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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2002
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.)
5481 Creek Road
Cincinnati, Ohio 45242-4001
(Address of principal executive offices) (Zip Code)
(513) 794-7100
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
(continued)
1
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. X
---
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by The Nasdaq Stock
Market for the Registrant's Common Stock on April 22, 2002, was $13,083,213.00.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of April 22, 2002: 8,913,947.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
January 31, 2002, are incorporated by reference into Part II of this Form 10-K
to the extent stated herein. Except with respect to information specifically
incorporated by reference in this Form 10-K, the Annual Report is not deemed to
be filed as a part hereof.
Portions of the Registrant's Definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 29, 2002, are incorporated by reference into
Part III of this Form 10-K to the extent stated herein. Except with respect to
information specifically incorporated by reference in this Form 10-K, the
Definitive Proxy Statement is not deemed to be filed as a part hereof.
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FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, this Annual Report on
Form 10-K contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to those discussed in the sections entitled "Item 1. Business" and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Registrant undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
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PART I
ITEM 1. BUSINESS
General
LanVision Systems, Inc. ("LanVision"(TM) or the "Company") is an Electronic
Medical Record solution provider and a leading supplier of Healthcare
Information Access Solutions specializing in connectivity solutions that utilize
the power of the Internet/Intranet to link hospitals, physicians, patients and
payers to a robust Electronic Medical Record. LanVision's products are
complementary to existing clinical and financial systems, and use document
imaging and workflow tools to ensure end-users can electronically access both
"structured" and "unstructured" patient data and all the various forms of
healthcare information including clinician's handwritten notes, lab reports,
photographs, insurance cards, etc. LanVision's 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-based 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. LanVision'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. LanVision offers a robust document
imaging/management infrastructure (Foundation Suite) that is built for high
volume transaction
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processing and is optimized for the healthcare industry. In addition to
providing the clinician access to information not previously available at the
desktop, LanVision'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, LanVision has integrated its products with
selected systems from Siemens Medical Solutions Health Services Corporation
(SMS), Cerner Corporation and will soon integrate its products with IDX
Information Systems Corporation (IDX) applications. 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. LanVision'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, LanVision has derived its revenues from systems 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, LanVision, or its remarketing partners, enter
into a perpetual or term license or fee-for-service agreement for LanVision's
Electronic Medical Record software suite and may license or sell other
third-party software and hardware components to the IDN. Additionally,
LanVision, or its remarketing partners provide professional services, including
implementation, training and product support.
With respect to systems sales, LanVision earns its highest margins on
proprietary LanVision software or application-hosting services 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 fluctuate based
upon the negotiated terms of the agreement with each customer and LanVision's
ability to fully utilize its professional services, maintenance and support
services staff.
Beginning in 1998, LanVision began offering customers the ability to obtain its
Electronic Medical Record solution on an application-hosting basis as an
Application Service Provider (ASP). LanVision's ASP Division, established a
centralized data center and installed LanVision's Electronic Medical Record
suite, called ASPeN (Application Service Provider eHealth Network) within the
data center. Under this arrangement, customers electronically capture
information and transmit the data to the centralized data center. The ASP
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 ASP Division charges
and recognizes revenue for these services on a per transaction or subscription
basis as information is captured, stored, and retrieved.
In February 2000, LanVision sold its centralized data center for $2,900,000.
Simultaneously therewith, LanVision entered into an annual service agreement
with the buyer. Under the terms of this service agreement, which can be renewed
annually at the sole option of the Company, in exchange for processing fees,
LanVision will continue to use the data center to provide ASP services to
LanVision's current and future customers. Although LanVision sold the data
center
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assets, LanVision continues to market its ASP solutions. LanVision continues to
provide its ASP solutions through the data center and intends to utilize other
data center service providers.
In August 2000, LanVision entered into an agreement with SmartHealth Services,
Inc. (SmartHealth), which allows SmartHealth to utilize LanVision's MicroVision
Electronic Medical Record (EMR) product combined with Web-based SmartHealth
software to provide affordable, Web-based EMR document management and viewing
services to hospitals and clinics via the Internet. SmartHealth Services, in
conjunction with their affiliate Alpharetta, Georgia based Smart Professional
Photocopy Corporation d/b/a Smart Corporation, distributes 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 is compensated for use of its software based upon the number
of EMR images SmartHealth scans and stores using the MicroVision application. To
date, the revenues from SmartHealth have not been significant and LanVision is
unable, at this time, to determine the magnitude of future revenues.
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, LanVision 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 LanVision's proprietary
software and third-party software with a perpetual or term license fee that is
adjusted depending on the number of concurrent users or workstations using the
software. Third-party hardware is 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 LanVision's ASPeN Services solution,
the Application-hosting Services agreements generally provide for utilizing
LanVision's software and third-party software on a fee per transaction or
subscription basis.
The ASPeN Services 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 application-hosting services on a per transaction or
subscription basis, and the centralized data center applications are operated
and maintained by LanVision personnel and/or its agents. In 1999, the ASPeN
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 solution. LanVision believes that more IDN's will begin to look for this
type of ASP application. LanVision believes its business model is especially
well suited for the ambulatory marketplace and is actively pursuing remarketing
agreements, in addition to those discussed below, with other Healthcare
Information Systems providers to distribute LanVision's Electronic Medical
Record solution.
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In 1998, LanVision entered into a five year Remarketing Agreement with Siemens
Medical Solutions Health Services Corporation. Under the terms of the Agreement,
SMS was granted an exclusive worldwide license to distribute ChartVision,
On-Line Chart Completion, WebView and Enterprisewide Correspondence to the SMS
customer base and prospect base, as defined in the Agreement, and a
non-exclusive license to distribute all other LanVision products. If SMS
distributes any other Electronic Medical Record product competing with
LanVision's products, LanVision may terminate the SMS Remarketing Agreement.
In January 2002, LanVision entered into a five year Remarketing Agreement with
IDX Information Systems Corporation. Under the terms of the agreement, IDX was
granted a non-exclusive worldwide license to distribute accessANYware,
codingANYware when it becomes available, and ASPeN services to IDX customers and
prospective customers, as defined in the Agreement. No revenues from IDX have
been recorded to date.
In December 2001, a letter of intent was signed by 3M Health Information
Systems, division of 3M, whereby 3M and LanVision will enter into a referral
marketing agreement for its new product codingANYware, the terms and conditions
of which are in the final stages of negotiation. Revenues from this agreement
are expected to begin after the general release of codingANYware, in 2002.
Healthcare Industry Background
Healthcare expenditures continue to grow at a significant rate and are projected
to total $2.2 trillion and reach 16.2% of the U.S. Gross Domestic Product by
2008. In response to this growth, the healthcare industry is undergoing
significant change as competition and cost-containment measures imposed by
governmental and private payers have created significant pressures on healthcare
providers to control healthcare costs while providing quality patient care. At
the same time, the healthcare delivery system is experiencing a shift from a
highly fragmented group of non-allied healthcare providers to integrated
healthcare networks, which combine all of the services, products and equipment
necessary to address the needs of healthcare customers. As a result, healthcare
providers are seeking to cut costs, increase productivity and enhance the
quality of patient care through improved access to information throughout the
entire hospital or integrated healthcare network.
Today, the majority of the patient records are paper-based. The inefficiencies
of paper-based records increase the cost of patient care. Physicians often
cannot gain access to medical records at the time of patient visits, and
multiple users cannot simultaneously access the record when only a single copy
of the paper-based patient record is available. Based upon LanVision's
experience in installing its systems, a typical 500 bed hospital can produce
15,000 to 20,000 pages of new patient information each day even with
computerized admission, billing, laboratory and radiology systems, and
individual physician document retrieval requests can be as high as 100 documents
per physician per day. The volume of medical images in the patient record is
expanding as well. In addition to images such as x-rays and CAT scans, new image
forms such
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as digitized slides, videos and photographs proliferate. Thus, the ability to
store and retrieve images of voluminous paper records and medical images on a
timely basis is a critical feature of a complete Computerized Patient Record
("CPR").
In order to simultaneously reduce costs and enhance the level of patient care,
hospitals and other healthcare providers are requiring comprehensive,
cost-effective information systems that deliver rapid access to fully updated
and complete patient information. Traditional Healthcare Information Systems are
inadequate because: (i) they do not capture large amounts of the patient records
which are paper-based and stored in various sites throughout the enterprise;
(ii) computerized patient data is generated using a variety of disparate systems
which cannot share information; and (iii) multimedia medical information such as
x-rays, CAT scans, MRI's, video and audio information are frequently
inaccessible at the point of patient care. Accordingly, hospitals and other
healthcare providers have begun to increase their information systems
expenditures. In the eleventh Annual Healthcare Information and Management
Systems Society ("HIMSS") Leadership Survey, healthcare business issues were
driving Information Technology priorities with over half of the respondents
indicating that cost pressures would continue to be a driving force in improving
operational efficiencies. Included in the top ten Information Technology
priorities was the implementation of Computerized Patient Records. Respondents
believe that implementing eHealth and HIPAA (Health Insurance Portability and
Accountability Act of 1996) strategies (See Regulations Relating to
Confidentiality below.) will consume most of the Information Technology budget,
because use of interactivity/eHealth solutions has become a competitive
advantage. Providers, payers and suppliers know that the consequences of
ignoring an eHealth Strategy will result in the loss of market share.
LanVision believes that the new HIPAA regulations will be an impetus for IDN's
to begin seriously looking at LanVision products and services as a means of
ensuring compliance with the new Federal regulations. A Medical Records
Institute annual survey of Electronic Health Records Trends and Usage reported
that one of the more interesting findings indicated that forty-one percent of
the 299 respondents indicated that they were considering implementing an
electronic patient record via an Application Service Provider (such as
LanVision) over the next two years (2002 & 2003). In addition, many of the
respondents indicated that they were looking toward the ASP to provide
connectivity to departmental systems, payers and health plans.
Document imaging and workflow technologies are essential elements of a CPR
because they allow for the storage of unstructured data (i.e., patient record
elements other than data or text, such as photographs, images of a document,
video, x-ray images) and they enable digitized x-rays, CAT scans, MRI's, video
and audio information to be accessed and delivered to the caregiver at the point
of patient care. LanVision believes the demand for its Healthcare Information
Access Systems, which can supply imaging capabilities to the CPR, will increase
in future years.
Also, a HIMSS Leadership Survey indicated that 69% of the survey respondents
were interested in outsourcing Information Technology functions in ASP services.
Additionally, the Information Technology individuals responding to the HIMSS
Leadership Survey indicated that security
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related to patient records to meet HIPAA regulations was the second most
important Information Technology priority within their institutions. The number
one priority was to deploy Internet technology to support eHealth by moving
healthcare transactions to the Web and enhancing Web-based disease management
within the community.
In addition to mandated Health Insurance Portability and Accountability Act of
1996 Federal regulations, the healthcare industry is being strongly encouraged
by many professional medical organizations to make greater use of information
technology. A report by the Institute of Medicine ("IOM") of the National
Academies, entitled "To Err is Human: Building a Better Health System,"
envisioned a revamped system that, among other things, makes greater use of
information technology to enable providers and institutions to move away from
paper-based medical record systems to take advantage of new information
technology. The American Medical Association, American Academy of Family
Physicians, American College of Physicians, American Society of Internal
Medicine, and the American College of Surgeons, issued a joint statement
supporting the IOM recommendations.
Regulations Relating to Confidentiality
Federal and state laws regulate the confidentiality of patient records and the
circumstances under which such records may be released. These regulations govern
both the disclosure and use of confidential patient medical record information.
Regulations governing electronic health data transmissions are evolving rapidly
and are often unclear. On August 22, 1996, the President signed the Health
Insurance Portability and Accountability Act of 1996. This legislation required
the Secretary of Health and Human Services (the "Secretary") to adopt national
standards for certain types of electronic health information transactions and
the data elements used in such transactions and to adopt regulations to ensure
the integrity and confidentiality of health information. The Secretary has
issued final regulations as to Transactions and Code Sets and Privacy, which are
scheduled to go into effect in 2003. Compliance with the new regulations will be
required within 24 to 36 months after the effective date. However, additional
HIPAA regulations, such as the proposed Security Rule regulations and
interpretations, are expected to be released in the future. LanVision believes
that the regulations issued to date would not have a material adverse affect on
its business. LanVision cannot predict the potential impact of the regulations
that have not yet been released or any other regulations that might be adopted.
Congress may adopt legislation that may change, override, conflict with or
preempt the currently issued regulations. Additionally, legislation governing
the dissemination of medical record information is also frequently proposed and
debated at the state level. These laws or regulations, when adopted, could
restrict the ability of customers to obtain, use or disseminate patient
information.
LanVision believes that the features and architecture of LanVision's products
are such that it should be able to make the necessary modifications to its
products, if required, to ensure continuing compliance with HIPAA, and other
legislation or regulations. However, if the regulations are unduly restrictive,
this could cause delays in the delivery of new versions of
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products and adversely effect the licensing of LanVision's products. Overall,
LanVision believes the HIPAA regulations will stimulate healthcare organizations
to purchase computer-based patient medical record systems that automate the
collection and use of medical record information, while maintaining appropriate
security over the information. However, there can be no assurance that an
increase in the purchase of new systems or additional use of LanVision
application-hosting services will occur.
Rapid Technological Change and Evolving Market
The market for LanVision's products and services is characterized by rapidly
changing technologies, regulatory requirements, evolving industry standards and
new product introductions and enhancements that may render existing products
obsolete or less competitive. As a result, LanVision's position in the
healthcare information technology market could change rapidly due to unforeseen
changes in the features and functions of competing products, as well as the
pricing models for such products. LanVision's future success will depend in part
upon LanVision's ability to enhance its existing products and services and to
develop and introduce new products and services to meet changing requirements.
Changes and Consolidation in the Healthcare industry
LanVision derives substantially all of its revenues from the licensing of
Medical Records software and providing application-hosting ASP services within
the healthcare industry. Accordingly, the success of LanVision is dependent upon
the regulatory and economic conditions in the healthcare industry. Many
healthcare providers are consolidating to establish integrated delivery networks
to take advantage of economies of scale, greater marketing power and greater
leverage in negotiating with venders who supply the industry with the goods and
services they require. The impact of such consolidations LanVision believes,
will benefit the Company as more healthcare organizations investigate methods to
streamline operations, reduce costs and improve the quality of patient care
through the use of information technology, especially in the paper intensive
area of Medical Records.
Key personnel
LanVision's success depends, to a significant degree, on its management and
technical personnel. LanVision must recruit, motivate and retain highly skilled
managers, consulting and technical personnel, including application programmers,
database specialists, consultants and system architects skilled in the technical
environments in which LanVision's products operate. Competition for such
technical expertise is intense.
Limited Protection of Proprietary Technology
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The success of LanVision depends on the protection of its intellectual property
rights relating to its proprietary technology. LanVision relies on a combination
of trade secret laws, copyrights and restrictions on the disclosure of its
intellectual property. Notwithstanding these precautions, others may copy,
reverse engineer or design independently, technology similar to LanVision's
products. It may be necessary to litigate to enforce or defend LanVision's
proprietary technology or to determine the validity of the intellectual property
rights of others. LanVision could also be required to defend itself against
claims made by third parties for intellectual property right infringement. Any
litigation, could be successful or unsuccessful, may result in substantial cost
and require significant attention by management and technical personnel.
LanVision is currently litigating two cases to protect LanVision's proprietary
technology that it believes is being used by others. The outcome of the
litigation is presently not determinable. However, LanVision believes that its
claims are valid and can be substantiated. The remedies and damages, if any, are
not presently determinable.
Warranties
LanVision's products are very complex and may not be error free, especially when
first released. Failure of any LanVision product to operate in accordance with
its specifications and documentation could constitute a breach of the license
agreement and require LanVision to correct the deficiency. If such deficiency
could not be corrected in a timely manner, it could constitute a material breach
of a contract allowing the termination thereof and possible subjecting LanVision
to liability.
Competition
Several companies historically have dominated the Healthcare Information Access
Systems market. The industry is currently undergoing consolidation and
realignment as companies position themselves to compete more effectively.
Strategic alliances between vendors of Healthcare Information Access Systems and
vendors of other healthcare systems are increasing. Barriers to entry to this
market include technological and application sophistication, the ability to
offer a proven product, a well-established customer base and distribution
channels, brand recognition, the ability to operate on a variety of operating
systems and hardware platforms, the ability to integrate with pre-existing
systems and capital for sustained development and marketing activities.
LanVision believes that these barriers taken together represent a moderate to
high level barrier to entry. Foreign competition has not been a significant
factor in the market, to date.
LanVision's competitors include Healthcare Information Access Systems vendors
that are larger and more established and have substantially more resources than
LanVision. In addition, information and document management companies serving
other industries may enter the market. Suppliers and companies with whom
LanVision may establish strategic alliances may also
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compete with LanVision. Such companies and vendors may either individually, or
by forming alliances excluding LanVision, place bids for large agreements in
competition with LanVision. A decision on the part of any of these competitors
to focus additional resources in the image-enabling and other markets addressed
by LanVision could have a material adverse effect on LanVision.
LanVision believes that the principal competitive factors in its market are
customer recommendations and references, company reputation, system reliability,
system features and functionality (including ease of use), technological
advancements, customer service and support, breadth and quality of the systems,
the potential for enhancements and future compatible products, the effectiveness
of marketing and sales efforts, price and the size and perceived financial
stability of the vendor. In addition, LanVision believes that the speed with
which companies in its market can anticipate the evolving healthcare industry
structure and identify unmet needs are important competitive factors. There can
be no assurance that LanVision will be able to compete successfully in the
future against existing or potential competitors.
LanVision believes that its principal competitors are: American Management
Systems, Incorporated; Cerner Corporation, IMNET Systems, Inc. (a subsidiary of
McKesson HBOC, Inc.); MedPlus, Inc. (a subsidiary of Quest Diagnostics
Incorporated) and Intelus Corporation (a subsidiary of Eclipsys Corporation).
The LanVision Solution
LanVision's Healthcare Information Access Systems provide Electronic Medical
Record solutions for the patient information access needs of hospitals and
integrated healthcare delivery networks. LanVision's systems enable medical and
administrative personnel to rapidly and efficiently capture, store, manage,
route, retrieve and process vast amounts of clinical and financial patient
information.
LanVision's systems: (i) capture and store electronic data from disparate
hospital information systems through real-time, computerized interfaces; (ii)
facilitate the storage of digitized multimedia data and medical images such as
x-rays, CAT scans, MRI's, video and audio information; (iii) provide
applications for efficiently scanning and automatically indexing paper-based
records; (iv) allow storage of a patient's lifetime medical record on low cost
optical disks which also provides rapid access to high volumes of data
enterprisewide; (v) provide workflow automation to facilitate the re-engineering
of business processes; and (vi) incorporate physician-oriented interfaces that
allow the user to easily locate and retrieve patient information in the hospital
or clinical setting, including the point of patient care.
LanVision's Healthcare Information Access Systems provide financial,
administrative, and clinical benefits to the healthcare provider and facilitate
more effective patient care. These benefits include: improved access to patient
information to assist in making informed clinical and financial decisions;
reduced costs for administrative personnel due to increased workflow
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efficiency, as data can be routed within an organization to all users who need
to process that information simultaneously or in sequence as required; increased
productivity through the elimination of file contention by providing multiple
users simultaneous access to patient medical records; reduced costs and improved
care through the reduction of unnecessary testing and admissions; improved cash
flow through accelerated account receivable collections and reductions in
"technical denials" (which occur when a third-party payer refuses payment
because of the provider's inability to substantiate billing claims due to loss
of portions or all of the patient record); expedited treatment decisions, and
fewer redundant tests as a result of timely access to complete information;
fewer medical record errors by minimizing misfiled, lost and improperly
completed records; and increased security of patient information through
improved controls on access to confidential data and the creation of audit
trails that identify the persons who accessed or even tried to access such
information.
In 1998, LanVision successfully launched its ASP Division that utilizes
LanVision's Web browser-based technology ASPeN(SM) (Application Service Provider
eHealth Network) to deliver patient information via a secure Internet/Intranet
from a remote central data center to anyone with access to the healthcare
network on a real-time basis. (See Application Service Provider
Application-hosting Services below.)
The LanVision Strategy
LanVision's objective is to continue to be a leading provider of Healthcare
Information Access Systems, which provide Electronic Medical Record solutions to
the healthcare industry. Important elements of LanVision's business strategy
include:
Expand Distribution Channels
LanVision estimates the market for LanVision's products and services could be in
excess of $1 billion, and the market is less than 10% penetrated. A recent
healthcare industry report 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 strongly believes its highly evolved, secure and technologically
advanced Web browser-based ASP solutions will position the Company to take
advantage of, what it continues to believe will be, significantly increasing
market opportunities for LanVision and its distribution partners in the future.
In 1998, LanVision took a major step forward in improving and expanding its
sales distribution when it entered into a five year Remarketing Agreement with
Siemens Medical Solutions Health Services Corporation, one of the leading
providers of information technology to the healthcare
12
industry. SMS serves more than 3,500 healthcare organizations throughout North
America and Europe, and will sell LanVision's Electronic Medical Record
imaging/management and workflow products as an integrated component of the
SMS(R) NOVIUS(R) product line.
In January 2002, LanVision entered into a five year Remarketing Agreement with
IDX Information Systems Corporation, which offers a wide variety of patient care
products to integrated delivery networks, group practices, academic medical
centers, radiological centers and hospitals nationwide. IDX has installed its
products at more than 2,600 customers sites with systems deployed to serve over
120,000 physicians. Under the terms of the agreement, IDX was granted a
non-exclusive worldwide license to distribute accessANYware, codingANYware when
it becomes available, and ASPeN services to IDX customers and prospective
customers, as defined in the Agreement. IDX's will sell LanVision's Electronic
Medical Record imaging/management and workflow products as an integrated
component of the IDX clinical information systems, which IDX can remarket as an
integrated solution with either IDX product Carecast(TM) or LastWord(R).
In December 2001, a letter of intent was signed by 3M Health Information
Systems, division of 3M, whereby 3M and LanVision will enter into a referral
marketing agreement for its new product codingANYware, the terms and conditions
of which are in the final stages of negotiation. LanVision will imbed the 3M
Health Record Management Software for Medical records abstracting within its
codingANYware product.
In December 2001, LanVision entered into an agreement with Iron Mountain
Incorporated, a leader in records and information management services, in which
LanVision will integrate its document imaging products with Iron Mountain's
Digital Archives Services and develop joint marketing programs.
It is LanVision's intention to develop additional remarketing alliances with
other Healthcare Information Systems vendors and to explore other means of
expanding LanVision's distribution channels.
Application Service Provider Application-hosting Services
LanVision established an Application Service Provider Division, which utilizes
LanVision's Web browser-based applications across an Internet/Intranet, to
deliver high quality, transaction-based document imaging/management services to
healthcare providers from a centrally located data center. The division enables
its healthcare customers to achieve enhanced patient care, improved security and
accessibility to patient records at significant cost savings with minimal
up-front capital investment, maintenance and support costs. Customers realize
benefits more quickly, with less economic risk. Customers are charged on a per
transaction or subscription basis, which is an attractive alternative to
purchasing an in-house system. This service is made possible through the
advancement of Web browser-based technology, state-of-the-art communication
technology and advanced software design.
13
Maintain Technological Leadership Through the Development of New Software
Applications and Increased Functionality of Existing Applications
LanVision intends to continue its product development efforts and increase the
functionality of existing applications along with the development of new
applications using document imaging and workflow technologies. In particular,
LanVision intends to increase the functionality of its Web browser-based
applications. LanVision has continued to added new features and functionality to
its Electronic Medical Record solution suite of products, including new security
modules, multi-entity support, non-patient folders, etc.
LanVision has released its newest product, accessANYware(SM), a Web
browser-based application with a Graphical User Interface that includes the best
features of LanVision's entire product portfolio, including AccountVision(TM).
AccessANYware utilizes a common database for medical records and patient
accounting, thereby improving system administration and eliminating redundant
data entry.
Currently, LanVision is also developing codingANYware(SM) a new product that
will provide workflow automation of the coding and abstracting process by
allowing hospital personnel to electronically access documents to be coded and
abstracted from remote locations, including the employee's home. CodingANYware
may also be integrated with third-party encoding or abstracting software, such
as 3M, thus avoiding redundant data entry.
LanVision believes only the most robust, flexible, dependable products will
survive in the healthcare market, and LanVision has attempted to establish
itself as the leader in document imaging/management and workflow applications
through strong product development.
Image-Enable Clinical Data Repositories and Other Applications Software
Today, healthcare information is often stored on numerous dissimilar host-based
and departmental systems that are spread throughout an enterprise and are not
integrated. Additionally, these current systems do not address the data stored
on paper or the increasing volume of medical images such as x-rays, CAT scans,
digitized slides, exploratory scopes, photographs, audio, etc. LanVision
believes the efficiencies and productivity of hospitals and integrated
healthcare delivery networks can be greatly enhanced by seamlessly integrating
their historical information systems with document imaging and workflow
applications. Physicians, clinicians and other healthcare users then have access
to the complete patient record, including the structured data, such as a lab
result, and the related unstructured data, such as an x-ray or a doctor's hand
written notes. LanVision has image-enabled many popular Clinical Data
Repositories, such as those offered by Oacis Healthcare Holdings Corp., IDX
Information Systems Corporation, and Cerner Corporation. LanVision is marketing
image-enabling technology through its OmniVision(TM), WebView and LV Application
Bridge products.
14
LanVision intends to continue to aggressively market its unique image-enabling
solutions to end-users and other third-party software application providers.
LanVision has several large scale, Enterprisewide image enabled sites, including
over 3,500 workstations at Memorial Sloane-Kettering Cancer Center.
Systems and Services
LanVision's systems employ an open architecture that supports a variety of
operating systems, including Microsoft Windows, Windows 95, 98, NT and 2000 and
UNIX. LanVision's systems can be configured with various hardware platforms,
including INTEL-compatible personal computers, IBM RS/6000 and Hewlett-Packard
9000. LanVision's systems include a graphical user interface designed
specifically by LanVision for physicians and other medical and administrative
personnel in hospitals and integrated healthcare networks. LanVision's systems
operate on multiple imaging platforms, including SMS, FileNet and Kofax.
LanVision's Healthcare Information Access Systems incorporate advanced features,
including workflow and security features that allow customers to restrict direct
access to confidential patient information, secure patient data from
unauthorized indirect access and have audit trail features.
A brief description of LanVision's products follows.
LanVision products and services are built using advanced document
imaging/management and workflow automation technology to create robust
Electronic Medical Record applications. Document imaging technology makes
paper-based information, as well as medical images, sound and video information
as readily available and easy to process as traditional electronic data.
Workflow automation offers intelligent electronic routing of documents,
sophisticated management tools and reporting to increase efficiency and to
support business process re-engineering efforts.
LanVision's products and services were designed to be complementary with
existing third-party Healthcare Information Systems (HIS) applications and
ASP-based services, providing value-added functionality to these third-party
applications, including the following:
- - the ability to gain seamless electronic access to paper-based medical
records, business office documents and medical images (unstructured data),
- - workflow-based automated chart deficiency analysis and completion,
- - workflow-based automated release of information and billing,
- - workflow-based remote coding and seamless integration to third-party encoder
and abstracter software, and
- - archival support for a legal/historical repository of patient information.
LanVision has developed innovative application tool sets to "image and
web-enable" existing HIS clinical and billing applications, thus allowing
clients to have a common graphical user
15
interface on a universal workstation. LanVision has also developed its own
proprietary document imaging middleware (Foundation Suite) to efficiently
provide the object-oriented business processes common to all of its
applications, such as scanning/indexing, faxing/printing, data archiving
migration, security and auditing. Through its application software, document
imaging middleware, and its workflow, image and web-enabling tools, LanVision
allows the seamless merging of its Medical Record and Patient Billing department
"back office" functionality with existing clinical information systems at the
desktop.
For maximum flexibility, the most current LanVision family of products and
services is made up of five distinct offerings: The accessANYware Application
Suite, codingANYware, The LanVision Application Bridge, The Foundation Suite,
and ASPeN, our ASP-based Electronic Medical Record services.
THE ACCESSANYWARE APPLICATION SUITE...a Web browser-based application suite
accessANYware is LanVision's fifth-generation Web-based Electronic Medical
Record application that provides authorized users with access to all the various
forms of patient health information from a single point of entry. It allows
authorized users to perform document searching, retrieval, viewing, processing,
printing and faxing, as well as report generation ...all from a single login.
COMPLETIONANYWARE is an integrated module of accessANYware that provides
analysts and clinicians the ability to remotely analyze and complete deficient
records. In addition to a single login, accessANYware delivers a single user
interface and integrated database. Therefore, from a single login to the system,
users with appropriate security have the ability to search and retrieve
information regarding patients and cases (for chart analysis), view, print and
fax patient documents, as well as analyze or complete deficient documents, via
the completionANYware module. The functions presented to the user vary with the
user's security. For example, if the user is a clinician, he/she is presented
with an inbox function that displays a list of incomplete charts (awaiting
completion) and a list of "linked" patients assigned to them. The clinician then
has the option to complete deficient charts, or retrieve patient information,
via searching or by clicking on the "linked" patients within their inbox. This
access may occur from any workstation within the facility, the physician's
office, or some other remote site. With proper security the user is able to
view, print and fax patient information.
LanVision clients also have the option of further enhancing the productivity of
their operations through the addition of the ENTERPRISEWIDE CORRESPONDENCE (EWC)
module. EWC fulfills internal and external requests for information and allows
for automatic invoicing capability. It also provides the ability to
electronically search for, print, mail or fax information to third parties that
request copies of patient records.
CODINGANYWARE...coding capabilities, anywhere, anytime
Due to an acute shortage of available coding personnel, there currently exists a
great demand for solutions to attract and retain qualified coders and to make
the coding process more efficient. In May of 2002, LanVision will introduce
codingANYware, which will provide workflow
16
automation of the coding and abstracting process by allowing hospital personnel
to electronically access documents to be coded and abstracted from remote
locations, including the employee's home. codingANYware may also be integrated
with third-party encoding or abstracting software, avoiding redundant data
entry.
THE LANVISION APPLICATION BRIDGE (LVAB)...an image-enabling tool
LVAB supports powerful image-enabling and workflow technology that allows
healthcare users to immediately and simultaneously access any patient
information, including multimedia and paper-based information, through their
existing third-party clinical or billing applications. As a result, any
application across the entire enterprise can be image-enabled, including the
host Healthcare Information Systems, Patient Billing Systems, Clinical Data
Repositories and others. When the Clinical Data Repository is image-enabled,
users can access any piece of information on the same workstation and from the
same screen display, including the point of patient care. This means users can
view traditional electronic data and images simultaneously on the same screen
without signing in and out of multiple applications.
THE FOUNDATION SUITE...the document imaging/management infrastructure middleware
The Foundation Suite is robust middleware architecture for document
imaging/management infrastructure, built for maximum performance in high
document volume settings and optimized for the healthcare industry. The features
resident in the Foundation Suite were built around patient-oriented objects that
result in more efficient code and rapid delivery to market of new applications.
The Foundation Suite is designed in a reusable object-oriented environment,
utilizing a 32-bit Windows NT-based architecture, that provides the following
essential document imaging/management functions: security, auditing, data
access, printing/faxing, scheduling, data archiving migration and full problem
diagnosis. The Foundation Suite offers the following unique enhanced security
and auditing functions that facilitate HIPAA Compliance and are essential to
integrated delivery networks in a multi-entity environment:
- - multiple levels of security (administrative, user, patient, document,
workstation, physical location, and healthcare entity) configurable by
user, workstation and location, and
- - full audit trails and reporting of every record viewed, printed, faxed,
processed or unauthorized login attempts at the patient encounter or
document level.
ASPeN...Application Service Provider eHealth Network
LanVision's ASPeN, ASP-based Electronic Medical Record and Business Office
Services, offers healthcare providers an even more cost-effective solution to
manage patient information. Through its use of Internet/Intranet technology,
ASPeN helps hospitals and integrated delivery networks overcome the barriers of
high capital and start-up costs as well as the technological burdens of
implementing a document imaging/management and workflow system. ASPeN delivers
Electronic Medical Record and Business Office services to its healthcare
customers on an outsourced basis from a central data center. Hospitals and
integrated delivery systems can
17
therefore take advantage of a private Intranet or the World-Wide-Web, the lowest
cost network infrastructure, for truly enterprise-wide, secure access to
healthcare information.
PROFESSIONAL SERVICES
LanVision provides a full complement of professional services to implement its
software applications. LanVision believes that high quality consulting and
professional implementation services are critical to attracting new customers
and maintaining existing customer satisfaction. These services include
implementation and training, project management, business process re-engineering
and custom software development. The implementation and training services
include equipment and software installation, system integration and
comprehensive training. The project management services include needs and
cost/benefit analysis, hardware and software configuration and business process
re-engineering. The custom software development services include interface,
workflow and report development.
RESEARCH AND DEVELOPMENT
LanVision continues to focus its research and development efforts to develop new
application software and increase the functionality of existing applications.
Customer requirements and desires significantly influence LanVision's research
and development efforts. In 1996 and 1997, LanVision significantly expanded its
development efforts. In late 1997 and early 1998, LanVision completed many of
its major development projects. Whereupon, LanVision began to reduce the use of
outside contractors and development staff as projects were completed.
Product research and development expense was $1,381,557, $1,674,383 and
$2,166,441 in 2001, 2000 and 1999, respectively. In addition, LanVision also
capitalized $500,000, $420,000 and $300,000 of research and development
expenditures in 2001, 2000 and 1999, respectively.
18
Existing Customers
LanVision's customers include healthcare providers located throughout the United
States. LanVision has implemented or is in the process of implementing one or
more of its systems in the following institutions:
Albert Einstein Healthcare Network, Philadelphia, PA
Beth Israel Medical Center, New York, NY; including
Phillips Ambulatory Care Center, New York, NY Children's
Medical Center of Dallas, Dallas, TX Christiana Care Health
Services, New Castle, DE Cox Health Systems, Springfield, MO
Holzer Medical Center, Gallipolis, OH Medical College of
Georgia, Augusta, GA Medical University of South Carolina,
Columbia, SC Memorial Sloan-Kettering Cancer Center, New York,
NY
OhioHealth Corporation: Grant/Riverside Methodist Hospitals, Columbus, OH
ProMedica Health Systems, Toledo, OH
Stanford Hospital and Clinics, Palo Alto, CA
Texas Health Resources, Inc.: Harris Methodist Hospital, Fort Worth, TX
University of Pittsburgh Medical Center, Pittsburgh, PA
Application Service Provider Division Customers:
The Health Alliance of Greater Cincinnati, Cincinnati, OH
Kettering Medical Center Network, Kettering, OH
In addition to the institutions listed above, SMS has sold the LanVision
Electronic Medical Record suite of products to twenty-one healthcare
organizations as of January 31, 2002.
Excluding our remarketing partners, in fiscal year 2001, Memorial
Sloan-Kettering Cancer Center, The Health Alliance of Greater Cincinnati and
Texas Health Resources, Inc.: Harris Methodist Hospital accounted for 11%, 7%
and 6%, respectively of LanVision's total revenues. In fiscal year 2000,
Memorial Sloan-Kettering Cancer Center, The Health Alliance of Greater
Cincinnati, and Medical College of Georgia, accounted for 11%, 10% and 8%,
respectively of LanVision's total revenues. In fiscal year 1999, Beth Israel
Medical Center, Stanford Hospital and Clinics, and Memorial Sloan-Kettering
Cancer Center, accounted for 10%, 9% and 9%, respectively of LanVision's total
revenues.
The small number of customers and extended sales cycles has contributed to
variability in quarterly and annual operating results. LanVision expects that as
its customer base continues to increase, and sales through the SMS Remarketing
Agreement increase and sales through the IDX Remarketing Agreement commence, the
actions of any one customer will have less of an effect on its quarterly and
annual operating results.
19
Signed Agreements - Backlog
LanVision enters into master agreements with its customers to specify the scope
of the system to be installed and/or services to be provided by LanVision, the
agreed upon aggregate price and the timetable for implementation. The master
agreement typically provides that LanVision will deliver the system in phases
pursuant to the customer's purchase orders, thereby allowing the customer
flexibility in the timing of its receipt of systems and to make adjustments that
may arise based upon changes in technology or changes in customer needs. The
master agreement also allows the customer to request additional components as
the installation progresses, which additions are then separately negotiated as
to price and terms. Historically, customers have ultimately purchased systems
and services in addition to those originally contemplated by the master
agreement, although there can be no assurance that this trend will continue in
the future.
At January 31, 2002, LanVision has master agreements, purchase orders or royalty
reports from remarketing partners for systems and related services (excluding
support and maintenance, and transaction-based revenues for the ASP Division)
which have not been delivered, installed and accepted which, if fully performed,
would generate future revenues of approximately $4,417,000. The related products
and services are expected to be delivered over the next two to three years.
Furthermore, the ASP Division has entered into an application-hosting
agreements, which are expected to generate revenues in excess of $840,000 over
the remaining life of the agreements.
LanVision'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 2001, 2000 and 1999 were approximately $4,032,000,
$3,678,000, and $3,264,000, respectively. Maintenance and support revenues are
expected to increase in 2002.
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 ASP Division. Therefore, LanVision is unable to
accurately predict the revenue it expects to achieve in any particular period.
LanVision's master agreements generally provide that the customer may terminate
its agreement upon a material breach by LanVision, 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
LanVision to procure additional agreements, could have a material adverse effect
on LanVision's business, financial condition and results of operations.
20
Royalties
LanVision incorporates software licensed from various vendors into its
proprietary software. In addition, third-party, stand-alone software is required
to operate LanVision's proprietary software. LanVision licenses these software
products, and pays the required royalties and/or license fees when such software
is delivered to LanVision's customers.
Employees
As of March 31, 2002, LanVision had 62 full-time employees. In addition,
LanVision utilizes independent contractors to supplement its staff, as needed.
None of LanVision's employees are represented by a labor union or subject to a
collective bargaining agreement. LanVision has never experienced a work stoppage
and believes that its employee relations are good.
Liquidity and Capital Resources
During the last five fiscal years, LanVision has funded its operations, working
capital needs and capital expenditures primarily from a combination of cash
generated by operations, and a $6,000,000 loan.
LanVision'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.
LanVision has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of approximately $172,656,
payable over the next five years.
In July 2004, upon maturity of the long-term debt, LanVision may, under the
terms of the long-term debt agreement, be required to pay to the lender an
amount necessary so that the market value of the stock underlying the Warrants
issued to the lender in connection with the long-term debt, plus the 12%
interest paid on the loan will yield the lender a 25% compound annual return. If
the yield from the Warrants plus interest paid does not provide the lender with
the 25% guaranteed compound annual return, LanVision is required to pay the
additional amount in cash at the time of maturity. Accordingly, LanVision is
accruing interest on the loan at a 25% compound interest rate, regardless of the
market value of the stock and the inherent value of the Warrants. The current
estimate of the maximum amount at maturity, which would be required to be paid
to the lender, assuming the Warrants have no value, is approximately $5,800,000.
Depending on the amount of cash LanVision has at that time, and the value of the
Warrants, it may be necessary for LanVision to borrow funds or obtain additional
equity in order to fund the deferred interest payable to the lender
21
at that time. LanVision believes that continued operating performance
improvements should enable it to fund a portion of any obligation and borrow the
additional funds necessary to retire the obligation at maturity. However, there
can be no assurance LanVision will be able to do so.
Over the last several years, LanVision's revenues were less than its internal
plans. However, during the same period, LanVision 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 five years. Although LanVision has reduced staffing levels and
related expenses, increased revenues and improved operating performance,
LanVision's expenses may continue to increase. Accordingly, to continue to
achieve increasing profitability, and positive cash flow, it is necessary for
LanVision to increase revenues or continue to reduce expenses. LanVision
believes that the requirement for healthcare organizations to become HIPAA
compliant, and the recent signing of the IDX Information Systems Corporation
remarketing agreement and the 3M agreement in the process of negotiations should
offer significant opportunities to increase revenues. Additionally, the SMS
Remarketing Agreement, as previously noted, has significantly expanded the sales
distribution capabilities and LanVision believes the IDX agreement will also
expand sales distribution similar to that of SMS. LanVision believes that market
opportunities are such that LanVision should be able to increase its revenues.
However, there can be no assurance LanVision will be able to do so.
In February 2000, LanVision sold its Data Center for $2,900,000. LanVision
received $2,000,000 and the remaining $900,000 was received in twelve monthly
installments commencing March 1, 2000. The sale resulted in a gain of
approximately $1,400,000.
At January 31, 2002, LanVision had cash and cash equivalents of $7,865,053. Cash
equivalents consist primarily of overnight bank repurchase agreements and
short-term commercial paper. Under the terms of its loan agreement, as amended,
LanVision has agreed to maintain a minimum cash and cash equivalent balance of
$4,800,000. During fiscal 2002, $2,000,000 of long-term debt is required to be
repaid to the lender.
LanVision has significantly reduced operating expenses during the last three
fiscal years, and believes it will continue to improve operating results in
fiscal 2002. Notwithstanding the increases in fiscal year 2001 revenues and
operating profit, for the foreseeable future, LanVision will need to continually
assess its revenue prospects compared to its then current expenditure levels. If
it does not appear likely that revenues will increase, it may be necessary to
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 LanVision will be successful
in any of these efforts. If it is necessary to significantly reduce operating
expenses, this could have an adverse effect on future operating performance.
To date, inflation has not had a material impact on LanVision's revenues or
expenses. Additionally, LanVision does not have any significant market risk
exposure at January 31, 2002.
22
ITEM 2. PROPERTIES
LanVision's principal offices are located at 5481 Creek Road, Cincinnati, Ohio
45242-4001. The offices consist of approximately 15,000 square feet of space
under a lease that expires in January 2003. The rental expense for these
facilities approximates $123,000 annually.
LanVision believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate expansion of LanVision's operations.
ITEM 3. LEGAL PROCEEDINGS
LanVision is a party to various legal proceedings and claims which arise in the
ordinary course of business from time to time. Currently, LanVision is a party
to several pending lawsuits that were initiated by LanVision to protect its
intellectual property rights, to enforce non-competition covenants and/or to
prevent third parties from improperly interfering in LanVision's business. The
defendants in one or more of these actions have asserted, and may assert in the
future, counterclaims against LanVision. While the outcome of these claims, as
well as any claims that may not have yet been asserted against LanVision,
whether in these actions or otherwise, cannot be predicted with certainty at
this time, LanVision is not aware of any legal matters that will have a material
adverse effect on LanVision's consolidated results of operations or consolidated
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
23
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions held by the Executive Officers of the Company on
April 22, 2002 are:
Elected to
Name Age Position(1) Present Position(2)
---- --- ----------- -------------------
J. Brian Patsy 51 Chairman of the Board, President,
Chief Executive Officer, and Director 1989
Eric S. Lombardo 49 Executive Vice President, Corporate Secretary, and
Director 1989
Paul W. Bridge, Jr. 58 Chief Financial Officer, and Treasurer 2001
Donald E. Vick, Jr. 38 Controller, and Assistant Treasurer 2002
(1) All current officers of the Company hold office until their successors
are elected and qualified or until any removal or resignation. Officers
of the Company are elected by the Board of Directors and serve at the
discretion of the Board. For purposes of the descriptions of the
background of LanVision's Executive Officers, the term "Company" refers
to both LanVision Systems, Inc. and its predecessor LanVision, Inc."
(2) Represents date of election to Registrant or its predecessor.
J. Brian Patsy is a co-founder of the Company and has served as the President,
and a Director since LanVision's inception in October 1989. Mr. Patsy was
appointed Chairman of the Board and Chief Executive Officer in March 1996. Mr.
Patsy has over 28 years of experience in the information technology industry.
Eric S. Lombardo is a co-founder of the Company and has served as a Director
since LanVision's inception and as Executive Vice President of the Company since
May 1990. Mr. Lombardo has over 26 years of experience in the information
technology industry.
Paul W. Bridge, Jr. joined the Company in 1996, as Controller. In January 2001,
he assumed the additional responsibility of Chief Financial Officer. From 1993
until he joined LanVision, Mr. Bridge served as Controller of Cincom Systems,
Inc., an international software development and marketing company. Mr. Bridge is
a Certified Public Accountant (inactive).
Donald E. Vick, Jr. joined the Company in 1997, as Assistant Controller. In 2002
he was appointed Controller and Assistant Treasurer. Prior to joining LanVision,
Mr. Vick served as Assistant Controller of Cincom Systems, Inc., an
international software development and marketing company. Mr. Vick is a
Certified Public Accountant and has over 15 years of experience in the
information technology industry.
24
There are no family relationships between any Director or Executive Officer and
any other Director or Executive Officer of the Registrant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock trades on The Nasdaq SmallCap Market under the
symbol LANV. The table below sets forth the high and low sales prices for
LanVision Systems, Inc. Common Stock for each of the quarters in fiscal years
2001 and 2000, as reported by The Nasdaq Stock Market, Inc.
Fiscal Year 2001 High Low
---------------- ---- ---
1st Quarter (February 1, 2001 through April 30, 2001) $ 1.313 $ 0.563
2nd Quarter (May 1, 2001 through July 31, 2001) 1.750 0.950
3rd Quarter (August 1, 2001 through October 31, 2001) 1.700 0.850
4th Quarter (November 1, 2001 through January 31, 2002) 4.980 1.070
Fiscal Year 2000 High Low
---------------- ---- ---
1st Quarter (February 1, 2000 through April 30, 2000) $ 3.469 $ 1.188
2nd Quarter (May 1, 2000 through July 31, 2000) 2.000 0.875
3rd Quarter (August 1, 2000 through October 31, 2000) 1.625 0.813
4th Quarter (November 1, 2000 through January 31, 2001) 1.344 0.438
The market price of the Common Stock could be subject to significant
fluctuations based on factors such as announcements of new products or customers
by LanVision or its competitors, quarterly fluctuations in LanVision's financial
results or other competitors' financial results, changes in analysts' estimates
of LanVision's financial performance, general conditions in the healthcare
imaging industry as well as conditions in the financial markets. In addition,
the stock market in general has experienced extreme price and volume
fluctuations which have particularly affected the market price of many high
technology companies and which have been often unrelated to the operating
performance of a specific company. Many technology companies, including
LanVision, have recently experienced fluctuations in the market price of their
equity securities. There can be no assurance that the market price of the Common
Stock will not decline, or otherwise continue to experience significant
fluctuations in the future.
25
(b) According to the transfer agent records, the Company had 200 stockholders of
record as of April 1, 2002. Because brokers and other institutions on behalf of
stockholders hold many of such shares, the Company is unable to determine with
complete accuracy the total number of stockholders represented by these record
holders. The Company estimates that it has approximately 2,010 stockholders.
(c) The Company has not paid any cash dividends on its Common Stock since its
inception and does not intend to pay any cash dividends in the foreseeable
future due to the restrictive financial covenants in its long-term debt
agreement.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth consolidated financial data with respect to the
Company for each of the five years in the period ended January 31, 2002. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes incorporated herein by
reference elsewhere in this Annual Report on Form 10-K report.
Fiscal Year(1)
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In thousands, except per share data)
Total revenues $ 10,939 $ 9,576 $ 10,471 $ 12,010 $ 8,676
Total operating expenses 8,920 9,509 13,054 22,470 22,493
Operating profit (loss) 2,019 67 (2,583) (10,460) (13,818)
Net earnings (loss) 210 21 (3,247) (10,926) (12,669)
Basic net earnings (loss) per share of
Common stock .02 .00 (.37) (1.24) (1.44)
Diluted net earnings (loss) per share of
Common stock .02 .00 (.37) (1.24) (1.44)
Total assets 13,509 14,358 14,719 17,485 22,200
Long-term debt,
including current portion 5,000 6,000 6,000 6,000 -
Convertible redeemable
preferred stock - - - - -
Total stockholders' equity 2,906 2,655 2,613 5,847 16,816
Weighted average shares outstanding 8,890 8,863 8,827 8,811 8,827
Cash dividends declared - - - - -
(1) All references to a fiscal year refer to the fiscal year of the Company
commencing February 1 of that calendar year and ending on January 31 of
the following year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information regarding Management's Discussion and Analysis of the Company's
Financial Condition and Results of Operations as required by Item 303 of
Regulation S-K is incorporated
26
herein by reference from pages 9 through 18 of the Company's 2001 Annual Report
to Stockholders appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LanVision currently invests its cash balances, in excess of its current needs,
in overnight bank deposits and 30-day commercial paper. In prior years,
LanVision invested excess funds in US Government Securities. LanVision did not
invest for the purposes of trading in securities; however, the portfolio was
managed and invested for maximum return on the investments. Additionally,
LanVision does not have any significant market risk exposure at January 31,
2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements are incorporated herein by reference from
pages 20 through 32 of LanVision's 2001 Annual Report to Stockholders. The
supplementary quarterly financial information regarding the Company as required
by Item 302 of Regulation S-K is incorporated herein by reference from page 31 &
32 of LanVision's 2001 Annual Report to Stockholders appearing under the caption
"Quarterly Results of Operations (Unaudited)".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No change in the Company's auditors has taken place within the twenty-four
months prior to, or in any period subsequent to, LanVision's January 31, 2002
Financial Statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors required by Items 401 and 405 of Regulation
S-K is incorporated herein by reference from the Company's Definitive Proxy
Statement for its Annual Stockholder's Meeting to be held on May 29, 2002 from
the information appearing under the caption "Election of Directors" and "Stock
Ownership by Certain Beneficial Owners and Management." Certain information
regarding the Company's Executive Officers is set forth in Part I, Item 4 of
this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
27
The information regarding Executive Compensation required by Item 402 of
Regulation S-K is incorporated herein by reference from the Company's Definitive
Proxy Statement for its Annual Stockholder's Meeting to be held on May 29, 2002
from the information appearing under the caption "Executive Compensation",
except that the information required by Item 402 (k) and (l) of Regulation S-K
which appears within such caption under the subheading "Compensation Committee
Report", "Audit Committee Report" and the caption "Stock Performance Graph" and
set forth in the Company's Definitive Proxy Statement for its Annual
Stockholder's Meeting to be held on May 29, 2002 is specifically not
incorporated herein by reference into this Form 10-K or into any other filing by
the Company under the Securities Act of 1933 or the Securities Exchange Act of
1934.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership of the Company's Common Stock by
certain beneficial owners and management required by Item 403 of Regulation S-K
is incorporated herein by reference from the Company's Definitive Proxy
Statement for its Annual Stockholder's Meeting to be held on May 29, 2002 from
the information appearing under the caption "Stock Ownership by Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by Item 404 of Regulation S-K is incorporated herein by reference from
the Company's Definitive Proxy Statement for its Annual Stockholder's Meeting to
be held on May 29, 2002 from the information appearing under the caption
"Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company included in the
Company's 2001 Annual Report to Stockholders are incorporated herein by
reference from pages 20 through 32 of the Annual Report.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
28
Report of Independent Auditors
Consolidated Balance Sheets at January 31, 2002 and 2001
Consolidated Statements of Operations for the three years ended January 31, 2002
Consolidated Statements of Cash Flows for the three years ended January 31, 2002
Consolidated Statements of Changes in Convertible Redeemable Preferred Stock and
Stockholders' Equity for the three years ended January 31, 2002
Notes to Financial Statements
FINANCIAL STATEMENT SCHEDULE
The following Financial Statement Schedule of LanVision Systems, Inc. is
included in this Item 14.
Schedule Description
-------- -----------
II Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because the information either has been
shown in the Consolidated Financial Statements or Notes thereto, or is not
applicable or required under the instructions.
The Report of Independent Auditors on the Financial Statement Schedule of
LanVision Systems, Inc. is included in Exhibit 23.1 of this Form 10-K.
29
EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Certificate of Incorporation of LanVision Systems, Inc.
3.2 Bylaws of LanVision Systems, Inc.
3.3 Certificate of the Designations, Powers, Preferences and Rights of the Convertible
Preferred Stock (Par Value $.01 Per Share) of LanVision Systems, Inc.
4.1 Specimen Common Stock Certificate of LanVision Systems, Inc.
4.2 Specimen Preferred Stock Certificate of LanVision Systems, Inc.
4.3(a) Loan and Security Agreement between The HillStreet Fund L.P. and LanVision Systems, Inc.
4.3(b) First Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc.
4.3(c) Second Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc.
4.3(d) Third Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc.
4.3(e) Fourth Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc.
4.3(f) Fifth Amendment to the Loan and Security Agreement between The HillStreet Fund L.P. and
LanVision Systems, Inc.
10.1 # LanVision Systems, Inc. 1996 Employee Stock Option Plan
10.2(a) # LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan
10.2(b) # First Amendment to LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan
10.2(c) # Second Amendment to LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan
10.3 # LanVision Systems, Inc. 1996 Employee Stock Purchase Plan
10.4 # George E. Castrucci Option Agreement
10.5 # Employment Agreement between LanVision, Inc. and Donald E. Vick effective December 3, 1996
10.6 # Employment Offer of LanVision, Inc. to Paul W. Bridge, Jr. effective April 11, 1996
10.7(a) Stock Purchase and Shareholder Agreement among LanVision, Inc., Blue Chip Capital Fund
Limited Partnership, J. Brian Patsy and Eric S. Lombardo dated December 1, 1994
10.7(b) Amendment No. 1 to Stock Purchase and Shareholder Agreement among Blue Chip Capital Fund
Limited Partnership, LanVision, Inc., J. Brian Patsy, Eric S. Lombardo and LanVision
Systems, Inc. dated February 8, 1996
10.8 Consent by Blue Chip Capital Fund Limited Partnership dated
30
February 8, 1996
10.9 Lease for office space between Creek Road Warehouse Complex, LLC and LanVision, Inc.,
dated May 4, 2000
10.10 Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998
10.11 Reseller Agreement between IDX Information Systems Corporation and LanVision, Inc. entered
into on January 30, 2002
10.12 Form of Indemnification Agreement for all directors and officers
11.1 Statement Regarding Computation of Per Share Earnings
13.1 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
# Management Contracts and Compensatory Arrangements
REPORTS ON FORM 8-K
None.
31
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LANVISION SYSTEMS, INC.
DATE: April 23, 2002 By: /s/ J. BRIAN PATSY
-------------------------- ----------------------------------
J. Brian Patsy
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
/s/ J. Brian Patsy Chief Executive Officer April 23, 2002
- ----------------------------- And Director
J. Brian Patsy
/s/ Eric S. Lombardo Director April 23, 2002
- -----------------------------
Eric S. Lombardo
/s/ George E. Castrucci Director April 23, 2002
- -----------------------------
George E. Castrucci
/s/ Z. David Patterson Director April 23, 2002
- -----------------------------
Z. David Patterson
/s/ Richard C. Levy Director April 23, 2002
- -----------------------------
Richard C. Levy, M.D.
/s/ Paul W. Bridge, Jr. Chief Financial Officer April 23, 2002
- ----------------------------- And Chief Accounting Officer
Paul W. Bridge, Jr.
32
Schedule II Valuation and Qualifying Accounts and Reserves
LanVision Systems, Inc.
For the three years ended January 31, 2002
Additions
-----------------------------
(in thousands) Balance at Charged to Charged to
Beginning costs Other Balance at
Description of Period and Expenses Accounts Deductions End of Period
----------- --------- ------------ -------- ---------- -------------
Year ended January 31, 2002:
Allowance for doubtful accounts $ 400 $ - $ - $ - $ 400
Warranty reserve 250 - - - 250
Year ended January 31, 2001:
Allowance for doubtful accounts 385 15 - - 400
Warranty reserve 250 - - - 250
Year ended January 31, 2000:
Allowance for doubtful accounts 325 60 - - 385
Warranty reserve 300 12 - 62 250
33
INDEX TO EXHIBITS
EXHIBITS
Exhibit No. Description of 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.)
3.3 Certificate of the Designations, Powers, Preferences
and Rights of the Convertible Preferred Stock (Par
Value $.01 Per Share) 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.)
4.1 Specimen Common Stock Certificate 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.)
4.2 Specimen Preferred Stock Certificate 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.)
4.3(a) Loan and Security Agreement between The HillStreet
Fund L.P. and LanVision Systems, Inc. (Previously
filed with the Commission, and incorporated herein by
reference from, Exhibit 10.1 of the Registrant's Form
8-K, dated July 17,1998, as filed with the Commission
on July 24, 1998.)
4.3(b) First Amendment to the Loan and Security Agreement
between The HillStreet Fund L.P. and LanVision
Systems, Inc. (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit
10(c) of the Registrant's Form 10-Q for the quarter
ended October 31, 1998, as filed with the Commission
on December 11, 1998.)
4.3(c) Second Amendment to the Loan and Security Agreement
between The HillStreet Fund L.P. and LanVision
Systems, Inc. (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit
4.3(c) of the Registrant's Form 10-K for the fiscal
year ending January 31, 2000 as filed with the
Commission on April 20, 2000.)
4.3(d) Third Amendment to the Loan and Security Agreement
between The HillStreet Fund L.P. and LanVision
Systems, Inc. (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit
10(b) of the Registrant's Form 10-Q for the quarter
ended July 31, 2000, as filed with the Commission on
September 12, 2000.)
4.3(e) Fourth Amendment to the Loan and Security Agreement
between The HillStreet Fund L.P. and LanVision
Systems, Inc. (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit
10(e) of the Registrant's Form 10-K for the fiscal
year ended January 31, 2001, as filed with the
commission on April 26, 2001.)
4.3(f) Fifth Amendment to the Loan and Security Agreement
between The HillStreet Fund L.P. and *** LanVision
Systems, Inc.
10.1 # LanVision Systems, Inc. 1996 Employee Stock Option
Plan. (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.)
10.2(a) # LanVision Systems, Inc. 1996 Non-Employee Directors
Stock Option Plan. (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.)
10.2(b) # First Amendment to LanVision Systems, Inc. 1996
Non-Employee Directors Stock Option Plan. (Previously
filed with the Commission, and incorporated herein by
reference from, Exhibit 4.1(b) of, the Registrant's
Registration Statement on Form S-8, file number
333-20765, as filed with the Commission on January
31, 1997.)
10.2(c) # Second Amendment to LanVision Systems, Inc. 1996
Non-Employee Directors Stock Option Plan. (Previously
filed with the Commission, and incorporated herein by
reference from, Amendment No. 1 to the Registrant's
Statement on Form S-8, file number 333-20765, as
filed with the Commission on March 1, 2001.)
10.3 # LanVision Systems, Inc. 1996 Employee Stock
Purchase Plan. (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.)
10.4 # George E. Castrucci Option Agreement. (Previously
filed with the Commission, and incorporated herein by
reference from, Exhibit 4.1 of the Registrant's Form
S-8, file number 333-20763, as filed with the
Commission on January 31, 1997.)
10.5 # Employment Agreement between LanVision, Inc. and
Donald E. Vick effective December 3, 1996 ***
10.6 # Employment Offer of LanVision, Inc. to Paul W.
Bridge, Jr. effective April 11, 1996. (Previously
filed with the Commission, and incorporated herein by
reference from, Exhibit 10.8 of the Registrant's Form
10-K for the fiscal year ended January 31, 2001, as
filed with the commission on April 26, 2001.)
10.7(a) Stock Purchase and Shareholder Agreement among
LanVision, Inc., Blue Chip Capital Fund Limited
Partnership, J. Brian Patsy and Eric S. Lombardo
dated December 1, 1994. (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.)
10.7(b) Amendment No. 1 to Stock Purchase and Shareholder
Agreement among Blue Chip Capital Fund Limited
Partnership, LanVision, Inc., J. Brian Patsy, Eric S.
Lombardo and LanVision Systems, Inc. dated February
8, 1996. (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.)
10.8 Consent by Blue Chip Capital Fund Limited Partnership
dated February 8, 1996. (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.)
10.9 Lease for office space between Creek Road Warehouse
Complex, LLC and LanVision, Inc., dated May 4, 2000.
(Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 10.1
of the Registrant's Form 10-Q for the quarter ended
April 30, 2000, as filed with the Commission on May
31, 2000.)
10.10** Marketing Agreement between Shared Medical Systems
Corporation and LanVision Systems, Inc. and
LanVision, Inc. entered into on February 21, 1998.
(Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 10.15
of the Registrant's Form 10-K for the fiscal year
ending January 31, 1999, as filed with the Commission
on April 30, 1999.)
10.11** Reseller Agreement between IDX Information Systems ***
Corporation and LanVision, Inc. entered *** into on
January 30, 2002
10.12 Form of Indemnification Agreement for all directors
and officers. (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.)
11.1 Statement Regarding Computation of Per Share Earnings ***
13.1 Annual Report to Stockholders ***
21.1 Subsidiaries of the Registrant ***
23.1 Consent of Independent Auditors ***
- ----------
** The Company has applied for Confidential Treatment of portions of this
agreement with the Securities and Exchange Commission
*** Included herein
# Management Contracts and Compensatory Arrangements.