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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-24738
LORONIX INFORMATION SYSTEMS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 33-0248747
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
820 AIRPORT ROAD, DURANGO, COLORADO 81301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (970) 259-6161
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 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
--- ---
AS OF OCTOBER 23, 1996, THERE WERE 4,661,936 SHARES OF THE ISSUER'S
COMMON STOCK OUTSTANDING.
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LORONIX INFORMATION SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET 1
AS OF SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENTS 3
OF OPERATIONS FOR THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 4
FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL 5
STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 6
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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PART I - FINANCIAL INFORMATION
LORONIX INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 5,767,807
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $177,025 1,449,335
Officers and employees 146,187
Contracts in progress with earned revenue
exceeding related progress billings 2,437,339
Inventory, net 942,831
Prepaid expenses and other assets 87,577
Deferred income taxes 100,000
-----------
Total current assets 10,931,076
Construction in progress 208,951
Property and equipment, net of accumulated
depreciation of $827,427 2,996,135
Software development costs, net of accumulated
amortization of $503,188 469,111
Deposits and other assets 38,259
Goodwill, net of accumulated amortization
of $47,525 9,919
-----------
Total assets $14,653,451
-----------
-----------
See accompanying notes to condensed consolidated financial statements
1
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LORONIX INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
Current liabilities:
Accounts payable $ 668,676
Accrued commission payable 153,558
Income tax payable 118,700
Accrued liabilities 148,996
-----------
Total current liabilities 1,089,930
Deferred maintenance revenue 23,308
-----------
Total liabilities 1,113,238
Stockholders' equity:
Preferred stock, $.001 par value,
authorized 2,000,000 shares, no shares
issued and outstanding -
Common stock, $.001 par value, authorized
20,000,000 shares, issued and outstanding,
4,661,936 shares 4,662
Additional paid-in capital 15,259,432
Notes receivable from stockholders (214,981)
Accumulated deficit (1,508,900)
-----------
Total stockholders' equity 13,540,213
-----------
Total liabilities and stockholders' equity $14,653,451
-----------
-----------
See accompanying notes to condensed consolidated financial statements
2
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LORONIX INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Systems, supplies and maintenance
revenue $2,959,933 $1,547,208 $8,504,213 $ 4,529,670
---------- ---------- ---------- -----------
Operating costs and expenses:
Cost of products sold 1,323,197 863,354 3,944,281 2,347,561
Operations and customer support 219,678 202,802 725,687 644,814
Selling, general and administrative 784,815 1,012,749 2,343,364 2,351,048
Research and development 235,625 251,221 682,603 619,888
---------- ---------- ---------- -----------
Total cost and expenses 2,563,315 2,330,126 7,695,935 5,963,311
Income (loss) from operations 396,618 (782,918) 808,278 (1,433,641)
---------- ---------- ---------- -----------
Other income (expense):
Interest income 68,004 108,035 225,538 347,155
Other 405 (18) (363) (435)
---------- ---------- ---------- -----------
68,409 108,017 225,175 346,720
---------- ---------- ---------- -----------
Income (loss) before income taxes 465,027 (674,901) 1,033,453 (1,086,921)
Income (tax) benefit (50,025) (1,064) (174,038) 105,236
---------- ---------- ---------- -----------
Net income (loss) $ 415,002 $ (675,965) $ 859,415 $ (981,685)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Income (loss) per share - primary and
fully diluted $ 0.09 $ (0.14) $ 0.18 $ (0.21)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares outstanding 4,747,390 4,670,936 4,676,642 4,670,936
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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LORONIX INFORMATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 859,415 $ (981,685)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 591,659 329,604
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 425,219 427,126
Increase in contracts in progress with earned revenue
exceeding related progress billings (1,546,877) -
Decrease in inventory, net 307,346 89,061
Decrease in prepaid expenses and other assets 33,254 138,917
Decrease (increase) in deferred income taxes 54,000 (106,000)
Decrease in accounts payable (286,853) (159,623)
Increase (decrease) in accrued liabilities 233,817 (62,662)
Decrease in customer deposits - (3,270)
Increase (decrease) in deferred revenue (15,829) 5,263
----------- -----------
Net cash provided by (used in) operating activities 655,151 (323,269)
----------- -----------
Cash flows from investing activities:
Construction in progress (208,951) (609,316)
Capital expenditures (649,155) (409,680)
Deposits and other assets (1,008) (18,145)
Software development costs (245,000) (173,500)
----------- -----------
Net cash used in investing activities (1,104,114) (1,210,641)
----------- -----------
Cash flows from financing activities:
Payments on notes payable - (68,429)
Payments for offering costs - (1,332)
----------- -----------
Net cash used in financing activities - (69,761)
----------- -----------
Net decrease in cash and cash equivalents (448,963) (1,603,671)
Cash and cash equivalents, beginning of year 6,216,770 8,887,944
----------- -----------
Cash and cash equivalents, end of September $ 5,767,807 $ 7,284,273
----------- -----------
----------- -----------
</TABLE>
Noncash investing activities:
In 1996 and 1995, the Company transferred inventory valued at $44,952 and
$286,578 respectively, to property and equipment.
See accompanying notes to condensed consolidated financial statements
4
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LORONIX INFORMATION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SEPTEMBER 30, 1996 - UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission requirements
for interim financial statements. Therefore, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements
should be read in conjunction with Loronix Information Systems, Inc.'s Form
10-KSB for the year ended December 31, 1995.
The results of operations for the interim periods shown in this report
are not necessarily indicative of results to be expected for the full year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Loronix Information Systems, Inc.'s (the "Company") condensed consolidated
financial statements and the notes related thereto included herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUE
The Company's revenue is derived from sales of systems and supplies and
from maintenance services. Historically, systems and supplies have accounted
for greater than 90% of total revenue, with system sales accounting for a
substantial majority of total revenue. The Company expects this trend to
continue for the foreseeable future. Revenue increased from $1.55 million in
the third quarter of 1995 to $2.96 million in the third quarter of 1996,
representing a 91% increase. Revenue in the third quarter of 1996 included
approximately $1.57 million associated with a contract between the Company
and a U.S. subsidiary of a Middle Eastern multinational corporation which
provides for the sale of security systems (the "Middle East Contract"). The
Company believes it will record substantially all of the revenue under the
Middle East Contract by year-end 1996. The remaining revenue of $1.39
million in the third quarter of 1996 consisted of $344,400 in original
equipment manufacturer ("OEMs") revenue and $1.05 million in revenue from all
other channels.
COSTS AND EXPENSES
COST OF PRODUCTS SOLD. The cost of products sold, consisting
principally of the costs of hardware components and supplies as well as
software amortization, increased from $863,400 in the third quarter of 1995
to $1.3 million in the third quarter of 1996, and represented 56% and 45% of
revenue, respectively. The margin improvement was primarily attributable to
(i) a higher percentage of software sales which have relatively high margins,
and (ii) a combination of reduced purchase costs and increases in end-user
pricing on certain supplies and hardware items.
OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support
expenses increased from $202,800 in the third quarter of 1995 to $219,700,
net of expense credits associated with the Middle East Contract, in the third
quarter of 1996, and represented 13% and 7% of revenue, respectively. The
percentage decrease was the result of a 91% increase in revenue without a
commensurate increase in expenses. Gross expenses increased from $202,800 in
the third quarter of 1995 to $250,600 in the third quarter of 1996. The
increase in such expenses resulted primarily from headcount and
compensation-related increases and an increase in depreciation.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased from $1.01 million in the third quarter of
1995 to $784,800, net of expense credits associated with the Middle East
Contract, in the third quarter of 1996, and represented 65% and 27% of
revenue, respectively. The percentage decrease was partly attributable to a
91% increase
6
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in revenue without a commensurate increase in expenses. Further, the third
quarter of 1995 included a charge of $267,000 for bad debt expense. This
expense was the result of (i) a charge related to the write off of certain
receivables associated with the discontinuance of operations by the Company's
European distributor, and (ii) an increase in the general allowance for
doubtful accounts.
RESEARCH AND DEVELOPMENT. Research and development expenses, net of
capitalized software costs, decreased from $251,200 in the third quarter of
1995 to $235,600, net of expense credits associated with the Middle East
Contract, in the third quarter of 1996, and represented 16% and 8% of
revenue, respectively. The percentage decrease was the result of a 91%
increase in revenue without a commensurate increase in expenses. Gross
expenses increased from $284,800 in the third quarter of 1995 to $388,500 in
the third quarter of 1996. The increase in such expenses resulted primarily
from headcount and compensation-related increases and an increase in
depreciation.
INTEREST INCOME. Interest income decreased from $108,000 in the third
quarter of 1995 to $68,000 in the third quarter of 1996. This decrease was
due to a reduction in cash available for investment.
INCOME TAX. Income tax expense of $50,000 for the third quarter of 1996
was estimated to be 11% of pretax earnings. The Company's U.S. tax rate is
less than the statutory federal rate of 34% primarily because of the benefit
of net operating loss carry-forwards and research and experimentation credits.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
REVENUE
Revenue increased from $4.53 million in the first nine months of 1995 to
$8.50 million in the first nine months of 1996, representing an 88% increase.
Revenue in the first nine months of 1996 included approximately $4.85 million
associated with the Middle East Contract. The Company believes it will record
substantially all of the revenue under the Middle East Contract by year-end
1996. The remaining revenue of $3.65 million in the first nine months of
1996 consisted of $929,500 in OEM revenue and $2.72 million in revenue from
all other channels.
COSTS AND EXPENSES
COST OF PRODUCTS SOLD. The cost of products sold increased from $2.35
million in the first nine months of 1995 to $3.94 million in the first nine
months of 1996, and represented 52% and 46% of revenue, respectively. The
margin improvement was primarily attributable to a combination of reduced
purchase costs and increases in end-user pricing on certain supplies and
hardware items.
OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support
expenses increased from $644,800 in the first nine months of 1995 to
$725,700, net of expense credits associated with the Middle East Contract, in
the first nine months of 1996, and represented 14% and 9% of revenue,
respectively. The percentage decrease was the result of an 88% increase in
revenue
7
<PAGE>
without a commensurate increase in expenses. Gross expenses increased from
$644,800 in the first nine months of 1995 to $777,700 in the first nine
months of 1996. The increase in such expenses resulted primarily from
headcount and compensation-related increases and an increase in depreciation.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased from $2.35 million in the first nine months
of 1995 to $2.34 million, net of expense credits associated with the Middle
East Contract, in the first nine months of 1996, and represented 52% and 28%
of revenue, respectively. The percentage decrease was primarily the result of
an 88% increase in revenue without a commensurate increase in expenses.
Gross expenses increased from $2.35 million in the first nine months of 1995
to $2.42 million in the first nine months of 1996. Without the $267,000 bad
debt expense incurred in the third quarter of 1995, gross expenses increased
approximately $334,000 for the nine month period ended September 30, 1996
over the same period in 1995. The increase in such expenses resulted
primarily from headcount and compensation-related increases and an increase
in depreciation.
RESEARCH AND DEVELOPMENT. Research and development expenses, net of
capitalized software costs, increased from $619,900 in the first nine months
of 1995 to $682,600, net of expense credits associated with the Middle East
Contract, in the first six months of 1996, and represented 14% and 8% or
revenue, respectively. The percentage decrease was the result of an 88%
increase in revenue without a commensurate increase in expenses. Gross
expenses increased from $778,500 in the first nine months of 1995 to $1.07
million in the first nine months of 1996. The increase in such expenses
resulted primarily from headcount and compensation-related increases and an
increase in depreciation.
INTEREST INCOME. Interest income decreased from $347,200 in the first
nine months of 1995 to $225,500 in the first nine months of 1996. This
decrease was due to a reduction of cash available for investment.
INCOME TAX/BENEFIT. An income tax benefit for the first nine months of
1995 was estimated to be 10% of the pretax loss. An income tax expense of
$174,000 for the first nine months of 1996 was estimated to be 17% of the
pretax earnings. The Company's U.S. tax rate is less than the statutory
federal rate of 34% primarily because of the benefit of net operating loss
carry-forwards and research and experimentation credits.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1995 and 1996, the Company
financed its operations primarily from working capital.
The Company's principal uses of cash during the nine months ended
September 30, 1995 and 1996 were to (i) in 1995, fund operating activities;
(ii) acquire property and equipment; (iii) invest in the development of
software; and (iv) in 1995, repay debt.
During the first nine months of 1995, the Company's cash and cash
equivalents decreased from $8.9 million at December 31, 1994 to $7.3 million
at September 30, 1995. Net cash used in operating activities of $323,300
consisted primarily of a net loss of $982,000 and an increase in deferred
income taxes of $106,000 and decreases in accounts payable and accrued
liabilities of
8
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$222,000, offset by decreases in accounts receivable, inventory and prepaid
expense of $655,000. Net cash used in investing activities of $1,211,000
consisted primarily of $609,000 of construction-in-progress associated with
the Company's new facility, $410,000 of capital expenditures and $174,000 of
software development costs. Net cash used in financing activities of $70,000
consisted primarily of a final payment for land purchased in June 1992.
During the first nine months of 1996, the Company's cash and cash
equivalents decreased from $6.2 million at December 31, 1995 to $5.8 at
September 30, 1996. Net cash provided by operating activities of $655,000
consisted primarily of net income of $859,000 and decreases in accounts
receivable, inventory, prepaid expenses and other assets and deferred income
taxes of $820,000, and an increase in accrued liabilities of $234,000, offset
by an increase in contracts in progress billings of $1.5 million and a
decrease in accounts payable of $287,000. Net cash used in investing
activities of $1.1 million consisted primarily of $209,000 of construction in
progress associated with the Company's new CCTVware-TM- products, $649,000 of
capital expenditures and $245,000 of software development costs.
The Company anticipates capital expenditures for the remainder of 1996
of approximately $250,000. The Company believes it has sufficient cash to
meet its capital requirements and fund operations for at least the next
twelve months.
CERTAIN FACTORS BEARING ON FUTURE RESULTS
The statements in the third sentence and the second to last sentence
under the caption "Revenue" on page 6 and the fifth paragraph under the
caption "Financial Condition, Liquidity and Capital Resources" on page 9 are
forward-looking statements. In addition, the Company may from time to time
make oral forward-looking statements. The following are certain important
factors that could cause actual results to differ materially from those
projected in any such forward-looking statements.
OEM RELATIONSHIPS. Sales through OEMs have historically accounted for a
significant portion of the Company's revenue. The Company believes its
success in penetrating markets for its digital identification and video image
management systems depends in large part on its ability to maintain its OEM
relationships and to cultivate additional, similar relationships. There can
be no assurance that OEMs, most of which have significantly greater financial
and marketing resources than the Company, will not develop and market
products in competition with the Company or will not otherwise discontinue
their relationships with the Company. One of the Company's OEMs has elected
to produce its own imaging products and may compete with the Company in the
future. The loss of any further OEM relationships could have a negative
impact on the Company's revenue stream.
INTERNATIONAL SALES. The Company is seeking to expand its international
presence by developing new distribution channels in certain foreign countries
where it has not previously had a presence. For instance, the Company has
established a wholly owned subsidiary in the United Kingdom and entered into
the Middle East Contract. International sales are subject to a number of
risks, including political and economic instability, unexpected changes in
regulatory requirements, tariffs and other trade barriers, fluctuating
exchange rates and the possibility of greater difficulty in accounts
receivable collection. There can be no assurance that these and
9
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other factors will not have a material adverse effect on the Company's future
international sales, if any, and, consequently, the Company's business,
operating results and financial condition.
DEPENDENCE ON A SINGLE CUSTOMER. The Middle East Contract accounted for
57% of the Company's revenue in the first nine months of 1996. The Company
currently has no reason to believe that it will not be successful in
fulfilling all of its obligations due to be performed under the Middle East
Contract or receiving all the payments to be made thereunder; however, there
can be no assurance that events or conditions may not occur which could
threaten the Company's ability to complete the Middle East Contract or
collect all amounts owed thereunder. If such events or conditions occur, the
Company's business, operating results and financial condition would be
materially adversely affected. In addition, there can be no assurance that
any further new business will arise after September 1996 from this customer.
COMPETITION. The Company's competitors include a broad range of
companies that develop and market products for the identification and
surveillance markets including: (i) in the film-based systems market,
Polaroid Corporation and Eastman Kodak, Co., and (ii) in the digital
identification and badge issuance systems market, Polaroid Corporation,
Eastman Kodak, Co., Data Card Corporation, Dactek International, Inc., Image
Base, Inc., G&A Imaging, Goddard Technology Corporation and Laminex, Inc.,
and (iii) in the surveillance market, TVX, Inc., Prima Facie, Inc., Silent
Witness Enterprises, Inc., and Dedicated Micros, Inc. Certain of the
Company's current and prospective competitors have substantially greater
technical, financial and marketing resources than the Company. In addition,
there can be no assurance that the Company's products will be competitive in
the face of advances in product technology developed by the Company's current
or future competitors. Moreover, while the Company believes that the
price/performance characteristics of its products are currently competitive,
increased competition from low-cost, low-functionality identification systems
have created, and will continue to create, pricing pressures which could
materially and adversely affect the Company's business, operating results and
financial condition.
PROPRIETARY RIGHTS. The Company is not aware that its products,
trademarks or other proprietary rights infringe on the proprietary rights of
any third parties. However, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products. As the number of software products in
the industry increases and the functionality of these products further
overlaps, the Company believes that software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, could result in costly litigation or might require the Company to
enter into royalty or licensing agreements. Such royalty and licensing
agreements, if required, may not be available on terms acceptable to the
Company.
PRODUCT OBSOLESCENCE. The Company's current products and products under
development are limited in number and concentrated primarily in the markets
for identification and surveillance products. The life cycles of the
Company's products are difficult to estimate due in large measure to changing
and developing technology as well as the unknown future effect of products
introduced by the Company's competition. Price reductions or declines in
demand for the Company's products, whether as a result of competition,
technological change or otherwise, would have a materially adverse effect on
the Company's results of operations or financial position.
10
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DEPENDENCE ON NEW PRODUCTS. The market for the Company's products is
characterized by ongoing technological development and evolving industry
standards. The Company's success will depend upon its ability to enhance its
current products and to introduce new products which address technological
and market developments and satisfy the increasingly sophisticated needs of
customers. For instance, the Company expects to release several products in
the next few months based on its CCTVware-TM- technology. This technology
provides for digital recording and storage that eliminates the need for video
tapes and VCRs in surveillance environments and allows for high-speed access
and retrieval of the stored video. There can be no assurance that the Company
will be successful in developing and marketing, on a timely basis, its new
CCTVware products or any other fully functional product enhancements or new
products that respond to the technological advances by others, or that the
Company's new products will be accepted by customers.
VARIABILITY OF OPERATING RESULTS. The Company's revenue and operating
results have fluctuated significantly from quarter to quarter, and may
continue to fluctuate, due to a combination of factors. These factors include
relatively long sales cycles for certain products, the timing or cancellation
of orders from major customers, the timing of new product introductions by
the Company or its competitors, the Company's use of third-party distribution
channels, the fulfillment of large one-time orders to particular customers
and general economic conditions and other factors affecting capital spending.
For example, the Company may not receive any further new business from the
Middle East contract. Additionally, other than the Middle East contract, the
Company generally ships orders in the quarter in which such orders are
received, and accordingly, revenue in any quarter is substantially dependent
on the orders booked and shipped in that quarter. A small variation in
revenue can cause significant variations in operating results from quarter to
quarter and may result in losses.
LEGAL PROCEEDINGS. The Company is currently in litigation with the
Company's former Vice President of Marketing and Sales, who filed a lawsuit
against the Company alleging breach of contract and fraud. This individual,
who terminated his employment with the Company in May 1994 alleges that he
was promised, but never received, options to purchase shares of the Company's
Common Stock at a significant discount from fair market value and that he was
deprived of certain sales commissions. A jury trial was scheduled to begin on
September 30, 1996 but it was postponed and is currently scheduled to begin
on March 10, 1997. Although the Company believes that this individual's
claims are without merit and is defending this action vigorously, an adverse
result in the litigation could have a negative impact on the financial
position and the results of operations.
MANAGEMENT AND EMPLOYEES. The Company's future success depends in
significant part upon the continued service of its key technical and
senior management personnel and its continuing ability to attract and retain
highly qualified technical and managerial personnel in the future. The
Company has in the past encountered some difficulties in fulfilling its
hiring needs in the Durango, Colorado employment market, and there can be no
assurance that the Company will be successful in hiring and retaining
qualified employees in the future.
CAPITAL REQUIREMENTS. The Company believes that it has sufficient cash
to meet its requirements for at least the next twelve months. While operating
activities may provide cash in certain periods, to the extent the Company
experiences growth in the future, it anticipates that it may require
additional cash in its operating and investing activities, and accordingly,
the Company
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DEPENDENCE ON NEW PRODUCTS. The market for the Company's products is
characterized by ongoing technological development and evolving industry
standards. The Company's success will depend upon its ability to enhance its
current products and to introduce new products which address technological
and market developments and satisfy the increasingly sophisticated needs of
customers. For instance, the Company expects to release several products in
the next few months based on its CCTVware-TM- technology. This technology
provides for digital recording and storage that eliminates the need for video
tapes and VCRs in surveillance environments and allows for high-speed access
and retrieval of the stored video. There can be no assurance that the
Company will be successful in developing and marketing, on a timely basis,
its new CCTVware products or any other fully functional product enhancements
or new products that respond to the technological advances by others. There
also can be no assurance that the Company's new CCTVware or other new
products will be accepted by customers.
VARIABILITY OF OPERATING RESULTS. The Company's revenue and operating
results have fluctuated significantly from quarter to quarter, and may
continue to fluctuate, due to a combination of factors. These factors
include relatively long sales cycles for certain products, the timing or
cancellation of orders from major customers, the timing of new product
introductions by the Company or its competitors, the Company's use of
third-party distribution channels, the fulfillment of large one-time orders
to particular customers and general economic conditions and other factors
affecting capital spending. For example, the Company may not receive any
further new business from the Middle East Contract after September 1996.
Additionally, other than the Middle East Contract, the Company generally
ships orders in the quarter in which such orders are received, and
accordingly, revenue in any quarter is substantially dependent on the orders
booked and shipped in that quarter. A small variation in revenue can cause
significant variations in operating results from quarter to quarter and may
result in losses.
LEGAL PROCEEDINGS. The Company is currently involved in litigation with
the Company's former Vice President of Marketing and Sales, who filed a
lawsuit against the Company alleging breach of contract and fraud. This
individual, who terminated his employment with the Company in May 1994
alleges that he was promised, but never received, options to purchase shares
of the Company's Common Stock at a significant discount from fair market
value and that he was deprived of certain sales commissions. A jury trial
was scheduled to begin on September 30, 1996 but it was postponed and is
currently scheduled to begin on March 10, 1997. Although the Company
believes that this individual's claims are without merit and is defending
this action vigorously, an adverse result in the litigation could have a
negative impact on the financial position and the results of operations.
MANAGEMENT AND EMPLOYEES. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel in the future. The Company has
in the past encountered some difficulties in fulfilling its hiring needs in
the Durango, Colorado employment market, and there can be no assurance that
the Company will be successful in hiring and retaining qualified employees in
the future.
CAPITAL REQUIREMENTS. The Company believes that it has sufficient cash
to meet its requirements for at least the next twelve months. While
operating activities may provide cash in certain periods, to the extent the
Company experiences growth in the future, it anticipates that it may require
additional cash in its operating and investing activities, and accordingly,
the Company
11
<PAGE>
may require additional capital resources. There can be no assurance that
such capital resources will be available to the Company on favorable terms,
if at all.
VOLATILITY OF STOCK PRICE. In recent months, the stock market in
general, and the market for shares of technology companies in particular,
have experienced extreme price fluctuations, which have often been unrelated
to the operating performance of the affected companies. In addition, factors
such as quarterly variations in operating results, announcements of
technological innovations or new products by the Company or its competitors,
as well as other events or factors, may have a significant impact on the
market price of the Company's Common Stock. There can be no assurance that
the trading price of the Company's stock will remain at or near its current
level.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits.
(b) No reports on Form 8-K were filed by the Company during
the quarter ended September 30, 1996.
12
<PAGE>
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.
Loronix Information Systems, Inc.
OCTOBER 28, 1996 /S/ JONATHAN C. LUPIA
- ---------------- ----------------------------------
Date Jonathan C. Lupia
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LORONIX
CONDENSED CONSOLIDATED BALANCE SHEET, STATEMENT OF OPERATIONS AND CASH FLOWS
FROM ITS 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,767,807<F1>
<SECURITIES> 0
<RECEIVABLES> 1,626,360
<ALLOWANCES> 177,025
<INVENTORY> 942,831
<CURRENT-ASSETS> 10,931,076
<PP&E> 3,823,562
<DEPRECIATION> 827,427
<TOTAL-ASSETS> 14,653,451
<CURRENT-LIABILITIES> 1,089,930
<BONDS> 0
0
0
<COMMON> 4,662
<OTHER-SE> 13,535,551
<TOTAL-LIABILITY-AND-EQUITY> 14,653,451
<SALES> 8,504,213
<TOTAL-REVENUES> 8,504,213
<CGS> 3,944,281
<TOTAL-COSTS> 3,944,281
<OTHER-EXPENSES> 3,751,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,033,453
<INCOME-TAX> (174,038)
<INCOME-CONTINUING> 859,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859,415
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1> THE COMPANY HAS TWO OUTSTANDING LETTERS OF CREDIT COLLATERALIZED
BY CERTIFICATES OF DEPOSITS TOTALING APPROXIMATELY $50,000.
</FN>
</TABLE>
