1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30,October 31, 1998
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: 0-28132
LANVISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1455414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Way, Suite 400
Cincinnati, Ohio 45242-5859
(Address of principal executive offices) (Zip Code)
(513) 794-7100
(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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
____----- -----
Number of shares of Registrant's Common Stock ($.01 par value per
share) issued and outstanding, as of June 5,December 11, 1998: 8,806,000.8,814,520.
This report consists of 2429 pages, and the Exhibit Index appears on page
21.23.
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TABLE OF CONTENTS
Page
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Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial StatementsStatements....................................................... 3
Condensed Consolidated Balance Sheets at April 30,October 31, 1998 and January 31, 1998 . . . . . . . . . .1998.................... 3
Condensed Consolidated Statements of Operations for the three and nine months ended April 30,October 31,
1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1997..................................................................................... 5
Condensed Consolidated Statements of Cash Flows for the threenine months ended April 30,October 31, 1998 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1997.............................................................................................. 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . .Statements.............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Operations.............
10
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . 17Risk........................................ 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Proceedings................................................................................. 21
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 183. Defaults on Senior Securities..................................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . .195. Other Information................................................................................. 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208-K.................................................................. 22
Signatures........................................................................................ 22
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
(Unaudited) (Audited)
April 30,October 31, January 31,
1998 1998
------------ ------------------------------- --------------------
Current assets:
Cash and cash equivalents $ 1,599,9791,371,953 $ 2,142,881
Investment securities 313,7295,014,435 5,074,258
Accounts receivable, net of allowance for doubtful
accounts of $280,000$310,000 and $265,000, respectively 3,329,0233,132,826 2,992,987
Unbilled receivables 1,786,3252,940,027 1,135,365
Other 1,105,0891,276,603 1,179,603
------------ ------------------------------- --------------------
Total current assets 8,134,14513,735,844 12,525,094
Property and equipment:
Computer equipment 4,291,4834,406,425 3,876,962
Computer software 517,549588,441 487,841
Office furniture, fixtures and equipment 1,491,0101,515,654 1,424,036
Leasehold improvements 997,141949,490 931,020
------------ -----------
7,297,183-------------------- --------------------
7,460,010 6,719,859
Accumulated depreciation and amortization (1,990,825)(2,868,189) (1,563,202)
------------ -----------
5,306,358-------------------- --------------------
4,591,821 5,156,657
Investment securities 4,445,492- 3,834,908
Capitalized software development costs, net of accumulated
amortization of $711,896$878,561 and $661,896, respectively 661,034692,368 612,033
Other 84,89487,046 71,430
------------ ------------------------------- --------------------
$ 18,631,92319,107,079 $ 22,200,122
============ =============================== ====================
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See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities, Convertible Redeemable Preferred Stock and Stockholders' Equity
(Unaudited) (Audited)
April 30,October 31, January 31,
1998 1998
---------- ------------------------------ ------------------
Current liabilities:
Accounts payable $ 1,159,541319,172 $ 1,631,941
Accrued compensation 973,437581,435 943,221
Accrued other expenses 1,784,0492,281,264 1,746,883
Deferred revenues 1,076,2241,053,187 1,061,996
------------ ------------------------------ ------------------
Total current liabilities 4,993,2514,235,058 5,384,041
Long-term debt 6,000,000 -
Long-term accrued interest 231,833 -
Convertible redeemable preferred stock, $.01 par value per share
5,000,000 shares authorized - -
Stockholders' equity:
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,896,500 shares issued 88,965 88,965
Capital in excess of par value 35,110,81735,102,459 35,110,817
Treasury stock, at cost, 81,980 and 90,500 shares, (430,188)respectively (389,692) (430,188)
Accumulated other comprehensive income 33,87825,152 75,203
Accumulated (deficit) (21,164,800)(26,186,696) (18,028,716)
------------ ------------------------------ ------------------
Total stockholders' equity 13,638,6728,640,188 16,816,081
============ ============------------------ ------------------
$ 18,631,92319,107,079 $ 22,200,122
============ ============================== ==================
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
(Unaudited)
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended October 31,
(Unaudited)
Three Months Ended -----------------------Nine Months Ended
--------------------------------- ---------------------------------
1998 1997 ---- ----1998 1997
--------------- --------------- --------------- ---------------
Revenues:
Systems sales $ 2,106,9301,307,886 $ 1,170,5611,160,116 $ 4,979,826 $ 2,758,963
Service, maintenance and support 1,435,600 942,6321,276,852 1,168,599 4,047,450 3,251,731
Service bureau operations 62,500251,591 - ----------- -----------422,305 -
--------------- --------------- --------------- ---------------
Total revenues 3,605,030 2,113,1932,836,329 2,328,715 9,449,581 6,010,694
Operating expenses:
Cost of systems sales 778,721 629,528315,912 493,633 1,525,768 1,658,513
Cost of service, maintenance and support 1,526,676 1,107,0861,340,522 1,276,395 4,298,875 3,630,152
Cost of service bureau operations 622,269755,534 - 2,103,374 -
Selling, general and administrative 2,466,221 2,570,2351,516,922 2,205,518 6,092,729 7,129,460
Product research and development 1,450,491 982,315
----------- -----------722,443 1,304,364 3,121,056 3,534,214
Restructuring expense - - 300,000 -
--------------- --------------- --------------- ---------------
Total operating expenses 6,844,378 5,289,164
----------- -----------4,651,333 5,279,910 17,441,802 15,952,339
--------------- --------------- --------------- ---------------
Operating (loss) (3,239,348) (3,175,971)(1,815,004) (2,951,195) (7,992,221) (9,941,645)
Interest income 103,263 330,264
----------- -----------
$(3,136,085) $(2,845,707)
=========== ===========94,112 287,484 291,741 901,005
Interest expense 390,000 - 457,500 -
--------------- --------------- --------------- ---------------
Net (loss) $ (2,110,892) $ (2,663,711) $ 8,157,980 $ (9,040,640)
=============== =============== =============== ===============
Basic net(loss)net (loss) per common share $ (0.36)(.24) $ (0.32)
=========== ===========(.30) $ (.93) $ (1.02)
=============== =============== =============== ===============
Diluted net(loss)net (loss) per common share $ (0.36)(.24) $ (0.32)
=========== ===========(.30) $ (.93) $ (1.02)
=============== =============== =============== ===============
Number of shares used in per common share computations 8,814,520 8,806,000 8,886,388
=========== ===========8,809,856 8,834,716
=============== =============== =============== ===============
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended April 30,
(Unaudited)
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31,
(Unaudited)
1998 1997
----------- ------------------------------ ------------------
Operating activities:
Net (loss) $(3,136,085) $ (2,845,707)(8,157,980) $ (9,040,640)
Adjustments to reconcile net (loss) to net cash
(used for) operating activities:
Depreciation and amortization 477,623 223,1631,521,653 722,732
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables (986,996) 551,372(1,944,501) (233,563)
Other current assets 74,514 (335,151)(97,000) (762,452)
Accounts payable and accrued expenses (405,018) (182,936)(1,140,175) 300,429
Deferred revenues 14,228 (139,593)
----------- ------------(8,809) 695,412
Long-term accrued interest 231,833 -
------------------ ------------------
Net cash (used for) operating activities (3,961,734) (2,728,852)(9,594,979) (8,318,082)
Investing activities:
Purchases of investment securities (3,610,144) (11,838,463)(9,836,409) (20,990,860)
Sales of investment securities 7,718,764 15,600,43313,681,089 31,828,880
Purchases of property and equipment (577,324) (401,885)(740,151) (1,742,328)
Capitalization of software development costs (99,000) (99,000)(297,000) (297,000)
Other (13,464) (31,048)
----------- ------------(15,616) (34,046)
------------------ ------------------
Net cash provided by investing activities 3,418,832 3,230,0372,791,913 8,764,646
Financing activities:
Proceeds of long-term debt 6,000,000 -
Sale of treasury stock to employee stock purchase plan 32,138 -
Purchase of treasury stock - (170,625)
----------- ------------(430,188)
------------------ ------------------
Net cash provided by (used for) financing activities - (170,625)
----------- ------------6,032,138 (430,188)
------------------ ------------------
Increase (decrease) in cash (542,902) 330,560(770,928) 16,376
Cash and short term cash equivalents at beginning of period 2,142,881 664,223
----------- ------------------------------ ------------------
Cash and short term cash equivalents at end of period $ 1,599,9791,371,953 $ 994,783
=========== ============680,599
================== ==================
Supplemental cash flow disclosures:
Income taxes paid $ - $ -
Interest paid $ -152,000 $ -
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared by the Company without audit, in accordance with generally accepted
accounting principles for interim financial information, pursuant to the rules
and regulations applicable to quarterly reports on Form 10-Q of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the Condensed Consolidated Financial Statements have been included. These
Condensed Consolidated Financial Statements should be read in conjunction with
the financial statements and notes thereto included in the LanVision Systems,
Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating
results for the three and nine months ended April 30,October 31, 1998, are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 1999.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is presented on page
18 of its 1997 Annual Report to Stockholders. Users of financial information for
interim periods are encouraged to refer to the footnotes contained in the Annual
Report to Stockholders when reviewing interim financial results. There has been
no material change in the accounting policies followed by the Company during
1998.
The Company is accounting for the minimum guaranteed rate of return on the
long-term debt (see note 4) as if the loan were guaranteed to earn a 25%
compound annual return. Accordingly, in addition to the 12% coupon interest, the
Company records as interest expense the difference between the minimum guarantee
and the 12% coupon interest as additional interest expense. This liability is
reflected as long-term accrued interest.
Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES
Other current assets consist primarily of prepaid insurance, prepaid
commissions, and acquired software and hardware awaiting installation. The decrease at April 30, 1998, results primarily from the delivery of third party
software acquired prior to installation.
Thenet decrease in cash and cash equivalents and investment securities results
from the sale of investments and use of cash to fund current operations and
purchase additional fixed assets.
Interest income consists primarily of interest on investment securities. The
decrease in interest income results from the sale of investment securities to
fund operations and acquire fixed assets.
The increase in accounts receivablereceivables is due to increased sales in the resultcurrent quarter
compared with the quarter ending January 31, 1998.
Revenue recorded in excess of higher sales volume during
the first quarter.
7
8milestone billings is recorded as unbilled
receivables. The increase in unbilled receivables results fromis due to an increase in new
sales contracts, royalties due in accordance
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with the progress billing terms and
conditions of the sales agreementsRemarketing Agreement with Shared Medical Systems
Corporation (See Results of Operations), and the associated revenue recognized duringimplementation of additional
phases of existing contracts.
Other current assets consist primarily of prepaid expenses, including
commissions, and acquired software and hardware awaiting installation. The
increase at October 31, 1998, results primarily from prepaid expenses related to
the recent quarter.long-term debt (see note 4) which is being amortized over the life of the
loan.
The increase in property and equipment relates primarily to the purchase of
equipment for the service bureau operations, which went on-line in the first
half of fiscal 1998.
The decrease in accounts payable is due to a reduction in purchases of hardware
and third partythird-party software for resale and reduced levels of capital expenditures
in the firstcurrent quarter compared with the priorquarter ended January 31, 1998.
The decrease in accrued compensation results from a smaller accrual for bonuses.
The increase in accrued other expenses results from an increase in reserves for
the possible settlement of contractual issues relating to certain aspects of
implementation on several contracts.
Note 4 - LONG-TERM DEBT
In July, 1998, the Company issued a $6,000,000 note to The HillStreet Fund,
L.P., which bears interest at 12%, payable monthly. The note is repayable in
quarterly installments of $500,000 commencing October, 2001 through July, 2004.
In July, 2002, the Company has a one-time option to prepay in full the then
outstanding balance of the note. The note is secured by all of the assets of the
Company and the loan agreement restricts the Company from incurring additional
indebtedness for borrowed money, including capitalized leases, limits certain
investments, restricts substantial asset sales, capital expenditures, cash
dividends, stock repurchases and mergers and consolidations with unaffiliated
entities. In addition, the Company is required to maintain certain financial
conditions, including minimum levels of revenues, combined cash and investments
and net worth.
In connection with the issuance of the note, the Company issued Warrants to
purchase 750,000 shares of common stock of the Company at $3.87 per share at any
time after May 16, 1999 through July 16, 2008. The Warrants are subject to the
customary antidilution and registration rights provisions.
Under the terms of the loan agreement, the Company has guaranteed the lender
that the increase in the market value of the stock underlying the Warrants, at
the time of loan maturity, over the exercise price plus the 12% interest paid on
the loan will yield the lender a 25% compound annual return. If the yield from
the Warrants plus interest paid does not provide the lender with the guaranteed
return, the Company is required to pay the additional amount in cash at the time
of maturity. Should the Company exercise its prepayment option in July, 2002,
then the minimum guaranteed rate of return is increased to 30%. However, to the
extent that the computed
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minimum compound annual rate of return exceeds 30% at the date of the
prepayment, the Company has the right to cancel up to 150,000 warrants.
In addition, the founders and majority shareholders of the Company have
consented to certain restrictions on the sale or transfer of their shares.
Maturities of long-term debt are as follows: fiscal years 1999 & 2000, $-0-;
2001, $1,000,000; 2002, $2,000,000; 2003, $2,000,000; 2004, $1,000,000.
The Company was in compliance with all of the terms and conditions of the loan
agreement as of October 31, 1998.
Note 5 - STOCKHOLDERS' EQUITY
The Company has reserved 2,271,321 shares of Common Stock for issuance as
follows: 750,000 shares for issuance upon exercise of the Warrants issued in
connection with the long-term debt (see Note 4), and 1,521,321 shares for
issuance in connection with various Stock Option Plans and the Employee Stock
Purchase Plan.
On June 30,1998, 8,520 shares of Treasury Stock were sold to the Employee Stock
Purchase Plan. The $8,358 loss on the sale of the Treasury Stock has been
recorded as a reduction of capital in excess of par value in the Stockholders'
Equity.
Note 6 - STOCK OPTIONS
During the first nine months of the current fiscal year, the Company granted
248,000 stock options at the weighted average exercise price of $3.00 per share
under the 1996 Employee Stock Option Plan. During the same period 24,875 options
were forfeited under all plans.
Note 7 - RESTRUCTURING EXPENSE
During the second quarter, the company restructured certain aspects of its
operations to flatten the management structure, reduce expenses in all areas,
and, at the same time, improve customer service. Accordingly, the Company
accrued $300,000 for the anticipated costs of severance and related taxes and
fringe benefits for the reduction of the work force by 16 people. The liability
was recorded as a current liability at the end of the second quarter and
substantially all of the liability was paid during the third quarter. As
LanVision has completed certain of its major software development projects, the
Company has been able to reduce its staff and the use of outside contractors in
product development.
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Note 48 - EARNINGS PER SHARE
The basic (loss) per common share is calculated using the weighted average
number of common shares outstanding during the period.
The diluted (loss) per common share calculation, excludes the effect of the
common stock equivalents (stock options) as the inclusion thereof would be
antidilutive.
Note 59 - COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Accordingly, the Company has
accounted for the unrealized holding gains on available-for-sale securities in
accordance with this new accounting standard, as follows:
Quarter ended April 30,
--------------------------
1998 1997
----------- -----------
Net (loss) $(3,136,085) $(2,845,707)
Unrealized holding (losses)
arising during the period (3,811) (2,328)
Reclassification adjustment for
gains included in Net (loss) (37,514) (22,081)
=========== ===========
Comprehensive (loss) $(3,177,410) $(2,870,116)
=========== ===========
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Three months ended October 31, Nine months ended October 31,
------------------------------------ -----------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
Net (loss) $ (2,110,892) $ (2,663,711) $ (8,157,980) $ (9,040,640)
Unrealized holding gains (losses)
arising during the period 12,023 8,661 6,393 119,240
Reclassification adjustment for
gains included in Net (loss) (1,758) (23,200) (56,444) (88,858)
--------------- -------------- -------------- --------------
Comprehensive (loss) $ (2,100,627) $ (2,678,250) $ (8,208,031) $ (9,010,258)
=============== ============== ============== ==============
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information contained herein, this Discussion and
Analysis, as well as other Items in this Form 10-Q, contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements, including those discussed below.included
herein. These risks and uncertainties include, but are not limited to, the
impact of competitive products and pricing, product demand and market
acceptance, new product development, key strategic alliances with vendors that
resell LanVision products, the ability of the Company to control costs,
availability of products produced from third party vendors, the healthcare
regulatory environment, healthcare information systems budgets, availability of
healthcare information systems trained personnel for implementation of new
systems, as well as maintenance of legacy systems, Year 2000 Compliance
priorities, fluctuations in operating results and other risks detailed from time
to time in the LanVision Systems, Inc. filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements, which may be
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made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS:OPERATIONS
GENERAL
LanVision(TM) is a leading provider of healthcare information access systems and
web-based outsourced data center operations that enable hospitals and integrated
healthcare networks to capture, store, manage, route, retrieve and process vast
amounts of clinical and financial patient information. The Company's systems
deliver on-line enterprise-wide access to fully-updated patient information
which historically was maintained on a variety of media, including paper,
magnetic disk, optical disk, x-ray film, video, audio and microfilm. LanVision's
systems, which incorporate data management, document imaging/management and
workflow technologies, consolidate patient information into a single repository
and provide fast and efficient access to patient information from universal
workstations located throughout the enterprise, including the point of patient
care. The systems are specifically designed to meet the needs of physicians and
other medical and administrative personnel and can accommodate multiple users
requiring simultaneous access to patient information, thereby eliminating file
contention. By providing access to all forms of patient information, the Company
believes that its Healthcare Information Access Systems are essential components
of the computer-based patient record.
The Company's revenues are derived from: the licensing and sale of systems
comprising LanVision software and third-party software and hardware components;
product support, maintenance and professional services; and service bureau
operations (outsourced data center operations). Professional services include
implementation and training, project management and custom software development
and currently are provided only to the Company's customers with installed
systems or who are in the process of installing systems. Revenues from
professional services, maintenance and support services, typically are expected
to increase as the number of installed systems increase. The Company earns its
highest margins on proprietary LanVision software and the lowest margin ismargins are on
third-party hardware. Systems sales to customers may include differing
configurations of software and hardware, resulting in varying margins among
contracts. The margins on professional services revenues are expected to
fluctuate based upon the negotiated terms of the agreement with each customer
and the Company's ability to fully utilize its professional services,
maintenance and support services staff. Revenues from the Company's service
bureau operation,operations, which provides high quality, transaction-based document
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imaging/management services from a centralcentralized data center, commenced in the
first quarter of fiscal 1998 and are expected to increase as the number of
hospitals outsource services to the Company's Virtual Healthware Services
division (VHS). Additionally, revenue from each VHS customer is expected to
increase as the volume of archived historical data increases and retrievals of
data increasesincrease as the systems are fully implemented within a healthcare facility.
Sales are made by the Company's direct sales force and through Healthcare
Information Accessa Remarketing
Agreement with Shared Medical Systems distribution partners.Corporation.
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On February 23, 1998, the Company entered into a Remarketing Agreement with
Shared Medical Systems Corporation ("SMS"). Under the terms of the agreement,
SMS was granted an exclusive worldwide license to distribute ChartVision(R),
On-Line Chart Completion(TM) and Release of Information (ROI)(TM) (formerly
called Enterprisewide Correspondence(TM)) to the SMS customer base and prospect
base, as defined in the agreement, and a non-exclusive license to distribute all
other LanVision products. If SMS distributes any other electronic medical record
product competing with LanVision's products, the Company may terminate the SMS
Remarketing Agreement.
SMS indicates it has over 1,800 customers in the United States and a total of 3,500 customers
in 20 countries and territories in North America and Europe. The large
Healthcare Information Access Systems providers, such as SMS, are often able to
positively influence the buying decisions within their customer base. LanVision
management believes the distribution of its products by SMS will shorten sales
cycles and increase revenues. Although SMS has already begun to actively promote
LanVision's products, the full impact of this distribution agreement will likely
not be realized until later in fiscal 1998 or early 1999, as more of the SMS
organization is trained to sell and implement the LanVision products.
On August 18, 1998, the Company announced that SMS had completed its first sale
of ChartVision, which included a license for more than 250 concurrent users.
In 1996, the Company entered into a non-exclusive Remarketing Agreement with
Lanier Worldwide, Inc. (Lanier). Under the terms of the Agreement, Lanier was
entitled to market and distribute ChartVision, On-Line Chart Completion and
related products throughout North America. Through April 30, 1998, Lanier had
licensed the Company's products to two customers. The originalRemarketing Agreement
has
expired and has not been extended. Under the terms of a settlement with Lanier,
LanVision has no ongoing royalty obligation to Lanier. LanVision refunded to
Lanier $131,250 of development fees related to porting certain software to the
SMS Agreement prohibit renewing the Agreement
under the previous terms. At this time, it does not appearLanier platform. This liability had been previously accrued. Additionally, the
Company will
renew the Agreement with Lanier.
LanVision also maintains Joint Marketing Agreements with, among others, 3M
Health Information Systems, Daou Systems, Inc.forgave $210,385 of receivables due from Lanier, and Olicon Imaging Systems, Inc.
To date, these marketing relationships have not contributedof this $160,521
was charged to the Company's
revenues. However, management expects these relationships will contribute to
revenue growthexpense in the future.second quarter and $49,864 charged to expense in
the third quarter.
The decision by a healthcare 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. Throughout
1996, 1997 and the first quarternine months of 1998, the Company has experienced
extended sales cycles.cycles, and sales in each year have been less than the Company's
internal plans. It is common for sales cycles to take six to eighteen
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from initial contact to the execution of an agreement. As a result, the sales
cycles can cause significant variations in quarter to quarter results.
Furthermore, healthcare organizations are assessing and implementing many new
technology solutions, and Year 2000 compliance,Compliance, etc., and although many of these
systems do not compete with the LanVision product suites,products, these systems do compete for
capital budget dollars and the available time of information system personnel
within the healthcare organizations. The LanVision agreements cover the entire
implementation of the system and specify the implementation schedule, which
typically takes place in phases. The agreements
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13
generally provide for the licensing of the Company's proprietary software and
third-party software with a one-time perpetual license fee that is adjusted
depending on the number of workstations using the software. Third-party hardware
is sold outright, with a one-time fee charged for installation and training.
Site-specific customization,
interfacesInterfaces with existing customer systems and other consulting services are sold
on a fixed fee or a time and materials basis.
Generally, revenues from systems sales isare recognized when a purchase agreement
is signed and products are shipped.delivered. Revenues from the service elements of a
contract including: routine installation, integration, project management,
interface development, training, etc. are deferred until the work is performed.
If an agreement requires the Company to perform services and modifications that
are deemed significant to system acceptance, revenue is recorded either on the
percentage-of-completion method or revenue related to the delivered hardware and
software components is deferred until such obligations are completed, depending
on the contractual terms. Revenues from maintenance and support agreements isare
recognized ratably over the term of the agreements. Billings to customers
recorded prior to the recognition of the revenue are classified as deferred
revenues. Revenue recognized prior to progress billings to customers is recorded
as unbilled receivables.
YEAR 2000 COMPLIANCE
The Year 2000 Compliance issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's internal use computer programs and hardware as well as its
software products that are datadate sensitive may recognize a date using "00" as the
Year 1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities.activities for both the Company and its customers who rely on its
products.
The Company is actively engaged in, but has not yet completed, reviewing,
correcting and testing all of the Year 2000 Compliance issues. Based on a preliminary assessment,the
current, albeit incomplete review and remediation, the Company has determined
that it will be required to modify or replace some of its internal use software
as well asand hardware, modify certain existing software products including third-party
software so that the softwarethey will function properly, as a system, with respect to dates
in the Year 2000 and thereafter.
The Company presently believes that with modifications to theseits products and
conversions to newthird-party software and the replacement of internal use software and
non-compatible hardware, the Year 2000 Compliance issue will not pose
significant operational problems for the Company or its customers. However, if
such modifications and conversionsreplacements are not made, or not completed timely, the
Year 2000 Compliance issue could have a material impact on the Company and its
customers.
The Company has warranted,divided the Year 2000 Compliance issue into two areas: software
products and systems sold to certaincustomers; and internal use software and hardware.
13
14
With regard to software products sold to customers, the Company has: completed
the overall Year 2000 Compliance remediation plan; made a preliminary review of
the existing software code; corrected all known Year 2000 code problems; and
developed a test plan. The testing of the revised code and the Year 2000
compliant third-party software products that its products willare requirements of the overall
LanVision System has begun and, based upon the test results, the code may need
further revisions, with re-testing in successive iterations, until such time as
all of the components are determined to be Year 2000 compliant. 11
12Based on current
estimates, the above phases should be completed by December 31, 1998.
The Company has begun the integration testing phase of the various components of
the system, LanVision software, third-party software and the major hardware
components, for compatibility and interoperability as they relate to the Year
2000 Compliance issue. Based on current estimates, the above integration-testing
phase should be completed by December 31, 1998. The Company will then deliver
revised Year 2000 compliant software to its customers for testing at the
customer sites using the customers then current hardware configurations. The
Company believes that Year 2000 compatible equipment is available for
acquisition by customers, if necessary, to ensure installed systems operate
properly.
Should the LanVision systems sold to customers not be timely modified to be Year
2000 compliant, the most likely worst case scenario would be that customers
could: suspend use of the system until such time as the Year 2000 Compliance
issues are remediated; or continue to use the systems with reduced
functionality. However, based upon current information and the time remaining to
complete the remediation, the Company believes that the risk of such occurrence
is minimal. Contingency plans have not yet been developed. However, contingency
plans will be developed if they are needed.
With regard to the Company's service bureau operations, the Company has
determined that its systems and equipment are Year 2000 compliant except for
LanVision software products discussed above, which are in the process of
remediation, and telecommunications services provided by outside vendors. The
Company is in the process of determining the Year 2000 Compliance issues that
could affect operations should the telecommunications vendors not be compliant.
Without Year 2000 compliant LanVision software and telecommunications, the
service bureau operations will not be able to provide current levels of services
to its customers and no contingency plan has yet been developed. However,
contingency plans will be developed if they are needed.
With regard to internal use software and hardware, the Company has reviewed
substantially all of the internal use software and equipment, and has determined
that a small amount of older computer equipment must be replaced, but the type
and amount are not significant and will be replaced in the ordinary course as
systems are upgraded. With regard to third-party software, it has been
determined that some software is not compliant and will need to be upgraded as
vendors provide Year 2000 compliant versions. The company also utilizes
third-party vendors for processing data and payments, e.g. payroll services,
401(k) plan administration, check processing, medical benefits processing, etc.
The Company has initiated formal communicationcommunications with its vendors to determine the
extentstatus of their systems. Should these vendors not be compliant in a timely
manner,
14
15
the Company may be required to whichprocess transactions manually or delay processing
until such time as the Company's software productsvendors are vulnerable to those third
parties' failure to correct their own Year 2000 issues. Generally, software
provided by third parties and included in the Company's systems is developed by
leading software suppliers with Year 2000 programs underway. There can be no
guarantee that the software of other companies, on which the Company's systems
rely,compliant. No contingency plan has
yet been developed. However, contingency plans will be timely converted. However, management believes the Company has
alternative courses of action designed to ensure internal and customer
operationsdeveloped if they are
not materially affected in an adverse manner.needed.
The Company will utilize both internal and external resources to reprogram, or
replace and test its software products for the Year 2000 modifications. The
Company anticipates completing the Year 2000 Compliance project as soon as
practical, but not later than January 1, 1999,December 31, 1998, which is prior to any
anticipated impact. The total cost of the Year 2000 project has currentlyis not been determined, butconsidered to
be material, and will be funded through existing cash resources and future
operating cash flows. The requirements for the correction of Year 2000
Compliance issues and the date on which the Company believes it will complete
the Year 2000 Compliance modifications are based on management's current best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third
partythird-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that may cause such material differences
include, but are not limited to, the availability of personnel trained in this
area, the ability to locate and collect all relevant computer codes and similar
uncertainties.
The Company has warranted, to certain customers, that its products will be Year
2000 compliant. In addition, provisions of its long-term debt and the
Remarketing Agreement with SMS require the Company's products be Year 2000
compliant. Non-compliance with the product warranties, debt covenants and
Remarketing Agreement would result in an event of default on the long-term debt
and may give rise legal action for breach of contract relating to the product
warranties and Remarketing Agreement. Based upon the current best estimate for
remediation of the Year 2000 issues, the Company believes the risk is minimal
that the Company will not comply with current commitments and internal
processing needs.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS
The Company's revenues from systems sales have varied, and may continue to vary,
significantly from quarter to quarter as a result of the volume and timing of
systems sales and delivery. Professional services revenues also fluctuate from
quarter to quarter as a result of the timing of the installation of software and
hardware, project management and customized programming. Revenues from
maintenance services do not fluctuate significantly from quarter to quarter, but
have been increasing as the number of customerscustomers' increase. Revenues from the VHS
servicesservice bureau which commenced operations in the first quarter of 1998, are
expected to increase over time, as more hospitals outsource services to VHS, and
existing customers increase the volume of documents stored on the systems, and
the number of retrievals increase from the ever increasing data base of stored documents.increase. Because a significant percentage of the
Company's operating costs are expensed as incurred, a variation in the usage of
VHS services, the timing of systems sales and installations and the resulting
revenue recognition, can cause significant variations in operating results from
quarter to quarter.
15
16
The Company's revenues and operating results may vary significantly from quarter
to quarter as a result of a number of other factors, many of which are outside
the Company's control. These factors include the relatively high purchase price
of a LanVision document imaging and workflow 12
13
system,systems, unpredictability in the
number and timing of systems sales, length of the sales cycle, delays in the
installation process and changes in the customer's financial condition or
budget. As a result, period to period comparisons may not be meaningful with
respect to the past operations of the Company nor are they necessarily
indicative of the future operations of the Company.
REVENUES:REVENUES
Revenues for the firstthird fiscal quarter ended April 30,October 31, 1998, were $3,605,030$2,836,329, a
22% increase, compared with $2,113,193$2,328,715 in the comparable quarter of 1997.
Revenues for the first nine months ended October 31, 1998, were $9,449,581, a
57% increase, compared with $6,010,694 in the comparable period of 1997.
Although revenues for the three and nine months ended were greater than the
corresponding periods in fiscal 1997, revenues for the periods were less than
the Company's internal plan.
During the first quarter, the Company signed one new contract with Christiana
Care Health Services, of which approximately $650,000 of revenue from thisServices. During the second quarter, SMS signed its first contract
was recognizedto sell ChartVision, and in the third quarter LanVision signed one new contract
with the Medical University of South Carolina. Through the first quarter.nine months of
1998, the Company recognized approximately $2,600,000 of revenues from these
three contracts. The remaining systems sales revenues during the quarternine months
came from implementation of previously signed agreements (backlog) and from
add-on sales to existing customers. During the first quarter, the Company's
newly formed Virtual Healthware Services (VHS) division began operations.
Sales activity has been slower than planned as many healthcare institutions are
focused on resolving Year 2000 Compliance problems with legacy systems.
Additionally, consolidations and mergers within the healthcare industry and the
attendant changes in management have delayed or terminated sales discussions.
Additionally, healthcare institutions are assessing and implementing many new
technologies. Although many of these systems do not compete with the LanVision
products, these systems do compete for capital budget dollars and the available
time of information systems personnel within the healthcare industries.
Management believes the healthcare industry's focus on Year 2000 Compliance will
continue to adversely affect potential sales opportunities for its direct sales
force through at least the first half of fiscal 1999. Also, the Remarketing
Agreement with Shared Medical Systems Corporation has developed more slowly than
expected. However, the recent sales pipeline report is encouraging and LanVision
remains optimistic about the long-term revenue potential of this Remarketing
Agreement. Management believes revenue from this Remarketing Agreement will
represent a greater percentage of the Company's total revenues in the future.
16
17
As previously discussed, after an agreement is executed, LanVision does not
record revenues until it shipsdelivers the hardware and software or performs the
agreed upon services. The commencement of revenue recognition varies depending
on the size and complexity of the system and the scheduling of the
implementation, training, interface development and other services requested by
the customer. Accordingly, significant variations in revenues can result as more
fully discussed under "Uneven Patterns of Quarterly Operating Results." Three
customers including Christiana Care Health Services, accounted for approximately 47%56% of the revenues for the firstthird quarter
of 1998 and three customers accounted for 59%31% of the revenues for the first quarternine
months of 1997.1998.
OPERATING EXPENSES:EXPENSES
Cost of SystemSystems Sales
The cost of systems sales includes amortization of capitalized software
development costs on a straight-line basis, royalties and the cost of
third
partythird-party software and hardware. Cost of systems sales as a percentage of
systems sales may vary from period to period depending on the mix of hardware
and software of the systems or add-on sales delivered. The cost of systems sales
as a percentage of systems sales for the firstthird quarter of 1998 and 1997 were 37%24%
and 54%43%, respectively.respectively, and 31% and 60%, respectively for the first nine months
of 1998 and 1997. The lower cost reflects the higher mix of LanVision software
with higher margins relative to the hardware and third partythird-party software components
with lower margins and higher costs. 13
14In addition, the cost of systems sales for
the nine months includes an $83,333 write off of software previously acquired
from a third-party.
Cost of Service, Maintenance and Support
The cost of service, maintenance and support includes compensation and benefits
for support and professional services personnel and the cost of third partythird-party
maintenance contracts. As a percentage of service, maintenance and support
revenues, the cost of such service, maintenance and support was 106%105% and 117%109%
for the firstthird quarter of fiscal 1998 and 1997, respectively.respectively and 106% and 112%,
respectively, for the first nine months of 1998 and 1997.
The LanVision Customer Support existing staff including management is necessary
and sufficient to support the
existing customer base. However, increasesIncreases in customers willdo not require a proportionedproportional
increase in support staffing or total support costs. Accordingly, margins are expected to improve as more customers
are added. Additionally, theThe Company's support
margins are highest on LanVision's proprietary software. Accordingly, margins
are expected to improve as the Company licenses more of its software.customers are added.
The LanVision Professional Services staff provides services on a time and
material or fixed fee basis. The Professional Services staff has experienced
some inefficiencies in the delivery of services, and certain projects have taken
longer to complete than originally estimated, thus adversely affecting operating
performances.performance. Additionally, the Professional Services staff does spend a portion
of its time on non-billable activities, such as developing training courses and
developing plans to move to LanVision's new product releases, etc. Management
believes the
17
18
increase in experience of its Professional Services staff and the increase in
backlog should improve the overall efficiency and operating performance of this
group.
Selling, General and Administrative
Selling, General and Administrative expenses consist primarily of: compensation
and related benefits and reimbursable travel and living expenses related to the
Company's sales, marketing and administrative personnel; advertising and
marketing expenses, including trade shows and similar type sales and marketing
expenses; and general corporate expenses, including occupancy costs. During the
firstthird quarter of fiscal 1998, selling, generalSelling, General and administrativeAdministrative expenses
decreased to $2,466,221$1,516,922 compared with $2,570,235$2,205,518 in the comparable prior quarter.quarter
and decreased to $6,092,729 in the first nine months compared with $7,129,460 in
the comparable prior period. For the nine months, Selling, General and
Administrative expenses include a charge of approximately $160,000 related to
the expiration of the Lanier Remarketing Agreement. The Company has continuedreductions in Selling,
General and Administrative expenses is due to investdecreased staffing levels and
reduced expenses in other areas. At October 31, 1998, the Company's sales and
marketing activities,
aheadstaff consisted of revenues to ensure that LanVision develops a pipeline of qualified
prospects.ten personnel compared with twenty-nine personnel
at October 31, 1997. Additionally, general and administrative staffing at
October 31, 1998 was fourteen compared with nineteen at October 31, 1997.
Product Research and Development
Product research and development expenses consist primarily of: compensation and
related benefits; the use of independent contractors for specific development
projects; and an allocated portion of general overhead costs, including
occupancy. At April 30,October 31, 1998, the product research and development staff
consisted of twenty-ninesixteen employees compared with twenty-fivethirty-one employees at April
30,October 31,
1997. However, the Company has supplementedsupplements its development staff through the use of
independent contractors and software development firms. Research and development
expenses in the first quarter of fiscal 1998 increased by $468,176
to $1,450,491 as a result
of stepped-up development efforts related to the many new products recently
released. OverResearch and development expenses for the last
14
15
several monthssecond quarter were $948,122
and $722,443 in the third quarter, reflecting the use of fewer contractors and
reduced staffing subsequent to completion of major projects. During the current
fiscal year LanVision released upgrades to ChartVision and provided the general
release of On-Line Chart Completion, Release of Information (ROI) formerly known
as Enterprisewide Correspondence, OmniVision(TM), WebView(TM), and our new Document
Capture System(TM) modules. These new releases have enabled LanVision to offer
an expanded product portfolio to new customers and allowed existing customers to
expand their use of the LanVision systems. Because the majority of the major research and development
projects have been completed, the Company believes it will be able to reduce its
product development expenses in the coming quarters. The Company capitalized, in
accordance with Statement of Financial Accounting Standards No. 86, $99,000$297,000 of
product research and development costs in the first threenine months of fiscal 1998
and 1997.
It is also expected that ResearchInterest income consists primarily of interest on investment securities. The
decrease in interest income results from the sale of investment securities to
fund operations and Development costs should decline
in future periods as major development projects are completed.acquire fixed assets.
18
19
Interest expense relates to the new long-term debt (see Item 1, Note 4 of Notes
to Financial Statements).
Net loss
The net loss for the firstthird fiscal quarter of 1998 was $3,136,085$2,110,892 ($.36).24) compared
with a net loss of $2,845,707$2,663,711 ($.32).30) in the firstthird quarter of 1997. The net loss
for the first nine months of 1998 was $8,157,980 ($.93) compared with a net loss
of $9,040,640 ($1.02) in the first nine months of 1997. The decrease in the net
losses for the periods results primarily from the increased loss is primarily due to: start-upmargins on systems
sales, with a higher mix of LanVision proprietary software, reductions in
selling, general and administrative expenses and product research and
development. Excluding the $1,987,258 operating expensesloss of the new VHS Service
Bureau; increased Researchdivision,
the $293,718 in special charges mentioned above and Development necessary to accelerate the completion$300,000 restructuring
charge, LanVision's operating loss for the nine months ended October 31,1998 was
$5,411,245, a significant improvement when compared with an operating loss of
new products; and lower interest income on investments which were
sold to fund operations and acquisition$9,941,645 in the corresponding nine months of fixed assets.1997.
In spite of the less than anticipated number of new customer agreements signed
in the past year,nine months, management continues to believe that the healthcare
document imaging and workflow market is going to be a significant market.
Management believes it has made the investments in the talent and technology
necessary to establish the Company as a leader in this marketplace, and
continues to believe the Company is well positioned to experience significant
revenue growth.
Since commencing operations in 1989, the Company has from time to time incurred operating losses.
Although the Company achieved profitability in fiscal years 1992 and 1993, the
Company incurred a net loss in fiscal years 1994 1995, 1996
andthrough 1997. In view of the
Company's prior operating history, there can be no assurance that the Company
will be able to achieve consistent profitability on a quarterly or annual basis
or that it will be able to sustain or increase its revenue growth in future
periods. Based upon the expenses associated with current and planned staffing
levels, profitability is dependent upon increasing revenues.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1989, LanVision has funded its operations, working
capital needs and capital expenditures primarily from a combination of cash
generated by revenues from operations, borrowings, a 1994 private placement of convertible redeemable
preferred stock and an initial public offering which
raised approximately $34,000,000, netand borrowings, including in
July, 1998, a $6,000,000 loan ( see Item 1, Note 4 of the underwriting discount and expenses,
through the issuance of 2,912,500 shares of common stock on April 18, 1996.
15
16Notes to Financial
Statements).
The Company's customers typically have been well-established hospitals or
medical facilities with good credit histories, and payments have been received
within normal time frames for the industry. Agreements with customers often
involve significant amounts, and contract terms typically require customers to
make progress payments.
19
20
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of approximately $2,500,000,
payable over the next six years. However, the VHS service bureau operation will
need to acquire additional software and equipment as VHS adds additional
hospitals and clinics to its customer base. The centralized data center has been
originally configured to serve approximately fifty hospitals, with significant
expansion capabilities. However, for each customer, VHS establishes one or more
onsite document capture centers and provides the equipment. Each document
capture center is expected to require at leastapproximately $125,000 of equipment. Also,
because VHS charges for its services on a per transaction basis, LanVision's
cash flow for capital and operating expenses will normally be greater than cash
inflows until customers begin to use the system at anticipated normal volumes
for a period of time.
In March, 1997, the Company's Board of Directors authorized management, at its
discretion, to repurchase shares of the Company's common stock of up to
$1,000,000 in value on the open market. To date, the Company has acquired 90,500
shares at a cost of $430,188.
Over the last nine quarters,several years, the Company's revenues have been less than the
Company's internal plans. However, during the same time period, the Company has
expended significant amounts for capital expenditures, product research and
development, sales, support and consulting expenses as the Company expanded its
operations in anticipation of significant revenue growth. This has resulted in
significant net cash outlays over the last two years. Currently, management
intends toAlthough the Company has
increased its revenues, reduced staffing levels and related expenses, and
improved operating performance, the Company's expenses continue to maintainexceed its
operations, except for the reduction of
Research and Development expenses as previously discussed, at an expenditure
level similar to fiscal 1997, and may expand operations in connection with
increased revenue opportunities.revenues. Accordingly, to achieve profitability, and positive cash flow, it is
necessary for the Company to increase revenues.revenues or continue to reduce expenses.
Management believes that the recent general release of the products described
above under "Product Research and Development" has significantly strengthened
the product portfolio. Additionally, the SMS Remarketing Agreement has
significantly expanded the sales distribution capabilities, and management
believes that market opportunities are such that the Company should be able to
significantlycontinue to increase its revenues in fiscal 1998.revenues. However, there can be no assurance the
Company will be successful in increasingable to continue to increase its revenues.
At April
30,October 31, 1998, the Company had unrestricted cash and investments of
$6,359,200.$3,986,388. Investments consist primarily of U.S. Government obligations with
maturities ranging from one month to thirtytwelve months.
At April 30,In December, 1998, the Company announced that it has no outstanding borrowings. However, during
1998, management intendsretained CIBC Oppenheimer
Corporation as a financial advisor to secure between $5 million and $10 million of
borrowings or equity financing to help finance its operating and previous and
anticipated capital expenditures. The Company is currently negotiating terms of
financing with interested parties. Management believes
16
17
existing cash balances and investment securities, anticipated borrowings or
equity financing and revenues from operations will be sufficient to meet its
liquidity and capital spending requirements. However, inevaluate alternatives for maximizing
shareholder value. If over the eventnext six months revenues do not increase, it will
be necessary for the Company to reduce operating expenses or financingsecure additional
borrowings, which will require lender approval, or other equity financing. CIBC
Oppenheimer will assist the Company in this process. However, there can be no
assurance the Company will be successful in its efforts. If it is not secured over the next two quarters, management
may neednecessary to
significantly reduce and/or defer operating and capital
expenditures, and which if required, these actionsexpenses, this could have an adverse affect on
future operating performance.
To date, inflation has not had a material impact on the Company's revenues or
income.
SIGNED AGREEMENTS - BACKLOG
20
21
At April 30,October 31, 1998, the Company's customers had entered into agreements for
systems and related services (excluding support and maintenance, and transaction
based revenues for VHS) which had not yet been delivered, installed and accepted
which, if fully performed, would generate sales of approximately $8,240,000.$9,000,000. See
"Results of Operations: General" for a description of the Company's agreements
with customers. The systems and services related to the agreements are expected
to be delivered or performed, based upon customer implementation schedules, over
the next two to three years.
The Company's agreements also generally provide for an initial maintenance
period and give the customer the right to subscribe for maintenance services on
a monthly, quarterly or annual basis.
In addition, the VHS division has entered into two agreementsan agreement, which areis expected
to generate revenues starting in fiscal 1998, in excess of $7,000,000$5,500,000 over the first three yearsremaining life of operations.the
contract.
Item 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its cash balances, in excess of its current needs, in U.S.
Government Securities. The Company does not invest for the purposes of trading
in securities, however, the portfolio is managed and invested for maximum
return on the investment. The marketable securities at April 30,October 31, 1998, which
are recorded at a fair value of $4,759,221$5,014,435 and include unrealized gains of
$33,878,$25,152, have exposure to price risk. This risk is estimated, absent any
economic justification for the selection of a different amount, as the
potential loss in fair value resulting from a hypothetical 10% adverse change
in price quoted by dealers and amounts to $475,922.$501,444. Actual results may differ.
The fair market values of investment securities are based on the quoted market
prices at the reporting date for those investments. The estimated fair market
value of investment securities by contractual maturity at April 30,October 31, 1998 is as
follows: $313,729$5,014,435 in 1998, $2,394,476 in 1999, and $2,051,016 in 2000.
17
181998.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently engaged in any litigation.
Item 2. CHANGES IN3. DEFAULTS ON SENIOR SECURITIES
AND USE OF PROCEEDS
(d) Use Of Proceeds from Public Offering
(1) Effective date ofThe Company is not in default under its existing Loan Agreement
Item 5. OTHER INFORMATION
On December 2, 1998, the Registration Statement (Commission File Number
2-01494) for which Use of Proceeds information is provided is April
17, 1996.
(2) The offering date ofCompany announced that it has retained CIBC Oppenheimer
Corporation to assist the Registration Statement was April 18, 1996.
(3) The Managing Underwriters were:
Jefferies & Company Inc.
Unterberg Harris
McDonald & Company Securities, Inc.
(4) The Securities Registered was - Common Stock, $.01 Par Value.
(5) Aggregate offering price of securities registeredin evaluating several possible strategies to
enhance
21
22
shareholder value and sold to date
for the account of:
Issuer -
Amount Registered 2,912,500 Shares
Aggregate Price of Offering Amount Registered $37,862,500
Amount Sold 2,912,500 Shares
Aggregate Offering Price of Amount Sold $37,862,500
Selling Security Holders -
Amount Registered 750,000 Shares
Aggregate Offering Price of Amount Registered $9,750,000
Amount Sold 750,000 Shares
Aggregate Offering Price of Amount Sold $9,750,000
(6) Amount of expenses incurred for the Registrant's account in
connection with the issuance and distribution of the Securities
Registered, all of which were made to "others" and none to directors,
officers, general partners or affiliates of the Registrant.
Underwriting Discount and Commission $2,651,353
Finders Fees -
Expenses paid to or for Underwriters -
Other Expenses, Estimated at $906,365
18
19
(7) Net offering proceeds to the Registrant after total expenses above
$34,304,782.
(8) From the effective date of the Registration Statement through the end
of the quarterly period of this Form 10-Q, the Registrant made direct
or indirect payments to "others"optimize LanVision's position in the amounts listed below. No
payments direct or indirect were made to Directors, Officers, General
Partners, or Affiliatesmarketplace. (See
also Part I, Item 2. Management's Discussion and Analysis of the Registrant.
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment $ 6,690,982
Purchase of real estate $ -
Acquisition of other business(es) - purchase of in process
research and development $ 400,000
Repayment of indebtedness $ 1,110,266
Working capital $ 1,890,332 *
Expanded Staff, facilities, advertising, and
software development $21,167,594 *
Repurchase of treasury stock $ 430,188
Temporary investment in U.S. Government Securities $ 2,615,420
*Represents estimates.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual MeetingFinancial Condition
and Results of Stockholders held on May 27, 1998, the
following members were elected to the Board of Directors:
Votes For Votes Withheld
--------- --------------
J. Brian Patsy 7,788,976 68,177
Eric S. Lombardo 7,791,176 65,977
Z. David Patterson 7,788,486 68,667
George E. Castrucci 7,787,736 69,417Operation.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11)10(a) First Amendment to the Employment Agreement among LanVision
Systems, Inc., LanVision, Inc. and J. Brian Patsy.
10(b) First Amendment to the Employment Agreement among LanVision
Systems, Inc., LanVision, Inc. and Eric S. Lombardo.
10(c) First Amendment to Loan and Security Agreement between The
HillStreet Fund, L.P. and LanVision Systems, Inc.
11 Computation of Earnings (Loss) Per Common Share
(27)27 Financial Data Schedule
(b) Reports on Form 8-K
None
19
20None.
SIGNATURES
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.
LANVISION SYSTEMS, INC.
DATE: June 5,December 11, 1998 By: /s/ J. BRIAN PATSY
-------------------------- --------------------------------------------------------------- ----------------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: June 5,December 11, 1998 By: /s/ THOMAS E. PERAZZO
-------------------------- --------------------------------------------------------------- ----------------------------------------
Thomas E. Perazzo
Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer
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INDEX TO EXHIBITS
Sequential
Exhibit No. Exhibit Page No.
----------- ------- --------
11 Computation of Earnings (Loss) Per Common Share. . . . 22
27 Financial Data Schedule . . . . . . . . . . . . . . . 23
21
INDEX TO EXHIBITS
Exhibit No. Exhibit
10(a) # First Amendment to the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc. and J. Brian Patsy...................................................
10(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc. and Eric S. Lombardo.................................................
10(c) First Amendment to Loan and Security Agreement between The HillStreet Fund, L.P. and
LanVision Systems, Inc...............................................................
11 Computation of Earnings (Loss) Per Common Share......................................
27 Financial Data Schedule..............................................................
- ----------------
# Management Contracts and Compensatory Agreements.
23