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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 July 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-28123
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 September 8, 1997: 8,896,500.
This report consists of 29 pages, and the Exhibit Index appears on page
20.
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TABLE OF CONTENTS
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Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at July 31, 1997 and January 31, 1997 ........... 3
Condensed Consolidated Statements of Operations for the three and six months ended
July 31, 1997 and 1996 .......................................................... 5
Condensed Consolidated Statements of Cash Flows for the six months ended
July 31, 1997 and 1996 .......................................................... 6
Notes to Condensed Consolidated Financial Statements .................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................ 16
Item 2. Changes in Securities and Use of Proceeds ........................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ............................... 17
Item 6. Exhibits and Reports on Form 8-K ................................................ 18
Signatures ........................................................................ 19
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
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<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1997 1997
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Current assets:
Cash and cash equivalents $ - $ 664,223
Investment securities 9,190,608 16,407,270
Accounts receivable, net of allowance for doubtful
accounts of $235,000 and $205,000, respectively 2,892,887 2,934,230
Unbilled receivables 609,743 663,626
Other 1,093,245 572,968
------------------ -----------------
Total current assets 13,786,483 21,242,317
Property and equipment:
Computer equipment 2,044,564 1,536,513
Computer software 321,144 173,359
Office furniture, fixtures and equipment 1,316,391 962,880
Leasehold improvements 378,784 267,244
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4,060,883 2,939,996
Accumulated depreciation and amortization (1,099,580) (687,832)
------------------ -----------------
2,961,303 2,252,164
Investment securities 9,706,042 9,520,279
Capitalized software development costs, net of accumulated
amortization of $593,563 and $533,563, respectively 382,367 244,366
Other 73,065 40,519
------------------ -----------------
$ 26,909,260 $ 33,299,645
================== =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1997 1997
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Current liabilities:
Accounts payable $ 812,094 $ 1,249,337
Accrued compensation 734,263 555,235
Accrued other expenses 1,267,881 1,073,167
Deferred revenues 936,096 500,783
------------------ -----------------
Total current liabilities 3,750,334 3,378,522
Stockholders' equity:
Preferred stock, $.01 par value per share, 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,896,500 shares issued and outstanding 88,965 88,965
Capital in excess of par value 35,110,817 35,110,817
Accumulated (deficit) (11,736,195) (5,359,265)
Unrealized net gains on investment securities, net 125,527 80,606
Treasury stock, at cost, 90,500 shares (430,188) -
------------------ -----------------
Total stockholders' equity 23,158,926 29,921,123
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$ 26,909,260 $ 33,299,645
================== =================
</TABLE>
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)
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Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
1997 1996 1997 1996
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Revenues:
Systems sales $ 428,286 $ 2,769,442 $ 1,598,847 $ 4,443,759
Service, maintenance and support 1,140,500 600,695 2,083,132 1,039,871
--------------- --------------- --------------- ---------------
Total revenues 1,568,786 3,370,137 3,681,979 5,483,630
Operating expenses:
Cost of systems sales 535,352 1,516,278 1,164,880 2,513,162
Cost of service, maintenance and support 1,246,671 767,851 2,353,757 1,249,048
Selling, general and administrative 2,353,707 1,397,457 4,923,942 2,453,670
Product research and development 1,247,535 297,445 2,229,850 577,181
--------------- --------------- --------------- ---------------
Total operating expenses 5,383,265 3,979,031 10,672,429 6,793,061
--------------- --------------- --------------- ---------------
Operating (loss) (3,814,479) (608,894) (6,990,450) (1,309,431)
Interest income 283,256 470,313 613,520 470,351
Interest expense - - - 79,684
--------------- --------------- --------------- ---------------
Net (loss) $ (3,531,223) $ (138,581) $ (6,376,930) $ (918,764)
=============== =============== =============== ===============
(Loss) per common share $ (.40) $ (.02) $ (.72) $ (.12)
=============== =============== =============== ===============
Number of shares used in per common share computation 8,813,446 8,896,500 8,849,312 7,664,288
=============== =============== =============== ===============
</TABLE>
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)
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1997 1996
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Operating activities:
Net (loss) $ (6,376,930) $ (918,764)
Adjustments to reconcile net (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 471,749 86,376
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables 95,226 (981,156)
Other assets (520,277) (642,310)
Accounts payable and accrued expenses (63,501) 1,061,903
Deferred revenues 435,313 (56,635)
------------------ ------------------
Net cash provided by (used for) operating activities (5,958,420) (1,450,586)
Investing activities:
Purchases of investment securities (16,149,732) -
Sales of investment securities 23,225,552 -
Purchases of property and equipment (1,120,887) (411,844)
Capitalization of software development costs (198,000) (80,000)
Other (32,548) -
------------------ ------------------
Net cash provided by (used for) investing activities 5,724,385 (491,844)
Financing activities:
Payments on line of credit, net - (600,000)
Issuance of common stock - 34,304,782
Purchase of treasury stock (430,188) -
------------------ ------------------
Net cash provided by (used for) financing activities (430,188) 33,704,782
------------------ ------------------
Increase (decrease) in cash (664,223) 31,762,352
Cash and short term cash equivalents at beginning of period 664,223 -
------------------ ------------------
Cash and short term cash equivalents at end of period $ - $ 31,762,352
================== ==================
Supplemental cash flow disclosures:
Income taxes paid $ - $ -
Interest paid $ - $ 79,684
</TABLE>
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 six months ended July 31, 1997, are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 31, 1998.
Note 2 - CASH EQUIVALENTS
Short-term cash equivalents at January 31, 1997, include demand deposits,
overnight repurchase agreements and money market funds (which invests in U.S.
Treasury Securities). For purposes of the Condensed Consolidated Statements of
Cash Flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Note 3 - PUBLIC OFFERING OF COMMON STOCK
On April 18, 1996, the Company issued 2,912,500 Shares of Common Stock in an
initial public offering. The net proceeds to the Company, before expenses, was
$35,211,147.
Note 4 - CHANGES IN ACCOUNT BALANCES
Interest income consists primarily of interest on investment securities, and
interest expense consists of interest on outstanding indebtedness, prior to the
initial public offering, in the first quarter of fiscal 1996.
Other current assets consist primarily of prepaid insurance, and acquired
software and hardware awaiting installation. The increase at July 31, 1997,
results primarily from the acquisition of
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hardware and software purchased for installation at a prospective customer and
increases in prepaid insurance.
The decrease in current investment securities results from the sale of
short-term investments to fund current operations and purchase additional fixed
assets.
The decrease in accounts payable is due to a reduction in purchases of hardware
and third party software for resale and reduced levels of capital expenditures.
The increase in deferred revenues relates primarily to the increase in prepaid
maintenance fees and advance payments on customer installations for which
revenue has been deferred until the projects are completed.
Note 5 - EARNINGS PER SHARE
On April 18, 1996, the Company issued 2,912,500 shares of Common Stock in an
Initial Public Offering and issued 1,496,000 common shares upon conversion of
the Company's Convertible Redeemable Preferred Stock. (See Note 3.) Per share
data and numbers of common shares contained in these Condensed Consolidated
Financial Statements and in Management's Discussion and Analysis of Financial
Condition and Results of Operations reflect the 4,408,500 shares issued.
The (loss) per common share is calculated using the weighted average number of
common shares outstanding during the period. During the first six months of
fiscal 1996, the common shares outstanding (7,664,288), assumes the conversion
of the Convertible Redeemable Preferred Stock to 1,496,000 shares of Common
Stock, on an if converted basis as of the beginning of the year, and the
issuance of 2,912,500 common shares on April 18, 1996, the date of the Initial
Public Offering.
The (loss) per common share calculation, excludes the effect of the common stock
equivalents (stock options) as the inclusion thereof would be antidilutive.
In February, 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, Earnings per Share. Currently management is
assessing the effect of this pronouncement on its calculation of earnings per
share. However, it does not appear the pronouncement will have any material
effect upon the previously reported earnings per share of the Company.
Note 6 - COMMITMENTS
On August 28, 1997, the Company announced that its new Virtual Healthware
Services division had entered into an agreement with The Detroit Medical Center
to provide document imaging, workflow and related services from a Cincinnati,
Ohio-based data center. The Company currently estimates that approximately
$5,600,000 in capital expenditures will be required between now and
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January 31, 1999, to support this agreement, and enable the Company to provide
similar services for up to an additional four hospitals.
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 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. 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 made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS:
GENERAL
LanVision is a leading provider of healthcare information access systems that
enable hospitals and integrated healthcare networks to capture, store, manage,
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 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
comprised of internally developed software, third party software and hardware,
and from professional services, maintenance and support services. The
professional services include consulting, implementation, 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
increases, although the margins on these 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. The highest margin on systems sales is on proprietary
software with lower margins on third
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party hardware and software. Systems sales to any given customer may include
differing configurations of software and hardware, resulting in varying margins
among contracts.
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. The sales cycle
for the Company's systems have typically taken six to eighteen months, or
sometimes longer, from initial contact to the execution of an agreement. As a
result, the length of the sales cycle causes variations in quarter to quarter
results. The agreements cover the entire implementation of the systems and
specify the implementation schedule, which typically takes place in one or more
phases. The agreements generally provide for the licensing of the Company's
software and third party software with a one-time perpetual license fee that is
adjusted depending on the number of workstations using the software. Third party
hardware is usually sold outright, with a one-time fee charged for installation
and training. Specific software customization, development of interfaces to
existing customer systems and other professional services are sold on a fixed
fee or a time and material basis.
LanVision enters into agreements with its customers to specify: the scope of the
systems to be installed and services to be provided by LanVision, the agreed
upon aggregate price and the preliminary timetable for implementation. The
agreements typically provide that the Company will deliver the systems in
phases, thereby allowing the customer flexibility in the timing of its receipt
of systems and to make adjustments that may arise upon changes in technology or
changes in customer needs. Some of the Company's agreements provide that the
customer may terminate its agreement upon a material breach by the Company may
delay certain aspects of the installation and may terminate the agreement after
completion of any particular phase at the customer's discretion without penalty
and without regard to the Company's performance. To date, no customer has
terminated a master agreement. However, customers have delayed or suspended
future phases and often modified the original configuration in the Master
Agreement. The sales agreements also allow the customer to request additional
components as the installation progresses, which additions are then separately
negotiated as to price and terms. Historically, customers have ultimately
purchased systems and services in addition to those originally contemplated by
the original agreement, although there can be no assurance that this trend will
continue in the future.
The Company recently announced the formation of a new division, Virtual
Healthware Services ("VHS"), which will provide, as a service bureau, high
quality, transaction-based document imaging and workflow related services to
healthcare providers from a centralized data center. The VHS (Service Bureau)
offers an alternative to purchasing health information access systems for
hospitals, outpatient clinics and integrated delivery networks. VHS will utilize
LanVision applications across an Intranet. VHS will establish a centralized data
center(s) capable of serving hospitals and integrated healthcare delivery
networks throughout the United States. The centralized data center will maintain
the computers, software and other equipment necessary to provide data base
services, magnetic storage, optical storage, and network services, which will be
used in providing electronic medical record and other information to and from
hospitals and integrated delivery networks. Additionally, VHS will provide the
equipment and personnel necessary to provide on-site scanning and indexing
services at the hospital or integrated delivery
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network. Customers will be charged per transaction fees for documents scanned,
stored and retrieved from the VHS data center. On August 22, 1997 VHS signed a
three year agreement with The Detroit Medical Center which the Company expects
will generate in excess of $6,000,000 in revenues over the initial three year
term. Revenue is expected to commence in the first quarter of fiscal 1998.
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 increase. Revenues from VHS
services is expected to increase over time, as more documents are stored on the
systems and the number of retrievals increase from the ever increasing data base
of stored documents. 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.
Accordingly, the Company believes that quarter-to-quarter comparisons of its
revenues and operating results from the above factors and the significant
expansion of operations, as discussed below, may not necessarily be meaningful
and should not be relied upon as indicators of future performance.
Generally, revenue from systems sales is recognized when an agreement is signed
and products are shipped. Revenue recognition related to routine installation,
integration and other insignificant obligations is 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 related
to the delivered hardware and/or software components is deferred until such
obligations are deemed insignificant. Revenue from consulting, training and
implementation and the VHS division is recognized as the services are performed.
Revenue from short-term support and maintenance agreements is recognized ratably
over the term of the agreements. Because the progress billing terms and
conditions of the agreements often do not coincide with the revenue recognition,
billings to customers prior to the recognition of the revenue are classified as
deferred revenue. Revenue recognized prior to progress billings to customers is
recorded as unbilled receivables. Revenues from VHS services will be invoiced
monthly based upon the. number of document images added to the system, other
data electronically transmitted to the system, quantity of information stored
and the retrieval of information. Retrieval revenue will be dependent upon the
customer usage, but retrieval is expected to increase as more documents are
archived and more retrievals are made from an expanding system. The VHS Data
Center is expected to begin operations in February, 1998. The Company believes
that VHS could be a substantial portion of its business going forward.
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
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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.
REVENUES:
Revenues for the second fiscal quarter ended July 31, 1997, were $1,568,786
compared with $3,370,137 in the comparable quarter of 1996. Revenues for the six
months ended July 31, 1997, were $3,681,979 compared with $5,483,630 in the
comparable period of 1996. There was one new agreement signed in the second
quarter, the Medical College of Georgia Hospital and Clinics. There were two new
agreements executed during the first quarter of 1997 (Memorial Sloan-Kettering
Cancer Center of New York City and Lakeland Health Services, for its Highland
Park Hospital, in Highland Park, IL). The three new agreements contributed
approximately $451,000 in revenues during the three months and approximately
$1,349,000 in the six months ended July 31, 1997. Portions of these new
agreements will be implemented in future periods. The remaining revenues came
from implementation of previously signed agreements (backlog) and from add-on
sales to existing customers. As previously discussed, after an agreement is
executed, LanVision does not record revenues until it ships 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 one of the new customers
mentioned above, accounted for approximately 49% of the revenues for the first
six months of 1997 and three customers accounted for 49% of the revenues for the
first six months of 1996.
OPERATING EXPENSES:
Cost of System 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 hardware and software
configuration of the systems sold. The cost of systems sales as a percentage of
systems sales for the second quarter of 1997 and 1996 were 125% and 55%,
respectively, and 73% and 57%, respectively for the first six months of 1997 and
1996. Cost of system sales exceeded system sales revenue because (1) system
sales primarily consisted of hardware with low margins; (2) cost of sales
includes the amortization, on a straight-line basis, of capitalized software
and; (3) cost of sales includes costs related to warranty.
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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 party
maintenance contracts. As a percentage of service, maintenance and support
revenues, the cost of such service, maintenance and support was 109% and 128%
for the second quarter of fiscal 1997 and 1996, respectively and 113%, and 120%,
respectively, for the first six months of 1997 and 1996.
The service, maintenance and support staff consisted of thirty and thirty-two
employees, respectively, in the first and second quarters of 1997 compared with
fifteen and twenty-two in the comparable prior quarters. LanVision's
Professional Services and Customer Support staffs were expanded, subsequent to
the initial public offering, in anticipation of increases in systems sales. The
number of new systems sales has been less than expected, and accordingly,
revenue from professional services and support has been less than the Company's
internal plan.
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 market
expenses; and general corporate expenses, including occupancy costs. During the
second quarter of fiscal 1997, selling, general and administrative expenses
increased to $2,353,707 compared with $1,397,457 in the comparable prior quarter
and increased to $4,923,942 in the first six months compared with $2,453,670 in
the comparable prior period. During the second through fourth quarters of fiscal
1996, the company significantly expanded its direct sales and marketing and
indirect sales operations, including the infrastructure necessary to support its
anticipated future operations, in order to take advantage of the growth market
opportunities in the healthcare information systems market. At the end of the
second quarter of 1997, the selling, general and administrative staff consisted
of 50 employees compared with 31 employees at the end of the second quarter of
1996. Additionally, expenses for advertising, trade shows and other marketing
programs for the first six months of fiscal 1997, were approximately $342,000
greater than the first six months of fiscal 1996. Selling, general and
administrative expenses include $180,000 in the first quarter of fiscal 1997,
related to an employee severance agreement.
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 July 31, 1997, the product research and development staff
consisted of twenty-nine employees compared with fourteen employees at July 31,
1996. In addition, the Company has increased substantially the use of
independent contractors and software development firms to supplement the
internal research and development staff. The majority of product research and
development expenses for the current quarter and last six months relate to: the
continued enhancement and increased functionality of ChartVision(R) and
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development of version 2 of AccountVision(TM); the development of new products
to expand the breadth of the product portfolio, including, On-Line Chart
Completion(TM) which automates the identification of deficiencies in patient
charts and automatic routing to appropriate personnel for on-line processing and
completion, MultiView(TM) , an add-on module to ChartVision to enable the
display of multiple documents and enable users to pre-define search criteria and
tailor data, Correspondence module to fulfill requests for information by
allowing electronic searches and distribution of patient information and
OmniVision(TM), an image enabling and workflow technology software that allows
access to information through existing hospital applications. The Company
capitalized, in accordance with Statement of Financial Accounting Standards No.
86, $198,000, and $80,000 of product research and development costs in the first
six months of fiscal 1997 and 1996, respectively.
Net loss
The net loss for the second fiscal quarter of 1997 was $3,531,223 ($.40)
compared with a net loss of $138,581 ($.02) in the second quarter of 1996. The
net loss for the first six months of 1997 was $6,376,930 ($.72) compared with a
net loss of $918,764 ($.12) in the first six months of 1996. The increased
operating loss is due to the significant expansion of the Company discussed in
the previous paragraphs and fewer new systems sales than expected. The shortfall
in systems sales occurred for several reasons: intense competition from other
healthcare document imaging and workflow providers; growing pains resulting from
the addition of many new employees and several management changes; extended
sales cycles where several potential customers have either indefinitely
postponed or delayed plans to implement document imaging due to a variety of
operating/capital decisions, including potential mergers, reprioritization of
projects, change in management, etc. Additionally, it has taken the Company
longer than anticipated to deliver products in development. Late delivery of
products has resulted in less revenue to existing customers and adversely
affected the Company's competitive position.
In spite of the shortfalls in new customer agreements, management continues to
believe that the healthcare document imaging and workflow market is going to be
a significant market. The Company continues to focus on this market, even though
expenses are well ahead of revenues over the past two quarters as the employee
base expanded. Management believes it has made the investments in the talent and
technology necessary to establish the Company as a leader in this marketplace.
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 and
1996. 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.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
On April 18, 1996, the Company, in its Initial Public Offering, issued 2,912,500
Shares of Common Stock, with net proceeds to the Company, before expenses, of
$35,211,147. The Company has no significant obligations for capital resources
other than operating leases for the existing facilities. However, the Company
anticipates spending approximately $5,600,000 for the furniture, building
improvements and equipment necessary to establish the new VHS division.
Additionally, because VHS is a start up operation and because the revenue stream
will start small and then grow as more data is stored and retrieved, management
expects VHS will operate at a loss and negative cash flow for at least the first
year of operation. Since the public offering, the Company's operating losses,
capital expenditures, and working capital needs have decreased cash and
investments by approximately $15,000,000. Additionally, based upon the expenses
associated with the current staffing levels, profitability and positive cash
flow is dependent upon increasing revenues. Management believes the Company will
be able to increase revenues and believes existing cash and cash equivalents,
and investment securities, as well as cash provided from operations, will be
sufficient to meet anticipated cash requirements. However, management
anticipates the capital expenditures needed by the VHS division will be funded
by a combination of short and long-term debt, which is yet to be secured.
The Company's customers typically have been well-established hospitals or
medical facilities with good credit history, 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
SIGNED AGREEMENTS - BACKLOG
At July 31, 1997, the Company's customers had entered into 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 $7,600,000. 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. Of the
backlog at July 31, 1997, the Company has received purchase orders for
approximately $3,100,000 of systems and services (excluding maintenance).
In addition, 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.
15
<PAGE> 16
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently engaged in any litigation.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use Of Proceeds
(1) Effective date of the Registration Statement (Commission File Number
2-01494) for which Use of Proceeds information is provided is April
17, 1996.
(2) The offering date of 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 registered and sold to date
for the account of:
<TABLE>
<CAPTION>
Issuer -
<S> <C>
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
</TABLE>
(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.
<TABLE>
<S> <C>
Underwriting Discount and Commission $2,651,353
Finders Fees -
Expenses paid to or for Underwriters -
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
Other Expenses, Estimated at $906,365
</TABLE>
(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" in the amounts listed below. No
payments direct or indirect were made to Directors, Officers, General
Partners, or Affiliates of the Registrant.
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment $ 3,454,682
Purchase of real estate $ -
Acquisition of other business(es) $ -
Repayment of indebtedness $ 1,110,266
Working capital $ 1,508,689 *
Expanded Staff, facilities, advertising, and
software development $ 10,880,881 *
Repurchase of treasury stock $ 430,188
Temporary investment in U.S. Treasury Securities $ 16,920,076
<FN>
*Represents estimates.
</TABLE>
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 27, 1997, the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
J. Brian Patsy 7,699,824 111,250
Eric S. Lombardo 7,699,624 111,450
Z. David Patterson 7,699,524 111,550
George E. Castrucci 7,698,024 113,050
</TABLE>
17
<PAGE> 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts:
(1) First Amendment to Lease Between Green Realty Corporation and
LanVision, Inc.
(2) Second Amendment to Lease Between Fairview Plaza Associates
Limited Partnership and LanVision, Inc.
(11) Computation of Earnings (Loss) Per Common Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
18
<PAGE> 19
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 8, 1997 By: /s/ J. BRIAN PATSY
--------------------------- ----------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: September 8, 1997 By: /s/ THOMAS E. PERAZZO
--------------------------- ----------------------------------
Thomas E. Perazzo
Vice President, Chief Financial
Officer and Treasurer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit No. Exhibit Page No.
----------- ------- --------------
<S> <C> <C>
10.1 First Amendment to Lease between Green Realty Corporation and
LanVision, Inc...................................................... 21
10.2 Second Amendment to Lease Between Fairview Plaza Associates
Limited Partnership and LanVision, Inc.............................. 24
11 Computation of Earnings (Loss) Per Common Share..................... 27
27 Financial Data Schedule............................................. 28
</TABLE>
20
<PAGE> 1
Exhibit 10.1
LANVISION SYSTEMS, INC.
FIRST AMENDMENT TO LEASE BETWEEN GREEN REALTY CORPORATION AND LANVISION, INC.
Amendment to Lease
This Amendment to Lease made the 6th day of June 1997 by and between
Green Realty Corporation ("Lessor") and Lan Vision, Inc. ("Lessee").
WITNESSETH:
WHEREAS, Lessor and Lessee entered into a Lease Agreement (the "Lease")
dated April 7, 1997 respecting approximately 10,000 square feet of office space
in the building known as 5481 Creek Road, Cincinnati, Ohio 45242 (the
"Premises").
NOW THEREFORE, in consideration of the foregoing Premises and the
mutual covenants herein contained, and for other good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, Lessor and Lessee
hereby agree as follows:
1. In addition to Lessee's lease of the above referenced Premises, Lessee
hereby leases from Lessor approximately 5,000 square feet of space in
the building known as 5481 Creek Road, Cincinnati, Ohio 45242, and more
particularly shown on Exhibit A attached hereto and incorporated herein
(the "Additional Premises") beginning July 1, 1997 and running
coterminus with the lease term for the Premises outlined in Section 1
of the Lease entitled Demise & Term.
2. The rental for the Additional Premises shall be the same rental per
square foot as the rental for the Premises outlined in Section 2 of the
Lease entitled Rental with the rental adjustments outlined in Section 3
of the Lease entitled Right to Renew.
3. Lessee is leasing the Additional Premises in "as is" condition with the
following exceptions:
A. Where needed, Lessor shall replace the ceiling tiles.
B. Where needed, Lessor shall repair the lights.
4. Beginning July 1, 1997, all references in the Lease to the Premises
shall include the Additional Premises and shall refer to a total of
approximately 15,000 square feet of space.
5. Lessee may install, at its sole cost and expense, double doors in the
Additional Premises, upon prior written approval of Lessor, which
consent shall not be unreasonably withheld.
21
<PAGE> 2
6. To the extent not modified by this Amendment to Lease, all provisions
of the Lease shall apply to the Additional Premises.
7. Lessee will be entitled to have "top billing" on all signage for the
building.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Amendment to Lease to be
duly executed as of the date and year indicated below each signature.
Signed and acknowledged in the presence of: LESSOR:
Green Realty Corporation
/s/ Angela M. Woodward
- ------------------------------------ By: /s/ Andrew J. Green
--------------------------
Printed Name: Angela M. Woodward Title: President
---------------------- ------------------------
/s/ Kimberly A. Hiner Date: 6-10-97
- ------------------------------------ ------------------------
LESSEE:
Printed Name: Kimberly A. Hiner Lan Vision, Inc.
----------------------
By: /s/ Eric S. Lombardo
Signed and acknowledged in the presence of: --------------------------
Eric S. Lombardo
/s/ Alan J. Hartman
- ------------------------------------ Title: Executive Vice President
-------------------------
Printed Name: Alan J. Hartman Date: 6-6-97
---------------------- -------------------------
/s/ Kimberly S. Farris
- ------------------------------------
Printed Name: Kimberly S. Farris
----------------------
(Attached as an Exhibit is a floor plan showing existing space and expanded
space.)
22
<PAGE> 3
LESSOR NOTARY
- -------------
STATE OF }
} SS:
COUNTY OF }
BE IT REMEMBERED that on this 10th day of June, 1997 before me, the
subscribed notary public, personally appeared Andrew J. Green who, I am
satisfied, is the person who signed the within instrument as President of Green
Realty Corporation, and he thereupon acknowledged that said instrument made by
such corporation was signed, sealed with its corporate seal and delivered by him
as such officer, and is his voluntary act and deed and is the voluntary act and
deed of such corporation, made by virtue of authority from its Board of
Directors.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Janet A. Hahn
---------------------------
Notary Public
My commission expires:
11-27-99 NOTARIAL SEAL
- --------------------
LESSEE NOTARY
-------------
STATE OF OHIO }
} SS:
COUNTY OF HAMILTON }
BE IT REMEMBERED that on this 6th day of June, 1997 before me, the
subscribed notary public, personally appeared Eric S. Lombardo who, I am
satisfied, is the person who signed the within instrument as Executive Vice Pres
of LanVision, Inc., and he thereupon acknowledged that said instrument made by
such corporation was signed, sealed with its corporate seal and delivered by him
as such officer, and is his voluntary act and deed and is the voluntary act and
deed of such corporation, made by virtue of authority from its Board of
Directors.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Carol Daniels Richmond
--------------------------
Notary Public
My commission expires:
9-30-2001 NOTARIAL SEAL
- ----------------------
23
<PAGE> 1
Exhibit 10.2
LANVISION SYSTEMS, INC.
SECOND AMENDMENT TO LEASE BETWEEN FAIRFIEW PLAZA ASSOCIATES LIMITED PARTNERSHIP
AND LANVISION, INC.
SECOND AMENDMENT TO LEASE
BETWEEN FAIRVIEW PLAZA ASSOCIATES LIMITED PARTNERSHIP, LESSOR, AND
LANVISION, INC., LESSEE
This AMENDMENT, made and entered into this 21st day of May, 1997, by
and between FAIRVIEW PLAZA ASSOCIATES LIMITED PARTNERSHIP, Lessor, and
LANVISION, INC., Lessee;
WHEREAS, the parties hereto have previously entered into a lease
agreement dated February 26, 1996, regarding 1,659 rentable square feet of
office space at 5970 Fairview Road, Suite 250, which lease was amended on August
12, 1996 to extend the lease term through September 30, 1999 and relocate Lessee
to 3,770 rentable square feet of office space in Suite 700;
WHEREAS, the parties hereto desire to enter into this Second Amendment
to Lease as hereinafter set forth:
1) RELOCATION: Lessee will relocate to Suite 650 of 5970 Fairview Road
(the "Premises").
2) NEW SQUARE FOOTAGE: The new square footage of the Premises is 8,141
rentable square feet (7,269 usable square feet) as outlined on Exhibit "A".
3) LEASE TERM: The new term shall be approximately sixty (60) months,
beginning on June 15, 1997 or the date the Tenant Improvements for the Premises
referred to in Exhibit "B" are substantially completed and the Premises are
suitable for occupancy, whichever is later (the "Commencement Date")and ending
June 14, 2002 (the "Term").
4) TENANT IMPROVEMENTS: Lessor shall provide a tenant improvement
allowance of $15.00 per rentable square foot below the finished ceiling.
Lessor will provide the labor and materials to finish the ceiling,
including new building standard ceiling tile throughout, all necessary lighting,
mechanical, HVAC, and sprinkler adjustments or additions. Lessor will also
provide architectural and engineering services for purposes of obtaining
construction drawings.
24
<PAGE> 2
It is understood and agreed that the specifications in Exhibit "A" and
Exhibit "B" are accepted and approved by Lessee, as attached. If the tenant
improvement work is less than the tenant improvement allowance, the unused
portion may be applied to cabling, moving costs, supplemental air conditioning
unit, or logo signage. If more than the tenant improvement allowance is needed
for tenant improvements, Lessee shall be directly responsible and shall pay such
costs in full prior to occupancy.
Lessee shall purchase from Lessor one used Mini-Mate Air Conditioning
unit in the amount of $3000.00. Lessee may apply the unused portion of the
tenant improvement allowance towards the cost of the supplemental air
conditioning unit. The unit will be installed by Lessor, which will be vented to
the outside of the building, and will be separately metered. Lessee will be
responsible for payment of the power bill for operation of the supplemental air
conditioning, as well as any necessary repairs or maintenance to the unit.
5) MOVING ALLOWANCE: Lessor will contribute up to $5,993.00 toward
reimbursing Lessee for the cost of the physical move or cabling costs, in
addition to any unused portion of the tenant improvement allowance used for such
costs.
6) RENTAL RATE: The base rental rate for the new space will be $17.00
per rentable square foot. The new monthly base rental, effective on the
Commencement Date will be $11,533.08.
7) RENTAL ESCALATIONS: The base rental will be escalated per the
original lease as specified in Paragraphs 11 and 12 on page 2 of the original
lease.
8) AUGUST 12, 1996 FIRST AMENDMENT TO LEASE: The August 12, 1996 First
Amendment to Lease by and between Lessor and Lessee with respect to 5970
Fairview Road, Suite 700 shall terminate effective upon the Commencement Date of
the Second Amendment to Lease. Except as to obligations and liabilities which
have accrued under the August 12, 1996 First Amendment to Lease, which
obligations and liabilities shall continue, all obligations and liabilities
which accrue after the Commencement Date of the Second Amendment to Lease shall
be of no further force or effect.
9) RIGHT OF FIRST REFUSAL: Lessee is hereby granted a right of first
refusal to lease that certain 4,000 square feet of rentable space adjacent to
the Premises and shown on Exhibit "A" attached hereto and incorporated herein by
reference (the "Adjacent Space") beginning on the date hereof and continuing
through the date that is twelve (12) months prior to the expiration of the Term,
as extended (if extended). If Lessor receives a bona fide written offer for the
Adjacent Space within the period described above (other than an offer from any
tenant currently occupying the Adjacent Space), Lessor shall notify Lessee in
writing, and Lessee shall have ten (10) business days from the date of such
notice to notify Lessor in writing of Lessee's exercise of its right of first
refusal. If Lessee gives written notice of such exercise, the Adjacent Space
shall be
25
<PAGE> 3
incorporated into the Premises by a written amendment executed by Lessor and
Lessee upon the then current terms of this Lease. Notwithstanding the foregoing,
with respect to tenant improvements, the $15.00 per rentable square foot
allowance will be pro-rated over the then-remaining Term of this Lease.
Except as herinabove stated, the terms and conditions of the original
Lease and Amendments thereto shall remain if full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Second
Amendment as of the date first set forth above.
LESSOR: Fairview Plaza Associates Limited
Partnership
By: Fairview Plaza Limited Partnership
Its General Partner
ATTEST: By: American Asset Corporation
Its General Partner
/s/ Mary H. Hoagland By: /s/ Paul L. Herndon
- ------------------------- ---------------------------------
Mary H. Hoagland Paul L. Herndon
Assistant Secretary Vice President
(CORPORATE SEAL)
ATTEST: LESSEE: LANVISION, INC.
/s/ Alan J. Hartman By: /s/ Eric Lombardo
- --------------------------- ----------------------------------
By: Alan J. Hartman Printed Name Eric S. Lombardo
----------------------- ----------------------------------
Title: General Counsel Title: Executive Vice President
-------------------- ----------------------------------
(CORPORATE SEAL)
(Attached as Exhibit A is the floor plan of the space, and as Exhibit B a list
of 26 tenant improvements.)
26
<PAGE> 1
Exhibit 11
LANVISION SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Net (loss) $ (3,531,223) $ (138,581)
================== =================
Weighted average number of shares outstanding 8,813,446 8,896,500
================== =================
(Loss) per common share amount $ (.40) $ (.02)
================== =================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
July 31,
--------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Net (loss) $ (6,376,930) $ (918,764)
================== =================
Weighted average number of shares outstanding 8,849,312 7,664,288
================== =================
(Loss) per common share amount $ (.72) $ (.12)
================== =================
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 0
<SECURITIES> 9,190,608
<RECEIVABLES> 3,502,630
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,786,483
<PP&E> 4,060,883
<DEPRECIATION> 1,099,580
<TOTAL-ASSETS> 26,909,260
<CURRENT-LIABILITIES> 3,750,334
<BONDS> 0
<COMMON> 88,965
0
0
<OTHER-SE> 23,069,961
<TOTAL-LIABILITY-AND-EQUITY> 26,909,260
<SALES> 3,681,979
<TOTAL-REVENUES> 3,681,979
<CGS> 3,518,637
<TOTAL-COSTS> 10,672,429
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,379,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,379,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,376,930)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> 0
</TABLE>
