U.S. 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: March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission file number: Z-24196
MEDPLUS, INC.
(Name of small business issuer in its charter)
OHIO 48-1094982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8805 Governor's Hill Drive, Suite 100, Cincinnati OH 45249
(Address of principal executive offices) (Zip Code)
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 May 1, 1997, there were 5,924,206 shares of the registrant's
common stock without par value issued and outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
______________ ______________
Revenues:
Systems sales $ 1,945,125 1,385,762
Service, consulting, and
other revenues 1,009,132 938,995
______________ ______________
Total revenues 2,954,257 2,324,757
______________ ______________
Cost of revenues:
Systems sales 1,075,706 662,885
Service, consulting, and
other revenues 691,595 427,145
______________ ______________
Total cost of revenues 1,767,301 1,090,030
______________ ______________
Gross profit 1,186,956 1,234,727
Operating expenses:
Sales and marketing 1,464,559 807,681
Research and development 224,401 131,666
General and administrative 826,301 740,913
______________ ______________
Total operating expenses 2,515,261 1,680,260
______________ ______________
Operating loss (1,328,305) (445,533)
Other income, net 12,149 99,972
______________ ______________
Loss before income taxes (1,316,156) (345,561)
Income taxes -- --
______________ ______________
Net loss $ (1,316,156) (345,561)
______________ ______________
______________ ______________
Net loss per share $ (0.22) (0.06)
______________ ______________
______________ ______________
Weighted average number of shares
of common stock and common stock
equivalents outstanding 5,921,623 5,808,392
______________ ______________
______________ ______________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
March 31, March 31,
1997 1996
____________ ___________
Current assets:
Cash and cash equivalents $ 704,464 2,700,607
Investment securities 300,030 300,510
Accounts receivable, less allowance
for doubtful accounts of $110,000
in 1997 and $100,000 in 1996 3,433,286 3,676,614
Other receivables 870,868 463,068
Inventories 1,218,502 827,619
Unbilled service contracts 280,920 325,352
Prepaid expenses and
other current assets 654,040 617,737
____________ ___________
Total current assets 7,462,110 8,911,537
____________ ___________
Unbilled service contracts 1,334,739 1,137,575
Capitalized software development
costs, net 2,424,142 2,278,358
Fixed assets, net 1,545,960 1,462,818
Excess of cost over fair value
of net assets acquired, net 884,750 911,402
Other assets 194,977 145,454
____________ ___________
$ 13,846,678 14,847,144
____________ ___________
____________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
obligations under capital leases $ 37,834 38,154
Accounts payable 1,548,923 1,417,760
Accrued expenses 903,225 1,063,109
Deferred revenue 1,035,670 897,224
Deferred revenue on unbilled
service contracts 280,920 325,352
____________ ___________
Total current liabilities 3,806,572 3,741,599
____________ ___________
Obligations under capital leases,
excluding current installments 71,897 81,229
Deferred revenue 21,242 28,748
Deferred revenue on unbilled
service contracts 1,334,739 1,137,575
____________ ___________
Total liabilities 5,234,450 4,989,151
____________ ___________
Shareholders' equity:
Common stock, no par value, authorized
15,000,000 shares; issued and outstanding
5,924,206 shares in 1997 and
5,919,206 shares in 1996 1,077 1,076
Additional paid-in capital 14,952,959 14,734,036
Accumulated deficit (6,165,736) (4,849,580)
Unrealized gains on investment
securities 1,517 1,824
Deferred compensation (177,589) (29,363)
____________ ___________
Total shareholders' equity 8,612,228 9,857,993
____________ ___________
Commitments and contingency
$ 13,846,678 14,847,144
____________ ___________
____________ ___________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
_______________ _____________
Cash flows from operating
activities:
Net loss $ (1,316,156) (345,561)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of
capitalized software
development costs 138,541 91,596
Depreciation and
amortization 84,869 48,020
Amortization of deferred
compensation costs 39,848 21,207
Amortization of excess of
cost over fair value of
net assets acquired 26,652 17,335
Realized gain on sale of
investment securities and
fixed assets (7,226) ---
Provision for loss on
doubtful accounts 10,000 ---
Changes in assets and
liabilities:
Accounts receivable 233,328 (451,477)
Other receivables 6,161 7,418
Inventories (390,883) 64,774
Prepaid expenses and
other assets (71,294) 196,523
Accounts payable and
accrued expenses (28,720) (522,357)
Deferred revenue 130,940 (53,579)
_______________ _____________
Net cash used in
operating activities (1,143,940) (926,101)
_______________ _____________
Cash flows from investing
activities:
Capitalization of software
development costs (284,325) (294,302)
Purchases of fixed assets (183,899) (144,412)
Proceeds from sales of
investment securities
and fixed assets 23,114 505,745
Payments to selling
shareholders in business
acquisitions --- (731,353)
Other advances and
investments (397,440) ---
_______________ _____________
Net cash used in
investing activities (842,550) (664,322)
_______________ _____________
Cash flows from financing activities:
Proceeds from issuance
of common stock, net of
issuance costs --- 11,500
Proceeds from borrowings on
line of credit 7,505 431,602
Repayments on line of credit (7,505) (350,742)
Principal payments on capital
lease obligations (9,653) (14,694)
_______________ _____________
Net cash provided by (used
in)financing activities (9,653) 77,666
_______________ _____________
Net decrease in cash
and cash equivalents (1,996,143) (1,512,757)
Cash and cash equivalents,
beginning of period 2,700,607 7,494,094
_______________ _____________
Cash and cash equivalents,
end of period $ 704,464 5,981,337
_______________ _____________
_______________ _____________
Interest paid $ 3,650 6,143
_______________ _____________
_______________ _____________
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Description of the Business
MedPlus, Inc. (the "Company") provides state-of-the-art
information management technology products and consulting services
to customers predominantly in the healthcare industry. The
Company's products presently consist of the IntelliCode [tm]
Intelligent Bar Code System ("IntelliCode"), the OptiMaxx
[tm]Archival System ("OptiMaxx"), the ChartMaxx Electronic Patient
Record System ("ChartMaxx"), and Step2000 [tm] Workflow,
Document Management, and Application Development System
("Step2000"). IntelliCode is an intelligent bar coding system for
hospitals and other healthcare organizations. OptiMaxx is an
optical disk-based archival system. ChartMaxx is an
enterprise-wide electronic patient record system. Step2000 is
workflow, document management, and application development
software that enhances the utilization of information on an
enterprise-wide basis, regardless of hardware platform or
operating environment. The Company's FutureCORE subsidiary
provides process improvement and automation services, primarily in
the areas of patient care and laboratory services.
(2) Summary of Significant Accounting Policies
(a) Interim Financial Information
The consolidated financial statements and the related notes
thereto are unaudited and have been prepared on the same basis as
the audited consolidated financial statements. In the opinion of
management, such unaudited financial statements include all
adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the information set forth therein.
(b) Significant Accounting Policies
A description of the Company's significant accounting
policies can be found in the footnotes to the Company's 1996
annual consolidated financial statements included in its Annual
Report on Form 10-KSB dated March 27, 1997. The accompanying
consolidated financial statements should be read in conjunction
with those footnotes.
(c) Net 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 January and February 1997, the Company issued 5,000 shares
of restricted common stock valued at $30,000 to a vendor in
exchange for services rendered. The Company also granted options
to purchase 85,000 shares of the Company's common stock as
compensation to several consultants to the Company. These options
have a fair value of approximately $188,000 which is being
amortized into expense over the related service periods of one to
two years. As these are non-cash transactions, they have not been
presented in the Consolidated Statements of Cash Flows.
(e) Reclassifications
Certain reclassifications have been made to the consolidated
financial statements for 1996 to conform to the current year
presentation.
(3) Commitments and Contingency
The Company's Universal Document Management Systems, Inc.
("Universal Document") subsidiary has entered into agreements with
two consulting firms to assist it in the identification and
recruitment of certain software resellers and integrators that
Universal Document may acquire or combine with, and to assist
Universal Document in an initial public offering of the combined
companies. The acquisition of or combination with these resellers
and integrators would be concurrent with and contingent upon a
successful public offering. In connection with these potential
acquisitions, the Company has capitalized approximately $80,000 of
direct, incremental costs related to these potential acquisitions
for attorneys' and consultants' fees that will become a cost of
the acquired companies upon the completion of any acquisition. In
the event that management decides to abandon the plans to acquire
these companies, then these costs will be charged to expense in
the period that decision is made. Similar costs incurred in future
periods will be treated in a consistent manner.
(4) Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share, which establishes standards for computing and
presenting earnings per share. SFAS No. 128 simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15. It replaces the presentation of primary earnings
per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator of the basic earnings per share
computation to the numerator and denominator of the diluted
earnings per share computation.
SFAS No. 128 will be effective for the Company's consolidated
financial statements for the year ending December 31, 1997 and it
will require restatement of all prior period earnings per share
data presented. The implementation of SFAS No. 128 is not
expected to have a material effect on the Company's consolidated
financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Revenues for the first quarter were $2,954,257, an increase
of $629,500 or 27% over the $2,324,757 reported for the
comparable period in 1996. Systems sales increased 40% from the
first quarter of 1996 primarily as a result of increased sales
from the Company's Data Management Division (ChartMaxx and
OptiMaxx products). Service, consulting and other revenues
increased 7% from the first quarter of 1996 due to additional
consulting revenue from FutureCORE which was acquired in June
1996. The results for the first quarter of 1997, however,
reflected lower than expected revenues for the IntelliCode and
Data Management product lines. Contract negotiations with several
prospective Data Management customers extended beyond estimated
time frames in the first quarter which contributed to the lower
than expected revenues. These contracts are expected to be
executed in the second quarter.
Gross profit for the first quarter of 1997 was $1,186,956, or
40% of revenues, compared to $1,234,727, or 53% of revenues in
the first quarter of 1996. The gross profit percentage on systems
sales decreased from 52% in the first quarter of 1996 to 45% in
the first quarter of 1997 due to a higher proportion of lower
margin third party hardware and software included relative to
proprietary software included in certain sales and increased
software amortization. The gross profit percentage on service,
consulting and other revenues decreased from 55% in the first
quarter of 1996 to 31% in the first quarter of 1997. The decline
in this gross profit margin was primarily a result of lower than
expected utilization of consulting, installation, and
implementation personnel associated with the Data Management,
Universal Document and FutureCORE product lines.
Operating expenses for the first quarter of 1997 were
$2,515,261 compared to $1,680,260 for 1996, an increase of 50%.
Operating expenses as a percent of sales increased from 72% in the
first quarter of 1996 to 85% in the first quarter of 1997
primarily due to lower than expected revenues and the increased
spending levels noted below. The Company has continued to
increase its investment in its sales and marketing efforts,
particularly for its Data Management division, in the areas of
direct sales, channel partner programs, national accounts, and
general marketing activities as evidenced by the 81% increase in
sales and marketing expenditures over the first quarter of 1996.
The increase is also a result of an increase in personnel related
to additional employees in the areas of product development,
customer support, administration and the Company's subsidiaries,
Universal Document and FutureCORE. General and administrative
expenses increased 12% over 1996. The Company expects total
operating expenses as a percent of revenues to decline as revenues
increase from their current levels.
The Company's net loss for the first quarter of 1997 was
$1,316,156 compared to a net loss in 1996 of $345,561. The
increase in the net loss is a result of the lower than expected
revenues and increased operating expenses discussed in the
preceding paragraphs.
Universal Document has entered into agreements with two
consulting firms to assist it in the identification and
recruitment of certain software resellers and integrators that
Universal Document may acquire or combine with, and to assist
Universal Document in an initial public offering of the combined
companies. The acquisition of or combination with these resellers
and integrators would be concurrent with and contingent upon a
successful public offering. In connection with these potential
acquisitions, the Company has capitalized approximately $80,000 of
direct, incremental costs related to these potential acquisitions
for attorneys' and consultants' fees that will become a cost of
the acquired companies upon the completion of any acquisition. In
the event that management decides to abandon the plans to acquire
these companies, then these costs will be charged to expense in
the period that decision is made. Similar costs incurred in future
periods will be treated in a consistent manner.
The Company's business requires significant amounts of
working capital to finance new product development, the expansion
of its sales and marketing organization and anticipated revenue
growth. The Company has financed its operations and working
capital needs through the sale of common stock, bank borrowings
and capital lease financing agreements. The Company's principal
uses of cash since inception have been for funding operations,
capital expenditures, research and development activities, and
investments in and advances to companies which are deemed to have
strategic value to the Company.
The Company currently maintains a $10,000,000 line of credit
which is secured by substantially all of its assets. The term of
the line of credit extends through December 31, 1998. At March
31, 1997, the maximum amount available under the line of credit
was approximately $5,700,000. No amounts were outstanding under
this line of credit at March 31, 1997 or December 31, 1996.
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
financings.
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share, which establishes standards for computing and
presenting earnings per share. SFAS No. 128 simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15. It replaces the presentation of primary earnings
per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator of the basic earnings per share
computation to the numerator and denominator of the diluted
earnings per share computation.
SFAS No. 128 will be effective for the Company's consolidated
financial statements for the year ending December 31, 1997 and it
will require restatement of all prior period earnings per share
data presented. The implementation of SFAS No. 128 is not
expected to have a material effect on the Company's consolidated
financial statements.
PART II. OTHER INFORMATION
ITEMS 1-5. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is hereby filed as part of this Form
10-QSB:
Sequentially
Exhibit Number Description of Exhibit Numbered Page
27 Financial Data Schedule 11
(b) No reports were filed on Form 8-K during the period for which
this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MEDPLUS, INC.
Date: 5/12/97 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 on Form 10-QSB
both on behalf of the registrant and in his
capacity as its principal financial and accounting
officer.