<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999
Commission file number 000-20699
DataTRAK INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1685364
- --------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20600 Chagrin Boulevard
Cleveland, Ohio 44122
- --------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
(216) 921-6505
- --------------------------------------------------------------------------------
(Registrants telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date.
The number of Common Shares, without par value, outstanding as of July 31, 1999
was 6,590,322.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Note A) (Unaudited)
December 31, June 30,
1998 1999
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,072,586 $ 4,743,930
Short-term investments 22,620,667 34,243,138
Accounts receivable, less allowances 2,731,567 514,147
Prepaid expenses and other current assets 366,352 393,163
----------------- ------------------
Total current assets 29,791,172 39,894,378
Property and equipment, at cost
net of accumulated depreciation and amortization 2,393,266 1,441,834
Goodwill, less accumulated amortization 1,335,193 -----
Other assets 20,168 -----
----------------- ------------------
Total assets $ 33,539,799 $ 41,336,212
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,012,454 $ 1,367,687
Accrued expenses 3,664,577 1,031,614
Deferred revenue 625,068 27,142
----------------- ------------------
Total current liabilities 5,302,099 2,426,443
Shareholders' equity:
Foreign currency translation (44,041) (32,385)
Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued ----- -----
Common shares, without par value, authorized 15,000,000
shares; issued and outstanding 6,422,872 shares as of
December 31, 1998 and 6,465,872 as of June 30,1999 49,704,742 49,735,892
Retained earnings (accumulated deficit) (21,423,001) (10,793,738)
----------------- ------------------
Total shareholders' equity 28,237,700 38,909,769
----------------- ------------------
Total liabilities and shareholders' equity $ 33,539,799 $ 41,336,212
================= ==================
</TABLE>
Note A: The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date, but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
2
<PAGE> 3
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 2,653,548 $ 923,961 $ 5,017,831 $ 5,103,609
Direct costs 2,353,844 680,748 4,378,921 3,329,925
------------ ------------ ------------ ------------
Gross profit 299,704 243,213 638,910 1,773,684
Selling, general and administrative expenses 2,380,226 995,849 5,037,537 3,513,376
Special items 271,425 ----- 1,711,187 -----
Depreciation and amortization 286,216 180,812 556,806 430,126
------------ ------------ ------------ ------------
Loss from operations (2,638,163) (933,448) (6,666,620) (2,169,818)
Other income (expense):
Interest income 442,752 427,273 909,778 750,026
Other income (expense) 4,500 (15,481) 2,606 (65,772)
Gain on sale of clinical business ----- 12,259,923 ----- 12,154,827
------------ ------------ ------------ ------------
Income (loss) before income taxes (2,190,911) 11,738,267 (5,754,236) 10,669,263
Income tax expense (benefit) 25,000 ----- 80,000 40,000
------------ ------------ ------------ ------------
Net income (loss) $ (2,215,911) $ 11,738,267 $ (5,834,236) $ 10,629,263
============ ============ ============ ============
Net income (loss) per share:
Basic:
Net income (loss) per share $ (0.35) $ 1.82 $ (0.91) $ 1.65
============ ============ ============ ============
Weighted average shares outstanding 6,422,685 6,455,872 6,420,750 6,442,027
============ ============ ============ ============
Diluted:
Net income (loss) per share $ (0.35) $ 1.79 $ (0.91) $ 1.62
============ ============ ============ ============
Weighted average shares outstanding 6,422,685 6,549,770 6,420,750 6,543,532
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1998 1999
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5,834,236) $ 10,629,263
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 556,806 430,126
Special items 1,711,187 -----
Gain on sale of clinical business (12,154,827)
Other (727,257) (549,090)
Changes in operating assets and liabilities:
Accounts receivable 2,451,287 (676,819)
Accounts payable and accrued expenses (3,061,149) (1,056,800)
Other 287,031 (338,979)
------------- -------------
Net cash provided by (used in) operating activities (4,616,331) (3,717,126)
INVESTING ACTIVITIES
Purchases of property and equipment (1,436,867) (394,377)
Sale of business (net of cash sold) ----- 15,601,184
Maturities of short-term investments 34,962,312 109,496,248
Purchases of short-term investments (31,992,014) (120,459,263)
Investment in HRI 6,800 0
------------- -------------
Net cash provided by investing activities 1,540,231 4,243,792
FINANCING ACTIVITIES
Repayment of note receivable-officer 165,000 -----
Net proceeds from issuance of common shares 2,100 9,450
------------- -------------
Net cash provided by financing activities 167,100 9,450
------------- -------------
Effect of exchange rate on cash (35) 135,228
------------- -------------
Increase (decrease) in cash and cash equivalents (2,909,035) 671,344
Cash and cash equivalents at beginning of period 6,381,512 4,072,586
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,472,477 $ 4,743,930
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
DataTRAK International, Inc. and subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. 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 and six month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1998 (File No. 000-20699).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
might affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents and accounts payable at June 30, 1999 is
$1.0 million held in escrow as a result of the sale of the Company's Clinical
Business, all of which will be returned in August 1999.
3. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) used in the calculation of
basic and diluted loss per share $(2,215,911) $11,738,267 $(5,834,236) $10,629,263
=========== =========== =========== ===========
Denominator for basic net income (loss) per
share - weighted average Common Shares
outstanding 6,422,685 6,455,872 6,420,750 6,442,027
Effect of dilutive Common Share options and
warrants --- 93,898 --- 101,505
----------- ----------- ----------- -----------
Denominator for diluted net income (loss) 6,422,685 6,549,770 6,420,750 6,543,532
per share =========== =========== =========== ===========
Basic net income (loss) per share $ (0.35) $ 1.82 $ (0.91) $ 1.65
=========== =========== =========== ===========
Diluted net income (loss) per share $ (0.35) $ 1.79 $ (0.91) $ 1.62
=========== =========== =========== ===========
Common Share options excluded from the
computation of diluted net income (loss)
per share because they would have an
antidilutive effect on net income (loss)
per share 454,250 186,934 454,250 186,934
=========== =========== =========== ===========
</TABLE>
5
<PAGE> 6
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
4. SPECIAL ITEMS
The Company recorded a special items charge of $1,439,762 in the first quarter
of 1998. Included in this charge was $1,194,762 to recognize costs associated
with employee severance related to the March 24, 1998 termination of 29
employees pursuant to a reorganization plan announced in March 1998. An
additional $245,000 was recorded related to other exit costs. As of June 30,
1999, $970,199 related to employee termination benefits and $236,317 related to
other items had been paid out related to the first quarter of 1998 special
items.
In June 1998, an additional special items charge of $271,425 was recorded
related to the closing of the Company's United Kingdom operations (including the
termination of two employees) and the termination of a joint venture in the
United Kingdom, and additional costs incurred in connection with the termination
of the IBM and DataTRAK alliance. As of June 30, 1999, $169,825 had been paid
out related to the June 1998 special items charge.
5. SEGMENT DISCLOSURES AND RELATED INFORMATION
Prior to April 20, 1999, the Company operated in two principal business
segments: DataTRAK and the Clinical Business, which was sold on April 20, 1999.
DataTRAK provides electronic data capture ("EDC") technology and other services
to assist various clinical trial sponsors in the timely completion of clinical
trials. The Clinical Business, a multi-specialty site management organization,
provided Phase I through IV clinical research services and over the counter
product services.
The Company evaluates performance and allocates resources based on profit or
loss from operations before other income and expense and income taxes. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. There have been no
intersegment sales.
The Company's reportable segments are business units that offer different
services utilized in the performance of clinical trials. The reportable segments
are managed separately because they offer separate and distinct services to
customers in the clinical research industry.
6
<PAGE> 7
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
Information on the Company's business segments is as follows:
<TABLE>
<CAPTION>
CLINICAL OTHER
THREE MONTHS ENDED JUNE 30, DataTRAK BUSINESS CORPORATE TOTAL
--------------------------- -------- -------- --------- -----
<S> <C> <C> <C> <C>
Revenue:
1998 $ 67,341 $ 2,586,207 $ --- $ 2,653,548
1999 159,223 764,738 --- 923,961
Loss from operations:
1998 (726,020) (1,252,606) (659,537) (2,638,163)
1999 (533,390) (10,378) (389,680) (933,448)
SIX MONTHS ENDED JUNE 30,
-------------------------
Revenue:
1998 78,400 4,939,431 --- 5,017,831
1999 192,832 4,910,777 --- 5,103,609
Income (loss) from operations:
1998 (1,350,809) (3,265,806) (2,050,005) (6,666,620)
1999 (1,542,623) 294,493 (921,688) (2,169,818)
Assets at December 31, 1998 1,170,105 5,175,149 27,194,545 33,539,799
Assets at June 30, 1999 1,415,121 --- 39,921,091 41,336,212
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information set forth and discussed below for the three and six month
periods ended June 30, 1999 is derived from the Condensed Consolidated Financial
Statements included elsewhere herein. The financial information set forth and
discussed below is unaudited, but in the opinion of management, reflects all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such information. The Company's results of operations for a
particular quarter may not be indicative of results expected during the other
quarters or for the entire year.
GENERAL
Prior to April 20, 1999, the Company operated two separate businesses within the
clinical research industry. Through DataTRAK, the Company provides EDC and other
services, which assist companies in the clinical pharmaceutical, biotechnology,
contract research organization and medical device research industries, to
accelerate the completion of clinical trials. Through its Clinical Business,
which the company no longer owns, the Company operated a multi-specialty site
management organization that provided clinical research services to various
clinical trial sponsors.
On December 21, 1998, the Company entered into a definitive agreement, subject
to shareholder approval, to sell its Clinical Business to The West Company,
Incorporated ("West") for $15.0 million, to be adjusted for the Clinical
Business's working capital and the collection of net accounts receivable. The
sale of the Clinical Business was approved by the Company's shareholders on
April 14, 1999. The Clinical Business was sold to West on April 20, 1999 for
$15.6 million subject to the collection of net accounts receivable acquired by
West.
As a result of the sale of the Clinical Business the Company will no longer
generate revenue from or fund the operations of the Clinical Business.
Consequently, the DataTRAK business is the sole source of the Company's revenue
and along with corporate overhead is the sole draw on the Company's working
capital. Approximately 94% of the Company's assets, or approximately $39.0
million, are held in cash, restricted cash, cash equivalents and short-term
investments. The DataTRAK business has recognized minimal revenue to date and
has experienced significant losses and negative cash flow from operations since
its inception. The Company is continuing to develop and commercialize the
DataTRAK business and anticipates that DataTRAK's operating results will
fluctuate significantly from period to period. There can be no assurance of
DataTRAK's long-term future prospects.
On July 12, 1999, the Company announced that it was commencing a tender offer to
repurchase up to 3.3 million of its Common Shares at a purchase price of $6.00
per share. The tender offer expired at 5:00 p.m. Eastern Daylight Savings Time
on August 9, 1999.
The discussion that follows highlights the business conditions and certain
financial information specific to each of the Company's two business segments.
DataTRAK Business. DataTRAK uses a technology platform that consists of
Windows(TM) compatible software and intranet hardware known as DataTRAK EDC(TM)
to provide EDC and other services to various clinical trial sponsors. During the
six months ended June 30, 1999, DataTRAK had revenue of $190,000 and a net loss
of $1.5 million. For the six months ended June 30, 1998, DataTRAK had revenue of
$80,000 and a net loss of $1.4 million. There can be no assurance that the
Company will be successful in achieving commercial acceptance of the DataTRAK(R)
process.
DataTRAK contracts provide a fixed price for each component or service to be
delivered. Additional DataTRAK services are billed to the customer on a fee for
service basis for services completed. Generally, these contracts range in
duration from twelve to eighteen months. The ultimate contract value depends on
the length of the customer's use of the DataTRAK EDC(TM) software and the
services provided
8
<PAGE> 9
by DataTRAK. As services are performed over the life of the contract, revenue
and direct costs of revenue are recognized under the percentage of completion
method utilizing units of delivery. Costs associated with contract revenues are
recognized as incurred. These contracts can be terminated by the Sponsor with or
without cause. DataTRAK is entitled to payment for all work performed through
the date of notice of termination and for recovery of some or all costs incurred
to terminate a contract. The termination of a contract will not result in a
material adjustment to revenue or costs previously recognized.
DataTRAK is also a seller and licenser of software. Generally, revenue is
recognized upon delivery of sold software. Licensing revenue is recognized
ratably over the life of the license. To date DataTRAK has not recognized any
revenue from software sales.
Since its purchase of the DataTRAK EDC(TM) software, DataTRAK has recorded
revenue related to a small number of fixed unit price clinical trial contracts
and revenue related to customer training on the DataTRAK EDC(TM) software. At
June 30, 1999, DataTRAK's backlog was $600,000, of which $570,000 was related to
one contract. Of this backlog, the Company expects to convert approximately
$300,000 to revenue during 1999. At December 31, 1998, the DataTRAK business's
backlog was $30,000. In the future DataTRAK may also earn revenue related to the
sales of software. Due to DataTRAK's early stage of development and its low
level of backlog, there can be no assurance as to its future levels of revenue.
On June 26, 1999, the Company signed a non-exclusive, three-year software
license and master services agreement (the "Quintiles Agreement") with
Quintiles, Inc. ("Quintiles"). Quintiles is the product development service
group of Quintiles Transnational Corp., the market leader in providing a full
range of integrated product development and commercialization solutions to the
pharmaceutical, biotechnology and medical device industries. Prior to signing
the Quintiles Agreement, the Company and Quintiles had agreed to use the
DataTRAK EDC(TM) software in one clinical trial. The software-licensing portion
of the Quintiles Agreement grants Quintiles unlimited use of the Company's five
DataTRAK modules. Under the services portion of the Quintiles Agreement, the
Company will train, educate and provide help desk assistance to Quintiles
employees, investigative site personnel, and sponsor representatives. In
addition, pursuant to the Quintiles Agreement, the Company and Quintiles have
set up a steering committee with representatives from each company to address
various issues under the Quintiles Agreement, including software development,
data warehousing and joint marketing efforts.
Although the Quintiles Agreement provides volume-pricing discounts based on the
volume of data entered using the DataTRAK EDC(TM) software, it does not obligate
Quintiles to use the software. There can be no assurance that revenues from the
Quintiles Agreement will be sufficient either to fund continued DataTRAK EDC(TM)
commercialization and product development or to compete successfully in the EDC
software applications market.
Clinical Business. The Clinical Business provided services to three segments of
the pharmaceutical and biotechnology industries. Through WCE, it provided
clinical research services relating to the reclassification of prescription
drugs into drugs available for over the counter ("OTC") purchase and other OTC
services. In addition, the Clinical Business provided Phase I research services
from its 80-bed clinic at GFI. Finally, through its Affiliated Site Network
which was comprised of six therapeutically focused sub-networks drawn from over
450 affiliated research sites ("Affiliated Sites"), it provided Phase II, III,
and IV research services. The Company had no ownership interest in any of its
Affiliated Sites.
The net income of the Clinical Business was $12.4 million, including a $12.2
million gain related to that business's sale, for the six months ended June 30,
1999. For the six months ended June 30, 1998 the Clinical Business had a net
loss of $3.3 million.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain items from
the Company's Consolidated Statements of Operations, expressed in thousands by
line of business.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
OTHER
DataTRAK CLINICAL CORPORATE
BUSINESS BUSINESS ITEMS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 159 $ 765 $ ---- $ 924
Direct costs 182 499 ---- 681
-------- -------- -------- --------
Gross profit (loss) (23) 266 ---- 243
Selling, general and
administrative expenses 371 256 369 996
Depreciation and amortization 140 20 21 181
-------- -------- -------- --------
Loss from operations (534) (10) (390) (934)
Other income (expense) ---- 12,260 412 12,672
-------- -------- -------- --------
Income (loss) before income taxes (534) 12,250 22 11,738
Income tax expense ---- ---- ---- ----
-------- -------- -------- --------
Net income (loss) $ (534) $ 12,250 $ 22 $ 11,738
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
OTHER
DataTRAK CLINICAL CORPORATE
BUSINESS BUSINESS ITEMS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 67 $ 2,586 $ ---- $ 2,653
Direct costs 117 2,237 ---- 2,354
-------- -------- -------- --------
Gross profit (loss) (50) 349 ---- 299
Selling, general and
administrative expenses 484 1,265 631 2,380
Special items 126 145 ---- 271
Depreciation and amortization 66 192 28 286
-------- -------- -------- --------
Loss from operations (726) (1,253) (659) (2,638)
Other income (expense) ---- ---- 447 447
-------- -------- -------- --------
Loss before income taxes (726) (1,253) (212) (2,191)
Income tax expense (benefit) ---- 25 ---- 25
-------- -------- -------- --------
Net loss $ (726) $ (1,278) $ (212) $ (2,216)
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
OTHER
DataTRAK CLINICAL CORPORATE
BUSINESS BUSINESS ITEMS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 193 $ 4,911 $ ---- $ 5,104
Direct costs 333 2,997 ---- 3,330
-------- -------- -------- --------
Gross profit (loss) (140) 1,914 ---- 1,774
Selling, general and
administrative expenses 1,147 1,490 877 3,514
Depreciation and amortization 255 130 45 430
-------- -------- -------- --------
Income (loss) from operations (1,542) 294 (922) (2,170)
Other income (expense) ---- 12,155 684 12,839
-------- -------- -------- --------
Income (loss) before income taxes (1,542) 12,449 (238) 10,669
Income tax expense ---- 40 ---- 40
-------- -------- -------- --------
Net income (loss) $ (1,542) $ 12,409 $ (238) $ 10,629
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
OTHER
DataTRAK CLINICAL CORPORATE
BUSINESS BUSINESS ITEMS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 78 $ 4,940 $ ---- $ 5,018
Direct costs 213 4,166 ---- 4,379
-------- -------- -------- --------
Gross profit (loss) (135) 774 ---- 639
Selling, general and
administrative expenses 933 2,701 1,403 5,037
Special items 161 958 592 1,711
Depreciation and amortization 122 380 55 557
-------- -------- -------- --------
Loss from operations (1,351) (3,265) (2,050) (6,666)
Other income (expense) ---- ---- 912 912
-------- -------- -------- --------
Loss before income taxes (1,351) (3,265) (1,138) (5,754)
Income tax expense (benefit) ---- 80 ---- 80
-------- -------- -------- --------
Net loss $ (1,351) $ (3,345) $ (1,138) $ (5,834)
======== ======== ======== ========
</TABLE>
Three months ended June 30, 1999 compared with three months ended June
30, 1998
DataTRAK Business. Revenue for the three months ended June 30, 1999 increased to
$160,000 as compared to $70,000 for the three months ended June 30, 1998. The
increase was the result of $110,000 associated with a contract with Quintiles,
which was entered into prior to the signing of the Quintiles Agreement. Direct
costs of revenue, mainly personnel costs at DataTRAK's German subsidiary
("DataTRAK GmbH"), were $180,000 and $120,000 during the three months ended June
30, 1999 and 1998, respectively.
Selling general and administrative expenses ("SG&A") include all administrative
personnel costs, business development costs, and all other expenses not directly
chargeable to a specific contract. These expenses decreased from $490,000 to
$370,000 for the three months ended June 30, 1998 and 1999, respectively. Of the
decrease, $50,000 was due to reduced personnel costs associated with the
departure of two employees. Additionally, $50,000 of expense was incurred during
the second quarter of 1998 associated with the recruitment of personnel.
During the three months ended June 30, 1998, DataTRAK incurred special items
charges of $130,000 resulting from costs associated with the termination of
DataTRAK's technology alliance with IBM.
11
<PAGE> 12
Depreciation and amortization expense increased from $70,000 during the three
months ended June 30, 1998 to $140,000 during the three months ended June 30,
1999. The increase was the result of capital expenditures associated with the
building of DataTRAK's information technology infrastructure.
Clinical Business. Revenue for the three months ended June 30, 1999 decreased
70.4% to $770,000 as compared to $2.6 million for the three months ended June
30, 1998. The decrease was primarily the result of the sale of the Clinical
Business on April 20, 1999. The Company no longer generates revenue from the
Clinical Business.
Direct costs of the Clinical Business, which included compensation and related
fringe benefits for non-administrative employees (including those at
Company-owned research facilities) and other expenses directly related to
contracts, which were subcontracted to Affiliated Sites and other vendors, were
$500,000 and $2.2 million for the three months ended June 30, 1999 and 1998,
respectively. The Clinical Business incurred a high level of fixed direct costs
at its owned research sites, due to the number of clinical and support personnel
required in order to offer clinical services at these sites.
SG&A costs for the three months ended June 30, 1999 decreased $1.0 million to
$260,000 as compared to $1.3 million during the three months ended June 30,
1998, as a result of the sale of the Clinical Business. During the three months
ended June 30, 1998, the Clinical Business incurred special items charges of
$150,000, related to the closing of the Company's United Kingdom operations, and
the exiting of a joint venture in the United Kingdom. Depreciation and
amortization expense decreased from $190,000 for the three months ended June 30,
1998 to $20,000 during the three months ended June 30, 1999.
During the three months ended June 30, 1999, a $12.3 million gain was recorded
related to the sale of the Clinical Business. Income tax expense for the
Clinical Business was $30,000 for the three months ended June 30, 1998, as a
result of state taxes incurred during the period.
Other Corporate Items. The Company recorded SG&A expenses of $630,000 and
$370,000 during the three months ended June 30, 1998 and 1999, respectively that
were not allocated to either of the Company's operating divisions. The decrease
was due to reduced corporate overhead resulting from the sale of the Clinical
Business. Other income decreased $40,000 for the three months ended June 30,
1999 compared to the three months ended June 30, 1998. The decrease was
primarily the result of a loss on the disposal of obsolete equipment.
Six months ended June 30, 1999 compared with six months ended June 30,
1998
DataTRAK Business. Revenue for the six months ended June 30, 1999 increased to
$190,000 as compared to $80,000 for the six months ended June 30, 1998. The
increase was the result of $110,000 associated with a contract with Quintiles,
which was entered into prior to the signing of the Quintiles Agreement. Direct
costs of revenue, mainly personnel and software development costs at DataTRAK
GmbH, were $330,000 and $210,000 during the six months ended June 30, 1999 and
1998, respectively.
SG&A expenses increased from $930,000 to $1.1 million for the six months ended
June 30, 1998 and 1999, respectively. This increase was due to a one time
expense of $350,000 associated with services provided by an outside consultant
to assess the market potential of the DataTRAK EDC(TM) software. This expense
was offset by a deduction of SG&A expenses resulting from reduced personnel
expenses.
During the six months ended June 30, 1998, DataTRAK incurred special items
charges of $160,000. Of this amount, $30,000 resulted from the Company's first
quarter 1998 reorganization and included severance costs for one employee who
was terminated. The remaining $130,000 resulted from costs associated with the
termination of DataTRAK's technology alliance with IBM.
Depreciation and amortization expense increased from $120,000 during the six
months ended June 30, 1998 to $260,000 during the six months ended June 30,
1999. The increase was the result of the purchase
12
<PAGE> 13
of the DataTRAK EDC(TM) software, and capital expenditures associated with the
building of DataTRAK's information technology infrastructure.
Clinical Business. Revenue was $4.9 million for each of the six months ended
June 30, 1999 and 1998, respectively. Revenue for the two periods was comparable
despite the April 20, 1999 sale of the Clinical Business, due to increased
revenue at the Clinical Business's GFI research facility. The Company no longer
generates revenue from the Clinical Business.
Direct costs decreased by $1.2 million, or 28.6%, from $4.2 million to $3.0
million for the six months ended June 30, 1998 and 1999, respectively. The
decrease was primarily the result of less than one month of fixed costs being
incurred during the second quarter of 1999. The decrease in direct costs as a
percentage of revenue was the result of GFI's increased level of revenue and its
ability to leverage its fixed personnel costs.
SG&A costs for the six months ended June 30, 1999 were $1.5 million as compared
to $2.7 million during the six months ended June 30, 1998. This decrease
resulted primarily from the Company's sale of the Clinical Business.
During the six months ended June 30, 1998, the Clinical Business incurred
special items charges of $960,000 as part of the Company's reorganization plan.
Included in this amount was $810,000 of charges associated with the Company's
March 1998 reorganization, including severance costs for 19 employees who were
terminated, costs associated with the relocation of certain Clinical Business
employees and costs related to a lawsuit settlement with two former Clinical
Business executive officers. The remaining $150,000 resulted from the closing of
the Company's United Kingdom operations, and the exiting of a joint venture in
the United Kingdom.
Depreciation and amortization expense decreased from $380,000 for the six months
ended June 30, 1998 to $130,000 during the six months ended June 30, 1999. Part
of this decrease was caused by a decrease in goodwill amortization resulting
from the September 1998 goodwill write-down. The remainder of the decrease was
the result of the sale of the Clinical Business.
During the six months ended June 30, 1999, a $12.2 million gain was recorded
related to the sale of the Clinical Business.
Income tax expense for the Clinical Business was $80,000 for the six months
ended June 30, 1998 and $40,000 for the six months ended June 30, 1999. These
taxes were the result of state taxes incurred during both six month periods.
Other Corporate Items. The Company recorded SG&A expenses of $1.4 million and
$880,000 during the three months ended June 30, 1998 and 1999, respectively that
were not allocated to either of the Company's operating divisions. The decrease
was due to reduced personnel and other costs resulting from the Company's
reorganization in the first quarter of 1998 and the sale of the Company's
Clinical Business in April of 1999.
Corporate special items charges relating to the Company's first quarter 1998
reorganization totaled $590,000. These charges included severance costs for nine
employees who were terminated in March of 1998.
Other income decreased $230,000 for the six months ended June 30, 1999 compared
to the three months ended June 30, 1998. The decrease was the result of a
$160,000 decrease in interest income caused by the Company's use of cash to fund
its operating losses and other working capital needs, and $70,000 of expense
related to the disposal of obsolete equipment.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's principal sources of cash have been cash flow
from operations, proceeds from the sale of equity securities and the sale of
its Clinical Business. The Company's investing activities primarily reflect
capital expenditures, acquisitions and net purchases of short-term investments.
The Company's contracts usually require a portion of the contract amount to be
paid at the time the contract is initiated. Additional payments are generally
received upon completion of negotiated performance milestones throughout the
life of the contract. All amounts received are recorded as a liability (deferred
revenue) until work has been completed and revenue is recognized. Cash receipts
do not necessarily correspond to costs incurred or revenue recognized. The
Company typically receives a low volume of large-dollar receipts. Accounts
receivable will fluctuate due to the timing and size of cash receipts. Accounts
receivable (net of allowance for doubtful accounts) was $500,000 at June 30,
1999 and $2.7 million at December 31, 1998. Deferred revenue was $30,000 at June
30, 1999 and $630,000 at December 31, 1998. As a result of the sale of the
Clinical Business, $2.9 million of net accounts receivable and $310,000 of
deferred revenue was sold to West on April 20, 1999.
Cash and cash equivalents increased $670,000 during the six months ended June
30, 1999. This was the result of $4.4 million provided by investing and
financing activities, offset by $3.7 million used in operating activities.
Investing activities included net proceeds of $15.6 million related to the sale
of the Clinical Business offset by $11.0 million used for purchases and
maturities of short-term investments and $390,000 used to purchase property and
equipment.
Cash used for operating activities, of $3.7 million, resulted primarily from the
Company's net operating loss and other cash uses. Cash used in operating
activities includes the Company's net income, exclusive of non-cash operating
items, of $1.6 million, a $680,000 increase in accounts receivable and $500,000
related to 1998 special items charges. Changes in other current assets and
liabilities resulted in a net $920,000 use of cash.
At June 30, 1999, the Company had working capital of $37.5 million, and its
cash, cash equivalents and short-term investments totaled $39.0 million. The
Clinical Business had working capital of $600,000 at April 20, 1999. The
Company's working capital increased by $13.0 million from December 31, 1998. The
increase was primarily the result of the sale of the Clinical Business.
The Company has a line of credit agreement with a bank, which provides for
borrowings up to $2.0 million and bears interest at rates not to exceed prime
(no amounts were outstanding as of June 30, 1999). The line of credit agreement
requires that the Company maintain investments of $2.0 million with the bank.
This line of credit is considered to be committed and is subject to renewal at
January 31, 2000.
In connection with the sale of the Clinical Business, the Company received $16.8
million on April 20, 1999. These proceeds are subject to certain transaction
costs, and adjustments based on the Clinical Business's working capital at April
20, 1999 and the collection of net accounts receivable during the 180 days
following April 20, 1999. As a result of the Clinical Business's working capital
at April 20, 1999, the Company will return $1.2 million to West in August 1999.
Subsequent to the sale of the Clinical Business, the Board of Directors had
determined that it would distribute a significant portion of the Company's cash
to its shareholders. On July 12, 1999, the Company announced that it was
commencing a tender offer to repurchase up to 3.3 million of its Common Shares
at a purchase price of $6.00 per share. Upon completion of the tender offer, the
Company will retain approximately $18.0 million of cash, cash equivalents and
short-term investments to be used in the continued development of the DataTRAK
business.
14
<PAGE> 15
The Company's tender offer of Common Shares will reduce the number of Common
Shares that might otherwise be traded publicly and may reduce the number of
shareholders. Nonetheless, the Company anticipates that there will be a
sufficient number of Common Shares outstanding and publicly traded following
consummation of the tender offer to ensure a continued trading market for the
Common Shares. Based upon published guidelines of The Nasdaq National Market
("Nasdaq"), the Company does not believe its purchase of Common Shares pursuant
to the tender offer will cause the Company's remaining Common Shares to be
delisted from Nasdaq. However, depending on the number of Common Shares
purchased in the tender offer and the trading price of the Common Shares after
the tender offer expires, the Company may not satisfy one of the continued
listing standards of Nasdaq, which would require the Company to prepare a
reasonable plan to meet then-existing listing standards within 90 days in order
to maintain its listing on Nasdaq. Such a delisting of the Common Shares,
together with the substantial decrease in the percentage of Common Shares held
by shareholders, could result in a substantial decrease in the liquidity of the
Common Shares, even if the Company continues to be a reporting company under the
Securities Exchange Act of 1934 and continues to file the periodic reports
(including annual and quarterly reports) required to be filed thereunder. If the
Common Shares are delisted from Nasdaq, the Common Shares may only be able to
trade in the over-the-counter market. Although prices in respect of trades may
be published by the National Association of Securities Dealers, Inc. on its
electronic bulletin board and "pink sheets," quotes for such shares would not be
as readily available; accordingly, the Common Shares could trade much less
frequently than the Common Shares traded prior to any such delisting, which
could have a material adverse effect on the market value of the Common Shares.
In January 1998, DataTRAK purchased the EDC software now known as DataTRAK
EDC(TM) from EDS for $610,000. The Company is responsible for funding the future
development and testing of this software. The Company will also continue to
invest in the development of the DataTRAK(R) process. DataTRAK's primary source
of cash has been cash generated by the Clinical Business and the maturities of
corporate short-term investments. DataTRAK has had a negative cash flow of
approximately $10.1 million since it began operations in 1997. The Company
anticipates that its cash needs for operations for the remainder of 1999 will
be approximately $3.0 million, including $440,000 related to the payment of
special items charges recorded in 1998. In addition, the Company anticipates
software development expenditures of $2.0 to $2.5 million over the next two
years for continued commercialization and product development of DataTRAK
EDC(TM). The Company expects such activities will be funded from existing cash
and cash equivalents, maturities of short-term investments, cash flow from
operations and borrowings under its line of credit, as needed.
YEAR 2000 READINESS DISCLOSURE
Many existing computer systems and software programs currently in use are coded
to accept only two digit entries in the date code field. These systems and
programs were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.
The Company understands that as the new millennium approaches it is vital to all
of its Sponsors, Affiliated Sites and suppliers that the Company's internal
information technology ("IT") and non-IT systems are Year 2000 compliant. In
addition, just as important a priority is the compliance of external IT and
non-IT systems and services provided by others to the Company. To meet the above
compliance requirements, the Company has utilized the following methodology
since mid-1997. It has: (1) developed a three-year plan (1997-1999) with Year
2000 IT issues as a priority, (2) established a corporate Year 2000 program, (3)
performed a physical inventory of all IT and non-IT systems and software, (4)
delegated internal Year 2000 evaluation and testing responsibilities within the
Company, (5) assessed its compliance
15
<PAGE> 16
with the above plans on an on-going basis, (6) identified and categorized any
"mission critical" items, (7) repaired or replaced all non-compliant IT and
non-IT systems and services, (8) internally tested all systems and services for
compliance, (9) compiled appropriate documentation of all testing and vendor
compliance statements, (10) queried its utilities, Sponsors, Affiliated Sites
and suppliers as to their readiness and status, (11) developed a business
contingency plan in the event of Year 2000 malfunctions and (12) issued a public
Year 2000 disclosure statement on the Company's web site.
The Company has also established internal policies that have actively informed
its employees of the Year 2000 problem and that assist in procurement of only
new equipment that is Year 2000 compliant.
At this point in the Company's Year 2000 effort, substantially all of the
Company's internal IT and non-IT hardware and software systems have been tested
and either replaced or repaired. The Company expects that all material
non-compliant IT and non-IT systems will either be Year 2000 ready or replaced
by September 30, 1999. There can be no assurance that additional coding errors
or other defects will not be discovered in the future though management believes
the possibility of such discoveries is quite low due to the recent vintage and
uniformity of IT and non-IT systems throughout the Company.
The Company is in the process of determining how it may be impacted by any third
parties' failure to remedy their own Year 2000 issues. The Company has initiated
formal communications with significant Sponsors, suppliers and other third
parties to determine the extent, if any, to which the Company's interface
systems could be impacted by those third-parties' failure to remedy their own
Year 2000 issues. The Company will continue these communications. Management
currently does not anticipate any material adverse impact on its operations as a
result of Year 2000 issues of third parties. However, at this stage of the
review no assurance can be given that the failure by one or more third parties
to become Year 2000 compliant will not have a material adverse impact on the
Company's financial position or results of operations.
Management of the Company believes an effective program for resolving Year 2000
issues in a timely manner is in place. Since it is not possible to anticipate
all possible future outcomes, especially when third parties are involved, there
could be circumstances in which the Company's operations could be interrupted.
In addition, disruptions in the economy in general resulting from Year 2000
issues could also adversely impact the Company. The most significant Year 2000
issue and worst case scenario of concern to the Company has been identified as
being a long-term electrical power disruption. The Company's contingency plans
for large-scale Year 2000 disruptions focuses on two critical high-level
operational issues: (1) The preservation and availability of critical company
data as of December 31, 1999 and (2) the use of manual transaction processing
until all disruptions are eliminated.
To date, the total cost of the Year 2000 systems review has been immaterial to
the Company's financial position and results of operations. Management does not
anticipate incurring any additional costs that would be material to the
Company's financial position and results of operations. As of June 1999, the
Company has not utilized any outside consultants or technical staff to meet its
Year 2000 goals and has no current plans to do so.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q, other SEC filings or written
materials or orally by the Company or its representatives may constitute forward
looking statements that are based on management's current beliefs, estimates and
assumptions concerning the operations, future results and prospects of the
Company and the clinical pharmaceutical research industry in general. All
statements that address operating performance, events or developments that
management anticipates will occur in the future, including statements related to
future revenue, profits, expenses, income and earnings per share or statements
expressing general optimism about future results, are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934
("Exchange Act"). In addition, words
16
<PAGE> 17
such as "expects," "anticipates," "intends," "plans," "believes," "estimates,"
variations of such words, and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are subject to the safe
harbors created in the Exchange Act. Factors that may cause actual results to
differ materially from those in the forward looking statements include the
ability of the Company to absorb corporate overhead and other fixed costs in
order to successfully market the DataTRAK EDC(TM) software; the development and
fluctuations in the market for electronic data capture technology; the degree of
the Company's success in obtaining new contracts; continued unreliability of the
Internet infrastructure; the timing of payments from sponsors and the timing of
sponsor decisions to conduct new clinical trials or cancel or delay ongoing
trials; dependence on key personnel; governmental regulation; potential impact
of healthcare reform; the Company's limited operating history and lack of
profitable operations; the year 2000 issue; fluctuations in quarterly results;
the early stage of the Company's DataTRAK business and operations; and general
economic conditions such as the rate of employment, inflation, interest rates
and the condition of capital markets. This list of factors is not exclusive. In
addition, the Company's success depends on the outcome of various strategic
initiatives it has undertaken, all of which are based on assumptions made by the
Company concerning trends in the clinical research market and the health care
industry.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of shareholders held on April 14, 1999,
the Company's shareholders voted to approve the sale of the
Clinical Business, to change the Company's name from
Collaborative Clinical Research, Inc. to DataTRAK
International, Inc. and to amend the Company's Amended and
Restated 1996 Outside Directors' Stock Option Plan.
The following is a summary of the voting:
<TABLE>
<CAPTION>
Sale of Clinical Change of Amendment of
Votes Business Company's name stock option plan
----- -------- -------------- -----------------
<S> <C> <C> <C>
For 4,835,549 4,833,899 4,209,628
Against 12,675 14,675 549,753
Withheld 1,607 1,257 753,326
</TABLE>
Item 5. Other Information
None.
17
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at page E - 1 of this Form 10 - Q.
(b) Reports on Form 8-K
No reports were filed on form 8-K during the three months
ended June 30, 1999 other than the following.
Current Report on Form 8-K, dated April 14, 1999, reporting
under item 5 the approval by the Company's shareholders of the
sale of the Company's Clinical Business.
Current Report on Form 8-K, dated April 20, 1999, reporting
under item 2 the closing of the sale of the Company's Clinical
Business and reporting under item 5 the changing of the
Company's name from Collaborative Clinical Research, Inc. to
DataTRAK International, Inc.
18
<PAGE> 19
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.
DataTRAK International, Inc.
------------------------------------------
Registrant
Date: 8/13/99 /s/ Jeffrey A. Green
------------------------ ------------------------------------------
Jeffrey A. Green,
President and Chief Executive Officer and
a Director
(Principal Executive Officer)
Date: 8/13/99 /s/ Terry C. Black
------------------------ ------------------------------------------
Terry C. Black,
Vice President of Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
(Principal Financial Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
2.1 Asset Purchase Agreement, dated December 21, 1998 among Collaborative
Clinical Research, Inc., GFI Pharmaceutical Services, Inc., Collaborative
Holdings, Inc., DataTRAK, Inc. and The West Company, Incorporated (D)
3.1 Fifth Amended and Restated Articles of Incorporation (B)
3.2 Form of Certificate of Amendment to the Fifth Amended and Restated
Articles of Incorporation (D)
3.3 Third Amended and Restated Code of Regulations (B)
4.1 Specimen Certificate of the Company's Common Shares, without par value (A)
4.2 Credit Agreement between the Company and Key Bank, dated October 1, 1997 (C)
4.3 Second Amendment to the Credit Agreement between the Company and Key
Bank, dated February 5, 1999 (E)
4.4 Second Amended and Restated Registration Agreement, dated July 15,1994,
as amended on June 1, 1995 and February 5, 1996 (A)
15.1 Independent Accountants' Review Report
27.1 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-1 (Registration statement
No. 333-2140).
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-Q for the quarterly period ended June 30, 1996
(Commission file No. 000-20699).
(C) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the year ended December 31, 1997 (Commission
file No. 000-20699).
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's Schedule 14A, dated March 17, 1999 (Commission File No.
000-20699)
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's Form 10-K for the year ended December 31, 1998 (Commission
file No. 000-20699).
E-1
<PAGE> 1
EXHIBIT 15.1
Independent Accountants' Review Report
The Board of Directors and Shareholders
DataTRAK International, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
DataTRAK International (formerly Collaborative Clinical Research, Inc.), Inc.
and subsidiaries (the "Company") as of June 30, 1999, and the related condensed
consolidated statements of operations for the three-month and six-month periods
ended June 30, 1998 and 1999 and the condensed consolidated statements of cash
flows for the six-month periods ended June 30, 1998 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of DataTRAK International, Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended, not
presented herein, and in our report dated February 5, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1998 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Cleveland, Ohio
July 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM JUNE 30, 1999
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 38,987,068
<SECURITIES> 0
<RECEIVABLES> 514,147
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,894,378
<PP&E> 2,299,424
<DEPRECIATION> 857,590
<TOTAL-ASSETS> 41,336,212
<CURRENT-LIABILITIES> 2,426,443
<BONDS> 0
0
0
<COMMON> 49,735,892
<OTHER-SE> (10,826,123)
<TOTAL-LIABILITY-AND-EQUITY> 41,336,212
<SALES> 0
<TOTAL-REVENUES> 5,103,609
<CGS> 0
<TOTAL-COSTS> 3,329,925
<OTHER-EXPENSES> 3,920,836
<LOSS-PROVISION> 22,666
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,669,263
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 10,629,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,629,236
<EPS-BASIC> 1.650
<EPS-DILUTED> 1.624
</TABLE>
