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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, 2004
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Number of shares of Registrant's Common Stock ($.01 par value per share)
issued and outstanding, as of December 1, 2004: 9,084,535.
1
TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)......................................................... 3
Condensed Consolidated Balance Sheets at October 31, 2004 and January 31, 2004.................................. 3
Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2004 and 2003... 5
Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2004 and 2003............. 6
Notes to Condensed Consolidated Financial Statements............................................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 11
Item 4. Controls and Procedures......................................................................................... 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................... 24
Item 3. Defaults Upon Senior Securities................................................................................. 25
Item 6. Exhibits........................................................................................................ 25
Signatures...................................................................................................... 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,
2004 2004
----------- -----------
Current assets:
Cash and cash equivalents (restricted by long-term debt agreement) $ 3,152,022 $ 6,227,236
Accounts receivable, net of allowance for doubtful
accounts of $400,000 and $400,000, respectively 1,495,538 2,386,723
Contract receivables 1,523,077 2,972,356
Prepaid expenses related to unrecognized revenue 74,369 32,224
Other 355,883 325,697
------------ ------------
Total current assets 6,600,889 11,944,236
Property and equipment:
Computer equipment 2,717,522 2,588,749
Computer software 971,907 812,591
Office furniture, fixtures and equipment 1,167,497 1,166,377
Leasehold improvements 157,492 157,492
------------ ------------
5,014,418 4,725,209
Accumulated depreciation and amortization (4,057,006) (3,672,442)
------------ ------------
957,412 1,052,767
Capitalized software development costs, net of accumulated
amortization of $3,074,978 and $2,600,228, respectively 1,964,951 1,689,701
Other, including deferred taxes 587,961 603,750
------------ ------------
$ 10,111,213 $ 15,290,454
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
(Unaudited) (Audited)
October 31, January 31,
2004 2004
------------ ------------
Current liabilities:
Accounts payable $ 279,546 $ 637,222
Accrued compensation 255,010 265,095
Accrued other expenses 665,365 928,097
Deferred revenues 1,774,053 2,357,531
Current portion of capitalized leases 208,070 220,199
Current portion of long-term debt 466,667 1,000,000
Accrued interest on long-term debt - 4,635,169
------------ ------------
Total current liabilities 3,648,711 10,043,313
Capitalized leases 16,481 168,121
Long-term debt 2,333,333 -
Stockholders' equity:
Convertible redeemable preferred stock, $.01 par value per share
5,000,000 shares authorized - -
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 9,083,201 and 9,030,032 shares issued, respectively 90,832 90,300
Capital in excess of par value 35,000,974 34,928,047
Accumulated (deficit) (30,979,118) (29,939,327)
------------ ------------
Total stockholders' equity 4,112,688 5,079,020
------------ ------------
$ 10,111,213 $ 15,290,454
============ ============
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 Nine Months
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -------------
Revenues:
Systems sales $ 65,387 $ 1,301,596 $ 517,737 $ 2,814,055
Services, maintenance and support 1,820,463 1,871,538 5,297,633 5,071,091
Application-hosting services 652,412 493,520 1,922,742 1,368,080
----------- ----------- ----------- -----------
Total revenues 2,538,262 3,666,654 7,738,112 9,253,226
Operating expenses:
Cost of systems sales 217,025 267,703 817,175 1,173,473
Cost of services, maintenance and support 675,548 749,208 2,067,029 2,079,625
Cost of application-hosting services 230,078 240,563 667,873 670,059
Selling, general and administrative 1,040,490 914,128 2,878,763 2,392,369
Product research and development 493,730 509,923 1,551,520 1,554,029
----------- ----------- ----------- -----------
Total operating expenses 2,656,871 2,681,525 7,982,360 7,869,555
----------- ----------- ----------- -----------
Operating income (loss) (118,609) 985,129 (244,248) 1,383,671
Other income (expense):
Interest income 16,933 10,851 56,127 47,201
Interest expense (54,725) (494,325) (851,671) (1,391,413)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (156,401) 501,655 (1,039,792) 39,459
Income taxes - (20,000) - (20,000)
----------- ----------- ----------- -----------
Net earnings (loss) $ (156,401) $ 481,655 $(1,039,792) $ 19,459
=========== =========== =========== ===========
Basic net earnings (loss) per common share $ (0.02) $ 0.05 $ (0.11) $ (0.00)
=========== =========== =========== ===========
Diluted net earnings (loss) per common share
$ (0.02) $ 0.05 $ (0.11) $ (0.00)
=========== =========== =========== ===========
Number of shares used in per common share computations:
Basic 9,082,494 9,011,131 9,062,221 8,989,303
=========== =========== =========== ===========
Diluted 9,082,494 9,219,150 9,062,221 9,195,854
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
5
LANVISION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31,
(Unaudited)
2004 2003
------------ -----------
Operating activities:
Net earnings (loss) $(1,039,792) $ 19,459
Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating
activities:
Depreciation and amortization 859,314 779,983
Increase (decrease) in long-term accrued interest - 1,104,613
Cash provided by (used for) provided by assets and liabilities:
Accounts and contract receivables 2,340,464 (365,510)
Other current assets (72,333) (108,526)
Accounts payable and accrued expenses (630,495) (1,292,454)
Deferred revenues (583,476) (320,923)
----------- -----------
Net cash provided by (used for) operating activities 873,682 (183,358)
----------- -----------
Investing activities:
Purchases of property and equipment (289,209) (191,424)
Capitalization of software development costs (749,997) (600,000)
Other 15,789 69,266
----------- -----------
Net cash (used for) investing activities (1,023,417) (722,158)
----------- -----------
Financing activities:
Repayment of long-term debt (1,700,000) (1,500,000)
Payment of long-term accrued interest (4,635,169) -
Proceeds from issuance of long-term debt 3,500,000 -
Payment of capitalized leases (163,769) (153,249)
Exercise of stock options and employee stock purchase plan 73,459 67,374
----------- -----------
Net cash (used for) financing activities (2,925,479) (1,585,875)
=========== ===========
(Decrease) in cash and cash equivalents (3,075,214) (2,491,391)
Cash and cash equivalents at beginning of period 6,227,236 7,242,230
----------- -----------
Cash and cash equivalents at end of period $ 3,152,022 $ 4,750,839
=========== ===========
Supplemental cash flow disclosures:
Interest paid $ 5,467,724 $ 254,005
=========== ===========
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 generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the Condensed Consolidated Financial
Statements have been included. These Condensed Consolidated Financial Statements
should be read in conjunction with the financial statements and notes thereto
included in the most recent LanVision Systems, Inc. Annual Report on Form 10-K,
Commission File Number 0-28132. Operating results for the three or nine months
ended October 31, 2004, are not necessarily indicative of the results that may
be expected for the fiscal year ending January 31, 2005.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is presented
beginning on page 37 of its fiscal year 2003 Annual Report to Stockholders on
Form 10-K. 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 2004.
Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES
The decrease in cash and cash equivalents results primarily from the payment of
the accrued interest on the long-term debt, and payments on the long-term debt.
The decrease in accounts receivable, net, is due to the seasonality of the
revenues, particularly system sales.
The decrease in contract receivables is due to the invoicing and collection of
receivables with deferred payment provisions.
Other current assets consist of software and hardware awaiting installation
(related to unrecognized revenue) and other prepaid expenses including
commissions.
7
The decrease in property and equipment, net, is primarily the result of the
acquisition of only replacement equipment and software offset by normal
depreciation and amortization.
Other non-current assets consist primarily of the deferred federal income tax
assets relating to the net operating loss carry forward.
The decrease in accounts payable results primarily from the payment during the
first quarter of invoices for hardware sales to new customers in late January.
The decrease in accrued other expenses results primarily from the decrease in
the accrual for professional fees and miscellaneous accruals and the payment of
certain estimated taxes and accrued liabilities subsequent to January 31, 2004.
The decrease in deferred revenues results primarily from the recognition of
revenue related to maintenance billings to customers recorded prior to revenue
recognition.
The October 31, 2004 current portion of long-term debt results from the issuance
of $3,500,000 of new working capital debt in the second quarter of 2004, net of
the final payment of $1,000,000 on the 1998 term loan made during the first two
quarters and the payment of $700,000 on the new loan in the third quarter. (See
Note 6, Contractual Obligations, Long-term Debt.)
The decrease in accrued interest on long-term debt results from the payment, at
maturity, of the deferred interest on the 1998 term loan.
The increase in long-term debt results from the proceeds from the issuance of
$3,500,000 of new working capital debt in the second quarter of 2004. (See Note
6, Contractual Obligations, Long-term Debt.)
Note 4 - STOCK OPTIONS
During the first nine months of the current fiscal year, the Company granted
10,000 stock options, at $2.80 under all Stock Option Plans. During the same
period, 6,000 options were forfeited and 31,701 options were exercised under all
plans during the first three quarters.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, establishes a fair value method of financial accounting and
reporting for stock-based compensation plans. LanVision elected to continue to
account for stock options under the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and, accordingly, has adopted the disclosure only provisions of
Statement 123. At October 31, 2004, LanVision had three stock-based compensation
plans, which are more fully disclosed in Note 7 of the Notes to Consolidated
Financial Statements in the Form 10-K for the Fiscal year ended January 31,
2004. No stock-based compensation cost is reflected in the net earnings (loss),
as all options granted under the plans had exercise prices equal to the fair
market value of the underlying common stock on the date of grant. The following
table illustrates the effect on net earnings and earnings per share as if
LanVision had
8
applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, to stock-based employee compensation.
Three Months Nine Months
----- ------ ---- ------
2004 2003 2004 2003
---- ---- ---- ----
Net earnings (loss), as reported $ (156,401) $ 481,655 $(1,039,792) $ 19,459
Deduct: Total stock based compensation
expense determined under the fair value
based methods for all awards, net of tax
related effects (16,605) (12,155) (47,730) (13,159)
----------- ----------- ----------- -----------
Pro forma net earnings (loss) $ (173,006) $ 469,500 $(1,087,522) $ 6,300
=========== =========== =========== ===========
Earnings (Loss) per share
Basic - as reported $ (0.02) $ 0.05 $ (0.11) $ (0.00)
=========== =========== =========== ===========
Basic - pro forma $ (0.02) $ 0.05 $ (0.11) $ (0.00)
=========== =========== =========== ===========
Earnings (Loss) per share
Diluted - as reported $ (0.02) $ 0.05 $ (0.11) $ (0.00)
=========== =========== =========== ===========
Diluted - pro forma $ (0.02) $ 0.05 $ (0.11) $ (0.00)
=========== =========== =========== ===========
The assumptions used to calculate the fair value of options granted are
evaluated and revised, as necessary, to reflect current market conditions and
prior experience.
Note 5 - EARNINGS PER SHARE
The basic net earnings (loss) per common share is calculated using the weighted
average number of common shares outstanding during the period.
The 2004 diluted net (loss) per common share calculation is based on the
weighted average number of common shares outstanding during the period. The
diluted net (loss) per common share calculation excludes common stock
equivalents (stock options and the employee stock purchase plan), as the
inclusion thereof would be antidilutive.
The 2003 diluted net earnings per common share calculation, for the third
quarter, is based on the weighted average number of common shares outstanding
adjusted for the dilutive effect of the common stock equivalents (stock options
and the employee stock purchase plan) of 208,019 shares. The 2003 diluted net
earnings per common share calculation, for the nine months, is based on the
weighted average number of common shares outstanding adjusted for the dilutive
effect of the common stock equivalents (stock options and the employee stock
purchase plan) of 206,551 shares. The Company had approximately 177,775 option
shares outstanding at October 31, 2003 that were not included in the third
quarter and nine months diluted net earnings per share calculation as the
inclusion thereof would be antidilutive.
9
Note 6 - CONTRACTUAL OBLIGATIONS
The following table details the remaining obligations, by fiscal year, as of the
end of the quarter for the capitalized leases, long-term debt, other commitments
and the operating leases.
Total 2004 2005 2006 2007 Thereafter
----- ---- ---- ---- ---- ----------
Capitalized leases $ 233,209 $ 59,973 $173,236 $ - $ - $ -
Long-term debt 2,800,000 - 466,667 1,166,667 1,166,666 -
Other commitments 50,000 25,000 25,000 - - -
Operating leases 1,700,294 71,465 224,179 292,433 308,467 803,750
---------- -------- -------- ---------- ---------- ----------
Total $4,783,503 $156,438 $889,082 $1,459,100 $1,475,133 $ 803,750
========== ======== ======== ========== ========== ==========
Capitalized Leases
During fiscal year 2002, LanVision acquired computer equipment and related
software for a new application-hosting services data center, which are accounted
for as capitalized leases. The amount of the leased assets by category is
computer equipment $372,705; computer software $196,799; and prepaid maintenance
and expenses $84,626, for a total of $654,130 in new assets. The leases are
payable monthly in installments of $19,991, through August 2005 and an
additional amount of $8,323, 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.
Long-term Debt
In July 2004, the LanVision entered into a new three year working capital term
loan agreement. The long-term debt of $3,500,000 is secured by all of the assets
of LanVision and the loan agreement restricts LanVision from incurring
additional indebtedness for borrowed money, including capitalized leases, etc.
without lender consent. The loan is repayable in three annual installments, and
interest is payable quarterly, at the bank prime rate plus 2% (currently 7%). In
addition, LanVision is required to meet certain financial covenants, including;
minimum level of tangible net worth, fixed charge coverage ratio and funded
indebtedness to earnings before interest, taxes, depreciation and amortization.
Also, LanVision has agreed to maintain a minimum cash balance of $2,000,000
through the maturity of the loan. LanVision complied with all of the provisions
of its loan agreements during the quarter except for the Funded Indebtedness to
EBITDA ratio of not greater than 1.50. At October 31, 2004 the ratio was 1.58
and the lender has granted a waiver of the requirement through the fiscal year
end. The balance of this debt is $2,800,000 at October 31, 2004.
Warrants
In connection with the 1998 long-term debt agreement, LanVision issued Warrants
to purchase 750,000 shares of Common Stock of LanVision at $3.87 per share at
any time through
10
July 16, 2008. The Warrants are subject to customary antidilution and
registration rights provisions.
Warranties and Indemnities
LanVision provides for the estimated cost of the product warranties at the time
revenue is recognized. Should products fail to meet certain performance
standards for an initial warranty period, LanVision's estimated warranty
liability might need to be increased. LanVision bases its warranty estimates on
the nature of any performance complaint, the effort necessary to resolve the
issue, customer requirements and any potential concessions, which may be
required to be granted to a customer, which result from performance issues.
LanVision's ASPeN application-hosting services guarantees specific "up-time" and
"response time" performance standards, which, if not met may result in reduced
revenues, as a penalty, for the month in which the standards are not met.
LanVision's standard agreements with its customers also usually include
provisions to indemnify them from and against third party claims, liabilities,
damages, and expenses arising out of LanVision's operation of its business or
any negligent act or omission of LanVision. To date, LanVision has always
maintained the ASPeN performance standards and has not been required to make any
material penalty payments to customers or indemnify any customers for any
material third party claims. At October 31, 2004 and January 31, 2004, LanVision
had a warranty reserve in the amount of $250,000. Each contract is reviewed
quarterly with the appropriate LanVision Client Manager to determine the need
for a warranty reserve based upon the most currently available information as to
the status of the contract, the customer comments, if any, and the status of any
open or unresolved issues with the customer.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information contained herein, this Quarterly Report on
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 LanVision to control costs,
availability of products obtained from third-party vendors, the healthcare
regulatory environment, healthcare information system budgets, availability of
healthcare information systems trained personnel for implementation of new
systems, as well as maintenance of legacy systems, fluctuations in operating
results, the impact of Section 404 of the Sarbanes-Oxley Act of 2002 from
failing to complete the required assessment, our registered public accounting
firm not timely attesting to our assessment, or difficulties in implementing new
or improved controls, and other risk factors that might cause such differences
including those discussed herein. 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
11
carefully review the risk factors described in other documents LanVision files
from time to time with the Securities and Exchange Commission, including
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
LanVision's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires LanVision
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent
liabilities. On an ongoing basis, LanVision evaluates its estimates, including
those related to product revenues, bad debts, capitalized software development
costs, income taxes, warranty obligations, support contracts, contingencies, and
litigation. LanVision bases its estimates on historical experience and on
various other assumptions that LanVision believes are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and revenue recognition. Actual
results may differ from these estimates under different assumptions or
conditions.
Current Regulatory Matters
The U. S. Department of Health and Human Services (HSS) has asked the Institute
of Medicine of the National Academy of Sciences to design a standardized model
of an electronic health record, in a move that may help spur nationwide
acceptance of Electronic Medical Records. The impact of such a change, if
implemented by HSS, on current LanVision products and services is unknown at
this time. However, LanVision believes that its software and systems are
sufficiently flexible to accommodate changing regulatory requirements. Also, in
April 2004, President Bush put forth the goal of establishing electronic medical
records for most Americans within 10 years. According to a Wall Street Journal
article dated April 27, 2004, a new national health-technology coordinator has
been appointed who reports to the Secretary of Health and Human Services. His
responsibility is specifically to create a plan to guide the highly fragmented
industry toward an interoperable electronic medical records system. The HSS
Secretary has also announced incentives for healthcare providers to speed up the
conversion to electronic medical records, with possible regional grants,
low-rate loans and various pilot programs. The Bush administration made $50
million available for electronic-records demonstration projects in 2004. The
President's 2005 budget doubles that amount to $100 million. As noted in a Wall
Street Journal article dated July 21, 2004, "Putting such a system in place can
cost a major hospital $20 million or more. HSS estimates that in the U.S., only
about 13% of hospitals have adopted electronic health records for patients. As a
result, the health-care industry lags far behind most other industries in using
computers."
President's Information Technology Advisory Committee
On June 30, 2004, the President's Information Technology Advisory Committee
issued its report entitled Revolutionizing Health Care Through Information
Technology, which focused on the "most fundamental and pervasive problem of
healthcare delivery: the paper-based medical record." In the report, they stated
"the potential of information technology to reduce the number
12
of medical errors, reduce cost, and improve patient care is enormous. The
essence of our recommendations is a framework for 21st century health care
information infrastructure that revolutionizes medical records systems. The four
core elements of this framework are:
1. Electronic health records for all Americans that provide every
patient and his or her caregivers the necessary information required
for optimal care while reducing costs and administrative overhead.
2. Computer-assisted clinical decision support to increase the ability
of health care providers to take advantage of state-of-the-art
medical knowledge as they make treatment decisions (enabling the
practice of evidenced-based medicine).
3. Computerized provider order entry - such as for tests, medicine, and
procedures - both for outpatient care and within the hospital
environment.
4. Secure, private, interoperable, electronic health information
exchange, including both highly specific standards for capturing new
data and tools for capturing non-standard-compliant electronic
information from legacy systems."
LanVision's current products and services can currently be used to implement
some of the recommendations or provide interim solutions to some of the aspects
recommended in items 1, 3 & 4 above, especially with regard to legacy,
paper-based, medical information, order entry systems, other than medication,
and security etc. of exchanging health information.
Based on the two Federal initiatives noted above, LanVision believes that its
product and services are able to support these and other similar initiatives,
and its products are currently available and installed at leading healthcare
facilities throughout the U.S.
RESULTS OF OPERATIONS
GENERAL
LanVision Systems, Inc. (LanVision(TM) or the Company) is a healthcare
information technology company focused on solutions that improve
document-centric information flows and complement existing transaction-centric
healthcare information systems. The Company's workflow and document management
solutions bridge the gap between current, predominantly paper-based processes
and transaction-based healthcare information systems by 1) electronically
capturing document-centric information from disparate sources, 2) electronically
directing that information through vital business processes, and 3) providing
access to the information to authenticated users (such as physicians, nurses,
administrative and financial personnel and payers) across the continuum of care.
The Company's workflow solutions and services offer solutions to specific
healthcare business processes within the revenue cycle, such as remote coding,
abstracting and chart completion, remote physician order processing,
pre-admission registration scanning, insurance verification, denial management,
secondary billing services, explanation of benefits processing and release of
information processing.
13
LanVision's products and services also create an integrated document-centric
repository of historical health information that is complementary and can be
seamlessly "bolted on" to existing transaction-centric clinical, financial and
management information systems, allowing healthcare providers to aggressively
move toward fully Electronic Medical Record processes while improving service
levels and convenience for all stakeholders. These integrated systems allow
providers and administrators to dramatically improve the availability of patient
information while decreasing direct costs associated with document retrieval,
work-in-process, chart completion, document retention and archiving.
LanVision's systems can be provided on a subscription basis via remote
application-hosting services or installed locally. LanVision provides its
ASPeN(SM), Application Service Provider-based remote hosting services to, among
others, The University Hospital, a member of The Health Alliance of Greater
Cincinnati, M.D. Anderson Cancer Center and Children's Medical Center of
Columbus, OH among others. In addition, LanVision has installed its workflow and
document management solutions at leading healthcare providers including, but not
limited to, Stanford Hospital and Clinics, the Albert Einstein Healthcare
Network, Beth Israel Medical Centers, the University of Pittsburgh Medical
Center, Medical University Hospital Authority of South Carolina, and Memorial
Sloan-Kettering Cancer Center.
LanVision's applications allow authenticated users, such as physicians, nurses,
administrative and financial personnel, and payers, with access to patient
healthcare information that exists in disparate systems across the continuum of
care and improve operational efficiencies through business process
re-engineering and automating labor-intensive and demanding paper environments.
LanVision's applications and services are complementary to existing clinical and
financial systems, and use document imaging and advanced workflow solutions to
ensure 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, laboratory 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 and utilize
LanVision's advanced technological workflow solutions to process the
document-centric information, on a real-time basis from virtually any location,
including the Physician's desktop, using Web-based technology. LanVision's
solutions integrate its own proprietary imaging platform, workflow solutions and
image and web-enabling tools that allow for the seamless merger of "back office"
functionality with existing Clinical and Financial Information Systems at the
desktop.
LanVision offers its own 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), Cerner
Corporation and IDX Information Systems Corporation (IDX)
14
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 Electronic Medical 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, and microfilm.
LanVision operates in one segment as a provider of health information technology
solutions that streamline document-centric information flows.
Historically, LanVision has derived most of its revenues from systems sales,
recurring application-hosting services, recurring maintenance fees and
professional services involving the licensing, either directly or through
remarketing partners, of its Medical Record and Revenue Cycle Management
solutions to Integrated Healthcare Delivery Networks (IDN). In a typical
transaction, LanVision, or its remarketing partners, enter into a perpetual
license or fee-for-service subscription agreement for LanVision's software
application 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 LanVision 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
solutions on an application-hosting basis as an Application Service Provider
(ASP). LanVision established a hosting data center and installed LanVision's
suite of solutions, called ASPeN (Application Service Provider eHealth Network)
within the hosting data center. Under this arrangement, customers electronically
capture information and securely transmit the data to the hosting data center.
The ASPeN services store and manage the data using LanVision's suite of
applications, and customers can view, print, fax, and process the information
from anywhere using the LanVision Web-based applications. LanVision charges and
recognizes revenue for these ASPeN services monthly on a per transaction or
subscription basis as information is captured, stored, retrieved and processed.
The decisions 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
15
installation schedule, which typically takes place in one or more phases. The
licensing 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 recurring subscription basis.
ASPeN services were 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 IDN's and smaller healthcare providers are looking 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
medium to small acute care facility marketplace as well as the ambulatory
marketplace and is actively pursuing remarketing agreements, in addition to
those discussed below, with other Healthcare Information Systems (HIS) and staff
outsourcing providers to distribute LanVision's workflow solutions.
Generally, revenues from systems sales are recognized when an agreement is
signed and products are made available to end-users. Revenue recognition related
to routine installation, integration and project management are deferred until
the work is performed. If an agreement requires LanVision to perform services
and modifications that are deemed significant to system acceptance, revenues are
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. Revenues recognized prior to progress billings to customers
are recorded as contract receivables.
LanVision has entered into third party agreements to market, remarket or refer
business to LanVision, including, in 2002, 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 all LanVision
software and ASPeN application-hosting services to IDX customers and prospective
customers, as defined in the Remarketing Agreement; and a Marketing and Referral
Agreement with the 3M Health Information Systems, a division of Minnesota Mining
& Manufacturing Co., whereby 3M Health Information Systems and LanVision entered
into a referral marketing agreement for its new product codingANYware.
LanVision's quarterly operating results have varied in the past and may continue
to do so in the future because of various reasons including: demand for
LanVision's products and services, long sales cycles, and extended installation
and implementation cycles based on customer's schedules.
16
Sales are often delayed because of customers' budgets and competing capital
expenditure needs as well as personnel resource constraints within an integrated
delivery network.
Delays in anticipated sales or installations may have a significant impact on
LanVision's quarterly revenues and operating results, because substantial
portions of the operating expenses are relatively fixed.
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 because of the volume and timing of
systems sales and delivery. Professional services revenues also fluctuate from
quarter to quarter because 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 ASP Division, or its
remarketing partners begin to utilize the software, and existing customers
increase its usage and or the volume of documents stored on the systems, and the
number of retrievals increase.
The Company's revenues and operating results may vary significantly from
quarter-to-quarter because of a number of other factors, many of which are
outside the Company's control. These factors include the relatively high
purchase price of a system, unpredictability in the number and timing of systems
sales, length of the sales cycle, delays in the installation process and changes
in the customer's financial condition or budget and the sales activities of the
remarketing partners. As a result, period-to-period comparisons may not be
meaningful with respect to the past operations of the Company nor are they
necessarily indicative of the future operations of the Company.
REVENUES
Revenues for the fiscal quarter ended October 31, 2004, were $2,538,262,
compared with $3,666,564 reported in the comparable quarter of 2003. Last year,
during the third quarter LanVision had $1,100,000 in new software licensing
revenues from a single agreement which a remarketing partner signed with a new
customer. The decrease was primarily the result of the lack of a similar large
agreement this year and the delayed purchasing decision on a significant new
customer sale still in negotiations, offset to some extent with increased
application-hosting revenues, when compared to the prior comparable period.
Revenues for the first nine months ended October 31, 2004, were $7,738,112,
compared with $9,253,226 reported in the comparable period of 2003. The decrease
was primarily the result of, as noted above, a decline in software licensing
revenues, and the delayed purchasing decision on a significant new customer sale
still in negotiations and which is anticipated will close in the
17
fourth quarter, offset to some extent with increased application-hosting
revenues, when compared to the prior comparable period.
Traditionally, the first two quarters are the most challenging because of the
historical seasonality of software licensing revenues, which the Company has
experienced in the past, with a greater portion of the annual revenues recorded
in the later two quarters.
The increase in the application-hosting revenues during the first three quarters
resulted from approximately $401,000 in increased revenues from existing clients
and approximately $153,000 in increased revenues from new clients when compared
to 2003.
OPERATING EXPENSES
Cost of Systems Sales
The cost of systems sales includes amortization of capitalized software
development costs on a straight-line basis, royalties and the cost of third
party software and hardware. Cost of systems sales as a percentage of systems
sales may vary from period to period depending on the mix of hardware and
software of the systems or add-on sales delivered.
The cost of systems sales, which is primarily amortization of capitalized
software during the quarter, as a percentage of systems sales for the third
quarter of fiscal 2004 and 2003 were 331% and 20%, respectively. The higher
percentage of cost of sales reflects lower software licensing revenues during
the current period compared to the comparable prior period.
The cost of systems sales, which is primarily amortization of capitalized
software during the first nine months, as a percentage of systems sales for the
first nine months of fiscal 2004 and 2003 were 157% and 42%, respectively. The
higher percentage of cost of sales reflects lower software and hardware revenues
during the current period compared to the comparable prior period.
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. The Company's support margins are highest on LanVision's
proprietary software. Accordingly, margins improve as more customers are added.
As a percentage of services, maintenance and support revenues, the cost of such
services, maintenance and support was 37% and 40% for the third quarter of
fiscal 2004 and 2003, respectively.
As a percentage of services, maintenance and support revenues, the cost of such
services, maintenance and support was 39% and 41% for the first nine months of
fiscal 2004 and 2003, respectively.
18
Cost of Application-hosting services
The cost of application-hosting services includes compensation and benefits for
hosting center personnel, the cost of third party maintenance contracts,
occupancy and depreciation on the hosting center equipment. The cost of
application-hosting services operations remained approximately the same for 2004
when compared to 2003, as the cost of providing these services is relatively
fixed.
As a percentage of application-hosting revenues, the cost of application-hosting
was 35% and 49% for the third quarter and first nine months of fiscal 2004 and
2003, respectively.
The current period's decline in the cost percentage reflects the higher revenues
from existing clients without a corresponding increase in operating costs.
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 2004, Selling, General and Administrative
expenses were $1,040,490 compared with $914,128 in the comparable prior period.
The increase was due primarily to increased trade show expenses and professional
fees.
During the first nine months of fiscal year 2004, Selling, General and
Administrative expenses were $2,878,763 compared with $2,392,369 in the
comparable prior period. The increase when compared with the comparable prior
period was primarily because of the increases noted above for the third quarter
and the reimbursement during the second quarter of the prior year of legal
expenses in conjunction with the settlement of certain litigation initiated by
LanVision to defend its intellectual property.
Demand for medical record technologies and healthcare information access systems
is growing and the frequency of requests for proposals received is increasing.
Accordingly, the Company has increased its selling expenses by approximately
$287,000 year-to-date when compared with the prior comparable period, primarily
for; increased personnel and benefits costs, increased travel and living
expenses and increased trade show expenses to take advantage of current market
opportunities.
Product Research and Development
19
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 $493,730
compared with $509,923 in the comparable prior quarter. The decrease results
primarily from additional staff associated with new Patient Financial Services
products under development in 2004 and reduced use of higher cost outside
contractors.
During the nine months, research and development expenses were $1,551,520
compared with 1,554,029 in the comparable prior period.
The Company monitors closely and augments its Research and Development staff, as
necessary, with outside contractors to assist with the development and testing
of new products. The Company capitalized, in accordance with Statement of
Financial Accounting Standards No. 86, approximately $250,000 and $200,000 of
product research and development costs in the third quarter of fiscal 2004 and
2003, respectively, and approximately $750,000 and $600,000 of product research
and development costs in the first nine months of fiscal 2004 and 2003,
respectively.
Operating income (loss)
The operating (loss) for the third quarter of fiscal 2004 was ($118,609)
compared with operating income of $985,129 in the third quarter of fiscal 2003.
The decrease in operating income is primarily the result of a decline in system
sales software licensing revenues in the current quarter, as noted above.
The operating (loss) for the first nine months of fiscal year 2004 was
($244,248) compared with operating income of $1,383,671 in the first nine months
of 2003. The decrease results primarily from a decrease in system sales software
licensing revenues and the increase in selling, general and administrative
expenses, as discussed above.
Interest income consists primarily of interest on invested cash. The change in
interest income results from changes in the cash balances and interest rates.
Interest expense for the quarter and year to date declined as a result of the
repayment in July, 2004 of the high interest rate 1998 debt, which was replaced
with a new working capital term-loan at a significantly reduced interest rate.
See Note 6 to the Financial Statements for additional information on the working
capital term-loan.
Net earnings (loss)
The net (loss) for the third quarter of fiscal 2004 was ($156,401) ($0.02 loss
per share) compared with a net earnings of $481,655 ($0.05 earnings per share)
in the third quarter of fiscal 2003.
20
This decrease results primarily from a decrease in system sales software
licensing revenues in the current quarter as noted above.
The net (loss) for the first nine months of fiscal year 2004 was ($1,039,792) or
($0.11 loss per share) compared with net earnings of $19,459 or $0.00 per share
loss in the first nine months of fiscal year 2003. This decrease is primarily
the result of primarily lower revenues as noted above.
Notwithstanding the less than anticipated number of new customer agreements
signed by the Company and its resellers in the first three quarters, management
continues to believe that the healthcare document imaging and workflow solutions
market is going to be a significant market. Management believes it has made, and
continues to make, the investments in the technologies necessary to establish
the Company as a leader in this marketplace, and continues to believe the
Company is well positioned to experience significant revenue growth primarily
through third party distributors and remarketing partners.
Since commencing operations in 1989, the Company has incurred operating losses.
Although the Company achieved profitability in fiscal years 1992, 1993, and 2000
through 2003, the Company incurred a net (loss) in fiscal years 1994 through
1999. In view of the Company's prior operating history, there can be no
assurance that the Company will be able to achieve consistent profitability on a
quarterly or annual basis or that it will be able to sustain or increase its
revenue growth in future periods. Based upon the expenses associated with
current and planned staffing levels, profitability is dependent upon increasing
revenues.
LIQUIDITY AND CAPITAL RESOURCES
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 the 1998 and 2004 loans. LanVision's liquidity is
dependent upon numerous factors including the timing and amount of revenues and
collection of contractual amounts from customers, amounts invested in research
and development and capital expenditures, and the level of operating expenses.
LanVision's customers typically have been well-established hospitals or medical
facilities or major Healthcare Information Systems companies that resell
LanVision' products which have good credit histories and payments are received
within normal time frames for the industry. However, some healthcare
organizations have experienced significant operating losses because 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 as
noted in note 6 to the financial statements included herein.
21
Over the last four years, 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 four
years. Although LanVision has controlled expenses, increased revenues and
improved operating performance in the prior four fiscal years, LanVision's
expenses will continue to increase. 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 compliant with the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), the IDX Information Systems
Corporation Remarketing Agreement and the 3M Marketing and Referral Agreement
should offer significant opportunities to increase revenues. 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 July, 2004 the Company retired its existing high interest 1998 debt and the
associated deferred interest. Based on the current prime rate and the
anticipated outstanding loan balance during the second half of the current
fiscal year, the anticipated interest expense will be $110 thousand compared
with $955.8 thousand in the second half of the prior fiscal year or a reduction
in interest expense of $845.8 thousand, or approximately $0.09 per share, pre
tax, for the second half of the current fiscal year. For the next fiscal year
(2005), the annual interest expense is anticipated to be approximately $148
thousand compared with $907 thousand anticipated for the current fiscal-year
(2004), or a reduction of approximately $759 thousand in interest expense.
As discussed in footnote 6 to the enclosed financial statements, in July 2004,
LanVision entered into a new three year working capital term loan agreement. The
remaining long-term debt of $2,800,000 is secured by all of the assets of
LanVision and the loan agreement restricts LanVision from incurring additional
indebtedness for borrowed money, including capitalized leases, etc. without
lender consent. The loan is repayable in three annual installments, and interest
is payable quarterly, at the bank prime rate plus 2% (currently 7%). In
addition, LanVision is required to meet certain financial covenants, including
minimum level of tangible net worth, fixed charge coverage ratio and funded
indebtedness to earnings before interest, taxes, depreciation and amortization.
Also, LanVision has agreed to maintain a minimum cash balance of $2,000,000
through the maturity of the loan.
At October 31, 2004, LanVision had cash of $3,152,022. By July 30, 2005, a total
of $466,667 of long-term debt is still required to be repaid to the lender.
LanVision has the option of when and how much to repay prior to July 30, 2005,
and can make prepayments at any time to satisfy the annual repayment requirement
without penalty.
LanVision has carefully monitored operating expenses during the last five fiscal
years, and believes it will continue to improve operating results in the future.
Notwithstanding the level of revenues and operating profits in fiscal years 2001
through 2003, for the near future, LanVision will need to assess continually 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
22
assurance LanVision will be successful in any of these efforts. If it is
necessary to reduce significantly operating expenses, this could have an adverse
effect on future operating performance.
LanVision believes that its present cash position, combined with cash generation
anticipated from operations, will be sufficient to meet anticipated cash
requirements during fiscal year 2004.
To date, inflation has not had a material impact on LanVision's revenues or
expenses. In addition, LanVision does not have any significant market risk
exposure at October 31, 2004.
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, 2004, 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
application-hosting services) which have not been delivered, installed and
accepted which, if fully performed, will generate future revenues of
approximately $2,500,000. The related products and services are expected to be
delivered over the next two to three years. Furthermore, LanVision has entered
into application-hosting agreements, which are expected to generate revenues in
excess of $1,525,000, through their respective renewal dates in fiscal 2005
through 2007.
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 2003, 2002 and 2001 were approximately $4,712,000,
$4,176,000 and $4,032,000, respectively. Maintenance and support revenues are
expected to increase in 2004. At October 31, 2004, LanVision had Maintenance
Agreements, purchase orders or royalty reports from remarketing partners for
maintenance, which if fully performed, will generate future revenues of
approximately $3,071,000, through their respective renewal dates in fiscal 2005
and 2006.
23
The commencement of revenue recognition varies depending on the size and
complexity of the system; the implementation schedule requested by the customer,
and the usage by customers of the application-hosting services. Therefore,
LanVision is unable to predict accurately 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 a 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.
Item 4. Controls and Procedures
LanVision maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in LanVision's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to LanVision's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-15(e). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As of the end of the period covered by this report, 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 the end of
the period covered by this report. There have been no significant changes in
LanVision's internal control or in the other controls that could significantly
affect internal controls subsequent to the date LanVision completed its
evaluation. Therefore, no corrective actions were taken.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
LanVision is a party to various legal proceedings and claims, which arise, in
the ordinary course of business from time to 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.
24
Item 3. DEFAULTS ON SENIOR SECURITIES
The Company is not in default under its existing Loan Agreements.
Item 6. EXHIBITS
Exhibits
3.1 Certificate of Incorporation of LanVision Systems, Inc. (*)
3.2 Bylaws of LanVision Systems, Inc. (*)
11 Computation of Earnings (Loss) Per Common Share
31.1 Certification of Chief Executive Officer pursuant to Rule 13a -14(a)
and Rule 15d - 14(a) of the Securities Exchange Act, as Amended
31.2 Certification of Chief Financial Officer pursuant to Rule 13a -14(a)
and Rule 15d - 14(a) of the Securities Exchange Act, as Amended
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
(*) Incorporated 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.
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 9, 2004 By: /s/ J. BRIAN PATSY
-------------------------------------
J. Brian Patsy
Chief Executive Officer and President
25
DATE: December 9, 2004 By: /s/ PAUL W. BRIDGE, JR.
-------------------------------------
Paul W. Bridge, Jr.
Chief Financial Officer and Treasurer
26
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
3.1 Certificate of Incorporation of LanVision Systems, Inc.
Previously filed with the Commission and
incorporated herein by reference from, the
Registrant's Registration Statement on Form S-1,
File Number 333-01494, as filed with the Commission
on April 15, 1996.
3.2 Bylaws of LanVision Systems, Inc.
Previously filed with the Commission and
incorporated herein by reference from, the
Registrant's Registration Statement on Form S-1,
File Number 333-01494, as filed with the Commission
on April 15, 1996.
11 Computation of Earnings (Loss) Per Common Share
31.1 Certification of Chief Executive Officer pursuant to
Rule 13a -14(a) and Rule 15d - 14(a) of the
Securities Exchange Act, as Amended
31.2 Certification of Chief Financial Officer pursuant to
Rule 13a -14(a) and Rule 15d - 14(a) of the
Securities Exchange Act, as Amended
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
27