<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 September 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 issuer's classes of
common stock, as of the latest practical date.
The number of Common Shares, without par value, outstanding as of October 31,
1999 was 3,290,322.
<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, September 30,
1998 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,072,586 $ 2,648,650
Short-term investments 22,620,667 14,672,242
Accounts receivable, less allowances 2,731,567 267,220
Prepaid expenses and other current assets 366,352 356,419
------------ ------------
Total current assets 29,791,172 17,944,531
Property and equipment, at cost
net of accumulated depreciation and amortization 2,393,266 1,392,112
Goodwill, less accumulated amortization 1,335,193 --
Other assets 20,168 71,876
------------ ------------
Total assets $ 33,539,799 $ 19,408,519
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,012,454 $ 183,829
Accrued expenses 3,664,577 854,868
Deferred revenue 625,068 24,537
------------ ------------
Total current liabilities 5,302,099 1,063,234
Shareholders' equity:
Foreign currency translation (44,041) (13,115)
Serial preferred shares, without par value, 1,000,000 shares
authorized, none issued -- --
Common shares, without par value, authorized 15,000,000
shares; issued 6,422,872 shares as of December 31, 1998 and 6,590,322
as of September 30, 1999; outstanding 6,422,872 shares as of December
31, 1998 and 3,290,322 shares as of September 30, 1999 49,704,742 50,236,553
Retained earnings (accumulated deficit) (21,423,001) (11,733,297)
Treasury shares, 3,300,000 shares at cost -- (20,144,856)
------------ ------------
Total shareholders' equity 28,237,700 18,345,285
------------ ------------
Total liabilities and shareholders' equity $ 33,539,799 $ 19,408,519
============ ============
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.
</TABLE>
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 Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 3,689,719 $ 172,887 $ 8,707,550 $ 5,276,496
Direct costs 3,002,101 202,052 7,381,022 3,531,977
------------ ------------ ------------ ------------
Gross profit (loss) 687,618 (29,165) 1,326,528 1,744,519
Selling, general and administrative expenses 2,118,220 983,477 7,155,757 4,496,853
Impairment charge 6,056,019 -- 6,056,019 --
Special items 287,000 -- 1,998,187 --
Depreciation and amortization 339,007 180,957 895,813 611,083
------------ ------------ ------------ ------------
Loss from operations (8,112,628) (1,193,599) (14,779,248) (3,363,417)
Other income (expense):
Interest income 416,059 331,901 1,325,837 1,081,927
Other income (expense) (10,574) (1,861) (7,968) (67,633)
Gain on sale of clinical business -- -- -- 12,154,827
------------ ------------ ------------ ------------
Income (loss) before income taxes (7,707,143) (863,559) (13,461,379) 9,805,704
Income tax expense -- 76,000 80,000 116,000
------------ ------------ ------------ ------------
Net income (loss) $ (7,707,143) $ (939,559) $(13,541,379) $ 9,689,704
============ ============ ============ ============
Net income (loss) per share:
Basic:
Net income (loss) per share $ (1.20) $ (0.20) $ (2.11) $ 1.65
============ ============ ============ ============
Weighted average shares outstanding 6,422,872 4,699,987 6,421,465 5,854,966
============ ============ ============ ============
Diluted:
Net income (loss) per share $ (1.20) $ (0.20) $ (2.11) $ 1.63
============ ============ ============ ============
Weighted average shares outstanding 6,422,872 4,699,987 6,421,465 5,948,356
============ ============ ============ ============
</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>
Nine Months Ended September 30,
----------------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (13,541,379) $ 9,689,704
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 895,813 611,083
Impairment charge 6,056,019 --
Special items 1,998,187 --
Gain on sale of clinical business -- (12,154,827)
Other (1,059,182) (804,242)
Changes in operating assets and liabilities:
Accounts receivable 2,249,598 (435,367)
Accounts payable and accrued expenses (2,311,960) (2,356,411)
Other 469,467 (313,857)
------------- -------------
Net cash used in operating activities (5,243,437) (5,763,917)
INVESTING ACTIVITIES
Purchases of property and equipment (1,646,246) (522,396)
Sale of business (net of cash sold) -- 15,601,184
Maturities of short term investments 53,777,886 223,334,142
Purchases of short term investments (50,030,054) (214,463,742)
Investment in HRI 7,802 --
------------- -------------
Net cash provided by investing activities 2,109,388 23,949,188
FINANCING ACTIVITIES
(Issuance) repayment of notes receivable 165,000 (62,400)
Purchase of treasury shares -- (20,144,856)
Net proceeds from issuance of common shares 2,100 510,111
------------- -------------
Net cash provided by (used in) financing activities 167,100 (19,697,145)
Effect of exchange rate on cash (83,339) 87,938
------------- -------------
Decrease in cash and cash equivalents (3,050,288) (1,423,936)
Cash and cash equivalents at beginning of period 6,381,512 4,072,586
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,331,224 $ 2,648,650
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
DataTRAK International, Inc. and subsidiaries ("DataTRAK" or 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 nine month periods ended
September 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. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1998 1999 1998 1999
-------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
Net income (loss) used in the calculation of
basic and diluted loss per share $ (7,707,143) $ (939,559) $(13,541,379) $9,689,704
============== ============== ============ ==========
Denominator for basic net income (loss) per
share - weighted average Common Shares 6,422,872 4,699,987 6,421,465 5,854,966
outstanding
Effect of dilutive Common Share options and
warrants -- -- -- 93,390
-------------- -------------- ------------ ----------
Denominator for diluted net income (loss)
per share 6,422,872 4,699,987 6,421,465 5,948,356
============== ============== ============ ==========
Basic net income (loss) per share $ (1.20) $ (0.20) $ (2.11) $ 1.65
============== ============== ============ ==========
Diluted net income (loss) per share $ (1.20) $ (0.20) $ (2.11) $ 1.63
============== ============== ============ ==========
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 451,250 297,600 451,250 94,659
============== ============== ============ ==========
</TABLE>
5
<PAGE> 6
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
3. IMPAIRMENT CHARGES AND SPECIAL ITEMS
During the nine months ended September 30, 1998, the Company recorded total
special items charges of $1,998,187. The Company recorded a charge of $1,439,762
in the first quarter of 1998 to recognize costs associated with employee
severance and other special items including the March 24, 1998 termination of 29
employees pursuant to a reorganization plan announced in March 1998 and expected
to be completed before the end of the second quarter of 1998. 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. In September 1998, a special items charge of $287,000 was
recorded associated with the closure of two Company-owned Clinical Business
sites, including severance related costs for two employees at these locations.
Also during September 1998, the Company recorded impairment charges of
$6,056,019 related to the impairment of goodwill. Of this charge, $1,848,307 was
related to goodwill written off during the third quarter of 1998 related to the
two Clinical Business locations that were closed in September of 1998 due to
poor operating performance and represented the remaining unamortized goodwill
allocated to these locations at the time of their purchase in 1996. The
remaining $4,207,712 was for goodwill associated with GFI.
GFI, a subsidiary, was acquired in January 1996 for $6.0 million with
substantially all of the purchase price being allocated to goodwill.
Subsequently, pursuant to SFAS 121, the Company evaluated the recoverability of
the long-lived assets including intangibles of its GFI subsidiary. GFI's revenue
continued to decline and its net losses continued to increase since its
acquisition. In addition, the two principals responsible for the development of
GFI, prior to its purchase by the Company, left the Company and a new management
team was put in place. In the third quarter of 1998, after new management's
efforts to effect a turnaround were exhausted, and concurrent with the Company's
planning process, it was determined that the possibility of recovering the
recorded value of the long-lived GFI assets through a sale of GFI, exclusive of
a sale of the entire Clinical Business, was remote. In addition, it was
determined that GFI's future undiscounted cash flows were below the carrying
value of GFI's long-lived assets. Accordingly, during the third quarter of 1998,
the Company adjusted the carrying value of GFI's long-lived assets to their
estimated fair value of approximately $1.6 million, resulting in a non-cash
charge of $4,207,712. The estimated fair value was based on the purchase price
allocated to GFI pursuant to an initial offer from The West Company,
Incorporated to purchase the Clinical Business.
6
<PAGE> 7
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Details of the impairment charges and special items, of which asset
write-offs and goodwill impairment represent non-cash charges, are as follows:
<TABLE>
<CAPTION>
SPECIAL ITEMS
-------------------------------------------------------------
GOODWILL ASSET TERMINATION OTHER EXIT
IMPAIRMENT WRITE-OFFS BENEFITS COSTS TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve at January 1, 1998 -- $2,100,000
1998 charges:
March 1998 corporate
reorganization $ -- $ -- $1,194,762 245,000 $1,439,762
June 1998:
Termination of IBM and
DataTRAK alliance -- -- -- 126,425 126,425
Exiting of United Kingdom
activities -- 27,023 18,000 99,977 145,000
---------- ---------- ---------- ---------- ----------
-- 27,023 18,000 226,402 271,425
September 1998:
Closure of two clinical sites 1,848,307 -- 15,000 272,000 287,000
GFI goodwill impairment 4,207,712 -- -- -- --
---------- ---------- ---------- ---------- ----------
6,056,019 -- 15,000 272,000 287,000
---------- ---------- ---------- ---------- ----------
Total 1998 charges $6,056,019 $ 27,023 1,227,762 743,402 $1,998,187
========== ========== ==========
1998 payments and adjustments:
Termination of IBM and
DataTRAK alliance -- 2,080,300 $2,080,300
Closing of leased facility -- 82,443 82,443
March 1998 corporate
reorganization 648,934 176,155 825,089
Exiting of United Kingdom
activities 18,000 50,202 68,202
Closure of two clinical sites 15,000 13,420 28,420
---------- ---------- ----------
Total 1998 payments and adjustments 681,934 2,402,520 $3,084,454
---------- ---------- ==========
Reserve at December 31, 1998 545,828 440,882
1999 payments and adjustments:
Termination of IBM and
DataTRAK alliance 46,125 $ 46,125
Closing of leased facility 98,474 98,474
March 1998 corporate
reorganization 366,929 65,163 432,092
Exiting of United Kingdom
activities 25,412 25,412
Closure of two clinical sites 91,232 91,232
---------- ---------- ----------
Total 1999 payments and
adjustments 366,929 326,406 $ 693,335
---------- ---------- ==========
Reserve at September 30, 1999 $ 178,899 $ 114,476
========== ==========
</TABLE>
7
<PAGE> 8
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
4. SEGMENT DISCLOSURES AND RELATED INFORMATION
Prior to April 20, 1999, the Company operated in two principal business
segments: The DataTRAK EDC Business and the Clinical Business. The Clinical
Business was sold on April 20, 1999. The DataTRAK EDC Business 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. Subsequent to April 20, 1999, the Company operates only the DataTRAK
EDC Business.
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.
Information on the Company's business segments is as follows:
<TABLE>
<CAPTION>
DataTRAK EDC CLINICAL
THREE MONTHS ENDED SEPTEMBER 30, BUSINESS BUSINESS TOTAL
-------------------------------- -------- -------- -----
<S> <C> <C> <C>
Revenue:
1998 $ 33,043 $ 3,656,676 $ 3,689,719
1999 172,887 -- 172,887
Loss from operations:
1998 (1,251,036) (6,861,592) (8,112,628)
1999 (1,193,599) -- (1,193,599)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
Revenue:
1998 111,443 8,596,107 8,707,550
1999 365,719 4,910,777 5,276,496
Income (loss) from operations:
1998 (4,651,850) (10,127,398) (14,779,248)
1999 (3,657,910) 294,493 (3,363,417)
Assets at December 31, 1998 28,364,650 5,175,149 33,539,799
Assets at September 30, 1999 19,408,519 -- 19,408,519
</TABLE>
8
<PAGE> 9
DataTRAK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
5. PRO FORMA INFORMATION
On April 20, 1999, the Company sold its Clinical Business to West Pharmaceutical
Services ("West") for $15.6 million, less applicable transaction costs, and
subject to collection of net accounts receivable acquired by West. On August 9,
1999, the Company completed a tender offer for its Common Shares by repurchasing
3,300,000 Common Shares at a price of $6.00 per share. Unaudited pro forma data
for the nine months ended September 30, 1999 as though the Company had completed
these transactions at the beginning of 1999 are set forth below. The pro forma
operating results are not necessarily indicative of what would have occurred had
the transactions taken place on January 1, 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Pro forma revenue $ 365,719
Pro forma net loss (2,643,346)
Pro forma basic loss per share (0.83)
Pro forma diluted loss per share (0.83)
</TABLE>
9
<PAGE> 10
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 nine month
periods ended September 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 its DataTRAK EDC Business, the Company
provides EDC and other services, which assist companies in the clinical
pharmaceutical, biotechnology, contract research organization ("CRO") 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. The Clinical
Business was sold to West on April 20, 1999 for $15.6 million, less applicable
transaction costs, and subject to the collection of net accounts receivable
acquired by West.
The Company no longer generates revenue from or funds the operations of the
Clinical Business. The DataTRAK EDC Business is now the sole source of the
Company's revenue and along with corporate overhead is the sole draw on the
Company's working capital. Approximately 89% of the Company's assets, or
approximately $17.3 million, are held in cash, cash equivalents and short-term
investments. The DataTRAK EDC 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 EDC Business and anticipates that its operating results will fluctuate
significantly from period to period. There can be no assurance of the Company's
long-term future prospects.
On August 9, 1999, the Company completed a tender offer by repurchasing 3.3
million of its Common Shares at a purchase price of $6.00 per share.
The discussion that follows highlights the business conditions and certain
financial information specific to the Company's DataTRAK EDC Business.
The DataTRAK EDC Business 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 clinical trial sponsors and CRO's. During
the nine months ended September 30, 1999, the DataTRAK EDC Business had revenue
of $366,000 and a net operating loss of $3.7 million. For the nine months ended
September 30, 1998, the DataTRAK EDC Business had revenue of $111,000 and a net
operating loss of $4.7 million. There can be no assurance that the Company will
be successful in achieving commercial acceptance of the DataTRAK(R) process.
The Company's contracts provide a fixed price for each component or service to
be delivered. Additional 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 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 customer with or without cause. The Company is entitled to
payment for all work performed through the date of notice of
10
<PAGE> 11
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
September 30, 1999, DataTRAK's backlog was $1.8 million. Of this backlog, $1.2
million relates to two contracts from one customer. At December 31, 1998, the
DataTRAK EDC 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 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 revenue 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.
RESULTS OF OPERATIONS - DataTRAK BUSINESS
The following tables set forth, for the periods indicated, certain items from
the Company's Consolidated Statements of Operations, expressed in thousands, for
the Company's DataTRAK EDC Business.
<TABLE>
<CAPTION>
DataTRAK EDC BUSINESS
---------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER ENDED SEPTEMBER ENDED SEPTEMBER
30, 1998 30, 1999 30, 1998 30, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 33 $ 173 $ 111 $ 366
Direct costs 109 202 322 536
-------- -------- -------- --------
Gross profit (loss) (76) (29) (211) (170)
Selling, general and
administrative expenses 1,032 984 3,368 3,007
Special items -- 753 --
Depreciation and amortization 143 181 320 481
-------- -------- -------- --------
Loss from operations (1,251) (1,194) (4,652) (3,658)
Other income (expense) 405 330 1,318 13,169
-------- -------- -------- --------
Income (loss) before income taxes (846) (864) (3,334) 9,511
Income tax expense -- 76 -- 116
-------- -------- -------- --------
Net income (loss) $ (846) $ (940) $ (3,334) $ 9,395
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
Three months ended September 30, 1999 compared with three months ended
September 30, 1998
Revenue for the three months ended September 30, 1999 increased to $173,000 as
compared to $33,000 for the three months ended September 30, 1998. The increase
was the result of revenue associated with contracts with Quintiles. Direct costs
of revenue, mainly personnel costs at the Company's German subsidiary ("DataTRAK
GmbH") and software development costs, were $202,000 and $109,000 during the
three months ended September 30, 1999 and 1998, respectively. The increase in
direct costs was a result of higher personnel costs, due to an increase in the
number of employees.
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 slightly from $1.0
million to $984,000 for the three months ended September 30, 1998 and 1999,
respectively. The decrease was primarily the result of an $80,000 reduction in
overhead costs, resulting from the sale of the Clinical Business. This reduction
partially was offset by increased personnel and other costs associated with the
development of the DataTRAK EDC Business.
Depreciation and amortization expense increased from $143,000 during the three
months ended September 30, 1998 to $181,000 during the three months ended
September 30, 1999. The increase was the result of depreciating capital
expenditures associated with the building of DataTRAK's information technology
infrastructure.
Other income decreased from $405,000 during the three months ended September 30,
1998 to $330,000 during the three months ended September 30, 1999. This decrease
was primarily the result of the decrease in interest income resulting from the
Company's decreased level of cash, cash equivalents and short-term investments.
The decrease in cash, cash equivalents and short-term investments was due to the
Company's repurchase of 3.3 million Common Shares at a price of $6.00 per share,
and the consumption of cash to fund operating losses and other working capital
needs. The repurchase of Common Shares was effected through a tender offer,
which was completed in August 1999.
Income tax expense for the three months ended September 30, 1999 was $76,000.
This expense is a result of federal alternative minimum taxes and state taxes
incurred related to the gain associated with the sale of the Clinical Business.
Nine months ended September 30, 1999 compared with nine months ended
September 30, 1998
Revenue for the nine months ended September 30, 1999 increased to $366,000 as
compared to $111,000 for the nine months ended September 30, 1998. The increase
was the result of revenue associated with contracts with Quintiles. Direct costs
of revenue, mainly personnel and software development costs at DataTRAK GmbH,
were $536,000 and $322,000 during the nine months ended September 30, 1999 and
1998, respectively. The increase in direct costs was a result of higher
personnel costs.
SG&A expenses decreased from $3.4 million to $3.0 million for the nine months
ended September 30, 1998 and 1999, respectively. The decrease was primarily due
to reduced personnel and other costs resulting from the Company's reorganization
in the first quarter of 1998 and the sale of the Clinical Business in April of
1999. This decrease was partially offset by 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, and other costs associated with the
development of the DataTRAK EDC Business.
During the nine months ended September 30, 1998, special items charges of
$753,000 were incurred. Of this amount, $627,000 resulted from the Company's
first quarter 1998 reorganization and included severance costs for ten employees
who were terminated in March of 1998. The remaining $126,000 resulted from costs
associated with the termination of DataTRAK's technology alliance with IBM.
12
<PAGE> 13
Depreciation and amortization expense increased from $320,000 during the nine
months ended September 30, 1998 to $481,000 during the nine months ended
September 30, 1999. The increase was the result of depreciation related to the
DataTRAK EDC(TM) software, and depreciating other capital expenditures
associated with the building of DataTRAK's information technology
infrastructure.
Other income increased $11.9 million for the nine months ended September 30,
1999 compared to the nine months ended September 30, 1998. The increase was
primarily the result of the $12.2 million gain associated with the sale of the
Clinical Business. Other income also includes interest income which decreased
$244,000 due to the Company's use of cash to fund its tender offer of Common
Shares, operating losses and other working capital needs.
Income tax expense for the nine months ended September 30, 1999 was $116,000.
This expense is primarily result of federal alternative minimum taxes and state
taxes incurred related to the gain associated with the sale of the Clinical
Business. Income tax expense for the nine months ended September 30, 1998 were
$80,000, resulting from state taxes incurred during the nine month period.
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.
During the nine months ended September 30, 1998, the Clinical Business earned
revenue totaling $8.6 million and had a net operating loss of $10.1 million.
During the period of January 1 to April 20, 1999, the Clinical Business had
revenue of $4.9 million and operating income of $294,000.
During the nine months ended September 30, 1998, the Clinical Business recorded
asset impairment charges of $6.1 million related to the impairment of goodwill.
Of this charge, $1.9 million was related to goodwill written off related to two
Clinical Business locations that were closed in September 1998 due to poor
operating performance. The $1.9 million of goodwill represents the unamortized
portion of goodwill that was allocated to these sites at the time of their
purchase. The remaining $4.2 million of the impairment charge was for goodwill
associated with GFI's operations. GFI's revenue was in continual decline and its
net losses continued to increase since its acquisition. In the third quarter of
1998, after management's efforts to effect a turn around were exhausted, and
concurrent with the Company's planning process, it was determined that the
possibility of recovering the recorded value of the GFI goodwill through a sale
of GFI, exclusive of a sale of the entire Clinical Business, was remote. In
addition, it was determined that GFI's future undiscounted cash flows were below
the carrying value of GFI's long-lived assets. Accordingly, during the third
quarter of 1998, the Company adjusted the carrying value of GFI's long-lived
assets to their estimated fair value of approximately $1.6 million, resulting in
the non-cash charge of $4.2 million. The estimated fair value was based on the
purchase price allocated to GFI pursuant to an initial offer from West to
purchase the Clinical Business.
Included in the Clinical Business's results of operations for the nine months
ended September 30, 1998, were special items charges of $1.2 million. 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 $430,000
13
<PAGE> 14
resulted from the closing of the Company's United Kingdom activities and costs
related to the closing of two of its Clinical Business sites.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's principal sources of cash have been cash flow
from operations and proceeds from the sale of equity securities. During 1999 the
Company also generated cash through the sale of its Clinical Business. The
Company's investing activities primarily reflect capital expenditures and net
purchases of short-term investments.
In connection with the sale of the Clinical Business, the Company received $16.8
million on April 20, 1999. These proceeds were subject to certain transaction
costs, 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 returned $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. The tender offer was fully subscribed
and completed in August 1999 at a cost to the Company of $20.2 million. The
Company's remaining $17.3 million of cash, cash equivalents and short-term
investments will be used in the continued development of the DataTRAK EDC
Business.
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 $267,000 at September
30, 1999 and $2.7 million at December 31, 1998. Deferred revenue was $25,000 at
September 30, 1999 and $625,000 at December 31, 1998. As a result of the sale of
the Clinical Business, $2.9 million of net accounts receivable and $309,000 of
deferred revenue was sold to West on April 20, 1999.
Cash and cash equivalents decreased $1.4 million during the nine months ended
September 30, 1999. This was the result of $24.0 million provided by investing,
and $5.8 million and $19.6 million being used by operating and financing
activities, respectively. Cash used for operating activities resulted from the
funding of net operating losses and other working capital needs. Investing
activities include net proceeds of $15.6 million related to the sale of the
Clinical Business, $8.9 provided by net maturities of short-term investments and
$522,000 used to purchase property and equipment. Cash used by financing
activities was primarily due to $20.2 million being used in relation to the
repurchase of 3.3 million Common Shares during the Company's tender offer, which
was offset by receipts related to the exercise of stock options.
At September 30, 1999, the Company had working capital of $16.9 million, and its
cash, cash equivalents and short-term investments totaled $17.3 million. The
Clinical Business had working capital of $600,000 at April 20, 1999. The
Company's working capital decreased by $7.2 million from December 31, 1998. The
decrease was primarily the result of the sale of the Clinical Business and the
completion of the Company's tender offer of Common Shares.
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 September 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.
14
<PAGE> 15
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 continue to invest in
the development of the DataTRAK(R) process. DataTRAK has had a negative cash
flow of approximately $10.8 million since it began operations in 1997. The
Company anticipates that its cash needs for operations for the remainder of 1999
will be approximately $1.7 million, including $290,000 related to the payment of
special items charges recorded in 1998. In addition, the Company anticipates
software development expenditures of $2.5 to $3.0 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 customers 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 these compliance
requirements, the Company has utilized the following methodology since the
middle of 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 with the above plans on an on-going basis,
(6) identified and categorized "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, customers 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 November 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 customers, 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.
15
<PAGE> 16
Management of the Company believes it has implemented an effective program for
resolving Year 2000 issues in a timely manner. 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 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 September 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 Securities and Exchange
Commission 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 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 EDC 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 EDC 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.
16
<PAGE> 17
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on September 22,
1999 (the "Annual Meeting"), the Company's shareholders voted
to approve an amendment to the Company's Fifth Amended and
Restated Articles of Incorporation to decrease the number of
classes of Directors on the Company's Board of Directors from
three classes of Directors to two classes of Directors.
The following is a summary of the voting:
Votes
-----
For 2,416,781
Against 57,211
Withheld 1,959
Non-votes 584,701
Also, at the Annual Meeting, the shareholders voted to elect
Jeffrey A. Green, Timothy G. Biro and Robert M. Stote each to
an additional two-year term as a director of the Company.
The following is a summary of the voting:
<TABLE>
<CAPTION>
Votes Jeffrey A. Green Timothy G. Biro Robert M. Stote
----- ---------------- --------------- ---------------
<S> <C> <C> <C>
For 2,806,694 2,761,945 3,052,391
Withheld 253,958 298,707 8,261
</TABLE>
Item 5. Other Information
None.
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 September 30, 1999 other than the following.
Current Report on Form 8-K, dated June 26, 1999, reporting
under item 5 the signing of the Quintiles Agreement.
17
<PAGE> 18
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: 11/5/99 /s/ Jeffrey A. Green
------------------- ---------------------------------------------------
Jeffrey A. Green,
President and Chief Executive Officer and a Director
(Principal Executive Officer)
Date: 11/5/99 /s/ Terry C. Black
------------------- ----------------------------------------------------
Terry C. Black,
Vice President of Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT INDEX
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 Form of Certificate of Amendment to the Fifth Amended and Restated
Articles of Incorporation (F)
3.4 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)
10.1 Amended and Restated 1994 Directors' Share Option Plan* (G)
10.2 Amended and Restated 1996 Outside Directors' Stock Option Plan* (G)
10.3 Amendment No. 2 to the Amended and Restated 1996 Outside Directors' Stock
Option Plan* (D)
10.4 Amended and Restated 1992 Share Incentive Plan* (G)
10.5 Amended and Restated 1996 Key Employees' and Consultants
Stock Option Plan* (G)
10.6 Form of Indemnification Agreement* (A)
10.7 Employment Agreement between the Company and Jeffrey A. Green, dated
July 1, 1994* (A)
10.8 Employment Agreement between the Company and Terry C. Black, dated
July 20, 1994* (A)
10.9 Separation Agreement between the Company and Terry C. Black, dated
December 22, 1998* (E)
10.10 Collaborative Clinical Research, Inc. Retirement Savings Plan* (H)
15.1 Independent Accountants' Review Report
27.1 Financial Data Schedule
</TABLE>
E - 1
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. Description PAGE
- ----------- ----------- ----
- --------------------------------------------------------------------------------
<S> <C> <C>
(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).
(F) Incorporated herein by reference to the appropriate exhibit
to the Company's Schedule 14A, dated August 25, 1999
(Commission File No. 000-20699).
(G) Incorporated herein by reference to the appropriate exhibit
to the Company's Registration Statement on Form S-8
(Registration statement No. 333-16061).
(H) Incorporated herein by reference to the appropriate exhibit
to the Company's Registration Statement on Form S-8
(Registration statement No. 333-26251).
</TABLE>
E-2
<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, Inc. and subsidiaries (the "Company")
(formerly Collaborative Clinical Research, Inc.) as of September 30,
1999, and the related condensed consolidated statements of operations
for the three-month and nine-month periods ended September 30, 1998
and 1999 and the condensed consolidated statements of cash flows for
the nine-month periods ended September 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
October 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1999 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,320,892
<SECURITIES> 0
<RECEIVABLES> 271,720
<ALLOWANCES> 4,500
<INVENTORY> 0
<CURRENT-ASSETS> 17,944,531
<PP&E> 2,423,539
<DEPRECIATION> 1,031,427
<TOTAL-ASSETS> 19,408,519
<CURRENT-LIABILITIES> 1,063,234
<BONDS> 0
0
0
<COMMON> 50,236,553
<OTHER-SE> (31,891,268)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 5,276,496
<CGS> 0
<TOTAL-COSTS> 3,531,977
<OTHER-EXPENSES> 5,080,770
<LOSS-PROVISION> 27,166
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,805,704
<INCOME-TAX> 116,000
<INCOME-CONTINUING> 9,689,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,689,704
<EPS-BASIC> 1.655
<EPS-DILUTED> 1.629
</TABLE>
