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Securities and Exchange Commission
Washington, D.C.
20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
March 31, 1996 0-16286
MEDPLUS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4082020
(State of other jurisdiction of identification (IRS Employer number)
incorporation or organization)
8 S. NEVADA AVE., STE. 500
COLORADO SPRINGS, COLORADO 80903
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including area code: (719) 575-0044
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
-----------------------------
(Title of class)
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. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained , to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No .
--- ---
The aggregate market value of voting common stock held by non affiliates of the
registrant was approximately $ 2,475,000 based on the last reported average bid
and asked price of the common stock on the NASDAQ Bulletin Board Reporting
System on July 15, 1996.
The number of shares outstanding of the issuer's common stock as of July 15,
1996: 9,319,740.
<PAGE>
MEDPLUS CORPORATION
PART I
ITEM 1. BUSINESS
MEDPLUS CORPORATION (the "Company") was incorporated in Delaware in
December 1986 and is a fully disclosed, publicly traded company that trades on
the NASDAQ Bulletin Board Reporting System under the symbol MPPI. The Company
initially engaged in the manufacture and sale of intraocular lenses and other
ophthalmic products. In late 1992, the Company ceased its ophthalmic operations
and redirected its activities to the patient finance industry through the
Company's acquisition of Patient Plus, Lincoln Professional Services Corporation
and Financial Health Network. The Company now works on behalf of health care,
dental care, death care and veterinary providers to find non-recourse financing
for their patients. In 1995 and 1996 the Company acquired two additional patient
finance companies, Surgical Funding Group, located in Irvine, California and Yes
Charge, located in Ventura, California. The acquired companies were selected
based upon their length of time in business, commitment to their client base and
reputation in the industry.
INDUSTRY BACKGROUND
Total health care costs in the United States have grown to the point that
health care now is a trillion dollar industry. It is currently growing at the
rate of 8% per year which means that, if current rates continue, health care
costs will double in the next nine years. Approximately $200 billion is spent on
out of pocket health care services each year. Such services include basic health
care as well as elective services such as plastic surgery, dentistry, ophthalmic
procedures, audiology services, veterinary medicine and funeral services.
The Health Maintenance Organization industry ("HMO's") started about 15
years ago to try and control health care costs by monitoring and controlling
utilization through the establishment of "gatekeepers" by whom a patient must
pass in order to receive certain types of care. HMOs adopted a technique of
paying the providers based upon capitation as a way of providing incentive to
control costs. None of the these techniques have worked to significantly control
health care costs because they do not address the core problem of fragmentation
in the contracting and processing of health care payments that is causing health
care costs to escalate so rapidly. The problem of the fragmentation in the
contracting and processing of health care payments is one of individual health
care participants (ie. consumers, providers, third party carriers, etc.)
contracting with other individual health care participants one-on-one. Payments
of accounts follows the same tortured path as contracting, thus adding to the
waste. it has reached a point were today 22-26% of total health care costs are
the costs to adjudicate, bill and collect receivables. This is partly because
80% of all claims are made for $1000 or less and 80% of those are for less than
$100. Administration costs associated with processing the vast number of
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nominal claims have become disproportionately large, and have in the process,
dramatically increased health care costs for employers. Consequently, the
typical employer is looking at health care benefits for its employees being
among its largest expense line items. Employees are very frustrated and are
beginning to bring law suits against providers and employers for not
providing the quality of care they have come to expect.
Changes in the quality of health care reimbursement, as well as the
realization that operational effectiveness and efficiencies could be gained
through the utilization of outside vendors and services has led to the creation
of numerous support and service industries in the health care environment. For
example, the last decade has seen a tremendous increase in managed care
facilities, consolidation of "for profit" hospitals, practice management
consulting firms, centralized billing agencies, temporary staffing agencies,
reimbursement management consulting firms, claims management and electronic
claims processing service bureaus. Because the Company's operational setup
allows it to provide not only necessary financing, but fast, efficient and
centralized records administration, the Company believes its products are well
positioned within this health care market.
The Company has been providing patient financing to the health, dental and
death care communities for the past five years. Its primary objective is to
capitalize on the current and future opportunities in the health care industry
by addressing the problems brought about by a unique combination of poor
consumer economics and a growing crisis in health care costs due to
inefficiencies.
PRODUCTS
The Company's products and services relate primarily to the provision of
credit to health care consumers through a marketing agreement (the "Agreement"),
in effect since November, 1995, with CareCard Northwest-TM- ("CareCard") which
Agreement gives the Company the right to market CareCard's health care credit
cards, CareCard Northwest-TM- ("Non-recourse Loans") and CareLine Northwest-TM-
("Recourse Loans"), to health care, dental care, death care and veterinary
providers across the nation. Under the terms of the Agreement, the Company has
the right to market the CareCard products for three years from the date of the
Agreement. The Company will share in the revenues generated from credit sales
made by its providers on a fifty-fifty basis with CareCard. The CareCard
Northwest-TM- and CareLine Northwest-TM- programs are financed under an
agreement between CareCard and United Sates Bank of Oregon (the "Lender"), a
U.S. Bancorp Company, Member FDIC. The Company markets the CareCard products in
all states other than Washington and Oregon through its nationwide marketing
affiliates, Century Planning and Interchange, Inc., and the Company's two field
offices located in California.
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CREDIT CARD DESCRIPTIONS
The Company, through CareCard, offers two distinct loan programs to health
care consumers:
NON-RECOURSE (CARECARD NORTHWEST-TM-): A non-recourse loan is an unsecured
loan to the health care consumer. The health care provider is given a non-
recourse advance, from the Lender, equal to approximately 96% of the health care
consumer's contract value. The remaining 4% is the Company's fee. Because the
cost of defaults are absorbed entirely by the Lender, normally only health care
consumers with "A" credit (minimal risk) are approved.
RECOURSE (CARELINE NORTHWEST-TM-): A recourse loan is one in which the
Lender has partial recourse to the health care provider. The health care
provider is given a non-recourse advance, from the Lender, equal to 80% of the
health care consumer's contract value. Of the remainder, 16% is credited to the
health care provider's reserve pool and 4% is the Company's fee. The reserve
pool builds over time and acts to secure loans made to the health care
provider's patients. While gross defaults are expected to be higher in the
recourse program than in the non-recourse program, most, if not all, of the cost
of defaults is absorbed by the reserve pool. If a specific provider's default
rate exceeds 16% that provider's reserve percentage will be adjusted
accordingly. In the event a specific provider experiences an extremely high
default rate, that provider's approval rates will drop accordingly or the
provider may be dropped from the program entirely. Because the cost of defaults
is borne substantially by the provider, normally health care consumers with "B"
credit (moderate risk) are approved.
PRODUCT DEVELOPMENT
The Company currently has under development a pass-through program which
would be an addition to its current product line. This loan program would be for
health care consumers with a "C" credit, or high risk, rating and will be
structured as a pass-through loan.
A pass-through loan is an accounts receivable administration service. The
Company bills and collects from the provider's patients on a best efforts basis.
and forwards the receipts, less interest and fees, to the health care provider.
Because the cost of all defaults are borne by the health care provider, the
Company can profitably finance patients with "C" credit (high risk) profiles.
The pass-through product will be especially profitable due to the fact that it
is not a pre-funded credit. Therefore there is no cost of funds to the Company.
The Company intends to charge borrowers an Annual Percentage Rate ("APR") of
16.9% on all loans and charge health care providers a service fee of 8% of the
funds collected.
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The Company intends to out-source the billing and collection aspect of the
pass-through loan program to a company with expertise in those areas and is in
the process of identifying a suitable partner with billing and collection
capabilities.
MARKETING
The primary market for the Company's products is a broad base of health
care and specialty providers. The Company intends to develop private label
arrangements and enter into licensing and support agreements with industry
leaders in each of several specialty areas of the health care and dental care
industries. The Company will manage and service these agreements with a largely
identical underlying portfolio of products. However, marketing differentiation
will be accomplished through a series of sales strategies in combination with
the Company's private label finance packages designed to address the specific
needs of each individual specialty.
The Company primarily markets its products and services through an
independent sales representative organization comprised of 248 sales
representatives throughout the United States and has contracted with an alliance
partner currently marketing the Company's product to the death care industry. In
both cases, these partners have an established, ongoing relationship with the
provider and have existing members and/or sales organizations nationwide. The
Company also has two field offices located in California from its acquisitions
of Surgical Funding Group and Yes Charge. The Company continues to identify and
market to prospective alliance companies. The Company's marketing arrangements
provide national coverage while reducing the costs associated with an in-house
sales organization.
COMPETITION
Thousands of companies are involved in medical billing and consumer finance
and these industries are generally highly competitive. The Company has divided
what it considers to be its competition into two types; direct competitors and
indirect competitors. Direct competitors include traditional credit cards and
other companies that market financial products in the self-pay and elective
services market. Indirect competitors include substitutes for the Company's
products such as in-house finance, collection agencies and banks. While there
are a number of competitors and substitutes for the Company's products, the
Company believes the market for patient finance services is not now highly
competitive. However, as larger financial institutions look towards patient
finance as the "last frontier" of consumer finance the competitive nature of the
industry could become more highly competitive in the near future.
DIRECT COMPETITION
The number of firms competing within the industry remains relatively small
without any significant large company participants. The Company currently
estimates that there are between 40 and 50 firms which it would identify as
competitors on a regional
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basis throughout the United States. In addition, the Company has identified
approximately six firms which provide competing services or products on a
national basis. However, the nature of the health care crisis today and the
increasing awareness among larger financial institutions, such as Chase
Manhattan Bank, of patient financing being the "last frontier" of consumer
finance has created a particularly keen awareness of this emerging market. As
a result, the Company expects to see new entrants enter into the market over
time.
VISA AND MASTERCARD: Visa and MasterCard together process over $10 billion
in non-recourse health care related transactions each year. This number is
relatively small when compared to the astronomical amount of overall consumer
credit processed by Visa and MasterCard yearly. Visa and MasterCard serve two
important functions for consumers. The first is as a source of loaned funds and
the second is as a convenient, and often necessary, payment device for hotels,
car rentals and other consumer purchases. There are, however, many reasons why
consumers do not use their Visa or MasterCard to make expensive health care
purchases. Once an individual has used the credit line available to him, the
card ceases to function as a payment device, often with embarrassing and
frustrating consequences. In general, consumers will work hard to maintain
available credit on their Visa or MasterCards. Many consumers have already
reached the limit on their credit cards, but this does not necessarily mean they
do not qualify for additional credit. In theory, these consumers could request
an increased line from their bank, and some do, but others do not know how to
request an increase, or are afraid of being rejected. Some consumers, that do
not qualify for an increased credit line from their bank, do qualify for a pass-
through loan program. Many health care consumers simply take the credit product
offered at the health care provider's office without even thinking about
alternatives. Few, if any, banks issuing Visa and MasterCards have real time
approval capability as does the Company. Fast decisions on a credit application
are important because providers like to schedule appointments before the patient
has left the office. Finally, a significant percentage of the adult population
does not have a traditional credit card. While it is true that many people are
marginal credit risks, many have jobs and can still be profitably financed with
recourse or pass-through products.
INDIRECT COMPETITION
Indirect competition includes any substitute for the Company's products.
Substitutes would include in-house financing, collection agencies, personal bank
loans and any other source of credit a customer can find to purchase a desired
service. As explained before, in-house finance is generally not an attractive
option even if on the surface it appears to be less expensive. Turning a past
due account over to a collection agency can make the provider appear cruel and
result in a significant amount of lost business in the long term. Many consumers
do not qualify for personal bank loans and in some cases would be reluctant to
discuss with the loan officer what the money is to be used for. The Company
believes, therefore, that many providers and customers will find the Company's
products a superior alternative.
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Although there are a few competitor organizations that have been providing
products and services for some number of years the industry remains relatively
immature. There are currently no centralized associations, national
organizations or organized industry groups. This is largely a result of the
regional and fragmented nature of the industry. The Company anticipates that as
the industry grows and matures, and as more health care providers and consumers
become aware of the services the industry has to offer, opportunities for growth
through acquisition and strategic alliance may occur.
PRODUCT LIABILITY INSURANCE
Due to the nature of the Company's current and future activities, the
Company does not currently carry Product Liability Insurance nor does the
Company foresee a need for such coverage in the future.
TRADEMARKS
The Company currently has one registered trademark, "PATIENT
PLUS-Registered Trademark-" along with its respective design. The Company and
its subsidiaries utilize this mark in connection with the marketing and
identification of certain of its products and services. The Company believes
this mark is valuable and material to it and its subsidiaries' marketing
efforts.
EMPLOYEES
At March 31, 1996, the Company had 7 employees. None of the Company's
employees are represented by a labor organization. The Company considers its
relations with its employees to be satisfactory.
ITEM 2. PROPERTY
The Company's facilities are comprised of a 2,750 square foot
administrative office in Colorado Springs, Colorado; a 880 square foot office
facility in Santa Barbara, California and a 1,500 square foot office facility in
Irvine, California. The Company leases its office facilities in Colorado
Springs, Santa Barbara and Irvine under month to month lease agreements. The
office space is fully utilized and management believes it to be suitable and
adequate for its reasonably foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
On March 14, 1995 the former president of the Company, Mark Snyder, filed
suit in the El Paso County District Court, Civil Action No. 95-CV-0422, styled
Mark A. Snyder v. MEDPLUS CORPORATION, a Delaware Corporation, alleging failure
of the Company to make certain payments under a promissory note. Management is
vigorously contesting this litigation, has denied any failure to pay and has
asserted certain counter
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claims against the former president. Management does not believe that the
lawsuit will have a material adverse effect on the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
ended March 31, 1996 to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
On September 17, 1987, the Company made an initial public offering of
5,185,000 shares of common stock at a price of $1.00 per share as Vision
Technologies International, Inc. The Stock is traded on the NASDAQ Bulletin
Board under the symbol MPPI. The high and low bid prices are set forth through
March 31, 1996 by fiscal quarter on the following table:
Bid High Bid Low Bid
- - --- -------- -------
1st quarter ended June 30, 1994 11/16 1/4
2nd quarter ended September 30, 1994 5/16 1/32
3rd quarter ended December 31, 1994 1/4 1/20
4th quarter ended March 31, 1995 1/4 1/14
1st quarter ended June 30, 1995 .21 .17
2nd quarter ended September 30, 1995 3/16 2/16
3rd quarter ended December 31, 1995 .18 .10
4th quarter ended March 31, 1996 1-6/16 9/16
The Company has not declared any cash dividends on its common equity in the
past two years and has no present intention to pay cash dividends in the
foreseeable future.
The foregoing prices represent high and low closing bid prices, which
reflect quotations between dealers without adjustments for markups,
markdowns or commissions and may not represent actual transactions. On
July 15, 1996, the closing price of the Company's common stock on the
NASDAQ Bulletin Board was $.37 bid and $.50 asked. As of July 15, 1996
and to the best of the Company's knowledge, there were approximately
975 holders of its common stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the periods and at the dates
indicated, selected consolidated financial data for the Company. The data
includes results of operations of acquired companies subsequent to the
effective date of each acquisition. The selected consolidated financial data
for the five fiscal years ended March 31, 1996 have been derived from the
audited consolidated financial statements of the Company. This information
should be read in conjunction with the consolidated financial statements of
the Company and the notes thereto. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Year Ended March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 80,503 $ 103,523 $ 52,468 $ 17,654 $ 0
Income/(Loss)
From Operations (403,499) (480,924) (588,611) (478,156) (280,017)
Income/(Loss)
From Operations
Per Share (0.07) (0.12) (0.14) (0.13) (0.18)
Year Ended March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total Assets $ 46,234 $ 52,804 $ 218,960 $ 398,021 $ 542,178
Total Liabilities 527,163 662,182 550,966 378,667 147,058
Working Capital (495,231) (523,180) (498,300) (154,910) 207,096
Long Term Debt
and Capitalized
Leases 0 123,555 0 4,587 0
Stockholders' Equity (480,929) (609,381) (332,006) 19,354 395,120
NOTE
Prior to 1993, the Company was in the business of the design, research,
development, manufacture and sale of intraocular lenses and other ophthalmic
products. Management of the Company, in late 1992, decided to redirect the
Company's activities into the health care financial services industry. The
Company had no operations during the fiscal year ended March 31, 1992 as it was
in the process of redirecting the Company's activities into other viable
industries and was inactive save for administrative expenses. As stated above,
the Company, in late 1992, decided to redirect the Company's activities into the
health care financial services industry through the acquisition of Lincoln
Professional Services and Financial Health Network. All the revenues and start-
up costs associated with the Company's operations relating to its health care
financial services products are reflected in the Selected Financial Data for the
fiscal years ended March 31, 1993, 1994, 1995 and 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated the funds necessary to meet its
working capital needs through internally generated funds, the private sale of
common stock in August, 1987 and prior years, and the sale of common stock in
its initial public offering in September, 1987.
At March 31, 1996, the Company had working capital of ($495,231)
compared to working capital of ($523,180) at March 31, 1995. The increase in
working capital is primarily due to a conversion of debt and deferred
salaries into the Company's common stock by a director and officers of the
Company. The Company's current liabilities are higher than its assets due
primarily to short-term loans evidenced by one year promissory notes, from
shareholders of the Company, which promissory notes are to be paid out of
future financing.
The Company's liquidity position is severely strained. Liquidity needs
are currently being met from the proceeds of a private placement sold
pursuant to Regulation D under the Securities Act of 1933. Because the
Company has not achieved positive cash flow from its operating activities,
the Company's ability to continue operations is dependent upon the Company's
ability to raise additional equity and/or debt financing. This and other
factors raise substantial doubt as to the Company's ability to continue as a
going concern. Management believes the Company needs approximately $750,000
in equity or debt financing in order to sustain operations for the twelve
months following the year ended March 31, 1996. As of March 31, 1996, the
Company was anticipating a capital infusion of $10 million to be received
from Starboard Holding Co. ("Starboard") in connection with its planned
purchase of 28,125,000 shares of Medplus common stock, pursuant to a
previously executed letter of intent. However, Starboard was unable to
perform under the terms of the letter of intent and management therefore is
considering alternative sources of capital. Management is continuing its
efforts to raise equity financing in order to meet its long-term and
short-term liquidity needs. Although the Company is actively engaged in
activities with intent to raise equity financing in order to meet its
long-term liquidity needs, there can be no assurance that the Company will be
able to consummate the transaction and/or raise the additional financing
necessary for continuing operations. As of March 31, 1996 there were no known
demands, commitments or uncertainties affecting cash flows other than normal
accounts payable demands.
RESULTS OF OPERATIONS
REVENUE
Revenue derived from the sale of the Company's products was $80,503 for the
fiscal year ended March 31, 1996 as compared to $103,523 in operating revenue
for the
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fiscal year 1995 and $52,468 in operating revenue for fiscal year 1994. The
Company's revenue decrease over fiscal year 1995 is primarily attributable to
a decline in approval rates by the Company's former lender. In November,
1995, the Company signed an agreement with CareCard Northwest-TM-
("CareCard") to provide CareCard's two health care credit cards, CareCard
Northwest-TM- and CareLine Northwest-TM- to health care, dental care, death
care and veterinary care providers across the nation. The CareCard programs
are financed under an agreement between CareCard and United States Bank of
Oregon, a U.S. Bancorp. Company, Member FDIC. It is expected that this
relationship with CareCard will significantly improve the Company's approval
rates to its health care providers across the nation.
Also, in November , 1995, the Company acquired Surgical Funding Group
("SFG") located in Irvine, California. SFG was a provider of health care
financing to plastic surgeons nationwide. Revenues generated by SFG since its
acquisition in November total $32,761. Without the acquisition of SFG,
revenues for the period ended March 31, 1996 would have totaled $47,742.
Revenues pertaining to annual provider fees for the years ended March
31, 1996, 1995 and 1994 were $3,800, $27,614 and $11,512 respectively.
OTHER OPERATING EXPENSES
Sales and Marketing expenses decreased by 73% to $50,328 for the fiscal
year ended March 31, 1996 as compared to $189,385 expense for fiscal year
1995 and $253,530 expense for fiscal year 1994. The 73% decrease in sales and
marketing expenses during fiscal year 1996 and 1995 are attributable to cost
reduction measures due to the Company's strained financial position.
Sales and Marketing expenses decreased by 25% to $189,385 for the fiscal
year ended March 31, 1995 as compared to $253,530 expense for fiscal year
1994. The 25% decrease in sales and marketing expenses are attributable to
cost reduction measures due to the Company's strained financial position.
General and Administrative expenses increased by 3% to $400,865 during
the fiscal year ended March 31, 1996 as compared to $387,452 during fiscal
year 1995 and $368,557 during fiscal year 1994. The 3% increase in General
and Administrative expense in fiscal year 1996 are attributable primarily to
a write-off of goodwill associated with the acquisition of LPS of
approximately $25,000.
General and Administrative expenses increased 5% to $368,557 during
fiscal year 1995 as compared to $ 368,557 during fiscal year 1994. During
fiscal year 1995 the Company took charges to General and Administrative
expense for prepaid offering costs associated with prior equity offerings
totaling $38,686, legal expense associated with the settlement of the
Company's facility lease with a previous landlord in California totaling
$45,560, a loss on liquidation of assets associated with the Company's move
to new
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administration offices in December 1994 totaling $19,330 and a write-down of
goodwill associated with the acquisition of LPS of $79,346. If not for the
charges mentioned above General and Administrative expense for fiscal year
1995 would have decreased 45% to $204,530. The 45% decrease in General and
Administrative expense in fiscal year 1995 is attributable to cost reduction
measures due to the Company's strained financial condition.
NET LOSS
The Company had a net loss of $403,449 for the fiscal year ended March
31, 1996 as compared to a net loss of $480,924 for fiscal year 1995 and a net
loss of $588,611 for fiscal year 1994. The reduction in the Company's net
loss for fiscal year 1996 and 1995 was due to cost reduction measures
implemented due to the Company's strained financial condition.
The Company has not been required to pay income taxes for the past three
fiscal years due to its net loss position in each of the respective fiscal
years.
Management believes that inflation has not had a significant impact on
the prices of the Company's products, the cost of its materials or its
operating results.
SUBSEQUENT EVENTS
On April 1, 1996 the Company completed its acquisition Yes Charge,
located in Ventura, California. Yes Charge provides patient financing to a
significant provider base of dentists nation wide and has a strong presence
in California. Under the terms of the agreement Yes Charge will retain its
marketing facilities in California.
In May, 1996 the Company became a member provider of JustCare, Inc.
- - -Registered Trademark- ("JustCare"), an agency cooperative located in Denver,
Colorado. As a member provider of JustCare the Company offers its products
and services to other member providers, consumers and employer groups within
the cooperative nation wide. As a member provider of JustCare the Company
will save time, effort and money by not having to contract with other member
providers, consumers and employer groups on an individual basis. The agency
cooperative provides that service through a single contract to other member
providers, consumers and employer groups. The Company is currently
negotiating a letter of intent with JustCare-Registered Trademark-
Development, LLC ("JDL"), the holding company for JustCare to provide
management services for the agency cooperative. It is anticipated that under
this management agreement, the Company will provide JustCare with
administrative and marketing services on a cost plus 20% basis. Also under
negotiation with JDL is a possible investment, by the Company, for an equity
position in JDL. The terms of the investment are still under negotiation and
would be contingent upon the execution of a management agreement between the
Company and JDL and an equity investment in the Company.
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In May, 1996 the Company formed and incorporated a wholly owned
subsidiary, Patient Plus Occupational Health Centers, Inc. ("Patient Plus"),
for the purpose of providing management and delivery of occupational and
environmental medicine. Patient Plus intends to focus its marketing efforts
primarily toward employers and employee groups ranging in size from large
corporations to small businesses. Patient Plus currently operates one health
care facility in Colorado Springs, Colorado through a joint venture with
HealthQuest, Inc. ("HealthQuest"), and plans to open a second facility in
Colorado Springs on or about the end of July, 1996.
On February 28, 1996, the Company executed a non-binding letter of
intent (the "Letter") with Starboard Holding Co. ("StarBoard"), located in
the Caymen Islands, to complete a private placement purchase by Starboard of
the Company's common stock. Under the terms of the letter of intent Starboard
would purchase 28,125,000 shares of the Company's common stock at a purchase
price of $0.3556 per share resulting in net proceeds of approximately
$8,500,000. In June, 1996, after repeated non-performance under the terms of
the Letter on the part of Starboard, management decided to pursue other
alternative financing.
On July 1, 1996 the Company initiated a private placement memorandum to
sell a minimum of 1,000,000 and a maximum of 3,000,000 shares of the
Company's common stock (the "Common Stock") at a per share price of $0.25 per
share together with warrants to purchase up to 1,500,000 shares of Common
Stock at an exercise price of $0.45 per share (the "Warrants"). If the
minimum or the maximum amount of shares are sold , the net proceeds to the
Company will be approximately between $250,000 and $750,000 dollars. The
Company expects to utilize the proceeds from the private placement to support
its marketing efforts while it pursues other equity financing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent accountants and financial statements appear on
page F1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company.
Name Age Position
---- --- --------
James W. Snyder 58 Chairman of the Board of
Directors; Chief Executive
Officer; Secretary and
Treasurer
Tim C. DeHerrera 38 President
Robert T. Ryman 46 Vice President of Finance,
Chief Financial Officer
Robert A. Spade 49 Director
Phillip R. Beutel 78 Director
P. James Voloshin 54 Director
James W. Snyder was elected Director in 1986 and Robert A. Spade was
elected Director in 1995. Phillip R. Beutel was elected Director in May 1993.
P. James Voloshin was elected Director in January 1996. Each director will hold
office until the next annual meeting of stockholders or until his successor is
duly elected and qualified. The officers of the Company are elected by the Board
of Directors and hold office until their successors are elected or until
resignation or removal by the Board of Directors.
James W. Snyder has been Chairman of the Board of the Company since
December 1986. Mr. Snyder reassumed the position of Chief Executive Officer in
July 1994 upon the resignation of Mark A. Snyder. Mr. Snyder held the office of
President until February 1995 upon the election of Robert A. Spade to that
Office. From December 1984 to May 1985, Mr. Snyder was President of Dermalock
Medical Corp., a manufacturer of health care products. From June 1982 to
December 1984, he was President and Chief Executive Officer of Intermedics
Intraocular, Inc., a manufacturer of ophthalmic devices, and was Chief Executive
Officer and Director of Intermedics Ophthalmics, Inc., its international
marketing subsidiary. From March 1980 to June 1982, he served as Vice President-
Sales and a director of IOLAB Corporation ("IOLAB"), a
15
<PAGE>
subsidiary of Johnson & Johnson, which produces intraocular lenses and other
ophthalmic products. Before joining IOLAB, Mr. Snyder founded Surgical
Concepts, Inc. in 1977 and was President of the Company through 1980.
Surgical Concepts, Inc. was a sales and marketing company that represented
IOLAB in most of the eastern United States until IOLAB was acquired by
Johnson & Johnson in 1980.
Tim C. DeHerrera has held the office of President of the Company since
January 1996. Prior to that Mr. DeHerrera was Executive Vice President in charge
of marketing from November 1992 until January 1996. From January 1992 until
November 1992, Mr. DeHerrera was President of Financial Health Network, Inc.
("FHN"). From June 1991 through December 1991, Mr. DeHerrera was Vice President
of Special Projects for International Finance Alliance, Inc. ("IFA"), a health
care financial services company involved in patient financing. From October 1990
through June 1992, Mr. DeHerrera was an agent with Phoenix Mutual Life Insurance
Company. From January 1990 until October 1990, Mr. DeHerrera was a Regional
Sales Manager with Pennsylvania Life Insurance Company. From January 1987 to
December 1989 Mr. DeHerrera was President of Skyhawk Helicopter and was
accountable for the total operation of the corporation. From May 1983 until
January 1987, Mr. DeHerrera owned and operated the DeHerrera Companies. The
DeHerrera Companies was a full service real estate brokerage and development
company.
Robert T. Ryman has been Vice President of Finance and Chief Financial
Officer of the Company since May 1993. From June 1988 until May 1993, Mr. Ryman
owned and operated Ryman Financial Services, a financial consulting company
involved in providing financial services to start-up and small to mid-size
companies. Ryman Financial Services, and Mr. Ryman in particular, acted as a
part time Chief Financial Officer for the Company's predecessor, Vision
Technologies International, Inc., from August 1988 until the Company's move to
Colorado in June 1991. From June 1986 until June 1988, Mr. Ryman was the Vice
President of Finance and Chief Financial Officer of Total Pharmaceutical Care,
Inc., a provider of home infusion I.V. therapy and nursing services. From
January 1983 until June 1986, Mr. Ryman was the Director of Finance for
Innovative Surgical Products, Inc. (now owned by Inamed Corporation, a public
company), a manufacturer and distributor of wound drainage and ophthalmic
products.
Robert A. Spade has been a Director of the Company since February 1995. Mr.
Spade held the office of President of the Company from February 1995 until
January 1996, upon the election of Tim C. DeHerrera to that office. Mr. Spade is
currently the Managing General Partner of 17 commercial real estate limited
partnerships as well as Chairman of the Board of Directors and President of
Communication Systems International, Inc. He is also an adjunct professor of
international corporate finance at the International School of Management, a
graduate business school that specializes in international business with
campuses in the United States, Germany and Taiwan. He previously worked with the
World Bank and the Executive Office of the President of the United States. Mr.
Spade holds a Bachelor of Arts from the University of California at
16
<PAGE>
Santa Barbara, where he graduated valedictorian and Phi Beta Kappa, and a
Masters Degree from the Johns Hopkins School of Advanced International
Studies.
Phillip R. Beutel has been a director of the Company since May 1993. Mr.
Beutel co-founded Intermedics, Inc. (now Sulzer Medica), and served as
President, Chief Executive Officer, Chairman of the Board, and director from
1973 to 1979. Sulzer Medica manufactures and distributes cardiac pacemakers. Mr.
Beutel was the founder of Alva Medical which is now Malinckrodt Cardiology, a
division of Malinckrodt Medical. From 1981 to the present, Mr. Beutel was a
founder of and served as President, Chairman of the Board, and director of
Cardiac Control Systems, Inc., a public company.
P. James Voloshin, MD has been a Director of the Company since January
1996. Dr. Voloshin is a plastic surgeon and has been President of the Newport
Institute of Surgery, located in Newport Beach, California, since 1986. Dr.
Voloshin co-founded Surgical Funding Group, Inc. in 1992 and was its President
until the Company's acquisition of Surgical Funding in November 1995. Dr.
Voloshin is a member of ten medical societies including the American Society of
Aesthetic Plastic Surgery. Dr. Voloshin holds a medical degree from the
University of Alberta.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership with the Securities Exchange Commission.
Executive officers and directors are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based soley on a
review of the copies of such forms furnished to the Company and written
representations from the Company's executive officers and directors, the Company
notes that two officers; Tim C. DeHerrera and Robert T. Ryman and four
directors; James W. Snyder, Robert A. Spade, Phillip R. Beutel and P. James
Voloshin inadvertently failed to file on a timely basis approximately 10 reports
relating to transactions involving common stock of the Company owned by them.
The officers and directors mentioned above are in the processes of complying
with the regulations.
ITEM 11. EXECUTIVE COMPENSATION
None of the Company's executive officers received compensation in excess of
$100,000 for services rendered during the fiscal year ended March 31, 1996. The
following tables set forth the compensation received by the Company's Chief
Executive Officer for services rendered during the last three fiscal years ended
March 31, 1996.
Annual Compensation
Capacity in -------------------
Individual which served Fiscal Year Salary Bonus Other
- - ---------- ------------ ----------- ------ ----- -----
James W. Snyder CEO March 31, 1996 $22,750 None $83,255(2)
Mark A. Snyder CEO March 31, 1995 None None $6,500
James W. Snyder CEO March 31, 1995 $54,000(1) None None
Mark A. Snyder CEO March 31, 1994 None None None
17
<PAGE>
(1) Mr. Snyder elected to defer $30,000 of his $54,000 annual Salary in an
effort to improve cash flow.
(2) In January 1996 the Company's Board of Directors approved the issuance of
555,036 of the Company's common stock to Mr. Snyder for the forgiveness of
approximately $83,255 of deferred salary which amount included the $30,000
of deferred compensation referenced in footnote (1).
STOCK OPTION PLAN. The Company's Stock Option Plan (the "Option Plan") was
adopted by the Company's Board of Directors and approved by the stockholders in
April 1994. A total of 3,000,000 shares of Common Stock were reserved for
issuance under the Option Plan. The Option Plan provides for the granting to
certain consultants and employees of stock options, stock appreciation rights
and supplemental bonuses. The Plan permits the grant of both "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986
(the "Code"), and non-statutory options, which do not meet the requirements of
Section 422. The Company has issued stock options in the amount of 459,462
shares to consultants of the Company and all have been exercised. A total of
2,540,538 shares remain available.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of July 15, 1996 regarding
the Company's Common Stock owned of record or beneficially by (i) each person
known to the Company who owns beneficially 5% or more of the Company's Common
Stock; (ii) each of the Company's directors; and (iii) all officers and
directors as a group.
Shares of Common Percentage of Shares
Name of Beneficial Stock Beneficially of Common Stock
Owner Owned (1) Beneficially owned
- - ------------------ ------------------ --------------------
James W. Snyder (2) 898,036 8.7
(Officer and Director)
Robert T. Ryman (2) 504,000 (3) 4.9
(Officer)
Tim C. DeHerrera (2) 710,713 (4) 6.9
(Officer)
Phillip R. Beutel (2) 326,666 (5) 3.2
(Director)
Robert A. Spade (2) 1,770,804 (6) 17.2
(Director)
P. James Voloshin (2) 468,806 4.5
(Director)
18
<PAGE>
All Officers and Directors 4,679,025 45.4
as a group (six persons)
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) The address of Messrs. J.W. Snyder, R.T. Ryman, T.C. DeHerrera, R. A.
Spade, P.R. Beutel and P. James Voloshin is MEDPLUS CORPORATION, 8 South
Nevada Ave., Suite 500, Colorado Colorado Springs, Colorado, 80903.
(3) Of the 504,000 shares beneficially owned by Mr. Ryman, 250,000 shares are
in the form of stock purchase warrants which entitle Mr. Ryman to exercise
his right to purchase between January, 1996 and January, 1998 at $.20 per
share.
(4) Of the 491,380 shares beneficially owned by Mr. DeHerrera, 240,380 shares
are in the form of stock purchase warrants which entitle Mr. DeHerrera to
exercise his right to purchase between January, 1996 and January, 1998 at
$.20 per share.
(5) Of the 326,666 shares beneficially owned by Mr. Beutel, 50,000 shares are
in the form of a stock purchase warrant which entitle Mr. Beutel to
exercise his right to purchase between January, 1996 and January, 1998 at
$.20 per share.
(6) Of the 1,770,804 shares beneficially owned by Mr. Spade, 82,520 shares are
in the form of stock purchase warrants which entitle Mr. Spade to exercise
his right to purchase between January, 1996 and January, 1998 at $.20 per
share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At March 30, 1994, the Company had accrued salaries of $85,000 each for
Mark A. Snyder, Chief Executive Officer, and Mr. James W. Snyder, Chairman and
Chief Operating Officer. On March 31, 1994, in order to improve the Company's
financial position and increase its options and alternatives relative to future
financing, Mark A. Snyder forgave all his accrued salary of $85,000 and James W.
Snyder forgave $25,000 of his accrued salary.
At March 30, 1994 the Company had a note payable to Mark A. Snyder of
$82,250 as a result of a series of four loans made to the Company by Mr. Snyder
starting in July 1993. On March 31, 1994, in order to improve the Company's
financial position and increase its options and alternatives relative to future
financing, Mr. Snyder forgave $37,250 of the outstanding note thereby reducing
the Company's liability to $45,000.
On March 8, 1994, Mark A. Snyder transferred 950,000 shares of the
Company's common stock, beneficially owned by Mr. Snyder through JADREW
Corporation to James W. Snyder.
On March 8, 1994, James W. Snyder transferred 427,500 shares of the
Company's common stock beneficially owned by Mr. Snyder to Marlene Snyder, Mr.
Snyder's former spouse.
19
<PAGE>
On May 16, 1994, Mark A. Snyder and James W. Snyder surrendered 492,000 and
179,500 shares of the Company's common stock, respectively, which shares were
granted to them in association with their execution of personal guaranties of
operating lease arrangements that are no longer in affect.
In January, 1996, the Company's Board of Directors approved the issuance of
1,070,369 shares of the Company's common stock to three of the Company's
officers; James W. Snyder, Tim C. DeHerrera and Robert T. Ryman in exchange for
the forgiveness by such officers of approximately $160,555 in deferred salaries.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of MEDPLUS
CORPORATION are included in part II, Item 8.
Consolidated financial statements for the fiscal years ended
March 31, 1996, March 31, 1995 and March 31, 1994.
Page
----
Reports of independent accountants........................ F-1
Balance Sheets at March 31, 1996 and
March 31, 1995 ..................................... F-2
Statements of operations for the years
ended March 31, 1996, March 31, 1995
and March 31,1994................................... F-3
Statements of stockholders' equity for
the years ended March 31, 1996,
March 31, 1995 and March 31, 1994................... F-4
Statement of cash flows for the years
ended March 31, 1996, March 31, 1995
and March 31, 1994.................................. F-5
Notes to financial statements............................ F-6
(a) 2. Financial Statement Schedules
No financial schedules are included herein because they
are inapplicable. Schedules not listed are omitted because
they are not required under the instructions or because the
required information is given in the financial statements or
notes thereto.
21
<PAGE>
(a) 3. Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation
of Vision Technologies International, Inc. *
3.2 Certificate of Merger of Varitek Research Inc.
and Vision Technologies International, Inc. *
3.3 By-Laws of the Registrant *
10.1 Sale and Purchase Contract for the Company's Purchase of
the Assets of Surgical Funding Group, Inc. Dated
November 10, 1995. ***
10.2 Sale and Purchase Agreement for the Company's Purchase
of the Assets of Yes Charge Dated April 1, 1996.
15.3 Amended and Restated Certificate of Incorporation
of Vision Technologies International, Inc. to
Change the Name of the Company to MEDPLUS
CORPORATION ******
16.1 Stock Option Plan of the Registrant *******
16.2 Business Consulting and Options Agreement with
Mr. John Banas ********
21.1 Subsidiaries of the Registrant
27.0 Financial Data Schedule
* Filed with Registration Statement (Registration Statement No. 33-
13006-LA) on Form S-18 on or about April 3, 1987, and incorporated herein by
reference.
*** Filed on Form 8-K on or about March 11, 1996 (Commission File Number
0-16286) and incorporated herein by reference.
****** Filed on Form 10-K on or about July 1, 1993 (Commission File Number
0-16286) and incorporated herein by reference.
22
<PAGE>
******* Filed with Registration Statement (Registration Statement No. 33-
77700) on Form S-8 on or about April 13, 1994, and incorporated herein by
reference.
******** Filed on Form 8-K on or about May 13, 1994, (Commission File
Number 0-16286) and incorporated herein by reference.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the fiscal
quarter ended March 31, 1996 and is incorporated herein by reference.
- Form 8-K filed March 11, 1996 reporting the Company's Purchase of
Surgical Funding Group, Inc.
23
<PAGE>
[Letterhead]
INDEPENDENT AUDITORS' REPORT
Medplus Corporation
Colorado Springs, CO
We have audited the accompanying consolidated balance sheets of Medplus
Corporation and its Subsidiaries (Medplus) as of March 31, 1996 and 1995 and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the three years in the period ended March 31, 1996. These
consolidated financial statements are the responsibility of Medplus' management.
Our responsibility is to express an opinion on the consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Medplus as of March
31, 1996 and 1995 and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 1996 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Medplus will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, Medplus' significant operating losses and
shareholders' deficit raise substantial doubt about its ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
July 12, 1996
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
- - --------------------------------------------------------------------------------
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 7,778 $ 14,212
Accounts receivable 23,639
Prepaid expenses and other current assets 515 1,238
----------- -----------
Total 31,932 15,450
----------- -----------
PROPERTY (Note 1)
Office equipment 16,966 17,428
Furniture, fixtures and leasehold improvements 3,033
----------- -----------
Total 19,999 17,428
Less accumulated depreciation 10,072 7,047
----------- -----------
Net 9,927 10,381
----------- -----------
GOODWILL -- Net of accumulated amortization of
$15,906 in 1995 (Note 1) 26,973
OTHER (Note 2) 4,375
----------- -----------
TOTAL $ 46,234 $ 52,804
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 192,038 $ 133,924
Accrued expenses (Note 1) 121,582 62,343
Deferred salaries 8,073 171,580
Current portion of notes payable to related parties (Notes 3 and 5) 205,470 170,783
----------- -----------
Total 527,163 538,630
LONG-TERM PORTION OF NOTE PAYABLE (Notes 3 and 5) 123,555
----------- -----------
Total 527,163 662,185
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 8)
SHAREHOLDERS' DEFICIT
Preferred stock, $.001 par value; authorized 2,000,000
shares; no shares issued or outstanding
Common stock, $.001 par value; authorized, 30,000,000
shares; issued and outstanding, 8,895,278 and 3,943,922
in 1996 and 1995, respectively (Notes 3 and 5) 22,789 17,838
Common stock subscribed, $.001 par value; 567,000 and
881,000 shares in 1996 and 1995, respectively 567 881
Additional paid-in capital (Notes 3 and 5) 6,851,145 6,323,831
Accumulated deficit (7,355,430) (6,951,931)
----------- -----------
Total (480,929) (609,381)
----------- -----------
TOTAL $ 46,234 $ 52,804
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements
- - --------------------------------------------------------------------------------
F-2
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
<TABLE>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUE $ 80,503 $ 103,523 $ 52,468
--------- --------- ---------
OPERATING EXPENSES
General and administrative (Notes 4 and 7) 400,865 387,452 368,557
Sales and marketing 50,328 189,385 253,530
--------- --------- ---------
Total 451,193 576,837 622,087
--------- --------- ---------
Loss from operations (370,690) (473,314) (569,619)
--------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense including discount amortization (32,809) (7,610) (19,626)
Interest income 634
--------- --------- ---------
Total (32,809) (7,610) (18,992)
--------- --------- ---------
NET LOSS $(403,499) $(480,924) $(588,611)
--------- --------- ---------
--------- --------- ---------
NET LOSS PER SHARE $ (0.07) $ (0.12) $ (0.14)
--------- --------- ---------
--------- --------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,826,238 4,032,460 4,169,396
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
- - --------------------------------------------------------------------------------
F-3
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- - -------------------------------------------------------------------------------
<TABLE>
COMMON STOCK COMMON ADDITIONAL NET
------------------ STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SUBSCRIBED CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1993 3,943,756 $17,838 $5,883,912 $(5,882,396) $ 19,354
Issuance of common stock 266,666 267 199,733 200,000
Contribution of capital 37,251 37,251
Net loss (588,611) (588,611)
--------- ------- ---- ---------- ------------ ----------
BALANCE, March 31, 1994 4,210,422 18,105 6,120,896 (6,471,007) (332,006)
Issuance of common stock 230,000 230 64,770 65,000
Issuance of common stock to satisfy
accounts payable 25,000 25 6,225 6,250
Common stock returned at no cost (671,500) (672) 672
Issuance of common stock at no cost 150,000 150 (150)
Common stock subscribed $881 131,418 132,299
Net loss (480,924) (480,924)
--------- ------- ---- ---------- ------------ ----------
BALANCE, March 31, 1995 3,943,922 17,838 881 6,323,831 (6,951,931) (609,381)
Issuance of common stock for cash 1,467,002 1,467 170,032 171,499
Issuance of common stock to satisfy notes pay-
able and related accrued interest (Note 3) 850,950 851 126,792 127,643
Issuance of common stock to satisfy
deferred salaries 1,070,369 1,070 159,485 160,555
Issuance of common stock in
acquisition (Note 2) 657,035 657 12,430 13,087
Common stock subscribed 567 56,100 56,667
Issuance of common stock 881,000 881 (881)
Issuance of common stock for services 25,000 25 2,475 2,500
Net loss (403,499) (403,499)
--------- ------- ---- ---------- ------------ ----------
BALANCE, March 31, 1996 8,895,278 $22,789 $567 $6,851,145 $(7,355,430) $(480,929)
--------- ------- ---- ---------- ------------ ----------
--------- ------- ---- ---------- ------------ ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
- - -------------------------------------------------------------------------------
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(403,499) $(480,924) $(588,611)
Adjustments to reconcile net loss to net cash and cash
equivalents used by operating activities:
Depreciation and amortization 26,388 14,021 16,946
Loss on sale of note receivable 8,775
Loss on write-down of goodwill 25,173 79,346
Write-off of deferred offering costs 38,686
Loss on sale of furniture and fixtures 19,330
Common stock issued for services 2,500
Increase in accounts receivable (23,639)
Decrease (increase) in prepaid and other assets 723 9,817 (41,157)
Increase in accounts payable and accrued liabilities 138,237 53,131 152,382
---------- ---------- ----------
Cash and cash equivalents used in operating activities (234,117) (266,593) (451,665)
---------- ---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of furniture and fixtures 5,000 18,500
Purchases of property and equipment (1,050) (2,257) (43,097)
Cash received from acquired subsidiary 1,567
Proceeds from sale of note receivable 25,173
---------- ---------- ----------
Cash and cash equivalents provided by
(used in) investing activities 5,517 16,243 (17,924)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 171,499 65,000
Proceeds from common stock subscribed 56,667 132,299
Payments on notes payable (6,000) (63,294) (2,291)
Proceeds from issuance of notes payable 127,632 230,000
Contribution of capital 37,251
---------- ---------- ----------
Cash and cash equivalents provided by financing
activities 222,166 261,637 264,960
---------- ---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (6,434) 11,287 (204,629)
CASH AND CASH EQUIVALENTS, Beginning of year 14,212 2,925 207,554
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, End of year $ 7,778 $ 14,212 $ 2,925
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES
Common stock issued for net assets of subsidiary $ 13,087
----------
----------
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Common stock issued to satisfy notes payable
and related accrued interest $ 127,643
----------
----------
Common stock issued to satisfy accounts payable
and deferred salaries $ 160,555 $ 6,250
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 18,720 $ 10,056
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL -- MEDPLUS CORPORATION (the "Company") was incorporated in Delaware
in December 1986. The Company and its subsidiaries operate in the health
care financing industry. It has developed and introduced its private label
health care credit card, among other products, for health care patients use
in funding the self-pay portion of their health care expenditures. The
Company utilizes a consortium of outside lenders to provide the financing
for its various products.
GOING CONCERN -- The accompanying consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As shown in the accompanying consolidated financial statements,
the Company incurred significant losses from operations during the years
ended March 31, 1996, 1995 and 1994 and at March 31, 1996 and 1995 has
negative working capital and a shareholders deficit. Additionally, the
Company has been unable to generate revenue on a sustained basis. These
factors may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time. The consolidated financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash to
meet its obligations on a timely basis, to obtain financing as may be
required, and ultimately to attain successful operations. Management is
continuing its efforts to obtain additional funds needed for the successful
operation of the Company.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
Surgical Funding Group, Inc. and Lincoln Professional Services, Inc. All
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION -- Revenue is recognized when the patient signs a
financing agreement with the financial institution and patient vouchers are
received from the health care providers.
PROPERTY -- Property is recorded at cost. Depreciation is computed on the
straight-line method over estimated useful lives of five to seven years.
Depreciation expense was $3,025, $7,951 and $10,479 for the years ended
March 31, 1996, 1995 and 1994, respectively.
ACCRUED EXPENSES -- Included in accrued expenses are payroll taxes accrued
and unpaid of $84,621 and $28,296 at March 31, 1996 and 1995, respectively.
USE OF ESTIMATES -- The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates.
F-6
<PAGE>
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
GOODWILL -- Goodwill is recorded for costs in excess of net assets acquired
in the acquisition of certain subsidiaries. Amortization is computed on a
straight-line basis over the estimated useful life of five years. Annually
management evaluates the expected benefits associated with the remaining
recorded goodwill in order to determine an appropriate valuation. At
March 31, 1995 management determined that the value of the recorded
goodwill had declined in 1995 by approximately $79,000. At March 31, 1996,
management determined the goodwill had declined in value an additional
$25,000 to zero. Amounts related to the decline in value of goodwill are
recorded as general and administrative expenses in the statements of
operations.
STATEMENT OF CASH FLOWS -- The Company considers cash on deposit with banks
to be cash and cash equivalents.
NET LOSS PER SHARE -- Net loss per share is computed by dividing net loss
by the weighted average number of shares of common stock outstanding.
Stock options and warrants are not included in the calculation of net loss
per share because their effect would be antidilutive.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior year
amounts in order to conform to current year presentation.
2. ACQUISITION OF SURGICAL FUNDING GROUP
In November 1995, the Company acquired 100% ownership of Surgical Funding
Group (SFG) through the issuance of 657,035 shares of Company common stock.
The acquisition was accounted for as a purchase. SFG is a California
corporation engaged in the medical financing business since August 1992.
Shares of stock issued in connection with the acquisition were valued at
$.02 per share which was the approximate fair market value of the Company's
stock at the acquisition date. Accordingly, the purchase price was
allocated to net assets based on their estimated fair market values. The
net assets acquired included a list of medical providers who are currently
using SFG products or who may use the products. The provider list was
assigned a fair market value of $5,000 of the total purchase price of
$13,000, is being amortized over three years and is included in other
assets in the accompanying consolidated balance sheet. The operating
results of Surgical Funding Group have been included in the Company's
consolidated financial statements since the date of acquisition.
The following unaudited pro forma information combines the results of
operations of the Company and SFG as if the acquisition had occurred at the
beginning of 1995 and 1996, after giving effect to certain adjustments,
including depreciation and amortization.
1996 1995
--------- ---------
Net revenues $ 159,000 $ 227,000
Net loss (410,533) (584,894)
Net loss per common share 0.07 0.16
SFG amounts for 1995 are for the year ended June 30, 1995. SFG amounts for
1996 include the quarter ended June 30, 1995.
F-7
<PAGE>
3. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following at March 31:
1996 1995
-------- --------
Unsecured note payable to Company director bearing
interest at 10% per annum, $10,000 together with
accrued interest and $15,000 together with accrued
interest, is payable upon the Company obtaining
$100,000 and $500,000 in equity financing,
respectively. $ 25,000 $ 25,000
Unsecured note payable to the former President and
director of the Company bearing interest at 18% per
annum. The note is past due. 40,500 40,500
Unsecured note payable to a shareholder and former
officer of the Company. The note is non-interest
bearing, due in equal monthly installments of $2,000
from May 1995 through April 1997 in addition to a
balloon payment of $123,288 payable in May 1997.
This note has been discounted $24,868 and $46,256
at March 31, 1996 and 1995, respectively, to reflect
an effective interest rate of 18%. Payments on this
note are currently in default. 139,970 125,032
Unsecured note payable to a past President of the
Company bearing interest at 18% per annum. In 1996,
the note payable and interest accrued on the note were
converted to common stock. 59,504
Unsecured note payable to partnership controlled by a
past President of the Company bearing interest at 18%
per annum. Principal and accrued interest was due
December 15, 1994. In 1996, the note payable and
interest accrued on the note were converted to common
stock. 44,302
-------- --------
Total 205,470 294,338
Less current portion 205,470 170,783
-------- --------
Long-term portion $ -- $123,555
-------- --------
-------- --------
As of March 31, 1996, all notes are considered current.
F-8
<PAGE>
4. OPERATING LEASE
The Company is a party to a noncancelable lease for office space which was
to expire July 31, 1997. The Company vacated the space in December 1994 in
an effort to terminate the lease. The office space was leased to another
party in 1995. The Company has accrued lease costs through March 31, 1996
of $28,707 and does not expect to incur any additional costs under this
lease.
5. SHAREHOLDERS' EQUITY
The following table summarizes stock option activity for fiscal year ended
March 31, 1995:
Options outstanding at beginning of year:
Options issued 2,000,000
Options exercised (200,000)
Options canceled (1,800,000)
-----------
Options outstanding at end of year --
-----------
-----------
In April 1994, the Company approved a Stock Option Plan and granted a
consultant to the Company the option to purchase 2,000,000 shares of the
Company's common stock at an exercise price of $0.25 per share. The
consultant exercised options to purchase 200,000 shares of common stock
and the remaining 1,800,000 options expired.
The Company received $56,667 and $132,299 in 1996 and 1995,
respectively, for stock subscriptions. The stock subscribed in 1995 was
issued in September 1995.
At March 31, 1996 and 1995, the Company had outstanding warrants to
purchase 1,022,900 and 2,000,000 shares, respectively, of the Company's
common stock at $0.20 to $0.75 per share. The warrants expire at
various dates through May 1997.
6. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of deferred taxes at March 31, 1996 and 1995 are as follows:
1996 1995
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $1,863,000 $1,726,000
Write-down of goodwill not deductible 36,000 27,000
Deferred salaries not deductible 3,000 34,000
---------- ----------
1,902,000 1,787,000
Less valuation allowance (1,902,000) (1,787,000)
---------- ----------
Net deferred taxes $ -- $ --
---------- ----------
---------- ----------
F-9
<PAGE>
6. INCOME TAXES, CONTINUED
As of March 31, 1996, the Company has a net operating loss carryforward of
approximately $5,480,000 which expires beginning in the year 2000. As of
March 31, 1996 and March 31, 1995, the Company has recorded valuation
allowances to reduce existing deferred tax assets since the assets are not
likely to be realized. The valuation allowance increased by $115,000 and
$131,000 during the years ended March 31, 1996 and 1995, respectively.
7. RELATED PARTY TRANSACTIONS
In August 1995, the Company began subleasing office space from a
corporation owned by a Company shareholder. The Company has accrued a
liability of $6,635 at March 31, 1996 for the unpaid rent. The lease is an
oral agreement and renewable on a month-to-month basis.
In December 1994, the Company moved its offices to a location owned in part
by an officer/director of the Company who has not charged the Company rent
for use of the space. This informal lease arrangement was terminated in
July 1995. The Company considered the fair value of the rent provided by
the officer/director to be insignificant.
8. LITIGATION
The Company is in litigation with a former president of the Company who
alleges failure of the Company to make certain payments under a promissory
note in the purported amount of $70,000 to $90,000. Management is
vigorously contesting this litigation, has denied any failure to pay and
has asserted certain counter claims against the former president. No
amounts are recorded in the financial statements of the Company, other than
the $40,500 note payable (and related $16,275 of accrued interest) to the
former president, in anticipation of any losses pursuant to this
litigation.
9. SUBSEQUENT EVENT
In April 1996 the Company acquired 100% of the net assets of Yes Charge, a
patient finance business located in Ventura, California which had annual
revenues of $108,000 (unaudited) in 1995. The purchase was consummated
through the issuance of 100,000 shares of common stock to the owner of Yes
Charge and will be accounted for as a purchase.
In May 1996 the Company formed and incorporated a wholly-owned subsidiary,
Patient Plus Occupational Health Centers, Inc. ("Patient Plus"), for the
purpose of providing management and delivery of occupational and
environmental medicine. Patient Plus intends to focus its marketing
efforts primarily toward employers and employee groups ranging in size from
large corporations to small businesses. Patient Plus currently operates
one health care facility in Colorado Springs, Colorado through a joint
venture and plans to open a second facility in Colorado Springs on or about
the end of July 1996.
F-10
<PAGE>
9. SUBSEQUENT EVENT, CONTINUED
On July 1, 1996, the Company initiated a private placement memorandum to
sell a minimum of 1,000,000 and a maximum of 3,000,000 shares of the
Company's common stock at a per share price of $0.25 per share together
with warrants to purchase up to 1,500,000 shares of common stock at an
exercise price of $0.45 per share. If the minimum or the maximum amount of
shares are sold, the net proceeds to the Company will be approximately
between $250,000 and $750,000. The Company expects to utilize the proceeds
from the private placement to support its marketing efforts while it
pursues other equity financing.
F-11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDPLUS CORPORATION
Date: July 15, 1996 \By\ James W. Snyder
--------------------------------
James W. Snyder
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
\By\ James W. Snyder Chairman; July 15, 1996
- - -------------------------- Chief Executive Officer;
James W. Snyder Director
\By\ Tim C. DeHerrera President; July 15, 1996
- - --------------------------
Tim C. DeHerrera
\By\ Robert T. Ryman V.P. of Finance; July 15, 1996
- - -------------------------- Chief Financial Officer
Robert T. Ryman Chief Accounting Officer
25
<PAGE>
EXHIBIT 10.2
PURCHASE AGREEMENT
This PURCHASE AGREEMENT, dated as of April 1, 1996, between Medplus
Corporation, a Delaware corporation ("MEDPLUS"), and Gregory S.T. Charlton,
D.D.S., Inc. the ("Seller").
RECITALS
WHEREAS, the Seller owns the business located at 5720 Ralston, Suite 304,
Ventura, CA. 93003 and 1514 Sinaloa Dr., Santa Barbara, CA 93108, commonly
known as YES Charge ("The Business").
WHEREAS, The Business is engaged in the business of providing patient
financial services in the dental market.
WHEREAS, MEDPLUS desires to purchase from the Seller, and the Seller
desires to sell The Business to MEDPLUS.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, and other good and valuable considerations, the parties agree
as follows:
1. PURCHASE PRICE AND CONSIDERATION.
1.1 TRANSFER OF OWNERSHIP. Upon the terms and subject to the
conditions herein set forth, the Seller hereby sells, transfers and conveys to
MEDPLUS, and MEDPLUS hereby acquires, The Business free and clear of all claims,
security interests, pledges, mortgages, liens, charges and encumbrances.
1.2 PURCHASE PRICE. In consideration for the sale, transfer and
conveyance of The Business to MEDPLUS, MEDPLUS shall; pay to Seller 100,000
shares of its common stock, time and place to be determined by both parties.
1.3 DELIVERIES. Contemporaneously herewith, the Seller and MEDPLUS
shall each deliver all documents required to be delivered pursuant to Sections
4.1 and 4.2, respectively. All action to be taken and all documents and
instruments delivered in connection herewith shall be considered to have been
taken or delivered simultaneously and no such action, delivery or payment shall
be considered complete until all such action shall have been completed.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller represents and
warrants to and agrees with MEDPLUS that:
2.1 TITLE TO THE BUSINESS. The Seller has valid and marketable title
to The Business free and clear of any claims, security interests, pledges,
mortgages, liens or similar encumbrances of any other person, and has the
absolute and unrestricted right, power, authority and capacity to sell The
Business to MEDPLUS, and upon delivery thereof to MEDPLUS, against payment
therefor, the Seller will transfer to MEDPLUS valid and marketable title
thereto, free and clear of any claims, security interests, pledges, mortgages,
liens or similar encumbrances.
2.2 AUTHORIZATION. This Agreement constitutes the legal, valid and
binding obligation of the Seller, enforceable against his in accordance with its
terms. The Seller's execution and delivery of this Agreement, his compliance
with the terms of this Agreement and the sale of The Business, and after the
giving of notice or lapse of time or both, does not and will not; (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in the creation of a claim, lien,
security interest, charge or encumbrance upon the assets of The Business
pursuant to, or (d) give any third party the right to accelerate any obligation
under any charter, bylaw, agreement, license, instrument, order, judgment or
decree to which the Seller or The Business is subject or by which the Seller or
The Business or any of its assets are bound, or (e) result in a violation of any
law, statute, ordinance, rule or regulation applicable to the Seller or The
Business.
2.3 ORGANIZATION AND EXISTENCE. The Business is a business, validly
existing, and in good standing under the laws of the State of California and has
all power to carry on its respective business as now conducted.
2.4 FINANCIAL STATEMENTS. The Seller has heretofore delivered to
MEDPLUS the financial statements of The Business ("Financial Statements")
consisting of the balance sheets and statements of income and earnings for the
past two years ending December 31, 1995 and for the period ending March 30,
1996 (Financial Statement Date). Except as otherwise set forth therein, the
Financial Statement is complete, is in accordance with the books and records of
The Business, and fairly presents, in all material respects, the assets,
liabilities and financial conditions indicated thereby in accordance with
generally accepted accounting principles consistently applied.
2.5 ASSETS. The Business has good and marketable title to the assets
reflected on its Balance Sheet as being assets of The Business or acquired in
the ordinary course of business since the Financial Statement Date, less assets
disposed of in the ordinary course of business since the Financial Statement
Date (the "Assets"). Except as set forth in the Financial Statements, the
Assets are free and clear of all mortgages, liens, claims, charges, security
interests, encumbrances or other restrictions or limitations whatsoever, except
for liens for taxes not yet payable and such minor encumbrances, easements,
rights of way, restrictions, reservations, limitations and other imperfections
which do not, individually or in the aggregate, materially detract from the
value thereof or impair the present use thereof.
2
<PAGE>
2.6 CONDITION OF TANGIBLE ASSETS. All of the furniture, fixtures,
furnishings, machinery and equipment owned by The Business are in good operating
condition and repair (ordinary wear and tear excepted), are sufficient for the
operation of The Business's respective business as presently conducted, and, to
the knowledge and belief of the Seller, are in conformity in all material
respects with all applicable laws, ordinances, orders, regulations and other
requirements (including applicable zoning, environmental, motor vehicle safety
standards, occupational safety and health laws and regulations) relating thereto
currently in effect.
2.7 CONTRACTS AND COMMITMENTS. Except as set forth on SCHEDULE 2.7,
attached hereto, The Business is not a party to any written or oral commitment,
contract, employment agreement, note, loan, evidence of indebtedness, purchase
order, letter of credit, lease of real or personal property, other agreement, or
material governmental or regulatory licenses or permits required to conduct The
Business's business as presently conducted, collectively, the ("Agreements").
The parties agree that MedPlus shall be entitled to the
commissions received by Dr. Charlton dba Yescharge from Norwest for loans
written after April 1, 1996; said commission payments shall be received and
negotiated by Dr. Charlton and Dr. Charlton shall forward, by check, the amount
of any commission funds received from Norwest for loans written after April 1,
1996. In so agreeing, the parties hereby ratify and confirm that pursuant to
paragraph 2.18 of the Agreement, all rights and interest in any and all remedies
which Dr. Charlton dba Yescharge may have against Norwest are in no way
transferred to MedPlus, and that MedPlus shall have no interest in any proceeds
from any litigation against Norwest by Dr. Charlton dba Yescharge, by way of
settlement, or judgment or otherwise, or in any other damages payable to Dr.
Charlton dba Yescharge by Norwest, except any settlement or judgment which
covers any and all rights to commissions from loans written after April 1, 1996.
MedPlus shall not be a party to, or have any authority over the conduct or
settlement of, any causes of action or litigation by Dr. Charlton dba Yescharge
against Norwest.
By mutual agreement of both parties, April 1, 1996 will be the
start date of the Purchase Agreement, the Covenant-not-to-Compete Agreement, the
Consultant Agreement for Dr. Charlton, and the Employment Agreement for Kendra
Gonzales. Additionally, both parities agree that the commissions received by
Yescharge from Norwest for loans written after April 1, 1996 will be forwarded
to MedPlus on a weekly basis with an accounting of said commissions.
2.8 LIABILITIES. The Business does not have any liabilities or
obligations (absolute, accrued, contingent or otherwise) except; (i) liabilities
which are reflected and reserved against on the Balance Sheet and (ii)
liabilities incurred in the ordinary course of business and consistent with past
practice since the Financial Statement Date.
2.9 TAX MATTERS. All federal, state, county, local and other taxes,
including, without limitation; income, sales and ad valorem taxes; due and
payable by The Business have been paid, and The Business has filed all tax
returns and reports required to be filed by it with all such taxing authorities.
The Business's reserves for federal, state, county, local and other taxes
3
<PAGE>
represent reasonable and adequate provisions for the payment of all accrued and
unpaid federal, state, county, local and other taxes as required by generally
accepted accounting principles.
2.10 COMPLIANCE WITH LAW. To the best knowledge of the Seller, after
due inquiry, The Business and the conduct of its business is in compliance in
all material respects with all applicable laws, statutes, ordinances, and
regulations whets federal, state, local or foreign.
2.11 NO OTHER AGREEMENTS TO SELL THE BUSINESS. Except for the
Seller's obligations hereunder, neither the Seller nor The Business has any
legal obligation, absolute or contingent, to sell all or substantially all of
the Assets or any of The Business, to effect any merger consolidation or other
reorganization of The Business, or to enter into any agreement with respect
thereto.
2.12 EMPLOYEE BENEFIT PLANS. The Business is not a party to any
employee benefit plan.
2.13 TRANSACTIONS WITH CERTAIN PERSONS. No owner or employee of The
Business, nor any member of any such person's immediate family, is presently a
party to any business, including without limitation, any contract, agreement or
other arrangement; (i) providing for the furnishing of material services by,
(ii) providing for the rental of material real or personal property from, or
(iii) otherwise requiring material payments to any such person or corporation,
partnership, trust or other entity in which any such person has a substantial
interest as a shareholder, officer, director, trustee or partner.
2.14 SEVERANCE ARRANGEMENTS. The Business has not entered into any
severance or similar arrangement in respect of any present or former employee or
independent contractors that will result in any obligation (absolute or
contingent) of MEDPLUS or The Business to make any payment to any such person
following termination of employment or service.
2.15 INSURANCE. Set forth on Schedule 2.15 is a complete and accurate
list of all policies or binders of fire, liability, title, worker's
compensation, malpractice and other forms of insurance (showing each policy or
binder, carrier, policy number, coverage limits, expiration dates, annual
premiums, and general description of the type of coverage provided) maintained
by The Business on its business, property or employees. All of such policies
are sufficient for compliance with all requirements of law and of all Agreements
to which The Business is a party. The Business is not in default under any of
such policies or binders, and The Business has not failed to give any notice or
to present any claim under any such policy or binder in a due and timely fashion
where the effect of such default or such failure would be to render a material
claim uninsured. The Seller has no knowledge of any notice from any insurer
advising of reduced coverage or increased premiums on existing policies or
binders. These are no outstanding unpaid claims under any such policies or
binders. Such policies and binders are in full force and effect on the date
hereof.
2.16 ACCOUNTS RECEIVABLE. The accounts receivable reflected in the
Financial Statements represent bona fide claims against debtors for sales,
services performed, or other
4
<PAGE>
charges arising on or before the Financial Statement Date, and all the goods
delivered and services performed which gave rise to said accounts were
delivered or performed in accordance with the applicable orders, contracts or
customer requirements. Said accounts receivable are subject to no defenses,
counterclaims, or rights of setoff and are fully collectable in the ordinary
course of business without extraordinary cost to MEDPLUS in collection
efforts therefor except to the extent of the appropriate reserve of this
Agreement.
2.17 CUSTOMERS AND CLIENTS. Set forth on SCHEDULE 2.18 attached
hereto is a complete list of all the customers and clients of The Business.
Since the Financial Statement Date, there has been no adverse change in the
business relationship of The Business with any customer or client which is
material to the business or financial condition of The Business.
2.18 LITIGATION. Other than the current claim on commission owed
against Norwest Financial, there are no claims, actions, suits proceedings or
investigations pending against or affecting The Business or any of its
respective assets or properties, at law or in equity or before or by any court
or federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, and, to the best of the Seller's knowledge,
there are none threatened against The Business, or any of its respective assets
or properties. MEDPLUS shall not be entitled to any portion of the claim,
settlement or commission owed between Seller and Norwest Financial.
2.19 BROKERS. No person or entity is entitled to any finder's or
brokerage fee or commission or other like payment in connection with the
transactions contemplated by this Agreement based on agreements, arrangements,
or understandings with the Seller.
2.20 KNOWLEDGE OF SELLER. The Seller has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the sale of The Business on the terms and subject to the conditions set forth in
this Agreement.
2.21 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by the Seller in this Agreement, nor any document, exhibit,
statement, certificate or schedule furnished to MEDPLUS pursuant hereto, or
otherwise made by the Seller to MEDPLUS in connection with MEDPLUS's due
diligence review of The Business, contains or will contain untrue statements of
a material fact, or omits or will omit any material fact to make the statements
or facts contained therein misleading.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. MEDPLUS represents and
warrants to and agrees with the Seller that:
3.1 AUTHORITY. MEDPLUS is duly organized, validly existing and in
good standing under the laws of the State of Delaware. MEDPLUS has all
necessary corporate power and authority and has taken all corporate action
necessary to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder. This Agreement
has been duly executed and delivered by MEDPLUS and is a legal, valid and
binding obligation of MEDPLUS enforceable against MEDPLUS in accordance with its
terms.
5
<PAGE>
3.2 NO CONFLICT OR VIOLATION. MEDPLUS's execution and delivery of
this Agreement, compliance with the terms of this Agreement and the purchase of
The Business do not and will not, and after the giving of notice or lapse of
time or both will not, (i) conflict with or result in a breach of the terms,
conditions or provisions of (ii) constitute a default under, or (iii) result in
a violation of any term or provisions of any charter, bylaw, mortgage,
indenture, contract, agreement, instrument, judgment, decree, order, statute,
rule or regulation to which MEDPLUS is subject or by which MEDPLUS is bound, and
will not violate or conflict with any other restriction to which MEDPLUS is
subject.
3.3 BROKERS. No person or entity is entitled to any finder's or
brokerage fee or commission or other like payment in connection with the
transactions contemplated by this Agreement based on agreements, arrangements or
understandings with MEDPLUS.
3.4 INFORMATION. Prior to executing this Agreement, MEDPLUS has made
an investigation of The Business and its business and The Business has made
available to MEDPLUS the opportunity to ask questions of, and receive answers
from, and MEDPLUS has asked questions and received answers from, the Seller, and
any other person or entity acting on its behalf, concerning the terms and
conditions of this Agreement and The Business's financial condition and
business, and to obtain any additional information necessary to verify the
information provided by such the Seller and any other person or entity acting on
its behalf, or otherwise relating to the financial data and business of The
Business to the extent The Seller possesses such information or can acquire it
without unreasonable effort or expense.
4. CONDITIONS. This transaction shall be subject to the following
conditions:
4.1 CONDITIONS TO OBLIGATION OF MEDPLUS. Unless waived in writing by
MEDPLUS, the obligations of MEDPLUS to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction of the following
conditions:
(a) Each of the representations and warranties of the Seller
contained in, or given in connection with this Agreement shall be true and
correct;
(b) There shall not have been a material breach or failure of
any covenant, agreement or obligation of the Seller contained in this Agreement;
(c) There shall not have been a materially adverse change, from
the Financial Statement Date, in the financial condition of The Business, or
their respective business or prospects;
(d) The Seller shall have delivered to MEDPLUS ownership of The
Business;
(e) The Seller should have turned over all possession and
control of the business and Assets of The Business to MEDPLUS;
6
<PAGE>
(f) Gregory S.T. Charlton shall have executed and delivered to
MEDPLUS a Covenant-Not-To-Complete.
(g) Gregory S.T. Charlton shall have executed and delivered to
MEDPLUS an employment agreement.
4.2 CONDITIONS TO OBLIGATIONS OF THE SELLER. Unless waived in
writing by the Seller, the obligations of the Seller to consummate the
transactions contemplated by this Agreement are subject to the following
conditions:
(a) Each of the representations and warranties of MEDPLUS
contained in, or given in connection with, this Agreement shall be true and
correct;
(b) There shall not have been a material breach or failure of
any covenant, agreement or obligation of MEDPLUS contained in this Agreement;
(c) MEDPLUS shall have delivered to the Seller 100,000 shares of
its common stock;
(d) MEDPLUS shall have delivered to the Seller $______ by check;
4.3 CONDITIONS TO OBLIGATIONS OF ALL PARTIES. Unless waived in
writing by all parties hereto, the obligations of all parties to this Agreement
to consummate the transactions contemplated by this Agreement are subject to the
following conditions:
(a) There shall not be pending, instituted, threatened or
proposed any action or proceeding by or before any court or administrative
agency or any other person challenging or complaining of, or seeking to collect
damages or other relief in connection with, such transactions; and
(b) All necessary consents and approvals of all other persons
and governmental authorities to the transactions contemplated by this Agreement
shall have been obtained.
5. INDEMNIFICATION.
5.1 OBLIGATIONS OF MEDPLUS. MEDPLUS agrees to defend, indemnify and
hold harmless the Seller from, against and in respect of, any and all demands,
claims, actions, or causes of action, losses, liabilities, damages, assessments,
deficiencies, taxes, costs and expenses, including without limitation; interest,
penalties, reasonable attorneys' fees and expenses collectively; ("Indemnifiable
Damages") asserted against, imposed upon, paid, incurred or suffered by the
Seller:
7
<PAGE>
(a) as a result of, arising from, in connection with or incident
to any breach or inaccuracy of any representation, warranty, covenant or
agreement of MEDPLUS in this Agreement; or
(b) as a result of, or with respect to, The Business's failure
to satisfy and discharge any liabilities or obligations of The Business
described in Section 2.8 hereof or otherwise relating to the operation or
ownership of The Business the ("Liabilities"), after the date hereof.
but only to the extent that any such Indemnifiable Damages are not due to the
Seller's breach of or default under any representation, warranty, covenant or
other term of this Agreement.
5.2 OBLIGATIONS OF SELLER. The Seller hereby agrees to defend,
indemnify and hold harmless MEDPLUS and each of its directors, officers,
employees and agents from, against, and in respect of any and all Indemnifiable
Damages asserted against, imposed upon, paid, incurred, or suffered by MEDPLUS
as a result of, arising from, in connection with, or incident to any breach or
inaccuracy of any representation, warranty, covenant, or agreement of the Seller
in this Agreement, or in any exhibit or schedule hereto; but only to the extent
that such Indemnifiable Damages are not due to MEDPLUS's breach of or default
under any representation, warranty, covenant or other term of this Agreement.
5.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnity is referred to as the "Indemnified Party." An Indemnified
Party under this Agreement shall give written notice to each Indemnifying Party
of any liability which might give rise to a claim for indemnity under this
Agreement within ten days of such Indemnified Party's receipt of notice of such
liability; provided, however, that any failure to give such notice will not
waive any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are materially prejudiced. As to any claim, action, suit, or
proceeding by a third party, the Indemnifying Party shall be entitled, together
with the Indemnified Party, to participate in and, to the extent it may wish, to
assume the defense, conduct, or settlement thereof with counsel reasonably
satisfactory to the Indemnified Party; provided that the Indemnified Party is
reasonably satisfied as to the Indemnifying Party's ability to assume the
defense, conduct, or settlement thereof. The Indemnifying Party will not be
liable for any legal or other expenses subsequently incurred by the Indemnified
Party with respect to the defense, conduct, or settlement thereof. The
Indemnified Party shall provide such cooperation and access to its books,
records and properties as the Indemnifying Party shall reasonably request with
respect to such matter; and the parties hereto agree to cooperate with each
other in order to ensure the proper and adequate defense thereof.
An Indemnifying Party shall not make any settlement of any claims
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. Without limiting the generality of the foregoing, it
shall not be deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the Indemnified Party or its
assets, employees or business.
8
<PAGE>
5.4 SURVIVAL. Each and every one of the representations, warranties,
covenants, agreements and indemnities of the parties hereto contained in this
Agreement or any exhibit or schedule to this Agreement shall survive the Closing
for a period of two years without regard to any investigation made by any of the
parties hereto, except that any claim for indemnification which is asserted
under Sections 5.1 or 5.2 hereof during the applicable survival period shall
survive until such claim is resolved.
6. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be sufficiently given if delivered
personally or sent by certified mail, postage prepaid, addressed as follows:
If to the Seller, to:
YES Charge
ATTN.: Gregory S.T. Charlton, D.D.S., Inc.
5720 Ralston, Suite 304
Ventura, CA 93003
If to MEDPLUS, to:
MEDPLUS CORPORATION
ATTN.: Tim DeHerrera, President
8 South Nevada Avenue, Suite 500
Colorado Springs, CO 80903
or to such other address as shall be furnished in writing by any party to the
other and shall be deemed to have been given as of the date of the earlier of
first attempted or actual delivery.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This Agreement, and the exhibits and schedules
hereto, constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior negotiations,
understandings, agreements, and arrangements, both oral and written, among the
parties hereto with respect to such subject matter.
7.2 AMENDMENT. This Agreement may not be amended or modified in any
respect, except by the mutual written agreement of the parties hereto.
7.3 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
9
<PAGE>
7.4 WAIVERS AND REMEDIES. The waiver by any of the parties hereto of
any other party's prompt and complete performance, or breach or violation, of
any provisions of this Agreement shall not operate nor be construed as a waiver
of any subsequent breach or violation, and the waiver by any of the parties
hereto to exercise any right or remedy which it may possess hereunder shall not
operate nor be construed as a bar to the exercise of such right or remedy by
such party upon the occurrence of any subsequent breach or violation.
7.5 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid by a court of competent jurisdiction, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or subsections had not
been inserted.
7.6 DESCRIPTIVE HEADINGS. Descriptive headings contained herein are
for convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in any numbers of
counterparts and by the separate parties hereto in separate counterparts, each
of which shall be deemed to be one and the same instrument.
7.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. None of the parties hereto shall assign any of its right or
obligations hereunder without the express written consent of the other parties
hereto.
7.9 APPLICABLE LAW. This Agreement shall be governed by, and shall be
construed, interpreted and enforced in accordance with, the laws of the State of
Colorado. Exclusive jurisdiction for any claim or dispute arising hereunder
shall be in a court of competent jurisdiction within the State of Colorado.
7.10 EXPENSES. Each of the parties hereto agrees to pay all of the
respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby.
7.11 CONFIDENTIALITY. No party hereto shall divulge the existence of
the terms of this Agreement, the transactions contemplated hereby or any
information about another party that such party may have acquired in connection
with the transaction, without the prior written approval of all of the parties
hereto, except and as to the extent (a) obligated by law, (b) required by the
provisions of the Securities and Exchange Commission, (c) necessary for such
party to defend or prosecute any litigation in connection with the transactions
contemplated hereby, (d)
10
<PAGE>
rightfully received from third parties without restriction of disclosure and
without breach of this Agreement, or (e) necessary to consummate the
transactions contemplated hereby.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
MEDPLUS CORPORATION
By: /s/ TIM C. DEHERRERA
---------------------------------------
Tim C. DeHerrera, President
SELLER:
/s/ GREGORY S.T. CHARLTON
------------------------------------------
Gregory S.T. Charlton, D.D.S., Inc.
11
<PAGE>
Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
<TABLE>
Subsidiaries of Date of
Medplus Corporation State of Incorporation Incorporation
------------------- ---------------------- -------------
<S> <C> <C>
Patient Plus Occupational
Health Centers, Inc. Delaware May, 1996
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 7,778
<SECURITIES> 0
<RECEIVABLES> 23,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,932
<PP&E> 19,999
<DEPRECIATION> 10,072
<TOTAL-ASSETS> 46,234
<CURRENT-LIABILITIES> 527,163
<BONDS> 0
22,789
0
<COMMON> 0
<OTHER-SE> (503,718)
<TOTAL-LIABILITY-AND-EQUITY> 46,234
<SALES> 80,503
<TOTAL-REVENUES> 80,503
<CGS> 0
<TOTAL-COSTS> 451,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,809
<INCOME-PRETAX> (403,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (403,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (403,499)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
