U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended January 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ______________ to
Commission file number: Z-24196
MEDPLUS, INC.
(Name of small business issuer in its charter)
OHIO 48-1094982
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
8805 Governor's Hill Drive, Suite 100, Cincinnati OH 45249
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 513-583-0500
Securities registered under Section 12(b) of the
Exchange Act: None
Securities registered under Section 12(g) of the Exchange
Act: Common Stock, No Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ X ]
(Cover Page continued on Page 2)
The Company's revenues from continuing operations for its fiscal year ended
January 31, 1998 were $9,031,643.
The aggregate market value of the voting stock held by non-affiliates of the
Company as of March 10, 1998 was $21,318,856, based on the average bid and ask
price of such stock on that date as reported on the Nasdaq National Market.
As of April 30, 1998, 6,175,114 shares of the Company's no par value common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 25, 1998, are incorporated by reference into
Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes ________ No _____X_____
INTEGRATED REPORTS TO SECURITY HOLDERS
Pursuant to General Instruction F of Form 10-KSB and Regulation 240.14a(d) of
the Securities Exchange Act of 1934, the Company's Annual Report to Security
Holders for its fiscal year ended January 31, 1998 has been combined with the
required information of Form 10-KSB and is being filed with the U.S.
Securities and Exchange Commission and submitted to the registrant's
shareholders on an integrated basis.
A list of the exhibits to this Form 10-KSB is included in Part III hereof
under the caption "Exhibits and Reports on Form 8-K." MedPlus, Inc. will
provide a copy of any such exhibit to any of its shareholders upon written
request and payment of a copying charge of $.10 per page. Requests for copies
should be directed to: Investor Relations, MedPlus, Inc., 8805 Governor's
Hill Drive, Suite, 100, Cincinnati, Ohio 45249.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
MedPlus[r], Inc. (the "Company") was incorporated in 1991. The Company's
principal executive offices are located at 8805 Governor's Hill Drive, Suite
100, Cincinnati, Ohio, 45249. The Company's telephone number is (513) 583-
0500.
The Company provides state-of-the-art information management technology
products and consulting services to customers predominantly in the health care
industry. The Company sells and supports hardware and software solutions to
meet the needs of health care organizations. The Company's products and
services presently consist of enterprise-wide electronic patient systems, an
optical document archival and retrieval system, and process improvement and
automation services, primarily in the area of patient care and laboratory
services. On January 30, 1998, the Company acquired a majority interest in
DiaLogos[tm] Incorporated ("DiaLogos") which specializes in assisting
organizations in the integration of enterprise-wide business systems with
existing applications and data using distributed object computing, including
CORBA and Java technologies, through education, consulting and implementation
services. DiaLogos is in the initial phases of developing several products
designed to simplify the effort of legacy system integration. The Company's
technology and products are designed to allow health care providers to achieve
quality and productivity enhancements quickly and easily. Moreover this
technology enables the providers to reach cost containment goals which are
increasingly imposed upon them by legal and regulatory requirements as well as
economic and consumer pressures.
In January 1998 the Company completed the sale of all the assets of the
Company's IntelliCode[tm] division to Becton Dickinson and Company for
approximately $17.3 million plus royalty payments over five years. Also in
January the Company decided to sell the net assets of the Step2000[tm] segment
of its wholly-owned subsidiary, Universal Document Management Systems, Inc.
("Universal Document"), and is currently negotiating with prospective buyers.
The disposal of these segments will provide resources in the form of
management time and additional funds to allow the Company to enhance its focus
on delivering data management solutions for health care organizations.
In December 1997, the Company changed its fiscal year end from December 31 to
January 31. Accordingly, the Company's current fiscal year commenced on
February 1, 1997 and ended on January 31, 1998.
Industry Background
The health care industry has entered a period of profound change involving
economic, regulatory and operational factors. The Company's strategy is
intended to capitalize on the trend toward more spending by the health care
industry on information systems and services such as those offered by the
Company.
Economic. The dramatic increase in health care costs in the United States has
caused significant change in the health care industry. Managed care
organizations such as health maintenance organizations, preferred providers
and independent physician associations, as well as other payers have developed
alternative payment models to control costs, including procedure-based cost
limitations, contractually approved providers and capitation (a fixed monthly
fee for members as payment for all required services). The result has been a
continuing shift of financial risk from the payers to both the
physician/provider and the institutional provider (hospitals, clinics, long-
term care, acute providers and rehabilitative care centers). In response,
health care organizations are aligning themselves with one another in order to
form integrated delivery systems in an effort to lower costs and compete more
effectively in the changing health care environment.
The economic viability of many providers will be dependent upon their ability
to continue to provide quality health care services while dramatically cutting
costs and increasing productivity. The delivery of health care services is
both labor and information intensive because the functions of tracking,
organizing, retrieving, evaluating and generally managing the high volume of
health care data that providers generate are essential to any provider.
Compared to other industries, the health care industry has been slow to
automate its information management needs.
Hospitals, because of the lack of efficiency incentives, historically have
underinvested in information technology, spending only 2-3% of their operating
budgets on information technology compared to the 6-8% allocated by other
industries for information technology. According to Sheldon Dorenfest and
Associates, the health care information system market was valued at $13.6
billion in 1997.
Regulatory. Various regulatory bodies have begun to focus on the information
management function. For example, the Joint Commission for Accreditation of
Health care Organizations ("JCAHO"), which is responsible for accrediting all
hospitals, has determined that records management can have an important
clinical impact. JCAHO has begun to impose specific information management
requirements for accreditation. Most of the new requirements mandate
performance levels which will be difficult to achieve without computerization.
The Company's products and services are specifically designed to help
providers comply with these requirements.
Operational. Hospitals and other health care organizations comprise numerous
departments, such as the accounting, laboratory, radiology, pharmacy, medical
records, business office and clinical areas. The information management
requirements of these departments tend to be quite distinct. To the extent
they have purchased computerized systems, most hospitals have historically
acquired a collection of separate, stand-alone information systems for their
various departments. Moreover, even within a particular systems category,
such as the laboratory, there are no system standards. Numerous vendors sell
proprietary systems which often are not directly compatible with either
competitive systems or the systems of other departments. The Company's
products and services enhance the capabilities of the existing systems by
adding functionality not otherwise present in these systems.
Strategy
Recognizing all of these factors, the Company's business strategy since its
inception has been to focus on specific health care information problems that
the Company believes have not been adequately addressed by other vendors. It
is the Company's goal to develop appropriate information management systems
which address the market needs, are affordable, and can be easily integrated
with the major systems currently in place at most health care organizations in
the United States. The Company's products and services are designed to permit
customers to leverage their existing investments in computerized information
systems rather than forcing them to replace entire systems at a much greater
cost.
The Company concentrates on specific segments of information technology for
the health care industry including data storage and retrieval, enterprise-wide
electronic patient records, integration of enterprise-wide business systems
with existing applications using distributed object computing and process
engineering and consulting services. These technologies and services offer
immediate benefits to health care organizations on a cost-efficient basis.
The Company considers these areas to be key subsets which directly affect the
health care provider's efficiency in utilizing its existing information
systems. The Company believes this niche has enabled it to provide high
technology solutions at an affordable user cost. Over time, it is the
Company's intention to adapt its current products to changing needs, to
develop or acquire new products and services, and to address selected
information management needs throughout the typical health care organization.
While the Company is focused on the health care market, it believes its
products, services, and intellectual knowledge regarding legacy access and
distributed object computing can be applied to other markets where access to
large amounts of stored information from many disparate systems is required.
The Company may explore these other markets, including the international
arena, either through strategic partnering or by creating new companies or
divisions.
Products and Services
The Company pursues the automated data storage and retrieval segment through
its OptiMaxx[tm] Archival System product line and the computerized enterprise-
wide electronic patient record system segment through its ChartMaxx[tm]
Enterprise-Wide Patient Record System. The Company's product strategy is to
design systems with open architecture and modular functionality which are
compatible with most existing systems to which they will interface, without
requiring any support or cooperation from the systems vendors. By designing
products to be entirely independent of other system vendors, potential
customer acceptance of the Company's products is not limited in any way by
their existing information system configurations. The Company's ability to
market its products generally is not subject to the cooperation of third party
systems vendors. In July 1996, the Company acquired certain of the assets of
FutureCORE, Ltd. now FutureCORE[tm], Inc., which specializes in health care
automation, systems integration, and business process engineering and
consulting. FutureCORE has assisted the Company by performing on-site
operational assessments for potential clients, which identify cost reduction
and efficiency opportunities via implementation of ChartMaxx or OptiMaxx and
process improvements. In January 1998, the Company exercised its option to
purchase additional shares of the common stock of DiaLogos, a Cincinnati-based
provider of distributed object computing training and technology. The Company
has a 56.5% ownership interest in DiaLogos, which has formed a health care
information technology division. This division is currently developing a
solution called Global Distributed Registration which provides enterprise-wide
Web access to health care organizations' disparate legacy systems.
OptiMaxx Archival System
The Company offers an optical disk storage and retrieval system under the name
OptiMaxx which is specially configured for hospitals, medical practices and
other health care providers. It consists of hardware (optical drives, disk
"jukeboxes", personal computers) and software purchased from outside vendors,
combined with the Company's proprietary software in a manner that provides
specific benefits to health care industry users. At its most basic level,
OptiMaxx permits a user to store automatically on an optical disk any data
that it previously would have printed out of its system and then stored as
paper or on microfilm/microfiche. OptiMaxx can also scan in and manage
existing paper documents.
A key feature of OptiMaxx is its ability to capture data directly from
existing computer information systems without special software, other
interfaces or any data manipulation. Most optical storage systems must have
the "host" information system computer configure files in a specific manner or
convert the electronic format of the outgoing data into a particular format,
often proprietary, which the optical system can then recognize and use when
the data is received. OptiMaxx, which was designed to act as a system
peripheral (such as a printer), can work with most host systems without the
need for data configuration by the host system. Every host system must have
the capacity to output data to a printer, and OptiMaxx can accept any such
output "as is" without any special treatment by the host system. Moreover,
OptiMaxx itself does not convert or change the incoming data. OptiMaxx stores
the data and can retrieve it in its native format, without conversion. In
1997, the Company introduced OptiMaxx for Windows NT, which operates on the
Windows NT operating system. The Company believes the addition of Windows NT,
which is considered to be one of the most robust and open operating systems in
the software industry, will provide a significant competitive advantage in the
future.
ChartMaxx Enterprise-Wide Patient Record System
The ChartMaxx system is an enterprise-wide electronic medical records system
that combines multiple technical and functional approaches to computer-based
patient records development. The result is an integrated software and
hardware platform which:
Creates complete, digital medical records that meet administrative and
legal requirements;
Manages multimedia digital data (structured and unstructured) in both
report-oriented and discreet data element formats;
Manages scanned documents (imaging);
Manages workflow and the work processes associated with health information
management;
Builds a data repository based on an SQL (an industry standard) database
and mass storage;
Forms a system that has both enterprise-wide and remote connections;
Provides application software to further automate the medical records and
patient accounts department;
Is useful to providers of care and other health care staff members; and
Facilitates communication of clinical information within the health care
organization and to external sources.
ChartMaxx has been proven on the UNIX operating system since the Company
introduced it to the market in 1995. Now that ChartMaxx is available for use
on the Windows NT operating system, ChartMaxx will provide the same
functionality as the previous version. The addition of ChartMaxx Windows NT
will give customers the option of beginning with OptiMaxx for Windows NT and
migrating to full electronic patient record functionality with ChartMaxx.
Windows NT is supported on more than 2,000 hardware platforms, runs thousands
of applications and integrates with NetWare, IBM, UNIX and many other
networking environments.
Beyond the immediate benefits of automating an organization's medical records
department and creating an electronic patient record, the Company is creating
a data repository that can encompass the entire integrated delivery system.
In 1997, the Company introduced ChartMaxx Web Navigator[tm], a web-based
application which provides authorized clinicians with chart viewing and query
capabilities from remote locations via the hospital Intranet. In February
1998, the Company introduced ChartMaxx Web Completion[tm], which works in
conjunction with Web Navigator to enable authorized clinicians to sign patient
charts with an encrypted digital signature from remote locations. With both
ChartMaxx Web applications, clinicians, for the first time, can perform both
of their chart functions after the patient is discharged - chart completion
and access to historical charts from any location using a Netscape Navigator
or Internet Explorer Web browser.
Web Access to Legacy Systems Application
In line with the Company's strategy to enable customers to leverage their
existing information system investment, the health care division of DiaLogos
is developing a solution called Global Distributed Registration ("GDR") that
provides enterprise-wide Web access to disparate hospital information systems.
GDR will provide users with an entire patient history, including demographic,
insurance and visit information, which is available to all authorized users,
at all times, in all locations. All data is combined into a single, cohesive
view and easily accessed by any authorized medical professional.
Using the DiaLogos legacy access technology and CORBA distributed object
technology, all systems are queried to find patient information and, if the
information is changed, all systems will automatically be updated with any
applicable information. This ensures that users are viewing the most current
information.
The University of Pennsylvania Health Systems ("UPHS"), one of the most
prestigious health care organizations in the nation, is currently implementing
GDR with its Shared Medical Systems and IDX information systems. Once
completed, GDR will be used throughout UPHS hospitals, physician practices,
and affiliated facilities.
DiaLogos has placed an emphasis on distributed technology education. As such,
it is creating partnerships and education programs with top Fortune 500
companies who are demanding that CORBA and Java be deployed in critical
projects in industries spanning such fields as healthcare, electronic commerce
and manufacturing. DiaLogos provides the Senior Developer and System
Architects of these organizations with the education necessary to craft CORBA
and Java based solutions today. DiaLogos works with the educational heads of
companies such as Oracle to define and deliver the required high-tech training
necessary for their software developers to do their jobs in the year 2000 and
beyond.
Consulting Services
The acquisition of FutureCORE in July 1996 significantly enhanced the
Company's product lines by providing consultative system analysis and process
improvement methodologies in laboratories, physician offices, hospitals, major
health care instrumentation firms and integrated delivery networks. Now,
rather than just providing new technology for health care providers, the
Company has the unique advantages of being able to assist health care
providers re-engineer their existing processes while implementing the
Company's product line so as to maximize the return on the investment in
technology. The services provided by FutureCORE include program management
involving project planning, workflow analysis, process flow charting,
productivity improvements, modeling and process simulation.
Sales and Marketing
The Company utilizes selected strategic resellers and reference selling
arrangements and also employs a direct sales force to market its products.
Its sales philosophy is to provide consultative selling services to end users,
conducted by both direct and indirect sales sources who are knowledgeable
about the health care industry and information management technologies.
Because of its products' ability to interface with major information system
vendors, the Company is able to market its products directly to end users, and
is not required to enter into costly technical support, joint selling or other
collaborative selling arrangements with vendors of health information systems
merely to obtain access to the market. However, the Company has found it to
be advantageous to enter into reseller and reference seller agreements for
strategic reasons, including increased acceptance by customers due to the
association with familiar vendors and exposure to the existing customer bases
of the resellers and reference sellers. Presently, the Company has entered
into strategic reseller, reference selling and preferred vendor arrangements
with health care industry suppliers including Quorum Health Resources, Inc.
(one of the nation's largest managers of not-for-profit hospitals), MAGNET,
Inc. (a regional purchasing organization), Transcend Services, Inc. (a
provider of medical records systems outsourcing), IPN Network LLC (a provider
of patient accounts outsourcing), Sunquest Information Systems, Inc. (a
provider of laboratory information systems), The Shams Group, Inc. (system
integrators for MEDITECH environments) and Healthcare Technologies, Inc. (a
provider of medical data integration solutions).
Competition
The market for information technology in the health care industry is intensely
competitive. The Company believes that the principal competitive factors in
this market include the breadth and
quality of system and product offerings, product pricing, the reputation and
stability of the information systems provider, the features and capabilities
of the information systems, management of the system implementation cycle,
ongoing support for such systems, the potential for enhancements thereto, and
technical and financial resources. Certain of the Company's competitors have
significantly greater resources than the Company. In addition, the Company's
products compete with other technologies as well as similar products developed
by other companies, and other major information management companies may enter
the markets in which the Company competes. Competitive pressures and other
factors, such as new product introductions by the Company or its competitors,
or the entry into new geographic markets, may result in significant pricing
pressures that could have a material adverse effect on the Company's business.
There can be no assurance that the Company will be able to continue to compete
successfully with its existing or any future competitors. However, the
Company believes that it possesses certain competitive advantages, in
particular its concentration on the health care market which enables it to
tailor all of its products for that particular market, rather than attempting
to design and sell products of a more generic nature. The compatibility of
its products with most of the information systems with which they must
interact also constitutes an advantage over its present competitors, most of
whom must secure the support and cooperation of third party vendors in order
for their products to operate. Also, any future enterprise-wide systems will
likely be quite expensive and may not be attractive to hospitals which already
have substantial investments in numerous departmental systems and may have
limited budgets for future purchases.
Product Manufacturing and Sources
The Company does not possess internal manufacturing capacity and instead
relies upon third party manufacturers to fulfill its hardware requirements.
This reliance on outside suppliers involves several risks, including limited
control over pricing, availability, quality and delivery schedules. Hardware
incorporated into the Company's products, such as optical disk drives and
computers, are non-proprietary items which are potentially available from
multiple sources, although the Company currently has limited its purchases to
certain vendors based on delivery, service and cost factors. To the extent
the Company relies on single sources of components, it is vulnerable to
potential disruptions in supply should such a manufacturer become insolvent or
otherwise experience production problems. The Company believes, however, that
any such disruption would be temporary since there are numerous alternative
sources of supply available.
The Company relies to a large extent on licensed third party software which is
integrated into its products through the use of proprietary software. The
Company's internal software development capacity is limited, and the Company
therefore concentrates its efforts on developing and enhancing proprietary
software that enables various third party software products to work together.
The Company must rely on the third party suppliers for enhancements and
ongoing support for the acquired products. The failure of one or more of such
vendors to provide services for any reason could, at least temporarily,
adversely affect the Company's business.
Customers
The Company's contracts for certain systems and related services it sells may
approach or exceed $1,000,000 per individual customer. As a result, the
Company may have certain customers in any one year which represent a
significant portion of the Company's total revenues for that year. For the
year ended January 31, 1998, two customers accounted for 13% and 11%,
respectively, of the Company's total revenues. During the year ended December
31, 1996, two customers accounted for 20% and 12%, respectively, of the
Company's total revenues. One customer accounted for 13% of the Company's
total revenues for the year ended December 31, 1995.
Product Development
The Company has developed new products internally when time permits, but
believes it can sometimes respond more quickly to market requirements by
acquiring complementary products or technology. The Company believes that
continued investment in research and development for both internally developed
and acquired products is critical to its long-term growth and success. The
Company's product development strategy is to continue to focus on specific
health care related information management requirements and to expand its
existing product lines by adapting them to additional but related health care
applications.
The Company is presently concentrating its developmental efforts on the
ChartMaxx Enterprise-wide Patient Record System, the OptiMaxx Archival System
and DiaLogos' Global Distributed Registration technology.
The Company's total product development expenditures were $1,232,770,
$1,447,071 and $1,352,199 for the years ended January 31, 1998, December 31,
1996 and December 31, 1995, respectively.
Government Regulation
The United States Food and Drug Administration ("the FDA") has issued a series
of draft guidance documents addressing the regulation of certain computer
products as medical devices under the Federal Food, Drug, and Cosmetic Act
(the "FDC Act"). To the extent that computer software is a medical device
under the policy, the manufacturers of such products will be required,
depending on the product, to: (i) register and list their products with the
FDA; (ii) notify the FDA and demonstrate substantial equivalence to other
products on the market before marketing such products; or (iii) obtain FDA
approval by filing a pre-market application that establishes the safety and
effectiveness of the product. The Company expects that the FDA is likely to
become increasingly active in regulating computer software that is intended
for use in health care settings. None of the Company's products currently are
regulated by the FDA. The FDA indicated its intention to consider more
extensive regulation of additional types of computer software, which could
include existing or future products offered by the Company, and has solicited
industry input as to the regulation of computer products as medical devices.
The FDA has reached no decision to date on this issue. The FDA, if it chooses
to regulate such software, can impose extensive requirements governing pre-
and post-market conditions relating to clinical investigations, approvals,
labeling and manufacturing. In addition, such products would be subject to
the FDC Act's general controls, including those relating to good manufacturing
practices and adverse experience reporting.
Licenses and Proprietary Rights
To a significant degree, the Company's products consist of third party
hardware and software integrated with proprietary software of the Company.
The Company does not hold any patents with respect to any of its current
products, nor does it expect to apply for any patents in the foreseeable
future. To the extent possible, the Company attempts to protect its use of
third party hardware and software with contractual exclusivity and
nondisclosure provisions, but because the Company does not own the rights to
these third party products, there can be no assurance that competitors or
others will not attempt to integrate the same or similar products into systems
competitive with those sold by the Company. To protect its proprietary
product components, the Company relies upon the law of copyrights, trade
secrets, nondisclosure agreements with employees and others, and restrictions
incorporated into agreements with customers. Notwithstanding these
safeguards, it could be possible for competitors to obtain and/or imitate the
Company's software and/or hardware. Further, there can be no assurance that
others will not independently develop products similar or superior to those of
the Company. The Company also explores technology developed by other entities
that may be licensed or acquired in an effort to reduce the product
development cycle or to complement existing product lines.
Federal trademark protection has been obtained for the MedPlus name. The
Company has entered into an agreement to use the name ChartMaxx with the owner
of the trademark, and has applied for federal trademark protection for the
names OptiMaxx, FutureCORE and Step2000.
Employees
As of January 31, 1998 the Company had 101 full-time employees. The Company's
future success will depend, in part, on its ability to continue to attract,
retain and motivate highly qualified technical, marketing and management
personnel who are in great demand.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently leases approximately 34,000 square feet of high quality
office space in Cincinnati, Ohio where it maintains its principal offices.
The lease terms extend through July 2003.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, the Company is not a party to any material legal
proceeding and, to the Company's knowledge, there are no material legal
proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the Nasdaq National Market System
("NMS") under the symbol "MEDP." There were approximately 114 record holders
of the Company's common stock as of April 29, 1998. The following table sets
forth, for the periods indicated, as reported by Nasdaq, the range of high and
low sales price (not closing bids) of the Company's common stock on the NMS.
All prices are rounded to the nearest one-eighth, and bid prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
Fiscal Year/Quarter High Low
Fiscal Year Ended January 31, 1998
First Quarter $ 7.750 $ 4.625
Second Quarter 7.500 5.125
Third Quarter 10.500 6.625
Fourth Quarter 11.000 6.750
Fiscal Year Ended December 31, 1996
First Quarter $12.250 $ 8.125
Second Quarter 15.625 10.625
Third Quarter 14.375 10.000
Fourth Quarter 11.250 5.000
The Company has not paid any cash dividends since its inception and presently
anticipates that earnings, if any, will be retained for future development of
the Company's business. No dividends on its common stock will be declared in
the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
General
Since its inception in 1991, the Company has provided state-of-the-art
information management technology products and consulting services to
customers predominantly in the health care industry. The Company has continued
to develop systems that enable health care providers to more efficiently
collect, store and retrieve medical information. It has been the Company's
practice to continue to develop new products, enhance existing applications,
make selected strategic acquisitions, and introduce consulting services, which
has led to significant revenue growth since the commencement of operations.
The Company's products presently consist of the ChartMaxx Enterprise-wide
Patient Record System ("ChartMaxx") and the OptiMaxx Archival System
("OptiMaxx"). C hartMaxx is an enterprise-wide electronic patient record
system. OptiMaxx is an optical disk-based archival system. The Company's
FutureCORE, Inc. subsidiary ("FutureCORE") provides process improvement and
automation services, primarily in the areas of patient care and laboratory
services. On January 30, 1998, the Company acquired a majority interest in
DiaLogos Incorporated, ("DiaLogos") which specializes in assisting
organizations in the integration of enterprise-wide business systems with
existing applications and data using distributed object computing, including
CORBA and Java technologies, through education, consulting, and implementation
services. DiaLogos is in the initial phases of developing several products
designed to simplify the effort of legacy system integration.
The Company's IntelliCode division, which was sold on January 28, 1998,
developed and sold the IntelliCode Intelligent Bar Code System
("IntelliCode"), an intelligent bar coding system for hospitals and other
health care organizations. The Step2000 Workflow, Document Management, and
Application Development System ("Step2000") segment, which the Company is
currently in the process of selling, is a 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 IntelliCode division and the Step2000 segment have been
accounted for as discontinued operations in the accompanying consolidated
financial statements.
The Company's revenues are derived from systems sales, support contracts and
consulting services. Systems sales consist of software licenses for
proprietary software, third party software and hardware, and related
installation services. The gross profit on systems sales may vary among
customers based upon the relative proportion of proprietary software and third
party software and hardware included in a sale. Revenues from support
contracts include software and hardware maintenance and support. Consulting
services revenues are derived from implementation, training and education,
custom software development and process improvement services. Revenues from
support contracts and consulting services are expected to increase as the
number of installed systems increases. Gross profit on support contracts and
consulting services may fluctuate based upon the negotiated terms of each
contract and the Company's ability to fully utilize its customer support,
implementation and consulting personnel.
The decision by a health care provider to replace, substantially modify or
upgrade its information systems is a strategic decision and often involves a
large capital commitment requiring an extended approval process. The sales
cycle for the Company's systems is typically six to eighteen months from
initial contact to the execution of a sales agreement. As a result, the sales
cycle causes variations in quarter to quarter results. These agreements cover
the entire implementation of the system and specify the implementation
schedule, which typically takes place in one or more phases. The agreements
generally provide for the licensing of the Company's software and third party
software with a one-time perpetual license fee that is adjusted depending on
the number of workstations using the software. Third party hardware is
usually sold outright, with a one-time fee charged for installation and
training. Site specific customization, interfaces with existing customer
systems and other consulting services are sold on a fixed fee or a time and
material basis.
Revenue is recognized in accordance with the provisions of Statement of
Position 91-1, Software Revenue Recognition. For OptiMaxx systems, revenue is
recognized upon delivery. Revenue from ChartMaxx systems is recognized when
a contract is signed, the system is configured, and the system is shipped. If
a contract requires the Company to perform services or provide modifications
that are deemed significant to customer acceptance, revenue related to the
delivered hardware and/or software is deferred until such obligations are
deemed insignificant or have been satisfied. Revenues from consulting
services are recognized in the period in which the services are performed.
Revenues from support contracts are recognized ratably over the term of the
contract.
The Company has historically experienced significant quarterly fluctuations in
revenues and operating results which may continue in the future. The
Company's revenues have fluctuated due to the length of the sales cycle, the
number and timing of systems sales, and the timing of installation,
implementation and consulting services. As a significant percentage of the
Company's operating expenses are fixed, quarterly operating results will vary
with the fluctuation in revenues. In addition, period to period comparisons
of the Company's past operating results may not be meaningful nor are they
necessarily indicative of future operating results of the Company.
Fiscal Year
In December 1997, the Company changed its fiscal year end from December 31 to
January 31. Accordingly, the Company's 1998 fiscal year commenced on February
1, 1997 and ended on January 31, 1998. Information for the year ended January
31, 1998 is compared with information for the year ended December 31, 1996.
No analysis is provided for the one month ended January 31, 1997. The amounts
reflected for the one month period ended January 31, 1997 should not be
indicative of results that would have been obtained for a full fiscal quarter
or year.
DiaLogos Acquisition
The Company signed a letter of agreement with 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 $1,650,000 to DiaLogos in
return for 75% of the common shares of DiaLogos, (b) secure a funding
commitment for DiaLogos' operations in the amount of $1,650,000 from investors
and/or lenders, or (c) pay a portion of the $1,650,000 as consideration for
less than 75% of the common shares of DiaLogos, and secure a funding
commitment for the remainder of the $1,650,000 from investors or lenders. In
the event the Company secured a funding commitment from investors and/or
lenders, then DiaLogos would 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.
As of December 31, 1996, the Company had advanced $428,350 to DiaLogos. The
Company had also converted an additional $51,050 of advances into an equity
interest in DiaLogos' common shares. Subsequent to December 31, 1996, the
Company arranged for approximately $400,000 of funding for DiaLogos from
investors, which consisted of officers and directors of the Company, in
exchange for these investors receiving 18.5% of DiaLogos' common shares.
On January 30, 1998, the Company elected to exercise its option and converted
aggregate advances of $1,191,960 to DiaLogos into common shares of DiaLogos
stock. Upon conversion of these advances, MedPlus became a majority owner of
DiaLogos with 56.5% ownership. The acquisition of these shares has been
accounted for under the purchase method. Accordingly, the financial position
of DiaLogos has been included in the Company's Consolidated Balance Sheet as
of January 31, 1998, and the results of operations of DiaLogos will be
included in the Company's Consolidated Statement of Operations effective
February 1, 1998.
The Company's purchase price for its majority interest in DiaLogos was
$1,693,959 which included the conversion of $1,191,960 of advances and the
attribution of $501,999 of DiaLogos liabilities to the Company's ownership
interest. The purchase price has been allocated to the identifiable tangible
and intangible assets acquired based on their estimated fair values. The
Company has allocated $781,391 of the purchase price to the excess of cost
over the fair value of net assets acquired. An additional $710,318 of the
purchase price has been allocated to acquired in-process technology and has
been expensed at the date of acquisition.
Sale of IntelliCode Assets
On January 28, 1998, the Company completed the sale of all the assets of the
Company's IntelliCode division to Becton Dickinson and Company ("Becton
Dickinson") for an initial payment of $17,408,847 plus royalty payments over
five years. The initial payment was subsequently adjusted after the closing
of the transaction based on the actual net book value of the assets sold
resulting in a payment by the Company to Becton Dickinson of $74,259 in April
1998. In connection with the sale, Becton Dickinson also assumed certain
liabilities of the IntelliCode division, primarily deferred revenues and
obligations related to service contracts and an office lease. The Company has
recognized a pre-tax gain of $14,724,720 and an after-tax gain of $10,268,710
related to this transaction for the year ended January 31, 1998. The royalty
payments are based on future defined revenues and will be recorded as income
when earned.
Universal Document Acquisitions and Initial Public Offering
The Company's Universal Document subsidiary has hired a senior management team
and entered into agreements with two consulting firms to assist it in the
identification and recruitment of certain design automation software resellers
and integrators that Universal Document may acquire or combine, and to assist
Universal Document in an initial public offering of its common stock. In
September and October 1997, Universal Document entered into definitive
agreements, which are contingent upon a successful initial public offering, to
acquire nine such companies. On October 10, 1997, Universal Document filed a
registration statement on Form S-1 with the Securities and Exchange Commission
to offer its common stock to the public. Universal Document filed subsequent
amendments to this registration statement on December 15, 1997 and January 9,
1998. Under the terms of the initial public offering as disclosed in the
registration statement, Universal Document and the Company would offer to sell
1,850,000 and 750,000 shares, respectively. Universal Document would use a
portion of its proceeds from the sale of shares in the offering and the
issuance of additional shares to acquire the nine companies with which it had
entered into acquisition agreements. The Company would retain a minority
interest in Universal Document after the initial public offering. In
connection with its initial public offering, Universal Document would change
its name to Synergis Technologies[tm], Inc. Due to adverse market conditions
for initial public offerings in January 1998, Universal Document postponed the
initial public offering upon the advice of its underwriters.
Universal Document had capitalized direct, incremental costs during the year
ended January 31, 1998 related to the potential acquisitions and initial public
offering for accountants', attorneys', and consultants' fees ("acquisition and
offering costs") that were to become a cost of the acquired companies upon the
completion of the acquisitions or costs of the initial public offering. These
acquisition and offering costs had been recorded as deferred acquisition and
offering costs in the Company's Consolidated Balance Sheet. As a result of its
decision to postpone its initial public offering, Universal Document expensed
$2,979,555 of such costs in January 1998. The Company also incurred $728,390
of operating expenses during the year ended January 31, 1998 associated with
the senior management team hired to manage the acquisitions, offering and
integration of the target companies.
The Company and Universal Document have entered into a variety of agreements
related to the Universal Document acquisitions and initial public offering.
These agreements include consulting agreements, employment agreements, an
amendment of the HWB purchase agreement (as discussed, infra, in Note 3 of the
Consolidated Financial Statements included herein), acquisition agreements with
the target companies, and stock incentive agreements associated with Universal
Document common stock. The significant financial terms of these agreements are
contingent upon the successful completion of an initial public offering of
Universal Document's common stock. The Company is currently evaluating how to
proceed with the acquisitions and initial public offering. As a result of such
evaluation, many, if not all, of the agreements referred to above may either be
terminated or significantly amended.
While the Company believes that the acquisitions and initial public offering
("transactions") by Universal Document could result in significant value for
the Company, there is no assurance that the transactions will ultimately occur
on the terms as disclosed in the registration statement, or if the
transactions do occur, that there are no material changes to their terms. In
addition, the Company will continue to have expenditures for the Universal
Document senior management team directing the transactions through the date of
an initial public offering or a decision by the Company not to pursue these
transactions. In the event the Universal Document initial public offering
proceeds, the Company may be required to make significant expenditures for
accountants' and attorneys' fees and other costs associated with the
transactions. While the Company expects to be reimbursed by Universal
Document after its initial public offering for funding such costs, there can
be no assurance that the Company will recover all the costs it has funded to
date or will fund in the future.
Results of Operations
Years Ended January 31, 1998 and December 31, 1996
Revenues. Revenues for the year ended January 31, 1998 were $9,031,643, an
increase of $5,564,051, or 160% over the $3,467,592 reported for the
comparable period in 1996. System sales increased $4,841,313 or 177% from the
year ended December 31, 1996 primarily due to increased sales of ChartMaxx
systems. Support and consulting revenues increased $722,738 or 98% from the
year ended December 31, 1996 due to higher support revenues resulting from an
increase in the installed base of all systems and higher consulting revenues
from a full year of revenues from consulting services provided by FutureCORE.
Gross Profit. Gross profit for the year ended January 31, 1998 was $2,820,846
compared to $1,307,749 for the year ended December 31, 1996, an increase of
$1,513,097 or 116%. The overall gross profit margin decreased from 38% in the
year ended December 31, 1996 to 31% in the year ended January 31, 1998. The
gross profit margin on systems sales decreased from 41% in the year ended
December 31, 1996 to 39% in the year ended January 31, 1998 due to an
aggressive pricing strategy and an increase in capitalized software
amortization. Gross profit margins on support and consulting revenues
decreased from 27% in the year ended December 31, 1996 to -10% in the year
ended January 31, 1998 due to an increase in customer support, installation,
and consulting personnel in advance of related revenues and lower than
expected utilization rates of those personnel. Future gross profit margins for
support and consulting services may continue to be depressed in the near term
as a result of the timing of systems sales, unforeseen delays in
implementation schedules, the number and timing of additions to the
implementation and consulting staff relative to when they become billable to
customers, or the need to use independent consultants while the Company is
further developing its implementation and consulting staff.
Operating Expenses. Operating expenses increased from $5,554,374 in the year
ended December 31, 1996 to $9,475,722 in the year ended January 31, 1998, an
increase of 71%. Included in operating expenses in January 31, 1998 is a non-
recurring charge of $710,318 related to the allocation of a portion of the
purchase price for the Company's acquisition of a majority interest in
DiaLogos to acquired in-process technology. This amount was expensed at the
date of acquisition, January 30, 1998. The company also incurred expenses of
$728,390 related to management expenses associated with acquisition, initial
public offering efforts, and preliminary integration efforts of Universal
Document discussed above. The Company also continued to add a significant
number of employees in the areas of development and sales and marketing during
the year ended January 31, 1998. Substantial expenditures were made to
increase market awareness of the Company's products and to expand the direct
and indirect channels of distribution.
Other Income (Expense). Other income (expense) decreased from $252,382 of
income for the year ended December 31, 1996 to $3,211,508 of expense for the
year ended January 31, 1998. The primary reason for the change was Universal
Document's expensing of $2,979,555 of capitalized acquisition and offering
costs in January 1998 as a result of the postponement of Universal Document's
initial public offering as discussed above. Also, the Company's interest
expense increased from $23,493 for income for the year ended December 31, 1996
to $346,315 of expense for the year ended January 31, 1998 due to increased
borrowing requirements to fund the Universal Document acquisition and initial
public offering efforts and the Company's operations. Consequently, the
Company's interest income decreased from $308,992 for the year ended December
31, 1996 to $94,703 for the year ended January 31, 1998.
Discontinued Operations. Income from discontinued operations, net of income
tax expense, increased from $925,712 for the year ended December 31, 1996 to
$9,849,994 for the year ended January 31, 1998. The primary reason for the
increase was a pre-tax gain of $14,724,720 related to the sale of the assets
of the IntelliCode division to Becton as discussed above. The Company realized
an after-tax gain of $10,268,710 on this transaction. This gain was partially
offset by two non-recurring charges related to Universal Document's Step2000
segment which consisted of the following: (a) the amortization of the
remaining net book value of $774,677 of the excess of cost over fair value of
net assets acquired due to the impairment of that asset, and (b) the
amortization of $466,836 of capitalized software development costs due to the
impairment of that asset. The Company also recorded a charge for the accrual
of a loss of $180,000 for the estimated loss on disposal of the net assets of
the segment and its estimated operating losses through the anticipated date of
disposal. These charges, along with operating losses from the Step2000
segment, resulted in the decline in operating income from discontinued
operations from $1,523,948 for the year ended December 31, 1996 to an
operating loss of $105,705 for the year ended January 31, 1998.
Net Income. While net revenues increased 160% over the year ended December 31,
1996, the significant increase in operating expenses, the Universal Document
management expenses, and the non-recurring charges for the acquired in-process
technology of DiaLogos and for the acquisition and offering costs of Universal
Document resulted in a loss of $6,744,905 from continuing operations for the
year ended January 31, 1998 compared to a loss of $3,397,904 for the year
ended December 31, 1996. Net income (loss) increased from a net loss for the
year ended December 31, 1996 of $2,472,192 to net income of $3,105,089 for the
year ended January 31, 1998 primarily due to income from discontinued
operations of $9,849,944 offset by the items discussed in the preceding
sentence.
Years Ended December 31, 1996 and 1995
Revenues. Revenues for the year ended December 31, 1996 were $3,467,592, an
increase of $502,553, or 17% over the $2,965,039 reported for the comparable
period for the year ended December 31, 1995. System sales decreased $127,675
or 4% from the year ended December 31, 1995 due to a change in the mix and
size of systems sold from the prior year. Support and consulting revenues
increased $630,228 or 579% from the year ended December 31, 1995 due to higher
support revenues as the Company's installed systems base continued to grow and
higher consulting revenues related to the ChartMaxx division and FutureCORE
subsidiary.
Gross Profit. Gross profit for the year ended December 31, 1996 was $1,307,749
and $1,434,223 for the year ended December 31, 1995, a decrease of $126,474 or
9%. The overall gross profit margin decreased from 48% in 1995 to 38% in 1996.
Higher capitalized software amortization led to a decrease in gross profit
margin on systems sales from 50% for the year ended December 31, 1995 to 41%
in 1996. Gross profit margins on support and consulting revenues increased to
27% from a negative gross profit margin due to higher support revenues from a
larger installed base partially offset by lower than expected utilization of
customer support, implementation, and consulting personnel.
Operating Expenses. Operating expenses increased from $4,122,309 for the year
ended December 31, 1995 to $5,554,374 in for the year ended December 31, 1996,
an increase of $1,432,065 or 35%. The increase is a result of an increase in
personnel related to employees in the areas of sales, marketing, product
development, administration and the Company's new subsidiary FutureCORE.
Substantial expenditures were also made during the year ended December 31,
1996 to increase market awareness of the Company's products.
Discontinued Operations. Income (loss) from discontinued operations, net of
income taxes, changed from a loss of $492,438 for the year ended December 31,
1995 to income of $925,712 for the year ended December 31, 1996. The loss for
1995 included a non-recurring charge for acquired in-process technology
related to the acquisition of Universal Document of $1,465,697.
Net Loss. The Company's net loss for the year ended December 31, 1996 was
$2,472,192 compared to a net loss of $2,616,277 for the year ended December
31, 1995. The net loss for the year ended December 31, 1996 is a result of
the increased operating expenses discussed in the preceding paragraphs and
lower than expected revenues.
The weighted average number of shares outstanding for 1996 was 5,868,954
shares compared to 4,867,288 shares for 1995. The increase in the weighted
average number of shares outstanding was primarily due to the issuance of
900,000 shares of stock in the Company's secondary offering in November 1995.
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, anticipated revenue growth, and strategic investments. The
Company has financed its operations, working capital needs, and investments
through the sale of common stock, bank borrowings, capital lease financing
agreements, and recently, the sale of the assets of its IntelliCode division.
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 revolving line of credit agreement ("MedPlus line of credit")
with a bank permits the Company to borrow a maximum of $10,000,000 subject to
a defined net worth formula. The term of the MedPlus line of credit extends
through December 31, 1998, and the MedPlus line of credit is secured by
substantially all of the Company's assets. At January 31, 1998, the maximum
amount available under the MedPlus line of credit was $10,000,000. No amounts
were outstanding under the MedPlus line of credit at January 31, 1998 and
December 31, 1996.
On September 9, 1997, the Company and Universal Document entered into a line
of credit agreement ("Universal line of credit") with a bank to fund the costs
associated with Universal Document's acquisitions and initial public offering
discussed in Note 5 of the consolidated financial statements and for working
capital. The amount outstanding under the Universal line of credit at January
31, 1998 was $1,496,353. The Universal line of credit was paid in full and
canceled on February 10, 1998.
In connection with the sale of the IntelliCode assets to Becton, the Company
sold 222,556 shares of its common stock to Becton in exchange for $2,000,000
in cash on January 28, 1998. The sale price was based on the average closing
price of the Company's common stock for the thirty days prior to the
announcement on November 21, 1997 of the signing of a letter of intent
relating to the sale of the IntelliCode assets.
The Company's Board of Directors authorized a common stock repurchase program
in November 1996. Under the program, the Company may purchase up to 500,000
shares of the Company's common stock. As of January 31, 1998, 10,500 shares
at a cost of $53,554 had been purchased under this program. Subsequently, the
Company purchased an additional 24,900 shares for $164,348 in March 1998.
The Company believes that its cash and cash equivalents, investment
securities, 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 twelve months. 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 financing.
Inflation
To date, inflation has not had a material impact on the Company's operations.
Year 2000 Compliance
The Year 2000 compliance issue arises from software applications that use only
two digits to identify a year. Such applications may fail or create errors in
the year 2000 ("year 2000 issue"). The Company has been in the process of
reviewing all relevant year 2000 compliance issues. The Company's ChartMaxx
and OptiMaxx
products have both been developed using four digit date fields and are year
2000 compliant. In instances where a two digit date field is passed from
another system to ChartMaxx or OptiMaxx, the field is populated with the first
two digits of the current system date. The Company will complete final
testing of these systems to verify they are year 2000 compliant by the fall of
1998. However, both systems rely upon third party software. The Company is
currently reviewing these third party products and working with the respective
vendors to determine what steps, if any, are required to ensure compliance.
The Company's internal software systems are either already compliant or will
be upgraded to year 2000 compliant versions. The Company does not anticipate,
based on its current understanding of the year 2000 issue and the results of
its review to date, that the year 2000 issue will have a material effect on
the Company's results of operations.
Recently Issued Accounting Pronouncement
The American Institute of Certified Public Accountants has recently issued
Statement of Position SOP 97-2, Software Revenue Recognition, which supersedes
SOP 91-1. SOP 97-2 is effective for transactions entered into in fiscal years
beginning after December 15, 1997. The Company is currently completing its
review of SOP 97-2, but at present, it does not anticipate the implementation
of SOP 97-2 to have a material change to the Company's revenue recognition
policy.
ITEM 7. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the Company's Consolidated
Financial Statements contained in this report and is herein incorporated by
this reference. Specific financial statements and supplemental data can be
found at the pages listed in the following index:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Description In This Report
Independent Auditors' Report of KPMG
Peat Marwick LLP. . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of January 31,
1998 and 1997 and December 31, 1996 . . . . . . . . F-3
Consolidated Statements of Operations for the year ended
January 31, 1998, month ended January 31, 1997 and years
ended December 31, 1996 and 1995. . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity for the year
ended January 31, 1998, month ended January 31, 1997 and
years ended December 31, 1996 and 1995. . . . . . . F-5
Consolidated Statements of Cash Flows for the year ended
January 31, 1998, month ended January 31, 1997 and years
ended December 31, 1996 and 1995. . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . F-7 to F-29
ITEM 8. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company's executive officers and directors are as follows:
Name Age Position
_____________ _______ _____________________
Richard A. Mahoney 50 Chairman of the Board,
Chief Executive Officer
and President
Philip S. Present II 47 Senior Vice President,
Chief Operating
Officer and Director
Gary L. Price 43 Senior Vice President of
Business Development
Timothy P. McMullen 43 Vice President of Sales
and Marketing
Daniel A. Silber 49 Vice President of
Finance and Chief
Financial Officer
Paul F. Albrecht 43 Vice President and Chief
Technology Officer
Jay Hilnbrand 64 Director and General
Manager of Universal
Document
Robert E. Kenny III 42 Secretary and Director
Paul J. Stein 50 Director
Paul A. Martin 43 Director
Directors are elected annually by the shareholders and serve for one year
terms. Officers serve at the discretion of the Board of Directors and are
elected on an annual basis.
Richard A. Mahoney has been the Company's President and a director of the
Company since January 1991. While Mr. Mahoney has been the President of the
Company since its inception, Mr. Mahoney has held the titles of Chairman of
the Board and Chief Executive Officer of the Company since November 1995.
Philip S. Present II joined the Company in April 1995 as Vice President of
Corporate Development. Mr. Present was named the Chief Operating Officer of
the Company in June 1996. He became a director of the Company on December 13,
1997 to fill a vacancy created on the board by an increase in the number of
directors of the Company from five to six. From September 1973 to March 1995,
Mr. Present was employed by the certified public accounting firm of KPMG Peat
Marwick LLP.
Gary L. Price joined the Company as Vice President, Sales in January 1992 and
in June 1996 was named Senior Vice President, Business Development.
Timothy P. McMullen has been the Vice President of Sales and Marketing since
December 13, 1997. He joined the Company as Vice President, Corporate
Accounts and Managed Care in June 1996 after sixteen years with the Hill-Rom
Co. Inc. At Hill-Rom, the world's largest manufacturer and distributor of
patient beds and patient environments, he held several senior positions
including Vice President of Corporate Accounts, Merchandising, International,
and Domestic Sales.
Daniel A. Silber joined the Company as Vice President of Finance and Chief
Financial Officer in May 1995. From 1993 until he joined the Company, he was
Chief Financial Officer for Saturday Knight LTD, a manufacturer and
distributor of bathroom accessories.
Paul F. Albrecht was elected Vice President and Chief Technology Officer on
December 13, 1997 following his tenure as General Manager of the ChartMaxx
Division of MedPlus since May 16, 1994. Prior to joining the Company, Mr.
Albrecht had been the Director of the Systems Development Area for Cincinnati
Bell Information Systems since December 1991.
Jay Hilnbrand has been a director of the Company since April 1994. Mr.
Hilnbrand is the General Manager of Universal Document, a wholly-owned
subsidiary of the Company since December 1995. Prior to the acquisition by
the Company of Universal Document, Mr. Hilnbrand had been its President since
1990.
Robert E. Kenny III, an attorney engaged in the private practice of law since
1980, has served as Secretary and a director of the Company since its
inception.
Paul J. Stein has been a director of the Company since 1991. Mr. Stein has
been a self-employed marketing consultant and manufacturer's representative
since October 1990.
Paul A. Martin, a director of the Company since August 29, 1996, has been an
Implementation Consultant for the Company since August 18, 1997. Prior to
joining the Company, he had been the Corporate Accounts Receivable Manager for
CommuniCare Health Services, a home healthcare agency which also owns and
operates a nursing home, since 1995. Prior to his position with CommuniCare
he was the Director of the business office for Dimensions Health Corp., a
hospital and out-patient center management company.
Additional information regarding the Company's officers and directors is
incorporated herein by reference to the information set forth under the
caption "Certain Relationships and Related Transactions" of the Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on June
25, 1998. Such Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Form 10-KSB.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
All transactions executed in 1997 by the Company's directors, officers and
beneficial owners, were, to the Company's knowledge, reported in a timely
fashion as required by Section 16(a).
ITEM 10. EXECUTIVE COMPENSATION.
The information set forth under the caption "Executive Compensation" of the
Proxy Statement for the Company's Annual Meeting of Shareholders to be held on
June 25, 1998, is incorporated herein by reference. Such Proxy Statement will
be filed with the Securities and Exchange Commission within 120 days after the
end of the fiscal year covered by the Form 10-KSB.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement for the Company's
Annual Meeting of Shareholders to be held on June 25, 1998, is incorporated
herein by reference. Such Proxy Statement will be filed with the Securities
and Exchange Commission within 120 days after the end of the fiscal year
covered by this Form 10-KSB.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Relationships and Related
Transactions" of the Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on June 25, 1998, is incorporated herein by reference.
Such Proxy Statement will be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this Form 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are hereby filed as part of this Form 10-KSB:
Exhibit Sequential Page
Number Description of Exhibits Number
_______ _____________________________________ _______________
2 Asset Purchase Agreement, dated
January 28, 1998, by and between
Becton, Dickinson and Company and
MedPlus, Inc. See note 1
3 Amended Articles of Incorporation
and Code of Regulations See note 2
10.1 Lease between MedPlus, Inc. and Duke
Realty Limited Partnership for principal
offices, dated April 24, 1995 See note 3
10.2 Executive Employment Agreement dated
October 31, 1995 between MedPlus, Inc.
and Richard A. Mahoney See note 3
10.3 Consulting Agreement between Universal
Document and Madison Financial Group Ltd.
dated September 1, 1996 See note 4
10.4 First Lease Amendment between MedPlus,
Inc. and Duke Realty Limited Partnership
for principal offices, dated
December 6, 1996 See note 4
10.5 Second Lease Amendment between MedPlus,
Inc. and Duke Realty Limited Partnership
for principal offices, dated
December 6, 1996 See note 4
10.6 Asset Purchase Agreement by and between
Med-Sub, Inc. and FutureCORE, Ltd. dated
June 28, 1996 See note 5
10.7 Letter Agreement by and between MedPlus,
Inc. and DiaLogos Incorporated dated
July 12, 1996 See note 5
10.8 Cross Corporate Guarantee by MedPlus,
Inc. on behalf of DiaLogos Incorporated
dated October 3, 1996 See note 6
10.9 Letter Agreement between MedPlus, Inc.
and Dialogos Incorporated dated
January 31, 1997 See note 4
10.10 Agreement by and between MedPlus, Inc.
and Growth Management Advisors, Inc.
dated July 10, 1997 See note 7
10.11 Amendment to Stock Purchase Agreement
by and among Universal Document, Jay
and Judy Hilnbrand and Robert C. Weiss
dated August 12, 1997 See note 7
10.12 Agreement by and between MedPlus, Inc.
and Jay Hilnbrand dated May 1, 1997 See note 7
10.13 Second Amendment of Stock Purchase
Agreement by and among Universal Document,
Jay and Judy Hilnbrand and Robert C. Weiss
dated December 10, 1997
10.14 Amendment to Agreement by and between
Jay Hilnbrand and MedPlus, Inc. dated
December 10, 1997
10.15 Employment Agreement dated January 1, 1998
by and between MedPlus, Inc. and
Philip S. Present II
10.16 Employment Agreement dated January 1, 1998
by and between Timothy P. McMullen
and MedPlus, Inc.
10.17 Employment Agreement dated January 1, 1998
by and between Daniel A. Silber and
MedPlus, Inc.
10.18 Employment Agreement dated March 16, 1998
by and between Gary L. Price and MedPlus, Inc.
13 Annual Report to Shareholders See note 8
21 Subsidiaries of MedPlus, Inc.
23 Consent of KPMG Peat Marwick LLP
Note 1: Incorporated by reference to the Company's Report on Form 8-K filed
on February 11, 1998.
Note 2: Incorporated by reference to the Registration Statement on Form SB-2,
Registration No. 33-77896C, effective May 24, 1994.
Note 3: Incorporated by reference to the Registration Statement on Form S-1,
Registration No. 33-98696, effective November 21, 1995.
Note 4: Incorporated by reference to the Company's Annual Report on Form 10-
KSB filed March 27, 1997.
Note 5: Incorporated by reference to the Company's Quarterly Report on Form
10Q-SB filed August 13, 1996.
Note 6: Incorporated by reference to the Company's Quarterly Report on Form
10Q-SB filed November 14, 1996.
Note 7: Incorporated by reference to the Company's Quarterly Report on Form
10Q-SB/A filed August 18, 1997.
Note 8: Pursuant to general Instruction F of Form 10-KSB and Regulation
240.14a(d) of the Securities Exchange Act of 1934, the Issuer's Annual Report
to the Security Holders for its fiscal year ended January 31, 1998 has been
combined with the required information of Form 10-KSB and is being filed with
the U.S. Securities and Exchange Commission and submitted to the registrant's
shareholders on an integrated basis.
(b) The following reports on Form 8-K were filed during the three-
month period ended January 31, 1998:
(i) Current Report on Form 8-K filed November 21, 1997 announcing that on
November 21, 1997, the Company issued a press release announcing that it had
signed a letter of intent with Becton Dickinson and Company pursuant to which
Becton Dickinson would acquire IntelliCode Intelligent Bar Coding Systems, a
division of the Company, for an initial payment of $18 million and would
purchase $2 million worth of shares of the Company's common stock.
(ii) Current Report on Form 8-K filed on December 19, 1997 announcing that on
December 19, 1997, the Company issued a press release announcing a change in
its fiscal year end and that Philip S. Present II, its chief operating
officer, had been elected to the Company's board of directors to fill the
vacancy created by an increase in the number of directors from five to six.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEDPLUS, INC., Registrant
By:/s/ Richard A. Mahoney
Richard A. Mahoney
President
Date: April 30, 1998
In accordance with the Exchange Act, 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
/s/ Richard A. Mahoney Chairman of the April 30, 1998
Richard A. Mahoney Board, Chief
Executive Officer
and President
(Principal Executive
Officer)
/s/ Daniel A. Silber Vice President of Finance April 30, 1998
Daniel A. Silber and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
/s/ Robert E. Kenny III Secretary and Director April 30, 1998
Robert E. Kenny III
/s/ Paul Stein Secretary and Director April 30, 1998
Paul Stein
/s/ Jay Hilnbrand Director April 30, 1998
Jay Hilnbrand
/s/ Paul A. Martin Director April 30, 1998
Paul A. Martin
/s/ Philip S. Present II Director April 30, 1998
Philip S. Present II
<PAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Description In This Report
Independent Auditors' Report
of KPMG Peat Marwick LLP . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of January 31, 1998
and 1997 and December 31, 1996. . . . . . . . . . . . F-3
Consolidated Statements of Operations for the year ended
January 31, 1998, month ended January 31, 1997 and years
ended December 31, 1996 and 1995 . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity for the year
ended January 31, 1998, month ended January 31, 1997 and
years ended December 31, 1996 and 1995. . . . . . . . . F-5
Consolidated Statements of Cash Flows for the year ended
January 31, 1998, month ended January 31, 1997 and years
ended December 31, 1996 and 1995 . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . F-7 to F-29
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
MedPlus, Inc.:
We have audited the accompanying consolidated balance sheets of MedPlus, Inc.
and subsidiaries as of January 31, 1998 and 1997 and December 31, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended January 31, 1998, the one month period ended
January 31, 1997 and the years ended December 31, 1996 and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MedPlus,
Inc. and subsidiaries as of January 31, 1998 and 1997 and December 31, 1996,
and the results of their operations and their cash flows for the year ended
January 31, 1998, the one month period ended January 31, 1997 and the years
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Cincinnati, Ohio
April 9, 1998
F-2
<PAGE>
<TABLE>
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1998 and 1997 and December 31, 1996
<CAPTION>
January 31, January 31, December 31,
1998 1997 1996
_____________ ____________ _____________
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 13,788,668 1,016,654 2,702,007
Investment securities - 300,510 300,510
Accounts receivable, less allowance for doubtful accounts of
$115,000 in 1998 and $45,000 in 1997 and 1996 4,167,702 1,339,265 1,425,003
Other receivables 71,728 680,865 522,047
Inventories 757,471 285,569 229,624
Deferred tax asset 328,497 - -
Prepaid expenses and other current assets 523,908 505,833 436,013
_____________ ____________ ____________
Total current assets 19,637,974 4,128,696 5,615,204
Capitalized software development costs, net 2,020,613 1,861,163 1,813,443
Fixed assets, net 1,347,465 1,176,134 1,149,152
Excess of cost over fair value of net assets acquired, net 781,391 29,044 29,592
Other assets 322,171 61,396 64,225
Net assets of discontinued operations 128,461 3,414,610 3,017,029
_____________ ____________ ____________
$ 24,238,075 10,671,043 1,688,645
_____________ ____________ ____________
_____________ ____________ ____________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases $ 132,206 26,191 31,770
Borrowings on line of credit 1,496,353 - -
Accounts payable 2,807,105 602,291 732,807
Accrued expenses 2,482,723 381,818 669,953
Accrued income taxes payable 1,346,869 - -
Deferred revenue 496,306 305,164 308,039
Other current liabilities 297,000 - -
_____________ ____________ ____________
Total current liabilities 9,058,562 1,315,464 1,742,569
Obligations under capital leases, excluding current installments 167,884 84,210 81,229
Deferred tax liability 534,644 - -
Deferred revenue - 6,854 6,854
_____________ ____________ ____________
Total liabilities 9,761,090 1,406,528 1,830,652
Shareholders' equity:
Common stock, no par value, authorized 15,000,000 shares;
issued and outstanding 6,160,712 shares in 1998,
5,921,706 in 1997 and 5,919,206 shares in 1996 - - -
Additional paid-in capital 17,338,111 14,938,186 14,735,112
Treasury stock (53,554) - -
Accumulated deficit (2,619,749) (5,471,341) (4,849,580)
Unrealized gains on investment securities - 1,824 1,824
Unearned stock compensation (187,823) (204,154) (29,363)
_____________ ____________ ____________
Total shareholders' equity 14,476,985 9,264,515 9,857,993
_____________ ____________ ____________
Commitments
$ 24,238,075 10,671,043 11,688,645
_____________ ____________ ____________
_____________ ____________ ____________
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended January 31, 1998, Month Ended January 31, 1997
and Years Ended December 31, 1996 and 1995
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
January 31, January 31, December 31, December 31,
1998 1997 1996 1995
____________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
Revenues:
Systems sales $ 7,569,827 69,085 2,728,514 2,856,189
Support and consulting revenues 1,461,816 76,747 739,078 108,850
____________ _____________ _____________ _____________
Total revenues 9,031,643 145,832 3,467,592 2,965,039
____________ _____________ _____________ _____________
Cost of revenues:
Systems sales 4,607,908 92,377 1,619,688 1,413,998
Support and consulting revenues 1,602,889 91,418 540,155 116,818
____________ _____________ _____________ _____________
Total cost of revenues 6,210,797 183,795 2,159,843 1,530,816
____________ _____________ _____________ _____________
Gross profit 2,820,846 (37,963) 1,307,749 1,434,223
Operating expenses:
Sales and marketing 4,838,132 312,628 2,677,602 2,238,611
Research and development 542,296 51,929 371,755 692,033
General and administrative 2,656,586 193,309 2,505,017 1,191,665
Universal Document management expenses 728,390 - - -
Acquired in-process technology 710,318 - - -
____________ _____________ _____________ _____________
Total operating expenses 9,475,722 557,866 5,554,374 4,122,309
____________ _____________ _____________ _____________
Operating loss (6,654,876) (595,829) (4,246,625) (2,688,086)
Other income (expense):
Universal Document acquisition
and offering costs (2,979,555) - - -
Other income (expense), net (231,953) 12,962 252,382 (91,761)
____________ _____________ _____________ _____________
Total other income (expense) (3,211,508) 12,962 252,382 (91,761)
____________ _____________ _____________ _____________
Loss before income tax benefit (9,866,384) (582,867) (3,994,243) (2,779,847)
Income tax benefit (3,121,479) - (596,339) (656,008)
____________ _____________ _____________ _____________
Loss from continuing operations (6,744,905) (582,867) (3,397,904) (2,123,839)
Income (loss) from discontinued operations 9,849,994 (38,894) 925,712 (492,438)
____________ _____________ _____________ _____________
Net income (loss) $ 3,105,089 (621,761) (2,472,192) (2,616,277)
____________ _____________ _____________ _____________
____________ _____________ _____________ _____________
Earnings (loss) per share -
basic and diluted:
Continuing operations $ (1.14) (0.10) (0.58) (0.44)
Discontinued operations 1.66 (0.01) 0.16 (0.10)
____________ _____________ _____________ _____________
Net income (loss) $ 0.52 (0.11) (0.42) (0.54)
____________ _____________ _____________ _____________
____________ _____________ _____________ _____________
Weighted average number of shares of
common stock 5,922,781 5,911,971 5,868,954 4,867,288
____________ _____________ _____________ _____________
____________ _____________ _____________ _____________
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Year Ended January 31, 1998, Month Ended January 31, 1997
and Years Ended December 31, 1996 and 1995
<CAPTION>
Retained Unrealized
Common Additional earnings gains (losses) Unearned Total
stock- paid-in Treasury (accumulated on investment stock shareholders'
shares capital stock deficit) securities compensation equity
_________ ________ ________ ___________ ___________ ____________ ___________
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 4,743,750 $ 5,224,889 - 238,889 (36,129) - 5,427,649
Issuance of common stock, net of issuance costs 1,058,774 8,766,475 - - - - 8,766,475
Net loss - - - (2,616,277) - - (2,616,277)
Unrealized losses on investment securities, net
of income taxes - - - - 39,387 - 39,387
Unearned compensation under employee stock
award plan, net of amortization 6,000 45,420 - - - (39,105) 6,315
_________ __________ _________ ___________ _________ __________ ____________
Balances at December 31, 1995 5,808,524 14,036,784 - (2,377,388) 3,258 (39,105) 11,623,549
Issuance of common stock 64,749 403,886 - - - - 403,886
Options exercised 36,933 220,193 - - - - 220,193
Net loss - - - (2,472,192) - - (2,472,192)
Unrealized gains on investment securities, net
of income taxes - - - - (1,434) - (1,434)
Unearned compensation under employee stock
award plan, net of amortization 9,000 74,249 - - - 9,742 83,991
_________ __________ _________ ___________ _________ __________ ____________
Balances at December 31, 1996 5,919,206 14,735,112 - (4,849,580) 1,824 (29,363) 9,857,993
Issuance of common stock, net of issuance costs 2,500 15,000 - - - - 15,000
Net loss - - - (621,761) - - (621,761)
Unearned compensation under employee stock
award plan, net of amortization - - - - - 1,712 1,712
Fair value of options issued to nonemployees - 188,074 - - - (176,503) 11,571
_________ __________ _________ ___________ _________ __________ ____________
Balances at January 31, 1997 5,921,706 14,938,186 - (5,471,341) 1,824 (204,154) 9,264,515
Issuance of common stock, net of issuance costs 225,056 2,010,549 - - - - 2,010,549
Purchase of treasury shares (10,500) - (53,554) - - - (53,554)
Options exercised 16,666 109,719 - - - - 109,719
Tax benefit associated with exercise of options - 93,500 - - - - 93,500
Net income - - - 3,105,089 - - 3,105,089
Minority shareholders' interest in accumulated
deficit of DiaLogos - - - (253,497) - - (253,497)
Unrealized gains on investment securities,
net of income tax benefit - - - - (1,824) - (1,824)
Unearned compensation under employee stock
award plan, net of amortization 7,784 63,610 - - - (4,449) 59,161
Fair value of options issued to nonemployees - 122,547 - - - 20,780 143,327
_________ __________ _________ ___________ _________ __________ ____________
Balances at January 31, 1998 6,160,712 $17,338,111 (53,554) (2,619,749) - (187,823) 14,476,985
_________ __________ _________ ___________ _________ __________ ____________
_________ __________ _________ ___________ _________ __________ ____________
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended January 31, 1998, Month Ended January 31, 1997
and Years Ended December 31, 1996 and 1995
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
January 31, January 31, December 31, December 31,
1998 1997 1996 1995
____________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(6,744,905) (582,867) (3,397,904) (2,123,839)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Universal Document acquisition and offering costs 2,979,555 - - -
Acquired in-process technology 710,318 - - -
Amortization of capitalized software development costs 531,024 27,700 194,228 54,214
Amortization of unearned stock compensation costs 222,487 23,283 85,689 6,315
Depreciation and amortization 201,717 17,075 132,468 63,613
Amortization of excess of cost over fair value of net
assets acquired 31,811 548 2,736 -
Provision for loss on doubtful accounts 112,333 - 73,497 10,000
Deferred income taxes (356,224) - (57,880) (107,965)
(Gain) loss on sale of investment securities and fixed assets (3,691) - (18,507) 244,991
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable (3,114,118) 85,738 (330,231) (895,753)
Other receivables (35,581) (1,411) 121,991 30,273
Inventories (471,902) (55,946) (62,961) (95,913)
Prepaid expenses and other assets 20,315 (61,990) (130,985) (145,424)
Accounts payable and accrued expenses 2,778,657 (418,651) 352,428 465,171
Deferred revenue 184,288 (2,875) 175,098 31,588
____________ ___________ ___________ ___________
Net cash used in operating activities (2,953,916) (969,396) (2,860,333) (2,462,729)
____________ ___________ ___________ ___________
Cash flows from investing activities:
Capitalization of software development costs (690,474) (75,421) (1,075,316) (660,166)
Purchases of fixed assets (326,747) (44,057) (586,612) (251,007)
Purchases of investment securities - - - (236,256)
Proceeds from sales of investment securities and fixed assets 318,248 - 518,507 1,643,312
Universal Document acquisition and offering costs (1,478,838) - - -
Cash acquired in (payments made for) business acquisitions 16,375 - (67,328) -
Other advances and investments (927,695) (157,406) (454,788) -
____________ ___________ ___________ ___________
Net cash provided by (used in) investing activities (3,089,131) (276,884) (1,665,537) 495,883
____________ ___________ ___________ ___________
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 2,105,269 - 461,653 7,897,828
Purchase of treasury stock (53,554) - - -
Proceeds from borrowings on line of credit 11,721,152 - 1,587,815 829,564
Repayments on line of credit (10,224,799) - (1,587,815) (829,564)
Principal payments on capital lease obligations and
notes payable (32,960) (2,598) (32,489) (43,029)
____________ ___________ ___________ ___________
Net cash provided by (used in) financing activities 3,515,108 (2,598) 429,164 7,854,799
____________ ___________ ___________ ___________
Discontinued operations 15,299,953 (436,475) (566,271) 930,032
____________ ___________ ___________ ___________
Net increase (decrease) in cash and cash equivalents 12,772,014 (1,685,353) (4,662,977) 6,817,985
Cash and cash equivalents, beginning of period 1,016,654 2,702,007 7,364,984 546,998
____________ ___________ ___________ ___________
Cash and cash equivalents, end of period $ 13,788,668 1,016,654 2,702,007 7,364,984
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
Interest paid $ 282,963 1,029 23,493 30,347
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
Income taxes paid (refunds received) $ - - (66,192) (67,928)
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 health care industry. The
Company's products presently consist of the ChartMaxx[tm]
Enterprise-wide Patient Record System ("ChartMaxx") and the
OptiMaxx[tm] Archival System ("OptiMaxx"). ChartMaxx is an
enterprise-wide electronic patient record system. OptiMaxx is an
optical disk-based archival system. The Company's FutureCORE[tm],
Inc. subsidiary ("FutureCORE") provides process improvement and
automation services, primarily in the areas of patient care and
laboratory services. On January 30, 1998, the Company acquired a
majority interest in DiaLogos[tm] Incorporated ("DiaLogos") which
specializes in assisting organizations in the integration of
enterprise-wide business systems with existing applications and
data using distributed object computing, including CORBA and Java
technologies, through education, consulting and implementation
services. DiaLogos is in the initial phases of developing several
products designed to simplify the effort of legacy system
integration.
The Company's IntelliCode[tm] division, which was sold on
January 28, 1998, developed and sold the IntelliCode Intelligent
Bar Code System ("IntelliCode"), an intelligent bar coding system
for hospitals and other health care organizations. The
Step2000[tm] Workflow, Document Management, and Application
Development System ("Step2000") segment, which the Company is
currently in the process of selling, is a 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.
Substantially all of the Company's operations are located in
Cincinnati, Ohio.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, Universal
Document Management Systems, Inc. ("Universal Document") and
FutureCORE. The accounts of DiaLogos, its majority-owned
subsidiary, have been included in the consolidated financial
statements as of the date of the Company's acquisition of a
majority interest, January 30, 1998. All intercompany accounts
and transactions have been eliminated in consolidation.
The Company's IntelliCode division, which was sold on
January 28, 1998, and the Step2000 segment of Universal Document,
which the Company is in the process of selling, have been
accounted for as discontinued operations. The accompanying notes
present amounts related only to continuing operations, unless
otherwise indicated.
(Continued)
F-7
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(b) Fiscal Year
In December 1997, the Company changed its fiscal year end
from December 31 to January 31. Accordingly, the Company's
current fiscal year commenced on February 1, 1997 and ended on
January 31, 1998. The financial statements for the period from
January 1, 1997 to January 31, 1997 are also presented herein.
The amounts reflected for the one month period ended January 31,
1997 are not indicative of results that would have been obtained
for a full fiscal quarter or fiscal year.
(c) Cash and Cash Equivalents
Cash equivalents of $13,691,025 and $2,669,617 at January
31, 1998 and December 31, 1996, respectively, consist of overnight
repurchase agreements and investments in money market funds with
initial terms of less than three months. The carrying value of
cash and cash equivalents approximates fair value.
Interest income from cash equivalents and investment
securities was $94,703, $308,992 and $179,863 for the years ended
January 31, 1998, December 31, 1996, and December 31, 1995,
respectively.
(d) Investment Securities
The Company accounts for its investment securities under
the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Company's investment securities are
classified under SFAS No. 115 as "available-for-sale," and
accordingly, are carried at fair market value. The fair values of
investment securities are based on the quoted market prices at the
reporting date for those investments. Unrealized holding gains
and losses are included as a component of shareholders' equity,
net of income tax effects, until realized.
No investment securities were held at January 31, 1998.
Investment securities at December 31, 1996 consisted entirely of a
General Electric Capital Corporation bond with a market value of
$300,510, cost of $297,660, unrealized gain of $2,850, and a
maturity date in May 1997.
Other income (expense) for the year ended December 31,
1995 included a permanent impairment loss of approximately
$230,000 related to an investment security acquired in 1995.
(Continued)
F-8
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(e) Revenue Recognition
The Company's revenues are derived from systems sales,
which include software licenses and hardware, support contracts
and installation, implementation, training and education, and
consulting services. Revenue is recognized in accordance with
the provisions of Statement of Position ("SOP") 91-1, Software
Revenue Recognition. For OptiMaxx systems, revenue is recognized
upon shipment. Revenue from ChartMaxx systems is recognized when
a contract is signed, the system is configured, and the system is
shipped. If a contract requires the Company to perform services
or provide modifications that are deemed significant to system
acceptance, revenue related to the delivered hardware and/or
software is deferred until such obligations are deemed
insignificant or have been satisfied.
Revenues from installation, implementation, training and
education, and consulting services are recognized in the period in
which the services are performed. Revenue from support contracts
is recognized ratably over the term of the contract. Deferred
revenues primarily represent support contracts that have been
billed in advance of the support to be provided.
The American Institute of Certified Public Accountants has
recently issued Statement of Position SOP 97-2, Software Revenue
Recognition, which supersedes SOP 91-1. SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December
15, 1997. The Company is currently completing its review of SOP
97-2, but at present, it does not anticipate the implementation of
SOP 97-2 to have a material change to the Company's revenue
recognition policy.
(f) Concentrations of Credit Risk
Financial instruments which potentially expose the Company
to concentrations of credit risk, as defined by SFAS No. 105,
consist primarily of cash equivalents, investment securities, and
trade accounts receivable. The Company's cash equivalents and
investment securities consist of highly liquid money market funds,
U.S. government or agency obligations, and corporate obligations.
The Company's trade accounts receivables are concentrated in the
health care industry. However, the Company's credit risk is
limited due to the geographic dispersion and diversity of
customers making up the Company's receivable portfolio.
(g) Inventories
Inventories are stated at the lower of cost or market and
cost is determined by the first-in, first-out (FIFO) method.
(Continued)
F-9
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(h) Capitalized Software Development Costs
The Company accounts for software development costs in
accordance with the provisions of SFAS No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. Costs incurred in designing and developing computer
software products are expensed as research and development until
technological feasibility has been established. Technological
feasibility is established upon completion of a detail program
design or, in its absence, completion of a working model. Upon
the achievement of technological feasibility, software production
costs are capitalized and subsequently reported at the lower of
unamortized cost or net realizable value.
Annual amortization expense is the greater of the amount
computed, using the ratio of the current year's revenues to the
total of current and anticipated future revenues, or the straight-
line method over the remaining economic life which does not exceed
five years. Amortization of capitalized software development
costs amounted to $531,024, $194,228, and $54,214 for the years
ended January 31, 1998, December 31, 1996 and December 31, 1995,
respectively. Accumulated amortization for capitalized software
development costs was $835,777 and $277,053 at January 31, 1998
and December 31, 1996, respectively.
(i) Fixed Assets
Fixed assets are stated at cost, except for equipment
held under capital leases which is stated at the present value of
minimum lease payments. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets, which range from three to ten years. Leasehold
improvements and equipment held under capital leases are amortized
using the straight-line method over the shorter of the lease term
or estimated useful life of the asset.
(j) Excess of Cost Over Fair Value of Net Assets Acquired
The excess of the cost over fair value of net assets
acquired from business acquisitions is being amortized on the
straight-line method over the expected periods to be benefited,
which is principally ten years. Accumulated amortization of the
excess of the cost over the fair value of net assets acquired was
$35,095 and $2,736 at January 31, 1998 and December 31, 1996,
respectively.
The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the
intangible balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired
operation. The amount of the intangible impairment, if any, is
measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of the intangible
asset will be impacted if estimated future operating cash flows
are not achieved.
(Continued)
F-10
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(k) Income Taxes
The provisions for income taxes are accounted for in
accordance with SFAS No. 109, Accounting for Income Taxes. Under
the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.
(l) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its
stock option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation, which requires
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-
value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
(m) Earnings (Loss) Per Share
The Company has adopted the provisions of SFAS No. 128,
Earnings per Share, in calculating earnings per share. SFAS No.
128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options,
warrants or convertible securities. Diluted earnings per share
reflects the assumed conversion of all dilutive securities.
Earnings (loss) per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS No.
128.
Basic and diluted earnings per share are based on the
weighted average number of shares of common stock outstanding for
each period excluding any shares related to nonvested employee
stock awards. Dilutive securities have not been included in the
weighted average shares used for the calculation of diluted
earnings per share in periods of losses from continuing operations
because the effect of such securities would be antidilutive. At
January 31, 1998, dilutive securities consisted of options to
purchase 1,013,292 shares of common stock.
(Continued)
F-11
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(n) Supplemental Cash Flow Information
In the year ended January 31, 1998, the Company converted
$1,191,960 of advances to DiaLogos into common shares of DiaLogos
in connection with its acquisition of a majority interest in
DiaLogos. In April 1996 and December 1995, the Company issued
14,429 and 99,274 shares of common stock, valued at $160,728 and
$868,648 at the date of issuance in connection with the
acquisition of Universal Document. The Company entered into
capital leases for equipment totaling approximately $128,000
during the year ended December 31, 1995.
During the years ended January 31, 1998, December 31, 1996
and December 31, 1995, the Company granted employees 7,784, 8,900,
and 6,000 shares of common stock, respectively, under a stock
award plan. The market value of the stock at the dates of grant
was approximately $64,000, $74,000, and $45,000, respectively, and
is being amortized over periods of one to three years in
accordance with the terms of the awards. 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.
In January 1997 and December 1997, the Company also granted
options to purchase 85,000 and 50,000 shares, respectively, of
the Company's common stock as compensation to consultants to the
Company. These options have a fair value of approximately
$188,000 and $155,000, respectively, which is being amortized into
expense over the related service periods of one to two years.
The Company realized a tax benefit of $93,500 during the
year ended January 31, 1998 associated with the exercise of stock
options. The tax benefit reduced the income tax liability and was
credited to paid-in capital.
As these are non-cash transactions, they have not been
presented in the Consolidated Statements of Cash Flows.
(o) Use of Estimates
Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(p) Reclassifications
Certain reclassifications have been made to the 1996 and
1995 consolidated financial statements to conform with the current
period presentation.
(Continued)
F-12
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Acquisitions
(a) DiaLogos
The Company signed a letter of agreement with 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 $1,650,000 to DiaLogos in return for 75% of the
common shares of DiaLogos, (b) secure a funding commitment for
DiaLogos' operations in the amount of $1,650,000 from investors
and/or lenders, or (c) pay a portion of the $1,650,000 as
consideration for less than 75% of the common shares of DiaLogos,
and secure a funding commitment for the remainder of the
$1,650,000 from investors or lenders. In the event the Company
secured a funding commitment from investors and/or lenders, then
DiaLogos would 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.
As of December 31, 1996, the Company had advanced $428,350
to DiaLogos which was included in other receivables. The Company
had also converted an additional $51,050 of advances into an
equity interest in DiaLogos' common shares. This investment was
accounted for on the equity method, and it was included in other
assets at December 31, 1996. Subsequent to December 31, 1996,
the Company arranged for approximately $400,000 of funding for
DiaLogos from investors, which consisted of officers and directors
of the Company, in exchange for these investors receiving 18.5% of
DiaLogos' common shares.
On January 30, 1998, the Company elected to exercise its
option and converted aggregate advances of $1,191,960 to DiaLogos
into common shares of DiaLogos stock. Upon conversion of these
advances, MedPlus became a majority owner of DiaLogos with 56.5%
ownership. The acquisition of these shares has been accounted
for under the purchase method. Accordingly, the financial position
of DiaLogos has been included in the Company's Consolidated
Balance Sheet as of January 31, 1998, and the results of
operations of DiaLogos will be included in the Company's
Consolidated Statement of Operations effective February 1, 1998.
However, upon consolidation of DiaLogos' acquisition date balance
sheet, the minority interest's share in the historical accumulated
deficit of DiaLogos was $318,998. Given that such amount exceeded
the minority interest in the equity capital of DiaLogos, the
excess of $253,497 has been charged against the consolidated
retained earnings of the Company.
(Continued)
F-13
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Acquisitions, Continued
(a) DiaLogos, Continued
The Company's purchase price for its majority interest in
DiaLogos was $1,693,959 which included the conversion of
$1,191,960 of advances and the attribution of $501,999 of DiaLogos
liabilities to the Company's ownership interest. The purchase
price has been allocated to the identifiable tangible and
intangible assets acquired based on their estimated fair values.
The Company has allocated $781,391 of the purchase price to the
excess of cost over the fair value of net assets acquired. An
additional $710,318 of the purchase price has been allocated to
acquired in-process technology and has been expensed at the date
of acquisition. To determine the fair market value of the acquired
in-process technology, the Company utilized the income approach
which focuses on the income-producing capability of the assets
acquired and best represents the present value of the future
economic benefits expected to be derived from these assets.
Technological feasibility for the acquired in-process technology
had not been reached based on design and development activities in
place, requiring further refinement and testing. The acquired
technology represents unique and emerging technology, the
application of which is limited to the Company's legacy system
integration software strategy. Accordingly, the acquired
technology has no alternative future use.
The following unaudited pro forma data presents the results
of operations as if the acquisition of DiaLogos had occurred at
the beginning of each period. This summary is provided for
information purposes only. It does not necessarily reflect the
actual results that would have occurred had the acquisitions been
made as of those dates or of results that may occur in the future.
DiaLogos had no operations prior to January 1, 1996.
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, December 31,
1998 1996
___________ ___________
<S> <C> <C>
Revenues $ 9,607,221 3,469,750
Loss from continuing
operations (7,993,588) (3,899,579)
Net income (loss) $ 1,856,406 (2,973,867)
___________ ___________
___________ ___________
Earnings (loss) per share - basic
and diluted:
Continuing operations $ (1.35) (0.66)
Discontinued operations 1.66 0.16
Net income (loss) $ 0.31 (0.51)
___________ ___________
___________ ___________
</TABLE>
(Continued)
F-14
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Acquisitions, Continued
(b) FutureCORE
Effective June 28, 1996, the Company acquired all of the
assets of FutureCORE, Ltd., a hospital, laboratory, and physician
services consulting firm. The acquisition has been accounted for
under the purchase method; accordingly, the results of operations
of FutureCORE have been included in the Company's consolidated
financial statements since the date of the acquisition.
The effect of FutureCORE on the results of operations for periods
prior to its acquisition would not have been material. The total
consideration paid for these assets consisted of cash of $61,250.
The purchase price for FutureCORE has been allocated to the
identifiable tangible and intangible assets acquired based on
their fair market value.
(c) Universal Document
Effective December 14, 1995, the Company acquired all of
the outstanding shares of Universal Document, a developer of
document and workflow management software. The Company also
purchased all of the outstanding shares of HWB, Inc. the owner and
licenser of the principal software product of Universal Document.
The acquisitions have been accounted for under the purchase
method; accordingly, results of operations of these entities have
been included in the Company's consolidated financial statements
since the date of acquisition.
Total consideration for the acquisition of Universal
Document and HWB consisted of $1,700,000, including cash of
$831,352 and 99,274 shares of Company common stock valued at
$868,648. The agreements also provide for additional
consideration contingent upon future revenue performance of
Universal Document, which if earned, would be accounted for as an
additional cost of the acquired companies. For the period from
December 14, 1995 to December 31, 1995, the contingent
consideration earned was $277,845. No additional contingent
consideration has been earned since December 31, 1995. Maximum
future potential payments under these agreements for the remaining
eleven month period ending December 31, 1998 are $3,000,000.
The purchase price for the acquired companies was
allocated to the identifiable tangible and intangible assets
acquired based on their estimated fair values. The Company
allocated $987,391 of the purchase price to the excess of cost
over the fair value of net assets. An additional $1,465,697 of
the purchase price was allocated to the acquired in-process
technology of Universal Document and HWB. This amount was
expensed at the date of acquisition during the year ended December
31, 1995 and is included in loss from discontinued operations.
(Continued)
F-15
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Acquisitions, Continued
(c) Universal Document, Continued
The following unaudited pro forma data presents the
results of operations as if the acquisitions of Universal Document
and HWB had occurred at the beginning of the year ended December
31, 1995. This summary is provided for information purposes only.
It does not necessarily reflect the actual results that would have
occurred had the acquisitions been made as of that date or of
results that may occur in the future.
Year Ended
December 31,
1995
____________
Revenues $ 2,965,039
Loss from discontinued operations (816,878)
Net loss $(2,940,717)
____________
____________
Loss per share - basic and diluted:
Continuing operations $ (0.44)
Discontinued operations (0.16)
Net income (loss) $ (0.59)
____________
____________
(4) Discontinued Operations
On January 28, 1998, the Company completed the sale of all the
assets of the Company's IntelliCode division to Becton Dickinson
and Company ("Becton Dickinson") for an initial payment of
$17,408,847 plus royalty payments over five years. The initial
payment was subsequently adjusted after the closing of the
transaction based on the actual net book value of the assets sold
resulting in a payment by the Company to Becton Dickinson of
$74,259 in April 1998. In connection with the sale, Becton
Dickinson also assumed certain liabilities of the IntelliCode
division, primarily deferred revenues and obligations related to
service contracts and an office lease. The Company has recognized
a pre-tax gain of $14,724,720 and an after-tax gain of $10,268,710
related to this transaction for the year ended January 31, 1998.
The royalty payments are based on future defined revenues and will
be recorded as income when earned.
In January 1998, the Company decided to sell the net assets of
the Step2000 segment of Universal Document and is currently
negotiating with prospective buyers. The Company expects to
complete the sale by the end of December 1998. In connection with
the planned sale of the Step2000 segment, the Company has accrued
a loss of approximately $180,000 for the disposal of the net
assets of the segment and for its estimated operating losses
through the anticipated date of disposal. In addition, the
Company has also amortized the remaining net book value of
(Continued)
F-16
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Discontinued Operations, Continued
$774,677 of the excess of cost over fair value of net assets
acquired and $466,836 of capitalized software development costs
related to the Step2000 segment in January 1998 based on its
assessment of the recoverability of these assets which indicated
that their value was impaired. This additional amortization
expense is included in the operating loss of discontinued
operations for the year ended January 31, 1998 shown below.
Income (loss) from the IntelliCode and Step2000 discontinued
operations, as shown on the accompanying Consolidated Statements
of Operations, includes the following:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, December 31, December 31,
1998 1996 1995
__________ _________ _________
<S> <C> <C> <C>
Revenues $ 8,443,788 7,472,864 5,639,532
__________ _________ _________
__________ _________ _________
Operating income (loss) $ (105,705) 1,523,948 185,186
Gain on sale 14,724,720 - -
Income tax expense 4,769,021 598,236 677,624
__________ _________ _________
Net income (loss) from
discontinued operations $ 9,849,994 925,712 (492,438)
__________ _________ _________
__________ _________ _________
</TABLE>
Net assets of discontinued operations at January 31, 1998
consist only of assets and liabilities related to the Step2000
segment. At December 31, 1996, net assets of discontinued
operations consist of assets and liabilities related to both
Step2000 and IntelliCode. These balances are summarized as
follows:
<TABLE>
<CAPTION>
January 31, December 31,
1998 1996
_________ __________
<S> <C> <C>
Cash (cash overdraft) $ 5,805 (1,400)
Trade accounts receivable 352,631 2,251,611
Inventories - 597,995
Prepaid expenses and other
current assets 44,860 181,724
Capitalized software
development costs, net - 464,916
Fixed assets, net 137,410 313,665
Excess of cost over fair
value of net assets
acquired, net - 881,810
Other noncurrent assets 5,972 22,280
Accounts payable (85,786) (691,338)
Accrued expenses (193,273) (393,155)
Deferred revenues (139,158) (611,079)
_________ __________
Net assets of discontinued
operations $ 128,461 3,017,029
_________ __________
_________ __________
</TABLE>
Included in the accounts payable and accrued expenses of
the Company at January 31, 1998 are $233,701 and $795,932 of
liabilities related to the discontinued operations and the
IntelliCode sale that will not be assumed by Becton or the future
purchaser of Step2000.
(Continued)
F-17
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Universal Document Initial Public Offering and Acquisitions
The Company's Universal Document subsidiary has hired a
senior
management team and entered into agreements with two consulting
firms to assist it in the identification and recruitment of
certain
design automation software resellers and integrators that
Universal
Document may acquire or combine, and to assist Universal Document
in an initial public offering of its common stock. In September
and October 1997, Universal Document entered into definitive
agreements, which are contingent upon a successful initial public
offering, to acquire nine such companies. On October 10, 1997,
Universal Document filed a registration statement on Form S-1 with
the Securities and Exchange Commission to offer its common stock
to
the public. Universal Document filed subsequent amendments to this
registration statement on December 15, 1997 and January 9, 1998.
Under the terms of the initial public offering as disclosed in the
registration statement, Universal Document and the Company would
offer to sell 1,850,000 and 750,000 shares, respectively.
Universal Document would use a portion of its proceeds from the
sale of shares in the offering and the issuance of additional
shares to acquire the nine companies with which it had entered
into
acquisition agreements. The Company would retain a minority
interest in Universal Document after the initial public offering.
In connection with its initial public offering, Universal Document
would change its name to Synergis Technologies, Inc. Due to
adverse market conditions for initial public offerings in January
1998, Universal Document postponed the initial public offering
upon
the advice of its underwriters.
Universal Document had capitalized direct, incremental costs
during the year ended January 31, 1998 related to the potential
acquisitions and initial public offering for accountants',
attorneys', and consultants' fees ("acquisition and offering
costs") that were to become a cost of the acquired companies or
costs of the initial public offering upon the completion of the
transactions. These acquisition and offering costs had been
recorded as deferred acquisition and offering costs in the
Company's Consolidated Balance Sheet. As a result of its decision
to postpone its initial public offering, Universal Document
expensed $2,979,555 of such costs in January 1998. The Company
also incurred $728,390 of operating expenses during the year ended
January 31, 1998 associated with the senior management team hired
to manage the acquisitions, offering and integration of the target
companies.
The Company and Universal Document have entered into a
variety
of agreements related to the Universal Document acquisitions and
initial public offering. These agreements include consulting
agreements, employment agreements, an amendment of the HWB
purchase
agreement, acquisition agreements with the target companies, and
stock incentive agreements associated with Universal Document
common stock. The significant financial terms of these agreements
are contingent upon the successful completion of an initial public
offering of Universal Document's common stock. The Company is
currently evaluating how to proceed with the acquisitions and
initial public offering. As a result of such evaluation, many, if
not all, of the agreements referred to above may either be
terminated or significantly amended.
(Continued)
F-18
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Fixed Assets
Fixed assets consist of the following at January 31, 1998 and
December 31, 1996:
<TABLE>
<CAPTION>
January 31, December 31,
1998 1996
__________ __________
<S> <C> <C>
Equipment $ 1,278,904 895,794
Furniture and fixtures 463,246 381,101
Leasehold improvements 152,433 152,433
Purchased software 106,488 52,913
__________ __________
2,001,071 1,482,241
Accumulated depreciation
and amortization (653,606) (333,089)
__________ __________
$ 1,347,465 1,149,152
__________ __________
__________ __________
</TABLE>
(7) Bank Agreements
In February 1995, the Company executed a $3,000,000 line of
credit agreement with a bank. Interest was payable at the bank's
prime rate. The line of credit was secured by all assets of the
Company, and the Company was required to maintain a net worth of
$4,000,000 and a maximum leverage ratio, both as defined in the
credit agreement.
In November 1995, the Company amended the credit agreement
which permitted the Company to borrow a maximum of $10,000,000,
subject to a defined net worth formula, and retained the existing
maximum leverage ratio, also as defined. The amended credit
agreement was scheduled to expire on December 31, 1997.
In December 1996, the Company amended the credit agreement
("MedPlus line of credit") to extend the term to December 31,
1998.
The MedPlus line of credit requires the Company to pay a .25%
commitment fee per annum payable quarterly in arrears on the
unused portion of the line of credit. At January 31, 1998, the
maximum amount available under the MedPlus line of credit was
approximately $10,000,000. No amounts were outstanding under the
MedPlus line of credit at January 31, 1998 and December 31, 1996.
On September 9, 1997, the Company and Universal Document
entered into a line of credit agreement ("Universal line of
credit") with a bank to fund the costs associated with Universal
Document's acquisitions and initial public offering discussed in
Note 5 and for working capital. The amount outstanding under the
Universal line of credit at January 31, 1998 was $1,496,353. The
Universal line of credit was paid in full and canceled on February
10, 1998.
Interest expense included in other income (expense) from the
lines of credit and capital lease obligations was $346,315,
$23,493 and $30,432 for the years ended January 31, 1998, December
31, 1996, and December 31, 1995, respectively.
(Continued)
F-19
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Common Stock
In October 1995, the Board of Directors approved the filing of
a Registration Statement under the Securities Act of 1933 in
connection with a secondary offering of 1,000,000 shares of the
Company's common stock, 100,000 shares of which were sold by an
officer of the Company. The secondary offering was completed on
November 24, 1995, and the Company received $7,611,171, net of
issuance costs.
In connection with the sale of the IntelliCode assets to
Becton, the Company sold 222,556 shares of its common stock to
Becton in exchange for $2,000,000 in cash on January 28, 1998.
The sale price was based on the average closing price of the
Company's common stock for the thirty days prior to the
announcement on November 21, 1997 of the signing of a letter of
intent relating to the sale of the IntelliCode assets.
(9) Stock Incentive Plans
In March 1994, the Company adopted the 1994 Long-Term Stock
Incentive Plan (Long-Term Plan) and the Directors'
Nondiscretionary Stock Option Plan (Directors' Plan), collectively
the "Option Plans." The Long-Term Plan provides for the grant of
stock-based incentives to employees in the form of stock options,
stock appreciation rights, stock awards, or any combination
thereof. The maximum number of shares with respect to which
stock incentives may be granted under the Long-Term Plan is
currently 1,000,000 shares. A total of 100,000 shares is reserved
for issuance under the Directors' Plan.
Options granted under the Long-Term Plan may be either
nonqualified or incentive options. Under the terms of both the
Long-Term Plan and the Directors' Plan, options may not be granted
at less than fair market value on the date of the grant. Options
granted under both plans are exercisable in installments; however,
no options are exercisable earlier than six months or later than
ten years from the date of the grant.
At January 31, 1998, there were 68,225 additional shares
available for grant under the Directors' Plan and no additional
shares available for grant under the Long-Term Plan. In December
1997, the compensation committee of the Board of Directors granted
65,000 options under the Long-Term Plan. These option grants are
contingent upon approval by shareholders at the Company's 1998
annual shareholders' meeting of an amendment to the Long-Term Plan
which would increase the maximum number of shares with respect to
which stock incentives may be granted to 2,000,000. The following
disclosures of pro forma expense, option transactions, options
outstanding, and options exercisable as of and for the year ended
January 31, 1998 include the options granted in December 1997.
(Continued)
F-20
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Stock Incentive Plans, Continued
The per share weighted average fair values at the date of
grant for options granted during the years ended January 31, 1998,
December 31, 1996 and December 31, 1995 were $3.25, $4.83, and
$3.15, respectively. These fair values were estimated using the
Black Scholes option-pricing model with the following weighted
average assumptions: 1998 - expected dividend yield 0%, risk-free
interest rate of 6.16%, expected volatility of 41%, and an
expected life of 4.79 years; 1996 - expected dividend yield 0%,
risk-free interest rate of 6.09%, expected volatility of 38%, and
an expected life of 4.78 years; 1995 - expected dividend yield 0%,
risk-free interest rate of 6.33%, expected volatility of 34%, and
an expected life of 4.48 years.
The Company applies APB Opinion No. 25 in accounting for the
Option Plans; accordingly, no compensation cost has been
recognized for its options granted to employees in the
consolidated financial statements. The Company recognized $59,160
and $85,689 of compensation cost during the years ended January
31, 1998 and December 31, 1996 related to stock awards granted
under the Long-Term Plan. Had the Company determined compensation
cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income (loss) would
have been reduced (increased) to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
January 31, December 31, December 31,
1998 1996 1995
___________ ____________ ____________
<S> <C> <C> <C>
Net income
(loss)
As reported $ 3,105,089 (2,472,192) (2,616,277)
Pro forma 2,239,941 (3,321,232) (2,826,115)
___________ ____________ ____________
___________ ____________ ____________
Net income (loss)
per share -
basic and
diluted
As reported $ 0.52 (0.42) (0.54)
Pro forma 0.38 (0.57) (0.58)
____________ ____________ ____________
____________ ____________ ____________
</TABLE>
Pro forma net income (loss) reflects only options granted
since January 1, 1995. Therefore, the full impact of calculating
compensation cost for options under SFAS No. 123 is not reflected
in the pro forma net loss amounts presented above because
compensation cost is reflected over the options' vesting periods
of six months to five years, and compensation cost for options
granted prior to January 1, 1995 is not considered.
The Company also granted options to purchase 85,000 shares of
common stock as compensation to consultants during January 1997.
These options had an estimated fair value of approximately
$188,000 on the date of grant. In December 1997, the Company
granted options to purchase an additional 50,000 shares of the
Company's common stock as compensation to one of these
consultants. These options had an estimated fair value of
approximately $155,000 on the date of grant. The estimated fair
value of the options granted to the consultants in January 1997
and December 1997 was determined using the Black Scholes option-
pricing model with the same weighted average assumptions as those
used for
(Continued)
F-21
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Stock Incentive Plans, Continued
the employee option grants during the years ended December 31,
1996 and January 31, 1998, respectively, with the following
exceptions: 1996 - expected life of 2.5 years; 1998 - expected
life of 2.5 years. The fair value of these options is being
amortized over the related service periods of one to two years.
The Company recognized $143,327 in amortization expense related to
these option grants in the year ended January 31, 1998.
Transactions with respect to options, including options
granted to consultants, for the years ended January 31, 1998,
December 31, 1996 and December 31, 1995 and the month ended
January 31, 1997 were as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
__________ ________________
<S> <C> <C>
Shares under option,
December 31, 1994 60,000 $ 5.58
Options granted 177,500 7.47
__________
Shares under option,
December 31, 1995 237,500 6.99
Options exercised (36,933) 5.96
Options forfeited or canceled (6,667) 7.56
Options granted 352,500 11.34
__________
Shares under option,
December 31, 1996 546,400 9.86
Options forfeited or canceled (50,000) 6.88
Options granted 270,250 5.82
__________
Shares under option,
January 31, 1997 766,650 8.63
Options exercised (16,666) 5.97
Options forfeited or canceled (12,467) 9.51
Options granted 275,775 7.26
__________
Shares under option,
January 31, 1998 1,013,292 8.29
__________
__________
</TABLE>
<TABLE>
The following table summarizes information about options, including options granted to consultants,
at January 31, 1998:
<CAPTION>
Options Outstanding Options Exercisable
_______________________________________________________________ __________________________________________
Weighted
Range of Average Weighted Weighted
Exercise Number Remaining Average Number Average
Prices of Options Contractual Life Exercise Price of Options Exercise Price
____________ ____________ ________________ ______________ ___________ ______________
<C> <C> <C> <C> <C> <C>
$ 5.13- 7.69 571,626 3.6 $ 6.19 326,997 $ 6.13
7.70-11.53 207,666 3.6 9.63 99,835 10.07
11.54-14.13 234,000 3.3 12.24 111,672 12.04
____________ ___________
1,013,292 3.5 8.29 538,504 8.09
____________ ___________
____________ ___________
</TABLE>
(Continued)
F-22
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Income Taxes
Total income tax expense (benefit) for the years ended
January 31, 1998, December 31, 1996 and December 31, 1995 was
allocated as follows:
<TABLE>
<CAPTION>
January 31, December 31, December 31,
1998 1996 1995
___________ __________ __________
<S> <C> <C> <C>
Loss from operations $(3,121,479) (596,339) (656,008)
Discontinued operations 4,769,021 598,236 677,624
Shareholders' equity, for
compensation expense for
tax purposes in excess
of amounts recognized
for financial reporting
purposes (93,500) - -
Shareholders' equity,
unrealized gains (losses)
on marketable securities
recorded for financial
reporting purposes (1,026) (806) 20,290
___________ _________ _________
$ 1,553,016 1,091 41,906
___________ _________ _________
___________ _________ _________
</TABLE>
Income tax benefit attributable to loss from continuing
operations was as follows:
<TABLE>
<CAPTION>
January 31, December 31, December 31,
1998 1996 1995
___________ _________ __________
<S> <C> <C> <C>
Federal:
Current $ (2,268,874) (508,521) (517,572)
Deferred (231,146) (54,900) (106,286)
___________ _________ __________
(2,500,020) (563,421) (623,858)
___________ _________ __________
State:
Current (496,381) (29,938) (30,471)
Deferred (125,078) (2,980) (1,679)
___________ _________ __________
(621,459) (32,918) (32,150)
___________ _________ __________
$ (3,121,479) (596,339) (656,008)
___________ _________ __________
___________ _________ __________
</TABLE>
(Continued)
F-23
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Income Taxes, Continued
Income tax expense (benefit) differs from the amounts
computed by applying the Federal statutory rate to pre-tax loss
from continuing operations as a result of the following:
<TABLE>
<CAPTION>
January December December
31, 1998 31, 1996 31, 1995
___________ ___________ _________
<S> <C> <C> <C>
Computed "expected"
tax expense (benefit) $(3,354,571) (1,358,043) (945,148)
Acquired in-process
technology 241,508 - -
Change in valuation
allowance 468,754 843,673 346,623
State income taxes, net
of Federal benefit (410,163) (21,726) (21,219)
Other (67,007) (60,243) (36,264)
___________ ___________ _________
$(3,121,479) (596,339) (656,008)
___________ ___________ _________
___________ ___________ _________
</TABLE>
The significant components of deferred income tax expense
(benefit) attributable to loss from continuing operations for the
years ended January 31, 1998, December 31, 1996 and December 31,
1995 are as follows:
<TABLE>
<CAPTION>
January December December
31, 1998 31, 1996 31, 1995
_________ _________ _________
<S> <C> <C> <C>
Deferred tax expense
(benefit) (exclusive
of the effects of
other components
listed below) $(824,978) (901,553) (454,588)
Increase in the
beginning-of-the-year
balance of the
valuation allowance
for deferred taxes 468,754 843,673 346,623
_________ _________ _________
$(356,224) (57,880) (107,965)
_________ _________ _________
_________ _________ _________
</TABLE>
Included in income tax expense for discontinued operations
for the year ended January 31, 1998 is $2,115,339 of deferred tax
expense associated with the utilization of approximately
$5,420,000 in net operating loss carryforwards. This deferred tax
expense is offset by a deferred tax benefit of $1,396,449 related
to the reduction of the valuation allowance previously established
for those net operating loss carryforwards.
(Continued)
F-24
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Income Taxes, Continued
The tax effects of temporary differences that give rise to
deferred tax assets and deferred tax liabilities at January 31,
1998 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
January 31, December 31,
1998 1996
___________ ___________
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 820,628 1,847,491
Organization and acquisition costs 804,662 -
Accruals 297,666 92,083
Capital loss carryforward 84,922 78,390
Research and experimentation
credit carryforward 2,612 85,018
Other 25,105 66,460
___________ ___________
Total gross deferred tax assets 2,035,595 2,169,442
Less valuation allowance (1,288,977) (1,326,286)
___________ ___________
Net deferred tax assets 746,618 843,156
___________ ___________
Deferred tax liabilities:
Software costs (767,617) (662,636)
Fixed assets (159,269) (128,055)
Other (25,879) (52,465)
___________ ___________
Total gross deferred tax
liabilities (952,765) (843,156)
___________ ___________
Net deferred tax liabilities $ (206,147) -
___________ ___________
___________ ___________
</TABLE>
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible.
At January 31, 1998, the Company and DiaLogos have net
operating loss carryforwards for Federal income tax purposes of
approximately $213,000 and $1,844,000, respectively, which are
available to offset future Federal taxable income, if any, through
2010 and 2012, respectively. As DiaLogos files a separate Federal
income tax return, its net operating loss carryforwards cannot be
used to offset future taxable income of the MedPlus consolidated
tax group. The Company also has a capital loss carryforward of
approximately $218,000 which is available to offset future capital
gains, if any, through 2001.
(Continued)
F-25
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Related Party Transactions
As discussed in Note 3, the Company purchased all of the
outstanding common stock of Universal Document in December 1995.
The majority owner and president of that company at the date of
purchase has been a director of the Company since 1994.
DiaLogos has leased office space from the Company under a
sublease since October 1, 1996. The Company recognized $120,204
and $15,195 of sublease income from DiaLogos for the years ended
January 31, 1998 and December 31, 1996. Any future sublease
income from DiaLogos will be eliminated as an intercompany
transaction. The Company has also provided a guarantee to a
leasing company under which the Company has guaranteed the
payments due by DiaLogos under certain lease agreements for
equipment and furniture.
(12) Retirement Savings and Investment Plan
The Company has a Retirement Savings and Investment Plan
(401(k) Plan) in which employees may participate by contributing
specified percentages of qualified compensation subject to
Internal Revenue Service limitation. The Company may make
discretionary contributions to a maximum of 100% of each
participant's contribution. For the year ended January 31, 1998,
the Company recognized expense of $213,495, of which $147,174
related to continuing operations, for discretionary and profit-
sharing contributions to the Plan. The Company's contributions to
the Plan were funded in March 1998 through the issuance of 31,629
shares of the Company's common stock. There were no expenses
recorded related to the Plan for the years ended December 31, 1996
and 1995.
(13) Commitments
(a) Leases
The Company leases office space and certain equipment
under noncancelable operating lease agreements which extend
through June 30, 2002. Rent expense related to these operating
leases amounted to $201,000, $168,000, and $81,000 for the years
ended January 31, 1998, December 31, 1996, and December 31, 1995,
respectively.
The Company also leases certain equipment and furniture
and fixtures under capital leases with terms ranging from three to
five years. Amortization expense related to fixed assets held
under capital leases is included with depreciation and
amortization expense.
(Continued)
F-26
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Commitments, Continued
(a) Leases, Continued
Future minimum lease payments under non-cancelable
operating leases with remaining terms in excess of one year and
future minimum lease payments under capital leases as of January
31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
_______ __________
<S> <C> <C>
Year ending January 31:
1999 156,326 338,000
2000 126,649 372,000
2001 39,767 366,000
2002 17,033 361,000
2003 - 211,000
Thereafter - 21,000
_______ __________
Total minimum lease payments 339,775 1,669,000
__________
__________
Less amounts representing
interest 39,685
_______
Present value of minimum lease
payments 300,090
Less current portion of capital
lease obligations 132,206
_______
Long-term portion of capital
lease obligations 167,884
_______
_______
</TABLE>
(b) Employment Agreements
The Company has entered into an employment agreement with an
officer that expires on June 30, 2001. In addition to a defined
base salary, the officer is entitled to discretionary bonus and
stock incentive arrangements, as approved by the Board of
Directors. The annual discretionary bonus is to be determined by
the Board of Directors and cannot exceed 100% of the annual base
salary. This individual is also entitled to defined termination
benefits under specified employment or change in control
conditions.
The Company has also entered into employment agreements with
other officers and employees that generally provide annual salary,
discretionary bonus and stock incentive provisions, all subject to
the approval of the Board of Directors.
(14) Significant Customers
For the year ended January 31, 1998, two customers accounted
for 13% and 11% of the Company's total revenues. During the year
ended December 31, 1996, two customers accounted for 20% and 12%,
respectively, of the Company's total revenues. One customer
accounted for 13% of the Company's total revenues for the year
ended December 31, 1995.
(Continued)
F-27
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Quarterly Results of Operations (Unaudited)
<TABLE>
The following tables set forth selected quarterly financial
information for the fiscal years ended January 31, 1998 and
December 31, 1996.
<CAPTION>
Year Ended January 31, 1998:
First Second Third Fourth
Quarter (a) Quarter (a) Quarter (a) Quarter (a) Total
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
Revenues $ 1,249,465 2,736,894 2,763,259 2,282,025 9,031,643
Operating loss from
continuing operations (b) (1,550,379) (676,516) (1,467,507) (2,960,474) (6,654,876)
Loss from continuing
operations (c) (1,487,883) (510,154) (1,406,370) (3,340,498) (6,744,905)
Income from discontinued
operations (d) 59,495 307,088 229,020 9,254,391 9,849,994
Net income (loss) $ (1,428,388) (203,066) (1,177,350) 5,913,893 3,105,089
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Earnings per share - basic
and diluted:
Continuing operations $ (0.25) (0.09) (0.24) (0.56) (1.14)
Discontinued operations 0.01 0.05 0.04 1.56 1.66
Net income (loss) (e) $ (0.24) (0.03) (0.20) 1.00 0.52
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Weighted average shares
outstanding 5,921,546 5,913,413 5,919,985 5,936,139 5,922,781
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
<CAPTION>
Year Ended December 31, 1996:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
Revenues $ 602,590 529,000 1,385,894 950,108 3,467,592
Operating loss from
continuing operations (857,803) (1,175,928) (751,260) (1,461,630) (4,246,621)
Loss from continuing
operations (598,555) (801,699) (676,196) (1,321,452) (3,397,902)
Income (loss) from discontinued
operations 252,994 488,448 (752) 185,020 925,710
Net loss $ (345,561) (313,251) (676,948) (1,136,432) (2,472,192)
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Earnings per share - basic
and diluted:
Continuing operations (e) $ (0.10) (0.14) (0.11) (0.22) (0.58)
Discontinued operations (e) 0.04 0.08 0.00 0.03 0.16
Net loss (e) $ (0.06) (0.05) (0.11) (0.19) (0.42)
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Weighted average shares
outstanding 5,808,656 5,850,401 5,905,549 5,910,363 5,868,954
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
</TABLE>
(Continued)
F-28
<PAGE>
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Quarterly Results of Operations (Unaudited), Continued
Notes to quarterly results of operations:
(a) As a result of the Company's change in fiscal year end
in December 1997, the quarterly information for the year ended
January 31, 1998 is for the quarterly periods ended on the
following dates: First - April 30, 1997; Second - July 31, 1997;
Third - October 31, 1997; and Fourth - January 31, 1998.
(b) During the fourth quarter of the year ended January 31,
1998 and in conjunction with the Company's acquisition of a
majority interest in DiaLogos, $710,318 of in-process research and
development was charged to the results of operations as of the
date of acquisition.
(c) During the fourth quarter of the year ended January 31,
1998, the Company expensed $2,979,555 in deferred acquisition and
offering costs related to the postponed initial public offering
and acquisitions by its subsidiary, Universal Document.
(d) Income from discontinued operations includes a
$10,268,710 after-tax gain related to the sale of the assets of
the Company's IntelliCode division and $1,241,513 in additional
amortization expense due to the impairment of the excess of cost
over net assets acquired and capitalized software development
costs associated with Universal Document's Step2000 segment.
(e) Quarterly amounts are not additive.
F - 29
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
This SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT is made the 10th day of
December, 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 planned to combine with certain CAD resellers and
conduct an initial public offering of its common stock (the "IPO") with an
effective date on or before December 31, 1997 and as such Purchaser and
Sellers executed the Amendment to Stock Purchase Agreement; and
WHEREAS, due to delays in the IPO process, the Purchaser now plans to combine
with certain CAD resellers and conduct an initial public offering of its
common stock (the "IPO") with an effective date on or before December 31, 1998
(the "IPO Date") and as such Purchaser and Sellers have agreed to amend the
Initial Agreement a second time to extend the IPO Date accordingly; 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 the IPO Date, 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 Threshold Payment Amount
_________________ __________________ ________________
January 31, 1998 through December 31, 1998 $1,525,000* $1.00 for
each dollar of
Audited Net
Revenue over
$1.525 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, 2000 3,750,000 $1.00 for
each dollar of
Audited Net
Revenue over
$3.75 million
*If the IPO does not occur on or before January 31, 1998, then for each month
or partial month following January, 1998 in which the IPO does not occur, the
Earn-Out Threshold for the first Earn-Out Period will be reduced by an amount
equal to the "Forecasted Revenue" for that month. "Forecasted Revenue" for
any month shall be calculated by dividing by three the forecast for the
quarter in which such months falls.
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 /s/ Jay Hilnbrand
MANAGEMENT SYSTEMS, INC.
/s/ Judy Hilnbrand
By: /s/ Philip S. Present II,
Vice Chairman /s/ Robert C. Weiss
1
AMENDMENT TO AGREEMENT
This AMENDMENT TO AGREEMENT dated as of the 10th day of December,
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, planned 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
planned 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 obtained the Consent and Hilnbrand
granted the Consent pursuant to the Agreement and subject to the
terms hereof; and
WHEREAS, due to delays in the IPO process, UDMS now plans to
conduct the Mergers and the IPO on or before December 31, 1998
and, as such, the parties have agreed to amend the Agreement to
extend the IPO date accordingly.
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.
By: /s/ Philip S. Present II Agreed and Acknowledged:
Its: Chief Operating Officer
/s/ Jay Hilbrand UNIVERSAL DOCUMENT
Jay Hilnbrand, individually MANAGEMENT SYSTEMS, INC.
By: /s/ Daniel Silber
Its: Vice President
3
1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into effective as of the 1st day
of January, 1998 by and between MedPlus, Inc., an Ohio corporation
(the "Company"), and Philip S. Present II (the "Employee").
WHEREAS, the Company desires to employ or continue to employ the
Employee on certain terms and conditions as set forth herein; and
WHEREAS, the Employee is willing to accept such employment;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as
follows:
1. Employment. The Company hereby employs or continues to employ
the Employee in the capacity of Senior Vice President and Chief
Operating Officer, or in such other position as the Company may
direct or desire and Employee hereby accepts the employment, on
the terms and conditions hereinafter set forth.
2. Duties. The Employee's principal duties and responsibilities
shall include overseeing all of the Company's corporate operations
and such other duties which may be assigned to him from time to
time by the Company in connection with the conduct of its
business. Nothing herein shall preclude the Company from changing
the Employee's title and duties if the Company's Board of
Directors has concluded in its reasonable judgement that such
change is in the Company's best interests and commensurate with
the skills and experience of Employee. Employee agrees to well
and faithfully perform and discharge such services and duties and
hold such offices as may be assigned to him from time to time by
the Company and to devote substantially his full time, energies,
and best efforts to the performance thereof to the exclusion of
all other business activities. In the event the Employee is
elected a Director of the Company or any subsidiary during the
term of this Agreement, the Employee agrees to serve in such
capacity without further compensation.
3. Term. The term of employment shall begin on January 1, 1998
and shall continue for a period of thirteen (13) months, unless
earlier terminated pursuant to the provisions of this Agreement.
4. Salary and Other Compensation. As compensation for the
services to be rendered by the Employee to the Company pursuant to
this Agreement, the Employee shall be paid the following
compensation and other benefits:
(a) Salary. During the term of this Agreement, Employee shall be
paid at the rate of Fifteen Thousand and 00/100 Dollars
($15,000.00) per month, payable monthly in arrears. Should the
employee become disabled, which for purposes of this Subsection
means the inability because of any physical or emotional illness
to perform his assigned duties under this Agreement at least forty
(40) hours per week, the Employee's salary shall be adjusted in
the proportion which the number of hours the Employee is able to
perform his assigned duties during a week bears to forty (40). If
the Employee, during any period of disability, receives any
periodic payments representing lost compensation under any health
and accident policy or under any salary continuation insurance
policy, the premiums for which have been paid by the Company, the
amount of salary that the Employee would be entitled to receive
from the Company during the disability shall be decreased by the
amounts of such payments.
(b) Profit Sharing Bonus. Employee shall be paid a profit sharing
bonus based upon the contribution margin of the Company's
ChartMaxx division (or subsidiary) as follows:
(i) In the event the contribution margin of the ChartMaxx
division (subsidiary) exceeds its quarterly budgeted contribution
margin, Employee shall be paid a profit sharing bonus for such
quarter equal to an amount computed under the following formula:
(((actual quarterly contribution margin - budgeted quarterly
contribution margin) / 55,000) x 10,000). Notwithstanding the
forgoing sentence, however, the quarterly profit sharing bonus
shall not exceed $10,000 for any fiscal quarter. Further, the
amount of the profit sharing bonus shall be charged against the
ChartMaxx division (subsidiary) in determining the amount of the
actual contribution margin.
(ii) In the event the actual annual contribution margin of the
ChartMaxx division (subsidiary) exceeds its annual budgeted
contribution margin by $220,000 for fiscal year 1998, Employee
shall be paid a profit sharing bonus equal to $40,000, less the
amount of any and all profit sharing bonuses, paid or payable
under Subsection 4(b)(i), above. In computing the actual annual
contribution margin of the ChartMaxx division (subsidiary), the
amount of any and all profit sharing bonus(es) based upon the
contribution margin of the ChartMaxx division (subsidiary) shall
be charged against the ChartMaxx division (subsidiary).
(c) Corporate Bonus. For each fiscal quarter of the Company in
which the Company exceeds its consolidated net income goal, the
Employee shall be eligible for a bonus not exceeding $10,000.00
per fiscal quarter. The amount of the bonus, if any, shall be
determined by the President of the Company based on the Employee's
performance. The bonus shall be paid to Employee on the last day
of the month in which the Company issues its quarterly earnings
release to the public.
(d) Automobile Allowance. During the term of this Agreement, the
Company shall pay Employee a $450.00 per month automobile
allowance in order to reimburse Employee for the expense of
owning, operating, maintaining and insuring a personal automobile
for use in performing Employee's duties hereunder.
(e) MedPlus, Inc. 1994 Long-Term Stock Incentive Plan. Subject
to the terms and conditions of the MedPlus, Inc. 1994 Long-Term
Stock Incentive Plan (the "Plan") and to the availability of stock
options for issuance under the Plan, in the event the Board of
Directors of the Company, in its sole and absolute discretion,
elects Employee as President of the Company, Employee shall be
awarded stock options to purchase fifty thousand (50,000) shares
of Company's common stock under the Plan. Such stock option grant
shall be subject to all the terms and conditions of the Plan and
shall be upon such terms and conditions (ex. grant date(s),
vesting period, expiration date, etc.) as the Company's
Compensation Committee shall determine in its sole and absolute
discretion.
(f) Employee Benefit Plans. Employee shall be eligible to
participate, to the extent he may be eligible to participate
pursuant to the terms of such plans, in any profit sharing,
retirement, insurance or other employee benefit plans maintained
by the Company.
5. Key Man Life Insurance. The Company, in its discretion, may
apply for and procure in its own name and for its own benefit,
life insurance on the life of the Employee in any amount or
amounts considered advisable by the Company, and the Employee
shall submit to any medical or other examination, and shall
execute and deliver any application or other instrument in
writing, reasonably necessary to effectuate such insurance.
6. Expenses. The Company shall pay, or reimburse the Employee,
for all reasonable and necessary business expenses of the
Employee, approved by the Company.
7. Vacation and Leave. The Employee shall be entitled to the
same vacation and leave time as the other executive officers of
the Company. Officers of the Company may not carry unused
vacation time from one calendar year to another calendar year.
8. Non-Disclosure of Confidential Information. The Employee
acknowledges that in and as a result of his employment by the
Company, he will be making use of, acquiring, and/or adding to
confidential information of a special and unique nature and value
relating to such matters as the Company's patents, copyrights,
proprietary information, trade secrets, systems, procedures,
manuals, confidential reports, and lists of customers (which are
deemed for all purposes confidential and proprietary), the
equipment and methods used and preferred by the Company's
customers, and the fees paid by them. As a material inducement to
the Company to enter into this Agreement and to pay to Employee
the compensation stated in Section 4, Employee covenants and
agrees that he shall not, at any time during or following the term
of his employment, directly or indirectly divulge or disclose for
any purpose whatsoever any confidential information that has been
obtained by, or disclosed to, him as a result of his employment by
the Company. In the event of a breach or threatened breach by
Employee of any of the provisions of this Section 8, the Company,
in addition to, and not in limitation of, any other rights,
remedies, or damages available to the Company at law or in equity,
shall be entitled to a permanent injunction in order to prevent or
restrain any such breach by the Employee or by Employee's
partners, agents, representatives, servants, employers, employees,
family members, and/or any and all persons directly or indirectly
acting for or with him.
Confidential information does not include information which: (i)
is in the public domain through no act, or failure to act, on the
part of the Employee, (ii) was known to the party receiving the
information prior its disclosure by the Employee, provided such
information did not become known, directly or indirectly, to the
party receiving the information through an act, or failure to act,
on the part of the Employee, and (iii) is required to be disclosed
pursuant to an order of a court of court or governmental authority
of competent jurisdiction, provided Employee gives the Company
notice of such order prior to such disclosure.
9. Covenants Against Competition. The Employee acknowledges that
the services he is to render are of a special and unusual
character with a unique value to the Company, the loss of which
cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of
Employee because of the confidential information to be obtained by
or disclosed to Employee, as hereinabove set forth, and as a
material inducement to the Company to enter into this Agreement
and to pay to Employee the compensation stated in Section 4,
Employee covenants and agrees that during Employee's employment
and for a period of two (2) years after he ceases to be employed
by the Company for any reason, he will not, except as otherwise
authorized by this Agreement, compete with the Company or any
affiliate of the Company, solicit the Company's customers or the
customers of an affiliate, or directly or indirectly solicit for
employment any of the Company's employees. For purposes of this
Section 9:
(i) the term "compete" means engaging in any manner whatsoever
(other than as a passive investor) in any business which sells or
otherwise provides, or intends to sell or otherwise provide,
directly or indirectly, products or services similar to those
products and services which the Company or any of its affiliates
sells or otherwise provides, or intends to sell or otherwise
provide, including without limitation, as a proprietor, partner,
investor, shareholder, director, officer, employee, consultant,
independent contractor, or otherwise, within a geographic areas
served by the Company or any of its affiliates;
(ii) the term "affiliate" means any legal entity that directly or
indirectly through one or more intermediaries controls, is
controlled by, or is under common control with the Company; and
(iii) the term "customers" means all persons to whom the Company
or any of its affiliates has sold any product or service, whether
or not for compensation, within a period of two (2) years prior to
the time the Employee ceases to be employed by the Company.
10. Reasonableness of Restrictions.
(a) The Employee has carefully read and considered the provisions
of Sections 8 and 9, and, having done so, agrees that the
restrictions set forth in said Sections, including, but not
limited to, the time period of restriction and geographical areas
of restriction are fair and reasonable and are reasonably required
for the protection of the interests of the Company and its parent
or subsidiary corporations, officers, directors, shareholders, and
other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Sections 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event
that any provision of Sections 8 or 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be
declared by a court of competent jurisdiction to exceed the
maximum restrictiveness such court deems reasonable and
enforceable, the time period and/or areas of restriction and/or
related aspects deemed reasonable and enforceable by the court
shall become and thereafter be the maximum restriction in such
regard, and the restriction shall remain enforceable to the
fullest extent deemed reasonable by such court.
11. Remedies for Breach of Employee's Covenants of Non-Disclosure
and Non-Competition. In the event of a breach or threatened
breach of any of the covenants in Sections 8 and 9, the Company
shall have the right to seek monetary damages for any past breach
and equitable relief, including specific performance by means of
an injunction against the Employee or against the Employee's
partners, agents, representatives, servants, employers, employees,
family members, and/or any and all persons acting directly or
indirectly by or with him, to prevent or restrain any further
breach. In lieu thereof, or should a court refuse for any reason
to grant equitable relief to prevent continuing breaches of the
covenants in Sections 8 and 9, the Company shall be entitled to
liquidated damages equal to fifty percent (50%) of the gross
amount derived by the breaching party from all transactions in
breach of said covenants, it being agreed that such amount
represents the estimated amount of profit the Company could have
derived if it had transacted the business in question and is not a
penalty.
12. Termination. Employment of the Employee under this Agreement
will be terminated upon the occurrence of any one or more of the
following events:
(a) By the Employee's death.
(b) If the Employee is Totally Disabled. For the purposes of this
Agreement, the Employee will be Totally Disabled if he (1) has
been declared legally incompetent by a final court decree (the
date of such decree being deemed to be the date on which the
disability occurred), (2) receives disability insurance benefits
from any disability income insurance policy maintained by the
Company for a period of three (3) consecutive months, or (3) has
been found to be disabled pursuant to a Disability Determination.
A "Disability Determination" means a finding that the Employee,
because of a medically determinable disease, injury, or other
mental or physical disability, is unable to perform substantially
all of his regular duties to the Company and that such disability
is determined or reasonably expected to last at least three (3)
months. The Disability Determination shall be based on the
written opinion of the physician regularly attending the Employee.
If the Company disagrees with the opinion of this physician (the
"First Physician"), it may engage at its own expense another
physician (the "Second Physician") to examine the Employee. If
the First and Second Physicians agree in writing that the Employee
is or is not disabled, their written opinion shall, except as
otherwise set forth in this Subsection, be conclusive on the issue
of disability. If the First and Second Physicians disagree on the
disability of the Employee, they shall choose a third consulting
physician (whose expense shall be borne by the Company), and the
written opinion of a majority of these three physicians shall,
except as otherwise provided in this Subsection, be conclusive as
to the Employee's disability. The date of any written opinion
conclusively finding the Employee to be disabled is the date on
which the disability will be deemed to have occurred. If there is
a conclusive finding that the Employee is not Totally Disabled,
the Company shall have the right to request additional Disability
Determinations, provided it agrees to pay all the expenses of the
Disability Determinations and does not request an additional
Disability Determination more frequently than once every two (2)
months. In conjunction with a Disability Determination, the
Employee hereby consents to any required medical examination, and
agrees to furnish any medical information requested by any
examining physician and to waive any applicable physician-patient
privilege that may arise because of such examination. All
physicians except the First Physician must be board-certified in
the specialty most closely related to the nature of the disability
alleged to exist.
(c) At the election of either the Employee or the Company without
cause, upon ninety (90) days written notice; provided however,
that in the event this Agreement is terminated by the Company
pursuant to this Subsection 12(c), at the expiration of the
ninety-day period, Employee shall receive severance pay in the
amount of three months salary at the rate being paid to Employee
under Subsection 4(a) at the time written notice of termination is
given, less any required withholding and deductions.
(d) When the Employee reaches mandatory retirement age under any
retirement policy applicable to all executive officers adopted by
the Company.
(e) By mutual agreement of the Employee and the Company.
(f) By the dissolution and liquidation of the Company (other than
as part of a reorganization, merger, consolidation, or sale of all
or substantially all of the assets of the Company whereby the
business of the Company is continued).
(g) By the Company for Just Cause. For purposes of this
Agreement "Just Cause" shall mean the following: (i) a conviction
of or a plea of guilty or nolo contendre by the Employee to a
felony or misdemeanor involving fraud, embezzlement, theft, or
dishonesty or other criminal conduct against the Company; (ii)
habitual neglect of the Employee's duties or failure by the
Employee to perform or observe any substantial lawful obligation
of such employment that is not remedied within thirty (30) days
after written notice thereof from the Company or its Board of
Directors; or (iii) any material breach of this Agreement by the
Employee. Should the Employee dispute whether he was terminated
for Just Cause, then the Company and the Employee shall enter
immediately into binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, the
cost of which shall be borne by the non-prevailing party.
(h) Liquidation, Dissolution, Consolidation or Merger of Company.
Employee's employment with the Company may be terminated by the
Company upon thirty (30) days prior written notice, with or
without cause, in the event of the liquidation, dissolution,
consolidation, merger or other business combination of the
Company, or transfer of all or substantially all of its assets.
In the event Employee is terminated pursuant to the provisions of
this Subsection 12(h), the Company shall pay in a lump sum on the
date of termination severance compensation to the Employee in an
amount derived by multiplying the factor 2.00 by the sum of the
Employee's annual salary, plus the aggregate quarterly bonus
payments paid to Employee from the beginning of the term of this
Agreement through the date of termination [2 x (annual salary +
aggregate quarterly bonus payments paid)]. Further, in the event
of the liquidation, dissolution, consolidation, merger or other
business combination of the Company, or transfer of all or
substantially all of its assets during the term of this Agreement,
all stock options granted to Employee prior to such event shall
immediately become fully vested in Employee. Notwithstanding the
foregoing sentence, however, in no event shall any stock options
become vested earlier that the minimum vesting period provided by
the Plan, and nothing in this Agreement shall be deemed to modify,
contradict or supercede any provision of the Plan.
In the event of termination of this Agreement other than for
death, the Employee hereby agrees to resign from all positions
held in the Company, including without limitation any position as
a director, officer, agent, trustee, or consultant of the Company
or any affiliate of the Company. For the purposes of this
provision, the term "affiliate" has the same meaning as in Section
9.
13. Waiver. A party's failure to insist on compliance or
enforcement of any provision of this Agreement, shall not affect
the validity or enforceability or constitute a waiver of future
enforcement of that provision or of any other provision of this
Agreement by that party or any other party.
14. Governing Law. This Agreement shall in all respects be
subject to, and governed by, the laws of the State of Ohio.
15. Severability. The invalidity or unenforceability of any
provision in the Agreement shall not in any way affect the
validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
16. Notice. Any and all notices required or permitted herein
shall be deemed delivered if delivered personally or if mailed by
registered or certified mail to the Company at its principal place
of business and to the Employee at the address hereinafter set
forth following the Employee's signature, or at such other address
or addresses as either party may hereafter designate in writing to
the other.
17. Assignment. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, assigns, heirs
and personal representatives, except that the rights and benefits
of either of the parties under this Agreement may not be assigned
without the prior written consent of the other party.
18. Amendments. This Agreement may be amended at any time by
mutual consent of the parties, provided, however, that no such
amendment shall be valid or enforceable unless in a writing signed
by the Company and the Employee.
19. Applicability of Invention and Non-Disclosure Agreement.
This Employment Agreement is supplemented by that certain
Invention and Non-Disclosure Agreement of even date herewith
between the Company and the Employee, a copy of which is attached
hereto as Schedule A and made a part hereof. These two documents
contain the entire agreement and understanding by and between the
Employee and the Company with respect to the employment of the
Employee with the Company and supersedes and merges all prior
proposals, understandings and all other agreements, oral and
written between the parties. No representations, promises,
agreements, or understandings, written or oral, with respect to
such employment not contained in these two documents shall be of
any force or effect.
20. Headings. The various headings in this Agreement are
inserted for convenience only and are not part of the Agreement.
IN WITNESS WHEREOF, the Company and Employee have duly executed
this Agreement as of the day and year first above written.
MEDPLUS, INC., Company: Philip S. Present II, Employee:
By:_________________________ ____________________________
Richard A. Mahoney, President Philip S. Present II
Address for Notice Purposes: Address for Notice Purposes:
8805 Governors Hill Drive, 10719 Weatherstone Court
Suite 100 Loveland, OH 45140
Cincinnati, OH 4524
SCHEDULE A
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement made and entered into effective as of the 1st day
of January, 1998 by and between MedPlus, Inc., an Ohio corporation
(hereinafter called the "Company," which term includes any parent
or subsidiary corporation as defined in Section 425 of the
Internal Revenue Code), and Philip S. Present II (hereinafter
called "Employee").
In consideration of the employment or continued employment of
Employee by the Company and for other good and valuable
consideration, the parties hereto agree as follows:
1. Disclosure of Inventions to Employer. For the purpose of this
Agreement, the word "invention" shall include, but not be limited
to, the following: any discovery, idea, device, process, design,
development, improvement, conception, concept, application,
technique, or invention whether patentable or not, and whether
reduced to practice or not; provided, however, that any invention
as so defined, conceived or made by Employee after termination of
employment with the Company, shall not be deemed to be within this
Agreement if it is not within the scope of the Company's business,
research, and investigations, or resulting from or suggested by
any of the work Employee has performed or may perform for the
Company. Employee will forthwith communicate to the President of
the Company (or such other individual as the President may
designate from time to time) a full and complete disclosure of
each and every invention conceived or made by Employee whether
solely or jointly with others (a) while in the employ of the
Company, whether or not while actually engaged in the Company's
affairs, and (b) within two years subsequent to termination of the
employment for any reason.
2. Assignment of Inventions. Employee agrees to assign and
transfer to the Company, without any separate remuneration or
compensation other than the wages or salary received or
compensation paid to Employee from time to time in the course of
his employment by the Company, his entire right, title, and
interest in and to all inventions conceived or made by Employee,
together with all United States and foreign patent rights and any
other legal protection in and with respect to any and all such
inventions, (a) while in the employ of the Company, whether or not
while Employee is actually engaged in the Company's affairs, or
(b) within two years subsequent thereto and as a direct or
indirect result of such employment. Upon request by the Company,
Employee agrees to execute, and deliver all appropriate patent
applications for securing all United States and foreign patents on
all such inventions, and to do, execute, and deliver any and all
acts and instruments that may be necessary or proper to vest all
such inventions and patents in the Company or its designee, and to
enable the Company or its designee to obtain all such letters
patent. Employee agrees to render to the Company or its designee
all such assistance as may be required in the prosecution of all
such patent applications and applications for the reissue of such
patents and in the prosecution or defense of all interferences
which may be declared involving any of said patent applications or
patents. Employee further agrees not to contest the validity of
any patent, United States or foreign, which is issued to the
Company or its designee, on which Employee made any contribution,
or in which Employee participated in any way, and not to assist
any other party in any way in contesting the validity of any such
patent. Employee further agrees that the obligations and
undertakings stated in this Section 2 shall continue beyond the
termination of his employment by the Company, but if Employee
shall be called upon to render such assistance after the
termination of his employment, Employee shall be entitled to a
fair and reasonable per diem fee in addition to reimbursement of
any expenses incurred at the request of the Company.
3. Prior Inventions. As a matter of record, Employee may include
a complete list of inventions made by him prior to the date of
employment by the Company as an appendix to this Agreement. Only
those inventions so listed shall be deemed to be excluded from the
terms and conditions of this Agreement.
4. Unauthorized Disclosure. Except in connection with regularly
assigned duties for the Company, Employee agrees that he will not,
without prior written approval of the President (or such other
person as the president may designate from time to time), divulge
or disclose to anyone outside of the Company, whether by private
communication or by public address or publication, or otherwise,
any invention or any specification, technical or engineering data,
or report, or any other information relating to the business or
affairs of the Company, and will not during his employment by the
Company or at any time thereafter disclose or use for his own
benefit such information or any trade secrets or confidential
information pertaining to any of the business of the Company or
any of its clients, customers, consultants, licensees, or
affiliates, whether or not such information or trade secrets were
acquired while Employee was engaged in the Company's affairs and
regardless of by whom such information or trade secrets were
generated, either by the Company or by the Employee or others in
the employ of the Company. All copies of any such information,
however and wherever produced, shall be and remain the sole
property of the Company and shall not be removed from the premises
or custody of the Company without prior written consent or
authorization of the President of the Company (or such other
person as the President may designate from time to time).
5. Remedies for Breach. Employee expressly recognizes that any
breach of this Agreement by him is likely to result in irreparable
injury to the Company and agrees that the Company shall be
entitled, if it so elects, to institute and prosecute proceedings
in any court of competent jurisdiction, either in law or in
equity, to obtain damages for any breach of this Agreement, or to
enforce the specific performance of this Agreement by Employee, or
to enjoin Employee from activities in violation of this Agreement.
6. Modification. This instrument contains the entire Agreement
of the parties with respect to the subject matter contained herein
and may be altered, amended, or superseded only by an agreement in
writing, signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
No action or course of conduct shall constitute a waiver of any of
the terms and conditions of this Agreement, unless such waiver is
specified in writing, and then only to the extent so specified. A
waiver of any of the terms and conditions of this Agreement on one
occasion shall not constitute a waiver of the other terms and
conditions of this Agreement, or of such terms and conditions on
any other occasion.
7. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if mailed to
the party to whom such notice is given at the address of such
party hereinafter set forth or at such other address as such party
may provide in writing from time to time. Any such notice mailed
to such address shall be effective when deposited in the United
States mail, duly addressed and with first class postage prepaid.
Such notice may, but need not, be by certified mail, return
receipt requested.
8. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of Employee, without regard for the duration
of his employment by the Company or the reasons for the cessation
of such employment, and upon the administrators, executors, heirs,
and assigns of Employee and shall be binding upon and shall inure
to the benefit of the successors and assigns of the Company, its
subsidiaries, and affiliates.
9. Governing Law. The validity, interpretation and performance
of this Agreement shall be governed and construed by the laws of
Ohio.
10. Severability. The invalidity or unenforceability of any
provision in this Agreement shall not in any way affect the
validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
11. References to Gender and Number Terms. In construing this
Agreement, feminine or neuter pronouns shall be substituted for
those masculine in form and visa versa, and plural terms shall be
substituted for singular and singular for plural in any place in
which the context requires.
12. Headings. The section numbers and headings in this Agreement
are inserted for convenience only and are not part of the
Agreement.
IN WITNESS WHEREOF, the Company and the Employee have duly
executed this Agreement as of the date and year first above
written.
MEDPLUS, INC., Company: Employee:
By:_______________________________ ____________________________
Richard A. Mahoney, President Philip S. Present II
Address: Address:
8805 Governor's Hill Dr. Address: 10719 Weatherstone Court
Suite 100 Loveland, OH 45140
Cincinnati, OH 4524
APPENDIX TO INVENTION AND NON-DISCLOSURE AGREEMENT
Employee's inventions excluded from this Agreement as authorized
by Section 3:
NONE
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
______________________________________________________________.
January 1, 1998
_______________________________________
Philip S. Present II
-4-
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into effective as of the 1st day
of January, 1998 by and between MedPlus, Inc., an Ohio corporation
(the "Company"), and Timothy McMullen (the "Employee").
WHEREAS, the Company desires to employ or continue to employ the
Employee on certain terms and conditions as set forth herein; and
WHEREAS, the Employee is willing to accept such employment;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as
follows:
1. Employment. The Company hereby employs or continues to employ
the Employee in the capacity of Vice President of Sales and
Marketing or in such other position as the Company may direct or
desire and Employee hereby accepts the employment, on the terms
and conditions hereinafter set forth.
2. Duties. The Employee's principal duties and responsibilities
shall include planning and managing the sales and marketing of the
Company's products and services, and such other duties which may
be assigned to him from time to time by the Company in connection
with the conduct of its business. The Employee shall report to
the Company's Chief Operating Officer or to such other officer
designated by the Company from time to time. Nothing herein shall
preclude the Company from changing the Employee's title and duties
if the Company's Board of Directors has concluded in its
reasonable judgement that such change is in the Company's best
interests and commensurate with the Employee's skills and
experience. Employee agrees to well and faithfully perform and
discharge such services and duties and hold such offices as may be
assigned to him from time to time by the Company and to devote
substantially his full time, energies, and best efforts to the
performance thereof to the exclusion of all other business
activities. In the event the Employee is elected a Director of
the Company or any subsidiary during the term of this Agreement,
the Employee agrees to serve in such capacity without further
compensation.
3. Term. The term of employment shall begin on January 1, 1998
and shall continue for a period of thirteen (13) months, unless
earlier terminated pursuant to the provisions of this Agreement.
The parties hereto anticipate that within thirty days prior to the
end of the term of this Agreement, the parties will enter into
negotiations for renewal of the Employee's employment by the
Company upon such terms and conditions as may then be agreeable to
each of the parties. Each of the parties hereto understands that
the preceding sentence does not constitute evidence of any
obligation or agreement, express or implied, on the part of the
Company or Employee to employ or be employed for any term beyond
the term set forth in the first sentence of this Section 3.
4. Salary and Other Compensation. As compensation for the
services to be rendered by the Employee to the Company pursuant to
this Agreement, the Employee shall be paid the following
compensation and other benefits:
(a) Base Salary. During the term of this Agreement, Employee
shall be paid at the rate of Thirteen Thousand Three Hundred
Thirty-Three and 33/100 Dollars ($13,333.33) per month, payable
monthly in arrears. Should the Employee become disabled, which
for purposes of this Subsection means the inability because of any
physical or emotional illness to perform his assigned duties under
this Agreement at least forty (40) hours per week, the Employee's
salary shall be adjusted in the proportion which the number of
hours the Employee is able to perform his assigned duties during a
week bears to forty (40). If the Employee, during any period of
disability, receives any periodic payments representing lost
compensation under any health and accident policy or under any
salary continuation insurance policy, the premiums for which have
been paid by the Company, the amount of salary that the Employee
would be entitled to receive from the Company during the
disability shall be decreased by the amounts of such payments.
(b) Commission. Employee shall be paid a commission equal to
1.00% of the gross margin earned by the Company's ChartMaxx
division (subsidiary) and FutureCORE, Inc. subsidiary. The
commission shall be paid to Employee in accordance with the then
current commission payment practices of the Company.
(c) Bonus. Employee shall be paid a one-time $30,000 bonus if the
aggregate net revenues (as described in the Company's financial
statements) for ChartMaxx, OptiMaxx and FutureCORE exceeds
$20,000,000 for fiscal year 1999.
(d) Automobile Allowance. During the term of this Agreement, the
Company shall pay Employee a $833.33 per month automobile
allowance in order to reimburse Employee for the expense of
owning, operating, maintaining and insuring a personal automobile
for use in performing Employee's duties hereunder.
(e) Employee Benefit Plans. The Employee shall be eligible to
participate in any profit sharing, retirement, insurance or other
employee benefit plans maintained by the Company in accordance
with and subject to the terms of those plans.
5. Key Man Life Insurance. The Company, in its discretion, may
apply for and procure in its own name and for its own benefit,
life insurance on the life of the Employee in any amount or
amounts considered advisable by the Company, and the Employee
shall submit to any medical or other examination, and shall
execute and deliver any application or other instrument in
writing, reasonably necessary to effectuate such insurance.
6. Expenses. The Company shall pay, or reimburse the Employee,
for all reasonable and necessary business expenses of the
Employee, approved by the Company.
7. Vacation and Leave. The Employee shall be entitled to the
same vacation and leave time as the other executive officers of
the Company. Officers of the Company may not carry unused
vacation time from one calendar year to another calendar year.
8. Non-Disclosure of Confidential Information. The Employee
acknowledges that in and as a result of his employment by the
Company, he will be making use of, acquiring, and/or adding to
confidential information of a special and unique nature and value
relating to such matters as the Company's patents, copyrights,
proprietary information, trade secrets, systems, procedures,
manuals, confidential reports, and lists of customers (which are
deemed for all purposes confidential and proprietary), as well as
the nature and type of services rendered by the Company, the
equipment and methods used and preferred by the Company's
customers, and the fees paid by them. As a material inducement to
the Company to enter into this Agreement and to pay to Employee
the compensation stated in Section 4, Employee covenants and
agrees that he shall not, at any time during or following the term
of his employment, directly or indirectly divulge or disclose for
any purpose whatsoever any confidential information that has been
obtained by, or disclosed to, him as a result of his employment by
the Company. In the event of a breach or threatened breach by
Employee of any of the provisions of this Section 8, the Company,
in addition to, and not in limitation of, any other rights,
remedies, or damages available to the Company at law or in equity,
shall be entitled to a permanent injunction in order to prevent or
restrain any such breach by the Employee or by Employee's
partners, agents, representatives, servants, employers, employees,
family members, and/or any and all persons directly or indirectly
acting for or with him.
9. Covenants Against Competition. The Employee acknowledges that
the services he is to render are of a special and unusual
character with a unique value to the Company, the loss of which
cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of
Employee because of the confidential information to be obtained by
or disclosed to Employee, as hereinabove set forth, and as a
material inducement to the Company to enter into this Agreement
and to pay to Employee the compensation stated in Section 4,
Employee covenants and agrees that during Employee's employment
and for a period of two (2) years after he ceases to be employed
by the Company for any reason, he will not, except as otherwise
authorized by this Agreement, compete with the Company or any
affiliate of the Company, solicit the Company's customers or the
customers of an affiliate, or directly or indirectly solicit for
employment any of the Company's employees. For purposes of this
Section 9:
(i) the term "compete" means engaging in the same or any
similar business as the Company or any of its affiliates in any
manner whatsoever (other than as a passive investor), including
without limitation, as a proprietor, partner, investor,
shareholder, director, officer, employee, consultant, independent
contractor, or otherwise, within a geographic areas served by the
Company or any of its affiliates;
(ii) the term "affiliate" means any legal entity that
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the
Company; and
(iii) the term "customers" means all persons to whom the
Company or any of its affiliates has sold any product or service,
whether or not for compensation, within a period of two (2) years
prior to the time the Employee ceases to be employed by the
Company.
10. Reasonableness of Restrictions.
(a) The Employee has carefully read and considered the provisions
of Sections 8 and 9, and, having done so, agrees that the
restrictions set forth in said Sections, including, but not
limited to, the time period of restriction and geographical areas
of restriction are fair and reasonable and are reasonably required
for the protection of the interests of the Company and its parent
or subsidiary corporations, officers, directors, shareholders, and
other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Sections 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event
that any provision of Sections 8 or 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be
declared by a court of competent jurisdiction to exceed the
maximum restrictiveness such court deems reasonable and
enforceable, the time period and/or areas of restriction and/or
related aspects deemed reasonable and enforceable by the court
shall become and thereafter be the maximum restriction in such
regard, and the restriction shall remain enforceable to the
fullest extent deemed reasonable by such court.
11. Remedies for Breach of Employee's Covenants of Non-Disclosure
and Non-Competition. In the event of a breach or threatened
breach of any of the covenants in Sections 8 and 9, the Company
shall have the right to seek monetary damages for any past breach
and equitable relief, including specific performance by means of
an injunction against the Employee or against the Employee's
partners, agents, representatives, servants, employers, employees,
family members, and/or any and all persons acting directly or
indirectly by or with him, to prevent or restrain any further
breach. In lieu thereof, or should a court refuse for any reason
to grant equitable relief to prevent continuing breaches of the
covenants in Sections 8 and 9, the Company shall be entitled to
liquidated damages equal to fifty percent (50%) of the gross
amount derived by the breaching party from all transactions in
breach of said covenants, it being agreed that such amount
represents the estimated amount of profit the Company could have
derived if it had transacted the business in question and is not a
penalty. The parties understand that the preceding sentence is
not applicable where no breach of the covenants of Section 8 or 9
occurs.
12. Termination. Employment of the Employee under this Agreement
will be terminated upon the occurrence of any one or more of the
following events:
(a) By the Employee's death.
(b) If the Employee is Totally Disabled. For the purposes of this
Agreement, the Employee will be Totally Disabled if he (1) has
been declared legally incompetent by a final court decree (the
date of such decree being deemed to be the date on which the
disability occurred), (2) receives disability insurance benefits
from any disability income insurance policy maintained by the
Company for a period of three (3) consecutive months, or (3) has
been found to be disabled pursuant to a Disability Determination.
A "Disability Determination" means a finding that the Employee,
because of a medically determinable disease, injury, or other
mental or physical disability, is unable to perform substantially
all of his regular duties to the Company and that such disability
is determined or reasonably expected to last at least six (6)
months. The Disability Determination shall be based on the
written opinion of the physician regularly attending the Employee.
If the Company disagrees with the opinion of this physician (the
"First Physician"), it may engage at its own expense another
physician (the "Second Physician") to examine the Employee. If
the First and Second Physicians agree in writing that the Employee
is or is not disabled, their written opinion shall, except as
otherwise set forth in this Subsection, be conclusive on the issue
of disability. If the First and Second Physicians disagree on the
disability of the Employee, they shall choose a third consulting
physician (whose expense shall be borne by the Company), and the
written opinion of a majority of these three physicians shall,
except as otherwise provided in this Subsection, be conclusive as
to the Employee's disability. The date of any written opinion
conclusively finding the Employee to be disabled is the date on
which the disability will be deemed to have occurred. If there is
a conclusive finding that the Employee is not Totally Disabled,
the Company shall have the right to request additional Disability
Determinations, provided it agrees to pay all the expenses of the
Disability Determinations and does not request an additional
Disability Determination more frequently than once every two (2)
months. In conjunction with a Disability Determination, the
Employee hereby consents to any required medical examination, and
agrees to furnish any medical information requested by any
examining physician and to waive any applicable physician-patient
privilege that may arise because of such examination. All
physicians except the First Physician must be board-certified in
the specialty most closely related to the nature of the disability
alleged to exist.
(c) At the election of either the Employee or the Company without
cause, upon ninety (90) days written notice; provided however,
that in the event this Agreement is terminated by the Company
pursuant to this Subsection 12(c), at the expiration of the
ninety-day period, Employee shall receive severance pay in the
amount of three months salary at the Base Salary being paid to
Employee under Subsection 4(a) at the time written notice of
termination is given, less any required withholding and
deductions.
(d) When the Employee reaches mandatory retirement age under any
retirement policy applicable to all executive officers adopted by
the Company.
(e) By mutual agreement of the Employee and the Company.
(f) By the dissolution and liquidation of the Company (other than
as part of a reorganization, merger, consolidation, or sale of all
or substantially all of the assets of the Company whereby the
business of the Company is continued).
(g) By the Company for Just Cause. For purposes of this
Agreement "Just Cause" shall mean the following: (i) a conviction
of or a plea of guilty or nolo contendre by the Employee to a
felony or misdemeanor involving fraud, embezzlement, theft, or
dishonesty or other criminal conduct against the Company; (ii)
habitual neglect of the Employee's duties or failure by the
Employee to perform or observe any substantial lawful obligation
of such employment that is not remedied within thirty (30) days
after written notice thereof from the Company or its Board of
Directors; or (iii) any material breach of this Agreement by the
Employee. Should the Employee dispute whether he was terminated
for Just Cause, then the Company and the Employee shall enter
immediately into binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, the
cost of which shall be borne by the non-prevailing party.
In the event of termination of this Agreement other than for
death, the Employee hereby agrees to resign from all positions
held in the Company, including without limitation any position as
a director, officer, agent, trustee, or consultant of the Company
or any affiliate of the Company. For the purposes of this
provision, the term "affiliate" has the same meaning as in Section
9.
13. Waiver. A party's failure to insist on compliance or
enforcement of any provision of this Agreement, shall not affect
the validity or enforceability or constitute a waiver of future
enforcement of that provision or of any other provision of this
Agreement by that party or any other party.
14. Governing Law. This Agreement shall in all respects be
subject to, and governed by, the laws of the State of Ohio.
15. Severability. The invalidity or unenforceability of any
provision in the Agreement shall not in any way affect the
validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
16. Notice. Any and all notices required or permitted herein
shall be deemed delivered if delivered personally or if mailed by
registered or certified mail to the Company at its principal place
of business and to the Employee at the address hereinafter set
forth following the Employee's signature, or at such other address
or addresses as either party may hereafter designate in writing to
the other.
17. Assignment. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, assigns, heirs
and personal representatives, except that the rights and benefits
of either of the parties under this Agreement may not be assigned
without the prior written consent of the other party.
18. Amendments. This Agreement may be amended at any time by
mutual consent of the parties, provided, however, that no such
amendment shall be valid or enforceable unless in a writing signed
by the Company and the Employee.
19. Applicability of Invention and Non-Disclosure Agreement.
This Employment Agreement is supplemented by that certain
Invention and Non-Disclosure Agreement of even date herewith
between the Company and the Employee, a copy of which is attached
hereto as Schedule A and made a part hereof. These two documents
contain the entire agreement and understanding by and between the
Employee and the Company with respect to the employment of the
Employee with the Company and supersedes and merges all prior
proposals, understandings and all other agreements, oral or
written between the parties. No representations, promises,
agreements, or understandings, written or oral, with respect to
such employment not contained in these two documents shall be of
any force or effect.
20. Headings. The various headings in this Agreement are
inserted for convenience only and are not part of the Agreement.
IN WITNESS WHEREOF, the Company and Employee have duly executed
this Agreement as of the day and year first above written.
MEDPLUS, INC., Company: Timothy McMullen, Employee:
By:________________________ ____________________________
Richard A. Mahoney, President Timothy McMullen
Address for Notice Purposes: Address for Notice Purposes:
8805 Governors Hill Drive, 8557 Twilight Tear Lane
Ste. 100 Cincinnati, OH 45249
Cincinnati, OH 45249
SCHEDULE A
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement made and entered into effective as of the 1st day
of January, 1998 by and between MedPlus, Inc., an Ohio corporation
(hereinafter called the "Company," which term includes any parent
or subsidiary corporation as defined in Section 425 of the
Internal Revenue Code), and Timothy McMullen (hereinafter called
"Employee").
In consideration of the employment or continued employment of
Employee by the Company and for other good and valuable
consideration, the parties hereto agree as follows:
1. Disclosure of Inventions to Employer. For the purpose of this
Agreement, the word "invention" shall include, but not be limited
to, the following: any discovery, idea, device, process, design,
development, improvement, conception, concept, application,
technique, or invention whether patentable or not, and whether
reduced to practice or not; provided, however, that any invention
as so defined, conceived or made by Employee after termination of
employment with the Company, shall not be deemed to be within this
Agreement if it is not within the scope of the Company's business,
research, and investigations, or resulting from or suggested by
any of the work Employee has performed or may perform for the
Company. Employee will forthwith communicate to the President of
the Company (or such other individual as the President may
designate from time to time) a full and complete disclosure of
each and every invention conceived or made by Employee whether
solely or jointly with others (a) while in the employ of the
Company, whether or not while actually engaged in the Company's
affairs, and (b) within two years subsequent to termination of the
employment for any reason.
2. Assignment of Inventions. Employee agrees to assign and
transfer to the Company, without any separate remuneration or
compensation other than the wages or salary received or
compensation paid to Employee from time to time in the course of
his employment by the Company, his entire right, title, and
interest in and to all inventions conceived or made by Employee,
together with all United States and foreign patent rights and any
other legal protection in and with respect to any and all such
inventions, (a) while in the employ of the Company, whether or not
while Employee is actually engaged in the Company's affairs, or
(b) within two years subsequent thereto and as a direct or
indirect result of such employment. Upon request by the Company,
Employee agrees to execute, and deliver all appropriate patent
applications for securing all United States and foreign patents on
all such inventions, and to do, execute, and deliver any and all
acts and instruments that may be necessary or proper to vest all
such inventions and patents in the Company or its designee, and to
enable the Company or its designee to obtain all such letters
patent. Employee agrees to render to the Company or its designee
all such assistance as may be required in the prosecution of all
such patent applications and applications for the reissue of such
patents and in the prosecution or defense of all interferences
which may be declared involving any of said patent applications or
patents. Employee further agrees not to contest the validity of
any patent, United States or foreign, which is issued to the
Company or its designee, on which Employee made any contribution,
or in which Employee participated in any way, and not to assist
any other party in any way in contesting the validity of any such
patent. Employee further agrees that the obligations and
undertakings stated in this Section 2 shall continue beyond the
termination of his employment by the Company, but if Employee
shall be called upon to render such assistance after the
termination of his employment, Employee shall be entitled to a
fair and reasonable per diem fee in addition to reimbursement of
any expenses incurred at the request of the Company.
3. Prior Inventions. As a matter of record, Employee may include
a complete list of inventions made by him prior to the date of
employment by the Company as an appendix to this Agreement. Only
those inventions so listed shall be deemed to be excluded from the
terms and conditions of this Agreement.
4. Unauthorized Disclosure. Except in connection with regularly
assigned duties for the Company, Employee agrees that he will not,
without prior written approval of the President (or such other
person as the president may designate from time to time), divulge
or disclose to anyone outside of the Company, whether by private
communication or by public address or publication, or otherwise,
any invention or any specification, technical or engineering data,
or report, or any other information relating to the business or
affairs of the Company, and will not during his employment by the
Company or at any time thereafter disclose or use for his own
benefit such information or any trade secrets or confidential
information pertaining to any of the business of the Company or
any of its clients, customers, consultants, licensees, or
affiliates, whether or not such information or trade secrets were
acquired while Employee was engaged in the Company's affairs and
regardless of by whom such information or trade secrets were
generated, either by the Company or by the Employee or others in
the employ of the Company. All copies of any such information,
however and wherever produced, shall be and remain the sole
property of the Company and shall not be removed from the premises
or custody of the Company without prior written consent or
authorization of the President of the Company (or such other
person as the President may designate from time to time).
5. Remedies for Breach. Employee expressly recognizes that any
breach of this Agreement by him is likely to result in irreparable
injury to the Company and agrees that the Company shall be
entitled, if it so elects, to institute and prosecute proceedings
in any court of competent jurisdiction, either in law or in
equity, to obtain damages for any breach of this Agreement, or to
enforce the specific performance of this Agreement by Employee, or
to enjoin Employee from activities in violation of this Agreement.
6. Modification. This instrument contains the entire Agreement
of the parties with respect to the subject matter contained herein
and may be altered, amended, or superseded only by an agreement in
writing, signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
No action or course of conduct shall constitute a waiver of any of
the terms and conditions of this Agreement, unless such waiver is
specified in writing, and then only to the extent so specified. A
waiver of any of the terms and conditions of this Agreement on one
occasion shall not constitute a waiver of the other terms and
conditions of this Agreement, or of such terms and conditions on
any other occasion.
7. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if mailed to
the party to whom such notice is given at the address of such
party hereinafter set forth or at such other address as such party
may provide in writing from time to time. Any such notice mailed
to such address shall be effective when deposited in the United
States mail, duly addressed and with first class postage prepaid.
Such notice may, but need not, be by certified mail, return
receipt requested.
8. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of Employee, without regard for the duration
of his employment by the Company or the reasons for the cessation
of such employment, and upon the administrators, executors, heirs,
and assigns of Employee and shall be binding upon and shall inure
to the benefit of the successors and assigns of the Company, its
subsidiaries, and affiliates.
9. Governing Law. The validity, interpretation and performance
of this Agreement shall be governed and construed by the laws of
Ohio.
10. Severability. The invalidity or unenforceability of any
provision in this Agreement shall not in any way affect the
validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
11. References to Gender and Number Terms. In construing this
Agreement, feminine or neuter pronouns shall be substituted for
those masculine in form and visa versa, and plural terms shall be
substituted for singular and singular for plural in any place in
which the context requires.
12. Headings. The section numbers and headings in this Agreement
are inserted for convenience only and are not part of the
Agreement.
IN WITNESS WHEREOF, the Company and the Employee have duly
executed this Agreement as of the date and year first above
written.
MEDPLUS, INC., Company: Timothy McMullen, Employee:
By:________________________ ____________________________
Richard A. Mahoney, President Timothy McMullen
Address for Notice Purposes: Address for Notice Purposes:
8805 Governors Hill Drive, 8557 Twilight Tear Lane
Ste. 100 Cincinnati, OH 45249
Cincinnati, OH 45249
APPENDIX TO INVENTION AND NON-DISCLOSURE AGREEMENT
Employee's inventions excluded from this Agreement as authorized
by Section 3:
NONE
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________.
January 1, 1998
_______________________________________
Timothy McMullen
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into effective as of the 1st day
of January, 1998 by and between MedPlus, Inc., an Ohio corporation
(the "Company"), and Daniel A. Silber (the "Employee").
WHEREAS, the Company desires to employ or continue to employ the
Employee on certain terms and conditions as set forth herein; and
WHEREAS, the Employee is willing to accept such employment;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as
follows:
1. Employment. The Company hereby employs or continues to employ
the Employee in the capacity of Vice President of Finance,
Treasurer and Chief Financial Officer, or in such other position
as the Company may direct or desire and Employee hereby accepts
the employment, on the terms and conditions hereinafter set forth.
2. Duties. The Employee's principal duties and responsibilities
shall include: maintenance of adequate systems of internal
control; timely financial reporting to management, shareholders
and governmental agencies; implementation of appropriate
accounting practices and policies; optimization of return on all
corporate assets; oversight of annual audits of financial
statements; preparation of corporate tax returns; and such other
duties which may be assigned to him from time to time by the
Company in connection with the conduct of its business. Nothing
herein shall preclude the Company from changing the Employee's
title and duties if the Company's Board of Directors has concluded
in its reasonable judgement that such change is in the Company's
best interests. Employee agrees to well and faithfully perform
and discharge such services and duties and hold such offices as
may be assigned to him from time to time by the Company and to
devote substantially his full time, energies, and best efforts to
the performance thereof to the exclusion of all other business
activities. In the event the Employee is elected a Director of
the Company or any subsidiary during the term of this Agreement,
the Employee agrees to serve in such capacity without further
compensation.
3. Term. The term of employment shall begin on January 1, 1998
and shall continue for a period of thirteen (13) months, unless
earlier terminated pursuant to the provisions of this Agreement.
4. Salary and Other Compensation. As compensation for the
services to be rendered by the Employee to the Company pursuant to
this Agreement, the Employee shall be paid the following
compensation and other benefits:
(a) Salary. During the term of this Agreement, Employee shall be
paid at the rate of Ten Thousand and 00/100 Dollars ($10,000.00)
per month, payable monthly in arrears. Should the Employee become
disabled, which for purposes of this Subsection means the
inability because of any physical or emotional illness to perform
his assigned duties under this Agreement at least forty (40) hours
per week, the Employee's salary shall be adjusted in the
proportion which the number of hours the Employee is able to
perform his assigned duties during a week bears to forty (40). If
the Employee, during any period of disability, receives any
periodic payments representing lost compensation under any health
and accident policy or under any salary continuation insurance
policy, the premiums for which have been paid by the Company, the
amount of salary that the Employee would be entitled to receive
from the Company during the disability shall be decreased by the
amounts of such payments.
(b) Profit Sharing Bonus. Employee shall be paid a profit sharing
bonus based upon the contribution margin of the Company's
ChartMaxx division (or subsidiary) as follows:
(i) In the event the contribution margin of the ChartMaxx
division (subsidiary) exceeds its quarterly budgeted contribution
margin, Employee shall be paid a profit sharing bonus for such
quarter equal to an amount computed under the following formula:
(((actual quarterly contribution margin - budgeted quarterly
contribution margin) / 55,000) x 5,000). Notwithstanding the
forgoing sentence, however, the quarterly profit sharing bonus
shall not exceed $5,000 for any fiscal quarter. Further, the
amount of the profit sharing bonus shall be charged against the
ChartMaxx division (subsidiary) in determining the amount of the
actual contribution margin.
(ii) In the event the actual annual contribution margin of the
ChartMaxx division (subsidiary) exceeds its annual budgeted
contribution margin by $220,000 for fiscal year 1998, Employee
shall be paid a profit sharing bonus equal to $20,000, less the
amount of any and all profit sharing bonuses, paid or payable
under Subsection 4(b)(i), above. In computing the actual annual
contribution margin of the ChartMaxx division (subsidiary), the
amount of any and all profit sharing bonus(es) based upon the
contribution margin of the ChartMaxx division (subsidiary) shall
be charged against the ChartMaxx division (subsidiary).
(c) Corporate Bonus. For each fiscal quarter of the Company in
which the Company exceeds its consolidated net income goal, the
Employee shall be eligible for a bonus not exceeding $5,000.00 per
fiscal quarter. The amount of the bonus, if any, shall be
determined by the President of the Company based on the Employee's
performance. The bonus shall be paid to Employee on the last day
of the month in which the Company issues its quarterly earnings
release to the public.
(d) Automobile Allowance. During the term of this Agreement, the
Company shall pay Employee a $450.00 per month automobile
allowance in order to reimburse Employee for the expense of
owning, operating, maintaining and insuring a personal automobile
for use in performing Employee's duties hereunder.
(e) Employee Benefit Plans. Employee shall be eligible to
participate, to the extent he may be eligible to participate
pursuant to the terms of such plans, in any profit sharing,
retirement, insurance or other employee benefit plans maintained
by the Company.
5. Key Man Life Insurance. The Company, in its discretion, may
apply for and procure in its own name and for its own benefit,
life insurance on the life of the Employee in any amount or
amounts considered advisable by the Company, and the Employee
shall submit to any medical or other examination, and shall
execute and deliver any application or other instrument in
writing, reasonably necessary to effectuate such insurance.
6. Expenses. The Company shall pay, or reimburse the Employee,
for all reasonable and necessary business expenses of the
Employee, approved by the Company.
7. Vacation and Leave. The Employee shall be entitled to the
same vacation and leave time as the other executive officers of
the Company. Officers of the Company may not carry unused
vacation time from one calendar year to another calendar year.
8. Non-Disclosure of Confidential Information. The Employee
acknowledges that in and as a result of his employment by the
Company, he will be making use of, acquiring, and/or adding to
confidential information of a special and unique nature and value
relating to such matters as the Company's patents, copyrights,
proprietary information, trade secrets, systems, procedures,
manuals, confidential reports, and lists of customers (which are
deemed for all purposes confidential and proprietary), as well as
the nature and type of services rendered by the Company, the
equipment and methods used and preferred by the Company's
customers, and the fees paid by them. As a material inducement to
the Company to enter into this Agreement and to pay to Employee
the compensation stated in Section 4, Employee covenants and
agrees that he shall not, at any time during or following the term
of his employment, directly or indirectly divulge or disclose for
any purpose whatsoever any confidential information that has been
obtained by, or disclosed to, him as a result of his employment by
the Company. In the event of a breach or threatened breach by
Employee of any of the provisions of this Section 8, the Company,
in addition to, and not in limitation of, any other rights,
remedies, or damages available to the Company at law or in equity,
shall be entitled to a permanent injunction in order to prevent or
restrain any such breach by the Employee or by Employee's
partners, agents, representatives, servants, employers, employees,
family members, and/or any and all persons directly or indirectly
acting for or with him.
9. Covenants Against Competition. The Employee acknowledges that
the services he is to render are of a special and unusual
character with a unique value to the Company, the loss of which
cannot adequately be compensated by damages in an action at law.
In view of the unique value to the Company of the services of
Employee because of the confidential information to be obtained by
or disclosed to Employee, as hereinabove set forth, and as a
material inducement to the Company to enter into this Agreement
and to pay to Employee the compensation stated in Section 4,
Employee covenants and agrees that during Employee's employment
and for a period of two (2) years after he ceases to be employed
by the Company for any reason, he will not, except as otherwise
authorized by this Agreement, compete with the Company or any
affiliate of the Company, solicit the Company's customers or the
customers of an affiliate, or directly or indirectly solicit for
employment any of the Company's employees. For purposes of this
Section 9:
(i) the term "compete" means engaging in the same or any similar
business as the Company or any of its affiliates in any manner
whatsoever (other than as a passive investor), including without
limitation, as a proprietor, partner, investor, shareholder,
director, officer, employee, consultant, independent contractor,
or otherwise, within a geographic areas served by the Company or
any of its affiliates;
(ii) the term "affiliate" means any legal entity that directly or
indirectly through one or more intermediaries controls, is
controlled by, or is under common control with the Company; and
(iii) the term "customers" means all persons to whom the Company
or any of its affiliates has sold any product or service, whether
or not for compensation, within a period of two (2) years prior to
the time the Employee ceases to be employed by the Company.
10. Reasonableness of Restrictions.
(a) The Employee has carefully read and considered the provisions
of Sections 8 and 9, and, having done so, agrees that the
restrictions set forth in said Sections, including, but not
limited to, the time period of restriction and geographical areas
of restriction are fair and reasonable and are reasonably required
for the protection of the interests of the Company and its parent
or subsidiary corporations, officers, directors, shareholders, and
other employees.
(b) In the event that, notwithstanding the foregoing, any of the
provisions of Sections 8 and 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event
that any provision of Sections 8 or 9 relating to the time period
and/or the areas of restriction and/or related aspects shall be
declared by a court of competent jurisdiction to exceed the
maximum restrictiveness such court deems reasonable and
enforceable, the time period and/or areas of restriction and/or
related aspects deemed reasonable and enforceable by the court
shall become and thereafter be the maximum restriction in such
regard, and the restriction shall remain enforceable to the
fullest extent deemed reasonable by such court.
11. Remedies for Breach of Employee's Covenants of Non-Disclosure
and Non-Competition. In the event of a breach or threatened
breach of any of the covenants in Sections 8 and 9, the Company
shall have the right to seek monetary damages for any past breach
and equitable relief, including specific performance by means of
an injunction against the Employee or against the Employee's
partners, agents, representatives, servants, employers, employees,
family members, and/or any and all persons acting directly or
indirectly by or with him, to prevent or restrain any further
breach. In lieu thereof, or should a court refuse for any reason
to grant equitable relief to prevent continuing breaches of the
covenants in Sections 8 and 9, the Company shall be entitled to
liquidated damages equal to fifty percent (50%) of the gross
amount derived by the breaching party from all transactions in
breach of said covenants, it being agreed that such amount
represents the estimated amount of profit the Company could have
derived if it had transacted the business in question and is not a
penalty.
12. Termination. Employment of the Employee under this Agreement
will be terminated upon the occurrence of any one or more of the
following events:
(a) By the Employee's death.
(b) If the Employee is Totally Disabled. For the purposes of this
Agreement, the Employee will be Totally Disabled if he (1) has
been declared legally incompetent by a final court decree (the
date of such decree being deemed to be the date on which the
disability occurred), (2) receives disability insurance benefits
from any disability income insurance policy maintained by the
Company for a period of three (3) consecutive months, or (3) has
been found to be disabled pursuant to a Disability Determination.
A "Disability Determination" means a finding that the Employee,
because of a medically determinable disease, injury, or other
mental or physical disability, is unable to perform substantially
all of his regular duties to the Company and that such disability
is determined or reasonably expected to last at least three (3)
months. The Disability Determination shall be based on the
written opinion of the physician regularly attending the Employee.
If the Company disagrees with the opinion of this physician (the
"First Physician"), it may engage at its own expense another
physician (the "Second Physician") to examine the Employee. If
the First and Second Physicians agree in writing that the Employee
is or is not disabled, their written opinion shall, except as
otherwise set forth in this Subsection, be conclusive on the issue
of disability. If the First and Second Physicians disagree on the
disability of the Employee, they shall choose a third consulting
physician (whose expense shall be borne by the Company), and the
written opinion of a majority of these three physicians shall,
except as otherwise provided in this Subsection, be conclusive as
to the Employee's disability. The date of any written opinion
conclusively finding the Employee to be disabled is the date on
which the disability will be deemed to have occurred. If there is
a conclusive finding that the Employee is not Totally Disabled,
the Company shall have the right to request additional Disability
Determinations, provided it agrees to pay all the expenses of the
Disability Determinations and does not request an additional
Disability Determination more frequently than once every two (2)
months. In conjunction with a Disability Determination, the
Employee hereby consents to any required medical examination, and
agrees to furnish any medical information requested by any
examining physician and to waive any applicable physician-patient
privilege that may arise because of such examination. All
physicians except the First Physician must be board-certified in
the specialty most closely related to the nature of the disability
alleged to exist.
(c) At the election of either the Employee or the Company without
cause, upon ninety (90) days written notice; provided however,
that in the event this Agreement is terminated by the Company
pursuant to this Subsection 12(c), at the expiration of the
ninety-day period, Employee shall receive severance pay in the
amount of three months salary at the rate being paid to Employee
under Subsection 4(a) at the time written notice of termination is
given, less any required withholding and deductions.
(d) When the Employee reaches mandatory retirement age under any
retirement policy applicable to all executive officers adopted by
the Company.
(e) By mutual agreement of the Employee and the Company.
(f) By the dissolution and liquidation of the Company (other than
as part of a reorganization, merger, consolidation, or sale of all
or substantially all of the assets of the Company whereby the
business of the Company is continued).
(g) By the Company for Just Cause. For purposes of this
Agreement "Just Cause" shall mean the following: (i) a conviction
of or a plea of guilty or nolo contendre by the Employee to a
felony or misdemeanor involving fraud, embezzlement, theft, or
dishonesty or other criminal conduct against the Company; (ii)
habitual neglect of the Employee's duties or failure by the
Employee to perform or observe any substantial lawful obligation
of such employment that is not remedied within thirty (30) days
after written notice thereof from the Company or its Board of
Directors; or (iii) any material breach of this Agreement by the
Employee. Should the Employee dispute whether he was terminated
for Just Cause, then the Company and the Employee shall enter
immediately into binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, the
cost of which shall be borne by the non-prevailing party.
In the event of termination of this Agreement other than for
death, the Employee hereby agrees to resign from all positions
held in the Company, including without limitation any position as
a director, officer, agent, trustee, or consultant of the Company
or any affiliate of the Company. For the purposes of this
provision, the term "affiliate" has the same meaning as in Section
9.
13. Waiver. A party's failure to insist on compliance or
enforcement of any provision of this Agreement, shall not affect
the validity or enforceability or constitute a waiver of future
enforcement of that provision or of any other provision of this
Agreement by that party or any other party.
14. Governing Law. This Agreement shall in all respects be
subject to, and governed by, the laws of the State of Ohio.
15. Severability. The invalidity or unenforceability of any
provision in the Agreement shall not in any way affect the
validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
16. Notice. Any and all notices required or permitted herein
shall be deemed delivered if delivered personally or if mailed by
registered or certified mail to the Company at its principal place
of business and to the Employee at the address hereinafter set
forth following the Employee's signature, or at such other address
or addresses as either party may hereafter designate in writing to
the other.
17. Assignment. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, assigns, heirs
and personal representatives, except that the rights and benefits
of either of the parties under this Agreement may not be assigned
without the prior written consent of the other party.
18. Amendments. This Agreement may be amended at any time by
mutual consent of the parties, provided, however, that no such
amendment shall be valid or enforceable unless in a writing signed
by the Company and the Employee.
19. Applicability of Invention and Non-Disclosure Agreement.
This Employment Agreement is supplemented by that certain
Invention and Non-Disclosure Agreement of even date herewith
between the Company and the Employee, a copy of which is attached
hereto as Schedule A and made a part hereof. These two documents
contain the entire agreement and understanding by and between the
Employee and the Company with respect to the employment of the
Employee with the Company and supersedes and merges all prior
proposals, understandings and all other agreements, oral and
written between the parties. No representations, promises,
agreements, or understandings, written or oral, with respect to
such employment not contained in these two documents shall be of
any force or effect.
20. Headings. The various headings in this Agreement are
inserted for convenience only and are not part of the Agreement.
IN WITNESS WHEREOF, the Company and Employee have duly executed
this Agreement as of the day and year first above written.
MEDPLUS, INC., Company: Employee:
By:__________________________ __________________________
__________________________
Richard A. Mahoney, President Daniel A. Silber
Address for Notice Purposes: Address for Notice Purposes:
8805 Governors Hill Drive 924 Palomino Drive
Cincinnati, OH 45249 Villa Hills, KY 4101
SCHEDULE A
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement made and entered into effective as of the 1st day
of January, 1998 by and between MedPlus, Inc., an Ohio corporation
(hereinafter called the "Company," which term includes any parent
or subsidiary corporation as defined in Section 425 of the
Internal Revenue Code), and Daniel A. Silber (hereinafter called
"Employee").
In consideration of the employment or continued employment of
Employee by the Company and for other good and valuable
consideration, the parties hereto agree as follows:
1. Disclosure of Inventions to Employer. For the purpose of this
Agreement, the word "invention" shall include, but not be limited
to, the following: any discovery, idea, device, process, design,
development, improvement, conception, concept, application,
technique, or invention whether patentable or not, and whether
reduced to practice or not; provided, however, that any invention
as so defined, conceived or made by Employee after termination of
employment with the Company, shall not be deemed to be within this
Agreement if it is not within the scope of the Company's business,
research, and investigations, or resulting from or suggested by
any of the work Employee has performed or may perform for the
Company. Employee will forthwith communicate to the President of
the Company (or such other individual as the President may
designate from time to time) a full and complete disclosure of
each and every invention conceived or made by Employee whether
solely or jointly with others (a) while in the employ of the
Company, whether or not while actually engaged in the Company's
affairs, and (b) within two years subsequent to termination of the
employment for any reason.
2. Assignment of Inventions. Employee agrees to assign and
transfer to the Company, without any separate remuneration or
compensation other than the wages or salary received or
compensation paid to Employee from time to time in the course of
his employment by the Company, his entire right, title, and
interest in and to all inventions conceived or made by Employee,
together with all United States and foreign patent rights and any
other legal protection in and with respect to any and all such
inventions, (a) while in the employ of the Company, whether or not
while Employee is actually engaged in the Company's affairs, or
(b) within two years subsequent thereto and as a direct or
indirect result of such employment. Upon request by the Company,
Employee agrees to execute, and deliver all appropriate patent
applications for securing all United States and foreign patents on
all such inventions, and to do, execute, and deliver any and all
acts and instruments that may be necessary or proper to vest all
such inventions and patents in the Company or its designee, and to
enable the Company or its designee to obtain all such letters
patent. Employee agrees to render to the Company or its designee
all such assistance as may be required in the prosecution of all
such patent applications and applications for the reissue of such
patents and in the prosecution or defense of all interferences
which may be declared involving any of said patent applications or
patents. Employee further agrees not to contest the validity of
any patent, United States or foreign, which is issued to the
Company or its designee, on which Employee made any contribution,
or in which Employee participated in any way, and not to assist
any other party in any way in contesting the validity of any such
patent. Employee further agrees that the obligations and
undertakings stated in this Section 2 shall continue beyond the
termination of his employment by the Company, but if Employee
shall be called upon to render such assistance after the
termination of his employment, Employee shall be entitled to a
fair and reasonable per diem fee in addition to reimbursement of
any expenses incurred at the request of the Company.
3. Prior Inventions. As a matter of record, Employee may include
a complete list of inventions made by him prior to the date of
employment by the Company as an appendix to this Agreement. Only
those inventions so listed shall be deemed to be excluded from the
terms and conditions of this Agreement.
4. Unauthorized Disclosure. Except in connection with regularly
assigned duties for the Company, Employee agrees that he will not,
without prior written approval of the President (or such other
person as the president may designate from time to time), divulge
or disclose to anyone outside of the Company, whether by private
communication or by public address or publication, or otherwise,
any invention or any specification, technical or engineering data,
or report, or any other information relating to the business or
affairs of the Company, and will not during his employment by the
Company or at any time thereafter disclose or use for his own
benefit such information or any trade secrets or confidential
information pertaining to any of the business of the Company or
any of its clients, customers, consultants, licensees, or
affiliates, whether or not such information or trade secrets were
acquired while Employee was engaged in the Company's affairs and
regardless of by whom such information or trade secrets were
generated, either by the Company or by the Employee or others in
the employ of the Company. All copies of any such information,
however and wherever produced, shall be and remain the sole
property of the Company and shall not be removed from the premises
or custody of the Company without prior written consent or
authorization of the President of the Company (or such other
person as the President may designate from time to time).
5. Remedies for Breach. Employee expressly recognizes that any
breach of this Agreement by him is likely to result in irreparable
injury to the Company and agrees that the Company shall be
entitled, if it so elects, to institute and prosecute proceedings
in any court of competent jurisdiction, either in law or in
equity, to obtain damages for any breach of this Agreement, or to
enforce the specific performance of this Agreement by Employee, or
to enjoin Employee from activities in violation of this Agreement.
6. Modification. This instrument contains the entire Agreement
of the parties with respect to the subject matter contained herein
and may be altered, amended, or superseded only by an agreement in
writing, signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
No action or course of conduct shall constitute a waiver of any of
the terms and conditions of this Agreement, unless such waiver is
specified in writing, and then only to the extent so specified. A
waiver of any of the terms and conditions of this Agreement on one
occasion shall not constitute a waiver of the other terms and
conditions of this Agreement, or of such terms and conditions on
any other occasion.
7. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if mailed to
the party to whom such notice is given at the address of such
party hereinafter set forth or at such other address as such party
may provide in writing from time to time. Any such notice mailed
to such address shall be effective when deposited in the United
States mail, duly addressed and with first class postage prepaid.
Such notice may, but need not, be by certified mail, return
receipt requested.
8. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of Employee, without regard for the duration
of his employment by the Company or the reasons for the cessation
of such employment, and upon the administrators, executors, heirs,
and assigns of Employee and shall be binding upon and shall inure
to the benefit of the successors and assigns of the Company, its
subsidiaries, and affiliates.
9. Governing Law. The validity, interpretation and performance
of this Agreement shall be governed and construed by the laws of
Ohio.
10. Severability. The invalidity or unenforceability of any
provision in this Agreement shall not in any way affect the
validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
11. References to Gender and Number Terms. In construing this
Agreement, feminine or neuter pronouns shall be substituted for
those masculine in form and visa versa, and plural terms shall be
substituted for singular and singular for plural in any place in
which the context requires.
12. Headings. The section numbers and headings in this Agreement
are inserted for convenience only and are not part of the
Agreement.
IN WITNESS WHEREOF, the Company and the Employee have duly
executed this Agreement as of the date and year first above
written.
MEDPLUS, INC., Company: Employee:
By:__________________________ __________________________
__________________________
Richard A. Mahoney, President Daniel A. Silber
Address for Notice Purposes: Address for Notice Purposes:
8805 Governors Hill Drive 924 Palomino Drive
Cincinnati, OH 45249 Villa Hills, KY 4101
APPENDIX TO INVENTION AND NON-DISCLOSURE AGREEMENT
Employee's inventions excluded from this Agreement as authorized
by Section 3:
NONE
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
______________.
January 1, 1998
_______________________________________
Daniel A. Silber
-4-
11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 16th day of March, 1998, 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 GARY L. PRICE, residing at 6081
Tennyson Drive, West Chester, OH 45069 ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been employed by the Company previously and
has experience selling and marketing the Company's products and
services to corporate clients; and
WHEREAS, the Company desires to continue Employee's
employment with the Company for a limited time to market its
products and services and those of its subsidiaries to such
corporate clients (the "Services") and Employee desires to perform
the Services for the Company.
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. Services.
a. Position. The Company hereby agrees to retain Employee, and
Employee hereby agrees to remain employed by the Company,
commencing as of March 16, 1998 (the "Effective Date").
b. Performance. Employee agrees to devote appropriate time,
energy, and attention to the performance of the Services;
specifically, Employee agrees to use all resources available to
him to promote the Company's products and services, specifically
to potential outsourcing partners and other corporate accounts and
to keep the Company's Chief Operating Officer apprised of all
sales activities for such outsourcing partners and/or corporate
accounts. In addition, Employee agrees to exercise his best
efforts, judgment, skills and talents in performing the Services.
So long as Employee is not in violation of any non-competition
provisions of any agreement by and between Employee and the
Company, the Company acknowledges that Employee may obtain
employment with another entity during the Term (as hereinafter
defined).
2. Compensation and Expenses. The Company agrees to pay
Employee, and Employee agrees to accept as compensation for all of
his services to be rendered to the Company and as compensation for
the other obligations undertaken by Employee hereunder, $72,000
(the "Compensation"). The Compensation shall be paid to Employee
in installments of $36,000 on April 15, 1998 and $36,000 on June
15, 1998. Commencing as of the Effective Date, the Company shall
pay or reimburse Employee during the Term (as hereinafter defined)
for all reasonable travel and other business expenses incurred by
Employee in the performance of his duties and obligations
hereunder upon submission of appropriate documentation to the
Company therefor. In addition, during the Term, the Company
shall reimburse Employee up to a maximum of $450.00 per month for
the expense of owning, operating, maintaining and insuring a
personal automobile for use by Employee in the performance of his
duties hereunder. Finally, during the Term, Employee shall be
entitled to participate in or receive benefits, to the extent he
is eligible, under any Company-sponsored employee benefit plans
and arrangements in effect from time to time during the Term;
provided, however, that the Company shall not be required to
establish or maintain any such plan or arrangement.
2. Confidential Information.
a. Employee hereby acknowledges that the information,
observations and data regarding the Company obtained by him during
the course of his relationship with the Company, either before or
after the Effective Date, are the property of the Company.
Therefore, Employee agrees that he will not at any time from and
after the date hereof disclose to any unauthorized person or use
for his own account or for the benefit of any third party (other
than the Company), any of such information, observations or data
of the Company without the prior express written approval of the
Board of Directors of the Company. Notwithstanding the foregoing,
Employee may disclose information, observations or data to the
extent that (a) the same become generally known to and available
for use by the public other than as a result of acts or omissions
to act by Employee in violation of this Section 3, or (b) such
disclosure is required by law or legal process.
b. Employee hereby agrees that he will not, directly or
indirectly, during the term of this Agreement solicit or otherwise
attempt to employ any current or future employee of the Company
for employment in any other business or otherwise offer any
inducement to any current or future employee of the Company to
leave the Company's employ.
4. Term and Termination. The term of this Agreement shall
commence on the Effective Date and terminate on September 15, 1998
(the "Term"). Upon termination of this agreement, all of the
obligations of the Company to provide compensation to Employee
pursuant hereto shall terminate and neither party shall have any
further obligation to the other party, except that the provisions
of Section 3(a) shall survive termination of this Agreement
perpetually, and except that Section 3(b) hereof shall survive
termination of this Agreement for a period of one year from the
date of such termination.
5. 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 Employee, and the successors and assigns
of the Company, except that Employee may not assign this Agreement
or any of Employee's duties or services hereunder.
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.
d. Modification. This Agreement may not be changed, amended or
modified except by a writing signed by both parties.
e. Notices. Any notice 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 regular mail, postage prepaid, 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 the Company and Employee with
respect to such subject matter; provided that any obligations
previously undertaken by Employee regarding the Company's
confidential information or limiting Employee's ability to compete
with the Company or solicit other employees to leave the Company
may be enhanced hereby but may not be reduced or lessened. This
Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
g. Consent to Jurisdiction. Each of Employee and the Company
hereby (a) agrees that any suit, proceeding or action at law or in
equity (hereinafter referred to as an "Action") arising out of or
relating to this Agreement may be instituted, at the option of the
party bringing such Action, in any state or federal court in the
State of Ohio having subject matter jurisdiction and (b)
irrevocably submits to the jurisdiction of any such court in any
such Action.
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.
By:__________________________________________
Its:__________________________________________
EMPLOYEE:
_____________________________________________
Gary L. Price
1
Subsidiaries of MedPlus, Inc.
[A list of all subsidiaries, the state or other jurisdiction of
incorporation or organization of each, and the names under which
such subsidiaries do business.]
1. DiaLogos Incorporated - a Delaware corporation partially owned
by MedPlus, Inc.
2. FutureCORE, Inc. - an Ohio corporation wholly owned by
MedPlus, Inc.
3. Universal Document Management Systems, Inc. - an Ohio
corporation wholly owned by MedPlus, Inc.
EXHIBIT 23
___________
Independent Auditors' Consent
The Board of Directors
MedPlus, Inc.:
We consent to the incorporation by reference in the registration
statements of MedPlus, Inc. and subsidiaries on Form S-8 (No. 33-
94426) and Form S-3 (No. 333-20547) of our report dated April 9,
1998, relating to the consolidated balance sheets of MedPlus, Inc.
and subsidiaries as of January 31, 1998 and 1997 and December 31,
1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year ended January
31, 1998, the one month period ended January 31, 1997 and for the
years ended December 31, 1996 and 1995, which report appears in
the January 31, 1998 annual report on Form 10-KSB of MedPlus, Inc.
and subsidiaries.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Cincinnati, Ohio
April 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF MEDPLUS, INC. AND SUBSIDIARIES A OF AND FOR THE YEAR
ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 13,788,668
<SECURITIES> 0
<RECEIVABLES> 4,282,702
<ALLOWANCES> 115,000
<INVENTORY> 757,471
<CURRENT-ASSETS> 19,637,974
<PP&E> 2,001,071
<DEPRECIATION> 653,606
<TOTAL-ASSETS> 24,238,075
<CURRENT-LIABILITIES> 9,058,562
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,476,985
<TOTAL-LIABILITY-AND-EQUITY> 24,238,075
<SALES> 7,569,827
<TOTAL-REVENUES> 9,031,643
<CGS> 4,607,908
<TOTAL-COSTS> 6,210,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346,315
<INCOME-PRETAX> (9,866,384)
<INCOME-TAX> (3,121,479)
<INCOME-CONTINUING> (6,744,905)
<DISCONTINUED> 9,849,944
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,105,089
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
<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 YEARS
ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996 AND FOR THE ONE MONTH TRANSITION
PERIOD ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 1-MO
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 JAN-31-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 JAN-31-1997
<CASH> 7,364,984 2,702,007 1,106,654
<SECURITIES> 500,020 300,510 300,510
<RECEIVABLES> 1,215,269 1,470,003 1,384,265
<ALLOWANCES> 50,000 45,000 45,000
<INVENTORY> 166,663 229,624 285,569
<CURRENT-ASSETS> 9,669,325 5,615,204 4,128,696
<PP&E> 816,819 1,482,241 1,504,312
<DEPRECIATION> 156,810 333,089 328,178
<TOTAL-ASSETS> 13,970,516 11,688,645 10,671,043
<CURRENT-LIABILITIES> 2,217,099 1,742,569 1,315,464
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 11,623,549 9,857,993 9,264,515
<TOTAL-LIABILITY-AND-EQUITY> 13,970,516 11,688,645 10,671,043
<SALES> 2,856,189 2,728,514 69,085
<TOTAL-REVENUES> 2,965,039 3,467,592 145,832
<CGS> 1,413,998 1,619,688 92,377
<TOTAL-COSTS> 1,530,816 2,159,843 183,795
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 30,432 23,493 1,029
<INCOME-PRETAX> (2,779,847) (3,994,243) (582,867)
<INCOME-TAX> (656,008) (596,339) 0
<INCOME-CONTINUING> (2,123,839) (3,397,904) (582,867)
<DISCONTINUED> (492,438) 925,712 (38,894)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,616,277) (2,472,192) (621,761)
<EPS-PRIMARY> (0.54) (0.42) (0.11)
<EPS-DILUTED> (0.54) (0.42) (0.11)
</TABLE>