UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number Z - 24196
MEDPLUS, INC.
(Exact name of registrant as specified in its charter)
Ohio 48-1094982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8805 Governor's Hill Drive, Suite 100
Cincinnati, OH 45249
(Address of principal executive offices)
(513) 583-0500
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_______
As of August 1, 1997, there were 5,920,272 shares of the
registrant's common stock without par value issued and
outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
__________ _________ __________ __________
Revenues:
Systems sales $ 3,963,570 1,973,699 5,908,696 3,359,461
Service,
consulting, and
other revenues 1,129,289 798,849 2,138,420 1,737,844
__________ _________ __________ __________
Total revenues 5,092,859 2,772,548 8,047,116 5,097,305
__________ _________ __________ __________
Cost of revenues:
Systems sales 2,005,273 809,303 3,084,317 1,473,523
Service,
consulting, and
other revenues 694,031 511,951 1,382,287 939,097
__________ _________ __________ __________
Total cost of revenues 2,699,304 1,321,254 4,466,604 2,412,620
__________ _________ __________ __________
Gross profit 2,393,555 1,451,294 3,580,512 2,684,685
Operating expenses:
Sales and marketing 1,636,587 940,186 3,101,147 1,740,217
Research and
development 218,240 110,952 442,641 242,358
General and
administrative 869,446 795,304 1,695,439 1,542,103
__________ _________ __________ __________
Total operating
expenses 2,724,273 1,846,442 5,239,227 3,524,678
__________ _________ __________ __________
Operating loss (330,718) (395,148)(1,658,715) (839,993)
Other income
(expense), net (28,164) 81,897 (16,312) 181,182
__________ _________ __________ __________
Loss before
income taxes (358,882) (313,251)(1,675,027) (658,811)
Income taxes - - - -
__________ _________ __________ __________
Net loss $ (358,882) (313,251)(1,675,027) (658,811)
__________ _________ __________ __________
__________ _________ __________ __________
Net loss per share $ (0.06) (0.05) (0.28) (0.11)
__________ _________ __________ __________
__________ _________ __________ __________
Weighted average
number of shares of
common stock and
common stock
equivalents
outstanding 5,916,444 5,858,669 5,919,019 5,836,399
__________ _________ __________ __________
__________ _________ __________ __________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
1997 1996
____________ ____________
ASSETS
Current assets:
Cash and cash equivalents $399,417 2,700,607
Investment securities - 300,510
Accounts receivable, less allowance
for doubtful accounts of $115,000
in 1997 and $100,000 in 1996 5,588,352 3,676,614
Other receivables 59,666 463,098
Inventories 995,450 827,619
Unbilled service contracts 263,877 325,352
Prepaid expenses and other
current assets 630,156 617,737
____________ ____________
Total current assets 7,936,918 8,911,537
____________ ____________
Unbilled service contracts 1,412,825 1,137,575
Other receivables, noncurrent 1,066,966 -
Capitalized software development
costs, net 2,530,879 2,278,358
Fixed assets, net 1,519,002 1,462,818
Excess of cost over fair value
of net assets acquired, net 861,151 911,402
Other assets 485,268 145,454
____________ ____________
$ 15,813,009 14,847,144
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of obligations
under capital leases $ 36,072 38,154
Borrowings on line of credit 1,480,234 -
Accounts payable 1,901,273 1,417,760
Accrued expenses 1,283,197 1,063,109
Deferred revenue 1,093,391 897,224
Deferred revenue on unbilled
service contracts 263,877 325,352
____________ ____________
Total current liabilities 6,058,044 3,741,599
____________ ____________
Obligations under capital leases,
excluding current installments 64,120 81,229
Deferred revenue 13,528 28,748
Deferred revenue on unbilled
service contracts 1,412,825 1,137,575
____________ ____________
Total liabilities 7,548,517 4,989,151
____________ ____________
Shareholders' equity:
Common stock, no par value,
authorized 15,000,000 shares;
issued and outstanding 5,913,606
shares in 1997 and 5,919,206
shares in 1996 1,077 1,076
Additional paid-in capital 14,909,035 14,734,036
Accumulated deficit (6,524,607) (4,849,580)
Unrealized gains on
investment securities - 1,824
Deferred compensation (121,013) (29,363)
____________ ____________
Total shareholders' equity 8,264,492 9,857,993
____________ ____________
Commitments and contingency $ 15,813,009 14,847,144
____________ ____________
____________ ____________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
____________ ____________
Cash flows from operating
activities:
Net loss $ (1,675,027) (658,811)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Amortization of capitalized
software development costs 301,162 184,960
Depreciation and amortization 170,784 103,110
Amortization of deferred
compensation costs 96,031 43,270
Amortization of excess of cost
over fair value of net assets acquired 53,019 47,340
Realized gain on sales of
investment securities and fixed assets (9,566) (18,507)
Provision for loss on doubtful accounts 44,521 30,000
Changes in assets and liabilities:
Accounts receivable (1,956,259)(1,465,204)
Other receivables 34,032 13,143
Inventories (167,831) 195,394
Prepaid expenses and other assets 32,763 54,536
Accounts payable and accrued expense 703,601 (609,186)
Deferred revenue 180,947 11,604
____________ ____________
Net cash used in
operating activities (2,191,823)(2,068,351)
Cash flows from investing activities:
Capitalization of software
development costs (553,683) (759,023)
Purchases of fixed assets (242,856) (255,564)
Proceeds from sales of investment
securities and fixed assets 323,114 514,802
Payments made for acquisitions
of businesses (2,768) (950,417)
Other advances and investments (1,051,536) -
____________ ____________
Net cash used in
investing activities (1,527,729) (1,450,202)
Cash flows from financing activities:
Proceeds from issuance of
common stock, net of issuance costs 10,873 359,138
Purchases of treasury stock (53,554) -
Proceeds from borrowings on
line of credit 1,790,425 1,214,540
Repayments on line of credit (310,191) (1,014,540)
Principal payments on
capital lease obligations (19,191) (32,775)
____________ ____________
Net cash provided by
financing activities 1,418,362 526,363
____________ ____________
Net decrease in cash and
cash equivalents (2,301,190) (2,992,190)
Cash and cash equivalents,
beginning of period 2,700,607 7,494,094
____________ ____________
Cash and cash equivalents,
end of period $ 399,417 4,501,904
____________ ____________
____________ ____________
Interest paid $ 27,233 10,817
____________ ____________
____________ ____________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Description of the Business
MedPlus, Inc. (the "Company") provides state-of-the-art
information management technology products and consulting services
to customers predominantly in the healthcare industry. The
Company's products presently consist of the IntelliCode[tm]
Intelligent Bar Code System ("IntelliCode"), the OptiMaxx[tm]
Archival System ("OptiMaxx"), the ChartMaxx Electronic Patient
Record System ("ChartMaxx"), and Step2000[tm] Workflow, Document
Management, and Application Development System ("Step2000").
IntelliCode is an intelligent bar coding system for hospitals and
other healthcare organizations. OptiMaxx is an optical disk-based
archival system. ChartMaxx is an enterprise-wide electronic
patient record system. Step2000 is workflow, document management,
and application development software that enhances the utilization
of information on an enterprise-wide basis, regardless of hardware
platform or operating environment. The Company's FutureCORE
subsidiary provides process improvement and automation services,
primarily in the areas of patient care and laboratory services.
(2) Summary of Significant Accounting Policies
(a) Interim Financial Information
The consolidated financial statements and the related notes
thereto are unaudited and have been prepared on the same basis as
the audited consolidated financial statements. In the opinion of
management, such unaudited financial statements include all
adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the information set forth therein.
(b) Significant Accounting Policies
A description of the Company's significant accounting
policies can be found in the footnotes to the Company's 1996
annual consolidated financial statements included in its Annual
Report on Form 10-KSB dated March 27, 1997. The accompanying
consolidated financial statements should be read in conjunction
with those footnotes.
(c) Net Loss Per Share
Net loss per share is based on the weighted average number
of shares of common stock and common stock equivalents outstanding
for each period. During periods of net loss, common stock
equivalents are not included in weighted average shares
outstanding.
(d) Supplemental Cash Flow Information
In January and February 1997, the Company issued 5,000
shares of restricted common stock valued at $30,000 to a vendor in
exchange for services rendered. The Company also granted options
to purchase 85,000 shares of the Company's common stock as
compensation to several consultants to the Company. These options
have a fair value of approximately $188,000 which is being
amortized into expense over the related service periods of one to
two years. As these are non-cash transactions, they have not been
presented in the Consolidated Statements of Cash Flows.
(e) Reclassifications
Certain reclassifications have been made to the consolidated
financial statements for 1996 to conform to the current year
presentation.
(3) Commitments and Contingency
(a) Universal Document Acquisitions, Public Offering and
Consulting Agreements
The Company's Universal Document Management Systems, Inc.
("Universal Document") subsidiary has entered into agreements with
two consulting firms to assist it in the identification and
recruitment of certain software resellers and integrators that
Universal Document may acquire or combine with, and to assist
Universal Document in an initial public offering of its common
stock. Currently, Universal Document has entered into letters of
intent with ten such companies to negotiate an acquisition
agreement with each company contingent upon a successful public
offering. Universal Document has also entered into an underwriting
agreement with a national investment banking firm to manage the
public offering. After the public offering, the Company would
retain a minority interest in Universal Document.
In connection with these potential acquisitions, Universal
Document has capitalized approximately $380,000 of direct,
incremental costs as of June 30, 1997 related to these potential
acquisitions and public offering for accountants', attorneys', and
consultants' fees ("acquisition costs") that will become a cost of
the acquired companies upon the completion of any acquisitions or
costs of the public offering. These acquisition costs are included
in other assets in the Company's Consolidated Balance Sheet. The
Company has entered into a reimbursement agreement with Universal
Document whereby proceeds from the public offering will be used to
repay, within thirty days of the public offering, funds advanced
to Universal Document for these acquisition costs. In the event
that management decides to abandon the plans to acquire these
companies, then these acquisition costs will be charged to expense
in the period that decision is made. Similar costs incurred in
future periods will be treated in a consistent manner.
The Company has also entered into an agreement with one of the
two consulting firms whereby the Company will pay that firm $500,000 if
the public offering of Universal Document common stock occurs on or
before December 31, 1997. The payment, which is contingent upon the
public offering occurring, is payable within sixty days of the public
offering. This payment to the consulting firm is not subject to the
reimbursement agreement discussed in the preceding paragraph, and it
would be charged to expense in the period in which the public offering
occurs, if at all.
(a) Amendment of HWB, Inc. Purchase Agreement
Effective December 14, 1995, the Company acquired all of the
outstanding shares of HWB, Inc. ("HWB"). HWB was the owner and licensor
of the principal software product of Universal Document. Under the terms
of the HWB Stock Purchase Agreement ("Purchase Agreement") dated December
29, 1995, the consideration for the shares of HWB consisted solely of
contingent consideration payable over three years based upon the revenue
performance of Universal Document over that period. Effective August 12,
1997, Universal Document and the former shareholders of HWB amended the
Purchase Agreement, contingent upon the public offering of Universal
Document common stock occurring, to provide for the following: (i) a
$390,000 payment due January 1, 1998 to the former shareholders as
consideration for the purchase of HWB stock, (ii) extension of the
period during which additional consideration contingent on the future
revenue performance of Universal Document could be earned from the year
ending December 31, 1998 to the year ending December 31, 2000, (iii)
reduction of the maximum future potential payments for contingent
consideration from $3,000,000 to $2,610,000, (iv) allowing Universal
Document common stock to be issued as part of the contingent
consideration payments rather than MedPlus common stock, and (v)
defining the audited net revenues used to measure the contingent
consideration payable. The $390,000 payment would be paid by Universal
Document after receiving a capital contribution from the Company for the
same amount. If the public offering does not occur, the amendment to
the Purchase Agreement would not become effective. The former majority
shareholder of HWB has been a director of the Company since 1994.
(c) DiaLogos Commitment and Guarantee
The Company signed a letter of agreement with DiaLogos,
Inc. ("DiaLogos"), dated July 12, 1996, which was subsequently
amended on January 31, 1997, in which the Company, on or before
March 31, 1998, agreed to either (a) pay $1.65 million to DiaLogos
in return for 75% of the common shares of DiaLogos, (b) secure a
funding commitment for DiaLogos' operations in the amount of $1.65
million from investors and/or lenders, or (c) pay a portion of the
$1.65 million as consideration for less than 75% of the common
shares of DiaLogos, and secure a funding commitment for the
remainder of the $1.65 million from investors or lenders. In the
event the Company secures a funding commitment from investors
and/or lenders, then DiaLogos will grant the Company the option to
purchase 75% of the common shares of DiaLogos less any shares
already purchased by the Company and/or investors identified by
the Company. The Company's option would be immediately
exercisable and remain in effect until December 31, 1999.
Under the agreement, the Company will continue to fund the
operations of DiaLogos until funding has been obtained as
discussed in the preceding paragraph. If the Company or
investors identified by the Company decide to directly fund any
portion of the $1.65 million, then, at the Company's or investors'
option, any amount paid to DiaLogos shall be considered payment
for a percentage of common shares of DiaLogos. If the Company
secures funding for DiaLogos from investors and/or lenders for
$1.65 million, then upon DiaLogos' receipt of such funding,
DiaLogos will immediately reimburse the Company for any funds
previously paid to it plus interest. Interest will be equal to
the prime rate announced by the Company's primary bank lender plus
1% per annum.
As of June 30, 1997, the Company had advanced approximately
$1,067,000 to DiaLogos which is included in other receivables,
noncurrent. The Company has also converted an additional
$110,000 of advances into an equity interest in DiaLogos' common
shares. This investment has been accounted for on the equity
method, and it has been included in other assets at the net amount
of $60,000 at June 30, 1997. The Company has arranged for
approximately $400,000 of funding for DiaLogos from investors,
which consist of officers and directors of the Company. It is the
Company's current intention to fulfill part or all of funding
commitment to DiaLogos, including funding already advanced,
through the current and/or other investors. DiaLogos provides
software, education and services to corporations that are
implementing object-oriented systems in the design and redesign of
their business processes.
(4) Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, which establishes standards for computing and presenting
earnings per share. SFAS No. 128 simplifies the standards for
computing earnings per share previously found in APB Opinion No.
15. It replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires
dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share
computation.
SFAS No. 128 will be effective for the Company's consolidated
financial statements for the year ending December 31, 1997 and it
will require restatement of all prior period earnings per share
data presented. The implementation of SFAS No. 128 is not
expected to have a material effect on the Company's calculation of
net income (loss) per share.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended June 30, 1997 and June 30, 1996
Revenues for the second quarter ended June 30, 1997 were
$5,092,859, an increase of $2,320,311 or 84% over the $2,772,548
reported for the comparable period in 1996. Systems sales
increased 101% from the second quarter of 1996 primarily as a
result of increased sales from the Company's Data Management
(ChartMaxx and OptiMaxx products) and IntelliCode divisions. The
Company recorded sales of five new ChartMaxx systems during the
quarter. Service, consulting and other revenues increased 41% from
the second quarter of 1996 due to increased service revenues from
the Company's Data Management and IntelliCode divisions as the
number of installed sites of each division's products continues to
increase. The results for the second quarter of 1997, however,
reflected lower than expected consulting revenues for the
Universal Document Management Systems, Inc. ("Universal Document")
and FutureCORE, Inc. ("FutureCORE") subsidiaries.
Gross profit for the second quarter of 1997 was $2,393,555, or 47%
of revenues, compared to $1,451,294, or 52% of revenues, in the
second quarter of 1996. The gross profit percentage on systems
sales decreased from 59% in the second quarter of 1996 to 49% in
the second quarter of 1997 due to a higher proportion of lower
margin third party hardware and software relative to proprietary
software included in certain sales, lower software license only
sales, competitive pricing pressures and increased software
amortization. The gross profit percentage on service, consulting
and other revenues increased from 36% in the second quarter of
1996 to 39% in the second quarter of 1997. The increase in this
gross profit percentage was primarily a result of the increased
service revenues noted above partly offset by lower than expected
utilization of consulting and implementation personnel associated
with the Data Management, Universal Document and FutureCORE
product lines.
Operating expenses for the second quarter of 1997 were $2,724,273
compared to $1,846,442 for 1996, an increase of 48%. Operating
expenses as a percent of sales decreased from 67% in the second
quarter of 1996 to 53% in the second quarter of 1997 primarily due
to the increased revenues noted above and the increased spending
levels noted below. The Company has continued to increase its
investment in its sales and marketing efforts, particularly for
its Data Management division, in the areas of direct sales,
channel partner programs, national accounts, and general marketing
activities as evidenced by the 74% increase in sales and marketing
expenditures over the second quarter of 1996. The increase is also
a result of an increase in personnel in the areas of product
development, customer support, administration and the Company's
subsidiaries, Universal Document and FutureCORE. General and
administrative expenses increased 9% over 1996.
Other income (expense) decreased to $28,164 of expense in the
second quarter of 1997 from income of $81,897 in the comparable
quarter of 1996. This decrease is primarily a result of the
decline in the Company's cash and investment securities balances
from 1996 and increased borrowings on its line of credit in 1997.
The Company's net loss for the second quarter of 1997 was $358,882
compared to a net loss in 1996 of $313,251. The increase in the
net loss is a result of lower gross profit margins and increased
operating expenses offsetting the effect of the increased
revenues.
Six Months Ended June 30, 1997 and June 30, 1996
Revenues for the six months ended June 30, 1997 were $8,047,116,
an increase of $2,949,811 or 58% over the $5,097,305 reported for
the comparable period in 1996. Systems sales increased 76% over
the six months ended June 30, 1996 primarily as a result of
increased sales from the Company's Data Management (ChartMaxx and
OptiMaxx products) and IntelliCode divisions. The Company
recorded sales of six new ChartMaxx systems during the six months
ended June 30, 1997. Service, consulting and other revenues
increased 23% from the six months ended June 30, 1996 due to
increased service revenues from the Company's Data Management and
IntelliCode divisions as the number of installed sites of each
division's products continues to increase. The results for the
first six months of 1997, however, reflected lower than expected
total revenues for all of the Company's product lines.
Gross profit for the six months ended June 30, 1997 was $3,580,512
or 44% of revenues, compared to $2,684,685, or 53% of revenues in
the second quarter of 1996. The gross profit percentage on systems
sales decreased from 56% for the six months ended June 30, 1996 to
48% for the six months ended 1997 due to a higher proportion of
lower margin third party hardware and software relative to
proprietary software included in certain sales, lower software
license only sales, competitive pricing pressures and increased
software amortization. The gross profit percentage on service,
consulting and other revenues decreased from 46% for the six
months ended June 30, 1996 to 35% for the six months ended June
30, 1997. The decrease in this gross profit percentage was
primarily a result of lower than expected utilization of
consulting, installation, and implementation personnel associated
with the Data Management, Universal Document and FutureCORE
product lines partly offset by the increased service revenues
noted above.
Operating expenses for the six months ended June 30, 1997 were
$5,239,227 compared to $3,524,678 for the comparable period of
1996, an increase of 49%. Operating expenses as a percent of sales
decreased from 69% in 1996 to 65% in 1997 primarily due to the
increased revenues noted above and the increased spending levels
noted below. The Company has continued to increase its investment
in its sales and marketing efforts, particularly for its Data
Management division, in the areas of direct sales, channel partner
programs, national accounts, and general marketing activities as
evidenced by the 78% increase in sales and marketing expenditures
over the comparable period of 1996. The increase is also a result
of an increase in personnel in the areas of product development,
customer support, administration and the Company's subsidiaries,
Universal Document and FutureCORE. General and administrative
expenses increased 10% over 1996.
Other income (expense) decreased to $16,312 of expense for the six
months ended June 30, 1997 from income of $181,182 for the six
months ended June 30, 1996. This decrease is primarily a result
of the decline in the Company's cash and investment securities
balances from 1996 and increased borrowings on its line of credit
in 1997.
The Company's net loss for the six months ended June 30, 1997 was
$1,675,027 compared to a net loss in 1996 of $658,811. The
increase in the net loss is a result of lower gross profit margins
and increased operating expenses offsetting the effect of the
increased revenues.
Liquidity and Capital Resources
The Company's business requires significant amounts of working
capital to finance new product development, the expansion of its
sales and marketing organization and anticipated revenue growth.
The Company has financed its operations and working capital needs
through the sale of common stock, bank borrowings and capital
lease financing agreements. The Company's principal uses of cash
since inception have been for funding operations, capital
expenditures, research and development activities, and investments
in and advances to companies which are deemed to have strategic
value to the Company.
The Company's line of credit agreement with a bank permits the
Company to borrow a maximum of $10,000,000 subject to a defined
net worth formula. At June 30, 1997 the maximum amount available
under the line of credit was approximately $5,400,000 of which the
Company had borrowed approximately $1,480,000. The term of the
line of credit extends through December 31, 1998, and the line of
credit is secured by substantially all of the Company's assets.
The Company believes that its cash and cash equivalents, available
line of credit, and cash generated from operations will be
sufficient to finance its expected growth and cash requirements
for at least the next 12 months provided that the public offering
of Universal Document common stock, discussed below, occurs and
the Company returns to profitability, or the Company modifies its
existing lending arrangements There can be no assurance that
additional financing will not be required sooner, or if required,
that it will be available on a timely basis or on terms
satisfactory to the Company. The Company's ability to meet its
cash requirements on a long-term basis will depend on profitable
operations, consistent and timely collections of accounts
receivable and additional sources of liquidity such as additional
equity offerings or debt financings.
Universal Document Transactions
The Company's Universal Document Management Systems, Inc.
("Universal Document") subsidiary has entered into agreements with
two consulting firms to assist it in the identification and
recruitment of certain software resellers and integrators that
Universal Document may acquire or combine with, and to assist
Universal Document in an initial public offering of its common
stock. Currently, Universal Document has entered into letters of
intent with ten such companies to negotiate an acquisition
agreement with each company contingent upon a successful public
offering. Universal Document has also entered into an underwriting
agreement with a national investment banking firm to manage the
public offering. After the public offering, the Company would
retain a minority interest in Universal Document.
In connection with these potential acquisitions, Universal
Document has capitalized approximately $380,000 of direct,
incremental costs as of June 30, 1997 related to these potential
acquisitions and public offering for accountants', attorneys', and
consultants' fees ("acquisition costs") that will become a cost of
the acquired companies upon the completion of any acquisitions or
costs of the public offering. These acquisition costs are included
in other assets in the Company's Consolidated Balance Sheet. The
Company has entered into a reimbursement agreement with Universal
Document whereby proceeds from the public offering will be used to
repay, within thirty days of the public offering, funds advanced
to Universal Document for these acquisition costs. In the event
that management decides to abandon the plans to acquire these
companies, then these acquisition costs will be charged to expense
in the period that decision is made. Similar costs incurred in
future periods will be treated in a consistent manner.
DiaLogos Commitment and Guarantee
The Company signed a letter of agreement with DiaLogos, Inc.
("DiaLogos"), dated July 12, 1996, which was subsequently amended
on January 31, 1997, in which the Company, on or before March 31,
1998, agreed to either (a) pay $1.65 million to DiaLogos in return
for 75% of the common shares of DiaLogos, (b) secure a funding
commitment for DiaLogos' operations in the amount of $1.65 million
from investors and/or lenders, or (c) pay a portion of the $1.65
million as consideration for less than 75% of the common shares of
DiaLogos, and secure a funding commitment for the remainder of the
$1.65 million from investors or lenders. In the event the
Company secures a funding commitment from investors and/or
lenders, then DiaLogos will grant the Company the option to
purchase 75% of the common shares of DiaLogos less any shares
already purchased by the Company and/or investors identified by
the Company. The Company's option would be immediately
exercisable and remain in effect until December 31, 1999.
Under the agreement, the Company will continue to fund the
operations of DiaLogos until funding has been obtained as
discussed in the preceding paragraph. If the Company or
investors identified by the Company decide to directly fund any
portion of the $1.65 million, then, at the Company's or investors'
option, any amount paid to DiaLogos shall be considered payment
for a percentage of common shares of DiaLogos. If the Company
secures funding for DiaLogos from investors and/or lenders for
$1.65 million, then upon DiaLogos' receipt of such funding,
DiaLogos will immediately reimburse the Company for any funds
previously paid to it plus interest. Interest will be equal to
the prime rate announced by the Company's primary bank lender plus
1% per annum.
As of June 30, 1997, the Company had advanced approximately
$1,067,000 to DiaLogos which is included in other receivables,
noncurrent. The Company has also converted an additional
$110,000 of advances into an equity interest in DiaLogos' common
shares. This investment has been accounted for on the equity
method, and it has been included in other assets at the net amount
of $60,000 at June 30, 1997. The Company has arranged for
approximately $400,000 of funding for DiaLogos from investors,
which consist of officers and directors of the Company. It is the
Company's current intention to fulfill part or all of funding
commitment to DiaLogos, including funding already advanced,
through the current and/or other investors. DiaLogos provides
software, education and services to corporations that are
implementing object-oriented systems in the design and redesign of
their business processes.
Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, which establishes standards for computing and presenting
earnings per share. SFAS No. 128 simplifies the standards for
computing earnings per share previously found in APB Opinion No.
15. It replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires
dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share
computation.
SFAS No. 128 will be effective for the Company's consolidated
financial statements for the year ending December 31, 1997 and it
will require restatement of all prior period earnings per share
data presented. The implementation of SFAS No. 128 is not
expected to have a material effect on the Company's calculation of
net income (loss) per share.
PART II. OTHER INFORMATION
Items 1-3. None
Item 4. Submission of Matters to a Vote of Security Holders
a. The Company held its annual meeting of shareholders on
May 15, 1997.
b. Richard A. Mahoney, Robert E. Kenny III, Paul A.
Martin, Paul J. Stein, and Jay Hilnbrand were reelected
as members of the board of directors at the annual
shareholders' meeting. Directors are elected annually
and serve one year terms.
c. The following matter was voted upon at the annual
shareholders' meeting held on May 15, 1997: election of
the board of directors.
Richard A. Mahoney, Robert E. Kenny III, Paul A. Martin, Paul J.
Stein, and Jay Hilnbrand were reelected as members of the board of
directors with 5,651,379 votes for, 400 votes against, and 26,480
abstentions.
Item 5. Other Information
Under the Merger Agreement pursuant to which the Company acquired
Universal Document in December 1995, the Company is required to obtain
the consent of Jay Hilnbrand, a former shareholder of Universal Document
and a director of the Company, in order to sell the stock of Universal
Document to an unaffiliated third party. Mr. Hilnbrand granted his
consent, effective as of May 1, 1997, to the sale of the stock of
Universal Document in accordance with the terms and conditions of an
agreement by and between the Company and Mr. Hilnbrand dated August 14,
1997. Specifically, consideration for the consent is payable only in the
event the public offering of the stock of Universal Document occurs.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are hereby filed as part of this Form
10-QSB:
Exhibit Sequentially
Number Description of Exhibits Numbered Page
10.1 Agreement by and between the
Company and Growth Management
Advisors, Inc. dated July 10, 1997 --
10.2 Agreement by and between Universal
Document, Jay Hilnbrand, Judy
Hilnbrand and Robert C. Weiss
dated August 12, 1997 --
10.3 Agreement by and between the
Company and Jay Hilnbrand dated
August 14, 1997 --
27 Financial Data Schedule --
(b) No reports were filed on Form 8-K during the period for which
this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MedPlus, Inc.
Date: 8/18/97 By: /s/ Daniel A. Silber
Chief Financial Officer
Pursuant to the last sentence of General Instruction
G to Form 10-QSB, Mr. Daniel A. Silber has
executed this Quarterly report on Form 10-QSB/A both
on behalf of the registrant and in his capacity as its
principal financial and accounting officer.
AGREEMENT
This AGREEMENT dated as of the 10th day of July, 1997 (the
"Effective Date"), is by and between MEDPLUS, INC. (the
"Company"), an Ohio corporation with its principal offices located
at 8805 Governor's Hill Drive, Cincinnati, Ohio 45249 and GROWTH
MANAGEMENT ADVISORS, INC., an Ohio corporation with its principal
offices located at 8044 Montgomery Road, Ste. 700, Cincinnati,
Ohio 45236 ("GMA").
W I T N E S S E T H:
WHEREAS, Universal Document Management Systems, Inc. ("UDMS"), a
wholly-owned subsidiary of the Company, and GMA entered into a
Consulting Agreement dated February 19th, 1997 pursuant to which
GMA agreed to provide to UDMS the services of Terry L. Theye
("Consultant"), an employee of GMA, to assist UDMS with the
identification and recruitment of, and negotiations with, certain
CAD software resellers and/or other companies whose business may
complement that of UDMS, which UDMS is interested in acquiring,
and to assist UDMS with an initial public offering (the "IPO") by
UDMS; and
WHEREAS, to date, as the parent company of UDMS, the Company has
expended considerable resources on behalf of UDMS to ensure the
success of the IPO; and
WHEREAS, the Company desires to provide GMA with incentive to
ensure successful completion of the IPO on or before December 31,
1997.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties, intending to be legally
bound, agree as follows:
1. Agreement. GMA and Consultant agree to use their best efforts
to ensure that the IPO is completed on or before December 31,
1997.
2. Compensation. If the IPO occurs on or before December 31,
1997, then, within 60 days following the IPO, the Company shall
pay to GMA $500,000.
3. Miscellaneous.
a. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, the heirs and
legal representatives of Consultant, and the successors and
assigns of GMA and the Company, except that neither GMA nor
Consultant may assign this Agreement or any of Consultant's duties
or services hereunder.
b. Modification. This Agreement may not be changed, amended
or modified except by a writing signed by both parties.
c. Entire Agreement/Governing Law. This Agreement
constitutes the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof an
supersedes any prior agreements or understandings between the
Company, GMA and/or Consultant with respect to such subject
matter. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
MEDPLUS, INC.
By: /s/ Philip S. Present II
Its: Chief Operating Officer
GROWTH MANAGEMENT ADVISORS, INC.
By: /s/ Terry L. Theye
Terry L. Theye, Chairman
Agreed and Acknowledged:
/s/ Terry L. Theye
Terry L. Theye, individually
AMENDMENT TO STOCK PURCHASE AGREEMENT
This AMENDMENT TO STOCK PURCHASE AGREEMENT is made the 12th day of
August, 1997, with an effective date as described below, by and
between UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC. (formerly
"MedPlus Acquisition Corp.") (the "Purchaser"), an Ohio
corporation and a wholly-owned subsidiary of MedPlus, Inc.
("MedPlus"), with its principal offices located at 8805 Governor's
Hill Drive, Cincinnati, Ohio 45249, JAY AND JUDY HILNBRAND,
individuals residing at 617 Sonora Ct., Cincinnati, Ohio 45215
("Hilnbrand") and ROBERT C. WEISS, an individual residing at 5632
Julmar, Cincinnati, OH 45238 ("Weiss") (Hilnbrand and Weiss are
collectively referred to as the "Sellers").
W I T N E S S E T H:
WHEREAS, the Purchaser and the Sellers entered into a Stock
Purchase Agreement dated December 29th, 1995 (the "Initial
Agreement") pursuant to which the Sellers sold to the Purchaser
and the Purchaser purchased from the Sellers all of the common
stock of HWB, Inc. owned by the Sellers (the "HWB Stock"); and
WHEREAS, the consideration for the HWB Stock, which the parties
agree was a capital asset, was to be paid to the Sellers over a
period of three years in the form of MedPlus common stock and/or
cash and was to be calculated based on the revenues of the
Purchaser during such three year period (the "Earn-Out
Consideration"); and
WHEREAS, the Purchaser is planning to combine with certain CAD
resellers and conduct an initial public offering of its common
stock (the "IPO") with an effective date which is on or before
December 31, 1997 (the "IPO Date");and
WHEREAS, if the IPO occurs, then following the IPO, MedPlus will
no longer be the sole shareholder of the Purchaser; and
WHEREAS, if the IPO occurs, then as a result of the change in
ownership and structure of the Purchaser following the IPO, the
Purchaser and the Sellers desire to amend the Initial Agreement
with respect to the Earn-Out Consideration to clarify the revenues
as to which it applies and to provide for additional time during
which the Earn-Out Consideration may be paid to the Sellers and to
allow a portion of such consideration to be paid in the form of
the Purchaser's common stock instead of MedPlus' common stock; and
WHEREAS, the Purchaser and Sellers agree that this Amendment to
Stock Purchase Agreement shall only become effective in the event
of the IPO and on the IPO Date, if any.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties, intending to be legally
bound, agree as follows:
On the IPO Date, Schedule 2 to the Initial Agreement shall be
amended to read in its entirety as follows:
"Schedule 2
Stock Purchase Consideration
On January 1, 1998, the Purchaser shall pay to the Sellers
$390,000 (of which $311,922 shall be paid to Hilnbrand and $78,078
shall be paid to Weiss). So long as each of Jay Hilnbrand and
Robert C. Weiss remains employed by the Purchaser until at least
December 31, 1998, the following consideration shall be payable to
Sellers no later than March 31, 1999, 2000 and 2001, respectively,
as follows (the `Earn-Out Consideration'):
If, during any of the three periods described below (the `Earn-Out
Periods'), the Audited Net Revenue (as defined below) of the
Purchaser exceeds a certain amount, as listed below, with respect
to that Earn-Out Period (the `Earn-Out Threshold'), then Purchaser
shall pay to the Sellers an aggregate amount equal to 99.9% of the
`Payment Amount' listed below (the `Annual Payment'). In no event
shall the cumulative aggregate of the Earn-Out Consideration for
all three Earn-Out Periods exceed $2,610,000.
Earn-Out Period Earn-Out Payment Amount*
Threshold
_________________ ________________ _________________
The IPO Date through
December 31, 1998 $1,750,000 $1.00 for each
dollar of Audited
Net Revenue over
$1.75 million
January 1, 1999 through
December 31, 1999 2,750,000 $1.00 for each
dollar of Audited
Net Revenue over
$2.75 million
January 1, 2000 through
December 31, 20003 3,750,000 $1.00 for each
dollar of Audited
Net Revenue over
$3.75 million
For purposes hereof, `Audited Net Revenue' of the Purchaser shall
mean all the gross revenues related to the Purchaser's Step2000
software product (including, but not limited to, licensing and
maintenance fees and consulting and application building fees with
respect to Step2000), minus returns and allowances related to the
Purchaser's Step2000 software product and minus the amount of
accounts receivable written off as uncollectible during the period
in question which are related to the Purchaser's Step2000 software
product and which are either over 180 days old or are owed by a
debtor which has declared bankruptcy or has otherwise admitted its
insolvency in a public filing. In the event that the amount of
any fees charged by Purchaser to any person who is an affiliate of
Purchaser or MedPlus are less than the ordinary rates charged for
customers who are not affiliates in arms-length transactions, then
the amount of Audited Net Revenues for purposes of calculating the
Earn-Out Consideration shall be increased by the amount by which
the ordinary rates exceed the actual rates charged. All payments
of the Earn-Out Consideration shall be made in cash or, at the
election of the Purchaser, in a combination of cash and the
Purchaser's common stock, provided that the common stock component
of any payment of the Earn-Out Consideration shall not exceed 50%.
To the extent the Purchaser's common stock is used to make any
payment, each share so issued shall be deemed to have a value
equal to the average of the closing price per share of the
Purchaser's common stock on the Nasdaq National Market for each of
the 20 trading days preceding the payment date. Notwithstanding
the foregoing, payments may only be made in the form of the
Purchaser's common stock if at the time of issuance thereof there
is a registration statement effective under the Securities Act of
1933 covering a resale of such shares by Sellers, the cost of
which shall not be the responsibility of Sellers. The term
`Purchaser's common stock' shall not include any securities of the
Purchaser other than its common stock, or any securities of any
successor of the Purchaser.
The percentage of each Annual Payment of Earn-Out Consideration to
which each Seller is entitled is set forth as follows: Hilnbrand,
79.98%; Weiss 20.02%."
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to Stock Purchase Agreement to be executed as of the day
and year first above written.
UNIVERSAL DOCUMENT
MANAGEMENT SYSTEMS, INC.
By: /s/ Philip S. Present II
Its: Vice-Chairman
/s/ Jay Hilnbrand
Jay Hilnbrand
/s/ Judy Hilnbrand
Judy Hilnbrand
/s/ Robert C. Weiss
Robert C. Weiss
AGREEMENT
This AGREEMENT dated as of the 1st day of May, 1997 (the
"Effective Date"), is by and between MEDPLUS, INC., an Ohio
corporation with its principal offices located at 8805 Governor's
Hill Drive, Cincinnati, Ohio 45249 ("MedPlus") and JAY HILNBRAND,
an individual residing at 617 Sonora Ct. Cincinnati, OH 45215
("Hilnbrand").
W I T N E S S E T H:
WHEREAS, on or before December 31, 1997, Universal Document
Management Systems, Inc. ("UDMS"), a wholly-owned subsidiary of
MedPlus, plans to acquire certain CAD software resellers ("CAD
Resellers") and/or other companies whose business may complement
that of UDMS which acquisition(s) may occur through mergers by and
among UDMS and such CAD Resellers (the "Mergers"); and
WHEREAS, concurrent with and/or following the Mergers, UDMS plans
to conduct an initial public offering of UDMS common stock (the
"IPO") or a private placement of UDMS common stock (the "Private
Placement") on or before December 31, 1997; and
WHEREAS, MedPlus, UDMS and Hilnbrand are parties to an Agreement
of Merger and Plan of Reorganization dated December 14, 1995 (the
"Merger Agreement"); and
WHEREAS, pursuant to Section 4.7 of the Merger Agreement, MedPlus
and UDMS jointly agreed not to sell or merge UDMS to or into an
unaffiliated third party or sell its stock to an unaffiliated
third party without the prior written consent of Hilnbrand, as
more specifically described in paragraph 1 hereof (the "Consent");
and
WHEREAS, MedPlus and UDMS desire to obtain the Consent and
Hilnbrand desires to grant the Consent subject to the terms
hereof.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties, intending to be legally
bound, agree as follows:
1. Consent. In exchange for $1.00 plus other good and valuable
consideration, Hilnbrand hereby irrevocably consents to the
Mergers. In addition, in the event UDMS conducts the IPO or the
Private Placement in conjunction with or following the Mergers,
Hilnbrand, in his individual capacity, hereby irrevocably
consents, subject to all of the terms and conditions set forth
herein, to the IPO or Private Placement, as the case may be.
2. Compensation. As additional consideration for the Consent, in
the event the IPO or Private Placement takes place, MedPlus shall
be obligated (a) to pay to Hilnbrand $10,100 on the effective date
of the IPO or on the date of the Private Placement, (b) to enter
into a contract with UDMS pursuant to which MedPlus shall hire
UDMS as the exclusive provider of design and application building
work related to Step2000 for any such work requested of MedPlus by
or on behalf of Quest Diagnostics ("Quest") and Bectin & Dickinson
("B&D") (including any affiliated entity of either Quest or B&D
and any entity established by or joint venture between MedPlus and
either or both of Quest and B&D, or any of their respective
affiliates) on or before December 31, 2000 (the "Design Contract")
and (c), in the event MedPlus enters into a license agreement with
UDMS pursuant to which MedPlus is granted the right to resell or
sublicense the Step2000 product, to agree to pay UDMS' then-
current reseller rates for such license. The Design Contract
shall contain terms and conditions reasonable and standard in the
design and application building industry for license fees,
maintenance fees and services and the cost for such fees and all
services provided thereunder shall be at UDMS' then-current retail
rates for such fees and services.
3. Miscellaneous.
(a) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision.
(b) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, the heirs and
legal representatives of Hilnbrand, and the successors and assigns
of MedPlus.
(c) No Waivers. The failure of either party to insist upon
the strict performance of any of the terms, conditions and
provisions of this Agreement shall not be construed as a waiver or
relinquishment of future compliance therewith, and said terms,
conditions and provisions shall remain in full force and effect.
No waiver of any term or condition of this Agreement on the part
of either party shall be effective for any purpose whatsoever
unless such waiver is in writing and signed by such party.
(d)Modification. This Agreement may not be changed, amended or
modified except by a writing signed by both parties.
(e) Notices. Any notice, request, demand, waiver, consent,
approval or other communication which is required to be or may be
given under this Agreement shall be in writing and shall be deemed
given only if delivered to the party personally or sent to the
party by registered or certified mail, return receipt requested,
postage prepaid, or via fax with written confirmation thereof, to
the parties at the addresses set forth herein or to such other
address as either party may designate from time to time by notice
to the other party sent in like manner.
(f)Entire Agreement; Governing Law. This Agreement constitutes
the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof and supersedes any prior
agreements or understandings between MedPlus, UDMS and/or
Hilnbrand with respect to such subject matter. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Ohio applicable to agreements made and to be
performed solely within such state.
(g)Consent to Jurisdiction. Each of the parties hereto
irrevocably submits to the jurisdiction of the state and federal
courts located in Hamilton County, Ohio with respect to any suit,
proceeding or action at law or in equity arising out of or
relating to this Agreement.
(h)Headings. The section headings contained in this Agreement
are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
MedPlus, Inc. Agreed and Acknowledged:
Universal Document Management
Systems, Inc.
By: /s/ Philip S. Present II By: /s/ Philip S. Present II
Its: Chief Operating Officer Its: Vice-Chairman
/s/ Jay Hilnbrand
Jay Hilnbrand, Individually
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF MEDPLUS, INC. AND SUBSIDIARIES AS OF AND FOR THE SIX
MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 399,417
<SECURITIES> 0
<RECEIVABLES> 5,763,018
<ALLOWANCES> (115,000)
<INVENTORY> 995,450
<CURRENT-ASSETS> 7,936,918
<PP&E> 2,148,644
<DEPRECIATION> (629,642)
<TOTAL-ASSETS> 15,813,0009
<CURRENT-LIABILITIES> 6,058,044
<BONDS> 0
0
0
<COMMON> 1,077
<OTHER-SE> 8,263,415
<TOTAL-LIABILITY-AND-EQUITY> 15,813,009
<SALES> 8,047,116
<TOTAL-REVENUES> 8,047,116
<CGS> 4,466,604
<TOTAL-COSTS> 4,466,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (,675,027)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,675,027)
<EPS-PRIMARY> (0.28)
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