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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, 1999
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, OH 45040-9374
(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 10, 1999: 8,838,033.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements....................................................... 3
Condensed Consolidated Balance Sheets at July 31, 1999 and January 31, 1999....................... 3
Condensed Consolidated Statements of Operations for the three and six months ended July 31, 1999
and 1998.......................................................................................... 5
Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 1999 and 1998... 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................................................................................. 20
Item 3. Defaults on Senior Securities..................................................................... 21
Item 5. Other Information................................................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................................................. 21
Signatures........................................................................................ 21
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,001,122 $ 5,445,498
Accounts receivable, net of allowance for doubtful
accounts of $355,000 and $325,000, respectively 3,366,279 3,642,330
Unbilled receivables 1,856,951 2,383,964
Other 1,006,197 1,024,960
------------ ------------
Total current assets 10,230,549 12,496,752
Property and equipment:
Computer equipment 4,442,631 4,407,863
Computer software 590,591 588,441
Office furniture, fixtures and equipment 1,379,043 1,534,206
Leasehold improvements 648,230 930,920
------------ ------------
7,060,495 7,461,430
Accumulated depreciation and amortization (3,895,017) (3,321,466)
------------ ------------
3,165,478 4,139,964
Capitalized software development costs, net of accumulated
amortization of $1,010,228 and $920,228, respectively 809,701 749,701
Other 86,429 98,633
------------ ------------
$ 14,292,157 $ 17,485,050
============ ============
</TABLE>
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
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1999 1999
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 642,137 $ 474,189
Accrued compensation 363,101 543,790
Accrued other expenses 2,224,712 3,105,021
Deferred revenues 1,509,406 1,083,837
------------ ------------
Total current liabilities 4,739,356 5,206,837
Long-term debt 6,000,000 6,000,000
Long-term accrued interest 831,571 431,167
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 35,102,459
Treasury stock, at cost, 68,467 and 81,980 shares, respectively (325,451) (389,692)
Accumulated (deficit) (32,093,745) (28,954,686)
------------ ------------
Total stockholders' equity 2,721,230 5,847,046
============ ============
$ 14,292,157 $ 17,485,050
============ ============
</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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Systems sales $ 541,678 $ 1,565,010 $ 1,468,648 $ 3,671,940
Services, maintenance and support 1,459,805 1,334,998 2,749,958 2,770,598
Service bureau operations -- 108,214 154,925 170,714
------------ ------------ ------------ ------------
Total revenues 2,001,483 3,008,222 4,373,531 6,613,252
Operating expenses:
Cost of systems sales 114,783 431,135 550,247 1,209,856
Cost of services, maintenance and support 979,010 1,431,677 1,909,055 2,958,353
Cost of service bureau operations 405,457 725,571 831,876 1,347,840
Selling, general and administrative 1,194,846 2,109,586 2,456,085 4,575,807
Product research and development 525,042 948,122 1,071,054 2,398,613
Restructuring expense -- 300,000 -- 300,000
------------ ------------ ------------ ------------
Total operating expenses 3,219,138 5,946,091 6,818,317 12,790,469
------------ ------------ ------------ ------------
Operating (loss) (1,217,655) (2,937,869) (2,444,786) (6,177,217)
Interest income 39,188 94,366 88,132 197,629
Interest expense 401,572 67,500 782,405 67,500
------------ ------------ ------------ ------------
Net (loss) $ (1,580,039) $ (2,911,003) $ (3,139,059) $ (6,047,088)
============ ============ ============ ============
Basic net (loss) per common share $ (.18) $ (.33) $ (.36) $ (.69)
============ ============ ============ ============
Diluted net (loss) per common share $ (.18) $ (.33) $ (.36) $ (.69)
============ ============ ============ ============
Number of shares used in per common share computations 8,819,073 8,808,871 8,816,834 8,807,459
============ ============ ============ ============
</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)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net (loss) $ (3,139,059) $ (6,047,088)
Adjustments to reconcile net (loss) to net cash
(used for) operating activities:
Depreciation and amortization 955,358 1,039,755
Increase in long-term accrued interest 400,404 32,500
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables 798,209 (2,007,077)
Other current assets 23,618 (300,411)
Accounts payable and accrued expenses (746,444) (536,230)
Deferred revenues 425,569 (1,959)
------------ ------------
Net cash (used for) operating activities (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 9,006 --
Purchases of property and equipment (46,484) (720,824)
Capitalization of software development costs (150,000) (198,000)
Other 12,204 (14,639)
------------ ------------
Net cash (used for) provided by investing activities (175,274) 893,407
Financing activities:
Proceeds of long-term debt -- 6,000,000
Sale of treasury stock to employee stock purchase plan 13,243 32,138
------------ ------------
Net cash provided by financing activities 13,243 6,032,138
------------ ------------
Decrease in cash (1,444,376) (894,965)
Cash and cash equivalents at beginning of period 5,445,498 2,142,881
------------ ------------
Cash and cash equivalents at end of period $ 4,001,122 $ 1,247,916
============ ============
Supplemental cash flow disclosures:
Interest paid $ 362,000 $ --
</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 or six months ended July 31, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 31, 2000.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is presented
beginning on page 21 of its 1998 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.
Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES
The decrease in cash and cash equivalents results from the use of cash to fund
current operations and purchase additional fixed assets.
The decrease in receivables is due to improved collections, lower revenues in
the current quarter compared to the prior period ended January 31, 1999, 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. During the first quarter of 1998, VHS began
production at the DMC. However, during 1998, The Detroit Medical Center
encountered financial difficulties, and as previously announced in February,
1999, the DMC as part of an overall financial restructuring, notified the
Company that it sought to terminate its agreement with VHS. The agreement
between the DMC 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.
The decrease in property and equipment is due to the downsizing of facilities
including the disposal of excess office furniture and equipment and abandonment
of certain leasehold improvements.
Other current assets consist primarily of prepaid expenses, including
commissions, and acquired software and hardware awaiting installation.
The increase in accounts payable is due to the timing of payments on certain
payables.
The decrease in accrued compensation results from a reduction in headcount and
the payment of incentive compensation.
The decrease in accrued other expenses results from the settlement of
contractual issues relating 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 due to the receipt of advance payments on
several contracts prior to revenue recognition.
Note 4 - STOCK OPTIONS
During the first six months of the current fiscal year, the Company granted
101,000 stock options under the Employee Stock Option Plan. During the same
period 202,387 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 (loss) per common share is calculated using the weighted average
number of common shares outstanding during the period.
The diluted (loss) per common share calculation, excludes the effect of the
common stock equivalents (stock options) as the inclusion thereof would be
antidilutive.
Note 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:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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)
=========== =========== =========== ===========
</TABLE>
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 from third party vendors, the healthcare regulatory
environment, healthcare information systems budgets, availability of healthcare
information systems trained personnel for implementation of new systems, as well
as maintenance of legacy systems, Year 2000 Compliance priorities, fluctuations
in operating results and other risks detailed from time to time in the LanVision
Systems, Inc. filings with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking
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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 Systems, Inc. ("LanVision"(TM) or the "Company") is a leading
supplier of Healthcare Information Access Systems and services and an
Application Service Provider with 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. 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,
photographs, insurance cards, etc. LanVision's 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 web 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 Company's solutions integrate a proprietary document
imaging platform, application suites, and image and web-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 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 other Clinical
and Patient Account Information Systems. 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's revenues are derived from: the licensing and sale of systems
comprising LanVision and third-party software and hardware components, product
support, maintenance, professional services, and service bureau operations.
Professional services include implementation and training,
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project management, custom software development and currently are provided only
to the Company's customers with installed systems or who are in the process of
installing systems. Revenues from professional services, maintenance and support
services typically are expected to increase as the number of installed systems
increase. The Company earns its highest margins on proprietary LanVision
software and the lowest margin is 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 from the
Company's service bureau operations, which provides high quality,
transaction-based document imaging/management services from a central data
center, are expected to increase as the number of hospitals outsource services
to the Company's Virtual Healthware Services division ("VHS"). Additionally,
revenue from each VHS customer is expected to increase as the volume of archived
historical data increases and retrievals of data increases as 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, including the point of patient care.
Sales are made by the Company's direct sales force and through a Remarketing
Agreement with Shared Medical Systems Corporation.
On February 23, 1998, the Company entered into a Remarketing Agreement with
Shared Medical Systems Corporation ("SMS"). Under the terms of the agreement,
SMS was granted an exclusive worldwide license to distribute 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, the Company may terminate the SMS Remarketing Agreement.
SMS has over 1,800 customers in the United States and a total of 3,500 customers
in 20 countries and territories in North America and Europe. The large
Healthcare Information Access Systems providers, such as SMS, are often able to
positively influence the buying decisions within their customer base. LanVision
management believes the distribution of its products by SMS will shorten sales
cycles and increase revenues. Although SMS has already begun to actively promote
LanVision's products, the full impact of this distribution agreement will likely
not be realized until later in fiscal 1999, as more of the SMS organization is
trained to sell and implement the LanVision products. To date SMS has sold six
systems to end users through August 31, 1999.
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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, the Company has experienced
extended sales cycles, and sales in each period have been less than the
Company's internal plans. 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 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 LanVision agreements cover
the entire implementation of the system and specify the implementation schedule,
which typically takes place in 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 sold outright, with a
one-time fee charged for installation and training. Interfaces with existing
customer systems and other consulting services are sold on a fixed fee or a time
and materials basis.
Generally, revenues from systems sales are recognized when a purchase agreement
is signed and products are delivered. Revenues from the service elements of a
contract including: routine installation, integration, project management,
interface development, training, etc. are deferred until the work is performed.
If an agreement requires the Company to perform services and modifications that
are deemed significant to system acceptance, revenue is recorded either on the
percentage-of-completion method or revenue related to the delivered hardware and
software components is deferred until such obligations are completed, depending
on the contractual terms. Revenues from maintenance and support agreements 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 is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's internal use computer programs and hardware as well as its
software products that are 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 hardware and the
Company's products, including third-party software components offered for
resale.
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The Company presently believes the Year 2000 Compliance issue will not pose
significant operational problems for the Company or its customers. However, if
clients do not make the necessary changes to equipment and upgrade 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 review 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, the Company believes that the risk
of a customer not having a Year 2000 Compliant system is minimal. Contingency
plans have not yet been developed. However, if needed, contingency plans will be
developed.
With regard to the Company's service bureau operations, the Company has
determined that its systems and equipment are Year 2000 Compliant, including 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 replaced in the ordinary
course as systems are upgraded. With regard to third-party software, it has been
determined that some software is not compliant and will 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.
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 the VHS
service bureau operations are expected to increase over time, as more hospitals
outsource services to VHS, existing customers increase 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 in
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.
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.
14
<PAGE> 15
REVENUES
Revenues for the second fiscal quarter ended July 31, 1999, were $2,001,483,
compared with $3,008,222 reported in the comparable quarter of 1998. Revenues
for the six months ended July 31, 1999, were $4,373,531 compared with $6,613,252
in the comparable prior period. Revenues for the second quarter and first six
months of fiscal 1999 do not include approximately $1,270,000 of revenues for
previously announced sales made by our Remarketing Partner Shared Medical
Systems Corporation. As previously disclosed, revenues on the contracts have
been deferred until certain integration was completed. During the second
quarter, LanVision delivered to SMS versions 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 be recognized, probably in the third quarter, when final integration
testing 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 concentrated 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.
Additionally, healthcare institutions are assessing and implementing many new
technologies. Although many of these systems do not compete with LanVision
products, these systems do compete for capital budget dollars and the available
time of information systems personnel within the healthcare industries.
Management believes the healthcare industry's focus on Year 2000 Compliance will
continue to adversely affect potential sales opportunities for its direct sales
force through most of fiscal 1999. Also, the Remarketing Agreement with Shared
Medical Systems Corporation has developed more slowly than expected. To date,
SMS's Marketing of LanVision's products has been conducted by a small
specialized sales force. Additionally, SMS's strategy is to tightly control
marketing activities until such time that the integrated LanVision/SMS solution
can be successfully demonstrated at its key customers. The integrated products
have been delivered to two SMS customers and initial integration testing has
been successfully completed. Final integration testing is scheduled for
September. LanVision expects that SMS's marketing activities related to the
LanVision products will increase and believes revenue from this Remarketing
Agreement will 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% of the revenues for the second quarter and 39% for the first
six months of 1999 compared with 53% and 37%, respectively, of revenues in the
comparable periods of the prior year.
15
<PAGE> 16
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 1999 and 1998 were
21% and 27%, 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 sales for the first six months of 1999 and 1998
were 37% and 33%, respectively reflecting the lower mix of LanVision software
and higher hardware sales in the current period compared with the prior period.
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% and 107%
for the second quarter and 69% and 107% for the first six months of fiscal 1999
and 1998, 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 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,
experienced 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 developing
training courses and developing plans to move to LanVision's new product
releases, etc. Management believes the increase in experience of its
Professional Services staff and an increase in backlog should improve the
overall efficiency and operating performance of this group.
Cost of Services Bureau Operations
The cost of service bureau operations has declined in both the current quarter
and first six months compared with the comparable prior periods as the overall
operations were significantly reduced when The Detroit Medical Center terminated
their agreement. See Note 3 of the Notes to Condensed Consolidated Financial
Statements. The ongoing cost of the service bureau operations is primarily
depreciation and core staff assisting in the implementation of a new VHS
customer, The Health Alliance, Inc., which is expects to begin using the system
in production in the third quarter.
16
<PAGE> 17
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, Selling, General and Administrative expenses
decreased to $1,194,846 compared with $2,109,586 in the comparable prior quarter
and decreased to $2,456,085 compared with $4,575,807 in the comparable prior six
months of 1998. 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 Partners.
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 of fiscal 1999, research and development
expenses decreased to $525,042 compared with $948,122 in the comparable prior
quarter and decreased to $1,071,054 compared with $2,398,613 in the comparable
prior six months of 1998, as a result of a reduction of staff and use of outside
contractors as major development projects were completed in the later portion of
the prior fiscal year. The Company capitalized, in accordance with Statement of
Financial Accounting Standards No. 86, $150,000 and $198,000 of product research
and development costs in the first six months of fiscal 1999 and 1998,
respectively.
Interest income consists primarily of interest on invested cash. The decrease in
interest income results from the sale of investment securities and use of cash
to fund operations and acquire fixed assets.
Interest expense relates to the long-term debt.
Net loss
The net loss for the second quarter of fiscal 1999 was $1,580,039 ($.0.18 per
share) compared with a net loss of $2,911,003 ($.0.33 per share) in the second
quarter of fiscal 1998. The net loss for the first six months of fiscal 1999 was
$3,139,059 ($.0.36 per share) compared with a net loss of $6,047,088 ($.0.69 per
share) in the first six months of fiscal 1998.The decrease in the net loss for
the periods results primarily from reductions in selling, general and
administrative 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.
17
<PAGE> 18
In spite of 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.
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 in fiscal years 1994 through 1998. 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 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.
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of approximately $1,400,000,
payable over the next five 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.
18
<PAGE> 19
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. This has resulted in
significant net cash outlays over the last three 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, the Company had cash and cash equivalents of $4,001,122. Cash
equivalents consist of overnight bank repurchase agreements. Under the terms of
its loan agreement, the Company has agreed to maintain a minimum cash and
investment balance of $2,400,000.
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, in the second half of fiscal year 1999 with modest increases in
revenues. 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 will 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 retained CIBC World Markets [ formerly CIBC
Oppenheimer Corp.] as a financial advisor to help the Company plan for future
capital needs and assist the Company with decisions that maximize shareholder
value.
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.
SIGNED AGREEMENTS - BACKLOG
LanVision enters into master agreements with its customers to specify the scope
of the system to be installed, 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
19
<PAGE> 20
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 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, the Company's customers (excluding customers of the Virtual
Healthware Services 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, compared with $6,616,000 and $6,881,000 at the end of
the first quarter of fiscal 1999 and the end of fiscal 1998, respectively. 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 in
transaction-based fee revenues for the Virtual Healthware Services division's
new client over the four-year life of the contract. Because implementation and
service bureau transaction-based 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 1998 and 1997 and 1996 were approximately
$2,755,000, $2,151,000 and $1,186,000, 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 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.
20
<PAGE> 21
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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Lease Termination Agreement
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
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, 1999 By: /s/ J. BRIAN PATSY
------------------------ -------------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: September 14, 1999 By: /s/ THOMAS E. PERAZZO
------------------------ -------------------------------------
Thomas E. Perazzo
Vice President, Chief Operating
Officer, Chief Financial Officer and
Treasurer
21
<PAGE> 22
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -------
10 Lease Termination Agreement
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
22
<PAGE> 1
Exhibit 10
LANVISION SYSTEMS, INC.
LEASE TERMINATION AGREEMENT
LEASE TERMINATION AGREEMENT
THIS LEASE TERMINATION AGREEMENT ("Agreement") is executed this 18TH
day of JUNE, 1999, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana
limited partnership ("Landlord"), and LANVISION, INC., an Ohio corporation
("Tenant").
WHEREAS, Landlord and Tenant entered into a certain lease dated May 7,
1996, as amended July 12, 1996, February 25, 1997, September 23, 1997 and
January 16, 1998 (collectively, the "Lease") whereby Tenant leased from Landlord
certain premises consisting of approximately 15,306 rentable square feet of
space (the "Leased Premises") in a building commonly known as The Ohio National
Building, located at One Financial Way, Suite 400, Cincinnati, Ohio 45242; and
WHEREAS, Landlord and Tenant desire to terminate and cancel the Lease
and to release each other from their respective obligations under the Lease as
provided herein, and to release the Guarantor, LanVision Systems, Inc., from its
obligations under the Unconditional Guaranty of Lease dated May 7, 1996 (the
"Guaranty");
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and each act performed hereunder by the parties, Landlord and
Tenant hereby enter into this Agreement.
1. Provisions Respecting Termination of Lease. The Lease shall be
terminated and cancelled as of 11:59 p.m. June 30, 1999 (the "Termination
Date"). Tenant shall surrender possession of the Leased Premises on or before
June 29, 1999 in accordance with the terms of the Lease.
2. Release Upon Agreement. Upon the Termination Date, Landlord and
Tenant shall be released and discharged from their respective obligations under
the Lease, and neither party shall have any further liability under the Lease,
excluding, however, the obligations of Tenant attributable to any period of the
Lease on or prior to the Termination Date, prorated as of the Termination Date
(including without limitation the payment of Minimum Annual Rent and the Annual
Rental Adjustment) and any obligations of Tenant under the Lease which survive
termination thereof. The Tenant shall have no obligation to remove any of
Tenant's alterations or trade fixtures except as listed on Exhibit A, attached
hereto. In addition, as of the Termination Date, the Guarantor shall be released
from its obligations under the Guaranty.
3. Contingency. This Agreement is contingent upon Landlord entering
into a lease for the Leased Premises on or before June 21, 1999, such lease to
be on terms satisfactory to Landlord, in its sole discretion. In the event this
contingency is not satisfied, upon written notice from Landlord, this Agreement
shall be void and of no further force or effect, and the Lease shall continue
notwithstanding this Agreement.
23
<PAGE> 2
4. Default. In the event Tenant fails to surrender the Leased Premises
as provided in Paragraph 1 above, Landlord shall have the option of (i)
declaring this Agreement void, in which event the Lease shall remain in full
force and effect, or (ii) enforcing this Agreement. In either case, Landlord
shall be entitled to reimbursement from Tenant for Landlord's attorneys' fees,
court costs and all other damages resulting from Tenant's breach.
5. Successorship. This Agreement shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective successors and assigns.
6. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Ohio.
EXECUTED as of the date set forth above.
LANDLORD:
WITNESSES:
DUKE REALTY LIMITED PARTNERSHIP,
/s/ Daniel P. Ruh an Indiana limited partnership
- ----------------------------
Daniel P. Ruh
- ----------------------------
(Printed) By: Duke Realty Investments, Inc.,
its general partner
/s/ Naomi Gump
- ----------------------------
Naomi Gump By: /s/ Kenneth A. Schuermann
- ---------------------------- -------------------------------
(Printed) Kenneth A. Schuermann
Vice President and
General Manager
TENANT:
WITNESSES:
LANVISION, INC., an Ohio corporation
/s/ Melissa Vincent
- ----------------------------
Melissa Vincent
- ----------------------------
(Printed) By: /s/ Eric Lombardo
-------------------------------
/s/ Paul W. Bridge, Jr. Printed: Eric Lombardo
- ---------------------------- --------------------------
Paul W. Bridge, Jr.
- ----------------------------
(Printed) Title: Executive Vice President
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Kenneth A. Schuermann, by me known and by me known to be the Vice
President and General Manager of Duke Realty Investments, Inc., an Indiana
corporation, general partner of Duke Realty Limited Partnership, an Indiana
limited partnership, who acknowledged the execution of the foregoing "Lease
Termination Agreement" on behalf of said partnership.
24
<PAGE> 3
WITNESS my hand and Notarial Seal this 22 day of June, 1999.
/s/ Naomi Gump
----------------------
Naomi Gump Notary Public
{NOTARIAL SEAL} Notary Public, State of Ohio
My Commission Expires July 22, 2002 Naomi Gump
----------------------
(Printed Signature)
My Commission Expires:
-----------------
My County of Residence: Hamilton
-----------------
STATE OF Ohio )
------------------
) SS:
COUNTY OF Hamilton )
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Executive V.P. of
Lanvision, Inc., an Ohio corporation, who acknowledged the execution of the
foregoing "Lease Termination Agreement" on behalf of said corporation.
WITNESS my hand and Notarial Seal this 22 day of June, 1999.
/s/ Joan Wolpin
----------------------
JOAN WOLPIN Notary Public
{NOTARIAL SEAL} Notary Public, State of Ohio
My Commission Expires June 7, 2000 ______________________
(Printed Signature)
My Commission Expires: ________________
My County of Residence: ________________
25
<PAGE> 1
Exhibit 11
LANVISION SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
July 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net (loss) $(1,580,039) $(2,911,003)
=========== ===========
Average shares outstanding 8,819,073 8,808,871
Stock options:
Total options -- --
Assumed treasury stock buyback -- --
Warrants assumed converted -- --
Convertible redeemable preferred
stock assumed converted -- --
----------- -----------
Number of shares used in per
common share computation 8,819,073 8,808,871
=========== ===========
Basic net (loss) per share of common stock $ (0.18) $ (0.33)
=========== ===========
Diluted net (loss) per share of common stock $ (0.18) $ (0.33)
=========== ===========
Six Months Ended
July 31,
------------------------------
1999 1998
----------- -----------
Net (loss) $(3,139,059) (6,047,088)
=========== ===========
Average shares outstanding 8,816,834 8,807,459
Stock options:
Total options -- --
Assumed treasury stock buyback -- --
Warrants assumed converted -- --
Convertible redeemable preferred
stock assumed converted -- --
=========== ===========
Number of shares used in per
common share computation 8,816,834 8,807,459
=========== ===========
Basic net (loss) per share of common stock $ (.36) $ (0.69)
=========== ===========
Diluted net (loss) per share of common stock $ (.36) $ (0.69)
=========== ===========
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,001,122
<SECURITIES> 0
<RECEIVABLES> 5,578,230
<ALLOWANCES> (355,000)
<INVENTORY> 0
<CURRENT-ASSETS> 10,230,549
<PP&E> 7,060,495
<DEPRECIATION> (3,895,017)
<TOTAL-ASSETS> 14,292,157
<CURRENT-LIABILITIES> 4,739,356
<BONDS> 6,000,000
0
0
<COMMON> 88,965
<OTHER-SE> 2,632,265
<TOTAL-LIABILITY-AND-EQUITY> 14,292,157
<SALES> 4,373,531
<TOTAL-REVENUES> 4,373,531
<CGS> 3,291,178
<TOTAL-COSTS> 6,818,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782,405
<INCOME-PRETAX> (3,139,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,139,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,139,059)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
</TABLE>
