UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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)
11711 West 79th Street, Lenexa, KS 66214
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 307-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, par value $.10 per share NASDAQ Small Cap Market
The Pacific Stock Exchange
</TABLE>
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-K or any amendment to this
Form 10-K. [_]
(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 25,
2000 as reported on the NASDAQ Small Cap Market, was approximately $26,430,000.
The number of shares outstanding of the registrant's common stock, as of
September 25, 2000 was 7,133,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 2000 Annual Meeting of
Shareholders are incorporated by reference in Part III of this Form 10-K 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 1,100 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.
In November 1999, the Company expanded its Blood Bank Division with the
acquisition of LifeTrak(TM) from Carter BloodCare ("Carter"), Dallas, Texas.
LifeTrak is a comprehensive system for managing donor, laboratory and
distribution for the blood center.
In September 1998, the Company acquired Informedics, Inc., which develops and
markets a line of computer software applications designed for hospital blood
bank 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 Pharmacy
Division of the Company.
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.
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The Company currently operates in one business segment, the healthcare
information system industry: developing, implementing and maintaining clinical
information systems. The business 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 Company also seeks (but cannot provide assurance that it will be able) to
develop strategic partnerships that are complimentary to its core markets and
product set, mutually beneficial to both parties and that provide a greater
value proposition to the customer then could be realized without the strategic
relationship.
The Healthcare Information Systems Industry
As a result of recent events in the healthcare industry, the need for better
quality has been brought more sharply into focus. The passage of the Balanced
Budget Act (BBA) in 1997 sharply reduced Medicare funding to hospitals. The
Institute of Medicine (IOM) released a report from 1999 on patient safety - "To
Err is Human: Building a Safer Health System" - which documented the high
incidence of avoidable medical errors that result in significant adverse
outcomes including death. Several studies have recently appeared citing: (I)
nursing care shortages, (ii) shortages of other healthcare professionals, like
pharmacists, (iii) the increased use of poorly trained healthcare aids in
patient care settings, (iv) concerns over pharmacy prescription errors, and (v)
the overall lack of legible medical records as contributing factors to high
incidences of medical errors resulting in disabilities and even death. New
regulations mandated by the Healthcare Information Portability and
Accountability Act (HIPPAA) will likely be finalized in 2000. The combination of
reduced reimbursement, demands for improved patient safety, concerns over the
quality of patient care, and requirements for improved access and security to
patient information will place significant pressures on healthcare
organizations. The Company believes it is ideally positioned to provide clinical
information systems that address many of these issues impacting the quality and
cost effectiveness of health care.
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 $28 billion by the year 2002. The Company estimates that there are
approximately 4,000 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. Also key is the strategic position the
incumbent, or major healthcare information systems vendor, has in the
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customer site. 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 four major blood bank information systems
products - Hemocare(TM), the Company's cornerstone product and primary blood
bank information system, LifeTrak(TM), acquired from Carter , LifeLine(TM),
obtained as part of the Informedics acquisition in September 1998 and
StarPath(TM), a clinical pathology system. Hemocare(TM) was originally designed
in collaboration with Memorial Sloan-Kettering Cancer Center in 1981 and is sold
either on a stand-alone basis or in conjunction with a clinical laboratory
information system. Hemocare's software programs are organized into sub-systems,
which perform over 200 functions, including the following:
o Manage and control blood inventory
o Perform long-term donor and transfusion record keeping
o Perform medical screening
o Manage the collection, screening, testing, component preparation, labeling
and distribution
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
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 serving the hospital and blood center markets that assist customers in
their efforts to remain compliant with regulatory agency guidelines. Currently
the Hemocare application is installed in over 274 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 and
LifeTrak to the Company's blood bank product line, Mediware's total blood bank
division systems installed base increased to 506, making it the industry's
leading vendor of standalone, "best of breed" blood bank information systems.
LifeTrak(TM), the system acquired from Carter , has been marketed since January,
2000 to blood centers throughout the United States. The newer LifeTrak system is
a Windows(TM) NT/95/98 application utilizing a Unix/Oracle(TM) Platform.
In addition to the initial sale of the Company's blood bank systems, revenues
are generated from post contract support, averaging approximately 24% annually
of the systems' original selling price. These maintenance contracts account for
approximately 70% of this division's revenues and are recurring in nature.
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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. Mediware, however, enjoys the
unique position of having all 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. The Company continues to invest heavily in its core
blood bank product offerings. Additionally, the Company is investing significant
resources in developing a next generation Blood Bank information management
system. The Company expects, but can not assure, FDA approval and to begin
marketing the next generation system during fiscal 2001.
Pharmacy Division
In May 1990, the Company acquired Digimedics Corporation, one of the country's
leading vendors of information systems for hospital pharmacies. The Digimedics
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. This product is being
replaced by the Company's next generation WORx product line.
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 80 hospital organizations
encompassing 145 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 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 are in development.
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 50 hospitals using the Pharmacy Division's products.
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New Products
The Pharmacy Division is currently developing an outpatient module, WORx
Ambulatory Care. The 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 was released in September
2000.
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 reporting 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.
In fiscal year 2000, the Company introduced PCMWin - Charts, PCMWin - Schedule
and PCMWin - Server (collectively herein part of the perioperative case series
of products). These Microsoft Windows based products replace the character based
Surgiware system. Due to the modular design of the perioperative case series of
products, 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:
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 integrates 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 revenues 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
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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 system; 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 vendor's systems to
create a comprehensive surgical suite information management system. PCMWin was
released in September 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 2000, 60.7% of JAC's revenues were generated from services.
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 fiscal 2000, 1999 and 1998 were
$8,616,000, $5,098,000 and $3,523, 000 respectively, exclusive of write-downs
and amortization of software development costs. Of the total expenditures during
2000, 1999, 1998, $4,770, 000, $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, two Regional Sales Representatives and four Clinical Consultants
who perform on-site
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demonstrations of the products. 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 five
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 Eclipsys Corporation, The Compucare
Company, a subsidiary of Quadramed, and Creative Socio-Medics, a subsidiary of
Netsmart Technologies, Inc.
Mediware has 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 - 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.
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. The Operating Room Division sales force consists of a National
Sales Manager and three Regional Sales Representatives, and two Clinical
Consultants, covering the United States and Canada.
Employees
As of September 26, 2000, the company had 220 full-time employees of which 203
are employed domestically. The Company employs 26 in the area of sales and
marketing, 91 in customer support, 68 in product development and 35 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, 2000, there were 20 consultants covered by consulting agreements.
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Seasonality
The Company's operations are not subject to seasonal fluctuations.
Geographic Information
(Dollars in thousands)
2000 1999 1998
------- ------- -------
Revenues
United States $24,352 $25,779 $18,860
United Kingdom 2,354 2,560 1,670
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Total $26,706 $28,339 $20,530
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Long-lived assets
United States $16,156 $10,941 $ 8,275
United Kingdom 472 510 572
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Total $16,628 $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.
Backlog
At June 30, 2000, the Company had approximate backlog of $3,492,000, including
$1,168,000 related to contracted software and hardware sales and $2,324,000
related to implementation, training and other services. Software sales and
services backlog consists of product and services sold under signed contracts
which have not yet been recognized as revenues. Of the total backlog, the
Company expects that approximately 92% will be recognized as revenue during
fiscal 2001. At June 30, 1999, the Company had approximate backlog of
$5,905,000, including $2,549,000 related to contracted software and hardware
sales and $3,356,000 related to implementation, training and other services.
Item 2. Properties
The Company's corporate headquarters are located in Lenexa, KS, where it
occupies approximately 21,000 square feet of leased space. The Company also
leases office space in Melville, NY (14,000 square feet), Scotts Valley,
California (9,000 square feet), Dallas, Texas (6,000 square feet) and Lake
Oswego, Oregon (5,000 square feet). The Company's United Kingdom operations are
headquartered in Basildon, Essex where it occupies leased space totaling
approximately 4,000 square feet.
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.
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Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the Company's stockholders was held on June 14, 2000 for
the purpose of considering and voting upon (i) the election of four Class II
directors and (ii) a proposal to amend the 1992 Equity Incentive Plan (the
"Plan").
The Class II directors to be elected were Messrs. Joseph Delario, Walter Kowsh,
Jr., John C. Frieberg and Michael Montgomery. The Class III directors, whose
terms expire at the annual meeting of the Company's stockholders following the
2000 fiscal year, are Messrs. Lawrence Auriana and Jonathan H. Churchill, and
Drs. John Gorman and Clinton G. Weiman. The Class I directors, whose terms
expire at the annual meeting of the Company's stockholders following the 2001
fiscal year are Messrs. Roger Clark, Hans Utsch and Les Dace.
The proposal to amend the Plan involved approval of an amendment that was
adopted earlier by the Board of Directors (i) increasing the number of shares
which may be issued pursuant to the Plan from 20% to 30% of the outstanding
common stock of the Company, (ii) increasing the number of shares which may be
issued pursuant to incentive stock options from 500,000 to 700,000 shares, (iii)
limiting to 700,000 shares the maximum number of shares with respect to which
options or rights may be granted pursuant to the Plan to any one employee during
the ten years following the original effective date of the Plan, and (iv)
terminating for purposes of the foregoing 700,000 share limitation the
authorization in the Plan to grant and reissue shares previously granted.
Of 7,004,432 shares of the Company's common stock outstanding and eligible to be
voted at the annual meeting of stockholders, stockholders owning 5,397,335
shares were either present and voting at the meeting or represented by proxy,
which is greater than 50% of the outstanding common stock of the Company and,
therefore, a quorum. The votes on each of the foregoing matters was as follows:
1. ELECTION OF DIRECTORS
For Withhold
--------- --------
Joseph Delario 5,351,486 45,849
Walter Kowsh 5,351,486 45,849
John C. Frieberg 5,351,486 45,849
Michael Montgomery 5,351,486 45,849
2. PROPOSAL TO AMEND THE PLAN
For Against Abstain
--------- ------- --------
5,114,513 628,295 14,527
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Item 4A. Directors and Executive Officers of the Company
Directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Lawrence Auriana.......... 56 Chairman, Secretary and Director
Jonathan Churchill........ 68 Director
Roger Clark............... 66 Director
Joseph Delario............ 67 Director
John Frieberg............. 65 Director
Dr. John Gorman........... 69 Director
Walter Kowsh, Jr.......... 51 Director
Hans Utsch................ 64 Director
Dr. Clinton Weiman........ 75 Director
Les Dace.................. 54 Vice Chairman and Director
Michael Montgomery........ 52 President, Chief Executive Officer
and Director
Barbara Conner............ 58 Vice President, Sales and Marketing -
Blood Bank Division
Bill Macdonald............ 54 Vice President, Marketing
Creighton Miller.......... 48 Vice President and General Manager -
Operating Room Division
Kerry Robison............. 36 Chief Financial Officer
Rodger Wilson............. 47 Vice President and General Manager -
Pharmacy Division
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.
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.
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John Gorman has been a director since March 2000. Dr. Gorman is currently
Clinical Professor of Pathology at New York University School of Medicine. Dr.
Gorman served as a Director of the Blood Bank of Presbyterian Hospital, NY until
1981 and as Director of the Tisch Hospital Blood Bank at New York University
Medical Center until his retirement in 1999. Dr Gorman is a consultant to
Mediware for new product development in the area of blood bank information
systems. Dr. Gorman graduated from the University of Melbourne Medical School in
1953 and completed his residency in Anatomic and Clinical Pathology at Columbia
Presbyterian Medical Center in 1960.
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.
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.
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.
Michael Montgomery has been President, Chief Executive Officer and Director
since March 2000. Mr. Montgomery served as President of Alltel Healthcare
Information Systems Division from 1990 until his retirement in 1998. Mr.
Montgomery served as Executive Vice President of Sales and Marketing of
Systematics, Inc. from 1980 until 1990 when Alltel Corporation acquired it. He
studied mechanical engineering at the University of Utah.
Barbara Conner, has been with the Company since 1992, responsible for sales of
the Hemocare Blood Bank System. Ms. Conner was appointed Vice President, Sales &
Marketing for the Blood Bank Division during fiscal year 2000. Prior to joining
the Company, Ms. Conner was a consultant to hospitals in the areas of Laboratory
Interfacing and CLIA '88 Regulations effecting Physicians. Ms. Conner's
background includes management of Clinical Laboratory Registration and
Radiologic Technology Registration, as well as 25 years of sales experience.
Bill Macdonald joined the Company in 2000 as Vice President of Marketing and
Business Development. Prior to joining the Company, Mr. Macdonald was most
recently Senior Vice President of Marketing for Alltel Information Services, and
from 1993 to 1997, Senior Vice President of Marketing of Alltel Healthcare. Bill
has over 24 years of sales and marketing experience in healthcare information
systems.
Creighton Miller joined Digimedics Corporation in 1980 as a software development
engineer. Mr. Miller has served as Vice President and General Manager of the
Operating Room Division since 1998. Mr. Miller also served as Vice President and
General Manager of the Blood Bank
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Division from July 1999 until July 2000. In 1983 Mr. Miller was appointed Vice
President of Engineering.
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.
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.
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, 2000 and 1999 as
reported by NASDAQ.
2000 1999
------------------ ----------------
High Low High Low
------ ------- ------ -----
First Quarter 8 1/8 6 5/8 8 5/8 4
Second Quarter 8 3/16 6 1/4 10 1/4 4 3/8
Third Quarter 7 1/8 5 3/8 9 5/8 5 1/4
Fourth Quarter 7 4 11/16 8 3/8 5 1/8
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 25, 2000, there were approximately 223 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.
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Item 6. Selected Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
For the years ended June 30,
Revenues
System sales $ 8,294 $ 12,783 $ 7,868 $ 6,229 $ 5,781
Services 18,412 15,556 12,662 12,674 4,651
-------- -------- -------- -------- --------
Total revenues 26,706 28,339 20,530 18,903 10,432
-------- -------- -------- -------- --------
Cost of sales
Cost of systems 2,626 4,303 2,661 2,413 2,023
Cost of sales 6,829 4,123 3,279 2,913 1,403
-------- -------- -------- -------- --------
Total cost of sales 9,455 8,426 5,940 5,326 3,426
-------- -------- -------- -------- --------
Gross profit 17,251 19,913 14,590 13,577 7,006
Purchased research and development -- 4,553 -- -- 3,891
Software development costs 5,135 3,253 2,527 2,155 1,697
Selling, general and administrative 13,730 12,528 8,668 8,597 4,960
Net interest and other (income) expense (77) 58 326 659 202
-------- -------- -------- -------- --------
Earnings before income taxes (1,537) (479) 3,069 2,166 (3,744)
Income tax (expense) benefit 589 (491) (139) (85) (6)
-------- -------- -------- -------- --------
Net earnings (loss) $ (948) $ (970) $ 2,930 $ 2,081 $ (3,750)
======== ======== ======== ======== ========
Earning per common share
Basic $ (0.14) $ (0.16) $ 0.54 $ 0.42 $ (1.33)
======== ======== ======== ======== ========
Diluted $ (0.14) $ (0.16) $ 0.44 $ 0.35 $ (1.33)
======== ======== ======== ======== ========
Weighted average common shares outstanding
Basic 6,627 5,963 5,447 4,965 2,817
Diluted 6,627 5,963 6,630 5,917 2,817
Balance Sheet Data
As of June 30,
Cash and cash equivalents $ 3,634 $ 3,556 $ 4,681 $ 1,935 $ 2,504
Working capital 1,343 3,183 2,026 2,487 1,536
Total assets 29,051 26,348 23,747 17,349 15,157
Debt 1,236 854 4,600 5,812 7,179
Common stock 23,473 22,036 16,823 14,217 13,912
Accumulated deficit (7,055) (6,107) (5,137) (8,067) (10,148)
Total shareholders' equity 16,394 15,916 11,671 6,005 3,764
</TABLE>
15
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this Annual Report on Form 10-K 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 believes could cause actual results to differ materially
from those contemplated by these forward-looking statements. The Company
disclaims any obligation to update its forward-looking statements.
Results of Operations
Material Changes in Results of Operations: Fiscal 2000 versus Fiscal 1999
Total revenues decreased 5.8%, or $1,633,000 during fiscal 2000 to $26,706,000
compared to $28,339,000 in fiscal 1999. The decrease was attributable to a
decline in new system sales in all divisions except the Blood Bank division. The
Blood Bank Division increased 7.8% to $10,787,000 from $10,006,000 in fiscal
1999. The increase in Blood Bank revenues was due to the inclusion of a full
year of operating results for Informedics, which was acquired late during the
first quarter of fiscal 1999. Management believes that new system sales were
negatively impacted due to a disruption of customer purchasing of information
systems due to preparation for Y2K. Customers spent available capital budgets on
Year 2000 remediation and upgrades as opposed to initiating new system
implementations. The decline in new system sales was partially offset by an
increase in service revenues. Service revenues were positively impacted during
the first half of the fiscal year, due to completion of a significant level of
implementation services assisting customers in meeting Y2K preparation
deadlines.
System sales were $8,294,000 in fiscal 2000, a decline of $4,489,000 or 35.1%
from $12,783,000 in fiscal 1999. System sales in the Pharmacy division decreased
$3,365,000 or 48.4% from $6,952,000 to $3,587,000. System sales for the Blood
Bank Division were $3,214,000, a decline of $635,000, or 16.5% from $3,849,000
in fiscal 1999. Management believes that interest in new system purchases is
increasing as a result of the completion of Y2K requirements. The Company's
Operating Room division also experienced a decline in system sales, a 30.6% or
$250,000 decrease to $568,000. This was offset, however by an increase of 30.8%
and $256,000 in service revenues over last year, for a net change of less than
1% between the two years. Total revenues for this division were $1,654,000 for
fiscal year 2000. Revenues for the Company's overseas division, JAC, decreased
by $206,000 or 8.0% from the prior year, to $2,354,000 in fiscal 2000. System
sales declined by 20.6% while service revenues increased 2.4% over last year.
Service revenues, which include recurring software support, implementation and
training services increased 18.4% or $2,856,000 to $18,412,000 for fiscal 2000
from $15,556,000 for fiscal 1999. Service revenues of the Pharmacy Division
increased $1,153,000 or 16.1% to $8,324,000 for fiscal 2000 from $7,171,000 for
fiscal 1999. The Blood Bank division service revenues increased $1,415,000 or
23.0% to $7,573,000 from $6,158,000. The increase in Blood Bank service revenues
was partially attributable to the inclusion of a full year of operating results
for Informedics, which was acquired late during the first quarter of fiscal
1999.
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<PAGE>
Costs of systems include the cost of computer hardware and sublicensed software
purchased from computer and software manufacturers by the Company as part of its
complete system offering. These costs can vary as the mix of revenues varies
between high margin proprietary software and lower margin computer hardware and
sublicensed software components. Cost of systems decreased 39.0% during fiscal
2000 compared to the 35.1% decline in system sales, resulting in an improved
gross margin percentage. The gross margin percentage on system sales improved to
68.3% in fiscal 2000 from 66.3% in 1999.
Costs of services include the salaries of client service personnel and
communications expenses along with direct expenses of the client service
departments. Cost of services increased 65.6% in 2000 over the previous year on
an 18.4% increase in service revenues, resulting in a lower gross margin
percentage on service revenues. The gross margin on service revenues decreased
from 73.5% in 1999 to 62.9% in 2000. The increase in service costs as a
percentage of revenues primarily reflects increased activities in technical
field implementations to meet Y2k demands and an increase in support costs to
support new product releases and customer implementation needs.
Software development costs include salaries, consulting, documentation, office
and other related expenses incurred in product development activities, along
with the amortization expense of capitalized software development costs.
Software development costs increased $1,882,000 or 57.9% from $3,253,000 in 1999
to $5,135,000 in 2000. Total expenditures for software development, including
both capitalized and non-capitalized portions and excluding amortization of
capitalized software, were $8,616,000 compared to $5,098,000 in 1999. The
increased spending reflects the Company's commitment to product development in
all divisions, with significant investing in; (i) new products and functionality
in the Blood Bank Division, including a Windows client/server product,
instrument interfaces, ISBT128 bar-coding, LifeTrak testing module, (ii) the
Pharmacy division's WORx product offerings, and (iii) development of the
Operating Room Division's PCMWin, Windows client/server line of products.
Management expects to continue investing in development activities in its
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 other professional fees; salaries and bonus
expenses for corporate and division administrative staffs; utilities, rent,
communications and other office expenses; and other related direct
administrative costs. Selling, general and administrative expenses increased
$1,202,000 or 9.6% from $12,528,000 for fiscal 1999 to $13,730,000 for fiscal
2000. As a percentage of sales, these costs increased from 44.2% in 1999 to
51.4% in 2000. The increase in expenses of approximately $732,000 was
attributable to a number of factors: charges for severance costs related to
changes in management positions, an increase in professional fees, an increase
in the reserve for bad debt expense, and costs associated with the acquisition
of LifeTrak and the opening of office facilities in Dallas, Texas. Additionally,
the increase reflects the establishment of a sales team dedicated to the
Operating Room division and the inclusion of twelve months of operations of
Informedics.
Net losses for fiscal year 2000, after an income tax benefit of $589,000, were
$948,000 compared to losses in 1999 of $970,000 after a provision for income tax
expenses of $491,000.
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<PAGE>
Material Changes in Results of Operations: Fiscal 1999 versus 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 in 1998 to
$12,783,000 in fiscal 1999. The growth in systems revenues 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.
As a percentage of related sales, cost of systems decreased 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 as a percentage of service revenues increased less than 1% from
fiscal 1998 to fiscal 1999. Cost of services increased $844,000 or 25.7% from
$3,279,000 in 1998 to $4,123,000 in fiscal 1999. The increase in expense is
principally due to the increased client service cost from the Informedics
product line and a lower allocation of client service technical personnel to
capitalizable development projects within the Pharmacy division.
Software development costs increased 28.7% or $725,000 in fiscal 1999 from
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 costs capitalized was primarily
due to WORx product development and an increase in product development
activities in the Blood Bank division.
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 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
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<PAGE>
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 CHS 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 at June 30, 2000
As of June 30, 2000, the Company had cash and cash equivalents of $3,634,000,
and working capital deficit of $(1,343,000), compared to cash and cash
equivalents of $3,556,000 and working capital of $3, 183,000 at June 30, 1999.
The current ratio at June 30, 2000 was 0.88:1 compared to 1.31:1 at June 30,
1999. The current ratio is negatively impacted by a decrease in accounts
receivable related to a decrease in new system sales and an increase in accrued
expenses primarily related to employee compensation and contract labor fees and
bonuses related to accelerated product development efforts to meet key delivery
dates. Cash provided by operating activities was $6,190,000, $5,661,000 and
$4,082,000 for fiscal years ended June 30, 2000, 1999 and 1998 respectively.
Cash provided by operating activities in fiscal 2000 was primarily due to
earnings before non-cash items such as depreciation and amortization, collection
of accounts receivable, and increased billings of support to clients. Cash
provided by operating activities in fiscal 1999 was primarily due to earnings
before the write-off of purchased technology plus non-cash items such as
depreciation and amortization.
As of June 30, 2000, accounts receivable decreased $2,481,000, to $5,880,000
from $8,361,000 at fiscal year end 1999, and advances from customers increased
$873,000 to $6,220,000 from $5,347,000 at fiscal year end 1999. The decrease in
accounts receivable is due to completing a significant amount of system
implementations in the Pharmacy Division and a decrease in new system sales
related primarily to the industry-wide slowdown in new system purchases due to
Y2K. The increase in advances from customers is due to the expanded customer
base related to the Informedics acquisition in fiscal 1999 and an emphasis on
selling support services with annual renewals. Days sales outstanding was 80,
106 and 122 at fiscal year end June 30, 2000, 1999, and 1998 respectively.
The principal uses of cash for investing activities during the fiscal years
ended June 30, 2000 and 1999 included purchases of fixed assets and investments
in product development. Additionally, in fiscal 2000, the Company also made
payments of $1,166,000 related to the purchase of the LifeTrak(TM) blood center
software package. The balance of $375,000 was paid in July 2000. During the
fiscal year, the Company spent $966,000 on other fixed assets for equipment and
software to accommodate increases in employees and other fixed assets for the
startup of a Dallas, Texas location, the relocation of the Melville, NY product
center, upgrading aged systems for Y2K, and for use in product development. For
fiscal years ended June 30,
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<PAGE>
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. The Company capitalized new product
development of $4,770,000, $2,772,000 and $1,556,000 for the fiscal year 2000,
1999 and 1998 respectively. The investments in product development were related
to significant development in the Company's next generation products for the
Blood Bank, Pharmacy and Operating Room. 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.
Cash used in financing activities for the fiscal years ended June 30, 2000, 1999
and 1998 related principally to the repayment of promissory notes. Cash was used
in fiscal 2000 for repayment of $100,000 of notes to a director and repayment of
$50,000 of notes to a non-affiliate. Cash used in financing activities for the
fiscal year 1999 related to the repayment of a promissory note issued to IHS as
part of the purchase price for the Pharmakon and JAC operations. During the
fiscal year 2000, the Company received $1,337,000 upon the exercise of stock
options and warrants, including $513,000 upon the exercise of approximately
675,000 stock warrants and 15,000 stock options by the Chairman of the Board of
Directors.
The Company's liquidity is influenced by the Company's ability to perform in a
competitive industry. The factors that may affect liquidity are the ability to
maintain or improve the rate of system sales and the ability to collect cash
from clients as the implementation of systems progresses.
During fiscal year 2000, in part due to year 2000 issues, customers of the
Company tended to upgrade existing software while delaying purchases of new
software. As a result, the Company's revenues for upgrading customers' software
increased from the prior year while its sales of new software declined. While
the Company cannot provide assurances, new software sales are projected to
increase during fiscal year 2001 and generate sufficient cash flow for
operations. However, the weaker new software sales during fiscal year 2000
combined with increased product development expenses is expected to result in a
temporary cash shortfall in the second or third quarter of fiscal year 2001. In
October 2000, the Company obtained from Fratelli Auriana, an entity controlled
by Mr. Auriana, the Chairman of the Board of the Company, a commitment to loan
the Company up to $2,000,000 as needed by the Company through September 30,
2002, when any outstanding principal and interest would be due. The loan will be
collateralized by all of the assets of the Company. Contemporaneously, Mr.
Auriana has agreed to defer until the same date the loan from Fratelli Auriana
would be due, payment of an existing loan extended by Mr. Auriana to the Company
of approximately $704,000 plus accrued interest (principal and interest total
approximately $1.2 million) that is currently payable upon demand. See
Subsequent Events for a description of these loan arrangements.
Subsequent Events
In October 2000, Fratelli Auriana, an entity controlled by Mr. Auriana, the
Chairman of the Board of the Company, committed to loan the Company up to
$2,000,000, to be drawn in multiples of $250,000, as needed by the Company,
subject to the terms described as follows. Mr. Auriana has agreed to provide
funds to Fratelli Auriana should any be necessary to ensure Fratelli Auriana
meets this obligation to the Company. Interest at the rate of prime plus 1/4%
will be charged on any outstanding balance and must be paid quarterly. Any
principal and interest outstanding must be paid by September 30, 2002. Any money
borrowed may be prepaid without penalty on three days notice. Any principal and
interest outstanding will become
20
<PAGE>
immediately due and payable upon a "change of control" of the Company, which is
to be defined in final agreements between Fratelli Auriana and the Company. The
loan will be secured by all of the assets of the Company. The Company will pay
Fratelli Auriana an origination fee equal to the reasonably incurred expenses of
Fratelli Auriana, including legal fees, up to a maximum of 3/8% of $2,000,000.
There will be no facility fee. In connection with the loan from Fratelli
Auriana, Mr. Auriana has agreed to defer payment of principal and accrued
interest on an existing demand loan extended by Mr. Auriana to the Company of
approximately $704,000, which with accrued interest totals approximately $1.2
million until the same time as the loan from Fratelli Auriana to the Company
becomes due. This earlier loan by Mr. Auriana to the Company shall maintain its
present secured position. Final terms and conditions will be documented in a
loan agreement and related documentation currently being negotiated among
Fratelli Auriana, Mr. Auriana and the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Fluctuations in Quarterly Operating Results
Mediware's revenues and results of operations can fluctuate substantially from
quarter to quarter. System Sales revenues in any quarter depend substantially
upon Mediware's sales performance and customer's budgeting and buying practices.
System sales in any quarter may fluctuate due to contract activity, demand for
the Company's products and services, lengthy and complex sales cycles, and the
customer's internal budgets for new technology systems and technical resources
to deploy them. Additionally, the terms of a final contract may materially
affect the ability to recognize anticipated quarterly revenues not limited to
the following:
o Systems contracts may include both currently deliverable and
non-deliverable software products.
o Customer needs for services that include significant modifications,
customization or complex interfaces that could delay product delivery or
acceptance.
o Customer specific acceptance criteria.
o Payment terms that are long term or depend upon contingencies.
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 of 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, product performance being materially reduced, or unfavorable
pricing changes. 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's continued growth depends on its' ability to build and maintain strong
marketing partnerships. The company believes its marketing and sales efforts are
enhanced by these relationships. Mediware has marketing partnerships with
certain other software vendors who
21
<PAGE>
are also competitors. For example, Mediware partners with SMS and McKessonHBOC
in the area of blood bank products. However, both SMS and McKessonHBOC offer
competing pharmacy and operating room products, either directly or through other
partners. In the event that marketing relationships are discontinued the Company
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. Some of
the Company's competitors are Shared Medical Systems, McKessonHBOC, Cerner
Corporation and Sunquest, each of which offer products that compete with certain
offerings of the Company. Many of the Company's competitors have greater
financial, technical, product development, sales and marketing resources. 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 service related 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 partially depend upon its ability to recruit, manage and maintain
appropriate staffing levels of technical and industry expertise to meet customer
needs and service new sales. The market for such personnel is highly competitive
which makes it difficult to adjust staffing timely in reaction to fluctuations
in sales activity.
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 products are
subject to regulation, inspection and review by the
22
<PAGE>
U.S. Food and Drug Administration (the "FDA"). The Company's blood bank products
are subject to regulation by the FDA as medical devices.
The FDA has developed new design control regulations, effective in June 1998, as
part of its quality system regulations adopted in October of 1996 that apply to
blood bank information systems and to the inspection of vendors of such systems.
Although Mediware is updating its internal quality system to comply with new
guidelines adopted under these regulations, it cannot predict whether it will be
fully in compliance with these guidelines or any future guidelines, regulations
or inspection procedures. Non-compliance with any such guidelines, regulations
or procedures could have a material adverse effect on the operations of clinical
information system vendors of blood bank information systems, including
Mediware.
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. If any of the Company's other products
become subject to Congressional or governmental agency efforts to establish or
expand governmental agency jurisdiction, compliance would likely be costly and
time-consuming.
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, the Company has notified and given procedural
work-arounds to the 61 clients, and is correcting the problems in Hemocare
Revision 5.2b, which was distributed in September 2000. In addition, these three
product malfunctions are reportable to the FDA under the Medical Device
Reporting regulation (21CFR803) which was mandated by the Safe Medical Devices
Act of 1990. Mediware has submitted these Reports ("MDRs") to the FDA as
required.
During the period of January 2000 and April 2000, two additional MDRs were filed
for product design issues involving the optional Electronic Crossmatch function.
Additionally, three non-clinical Y2K issues were discovered after the start of
the new year. The Company instituted an extensive and comprehensive
retrospective design and validation review of Hemocare's safety critical
functionality with the assistance of an external blood bank software consultant.
This effort was reported to FDA in February 18, 2000 and a progress report of
the findings was issued to FDA on April 24, 2000. The report outlined issues
that were identified during the review that require corrective action as well as
a plan to achieve those corrections.
On April 26, 2000, the FDA, under the new Quality System Inspection Technique
(QSIT) initiative, inspected the Hemocare Product Center. The inspection
concluded on May 16, 2000 with several observations. The Company responded to
the observations on May 23, 2000 reporting the implementation of corrective and
preventive actions. FDA responded by letter on June 26, 2000 that no regulatory
action was indicated. Periodic updates on the progress of the corrective and
preventive actions have been and continue to be sent to FDA. There can be no
assurance that the Company's actions taken in response to reportable events,
corrective or preventive measures, will be deemed adequate by the FDA or that
the Company will not be required to undertake additional actions to comply with
regulatory requirements.
23
<PAGE>
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 enforces compliance by such actions as
recalls, seizures, injunctions, civil fines and criminal prosecutions.
Unsatisfactory compliance and inability to remedy timely, resulting in any of
the above actions would have a material adverse effect on the Company's
business, financial condition and results of operations.
New Regulations Relating to Patient Confidentiality
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
contains provisions regarding the confidentiality and security of patient
medical record information. Standards for the electronic handling of health data
and security of patient information will become effective in year 2000. This
legislation requires the Secretary of Health and Human Services, or HHS, to (1)
adopt national standards for electronic health information transactions, (2)
adopt standards to ensure the integrity and confidentiality of health
information, and (3) establish a schedule for implementing national health data
privacy legislation or regulations. The standards and legislation will impact
the customers' ability to obtain, use or disseminate patient information, which
will extend to their use of the Company's products. The Company believes that
the proposed standards issued to date would not materially affect the business
of the Company. The Company cannot determine the potential impact of the
standards that might finally be adopted.
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. The Company maintains product liability
insurance at an amount it believes adequate for its intended purpose; however,
there can be no assurances that the insurance will cover a claim brought against
the Company. 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, not
covered by insurance or greater than the insured limits could have a material
adverse effect upon business, results of operations, or financial condition.
System Errors and Warranties
Despite testing by Mediware, software products as complex as those offered by
the Company and used in a wide range of clinical and health information systems
settings are likely to contain a number of errors (or "bugs"), especially early
in their product life cycle. The Company's products are clinical information
systems used in patient care settings where a low tolerance for errors (or
"bugs") exists. Testing of products is difficult due to wide range of
environments the systems are installed in. Due to these factors, there is no
assurance that the discovery of defects or errors will not cause delay in
product delivery, poor client references, payment disputes, contract
cancellations, or additional expenses and payments to rectify problems. Any of
these factors may delay acceptance of products which could have a material
adverse effect upon business, results of operations, or financial condition.
24
<PAGE>
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.
The Company does not believe its software products, third-party software
products the Company offers under sublicense agreements, Company trademarks or
other Company proprietary rights infringe the property rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future software products or that any such assertion may not require the Company
to enter into royalty arrangements or result in costly litigation.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information contained under the caption "Factors That May Affect Future Results"
set forth under the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 is incorporated herein by reference.
Item 8. Consolidated Financial Statements and Supplemental Data
The Financial Statements and Notes required by this Item are included in a
separate section of this report.
Item 9. 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 10. 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 "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
25
<PAGE>
1934 is incorporated by reference to the Company's Proxy Statement under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance."
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation."
Item 12. 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 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
Part IV
Item 14. Exhibits and Reports on Form 8K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets at June 30, 2000 and 1999
Consolidated Statement of Operations and Comprehensive Income for the years
ended June 30, 2000, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the years ended June 30,
2000, 1999 and 1998
Consolidated Statement of Cash Flows for the years ended June 30, 2000,
1999 and 1998
2. Exhibits
The response to this portion of Item 14 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.
26
<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, 2000 BY: /s/ Michael Montgomery
-------------------------------------
Michael Montgomery
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.
Signature Title Date
--------- ----- ----
/s/ Michael Montgomery President, Chief October 13, 2000
------------------------ Executive Officer & Director
Michael Montgomery
/s/ Les N. Dace Vice Chairman, Director October 13, 2000
------------------------
Les N. Dace
/s/ Kerry Robison Chief Financial Officer October 13, 2000
------------------------ (Principal Accounting Officer)
Kerry Robison
Chairman of the Board October 13, 2000
------------------------
Lawrence Auriana
Director October 13, 2000
------------------------
Jonathan Churchill
/s/ Roger Clark Director October 13, 2000
------------------------
Roger Clark
Director October 13, 2000
------------------------
Joseph Delario
Director October 13, 2000
------------------------
John Gorman
/s/ John C. Freiberg Director October 13, 2000
------------------------
John C. Freiberg
/s/ Walter Kowsh, Jr. Director October 13, 2000
------------------------
Walter Kowsh, Jr.
Director October 13, 2000
------------------------
Hans Utsch
/s/ Clinton G. Weiman Director October 13, 2000
------------------------
Clinton G. Weiman
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Mediware Information Systems, Inc.
We have audited the accompanying consolidated balance sheets of Mediware
Information Systems, Inc. and subsidiaries as of June 30, 2000 and 1999 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated 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, 2000 and
1999, and the consolidated results of their operations and their consolidated
cash flows for each of the years in the three-year period ended June 30, 2000,
in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
September 1, 2000
With respect to Note 7 and 14
October 11, 2000
28
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except shares)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,634 $ 3,556
Accounts receivable (net of allowance of $518 and $907) 5,880 8,361
Inventories 214 403
Prepaid expenses and other current assets 350 568
Deferred tax asset -- 448
-------- --------
Total current assets 10,078 13,336
Fixed Assets, net 2,194 1,883
Capitalized software costs, net 7,770 4,289
Goodwill, net 5,720 6,266
Purchased technology, net 1,684 448
Deferred tax asset 1,454 --
Other long-term assets 151 126
-------- --------
Total Assets $ 29,051 $ 26,348
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to related party $ -- $ 897
Current portion of long-term debt 519 240
Accounts payable 1,259 1,115
Advances from customers 6,220 5,347
Accrued expenses and other current liabilities 3,423 2,554
-------- --------
Total current liabilities 11,421 10,153
Notes payable, and accrued interest payable to a related party 1,236 --
Other long-term liabilities -- 279
-------- --------
Total liabilities 12,657 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; 7,088,000 and 6,146,000 shares issued and
outstanding in 2000 and 1999, respectively 709 615
Additional paid-in capital 22,764 21,421
Accumulated deficit (7,055) (6,107)
Unearned compensation 0 (11)
Accumulated other comprehensive (loss) (24) (2)
-------- --------
Total stockholders' equity 16,394 15,916
-------- --------
Total Liabilities and Stockholders' Equity $ 29,051 $ 26,348
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<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)
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues
System sales $ 8,294 $ 12,783 $ 7,868
Services 18,412 15,556 12,662
-------- -------- --------
Total revenues 26,706 28,339 20,530
-------- -------- --------
Cost and Expenses
Cost of systems 2,626 4,303 2,661
Cost of services 6,829 4,123 3,279
Purchased research and development -- 4,553 --
Software development costs 5,135 3,253 2,527
Selling, general and administrative 13,730 12,528 8,668
-------- -------- --------
Total costs and expenses 28,320 28,760 17,135
-------- -------- --------
Operating (loss) income (1,614) (421) 3,395
Interest and other income 147 109 130
Interest (expense) (70) (167) (456)
-------- -------- --------
(Loss) earnings before provision for income taxes (1,537) (479) 3,069
Income tax benefit (provision) 589 (491) (139)
-------- -------- --------
Net (Loss) Earnings (948) (970) 2,930
-------- -------- --------
Other comprehensive loss, net of tax
Foreign currency translation adjustment (24) (38) --
-------- -------- --------
Comprehensive (Loss) Income $ (972) $ (1,008) $ 2,930
======== ======== ========
Earnings (Loss) Per Common Share
Basic $ (0.14) $ (0.16) $ 0.54
======== ======== ========
Diluted $ (0.14) $ (0.16) $ 0.44
======== ======== ========
Weighted Average Common Shares Outstanding
Basic 6,627 5,963 5,447
======== ======== ========
Diluted 6,627 5,963 6,630
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2000, 1999 and 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
-------------------- Paid-In Accumulated Unearned Comprehensive
Shares Amount Capital (Deficit) Compensation Income (Loss) Total
-------- -------- ---------- ----------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 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
-------- -------- -------- -------- -------- -------- --------
Shares issued to directors 14 1 99 100
Exercise of stock options 254 25 617 642
Exercise of warrants 675 68 367 435
Tax benefit from exercise of stock options 260 -- -- -- 260
Amortization of compensatory stock options 11 11
Foreign currency translation adjustment (22) (22)
Net loss (948) (948)
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 2000 7,089 709 22,764 (7,055) -- (24) 16,394
======== ======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Satements.
31
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
For the Years ended June 30,
(Amounts in thousands)
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings (loss) $ (948) $ (970) $ 2,930
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,753 1,829 1,184
Write-off of acquired research and development 4,553 --
Deferred tax provision (1,006) 375 --
Disposal of fixed assets 42 -- --
Shares issued to directors 100 100 100
Compensatory stock options 11 40 40
Provision for doubtful accounts 393 464 176
Changes in operating assets and liabilities:
Accounts receivable 2,088 (1,006) (1,304)
Inventories 189 (52) (275)
Prepaid and other 193 (202) (851)
Accounts payable, accrued expenses and
customer advances 2,375 530 2,082
------- ------- -------
Net cash provided by operating activities 6,190 5,661 4,082
------- ------- -------
Cash Flows From Investing Activities
Acquisition of fixed assets (966) (1,120) (804)
Capitalized software costs (4,770) (2,772) (1,556)
Acquisition of Informedics 653 --
Acquisition of LifeTrak software license (1,541)
------- ------- -------
Net cash used in investing activities (7,277) (3,239) (2,360)
------- ------- -------
Cash Flows From Financing Activities
Repayment of debt (150) (3,746) (1,230)
Proceeds from exercise of options 1,337 244 164
Proceeds (expenses) of private placement -- -- 2,090
Other -- (7) --
------- ------- -------
Net cash provided by (used in) financing activities 1,187 (3,509) 1,024
------- ------- -------
Foreign currency translation adjustments (22) (38) --
------- ------- -------
Net (Decrease) Increase in Cash and Cash Equivalents 78 (1,125) 2,746
Cash and cash equivalents at beginning of year 3,556 4,681 1,935
------- ------- -------
Cash and cash equivalents at end of year $ 3,634 $ 3,556 $ 4,681
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 121 $ 104 $ 448
Income Taxes $ 142 $ 100 $ 99
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mediware Information Systems, Inc. and subsidiaries (the "Company") develops,
implements and supports clinical management information systems used by
hospitals. The Company's systems are designed to automate three departments of a
hospital, namely, the blood bank, the pharmacy, and the operating room. A system
consists of the Company's proprietary application software, third-party licensed
software, computer hardware and implementation services, training and annual
software support.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Mediware Information Systems, Inc. and its wholly owned subsidiary Digimedics
Corporation ("Digimedics") and Digimedics' wholly owned subsidiary J.A.C.
Computer Services Limited ("JAC"). 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 inter-company 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
The Company derives revenue from licensing its proprietary 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 evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is probable. 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 the
American Institute of Certified Public Accountants Statement of Position ("SOP")
97-2, Software Revenue Recognition. Support and maintenance fees, typically sold
on an annual renewal basis, are recognized ratably over the period of the
support contract.
In December 1999, the SEC issued Staff Accounting Bulletin 101 "Revenue
Recognition in Financial Statements" ("SAB 101"), which provided guidance on
certain revenue recognition
33
<PAGE>
practices. The Company does not anticipate any material change to its revenue
recognition policies as a result of the adoption of SAB 101.
Cash and Cash Equivalents
Cash equivalents include time deposits with maturities of three months or less
when purchased.
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 ("SFAS") No. 86, Accounting for the Costs of
Software to be Sold, Leased or Otherwise Marketed, once technological
feasibility has been established, the costs associated with software development
are capitalized and subsequently reported at the lower of unamortized cost or
net realizable value. Capitalized costs are amortized based on estimated current
and future revenue for each product with an annual minimum equal to the
straight-line amortization over the estimated economic life of five years of the
software. Amortization expense for the years ended June 30, 2000, 1999 and 1998
was $1,289,000; $927,000 and $560,000, respectively.
(In thousands)
2000 1999 1998
------- ------- -------
Capitalized Software Costs
Beginning of year $ 8,017 $ 5,245 $ 3,689
Additions 4,770 2,772 1,556
------- ------- -------
12,787 8,017 5,245
Less accumulated amortization 5,017 3,728 2,801
------- ------- -------
$ 7,770 $ 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
34
<PAGE>
in 1990, Pharmakon (which was merged into Digimedics) 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 $546,000 in
2000; $397,000 in 1999 and $357,000 in 1998. Accumulated amortization for
goodwill was $2,034,000 and $1,488,000 at June 30, 2000 and 1999, respectively.
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 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, 2000.
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. Purchased technology costs of $1,541,000 related to
the acquisition of rights to LifeTrak(TM), a comprehensive donor blood center
software package, from Carter BloodCare in November 1999 are being amortized
over 5 years. Amortization costs for purchased technology charged to operations
were $305,000 and $50,000 during fiscal years 2000 and 1999, respectively.
Another portion of the acquisition price for Informedics, $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 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.
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. The net gain (loss) resulting from these foreign currency translations
are reported as comprehensive income. Amounts charged to comprehensive income
were $(20,000) in 2000 and $(38,000) in 1999. There was no charge to
comprehensive income in 1998.
35
<PAGE>
Income Taxes
Income taxes are accounted for under the asset and 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.
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 by dividing the income or loss available to common
stockholders by 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
years 2000 and 1999 as a result of the Company's net losses. Such options and
warrants could potentially dilute basic earnings per share in the future. The
weighted average shares outstanding used in the calculations of earnings per
share were calculated as follows (in thousands):
2000 1999 1998
----- ----- -----
Shares outstanding, beginning 6,145 5,591 5,056
Weighted average shares issued 482 372 391
----- ----- -----
Weighted average shares outstanding - basic 6,627 5,963 5,447
Effect of dilutive securities:
Stock options and warrants -- -- 1,183
----- ----- -----
Weighted average shares outstanding - dilutive 6,627 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, 2000
and 1999, the fair value of the Company's long-term obligations approximated its
carrying value.
36
<PAGE>
Foreign Currency
The Company translates assets and liabilities of it's foreign subsidiary into
dollars at rates prevailing at the balance sheet date.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No. 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 Software License
In November 1999, the Company acquired the rights to LifeTrak(TM), a
comprehensive donor blood center software package, from Carter BloodCare. The
purchase price aggregated $1,500,000, including $750,000 paid upon delivery of
the product, and installments of $375,000 due upon clearance by the FDA of the
donor system and on June 30, 2000. The Company also entered into a license
agreement granting Carter BloodCare the right to continue use of the software in
their blood center and laboratory facilities, and providing for royalty payments
to Carter BloodCare by the Company in an amount equivalent to 5% of LifeTrak
software sales for a five-year term. The software was capitalized as purchased
technology and is being amortized over its expected useful life of five year.
3. Acquisition of Business
On September 24, 1998, the Company acquired 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 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.
4. Fixed Assets
Fixed assets at cost less accumulated depreciation and amortization are
summarized as follows: (In thousands)
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<PAGE>
2000 1999
------ ------
Computer, machinery & equipment $4,270 $3,542
Furniture and fixtures 780 632
Leasehold improvements 116 117
------ ------
5,166 4,291
Less accumulated depreciation 2,972 2,408
------ ------
$2,194 $1,883
====== ======
Depreciation expense was $613,000, $454,000 and $218,000 in 2000, 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)
2000 1999
------ ------
Payroll and related benefits $1,745 $1,037
Professional fees 294 152
Interest 534 492
Income taxes -- 180
Royalties 22 103
Other 1,360 590
------ ------
$3,955 $2,554
====== ======
7. Notes Payable to Related Party
The Company owes $704,000 to the Chairman of the Board of Directors of the
Company which accrues interest at 9%. On October 11, 2000, the note plus accrued
interest of $532,000 was changed from a demand note to a long term note
collateralized by the trade accounts receivable of Digimedics and due September
30, 2002.
8. Current Portion of Long Term Debt
The current portion of long term debt represents $519,000 owed to a
co-development partner pursuant to an agreement entered into in 1995.
9. Stock Options and Warrants
The Company's Equity Incentive Plan, approved by the Company's shareholders in
January 1992 and amended in March 2000, provides additional compensation
incentives for high levels of performance and productivity by management and
other key employees of the Company. The
38
<PAGE>
combined number of shares issued or available for issuance under this plan may
not exceed thirty percent of the issued and outstanding common stock of the
Company and not more than 700,000 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, 2000, additional options
equal to 1,276,000 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 392,000 were available for grant at June 30, 2000.
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.
The following table sets forth summarized information concerning the Company's
stock options as of June 30, 2000 and 1999.
2000 1999
--------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- -------- -------- --------
Options outstanding at
beginning of year 840,534 $4.27 724,146 $3.35
Granted 536,000 6.58 321,435 6.67
Exercised (253,851) 2.57 (97,772) 2.51
Canceled (84,580) 6.02 (107,275) 6.80
---------- ----- -------- -----
Options outstanding at
end of year 1,038,103 $5.73 840,534 $4.27
========== ===== ======== =====
Options exercisable at
end of year 388,034 $4.34 521,528 $3.29
========== ===== ======== =====
The following table presents information relating to stock options at June 30,
2000:
39
<PAGE>
<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 - $ 1.76 127,795 $1.03 3.43 127,795 $1.03
$2.80 - $ 3.625 141,669 3.40 2.71 125,419 3.45
$5.25 - $11.19 768,639 6.94 1.21 134,820 8.31
--------- -------
1,038,103 388,034
========= =======
</TABLE>
The weighted average fair value at date of grant for options granted during the
years ended June 30, 2000 and 1999 was $3.14 and $5.29 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:
2000 1999
------------- ------------
Risk-free interest rates 5.46% - 6.86% 4.6% - 6.05%
Expected option life in years 3 - 8 1 - 8
Expected stock price volatility 50% - 79% 76% - 83%
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 $(1,349,000), ($.20) and ($.20) respectively for
the year ended June 30, 2000; $(1,536,000), ($.26) and ($.26) respectively for
the year ended June 30, 1999, and $2,468,000, $.45 and $.37 respectively for the
year ended June 30, 1998.
As of June 30, 2000, the Company has outstanding warrants for the purchase of
40,000 shares at $6.00 per share which expired August 26, 2000.
10. Income Taxes
Income tax expense (benefit) for each of the last three years is as follows:
(In thousands)
2000 1999 1998
----- ----- -----
Current:
Federal -- $ 28 $ 98
State -- 72 29
Foreign 96 16 12
----- ----- -----
96 116 139
----- ----- -----
Deferred:
Federal (810) 817 398
State (135) 144 70
Net operating loss carryforward -- (755) (810)
----- ----- -----
(945) 206 (342)
----- ----- -----
Other 260 169 342
----- ----- -----
$(589) $ 491 $ 139
===== ===== =====
40
<PAGE>
For the years ended June 30, 1999 and 1998, the current tax provision was
reduced by $468,000 and $380,000, respectively from the utilization of net
operating losses carried forward. The increase in the deferred income taxes
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:
2000 1999
------ -------
Deferred tax asset:
Net operating loss carryforwards $4,058 $ 1,863
Business tax credit carryforwards 300 300
Valuation reserves and accruals
deductible in different periods 256 480
Other 63 40
------ -------
4,677 2,683
Valuation allowance -- (446)
------ -------
4,677 2,237
Deferred tax liability:
Software cost capitalization 3,108 1,709
Amortization differences 115 80
------ -------
3,223 1,789
------ -------
Net deferred tax asset $1,454 $ 448
====== =======
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):
2000 1999 1998
----- ------- -------
Tax at statutory rate $(522) $ (163) $ 1,030
State income tax (92) 142 65
Net operating loss carryforward -- (1,223) (1,190)
Non-deductible purchased research
and development -- 1,548 --
Other, including foreign tax 25 187 234
----- ------- -------
$(589) $ 491 $ 139
===== ======= =======
As of June 30, 2000, the Company has net operating loss ("NOL") carryforwards of
approximately $12,350,000 available to reduce future federal taxable income of
which $2,500,000 is subject to 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 $2,220,000 of the NOL carryforward
of Informedics at the date of acquisition will be recorded as a reduction of
41
<PAGE>
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 2020, respectively.
11. 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 $195,000;
$144,000 and $7,000 for the years ended June 30, 2000, 1999 and 1998
respectively.
12. Related Party Transactions
On March 31,2000, the Chairman of the Board of Directors of the Company
exercised a total of 674,695 stock warrants and 15,000 stock options for a total
exercise price of $513,369, increasing his ownership to 14.9% of the outstanding
stock of the Company on that date, as computed under Rule 13d-3 of the
Securities and Exchange Commission. The warrants exercised were issued in
connection with the fiscal 1998 bridge financing at an exercise price of
$272,500 for 545,000 shares and $162,119 for 129,695 shares. The stock options
were exercised at an aggregate price of $78,750 and were granted as compensation
for services as the Chairman of the Board.
During 2000, 1999 and 1998, legal fees totaling $255,000; $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.
13. Commitments and Contingencies
(a) Operating Lease
Rental commitments for the remaining terms of non-cancelable leases, which
relate to office space, expire at various dates through 2007. Under these
leases, minimum commitments, without regard to amounts due from third parties
under sub-lease arrangements, are as follows (in thousands):
2001 $1,076
2002 969
2003 890
2004 429
2005 383
Thereafter 719
------
$4,466
======
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, 2000, 1999 and 1998
aggregated $939,000, $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) 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, financial condition, results of operations or cashflows.
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.
14. Subsequent Event
The Company may require additional financing in order to fund its operations for
the fiscal year ending June 30, 2001. Accordingly, the Company is negotiating a
loan agreement with Fratelli Auriana, an entity controlled by the Chairman of
the Board of Directors, and the Chairman. On October 11, 2000 Fratelli Auriana
committed to loan the Company up to $2,000,000 to be drawn in $250,000
increments as needed with repayments of amounts borrowed due September 30, 2002
and with interest payable quarterly at prime plus 1/4%. The loan will be
collateralized by all of the assets of the Company. In addition, the Chairman
agreed to defer payment of an aggregate of $1,236,000 representing loan
principal and interest owed to him as of June 30, 2000 which had been payable
upon demand.
15. Concentration of Credit Risk
Concentration of credit risk with respect to accounts receivable is limited due
to the large number of hospitals comprising the Company's customer base. As of
June 30, 2000 and 1999, the Company had no significant concentration of credit
risk.
16. Foreign Currency Risk
The Company has exposure to foreign currency exchange rate fluctuations arising
from sales made to customers in the United Kingdom. The Company has
approximately $368,000 subject to such risk at June 30, 2000.
17. 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
43
<PAGE>
Systems. 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 as of June 30 is as follows: (In thousands)
2000 1999 1998
-------- -------- --------
Revenues from Unaffiliated Customers
United States $ 24,352 $ 25,779 $ 18,860
United Kingdom 2,354 2,560 1,670
-------- -------- --------
Total $ 26,706 $ 28,339 $ 20,530
======== ======== ========
Net (loss) Earnings
United States $ (1,042) $ (1,125) $ 2,902
United Kingdom 94 155 28
-------- -------- --------
Total $ (948) $ (970) $ 2,930
======== ======== ========
Identifiable Assets
United States $ 27,259 $ 24,777 $ 22,544
United Kingdom 1,792 1,571 1,203
-------- -------- --------
Total $ 29,051 $ 26,348 $ 23,747
======== ======== ========
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>
10.24 Agreement between Carter
BloodCare and Hemocare, a
division of Mediware
Information Systems, Inc.
dated as of November 1999
10.25 Office Building Lease between
Carter BloodCare and Mediware
Information Systems, Inc.
dated May 23, 2000
47
<PAGE>
10.26 Commitment Letter from
Fratelli Auriana, Inc. and Lawrence
Auriana to Mediware Information
Systems, Inc. dated October 11, 2000
10.27 Employment Agreement between
Mediware Information Systems,
Inc. and Les Dace dated as of
June 10, 1999
10.28 Employment Agreement between
Mediware Information Systems,
Inc. and Michael Montgomery
dated as of March 6, 2000
10.29 Stock Option Agreement between
Mediware Information Systems,
Inc. and Michael Montgomery,
dated as of March 3, 2000
11 Schedule of Computation of Net
Earnings Per Share
21 Subsidiaries of the Registrant *****
23.2 Consent of Richard A. Eisner &
Company, LLP
27 Financial Data Schedule
----------
* 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.
48
<PAGE>
**** 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.
***** Incorporated be 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, 1999.
Exhibits 10.7.2, 10.8, 10.9, 10.10, 10.13, 10.14, 10.15, 10.17, 10.19,
10.20, 10.27, 10.28, and 10.29 are management contracts or compensatory
plans or arrangements.
49
