UNITED STATES
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, 1999
[_] 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.
(Exact name of the registrant as specified in its charter)
New York 11-2209324
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1121 Old Walt Whitman Road, Melville, NY 11747-3005
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (516) 423-7800
Securities registered pursuant to 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 Small Cap Market
The Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) 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 filing requirements
for the past 90 days. [ X ] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not 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 $28,339,000
(Continued)
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of common stock on September
28,1999 as reported on the NASDAQ Small Cap Market, was approximately
$34,558,300
The number of shares outstanding of the registrant's common stock, as of
September 28, 1999 was 6,164,132 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III of this Form 10-KSB
Report.
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PART 1
Item 1. Business
General
Mediware Information Systems, Inc. and its subsidiaries ("the Company")
develops, implements and supports clinical management information systems
marketed to the healthcare industry. The Company's systems are designed to
automate three clinical departments within the hospital environment: the blood
bank, the pharmacy and the surgical suite. A system typically consists of the
Company's proprietary application software, third-party licensed software and
third-party computer hardware, as well as implementation services, training, and
annual software support.
The Company's systems are installed in over 1,000 hospital departments including
some of the industry's most prestigious institutions. The Company's products
improve the availability of clinical information while enabling hospitals to
decrease the expenses associated with managing the clinical departments. These
benefits are of critical importance to hospital administrators who face
increasing financial and regulatory pressures. The Company believes that it has
the largest number of systems installed in the "best of breed" pharmacy and
blood bank systems markets, and that these products have gained their leadership
position because of rich functionality, ease of integration and excellent
customer service. These core competencies have influenced some of the most
prestigious hospitals in North America to purchase the Company's systems.
Mediware is a New York corporation incorporated in 1970. The Company's
cornerstone product, Hemocare(TM), was originally designed in collaboration with
Memorial Sloan-Kettering Cancer Center in 1981 and is one of North America's
leading blood bank information systems in the markets it serves, either as a
"standalone" system or as part of an integrated "Lab/Blood Bank" system.
Hemocare continues to be the Company's primary blood bank information system and
is the core of Mediware's Blood Bank Division.
During September of Fiscal 1999, the Company expanded its Blood Bank Division
with the acquisition of Informedics, Inc. (formerly Western Star), which
develops and markets a line of computer software applications designed for
hospital blood banks and blood centers.
In May 1990, the Company acquired Digimedics Corporation, one of the country's
leading vendors of information management systems for hospital pharmacies.
Digimedics had introduced the first open systems version of a comprehensive
pharmacy information management system in the mid-1980's. In June 1996,
Digimedics expanded its operations with the acquisition of certain assets of
Information Handling Services Group ("IHS"), including the U.S. based Pharmakon
Division and the U.K. based JAC Computer Services, LTD. The Pharmakon operations
were subsequently merged with the Digimedics operations to form the Pharmacy
Division of the Company.
The Company's newest division, the Operating Room Division formed in April 1998,
grew from the expansion of its Surgiware product center. The Surgiware system,
licensed in September 1990, is a comprehensive information system for managing
the human resources, facilities, equipment and supplies required for surgery.
The Company currently operates in one business segment, the healthcare
information system industry: developing, implementing and maintaining clinical
information systems. The business
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is organized into four operating divisions marketing three distinct product
lines: Pharmacy Systems, Blood Bank Systems and Operating Room Systems. The
Blood Bank, Pharmacy and Operating Room Divisions operate in the United States,
and JAC, a provider of pharmacy stock control systems, operates in the United
Kingdom.
The Company's Corporate Transaction Strategy
In order to broaden product offerings, capture market share, improve
profitability and capitalize on the consolidation trend in the hospital clinical
information system industry, the Company's business strategy includes growth
through acquisitions, combinations, mergers and other corporate transactions.
The Company has an ongoing program of reviewing and considering corporate
transaction possibilities, but there can be no assurance that the Company will
be able to identify or reach mutually agreeable terms with any transaction
candidate.
The Healthcare Information Systems Industry
Historically, healthcare expenditures for information technology have lagged
behind other industries, with investments averaging two to three percent of
operating revenues, compared with an average of six to eight percent for other
industries and 12% to 14% for information-sensitive sectors such as financial
services. Healthcare information technology expenditures are expected to grow to
over $21.0 billion by the year 2000. The Company estimates that there are
approximately 3,000 hospitals in the United States which would be potential
customers for its products.
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. These factors are discussed in
the following analysis of each respective product line.
Blood Bank Division
The Blood Bank Division currently has two major blood bank information systems
products - Hemocare(TM), the Company's cornerstone product and primary blood
bank information system, and LifeLine(TM), obtained as part of the Informedics
acquisition in September 1998. Hemocare(TM) was originally designed in
collaboration with Memorial Sloan - Kettering Cancer Center in 1981 and is sold
either on a standalone basis or in conjunction with a clinical laboratory
information system. Hemocare's software programs are organized into subsystems
which perform over 200 functions, including the following:
o Manage and control blood inventory
o Perform long-term donor and transfusion record keeping
o Store and manage characteristics of blood products to be transfused
o Maintain patient and transfusion records
o Maintain the record of patient test results
o Automate billing and workload recording
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Hemocare's core technology is the UNIX operating system and the "C" programming
language, which allows it to run on multiple hardware platforms. Hemocare's
scalability facilitates the configuration of cost effective solutions for
virtually any size hospital or multi-site Integrated Delivery System ("IDS").
Hemocare markets innovative product enhancements such as validation templates,
video validation, an automated patient backup card system and a standard
integration module which has become the defacto standard for blood bank data
integration with laboratory software system vendors.
Mediware believes that it is the only company to offer a comprehensive suite of
products that assist customers in their efforts to remain compliant with
regulatory agency guidelines. Currently the Hemocare application is installed in
over 250 hospitals, ranging in size from 100 to 1,600 beds.
LifeLine(TM), the system acquired in the Informedics acquisition, has been
marketed since 1984 throughout the world. With the addition of LifeLine to the
Company's blood bank product line, Mediware's total blood bank system installed
base increased to almost 500, making it the industry's leading vendor of
standalone, "best of breed" blood bank information systems.
In addition to the initial sale of the Company's blood bank systems, revenues
are generated from post contract support, averaging 24% annually of the systems'
original selling price. These maintenance contracts account for approximately
60% of this division's revenues and are recurring in nature.
Mediware competes primarily with vendors of laboratory information systems
("LIS"), which provide a blood bank subsystem as a part of their laboratory
product, as well as other companies that market standalone blood bank systems.
The LIS vendors are much larger companies with greater technical, marketing,
financial and other resources than the Company and have well-established
reputations for success in developing and marketing hospital information
systems. Mediware, however, enjoys the unique position of having both of its
blood bank information systems approved for marketing by the Food and Drug
Administration. The Company believes that the 510(k) approval process is
sufficiently onerous to discourage many potential new entrants into this market
segment.
New Products
The Blood Bank Division has developed and is currently testing software
interfaces to various automated blood bank testing instruments. The development
of these interfaces is in accordance with the terms and conditions of marketing
agreements which have been executed with Immucor, Inc. and Micro Typing Systems,
Inc. These interfaces provide for the automated exchange of data between
Mediware's blood bank systems and devices manufactured by the aforementioned
companies. Additionally, the Company is investing significant resources in the
upgrade and enhancement of its core blood bank product offerings. The Company is
creating new products that merge the functionalities of the existing Hemocare
and Lifeline products in more modern information system technologies. The
Company anticipates that these new products will become available during fiscal
year 2001.
Pharmacy Division
In May 1990, the Company acquired Digimedics Corporation, one of the country's
leading vendors of information management systems for hospital pharmacies. The
Digimedics
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pharmacy information system, based on the UNIX operating system, the "C"
programming language, and the Unify relational database management system, was a
leading competitor in the market. In June 1996, the Company acquired certain
assets of the Pharmakon (U.S. based) and JAC (U.K. based) divisions of
Information Handling Services Group ("IHS"). Pharmakon, which was available on a
variety of minicomputer and mainframe hardware platforms, was also a leading
competitive offering in the pharmacy systems market.
In November 1997, the Pharmacy Division introduced a new n-tiered, Object
Oriented, Windows based client/server pharmacy system known as the WORx Drug
Therapy Management System. WORx has been sold to 75 hospital organizations
encompassing 120 hospital sites. As a result of its Windows user interface,
advanced underlying systems integration architecture and IDN friendly design,
WORx is positioned as a potential hub for drug therapy management. This includes
integration with the automated drug dispensing cabinets manufactured by Pyxis
Inc. (Pyxis(TM)), a division of Cardinal Health, Inc. and Omnicell Technologies,
Inc. Interfaces to other pharmacy dispensing devices such as the AHI RxOBOT
produced by a division of McKesson have also been developed.
WORx Universal, released in June 1999, provides access to clinical data via the
Internet/intranet using a standard web browser on multiple platforms, including
hand-held and wireless devices.
Currently there are over 500 hospitals using the Pharmacy Division's products.
New Products
The Pharmacy Division is currently developing the WORx outpatient module, WORx
Ambulatory Care. This module provides prescription services for clinic,
long-term care, discharge, employee and other outpatient settings, effectively
extending the WORx functionality into additional areas throughout the IDN. This
module will also be Internet enabled and ultimately will provide for patient
access through the new MyWORx feature. WORx Ambulatory Care is scheduled for
general release by December 1999.
Operating Room Division
In September 1990, the Company licensed the Surgiware(TM) 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 schedule on a
color graphics display enabling 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 competency of
the system is its ability to gather and disseminate data at the point of care,
providing the hospital with timely, accurate data on its surgical activities.
The Company has introduced PCCWin and is currently introducing PCMWin (referred
to collectively herein as "PCXWin") a Microsoft Windows based system that
completely replaces the character based Surgiware system. Due to the modular
design of PCXWin, Mediware can connect to existing hospital-wide scheduling
systems such as Tempus Software's Encompass ("Tempus") and Spacelabs Medical's
Caremaster Resource Scheduler ("Spacelabs"). The benefits of a fully-implemented
system include:
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o increased utilization rate of operating rooms;
o increased productivity from efficient management of staffing and equipment;
o improvement in inventory management; and,
o increased patient billings as a result of real time capture of information.
The Operating Room Division's suite of products successfully integrate clinical
data capture, equipment control, scheduling, quality assurance and report
writing. These benefits translate into significant revenues and savings, given
that the surgical suite may produce more revenue than any other department and,
at the same time, may be one of the biggest cost centers in the hospital. The
record keeping functions can also be of significant benefit in the areas of
quality assurance, risk management and the accreditation of physicians. The cost
savings and revenue enhancements generated by the Operating Room Division's
product portfolio may result in a payback period of less than one year.
New Products
Perioperative Case Management for Windows - PCMWin: PCMWin is an n-tiered
Microsoft NT based server application that provides the core functionality for
an operating room management system. PCMWin also includes a Windows based module
that provides a complete set of surgical case scheduling functions. Key features
include:
o case preference management;
o inventory management;
o account billing;
o interfaces to existing hospital information systems; and,
o Internet based remote access.
The PCMWin server can be integrated seamlessly with Mediware's case charting and
scheduling applications in addition to the modules of other vendors' systems to
create a comprehensive surgical suite information management system. PCMWin was
released in the third quarter of calendar year 1999.
JAC
The Company's United Kingdom operating division originated with the acquisition
of JAC Computer Services, LTD in June 1996. JAC markets and supports its
Pharmacy Stock Control System (the "JAC System") to pharmacy departments of
hospitals throughout the U.K. The JAC System provides automation of the entire
stock movement cycle, from ordering and delivery, with associated invoice and
credit handling; through to patient supply via ward stock issues and dispensing.
Additional features include worksheet and label production as well as
comprehensive reporting capabilities. The JAC System is written in ANSI Standard
M, which is utilized extensively in the healthcare market worldwide. During
fiscal 1999, over 54% of JAC's revenues were generated from services.
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Research and Development
During the past three years the Company has committed significant resources with
the goal of upgrading all of its products to state-of-the-art technologies
including:
o N-tier client/server architecture for rapid product development and
enhancement;
o Object Oriented component technology - modular design allowing for scaleable
concurrent users, reduced development costs and "plug and play" integration;
o Multi-site capabilities in all product lines to take advantage of the trend
toward integrated delivery networks ("IDNs"); and,
o Internet enabled capabilities to provide widely available remote access to
vital information at very low cost.
Expenditures for software development for 1999 and 1998 were $5,098,000 and
$3,523,000 respectively, exclusive of write-downs and amortization of software
development costs. Of the total expenditures during the past two years,
$2,772,000 and $1,556,000 respectively were capitalized. The Company plans to
continue to commit substantial resources to the development of its products.
Sales and Marketing
The Blood Bank Division markets its products, both directly to standalone sites
and in conjunction with resellers, through a sales team consisting of a National
Sales Manager, three Regional Sales Representatives and three Clinical
Consultants who perform on-site demonstrations of the product. Hemocare's
Standard Integration Module, a set of comprehensive, prepackaged interface
programs, has been instrumental in Mediware's ability to recruit laboratory
vendors who have integrated and remarketed the Hemocare system. The Company
currently has key remarketing/reselling agreements with ADAC HealthCare
Information Systems; Citation Computer Systems, Inc.; Dynamic Healthcare
Technologies, Inc.; Keane, Inc.; McKessonHBOC, Inc.; NLFC, Inc.; Shared Medical
Systems, Inc.; and Sunquest Information Systems, Inc.
The Pharmacy Division sales force consists of a National Sales Manager and six
Regional Sales Representatives covering territories in the United States and
Canada. Technical sales support is provided by two Clinical Consultants with
extensive experience as clinical pharmacists and pharmacy technicians. Mediware
has reseller agreements for WORx with The Compucare Company, a subsidiary of
Quadramed, and Creative Socio-Medics, a subsidiary of NetSmart Technologies,
Inc.
In 1998, Mediware began a program targeted at increasing its surgical suite
market penetration. This program includes the following major components:
o Expanding the Surgiware product center into the Operating Room Division - In
April 1998, the Operating Room Division was formed and a General Manager was
appointed to oversee sales and marketing, product development, implementation
and client support services.
o Accelerating product development - In order to accelerate the development of
new products, an Engineering Manager with experience in developing Windows based
client/server systems was hired to lead a new programming staff.
o Creating a dedicated sales team - Previously, sales responsibility for the
Operating Room Division's products was conducted by the Pharmacy Division's
sales force. Given that the bulk of operating rooms are using rudimentary
scheduling systems, the Company believes that there exists a significant market
opportunity for Mediware to sell its comprehensive software solution.
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In order to maximize penetration into this segment, the Company has created a
dedicated sales force for the Operating Room Division to achieve the desired
sales volume.
Employees
As of June 30, 1999, the company had 187 full-time employees of which 170 are
employed domestically. The Company employs 29 in the area of sales and
marketing, 74 in customer support, 51 in product development and 33 in
administration. None of the Company's employees are covered by collective
bargaining agreements nor are they members of any union. The Company believes
that its employee relations are good.
The Company also relies on the services of a number of consultants to supplement
its employee base. The number of consultants varies from time to time based on
the Company's needs and the various stages of its development projects. At June
30, 1999, there were 20 consultants covered by consulting agreements.
Seasonality
The Company's operations are not subject to seasonal fluctuations.
Geographic Information
(Dollars in thousands)
1999 1998
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Revenues
United States $25,779 $18,860
United Kingdom 2,560 1,670
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Total $28,339 $20,530
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Long-lived assets
United States $10,941 $ 8,275
United Kingdom 510 572
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Total $11,451 $ 8,847
======= =======
The Company does not believe its foreign operations present any significant risk
factors beyond those resulting from normal fluctuations in the exchange rates
between British pounds and U.S. dollars.
Item 2. Properties
The Company's corporate headquarters are located in Melville, New York, where it
occupies approximately 6,900 square feet under a lease expiring in November
2001. The Company also leases office space in Lenexa, Kansas (20,000 square
feet), Scotts Valley, California (8,800 square feet), and Lake Oswego, Oregon
(16,900 square feet). The Company's United Kingdom operations are headquartered
in Basildon, Essex where it occupies approximately 3,900 square feet under a
lease expiring in 2004. Under-utilized office space in Oregon and California
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covered by the above leases is currently under sub-lease. The Company is seeking
to expand leaseholds in Melville, NY by the calendar year end. The Company
believes it will have no difficulty in securing alternate facilities and these
changes will not significantly impact operations.
Item 3. Legal Proceedings
The Company is not involved in any material pending litigation nor is it 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
No matters were submitted to a vote of the shareholders of the Company during
the fourth quarter of its fiscal year ended June 30, 1999.
Item 4A. Directors and Executive Officers of the Company
Directors and executive officers of the Company as of June 30, 1999 are as
follows:
Name Age Position
---- --- --------
Lawrence Auriana.......... 54 Chairman, Secretary and Director
Les Dace.................. 53 Vice Chairman and Director
John Esposito............. 39 President and Chief Executive Officer
Creighton Miller.......... 46 Vice President and General Manager -
Operating Room Division and Blood
Bank Division
Rodger Wilson............. 46 Vice President and General Manager -
Pharmacy Division
Kerry Robison............. 35 Chief Financial Officer
Jonathan Churchill........ 67 Director
Roger Clark............... 64 Director
Joseph Delario............ 64 Director
John Frieberg............. 63 Director
Walter Kowsh, Jr.......... 49 Director
Hans Utsch................ 60 Director
Clinton Weiman............ 73 Director
Lawrence Auriana has been Chairman of the Board of the Company since 1986 and a
director since 1983. He has been a Wall Street analyst, money manager and
venture capitalist for over 20 years. Since 1986, he has been Chairman, a
director and, together with Hans Utsch, also a director of the Company,
Portfolio Co-Manager of The Kaufmann Fund, Inc.
Les N. Dace has been a director since 1995. Mr. Dace was appointed Vice Chairman
of the Board in charge of strategic planning and business development in October
1998. Mr. Dace joined the Company in 1992, as Vice President and General Manager
for the Digimedics and Surgiware Product Centers. He was appointed President and
C.E.O. of the Company in 1995 and held this post until October 1998.
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John Esposito joined the Company in 1990 and held the position of Vice President
- - Sales from 1990 until October 1998, when he became President and Chief
Executive Officer. From 1986 to 1990, he was employed in various sales positions
by the Healthcare division of Data General Corporation.
Creighton Miller joined Digimedics Corporation in 1980 as a software development
engineer. In July 1999, he was appointed Vice President and General Manager of
the Blood Bank Division. In 1998 Mr. Miller was promoted to Vice President and
General Manager of the Operating Room Division. In 1983 Mr. Miller was appointed
Vice President of Engineering.
Rodger P. Wilson, R.Ph. joined the Company in 1996 as Vice President/General
Manager of the Pharmacy Division. Mr. Wilson was President of The Pawnee Group
from 1994 to 1996 and Vice President of Operations and Chief Information Officer
of Concepts Direct, Inc., from 1992 to 1994.
Kerry D. Robison has been with the Company as a Consultant to the Finance
Department since November 1998. In June 1999, Ms. Robison was appointed Chief
Financial Officer. From October 1994 to October 1998 she served as Corporate
Controller with Vanguard Airlines. From 1989 to 1994 she served as a project
accountant and as a project controller with Zeckendorf Company, a real estate
development firm in New York City. Ms. Robison is a Certified Public Accountant.
Jonathan H. Churchill has been a director of the Company since 1992. Mr.
Churchill has been a practicing attorney in New York City since 1958 and since
May 1996 has been Counsel at Winthrop, Stimson, Putnam & Roberts. Mr. Churchill
was a partner of Boulanger, Hicks, & Churchill, P.C., from January 1990 to May
1996. Winthrop, Stimson, Putnam & Roberts rendered legal services to the Company
during the last fiscal year, and the Company has retained and proposes to retain
Winthrop, Stimson, Putnam & Roberts during the current year.
Roger Clark has been a director since 1983. In June 1997 he acquired a
half-ownership in a recruitment advertising agency named Talcott and Clark
Recruitment Advertising, Inc. From 1980 to 1987, he held a series of managerial
positions in the computer products area with Xerox Corporation. Mr. Clark is a
director of The Kaufmann Fund, Inc.
Joseph Delario has been a director since 1992. Mr. Delario was President and
Chief Executive Officer of Quadrocom, Inc., a business consulting firm, until
December 1992, and since then has been a business consultant and private
investor in and active in the management of several computer service companies.
Mr. Delario renders management and financial services to the Company.
John C. Frieberg has been a director since 1993. From 1992 to 1995, Mr. Frieberg
was President, C.E.O. and Chief Financial Officer of the Company. Mr. Frieberg
joined Digimedics Corporation as President in October 1989.
Walter Kowsh, Jr. has been a director since 1990. He is a consultant programmer
specializing in Client/Server database systems. He was a Senior Programmer
Analyst with Brown Bros. Harriman & Co. from 1989 to 1992. From 1986 to 1989, he
was a computer consultant with Howard Systems International.
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Hans Utsch has been a director since 1985. He has been independently engaged in
money management and investment banking for over 20 years. Since 1986, he has
been President and, together with Mr. Lawrence Auriana, Portfolio Co-Manager of
The Kaufmann Fund, Inc.
Clinton G. Weiman, M.D. has been a director since June 1996. In 1998 Dr. Weiman
became associated with Executive Health Examiners as a physician. Since 1994,
Dr. Weiman has been independently engaged as a consultant with the Federal
Reserve. His appointments have included Clinical Associate Attending Physician
at New York Hospital and Associate Professor, Clinical Medicine at Cornell
University Medical College.
Part II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASDAQ Small Cap Market under the symbol MEDW and 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 following table sets forth the high and low stock prices for the Company's
common stock for each of the fiscal years ended June 30, 1999 and 1998 as
reported by NASDAQ. The Company disclaims any obligation to updtae its
forward-looking statements.
1999 1998
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High Low High Low
----- ---- ----- ----
First Quarter 8 5/8 4 9 1/2 5 1/8
Second Quarter 10 1/4 4 3/8 12 7 6/16
Third Quarter 9 5 /8 5 1/4 11 1/2 8
Fourth Quarter 8 3/8 5 1/8 9 1/2 7 1/2
These over-the-counter quotations reflect intra-dealer prices, without retail
mark-ups, mark downs or commissions and may not represent actual transactions.
As of September 28, 1999, there were approximately 225 shareholders of record of
the Company's common stock. To date, the Company has not paid dividends to its
shareholders and it does not intend to pay dividends in the foreseeable future.
Management intends to use any earnings to finance the development and continued
expansion of the Company's business.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this Annual Report on Form 10-KSB may constitute
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as the same may be amended from time to time (the
"Act") and in releases made by the SEC from time to time. Such forward-looking
statements are not based on historical facts and involve known and unknown
risks, uncertainties and other factors which may cause the actual results of the
Company to be materially different from any future results expressed or implied
by such forward-looking statements. The following discussion sets forth certain
factors the Company
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believes could cause actual results to differ materially from those contemplated
by these forward-looking statements.
Results of Operations
Material Changes in Results of Operations: Fiscal 1999 vs. Fiscal 1998
Total revenue increased by $7,809,000 or 38.0% from $20,530,000 in fiscal 1998
to $28,339,000 in fiscal 1999. The increase is primarily attributable to the
Blood Bank and Pharmacy operating divisions. Blood Bank Division revenues
increased 65.0% or $3,943,000 from $6,063,000 to $10,006,000 in fiscal year
1999. The increase was related to a 26.1% growth in Hemocare product sales and
38.9% from the acquisition of Informedics in the first quarter of fiscal 1999.
The acquisition of Informedics added $2,359,000 to overall revenues for the last
three quarters of fiscal 1999. Pharmacy Division revenues increased 27.0% or
$3,000,000 from $11,124,000 to $14,124,000 primarily due to strong sales of the
WORx client/ server system. JAC system sales increased 53.3% or $890,000 from
$1,670,000 to $2,560,000 primarily due to clients upgrading hardware and
software to become Year 2000 compliant.
System sales increased by $4,915, 000 or 62.5% from $7,868,000 to $12,783,000 in
fiscal 1999 vs. fiscal 1998. The growth in systems revenue was primarily related
to strong sales of the Pharmacy WORx product, the Blood Bank Hemocare product
and upgrade sales in the JAC division. System sales in the Pharmacy Division
increased 65.6% or $2,755,000 from $4,197,000 to $6,952,000. In the Blood Bank
Division, system sales increased 63.6% or $1,497,000 from $2,352,000 in fiscal
1998 to $3,849,000 in fiscal 1999, contributing approximately 30.5% to the
overall increase in system sales. The growth in system sales was primarily due
to a focused sales effort and marketing strategy carried through by an
established and experienced sales team.
Service revenues increased 22.9% or $2,894,000 from $12,662,000 to $15,556,000
in fiscal 1999 vs. fiscal 1998. The increase in service revenues primarily
related to the acquisition of Informedics. Informedics service revenues
contributed 66.6% to the overall increase. Service revenues for the Hemocare
product increased 14% or $520,000 from $3,711,000 to $4,231,000 in fiscal 1999
vs. fiscal 1998. The increase was driven by the installation of new system
sales. Service revenues increased by 5.4% in the Pharmacy Division and 9.3% in
the Operating Room Division from the prior fiscal year.
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
increased less than 1% from fiscal 1998. Even though higher proportions of lower
gross margin products were sold, the Company maintained costs consistent with
the fiscal 1998 level.
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. As a percentage of service
revenue, cost of services increased less than 1% from fiscal 1998. Cost of
services increased $844,000 or 25.7% from $3,279,000 to $4,123,000 in fiscal
1999 as compared to fiscal 1998. The increase in expense is principally due to
the increased client service cost from the Informedics product line and a lower
allocation
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of client service technical personnel to capitalizable development projects
within the Pharmacy division.
Software development costs include salaries, documentation, and office and other
expenses incurred in product development along with the amortization of software
development costs. Software development costs increased 28.7% or $725,000 in
fiscal 1999 vs. fiscal 1998. Total expenditures for software development,
including both capitalized and non-capitalized portions for fiscal 1999 and
fiscal 1998 were $5,098,000 and $3,523,000. These amounts exclude amortization.
Additions to capitalized software cost were $2,772,000 and $1,556,000 for fiscal
1999 and fiscal 1998 respectively. The increase in the percentage of costs
capitalized is primarily due to WORx product development and an increase in
product development activities in the Blood Bank division. Management expects
continued increases in software development in the domestic divisions.
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 44.5% or $3,860,000 from $8,668,000 in fiscal 1998 to $12,528,000 in
fiscal 1999. As a percentage of total revenue, selling, general and
administrative costs increased 2 points from 42.2% in fiscal 1998 to 44.2% in
fiscal 1999. The increase was attributable to the increased level of sales and
the additional costs of the Informedics operation. In fiscal 1999 the Company
increased headcount approximately 29%, inclusive of the Informedics personnel,
to support the growth in sales and ongoing development activity. The staffing
increases resulted in increases in costs such as salaries and benefits,
recruitment, facilities and general expenses.
Interest expense net of interest income decreased $268,000 or 82.2% from
$326,000 in fiscal 1998 to $58,000 in fiscal 1999. This decrease is due to
paying off a $3,746,000 promissory note payable to Continental in the second
quarter of fiscal 1999. In the fiscal years ended 1999 and 1998 the Company
reported income tax expense of $491,000 and $139,000 or an effective rate of
11.9% in fiscal 1999, calculated before the write-off of in-process research and
development vs. 4.1% in fiscal 1998.
Net earnings were directly affected by the $4,553,000 one-time charge for
in-process research and development resulting in a net loss of $(970,000) or
$(0.16) per share in fiscal 1999. Excluding this one-time charge, net earnings
for the fiscal year 1999 increased 22.3% or $653,000 from $2,930,000. Fully
diluted earnings per share, exclusive of the write-off, were $0.51 in fiscal
1999 compared to $0.44 in fiscal 1998.
Liquidity and Capital Resources
As of June 30, 1999, the Company had cash and cash equivalents of $3,556,000, a
decrease of $1,125,000 compared to fiscal year 1998 of $4,681,000. At June 30,
1999 the net working capital was $2,910,000 and the current ratio was 1.28:1.
The current ratio is negatively impacted by the classification of notes payable
as short-term liabilities in addition to an increase in customer advances
related to increased annual billings of support and the additional annual
support contracts gained through the Informedics acquisition. Cash provided by
operating activities was $5,661,000 and $4,082,000 for fiscal years ended June
30, 1999 and June 30, 1998 respectively. Cash provided by operating activities
was primarily due to earnings before
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the write-off of purchased technology plus non-cash items such as depreciation
and amortization.
As of June 30, 1999, accounts receivable increased by $876,000, to $8,361,000
from $7,485,000 at fiscal year end 1998, and advances from customers increased
$2,215,000 to $5,347,000 from $3,132,000 at fiscal year end 1998. The increases
were primarily related to the increase in new system implementations in progress
in the Pharmacy Division, the expanded customer base related to the Informedics
acquisition, and an emphasis on selling support services with annual renewals.
Days sales outstanding was 106 days at fiscal year end June 30, 1999 and 122
days at June 30, 1998.
The principal uses of cash for investing activities during the fiscal years
ended June 30, 1999 and 1998 included purchases of fixed assets and investments
in product development. For fiscal years ended June 30, 1999 and 1998, the
Company invested $1,120,000 and $804,000 into fixed assets. During fiscal year
1999 the purchases were comprised of computer and networking equipment to
accommodate increases in employees, upgrade aged systems, installation of a WAN,
and fixed assets associated with the relocation and expansion of the Pharmacy
division office. In August 1998 the Pharmacy division relocated from
approximately 14,000 square foot office space to 20,000 square foot office space
to accommodate increases in personnel and the need for improved training
facilities. For fiscal years ended June 30, 1999 and 1998, the Company
capitalized $2,772,000 and $1,556,000 respectively to product development. The
investments in product development were primarily related to the Company's WORx
Pharmacy System and the Hemocare Blood Bank System. The Company plans to
continue to enhance its products beyond the current releases and invest heavily
into its next generation information systems. The Company plans to continue to
seek market expansion opportunities through internal development and/or the
acquisition of products/companies that compliment or augment the existing line
of products. The Company continues to evaluate potential acquisitions that may
result in the future expenditures of cash, but currently has no commitments.
Exclusive of potential acquisitions management believes that existing cash and
funds generated from operations will be sufficient to meet operating
requirements for at least through fiscal year 2000.
Cash used in financing activities for the fiscal years ended June 30, 1999 and
1998 related principally to the repayment of a promissory note issued to IHS
pursuant to the purchase of their Pharmakon and JAC operations. In fiscal year
1998, $887,000 of principal was paid leaving a balance of $3,746,000 at the end
of fiscal 1998. The remaining balance was paid in fiscal year 1999. In fiscal
year 1998, cash provided by financing activities of $1,024,000 was mainly due to
cash raised through a private placement of its securities effected August 1997
net of the repayment of the previously mentioned Continental note. 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 the
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 liquidity is influenced by the Company's ability to perform in a
competitive industry that is currently impacted by Year 2000 readiness concerns
and the related deferral of system purchasing and implementation activities in
many healthcare organizations. The factors that may affect liquidity are the
ability to maintain or improve the rate of system sales, the timing
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of revenue recognition and the ability to collect cash from clients as the
implementation of systems progresses.
Year 2000 Compliance
In General - The following statements are a "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Mediware Information Systems develops, manufactures, sells and provides support
for management information systems that are used by hospitals. The Company sells
software products in three distinct areas - pharmacy, blood bank, and operating
room. The Company's pharmacy and blood bank divisions each offer multiple
products.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or products that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure, loss of data, or miscalculations causing disruption of
operations. The General Manager of each division of the Company has conducted a
Year 2000 review of their operations focusing on the Company's products and
their use by its clients, the computers, operating systems and data bases used
in conjunction with its products and the Company's internal operations.
The Company has finalized its Year 2000 date-protocol tests for all of its
products but continues to monitor status and will provide remedial action, if
needed. The Company has also completed its investigation of the Year 2000
preparedness of third parties with whom it has material relationships, such as
suppliers of hardware, database software, operating systems, network operating
systems and utility programs who provide components on which the Company's
software products are operated.
The Company continues to conduct tests on its internal information technology
("IT") systems and non-information technology ("Non-IT") systems that contain
embedded microchips. This review includes the submission of questionnaires on
Year 2000 preparedness to such third parties, whose failure to be Year 2000
compatible could negatively effect the operation of the Company's products and
accordingly have a material adverse effect on the Company.
All of the Company's clients using older versions of its software products have
been notified by "U.S. Mail" (many were sent "certified") that they are entitled
to upgrade to Year 2000 compatible versions with no charge for the compatible
version software. However, some clients have elected not to do so for a variety
of reasons. The Company is working with clients who wish to upgrade to address
Year 2000 issues. These clients either have been upgraded to compatible versions
or are scheduled to be upgraded to compatible versions of the Company's software
by the end of the calendar year. The Company is assisting those clients using
electronic access from the Company's facilities and/or on-site assistance where
appropriate and based on specific arrangements that have been made with the
customer. If the client desires on-site assistance, the Company is assessing its
normal charges. These services are being
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conducted in the ordinary course of the Company's business by its employees, and
the costs to the Company are not expected to be material. However, clients have
been notified that they are responsible for ensuring that their hardware,
operating systems, computer BIOS, and networking software are Year 2000
compatible, and will be compatible with the upgraded software versions provided
by the Company, and must cooperate with the Company in scheduling installation
of the software upgrades. The failure to successfully meet any or all of these
conditions could result in effected customers being unable to operate their
software systems, the result of which could have a material adverse effect on
the Company's business, financial condition and operational results.
The incremental costs to the Company in achieving Year 2000 compatibility cannot
be accurately predicted and will depend upon the timely completion of tasks by
both the Company and its customers. Total costs can be substantially affected by
a number of factors, including the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes, and
the extent of the cooperation provided by customers and other relevant parties.
However, the costs incurred to make the Company's current versions compatible
have occurred in the ordinary course of software development and enhancement and
are not expected to be material.
Suppliers of the computers, operating systems and databases necessary to operate
the current versions of the Company's software products have indicated to the
Company that those products are either currently Year 2000 compatible or will be
by the end of 1999. The Company has conducted tests of such computers, operating
systems and data bases with the Company's products now being marketed and
currently has no reason to believe that the Company's products are not Year 2000
compatible when operated with such computers, operating systems and data bases.
Assessment of Year 2000 Issues Effecting the Company's Products. The problems of
date-protocol compatibility in the Year 2000 are somewhat different for each of
the Company's software information system products. The following is an analysis
of the Year 2000 status of products offered by each of the Company's divisions.
Pharmacy Division
WORx: WORx has been designed by the Company to meet conditions for Year 2000
readiness from its inception. As a client/server application, several layers of
software manipulate data. This data is stored within an Informix relational
database, which supports dates beyond December 31, 1999. The WORx client
(end-user workstation) runs under Microsoft Windows(TM), uses the Windows date
formats, and will support dates beyond December 31, 1999. The Company's Pharmacy
Division has successfully completed testing of its WORx software using both the
1.1 release and the 1.3 release. WORx has been found to be Year 2000 compatible
in all testing scenarios for both version releases.
Digimedics XA Inpatient: The Company's Pharmacy Division has completed the
internal Alpha and external Beta testing of its Digimedics XA Version 3.0
Inpatient pharmacy system. This Year 2000 compatible software version is now
available to customers wishing to upgrade their
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systems, except for customers currently operating on the Data General hardware
platform. It is anticipated that customers using Data General hardware will have
the Year 2000 compatible software beginning in November of 1999. Because of the
limited number of customers operating on this hardware platform, the Company
does not anticipate any difficulties in having these customers upgraded to the
Year 2000 compatible software by the end of the calendar year.
Digimedics XA Outpatient: The Company's Pharmacy Division has finalized both
internal Alpha and external Beta testing Version 3.0 of its Digimedics XA
Outpatient pharmacy system and is currently making this Year 2000 compatible
version available to customers wishing to upgrade their systems.
Pharmakon "Mini" (UNIX based): The Company's Pharmacy Division has successfully
completed the internal Alpha and external Beta testing of version 3.5 of its
"UNIX based" pharmacy system, known as "Mini", and is currently making this Year
2000 compatible version available to customers wishing to upgrade their systems.
Pharmakon "Mainframe": The Company's Pharmacy division has successfully
completed the internal Alpha and external Beta testing of Version 5.0 of its
"Mainframe based" pharmacy system, which was determined to be Year 2000
compatible. Version 5.0 of the Mainframe product is currently being made
available to those customers wishing to upgrade their systems.
The new versions of Digimedics XA, Pharmakon "Mini", and Pharmakon "Mainframe"
discussed above incorporate upgrades of the Company's application software
systems necessary for Year 2000 compatibility. These releases will be
distributed to customers under the Company's normal software support contract
procedures without cost. However, depending upon the configuration of their
current information systems, some customers may incur other costs associated
with the acquisition of new hardware, third party data bases and/or operating
systems that are needed in order for the Company's upgrade to be installed.
Furthermore, the computer and operating system platforms of a number of
hospitals will not accommodate the Year 2000 compatible software revisions
distributed by the Company, and these hospitals must acquire and bear the cost
of new computer hardware and associated operating systems and third party data
bases if they desire to install the Company's software upgrades.
JAC
The Company's United Kingdom subsidiary, JAC, sells and distributes information
systems for hospital pharmacies in the United Kingdom. In early 1998, JAC
commenced notifying its clients of the appropriate steps they must take to
ensure their entire computer system meets all aspects of the National Health
Service ("NHS") directive for Year 2000 compatibility. The NHS directive
requires each Trust (hospital) to have either upgraded their operating systems
to be Year 2000 compatible, have a plan to upgrade, or have contingency plans
ready by December 31, 1998. Although the JAC stock control pharmacy system has
been internally and externally certified as being Year 2000 compatible, JAC is
aware that some of its clients may have to upgrade certain components of their
computer hardware and associated operating systems and pharmacy data bases to
ensure full compatibility. In this respect, JAC has commenced notifying
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all of its clients of this issue in writing, by telephone, and through articles
in its newsletter, and has raised the issue at its National and Local User Group
meetings.
Operating Room Division
The Operating Room Division has successfully completed testing of its Surgiware
and PCCWin products and has determined that they are Year 2000 compatible. It
will be necessary however for customers currently using the Company's "Surgiware
OR Log module" which is not Year 2000 ready to switch over to the Company's
"PCCWin module" which has been successfully tested for Year 2000 readiness. The
new Year 2000 compatible product, the PCCWIN Module, release 5.2, is now being
offered to hospitals as part of the normal support procedures of the Company.
However, the computer platforms of a number of hospitals will not accommodate
the updates necessary to become Year 2000 ready, and these hospitals must bear
the cost of new computer hardware and associated operating systems and operating
room data bases.
Blood Bank Division
Hemocare: The Company's Blood Bank Division has successfully completed testing
of Version 5.2a of its "UNIX based" Hemocare blood bank system, which was
determined to be Year 2000 compatible. Version 5.2a of the Hemocare product is
currently being made available to the Company's installed client base as part of
the Company's normal software support procedures.
Informedics LifeLine: The Company's Blood Bank Division has successfully
completed testing of Version 4.3 of its Lifeline blood bank system, which was
determined to be Year 2000 compatible. Version 4.3 of the Lifeline product is
currently being made available to the Company's installed client base as part of
the Company's normal software support procedures.
Informedics StarPath: The Company's Blood Bank Division has completed its own
internal testing of Version 6.4d of its StarPath pathology product which was
found to be Year 2000 ready. The Company is now making release 6.4d available to
its installed client base as part of the Company's normal software support
procedures.
The new versions of Hemocare, Informedics Lifeline and Informedics StarPath
discussed above incorporate upgrades of the Company's application software
systems necessary for Year 2000 compatibility. These releases will be
distributed to customers under the Company's normal software support contract
procedures without cost. However, depending upon the configuration of their
current information systems, some customers may incur other costs associated
with the acquisition of new hardware, third party data bases and/or operating
systems that are needed in order for the Company's upgrade to be installed.
Furthermore, the computer and operating system platforms of a number of
hospitals will not accommodate the Year 2000 compatible software revisions
distributed by the Company, and these hospitals must acquire and bear the cost
of new computer hardware and associated operating systems and pharmacy data
bases if they desire to install the Company's software upgrades.
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Interfaces to Other Applications
The Company's software products interchange data with many third party systems
through interfaces that may be unique to the client or the third party system.
Such interfaces or data interchange may contain inaccuracies or such data may
not be in a format that allows the Company's system to correctly identify the
date. There can be no assurance that the Company will not be subject to claims
that result from the failure of such third party systems or their related
interfaces to be Year 2000 compliant. These claims, even if not meritorious,
could be expensive to defend. Although the Company believes its Year 2000 review
and the actions it has taken and plans to take in response to the review are
appropriate, there can be no assurance that the review identified all possible
issues or that all identified issues will be satisfactorily resolved. A material
failure of the Company's internal systems to be Year 2000 compliant, a material
failure in suppliers of the computers, operating systems and databases used in
conjunction with the Company's products to be Year 2000 compliant or a material
delay in client projects related to Year 2000 issues could have a material
adverse effect on the Company's business, results of operations or financial
condition.
Internal Assessment of Year 2000 Readiness
The Company has assigned a project team to examine relationships with all of its
vendors, including suppliers of both IT and Non-IT Systems regarding Year 2000
readiness. All vendors that supply the Company with information or critical
services, process information for the Company, or provide internal IT or Non-IT
Systems using a microprocessor have queried as to their Year 2000 readiness and
the Year 2000 compliance status of products they have provided to the Company.
The Company has completed two rounds of assessments for its IT and Non-IT
Systems regarding Year 2000 readiness and has found no material problems.
However, the Company intends to make a final inspection of these Systems by the
end of November 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Fluctuations in Quarterly Operating Results
Mediware's revenues and results of operations are difficult to predict and may
fluctuate substantially from quarter to quarter. System Sales revenues in any
quarter depend substantially upon Mediware's sales performance and its ability
to recognize revenue in that quarter in accordance with its revenue recognition
policies. It is difficult to predict performance and results of operations may
fluctuate substantially form quarter to quarter for a variety of reasons,
including the following:
o Sales agreements are not completed ratably over a reporting period and delays
in anticipated sales may have a significant impact on quarterly results since a
significant portion of operating costs are fixed.
o Mediware's sales cycles may be lengthy and complex and include multiple steps
including the preparation of RFP responses, on-site demonstrations, site visits,
corporate visits, etc.
o The contract negotiation process with hospitals is often complicated and may
include multiple parties, such as legal counsel, industry consultants, and
hospital administrative staff.
o The terms of a final contract may materially affect the ability to recognize
anticipated quarterly revenues.
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Year 2000 compliance activities in hospitals may affect the timing of purchasing
decisions. Many prospective customers are involved in Y2K oriented
implementations and are de-emphasizing new system purchases until after January
1, 2000.
Reliance on Third Party Software
Mediware licenses various important third-party software products that it
incorporates into its own software products. These products may include
operating systems, relational database management systems, knowledge/clinical
databases, et.al. The termination of any of Mediware's licenses to these third
party products or a significant change to a relied upon product could have a
material adverse effect on Mediware's operations. These effects include, for
example, its products becoming inoperable, features and functions becoming
unavailable, or product performance being materially reduced. Although alternate
software products are available, Mediware could incur substantial costs if
required to adapt to these similar alternative products.
Dependence on Third Party Marketing Relationships
Mediware has marketing partnerships with certain other software vendors who are
also competitors. For example, Mediware partners with SMS and McKessonHBOC in
the area of blood bank. However, both SMS and McKessonHBOC offer competing
pharmacy and operating room products, either directly or through other partners.
In the event that Mediware's marketing partners decide to discontinue their
marketing relationships with the Company, Mediware could experience a material
adverse effect on its business, financial condition, and results of operations.
Changes in the Healthcare Industry
The healthcare industry is heavily regulated by various political and regulatory
bodies. The decisions made and initiatives promulgated by these organizations
may significantly influence operations of hospitals and healthcare
organizations. Their influence affects purchasing and investment decisions by
hospitals which could impact negotiations with the Company.
Many hospitals are consolidating and forming (or becoming part of) integrated
healthcare delivery networks (IHDNs). The formation of IHDNs might reduce the
number of discrete prospects the Company may target and could provide more
negotiating leverage to the Company's prospective customers. These events, if
they occurred, could result in a reduction of selling prices, an increase in the
length of the sales cycle, or other situations that could negatively affect the
Company.
Significant Competition
The market for healthcare information systems is extremely competitive. Many of
the Company's competitors have greater financial, technical, product
development, sales and marketing resources. Some of the Company's competitors
include Shared Medical Systems, McKessonHBOC, Cerner Corporation and Sunquest,
each of which offer products that compete
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with certain offerings of the Company. A number of factors determine success or
failure in this market, including the functionality of the software, the quality
of client references, the underlying technical architecture, the financial
stability of the software provider, the ongoing support of the system, and the
quality and quantity of the sales organization. The Company's ability to
maintain a positive stance in all of the above areas will affect its ability to
compete successfully.
Managing Growth
Mediware's ability to manage future growth is partly dependent on the ability to
recruit, train and retain employees that possess industry-specific expertise.
The Company has experienced significant growth in revenues, customer base and
product development activity. The Company plans to continue to invest heavily in
new product development in all divisions. Mediware's success will be at least
partially dependent upon its ability to attract highly skilled technical
personnel that can immediately fill positions with limited training. The market
for such personnel is highly competitive. The Company is currently operating
above personnel capacity in the technical and client service areas. This
personnel capacity shortfall is primarily due to significant development
initiatives in all divisions, upgrading existing clients for Year 2000
compliance, strong sales, and delays in product enhancement releases in the
Pharmacy Division.
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 Federal Drug Administration (the "FDA"). Hemocare,
Lifeline 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.
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 guideline 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.
In September and October 1999, three product design anomalies were discovered in
the Hemocare Donor module, which is utilized by 61 clients. Although clients
have reported no adverse events, these product malfunctions could potentially
lead to clients distributing unsuitable blood products. Mediware has thus
notified and given procedural work-arounds to the 61 clients, and has corrected
the problems in Hemocare Revision 5.2b, which will be distributed in December
1999. In addition, these three product malfunctions are reportable to the FDA
under the Medical Device Reporting regulation (21CFR804) which was mandated by
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the Safe Medical Devices Act of 1990. Mediware has submitted these Reports to
the FDA as required.
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. The Company withdrew the 510(k) report submission it had
made to the FDA for the Revisions 5.1 product. The FDA cleared the 510(k) for
Hemocare Revision 5.2 on December 10, 1998. In June 1999, Mediware distributed
Revision 5.2a, which is the Year 2000 compatible Revision of Hemocare. It is
believed that all Hemocare clients will have migrated to the 510(k) cleared and
Year 2000 compatible Revision of Hemocare (5.2a) no later than December 31,
1999.
On July 1 1998, Informedics received 510(k) clearance from the FDA to market its
LifeLine Blood Bank Data Management System, Release 4.2. In January 1999,
Mediware distributed Release 4.3, which is the Year 2000 compatible release of
LifeLine. It is believed that all LifeLine clients will have migrated to the
510(k) cleared and Year 2000 compatible Release of LifeLine (4.3) no later than
December 31, 1999.
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. The LifeLine product line was inspected by the FDA
under the updated Quality System Regulations, including design controls, in
August 1998 without any noted deficiencies. It is expected that the Hemocare
product line will be inspected prior to the end of 1999. 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.
The FDA Modernization Act of 1997 was enacted on November 21, 1997 and became
effective on February 20, 1998. Under this legislation, the 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, to 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.
Product Related Liabilities
All of the Company's products provide data for use by healthcare providers in
patient care settings. Mediware's license agreements contain provisions to limit
exposure to product related claims. These provisions, however, may not be
enforceable in some jurisdictions. Although no claims have been brought against
the Company to date for injuries related to the use of its products, there is a
risk that such claims could be pursued. A successful claim brought against the
Company could adversely impact its business, results of operations, or financial
condition.
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System Errors and Warranties
Despite testing by Mediware, software products as complex as those offered by
the Company are likely to contain a number of errors (or "bugs"), especially
early in their product life cycle. This may result in reduced acceptance of the
Company's software products, poor client references, payment disputes, contract
cancellation or additional expenses and payments to rectify problems.
Limited Protection of Intellectual Property and Proprietary Rights; Proprietary
Technology May Be Subjected to Infringement Claims
The Company relies upon a combination of trade secret, copyright and trademark
laws, license and marketing agreements, and nondisclosure agreements to protect
its proprietary information. The Company has not historically filed patent
applications or copyrights covering its software technology. As a result, the
Company may not be able to protect against the misappropriation of its
intellectual property.
Mediware does not believe that its software products infringe the property
rights of any third parties. Nevertheless, third parties may assert infringement
claims against Mediware with respect to its products. Any such assertion could
require the Company to defend its rights or enter into royalty arrangements,
both of which could be costly to the Company.
Item 7. Consolidated Financial Statements
The Financial Statements and Notes required by this Item are included in Part IV
of this report.
Item 8. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Part III
Certain information required by Part III is omitted from this Report because the
Registrant will file a Definitive Proxy Statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
Item 9. Directors and Executive Officers of the Registrant
The information concerning the Company's executive officers required by this
item is included in Item 4a of Part I herein. The information concerning the
Company's directors required by this item is incorporated by reference to the
Company's Proxy Statement under the heading
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<PAGE>
"Election of Directors." Information concerning the Company's officers,
directors and 10% shareholders required compliance with Section 16(a) of the
Securities and Exchange Act of 1934 is incorporated by reference to the
Company's Proxy Statement under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."
Item 10. Executive Compensation
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation.'
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
Part IV
Item 13. Exhibits and Reports on Form 8K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
Independent Auditors' Report on Consolidated Financial Statements
Consolidated Balance Sheet at June 30, 1999
Consolidated Statement of Operations and Comprehensive Income for the years
ended June 30, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the years ended June 30,
1999 and 1998
Consolidated Statement of Cash Flows for the years ended June 30, 1999 and
1998
2. Exhibits
The response to this portion of Item 13 is submitted as a separate section of
this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the period
covered by this report.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDIWARE INFORMATION SYSTEMS, INC.
Date: October 13, 1999 BY: /s/ John Esposito
--------------------------
John Esposito
President and
Chief Executive Officer
Pursuant to the requirements of 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.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ John Esposito President & Chief October 13, 1999
----------------------------- Executive Officer
John Esposito
/s/ Les N. Dace Vice Chairman, Director October 13, 1999
-----------------------------
Les N. Dace
/s/ Kerry Robison Chief Financial Officer October 13, 1999
----------------------------- (Principal Accounting Officer)
Kerry Robison
/s/ Lawrence Auriana Chairman of the Board October 13, 1999
-----------------------------
Lawrence Auriana
/s/ Jonathan Churchill Director October 13, 1999
-----------------------------
Jonathan Churchill
/s/ Roger Clark Director October 13, 1999
-----------------------------
Roger Clark
Director October 13, 1999
-----------------------------
Joseph Delario
/s/ John C. Freiberg Director October 13, 1999
-----------------------------
John C. Freiberg
Director October 13, 1999
-----------------------------
Walter Kowsh, Jr.
/s/ Hans Utsch Director October 13, 1999
-----------------------------
Hans Utsch
Director October 13, 1999
-----------------------------
Clinton G. Weiman
</TABLE>
26
<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, 1999 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, 1999. 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, 1999 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, 1999 in conformity with generally accepted
accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
September 24,1999
27
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except shares)
June 30,
1999
--------
ASSETS
Current Assets
Cash and cash equivalents $ 3,556
Accounts receivable (net of allowance of $907) 8,361
Inventories 403
Prepaid expenses and other current assets 568
Deferred tax asset 448
--------
Total current assets 13,336
--------
Fixed Assets, net 1,883
Capitalized software costs, net 4,289
Goodwill, net 6,266
Purchased technology, net 448
Other long-term assets 126
========
Total Assets $ 26,348
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable and current portion of long-term debt $ 1,137
Accounts payable 1,115
Advances from customers 5,347
Accrued expenses and other current liabilities 2,554
--------
Total current liabilities 10,153
Other long-term liabilities 279
--------
Total liabilities 10,432
--------
Stockholders' Equity
Preferred stock, $.01 par value; authorized 10,000,000
shares; none issued or outstanding --
Common stock, $.10 par value; authorized 12,000,000
shares; 6,146,000 shares issued and outstanding 615
Additional paid-in capital 21,421
Accumulated deficit (6,107)
Unearned compensation (11)
Accumulated other comprehensive (loss) (2)
--------
Total stockholders' equity 15,916
--------
========
Total Liabilities and Stockholders' Equity $ 26,348
========
See Notes to Consolidated Financial Statements.
28
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Years Ended June 30,
(Amounts in thousands, except per share amounts)
1999 1998
-------- --------
Revenues
System sales $ 12,783 $ 7,868
Services 15,556 12,662
-------- --------
Total revenues 28,339 20,530
-------- --------
Cost and Expenses
Cost of systems 4,303 2,661
Cost of services 4,123 3,279
Purchased research and development 4,553 --
Software development costs 3,253 2,527
Selling, general and administrative 12,528 8,668
-------- --------
Total costs and expenses 28,760 17,135
-------- --------
Operating (loss) income (421) 3,395
Interest and other income 109 130
Interest (expense) (167) (456)
-------- --------
(Loss) earnings before provision for income taxes (479) 3,069
Provision for income taxes (491) (139)
-------- --------
Net (Loss) Earnings (970) 2,930
-------- --------
Other Comprehensive Income, net of tax
Foreign currency translation adjustment (38) --
-------- --------
Comprehensive (Loss) Income $ (1,008) $ 2,930
======== ========
Earnings (Loss) Per Common Share
Basic $ (0.16) $ 0.54
======== ========
Diluted $ (0.16) $ 0.44
======== ========
Weighted Average Common Shares Outstanding
Basic 5,963 5,447
======== ========
Diluted 5,963 6,630
======== ========
See Notes to Consolidated Financial Statements.
29
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1999 and 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumlated
Other
Common Stock Additional Comprehensive
-------------------- Paid-In Accumulated Unearned Income
Shares Amount Capital (Deficit) Compensation (Loss) Total
------- ------- ---------- ----------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997, as previously reported 5,056 $ 506 $13,621 $(7,548) (91) $ 36 $ 6,524
Effect of accounting misstatement (519) (519)
------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1997, adjusted 5,056 506 13,621 (8,067) (91) 36 6,005
------- ------- ------- ------- ------- ------- -------
Shares issued to directors 11 1 99 100
Exercise of stock options 124 12 152 164
Amortization of compensatory stock options 40 40
Shares issued in connection with private placement,
net of offering costs of $310 400 40 2,050 2,090
Tax benefit from exercise of stock options 342 342
Foreign currency translation adjustment --
Net earnings 2,930 2,930
------- ------- ------- ------- ------- -------
Balance at June 30, 1998 5,591 559 16,264 (5,137) (51) 36 11,671
------- ------- ------- ------- ------- -------
Shares issued to directors 14 1 99 100
Exercise of stock options 96 10 234 244
Amortization of compensatory stock options -- 40 40
Shares issued in connection with the
acquisition of Informedics, Inc. 445 45 4,655 4,700
Tax benefit from exercise of stock options 169 169
Foreign currency translation adjustment (38) (38)
Net loss (970) (970)
======= ======= ======= ======= ======= ======= =======
Balance at June 30, 1999 6,146 $ 615 $21,421 $(6,107) $ (11) $ (2) $15,916
======= ======= ======= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
For the Years ended June 30,
(Amounts in thousands)
1999 1998
------- -------
Cash Flows From Operating Activities
Net earnings (loss) $ (970) $ 2,930
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,829 1,184
Write-off of acquired research and development 4,553 --
Deferred tax provision 375 --
Shares issued to directors 100 100
Compensatory stock options 40 40
Provision for doubtful accounts 464 176
Changes in operating assets and liabilities:
Accounts receivable (1,006) (1,304)
Inventories (52) (275)
Prepaid and other (202) (851)
Accounts payable, accrued expenses and
customer advances 530 2,082
------- -------
Net cash provided by operating activities 5,661 4,082
------- -------
Cash Flows From Investing Activities
Acquisition of fixed assets (1,120) (804)
Capitalized software costs (2,772) (1,556)
Acquisition of Informedics 653 --
------- -------
Net cash used in investing activities (3,239) (2,360)
------- -------
Cash Flows From Financing Activities
Repayment of debt (3,746) (1,230)
Proceeds from exercise of options 244 164
Proceeds (expenses) of private placement -- 2,090
Other (7) --
------- -------
Net cash provided by (used in) financing activities (3,509) 1,024
------- -------
Foreign currency translation adjustments (38) --
------- -------
Net (Decrease) Increase in Cash and Cash Equivalents (1,125) 2,746
Cash and cash equivalents at beginning of year 4,681 1,935
======= =======
Cash and cash equivalents at end of year $ 3,556 $ 4,681
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 104 $ 448
Income Taxes $ 100 $ 99
See Notes to Consolidated Financial Statements.
31
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Mediware Information Systems, Inc. and its wholly owned subsidiaries (the
Company). Accounts and operating results of Digimedics Corporation
("Digimedics") and its wholly owned subsidiary J.A.C. Computer Services Limited
("JAC") are included for the periods ended June 30, 1999 and 1998. Accounts and
operating results for Informedics, Inc. ("Informedics") are included only for
the period subsequent to the acquisition of this wholly owned subsidiary on
September 24, 1998. All significant intercompany transactions and balances have
been eliminated in consolidation.
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 amounts reported in the consolidated financial statements and related
notes to financial statements. Actual results could differ from those estimates.
Revenue Recognition
In October 1997, March 1998 and December 1998, the American Institute of
Certified Public Accountants issued Statement of Position 97-2, "Software
Revenue Recognition" (SOP 97-2), and SOP 98-4, "Deferral of the Effective Date
of a Provision of SOP 97-2, Software Revenue Recognition" and SOP 98-9
"Modification of SOP 97-2 Software Revenue Recognition with Respect to Certain
Transactions." SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1997 and supersedes SOP 91-1. SOPs 98-4 and
98-9 amend SOP 97-2. Accordingly the Company has adopted SOP 97-2, as amended,
in its financial statements in the fiscal year ended June 1999. Such adoption
had no effect on the Company's results of operations. The Company derives
revenue from non-cancelable licenses of its applications software and
sub-licensed software, sale of computer hardware and the services performed
related to the installation, training, consultation and ongoing support of the
software. License fee revenues are generally recognized when a non-cancelable
license agreement has been signed and the application and sub-licensed software
has been shipped. Revenue from the sale of hardware is recognized when shipped.
Fees for installation, training and consultation are recognized as the services
are provided. If the Company enters into arrangements with a client requiring
significant customization of the software, the Company recognizes revenue
derived from the sale of licensed software, sub-licensed software and services
over the period the services are performed, in accordance with 97-2. Support and
maintenance fees, typically sold on an annual renewal basis, are recognized
ratably over the period of the support contract.
Cash and Cash Equivalents
Cash equivalents include time deposits with maturities of three months or less
when purchased.
32
<PAGE>
Inventory
Inventory consists primarily of computer hardware and third-party software
licenses held for resale and is valued at the lower of cost or market. Cost is
determined based on the specific identification method.
Fixed Assets
Furniture, equipment and leasehold improvements are valued at cost. Depreciation
for furniture and equipment is provided on the straight-line method over the
estimated useful lives. Leasehold improvements are amortized over their
estimated useful lives or the remaining lease period, whichever is shorter.
Capitalized Software Costs
Capitalized computer software costs consist of expenses incurred internally in
creating and developing computer software products. In accordance with Statement
of Financial Accounting Standards No. 86, once technological feasibility has
been established, the costs associated with software development are capitalized
and subsequently reported at the lower of unamortized cost or net realizable
value. Capitalized costs are amortized, using half-year convention, based on
estimated current and future revenue for each product with an annual minimum
equal to the straight-line amortization over the estimated economic life of
three to five years of the software. Amortization expense for the years ended
June 30, 1999 and 1998 was $927,000 and $560,000, respectively.
(In thousands)
1999 1998
------ ------
Capitalized Software Costs
Beginning of year $5,245 $3,689
Additions 2,772 1,556
------ ------
8,017 5,245
Less accumulated amortization 3,728 2,801
------ ------
$4,289 $2,444
====== ======
Goodwill
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible assets of businesses acquired. These business
acquisitions include Digimedics Corporation in 1990, Pharmakon and JAC in June
1996 and Informedics in September 1998. Costs allocated to goodwill in the
Informedics acquisition totaled $944,000 and are being amortized over twelve
years using the straight-line method. All other goodwill is being amortized
using the straight-line method over twenty years. Amortization expense was
$397,000 in 1999 and $357,000 in 1998. Accumulated amortization for goodwill was
$1,488,000 at June 30, 1999.
The Company periodically assesses whether its goodwill and other intangible
assets are impaired as required by SFAS No. 121, Accounting for the Impairment
of Long-Lived
33
<PAGE>
Assets and Other Long-Lived Assets to be Disposed Of, based on an evaluation of
undiscounted projected cash flows through the remaining amortization period. If
an impairment exists, the amount of such impairment is calculated based on the
estimated fair value of the asset. No such impairments have been recorded
through June 30, 1999.
Software Products Acquired and Purchased Technology
As a part of the acquisition of Informedics in September 1998, the Company
obtained certain software products as well as technologies under development. A
portion of the acquisition price of Informedics was allocated to software
products based on the net present value of the projected income stream over the
expected economic life of the specific products the Company expects to continue
to market. This amount, totaling $498,000, is being amortized over 5 years using
the straight-line method. During 1999, $50,000 was charged to expense for the
amortization of purchased technology using half-year convention.
Another portion of the acquisition price, $4,553,000 in the aggregate, was
allocated to in-process technologies based on an appraisal by a third party
which utilized the net present value of projected operating income from the
identified future products which are anticipated to incorporate these acquired
technologies. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 2, Accounting for Research and Development Costs, these in-process
research and development costs were written off during fiscal year 1999 because
the products which will incorporate these technologies have not yet passed the
technological feasibility tests of SFAS No. 86, Accounting for the Costs of
Software to be Sold, Leased or Otherwise Marketed.
Foreign Currency Translations
The functional currency for the Company's subsidiary, JAC, is the British pound.
The translation to U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date. Revenue and expense
accounts are translated using the weighted average exchange rate during the
period. Resulting translation adjustments are recorded as a separate component
of stockholders' equity.
Income Taxes
Income taxes are accounted for under the liability method in accordance with
SFAS No. 109, Accounting for Income Taxes. Accordingly, the provision for income
taxes includes deferred income tax resulting from items reported in different
periods for income tax and financial statement purposes. Deferred tax assets and
liabilities represent the expected future tax consequences of the 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.
34
<PAGE>
Earnings Per Common Share
Earnings per share are calculated pursuant to the provisions of SFAS No. 128,
Earnings per Share, which requires dual presentation of basic and diluted
earnings per share on the face of the statement of operations. Basic earnings
per share is computed based on the average number of common shares 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. The potential exercise of stock options and warrants was anti-dilutive
for fiscal 1999 as a result of the Company's net loss. The weighted average
shares outstanding used in the calculations of earnings per share were
calculated as follows (in thousands):
1999 1998
----- -----
Shares outstanding, beginning 5,591 5,056
Weighted average shares issued 372 391
----- -----
Weighted average shares outstanding - basic 5,963 5,447
Effect of dilutive securities:
Stock options and warrants -- 1,183
----- -----
Weighted average shares outstanding - dilutive 5,963 6,630
===== =====
Fair Value of Financial Instruments
The Company, in estimating its fair value disclosures for financial instruments,
uses the following methods and assumptions: The carrying amounts reported in the
balance sheet for cash, accounts receivable, accounts payable and accrued
expenses approximate their fair value due to their relatively short maturity.
The fair value of the Company's fixed-rate long-term obligations is estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. At June 30, 1999,
the fair value of the Company's long-term obligations approximated its carrying
value.
35
<PAGE>
Segments
Effective in Fiscal 1999, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See Note 13.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), Reporting Comprehensive Income, as of fiscal year 1999. SFAS 130
requires disclosure of the components of total non-stockholder changes in equity
as comprehensive income. The Company's only items that meet the definition for
adjustment to arrive at comprehensive income are changes in cumulative
translation adjustment. Changes in cumulative translation adjustment are
immaterial. The Company's net income materially approximates comprehensive
income for all periods presented.
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.
2. Acquisition of Business
On September 24, 1998, the Company acquired Informedics, Inc. ("Informedics") in
exchange for 439,525 shares of the Company's common stock on the basis of one
Company share for each 6.3 shares of Informedics' common stock. Informedics
36
<PAGE>
develops, markets and supports a line of stand-alone computer-based management
information systems for use in the blood bank and clinical departments of
hospitals. The cost of the acquisition, which was accounted for as a purchase,
aggregated $7,100,000, including acquisition costs of $801,000, assumed
liabilities of $1,599,000 and $4,700,000 of common stock issued and options
assumed based on the market price of the Company's common stock in December
1997, the execution date of the acquisition agreement. Assets acquired included
$944,000 of goodwill, $498,000 of technology, $4,553,000 of in-process research
and development (see Note 1), and $653,000 cash.
The following unaudited pro forma financial information gives effect to the
acquisition as if it had occurred at the beginning of the respective years. The
non-recurring charge for purchased research and development of $4,553,000 is not
included 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. (In thousands, except per share
amounts)
Years Ended June 30,
-------------------
1999 1998
--------- -------
Revenues $ 29,029 $23,440
========= =======
Net earnings (loss) $ 3,557 $ 3,223
========= =======
Earnings per share - basic $ (.59) $ .55
========= =======
Earnings per share - diluted $ (.50) $ .45
========= =======
Weighted average share outstanding - basic 6,067 5,892
========= =======
Weighted average shares outstanding assuming dilution 7,083 7,086
========= =======
3. Accounting Misstatement
Under a co-development agreement executed in April 1995, the Company is
obligated to repay amounts advanced and certain costs incurred by the
co-development partner in exchange for the partner's participation in the
development of a new release of one of the Company's licensed software products.
The co-development agreement was not properly identified and recorded on the
Company's books in prior years. As a result, liabilities were understated and
net income and stockholders' equity were overstated by $259,500 in fiscal 1995,
net loss was understated by $259,500 for fiscal 1996 and liabilities were
understated by $519,000 and stockholders' equity overstated by the same amount
on the June 30, 1996 and subsequent balance sheets. This error was discovered in
the year-end accounting process for fiscal 1999 and, accordingly, the
accompanying financial statements reflect a $519,000 liability under this
co-development agreement. The liability is payable based on future sales of the
software product with any unpaid balance due by April 2005.
4. Fixed Assets
Fixed assets at cost less accumulated depreciation and amortization are
summarized as follows: (In thousands)
37
<PAGE>
1999
------
Computer, machinery & equipment $3,542
Furniture and fixtures 632
Leasehold improvements 117
------
4,291
Less accumulated depreciation 2,408
$1,883
======
Depreciation expense was $454,000 and $218,000 in 1999 and 1998 respectively.
5. Advances from Customers
Advances from customers represent contractual payments received by the Company.
It is principally comprised of support and maintenance revenues that are paid by
customers in advance monthly, quarterly or annually in accordance with the
support contract. The revenue is recognized ratably over the term of the support
contract.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(In thousands)
1999
------
Payroll and related benefits $1,037
Professional fees 152
Interest 492
Income taxes 180
Royalties 103
Other 590
------
$2,554
======
7. Notes Payable and Current Portion of Long Term Debt
Notes payable include $804,000 owed to directors of the Company which accrue
interest at 9%. These notes, along with a $50,000 note to an unrelated party,
are collateralized by the trade accounts of Digimedics. Additionally, $283,000
is owed pursuant to the co-development agreement described in Note 3.
A $3,746,000 promissory note issued in connection with the acquisition of
Pharmakon and JAC was paid in full during 1999.
8. Stock Options and Warrants
The Company's Equity Incentive Plan, approved by the Company's shareholders in
January 1992, provides additional compensation incentives for high levels of
performance and productivity by management and other key employees of the
Company. The combined number of shares issued or available for issuance under
this plan may not exceed twenty percent of the issued and outstanding common
stock of the
38
<PAGE>
Company and not more than 500,000 shares may be issued as incentive stock
options. Options may be granted for a period up to ten years, with option prices
not less than fair market value on the date of grant for incentive stock
options, not less than 50% of fair market value for nonqualified stock options,
and not less than 110% of fair market value for owners of more than 10% of the
Company's outstanding voting stock. As of June 30, 1999, additional options
equal to 522,000 shares were available to be issued under this plan.
The Company's 1997 Stock Option Plan for Non-Employee Directors, which provides
compensation to directors for their services without the expenditure of cash, is
intended to increase ownership interest of the non-employee directors. Options
granted under this plan are exercisable at 100% of the fair market value on the
date of grant and are for terms of eight years and vest in two equal
installments during the year issued. Shares granted under this plan are limited
to 500,000, of which 428,000 were available for grant at June 30, 1999.
The Company also has options outstanding pursuant to a 1982 Option Plan and a
former Non-Employee Directors Plan. No additional options are available for
grant under these two plans.
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 become exercisable over four years at a rate
of 25,000 options per annum commencing November 1, 1997.
The following table sets forth summarized information concerning the Company's
stock options as of June 30,
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year 724,146 $3.35 710,822 $1.93
Granted 321,435 6.67 188,174 8.21
Exercised (97,772) 2.51 (123,321) 1.34
Canceled (107,275) 6.80 (51,529) 6.55
------- -------
Options outstanding at end of year 840,534 $4.27 724,146 $3.35
======= =======
Options exercisable at end of year 521,528 $3.29 411,493 $1.76
======= =======
</TABLE>
39
<PAGE>
The following table presents information relating to stock options at June 30,
1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Prices Shares Exercise Price Life in Years Shares Exercise Price
- --------------- ------ -------------- ------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $ 1.76 283,347 $1.04 4.33 273,847 $1.04
$2.80 - $ 3.625 189,169 3.26 3.10 117,919 3.34
$5.25 - $11.19 368,018 7.28 1.96 129,762 7.98
------- -------
840,534 521,528
======= =======
</TABLE>
The weighted average fair value at date of grant for options granted during the
year ended June 30, 1999 and 1998 was $5.29 and $5.03 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:
1999 1998
------------ -----------
Risk-free interest rates 4.6% - 6.05% 5.7% - 6.2%
Expected option life in years 1 - 8 6 - 8
Expected stock price volatility 76% - 83% 50%
Expected dividend yield -0- -0-
Had the Company elected to recognize compensation costs based on the fair value
of the options at the date of grant as prescribed by SFAS 123, net earnings
(loss); basic earnings (loss) per share; and diluted earnings (loss) per share
would have been approximately $(1,536,000), ($.26) and ($.26) respectively for
the year ended June 30 1999 and $2,468,000, $0.45 and $0.37, respectively for
the year ended June 30, 1998.
As of June 30, 1999, 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 expiring August 26, 2000.
40
<PAGE>
9. Income Taxes
Income tax expense (benefit) for each of the last two years is as follows: (In
thousands)
1999 1998
----- -----
Current:
Federal $ 28 $ 98
State 72 29
Foreign 16 12
----- -----
116 139
----- -----
Deferred:
Federal 817 398
State 144 70
Net operating loss carryforward (755) (810)
----- -----
206 (342)
----- -----
Other 169 342
----- -----
$ 491 $ 139
===== =====
For the years ended June 30, 1999 and 1998, the current tax provision has been
reduced by $468,000 and $380,000, respectively from the utilization of net
operating losses carried forward. The reduction in current income taxes payable
from the tax benefit from exercise of non-qualified stock options is allocated
to paid-in capital and shown in "other" above.
The principal components of the net deferred tax assets are as follows:
1999
-------
Deferred tax asset:
Net operating loss carryforwards $ 1,863
Business tax credit carryforwards 300
Valuation reserves and accruals
deductible in different periods 480
Other 40
-------
2,683
Valuation allowance (446)
-------
2,237
Deferred tax liability:
Software cost capitalization 1,709
Amortization differences 80
-------
1,789
-------
Net deferred tax asset $ 448
=======
The valuation allowance decreased by $592,000 and $1,294,000 in fiscal 1999 and
1998 respectively. The 1999 decrease is net of $446,000 added to the allowance
related to the net operating loss carry forward of Informedics at the date of
acquisition referred to below. The difference between the tax expense (benefit)
reflected on the financial statements and the amounts calculated using the
federal statutory income tax rates are as follows (in thousands):
41
<PAGE>
1999 1998
------- -------
Tax at statutory rate $ (163) $ 1,030
State income tax 142 65
Net operating loss carryforward (1,223) (1,190)
Non-deductible purchased research
and development 1,548 0
Other, including foreign tax 187 234
------- -------
$ 491 $ 139
======= =======
As of June 30, 1999, the Company has net operating loss ("NOL") carryforwards of
approximately $4,600,000 available to reduce future federal taxable income of
which $1,700,000 is subject to separate return limitation year and additional
limitations in accordance with Section 382 of the Internal Revenue Code.
Additionally, the NOL carryforwards may be subject to further limitations should
certain future ownership changes occur. Upon utilization, the tax benefit
attributable to $1,350,000 of the limited amount which relates to the NOL
carryforward of Informedics at the date of acquisition will be recorded as a
reduction of the intangible assets obtained in the acquisition of Informedics.
The Company also has available general business tax credit carryforwards of
$300,000 to reduce future federal income tax expense. The NOL and business tax
credit carryforwards expire in various amounts through 2009 and 2012,
respectively.
10. Retirement Plan
Effective June 1998, the Company implemented a 401(K) Retirement Plan (the
"Retirement Plan") which covers all eligible employees. Participants may
contribute up to 15% of their salary, as defined by the plan. In addition, the
Company may make contributions to the Retirement Plan, subject to certain
limitations. The Company contribution to the Retirement Plan was $144,000 and
$7,000 for the years ended June 30, 1999 and 1998 respectively.
11. Related Party Transactions
During 1999 and 1998, legal fees totaling $375,000 and $292,000, respectively,
were incurred by the Company for services provided by a firm to which an
attorney who is also a director of the Company is counsel.
12. Commitments and Contingencies
(a) Operating Lease
Rental commitments for the remaining terms of noncancelable leases, which relate
to office space, expire at various dates through 2004. Under these leases,
minimum commitments, without regard to amounts due from third parties under
sub-lease arrangements, are as follows (in thousands):
2000 $ 884
2001 710
2002 509
2003 421
2004 68
------
$2,592
======
42
<PAGE>
Certain leases provide for additional payments for real estate taxes and
insurance and contain escalation clauses related to increases in utilities and
services. Rental expense for the years ended June 30, 1999 and 1998 aggregated
$783,000 and $537,000 respectively.
(b) Royalties
In September 1990, the Company entered into an agreement to acquire a perpetual
license for a computerized information system for hospital operating rooms.
Under this agreement, the Company is required to pay royalties of 5% to 15% on
sales of this software product.
(c) Year 2000 Computer System Compliance (Unaudited)
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or products that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure, loss of data, or miscalculations causing disruption of
operations. If unresolved, Year 2000 issues could have a significant impact on
the Company's Operations.
Mediware has conducted a Year 2000 review of its operations focusing on the
Company's products and their use by its clients, the computers, operating
systems and data bases used in conjunction with its products and the Company's
internal operations. For its products, the Company has finalized its Year 2000
date-protocol tests, but continues to monitor status and will provide remedial
action, if needed. The Company has also completed its investigation of the Year
2000 preparedness of third parties with whom it has material relationships, such
as suppliers of hardware, database software, operating systems, network
operating systems and utility programs who provide components on which the
company's software products are operated. The Company believes that it has
provided Year 2000 solutions for all its software products and is offering these
Year 2000 compatible versions to its clients at no additional charge.
Additionally, Mediware is assisting those clients who have chosen to upgrade to
these compliant versions by providing electronic access or, if the client so
chooses, on-site assistance as needed. The Company is assessing its normal
charges for any on-site conversion services requested by its clients. These
services are being conducted in the ordinary course of the Company's business by
its employees, and the costs to the Company are not expected to be material.
The incremental costs to the Company in achieving Year 2000 compatibility cannot
be accurately predicted and will depend upon the timely completion of tasks by
both the Company and its customers. Total costs can be substantially affected by
a number of factors, including the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer codes, and
the extent of cooperation provided by customers and other relevant parties.
However, the costs incurred to make the Company's current versions compatible
have occurred in the ordinary course of software development and enhancement and
are not expected to be material.
43
<PAGE>
The Company has completed two rounds of assessment of its internal information
technology systems and non-information technology systems that contain embedded
microchips. No material problems have been found to exist. However, the Company
intends to make a final inspection of these systems by the end of November 1999.
(For a more detailed discussion of the Company's Year 2000 compliance status,
please see the Management's Discussion and Analysis of Financial Condition and
Results of Operations section in Item 6 of Part 1 of this document.)
(d) Other Contingencies and Uncertainties
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. The Company believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on its business or financial condition.
The Company's future results could be adversely affected by a number of factors.
Risks and uncertainties include: (a) the wide variability of the Company's
operating results, the market's acceptance of the Company's products; (b) the
intense competition in the clinical software industry; (c) 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 period of time; (d) the effect of government regulations on the Company;
(e) the Company's dependence upon its key employees; (f) the Company's ability
to manage its rapid growth; and (g) the risks associated with the Company's
international operations.
13. Segment Information
The Company operates in only one business segment: the development,
implementation and maintenance of clinical information system software marketed
to the healthcare industry. Within this segment, the Company has three distinct
product lines: Pharmacy Systems, Blood Bank Systems, and Operating Room Systems,
which are managed through four operating divisions. The Blood Bank, Pharmacy and
Operating Room divisions operate in the United States, and JAC, which provides
pharmacy stock control systems, operates from its facilities in the United
Kingdom. Selected financial information by geographic area is as follows: (In
thousands)
June 30,
--------
1999 1998
-------- --------
Revenues from Unaffiliated Customers
United States $ 25,779 $ 18,860
United Kingdom 2,560 1,670
-------- --------
Total $ 28,339 $ 20,530
======== ========
Net (Loss) Earnings
United States $ (1,125) $ 2,902
United Kingdom 155 28
-------- --------
Total $ (970) $ 2,930
======== ========
Identifiable Assets
United States $ 24,777 $ 22,202
United Kingdom 1,571 1,203
-------- --------
Total $ 26,348 $ 23,405
======== ========
44
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------
<S> <C> <C>
2 Agreement and Plan of Merger Incorporated by reference to Annex A to the Prospectus in
dated December 18, 1997, Registration Statement on Form S-4 (File No. 333-57693) ("1998
between Mediware Information Registration Statement")
Systems, Inc. and
Informedics, Inc., as amended
on April 30, 1998 and August
10, 1998
3.1 Restated Certificate of Incorporated by Reference to Exhibit No. 4 to the Registration
Incorporation Statement on Form S-8 (File No. 333-7591) (the "1996 Registration
Statement)
3.2 By-laws *
10.1 Agreement between the Company **
and Intellimed Corporation
dated September 25, 1990
10.7.2 Letters outlining terms of
engagement for Les Dace,
John Esposito, Rodger Wilson
and Creighton Miller
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 1991 Stock Option Plan for Incorporated by reference to Exhibit B
Non-Employee Directors to Company's Proxy Statement
dated December 17, 1991
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
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 Incorporated by reference to Exhibit A to Company's Proxy Statement
Non-Employee Directors dated November 21, 1997.
10.20 Letter outlining term of Incorporated by reference to Exhibit 10.20 to the 1998 Registration
engagement for John Tortorici Statement.
10.21 Lease with Beim & James Incorporated by reference to Exhibit 10(iii) to Informedics Inc.
Properties, as amended 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 Informedics' Annual
Way Holdings, Inc. (formerly Report on Form 10-KSB for the year ended October 31, 1994.
Beim & James Properties)
10.23 Licensing Agreement dated Incorporated by reference to Exhibit 10.23 to Company's Report on
7/1/97 between BAXA Form 10-KSB for the year ended June 30, 1998.
Corporation and Mediware
Information Systems, Inc.
</TABLE>
46
<PAGE>
11 Schedule of Computation of Net
Earnings Per Share
21 Subsidiaries of the Registrant
23.2 Consent of Richard A. Eisner &
Company, LLP
24 Powers of Attorney
27 Financial Data Schedule and Amended Financial Data Schedules
- ----------
* 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 10.7.2, 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.
47
9
Exhibit 10.7.2
December 25, 1998
Mr. Les Dace
Vice Chairman
Mediware Information Systems, Inc
11711 West 79th Street
Lenexa, Kansas 66214
Dear Les:
It is my pleasure to document your compensation plan for fiscal year 1999 in
your capacity of Vice Chairman of Mediware Information Systems.
Your compensation will consist of a salary of $110,000 per year. The Company
will pay all of your reasonable expenses as incurred in the performance of your
duties and you will continue to be eligible for all of the Company's standard
employee benefits.
Additionally, you will be eligible for incentive compensation based on the
following formulas:
1. Corporate Earnings (based on fully diluted earnings per share and exclusive
of the results of the Informedics operation): Based on the corporations
diluted earnings per share in fiscal year 1999, you will be paid the
following bonus payment:
EPS under $.44/share: $0
EPS $.44/share - $.50/share $2,500
EPS $.51/share - $.56/share $5,000
EPS $.57/share - $.79/share $10,000
EPS $.80/share and greater $20,000
Competion of Projects: Based on your completion of the following projects and
other projects that are assigned to you, you will receive a bonus of up to
$55,000, in total, at the discretion of Mediware's President and Chief Executive
Officer.
1
<PAGE>
a) Intramednet: You will develop marketing plans, product integration
initiatives, and sales of the Intramednet product which was acquired
in the Informedics acquisition. You will also document for Mediware's
Board of Directors the thought process related to Intramednet's value
based on the due diligence efforts conducted by Tom Mulstay, Bud
Barry, and yourself, on or before 1/15/99.
b) Y2K: You will develop a corporate wide Y2K compliance plan which
outlines, in an integrated fashion, Mediware's overall Y2K status and
the status of each of our individual products, as well as the status
of any internal systems as mandated by SEC rules and regulations. You
will generate reports for Mediware management, material that is
suitable for distribution to Mediware clients, as well as marketing
material suitable for our Web page, etc. You will assist each General
Manager in procuring whatever resources are necessary to keep Mediware
in good standing with the SEC and other organizations as it relates to
Y2K compliance. You will work with Mediware's sales and marketing
organization to develop specific Y2K oriented sales programs. You will
be responsible for the creation of Y2K language to be included in our
SEC filings.
c) Budgets: You will work closely with Mediware's accounting staff to
develop budgets for the corporation for internal and external use.
d) Travel Expense Reduction: You will streamline the Company's travel
policies and procedures through the selection of a single corporate
travel agency, which shall result in a decrease in the Company's
travel expenses by at least 10%.
e) Revenue Recognition: You will monitor the Company's bookings on a
weekly basis and will make sure that the company is promptly shipping
what it sells, in order to maximize the Company's revenue recognition
opportunities. This will result in a reduction of "last minute"
shipments which cause hardship throughout multiple areas of the
corporation.
f) Mergers and Acquisitions: You will identify merger and acquisition
candidates for the Company, and will conduct due diligence once the
Company has agreed to pursue a particular acquisition.
g) You will complete the implementation of Applix to the sales force.
h) You will develop a streamlined, corporate wide Human Resources effort
through the recruitment and management of 1 additional person, who
will recruit new employees for the Company and, simultaneously, manage
a corporate wide streamlining of human resources functions. Once the
recruiter is on board, you will make sure that the use of recruiters
is eliminated.
i) You will be in charge of the sales forecasting effort and other
statistics of value to the corporation (such as those detailing
average selling prices, sales by customer type, funnel size, etc.) by
working with each National Sales Manager and the President of the
corporation.
j) Overseas/International (exclusive of JAC): You will develop Mediware's
overseas sales and marketing efforts, and you will work with the
individual General Managers to develop appropriate support and
implementation efforts related to those sales. The structure of these
deals is to be through the development of distribution relationships
with companies that can provide first level support and implementation
services.
2
<PAGE>
Bonus calculations based on financial results shall be made based on financial
results that are exclusive of extraordinary events such as charges incurred as a
result of merger and acquisition activities. The bonus shall be paid upon the
completion of the fiscal year 1999 audit, and is contingent upon your not having
resigned prior to the end of fiscal year 1999. If you are terminated by the
company without cause, your bonus shall be paid on a pro-rata basis.
Please indicate your acceptance of this offer by signing below.
Yours truly,
John Esposito
President and CEO
Accepted:___________________
Les Dace
Date:_______________________
3
<PAGE>
December 25th, 1998
Mr. John Esposito
President and Chief Executive Officer
Mediware Information Systems, Inc
1121 Old Walt Whitman Road
Melville, New York 11747
Dear John:
It is my pleasure to document your compensation plan for fiscal year 1999 in
your capacity of President and Chief Executive Officer of Mediware Information
Systems.
Your compensation will consist of a salary of $150,000 per year, which shall be
retroactive to October 1, 1998. The Company will pay all of your reasonable
expenses as incurred in the performance of your duties and you will continue to
be eligible for all of the Company's standard employee benefits.
Additionally, you will be eligible for incentive compensation based on the
following formulas:
2. Corporate Earnings (based on fully diluted earnings per share and exclusive
of the resultes of the Informedics operation): Based on the corporation's
diluted earnings per share in fiscal year 1999, you will be paid the
following bonus payment:
EPS under $.44/share: $0
EPS $.44/share - $.50/share $ 15,000
EPS $.51/share - $.57/share $ 30,000
EPS $.58/share - $.79/share $ 60,000
EPS $.80/share and greater $120,000
3. DSO's: Based on a reduction of the Company's days sales outstanding
(DSO's), exclusive of bad debt write-offs, at the end of fiscal year 1999
(comparing DSO's at the end of the first fiscal quarter 1999 to DSO's at
the end of fiscal year 1999):
Reduction of DSO's less than 5% $0
Reduction of DSO's 5% - 10% $20,000
Reduction of DSO's 11% - 15% $40,000
Reduction of DSO's 16% or greater $80,000
The Company's DSO's at the end of the first fiscal quarter of 1999 were 133
days.
4
<PAGE>
Bonus calculations shall be made based on financial results that are exclusive
of extraordinary events such as charges incurred as a result of merger and
acquisition activities. The bonus shall be paid upon the completion of the
fiscal year 1999 audit, and is contingent upon your not having resigned prior to
the end of fiscal year 1999. If you are terminated by the company without cause,
your bonus shall be paid on a pro-rata basis.
Please indicate your acceptance of this offer by signing below.
Yours truly,
Lawrence Auriana
Chairman of the Board
Accepted:___________________
John Esposito
Date:_______________________
5
<PAGE>
December 25, 1998
Mr. Rodger Wilson
Vice President, General Manager
Pharmacy Division
Mediware Information Systems, Inc
11711 West 79th St.
Lenexa, KS 66214
Dear Rodger:
It is my pleasure to document your compensation plan for fiscal year 1999 in
your capacity of Vice President and General Manager of the Pharmacy Division of
Mediware Information Systems.
Your compensation will consist of a salary of $120,000 per year, which shall be
retroactive to October 1, 1998. The Company will pay all of your reasonable
expenses as incurred in the performance of your duties and you will continue to
be eligible for all of the Company's standard employee benefits.
Additionally, you will be eligible for incentive compensation based on the
following formulas:
4. Divisional Earnings: Based on the earnings before interest and provision
for income taxes (EBIT) generated by the Pharmacy Division in fiscal year
1999, you will be paid the following bonus payment:
EBIT $2,045,000 or less: $0
EBIT $2,045,001 - 3,299,999 $13,200
EBIT $3,300,000 - 4,554,999 $26,400
EBIT $4,555,000 and greater $52,800
6
<PAGE>
5. Corporate Earnings (based on fully diluted earnings per share and exclusive
of the results of the Informedics operation): Based on the corporation's
fully diluted earnings per share in fiscal year 1999, you will be paid the
following bonus payment:
EPS under $.44/share: $0
EPS $.44/share - $.50/share $2,400
EPS $.51/share - $.56/share $4,800
EPS $.58/share - $.79/share $9,600
EPS $.80/share and greater $19,200
6. Pharmacy Division DSO's: Based on a reduction of Pharmacy Division days
sales outstanding (DSO's), exclusive of bad debt write-offs, at the end of
fiscal year 1999 (comparing DSO's at the end of the first quarter of fiscal
year 1999 to DSO's at the end of fiscal year 1999):
Reduction of DSO's less than 5% $0
Reduction of DSO's 5% - 10% $12,000
Reduction of DSO's 11% - 15% $24,000
Reduction of DSO's 16% or greater $48,000
Pharmacy Division DSO's at the end of the first quarter of fiscal year 1999 were
126 days.
Bonus calculations shall be made based on financial results that are exclusive
of extraordinary events such as charges incurred as a result of merger and
acquisition activities. The bonus shall be paid upon the completion of the
fiscal year 1999 audit, and is contingent upon your not having resigned prior to
the end of fiscal year 1999. If you are terminated by the company without cause,
your bonus shall be paid on a pro-rata basis.
Please indicate your acceptance of this offer by signing below.
Yours truly,
John Esposito
President and CEO
Accepted:___________________
Rodger Wilson
7
<PAGE>
December 25, 1998
Mr. Creighton Miller
Vice President, General Manager
Operating Room Division
Mediware Information Systems, Inc
1121 Old Walt Whitman Road
Melville, NY 11747
Dear Creighton:
It is my pleasure to document your compensation plan for fiscal year 1999 in
your capacity of Vice President and General Manager of the Operating Room
Division of Mediware Information Systems.
Your compensation will consist of a salary of $110,000 per year, which shall be
retroactive to October 1, 1998. The Company will pay all of your reasonable
expenses as incurred in the performance of your duties and you will continue to
be eligible for all of the Company's standard employee benefits.
Additionally, you will be eligible for incentive compensation based on the
following formulas:
7. Divisional Earnings: Based on the earnings before interest and provision
for income taxes (EBIT) generated by the Operating Room Division in fiscal
year 1999, you will be paid the following bonus payment:
EBIT $1 - 100,000: $9,600
EBIT $100,001 - 199,999 $19,200
EBIT $200,000 - 399,999 $38,400
EBIT $400,000 and greater $76,800
8. Corporate Earnings (based on fully diluted earnings per share and exclusive
of the results of the Informedics operation): Based on the corporations
diluted earnings per share in fiscal year 1999, you will be paid the
following bonus payment:
EPS $.44/share - $.50/share $2,400
EPS $.51/share - $.57/share $4,800
EPS $.58/share - $.79/share $9,600
EPS $.80/share and greater $19,200
8
<PAGE>
9. Operating Room Division DSO's: Based on a reduction of Operating Room
Division days sales outstanding (DSO's), exclusive of bad debt write-offs,
in fiscal year 1999 (comparing DSO's at the end of the first quarter of
fiscal year 1999 to DSO's at the end of fiscal year 1999):
Reduction of DSO's less than 5% $0
Reduction of DSO's 5% - 10% $ 6,000
Reduction of DSO's 11% - 15% $12,000
Reduction of DSO's 16% or greater $24,000
Operating Room Division DSO's at the end of the first quarter of fiscal year
1999 were 179 days.
Bonus calculations shall be made based on financial results that are exclusive
of extraordinary events such as charges incurred as a result of merger and
acquisition activities. The bonus shall be paid upon the completion of the
fiscal year 1999 audit, and is contingent upon your not having resigned prior to
the end of fiscal year 1999. If you are terminated by the company without cause,
your bonus shall be paid on a pro-rata basis.
Please indicate your acceptance of this offer by signing below.
Yours truly,
John Esposito
President and CEO
Accepted:___________________
Creighton Miller
Date:_______________________
9
EXHIBIT 11
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
Schedule of Computation of Net Earnings Per Share
Years Ended June 30,
-----------------------------
1999 1998
----------- -----------
Basic Earnings Per Share
Net earnings (loss) $ (970,000) $ 2,930,000
Weighted-average shares:
Outstanding 5,963,000 5,447,000
----------- -----------
Basic Earnings Per Share $ (0.16) $ 0.54
=========== ===========
Diluted Earnings Per Share
Net earnings (loss) $ (970,000) $ 2,930,000
Weighted-average shares:
Outstanding 5,963,000 5,447,000
Options -- 81,000
Warrants -- 1,102,000
----------- -----------
5,963,000 6,630,000
----------- -----------
Diluted Earnings Per Share $ (0.16) $ 0.44
=========== ===========
EXHIBIT 21
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Digimedics Corporation
Informedics, Inc.
JAC Computer Services, LTD, a subsidiary of Digimedics Corporation
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
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, 1999 on the financial statements as of and for the year ended June
30, 1999 which is included in the annual report on Form 10-KSB for the year
ended June 30, 1999.
Richard A. Eisner & Company, LLP
New York, New York
October 13, 1999
Exhibit 24
Page 2
MEDIWARE INFORMATION SYSTEMS, INC.
The undersigned attorney-in-fact, acting pursuant to a power of attorney from
the director or officer named below of Mediware Information Systems, Inc.
("Company"), hereby authenticates, acknowledges and adopts on behalf of such
director or officer, the manually signed, facsimile or typed signature of such
director or officer on the signature pages of Form 10-KSB of the Company for the
fiscal year ended June 30, 1999, as his or her signature.
- ------------------------- --------------------------------
Director Attorney-In-Fact
Date: October __, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIWARE'S
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 3556
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