“a new kind of healthcare IT solutions company”
Mi5 Business Plan
October 2001
Confidential
Confidential document
The information within this document is provided on the understanding that it will be held securely and will not be copied, published, disclosed or otherwise communicated, either in part or whole, to any party other than the nominated recipients, without the prior written permission of the Mi5 companies. The information within this document is provided in confidence for the sole purpose of evaluating the business opportunity and must not be used for any other purpose. The product, service, and company names referred to in this document may be trademarks or registered trademarks and these are all hereby acknowledged.
Purpose of the document
The sole purpose of this document is to provide information to persons who have expressed an interest in investing in Mi5. It is designed to give such persons a more detailed overview of Mi5 in order to assist their decision to undertake further negotiations regarding investment. It does not constitute an offer to subscribe for or purchase shares in Mi5 and no contract may be entered into on the basis of the information contained in it. The information in this document is supplied as a guide only and prospective purchasers must make their own investigations and must satisfy themselves as to the condition and prospects of the business and the accuracy and completeness of the statements contained herein. It should be clearly understood that any financial projections given are illustrative only. None of the projections or assumptions should be taken as forecasts or promises on the part of Mi5, nor should they be taken as implying any indication that those assumptions are necessarily correct or exhaustive or that such assumptions will remain correct or exhaustive for all or any part of the life of such projections.
Contact
All correspondence should be marked confidential for the attention of the addressee only and addressed to: Dave Wattling Mobile: Fax: E-mail: (416) 565-6390 (416) 929-1865 dave.wattling@vividesk.com
CEO’s introduction
It is with pleasure that I present you with the opportunity to invest in a new Canadian Healthcare IT company—code-named Mi5. Mi5 has been created at a time when the pressures on healthcare systems across the world are arguably at their highest. Costs continue to rise, and governments and insurers alike are struggling to keep up. Populations are aging and consumers are demanding information and accountability at a rate never seen before. Accordingly, the emphasis is shifting from more efficient delivery of services to more effective delivery of the right services. This situation has had a profound effect on the view of the value of information technology (IT) in the equation. New approaches are being demanded, and are indeed being facilitated with the ubiquity of the Internet. Electronic health records, security and privacy, and standards are but a few of the significant drivers in the modern-day healthcare IT strategy. Mi5 represents a fundamentally different solution to healthcare enterprises across the world. Our approach recognizes that the best solutions for a hospital or doctor’s office typically come from a variety of sources, and actively embraces that very notion. In so doing, it puts customers firmly in control of their IT environment, providing them with tools that enable the best choice for each circumstance. With this underlying philosophy we are poised to become the IT partner of choice for healthcare organizations in North America, and then across the world. By building on the substantial successes and market positioning of the three founding companies—Momentum Healthware, iW Technologies, and Fifth Dimension—we are able to launch a combined company with very impressive statistics and capabilities. In our initial year (closing March 31/02) we will have revenues of $20M, an EBITDA of $4M, a world-class leadership team, 160 professional staff, 400 customers, and offices in three Canadian cities. Yet this is only the start. With the initial merger behind us, we intend to continue the market consolidation that is so sorely needed in the Canadian Healthcare IT space. We will emerge as Canada’s dominant company—and a strong senior exchange IPO candidate in 24-36 months. This initiative is exciting and bold—an idea whose time has come.
Dave Wattling
Table of Contents
Table of Contents
A. Vision ......................................................................................................... 1 B. Market Analysis ......................................................................................... 3
Healthcare issues and trends ......................................................................................... 3 Healthcare IT—an important piece of the puzzle ......................................................... 4 Market segmentation ..................................................................................................... 5 Competitive landscape .................................................................................................. 6
C. Platforms to build on.................................................................................. 8
Momentum Healthware (MHI) ..................................................................................... 9 iW Technologies (iW)................................................................................................. 10 Fifth Dimension (5D) .................................................................................................. 11
D. Strategies.................................................................................................. 12
Product and service offerings...................................................................................... 12 Distribution and sales .................................................................................................. 15 Technology.................................................................................................................. 18 Alliances...................................................................................................................... 20 Differentiation ............................................................................................................. 21
E. Organization............................................................................................. 22
Management ................................................................................................................ 22 Staff ............................................................................................................................. 23 Offices ......................................................................................................................... 25 Board and Advisors..................................................................................................... 26
F. Financials ................................................................................................. 27
Projections................................................................................................................... 27 Sales analysis............................................................................................................... 27 Notes............................................................................................................................ 28 Sources and uses of funds ........................................................................................... 28
Supporting documents are available for: • • • • • • • Historical Financials Detailed Projections Sales Pipeline Technology Transition Strategy Biographies of Key Personnel Customer List Competitor Analysis
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A. Vision
“a new kind of healthcare IT solutions company”
Preface
Throughout this document we refer to our business as being in the “healthcare IT” space. We have purposely elected to avoid the trendier term “e-health.” We see e-health as a segment of the broader healthcare IT space. E-health focuses specifically on the use of the Internet to provide data to patients (and, to a lesser extent, to physicians), as well as to facilitate data transfer for such purposes as billing. Healthcare IT refers to the use of all forms of IT for improving the delivery of healthcare services. While our offerings are fully Internet-enabled they are aimed at the “heavylifting” functions associated with advanced clinical information systems in complex healthcare enterprises. Note: Mi5 is a code-name for the company—one of our immediate tasks is the effective branding and naming of the company.
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A. Vision
Healthcare issues and trends
A. Vision
Mi5 is a new kind of healthcare IT solutions company: • • • • A company that takes the best Canadian healthcare IT solutions to the world market A company that puts customers in control of their IT environment A company that provides the tools, services, and open platform to allow effective integration of the disparate pieces of today’s complex puzzle called healthcare IT And, most of all, a company that will thrive based on open, long-term relationships with customers, staff, business partners, and shareholders.
In North America and around the world, the trend is towards an integrated health system, one that is effective and efficient. Our focus is on integrated clinical solutions, not administrative—we emphasize tools that improve clinical practice, as well as the better management of resources. By using best practices within Mi5, by continuing to attract the top people in the field to work at Mi5, and by putting ourselves on the line for our customers, we will become the best of the best—a Canadian powerhouse of the healthcare IT industry. We use best practices. Our solutions are developed using FDA-approved development and quality assurance processes that ensure the rigour necessary to deliver robust medical device software. Further, these processes are automated, making extensive use of modeling, code generation and automated testing tools. The result, in addition to industrial-strength software, is a highly productive development “engine”—one that has been benchmarked at 3.8 times more efficient than traditional hand-coding methods. People make companies. People service customers. People innovate and develop leading edge products. People understand their customers’ business and the problems we must solve for them on a daily basis. And good people attract other good people. Hence Mi5 makes it a priority to attract and retain “the best and the brightest.” This starts with our leadership team—we have some of the most respected leaders in the healthcare IT field, allowing us to attract excellent board members, advisors, and staff. To achieve our goal of cultivating long-term relationships with customers, we have programs to ensure that superlative customer focus is more than mere lip service. A high percentage of compensation for Mi5 staff is indexed to customer satisfaction; staff will be able to participate in the ownership of the company through stock purchase and option programs.
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A. Vision
Healthcare issues and trends
Mi5 is being created by merging the expertise of three leading Canadian healthcare IT companies, allowing us to immediately deliver the integrated, innovative, cost-effective solutions demanded by healthcare organizations world-wide. • Momentum Healthware, Inc. (MHI)—clinical and administrative software for long term care and medium-sized acute facilities, and the acknowledged leader in MDS solutions for long-term care and home care. iW Technologies, Inc. (iW)—desktop management and integration solutions, and a leader in electronic tools for evidence-based medicine. Fifth Dimension Information Systems (5D)—blood/plasma donor solutions and patient management for larger facilities.
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This will be the start, but certainly not the end. Our portfolio approach requires us to engineer new solutions and, potentially, to acquire additional companies to round out our product set and market share. We have identified several potential acquisition targets in Canada and the US, and have received enquiries from others.
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B. Market Analysis
Healthcare issues and trends
B. Market Analysis
Healthcare issues and trends
Across the world, healthcare systems are facing actual and potential pressures to increase spending: • Populations are aging, driving an increase in chronic care needs. In Canada, approximately 10% of the total population (around 3 million people) is over 65. This segment of the population uses 45% of the health services budget and hospital patient days, and is estimated to double by 2021. New drug treatments are often expensive—or very expensive. Gene therapy is becoming a reality. It is becoming increasingly important to determine whether these high-cost treatments are effective through longitudinal studies. Healthcare professionals are in high demand. Fewer professionals are being required to do more work, driving the need to automate the clinical function; low supply and high demand are driving salary increases that healthcare systems cannot afford. Patients themselves are becoming increasingly knowledgeable and becoming true partners in their own healthcare. There is also a growing recognition that in order to provide the most effective and patient-centred care, healthcare delivery must continue the trend away from delivery by standalone units towards an approach that is more integrated across the continuum of care.
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In short, healthcare systems are facing a need to control healthcare spending and to increase accountability and effectiveness. Today, industrialized countries spend anywhere from 7% to 14% of their GDP on healthcare (the following figures are in Canadian dollars): • • • • The US spends $2.2 trillion Canada spends $100 billion The UK spends $148 billion Australia spends $29 billion
These countries alone represent a $2.5 trillion market. IT spending in healthcare is a factor of overall healthcare spending. Currently at an average 2%, IT spending in healthcare is very low compared to IT spending in other sectors, including government. Spending is growing rapidly and is predicted to double over the next 5 years.
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B. Market Analysis
Healthcare IT—an important piece of the puzzle
Healthcare IT—an important piece of the puzzle
Healthcare IT is increasingly being recognized as a key tool to control spending and to support patient-centred, integrated healthcare. Governments and private sector companies alike are turning to healthcare IT to provide long-term, systemic improvements in the system. Over time the focus of healthcare IT solutions has matured: • • • Initial solutions focused on automating administration functions such as payroll, accounting, billing, and resource scheduling. The next wave brought patient management, registration, and orders and results processing on-stream. More recently attention has turned to automating clinical processes. Examples are clinical information systems, laboratory automation and pharmacy information networks (including prescription management and drug interaction). It is estimated that 5,000 of the 6,000 US hospitals will have installed clinical information systems by 2005. The trend is continuing with developments in the areas of electronic patient records (EPRs), telehealth, clinical decision support and evidence-based medicine.
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These developments are intended to do more than simply make existing processes more efficient—they are intended to improve the effectiveness of the healthcare system and of healthcare workers. A strong driver of this direction is the lack of skilled healthcare professionals worldwide1; fewer healthcare professionals means a heavier workload for those remaining. These initiatives also tackle the thorny problem of integrating data across the different components of the healthcare system, whether the doctor’s office, the hospital, the private lab, or other healthcare facilities. The growing emphasis on expanded primary care networks2 strengthens the need for data to be available across the continuum of care. Undoubtedly the advent of the Internet has removed many of the historical barriers to data exchange. However, many issues related to data exchange remain—standards for data collection to allow it to be shared, secure networks for data exchange, and ensuring the security and confidentiality of patient records. Particularly prevalent today is the move towards technical standards (such as HL7, CCOW, XML) as a basis for the inter-operability of disparate software applications. This
1 2
See, for example, www.employmentreview.com/2000-12/features/CNfeat04.asp. See, for example the Commission on Medicare by the Province of Saskatchewan, April 2001 (Commissioner Kenneth J. Fyke).
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B. Market Analysis
Market segmentation
recognizes the reality that a healthcare enterprise will have a collage of software from different vendors in order to get the best performance, yet will require that data be shared seamlessly and not duplicated. Industrialized countries are universally ramping up their spending on healthcare IT. • World-wide spending on healthcare IT is $88.4B US today—with a projected annual growth rate in North America of 7.3%, where the biggest growth is in software at 12% and external spending at 15%. Of note is also the growth in the use of ASPs in healthcare, where current spending is at $125M US and the annual growth rate is 90%. In the US, new legislation for the secure electronic exchange of healthcare information (the Health Insurance Portability and Accountability Act [HIPAA]) is driving new spending in the range of $4B US to $10B US (Forrester and Gartner estimates respectively). This is in addition to an average of 2.5% of the healthcare budget already going towards IT ($35B US).. In Canada, recent province-wide healthcare IT initiatives are driving the short-term spend rate from 1.5% or less of budget towards more than 4%. Alberta has already spent $150M, Saskatchewan $30M, Ontario has budgeted $560M, and Manitoba is projecting $150M spending on IT over the next four years. The federal government has funded the newly-formed Canada Health Infoway Inc. (CHII) to the tune of $500M, acknowledging that this is an initial installment on the $2-3B necessary to achieve a national electronic health record (EHR). In the UK, the government is currently overhauling the National Health Service (NHS), which will lead to a marked increase in IT expenditures.3
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Clearly we are on the cusp of unprecedented levels of spending on healthcare IT worldwide.
Market segmentation
Any one of the markets described above is a huge undertaking. Mi5 will be targeted in our approach to the various segments of the market. Such targets will be established based on our existing channels, where we can cross-sell our other products and can quickly gain the most traction in order to establish a beachhead. We believe the right approach is to focus on the markets we know best: • The general Canadian healthcare market, including integrated regional health districts, First Nations health networks, continuing care, academic medical centres, and physician offices. This is a $2-3B market annually. The following niche markets in the US:
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3
Koen, Vincent. Public Expenditure Reform: The Health Care Sector in the United Kingdom (OECD Economics Department Working Papers No. 256). September 2000.
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B. Market Analysis
Competitive landscape
!" Nursing homes, or long term care (LTC). This is a very homogenous $175B market, in that each of the 17,000 facilities deliver service in the same manner from state to state, whether for-profit or not-for-profit, using long-established MDS standards. We estimate it spends 1.5% of its budget on IT ($2.6B). !" Blood/plasma centres—a $7.5B market that is growing at the rate of 5-6% per year, of which 3% ($225M) is spent annually on IT. !" Academic medical centres—to establish credibility and reference sites. • Other segments of the US healthcare market—we have already begun our entry into the $73B home care market with our MDS Home Care assessment instrument. Logical next steps would be rehabilitation and community hospitals. UK—we have already established channels into primary care and long term care. Australia and New Zealand—we have already established a channel into primary care.
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We will conduct in-depth market research to determine how to bring our integrated offering into the non-Canadian markets. This will include a full exploration of channel and alliance options. Finally, we will continue to exploit opportunities to sub-license VIVIDESK through global IT infrastructure players to markets outside healthcare, e.g., schools and government. The global market for desktop management is estimated at $100B US.
Competitive landscape
Mi5’s competitors can be grouped by sector: • Global end-to-end solution providers—here we will run into US firms such as Cerner, Per-Se Technologies, McKesson HBOC, and MEDITECH, as well as Canada’s MediSolution. These offer an across-the-board range of products—some are fully integrated (like Cerner), while others are compendiums of acquired pieces (like McKesson HBOC). These firms have all emerged from the large acute care hospital world and hence their offerings are very hospital-centric. Many are based on older technology with web-based interfaces. We will successfully compete against these firms on price, customer sensitivity, and the Canadian stamp of quality and innovation. • Local end-to-end solution providers—we expect to compete with various local firms in each market, for example RISE and Encom in Canada. These firms have a rudimentary, yet fairly complete set of functional products. While we will likely be slightly higher priced, our competitive stance will be based on our critical mass and our consolidation and leadership in the market. Long term care solutions—in this space we see Wescom, Compana, and Mede-care in Canada, and Achieve in the US. Historically, we have beaten out the Canadian firms based on our leadership in adopting the MDS assessment standards. Undoubtedly they will embrace these standards eventually, but by then we will have market
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B. Market Analysis
Competitive landscape
dominance. We have recently beaten Achieve and all 50 of our US competitors for the eighth largest long term care chain in the US. • Dietary solutions—CBORD and Computrition are both global players that we compete with in the US market. In this space we rely on our distribution partner, SYSCO, a $20B dominant food supplier who OEM our product and sell it in conjunction with theirs. SYSCO is the largest marketer and distributor of food products in North America, servicing 7,000 nursing homes, or 30% of the US market. Integration solutions (Internet portals, application serving, desktop integration)—here the competition varies, depending on the specific functional sub-sets offered. Corechange, Plumtree, and WebMD offer healthcare portals. Citrix provides application serving. Sentillion offers a visual integration of disparate products. Various large HIS vendors offer front-end integration tools to mask their products, e.g., Vista from Per-Se. None of these offer the complete package that VIVIDESK provides. Blood/plasma management—our biggest competitor in GlobalMed Technologies, based in the US. While our offering is more expensive, we beat GlobalMed for the larger installations based on superior, better designed, more scaleable technology (Oracle vs. SQL). The smaller facilities see our hosted solution as providing superior functionality without the capital costs. Healthcare financial solutions—the most likely competitor here is Canada’s Ormed, which offers a series of products aimed at the mid market. As above, this is a smaller company with a purely administrative product suite. We have and will continue to compete successfully with our Great Plains based offering. Ultimately we do not see this as a prime battle-ground.
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While we will compete on a number of “business” platforms (price, service, etc.), as mentioned above, our most important weapon will be our focus on clinical solutions for the mid market, using modern, scaleable, standards-based, and fully web-based technology. A full Competitor Analysis is included in the Supporting Documents package, available upon request.
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C. Platforms to build on
Competitive landscape
C. Platforms to build on
Although a new company, Mi5 has a rich history. Together the three founding companies have: • • • • • • A collective 20 years in the healthcare IT business Over 400 customers (a full list is available in the Supporting Documents package) 160 professional staff A presence in Canada, the US, Europe, and New Zealand A total revenue stream for the year ending March 31, 2002 of $20M and EBITDA of $4M. A projection of $33.5M total revenue for the year starting April 1, 2002. $16M of this is for software license fees, on a well-qualified pipeline of $35M.
Some of the more significant accomplishments of the founding companies are discussed in the company profiles on the following pages.
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C. Platforms to build on
Momentum Healthware (MHI)
Momentum Healthware (MHI)
Year established Offices Employees Ownership (investors) Products and services 1995 Canada: Winnipeg, North Bay 80 Private (ENSIS, MTS, management, friends and family)
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Patient management: MPI, ADT, radiology, pharmacy, transcription, scheduling, order entry Clinical management: MDS assessment for long term and home care, care planning, electronic chart Dietary management Financial management: GL, AP, AR, billing, trust, materials management Nursing homes Small to mid-sized acute hospitals 400 customers All nursing homes in Saskatchewan Western Canadian nursing home clinical trial (3,650 beds) Extendicare (169 nursing homes in the US, 15,000 beds) Virtual Care Provider (ASP for US nursing homes) OpTx Corporation (clinical software) SYSCO (dietary product reseller) InterRAI (MDS assessment tools) Winning the Extendicare deal against all 50 US competitors Provincial MDS pilots in Manitoba, Nova Scotia, and British Columbia Selection by SYSCO as Dietary vendor of choice over 15 US competitors Acquisition of Healthware Technologies to provide access to the acute care market Current web-enablement of the MDS suite 2002: $9M revenue, $1.5 EBITDA 2001: $2.7M revenue, ($4.4M) EBITDA 2000: $2.7M revenue, ($1.5M) EBITDA
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Target markets Key customers
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Key alliances
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Successes
• • • • •
Financials (Apr 1 – Mar 31)
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C. Platforms to build on
iW Technologies (iW)
iW Technologies (iW)
Year established Offices Employees Ownership (investors) Products and services Target markets 1998 Canada: Edmonton, Toronto 20 Private (Working Ventures, angels, management) Desktop management and integration solutions for knowledge professionals
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Physician offices Mid-sized healthcare enterprises Academic medical centres Schools and government
Customers Key alliances
1,500 users in 12 customers in Canada, US, UK, New Zealand, Hong Kong
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Telus (Alberta physician office ASP) HP (computers for schools) Microsoft (solution provider) BetterHealthGlobal (UK, NZ distribution) Physician offices—province-wide pilots in Alberta, Saskatchewan, and Ontario; selected by Telus to be the desktop for their ASP offering to physicians; selected by BHG to be the desktop for their world-wide physician office offering Healthcare enterprises—used by Canada’s largest health region to simplify information access and disseminate care pathways; used by all Alberta’s health regions to support evidence-based decision making Academic medical centres—used by the US Society for General Internal Medicine to deliver online workshops and support ongoing CME; used by the American Medical Association to deliver a new e-book; installations in St. Louis and Wake Forest University Medical Centres Schools—selected by HP to be the desktop for their national Computers for Schools initiative 2001: $310K revenue, ($2M) EBITDA
Successes
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Financials (Sep 1 – Aug 31)
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C. Platforms to build on
Fifth Dimension (5D)
Fifth Dimension (5D)
Year established Offices Employees Ownership (investors) Products and services 1990 Canada: Edmonton 60 Private (management)
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Target markets Key customers
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Regulated software for the medical device industry: donor management, fractionated product management, plasma center module, cash payment system, apheresis data connect, national donor deferral registry, plasma identification Patient and clinical management for large health regions: master patient index, order management, community services, enterprise scheduling Large pharmaceutical and life science companies Large health regions Bayer, Nabi, Baxter Healthcare, Serologicals, American Blood Resources Association, Canadian Blood Services Edmonton Regional Health Authority (Canada’s largest), Red Deer, Saskatoon, and Regina Proven US Food and Drug Administration system development life cycle Extensive experience with Oracle Designer/Developer Computer Aided Systems engineering tools The only Canadian software company to achieve and have registered four USFDA 510(k) medical devices as software Install base using our medical device software for large pharmaceutical and NASDAQ life science companies in the United States Selected to support patient and clinical management for the four western Canadian integrated health regions 2001: $8M revenue, $3M EBITDA 2000: $6.3M revenue, $2.4M EBITDA 1999: $4.4M revenue, $1.1M EBITDA
Key alliances Successes
Oracle for technology support
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Financials (Nov 1 – Oct 31)
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Note: 75% of 5D’s revenue is generated in the US.
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D. Strategies
Product and service offerings
D. Strategies
Product and service offerings
Product lines
Our initial offering will encompass six product lines and 24 associated products. Mi5 is committed to healthcare-specific standards such HL7, CCOW, MDS, and XML, as well as accepted IT industry standards. Product Line Patient Management Mi5 products • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Master Patient Index Admission Discharge Transfer Diagnostic Imaging Pharmacy Transcription Client and Resource Scheduling Radiology Order Entry Chart Tracking Workload Measurement Caseload Management MDS LTC Assessment MDS Home Care Assessment Care Planning for Home Care Care Management Electronic Chart Dietary Suite MIS Financials (G/L, A/P) A/R, Billing & Trust Materials Management Billing—Canada US LTC Billing Donor Management System Fractionated Product Management System Plasma Center Module Cash Payment System Apheresis Data Connect National Donor Deferral Registry System for Plasma Identification VIVIDESK desktop integration tool HL7 integration engine
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Clinical Management
Dietary Management Financial Management
Blood/Plasma Management
Integration Solutions
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D. Strategies
Product and service offerings
The ultimate success of these product lines is the responsibility of the Business Managers. These very senior people are the link between: • • • • Marketplace requirements, including functionality and price points Development requirements The sales and marketing of these products The long term viability and profitability of the product line
An end-to-end solution
We are combining world-class solutions from three companies, driven by a world-class, FDA-approved development shop that makes use of the Oracle development tool set and the Oracle platform. Our offering is an open and scaleable suite of products. This will be very well received by a marketplace that is moving towards an integrated delivery model.
iW Technologies Assessment (MDS 2.0 and MDS HC) Assessment (MDS 2.0 and MDS HC) Care Manager Clinical System Care Manager Clinical System Admission Discharge Transfer (ADT) Admission Discharge Transfer (ADT) Provider Access (Vividesk) Provider Access (Vividesk) (desktop, laptop, PDA) (desktop, laptop, PDA) 5th Dimension
Data bases and network Data bases and network
Pharmacy Pharmacy Diagnostic Imaging Diagnostic Imaging Dietary Dietary
Momentum Momentum Laboratory Systems Laboratory Systems Physicians’ Offices Physicians’ Offices
rd Other 33rdParty Systems Other Party Systems
The above graphical overview shows the strength of the combined offering from the three companies that make up Mi5 (although it is not an exhaustive list of our products). The result of this combined offering is an offering that is based on three levels of integration platform: • VIVIDESK provides desktop access to the healthcare professionals, ensuring they have a common desktop tailored and organized to their specific needs and workflows (shown on the left of the graphic).
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Master Patient Index Master Patient Index
D. Strategies
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Product and service offerings
Our HL7 interface engine allows us to exchange messages between our applications and those applications of our competitors that are also standards-based (shown in the middle). Our underlying common Master Patient Index allows each application to organize and summarize patient data (shown on the right).
•
The net result is an integration approach that allows clients to choose best-in-breed applications, secure in the knowledge that our platforms will allow them to interact seamlessly. Mi5 will build on the success enjoyed to date by MHI, iW, and 5D. The combined expertise that will be embodied in the new organization is highlighted in the following table. MHI FDA-approved development shop Leaders in delivery of MDS in Canada Leaders in evidence-based medicine Extensive experience in delivery of healthcare IT consulting Dominance in the life science sector Prominent e-patient record provider Strategic alliances with industry leaders iW 5D
Deployment choices
Mi5 is able to offer multiple deployment alternatives to the marketplace. We have the capability to deliver the traditional client-server offering. We also have the capability to deploy our solutions in a hosted setting or using Application Service Provider (ASP) technology. ASP technology is becoming increasingly attractive to healthcare organizations that see the need for IT solutions but want to minimize their investment in IT. According to Dataquest, a unit of the Gartner Group, in order to be successful healthcare ASP suppliers must: • • • Align offerings with solution partners to offer a comprehensive portfolio Ensure adequate data security and HIPAA-compliant privacy protection Offer integration capabilities
Dataquest predicts that the US healthcare ASP market will grow from $125M US in 2000 to more than $500M US by 2005.
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D. Strategies
Distribution and sales
MHI has established an ASP relationship with Virtual Care Provider (Milwaukee, WI) for deployment to the US LTC market. MHI and iW have developed an ASP relationship with SaskTel (Regina, SK). iW has established an ASP relationship with Telus for the Alberta physician office market. Both iW and 5D have been delivering ASP solutions from their own offices for several years.
Services
In addition to the suite of products that we will make available to the market, we will also deliver a number of services. These include: • A world-class, FDA-approved development shop that makes use of automated tools for code generation and testing. This can provide custom development services as demand dictates and capacity allows. A full implementation, training and services group to support our products and to provide consulting services to help our clients with workflow, business process improvement, and change management, to ensure our customers get the best from their investment in software.
•
We have projected services revenue at an average rate of 50% of license fee revenue, based on our historical experience. We fully intend to grow this ratio over time—to as high as 100% of license revenue.
Distribution and sales
Our distribution and sales strategy will vary according to the product line and the geographic setting.
Canada
• Patient Management: With the patient management product line we will initially target the regional health markets in Canada, and the acute and sub-acute markets in Ontario. We will build on MHI’s presence in Ontario and rural Saskatchewan, and on 5D’s presence in Edmonton, Red Deer, Saskatoon, and Regina. Clinical Management: We will continue our very successful strategy of targeting provincial governments with our MDS suite of software. In western Canada we will build on the Western Canadian Clinical Pilot Project, which involves implementation of our Care Manager product in 3,500 LTC beds in the three prairie provinces and provides an excellent base for dominance in western Canada. In Ontario we will target the Community Care Access Centre (CCAC) market. Financial Management: For our financial management system we will continue to target the regional markets in western Canada, the stand-alone acute market and the CCAC market in Ontario.
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D. Strategies
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Distribution and sales
Integration Solutions: We will build on our successes in the physician office market by seeking provincial and national medical association endorsement—and delivering our product in partnership with national ASP providers. For the mid-sized healthcare enterprise we will embed our product into the Mi5 suite. We will continue our promotion to academic medical centres as a tool to link evidence-based medicine with medical records. We also expect our relationship with HP to be particularly strategic to enter the school market.
We will initially offer end-to-end solutions to the Canadian healthcare market. We will not pursue the “very large” or the “very small” clients. The following table is a graphical representation of our Canadian target market, and the market segments that are the focus of some of our primary competitors:
Mi5 MediSolution MEDITECH Cerner HBOC RISE
Very large
Large
5D
Medium MHI Small
iW
Very small
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D. Strategies US
Distribution and sales
In the US, we will initially continue our niche strategy, focusing on blood/plasma centres, long term care centres and academic medical centres. Early next year, we will commission detailed market research studies to determine our longer-term US strategy (whether to continue as a niche play or to broaden the offering). We expect a good fit for our products in rehab and community hospitals. • • Blood/Plasma Management: We will continue to sell our products to the large life sciences and pharmaceutical companies and nurture the long-term relationships such sales yield. Clinical Management: We will build on our successful pilot projects in Minnesota and New York. We will also build on our strategic relationships with SYSCO, the largest food supplier in the US, and Virtual Care Provider (VCP), one of the only providers of ASP services dedicated to the LTC industry. Dietary Management: We will build on our strategic relationships with SYSCO and VCP for our dietary management system. We have recently signed a deal with SYSCO and VCP to deliver our dietary system to the US LTC sector via a “rental model.” Financial Management We will build on our successes and continue to promote this product suite specifically to the LTC sector.
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UK, Australia, New Zealand, and beyond
At this time both MHI and iW have distribution channels in the UK, and iW has a distribution channel into Australia and New Zealand. Initially Mi5 will continue to exploit these targeted relationships. In the longer term, however, we intend to provide a solution to the acute and home care sectors in the UK, Australia, and New Zealand. (Our current revenue and market share projections do not include these additional markets.) Over the next year, with the assistance of programs available via Industry Canada, we will complete a detailed market analysis of the Australian, New Zealand, and UK healthcare markets.
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D. Strategies Sales delivery structure
Technology
Our sales organization will be based on Business Managers, responsible for product lines, Territory Managers, responsible for geographic territories, and Product Specialists, responsible for specific products:
Mi5 Sales Delivery Structure
Business Managers
Market Share Profitability q Long Term Direction/Strategy
q q
Territory Managers
Product Sales
Customer/Territory Focused Revenue q Customer Satisfaction
q q
q q
Revenue Short Term (1 yr.) focus
Initially, our Territory Managers will be focused on Western Canada, Central Canada, and the US.
Technology
Business requirements are becoming more complex, as is the software needed to meet those requirements. The size of software development teams is increasing, and the development process can become unwieldy. Updating and integrating disparate legacy applications presents particular challenges.
An FDA-approved development process
Mi5’s technology transition strategy is based on a development process designed to meet these challenges. Using this process, which is based on an FDA-approved system development life cycle, we will transform legacy applications into true web-enabled applications that can be migrated easily to hand-held technology. Our development process enforces a unified database as the basis for all product suites, and supports and manages the tools used at each stage of the software development cycle: • Analysis, modeling, and design In the analysis, modeling, and design phase, we use CASE tools to generate the requirements for the application, including data definitions, business rules, and programming specifications. The modeling data and design data are defined centrally
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D. Strategies
Technology
and stored in a shared repository. We use a variety of methods for pictorially representing the parts of the software system and the interactions between those parts. Once the developers create the models, they are critiqued by other application experts. • System generation We use Oracle Designer in an integrated environment to generate web-based applications and client/server applications and to document the dependencies between the various components of an application. This allows us to create true web-based applications quickly, accurately, and efficiently, and to clearly assess the effect of any changes to those applications. Automated software testing and quality assurance We use the Mercury Interactive testing suite of automated static analyzer tools to ensure that the source code does not contain programming errors. The tests include checks on control flow, data use, function interface, and paths of execution. We use automated error testing during unit testing of individual components, module testing of groups of dependent components, and system testing of an entire application. By automating the testing process we can run an entire suite of hundreds of testing scenarios in just a few hours, resulting in more thorough testing in significantly less time.
•
Throughout the software development cycle, our development teams use software configuration management tools to enforce software version control, source code versioning, and release management. These tools also provide process management and the ability to track requests for changes and fixes for bugs discovered during testing.
The benefits
The Mi5 development process: • • • Allows any size of team to work on any size of application while maintaining tight version control. Allows us to single source application data from one central repository to another, so we can rapidly respond to changes in technology. Provides graphical modeling tools, tightly integrated with the Oracle Repository tool set, to quickly and accurately represent the requirements of legacy or new applications. This promotes team-based work in a multi-user environment in which requirements are immediately available to all team members. Uses robust design capture features to capture all the design information for a legacy application, including the design of any ODBC-compliant database. This allows any such database—Oracle or non-Oracle—to be easily migrated.
•
Redevelopment plan
We will assign dedicated teams to redevelop the legacy applications in each of the Mi5 product lines. The estimated time to redevelop the legacy applications varies by product line from 14 months to 25 months. The total effort is estimated to be 792 person-months
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D. Strategies
Alliances
(66 person-years), at a cost of C$6.3M. Further details of Mi5’s technology transition strategy can be found in the Supporting Documents package.
Alliances
A key element of success in any business is building effective partnerships that help the company leverage its capabilities. For Mi5 we will build on our existing, long-term and proven relationships with partners on a number of levels: • Technology alliances: !" Oracle—for the underlying database and development environment. Oracle has launched development of a large healthcare repository (to compete with IBM). Oracle has indicated that in addition to our offerings not being in competition with theirs, they see a great synergy and desire to offer their database customers a suite of Oracle-based healthcare functional products that can tie into their repository. !" Microsoft—for the desktop integration product line. VIVIDESK is a value-added product that sits atop Windows and offers it functionality to rival some of Microsoft’s key competitors, e.g., Citrix for application serving. !" IBM—for the desktop integration product line. IBM sees VIVIDESK as a natural complement to their repository offering, allowing the solution to become more active, that is, to drive transactions off the clinical viewer. • Deployment/distribution alliances—several hosting and distribution partners with global reach, for example: !" Telus, initially established to provide a hosted solution to the physicians of Alberta. !" SaskTel, playing a similar role in Saskatchewan that Telus does in Alberta, will likely expand to a full health district offering. !" Virtual Care Provider, one of the only ASP players targeting the long term care market, are hosting our applications from their head office in Milwaukee, WI. !" SYSCO, for dietary applications across the US long term care market. • Complementary applications, since we do not see building applications to serve every corner of the market: !" Specialty clinical applications, such as laboratory information systems from TripleG and SCC. !" Physician office and primary care systems, such as Clinicare, MedTech, Perkinje and the like. !" Business systems, such as financials, payroll, human resources from Oracle, SAP and the like. • Standards and research bodies, such as interRAI and HL7.
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D. Strategies
Differentiation
Differentiation
Mi5 offers an open platform, allowing customers to integrate their existing applications and to evolve their system to where they want it to be. This approach is pragmatic, manageable, and cost-effective. • Canadian healthcare enterprises are presented with but a few choices: !" from a US vendor, and thereby pay US dollar prices and the costs required to buy customize to the Canadian market (including travel and living costs). !" forced to buy from MediSolution, the only other Canadian end-to-end solution be provider. !" the individual components from small niche developers and then face the buy challenges and costs of integrating the components, and running the risk that the niche companies will not able to provide effective support over time. • We will leverage this approach into the US with our highly focused niche strategy.
We do not try to predict what will be the best solution in the future. We simply have the platforms, the tools, and the capabilities to evolve and develop over time.
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E. Organization
Management
E. Organization
Management
One of the most significant benefits of creating Mi5 from three well-established and respected companies is the strength and diversity of the management team and staff. At the management level the skills and experience are diverse and complementary. Together the team represents the core skills needed to grow a successful e-health business: healthcare, ICT, management, sales, alliance management, and communications. • Dave Wattling, Chairman & CEO—Presently the Chairman and CEO of iW and a Director of MHI, Dave has spent the past 16 years building successful IT businesses. He is an accomplished entrepreneur and management consultant who has invested his 28-year career in the IT field and the past 12 in healthcare. Dave has a truly multifaceted background, including experience with products and services, large and small businesses, and North American and European markets. Dave was the Founder, President, and CEO of EDM Management Systems, an award-winning IT management consultancy that specialized in healthcare, telecommunications and government. After 15 successful years, EDM was acquired by Sierra Systems and Dave became Vice President of Business Development, responsible for communications, PR, alliances, and marketing across Sierra’s 15 Canadian and US locations, as well as the healthcare and e-business practices. Chuck LaFleche, Executive VP & Chief Strategy Officer—Chuck is the principal individual shareholder of MHI and has served as President and CEO since its creation in 1995. Prior to founding Momentum, Chuck was a professor at a business school and a Controller at a major financial institution. Chuck is actively involved in a number of industry and economic task forces and committees, including two Manitoba Economic Innovation Technology Council committees. In 2001 he was received his FCMA designation (Fellow of the Society of Management Accountants of Canada). Chuck has been instrumental in negotiating numerous strategic alliances with suppliers, funders, and ICT companies, a strategy that has been one of the keys to MHI’s success. Brad Lazaruik, Chief Technology Officer—Brad has over 15 years of experience in the information systems industry. He is the President and CEO of 5D, which he founded in 1990. Brad has a wide-ranging background in healthcare, senior management, finance, and information systems in a variety of settings. He has expertise in systems development, large scale project management, business requirements analysis, strategic and operational plan development and implementation, and information systems planning. Brad was an instructor for the Northern Alberta Institute of Technology and a Visiting Committee Member to the Faculty of Medicine and Oral Health Sciences department at the University of Alberta.
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E. Organization
•
Staff
Frank Carr, Chief Operations Officer (see Note)—Frank is the President and COO of iW. With over 30 years of IT experience in both the public and private sectors, Frank has specialized in large-scale project management, and interim general management. Frank was an owner and the Executive Vice President of EDM Management Systems, where he was responsible for operations and practice management as well as providing specific leadership to the project management practice. Following the acquisition by Sierra Systems, Frank was corporate partner responsible for risk and quality management. Rene Bouchard, Chief Financial Officer (see Note)—Rene is the CFO of MHI and has over 20 years of experience in financial management. Rene obtained his Certified Management Accountant designation in 1986. He obtained numerous academic achievements, including the Gold Medal from the Society of Management Accountants of Manitoba for Academic Excellence, awarded in his graduating year. Dr. Rob Hayward, Principal Scientist—Dr. Hayward, a US and Canadian boardcertified internal medicine specialist, is the founder and technology innovator of iW. He is respected both nationally and internationally for his vast expertise in health informatics, especially in the area of evidence-based practice. Dr. Hayward has a profound knowledge of information technologies and has designed and built prototypes of iW’s proprietary technologies. Dr. Hayward also has a strong business sense, often foreseeing cost-effective solutions for customers’ needs. In addition to his ongoing role with Mi5, Dr. Hayward remains in active clinical and academic service. Rick Workman, VP Strategic Business Development (see Note)—Rick is the Executive VP and COO of MHI, which he joined in 2000. Prior to that, Rick was General Manager of IBM Global Services in Manitoba, where he managed over 900 employees and $260M in annual revenue. Rick brings over 30 years of experience in information systems. During that time he has held numerous sales, marketing, and management positions throughout North America. Gord Blaine, VP Sales (see Note)—Gord is VP of Sales and Marketing for MHI, which he joined in 2000 after managing sales and service delivery for IBM Canada in the Manitoba Financial Services industry, a $80M business annually. Gord brings 17 years of experience in technical, sales, marketing and management positions.
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•
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Note: While we believe that these appointments are appropriate, we will undertake a formal process to ensure the best candidates, from the current companies and in some cases from outside, are fully considered before making final appointments. Full biographies are available in the Supporting Documents package.
Staff
Our well-qualified staff include personnel with hands-on experience in healthcare, as well as software development, project management, training, and customer support. As the organization chart below shows, we have adopted a simple structure with clear roles and accountabilities.
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E. Organization
Staff
The initial headcount of 160 represents the same number as currently employed by the three companies, albeit with some changes in skill-sets; in other words, some staff will leave or be redundant and those positions will be replaced by individuals with different qualifications. The key positions we will fill immediately are Senior Applications Architect and Human Resources Manager. During the first half year of operation we expect the staff count to grow by as much as 20% to meet the initial demand for more sales and service. Over time we will staff to meet the growth we experience, mainly in professional services. This will be well controlled, and as a strategy we will staff up to meet half the demand for services above the capacity of the core group, with the remainder being sub-contracted. This will help to ensure we do not have excess capacity while maximizing the opportunity to grow this essential part of the business. We have also considered the staffing required to re-engineer and integrate our product set as a separate, possibly sub-contracted, group of developers.
Board of Directors
Chairman & CEO Dave Wattling Industry Advisory Council
Total headcount - 160/195 (Oct 1, 2001 and Apr 1, 2002)
4/8
Executive VP & Chief Strategy Officer Chuck LaFleche Strategic business development Mergers and acquisitions Alliances Communications (PR/IR) Chief Operations Officer Frank Carr Marketing Patient management Clinical software Integration solutions Medical device software Sales Territory sales reps Product specialists Professional services Project management Implementation Training Production Hosting centre Technical support Customer support Chief Financial Officer Rene Bouchard Finance Human resources Administration Internal IT support
73
Chief Technology Officer Brad Lazaruik Product architecture Software development Quality assurance Link to research/academia
65/91
18/23
We believe that a healthy and rewarding workplace is essential to staff motivation, retention, and attraction, and therefore essential to customer satisfaction. Accordingly, Mi5 will adopt some clear yet simple strategies: • Hire the best and brightest, thereby building Canada’s most desirable “place to work” in healthcare IT
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• • • Continue the strong culture of the three founding companies
Offices
Provide growth opportunities for staff that could not have existed in the separate firms Ensure salaries are fair by industry standards on an ongoing basis, and implement a team-based performance bonus scheme (customer satisfaction biased) where high performers are rewarded from a profit pool Implement an effective employee share ownership and option program for all staff Allocate a significant percentage of salary costs for professional development and encourage participation Focus on retaining key staff during the transition period
• • •
Offices
At this stage in the planning process we expect to locate Mi5 offices and functions as shown below: Location Winnipeg Functions • Chief Strategy Officer (CSO), Chief Operating Officer (COO), Chief Financial Officer (CFO) • Corporate HR, Administration, Finance • Help desk and customer support • Implementation services group (implementation presence in other cities) • Product management for all lines not located in Edmonton • Sales staff • Chief Technology Officer (CTO) • Research, architecture and software development • Medical device software and integration solutions product lines • Hosting • Sales staff • • • • • Chief Executive Officer (CEO) Sales staff Sales staff As Mi5 accumulates a customer base, we will add local sales support and implementation capabilities Over the next two years operations will be transitioned to Edmonton (product development) and Winnipeg (product management)
Edmonton
Toronto US
North Bay
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E. Organization
Board and Advisors
Board and Advisors
Our board will be constructed as follows: • Two members representing management: The Chief Executive Officer and the Chief Strategy Officer (the Chief Strategy Officer also serving as representative of the MHI shareholder group). Two members representing industry: Acknowledged industry leaders in Canadian and US healthcare, preferably with international exposure. Three members representing investors: One spot will be filled by prior investors, and two by the new investor syndicate.
•
•
We will create an Audit Committee, a Compensation Committee, and an Executive Committee of the board. Director compensation will be in the form of stock options, expenses, and performance incentives. We will also build on iW’s Industry Advisory Committee, which consists of internationally renowned healthcare and healthcare IT leaders. This has proven to be an invaluable tool to gain access to tremendous insight into our target markets and their drivers and directions. This committee works with management to set direction for the company’s offerings and helps the company to gain access to key decision makers.
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F. Financials
Projections
F.
Financials
Year 1 Projection 20,307,278 1,913,137 9.4% 18,394,141 90.6% 16,149,428 -1,776,000 14,373,428 70.8% 4,020,712 Year 2 Projection 33,516,382 2,606,494 7.8% 30,909,887 92.2% 30,869,264 -7,035,798 23,833,465 71.1% 7,076,422 Year 3 Projection 53,980,212 4,361,479 8.1% 49,618,734 91.9% 38,476,631 -6,413,011 32,063,620 59.4% 17,555,114 Year 4 Projection 81,548,770 6,062,102 7.4% 75,486,668 92.6% 49,504,965 -6,116,158 43,388,807 53.2% 32,097,861 Year 5 Projection 108,489,515 7,522,276 6.9% 100,967,239 93.1% 60,123,874 -5,424,476 54,699,398 50.4% 46,267,841
Projections
Sales & Service Revenue Cost of Sales % GROSS PROFIT % Selling, Gen, & Admin Development Cost Selling, Gen, & Admin % EBITDA
Note: Year 1 is for the period of April 1/01 to March 31/02. Detailed financials and sales pipeline are available in the Supporting Documents package.
Sales analysis
April 1/01 to March 31/02 • • Actual revenues for the six months from Apr 1/01 to Sep 30/01 are $6.8M. Projection of an additional $13.5M for the period of Oct 1/10 to Mar 31/02. Of this, $8.5M is already sold. The remaining $5M requires us to close $3M in license fee sales on a well-qualified pipeline of $5M.
April 1/02 to March 31/03 • • Total annual projection of $33.5M, of which license fees represent $16M. Well-qualified pipeline of license fees in excess of $35M (i.e., two times the projection).
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F. Financials
Notes
Notes
• No revenue has been included from the Momentum AIS subsidiary that operates in the UK. In fact, no revenue has been included for any market outside North America, with the exception of the VIVIDESK license arrangement in the UK. No effect of potential acquisitions has been accounted for in the projections. We will review each potential acquisition on its own merits as a way to accelerate our business plan. Mi5 will continue Momentum’s practice of reporting on an “as if public” basis.
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•
Sources and uses of funds
Mi5 needs C$15M in cash to fund this business plan. This is made up of $8M in working capital to fuel the business integration, technology integration and sales and marketing expansion over an 18-month period, and $7M for partial shareholder liquidity. We would also entertain raising an additional C$5M to eliminate existing debt from the balance sheet. The instrument could be a mix of equity and debenture financing, as appropriate for all parties. The exit would be either a senior exchange IPO, or acquisition by a multi-national player, most likely the former. The timeframe is expected to be 24-36 months, depending on market conditions and opportunities.
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