Attached files
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended December 31, 2009
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________ to
__________
Commission
file number: 1-10768
MEDIWARE
INFORMATION SYSTEMS, INC.
(Exact
name of registrant as specified in its charter)
New
York
|
11-2209324
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|||
11711
West 79th Street
|
||||
Lenexa,
Kansas
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66214
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
(Registrant's
telephone number, including area code): (913) 307-1000
(Former
name, former address and former fiscal year, if changed since last
report)
1
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. T Yes £
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes £ No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
£
|
Accelerated
Filer
£
|
Non-accelerated
filer
£
|
Smaller
reporting
company
T
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). £
Yes T
No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
As of
January 20, 2010, there were 7,889,268 shares of Common Stock, $0.10 par value,
of the registrant outstanding.
2
MEDIWARE INFORMATION SYSTEMS, INC.
INDEX
Page
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PART
I
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Financial
Information
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ITEM
1.
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Financial
Statements
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4
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5
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||||
6
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7
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8
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23
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ITEM
2.
|
24
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ITEM
3.
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35
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ITEM
4.
|
36
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PART
II
|
36
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ITEM
1.
|
36
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ITEM
1A.
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36
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ITEM
4.
|
38
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ITEM
6.
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39
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40
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PART
I FINANCIAL INFORMATION
1. FINANCIAL
STATEMENTS
MEDIWARE INFORMATION SYSTEMS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands except shares)
(Unaudited)
|
||||||||
December 31,
|
June 30,
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|||||||
2009
|
2009
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|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 17,713 | $ | 20,865 | ||||
Accounts
receivable (net of allowance of $781 and $754)
|
10,833 | 8,812 | ||||||
Inventories
|
199 | 200 | ||||||
Deferred
income taxes
|
566 | 528 | ||||||
Prepaid
expenses and other current assets
|
1,398 | 1,152 | ||||||
Total
current assets
|
30,709 | 31,557 | ||||||
Fixed
assets, net
|
1,534 | 1,792 | ||||||
Capitalized
software costs, net
|
12,586 | 13,498 | ||||||
Goodwill,
net
|
13,202 | 9,843 | ||||||
Other
intangible assets, net
|
5,980 | 3,381 | ||||||
Other
long-term assets
|
87 | 48 | ||||||
Total
Assets
|
$ | 64,098 | $ | 60,119 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 1,109 | $ | 933 | ||||
Advances
from customers
|
9,808 | 8,769 | ||||||
Income
taxes payable
|
144 | 341 | ||||||
Accrued
expenses and other current liabilities
|
2,977 | 3,241 | ||||||
Total
current liabilities
|
14,038 | 13,284 | ||||||
Deferred
income taxes
|
4,685 | 4,938 | ||||||
Other
long term liabilities
|
1,267 | - | ||||||
Total
liabilities
|
19,990 | 18,222 | ||||||
Stockholders'
Equity
|
||||||||
Preferred
stock, $.01 par value; authorized 10,000,000shares; none
issued
|
- | - | ||||||
Common
stock, $.10 par value; authorized 25,000,000shares; 8,478,985 and
8,283,272 shares issued as of December 31, 2009 and June 30, 2009,
respectively
|
848 | 828 | ||||||
Additional
paid-in capital
|
33,216 | 32,325 | ||||||
Treasury
stock, 589,717 shares at December 31, 2009 and June 30,
2009
|
(3,503 | ) | (3,503 | ) | ||||
Retained
earnings
|
13,839 | 12,437 | ||||||
Accumulated
other comprehensive (loss)
|
(292 | ) | (190 | ) | ||||
Total
stockholders' equity
|
44,108 | 41,897 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 64,098 | $ | 60,119 |
See Notes
to Unaudited Condensed Consolidated Financial Statements.
MEDIWARE INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Amounts
in thousands, except earnings per share)
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Three
months ended
|
Six
Months ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
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|||||||||||||
Revenue
|
||||||||||||||||
System
sales
|
$ | 2,412 | $ | 2,023 | $ | 5,214 | $ | 4,452 | ||||||||
Services
|
8,404 | 7,992 | 16,346 | 15,396 | ||||||||||||
Total
revenue
|
10,816 | 10,015 | 21,560 | 19,848 | ||||||||||||
Cost
and Expenses
|
||||||||||||||||
Cost
of systems (1)
|
928 | 967 | 1,708 | 1,707 | ||||||||||||
Cost
of services
|
2,701 | 2,651 | 5,274 | 5,308 | ||||||||||||
Amortization
of capitalized software costs
|
1,309 | 1,517 | 2,752 | 3,003 | ||||||||||||
Software
development costs
|
1,080 | 882 | 2,128 | 1,758 | ||||||||||||
Selling
general and administrative
|
4,071 | 3,655 | 7,962 | 7,517 | ||||||||||||
Total
costs and expenses
|
10,089 | 9,672 | 19,824 | 19,293 | ||||||||||||
Operating
income
|
727 | 343 | 1,736 | 555 | ||||||||||||
Interest
and other income
|
92 | 110 | 111 | 248 | ||||||||||||
Interest
and other (expense)
|
(6 | ) | (7 | ) | (22 | ) | 3 | |||||||||
Income
before income taxes
|
813 | 446 | 1,825 | 806 | ||||||||||||
Income
tax (expense)
|
(30 | ) | (143 | ) | (423 | ) | (285 | ) | ||||||||
Net
income
|
783 | 303 | 1,402 | 521 | ||||||||||||
Other
comprehensive income (loss)
|
||||||||||||||||
Foreign
currency translation adjustment
|
3 | (398 | ) | (102 | ) | (630 | ) | |||||||||
Comprehensive
income (loss)
|
$ | 786 | $ | (95 | ) | $ | 1,300 | $ | (109 | ) | ||||||
Net
income per Common Share
|
||||||||||||||||
Basic
|
$ | 0.10 | $ | 0.04 | $ | 0.18 | $ | 0.07 | ||||||||
Diluted
|
$ | 0.10 | $ | 0.04 | $ | 0.18 | $ | 0.07 | ||||||||
Weighted
Average Common Shares Outstanding
|
||||||||||||||||
Basic
|
7,842 | 7,659 | 7,784 | 7,651 | ||||||||||||
Diluted
|
7,958 | 7,962 | 7,926 | 7,985 |
|
(1)
|
Excludes
amortization of Capitalized Software
Costs
|
See Notes
to Unaudited Condensed Consolidated Financial Statements.
MEDIWARE INFORMATION SYSTEMS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts
in thousands)
Common Stock
|
Additional
Paid-In Capital
|
Treasury
Stock
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income
(Loss)
|
Total
|
|||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||||
Balance
at June 30, 2009
|
8,283 | $ | 828 | $ | 32,325 | $ | (3,503 | ) | $ | 12,437 | $ | (190 | ) | $ | 41,897 | |||||||||||||
Exercise
of stock options
|
126 | 13 | 458 | 471 | ||||||||||||||||||||||||
Issuance
of common stock on vesting of restricted shares
|
70 | 7 | (7 | ) | - | |||||||||||||||||||||||
Stock
based compensation expense
|
301 | 301 | ||||||||||||||||||||||||||
Tax
benefit from exercise of stock options
|
139 | 139 | ||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
(102 | ) | (102 | ) | ||||||||||||||||||||||||
Net
income
|
1,402 | 1,402 | ||||||||||||||||||||||||||
Balance
at December 31, 2009 (Unaudited)
|
8,479 | $ | 848 | $ | 33,216 | $ | (3,503 | ) | $ | 13,839 | $ | (292 | ) | $ | 44,108 |
See Notes
to Unaudited Condensed Consolidated Financial Statements.
MEDIWARE INFORMATION SYSTEMS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
(Unaudited)
|
||||||||
Six
Months Ended
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||||||||
December 31,
|
||||||||
2009
|
2008
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Cash
Flows From Operating Activities
|
||||||||
Net
income
|
$ | 1,402 | $ | 521 | ||||
Adjustments
to reconcile net income, to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
3,442 | 3,527 | ||||||
Gain
on disposal of fixed assets
|
- | (24 | ) | |||||
Stock
based compensation expense
|
301 | 434 | ||||||
Deferred
tax provision
|
(175 | ) | (154 | ) | ||||
Provision
for doubtful accounts
|
126 | 59 | ||||||
Changes
in operating assets and liabilities, net of business
acquired:
|
||||||||
Accounts
receivable
|
(972 | ) | (1,108 | ) | ||||
Inventories
|
(1 | ) | (50 | ) | ||||
Prepaid
expenses and other assets
|
(166 | ) | (77 | ) | ||||
Accounts
payable, accrued expenses and advances from customers
|
285 | (436 | ) | |||||
Net
cash provided by operating activities
|
4,242 | 2,692 | ||||||
Cash
Flows From Investing Activities
|
||||||||
Acquisition
of fixed assets
|
(61 | ) | (353 | ) | ||||
Proceeds
from sale of fixed assets
|
- | 47 | ||||||
Capitalized
software costs
|
(1,839 | ) | (1,942 | ) | ||||
Acquisition
of businesses, net of cash acquired
|
(5,991 | ) | (3,797 | ) | ||||
Net
cash used in investing activities
|
(7,891 | ) | (6,045 | ) | ||||
Cash
Flows From Financing Activities
|
||||||||
Repurchase
of common stock
|
- | (127 | ) | |||||
Proceeds
from exercise of stock options
|
471 | - | ||||||
Tax
benefits from exercise of stock options
|
139 | - | ||||||
Net
cash provided by (used in) financing activities
|
610 | (127 | ) | |||||
Foreign
currency translation adjustments
|
(113 | ) | (630 | ) | ||||
Net
change in cash and cash equivalents
|
(3,152 | ) | (4,110 | ) | ||||
Cash
at beginning of period
|
20,865 | 22,741 | ||||||
Cash
at end of period
|
$ | 17,713 | $ | 18,631 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Income
taxes paid
|
$ | 601 | $ | 29 | ||||
See Notes
to Unaudited Condensed Consolidated Financial Statements.
MEDIWARE INFORMATION SYSTEMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
In the
opinion of management, the accompanying unaudited, condensed, consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Mediware Information Systems, Inc. (“Mediware” or the
“Company”) and its results of operations and cash flows for the interim periods
presented. Such financial statements have been condensed in accordance with the
applicable regulations of the Securities and Exchange Commission and, therefore,
do not include all disclosures required by accounting principles generally
accepted in the United States of America. These financial statements should be
read in conjunction with Mediware's audited financial statements for the fiscal
year ended June 30, 2009, included in Mediware's Annual Report filed on Form
10-K for such fiscal year.
The
results of operations for the three and six months ended December 31, 2009 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
2. EARNINGS
PER SHARE
Basic
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding, par value $0.10 (“Common Stock”),
of Mediware. For the three and six months ended December 31, 2009 and
the three and six months ended December 31, 2008, the dilutive effect of Common
Stock equivalents is included in the calculation of diluted earnings per share
using the treasury stock method.
3. TREASURY
STOCK
In
February 2008, the Board of Directors of the Company authorized Mediware to
repurchase up to $4,000,000 of its Common Stock, at times and prices as the
President and Chief Executive Officer or the Chief Financial Officer of the
Company shall determine to be appropriate (the “Share Repurchase
Program”). In October 2008, the Board of Directors expanded the Share
Repurchase Program by $3,318,000, bringing the total amount authorized under the
Share Repurchase Program to $7,318,000. The program has no expiration
date, and Mediware has no obligation to purchase shares under the Share
Repurchase Program.
As of
December 31, 2009, the Company has repurchased a total of 589,717 shares of
Common Stock at a cost of $3,503,000 under the Share Repurchase
Program. As of December 31, 2009, the Company is authorized to
purchase up to an additional $3,815,000 of Common Stock under the Share
Repurchase Program.
Shares of
Common Stock repurchased by the Company are recorded at cost as treasury stock
and result in a reduction of stockholders' equity in the accompanying
consolidated balance sheets. When shares are reissued, the Company will use the
weighted average cost method for determining cost. The difference between the
cost of the shares and the issuance price is added or deducted from additional
paid-in capital.
4. ACQUISITIONS
Commencing
July 1, 2009, the Company has accounted for business combinations under the
revised accounting principles in Accounting Standards Codification (“ASC”)
805.
Healthcare Automation,
Inc.
On
December 11, 2009, Mediware acquired all of the outstanding common stock of
Healthcare Automation, Inc., a Delaware corporation (“HAI”). HAI
provided medication management solutions to home infusion , specialty
pharmacy and alternate care markets through integrated software
solutions that address the complex work flow and patient safety needs of these
markets.
Mediware
believes the acquisition of HAI will expand its medication management offering
by expanding its presence in the home infusion, specialty pharmacy and alternate
care markets. The Company plans to continue offering its WORx
pharmacy product line to the larger acute care hospitals and behavioral health
facilities, and its Ascend pharmacy products to smaller hospitals and
pharmacies, while the HAI product line, along with the Ascend home
infusion product line will be offered to home infusion, specialty
pharmacy and alternate care markets.
Mediware
expects the HAI products to generate revenue by licensing its proprietary
software, and by providing professional services and support for the product
lines. Generally, HAI customers are charged an initial start-up fee
along with monthly fees for the continued use and support of the proprietary
software. Software license fees are recognized, when the license is
initially executed, subject to the revenue recognition principles for
software. Professional services and support revenues are recognized
as the services are delivered.
The
purchase price paid for HAI consists of an initial purchase price of
$3,501,000 in cash, net of $5,000 cash acquired, at the closing, plus contingent
consideration up to $946,000 based upon the achievement of certain revenue
milestones through December 11, 2010. The purchase price is also
subject to a working capital adjustment. The Company expects to
determine the amount of the contingent consideration within sixty days after the
first anniversary of the transaction. Contingent consideration is
payable within 3 months of the anniversary date of the
acquisition. We estimated the fair value of the contingent
consideration to be $797,000 using a probability-weighted discounted cash flow
model. This fair value is based on significant inputs not observable
in the markets and thus represents a Level 3 measurement as defined in ASC
820. The Company incurred $40,000 of legal, accounting and other
professional fees related to this transaction, which have been
expensed. The results of the HAI operations are included in the
accompanying financial statements from the date of acquisition and are not
significant.
The
Company has accounted for the acquisition of HAI as the acquisition of a
business under U.S. Generally Accepted Accounting Principles. The
assets acquired and liabilities assumed of HAI were recorded as of the
acquisition date, at their respective fair values. The preparation of
the valuation required the use of significant assumptions and
estimates. These estimates were based on assumptions that the Company
believes to be reasonable. However, actual results may differ from
these estimates.
The
following summarizes the assets acquired and liabilities assumed at the
acquisition date, net of cash acquired (in thousands):
Purchase
Price Allocation
|
||||
Accounts
receivable
|
$ | 743 | ||
Prepaid
and other current assets
|
79 | |||
Fixed
assets
|
14 | |||
Intangible
assets subject to amortization
|
2,199 | |||
Goodwill
|
1,786 | |||
Accounts
payable
|
(57 | ) | ||
Advances
from customers
|
(240 | ) | ||
Accrued
expenses and other current liabilities
|
(226 | ) | ||
Other
long term liabilities – contingent consideration
|
(797 | ) | ||
Total
purchase price, net of cash acquired
|
$ | 3,501 |
Details
of acquired intangibles and goodwill are as follows (in thousands):
Amount
Assigned
|
Weighted
Average Amortization Period
|
Risk-Adjusted
Discount Rate Used in Purchase Price Allocation
|
|||||||
Amortizable
Intangible Assets
|
|||||||||
Purchased
technology
|
$ | 756 |
5.0
years
|
19.1 | % | ||||
Customer
relationships
|
1,285 |
6.0
years
|
19.1 | % | |||||
Customer
Backlog
|
158 |
13
months
|
19.1 | % | |||||
$ | 2,199 | ||||||||
Goodwill
|
$ | 1,786 |
The
Company believes that the estimated tangible assets represent fair value at the
date of acquisition. The fair value of an asset is defined as the
amount for which an asset or liability could be bought or sold in a current
transaction between knowledgeable, unrelated willing parties when neither party
is acting under compulsion.
The
Company valued the purchased technology using the excess earnings method of the
income approach. Utilizing this approach, the Company projected
revenue and related expenses. These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value. This method requires the use of certain estimates, including
revenue growth rates, technology replacement rates, customer attrition,
expenses, contributory asset charges and discount rates. Based on
this methodology the Company assigned the value of purchased technology at
$756,000. The Company will amortize this amount over the estimated
useful life of five years.
The
Company valued the customer relationships and contracted backlog using the
excess earnings method of the income approach. Utilizing this
approach, the Company projected revenue and related expenses. These
projected income amounts were then reduced by the return on contributory assets
and discounted to present value. This method requires the use of
certain estimates, including revenue growth rates, customer attrition, expenses,
contributory asset charges and discount rates. Based on this
methodology the Company assigned the value of customer relationships at
$1,285,000 and contracted backlog at $158,000. The Company will
amortize this amount over the estimated useful life of six years and the
contracted backlog over the estimated useful life of thirteen
months.
The
Company intends to make an election under the Internal Revenue code section
338(h)(10). Accordingly, goodwill is expected to be deductible for
tax purposes.
Unaudited
proforma information for the acquisition of HAI has not been presented as the
acquisition is not significant.
Advantage Reimbursement,
Inc.
On
December 11, 2009, Mediware, through its newly formed wholly owned subsidiary
Advantage Reimbursement, LLC, a Delaware limited liability company
(“ARL”), acquired substantially all of the assets of Advantage
Reimbursement, Inc., a Massachusetts
corporation(“ARI”). ARI was a leading provider of billing
and collection services for home infusion and alternate care
enterprises.
The
acquisition of ARI expands the scope of services that Mediware can provide to
its current and potential home infusion, specialty pharmacy and alternate care
customers. The Company believes that over time this business will
become an important differentiator that will not only contribute to its ability
to make sales of its traditional software products but that will also drive
revenue on as an independent business.
Mediware
expects the ARL services will generate revenue by providing collection and
billings services and expertise to Mediware’s home infusion, specialty pharmacy
and alternate care customers and to other software providers’ customers as
well. Customers are charged a percentage of the third party
fees that are collected. The Company records revenue as the third
party billings are collected.
The
purchase price paid for the assets of ARI consisted of an initial purchase price
of $2,061,000 paid in cash at the closing, plus contingent consideration up to
$546,000 based upon the achievement of certain revenue milestones through
December 11, 2010. The purchase price is also subject to a working capital
adjustment. The Company expects to determine the amount of the contingent
consideration within sixty days after the first anniversary of the transaction.
Payment of the contingent consideration is payable within 3 months of the
anniversary date of the acquisition. We estimated the fair value of the
contingent consideration to be $470,000 using a probability-weighted discounted
cash flow model. This fair value is based on significant inputs not observable
in the markets and thus represents a Level 3 measurement as defined in ASC 820.
The Company incurred $21,000 of legal, accounting and other professional fees
related to this transaction, which have been expensed. The results of the ARI
operations are included in the accompanying financial statements from the date
of acquisition and are not significant.
The
Company has accounted for the acquisition of ARI as the purchase of a business
under U.S. Generally Accepted Accounting Principles. The assets
acquired and liabilities assumed of ARI were recorded as of the acquisition
date, at their respective estimated fair values. The preparation of
the valuation required the use of significant assumptions and
estimates. These estimates were based on assumptions that the Company
believes to be reasonable. However, actual results may differ from
these estimates.
The
following summarizes the assets acquired and liabilities assumed at the
acquisition date (in thousands):
Purchase
Price Allocation
|
||||
Accounts
receivable
|
$ | 522 | ||
Prepaid
expenses
|
43 | |||
Fixed
assets
|
1 | |||
Intangible
assets subject to amortization
|
763 | |||
Goodwill
|
1,289 | |||
Accounts
payable
|
(8 | ) | ||
Accrued
expenses and other liabilities
|
(79 | ) | ||
Contingent
consideration other long term liabilities
|
(470 | ) | ||
Total
Purchase Price
|
$ | 2,061 |
Details
of acquired intangible assets and goodwill are as follows (in
thousands):
Amount
Assigned
|
Weighted
Average Amortization Period
|
Risk-Adjusted
Discount Rate Used in Purchase Price Allocation
|
|||||||
Amortizable
Intangible Assets
|
|||||||||
Customer
relationships
|
$ | 763 |
6.0
years
|
17.0 | % | ||||
$ | 763 | ||||||||
Goodwill
|
$ | 1,289 |
The
Company believes that the estimated tangible assets represent fair value at the
date of acquisition. The fair value of an asset is defined as the
amount for which an asset or liability could be bought or sold in a current
transaction between knowledgeable, unrelated willing parties when neither party
is acting under compulsion.
The
Company valued the customer relationships using the excess earnings method of
the income approach. Utilizing this approach, the Company projected
revenue and related expenses. These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value. This method requires the use of certain estimates, including
revenue growth rates, customer attrition, expenses, contributory asset charges
and discount rates. Based on this methodology the Company assigned
the value of customer relationships at $763,000. The Company will
amortize this amount over the estimated useful life of six years.
Goodwill
is expected to be deductible for tax purposes.
Unaudited
proforma information for the acquisition of ARI has not been presented as the
acquisition is not significant.
SciHealth,
Inc.
On June
19, 2009, Mediware acquired substantially all of the assets of SciHealth, Inc.,
a Georgia corporation (“SciHealth”). SciHealth developed and marketed
Insight™, a
business and clinical intelligences software package used to manage performance
metrics. Mediware believes that this product offering will strengthen
its clinical suite offerings in its existing medication management and blood and
biologics markets, as well as acquired tools to broaden its customer base to
include the broader healthcare market.
Mediware
expects the SciHealth products to generate revenue by licensing its proprietary
software, and by providing professional services and support for the product
lines. Generally, customers are charged an initial start-up fee along
with monthly fees for the continued use and support of the
software. Software license fees are recognized when the license is
initially executed, subject to the revenue recognition principles for
software. Professional services and support revenues are recognized
as the service is delivered.
The
purchase price paid for the assets of SciHealth consisted of an initial purchase
price of $1,702,000 paid in cash at the closing. The Company may be
liable for contingent consideration of up to $6,445,000 based upon the
achievement of certain revenue and contractual milestones through June
2010. During the six months ended December 31, 2009, the Company paid
an additional $400,000 relating to SciHealth attaining certain contractual
milestones, which has been recorded as additional goodwill. The
Company believes the likelihood of SciHealth achieving the revenue milestone
resulting in payment of the full contingent consideration is
remote. The Company incurred $71,000 of legal, accounting and other
professional fees related to this transaction, which have been included in
goodwill. The Company expects to finalize the purchase price,
including all contingent consideration in June 2010. The results of
the SciHealth operations are included in the accompanying consolidated financial
statements from the date of acquisition.
The
Company has accounted for the acquisition of SciHealth as the purchase of a
business under U.S. Generally Accepted Accounting Principles. The
assets and liabilities of SciHealth were recorded as of the acquisition date, at
their respective fair values. The purchase price allocation is based
on the estimated fair value of assets acquired and liabilities
assumed. The preparation of the valuation required the use of
significant assumptions and estimates. These estimates were based on
assumptions that the Company believes to be reasonable. However,
actual results may differ from these estimates.
The
following summarizes the purchase price allocation (in thousands):
Purchase
Price Allocation
|
||||
Accounts
receivable
|
$ | 402 | ||
Fixed
assets
|
36 | |||
Intangible
assets subject to amortization
|
983 | |||
Goodwill
|
996 | |||
Advances
from customers
|
(244 | ) | ||
Total
Purchase Price
|
$ | 2,173 |
The
excess of the purchase price over the fair value of net tangible assets acquired
was allocated to specific intangible asset categories as follows (in
thousands):
Amount
Assigned
|
Weighted
Average Amortization Period
|
Risk-Adjusted
Discount Rate Used in Purchase Price Allocation
|
|||||||
Amortizable
Intangible Assets
|
|||||||||
Purchased
technology
|
$ | 232 |
5.0
years
|
20.9 | % | ||||
Customer
relationships
|
751 |
7.0
years
|
20.9 | % | |||||
$ | 983 | ||||||||
Goodwill
|
$ | 996 |
The
Company believes that the estimated tangible assets represent fair value at the
date of acquisition. The fair value of an asset is defined as the
amount for which an asset or liability could be bought or sold in a current
transaction between knowledgeable, unrelated willing parties when neither party
is acting under compulsion.
The
Company valued the purchased technology using the cost to recreate method of the
income approach. Utilizing this approach the Company estimated the
cost to recreate the software. This method requires the use of
certain estimates, including the fully burdened labor rates for software
engineers, the amount of time and effort required to recreate the software,
income tax rates and discount rates. Based on this methodology the
Company assigned the value of purchased technology at $232,000. The
Company will amortize this amount over the estimated useful life of five
years.
The
Company valued the customer relationships using the excess earnings method of
the income approach. Utilizing this approach, the Company projected
revenue and related expenses. These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value. This method requires the use of certain estimates, including
revenue growth rates, customer attrition, expenses, contributory asset charges
and discount rates. Based on this methodology the Company assigned
the value of customer relationships at $751,000. The Company will
amortize this amount over the estimated useful life of seven years.
Goodwill
is expected to be deductible for tax purposes.
Unaudited
proforma information for the acquisition of SciHealth has not been presented as
the acquisition is not significant.
Hann’s On Software,
Inc.
On
November 20, 2008, Mediware acquired substantially all of the assets of Hann’s
On Software, Inc., a California corporation (“HOS”). HOS provided
medication management solutions to the small hospital, specialty pharmacy and
home infusion markets through integrated software solutions that address the
complex work flow and patient safety needs of these markets.
Mediware
believes it will be able to provide medication management solutions to a broader
range of customers as a result of this acquisition. The Company plans
to continue offering its WORx pharmacy product line to the larger acute care
hospitals and behavioral health facilities, while the HOS product line will
provide comprehensive solutions for the smaller hospital, specialty pharmacy and
home infusion markets.
Mediware
expects the HOS products to generate revenue by licensing its proprietary
software, and by providing professional services and support for it product
lines. Generally, HOS customers are charged an initial start-up fee
along with monthly fees for the continued use and support of the
software. Software license fees are recognized when the license is
initially executed, subject to the revenue recognition principles for
software. Professional services and support revenues are recognized
as the service is delivered.
The
purchase price paid for the assets of HOS has been finalized and consists of
$3,500,000 paid in cash, less a working capital adjustment. The
Company did not pay any contingent consideration associated with this
transaction because certain revenue milestones were not achieved. The
Company did, however, receive $17,000 from the seller as part of the final
working capital adjustment. The Company incurred $28,000 of legal and
accounting fees related to this transaction which have been included in
goodwill. The results of the HOS operations are included in the
accompanying financial statements from the date of acquisition.
The
Company has accounted for the acquisition of HOS as the purchase of a business
under U.S. Generally Accepted Accounting Principles. The assets and
liabilities of HOS were recorded as of the acquisition date, at their respective
fair values. The purchase price allocation is based on the estimated
fair value of assets acquired and liabilities assumed. The
preparation of the valuation required the use of significant assumptions and
estimates. These estimates were based on assumptions that the Company
believes to be reasonable. However, actual results may differ from
these estimates.
The
following summarizes the final purchase price allocation (in
thousands):
Purchase
Price Allocation
|
||||
Accounts
receivable
|
$ | 187 | ||
Inventories
|
5 | |||
Prepaid
and other current assets
|
43 | |||
Fixed
assets
|
48 | |||
Intangible
assets subject to amortization
|
1,441 | |||
Goodwill
|
2,101 | |||
Other
long-term assets
|
9 | |||
Accounts
payable
|
(1 | ) | ||
Advances
from customers
|
(263 | ) | ||
Accrued
expenses and other current liabilities
|
(87 | ) | ||
Total
Purchase Price
|
$ | 3,483 |
The
excess of the purchase price over the fair value of net tangible assets acquired
was allocated to specific intangible asset categories as follows (in
thousands):
Amount
Assigned
|
Weighted
Average Amortization Period
|
Risk-Adjusted
Discount Rate Used in Purchase Price Allocation
|
|||||||
Amortizable
Intangible Assets
|
|||||||||
Purchased
technology
|
$ | 403 |
5.0
years
|
16.0 | % | ||||
Customer
relationships
|
958 |
7.0
years
|
16.0 | % | |||||
Non-compete
agreements
|
80 |
2.0
years
|
16.0 | % | |||||
$ | 1,441 | ||||||||
Goodwill
|
$ | 2,101 |
The
Company believes that the estimated tangible assets represent fair value at the
date of acquisition. The fair value of an asset is defined as the
amount for which an asset or liability could be bought or sold in a current
transaction between knowledgeable, unrelated willing parties when neither party
is acting under compulsion.
The
Company valued the purchased technology using the excess earnings method of the
income approach. Utilizing this approach, the Company projected
revenue and related expenses. These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value. This method requires the use of certain estimates, including
revenue growth rates, technology replacement rates, customer attrition,
expenses, contributory asset charges and discount rates. Based on
this methodology the Company assigned the value of purchased technology at
$403,000. The Company will amortize this amount over the estimated
useful life of five years.
The
Company valued the customer relationships using the excess earnings method of
the income approach. Utilizing this approach, the company projected
revenue and related expenses. These projected income amounts were
then reduced by the return on contributory assets and discounted to present
value. This method requires the use of certain estimates, including
revenue growth rates, customer attrition, expenses, contributory asset charges
and discount rates. Based on this methodology the Company assigned
the value of customer relationships at $958,000. The Company will
amortize this amount over the estimated useful life of seven years.
The
Company valued the non-compete agreements using the with/without method of the
income approach. This methodology determines the impact on discounted
net cash flow should the restricted parties decide to compete directly against
the Company. This method requires the use of certain estimates,
including projected cash flows, discount rates and probability factors related
to the likelihood of future competition. Based on this methodology
the Company assigned the value of non-compete agreements at
$80,000. The Company will amortize this amount over the estimated
useful life of two years.
Goodwill
is expected to be deductible for tax purposes.
Unaudited
proforma information for the acquisition of HOS has not been presented as the
acquisition is not significant.
5. GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill
The
change in the carrying amount of our goodwill during the six-months ended
December 31, 2009 is as follows (in thousands):
Carrying
amount as of June 30, 2009
|
$ | 9,843 | ||
Acquisition
of HAI
|
1,786 | |||
Acquisition
of ARI
|
1,289 | |||
Increase
from acquisition of business - SciHealth
|
400 | |||
Tax
benefit of amortization
|
(116 | ) | ||
Carrying
amount as of December 31, 2009
|
$ | 13,202 |
Other
Intangible Assets
The
carrying amount of our other intangible assets as of December 31, 2009 is as
follows (in thousands):
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Carrying Amount
|
Weighted
Average Remaining Useful Life
|
|||||||||||||
(in
years)
|
||||||||||||||||
Purchased
technology
|
$ | 1,864 | $ | (328 | ) | $ | 1,536 | 4.1 | ||||||||
Customer
relationships
|
4,813 | (554 | ) | 4,259 | 5.8 | |||||||||||
Backlog
|
158 | (8 | ) | 150 | 1.0 | |||||||||||
Non-compete
agreements
|
115 | (80 | ) | 35 | 0.6 | |||||||||||
$ | 6,950 | $ | (970 | ) | $ | 5,980 |
Amortization
expense for other intangible assets amounted to $198,000 and $363,000 for the
three and six months ended December 31, 2009, and $96,000 and $162,000 for the
three and six months ended December 31, 2008. The following
represents the expected amortization in future periods (in
thousands):
Fiscal
Year
|
Expected
Amortization
|
|||
2010
|
$ | 647 | ||
2011
|
1,200 | |||
2012
|
1,109 | |||
2013
|
1,044 | |||
2014
|
962 | |||
Thereafter
|
1,018 | |||
$ | 5,980 |
6. STOCK
BASED COMPENSATION
The
aggregate noncash stock based compensation expense totaled $112,000 and $182,000
for the three-months ended December 31, 2009 and 2008, respectively, and
$301,000 and $434,000 for the six-months ended December 31, 2009 and 2008,
respectively.
Stock
Based Plans
The
Company's 2003 Equity Incentive Plan, approved by the shareholders in December
2003, provides additional compensation incentives to encourage high levels of
performance and employee retention. Key employees of the Company,
directors, and persons who render services to the Company as consultants,
advisors or independent contractors are eligible to receive grants under this
plan. The number of shares that may be issued under this plan is
2,000,000. Shares may be issued as either incentive stock options,
nonqualified stock options, or restricted common stock. Options may
be granted for a period of up to ten years. Restricted common stock
awards may be subject to vesting restrictions and may be forfeited if certain
performance factors are not maintained. The plan provides that a
maximum of 1,700,000 shares may be issued as any combination of restricted
stock, options and restricted stock unit awards. The additional
300,000 shares of common stock can only be granted as option
awards. As of December 31, 2009, there were 1,050,000 shares
available for issuance under this Plan.
The
Company's 2001 Stock Option Plan, approved by the shareholders in January 2002,
provides additional compensation incentives for high levels of performance and
productivity by management, other key employees of the Company, directors, and
persons who render services to the Company as consultants, advisors or
independent contractors. Up to 900,000 shares may be issued and sold
under such plan and may be issued as either incentive stock options, to eligible
persons, or nonqualified stock options. Options may be granted for a
period of up to ten years, with option prices not less than fair market value on
the date of grant for incentive stock options, not less than 85% of fair market
value for nonqualified stock options, and not less than 110% of fair market
value for owners of more than 10% of the Company's outstanding voting
stock. As of December 31, 2009 no options were available to be issued
under this Plan.
Restricted
Common Stock Awards
Beginning
in fiscal 2007, the Company entered into agreements to provide long-term
incentive compensation opportunities to certain key employees. Under
the terms of these agreements, the Company granted the employees 35,000
restricted shares of common stock (the “Time-Based Shares”). The
Time-Based Shares vest over a three-year period based upon the continued
employment of the key employee. The Company
recorded compensation expense of $2,000 and a compensation benefit of
$4,000 for the three-months ended December 31, 2009 and 2008, respectively, and
compensation expense of $6,000 and a compensation benefit of $3,000 for the
six-months ended December 31, 2009 and 2008, respectively. The
Time-Based Shares will result in compensation expense in future periods of up to
$7,000, representing the fair value on the date of the grant less the amount of
compensation expense already recorded.
Beginning
in fiscal 2007, each member of the Company’s Board of Directors received an
annual grant of $10,000 of restricted common stock (the “Director Shares”) as
part of their compensation for serving on the Company’s Board of
Directors. The number of Director Shares granted is determined based
upon the fair market value of the Company’s stock on the first trading day of
each calendar year. The Director Shares vest on June 30 of each
fiscal year based upon the director’s continued service on the Company’s Board
of Directors. The Company recorded compensation expense related to
the Director Shares of $17,500 for the three-months ended December 31, 2009 and
2008, respectively, and $35,000 for each of the six-months ended December 31,
2009 and 2008, respectively. The Director Shares will
result in compensation expense in future periods of up to $35,000, representing
the fair value on the date of the grant less the amount of compensation expense
already recorded.
During
fiscal 2008, the Company entered into agreements to provide long-term incentive
compensation opportunities to certain employees. Under the terms of
these agreements, the Company granted the employees 220,000 restricted shares of
common stock (the “Enhanced Performance Shares”). The Enhanced
Performance Shares vest partially upon continued employment of the key employees
and partially upon the achievement of certain performance
objectives. The Company recorded compensation expense related to the
Enhanced Performance Shares of $74,000 and $123,000 for the three-months ended
December 31, 2009 and 2008, respectively, and $202,000 and $299,000 for the
six-months ended December 31, 2009 and 2008, respectively. The
Company will continue to assess whether or not the achievement of any
performance goals is probable at each reporting period, and will recognize the
related expense if and when the performance conditions become probable. The Enhanced Performance
Shares may result in compensation expense in future periods of up to $239,000,
representing the fair value on the date of the grant less the amount of
compensation expense already recorded. This amount includes $32,000
of unrecognized time-based compensation expense related to the continued
employment of the key employees.
Estimated
future stock-based compensation expense related to time-based restricted stock
is as follows (in thousands):
Fiscal Years Ending June
30,
|
Time-Based
Shares
|
Enhanced
Performance Shares (Time-Based Portion)
|
Director
Shares
|
Total
|
||||||||||||
2010
|
$ | 4 | $ | 26 | $ | 35 | $ | 65 | ||||||||
2011
|
3 | 6 | - | 9 | ||||||||||||
Total
estimated future stock-based compensation expense
|
$ | 7 | $ | 32 | $ | 35 | $ | 74 |
A summary
of the status of the Company’s nonvested restricted common stock as of December
31, 2009, and changes during the six-months ended December 31, 2009, is
presented below (shares amounts in thousands):
Time-Based
Shares
|
Weighted
Average Grant Date Fair Value
|
Enhanced
Performance Shares
|
Weighted
Average Grant Date Fair Value
|
|||||||||||||
Nonvested
at June 30, 2009
|
5 | $ | 7.65 | 158 | $ | 6.67 | ||||||||||
Granted
|
- | - | - | - | ||||||||||||
Canceled
or forfeited
|
- | - | (15 | ) | 6.34 | |||||||||||
Vested
|
(2 | ) | 8.50 | (66 | ) | 6.69 | ||||||||||
Nonvested
at December 31, 2009
|
3 | $ | 5.96 | 77 | $ | 6.71 |
The fair
value of the restricted shares is determined based on the average trading price
of the Company’s shares on the grant date, except for the Director Shares which
is determined based on the average trading price of the Company’s shares as of
the first trading day of each calendar year, pursuant to the directors’
compensation plan.
Stock
Option Awards
The fair
value of stock options is determined at the date of grant and is charged to
compensation expense over the vesting period of the options. The fair
value of options at date of grant was estimated using the Black-Scholes option
pricing model utilizing the following assumptions:
For
the Three Months Ended December 31,
|
For
the Six Months Ended December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Risk-free
interest rates
|
2.3 | % | 2.8 | % | 2.3 | % | 2.8 | % | ||||||||
Expected
option life in years
|
2 – 3 | 2 – 3 | 2 – 3 | 2 – 3 | ||||||||||||
Expected
stock price volatility
|
57 | % | 51 | % | 57 - 66 | % | 51 | % | ||||||||
Expected
dividend yield
|
- | - | - | - |
The
risk-free rate for periods within the contractual life of the option is based on
the U.S. Treasury yield curve in effect at the time of the grant. The
Company uses historical data to estimate option exercise and employee and
director termination within the valuation model; separate groups of employees
and directors that have similar historical exercise behavior are considered
separately for valuation purposes. The expected term of options
granted represents the period of time that options granted are expected to be
outstanding; the range given above results from groups of employees and
directors exhibiting different behavior. Expected volatilities are
based on historical volatility of the Company’s stock. The Company
has not paid any dividends in the past and does not expect to pay any in the
near future.
The
following table sets forth summarized information concerning the Company's stock
options as of December 31, 2009 (share and aggregate intrinsic value amounts in
thousands):
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||||||
Outstanding
at June 30, 2009
|
913 | $ | 8.59 | |||||||||||||
Granted
|
75 | 5.88 | ||||||||||||||
Exercised
|
(126 | ) | 3.73 | |||||||||||||
Forfeited
or expired
|
(85 | ) | 9.29 | |||||||||||||
Outstanding
at December 31, 2009
|
777 | $ | 9.03 | 3.4 | $ | 220 | ||||||||||
Expected
to vest at December 31, 2009
|
777 | $ | 9.03 | 3.4 | $ | 220 | ||||||||||
Options
exercisable at December 31, 2009
|
577 | $ | 10.00 | 2.8 | $ | 36 |
The
strike price of the options is determined based on the average trading price of
the Company’s shares on the grant date.
Cash
received from the options exercised under all stock-based payment arrangements
for the six months ended December 31, 2009 was $471,000. The
aggregate intrinsic value of options exercised during the six months ended
December 31, 2009 was $353,000. There were no stock options exercised
for the six-months ended December 31, 2008. Historically, the Company
has issued new shares upon the exercise of stock options.
The
weighted average fair value at date of grant for options granted during the
three and six months ended December 31, 2009 was $2.59 per option and $2.26 per
option, respectively. For the six months ended December 31, 2008 the weighted
average fair value at date of grant for options granted was $1.32 per
option. The Company recorded $18,000 and $46,000 of
compensation expense for stock option plans for the three months ended December
31, 2009 and 2008, respectively, and $57,000 and $103,000 for the six months
ended December 31, 2009 and 2008, respectively.
Estimated
future stock-based compensation expense relating to stock options is as follows
(in thousands):
Fiscal Years Ending
June 30,
|
Future
Stock Option Compensation Expense
|
|||
2010
|
$ | 89 | ||
2011
|
101 | |||
2012
|
40 | |||
2013
|
12 | |||
2014
|
2 | |||
Total
estimated future stock-based compensation expense
|
$ | 244 |
A summary
of the status of the Company’s nonvested options as of December 31, 2009, and
changes during the six months ended December 31, 2009 is presented below (share
amounts in thousands):
Nonvested Options
|
Shares
|
Weighted
Average Grant Date Fair
Value
|
||||||
Nonvested
at July 1, 2009
|
176 | $ | 2.15 | |||||
Granted
|
75 | 2.35 | ||||||
Canceled
or expired
|
(23 | ) | 1.83 | |||||
Vested
|
(28 | ) | 2.44 | |||||
Nonvested
at December 31, 2009
|
200 | $ | 2.22 |
The total
fair value of shares vested during the six months ended December 31, 2009 was
$69,000.
The
following table presents information relating to stock options at December 31,
2009 (share amounts in thousands):
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||
Range of Exercise
Prices
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life in Years
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||||
$0.00 - $ 4.49 | 10 | $ | 3.89 | 1.1 | 3 | $ | 3.89 | |||||||||||||
$4.50 - $ 7.49 | 284 | $ | 6.52 | 6.6 | 91 | $ | 6.90 | |||||||||||||
$7.50 - $ 8.99 | 94 | $ | 8.09 | 1.9 | 94 | $ | 8.09 | |||||||||||||
$9.00 - $ 10.49 | 172 | $ | 10.13 | 3.7 | 172 | $ | 10.13 | |||||||||||||
$10.50 - $11.99 | 70 | $ | 10.89 | 1.5 | 70 | $ | 10.89 | |||||||||||||
$12.00 - $13.49 | 117 | $ | 12.45 | 3.7 | 117 | $ | 12.45 | |||||||||||||
$13.50 - $14.99 | 30 | $ | 13.73 | 5.2 | 30 | $ | 13.74 | |||||||||||||
777 | 577 |
7. INCOME
TAXES
Deferred
tax assets and liabilities are recognized for the expected future tax
consequences attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the
enacted rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. A valuation allowance
is provided against net deferred tax assets when it is not more likely than not
that a tax benefit will be realized. Income taxes include U.S. and
foreign taxes.
As of
December 31, 2009, as required by FIN 48, the Company’s unrecognized tax
benefits totaled $371,000. Accrued interest and penalties at December
31, 2009 amounted to $19,000. The Company recognizes accrued interest
and penalties in income tax expense.
During
the three months ended December 31, 2009, the Company recognized research and
development credits applicable to its software development activities relating
to fiscal year 2009 and fiscal year to date 2010.
The
Company files income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions. In general, the Company’s filed
income tax returns are no longer subject to examination by the respective taxing
authorities for years ending before June 30, 2006. An examination by
the Internal Revenue Service of the Company’s fiscal 2007 federal income tax
returns was recently concluded for which the Internal Revenue Service issued a
no change letter.
8.
SEGMENT INFORMATION
The
Company has four distinct product lines: Medication Management
systems, Blood Management systems, Performance Management systems and
Perioperative Management systems. Based on similar economic
characteristics, as well as the nature of products, production processes,
customers and distribution methods, the Company has aggregated these operating
divisions into one reporting segment Revenue by product line are as
follows (in thousands):
For
the Three Months Ended December 31,
|
For
the Six Months Ended December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Medication
Management Systems:
|
||||||||||||||||
System
revenue
|
$ | 988 | $ | 1,032 | $ | 2,666 | $ | 2,121 | ||||||||
Service
revenue
|
3,845 | 3,584 | 7,484 | 7,093 | ||||||||||||
Blood
Management Systems:
|
||||||||||||||||
System
revenue
|
1,253 | 991 | 2,266 | 2,331 | ||||||||||||
Service
revenue
|
3,844 | 4,191 | 7,654 | 7,887 | ||||||||||||
Performance
Management Systems
|
||||||||||||||||
System
revenue
|
171 | - | 227 | - | ||||||||||||
Service
revenue
|
290 | - | 577 | - | ||||||||||||
Perioperative
Management Systems
|
||||||||||||||||
System
revenue
|
- | - | - | - | ||||||||||||
Service
revenue
|
209 | 217 | 470 | 416 | ||||||||||||
Other
revenue
|
216 | - | 216 | - | ||||||||||||
Total
|
$ | 10,816 | $ | 10,015 | $ | 21,560 | $ | 19,848 |
Other
revenue, which is not significant, is generated from the recently acquired
business, ARI.
Selected
financial information by geographic area is as follows (in
thousands):
For
the Three Months Ended December 31,
|
For
the Six Months Ended December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue
from Unaffiliated Customers:
|
|
|
|
|
||||||||||||
United
States
|
$ | 9,541 | $ | 8,724 | $ | 18,663 | $ | 17,090 | ||||||||
United
Kingdom
|
1,275 | 1,291 | 2,897 | 2,758 | ||||||||||||
Total
|
$ | 10,816 | $ | 10,015 | $ | 21,560 | $ | 19,848 | ||||||||
Net
Income (Loss):
|
||||||||||||||||
United
States
|
$ | 816 | $ | 201 | $ | 1,122 | $ | 273 | ||||||||
United
Kingdom
|
(33 | ) | 102 | 280 | 248 | |||||||||||
Total
|
$ | 783 | $ | 303 | $ | 1,402 | $ | 521 |
December 31,
|
||||||||
2009
|
2008
|
|||||||
Identifiable
Assets:
|
|
|
||||||
United
States
|
$ | 58,742 | $ | 52,795 | ||||
United
Kingdom
|
5,356 | 4,106 | ||||||
Total
|
$ | 64,098 | $ | 56,901 |
9. CONTINGENCIES
In
September 2002, Global Med Technologies, Inc. (“Global Med”) filed a complaint
against former Mediware employee Donnie L. Jackson, Jr. claiming that he
misappropriated trade secrets and breached certain contractual obligations and
covenants to Global Med. Mediware was potentially responsible under
an agreement with Mr. Jackson for any damages and certain fees and costs awarded
to Global Med in the case. In October 2009, the parties and Mediware
entered into a settlement agreement and mutual releases of claims against each
other. No amounts were paid in connection with the
settlement.
From time
to time, Mediware becomes involved in routine litigation incidental to the
conduct of its business, including employment disputes and litigation alleging
product defects, intellectual property infringements, violations of law and
breaches of contract and warranties. Mediware believes that such
routine litigation, if adversely determined, would not have a material adverse
effect on its business, financial condition, results of operations or cash
flows.
10. RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued Accounting Standards Codification™ (“ASC”)
Topic 105, “Generally Accepted Accounting
Principles which establishes ASC as the source of authoritative
generally accepted accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with GAAP. All existing accounting standard documents are superseded
by the Codification. However, rules and interpretive releases of the SEC issued
under the authority of federal securities laws will continue to be sources of
authoritative GAAP for SEC registrants. ASC Topic 105 was effective for the
Company for the period ended September 30, 2009.
In December 2007, the FASB issued ASC Topic 805 “Business
Combinations”. ASC Topic 805 establishes principles and
requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree. ASC Topic 805 also provides
guidance for recognizing and measuring the goodwill acquired in the business
combination, requires that acquisition costs be expensed and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. ASC Topic 805 was
effective for acquisitions made after June 30, 2009.
In June 2009, the FASB finalized SFAS No. 167, Amending FASB interpretation
No. 46(R), which was later superseded by the FASB Codification and included in
ASC topic 810, “Consolidation.” The provisions of ASC 810 provide guidance in
determining whether an enterprise has a controlling financial interest in a
variable interest entity. This determination identifies the primary beneficiary
of a variable interest entity as the enterprise that has both the power to
direct the activities of a variable interest entity that most significantly
impacts the entity’s economic performance, and the obligation to absorb losses
or the right to receive benefits of the entity that could potentially be
significant to the variable interest entity. This pronouncement also requires
ongoing reassessments of whether an enterprise is the primary beneficiary and
eliminates the quantitative approach previously required for determining the
primary beneficiary. New provisions of this pronouncement are effective July 1,
2010. The Company is currently evaluating the impact of adopting this
pronouncement.
In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted. Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance. Additionally, the FASB issued authoritative
guidance on revenue arrangements with multiple deliverables that are outside the
scope of the software revenue recognition guidance. Under the new
guidance, when vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The new
guidance includes new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue
recognition. The Company is presently assessing the impact, if any,
of this new guidance on our financial statements.
11. SUBSEQUENT
EVENTS
The
Company has performed its subsequent events review through February 9, 2010,
which is the date the financial statements are issued.
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To The
Board of Directors and Shareholders of
Mediware
Information Systems, Inc.
We have
reviewed the accompanying condensed consolidated balance sheet of Mediware
Information Systems, Inc. and subsidiaries (the "Company") as of December 31,
2009, and the related condensed consolidated statements of operations and
comprehensive income (loss) for the three and six-month periods ended December,
31 2009 and 2008, and cash flows for the six-month periods ended December 31,
2009 and 2008. These interim condensed consolidated financial
statements are the responsibility of the Company's management.
We
conducted our reviews in accordance with standards established by the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to the accompanying interim condensed consolidated financial statements in order
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of June 30, 2009, and the related consolidated statements of
operations and comprehensive income, stockholders' equity, and cash flows for
the year then ended (not presented herein), and in our report dated September 9,
2009, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of June 30, 2009 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
Eisner
LLP
New York,
New York
February
9, 2010
ITEM
2.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains forward-looking statements. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act. The words “believes,” “anticipates,” “plans,”
“expects,” “intends” and similar expressions identify some of the
forward-looking statements. Forward-looking statements are not guarantees of
performance or future results and involve risks, uncertainties and assumptions.
The factors discussed elsewhere in this Form 10-Q and in Mediware’s Form 10-K
for the year ended June 30, 2009 and in subsequent Quarterly Reports on Form
10-Q, could also cause actual results to differ materially from those indicated
by the Company’s forward-looking statements. Mediware undertakes no
obligation to publicly update or revise any forward-looking
statements.
Overview
Mediware
Information Systems, Inc. (including its subsidiaries, “Mediware” or the
“Company”) is a New York corporation incorporated in 1970 with its corporate
headquarters at 11711 West 79th Street, Lenexa, Kansas. The Company
maintains an Internet website at www.mediware.com, at which reports filed with
the Securities Exchange Commission (“SEC”) under the Securities Exchange Act of
1934 (the “Securities Exchange Act”) can be obtained under “Investor Relations”
without charge as soon as reasonably practicable after filed or furnished with
the SEC. The Company may post at its website additional information
important to its shareholders and to potential investors. Information
on or linked to the Company website is not incorporated by reference into this
Quarterly Report on Form 10-Q. Filings with the SEC can also be
obtained at the SEC’s website, www.sec.gov.
Mediware
develops, markets, licenses, implements, services and supports clinical
management information solutions.
The
Company develops, licenses and sells its blood and biologics management
solutions to hospitals and its medication management solutions to hospitals,
long-term care, specialty pharmacy, home infusion, alternate care and behavioral
health facilities. Mediware licenses and sells its blood donor
recruitment and management solutions to blood donor and plasma donor centers
through its Blood Center Technologies business group
(“BCT”). Following the acquisition of assets and business
of Healthcare Automation, Inc. (“HAI”) and Advantage Reimbursement, Inc. (“ARI”)
during the quarter ended December 31, 2009, Mediware has formed an alternate
care business group to market, license and sell its home infusion, specialty
pharmacy and alternate care products and services.
The
software systems that Mediware provides to its customers typically consist of
the Company's proprietary application software, third-party licensed software
and third-party hardware. Mediware generally licenses its medication
management, blood management and biologics management software systems to
customers on a perpetual basis. These customers typically make an
up-front payment for the software license fees and payments for support services
on an annual basis. In contrast, Mediware generally provides its
blood and plasma center solutions and its MediREC software and Hann’s On
Software, Inc., a California corporation (“HOS”), products and recently acquired
HAI products on a monthly subscription basis. These customers pay
Mediware an initial start-up fee and a monthly fee for use and support of
Mediware’s proprietary software. Under both payment models, customers
may purchase services, including implementation and additional consultation
services, for additional fees which are generally billed as
incurred. The performance management software is licensed on both
perpetual and subscription bases. Mediware currently anticipates that
over time an increased number of its systems (in all product lines) will be
licensed on a subscription basis.
Mediware
markets its performance management, blood donor and its blood and biologic
management products primarily in the United States. The Company
markets its medication management solutions in the United States and in the
United Kingdom, with different software systems designed for the specific
requirements of each market. The Company has operations in the United
Kingdom relating to the systems licensed and sold primarily in that market as
well as Ireland and South Africa. All other operations are in the
United States.
Market
Positioning
Mediware
designs, develops and markets software solutions targeting specific processes
within healthcare institutions. Software products are sold to hospitals,
long-term care and behavioral health facilities and stand alone blood and plasma
donation centers and alternate care settings. The Company believes
that its competitive advantages include rich product knowledge and a long
history of innovation in the areas of medication and blood software
products.
Traditional
healthcare environments leverage disparate information systems and manual
processes throughout the care process. This results in reduced efficiency as
well as increased safety risks due to the potential for human error and delayed
access to patient information and records. Errors and risks associated with
medications, blood, or biologics can often result in tragic consequences, a fact
that can raise the awareness and priority of Mediware solutions.
The
Company’s product strategy is to address targeted clinical areas with “suites”
of applications that provide clinicians one data environment for the information
relating to the prescribing, preparation, and administration of drug, blood
and/or biologics therapies. Mediware’s products manage each step of the
therapeutic process in one system environment, including: ordering, fulfillment,
administration, and documentation, to provide care providers a “closed loop”
process for blood and medication therapies. The process-centric
integrated data environments provided by Mediware’s blood, biologic and
medication management solutions seamlessly extend the discipline and controls of
the pharmacy and blood bank to patient units, operating room suites, and other
venues where adverse events occur. The Company believes this closed loop process
differentiates it from the industry’s catalog and “best of breed”
vendors.
Mediware’s
products are designed to address the needs of the acute care hospital market,
the blood center market, and following the acquisition of the assets and
businesses of HOS, HAI and ARI, the Company has positioned itself to address the
needs of the home infusion, specialty pharmacy and alternate care
markets. Mediware believes that its business will be able to take
advantage of the home infusion, specialty pharmacy and alternate care markets by
leveraging its clinical and product strengths outside of the acute care setting
and across alternate care settings.
By adding a performance management solution to our product offerings in
June 2009 through the acquisition of the assets and business of SciHealth, Inc.
(“SciHealth”), we believe that we further strengthened our clinical suite
offerings in our existing medication management and blood and biologics markets,
as well as acquired tools to broaden our customer base to include the broader
healthcare market. Our new performance management
software can aggregate information stored in Mediware’s blood, biologics and
medication management products for easy reporting and analysis at the
departmental level, thereby further strengthening our product offering in our
historic market. The software can also draw information from
disparate systems across a healthcare enterprise beyond Mediware’s historic
blood and medication management customers.
The Healthcare
Information Systems Industry
The healthcare industry, like other United States industries, has been
impacted by the global economic downturn. Consequently, we
believe our customers have been more cautious with their capital
investments. When health care organizations make significant
investments, we believe they are more focused on ensuring that their spending
has a demonstrable return on investment or can provide clear improvements to
patient safety.
We believe healthcare information technology solutions, like our products,
are generally considered by customers to be tools that can provide a positive
return on investment and improve patient safety, and, therefore, we believe the
healthcare information systems industry will not suffer to the same extent as
other industries. In fact, President Obama has focused
significant attention on the use of information technology systems as part of
his healthcare reform initiatives. The American Recovery and
Reinvestment Act, which became law on February 17, 2009, includes more than $35
billion of incentives to help healthcare organizations modernize operations
through the acquisition and use of information technology
solutions. We believe other healthcare reform legislation could, if
passed, further require many hospitals and healthcare institutions to modernize
and update their healthcare information systems. While Mediware does not
anticipate direct, near-term benefits from pending legislation or the Obama
administration’s policies, we believe that over time the additional government
spending on healthcare information technology, and certain health reform
legislation could, drive the adoption of healthcare information technology
solutions, and have a positive impact on the Company.
Mediware believes that its product strategy and offerings meet many of the
needs of health care institutions and that its products will play a role in
moving healthcare information technology standards forward to deliver
significant results for patients and customers.
Competition
in the market for clinical information systems is intense and increased
government spending may entice more companies to enter the
marketplace. The principal competitive factors are the functionality
of the system, its design and capabilities, site references, the demonstrated
need, ability to install, process redesign capabilities, reputation, software
platform, the potential for enhancements, price, departmental versus enterprise
sales and salesmanship. Another key factor 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 and each sale.
Blood
and Biologics Management Products
Hospital
Transfusion and Donor Products
The
Company supplies information and management software systems to hospital blood
banks and transfusion centers. Hospitals face pressures to manage
blood inventory and improve the safety of the blood supply by reducing errors,
improving screening and increasing throughput and cost
efficiencies. These pressures exist despite pressures across the
healthcare industry to reduce costs and to address ongoing personnel
shortages. Mediware's blood management software systems are intended
to help hospitals and blood centers address these issues. The
software is designed to reduce costs through automatic report production,
decreased paperwork, and automated billing. The Company's products
are also designed to improve blood supply safety through the use of user-defined
truth tables, among other features.
The Company’s flagship blood transfusion product is the HCLL™ transfusion
software. Mediware also provides its hospital customers its
complementary HCLL™ donor software module for use in hospital-based donor
centers. The HCLL software (HCLL Transfusion and HCLL Donor) addresses blood
donor recruitment, blood processing and transfusion activities for hospitals and
medical centers. These systems are designed to be user intuitive,
scalable, and support product management, resource management, quality control
and testing. They include advanced data mining and data management
intelligence capabilities, which can be utilized by facilities of all sizes,
including, small hospitals, large medical centers, multi-facility enterprises
and central transfusion services. As of December 31, 2009, the HCLL
software was in productive use at over 230 sites. The Company has licensed the
software for use at approximately 300 facilities.
The Company is also looking to new products and markets to
continue its growth in blood management. In early fiscal year 2008,
the Company announced its new BloodSafe™ suite of products. The
BloodSafe suite includes hardware and software which enable healthcare
facilities to securely store, monitor, distribute and track blood products from
locations removed from the hospital’s physical blood bank. Components of the
BloodSafe suite include blood tracking and monitoring software, computer
controlled refrigerators, and handheld point of care tools to verify accurate
patient identification and document transfusion activities. BloodSafe can be
integrated with Mediware’s HCLL software or operate on a stand-alone
basis. Mediware licensed BloodSafe to its first customer in August
2008 and its first customer began using the fully functional BloodSafe system
with the HCLL transfusion software in June 2009. As of December 31,
2009, BloodSafe is licensed for use at three facilities.
Blood
Center Technologies
To focus
on the unique needs of the blood center market segment, on July 8, 2008 Mediware
announced the launch of Blood Center Technologies (“BCT”). Mediware’s
BCT business unit is a customer focused team intended to drive growth as
Mediware expands its focus in the blood donor market. Through BCT,
the Company also provides software tools and services to large, complex blood
centers for donor targeting, donor recruitment, donation management, unit
testing, blood component manufacturing, inventory control, sales and
distribution. This is accomplished through a combination of the Company’s 510(k)
cleared LifeTrak® software and Insight-based products and
capabilities. The Insight products and capabilities enable the
Company to deliver an integrated software solution for blood centers to improve
collections and efficiency throughout the entire process from blood donor
recruitment to hospital distribution. Since November 1, 2007,
Mediware has been aggressively integrating software and capabilities to
streamline the effectiveness of blood centers, from donor recruitment, through
the clinical laboratory, to hospital management. With the addition of the
Insight components, LifeTrak has robust clinical capabilities with modern and
effective CRM technologies that enable blood centers to improve the
effectiveness of coordinated blood drive campaigns while still meeting the
strict FDA regulations for safe blood management.
We estimate that Mediware products support over 50% of the U.S. blood
supply at some point in the collection, testing and distribution
processes. As of December 31, 2009, the BCT business unit had
software in productive use at over 350 facilities.
Biologics
Products
Hospitals are beginning to face the same pressures to manage biologic
product inventory and improve safety by reducing errors, improving screening and
increasing throughput and cost efficiencies as they have faced with blood
products for years. In June 2008, Mediware released
BiologiCare, the Company’s first generation bone, tissue and cellular product
tracking software. The software leverages the HCLL software platform
and Mediware’s blood banking expertise to address the important needs of
hospitals as they begin to manage bone, tissue, cord blood stem cells and other
biologic products. BiologiCare is designed
specifically to track and manage transplantable materials in hospitals, surgery
centers and other healthcare facilities. The products enable users to document
donors, tissue vendors and tissue recipients and to comply with current
regulations regarding transplantable materials. With the introduction
of BiologiCare, Mediware believes it is positioned to benefit from the emerging
biologics market, which includes, among other things, bone, tissue and cord
blood stem cells. BiologiCare can be integrated with Mediware’s HCLL
software or operate on a stand-alone basis. Mediware licensed its
first BiologiCare customer in June 2008. As of December 31, 2009,
BiologiCare is licensed for use at one facility.
The
Company continues to concentrate on growing all aspects of its blood management
business: hospital transfusion and donor products, biologics products and blood
center technology products. The blood management products are
marketed primarily through the Company’s direct sales force, and the Company is
working to develop complementary reseller relationships. In addition
to its sale of software, the Company generates revenue from professional
services and post-contract support. These ongoing support contracts
account for more than half of the total revenue from blood management operations
and are recurring in nature.
The blood
management products compete primarily with vendors of Laboratory Information
Systems (“LIS”) providing a blood bank subsystem as a part of their laboratory
product, as well as other companies that market stand-alone blood bank systems.
The LIS vendors are much larger companies with greater technical, marketing,
financial and other resources than the Company. We believe these
competitors include Cerner, McKesson, and Meditech. We believe
that stand-alone lab or blood bank vendors include Sunquest, Haemonetics and SCC
Soft. The Company believes, however, that due to the functionality of
the HCLL software, the Company is well-positioned in the blood bank system
market and that it has a good reputation with its customers, including many of
the most sophisticated healthcare systems in the United States. On the blood
donor side of the business, we compete against several of the companies listed
above as well as Blood Bank Computer Services Company, MAK Software and
others.
Medication
Management Products
The
Company also supplies medication management solutions to hospitals, mental
health facilities, specialty pharmacies, home infusion facilities, penal
institutions and other institutions that require the administration and
management of medication.
The
Company’s medication management solutions are designed to help customers improve
patient safety while reducing costs and improving clinical
documentation. Additionally, the solutions help medical facilities
comply with increasing regulatory and governmental
requirements.
Hospital
Pharmacy and Medication Management Products
The
Company’s medication management software product for larger and medium sized
hospitals and healthcare institutions is WORx, a core pharmacy information
system designed to manage inpatient and outpatient pharmacy
operations. WORx software has features and functions designed to help
improve patient safety and manage pharmacy operations effectively. As
of December 31, 2009, the WORx software was in productive use at approximately
175 sites. The product's market acceptance encompasses multi-facility
healthcare systems, university hospitals and large state behavioral health
institutions. The acquisition of substantially all of the HOS assets
in November 2008 expanded Mediware’s product offering by adding a pharmacy
solution that meets the needs of small and medium size hospital
facilities. The Company currently plans to continue offering the WORx
product line to larger acute care hospitals and state behavioral health
facilities, while offering the HOS product line to the small and medium size
hospital markets. The HOS acquisition added approximately 150
hospital sites to Mediware’s medication management customer base.
In fiscal 2004, the Company released MediCOETM and MediMAR®. These products are fully integrated with
the WORx software and provide a complete closed loop drug therapy management
system with a physician order entry module (MediCOE) and nurse point of care
administration and bedside documentation module (MediMAR).
The MediCOE software provides clinicians an efficient,
effective method to enter medication orders and manage drug
therapy. Orders entered in the MediCOE software undergo a prospective
evaluation based on the patient’s current medical profile to identify potential
adverse outcomes. Potential problems can be identified by the
clinician at order entry and can be corrected or explained at the point of
care.
The MediMAR software, on the other hand, serves as an
electronic medication administration and bedside documentation
record. It produces a dynamic and complete representation of the
patient’s medication profile, including clinician orders, medication list,
allergies, notes and clinical alerts to increase patient safety. The MediMAR
software uses bar code, wireless, handheld, and other technologies to allow
caregivers efficient and accurate methods to document patient medication
administration and provide nurses additional safety measures at the point of
care.
As of
December 31, 2009, the MediCOE and MediMAR products have been licensed for use
in 3 and 18 separate customer sites, respectively.
To expand
the Company’s capabilities and address a new industry mandate, the Company
introduced MediREC in March 2007. This medication management product
assists in achieving compliance with a Joint Commission on Accreditation of
Healthcare Organizations mandate, which requires hospitals to document all of a
patient’s home medications when a patient is admitted or enters the emergency
room, and to reconcile that list with the medications prescribed in the
hospital. That process must be repeated each time the patient is
transferred within the hospital and again when the patient is discharged. At
December 31, 2009, MediREC was licensed for use at 7 customer
sites.
The
Company continues to target its large WORx software customer base and new
customers with the MediCOE and MediMAR products and markets MediREC to this
customer base and new customers as well. MediMAR, MediCOE and MediREC
software products can provide fully integrated medication management solutions
and are particularly well suited for large academic medical centers and
behavioral health settings that benefit from the robust nature of the software’s
functionality. Selling the Company’s full suite of medication
management products (WORx, MediMAR, MediCOE and MediREC) is a complex process
involving multiple hospital departments and, therefore, results in substantially
longer sales cycles compared to stand-alone WORx sales. This has
resulted in less predictable contract closures and a need to recognize software
license revenue over multiple quarters (in some cases). On the other
hand, the HOS software requires substantially smaller financial commitments from
customers and is priced based on a subscription pricing
model. Generally, the HOS software, Ascend, is sold to smaller
hospitals. Consequently, Mediware anticipates that sales of these
products will be more predictable and have shorter sales cycles. The
MediREC software is also being licensed to customers on a recurring, transaction
basis, and Mediware expects that as the adoption of MediREC increases, the sale
and implementation cycles for MediREC to be shorter than for the full suite of
products.
The
Company generates revenue from medication management software sales,
professional services and post-contract support. Support contracts
currently account for over half of the revenue from medication management
operations.
Alternate
Care
Mediware acquired Healthcare Automation, Inc. and the assets of
Advantage Reimbursement, Inc. on December 11, 2009. As a result,
Mediware greatly increased its presence in the alternate care market and formed
an Alternate Care business unit to capitalize on the growing strength of its
product offerings. Mediware’s product offerings currently include:
home infusion software, specialty pharmacy software, home medical equipment
software, and home healthcare software, as well as billing and collections
services that are focused on the alternate care markets. These
offerings are largely the combination of the home infusion offering that
Mediware acquired in its acquisition of HOS in 2008 and the home infusion,
specialty pharmacy and alternate care products acquired in the HAI and ARI
acquisitions. As of December 31, 2009, Mediware had more than 450
alternate care facilities within its customer base and is positioned as a leader
in the alternate care market.
JAC
The
Company's United Kingdom operating business is JAC Computer Services, Ltd.
(“JAC”). JAC markets and provides support for its pharmacy
management and electronic prescribing systems throughout the U.K., Ireland and
South Africa. JAC includes an installed base of approximately 200
customer sites, representing over 100 National Health Service (“NHS”) acute
hospitals or trusts in the U. K. JAC’s product offering includes JAC’s Pharmacy
Management System and Electronic Prescribing module. The prescribing
module is a medication management solution complete with physician medication
order entry and nursing medication administration. This module has
been installed in approximately 20 U.K. customer sites as of December
31, 2009, and allows hospitals to improve patient safety relevant to medication
management. The Company’s Pharmacy Management system product handles
medication tracking from ordering and delivery to dispensing. The
installed base includes approximately 50% of the trusts within the
NHS.
The NHS
in England initiated a national program to purchase healthcare information
technology in 2004. The program is identified as the
“Connecting for Health” program (the “National Program”). The NHS has
entered into contracts to license software and services, but the National
Program has experienced delays. JAC has been able to work with the
integrated service providers and the government to position itself favorably as
a provider of software. In July 2008, JAC was appointed to the ASCC
(Additional Supply Capability and Capacity) framework contract in both the
e-prescribing and pharmacy (stock control) categories. Appointment to
the ASCC framework provides healthcare organizations with a contracting vehicle
to work directly with JAC to procure specialist e-prescribing and/or pharmacy
stock control services as an alternative to the National Program. The
JAC products are marketed directly through JAC’s sales force and other marketing
channels, including reseller agreements in South Africa. JAC
recently entered into a multi-year contract in South Africa under which JAC will
license its software to as many as 40 public sector hospitals for the Provincial
Government of the Western Cape.
In the
United States, the Company’s medication management products compete against the
products of other niche competitors’ such as Definitive Homecare Solutions and
Fastrack Healthcare Systems and some of the largest providers of healthcare
information technology, including Cerner, General Electric, Siemens, Eclipsys
and others. These competitors often have significantly greater
resources than Mediware, but the Company believes that its products are well
positioned and have functionality that can lead to growth in this competitive
environment. The medication management products are marketed directly
through the Company’s sales force and other marketing channels, including
reseller agreements with distribution partners and focused sales
channels.
Performance
Management Products
On June
18, 2009 the Company completed the acquisition of the assets of SciHealth, Inc.
Through this acquisition Mediware added the Insight™ software system to its
portfolio of products. The Insight system is a business and clinical
intelligence software package used in more than 100 hospitals at December 31,
2009. The software tracks performance metrics to assist healthcare
managers to actively manage performance and improve the overall efficiency of
their organizations. The Insight system collects data from the
disparate information systems across a hospital to create understandable
graphical dashboards. The Insight system is designed to assist users
to improve performance, better manage their financial and business
obligations; and demonstrate and manage compliance with expanding regulatory
mandates and requirements.
The Insight system complements Mediware’s
medication and blood and biologics product offerings, and we expect
to market Insight to current customers to help them manage their medication and
blood requirements, We also believe that Insight may help differentiate our
products from other blood management and medication management
systems. For instance, the Company is currently developing integrated
dashboard products for our existing applications which can be sold to our
current customer base. We believe these dashboards will provide a
solid growth platform in the coming years.
The
Insight system can also be marketed and sold on an enterprise-wide, stand-alone
basis, which we expect will help us to gain a footprint and customer base
outside of our historical blood and medication markets.
We expect
that selling the Insight system coupled with our other products will have the
same challenges as our other product offering sales, but we have the opportunity
to take advantage of our experienced sales team and resources who have been
selling and marketing products in the blood and medication management markets
for years. Selling the Insight software on an enterprise-wide
basis is a complex process that requires commitments from the highest level
executives within hospital organizations and, therefore, result in longer sales
cycles.
The
Company expects revenue from Insight software sales, professional services and
post-contract support. Support contracts accounted for a large
majority of the SciHealth’s revenue prior to our acquisition. If the
sale of products increase, the Company expects that license fee revenue will
increase and support revenue will make up a smaller portion of the Company’s
revenue.
The
Company’s Insight products will work in conjunction with Mediware’s other
products and compete against all of the same competitors as our medication
management and blood and biologics products. On enterprise sales, the
Company expects to compete against products of other small niche vendors, as
well as some of the largest providers of healthcare information technology,
including Cerner, McKesson, General Electric, Siemens, Eclipsys and others who
we expect will begin to provide performance management
solutions. These competitors often have significantly greater
resources than Mediware, but the Company believes that its products are well
positioned and have functionality that can lead to growth in this competitive
environment.
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 condensed
consolidated financial statements and related notes to financial statements.
Actual results could differ from those estimates. The Company’s
significant areas of estimation include determining the allowance for
uncollectible accounts, valuing certain accrued liabilities and determining
whether the carrying value of goodwill and capitalized software development
costs and other intangible assets is impaired.
Results
of Operations for the Three Months Ended December 31, 2009 as Compared to the
Three Months Ended December 31, 2008
Total
revenue for the second quarter of fiscal 2010 was $10,816,000 compared to
$10,015,000 in the second quarter of fiscal 2009, an increase of $801,000, or
8%. The increase in revenue is primarily due to revenue associated
with the recently acquired businesses, namely HOS, which was included for only a
portion of the second quarter of fiscal 2009, SciHealth which was not included
in our results for the same quarter of fiscal 2009, and HAI and ARI which were
included for only a portion of the second quarter of fiscal 2010 and not
included in our results for the same quarter of fiscal 2009. Blood
management products and services recorded total revenue of $5,097,000 in the
second quarter of fiscal 2010, representing a decrease of $85,000, or 2%,
compared to $5,182,000 in the same quarter of fiscal 2009. The
decrease is a result primarily of lower service revenue. Medication
management products and services (excluding JAC) recorded an increase in total
revenue of $233,000, or 7%, from $3,325,000 in the second quarter of fiscal 2009
to $3,558,000 in the same quarter of fiscal 2010. The increase is largely a
result of the incremental revenue associated with the recently acquired
businesses of HOS and HAI. JAC recorded total revenues of $1,275,000 in the
second quarter of fiscal 2010, representing a decrease of $16,000, or 1%,
compared to $1,291,000 in the same quarter of fiscal 2009. Performance
management products and services, all of which come from the acquired SciHealth
business, recorded total revenues of $461,000 in the second quarter of fiscal
2010. Advantage Reimbursement, LLC (“ARL”), which operates the recently acquired
ARI business, contributed $216,000 in total revenue for the second quarter of
fiscal 2010.
System
sales revenue, which includes proprietary software, third party software,
hardware revenue and subscription revenue, amounted to $2,412,000 for the
quarter ended December 31, 2009, an increase of $389,000 or 19% compared to
$2,023,000 of system sales reported in the second quarter of fiscal
2009. System revenue for the blood management products was
$1,253,000 for the second quarter of fiscal 2010, an increase of $262,000, or
26%, compared to $991,000 in the same quarter of fiscal 2009. This
increase is primarily due to increased subscription revenue associated with BCT
sales and an increase in BloodSafe system sales. The Company expects
that new HCLL system sales will continue to be slower in fiscal 2010 than in
years past because the blood transfusion software market is a mature,
replacement market. However, the Company believes its LifeTrak
product will provide a positive impact on system sales in fiscal
2010. System sales for the medication management products (excluding
JAC) increased from $541,000 in fiscal 2009 to $681,000 in fiscal 2010,
representing an increase of $140,000, or 26%. This increase resulted
primarily from the sale of the WORx Suite software to a large, new customer in
the second quarter of fiscal 2010, compared to the second quarter of fiscal 2009
and the additional revenues related to the acquired HOS and HAI businesses for
the second quarter of fiscal 2010. JAC recorded system sales of
$307,000 for the second quarter of fiscal 2010, representing a decrease of
$184,000, or 37%, compared to $491,000 reported for the same quarter in fiscal
2009. The Company believes that JAC is positioned to return to growth
in revenue in the coming quarters. System revenue for performance
management was $171,000 for the second quarter of fiscal 2010, which the Company
expects to increase in the coming quarters.
Service
revenue, which includes recurring post contract support revenues, implementation
services and promotional services and services performed by ARL, increased
$412,000, or 5%, to $8,404,000 in the second quarter of fiscal 2010 compared to
$7,992,000 for the same quarter in fiscal 2009. Service revenue
for the blood management products totaled $3,844,000 for the second quarter of
fiscal 2010, representing a decrease of $347,000 or 8%, compared to $4,191,000
in the second quarter of fiscal 2009. The decrease primarily reflects
the anticipated decrease in implementation activity related to fewer
implementations of HCLL software systems. Service revenue for the
medication management products (excluding JAC) increased $93,000, or 3%, to
$2,877,000 in the second quarter of fiscal 2010 compared to $2,784,000 for the
same quarter of fiscal 2009. This increase is the result of service
revenue from the recently acquired HOS and HAI businesses offset somewhat by a
decrease in upgrade services for existing WORx that upgraded their WORx software
systems to a new version of the software during fiscal 2009. We
expect WORx upgrade service revenue to decline for the remainder of the year as
a result of the completion of the focused WORx upgrade program that
we initiated during fiscal 2009. Service revenue for JAC increased
$168,000, or 21%, to $968,000 in the second quarter of fiscal 2010 compared to
$800,000 in the second quarter of fiscal 2009. This increase is
primarily the result of an increase in foreign currency exchange rates and an
increase in the number of ongoing implementation projects compared to the same
quarter in fiscal 2009. Service revenue for performance management
products amounted to $290,000 for the second quarter of fiscal
2010. Service revenue from the ARL business was $216,000 for the
second quarter of fiscal 2010.
Cost of
systems includes the cost of computer hardware and sublicensed software
purchased from computer and software manufacturers by Mediware as part of its
complete system offering. These costs can vary as the mix of revenue
varies between high margin proprietary software and lower margin computer
hardware and sublicensed software components. Cost of systems
decreased $39,000, or 4%, to $928,000 in the second quarter of fiscal 2010 as
compared to $967,000 in the same quarter in fiscal 2009. The gross
margin, excluding amortization of capitalized software costs, on system sales
was 61% in the second quarter of fiscal 2010 compared to 52% in the same quarter
in fiscal 2009. The increase in gross margin is primarily due to the
relative decrease in the amount of third party software sold and the relative
increase of high margin proprietary systems sold during the second quarter of
fiscal 2010 compared to the same quarter of fiscal 2009.
Cost of
services includes the salaries and direct expenses of client service personnel
and the direct costs associated with providing promotional
services. Cost of services increased $50,000, or 2%, to $2,701,000 in
the second quarter of fiscal 2010 as compared to $2,651,000 in the same quarter
of fiscal 2009. The increase in cost of services is primarily
attributed to growth in the number of service personnel related to the
integration of acquired businesses. Also contributing to the increase
were the promotional activities associated with the BCT
services. Gross margin on service revenue was 68% for the second
quarter of fiscal 2010 compared to 67% for the second quarter of fiscal
2009. Mediware anticipates that gross margins will remain consistent
with the current levels for the remainder of fiscal 2010.
Amortization
of capitalized software decreased $208,000 or 14%, to $1,309,000 in the second
quarter of fiscal 2010 compared to $1,517,000 in the second quarter of fiscal
2009. This decrease is due to decreased amortization of capitalized
software costs related to fully amortized product releases. We
anticipate that amortization costs will continue to decline in fiscal 2010;
provided Mediware’s capitalization rates of software development expenditures
continue at substantially the same rate. At our current level of
investment in product development activities we expect amortization of
capitalized software to decline by a total of approximately $800,000 during all
of fiscal 2010.
Selling,
general and administrative (“SG&A”) expenses include marketing and sales
salaries, commissions, travel and advertising expenses. Also
included are bad debt expense; legal, accounting and professional
fees; salaries and bonus expenses; utilities, rent, communications and other
office expenses; stock-based compensation expenses and other related direct
administrative expenses. SG&A expenses increased $416,000, or
11%, from $3,655,000 in the second quarter of fiscal 2009 to $4,071,000 in the
second quarter of fiscal 2010. This increase is primarily due to
incremental costs associated with the recent acquired business of HOS,
SciHealth, HAI and ARI. Going forward we expect SG&A expenses to be higher
than current levels due to the inclusion of full quarter expenses for HAI and
ARI.
Income
tax expense decreased from an expense of $143,000 in the second quarter of
fiscal 2009 to an expense of $30,000 in the same quarter of fiscal
2010. This decrease occurred despite higher income before taxes as a
result of recognizing research and development tax credits related to Mediware’s
software development activities.
Net
income for the second quarter of fiscal 2010 was $783,000, compared to $303,000
during the second quarter of fiscal 2009, resulting in an increase of
$480,000. The improvement resulted primarily from an increase in
support revenue, and system revenue and a decrease in capitalized software
amortization, and the recognition of research and development tax credits
partially offset by an increase in software development costs and
SG&A.
Results
of Operations for the Six Months Ended December 31, 2009 as Compared to the Six
Months Ended December 31, 2008
Total
revenue for the six-month period ended December 31, 2009 was $21,560,000
compared to $19,848,000 in the comparable period of fiscal 2009, an increase of
$1,712,000 or 8.6%. The increase in revenue is largely due to service
revenues associated with the recently acquired businesses, namely HOS which was
included for only a portion of six-month period ended December 31, 2008,
SciHealth which was not included in our results for the same period of fiscal
2009, and HAI and ARI which were included for only a portion of the six-month
period ended December 31, 2009 and not included in our results for the same
period of fiscal 2009, partially offset by a decrease in blood management system
sales and service revenue. Blood management products and services
recorded total revenue of $9,920,000 during the six-month period of fiscal 2010,
representing a decrease of $298,000 or 3% compared to $10,218,000 in the same
period of fiscal 2009. The decrease is a result primarily of lower
service revenue. Medication management products and services
(excluding JAC) recorded an increase in total revenue of $798,000 or 12% from
$6,455,000 in the first six months of fiscal 2009 to $7,253,000 in the same
period of fiscal 2010. The increase is largely a result of the
incremental revenue associated with the recently acquired businesses of HOS and
HAI. JAC recorded total revenues of $2,897,000 during the six- month
period ended December 31, 2009, representing an increase of $138,000 or 5%,
compared to $2,759,000 in the same period of fiscal 2009. Performance
management products and services recorded total revenues of $804,000 in the
six-month period ended December 31, 2009. ARL contributed $216,000 in total
revenue for the six-month period ended December 31, 2009.
System
sales revenue amounted to $5,214,000 for the six months ended December 31, 2009,
an increase of $762,000 or 17%, from $4,452,000 in the same period in fiscal
2009. System revenue for the blood management products were
$2,226,000 for the first six months of fiscal 2010, a decrease of $65,000 or 3%,
compared to $2,331,000 in the same period of fiscal 2009. The
decrease is primarily the result of fewer HCLL system sales partially offset by
BCT subscription sales revenue. System sales for the medication
management products (excluding JAC) increased from $1,088,000 in the first six
months of fiscal 2009 to $1,675,000 in the same period of fiscal 2010,
representing an increase of $587,000, or 54%. This increase resulted from the
sale of the WORx Suite software to a large, new customer in the second quarter
of fiscal 2010 and the additional revenues related to the acquired HOS and HAI
businesses for the six months ended December 31, 2009. JAC recorded
system sales of $991,000 for the first six-month period of fiscal 2010,
representing a decrease of $42,00, or 4%, compared to $1,033,000 reported for
the same period in fiscal 2009. System revenue for performance
management was $227,000 for the six months
ended December 31, 2009, which the Company expects to increase in the coming
quarters.
Service
revenue increased $950,000, or 6%, to $16,346,000 in the first six months of
fiscal 2010 compared to $15,396,000 for the same period in fiscal
2009. Service revenue for the blood management products totaled
$7,654,000 for the first six-month period of fiscal 2010 representing a decrease
of $233,000, or 3%, compared to $7,887,000 in the same period of fiscal 2009
primarily reflecting an anticipated decrease in implementation activity for the
HCLL software systems. Service revenue for the medication management
products (excluding JAC) increased $211,000 or 4% to $5,578,000 in the first six
months of fiscal 2010 compared to $5,367,000 for the same period of fiscal
2009. This increase is a result of the service revenue from the
recently acquired HOS and HAI businesses offset somewhat by fewer system
implementations of WORx upgrades. Service revenue for JAC increased
$180,000, or 10%, to $1,906,000 in the six-month period of fiscal 20010 compared
to $1,726,000 in the same period of fiscal 2009. This increase is
primarily the result of an increase in support revenues denominated in U.S.
dollars resulting from higher foreign currency exchange rates for the British
pound. Service revenue for performance management products
amounted to $577,000 for the six-months ended December 31,
2009. Service revenue from ARL was $216,000 for the six-months ended
December 31, 2009.
Cost of
systems can vary as the mix of revenue varies between high margin proprietary
software and lower margin computer hardware and sublicensed software
components. Cost of systems remained relatively flat increasing from
$1,707,000 during the first six months of fiscal 2009 to $1,708,000 in the same
period in fiscal 2010. The gross margin, excluding amortization of
capitalized software costs, on system sales was 62% in the six-month period of
fiscal 2009 compared to 67% in the same period in fiscal
2010. The increase in gross margin is primarily due to an
improvement in the mix of higher margin proprietary system sales relative to
lower margin third party sales during the first six months of fiscal 2010
compared to the same period in fiscal 2009.
Cost of
services decreased $34,000, or 1%, to $5,274,000 during the first six months of
fiscal 2010 as compared to $5,308,000 in the same period of fiscal
2009. Gross margin on service revenue increased to 68% for the six
months of fiscal 2010 compared to 66% for the same period of fiscal
2009.
Amortization
of capitalized software decreased $251,000, or 8%, to $2,752,000 in the first
six months of fiscal 2010 compared to $3,003,000 in the same period of fiscal
2009. This decrease is due to decreased amortization of capitalized
software costs related to fully amortized product releases.
Software
development costs increased $370,000, or 21%, to $2,128,000 in fiscal 2010
compared to $1,758,000 in the same period of fiscal 2009. Expenditures for
software development include amounts paid for both capitalizable and
noncapitalizable development projects. This increase reflects a
lower capitalization rate for product development activities in the first six
months of fiscal 2010 compared to the same period of fiscal
2009. Total expenditures for software development were $3,968,000 in
the first six-month period of fiscal 2010 compared to $3,700,000 in the same
period of fiscal 2009, an increase of $268,000, or 7%. This increase
is primarily a result of slightly higher investment in the blood management
products during the period, development activities at JAC and the impact of the
recently acquired businesses of SciHealth and HOS. We expect to
maintain our current investment in product development in its blood management
and medication management products in the near term.
SG&A
expenses increased $445,000, or 6%, from $7,517,000 in the first six months of
fiscal 2009 to $7,962,000 in the same period of fiscal 2010. This
increase is primarily due to incremental costs associated with the recently
acquired businesses of HOS, SciHealth, HAI and ARI.
Income
tax expense increased $138,000, or 48%, from $285,000 during the first six
months of fiscal 2009 to $423,000 in the same period of fiscal
2010. Income taxes increased as a result of an increase in income
before taxes, partially offset by recognition of research and development tax
credits of $290,000.
Net
income during the first six months of fiscal 2010 was $1,402,000, compared to
net income of $521,000 during the same period of fiscal 2008, resulting in an
increase of net income of $881,000, or 169%. The improvement resulted
primarily from an increase in support revenue and system sales revenue and a
decrease in capitalized software amortization and from the recognition of
research and development tax credits, partially offset by an increase in
software development costs and SG&A.
Liquidity
and Capital Resources
As of
December 31, 2009, Mediware had cash and cash equivalents of $17,713,000
compared to $20,865,000 at June 30, 2009. Working capital was
$16,671,000 and $18,273,000 at December 31, 2009 and June 30, 2009,
respectively. The current ratio was 2.2 to 1 at December 31, 2009
compared to 2.4 to 1 at June 30, 2009. The Company does not have any
material capital lease obligations, purchase obligations or long-term
liabilities.
Cash
provided by operating activities was $4,242,000 during the first six months of
fiscal year 2010 compared to $2,692,000 during the same period of fiscal
2009. The increase in cash provided by operating activities is
primarily due to an increase in net income and an increase in customer advances,
partially offset by an increase in accounts receivable.
Cash used
in investing activities was $7,891,000 during the first six months
of fiscal 2010 compared to $6,045,000 during the same period a year
ago. The increase in cash used in investing activities is primarily
attributable to increased acquisition of businesses. During the first
six months of fiscal 2010, Mediware paid an initial purchase price of $3,506,000
for the assets of HAI and $2,061,000 for the purchase of
ARI. Additionally, another $400,000 was paid for the SciHealth
acquisition. In the fiscal 2009 period, the Company paid $3,483,000
as the initial purchase price for the HOS business.
Cash
provided from financing activities was $610,000 during the first six months of
fiscal 2010 compared to cash used in financing activities of $127,000 during the
same period of fiscal 2009. The cash provided from financing
activities in the first six months of fiscal 2010 was primarily from stock
option exercises and related tax benefits. The cash used for
financing activities in the 2009 period is attributable to stock repurchases
under our Share Repurchase Program. There were no stock repurchases
during the fiscal 2010 period.
We
currently use cash flow from operations to fund our capital expenditures and to
support our working capital requirements. We expect that future cash
requirements will principally be for capital expenditures, working capital
requirements, contingent consideration payable for the acquisition of
businesses, any additional stock repurchases and other strategic
initiatives.
Our
liquidity is influenced by our ability to execute on our strategies in a
competitive industry. Factors that may affect liquidity include our
ability to penetrate the market for our products, maintain or reduce the length
of the selling cycle, and collect cash from clients as systems are licensed or
implemented And services completed.
ITEM
3.
|
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET
RISK
|
Mediware is subject to market risks from interest
rates due to the fluctuating rates paid on its cash equivalent balances and
foreign currency fluctuations due to the operations of JAC. Mediware has
observed increased volatility in market rates over the last 12
months. To date, Mediware has not entered into any derivative
financial instruments or engaged in other hedging transactions to reduce its
exposure to such risks.
Interest Rate
Risk
Mediware is exposed to the impact of interest rate
changes because of its substantial cash equivalent balances. These
balances are not held for trading purposes.
Balance at December 31, 2009
|
Effective Interest Rate at December
31,
|
Effect of 1% Change
|
||||||||||
($ in 000)
|
2009
|
($ in 000)
|
||||||||||
Cash Equivalents
|
$ | 17,713 | .2 | % | $ | 177 |
At
December 31, 2009, a 1% decrease in the current per annum interest rate for our
cash equivalents each would result in $177,000 less interest income during the
next fiscal year. The foregoing calculation assumes an instantaneous
one percentage point decrease in the rates of all of our cash equivalents and
that the equivalents balance is the amount outstanding as of December 31,
2009. The calculation, therefore, does not account for any
differences in the market rates upon which the interest rates of our equivalents
is based, or other possible actions, such as reinvestment in higher yielding
instruments, that we might take in response to any rate decrease.
Concentrations
of Credit Risk
Mediware
maintains its cash and cash equivalents with financial institutions with high
credit ratings. At this time, the Company maintains deposits in
federally insured financial institutions in excess of federally insured (FDIC)
limits. However, management believes that the Company is not exposed
to significant credit risk. The Company has not experienced any
losses to its cash and cash equivalents.
Foreign Currency
Exchange Rate Risk
Operating in international markets involves
exposure to the possibility of volatile movements in foreign exchange rates. The
currencies in each of the countries in which JAC operates affect:
|
•
|
the results of Mediware’s international operations reported in United
States dollars; and
|
|
•
|
the value of the net assets of JAC reported in United States
dollars.
|
These exposures may impact future earnings or cash
flows. Revenue from JAC represented approximately 12% and 13% of Mediware’s
consolidated revenue for the three-months ended December 31, 2009 and 2008,
respectively, and 13% and 14% for the six-months ended December 31, 2009 and
2008, respectively. The economic impact of foreign exchange rate movements is
complex because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors. These
changes, if material, could cause Mediware to adjust its financing and operating
strategies. Therefore, to isolate the effect of changes in currency does not
accurately portray the effect of these other important economic factors. As
foreign exchange rates change, translation of the income statements of JAC into
U.S. dollars affects year-over-year comparability of operating
results. Any foreign currency impact on translating assets and
liabilities into dollars is included as a component of stockholders’
equity. Our net income for the three and six-months ended December
31, 2009 was negatively impacted by a $2,000 and $4,000 foreign currency
movement, respectively, and was negatively impacted by a $31,000 and $67,000
foreign currency movement, respectively, for the three-months and six-months
ended December 31, 2008. These foreign currency adjustments are
primarily due to the currency valuation of the British pound against the United
States dollar.
ITEM
4.
|
CONTROLS AND
PROCEDURES
|
Mediware’s
management, under the supervision and with the participation of Mediware’s Chief
Executive Officer and principal financial and accounting officer, has reviewed
and evaluated the effectiveness of Mediware’s disclosure controls and procedures
as of the end of the quarter covered by this report. Disclosure
controls and procedures are defined in the Securities Exchange Act as controls
and other procedures of Mediware designed to ensure that information required to
be disclosed by Mediware in the reports that it files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and include controls and
procedures designed to ensure that information required to be disclosed by
Mediware in the reports that it files or submits to the SEC is accumulated and
communicated to Mediware’s management, including the CEO and principal financial
and accounting officer, to allow timely decisions regarding required
disclosure. Based on the foregoing review and evaluation, Mediware’s
CEO and principal financial and accounting officer have concluded that
Mediware’s disclosure controls and procedures are effective as of December 31,
2009.
There were no material changes in Mediware’s
internal controls over financial reporting that occurred during the six months
ended December 31, 2009 that have materially affected, or are reasonably likely
to materially affect, its internal controls over financial
reporting. Notwithstanding the foregoing, Mediware reported the
departure of Mr. Mark Williams, the Company’s former Chief Financial Officer,
effective as of November 4, 2009. Mr. Robert Watkins, the Company’s
controller, has acted as the Company’s principal financial and accounting
officer and is expected to continue to act in such capacity until February 10,
2010. Inherent with any change in management is a change in
understanding of the control environment and the internal controls. Mediware
believes that a control system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the control system are met and
no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within any company have been detected.
PART II OTHER
INFORMATION
ITEM
1.
|
LEGAL
PROCEEDINGS
|
In
September 2002, Global Med Technologies, Inc. ("Global Med") filed a complaint
against former Mediware employee Donnie L. Jackson, Jr. claiming that he
misappropriated trade secrets and breached certain contractual obligations and
covenants to Global Med. Mediware was potentially responsible under
an agreement with Mr. Jackson for any damages and certain fees and costs awarded
to Global Med in the case. In October 2009, the parties and Mediware
entered into a settlement agreement and mutual releases of claims against each
other. No amounts were paid in connection with the
settlement.
Mediware
from time to time becomes involved in routine litigation incidental to the
conduct of its business, including employment disputes and litigation alleging
product defects, intellectual property infringements, violations of law and
breaches of contract and warranties. Mediware believes that such
routine litigation, if adversely determined, would not have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.
Item 1A. RISK
FACTORS
You should carefully consider the risk factors
disclosed in our Annual Report on Form 10-K for the year ended June 30, 2009 and
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 included
under Item 1A “Risk Factors” in addition to the other information set forth in
this report (including the risk factors identified below). The risks described
in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q are not
the only risks facing our Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating
results.
We
have recently consummated several strategic acquisitions and may pursue
additional strategic acquisitions, investments, and relationships in the future,
and we may not be able to successfully manage our operations if we fail to
successfully integrate acquired businesses and technologies, which could
adversely affect our operating results.
As part
of our business strategy, we may seek and complete strategic business
acquisitions that that are complementary to our business. On December 11, 2009,
we acquired HAI a company that provides medication management solutions to the
small hospital, specialty pharmacy and home infusion markets, and substantially
all of the assets of ARI, a company that provides collection and reimbursement
services to home infusion companies and other alternate care enterprises.
Acquisitions, such as our acquisition of the business of HAI and ARI, have
inherent risks which may have a material adverse effect on our business,
financial condition, operating results or prospects, including, but not limited
to, the following:
|
·
|
failure to successfully integrate
the business and financial operations, services, intellectual property,
solutions or personnel of the acquired
business
|
|
·
|
diversion of management’s
attention from other business
concerns
|
|
·
|
failure to achieve projected
synergies and performance
targets
|
|
·
|
loss of customers or key
personnel of the acquired
business
|
|
·
|
possibility that the due
diligence process in any such acquisition may not completely identify
material issues associated with product quality, product architecture,
product development, intellectual property issues, key personnel issues or
legal and financial contingencies,
and
|
|
·
|
a
possible write-off of software development costs and amortization of
expenses related to intangible
assets.
|
The
acquisition of the assets and business of ARI poses additional risks because ARI
is not a software business and is therefore dissimilar from Mediware’s other
products and services. If we fail to successfully integrate HAI or
other acquired businesses or fail to implement our business strategies with
respect to these acquisitions, we may not be able to achieve projected results
or support the amount of consideration paid for such acquired
businesses.
ITEM
4.
|
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
|
|
(a)
|
We
held our annual stockholders’ meeting on December 3,
2009.
|
|
(b)
|
At
our annual shareholders’ meeting we voted on a proposal to elect Dr. John
Gorman and the Honorable Richard Greco---for three-year terms as Class II
directors;
|
|
(c)
|
We
voted on two proposals at the annual shareholders’ meeting: the election
of directors and the ratification of Eisner LLP, as independent registered
public accounting firm for the Company for the year ending June 30,
2009.
|
(1)
Election of Directors
|
||||||||
For
|
Withhold
|
|||||||
John
Gorman
|
5,631,259 | 61,454 | ||||||
Richard
Greco
|
5,335,127 | 357,586 | ||||||
(2)
Proposal to ratify selection of Eisner LLP as independent registered
public accounting firm for the Company for the year ending June 30,
2010.
|
||||||||||||
For
|
Against
|
Abstain
|
||||||||||
Eisner
LLP
|
5,482,195 | 22,693 | 36,531 |
ITEM 6.
EXHIBITS
Schedule
of Computation of Net Earnings Per Share
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
Rule
13a-14(a)/15d-14(a) Certification
|
|
Rule
13a-14(a)/15d-14(a) Certification
|
|
Certification
Pursuant to 18 U.S.C. 1350
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
MEDIWARE INFORMATION SYSTEMS,
INC.
|
||
(Registrant)
|
||
February 9,
2010
|
/s/ T. KELLY MANN
|
|
Date
|
T. KELLY MANN | |
PRESIDENT AND CHIEF EXECUTIVE OFFICER | ||
February 9,
2010
|
/s/ ROBERT W. WATKINS
|
|
Date
|
ROBERT W. WATKINS | |
CONTROLLER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER |
40