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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 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.)
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)
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Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
(Title of Class)
(continued)
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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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. / X /
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by The Nasdaq Stock
Market for the Registrant's Common Stock on April 22, 1999, was $5,668,250.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of April 22, 1999: 8,814,520.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
January 31, 1999, are incorporated by reference into Part II of this Form 10-K
to the extent stated herein. Except with respect to information specifically
incorporated by reference in this Form 10-K, the Annual Report is not deemed to
be filed as a part hereof.
Portions of the Registrant's Definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 26, 1999, are incorporated by reference into
Part III of this Form 10-K to the extent stated herein. Except with respect to
information specifically incorporated by reference in this Form 10-K, the
Definitive Proxy Statement is not deemed to be filed as a part hereof.
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FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, this Annual Report on
Form 10-K 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. Factors that might cause such differences include, but are not
limited to, those discussed in the sections entitled "Item 1. Business" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations." 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 Registrant undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
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PART I
ITEM 1. BUSINESS
General
LanVision Systems, Inc. ("LanVision"(TM) or the "Company") is a leading
supplier of Healthcare Information Access Systems and services that enable
healthcare providers to access, on a real-time basis, all the various forms of
clinical and financial patient information from a single permanent health
information repository. 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 any Clinical
Information System. For example, the Company has integrated its products with
selected systems from Shared Medical Systems Corporation, Cerner Corporation,
IDX Systems Corporation, and Oacis Healthcare Holdings Corp. By offering
electronic access to all the components of the Medical Record, this integration
completes one of the most difficult tasks necessary to provide a true Computer
Based Patient Record. The Company's systems deliver on-line enterprisewide
access to fully-updated patient information which historically was maintained on
a variety of media, including paper, magnetic disk, optical disk, x-ray film,
video, audio and microfilm.
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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, 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.
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 located throughout the enterprise, including the point of patient
care.
Healthcare Industry Background
Healthcare expenditures continue to grow at a significant rate and approximated
$1.0 trillion in 1998, representing approximately 14% of the U.S. Gross Domestic
Product. In response to these increases, the healthcare industry is undergoing
significant change as competition and cost-containment measures imposed by
governmental and private payors have created significant pressures on healthcare
providers to control healthcare costs while providing quality patient care. At
the same time, the healthcare delivery system is experiencing a shift from a
highly fragmented group of non-allied healthcare providers to integrated
healthcare networks which combine all of the services, products and equipment
necessary to address the needs of healthcare customers. As a result, healthcare
providers are seeking to cut costs, increase productivity and enhance the
quality of patient care through improved access to information throughout the
entire hospital or integrated healthcare network.
Today, the majority of the patient record is paper-based in most hospitals. The
inefficiencies of a paper-based record increase the cost of patient care.
Physicians often cannot gain access to medical
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records at the time of patient visits, and users cannot simultaneously access
the record when only a single copy of the paper-based patient record is
available. In the Company's experience in installing its systems, a typical 500
bed hospital can produce 15,000 to 20,000 pages of new patient information each
day even with computerized admission, billing, laboratory and radiology systems,
and individual physician document retrieval requests can be as high as 100
documents per physician per day. The volume of medical images in the patient
record is expanding as well. In addition to classic images such as x-rays and
CAT scans, new image forms such as digitized slides, videos and photographs
proliferate. Thus, the ability to store and retrieve images of voluminous paper
records and medical images on a timely basis is a critical feature of a complete
Computerized Patient Record ("CPR").
In order to simultaneously reduce costs and enhance the level of patient care,
hospitals and other healthcare providers are demanding comprehensive,
cost-effective information systems that deliver rapid access to fully updated
and complete patient information. Traditional Healthcare Information Systems are
inadequate because: (i) they do not capture large amounts of the patient record
which are paper-based and stored in various sites throughout the enterprise;
(ii) computerized patient data is generated using a variety of disparate systems
which cannot share information; and (iii) multimedia medical information such as
x-rays, CAT scans, MRI's, video and audio information are frequently
inaccessible at the point of patient care. Accordingly, hospitals and other
healthcare providers have begun to increase their expenditures. In the tenth
Annual Healthcare Information and Management Systems Society ("HIMSS")
Leadership Survey Sponsored by IBM in February 1999, 71% of the respondents
expected an increase in their information technology budget. Respondents to the
survey ranked Year 2000 Compliance conversion and integrating systems in a
multi-vendor environment as their two most important priorities. However,
implementing a CPR system was ranked as the next highest priority. In addition,
only 11% of the hospitals surveyed indicated that they had a fully operational
CPR system in place, approximately 25% of the respondents indicated they have
developed a plan to implement a CPR system and 32% indicated they have begun to
install CPR hardware and software.
Document imaging and workflow technologies are essential elements of a CPR
because they allow for the storage of unstructured data (i.e., patient record
elements other than data or text, such as photographs, images of a document,
video, x-ray images) and they enable digitized x-rays, CAT scans, MRI's, video
and audio information to be accessed and delivered to the caregiver at the point
of patient care. The Company's management believes the demand for the Company's
Healthcare Information Access Systems, which can supply imaging capabilities to
the CPR, will increase in future years.
Also, the HIMSS Leadership Survey indicated that more organizations were
outsourcing information technology functions. In 1999, 14% of respondents
indicated that they were outsourcing application support compared with 11% in
1998. Additionally, the information technology individuals responding to the
HIMSS Leadership Survey indicated that security related to patient records was
one of the most important concerns within their institutions.
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The LanVision Solution
LanVision's Healthcare Information Access Systems provide solutions for the
patient information access needs of hospitals and integrated healthcare
networks. LanVision's systems enable medical and administrative personnel to
rapidly and efficiently capture, store, manage, route, retrieve and process vast
amounts of clinical and financial patient information.
LanVision's systems: (i) capture and store electronic data from disparate
hospital information systems through real-time, computerized interfaces; (ii)
facilitate the storage of digitized multimedia data and medical images such as
x-rays, CAT scans, MRI's, video and audio information; (iii) provide
applications for efficiently scanning and automatically indexing paper-based
records; (iv) allow storage of a patient's lifetime Medical Record on low cost
optical disks which also provides rapid access to high volumes of data
enterprisewide; (v) provide workflow automation to facilitate the re-engineering
of business processes; and (vi) incorporate physician-oriented interfaces that
allow the user to easily locate and retrieve patient information in the hospital
or clinical setting, including the point of patient care.
LanVision's Healthcare Information Access Systems provide financial,
administrative, and clinical benefits to the healthcare provider and facilitate
more effective patient care. These benefits include: improved access to patient
information to assist in making informed clinical and financial decisions;
reduced costs for administrative personnel due to increased workflow efficiency,
as data can be routed within an organization to all users who need to process
that information simultaneously or in sequence as required; increased
productivity through the elimination of file contention by providing multiple
users simultaneous access to patient Medical Records; reduced costs and improved
care through the reduction of unnecessary testing and admissions; improved cash
flow through accelerated collections and reduction of "technical denials" (which
occur when a third-party payor refuses payment because of the provider's
inability to substantiate billing claims due to loss of portions or all of the
patient record); expedited treatment decisions, and fewer redundant tests as a
result of timely access to complete information; fewer Medical Record errors by
minimizing misfiled, lost and improperly completed records; and increased
security of patient information through improved controls on access to
confidential data and the creation of audit trails that identify the persons who
accessed or even tried to access such information.
In 1998, LanVision successfully launched its new Virtual Healthware Services
Division ("VHS") that utilizes LanVision's web-based browser technology to
deliver patient information via a secure Internet/Intranet from a remote central
data center to anyone with access to the healthcare network on a real-time
basis. LanVision began to construct the central data center in the fourth
quarter of fiscal 1997. The data center was completed in the first quarter of
fiscal 1998, and VHS began processing customer transactions in April 1998.
The LanVision Strategy
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The Company's objective is to continue to be a leading provider of Healthcare
Information Access Systems. Important elements of the Company's business
strategy include:
Expand Distribution Channels. Management estimates the market for the Company's
products is in excess of $1 billion, and the market is less than 10% penetrated.
Throughout 1996 and 1997, LanVision increased its sales and marketing staff in
anticipation of increased demand for its products. However, revenues were less
than the Company's plan in each year. Accordingly, the Company began to cut back
its direct sales force in 1998. The shortfall in 1996 through 1998 revenues
occurred for a variety of reasons. First, the healthcare industry has not moved
forward as quickly as the Company and many others anticipated. For years,
healthcare institutions spent significantly less on information systems than
other industries. However, despite the need to catch up, existing Healthcare
Information Systems personnel are only able to absorb so much new technology.
There was a significant amount of new technology to assess, and there were wide
differences of opinions on how to prioritize the many information technology
projects. Many institutions began by replacing their clinical systems, and
looked at the Electronic Medical Record ("EMR") as a secondary priority.
Consequently, the Company experienced very long sales cycles, and many cycles
ended in no decision. In addition, it took longer for the Company to deliver
products such as On-Line Chart Completion(TM) and Release of Information
(ROI)(TM) (formerly Enterprisewide Correspondence(TM)) than originally
anticipated, and this adversely affected some existing sales opportunities.
Additionally, in 1998, many healthcare organizations were preoccupied with Year
2000 Compliance remediation of their existing systems, and deferred purchase
decisions on new systems. Also, throughout 1997 and a good part of 1998, the
Company was almost completely dependent upon its direct sales force. Buying
decisions at certain hospitals and integrated healthcare delivery networks are
influenced by the recommendations of the largest Healthcare Information Systems
("HIS") vendors, including: Shared Medical Systems Corporation ("SMS"), HBO &
Company, Cerner Corporation, IDX Systems Corporation, Eclipsys Corporation, etc.
It has been difficult for companies with relatively small sales forces to
influence the buying decisions as effectively as the major HIS vendors. Prior to
the Company's agreement with SMS (see next paragraph), the Company's products
were not actively promoted by any of the five largest HIS vendors.
In February 1998, LanVision took a major step forward in improving and expanding
its sales distribution when it entered into a Remarketing Agreement with Shared
Medical Systems Corporation, one of the leading providers of information
technology to the healthcare industry. SMS serves more than 3,500 healthcare
organizations throughout North America and Europe, and will sell LanVision's
Electronic Medical Records imaging/management and workflow products as an
integrated component of the SMS(R) NOVIUS(R) product line.
It is management's intention to develop additional remarketing alliances with
other HIS vendors and to explore other means of expanding the Company's
distribution channels.
Maintain Technological Leadership through the Development of New Software
Applications and Increased Functionality of Existing Applications. LanVision
intends to continue its product development efforts and increase the
functionality of existing applications along with the
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development of new applications using document imaging and workflow
technologies. In particular, the Company intends to increase the functionality
of its web-based applications. (See "WebView(TM) - web enabling tool" described
below.) Due to the significant amount of development in 1997 and 1998,
management believes fiscal 1999 product development expenses will be somewhat
less than in fiscal 1998.
In the second half of 1997 and 1998, the Company completed its development of
significant new products, including: On-Line Chart Completion, Release of
Information (ROI) (formerly called Enterprisewide Correspondence), WebView,
OmniVision(TM), AVRemit(TM), and Document Capture System(TM).
During 1997 and 1998, in addition to the development of new products discussed
above, the Company added new functionality to its flagship product
ChartVision(R). Additionally, the Company has continued development of a new
version of AccountVision(TM), which will share a common database with
ChartVision, and this new enhanced version of the product will be released in
fiscal 1999. The new version of AccountVision was originally scheduled for
release in the first half of fiscal 1998, but was delayed because the
development staff has been focused on other development efforts, including
integration with SMS products and Year 2000 Compliance remediation.
Management believes only the most robust, flexible, dependable products will
survive in the healthcare market, and the Company has attempted to establish
itself as the leader in document imaging/management and workflow applications
through strong product development.
Image-Enable Clinical Data Repositories and Other Applications Software. Today,
healthcare information is often stored on numerous dissimilar host-based and
departmental systems that are spread throughout an enterprise and are not
integrated. Additionally, these current systems do not address the data stored
on paper or the increasing volume of medical images such as x-rays, CAT scans,
digitized slides, exploratory scopes, photographs, audio, etc. LanVision
believes the efficiencies and productivity of hospitals and integrated delivery
networks can be greatly enhanced by seamlessly integrating their historical
information systems with document imaging and workflow applications. Physicians,
clinicians and other healthcare users then have access to the complete patient
record, including the structured data, such as a lab result, and the related
unstructured data, such as an x-ray or a doctor's hand written notes. LanVision
has image-enabled many popular Clinical Data Repositories, such as those offered
by Oacis Healthcare Holdings Corp., IDX Systems Corporation, and Cerner
Corporation. LanVision is marketing image enabling through its product
OmniVision. LanVision intends to continue to aggressively market its unique
image-enabling solutions to end users and other third-party software application
providers. OmniVision is in production in several large-scale, enterprisewide
applications including over 2,000 workstations at Memorial Sloan-Kettering
Cancer Center and is being deployed on over 1,000 workstations at USCF Stanford
Healthcare. (See "OmniVision-Image-Enabling Tool" described below.)
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Provide Outsourced Information Systems Service Bureau Operations. LanVision
established a new division, Virtual Healthware Services ("VHS"), which utilizes
LanVision's web-based applications across an Internet/Intranet, to deliver high
quality, transaction-based document imaging/management services to healthcare
providers from a centrally located data center. The division enables its
healthcare customers to achieve enhanced patient care, improved security and
accessibility to patient records at significant cost savings with minimal
up-front capital investment, maintenance and support costs. Customers realize
benefits more quickly, with less economic risk. VHS offers an alternative to a
hospital allocating several million dollars in its capital budget to establish
an in-house system. This service is made possible through the advancement of
web-based technology, state-of-the-art communication technology and advanced
software design. International Data Corporation, an information technology
market research firm, estimates that, in 1997, the healthcare industry spent
approximately $2.9 billion in the United States, and $6.2 billion worldwide, for
outsourcing information systems operations, processing services and other
information technology related business operations, and is expected to increase
at an annual growth rate of 10%.
Systems and Services
LanVision's systems employ an open architecture that supports a variety of
operating systems, including Microsoft Windows, Windows 95, Windows NT and UNIX.
The Company's systems can be configured with various hardware platforms,
including INTEL-compatible personal computers, IBM RS/6000 and Hewlett-Packard
9000. The Company's systems include a graphical user interface designed
specifically by the Company for physicians and other medical and administrative
personnel in hospitals and integrated healthcare networks. The Company's systems
operate on multiple imaging platforms, including FileNet and Kofax. The
Company's Healthcare Information Access Systems incorporate advanced features,
including workflow and security features which allow customers to restrict
direct access to confidential patient information, secure patient data from
unauthorized indirect access and have audit trail features.
A brief description of the Company's products follows.
The Foundation Suite
The Foundation Suite is a robust document imaging/management infrastructure,
built for maximum performance in high document volume settings and optimized for
the healthcare industry. The features resident in the Foundation Suite were
built around patient oriented objects that result in more efficient code and
rapid delivery to market of new applications. The Foundation Suite is designed
in a reusable object-oriented environment, utilizing a 32-bit Windows NT-based
architecture, that provides the following essential document imaging/management
functions: security, auditing, data access, printing/faxing, scheduling, data
archiving migration and full problem diagnosis. The Foundation Suite offers the
following unique enhanced security and auditing functions that are essential to
integrated delivery networks in a multi-entity environment:
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- - multiple levels of security (administrative, user, patient, document,
workstation, physical location, and healthcare entity) configurable by
user, workstation and location,
- - full audit trails and reporting of every record viewed, printed, faxed,
processed or unauthorized login attempts at the patient encounter or
document level.
The Input Suite
The Company's Input Suite software is designed to enable healthcare
organizations to enter paper-based and electronic information into the entire
suite of LanVision products. The Input Suite was specifically designed for high
volume healthcare environments to capture healthcare information in the most
efficient and error-free manner. The Input Suite includes the following modules:
scanning and indexing, OCR (Optical Character Recognition), and COLD (Computer
Output to Laser Disk) with forms overlay and custom interfaces. The Input Suite
supports the capture, indexing and viewing of over 250 different file formats,
bar code recognition, image enhancement and a variety of industry standard
document scanners.
The ChartVision Application Suite......a highly evolved Electronic Medical
Record application
The ChartVision application suite provides physicians, clinicians and
information management professionals throughout the healthcare enterprise with
immediate and simultaneous access to the complete patient record. ChartVision is
a highly evolved Electronic Medical Record application suite that provides
streamlined processing and fast, easy access to all forms of healthcare
information regardless of source. The ChartVision application suite includes the
following modules:
On-Line Chart Completion (OCC)
Automates the identification of deficiencies in patient charts and
electronically routes the incomplete documents to the appropriate
medical and administrative personnel for on-line processing, chart
completion, electronic signature and reporting. OCC includes
proprietary embedded LanVision workflow software, which provides a
significant cost advantage over alternative third-party workflow
software when deployed throughout the healthcare enterprise.
Release of Information (ROI)
Fulfills internal and external requests for information and allows for
automatic invoicing capability. ROI also provides the ability to
electronically search for, print, mail or fax information to third
parties that request copies of patient records. ROI utilizes Eastman
Workflow software.
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On-Line Registration Processing
Provides an interactive, electronic pen-based module that allows
patients to read, edit and sign consent forms and other documents on a
portable tablet device. The forms are automatically filed in the
patient's electronic folder.
The AccountVision Application Suite......a Patient Financial Services
application
The AccountVision application suite is a Patient Financial Services application
that enables hospitals and integrated delivery networks to streamline their
business services operations from pre-admission and registration through account
follow-up and final payment. AccountVision facilitates improved communications
by providing immediate and simultaneous access to documents thus promoting
prompt responses to patient and third-party inquiries concerning the patient
bill and other correspondence. AccountVision's electronic financial folder
concept closely integrates patient and non-patient documents to substantially
improve productivity in a variety of areas, including secondary billing and
claims follow-up. Utilizing the latest workflow technologies, AccountVision
helps clients actively manage work in process by monitoring staff workloads,
reassigning work to avoid backlogs and focusing work on appropriate
revenue-producing tasks.
The AccountVision suite offers a unified database for patient folders (Medical
Records) and non-patient folders (Patient Financial Services). The AccountVision
application suite includes "Remittance Processing" which is a computer aided
data entry application that applies optical character recognition and form
recognition/processing technologies to automatically extract payment amounts and
calculates adjustments from third-party payer remittance documents.
Virtual Healthware Services - VHS
Virtual Healthware Services became operational in April 1998, to give healthcare
providers an even more cost-effective solution to managing patient information.
Through its use of Internet/Intranet technology, VHS helps hospitals and
integrated delivery networks overcome the barriers of high capital and start-up
costs as well as the technological burdens of implementing a document
imaging/management and workflow system. VHS delivers document imaging/management
and workflow services to its healthcare customers on an outsourced basis from a
central data center. Hospitals and integrated delivery systems can therefore
take advantage of a private Intranet or the World Wide Web, the lowest cost
network infrastructure, for truly enterprisewide, secure access to healthcare
information.
AccessANYware(SM)
AccessANYware is an entirely new product offering which will be introduced in
1999. AccessANYware combines the features of the Company's entire product
portfolio into a
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common Graphical User Interface and offers the additional benefit of a unified
database for efficient system administration and elimination of redundant data
entry.
WebView(TM) - Web-Enabling Tool
The Internet, "thin client" workstations and web-enabled applications have
generated enormous excitement in the world of Healthcare Information Systems.
Their potential positive impact on the Computerized Patient Record ("CPR") and
document imaging is just now being realized. The Company believes these new
technologies will combine to create sweeping changes in the way healthcare
institutions manage, distribute and view their healthcare information. WebView
will utilize the Internet/Intranet to allow remote users to easily access an
integrated CPR and Document Imaging System virtually anywhere. The more
important benefits include:
- - significantly lower maintenance and staff costs;
- - lower data center investment and operating costs;
- - the ability to seamlessly image-enable existing clinical, billing or other
third-party information systems; and
- - a higher degree of desktop integration.
WebView uses a familiar Internet browser "look and feel" and combines the
platform-independent technologies, open standards and "network-centric"
architecture of the Internet with the Company's robust application suites. As an
intuitive, flexible, cost-effective, and scaleable product, WebView provides
organizations with a "technology bridge" connecting the Company's application
suites with innovative Internet/Intranet technologies.
OmniVision - Image-Enabling Tool
LanVision's powerful image-enabling tool (OmniVision) and workflow technology
allows healthcare users to immediately and simultaneously access any patient
information, including multimedia and paper-based information, through their
existing hospital information system applications. As a result, any application
across the entire enterprise can be image-enabled, including the host Healthcare
Information Systems, patient billing, Clinical Data Repositories, human
resources, materials management and other systems. LanVision has image-enabled
many popular Clinical Data Repositories, such as those offered by Cerner
Corporation, IDX Systems Corporation and Oacis Healthcare Holdings Corp. When
the Clinical Data Repository is image-enabled, users can seamlessly access any
type of healthcare information on the same workstation and from the same screen
display, including the point of patient care. This means that users can view
traditional electronic data and images simultaneously on the same screen without
signing in and out of multiple applications.
The OmniVision image-enabling tool includes a full automation interface using
Object Linking and Embedding and Component Object Modeling standards that allow
third-party products to
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easily make calls to OmniVision. OmniVision is in production in several
large-scale, enterprisewide applications including over 2,000 workstations at
Memorial Sloan-Kettering Cancer Center and is being deployed on over 1,000
workstations at UCSF Stanford Healthcare.
Professional Services
LanVision provides a full complement of professional services to implement its
software applications. The Company believes that high quality consulting and
professional implementation services are critical to attracting new customers
and maintaining existing customer satisfaction. These services include
implementation and training, project management, business process re-engineering
and custom software development. The implementation and training services
include equipment and software installation, system integration and
comprehensive training. The project management services include needs and
cost/benefit analysis, hardware and software configuration and business process
re-engineering. The custom software development services include interface
development and image-enabling other software applications.
The Company continues to focus its research and development efforts to develop
new application software and increase the functionality of existing
applications. Customer requirements and desires significantly influence the
Company's research and development efforts. In 1996 and 1997, LanVision
significantly expanded its development efforts. In late 1997 and early 1998, the
Company completed many of its major development projects discussed above.
Whereupon, the Company began to reduce the use of outside contractors and
development staff as projects were completed. Accordingly, the Company intends
to further reduce its product development expenses in fiscal 1999, as additional
major projects are completed.
Product research and development expense was $3,740,215, $5,553,778 and
$1,580,089 in 1998, 1997 and 1996, respectively. The Company capitalized
$396,000, $396,000 and $170,000 in 1998, 1997 and 1996, respectively.
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Existing Customers
The Company's customers include healthcare providers located throughout the
United States. LanVision has implemented or is in the process of implementing
one or more of its systems in the following institutions:
Albert Einstein Health Network, Philadelphia, PA
Beth Israel Medical Center, New York, NY;
Phillips Ambulatory Care Center, New York, NY
Children's Medical Center of Dallas, Dallas, TX
Christiana Care Health Services, New Castle, DE
Cox Health Systems, Springfield, MO
Highland Park Hospital, Highland Park, IL
Holzer Medical Center, Gallipolis, OH
Medical College of Georgia, Augusta, GA
Medical University of South Carolina, Columbia, SC
Memorial Sloan-Kettering Cancer Center, New York, NY
OhioHealth Corporation: Grant/Riverside Methodist Hospitals, Columbus, OH
ProMedica Health Systems, Toledo, OH
St. Francis Hospital and Medical Center, Hartford, CT
Texas Health Resources, Inc.: Harris Methodist Hospital, Fort Worth, TX
UCSF Stanford Healthcare, Palo Alto, CA
University Hospital, Cincinnati, OH
University of Pittsburgh Medical Center, Pittsburgh, PA
VHS service bureau customer:
The Health Alliance, Inc., Cincinnati, OH
In addition to the institutions listed above, Shared Medical Systems Corporation
has sold the LanVision Electronic Medical Record suite of products to five
organizations as of March 31, 1999.
In fiscal year 1998, Beth Israel Medical Center, Medical University of South
Carolina, and Memorial Sloan-Kettering Cancer Center, accounted for 10%, 9%, and
8%, respectively of the Company's total revenues. In fiscal year 1997,
Children's Medical Center of Dallas, Beth Israel Medical Center, and Memorial
Sloan-Kettering Cancer Center, accounted for 13%, 13%, and 12%, respectively of
the Company's total revenues. In fiscal year 1996, University of Pittsburgh
Medical Center, Beth Israel Medical Center and University Hospital, accounted
for 21%, 17% and 11%, respectively, of the Company's total revenues. The small
number of customers and the extended sales cycle have contributed to variability
in quarterly and annual operating results. The Company expects that as its
customer base continues to increase, and sales through the SMS Remarketing
Agreement, the actions of any one customer will have less of an effect on its
quarterly and annual operating results.
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<PAGE> 15
Signed Agreements - Backlog
LanVision enters into master agreements with its customers to specify the scope
of the system to be installed and services to be provided by LanVision, the
agreed upon aggregate price and the timetable for implementation. The master
agreement typically provides that the Company will deliver the system in phases
pursuant to the customer's purchase orders, thereby allowing the customer
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. 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 January 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 $7,000,000, compared with $8,000,000 at the end of fiscal 1997.
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 fees are dependent upon the customer's
schedule and usage, the Company is unable to predict accurately the amount of
revenues in future periods.
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.
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 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.
Royalties
The Company incorporates software licensed from various vendors into its
proprietary software. In addition, third-party, standalone software is required
to operate the Company's proprietary software.
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<PAGE> 16
The Company licenses these software products, and pays the required royalties
and/or license fees when such software is delivered to LanVision's customers.
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 is in the final 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.
The Company presently believes the Year 2000 Compliance issue will not pose
significant operational problems for the Company or its customers. However, if
such final testing and corrections are not completed 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 been scheduled for Beta testing at a customer site
sometime in the first quarter of 1999. If in Beta testing any additional
problems are encountered, the software code will be further modified and tested.
The Year 2000 Compliant software Beta testing will be performed at selected
customer sites using the customer's current hardware configurations. The Company
believes that Year 2000 compatible equipment is available for acquisition by
customers, if necessary, to ensure installed systems operate properly.
Should the LanVision systems sold to customers not be timely modified to be Year
2000 Compliant, the most likely worst case scenario would be that customers
could: suspend use of the system until such time as the Year 2000 Compliance
issues are remediated; or continue to use the systems with reduced
functionality. However, based upon current information and the time
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<PAGE> 17
remaining to complete the remediation, the Company believes that the risk of
such occurrence 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, except for
completing the Beta testing of the LanVision software products discussed above
and telecommunications services provided by outside vendors. The Company is in
the process of determining the Year 2000 Compliance issues that could affect
operations should the telecommunications vendors not be compliant. Without Year
2000 Compliant LanVision software and telecommunications, the service bureau
operations will not be able to provide current levels of services to its
customers and no contingency plan has yet been developed. However, 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 Company they are
currently Year 2000 Compliant. No contingency plan has been developed. However,
if needed, contingency plans will be developed.
The Company will utilize both internal and external resources to reprogram, or
replace and test its software products for the Year 2000 Compliance
modifications. The Company anticipates completing the Year 2000 Compliance
project as soon as practical, but not later than July 31, 1999, which is prior
to any anticipated impact. The total cost of the Year 2000 Compliance
remediation is not considered to be material (less than $500,000), and the
remaining remediation, estimated at less than $200,000, will be funded through
existing cash resources and future operating cash flows. The requirements for
the correction of Year 2000 Compliance issues and the date on which the Company
believes it will complete the Year 2000 Compliance modifications are based on
management's current best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that may cause such
material differences include, but are not limited to, the availability of
personnel trained in this area, the ability to locate and collect all relevant
computer codes and similar uncertainties.
The Company has warranted, to certain customers, that its products will be Year
2000 Compliant. If the Company were unable to provide a Year 2000 Compliant
solution to the
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<PAGE> 18
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 the
lender and the Remarketing Agreement with SMS is being amended. If the Company's
products are not Year 2000 Compliant by July 31, 1999, and a waiver of
compliance from the lender or SMS can not be obtained relative to that date,
this would be an event of default of the long-term debt agreement and may give
rise to legal action for breach of contract under the SMS Remarketing Agreement.
Based upon the current best estimate for remediation of the Year 2000 Compliance
issues, the Company believes the risk is minimal that the Company will not
comply with current commitments.
Competition
Several companies historically have dominated the Healthcare Information Access
Systems market. The industry is currently undergoing consolidation and
realignment as companies position themselves to compete more effectively.
Strategic alliances between vendors of Healthcare Information Access Systems and
vendors of other healthcare systems are increasing. Barriers to entry to this
market include technological and application sophistication, the ability to
offer a proven product, a well-established customer base and distribution
channels, brand recognition, the ability to operate on a variety of operating
systems and hardware platforms, the ability to integrate with pre-existing
systems and capital for sustained development and marketing activities. The
Company believes that these barriers taken together represent a moderate to high
level barrier to entry. Foreign competition has not been a significant factor in
the market, to date.
The Company's competitors include Healthcare Information Access Systems vendors
that are larger and more established and have substantially more resources than
the Company. In addition, information and document management companies serving
other industries may enter the market. Suppliers and companies with whom
LanVision may establish strategic alliances may also compete with LanVision.
Such companies and vendors may either individually, or by forming alliances
excluding LanVision, place bids for large agreements in competition with
LanVision. A decision on the part of any of these competitors to focus
additional resources in the image-enabling and other markets addressed by
LanVision could have a material adverse effect on LanVision.
LanVision believes that the principal competitive factors in its market are
customer recommendations and references, company reputation, system reliability,
system features (including ease of use), technological advancements, customer
service and support, the effectiveness of marketing and sales efforts, price and
the size and perceived financial stability of the vendor. In addition, LanVision
believes that the speed with which companies in its market can anticipate the
evolving healthcare industry structure and identify unmet needs are important
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<PAGE> 19
competitive factors. There can be no assurance that the Company will be able to
compete successfully in the future against existing or potential competitors.
LanVision believes that its principal competitors are: American Management
Systems, Incorporated; IMNET Systems, Inc. (a subsidiary/division of Mekesson
HBOC, Inc.); MedPlus, Inc. and Intelus Corporation of the SunGard Healthcare
Information Systems Group of SunGard Data Systems, Inc. On March 2, 1998,
Eclipsys Corporation, announced that it had entered into an agreement to acquire
Intelus Corporation and Med Data Systems, Inc. from SunGuard Data Systems, Inc.
Employees
As of March 31, 1999, LanVision had 68 full-time employees. In addition, the
Company utilizes independent contractors to supplement its staff, as needed.
None of the Company's employees are represented by a labor union or subject to a
collective bargaining agreement. LanVision has never experienced a work stoppage
and believes that its employee relations are good.
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 $2,109,000,
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.
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<PAGE> 20
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
increased its revenues, 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 the products described
above under "Product Research and Development" 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 continue to
increase its revenues. However, there can be no assurance the Company will be
able to continue to increase its revenues.
At January 31,1999, the Company had cash and cash equivalents of $5,445,498.
Cash equivalents consist primarily 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
believes the Company could achieve break-even or profitability in fiscal year
1999, before interest expense, on a revenue increase similar to 1998. 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 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 January 31, 1999.
ITEM 2. PROPERTIES
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The Company's principal administrative and sales offices are located at One
Financial Way, Suite 400, Cincinnati, Ohio 45242-5859. The offices consist of
approximately 15,300 square feet of space under a lease that expires in August,
2001. The rental expense for these offices approximates $335,000 annually.
The Company also leases office space for its software engineering, research and
development, training and documentation operations at 5481 Creek Road,
Cincinnati, Ohio 45242-4001. The offices consist of approximately 15,000 square
feet of space under a lease that expires in April, 2000. The rental expense for
these offices approximates $112,000 annually.
The Company also leases office space for a portion of its software engineering
and research and development operations at 5970 Fairview Road, Suite 650,
Charlotte, North Carolina 28210-3167. The offices consist of approximately 3,800
square feet of space under a lease that expires in September, 1999. The rental
expense for these offices approximates $135,000 annually.
The Company also leases office space for its VHS Data Center and services and
support staff at 4700 Duke Drive, Suite 170, Mason, OH 45040-9374. The offices
consist of approximately 9,200 square feet of office space and data center under
a lease that expires in June, 2003. The rental expense for these facilities
approximates $109,000 annually.
The Company believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate expansion of the Company's operations. The Company currently has
excess facilities (One Financial Way & Fairview Road) and has engaged brokers to
sublease or re-negotiate existing long-term lease agreements on these two
facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company may be subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims can not be predicted with certainty at this time,
management is not aware of any legal matters that will have a material adverse
effect on the Company's consolidated results of operations or consolidated
financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions held by the Executive Officers of the Company on
April 26, 1998 are:
<TABLE>
<CAPTION>
Elected to
Name Age Position(1) Present Position(2)
---- --- ----------- -------------------
<S> <C> <C> <C>
J. Brian Patsy 48 Chairman of the Board, President,
Chief Executive Officer, and Director 1989
Eric S. Lombardo 46 Executive Vice President, Director, President of
the VHS Division, and Corporate Secretary 1989
Thomas E. Perazzo 45 Chief Operating Officer,
Chief Financial Officer, and Treasurer 1997
</TABLE>
(1) All current officers of the Company hold office until their successors are
elected and qualified or until any removal or resignation. Officers of the
Company are elected by the Board of Directors and serve at the discretion
of the Board. For purposes of the descriptions of the background of the
Company's Executive Officers, the term "Company" refers to both LanVision
Systems, Inc. and its predecessor LanVision, Inc."
(2) Represents date of election to Registrant or its predecessor.
J. Brian Patsy is a co-founder of the Company and has served as the
President, and a Director since the Company's inception in October, 1989. Mr.
Patsy was appointed Chairman of the Board and Chief Executive Officer in March,
1996. Mr. Patsy has over 26 years of experience in the information technology
industry.
Eric S. Lombardo is a co-founder of the Company, has served as a
Director since the Company's inception and as Executive Vice President of the
Company since May, 1990. Mr. Lombardo has over 24 years of experience in the
information technology industry.
Thomas E. Perazzo joined the Company in January 1996 as Chief Financial
Officer. In September 1997, he assumed the additional responsibility of Chief
Operating Officer. From 1993 until he joined the Company, Mr. Perazzo served as
Controller or Chief Financial Officer of Cincom Systems, Inc., an international
software development and marketing company. Prior to 1992, Mr. Perazzo was a
partner of KPMG Peat Marwick LLP, in Cincinnati, Ohio. Mr. Perazzo is a
Certified Public Accountant (inactive).
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All Executive Officers currently have employment agreements with the Company
that generally provide annual salaries, minimum bonuses, discretionary bonuses,
stock incentive provisions and severance arrangements.
There are no family relationships between any Director or Executive Officers and
any other Director or Executive Officers of the Registrant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Common Stock trades on The Nasdaq Stock Market's National
Market under the symbol LANV. The table below sets forth the high and low sales
prices for LanVision Systems, Inc. Common Stock for each of the quarters in
fiscal years 1998 and 1997, as reported by The Nasdaq Stock Market, Inc.
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
---------------- ---- ---
<S> <C> <C>
1st Quarter (February 1, 1998 through April 30, 1998) $ 5.87 $ 3.62
2nd Quarter (May 1, 1998 through July 31, 1998) 4.62 2.50
3rd Quarter (August 1, 1998 through October 31, 1998) 3.37 0.87
4th Quarter (November 1, 1998 through January 31, 1999) 3.25 0.90
<CAPTION>
Fiscal Year 1997 High Low
---------------- ---- ---
1st Quarter (February 1, 1997 through April 30, 1997) $ 8.00 $ 3.37
2nd Quarter (May 1, 1997 through July 31, 1997) 6.75 4.50
3rd Quarter (August 1, 1997 through October 31, 1997) 8.00 4.62
4th Quarter (November 1, 1997 through January 31, 1998) 6.75 4.25
</TABLE>
The market price of the Company's Common Stock has fluctuated significantly
since the initial public offering in April, 1996. The market price of the Common
Stock could be subject to significant fluctuations based on factors such as
announcements of new products or customers by the Company or its competitors,
quarterly fluctuations in the Company's financial results or other competitors'
financial results, changes in analysts' estimates of the Company's financial
performance, general conditions in the healthcare imaging industry as well as
conditions in the financial markets. In addition, the stock market in general
has experienced extreme price and volume fluctuations which have particularly
affected the market price of many high technology companies and which have been
often unrelated to the operating performance of a specific company. Many
technology companies, including the Company, have recently experienced
fluctuations in the market price of their equity securities. There can be no
assurance that the
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<PAGE> 24
market price of the Common Stock will not decline, or otherwise continue to
experience significant fluctuations in the future.
According to the transfer agent records, the Company has 138 stockholders of
record as of April 21, 1999. Because many of such shares are held by brokers and
other institutions on behalf of stockholders, the Company is unable to determine
with complete accuracy the total number of stockholders represented by these
record holders. The Company estimates that it has approximately 2,300
stockholders.
The Company has not paid any cash dividends on its Common Stock since its
inception and does not intend to pay any cash dividends in the foreseeable
future due to the restrictive financial covenants in its long-term debt
agreement.
On July 17, 1998, the Company issued a $6,000,000 note, in a private placement,
to The HillStreet Fund, L.P., which bears interest at 12%, payable monthly. The
note is repayable in quarterly installments of $500,000 commencing October, 2001
through July, 2004. In July, 2002, the Company has a one-time option to prepay,
in full, the then outstanding balance of the note. The note is secured by all of
the assets of the Company and the loan agreement restricts the Company from
incurring additional indebtedness for borrowed money, including capitalized
leases, limits certain investments, restricts substantial asset sales, capital
expenditures, cash dividends, stock repurchases and mergers and consolidations
with unaffiliated entities. In addition, the Company is required to maintain
certain financial conditions, including minimum levels of revenues, combined
cash and investments and net worth.
In connection with the issuance of the note, the Company issued Warrants to
purchase 750,000 shares of Common Stock of the Company at $3.87 per share at any
time after May 16, 1999 through July 16, 2008. The Warrants are subject to
customary antidilution and registration rights provisions.
Under the terms of the loan agreement, the Company has guaranteed the lender
that the increase in the market value of the stock underlying the Warrants, at
the time of loan maturity, over the exercise price plus the 12% interest paid on
the loan will yield the lender a 25% compound annual return. If the yield from
the Warrants plus interest paid does not provide the lender with the guaranteed
return, the Company is required to pay the additional amount in cash at the time
of maturity. Accordingly, the Company is accruing interest on the loan at a 25%
compound interest rate, regardless of the market value of the stock and the
inherent value of the Warrants. Should the Company exercise its prepayment
option in July, 2002, then the minimum guaranteed rate of return is increased to
30%. However, to the extent that the computed minimum compound annual rate of
return exceeds 30% at the date of the prepayment, the Company has the right to
cancel up to 150,000 Warrants.
In addition, the founders and majority shareholders of the Company have
consented to certain restrictions on the sale or transfer of their shares.
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<PAGE> 25
Maturities of long-term debt are as follows: fiscal years 1999 and 2000, $-0-;
2001, $1,000,000; 2002, $2,000,000; 2003, $2,000,000; 2004, $1,000,000.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth consolidated financial data with respect to the
Company for each of the five years in the period ended January 31, 1999. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes incorporated herein by
reference elsewhere in this Annual Report on Form 10-K report.
<TABLE>
<CAPTION>
Fiscal Year(1)
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues $ 12,010 $ 8,676 $ 10,310 $ 5,019 $ 2,412
Total operating expenses 22,470 22,493 16,271 5,324 3,105
Operating (loss) (10,460) (13,818) (5,961) (306) (693)
Net (loss) (10,926) (12,669) (4,669) (326) (572)
Basic net (loss) per share of
common stock (1.24) (1.44) (.56) (.05) (.09)
Diluted net (loss) per share of
common stock (1.24) (1.44) (.56) (.05) (.09)
Total assets 17,485 22,200 33,300 3,046 1,518
Convertible redeemable
preferred stock - - - 850 850
Total stockholders' equity (deficit) 5,847 16,816 29,921 (646) (319)
Weighted average shares outstanding 8,811 8,827 8,284 6,190 6,190
Cash dividends declared - - - - -
<FN>
(1) All references to a fiscal year refer to the fiscal year of the Company commencing February 1 of that
calendar year and ending on January 31 of the following year.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information regarding Management's Discussion and Analysis of the Company's
Financial Condition and Results of Operations as required by Item 303 of
Regulation S-K is incorporated herein by reference from pages 8 through 16 of
the Company's 1998 Annual Report to Stockholders appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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<PAGE> 26
The Company currently invests its cash balances, in excess of its current needs,
in overnight bank deposits. In prior years, the Company invested excess funds in
US Government Securities. The Company did not invest for the purposes of trading
in securities, however, the portfolio was managed and invested for maximum
return on the investments. The marketable securities at January 31, 1998, which
were recorded at a fair value of $8,909,166 and include unrealized gains of
$75,203, had exposure to price risk. This risk was estimated, absent any
economic justification for the selection of a different amount, as the potential
loss in fair value resulting from a hypothetical 10% adverse change in price
quoted by dealers and amounts to $890,916.
The fair market values of investment securities were based on the quoted market
prices at the reporting date for those investments. The estimated fair market
value of investment securities by contractual maturity at January 31, 1998 was
as follows: $5,074,258 in 1998, $3,334,988 in 1999, and $499,920 in 2000.
During Fiscal 1998, all of the investments were sold to fund current operations,
and no similar investments were made subsequent thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements are incorporated herein by reference from
pages 18 through 29 of the Company's 1998 Annual Report to Stockholders. The
supplementary quarterly financial information regarding the Company as required
by Item 302 of Regulation S-K is incorporated herein by reference from page 29
of the Company's 1998 Annual Report to Stockholders appearing under the caption
"Quarterly Results of Operations (Unaudited)".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No change in the Company's auditors has taken place within the twenty-four
months prior to, or in any period subsequent to, the Company's January 31, 1999
Financial Statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors required by Items 401 and 405 of Regulation
S-K is incorporated herein by reference from the Company's Definitive Proxy
Statement for its Annual Stockholder's Meeting to be held on May 26, 1999 from
the information appearing under the caption "Election of Directors" and "Stock
Ownership by Certain Beneficial Owners and Management." Certain information
regarding the Company's Executive Officers is set forth in Part I, Item 4 of
this Form 10-K under the caption "Executive Officers of the Registrant."
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<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION
The information regarding Executive Compensation required by Item 402 of
Regulation S-K is incorporated herein by reference from the Company's Definitive
Proxy Statement for its Annual Stockholder's Meeting to be held on May 26, 1999
from the information appearing under the caption "Executive Compensation",
except that the information required by Item 402 (k) and (l) of Regulation S-K
which appears within such caption under the subheading "Compensation Committee
Report" and the caption "Stock Performance Graph" and set forth in the Company's
Definitive Proxy Statement for its Annual Stockholder's Meeting to be held on
May 26, 1999 is specifically not incorporated herein by reference into this Form
10-K or into any other filing by the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership of the Company's Common Stock by
certain beneficial owners and management required by Item 403 of Regulation S-K
is incorporated herein by reference from the Company's Definitive Proxy
Statement for its Annual Stockholder's Meeting to be held on May 26, 1999 from
the information appearing under the caption "Stock Ownership by Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by Item 404 of Regulation S-K is incorporated herein by reference from
the Company's Definitive Proxy Statement for its Annual Stockholder's Meeting to
be held on May 26, 1999 from the information appearing under the caption
"Certain Relationships and related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company included in the
Company's 1998 Annual Report to Stockholders are incorporated herein by
reference from pages 17 through 29 of the Annual Report. Reference is also made
to Item 8 of this Form 10-K.
27
<PAGE> 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets at January 31, 1999 and 1998
Consolidated Statements of Operations for the three years ended January 31, 1999
Consolidated Statements of Cash Flows for the three years ended January 31, 1999
Consolidated Statements of Changes in Convertible Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the three years ended January 31, 1999
Notes to Financial Statements
FINANCIAL STATEMENT SCHEDULE
The following Financial Statement Schedule of LanVision Systems, Inc. is
included in this Item 14.
<TABLE>
<CAPTION>
Schedule Description
-------- -----------
<S> <C>
II Valuation and Qualifying Accounts and Reserves
</TABLE>
All other schedules have been omitted because the information either has been
shown in the Consolidated Financial Statements or Notes thereto, or is not
applicable or required under the instructions.
The Report of Independent Auditors on the Financial Statement Schedule of
LanVision Systems, Inc. is included in Exhibit 23.1 of this Form 10-K.
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C> <C>
3.1 Certificate of Incorporation of LanVision Systems, Inc.
3.2 Bylaws of LanVision Systems, Inc.
3.3 Certificate of the Designations, Powers, Preferences
and Rights of the Convertible Preferred Stock (Par
Value $.01 Per Share) of LanVision Systems, Inc.
4.1 Specimen Common Stock Certificate of LanVision Systems, Inc.
4.2 Specimen Preferred Stock Certificate of LanVision Systems, Inc.
4.3(a) Loan and Security Agreement between The HillStreet Fund L.P.
and LanVision Systems, Inc.
4.3(b) First Amendment to the Loan and Security Agreement between
The HillStreet Fund L.P. and LanVision Systems, Inc.
10.1 # LanVision Systems, Inc. 1996 Employee Stock Option Plan
10.2(a) # LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan
10.2(b) # First Amendment to LanVision Systems, Inc. 1996 Non-Employee Directors
Stock Option Plan
10.3 # LanVision Systems, Inc. 1996 Employee Stock Purchase Plan
10.4(a) # Robert F. Golden and Jeffrey L. VanVoorhis Option Agreements
10.4(b) # First Amendment to Robert F. Golden and Jeffrey L. VanVoorhis
Option Agreements
10.4(c) # Second Amendment to Robert F. Golden and Jeffrey L. VanVoorhis
Option Agreements
10.5 # George E. Castrucci Option Agreement
10.6(a) # Employment Agreement among LanVision Systems, Inc., LanVision, Inc.
and J. Brian Patsy effective January 1, 1996
10.6(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc. and J. Brian Patsy effective September 25, 1998
10.7(a) # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and
Eric S. Lombardo effective January 1, 1996
10.7(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc. and Eric S. Lombardo effective September 25, 1998
10.8(a) # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and
Thomas E. Perazzo effective January 30, 1996
10.8(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc. and Thomas E. Perazzo effective January 29, 1999
10.9(a) Stock Purchase and Shareholder Agreement among LanVision, Inc.,
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
Blue Chip Capital Fund Limited Partnership, J. Brian Patsy and
Eric s. Lombardo dated December 1, 1994
10.9(b) Amendment No. 1 to Stock Purchase and Shareholder Agreement
among Blue Chip Capital Fund Limited Partnership, LanVision, Inc., J. Brian Patsy, Eric S. Lombardo
and LanVision Systems, Inc. dated February 8, 1996
10.10 Consent by Blue Chip Capital Fund Limited Partnership dated
February 8, 1996
10.11(a) Lease for office space between Duke Realty Limited Partnership
and LanVision, Inc., dated May 7, 1996
10.11(b) First amendment to office lease with Duke Realty Limited Partnership
and LanVision, Inc., dated July 12, 1996
10.11(c) Second amendment to office lease with Duke Realty Limited Partnership
and LanVision, Inc., dated February 25, 1997
10.11(d) Third amendment to office lease with Duke Realty Limited Partnership
and LanVision, Inc., dated September 23, 1997
10.11(e) Fourth amendment to office lease with Duke Realty Limited Partnership and
LanVision, Inc., dated January 16, 1998
10.12(a) Lease for office space between Green Realty Corporation and LanVision, Inc.,
dated April 7, 1997
10.12(b) First amendment to lease between Green Realty Corporation and LanVision, Inc.,
dated June 6, 1997
10.13(a) Lease for office space between Fairview Plaza Associates Limited Partnership
and LanVision, Inc., dated February 26, 1996
10.13(b) First amendment to lease between Fairview Plaza Associates Limited Partnership,
Lessor and LanVision, Inc., Lessee, dated August 12, 1996
10.13(c) Second amendment to lease between Fairview Plaza Associates Limited Partnership
and LanVision, Inc., dated May 21, 1997
10.14(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc.,
dated September 23, 1997
10.14(b) First amendment to office lease between Duke Realty Limited Partnership and LanVision,
Inc., dated January 16, 1998
10.15 Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998
10.16 Form of Indemnification Agreement for all directors and officers
11.1 Statement Regarding Computation of Per Share Earnings
13.1 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
</TABLE>
# Management Contracts and Compensatory Arrangements
REPORTS ON FORM 8-K
30
<PAGE> 31
During the fourth quarter of fiscal 1998, the Company filed no reports on Form
8-K.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) 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: April 26, 1999 By: /s/ J. BRIAN PATSY
--------------------------- -----------------------------------
J. Brian Patsy
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
/s/ J. Brian Patsy Chief Executive Officer April 26, 1999
- ---------------------------
J. Brian Patsy and Director
/s/ Eric S. Lombardo Director April 26, 1999
- ---------------------------
Eric S. Lombardo
/s/ George E. Castrucci Director April 26, 1999
- ---------------------------
George E. Castrucci
/s/ Z. David Patterson Director April 26, 1999
- ---------------------------
Z. David Patterson
/s/ Thomas E. Perazzo April 26, 1999
- ---------------------------
Thomas E. Perazzo Chief Financial Officer
and Chief Accounting Officer
32
<PAGE> 33
Schedule II Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
LanVision Systems, Inc.
For the three years ended January 31, 1999
Additions
-----------------------------
(in thousands) Balance at Charged to Charged to Balance at
Beginning costs Other End of
Description of Period and Expenses Accounts Deductions Period
------------- ----------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1999: $ $ $ $ $
Allowance for doubtful 265 60 - - 325
accounts
Warranty reserve 265 35 - - 300
Year ended January 31, 1998:
Allowance for doubtful 205 60 - - 265
accounts
Warranty reserve 164 135 - 34 265
Year ended January 31, 1997:
Allowance for doubtful 75 130 - - 205
accounts
Warranty reserve 75 95 - 6 164
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C> <C>
3.1 Certificate of Incorporation of LanVision Systems, Inc. *(1)
3.2 Bylaws of LanVision Systems, Inc. *(1)
3.3 Certificate of the Designations, Powers, Preferences and Rights of the Convertible
Preferred Stock (Par Value $.01 Per Share) of LanVision Systems, Inc. *(1)
4.1 Specimen Common Stock Certificate of LanVision Systems, Inc. *(1)
4.2 Specimen Preferred Stock Certificate of LanVision Systems, Inc. *(1)
4.3(a) Loan and Security Agreement between The HillStreet Fund L.P. and LanVision Systems, Inc. *(14)
4.3(b) First Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc. *(17)
10.1 # LanVision Systems, Inc. 1996 Employee Stock Option Plan *(1)
10.2(a) # LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan *(1)
10.2(b) # First Amendment to LanVision Systems, Inc. 1996 Non-Employee Directors
Stock Option Plan *(2)
10.3 # LanVision Systems, Inc. 1996 Employee Stock Purchase Plan *(1)
10.4(a) # Robert F. Golden and Jeffrey L. VanVoorhis Option Agreements *(19)
10.4(b) # First Amendment to Robert F. Golden and Jeffrey L. VanVoorhis Option Agreements *(20)
10.4(c) # Second Amendment to Robert F. Golden and Jeffrey L. VanVoorhis Option Agreements *(21)
10.5 # George E. Castrucci Option Agreement *(18)
10.6(a) # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and J. Brian Patsy
effective January 1, 1996 *(1)
10.6(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc. LanVision, Inc.
and J. Brian Patsy effective September 25, 1998 *(15)
10.7(a) # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Eric S. Lombardo
effective January 1, 1996 *(1)
10.7(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc., LanVision,
Inc., and Eric S. Lombardo effective September 25, 1998 *(16)
10.8(a) # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Thomas E. Perazzo
effective January 30, 1996 *(1)
10.8(b) # First Amendment to the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc., and Thomas E. Perazzo effective January 29, 1999 ***
</TABLE>
<PAGE> 35
<TABLE>
<S> <C> <C>
10.9(a) Stock Purchase and Shareholder Agreement among LanVision, Inc.,
Blue Chip Capital Fund Limited Partnership, J. Brian Patsy and
Eric s. Lombardo dated December 1, 1994 *(1)
10.9(b) Amendment No. 1 to Stock Purchase and Shareholder Agreement among Blue Chip Capital Fund
Limited Partnership, LanVision, Inc., J. Brian Patsy, Eric S. Lombardo and LanVision
Systems, Inc. dated February 8, 1996 *(1)
10.10 Consent by Blue Chip Capital Fund Limited Partnership dated
February 8, 1996 *(1)
10.11(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
May 7, 1996 *(3)
10.11(b) First amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated July 12, 1996 *(4)
10.11(c) Second amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated February 25, 1997 *(5)
10.11(d) Third amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated September 23, 1997 *(11)
10.11(e) Fourth amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated January 16, 1998 *(12)
10.12(a) Lease for office space between Green Realty Corporation and LanVision, Inc., dated April
7, 1997 *(6)
10.12(b) First amendment to lease between Green Realty Corporation and LanVision, Inc., dated June
6, 1997 *(8)
10.13(a) Lease for office space between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated February 26, 1996 *(1)
10.13(b) First amendment to lease between Fairview Plaza Associates Limited Partnership, Lessor and
LanVision, Inc., Lessee, dated August 12, 1996 *(7)
10.13(c) Second amendment to lease between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated May 21, 1997 *(9)
10.14(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
September 23, 1997 *(10)
10.14(b) First amendment to office lease between Duke Realty Limited Partnership and LanVision,
Inc., dated January 16, 1998 *(13)
10.15** Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998 ***
10.16 Form of Indemnification Agreement for all directors and officers *(1)
11.1 Statement Regarding Computation of Per Share Earnings ***
13.1 Annual Report to Stockholders ***
21.1 Subsidiaries of the Registrant ***
23.1 Consent of Independent Auditors ***
27.1 Financial Data Schedule ***
<FN>
- ----------
</TABLE>
<PAGE> 36
* Incorporated by reference from document indicated below.
** The Company has applied for Confidential Treatment of portions of this
agreement with the Securities and Exchange Commission
*** Included herein
# Management Contracts and Compensatory Arrangements.
- ----------
(1) Previously filed with the Commission, and incorporated herein by reference
from, the Registrant's Registration Statement on Form S-1, File Number
333-01494, as filed with the Commission on April 15, 1996.
(2) Previously filed with the Commission and incorporated herein by reference
from Exhibit 4.1(b) of, the Registrant's Registration Statement on Form
S-8, file number 333-20765, as filed with the Commission on January 31,
1997.
(3) Previously filed with the Commission as Exhibit 10 of the Registrant's
Form 10-Q for the quarter ended April 30, 1996, as filed with the
Commission on June 12, 1996.
(4) Previously filed with the Commission as Exhibit 10 of the Registrant's
Form 10-Q for the quarter ended July 31, 1996, as filed with the
Commission on September 4, 1996.
(5) Previously filed with the Commission as Exhibit 10.12(c) of the
Registrant's Form 10-K for the fiscal year ended January 31, 1997, as
filed with the Commission on April 29, 1997.
(6) Previously filed with the Commission as Exhibit 10.13 of the Registrant's
Form 10-K for the fiscal year ended January 31, 1997, as filed with the
Commission on April 29, 1997.
(7) Previously filed with the Commission as Exhibit 10.14(b) of the
Registrant's Form 10-K for the fiscal year ending January 31, 1997, as
filed with the Commission on April 29, 1997.
(8) Previously filed with the Commission as Exhibit 10.1 of the Registrant's
Form 10-Q for the quarter ended July 31, 1997, as filed with the
Commission on September 10, 1997.
(9) Previously filed with the Commission as Exhibit 10.2 of the Registrant's
Form 10-Q for the quarter ended July 31, 1997, as filed with the
Commission on September 10, 1997.
(10) Previously filed with the Commission as Exhibit 10.1 of the Registrant's
Form 10-Q for the quarter ended October 31, 1997, as filed with the
Commission on December 10, 1997.
(11) Previously filed with the Commission as Exhibit 10.2 of the Registrant's
Form 10-Q for the quarter ended October 31, 1997, as filed with the
Commission on December 10, 1997.
(12) Previously filed with the Commission as Exhibit 10.12(e) of the
Registrant's Form 10-K for the fiscal year ending January 31, 1998, as
filed with the Commission on April 30, 1998.
(13) Previously filed with the Commission as Exhibit 10.15(b) of the
Registrant's Form 10-K for the fiscal year ending January 31, 1998, as
filed with the Commission on April 30, 1998.
(14) Previously filed with the Commission as Exhibit 10.1 of the
Registrant's Form 8-K, as filed with the Commission on July 24, 1998.
(15) Previously filed with the Commission as Exhibit 10(a) of the Registrant's
Form 10-Q for the quarter ended October 31, 1998, as filed with the
Commission on December 11, 1998.
(16) Previously filed with the Commission as Exhibit 10(b) of the Registrant's
Form 10-Q for the quarter ended October 31, 1998, as filed with the
Commission on December 11, 1998.
<PAGE> 37
(17) Previously filed with the Commission as Exhibit 10(c) of the Registrant's
Form 10-Q for the quarter ended October 31, 1998, as filed with the
Commission on December 11, 1998.
(18) Previously filed with the Commission as Exhibit 4.1 of the Registrant's
Form S-8, file number 333-20763, as filed with the Commission on January
31, 1997.
(19) Previously filed with the Commission as Exhibit 4.1(a and b) of the
Registrant's Form S-8, file number 333-20761, as filed with the
Commission on January 31, 1997.
(20) Previously filed with the Commission as Amendment No. 1 of the
Registrant's Form S-8, file number 333-20761, as filed with the
Commission on September 14, 1998.
(21) Previously filed with the Commission as Amendment No. 2 of the
Registrant's Form S-8, file number 333-20761, as filed with the
Commission on January 27, 1999.
<PAGE> 1
Exhibit 10.8(b)
LANVISION SYSTEMS, INC.
FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT AMONG LANVISION SYSTEMS, INC.,
LANVISION, INC. AND THOMAS E. PERAZZO
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Amendment modifies the Employment Agreement among LanVision Systems, Inc.,
LanVision, Inc., and Thomas E. Perazzo dated January 30, 1996 ("Agreement").
1. Notwithstanding Section 10, Term of the Agreement, the term of the
Agreement shall continue through March 31, 2001.
2. In Paragraphs 11(D) and 12, the phrase "a lump sum amount equal to
three-quarters times the Employee's annual salary and bonus at the
time of termination" shall be changed at each appearance to read as
follows: "a lump sum equal to one times the Employee's annual salary
and bonus, excluding discretionary bonuses, at the time of
termination".
Thomas E. Perazzo LanVision Systems, Inc. and LanVision Inc.
/ s / Thomas E. Perazzo By: / s / J. Brian Patsy
- --------------------------- --------------------------------------
J. Brian Patsy
Chief Executive Officer
1/29/99 1/29/99
- --------------------------- -----------------------------------------
(Date) (Date)
<PAGE> 1
Exhibit 10.15
LANVISION SYSTEMS, INC.
MARKETING AGREEMENT BETWEEN SHARED MEDICAL SYSTEMS CORPORATION AND LANVISION
SYSTEMS, INC. AND LANVISION, INC. ENTERED INTO ON FEBRUARY 21, 1998
CONFIDENTIAL
AGREEMENT
---------
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
February, 1998 by and between SHARED MEDICAL SYSTEMS CORPORATION, located at 51
Valley Stream Parkway, Malvern, Pennsylvania 19355 ("SMS") and LANVISION
SYSTEMS, INC., located at One Financial Way, Suite 400, Cincinnati, Ohio 45242,
and LANVISION, INC., located at the same address (collectively, LanVision
Systems, Inc. and LanVision, Inc. shall be referred to as "LanVision").
1. Background.
----------
(a) SMS is in the business of providing health information systems and
services to the health industry. LanVision is in the business of providing
computer software applications and services in document imaging and workflow
technologies to the health industry The following definitions shall apply:
(i) "Base Fee" shall mean an amount to be used for calculating
Software royalties due LanVision from SMS. The initial Base Fee is set forth in
Exhibit H. The Base Fee shall be adjusted, pursuant to the provisions of Exhibit
H, based on the actual sales experience of LanVision during the preceding
measurement period.
(ii) "Deliverables" shall mean the Software, Software-related
programming changes, and all associated Technical Materials and Documentation.
The Deliverables existing as of the date of this Agreement are also listed in
Exhibit A.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 2
CONFIDENTIAL
(iii) "Documentation" shall mean the technical and user
manuals, instructions and user guides, including updates thereto, relating to
the Software, whether in printed or electronic format, developed by or on behalf
of LanVision. Documentation existing as of the date of this Agreement is listed
in Exhibit A.
(iv) "End User" shall mean any SMS Client that enters into a
license agreement with SMS that includes the Software.
(v) "First-Level Support" shall mean issue recognition and
problem determination and resolution procedure processing.
(vi) "First Productive Use" shall mean the date on which live
data at an End User site is first processed through the Software and used in the
live operation of the End User's facility.
(vii) "Prospective End User" shall mean an SMS Client or
prospective SMS Client to whom SMS is actively marketing the Software and any of
the following SMS products (SMS may change any of these product names without
implications to this Agreement): INVISION, UNITY, ALLEGRA, MedSeries4,
SIGNATURE, products in the NOVIUS line (the "Core Applications"). "Actively
marketing" shall mean that SMS has conducted (i) executive level meetings
regarding the licensing of the Software and any Core Application at the subject
site within the preceding six (6) months, and/or (ii) demonstrations of the
Software and any Core Application at the subject site within the preceding six
(6) months.
(viii) "Releases" shall mean a redistribution of the Software
containing an aggregation of Updates and/or functional, operational and/or
performance improvements
(ix) "Second-Level Support" shall mean the resolution of
problems that are beyond the capabilities of the First-Level Support personnel,
but do not require access to, or knowledge of, the source code. In addition to a
more in-depth knowledge of the LanVision Software, individuals performing
Second-Level Support must have extensive knowledge of the hardware platform,
operating system, networking, database, imaging, workflow and other elements of
the overall system implementation. Onsite visits may be required in the
performance of Second-Level Support. Second-Level Support shall be available to
SMS 24 hours per day.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 3
CONFIDENTIAL
(xi) "SMS Client" shall mean any party that enters into a
license agreement with SMS that includes any Core Application.
(xii) "Software" shall mean the software (as described in
Exhibit A) developed, marketed and licensed by LanVision to SMS hereunder.
(xiii) "Technical Materials" shall mean the items describing
the technical functionality and specifications of the Software which are listed
under the heading "Technical Materials" in Exhibit A.
(xiv) "Third-Level Support" shall mean the resolution of
Software problems that require use of the Software source code, and the
development of all Updates, Releases, and Versions. Third-Level Support shall be
available to SMS between the hours of 8:00am to 5:00pm (EST).
(xv) "Update" shall mean packages of Software corrections as
well as revisions addressing common functional and performance issues.
(xvi) "Versions" shall mean a delivery of new features
packaged as part of existing and/or new Software.
(b) The parties desire to enter into a relationship in which SMS will
market and sublicense the Software and Documentation to End Users and offer
delivery, installation, and support services to End Users. LanVision will
provide marketing, installation, programming, development, and support services
to SMS, all as set forth hereunder.
2. EXECUTIVE TEAM. To oversee the parties' relationship under this Agreement,
SMS and LanVision will create an Executive Team, comprising two senior managers
from each organization. The Executive Team will meet at least quarterly and more
frequently as required throughout the term of this Agreement and be responsible
for monitoring the progress of the relationship, recommending and causing
improvements to be implemented, and discussing mutual strategy as it relates to
this Agreement. Among the responsibilities of the Executive Team is to work to
avoid channel conflicts and to promptly and equitably resolve channel
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the U.S.
Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 4
CONFIDENTIAL
conflicts that arise. In the event of a deadlock the Executive Team will submit
to dispute resolution pursuant to Section 14.
3. INITIAL SOFTWARE CHANGES - PROJECT TEAM.
(a) LanVision will perform a set of Software programming changes
("Initial Software Changes") intended to:
[confidential
(b) The Initial Software Changes agreed to by the parties as of the
date of this Agreement are listed and described in Exhibit B. To oversee the
process of making the Initial Software Changes the parties will create a Project
Team comprised of dedicated and knowledgeable technical personnel from each
party. The Project Team will meet on a mutually agreed upon schedule, and shall
remain in existence until at least one year after completion of the Initial
Software Changes. Project Team leaders will also participate in Executive Team
meetings and issue status reports to the Executive Team as required by the
Executive Team. It is understood and agreed that all future Updates, Releases,
Versions and programming changes delivered to SMS shall be compatible with the
Initial Software Changes (e.g., new Versions will port with the same SMS
software the same or better than earlier Versions port with SMS applications).
(c) SMS and LanVision recognize that further integration of the
Software with SMS software will enhance the marketability of the Software to End
Users. SMS and LanVision intend to pursue those future integration requirements,
based upon the recommendations of the Project Team, throughout the term of this
Agreement.
(d) The first [confidential] of programming services performed by
LanVision on the creation of the [confidential] component of the Initial
Software Changes shall be at LanVision's expense. For other programming services
necessary to create the [confidential] component of the Initial Software
Changes, SMS shall compensate LanVision at a rate of [confidential]. As to all
other Initial Software Changes, each party shall bear its own expenses of
performing its responsibilities under this Section.
4. SOFTWARE RIGHTS AND LICENSES.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the U.S.
Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 5
CONFIDENTIAL
(a) RIGHT TO MARKETING AND SUBLICENSE. LanVision grants to SMS and SMS'
subsidiaries the exclusive worldwide right to (i) market the Software and
Documentation to SMS Clients , and (ii) grant perpetual and term sublicenses of
the object code version of the Software to SMS Clients. SMS' rights include the
right to use the Software and Documentation as part of outsourcing services
(facility management-type functions in which a Software license is separately
acquired for each such customer) provided by SMS and to use the Technical
Materials internally in support of such activities.
(b) SMS has the exclusive right to market and sublicense the Software
to Prospective End Users. Upon LanVision's request, the Executive Team shall
determine whether a particular opportunity that would otherwise be designated as
a Prospective End User, and therefore exclusive to SMS, should be reserved for
LanVision to pursue.
(c) SMS has the non-exclusive right to market and sublicense the
Software to any entity that is not an SMS Client or a Prospective End User.
(d) Notwithstanding the exclusives granted to SMS in subsections (a)
and (b) above:
(1) As to entities that license the Software directly from
LanVision and later meet the definition of SMS Client or Prospective End User,
LanVision shall have the right to license additional Software to such entities
for use exclusively by such entities (e.g., a Software license granted by
LanVision to a subsidiary hospital shall not entitle LanVision to license
Software to that hospital's parent organization or to any affiliated hospital
that is not a licensee under the LanVision-customer agreement).
(2) SMS shall have the non-exclusive right to market and
license the Software to the entities listed in Exhibit G, which are entities to
which LanVision represents it is actively marketing the Software, during the
twelve (12) month period commencing on the date of this Agreement. If SMS
licenses the Software to any such entity during that twelve (12) month period,
SMS shall pay to LanVision a royalty equal to an amount to be determined by the
Executive Team. After that initial twelve (12) month period, SMS shall be
entitled to exclusive rights to market and sublicense the Software to such
entities, and the royalties as stated in Section 12 shall apply to all such
Software sublicences granted by SMS.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the U.S.
Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 6
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(3) SMS shall have the right to sublicense the third-party
software components of the Software listed in Exhibit C, Section 2 throughout
the United States. SMS' right to sublicense on a world-wide basis the
third-party software components of the Software listed in Exhibit C, Section 2,
is conditioned on LanVision having or obtaining such rights from its third-party
software suppliers for End Users located outside the United States. For any
rights that LanVision does not have, LanVision shall diligently, and using all
good faith efforts, promptly pursue such rights for SMS to sublicense all such
third-party components on a world-wide basis, and LanVision shall provide
written status reports on such progress to SMS monthly and otherwise as
requested by SMS.
(4) In the event SMS markets and licenses a product (i) that
includes features and functions substantially similar to those contained in the
Software, and (ii) which a prospective licensee could reasonably be expected to
license in lieu of the Software (collectively, the "Triggering Events"), then
LanVision shall have the right, upon [confidential] prior written notice to SMS
received by SMS within [confidential] after LanVision has actual notice of a
Triggering Event, to terminate this Agreement. If multiple Triggering Events
occur, the last--occurring Triggering Event shall be the basis for measuring
such [confidential] requirements. This right to early termination is contingent
on (x) SMS' right to a migration-out period that entitles SMS to execute
Software licenses with Prospective End Users during the [confidential] period
commencing on the effective date of termination, and (y) LanVision shall provide
support subject to the provisions of Section 8(b)(ii).
(5) SMS' rights to market and sublicense the modules denoted
"Other Modules" in Exhibit A, Section 1, shall be non-exclusive.
(e) INTERNAL USE LICENSE. LanVision grants to SMS and SMS' subsidiaries
a royalty-free license for the internal use of the Deliverables by SMS and its
subsidiaries solely for purposes of enabling them, if elected by SMS, to create,
market, and license interface and integration programming; and to provide
support services to End Users.
(f) SMS shall not decompile or otherwise reverse engineer or decode the
Software; provided that in the event SMS receives delivery of the Software
source code from escrow, SMS shall have the right to use such source code to
perform programming changes and other development activities so long as
LanVision's intellectual property rights are protected.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the U.S.
Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 7
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(g) OTHER LANVISION PRODUCTS.
(i) For purposes of avoiding channel conflicts and confusion
in the SMS Client/Prospective End User base, LanVision
shall not directly or indirectly market or license any
LanVision product existing as of the date of this
Agreement, whether or not listed in Exhibit A (except
MicroVision), to any SMS Client or Prospective End User.
SMS shall have the non-exclusive right to market or
license any existing LanVision product not listed in
Exhibit A under the terms and conditions of this
agreement. The Executive Team will determine the Initial
Base Fee for any existing LanVision product not listed in
Exhibit A.
(ii)SMS shall have the first opportunity to negotiate with
LanVision for the right to market and license any new
LanVision products. Notwithstanding the foregoing,
LanVision shall have the right to market and license the
Other Modules described in Exhibit A, Section 1, in
connection with new products.
(h) It is understood and agreed that in the event an End User, without
SMS' knowledge and consent, exceeds its licensed number of users/servers, SMS
shall use all reasonable efforts to enforce the End User license agreement.
Provided SMS performs its responsibilities under this subsection, LanVision
shall not treat such excess use as a license or other violation of LanVision's
intellectual property rights.
5. SMS RIGHTS AND RESPONSIBILITIES.
(a) SMS shall market and sublicense the Software and Documentation to
prospective End Users within the markets defined in Section 4. SMS' marketing
efforts will be commensurate with market demand for the Software. SMS' marketing
efforts outside the United States are also conditioned on the availability of
localized versions of the Software. License agreements with End Users shall
conform to the requirements as stated in Exhibit E.
(b) SMS will incorporate appropriate information about the Software and
Documentation with LanVision's assistance in SMS' software documentation, will
identify the Software and Documentation as being proprietary to LanVision, and
will include all proprietary markings required by LanVision as shown in Exhibit
A, Section 3.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the U.S.
Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 8
CONFIDENTIAL
(c) SMS may, but is not required to, offer the Software and
Documentation for sublicense on a private label basis, i.e., SMS may sublicense
the Software under one or more trade names to be selected by SMS. In no event
shall LanVision market the Software under the mark chosen by SMS without SMS'
prior knowledge and consent in order to avoid duplication of efforts and
confusion in the SMS customer and prospect basis. [confidential]
(d) SMS shall have the right to use, modify, and/or distribute
LanVision's marketing materials and Documentation related to the Software as
deemed appropriate by SMS. SMS is responsible for the creation and delivery of
marketing materials to prospective End Users, including adaptation of LanVision
materials, associated with any private labeled Software and/or Documentation
offered for sublicense.
(e) SMS will receive training from LanVision at no charge, to enable
SMS to provide Software installation and support services and marketing and
sales support as described in Section 6. SMS may employ a "train the trainer"
approach, whereby LanVision will train and provide periodic update or refresher
training to a core group of SMS personnel identified by SMS such that they will
then be able to train other SMS personnel. If SMS requests that training occur
at other than LanVision's facilities, SMS shall reimburse LanVision for
reasonable travel and living expenses in accordance with SMS' then-current
travel and living reimbursement policy. SMS' current travel and living policy is
attached as Exhibit J.
(f) SMS will offer to contract with End Users for the provision of
installation, interface, integration, and/or support services, as appropriate.
(g) SMS will perform the tasks assigned to SMS relating to the Initial
Software Changes listed in Exhibit B.
(h) SMS will be prepared to receive support services from LanVision as
contemplated in Section 8. SMS will install appropriate Software Updates,
Releases, Versions, and programming changes that are provided to SMS by
LanVision.
(i) [confidential]
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 9
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6. LANVISION RIGHTS AND RESPONSIBILITIES.
(a) LanVision agrees to diligently perform research and development
throughout the term of this Agreement to enhance and otherwise improve the
Deliverables. Such research and development shall include, without limitation,
(i) Software improvements that enable the Software to remain competitive with
other products available to prospective End Users, and (ii) the delivery to SMS
of Updates, Releases and/or Versions to ensure the compatibility of the Software
with third-party vendor components of the Software, such compatibility to occur
within [confidential] after the general availability of such component from the
third-party vendor if that timeframe and such compatibility are commercially
feasible; provided SMS shall receive such enhancement no later than LanVision
delivers such capability to any other entity. Except to the extent SMS'
participation will cause undue delay to LanVision's development process, or
involves matters that are proprietary to LanVision and are unrelated to this
Agreement, SMS shall have the right to participate on LanVision committees and
teams that perform research, development, and product planning for LanVision,
and SMS shall have the right to participate, if elected by SMS, as Beta sites
for any LanVision products that proceed to Beta testing.
(b) LanVision agrees to perform the tasks assigned to LanVision
relating to the Initial Software Changes listed in Exhibit B, and to use all
reasonable efforts to perform these tasks according to the timetable set forth
in Exhibit B, unless otherwise agreed by the Executive Team. Consequences of
late or non-performance are specified in Exhibit B.
(c) At rates to be negotiated by the parties at the time, LanVision
agrees to perform, in a mutually agreeable timeframe, technically-feasible
Software programming changes requested by SMS.
(d) LanVision agrees to provide training services to SMS to enable SMS
personnel to (i) provide Software support services directly to End Users, and
(ii) train SMS trainers to teach Software support services to SMS employees. By
way of example, such training will include installing Software programming and
stream of enhancement changes, and will include a `train-the-trainer' approach.
Such training shall, entitle SMS personnel, at no charge to SMS, to attend
[confidential] of regularly-scheduled LanVision training classes as selected by
SMS (e.g., [confidential]). In connection with the creation of any new Version
or net new product available under this Agreement, LanVision shall provide an
additional [confidential] of Software support training to SMS in the calendar
quarter the Version or new product is delivered to SMS.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 10
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Additional training requested by SMS shall be provided by LanVision at its
then-current, published training rates.
(e) LanVision will provide support services to SMS as described in
Section 8 in consideration of SMS paying to LanVision the support fees described
in Section 12(d).
(f) LanVision agrees to make available to SMS [confidential] LanVision
employees with technical and marketing expertise who shall train SMS personnel
to (i) perform marketing and sales support, and (ii) train SMS trainers to teach
marketing and sales support to SMS employees. Such LanVision personnel shall
also provide demonstrations and marketing presentations, and provide other
Software marketing assistance to SMS, such as onsite pre-sale assessments, as
reasonably requested by SMS and at places to be designated by SMS. Such
LanVision personnel shall be provided at no charge to SMS. SMS will reimburse
LanVision for reasonable travel and living expenses incurred by LanVision in the
course of providing this marketing and sales support. In connection with the
creation of any new Version available under this Agreement, LanVision shall
provide an additional [confidential] of marketing and sales support training to
SMS in the calendar quarter the Version or new product is delivered to SMS.
Additional training requested by SMS shall be provided by LanVision at its
then-current, published training rates.
(g) LanVision will identify in Exhibit A any distinguishing marks or
proprietary notices that must accompany the Software and Documentation when
distributed to End Users.
(h) LanVision will provide to SMS source Documentation material in
machine-readable form such that SMS may adapt and include the Documentation in
SMS' softcopy library (for CD-ROM distribution to End Users), the specific
formats of such materials to be specified by SMS.
(i) LanVision will participate in SMS user group meetings as reasonably
requested by SMS for purposes of receiving input into LanVision's development
plans.
7. DELIVERY OF SOFTWARE AND DELIVERABLES. Within [confidential] after SMS'
request, LanVision will deliver to SMS the object code version of the Software
existing as of the date of this Agreement. Thereafter, LanVision will promptly
deliver to SMS all Software Updates, Releases,
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 11
CONFIDENTIAL
Versions, and Software programming changes, along with updates or revisions to
Technical Materials and Documentation as they are developed.
8. SUPPORT.
(a) LANVISION SUPPORT SERVICES. Attached as Exhibit D is a standard SMS
End User support agreement. As between SMS and LanVision, LanVision shall
perform for SMS all Third-Level Support support services assigned in that
document to SMS, and shall otherwise perform in a manner that enables SMS to
comply with End User support obligations, as such are stated in Exhibit D;
except that (i) LanVision shall have no responsibility for providing First-Level
Support obligations undertaken by SMS in subsection (b) below, and (ii)
LanVision's support obligations under this Agreement shall only apply to the
current Version of the Software, and the preceding Version of the Software
(e.g., LanVision agrees to support the current Version and Version-minus-one;
earlier Versions will be supported by LanVision, as requested by SMS, at
LanVision's professional service rates ). In addition to the above, LanVision
shall perform Second-Level Support as requested by SMS in consideration of SMS
paying Second-Level Support fees as described in Section 12(d).
(b) END USER SUPPORT.
(i) SMS will offer to provide all levels of support directly
to End Users, including First-Level Support. LanVision shall have no obligation
to provide First-Level Support directly to End Users. Notwithstanding anything
to the contrary, SMS shall have the right to perform, or cause to be performed,
any End User support necessary to cause the Software to perform as warranted by
LanVision.
(ii) The parties agree that continuation of End User support
after the expiration or termination of this Agreement is very important.
Therefore, SMS shall have the right to continue providing support services to
End Users after the expiration or termination of this Agreement, and LanVision
will continue to provide support services to SMS for the remainder of the
then-current term of each End User's support agreement with SMS, at LanVision's
then prevailing support rate, less a [confidential] discount if this Agreement
is terminated due to LanVision's breach. If the Agreement is terminated due to
SMS' breach, LanVision shall provide support services to SMS at LanVision's
then-prevailing support rate. If SMS is unable or does not elect
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 12
CONFIDENTIAL
to provide support services to End Users, LanVision agrees to offer support
services to affected End Users subject to LanVision's then current, generally
applicable support terms and fees.
(c) LanVision shall not be responsible for Software problems or errors
to the extent those problems or errors are the result of (i) modifications or
other Software programming changes made by SMS, (ii) SMS' or End Users' failure
to use correct operating procedures, or (iii) error or malfunction in the
equipment or other software (other than the third-party software listed in
Exhibit C) with which the Software is used. If SMS requests services that
LanVision believes are not LanVision's responsibility for the reasons stated in
this subsection, as soon as LanVision is made aware of this fact LanVision shall
so advise SMS in writing, including a statement of LanVision's charges to
perform such services. SMS shall pay LanVision on a time and materials basis at
LanVision's then-current rates for any support services rendered regarding
problems or errors for which LanVision is not responsible.
9. CONFIDENTIALITY.
(a) Each party shall retain in strict confidence the confidential
information of the other party. Examples of confidential information include,
without limitation, trade secrets, software, the Deliverables, specifications,
designs, development plans, business plans, sales projections, business records,
prices, the business terms of this Agreement, and customer lists. Confidential
information of a party shall only be used by the other party in the course of
performing its responsibilities under this Agreement, and will be disseminated
only on a need-to-know basis among its employees and agents that have executed
an appropriate confidentiality agreement
(b) The obligations of confidentiality set forth in this Section shall
not apply to information (i) disclosed to the extent required by a court of law
or federal, state or local statutes or regulations; (ii) independently developed
by the party receiving the information; (iii) acquired by a party from a
third-party not subject to such obligations, unless that party knew or should
have known that the information being revealed is confidential as described in
this Agreement; or (iv) which is or becomes part of the public domain through no
breach of this Agreement by the revealing party.
(c) The obligations under this Section 9 shall survive termination of
this Agreement. Each party acknowledges that a breach of its obligations under
this Section 9 may cause
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 13
CONFIDENTIAL
irreparable harm to the other party for which monetary damages may be
inadequate. Each party will be entitled to seek injunctive relief for any such
breaches, threatened or actual.
10. WARRANTIES.
(a) LanVision warrants that the Software will operate materially in
accordance with its Documentation, and that the equipment configuration in
Exhibit C is sufficient to operate the Software. LanVision shall promptly repair
or replace non-conforming Software so that it performs in accordance with its
Documentation at no cost to SMS or End Users. Except to the extent otherwise
expressly indicated in Exhibit A, LanVision warrants that all Software is
presently generally available for license and support from LanVision. Due to the
nature of computer software programs, the Software may not be entirely error
free; however, this fact shall not relieve LanVision of any obligation under
this Agreement.
(b) LanVision warrants that the Documentation and Technical Materials
provided by LanVision to SMS will be accurate and complete to the best of
LanVision's knowledge.
(c) Each party warrants that the services it provides under this
Agreement will be provided in a timely, competent, and workmanlike manner.
(d) LanVision warrants that it owns or otherwise has the right to grant
the licenses and rights set forth in this Agreement. Additionally, LanVision
warrants that neither SMS nor any End User will be required to obtain any
third-party software in order to operate the Software, except for the items
designated "End User to License" in Exhibit C.
(e) LanVision warrants that it has not placed, nor is LanVision aware
of, any disabling code in the Software which would alter, destroy, or inhibit
the Software or SMS or any End User's use of the Software or the data contained
therein.
(f) LanVision warrants that it will not terminate or attempt to
terminate, by modem or by electronic means or by other means, use of the
Software by SMS or an End-User in connection with any dispute; provided,
however, that LanVision does not waive its right to seek an injunction to
terminate use of the Software in connection with any material dispute with SMS
hereunder, which dispute shall remain unresolved after the parties' good faith
efforts and all contractually-obligated efforts to resolve such dispute.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 14
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(g) LanVision warrants that the Software will be Year 2000 compliant by
January 1, 1999, i.e., that the Software will process dates including the year
2000 and beyond in accordance with the Software Documentation.
(h) LanVision warrants that SMS shall at all times during the term of
this Agreement be entitled to rely on the warranties stated in this Section, and
any additional or other warranties that LanVision makes generally available to
its customers [confidential]
(i) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHERS INCLUDING
WITHOUT LIMITATION THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
11. INTELLECTUAL PROPERTY INDEMNIFICATION. At LanVision's expense as described
herein, LanVision shall indemnify, defend and hold SMS harmless from and against
any claim that any of the Software and/or Documentation infringes a patent,
copyright, trademark, or other intellectual property right by defending against
such claim and paying all amounts that a court finally awards or that LanVision
agrees to in settlement of such claim. LanVision shall also reimburse SMS for
all reasonable expenses incurred by SMS at LanVision's request. To qualify for
such defense, SMS must (i) provide prompt notice of all claims to LanVision,
(ii) allow LanVision to control the defense of the matter, and (iii) cooperate
with LanVision in the defense of the matter.
12. PAYMENTS AND EXPENSES. SMS shall pay LanVision the following fees:
(a) Sublicense fees - For each sublicense of the Software granted by
SMS to an End User, SMS shall pay to LanVision the associated royalty fees as
indicated in Exhibit H. Software sublicenses may be granted by SMS on a term or
perpetual basis.
(i) Perpetual Basis. Royalty fees due LanVision for Software
sublicenses granted by SMS on a perpetual basis shall be due and payable to
LanVision within [confidential], as follows:
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 15
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- [confidential] upon execution by SMS of an End User license
agreement which includes the Software;
- [confidential] upon delivery of the Software to an End User
(i.e., the date on which Software implementation activities
commence).
SMS will provide LanVision with a quarterly royalty report
which identifies the End User's name, contract date, whether contract is term or
perpetual, and the appropriate royalties owed. The royalty report will sent to
LanVision within 30 days after the end of the calendar quarter in which the
milestone occurs.
(ii) Term Basis. Royalty fees due LanVision for Software
sublicenses granted by SMS on a term basis shall equal the royalty fee
that would have been due LanVision pursuant to subsection (i) above, in
installments with each installment being equal to the perpetual license
royalty fee divided by the number of months in the SMS-End User
contract, plus interest calculated at [confidential]. Term license fees
shall be due and payable to LanVision [confidential] over the term of
the End User's contract. The first payment will be prorated and will be
due [confidential]. SMS reserves the right to pay royalty fees due
LanVision for Software sublicenses granted by SMS on a term basis using
the Perpetual payment basis described in subsection (i) above (without
interest),
(b) [confidential].
(c) Commission fees - If an SMS customer elects to license the Software
directly from LanVision and SMS provides written approval on such sale, SMS
shall earn a commission from LanVision. For each such license, LanVision shall
pay SMS a commission equal to [confidential].. The commission will be due and
payable to SMS within [confidential].
(d) Support - In consideration of LanVision providing Third-Level
Software Support as described in Section 8, SMS will pay LanVision, per End User
being supported by SMS, an annual support fee equal to [confidential]. SMS'
right to sublicense Versions made generally-available by LanVision after the
date of this Agreement is contingent on SMS paying royalties to LanVision
pursuant to Exhibit H. SMS has the right to purchase Second-Level Support for
all then-existing End Users. In consideration of LanVision performing
Second-Level Support
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 16
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pursuant to Section 8(a), SMS shall pay to LanVision, an annualized support fee
equal to [confidential]. SMS shall provide written notice of such election to
LanVision, which notice shall include the duration of time that SMS desires to
obtain Second-Level Support (one-year minimum per End User). As to each End
User, these fees will commence on [confidential] following delivery of the
Software to that End User, and will be reported and paid [confidential].
(e) Implementation Services - SMS has the right to purchase
implementation services from LanVision for specific End Users at the rates
published in Exhibit I. LanVision shall perform such services as SMS'
subcontractor pursuant to the provisions of Exhibit F.
(f) MISCELLANEOUS EXPENSES AND COSTS. Except as otherwise expressly
provided, each party shall bear its own expenses and costs of performing under
this Agreement. If SMS agrees to reimburse LanVision for any expenses, LanVision
must submit correct invoices to SMS within 60 days after the expense is incurred
to qualify for payment.
(g) PAYMENT TERMS. Amounts to be paid by SMS to LanVision shall be
payable on the date or event specified in this Agreement, or if not specified,
thirty (30) days after receipt of a correct invoice from LanVision. Subject to
subsection (h) below, SMS shall pay a monthly service charge prorated at 1.5% on
all amounts not paid within thirty (30) days after receipt by SMS of a correct
invoice. All payments shall be in U.S. dollars.
(h) RIGHT TO WITHHOLD OR SET-OFF. Notwithstanding anything to the
contrary, in the event of a good faith dispute regarding services rendered,
Software performance, late delivery, or any other matter regarding LanVision's
performance under this Agreement, SMS shall have the right to withhold or
set-off--as determined by SMS--amounts claimed due by LanVision pending
resolution of the dispute. SMS shall pay undisputed amounts in a timely manner,
and LanVision shall not declare SMS in default for withholding or setting-off
monies claimed due by LanVision, provided SMS pays undisputed amounts in a
timely manner and SMS cooperates with LanVision to promptly resolve the dispute
(i) TAXES. SMS shall be responsible for the payment (directly or by
reimbursement of LanVision) of all taxes imposed on LanVision or SMS and
resulting from this Agreement or any performance under this Agreement, excluding
taxes based on LanVision's income, and employment taxes and unemployment
insurance relating to LanVision's employees. If SMS
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 17
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provides LanVision with a copy of its tax exemption letter or number, LanVision
shall not bill SMS for taxes to which the exemption applies.
(j) THIRD-PARTY COMPONENTS. All Third-party Components identified in
Exhibit C as embedded shall be offered to SMS at no additional fee. All
Third-party Components identified in Exhibit C as non-embedded shall be offered
to SMS at fees [confidential]. That document is incorporated herein by
reference.
(k) SERVICE FEE INCREASES. All service hourly rates in this Agreement
shall be subject to increase annually by a percentage equal to [confidential].
13. FORCE MAJEURE. Neither party shall be responsible for any delay or failure
of performance resulting from causes beyond its control and without its fault or
negligence.
14. DISPUTE RESOLUTION. In the event that a dispute arises between SMS and
LanVision which cannot be resolved in the normal course, the following dispute
resolution procedures shall be followed:
(a) Within ten (10) business days of a written request by either party,
the parties' respective Project Team Leaders shall meet to resolve the issue; if
these parties cannot resolve the issue within ten (10) business days of the
meeting, then (ii)) the issue shall be submitted to LanVision's President and
SMS' Vice President, Purchasing, and the parties' respective Executive Team
members.
(b) This dispute resolution process may occur concurrently with the
exercise of other rights and remedies available under this Agreement. This
provision shall not apply to claims for equitable relief (e.g., injunction to
prevent disclosure of confidential information).
15. MEDIATION. Any controversy or claim arising out of or relating in any way to
this Agreement, or the breach thereof, which has not been resolved pursuant to
the Dispute Resolution Procedure set forth in Section 14 may be settled by
non-binding mediation. Such mediation shall be conducted under the auspices of
the American Arbitration Association ("AAA"), and shall be governed by the AAA's
Commercial Mediation Rules (except to the extent that such rules are modified by
this Section). The parties further agree as follows:
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 18
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(a) that once either party has submitted a written request for
mediation to the AAA, the parties shall choose a Mediator from a list provided
by the AAA of individuals knowledgeable and experienced in the area of computer
information systems that are designed for processing healthcare data. Within ten
days of receipt of such a list, each party shall notify the AAA which
individuals listed are acceptable as mediators. The Mediator shall be chosen by
the AAA from the listed individuals which both parties found acceptable. If the
parties are unable to choose a mutually acceptable Mediator in this manner, the
AAA shall then promptly choose the Mediator.
(b) the Mediation must include all parties and claims involving common
questions of fact or law whose presence is required to resolve the dispute.
(c) the Mediator shall be instructed to conduct the proceedings and
render a recommendation in the shortest reasonable time;
(d) this Mediation provision shall not apply to any claim for equitable
relief (e.g. an injunction to stop copyright infringement) which any party has
relating to this Agreement.
(e) if the parties so agree, they may exchange with each other
memoranda submitted to the Mediator setting forth their respective positions
with regard to the issues that need to be resolved.
(f) the Mediator may retain an expert or consultant only with the
express agreement of the parties upon terms, conditions and fees agreed upon by
the parties.
(g) that information and documents not otherwise in the public domain
that are used at or in connection with the mediation shall not be disclosed to
third parties by the Mediator or the parties without the prior written consent
of both parties. Neither the fact that the mediation occurred nor the result of
the mediation shall be admissible in evidence in a subsequent proceeding brought
on the same claims that were presented at the mediation. This Section shall
survive termination of the Agreement.
16. DEFAULT.
(a) If either party fails to observe or perform any material obligation
under this Agreement, the non-defaulting party may give written notice of breach
specifying the material
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 19
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default. This Agreement may be terminated by the non-defaulting party thirty
(30) days after the date of such notice unless (i) the material failure is
corrected within such thirty (30) day period; or (ii) if it is not possible to
correct within such thirty (30) days, the defaulting party commences correction
within thirty (30) days and proceeds diligently to a cure.
(b) The right of the non-defaulting party to terminate this Agreement
under this Section is in addition to all other rights as are available to it at
law or equity under this Agreement.
(c) Termination of this Agreement for any reason shall have no effect
on sublicenses previously granted to End Users. Each party shall return to the
other, at its own expense, all proprietary information of the other party then
in its possession or control, except as required by a party to provide
continuing support services as described in Section 8.
17. LIABILITY.
(a) LIMITATION OF LIABILITY. LanVision's total liability to SMS under
this Agreement shall be limited to [confidential]. Neither party shall be liable
to the other for consequential damages. Any sums paid under Sections 11 or 17(b)
or damages resulting from violations of Section 9 shall not be subject to the
limits of this Section.
(b) THIRD-PARTY INDEMNITY. LanVision shall indemnify, defend, and hold
harmless SMS against any third-party claim that the Software fails to meet the
warranties in Section 10 by defending such claims and paying damages that a
court finally awards or that LanVision agrees to in settlement. To qualify for
such defense, SMS must (i) provide prompt notice of all claims to LanVision,
(ii) allow LanVision to control the defense of the matter, and (iii) cooperate
with LanVision in the defense of the matter.
18. RIGHT TO AUDIT. During the term of this Agreement SMS and LanVision shall
maintain complete and correct financial, business, and product development
records required to verify compliance with this Agreement. At any time during
the term of this Agreement and for a period of twelve (12) months thereafter,
each party shall have the right to inspect and audit the relevant portions of
the other's financial, business, and product development records to verify
compliance. Such audits shall take place during normal business hours upon
reasonable advance written notice to the other party. Upon a party's request,
the other party shall perform an audit to verify
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 20
CONFIDENTIAL
its compliance with this Agreement and deliver the audit report and supporting
documentation to the requesting party.
19. SOFTWARE OWNERSHIP. LanVision shall own or otherwise have rights in the
Software and all Software programming changes made by LanVision or SMS; provided
that as to any Software programming changes made by SMS as permitted under the
terms of this Agreement ("SMS-Programmed Software"), (i) SMS shall be entitled
to market and sublicense such SMS-Programmed Software without paying royalties
to LanVision, until SMS' costs of developing such items are recouped, and
LanVision shall pay to SMS a commission equal to 100% of all revenues received
by LanVision from the license of SMS-Programmed Software, until SMS' costs of
developing such items are recouped, (ii) and the Executive Team shall determine
what adjustment, if any, is required to the Base Fee in consideration of future
licenses of the SMS-Programmed Software, pursuant to the Base Fee adjustment
provisions in Exhibit H. Notwithstanding LanVision's ownership of the
SMS-Programmed Software, LanVision shall not allow access, use or sublicense
rights in the SMS-Programmed Software to any reseller, remarketer, value added
reseller or other non-end user business partner of LanVision without the prior
written consent of an SMS corporate officer.
20. TERM. The term of this Agreement shall commence on the date first written
above and continue for a period of sixty (60) consecutive months. Thereafter,
this Agreement shall automatically renew for successive twelve (12) month
periods unless a party provides to the other written notice of non-renewal at
least [confidential] prior to the end of the then-current term.
21. SITE VISITS. Subject to the agreement of affected Software licensee, each
party agrees to share site visit information with the other and to promote the
availability of their customers to host site visits.
22. SOFTWARE ESCROW.
(a) Source code for the Software, including all associated technical
documentation and source code cross reference materials, shall be placed into
escrow pursuant to the provisions of a source code escrow agreement, to be
agreed upon by the parties within thirty (30) days after the date of this
Agreement, that includes source code release provisions as described in
subsections (i)-
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 21
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(iv) below. (the "Escrow Agreement"). The source code shall be released to SMS
by the escrow agent in the event any of the following events occur:
(a) Source code for the Software, including all associated technical
documentation and source code cross reference materials, shall be placed into
escrow pursuant to the provisions of a source code escrow agreement, to be
agreed upon by the parties within thirty (30) days after the date of this
Agreement, that includes source code release provisions as described in
subsections (i)-(iv) below. (the "Escrow Agreement"). The source code shall be
released to SMS by the escrow agent in the event any of the following events
occur:
(i) LanVision ceases to conduct business through liquidation
or forced dissolutionment, voluntary or involuntary liquidation under the United
States Bankruptcy Code.
(ii) LanVision has committed an act of default under this
Agreement and fails to cure the default within thirty (30) days after written
notice from SMS; provided access to the source code is required to cure the
underlying default. Without limitation, such default includes LanVision's
failure to provide software support.
(iii) LanVision refuses or fails to perform programming
changes that LanVision agreed to perform and which were requested by SMS
pursuant to Section 6(c), and such programming changes are required to meet the
needs as stated by End Users.
(iv) LanVision licenses Software source code to any other
reseller, remarketer, VAR, or other channel partner, or to any customer;
excluding the extraordinary licensing of Software source code to an individual
customer outside the ordinary course of business. Such source code shall be
released to SMS under similar terms and conditions.
(b) Software source code obtained by SMS under this Section shall be
returned to LanVision when all of SMS' rights to the Software terminate. All
such source code shall be treated by SMS as LanVision confidential information
as provided in Section 9. SMS' rights to use source code shall be to accomplish
the license, delivery, installation, support, development, and modification of
Software to meet the needs of SMS' customers.
23. MISCELLANEOUS.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 22
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(a) This Agreement constitutes the entire agreement of SMS and
LanVision with respect to the subject matter hereof and supersedes all other
prior and contemporary agreements and understandings. No provision of this
Agreement may be terminated, modified or waived unless such termination,
modification, or waiver is set forth in writing executed by authorized
representatives of SMS and LanVision.
(b) This Agreement shall not be assigned by either party without the
prior written consent of the other, except to a parent or subsidiary, or a
subsidiary of its parent, or to a successor by purchase, merger, or
consolidation; provided that neither party may assign this Agreement to a
Competitor (defined below) of the other. For purposes of this Agreement, a
Competitor shall mean any entity, including its parents, subsidiaries, and
divisions, or partnerships and joint ventures, that derives at least fifty
percent (50%) of its gross revenues from hardware, software, and/or services
that that compete with those of the assigning party. Competitor shall not
include a parent, subsidiary, or division of a Competitor, or any partnerships
and joint ventures; provided that the entity comprising the Competitor has no
right to access, use, license, market, remarket, or support the non-assigning
party's proprietary information. No assignment shall relieve the assignee of its
obligations under this Agreement. Any assignment not in accordance with these
provisions shall be null and void and shall be deemed a material breach of this
Agreement.
(c) [confidential]
(d) SMS and LanVision are independent contractors, are not related and
shall not be construed and shall not hold themselves out to be co-employers,
joint venturers, partners or otherwise.
(e) SMS and LanVision agree not to hire or attempt to hire each other's
employees during the term of this Agreement or any extensions thereof without
the prior written consent of the other party.
(f) All materials developed by SMS and/or LanVision for marketing,
distribution and promotion of the relationship with the other party, or which
otherwise mentions or refers to the other party, must first be approved in
writing by the other party, which approval shall not be unreasonably withheld.
Materials sent to SMS shall be addressed to "Marketing Communications, Mail Code
H07". Review of materials by both parties will occur in a timely
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 23
CONFIDENTIAL
manner. Approval shall be deemed to occur if the sending party does not receive
written notice of objection within fifteen (15) days after receipt of the
marketing materials by the other party.
(g) Upon SMS' request, LanVision shall provide SMS with certificates of
insurance evidencing that its employees are covered by: (i) General Liability
insurance with a minimum limit of $1 million combined single limit bodily injury
and property damage; (ii) Professional Liability insurance (Errors and
Omissions) with limits not less than $1 million aggregate for all claims each
policy year for computer programming and data processing services as required by
this Agreement; and (iii) Worker's Compensation insurance in the state in which
each LanVision employee is employed. Except as to the two (2) FTEs described in
Section 6(f), LanVision agrees that none of its employees shall individually
perform more than an aggregate of 1,500 hours of services under this Agreement
during any consecutive twelve month period.
(h) SMS is an Equal Employment Opportunity and Affirmative Action
(EEO/AA) employer and adheres to Executive Order 11246 and its accompanying
regulations. SMS' EEO/AA commitments extend to its hiring and staffing practices
and all conditions of employment, including, working conditions, benefits and
privileges of employment, compensation, training, promotions, transfers, and
termination of employment (including layoffs and recalls) for all employees.
This policy is carried out without regard to race, color, religion, national
origin, sex, age, veteran status, disability, or any other condition which is
deemed to be unlawfully discriminatory under applicable state or federal law.
(i) SMS acknowledges that the laws and regulations of the United States
restrict the export and re-export of commodities and technical data of United
States origin. SMS agrees that it will not export or re-export the Software in
any form, without appropriate United States and foreign governmental licenses,
if any. In exercising its rights and performing its obligations under this
Agreement, SMS will comply with all applicable international, national, and
local laws and regulations. SMS agrees that its obligations pursuant to this
Section shall survive and continue after any termination or expiration of rights
under this Agreement.
(j) All notices shall be deemed received on the date of receipt and
shall be delivered by overnight express or facsimile (with confirmation sent via
U.S. mail by the next business day) as follows:
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 24
CONFIDENTIAL
If to SMS: If to LanVision:
Chief Financial Officer Chief Operating Officer
Shared Medical Systems Corp. LanVision, Inc.
51 Valley Stream Parkway One Financial Way, Suite 400
Malvern, PA 19355 Cincinnati, OH 45242
FAX: 610-219-3124 FAX: 513-794-7272
with a copy to:
General Counsel, LanVision, Inc.,
at the same address/fax.
IN WITNESS WHEREOF, and intending to be legally bound, SMS and
LanVision have executed this Agreement as of the day and year first written
above.
Executed on behalf of Executed on behalf of
SHARED MEDICAL SYSTEMS LANVISION SYSTEMS, INC.
CORPORATION
By: /s/ Maynard Honesty By: /s/ J. Brian Patsy
Name: Maynard Honesty Name: J. Brian Patsy
Title: VP, Purchasing Title: President & CEO
LANVISION, INC.
By: /s/ J. Brian Patsy
Name: J. Brian Patsy
Title: President & CEO
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 25
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Exhibit A
Deliverables
1. The Deliverables existing on the date of this Agreement are as follows:
(a) SOFTWARE. The Software shall be defined as the modules listed
below, the Initial Software Changes, Documentation, and installation manual, all
as described in the Technical Materials and Documentation existing as of the
date of this Agreement, and regardless of product name. Also included are all
Software programming changes, Updates, Releases, Versions, streams of
enhancement, and developed by or on behalf of LanVision, regardless of the
product name, and updates to the Documentation..
Modules include:
ChartVision Version 3.xx
ChartVision Version 4.xx*
OnLine Chart Completion (OCC)
Correspondence
WebView**
Other Modules
ScanHi
ScanLo
BarCode
Cache
Print/FAX
Document Capture System***
*[confidential]
**[confidential]
***[confidential]
(b) TECHNICAL MATERIALS.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 26
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- Functional Specifications
- Data flow diagrams
- File layouts
(c) DOCUMENTATION.
User Manuals for:
ChartVision
OnLine Chart Completion (OCC)
Correspondence
WebView
Other Modules
ScanHi
ScanLo
BarCode
Cache
Print/FAX
Document Capture System
LanVision will also provide its then-current Software implementation
and training manuals to SMS.
2. The following trademark, servicemark, or other proprietary notices shall be
displayed, in the following form and manner, in documentation for SMS products
that include the Software:
(C) 199X LANVISION, INC.
ALL RIGHTS RESERVED
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 27
CONFIDENTIAL
This material contains proprietary and confidential information and is
protected by copyright and trade secret laws. Unauthorized
reproduction, distribution, or transfer of this material, or any
portion of it, is strictly prohibited and may result in civil and
criminal penalties. Known violators will be prosecuted to the maximum
extent possible under the law.
The following are trademarks or registered trademarks of LanVision,
Inc.: AccountVision(TM), ChartVision(R), Document Capture System(TM),
Enterprisewide Correspondence(TM), LanVision(TM), MultiView(TM),
OmniVision(TM), On-Line Chart Completion(TM), VisionFlow(R) and
WebView(TM).
All other trademarks are trademarks or registered trademarks of their
respective companies.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 28
CONFIDENTIAL
Exhibit B
Initial Software Changes
Description
-----------
1. Modify the modules of the Software as appropriate to
[confidential
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 29
CONFIDENTIAL
Exhibit C
Configuration
The following configuration (including the third-party software listed
below) is required to operate the Software as of the date of this Agreement.
LanVision shall promptly update this Exhibit as required to reflect the addition
of new items of Software and new Software programming changes, Releases and
Versions.
1. End User to License
[confidential]
2. LanVision shall provide hardware configurations upon SMS' request.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 30
CONFIDENTIAL
Exhibit D
SMS Support Program
SMS will provide a program of support for the SMS Applications and
Custom Programming listed in the Supplements under the following terms and
conditions. This Support Program shall become effective on the date of this
Agreement and shall remain in force throughout the applicable Warranty Period
for each Application and item of Custom Programming, and thereafter during the
term of support for same as specified in its Supplement.
1. SMS SUPPORT RESPONSIBILITIES. SMS shall have the following support
responsibilities:
1.1 Correct, at no additional charge, failure of the Applications and
SMS' Architectural Software (if any) to perform substantially in accordance with
the Documentation. Correct, at no additional charge, failure of items of Custom
Programming, for which Customer is paying for support, to perform substantially
in accordance with its Specification. Time spent on warranty and non-warranty
support activities will be calculated in minimum time increments of one-half
(1/2) hour.
1.2 Provide Customer for eighteen (18) months from the date of this
Agreement with a monthly allowance of eight (8) hours of remote non-warranty
telephone support at no additional charge. The monthly allowance may be used for
assistance and advice on the operation and functions of the Applications, for
help with diagnostics and other problem determination procedures, and for advice
and assistance in problem situations. Any unused portion of this monthly
allowance cannot be carried forward to subsequent months. After the initial
eighteen (18) months Customer's non-warranty support usage and monthly allowance
will be reviewed as part of the annual review, outlined in subsection 1.6 of
this Exhibit.
1.3 Initiate work on urgent issues within one hour of Customer's
request for assistance to the Customer Support Center ("CSC"), 24 hours per day
and 7 days per week. Generally, urgent issues would be those involving
substantial Application failure or those which, in Customer's reasonable
judgment, are critical to Customer's overall operation. SMS will initiate work
on non-urgent issues, including the correction of non-urgent software problems,
during
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 31
CONFIDENTIAL
Customer's normal business hours from SMS' Corporate offices or the local SMS
office, either on a remote basis or on-site, as is most effective and efficient.
1.4 Provide a record in SMS' events tracking system ("EVTS") of
requests received at the CSC from an employee or other representative of
Customer including a description of the request, the time spent and the actions
performed in satisfying the request, and the resolution of the request. When
made available by SMS, Customer may, at its option, access this information to
review the support effort being performed at Customer's request and the status
of work in process. Prior to availability, SMS shall make available to Customer
information on such access capability.
1.5 For Applications and Architectural Software provided via remote
computing services and/or on a term licensed basis under this Agreement, SMS
shall provide periodic Updates, Releases and Versions (if applicable) to the
standard SMS Application and Architectural Software functions and Documentation
of these items at no additional charge. For Applications and Architectural
Software provided under a perpetual license under this Agreement, SMS shall
provide periodic Updates and Releases to the standard Application and
Architectural Software functions and Documentation of these items at no
additional software charge. New Versions (if applicable) of previously-delivered
perpetual-licensed Application and Architectural Software will be charged at
SMS' then-current rates for those Applications and Architectural Software
receiving standard support services; and for no additional software charge for
those Applications and Architectural Software indicated in a Supplement as
receiving extended support services.
1.6 Meet annually with Customer's management staff to: (i) jointly
develop an annual support schedule, (ii) evaluate support performance, and (iii)
review Customer's utilization of the System . The annual support schedule will
state which support services will be provided at no additional charge and which
will be provided for an additional fee.
1.7 Provide Customer with all generally applicable federally-mandated
regulatory changes and state-mandated billing changes. Federally-mandated
programming changes to the payroll and accounts payable Applications and to the
case mix groupers/schemes will be provided at no additional charge. SMS'
charges, if any, for other generally applicable federally-mandated programming
changes or state-mandated billing changes are contingent on the scope of
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 32
CONFIDENTIAL
such changes and are set on a multi-customer/fair-share basis for programming.
Changes will be provided to Customer when made generally available to SMS'
customers.
1.8 Provide Customer with an allowance of thirty-two (32) hours of
local SMS education during the first twelve (12) months of the term. Thereafter,
the annual education allowance will continue to be thirty-two (32) hours or as
otherwise mutually agreed in the annual support schedule as outlined in
subsection 1.6 of this Exhibit.
2. CUSTOMER SUPPORT RESPONSIBILITIES. Customer shall have the following
support responsibilities:
2.1 Ensure the appropriate Customer personnel have been trained in
the operation, support, and management of the System.
2.2 Appoint an SMS system support coordinator, a LAN administrator,
establish a central help desk, and, if applicable, a departmental help desk for
the effective support and operation of the Applications and to ensure that
Customer's support responsibilities are performed.
2.3 Cause Customer help desk personnel to report and close, upon
resolution, all support issues electronically, or, if an electronic means is
unavailable, via telephone. Upon resolution, Customer, at its option, may
indicate a satisfaction value to assist SMS and Customer in evaluating the
support process.
2.4 Provide SMS with both on-site access to each Facility and remote
access to the System through the SMS-approved support network which Customer
shall be responsible for acquiring and maintaining, as described in Schedule 1,
as updated by SMS.
2.5 If required by SMS, maintain a support testing environment,
configured with the Application(s) and such SMS-recommended Equipment and
non-SMS software as specified in Schedule 1.
2.6 Maintain up-to-date Documentation, and, for the System located at
the Facility, be solely responsible for maintaining all necessary backup,
recovery and required system operating procedures as specified in the
Documentation.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 33
CONFIDENTIAL
2.7 Complete proper problem determination procedures, as specified in
the Documentation and SMS' electronic bulletin board services, before contacting
SMS and then perform problem diagnostic activities and remedial actions, as
reasonably requested by SMS, and procedures specified by the third-party
software and Equipment suppliers. Remedial diagnostic actions that SMS may
require may include Customer installation of generally available Updates,
Releases and required Versions (if applicable).
2.8 Implement Updates within sixty (60) calendar days, Releases
within six (6 ) months and Versions with eighteen (18) months after the item's
general availability, unless a delay is mutually agreed upon by the parties, or
unless SMS announces extensions to these implementation time frames at the time
of general availability.
2.9 Obtain at Customer expense all additional equipment, latest level
of Third-Party Software as designated by SMS, and professional services required
in response to federal and state regulatory change, or relating to Updates,
Releases, Versions, Custom Programming or optional net new function obtained by
Customer, or as required by Third-party Software LanVision requirements.
2.10 Remain on the latest release and/or version of all third-party
software as designated by SMS and obtain support for all third-party software
from the respective LanVision or support provider.
3. MONTHLY SUPPORT FEES. Customer will pay the Monthly Support Fees, if any, for
the items listed in the Supplements for which a Monthly Support Fee is indicated
(generally these will be perpetual licensed Applications, certain term-licensed
Applications, and items of Custom Programming), commencing upon the first of the
month immediately following the expiration of the initial Warranty Period of
each item. For Applications or Custom Programming already installed, the Monthly
Support Fee shall commence on the date of this Agreement. Other charges, if any,
shall be invoiced separately. SMS may increase the Monthly Support Fee once in
any twelve (12) month period, upon thirty (30) days' written notice, by the
previous calendar year's percentage increase in the United States Department of
Labor Consumer Price Index, All Urban Consumers ("CPI"); however, no such
adjustment shall be made in the first twelve (12) months following the date of
this Agreement. The Monthly Support Fee, if any, for Custom
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 34
CONFIDENTIAL
Programming requested by Customer shall be quoted at the time of mutual
agreement to the Specification.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 35
CONFIDENTIAL
4. MISCELLANEOUS.
4.1 If the parties objectively determine a problem is not covered by
the warranty provisions of this Agreement, or if Customer elects not to perform
the Customer's responsibilities, or if a problem exists in Customer-created
Adaptations, any support efforts made by SMS may result in additional charges
which shall be pursuant to SMS' then-current rates and terms.
4.2 Telecommunication services, remote programming support
connections charges, installation by SMS of Updates, Releases or Versions,
charges for non-warranty support in excess of Customer's monthly allowance,
travel and living expenses and other expenses associated with support provided
by SMS shall be paid by Customer pursuant to SMS' then-current rates and terms.
5. DEFINED TERMS.
5.1 "Applications" shall mean all of the computer software listed as
Applications in the Supplements, exclusive of Adaptations, Modifications, and
Custom Programming, if any. [ For purposes of the SMS-LanVision agreement, all
references to "Applications" shall mean "Software" as relating to LanVision's
obligation to provide support services to SMS.]
5.2 "System" shall mean, collectively, the Applications,
Architectural Software, Equipment, and Operating System Software as specified in
a Supplement and its associated Schedule 1.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 36
CONFIDENTIAL
Exhibit E
End User License Provisions
Reproduced below are standard SMS confidentiality and license
provisions as of the date of this Agreement. SMS will license the Software to
End Users pursuant to software licensing terms and conditions that include
provisions similar to the following. SMS reserves the right to update these
provisions to be consistent with SMS' then-current license terms and conditions
that apply generally to its own software.
GRANT OF LICENSE.
1. SMS grants to Customer a license to use one (1) copy of object code
for each perpetual-licensed Application and term-licensed Application during the
associated term and their related Deliverables to be operated at one Customer
data processing location by Customer's employees for the sole purpose of
processing data of the Facilities. Each license granted herein shall be either
perpetual or for a term, as indicated in the corresponding Supplement.
Notwithstanding the one-copy license indicated above, where an Application is
indicated as being licensed for specific number of installed workstations or
servers, as applicable, such number indicates the maximum number of workstations
or servers on which such Application may be installed. Where an Application is
indicated as being licensed for a specific number of concurrent users, such
number indicates the maximum number of users permitted to use such Application
concurrently and such Applications may contain embedded software controls
limiting user log on to the number of concurrent users licensed. For
Applications which by their nature are PC-based, if no restriction for
concurrent users or workstations or servers is indicated, then Customer may make
whatever number of copies of such Applications as is reasonable and necessary.
2. Customer may make a reasonable number of backup copies (not to be
concurrently used for active data processing) of each Application to be used
solely for backup, emergency and/or testing purposes at the Customer location.
Customer shall not disassemble, decompile, or otherwise reverse-engineer any of
the Deliverables. Customer shall be responsible for the compliance with this
Agreement by all of Customer's users granted access hereunder.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 37
CONFIDENTIAL
Customer shall not transfer its license nor sublicense the Deliverables, except
that this Agreement may be assigned by Customer pursuant to the assignment
provisions of this Agreement.
3. The Architectural Software provides Customer with flexibility and
control over Adaptations. Adaptations shall be made in a reasonable manner. With
regard to Adaptations, SMS and Customer shall work together to identify
efficiency issues which may be improved by changes to Customer's operational
procedures, screen logic, pathways, data base access, etc.
4. SMS or its suppliers shall have the exclusive title to, copyright
and trade secret right in, and the right to grant additional licenses to, the
Applications and related Deliverables. Customer shall not remove or permit to be
removed from any of the Deliverables (and shall include on any copies or partial
copies thereof) any identifying mark or indicia of SMS' or other suppliers'
rights in such item. If SMS incorporates the programs of any other suppliers in
the Applications, those suppliers shall be entitled to the benefit of the
obligations incurred by Customer in this Section and in the Confidentiality
Section. Third-party Software provided by SMS may have license restrictions on
the number of concurrent users and other qualifying terms and conditions. With
respect to certain Third-party Software, where applicable, SMS shall hereby pass
through to Customer the associated Third-party Software vendor's required
license terms and conditions, as shall be indicated either in Schedule 1 or in
another appropriate part of this Agreement, as applicable.
5. Schedule 1 contains the sizing and capacity assumptions and the
Equipment and software configuration for the Facility. The configuration is
based on, and limited to, use of the Version of the Applications listed in
Schedule 1 within the operating context described in the Assumptions.
. CONFIDENTIALITY.
1. Each party shall retain in strict confidence the terms and
conditions of this Agreement and all information and data relating to the other
party's business, patients, employees, development plans, programs,
documentation, techniques, trade secrets, systems, and know-how, and shall not,
unless otherwise required by law, disclose such information to any third-party
without the other's prior written consent. Upon SMS' request, Customer shall
inform
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 38
CONFIDENTIAL
SMS in writing of the number and location of the original and all copies of each
of the Deliverables.
2. For ISC-based Applications, SMS shall have the right to compile and
distribute statistical analyses and reports utilizing aggregated data derived
from information and data obtained from Customer, other SMS customers, and other
sources, and for in-house Applications, Customer agrees to provide SMS with
tapes on a semi-annual basis which contain the required information and data.
Such reports and analyses shall be appropriately redacted and shall not identify
Customer or any physician, employee, member of the medical staff or patient of
Customer.
3. Customer shall have the right to disclose the Deliverables and other
SMS information to Customer's employees, consultants, and agents on a
need-to-know basis, provided that: (a) all such consultants and agents have
entered into a confidentiality agreement with SMS in the form attached hereto as
Exhibit D or other such agreement with SMS prior to such disclosure; (b)
consultants and agents shall not access either the Implementation Methodology
(used for development of Implementation Workplans) or the Builder's Edge
development tools (an item of Architectural Software) without first entering
into a corresponding license agreement with SMS; and (c) requests by Customer
for SMS to permit a third-party to operate the Applications on Customer's behalf
and/or requests to permit any competitors of SMS to have access to the
Deliverables must receive separate prior written approval from SMS.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 39
CONFIDENTIAL
Exhibit F
Subcontracted Services
1. GENERALLY. From time to time, SMS may wish to engage LanVision to perform
implementation services (an "Engagement"). This Exhibit shall generally govern
the relationship between SMS and LanVision regarding such Engagements. The
particulars of such Engagements, such as the identity of the End User for whom
the services are to be performed, the location of the Engagement, the
description of the precise nature of the services to be performed, scheduling
matters, the identification of project leaders, etc., shall be set forth in a
written Engagement Letter which specifically refers to this Exhibit and which is
signed by both parties. The Engagement can be extended by SMS within 20 days
prior to its termination. If any provision in an Engagement Letter is
inconsistent with any provision in this Exhibit, the former shall govern. SMS
grants to LanVision a non-transferable, non-exclusive limited license to use
Confidential Information (as hereinafter defined) certain SMS' software licensed
to the End User, Documentation and other Deliverables solely for the purpose of
assisting an End User identified in an Engagement Letter and solely for the
purpose and duration of such engagement as set forth in the Engagement Letter
and for no other purpose. SMS shall offer LanVision access to training in
certain courses, at SMS' then-current rates, to install SMS applications
software/systems in SMS' End User's facilities according to SMS' policies,
reporting guidelines and SMS' proprietary methodologies and protocols. SMS shall
be responsible for implementation project management which includes, but is not
limited to, implementation workplan task definition, task assignment and
scheduling, staff utilization, and the development, implementation and
enforcement of all policies and procedures necessary to accomplish the
implementation tasks in a timely and efficient manner. SMS shall be solely
responsible for the billing of End Users for all implementation tasks in
accordance with the application software/system agreement between SMS and SMS'
End User. All services provided by LanVision employees under this Exhibit shall
be performed in a competent and workmanlike manner.
2. AMOUNTS PAYABLE BY SMS TO LANVISION. LanVision shall submit to SMS, on a
monthly basis, one invoice detailing: the hours and reasonably incurred expenses
spent each week by each of its employees performing services described in
Section 1 of this Exhibit and in an Engagement Letter. Such invoice must be
submitted within thirty days from the end of the month in which the services
were rendered and will include a copy of the LanVision expense report. LanVision
shall also submit on a monthly basis, a SMS expense report detailing all
Professional Service time
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 40
CONFIDENTIAL
provided and reasonable expenses incurred. Such report must be submitted within
seven days from the end of the week in which such services were rendered. SMS
shall pay the rates set forth in Exhibit I for services performed by LanVision
employees, and shall pay the reasonably incurred expenses of such LanVision
employees in accordance with the travel and living reimbursement policy, as
described in Exhibit J. The rates described in the preceding sentence shall be
effective for all new Engagements commencing after the effective date hereof.
SMS shall pay the amount invoiced by LanVision within thirty (30) days from the
date of receipt of an invoice, subject to its right to withhold payment of any
portion of an invoice that is the subject of a good faith dispute.
3. RELATION OF THE PARTIES. LanVision is an independent consulting firm and all
LanVision employees performing work pursuant to this Exhibit shall remain
employees solely of LanVision and shall not be considered employees of SMS for
any purpose. LanVision acknowledges that its employees will be performing work
for the benefit of SMS' End Users and that LanVision is responsible for the
performance of the work performed by its employees. LanVision shall remain
responsible for payment of all wages and/or salaries and benefits due such
employees, and for all applicable federal, state and local tax liabilities
arising from its employees' work performed pursuant to this Exhibit.
4. PROPRIETARY RIGHTS. LanVision hereby assigns to SMS, without further
consideration, sole right, title and interest in and to all programming, code,
documentation and other written product, methodologies, processes, training
materials, inventions, software, ideas and other information and work product
(collectively, "Work") developed or generated by or on behalf of LanVision
during the course of its and any of its subcontractors' performance under this
Exhibit, including any and all patents, copyrights, trade secrets and other
proprietary rights related thereto. All Work shall be deemed " Work for Hire"
within the meaning of the Copyright Act of 1976, as amended. LanVision agrees to
execute and deliver, or cause to be executed and delivered, all documents and
instruments requested by SMS to evidence the foregoing assignment. LanVision
represents and warrants that its performance under this Exhibit and ownership or
use of the Work by SMS will not constitute an infringement of any third-party
proprietary right. Any trade secrets conveyed to SMS by LanVision shall be
treated as "Confidential Information" as defined in Section 6 hereof. LanVision
may offer usage of LanVision's work product developed outside the scope of this
Exhibit which is not derivative of SMS intellectual property without impairment
of LanVision's right of sole ownership of such work product, so long as
LanVision makes no improper use of Confidential Information
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 41
CONFIDENTIAL
5. TERM. The term of this Exhibit shall be coterminous with the term of the
Agreement; provided that SMS shall be entitled to terminate any Engagement
immediately upon any breach by LanVision of Sections 1, 4 or 6 of this Exhibit.
Both parties shall make all reasonable efforts to cooperate in the timely
completion of any Engagements that remain pending at the termination of the
Agreement.
SMS shall be entitled to replace the LanVision consultant or terminate an
Engagement if in SMS and/or its End User's reasonable opinion, the consultant's
work is unsatisfactory or his or her conduct is inappropriate. The parties shall
make all reasonable efforts to resolve any staffing issues in such a way as to
avoid adverse customer impact. Sections 4, 6, 7 and 8 shall survive any
termination of the Agreement.
6. CONFIDENTIALITY. The confidentiality provisions in Section 9 of the
Agreement apply fully to all Engagements.
7. ACTIVITIES OUTSIDE THIS EXHIBIT. The parties recognize that LanVision has
been, and is, in the business of providing services to its healthcare industry
customers. Except as expressly provided herein, it is understood and agreed
that: (i) services provided by LanVision to SMS are provided on a non-exclusive
basis and that LanVision retains the right to continue to provide the same type
of services, and any other services, to any other of its customers, including
competitors of SMS; (ii) LanVision retains the right to carry on and expand its
business including without limitation, that part of its business involved with
the installation and implementation of software systems that are similar to or
in competition with those of SMS, for LanVision's present and future customers:
(iii) during the term of an Engagement and for a period of one year after phase
1 of an implementation (as defined below), LanVision will not provide or solicit
to provide to a SMS customer when LanVision has been placed in an Engagement any
direct services that LanVision could provide under this Exhibit, nor will
LanVision respond to or solicit an SMS customer once SMS has identified that
customer to LanVision as having requested services from SMS and customer has not
previously contacted LanVision for this particular resource request prior to
such customer being identified by SMS to LanVision. Notwithstanding the
foregoing, LanVision shall be free to provide such services to its then-existing
customers. For purposes of this Section 6(c), "phase 1 of an implementation"
shall mean the date of first productive use of the particular set of SMS
software applications, as defined in the Workplan. Nothing in this Exhibit shall
be deemed in any way to prevent, restrict or limit LanVision in providing
installation and implementation of
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 42
CONFIDENTIAL
software systems that are similar to or in competition with those of SMS
provided that Confidential Information is not used in connection with such
activities.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 43
CONFIDENTIAL
Exhibit G
---------
Entities Being Actively Marketed to by LanVision
------------------------------------------------
[confidential]
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 44
CONFIDENTIAL
Exhibit H
---------
Royalties
---------
(a) INITIAL BASE FEES. SMS shall pay to LanVision a royalty equal to
[confidential] of the Base Fee. The Initial Base Fees as of the
date of this Agreement are as follows:
(i) Named User Fees
[confidential]
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 45
CONFIDENTIAL
(i) Concurrent User Fees
Concurrent, or Simultaneous Logged-on User, fees are based upon the
number of simultaneous users rather than the number of workstations
on which the software is installed. The cost of Concurrent
Sublicenses is calculated as follows:
- Concurrent Server Sublicense Fees - these are calculated
using the server fees listed in Section (i) of this Exhibit
for the number of clients that equals the number of
concurrent users.
Example: the ChartVision concurrent server license fee for
[confidential] concurrent users would be [confidential].
- Concurrent Client Sublicense Fees - these are calculated by
multiplying the number of concurrent users times the per
workstation client fee (listed in Section (i) of this
Exhibit) multiplied by [confidential].
Example: The ChartVision concurrent client license fee for
[confidential] concurrent users would be [confidential]
(b) Adjustments to the Base Fee. As part of the activities of the
Executive Team, the parties agree to adjust the Base Fee of each Software module
identified in Exhibit A used for calculating royalties due to LanVision on an
annual basis throughout the term of this Agreement,
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 46
CONFIDENTIAL
with the new Base Fees becoming effective on April 1 of each year. The first
such adjustment shall occur March 31, 1998, and adjustments shall be made
annually thereafter. The Software module license fees and related third-party
software components reflected in license agreements (fees per concurrent and or
named user, per Software module) executed between LanVision and its Software
shall be the basis for adjusting the Base Fee. The license fees for
non-embedded third-party ("TPS") components of the Software (as identified in
Exhibit C) used in this calculation shall be the greater of [confidential].
Examples:
[confidential]
The Base Fee for each Software module will be adjusted based on the
previous 12 month period, not to exceed [confidential] per adjustment (increase
or decrease) based on a calculation that is the average of the contracts
accounted for in the Base Fee measurement period as follows:
BASE FEE ADJUSTMENT CALCULATION - For purposes of calculating
the Base Fee, [confidential]. The average discount/premium factor for the
remaining contracts will be used to adjust the Base fee. For example:
[confidential]
ADDITIONAL BASE FEE ADJUSTMENT CONSIDERATIONS.
(i) In the event that a Base Fee adjustment results in an
increase in the Base Fee of any Software module, price proposals previously
disseminated by SMS shall be price protected for [confidential] from the date
the Base Fee increase becomes effective.
(ii) In the event LanVision licenses the Software other than
on a concurrent and/or named user fee basis, the Executive Team shall be
responsible for determining the effect of such pricing on Base Fee adjustments.
(iii) In the event new Versions are introduced, the Executive
Team shall determine the initial Base Fee and any special criteria, if any, for
adjustment of that Base Fee. It is agreed that the Base Fee for any such new
Version shall be reviewed and adjusted on April 1 following the introduction of
the new Version and annually thereafter.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 47
CONFIDENTIAL
(iv) Fees used to calculate adjustments to the Base Fee shall
be exclusive of installation, delivery, support, hardware, training, consulting,
professional services, and any other non-Software fees. For example, if
LanVision licenses the Software and the fee includes installation and support,
the installation and support components shall be deducted and the net fee shall
be used for calculating Base Fee adjustments.
(c) LanVision shall provide to SMS semi-annual Software Sales reports,
due no later than 30 days following the close of the semi-annual period,
indicating all contracts executed by or on behalf of LanVision for the Software
during the previous six (6) months, including at a minimum, the number of
concurrent and/or named users licensed, the Software modules licensed, and the
dollar amount per concurrent and/or named user charged for each Software module
and non-embedded third-party software components. The parties agree to work
through the Executive Team to define a common reporting format to facilitate
this reporting process.
(d) [confidential]
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 48
CONFIDENTIAL
Exhibit I
---------
Professional Service Rates
--------------------------
The Professional Service hourly rates for LanVision are:
Operational Consultant [confidential]
Technical Consultant [confidential]
Engagement Manager [confidential]
Database Administrator [confidential]
Installation Consultant [confidential]
Technical Account Manager [confidential]
Technical Account Specialist [confidential]
Field Engineer [confidential]
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 49
CONFIDENTIAL
Exhibit J
- ---------
Summary of SMS' Travel and Living Policies
------------------------------------------
The following is a summary of the principal provisions of SMS' present
policy for employee reimbursement for United States travel and living expenses.
SMS passes these charges through to Customer.
1. Commercial Air Fare. Coach class, except business class is
reimbursable on coast-to-coast flights if it is not more than twenty percent
(20%) more expensive than coach class.
2. Car Rental. Compact car (unless the number of people being
transported requires a larger car) from a car rental firm that provides SMS
special reduced rates.
3. Use of Personal Automobile. At a rate of $.31 per mile plus tolls
for the United States, except Puerto Rico which is reimbursed at the rate of
$.34 per mile plus tolls.
4. Other Commercial Travel. Coach class for trains and buses. Airport
vans are to be used in preference to taxi cabs for travel to and from airports
where practical.
5. Parking. The maximum amount which is reimbursable for parking at
any airport or train station is the standard per-day rate for remote parking.
6. Lodging. Lowest-priced, satisfactory accommodation. The use of
hotels which provide SMS special reduced rates is encouraged.
7. Meals. An allowance for breakfast and dinner only Monday through
Friday and additionally for lunch on weekends. The rates for these allowances
are as follows:
<TABLE>
<CAPTION>
Alaska, Chicago, Hawaii, Los Angles,
New York City Vicinity, Puerto Rico, San All Other
Meal Francisco, Washington, D.C. Locations
<S> <C> <C>
Breakfast $ 8.00 $ 6.00
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 50
CONFIDENTIAL
<S> <C> <C>
Lunch $ 5.00 $ 5.00
Dinner $24.00 $21.00
</TABLE>
Receipts are required for commercial travel, car rental, parking, and
lodging.
Where SMS employees visit more than one client on the same trip, the
expenses incurred are apportioned in relation to time spent with each client.
SMS' policy for employee reimbursement may be changed by SMS from
time to time to reflect changes in economic and business factors.
Note: Portions marked "[confidential]" have been omitted for reasons
of confidentiality and have been filed separately with the
U.S. Securities and Exchange Commission pursuant to Rule 24b-2.
<PAGE> 1
Exhibit 11.1
LANVISION SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1998 1997 1996
-------------- ---------------- ------------
<S> <C> <C> <C>
Net (loss) $ (10,925,970) $ (12,669,451) $(4,668,540)
============== =============== ===========
Average shares outstanding 8,811,019 8,827,478 8,283,761
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 8,811,019 8,827,478 8,283,761
============== =============== ===========
Basic net (loss) per share of common stock $ (1.24) $ (1.44) $ (.56)
============== =============== ===========
Diluted net (loss) per share of common stock $ (1.24) $ (1.44) $ (.56)
============== =============== ===========
</TABLE>
The diluted net (loss) per common share calculation, in fiscal 1998, 1997 and
1996, excludes the effect of the Stock Options and Warrants, as the inclusion
thereof would be antidilutive.
<PAGE> 1
Exhibit 13.1
LANVISION SYSTEMS, INC.
ANNUAL REPORT TO STOCKHOLDERS
LanVision Systems, Inc.
1998 Annual Report
[ Art work - photograph of workstation with photo - montage of
healthcare images]
[Company Logo]
<PAGE> 2
PAGE 1
TABLE OF CONTENTS
- -----------------------------------------------------
Letter to Stockholders..............................2
Products............................................3
Selected Financial Data.............................7
Management's Discussion and Analysis................8
Report of Management...............................17
Report of Independent Auditors.....................17
Financial Statements...............................18
Notes to Financial Statements......................21
Directors and Officers.............................30
Corporate Information..............................30
The Company has not paid a dividend on its Common Stock since its inception and
does not intend to pay any cash dividends in the foreseeable future.
<TABLE>
<CAPTION>
Stock Prices
- -------------------------------------------------------------------------------
Fiscal Year 1998
----------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C> <C>
1st Quarter $ 5.875 $ 3.625 $ 4.500
2nd Quarter 4.625 2.500 3.000
3rd Quarter 3.375 0.875 1.250
4th Quarter 3.250 0.906 2.719
<CAPTION>
Fiscal Year 1997
----------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C> <C>
1st Quarter $ 8.000 $ 3.375 $ 4.500
2nd Quarter 6.750 4.500 5.250
3rd Quarter 8.000 4.625 6.031
4th Quarter 6.750 4.250 4.625
</TABLE>
Corporate Profile
- -------------------------------------------------------------------------------
LanVision Systems, Inc. is a leading supplier of Healthcare Information Access
Systems and services that enable providers to access, on a real-time basis, all
the various forms of clinical and financial patient information from a single
permanent health information repository. 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 (Foundation
Suite) that is built for high volume transaction processing and is optimized for
the healthcare industry. In addition to providing the clinician access to
information not previously available at the desktop, the Company's applications
fulfill the administrative and legal needs of the Medical Records and Patient
Financial Services departments. Furthermore, these systems have been
specifically designed to integrate with any Clinical Information System. For
example, the Company has integrated its products with selected systems from
Shared Medical Systems Corporation, Cerner Corporation, IDX Systems Corporation
and Oacis Healthcare Holdings Corp. By offering electronic access to all the
components of the Medical Record, this integration completes one of the most
difficult tasks necessary to provide a true Computer Based Patient Record.
<PAGE> 3
LanVision
Healthcare Information Access Systems
PAGE 2
LETTER TO STOCKHOLDERS
- -------------------------------------------------------------------------------
DEAR STOCKHOLDER:
Fiscal 1998 was a year of transition for LanVision. Management worked very hard
to strengthen its product line, reduce operating expenses, improve operating
performance, and position LanVision for a return to profitability.
Fiscal 1998 revenues approximated $12 million, a corporate record and a 38%
increase over the prior year. Selling, general and administrative expenses were
reduced by $1.5 million compared with the previous year and product research and
development expenses were reduced by $1.8 million. The fiscal 1998 operating
loss, before interest and restructuring charges, approximated $9.8 million,
representing a $4 million improvement over the previous year. Additionally,
excluding the operations of the Company's newly formed Virtual Healthware
Services division, LanVision reduced its operating loss by $6.4 million, a 46%
improvement over fiscal 1997. LanVision has reduced operating expenses
throughout the year and management believes expenses are now at a level where
LanVision can achieve operating profitability, before interest, based upon
revenue growth similar to the growth experienced in fiscal 1998.
During 1998, LanVision completed many of its major software development efforts,
and delivered four new products to customers. As we began 1998, the Company's
installed base of customers predominately used its flagship product ChartVision,
an Electronic Medical Record application, and an early version of AccountVision,
the Patient Financial Services application. However, during 1998, LanVision
delivered four new products: OmniVision, WebView, Release of Information (ROI)
and On-Line Chart Completion. Additionally, Foundation Suite, the new
object-oriented document imaging/management infrastructure product, was
installed at a Beta site. The Company's product line is now more robust, and our
customers are achieving great success with our products. Additionally, the
Company's web-based products represent state-of-the-art software applications,
which allow a more cost-effective deployment of LanVision's software within a
healthcare facility or across a very large integrated delivery network.
Management believes the LanVision product line is unparalleled by its
competitors, and believes the competitive environment is favorable for the
Company.
In February 1998, LanVision signed a major Remarketing Agreement with Shared
Medical Systems Corporation (SMS). Throughout 1998, we have been integrating the
LanVision products with the imaging component of the SMS NOVIUS product line and
training SMS personnel on the LanVision products. SMS has begun selling the
LanVision products in a controlled manner, through their specialized document
imaging sales force. We are pleased to report that they have been successful in
their efforts. During the second half of 1998, SMS executed four new contracts
for LanVision's products; three of those contracts were signed in December 1998.
Revenues on the three December contracts were deferred until certain integration
is completed, which is expected to occur in the first or second quarter of
fiscal 1999. SMS is enthusiastic about the LanVision product line, and plans to
significantly expand their selling efforts in 1999.
In 1998, LanVision successfully launched its new Virtual Healthware Services
division (VHS) that utilizes LanVision's web-based browser technology to
delivery patient information via a secure Internet/Intranet from a remote
central data center to anyone with access to the healthcare network on a
real-time basis. We were pleased to announce that The Health Alliance, Inc., a
group of five hospitals in the Greater Cincinnati Area, recently signed a
four-year contract for VHS web-based services. VHS is a very cost-effective
solution for the healthcare industry and management is optimistic this division
can substantially increase revenues.
<PAGE> 4
Despite the success in increasing revenues by 38%, revenue growth in 1998 was
challenging because many healthcare organizations are absorbed with Year 2000
Compliance issues with their legacy systems. The Y2K issue may continue to
adversely affect potential revenues in 1999, but as more potential customers
complete this task, opportunities for new system sales should increase.
Management has made a significant effort to educate the industry about the
benefits of LanVision's products and how the products are complementary to
Clinical Information Systems. The healthcare industry is beginning to clearly
recognize that LanVision's products are an integral component of the Computer
Based Patient Record.
LanVision has weathered some difficult years. However, despite the difficult
years, management has continued to significantly improve its product line and
stay focused on its core business. There are many reasons to be optimistic about
the future:
- - the industry has a better understanding of the strategic importance of
LanVision's products;
- - the market for LanVision's products is estimated to exceed $1 billion and
the market appears to be less than 10% penetrated;
- - the LanVision product line is robust and customers are experiencing
significant success with the products;
- - LanVision's distribution capabilities are significantly improved; and
- - the competitive environment appears to be favorable for LanVision.
We have utilized a significant amount of our capital to properly position
LanVision in the marketplace. In 1998, the Company engaged CIBC Oppenheimer
Corp., an investment banking firm, to help us plan for our future capital needs
and assist us with decisions that maximize shareholder value.
We believe LanVision is built on a solid foundation and we approach the future
with enthusiasm and confidence that 1999 will continue to reflect significantly
improved operating results.
We are thankful for your continued confidence.
Sincerely,
/s/ J. Brian Patsy
J. Brian Patsy
Chairman of the Board and
Chief Executive Officer
<PAGE> 5
PAGE 3
LANVISION PRODUCTS
LanVision products are built using advanced document imaging/management and
workflow automation technology. Imaging technology makes paper-based
information, as well as medical images, sound and video information as readily
available and easy to process as traditional electronic data. Workflow
automation offers intelligent electronic routing of documents, sophisticated
management tools and reporting to increase efficiency and to support business
process re-engineering efforts.
For maximum flexibility, the LanVision family of products consists of four
advanced software suites: the Foundation Suite, the Input Suite, the ChartVision
Application Suite, and the AccountVision Application Suite. Moreover, users can
choose from various viewers to support multiple implementation options, from
traditional client/server networks to Internet-based installations that take
advantage of standard web browsers and "thin clients."
IMAGE-ENABLING TECHNOLOGY
LanVision provides powerful image-enabling and workflow technology that allows
healthcare users to immediately and simultaneously access any patient
information, including multimedia and paper-based information, through their
existing applications. As a result, any application across the entire enterprise
can be image-enabled, including the host Healthcare Information Systems, human
resources, materials management, patient billing, Clinical Data Repositories and
others. When the Clinical Data Repository is image-enabled, users can access any
piece of information on the same workstation and from the same screen display,
including the point of patient care. This means users can view traditional
electronic data and images simultaneously on the same screen without signing in
and out of multiple applications.
<PAGE> 6
PAGE 4
THE FOUNDATION SUITE
The Foundation Suite is a robust document imaging/management infrastructure,
built for maximum performance in high document volume settings and optimized for
the healthcare industry. The features resident in the Foundation Suite were
built around patient oriented objects that result in more efficient code and
rapid delivery to market of new applications. The Foundation Suite is designed
in a reusable object-oriented environment, utilizing a 32-bit Windows NT-based
architecture, that provides the following essential document imaging/management
functions: security, auditing, data access, printing/faxing, scheduling, data
archiving migration and full problem diagnosis. The Foundation Suite offers the
following unique enhanced security and auditing functions that are essential to
integrated delivery networks in a multi-entity environment:
- - multiple levels of security (administrative, user, patient, document,
workstation, physical location, and healthcare entity) configurable by
user, workstation and location,
- - full audit trails and reporting of every record viewed, printed, faxed,
processed or unauthorized login attempts at the patient encounter or
document level.
(INPUT SUITE ICON GRAPHIC)
THE INPUT SUITE
The Company's Input Suite software is designed to enable healthcare
organizations to enter paper-based and electronic information into the entire
suite of LanVision products. The Input Suite was specifically designed for high
volume healthcare environments to capture healthcare information in the most
efficient and error-free manner. The Input Suite includes the following modules:
scanning and indexing, OCR (Optical Character Recognition), and COLD (Computer
Output to Laser Disk) with forms overlay and custom interfaces. The Input Suite
supports the capture, indexing and viewing of over 250 different file formats,
bar code recognition, image enhancement and a variety of industry standard
document scanners.
(CHARTVISION SUITE ICON GRAPHIC)
THE CHARTVISION APPLICATION SUITE......a highly evolved Electronic Medical
Record application
The ChartVision application suite provides physicians, clinicians and
information management professionals throughout the healthcare enterprise with
immediate and simultaneous access to the complete patient record. ChartVision is
a highly evolved Electronic Medical Record application suite that provides
streamlined processing and fast, easy access to all forms of healthcare
information regardless of source. The ChartVision application suite includes the
following modules:
On-Line Chart Completion (OCC)
Automates the identification of deficiencies in patient charts and
electronically routes the incomplete documents to the appropriate
medical and administrative personnel for on-line processing, chart
completion, electronic signature and reporting. OCC includes
proprietary embedded LanVision workflow software, which provides a
significant cost advantage over alternative third-party workflow
software when deployed throughout the healthcare enterprise.
Release of Information (ROI)
Fulfills internal and external requests for information and allows for
automatic invoicing capability. ROI also provides the ability to
electronically search for, print, mail or fax information to third
parties that request copies of patient records. ROI is compatible with
third-party workflow software such as Eastman Workflow.
On-Line Registration Processing
Provides an interactive, electronic pen-based module that allows
patients to read, edit and sign consent forms and other documents on a
portable tablet device. The forms are automatically filed in the
patient's electronic folder.
<PAGE> 7
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(ACCOUNTVISION ICON GRAPHIC)
THE ACCOUNTVISION APPLICATION SUITE......a Patient Financial Services
application
The AccountVision application suite is a Patient Financial Services application
that enables hospitals and integrated delivery networks to streamline their
business services operations by tracking patients from pre-admission and
registration through account follow-up and final payment. AccountVision
facilitates improved communications by providing immediate and simultaneous
access to documents thus promoting prompt responses to patient and third-party
inquiries concerning the patient bill and other correspondence. AccountVision's
electronic financial folder concept closely integrates patient and non-patient
documents to substantially improve productivity in a variety of areas, including
secondary billing and claims follow-up. Utilizing the latest workflow
technologies, AccountVision helps clients actively manage work in process by
monitoring staff workloads, reassigning work to avoid backlogs and focusing work
on appropriate revenue-producing tasks.
The AccountVision suite offers a unified database for patient folders (Medical
Records) and non-patient folders (Patient Financial Services). The AccountVision
application suite includes "Remittance Processing" which is a computer aided
data entry application that applies optical character recognition and form
recognition/processing technologies to automatically extract payment amounts and
calculates adjustments from third-party payer remittance documents.
(VHS ICON GRAPHIC)
VIRTUAL HEALTHWARE SERVICES - VHS
Virtual Healthware Services became operational in April, 1998, to give
healthcare providers an even more cost-effective solution to managing patient
information. Through its use of Internet/Intranet technology, VHS helps
hospitals and integrated delivery networks overcome the barriers of high capital
and start-up costs as well as the technological burdens of implementing a
document imaging/management and workflow system. VHS delivers document
imaging/management and workflow services to its healthcare customers on an
outsourced basis from a central data center. Hospitals and integrated delivery
systems can therefore take advantage of a private Intranet or the World Wide
Web, the lowest cost network infrastructure, for truly enterprisewide, secure
access to healthcare information.
ACCESSANYWARE
AccessANYware is an entirely new product offering which will be introduced in
1999. AccessANYware combines the features of the Company's entire product
portfolio into a common Graphical User Interface and offers the additional
benefit of a unified database for efficient system administration and
elimination of redundant data entry.
WEBVIEW - Web-Enabling Tool
The Internet, "thin client" workstations and web-enabled applications have
generated enormous excitement in the world of Healthcare Information Systems.
Their potential positive impact on the Computerized Patient Record (CPR) and
document imaging is just now being realized. The Company believes these new
technologies will combine to create sweeping changes in the way healthcare
institutions manage, distribute and view their healthcare information. WebView
will utilize the Internet/Intranet to allow remote users to easily access an
integrated CPR and Document
<PAGE> 8
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Imaging System virtually anywhere. The more important benefits include:
- - significantly lower maintenance and staff costs;
- - lower data center investment and operating costs;
- - the ability to seamlessly image-enable existing clinical, billing or other
third-party information systems; and
- - a higher degree of desktop integration.
WebView uses a familiar Internet browser "look and feel" and combines the
platform-independent technologies, open standards and "network-centric"
architecture of the Internet with the Company's robust application suites. As an
intuitive, flexible, cost-effective, and scaleable product, WebView provides
organizations with a "technology bridge" connecting the Company's application
suites with innovative Internet/Intranet technologies.
OMNIVISION - Image-Enabling Tool
LanVision's powerful image-enabling tool (OmniVision) and workflow technology
allows healthcare users to immediately and simultaneously access any patient
information, including multimedia and paper-based information, through their
existing hospital information system applications. As a result, any application
across the entire enterprise can be image-enabled, including the host Healthcare
Information Systems, patient billing, Clinical Data Repositories, human
resources, materials management and other systems. LanVision has image-enabled
many popular Clinical Data Repositories, such as those offered by Cerner
Corporation, IDX Systems Corporation, Oacis Healthcare Holdings Corp. and the
Company is in the process of image-enabling products from Shared Medical Systems
Corporation. When the Clinical Data Repository is image-enabled, users can
seamlessly access any type of healthcare information on the same workstation and
from the same screen display, including the point of patient care. This means
that users can view traditional electronic data and images simultaneously on the
same screen without signing in and out of multiple applications.
The OmniVision image-enabling tool includes a full automation interface using
Object Linking and Embedding and Component Object Modeling standards that allow
third-party products to easily make calls to OmniVision. OmniVision is in
production in several large-scale, enterprisewide applications including over
2,000 workstations at Memorial Sloan-Kettering Cancer Center and is being
deployed on over 1,000 workstations at UCSF Stanford Healthcare.
PROFESSIONAL SERVICES
LanVision provides a full complement of professional services to implement its
software applications. The Company believes that high quality consulting and
professional implementation services are critical to attracting new customers
and maintaining existing customer satisfaction. These services include
implementation and training, project management, business process re-engineering
and custom software development. The implementation and training services
include equipment and software installation, system integration and
comprehensive training. The project management services include needs and
cost/benefit analysis, hardware and software configuration and business process
re-engineering. The custom software development services include interface
development, software development and modification services.
<PAGE> 9
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Selected Financial Data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year(1)
---------------------------------------------------------------------------------
OPERATING STATEMENT DATA: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues $ 12,010 $ 8,676 $ 10,310 $ 5,019 $ 2,412
Total operating expenses 22,470 22,493 16,271 5,324 3,105
Operating (loss) (10,460) (13,818) (5,961) (306) (693)
Net (loss) (10,926) (12,669) (4,669) (326) (572)
Basic and diluted net (loss)
per share of common stock $ (1.24) $ (1.44) $ (.56) $ (.05) $ (.09)
Shares used in computing
per share data 8,811 8,827 8,284 6,190 6,190
<CAPTION>
Fiscal Year(1)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Cash, cash equivalents and
investment securities $ 5,445 $ 11,052 $ 26,592 $ - $ 618
Working capital (deficiency) 7,290 7,141 17,864 (81) 271
Total assets 17,485 22,200 33,300 3,046 1,518
Convertible redeemable
preferred stock - - - 850 850
Total stockholders' equity
(deficit) 5,847 16,816 29,921 (646) (319)
(1) All references to a fiscal year refer to the fiscal year commencing February 1 of that calendar year and
ending January 31 of the following year.
- ----------
</TABLE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
In addition to historical information, this Annual Report of LanVision Systems,
Inc. contains certain forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. Such factors include, without
limitation, the risks and uncertainties discussed herein and as part of the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The Company's future development efforts involve a high degree of
risk, and the Company cautions investors that there can be no assurance that
actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements.
<PAGE> 10
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
OVERVIEW
LanVision Systems, Inc. is a leading supplier of Healthcare Information Access
Systems and services that enable healthcare providers to access, on a real-time
basis, all the various forms of clinical and financial patient information from
a single permanent health information repository. 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 (Foundation
Suite) that is built for high volume transaction processing and is optimized for
the healthcare industry. In addition to providing the clinician access to
information not previously available at the desktop, the Company's applications
fulfill the administrative and legal needs of the Medical Records and Patient
Financial Services departments. Furthermore, these systems have been
specifically designed to integrate with any Clinical Information System. For
example, the Company has integrated its products with selected systems from
Shared Medical Systems Corporation, Cerner Corporation, IDX Systems Corporation,
and Oacis Healthcare Holdings Corp. By offering electronic access to all the
components of the Medical Record, this integration completes one of the most
difficult tasks necessary to provide a true Computer Based Patient Record. The
Company's systems deliver on-line enterprisewide access to fully-updated patient
information which historically was maintained on a variety of media, including
paper, magnetic disk, optical disk, x-ray film, video, audio and microfilm.
The Company'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, 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.
On February 23, 1998, the Company entered into a Remarketing Agreement with
Shared Medical Systems Corporation (SMS). Under the terms of the agreement, SMS
was granted an exclusive worldwide license to distribute ChartVision, On-Line
Chart Completion and Release of Information (ROI) 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.
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. Since
inception, the Company has experienced extended sales cycles, which has
adversely affected revenues. It is common for sales cycles to take six to
eighteen months from initial contact to the execution of an agreement. As a
result, the sales cycles can cause significant variations in quarter to quarter
operating results. These agreements cover the entire implementation of the
system and specify the implementation schedule, which typically
<PAGE> 11
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takes place in one or more phases. The agreements generally provide for the
licensing of the Company's proprietary software and third-party software with a
one-time perpetual license fee that is adjusted depending on the number of
workstations using the software. Third-party hardware is usually sold outright,
with a one-time fee charged for installation and training. Site-specific
customization, interfaces with existing customer systems and other consulting
services are sold on a fixed fee or a time and materials basis.
Generally, revenue from systems sales is recognized when an agreement is signed
and products are shipped. Revenue recognition related to routine installation,
integration and project management 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 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 deemed insignificant,
depending on the contractual terms. Revenues from consulting, training and
services are recognized as the services are performed. Revenues from short-term
support and maintenance agreements are recognized ratably over the term of the
agreements. Billings to customers recorded prior to the recognition of the
revenue are classified as deferred revenues. Revenue recognized prior to
progress billings to customers is recorded as unbilled receivables.
In August 1997, the Company announced the formation of Virtual Healthware
Services (VHS), a new healthcare information service bureau 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 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 initiated settlement discussions with The DMC. However, at the
present time, the Company is unable to predict the outcome of these discussions.
At January 31, 1999, LanVision's receivables due from The DMC approximated
$512,000. Management believes it has adequately provided for any possible
uncollectible amounts.
In February, 1999, VHS announced it had signed a four-year contract with The
Health Alliance, Inc., a group of five hospitals in the Greater Cincinnati Area.
<PAGE> 12
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RESULTS OF OPERATIONS
The following table sets forth, for each fiscal year indicated, certain
operating data as percentages:
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS(1)
Fiscal Year(2)
------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Systems sales 46.1% 46.4% 65.5%
Services, maintenance and support 46.4 53.6 34.5
Service bureau operations 7.5 - -
------------- -------------- -------------
Total revenues 100.0 100.0 100.0
Cost of sales 84.8 87.4 78.0
<CAPTION>
<S> <C> <C> <C>
Selling, general and administrative 65.4 107.8 64.5
Product research and development 31.1 64.0 15.3
Restructuring expense 5.8 - -
------------- -------------- -------------
Total operating expenses 187.1 259.2 157.8
------------- -------------- -------------
Operating (loss) (87.1) (159.2) (57.8)
Other income (expense), net (3.9) 13.2 12.5
------------- -------------- -------------
Net (loss) (91.0)% (146.0)% (45.3)%
============= ============== =============
Cost of systems sales 31.7% 60.7% 61.8%
============= ============== =============
Cost of services, maintenance and support 99.5% 110.6% 108.9%
============= ============== =============
Cost of service bureau operations 320.5% - -
============= ============== =============
(1) Because a significant percentage of the Company's operating costs are
expensed as incurred, a variation in the timing of systems sales and
installations and the resulting revenue recognition can cause
significant variations in operating results. 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. The data in the table is presented
solely for the purpose of reflecting the relationship of various
operating elements to revenues for the periods indicated.
(2) All references to a fiscal year refer to the fiscal year of the
Company commencing on February 1 of that calendar year and ending on
January 31 of the following year.
</TABLE>
COMPARISON OF FISCAL YEAR 1998 WITH 1997
REVENUES. Total revenues in fiscal year 1998 were $12,010,011 compared with
revenues of $8,675,748 in fiscal year 1997, an increase of $3,334,263, or 38%.
Revenues from systems sales in fiscal 1998 were $5,541,226, an increase of
$1,513,519, or 38%, over systems sales in fiscal 1997. In 1998, three new
customers accounted for approximately $2,500,000 of systems sales. In 1997, five
new customers accounted for approximately $3,000,000 of systems sales. In 1998,
systems sales from fulfillment of backlog and add-on business to existing
customers approximated $3,000,000 compared with $1,000,000 in 1997. Revenues
from services, maintenance and support in fiscal 1998 were $5,573,850, an
increase of $925,809, or 20%, over fiscal 1997. Maintenance revenues in fiscal
1998 were $2,755,014, an increase of $604,244, or 28%, over maintenance revenues
in fiscal 1997. The increase in maintenance revenues in fiscal 1998 is primarily
due to new installations in 1997 and 1998 and the purchase of support services
by these customers subsequent to the warranty period. Professional services
revenues in fiscal 1998 were $2,818,836, an increase of $321,565, or 13%, over
the professional services revenues in fiscal 1997. The increase is directly
related to the increasing customer base. Revenue from the service bureau
operations, a new activity in fiscal 1998, was $894,935. Almost all of this
revenue was from one customer. The three new agreements and the one new service
bureau customer in fiscal 1998 contributed $3,723,684 of revenues in fiscal
1998. The eight new agreements signed in fiscal 1997, contributed $4,272,118 of
revenues in fiscal 1997. In fiscal 1998, three customers accounted for 27% of
the Company's total revenues. In fiscal 1997, three customers accounted for 38%
of the Company's total revenues.
<PAGE> 13
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Management estimates the U.S. market for the Company's products is in excess of
$1 billion, and the market is less than 10% penetrated. Revenues for fiscal 1998
and 1997 have been less than the Company's plan for each year. The shortfall in
revenues occurred for a variety of reasons. First, the healthcare industry has
not moved forward as quickly as the Company and many others anticipated. For
years, healthcare institutions spent significantly less on information systems
than other industries. However, despite the need to catch up, existing
Healthcare Information Systems personnel are only able to absorb so much new
technology. There was a significant amount of new technology to assess, and
there were wide differences of opinions on how to prioritize the many
information technology projects. Many institutions began by replacing their
clinical systems, and looked at the Electronic Medical Record (EMR) as a
secondary priority. Consequently, the Company experienced very long sales
cycles, and many cycles ended in no decision. In addition, it took longer for
the Company to deliver products such as On-Line Chart Completion and Release of
Information (formerly Enterprisewide Correspondence) than originally
anticipated, and this adversely affected some existing sales opportunities.
Additionally, in 1998, many healthcare organizations were preoccupied with Year
2000 Compliance remediation for existing systems and deferred purchase decisions
on new systems. Also, throughout 1997 and a good part of 1998, the Company was
almost completely dependent upon its direct sales force. Buying decisions at
certain hospitals and integrated healthcare delivery networks are influenced by
the recommendations of the largest Healthcare Information Systems (HIS) vendors,
including: Shared Medical Systems Corporation, HBO & Company, Cerner
Corporation, IDX Systems Corporation, Eclipsys Corporation, etc. It has been
difficult for companies with relatively small sales forces to influence the
buying decisions as effectively as the major HIS vendors. Prior to the Company's
Agreement with SMS, the Company's products were not actively promoted by any of
the five largest HIS vendors. A Remarketing Agreement with SMS was signed in
February, 1998, and throughout fiscal 1998 LanVision and SMS have been
integrating the LanVision product line with the SMS NOVIUS product and training
SMS personnel. During 1998, SMS marketed the Company's products on a limited
basis through their specialized document imaging sales force. SMS successfully
closed four new agreements for LanVision's products. Three of these agreements
were closed in December. The revenue on the three contracts closed in December,
which approximates $792,000, has been deferred until certain integration is
completed, which is expected to occur in the first or second quarter of fiscal
1999. Management believes a greater percentage of its future revenues will come
from Remarketing Agreements with SMS and other HIS vendors. Management is
actively pursuing Remarketing Agreements with additional HIS vendors.
Management believes the large HIS vendors, hospitals and integrated healthcare
delivery networks now have a better understanding of the valuable role the
Electronic Medical Record plays in providing a truly Computerized Patient
Record. As more companies demonstrate the significant economic and operating
benefits of the EMR and other imaging/management and workflow applications,
management believes the future demand for the Company's products and services
will increase.
The Company's VHS service bureau has been designed to overcome obstacles in the
buying decision such as large capital commitment, length of implementation, and
the scarcity of time for Healthcare Information Systems personnel to implement
new systems. Through VHS, customers can rapidly deploy and access healthcare
information using web-based technology from a central data center on a per
transaction fee basis.
COST OF SALES. Cost of sales consists of cost of systems sales, cost of
services, maintenance and support and cost of service bureau operations. Cost of
systems sales includes amortization of capitalized software costs, royalties and
cost of third-party software and hardware. Cost of systems sales, as a
percentage of systems sales, will vary from period to period depending on the
hardware and software configuration of the systems sold. The costs of systems
sales as a percentage of revenues in fiscal 1998 and 1997 were 32% and 61%,
respectively. The lower costs in 1998 reflect a higher mix of LanVision software
with higher margins relative to the third-party hardware and software components
with lower margins and higher costs. Cost of services, maintenance and support
includes salaries and benefits for support and professional services personnel
and the cost of third-party maintenance contracts. Cost of services, maintenance
and support as a percentage of services, maintenance and support revenues in
1998 and 1997 were 100% and 111%, respectively. The improvement is primarily due
to reduced staffing and improved efficiency. Costs equal or exceed revenues in
both years for several reasons, including the fact that professional services
personnel spend a portion of their time on non-billable activities such as the
development of training courses and certain client management functions.
Additionally, certain implementations have
<PAGE> 14
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taken more effort than originally estimated and the additional time was
non-billable. The cost of service bureau operations represents the depreciation
of equipment and the personnel and other operating costs necessary to operate
the central data center and remote scanning centers.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of personnel and related costs, travel and living
expenses, advertising, trade shows, brochures, etc. for selling and marketing
activities and general corporate and administrative activities. In fiscal 1998,
selling, general and administrative expenses were $7,860,031 compared with
$9,356,723 in fiscal 1997. The decrease in fiscal 1998 is primarily attributable
to a reduction in staff and the associated occupancy, travel and living costs,
etc. In 1998, the Company's selling, general and administrative average monthly
employee head count approximated thirty-six employees compared with forty-nine
employees in fiscal 1997.
PRODUCT RESEARCH AND DEVELOPMENT. Product research and development expenses in
fiscal 1998 were $3,740,215 compared with $5,553,778 in fiscal 1997. The fiscal
1998 decrease reflects the use of significantly fewer outside contractors and
reduced staffing levels as a result of the Company completing several major
development projects and a deliberate effort to bring costs more in line with
revenues. During 1998, the Company placed new releases of ChartVision, On-Line
Chart Completion, Release of Information, OmniVision and WebView into
production. Additionally, Foundation Suite was installed at a Beta site. The
software development and quality assurance staff, averaged twenty-five employees
in 1998, compared with an average of twenty-nine in fiscal 1997. Fiscal 1997
research and development expenses include a one-time charge of $475,000, which
primarily represents the in-process research and development purchased from
Optika Imaging Systems, Inc. Accordingly, the purchase of technology was
accounted for net of the write-off. The Company capitalized $396,000 in product
research and development costs in fiscal 1998 and in 1997.
RESTRUCTURING EXPENSE. During the year, the Company restructured certain aspects
of its operations to flatten the management structure, reduce expenses in all
areas and at the same time, improve customer service. Accordingly, the Company
accrued the cost of severance and related taxes and fringe benefits.
Additionally, the Company accrued the exit costs related to office space under
long-term lease agreements that no longer provides economic benefit.
OTHER INCOME (EXPENSE). Other income in fiscal 1998 and 1997 consisted primarily
of interest and gains on the sale of investment securities. The decrease is due
primarily to less interest on fewer investments as securities were sold to fund
operations. Interest expense in 1998, is related to the Company's $6,000,000 in
borrowings. (See additional information in the Notes to the Consolidated
Financial Statements.)
PROVISION FOR INCOME TAXES. The Company is in a tax (loss) carryforward
position, and is unable to recognize a tax benefit for losses because the
realization of a tax benefit for such losses is not assured. The tax (loss)
carryforward approximates $25,900,000.
NET (LOSS). The Company's net (loss) in fiscal 1998 was $10,925,970 compared
with $12,669,451 in fiscal 1997. Fiscal 1998 net (loss) per share was $1.24
compared with a net (loss) per share in fiscal 1997 of $1.44. The $1,743,481
decrease in the fiscal 1998 net (loss) compared with 1997 results primarily from
an approximately $2,300,000 increase in non-VHS revenues which contributed to a
$2,145,000 improvement in non-VHS gross margin, a $1,813,563 decrease in
research and development and an approximately $2,000,000 decrease in non-VHS
selling, general and administrative expenses. These improvements in operating
performance were offset by VHS's $2,400,000 operating loss and 1998 net interest
expense of $465,775 compared with 1997 net interest income of $1,148,293 and a
$700,000 restructuring charge. Throughout 1998, the Company has reduced its
operating expenses each quarter to ensure expenses are more in line with
anticipated revenues. As a result, the Company has improved its overall
operating performance.
Since commencing operations in 1989, the Company has incurred substantial
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. Based upon the expenses associated with current and planned staffing
levels, profitability is dependent upon increasing revenues. There can be no
assurance that the Company will be able to achieve consistent profitability on a
quarterly or annual basis nor be able to sustain or
<PAGE> 15
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increase its revenue growth in future periods. Management believes historical
operating results are not indicative of the future performance of the Company in
the long-term.
BACKLOG. At January 31, 1999, the Company has master agreements or purchase
orders for systems and related services (excluding support and maintenance, and
transaction-based revenues for the VHS service bureau), which have not been
delivered, installed and accepted which, if fully performed, would generate
future revenues of approximately $7,000,000. The related products and services
are expected to be delivered over the next two to three years. In addition,
customers contract for maintenance and support services on a monthly, quarterly
or annual basis. In 1998, maintenance and support revenues approximated
$2,755,000 and are expected to increase in fiscal 1999. Furthermore the VHS
division has entered into a service bureau agreement which is expected to
generate revenues in excess of $2,000,000 over the four-year life of the
contract.
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 is in the final 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.
The Company presently believes the Year 2000 Compliance issue will not pose
significant operational problems for the Company or its customers. However, if
such final testing and corrections are not completed 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 been scheduled for Beta testing at a customer site
sometime in the first quarter of 1999. If in Beta testing any additional
problems are encountered, the software code will be further modified and tested.
The Year 2000 Compliant software Beta testing will be performed at selected
customer sites using the customer's current hardware configurations. The Company
believes that Year 2000 compatible equipment is available for acquisition by
customers, if necessary, to ensure installed systems operate properly.
Should the LanVision systems sold to customers not be timely modified to be Year
2000 Compliant, the most likely worst case scenario would be that customers
could: suspend use of the system until such time as the Year 2000 Compliance
issues are remediated; or continue to use the systems with reduced
functionality. However, based upon current information and the time remaining to
complete the remediation, the Company believes that the risk of such occurrence
is minimal. Contingency plans have not yet been developed. However, 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, except for
completing the Beta testing of the LanVision software products discussed above
and telecommunications services provided by outside vendors. The Company is in
the process of determining the Year 2000 Compliance issues that could affect
operations should the telecommunications vendors not be compliant. Without Year
2000 Compliant LanVision software and telecommunications, the service bureau
operations will not be able to provide current levels of services to its
customers and no contingency plan has yet been developed. However, if needed,
contingency plans will be developed.
<PAGE> 16
PAGE 14
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
Company they are currently Year 2000 Compliant. No contingency plan has been
developed. However, if needed, contingency plans will be developed.
The Company will utilize both internal and external resources to reprogram, or
replace and test its software products for the Year 2000 Compliance
modifications. The Company anticipates completing the Year 2000 Compliance
project as soon as practical, but not later than July 31, 1999, which is prior
to any anticipated impact. The total cost of the Year 2000 Compliance
remediation is not considered to be material (less than $500,000), and the
remaining remediation, estimated at less than $200,000, will be funded through
existing cash resources and future operating cash flows. The requirements for
the correction of Year 2000 Compliance issues and the date on which the Company
believes it will complete the Year 2000 Compliance modifications are based on
management's current best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that may cause such
material differences include, but are not limited to, the availability of
personnel trained in this area, the ability to locate and collect all relevant
computer codes and similar uncertainties.
The Company has warranted, to certain customers, that its products will be Year
2000 Compliant. If the Company were unable to provide a Year 2000 Compliant
solution to the 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 the lender and the Remarketing Agreement with SMS is being
amended. If the Company's products are not Year 2000 Compliant by July 31,1999,
and a waiver of compliance from the lender or SMS can not be obtained relative
to that date, this would be an event of default of the long-term debt agreement
and may give rise to legal action for breach of contract under the SMS
Remarketing Agreement. Based upon the current best estimate for remediation of
the Year 2000 Compliance issues, the Company believes the risk is minimal that
the Company will not comply with current commitments and internal processing
needs.
COMPARISON OF FISCAL YEAR 1997 WITH 1996
REVENUES. Total revenues in fiscal year 1997 were $8,675,748 compared with
revenues of $10,310,052 in fiscal year 1996, a decrease of $1,634,304, or 16%.
Revenues from systems sales in fiscal 1997 were $4,027,707, a decrease of
$2,728,519, or 40%, over systems sales in fiscal 1996. The decrease in systems
sales is primarily attributable to less hardware and third-party software sales
for the newer installations compared with the prior year installations. The mix
of hardware, third-party software and LanVision software varies significantly
among contracts based upon the individual customer needs, the timing of the
installations, and implementations of future phases. Revenues from services,
maintenance and support in fiscal 1997 were $4,648,041, an increase of
$1,094,215, or 31%, over fiscal 1996. Maintenance revenues in fiscal 1997 were
$2,150,770, an increase of $965,105, or 81%, over maintenance revenues in fiscal
1996. The increase in maintenance revenues in fiscal 1997 is primarily due to
new installations in 1996 and 1997 and the purchase of support services by these
customers subsequent to the warranty period. Professional services revenues in
fiscal 1997 were $2,497,271, an increase of $129,110, or 5%, over the
professional services revenues in fiscal 1996. Substantially all of the increase
came from increased project management fees. The eight new agreements signed in
fiscal 1997, contributed $4,272,118 of revenues in fiscal 1997. The remaining
systems revenues for the year represent the implementation of previously signed
agreements (backlog) and from add-on sales to existing customers. In fiscal
1997, three customers accounted for 38% of the Company's total revenues. In
fiscal 1996, three customers accounted for 49% of the Company's total revenues.
<PAGE> 17
PAGE 15
COST OF SALES. Cost of sales consists of cost of systems sales and cost of
services, maintenance and support. Cost of systems sales includes amortization
of capitalized software costs, royalties and cost of third-party software and
hardware. Cost of systems sales, as a percentage of systems sales, will vary
from period to period depending on the hardware and software configuration of
the systems sold. Cost of services, maintenance and support includes salaries
and benefits for support and professional services personnel and the cost of
third-party maintenance contracts. The cost of systems sales and services,
maintenance and support, as a percentage of revenues, was substantially the same
as the prior year. The cost of systems sales reflects a lower margin on hardware
and third-party software in 1997. Customers are able to purchase hardware and
third-party software products from other vendors which result in competitive
pricing and lower margins. The services, maintenance and support costs increased
substantially in 1997, as additional customers elected to purchase support
services subsequent to the warranty period. Fiscal year 1997 expenses reflect
increased average staffing levels compared with 1996 staffing levels, additional
travel and living expenses for onsite support, increases in third-party support
services and increased general operating expenses of the support department.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of personnel and related costs, travel and living
expenses, advertising, trade shows, brochures, etc., costs for selling and
marketing activities and general corporate and administrative activities. In
fiscal 1997, selling, general and administrative expenses were $9,356,723
compared with $6,647,470 in fiscal 1996. The increase in fiscal 1997 is
primarily attributable to the full impact, in 1997, of the gradual build up in
1996 of staff and the associated occupancy, travel and living costs, etc. as the
Company expanded operations in 1996. In 1996, the Company's selling, general and
administrative average monthly employee head count approximated thirty-four
employees compared with forty-nine employees in fiscal 1997.
PRODUCT RESEARCH AND DEVELOPMENT. Product research and development expenses in
fiscal 1997 were $5,553,778 compared with $1,580,089 in fiscal 1996. The fiscal
1997 increase is primarily attributable to: the increase in the software
development and quality assurance staff, from an average of thirteen employees
in 1996, to an average of twenty-nine in fiscal 1997, and approximately
$2,200,000 increase in the cost of independent contractors for specific
development projects, including ChartVision upgrades, On-Line Chart Completion,
Release of Information, AccountVision Version 4.0, AV Remit, a new 32 bit core
services architecture, etc. Fiscal 1997 research and development expenses
include a one-time charge of $475,000, which primarily represents the in process
research and development purchased from Optika Imaging Systems, Inc.
Accordingly, the purchase of technology was accounted for net of the write-off.
The Company capitalized $396,000 and $170,000 in product research and
development costs in fiscal 1997 and 1996, respectively.
OTHER INCOME (EXPENSE). Other income in fiscal 1997 consisted primarily of
interest and gains on the sale of investment securities. The decrease is due
primarily to less interest on fewer investments as securities were sold to fund
operations.
NET (LOSS). The Company's net (loss) in fiscal 1997 was $12,669,451 compared
with $4,668,540 in fiscal 1996. Fiscal 1997 net (loss) per share was $1.44
compared with a net (loss) per share in fiscal 1996 of $.56. The approximately
$8,000,000 increase in the fiscal 1997 loss compared with 1996 results primarily
from increases of approximately: $4,000,000 in research and development;
$2,700,000 in selling, general and administrative; a decrease in gross margin
from systems sales of approximately $1,000,000 on lower revenues; and an
approximately $144,000 decrease in other income (expense), net.
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. (See additional information in the Notes to the
Consolidated Financial Statements.)
<PAGE> 18
PAGE 16
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 $2,109,000,
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.
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
increased its revenues, 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 the products described
above under "Product Research and Development" 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 continue to
increase its revenues. However, there can be no assurance the Company will be
able to continue to increase its revenues.
At January 31,1999, the Company had cash and cash equivalents of $5,445,498.
Cash equivalents consist primarily 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
believes the Company could achieve break-even or profitability in fiscal year
1999, before interest expense, on a revenue increase similar to 1998. 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 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 January 31, 1999.
<PAGE> 19
PAGE 17
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
LanVision Systems, Inc. is responsible for the preparation, integrity and fair
presentation of its published financial statements. The accompanying
Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles and, as such, include amounts based on
judgments and estimates made by management. Management also prepared the other
information included in this Annual Report and is responsible for its accuracy
and consistency with the Consolidated Financial Statements.
The Consolidated Financial Statements have been audited by the independent
accounting firm, Ernst & Young LLP, which was given unrestricted access to all
financial records and related data, including minutes of all meetings of
stockholders, the Board of Directors and committees of the Board. The Company
believes that all representations made to the independent auditors during their
audit were accurate and appropriate. Based on their audit of the Consolidated
Financial Statements, Ernst & Young LLP have issued their audit report, which
appears below.
In meeting its responsibility for the integrity of the Consolidated Financial
Statements, management relies on a system of internal controls. This system is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's
authorization. The Company continuously assesses the effectiveness of the
internal controls and makes improvements thereto as necessary.
/s/ J. Brian Patsy /s/ Thomas E. Perazzo
J. Brian Patsy Thomas E. Perazzo
Chairman of the Board and Chief Operating Officer and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors
LanVision Systems, Inc.
We have audited the consolidated balance sheets of LanVision Systems, Inc. as of
January 31, 1999 and 1998, and the related consolidated statements of
operations, changes in convertible redeemable preferred stock and stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
January 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LanVision Systems,
Inc. at January 31, 1999 and 1998 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1999 in conformity with generally accepted accounting principles.
Cincinnati, Ohio
March 9, 1999 /s/ Ernst & Young LLP
<PAGE> 20
<TABLE>
<CAPTION>
PAGE 18
CONSOLIDATED BALANCE SHEETS
ASSETS
Fiscal Year
---------------------------------
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,445,498 $ 2,142,881
Investment securities -- 5,074,258
Accounts receivable, net of allowance for doubtful
accounts of $325,000 and $265,000, respectively 3,642,330 2,992,987
Unbilled receivables 2,383,964 1,135,365
Other 1,024,960 1,179,603
------------ ------------
Total current assets 12,496,752 12,525,094
Property and equipment:
Computer equipment 4,407,863 3,876,962
Computer software 588,441 487,841
Office furniture, fixtures and equipment 1,534,206 1,424,036
Leasehold improvements 930,920 931,020
------------ ------------
7,461,430 6,719,859
Accumulated depreciation and amortization (3,321,466) (1,563,202)
------------ ------------
4,139,964 5,156,657
Investment securities -- 3,834,908
Capitalized software development costs, net of accumulated
amortization of $920,228 and $661,896, respectively 749,701 612,033
Other 98,633 71,430
------------ ------------
$ 17,485,050 $ 22,200,122
============ ============
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 474,189 $ 1,631,941
Accrued compensation 543,790 943,221
Accrued other expenses 3,105,021 1,746,883
Deferred revenues 1,083,837 1,061,996
------------ ------------
Total current liabilities 5,206,837 5,384,041
Long-term debt 6,000,000 --
Long-term accrued interest 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 35,102,459 35,110,817
Treasury stock, at cost, 81,980 and 90,500 shares, respectively (389,692) (430,188)
Accumulated (deficit) (28,954,686) (18,028,716)
Accumulated other comprehensive income -- 75,203
------------ ------------
Total stockholders' equity 5,847,046 16,816,081
============ ============
$ 17,485,050 $ 22,200,122
============ ============
</TABLE>
See accompanying notes
<PAGE> 21
PAGE 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year
--------------------------------------------------------------
1998 1997 1996
---- ---- ----
REVENUES:
<S> <C> <C> <C>
Systems sales $ 5,541,226 $ 4,027,707 $ 6,756,226
Services, maintenance and support 5,573,850 4,648,041 3,553,826
Service bureau operations 894,935 -- --
------------ ------------ ------------
Total revenues 12,010,011 8,675,748 10,310,052
OPERATING EXPENSES:
Cost of systems sales 1,758,222 2,443,319 4,173,707
Cost of services, maintenance and support 5,543,302 5,139,672 3,869,636
Cost of service bureau operations 2,868,436 -- --
Selling, general and administrative 7,860,031 9,356,723 6,647,470
Product research and development 3,740,215 5,553,778 1,580,089
Restructuring expense 700,000 -- --
------------ ------------ ------------
Total operating expenses 22,470,206 22,493,492 16,270,902
------------ ------------ ------------
Operating (loss) (10,460,195) (13,817,744) (5,960,850)
Other income (expense):
Interest income 385,100 1,148,293 1,372,235
Interest expense (850,875) -- (79,925)
------------ ============ ------------
Net (loss) $(10,925,970) $(12,669,451) $ (4,668,540)
============ ============ ============
Basic and diluted net (loss) per common share $ (1.24) $ (1.44) $ (.56)
============ ============ ============
Number of shares used in per common share computations 8,811,019 8,827,478 8,283,761
============ ============ ============
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' Equity (Deficit)
---------------------------------------------------------------------------------
Convertible Accumulated
redeemable Capital in other
preferred Common excess of Treasury Accumulated comprehensive
stock stock par value stock (deficit) income
-------------- ---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 31, 1996 $ 850,000 $ 45,000 $ -- $ -- $ (690,725) $ --
Issuance of common stock -- 29,005 34,275,777 -- -- --
Conversion of preferred
stock (850,000) 14,960 835,040 -- -- --
Net (loss) -- -- -- -- (4,668,540) --
Unrealized net gains on
investment securities,
net of reclassification
adjustment -- -- -- -- -- 80,606
Comprehensive (loss)
------------ ------------ ------------ ------------ ------------ ------------
Balances at January 31, 1997 -- 88,965 35,110,817 -- (5,359,265) 80,606
Purchase of common stock -- -- -- (430,188) -- --
Net (loss) -- -- -- -- (12,669,451) --
Unrealized net gains on
investment securities,
net of reclassification
adjustment -- -- -- -- -- (5,403)
Comprehensive (loss)
------------ ------------ ------------ ------------ ------------ ------------
Balances at January 31, 1998 -- 88,965 35,110,817 (430,188) (18,028,716) 75,203
Sale of treasury stock -- -- (8,358) 40,496 -- --
Net (loss) -- -- -- -- (10,925,970) --
Unrealized net gains on
investment securities, net of
reclassification adjustments -- -- -- -- -- (75,203)
Comprehensive (loss)
============ ============ ============ ============ ============ ============
Balances at January 31, 1999 $ -- $ 88,965 $ 35,102,459 $ (389,692) $(28,954,686) $ --
============ ============ ============ ============ ============ ============
<CAPTION>
Stockholders' Equity (Deficit)
-----------------------------
Total
stockholders'
equity
(deficit)
-------------
<S> <C>
Balances at January 31, 1996 $ (645,725)
Issuance of common stock 34,304,782
Conversion of preferred
stock 850,000
Net (loss) (4,668,540)
Unrealized net gains on
investment securities,
net of reclassification
adjustment 80,606
------------
Comprehensive (loss) (4,587,934)
------------
Balances at January 31, 1997 29,921,123
Purchase of common stock (430,188)
Net (loss) (12,669,451)
Unrealized net gains on
investment securities,
net of reclassification
adjustment (5,403)
------------
Comprehensive (loss) (12,674,854)
------------
Balances at January 31, 1998 16,816,081
Sale of treasury stock 32,138
Net (loss) (10,925,970)
Unrealized net gains on
investment securities, net of
reclassification adjustments (75,203)
------------
Comprehensive (loss) (11,001,173)
------------
Balances at January 31, 1999 $ 5,847,046
============
</TABLE>
See accompanying notes
<PAGE> 22
<TABLE>
<CAPTION>
PAGE 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year
---------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net (loss) $(10,925,970) $(12,669,451) $ (4,668,540)
Adjustments to reconcile net (loss) to net cash
(used for) operating activities:
Depreciation and amortization 2,016,596 1,003,703 451,452
Increase in long-term accrued interest 431,167 -- --
Cash (used for) provided by assets and liabilities:
Accounts and unbilled receivables (1,897,942) (530,496) (1,049,137)
Other assets 154,643 (606,635) (408,786)
Accounts payable (1,157,752) 382,604 64,180
Accrued expenses 958,707 1,061,702 1,417,675
Deferred revenues 21,841 561,213 (345,321)
------------ ------------ ------------
Net cash (used for) operating activities (10,398,710) (10,797,360) (4,538,477)
------------ ------------ ------------
Investing activities:
Purchases of investment securities (9,836,409) (29,409,163) (42,377,849)
Proceeds from sales of investment securities 18,670,372 46,422,143 16,490,387
Purchases of property and equipment (741,571) (3,779,863) (2,444,620)
Purchase of technology -- (100,000) --
Capitalization of software development costs (396,000) (396,000) (170,000)
Other (27,203) (30,911) --
------------ ------------ ------------
Net cash provided by (used for) investing activities 7,669,189 12,706,206 (28,502,082)
------------ ------------ ------------
Financing activities:
Proceeds from issuance of long-term debt 6,000,000 -- --
Payments on line of credit -- -- (600,000)
Issuance of common stock -- -- 34,304,782
Sale (purchase) of treasury stock 32,138 (430,188) --
------------ ------------ ------------
Net cash provided by (used for) financing activities 6,032,138 (430,188) 33,704,782
------------ ------------ ------------
Increase in cash and cash equivalents 3,302,617 1,478,658 664,223
Cash and cash equivalents at beginning of year 2,142,881 664,223 --
------------ ------------ ------------
Cash and cash equivalents at end of year $ 5,445,498 $ 2,142,881 $ 664,223
============ ============ ============
Supplemental cash flow disclosures:
Interest paid $ 336,000 $ -- $ 79,925
============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 23
PAGE 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LanVision Systems, Inc. (the "Company") operates in one segment as a provider of
Healthcare Information Access Systems through the licensing of software
applications and the use of such applications through its service bureau
operations. The Company's products enable hospitals and integrated healthcare
delivery systems in the United States to capture, store, manage, route, retrieve
and process vast amounts of clinical and financial patient information.
FISCAL YEAR
All references to a fiscal year refer to the fiscal year of the Company
commencing February 1 in that calendar year and ending on January 31 of the
following year.
CONSOLIDATION
The consolidated financial statements include the accounts of LanVision Systems,
Inc. and its subsidiary, LanVision, Inc. All significant intercompany
transactions are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is derived from: the licensing and sale of systems comprising internally
developed software, third-party software and hardware components; product
support, maintenance and professional services; and service bureau operations
that provide high quality, transaction-based document imaging/management
services from a central data center. The Company's revenue recognition policies
through the end of fiscal 1997, conformed to Statement of Position 91-1,
Software Revenue Recognition. Effective for fiscal 1998, the Company's revenue
recognition policies conform to Statement of Position 97-2, Software Revenue
Recognition. The change in accounting policy did not have a material impact on
revenue recognition. Generally, revenue from software license fees and hardware
sales is recognized when a master agreement is signed and products are shipped.
Revenue related to routine installation and integration and project management
is deferred until the work is performed. If a contract 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 deemed insignificant, depending on the contractual
terms. Revenue from consulting, education, services and service bureau
operations is recognized as the services are performed. Revenue from short-term
support and maintenance agreements is recognized ratably over the term of the
agreements. Billings to customers recorded prior to the recognition of revenue
are classified as deferred revenues. Revenue recognized prior to progress
billings to customers is recorded as unbilled receivables.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits, overnight repurchase
agreements, money market accounts and highly liquid investments with original
maturities of three months or less.
INVESTMENT SECURITIES
The Company accounts for investment securities under the provisions of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company's investment securities are classified
under Statement No. 115 as "available-for-sale" and, accordingly, are carried at
fair market value. Unrealized net gains
<PAGE> 24
PAGE 22
are included as the accumulated other comprehensive income component of
stockholders' equity, net of income taxes, until realized. Interest earned is
included in other income (expense) in the Consolidated Statements of Operations.
Effective for fiscal 1998, the Company's accounting disclosure for unrealized
net gains conforms to Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. The change did not have a material impact on the
financial statements.
CONCENTRATIONS
Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk, consist
primarily of accounts receivable. The Company's accounts receivable are
concentrated in the healthcare industry. However, 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. The Company's client, The
Detroit Medical Center (DMC), is experiencing significant operating losses and,
as part of an overall restructuring, they are seeking to cancel its contract
with the Company's service bureau operations. The agreement between The DMC and
the Company does not provide for an early termination, and The DMC has certain
performance obligations. The Company has initiated settlement discussions with
The DMC. However, the Company cannot predict the outcome of these discussions.
At January 31, 1999, LanVision's receivables due from The DMC approximated
$512,000. Management believes it has adequately provided for any possible
uncollectible amounts.
To date, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. The Company expects that a
significant portion of its future revenues will continue to be generated by a
limited number of customers and its remarketing partners. The failure to obtain
new customers or expand sales through remarketing partners, the loss of existing
customers or reduction in revenues from existing customers could materially and
adversely affect the Company's operating results (See Note 6.).
The Company currently buys all of its hardware and some major software
components of its Healthcare Information Access Systems from third-party
vendors. Although there are a limited number of vendors capable of supplying
these components, management believes that other suppliers could provide similar
components on comparable terms. A change in suppliers, however, could cause a
delay in system implementations and a possible loss of revenues, which could
adversely affect operating results.
OTHER CURRENT ASSETS
Other current assets are primarily: prepaid loan fees, insurance, commissions
and maintenance, deposits and prepaid expenses related to future revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line, half year convention method (except for service bureau operations
which begins depreciation of computer equipment and software when the assets are
placed in service), over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
Computer equipment and software 3-4 years
Office equipment 5 years
Office furniture and fixtures 7 years
Leasehold improvements Life of lease
Depreciation expense for 1998, 1997 and 1996 was $1,758,264, $875,370 and
$373,452, respectively.
<PAGE> 25
PAGE 23
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Software to
be Sold, Leased or Otherwise Marketed. Costs associated with the planning and
designing phase of software development, including coding and testing activities
necessary to establish technological feasibility are classified as product
research and development and are expensed as incurred. Once technological
feasibility has been determined, a portion of the costs incurred in development,
including coding, testing and product quality assurance, are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value.
The Company capitalized $396,000, $396,000 and $170,000 in 1998, 1997 and 1996,
respectively. Research and development expense was $3,740,215, $5,553,778 and
$1,580,089 in 1998, 1997 and 1996, respectively.
Amortization is provided on a product-by-product basis over the estimated
economic life of the software, not to exceed three years, using the
straight-line method. Amortization commences when a product is available for
general release to customers. Unamortized capitalized costs determined to be in
excess of the net realizable value of a product are expensed at the date of such
determination. Amortization expense was $258,332, $128,333 and $78,000 in 1998,
1997 and 1996, respectively.
ACCRUED OTHER EXPENSES
Accrued other expenses at January 31, 1999 and 1998 include: warranty reserves
and accrued franchise and property taxes and professional fees.
RESTRUCTURING EXPENSE
During the second quarter of fiscal 1998, the Company restructured certain
aspects of its operations to flatten the management structure, reduce expenses
in all areas and, at the same time, improve customer service. Accordingly, the
Company accrued $300,000 for the anticipated costs of severance and related
taxes and fringe benefits for the reduction of the work force by 16 people. The
liability was recorded as a current liability at the end of the second quarter
and substantially all of the liability was paid during the third quarter. As
LanVision has completed certain of its major software development projects, the
Company has been able to further reduce its staff and the use of outside
contractors in product development. As a result of the above reductions in
staff, the Company has excess space at certain facilities. Accordingly, a fourth
quarter restructuring charge of $400,000 was accrued to downsize the existing
facilities to the current and anticipated near term needs. The Company has
engaged brokers to sublease or terminate long-term lease commitments at certain
facilities.
INCOME TAXES
The provisions for income taxes are accounted for in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, was effective beginning with fiscal year 1996. The Statement
establishes a fair value method of financial accounting and reporting for
stock-based compensation plans. The Company elected to continue to account for
stock options under the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and,
accordingly, has adopted the disclosure only provisions of Statement 123.
<PAGE> 26
PAGE 24
NET (LOSS) PER COMMON SHARE
The net (loss) per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share. The basic net (loss)
per common share is computed based on the weighted average number of common
shares outstanding during each period. The diluted net (loss) per common share
reflects the potential dilution that could occur if Stock Options and Warrants
were exercised into Common Stock, under certain circumstances, that then would
share in the earnings of the Company. The diluted net (loss) per common share
calculation, in fiscal 1998, 1997 and 1996, excludes the effect of the Stock
Options and Warrants as the inclusion thereof would be antidilutive.
2. OPERATING LEASES
The Company rents office space and equipment under noncancelable operating
leases that expire in 2003. Future minimum lease payments under noncancelable
operating leases for the next five fiscal years are as follows: 1999: $850,352;
2000: $605,140; 2001: $450,398; 2002: $154,589; and 2003: $48,532. Rent expense
was $812,470, $637,110 and $252,383 for fiscal years 1998, 1997 and 1996,
respectively.
3. LONG-TERM DEBT
In July, 1998, the Company issued a $6,000,000 note to The HillStreet Fund,
L.P., which bears interest at 12%, payable monthly. The note is repayable in
quarterly installments of $500,000 commencing October, 2001 through July, 2004.
In July, 2002, the Company has a one-time option to prepay, in full, the then
outstanding balance of the note. The note is secured by all of the assets of the
Company and the loan agreement restricts the Company from incurring additional
indebtedness for borrowed money, including capitalized leases, limits certain
investments, restricts substantial asset sales, capital expenditures, cash
dividends, stock repurchases and mergers and consolidations with unaffiliated
entities. In addition, the Company is required to maintain certain financial
conditions, including minimum levels of revenues, combined cash and investments
and net worth.
In connection with the issuance of the note, the Company issued Warrants to
purchase 750,000 shares of Common Stock of the Company at $3.87 per share at any
time after May 16, 1999 through July 16, 2008. The Warrants are subject to the
customary antidilution and registration rights provisions.
Under the terms of the loan agreement, the Company has guaranteed the lender
that the increase in the market value of the stock underlying the Warrants, at
the time of loan maturity, over the exercise price plus the 12% interest paid on
the loan will yield the lender a 25% compound annual return. If the yield from
the Warrants plus interest paid does not provide the lender with the guaranteed
return, the Company is required to pay the additional amount in cash at the time
of maturity. Accordingly, the Company is accruing interest on the loan at a 25%
compound interest rate, regardless of the market value of the stock and the
inherent value of the Warrants. Should the Company exercise its prepayment
option in July, 2002, then the minimum guaranteed rate of return is increased to
30%.
However, to the extent that the computed minimum compound annual rate of return
exceeds 30% at the date of the prepayment, the Company has the right to cancel
up to 150,000 Warrants.
In addition, the founders and majority shareholders of the Company have
consented to certain restrictions on the sale or transfer of their shares.
Maturities of long-term debt are as follows: fiscal years 1999 and 2000, $-0-;
2001, $1,000,000; 2002, $2,000,000; 2003, $2,000,000; 2004, $1,000,000.
Management believes the fair market value of the long-term debt and its
accompanying Warrants approximates the carrying value.
The Company was in compliance, or has obtained waivers for non-compliance, with
all of the amended terms and conditions of the loan agreement as of January 31,
1999.
<PAGE> 27
PAGE 25
4. INCOME TAXES
The Company had no income tax expense or (benefit) for 1998, 1997 and 1996.
The (benefit) expense for income taxes differs from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal tax (benefit) expense at
statutory rate $ (3,714,830) $ (4,307,613) $ (1,587,304)
(Loss) for which benefit not provided 3,714,830 4,307,613 1,587,304
================ ================ ================
$ -- $ -- $ --
================ ================ ================
</TABLE>
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences are as follows:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1998 1997 1996(1)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating (loss) carryforwards $ 9,576,271 $ 6,061,074 $ 2,352,493
Accounts payable and accrued liabilities 1,102,738 849,876 1,064,764
Other 156,280 98,050 185,290
---------------- ---------------- ----------------
10,835,289 7,009,000 3,602,547
Less valuation allowance (10,835,289) (6,991,066) (1,989,722)
---------------- ---------------- ----------------
Net deferred tax assets -- 17,934 1,612,825
Deferred tax liabilities:
Accounts and unbilled receivables -- -- (1,311,369)
Capitalized software costs -- -- (90,416)
Prepaid assets -- -- (204,482)
Equipment -- (17,934) (6,558)
---------------- ---------------- ----------------
-- (17,934) (1,612,825)
================ ================ ================
$ -- $ -- $ --
================ ================ ================
</TABLE>
(1) Calculations based on a cash basis tax return for fiscal year 1996.
At the end of fiscal 1998, the Company had a net operating (loss) carryforward
of approximately $25,900,000, which begins to expire in 2009.
5. RETIREMENT PLAN
The Company has established a 401(k) retirement plan that covers substantially
all employees. Company contributions to the plan may be made at the discretion
of the Board of Directors. To date, no Company contributions have been made to
the plan.
6. MAJOR CUSTOMERS
During fiscal 1998, three customers accounted for 10%, 9% and 8% of total
revenues. During fiscal 1997, three customers accounted for 13%, 13% and 12% of
total revenues. During fiscal year 1996, three customers accounted for 21%, 17%
and 11% of total revenues. At January 31, 1999 and 1998, 42% and 44%,
respectively, of the Company's accounts receivable were due from three
customers.
<PAGE> 28
PAGE 26
7. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations, in
accounting for its stock options because, as discussed below, the alternative
fair value method of accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, requires
use of option valuation models that were not developed for use in valuing stock
options. Accordingly, the Company adopted the disclosure only provisions of
Statement 123. All of the Company's stock options have been issued with an
exercise price equal to the estimated fair market value of the underlying stock
at the date of grant. Accordingly, under Opinion 25, no compensation expense is
recognized.
The Company's Employee Stock Option Plan authorizes the grant of options to
employees for up to 825,000 shares of the Company's Common Stock. The options
granted have terms of ten years or less and generally vest and become fully
exercisable ratably over three years of continuous employment from the date of
grant, except with respect to 28,875 options which were granted in fiscal 1995,
and became fully vested and exercisable on December 1, 1996. At January 31,
1999, options to purchase 593,652 shares of the Company's Common Stock have been
granted under the Plan.
The Company's Non-Employee Directors Stock Option Plan authorizes the grant of
options for up to 100,000 shares of the Company's Common Stock. All options
granted have terms of ten years or less and vest and become fully exercisable
ratably over four years of continuous service as a Director from the date of
grant. Options for 5,000 shares have been granted under this plan to one
Director, of which 2,500 options are excercisable and vested. In addition,
non-qualified stock options to purchase 5,000 shares were granted to the same
Director in April, 1996, and vested ratably over two years.
The Company also issued non-qualified stock options to purchase 99,841 shares of
the Company's Common Stock to two employees prior to the initial public offering
of the Company's Common Stock. Of the total, 69,778 were granted in fiscal 1995,
with a term of ten years and vest ratably over three years, commencing two years
from the date of grant, and have an exercise price of $1.00 per share. The
remaining 30,063 options were granted in 1990, with a term of approximately
eleven years and became exercisable in 1991 with an aggregate price of $1.00.
Pro forma information regarding the net (loss) and net (loss) per common share
is required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 1998, 1997 and 1996: risk-free interest rates of 5.0% in
1998, 5.4% in 1997 and 6.3% in 1996; a dividend yield of zero percent; a
volatility factor of the expected market price of the Company's Common Stock of
.911 in 1998, .788 in 1997 and .827 in 1996, and a weighted average expected
life of the options of five years.
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in the Company's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the average vesting period of the options. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------
Pro forma
--------- 1998 1997 1996
----------------- ----------------- -------------
<S> <C> <C> <C>
Net (loss) $ (11,110,786) $ (13,266,041) $ (6,276,119)
=============== =============== =============
Basic net (loss) per common share $ (1.26) $ (1.50) $ (.76)
=============== =============== =============
</TABLE>
The pro forma disclosures are not likely to be representative of the effects on
earnings reported for future years.
<PAGE> 29
PAGE 27
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
----------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 701,248 $ 7.78 650,873 $ 8.84 527,018 $ 8.21
Granted 248,000 3.01 166,500 5.32 141,840 11.40
Forfeited (245,755) 7.97 (116,125) 10.34 (17,985) 10.40
=========== ========== ===========
Outstanding - end of year 703,493 6.04 701,248 7.78 650,873 8.84
=========== =========== ========== =========== =========== ============
Exercisable at end of year 378,053 $ 7.61 387,217 $ 8.02 299,605 $ 9.36
=========== =========== ========== =========== =========== ============
Weighted average fair value of
options granted during year $ 2.19 $ 3.51 $ 7.87
=========== ========== ===========
</TABLE>
The following table summarizes, by range of exercise price, the options as of
January 31, 1999:
<TABLE>
<CAPTION>
Options Weighted
- ---------------------------------- average Approximate
exercise remaining life
Outstanding Exercisable price in years
- ---------------- -------------- ------------- -----------------
<S> <C> <C> <C>
30,063 30,063 $ - (1) 2
69,778 59,778 1.00(2) 6
603,652 288,212 6.93(3) 9
================ ==============
703,493 378,053 6.04
================ ==============
(1) $1.00 in the aggregate for all 30,063 options.
(2) $1.00 per share for each of the 69,778 options.
(3) The exercise prices range from $2.87 to $14.50, of which 266,652 shares are between
$10.40 and $14.50 per share and 141,000 shares are between $4.00 and $7.38 per share
and 196,000 shares at $2.88 per share.
</TABLE>
Exercise prices for options outstanding as of January 31, 1999 ranged from $1.00
in the aggregate for 30,063 options to $14.50 per share. The weighted average
remaining contractual life of these options is approximately nine years.
The Employee Stock Option Plan contains change of control provisions whereby any
outstanding options subject to vesting which have not fully vested as of the
date of the change in control shall automatically vest and become immediately
exercisable. One of the change in control provisions is deemed to occur if there
is a change in beneficial ownership, or authority to vote, directly or
indirectly, securities representing 20% or more of the total of all of the
Company's then outstanding voting securities, unless through a transaction
arranged by, or consummated with the prior approval of the Board of Directors.
Other change in control provisions relate to mergers and acquisitions or a
determination of change in control by the Company's Board of Directors.
Awad Asset Management, Inc. has advised the Company that it has acquired, in the
open market, 1,449,950 shares or 16.45% of the total outstanding shares of the
Company. Based on 8,814,520 shares outstanding as of January 31, 1999, should an
additional 312,954 shares or 3.55%, be acquired by Awad Asset Management, Inc.,
all of the then outstanding and non-vested options under the Employee Stock
Option Plan would immediately vest.
<PAGE> 30
PAGE 28
8. STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which employees may
purchase up to 500,000 shares of Common Stock. Under the plan, eligible
employees may elect to contribute, through payroll deductions, up to 10% of
their base pay to a trust during any plan year, July 1 through June 30, of the
following year. At June 30 of each year, the plan acquires for the benefit of
the employees shares of Common Stock at the lesser of (a) 85% of the Fair Market
Value of the Common Stock on July 1, of the prior year, or (b) 85% of the Fair
Market Value of the Common Stock on June 30, of the current year.
During fiscal year 1998, 8,520 shares were purchased at the price of $3.77 per
share.
The purchase price at June 30, 1999, will be 85% of the lower of (a) the closing
price on July 1, 1998 ($4.25) or (b) 85% of the closing price on June 30, 1999.
9. COMMITMENTS AND CONTINGENCIES
MAINTENANCE AGREEMENTS
The Company has maintenance agreements to provide services in future periods
after the expiration of an initial warranty period. The Company invoices
customers in accordance with the agreements and records the invoicing as
deferred revenues and recognizes the revenues ratably over the term of the
maintenance agreements. The Company warrants to customers that its software will
meet certain performance requirements and has warranted, to certain customers,
that its software will be Year 2000 Compliant.
SERVICE BUREAU OPERATIONS
The Company enters into long-term agreements to provide document
imaging/management and workflow services to its healthcare customers on an
outsourced basis from its central data center.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its officers and
employees that generally provide annual salary, a minimum bonus, discretionary
bonus, stock incentive provisions and severance arrangements.
RESERVED COMMON STOCK
The Company has reserved 1,529,841 shares of the Common Stock authorized for
issuance in connection with various Stock Option and Purchase Plans, and 750,000
shares for the Warrants issued in connection with the long-term debt.
10. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Comprehensive Income,
requires supplemental disclosure for the accounting for unrealized holding gains
on available-for-sale securities, and a reconciliation to comprehensive income
(loss).
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Net (loss) $(10,925,970) $(12,669,451) $ (4,668,540)
Unrealized holding gains (losses) arising
during the period (9,570) 147,295 90,848
Reclassification adjustment for gains (losses)
included in net (loss) (65,633) (152,698) (10,242)
============ ============ ============
Comprehensive (loss) $(11,001,173) $(12,674,854) $ (4,587,934)
============ ============ ============
</TABLE>
<PAGE> 31
PAGE 29
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following sets forth selected quarterly financial information for fiscal
years 1998, 1997, and 1996.
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,605 $ 3,008 $ 2,836 $ 2,561 $ 12,010
Operating (loss) (3,239) (2,938) (1,815) (2,468) (10,460)
Net (loss) (3,136) (2,911) (2,111) (2,768) (10,926)
Basic and diluted net (loss) per share (a) (.36) (.33) (.24) (.31) (1.24)
Weighted average shares outstanding 8,806 8,809 8,815 8,815 8,811
======== ======== ======== ======== ========
Stock Price (c)
High $ 5.87 $ 4.62 $ 3.37 $ 3.25 $ 5.87
Low $ 3.62 $ 2.50 $ 0.87 $ 0.90 $ 0.87
Quarter-end close $ 4.50 $ 3.00 $ 1.25 $ 2.71 $ 2.71
Cash dividends declared (d) $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter 1997
--------------------------------------------------------------
Revenues $ 2,113 $ 1,569 $ 2,329 $ 2,665 $ 8,676
Operating (loss) (3,176) (3,815) (2,951) (3,876) (13,818)
Net (loss) (2,846) (3,530) (2,664) (3,629) (12,669)
Basic and diluted net (loss) per share (a) (.32) (.40) (.30) (.41) (1.44)
Weighted average shares outstanding 8,886 8,813 8,806 8,806 8,827
======== ======== ======== ======== ========
Stock Price (c)
High $ 8.00 $ 6.75 $ 8.00 $ 6.75 $ 8.00
Low $ 3.37 $ 4.50 $ 4.62 $ 4.25 $ 3.37
Quarter-end close $ 4.50 $ 5.25 $ 6.03 $ 4.62 $ 4.62
Cash dividends declared (d) $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter 1996
--------------------------------------------------------------
Revenues $ 2,113 $ 3,370 $ 3,035 $ 1,792 $ 10,310
Operating (loss) (701) (609) (1,636) (3,015) (5,961)
Net (loss) (780) (139) (1,179) (2,571) (4,669)
Basic and diluted net (loss) per share (a) (.12) (.02) (.13) (.29) (.56)
Weighted average shares outstanding 6,405 8,896 8,896 8,896 8,284
======== ======== ======== ======== ========
Stock Price (b) (c)
High $ 18.75 $ 18.75 $ 14.50 $ 9.00 $ 18.75
Low $ 14.50 $ 8.50 $ 7.75 $ 6.25 $ 6.25
Quarter-end close $ 18.37 $ 9.50 $ 8.62 $ 7.12 $ 7.12
Cash dividends declared (d) $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
(a) Quarterly amounts may not be additive.
(b) The Company began trading on The Nasdaq Stock Market on April 18, 1996, the
date of the initial public offering.
(c) Obtained from The Nasdaq Stock Market, Inc.
(d) The Company has not paid a dividend on its Common Stock since its
inception and does not intend to pay any cash dividends in the
foreseeable future.
</TABLE>
<PAGE> 32
PAGE 30
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
DIRECTORS
George E. Castrucci(1) (2)*
Retired Chief Executive Officer
Great American Broadcasting Company
Eric S. Lombardo
Executive Vice President
LanVision Systems, Inc.
J. Brian Patsy
Chairman of the Board and Chief Executive Officer
LanVision Systems, Inc.
Z. David Patterson(1)* (2)
Executive Vice President
Blue Chip Venture Company
(1) Audit Committee
(2) Compensation Committee
* Committee Chairman
OFFICERS
J. Brian Patsy
Chairman of the Board, Chief Executive Officer
and President
Eric S. Lombardo
Executive Vice President
President, Virtual Healthware Services Division
Corporate Secretary
Thomas E. Perazzo
Chief Operating Officer, Chief Financial Officer
and Treasurer
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Corporate Headquarters
LanVision Systems, Inc.
One Financial Way, Suite 400
Cincinnati, Ohio 45242-5859
(513) 794-7100
Stock Transfer Agent
Fifth Third Bank
Corporate Trust Administration
Fifth Third Center
Mail Location 1090D2
Cincinnati, Ohio 45263
Independent Auditors
Ernst & Young LLP
Cincinnati, Ohio
Annual Meeting
The Annual Meeting of Stockholders will be held on May 26, 1999.
Form 10-K and Investor Contact
The Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available without charge to stockholders and investment
professional securities analysts upon written requests. These requests should be
directed to: Investor Relations at the Corporate Headquarters.
Common Stock
The Company's common stock trades on The Nasdaq Stock Market under the symbol
LANV.
As of March 31, 1999, there were approximately 2,300
stockholders
LanVision Systems, Inc. World Wide Web Site
Visit us at - http://www.lanvision.com
<PAGE> 33
[LOGO]
LanVision(TM)
Healthcare Information Access Systems
LANVISION SYSTEMS, INC.
ONE FINANCIAL WAY, SUITE 400
CINCINNATI, OH 45242-5859
PHONE: 513.794.7100, FAX: 513.794.7272
(C)LanVision Systems, Inc. 1999
All Rights Reserved
The following are servicemarks, trademarks or registered trademarks of
LanVision, Inc.: accessANYware(SM), AccountVision(TM), AVremit(TM),
AVregister(TM), ChartVision(R), Document Capture System(TM), Release of
Information(TM), LanVision(TM), [LanVision Logo](TM), MicroVision(TM),
MultiView(TM), OmniVision(TM), On-Line Chart Completion(TM), SCAN32(TM),
VisionFlow(R) and WebView(TM). All other trademarks are trademarks or registered
trademarks of their respective companies.
<PAGE> 1
Exhibit 21.1
LANVISION SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of
Name Incorporation % Owned
---- ------------- -------
LanVision, Inc. Ohio 100%
<PAGE> 1
Exhibit 23.1
LANVISION SYSTEMS, INC.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of LanVision Systems, Inc. of our report dated March 9, 1999, included in the
1998 Annual Report to Stockholders of LanVision Systems, Inc.
Our audits also included the financial statement schedule of LanVision Systems,
Inc. listed in Item 14. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule, referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration
Statements and related prospectuses of LanVision Systems, Inc. of our report
dated March 9, 1999, with respect to the consolidated financial statements and
schedule of LanVision Systems, Inc. incorporated by reference in the Annual
Report on Form 10-K for the year ended January 31, 1999.
<TABLE>
<CAPTION>
Form Registration No. Description
---- ---------------- -----------
<S> <C> <C>
S-8 333-28055 1996 Employee Stock Purchase Plan
S-8 333-18625 1996 Employee Stock Option Plan
S-8 333-20765 1996 Non-Employee Directors Stock
Option Plan
S-8 333-20761 Robert F. Golden and Jeffrey L. VanVoorhis
Option Agreements (As Amended)
S-8 333-20763 George E. Castrucci Option Agreement
Cincinnati, Ohio / s / Ernst & Young LLP
April 23, 1999
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STTEMENTS CONTAINED IN THE COMPANY'S FORM 10-K
FOR THE PERIOD ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 5,445,498
<SECURITIES> 0
<RECEIVABLES> 6,351,294
<ALLOWANCES> 325,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,496,752
<PP&E> 7,461,430
<DEPRECIATION> 3,321,466
<TOTAL-ASSETS> 17,485,050
<CURRENT-LIABILITIES> 5,206,837
<BONDS> 6,000,000
0
0
<COMMON> 88,965
<OTHER-SE> 5,758,081
<TOTAL-LIABILITY-AND-EQUITY> 17,485,050
<SALES> 12,010,011
<TOTAL-REVENUES> 12,010,011
<CGS> 10,169,960
<TOTAL-COSTS> 22,470,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,925,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,925,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,925,970)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
