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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 April 30, 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 May 30, 2000: 8,848,093.
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TABLE OF CONTENTS
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Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements....................................................... 3
Condensed Consolidated Balance Sheets at April 30, 2000 and January 31, 2000...................... 3
Condensed Consolidated Statements of Operations for the three months ended
April 30, 2000 and 1999........................................................................... 5
Condensed Consolidated Statements of Cash Flows for the three
months ended April 30, 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................................................................................. 17
Item 3. Defaults on Senior Securities..................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders............................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................................................. 18
Signatures........................................................................................ 19
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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
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(Unaudited) (Audited)
April 30, January 31,
2000 2000
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Current assets:
Cash and cash equivalents (restricted by long-term debt agreement) $ 8,550,241 $ 5,411,920
Note receivable 750,000 --
Accounts receivable, net of allowance for doubtful
accounts of $400,000 and $385,000, respectively 1,385,521 3,936,326
Unbilled receivables 1,264,547 1,138,941
Prepaid expenses related to unrecognized revenue 204,523 177,629
Other 400,207 258,506
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Total current assets 12,555,039 10,923,322
Property and equipment:
Computer equipment 2,662,400 4,423,753
Computer software 482,037 659,993
Office furniture, fixtures and equipment 1,299,603 1,379,043
Leasehold improvements 98,577 648,230
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4,542,617 7,111,019
Accumulated depreciation and amortization (3,527,001) (4,478,444)
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1,015,616 2,632,575
Capitalized software development costs, net of accumulated
amortization of $1,175,228 and $1,100,228, respectively 899,701 869,701
Other 249,443 293,084
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$ 14,719,799 $ 14,718,682
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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
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(Unaudited) (Audited)
April 30, January 31,
2000 2000
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Current liabilities:
Accounts payable $ 512,444 $ 666,647
Accrued compensation 371,668 433,046
Accrued other expenses 2,195,876 2,183,080
Deferred revenues 1,136,049 1,491,404
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Total current liabilities 4,216,037 4,774,177
Long-term debt 6,000,000 6,000,000
Long-term accrued interest 1,575,716 1,331,289
Convertible redeemable preferred stock, $.01 par value per share
5,000,000 shares authorized -- --
Stockholders' equity:
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,896,500 shares issued 88,965 88,965
Capital in excess of par value 34,956,117 35,003,931
Treasury stock, at cost, 48,407 and 58,467 shares, respectively (230,106) (277,921)
Accumulated (deficit) (31,886,930) (32,201,759)
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Total stockholders' equity 2,928,046 2,613,216
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$ 14,719,799 $ 14,718,682
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
(Unaudited)
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Three Months Ended
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2000 1999
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Revenues:
Systems sales $ 271,061 $ 926,970
Services, maintenance and support 1,339,215 1,290,153
Service bureau operations 202,462 154,925
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Total revenues 1,812,738 2,372,048
Operating expenses:
Cost of systems sales 171,936 435,464
Cost of services, maintenance and support 928,104 930,045
Cost of service bureau operations 107,839 426,419
Selling, general and administrative 839,508 1,261,239
Product research and development 467,371 546,012
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Total operating expenses 2,514,758 3,599,179
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Operating (loss) (702,020) (1,227,131)
Other income (expense):
Interest income 104,712 48,944
Other, net 1,352,718 --
Interest expense (440,581) (380,833)
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Income (loss) before provision for income taxes 314,829 (1,559,020)
Provision for income taxes -- --
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Net income (loss) $ 314,829 $(1,559,020)
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Basic net income (loss) per common share $ 0.04 $ (0.18)
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Diluted net income (loss) per common share $ 0.04 $ (0.18)
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Number of shares used in per common share computations:
Basic 8,848,093 8,814,520
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Diluted 8,955,187 8,814,520
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended April 30,
(Unaudited)
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2000 1999
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Operating activities:
Net income (loss) $ 314,829 $(1,559,020)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
(Gain) on sale of fixed assets, net (1,406,620) --
Depreciation and amortization 247,727 478,067
Increase in long-term accrued interest 244,427 192,833
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables 2,425,198 225,970
Other current assets (168,595) (83,240)
Accounts payable and accrued expenses (202,784) (766,785)
Deferred revenues (355,355) 321,224
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Net cash provided by (used for) operating activities 1,098,827 (1,190,951)
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Investing activities:
Proceeds from disposal of property and equipment 2,000,000 --
Purchases of property and equipment (49,148) (38,859)
Capitalization of software development costs (105,000) (75,000)
Payment on note receivable 150,000 --
Other 43,642 7,293
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Net cash provided by (used for) investing activities 2,039,494 (106,566)
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Increase (decrease) in cash 3,138,321 (1,297,517)
Cash and cash equivalents at beginning of period 5,411,920 5,445,498
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Cash and cash equivalents at end of period $ 8,550,241 $ 4,147,981
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Supplemental cash flow disclosures:
Interest paid $ 182,000 $ 180,000
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See Notes to Condensed Consolidated Financial Statements.
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LANVISION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared by the Company without audit, in accordance with generally accepted
accounting principles for interim financial information, pursuant to the rules
and regulations applicable to quarterly reports on Form 10-Q of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the Condensed Consolidated Financial Statements have been included. These
Condensed Consolidated Financial Statements should be read in conjunction with
the financial statements and notes thereto included in the LanVision Systems,
Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating
results for the three months ended April 30, 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 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 $750,000, 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
current quarter compared to the prior quarter ended January 31, 2000 and the
collection, during the first quarter, of receivables outstanding at January 31,
2000.
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Other current assets consist of software and hardware awaiting installation
(related to unrecognized revenue) and prepaid expenses, including commissions.
Other current assets increased primarily due to an advance to a vendor.
The decrease in property and equipment, net, is 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 generated a gain of approximately $1,400,000. 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 a reduction in headcount
during the first quarter and the payment of year end bonuses.
Note 4 - STOCK OPTIONS
During the first three months of the current fiscal year, the Company granted
195,000 stock options under the 1996 Employee Stock Option Plan at an exercise
price of $1.50 per share. During the same period 68,500 options were forfeited
under all plans.
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, includes the effect
of the common stock equivalents (stock options) in fiscal year 2000, but
excludes such common stock equivalents in fiscal 1999, 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
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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.
RESULTS OF OPERATIONS
GENERAL
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.
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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 or service fee arrangement for the Company's Electronic
Medical Record software suite and licenses, sells or offers a service fee
arrangement for 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 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 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
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materials basis. Alternatively, with the Company's e-Health 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 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
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.
Through April 31, 2000, SMS has sold nine systems to end-users.
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UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS
The Company's revenues from systems sales have varied, and may continue to vary,
significantly from quarter to quarter as a result of the volume and timing of
systems sales and delivery. Professional services revenues also fluctuate from
quarter to quarter as a result of the timing of the installation of software and
hardware, project management and customized programming. Revenues from
maintenance services do not fluctuate significantly from quarter to quarter, but
have been increasing as the number of customers' increase. Revenues from the VHS
service bureau operations are expected to increase over time, as more hospitals
outsource services to VHS, its existing customer increases 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. 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 first fiscal quarter ended April 30, 2000, were $1,812,738,
compared with $2,372,048 reported in the comparable quarter of 1999. Revenues
for the first quarter 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.
Additionally, healthcare institutions are assessing and implementing many new
technologies. Although many of these systems do not compete with the LanVision
products, these systems do compete for capital budget dollars and the available
time of information systems personnel within the healthcare industries. Also,
the Remarketing Agreement with Shared Medical Systems Corporation continues to
develop more slowly than expected. However, management continues to believe that
revenue from this Remarketing Agreement will increase and represent a greater
percentage of the Company's total revenues in the future.
After an agreement is executed, LanVision does not record revenues until it
delivers the hardware and software or performs the agreed upon services. The
commencement of revenue recognition varies depending on the size and complexity
of the system and the scheduling of the implementation, training, interface
development and other services requested by the customer. Accordingly,
significant variations in revenues can result as more fully discussed under
"Uneven Patterns of Quarterly Operating Results." Three customers accounted for
approximately 39% of the revenues for the first quarter of 2000 compared with
36% of revenues in the comparable period of the prior year.
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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 first quarter of fiscal 2000 and 1999
were 63% and 47%, respectively. The higher cost reflects the lower mix of
LanVision software with higher margins relative to the hardware and third party
software components with lower margins and higher costs.
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 69% and 72% for
the first quarter of fiscal 2000 and 1999, respectively. The improvement in the
cost of sales is due to reduced operating expenses and more effective
utilization of the professional services and support staffs. The Company's
support margins are highest on LanVision's proprietary software. Accordingly,
margins are expected to improve as more customers are added.
The LanVision Professional Services staff provides services on a time and
material or fixed fee basis. The Professional Services staff has, in the past,
experienced some inefficiencies in the delivery of services, and certain
projects have taken longer to complete than originally estimated, thus adversely
affecting operating performance. Additionally, the Professional Services staff
does spend a portion of its time on non-billable activities, such as 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 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
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and administrative personnel; advertising and marketing expenses, including
trade shows and similar type sales and marketing expenses; and general corporate
expenses, including occupancy costs. During the first quarter of fiscal 2000,
Selling, General and Administrative expenses decreased to $839,508 compared with
$1,261,239 in the comparable prior quarter. The reductions in Selling, General
and Administrative expenses is due to decreased staffing levels and reduced
expenses in other areas. The Company has gradually reduced its direct sales
staff as the Company focuses its sales efforts on indirect distribution through
its current and future Remarketing Partners. 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 first quarter of fiscal 2000, research and development
expenses were $467,371 compared with $546,012 in the comparable prior quarter 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 is in
the process of increasing its Research and Development staff 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 first quarter of fiscal 2000 and
1999, respectively.
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.
Operating loss
The operating loss for the first quarter of fiscal 2000 was $702,020 compared
with an operating loss of $1,227,131 in the first quarter 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 $318,000.
Other income, net
Other income, net of $1,352,718 relates to the disposal of fixed assets,
primarily the data center. (See Note 3 of the Notes to Consolidated Condensed
Financial Statements, above.)
Net income (loss)
The net income for the first quarter of fiscal 2000 was $314,829 ($0.04 per
share) compared with a net loss of $1,559,020 ($.0.18 per share) in the first
quarter of fiscal 1999. Excluding the gain on the sale of the data center, the
net loss for the current quarter would have been $1,037,889, a decrease of
$521,131 from the comparable loss in the first quarter of fiscal 1999. This
reduction
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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 $318,000
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 or
medical facilities 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.
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of approximately $455,000,
net of a sublease, 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 enhanced products has significantly
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strengthened the product lines. Additionally, the SMS Remarketing Agreement has
significantly expanded the sales distribution capabilities, and management
believes that market opportunities are such that the Company should be able to
increase its revenues. However, there can be no assurance the Company will be
able to increase its revenues.
At April 30, 2000, the Company had cash and cash equivalents of $8,550,241. 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
$4,500,000, which increases by $75,000 per month, which is equal to the Note
Receivable payment, 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. 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 April 30, 2000.
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 April 30, 2000, the Company's customers (excluding customers of the Virtual
Healthware Services division) had entered into master agreements for systems and
services (excluding support and maintenance) which had not yet been delivered,
installed and accepted which, if fully performed, would generate sales of
approximately $5,686,000, 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
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$2,900,000 in transaction-based fee revenues for the Virtual Healthware Services
division's client over the remaining forty-one month life of the contract.
Because implementation and service bureau fees are dependent upon the customer's
schedule and usage, the Company is unable to predict accurately the amount of
revenues in future periods.
The Company's master agreements also generally provide for an initial
maintenance period and give the customer the right to subscribe for maintenance
and support services on a monthly, quarterly or annual basis. Maintenance and
support revenues for fiscal years 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 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.
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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 24, 2000, the
following members were elected to the Board of Directors:
Votes For Votes Withheld
--------- --------------
J. Brian Patsy 8,564,764 72,029
Eric S. Lombardo 8,565,464 71,329
Z. David Patterson 8,585,264 51,529
George E. Castrucci 8,585,244 51,549
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Lease for office space between Creek Road Warehouse Complex,
LLC and LanVision, Inc., dated May 4, 2000
10.2 Asset Purchase Agreement Between LanVision, Inc. and Smart
Professional Photocopy Corporation
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
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.
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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: May 30, 2000 By: /s/ J. BRIAN PATSY
----------------------------- -----------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: May 30, 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
<TABLE>
<CAPTION>
Exhibit No. Exhibit
-----------
<S> <C> <C>
10.1 Lease for office space between Creek Road Warehouse Complex, LLC and LanVision, Inc.,
dated May 4, 2000.
10.2 Asset Purchase Agreement Between LanVision, Inc. and Smart ##
Professional Photocopy Corporation
11 Computation of Earnings (Loss) Per Common Share
27 Financial Data Schedule
</TABLE>
## Previously filed with the Commission as Exhibit 10 of the Registrant's Form
8-K dated February 22, 2000, as filed with the Commission on February 22,
2000.
