UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _____________
Commission file number Z - 24196
MEDPLUS, INC.
(Exact name of registrant as specified in its charter)
Ohio 48-1094982
(State or other jurisdiction of (I.R.S. Employer Id. No.)
incorporation or organization)
8805 Governor's Hill Drive, Suite 100
Cincinnati, OH 45249
(Address of principal executive offices)
(513) 583-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of November 1, 1996, there were 5,918,406 shares of the
Registrant's Common Stock without par value issued and
outstanding.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
MEDPLUS, INC. and SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
_____________ ____________ ___________ ____________
Net revenues $2,806,479 2,596,883 7,902,784 6,399,245
Cost of revenues 1,406,481 1,189,958 3,780,757 2,762,414
_____________ ____________ ___________ ____________
Gross profit 1,399,998 1,406,925 4,122,027 3,636,831
Operating expenses:
Sales and marketing 1,090,911 832,854 2,711,041 2,433,055
Research and development 254,527 212,678 455,735 430,674
General and administrative 790,028 334,184 2,528,812 960,167
____________ ___________ ___________ ___________
Total operating expenses 2,135,466 1,379,716 5,695,588 3,823,896
____________ ___________ ___________ ___________
Operating profit (loss) (735,468) 27,209 (1,573,561) (187,065)
Other income, net 58,520 25,867 236,799 103,435
____________ ___________ __________ ___________
Income (loss) before income tax
(benefit) expense (676,948) 53,076 (1,336,762) (83,630)
Income tax (benefit) expense -- 19,700 -- (30,150)
____________ __________ ____________ ____________
Net income (loss) $ (676,948) 33,376 (1,336,762) (53,480)
____________ __________ ___________ ___________
____________ __________ ___________ ___________
Net income (loss) per share $ (0.11) 0.01 (0.23) (0.01)
____________ __________ ___________ ___________
____________ __________ ___________ ___________
Weighted average number of shares
of common stock outstanding 5,913,749 4,827,298 5,862,371 4,788,426
____________ __________ ___________ ___________
____________ __________ ___________ ___________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
ASSETS 1996 1995
___________ ____________
Current assets:
Cash and cash equivalents $ 4,180,525 7,494,094
Investment securities 305,632 500,020
Accounts receivable, less allowance for doubtful accounts
of $80,000 in 1996 and $50,000 in 1995 3,655,470 2,799,428
Other receivables 285,089 215,688
Inventories 753,075 538,274
Unbilled service contracts 648,805 279,410
Prepaid expenses and other current assets 476,831 505,426
__________ ___________
Total current assets 10,305,427 12,332,340
__________ ____________
Investment securities --- 302,730
Unbilled service contracts 1,015,074 943,446
Capitalized software development costs, net of accumulated
amortization of $731,969 in 1996 and $457,178 in 1995 2,065,734 1,265,906
Equipment, furniture and fixtures, less accumulated depreciation of
$390,946 in 1996 and $236,203 in 1995 1,287,563 905,365
Excess of cost over fair value of net assets acquired, net of
accumulated amortization of $81,513 in 1996 and $6,335 in 1995 932,128 1,040,649
Other assets 96,843 166,705
__________ ___________
$ 15,702,769 16,957,141
___________ ___________
___________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases $ 46,643 53,093
Accounts payable 1,370,103 1,104,214
Accrued expenses 757,293 1,181,263
Payable to selling shareholders of Universal Document
Management Systems, Inc. --- 1,011,353
Deferred revenue 775,874 560,802
Deferred revenue on unbilled service contracts 648,805 279,410
_________ __________
Total current liabilities 3,598,718 4,190,135
_________ __________
Obligations under capital leases, excluding current installments 66,395 103,565
Deferred revenue 49,418 96,446
Deferred revenue on unbilled service contracts 1,015,074 943,446
_________ _________
Total liabilities 4,729,605 5,333,592
_________ _________
Shareholders' equity:
Common stock, no par value, authorized 15,000,000 shares;
issued and outstanding 5,918,406 shares in 1996
and 5,808,524 shares in 1995 1,092 1,056
Additional paid-in capital 14,729,477 14,035,728
Accumulated deficit (3,714,150) (2,377,388)
Unrealized gain on investment 1,920 3,258
Deferred compensation under employee stock award plan (45,175) (39,105)
__________ __________
Total shareholders' equity 10,973,164 11,623,549
__________ __________
$15,702,769 16,957,141
__________ __________
__________ __________
See accompanying notes to consolidated financial statements
MEDPLUS, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine months
ended September 30,
1996 1995
Cash flows from operating activities: _________ _________
Net loss $(1,336,762) (53,480)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of capitalized software development costs 274,791 104,314
Amortization of deferred compensation costs 64,478 --
Depreciation and amortization 238,098 110,157
Realized (gain) loss on sale of investment securities and
equipment, furniture and fixtures (13,846) 10,584
Provision for loss on doubtful accounts 30,000 --
Deferred income taxes -- (52,232)
Changes in assets and liabilities:
Accounts receivable (886,042) (1,189,367)
Other receivables (69,401) (166,862)
Inventories (214,801) (130,002)
Prepaid expenses and other assets 97,359 81,699
Accounts payable and accrued expenses (57,581) 496,707
Income taxes payable -- (5,400)
Deferred revenue 168,044 90,016
__________ __________
Net cash used in operating activities (1,705,663) (703,866)
__________ __________
Cash flows from investing activities:
Capitalization of software development costs (1,074,619) (588,946)
Purchases of equipment, furniture and fixtures (514,779) (323,825)
Purchases of investment securities -- (236,256)
Proceeds from sales of investment securities and equipment,
furniture and fixtures 515,385 1,279,260
Payments to selling shareholders of Universal Document
Management Systems, Inc. (850,625) --
Other payments made in acquisitions of businesses (102,157) --
___________ __________
Net cash provided by (used in) investing activities (2,026,795) 130,233
Cash flows from financing activities:
Proceeds from issuance of common stock 462,509 287,453
Proceeds from borrowing on line of credit 1,311,969 829,564
Repayments on line of credit (1,311,969) (829,564)
Principal payments on capital lease obligations (43,620) (36,767)
__________ _________
Net cash provided by financing activities 418,889 250,686
__________ ___________
Net decrease in cash (3,313,569) (322,947)
Cash and cash equivalents at beginning of period 7,494,094 546,998
___________ ___________
Cash and cash equivalents at end of period $ 4,180,525 224,051
___________ ___________
___________ ___________
Interest paid $12,412 11,397
___________ ___________
___________ ___________
Income taxes paid $ -- --
___________ ___________
___________ ___________
See accompanying notes to consolidated financial statements.
MedPlus, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Description of the Business
MedPlus, Inc. (the "Company") provides state-of-the-art
information management technology products and consulting services
to customers in the healthcare industry. The Company's products
presently consist of the IntelliCode( Intelligent Bar Code System
("IntelliCode"), the OptiMaxx( Document Archival and Retrieval
System ("OptiMaxx"), the ChartMaxx Electronic Patient Record
System ("ChartMaxx"), and Step2000( Workflow, Document
Management, and Application Development System (Step 2000).
IntelliCode is an intelligent bar coding system for hospitals and
other healthcare organizations. OptiMaxx is an optical disk-based
document archival system. ChartMaxx is an enterprise-wide
electronic patient data repository. Step2000 is workflow,
document management, and application development software that
enhances the utilization of information on an enterprise-wide
basis, regardless of hardware platform or operating environment.
With its acquisition of FutureCORE, Ltd ("FutureCORE"), the
Company has also begun to provide process improvement and
automation services, primarily in the areas of patient care and
laboratory services (see Note 3).
All of the Company's products are based on an open
architecture and are modular in design allowing them to easily
integrate with a client's current information system. The
Company's products allow healthcare providers to more efficiently
collect, store and retrieve medical information. In addition, the
Company's technologies and products are designed to allow
healthcare providers to improve quality, increase productivity,
and integrate with the physician office, while reducing overall
costs.
(2) Summary of Significant Accounting Policies
(a) Interim Financial Information
The consolidated financial statements and the related notes
thereto are unaudited and have been prepared on the same basis as
the audited consolidated financial statements. In the opinion of
management, such unaudited financial statements include all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the information set forth therein.
(b) Significant Accounting Policies
A description of the Company's significant accounting
policies can be found in the footnotes to the Company's 1995
annual consolidated financial statements included in its Annual
Report on Form 10-KSB dated March 29, 1996. The accompanying
consolidated financial statements should be read in conjunction
with those footnotes.
(c) Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average
number of shares of common stock and common stock equivalents
outstanding for each period. During periods of net loss, common
stock equivalents are not included in weighted average shares
outstanding.
(d) Supplemental Cash Flow Information
In April 1996, the Company issued 14,249 shares of common
stock valued at $160,728 to the selling shareholders of Universal
Document Management Systems, Inc. ("UDMS") in satisfaction for
contingent consideration earned from the period December 14, 1995
to December 31, 1995 in accordance with the UDMS acquisition
agreements. As this was a non-cash transaction, it has not been
presented in the Consolidated Statements of Cash Flows.
(e) Reclassifications
Certain reclassifications have been made to the consolidated
financial statements for 1995 to conform to the current year
presentation.
(3) Acquisition of FutureCORE
Effective June 28, 1996, the Company acquired all of the
assets of FutureCORE, Ltd. ("FutureCORE"), a hospital, laboratory
and physician services consulting firm. The acquisition has been
accounted for under the purchase method, and the financial
position and results of operations of FutureCORE have been
included in the Company's consolidated financial statements since
the date of the acquisition.
The total consideration paid for these assets consisted of
cash of $61,250. The asset purchase agreement also provides for
additional consideration contingent upon the future net revenue
and contribution margin performance of FutureCORE as it relates to
its backlog as of June 28, 1996. The purchase price for
FutureCORE has been allocated to the identifiable tangible and
intangible assets acquired based on their fair market value. The
additional contingent consideration, if earned, would be accounted
for as an additional cost of the acquisition.
(4) Commitments and Contingency
(a) Commitment
The Company signed a letter of agreement with a software
company ("software company"), dated July 12, 1996, in which the
Company, on or before January 31, 1997, agreed to either (a) pay
$1.65 million to the software company in return for 75% of the
common shares of the software company, or (b) secure a funding
commitment for the software company's operations in the amount of
$1.65 million from investors and/or lenders. In the event the
Company secures a funding commitment from investors and/or
lenders, then the software company will grant the Company the
option to purchase 75% of the common shares of the software
company. The Company's option would be immediately exercisable
and remain in effect until December 31, 1999.
Under the agreement, the Company will fund the operations of
the software company until funding has begun under either option
discussed in the preceding paragraph. If the Company pays the
software company $1.65 million for the common shares, then such
purchase price will be reduced by any funds previously paid to the
software company to fund its operations plus interest. If the
Company secures funding for the software company from investors
and/or lenders for $1.65 million, then upon the software company's
receipt of such funding, it will immediately reimburse the Company
for any funds previously paid to it plus interest. Interest will
be equal to the prime rate announced by the Company's primary bank
lender plus 1% per annum. The Company had advanced approximately
$108,000 to the software company under this agreement as of
September 30, 1996.
The Company has also provided a corporate guarantee to a
leasing company under which the Company has guaranteed the
payments due by the software company under certain lease
agreements for equipment and furniture. The amounts due under the
leases, which terminate in 1999 and 2001, are approximately
$135,000.
The software company provides software, education and
services to corporations that are implementing object-oriented
systems in the design and redesign of their business processes.
(b) Litigation
In 1995, a former supplier filed a complaint against the
Company alleging breach of contract and trade libel. The Company
then filed a counterclaim against the supplier in January of 1996.
The Company and the supplier reached a settlement agreement under
which the Company paid the supplier approximately $28,000 and
wrote off approximately $26,000 in amounts due from the supplier.
An agreed order of dismissal was entered in September of 1996
which dismissed the supplier's complaint and the Company's
counterclaim.
Item No. 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net revenues for the third quarter were a record $2,806,479, an
increase of $209,596 or 8% over the $2,596,883 reported for the
comparable period in 1995. For the nine months ended September
30, 1996, net revenues were also a record at $7,902,784, an
increase of $1,503,539 or 23% over the $6,399,245 reported for the
comparable period in 1995. The increase in net revenues for both
periods is primarily a result of revenues from the ChartMaxx and
Step 2000 products which the Company did not begin selling until
the third and fourth quarters of 1995, respectively. The Company
completed the installation of its fourth ChartMaxx system in the
third quarter of 1996.
Operating expenses for the third quarter of 1996 were $2,135,466
compared to $1,379,716 for 1995, an increase of 55%. Operating
expenses were $5,695,588 and $3,823,896, respectively, for the
nine months ended September 30, 1996 and 1995, an increase of 49%.
The increase is a result of an increase in personnel from 61 to
106 over the past twelve months. The personnel increase related
to additional employees in the areas of sales, marketing, product
development, customer support, administration and the Company's
new subsidiaries, Universal Document Management Systems and
FutureCORE. Substantial expenditures have also been made in the
current year to increase market awareness of the Company's
products, especially the commercial release of the new ChartMaxx
system. The Company also recorded a $54,000 charge associated with
the settlement of a lawsuit by a former supplier in the third
quarter.
The Company's net loss for the third quarter of 1996 was $676,948
compared to net income in 1995 of $33,376. For the nine months
ended September 30, 1996, the net loss was $1,336,762 compared to
a net loss of $53,480 for the comparable period in 1995. The net
losses are a result of the increased operating expenses discussed
in the preceding paragraph. The Company's net operating loss
carryforwards for Federal income tax purposes at September 30,
1996 are estimated to be approximately $3,035,000. These
carryforwards are available to offset Federal taxable income, if
any, through 2011.
The weighted average shares outstanding for the three months ended
September 30, 1996 were 5,913,749 as compared to 4,827,298 for the
comparable period in 1995. Weighted average shares outstanding
increased primarily due to the issuance of an additional 900,000
shares of stock in the Company's secondary offering in November of
1995, and the exercise by underwriters of warrants to purchase a
total of 110,000 shares of common stock during August and
September of 1995 and May of 1996.
The Company signed a letter of agreement with a software company
("software company"), dated July 12, 1996, in which the Company,
on or before January 31, 1997, agreed to either (a) pay $1.65
million to the software company in return for 75% of the common
shares of the software company, or (b) secure a funding commitment
for the software company's operations in the amount of $1.65
million from investors and/or lenders. In the event the Company
secures a funding commitment from investors and/or lenders, then
the software company will grant the Company the option to purchase
75% of the common shares of the software company. The Company's
option would be immediately exercisable and remain in effect until
December 31, 1999.
Under the agreement, the Company will fund the operations of the
software company until funding has begun under either option
discussed in the preceding paragraph. If the Company pays the
software company $1.65 million for the common shares, then such
purchase price will be reduced by any funds previously paid to the
software company to fund its operations plus interest. If the
Company secures funding for the software company from investors
and/or lenders for $1.65 million, then upon the software company's
receipt of such funding, it will immediately reimburse the Company
for any funds previously paid to it plus interest. Interest will
be equal to the prime rate announced by the Company's primary bank
lender plus 1% per annum. The Company had advanced approximately
$108,000 to the software company under this agreement as of
September 30, 1996. The software company provides software,
education and services to corporations that are implementing
object-oriented systems in the design and redesign of their
business processes.
The Company has also provided a corporate guarantee to a leasing
company under which the Company has guaranteed the payments due by
the software company under certain lease agreements for equipment
and furniture. The amounts due under the leases, which terminate
in 1999 and 2001, are approximately $135,000.
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
In 1995, a former supplier filed a complaint against the
Company alleging breach of contract and trade libel. The Company
then filed a counterclaim against the supplier in January of 1996.
The Company and the supplier reached a settlement agreement under
which the Company paid the supplier approximately $28,000 and
wrote off approximately $26,000 in amounts due from the supplier.
An agreed order of dismissal was entered in September of 1996
which dismissed the supplier's complaint and the Company's
counterclaim.
Items 2-4. None
Item 5. Other Information
On November 5, 1996, the Company issued the attached press release
announcing that its Board of Directors has authorized management
to repurchase up to 500,000 shares of its stock in the open market
commencing on or after November 6, 1996, announcing certain
employment decisions and announcing that it expects its fourth
quarter results of operations to result in a loss for the period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Cross Corporate Guarantee, dated October 3, 1996.
99 Press release, dated November 5, 1996.
27 Financial Data Schedule
(b) No reports on Form 8-K filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MedPlus, Inc.
Date: 11/14/96 By: /s/Daniel A. Silber
Daniel A. Silber
Chief Financial Officer
* Pursuant to the last sentence of General Instruction G to Form
10-QSB, Mr. Daniel A. Silber has executed this Quarterly report of
Form 10-QSB both on behalf of the registrant and in his capacity
as its principal financial and accounting officer.
Index to Exhibits
10.1 Cross Corporate Guarantee, dated October 3, 1996.
99.1 Press release, dated November 5, 1996.
27 Financial Data Schedule