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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ][X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 19992000
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.)
4700 Duke Drive, Suite 170
Mason, OHOhio 45040-9374
(Address of principal executive offices) (Zip Code)
(513) 794-7100459-5000
(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 September 10, 1999: 8,838,033.11, 2000: 8,869,238.
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TABLE OF CONTENTS
Page
PartPART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements....................................................... 3
Condensed Consolidated Balance Sheets at July 31, 19992000 and January 31, 1999.......................2000....................... 3
Condensed Consolidated Statements of Operations for the three months and six
months ended July 31, 19992000 and 1998..........................................................................................1999............................................................... 5
Condensed Consolidated Statements of Cash Flows for the six months ended
July 31, 19992000 and 1998...1999............................................................................ 6
Notes to Condensed Consolidated Financial Statements.............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 9
Part8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................. 2018
Item 3. Defaults on Senior Securities..................................................................... 21
Item 5. Other Information................................................................................. 2118
Item 6. Exhibits and Reports on Form 8-K.................................................................. 2119
Signatures........................................................................................ 2119
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
(Unaudited) (Audited)
July 31, January 31,
1999 1999
------------ ------------2000 2000
----------- -----------
Current assets:
Cash and cash equivalents (restricted by long-term debt agreement) $ 4,001,1227,922,582 $ 5,445,4985,411,920
Note receivable 525,000 --
Accounts receivable, net of allowance for doubtful
accounts of $355,000$400,000 and $325,000,$385,000, respectively 3,366,279 3,642,3301,850,522 3,936,326
Unbilled receivables 1,856,951 2,383,9641,002,722 1,138,941
Prepaid expenses related to unrecognized revenue 167,763 177,629
Other 1,006,197 1,024,960
------------ ------------267,704 258,506
----------- -----------
Total current assets 10,230,549 12,496,75211,736,293 10,923,322
Property and equipment:
Computer equipment 4,442,631 4,407,8632,669,828 4,423,753
Computer software 590,591 588,441483,567 659,993
Office furniture, fixtures and equipment 1,232,471 1,379,043 1,534,206
Leasehold improvements 98,577 648,230
930,920
------------ ------------
7,060,495 7,461,430----------- -----------
4,484,443 7,111,019
Accumulated depreciation and amortization (3,895,017) (3,321,466)
------------ ------------
3,165,478 4,139,964(3,657,944) (4,478,444)
----------- -----------
826,499 2,632,575
Capitalized software development costs, net of accumulated
amortization of $1,010,228$1,250,228 and $920,228,$1,100,228, respectively 809,701 749,701929,701 869,701
Other 86,429 98,633
------------ ------------
$ 14,292,157 $ 17,485,050
============ ============279,181 293,084
----------- -----------
$13,771,674 $14,718,682
=========== ===========
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)
July 31, January 31,
1999 19992000 2000
------------ ------------
Current liabilities:
Accounts payable $ 642,137418,332 $ 474,189666,647
Accrued compensation 363,101 543,790393,659 433,046
Accrued other expenses 2,224,712 3,105,0212,019,893 2,183,080
Deferred revenues 1,509,406 1,083,837793,285 1,491,404
------------ ------------
Total current liabilities 4,739,356 5,206,8373,625,169 4,774,177
Long-term debt 6,000,000 6,000,000
Long-term accrued interest 831,571 431,1671,835,929 1,331,289
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 35,051,461 35,102,45934,876,950 35,003,931
Treasury stock, at cost, 68,46727,262 and 81,98058,467 shares, respectively (325,451) (389,692)(129,583) (277,921)
Accumulated (deficit) (32,093,745) (28,954,686)(32,525,756) (32,201,759)
------------ ------------
Total stockholders' equity 2,721,230 5,847,046
============ ============2,310,576 2,613,216
------------ ------------
$ 14,292,15713,771,674 $ 17,485,05014,718,682
============ ============
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended July 31,
(Unaudited)
Three Months Ended Six Months Ended
----------------------------- ------------------------------------------------------- ---------------------------
2000 1999 19982000 1999
1998
------------ ------------ ------------ ---------------------- ----------- ----------- -----------
Revenues:
Systems sales $ 607,874 $ 541,678 $ 1,565,010878,935 $ 1,468,648 $ 3,671,940
Services, maintenance and support 1,490,391 1,459,805 1,334,9982,829,606 2,749,958 2,770,598
Service bureau operations 199,367 -- 108,214401,829 154,925
170,714
------------ ------------ ------------ ---------------------- ----------- ----------- -----------
Total revenues 2,297,632 2,001,483 3,008,2224,110,370 4,373,531 6,613,252
Operating expenses:
Cost of systems sales 269,683 114,783 431,135441,619 550,247 1,209,856
Cost of services, maintenance and support 905,686 979,010 1,431,6771,833,790 1,909,055 2,958,353
Cost of service bureau operations 82,643 405,457 725,571190,482 831,876 1,347,840
Selling, general and administrative 914,451 1,194,846 2,109,5861,753,959 2,456,085 4,575,807
Product research and development 459,578 525,042 948,122926,949 1,071,054
2,398,613
Restructuring expense -- 300,000 -- 300,000
------------ ------------ ------------ ---------------------- ----------- ----------- -----------
Total operating expenses 2,632,041 3,219,138 5,946,0915,146,799 6,818,317
12,790,469
------------ ------------ ------------ ---------------------- ----------- ----------- -----------
Operating (loss) (334,409) (1,217,655) (2,937,869)(1,036,429) (2,444,786)
(6,177,217)Other income expense:
Interest income 127,148 39,188 94,366231,860 88,132 197,629
Interest expense 460,367 401,572 67,500900,948 782,405
67,500
------------ ------------ ------------ ------------Other income, net 28,802 -- 1,381,520 --
---------- ----------- ----------- -----------
Net (loss) $ (1,580,039)(638,826) $(1,580,039) $ (2,911,003) $ (3,139,059) $ (6,047,088)
============ ============ ============ ============(323,997) $(3,139,059)
========== =========== =========== ===========
Basic net (loss) per common share $ (.07) $ (.18) $ (.33)(.04) $ (.36)
$ (.69)
============ ============ ============ ====================== =========== =========== ===========
Diluted net (loss) per common share $ (.07) $ (.18) $ (.33)(.04) $ (.36)
$ (.69)
============ ============ ============ ====================== =========== =========== ===========
Number of shares used in per common share computations 8,855,218 8,819,073 8,808,8718,851,715 8,816,834
8,807,459
============ ============ ============ ====================== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended July 31,
(Unaudited)
2000 1999
1998
------------ ----------------------- -----------
Operating activities:
Net (loss) $ (3,139,059) $ (6,047,088)(323,997) $(3,139,059)
Adjustments to reconcile net (loss) to net cash
provided by (used for) operating activities:
(Gain) on sale of property and equipment, net (1,431,763) --
Depreciation and amortization 492,603 955,358 1,039,755
Increase in long-term accrued interest 504,640 400,404 32,500
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables 2,222,022 798,209 (2,007,077)
Other current assets 668 23,618 (300,411)
Accounts payable and accrued expenses (450,888) (746,444) (536,230)
Deferred revenues (698,119) 425,569
(1,959)
------------ ----------------------- -----------
Net cash provided by (used for) operating activities 315,166 (1,282,345)
(7,820,510)----------- -----------
Investing activities:
Purchases of investment securities -- (9,836,409)
Sales of investment securities -- 11,663,279
Proceeds from disposal of property and equipment 2,057,000 9,006 --
Purchases of property and equipment (61,764) (46,484) (720,824)
Capitalization of software development costs (210,000) (150,000)
(198,000)Payment on note receivable 375,000 --
Other 13,903 12,204
(14,639)
------------ ----------------------- -----------
Net cash provided by (used for) provided by investing activities 2,174,139 (175,274) 893,407
Financing activities:
Proceeds of long-term debt -- 6,000,000
Sale of treasury stock to employee stock purchase plan 21,357 13,243
32,138
------------ ----------------------- -----------
Net cash provided by financing activities 21,357 13,243
6,032,138
------------ ------------
Decrease----------- -----------
Increase (decrease) in cash and cash equivalents 2,510,662 (1,444,376) (894,965)
Cash and cash equivalents at beginning of period 5,411,920 5,445,498
2,142,881
------------ ----------------------- -----------
Cash and cash equivalents at end of period $ 7,922,582 $ 4,001,122
$ 1,247,916
============ ======================= ===========
Supplemental cash flow disclosures:
Interest paid $ 364,000 $ 362,000
$ --=========== ===========
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 orand six months ended July 31, 1999,2000, are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 31, 2000.2001.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is presented
beginning on page 2120 of its 19981999 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 1999.fiscal year 2000.
Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES
The decreaseincrease in cash and cash equivalents results primarily from the usesale of cashthe
data center (discussed below) and the collection of accounts receivable
subsequent to fund
current operationsJanuary 31, 2000.
The note receivable, in the amount of $525,000, represents the remaining balance
of a $900,000 note received from the buyer of the data center, and purchase additional fixed assets.is payable
$75,000 per month, plus interest on the unpaid balance, through February, 2001.
The decrease in accounts receivables, net is due to improved collections, lower revenues in the current quarterfirst
six months of fiscal year 2000 compared to the priorsix month period ended January
31, 1999,2000 and the write off of some previously reserved accounts.
In August 1997, the Company announced the formation of Virtual Healthware
Services (VHS), a new healthcare information application service provider
division that delivers high quality, transaction-based document
imaging/management services to healthcare providers from a central data center.
Also, in August 1997, the Company announced that The Detroit Medical Center
(DMC) signed a three-year agreement with VHS and the contract was expected to
generate in excess of $6,000,000 in revenues over the initial term of the
agreement. In 1997, and the first part
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of 1998, the Company spent approximately $4,000,000 to build the central data
center and place it into production. Duringcollection, during the first quarter, of 1998, VHS began
productionreceivables
outstanding at the DMC. However, during 1998, The Detroit Medical Center
encountered financial difficulties,January 31, 2000.
Other current assets consist of software and as previously announced in February,
1999, the DMC as part of an overall financial restructuring, notified the
Company that it soughthardware awaiting installation
(related to terminate its agreement with VHS. The agreement
between the DMCunrecognized revenue) and LanVision does not provide for early termination, and the
Company has filed a complaint seeking the recovery of damages in excess of
$2,000,000 and initiated arbitration proceedings against the DMC. However, at
the present time, the Company is unable to predict the outcome of these
proceedings. At July 31, 1999, LanVision's receivables due from the DMC
approximated $667,000. Management believes it has adequately provided for any
possible uncollectible amounts.prepaid expenses, including commissions.
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The decrease in property and equipment, net, is dueprimarily the result of the sale
of the Company's data center on February 11, 2000 for $2,000,000 in cash and a
$900,000 note receivable. The sale generated a gain of approximately $1,400,000.
The Company simultaneously entered into a service provider agreement with the
buyer to continue to use the downsizing of facilities
including the disposal of excess office furniture and equipment and abandonment
of certain leasehold improvements.data center on a fee for service basis.
Other currentnon-current assets consist primarily of prepaid expenses, including
commissions, and acquired software and hardware awaiting installation.long-term debt closing
costs, which are amortized to expense over the life of the loan.
The increasedecrease in accounts payable is due to the timingpayment, subsequent to
January 31, 2000, of payments on certain
payables.year end purchases.
The decrease in accrued compensation results from a reduction in headcount and
the payment of incentive compensation.year end
bonuses.
The decrease in accrued other expensesdeferred revenues results from the settlementrecognition of contractual issues relatingrevenue
related to certain aspects of implementation on several
contracts and the use of the accrued restructuring liability for facilities
downsizing.
The increase in deferred revenues is duebillings to the receipt of advance payments on
several contractscustomers recorded prior to revenue recognition.
Note 4 - STOCK OPTIONS
During the first six months of the current fiscal year, the Company granted
101,000199,000 stock options under the 1996 Employee Stock Option Plan.Plan at an exercise
price of approximately $1.50 per share. During the same period 202,38782,500 options
were forfeited under all plans.
In August, 1999, options
to purchase 10,000 shares of Common Stock were exercised.
Note 5 - RESTRUCTURING EXPENSE
During the prior fiscal year, the company restructured certain aspects of its
operations. Accordingly, the Company accrued $700,000 for the anticipated costs
of severance and related taxes and fringe benefits for the reduction of the work
force by 16 people and downsizing the existing facilities to the current and
near term need. At July 31, 1999, approximately $632,000 of the accrual has been
used for the restructuring and approximately $68,000 remains for additional
facilities downsizing.
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Note 6 - EARNINGS PER SHARE
The basic net (loss) per common share is calculated using the weighted average
number of common shares outstanding during the period.
The diluted net (loss) per common share calculation, excludes the effect of the
common stock equivalents (stock options) as the inclusion thereof would be
antidilutive.
Note 7 - 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:
Three months ended July 31, Six months ended July 31,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net (loss) $(1,580,039) $(2,911,003) $(3,139,059) $(6,047,088)
Unrealized holding gains (losses)
arising during the period -- (4,827) -- (5,630)
Reclassification adjustment for
gains included in Net (loss) -- (14,164) -- (54,686)
----------- ----------- ----------- -----------
Comprehensive (loss) $(1,580,039) $(2,929,994) $(3,139,059) $(6,107,404)
=========== =========== =========== ===========
Note 8 - LONG-TERM DEBT
At the present time the Company's Long-term Debt Agreement includes certain
financial covenants requiring the Company to maintain a minimum cash balance of
$2,400,000 and maintain minimum revenues and net worth. The Company is
renegotiating these covenants with the Lender and the minimum cash balance
required will increase to $2,700,000 at October 31, 1999.
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, 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
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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
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date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements, which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
GENERAL
LanVision Systems, Inc. ("LanVision"(TM) or the "Company") is an eHealth Application Service Provider and a leading supplier of
Healthcare Information Access Systems and services and an
Application Service Provider withspecializing in connectivity solutions
that can utilize the power of the Internet/Intranet to link hospitals, physicians,
patients and payers to a robust electronic medical record that enable, on a real-time basis, access to all the
various forms of clinical and financial patient information from a single
permanent health information repository. LanVision's solutions enable the
coordination of both "structured" and "unstructured" patient data through a
single health information repository.Electronic Medical Record. The Company's
products are complementary to existing clinical and financial systems, and use
document imaging and workflow tools to ensure end users can electronically
access all the various forms of healthcare information including clinician's
handwritten notes, lab reports, photographs, insurance cards, etc. LanVision's
eHealth solutions offer value to all of the constituents in the healthcare
delivery process by enabling them to simultaneously access information from
virtually any location, including the physician's desktop and eventually a patient's home using webWeb browser
technology. Web access to the entire medical record significantly improves physician
productivity and reduces administrative costs such as filing, storage, retrieval
and upkeep of medical records and clinical costs, such as redundant diagnostic
testing. The system enables healthcare providers to access, on a real-time
basis, all the various forms of clinical and financial patient information from
a single permanent healthcare information repository. The Company's solutions
integrate a proprietary document imaging platform, application suites, and image
and web-enablingWeb-enabling tools, that allow for the seamless merger of "back office"
functionality with existing Clinical Information Systems at the desktop. The
Company offers a robust document imaging/management infrastructure (Foundation
Suite) that is built for high volume transaction processing and is optimized for
the healthcare industry. In addition to providing the clinician access to
information not previously available at the desktop, the Company's applications
fulfill the administrative and legal needs of the Medical Records and Patient
Financial Services departments. Furthermore, these systems have been
specifically designed to integrate with otherany Clinical and Patient Account Information Systems.System. For
example, the Company has integrated its products with selected systems from
Shared Medical Systems Corporation, Cerner Corporation, IDX Systems Corporation,
and Oacis Healthcare Holdings Corp. By offering electronic access to all the
components of the Medical Record, this integration completes one of the most
difficult tasks necessary to provide a true Computer Based Patient Record. The
Company's systems deliver on-line enterprisewide 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.
The Company'sHistorically, the Company has derived its revenues are derived from:from system sales involving
the licensing of its Electronic Medical Record solution to Integrated Healthcare
Delivery Networks ("IDN"). In a typical transaction, the Company enters into a
perpetual license for the Company's Electronic
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Medical Record Software Suite and sale of systems
comprising LanVision and third-partylicenses, sells other third party software and
hardware components product
support, maintenance,to the IDN. Additionally, the Company provides professional
services, including implementation, training and service bureau operations.
Professional services include implementation and training,
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project management, custom software development and currently are provided onlyproduct support.
With respect to the Company's customers with installed systems or who are insales, 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 on third-party hardware.
Systems sales to customers may include different 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 fromBeginning in 1998, the Company began offering customers the ability to obtain
its Electronic Medical Record solution on a service bureau/eHealth basis as an
Application Service Provider ("ASP"). The Company's service bureau operations, which provides high quality,
transaction-based document imaging/management services from a central data
center, are expected to increaseeHealth Services division
formerly known as the number of hospitals outsource services
to the Company's Virtual Healthware Services division ("VHS"). Additionally,
revenue from each VHS customer is expected division established a
centralized data center and installed the Company's Electronic Medical Record
suite within the data center. Under this arrangement, customers electronically
capture information and transmit the data to increase as the volumecentralized data center. The
eHealth Services Division stores and manages the data using LanVision's
Electronic Medical Record Suite of archived
historical data increasesApplications, and retrievals of data increases ascustomers can view, print
or fax the systems are
fully implemented within a healthcare facility. VHS is currently installing its
system at The Health Alliance, Inc., a group of five hospitals in the Greater
Cincinnati Area.
The systems and service bureau operations enable hospitals and integrated
healthcare networks to capture, store, manage, route, retrieve and process vast
amounts of clinical and financial patient information. 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, wherever located, includinganywhere using the point of patient care.
Sales are made byLanVision Web-based applications.
The eHealth Services Division charges and recognizes revenue for these eHealth
services on a per transaction or subscription basis as information is captured,
stored, and retrieved.
In February 2000, the Company's direct sales force and through a Remarketing
Agreement with Shared Medical Systems Corporation.
On February 23, 1998,Company sold its centralized data center for $2,900,000.
Simultaneous therewith, the Company entered into a Remarketing Agreementservice agreement with Shared Medical Systems Corporation ("SMS").the
buyer. Under the terms of thethis service agreement, SMS was granted an exclusive worldwide license to distribute WebView(TM),
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,exchange for processing
fees, the Company may terminatewill continue to use the SMS Remarketing Agreement.
SMS has over 1,800data center to provide ASP services
to LanVision's current and future customers. Although LanVision sold the data
center assets, the Company continues to market its eHealth solutions, which
includes the recently announced eHealth agreement with eSmartHealth, Inc. that
is discussed below. The Company will continue to provide its eHealth ASP
services to customers inthrough 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 1999, as morecontinued use of the SMS organization is
trained to selldata center and implement the LanVision products. To date SMS has sold six
systems to end users through August 31, 1999.
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other data center service providers.
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, 1998 and the first six months of 1999, theThe Company has
experienced extended sales cycles, and sales in each period have been less than the
Company's internal plans.which has adversely affected revenues. It is
common for sales cycles to take six to eighteen months from initial contact to
the execution of an agreement. As a result, the sales cycles can cause
significant variations in quarter to quarter operating results. Furthermore, healthcare organizations are assessing and implementing many new
technology solutions, including Year 2000 Compliance, etc., and although many of
these systems do not compete with LanVision's products, these systems do compete
for capital budget dollars and the available time of information system
personnel within the healthcare organizations. The LanVisionThese 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 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 usually sold outright, with a one-time fee charged for installation and
training. InterfacesSite-specific customization, interfaces with existing customer systems
and other consulting services are sold on a fixed fee or a time and materials
basis. Alternatively, with the Company's eHealth ASP services, the agreements
generally provide for
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utilizing the Company's software and third party software on a fee per
transaction or subscription basis.
Generally, revenuesrevenue from systems sales areis recognized when a purchasean agreement is signed
and products are delivered. Revenues from the service elements of a
contract including:shipped. Revenue recognition related to routine installation,
integration and project management interface development, training, etc. areis 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,deemed insignificant,
depending on the contractual terms. Revenues from maintenanceconsulting, training and
services are recognized as the services are performed. Revenues from short-term
support and maintenance agreements are 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 isCompany's eHealth Services Application Service Provider division was
designed to overcome obstacles in the resultbuying decision such as large capital
commitment, length 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 date 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 for both the Company and its customers who rely on its
products.
The Company has completed all stages of reviewing, correcting and testing Year
2000 Compliance issues related to its internal use software and hardwareimplementation, and the Company's products, including third-party software components offeredscarcity of time for resale.
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The Company presently believesHealthcare
Information Systems personnel to implement new systems. Customers pay for such
services on a transaction or subscription basis, and the Year 2000 Compliance issue will not pose
significant operational problems for the Company centralized data center
application is operated and maintained by LanVision personnel and/or its customers. However, if
clients do not makeagents.
In 1999, the necessary changeseHealth Services Division signed a four-year contract with The
Health Alliance of Greater Cincinnati, a group of five hospitals in the Greater
Cincinnati Area, to equipment and upgradeprovide outsourced data center operations of its LanVision
Electronic Medical Record System. Management believes more IDN's will begin to
Year 2000
Compliant software in a timely manner, the Year 2000 Compliance issue could have
a material impact on the Company and its customers.
The Company has divided the Year 2000 Compliance issue into two areas: software
products and systems sold to customers and internal use software and hardware.
With regard to software products sold to customers, the Company has: completed
the overall Year 2000 Compliance remediation plan; made a reviewlook for this type of the existing
software code; corrected all known Year 2000 code problems; developed a test
plan; and tested the revised code for quality assurance. The Year 2000 quality
assurance testing, which included integration testing of LanVision software
products and other third-party software and hardware system components, has been
completed and where necessary the code was modified. This testing and
modification was done in several iterations. All LanVision Year 2000 Compliant
software products have completed Beta testing and are in General Release. The
Company believes that Year 2000 compatible equipment is available for
acquisition by customers, if necessary, to ensure installed systems operate
properly.
The Company is now working with its customers to upgrade their systems to Year
2000 Compliance. Based upon current information and the time remaining for
clients to upgrade their systems to be Year 2000 Compliant, including upgrading
to LanVision's Year 2000 Compliant software,eHealth application. Additionally, the Company believes
thatits business model is especially well suited for the riskambulatory marketplace.
LanVision is actively pursuing remarketing agreements with Healthcare
Information Systems providers to distribute the Company's eHealth solutions.
In 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), WebView(TM) and Enterprisewide Correspondence(TM) to the SMS
customer base and prospect base, as defined in the agreement, and a
customer not havingnon-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.
Under the terms of the agreement, SMS remits royalties to LanVision based upon
SMS sublicensing the Company's software to SMS's customers. Twenty-five percent
of the royalty is due 30 days following the end of the quarter in which SMS
executes the end user license agreement with its customer. LanVision recognizes
this revenue upon receipt of the royalty statement. LanVision records the
remaining 75% of the Royalty when such payment due from SMS is fixed and
determinable, which is generally when the software is shipped to the end user.
Through July 31, 2000, SMS has sold ten systems to end-users.
In August, 2000, the Company entered into a Year 2000 Compliant system is minimal. Contingency
plans have not yet been developed. However, if needed, contingency plansnew agreement with eSmartHealth,
Inc. ("eSmart") which allows eSmart to utilize LanVision's MicroVision(TM)
Electronic Medical Record ("EMR")
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product combined with web-based eSmart software to provide affordable, web-based
EMR document management and viewing services to hospitals and clinics via the
Internet. eSmart, in conjunction with their affiliate Alpharetta, Georgia based
Smart Professional Photocopy Corporation d/b/a Smart Corporation, will
distribute their services through Smart Corporation's extensive sales
distribution network which currently consists of over 1,000 hospitals and 4,600
clinic customers throughout 46 states. LanVision will be developed.
With regard tocompensated for use of
its software based upon the Company's service bureau operations,number of EMR images eSmart scans and stores using
the Company has
determinedMicroVision application. The current estimate is that its systems and equipment are Year 2000 Compliant, includingeSmart will begin
using the LanVision software products discussed above and telecommunications services
provided by outside vendors. Without Year 2000 Compliant LanVision software and
telecommunications, the service bureau operations would not be able to provide
current levels of services to its customers and no contingency plan has been
developed based upon our current review of the systems, software and
telecommunications services. However, if needed, contingency plans will be
developed.
With regard to internal use software and hardware, the Company has reviewed
substantially all of the internally used 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 replacedstarting 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 be upgraded, in 1999, 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 communications with its vendors to determine the
status of their systems. The major vendors have advised the
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Company they are currently Year 2000 Compliant. No contingency plan has been
developed. However, if needed, contingency plans will be developed.
The Company utilized both internal and external resources to reprogram, or
replace and test its software products for the Year 2000 Compliance
modifications. The total cost of the Year 2000 Compliance remediation is not
considered to be material, less than $500,000
The Company has warranted, to certain customers, that its products will be Year
2000 Compliant. If the Company were unable to provide a Year 2000 Compliant
solution to these customers, the customers could claim breach of contract and
seek available legal remedies. Provisions of the Company's long-term debt
agreement and the Remarketing Agreement with SMS required the Company's products
be Year 2000 Compliant by December 31, 1998. Although, LanVision's products were
modified to be Year 2000 Compliant by December 31, 1998, all Alpha and Beta
testing was not completed as of that date. Waivers of compliance have been
received from our lender and the Remarketing Agreement with SMS is being
amended. Based upon the current best estimate for remediation of the Year 2000
Compliance issues, the Company believes the risk is minimal that the Company has
not complied with current commitments.fiscal fourth quarter.
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 customers'customers increase. Revenues from the VHS
serviceeHealth
Service bureau operations are expected to increase over time, as more hospitals
outsource services to VHS,LanVision's eHealth Service Division, its existing
customers increasecustomer increases the volume of documents stored on the systems, and the number of
retrievals increase. VHS is currently
installing its system at The Health Alliance, Inc., a group of five hospitals inincrease and new providers, such as eSmart, begin to utilize the
Greater Cincinnati Area. 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.software.
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 system, 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.
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REVENUES
Revenues for the second fiscal quarter ended July 31, 1999,2000, were $2,001,483,$2,297,632,
compared with $3,008,222$2,001,483 reported in the comparable quarter of 1998.1999. Revenues
for the first six months ended July 31, 1999,2000, were $4,373,531$4,110,370, compared with
$6,613,252$4,373,531 reported in the comparable prior period.period of 1999. Revenues for the second quarter and first six
months of fiscal 1999 do not include approximately $1,270,0002000 continued to be affected because many healthcare
organizations deferred new software purchases until all of revenues for
previously announced sales made by our Remarketing Partner Sharedtheir existing
systems were Year 2000 compliant. Also, LanVision's remarketing partner ,Shared
Medical Systems Corporation. As previously disclosed, revenues on theCorporation, was slow to implement existing contracts, have
been deferred until certain integration was completed. During the second
quarter, LanVision delivered to SMS versionswhich
adversely affected revenue recognition because 75% of LanVision's Medical Record Suite
that were integrated with SMS's Patient Accounts Imaging Management System. SMS
and LanVision successfully completed the initial integration testing. Revenue
will berevenues from
such contracts is recognized probably in the third quarter, when final integration
testingonly upon commencement of the software is completed. The decrease in revenues, in both periods,
results primarily from the decrease in new customers during the current periods
as most healthcare organizations concentratedimplementation activities
on Year 2000 remediation of legacy
systems rather than installing new systems.
Additionally, consolidations and mergers within the healthcare industry and the
attendant changes in management have delayed or terminated sales discussions.a contract by contract basis.
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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
continueHowever,
management continues to adversely affect potential sales opportunities for its direct sales
force through most of fiscal 1999. Also, thebelieve that revenue from our Remarketing Agreement with
Shared
Medical Systems Corporation has developed more slowly than expected. To date,
SMS's Marketing ofSMS will increase in the future since LanVision's productsproduct has been conducted by a small
specialized sales force. Additionally, SMS's strategy is to tightly control
marketing activities until such time thatfully
integrated with the SMS product and the integrated LanVision/product offering should be
ready, very soon, for general availability to the SMS solution
can be successfully demonstrated at its key customers. The integrated products
have been delivered to two SMScustomer base. In
addition, our web-based eHealth application, which is currently available and in
production with our customers and initial integration testing has
been successfully completed. Final integration testing is scheduledavailable, through our Resellers for September.the
Application Service Provider operating model, should further enhance revenues,
through software royalties to LanVision expects that SMS's marketing activities related to the
LanVision products will increasewith minimal additional cost. Both our
Remarketing and believes revenue from this Remarketing
Agreement willReseller Agreements should represent a greater percentage of the
Company's total revenues in the future.
After an agreement is executed, LanVision does not record revenues until it
delivers 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 accounted for
approximately 47%38% of the revenues for the second quarter and 39%35% for the first
six months of 19992000 compared with 53%47% and 37%39%, respectively, of revenues in the
comparable periods of the prior year.
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OPERATING EXPENSES
Cost of Systems Sales
The cost of systems sales includes amortization of capitalized software
development costs on a straight-line basis, royalties and the cost of
third-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 second quarter of fiscal 2000 and 1999
were 44% and 1998 were
21%, respectively, and 27%50% and 37%, respectively. The lower cost reflects the change in the mix of
LanVision software with higher margins relative to the hardware and third party
software components with lower margins and higher costs. The cost of systems
sales as a percentage of systems salesrespectively, for the first six
months of 1999fiscal 2000 and 1998
were 37% and 33%, respectively reflecting1999. The higher cost reflects lower margins on the
lower mix of LanVision software
and higher hardware sales insold during the current periodquarter compared withto the comparable prior
period.periods as well as increased software amortization expense.
Cost of Services, Maintenance and Support
The cost of services, maintenance and support includes compensation and benefits
for support and professional services personnel and the cost of third-party
maintenance contracts. As a percentage of services, maintenance and support
revenues, the cost of such services, maintenance and support was 67%61% and 107%67% for
the second quarter of fiscal 2000 and 1999, respectively and 65% and 69% and 107% for the
first six months of fiscal 19992000 and 1998,1999, respectively. The improvement in the
cost of sales is due to reduced operating expenses and more effective
utilization of the professional services and support staffs. The Company's
support margins are highest on
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LanVision's proprietary software. Accordingly, margins are expected to improve
as more customers are added.
The LanVision Professional Services staff provides services on a time and
material or fixed fee basis. The Professional Services staff has, in the past,
experiencedperiodically
experiences some inefficiencies in the delivery of services, and certain
projects have taken longer to complete than originally estimated, thus adversely
affecting operating performance. Additionally, the Professional Services staff
does spend a portion of its time on non-billable activities, such as selling
additional products and services to existing clients, developing training
courses and developing plans to move existing customers to LanVision's new product
releases, etc. Management believes thean increase in experiencethe number of its
Professional Services staffnew systems sold
and an increase inthe related backlog should improve the overall efficiency and operating
performance of this group.
Cost of ServicesService Bureau Operations
The cost of service bureau operations has declined in both the current quarter
and first six months comparedwas significantly reduced with the comparable prior periods assale of
the overall
operations were significantly reduced when The Detroit Medical Center terminated
their agreement. Seedata center. (See Note 3 of the Notes to Condensed Consolidated Financial
Statements.Statements, above.) The ongoing cost ofCompany now incurs expenses only for the service bureau operations is primarily
depreciation and core staff assisting inoutsourcing
services it uses which are directly related to the implementation of a newService Bureau Revenues
generated by the VHS customer, The Health Alliance, Inc., which is expects to begin using the system
in production in the third quarter.
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17eHealth Services Division.
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
second quarter of fiscal 1999,2000, Selling, General and Administrative expenses
decreased to $1,194,846$914,451 compared with $2,109,586$1,194,846 in the comparable prior quarter
and decreased to $2,456,085$1,753,959 in the first six months compared with $4,575,807$2,456,085 in
the comparable prior six months of 1998.month period. The reductions in Selling, General and
Administrative expenses is due to decreased staffing levels and reduced expenses
in other areas. The Company has gradually reduced its direct sales staff as the
Company focuses its sales efforts on indirect distribution through its current
and future Remarketing, Reseller and ASP Partners. However, the Company may
increase its direct sales force in the foreseeable future as market
opportunities arise.
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. During the second quarter and first six months of fiscal 1999,2000,
research and development expenses decreased to $525,042were $459,578 compared with $948,122$525,042 in the
comparable prior quarter and decreased to $1,071,054$926,949 in the first six months compared with
$2,398,613$1,071,054 in the comparable prior six months of 1998,month period as a result of a reduction
of staff and use of outside contractors, and an increase in capitalized software
for new products under development. The Company monitors closely and augments
its Research and Development staff, as majornecessary, to accelerate the development
projects were completed in the later portion of the prior fiscal year.new products. The Company capitalized, in accordance with
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Statement of Financial Accounting Standards No. 86, $150,000$105,000 and $198,000$75,000 of
product research and development costs in the second quarter of fiscal 2000 and
1999, respectively and $210,000 and $150,000 in the first six months of fiscal
2000 and 1999, respectively.
Operating loss
The operating loss for the second quarter of fiscal 2000 was $334,409 compared
with an operating loss of $1,217,655 in the second quarter of fiscal 1999. The
operating loss for the first six months of fiscal 2000 was $1,036,429 compared
with $2,444,786 in the first six months of fiscal 1999. The decrease in the
operating loss results primarily from: (1) continued stringent cost controls,
and 1998,
respectively.(2) the sale of the data center and the reduction in the associated expenses
related thereto which approximated $300,000 in each of the first two quarters.
Interest income consists primarily of interest on invested cash. The decreaseincrease in
interest income results from the sale of investment securitiesincreased cash balances and use of cash
to fund operations and acquire fixed assets.higher interest rates.
Interest expense relates to the long-term debt.
Other income, net
Other income, net of $28,802 relates to the disposal of fixed assets during the
second quarter when the Company closed the Charlotte, North Carolina office and
the $1,381,520 for the first six months results, relates primarily from the data
center sale in the first quarter. (See Note 3 of the Notes to Consolidated
Condensed Financial Statements, above.)
Net loss(loss)
The net loss for the second quarter of fiscal 19992000 was $1,580,039$638,826 ($.0.18.07 per share)
compared with a net loss of $2,911,003$1,580,039 ($.0.33.18 per share) in the second quarter of
fiscal 1998.1999. The net loss for the first six months of fiscal 19992000 was $3,139,059$323,997
($.0.36.04 per share) compared with a net loss of $6,047,088$3,139,059 ($.0.69.36 per share) in the
first six months of fiscal 1998.The decrease in1999. Excluding the gain on the sale of the data
center, the net loss for the periodsfirst six months would have been $1,705,517, a
decrease of $1,433,542 from the comparable loss in the first six months of
fiscal 1999. This reduction results primarily from reductionsfrom: (1) the continued stringent
cost controls in selling, generalall areas, and administrative(2) the sale of the data center which resulted
in an approximately $600,000 reduction in expenses and product research and development as well as
reductions in costs of sales, primarily as a result of staff reductions and
better utilization of staff.
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In spite ofrelated to the data center
operations.
Notwithstanding the less than anticipated number of new customer agreements
signed in the past, 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
primarily through third party distributors and remarketing partners, and
potentially emerging healthcare Internet Service Providers, Application Service
Providers and content/E-commerce organizations.partners.
Since commencing operations in 1989, the Company has incurred operating losses.
Although the Company achieved profitability in fiscal years 1992 and 1993, the
Company incurred a net loss
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in fiscal years 1994 through 1998.1999. 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, the Company has funded its operations, working
capital needs and capital expenditures primarily from a combination of cash
generated by operations, a 1994 private placement of convertible redeemable
preferred stock, an initial public offering and borrowings, including a
$6,000,000 loan in July, 1998.
The Company's customers typically have been well-established hospitals, or
medical
facilities or third party distributors with good credit histories, and payments
have been received within normal time frames for the industry. However, recently some
healthcare organizations have experienced significant operating losses as a
result of limits on third-party reimbursements from insurance companies and
governmental entities. Agreements with customers often involve significant
amounts and contract terms typically require customers to make progress
payments. Agreements with third party distributors normally require payment as
LanVision's software is: (1) sublicensed and installed at end users or (2) as
the LanVision software is utilized on a per transaction, subscription or similar
"pay-as-you-use" basis.
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of approximately $1,400,000,$378,000,
net of a sublease, payable over the next fivethree years. However, the VHS service bureau operations
will need to acquire additional software and equipment as VHS adds additional
hospitals and clinics to its customer base. The central data center has been
configured to serve approximately fifty hospitals, with significant expansion
capabilities. However, for certain new customers VHS will operate one or more
onsite document capture centers and will provide the necessary scanning
equipment. Each document capture center is expected to require approximately
$125,000 of equipment. Also, because VHS charges for its services on a per
transaction fee basis, the Company'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.
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Over the last 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.expenses. This has resulted in
significant net cash outlays over the last threefour and one half years. Although the
Company has reduced staffing levels and related expenses, and improved operating
performance, the Company's expenses continue to exceed its revenues.
Accordingly, to achieve profitability, and positive cash flow, it is necessary
for the Company to increase revenues or continue to reduce expenses. Management
believes that the recent general release of new or enhanced versions of products has significantly
strengthened the product lines. 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 increase its
revenues. However, there can be no assurance the Company will be able to
increase its revenues.
At July 31,1999,31, 2000, the Company had cash and cash equivalents of $4,001,122.$7,922,582. Cash
equivalents consist primarily of overnight bank repurchase agreements.agreements and
short-term commercial paper. Under the terms of its loan agreement, as amended,
the Company has agreed to maintain a minimum cash and investment balance of
$2,400,000.$4,775,000, which increases by $75,000 per month,
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which is equal to the note receivable payment from the sale of the data center,
until February, 2001, at which time the minimum balance must be $5,300,000.
Management has significantly reduced operating expenses, throughout 1998 and the
first six months of fiscal year 1999, and believes the
Company is well
positioned to achieve quarterly break-even or profitability, before interest,
expense,can improve operating results in the second half of fiscal year 1999 with modest increases in
revenues.2000. However, based upon
current expenditure levels and in the absence of increased revenues, the Company
would continue to operate at a loss. Accordingly, for the foreseeable future,
management will need to continually assess its revenue prospects compared to its
current expenditure levels. If it does not appear likely that revenues will
increase, it willmay be necessary to further reduce operating expenses or raise cash
through additional borrowings, the sale of assets, or other equity financing.
Certain of these actions will require lender approval. However, there can be no
assurance the Company will be successful in any of these efforts. If it is
necessary to significantly reduce operating expenses, this could have an adverse
affect on future operating performance.
In December, 1998,The Company's long-term debt agreement, as amended on September 5, 2000,
currently requires that the Company retained CIBC World Markets [ formerly CIBC
Oppenheimer Corp.] asmaintain, certain financial covenants
including a financial advisorMinimum Net Worth of $800,000 through January 31, 2001 and
$1,100,000 thereafter. In addition, The Nasdaq SmallCap Market requires a
minimum of $2,000,000 in Net Tangible Assets, or Net Worth, for continued
listing on the SmallCap Market. Should LanVision's Net Worth decrease below the
above noted minimums, it will be necessary to helprenegotiate the long-term debt
covenants with the Lender and the Company's Common Stock could be delisted from
The Nasdaq SmallCap Market. If that event were to occur, the Company plan for future
capital needs and assistwould use
its best efforts to have its Common Stock traded on The Nasdaq Over The Counter
Bulletin Board, the NASD Pink Sheets or other Over The Counter Markets.
There can be no assurance that the Company's Lender will consent to a waiver of
the Minimum Net Worth or other covenants if they are not met. However,
management believes that the Company will be able to comply with decisions that maximize shareholder
value.the current
covenants to avoid default of the long-term debt agreement.
To date, inflation has not had a material impact on the Company's revenues or
expenses. Additionally, the Company does not have any significant market risk
exposure at July 31, 1999.2000.
In August, 2000, the Company announced that it had retained FAC/Equities, a
division of First Albany Corporation, as a financial advisor to evaluate
alternatives for maximizing shareholder value.
SIGNED AGREEMENTS - BACKLOG
LanVision enters into master agreements with its customers to specify the scope
of the system to be installed and services to be provided by LanVision, the
agreed upon aggregate price and the timetable for implementation. The master
agreement typically provides that the Company will deliver the system in phases
pursuant to the customer's purchase orders, thereby allowing the customer
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flexibility in the timing of its receipt of systems and to make adjustments that
may arise based upon changes in technology or changes in customer needs. The
master agreement also
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allows the customer to request additional components as the installation
progresses, which additions are then separately negotiated as to price and
terms. Certain Master Agreements allow customers to cancel
subsequent phases without penalty. Historically, customers have ultimately purchased systems and services in
addition to those originally contemplated by the master agreement, although
there can be no assurance that this trend will continue in the future.
At July 31, 1999,2000, the Company's customers (excluding customers of the Virtual
HealthwareeHealth
Services division)Division) had entered into master agreements for systems and services
(excluding support and maintenance) which had not yet been delivered, installed
and accepted which, if fully performed, would generate sales of approximately
$6,073,000,$5,846,000, compared with $6,616,000 and $6,881,000approximately $4,551,000 at the end of the first quarter of fiscal 1999 and the end of fiscal 1998, respectively.1999.
The systems and services are currently expected to be delivered over the next
two to three years. In addition, the Company anticipates approximately
$2,000,000$2,600,000 in transaction-based fee revenues for the Virtual HealthwareeHealth Services division's
newDivision's
client over the four-yearremaining thirty-eight month life of the contract. Because
implementation and service bureau transaction-basedeHealth fees are dependent upon the customer's
schedule and usage, the Company is unable to predict accurately the amount of
these
revenues in future periods. As previously discussed, an additional $1,270,000 in
revenues on systems sold by SMS will probable be recognized in the third
quarter.
The Company's master agreements also generally provide for an initial
maintenance period and give the customer the right to subscribe for maintenance
and support services on a monthly, quarterly or annual basis. Maintenance and
support revenues for fiscal years 1999 and 1998 and 1997 and 1996 were approximately
$3,264,000, $2,755,000 $2,151,000 and $1,186,000,$2,151,000, respectively and are expected to increase
as new or expanded systems are installed.
The commencement of revenue recognition varies depending on the size and
complexity of the system, the implementation schedule requested by the customer
and usage by customers of the VHS eHealth Services Division service bureau
operations. Therefore, LanVision is unable to accurately predict the revenue it
expects to achieve in any particular period. The Company's master agreements
generally provide that the customer may terminate its agreement upon a material
breach by the Company, or may delay certain aspects of the installation. There
can be no assurance that a customer will not cancel all or any portion of its master
agreement or delay installations. A termination or installation delay of one or
more phases of an agreement, or the failure of the Company to procure additional
agreements, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently engaged in any material adverse litigation.
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Item 3. DEFAULTS ON SENIOR SECURITIES
The Company is not in default under its existing Loan Agreement.
Item 5. OTHER INFORMATION
In July, 1999, the Company moved its Corporate Headquarters from offices at One
Financial Way, Cincinnati, OH to 4700 Duke Drive, Suite 170, Mason, OH,
45040-9374.Agreement
18
19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Lease Termination10(a) Second Amendment to Employment Agreement among LanVision Systems,
Inc., LanVision, Inc. and Thomas E Perazzo, effective
February 1, 2000
10(b) Third Amendment to Loan Agreement between LanVision Systems, Inc. and
The HillStreet Fund, L.P. dated July 17, 1998, as amended
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.None
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: September 14, 199911, 2000 By: /s/ J. BRIAN PATSY
------------------------ ----------------------------------------------------------- -----------------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: September 14, 199911, 2000 By: /s/ THOMAS E. PERAZZO
------------------------ -------------------------------------
Thomas E. Perazzo
Vice President, Chief Operating
Officer,PAUL W. BRIDGE, JR.
---------------------- -----------------------------------------
Paul W. Bridge, Jr.
Acting Chief Financial Officer and
Acting Treasurer
2119
2220
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
10 Lease Termination10(a) # Second Amendment to Employment Agreement among LanVision
Systems, Inc., LanVision, Inc. and Thomas E. Perazzo,
effective February 1, 2000
10(b) Third Amendment to Loan Agreement between LanVision Systems,
Inc. and The HillStreet Fund, L.P. dated July 17, 1998, as
amended
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
22
# Management Contract and Compensatory Agreement.