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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_______ TO ______
COMMISSION FILE NUMBER 000-29367
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VANTAGEMED CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 68-0383530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3017 KILGORE ROAD, SUITE 195, RANCHO CORDOVA, CALIFORNIA 95670
(916) 638-4744
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
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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 the file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / / No /X/
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the most recent practicable date.
CLASS OUTSTANDING AT
- ----- MAY 12, 2000
--------------
Common stock................................................. 8,602,560
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<PAGE>
VANTAGEMED CORPORATION
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INDEX AND CROSS REFERENCE
<TABLE>
<CAPTION>
ITEM NUMBER PAGE
- ----------- ----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item. 1 Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and March 31, 2000 (unaudited) ...................... 3
Consolidated Statements of Operations (undaudited) for the three months ended March 31, 1999 and
March 31, 2000........................................................................................... 4
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 1999 and
March 31, 2000........................................................................................... 5
Notes to Consolidated Financial Statements............................................................... 6
Item. 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 10
Forward-Looking Statements and Risk Factors................................................................ 15
Item. 3 Quantitative and Qualitative Disclosures About Market Risk................................................. 22
PART II - OTHER INFORMATION
Item. 1 Legal Proceedings.......................................................................................... 23
Item. 2 Changes in Securities and Use of Proceeds.................................................................. 23
Item. 6 Exhibits and Reports on Form 8-K........................................................................... 24
Signatures................................................................................................. 25
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VANTAGEMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................................... $ 250 $ 25,934
Accounts receivable, net of allowance of $287 and $375, respectively........................ 2,463 2,369
Notes receivable, current portion........................................................... 64 64
Inventories................................................................................. 480 461
Prepaid expenses and other.................................................................. 2,064 506
-------- --------
Total current assets........................................................................ 5,321 29,334
NOTES RECEIVABLE, net of current portion...................................................... 128 113
PROPERTY AND EQUIPMENT, net................................................................... 2,564 2,446
INTANGIBLES, net of accumulated amortization of $4,592 and $5,867, respectively............... 28,451 27,334
-------- --------
$ 36,464 $ 59,227
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................................................... $ 5,574 $ 838
Accounts payable............................................................................ 2,352 1,343
Accrued liabilities......................................................................... 2,501 2,674
Customer deposits and deferred revenue...................................................... 2,906 3,040
-------- --------
Total current liabilities................................................................... 13,333 7,895
LONG-TERM DEBT, net of current portion........................................................ 2,639 1,429
-------- --------
Total liabilities........................................................................... 15,972 9,324
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COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares authorized
Series A-1-1,795,300 and 0 shares issued and outstanding, respectively...................... 2 --
Series B-120,000 and 0 shares issued and outstanding, respectively.......................... - --
Common stock, $0.001 par value, 20,000,000 shares authorized; 4,355,325 and 8,585,435 shares 4 9
issued and outstanding, respectively........................................................
Additional paid-in capital.................................................................. 35,357 72,454
Unrealized loss on available-for-sale securities............................................ 0 (69)
Deferred compensation....................................................................... (78) (75)
Accumulated deficit......................................................................... (14,793) (22,416)
-------- --------
Total stockholders' equity.................................................................. 20,492 49,903
-------- --------
Total liabilities and stockholders' equity.................................................. $ 36,464 $ 59,227
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
3
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
(AS RESTATED-
SEE NOTE 7)
1999 2000
---- ----
<S> <C> <C>
REVENUES:
Software and systems $ 1,388 $ 2,274
Customer support and electronic services 1,775 3,808
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Total revenues.............................. 3,163 6,082
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OPERATING COSTS AND EXPENSES:
Software and systems............................. 74 824
Customer support and electronic services......... 1,154 2,421
Selling, general and administrative.............. 1,509 4,251
Product development.............................. 587 1,530
Depreciation and amortization.................... 536 1,559
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Total operating costs and expenses.......... 4,500 10,585
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LOSS FROM OPERATIONS............................... (1,337) (4,503)
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INTEREST INCOME (EXPENSE):
Interest income.................................. 188 262
Interest expense................................. (64) (3,382)
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Total interest expense, net................. (124) (3,120)
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LOSS BEFORE INCOME TAXES........................... (1,461) (7,623)
INCOME TAXES....................................... 0 0
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Net loss.................................... $ (1,461) $ (7,623)
---------- ----------
---------- ----------
Basic and diluted net loss per share............... $ (.60) $(1.17)
---------- ----------
Weighted-average shares-basic and diluted.......... 2,415,125 6,540,107
---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
4
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
(AS RESTATED-
SEE NOTE 7)
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(1,461) $(7,623)
Adjustments to reconcile net loss to net cash
used for operating activities-...................
Depreciation and amortization.................... 536 1,694
Bad debt expense................................. 25 121
Beneficial interest conversion................... 0 3,000
Changes in assets and liabilities, net of effects
from acquisitions-...............................
Account receivable........................... (90) (27)
Inventories.................................. (13) 19
Prepaid expenses and other .................. (14) 1,437
Book overdraft............................... (1,632) 0
Accounts payable and accrued liabilities..... 79 (836)
Customer deposits and deferred revenue....... (66) 134
------- -------
Net cash used for operating activities.... (2,636) (2,081)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of
effects from acquisitions........................ (366) (172)
Purchase of Intangible........................... 0 (147)
------- -------
Net cash used in investing activities........ (366) (319)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock......................... 110 31,030
Issuance of preferred stock...................... 3000 0
Proceeds from issuance of long-term debt......... 33 1,200
Payments on long-term debt....................... (173) (4,146)
------- -------
Net cash provided by financing activities.... 2,970 28,084
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Net change in cash and cash equivalents...... (32) 25,684
CASH AND CASH EQUIVALENTS, beginning of period..... 435 250
------- -------
CASH AND CASH EQUIVALENTS, end of period........... $ 403 $25,934
------- -------
------- -------
</TABLE>
See Note 5 for supplemental cash flow information.
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
5
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION:
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and pursuant to the instructions
to Form 10-Q and Article 10 of Regulation S-X of the 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 have been included. Operating results for the three month
periods ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000, or for any future
period. These financial statements and notes should be read in conjunction
with the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K, which was filed with the Securities
and Exchange Commission on March 30, 2000.
ORGANIZATION
VantageMed Corporation (the Company) was incorporated in California
on June 11, 1995. On April 9, 1997, the Company was reincorporated in
Delaware. The basis of presentation includes Northern Health Solutions, Inc.
and Healthcare Information Systems, Inc., two business combinations effected
in 1998 accounted for as poolings and included for all periods presented. The
Company is a healthcare information systems supplier headquartered in
Sacramento, California with regional offices in Walnut Creek, Van Nuys, and
San Francisco, California; Honolulu, Hawaii; Seattle, Washington; Kansas
City, Missouri; Flint, Michigan; Pompton Plains, New Jersey; Detroit,
Michigan; Pittsburgh, Pennsylvania; Boston, Massachusetts; Springfield,
Illinois; Boulder, Colorado; Salt Lake City, Utah; Houston, Texas;
Birmingham, Alabama; Greensboro, North Carolina; and Little Rock, Arkansas.
The Company develops, sells, installs and supports software products and
services that assist physicians, dentists, physician organizations and other
healthcare providers in the operation of their practices and organizations.
The Company is building a national distribution network by acquiring
established regional healthcare practice management systems companies to sell
and support its new generation software and services.
The practice management software products offered by the Company
provide physicians, dentists and other healthcare professionals with office
management software designed to automate the administrative, financial,
practice management and clinical requirements of a practice. These systems
range in capacity from one to approximately one hundred users. The Company
also provides software, network and hardware support, training, electronic
claims processing, electronic statement printing and mailing and electronic
remittance advices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
SHORT-TERM INVESTMENTS
The Company considers its short-term securities, consisting
primarily of short-term A1/P1 or better-rated money market securities or
government-backed notes, to be available-for-sale-securities and,
accordingly, these securities are stated at fair value and are included in
cash and cash equivalents. The difference between amortized cost (cost
adjusted for amortization of premiums and accretion of discounts which are
recognized as adjustments to interest income) and fair value, representing
unrealized holdings gains or losses, are recorded as a separate component of
stockholders' equity until realized. Any gains and losses on the sale of debt
securities are determined on a specific identification basis. Realized gains
and losses are included in interest income (expense) in the accompanying
consolidated statement of operations. At March 31, 1999 and 2000, unrealized
holding losses were $0 and $69,000, respectively.
6
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED):
INTANGIBLES
Intangibles include goodwill, acquired software, customer lists,
covenants not to compete and assembled workforces. Goodwill represents the
amount of purchase price in excess of the fair value of the identifiable assets
purchased in acquisitions completed by the Company and is amortized on a
straight-line basis over a period of two to ten years, depending upon whether
the acquisition is established as a new regional office or is consolidated into
an existing one and whether or not there are continuing sales of the software
purchased in the acquisition. Acquired software consists of software purchased
in acquisitions completed by the Company and is amortized on a straight-line
basis over a period of two to four years depending on the estimated continued
use of the software product acquired. Covenants not to compete are amortized on
a straight-line basis over two to five years, representing the life of such
agreements. Customer lists are amortized on a straight-line basis over two to
ten years, representing the estimated future life of customer relationships.
Assembled workforce is amortized on a straight-line basis over a period of one
to ten years depending upon the average length of employment for the employees
of the acquired companies.
REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted Statement of Position
97-2 (SOP 97-2), "Software Revenue Recognition." SOP 97-2 provides guidance
on applying generally accepted accounting principles for recognizing revenue
on software transactions. The adoption of SOP 97-2 did not have a material
impact on the Company's revenue. In December 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-9 (SOP 98-9),
"Modification of SOP 97-2. Software Revenue Recognition With Respect to
Certain Transactions." SOP 98-9 is effective for fiscal years beginning after
March 15, 1999. The Company believes that the adoption of SOP 98-9 will not
have a material effect on the results of their operations or financial
condition.
Software and systems revenue is derived from the licensing of
proprietary software, the sale of third-party software, primarily desktop
operating systems and communication and security software and the sale of
computer hardware and supplies. Customer support and electronic services
revenue is derived from software maintenance and customer service, network
and computer hardware support, training, data conversion, system
installation, electronic claims processing, electronic statement printing,
mailing and electronic remittance advices.
The Company enters into license agreements with customers, which
allow for the use of the Company's products, usually restricted by the number
of employees, the number of users, or the license term. Fees from licenses
are recognized as revenue in accordance with SOP 97-2 when all shipment
obligations have been met, fees are fixed and determinable, collection of the
sale proceeds is deemed probable and persuasive evidence of an agreement
exists. Other customer support and electronic services are also provided to
the Company's licensees of software products. These services consists
primarily of software maintenance and customer service, network and computer
hardware support and installation of software at customer sites. The revenue
from the installations is recognized upon completion of installation. The
revenue from software maintenance, customer service and support is recognized
ratably over the term of the support period. For arrangements that include
multiple elements, the fee is allocated to the various elements based on
vendor-specific objective evidence of fair market value established by
independent sale of the elements sold separately. Revenues from other
services, which include training, data conversion, electronic claims
processing, electronic statement printing, mailing and electronic remittance
advices are recognized as the services are provided.
Deferred revenue consists of revenue deferred under annual
maintenance and annual support agreements under which amounts have been
received from customers and for which the earnings process has not been
completed. Customer deposits consist of cash collections for undelivered
product and related services as of the reporting period. The Company will
recognize these deferred revenues in accordance with its revenue recognition
policy, typically over a period of one year or less.
7
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED):
NET LOSS PER COMMON SHARE
The Company calculated net loss per share under the provisions of
the SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual
presentation of basic and diluted earnings per share on the face of the
income statement.
Basic earnings per share is computed using the weighted-average
number of shares of common stock outstanding while diluted earnings per share
reflects the potential dilution that would have occurred if preferred stock
had been converted and stock options and warrants had been exercised.
Potential common stock equivalents consist of shares issuable upon the
exercise of stock options, warrants and shares issuable upon the conversion
of Series A-1 and Series B convertible preferred stock. There were 1,795,000
and no shares of Series A-1 convertible preferred stock outstanding at March
31, 1999 and 2000, respectively. There were 120,000 and no shares of Series B
convertible preferred stock outstanding at March 31, 1999 and 2000,
respectively. Both Series A-1 and Series B preferred stock was converted into
common stock on February 14, 2000. In addition, there were 195,000 and
780,687 outstanding options and warrants to purchase common shares as of
March 31 1999 and 2000, respectively, that were not included in the
computation of diluted net loss per common share as their effect would have
been anti-dilutive, thereby decreasing net loss per common share. Such
securities, had they been dilutive, would have been included in the
computation of diluted net loss per share using the treasury stock method.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. During the three months ended March 31, 1999, the Company had no
comprehensive income components, therefore, comprehensive loss was the same
as the net loss for the period. During the three months ended March 31, 2000,
other comprehensive income consists of unrealized holding losses on
available-for-sale investment securities. There was not material difference
between comprehensive and net loss for this period presented.
3. INITIAL PUBLIC OFFERING:
In February 2000, VantageMed completed an initial public offering
("IPO") of 3 million shares of its common stock. The shares of common stock
sold in the IPO were registered under the Securities Act of 1933, as amended,
on a registration statement on Form S-1 (Registration No. 333-91657) that was
declared effective by the Securities and Exchange Commission on February 14,
2000. The IPO commenced on February 15, 2000. All 3 million shares of common
stock registered were sold at a price of $12 per share. The aggregate
offering price of the shares of common stock registered and sold was $36
million. The Company paid an aggregate amount of approximately $2,520,000 in
underwriting discounts and commissions. In addition, expenses incurred in
connection with the offering totaling approximately $2,434,000.
During 1999, the Board of Directors approved a one-for-three reverse
stock split. The split was effective shortly before the completion of the IPO
on February 14, 2000, and affected all outstanding shares of common stock.
All common share and per share data in these financial statements have been
retroactively adjusted to give effect to the reverse stock split. In
addition, the conversion and exercise provisions of the outstanding shares of
preferred stock, stock options and warrants have been adjusted accordingly.
Upon closing of the IPO, all outstanding shares of Series A-1
preferred stock was converted at the option of the holder into 599,425 shares
of common stock, and all outstanding shares of Series B preferred stock was
automatically converted into 120,000 shares of common stock. Additionally, a
secured convertible promissory note with principal and interest totaling
$3,061,500 converted into 510,685 shares upon the IPO.
4. DEFERRED COMPENSATION:
As of December 31, 1999, the Company recorded deferred compensation
related to options granted to employees in the total amount of $111,000,
representing the difference between the deemed fair value of the Company's
common stock and the exercise price of the options at the grant date. The
amortization of the deferred compensation is charged to operations over the
vesting period of the options. Total amortization expense recognized was $0
and $3,900 for the three months ended March 31, 1999 and 2000, respectively.
8
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VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest amounted to approximately $181,000 and
$427,000 for the three months ended March 31, 1999 and 2000, respectively.
The Company made cash payments for income taxes of $0 for the three months
ended March 31, 1999 and 2000.
During the three months ended March 31, 1999, the Company converted
a $500,000 line of credit to 197,628 shares of Series A-1 preferred stock and
financed $33,000 in the purchase of property and equipment under capital
leases.
During the three months ended March 31, 2000, the Company converted
a promissory note with principal and interest totaling $3,061,500 into
510,685 shares of common stock. The beneficial conversion feature of the note
is $3 million and was recognized as interest expense on the date of
conversion.
6. CONTINGENCIES:
Beginning on March 13, 2000 a series of securities class action
lawsuits have been filed against the Company, its officers and directors
alleging that the Company's S-1 Registration Statement and prospectus
contained false and misleading statements. The lawsuits allege that the
Company failed to describe that the Company would be delayed in introducing a
new version of one of its software products, which delay would adversely
effect the Company's future results. The Company believes these actions are
without merit and it intends to vigorously defend itself against them.
However, depending on the amount and timing, ultimate resolution of some or
all of these matters could materially affect future operations.
7. RESTATEMENT OF MARCH 31, 1999 FINANCIAL STATEMENTS:
As originally calculated, the tax provision for the three months
ended March 3, 1999 included a benefit. Certain deferred tax liabilities were
recorded in connection with purchase business combinations. These deferred
tax liabilities represent the tax effect of certain book and tax basis
differences of acquired companies. Net operating losses arising subsequent to
the related acquisition were benefited against the recorded deferred tax
liabilities.
Because the Company had a valuation allowance on its deferred tax
assets at the date of the business combinations, the deferred tax liabilities
should have been used to reduce the Company's valuation allowance with a
corresponding reduction in goodwill, rather than recognizing benefits of
future net operating losses as previously updated. Accordingly, no benefit is
recorded in the results of operations for the period ended March 31, 1999 as
restated.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY
THESE STATEMENTS BY WORDS SUCH AS "EXPECTS," "ANTICIPATES," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," "ESTIMATES" AND SIMILAR EXPRESSIONS. BECAUSE
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS FOR A NUMBER OF REASONS, INCLUDING THOSE DISCUSSED
UNDER "FORWARD-LOOKING STATEMENTS AND RISK FACTORS" AND ELSEWHERE IN THIS
DOCUMENT.
YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY
BECAUSE THEY DISCUSS OUR EXPECTATIONS ABOUT OUR FUTURE PERFORMANCE, CONTAIN
PROJECTIONS OF OUR FUTURE OPERATING RESULTS OR OUR FUTURE FINANCIAL
CONDITION, OR STATE OTHER "FORWARD-LOOKING" INFORMATION. YOU SHOULD CAREFULLY
REVIEW THE RISKS DECLARED IN THE ANNUAL REPORT ON FORM 10-K FILED ON MARCH
30, 2000. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING, STATEMENTS, WHICH SPEAK ONLY AS OF DATE OF QUARTERLY REPORT
ON FORM 10-Q. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO
THE FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE OF THIS DOCUMENT.
OVERVIEW
VantageMed is a national provider of healthcare information systems
and services. Our strategy is to continue to expand our national distribution
network through the acquisition of established regional healthcare products
and managed care systems companies who will sell and support our new software
products and services to an existing and expanding customer base. We plan to
continue to grow our recurring revenues through additional acquisitions and
the migration of current customers from legacy systems to our Windows-based,
Internet-enabled software products and Internet and electronic services,
while at the same time continuing to expand both our market penetration and
product offerings.
Of the 26 business combinations we have completed to date,
Healthcare Information Systems, Inc. and Northern Health Solutions, Inc. were
accounted for as pooling of interests, and therefore, our financial
statements include them as a part of our operations for all periods
presented. We acquired four established regional healthcare information
systems companies in 1997, with the first occurring in July 1997, eight
companies in 1998 and fourteen companies in 1999. We have financed our 26
business combinations to date through the issuance of approximately 3.1
million shares of common stock, 120,000 shares of Series B preferred stock,
$1.2 million in stock options, $4.3 million in promissory notes and $1.9
million in cash.
We derive revenues from two sources: software and systems; and
customer support and electronic services. Software and systems revenues
result from the licensing of our proprietary software, as well as third-party
software, computer hardware and supplies. The third-party software is
primarily desktop operating systems and standard communication/security
software. Customer support revenues are derived from software maintenance and
customer service, network and computer hardware support, training, data
conversion and system installation. Electronic services revenues are
generated by electronic insurance claims processing, electronic statement
printing and mailing.
Our revenues include both recurring and non-recurring revenues. We
define recurring revenues as any revenues derived from an existing or
acquired customer after the initial installation of the product and revenues
generated from sales of new products to existing customers. We consider our
non-recurring revenues to be revenues generated on sales to new customers. We
expect the mix of recurring and non-recurring revenues to fluctuate because
of our acquisition activities and our ability to sell our products to new
customers. Over time, we believe that recurring revenues will continue to
represent a large portion of our overall revenues. Recurring revenue is not a
measurement defined by generally accepted accounting principles (GAAP) and
should not be considered an alternative to, or more meaningful than, revenues
as defined by GAAP. All companies do not calculate recurring revenues in the
same manner or at all. Accordingly, our recurring revenue data may not be
comparable with that of other companies. We have included information
concerning recurring revenues because we believe recurring revenues provides
useful information regarding our overall revenue mix.
Cost of revenues consists primarily of the costs of software and
computer hardware products sold to customers and associated shipping costs,
third-party costs for supplies and electronic services and salary and benefit
costs for employees
10
<PAGE>
performing customer support. Selling, general and administrative expenses
include the salaries, commissions and benefits of sales staff, executive and
administrative personnel costs, advertising and promotional materials costs
and travel, communications, facilities, insurance and other administrative
expenses. Product development expenses are primarily payroll and related
costs to develop new products and enhance existing products.
BUSINESS SEGMENT GROSS PROFIT DATA
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
<S> <C> <C>
SOFTWARE AND SYSTEMS: 1999 2000
---- ----
Revenues ...................................................... $1,388 $2,274
Cost of revenues ............................................ 714 824
------ ------
Gross profit ................................................ $ 674 $1,450
------ ------
------ ------
Gross profit percentage...................................... 48.6% 63.8%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
<S> <C> <C>
CUSTOMER SUPPORT AND ELECTRONIC SERVICES: 1999 2000
---- ----
Revenues..................................................... $1,775 $3,808
Cost of revenues............................................. 1,154 2,421
------ ------
Gross profit................................................. $ 621 $1,387
------ ------
------ ------
Gross profit percentage...................................... 35.0% 36.4%
</TABLE>
Our acquisitions have resulted in significant intangibles and
related amortization. Amortization expenses result from the amortization of
intangible assets. Intangible assets acquired include acquired software,
covenants not to compete, customer lists, assembled workforce and goodwill
and has averaged 94.3% of the consideration paid by VantageMed for an
acquisition. Acquired software is amortized over two to four years depending
on the estimated continued use of the software product acquired. Covenants
not to compete are amortized over two to five years, representing the life of
such agreements. Customer lists are amortized over two to ten years,
representing the estimated future life of customer relationships. Assembled
workforce is amortized over one to ten years, depending upon the average
length of employment for the employees of those companies we have acquired.
Goodwill is amortized over two to ten years depending upon whether the
acquisition is established as a new regional office or is consolidated into
an existing regional office; and whether or not there is continuing sales of
the software purchased in the acquisition.
Depreciation and amortization expense also includes depreciation of
tangible property and equipment over their useful lives, which range from
three to seven years. Depreciation expenses are not material to our operating
results. Depreciation and amortization expenses have resulted in sizeable
non-cash charges to our historical operating results and are expected to
continue to generate significant operating expenses in the near term due to
our acquisition strategy.
We have invested approximately $8.2 million in product development
since our inception. These funds have been primarily invested in our medical
and dental products and to a lesser extent into our electronic claims
processing systems and a clinical information management system.
As of March 31, 2000, we had a post-acquisition federal and state
net operating loss carry forward benefit of approximately $8.2 million
available to offset future income tax, if any. These benefits will begin to
expire incrementally at various dates through 2021. A portion of the net
operating losses maybe subject to limitations under governing tax law.
We expect our revenues to increase through both acquisitions and
internal growth. We believe that migration of current and acquired customers
to our Windows-based, Internet-enabled products and the development and
marketing of these products to new and existing customers are the keys to our
internal growth strategy. Our internal growth model is therefore focused on
increasing revenues from software licensing and electronic transaction
services, as well as maintaining recurring support revenues. We recognize
revenues from software license fees in accordance with American Institute of
Certified Public Accountants Statement of Position 97-2. Software license
fees are recognized as revenues upon delivery of our software
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products to our customers, as long as evidence of an arrangement exists, the
amounts of fees are fixed and determinable and the collection of the
resulting receivable is probable. Computer hardware and supplies revenues are
recognized upon product shipment. Revenues from support and maintenance
contracts are recognized ratably over the life of the contract. Revenues from
other services are recognized as the services are provided.
Our strategy is to acquire companies with technology that will enhance
our overall product offerings or companies that build regional market
penetration in support of our national distribution channel. Since July 1997, we
have over 10,000 customer sites through acquisition and internal growth. Our
acquisitions have produced an established distribution channel of 15 regional
offices nationwide, provided us access to an existing customer base, new product
offerings, and helped us to build our management team. As we continue to grow,
we expect our operating expenses as a percentage of sales to decrease. Our
operating expenses to date have grown faster than our revenues as a result of
building our infrastructure and a management team to execute our strategy.
RESULTS OF OPERATIONS
The following table sets forth certain data expressed as a percentage
of total revenues for the periods indicated.
SELECTED CONSOLIDATED FINANCIAL DATA PERCENTAGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
Revenues: 1999 2000
---- ----
<S> <C> <C>
Software and systems............................ 43.9% 37.4%
Customer support and electronic services........ 56.1 62.6
------- --------
Total revenues.................................. 100.0 100.0
Operating costs and expenses:
Software and systems............................ 22.6 13.5
Customer support and electronic services........ 36.5 39.8
Selling, general & administrative............... 47.7 69.9
Product development............................. 18.6 25.2
Depreciation and amortization................... 16.9 25.6
------- --------
Total costs and operating expenses.............. 142.3 174.0
------- --------
Loss from operations.............................. (42.3) (74.0)
Interest expense.................................. (3.9) (51.3)
------- --------
Loss before income taxes.......................... (46.2) (125.3)
------- --------
Provision (benefit) for income taxes..............
-- --
------- --------
Net loss.......................................... (46.2)% (125.3)%
------- --------
------- --------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
A majority of the variances between the three months ended March 31,
1999 and the corresponding period of 2000 are attributable to our acquisition
activity. During the last nine months of 1999, we completed fourteen business
combinations, all of which were accounted for using the purchase method of
accounting. Therefore, revenues and expenses from these companies were not
included in the three months ended March 31, 1999, but were included in the
three months ended March 31, 2000.
REVENUES. Total revenues increased 92.3% from $3.2 million in the
three months ended March 31, 1999 to $6.1 million in the corresponding period
of 2000. The revenue increase resulted from acquisitions. Recurring revenues
increased 89.8% from $2.5 million in the three months ended March 31, 1999 to
$4.8 million in the corresponding period of 2000, while non-recurring
revenues increased 101.7% from $655,000 in the three months ended March 31,
1999 to $1.3 million in the corresponding period of 2000.
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SOFTWARE AND SYSTEMS. The software and systems component of
total revenues increased 63.8% from $1.4 million, or 43.9% of total
revenues for the three months ended March 31, 1999 to $2.3 million, or
37.4% of total revenues in the corresponding period of 2000. Software
and systems revenues consist of software licensing revenues and
revenues from the sale of computer hardware and supplies. Software
licensing revenues were 41.0% and 65.8% and computer hardware and
supply revenues were 59.0% and 34.2% of total software and systems
revenues for the three months ended March 31, 1999 and 2000,
respectively. The increase in software and systems revenues was due
to acquisitions.
Revenues from software licensing increased 162.7% from
$569,000 for the three months ended March 31, 1999 to $1.5 million for
the same period in 1999. Legacy product sales were 61.6% of software
licensing revenues for the three months ended March 31, 1999 compared
to 48.1% in the corresponding period of 2000. New product sales were
38.4% of software licensing revenues for the three months ended March
31, 1999 compared to 51.9% in the corresponding period of 2000. The
gross profit for software licensing revenues increased 157.7% from
$498,000 for the three months ended March 31, 1999 to $1.3 million in
the corresponding period of 2000.
Revenues from computer hardware and supplies decreased 5.0%
from $819,000 for the three months ended March 31, 1999 to $778,000 in
the corresponding period of 2000. The gross profit from computer
hardware and supplies revenues decreased 5.6% from $176,000 for the
three months ended March 31, 1999 to $166,000 in for the corresponding
period of 2000.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. The customer support
and electronic services component of total revenues increased 114.5%
from $1.8 million, or 56.1% of total revenues in the three months ended
March 31, 1999, to $3.8 million, or 62.6% of total revenues in the
corresponding period of 2000. Customer support revenues are derived
from software maintenance and customer service, network and computer
hardware support, training, data conversion and system installation.
Electronic services revenues are generated by electronic insurance
claims processing, electronic statement printing and mailing and
electronic remittance advices. Customer support revenues were 91.9% and
83.0% and electronic services revenues were 8.1% and 17.0% of total
customer support and electronic services revenues for the three months
ended March 31, 1999 and 2000, respectively. Approximately $1.8 million
of the increase in Customer Support and Electronic Services was due to
acquisitions. The remaining $270,000 of the increase was due to
internal growth.
Revenues from customer support increased 93.7% from $1.6
million for the three months ended March 31, 1999 to $3.2 million in
the corresponding period of 2000. The gross profit for customer support
revenues increased 102.6% from $536,000 for the three months ended
March 31, 1999 to $1.1 million in the corresponding period of 2000.
Revenues from electronic services increased 349.4% from
$144,000 for the three months ended March 31, 1999 to $648,000 in the
corresponding period of 2000. The gross profit for electronic services
revenues increased 252.7% from $86,000 for the three months ended March
31, 1999 to $303,000 in the corresponding period of 2000.
COST OF REVENUES. Total cost of revenues increased 73.7% from $1.9 million for
the three months ended March 31, 1999 to $3.2 million in the corresponding
period of 2000, but decreased as a percentage of total revenues from 59.1% for
the three month ended March 31, 1999 to 53.4% in the corresponding period of
2000.
SOFTWARE AND SYSTEMS. Software and systems costs include both
software licensing costs and computer hardware and supplies. Software
and systems costs increased 15.4% from $714,000 or 22.6% of total
revenues for the three months ended March 31, 1999 to $824,000, or
13.5% of total revenues in the corresponding period of 2000. Software
licensing costs were 10.0% and 25.7%, and computer hardware and
supplies costs were 90.0% and 74.3% of total software and systems costs
for the three months ended March 31, 1999 and 2000, respectively.
Costs for software licensing increased 197.3% from $71,000, or
2.3% of total revenues in the three months ended March 31, 1999 to
$212,000, or 3.5% of total revenues in the corresponding period of
2000. The increase as a percent of total revenues is due to a change in
the mix of products and services sold.
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Costs for computer hardware and supplies decreased 4.8% from
$643,000, or 20.3% of total revenues in the three months ended March
31, 1999 to $612,000, or 10.1% of total revenues in the corresponding
period of 2000. The decrease as a percent of total revenues is due to a
change in the mix of product and services sold. Gross margin percentage
for computer hardware and supplies decreased from 21.5 % for the three
months ended March 31, 1999 to 21.3% in the corresponding period of
2000.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. Customer support and
electronic services costs increased 109.7% from $1.2 million, or 36.5%
of total revenues in the three months ended March 31, 1999 to $2.4
million, or 39.8% of total revenues in the corresponding period of
2000. Customer support costs were 94.9% and 85.7%, and electronic
services costs were 5.1% and 14.3% of total customer support and
electronic services costs for the three months ended March 31, 1999 and
2000, respectively.
Costs for customer support increased 89.4% from $1.1 million
or 34.6% of total revenues, in the three months ended March 31, 1999 to
$2.1 million, or 34.1% of total revenues in the corresponding period of
2000. The customer support gross margin percentage increased from 32.8%
for the three months ended March 31, 1999 to 34.3% in the corresponding
period of 2000, primarily due to acquisitions.
Costs for electronic services increased 491.8% from $58,000,
or 1.8% of total revenues, in the three months ended March 31, 1999 to
$345,000, or 5.7% of total revenues, in the corresponding period of
2000. The electronic services gross margin percentage decreased from
59.6% for the three months ended March 31, 1999 to 46.8% in the
corresponding period of 2000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased 181.7% from $1.5 million, or 47.7% of
total revenues for the three months ended March 31, 1999, to $4.3
million, or 69.9% of total revenues in the corresponding period of
2000. Of the $2.7 million increase, selling expenses, corporate
administration, and regional distribution channel expenses increased
approximately $521,000, $673,000, and $1.5 million, respectively. The
$673,000 increase in corporate administration expenses resulted from
increases in headcount and the building of corporate staff and
infrastructure. The $1.5 million increase in regional distribution
channel expenses resulted from regional operating costs directly
related to our acquired distribution channel.
PRODUCT DEVELOPMENT. Product development expenses increased from $587,000, or
18.6% of total revenues for the three months ended March 31, 1999, to $1.5
million, or 25.2% of total revenues in the corresponding period of 2000. The
dollar and percentage increases were due primarily to additional staffing and
related costs necessary for development of our new products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
from $536,000, or 16.9% of total revenues, for the three months ended March 31,
1999, to $1.6 million, or 25.6% of total revenues, in the corresponding period
of 2000. Of these amounts, amortization expenses were $466,000 for the three
months ended March 31, 1999 and $1.3 million in the corresponding period of
2000. At March 31, 2000, we had intangible assets totaling $33.0 million with
accumulated amortization of $5.9 million. The weighted average life of these
intangibles was 9.8 years.
INTEREST INCOME (EXPENSE), NET. Interest expense increased from $124,000, or
3.9% of total revenues for the three months ended March 31, 1999 to $3.1
million, or 51.3% of total revenues in the corresponding period of 2000. The
percentage and dollar increases primarily resulted from a non-cash interest
charge for the beneficial conversion feature of a promissory note and the
amortization of the fair value of warrants totaling $3.1 million.
PROVISION (BENEFIT) FOR INCOME TAXES. No tax benefit was recorded for the years
ended March 31, 1999 and 2000. The acquiring companies acquisition-date net
operating loss carryovers were greater than the additional deferred tax
liabilities that were recorded in connection with the purchase of intangibles
other than goodwill. In accordance with SFAS 109 "Accounting for Income Taxes,"
we recorded a valuation allowance to fully offset any potential tax benefit
associated with its post-acquisition net operating losses.
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LIQUIDITY AND CAPITAL RESOURCES
Since 1996, we have financed our operations primarily through a
combination of indebtedness, capital leases and equity financings. Approximately
82.0% of the consideration paid for our acquisitions was paid with our stock or
stock options. The balance of the consideration was promissory notes and cash.
In January 2000, we borrowed $700,000 through Friedli Corporate
Finance, an entity controlled by one of our Directors. The outstanding principal
plus interest on this note was repaid in February 2000 with proceeds from our
IPO.
In January 2000, we borrowed $500,000 at an interest rate of 12% from
one of our vendors with a maturity date the earlier of ten days following the
completion of the IPO or December 31, 2000. This balance was paid off in
February 2000 with proceeds from the IPO.
At March 31, 2000, we had $25.9 million of cash and investments. In
addition, we had $156,000 in capital leases primarily for computers and office
equipment, most of which we assumed in connection with acquisitions. In
addition, we had $2.1 million in promissory notes outstanding at March 31, 2000.
Of this amount, $1.8 million was assumed debt or promissory notes issued in
connection with acquisitions. Interest rates on the promissory notes range from
non-interest bearing to 12.5%. Future minimum principal payments under debt and
lease obligations (capital and operating) for 2001, 2002, 2003, 2004 and 2005
and thereafter are $1.9 million, $1.3 million, $918,000, $677,000, and $539,000
respectively.
We have operated with negative working capital and with negative cash
flow primarily due to acquisition expenses, prior debt incurred by acquired
companies and the costs of building infrastructure and product development
activities. For the three months ended March 1999 and 2000, net cash used for
operating activities was $2.6 million and $2.1 million, respectively. The net
cash used for operating activities was funded by $37.1 million of investment
capital, and net cash of $3.5 million received from businesses acquired. Our IPO
eliminated our negative working capital position, however, the negative cash
flow from operations is expected to continue until cross-selling of new products
and add-on services to our existing customer base produces positive cash flow.
Net cash used for investing activities for the three months ended
March 31, 1999 and March 31, 2000 and was $366,000 and $319,000,
respectively. Purchases of property and equipment consists of computers and
office equipment used in our regional offices.
During the three months ended March 31, 2000, net cash provided by
financing activities was $28.1 million. This consisted of $31.0 million in net
proceeds from issuance of common stock, $1.2 million in issuance of long-term
debt, and $4.1 million in payments of long-term debt.
We believe that the net proceeds from the IPO, together with other
available funds, will be sufficient to meet our capital requirements through
February of 2001.
FORWARD LOOKING STATEMENTS AND RISK FACTORS -
VANTAGEMED IS SUBJECT TO VARIOUS RISK FACTORS, MANY OF WHICH ARE
OUTSIDE OF OUR CONTROL, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE
EXPRESSED IN FORWARD-LOOKING STATEMENTS MADE BY US THROUGHOUT THIS REPORT AND
ELSEWHERE. ALL STATEMENTS WHICH ADDRESS OPERATING PERFORMANCE, EVENTS OR
DEVELOPMENTS THAT WE EXPECT OR ANTICIPATE WILL OCCUR IN THE FUTURE, INCLUDING
STATEMENTS RELATING TO EXPECTED FUTURE OPERATING RESULTS AND FUTURE FINANCIAL
CONDITIONS OR STATEMENTS EXPRESSING GENERAL OPTIMISM ABOUT FUTURE OPERATING
RESULTS, ARE FORWARD-LOOKING STATEMENTS. THE FOLLOWING ARE THE IMPORTANT
FACTORS, WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS.
15
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RISKS ASSOCIATED WITH OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY, A HISTORY OF LOSSES, EXPECT OUR
EXPENDITURES TO INCREASE AND OUR LOSSES TO CONTINUE, AND MAY NEVER ACHIEVE
PROFITABILITY.
We have incurred operating losses since we became a Delaware
corporation in April 1997. We operate with a negative cash flow primarily due to
acquisition expenses, prior debt incurred by acquired companies and assumed by
us, and the costs of improving our operating, sales and product development
infrastructure. In our first two years of operation, we incurred aggregate net
losses of $7.3 million, of which $4.1 million was amortization and depreciation.
Our business strategies may not be successful and we may not be able to achieve
or sustain revenue growth or profitability.
IF WE FAIL TO GENERATE RECURRING REVENUES FROM OUR EXISTING CUSTOMERS, WE MAY BE
UNABLE TO ACHIEVE OR SUSTAIN REVENUE GROWTH AND PROFITABILITY
Our financial success depends upon our ability to increase revenues
derived from existing customers. To this end, we focus our marketing efforts on
upgrading existing systems, and providing new software that enables our
customers to migrate from legacy to Windows-based products. If existing
customers fail to upgrade or migrate to our newer systems, we may not be able to
increase our revenues or obtain profitability in the near term or at all.
IF WE FAIL TO INTERNET-ENABLE OUR PRODUCTS IN A TIMELY FASHION WE MAY LOSE OUR
MARKET OPPORTUNITY AND MAY BE UNABLE TO ACHIEVE OR SUSTAIN REVENUE GROWTH AND
PROFITABILITY
Not all of our Windows-based products are Internet-enabled and those
that are have not been tested in the market for any substantial length of time.
If we fail to Internet-enable our products in a timely manner we may lose market
share opportunities to competitors and may be unable to increase our revenues or
to obtain profitability in the near term or at all.
INTERNET OR TELECOMMUNICATION SERVICE OR PERFORMANCE PROBLEMS OR SOFTWARE ERRORS
ARISING AFTER THE INSTALLATION OF OUR SOFTWARE AT CUSTOMER SITES COULD DELAY
MARKET ACCEPTANCE OF OUR PRODUCTS, LEAD TO CUSTOMER DISSATISFACTION AND LOSS OF
REVENUE AND INJURE OUR BUSINESS REPUTATION
The performance of our Internet-enabled products depends upon the
efficient operation of Internet and telephone connections, web browsers and
Internet service providers and upon the reliability of our software, including
third-party software incorporated into our software. The Internet and related
equipment has experienced periodic operational problems or outages. In addition,
software errors that we fail to detect may result in software performance
problems. The occurrence of any of these problems could cause customers to
experience system delays, failures and loss of data. Such problems could lead to
customer dissatisfaction, delays in market acceptance of our products, injury to
our business reputation and a loss of revenue.
WE MAY BECOME SUBJECT TO STATE, FEDERAL OR FOREIGN TAXES THAT COULD HARM OUR
BUSINESS
We do not currently collect sales or other similar taxes with respect
to revenues from consumers in states other than the state of origin. However,
one or more states may seek to impose sales tax collection obligations on
out-of-state companies, similar to ours. Expansion of our operations into such
states could subject revenues from these states to state sales taxes under
current laws. In addition, a federal or foreign tax may potentially be imposed
on products and services sold over the Internet. A successful assertion by one
or more states or any foreign country that we should collect sales or other
taxes on the sale of merchandise or the imposition of federal taxes could
seriously harm our business.
On October 21, 1998, The Internet Tax Freedom Act was signed into law
placing a three-year moratorium on new state and local taxes on e-commerce in
the United States. The moratorium is expected to end on October 21, 2001.
Failure to renew this legislation could result in the broad imposition of state
and local taxes on e-commerce, which could seriously harm our business.
IF SECURITY AND LEGAL LIABILITY CONCERNS MAKE CUSTOMERS UNWILLING TO UTILIZE OUR
PRODUCTS AND SERVICES TO TRANSMIT MEDICAL INFORMATION OVER THE INTERNET, THE
DEMAND
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FOR OUR PRODUCTS MAY DIMINISH AND WE MAY BE UNABLE TO ACHIEVE OR SUSTAIN
PROFITABILITY
Potential customers may choose not to utilize our Internet-enabled
software products because of concerns related to the transfer and management of
medical information over the Internet, including: security of the patient
medical records being transferred through the Internet; errors in the
transmission of sensitive medical data over the Internet; legal liability for
data security failures or transmission errors; and regulatory burdens imposed on
healthcare participants who use the Internet to transfer confidential patient
medical information.
If these concerns prevent potential customers from buying our products
and prevent existing customers from upgrading to our Internet-enabled products,
our revenues may not increase and we may be unable to achieve or sustain
profitability.
BREACHES OF NETWORK SECURITY COULD DAMAGE OUR BUSINESS REPUTATION, LEAD TO
CUSTOMER DISSATISFACTION, DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND RESULT IN
LEGAL AND FINANCIAL LIABILITY AND A LOSS OF REVENUE
Our electronic transaction services involve the storage and
transmission of confidential medical information through our network data
centers, over the Internet and over dedicated private data lines. Despite the
implementation of security measures, our infrastructure may be vulnerable to
physical break-ins, computer viruses or similar disruptive problems. In the
event of such a security breach, proprietary and confidential information could
be misappropriated or our operations could be interrupted. These problems could
damage our business reputation, lead to customer dissatisfaction and delay
market acceptance of our products. We may also incur legal and financial
liability and a loss of revenue as a result of such problems.
CONCERNS RELATED TO THE INFRASTRUCTURE, SPEED AND RELIABILITY OF THE INTERNET
COULD DIMINISH THE DEMAND FOR AND DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND
COULD KEEP US FROM BECOMING PROFITABLE
The Internet may fail to become a viable mechanism for the delivery,
exchange and management of healthcare information due to a number of factors
that are out of our control, including: communication speed; reliability of
Internet service; Internet capacity; lack of development of complementary
products, such as communication devices; and delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity.
If concerns about such factors prevent potential customers from buying
our products and/or prevent existing customers from upgrading to our
Internet-enabled products, our Internet-enabled products may not gain market
acceptance, our sales revenues may not increase and we may be unable to achieve
or sustain profitability.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE VOLATILITY OR DECLINE
IN THE MARKET PRICE OF OUR COMMON STOCK
On March 9, 2000 we disclosed in a press release that the Company
estimates revenues for the first quarter of 2000 to be below analysts
expectations. It is possible that our revenues and operating results may
continue to fall below the expectations of securities analysts or investors in
future years. If we fail to meet or surpass the expectations of securities
analysts or investors, the market price of our common stock will most likely
decline. We expect that our quarterly revenue and operating results may
fluctuate as a result of a number of factors, including: future acquisitions;
entry into new healthcare markets; introduction of new products and service
offerings and reductions in prices of products by our competitors; software
defects, delays in development and other quality factors; changes in customer
demand for our applications and services; and changes within the healthcare
industry.
We expect to increase activities and spending in substantially all of
our operational areas. We base our expense levels in part upon our expectations
concerning future revenues, and these expense levels are relatively fixed in the
short term. If we have lower revenues, we may not be able to make corresponding
reductions in our spending in the short term. Any shortfall in revenues would
have a direct impact on our results of operations. Fluctuations in our quarterly
results or the failure to meet analysts' expectations could affect the market
price of our common stock in a manner unrelated to our long-term operating
performance.
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IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE ASSETS OR
INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS
We rely primarily on a combination of copyrights, trademarks, trade
secret laws and restrictions on disclosure to protect our intellectual
property. We currently have no patents and limited registered copyrights
covering technology related to our products. We have no plans to seek such
legal protection and, if we do, protection may not be granted.
Despite our efforts to protect our intellectual property, a third
party or a former employee could copy, reverse engineer or otherwise obtain
and use our intellectual property or trade secrets without authorization or
could develop software competitive to ours.
Our intellectual property may be misappropriated or infringed upon or
may infringe upon the rights of others. Consequently, litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our confidential information or trade secrets, or to determine the validity or
scope of the rights of others. Litigation could result in substantial costs and
diversion of management and other resources and may not successfully protect our
intellectual property. Additionally, we may deem it advisable to enter into
royalty or licensing agreements to resolve such claims. Such agreements, if
required, may not be available on commercially reasonable or desirable terms or
at all.
THE LOSS OF EXPERIENCED PERSONNEL TO COMPETITORS OR OUR INABILITY TO ATTRACT AND
RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT OUR BUSINESS OPERATIONS
Our future success will depend, to a significant extent, on the ability
of our management to operate effectively, both individually and as a group. The
loss of the services of any of our senior management could negatively impact our
ability to carry out our business plan. We are dependent on our ability to
attract, retain and motivate high caliber key personnel. Competition for
qualified personnel in our industry is intense, and we may not be successful in
attracting and retaining such personnel. There are a limited number of persons
with the requisite skills available to serve in these key positions and it may
become increasingly difficult to hire such persons. Our business will suffer if
we encounter delays in hiring these additional personnel. Competitors and others
have in the past and may in the future attempt to recruit our employees.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING, IF REQUIRED
We may need to raise additional funds to respond to business
contingencies which may include the need to: cover unexpected losses; fund more
rapid expansion; fund additional marketing expenditures; enhance our operating
infrastructure; respond to competitive pressures; or acquire or develop
complementary businesses or necessary technologies.
Additional financing may not be available on terms favorable to us, or
at all. In the event that such financing requires the issuance of additional
shares of our capital stock, you will experience dilution in your ownership. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, take advantage of opportunities, develop
products or services or otherwise respond to competitive pressure could be
significantly limited.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD HAVE THE
EFFECT OF DELAYING OR PREVENTING A CORPORATE TAKEOVER, EVEN IF SUCH A
TRANSACTION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS
Some provisions of our certificate of incorporation and bylaws, as well
as provisions of Delaware law, may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable. These provisions include:
authorizing the board to issue additional preferred stock; limiting the persons
who may call special meetings of stockholders; prohibiting stockholder actions
by written consent; creating a classified board of directors pursuant to which
our directors are elected for staggered three-quarter terms; and establishing
advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.
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RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
IF WE FAIL TO IDENTIFY OR NEGOTIATE THE PURCHASE OF COMPLEMENTARY ACQUISITION
CANDIDATES OR IF COMPETITION FOR SUCH CANDIDATES INCREASES, WE MAY BE UNABLE TO
GROW OUR BUSINESS AND EXPAND OUR DISTRIBUTION NETWORK AND MAY FAIL TO ACHIEVE OR
SUSTAIN PROFITABILITY
We believe that two of our competitors, Infocure Corporation and
Medical Manager Corporation, are undertaking an acquisition strategy similar to
ours. If competition for acquisition targets increases, there may be fewer
qualified acquisition candidates available to us and the terms of such
acquisitions may become less favorable. Identifying appropriate acquisition
candidates, negotiating and consummating an acquisition can be a lengthy and
costly process, may divert management's attention and may prevent us from
growing our business and expanding our distribution network.
PROBLEMS INTEGRATING ACQUIRED COMPANIES COULD RESULT IN SUBSTANTIAL COSTS,
DIVERT THE ATTENTION OF OUR MANAGEMENT TEAM, CAUSE US TO LOSE VALUABLE CUSTOMERS
AND DILUTE THE VALUE OF OUR ACQUISITIONS
When we acquire new businesses we must cross-train existing and
acquired sales personnel; standardize accounting, operational and financial
functions of acquired businesses; retain key acquired personnel; and incorporate
acquired technology into our existing products.
Problems or delays in the integration process may result in substantial
costs and the diversion of management's attention from our existing business. In
addition, integration delays could cause us to lose key customers and employees
from the acquired company thereby diluting the value of the acquired company.
WE HAVE DISCOVERED MATERIAL WEAKNESSES IN OUR INTERNAL ACCOUNTING CONTROLS WHICH
MAY AFFECT OUR FINANCIAL REPORTING.
During the integration of our acquired companies, we discovered
material weaknesses in our internal accounting controls. These weaknesses
include inadequate monitoring of key financial processes, inconsistent
application of revenue recognition policies and procedures, difficulty in
closing the books in some of our offices and inadequate financial reporting. We
are implementing a common accounting software platform and closing procedures
for all of our regional offices. We have developed and implemented revenue
recognition guidelines, policies and procedures, and we are training our
regional managers and accountants. We believe that these measures will correct
the noted weaknesses. However, there can be no assurance that we will not
continue to experience such deficiencies as we continue to further expand our
operations.
TECHNICAL PROBLEMS WITH ACQUIRED TECHNOLOGY OR PRODUCTS COULD HARM OUR
REPUTATION, RESULT IN UNEXPECTED COSTS AND CAUSE OUR REVENUES TO DECREASE
Although we test and examine an acquisition target's technology and
products prior to consummating an acquisition, there may be technical product
problems that we fail to discover. These problems may result in unexpected costs
that decrease our revenues and may result in customer dissatisfaction and harm
to our business reputation.
WE MAY BECOME RESPONSIBLE FOR UNKNOWN OR UNEXPECTED FINANCIAL OR LEGAL
LIABILITIES FOLLOWING AN ACQUISITION
When we purchase a target company, we generally acquire all of that
company's liabilities. Although we perform due diligence prior to an
acquisition, we may become responsible for a liability that is unknown or
greater than anticipated. Any recourse we may have against the former
shareholders of an acquired company in such a situation is limited. Such
unexpected liabilities could have a significant negative impact on our profits.
IF OUR ACQUISITION ACTIVITIES DIVERT THE ATTENTION OF OUR MANAGEMENT TEAM AWAY
FROM THE DAY-TO-DAY OPERATIONS OF OUR COMPANY, PRODUCT DEVELOPMENT, EXISTING
CUSTOMER
19
<PAGE>
RELATIONSHIPS AND FINANCIAL PERFORMANCE COULD SUFFER
As a part of our growth strategy, we intend to acquire additional
healthcare information systems companies. The identification and investigation
of appropriate acquisition candidates and the negotiation of acquisitions will
require a substantial investment of time on the part of our management team.
These activities could divert time and attention from our product development
and from the day-to-day operations of our company. These disruptions could in
turn harm our relationships with existing customers and have a negative effect
on our overall financial performance.
OUR ACQUISITION STRATEGY MAY REQUIRE US TO RAISE ADDITIONAL CAPITAL, WHICH COULD
RESULT IN DILUTION
We intend to finance future acquisitions by issuing shares of common
and/or preferred stock for all or a substantial portion of the acquisition
price. In the event that the potential acquisition candidates are unwilling to
accept stock as part of the consideration for the sale of their businesses, we
may decide to utilize more of our cash resources, if available, in order to
maintain our acquisition program. This may result in the need to raise
additional capital. To the extent we issue shares of our capital stock to
finance acquisitions or raise capital, you will experience dilution in your
ownership.
RISKS ASSOCIATED WITH OUR INDUSTRY
INTENSE COMPETITION IN THE MARKET FOR HEALTHCARE INFORMATION SYSTEMS AND
SERVICES COULD PREVENT US FROM INCREASING OR SUSTAINING REVENUES AND PREVENT US
FROM ACHIEVING OR SUSTAINING PROFITABILITY
Our competitors vary in size, geographic coverage and scope of products
and services offered. The market demand for certain products varies across
geographic territories. Industry competitors include organizations such as
Medical Manager Corporation, Physician Computer Network, Inc., Infocure
Corporation, Medic Computer Systems, Inc., IDX Systems Corporation, CyCare, a
division of McKessonHBOC, Quality Systems Inc., MedicaLogic Inc., Dentrix Dental
Systems, Inc., and National Data Corporation. Additionally, within each regional
market there are several smaller competitors who have developed technologically
advanced products offered at lower prices. Finally, with the integration of
clinical information systems into practice management systems, several
well-funded pharmaceutical, medical supply and biotech companies have entered
the practice management systems market. New healthcare information Internet
companies may become direct competitors in the future. Many of our competitors
have greater financial, research and development, technical, marketing and sales
resources than we do. In addition, other entities not currently offering
products and services similar to ours may enter our market. We may not be able
to compete successfully with current and/or future competitors. Failure to do so
could prevent us from increasing or sustaining revenues and achieving
profitability.
ECONOMIC AND COST REDUCTION PRESSURES FACED BY HEALTHCARE PROVIDERS MAY LIMIT
THE ABILITY OF OUR CUSTOMERS TO BUY OUR PRODUCTS AND SERVICES AND COULD LIMIT
OUR PROFITABILITY
Economic and cost reduction pressures may limit the ability of
healthcare providers to make expenditures for new software systems or for
upgrades to existing software systems. A reluctance or inability on the part of
healthcare providers to make such expenditures could result in fewer sales and
could limit our ability to achieve or sustain profitability.
IF WE FAIL TO RESPOND TO THE RAPIDLY CHANGING TECHNOLOGY THAT CHARACTERIZES OUR
MARKET, OUR PRODUCTS MAY BE RENDERED OBSOLETE, WE MAY LOSE OUR MARKET
OPPORTUNITY AND FAIL TO ACHIEVE OR SUSTAIN PROFITABILITY
On March 9, 2000 we disclosed that the release of the new version of
our Ridgemark product has been delayed. This delay was among the factors which
the Company anticipates would have a negative impact on revenues for the first
quarter of our fiscal quarter 2000. We can make no assurances that similar
delays in product releases will not occur in the future. The market for our
products is highly competitive and changes rapidly. Therefore, timely
introduction of new products, features and services to existing customers will
significantly impact our future success. We will be required to meet rapidly
changing market
20
<PAGE>
demands, respond to market requirements, develop new proprietary solutions,
and successfully market new products and enhancements to new customers and
our existing customer base.
ANY FAILURE TO COMPLY WITH REGULATIONS GOVERNING THE CONFIDENTIALITY AND
INTEGRITY OF HEALTHCARE INFORMATION TRANSMITTED ELECTRONICALLY COULD RESULT IN
SEVERE LEGAL AND FINANCIAL LIABILITY, HARM OUR BUSINESS REPUTATION AND RESULT IN
A SIGNIFICANT LOSS OF CUSTOMERS
Federal regulations under the Health Insurance Portability and
Accountability Act of 1996 governing the confidentiality and integrity of
healthcare information transmitted electronically are complex and are evolving
rapidly. Although we believe that our software products meet the current
regulatory standards described more fully in the "Business" section of this
prospectus, any failure on the part of our software to comply with current or
future regulations could subject us to severe legal and financial liability.
Such failures could also result in harm to our business reputation and a
significant loss of customers.
FUTURE STATE OR FEDERAL LEGISLATION MAY IMPOSE RESTRICTIONS ON THE ABILITY TO
TRANSMIT PATIENT DATA OVER THE INTERNET WITHOUT SPECIFIC PATIENT CONSENT AND
COULD DIMINISH THE VALUE OF OUR INTERNET-ENABLED SOFTWARE PRODUCTS AND SERVICES
AND LOWER OUR REVENUES AND PROFITS
The confidentiality of patient records is the subject of substantial
regulation by state and federal governments. Although compliance with these laws
and regulations is at present principally the responsibility of healthcare
providers, additional legislation governing the dissemination of medical records
has been discussed. If such legislation imposes restrictions on the ability of
third-party processors, like us, to transmit certain patient data without
specific patient consent, the value of our Internet-enabled products and
services to our customers could be diminished, causing our revenues to decrease.
OUR BILLING AND CLAIMS SERVICES ARE SUBJECT TO FEDERAL AND STATE REGULATION AND
ANY NON-COMPLIANCE WITH THESE REGULATIONS COULD LEAD TO CIVIL, CRIMINAL AND
FINANCIAL LIABILITY
The performance of our billing and claims services are governed by
numerous federal and state civil and criminal laws. Increased scrutiny has been
placed on the billing and collection practices of healthcare providers and
related entities. Although we believe that we are in compliance with any such
regulations that may relate to the provision of our billing and claims services,
any non-compliance could lead to civil monetary penalties, criminal fines,
imprisonment or exclusion from participation in Medicare, Medicaid and other
federally funded healthcare programs for us and the customer involved in the
non-compliance.
REGULATIONS THAT RESTRICT THE ABILITY TO DISPENSE OR REFILL CONTROLLED
SUBSTANCES THROUGH AN ELECTRONICALLY TRANSMITTED PRESCRIPTION COULD LIMIT THE
FUNCTIONALITY OF OUR INTERNET-ENABLED SOFTWARE PRODUCTS AND COULD DIMINISH THE
REVENUE GENERATED FROM THESE PRODUCTS
The Federal Drug Enforcement Agency has promulgated regulations that
may prohibit a pharmacy from dispensing and/or refilling controlled substances
through an electronically transmitted prescription. These regulations may limit
the scope of the prescription ordering and refill functions in our current and
future Internet-enabled software products and may diminish the revenues we
obtain from the sale of these products.
IF OUR SOFTWARE PRODUCTS ARE DEEMED MEDICAL DEVICES, WE WILL BE SUBJECT TO
ADDITIONAL REGULATION THAT COULD RESULT IN CRIMINAL, CIVIL AND FINANCIAL
LIABILITY, INCREASE OUR COSTS AND DELAY THE MARKETING OF OUR NEW OR EXISTING
PRODUCTS
The U.S. Food and Drug Administration has jurisdiction under the 1976
Medical Device Amendments to the Federal Food, Drug and Cosmetic Act to regulate
computer products and software as medical devices if they are intended for use
in the diagnosis, cure, mitigation, treatment or prevention of disease in
humans. We believe that our healthcare information systems are not subject to
FDA regulation. If, however, the FDA determined that our products were subject
to regulation, non-compliance with applicable requirements could result in,
among other things, fines, injunctions, civil penalties, total or partial
suspension of
21
<PAGE>
production, refusal by the government to approve products, revocation of
approval or clearance previously granted and criminal prosecution. Future FDA
policies, laws or regulations concerning the development or marketing of
healthcare information systems may cause our products to be subject to FDA
regulation, which could increase our costs or delay the marketing of new or
existing products.
FUTURE REGULATIONS ENACTED BY CONGRESS OR BY STATE GOVERNMENTS MAY ADVERSELY
IMPACT THE HEALTHCARE INDUSTRY IN WAYS THAT COULD DAMAGE OUR BUSINESS
OPPORTUNITIES OR PROFITABILITY
The healthcare industry is highly regulated and has been the subject of
increasing levels of government regulation during the past several years. We
cannot predict with any certainty the types of regulations that might be imposed
or the impact that those regulations might have on our business. The adoption of
regulations currently unanticipated by us or by the healthcare industry could
impose burdensome requirements or restrictions on our products or on the
activities of healthcare providers. These restrictions could decrease the demand
for our products and could prevent us from growing our business and attaining
profitability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
and commodity market prices and rates. We are exposed to market risk due to
changes in United States interest rates. This exposure is directly related to
our normal operating and funding activities. Historically and as of March 31,
2000, we have not used derivative instruments or engaged in hedging activities.
We invest our excess funds in cash equivalents and short-term
investments, which have terms not greater than 90 days. All investments have
been classified as available-for-sale and, accordingly are stated at fair value.
The difference between amortized cost (cost adjusted for amortization of
premiums and accretion of discounts which are recognized as adjustments to
interest income) and fair value, representing unrealized holdings gains or
losses, are recorded as a separate component of stockholders' equity until
realized. As a result, we do not believe that near-term changes in interest
rates will result in a material effect on our future earnings, fair values or
cash flows.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Beginning on March 13, 2000, a series of similar securities class
action lawsuits were filed alleging that VantageMed and certain directors and
officers violated the Securities Act of 1933. As of this date, VantageMed is
aware of four virtually identical actions, all filed in the United States
District Court for the Eastern District of California, the first of which is
entitled Zinno v. The VantageMed Corporation, et. al., No. CIV.S-00-0523 MLS
DAD. The Company expects that all will be consolidated into a single action.
Plaintiffs in the four actions purport to represent a class of all
persons who purchased the Company's common stock pursuant to its February 15,
2000 IPO. The complaints allege that VantageMed's S-1 Registration Statement and
Prospectus contained materially false and misleading statements and it did not
state that the Company would be delayed in introducing a new version of its
Ridgemark product, and did not state that sales of its eMCee product would be
lower than expected.
The proceedings are in the early stages, and no prediction can be
made as to the outcome. The Company believes these actions are without merit
and intends to defend them vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 2000, VantageMed Corp. completed an IPO of 3 million shares
of its common stock. Advest, Inc. and J.C. Bradford & Co. acted as managing
underwriters. The shares of common stock sold in the IPO were registered under
the Securities Act of 1933, as amended, on a registration statement on Form S-1
(Registration No. 333-91657) that was declared effective by the Securities and
Exchange Commission on February 14, 2000. The IPO commenced on February 15,
2000. All 3 million shares of common stock registered were sold at a price of
$12 per share. The aggregate offering price of the shares of common stock
registered and sold was $36 million. We paid an aggregate of approximately
$2,520,000 in underwriting discounts and commissions. In addition, the following
table itemizes the expenses incurred in connection with the offering:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Securities and Exchange Commission registration fee........... $11
National Association of Securities Dealers, Inc. filing fee... 4
Nasdaq National Market listing fee............................ 73
Accountants' fees and expenses................................ 1,245
Legal fees and expenses....................................... 606
Transfer Agent's fees and expenses............................ 13
Printing and engraving expenses............................... 332
Miscellaneous................................................. 150
------
Total $2,434
------
------
</TABLE>
None of the amounts shown were paid directly or indirectly to any
director or officer of VantageMed or their associates, persons owning 10 percent
or more of any class of equity securities of VantageMed or an affiliate of
VantageMed.
After deducting the underwriter's discounts and commissions and the
offering expenses, the net proceeds to us from the offering were approximately
$31.0 million. In February 2000 we used $3,545,000 of these net proceeds to
repay outstanding principal and interest due on 20 promissory notes. Also in
February 2000 we used $67,000 of net proceeds to repay deferred compensation and
applicable bonuses for our executive officers through March 31, 2000.
Out of working capital, we paid $61,000 of deferred compensation and
applicable bonuses for January 2000 for our executive officers and $93,000 of
deferred compensation for other management members who elected to defer payment
during the time period from December 1999 through January 2000. Additionally, we
paid off five convertible promissory notes totaling $549,000 at the request of
the note holders.
23
<PAGE>
We intend to use the residual net proceeds of this offering as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
For potential acquisitions.................................... $8,000
For increased product development activities.................. 3,000
For increased sales and marketing activities.................. 3,000
For working capital and other general corporate purposes...... 12,731
-------
$26,731
-------
-------
</TABLE>
Final allocation of proceeds depends on numerous factors, including
amounts spent on acquisitions, growth of our business and the need for
additional marketing and development activities. A substantial portion of the
net proceeds have not been allocated to any specific use. We will continue to
retain broad discretion over actual use of these proceeds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- -------------
<S> <C>
1.1 - Financial Data Schedule (filed only electronically with
the SEC)
(b) Reports on Form 8-K
During the quarter ended March 31, 2000, no current reports
on Form 8-K were filed with the Commission by the Company.
</TABLE>
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VANTAGEMED CORPORATION
By: /s/ Thomas McCreery
---------------------------------
THOMAS MCCREERY
CHIEF FINANCIAL OFFICER
Date: May 12, 2000
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 839
<SECURITIES> 25,095
<RECEIVABLES> 2,744
<ALLOWANCES> (375)
<INVENTORY> 461
<CURRENT-ASSETS> 29,334
<PP&E> 3,829
<DEPRECIATION> (1,383)
<TOTAL-ASSETS> 59,227
<CURRENT-LIABILITIES> 7,895
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 59,218
<TOTAL-LIABILITY-AND-EQUITY> 59,227
<SALES> 2,274
<TOTAL-REVENUES> 6,082
<CGS> 824
<TOTAL-COSTS> 3,245
<OTHER-EXPENSES> 10,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,120
<INCOME-PRETAX> (7,623)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,623)
<EPS-BASIC> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
