
order to provide for general cash needs, the Company completed in August,
1997, a private placement of its securities. The Company sold 400,000 shares
of its Common Stock for $6.00 per share and issued warrants to purchase 40,000
shares of Common Stock at $6.00 per share (as part of its placement fee). The
Company registered the shares and warrants issued in the private placement
with the Securities and Exchange Commission in December 1997. Total proceeds
before expenses were $2,400,000. Expenses of the August 1997 private
placement and registration of the securities were approximately $310,000.
The Company's cash and cash equivalent position at June 30, 1998 was
$4,681,000, an increase of $2,746,000 from fiscal year end 1997. At June 30,
1998 the net working capital was $2,026,000 and the current ratio was 1.18:1.
The current ratio is negatively impacted by the classification of notes
payable to short term. As noted above, the Company anticipates refinancing
the Continental promissory note with long term debt although there are no
assurances that such refinancing will occur.
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 directors. As part of the financing
package such investors received promissory notes, 1,040,025 warrants to
purchase shares of Common Stock exercisable at $0.50 per share and 129,695
warrants exercisable at $1.25 per share. During fiscal year 1996, the Company
repaid $120,000, leaving a balance of $1,179,000. 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 the acquisition of
Pharmakon and JAC. In September of 1997, $325,000 of this $1,179,000 balance
was repaid to individuals whose notes were not subordinate to the Continental
promissory note. The unpaid balance at June 30, 1998 was $854,000 and is owed
to two directors and another person. Effective September 15, 1997 these
noteholders agreed to reduce the interest on this unpaid amount from 12% to
9%.
The Company has procured a line of credit from a bank in the total sum of
$75,000. As of June 30, 1998, there were no balances outstanding under this
facility.
MATERIAL CHANGES IN RESULTS OF OPERATIONS: FISCAL 1998 VS. FISCAL 1997
- ------------------------------------------------------------------------------
Total revenue increased by $1,627,000 or 8.6% from $18,903,000 in fiscal
1997 to $20,530,000 in fiscal 1998. The increase is primarily attributable to
the Pharmacy and Surgiware Divisions.
System sales increased by $1,639,000 or 26.3% from $6,229,000 to
$7,868,000 in fiscal 1998 vs. fiscal 1997. Pharmacy and Surgiware systems
sales increased $2,977,000 in fiscal 1998 from the prior year. These increases
were due to the acceptance of the Pharmacy information system WORx product
line along with increased sales of Surgiware Divisions' PCCWIN Perioperative
charting system. System sale increases in the Pharmacy and Surgiware
divisions were offset by decreased Hemocare revenues. Hemocare shifted
pricing focus from initial system dollar revenue to increased long-term
maintenance and support service revenue.
Service revenues decreased $12,000 or 0.1% in comparing fiscal 1998 vs.
fiscal 1997. Service revenues increased by $683,000 or 22.5% in the Company's
Hemocare Division due largely to a focused marketing emphasis on increased
service revenues. The Hemocare service revenue increase was offset by a
decrease of $893,000 in Pharmacy Division service revenues. In fiscal 1997
the Pharmacy Division recorded revenues of approximately $1,200,000 related to
the Continental service agreement which was principally completed in fiscal
1997. In fiscal 1998 revenues accruing to this service agreement were
insignificant.
Cost of systems includes the cost of computer hardware and sublicensed
software purchased from computer and software manufacturers for delivery to
clients with related transportation costs. As a percentage of related sales,
cost of systems decreased 5% from 39% in fiscal 1997 to 34% in fiscal 1998.
This decrease reflects a higher proportion of proprietary software sold in
fiscal 1998 vs. fiscal 1997 which is sold at higher gross margins than the
Company's third party software and computer hardware product sales.
Cost of services include salaries of client service personnel,
communications expenses, installation costs, unreimbursed travel, and training
expenses, along with related office and other direct expenses. Cost of
services increased $366,000 or 12.6% in fiscal 1998 as compared to fiscal
1997. As a percentage of service revenue, cost of services increased 3% from
23% in fiscal 1997 to 26% in fiscal 1998. The increase in expense is
principally due to the cost of systems installations by the Pharmacy and
Surgiware Divisions.
Software development costs include salaries, documentation, office and
other expenses incurred in product development along with amortization of
software development costs. Software development costs increased 17.3% or
$372,000 in fiscal 1998 vs. fiscal 1997. This increase is primarily the
result of the Pharmacy Divisions' continued expansion of its WORx product
line. Total expenditures for software development, including both capitalized
and non-capitalized portions for fiscal 1998 and fiscal 1997 were $3,523,000
and $2,591,000. These amounts exclude amortization. Capitalized software
cost additions were $1,556,000 and $929,000 for fiscal 1998 and fiscal 1997
respectively. The increase in the percentage of costs capitalized is
primarily due to WORx product software development. Management expects
continued increases in software development in the future.
Selling, general and administrative expenses include marketing and sales
salaries, commissions, travel and advertising expenses. Also included is bad
debt expense; legal, accounting and professional fees; salaries and bonus
expenses for corporate, divisional, financial and administrative staffs;
utilities, rent, communications and other office expenses; and other related
direct administrative expenses. Selling, general and administrative expenses
increased slightly or 0.8% from $8,597,000 in fiscal 1997 to $8,668,000 in
fiscal 1998.
Net interest expense decreased $333,000 or 51% from $659,000 in fiscal
1997 to $326,000 in fiscal 1998. This decrease is primarily due to paying
down $1,212,000 in various promissory notes and a reduction of the interest
rate on the promissory note payable to Continental. In fiscal years ended
1998 and 1997 the Company reported income tax expense of $139,000 and $85,000
or an effective rate of 4.5% in fiscal 1998 vs. 3.9% in fiscal 1997. The
Company utilized net operating loss carry forwards in both fiscal 1998 and 1997
(see note I to the Financial Statements). The Company has a net deferred tax
asset of $1,588,000 at June 30, 1998, of which $550,000 has been recognized and
$1,038,000 has been reserved. Future utilization of the deferred tax asset is
dependent upon the Company's future profitability as well as the outcome of
various acquisition and other strategies and planned increased software
development activities, both of which management expects will result in future
tax deductions.
The Company had net earnings of $2,930,000 or $0.44 per share in fiscal
1998 vs. $2,081,000 or $0.35 in fiscal 1997.
YEAR 2000 COMPLIANCE
Pharmacy
- --------
The problems of date-protocol compliance in the Year 2000 are somewhat
different for each of the Company's software information systems. In the case
of the Pharmacy division's WORx system, the application software is designed
by the Company to meet conditions for date-protocol readiness by the Year
2000. The Company is in the process of testing and taking remedial action
over its other Pharmacy application software systems to ensure that they will
be Year 2000 ready.
A number of client hospitals have not yet elected to upgrade their
software to the level of the most recent release of the Company. For these
hospitals it will be necessary to take advantage of the new release and
upgrade their hardware and data bases to be Year 2000 ready. The Company's
release incorporating the necessary upgrade of the Company's application
software system will be part of the normal support procedures of the Company
and will be provided by the Company without cost to the hospital; however, the
hospital may incur costs associated with any new hardware, pharmacy data bases
or operating systems which may be necessary to complete the upgrade.
Furthermore, the computer platforms of a number of hospitals will not
accommodate the update necessary to become Year 2000 ready, and these
hospitals must bear the cost of new computer hardware and associated operating
systems and pharmacy data bases. The Company's United Kingdom subsidiary has
not reported that it anticipated any Year 2000 difficulties.
Surgiware
- ---------
The Company is testing Year 2000 date-protocol readiness and taking
appropriate remedial action to its Surgiware division's software system so as
to meet the conditions of its Year 2000 date-protocol readiness. These
procedures are expected to be completed by the first quarter of calendar 1999,
when it will be offered to hospitals as part of the normal support procedures
of the Company. However, the computer platforms of a number of hospitals will
not accommodate the updates necessary to become Year 2000 ready, and these
hospitals must bear the cost of new computer hardware and associated operating
systems and pharmacy data bases.
Hemocare
- --------
In the case of the Hemocare division, the Company's management believes
that the blood bank information system meets the conditions for date-protocol
readiness but is currently testing the system to confirm this view. The Year
2000 date-protocol compliance testing and any remedial action are scheduled to
be completed by the fourth quarter of 1998. All blood bank client hospitals
are at the same release level and management believes there will be no
requirement for hospitals to upgrade hardware or data bases even if the
Company's software system requires programming changes. However, it may be
necessary for some client hospitals to update their computer platforms, the
operating system or the BIOS of their current hardware to be Year 2000 ready.
Informedics
- -----------
The following information relating to the Year 2000 readiness by the
Informedics products is taken from Informedics' Proxy Statement dated August
21, 1998 relating to the September 23, 1998 meeting of Informedics
shareholders.
Informedics has determined that certain portions of its LifeLine blood
bank software do not currently meet the conditions for date protocol
compliance in the Year 2000. Informedics is currently testing a new version
of the LifeLine product which Informedics expects will meet FDA and industry
standards for Year 2000 readiness. Informedics expects to release the new
version of the software in the fall of 1998. All other current Informedics'
software products are Year 2000 ready. However, prior versions of
Informedics' products were not Year 2000 compliant. Informedics' customers
who have support agreements with Informedics will receive free updated Year
2000 ready software. Informedics has contacted all current and prior
customers of versions of the LifeLine product who do not have support
agreements with Informedics to inform them of the Year 2000 problem. During
the fourth quarter of 1998 and the first quarter of 1999, Informedics plans to
contact all customers of unsupported versions of its other products to inform
them of the Year 2000 issue.
Informedics has conducted an initial assessment of the Year 2000 problem
on its IT systems. Informedics believes that its enterprise-wide software
system is Year 2000 ready. Such belief is based significantly on discussions
with and representations by the vendor of such software. Informedics has
been, and will continue to be, in contact with such vendor in order to obtain
any additional revisions or upgrades issued by the vendor to ensure that such
enterprise-wide software remains Year 2000 ready. Informedics also is taking
an independent inventory of and assessing all informational systems that could
be affected by the Year 2000 problem. Remediation of non-compliant systems is
being conducted as the assessment phase nears completion. Informedics expects
to complete these phases during the fourth quarter of 1998.
Informedics also is in the process of conducting an initial assessment of
Year 2000 problem on its non-IT systems, including telephone and voice mail
systems. Informedics expects to complete its initial assessment of such areas
during the fourth quarter of 1998. Following such initial assessment,
Informedics will undertake Year 2000 remediation and testing of these
applications. Informedics cannot determine, at this time, the number or type
of non-IT systems that will require remediation; however, based on the current
state of its investigation, Informedics knows of no material Year 2000
problems.
Finally, Informedics is examining its relationships with third parties,
including suppliers of hardware, network operating systems and utility
programs, whose Year 2000 non-compliance could have material effect on its
operations. Informedics considers these third parties suppliers to pose the
greatest Year 2000 risk to Informedics because their failure to become Year
2000 compliant could result in Informedics' inability to obtain components in
a timely manner, delays or cancellations of customer orders or delay in
payments by customers for products shipped. In addition, conversions by third
parties to become Year 2000 compliant might not be compatible with
Informedics' systems. Any or all of these events could have a material
adverse effect on Informedics' business, financial condition and results of
operations.
Informedics has requested information from all of its significant vendors
with respect to Year 2000 compliance status. Informedics has received
assurance that all such suppliers are offering Year 2000 compliant products.
Informedics is in the process of testing all such products with its new
release of the LifeLine product.
Because of the assurances obtained and testing that is underway,
Informedics has not yet developed a contingency plan to address the effects of
the failure of Informedics or any of its principal suppliers to become Year
2000 ready, nor does Informedics have a timetable for preparing such a plan.
In what Informedics believes to be the most likely worst case scenario,
Informedics would change hardware and operating system suppliers to Year 2000
ready manufacturers.
Informedics management estimates that Informedics may incur costs of as
much as $300,000 associated with the release of the new version of the
LifeLine software. However, there can be no assurance that actual costs will
not exceed management's expectations, that the new version of software for the
LifeLine product will timely resolve Informedics' Year 2000 compliance issues,
or that the financial condition or results of operations of Informedics or of
Mediware, as the surviving company following the Merger, will not be
substantially adversely affected. Informedics' current estimates of the
impact of the Year 2000 problem on its operations and financial results do not
include costs and time that may be incurred as a result of any vendors' or
customers' failures to become Year 2000 compliant on a timely basis.
Internal
- --------
The Company also is in the process of conducting an initial assessment of
the Year 2000 problem on its non-IT systems, including telephone and voice
mail systems. The Company expects to complete its initial assessment of such
areas during the fourth quarter of 1998. Following such initial assessment,
the Company will undertake Year 2000 remediation and testing of these
applications. The Company cannot determine, at this time, the number of
non-IT systems that will require remediation; however, based on the current
state of its investigation, the Company knows of no Year 2000 problems which
it expects to become material.
General
- -------
The Company is performing Year 2000 date-protocol tests and providing
remedial action for all of its products along with examining its relationships
with third parties, including suppliers of hardware, data base providers,
network operating systems, and utility programs, whose failure to be Year 2000
compliant could have a material adverse effect on the Company. The incremental
costs to the Company in achieving Year 2000 compliance will depend upon the
Company's ability to obtain third party Year 2000 compliant components,
timely release of its upgraded application software, customer equipment,
software, databases, scheduling and ability to install, along with other
factors. Failure to successfully meet any or all of these conditions could
have a material adverse effect on the Company's business, financial condition
and results of operations.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and displaying comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. Examples of
items to be included in comprehensive income, which are excluded from net
income, include foreign currency translation adjustments and unrealized
gains/losses on available for sale securities. The disclosure prescribed by
SFAS No. 130 must be made beginning with fiscal 1999.
Additionally in June 1997, the FASB issued SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information." This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 will be effective for
the Company's consolidated financial statements for the year ending June 30,
1999.
In April 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance for determining whether computer software is internal-use software
and on accounting for the proceeds of computer software originally developed
or obtained for internal use and then subsequently sold to the public. It
also provides guidance on capitalization of the expenses incurred for computer
software developed or obtained for internal use. The Company has not yet
determined the impact, if any, of adopting this statement. The disclosures
prescribed by SOP 98-1 will be effective for the year ending March 31, 2000
consolidated financial statements.
In October 1997 and March 1998, the AICPA issued SOP 97-2, "Software
Revenue Recognition" and SOP 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition" which the Company is
required to adopt for transactions entered into in the fiscal year beginning
July 1, 1998. SOP 97-2 and SOP 98-4 provide guidance on recognizing revenue
on software transactions and supercede SOP 91-1. The Company believes that
the adoption of SOP 97-2 and SOP 98-4 will not have a significant impact on
its current licensing or revenue recognition practices. However, should the
Company adopt new or change its existing licensing practices, the Company's
revenue recognition practices may be subject to change to comply with the
accounting guidance provided in SOP 97-2 and 98-4.
ITEM 7. FINANCIAL STATEMENTS
CONTENTS PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Independent auditors' report F-2
Balance sheet as of June 30, 1998 F-3
Statements of income for the years ended June 30, 1998 and 1997 F-4
Statements of stockholders' equity for the years
ended June 30, 1998 and 1997 F-5
Statements of cash flows for the years ended June 30, 1998 and 1997 F-6
Notes to financial statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
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 of June 30, 1998 and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the years in the two-year period ended June 30, 1998. 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 as of June 30, 1998 and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the two-year period ended June 30, 1998 in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
September 24, 1998
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS (NOTE D)
<S> <C> <C> <C>
<C> <C> <C>
Current Assets:
Cash and cash equivalents (Note G) $ 4,681,000
Accounts receivable, less allowance for doubtful
accounts of $490,000 (Notes A and J) 7,485,000
Inventories (Note A) 331,000
Deferred tax asset 550,000
Prepaid expenses and other current assets 514,000
------------
Total current assets 13,561,000
Fixed assets, at cost, less accumulated depreciation
of $2,058,000 (Notes A and B) 1,170,000
Capitalized software costs (Notes A and C) 2,444,000
Excess of cost over fair value of net assets acquired, net
of accumulated amortization of $1,091,000 (Note A) 5,853,000
Other assets 719,000
------------
Total assets $23,747,000
============
LIABILITIES
Current liabilities:
Accounts payable $ 1,176,000
Accrued expenses and other current liabilities (Note E) 2,618,000
Advances from customers (Note A) 3,132,000
Current portion of capital leases payable 9,000
Notes payable (Note D) 4,600,000
------------
Total current liabilities 11,535,000
Advances from customers, less current portion 7,000
Capital leases payable, less current portion 15,000
------------
Total liabilities 11,557,000
Commitments and contingencies (Note G)
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; 5,591,000 shares issued and outstanding 559,000
Additional paid-in capital 16,264,000
Unearned compensation (51,000)
Cumulative foreign currency translation adjustment 36,000
(Deficit) (4,618,000)
------------
Total stockholders' equity 12,190,000
------------
Total liabilities & stockholders equity $23,747,000
============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED JUNE 30,
-------------------
1998 1997
------------ ------------
<S> <C> <C> <C>
<C> <C>
Revenues:
System sales $ 7,868,000 $ 6,229,000
Services 12,662,000 12,674,000
------------ ------------
Total revenues 20,530,000 18,903,000
------------ ------------
Costs and expenses:
Cost of systems 2,661,000 2,413,000
Cost of services 3,279,000 2,913,000
Software development costs 2,527,000 2,155,000
Selling, general and administrative 8,668,000 8,597,000
------------ ------------
Total costs and expenses 17,135,000 16,078,000
------------ ------------
Earnings before interest and
provision for income taxes 3,395,000 2,825,000
Interest and other income 130,000 81,000
Interest (expense) (456,000) (740,000)
------------ ------------
Earnings before provision for income taxes 3,069,000 2,166,000
Income tax provision (139,000) (85,000)
------------ ------------
NET EARNINGS $ 2,930,000 $ 2,081,000
============ ============
BASIC EARNINGS PER SHARE $ .54 $ .42
============ ============
DILUTED EARNINGS PER SHARE $ .44 $ .35
============ ============
WEIGHTED AVERAGE OUTSTANDING SHARES -- BASIC 5,447,000 4,965,000
=========== ===========
WEIGHTED AVERAGE OUTSTANDING SHARES ASSUMING DILUTION 6,630,000 5,917,000
============ ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNEARNED
PORTION OF FOREIGN
ADDITIONAL COMPENSATORY CURRENCY
COMMON PAID-IN STOCK TRANSLATION
SHARES AMOUNT CAPITAL OPTIONS (DEFICIT) ADJUSTMENT TOTAL
----------- --------- ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
BALANCE-
JULY 1, 1996 4,931,000 $ 493,000 $13,419,000 $(9,629,000) $4,283,000
Shares issued to
directors 25,000 3,000 91,000 94,000
Exercise of stock
options 100,000 10,000 125,000 135,000
Compensatory stock
options issued 117,000 (91,000) 26,000
Registration costs
incurred in
connection with
private placement (131,000) (131,000)
Foreign currency
translation 36,000 36,000
Net earnings 2,081,000 2,081,000
---------- --------- ----------- --------- ----------- -------- ----------
BALANCE-
JUNE 30, 1997 5,056,000 506,000 13,621,000 (91,000) (7,548,000) 36,000 6,524,000
---------- --------- ----------- --------- ------------ ------- ----------
Shares issued to
directors (to be
delivered during
fiscal 1999) 11,000 1,000 99,000 100,000
Exercise of stock
options 124,000 12,000 152,000 164,000
Amortization of
compensatory
stock options 40,000 40,000
Shares issued in
connection with
private placement
net of offering
costs 400,000 40,000 2,050,000 2,090,000
Tax benefit on
exercise of stock
options 342,000 342,000
Net earnings 2,930,000 2,930,000
---------- --------- ----------- --------- ------------ ------- -----------
BALANCE-
JUNE 30, 1998 5,591,000 $ 559,000 $16,264,000 $(51,000) $(4,618,000) $36,000 $12,190,000
========== ========= =========== ========= ============ ======= ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
-------------------
1998 1997
------------ -----------
<S> <C> <C> <C>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,930,000 $ 2,081,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Shares issued to directors 100,000 94,000
Compensatory stock options issued to consultant 40,000 26,000
Provision for doubtful accounts 176,000 645,000
Depreciation and amortization 1,184,000 1,058,000
Changes in operating assets and liabilities:
Accounts receivable (1,304,000) (3,113,000)
Inventories (275,000) 152,000
Prepaid and other assets (851,000) (151,000)
Accounts payable, accrued expenses
and customer advances 2,082,000 1,209,000
------------ ------------
Net cash provided by operating activities 4,082,000 2,001,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (804,000) (262,000)
Capitalized software costs (1,556,000) (929,000)
------------ ------------
Net cash used in investing activities (2,360,000) (1,191,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (1,230,000) (1,383,000)
Proceeds from exercise of options and warrants 164,000 135,000
Proceeds (expenses) of private placement 2,090,000 (131,000)
------------ ------------
Net cash provided by (used in) financing activities 1,024,000 (1,379,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,746,000 (569,000)
Cash and cash equivalents - beginning of year 1,935,000 2,504,000
------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 4,681,000 $ 1,935,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 448,000 $ 582,000
Income taxes $ 99,000 $ 46,000
</TABLE>
See notes to financial statements
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Mediware Information Systems, Inc. and subsidiaries (the "Company")
develops, installs and maintains computerized information systems for
hospital blood banks, pharmacies and surgical suites.
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.
[1] CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments purchased
with a maturity of three months or less to be cash equivalents.
[2] REVENUE RECOGNITION:
Revenues are derived primarily from the sale of clinical information
systems along with related service activities. Service activities generally
include installation, training, maintenance, and support. The Company also
derives revenue from the sale of computer hardware.
System sales contracts generally include the licensing of the
Company's information system software, services related to the training and
installation of the software and sale of computer hardware. Pre-packaged
software revenue and computer hardware is recognized upon shipment.
Training and system installation revenue is recognized when services
are performed. Support and maintenance revenue is recognized on a pro-rata
basis over the period of the contract
In October 1997 and March 1998, the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") 97-2, " Software
Revenue Recognition" and SOP 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition" which the Company is
required to adopt for transactions entered into in the fiscal year beginning
July 1, 1998. SOP 97-2 and SOP 98-4 provide guidance on recognizing revenue
on software transactions and supercede SOP 91-1. The Company believes that
the adoption of SOP 97-2 and SOP 98-4 will not have a significant impact on
its current licensing or revenue recognition practices.
[3] 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.
[4] 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.
[5] 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 technological feasibility are expensed as
incurred. Such costs were $1,967,000 and $1,662,000 for the years ended June
30, 1998 and 1997, respectively. Software development costs reported in
the consolidated statements of income include amortization of capitalized
software costs.
[6] EXCESS OF COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED:
The excess of cost over the fair value of net assets acquired
(goodwill), which arose from the acquisitions of Digimedics Corporation in
1990 and, Pharmakon division and JAC in June 1996, is being amortized on a
straight-line basis over twenty years. Management continually reevaluates
the appropriateness of the amortization periods and related carrying amount.
Goodwill is adjusted if events and circumstances indicate that an other than
temporary decline in value below the current unamortized historical cost has
occurred. Several factors are used to evaluate goodwill including, but not
limited to, management's plans for future products and operations, market
position and continual acceptance, recent operating results and projected
undiscounted cash flows.
[7] ADVANCES FROM CUSTOMERS:
Advances from customers represent contractual payments received by
the Company. Such amounts are recorded as income upon shipment of the
licensed software and hardware and performance of related services with
respect to system revenues or over the life of the maintenance agreement
with respect to service revenue.
[8] INCOME TAXES:
The Company utilizes the method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, ("SFAS
109") "Accounting for Income Taxes". Pursuant to SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect at the balance sheet date. The resulting asset
or liability is adjusted to reflect enacted changes in tax law.
[9] EARNINGS PER SHARE:
The Company calculates its earnings per share pursuant to the provisions
of Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share." This standard requires dual presentation of basic and
diluted earnings per share ("EPS") on the face of the statement of income and
requires reconciliation of the numerators and the denominators of the basic
and diluted EPS calculation. Basic EPS is computed by dividing the net income
by the weighted average number of shares of common stock outstanding. Diluted
earnings per share includes the dilutive effect, if any, from the potential
exercise of stock options and warrants using the treasury stock method.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997
---------- ---------
<S> <C> <C>
<C> <C>
Shares outstanding at beginning of year 5,056,000 4,931,000
Weighted average number of shares issued during the year 391,000 34,000
---------- ---------
Weighted average shares outstanding - basic 5,447,000 4,965,000
Effect of dilutive securities:
Stock options and warrants 1,183,000 952,000
---------- ---------
Weighted average shares outstanding - assuming dilution 6,630,000 5,917,000
========== =========
</TABLE>
[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.
[11] IMPAIRMENT OF LONG-LIVED ASSETS:
During the year ended June 30, 1997 the Company had adopted Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets. The adoption of SFAS 121 had no effect on the Company's
financial statements.
[12] FINANCIAL INSTRUMENTS:
The carrying amounts of accounts receivable, accounts payable,
accrued expenses, capitalized lease obligations and long-term debt
approximate their fair value as the interest rates on the Company's
indebtedness approximate current market rates and due to the short
period to maturity of these instruments.
[13] STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation". SFAS 123 encourages, but
does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company elected to continue
to account for its employee stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" and
disclose the pro forma effects on net earnings and earnings per share had
the fair value of options been expensed. Under the provisions of APB 25,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's common stock at the date of the grant
over the amount an employee must pay to acquire the stock (Note F).
[14] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income", and No. 131, "Disclosures about Segments of an
Enterprise and Related Information". These statements will be effective
for the Company's 1999 fiscal year. Implementing SFAS 130 and SFAS 131 will
not effect the Company's financial position or results of operations.
NOTE B - FIXED ASSETS
Fixed assets consist of the following as at June 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
<C>
Computer, machinery, and office equipment $2,694,000
Furniture 454,000
Leasehold improvements 80,000
----------
3,228,000
Less accumulated depreciation 2,058,000
----------
$1,170,000
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTE C - CAPITALIZED SOFTWARE COSTS
JUNE 30,
-----------
1998 1997
----------- ------------
<S> <C> <C> <C>
<C> <C>
Balance, beginning of year (net of accumulated
amortization) $1,448,000 $1,012,000
Additions $1,556,000 929,000
Amortization (560,000) (493,000)
----------- -----------
Balance, end of year (net of accumulated amortization) $2,444,000 $1,448,000
=========== ===========
</TABLE>
NOTE D - NOTES PAYABLE
At June 30, 1998 the Company has outstanding notes as follows:
<TABLE>
<CAPTION>
<S> <C>
<C>
Promissory note bearing interest at 8 1/2% and payable on November 30, 1998
issued in connection with the acquisition of Pharmakon and JAC (the
"Acquisition Note") guaranteed by the Company, 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. $3,746,000
Notes (including $804,000 owed to directors), bearing interest at 9% per
annum, due on demand, collateralized by the trade accounts receivable of
Digimedics and subordinated to the Acquisition Note. 854,000
----------
$4,600,000
==========
</TABLE>
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
June 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
<C>
Wages and related benefits $1,244,000
Professional fees (including $114,000 due to related party, see Note K) 265,000
Interest (including $411,000 due to directors) 415,000
Income tax 121,000
Other 573,000
----------
$2,618,000
==========
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
[1] STOCK OPTIONS AND WARRANTS:
Pursuant to the Company's Stock Option Plan (the "Plan") the number of shares
which may be issued is equal to twenty percent of the outstanding shares of
common stock, except that no more than 500,000 shares may be issued pursuant
to incentive stock options. 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 511,519 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 or 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.
In November 1996, the Company granted a director of the Company options to
purchase 75,000 shares of common stock at $3.50 per share pursuant to a
consulting agreement. The options are exercisable at a rate of 25,000 options
per annum commencing November 1, 1997 and expire on November 1, 2001. The
Company determined the fair value of these options to be approximately
$117,000 which is being charged to operations over three years.
The following table sets forth summarized information concerning the Company's
stock options:
<TABLE>
<CAPTION>
JUNE 30,
1998 1997
---------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
Options outstanding at
beginning of year 710,822 $ 1.93 611,674 $ 1.37
Granted 188,174 $ 8.21 226,669 $ 3.22
Exercised (123,321) $ 1.34 (100,166) $ 1.35
Cancelled (51,529) $ 6.55 (27,355) $ 2.29
--------- --------- --------- --------
Options outstanding at
end of year 724,146 $ 3.35 710,822 $ 1.93
========= =========
Options exercisable at
end of year 411,493 $ 1.76 408,915 $ 1.56
========= =========
</TABLE>
<PAGE>
The following table presents information relating to stock options outstanding
at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE PRICE SHARES EXERCISE PRICE LIFE IN YEARS SHARES EXERCISE PRICE
------- --------------- --------------- ------- ---------------
<C> <S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
$1 - $1.76 335,045 $ 1.08 5.24 312,045 $ 1.08
$2.80 - $3.625 214,169 $ 3.22 6.14 70,419 $ 3.32
$5.25 - $11.19 174,932 $ 7.89 1.03 29,029 $ 5.25
--------- ------- ----- -------- ------
724,146 $ 3.35 $ 5.10 411,493 $ 1.76
</TABLE>
The weighted-average fair value at date of grant for options granted during
the year ended June 30, 1998 and 1997 was $5.03 and $1.89 per option,
respectively. The fair value of options at date of grant was estimated using
the Black-Scholes option pricing model utilizing the following assumptions:
JUNE 30
----------------------
1998 1997
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C>
Risk-free interest rates 5.7% - 6.2% 5.6% - 6.5%
Expected option life in years 6 - 8 3 - 8
Expected stock price volatility 50% 50%
Expected dividend yield -0- -0-
</TABLE>
Had the Company elected to recognize compensation cost based on the fair value
of the options at the date of grant as prescribed by SFAS 123, net earnings,
basic earnings per share and diluted earnings per share would have been
approximately (i) $2,468,000, $0.45 and $0.37 respectively, for the year ended
June 30, 1998 and $2,010,000, $0.40 and $0.37, respectively for the year ended
June 30, 1997.
As of June 30, 1998, the Company has outstanding warrants for the purchase of
545,000 shares of its common stock at $.50 per share and 129,695 shares at
$1.25 per share exercisable through September 30, 2004 and 40,000 shares at
$6.00 per share (Note F(2)) expiring August 26, 2000.
[2] PRIVATE PLACEMENT:
In August 1997 the Company completed a private placement of its
securities and issued 400,000 share of its common stock for $6.00 per share.
The Company also issued warrants to purchase 40,000 shares of common stock at
$6.00 per share as part of the placement fee. Costs of the private placement
and the filing of a related registration statement with respect to the private
placement shares were $310,000.
<PAGE>
NOTE G - 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:
<TABLE>
<CAPTION>
Year Ending
June 30,
-------------------
<S> <C>
<C>
1999 $ 657,000
2000 712,000
2001 698,000
2002 497,000
2003 432,000
Thereafter 81,000
----------
$3,077,000
</TABLE>
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,
1998 and 1997 aggregated $537,000 and $442,000, respectively.
[2] SOFTWARE LICENSE AGREEMENT:
In September 1990, the Company entered into an agreement to
acquire a perpetual license for a computerized information system for hospital
operating rooms. The Company is required to pay royalties of 5% to 15% of
sales of the product.
[3] CONTINGENCY:
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. In January 1998, Mediware, Digimedics, and
Continental Healthcare Systems, Inc. ("Continental"), settled an action,
initiated by a former customer of Continental in March 1997. Pursuant to the
settlement agreement, the plaintiff will receive $500,000. Mediware
contributed one-third of this total amount and Continental contributed
two-thirds of this amount. Mediware's share amounting to $167,000 has been
charged to operations in the year ended June 30, 1998. However, each of
Mediware and Continental has reserved its respective rights to seek
indemnification from each other for these payments.
Mediware is not aware of any proceedings contemplated by government
authorities that would have a material adverse effect on the Company or its
business.
<PAGE>
[4] OTHER MATTERS:
Substantially all of the Company's cash is held at two large
financial institutions.
NOTE H - RETIREMENT PLAN
Effective June 1998, the Company implemented a 401(k) Retirement Plan
(the "Retirement Plan") that covers all eligible employees. Participants may
contribute up to 15% of salary as defined. In addition, the Company may make
contributions to the Retirement Plan, subject to certain limitations.
The Company contributed approximately $7,000 to the Retirement Plan for
the year ended June 30, 1998.
NOTE I - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C> <C>
<C> <C>
Current (*):
Federal $ 98,000 $28,000
State 29,000 51,000
Foreign 12,000 6,000
-------- -------
$139,000 $85,000
-------- -------
Deferred:
Federal $398,000 $128,000
State 70,000 22,000
Benefit of net
operating loss
carry forward (810,000) (150,000)
-------- -------
$(342,000) $ 0
Benefit related
to tax deduction for
non-qualified stock
options allocated
to paid-in capital 342,000
-------- -------
0 0
-------- -------
Net provision for
income taxes $139,000 $85,000
======== =======
</TABLE>
(*) Reduced by $380,000 (1998)and $707,000 (1997) from utilization of net
operating loss carryforwards.
The principal components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
<S> <C>
<C>
Deferred tax assets:
Net operating loss carryforwards $ 1,932,000
Business tax credit carryforwards 300,000
Valuation reserves and accruals deductible in different periods 345,000
Other 32,000
------------
2,609,000
Valuation allowance (1,038,000)
-----------
1,571,000
Deferred tax liabilities:
Software cost capitalization 977,000
Amortization differences 44,000
------------
1,021,000
------------
Net deferred tax asset $ 550,000
============
</TABLE>
The net change in the valuation allowance for deferred tax assets were
decreases of $1,190,000 and $857,000 in 1998 and 1997 respectively, related to
recognition of benefits of net operating loss carryforwards.
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------
1998 1997
------------ -----------
<S> <C> <C> <C>
<C> <C>
Income tax provision - statutory rate $ 1,030,000 $ 736,000
Provision for state income taxes -
net of federal benefit 182,000 134,000
Benefit from net operating loss carryforward (1,190,000) (857,000)
Nondeductible items 41,000 66,000
Other 76,000 6,000
------------ ----------
$ 139,000 $ 85,000
============ ==========
</TABLE>
At June 30, 1998 the Company has available net operating loss ("NOL")
carryforwards to reduce future federal taxable income of approximately
$4,764,000. Of such NOL carryforwards $351,000 is subject to Separate Return
Limitation Year and additional limitations in accordance with Section 382 of
the Internal Revenue Code. In addition, the NOL carryforwards may be subject
to further limitations pursuant to Section 382 should certain future ownership
changes occur. At June 30, 1998 the Company also has available general
business tax credit carryforwards to reduce future federal income tax expense
of approximately $300,000. The net operating loss carryforwards and
business tax credit carryforwards expire in various amounts through 2009
and 2012, respectively.
NOTE J - SERVICE AGREEMENT
Concurrent with the acquisition of Pharmakon from Continental in
June 1996, Digimedics entered into an agreement with Continental to
perform Continental's obligation to provide certain services for customers
of Continental, including 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 was to be paid approximately $1,237,000 plus
30% of amounts collected for performing the foregoing services.
Effective July 21, 1997 the above agreement was modified to provide
that Digimedics will be entitled to retain 100% of any amounts collected after
July 21, 1997 with respect to accounts receivable which had not been
billed by Continental prior to the acquisition date. In addition, the amount
to be paid by Continental to Digimedics was reduced from $1,237,000 to
$437,000. Such amount ($437,000) was effectively received as of July
21, 1997 by the reduction of the principal amount of the Acquisition Note.
In fiscal 1998 collections on the service agreement were insignificant. (Note
E).
<PAGE>
NOTE K - RELATED PARTY TRANSACTIONS
During the years ended June 30, 1998 and 1997 approximately
$292,000 and $183,000, respectively, was incurred for legal fees provided
by a firm, a counsel to which is also a director of the Company. The
majority of these fees represent costs incurred in connection with the
Company's acquisitions and the private placement of the Company's securities
referred to in Note F.
NOTE L - INFORMATION ON BUSINESS SEGMENTS
The Company operates in only one business segment, specifically
engaging in development, installation and maintenance of computerized
information systems for hospitals. The Company's activities consist of
operations in the United States and the United Kingdom. Revenue, income
and identifiable assets by geographical area as at and for the year ended
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
<C> <C>
Revenue from unaffiliated customers:
United States $ 18,860,000 $16,952,000
United Kingdom 1,670,000 1,951,000
-------------------- ------------
Total $ 20,530,000 $18,903,000
==================== ============
Net Earnings:
United States $ 2,902,000 $ 2,099,000
United Kingdom 28,000 (18,000)
-------------------- ------------
Total $ 2,930,000 $ 2,081,000
==================== ============
Identifiable Assets:
United States $ 22,202,000 $15,936,000
United Kingdom 1,203,000 1,413,000
-------------------- ------------
Total $ 23,405,000 $17,349,000
==================== ============
</TABLE>
NOTE M - SUBSEQUENT EVENT
On September 24, 1998, Informedics, Inc. ("Informedics") was merged into
a newly formed wholly-owned subsidiary of the Company whereby the outstanding
common shares of Informedics were automatically converted into the right to
receive 439,525 shares of the Company's common stock on the basis of one
Company share for each 6.3 Informedics shares. Informedics develops, markets
and supports a line of stand-alone computer based management information
systems for use in the blood bank and clinical departments of hospitals. The
cost of the acquisition, which will be accounted for as a purchase,
aggregated $5,307,000 (including acquisition costs of $630,000) based on
the market price of the Company's common stock in December 1997, when the
acquisition agreement was entered into.
<PAGE>
The following unaudited pro forma financial information gives effect to the
merger as if it had occurred at the beginning of the respective years. An
estimated non-recurring charge of approximately $5,000,000 for in-process
research and development which will be recorded by the Company on consummation
of the acquisition has not been considered in the pro forma results. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the acquisition taken place during
such periods.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------
1998 1997
-------------- -----------
<S> <C> <C>
<C> <C>
Revenue: $ 23,440,000 $22,708,000
=============== ===========
Net Earnings $ 3,223,000 $ 1,517,000
=============== ===========
Earnings per share - basic $ 0.55 $ 0.30
=============== ===========
Earnings per share - diluted $ 0.45 $ 0.25
=============== ===========
Weighted average shares outstanding - Basic 5,892,000 5,411,000
=============== ===========
Weighted average shares outstanding assuming dilution 7,086,000 6,368,000
=============== ===========
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
Information required by Part III will be supplied
by a supplemental filing of Part III or by the
incorporation by reference of a Proxy Statement
meeting the requirements of Section 14(a).
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K
Reports on Form 8-K
- ----------------------
None
Exhibits
- --------
A list of the Exhibits is set forth in the Exhibit Index, which index
precedes such Exhibits, and which is incorporated herein by this reference
thereto.
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIWARE Information Systems, Inc.
(Registrant)
By: /s/ Les N. Dace
-------------------------
Les N. Dace, President
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Les N. Dace President, CEO & Director October 13, 1998
- ----------------------
(Les N. Dace) (Principal Executive Officer/Director)
/s/ George J. Barry Chief Financial Officer October 13, 1998
- ----------------------
(George J. Barry) (Principal Accounting Officer)
- ---------------------- Chairman of the Board October 13, 1998
(Lawrence Auriana)
* Jonathan Churchill Director October 13, 1998
- ----------------------
(Jonathan Churchill)
* Roger Clark Director October 13, 1998
- ----------------------
(Roger Clark)
- --------------------- Director October 13, 1998
(Joseph Delario)
* John C. Frieberg Director October 13, 1998
- ----------------------
(John C. Frieberg)
Walter Kowsh, Jr. Director October 13, 1998
- ----------------------
(Walter Kowsh, Jr.)
- --------------------- Director October 13, 1998
(Hans Utsch)
* Clinton G Weiman Director October 13, 1998
- ----------------------
(Clinton G. Weiman)
* By George J. Barry
-----------------
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director of Mediware
Information Systems, Inc. (the "Company") constitutes and appoints Lawrence
Auriana, George Barry 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 10-K, including Form 10-KSB, and any
amendments or supplements thereto of the Company, and to file the same 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: October 13, 1998
---------------------------
Les N. Dace
/s/ George J. Barry
---------------------------
George J. Barry
---------------------------
Lawrence Auriana
/s/ Jonathan Churchill
---------------------------
Jonathan Churchill
/s/ Roger Clark
---------------------------
Roger Clark
---------------------------
Joseph Delario
/s/ John C. Frieberg
---------------------------
John C. Frieberg
/s/ Walter Kowsh, Jr.
---------------------------
Walter Kowsh, Jr.
---------------------------
Hans Utsch
/s/ Clinton G. Weiman
---------------------------
Clinton G. Weiman
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
<C> <C>
Exhibit
No. Description
- ------- -------------------------------
2 Agreement and Plan of Merger Incorporated by reference to Annex A to the
dated December 18, 1997, Prospectus in Registration Statement on Form S-4
between Mediware Information (File No. 333-57693) ("1998 Registration Statement")
Systems, Inc. and Informedics,
Inc., as amended on April 30,
1998 and August 10, 1998
3.1 Restated Certificate of Inc Incorporated by Reference to Exhibit No. 4 to
Incorporation the Registration Statement on Form S-8 (File No.
333-759
1) (the "1996 Registration Statement)
3.2 By-laws *
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
Service 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.
10.3.3.1 Second Amended and Restated ****
Secured Promissory Note of
Digimedics Corporation dated
July 21, 1997 in the principal
amount of $4,195,419 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
Mediware and Continental
Healthcare Systems, Inc.
10.3.7 Guaranty dated June 17, 1996 by ***
Mediware in favor of
Continental Healthcare Systems,
Inc.
10.3.8 Agreement Regarding Collection ****
of Accounts Receivable and
Servicing of Customers as
Related to Deferred Revenues
dated as of June 17, 1996
between Digimedics Corporation
and Continental Healthcare
Systems, Inc.
10.3.8.1 Agreement dated July 21, 1997 ****
between Digimedics Corporation
and Continental Healthcare
Systems, Inc. modifying the
Agreement Regarding Collection
of Accounts Receivable and
Servicing of Customers
10.7.1 Letters outlining terms of ****
engagement for Les Dace,
Thomas Mulstay, John Esposito,
George Barry and Rodger
Wilson
10.8 Employee Stock Option Plan, **
1982, as amended
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 Incorporated by reference to Exhibit C to
Plan Company's Proxy Statement dated December 17,
1991
10.14 Stock Option Plan for Non- Incorporated by reference to Exhibit B
Employee Directors 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 Incorporated by reference to Exhibit 10.7 to the
Agreement for Joseph Delario Registration Statement on Form SB-2
(File No. 333-18277)
10.18 Warrant issued to Oscar Gruss ****
and Son Incorporated to
purchase 40,000 shares of
Common Stock
10.19 1997 Stock Option Plan for Non- Incorporated by reference to Exhibit A to Companys
Employee Directors Proxy Statement dated November 21, 1997.
10.20 Letter outlining term of Incorporated by reference to Exhibit 10.20 to the
engagement for John Tortorici 1998 Registration Statement.
10.21 Lease with Beim & James Incorporated by reference to Exhibit 10(iii) to
Properties, as amended Informedics Inc. Annual Report on Form 10-KSB for
the year ended October 31, 1990 (SEC File No. 000-
12939).
10.22 Amendments to Lease with Krus Incorporated by reference to Exhibit 10(v) to
Way Holdings, Inc. (formerly Informedics' Annual Report on Form 10-KSB for the
Beim & James Properties) year ended October 31, 1994.
10.23 Licensing Agreement dated
7/1/97 between BAXA
Corporation and Mediware
Information Systems, Inc.
11 Schedule of Computation of Net
income Per Share
21 Subsidiaries of the registrant *
23.2 Consent of Richard A. Eisner &
Company, LLP
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
________________________________
* 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 Registration Statement on Form S-18 (File No. 33-40411).
*** Incorporated by reference to the Exhibits 2(a), 2(b), 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.
**** Incorporated by reference to the Exhibits bearing the same designation
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997.
Exhibits 10.7.1, 10.8, 10.9, 10.10, 10.13, 10.14, 10.15, 10.17, 10.19 and
10.20 are management contracts or compensatory plans or arrangements.
<PAGE>
EXHIBIT 10.23
LICENSING AGREEMENT
This licensing agreement ("Agreement") is made and entered into on this 1st
day of July, 1997, ("Effective Date") by and between BAXA Corporation
("Baxa"), a Colorado corporation with its principal place of business at 13760
East Arapahoe Rd, Englewood, CO 80112-3903 and Mediware Information Systems,
Inc. ("Mediware"), a New York corporation with its principal place of business
at 1121 Old Walt Whitman Road, Melville, NY 11747.
STATEMENT OF PURPOSE
A. Mediware is in the business of developing proprietary computer software
applications, integrating them with databases and software developed by others
and distributing the integrated software Products in order to provide
comprehensive information solutions desired by healthcare providers.
B. Baxa owns, distributes and supports certain computer software Products.
C. Mediware desires to acquire from Baxa, and Baxa desires to grant to
Mediware, a license to integrate certain Baxa Products with Mediware's
proprietary software and software developed by third parties and to market and
distribute the combined Product, together with other Products and services, to
Mediware's customers and prospects under the terms and conditions herein
provided.
AGREEMENT
In consideration for the mutual promises set forth below, and for other
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS. The following capitalized terms used in this Agreement
shall have the following meanings:
1.1. Product: A Baxa computer software Product, as well as its Updates,
- ---- -------
listed in the Product Addendum (Addendum A). The Product(s) shall be supplied
in a format, and according to a schedule, agreed upon in writing by Baxa and
Mediware. Any change in the data format submitted by Baxa that would require
substantial software modification on the part of Mediware may be effected on
three-month's (3) advance written notice by Baxa to Mediware, subject to the
written approval of Mediware which approval will not be unreasonably withheld.
Product(s) may be added from time to time by written agreement, with Addendum
A being amended accordingly.
1.2. Update: A revised Baxa computer software Product which is generally
- ---- ------
offered by Baxa to its customers. Updates do not include any options or future
Products that Baxa develops and/or licenses separately.
1.3. Application Program: Mediware's value added application software
- ---- -------------------
described in the Value Added Program Addendum (Addendum B).
1.4. Integrated Package: The combination of the Product(s) and the
- ---- -------------------
Application Program.
1.5. End User: A healthcare facility which is granted licensing rights
- ---- --------
by Mediware, which permits its Authorized Users to use an object code copy of
the Product(s) in connection with the license and use of the Integrated
Package.
1.6. Authorized User: A healthcare professional employed by or having
- ---- ---------------
privileges at End User's facility, for whom End User is paying fees to
Mediware to allow such healthcare professional to use the Integrated Package.
1.7. Documentation: Written materials which relate to the use of the
- ---- -------------
Product(s) made available to Mediware, including manuals, training materials,
instructional materials or guidelines, and systems administration guidelines.
1.8. Mediware License Agreement: A written agreement licensing
- ---- ----------------------------
Integrated Package to End User.
1.9. Proprietary Information: Any and all information which one party
- ---- -----------------------
provides or makes available to the other party and which (i) if in tangible
form, has been marked as proprietary or confidential by a stamp or other
obvious written identification and (ii) if in oral or visual form, has been
preceded by an assertion of confidentiality or proprietorship.
2. TERM.
This Agreement shall commence on the Effective Date and shall continue in
full force and effect for a period of ten (10) years ("Initial Term"), unless
earlier terminated in accordance with the termination provisions in this
Agreement. This Agreement may be extended beyond the Initial Term upon written
agreement of the parties as to fees and terms.
3. LICENSE.
3.1. License Grant. Baxa hereby grants to Mediware a nonexclusive,
- ---- --------------
perpetual license to use Product(s) (in object code form only) on any computer
system operated by Mediware for the purposes of developing Integrated Packages
consistent with this Agreement and for providing appropriate technical support
to its End Users.
In addition, Mediware may use the Product(s), (in object code form only) or
portions thereof, as incorporated in the Integrated Package, for
demonstrations to potential End Users, including use of the Integrated Package
on hardware in the possession of the potential End User, provided such use is
reasonably necessary to market the Integrated Package and Mediware takes
reasonable precautions to protect Baxa's proprietary rights in the Product(s).
3.2. Sublicense. Baxa further grants Mediware a nonexclusive, perpetual
- ---- ----------
license to sell and distribute the Product(s) (in object code form only) as
incorporated in the Integrated Package, and not on a stand-alone basis, to End
Users with the right to grant such End Users a sublicense to use the
Product(s) as part of the Integrated Package for the purposes contemplated by
the Mediware License Agreement. Mediware shall use all practical means
available, both contractual and technical, to control the restricted use by an
End User of any Product(s) contained within an Integrated Package. If an End
User uses any Product(s) contained within an Integrated Package beyond the
provisions of the applicable Mediware License Agreement, Mediware, upon
learning of such misuse, shall inform Baxa promptly, and Mediware shall
promptly enforce the terms of the Mediware License Agreement, subject to the
exercise of its reasonable discretion regarding the commercial and economic
consequences of such enforcement.
3.3. Updates. Baxa will periodically deliver Updates of the Product(s) to
- ---- -------
Mediware, as they are generally made available by Baxa to its customers, which
Mediware will incorporate into the Integrated Package(s) to the extent
technically and economically practical. Updates are subject, as they become
available, to the terms of this Agreement.
3.4. Changes. Baxa reserves the right to make changes to the Product(s),
- ---- -------
including, without limitation, ceasing to distribute a Product or a portion of
a Product. Notice of these proposed changes to the Product(s) will be
documented in the form of detailed specifications at least ninety (90) days
prior to the intended change.
3.5. Copies. Mediware may make copies of object code of the Products for
- ---- ------
the functions required or permitted in this Section 3, and may also make a
reasonable number of copies for purposes of legal archival, backup, and
disaster recovery.
3.6. Escrow. As part of this Agreement and within thirty (30) days of
- ---- ------
its execution, Baxa and Mediware will enter into a standard escrow agreement
with Fort Knox Escrow Services, Inc. Baxa will deliver the source code and
Documentation associated with Product(s) to Fort Knox Escrow Services
immediately on completing the escrow agreement. Additionally, Baxa will
similarly deposit Updates as they are made available. Mediware agrees to pay
fifty percent (50%) of the fees paid to Fort Knox Escrow Services in
conjunction with this escrow requirement. The escrow agreement will provide
release of source code to Mediware for its control if Baxa:
3.6.1. should cease doing business and cease to provide or support
Product;
3.6.2. is found by a court of competant jurisdiction to be in breach of
its obligations;
3.6.2.1. proposes changes to Product(s), as part of an Update, to an
extent which Mediware determines would cause Product(s) to be unusable in or
incompatible with Integrated Package.
3.6.3. (i) files in any court or agency pursuant to any statute or
regulation of the United States or any foreign country, a petition in
bankruptcy or insolvency or for reorganization or for an arrangement or for
the appointment of a receiver or trustee of Baxa or of its assets, (ii) is
served with an involuntary petition against it filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof, or (iii) makes an assignment for the benefit of
creditor if such occurance causes Baxa to cease to provide or support Product.
4. LIMITATIONS ON USE.
Mediware shall not use or duplicate the Product(s) for any purpose other than
as specified in this Agreement. Mediware shall not make the Product(s)
available or market the Product(s), except within an Integrated Package
available to the End Users, without the prior written consent of Baxa.
Further, Mediware shall not make the Product(s) available or market the
Product(s) to vendors of healthcare information systems, other than authorized
distributors and sales representatives appointed by Mediware to sell the
Integrated Package, without the prior written consent of Baxa. Mediware
expressly covenents that unless and until it receives access to the source
code of the Product(s) pursuant to the terms of this Agreement, Mediware shall
not attempt to obtain such source code by any method, including acquisition of
the same from a third party, de-compilation, or reverse engineering.
5. DOCUMENTATION.
Mediware shall have the right to incorporate portions of the
Documentation in documentation created by Mediware for the Integrated Package,
provided that Mediware shall not make available to the End Users any other
information that would enable such End Users to utilize the Product beyond the
uses permitted by this Agreement.
6. MARKETING.
In marketing the Integrated Package, Mediware shall: (i) avoid deceptive,
misleading or unethical practices that may be detrimental to Baxa or to the
Product(s); (ii) not make any representations, warranties or guarantees on
behalf of Baxa to the End Users concerning the Product(s) except as set forth
in the Documentation; (iii) comply in all material respects with all
applicable local, state, federal, foreign and other laws and regulations in
performing its duties under this Agreement with respect to the Product(s); and
(iv) use reasonable commercial efforts to promote, market and sell the
Product(s) as used within the Integrated Package(s), as permitted under this
Agreement.
In marketing the Product(s), Baxa shall: (i) avoid deceptive, misleading or
unethical practices that may be detrimental to Mediware, to the Product(s), or
to the Integrated Package(s); (ii) not make any representations, warranties or
guarantees on behalf of Mediware to the End Users concerning the Product(s) or
Integrated Package(s); and (iii) comply with all applicable local, state,
federal, foreign and other laws and regulations in performing its duties with
respect to the Product(s).
Baxa and Mediware agree to produce mutually acceptable newsletter articles,
press releases, and tradeshow activities, which promote the use of Product(s)
within the Integrated Package.
7. INTELLECTUAL PROPERTY.
7.1. Proprietary. Mediware recognizes that the Product(s) and
- ---- -----------
Documentation are the property of Baxa, including, but not limited to, any
trademarks, copyrights, patents and other intellectual property rights that
currently or may in the future exist, and that the only rights and privileges
that Mediware has with regard to the subject matter of this Agreement are
those rights and privileges explicitly granted in this Agreement by Baxa to
Mediware.
7.2. Copyright. Mediware shall retain all Baxa copyright notices on the
- ---- ---------
Product(s) used by Mediware. Mediware shall include on all marketing and
promotional materials for the Integrated Package, printed or electronic, a
reproduction of Baxa's copyright notices in the form provided by Baxa.
Additionally, Mediware will include on the splash and an applicable help
screen, a reproduction of Baxa's copyright notices.
7.3. Trademarks. During the term of this Agreement, Mediware is authorized
- ---- ----------
to use Baxa's trademarks and logo in connection with Mediware's distribution,
advertising and promotion of the Integrated Package(s). The right to use
Baxa's trademarks and logo is granted provided that all materials
incorporating their usage shall be reviewed and approved by Baxa's Vice
President of Sales prior to their use in Mediware's distribution, advertising
and promotion of the Integrated Package, such approval not to be unreasonably
withheld. Baxa's approval will be deemed to have been given if it does not
deliver written notice of objection to Mediware within fourteen (14) days
after receipt of a request from Mediware for such approval. All rights
conferred upon Mediware pursuant to this subsection 7.3 shall cease upon
termination or expiration of this Agreement. Mediware shall not alter Baxa's
trademarks or logo, nor shall Mediware affix said trademarks or logo to
Products other than the Integrated Package(s). Mediware shall have the right
to affix its own copyrights, trademarks and logo to the Integrated Package(s),
provided, that in so doing, Mediware does not: (i) remove or obscure Baxa
proprietary marks as described in this subsection 7.3, or (ii) do so in a way
confusing to the End Users (with regard to the origin of the Product(s).
7.4. Notice. Mediware will promptly notify Baxa if it becomes aware that
- ---- ------
any End User is using any of the Product(s) or any variation of the Product(s)
in violation of the Mediware License Agreement or is infringing any of Baxa's
intellectual property rights, including, but not limited to, trademarks,
copyrights, trade secrets and patents.
8. FEES AND PAYMENTS.
8.1. License Fees. Baxa agrees to license Product(s) to Mediware without
- ---- ------------
fee, charge, or payment. Upon the execution of this Licensing Agreement,
Mediware will be deemed to have a fully paid irrevocable license.
8.2. Other Consideration. As full consideration for the license granted
- ---- -------------------
herein, Mediware agrees to include in the Integrated Package(s) an interface
to Baxa compounding devices with no licensing fees to the End User. Mediware
reserves the right, at its own discretion and without payment to Baxa, to levy
a charge to End User for consultative or implementation services and annual
software support fees.
9. REPORTING.
Within ninety (90) days of the last day of each calendar year, Mediware shall
send Baxa a report identifying each End User licensing the Integrated Packages
on the last day of the calendar year. Mediware shall send reports to: BAXA
Corporation
Chief Financial Officer
13760 East Arapahoe Rd
Englewood, CO 80112-3903
<PAGE>
TECHNICAL SUPPORT.
9.1. Mediware's Technical Support Responsibilities.
- ---- ------------------------------------------------
9.1.1. Installation. Mediware shall be responsible for any assistance
- ------ ------------
needed by the End Users to install the Integrated Package at the End User
sites and for providing the End Users with initial training and consultation.
9.1.2. Support. Mediware shall be responsible for direct technical support
- ------ -------
to the End Users. Any questions from the End Users directed to Baxa shall be
forwarded to Mediware. Direct technical support includes, but is not limited
to (i) documentation problems; (ii) error corrections in Application Programs
and/or Integrated Packages; (iii) answering Integrated Package use questions;
and, (iv) training of End Users.
9.2. Baxa's Technical Support Responsibilities.
- ---- --------------------------------------------
9.2.1. Telephone Technical Support. Baxa shall be responsible for
- ------ -----------------------------
providing Mediware with telephone consultation and assistance at 800/827-3220
during the hours from 8:00 a.m. to 5:00 p.m. mountain time Monday through
Friday (except for federal holidays).
9.2.2. Corrections. Baxa shall be responsible for providing Mediware with
- ------ -----------
corrections to defects as reported by Mediware in the then-current releases of
the Product(s) within fifteen (15) working days of report by Mediware.
10. PROPRIETARY RIGHTS AND CONFIDENTIALITY.
10.1. Ownership and Protection. Each party agrees that it has no interest
- ----- -------------------------
in or right to use the Proprietary Information of the other except in
accordance with the terms of this Agreement. Each party acknowledges that it
may disclose Proprietary Information to the other in the performance of this
Agreement. The party receiving the Proprietary Information shall: (i) maintain
it in strict confidence and take all reasonable steps to prevent its
disclosure to third parties, except to the extent necessary to carry out the
purposes of this Agreement, in which case the recipient of the Confidential
Information shall make these confidentiality restrictions known to the third
parties to whom the disclosures are made; (ii) use at least the same degree of
care as it uses in maintaining the secrecy of its own Proprietary Information
(but no less than a reasonable degree of care); and, (iii) not remove any
proprietary, confidential or copyright notices placed on the Proprietary
Information.
10.2. Limitation. Neither party herein shall have any obligation
- ----- ----------
concerning any portion of the Proprietary Information of the other which: (i)
is publicly disseminated prior to or after disclosure hereunder other than
through acts or omissions attributable to the recipient or its employees or
representatives; (ii) as demonstrated by prior written records, is already
known to the recipient at the time of disclosure hereunder or is independently
developed by its employees who are not given access to the initial Proprietary
Information; (iii) is disclosed in good faith to the recipient by a third
party having a lawful right to do so; or (iv) is required to be disclosed by
the receiving party by applicable law or legal process, provided that the
receiving party shall promptly notify the other party so that it can take
steps to prevent its disclosure.
10.3. Remedies for Breach. In the event of a breach of this Section 10,
- ----- -------------------
the parties agree that the nonbreaching party would suffer irreparable harm
and the total amount of monetary damages for any injury to the nonbreaching
party would be impossible to calculate and would therefore be an inadequate
remedy in and of itself. Accordingly, the parties agree that the nonbreaching
party shall be entitled to temporary, preliminary and permanent injunctive
relief against the breaching party, its officers or employees, in addition to
such other rights and remedies to which it may be entitled at law or in
equity.
11. INDEMNIFICATION OF MEDIWARE.
11.1. Scope of Indemnification. Baxa shall defend, indemnify and hold
- ----- ------------------------
Mediware harmless against any and all losses, liabilities, costs, expenses and
damages (including reasonable attorney's fees) arising out of, related to or
in any way connected with any claim against Mediware that the Product(s)
licensed and used within the scope of this Agreement infringe a United States
copyright, proprietary or intellectual property right of any third party
("Infringement") or are defective, or from any breach by Baxa of its
representations and warranties set forth herein, provided that:
11.1.1. Mediware notifies Baxa in writing within twenty (20) days after
Mediware receives notice of the claim of Infringement;
11.1.2. Baxa has sole control of the investigation, preparation, defense
and all related settlement negotiations, provided that (i) Baxa will not enter
into any settlement without Mediware's prior written approval of the terms
thereof, (ii) Baxa will report to Mediware on a regular basis on the status of
the matter and (iii) if Mediware in good faith, reasonably determines that a
conflict of interest exists between Mediware and Baxa with respect to such
matter, Mediware may engage counsel of its choosing to represent its
interests.
11.1.3. At Baxa's request, Mediware provides Baxa with all reasonable
assistance, information and authority to perform the functions set forth in
subsection 11.1.2. Baxa will reimburse reasonable out-of-pocket expenses
incurred by Mediware in providing such assistance.
11.2. Rectification of Infringement. In the event the Product(s) is held,
- ----- -----------------------------
or is believed by Baxa, to infringe the rights of any third party or to be
defective, Baxa shall either obtain the right to continue using the Product(s)
at issue if reasonably possible, or else terminate Mediware's right to use
such Product(s) and:
11.2.1. Replace or modify the Product(s) so as to be noninfringing or not
defective; or
11.2.2. Remit to Mediware, as of the termination date, a refund of any
license fees attributable to the particular Product(s) paid to Mediware by End
Users, to be paid back to the appropriate End Users and promptly reimburse
Mediware for any other loss incurred by it resulting from such infringement.
12. TERMINATION.
12.1. Termination for Breach. Either party may terminate this Agreement
- ----- ----------------------
prior to the expiration of the Term in the event that the other party
materially defaults in performing any obligation under this Agreement and such
default continues unremedied for a period of thirty (30) days following
written notice of default.
12.2. Rights Upon Expiration or Termination for Breach.
- ----- ------------------------------------------------------
12.2.1. Baxa will allow Mediware to maintain the license for Product(s)
for those End User sites where Integrated Package has been licensed by
Mediware to End User.
12.2.2. Baxa shall no longer have any obligation to provide Mediware with
technical support services; however, upon agreement of both parties, Mediware
may arrange to continue technical support for the End Users under Baxa's
then-current policies.
12.2.3. Mediware shall no longer have any obligation to provide End User
with an interface to Baxa's compounding device.
12.2.4. Mediware will be allowed to sell and/or distribute its then
existing inventory of Integrated Packages and to complete all Mediware License
Agreements executed as of the date of the termination of this Agreement.
12.3. Effect of Expiration or Termination. Any election to terminate under
- ----- -----------------------------------
this Section 12 shall not limit either party's right to seek equitable or
other appropriate relief in relation to any breach.
12.4. Survival. The parties' rights and obligations under subsections
- ----- --------
12.2, 12.3, and Sections 4, 7, 8, 9, 10, 11, 13, 14, 15, and 16 shall survive
expiration or termination of this Agreement.
13. INDEMNIFICATION OF BAXA.
13.1. Scope of Indemnification.Mediware shall defend, indemnify and hold
- ----- -------------------------
Baxa harmless against any and all losses, liabilities, costs, expenses and
damages (including, reasonable attorney's fees), arising out of, related to,
or in any way connected with any claim against Baxa that the Product(s)
licensed and used within the scope of this Agreement infringe a United States
copyright, proprietary or intellectual property right of any third party
("Infrigement") or are defective, or from any breach by Mediware of its
representations and warranties set forth herein, provided that:
13.1.1. Baxa notifies Mediware in writing within twenty (20) days after
Baxa receives notice of the claim of Infringement;
13.1.2. Mediware has sole control of the investigation, preparation,
defense and all related settlement negotiations, provided that (I) Mediware
will not enter into any settlement without Baxa's prior written approval of
the terms thereof, (ii) Mediware will report to Baxa on a regular basis on the
status of the matter and (iii) if Baxa in good faith, reasonably determines
that a conflict of interest exists between Baxa and Mediware with respect to
such matter, Baxa may engage counsel of its choosing to represent its
interest;
13.1.3. At Mediware's request, Baxa provides Mediware with all reasonable
assistance, information and authority to perform the functions set forth in
subsection 14.1.2. Mediware will reimburse reasonable out-of-pocket expenses
incurred by Baxa in providing such assistance.
14.2 Rectification of Infrigement. In the event the Product(s) is held, or
- ---- ----------------------------
is believed by Mediware to infringe the rights of any third party or to be
defective, Mediware shall either obtain the right to continue using the
Product(s) at issue if reasonably possible, or else terminate Baxa's right to
use such Product(s)
14.2.1 Replace or modify the Product(s) so as to be noninfringing or not
defective; or
14.2.2 Remit to Baxa, as of the termination date, a refund of any license
fees attributable to the particular Product(s) paid to Baxa by End Users, to
be paid back to the appropriate End Users and promptly reimburse Baxa for any
other loss incurred by it resulting from such infringement.
14. WARRANTY.
14.1. Limited Warranty. Baxa warrants that when delivered, the Product(s)
- ----- ----------------
will substantially conform to the specifications listed in the Documentation
when operated on the appropriate hardware/operating system environment. Baxa
does not warrant that the Product(s) will meet Mediware's End Users'
requirements.
14.2. Exclusion. THE WARRANTIES STATED HEREIN ARE SOLE AND EXCLUSIVE AND
- ----- ---------
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, AND BAXA EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
USE.
14.3. Baxa represents and warrants that (i) it owns the entire right,
title, and interest in and to the Product(s) free and clear of all liens,
claims and encumbrances and has full corporate power and authority to enter
into this Agreement; (ii) to Baxa's best knowledge, no third party has claimed
that it has any proprietary or intellectual property rights in or to the
Product(s) or the Documentation and Baxa has no reason to believe that any
such claim is pending; and, (iii) Baxa is not aware of the infringement by any
third party of any of Baxa's proprietary or intellectual property rights in
the Product(s) or Documentation.
14.4. Mediware represents and warrants that (I) it owns the entire right,
title, and interest in and to the Product(s) free and clear of all liens,
claims and encumbrances and has full corporate power and authority to enter
into this Agreement, (ii) to Mediware's best knowledge, no third party has
claimed that it has any proprietary or intellectual property rights in or to
the Product(s) or the Documentation and Mediware has no reason to believe that
any such claim is pending, and (iii) Mediware is not aware of the infringement
by any third party of any of Mediware's proprietary or intellectual property
rights in the Product(s) or Documentation.
15. LIMITATIONS OF LIABILITY.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA OR USE,
INCURRED BY ANY OTHER PARTY, WHETHER IN AN ACTION IN CONTRACT (INCLUDING
PURSUANT TO ANY INDEMNITY GIVEN IN THIS AGREEMENT) OR TORT, EVEN IF THE OTHER
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
16. GENERAL TERMS AND CONDITIONS.
16.1. Nondisclosure. Neither party herein shall announce this Agreement in
- ----- -------------
a press release or other promotional material nor disclose the terms and
conditions of this Agreement, without first obtaining the written consent of
the other party, except as may be required by legal procedures or by law.
16.2. Relationship Between Parties. In all matters relating to this
- ----- ------------------------------
Agreement, Mediware will act as an independent contractor. Neither party
herein will represent that it has any authority to assume or create any
obligation, express or implied, on behalf of the other party, nor to represent
the other party as agent, employee or in any other capacity.
Nothing in this Agreement shall be construed to limit either party's right to
independently develop software that is functionally similar to the other
party's Products, so long as proprietary information of the other party is not
used in such development. Both parties acknowledge that the other is also in
the business of developing and marketing applications and licensing them to
third parties.
16.3. Assignment. Neither party herein may assign any rights, duties or
- ----- ----------
privileges under this Agreement without the prior written consent of the other
party, which consent shall not be unreasonably withheld. With respect to any
assignment, the parties agree that they shall still be bound by the provisions
set forth in Section 10.
16.4. Notice. All written notices between the parties shall be deemed to
- ----- ------
have been given if sent by certified or registered mail, express courier,
telegram, or personal delivery to the appropriate address set forth on the
first page of this Agreement, or to such other address as the parties shall
provide in writing.
16.5. Interpretation. Words denoting the singular will include the plural
- ----- --------------
and vice versa.
16.6. Governing Law. This Agreement shall be construed, and the rights and
- ----- -------------
liabilities of the parties hereto determined, in accordance with the laws of
the State of New York without giving effect to any body of law or precedent
relating to conflicts of laws.
16.7. Severability. Any provision of this Agreement held to be illegal or
- ----- ------------
unenforceable shall be deemed amended to the extent necessary to conform to
applicable laws or regulations, or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of the Agreement shall continue in full force and effect.
16.8. Waiver. The waiver or failure of either party to exercise in any
- ----- ------
respects any right provided for in this Agreement shall not be deemed a waiver
of further rights hereunder. Any such waiver must be in writing and signed by
the party to be charged therewith.
16.9. Counterparts. This Agreement may be executed in any number of
- ----- ------------
counterparts, each of which shall be considered to be an original and all of
which shall constitute one and the same document.
16.10. Addenda. This Agreement incorporates the attached Addenda A, B and
- ------ -------
any subsequent Addenda referencing this Agreement, which are signed by both
parties.
16.11. Force Majeure. Neither party shall be liable to the other for
- ------ --------------
failure or delay in the performance of a required obligation if such failure
or delay is caused by strike, riot, fire, flood, natural disaster or other
similar cause beyond its control. Prompt written notice within thirty (30)
days of such condition shall be provided to the other party by the party so
effected. Either party may terminate this Agreement if such force majeure
continues for a period of ninety (90) days.
16.12. Entire Agreement. This Agreement sets forth the entire Agreement
- ------ ----------------
between the parties herein with respect to the subject matter hereof, and
supersedes any and all prior proposals, agreements and representations
pertaining to such subject matter between them, whether written or oral. This
agreement may be amended, modified, altered or supplemented only by mutual
agreement of the parties in writing.
16.13. Binding Effect: This Agreement shall be binding upon and inure to
- ------ --------------
the benefit of the parties hereto and their respective successors and assigns,
subject to Section 16.3, above.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officials on the date first above written.
BAXA CORPORATION MEDIWARE INFORMATION SYSTEMS, INC.
By: ___/s/____________________ By: ___/s/______________________
Name: Ken Barnaby Name: Rodger P. Wilson, R.Ph.
Title: VP-Sales Title: VP/GM
<PAGE>
ADDENDUM A
----------
PRODUCT ADDENDUM
BAXA PRODUCT(S)
- - Baxa TPN Calculation Server.
- - Baxa TPN Calculation Information Database
<PAGE>
ADDENDUM B
----------
VALUE ADDED PROGRAM ADDENDUM
MEDIWARE INTEGRATED PACKAGE(S)
Digimedics WORx Pharmacy Information System including inpatient and
ambulatory care services.
Digimedics WORx Integration Toolkit including interfaces.
Digimedics WORx Mobility Server.
Digimedics WORx SDK.
<PAGE>
EXHIBIT 11
MEDIWARE INFORMATION SYSTEMS, INC.
COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
--------- ---------
<S> <C> <C> <C>
<C> <C>
Net earnings 2,930,000 2,081,000
========= =========
Shares used in per share calculation-basic 5,447,000 4,965,000
========= =========
Basic earnings per share 0.54 0.42
========= =========
Diluted EPS:
Net earnings 2,930,000 2,081,000
========= =========
Shares used in per share calculation-diluted
Basic shares 5,447,000 4,965,000
========= =========
Shares issuable upon exercise of stock options
and warrants net of shares assumed to be
repurchased (at the average market price for
the period) from exercise proceeds 1,183,000 952,000
--------- ---------
6,630,000 5,917,000
========= =========
Diluted earnings per share 0.44 .35
========= =========
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-07591) pertaining to Mediware Information
Systems, Inc. equity incentive and stock option plans of our report dated
September 24, 1998 on the financial statements as of and for the year ended
June 30, 1998 which is included in the annual report on Form 10-KSB for the
year ended June 30, 1998.
Richard A. Eisner & Company, LLP
New York, New York
October 12, 1998
<PAGE>
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] JUN-30-1998
[CASH] 4,681
[SECURITIES] 0
[RECEIVABLES] 7,485
[ALLOWANCES] 490
[INVENTORY] 331
[CURRENT-ASSETS] 13,561
[PP&E] 2,058
[DEPRECIATION] 888
[TOTAL-ASSETS] 23,747
[CURRENT-LIABILITIES] 11,535
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 559
[OTHER-SE] 11,631
[TOTAL-LIABILITY-AND-EQUITY] 23,747
[SALES] 20,530
[TOTAL-REVENUES] 20,530
[CGS] 5,940
[TOTAL-COSTS] 17,135
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 456
[INCOME-PRETAX] 3,069
[INCOME-TAX] 139
[INCOME-CONTINUING] 2,930
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,930
<EPS-BASIC> .54
[EPS-DILUTED] .44
</TABLE>
