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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-28132
LANVISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1455414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 Duke Drive, Suite 170
Mason, Ohio 45040-9374
(Address of principal executive offices) (Zip Code)
(513) 459-5000
(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
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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 14, 2000, was $6,635,386.01.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of April 14, 2000: 8,848,093.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
January 31, 2000, 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 24, 2000, 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 an E-Health
Application Service Provider and leading supplier of Healthcare Information
Access Systems specializing in connectivity solutions that utilize the power of
the Internet/Intranet to link hospitals, physicians, patients and payers to a
robust Electronic Medical Record. The Company's products are complementary to
existing clinical and financial systems, and use document imaging and workflow
tools to ensure end users can electronically access all the various forms of
healthcare information including clinician's handwritten notes, lab reports,
photographs, insurance cards, etc. LanVision's E-Health solutions offer value to
all of the constituents in the healthcare delivery process by enabling them to
simultaneously access information from virtually any location, including the
physician's desktop using Web browser technology. Web access to the entire
medical record improves physician productivity and reduces administrative costs
such as filing, storage, retrieval and upkeep of medical records and clinical
costs, such as redundant diagnostic testing. The system enables healthcare
providers to access, on a real-time basis, all the various forms of clinical and
financial patient information from a single permanent healthcare information
repository. The Company's solutions integrate a proprietary document imaging
platform, application suites, and image and Web-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.
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In addition to providing the clinician access to information not previously
available at the desktop, the Company's applications fulfill 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.
Historically, the Company has derived its revenues from system sales involving
the licensing of its Electronic Medical Record Solution to Integrated Healthcare
Delivery Networks ("IDN"). In a typical transaction, the Company enters into a
perpetual license for the Company's Electronic Medical Record Software Suite and
licenses or sells other third party software and hardware components to the IDN.
Additionally, the Company provides professional services, including
implementation, training and product support.
With respect to systems sales, the Company earns its highest margins on
proprietary LanVision software and the lowest margins 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.
Beginning in 1998, the Company began offering customers the ability to obtain
its Electronic Medical Record Solution on a service bureau/E-Health basis. The
Company's Virtual Healthware Services ("VHS") division established a centralized
data center and installed the Company's Electronic Medical Record Suite within
the data center. Under this arrangement, customers electronically capture
information and transmit the data to the centralized data center. The VHS
division stores and manages the data using LanVision's Electronic Medical Record
Suite, and customers can view, print or fax the information from anywhere using
the LanVision Web-based applications. VHS charges and recognizes revenue for
these E-Health services on a per transaction basis as information is captured,
stored, and retrieved.
In February, 2000, the Company sold its centralized data center for $2.9
million. Simultaneous therewith, the Company entered into a service agreement
with the buyer. Under the terms of this service agreement, in exchange for
processing fees, the Company will continue to use the data center to provide
outsourcing services to LanVision's current and future customers. Although
LanVision sold the data center assets, the Company continues to market its
E-Health solutions. The Company continues to provide these solutions through the
data center and intends to pursue other data center service providers.
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The decision by a healthcare provider to replace, substantially modify or
upgrade its information systems is a strategic decision and often involves a
large capital commitment requiring an extended approval process. 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 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.
The Company's VHS E-Health/Application Service Provider division was 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. Customers pay for such services on a
transaction basis, and the centralized data center application is operated and
maintained by LanVision personnel and/or its agents. In 1999, VHS signed a
four-year contract with The Health Alliance of Greater Cincinnati, a group of
five hospitals in the Greater Cincinnati Area, to provide outsourced data center
operations of its LanVision Electronic Medical Record System. Management
believes more IDN's will begin to look for this type of E-Health application.
Additionally, the Company believes its business model is especially well suited
for the ambulatory marketplace. LanVision is actively pursuing remarketing
agreements with Healthcare Information Systems providers to distribute the
Company's E-Health solutions.
In 1998, the Company entered into a Remarketing Agreement with Shared Medical
Systems Corporation ("SMS"). Under the terms of the agreement, SMS was granted
an exclusive worldwide license to distribute ChartVision(R), On-Line Chart
Completion(TM), WebView(TM) and Enterprisewide Correspondence(TM) to the SMS
customer base and prospect base, as defined in the Agreement, and a
non-exclusive license to distribute all other LanVision products. If SMS
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distributes any other Electronic Medical Record product competing with
LanVision's products, the Company may terminate the SMS Remarketing Agreement.
Under the terms of the agreement, SMS remits royalties to LanVision based upon
SMS sublicensing the Company's software to SMS's customers. Twenty-five percent
of the royalty is due 30 days following the end of the quarter in which SMS
executes the end user license agreement with its customer. LanVision recognizes
this revenue upon receipt of the royalty statement. The remaining 75% of the
royalty is due upon SMS's shipment of software to the end user. LanVision
records this revenue when the 75% payment due from SMS is fixed and
determinable, which is generally when the software is shipped to the end user.
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 this growth, the healthcare industry is undergoing
significant change as competition and cost-containment measures imposed by
governmental and private payers 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 records are paper-based. The inefficiencies
of paper-based records increases the cost of patient care. Physicians often
cannot gain access to medical 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 records
which are paper-based and stored in various sites throughout the enterprise;
(ii) computerized patient data
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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.
Regulations Relating to Confidentiality
State and Federal laws regulate the confidentiality of patient records and the
circumstances under which such records may be released. These regulations govern
both the disclosure and use of confidential patient medical record information.
Regulations governing electronic health data transmissions are evolving rapidly
and are often unclear and difficult to apply. On August 22, 1996, President
Clinton signed the Health Insurance Portability and Accountability Act of 1996
("HIPAA"). This legislation requires the Secretary of Health and Human Services
(the "Secretary") to adopt national standards for certain types of electronic
health information transactions and the data elements used in such transactions
and to adopt standards to ensure the integrity and confidentiality of health
information. The Secretary issued some proposed standards. LanVision believes
that the proposed standards issued to date would not materially affect the
business of the Company if adopted as proposed. The Company cannot predict the
potential impact of the standards that have not yet been proposed or any other
standards that might be finally adopted instead of the proposed standards. The
HIPAA legislation also required the Secretary to submit recommendations to
Congress for legislation to protect privacy and
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confidentiality of personal health information. Congress failed to enact such
legislation by August 21, 1999, as required by HIPAA. However, as required by
HIPPA, the Secretary subsequently proposed such protections by regulation, which
have not yet become final. Congress may yet adopt legislation that may change,
override, conflict with or pre-exempt regulations. Additionally, legislation
governing the dissemination of medical record information is also frequently
proposed and debated at the state level. Such legislation, if enacted, could
require patient consent before even non-individually-identifiable (e.g., coded
or anonymous) patient information may be shared with third parties and could
also require that holders or users of such information implement specified
security measures. These laws or regulations, when adopted, could restrict the
ability of customers to obtain, use or disseminate patient information.
Management believes that the features and architecture of the Company's products
are such that the Company should be able to make the necessary modifications to
its products, if required, to ensure compliance with HIPPA, and other
legislation or regulations. However, if the regulations are unduly restrictive,
this could cause delays in the delivery of new versions of products and
adversely effect the licensing of the Company's products. Overall, management
believes the HIPPA standards will stimulate healthcare organizations to purchase
computer-based patient systems that automate the collection and use of medical
record information, while maintaining appropriate security over the information.
However, there can be no assurance an increase in purchasing new systems will
occur.
Rapid Technological Change and Evolving Market
The market for the Company's products and services is characterized by rapidly
changing technologies, regulatory requirements, evolving industry standards and
new product introductions and enhancements that may render existing products
obsolete or less competitive. As a result, the Company's position in the
healthcare information technology market could change rapidly due to unforeseen
changes in the features and functions of competing products, as well as the
pricing models for such products. The Company's future success will depend in
part upon the Company's ability to enhance its existing products and services
and to develop and introduce new products and services to meet changing
requirements.
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
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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 payer 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.
The LanVision Strategy
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 could be in excess of $1
billion, and the market is less than 10% penetrated.
In 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
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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.
Provide Application Service Provider Service Bureau Operations
LanVision established a new division, Virtual Healthware Services, 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. Customers are charged on a per
transaction basis, which is an attractive alternative to a hospital purchasing
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.
As previously announced, the Company sold its Mason, Ohio data center. However,
under a fee for service agreement, the Company will continue to use the data
center for its current and future clients.
The Company intends to aggressively market its E-Health solutions, and future
product development efforts will be designed to accommodate the Application
Service Provider business model.
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 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 - Web enabling tool" described below.)
The Company has continually added new features and functionality to its
Electronic Medical Record suite of products, including new security modules,
multi-entity support, etc. Additionally, the Company has been developing a new
version of AccountVision, a patient accounting product. The new version of
AccountVision was scheduled for release in 1999, but was delayed due to the
prioritization of other products.
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Currently, the Company is developing a new product accessANYware. This product
will be web-based and its Graphical User Interface will include the best
features of the Company's entire product portfolio, including AccountVision.
AccessANYware will utilize a common database for medical records and patient
accounting, thereby improving system administration and eliminating redundant
data entry.
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 technology through its
OmniVision and WebView products. 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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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 SMS, FileNet and Kofax. The
Company's Healthcare Information Access Systems incorporate advanced features,
including workflow and security features that 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.
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 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 utilizes the
Internet/Intranet to allow remote users to easily access an integrated
computerized patient record and document imaging system residing in a complete
Electronic Medical Record from virtually anywhere. The more important benefits
include:
o significantly lower maintenance and staff costs;
o lower data center investment and operating costs;
o the ability to seamlessly image-enable existing clinical, billing or
other third-party information systems; and
o 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 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
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across the entire enterprise can be image-enabled, including the host Healthcare
Information Systems, Patient Billing Systems, 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.
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, enterprise-wide applications, including over
2,000 workstations at Memorial Sloan-Kettering Cancer Center.
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.
Enterprisewide Correspondence (EWC)
Fulfills internal and external requests for information and allows for
automatic invoicing capability. EWC also provides the ability to
electronically search for, print, mail or fax information to third
parties that request copies of patient records. EWC 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.
The AccountVision Application Suite.....a Patient Financial Services application
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A new version of the AccountVision application suite, a Patient Financial
Services application, is under development. AccountVision 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.
accessANYware
The accessANYware(SM) product is an entirely new offering under development that
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.
The Foundation Suite
In 1999, LanVision introduced a new foundational architecture for its products
called Foundation Suite. It 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:
o multiple levels of security (administrative, user, patient, document,
workstation, physical location, and healthcare entity) configurable by
user, workstation and location, and
o full audit trails and reporting of every record viewed, printed, faxed,
processed or unauthorized login attempts at the patient encounter or
document level.
14
<PAGE> 15
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.
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 custom report development.
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.
Product research and development expense was $2,166,441, $3,740,215 and
$5,553,778 in 1999, 1998 and 1997, respectively. The Company capitalized
$300,000, $396,000 and $396,000 in 1999, 1998 and 1997, respectively.
15
<PAGE> 16
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
Texas Health Resources, Inc.: Harris Methodist Hospital, Fort Worth, TX
UCSF Stanford Healthcare, Palo Alto, CA
University of Pittsburgh Medical Center, Pittsburgh, PA
VHS service bureau customer:
The Health Alliance of Greater Cincinnati
In addition to the institutions listed above, Shared Medical Systems Corporation
has sold the LanVision Electronic Medical Record suite of products to nine
organizations as of March 31, 2000.
In fiscal year 1999, Beth Israel Medical Center, UCSF Stanford Healthcare, and
Memorial Sloan-Kettering Cancer Center, accounted for 10%, 9% and 9%,
respectively of the Company's total revenues. 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.
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.
16
<PAGE> 17
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, 2000, 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 $4,551,000. 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 1999, maintenance and support revenues approximated
$3,264,000 and are expected to increase in fiscal 2000. 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 remaining four-year life of
the contract.
The Company's master agreements also generally provide for an initial
maintenance period and give the customer the right to subscribe for maintenance
and support services on a monthly, quarterly or annual basis. Maintenance and
support revenues for fiscal years 1999, 1998 and 1997 were approximately
$3,264,000, $2,755,000 and $2,151,000, 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, stand-alone software is required
to operate the Company's proprietary
17
<PAGE> 18
software. The Company licenses these software products, and pays the required
royalties and/or license fees when such software is delivered to LanVision's
customers.
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
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 of McKesson HBOC,
Inc.); MedPlus, Inc. and Intelus Corporation (a subsidiary of Eclipsys
Corporation).
Employees
As of March 31, 2000, LanVision had 61 full-time employees. In addition, the
Company utilizes independent contractors to supplement its staff, as needed.
None of the Company's employees are
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<PAGE> 19
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 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 $581,000,
payable over the next three years.
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. This resulted in
significant net cash outlays over the last four years. Although the Company has
reduced staffing levels and related expenses, and improved operating
performance, the Company's expenses continue to exceed its revenues.
Accordingly, to achieve profitability, and positive cash flow, it is necessary
for the Company to increase revenues or continue to reduce expenses. Management
believes its recent product development efforts have significantly strengthened
the Company's product lines. Additionally, the SMS Remarketing Agreement has
significantly expanded the sales distribution capabilities, and management
believes that market opportunities are such that the Company should be able to
increase its revenues. However, there can be no assurance the Company will be
able to increase its revenues.
On February 11, 2000, the Company sold its Mason, Ohio Data Center for
approximately $2,900,000. The Company received $2,000,000 and the remaining
$900,000 will be received in twelve monthly installments commencing March 1,
2000. The sale will result in a gain of approximately $1,400,000.
At January 31, 2000, the Company had cash and cash equivalents of $5,411,920.
Immediately after the closing of the sale of the Mason, Ohio Data Center, the
Company's cash and cash equivalents approximated $7,800,000. Cash equivalents
consist primarily of overnight bank repurchase agreements and short-term
commercial paper. Under the terms of its loan agreement, as amended,
19
<PAGE> 20
the Company has agreed to maintain a minimum cash and investment balance of
$4,400,000, which increases monthly, starting March 1, 2000, by $75,000 per
month until February, 2001, at which time the minimum balance must be
$5,300,000.
Management has significantly reduced operating expenses throughout 1999, and
believes the Company will continue to improve operating results in fiscal 2000.
However, based upon current expenditure levels and in the absence of increased
revenues, the Company would continue to operate at a loss. Accordingly, for the
foreseeable future, management will need to continually assess its revenue
prospects compared to its current expenditure levels. If it does not appear
likely that revenues will increase, it may 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.
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, 2000.
ITEM 2. PROPERTIES
The Company's principal administrative and sales offices are located at 4700
Duke Drive, Suite 170, Mason, Ohio 45040-9374. The offices consist of
approximately 9,200 square feet of office space under a sublease that expires in
January, 2001, with renewal options. The rental expense for these facilities
approximates $72,000 annually.
The Company also leases office space for its finance and administration,
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 facilities approximates $115,000
annually. The Company is in the process of negotiating an extension of this
lease.
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 May, 2002. The rental expense
for these facilities approximates $148,000 annually. The Company recently closed
these offices and is in the process of consolidating its software engineering
and research and development operations at its Creek Road facility discussed
above. The Company has engaged a real-estate broker to sublease these
facilities.
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.
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<PAGE> 21
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Shareholders held on January 12, 2000, called to approve
a capital restructuring proposal to permit the Board of Directors, at its sole
discretion, to amend the Certificate of Incorporation of the Registrant to
effect a stock split of the Registrants issued and outstanding Common Stock at a
ratio not to exceed one-for-three (1:3), the proposal was approved by a vote of
6,024,379 for, 224,148 against and 27,600 abstained. To date the Company has not
implemented a reverse split and has no current plans to do so.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions held by the Executive Officers of the Company on
April 14, 2000 are:
<TABLE>
<CAPTION>
Elected to
Name Age Position(1) Present Position(2)
---- --- ----------- -------------------
<S> <C> <C> <C>
J. Brian Patsy 49 Chairman of the Board, President,
Chief Executive Officer, and Director 1989
Eric S. Lombardo 47 Executive Vice President, Director,
and Corporate Secretary 1989
Thomas E. Perazzo 46 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
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<PAGE> 22
the Board and Chief Executive Officer in March, 1996. Mr. Patsy has over 27
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 25 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, in Cincinnati, Ohio. Mr. Perazzo is a Certified Public
Accountant (inactive). Mr. Perazzo will cease to be an executive officer of the
Company after April 30, 2000.
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.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock trades on The Nasdaq SmallCap 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
1999 and 1998, as reported by The Nasdaq Stock Market, Inc. Prior to November
30, 1999, the Company's Common Stock was listed on the Nasdaq National Market.
Starting on November 30, 1999 the Company's Common Stock was listed on The
Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
Fiscal Year 1999 High Low
---------------- ---- ---
<S> <C> <C>
1st Quarter (February 1, 1999 through April 30, 1999) $ 5.625 $ 1.250
2nd Quarter (May 1, 1999 through July 31, 1999) 2.000 1.000
3rd Quarter (August 1, 1999 through October 31, 1999) 1.375 0.500
4th Quarter (November 1, 1999 through January 31, 2000) 6.250 0.438
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
---------------- ---- ---
<S> <C> <C>
1st Quarter (February 1, 1998 through April 30, 1998) $ 5.875 $ 3.625
2nd Quarter (May 1, 1998 through July 31, 1998) 4.625 2.500
3rd Quarter (August 1, 1998 through October 31, 1998) 3.375 0.875
4th Quarter (November 1, 1998 through January 31, 1999) 3.250 0.906
</TABLE>
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 market price of the Common
Stock will not decline, or otherwise continue to experience significant
fluctuations in the future.
(b) According to the transfer agent records, the Company had 142 stockholders of
record as of April 3, 2000. 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 3,600
stockholders.
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<PAGE> 24
(c) 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.
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, 2000. 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)
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues $ 10,471 $ 12,010 $ 8,676 $ 10,310 $ 5,019
Total operating expenses 13,054 22,470 22,493 16,271 5,324
Operating (loss) (2,583) (10,460) (13,818) (5,961) (306)
Net (loss) (3,247) (10,926) (12,669) (4,669) (326)
Basic net (loss) per share of
common stock (.37) (1.24) (1.44) (.56) (.05)
Diluted net (loss) per share of
common stock (.37) (1.24) (1.44) (.56) (.05)
Total assets 14,719 17,485 22,200 33,300 3,046
Long-term debt 6,000 6,000 -- -- --
Convertible redeemable
preferred stock -- -- -- -- 850
Total stockholders' equity (deficit) 2,613 5,847 16,816 29,921 (646)
Weighted average shares outstanding 8,827 8,811 8,827 8,284 6,190
Cash dividends declared -- -- -- -- --
</TABLE>
(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.
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 15 of
the Company's 1999 Annual Report to Stockholders appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently invests its cash balances, in excess of its current needs,
in overnight bank deposits and 30 day commercial paper. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements are incorporated herein by reference from
pages 17 through 29 of the Company's 1999 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 1999 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, 2000
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 24, 2000 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."
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 24, 2000
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", "Audit Committee Report and the caption "Stock Performance Graph" and
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<PAGE> 26
set forth in the Company's Definitive Proxy Statement for its Annual
Stockholder's Meeting to be held on May 24, 2000 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 24, 2000 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 24, 2000 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 1999 Annual Report to Stockholders are incorporated herein by
reference from pages 16 through 29 of the Annual Report. Reference is also made
to Item 8 of this Form 10-K.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets at January 31, 2000 and 1999
Consolidated Statements of Operations for the three years ended January 31, 2000
Consolidated Statements of Cash Flows for the three years ended January 31, 2000
26
<PAGE> 27
Consolidated Statements of Changes in Convertible Redeemable Preferred Stock and
Stockholders' Equity for the three years ended January 31, 2000
Notes to Financial Statements
FINANCIAL STATEMENT SCHEDULE
The following Financial Statement Schedule of LanVision Systems, Inc. is
included in this Item 14.
Schedule Description
-------- -----------
II Valuation and Qualifying Accounts and Reserves
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.
27
<PAGE> 28
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <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.
4.3(c) 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
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <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
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 Green Realty Corporation and LanVision, Inc., dated
April 7, 1997
10.11(b) First amendment to lease between Green Realty Corporation and LanVision, Inc., dated
June 6, 1997
10.12(a) Lease for office space between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated February 26, 1996
10.12(b) First amendment to lease between Fairview Plaza Associates Limited Partnership, Lessor and
LanVision, Inc., Lessee, dated August 12, 1996
10.12(c) Second amendment to lease between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated May 21, 1997
10.13(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
September 23, 1997
10.13(b) First amendment to office lease between Duke Realty Limited Partnership and LanVision,
Inc., dated January 16, 1998
10.13(c) Lease Termination Agreement to office lease between Duke Realty Limited Partnership and
LanVision, Inc., dated February 21,2000
10.14 Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998
10.15 Form of Indemnification Agreement for all directors and officers
10.16 Asset Purchase Agreement between Smart Professional Photocopy Corporation and LanVision,
Inc. dated January 20, 2000
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
On November 29, 1999, the Company filed a Form 8-K, reporting under Item 5,
disclosing that the Registrant's Common Stock would be listed on The Nasdaq
SmallCap Market via an exception from certain listing requirements.
29
<PAGE> 30
On January 12, 2000, the Company filed a Form 8-K, reporting under Item 5, the
vote to approve a capital restructuring held at a Special Meeting of
Shareholders on January 12, 2000.
On January 31, 2000, the Company filed a Form 8-K, reporting under Item 5, that
the Registrant had been granted a fifteen-day extension to file an Unaudited
Balance Sheet to demonstrate compliance with the Nasdaq listing requirements.
On February 11, 2000, the Company filed a Form 8-K, reporting under Item 2 the
sale of its Mason, Ohio Data Center for $2.9 million.
On February 14, 2000, the Company filed a Form 8-K, reporting under Item 5, the
signing of a Settlement Agreement with a customer.
On February 15, 2000, the Company filed a Form 8-K, reporting under Item 5,
Unaudited Condensed Consolidated Pro-forma Balance Sheet as of January 31, 2000,
to evidence compliance with certain Nasdaq Listing Qualification Panel
requirements for continued listing on The Nasdaq SmallCap Market.
On February 22, 2000, the Company filed a Form 8-K, reporting under Item 5, that
Nasdaq had confirmed that the Company had evidenced compliance with the
requirements necessary for continued listing on The Nasdaq SmallCap Market.
30
<PAGE> 31
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 17, 2000 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.
<TABLE>
<S> <C> <C>
/s/ J. Brian Patsy Chief Executive Officer April 17, 2000
- ------------------------------------- and Director
J. Brian Patsy
/s/ Eric S. Lombardo Director April 17, 2000
- -------------------------------------
Eric S. Lombardo
/s/ George E. Castrucci Director April 17, 2000
- -------------------------------------
George E. Castrucci
/s/ Z. David Patterson Director April 17, 2000
- -------------------------------------
Z. David Patterson
/s/ Thomas E. Perazzo Chief Financial Officer April 17, 2000
- ------------------------------------- and Chief Accounting Officer
Thomas E. Perazzo
</TABLE>
<PAGE> 32
Schedule II Valuation and Qualifying Accounts and Reserves
LanVision Systems, Inc.
For the three years ended January 31, 2000
<TABLE>
<CAPTION>
Additions
-----------------------------
(in thousands) Balance at Charged to Charged to
Beginning costs Other Balance at
Description of Period and Expenses Accounts Deductions End of Period
----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 2000:
Allowance for doubtful accounts $ 325 $ 60 $ -- $ -- $ 385
Warranty reserve 300 12 -- 62 250
Year ended January 31, 1999:
Allowance for doubtful accounts 265 60 -- -- 325
Warranty reserve 265 35 -- -- 300
Year ended January 31, 1998:
Allowance for doubtful accounts 205 60 -- -- 265
Warranty reserve 164 135 -- 34 265
</TABLE>
<PAGE> 33
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<CAPTION>
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. *(6)
4.3(b) First Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc. *(9)
4.3(c) 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 *(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 *(11)
10.4(b) First Amendment to Robert F. Golden and Jeffrey L. VanVoorhis Option Agreements *(12)
10.4(c) Second Amendment to Robert F. Golden and Jeffrey L. VanVoorhis Option Agreements *(13)
10.5 # George E. Castrucci Option Agreement *(10)
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 *(7)
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 *(8)
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C>
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 *(14)
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 Green Realty Corporation and LanVision, Inc., dated
April 7, 1997 *(17)
10.11(b) First amendment to lease between Green Realty Corporation and LanVision, Inc., dated
June 6, 1997 *(3)
10.12(a) Lease for office space between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated February 26, 1996 *(1)
10.12(b) First amendment to lease between Fairview Plaza Associates Limited Partnership, Lessor and
LanVision, Inc., Lessee, dated August 12, 1996 *(18)
10.12(c) Second amendment to lease between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated May 21, 1997 *(19)
10.13(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
September 23, 1997 *(4)
10.13(b) First amendment to office lease between Duke Realty Limited Partnership and LanVision,
Inc., dated January 16, 1998 *(5)
10.13(c) Lease Termination Agreement to office lease between Duke Realty Limited Partnership and
LanVision, Inc., dated February 21, 2000 ***
10.14** Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998 *(15)
10.15 Form of Indemnification Agreement for all directors and officers *(1)
10.16 Asset Purchase Agreement between Smart Professional Photocopy Corporation and LanVision,
Inc. dated January 20, 2000 *(16)
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>
- ----------
* Incorporated by reference from document indicated below.
<PAGE> 35
** 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 10.1 of the
Registrant's Form 10-Q for the quarter ended July 31, 1997, as filed
with the Commission on September 10, 1997.
(4) 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.
(5) 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.
(6) Previously filed with the Commission as Exhibit 10.1 of the
Registrant's Form 8-K, dated July 17,1998, as filed with the Commission
on July 24, 1998.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) Previously filed with the Commission as Exhibit 10.8(b) of the
Registrant's Form 10-K for the fiscal year ending January 31, 1999, as
filed with the Commission on April 30, 1999.
(15) Previously filed with the Commission as Exhibit 10.17 of the
Registrant's Form 10-K for the fiscal year ending January 31, 1999, as
filed with the Commission on April 30, 1999.
(16) Previously filed with the Commission as Exhibit 10 of the Registrant's
Form 8-K dated February 11, 2000, as filed with the Commission on
February 17, 2000.
(17) Previously filed with the Commission as Exhibit 10.13 of the
Registrant's Form 10-K for the fiscal year ending January 31, 1997, as
filed with the Commission on April 29, 1997.
<PAGE> 36
(18) 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.
(19) 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.
<PAGE> 1
Exhibit 4.3(c)
LANVISION SYSTEMS, INC.
AMENDMENT TO LOAN AGREEMENT
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT ("Amendment") is executed pursuant to
and is made a part of the Loan and Security Agreement dated July 17, 1998, by
and between LANVISION SYSTEMS, INC., a Delaware corporation ("Borrower"), and
THE HILLSTREET FUND, L.P., a Delaware limited partnership ("Lender"), as amended
by letter agreements dated March 18, 1999, April 12, 1999 and September 14, 1999
(as amended, the "Loan Agreement").
WHEREAS, LanVision, Inc., an Ohio corporation and wholly-owned
subsidiary of Borrower ("Seller"), has entered into a certain Asset Purchase
Agreement with Smart Professional Photocopy Corporation, a California
corporation ("Smart"), dated as of January 20, 2000 (the "Purchase Agreement")
pursuant to which Seller shall sell to Smart a certain Data Center (as defined
in the Purchase Agreement) currently operated and maintained by Seller (the
"Sale Transaction");
WHEREAS, Borrower desires to obtain the consent of Lender to the Sale
Transaction in accordance with the terms of the Purchase Agreement and the Loan
Agreement;
WHEREAS, Borrower and Lender wish to further amend the Loan Agreement
in accordance with the terms and provisions hereof.
NOW, THEREFORE, the parties agree as follows:
Consent to Sale Transaction. Lender hereby consents to the Sale
Transaction in accordance with the terms of the Purchase Agreement.
Waiver. Lender hereby agrees to waive Borrower's compliance with the
following covenant set forth in the letter agreement dated September 14, 1999:
"For the period August 1, 1999 through January 31, 2000, LanVision will execute
new software license contracts, either directly or indirectly, through
LanVision's distribution partners, with a net software value to LanVision
of at least One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00)."
<PAGE> 2
Amendments to Loan Agreement. The following amendments shall be made to
the terms of the Loan Agreement:
Definitions. Section 1.1 of the Loan Agreement shall be amended to add
the following definitions:
"EBIT" for any period shall mean, without duplication (i) net income
(or net loss) of the Borrower for such period determined in accordance
with GAAP; plus (ii) for such period any Interest Expense deducted in
the determination of net income; plus (iii) any income and franchise
taxes paid in cash and included in the determination of net income.
"Interest Expense" means, for any period, the total amount of all
charges for the use of funds (whether characterized as interest, debt
service or otherwise) payable during such period with respect to all
Indebtedness for borrowed money of Borrower for such period.
"Sale Transaction" means the transactions contemplated by that certain
Asset Purchase Agreement between LanVision, Inc. and Smart Professional
Photocopy Corporation dated as of January 20, 2000.
Proceeds from Sale Transaction. A new Section 5.18 shall be added to
the Loan Agreement to read as follows:
"Section 5.18 Proceeds from Sale Transaction. Borrower shall apply, or
cause to be applied, the Net Proceeds received from the Sale
Transaction, to increase the minimum cash balance and investment
requirements contained in Section 6.7 of the Loan Agreement. For
purposes of this Section 5.18, "Net Proceeds" shall mean the gross cash
proceeds received from the Sale Transaction less the following
transaction costs: (a) fees and costs in the approximate amount of
Sixty-Three Thousand and 00/100 Dollars ($63,000.00) related to the
Oracle software license, (b) the reasonable fees and costs of attorneys
in the approximate amount of Sixty Thousand and 00/100 Dollars
($60,000.00), and (c) other fees and expenses, if any, separately
agreed to by Lender, not to exceed the amount of Seventy-Five Thousand
and 00/100 Dollars ($75,000.00)."
Minimum Revenues and EBIT. Section 6.4 of the Loan Agreement shall be
amended in its entirety to read as follows:
"Section 6.4 Minimum Revenues and EBIT.
<PAGE> 3
(a) Minimum Revenues. On each Computation Date set forth
below, the Borrower shall not permit its total cumulative revenues
(calculated for the period of time beginning on February 1, 2000
through such Computation Date) to be less than the minimum amount set
forth below:
<TABLE>
<CAPTION>
MINIMUM
COMPUTATION DATE CUMULATIVE REVENUES
---------------- -------------------
<S> <C>
April 30, 2000 $ 1,800,000.00
July 31, 2000 $ 5,000,000.00
October 31, 2000 $ 8,000,000.00
January 31, 2001 $11,000,000.00
</TABLE>
(b) Minimum EBIT. On each Computation Date set forth below,
the Borrower shall not permit its total cumulative EBIT (calculated for
the period of time beginning on February 1, 2000 through such
Computation Date) to be less than the minimum amount set forth below:
<TABLE>
<CAPTION>
MINIMUM
COMPUTATION DATE CUMULATIVE EBIT
---------------- ---------------
<S> <C>
April 30, 2000 ($1,000,000.00)
July 31, 2000 ($ 700,000.00)
October 31, 2000 Break Even
January 31, 2001 $ 500,000.00
</TABLE>
Borrower and Lender shall amend this Agreement on or before February
28, 2001, to provide covenant compliance (at minimum levels acceptable
to Lender) under Sections 6.4(a) and 6.4(b) above for April 30, 2001
and each Computation Date thereafter."
Net Worth. Section 6.5 of the Loan Agreement shall be amended in its
entirety to read as follows:
"Section 6.5 Net Worth. At all times during the term of this Agreement,
Borrower shall maintain a minimum Net Worth of Two Million and 00/100
Dollars ($2,000,000.00)."
Minimum Cash and Investments. Section 6.7 of the Loan Agreement shall
be amended in its entirety to read as follows:
"Section 6.7 Minimum Cash and Investments. The Borrower shall at all
times maintain on its balance sheet total cash and investments (as
described in Section 6.10(b)) of at least Two Million Seven Hundred
Thousand and 00/100 Dollars ($2,700,000.00); provided, that upon
consummation of the Sale Transaction, Borrower shall at all times
<PAGE> 4
thereafter maintain on its balance sheet total cash and investments (a
described in Section 6.10(b)) of at least Four Million Four Hundred
Thousand and 00/100 Dollars ($4,400,000.00) and as increased by any
cash payments received by Borrower under that certain Promissory Note
from Smart beginning with the first monthly installment due thereunder
on March 1, 2000."
Reaffirmation of Covenants, Representations and Warranties. Borrower
hereby agrees and covenants that all representations and warranties in the Loan
Agreement including, without limitation, all of those representations and
warranties set forth in Article 4, are true and accurate as of the date hereof.
Borrower further reaffirms all covenants in the Loan Agreement and reaffirms
each of the covenants set forth in Articles 5 and 6 thereof, as if fully set
forth herein, except to the extent modified by this Amendment.
Remainder of page intentionally left blank. Signature page follows.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Loan Agreement as of the 11th. day of February, 2000.
LENDER: BORROWER:
THE HILLSTREET FUND, L.P. LANVISION SYSTEMS, INC.
By: HillStreet Capital, Inc.
Its: Investment Manager By: / s / J. Brian Patsy
-----------------------------
J. Brian Patsy, President and
Chief Executive Officer
By: / s / Chris Meininger
-----------------------------------
Christian L. Meininger, President
Date: Date: 2/11/00
<PAGE> 1
Exhibit 10.13(c)
LANVISION SYSTEMS, INC.
LEASE TERMINATION AGREEMENT
LEASE TERMINATION AGREEMENT
SEW/ALC/nm
4/13/00
LEASE TERMINATION AGREEMENT
THIS LEASE TERMINATION AGREEMENT ("Agreement") is executed this 21 day
of February, 2000, by and between DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an
Indiana limited partnership ("Landlord"), and LANVISION, INC., an Ohio
corporation ("Tenant").
WHEREAS, Duke Realty Limited Partnership, as predecessor in interest to
Landlord, and Tenant entered into a certain lease dated September 23, 1997, as
amended January 16, 1998 (collectively, the "Lease") whereby Tenant leased from
Landlord certain premises consisting of approximately 9,200 rentable square feet
of space (the "Leased Premises") in a building commonly known as 4700 Governor's
Pointe, located at 4700 Duke Drive, Suite 170, Mason, Ohio 45040; and
WHEREAS, Landlord and Tenant desire to terminate and cancel the Lease
and to release each other from their respective obligations under the Lease as
provided herein, and to release the Guarantor, LanVision Systems, Inc., from its
obligations under the Unconditional Guaranty of Lease dated September 23, 1997
(the "Guaranty");
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and each act performed hereunder by the parties, Landlord and
Tenant hereby enter into this Agreement.
1. Provisions Respecting Termination of Lease. Tenant shall pay to
Landlord the sum of Thirteen Thousand Seven Hundred Seventy-four Dollars and
Four Cents ($13,774.04) (the "Termination Fee") in immediately available funds.
The Termination Fee shall accompany the delivery of Tenant's executed copy of
this Agreement to Landlord and the Lease shall be terminated and cancelled as of
11:59 p.m. January 31, 2000 (the "Termination
<PAGE> 2
Date"). Tenant shall surrender possession of the Leased Premises on or before
the Termination Date in accordance with the terms of the Lease.
2. Release Upon Agreement. Upon the Termination Date, Landlord and
Tenant shall be released and discharged from their respective obligations under
the Lease, and neither party shall have any further liability under the Lease,
excluding, however, the obligations of Tenant attributable to any period of the
Lease on or prior to the Termination Date (including without limitation the
payment of Minimum Annual Rent and Additional Rent, including the year-end
reconciliation with respect to Operating Expenses for the calendar year 1999)
and any obligations of Tenant under the Lease which survive termination thereof.
In addition, subject to the terms hereof, as of the Termination Date, the
Guarantor shall be released from its obligations under the Guaranty.
3. Contingency. This Agreement is contingent upon Landlord entering
into a lease for the Leased Premises commencing on or before February 1, 2000,
such lease to be on terms satisfactory to Landlord, in its sole discretion. In
the event this contingency is not satisfied, upon written notice from Landlord,
this Agreement shall be void and of no further force or effect, and the Lease
shall continue notwithstanding this Agreement.
4. Default. In the event Tenant fails to pay the Termination Fee, or
pay within thirty (30) days of receipt of the statement from Landlord regarding
the year-end reconciliation with respect to Operating Expenses for the calendar
year 1999, or surrender the Leased Premises as provided in Paragraph 1 above,
Landlord shall have the option of (i) declaring this Agreement void, in which
event the Lease shall remain in full force and effect, or (ii) enforcing this
Agreement. In either case, Landlord shall be entitled to reimbursement from
Tenant for Landlord's attorneys' fees, court costs and all other damages
resulting from Tenant's breach.
5. Successorship. This Agreement shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective successors and assigns.
6. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Ohio.
<PAGE> 3
EXECUTED as of the date set forth above.
LANDLORD:
WITNESSES:
DUKE-WEEKS REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
/s/ Nichole S. Cindric
- ----------------------
Nichole S. Cindric
- ----------------------
(Printed) By: Duke-Weeks Realty Corporation,
its general partner
/s/ Naomi Gump
- ----------------------
Naomi Gump By: /s/ Kenneth A. Schuermann
- ---------------------- -----------------------------
(Printed) Kenneth A. Schuermann
Senior Vice President
TENANT:
WITNESSES:
LANVISION, INC., an Ohio corporation
/s/ Robin Ritchie Neuber
- ------------------------
Robin Ritchie Neuber
- ------------------------
(Printed) By: /s/ Eric Lombardo
---------------------------------
/s/ Joseph O. Brown, II Printed: Eric Lombardo
- ------------------------ ----------------------------
Joseph O. Brown, II
- ------------------------
(Printed) Title: EXEC. VP
------------------------------
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Kenneth A. Schuermann, by me known and by me known to be the Senior
Vice President of Duke-Weeks Realty Corporation, an Indiana corporation, general
partner of Duke-Weeks Realty Limited Partnership, an Indiana limited
partnership, who acknowledged the execution of the foregoing "Lease Termination
Agreement" on behalf of said partnership.
<PAGE> 4
WITNESS my hand and Notarial Seal this 21 day of February, 2000.
/s/ Nichole S. Cindrick
------------------------------------
Notary Public
------------------------------------
(Printed Signature)
My Commission Expires: ( SEAL )
-------------
My County of Residence: Warren Nichole S. Cindric
------------ Notary Public, State of Ohio
My Commission Expires
January 12, 2003
STATE OF Ohio )
--------------
) SS:
COUNTY OF Warren )
-------------
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Exec. VP of
LanVision, Inc., an Ohio corporation, who acknowledged the execution of the
foregoing "Lease Termination Agreement" on behalf of said corporation.
WITNESS my hand and Notarial Seal this 31 day of January, 2000.
/s/ Melissa Vincent
---------------------------------
Notary Public
Melissa Vincent
------------------------------------
(Printed Signature)
My Commission Expires: Melissa Vincent
----------------- Notary Public, State of Ohio
My County of Residence: My Commission Expires June 8,2004
----------------
<PAGE> 1
Exhibit 11.1
LANVISION SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net (loss) $ (3,247,073) $ (10,925,970) $ (12,669,451)
================= ================= =================
Average shares outstanding 8,827,055 8,811,019 8,827,478
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 8,827,055 8,811,019 8,827,478
================= ================= =================
Basic net (loss) per share of common stock $ (.37) $ (1.24) $ (1.44)
================= ================= =================
Diluted net (loss) per share of common stock $ (.37) $ (1.24) $ (1.44)
================= ================= =================
</TABLE>
The diluted net (loss) per common share calculation, in fiscal 1999, 1998 and
1997, 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.
1999 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
Our Vision..........................................3
Selected Financial Data.............................7
Management's Discussion and Analysis................8
Report of Management...............................16
Report of Independent Auditors.....................16
Financial Statements...............................17
Notes to Financial Statements......................20
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.
STOCK PRICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year 1999
----------------
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
1st Quarter $ 5.625 $ 1.250 $ 1.750
2nd Quarter 2.000 1.000 1.000
3rd Quarter 1.375 0.500 0.750
4th Quarter 6.250 0.438 1.250
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998
----------------
HIGH LOW CLOSE
---- --- -----
<S> <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
</TABLE>
CORPORATE PROFILE
- --------------------------------------------------------------------------------
LanVision is an E-Health Application Service Provider and leading supplier of
Healthcare Information Access Systems specializing in connectivity solutions
that utilize the power of the Internet/Intranet to link hospitals, physicians,
patients and payers to a robust Electronic Medical Record. LanVision's solutions
enable the coordination of both "structured" and "unstructured" patient data
through a single healthcare information repository. The Company's products are
complementary to existing clinical and financial systems, and use document
imaging and workflow tools to ensure end users can electronically access all the
various forms of healthcare information including clinician's handwritten notes,
lab reports, photographs, insurance cards, etc. LanVision's E-Health solutions
offer value to all of the constituents in the healthcare delivery process by
enabling them to simultaneously access information from virtually any location,
including the physician's desktop using Web browser technology. Web access to
the entire medical record improves physician productivity and reduces
administrative costs such as filing, storage, retrieval and upkeep of medical
records and clinical costs, such as redundant diagnostic testing.
LanVision(TM)
Healthcare Information Access Systems
<PAGE> 3
PAGE 2
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
Dear Stockholder:
Fiscal 1999 was a year of tremendous challenge, opportunity and accomplishment
for LanVision. I am pleased to report that we have made significant progress
toward our goal of becoming a leading E-Health Application Service Provider
(ASP), while also strengthening our balance sheet and positioning the Company
for a return to profitability.
Fiscal 1999 was a challenging year for LanVision as much of the marketplace was
preoccupied with Year 2000 computer software compliance issues. As a result,
revenues for the year, which approximated $10.5 million, were adversely affected
by a decline in new systems sales. However, the Company's operating results,
before other income and expense, significantly improved by approximately $7.9
million compared with the prior year, as a result of stringent cost controls and
improved operating margins.
During 1999, LanVision achieved several significant milestones. We completed the
integration of our Electronic Medical Record (EMR) suite of products with the
Shared Medical Systems Corporation's (SMS)(R) NOVIUS(R) imaging application
suite, and SMS's first two customers began successfully using the integrated
solution in high volume production environments. Both SMS customers were
converted from a competitor's EMR solution to the LanVision/SMS solution, and
one is effectively accessing over 15 million pages of historical patient
information on-line. Also, SMS signed an additional four new agreements in
fiscal 1999. Management expects revenues from SMS to continue to grow as they
begin to more widely distribute our products throughout their customer and
prospect base.
In addition, another significant milestone was achieved in 1999, when our second
Virtual Healthware Services division client went on-line. This was an existing
EMR software licensee that recognized the tremendous benefit of LanVision's
E-Health ASP offering. The accomplishment of this milestone reinforced our
belief that a substantial opportunity exists for LanVision, as an E-Health ASP,
to fundamentally change the way healthcare information is processed and shared.
The strength, responsiveness and extensive use of our system was evidenced by
the fact that within the first few months of use, the customer exceeded one
million E-Health transactions per month, accessing over 27 million pages of
historical patient information.
In February, 2000 we announced the sale of our centralized data center for $2.9
million, generating a gain of approximately $1.4 million. This transaction
provided several benefits by allowing us to improve our liquidity, decrease
ongoing operating expenses, and reduce the risks associated with operating a
data center. Although we sold the data center assets, we plan to increase our
focus on expanding Web-based E-Health ASP services offered by our Virtual
Healthware Services division. Under a fee for service arrangement, LanVision
will continue to use the data center to service current and future customers.
Additionally, LanVision intends to continue to increase revenues through
expanded access to its E-Health software applications through other data center
service providers.
Over the last several years, we have made considerable investments in our
product line and Web-based technologies. Our customers are enjoying significant
operating success with our products while improving patient care. Our Web-based
solutions are scalable from a small physician practice to the largest integrated
healthcare networks. Web access to the entire medical record, from virtually
anywhere, improves physician productivity through efficient and timely
communication of clinical information, reduces costs and improves the overall
quality of patient care. Our Web-based technology positions the Company to take
full advantage of promising market opportunities relating to the use of the
Internet/Intranet as an important new medium to collect and distribute
healthcare information.
We continue to look for ways to broaden the distribution of our products by
pursuing strategic business alliances with traditional Healthcare Information
Systems companies, emerging healthcare Internet Service Providers, and other
Application Service Providers.
We believe LanVision is built on a solid foundation, with highly evolved and
technologically advanced products that are successfully installed in an
impressive list of satisfied customers. We approach the future with enthusiasm
and confidence that the year 2000 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> 4
PAGE 3
OUR VISION
HEALTHCARE INDUSTRY TRENDS
In the year 2000 and beyond, the expansion of managed care and the acceptance of
capitated, risk-based contracts by physicians, physician networks and hospitals
will continue to increase the demand for, and importance of, timely clinical and
financial information. As a result of these industry dynamics, there will be a
vital need to communicate this information efficiently among providers and
payers. Healthcare providers are adopting a distributed healthcare strategy in
order to ensure that healthcare delivery occurs at the most cost-effective
healthcare facility, with a goal to achieve an overall reduction in total
healthcare costs. To effectively deploy this strategy, however, providers must
be able to simultaneously share healthcare and related financial information
among the affiliated hospitals, clinics and physician practices.
Unfortunately, many healthcare providers have not invested the resources
necessary to upgrade their information systems to support these increased
information requirements, which could lead to wasted efforts, redundant tests
and procedures and administrative inefficiencies that often adversely impact the
quality of care. Furthermore, those organizations that have taken on the
challenge of gathering such information electronically have often implemented
clinical information systems that have only focused on the structured data
components rather than all the alternative forms of healthcare information,
including paper. In order to make a substantial impact on the inefficiencies
inherent in today's healthcare environment, all unstructured data such as
images, hand-written physician notes, etc. need to be seamlessly integrated with
its structured counterpart in an easily accessible and complete Electronic
Medical Record. The Internet/Intranet provides a universal, cost-effective
communications medium to deliver the complete Electronic Medical Record to the
healthcare industry through what is commonly referred to as E-Health.
While the trend within healthcare clearly is towards a paperless environment,
there are widely differing opinions as to whether paper and other forms of
unstructured data will be completely eliminated. Most healthcare industry
experts agree however, that it is unlikely that paper or other forms of
unstructured data will be eliminated anytime soon. The continued reliance on
paper is further apparent, given that physicians would otherwise be required to
change the way that they currently practice medicine. This is problematic given
the amount of writing physicians perform in relation to the additional time and
effort necessary for them to put their thoughts into structured data format
(i.e. keyboard entry at a specified computer workstation). There is an immediate
need to ensure that all healthcare information can be accessed electronically,
regardless of the media on which the information is created or stored.
The dramatic growth of E-Health utilizing the Internet as an important new
medium to collect and distribute information, communicate, interact and engage
in healthcare commerce has emerged as the way to overcome the historical
technical barriers for connecting the participants in the fragmented healthcare
industry. These technical barriers are diminishing for several reasons:
o universal, low-cost Internet access is replacing private networks,
o common navigation via browser technology is replacing proprietary
desktop client software, and
o the Internet's open architecture is providing a solution for
integrating existing computer systems.
THE E-HEALTH MARKETPLACE
Competitive pressures and the need to significantly reduce overall healthcare
costs will require healthcare organizations to automate their labor-intensive
paper-based processes and seamlessly integrate these with their existing
clinical applications, creating a complete centralized Electronic Medical Record
repository--regardless of the medical record medium. This centralized electronic
repository will represent a critical E-Health connectivity solution necessary to
link hospital clinicians, physician practices, administrators, payers, consumers
and other third parties to common healthcare information via a secured
Internet/Intranet. As increased
<PAGE> 5
PAGE 4
security requirements emerging from HIPAA
(Health Insurance Portability and Accountability Act) dictate changes in how
organizations manage patient information, the new secure Web-based technologies
will prevail as the only viable economic solution to electronically store,
process, route and view vital healthcare information regardless of the creation
medium or the authorized user's physical location. For example, a hospital
clinician could electronically review, complete and sign the Electronic Medical
Record or route the information to an associate for consultation, all from the
privacy of the clinician's home or office. Any authorized user could access the
information via standard Web browsers via the Internet or a private network.
The benefits of the E-Health approach to centralized storage and distributed
access to all the forms of healthcare information across the healthcare
continuum are many and include:
o simultaneous access to the entire medical record regardless of the site
of care,
o reduction of redundant diagnostic testing and more informed treatment
decisions,
o elimination of shadow or redundant record keeping in multiple patient
medical record repositories,
o increased security and decreased risk of loss of patient information,
o reduced labor and storage costs associated with paper systems,
o improved efficiency in chart completion, billings and collections,
o more control over patient information, and
o empowers physicians and patients to easily share the information with
others in the healthcare continuum.
A substantial opportunity exists for LanVision, as an E-Health Application
Service Provider (ASP) to fundamentally change the way healthcare information is
processed and shared. The ASP's that are first to deliver both structured and
unstructured data with ease and to provide access to all forms of healthcare
information from standard Web browsers will have distinct competitive advantages
in the rapidly growing E-Health marketplace.
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.
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 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 utilizes the
Internet/Intranet to allow remote users to easily access an integrated
computerized patient record and document imaging system residing in a complete
Electronic Medical Record from virtually anywhere. The more important benefits
include:
o significantly lower maintenance and staff costs;
o lower data center investment and operating costs;
o the ability to seamlessly image-enable existing clinical, billing or
other third-party information systems; and
o 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.
<PAGE> 6
PAGE 5
OMNIVISION - Image-Enabling Tool
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, Patient
Billing Systems, 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.
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, enterprise-wide applications, including over
2,000 workstations at Memorial Sloan-Kettering Cancer Center.
(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.
Enterprisewide Correspondence (EWC)
Fulfills internal and external requests for information and allows for
automatic invoicing capability. EWC also provides the ability to
electronically search for, print, mail or fax information to third
parties that request copies of patient records. EWC 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.
(ACCOUNTVISION ICON GRAPHIC)
THE ACCOUNTVISION APPLICATION SUITE.....a Patient Financial Services application
A new version of the AccountVision application suite, a Patient Financial
Services application, is under development. AccountVision 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
<PAGE> 7
PAGE 6
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.
ACCESSANYWARE
The accessANYware product is an entirely new offering under development that
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.
THE FOUNDATION SUITE
In 1999, LanVision introduced a new foundational architecture for its products
called Foundation Suite. It 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:
o multiple levels of security (administrative, user, patient, document,
workstation, physical location, and healthcare entity) configurable by
user, workstation and location,
o full audit trails and reporting of every record viewed, printed, faxed,
processed or unauthorized login attempts at the patient encounter or
document level.
(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 manage 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.
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 custom report development.
<PAGE> 8
PAGE 7
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year(1)
---------------------------------------------------------------------------------
OPERATING STATEMENT DATA: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues $ 10,471 $ 12,010 $ 8,676 $ 10,310 $ 5,019
Total operating expenses 13,054 22,470 22,493 16,271 5,324
Operating (loss) (2,583) (10,460) (13,818) (5,961) (306)
Net (loss) (3,247) (10,926) (12,669) (4,669) (326)
Basic and diluted net (loss)
per share of common stock $ (.37) $ (1.24) $ (1.44) $ (.56) $ (.05)
Shares used in computing
per share data 8,827 8,811 8,827 8,284 6,190
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year(1)
---------------------------------------------------------------------------------
BALANCE SHEET DATA: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
investment securities $ 5,412 $ 5,445 $ 11,052 $ 26,592 $ --
Working capital (deficiency) 6,149 7,290 7,141 17,864 (81)
Total assets 14,719 17,485 22,200 33,300 3,046
Convertible redeemable
preferred stock -- -- -- -- 850
Total stockholders' equity
(deficit) 2,613 5,847 16,816 29,921 (646)
</TABLE>
(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.
- ----------
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> 9
PAGE 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
LanVision is an E-Health Application Service Provider and leading supplier of
Healthcare Information Access Systems specializing in connectivity solutions
that utilize the power of the Internet/Intranet to link hospitals, physicians,
patients and payers to a robust Electronic Medical Record. The Company's
products are complementary to existing clinical and financial systems, and use
document imaging and workflow tools to ensure end users can electronically
access all the various forms of healthcare information including clinician's
handwritten notes, lab reports, photographs, insurance cards, etc. LanVision's
E-Health solutions offer value to all of the constituents in the healthcare
delivery process by enabling them to simultaneously access information from
virtually any location, including the physician's desktop using Web browser
technology. Web access to the entire medical record improves physician
productivity and reduces administrative costs such as filing, storage, retrieval
and upkeep of medical records and clinical costs, such as redundant diagnostic
testing. The system enables healthcare providers to access, on a real-time
basis, all the various forms of clinical and financial patient information from
a single permanent healthcare information repository. The Company's solutions
integrate a proprietary document imaging platform, application suites, and image
and Web-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.
Historically, the Company has derived its revenues from system sales involving
the licensing of its Electronic Medical Record solution to Integrated Healthcare
Delivery Networks ("IDN"). In a typical transaction, the Company enters into a
perpetual license for the Company's Electronic Medical Record software suite and
licenses or sells other third party software and hardware components to the IDN.
Additionally, the Company provides professional services, including
implementation, training and product support.
With respect to systems sales, the Company earns its highest margins on
proprietary LanVision software and the lowest margins 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.
Beginning in 1998, the Company began offering customers the ability to obtain
its Electronic Medical Record solution on a service bureau/E-Health basis. The
Company's Virtual Healthware Services ("VHS") division established a centralized
data center and installed the Company's Electronic Medical Record suite within
the data center. Under this arrangement, customers electronically capture
information and transmit the data to the centralized data center. The VHS
division stores and manages the data using LanVision's Electronic Medical Record
suite, and customers can view, print or fax the information from anywhere using
the LanVision Web-based applications.
VHS charges and recognizes revenue for these E-Health services on a per
transaction basis as information is captured, stored, and retrieved.
<PAGE> 10
PAGE 9
In February, 2000, the Company sold its centralized data center for $2,900,000.
Simultaneous therewith, the Company entered into a service agreement with the
buyer. Under the terms of this service agreement, in exchange for processing
fees, the Company will continue to use the data center to provide outsourcing
services to LanVision's current and future customers. Although LanVision sold
the data center assets, the Company does intend to continue to market its
E-Health solutions. The Company will provide these solutions by continuing to
use the data center and by using other data center service providers.
The decision by a healthcare provider to replace, substantially modify or
upgrade its information systems is a strategic decision and often involves a
large capital commitment requiring an extended approval process. 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 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.
The Company's VHS E-Health/Application Service Provider division was 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. Customers pay for such services on a
transaction basis, and the centralized data center application is operated and
maintained by LanVision personnel and/or its agents. In 1999, VHS signed a
four-year contract with The Health Alliance of Greater Cincinnati, a group of
five hospitals in the Greater Cincinnati Area, to provide outsourced data center
operations of its LanVision Electronic Medical Record System. Management
believes more IDN's will begin to look for this type of E-Health application.
Additionally, the Company believes its business model is especially well suited
for the ambulatory marketplace. LanVision is actively pursuing remarketing
agreements with Healthcare Information Systems providers to distribute the
Company's E-Health solutions.
In 1998, the Company entered into a Remarketing Agreement with Shared Medical
Systems Corporation ("SMS"). Under the terms of the agreement, SMS was granted
an exclusive worldwide license to distribute ChartVision, On-Line Chart
Completion, WebView and Enterprisewide Correspondence 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.
Under the terms of the agreement, SMS remits royalties to LanVision based upon
SMS sublicensing the Company's software to SMS's customers. Twenty-five percent
of the royalty is due 30 days following the end of the quarter in which SMS
executes the end user license agreement with its customer. LanVision recognizes
this revenue upon receipt of the royalty statement. The remaining 75% of the
royalty is due upon SMS's shipment of software to the end user. LanVision
records this revenue when the 75% payment due from SMS is fixed and
determinable, which is generally when the software is shipped to the end user.
<PAGE> 11
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RESULTS OF OPERATIONS
The following table sets forth, for each fiscal year indicated, certain
operating data as percentages:
CONSOLIDATED STATEMENTS OF OPERATIONS(1)
<TABLE>
<CAPTION>
Fiscal Year(2)
------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Systems sales 33.5% 46.1% 46.4%
Services, maintenance and support 63.0 46.4 53.6
Service bureau operations 3.5 7.5 --
------------- ------------- -------------
Total revenues 100.0 100.0 100.0
Cost of sales 60.3 84.8 87.4
Selling, general and administrative 43.7 65.4 107.8
Product research and development 20.7 31.1 64.0
Restructuring expense -- 5.8 --
------------- ------------- -------------
Total operating expenses 124.7 187.1 259.2
------------- ------------- -------------
Operating (loss) (24.7) (87.1) (159.2)
Other income (expense), net (6.3) (3.9) 13.2
------------- ------------- -------------
Net (loss) (31.0)% (91.0)% (146.0)%
============= ============= =============
Cost of systems sales 22.5% 31.7% 60.7%
============= ============= =============
Cost of services, maintenance and support 60.7% 99.5% 110.6%
============= ============= =============
Cost of service bureau operations 411.2% 320.5% --
============= ============= =============
</TABLE>
(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.
COMPARISON OF FISCAL YEAR 1999 WITH 1998
REVENUES. Total revenues in fiscal year 1999 were $10,471,143 compared with
revenues of $12,010,011 in fiscal year 1998, a decrease of $1,538,868 or 13%.
Revenues from systems sales in fiscal 1999 were $3,510,098, a decrease of
$2,031,128 or 37%, over systems sales in fiscal 1998. In fiscal 1999, the
Company had no new direct sales customers as most hospitals deferred purchases
while completing Year 2000 compliance issues. In fiscal 1998, two new customers
accounted for $1,848,874 of systems sales.
<PAGE> 12
PAGE 11
Systems sales from our remarketing partner, Shared Medical Systems Corporation,
were $1,142,420 in fiscal 1999 compared with $691,809 in fiscal 1998. The
remaining balance of fiscal 1999 systems sales were to existing clients from
fulfillment of backlog and add-on business. Revenues from services, maintenance
and support in fiscal 1999 were $6,592,266, an increase of $1,018,416, or 18%,
over fiscal 1998. Maintenance revenues in fiscal 1999 were $3,264,315, an
increase of $509,301, or 18%, over maintenance revenues in fiscal 1998. The
increase in maintenance revenues in fiscal 1999 is primarily due to new
installations in 1998 and expanded installations in 1999. Professional services
revenues in fiscal 1999 were $3,327,951, an increase of $509,115, or 18%, over
professional services revenues in fiscal 1998. The increase is directly related
to implementation of new versions of software to achieve Year 2000 compliance
and project management performed for Shared Medical Systems Corporation. Revenue
from service bureau operations declined $526,156 due to the termination of one
contract. In fiscal 1999, three customers accounted for 28% of the Company's
total revenues compared with 27% in fiscal 1998, exclusive of SMS.
Revenues for fiscal year 1999 and 1998 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 ("HIS")
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. Additionally, in 1998 and 1999, many healthcare organizations were
preoccupied with Year 2000 compliance remediation for existing systems and
deferred purchase decisions on new systems. Buying decisions at certain
hospitals and integrated healthcare delivery networks are influenced by the
recommendations of the largest Healthcare Information Systems vendors,
including: Shared Medical Systems Corporation, McKesson HBOC, Inc., 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 1998, and throughout fiscal 1998
and 1999 LanVision and SMS have integrated the LanVision product line with the
SMS NOVIUS product and trained SMS personnel. During 1998 and 1999, 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 in 1999 and four in 1998. During 1999, the Company completed the
integration of its product with the SMS NOVIUS product line, and SMS's first two
Beta customers began production with the integrated solution. The eight
contracts sold represent $2,817,847 in systems sales. Approximately $1,142,000
and $692,000 of revenue was recognized in 1999 and 1998, respectively and
$983,617 of revenue has been deferred until SMS ships the products to its end
users. 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 EMR
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.
Recently, new E-Health companies, such as Healtheon/WebMD Corporation and
MedicaLogic Inc. have emerged to provide healthcare applications through private
Intranets or secure applications on the Internet. Additionally, the traditional
HIS companies have developed clinical information systems for the Internet. The
Company's applications are well suited for the Internet and pri-
<PAGE> 13
PAGE 12
vate Intranets and, through its VHS division, customers can rapidly deploy and
access healthcare information using Web-based technology from a central data
center on a per transaction fee basis. Management believes healthcare
organizations will increase their use of healthcare applications through the
Internet, and the Company's products are an integral part of providing a
complete computer based patient record across the Internet. The Company is
actively pursuing strategic relationships with other healthcare Internet
Solution Providers.
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 1999 and 1998 were 23% and 32%,
respectively. The lower costs in 1999 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
1999 and 1998 were 61% and 100%, respectively. The improvement is primarily due
to reduced staffing and improved efficiency. 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.
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 1999,
selling, general and administrative expenses were $4,577,853 compared with
$7,860,031 in fiscal 1998. The decrease in fiscal 1999 is primarily attributable
to a reduction in staff and the associated occupancy, travel and living costs
and trade shows, etc.
PRODUCT RESEARCH AND DEVELOPMENT. Product research and development expenses in
fiscal 1999 were $2,166,441 compared with $3,740,215 in fiscal 1998. The fiscal
1999 decrease reflects the use of significantly fewer outside contractors and
reduced staffing levels as a result of the Company completing major development
projects and a deliberate effort to bring costs more in line with revenues.
During 1999, the Company placed new releases of ChartVision, On-Line Chart
Completion, Enterprisewide Correspondence, OmniVision, WebView, and Foundation
Suite into production. The software development and quality assurance staff
averaged seventeen employees in 1999 compared with an average of twenty-five
employees in 1998. The Company capitalized $300,000 in product research and
development costs in fiscal 1999 and $396,000 in 1998.
OTHER INCOME (EXPENSE). Interest income in fiscal 1999 and 1998 consisted
primarily of interest and gains on the sale of investment securities in 1998.
The decrease is due primarily to less interest on fewer investments as
securities were sold to fund operations. Other, net includes approximately
$1,100,000 related to a contract settlement with a customer. Interest expense in
1999 and 1998, is related to the Company's $6,000,000 in outstanding long-term
debt.
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 $28,800,000.
NET LOSS. The Company's net loss in fiscal 1999 was $3,247,073 compared with
$10,925,970 in fiscal 1998. Fiscal 1999 net loss per share was $.37 compared
with a net loss per share in fiscal 1998 of $1.24. The $7,678,897 decrease in
the fiscal 1999 net loss compared with 1998, results primarily from the
reduction in operating expenses.
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
1999. Based upon the expenses associated with current and planned staffing
levels, profitability is dependent upon increasing revenues. There can be no
<PAGE> 14
PAGE 13
assurance that the Company will be able to achieve consistent profitability on a
quarterly or annual basis nor be able to sustain or 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, 2000, 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 $4,551,000. 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 1999, maintenance and support revenues approximated
$3,264,000 and are expected to increase in fiscal 2000. 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 remaining 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, which 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.
As previously reported, the Company completed, prior to the year-end, 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. No significant issues resulted from the change in the year,
and all Company systems and customer systems, using the Company's software
products, continued to operate, at full production levels into the Year 2000.
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 fiscal 1998, two new
customers accounted for $1,848,874 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.
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 config-
<PAGE> 15
PAGE 14
uration 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 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, Enterprisewide Correspondence, 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 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 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 provided 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
outstanding long-term debt.
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 reduced its
operating expenses each quarter to ensure expenses were more in line with
anticipated revenues. As a result, the Company improved its overall operating
performance.
<PAGE> 16
PAGE 15
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 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 $581,000,
payable over the next three years.
Over the last several years, the Company's revenues have been less than the
Company's internal plans. However, during the same period, the Company has
expended significant amounts for capital expenditures, product research and
development, sales, support and consulting expenses. This resulted in
significant net cash outlays over the last four years. Although the Company has
reduced staffing levels and related expenses, and improved operating
performance, the Company's expenses continue to exceed its revenues.
Accordingly, to achieve profitability, and positive cash flow, it is necessary
for the Company to increase revenues or continue to reduce expenses. Management
believes that the 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 increase its revenues. However, there
can be no assurance the Company will be able to increase its revenues.
On February 11, 2000, the Company sold its Mason, Ohio Data Center for
$2,900,000. The Company received $2,000,000 and the remaining $900,000 will be
received in twelve monthly installments commencing March 1, 2000. The sale will
result in a gain of approximately $1,400,000.
At January 31, 2000, the Company had cash and cash equivalents of $5,411,920.
Immediately after the closing of the sale of the Mason, Ohio Data Center, the
Company's cash and cash equivalents approximated $7,800,000. Cash equivalents
consist primarily of overnight bank repurchase agreements and short-term
commercial paper. Under the terms of its loan agreement, as amended, the Company
has agreed to maintain a minimum cash and investment balance of $4,400,000,
which increases monthly, starting March 1, 2000, by $75,000 per month until
February, 2001, at which time the minimum balance must be $5,300,000.
Management has significantly reduced operating expenses throughout 1999, and
believes the Company will continue to improve operating results in fiscal 2000.
However, based upon current expenditure levels and in the absence of increased
revenues, the Company would continue to operate at a loss. Accordingly, for the
foreseeable future, management will need to continually assess its revenue
prospects compared to its current expenditure levels. If it does not appear
likely that revenues will increase, it may 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.
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, 2000.
<PAGE> 17
PAGE 16
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 Financial Officer
Chief Executive 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, 2000 and 1999, and the related consolidated statements of
operations, changes in convertible redeemable preferred stock and stockholders'
equity, and cash flows for each of the three years in the period ended January
31, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2000 in conformity with accounting principles generally accepted in
the United States.
Cincinnati, Ohio
March 15, 2000 /s/ Ernst & Young LLP
<PAGE> 18
PAGE 17
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
Fiscal Year
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (restricted
by the long-term debt agreement) $ 5,411,920 $ 5,445,498
Accounts receivable, net of allowance for doubtful
accounts of $385,000 and $325,000, respectively 3,936,326 3,642,330
Unbilled receivables 1,138,941 2,383,964
Other 436,135 1,024,960
--------------- ---------------
Total current assets 10,923,322 12,496,752
Property and equipment:
Computer equipment 4,423,753 4,407,863
Computer software 659,993 588,441
Office furniture, fixtures and equipment 1,379,043 1,534,206
Leasehold improvements 648,230 930,920
--------------- ---------------
7,111,019 7,461,430
Accumulated depreciation and amortization (4,478,444) (3,321,466)
--------------- ---------------
2,632,575 4,139,964
Capitalized software development costs, net of accumulated
amortization of $1,100,228 and $920,228, respectively 869,701 749,701
Other 293,084 98,633
--------------- ---------------
$ 14,718,682 $ 17,485,050
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 666,647 $ 474,189
Accrued compensation 433,046 543,790
Accrued other expenses 2,183,080 3,105,021
Deferred revenues 1,491,404 1,083,837
--------------- ---------------
Total current liabilities 4,774,177 5,206,837
Long-term debt 6,000,000 6,000,000
Long-term accrued interest 1,331,289 431,167
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 35,003,931 35,102,459
Treasury stock, at cost, 58,467 and 81,980 shares, respectively (277,921) (389,692)
Accumulated (deficit) (32,201,759) (28,954,686)
--------------- ---------------
Total stockholders' equity 2,613,216 5,847,046
--------------- ---------------
$ 14,718,682 $ 17,485,050
=============== ===============
</TABLE>
See accompanying notes.
<PAGE> 19
PAGE 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year
--------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Systems sales $ 3,510,098 $ 5,541,226 $ 4,027,707
Services, maintenance and support 6,592,266 5,573,850 4,648,041
Service bureau operations 368,779 894,935 --
----------------- ----------------- ----------------
Total revenues 10,471,143 12,010,011 8,675,748
OPERATING EXPENSES:
Cost of systems sales 792,556 1,758,222 2,443,319
Cost of services, maintenance and support 4,000,808 5,543,302 5,139,672
Cost of service bureau operations 1,516,482 2,868,436 --
Selling, general and administrative 4,577,853 7,860,031 9,356,723
Product research and development 2,166,441 3,740,215 5,553,778
Restructuring expense -- 700,000 --
----------------- ----------------- ----------------
Total operating expenses 13,054,140 22,470,206 22,493,492
----------------- ----------------- ----------------
Operating (loss) (2,582,997) (10,460,195) (13,817,744)
Other income (expense):
Interest income 177,449 385,100 1,148,293
Other, net 838,854 -- --
Interest expense (1,680,379) (850,875) --
----------------- ----------------- ----------------
Net (loss) $ (3,247,073) $ (10,925,970) $ (12,669,451)
================= ================= ================
Basic and diluted net (loss) per common share $ (.37) $ (1.24) $ (1.44)
================= ================= ================
Number of shares used in per common share computations 8,827,055 8,811,019 8,827,478
================= ================= ================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Stockholders' Equity
------------------------------------------------------------------------------------------------------
Accumulated
Convertible Capital in Other Total
Redeemable Common Excess of Treasury Accumulated Comprehensive Stockholders'
Preferred Stock Stock Par Value Stock (Deficit) Income Equity
-------------- --------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 31, 1997 $ -- $ 88,965 $ 35,110,817 $ -- $ (5,359,265) $ 80,606 $ 29,921,123
Purchase of common stock -- -- -- (430,188) -- -- (430,188)
Net (loss) -- -- -- -- (12,669,451) -- (12,669,451)
Unrealized net gains on
investment securities,
net of reclassification
adjustment -- -- -- -- -- (5,403) (5,403)
------------
Comprehensive (loss) (12,674,854)
-------------- --------- ------------ ------------ ------------ ------------ ------------
Balances at January 31, 1998 -- 88,965 35,110,817 (430,188) (18,028,716) 75,203 16,816,081
Sale of treasury stock -- -- (8,358) 40,496 -- -- 32,138
Net (loss) -- -- -- -- (10,925,970) -- (10,925,970)
Unrealized net gains on
investment securities,
net of reclassification
adjustments -- -- -- -- -- (75,203) (75,203)
------------
Comprehensive (loss) (11,001,173)
-------------- --------- ------------ ------------ ------------ ------------ ------------
Balances at January 31, 1999 -- 88,965 35,102,459 (389,692) (28,954,686) -- 5,847,046
Sale of treasury stock
and exercise of stock
options -- -- (98,528) 111,771 -- -- 13,243
Net (loss) -- -- -- -- (3,247,073) -- (3,247,073)
-------------- --------- ------------ ------------ ------------ ------------ ------------
Balances as of
January 31, 2000 $ -- $ 88,965 $ 35,003,931 $ (277,921) $(32,201,759) $ -- $ 2,613,216
============== ========= ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 20
PAGE 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year
---------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net (loss) $ (3,247,073) $ (10,925,970) $ (12,669,451)
Adjustments to reconcile net (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,684,138 2,016,596 1,003,703
Increase in long-term accrued interest 900,122 431,167 --
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables 946,172 (1,897,942) (530,496)
Other assets 593,680 154,643 (606,635)
Accounts payable 338,382 (1,157,752) 382,604
Accrued expenses (1,032,685) 958,707 1,061,702
Deferred revenues 407,567 21,841 561,213
--------------- --------------- ---------------
Net cash provided by (used for) operating activities 590,303 (10,398,710) (10,797,360)
--------------- --------------- ---------------
Investing activities:
Purchases of investment securities -- (9,836,409) (29,409,163)
Proceeds from sales of investment securities -- 18,670,372 46,422,143
Purchases of property and equipment (153,235) (741,571) (3,779,863)
Purchase of technology -- -- (100,000)
Capitalization of software development costs (300,000) (396,000) (396,000)
Other (183,889) (27,203) (30,911)
--------------- --------------- ---------------
Net cash (used for) provided by investing activities (637,124) 7,669,189 12,706,206
--------------- --------------- ---------------
Financing activities:
Proceeds from issuance of long-term debt -- 6,000,000 --
Sale (purchase) of treasury stock 13,243 32,138 (430,188)
--------------- --------------- ---------------
Net cash provided by (used for) financing activities 13,243 6,032,138 (430,188)
--------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents (33,578) 3,302,617 1,478,658
Cash and cash equivalents at beginning of year 5,445,498 2,142,881 664,223
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 5,411,920 $ 5,445,498 $ 2,142,881
=============== =============== ===============
Supplemental cash flow disclosures:
Interest paid $ 730,000 $ 336,000 $ --
=============== =============== ===============
</TABLE>
See accompanying notes.
<PAGE> 21
PAGE 20
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 its Electronic
Medical Record 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 accounting principles
generally accepted in the United States 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 to end users 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.
Under the terms of a remarketing agreement with Shared Medical Systems
Corporation ("SMS"), royalties are remitted by SMS to LanVision based upon SMS
sublicensing the Company's software to SMS's customers. Twenty-five percent of
the royalty is due 30 days following the end of the quarter in which SMS
executes the end user license agreement with its customer. LanVision recognizes
this revenue upon receipt of the royalty statement. The remaining seventy-five
percent of the royalty is due upon SMS's shipment of software to the end user.
LanVision records this revenue when the seventy-five percent payment due from
SMS is fixed and determinable, which is generally when the software is shipped
to the end user.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits, overnight repurchase
agreements, money market accounts and highly liquid
<PAGE> 22
PAGE 21
investments with original maturities of three months or less. The long-term debt
agreement (See Note 3.) requires the Company to maintain a minimum cash balance
of $4,400,000, which increases monthly by $75,000 effective March 1, 2000 until
February, 2001, at which time the minimum balance must be $5,300,000.
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. Included in accounts
receivable is $1,800,000 due from one customer. This amount is scheduled to be
paid in full during the first quarter of fiscal 2000.
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,
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 began depreciation of computer equipment and software when the assets were
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 1999, 1998, and 1997 was $1,504,138, $1,758,264 and
$875,370, respectively.
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 $300,000, $396,000 and $396,000 in 1999, 1998 and 1997,
respectively.
<PAGE> 23
PAGE 22
Research and development expense was $2,166,441, $3,740,215 and $5,553,778 in
1999, 1998 and 1997, 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 $180,000, $258,332 and $128,333 in 1999,
1998 and 1997, respectively.
ACCRUED OTHER EXPENSES
Accrued other expenses at January 31, 2000 and 1999 include: warranty reserves,
accrued franchise and property taxes, professional fees and other liabilities.
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 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 had excess space at certain facilities. Accordingly, during
the fourth quarter of fiscal 1998, a restructuring charge of $400,000 was
accrued to downsize the then existing facilities to the current and anticipated
near-term needs. The Company has consolidated some of its offices and reduced
its leased facilities. At January 31, 2000, approximately $33,000 remains for
the future downsizing of an additional office.
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, 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.
OTHER INCOME
Other income, net, in the fourth quarter of fiscal 1999, includes approximately
$1,100,000 related to a contract settlement with a customer.
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 1999, 1998 and 1997, excludes the effect of the Stock
Options and Warrants as the inclusion thereof would be antidilutive.
<PAGE> 24
PAGE 23
2. OPERATING LEASES
The Company rents office space and equipment under noncancelable operating
leases that expire in 2002. Future minimum lease payments under noncancelable
operating leases for the next three fiscal years are as follows: 2000, $347,756;
2001, $183,902; 2002, $49,243. Rent expense was $370,720, $812,470 and $637,110
for fiscal years 1999, 1998 and 1997, respectively.
3. LONG-TERM DEBT
In 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, as amended, 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 meet certain financial
covenants, including minimum levels of revenues, earnings, and net worth. Also,
the loan agreement requires the Company to maintain a minimum cash balance of
$4,400,000, which increases monthly by $75,000 effective March 1, 2000 until
February 2001, at which time the minimum balance must be $5,300,000.
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 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.
Maturities of long-term debt are as follows: fiscal year 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,
2000.
<PAGE> 25
PAGE 24
4. INCOME TAXES
The Company had no income tax expense or (benefit) for 1999, 1998 and 1997.
The (benefit) for income taxes differs from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal tax (benefit) at
statutory rate $ (1,104,005) $ (3,714,830) $ (4,307,613)
(Loss) for which benefit not provided 1,104,005 3,714,830 4,307,613
---------------- ---------------- ----------------
$ -- $ -- $ --
================ ================ ================
</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>
Fiscal Year
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating (loss) carryforwards $ 10,640,706 $ 9,576,271 $ 6,061,074
Accounts payable and accrued liabilities 854,145 1,102,738 849,876
Other 142,450 156,280 98,050
---------------- ---------------- ----------------
11,637,301 10,835,289 7,009,000
Less valuation allowance (11,381,128) (10,835,289) (6,991,066)
---------------- ---------------- ----------------
Net deferred tax assets 256,173 -- 17,934
Deferred tax liabilities:
Prepaid assets (220,143) -- --
Equipment (36,030) -- (17,934)
---------------- ---------------- ----------------
(256,173) -- (17,934)
---------------- ---------------- ----------------
$ -- $ -- $ --
================ ================ ================
</TABLE>
At the end of fiscal 1999, the Company had a net operating loss carryforward of
approximately $28,800,000, which begins to expire in 2009.
<PAGE> 26
PAGE 25
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 1999, three customers accounted for 10%, 9% and 9% of total
revenues. 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. At January 31, 2000 and 1999, 69% and 42%, respectively,
of the Company's accounts receivable were due from three customers.
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 22,275 options which were granted in fiscal 1995,
and became fully vested and exercisable on December 1, 1996. At January 31,
2000, options to purchase 477,115 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 3,750 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,
and 10,000 of such stock options were exercised in fiscal 1999.
Pro forma information regarding the net loss and net loss per common share is
required by Statement 123, 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
1999, 1998 and 1997: risk-free interest rates of 6.4% in 1999, 5.0% in 1998 and
5.4% in 1997; a dividend yield of zero per-
<PAGE> 27
PAGE 26
cent; a volatility factor of the expected market price of the Company's Common
Stock of .907 in 1999, .911 in 1998 and .788 in 1997, 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 1999 1998 1997
--------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
Net (loss) $ (3,444,914) $ (11,110,786) $ (13,266,041)
================ ================= =================
Basic net (loss) per common share $ (.39) $ (1.26) $ (1.50)
================ ================= =================
</TABLE>
The pro forma disclosures are not likely to be representative of the effects on
earnings reported for future years.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- -------------------------- ---------------------------
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 703,493 $ 6.04 701,248 $ 7.78 650,873 $ 8.84
Granted 101,000 1.38 248,000 3.01 166,500 5.32
Exercised (10,000) -- (1) -- -- -- --
Forfeited (217,537) 8.07 (245,755) 7.97 (116,125) 10.34
------------ ----------- -----------
Outstanding - end of year 576,956 4.51 703,493 6.04 701,248 7.78
============ =========== =========== =========== =========== ===========
Exercisable at end of year 344,400 $ 5.82 378,053 $ 7.61 387,217 $ 8.02
============ =========== =========== =========== =========== ===========
(1) $.33 in the aggregate for all
10,000 shares.
Weighted average fair value of
options granted during year $ 1.01 $ 2.19 $ 3.51
============ =========== ===========
</TABLE>
<PAGE> 28
PAGE 27
The following table summarizes, by range of exercise price, the options as of
January 31, 2000:
<TABLE>
<CAPTION>
Weighted
Options average Approximate
- ----------------------------------- exercise remaining life
Outstanding Exercisable price in years
- ----------------- ------------- ------------- -----------------
<S> <C> <C> <C>
20,063 20,063 $ -- (1) 1
69,778 69,778 1.00(2) 5
487,115 254,559 7.35(3) 8
- ----------------- -------------
576,956 344,400 5.82
================= =============
</TABLE>
(1) $.66 in the aggregate for all 20,063 options.
(2) $1.00 per share for each of the 69,778 options.
(3) The exercise prices range from $1.38 to $14.50, of which 122,115 shares
are between $10.40 and $14.50 per share and 120,000 shares are between
$4.00 and $7.38 per share and 144,000 shares at $2.88 per share and
101,000 shares at $1.38 per share.
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.
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 1999, 13,513 shares were purchased at the price of $.98 per
share and in 1998, 8,520 shares were purchased at the price of $3.77 per share.
The purchase price at June 30, 2000, will be 85% of the lower of (a) the closing
price on July 1, 1999 ($1.19) or (b) 85% of the closing price on June 30, 2000.
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
<PAGE> 29
PAGE 28
the revenues ratably over the term of the maintenance agreements. The Company
warrants to customers that its software will meet certain performance
requirements.
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 a 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 1,497,808 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.
LITIGATION
There are claims pending against the Company and its subsidiary. Based on a
review of such litigation with legal counsel, management believes any resulting
liability would not have a material affect on the Company's consolidated
financial position or results of operations.
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
--------------------------------------------------------------
1999 1998 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
Net (loss) $ (3,247,073) $ (10,925,970) $ (12,669,451)
Unrealized holding gains (losses) arising
during the period -- (9,570) 147,295
Reclassification adjustment for gains
(losses) included in net (loss) -- (65,633) (152,698)
---------------- ---------------- -----------------
Comprehensive (loss) $ (3,247,073) $ (11,001,173) $ (12,674,854)
================ ================ =================
</TABLE>
11. SUBSEQUENT EVENT
On February 11, 2000, the Company sold its Mason, Ohio data center for
$2,900,000. The sale will generate a gain of approximately $1,400,000. The
Company has entered into a Service Provider Agreement with the purchaser to
continue to use the data center under a fee for service arrangement.
<PAGE> 30
PAGE 29
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following sets forth selected quarterly financial information for fiscal
years 1999, 1998 and 1997.
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,372 $ 2,001 $ 2,984 $ 3,114 $ 10,471
Operating (loss) (1,227) (1,218) (83) (55) (2,583)
Net income (loss) (d) (1,559) (1,580) (494) 386 (3,247)
Basic and diluted net income (loss) per share (a) (.18) (.18) (.06) .04 (.37)
Weighted average shares outstanding 8,814 8,819 8,836 8,838 8,827
=========== =========== ============ =========== ============
Stock Price (b)
High $ 5.63 $ 2.00 $ 1.38 $ 6.25 $ 6.25
Low $ 1.25 $ 1.00 $ .50 $ .44 $ .44
Quarter-end close $ 1.75 $ 1.00 $ .75 $ 1.25 $ 1.25
Cash dividends declared (c) $ -- $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
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 (b)
High $ 5.87 $ 4.62 $ 3.37 $ 3.25 $ 5.87
Low $ 3.62 $ 2.50 $ .87 $ .90 $ .87
Quarter-end close $ 4.50 $ 3.00 $ 1.25 $ 2.71 $ 2.71
Cash dividends declared (c) $ -- $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 (b)
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 (c) $ -- $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Quarterly amounts may not be additive.
(b) Obtained from The Nasdaq Stock Market, Inc.
(c) 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.
(d) Includes other income, net in the fourth quarter.
<PAGE> 31
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
and Corporate Secretary
Thomas E. Perazzo
Chief Financial Officer
and Treasurer
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Corporate Headquarters
LanVision Systems, Inc.
4700 Duke Drive, Suite 170
Mason, Ohio 45040-9374
(513) 459-5000
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 24, 2000.
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 request. These requests should be
directed to: Investor Relations at the Corporate Headquarters.
Common Stock
The Company's common stock trades on The Nasdaq SmallCap Market under the symbol
LANV.
As of March 31, 2000, there were approximately 3,600 stockholders.
LanVision Systems, Inc. World Wide Web Site
Visit us at - http://www.lanvision.com
<PAGE> 32
[LOGO]
LanVision(TM)
Healthcare Information Access Systems
LANVISION SYSTEMS, INC.
4700 DUKE DRIVE, SUITE 170
MASON, OHIO 45040-9374
PHONE: 513.459.5000, FAX: 513.794.7272
(C)LanVision Systems, Inc. 2000
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), Enterprisewide
Correspondence(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 15, 2000, included in the
1999 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 15, 2000, 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, 2000.
<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
</TABLE>
Cincinnati, Ohio /s/ Ernst & Young LLP
April 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-K
FOR THE PERIOD ENDED JANUARY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 5,411,920
<SECURITIES> 0
<RECEIVABLES> 5,460,267
<ALLOWANCES> 385,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,923,322
<PP&E> 7,111,019
<DEPRECIATION> 4,478,444
<TOTAL-ASSETS> 14,718,682
<CURRENT-LIABILITIES> 4,774,177
<BONDS> 6,000,000
0
0
<COMMON> 88,965
<OTHER-SE> 2,524,251
<TOTAL-LIABILITY-AND-EQUITY> 14,718,682
<SALES> 10,471,143
<TOTAL-REVENUES> 10,471,143
<CGS> 6,309,846
<TOTAL-COSTS> 13,054,140
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,680,379
<INCOME-PRETAX> (3,247,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,247,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,247,073)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
