10KSB/A 1 0001.txt 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:

(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.

(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.

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