U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to
Commission file number: Z-24196
MEDPLUS, INC.
(Name of small business issuer in its charter)
OHIO 48-1094982
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification 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, 2000 were $12,537,895.
The aggregate market value of the voting stock held by non-
affiliates of the Company as of April 20, 2000 was $17,701,892,
based on the average bid and ask price of such stock on that date
as reported on the Nasdaq National Market.
As of April 26, 2000, 6,215,232 shares of the Company's no par
value common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The Registrant's Annual
Report to Shareholders for the year ended January 31, 2000 unless
otherwise amended hereby.
The Registrant hereby amends the following Items of its Annual
Report on Form 10-KSB for the year ended January 31, 2000, as set
forth below. Items not referenced below are not amended. The Items
referenced below are amended only as indicated below:
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
General
MedPlus is a provider of web-based information technology
solutions that enable health care providers to access and manage
information efficiently and cost effectively. The Company's
solutions focus on various elements of process analysis and
redesign, document imaging and management and workflow systems
integration.
The Company's health care related products, included in its Health
Care Solutions segment, consist of the ChartMaxx Enterprise-wide
Private Health Record System ("ChartMaxx"), the E-Maxx Enterprise-
wide Private Health Record System, and the OptiMaxx Archival
System ("OptiMaxx"). ChartMaxx is an enterprise-wide electronic
private health record system that provides users with a web-
enabled, patient-centric data repository of clinical and
administrative information provided from sources such as
hospitals, reference laboratories, clinics and physician offices.
In addition, this system assists health care organizations in
complying with the proposed Health Insurance Portability and
Accountability Act of 1996 (HIPAA) regulations. E-Maxx is the web-
enabled version of the Company's ChartMaxx system. OptiMaxx is an
optical disk-based archival and retrieval system designed to meet
the needs of health care providers that require electronic storage
and quick retrieval of information. The Company's FutureCORE
subsidiary ("FutureCORE") provides process improvement and
automation services, primarily in the areas of medical records and
patient accounts departments, hospital and reference laboratories
and physician offices.
The Company's Universal Document Management Systems, Inc.
subsidiary ("Universal Document"), included in its Workflow and
Content Management Segment, develops and sells Step2000, a
workflow content management and application development software
product 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.
Revenue Recognition Cycle
The Company's revenues are derived from systems sales, including
software licenses and hardware, support contracts and
installation, implementation, training and education and
consulting services. Systems sales consist of software licenses
for proprietary software, third party software and hardware, and
related installation services. The gross profit percentage 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
service revenues are derived from implementation, integration,
training, 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. The gross profit percentage on support contracts and
consulting services may fluctuate based upon the negotiated terms
of each contract and the Company's ability fully to 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
ChartMaxx systems' sales 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 concurrent users using the
software. Third party hardware is usually sold outright, with
fees 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.
Fluctuations in Results of Operations
The Company has historically experienced significant quarterly and
annual 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. As a result, period to
period comparisons of the Company's past operating results may not
be necessarily indicative of future operating results of the
Company.
History of Operating Losses
The Company has historically incurred operating losses from
continuing operations and as of January 31, 2000 had an
accumulated deficit of $16.3 million. The Company's software
development efforts, the development of new products and the
expansion of its marketing, sales and customer support staff,
among other aspects of the Company's strategy, will require
significant expenditures over the next several years that may not
be offset by revenues. The Company's ability to achieve and
maintain significant revenues or profitability will be dependent
upon its ability to obtain and maintain demand from customers for
its current and future products. As a result, there can be no
assurance that the Company will ever achieve significant revenues
or profitable operations.
Discontinued Operations
DiaLogos: In December 1999, the Company's board of directors
authorized management to enter into negotiations to dispose of its
majority interest in DiaLogos Incorporated, its education
subsidiary. Subsequent to year-end, the Company completed the
sale of its investment in the stock of DiaLogos to a private
investment group for cash consideration of $300,000, a two-year
$450,000 note and a warrant to purchase 10% of the outstanding
shares of DiaLogos common stock.
IntelliCode: In January 1998, the Company completed the sale of
all the assets of its IntelliCode division to Becton Dickinson and
Company ("Becton Dickinson") for total proceeds of $17,334,588
plus royalty payments over five years. 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.
Universal Document: In January 1998, the Company decided to sell
the net assets of the Universal Document segment and presented the
segment as a discontinued operation for the fiscal year ended
January 31, 1998. During fiscal 1999, due to a change in the
Company's customer base that enhanced the compatibility of the
segment with the OptiMaxx product, the Company made the decision
to retain it and presented the results of operations and financial
position of the segment in continuing operations in for the fiscal
year ended January 31, 1999. Prior years' financial statements
were presented on a comparable basis.
Results of Operations
Years Ended January 31, 2000 and 1999
Revenues: Revenues for the year ended January 31, 2000 were
$12,537,895, an increase of $2,578,957, or 26% over the $9,958,938
reported for fiscal 1999. Systems sales increased $2,221,675, or
36%, from the year ended January 31, 1999 primarily as a result of
the recognition of a significant ChartMaxx license sold in the
fourth quarter of fiscal 2000. Support and consulting revenues
increased $357,282, or 9%, from the year ended January 31, 1999
due to increased support and consulting revenues from the
Company's ChartMaxx and OptiMaxx product lines as the number of
installed sites of these products continued to increase.
Gross Profit: Gross profit for the year ended January 31, 2000
was $5,237,676, or 42% of revenues, compared to $2,858,701, or 28%
of revenues, for the year ended January 31, 1999. The gross profit
percentage on systems sales increased from 45% for the year ended
January 31, 1999 to 52% for the year ended January 31, 2000 due to
a higher proportion of proprietary software relative to lower
margin third party hardware and software included in sales. The
gross profit percentage for support and consulting revenues
increased from 3% for the year ended January 31, 1999 to 21% for
the year ended January 31, 2000. The increase in this percentage
was primarily a result of an increase in support and consulting
revenues resulting from additional sites installed. In addition,
the prior year's costs were higher 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
associated costs 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 for the year ended January
31, 2000 were $8,112,113 compared to $9,554,497 for the comparable
period of 1999, a decrease of 15%. This decrease relates primarily
to a drastic reduction in its sales and marketing expenses as the
Company has restructured these departments in an effort to
streamline costs while providing better market penetration. This
decrease was partially offset by an increase in product
development and other research and development activities for E-
Maxx, ChartMaxx and OptiMaxx. As product development related
activities are the cornerstone to maintaining a competitive
position in the market, the Company has increased its investing in
these types of activities during fiscal 2000. General and
administrative expenses have remained stable as the Company has
been focused on controlling these types of costs.
Other Income (Expense): In comparing fiscal 2000 to fiscal 1999,
interest expense increased primarily as the result of the
Company's new $2 million subordinated debt financing agreement
entered into in April 1999 and increases in the average balance on
the Company's line of credit. Other income relates primarily to
interest income that decreased due to lower average cash balances
in fiscal 2000. Fiscal 1999 had higher average cash and cash
equivalents balances due to cash received from the sale of the
Company's IntelliCode division to Becton, Dickinson and Company in
January 1998. Expenses related to the employment of Synergis
management, acquisition, and offering costs are not anticipated to
recur in the future.
Income Tax Benefit: The Company's income tax benefit was $11,176
in the year ended January 31, 2000, compared to $1,616,370 for
fiscal 1999. The Company did not recognize for accounting purposes
the full tax benefit of its net operating losses for fiscal 2000
or 1999 as the realization of these benefits did not meet the
recognition criteria at the end of either period due to the
Company's history of operating losses. However, the Company
recognized a portion of the benefit of its net operating loss for
income tax purposes for fiscal 1999 through the carryback of this
loss against taxable income in fiscal 1998 generated by the sale
of the IntelliCode division. The Company's ability to recognize
the full benefit of its net operating loss in future periods will
be dependent upon the generation of future taxable income,
limitations imposed by the Internal Revenue Service, and other
matters potentially affecting the realizability of these
carryforwards.
Discontinued Operations: Discontinued operations for the fiscal
2000 and 1999 years represents the effect of the disposal of
DiaLogos. Fiscal 1999 also includes the reversal of a loss that
was accrued in fiscal 1998 relating to the Universal Document
segment that the Company decided to retain in August 1998.
Net Loss: The Company's net loss has significantly decreased
between the years largely as the result of increased revenues,
decreased operating and other expenses described above. This
improvement was partially offset by the Company's inability to
recognize an income tax benefit, as described above.
Conversion Discount on Preferred Stock:
During the second quarter of fiscal 2000, the Company issued
2,371,815 shares of its preferred stock to certain investors at a
purchase price of $1.729 per share for gross proceeds of
$4,100,000 (see Financing in Liquidity and Capital Resources).
As a result of this issuance, the Company recorded a conversion
discount on the preferred stock of $346,285. This amount
represents the effect of the differential between the conversion
price of $1.729 and the closing market price of $1.88 on the date
of commitment of the Preferred Shares. Although the beneficial
conversion feature has no impact on the financial condition or
cash flows of the Company, it does negatively impact the Company's
loss per common share-basic and diluted.
Preferred Stock Dividend Requirements: The Company began recording
quarterly dividends on its preferred stock in the second quarter
of fiscal 2000. Although the Company is only required to pay
dividends at an annual rate of 4% for the first three years, the
preferred stock dividend requirement disclosed in the consolidated
statement of operations has been calculated using the Company's
estimated market rate of 8%. A market rate of 8% was utilized as
the dividends are considered increasing rate dividends for
accounting purposes. The incremental 4% has no impact on the
financial condition or cash flows of the Company, but negatively
impacts the Company's earnings (loss) per common share-basic and
diluted.
Loss Attributable to Common Shareholders and Loss Per Common
Share: Net Loss has been adjusted for the dividend requirements
related to the preferred shares issued in the second quarter of
fiscal 2000 to derive the "Loss Attributable to Common
Shareholders." This amount has been utilized in the calculation
of net loss per common share.
Years Ended January 31, 1999 and 1998
Revenues: Revenues for the year ended January 31, 1999 were
$9,958.938, a decrease of $242,214, or 2% over the $10,201,152
reported for the comparable period in 1998. Systems sales
decreased $1,756,777, or 22%, from the year ended January 31, 1999
primarily as a result of a decrease in the number and relative
size of ChartMaxx and OptiMaxx systems sold during the year.
Support and consulting revenues increased $1,514,563, or 66%, from
the year ended January 31, 1998 due to the Company's ChartMaxx and
OptiMaxx product lines as the number of installed sites of these
products continued to increase.
Gross Profit: Gross profit for the year ended January 31, 1999 was
$2,858,701, or 29% of revenues, compared to $2,974,961, or 29% of
revenues, for the year ended January 31, 1998. The gross profit
percentage on systems sales increased from 35% for the year ended
January 31, 1998 to 45% for the year ended January 31, 1999 due to
a higher proportion of proprietary software relative to lower
margin third party hardware and software included in sales. The
gross profit percentage for support and consulting revenues
decreased from 10% for the year ended January 31, 1998 to 3% for
the year ended January 31, 1999. The decrease in this percentage
was primarily a result of an increase in customer support,
installation, and consulting personnel in advance of related
revenues and lower than expected utilization rates of those
personnel.
Operating Expenses: Operating expenses for the year ended January
31, 1999 were $9,554,497 compared to $9,811,952 for the comparable
period of 1998, a decrease of 3%. This decrease relates primarily
to a controlling of costs related to the Company's sales and
marketing departments and its general and administrative expense.
These decreases were partially offset by increases in research
and development activities as the Company continues to focus on
enhancing its core products.
Other Income (Expense): Excluding Synergis related expenses, other
income (expenses) increased to $244,394 of income for the year
ended January 31, 1999 from expense of $231,922 for the year ended
January 31, 1998. The decrease in expense is primarily due to an
increase in interest income as a result of an increase in the
Company's average cash and cash equivalents balances from fiscal
1998 due to cash received from the sale of the Company's
IntelliCode division to Becton, Dickinson and Company in January
1998. Expenses related to the employment of Synergis management,
acquisition, and offering costs are discussed in the footnotes to
the financial statements. These expenses are not expected to
recur in the future.
Income Tax Benefit: The Company's income tax benefit was
$1,616,370 in the year ended January 31, 1999, compared to
$3,475,777 for fiscal 1998. The Company recognized a portion of
the benefit of its net operating loss for income tax purposes for
fiscal 1999 through the carryback of this loss against taxable
income in fiscal 1998 generated by the sale of the IntelliCode
division. However, the Company did not recognize for accounting
purposes the full tax benefit of its net operating losses for
fiscal 1999 or 1998 as the realization of these benefits did not
meet the recognition criteria at the end of either period due to
the Company's history of operating losses. The Company's ability
to recognize the full benefit of its net operating loss in future
periods will be dependent upon the generation of future taxable
income, limitations imposed by the Internal Revenue Service, and
other matters potentially affecting the realizability of these
carryforwards.
Discontinued Operations: Discontinued operations for fiscal 1999
represent the operations of DiaLogos and the reversal of the
accrued loss related to the Universal Document segment which the
Company decided to retain in August 1998. Discontinued operations
for the year ended January 31, 1998 represent the operations of
DiaLogos offset by a gain on the sale and the results of
operations of the Company's IntelliCode division, as well as the
accrued losses related to the Universal Document segment.
Liquidity and Capital Resources
The Company's business requires significant amounts of working
capital to finance new product research and development, its
strategic focus on the E-Health market, the expansion of its sales
and marketing organization, anticipated revenue growth, capital
expenditures and strategic investments. 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 that are deemed to have
strategic value to the Company. The Company has financed its
operations, working capital needs, and investments through the
sale of common stock, the issuance of preferred shares and
subordinated debt, bank borrowings, capital lease financing
agreements and the sale of the assets of its IntelliCode division.
Financing
The Company has a $2,000,000 revolving line of credit agreement
with a bank that had an outstanding balance of $1,112,509 as of
January 31, 2000 and that is due on May 15, 2000. The Company's
assets secure the line of credit. Although the Company has
adequate cash and cash equivalents on hand to satisfy the
commitment, the Company will need to obtain alternative financing
in order to continue its growth strategy. This financing may
include obtaining additional debt, an equity offering or other
capital infusion, or the sale of certain of the Company's assets.
Although management has been evaluating these opportunities, the
Company's ability to obtain this funding will be dependent upon a
number of factors including the volatility of the market and its
effect on the Company's stock price and the Company's ability to
obtain additional debt financing. There is no guarantee that any
of the necessary alternative financing transactions will occur in
the near-term.
In the first quarter of fiscal 2000, the Company entered into an
Agreement (the "Agreement") with three investment firms to obtain
$6,100,000 in debt and equity financing. The terms of the
Agreement provide for financing of $2,000,000 in subordinated
debentures (the "Notes") and $4,100,000 in Series A Convertible
Preferred Shares (the "Preferred Shares"). The proceeds of the
financing has been utilized to fund working capital requirements
and continue product development and market penetration of certain
of the Company's core products. On April 30, 1999, the Company
issued the Notes, due 2004, with an annual coupon rate, payable
quarterly, of 10% in the first year, 12% from May 1, 2000 through
October 31, 2000 and 14% thereafter. The principal portion of the
Notes is payable as follows: $666,666 in April 2002, $666,667 in
April 2003 and $666,667 in April 2004; however, the Company may
redeem the Notes at any time during their term without penalty.
The Notes also contain certain restrictions including the
Company's ability to use cash proceeds received from non-operating
sources. The holders of the Notes also received warrants to
purchase 281,137 Preferred Shares at an exercise price of $1.66.
On June 25, 1999, the Company also issued to the investors
2,371,815 Preferred Shares, with a $ .01 stated par value, at a
purchase price of $1.729 per share for gross proceeds of
$4,100,000 (net proceeds of $3,773,047). The Preferred Shares are
convertible into the Company's common stock on a one-for-one
basis. The Company is required to pay a cumulative dividend
quarterly at a rate of 4% per share for the first three years,
increasing to 10% thereafter. The Preferred Shares (a) include
voting rights, (b) receive preferential treatment upon liquidation
of the Company and (c) convert into common shares upon certain
events. In addition, upon meeting certain requirements specified
in the Agreement, the Company can elect at its option to convert
the Preferred Shares into common shares of the Company. Also,
ten-year warrants for the purchase of 721,702 Preferred Shares
were issued to the Investors at a purchase price of $1.66. These
warrants cannot be exercised unless the value of the Company's
stock price as traded on the NASDAQ over a twenty-day period
exceeds $7.17.
The terms of the Notes originally provided that, under certain
circumstances, whenever the Company received any cash (excluding,
e.g., sales or licenses of Company products and/or services in the
ordinary course of business), the Company would immediately pay to
the holders of the Notes (the "Noteholders") an amount equal to
the lesser of (1) the total amount of principal and interest
remaining unpaid under the Notes and (2) the total amount of cash
received by the Company or made available to it in such instance.
In April, 2000, in order to obtain financing to further its E-
Health initiative, the Company requested that the Noteholders
waive the obligation described above until the earlier of either
the Company receiving in excess of $6,000,000 of additional non-
operating funding or February 1, 2001. In May 2000, the
Noteholders and the Company executed letter agreements pursuant to
which the Noteholders consented to the waiver, subject to certain
terms and conditions and the approval of final documents.
Specifically, the Company agreed to (i) grant to the Noteholders
warrants to purchase 25,000 shares of the Company's common stock,
(ii) utilize all non-operating funding proceeds in excess of
$6,000,000 received during its fiscal 2001 to repay its
outstanding subordinated debt commitment to the Noteholders, (iii)
amend warrants to purchase Preferred Shares, previously granted to
the Noteholders, to eliminate certain restrictions, making the
warrants subject to immediate exercise, (iv) amend additional
warrants to purchase Preferred Shares, previously granted to the
Noteholders, to convert into common stock, at the option of the
Noteholders, and, if the Noteholders so elect, commence
registration of the common shares, at the expense of the Company,
beginning June 1, 2001 and (v) issue to the Noteholders, warrants
to purchase additional common shares, subject to the same
registration right as above, exercisable at $.01 per share,
annually beginning February 1, 2002, if the Notes are not paid in
full. Finally, the Notes are scheduled to be redeemed in three
equal annual installments beginning April 30, 2002. The Company
agreed that if a scheduled payment has not been made when due, the
amount of such scheduled payment would be exchanged into a
debenture that is convertible into Preferred Shares, or an
equivalent class of preferred, at the Noteholder's option. This
debenture will have a ten-year term, bear interest at 8% and be
convertible into Series A convertible preferred stock at $1.729
per share, with the same conversion feature and registration
rights as certain warrants to purchase Preferred Shares.
Common Stock Repurchase Program
The Company's Board of Directors authorized a common stock
repurchase program in November 1996. Under the program the
Company may repurchase up to 500,000 shares of the Company's
common stock. No shares were repurchased during fiscal 2000. On
a cumulative basis, the Company has repurchased 200,000 shares.
Cash Flows from Operations and Liquidity
Cash flows provided by operating activities for continuing
operations for fiscal 2000 were $555,416, compared to a use of
cash of $7,730,136 for fiscal 1999. This significant improvement
in operating cash flows were largely the result of the
significantly better operating performance of the Company and the
improvement of working capital for the Company including
accelerated collection of accounts receivable. In addition, the
Company had income tax expense of $1,896,869 in fiscal 1999,
compared to the receipt of over $550,000 for a tax refund in
fiscal 2000.
Although operating cash flows have improved, management continues
to review the Company's current operations to identify areas to
reduce or maintain current levels of expenses until revenues
increase sufficiently to justify increased investments in certain
areas. Over the past two years, the Company has made significant
strides in curtailing expenses, primarily in the area of sales of
marketing, and continues to review its current structure to
properly manage expenses. In addition to expense reductions,
increased revenues will also be needed to improve operating cash
flow. The Company believes that it has historically experienced
lower-than-anticipated revenues because many of its potential
customers have been focusing on resolving internal Year 2000
issues rather than purchasing enterprise-wide solutions, such as
ChartMaxx or OptiMaxx. As resolution of this matter occurs, the
Company anticipates sales of ChartMaxx and OptiMaxx will increase,
although there is no assurance that this trend will occur in the
near term. The Company is also focusing on its E-Health strategy,
which will require significant cash outlays in order to realize
its full potential. There can be no assurance as to the extent or
timing of the Company's success in achieving these goals.
Other Risk Factors
The Company manufactures and sells software technology in the
health care industry. As a result, there are certain risks
inherent with operating in these markets including the
competitiveness of the software technology industry, the Company's
dependence on market acceptance of existing and future products,
technological changes in the industry and the Company's reliance
on the health care industry. The Company has also been
historically dependent on certain key customers. Internally, the
Company must also focus on managing its growth, including
retaining and attracting key employees and obtaining the funding
necessary to finance its growth strategy. Although management of
the Company has been focused on achieving its business plan, there
is no guarantee that the Company will be able to achieve
profitability under these market conditions.
Year 2000 Compliance
The Company's business is dependent on the operation of numerous
systems that could have been impacted by Year 2000 related
problems. Those systems include, among others, hardware and
software systems used by the Company to deliver services to the
Company's customers, including proprietary software systems and
hardware and software supplied by third parties, communications
networks, the internal systems of the Company's customers and
suppliers, and the hardware and software systems used internally.
During the transition into the Year 2000, the Company and its
customers did not experience any significant problems related to
Year 2000, and the Company does not expect any to arise in the
future.
Forward Looking Statements
The Company notes that many of the statements made herein are
forward-looking statements. As such, in addition to the risk
factors addressed herein, factors may occur which could cause
actual events to differ materially from those anticipated in these
statements.
For example, although the Company hopes its relationship with
Quest Diagnostics Incorporated will assist it in becoming a
leading provider of E-health, business to business services within
the next 2-3 years, if Quest Diagnostics determines that its
physician customers are not accessing laboratory results via the
Internet and the ChartMaxx system as predicted, it may research
alternative means of transmitting such results to physicians. In
addition, MedPlus' ability to provide E-Health services and
perform its obligations pursuant to its agreement with Quest
Diagnostics will depend on the abilities of certain subcontractors
to MedPlus, including but not limited to an Internet Service
Provider.
Furthermore, the Company's ability to assist its customers with
HIPAA compliance and other regulatory compliance matters will
depend in large part on the version of HIPAA regulations
eventually adopted and updates to those and other regulations from
time to time. In addition, the Company's involvement in the
online health care industry will necessarily require its
partnership with third party vendors, the specific terms and
conditions of which will not be finalized until the requirements
of that industry are better understood.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
Summary
The following table summarizes, for the fiscal years indicated,
all annual compensation earned by or granted to the Company's
Chief Executive Officer and the four most highly-compensated
executive officers, other than the Chief Executive Officer, whose
compensation exceeded $100,000 for all services rendered to the
Company in all capacities (the "named executives") during the last
fiscal year and who were serving in such capacity as of January
31, 2000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
______________________________________________________________
Annual Compensation Awards
________________________________ ______________________________________________________________
Name and Fiscal Restricted Stock Securities Underlying All Other
Principal Position Year(1) Salary($) Bonus($) Awards ($) Options(#) Compensation ($)
____________________ _______ __________ ___________ _________________ _____________________ _________________
<S> <C> <C> <C> <C> <C> <S>
Paul F. Albrecht, 2000 131,420 20,400 -- 20,000 5,400(2)
Vice President and
Chief Technology 1999 110,000 36,500 -- 20,000 --
Officer
1998 96,667 48,472 -- 20,000 --
Richard A. Mahoney 2000 231,070 -- -- 100,000 24,759(2)
Chairman of the Board,
President and Chief 1999 217,000 -- -- 50,000 --
Executive Officer
1998 205,004 200,000 4,015(3) 50,000 --
Timothy P. McMullen 2000 160,000 51,556(1) -- 15,000 10,080(2)
Vice President of
Sales and Marketing(4) 1999 160,000 74,445(1) -- 10,000 --
1998 149,583 28,262(1) -- 25,000 --
Philip S. Present II 2000 180,000 -- -- 40,000 --
Chief Operating Officer
and Director 1999 180,000 -- -- 40,000 --
1998 151,649 100,000 -- -- 500(2)
Daniel A. Silber 2000 120,000 -- -- 20,000 2,210(2)
Vice President of
Finance and Chief 1999 120,000 10,000 -- 15,000 --
Financial Officer
1998 109,000 -- -- 10,000 --
(1) Amounts indicated represent bonus and commission payments.
(2) Amounts indicated represent payments including car allowance and/or out-of-pocket medical and/or legal reimbursements.
(3) In 1998, stock awards in equal amounts were given to all Company employees who had completed their fifth year with the
Company. Mr. Mahoney received such a stock award in 1998.
(4) Mr. McMullen resigned from his position with the Company on February 4, 2000.
</TABLE>
<TABLE> <CAPTION>
Stock Options
The following table sets forth information regarding stock options granted to the named executives during fiscal 2000:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
_________________________________________________________________________________________________________________________________
Number of Securities % of Total Options Granted Exercise of Base
Name Underlying Options Granted to Employees in Fiscal Year Price ($/Sh.) Expiration Date
___________ _____________________________ _______________________________ ________________________ ________________
<S> <C> <C> <C> <C>
Paul F. Albrecht 20,000 4.30% $1.95 6/17/2004
Richard A. Mahoney 50,000 10.70% $1.88 4/15/2009
50,000 10.70% $,195 6/17/2009
Timothy P. McMullen 15,000 3.21% $,195 2/04/2001
Philip S. Present II 40,000 8.56% $,195 6/17/2004
Daniel A. Silber 20,000 4.28% $,195 6/17/2004
</TABLE>
<TABLE> <CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table sets forth information regarding stock options exercised by the named executives during fiscal 2000 and the
value of unexercised in-the-money options held by the named parties as of January 31, 2000:
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)(1)
_________________________________ _________________________________
Shares
Acquired on Value
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
_________ ___________ ____________ ______________ _____________ ___________ _____________
<S> <C> <C> <C> <C> <C> <C>
Paul F. Albrecht -- -- 46,500 40,000 1,500 20,000
Richard A. Mahoney -- -- 350,000 50,000 150,000 50,000
Timothy P. McMullen -- -- 105,000 -- 20,000 --
Philip S. Present II -- -- 93,334 66,666 25,000 40,000
Daniel A. Silber -- -- 36,000 30,000 11,000 20,000
_______________
(1) Based on the average high and low prices of the Company's Common Stock on January 31, 2000. </TABLE
Compliance with Section 16(a) of the Exchange Act
To the Company's knowledge, during fiscal 2000, all
reports required to be filed under Section 16(a) of the Exchange
Act were filed in a timely manner.
Compensation of Directors
During fiscal 2000, the Company's outside directors (those
directors who are not employees of the Company) were compensated
for their services as directors as follows: (i) directors Paul J.
Stein and Robert E. Kenny III were compensated at a rate of $3,500
per meeting, where $2,500 of each payment represented forgiveness
of amounts due under promissory notes issued to the Company by
Messrs. Stein and Kenny for loans made to them by the Company to
purchase shares of the Company's Common Stock; and (ii) all other
outside directors were paid at a rate of $1,000 per meeting.
Outside directors are not compensated for committee meetings that
occur on the same date as full Board meetings. The Company does
not additionally compensate employee directors. All directors are
reimbursed for all expenses incurred in connection with attendance
at meetings of the Board and the performance of Board duties.
In addition, outside directors are entitled to receive stock
options under the Directors' Plan. Specifically, since 1995,
outside directors have been and continue to be entitled to an
option to purchase 5,000 shares of the Company's Common Stock
after their first year in office and to an annual, automatic grant
of an option to purchase 2,500 shares of the Company's Common
Stock at every annual shareholders' meeting. A total of 100,000
shares is available under the Directors' Plan. All options
granted under the Directors' Plan have a five year term and an
exercise price equal to 100% of fair market value of the Common
Stock on the date of issuance. Options are not exercisable at all
for six months after their issuance, at which time they become
exercisable as to 50% of the shares covered. After 12 months,
they become exercisable in full until expiration.
Employment Agreements
Richard A. Mahoney, the Company's Chairman of the Board, President
and Chief Executive Officer, is employed pursuant to an employment
agreement dated October 31, 1995. The term of the agreement
expires on June 30, 2001 and commenced on November 1, 1995. It
provides for a base salary of $186,000 per annum initially,
increasing incrementally to a base salary of $245,000 per annum in
the final year of the agreement. Under the agreement, Mr. Mahoney
will also be entitled to annual bonuses of up to 100% of his
salary, the actual amount to be determined based on the Company's
performance and Mr. Mahoney's personal performance as determined
by the Board of Directors or the Compensation Committee of the
Board of Directors. He also is entitled to annual stock option
grants of 50,000 shares during the term of the agreement under the
Long-Term Plan and may be granted up to 50,000 stock options in
lieu of a cash bonus in a particular year.
Under the employment agreement, if the Company terminates Mr.
Mahoney's employment without cause or Mr. Mahoney terminates his
employment with the Company under a limited set of circumstances
defined in the employment agreement, including a change of
control, Mr. Mahoney will receive an amount derived by multiplying
the factor 2.99 by the sum of his salary and bonus paid in the
year prior to the year of termination. In addition, in the event
of a change in control of the Company, all outstanding stock
options held by Mr. Mahoney at the time of the change in control
and which were granted six months or more prior to such time will
become exercisable in full and will become subject to repurchase,
at fair market value, for cash by the Company at Mr. Mahoney's
election. This agreement also provides that in the event it
expires and Mr. Mahoney is not rehired in the same position under
the terms and conditions of a new employment agreement acceptable
to both Mr. Mahoney and the Company, Mr. Mahoney will receive lump
sum severance compensation equal to the sum of the salary and
bonus paid to him in the year ending June 30, 2001, the final year
of the agreement. In the event the agreement is terminated by the
Company for cause, Mr. Mahoney would forfeit any severance payment
and all of his outstanding stock options. The agreement also
provides that upon termination or expiration, Mr. Mahoney's
participation in Company-sponsored employee and health benefit
plans will be continued at the Company's expense for a maximum of
18 months so long as he is alive and is not elsewhere employed or
self-employed.
Philip S. Present II, the Company's Chief Operating Officer and
Director, is employed pursuant to an employment agreement dated
February 1, 2000. The term of this agreement is 12 months. The
agreement provides for a base salary of $18,000 per month,
beginning in February 2000, plus bonuses payable based upon the
attainment of certain profitability criteria. The agreement
contains customary noncompetition and confidentiality provisions
and may be terminated by the Company for nonperformance. In the
event Mr. Present is elected President of the Company during the
term of the agreement, whether or not such election follows a
change in control of the Company, the agreement provides that he
shall be awarded stock options to purchase 50,000 shares of the
Company's Common Stock under the Company's Long-Term Stock
Incentive Plan. In addition, if the Company terminates Mr.
Present's employment without cause, he shall receive severance pay
in the amount of three months' salary. Finally, should Mr.
Present's employment be terminated, with or without cause, as a
result of the liquidation, dissolution, consolidation, merger or
other business combination of the Company, including the transfer
of all or substantially all of the Company's assets, the agreement
provides that (i) the Company shall pay to Mr. Present an amount
equal to twice the aggregate of salary and bonus payments made to
him from February 1, 2000 until the date of such termination and
(ii) all stock options granted to Mr. Present prior to such event
shall immediately become fully vested (but in no event shall any
stock options become vested earlier than the minimum vesting
period provided by the Company's 1994 Long-Term Stock Incentive
Plan).
Paul F. Albrecht, the Company's Chief Technology Officer, is
employed pursuant to an employment agreement dated February 1,
2000. The term of this agreement is 12 months. The agreement
provides for a base salary of $12,000 per month, beginning in
February 2000 through the end of the term of agreement, plus
bonuses payable based upon the attainment of certain revenue and
profitability criteria. The agreement contains customary
noncompetition and confidentiality provisions and may be
terminated by the Company for nonperformance. The agreement does
not contain any special severance provisions which would be
triggered by a change in control of the Company.
Daniel A. Silber, the Company's Chief Financial Officer, is
employed pursuant to an employment agreement dated February 1,
2000. The term of this agreement is 12 months. The agreement
provides for a base salary of $12,000 per month, beginning in
February 2000 through the end of the term of agreement, plus
bonuses payable based upon the attainment of certain revenue and
profitability criteria. The agreement contains customary
noncompetition and confidentiality provisions and may be
terminated by the Company for nonperformance. The agreement does
not contain any special severance provisions which would be
triggered by a change in control of the Company.
Timothy P. McMullen resigned from his position with the Company
effective February 4, 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners
Under Section 13(d) of the Securities Exchange Act of 1934 and the
rules promulgated thereunder, a beneficial owner of a security is
any person who, directly or indirectly, has or shares voting power
or investment power over such security. Such beneficial owner
under this definition need not enjoy the economic benefit of such
securities. The following shareholders are known by the Company
to have been the beneficial owners, as of May 12, 2000, of 5% or
more of the (a) 6,215,232 shares of the Company's Common Stock
outstanding as of such date or (b) 2,371,815 shares of the
Company's Series A Preferred Stock outstanding as of such date:
</TABLE>
<TABLE><CAPTION>
Title of Class Name and Address of Amount and Nature Percent of Class(2)
Beneficial Owner(1) of Ownership
______________________ _____________________________ _____________________________ _____________________
<S> <C> <C> <C>
Common Stock Richard A. Mahoney 3,065,355 shares
Chairman of the Board, owned beneficially(3) 46.20 %
President and Chief
Executive Officer
8598 Twilight Tear Drive
Cincinnati, OH 45249
Common Stock The Keys Plus Irrevocable Trust 690,938 shares 11.11%
8598 Twilight Tear Drive owned beneficially(4)
Cincinnati, OH 45249
Common Stock The Keys Irrevocable Trust 690,937 shares 11.11%
8598 Twilight Tear Drive owned beneficially(4)
Cincinnati, OH 45249
Common Stock Edward L. Cahill 3,388,260 shares 35.50%
Director owned beneficially(5)
909 Old Oak Road
Baltimore, MD 21212
Series A Preferred Stock Edward L. Cahill 3,301,084 shares 98.28%
Director owned beneficially(6)
909 Old Oak Road
Baltimore, MD 21212
_______________________________
</TABLE>
(1) The persons and entities named in the above table had, at May
12, 2000, sole voting and investment power with respect to all
shares of stock shown as beneficially owned by them, subject to
community property laws where applicable and the information
contained in other footnotes to this table. For purposes of this
table, stock options, warrants and convertible preferred shares
were considered to be exercisable or convertible, as the case may
be, if by their terms they could have been exercised or converted
as of May 12, 2000 or if they become exercisable or convertible on
or before July 11, 2000.
(2) Percentages of class ownership indicated for each person are
calculated with respect to a total number of shares equal to the
number of shares of a class actually outstanding as of May 12,
2000 plus that number of shares of such class that the person has
the right to acquire, through exercise, conversion or otherwise,
on or before July 11, 2000.
(3) Total consists of (i) 927,725 owned outright by Mr. Mahoney,
(ii) approximately 9,431 shares held by Mr. Mahoney through the
MedPlus, Inc. 401(k) Plan (the "401(k) Plan"), (iii) 4,500 shares
owned by members of Mr. Mahoney's immediate family and (iv)
400,000 shares subject to options exercisable by Mr. Mahoney as of
May 12, 2000 or on or before July 11, 2000. In addition, Mr.
Mahoney is the sole trustee of two trusts for the benefit of
certain minor children that at May 12, 2000 held a total of
1,381,875 shares of Common Stock; Mr. Mahoney had, and continues
to have, sole voting and dispository power with respect to the
shares held by the trusts but no pecuniary interest in such
shares. Finally, Mr. Mahoney had sole voting power as proxy with
respect to an additional 341,824 shares, of which 20,000 were
shares subject to options exercisable at May 12, 2000 or on or
before July 11, 2000.
(4) These shares are also included in the shares shown as
beneficially owned by Mr. Mahoney.
(5) Total consists of (i) 59,676 shares owned by Cahill, Warnock
Strategic Partners Fund, LP and Strategic Associates, LP (the
"Cahill Entities"), with respect to each of which Mr. Cahill is a
principal, (ii) 2,313,978 shares of Series A Preferred Stock (the
"Preferred Shares") owned by the Cahill Entities, which is
convertible into Common Stock, (iii) 2,500 shares of Common Stock
subject to options exercisable by Mr. Cahill, (iv) 987,106
warrants for Preferred Shares owned by the Cahill Entities which
warrants, once exercised, could be converted into Common Stock and
(v) 25,000 warrants to purchase Common Stock owned by the Cahill
Entities.
(6) Total consists of (i) 2,313,978 Preferred Shares owed by the
Cahill Entities and (ii) 987,106 warrants for Preferred Shares
owned by the Cahill Entities which warrants, once exercised, could
be converted into Common Stock. The Preferred Shares (a) include
voting rights, (b) receive preferential treatment upon liquidation
of the Company and (c) convert into common shares upon certain
events, as more specifically described in the Company's Amended
Articles of Incorporation filed as an Exhibit to the Company's
Form 10-KSB for the fiscal year ended May 12, 2000.
<TABLE><CAPTION>
Management
Ownership of MedPlus, Inc.
As of May 12, 2000, 6,215,232 shares of the Company's Common Stock and 2,371,815 shares of the Company's Series A Preferred
Stock were outstanding. The following table sets forth the beneficial ownership of the Company's Common Stock and Series A
Preferred Stock by its directors, the named executives and all directors and executive officers as a group, as of May 12, 2000:
Title of Class Name and Position of Amount and Nature Percent of Class
Beneficial Owner (1) of Ownership
<S> <C> <C>
Common Stock Richard A. Mahoney 3,065,355 shares 46.20%
Chairman of the Board, President, owned beneficially (2)
Chief Executive Officer and Director
Common Stock Edward L. Cahill 3,388,260 shares 35.50%
Director owned beneficially (3)
Common Stock Paul J. Stein 283,550 shares 4.55%
Director owned beneficially(4)
Common Stock Philip S. Present II 181,502 shares 2.86%
Chief Operating Officer and Director owned beneficially(5)
Common Stock Jay Hilnbrand 73,074 shares 1.17%
Director owned beneficially(6)
Common Stock Timothy P. McMullen 69,427 shares 1.10%
Vice President of Sales and Marketing owned beneficially (7)
Common Stock Paul F. Albrecht 68,737 shares 1.09%
Vice President and owned beneficially (8)
Chief Technology Officer
Common Stock Daniel A. Silber 56,255 shares .90%
Vice President of Finance owned beneficially (9)
and Chief Financial Officer
Common Stock Robert E. Kenny III 22,750 shares .37%
Director and Secretary owned beneficially (10)
Common Stock Martin Neads 18,375 shares .30%
Director owned beneficially (11)
Common Stock Ed Samek 3,000 shares .05%
Director owned beneficially (12)
Series A Preferred Stock Edward L. Cahill 3,301,084 shares 98.28%
Director owned beneficially (13)
Common Stock All directors and executive 6,893,461 shares 67.05%
officers as a group shares owned beneficially (14)
(12 persons)
_____________________________
</TABLE>
(1) The persons and entities named in the above table have sole
voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in
other footnotes to this table. For purposes of this table, stock
options were considered to be currently exercisable if by their
terms they could have been exercised as of May 12, 2000 or if they
will become exercisable within 60 days thereafter. In addition,
percentages of class ownership indicated for each person are
calculated with respect to a total number of shares equal to the
number of shares of a class actually outstanding as of May 12,
2000 plus that number of shares of such class that the person has
the right to acquire, through exercise, conversion or otherwise,
on or before July 11, 2000.
(2) Total consists of (i) 927,725 shares which are owned outright
by Mr. Mahoney, (ii) approximately 9,431 shares held by Mr.
Mahoney through the 401(k) Plan, (iii) 4,500 shares which are
owned by members of Mr. Mahoney's immediate family, (iv) 1,381,875
shares which are owned by Mr. Mahoney as trustee for the benefit
of certain minor children and with respect to which Mr. Mahoney
has sole voting and dispository power, (v) 341,824 shares, 20,000
shares of which are shares subject to options exercisable on or
before July 11, 2000, as to which Mr. Mahoney has sole voting
power as proxy and (vi) 400,000 shares which Mr. Mahoney currently
has, or will have before July 11, 2000, the option to purchase
pursuant to options granted to him in 1995, 1996, 1997, 1998 and
1999 in accordance with his employment agreement with the Company,
and options granted to him in lieu of a cash bonus for 1996.
(3) Total consists of (i) 59,676 shares owned by Cahill, Warnock
Strategic Partners Fund, LP and Strategic Associates, LP (the
"Cahill Entities"), with respect to each of which Mr. Cahill is a
principal, (ii) 2,313,978 shares of Series A Preferred Stock (the
"Preferred Shares") owned by the Cahill Entities, which is
convertible into Common Stock, (iii) 2,500 shares of Common Stock
subject to options exercisable by Mr. Cahill, (iv) 987,106
warrants for Preferred Shares owned by the Cahill Entities which
warrants, once exercised, could be converted into Common Stock and
(v) 25,000 warrants to purchase Common Stock owned by the Cahill
Entities.
(4) Total consists of (i) 255,000 shares owned outright by Mr.
Stein, (ii) 14,800 shares which are owned by members of Mr.
Stein's immediate family and (iii) 13,750 shares which Mr. Stein
currently has the option to purchase or will have the option to
purchase on or before July 11, 2000. Mr. Stein has shared voting
and investment power with respect to the shares owned by members
of his immediate family. Mr. Mahoney has sole voting power as a
proxy with respect to the 255,000 shares owned outright by Mr.
Stein and, should Mr. Stein choose to exercise his option to
purchase the 13,750 shares, Mr. Mahoney will also have sole voting
power as a proxy with respect to those shares. Accordingly, the
255,000 shares owned outright by Mr. Stein and the 13,750 shares
which Mr. Stein has the option to purchase as of are also included
in the shares shown as beneficially owned by Mr. Mahoney.
(5) Total consists of (i) 1,371 shares owned outright by Mr.
Present, (ii) 50,000 shares owned by Mr. Present through a
retirement plan account, (iii) 120,001 shares which Mr. Present
has the option to purchase or will have the option to purchase on
or before July 11, 2000 and (iv) approximately 10,130 shares held
by Mr. Present through the 401(k) Plan.
(6) Total consists of (i) 66,824 shares owned outright by Mr.
Hilnbrand and (ii) 6,250 shares which Mr. Hilnbrand has the option
to purchase or will have the option to purchase on or before July
11, 2000. Mr. Mahoney has sole voting power as a proxy with
respect to the 66,824 shares owned outright by Mr. Hilnbrand and,
should Mr. Hilnbrand choose to exercise his option to purchase the
6,250 shares, Mr. Mahoney will also have sole voting power as a
proxy with respect to those shares. Accordingly, all shares shown
as beneficially owned by Mr. Hilnbrand are also included in the
shares shown as beneficially owned by Mr. Mahoney.
(7) Total consists of (i) approximately 1,093 shares held by Mr.
McMullen through the 401(k) Plan and (ii) 68,334 shares which Mr.
McMullen has the option to purchase or will have the option to
purchase on or before July 11, 2000.
(8) Total consists of (i) 500 shares owned outright by Mr.
Albrecht, (ii) approximately 1,737 shares held by Mr. Albrecht
through the 401(k) Plan and (iii) 66,500 shares which Mr. Albrecht
has the option to purchase or will have the option to purchase on
or before July 11, 2000.
(9) Total consists of 4,983 shares owned outright by Mr. Silber,
approximately 3,605 shares held by Mr. Silber through the 401(k)
Plan and 47,667 shares which Mr. Silber has the option to purchase
or will have the option to purchase on or before July 11, 2000.
(10) Total consists of (i) 5,000 shares owned outright by Mr.
Kenny, (ii) 6,500 shares which Mr. Kenny owns through an IRA and
(iii) 11,250 shares which Mr. Kenny has the option to purchase or
will have the option to purchase on or before July 11, 2000.
(11) Total consists of (i) 15,000 shares owned outright by Mr.
Neads and (ii) 3,375 shares which Mr. Neads has the option to
purchase or will have the option to purchase on or before July 11,
2000.
(12) Total consists of 3,000 shares owned outright by Mr. Samek.
(13) Total consists of (i) 2,313,978 Preferred Shares owned by the
Cahill Entities and (ii) 987,106 warrants for Preferred Shares
owned by the Cahill Entities which warrants, once exercised, could
be converted into Common Stock. The Preferred Shares (a) include
voting rights, (b) receive preferential treatment upon liquidation
of the Company and (c) convert into common shares upon certain
events, as more specifically described in the Company's Amended
Articles of Incorporation filed as an Exhibit to the Company's
Form 10-KSB for the fiscal year ended May 12, 2000. No officers,
named executives or directors other than Mr. Cahill beneficially
own any Preferred Shares.
(14) Includes 3,065,355 shares owned by Mr. Mahoney, 3,388,260
shares beneficially owned by Mr. Cahill, 14,800 shares owned by
Mr. Stein's immediate family, 181,502 shares beneficially owned by
Mr. Present, 69,427 shares beneficially owned by Mr. McMullen,
68,737 shares beneficially owned by Mr. Albrecht, 56,255 shares
beneficially owned by Mr. Silber, 22,750 shares beneficially owned
by Mr. Kenny, 18,375 shares beneficially owned by Mr. Neads, 3,000
shares beneficially owned by Mr. Samek and the total number of
shares owned by those officers who are not named executives. No
officers, named executives or directors other than Mr. Cahill
beneficially own any Preferred Shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND OTHER INFORMATION
In December 1999, the Company's board of directors authorized
management to enter into negotiations to formally dispose of its
majority interest in DiaLogos Incorporated, its education
subsidiary. In March 2000, the Company's 78% interest in
DiaLogos, since renamed "Learning Voyage, Inc.," was redeemed by
Learning Voyage for $300,000 cash (immediately following a capital
infusion Learning Voyage obtained from a private investment
group), a $450,000 note due in two years with interest payable at
a 2% premium over the current prime rate and a stock purchase
warrant for a 10% interest in Learning Voyage. The warrant is
exercisable based upon certain future actions taken by the
management of Learning Voyage. In 1997, Richard Mahoney, the
President, Chief Executive Officer and Chairman of the
Board of the Company, Philip S. Present II, the Chief
Operating Officer and Director of the Company and Daniel A.
Silber, the Chief Financial Officer of the Company, had each
invested funds in DiaLogos in exchange for ownership interests
therein. Specifically, Mr. Mahoney and his spouse had invested a
total amount of $297,000 for an interest of 13.5% of DiaLogos, Mr.
Present had invested $44,000 for a 2% interest in DiaLogos and Mr.
Silber had invested $22,000 for a 1% interest in DiaLogos. As a
result of Learning Voyage's redemption of certain outstanding
shares (unrelated to MedPlus' disposition of its interest), the
ownership interests described above of each of Messrs. Mahoney,
Present and Silber increased to 18%, 2.7% and 1.3%, respectively.
Furthermore, Mr. Mahoney, by virtue of his ownership interest in
a private investment group, now indirectly owns an additional 39%
of Learning Voyage.
On January 1, 1998, and again on January 1, 1999, the Company
entered into consecutive Representative Agreements with European
IT Solutions ("EITS") pursuant to which the Company hired EITS to
research, develop and implement an indirect sales channel for the
Company's products and services into part or parts of the member
states of the European Union ("EU"). The Agreement with EITS was
renewed on July 1, 1999 to extend until June 30, 2000. Martin A.
Neads, a director of the Company, is a principle of EITS.
Pursuant to the Representative Agreement, the Company has advanced
and will continue to advance a certain amount of funding to EITS
for market assessment and other activities to be performed by EITS
and/or its agents in furtherance of its objectives. In addition,
in exchange for its services pursuant to the Representative
Agreement, EITS is to receive certain marketing fees based on
successful sales in the EU.
The Company's Chief Operating Officer and Director, Philip S.
Present II, was an audit partner with the accounting firm KPMG
Peat Marwick LLP ("KPMG") prior to joining the Company in 1995.
In such capacity he served as the engagement partner for a client
of KPMG during 1993. In 1995 that client restated its financial
statements for the years 1992 and 1993 as a result of its
allegedly having reported premature and fictitious revenue for
such years. In April 1997, the Securities and Exchange Commission
("SEC") settled a civil proceeding in the United States District
Court for the Southern District of Ohio against that client and
five of its former senior officers. The client consented to a
permanent injunction and the former officers consented to both
permanent injunctions and a total of approximately $1.5 million in
monetary penalties. One of the former officers also pleaded
guilty to related criminal charges. In a separate administrative
proceeding also concluded in April 1997, Mr. Present and another
former KPMG partner voluntarily consented to a cease and desist
order arising out of the conduct of the audits of the client's
financial statements without admitting or denying any of the SEC's
allegations. As a result of the order, Mr. Present was prohibited
from practicing as an accountant before the SEC for a period of 30
months from the date of such order. The order does not affect his
current duties with the Company or his ability to serve as a
director of a publicly-held company. Mr. Present voluntarily
consented to the order in order to avoid the expense and time
burden of prolonged contested proceedings.
In the first quarter of fiscal 2000, the Company entered into an
Agreement with three investment firms to obtain $6,100,000 in debt
and equity financing. Edward L. Cahill, one of the Company's
directors, is a principal in two of those firms. The detailed
terms of the debt and equity financing are described in detail in
Item 6, "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Financing," as amended
hereby. As of May 12, 2000, the specific ownership interests in
the Company held by Cahill, Warnock Strategic Partners Fund, LP
and Strategic Associates, LP (the "Cahill Entities"), with respect
to each of which Mr. Cahill is a principal, are as follows: (i)
59,676 shares of Common Stock, (ii) 2,313,978 shares of Series A
Preferred Stock (the "Preferred Shares"), (iii) 987,106 warrants
for Preferred Shares and (iv) 25,000 warrants to purchase Common
Stock owned by the Cahill Entities. For further information, see
Item 11, "Security Ownership of Certain Beneficial Owners and
Management" and related footnotes the tables included therein.
<TABLE><CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are hereby filed as part of this
Form 10-KSB:
Sequential
Exhibit Number Description of Exhibits Page Number
<S> <C> <C>
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 First Lease Amendment between MedPlus, Inc. and Duke Realty Limited
Partnership for principal offices, dated December 6, 1996 See note 4
10.4 Second Lease Amendment between MedPlus, Inc. and Duke Realty Limited
Partnership for principal offices, dated December 6, 1996 See note 4
10.5 OptiMaxx[R] And Step2000[R] Software License, Hardware Purchase and Related
Services Agreement dated August 31, 1998 by and between MedPlus, Inc. and
Quest Diagnostics Incorporated See note 5
10.6 Securities Purchase Agreement dated April 30, 1999 by and among MedPlus,
Inc. and Cahill, Warnock Strategic Partners, L.P., et al. See note 5
10.7 Amended and Restated Securities Purchase Agreement dated
June 8, 1999 by and among MedPlus, Inc. and Cahill, Warnock Strategic
Partners, L.P., et al. See note 6
10.8 MedPlus, Inc. Software License and Database Maintenance Agreement dated
December 9, 1999 by and between MedPlus, Inc. and Quest Diagnostics
Incorporated
10.9 MedPlus, Inc. ChartMaxx[TM] Software License Agreement dated January 4, 2000
by and between MedPlus, Inc. and Cybear, Inc.
10.10 Employment Agreement dated February 1, 2000 by and between MedPlus, Inc. and Philip S. Present II
10.11 Employment Agreement dated February 1, 2000 by and between MedPlus, Inc. and Thomas Wagner
10.12 Employment Agreement dated February 15, 2000 by and between Peter Stephan and MedPlus, Inc.
10.13 Employment Agreement dated February 1, 2000 by and between Daniel A. Silber and MedPlus, Inc.
10.14 Employment Agreement dated February 1, 2000 by and between Paul F. Albrecht and MedPlus, Inc.
10.15 Pledge and Security Agreement dated March 1, 2000 by and between MedPlus,
Inc. and LV Acquisition, LLC
10.16 Stock Redemption Agreement dated March 1, 2000 by and between MedPlus, Inc. and Learning Voyage, Inc.
10.17 Promissory Note dated March 1, 2000 from Learning Voyage, Inc.
10.18 Common Stock Warrant dated March 1, 2000 for 80,000 shares of Learning Voyage, Inc.
10.19 Letter Agreement by and between the Company and Cahill, Warnock Strategic Partners Fund,
L.P. dated May 1, 2000
10.19 Letter Agreement by and between the Company and Strategic Associates, L.P. dated May 1, 2000
13 Annual Report to Shareholders See note 7
21 Subsidiaries of MedPlus, Inc.
23 Consent of KPMG LLP
</TABLE>
Note 1: Incorporated by reference to the Company's Report on Form
8-K filed on February 11, 1998.
Note 2: Amended Articles of Incorporation are attached hereto and
the Company's Code of Regulations is 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 Annual Report
on Form 10K-SB filed May 3, 1999.
Note 6: Incorporated by reference to the Company's Report on Form
8-K filed on June 9, 1999.
Note 7: 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, 2000 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) No Reports on Form 8-K were filed during the three-month
period ended January 31, 2000.
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: May 30, 2000
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 Board, May 30, 2000
Richard A. Mahoney Chief Executive Officer
and President (Principal
Executive Officer)
/s/ Daniel A. Silber Vice President of May 30, 2000
Daniel A. Silber Finance and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Philip S. Present II Chief Operating Officer May 30, 2000
Philip S. Present II and Director
/s/ Robert E. Kenny III Secretary and Director May 30, 2000
Robert E. Kenny III
/s/ Edward L. Cahill Director May 30, 2000
Edward L. Cahill
/s/ Jay Hilnbrand Director May 30, 2000
Jay Hilnbrand
/s/ Martin A. Neads Director May 30, 2000
Martin A. Neads
/s/ Edward L. Samek Director May 30, 2000
Edward L. Samek
/s/ Paul Stein Director May 30, 2000
Paul Stein
