-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DqMCLJAiKXjXpouR38t7uBncJhnDT+DNMe90pnvZ7mMsqoet12/B8723wudfecUw n050CR6YTNus1xe+4BZdWw== 0000912057-97-026723.txt : 19970812 0000912057-97-026723.hdr.sgml : 19970812 ACCESSION NUMBER: 0000912057-97-026723 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORONIX INFORMATION SYSTEMS INC CENTRAL INDEX KEY: 0000925538 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330248747 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24738 FILM NUMBER: 97654866 BUSINESS ADDRESS: STREET 1: 820 AIRPORT RD CITY: DURANGO STATE: CO ZIP: 81301 BUSINESS PHONE: 9702596161 MAIL ADDRESS: STREET 1: 820 AIRPORT RD CITY: DURANGO STATE: CO ZIP: 81301 10QSB 1 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC. 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997, OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ____________ TO____________. COMMISSION FILE NUMBER: 0-24738 LORONIX INFORMATION SYSTEMS, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) NEVADA 33-0248747 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 820 AIRPORT ROAD, DURANGO, COLORADO 81301 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ISSUER'S TELEPHONE NUMBER: (970) 259-6161 CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITY EXCHANGE ACT OF 1934 DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- AS OF JULY 17, 1997, THERE WERE 4,663,186 SHARES OF THE ISSUER'S COMMON STOCK OUTSTANDING. LORONIX INFORMATION SYSTEMS, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NUMBER ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET 1 FOR JUNE 30, 1997 CONDENSED CONSOLIDATED STATEMENTS 3 OF OPERATIONS FOR THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 4 FOR SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL 6 STATEMENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 7 FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 13 HOLDERS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 SIGNATURES 15 PART I - FINANCIAL INFORMATION LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET ASSETS
JUNE 30, 1997 ----------- (UNAUDITED) Current assets: Cash and cash equivalents $ 1,827,524 Accounts receivable: Trade, net of allowance for doubtful accounts of $84,851 3,236,641 Officers and employees 170,338 Contracts in progress with earned revenue exceeding related progress billings 1,379,025 Inventory, net 1,454,111 Prepaid expenses and other assets 266,699 Notes receivable, related parties 28,714 Deferred income taxes 409,194 ----------- Total current assets 8,772,246 Property and equipment, net of accumulated depreciation of $1,329,215 3,781,082 Capitalized software costs, net of accumulated amortization of $680,561 782,339 Notes receivable, related parties 162,234 Deposits and other assets 30,824 Goodwill, net of accumulated amortization of $51,852 5,592 ----------- Total assets $13,534,317 ===========
See accompanying notes to financial statements. 1 LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1997 ----------- (UNAUDITED) Current liabilities: Accounts payable $ 608,584 Accrued commission payable 11,125 Accrued taxes 33,837 Accrued liabilities 97,365 ----------- Total current liabilities 750,911 Deferred maintenance revenue 33,877 ----------- Total liabilities 784,788 ----------- Stockholders' equity: Preferred stock, $.001 par value, authorized 2,000,000 shares, no shares issued and outstanding - Common stock, $.001 par value, authorized 20,000,000 shares, issued and outstanding, 4,663,186 shares 4,663 Additional paid-in capital 15,263,024 Notes receivable from stockholders (214,981) Accumulated deficit (2,303,177) ----------- Total stockholders' equity 12,749,529 ----------- Total liabilities and stockholders' equity $13,534,317 ===========
See accompanying notes to financial statements. 2 LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 ---------------------- ---------------------- (UNAUDITED) (UNAUDITED) Systems, supplies and maintenance revenue $2,453,514 $2,822,268 $4,127,414 $5,544,279 ---------- ---------- ---------- ---------- Operating costs and expenses: Cost of products sold 1,453,690 1,276,294 2,261,758 2,621,084 Operations and customer support 406,007 261,559 812,990 506,007 Selling, general and administrative 910,091 802,710 1,784,241 1,558,549 Research and development 328,448 231,363 705,082 446,978 ---------- ---------- ---------- ---------- Total cost and expenses 3,098,236 2,571,926 5,564,071 5,132,618 (Loss) income from operations (644,722) 250,342 (1,436,657) 411,661 Other income (expense): Interest income 36,202 66,083 95,768 157,534 Other (14,122) 276 (23,189) (769) ---------- ---------- ---------- ---------- 22,080 66,359 72,579 156,765 (Loss) income before income taxes (622,642) 316,701 (1,364,078) 568,426 Income tax benefit (expense) 187,062 (48,213) 398,024 (124,013) ---------- ---------- ---------- ---------- Net (loss) income ($435,580) $268,488 ($966,054) $444,413 ========== ========== ========== ========== (Loss) income per share - primary and fully diluted ($0.09) $0.06 ($0.21) $0.10 ========== ========== ========== ========== Weighted average shares outstanding 4,662,279 4,667,936 4,662,108 4,667,936 ========== ========== ========== ==========
See accompanying notes to financial statements. 3 LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1997 1996 ------------------------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net (loss) income $ (966,054) $ 444,413 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 480,400 393,674 Loss on disposal of capital equipment 12,466 - Loss on foreign currency exchange rate 5,118 - Increase in deferred income taxes (398,594) - Decrease in notes receivable, related parties 25,364 - Changes in operating assets and liabilities: Increase in accounts receivable, net (1,810,112) (452,984) Increase in contracts in progress with earned revenue exceeding related progress billings (86,542) (2,303,450) (Increase) decrease in inventory, net (686,024) 230,267 (Increase) decrease in prepaid expenses and other assets (29,955) 13,052 (Decrease) increase in accounts payable (20,175) 515,921 (Decrease) increase in accrued commissions payable, accrued liabilities and accrued taxes (60,327) 69,711 Increase in customer deposits - 24,520 Increase (decrease) in deferred revenue 18,934 (6,320) ----------- ----------- Net cash used in operating activities (3,515,501) (1,071,196) ----------- ----------- Cash flows from investing activities: Capital expenditures (561,322) (424,667) Proceeds from disposal of capital equipment 15,000 - Decrease (increase) in deposits 2,370 (893) Capitalized software (243,100) (149,600) ----------- ----------- Net cash used in investing activities (787,052) (575,160) ----------- ----------- Cash flows from financing activities: Proceeds from exercise of stock options 3,593 - ----------- ----------- Net cash used in investing activities 3,593 - ----------- ----------- Net decrease in cash (4,298,960) (1,646,356) Cash and cash equivalents, beginning of year 6,126,484 6,216,770 ----------- ----------- Cash and cash equivalents, end of June $ 1,827,524 $ 4,570,414 =========== ===========
See accompanying notes to financial statements. 4 Non-cash investing activities: In 1997, the Company transferred inventory valued at $224,871 to property and equipment. In 1996, the Company transferred inventory valued at $12,551 to property and equipment. See accompanying notes to financial statements. 5 LORONIX INFORMATION SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (JUNE 30, 1997 - UNAUDITED) NOTE 1: BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements should be read in conjunction with Loronix Information Systems, Inc's. Form 10-KSB for the year ended December 31, 1996. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Loronix Information Systems, Inc.'s (the "Company") condensed financial statements and the notes related thereto included herein. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 REVENUE The Company's revenue is derived from sales of systems and supplies and from maintenance services. Historically, systems and supplies have accounted for greater than 90% of total revenue, with system sales accounting for a substantial majority of total revenue. The Company expects this trend to continue for the foreseeable future. Revenue decreased 13% from $2.82 million in the second quarter of 1996 to $2.45 million in the second quarter of 1997, which included approximately $1.66 million of CCTVware-Registered Trademark- related product sales. Revenue in the second quarter of 1996 included approximately $1.75 million associated with Aramco Services Company, the U.S. subsidiary of Aramco (a Saudi Arabian multinational corporation), for the sale of security systems in Saudi Arabia (the "Aramco Contract"). COSTS AND EXPENSES COST OF PRODUCTS SOLD. The cost of products sold, consisting principally of the costs of hardware components and supplies as well as software amortization, increased from $1.28 million in the second quarter of 1996 to $1.45 million in the second quarter of 1997, and represented 45% and 59% of revenue, respectively. The increase in the cost of products sold as percentage of revenue is primarily attributed to a shift in the Company's product mix away from identification products and toward CCTVware product sales (which have a cost of product sold as a percentage of revenue of 63%). The Company expects the CCTVware cost of products sold as a percentage of revenue to decrease as the CCTVware technology becomes accepted in the market place and the cost of hardware components decrease. OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support expenses increased from $261,600 in the second quarter of 1996, net of expenses associated with the Aramco Contract which were charged to cost of products sold, to $406,000 in the second quarter of 1997, and represented 9% and 17% of revenue, respectively. Gross expenses, including expenses associated with the Aramco Contract, increased from $264,700 in the second quarter of 1996 to $406,000 in the second quarter of 1997. The increase in such expenses resulted primarily from compensation-related increases and increases in telecommunications, travel and depreciation. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased from $802,700 in the second quarter of 1996, net of expenses associated with the Aramco Contract which were charged to cost of products sold, to $910,100 in the second quarter of 1997, and represented 28% and 37% of revenue, respectively. Gross expenses, including expenses associated with the Aramco Contract, increased from $821,000 in the second quarter of 1996 to $910,100 in 7 the second quarter of 1997. The increase in such expenses resulted primarily from compensation-related increases and increases in legal fees, property taxes and depreciation. RESEARCH AND DEVELOPMENT. Research and development expenses, net of capitalized software costs, increased from $231,400 in the second quarter of 1996, net of expenses associated with the Aramco Contract which were charged to cost of products sold, to $328,400 in the second quarter of 1997, and represented 8% and 13% of revenue, respectively. Gross expenses, including capitalized software costs and expenses associated with the Aramco Contract, increased from $351,800 in the second quarter of 1996 to $455,600 in the second quarter of 1997. The increase in such expenses resulted primarily from headcount and compensation-related increases and an increase in depreciation. INTEREST INCOME. Interest income decreased from $66,100 in the second quarter of 1996 to $36,200 in the second quarter of 1997. This decrease was due to a reduction in cash available for investment. INCOME TAX. Income tax expense of $48,200 for the second quarter of 1996 was estimated to be 15% of pretax earnings. An income tax benefit of $187,100 for the second quarter of 1997 was estimated to be 30% of the pretax loss. The Company's U.S. tax rate is less than the statutory federal rate of 34% primarily because of the benefit of net operating loss carry-forwards and research and experimentation credits. SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 REVENUE Revenue decreased 25% from $5.54 million in the first six months of 1996 to $4.13 million in the first six months of 1997, which included approximately $2.36 million of CCTVware related product sales. Revenue in the first six months of 1996 included approximately $3.3 million associated with the Aramco Contract. COSTS AND EXPENSES COST OF PRODUCTS SOLD. The cost of products sold decreased from $2.62 million in the first six months of 1996 to $2.26 million in the first six months of 1997, and represented 47% and 55% of revenue, respectively. The increase in the cost of products sold as percentage of revenue is primarily attributed to a shift in the Company's product mix away from identification products and toward CCTVware product sales (which have a cost of product sold as a percentage of revenue of 61%). The company expects the CCTVware cost of products sold as a percentage of revenue to decrease as the CCTVware technology becomes accepted in the market place and the cost of hardware components decreases. OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support expenses increased from $506,000 in the first six months of 1996, net of expenses associated with the Aramco Contract charged to cost of products sold, to $813,000 in the first six months of 1997, and represented 9% and 20% of revenue, respectively. Gross expenses, including expenses associated with the Aramco Contract, increased from $527,100 in the second quarter of 1996 to $813,000 in the second quarter 8 of 1997. The increase in such expenses resulted primarily from compensation-related increases and increases in telecommunications, travel and expendable parts supplies. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased from $1.56 million in the first six months of 1996, net of expenses associated with the Aramco Contract which were charged to cost of products sold, to $1.78 million in the first six months of 1997, and represented 28% and 43% of revenue, respectively. Gross expenses, including expenses associated with the Aramco Contract, increased from $1.61 million in the first six months of 1996 to $1.78 million in the first six months of 1997. The increase in such expenses resulted primarily from compensation-related increases and increases in legal fees, travel, product promotions and depreciation. RESEARCH AND DEVELOPMENT. Research and development expenses, net of capitalized software costs, increased from $447,000 in the first six months of 1996, net of expenses associated with the Aramco Contract charged to cost of products sold, to $705,100 in the first six months of 1997, and represented 8% and 17% of revenue, respectively. Gross expenses, including capitalized software costs and expenses associated with the Aramco Contract, increased from $680,600 in the first six months of 1996 to $948,200 in the first six months of 1997. The increase in such expenses resulted primarily from headcount and compensation-related increases and increases in travel, expendable parts supplies and depreciation. INTEREST INCOME. Interest income decreased from $157,500 in the first six months of 1996 to $95,800 in the first six months of 1997. This decrease was due to a reduction of cash available for investment. INCOME TAX. Income tax expense of $124,000 for the first six months of 1996 was estimated to be 22% of pretax income. An income tax benefit of $398,000 for the first six months of 1997 was estimated to be 29% of the pretax loss. The Company's U.S. tax rate is less than the statutory federal rate of 34% primarily because of the benefit of net operating loss carry-forwards and research and experimentation credit. NEW ACCOUNTING PRONOUNCEMENTS In March 1997, the Financial Accounting Standards Board issued SFAS 128, EARNINGS PER SHARE, effective for fiscal years ending after December 15, 1997. SFAS 128 requires the presentation of basic earnings per share which excludes the dilutive effect of all common stock equivalents. Presentation of diluted earnings per share, which reflects the dilutive effects of all common stock equivalents, will also be reported. The diluted presentation is similar to the current presentation of fully diluted earnings per share, but uses the average market price of the stock during the period. The Company is currently evaluating the impact of implementation of SFAS 128. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 1996 and 1997, the Company financed its operations primarily from working capital. The Company's principal uses of cash during the six months ended June 30, 1996 and 1997 were to (i) fund operating activities; (ii) acquire property and equipment; and (iii) invest in the development of software. 9 During the first six months of 1996, the Company's cash and cash equivalents decreased from $6,216,770 at December 31, 1995 to $4,570,414 at June 30, 1996. Net cash used in operating activities of $1,071,196 consisted primarily of net income of $444,413, a decrease in inventory of $230,267 and increases in accounts payable and accrued liabilities of $585,632, offset by increases in accounts receivable and contracts in progress billings of $2,756,434. Net cash used in investing activities of $575,160 consisted primarily of $424,667 of capital expenditures and $149,600 of software development costs. During the first six months of 1997 the Company's cash and cash equivalents decreased from $6,126,484 at December 31, 1996 to $1,827,524 at June 30, 1997. Net cash used in operating activities of $3,515,501 consisted primarily of net losses of $966,054, increases in deferred income taxes, accounts receivable, contracts in progress billings, inventory and prepaid expenses and other assets of $3,011,227 and a decrease in accrued commissions, liabilities and taxes of $60,327 offset by a decrease in notes receivable of $25,364 and an increase in deferred revenue of $18,934. Net cash used in investing activities of $787,052 consisted primarily of $561,322 of capital expenditures and $243,100 of software development costs. The Company anticipates capital expenditures for the remainder of 1997 of approximately $350,000. The Company believes it has sufficient working capital to meet its capital requirements and fund operations for at least the next twelve months. Because of the ramp-up of the CCTVware product line and the long sales cycle related thereto, the Company has negotiated with its bank a $700,000 mortgage on the Company's facility and up to a $2.5 million line of credit based on the Company's accounts receivable. CERTAIN FACTORS BEARING ON FUTURE RESULTS The statements in the third sentence under the caption "Revenue" on page 7, the last sentence under the caption "Cost of Products Sold" on page 7, the last sentence under the caption "Cost of Products Sold" on page 8 and the fifth paragraph under the caption "Financial Liquidity and Capital Resources" on page 10 are forward-looking statements. In addition, the Company may from time to time make oral forward-looking statements. The following are important factors that could cause results to differ materially from those projected in any such forward-looking statements. OEM AND DEALER RELATIONSHIPS. Historically, sales through original equipment manufacture's ("OEMs") have accounted for a significant portion of the Company's revenue, but during the past two years, sales through OEMs have decreased significantly. While the Company will strive to continue distributing its products through OEMs and will seek to cultivate additional OEM relationships, the Company is also seeking to expand its domestic dealer network. The Company believes its success in penetrating markets for its identification and CCTVware products depends in large part on its ability to maintain these third party distribution relationships and to cultivate additional, similar relationships. There can be no assurance that the Company will be successful in cultivating such additional third party relationships. Further, there can be no assurance that these third parties, several of which have significantly greater financial and marketing resources than the Company, will not develop and market products in competition with the Company or will not otherwise discontinue their relationship with the Company. INTERNATIONAL SALES. The Company is seeking to expand its international presence by developing new distribution channels in certain foreign countries where it has not previously had a 10 presence. International sales are subject to a number of risks, including political and economic instability, unexpected changes in regulatory requirements, tariffs and other trade barriers, fluctuating exchange rates and the possibility of greater difficulty in accounts receivable collection. There can be no assurance that these and other factors will not have a material adverse effect on the Company's future international sales, if any, and, consequently, the Company's business, operating results and financial condition. COMPETITION. Certain of the Company's current and prospective competitors have substantially greater technical, financial and marketing resources than the Company. In addition, there can be no assurance that the Company's products will be competitive in the face of advances in product technology developed by the Company's current or future competitors. For instance, because the Company's CCTVware products are targeted at emerging and developing markets there can be no assurance that the CCTVware products will be in conformance with emerging market standards or that the CCTVware products will have the features and capabilities accepted by the market-place. Moreover, while the Company believes that the price/performance characteristics of its identification products are currently competitive, increased competition from low-cost, low-functionality identification systems have created, and will continue to create, pricing pressures which could materially and adversely affect the Company's business, operating results and financial condition. PROPRIETARY RIGHTS. The Company is not aware of any infringement by its products, trademarks or other proprietary rights on the proprietary rights of any third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future products. As the number of software products in the industry increases and the functionality of these products further overlaps, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, could result in costly litigation or might require the Company to enter into royalty or licensing agreements. Such royalty and licensing agreements, if required, may not be available on terms acceptable to the Company. PRODUCT OBSOLESCENCE. The Company's current products and products under development are limited in number and concentrated primarily in the markets for identification and surveillance products. The life cycles of the Company's products are difficult to estimate due in large measure to changing and developing technology as well as the unknown future effect of products introduced by the Company's competition. Price reductions or declines in demand for the Company's products, whether as a result of competition, technological change or otherwise, would have a materially adverse effect on the Company's results of operations or financial position. DEPENDENCE ON NEW PRODUCTS. The market for the Company's products is characterized by ongoing technological development and evolving industry standards. The Company's success will depend upon its ability to enhance its current products and to introduce new products which address technological and market developments and satisfy the increasingly sophisticated needs of customers. For instance, the Company has released several products based on its CCTVware technology. There can be no assurance that the Company will be successful in the marketing of the products in its CCTVware line of products or any other product enhancements or new products that respond to the technological advances by others. There can be no assurance that the Company's new CCTVware products or other new products will be accepted by customers. 11 VARIABILITY OF OPERATING RESULTS. The Company's revenue and operating results have fluctuated significantly from quarter to quarter, and may continue to fluctuate, due to a combination of factors. These factors include relatively long sales cycles for the Company's CCTVware products and certain identification products, the timing or cancellation of orders from major customers, the timing of new product introductions by the Company or its competitors, the Company's use of third-party distribution channels, the fulfillment of large one-time orders to particular customers and general economic conditions and other factors affecting capital spending. For example, the conclusion of the Aramco Contract has led to a sharp decrease in the Company's revenue. Additionally, the Company generally ships orders in the quarter in which such orders are received, and accordingly, revenue in any quarter is substantially dependent on the orders booked and shipped in that quarter. The Company has typically recognized a substantial portion of its revenue in the last month of the quarter, with much of this revenue concentrated in the last two weeks of the quarter. Because the Company's operating expense levels are relatively fixed and based, to some extent, on anticipated revenue levels, a small variation in revenue can cause significant variations in operating results from quarter to quarter and may result in losses. MANAGEMENT AND EMPLOYEES. The Company's future success depends in significant part upon the continued service of its key technical and senior management personnel and its continuing ability to attract and retain highly qualified technical and managerial personnel in the future. The Company has in the past encountered some difficulties in fulfilling its hiring needs in the Durango, Colorado employment market, and there can be no assurance that the Company will be successful in hiring and retaining qualified employees in the future. CAPITAL REQUIREMENTS. The Company believes that it has sufficient cash and working capital to meet its requirements for at least the next twelve months. While operating activities may provide cash in certain periods, to the extent the Company experiences growth in the future, it anticipates that it may require additional cash in its operating and investing activities, and accordingly, the Company may require additional capital resources. Because of the ramp-up of the CCTVware product line and the long sales cycle related thereto, the Company has negotiated with its bank a $700,000 mortgage on the Company's facility and up to a $2.5 million line of credit based on the Company's accounts receivable. There can be no assurance that such capital resources will be available to the Company on favorable terms, if at all. VOLATILITY OF STOCK PRICE. In recent months, the stock market in general, and the market for shares of technology companies in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of the affected companies. In addition, factors such as quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, as well as other events or factors, may have a significant impact on the market price of the Company's Common Stock. There can be no assurance that the trading price of the Company's stock will remain at or near its current level. 12 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company has completed its litigation with the Company's former Vice President of Marketing and Sales, Mr. Robert Demson, who filed a lawsuit against the Company alleging breach of contract and fraud. This individual, who terminated his employment with the Company in May 1994 alleged that he was promised, but never received, options to purchase shares of the Company's Common Stock at a significant discount from fair market value and that he was deprived of certain sales commissions. The parties agreed to binding arbitration which was completed on May 1, 1997. The arbitrator ruled in favor of the Company on the claim for stock options and in favor of the individual on the claim for commissions. As a result of the arbitrator's ruling, the Company will pay the individual approximately $18,000. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Matters submitted for a vote by security holders at the Company's May 19, 1997 annual meeting of stockholders included: (a) approval of the minutes of the 1996 annual meeting of stockholders; (b) election of directors; (c) approval of a 250,000 share increase in the shares issuable under the Company's 1992 Stock Plan; and (d) ratification of the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year ending December 31, 1997. The results of the stockholder votes were as follows: (a) the minutes of the prior year's annual meeting of stockholders were approved.
Votes Votes Votes Votes For Against Withheld Abstained ------ ------- -------- --------- (b) Election of Directors Edward Jankowski 3,778,151 195,600 M. Dean Gilliam 3,783,151 190,600 George M. Duffy 3,783,151 190,600 C. Rodney Wilger 3,783,151 190,600 Don W. Stevens 3,783,151 190,600 Louis E. Colonna 3,783,151 190,600 (c) Increase in shares 1,808,876 402,154 21,306 issuable under the 1992 Stock Plan (d) Appointment of KPMG 3,927,328 41,023 5,400 Peat Marwick LLP
13 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) There are no exhibits (b) No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1997. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Loronix Information Systems, Inc. August 8, 1997 /s/ Jonathan C. Lupia - -------------- ------------------------ Date Jonathan C. Lupia Chief Financial Officer 15 EX-27 2 EX 27
5 6-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 1,827,524 0 3,321,492 (84,851) 1,454,111 8,772,246 5,110,297 (1,329,215) 13,534,317 750,911 0 0 0 4,663 12,744,866 13,534,317 4,127,414 4,127,414 2,261,758 5,564,071 3,302,313 0 0 (1,364,078) 398,024 (966,054) 0 0 0 (966,054) (.21) (.21)
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