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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Number of shares of Registrant's Common Stock ($.01 par value per share)
issued and outstanding, as of December 12, 2002: 8,945,338.
1
TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements........................ 3
Condensed Consolidated Balance Sheets at October 31, 2002 and
January 31, 2002................................................... 3
Condensed Consolidated Statements of Operations for the three and
nine months ended October 31, 2002 and 2001........................ 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 31, 2002 and 2001............................. 6
Notes to Condensed Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 9
Item 4 Controls and Procedures............................................ 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 22
Item 3. Defaults on Senior Securities...................................... 22
Item 5 Other Information 22
Item 6. Exhibits and Reports on Form 8-K................................... 23
Signatures......................................................... 24
Certifications..................................................... 25
2
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
(Unaudited) (Audited)
October 31, January 31,
2002 2002
------------ ------------
Current assets:
Cash and cash equivalents (restricted by long-term debt agreement) $ 6,246,127 $ 7,865,053
Accounts receivable, net of allowance for doubtful accounts of
$400,000, respectively 2,003,472 1,451,027
Unbilled receivables 2,677,842 1,742,785
Prepaid expenses related to unrecognized revenue 81,054 113,081
Other 277,726 201,962
------------ ------------
Total current assets 11,286,221 11,373,908
Property and equipment:
Computer equipment 2,492,165 1,875,590
Computer software 749,146 421,962
Office furniture, fixtures and equipment 1,153,934 1,139,457
Leasehold improvements 151,635 117,795
------------ ------------
4,546,880 3,554,804
Accumulated depreciation and amortization (3,284,952) (3,048,793)
------------ ------------
1,261,928 506,011
Capitalized software development costs, net of accumulated
amortization of $2,000,228 and $1,700,228, respectively 1,339,701 1,189,701
Installment receivables 433,339 267,969
Other 133,864 171,516
------------ ------------
$ 14,455,053 $ 13,509,105
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities, Convertible Redeemable Preferred Stock and Stockholders' Equity
(Unaudited) (Audited)
October 31, January 31,
2002 2002
------------ ------------
Current liabilities:
Accounts payable $ 479,407 $ 230,571
Accrued compensation 257,676 235,958
Accrued other expenses 1,382,893 1,525,096
Deferred revenues 1,938,433 1,371,200
Current portion of capitalized lease obligations 191,469 --
Current portion of long-term debt 2,000,000 2,000,000
------------ ------------
Total current liabilities 6,249,878 5,362,825
Long-term capitalized lease obligations 441,122 --
Long-term debt 1,500,000 3,000,000
Long-term accrued interest 2,766,819 2,239,798
Convertible redeemable preferred stock, $.01 par value per share
5,000,000 shares authorized -- --
Stockholders' equity:
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,945,338 and 8,913,947 shares issued, respectively 89,453 89,139
Capital in excess of par value 34,825,947 34,787,849
Accumulated (deficit) (31,418,166) (31,970,506)
------------ ------------
Total stockholders' equity 3,497,234 2,906,482
------------ ------------
$ 14,455,053 $ 13,509,105
============ ============
See Notes to Condensed Consolidated Financial Statements.
4
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended October 31,
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
Systems sales $ 1,274,820 $ 1,763,897 $ 3,947,325 $ 3,240,398
Services, maintenance and support 1,634,525 1,442,407 4,880,297 4,382,430
Application-hosting services 299,246 178,725 686,376 573,507
----------- ----------- ----------- -----------
Total revenues 3,208,591 3,385,029 9,513,998 8,196,335
Operating expenses:
Cost of systems sales 260,934 254,750 904,838 563,328
Cost of services, maintenance and support 660,790 802,966 2,198,711 2,338,679
Cost of application-hosting services 195,184 81,254 337,513 253,801
Selling, general and administrative 822,764 748,781 2,572,838 2,087,494
Product research and development 517,455 496,682 1,567,288 1,618,458
----------- ----------- ----------- -----------
Total operating expenses 2,457,127 2,384,433 7,581,188 6,861,760
----------- ----------- ----------- -----------
Operating income 751,464 1,000,596 1,932,810 1,334,575
Other income (expense):
Interest income 32,725 56,899 90,477 234,811
Interest expense (518,750) (559,238) (1,470,947) (1,539,366)
----------- ----------- ----------- -----------
Earnings before income taxes 265,439 498,257 552,340 30,020
Income tax (provision) benefit (13,000) -- -- --
----------- ----------- ----------- -----------
Net income $ 252,439 $ 498,257 $ 552,340 $ 30,020
=========== =========== =========== ===========
Basic net income per common share $ .03 $ .06 $ .06 $ .00
=========== =========== =========== ===========
Diluted net income per common share $ .03 $ .06 $ .06 $ .00
=========== =========== =========== ===========
Number of shares used in per common share
computations:
Basic 8,945,338 8,894,948 8,929,250 8,886,318
=========== =========== =========== ===========
Diluted 9,174,550 9,012,469 9,197,401 8,997,726
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
5
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31,
(Unaudited)
2002 2001
----------- -----------
Operating activities:
Net income $ 552,340 $ 30,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 536,159 521,754
Increase in long-term accrued interest 527,021 450,071
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables (1,652,872) 186,379
Other current assets 40,889 30,154
Accounts payable and accrued expenses 128,351 (376,052)
Deferred revenues 567,233 (563,393)
----------- -----------
Net cash provided by operating activities 699,121 278,933
----------- -----------
Investing activities:
Proceeds from disposal of property and equipment -- 56,301
Purchases of property and equipment (422,572) (222,857)
Capitalization of software development costs (450,000) (375,000)
Payment on note receivable -- 75,000
Other 37,652 38,962
----------- -----------
Net cash (used for) investing activities (834,920) (427,594)
----------- -----------
Financing activities:
Exercise of stock options and shares issued under the Employee Stock
Purchase Plan 38,412 19,319
Repayment of long-term debt (1,500,000) (500,000)
Payment of capitalized leases (21,539) --
----------- -----------
Net cash (used for) provided by financing activities (1,483,127) (480,681)
----------- -----------
(Decrease) in cash and cash equivalents (1,618,926) (629,342)
Cash and cash equivalents at beginning of period 7,865,053 8,549,732
----------- -----------
Cash and cash equivalents at end of period $ 6,246,127 $ 7,920,390
=========== ===========
Supplemental cash flow disclosures:
Interest paid $ 909,333 $ 1,046,000
=========== ===========
Capital lease obligations incurred $ 654,130 $ --
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
6
LANVISION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying Unaudited Condensed Consolidated Financial Statements have been
prepared by the Company without audit, in accordance with accounting principles
generally accepted in the United States for interim financial information,
pursuant to the rules and regulations applicable to quarterly reports on Form
10-Q of the U. S. Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the Condensed
Consolidated Financial Statements have been included. These Condensed
Consolidated Financial Statements should be read in conjunction with the
financial statements and notes thereto included in the LanVision Systems, Inc.
Annual Report on Form 10-K for the fiscal Year ended January 31, 2002 -
Commission File Number 0-28132. Operating results for the three and nine months
ended October 31, 2002, are not necessarily indicative of the results that may
be expected for the fiscal year ending January 31, 2003.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is presented
beginning on page 23 of its 2001 Annual Report to Stockholders, which can be
found as Exhibit 13.1 of the Annual Report on Form 10-K for the fiscal Year
ended January 31, 2002. Users of financial information for interim periods are
encouraged to refer to the footnotes contained in the Annual Report to
Stockholders when reviewing interim financial results. There has been no
material change in the accounting policies followed by the Company during fiscal
year 2002.
Beginning in fiscal year 2002, certain expenses that were previously classified
as cost of services, maintenance and support and selling, general and
administrative expenses have been reclassified to product research and
development because the work performed by the individuals involved have, over
time, evolved into more product development related activities. Prior year
amounts have been reclassified to conform to the 2002 financial statement
presentation.
Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES
The decrease in cash and cash equivalents results primarily from the payment of
$1,500,000 in long-term debt during the first nine months and $500,000 of the
long-term accrued interest on the outstanding debt during the first quarter.
7
The increase in accounts receivable, net is due to higher revenues from our
direct customers and higher royalties due from a remarketing partner at the end
of the quarter.
The increase in unbilled receivables is due to higher amounts due from a
remarketing partner. Royalty payments are remitted to LanVision in accordance
with the remarketing agreement, and are accounted for as unbilled receivables
until the royalty payments are received.
Other current assets consist of software and hardware awaiting installation
(related to unrecognized revenue) and prepaid expenses, including commissions.
The increase relates primarily to additional prepaid maintenance on new property
and equipment and prepaid maintenance required to provide customer support.
The increase in property and equipment, net, is primarily the result of the
acquisition, mostly via capitalized leases, of computer equipment and software
necessary to support current and future ASPeNSM application-hosting services
customers. LanVision has established a new data center into which it will be
consolidating all of its ASPeN operations by February 2003.
The increase in installment receivables results from the sale of an additional
system by a reseller on an installment basis.
Other non-current assets consist primarily of prepaid long-term debt closing
costs, which are amortized to expense over the life of the loan.
The increase in accounts payable results primarily from the delivery of hardware
to new customers in October, the invoices for which were not paid at the quarter
end.
The increase in accrued compensation results primarily from the increase in the
accrual for bonuses payable under the employee bonus plans. At January 31, 2002,
the accrual was lower because the Company did not meet its bonus payout goals
for the fiscal year.
The decrease in accrued other expenses relates primarily to the settlement of
certain accrued obligations during the first quarter.
The increase in deferred revenues results from billings to customers recorded
prior to revenue recognition.
The increase in long-term accrued interest is net of a special payment of
$500,000 of such interest at the time the loan agreement was amended, during the
first quarter, to set the financial covenants for fiscal 2002.
During the second quarter the Company acquired computer equipment and related
software for a second application-hosting services data center, which are
accounted for as capitalized leases. The amount of the leased assets by category
are: computer equipment $372,705; computer software $196,799; and prepaid
maintenance and expenses $84,626,
8
for a total of $654,130 in new assets. The leases are payable monthly in
installments of $11,668 commencing September 2002, through August 2005 and an
additional amount of $8,323 commencing January 2003, through December 2005. The
present value of the future lease payments upon lease inception was $654,130
using the interest rates implicit in the lease agreements at the inception of
the leases.
Note 4 - STOCK OPTIONS
During the first nine months of the current fiscal year, the Company granted no
stock options under any Stock Option Plan. During the same period no options
were forfeited under any plans. Stock Options to acquire 8,332 shares of Common
Stock were exercised in the second quarter. No Stock Options were exercised in
the first or third quarters.
Note 5 - EARNINGS PER SHARE
The basic net income per common share is calculated using the weighted average
number of common shares outstanding during the period.
The diluted net income per common share calculation, is based on the weighted
average number of common shares outstanding adjusted for the dilutive effect of
stock options and the employee stock purchase plan (400,354 shares in the third
quarter and 454,375 shares in the first nine months of 2002). The Company had
approximately 174,775 option shares outstanding at October 31, 2002 that were
not included in the diluted net income per share calculation as the inclusion
thereof would be antidilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information contained herein, this Discussion and
Analysis, as well as other Items in this Form 10-Q, contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements, included
herein. These risks and uncertainties include, but are not limited to, the
impact of competitive products and pricing, product demand and market
acceptance, new product development, key strategic alliances with vendors that
resell LanVision products, the ability of the Company to control costs,
availability of products produced from third party vendors, the healthcare
regulatory environment, healthcare information systems budgets, availability of
healthcare information systems trained personnel for implementation of new
systems, as well as maintenance of legacy systems, fluctuations in operating
results and other risks detailed from time to time in the LanVision Systems,
Inc. filings with the U. S. Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly release the results of any revision to these
forward-
9
looking statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
GENERAL
LanVision Systems, Inc. ("LanVision"(TM) or the "Company") is an Electronic
Medical Record workflow solution and application-hosting services provider.
LanVision is a leading supplier of Healthcare Information Access Workflow
Solutions specializing in connectivity that utilize the power of the
Internet/Intranet to link hospitals, physicians, administrative personnel,
patients, and payers to a Computer Based Patient Electronic Medical Record
repository. LanVision's software application products and services are
complementary to existing clinical and financial systems, and use document
imaging and advanced workflow tools to ensure end-users can electronically
access both "structured" and "unstructured" patient data and all the various
forms of clinical and financial healthcare information from a single permanent
and secure repository, including clinician's handwritten notes, lab reports,
photographs, insurance cards, etc. LanVision's workflow solutions offer value to
all of the constituents in the healthcare delivery process by enabling them to
simultaneously access and process information, on a real-time basis, from
virtually any location, including the physician's desktop, using Web
browser-based technology. Web access to the entire medical record improves
physician and administrative personnel productivity and reduces administrative
costs such as filing, storage, retrieval, and upkeep of medical records and
clinical costs, such as redundant diagnostic testing. 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 document imaging/management infrastructure (Foundation Suite)
that is built for high volume transaction processing and is specifically
designed for the healthcare industry. In addition to providing 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 (Siemens), and Cerner
Corporation and will soon integrate its products with IDX Information Systems
Corporation (IDX) applications. By offering electronic access to all the patient
information 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
10
Record application software 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 hardware and professional services,
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 workflow solutions on an application-hosting basis as
an Application Service Provider. LanVision established a hosting data center and
installed LanVision's Electronic Medical Record suite of workflow products,
called ASPeN (Application Service Provider eHealth Network) within the hosting
data center. Under this arrangement, customers electronically capture
information and transmit the data to the hosting data center. The ASPeN services
division stores and manages the data using LanVision's suite of applications,
and customers can view, print, fax or process the information from anywhere
using the LanVision Web-based applications. The ASPeN services 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 application-hosting data center.
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 continues to use this data center through February 2003. LanVision has
established a second application-hosting data center in order to provide the
capacity for its newest ASPeN services clients and into which it will
consolidate all of its existing ASPeN application-hosting services by February
2003, when the current annual service agreement expires. Approximately $750,000
in new equipment and software has been leased or purchased for the new
application-hosting data center.
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 not uncommon 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 and maintenance of the
system and specify the installation schedule, which typically takes place in one
or more phases. The licensing agreements generally provide for the
11
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. LanVision believes that Integrated Delivery Networks will begin to look
for this type of ASP application because of the ease of implementation and lower
entry-level costs. 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.
Generally, revenue from systems sales is recognized when an agreement is signed
and products are made available to end-users. Revenue recognition related to
routine installation, integration and project management is deferred until the
work is performed. If an agreement requires the Company to perform services and
modifications that are deemed significant to system acceptance, revenue is
recorded either on the percentage-of-completion method or revenue related to the
delivered hardware and software components is deferred until such obligations
are deemed insignificant, depending on the contractual terms. Revenues from
consulting, training and application-hosting services are recognized as the
services are performed. Revenues from short-term support and maintenance
agreements are recognized ratably over the term of the agreements. Billings to
customers recorded prior to the recognition of the revenue are classified as
deferred revenues. Revenue recognized prior to progress billings to customers is
recorded as unbilled receivables.
In September 2002, LanVision entered into a new five year Remarketing Agreement
with Siemens Medical Solutions Health Services Corporation to replace the then
existing agreement that was scheduled to expire in February 2003. Under the
terms of the new agreement, Siemens was granted a nonexclusive worldwide license
to market and distribute all of LanVision's software, as defined in the
Agreement.
Under the terms of the agreement, Siemens remits royalties to LanVision based
upon Siemens sublicensing of LanVision's software to Siemens' customers.
Twenty-five percent of the royalty is due 30 days following the end of the month
in which Siemens executes the end user license agreement with its customer.
LanVision recognizes this revenue upon receipt of the royalty statement. The
remaining seventy-five percent of the royalty is due 30 days following the end
of the month in which Siemens commences software implementation activities. The
Company records this revenue when the 75% payment due from Siemens is fixed and
determinable, which is usually when the software
12
implementation activities commence. Through October 31, 2002, Siemens has sold
twenty-two systems to end-users.
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 certain LanVision
Electronic Medical Record software including accessANYware(SM),
codingANYware(SM), and ASPeN application-hosting services to IDX customers and
prospective customers, as defined in the Remarketing Agreement.
Under the terms of a Remarketing Agreement, IDX remits royalties to LanVision
based upon IDX sublicensing LanVision's software to IDX's customers. Thirty
percent of the royalty is due 45 days following the end of the month in which
IDX executes an end-user license agreement with its customer. LanVision
recognizes this revenue upon receipt of the royalty report. The remaining
seventy percent of the royalty is due from IDX, in varying amounts based on
implementation milestones, 45 days following the end of the month in which a
milestone occurs. LanVision records this revenue when the seventy percent
payment due from IDX is fixed and determinable, which is generally when the
software implementation activities commence. The IDX Remarketing Agreement was
signed in January 2002. Through October 31, 2002, IDX has sold two systems to
end-users.
In May 2002, LanVision entered into a Marketing and Referral Agreement with the
3M Health Information Systems, division of 3M, whereby 3M and LanVision entered
into a referral marketing agreement for its new product codingANYware. Revenues
from this agreement are expected to begin, in 2003, after the general release of
codingANYware.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS
The Company's revenues from systems sales have varied, and may continue to vary,
significantly from quarter-to-quarter as a result of the volume and timing of
systems sales and delivery. Professional services revenues also fluctuate from
quarter to quarter as a result of the timing of the installation of software and
hardware, project management and customized programming. Revenues from
maintenance services do not fluctuate significantly from quarter to quarter, but
have been increasing as the number of customers increase. Revenues from ASP
application-hosting services operations are expected to increase over time, as
more hospitals outsource services to LanVision's ASPeN services division.
The Company's revenues and operating results may vary significantly from
quarter-to-quarter as a result of a number of other factors, many of which are
outside the Company's control. These factors include the relatively high
purchase price of a system, unpredictability in the number and timing of systems
sales, length of the sales cycle, delays in the installation process and changes
in the customer's financial condition or budget and the sales activities of the
remarketing partners. As a result, period-to-period comparisons may not be
meaningful with respect to the past operations of the Company nor are they
necessarily indicative of the future operations of the Company.
13
REVENUES
Revenues for the third fiscal quarter ended October 31, 2002, were $3,208,591,
compared with $3,385,029 reported in the comparable quarter of 2001. Revenues
for the nine months ended October 31, 2002, were $9,513,998, compared with
$8,196,335 reported in the comparable period of 2001. The decrease in the
quarter was due primarily from lower software revenues from Siemens, offset to
some extent by software and implementation revenues from IDX and added revenues
from existing clients who upgraded and/or expanded their systems. The increase
for the nine months is due to new sales from our new remarketing partner IDX,
and added revenues from existing clients who upgraded and/or expanded their
systems, which offset a reduction in revenues from our other remarketing partner
Siemens.
Revenues for the first nine months of fiscal 2001 and 2002 continued to be
affected because many healthcare organizations deferred new software purchases
until final Federal Health Privacy Regulations are promulgated, to comply with
the requirements of HIPAA (Health Insurance Portability and Accountability Act
of 1996, as amended).
Additionally, healthcare institutions are assessing and implementing many new
technologies. Although many of these systems do not compete with LanVision
products, these systems do compete for capital budget dollars and the available
time of information systems personnel within the healthcare industries. However,
management continues to believe that revenue from Remarketing and referral
Agreements will increase in the future as LanVision aggressively pursues
additional partners to utilize and or remarket its products. In addition, our
Web browser-based ASPeN services application, which is currently available and
in production with our customers and available through our Resellers, should
further enhance application-hosting revenues to LanVision with minimal
additional cost. Both our Remarketing and Reseller Agreements should represent a
greater percentage of the Company's total revenues in the future.
Many healthcare organizations are beginning to plan additional information
technology projects following Year 2000 remediation and in anticipation of HIPAA
compliance. The HIPAA Regulations are a series of standards that are intended to
regulate the way health information is secured and transmitted. A healthcare
industry report (Fitch IBCA, Duff & Phelps) stated that in order to comply with
the HIPAA healthcare information electronic transmission regulations, healthcare
systems will need to adjust existing systems or purchase new information
technology systems, hire and retrain staff, and make significant changes to the
current processes associated with maintaining patient privacy, the cost of which
is estimated to be somewhere between three to four times the amount of
expenditures required for Year 2000 remediation, or an amount in excess of $25
billion. LanVision believes its highly evolved, secure and technologically
advanced Web browser-based applications and ASPeN services solutions will
position the Company to take advantage of, what we continue to believe will be,
significantly increasing market opportunities for LanVision and its distribution
partners in the future.
14
After a license agreement is executed by LanVision, it does not record revenues
until it delivers the various components of software or hardware or performs the
agreed upon services. The commencement of revenue recognition varies depending
on the size and complexity of the system and the scheduling of the installation,
training, interface development and other services requested by the customer.
Accordingly, significant variations in revenues can result as was more fully
discussed above under "Uneven Patterns of Quarterly Operating Results". Three
customers, excluding our remarketing partners Siemens and IDX, accounted for
approximately 23%, or $2,185,015 of the revenues for the first nine months of
2002 compared with 22%, or $1,808,779 of revenues in the comparable period of
the prior year. Revenues from our remarketing partners accounted for
approximately 32% or $3,034,713 for the nine months ended October 31, 2002,
compared with approximately 28% or $2,315,360 for the nine months ended October
31, 2001. This increase in revenues resulted primarily from our newest partner,
IDX.
OPERATING EXPENSES
Cost of Systems Sales
The cost of systems sales includes amortization of capitalized software
development costs on a straight-line basis, royalties and the cost of third
party software and hardware. Cost of systems sales as a percentage of systems
sales may vary from period to period depending on the mix of hardware and third
party software and LanVision software of the systems or add-on sales delivered.
The cost of systems sales as a percentage of systems sales for the third quarter
of fiscal 2002 and 2001 were 20% and 14%, respectively and for the first nine
months of fiscal 2002 and 2001 were 23% and 17%, respectively. The higher
percentage of cost of sales for the quarter and first nine months reflects a
greater volume of hardware sold during the current periods compared to the
comparable prior periods.
Cost of Services, Maintenance and Support
The cost of services, maintenance and support includes compensation and benefits
for support and professional services personnel and the cost of third party
maintenance contracts. As a percentage of services, maintenance and support
revenues, the cost of such services, maintenance and support was 40% and 56% for
the third quarter and 45% and 53% for the first nine months, respectively, of
fiscal 2002 and 2001. The decrease in the percentages is due to greater
utilization of the professional services staff with little additional cost. The
Company's support margins are highest on LanVision's proprietary software.
Accordingly, services, maintenance and support margins are expected to improve
as more customers are added.
The LanVision Professional Services staff provides services on a time and
material or fixed fee basis. The Professional Services staff periodically
experiences some inefficiencies in the delivery of services, and certain
projects have taken longer to complete than originally estimated, thus adversely
affecting operating performance.
15
Additionally, the Professional Services staff does spend a portion of its time
on non-billable activities, such as assisting in the selling of additional
products and services to existing clients, developing training courses and plans
to move existing customers to LanVision's new product releases, etc. Management
believes an increase in the number of new systems sold, and the related backlog,
should improve the overall efficiency and operating performance of this group.
Cost of Application-hosting Services
The Company incurs expenses for its application-hosting services for the third
party outsourcing services it uses, which are directly related to some of the
application-hosting services revenues generated by the ASPeN services division
as well as the cost of the new data center that went on-line in October 2002.
The current cost of sales is approximately 65%, but is expected to decrease, in
fiscal year 2003, as the second application-hosting data center, which the
company has established, consolidates all of the ASPeN clients into the new data
center. This data center will have a relatively fixed cost rather than a totally
variable cost structure, which the Company now pays to the outsourcing service
bureau the Company currently use for some customers.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of: compensation
and related benefits and reimbursable travel and living expenses related to the
Company's sales, marketing and administrative personnel; advertising and
marketing expenses, including trade shows and similar type sales and marketing
expenses; and general corporate expenses, including occupancy costs. During the
third quarter of fiscal 2002, selling, general and administrative expenses
increased to $822,764 compared with $748,781 in the comparable prior quarter.
During the first nine months of fiscal 2002, selling, general and administrative
expenses increased to $2,572,838 compared with $2,087,494 in the comparable
prior period. The increase in Selling, General and Administrative expenses is
due to normal inflation and the increased cost to defend our intellectual
property rights in two matters initiated by the Company. [See Part II. Item 1
Legal Proceedings of this Form 10-Q.] In addition, the Company has gradually
increased or reallocated its resources to focus its sales efforts on indirect
distribution through its current and future Remarketing, Reseller, and ASPeN
services partners as well as increasing its directs sales efforts to accommodate
the increasing number of sales inquiries and opportunities available to the
Company. The increased emphases on indirect sales include additional personnel
assigned to LanVision's Corporate Development Group and increased travel and
living expenses as the pace of corporate development activities has increased.
The increase in direct selling costs includes additional travel and living and
increased trade show and advertising expenses. LanVision anticipates hiring a
new sales director to augment the existing small direct sales staff in order to
take advantages of the opportunities the Company believes are currently
available to it in the direct sales area. Also, the internal resources of
LanVision's Client Managers have been redirected to more concentrated selling
effort into our current installed base and less on managing professional
services engagements.
16
Accordingly, the costs associated with the Client Managers are now reported as
selling, general and administrative expenses rather than cost of professional
services.
Product Research and Development
Product research and development expenses consist primarily of: compensation and
related benefits; the use of independent contractors for specific development
projects; and an allocated portion of general overhead costs, including
occupancy. During the third quarter, research and development expenses were
$517,455 compared with $496,682 in the comparable prior quarter. During the
first nine months, research and development expenses were $1,567,288 compared
with $1,618,458 in the comparable prior period. The nine-month decrease results
from lower staff costs resulting from converting consultants to company
employees at lower costs, and increased capitalized software development costs
for the newest product codingANYware. The Company closely monitors and augments
its research and development staff, as necessary, to ensure the timely
development of new products. The Company capitalized, in accordance with
Statement of Financial Accounting Standards No. 86, $450,000 and $375,000 of
product research and development costs in the first nine months of fiscal 2002
and 2001. The capitalized costs during the first nine months of fiscal 2002
relate primarily to LanVision's two new products, accessANYware, and
codingANYware.
Operating income
The operating income for the third quarter of fiscal 2002 was $751,464 compared
with $1,000,596 in the third quarter of fiscal 2001, because of lower systems
sales, as discussed above. The operating income for the first nine months of
fiscal 2002 was $1,932,810 compared with $1,334,575 in the first nine months of
fiscal 2001, an improvement of approximately $598,000. The year-to-date increase
in the operating income results primarily from: (1) continued stringent cost
controls, (2) increased revenues of approximately $1,317,663, which occurred in
all revenue categories, offset by (3) higher cost of system sales because of a
higher content of hardware sales, with lower margins, and increased selling,
general and administrative expenses as discussed above.
Interest income consists primarily of interest on invested cash. The decreases
in interest income results from lower cash balances and significantly lower
interest rates.
Interest expense relates to the long-term debt. In connection with setting the
loan covenants for fiscal year 2002, the Company made an additional $500,000
special payment of the long-term deferred interest on March 13, 2002.
Net income
The net income for the third quarter of fiscal 2002 was $252,439 ($.03 per
share) compared with $498,257 ($.06 per share) in the third quarter of fiscal
2001. The net income for the first nine months of fiscal 2002 was $552,340 ($.06
per share) compared with $30,020 ($.00 per share) in the first nine months of
fiscal 2001. The improvement
17
in the year-to-date net income is the primarily the result of the increased
revenues as noted above.
Notwithstanding the less than anticipated number of new customer agreements
signed by the Company and its resellers in the past, management continues to
believe that the healthcare document imaging and workflow software applications
market is significant which, with the help of our existing and future partners,
will enable LanVision to capture a significant portion of the market. Management
believes it has made, and continues to make, the investments in the talent and
technology necessary to establish the Company as a leader in this marketplace,
and continues to believe the Company is well positioned to experience
significant revenue growth primarily through third party distributors and
remarketing partners.
Since commencing operations in 1989, the Company has incurred operating losses.
Although the Company is currently profitable, and achieved profitability in
fiscal years 1992, 1993, 2000 and 2001, the Company incurred a net loss in
fiscal years 1994 through 1999. In view of the Company's prior operating
history, there can be no assurance that the Company will be able to achieve
consistent profitability on a quarterly or annual basis or that it will be able
to sustain or increase its revenue growth in future periods. Notwithstanding
prior operating results, in eight of the last nine quarters the Company has been
profitable from operations and the Company believes that it can maintain such
profitability at its current expense levels and that it can also increase
revenues.
LIQUIDITY AND CAPITAL RESOURCES
During the last six fiscal years, LanVision has funded its operations, working
capital needs and capital expenditures primarily from the $34,000,000 in
proceeds of LanVision's 1996 Initial Public Offering, 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 and payments
from some organizations have been extended to meet their budgetary and cash
constraints. 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 $475,000,
payable over the next five years and Capitalized Leases with payments totaling
$696,352 over the next four years.
18
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 value of 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 value of the stock and the inherent value of the Warrants. The
current estimate of the maximum accrued and unpaid deferred interest obligation
at maturity, which would be required to be paid to the lender, assuming the
Warrants have no value, is approximately $5,300,000. 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 at that time. LanVision
believes that continued operating performance improvements should enable it to
fund a portion of the obligation and borrow the additional funds necessary to
fully retire the obligation at maturity. However, there can be no assurance
LanVision will be able to do so.
The long-term debt agreement requires LanVision to meet certain financial
covenants, including minimum levels of quarterly revenues, earnings before
interest and taxes, and net worth. The minimum financial covenants at January
31, 2003, for the fiscal year then ended, are as follows: revenues of
$11,500,000; earnings before interest and taxes of $2,300,000; and net worth of
$3,500,000.
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 are currently increasing. Accordingly, to continue to
achieve increasing profitability, and positive cash flow, it is necessary for
LanVision to increase revenues or 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 agreements should offer significant opportunities to increase
revenues. Additionally, the IDX and Siemens Remarketing Agreements, as
previously noted, have significantly expanded the sales distribution
capabilities of LanVision. 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.
At October 31, 2002, LanVision had cash and cash equivalents of $6,246,127. 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. Over the next twelve months, $2,000,000 of long-term debt is
required to be repaid to the lender.
19
LanVision has significantly reduced operating expenses during the last three
fiscal years and believes it will continue to improve operating results in
fiscal 2002 and beyond. Notwithstanding the increases in fiscal year 2001 and
the first nine months of fiscal 2002 of revenues and operating income, 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 October 31, 2002.
SIGNED AGREEMENTS - BACKLOG
LanVision, or its remarketing partners, enter into master agreements with their
customers to specify the scope of the system to be installed and services to be
provided, the agreed upon aggregate price and the timetable for implementation.
The master agreement typically provides that the Company, or its remarketing
partner, will deliver the system in phases pursuant to the customer's purchase
orders, thereby allowing the customer flexibility in the timing of its receipt
of systems and to make adjustments that may arise based upon changes in
technology or changes in customer needs. The master agreement also allows the
customer to request additional components as the installation progresses, which
additions are then separately negotiated as to price and terms. Historically,
customers have ultimately purchased systems and services in addition to those
originally contemplated by the master agreement. Although there can be no
assurance that customers will continue in the future to expand their systems and
purchase additional licenses and services, LanVision believes, based on its past
experience, that its customers will expand their existing systems.
At October 31, 2002, the Company's and its resellers' customers had entered into
master agreements for systems and services (excluding support and maintenance
and transaction based revenues for the ASPeN services division), which had not
yet been delivered, installed and accepted which, if fully performed, would
generate revenue to LanVision of approximately $4,337,000, compared with
approximately $4,417,000 at the end of fiscal 2001. The systems and services are
currently expected to be delivered over the next two to three years. In
addition, the Company anticipates approximately $1,000,000 in
application-hosting services revenues for the ASPeN services division's current
clients over the remaining lives of the current contracts. However, LanVision
has also received an interim Purchase Order to provide start up ASPeN services
to a new client, pending approval of a negotiated three-year agreement by the
new client's board. When the agreement receives approval, an estimated
additional $3,400,000 in application-hosting services revenues, over the next
three years, will be added to the backlog.
20
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 slightly 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 ASPeN services division. Therefore, LanVision is
unable to accurately predict the revenues it expects to achieve in any
particular period. The Company's master agreements generally provide that the
customer may terminate its agreement upon a material breach by the Company, or
may delay certain aspects of the installation. There can be no assurance that a
customer will not cancel all or any portion of a master agreement or delay
installations. A termination or installation delay of one or more phases of an
agreement, or the failure of the Company to procure additional agreements, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMMITMENTS AND CONTINGENCIES
Maintenance Agreements Warranties and Indemnities
LanVision has maintenance agreements to provide services in future periods after
the expiration of an initial warranty period. LanVision invoices customers in
accordance with the agreements and records the invoicing as deferred revenues
and recognizes the revenues ratably over the term of the maintenance agreements.
LanVision warrants to customers that its software will meet certain performance
requirements. LanVision also indemnifies its customers and remarketing partners
against certain claims in the normal course of business.
Application-hosting Services
LanVision enters into long-term agreements to provide document
imaging/management and workflow services to its healthcare customers on an
outsourced basis from a central data center. LanVision warrants to customers
that its hosting services will meet certain performance requirements.
Employment Agreements
LanVision has entered into employment agreements with its officers and employees
that generally provide annual salary, a minimum bonus, discretionary bonus,
stock incentive provisions, and severance arrangements.
Item 4. CONTROLS AND PROCEDURES
21
As of December 2, 2002, an evaluation was performed under the supervision and
with the participation of LanVision's senior management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of LanVision's disclosure controls and procedures. Based on
that evaluation, LanVision's management, including the Chief Executive and Chief
Financial Officer, concluded that LanVision's disclosure controls and procedures
were effective as of December 2, 2002 and there were no significant deficiencies
or material weaknesses. There have been no significant changes in LanVision's
internal control, or in the other controls that could significantly affect
internal controls subsequent to December 2, 2002.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
LanVision is a party to various legal proceedings and claims that 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 of these actions have asserted, and others 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 3. DEFAULTS ON SENIOR SECURITIES
The Company is not in default under its existing Loan Agreement.
Item 5. OTHER INFORMATION
Copies of documents filed by LanVision Systems, Inc. with the Securities and
Exchange Commission can be found at the website www.lanvision.com. Copies can be
down loaded free of charge.
22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of LanVision Systems, Inc. (*)
3.2 Bylaws of LanVision Systems, Inc. (*)
10 Reseller Agreement between Siemens Medical Solutions Health
Services Corporation and LanVision Systems, Inc. and LanVision,
Inc. entered into on September 12, 2002. (##)
10.1 Employment Agreement among LanVision Systems, Inc., LanVision,
Inc. and J. Brian Patsy effective February 1, 2002.
10.2 Employment Agreement among LanVision Systems, Inc., LanVision,
Inc. and Eric S. Lombardo effective February 1, 2002.
11 Computation of Earnings (Loss) Per Common Share
99.1 Certification by Chief Executive Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(*) Incorporated by reference.
(##) The Company has applied for Confidential Treatment of portions of this
agreement with the Securities and Exchange Commission.
(b) Reports on Form 8-K
None
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANVISION SYSTEMS, INC.
DATE: December 12, 2002 By: /s/ J. Brian Patsy
-------------------------------------
J. Brian Patsy
Chief Executive Officer and
President
DATE: December 12, 2002 By: /s/ Paul W. Bridge, Jr.
-------------------------------------
Paul W. Bridge, Jr.
Chief Financial Officer and Treasurer
24
CERTIFICATIONS
I, J. Brian Patsy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LanVision
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process,
25
summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
December 12, 2002 /s/ J. Brian Patsy
------------------------------
Chief Executive Officer and
President
26
I, Paul W. Bridge, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of LanVision
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process,
27
summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
December 12, 2002 /s/ Paul W. Bridge, Jr.
-----------------------
Chief Financial Officer and
Treasurer
28
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -------
3.1 Certificate of Incorporation of LanVision Systems, Inc. Previously filed with the Commission
and incorporated herein by reference from, the Registrant's Registration Statement on Form
S-1, File Number 333-01494, as filed with the Commission on April 15, 1996.
3.2 Bylaws of LanVision Systems, Inc. Previously filed with the Commission and incorporated
herein by reference from, the Registrant's Registration Statement on Form S-1, File Number
333-01494, as filed with the Commission on April 15, 1996.
10 * Reseller Agreement between Siemens Medical Solutions Health Services Corporation and
LanVision Systems, Inc. and LanVision, Inc. entered into on September 12, 2002.
10.1 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and J. Brian Patsy
effective February 1, 2002.
10.2 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Eric S. Lombardo
effective February 1, 2002.
11 Computation of Earnings (Loss) Per Common Share
99.1 Certification by Chief Executive Officer pursuant to U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* The Company has applied for Confidential Treatment of portions of this agreement with the
Securities and Exchange Commission.
# Management Contracts and Compensatory Arrangements
29