Document/Exhibit Description Pages Size
1: 10KSB Annual Report -- Small Business 33 136K
2: EX-3.2 By-Laws of Mediware Information Systems, Inc. 16 60K
5: EX-10.15 Stock Opion Agreement 14 30K
6: EX-10.16.1 Form of Note 6 23K
7: EX-10.16.2 Form of Warrant 7 23K
3: EX-10.3.3 Amended and Restated Secured Promissory Note 17 55K
4: EX-10.7 Employment Letter 6 24K
8: EX-21 Subsidiaries of Registrant 1 4K
9: EX-23 Consent of Independent Auditors 1 6K
10: EX-24 Power of Attorney 1 8K
11: EX-27 Art. 5 FDS for Year End 10-Ksb 2 7K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
or
|_|Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-10768
MEDIWARE INFORMATION SYSTEMS, INC.
(Exact name of small business issuer in its charter)
New York 11-2209324
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1121 Old Walt Whitman Road
Melville, New York 11747-3005
(Address of Principal Executive Offices) (Zip Code)
(516) 423-7800
(Issuer's telephone number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.10 per share Nasdaq SmallCap Market
The Pacific Stock Exchange,Inc.
Securities to be registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the part 90 days. Yes x No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $10,432,000.
The aggregate market value of the voting stock held by non-affiliates on October
25, 1996 was approximately $12,270,864.
Number of shares of Common Stock outstanding at October 25, 1996: 4,939,344
shares.
Documents Incorporated by Reference:
The Proxy Statement for the Registrant's 1996 Annual Meeting of Shareholders is
incorporated by reference in Part III of this Report.
PART I
ITEM 1. BUSINESS
The Company develops, sells and supports computer-based
management information systems for use in various clinical departments of
hospitals. The systems are designed to automate the data these departments
provide hospital management and therefore increase productivity, reduce
operating costs, enhance revenues and improve quality assurance and patient
care. These benefits are of critical importance to hospital administrators who
face increasing financial and regulatory pressures. At present, the Company
offers systems for three different departments: the blood bank, the pharmacy and
the surgical suite. With the completion of the Acquisition referred to below the
installed base of clinical information systems has increased to approximately
825 clients.
See "Financial Statements" herein for information about the
Company's revenues, operating profit and loss and assets. The Company's
operations are within one industry segment.
Products
HEMOCARE - The Company's cornerstone product is one of North
America's leading "best of breed" blood bank information systems, and is sold
either "stand-alone" or as part of an integrated "LAB/Blood Bank" system. The
system was designed in collaboration with Memorial Sloan-Kettering Cancer Center
in New York City. Hemocare's software programs are organized into subsystems
performing over 200 functions of which the major ones (a) manage and control
blood inventory; (b) perform long-term donor and transfusion record keeping; (c)
store and manage characteristics of blood products to be transfused; (d)
maintain patient and transfusion records; (e) maintain the records of patient
test results; and (f) automate billing and workload recording.
Hemocare's core technology is the UNIX operating system and
the "C" programming language, allowing it to run on multiple hardware platforms.
Current versions of the system are ported to the IBM RS/6000, as well as Intel
PC technologies. The scalability of these platforms allows Hemocare to address
the needs of virtually any size hospital. Hemocare has been the first to attempt
to market innovative product enhancements such as Validation Templates, Video
Validation, Standard Integration Module and Mock Regulatory Inspection. At this
time Hemocare is the only blood banker to offer these products, which assist
customers in their efforts to remain compliant with regulatory agency
guidelines. The Standard Integration Module was instrumental in the growth of
laboratory vendors, who have integrated and remarketed this product. The Company
currently has remarketing agreements with HBO and Company, Citation Computer
Systems, Inc., Dynacor, Inc., Keane, Inc., NLFC, Inc. and Shared Medical
Systems, Inc.
The Hemocare system is installed in approximately 250
hospitals which range in size from 100 beds to over 1,600 beds.
DIGMEDICS - In May of 1990, the Company acquired Digimedics
Corporation, one of the country's leading vendors in information management
systems for hospital pharmacies. Digimedics had been developing and selling
products and services to hospital pharmacies since 1976. In the mid-1980's,
Digimedics introduced the first open systems version of a comprehensive pharmacy
information management system. Digimedics Corporation is a wholly owned
subsidiary of the Company.
The benefits of Digimedics include (a) potential customer
savings through the automation of drug formulary and perpetual inventory; (b)
potential enhanced revenues through more accurate and complete patient billing;
(c) improved patient care by more accurate drug dispensing, automatic checking
of adverse drug-drug interactions and automatic checking of previously recorded
drug allergies; and (d) interfacing with other hospital information systems,
drug wholesalers, and various dispensing machines, such as PYXIS and the
automated Pharmacy System robotics devices.
The current version of Digimedics, called "Digimedics XA for
Windows," is based on the UNIX operating system, the "C" programming language,
and the UNIFY relational database management system. Although largely a
"character based" application, certain Microsoft Windows features have been
included, offering the Company certain sales advantages by providing customers
and prospective customers with the type of graphical user interface they prefer.
By the end of 1996, Digimedics will introduce a new client
server pharmacy system called "Digimedics/WORx". WORx (Windows, Open, Rx) will
have a complete Microsoft Windows based graphical user interface, which the
Company feels will increase the attractiveness of the system. Also, new
technologies include integration features such as the Informix relational
database management system, point and click Windows based ad-hoc report writing,
and an integrated inpatient/outpatient database.
Other WORx features will include:
o Support of clinical pathways.
o A clinical database and drug monographs.
o Incorporation of an extensive array of clinical drug alerts concerning
allergy, diagnosis, dose, food, IV incompatibility, interaction and
therapeutic duplication.
o Foreign-language patient education monographs.
o Customization to meet community standards.
By taking advantage of its open architecture, WORx is capable
of linking with expert systems, decision-support software and clinical
databases. WORx will act as the central hub of information in the pharmacy and
will provide specialized tools for all aspects of pharmaceutical care including
order entry, distribution, outcomes, billing, utilization evaluation, education,
critical pathways, purchasing and research.
WORx can adapt into a diversity of hardware and networking
environments. Utilizing technologies such as the UNIX operation system, C++
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programming language, Informix, and Microsoft Windows 95, WORx is positioned as
a state of the art client/server solution.
Over 130 Digimedics systems have been installed at 121
hospitals (some hospitals have separate systems for inpatient and outpatient
pharmacies), including the University of California Medical Center, San
Francisco; University Medical Center, Las Vegas; Columbia-Presbyterian Medical
Center, New York City; Shands Hospital at the University of Florida,
Gainesville; University of Kansas Medical Center, Kansas City; and the
University of Michigan Hospitals and Clinics, Ann Arbor.
On June 17, 1996, the Company acquired certain assets of the
U.S. based Pharmakon division ("Pharmakon") and a pharmacy management system
operating in the United Kingdom, JAC Computer Service, LTD. ("JAC"), of
Continental Healthcare Systems, Inc. (the "Acquisition"), which will be
incorporated into the Company's Digimedics operation. The addition of Pharmakon
and its client base has increased the Company's installed base of clinical
information systems to approximately 825 (over 500 of which are pharmacy system
installations). This places the Company in the position of providing the largest
number of stand-alone pharmacy information systems in the country. The
Acquisition also provides the Company with a significant international presence;
JAC has approximately 180 pharmacy information systems installed in the United
Kingdom.
Pharmakon and JAC, which generated sales and service of
approximately $8.4 million in the fiscal year ended November 30, 1995, markets a
management information system for hospital pharmacies. The Acquisition is
expected to add approximately 415 hospital systems and 235 hospitals to the
Company's customer base in the United States and an additional 180 customers in
the United Kingdom.
Pharmakon had been providing pharmacy systems for almost
twenty years. Management's goal is to begin converting Pharmakon's U.S.
customers to the Digimedics WORx system in the fourth calendar quarter of 1996.
Pending this conversion, the Company expects to assume the existing support and
maintenance contracts and to generate approximately $3.4 million per year in
service revenues by continuing to service the newly acquired customers. Through
the Acquisition, the Company will also acquire certain technologies which are
currently under development and are expected to be integrated into future
systems offerings of Digimedics.
The Company's management team believes there exists strong
parallels between its current Digimedics customer base and that of Pharmakon,
both of which include not only large university hospitals and multi-site acute
care facilities, but also progressive community, municipal, and long-term care
facilities. Management has retained approximately 43 of Pharmakon's 75 total
employees in the U.S.
SURGIWARE - In September of 1990, the Company licensed the
right to market and relicense the Surgiware system for use in surgical suites.
Surgiware is a comprehensive information system for managing the human
resources, facilities, equipment and supplies required for surgery. The
Surgiware system integrates clinical data capture, inventory and equipment
control scheduling, quality assurance and report writing. For example, the
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system contains a program that presents a proprietary, real time moving schedule
on a color graphics display allowing the user to visually identify potential
scheduling conflicts based upon what is happening in the surgical suite at the
moment, and to test alternative solutions on the system. The core of the system
is in its unique ability to gather and disseminate data at the point of care,
providing unique advantages to hospitals in need of timely, accurate data on
their surgical activities. Additional modules and functions can be added, such
as a clinical data module that keeps track of all aspects of a patient's
treatment, including pre-operative and post-operative control.
The benefits of a fully-implemented system include (a)
improvement in the efficiency and output of operating rooms; (b) improvement in
the management of staffing, equipment and supplies; (c) improvement in inventory
controls; and (d) incremental billings resulting from procedures that, without
Surgiware, might be overlooked for billing purposes because they either were
unplanned or fall outside the billing category for the planned procedure.
Surgiware also integrates clinical data capture, and equipment control,
scheduling, quality assurance and report writing. These benefits can translate
into significant revenues and savings since the surgical suite usually produces
more revenue than any other department and is the greatest cost center in the
hospital. The record keeping functions of Surgiware can also be of significant
benefit in the areas of quality assurance, risk management, and the
accreditation of physicians.
Surgiware uses the UNIX operating system, the "C" programming
language, the INFORMIX SQL 4th generation relational database manager, and a
fault-tolerant architecture that allows the personal computer that is placed in
each operating room to operate independently in the event of a failure of the
central Surgiware computer. The system has been ported to the IBM RS-6000 and
the Data General AViiON series, and to 386, 486 and Pentium IBM compatible
personal computers.
The Company's marketing is concentrated on the approximately
1,000 hospitals that have more than 300 beds and 10 operating rooms, where
studies indicate that approximately 80% of all surgical services in this country
are performed. The Company has installed 25 Surgiware sites.
In 1992, the licensor of Surgiware commenced an arbitration
against the Company which, in late 1994, led to an award in favor of the Company
which confirmed the Company's license for the Surgiware product, including
improvements developed by the licensor. The arbitral panel confirmed the
Company's right to retain exclusivity for the Surgiware product and to license
another generic hospital scheduling software product developed by the licensor
upon the payment of additional royalties. The Company determined in early 1995
that the benefits of exclusivity and the generic hospital product did not
justify the required additional royalty payments. The Company has initiated
negotiations with the licensor of the Surgiware system to replace the existing
royalty arrangement with a fully paid-up license, requiring additional royalty
payments only in the case of a simultaneous sale by the Company of multiple
sublicenses. In the course of these negotiations the licensor has asserted that
the Company has breached the existing license agreement. The Company believes
that this assertion is meritless and is being made for negotiating purposes
only.
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Sales and Marketing
The Company's three products are sold directly by ten
full-time sales people, as well as four Company officers, with the assistance of
seven clinical specialists who demonstrate the systems and address technical
questions. The Company continues an on-going, in-house lead generation program
that generates numerous sales leads. Sales leads and support are received from
certain hardware manufacturers, especially IBM Corporation and Data General
Corporation, whose products the Company sells as a Value Added Reseller ("VAR").
The Company's products are also sold increasingly through remarketers who are
vendors of laboratory and other information systems that offer Company systems
as subsystems of their product. The Company has entered into agreements with
vendors such as HBO and Company (for both STAR and ALS product lines), Citation
Computer Systems, Inc., Dynacor, Inc., Keane, Inc., NLFC, Inc. and Shared
Medical Systems, Inc.
Software Support and Hardware Maintenance Services
The Company provides comprehensive service to its installed
base of customers through its own service organization. Virtually all of the
Company's customers enter into software support agreements with either the
Company or its resellers which are renewed either annually or at longer
intervals but, in the case of former Pharmakon customers, may be cancelled by
either party on 60 days notice. These agreements generally provide for 24-hour
access to customer support staff, as well as periodic product enhancements and a
limited product warranty, for which the customer pays a monthly fee subject to
cancellation after a specified notice period. Some of the Company's customers
have also entered into agreements for hardware maintenance, which the Company
generally subcontracts to hardware manufacturers. As of June 30, 1996, the
Company had software support and hardware maintenance agreements providing for
periodic payments totaling approximately $7.94 million on an annualized basis,
including the revenues of Pharmakon.
HEMOCARE and DIGIMEDICS are trademarks of the Company and its
subsidiary, Digimedics Corporation, respectively.
Competition
The competition in the market for clinical information systems
is intense. The principal competitive factors are the functionality of the
system, its design and capabilities, site references, reputation for ongoing
support, the potential for enhancements, price and salesmanship. Different
dynamics and competitors, however, affect each of the Company's products.
HEMOCARE -- The Company currently competes principally with
one other specialty vendor of stand-alone blood bank systems (Western Star,
Inc.), which is a company of comparable size, and with two vendors (Cerner
Corporation and Sunquest Information Systems, Inc.) of laboratory information
systems ("LIS") that contain a blood bank subsystem. The LIS vendors are much
larger companies with greater technical, marketing, financial and other
resources than the Company, and have established reputations for success in
developing and selling hospital information systems.
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DIGIMEDICS -- The Company currently competes with numerous
companies, including some of the leading vendors of healthcare information
systems. As a result of the Acquisition of Pharmakon, the Company believes that
it has the largest number of stand-alone hospital pharmacy systems in its
market. Many competitors have established reputations for success in developing
and selling medical information systems and have far greater resources than the
Company. The principal competitors of the Digimedics system are believed to be
Cerner Corporation, BDM Corp., HCS Corp. and Pharmacy Computer Systems, Inc., as
well as numerous providers of complete healthcare information systems.
SURGIWARE -- The competitors of Surgiware have significantly
larger installed bases and have substantially greater technical, marketing,
financial and other resources than the Company and have established reputations
for success in developing and selling hospital information systems. The
principal vendors competing with the Surgiware system are believed to be Serving
Software Incorporated, a wholly owned subsidiary of HBO and Company, Enterprise
Systems Incorporated, and Atwork Corporation, a wholly owned subsidiary of
Medaphis Corporation.
Copyright, Patents and Trade Secrets
The Company has relied primarily on copyright, trade secret
protection and confidentiality agreements for protection of its software
systems. Certain features of the Surgiware system are covered by a patent held
by the licensor.
Government Regulation
The hospitals that comprise the primary market for the
Company's products must comply with various federal, state and local statutes
and regulations. The adequacy of blood bank information management and record
keeping is subject to inspection and review by the Food and Drug Administration
("FDA"). Hemocare and other blood bank systems are also subject to regulation by
the FDA as medical devices. Consequently, the Company and its competitors who
provide blood bank information management systems are also subject to the
jurisdiction of the FDA as suppliers of medical devices. The Company has
dedicated substantial time and resources in its attempts to comply with
applicable guidelines and regulations and believes that it is in substantial
compliance therewith. Legislation has been introduced in Congress seeking to
expand the jurisdiction of the FDA, and the FDA is in the process of developing
new guidelines which it intends to apply to blood bank information systems and
to the inspection of vendors of such systems. The Company cannot predict whether
it will be in compliance with these new guidelines or any future guidelines,
regulations or inspection procedures. Non-compliance with any such guidelines,
regulations or procedures could have a material adverse effect on the operations
of vendors of blood bank information systems, including the Company. Any of the
Company's other activities could also become subject to Congressional or
governmental agency efforts to establish or expand governmental agency
jurisdiction.
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Miscellaneous
The Company's software development expenditures were as
follows: during fiscal 1996 -- $1,438,000; during fiscal 1995 -- $1,387,000; and
during fiscal 1994 -- $1,791,000. These expenditures included write-downs and
amortization of software development costs. In addition, software costs of
$496,000, $356,000 and $367,000, respectively, were capitalized in each year. In
addition, the Company purchased $3,891,000 of research and development in the
Acquisition of Pharmakon and JAC, which were charged to operations upon
acquisition.
The Company's business is not dependent on a single customer
or a few customers. The Company considers that its market area and customer base
is the United States and Canada. However, the Company intends to market its
products in the United Kingdom in fiscal 1997 through JAC.
Employees
As of June 30, 1996, the Company had 138 full-time employees
and 12 part-time employees, including 27 in sales and marketing, 92 in customer
support and product development, and 19 in administration. No employees are
represented by a labor union and the Company considers its employee relations to
be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are in Melville, New
York, where the Company occupies approximately 5,738 square feet under a lease
that expires on July 31, 1998. The Digimedics division is headquartered in
Scotts Valley, California, where the Company occupies approximately 11,646
square feet under a lease expiring on May 1, 2001. The Pharmakon Division is
headquartered in Overland Park, Kansas, where the company occupies approximately
13,683 square feet under a lease expiring on September 30, 1998. The United
Kingdom group is headquartered in Basildon, Essex, where the Company occupies
approximately 2,567 square feet under a lease expiring on September 26, 2004.
The Company believes that its facilities are adequate for its current needs and
that, if necessary, it will have no difficulty in securing alternate facilities
at the expiration of its current leases.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of its fiscal year ended June 30,
1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded and quoted on the Nasdaq
SmallCap Market under the symbol MEDW. It is also traded on the Pacific Stock
Exchange under the symbol MIS. Prior to August 1991, there was no established
trading market for the Company's Common Stock.
The table below indicates the high and low of quoted bid
market prices as reported by Nasdaq for the Company's Common Stock for each
quarter during the fiscal years ended June 30, 1995 and 1996, and the first
quarter of fiscal 1997.
[Enlarge/Download Table]
1st quarter 2nd quarter 3rd quarter 4th quarter
ended 9/30 ended 12/31 ended 3/31 ended 6/30
-------------------- -------------------- -------------------- --------------------
High Low High Low High Low High Low
------------------ ------------------ ------------------ ------------------
Fiscal 1997 4 1/8 3 3/4
Fiscal 1996 1/18 5/8 1 1/2 7/8 3 5/8 7/8 4 1/4 3
Fiscal 1995 1 3/8 11/16 1 3/8 11/16 1 9/16 13/16 1 1/4 13/16
Such over-the-counter quotations reflect inter-dealers prices,
without retail mark-ups, mark downs or commissions, and may not represent actual
transactions.
The reported trading volume is low. As of June 30, 1996, the
approximate number of shareholders of record of the Company's Common Stock was
1,121.
Dividend Policy
The Company has never paid dividends on its Common Stock and
has no present intention to pay cash dividends on its Common Stock. Earnings, if
any, will be used to finance the development and continued expansion of the
Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Internal and External Sources of Liquidity and Capital Resources
In June of 1996, Digimedics Corporation, a wholly owned
subsidiary of the Company, purchased the Pharmakon division and JAC, a U.K.
affiliate, from Continental Healthcare Systems, Inc. ("Continental"). The total
purchase price, net of acquisition costs, was approximately $9.7 million, $3.7
million of which was paid in cash and the remaining $6.0 million of which was
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paid pursuant to a promissory note issued to Continental, due November 30, 1996.
On October 28, 1996 the promissory note was amended to provide for an extension
of the due date to August 1, 1997. The amendment provides for an immediate
payment of $1.0 million and monthly payments of $100,000 for principal and
interest and an increase in the interest rate to 15% on approximately $3,763,000
of the note (with the original rate remaining on $1,237,000). As a result of
this amendment, $4,549,000 of this liability is classified as long-term debt.
The Company will require additional sources of liquidity to fund the $4,549,000
debt payment due August 1, 1997. Management believes that they will be able to
reduce this liability by approximately $1,237,000 by providing services under an
agreement entered into in connection with the Acquisition.
To finance the cash portion of the acquisition, the Company
made a private placement of 1,692,308 shares of its Common Stock in June of
1996, at a price of $3.25 per share, for total proceeds before expenses of
$5,500,002.
The Company's cash and cash equivalent position at June 30,
1996 was $2,504,000, an increase of $1,995,000 from fiscal year end 1995. At
June 30, 1996 the net working capital was $1,536,000 and the current ratio was
1.3 - 1.
In order to cover its cash needs during fiscal years 1994 and
1995, the Company carried out financing programs under which it borrowed an
aggregate of$1,299,000 from investors, including directors. As part of the
financing package such investors received 1,040,025 warrants at $0.50 per share
and 129,695 warrants at $1.25 per share. During fiscal year 1996 the Company
repaid $120,000, leaving a balance of $1,179,000 due August 1, 1997. The Company
will require additional sources of liquidity to fund this balance due. In May of
1996 some of the investors exercised 495,025 of the $0.50 warrants for a total
of $247,512.50. A portion of these funds was used by the Company for acquisition
expenses.
The Company has procured a line of credit from its bank in New
York City in the total sum of $75,000. As of June 30, 1996, there were no
balances outstanding under this facility.
Material Changes in Results of Operations: Fiscal 1996 vs. Fiscal 1995:
Total revenues increased by $2,353,000, or 29%, to $10,432,000
in fiscal 1996 from $8,079,000 in fiscal 1995. This increase was due primarily
to the improved performance of the Hemocare product center.
System sales increased by $1,957,000, or 51%, to $5,781,000 in
fiscal 1996 from $3,824,000 in fiscal 1995. This was attributable to increased
sales of new systems by the Hemocare product center in conjunction with its
remarketers and an aggressive upgrade program which took advantage of the
pressure on hospitals to consolidate onto current product revisions.
Service revenues increased by $396,000, or 9%, to $4,651,000
in fiscal 1996 from $4,255,000 in fiscal 1995. This was due primarily to an
increase in service contracts from newly installed systems and modules.
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Cost of systems increased by $787,000, or 64%, to $2,023,000
in fiscal 1996 from $1,236,000 in fiscal 1995. This was due primarily to the
large numbers of upgrades by the Hemocare product center that included sales of
hardware purchased from third parties, as opposed to sales of software.
Cost of services increased by $163,000, or 13%, to $1,403,000
in fiscal 1996 from $1,240,000 in fiscal 1995. This increase is due to the
Company's increase of the number of personnel and other related costs of the
customer support organization in the three product centers.
Software development costs increased by $51,000, or 4%, to
$1,438,000 in fiscal 1996 from $1,387,000 in fiscal 1995, due to an increase in
software engineering personnel.
Selling, general and administrative increased by $830,000, or
20%, to $4,966,000 in fiscal 1996 from $4,136,000 in fiscal 1995. This was due
primarily to increased cost of product marketing, product consulting and
incentive commission payouts.
Interest expense of $216,000 for fiscal 1996, decreased by
$33,000, or 13%, as compared to interest expense of $249,000 in fiscal 1995. The
decrease is primarily due to the fact that fiscal 1996 did not include a debt
discount as did fiscal 1995, coupled with interest incurred in fiscal 1996 on
outstanding loans.
The Company had a net loss of $3,491,000 in fiscal 1996, or
$1.24 per share, as compared to net earnings of $90,000 in fiscal 1995, or $.04
per share, which reflects the charge to operations of acquired research and
development of $3,891,000 from the Pharmakon Acquisition. If this charge were
excluded, however, net income would result in $400,000, or $.12 and $.11 per
share on a primary and fully diluted basis, respectively, in fiscal 1996.
Material Changes in Results of Operations: Fiscal 1995 vs. Fiscal 1994:
Total revenues decreased by $198,000, or 2%, to $8,079,000 in
fiscal 1995 from $8,277,000 in fiscal 1994. This decrease was due to the sales
of more software-only systems and to slower sales of the Surgiware Product,
reflecting uncertainties resulting from an arbitration that concluded in fiscal
1995 (as described in "Business", above).
System sales decreased by $906,000, or 19%, to $3,824,000 in
fiscal 1995 from $4,730,000 in fiscal 1994. This was due to a decrease of sales
of hardware as a system component and a larger number of software only systems
sold, and decreases in Surgiware's sales due to the arbitration, which caused
uncertainties in the marketplace in fiscal 1995.
Service revenues increased by $708,000, or 20%, to $4,255,000
in fiscal 1995 from $3,547,000 in fiscal 1994. This was due primarily to product
maintenance increases relating to an increased installed base.
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Cost of systems decreased by $858,000, or 41%, to $1,236,000
in fiscal 1995 from $2,094,000 in fiscal 1994. This decrease was due primarily
to a larger number of software-only systems in fiscal 1995 as compared to sales
software and hardware in fiscal 1994.
Cost of services increased by $151,000, or 14%, to $1,240,000
in fiscal 1995 from $1,089,000 in fiscal 1994, as the Company had increased the
number of personnel and other related costs of the customer support
organization.
Software development costs decreased by $404,000, or 23%, to
$1,387,000 in fiscal 1995 from $1,791,000 in fiscal 1994. The decrease is
primarily due to a decrease in Surgiware development and the result of the
write-off of $242,000 of capitalized software in fiscal 1994.
Selling, general and administrative increased by $277,000, or
7%, to $4,136,000 in 1995 from $3,859,000 in 1994. The increase is due primarily
to increased payroll and travel expenses, commissions, professional fees and
employee health insurance claims.
The Company expensed costs of $1,222,000 in connection with
the arbitration in fiscal 1994. Such costs included $208,000, which the Company
intended to pay the licensor to retain exclusivity; the balance was principally
legal fees and expenses in connection with the arbitration. During fiscal 1995
the Company, after review of the then current circumstances, decided not to
elect to make the payments required to maintain exclusivity. Accordingly, the
$208,000 accrued expense recorded in the prior year was eliminated, resulting in
increased income.
Interest expense of $249,000, including approximately $100,000
in debt discount, for fiscal 1995 was incurred on the interim financing from
investors referred to above and the loans to the Company from the chairman of
the board.
The Company had a net profit of $90,000 for fiscal 1995, or
$.04 per share, compared to a net loss of $1,902,000, or $.75 per share, in
fiscal 1994. The net profit is due to the elimination of arbitration costs in
fiscal 1995 and the improvement in gross profits.
-11-
ITEM 7. FINANCIAL STATEMENTS
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS F-1
CONSOLIDATED BALANCE SHEET AS AT
JUNE 30, 1996 F-2
CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1996 AND JUNE 30, 1995 F-3
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY FOR THE YEARS
ENDED JUNE 30, 1996 AND JUNE 30,
1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND
JUNE 30, 1995 F-5
NOTES TO FINANCIAL STATEMENTS F-6
-12-
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Mediware Information Systems, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheet of Mediware
Information Systems, Inc. and subsidiaries as at June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of
Mediware Information Systems, Inc. and subsidiaries at June 30, 1996 and the
results of their operations and their cash flows for each of the years in the
two-year period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
August 23, 1996
With respect to Note E(1)
October 28, 1996
F-1
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
================================================================================
A S S E T S
(Notes)
Current assets:
Cash and cash equivalents (Note G) ......................... $ 2,504,000
Accounts receivable, less estimated doubtful accounts
of $188,000 (Note A)...................................... 3,509,000
Current portion of contract installment receivable
(Note A).................................................. 252,000
Inventories (Note A)........................................ 208,000
Prepaid expenses and other current assets .................. 166,000
-------------
Total current assets ................................ 6,639,000
Long-term contract installments receivable, less current
portion (Note A)............................................ 155,000
Fixed assets, at cost, less accumulated depreciation of
$1,364,000 (Notes A and C).................................. 576,000
Capitalized software costs (Notes A and D)..................... 1,012,000
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $372,000
(Notes A and B) ............................................ 6,737,000
Other assets .................................................. 38,000
--------------
T O T A L............................................ $ 15,157,000
==============
L I A B I L I T I E S
Current liabilities:
Accounts payable............................................ $ 483,000
Accrued expenses and other current liabilities (Note F)..... 1,775,000
Advances from customers (Note A)............................ 1,379,000
Current portion of capital leases payable .................. 15,000
Notes payable (Note E)...................................... 1,451,000
--------------
Total current liabilities............................ 5,103,000
Notes payable, less current portion (Note E)................... 5,728,000
Capital leases payable, less current portion .................. 43,000
--------------
Total liabilities.................................... 10,874,000
--------------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY
(Note G)
Common stock - $.10 par value; authorized 12,000,000
shares; 4,931,320 shares issued and outstanding ............ 493,000
Additional paid-in capital .................................... 13,419,000
(Deficit)...................................................... (9,629,000)
--------------
Total stockholders' equity .......................... 4,283,000
--------------
T O T A L............................................ $ 15,157,000
==============
The accompanying notes to financial
statements are an integral part
hereof.
F-2
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
-------------------
1996 1995
------ -----
Revenues:
System sales............................. $ 5,781,000 $ 3,824,000
Services................................. 4,651,000 4,255,000
---------------- -------------
Total revenues.................... 10,432,000 8,079,000
---------------- -------------
Costs and expenses:
Cost of systems........................... 2,023,000 1,236,000
Cost of services......................... 1,403,000 1,240,000
Purchased research and development
(Note B)................................ 3,891,000
Software development costs................ 1,438,000 1,387,000
Selling, general and administrative....... 4,966,000 4,136,000
Arbitration (income) (Note H)............. (208,000)
--------------- -------------
13,721,000 7,791,000
--------------- -------------
Earnings (loss) before interest income
and expense............................... (3,289,000) 288,000
Interest income.............................. 14,000 51,000
Interest (expense)........................... (216,000) (249,000)
--------------- -------------
NET EARNINGS (LOSS).......................... $ (3,491,000) $ 90,000
=============== =============
Earnings (loss) per share (Note A)........... $ (1.24) $ .04
=============== =============
Weighted average number of common and common
equivalent shares......................... 2,817,405 2,569,447
=============== =============
The accompanying notes to financial
statements are an integral part
hereof.
F-3
[Enlarge/Download Table]
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Paid-in
Capital
Common Stock
Shares Amount (Deficit) Total
Balance - July 1,
1994........................ 2,521,743 $ 252,000 $ 8,083,000 $ (6,228,000) $ 2,107,000
Release of escrow
shares...................... 74,667 8,000 43,000 51,000
Issuance of
warrants.................... 21,000 21,000
Net earnings................... 90,000 90,000
------------- ------------ -------------- -------------- --------------
Balance - June 30,
1995........................ 2,596,410 260,000 8,147,000 (6,138,000) 2,269,000
Shares issued to
nonemployee
directors................... 86,040 9,000 86,000 95,000
Exercise of
warrants.................... 495,025 49,000 198,000 247,000
Shares issued in
connection with
private
placement
(Note G).................... 1,723,076 172,000 4,891,000 5,063,000
Shares issued as
fees for
acquisitions
(Note B).................... 30,769 3,000 97,000 100,000
Net (loss)..................... (3,491,000) (3,491,000)
------------- ------------ -------------- -------------- --------------
BALANCE - JUNE 30,
1996........................ 4,931,320 $ 493,000 $ 13,419,000 $ (9,629,000) $ 4,283,000
============== ============= ============== ============== ==============
The accompanying notes to financial
statements are an integral part
hereof.
F-4
[Enlarge/Download Table]
MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1996 1995
------ -----
Cash flows from operating activities:
Net earnings (loss)............................................................ $ (3,491,000) $ 90,000
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Shares issued to nonemployee directors..................................... 95,000
Provision for doubtful accounts............................................ 162,000 128,000
Depreciation and amortization.............................................. 709,000 735,000
Purchased research and development......................................... 3,891,000
Proceeds from contract installments receivable............................. 20,000 7,000
Changes in operating assets and liabilities, net
of effects from purchase of Pharmakon & JAC:
(Increase) in accounts receivable...................................... (640,000) (314,000)
(Increase) in inventories.............................................. (53,000) (13,000)
(Increase) decrease in prepaid and other assets (28,000) 14,000
Increase (decrease) in accounts payable,
accrued expenses and customer advances............................... 665,000 (406,000)
--------------- ----------------
Net cash provided by operating activities............................ 1,330,000 241,000
--------------- ----------------
Cash flows from investing activities:
Acquisitions of fixed assets................................................... (127,000) (101,000)
Capitalized software costs..................................................... (496,000) (356,000)
Purchase of Pharmakon and JAC, net of cash acquired. (3,893,000)
---------------- ----------------
Net cash (used in) investing activities.............................. (4,516,000) (457,000)
--------------- ----------------
Cash flows from financing activities:
Proceeds from note payable and warrants........................................ 334,000
Repayment of debt.............................................................. (129,000) (23,000)
Proceeds from exercise of warrants............................................. 247,000
Proceeds from private placement................................................ 5,063,000
--------------- ---------------
Net cash provided by financing activities............................ 5,181,000 311,000
--------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,995,000 95,000
Cash and cash equivalents - beginning of period................................... 509,000 414,000
--------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD......................................... $ 2,504,000 $ 509,000
=============== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 64,000 $ 47,000
Income taxes............................................................... 6,000 3,000
Noncash transactions:
Shares released from escrow, recorded as additional
purchase price........................................................... 51,000
Equipment acquired with capital leases..................................... 41,000
The Company made acquisitions for $3,893,000 of cash
in the year ended June 30, 1996. The purchase
price was allocated to the assets acquired and
liabilities assumed based on their fair value as
indicated in Note B........................................................ 10,004,000
Less cash acquired........................................................... (11,000)
Promissory note issued....................................................... (6,000,000)
Common stock issued.......................................................... (100,000)
-----------------
$ 3,893,000
====================
The accompanying notes to financial
statements are an integral part
hereof.
F-5
(NOTE A) - The Company and its Significant Accounting Policies:
The consolidated financial statements include the accounts of Mediware
Information Systems, Inc. and its wholly owned subsidiary, Digimedics
Corporation ("Digimedics") and its subsidiary J.A.C. Computer Services Limited
("JAC"). All significant intercompany transactions have been eliminated in
consolidation.
Mediware Information Systems, Inc. and subsidiaries (the "Company")
develops, installs and maintains computerized information systems for
hospital blood banks, pharmacies and surgical suites.
As discussed in Note E, the Company has $5,728,000 of long-term debt which is
due on August 1, 1997. The Company will have to refinance this indebtedness.
There is no assurance that it will be able to do so on acceptable terms.
[1] Cash equivalents:
The Company considers all highly liquid short-term investments
with a maturity of three months or less to be cash equivalents.
[2] Revenue recognition:
Revenue from the sale of systems is recognized upon delivery,
although payment may be due upon completion of other contractual obligations.
Service revenue is recognized on a straight-line basis over the life of the
service agreements.
[3] Long-term contract installments receivable:
Contract installments receivable arising from sales of systems
with extended payment terms bear interest at rates from 7% to 16% and are due in
monthly installments through 1999.
[4] Inventories:
Inventories, which consist of equipment purchased for resale,
are valued at the lower of cost or market. Cost is determined by the specific
identification method.
[5] Fixed assets:
Furniture and equipment are depreciated by the straight-line
method over their estimated useful lives of five years. Leasehold improvements
are amortized by the straight-line method over the remaining terms of the
respective leases.
F-6
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[6] Software development costs:
In accordance with Statement of Financial Accounting Standards
No. 86, the Company capitalizes certain costs associated with the development of
computer software. Such costs, in addition to costs of purchased software, are
amortized over the software's estimated useful life of five years. Management
periodically evaluates the recoverability of capitalized software development
costs and write-downs are taken if required.
Costs to maintain developed programs and other development
costs incurred prior to achievement of technical feasibility are expensed as
incurred. Such costs were $956,000 and $951,000 for the years ended June 30,
1996 and June 30, 1995, respectively. Software development costs reported on the
consolidated statements of operations include amortization (Note D).
[7] Excess of cost over the fair value of net assets acquired:
The excess of cost over the fair value of net assets acquired,
which arose from the acquisition of Digimedics, Pharmakon and JAC, is being
amortized on a straight-line basis over twenty years.
[8] Advances from customers:
Advances from customers represent contractual payments
received by the Company. Such amounts are recorded as income upon delivery of
the system with respect to system revenues or over the life of the service
agreement with respect to service revenue.
[9] Earnings (loss) per share:
Earnings (loss) per share are based on the weighted average
number of shares outstanding during each year.
Earnings per share are computed on a primary basis since the
fully diluted basis does not result in further dilution.
[10] Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[11] Change in accounting principle and recently issued accounting
pronouncements:
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 121 requires, among
other things, that entities identify events or changes in circumstances which
indicate that the carrying amount of an asset may not be recoverable. SFAS 123
requires, among other things, that companies establish a fair value based method
of accounting or disclosure for stock-based compensation plans. These statements
are effective for the Company's fiscal year commencing July 1, 1996. The Company
believes that adoption of SFAS 121 and SFAS 123 will not have a material impact
on its financial statements. The Company expects to continue to account for
employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," using intrinsic
values with appropriate disclosures using the fair value based method. The
Company has not elected to adopt SFAS 123 early.
(NOTE B) - Acquisitions:
On June 17, 1996, Digimedics and Information Handling Services Group, Inc.
("IHS") and its wholly owned subsidiary, Continental Healthcare Systems, Inc.
("Continental"), entered into an Asset Purchase Agreement whereby Digimedics
purchased from Continental its Pharmakon division ("Pharmakon"). Also on June
17, 1996, Digimedics purchased from Holland America Investment Corporation, a
wholly owned subsidiary of IHS, all of the issued and outstanding capital stock
of JAC, a United Kingdom corporation. Pharmakon and JAC develop, install and
maintain computerized information systems for hospital pharmacies. Digimedics
paid an aggregate of $3,666,000 in cash and issued a $6,000,000 secured
promissory note (Note E) for both acquisitions. Digimedics also incurred
acquisition costs of $238,000 in cash (of which approximately $26,000 was to a
related party) and issued 30,769 shares of common stock as a fee valued at
$100,000 to related parties.
F-8
(NOTE B) - Acquisitions: (continued)
The purchase price has been allocated to the assets acquired, including cash of
$11,000, and liabilities assumed based on their fair values as follows:
Purchase price:
Cash......................................$ 3,666,000
Note payable.............................. 6,000,000
Costs of acquisition...................... 338,000
------------------
T o t a l..........................$ 10,004,000
==================
Assets acquired and liabilities
assumed:
Current assets..........................$ 638,000
Fixed assets............................ 248,000
Other assets............................ 151,000
Purchased research and development...... 3,891,000
Excess of cost over fair value
of net assets acquired................ 5,873,000
Current liabilities..................... (797,000)
------------------
$ 10,004,000
===================
The purchased research and development was charged to operations upon
acquisition. The acquisitions have been accounted for as a purchase and,
accordingly, the accompanying financial statements include the accounts of
Pharmakon and JAC from date of acquisition.
Pro forma summary of consolidated operations, based on the original agreement,
assuming the acquisition of Pharmakon and JAC has taken place on July 1, 1994:
Year Ended June 30,
1996 1995
------ -----
(Unaudited)
Revenue..................................$ 18,965,000 $ 17,526,000
================= ==================
Net income...............................$ 26,000 $ 37,000
================= ==================
Earnings per share.......................$ .01 $ .01
================= ==================
F-9
(NOTE B) - Acquisitions: (continued)
Digimedics entered into an agreement with Continental to perform Continental's
obligation to provide certain services for customers of Continental, such
services to include installation of systems, customizing systems, and providing
hardware. The agreement also provides for Digimedics to assist Continental in
the collection of certain billed and unbilled accounts receivable, principally
due from the customers who will receive the above mentioned services. Digimedics
is to be paid approximately $1,237,000 plus 30% of amounts collected for
performing the foregoing services.
(NOTE C) - Fixed Assets:
Fixed assets consist of the following as at June 30, 1996:
Computer, machinery, and office
equipment........................... $ 1,614,000
Furniture.................................... 310,000
Leasehold improvements....................... 16,000
-----------
T o t a l.......................... 1,940,000
Less accumulated depreciation................ 1,364,000
-----------
B a l a n c e...................... $ 576,000
===========
(NOTE D) - Capitalized Software Costs:
June 30,
1996 1995
Balance, beginning of year
(net of accumulated amortization)..........$ 998,000 $1,079,000
Additions..................................... 496,000 356,000
Amortization................................... (482,000) (437,000)
----------- ----------
Balance, end of year (net of
accumulated amortization)...................$1,012,000 $ 998,000
========== ==========
F-10
(NOTE E) - Notes Payable:
At June 30, 1996 the Company has outstanding notes payable as follows:
Promissory note issued in connection with the acquisition of
Pharmakon and JAC (the "Acquisition Note") (Note B) bearing
interest at Citibank N.A.'s base rate 8.25% at June 30, 1996
payable monthly commencing July 31, 1996, due on or before
November 30, 1996, collateralized by substantially all of
the assets of Digimedics and all of the issued and
outstanding stock of Digimedics and JAC. The loan agreement,
among other matters, restricts the Company with respect to
incurring any lien or encumbrance on its property or assets,
entering into new indebtedness and paying any
dividents (1).................................$ 6,000,000
Notes issued during the years ended June 30, 1995 and June
30, 1994, bearing interest at 12% per annum, due on or
before August 1, 1997, collateralized by the trade accounts
receivable of Digimedics which has a balance at June 30,
1996 of $1,069,000, net of estimated doubtful accounts of
$66,000, (including $804,000 issued to directors) (2)......1,179,000
7,179,000
Less current maturities.. ........................... 1,451,000
---------
$5,728,000
===========
(1) On October 28, 1996 the promissory note was amended to provide for an
extension of the due date to August 1, 1997. The extension agreement
provides for an immediate payment of $1 million and monthly payments of
$100,000 for principal and interest. In addition, the interest rate was
increased to 15% on approximately $3,763,000 with the original rate
remaining for $1,237,000. The agreement provides for the monthly
payments to be first applied to the interest on the portion of the loan
subject to the original rate. The remainder is to be applied to the
interest, then principal, of the loan subject to 15%. As a result of
this amendment, $4,549,000 of this liability is classified as long-term
debt.
F-11
(NOTE E) - Notes Payable: (continued)
(2) These notes are subordinated to the acquisition note. In conjunction
with the issuance of these notes the Company issued warrants to
purchase 1,040,025 shares of common stock for $0.50 per share and
129,695 shares for $1.25 per share, exercisable through September 30,
2004. The Company recorded debt discount and additional paid-in
capital. The debt discount was expensed in prior years since the notes
were initially due prior to the current fiscal year. During May 1996,
495,025 of the $0.50 warrants were exercised.
(NOTE F) - Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities consist of the following at June
30, 1996:
Wages and related benefits................... $ 562,000
Private placement costs...................... 282,000
Interest..................................... 312,000
Acquisition costs............................ 133,000
Other........................................ 486,000
-----------
T o t a l............................ $ 1,775,000
===========
(NOTE G) - Stockholders' Equity:
[1] Stock options and warrants:
Pursuant to the Company's Stock Option Plan (the "Plan") the
number of shares reserved for issuance is equal to the lower of twenty percent
of the outstanding shares of common stock or 500,000 shares. The options entitle
holders to purchase shares of common stock at an exercise price not less than
the fair value of the common stock at the date of grant. Up to 107,772
additional options may be issued under this plan.
The Company also has options outstanding pursuant to a 1982
Stock Option Plan (the "1982 Plan") and a Non-Employee Directors Stock Option
Plan (the "Non-Employee Directors Plan"). No additional options may be granted
under the 1982 Plan and 60,685 additional options may be granted under the
Non-Employee Directors Plan. The options under the Non-Employee Directors Plan
entitle the holders to purchase shares of common stock at a price equal to the
fair value on the date of grant.
F-12
(NOTE G) - Stockholders' Equity: (continued)
[1] Stock options and warrants: (continued)
The following table sets forth summarized information
concerning the Company's stock options:
Number of
Shares Exercise Price
Outstanding - July 1, 1994.................... 622,266 $1.00 - $5.25
Options granted............................... 35,004 $1.00 - $1.19
Options cancelled ........................... (78,705) $1.00 - $1.76
--------
Outstanding - June 30, 1995................... 578,565 $1.00 - $5.25
Options granted............................... 80,002 $1.00 - $1.76
Options cancelled............................. (56,893) $1.00 - $1.76
--------
Outstanding - June 30, 1996................... 601,674 $1.00 - $5.25
========
Exercisable................................... 438,060 $1.00 - $5.25
========
The Company had outstanding warrants for the purchase of
87,000 shares of its common stock at $5.775 per share which expired on August 5,
1996. The Company also has outstanding warrants for the purchase of 545,000
shares of its common stock at $.50 per share and for the purchase of 129,695
shares at $1.25 per share exercisable through September 30, 2004 (Note E).
[2] Private Placement:
During June 1996, the Company completed a private placement of
its securities. The Company issued 1,692,308 shares of its common stock for
$3.25 a share, yielding net proceeds of approximately $5,063,000 after expenses
totaling approximately $437,000 (of which approximately $65,000 was to a related
party). The Company also issued 30,768 shares to related parties as a placement
fee valued at $100,000.
F-13
(NOTE H) - Commitments and Contingencies:
[1] Operating leases:
Rental commitments for the remaining term of the Company's
noncancellable leases relating to office space expiring at various dates through
2004 are as follows:
Year Ending
June 30,
1997 . . . . . . . . . . . . . . . . $ 477,000
1998 . . . . . . . . . . . . . . . . 487,000
1999 . . . . . . . . . . . . . . . . 228,000
2000 . . . . . . . . . . . . . . . . 174,000
2001 . . . . . . . . . . . . . . . . 153,000
Thereafter . . . . . . . . . . . . . 101,000
----------
T o t a l. . . . . . . . . $1,620,000
==========
Certain leases provide for additional payments for real estate
taxes and insurance and contain an escalation clause for increases in utilities
and services. Rental expense for the years ended June 30, 1996 and June 30, 1995
aggregated $213,000 and $212,000, respectively.
[2] Software license agreement:
In September 1990, the Company entered into an agreement to
acquire a perpetual exclusive license for a computerized information system for
hospital operating rooms for $750,000. In addition to the purchase price, the
Company was required to pay royalties of 5% to 15% of sales of the product. To
maintain exclusivity, the Company was required to pay cumulative royalty
payments of $675,000, by September 1995 ($375,000 by September 1994 and an
additional $300,000 by September 1995).
Subsequently, the licensor asserted a variety of breach of
contract and other violations of the agreement and commenced an arbitration
proceeding in June 1992. On November 7, 1994 the arbitral panel rendered an
award confirming the Company's exclusivity for its Surgiware product, and its
license for another hospital scheduling software product developed by the
licensor. The award also established December 31, 1994 as the due date for the
Company to make the payment of $375,000 due September 1994 to retain its
exclusivity.
F-14
(NOTE H) - Commitments and Contingencies: (continued)
[2] Software license agreement: (continued)
During the fourth quarter of the year ended June 30, 1994 the
Company expensed costs of $1,222,000 in connection with the arbitration. Such
costs included $208,000 which the Company intended to pay to the licensor to
retain exclusivity; the balance is principally legal fees and expenses in
connection with the arbitration. During the year ended June 30, 1995 the Company
elected not to make the payments required to maintain exclusivity. Accordingly,
the liability recorded in the prior year was reversed.
[3] Release of common shares held in escrow:
On November 10, 1994 the Company was informed by the Superior
Court of California that it would be required to release 74,667 shares of its
common stock, which were being held in escrow, to former stockholders of
Digimedics Corporation, a wholly owned subsidiary. Upon releasing the shares the
Company increased its number of common shares outstanding and, accordingly,
recorded additional capital and increased the excess of cost over fair value of
net assets acquired, by approximately $51,000 which is being amortized over the
remaining life of such asset.
[4] Other matters:
Substantially all of the Company's cash is on deposit at a
major metropolitan bank.
(NOTE I) - Income Taxes:
At June 30, 1996 the Company has available net operating loss
carryforwards to reduce future federal taxable income of approximately
$7,500,000 which is limited as to the amount which may be used in any one year.
At June 30, 1996 the Company also has available general business tax credit
carryforwards to reduce future current federal income tax expense of
approximately $321,000. The net operating loss carryforwards and business tax
credit carryforwards expire in various amounts through 2009 and 2011,
respectively.
SFAS 109 requires the recognition of deferred tax assets and
liabilities for both the expected future tax impact of differences between the
financial statements and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss and tax credit
carryforwards. SFAS 109 additionally requires the establishment of a valuation
allowance to reflect the likelihood of realization of deferred tax assets. At
June 30, 1996 the Company has total deferred tax liabilities of approximately
$396,000 and total deferred tax assets of approximately $5,034,000. The Company
has recorded a valuation allowance for the amount by which deferred tax assets
exceed deferred tax liabilities and, as a result, the Company has not reported
any liability or asset for deferred taxes at June 30, 1996.
F-15
(NOTE I) - Income Taxes: (continued)
The major deferred tax asset (liability) items at June 30,
1996 are as follows:
Net operating loss carryforwards................ $ 3,019,000
Business tax credit carryforwards............... 321,000
Software cost capitalization.................... (396,000)
Purchased research and development ............. 1,551,000
Other........................................... 143,000
-----------
4,638,000
Valuation allowance........................................ (4,638,000)
-----------
$ - 0 -
========
The difference between the tax provision and the amount that
would be computed by applying the statutory federal income tax rate to income
before taxes is attributable to the following:
Year Ended June 30,
1996 1995
Income tax provision (benefit) -
statutory rate.....................................$ (1,187,000) $ 30,000
Provision for state income taxes
(benefit) - net of federal
benefit (expense).................................. (187,000) 7,000
(Reduction) increase in valuation
allowance on deferred tax assets................... 1,374,000 (37,000)
----------- ---------
$ - 0 - $ - 0 -
============= ===========
F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Information required by Part III will be
supplied by a supplemental filing of Part III
or by the incorporation by reference of a
Proxy Statement
meeting the requirements of Section 14(a).
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
A list of the Exhibits is set forth in the Exhibit Index,
which index precedes such Exhibits, and which is incorporated herein by this
reference thereto.
Reports on Form 8-K
A report on Form 8-K was filed July 1, 1996 reporting as Item
2 the acquisition of the Pharmakon Division ("Division") of Continental
Healthcare Systems, Inc. and JAC Computer Services Ltd. ("JAC"). An amendment to
the report on Form 8-KA was filed on September 13, 1996, which included, as Item
7, audited financial statements of the Division and JAC for the fiscal years
ended November 30, 1994 and November 30, 1995, for the five months ended April
30, 1996 for the Division and JAC, and consolidated proforma financial
information (i) combining the statement of operations for the Company for the
nine months ended March 31, 1996 with the statement of operations for the
Division and JAC for the nine months ending April 30, 1996 and (ii) combining
the statement of operations for the Company, the Division and JAC for the twelve
months ended June 30, 1996.
-13-
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Mediware Information Systems, Inc.
----------------------------------
(Registrant)
By: /s/ Les N. Dace
--------------------------------
Les N. Dace, President
Dated: October 29, 1996
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Les N. Dace President, CFO & CEO October 29, 1996
------------------------
(Les N. Dace) Director (Principal Executive
Officer, Principal Financial
Officer and Principal
Accounting Officer)
/s/ Lawrence Auriana Chairman of the Board; October 29, 1996
------------------------
(Lawrence Auriana) Director
* Jonathan Churchill Director October 29, 1996
------------------------
(Jonathan Churchill)
* Roger Clark Director October 29, 1996
------------------------
(Roger Clark)
Director
------------------------
(Joseph Delario)
* John Frieberg Director October 29, 1996
------------------------
(John Frieberg)
Director
------------------------
(Walter Kowsh, Jr.)
* Hans Utsch Director October 29, 1996
------------------------
(Hans Utsch)
* Clinton G. Weiman Director October 29, 1996
------------------------
(Clinton G. Weiman)
* By Les N. Dace
Attorney-in-fact
-14-
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Certificate of Incorporation Incorporated by Reference to
Exhibit No. 4 to the
Registration Statement
(the "!996 Registration
Statement") on Form S-8
(File No. 333-7591)
3.2 By-laws
10.1 Agreement between the Company and **
Intellimed Corporation dated September 25,
1990
10.3.1 Asset Purchase Agreement dated June 17, *
1996 among Digimedics Corporation and
Continental Healthcare Systems, Inc. and
Information Handling Services Group, Inc.
10.3.2 Stock Purchase Agreement dated June 17, *
1996 among Digimedics Corporation and
Holland America Investment Corporation and
Information Handling Services Group, Inc.
10.3.3 Amended and Restated Secured Promissory Note
of Digimedics Corporation dated October 28, 1996
in the principal amount of $5,000,000
to Continental Healthcare Systems, Inc.
10.3.4 Pledge Agreement dated June 17, 1996 *
between Mediware and Continental Healthcare
Systems, Inc.
10.3.5 Charge dated June 17, 1996 between *
Digimedics Corporation and Continental
Healthcare Systems, Inc.
10.3.6 General Security Agreement dated June 17, *
1996 between Digimedics Corporation and
Continental Healthcare Systems, Inc.
10.3.7 Guaranty dated June 17, 1996 by Mediware in *
favor of Continental Healthcare Systems, Inc.
10.7 Letters outlining terms of engagement for Les
Dace, Thomas Mulstay, and John Esposito
-15-
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 Plan Incorporated by reference
to Exhibit C to Company's
Proxy Statement dated
December 17, 1991
10.14 Stock Option Plan for Non-Employee Incorporated by reference
Directors to Exhibit B to Company's
Proxy Statement dated
December 17, 1991
10.15 Form of Stock Option Agreement under 1992
Employee Stock Option Plan
10.16.1 Form of Note for Interim Financing
10.16.2 Form of Warrant for Interim Financing
21 Subsidiaries of the registrant
23 Consent of Richard A. Eisner & Company,
LLP
24 Powers of Attorney
27 Financial Data Schedule
------------------------
* Incorporated by reference to Exhibits 2(a), 2(b), 2(c), 2(d), 2(e),
2(f) and 2(g), respectively, in the Company's Current Report on Form
8-K, filed on July 1, 1996.
** Incorporated by reference to the Exhibit bearing the same designation
in the 1991 Registration Statement.
Dates Referenced Herein and Documents Incorporated by Reference
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