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, 2003 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 October 31, 2003: 9,012,732. 1
TABLE OF CONTENTS Page Part I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements....................................................... 3 Condensed Consolidated Balance Sheets at October 31, 2003 and January 31, 2003.................... 3 Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2003 and 2002..................................................................................... 5 Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2003 and 2002.............................................................................................. 6 Notes to Condensed Consolidated Financial Statements.............................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 12 Item 4. Controls and Procedures........................................................................... 22 Part II. OTHER INFORMATION Item 1. Legal Proceedings................................................................................. 23 Item 3. Defaults on Senior Securities..................................................................... 23 Item 6. Exhibits and Reports on Form 8-K.................................................................. 24 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, 2003 2003 ---- ---- Current assets: Cash and cash equivalents (restricted by long-term debt agreement) $ 4,750,839 $ 7,242,230 Accounts receivable, net of allowance for doubtful accounts of $400,000, respectively 2,833,755 1,499,767 Contract receivables 2,106,118 3,074,596 Prepaid expenses related to unrecognized revenue 31,166 79,214 Other 403,540 246,966 -------------- ------------- Total current assets 10,125,418 12,142,773 Property and equipment: Computer equipment 2,484,920 2,351,203 Computer software 789,351 743,204 Office furniture, fixtures and equipment 1,161,551 1,153,934 Leasehold improvements 157,492 153,549 -------------- ------------- 4,593,314 4,401,890 Accumulated depreciation and amortization (3,542,926) (3,137,943) -------------- ------------- 1,050,388 1,263,947 Capitalized software development costs, net of accumulated amortization of $2,475,228 and $2,100,228, respectively 1,614,701 1,389,701 Installment receivables 433,339 433,339 Other 38,050 107,316 -------------- ------------- $ 13,261,896 $ 15,337,076 ============== ============= 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, 2003 2003 ---- ---- Current liabilities: Accounts payable $ 338,131 $ 721,402 Accrued compensation 285,551 308,658 Accrued other expenses 506,081 1,392,157 Deferred revenues 1,899,460 2,220,383 Current portion of capitalized leases 216,571 206,051 Current portion of long-term debt 1,500,000 2,000,000 Accrued interest on long-term debt 4,237,982 - ------------- -------------- Total current liabilities 8,983,776 6,848,651 Capitalized leases 224,551 388,320 Long-term debt - 1,000,000 Long-term accrued interest on long-term debt - 3,133,369 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, 9,012,732 and 8,959,004 shares issued, respectively 90,127 89,590 Capital in excess of par value 34,902,476 34,835,639 Accumulated (deficit) (30,939,034) (30,958,493) ------------- -------------- Total stockholders' equity 4,053,569 3,966,736 ------------- -------------- $ 13,261,896 $ 15,337,076 ============= ============== 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 ------------- ----------- 2003 2002 2003 2002 ---- ---- ---- ---- Revenues: Systems sales $1,301,596 $1,274,820 $2,814,055 $3,947,325 Services, maintenance and support 1,871,538 1,634,525 5,071,091 4,880,297 Application-hosting services 493,520 299,246 1,368,080 686,376 ---------- ---------- ---------- ---------- Total revenues 3,666,654 3,208,591 9,253,226 9,513,998 Operating expenses: Cost of systems sales 267,703 260,934 1,173,473 904,838 Cost of services, maintenance and support 749,208 660,790 2,079,625 2,198,711 Cost of application-hosting services 240,563 195,184 670,059 337,513 Selling, general and administrative 914,128 822,764 2,392,369 2,572,838 Product research and development 509,923 517,455 1,554,029 1,567,288 ---------- ---------- ---------- ---------- Total operating expenses 2,681,525 2,457,127 7,869,555 7,581,188 ---------- ---------- ---------- ---------- Operating income 985,129 751,464 1,383,671 1,932,810 Other income (expense): Interest income 10,851 32,725 47,201 90,477 Interest expense (494,325) (518,750) (1,391,413) (1,470,947) ---------- ---------- ---------- ---------- Earnings before income taxes 501,655 265,439 39,459 552,340 Income taxes (20,000) (13,000) (20,000) - ---------- ---------- ---------- ---------- Net earnings $ 481,655 $ 252,439 $ 19,459 $ 552,340 ========== ========== ========== ========== Basic net earnings per common share $ .05 $ .03 $ .00 $ .06 ========== ========== ========== ========== Diluted net earnings per common share $ .05 $ .03 $ .00 $ .06 ========== ========== ========== ========== Number of shares used in per common share computations: Basic 9,011,131 8,945,338 8,989,303 8,929,250 ========== ========== ========== ========== Diluted 9,219,150 9,174,550 9,195,854 9,197,401 ========== ========== ========== ========== See Notes to Condensed Consolidated Financial Statements. 5
LANVISION SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended October 31, (Unaudited) 2003 2002 ---- ---- Operating activities: Net earnings $ 19,459 $ 552,340 Adjustments to reconcile net earnings to net cash (used for) provided by operating activities: Depreciation and amortization 779,983 536,159 Increase in long-term accrued interest 1,104,613 527,021 Cash (used for) provided by assets and liabilities: Accounts and contract receivables (365,510) (1,652,872) Other current assets (108,526) 40,889 Accounts payable and accrued expenses (1,292,454) 128,351 Deferred revenues (320,923) 567,233 ----------- ----------- Net cash (used for) provided by operating activities (183,358) 699,121 ----------- ----------- Investing activities: Purchases of property and equipment (191,424) (422,572) Capitalization of software development costs (600,000) (450,000) Other 69,266 37,652 ----------- ----------- Net cash (used for) investing activities (722,158) (834,920) ----------- ----------- Financing activities: Repayment of long-term debt (1,500,000) (1,500,000) Payment of capitalized leases (153,249) (21,539) Exercise of stock options and employees stock purchase plan 67,374 38,412 ----------- ----------- Net cash (used for) financing activities (1,585,875) (1,483,127) =========== =========== (Decrease) in cash and cash equivalents (2,491,391) (1,618,926) Cash and cash equivalents at beginning of period 7,242,230 7,865,053 ----------- ----------- Cash and cash equivalents at end of period $ 4,750,839 $ 6,246,127 =========== =========== Supplemental cash flow disclosures: Interest paid $ 254,005 $ 909,333 =========== =========== 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 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, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2004. Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting policies is presented beginning on page 34 of its 2002 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 2003. Note 3 - CHANGES IN BALANCE SHEET ACCOUNT BALANCES The $2,491,391 decrease in cash and cash equivalents results primarily from the payment of $1,653,249 in long-term debt and capitalized leases and $600,000 in capitalized software development costs during the first nine months of the fiscal year. The increase in accounts receivable is due to the timing of recent large sales through a reseller. The decrease in contract receivables is due to invoicing of contracts with deferred payment provisions and the write off of contract receivables relating to certain end users that have ceased implementation of their contracted systems licensed through a reseller. Other current assets consist of software and hardware awaiting installation (related to unrecognized revenue) and prepaid expenses, including commissions. 7
The decrease in property and equipment, net, is primarily the result of the acquisition of replacement equipment and software necessary to support current customers, offset by normal depreciation and amortization. The decrease in accounts payable results primarily from the payment of invoices for hardware sales to new customers recorded in late January 2003. The decrease in accrued compensation results primarily from the decrease in the accrual for quarterly bonuses payable under the employee bonus plans. The decrease in accrued other expenses relates to the settlement of certain accrued obligations relating to contract receivables where certain end users that have ceased implementation of their systems licensed through a reseller. The decrease in deferred revenues results from the recognition of revenue related to billings to customers recorded prior to revenue recognition. The increase in accrued interest on long-term debt results from the normal increase in the deferred interest payable under the loan. The long-term accrued interest has been classified as a current liability as the amount is due and payable in July 2004. See also long-term debt Note 6. Note 4 - STOCK OPTIONS During the first nine months of the current fiscal year, the Company granted 47,500 options under all Stock Option Plans. During the same period, 3,834 options were forfeited under all plans and 35,667 options were exercised under all plans during the first nine months. 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, 2003, 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, 2003. No stock-based compensation cost is reflected in the net earnings, 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 applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, to stock-based employee compensation. 8
Three Months Nine Months --------------------------- ---------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net earnings, as reported $ 481,655 252,439 $ 19,459 $ 552,340 Deduct: Total stock based compensation expense determined under the fair value based methods for all awards, net of tax related effects (12,139) (54) (13,143) (24,273) ---------- ---------- --------- --------- Pro forma net earnings $ 469,516 $ 252,385 $ 6,316 $ 528,067 ========== ========== ========= ========= Earnings per share Basic - as reported $ 0.05 $ 0.03 $ 0.00 $ 0.06 ========== ========== ========= ========= Basic - pro forma $ 0.05 $ 0.03 $ 0.00 $ 0.06 ========== ========== ========= ========= Earnings per share Diluted - as reported $ 0.05 $ 0.03 $ 0.00 $ 0.06 ========== ========== ========= ========= Diluted - pro forma $ 0.05 $ 0.03 $ 0.00 $ 0.06 ========== ========== ========= ========= 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 per common share is calculated using the weighted average number of common shares outstanding during the period. The 2003 diluted net earnings per common share calculation, 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 in the third quarter and 206,551 shares in the first nine months of 2003. The Company had approximately 177,775 option shares outstanding at October 31, 2003 that were not included in the diluted net earnings per share calculations as the inclusion thereof would be antidilutive. The 2002 diluted net income per common share calculation, 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 229,212 shares in the third quarter and 268,151 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 earnings per share calculations as the inclusion thereof would be antidilutive. 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, accrued interest on the long-term debt and the operating leases. 9
2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- Capitalized leases $ 59,974 $ 239,895 $ 173,234 $ - $ - Long-term debt 500,000 1,000,000 - - - Accrued interest, assuming no Warrant value (see below) - 5,238,618 - - - Operating leases 73,221 86,158 10,077 5,690 - ---------- ---------- ---------- ---------- ------ Total $ 633,195 $6,564,671 $ 183,311 $ 5,690 $ - ========== ========== ========== ========== ====== 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 The long-term debt of $1,500,000 and the accrued interest on the long-term debt of $4,237,982, is secured by all of the assets of LanVision and the loan agreement, as amended, restricts LanVision from incurring additional indebtedness for borrowed money, including capitalized leases, limits certain investments, restricts substantial asset sales, capital expenditures, cash dividends, stock repurchases, and mergers and consolidations with unaffiliated entities without lender consent. In addition, LanVision is required to meet certain financial covenants, including minimum levels of revenues, earnings, and net worth. In addition, the loan agreement requires LanVision to maintain a minimum cash balance of $3,800,000, through the maturity of the loan in July 2004. LanVision complied with all of the provisions of the loan agreement during the quarter. LanVision believes that it will be able to comply with all of its covenants for the remainder of fiscal year 2003, and the likelihood of defaulting on the debt covenants is not likely absent any material adverse events that may affect the Company, the healthcare industry or our market. In the past, LanVision has requested, and the lender has granted, waivers of certain debt covenants. However, our expectations of future operating results and continued compliance with the debt covenants cannot be assured and the lenders' actions are not controllable by us. If the projections of future operating results are not achieved and the debt is placed in default, LanVision would experience a material adverse impact on the reported financial position and results of operations. 10
In connection with the issuance of the long-term debt, LanVision issued Warrants to purchase 750,000 shares of Common Stock of LanVision at $3.87 per share at any time through July 16, 2008. The Warrants are subject to customary antidilution and registration rights provisions. Under the terms of the long-term debt agreement, LanVision has guaranteed the lender that the increase in the market value of the stock underlying the Warrants, at the time of loan maturity, over the exercise price plus the 12% interest paid on the loan will yield the lender a 25% compound annual return. If the yield from the Warrants plus interest paid does not provide the lender with the 25% guaranteed compound annual return, LanVision is required to pay the additional amount in cash at the time of maturity. Accordingly, LanVision is accruing interest on the loan at a 25% compound interest rate, regardless of the market value of the stock and the inherent value of the Warrants. Assuming that the Warrants have no value, the maximum amount of the accrued and unpaid interest at maturity in July 2004 will be $5,238,618. In accordance with U. S. Generally Accepted Accounting Principles (GAAP), the accrued and unpaid interest payable on the debt, which is due and payable in July 2004, is classified as a current liability notwithstanding the fact that LanVision intends to refinance some or all of this liability with a new loan. However, because LanVision has not negotiated such refinancing and not entered into a refinancing agreement as of the balance sheet date, the liability for the accrued interest on the long-term debt, as required by GAAP, is classified as a current liability. The Company has received a nonbinding expression of interest to refinance our existing debt, in July 2004, at an attractive interest rate. The Company is continuing to seek additional sources to refinance this debt with the ultimate goal of retiring it completely, as quickly as practicable. 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. Some LanVision software license agreements and the ASPeN(SM) application-hosting services guarantees specific "up-time" and "response time" performance standards, which, if not met may result in software license revenue refunds or reduced application-hosting revenues as a penalty for the month in which the standards are not met for application-hosting customers. 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 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. Each contract is reviewed quarterly with the appropriate LanVision Client Manager to determine the need for a 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. 11
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 Company's ability to refinance the long-term debt and deferred interest at maturity, 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 obtained 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 Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 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 on-going 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 to design a standardized model of an electronic health record, in a move that may help spur nationwide acceptance of Electronic Medical Records. The tentative date for the completed design is 2004. The impact of such 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. 12
RESULTS OF OPERATIONS GENERAL LanVision Systems, Inc. (LanVision(TM) or the Company) is a leading supplier to the healthcare industry of workflow and document imaging-based tools, applications and services assisting strategic business partners, healthcare organizations and customers to create and improve operational efficiencies through business process re-engineering and automating labor-intensive and demanding paper environments. The Company's workflow-based 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, secondary billing services, explanation of benefits processing and release of information processing. All solutions are available to license or via an application service provider (ASP) model to match customers' capital or operating budget needs. LanVision's products and services create an integrated repository of historical health information that is complementary and can be seamlessly "bolted on" to existing clinical, financial and management information systems, providing convenient electronic access to all forms of patient information from any location, including web-browser based access via the Intranet/Internet. These integrated systems allow providers and administrators to improve dramatically the availability of patient information while decreasing direct costs associated with document retrieval, workflow processing, completion, retention and archiving. LanVision's Web based applications leverage the availability of the Internet and Intranets to 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. LanVision's software application products and services use document imaging and advanced workflow tools 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, 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 utilize LanVision's accessANYware(TM) a technologically advanced medical record workflow solution and health information repository to process the information, on a real-time basis, from virtually any location, including the physician's desktop, using Web-based technology. Web access to the entire medical record repository improves physician and administrative personnel productivity, allows for multiple simultaneous access to the records necessary to review and complete, using completionANYware(TM), the information necessary to process claims for payment, using codingANYware(TM), and reduces administrative costs such as filing, storage, retrieval, using accessANYware and releaseANYware(TM) and reduces the cost of maintaining medical records and reduces clinical costs, such as redundant diagnostic testing. Throughout the current fiscal year, LanVision has introduced several new workflow products that positively impact the revenue cycle, including the following: 13
- ORDERS MANAGEMENT WORKFLOW(TM), automated solution that reduces the paper chase by capturing and routing "off-network" physician orders and other documents directly from the physician's office to the scheduler's desktop. - FINANCIAL SCREENING WORKFLOW(TM), provides verification of patient's financial responsibilities and allows enterprise wide on-line access to important documents required in the financial decision process. - EOB 835 PROCESSING(TM), automates the capture and extraction of vital Explanation of Benefit data from existing printed invoices, forms and other documents, and validates the information to create an ASCII file for export to billing systems. - INSURANCE VERIFICATION WORKFLOW(TM), automatically scans insurance cards to capture payor information at the point of registration and establishes workflow routes for timely verification of benefits, insuring timely payment of bills. - ACCESSANYWARE - PATIENT FINANCIAL SERVICES EDITION, provides enterprise wide on-line access to non-medical record documents including EOB's, Remittance Advice, Policies and Procedures and other Patient Financial Services documents within the heath care enterprise. LanVision's solutions integrate a document imaging platform, application workflow 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 IDX Information Systems Corporation, Cerner Corporation and Siemens Medical Solutions Health Services Corporation 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 Health Record (EHR). 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. Historically, LanVision has derived most of its revenues from systems sales and professional services involving the licensing, either directly or through remarketing partners, of its Medical Record Workflow solutions to Integrated Healthcare Delivery Networks (IDN). In a typical transaction, LanVision, or its remarketing partners, enter into a perpetual or term license or fee- 14
for-service 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 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 workflow solutions on an application-hosting basis as an Application Service Provider. LanVision established a hosting data center and installed LanVision's suite of workflow products, called ASPeN(SM) (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 on a per transaction or subscription basis as information is captured, stored, retrieved and processed. 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, LanVision continued to use this data center through January 2003. In August 2002, LanVision established a new application-hosting data center in order to provide the capacity for all of its ASPeN services clients and into which it has consolidated its existing ASPeN application-hosting services. Approximately $964,000 in new hardware and third-party software was leased or purchased, in fiscal year 2002 and 2003, 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 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 15
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. ASPeN services 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 workflow solutions. 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. 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 ASP Division, or its remarketing partners begin to utilize the software, and existing customers increase 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 16
operations of the Company nor are they necessarily indicative of the future operations of the Company. REVENUES Revenues for the third fiscal quarter ended October 31, 2003, were $3,666,654, compared with $3,208,591 reported in the comparable quarter of 2002. The increase was primarily a result of increased services, maintenance and support as new systems were installed and increased application-hosting revenues from new customers. Revenues for the first nine months ended October 31, 2003, were $9,253,226, compared with $9,513,998 reported in the comparable period of 2002. The decrease was primarily a result of a decline in system sales "software licensing revenues" when compared to the comparable prior period which was offset to some extent by the almost 100% increase in application-hosting revenues from new customers. Traditionally, the first two quarters are the most challenging because of the 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. However, fiscal year 2002 had uncharacteristically robust revenues in the first two quarters, which accounts for the comparable decrease in system sales in 2003. The decrease in software licensing revenues in the first nine months of 2003 were partially offset by the almost 100% increases in application-hosting services revenues from new customers. The increase in the ASPeN application-hosting revenues during the first and second quarters of 2003 resulted from adding two new clients in the third quarter of fiscal year 2002. OPERATING EXPENSES Cost of Systems Sales The cost of systems sales includes amortization of capitalized software development costs on a straight-line basis, royalties and the cost of third party software and hardware. Cost of systems sales as a percentage of systems sales may vary from period to period depending on the mix of hardware and software of the systems or add-on sales delivered. The cost of systems sales as a percentage of systems sales for the third quarter of fiscal years 2003 and 2002 were 21% and 20%, respectively and for the first nine months of fiscal years 2003 and 2002 were 42% and 23%, respectively. The higher percentage of cost of sales reflects a greater volume of hardware sold during the current nine month period compared to the comparable prior period, which had lower hardware and significantly higher software licensing revenues. 17
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 40% for the third quarter and 41% and 45% for the first nine months, respectively, of fiscal year 2003 and 2002. The Company's support margins are highest on LanVision's proprietary software. Accordingly, margins improve as more customers are added. Cost of Application-hosting services The cost of application-hosting services includes compensation, benefits, and the cost of running the hosting center, including depreciation. As a percentage of application-hosting services revenues, the cost of application-hosting was 49% and 65% for the third quarter and 49% and 49% for the first nine months, respectively, of fiscal year 2003 and 2002. The increase in the total costs during both the third quarter and the first nine months, on a comparative basis, reflects the addition of the new data center, which opened in August 2002 in order to provide the capacity necessary for new clients. Prior thereto, the Company used an outsourced data center and incurred expenses only for the outsourcing data center resources it used, which were directly related to the application-hosting services revenues generated by the ASPeN Division. As the application-hosting revenues increase, the relative cost, as a percentage of revenues, declines. 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 year 2003, Selling, General and Administrative expenses decreased when compared with the comparable prior quarter primarily because of a reduction in legal expenses in conjunction with the settlement of certain litigation initiated by LanVision to defend its intellectual property. Demand for Medical Record Workflow (MRW) technologies and healthcare information access systems is growing and the frequency of requests for proposals received is increasing. Accordingly, the Company has increased its direct sales force to take advantage of current market opportunities. During the first nine months of fiscal year 2003, Selling, General and Administrative expenses were $2,392,369 compared with $2,572,838 in the comparable prior period. The net decrease is primarily the result of the litigation expense reduction and a settlement, recorded in the second quarter. 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 $509,923 compared with $517,455 in the comparable prior quarter. 18
During the nine months, research and development expenses were $1,554,029 compared with $1,567,288 in the comparable prior period. The decrease during the quarter is due to increased capitalized software and use of fewer outside contractors when compared to the prior comparable periods. 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, $600,000 and $450,000 of product research and development costs in the first nine months of fiscal years 2003 and 2002, respectively. Operating income The operating income for the third quarter of fiscal year 2003 was $985,129 compared with operating income of $751,464 in the third quarter of fiscal year 2002. The net increase is primarily the result of an increase in revenues, offset by an increase in expenses. The operating income for the first nine months of fiscal year 2003 was $1,338,671 compared with operating income of $1,932,810 in the first nine months of 2002. The decrease results primarily from a decrease in system sales software licensing revenues during the first two quarters, offset by increased services and application-hosting revenues during the first nine months. Interest income consists primarily of interest on invested cash. The decreases in interest income results from lower cash balances available for investment and lower rates. Interest expense relates primarily to the long-term debt and includes the interest expense on the capitalized leases. Net earnings The net earnings for the third quarter of fiscal year 2003 was $481,655 or $.05 per share compared with net earnings of $252,439 or $.03 per share in the third quarter of fiscal year 2002. The increase is the result of primarily higher revenues as noted above. The net earnings for the first nine months of fiscal year 2003 was $19,459 or $.00 per share compared with net earnings of $552,340 or $.06 per share in the first nine months of fiscal year 2002. This decrease is the result of primarily lower revenues and higher costs as noted above. Management continues to believe that the healthcare document imaging and workflow market is going to be a significant market and continues to make, the investments in the talent and technology necessary to establish the Company as a leader in this marketplace. The Company continues to believe that it 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, 2000, 2001, and 2002, the Company 19
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, continued profitability is dependent upon increasing revenues. LIQUIDITY AND CAPITAL RESOURCES Liquidity and Capital Resources During the last five fiscal years, LanVision has funded its operations, working capital needs, and capital expenditures primarily from a combination of cash generated by operations, and a $6,000,000 loan. LanVision's 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's products, which have good credit histories and payments are received within normal periods 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. The Company has received a nonbinding expression of interest to refinance our existing debt, in July 2004, at an attractive interest rate. The Company is continuing to seek additional sources to refinance this debt with the ultimate goal of retiring it completely, as quickly as practicable. Although LanVision achieved its revenue goals in fiscal year 2002, LanVision's revenues were less than its internal plans in the first three quarters of the current fiscal year. However, over the last three fiscal 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 three fiscal years. Although LanVision has reduced staffing levels and related expenses, increased revenues and improved operating performance, 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 HIPAA compliant, and the signing of 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 20
should be able to increase its revenues. However, there can be no assurance LanVision will be able to do so. At October 31, 2003, LanVision had cash and cash equivalents of $4,750,839. Cash equivalents consist primarily of short-term commercial. Under the terms of its loan agreement, as amended, LanVision has agreed to maintain a minimum cash and cash equivalent balance of $3,800,000, which will be maintained through the maturity of the loan in July 2004. During the remainder of fiscal year 2003, $500,000 of long-term debt is required to be repaid to the lender. See also Note 6 to the financial statements regarding the accrued and unpaid interest, which will approximate $5,200,000 and is required to be paid to the lender in July 2004. LanVision intends to refinance all, or a portion, of the unpaid interest payable in July 2004. LanVision has carefully monitored operating expenses during the last four fiscal years, and, based upon current revenue and expense projections, believes it will be able to achieve positive operating results in fiscal year 2003. Notwithstanding the increases in fiscal year 2001 and 2002 revenues and operating profit, 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 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 2003. 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, 2003. 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, 21
LanVision believes, based on its past experience, that its customers will expand their existing systems. At October 31, 2003, 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 $2,780,000. 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 $4,000,000 over the remaining terms of the agreements. LanVision's master agreements also generally provide for an initial maintenance period and give the customer the right to subscribe for maintenance and support services on a monthly, quarterly, or annual basis. Maintenance and support revenues for fiscal years 2002, 2001 and 2000 were approximately $4,176,000, $4,032,000 and $3,678,000, respectively. Maintenance and support revenues are expected to increase in 2003. At October 31, 2003, LanVision had Maintenance Agreements, purchase orders or royalty reports from customers or remarketing partners for maintenance, which if fully performed, will generate future revenues of approximately $1,026,000, through their respective renewal dates in fiscal year 2003 and 2004. 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 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 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. 22
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 that 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. Item 3. DEFAULTS ON SENIOR SECURITIES The Company is not in default under its existing Loan Agreement. 23
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. (*) 11 Computation of Earnings Per Common Share 31.1 Certification Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 31.2 Certification Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (*) Incorporated by reference. (b) Reports on Form 8-K On December 10, 2003, the Company furnished a Form 8-K, reporting pursuant to Item 12, the third fiscal quarter end October 31, 2003 Results of Operations. 24
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 10, 2003 By: /s/ J. BRIAN PATSY ------------------------------ J. Brian Patsy Chief Executive Officer and President DATE: December 10, 2003 By: /s/ PAUL W. BRIDGE, JR. ------------------------------ Paul W. Bridge, Jr. Chief Financial Officer and Treasurer 25
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 Per Common Share *** 31.1 Certification Chief Executive Officer Pursuant to Section *** 302 of the Sarbanes - Oxley Act of 2002 31.2 Certification Chief Financial Officer Pursuant to Section *** 302 of the Sarbanes - Oxley Act of 2002 32.1 Certification by Chief Executive Officer pursuant to 18 *** U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by Chief Financial Officer pursuant to 18 *** U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *** Included herein 26
. . . Exhibit 11 LANVISION SYSTEMS, INC. COMPUTATION OF EARNINGS PER COMMON SHARE For the three and six months ended October 31, 2003 and 2002 Three Months Nine Months -------------------------- --------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net earnings $ 481,655 $ 252,439 $ 19,459 $ 552,340 =========== =========== =========== =========== Average shares outstanding 9,011,131 8,945,338 8,989,303 8,929,250 Stock options & purchase plan: Total options & purchase plan shares 393,487 400,354 385,662 454,375 Assumed treasury stock buyback (185,468) (171,142) (179,111) (186,224) Warrants assumed converted - - - - Convertible redeemable preferred stock assumed converted - - - - ----------- ----------- ----------- ----------- Number of shares used in per common share computation 9,219,150 9,174,550 9,195,854 9,197,401 =========== =========== =========== =========== Basic net earnings per share of common stock $ 0.05 $ 0.03 $ 0.00 $ 0.06 =========== =========== =========== =========== Diluted net earnings per share of common stock $ 0.05 $ 0.03 $ 0.00 $ 0.06 =========== =========== =========== =========== 27
Exhibit 31.1 LANVISION SYSTEMS, INC. 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 28
5. The registrant's other certifying officers 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. December 10, 2003 /s/ J. Brian Patsy ------------------ Chief Executive Officer and President 29
Exhibit 31.2 LANVISION SYSTEMS, INC. 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonable 30
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. December 10, 2003 /s/ Paul W. Bridge, Jr. ----------------------- Chief Financial Officer and Treasurer 31
Exhibit 32.1 LANVISION SYSTEMS, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of LanVision Systems, Inc. (the "Company") on Form 10-Q for the period ended October 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, J. Brian Patsy, Chairman of the Board, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. /s/ J. Brian Patsy Chairman of the Board, Chief Executive Officer and President December 10, 2003 32
Exhibit 32.2 LANVISION SYSTEMS, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of LanVision Systems, Inc. (the "Company") on Form 10-Q for the period ended October 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul W. Bridge, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. /s/ Paul W. Bridge, Jr. Chief Financial Officer December 10, 2003 33