OR

For the transition period from ________ to ________

Registrant's telephone number, including area code: (913) 307-1000

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. [_]

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 June 30, 2002 as reported on the NASDAQ Small Cap Market, was approximately $36,415,000. The number of shares outstanding of the registrant's common stock, as of June 30, 2002 was 7,259,281 shares.

The information required for Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant's Proxy Statement for its 2002 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year.

PART 1

Overview

Mediware Information Systems, Inc. and its subsidiaries ("Mediware" or 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 are designed to 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, Hemocareä , 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 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 November 1999 the Company expanded its Blood Bank Division with the acquisition of LifeTrakä from Carter BloodCare ("Carter"), Dallas, Texas. LifeTrak is a comprehensive system for managing donor, laboratory and distribution for the blood center.

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 than could be realized without the strategic relationship.

The Healthcare Information Systems Industry

The healthcare delivery industry in the United States is highly fragmented, complex, and inefficient. Advances in medical technology directly dealing with human disease and injury have resulted in significant breakthroughs and progress. Physicians, nurses and other caregivers are given leading edge diagnostic and therapeutic technologies. However, the information systems supporting the management and clinical processes of these complex healthcare organizations have made insufficient progress in the past twenty years. A substantial portion of clinical workflow still depends upon manual paper based systems interfaced with various automated systems. Historically, the healthcare industry has invested relatively less in information technology than some other industries. For example, the Gartner Group, an independent research firm, reported that in 1999 healthcare organizations invested 3% of their revenues in information technology as compared to the more than 5% invested by financial service compa nies.

As a result of the above, this industry is economically inefficient and produces significant variances in medical outcomes. In February 2001, the Food & Drug Administration ("FDA") published a report entitled "Doing What Counts for Patient Safety; Federal Actions to Reduce Medical Errors and Their Impact." This report enumerated the high level of human error in healthcare and underscored the potential tainting of the U.S. blood supply. In November of 1999 the Institute of Medicine released a report called "To Err Is Human: Building a Safer Health System," indicating that medical error is one of the top ten causes of death in the United States. This report indicated that up to 96,000 lives may be lost each year as a result of medical error. Mediware believes it can play an important role in addressing these issues, with its clinically focused management information systems. The Company's products are designed to improve efficiencies, reduce error and improve quality of care.

In 1996, Congress passed legislation that impacted healthcare information management. The Healthcare Information Portability and Accountability Act ("HIPAA") required the Department of Health and Human Services ("HHS") to enact standards for information sharing, security and patient confidentiality. Although HHS has not issued clarification on many of the topics under HIPAA, the Company believes these regulations will have an important impact on requiring advanced management information systems that will enable various healthcare organizations to comply with emerging requirements.

The healthcare industry has significantly under-invested in information technology. However, the Company anticipates that with increased government regulation and concern over clinical outcomes, the healthcare industry will be modernizing and updating its information systems. The Leapfrog Group, a consortium of large employers that spends $40 billion annually on healthcare, has called for investment into computerized information systems. Industry analysts estimate that healthcare organizations spent approximately $17 billion in 1997 for information systems. This number is expected to grow to $28 billion by 2002.

The Company believes that in addition to healthcare industry evolution and the impact of regulatory developments, which will drive the need for improved management information systems, specific potential health threats such as the variant Creutzfeldt-Jakob (mad cow) disease and prescription error will require organizations to re-examine their ability to track and analyze patients, donors, procedures and outcomes. Mediware's "best of breed" solutions, which integrate operating and clinical systems, are targeted to substantially facilitate solutions to these healthcare industry issues.

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 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.

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. Pharmakon, which was available on a variety of minicomputer and mainframe hardware platforms, was also a leading competitive offering in the pharmacy systems market. The Company believes it has a strong customer service reputation with its installed base of hospitals that are Pharmacy Division customers.

In November 1997 the Pharmacy Division introduced WORxä drug therapy management system. This system is an n-tiered, object oriented Windows based client/server pharmacy system. As a result of its Windows user interface, advanced underlying systems integration architecture and user-friendly design, WORxä is positioned to be the hub for drug therapy management. This includes integration with automated drug dispensing cabinets manufactured by Pyxis Inc. (Pyxisä ), a Division of Cardinal Health, Inc., and Omnicell Technologies, Inc. and interfaces to other pharmacy dispensing devices such as the AHI RxOBOT produced by a Division of McKesson HBOC, Inc. WORxä 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.

Since its introduction, WORxä has been sold to over 100 hospital organizations encompassing over 200 hospital sites. The product's market acceptance has recently expanded to include strategically important multi-site hospitals. While the Company has announced its intention to replace some of its historical Pharmacy system products with its WORx product, more than 150 hospitals continue to use the Pharmacy Division's historical products.

The Pharmacy Division has developed features and functions designed to help improve patient safety and manage pharmacy operations effectively. The Company is implementing a bi-directional orders interface between WORxä and major Health Information Systems ("HIS") vendors. This interface allows WORxä to populate the HIS systems with complete, accurate, and up-to-the-minute patient medication profiles. In addition, this interface allows pharmacists to effectively manage medication orders input into third party systems by nurses and other healthcare professionals. This interface provides a valuable utility for assuring medication orders are interpreted and dispensed correctly.

Other important developments include a sophisticated inventory management module, designed to assist pharmacy managers in their effort to control drug therapy costs. This module has been designed to meet the challenges of inventory control, purchasing, receiving, and contract administration in a hospital setting. The inventory management module will use bar code and Electronic Data Interchange ("EDI") technologies to simplify processes. The Pharmacy Division also continues to develop WORxä Universal as a web-based order entry system, accessible from any terminal within a hospital's network.

The product focus of the Pharmacy Division is strengthening the Company's market share position and ensuring patient safety. Improved safety development programs in progress include incorporating bar code and hand-held computer technologies to electronically track medications from order entry through administration. These improvements may arise through internal development efforts and relationships with third-party vendors.

The Pharmacy Division markets directly through a sales force which consists of a Vice President of Sales & Marketing, a National Sales Manager, five Regional Sales Representatives covering territories in the United States and Canada and one Sales Representative who sells into our existing customer base. Two Clinical Consultants with extensive experience as clinical pharmacists and pharmacy technicians provide technical sales support. Other marketing channels utilized by the Pharmacy Division include reseller agreements with a number of distribution partners.

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 System (the "JAC System") to pharmacy departments of hospitals throughout the U.K. The JAC System provides automation of the entire pharmacy cycle, from ordering and delivery, with associated invoice and credit handling through to patient supply via ward stock issues and dispensing. Additional features include TPN handling with worksheet and label production as well as comprehensive reporting capabilities. JAC has now developed bedside prescribing with clinical decision support, nurse drug administration and discharge drugs facility for U.K. National Health Service hospitals, in order to assist them with the U.K. Government requirement for hospitals to achieve electronic Patient Records to Level 3. The JAC System is written in client server mode using Visual Basic and Intersystems (of Cambridge, MA) Cache database on NT UNIX and open VM S servers, which is utilized extensively in the healthcare market worldwide.

Employees

As of June 30, 2002, the Company had 187 full-time employees of which 171 are employed domestically. The Company employs 27 in the area of sales and marketing, 68 in customer support, 64 in product development and 28 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, 2002, there were 16 consultants working on various projects.

Item 2. Properties

The Company's corporate headquarters are located in Lenexa, Kansas, where it occupies approximately 21,000 square feet of leased space. The Company also leases office space in Melville, New York (14,000 square feet), Scotts Valley, California (9,000 square feet), Dallas, Texas (6,000 square feet), Chicago, Illinois (4,000 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.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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.

Liquidity and Capital Resources at June 30, 2002 and 2001

As of June 30, 2002, the Company had cash and cash equivalents of $3,228,000 and a working capital deficit of $718,000, compared to cash and cash equivalents of $2,343,000 and a working capital deficit of $3,025,000 at June 30, 2001. The current ratio at June 30, 2002, was 0.94:1 compared to 0.75:1 at June 30, 2001. Cash provided by operating activities was $6,142,000 and $3,106,000 for the fiscal years ended June 30, 2002 and 2001, respectively. The increased cash provided by operating activities in fiscal 2002 was primarily due to attaining profitability.

As of June 30, 2002, accounts receivable increased $983,000 to $6,869,000 from $5,886,000 at fiscal year end 2001, and advances from customers decreased $81,000 to $6,676,000 from $6,757,000 at fiscal year end 2001. The decrease in advances from customers is due to the expanded customer base related to the industry acceptance of the Pharmacy Division's WORxä product and an emphasis on selling support services with annual renewals. Days sales outstanding was 83 and 82 at fiscal year end June 30, 2002 and 2001 respectively. The principal uses of cash for investing activities during the fiscal years ended June 30, 2002 and 2001 included purchases of fixed assets and investments in product development. During fiscal 2002, the Company spent $121,000 on fixed assets including equipment and software as part of routine improvements and replacements to its internal systems. During fiscal 2001, the Company spent $382,000 on equipment. Additionally, in fiscal 2002, the Company made payments of $325,000 related to the purchase of the Ortho Testing Module. The Company capitalized new product development of $4,922,000 and $4,148,000 for fiscal years 2002 and 2001, 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 co ntinue to seek market expansion opportunities through internal development and/or the acquisition of products/companies that complement or augment the existing line of products.

The Company received $112,000 and $148,000 in fiscal 2002 and 2001 upon the exercise of stock options. The Company did not make any debt repayments in fiscal 2002.

The Company's liquidity is influenced by its ability to perform on a "best of breed" basis in a competitive industry that is currently impacted by consolidations of healthcare information system providers. The factors that may affect liquidity are the Company's ability to penetrate the market for its products, maintain or reduce the length of the selling cycle, and collect cash from clients as systems are implemented. Exclusive of activities involving any future acquisitions of products or companies that complement or augment the Company's existing line of products, management believes that current available funds, cash generated from operations, the $2,000,000 line of credit from Fratelli Auriana, will provide sufficient liquidity to meet operating requirements for the foreseeable future. The Company continues to review its long-term cash needs. As of August 26, 2002, the Company has not borrowed against the line of credit. Currently, there are no plans for additional outside financing.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued two new accounting standards, SFAS No. 141, Business Combinations and SFAS No 142, Goodwill and Other Intangible Assets. SFAS 141 is effective for business combinations initiated after June 30, 2001 and prohibits the use of the pooling of interests method of accounting. SFAS 142 is effective for fiscal years beginning after December 15, 2001, with early application permitted under certain circumstances. Pursuant to SFAS 142, goodwill recorded upon an acquisition will no longer be amortized. However, the carrying value of goodwill must be tested annually for impairment, and if determined to be impaired an impairment charge must be recorded. SFAS 141 also requires companies to consider whether the initial recording of goodwill should be allocated to other intangible assets that have a definitive life. The Company adopted SFAS 141 and SFAS 142 effective July 1, 2001 and is currently evaluating the effect of such adoption. Goodwill amortization for the year ended June 30, 2002 was $0 compared to $536,000 in fiscal year 2001.

In August 2001, the FASB issued SFAS No. 143 "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." The provisions of SFAS 143 apply to all entities that incur obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and will become effective for the Company commencing with its 2003 fiscal year. This accounting pronouncement is not expected to have a significant impact on financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144. "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 provides guidance on the accounting for the impairment or disposal of long-lived assets. The objectives of SFAS 144 are to address issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and to develop a model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 is effective for the Company commencing with its 2003 fiscal year. This accounting pronouncement could have a significant impact on the Company's financial position or results of operations should there be future asset impairments or disposals.

SUBSEQUENT EVENTS

On July 15, 2002, Mediware and Fratelli Auriana, entered into a Second Amendment to the Loan Agreement between the two parties. The note between Mediware Information Systems and Fratelli Auriana has been amended to extend the maturity date to September 20, 2004.

In August 2002, the Company entered into two agreements with Dr. John Gorman and his affiliates pertaining to the Company's HCLL product, which is in development. Dr. Gorman is a director of the Company. These agreements modify two earlier agreements that the Company entered into with Dr. Gorman and his affiliates prior to his joining the Board. In September 1998, Glace, Inc. ("Glace"), an affiliate of Dr. Gorman, entered into a Consulting Agreement with the Company to provide certain development services related to HCLL, which was then known as Hemocare 2000 (the "1998 Consulting Agreement"). In September 1999, Dr. Gorman, on behalf of himself and a then to be formed entity, entered into a Software Agreement with the Company under which Dr. Gorman was granted the right to the Hemocare 2000 software for uses outside of the healthcare field, in exchange for a payment of $200,000 (the "1999 Software Agreement"), and Dr. Gorman and the Company agreed to share certain legal costs associated with seeking pate nt protection for the Hemocare 2000 software.

In the first of the August 2002 agreements, it was agreed that Glace would accept a payment from the Company of $38,000 as a final payment for all consulting fees due under the 1998 Consulting Agreement. The Company in turn waived any right to recover consulting fees previously paid by it under that agreement and confirmed its obligation to pay Glace a milestone payment of $250,000 upon the grant by the FDA of 510K approval for HCLL. The Company will pay Glace an advance of $100,000 on this milestone, which is subject to repayment by Glace in four equal annual installments of $25,000 each if 510K approval for HCLL is not granted by December 31, 2004. The Company also agreed to pay $4,000 towards patent costs on an additional provisional patent for the HCLL technology, with the understanding that the Company has no obligation to pay for any further patent work on HCLL undertaken by Dr. Gorman's companies.

The second of the August 2002 agreements was an amendment to the 1999 Software Agreement. This agreement codified that the Company retains all rights to the Hemocare 2000 technology within the healthcare field, and that Deep Sky Software, Inc. ("Deep Sky"), a company formed by Dr. Gorman, has an exclusive license to the Hemocare 2000 technology outside of the healthcare field. The amendment clarified that the healthcare field for this purpose includes the provision of any product, information, software, service or activity to healthcare service providers. In addition, Dr. Gorman, Glace and Deep Sky agreed to release the Company and related parties from any claims that they might have arising out of the 1998 Consulting Agreement, the 1999 Software Agreement and all other agreements relating to the Hemocare 2000 technology, other Company products and services, any product or services provided by Dr. Gorman, Glace or Deep Sky to the Company, and any other aspect of their business relationship.

Reliance on Third Party Software

Mediware licenses various 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 and other key systems. The termination by any third-party vendor of Mediware's licenses to use these products, or a significant change to a relied upon product, could have a material adverse effect on Mediware's operations. Changes that could have a material adverse effect include, for example, the third-party 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 it is required to adapt its products to alternative third-party software 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 are also competitors of Mediware. For example, Mediware partners with Shared Medical Systems ("SMS") which was acquired by Siemens, and McKesson HBOC in the area of blood bank products. However, both Shared Medical Systems and McKesson HBOC 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.

Significant Competition

The market for healthcare information systems is extremely competitive. Some of the Company's competitors are SMS, McKesson HBOC, Cerner Corporation and Sunquest (recently acquired by Misys PLC), 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.

New Regulations Relating to Patient Confidentiality

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 became effective in 2000. This legislation requires the Secretary of Health and Human Services, or HHS, to (a) adopt national standards for electronic health information transactions, (b) adopt standards to ensure the integrity and confidentiality of health information, and (c) 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.

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

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 incorporated by reference to the Company's Proxy Statement under the heading, "Executive Officers." 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 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.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this Report:

    1. Consolidated Financial Statements:

       Independent Auditors' Report

       Consolidated Balance Sheets at June 30, 2002 and 2001

       Consolidated Statement of Operations and Comprehensive Income (Loss) for the years ended
       June 30, 2002, 2001, and 2000

       Consolidated Statement of Stockholders' Equity for the years ended June 30, 2002, 2001 and 2000

       Consolidated Statement of Cash Flows for the years ended June 30, 2002, 2001 and 2000

    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.

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.

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.

The Board of Directors and Stockholders of
Mediware Information Systems, Inc.

We have audited the accompanying consolidated balance sheets of Mediware Information Systems, Inc. and subsidiaries as of June 30, 2002 and 2001 and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all material respects, the consolidated financial position of Mediware Information Systems, Inc. and subsidiaries as of June 30, 2002 and 2001, 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, 2002, in conformity with accounting principles generally accepted in the United States of America.

In connection with our audits of the financial statements enumerated above, we audited Schedule II for each of the years in the three-year period ended June 30, 2002. In our opinion, Schedule II, when considered in relation to the financial statements taken as a whole, presents fairly, in all material respects, the information stated therein.

Eisner LLP
(Formerly Richard A. Eisner and Company, LLP)
New York, New York
August 2, 2002

MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except shares)

MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended June 30,
(Amounts in thousands, except earnings per share)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2002, 2001 and 2000
(Amounts in thousands)

MEDIWARE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended June 30,
(Amounts in thousands)

Mediware Information Systems, Inc. and subsidiaries ("Mediware" or 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 subsidiaries Digimedics Corporation ("Digimedics"), Informedics, Inc. ("Informedics") and Digimedics' wholly owned subsidiary J.A.C. Computer Services Limited ("JAC"). All significant inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 and determinable, and collectibility is probable. Revenue from the sale of hardware is recognized upon shipment. 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 or services that are essential to the functionality 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.

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. Inventory consists of the following at June 30:

Fixed Assets
Furniture, equipment and leasehold improvements are valued at cost. Depreciation for furniture and equipment is provided on the straight-line method over their 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 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, 2002, 2001 and 2000 was $1,844,000, $1,611,000 and $1,289,000, respectively.

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 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 was being amortized over twelve years using the straight-line method. All other goodwill was being amortized using the straight-line method over twenty years. Amortization expense was $0 in 2002, $536,000 in 2001; and $546,000 in 2000. Accumulated amortization for goodwill was $2,440,000 at June 30, 2002 and 2001. See new accounting pronouncements below.

Prior to July 1, 2001, the Company periodically assessed whether goodwill and other intangible assets were impaired as required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Other Long-Lived Assets to be Disposed Of." Commencing July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," and will evaluate for impairment utilizing undiscounted projected cashflows. See new accounting pronouncements below.

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 which 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. In July 2001, the Company entered into an intellectual property agreement with Ortho Clinical Diagnostics, Inc. to purchase for $325,000, the rights to market an integrated testing module that was developed as part of the LifeTrakä product. The Company is amortizing that purchase over the remaining life of LifeTrakä .. Amortization costs for purchased technology charged to operations were $505,000, $408,000 and $305,000 during fiscal years 2002, 2001 and 2000, respectively.

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 average exchange rate during the period. The net gain (loss) resulting from these foreign currency translations are reported as comprehensive income (loss). Amounts charged to comprehensive loss were $11,000 in 2002, $32,000 in 2001, and $22,000 in 2000.

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
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. No effect has been given to potential exercise of common stock options in 2001 and 2000, as their effect in those years would be anti-dilutive. The weighted average shares outstanding used in the calculations of earnings per share were as follows (in thousands):

Potential common shares not included in the calculation of net income (loss) per share, as their effect would be anti-dilutive, are as follows (in thousands):

Fair Value of Financial Instruments
The Company estimates its fair value disclosures for financial instruments, using the following methods and assumptions. Cash, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their relatively short maturity. 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, 2002 and 2001, the fair value of the Company's long-term obligations approximated its carrying value.

Stock Based Compensation
The company accounts for stock options in accordance with 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 income (loss) and income (loss) 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.

New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued accounting standards, SFAS No. 141, "Business Combinations" and SFAS No 142, "Goodwill and Other Intangible Assets." SFAS 141 is effective for business combinations initiated after June 30, 2001 and prohibits the use of the pooling of interests method of accounting. SFAS 142 is effective for fiscal years beginning after December 15, 2001, with early application permitted under certain circumstances. Pursuant to SFAS 142, goodwill recorded upon an acquisition will no longer be amortized. However, the carrying value of goodwill must be tested annually for impairment, and if determined to be impaired an impairment charge must be recorded. SFAS 141 also requires companies to consider whether the initial recording of goodwill should be allocated to other intangible assets that have a finite life. The Company adopted SFAS 141 and SFAS 142 effective July 1, 2001 and determined that there was no impairment of its goodwill.

The following tabulation reflects net income (loss) for the periods presented, adjusted to exclude amortization expense recognized in those periods related to goodwill, together with related per share amounts.