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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Number of shares of Registrant's Common Stock ($.01 par value per share)
issued and outstanding, as of December 8, 2000: 8,879,241.
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TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements...................... 3
Condensed Consolidated Balance Sheets at October 31, 2000
and January 31, 2000............................................. 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended October 31, 2000 and 1999..... 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended October 31, 2000 and 1999...................... 6
Notes to Condensed Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 19
Item 3. Defaults on Senior Securities.................................... 19
Item 6. Exhibits and Reports on Form 8-K................................. 19
Signatures....................................................... 19
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PART I FINANCIAL INFORMATION
Item 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
October 31, January 31,
2000 2000
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (restricted by long-term debt agreement) $ 7,946,950 $ 5,411,920
Note receivable 300,000 --
Accounts receivable, net of allowance for doubtful
accounts of $400,000 and $385,000, respectively 1,842,210 3,936,326
Unbilled receivables 851,392 1,138,941
Prepaid expenses related to unrecognized revenue 159,276 177,629
Other 246,186 258,506
------------ ------------
Total current assets 11,346,014 10,923,322
Property and equipment:
Computer equipment 2,697,739 4,423,753
Computer software 484,675 659,993
Office furniture, fixtures and equipment 1,232,471 1,379,043
Leasehold improvements 98,577 648,230
------------ ------------
4,513,462 7,111,019
Accumulated depreciation and amortization (3,752,932) (4,478,444)
------------ ------------
760,530 2,632,575
Capitalized software development costs, net of accumulated
amortization of $1,325,228 and $1,100,228, respectively 959,701 869,701
Other 252,840 293,084
------------ -------------
$ 13,319,085 $ 14,718,682
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities, Convertible Redeemable Preferred Stock and Stockholders' Equity
<TABLE>
<CAPTION>
(Unaudited) (Audited)
October 31, January 31,
2000 2000
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 415,275 $ 666,647
Accrued compensation 317,788 433,046
Accrued other expenses 1,701,500 2,183,080
Deferred revenues 1,390,393 1,491,404
Current portion of long-term debt 500,000 --
------------ ------------
Total current liabilities 4,324,956 4,774,177
Long-term debt 5,500,000 6,000,000
Long-term accrued interest 1,144,198 1,331,289
Convertible redeemable preferred stock, $.01 par value per share
5,000,000 shares authorized -- --
Stockholders' equity:
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,896,500 shares issued 88,965 88,965
Capital in excess of par value 34,876,950 35,003,931
Treasury stock, at cost, 27,262 and 58,467 shares, respectively (129,583) (277,921)
Accumulated (deficit) (32,486,401) (32,201,759)
------------ ------------
Total stockholders' equity 2,349,931 2,613,216
------------ ------------
$ 13,319,085 $ 14,718,682
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended October 31,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Systems sales $ 999,035 $ 968,159 $ 1,877,970 $ 2,436,807
Services, maintenance and support 1,446,180 2,015,910 4,275,786 4,765,868
Service bureau operations 201,471 -- 603,300 154,925
----------- ----------- ----------- -----------
Total revenues 2,646,686 2,984,069 6,757,056 7,357,600
Operating expenses:
Cost of systems sales 256,728 129,217 698,347 679,464
Cost of services, maintenance and support 779,360 1,052,610 2,613,150 2,961,665
Cost of service bureau operations 84,366 266,374 274,848 1,098,250
Selling, general and administrative 751,513 1,115,210 2,505,471 3,571,295
Product research and development 353,469 504,303 1,280,418 1,575,357
----------- ----------- ----------- -----------
Total operating expenses 2,225,436 3,067,714 7,372,234 9,886,031
----------- ----------- ----------- -----------
Operating profit (loss) 421,250 (83,645) (615,178) (2,528,431)
Other income (expense):
Interest income 126,526 37,464 358,487 125,596
Interest expense (508,422) (447,961) (1,409,370) (1,230,366)
Other income, net -- -- 1,381,419 --
----------- ----------- ----------- -----------
Net income (loss) $ 39,354 $ (494,142) $ (284,642) $(3,633,201)
=========== =========== =========== ===========
Basic net income (loss) per common share $ .00 $ (.06) $ (.03) $ (.41)
=========== =========== =========== ===========
Diluted net income (loss) per common share $ .00 $ (.06) $ (.03) $ (.41)
=========== =========== =========== ===========
Number of shares used in per common share computations 8,869,238 8,836,165 8,857,585 8,823,356
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net (loss) $ (284,642) $(3,633,201)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
(Gain) on sale of property and equipment, net (1,381,419) --
Depreciation and amortization 662,591 1,318,766
Decrease (increase) in long-term accrued interest (187,091) 650,263
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables 2,381,664 2,035,013
Other current assets 24,531 255,689
Accounts payable and accrued expenses (848,210) (825,839)
Deferred revenues (101,011) 261,084
----------- -----------
Net cash provided by operating activities 266,413 61,775
----------- -----------
Investing activities:
Proceeds from disposal of property and equipment 2,000,000 10,562
Purchases of property and equipment (77,984) (69,761)
Capitalization of software development costs (315,000) (225,000)
Payment on note receivable 600,000 --
Other 40,244 (243,876)
----------- -----------
Net cash provided by (used for) investing activities 2,247,260 (528,075)
----------- -----------
Financing activities:
Sale of treasury stock to employee stock purchase plan 21,357 13,243
----------- -----------
Net cash provided by financing activities 21,357 13,243
----------- -----------
Increase (decrease) in cash and cash equivalents 2,535,030 (453,057)
Cash and cash equivalents at beginning of period 5,411,920 5,445,498
----------- -----------
Cash and cash equivalents at end of period $ 7,946,950 $ 4,992,441
=========== ===========
Supplemental cash flow disclosures:
Interest paid $ 1,548,000 $ 546,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared by the Company without audit, in accordance with accounting principles
generally accepted in the United States for interim financial information,
pursuant to the rules and regulations applicable to quarterly reports on Form
10-Q of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the Condensed Consolidated Financial Statements have been
included. These Condensed Consolidated Financial Statements should be read in
conjunction with the financial statements and notes thereto included in the
LanVision Systems, Inc. Annual Report on Form 10-K, Commission File Number
0-28132. Operating results for the three and nine months ended October 31, 2000,
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 31, 2001.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is presented
beginning on page 20 of its 1999 Annual Report to Stockholders. Users of
financial information for interim periods are encouraged to refer to the
footnotes contained in the Annual Report to Stockholders when reviewing interim
financial results. There has been no material change in the accounting policies
followed by the Company during fiscal year 2000.
Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES
The increase in cash and cash equivalents results primarily from the sale of the
data center (discussed below) and the collection of accounts receivable
subsequent to January 31, 2000.
The note receivable, in the amount of $300,000, represents the remaining balance
of a $900,000 note received from the buyer of the data center, and is payable
$75,000 per month, plus interest on the unpaid balance, through February 2001.
The decrease in accounts receivables, net is due to lower revenues in the first
nine months of fiscal year 2000 compared to the nine month period ended
January 31, 2000 and the collection, during the first quarter, of receivables
outstanding at January 31, 2000.
Other current assets consist of software and hardware awaiting installation
(related to unrecognized revenue) and prepaid expenses, including commissions.
The decrease in property and equipment, net, is primarily the result of the sale
of the Company's data center on February 11, 2000 for $2,000,000 in cash and a
$900,000 note receivable. The sale
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generated a gain of approximately $1,381,000. The Company simultaneously entered
into a service provider agreement with the buyer to continue to use the data
center on a fee for service basis.
Other non-current assets consist primarily of prepaid long-term debt closing
costs, which are amortized to expense over the life of the loan.
The decrease in accounts payable is due to the payment, subsequent to
January 31, 2000, of year end purchases.
The decrease in accrued compensation results from the payment of year-end
bonuses and lower current headcount.
The decrease in deferred revenues results from the recognition of revenue
related to billings to customers recorded prior to revenue recognition.
Note 4 - STOCK OPTIONS
During the first nine months of the current fiscal year, the Company granted
199,000 stock options under the 1996 Employee Stock Option Plan at an exercise
price of approximately $1.50 per share. During the same period 160,278 options
were forfeited under all plans and 20.063 options were exercised for the
aggregate price of $0.66.
Note 5 - EARNINGS PER SHARE
The basic net income (loss) per common share is calculated using the weighted
average number of common shares outstanding during the period.
The diluted net income (loss) per common share calculation, excludes the effect
of the common stock equivalents (stock options) as the inclusion thereof would
be antidilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information contained herein, this Discussion and
Analysis, as well as other Items in this Form 10-Q, contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements, included
herein. These risks and uncertainties include, but are not limited to, the
impact of competitive products and pricing, product demand and market
acceptance, new product development, key strategic alliances with vendors that
resell LanVision products, the ability of the Company to control costs,
availability of products produced from third party vendors, the healthcare
regulatory environment, healthcare information systems budgets, availability of
healthcare information systems trained personnel for implementation of new
systems, as well as maintenance of legacy systems, fluctuations in operating
results and other risks detailed from time to time in the LanVision Systems,
Inc. filings with the Securities and Exchange Commission. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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RESULTS OF OPERATIONS
GENERAL
LanVision is an eHealth Application Service Provider and a 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
eHealth solutions offer value to all of the constituents in the healthcare
delivery process by enabling them to simultaneously access information from
virtually any location, including the physician's desktop 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 and Cerner Corporation. 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, either directly or through remarketing partners, of its
Electronic Medical Record solution to Integrated Healthcare Delivery Networks
("IDN"). In a typical transaction, the Company, or its remarketing partners,
enter into a term or 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.
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Beginning in 1998, the Company began offering customers the ability to obtain
its Electronic Medical Record solution on a service bureau/eHealth basis as an
Application Service Provider ("ASP"). The Company's eHealth Services division,
formerly known as the 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
eHealth Services Division stores and manages the data using LanVision's
Electronic Medical Record Suite of Applications, and customers can view, print
or fax the information from anywhere using the LanVision Web-based applications.
The eHealth Services Division charges and recognizes revenue for these eHealth
services on a per transaction or subscription basis as information is captured,
stored, and retrieved.
In February 2000, the Company 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 ASP services
to LanVision's current and future customers. Although LanVision sold the data
center assets, the Company continues to market its eHealth solutions, which
includes the recently announced eHealth agreements with eSmartHealth, Inc. and
Provider HealthNet Services Inc, which are discussed below. The Company will
continue to provide its eHealth ASP services to customers through the continued
use of 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. 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 concurrently 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. Alternatively, with the Company's eHealth ASP services, the
agreements generally provide for utilizing the Company's software and third
party software on a fee per transaction or subscription 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
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the revenue are classified as deferred revenues. Revenue recognized prior to
progress billings to customers is recorded as unbilled receivables.
The Company's eHealth Services 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 or subscription basis, and the centralized data center
application is operated and maintained by LanVision personnel and/or its agents.
In 1999, the eHealth Services Division signed a four-year contract with The
Health Alliance of Greater Cincinnati, a group of five hospitals in the Greater
Cincinnati Area, to 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 eHealth 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 eHealth solutions.
In 1998, the Company entered into a Remarketing Agreement with Shared Medical
Systems Corporation ("SMS"). Under the terms of the agreement, SMS was granted
an exclusive worldwide license to distribute ChartVision(R), On-Line Chart
Completion(TM) WebView(TM) and Enterprisewide Correspondence(TM) to the SMS
customer base and prospect base, as defined in the agreement, and a
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. LanVision records the
remaining 75% of the royalty when such payment due from SMS is fixed and
determinable, which is generally when the software is shipped to the end user.
Through October 31, 2000, SMS has sold ten systems to end-users.
In August 2000, the Company entered into an agreement with eSmartHealth, Inc.
("eSmart") which allows eSmart to utilize LanVision' MicroVision(TM) Electronic
Medical Record ("EMR") product combined with web-based eSmart software to
provide affordable, web-based EMR document management and viewing services to
hospitals and clinics via the Internet. eSmart, in conjunction with their
affiliate Alpharetta, Georgia based Smart Professional Photocopy Corporation
d/b/a Smart Corporation, will distribute their services through Smart
Corporation's extensive sales distribution network which currently consists of
over 1,000 hospitals and 4,600 clinic customers throughout 46 states. LanVision
will be compensated for use of its software based upon the number of EMR images
eSmart scans and stores using the MicroVision application. The current estimate
is that eSmart will begin using the LanVision software starting late in the
fiscal fourth quarter or the first quarter of fiscal year 2001.
In November 2000, the Company entered into an agreement with Provider HealthNet
Services Inc. ("PHNS") which allows PHNS to offer LanVision's MicroVision EMR
product to provide EMR document management and viewing services to PHNS'
customer base. PHNS is a healthcare industry information technology and
business outsourcing company, which provides information technology and
professional management of information systems, medical records and related
business processes to hospitals and other healthcare providers on a shared basis
to improve
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healthcare services and reduce costs. The relationship with LanVision will allow
PHNS to more effectively use information technology and the LanVision eHealth
Services document imaging and management solution for medical records and other
business processes to improve healthcare services and reduce costs for its
customers. The LanVision eHealth Services allows PHNS to offer a state-of-the
art, Application Service Provider-based EMR solution, an offering that
contributes to increased process efficiency for medical records functions. PHNS
currently provides medical record, transcription and coding management
outsourcing services to nine hospitals, many of which, we were advised by PHNS,
are in the process of converting to or considering an EMR solution. The
LanVision eHealth Services provided by PHNS will be delivered on an ASP basis
through a centralized data center staffed by seasoned information technology
professionals with healthcare experience. LanVision will be compensated by PHNS
for use of its software based upon the number of encounters, or patient visits,
to each hospital using the LanVision EMR software.
PHNS is a privately held, Dallas based company which currently has over 420
experienced healthcare information technology and business process employees
that provide outsourcing services to 16 hospitals in 9 states
To date, LanVision has recorded no revenues from eSmart or PHNS and we can not
predict when, if ever, revenues will be generated from these two new agreements.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS
The Company's revenues from systems sales have varied, and may continue to vary,
significantly from quarter to quarter as a result of the volume and timing of
systems sales and delivery. Professional services revenues also fluctuate from
quarter to quarter as a result of the timing of the installation of software and
hardware, project management and customized programming. Revenues from
maintenance services do not fluctuate significantly from quarter to quarter, but
have been increasing as the number of customers increase. Revenues from eHealth
Service Bureau operations are expected to increase over time, as more hospitals
outsource services to LanVision's eHealth Service Division, or its remarketing
partners begin to utilize the software, and existing customers increase the
volume of documents stored on the systems, and the number of retrievals
increase.
The Company's revenues and operating results may vary significantly from quarter
to quarter as a result of a number of other factors, many of which are outside
the Company's control. These factors include the relatively high purchase price
of a system, unpredictability in the number and timing of systems sales, length
of the sales cycle, delays in the installation process and changes in the
customer's financial condition or budget and the sales activities of the
remarketing partners. As a result, period to period comparisons may not be
meaningful with respect to the past operations of the Company nor are they
necessarily indicative of the future operations of the Company.
REVENUES
Revenues for the third fiscal quarter ended October 31, 2000, were $2,646,686,
compared with $2,984,069 reported in the comparable quarter of 1999. Revenues
for the first nine months ended October 31, 2000, were $6,757,056, compared with
$7,357,600 reported in the comparable period of 1999. System sales and services,
maintenance and support revenues in the current nine
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month period are less than the comparable prior period because of fewer new
system installations and fewer professional services used by customers in the
current period when compared with the prior period when many customers were
upgrading to year 2000 compliant LanVision software and two major
implementations were in progress. Revenues for the first nine months of fiscal
2000 continued to be affected because many healthcare organizations deferred new
software purchases until all of their existing systems were Year 2000 compliant.
Also, LanVision's remarketing partner, Shared Medical Systems Corporation, has
been slow to implement existing contracts, which adversely affects revenue
recognition because 75% of LanVision's revenues from such contracts are
recognized only upon commencement of implementation activities on a contract by
contract basis.
Additionally, healthcare institutions are assessing and implementing many new
technologies. Although many of these systems do not compete with LanVision
products, these systems do compete for capital budget dollars and the available
time of information systems personnel within the healthcare industries. However,
management continues to believe that revenue from our Remarketing Agreement with
SMS will increase in the future since LanVision's product has been fully
integrated with the SMS product. In addition, our web-based eHealth application,
which is currently available and in production with our customers and available,
through our Resellers, should further enhance revenues through software
royalties to LanVision with minimal additional cost. Both our Remarketing and
Reseller Agreements should represent a greater percentage of the Company's total
revenues in the future.
Many healthcare organizations are beginning to plan additional information
technology projects following Year 2000 remediation and in anticipation of the
Health Insurance Portability and Accountability Act ("HIPAA") compliance. HIPAA
is a series of standards that are intended to regulate the way health
information is transmitted and secured electronically. A recent healthcare
industry report [Fitch IBCA, Duff & Phelps] stated that in order to comply with
the HIPAA healthcare information electronic transmission regulations, healthcare
systems will need to adjust existing systems or purchase new information
technology systems, hire and retrain staff, and make significant changes to the
current processes associated with maintaining patient privacy, the cost of which
is estimated to be somewhere between three to four times the amount of
expenditures required for Year 2000 remediation, or an amount in excess of $25
billion. LanVision believes its highly evolved, secure and technologically
advanced web-based eHealth solutions will position the Company to take advantage
of, what we continue to believe will be, significantly increasing market
opportunities for LanVision and its distribution partners in the future."
After an agreement is executed, LanVision does not record revenues until it
delivers the hardware and software or performs the agreed upon services. The
commencement of revenue recognition varies depending on the size and complexity
of the system and the scheduling of the implementation, training, interface
development and other services requested by the customer. Accordingly,
significant variations in revenues can result as more fully discussed under
"Uneven Patterns of Quarterly Operating Results." Three customers, excluding our
remarketing partner SMS, accounted for approximately 44% of the revenues for the
third quarter and 36% for the first nine months of 2000 compared with 29% and
32%, respectively, of revenues in the comparable periods of the prior year.
Revenues from SMS accounted for approximately $97,600 and $531,800 for the three
and nine months ended October 31, 2000, respectively, compared with
approximately $955,000 and $1,168,000 for the three and nine months ended
October 31, 1999, respectively. The decrease in SMS revenues results from fewer
software installations in the
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current fiscal year compared with the prior comparable periods, including less
LanVision professional services provided to SMS as they installed the first
three installations, offset to some extent by increased Level 2 & 3 maintenance
revenues paid to LanVision.
OPERATING EXPENSES
Cost of Systems Sales
The cost of systems sales includes amortization of capitalized software
development costs on a straight-line basis, royalties and the cost of
third-party software and hardware. Cost of systems sales as a percentage of
systems sales may vary from period to period depending on the mix of hardware
and software of the systems or add-on sales delivered. The cost of systems sales
as a percentage of systems sales for the third quarter of fiscal 2000 and 1999
were 26% and 13%, respectively, and 37% and 28%, respectively, for the first
nine months of fiscal 2000 and 1999. The higher cost reflects lower margins on
the hardware sold during the current periods compared to the comparable prior
periods as well as increased software amortization expense.
Cost of Services, Maintenance and Support
The cost of services, maintenance and support includes compensation and benefits
for support and professional services personnel and the cost of third-party
maintenance contracts. As a percentage of services, maintenance and support
revenues, the cost of such services, maintenance and support was 53% and 52% for
the third quarter of fiscal 2000 and 1999, respectively and 61% and 62% for the
first nine months of fiscal 2000 and 1999, respectively. The Company's support
margins are highest on LanVision's proprietary software. Accordingly, margins
are expected to improve as more customers are added.
The LanVision Professional Services staff provides services on a time and
material or fixed fee basis. The Professional Services staff periodically
experiences some inefficiencies in the delivery of services, and certain
projects have taken longer to complete than originally estimated, thus adversely
affecting operating performance. Additionally, the Professional Services staff
does spend a portion of its time on non-billable activities, such as selling
additional products and services to existing clients, developing training
courses and plans to move existing customers to LanVision's new product
releases, etc. Management believes an increase in the number of new systems sold
and the related backlog should improve the overall efficiency and operating
performance of this group.
Cost of Service Bureau Operations
The cost of Service Bureau operations was significantly reduced with the sale of
the data center. (See Note 3 of the Notes to Condensed Consolidated Financial
Statements, above.) The Company now incurs expenses only for the outsourcing
services it uses which are directly related to the Service Bureau Revenues
generated by the VHS-eHealth Services Division.
Selling, General and Administrative
Selling, General and Administrative expenses consist primarily of: compensation
and related benefits and reimbursable travel and living expenses related to the
Company's sales, marketing and administrative personnel; advertising and
marketing expenses, including trade shows and
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similar type sales and marketing expenses; and general corporate expenses,
including occupancy costs. During the third quarter of fiscal 2000, Selling,
General and Administrative expenses decreased to $751,513 compared with
$1,115,210 in the comparable prior quarter and decreased to $2,505,471 in the
first nine months compared with $3,571,295 in the comparable prior nine month
period. The reductions in Selling, General and Administrative expenses is due to
decreased staffing levels and reduced expenses in other areas. The Company has
gradually reduced its direct sales staff as the Company focuses its sales
efforts on indirect distribution through its current and future Remarketing,
Reseller and ASP Partners. However, the Company may increase its direct sales
force in the foreseeable future as market opportunities arise.
Product Research and Development
Product research and development expenses consist primarily of: compensation and
related benefits; the use of independent contractors for specific development
projects; and an allocated portion of general overhead costs, including
occupancy. During the third quarter and first nine months of fiscal 2000,
research and development expenses were $353,469 compared with $504,303 in the
comparable prior quarter and $1,280,418 in the first nine months compared with
$1,575,357 in the comparable prior nine month period as a result of a reduction
of staff and use of outside contractors, and an increase in capitalized software
for new products under development. The Company monitors closely and augments
its Research and Development staff, as necessary, to accelerate the development
of new products. The Company capitalized, in accordance with Statement of
Financial Accounting Standards No. 86, $105,000 and $75,000 of product research
and development costs in the third quarter of fiscal 2000 and 1999, respectively
and $315,000 and $225,000 in the first nine months of fiscal 2000 and 1999,
respectively.
Operating income (loss)
The operating income for the third quarter of fiscal 2000 was $421,250 compared
with an operating loss of $83,645 in the third quarter of fiscal 1999. The
operating loss for the first nine months of fiscal 2000 was $615,178 compared
with $2,528,431 in the first nine months of fiscal 1999. The decrease in the
operating loss results primarily from: (1) continued stringent cost controls,
and (2) the sale of the data center and the reduction in the associated expenses
related thereto which approximated $300,000 in each of the first three quarters.
Interest income consists primarily of interest on invested cash. The increase in
interest income results from increased cash balances and higher interest rates.
Interest expense relates to the long-term debt.
Other income, net
Other income, net of $1,381,419 relates primarily to the data center sale in the
first quarter. (See Note 3 of the Notes to Consolidated Condensed Financial
Statements, above.)
Net income (loss)
The net income for the third quarter of fiscal 2000 was $39,354 ($.00 per share)
compared with a net loss of $494,142 ($.06 per share) in the third quarter of
fiscal 1999. The net loss for the first nine months of fiscal 2000 was $284,642
($.03 per share) compared with a net loss of $3,633,201 ($.41 per share) in the
first nine months of fiscal 1999. Excluding the gain on the sale of the data
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center, the net loss for the first nine months would have been $1,666,061, a
decrease of $1,967,140 from the comparable loss in the first nine months of
fiscal 1999. This reduction results primarily from: (1) the continued stringent
cost controls in all areas, and (2) the sale of the data center which resulted
in an approximately $823,000 reduction in expenses related to the data center
operations.
Notwithstanding the less than anticipated number of new customer agreements
signed in the past, management continues to believe that the healthcare document
imaging and workflow market is going to be a significant market. Management
believes it has made the investments in the talent and technology necessary to
establish the Company as a leader in this marketplace, and continues to believe
the Company is well positioned to experience significant revenue growth
primarily through third party distributors and remarketing partners.
Since commencing operations in 1989, the Company has incurred operating losses.
Although the Company achieved profitability in fiscal years 1992 and 1993, the
Company incurred a net loss in fiscal years 1994 through 1999. In view of the
Company's prior operating history, there can be no assurance that the Company
will be able to achieve consistent profitability on a quarterly or annual basis
or that it will be able to sustain or increase its revenue growth in future
periods. Based upon the expenses associated with current and planned staffing
levels, profitability is dependent upon increasing revenues.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1989, the Company has funded its operations, working
capital needs and capital expenditures primarily from a combination of cash
generated by operations, a 1994 private placement of convertible redeemable
preferred stock, an initial public offering and borrowings, including a
$6,000,000 loan in 1998.
The Company's customers typically have been well-established hospitals, medical
facilities or third party distributors with good credit histories, and payments
have been received within normal time frames for the industry. However, some
healthcare organizations have experienced significant operating losses as a
result of limits on third-party reimbursements from insurance companies and
governmental entities. Agreements with customers often involve significant
amounts and contract terms typically require customers to make progress
payments. Agreements with third party distributors normally require payment as
LanVision's software is: (1) sublicensed and installed at end users or (2) as
the LanVision software is utilized on a per transaction, subscription or similar
"pay-as-you-use" basis.
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of approximately $328,000,
net of a sublease, payable over the next three years.
Through Fiscal year 1999, 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 and one half years. Although the
Company has reduced staffing levels and related expenses, and improved operating
performance, the Company's expenses may exceed its revenues. Accordingly, to
achieve continued profitability, and positive cash flow, it is necessary for the
Company to increase revenues or
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continue to reduce expenses. Management believes that the general release of
enhanced products has significantly strengthened the product lines.
Additionally, the SMS, eSmart and PHNS agreements have expanded the sales and
distribution capabilities, and management believes that market opportunities are
such that the Company should be able to increase its revenues. However, there
can be no assurance the Company will be able to increase its revenues.
At October 31, 2000, the Company had cash and cash equivalents of $7,946,950.
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
$5,000,000, which increases by $75,000 per month, which is equal to the note
receivable payment from the sale of the data center, until February 2001, at
which time the minimum balance must be $5,300,000.
Management has significantly reduced operating expenses, and believes the
Company can improve operating results in fiscal 2000. Based upon current revenue
and expenditure levels the Company should be able to break even. However, the
Company may 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.
The Company's long-term debt agreement, as amended on September 5, 2000,
currently requires that the Company maintain, certain financial covenants
including: Minimum Year-to-date Revenues of $5,500,000 as of October 31, 2000
and $8,800,000 as of January 31, 2001; Minimum Earnings (Loss) Before Interest
and Taxes of ($415,000) for the nine month period ended October 31, 2000, and
$400,000 for the fiscal year ending January 31, 2001; maintain minimum cash and
investment balances, as noted above; and maintain a Minimum Net Worth of
$800,000 through January 31, 2001 and $1,100,000 thereafter. On or before
February 28, 2001, the long-term debt agreement must be amended to establish new
financial covenants (at minimum levels acceptable to the lender) for fiscal year
2001 and thereafter. There can be no assurance that the Company's lender will
consent to a waiver of any covenants if they are not met. However, management
believes that the Company will be able to comply with the current covenants to
avoid default of the long-term debt agreement.
In addition, The Nasdaq SmallCap Market requires a minimum of $2,000,000 in Net
Tangible Assets, or Net Worth, for continued listing on the SmallCap Market.
Should LanVision's Net Worth decrease below the above noted minimums, the
Company's Common Stock could be delisted from The Nasdaq SmallCap Market. If
that event were to occur, the Company would use its best efforts to have its
Common Stock traded on The Nasdaq Over The Counter Bulletin Board, the NASD Pink
Sheets or other Over The Counter Markets.
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 October 31, 2000.
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In August 2000, the Company announced that it had retained FAC/Equities, a
division of First Albany Corporation, as a financial advisor to evaluate
alternatives for maximizing shareholder value.
SIGNED AGREEMENTS - BACKLOG
LanVision, or its remarketing partners, enter into master agreements with their
customers to specify the scope of the system to be installed and services to be
provided, the agreed upon aggregate price and the timetable for implementation.
The master agreement typically provides that the Company, or its remarketing
partner, 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 October 31, 2000, the Company's and SMS' customers (excluding customers of
the eHealth Services Division) had entered into master agreements for systems
and services (excluding support and maintenance) which had not yet been
delivered, installed and accepted which, if fully performed, would generate
revenue of approximately $4,709,000, compared with approximately $4,551,000 at
the end of fiscal 1999. The systems and services are currently expected to be
delivered over the next two to three years. In addition, the Company anticipates
approximately $2,400,000 in transaction-based fee revenues for the eHealth
Services Division's current client over the remaining thirty-five month life of
the contract. Because implementation and Service Bureau eHealth fees are
dependent upon the customer's schedule and usage, the Company is unable to
predict accurately the amount of revenues in future periods.
The Company's master agreements also generally provide for an initial
maintenance period and give the customer the right to subscribe for maintenance
and support services on a monthly, quarterly or annual basis. Maintenance and
support revenues for fiscal years 1999 and 1998 and 1997 were approximately
$3,264,000, $2,755,000 and $2,151,000, respectively and are expected to increase
as new or expanded systems are installed.
The commencement of revenue recognition varies depending on the size and
complexity of the system, the implementation schedule requested by the customer
and usage by customers of the VHS-eHealth Services Division Service Bureau
operations. Therefore, LanVision is unable to accurately predict the revenues 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.
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Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently engaged in any material adverse litigation.
Item 3. DEFAULTS ON SENIOR SECURITIES
The Company is not in default under its existing Loan Agreement
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of LanVision Systems, Inc.
3.2 Bylaws of LanVision Systems, Inc.
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANVISION SYSTEMS, INC.
DATE: December 8, 2000 By: /s/ J. BRIAN PATSY
------------------ ----------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: December 8, 2000 By: /s/ PAUL W. BRIDGE, JR.
------------------ ----------------------------------
Paul W. Bridge, Jr.
Acting Chief Financial Officer and
Acting Treasurer
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INDEX TO EXHIBITS
Exhibit No. Exhibit
-----------
3.1 Certificate of Incorporation of LanVision Systems, Inc.
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.
3.2 Bylaws of LanVision Systems, Inc.
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.
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
