-----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, Je7djUZlrzJ1s0EYhRUSY4yLDYsPwsmrKZK3moj0gkNOqXT2xOx5y3kaIo/D1MGa K/a5KxS8S5NLa015n3Zvlg== 0000912057-96-023855.txt : 19961029 0000912057-96-023855.hdr.sgml : 19961029 ACCESSION NUMBER: 0000912057-96-023855 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961028 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: 96648563 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 FORM 10-QSB 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 SEPTEMBER 30, 1996, 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 SECURITIES 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 OCTOBER 23, 1996, THERE WERE 4,661,936 SHARES OF THE ISSUER'S COMMON STOCK OUTSTANDING. LORONIX INFORMATION SYSTEMS, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO. ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET 1 AS OF SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED STATEMENTS 3 OF OPERATIONS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 4 FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL 5 STATEMENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 6 FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12 SIGNATURES 13 PART I - FINANCIAL INFORMATION LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET ASSETS SEPTEMBER 30, 1996 ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 5,767,807 Accounts receivable: Trade, net of allowance for doubtful accounts of $177,025 1,449,335 Officers and employees 146,187 Contracts in progress with earned revenue exceeding related progress billings 2,437,339 Inventory, net 942,831 Prepaid expenses and other assets 87,577 Deferred income taxes 100,000 ----------- Total current assets 10,931,076 Construction in progress 208,951 Property and equipment, net of accumulated depreciation of $827,427 2,996,135 Software development costs, net of accumulated amortization of $503,188 469,111 Deposits and other assets 38,259 Goodwill, net of accumulated amortization of $47,525 9,919 ----------- Total assets $14,653,451 ----------- ----------- See accompanying notes to condensed consolidated financial statements 1 LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30, 1996 ------------- (UNAUDITED) Current liabilities: Accounts payable $ 668,676 Accrued commission payable 153,558 Income tax payable 118,700 Accrued liabilities 148,996 ----------- Total current liabilities 1,089,930 Deferred maintenance revenue 23,308 ----------- Total liabilities 1,113,238 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, 4,661,936 shares 4,662 Additional paid-in capital 15,259,432 Notes receivable from stockholders (214,981) Accumulated deficit (1,508,900) ----------- Total stockholders' equity 13,540,213 ----------- Total liabilities and stockholders' equity $14,653,451 ----------- ----------- See accompanying notes to condensed consolidated financial statements 2 LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ----------- (UNAUDITED) (UNAUDITED) Systems, supplies and maintenance revenue $2,959,933 $1,547,208 $8,504,213 $ 4,529,670 ---------- ---------- ---------- ----------- Operating costs and expenses: Cost of products sold 1,323,197 863,354 3,944,281 2,347,561 Operations and customer support 219,678 202,802 725,687 644,814 Selling, general and administrative 784,815 1,012,749 2,343,364 2,351,048 Research and development 235,625 251,221 682,603 619,888 ---------- ---------- ---------- ----------- Total cost and expenses 2,563,315 2,330,126 7,695,935 5,963,311 Income (loss) from operations 396,618 (782,918) 808,278 (1,433,641) ---------- ---------- ---------- ----------- Other income (expense): Interest income 68,004 108,035 225,538 347,155 Other 405 (18) (363) (435) ---------- ---------- ---------- ----------- 68,409 108,017 225,175 346,720 ---------- ---------- ---------- ----------- Income (loss) before income taxes 465,027 (674,901) 1,033,453 (1,086,921) Income (tax) benefit (50,025) (1,064) (174,038) 105,236 ---------- ---------- ---------- ----------- Net income (loss) $ 415,002 $ (675,965) $ 859,415 $ (981,685) ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Income (loss) per share - primary and fully diluted $ 0.09 $ (0.14) $ 0.18 $ (0.21) ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Weighted average shares outstanding 4,747,390 4,670,936 4,676,642 4,670,936 ---------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
See accompanying notes to condensed consolidated financial statements 3 LORONIX INFORMATION SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------------------------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income (loss) $ 859,415 $ (981,685) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 591,659 329,604 Changes in operating assets and liabilities: Decrease in accounts receivable, net 425,219 427,126 Increase in contracts in progress with earned revenue exceeding related progress billings (1,546,877) - Decrease in inventory, net 307,346 89,061 Decrease in prepaid expenses and other assets 33,254 138,917 Decrease (increase) in deferred income taxes 54,000 (106,000) Decrease in accounts payable (286,853) (159,623) Increase (decrease) in accrued liabilities 233,817 (62,662) Decrease in customer deposits - (3,270) Increase (decrease) in deferred revenue (15,829) 5,263 ----------- ----------- Net cash provided by (used in) operating activities 655,151 (323,269) ----------- ----------- Cash flows from investing activities: Construction in progress (208,951) (609,316) Capital expenditures (649,155) (409,680) Deposits and other assets (1,008) (18,145) Software development costs (245,000) (173,500) ----------- ----------- Net cash used in investing activities (1,104,114) (1,210,641) ----------- ----------- Cash flows from financing activities: Payments on notes payable - (68,429) Payments for offering costs - (1,332) ----------- ----------- Net cash used in financing activities - (69,761) ----------- ----------- Net decrease in cash and cash equivalents (448,963) (1,603,671) Cash and cash equivalents, beginning of year 6,216,770 8,887,944 ----------- ----------- Cash and cash equivalents, end of September $ 5,767,807 $ 7,284,273 ----------- ----------- ----------- -----------
Noncash investing activities: In 1996 and 1995, the Company transferred inventory valued at $44,952 and $286,578 respectively, to property and equipment. See accompanying notes to condensed consolidated financial statements 4 LORONIX INFORMATION SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (SEPTEMBER 30, 1996 - 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, 1995. 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. 5 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 consolidated financial statements and the notes related thereto included herein. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 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 increased from $1.55 million in the third quarter of 1995 to $2.96 million in the third quarter of 1996, representing a 91% increase. Revenue in the third quarter of 1996 included approximately $1.57 million associated with a contract between the Company and a U.S. subsidiary of a Middle Eastern multinational corporation which provides for the sale of security systems (the "Middle East Contract"). The Company believes it will record substantially all of the revenue under the Middle East Contract by year-end 1996. The remaining revenue of $1.39 million in the third quarter of 1996 consisted of $344,400 in original equipment manufacturer ("OEMs") revenue and $1.05 million in revenue from all other channels. 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 $863,400 in the third quarter of 1995 to $1.3 million in the third quarter of 1996, and represented 56% and 45% of revenue, respectively. The margin improvement was primarily attributable to (i) a higher percentage of software sales which have relatively high margins, and (ii) a combination of reduced purchase costs and increases in end-user pricing on certain supplies and hardware items. OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support expenses increased from $202,800 in the third quarter of 1995 to $219,700, net of expense credits associated with the Middle East Contract, in the third quarter of 1996, and represented 13% and 7% of revenue, respectively. The percentage decrease was the result of a 91% increase in revenue without a commensurate increase in expenses. Gross expenses increased from $202,800 in the third quarter of 1995 to $250,600 in the third quarter of 1996. The increase in such expenses resulted primarily from headcount and compensation-related increases and an increase in depreciation. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses decreased from $1.01 million in the third quarter of 1995 to $784,800, net of expense credits associated with the Middle East Contract, in the third quarter of 1996, and represented 65% and 27% of revenue, respectively. The percentage decrease was partly attributable to a 91% increase 6 in revenue without a commensurate increase in expenses. Further, the third quarter of 1995 included a charge of $267,000 for bad debt expense. This expense was the result of (i) a charge related to the write off of certain receivables associated with the discontinuance of operations by the Company's European distributor, and (ii) an increase in the general allowance for doubtful accounts. RESEARCH AND DEVELOPMENT. Research and development expenses, net of capitalized software costs, decreased from $251,200 in the third quarter of 1995 to $235,600, net of expense credits associated with the Middle East Contract, in the third quarter of 1996, and represented 16% and 8% of revenue, respectively. The percentage decrease was the result of a 91% increase in revenue without a commensurate increase in expenses. Gross expenses increased from $284,800 in the third quarter of 1995 to $388,500 in the third quarter of 1996. The increase in such expenses resulted primarily from headcount and compensation-related increases and an increase in depreciation. INTEREST INCOME. Interest income decreased from $108,000 in the third quarter of 1995 to $68,000 in the third quarter of 1996. This decrease was due to a reduction in cash available for investment. INCOME TAX. Income tax expense of $50,000 for the third quarter of 1996 was estimated to be 11% of pretax earnings. 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. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 REVENUE Revenue increased from $4.53 million in the first nine months of 1995 to $8.50 million in the first nine months of 1996, representing an 88% increase. Revenue in the first nine months of 1996 included approximately $4.85 million associated with the Middle East Contract. The Company believes it will record substantially all of the revenue under the Middle East Contract by year-end 1996. The remaining revenue of $3.65 million in the first nine months of 1996 consisted of $929,500 in OEM revenue and $2.72 million in revenue from all other channels. COSTS AND EXPENSES COST OF PRODUCTS SOLD. The cost of products sold increased from $2.35 million in the first nine months of 1995 to $3.94 million in the first nine months of 1996, and represented 52% and 46% of revenue, respectively. The margin improvement was primarily attributable to a combination of reduced purchase costs and increases in end-user pricing on certain supplies and hardware items. OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support expenses increased from $644,800 in the first nine months of 1995 to $725,700, net of expense credits associated with the Middle East Contract, in the first nine months of 1996, and represented 14% and 9% of revenue, respectively. The percentage decrease was the result of an 88% increase in revenue 7 without a commensurate increase in expenses. Gross expenses increased from $644,800 in the first nine months of 1995 to $777,700 in the first nine months of 1996. The increase in such expenses resulted primarily from headcount and compensation-related increases and an increase in depreciation. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses decreased from $2.35 million in the first nine months of 1995 to $2.34 million, net of expense credits associated with the Middle East Contract, in the first nine months of 1996, and represented 52% and 28% of revenue, respectively. The percentage decrease was primarily the result of an 88% increase in revenue without a commensurate increase in expenses. Gross expenses increased from $2.35 million in the first nine months of 1995 to $2.42 million in the first nine months of 1996. Without the $267,000 bad debt expense incurred in the third quarter of 1995, gross expenses increased approximately $334,000 for the nine month period ended September 30, 1996 over the same period in 1995. The increase in such expenses resulted primarily from headcount and compensation-related increases and an increase in depreciation. RESEARCH AND DEVELOPMENT. Research and development expenses, net of capitalized software costs, increased from $619,900 in the first nine months of 1995 to $682,600, net of expense credits associated with the Middle East Contract, in the first six months of 1996, and represented 14% and 8% or revenue, respectively. The percentage decrease was the result of an 88% increase in revenue without a commensurate increase in expenses. Gross expenses increased from $778,500 in the first nine months of 1995 to $1.07 million in the first nine months of 1996. The increase in such expenses resulted primarily from headcount and compensation-related increases and an increase in depreciation. INTEREST INCOME. Interest income decreased from $347,200 in the first nine months of 1995 to $225,500 in the first nine months of 1996. This decrease was due to a reduction of cash available for investment. INCOME TAX/BENEFIT. An income tax benefit for the first nine months of 1995 was estimated to be 10% of the pretax loss. An income tax expense of $174,000 for the first nine months of 1996 was estimated to be 17% of the pretax earnings. 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. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 1995 and 1996, the Company financed its operations primarily from working capital. The Company's principal uses of cash during the nine months ended September 30, 1995 and 1996 were to (i) in 1995, fund operating activities; (ii) acquire property and equipment; (iii) invest in the development of software; and (iv) in 1995, repay debt. During the first nine months of 1995, the Company's cash and cash equivalents decreased from $8.9 million at December 31, 1994 to $7.3 million at September 30, 1995. Net cash used in operating activities of $323,300 consisted primarily of a net loss of $982,000 and an increase in deferred income taxes of $106,000 and decreases in accounts payable and accrued liabilities of 8 $222,000, offset by decreases in accounts receivable, inventory and prepaid expense of $655,000. Net cash used in investing activities of $1,211,000 consisted primarily of $609,000 of construction-in-progress associated with the Company's new facility, $410,000 of capital expenditures and $174,000 of software development costs. Net cash used in financing activities of $70,000 consisted primarily of a final payment for land purchased in June 1992. During the first nine months of 1996, the Company's cash and cash equivalents decreased from $6.2 million at December 31, 1995 to $5.8 at September 30, 1996. Net cash provided by operating activities of $655,000 consisted primarily of net income of $859,000 and decreases in accounts receivable, inventory, prepaid expenses and other assets and deferred income taxes of $820,000, and an increase in accrued liabilities of $234,000, offset by an increase in contracts in progress billings of $1.5 million and a decrease in accounts payable of $287,000. Net cash used in investing activities of $1.1 million consisted primarily of $209,000 of construction in progress associated with the Company's new CCTVware-TM- products, $649,000 of capital expenditures and $245,000 of software development costs. The Company anticipates capital expenditures for the remainder of 1996 of approximately $250,000. The Company believes it has sufficient cash to meet its capital requirements and fund operations for at least the next twelve months. CERTAIN FACTORS BEARING ON FUTURE RESULTS The statements in the third sentence and the second to last sentence under the caption "Revenue" on page 6 and the fifth paragraph under the caption "Financial Condition, Liquidity and Capital Resources" on page 9 are forward-looking statements. In addition, the Company may from time to time make oral forward-looking statements. The following are certain important factors that could cause actual results to differ materially from those projected in any such forward-looking statements. OEM RELATIONSHIPS. Sales through OEMs have historically accounted for a significant portion of the Company's revenue. The Company believes its success in penetrating markets for its digital identification and video image management systems depends in large part on its ability to maintain its OEM relationships and to cultivate additional, similar relationships. There can be no assurance that OEMs, most 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 relationships with the Company. One of the Company's OEMs has elected to produce its own imaging products and may compete with the Company in the future. The loss of any further OEM relationships could have a negative impact on the Company's revenue stream. 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 presence. For instance, the Company has established a wholly owned subsidiary in the United Kingdom and entered into the Middle East Contract. 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 9 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. DEPENDENCE ON A SINGLE CUSTOMER. The Middle East Contract accounted for 57% of the Company's revenue in the first nine months of 1996. The Company currently has no reason to believe that it will not be successful in fulfilling all of its obligations due to be performed under the Middle East Contract or receiving all the payments to be made thereunder; however, there can be no assurance that events or conditions may not occur which could threaten the Company's ability to complete the Middle East Contract or collect all amounts owed thereunder. If such events or conditions occur, the Company's business, operating results and financial condition would be materially adversely affected. In addition, there can be no assurance that any further new business will arise after September 1996 from this customer. COMPETITION. The Company's competitors include a broad range of companies that develop and market products for the identification and surveillance markets including: (i) in the film-based systems market, Polaroid Corporation and Eastman Kodak, Co., and (ii) in the digital identification and badge issuance systems market, Polaroid Corporation, Eastman Kodak, Co., Data Card Corporation, Dactek International, Inc., Image Base, Inc., G&A Imaging, Goddard Technology Corporation and Laminex, Inc., and (iii) in the surveillance market, TVX, Inc., Prima Facie, Inc., Silent Witness Enterprises, Inc., and Dedicated Micros, Inc. 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. Moreover, while the Company believes that the price/performance characteristics of its 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 that its products, trademarks or other proprietary rights infringe 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. 10 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 expects to release several products in the next few months based on its CCTVware-TM- technology. This technology provides for digital recording and storage that eliminates the need for video tapes and VCRs in surveillance environments and allows for high-speed access and retrieval of the stored video. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, its new CCTVware products or any other fully functional product enhancements or new products that respond to the technological advances by others, or that the Company's new products will be accepted by customers. 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 certain 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 Company may not receive any further new business from the Middle East contract. Additionally, other than the Middle East contract, 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. A small variation in revenue can cause significant variations in operating results from quarter to quarter and may result in losses. LEGAL PROCEEDINGS. The Company is currently in litigation with the Company's former Vice President of Marketing and Sales, 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 alleges 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. A jury trial was scheduled to begin on September 30, 1996 but it was postponed and is currently scheduled to begin on March 10, 1997. Although the Company believes that this individual's claims are without merit and is defending this action vigorously, an adverse result in the litigation could have a negative impact on the financial position and the results of operations. 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 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 11 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 expects to release several products in the next few months based on its CCTVware-TM- technology. This technology provides for digital recording and storage that eliminates the need for video tapes and VCRs in surveillance environments and allows for high-speed access and retrieval of the stored video. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, its new CCTVware products or any other fully functional product enhancements or new products that respond to the technological advances by others. There also can be no assurance that the Company's new CCTVware or other new products will be accepted by customers. 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 certain 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 Company may not receive any further new business from the Middle East Contract after September 1996. Additionally, other than the Middle East Contract, 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. A small variation in revenue can cause significant variations in operating results from quarter to quarter and may result in losses. LEGAL PROCEEDINGS. The Company is currently involved in litigation with the Company's former Vice President of Marketing and Sales, 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 alleges 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. A jury trial was scheduled to begin on September 30, 1996 but it was postponed and is currently scheduled to begin on March 10, 1997. Although the Company believes that this individual's claims are without merit and is defending this action vigorously, an adverse result in the litigation could have a negative impact on the financial position and the results of operations. 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 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 11 may require additional capital resources. 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. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 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 September 30, 1996. 12 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. OCTOBER 28, 1996 /S/ JONATHAN C. LUPIA - ---------------- ---------------------------------- Date Jonathan C. Lupia Chief Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LORONIX CONDENSED CONSOLIDATED BALANCE SHEET, STATEMENT OF OPERATIONS AND CASH FLOWS FROM ITS 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 SEP-01-1996 SEP-30-1996 5,767,807 0 1,626,360 177,025 942,831 10,931,076 3,823,562 827,427 14,653,451 1,089,930 0 0 0 4,662 13,535,551 14,653,451 8,504,213 8,504,213 3,944,281 3,944,281 3,751,654 0 0 1,033,453 (174,038) 859,415 0 0 0 859,415 .18 .18 THE COMPANY HAS TWO OUTSTANDING LETTERS OF CREDIT COLLATERALIZED BY CERTIFICATES OF DEPOSITS TOTALING APPROXIMATELY $50,000.
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