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Securities and Exchange Commission
Washington, D.C.
20549
Form 10-KSB
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, 1997 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. 204
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 $2,383,301 based on the last reported average bid
and asked price of the common stock on the OTC Bulletin Board on July 22, 1997.
The number of shares outstanding of the issuer's common stock as of July 22,
1997: 6,084,923.
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MEDPLUS CORPORATION
PART I
ITEM 1. BUSINESS
MEDPLUS CORPORATION (the "Company") was incorporated in Delaware in
December 1986 and is a reporting, publicly traded company that trades on the OTC
Bulletin Board under the symbol MDPL. 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, 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.
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 (i.e. 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 nominal
claims have become disproportionately large, and have in the process,
dramatically increased health care costs for employers. Consequently, the
typical employer
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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.
MEDPLUS CREDIT CARD PRODUCT DESCRIPTION
The MedPlus Credit Card utilizes two different loan programs to approve
employers of participating employer groups, or point-of-servicing financing.
The applicants with "A" credit will be offered a Non-Recourse Loan. Those
applicants with "B" credit will be offered a partial Recourse Loan. The two
types of loans are described as follows:
A. NON-RECOURSE LOAN ("A"): A non-recourse loan is simply an unsecured loan
from the Company's lender to a patient. Because the cost of defaults is absorbed
entirely by the Company's lender, only patients with "A" credit profiles can be
profitably financed.
B. PARTIAL RECOURSE LOAN ("B"): A partial recourse loan is one in which the
Company's lender has partial recourse to the health care provider. The program
works as follows: When a patient is approved for a loan, the health care
provider is given a non-recourse advance equal to 80% of the contract value. Of
the remainder, 15% is credited to a health care provider specific reserve pool
and 5% is the Company's fee. The recourse pool builds over time and acts to
secure loans made to that health care provider's patients. While gross defaults
are expected to be higher in the recourse program than in the non-recourse
program, all of the cost of defaults is absorbed by the health care provider
through the reserve pool. This arrangement enables the Company to profitably
finance patients with "B" credit profiles.
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LENDER STATUS
The Company's loan volumes generated to United States Bank of Oregon (the
Company's primary lender) from the sales of its health care credit card services
have increased significantly from $604,781 in the last quarter of 1996 to
$1,350,025 in the second quarter of 1997. However, United States Bank of Oregon
has unilaterally decided to withhold the revenues owed the Company on this
increase in loan volume generation in order to increase its reserve pool for bad
debt. The Company is currently in dispute with United States Bank of Oregon,
and with Care Card Northwest, over the withholding of the Company's revenues and
is exploring remedies to this dispute including the possibility of legal action.
PRODUCT DEVELOPMENT
The Company currently has under development of a "C" 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 partial recourse loan.
The "C" Program works as follows: When a patient is approved for a
loan, the health care provider is given a non-recourse advance equal to 35%
of the contract value. Of the remainder, 60% is credited to a health care
provider specific reserve pool and 5% is the Company's fee. The recourse
pool builds over time and acts to secure loans made to that health care
provider's patients. This arrangement enables the Company to profitably
finance patients with "C" credit profiles.
The Company also has under development a "Hospital Recourse" program which
would be an addition to its current product line. The MedPlus Recourse Hospital
Program will be marketed only to hospitals and large clinics. In this program,.
MedPlus would enter into an agreement whereby the patient's loan is guaranteed
by the hospital. Therefore, we and our funding source are not assuming the
credit risk for the accounts, the hospital is. We will, in this program, then
take 100% of the patient accounts the hospital sends us. We advance the money
to the hospital and bill and collect on the accounts. We remit the money to the
hospital for reimbursement. As to marketing, we are having discussions with
several groups of hospitals and are finding a lot of interest.
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
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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 with sales representatives
throughout the United States. The sales representatives have an 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 20 and 30 firms which it would identify as
competitors on a regional 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
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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.
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.
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MEDICAL CLINIC
In late July, 1996, the Company opened its occupational medicine clinic,
Patient Plus. Patient Plus Occupational Health Centers, Inc., is a wholly-owned
subsidiary of the Company. Patient Plus Occupational Health Centers is a
management company exclusively providing primary and secondary occupational
health care services to the employer and workers' compensation insurance
markets. The company's services and programs are designed specifically to
reduce wage replacement, medical disability, legal and other costs that are
often associated with work related injuries through effective treatment, patient
management, and prevention.
Occupational Health Care consists of two primary components: (I) workers'
compensation injury care and related services; and (ii) non-injury health care
services related to employer needs or statutory requirements.
Patient Plus' marketing efforts are targeted primarily at employers ranging
from large corporations to businesses with only a few employees. Due to the
nature of the business, Patient Plus' marketing efforts are directed towards
employers with a significant number of employees. Business derived from
employers with 50 or less employees is generally due to a center's location,
name recognition, quality of service and convenience.
The Company receives its revenue from patient visits for injury care and
related services, as well as non-injury follow up care. All revenue is tied to
a workman's compensation fee schedule. The Company announced its decision to
divest itself of the occupation medicine clinic to focus on its core business.
While there currently is not a suitable buyer, the Company intends to sell the
clinic by March 31, 1998, and should not incur a loss.
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, 1997, the Company had 1 part-time and 12 full-time employees.
None of the Company's employees are represented by a labor organization. The
Company considers its relations with its employees to be satisfactory.
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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. The Company's clinic, Patient
Plus Occupational Health Center, lease comprises a 4,000 square foot facility.
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 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, 1997 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
The Company Stock is traded on the OTC Bulletin Board under the symbol
MDPL. The high and low bid prices set forth through March 31, 1997 by fiscal
quarter on the following table are on a pre-split basis with no adjustment for
post-split:
Bid High Bid Low Bid
- --- ------------------
1st quarter ended June 30, 1995 $ .21 $ .17
2nd quarter ended September 30, 1995 .18 .12
3rd quarter ended December 31, 1995 .18 .10
4th quarter ended March 31, 1996 .375 .56
1st quarter ended June 30, 1996 .875 .50
2nd quarter ended September 30, 1996 .453 .218
3rd quarter ended December 31, 1996 .24 .125
4th quarter ended March 31, 1997 .145 .11
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 22, 1997, the closing price of the Company's common stock on the
OTC Bulletin Board was $.6875 bid and $.6875 asked. As of July 22, 1997
and to the best of the Company's knowledge, there were approximately
1284 holders of its common stock, however the Company believes that
there are over 375 holders of its common stock held in "street name" by
brokers and clearing houses.
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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 two fiscal years
ended March 31, 1997 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,
1997 1996
---- ----
Revenues $ 58,117 $ 80,503
Loss From Continuing
Operations (909,219) (403,499)
Loss From Discontinued
Operations (432,528)
Net Loss From Operations (1,341,747) 403,499
Loss Per Share From
Continuing Operations (0.28)
Loss Per Share From
Discontinued Operations (0.13)
Total (0.41) (0.21)
Year Ended March 31,
1997 1996
---- ----
Total Assets $ 178,374 $ 46,234
Total Liabilities 1,407,668 527,163
Working Capital (1,351,027) (495,231)
Long Term Debt
and Capitalized
Leases 0 0
Stockholders' Equity (1,229,294) (480,929)
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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, through the private
sale of common stock and the issuance of notes payable.
At March 31, 1997, the Company had working capital of ($1,351,027) compared
to working capital of ($495,231) at March 31, 1996. The decline in working
capital is primarily due to the Company's net loss for the twelve months ending
March 31, 1997. The Company's current liabilities are higher than its assets due
primarily to loans evidenced by promissory notes from shareholders of the
Company and related parties and accounts payable. The Company intends to pay
these liabilities out of future financing and/or operations.
The Company's liquidity position is severely strained. Liquidity needs are
currently being met from the proceeds of various debt financing sold. 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 $2,000,000 in
equity or debt financing or a combination thereof in order to sustain operations
for the twelve months following the year ended March 31, 1997. As of March 31,
1997, the Company was anticipating a capital infusion of $250,000 to be received
from various parties in connection with its planned placement of Notes.
Management is continuing its efforts to raise equity financing in order to meet
its long-term and short-term liquidity needs. 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 any transaction and/or raise the additional financing necessary for
continuing operations. The Company has entered into a financing agreement with
Sands Brothers & Co., Inc., to provide debt and equity financing which would be
more than sufficient to operate the Company and fulfill its business plans. As
of March 31, 1997 there were no known demands, commitments or uncertainties
affecting cash flows other than normal accounts payable demands, debt, and past
due interest payments.
RESULTS OF OPERATIONS
REVENUE
Revenue derived from the sale of products from the Company's continuing
operations was $58,117 for the fiscal year ended March 31, 1997 as compared to
$80,503 in operating revenue for the fiscal year 1996. The Company's revenue
decrease over fiscal
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year 1996 is primarily attributable to nonpayment of the Company's revenue
from United States Bank of Oregon. The Company's loan volumes generated to
United States Bank of Oregon have increased. However, United States Bank of
Oregon has unilaterally decided to withhold the revenues owed the Company.
The Company is currently in dispute with United States Bank of Oregon, and
with Care Card Northwest, over the withholding of the Company's revenues and
is exploring remedies to this dispute including the possibility of legal
action. Revenue derived from discontinued operations was $105,370 for the
fiscal year ended March 31, 1997. There was no income from discontinued
operations for the fiscal year 1996.
OTHER OPERATING EXPENSES
Sales and Marketing expenses for continuing operations increased by 396% to
$249,926 for the fiscal year ended March 31, 1997 as compared to $50,328 expense
for fiscal year 1996. The 396% increase in sales and marketing expenses during
fiscal year 1997 is attributable to increased marketing efforts, including
travel, trade shows, printed material and increased marketing personnel, due to
the Company's relationship with a new funding source for its product.
General and Administrative expense for continuing operations increased by
44% to $578,537 during the fiscal year ended March 31, 1997 as compared to
$400,865 during fiscal year 1996. The 44% increase in General and Administrative
expense in fiscal year 1997 is attributable primarily to increased overhead for
support of the new product and write off of goodwill attributable to acquisition
of Yescharge. Clinic operating expenses were $316,835, a new item for fiscal
year ending March 31, 1997.
Interest expense for continuing operations increased by 323% to $138,873
during the fiscal year ended March 31, 1997 as compared to $32,809 during fiscal
year 1996. The 323% increase in interest expenses in fiscal year 1997 is due to
an increase in notes payable and the mandated accounting recognition of discount
amortization on convertible notes.
NET LOSS
The Company had a net loss of $1,341,747 for the fiscal year ended March
31, 1997 as compared to a net loss of $403,449 for fiscal year 1996. The
increase in the Company's net loss for fiscal year 1997 was due to increased
Sales and Marketing activity in the continuing operations of the business and
opening and operating the discontinued operations. The loss for the continuing
operations for the fiscal year ended March 31, 1997 was $909,219 and for the
discontinued operations was $432,528.
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.
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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 8, 1997, the Company executed a three year exclusive investment
banking agreement (the "Letter") with Sands Brothers located in New York. As
spelled out in the agreement Sands Brothers' duties may include, but will not
necessarily be limited to: (i) advice regarding formation of corporate goals
and their implementation; (ii) advice regarding the financial structure of the
Company, its divisions or subsidiaries or any programs and projects undertaken
by the Company; (iii) advice regarding the securing, when necessary and if
possible, of financing (other than with respect to a Financing Transaction);
(iv) advice regarding corporate organization, personnel and selection of needed
specialty skills; and (v) review of possible joint venture, merger,
acquisition or similar proposals for the Company (other than with respect to an
Acquisition Transaction).
On May 9, 1997, the Company effectuated a one for three reverse stock
split, whereby shareholders received one share of common stock for every three
shares of common stock held of record. Fractional shares were rounded upward to
the next full share.
On July 28, 1997, the Company announced its decision to divest itself of
the occupation medicine clinic to focus on its core business. While there
currently is not a suitable buyer, the Company intends to sell the clinic by
March 31, 1998, and should not incur a loss.
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 59 Chairman of the Board of
Directors; Secretary and
Treasurer
Tim C. DeHerrera 39 President, CEO, Director
Jim Harding 47 Vice President of Finance,
Chief Financial Officer
Robert A. Spade 50 Director
Phillip R. Beutel 79 Director
P. James Voloshin 55 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. Tim C. DeHerrera was
elected Director in August 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 subsidiary of Johnson &
Johnson, which produces intraocular lenses and other ophthalmic
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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.
James G. Harding has been Chief Financial Officer of the Company since May
1, 1997. From April 1995 through March 1997 Mr. Harding served as President for
The Talis Corporation and as President of Team Management Services, LLC
providing financial and management consulting services to various companies
including International Consulting Enterprises, Inc. (ICE), WesPac Constructors,
Inc., and Excell, Inc. (a subsidiary of ICF International, Inc.). From 1988
through March 1995 Mr. Harding was the Executive Vice President, Chief Financial
Officer and Director for Excell, Inc. From 1981 to 1987 Mr. Harding was
Executive Vice President, Chief Financial Officer and Director of Peak Health
Care, Inc., which consisted of a chain of HMOs, insurance companies, preferred
provider organizations and pharmacies. He was instrumental in growing those
entities from $900 thousand gross revenue in 1980 to $140 million in 1987 and
the subsequent sale of the entire company. Mr. Harding holds a B.B.A. degree
from the University of Iowa in Iowa City, Iowa, with majors in both Finance and
Insurance, and took graduate work in accounting at Colorado State University,
Fort Collins, Colorado.
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
15
<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 solely 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 filing said
reports.
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, 1997. 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, 1997.
Annual Compensation
Capacity in --------------------------
Individual which served Fiscal Year Salary Bonus Other
- ---------- ------------ ----------- ------ ----- -----
Tim C. DeHerrera President March 31, 1997 $84,000 None None
James W. Snyder CEO March 31, 1996 $22,750 None $83,255 (2)
James W. Snyder CEO March 31, 1995 $54,000 (1) None None
16
<PAGE>
(1) Mr. Snyder elected to defer $30,000 of his $54,000 annual Salary to improve
cash flow.
(2) In January 1996 the Company's Board of Directors approved the issuance of
185,012 (post split) 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 1,000,000 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 695,814
shares to consultants of the Company and all have been exercised. A total of
304,186 shares remain available.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of July 22, 1997 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
----- --------- ------------------
Tim C. DeHerrera (2) 871,740 14.3%
(Officer)
Robert A. Spade (2) 635,295 10.4%
(Director)
James W. Snyder (2) 299,346 4.9%
(Director)
P. James Voloshin (2) 261,643 4.3%
(Director)
Phillip R. Beutel (2) 200,278 3.2%
(Director)
Ron Thomas (2) 200,000 3.2%
(Officer)
17
<PAGE>
Jim Harding (2) 150,000 2.5%
(Officer)
All Officers and Directors 2,618,302 42.8%
as a group (seven 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, J. Harding, R. Thomas, T.C. DeHerrera,
R. A. Spade, P.R. Beutel and P. James Voloshin is MEDPLUS CORPORATION, 8
South Nevada Ave., Suite 204, Colorado Springs, Colorado, 80903.
18
<PAGE>
PART IV
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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, 1997 and March 31, 1996.
Page
Report of independent accountants F-1
Balance Sheet at March 31, 1997 F-2
Statement of operations for the years ended March 31,
1997 and March 31, 1996 F-3
Statement of stockholders' deficiency for
the years ended March 31, 1997 and March 31, 1996 F-4
Statement of cash flows for the years ended March 31,
1997 and March 31, 1996 F-5
Notes to financial statements F-6
19
<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 10K on July 15, 1996 (Commission File Number
0-16286) and incorporated herein by reference.
20
<PAGE>
****** Filed on Form 10-K on or about July 1, 1993 (Commission File
Number 0-16286) and incorporated herein by reference.
******* 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.
21
<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: August 14, 1997 \By\ Tim C. DeHerrera
------------------------------------
Tim C. DeHerrera
Chief Executive Officer
Date: August 14, 1997 \By\ Jim Harding
------------------------------------
Jim Harding
Chief Financial 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\ Tim C. DeHerrera President; Chief Executive August 14, 1997
- -------------------------- Officer; Director
Tim C. DeHerrera
\By\ Jim Harding Chief Financial Officer August 14, 1997
- --------------------------
Jim Harding
\By\ James W. Snyder Chairman; Secretary, Treasurer August 14, 1997
- -------------------------- Director
James W. Snyder
22
<PAGE>
[LETTERHEAD OF STOCKMAN KAST RYAN & SCRUGGS, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
Medplus Corporation
Colorado Springs, CO
We have audited the accompanying consolidated balance sheet of Medplus
Corporation and Subsidiaries (the Company) as of March 31, 1997 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for each of the two years in the period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
March 31, 1997, and the results of their operations and their cash flows for
each of the two years in the period ended March 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company's significant operating
losses and shareholders' deficiency 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.
/s/ STOCKMAN KAST RYAN & SCRUGGS, P.C.
--------------------------------------
STOCKMAN KAST RYAN & SCRUGGS, P.C.
Colorado Springs, Colorado
July 24, 1997 (except for the second
paragraph of Note 12 for which the
date is July 28, 1997)
F-1
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 1,920
Accounts receivable - net 24,870
Prepaid expenses and other current assets 9,851
Note receivable from shareholder (Note 10) 20,000
-----------
Total 56,641
-----------
PROPERTY
Leasehold improvements 87,785
Office equipment 46,729
Furniture, fixtures and leasehold improvements 21,264
-----------
Total 155,778
Less accumulated depreciation 34,045
-----------
Net 121,733
-----------
TOTAL $ 178,374
-----------
-----------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 460,716
Accrued expenses (Note 1) 408,874
Deferred salaries 65,954
Notes payable to related parties (Note 3) 358,725
Convertible notes payable - net of $25,000 discount (Note 4) 25,000
Notes payable (Note 5) 84,072
Line of credit (Note 6) 4,327
-----------
Total 1,407,668
-----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 11)
SHAREHOLDERS' DEFICIENCY
Preferred stock, $.001 par value; authorized 2,000,000
shares; no shares issued or outstanding
Common stock, $.001 par value; 30,000,000 shares authorized;
3,690,907 shares issued and outstanding, (Notes 4 and 12) 8,322
Additional paid-in capital (Note 4) 7,459,561
Accumulated deficit (8,697,177)
-----------
Total (1,229,294)
-----------
TOTAL $ 178,374
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-2
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
PATIENT FINANCE REVENUE $ 58,117 $ 80,503
----------- ----------
OPERATING EXPENSES
General and administrative (Notes 2 and 7) 578,537 400,865
Sales and marketing 249,926 50,328
----------- ----------
Total 828,463 451,193
----------- ----------
Loss from operations (770,346) (370,690)
Interest expense, including discount amortization (138,873) (32,809)
----------- ----------
Loss from continuing operations (909,219) (403,499)
Loss from discontinued operations of
occupational health clinic (Note 12) (432,528)
----------- ----------
NET LOSS $(1,341,747) $ (403,499)
----------- ----------
----------- ----------
NET LOSS PER SHARE (Note 12)
From continuing operations $ (0.28) $ (0.21)
From discontinued operations (0.13)
----------- ----------
Total $ (0.41) $ (0.21)
----------- ----------
----------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 12) 3,268,622 1,942,079
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK* COMMON ADDITIONAL
------------------ STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SUBSCRIBED* CAPITAL* DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995 1,314,641 $5,946 $ 294 $6,336,310 $(6,951,931) $ (609,381)
Issuance of common stock for cash 489,000 489 171,010 171,499
Issuance of common stock to satisfy notes payable
and related accrued interest 283,650 284 127,359 127,643
Issuance of common stock to satisfy deferred salaries 356,790 357 160,198 160,555
Issuance of common stock in acquisition (Note 2) 219,012 219 12,868 13,087
Common stock subscribed (Note 8) 189 56,478 56,667
Issuance of common stock 293,667 294 (294)
Issuance of common stock for services 8,333 8 2,492 2,500
Net loss (403,499) (403,499)
--------- ------ ----- ---------- ----------- -----------
BALANCE, March 31, 1996 2,965,093 7,597 189 6,866,715 (7,355,430) (480,929)
Issuance of common stock for cash 302,849 303 267,015 267,318
Issuance of common stock 22,222 22 (22)
Issuance of common stock to satisfy notes
payable and accrued interest 75,000 75 22,425 22,500
Issuance of common stock for services 36,000 36 33,528 33,564
Issuance of common stock in acquisition (Note 2) 33,333 33 69,967 70,000
Common stock subscribed (Note 8) 208 49,792 50,000
Common stock subscriptions forfeited (Note 8) (375) 375
Issuance of convertible notes payable (Notes 4 and 8) 100,000 100,000
Conversion of convertible notes payable to
common stock (Notes 4 and 8) 256,410 256 49,744 50,000
Net loss (1,341,747) (1,341,747)
--------- ------ ----- ---------- ----------- -----------
BALANCE, March 31, 1997 3,690,907 $8,322 $ -- $7,459,561 $(8,697,177) $(1,229,294)
--------- ------ ----- ---------- ----------- -----------
--------- ------ ----- ---------- ----------- -----------
</TABLE>
*Reflects 1 for 3 reverse stock split effected on April 12, 1997 (See Note 12)
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
F-4
<PAGE>
MEDPLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,341,747) $(403,499)
----------- ---------
Adjustments to reconcile net loss to net cash and cash
equivalents used in operating activities:
Depreciation and amortization 23,722 26,388
Write-off of goodwill 70,000 25,173
Common stock issued to pay interest 75,000
Common stock issued for services 33,564 2,500
Increase in accounts receivable (731) (23,639)
Decrease (increase) in prepaid and other assets (5,461) 723
Increase in accounts payable and accrued liabilities 634,499 138,237
----------- ---------
Cash and cash equivalents used in operating activities (511,154) (234,117)
----------- ---------
INVESTING ACTIVITIES
Proceeds from sale of furniture and fixtures 5,000
Purchases of property and equipment (135,528) (1,050)
Cash received from acquired subsidiary 1,567
----------- ---------
Cash and cash equivalents provided by (used in) investing
activities (135,528) 5,517
----------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 267,318 171,499
Proceeds from common stock subscribed 50,000 56,667
Payments on notes (9,111) (6,000)
Proceeds from issuance of notes 332,617
----------- ---------
Cash and cash equivalents provided by financing activities 640,824 222,166
----------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (5,858) (6,434)
CASH AND CASH EQUIVALENTS, Beginning of year 7,778 14,212
----------- ---------
CASH AND CASH EQUIVALENTS, End of year $ 1,920 $ 7,778
----------- ---------
----------- ---------
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES
Common stock issued for net assets of subsidiary $ 70,000 $ 13,087
Receipt of note from shareholder in exchange for
assumption of debt 20,000
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Common stock issued to satisfy notes
payable and related accrued interest 22,500 127,643
Common stock issued to satisfy accounts
payable and deferred salaries 33,564 160,555
Conversion of convertible notes payable to common stock 50,000
Assumption of debt in exchange for note from shareholder 20,000
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest 1,220
</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 and Subsidiaries (the "Company") operate in
the health care financing industry. It has developed 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 outside lenders to provide the financing for its products.
The Company began operating an occupational health clinic in Colorado
Springs, Colorado during fiscal 1997 (see Note 12).
BASIS OF PRESENTATION -- 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, 1997 and 1996 and at March 31, 1997 has negative
working capital and a shareholders' deficiency. Additionally, the Company
has been unable to generate revenue on a sustained basis and, as of July
24, 1997, is not generating revenues from patient financing activities (see
Note 1 -- Patient Finance Reenue Recognition) and has decided to sell its
occupational health clinic. These factors may indicate that the Company
will be unable to continue as a going concern. 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.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries:
Patient Plus Occupational Health Centers, Inc. and Lincoln Professional
Services, Inc. All intercompany accounts and transactions have been
eliminated.
PATIENT FINANCE 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. During the
third and fourth quarters of fiscal 1997 and through the first quarter of
fiscal 1998, the Company has recorded no revenues from patient finance
operations due to a dispute with a financial institution from which the
Company receives all of its patient finance revenue. The financial
institution has discontinued making payments to the Company and due to the
Company's weak financial position, the Company is unable to pursue remedies
against the financial institution. Until the Company is in a position to
resolve this situation, management has decided to not accrue any revenues
from patient financing.
F-6
<PAGE>
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
NET CLINIC REVENUE AND RECEIVABLE -- Clinic revenues are recognized when
services are rendered. The Company has agreements with third party payors
that provide for reimbursements to the clinic at amounts different from its
established rates. The difference between gross charges and the estimated
reimbursement that will be paid by various third parties is charged to
contractual allowances to arrive at net clinic revenue. Accounts
receivable are shown net of estimated write-offs and doubtful accounts of
$6,381.
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 $23,722 and $3,025 for the years ended March 31,
1997 and 1996, respectively.
ACCRUED EXPENSES -- Included in accrued expenses are payroll taxes and
estimated penalties and interest of $353,693 at March 31, 1997.
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.
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, 1997, management determined the goodwill related to the acquisitions of
Surgical Funds Group and Yes Charge, Inc. (see Note 2) had no future value
and was charged to 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 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.
F-7
<PAGE>
2. ACQUISITIONS
SURGICAL FUNDING GROUP -- In November 1995, the Company acquired 100%
ownership of Surgical Funding Group (SFG) through the issuance of 219,012
shares of the Company's common stock. The acquisition was accounted for as
a purchase. SFG is a California corporation engaged in the medical
financing business. Shares of stock issued in connection with the
acquisition were valued at $.06 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 were currently using or who may use SFG products. The
provider list was assigned a fair market value of $5,000 of the total
purchase price of $13,000, and was being amortized over three years. The
unamortized balance of $4,000 was written off in 1997 because management
determined it to be of no future value. The operating results of SFG have
been included in the Company's consolidated financial statements since the
date of acquisition.
YES CHARGE, INC. -- In April 1996 the Company acquired 100% of the net
assets of Yes Charge, Inc. (Yes Charge) a patient finance business located
in Ventura, California. The acquisition was consummated through the
issuance of 33,333 shares of common stock and is accounted for as a
purchase. Shares of stock issued in connection with the acquisition were
valued at $2.10 per share, which was the approximate fair market value of
the Company's stock at the acquisition date. The entire purchase price of
$70,000 was allocated to goodwill and other intangible assets acquired, to
be amortized over three years. As of March 31, 1996, however, such
intangible assets were determined by management to have no future value and
were written off. The operating results of Yes Charge are 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, SFG and Yes Charge for the year ended March 31,
1996 as if the acquisitions had occurred at the beginning of fiscal 1996,
after giving effect to certain adjustments, including depreciation and
amortization:
Net revenues $ 267,000
Net loss (397,000)
Net loss per common share (Note 12) (0.20)
F-8
<PAGE>
3. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties, all of which are considered to be current
liabilities by their terms or due to default, consist of the following at
March 31, 1997:
<TABLE>
<S> <C>
Unsecured note payable to a director of the Company, 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
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
Unsecured note payable to a shareholder and former officer of the Company,
non-interest bearing, due in equal monthly installments of $2,000 from
May 1996 through April 1997 with a final installment of $123,288 payable
in May 1997. This note is recorded net of unamortized discount of
$5,074 at March 31, 1997 to reflect an effective interest rate of 18%.
Payments on this note are in default. 157,763
Unsecured note payable to shareholders of the Company bearing
interest at 10% per annum. The note is payable on demand. 103,962
Unsecured note payable to shareholder of the Company bearing
interest at 11% per annum. The note is payable on demand. 12,500
Unsecured note payable to shareholder of the Company bearing interest at
a range between 10% to 17% depending on shareholder's credit card
rate. The note is payable on demand. 19,000
--------
Total $358,725
--------
--------
</TABLE>
4. CONVERTIBLE NOTES PAYABLE
During 1997, the Company issued $100,000 of convertible notes due October
1, 2006 bearing interest at 8% per annum. Upon closing of an anticipated
public offering of common stock, the noteholders have thirty days to
convert the notes into shares of common stock of the Company in face value
amount equal to 200% of the dollar amount of the notes based on the per
share price of the common stock as set forth in the anticipated public
offering. In the event the planned public offering has not become
effective by October 1, 1997, the noteholders may, at their sole option,
elect to convert the notes and all accrued interest into shares of common
stock of the Company based on the closing price per share at the close of
business on the last business day of the month in which the notice is
received by the transfer agent. Payments of accrued interest are payable
on April 1 and October 1. The Company is in default on the interest
payments as of July 24, 1997.
In order to recognize the beneficial conversion feature to the noteholders
of these convertible notes, the Company has recorded the $100,000 excess
value of the common stock to be issued upon the anticipated conversion of
the notes over the face value as a note discount and additional paid-in
capital. The discount is being amortized to interest expense from the
issuance date through October 1, 1997.
F-9
<PAGE>
4. CONVERTIBLE NOTES PAYABLE, CONTINUED
During the year ended March 31, 1997, $50,000 of the convertible notes were
converted into 256,410 shares of common stock. At the date of conversion,
$50,000 of unamortized discount was charged to interest expense with a
corresponding increase to common stock and additional paid-in capital.
5. NOTES PAYABLE
Notes payable, both of which are current liabilities by their terms,
consist of the following at March 31, 1997:
<TABLE>
<S> <C>
Unsecured notes payable to an individual bearing interest at 12%,
interest payable monthly and due August 1997 $49,072
Note payable to bank bearing interest at 9.875%, collateralized by
certain assets of a shareholder and due June 1997 35,000
-------
Total $84,072
-------
-------
</TABLE>
6. LINE OF CREDIT
At March 31, 1997, $4,327 was due a financial institution under a $5,000
line of credit agreement which bears interest at 15%. The agreement has no
expiration as long as the Company maintains an account with the financial
institution.
7. OPERATING LEASE
The Company leases office space from an affiliate of one of its
shareholders, office equipment and clinical space under operating leases.
Minimum future rental payments under non-cancelable operating leases,
having remaining terms in excess of one year, as of March 31, 1997 for each
of the next five years are:
Year ended March 31,
1998 $ 49,644
1999 54,732
2000 60,437
2001 40,116
2002 6,789
--------
Total minimum future rental payments $211,718
--------
--------
Rental expense on these leases was $24,687 in fiscal 1997 (none in fiscal
1996).
F-10
<PAGE>
8. SHAREHOLDERS' DEFICIENCY
The Company received cash of $50,000 and $56,667 in 1997 and 1996,
respectively, for stock subscriptions. Certain stock subscriptions
required the investor to arrange additional financing for the Company
within a defined time frame or the subscriptions would be forfeited.
During 1997, subscriptions for 375,000 shares of common stock were
forfeited.
At March 31, 1997, the Company had outstanding warrants to purchase 491,667
shares of the Company's common stock at $.15 to $.75 per share. The
warrants were converted into 191,250 shares of common stock in April of
1997.
9. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of deferred taxes at March 31, 1997 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 2,266,000
Write-down of goodwill not deductible 62,000
Deferred salaries not deductible 8,000
Discount on convertible notes 26,000
2,362,000
Valuation allowance (2,362,000)
-----------
Net deferred taxes $ --
-----------
-----------
As of March 31, 1997, the Company has net operating loss carryforwards of
approximately $6,632,000 which expire beginning in fiscal year 2000. As
of March 31, 1997, the Company has recorded a valuation allowance to
reduce existing deferred tax assets since the assets are not likely to be
realized. The valuation allowance increased by $460,000 during the year
ended March 31, 1997. During the years ended March 31, 1997 and 1996,
the effective tax rate differed from the federal statutory rate due to
the increases in the valuation allowance.
10. NOTE RECEIVABLE FROM SHAREHOLDER
The Company has a note receivable from a shareholder which bears interest
at 9.75% and is due in January 1998. The note was received in exchange for
the Company assuming the shareholder's debt to a bank (see Note 5).
F-11
<PAGE>
11. 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 range of $70,000 to $90,000. The Company has
recorded a $40,500 note payable to the former president and $23,565 of
related accrued interest in the accompanying financial statements which
management of the Company believes reflects the terms of the original
promissory note agreement. Management is vigorously contesting this
litigation, has denied any failure to pay and has asserted certain counter
claims against the former president.
12. SUBSEQUENT EVENT
REVERSE STOCK SPLIT -- On April 12, 1997, the Board of Directors authorized
a one-for-three reverse stock split. All references in the accompanying
consolidated financial statements and notes to number of shares and per
share amounts of the Company's common stock have been retroactively
restated to reflect the decreased number of common shares.
DISCONTINUED OPERATIONS -- On July 28, 1997, the Company announced its
intentions to dispose of its occupational health clinic. Accordingly, the
operations of the clinic are reported as discontinued operations. The
Company expects to sell the clinic for a gain during the period ending
March 31, 1998.
The clinic's assets, liabilities and revenues at March 31, 1997 and for the
year then ended were $148,684, $345,937 and $105,370, respectively.
F-12
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of Date of
Medplus Corporation State of Incorporation Incorporation
------------------- ---------------------- -------------
Patient Plus Occupational
Health Centers, Inc. Delaware May, 1996
Lincoln Professional
Services Corporation Texas Sept., 1991
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,920
<SECURITIES> 0
<RECEIVABLES> 24,870
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,641
<PP&E> 155,778
<DEPRECIATION> 34,045
<TOTAL-ASSETS> 178,374
<CURRENT-LIABILITIES> 1,407,668
<BONDS> 0
0
0
<COMMON> 8,322
<OTHER-SE> (1,237,616)
<TOTAL-LIABILITY-AND-EQUITY> 178,374
<SALES> 58,117
<TOTAL-REVENUES> 58,117
<CGS> 0
<TOTAL-COSTS> 828,463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,873
<INCOME-PRETAX> (1,341,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,341,747)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
