Note 4 - Acquisitions

12 Months Ended

Jun. 30, 2012

Business Combination Disclosure [Text Block]

4. ACQUISITIONS

Cyto Management System

On April 18, 2012, the Company acquired the assets of Cyto Management System (“CMS”) from Cobbler ICT Services BV for $2,191,000 paid in cash.  The CMS software, which is currently deployed in Holland and Belgium, provides healthcare organizations a chemotherapy management solution to track patients, manage highly individualized medication-based treatment plans and help control costs and report outcomes associated with cancer therapies.  The software utilizes a multilingual language platform that facilitates configuration for new international markets.

The Company incurred insignificant legal, accounting and other professional fees related to this transaction, which were expensed.  The results of the CMS operations are included in the accompanying financial statements from the date of acquisition.  CMS revenue and earnings during the period from April 18, 2012 to June 30, 2012 were not significant.

The Company has accounted for the CMS transaction as a business acquisition under applicable accounting guidance.  The assets acquired and liabilities assumed of CMS were recorded as of the acquisition date, at their respective fair values.  The preparation of these estimated fair values required the use of significant assumptions and estimates.  These estimates were based on assumptions that the Company believes to be consistent with the assumptions that would be considered by market participants.

The following summarizes the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Purchase Price Allocation
Intangible assets subject to amortization	$	2,184
Goodwill		7
Total purchase price	$	2,191

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
Tradename	$	13	2.0	years			22.6%
Purchased technology		1,721	5.0	years		24.0%	–	22.6%
Customer backlog		68	4	months			22.6%
Customer relationships		369	9.0	years		23.0%	–	25.0%
Non-compete agreements		13	6	months			23.0%
	$	2,184
Goodwill	$	7

The Company valued the purchased technology using the cost savings method of the cost approach.  The approach considers the current estimated cost of reproducing or replacing an asset new, less accrued depreciation from functional obsolescence and economic obsolescence.  Utilizing this approach, the Company estimated the fully burdened hourly rates for the developers who might be involved in the replacement of the current software.  This amount was multiplied by the estimated number of hours to reprogram the software.  Based on this methodology the Company assigned the value of purchased technology at $1,721,000.  The Company will amortize this amount over the estimated useful life of five years.

The Company valued the customer relationship 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.

Goodwill is expected to be deductible for tax purposes.

Proforma information for the acquisition of Cyto Management System has not been presented as the acquisition is not significant.

Transtem, LLC

On January 3, 2012, Mediware acquired substantially all of the assets, excluding certain contracts, of St. Louis-based Transtem, LLC (“Transtem”), a provider of software that manages the collection and transplantation of adult stem cells in cellular-based therapies and medical research in a growing field that includes cancer treatment and regenerative medicine. The acquisition expands Mediware’s blood and biologics management software product and service offerings.

The purchase price paid for Transtem consisted of an initial purchase price of $667,000 paid in cash.  The Company incurred insignificant legal, accounting and other professional fees related to this transaction, which were expensed.  The results of the Transtem operations are included in the accompanying financial statements from the date of acquisition.  Transtem revenue and earnings during the period from January 3, 2012 to June 30, 2012 were not significant.

The Company has accounted for the Transtem transaction as a business acquisition under applicable accounting guidance.  The assets acquired and liabilities assumed of Transtem were recorded as of the acquisition date, at their respective fair values.  The preparation of these estimated fair values required the use of significant assumptions and estimates.  These estimates were based on assumptions that the Company believes to be consistent with the assumptions that would be considered by market participants.

The following summarizes the assets acquired and liabilities assumed at the acquisition date, net of cash acquired (in thousands):

	Purchase Price Allocation
Intangible assets subject to amortization	$	813
Accounts receivable		62
Goodwill		5
Accrued expenses		(213	)
Total purchase price	$	667

	Amount Assigned		Weighted Average Amortization Period (years)	Risk-Adjusted Discount Rate Used in Purchase Price Allocation
Amortizable Intangible Assets
Purchased technology	$	813	5.0		24.0%	–	22.6%
Goodwill	$	5

The Company valued the purchased technology using the cost savings method of the cost approach. The approach considers the current estimated cost of reproducing or replacing an asset new, less accrued depreciation from functional obsolescence and economic obsolescence. Utilizing this approach, the Company estimated the fully burdened hourly rates for the developers who might be involved in the replacement of the current software. This amount was multiplied by the estimated number of hours to reprogram the software. Based on this methodology the Company assigned the value of purchased technology at $813,000. The Company will amortize this amount over the estimated useful life of five years.

Goodwill is expected to be deductible for tax purposes.

Pro forma information for the acquisition of Transtem has not been presented as the acquisition is not significant.

CareCentric, Inc.

On April 11, 2011, Mediware acquired certain assets of the home medical equipment, home health, home infusion, and billing and collections business of CareCentric National LLC (“CareCentric”).

The acquisition expanded Mediware’s position in the Alternate Care Solutions (“ACS”) market.  The CareCentric business has been integrated with Mediware’s existing ACS business line.

The purchase price paid for CareCentric consisted of an initial purchase price of $3,000,000, of which $2,084,000 was paid in cash. The Company has recorded total working capital adjustments of $1,067,000 and received $151,000 from the seller as part of the final working capital adjustment. The Company incurred $27,000 of legal, accounting and other professional fees related to this transaction, which were expensed. The results of the CareCentric operations are included in the accompanying financial statements from the date of acquisition.

The Company has accounted for the CareCentric transaction as a business acquisition under the accounting guidance.  The assets acquired and liabilities assumed of CareCentric 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 consistent with the assumptions that would be considered by market participants.

The following summarizes the assets acquired and liabilities assumed at the acquisition date, net of cash acquired (in thousands):

	Purchase Price Allocation
Intangible assets subject to amortization	$	2,707
Goodwill		371
Accounts receivable		1,041
Prepaid expenses and inventory		82
Accounts payable		(120	)
Deferred revenue		(2,148	)
Total purchase price	$	1,933

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	$	1,302	5.0	years		35.0%
Customer relationships		997	5.0	years		35.0%
Customer relationships		371	6.0	years		22.5%
Customer Backlog		26	1	month		22.5%
Tradename		11	4.0	years		35.0%
	$	2,707
Goodwill	$	371

The Company valued the purchased technology using the cost savings method of the cost approach.  The approach considers the estimated cost of reproducing or replacing an asset new, less accrued depreciation from functional obsolescence and economic obsolescence.  Utilizing this approach, the Company estimated the fully burdened hourly rates for the developers who might be involved in the replacement of the current software.  This amount was multiplied by the estimated number of hours to reprogram the software. Based on this methodology the Company assigned the value of purchased technology at $1,302,000.  The Company will amortize this amount over the estimated useful life of five years.

The Company valued the customer relationships, contracted backlog and tradename 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 customer relationships at $1,368,000, contracted backlog at $26,000 and tradename at $11,000.  The Company will amortize customer relationships over the estimated useful lives of five and six years, contracted backlog over the estimated useful life of one month, and tradename over the estimated useful life of four years.

Goodwill is expected to be deductible for tax purposes.

Proforma information for the acquisition of CareCentric has not been presented as the acquisition is not significant.

Healthcare Automation, Inc.

On December 11, 2009, Mediware acquired all of the common stock of Healthcare Automation, Inc., a Delaware corporation (“HAI”).  HAI provides 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.

The acquisition expanded Mediware’s medication management offering by expanding its presence in the home infusion, specialty pharmacy and alternate care markets.  The Company continues 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 lines are offered to home infusion, specialty pharmacy and alternate care markets.

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 consisted of an initial purchase price of $3,501,000 in cash, net of $5,000 cash acquired at the closing, plus contingent consideration of $954,000 released from escrow to the sellers of HAI on September 30, 2011.  The Company received $22,000 from the seller as part of the final working capital adjustment.  The Company estimated the fair value of the contingent consideration at the acquisition date to be $871,000 using a probability-weighted discounted cash flow model.  This fair value was 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 were expensed.  The results of the HAI operations are included in the accompanying financial statements from the date of acquisition.

The Company has accounted for the HAI transaction as a business acquisition under the accounting guidance.  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 consistent with the assumptions that would be considered by market participants.

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		1,860
Accounts payable		(57	)
Deferred revenue		(240	)
Accrued expenses and other current liabilities		(226	)
Other long term liabilities – contingent consideration		(871	)
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	$	1,860

The Company valued the purchased technology using the cost savings method of the cost approach.  The approach considers the estimated cost of reproducing or replacing an asset new, less accrued depreciation from functional obsolescence and economic obsolescence.  Utilizing this approach, the Company estimated the fully burdened hourly rates for the developers who might be involved in the replacement of the current software.  This amount was multiplied by the estimated number of hours to reprogram the software.  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 customer relationships over the estimated useful life of six years and the contracted backlog over the estimated useful life of thirteen months.

The Company has made an election under the Internal Revenue code section 338(h)(10).  Accordingly, goodwill is expected to be deductible for tax purposes.

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 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 provider of billing and collection services for home infusion and alternate care enterprises.

The acquisition of ARI expanded the scope of services that Mediware can provide to its current and potential home infusion, specialty pharmacy and alternate care customers.  The ARI services generate revenue by providing collection and billing 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 fees 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 of $546,000 released from escrow to the sellers of ARI’s assets on September 30, 2011.  In addition, the Company paid $14,000 to the sellers as part of the final working capital adjustment.  The Company estimated the fair value of the contingent consideration at the acquisition date to be $498,000 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 were expensed.  The results of the ARI operations are included in the accompanying financial statements from the date of acquisition.

The Company has accounted for the acquisition of ARI as the purchase of a business under the accounting guidance.  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 consistent with the assumptions that would be considered by market participants.

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		1,317
Accounts payable		(8	)
Accrued expenses and other liabilities		(79	)
Contingent consideration other long term liabilities		(498	)
Total Purchase Price	$	2,061

Details of acquired intangible assets and goodwill are as follows (in thousands):

	Amount Assigned		Weighted Average Amortization Period (years)	Risk-Adjusted Discount Rate Used in Purchase Price Allocation
Amortizable Intangible Assets
Customer relationships	$	763	6.0	17.0%
Goodwill	$	1,317

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.

Proforma information for the acquisition of ARI has not been presented as the acquisition is not significant.