<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-27855
----------------
DATA CRITICAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 91-1901482
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
19820 North Creek Parkway, Suite 100
Bothell, Washington 98011
(Address of principal executive offices)
(425) 482-7000
(Registrant's telephone number, including area code)
----------------
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: Yes [X] No [_]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 10,709,002 shares
of common stock, $.001 par value, at April 21, 2000.
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<PAGE>
DATA CRITICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<C> <S> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.............................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 27
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 28
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DATA CRITICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 33,976 $ 30,537
Accounts receivable, net of allowance of $149 and
$210, respectively................................. 2,223 2,529
Inventories, net.................................... 863 1,061
Prepaid expenses and other.......................... 377 450
-------- --------
Total current assets.............................. 37,439 34,577
Note receivable from officer.......................... 45 45
Investment in and advances to unconsolidated
affiliate............................................ 215 215
Property, equipment and software, net................. 1,492 1,619
Other assets, net..................................... 1,860 1,824
-------- --------
Total assets...................................... $ 41,051 $ 38,280
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable and capital
leases............................................. 268 129
Accounts payable.................................... 1,224 1,417
Deferred revenues................................... 1,304 1,153
Other current liabilities........................... 1,521 1,684
-------- --------
Total current liabilities......................... 4,317 4,383
Notes payable and capital leases, net of current
portion.............................................. 1,169 179
-------- --------
Total liabilities................................. 5,486 4,562
-------- --------
Commitments and contingencies
Stockholders' Equity
Undesignated preferred stock, $0.01 par value;
3,000,000 authorized, 0 issued and outstanding at
December 31, 1999.................................. -- --
Common stock and additional paid-in capital, $.001
per value, 25,000,000 shares authorized; 10,564,789
and 10,609,002 shares issued and outstanding,
respectively....................................... 61,912 61,982
Deferred compensation............................... (1,327) (1,223)
Accumulated deficit................................. (25,020) (27,041)
-------- --------
Total stockholders' equity........................ 35,565 33,718
-------- --------
Total liabilities, mandatorily redeemable
preferred stock and
stockholders' equity............................. $ 41,051 $ 38,280
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
DATA CRITICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1999 2000
---------- ----------
<S> <C> <C>
Revenue............................................... $ 1,758 $ 3,705
Cost of revenue....................................... 660 1,472
---------- ----------
Gross margin........................................ 1,098 2,233
---------- ----------
Operating expenses:
Research and development............................ 551 1,475
Sales and marketing................................. 1,073 1,525
General and administrative.......................... 726 1,531
---------- ----------
Total operating expenses.......................... 2,350 4,531
---------- ----------
Loss from operations.............................. (1,252) (2,298)
Interest income....................................... 28 465
Interest expense...................................... (11) (188)
---------- ----------
Net loss.............................................. (1,235) (2,021)
---------- ----------
Preferred stock dividends and accretion of mandatory
redemption obligations............................... 354 --
---------- ----------
Net loss attributable to common stock........... $ (1,589) $ (2,021)
========== ==========
Basic and diluted loss per common share............... $ (1.13) $ (0.19)
========== ==========
Weighted average shares used to calculate basic and
diluted loss per common share........................ 1,403 10,569
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DATA CRITICAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
and Additional
Paid-in Capital
------------------ Deferred Accumulated Stockholders'
Shares Amount Compensation Deficit Equity
---------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1999................... 10,564,789 $61,912 $(1,327) $(25,020) $35,565
Common stock options
and warrants
exercised............. 44,213 70 -- -- 70
Amortization of
deferred stock
compensation.......... -- -- 104 -- 104
Net loss............... -- -- -- (2,021) (2,021)
---------- ------- ------- -------- -------
Balance, March 31,
2000................... 10,609,002 $61,982 $(1,223) $(27,041) $33,718
========== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
DATA CRITICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months
Ended March 31,
----------------
1999 2000
------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss................................................... $(1,235) $(2,021)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 57 263
Amortization of deferred stock compensation.............. 68 104
Issuance of common stock for compensation................
Non cash interest charge................................. 1 178
Changes in assets and liabilities:
Accounts receivable.................................... 56 (306)
Inventories............................................ (267) (198)
Prepaid expenses and other current assets.............. (97) (129)
Accounts payable and other current liabilities......... (115) 356
Deferred revenues...................................... 214 (151)
------- -------
Net cash used in operating activities................ (1,318) (1,904)
------- -------
Cash Flows From Investing Activities:
Loan to Elixis Corporation................................. -- (200)
Purchases of property and equipment........................ (65) (264)
Other assets............................................... (6) (12)
------- -------
Net cash used in investing activities................ (71) (476)
------- -------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net................ -- 70
Proceeds from lines of credit.............................. 200 --
Payment on lines of credit................................. -- (43)
Payment on notes payable and capital leases................ (24) (1,086)
------- -------
Net cash provided (used in) by financing activities.. 176 (1,059)
------- -------
Net decrease in cash and cash equivalents.................... (1,213) (3,439)
Cash and cash equivalents at beginning of period............. 3,053 33,976
------- -------
Cash and cash equivalents at end of period................... $ 1,840 $30,537
======= =======
Cash paid for interest....................................... $ 11 $ 39
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
DATA CRITICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Basis of Presentation
Data Critical Corporation (the Company) designs, manufactures, markets and
supports open personal information communications systems that provide
individuals with mobile interactive access to highly complex and life-critical
data. The Company's market focus is the healthcare industry, including
hospital, clinical, extended care and home care markets. The Company's systems
combine wireless technology and proprietary software to allow access to
patient vital signs and other diagnostic data from remote locations, both
inside and outside the hospital environment, either through an interactive
access device, a personal computer server or the Internet. To date, the
Company has directed a significant portion of its efforts to research and
development, development of markets for its products, application for patents,
raising capital and planning. The Company performed selected contract
development services during this period as well as commenced sales of related
products during 1995. During 1997, the Company focused on addressing its
technology to specific medical applications. The resulting products are
regulated by the U.S. Food and Drug Administration and therefore require pre-
market approval from the FDA prior to making sales. The first of these
approvals was granted in November 1997.
The accompanying unaudited consolidated financial statements of Data
Critical Corporation and its subsidiary (collectively the "Company"), have
been prepared in conformity with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of the Company's management, the statements include
all adjustments necessary (which are of a normal and recurring nature) for the
fair presentation of the results of the interim periods presented. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended
December 31, 1999 included in the Company's Form 10-K dated March 30, 2000
filed with the Securities and Exchange Commission.
2. Summary of Significant Accounting Principles
The financial statements consolidate the accounts of Data Critical
Corporation and its wholly owned subsidiary datacritical.com. All intercompany
transactions have been eliminated.
Revenue Recognition
The Company's revenue recognition policies are in conformity with Statement
of Position 97-2 "Software Revenue Recognition" as amended, of the American
Institute of Certified Public Accountants. License revenue is earned when
delivery has occurred, the fee is fixed and determinable, evidence of an
arrangement exists, collection of the receivable is probable and no
significant post-delivery obligations remain. For sales to end users, revenue
is recognized upon installation. For sales to distributors, revenue is
recognized upon delivery. Maintenance and support revenue is recognized over
the term of the agreement.
The Company recognizes revenue from software development contracts involving
significant production, modification or customization of software, based on
performance milestones specified in the contract where these milestones fairly
reflect progress toward contract.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-
2"). The Company adopted SOP 97-2 beginning in fiscal 1999. SOP 97-2 has been
modified by SOP 98-4 and SOP 98-9 as it relates to certain transactions. These
standards generally require revenues earned on software arrangements involving
multiple elements such as software
7
<PAGE>
DATA CRITICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
products, upgrades, enhancements, post-contract customer support, installation
and training to be allocated to each element based on the relative fair values
of the elements. The fair value of an element must be based on evidence that
is specific to the vendor. Evidence of the fair value of each element is based
on the price charged when the element is sold separately or, if the element is
not being sold separately, the price for each element established by
management having relevant authority. The revenues allocated to software
products, including specified upgrades or enhancements, generally are
recognized upon delivery of the products. The revenues allocated to
unspecified upgrades, updates and other post-contract customer support
generally are recognized ratably over the term of the contract.
If evidence of the fair value for all elements of the arrangement does not
exist, all revenues from the arrangement are deferred until such evidence
exists or until all elements are delivered. Full guidelines for SOP 97-2 and
related modifications have not been issued. Once available, such guidelines
could lead to unanticipated changes in the Company's current revenue
accounting practices, and such changes could materially adversely affect the
Company's future revenues and earnings.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
The Company's initial products are made up of the Company's proprietary
software applications which it integrates with hardware that is acquired from
third parties as well as hardware made by third parties to the Company's
specifications. Inventories consist primarily of the Company's hardware
product, components to make the product and other third-party equipment, all
of which is stated at the lower of cost or market, using the first-in, first-
out method.
<TABLE>
<CAPTION>
December 31, March 31
1999 2000
------------ --------
(In thousands)
<S> <C> <C>
Purchased components................................ $ 842 $1,000
Finished goods...................................... 21 61
----- ------
$ 863 $1,061
===== ======
</TABLE>
3. Net Loss Per Share
In accordance with Statement of Financial Accounting Standards No. 128,
"Computation of Earnings Per Share," basic loss per share is computed by
dividing net loss attributable to common stock (net loss less preferred stock
redemption obligation accretion and dividend requirements) by the weighted
average number of shares of common stock outstanding during the period.
Diluted loss per share is computed by dividing net loss by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares consist of the shares of common
stock issuable upon the conversion of the mandatorily redeemable preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method); common
equivalent shares are excluded from the calculation as their effect is
antidilutive. Accordingly, basic and diluted loss per share are equivalent.
The Company has not made any issuances or grants for nominal consideration as
defined under U.S. Securities and Exchange Commission Staff Accounting
Bulletin 98.
8
<PAGE>
DATA CRITICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Subsequent Events
On April 3, 2000, pursuant to an agreement and plan of merger dated March
13, 2000, we acquired Elixis Corporation. As a result of the acquisition, we
issued 210,000 shares of our common stock in exchange for all of the issued
and outstanding capital stock of Elixis. This transaction will be accounted
for as a purchase transaction.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
Some of the information in this document contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You
should read statements that contain these words carefully because they discuss
our expectations about our future performance, contain projections of our
future operating results of our future financial condition, or state other
"forward-looking" information. There may be events in the future, however,
that we are not accurately able to predict or over which we have no control.
The risk factors listed in this document, as well as any other cautionary
language in this document, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations
we describe in our forward-looking statements. You should be aware that the
occurrence of any of the events described below or elsewhere in this document
could have a material and adverse effect on our business, results of
operations and financial condition.
You should read the following discussion and analysis in conjunction with
our Consolidated Financial Statements and Notes thereto included elsewhere in
this report. In addition to historical information, the following discussion
contains certain forward-looking statements that involve known and unknown
risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. You should read the cautionary statements made in
this report as being applicable to all related forward-looking statements
wherever they appear in this report. Our actual results could differ
materially from those discussed in the forward-looking statements. The
differences could be caused by a number of factors or combination of factors,
including, but not limited to, the "Important Factors That May Affect Our
Business, Our Results of Operations and Our Stock Price" described herein and
in our Securities and Exchange Commission filings from time to time, including
our annual report on Form 10-K for the year ended December 31, 1999.
Overview
We sell our systems through a national direct field sales force, alliances
with strategic partners and Original Equipment Manufacturer (OEM)
arrangements. Our direct sales force regularly works together with the sales
teams of our strategic partners, in particular Agilent Technologies, Inc.,
Siemens Medical Systems, Inc. and Protocol Systems, Inc. We also sell our
systems through OEM relationships with GE Marquette Medical Systems, Inc.
Recent Developments
On April 3, 2000, pursuant to an agreement and plan of merger dated March
13, 2000 we acquired Elixis Corporation. As a result of the acquisition, we
issued 210,000 shares of our common stock in exchange for all of the issued
and outstanding capital stock of Elixis. This transaction will be accounted
for as a purchase transaction.
10
<PAGE>
Results of Operations
The following table sets forth for the periods indicated the percentage of
revenue of certain line items included in Data Critical's statement of
operations data:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenue........................................ 100.0% 100.0%
Cost of revenue................................ 37.5% 39.7%
------ ------
Gross margin............................... 62.5% 60.3%
------ ------
Operating expenses:
Research and development..................... 31.3% 39.8%
Sales and marketing.......................... 61.0% 41.2%
General and administrative................... 41.3% 41.3%
------ ------
Total operating expenses................... 133.6% 122.3%
------ ------
Loss from operations....................... (71.1%) (62.0%)
Interest income................................ 1.6% 12.6%
Interest expense............................... (0.6%) (5.1%)
------ ------
Net loss................................... (70.1%) (54.5%)
------ ------
</TABLE>
Three Months Ended March 31, 2000 compared to March 31, 1999
Revenue. Revenue increased $1.9 million or 110.8% to $3.7 million for the
three months ended March 31, 2000 compared to $1.8 million for the comparable
period in 1999. Of the $1.9 million increase $1.4 million was from direct and
OEM sales of our primary product StatView systems. Our average StatView
system-selling price increased 31% while associated unit sales increased 17%.
The remaining $500,000 of increased revenue is comprised of $300,000 from the
sale of new enterprise-based physician products and approximately $200,000
from training and warranty obligations and services performed under various
marketing and distribution agreements.
Gross margin. Gross margin consists of revenue less cost of revenue. Cost of
revenue associated with our systems consists of purchased components, cost of
contract manufacturing, labor for assembly, quality control, customer service,
installation, and indirect overhead. Gross margin increased $1.1 million or
103.4%, for the three months ended March 31, 2000 from the comparable period
in 1999. Gross margin as a percentage of revenue decreased to 60.3% in the
first quarter of 2000 from 62.5% in the comparable period in 1999 from a
combination of our various revenue mix and higher indirect overhead costs.
Gross margin on our primary products, StatView systems and physician products,
were approximately 60% and 41%, respectively offset slightly by higher margin
revenues from training and warranty obligations and services performed under
various marketing and distribution agreements.
Research and development. Research and development expenses consist
primarily of personnel and related costs, travel and contract engineering
services. Research and development expenses increased $900,000 or 167.7% to
$1.5 million for the three months ended March 31, 2000 compared to $600,000
for the comparable period in 1999. Research and development costs represented
39.8% of total revenues for the three months ended March 31, 2000 and 31.3%
for the comparable period in 1999. The increase in research and development
expenses as a percentage of total revenues reflects additional expenditures
associated with the company's acquisition of Physix, Inc. to develop and
enhance Data Critical's wireless-Internet physician products. We believe that
research and development costs will continue to increase in absolute dollars
as we expand our product offerings.
Sales and marketing. Sales and marketing expenses consist primarily of
personnel and related expenses, sales commissions, trade show and advertising
expenses, telecommunications costs and consulting fees. Sales and marketing
expenses increased $400,000 or 42.1% to $1.5 million for the three months
ended March 31, 2000 compared to $1.1 million for the comparable period in
1999. This increase was primarily due to increased sales
11
<PAGE>
personnel and increased sales and marketing expenses, such as sales
commissions, trade shows and public relations. Sales and marketing expenses
represented 41.2% of total revenues in the first quarter of 2000 and 61.0% in
the first quarter of 1999. The decrease in marketing and sales expenses as a
percentage of total revenues reflects the rapid growth in our revenues. We
believe that we will need to continue to increase our sales and marketing
efforts to expand market penetration and increase acceptance of our products
and services.
General and administrative. General and administrative expenses consist
primarily of personnel and related expenses, travel, communication and
professional fees. General and administrative expenses increased $0.8 million
or 110.9% to $1.5 million in the first quarter of 2000 compared to $700,000 in
the first quarter of 1999. General and administrative expenses represented
approximately 41.3% of total revenues in the first quarter of 2000 and 41.3%
in the comparable period of 1999. This increase was primarily due to increases
in salary and bonus for existing personnel and the addition of regulatory and
office support staff to support the growth of our business. We believe that
general and administrative expenses will continue to increase as we expand
administrative staff and incur expenses associated with being a public
company, including annual and other public reporting costs, director and
officer liability insurance, investor relations programs and professional
services fees.
Operating expenses. Operating expenses increased $2.1 million or 92.8% to
$4.5 million in the first quarter of 2000 compared to $2.4 million in the
comparable period of 1999 primarily due to an increase in the number of
employees performing sales and marketing, general and administrative, and
research and development functions. Operating expenses as a percentage of
revenue decreased to 122.3% in the three months ended March 31, 2000 from
133.7% in the comparable period of 1999.
Other income (expense), net. Other income (expense), net, increased $300,000
to a net other income of $277,000 in the three month period ended March 31,
2000 from a net other income of $17,000 in the comparable period of 1999. The
net figure is a combination of interest income and expense. During the current
quarter we incurred a non-recurring $178,000 non-cash charge to interest
expense in connection with the payoff of a credit facility while interest
income for the period ended March 31, 2000 was $465,000 generated from
proceeds of our initial public offering. We expect other income to increase
substantially in 2000 as compared to 1999 primarily due to the increase in
cash and cash equivalents and short-term investments. However, the amount of
the increase will be affected by changes in interest rates and the rate at
which we use the funds to support our growth.
Liquidity and Capital Resources
As of March 31, 2000, we had $30.5 million of cash and cash equivalents down
from $34.0 million at December 31, 1999. As of March 31, 2000 our principal
commitments consisted of obligations outstanding under operating leases and
commercial bank loans. Working capital decreased to $30.2 million at March 31,
2000 from $33.1 million at December 31, 1999.
Net cash used in operating activities was $1.9 million in the three months
ended March 31, 2000 and $1.3 million for the same comparable quarter in 1999.
Net cash used in operating activities for each of these periods primarily
consisted of net losses as well as changes in accounts receivable, prepaid
expenses, inventories, accounts payable and other current liabilities, net
deferred revenue and depreciation and amortization. We expect that accounts
receivable and inventories will continue to increase to the extent our
revenues continue to increase. Any such increases can be expected to reduce
cash and cash equivalents.
Net cash used in investing activities was $476,000 in the three months ended
March 31, 2000 and $71,000 for the same comparable period in 1999. Net cash
used in investing activities in the three months ended March 31, 2000
consisted of $200,000 for the issuance of a note receivable to Elixis
Corporation and $264,000 for purchases of equipment and systems.
Net cash used in financing activities was $1.1 million for the three months
ended March 31, 2000, while net cash in the amount of $176,000 was provided
during the same comparable period in 1999. Net cash provided by
12
<PAGE>
financing activities during the first quarter of 2000 consisted of proceeds
from the net proceeds of $70,000 from the sale of our common stock, offset by
$1.1 million in notes payable and line of credit repayments. Net cash provided
by financing activities during the comparable period 1999 consisted primarily
from line of credit proceeds in the amount of $200,000.
From January 1, 1997 through March 31, 2000, we have invested a total of
approximately $1.5 million in fixed assets, consisting primarily of computer
equipment, related software and office furniture. We expect to spend an
additional $400,000 over the next 12 months for additional fixed assets,
principally leasehold improvements and furnishings for our new offices,
computer systems, demonstration equipment and additional production test
equipment. Approximately $100,000 of this amount will be invested in an
integrated management information system, which comprises all sales,
accounting, inventory and manufacturing control systems, the implementation of
which began in April 1999 and is expected to conclude in the second quarter of
2000. We had no material commitments for capital expenditures at March 31,
2000.
We have a working capital line of credit that allows us to borrow up to 60%
to 75% of eligible accounts receivable to a maximum of $1.5 million. The line
is collateralized by substantially all of our assets and incurs interest at
the bank's prime rate plus 0.75%. This line of credit expires in April 2000
and requires us to comply with various financial covenants including tangible
net worth, liquidity ratios and maximum quarterly operating losses. As of
March 31, 1999, no borrowings were outstanding and $340,000 in letters of
credit issued to provide collateral for our new facility lease was drawn under
this line of credit. We are currently in discussion with a lender to extend
this line of credit.
We have a lease line of credit for up to $1.0 million, comprised of $800,000
to finance equipment and $200,000 to finance equipment, leasehold improvements
and software. Advances made under the lease line are payable over 36 equal
monthly installments. As of March 31, 2000, $142,000 was outstanding under
this lease line. As part of this lease line, the lender received a warrant to
purchase 12,500 shares of Series D preferred stock at an exercise price of
$4.00 per share. This warrant expires on November 8, 2004, which is five years
after our initial public offering.
Although it is difficult for us to predict future liquidity requirements
with certainty, we believe that the net proceeds from our initial public
offering, together with our other existing liquidity sources and anticipated
funds from operations, will satisfy our cash requirements for at least the
next 12 months. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek additional
funds through public or private equity or debt financings or from other
sources. There can be no assurance that additional financing will be available
to us or that, if available, the financing will be available on terms
favorable to us and our stockholders.
Year 2000 Compliance
In 1998 we began working to address the possible effects of the potential
inability of computer programs to adequately process date information after
December 31, 1999 (Year 2000). We conducted a review of our products,
information technology and facilities computer systems to identify all
software that could be affected by the Year 2000 issue and developed and
executed plans to address it. These actions were completed in the fourth
quarter of 1999. With the passing of January 1, 2000, we report that no
significant Year 2000 problems arose. These costs were expensed as incurred.
No further significant expenditures related to the Year 2000 issue are
expected.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
In June 1999, the FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
13
<PAGE>
Statement No. 133. Statement No. 137 defers the effective date of Statement
No. 133 for one year. Statement No. 133 is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Because we
currently hold no derivative financial instruments and do not currently engage
in hedging activities, adoption of SFAS No. 133 is expected to have no
material impact on our financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board (FASB) released FASB
interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25", which provides
clarification of Opinion 25 for certain issues such as the determination of an
employee, the criteria for determining whether a plan qualifies as a non
compensatory plan and the accounting consequences of various modifications of
the terms of a previously fixed stock option or award. We believe that our
practices are in conformity with this guidance, and therefore interpretation
No. 44 will have no impact on the Company's financial statements.
Important Factors That May Affect Our Business, Results of Operations and Our
Stock Price
You should carefully consider the risks described below, together with all
of the other information included in this quarterly report on Form 10-Q and
the information incorporated by reference herein. If we do not effectively
address the risks we face, our business will suffer and we may never achieve
or sustain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
This quarterly report on Form 10-Q also contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward looking statements as a
result of factors that are described below and elsewhere in this quarterly
report on Form 10-Q.
If our potential customers in the healthcare industry are not willing to adopt
our communications systems, our growth and revenue will be limited.
Our business model depends on our ability both to sell our systems to
hospitals, physicians and other healthcare providers and to generate usage by
a large number of these customers. Healthcare industry participants may not
accept the transmission of critical data through networked medical monitoring
equipment and the internet as readily as we anticipate. We believe that the
complex nature of time-critical data transmission has and may continue to
hinder the development and acceptance of communications solutions similar to
ours by the healthcare industry. Conversion from traditional methods of
communication may not occur as rapidly as we expect. Even if acceptance or
conversion does occur, healthcare industry participants may use alternative
products and services offered by others.
We believe that we must gain significant market share in the healthcare
industry with our systems before competitors introduce alternative products or
systems with features and benefits similar to ours. Our business model is
based on our belief that the value and market appeal of our solution will grow
as the number of participants and scope of data transmitted increase. We may
not achieve the critical mass of users that is necessary to become successful.
Any significant shortfall in the number of users of our systems would reduce
our growth and revenue.
Failure to achieve broad acceptance of our products and services by
physicians and other healthcare stakeholders would also severely limit our
ability to implement our internet-based business model. Achieving market
acceptance for our products and services will require substantial marketing
efforts and the expenditure of significant financial and other resources to
create awareness and demand by physicians and healthcare consumers. Use of our
products and services requires physicians to integrate our products and
services into their office work flow and to adopt different behavior patterns
and new methods of conducting business and exchanging information. Physicians
may not choose to use our products and services.
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We cannot assure you we will achieve profitability.
We have not achieved profitability and, although our revenue has grown in
recent quarters, we cannot be certain that we will realize sufficient revenue
to achieve profitability. We have incurred net losses of $8.6 million from
inception through December 31, 1997, $5.8 million in 1998 and $6.8 in 1999. As
of March 31, 2000, we had an accumulated deficit of $27.0 million. We expect
to continue to incur net losses for at least the next nine to twelve months,
although this timeframe could be longer. We anticipate continuing to incur
significant sales and marketing, product development and general and
administrative expenses and, as a result, we will need to generate
significantly higher revenue to achieve and sustain profitability.
Our success is highly dependent on sales, marketing and development alliances
with a small number of strategic partners; if these strategic partners
terminate their relationships with us, our competitive position and revenue
would suffer.
We depend on our alliances with strategic partners to generate increased
acceptance of our systems. To date, we have established only a limited number
of strategic alliances, and these alliances are in the early stages of
development. We currently maintain co-marketing partnerships with Agilent
Technologies, Inc., (formerly a division of Hewlett-Packard Company), Protocol
Systems, Inc., Siemens Medical Systems, Inc., Medical Data Electronics, Inc.,
Zymed, Inc. and Datascope Corp., whose larger sales forces sell our systems on
a commission basis. In addition, we have original equipment manufacturing and
distribution partnerships with GE Marquette Medical Systems, Inc. and Nellcor
Puritan Bennett, a subsidiary of Mallinckrodt Inc. A substantial portion of
our revenue during 1998 and 1999 was derived from the sale of systems marketed
or distributed through Agilent Technologies, Inc. and GE Marquette Medical
Systems, Inc. Either of these companies may decide to discontinue their
distribution, marketing or original equipment manufacturing relationships with
us, including as a result of proposed corporate reorganizations. Our
agreements with these companies may be cancelled on short-term notice. If
either company limits or discontinues marketing or selling our systems, our
revenue would fall short of our expectations.
If any of these strategic alliances are terminated or if we fail to
establish additional alliances, we would not be able to execute our business
model and the growth of our business would be hurt significantly. We may not
experience increased use of our systems even if we establish and maintain
these strategic alliances.
We expect to commit substantial resources to marketing, development and
operations expenses; if we are unable to generate increasing revenue in excess
of these commitments, we will not be able to achieve profitability.
We anticipate that our expenses will increase substantially for at least the
next 12 months as we increase our sales and marketing activities, further
develop our technology, broaden our system offerings, expand our distribution
channels and potentially pursue acquisitions. If we fail to significantly
increase our revenue as we implement our system development and distribution
strategies, we will not be able to achieve profitability. In addition, we may
not experience any revenue growth in the future, and our revenue could
decrease. Our efforts to expand our sales and marketing activities, system
offerings, and direct and indirect distribution channels and our efforts to
pursue strategic alliances may not succeed or may prove more expensive than we
currently anticipate. As a result, we cannot predict our future profitability
with any degree of certainty.
Our quarterly financial statements are likely to fluctuate and are not a good
indication of our future performance because our revenue is heavily dependent
on the timing of customer installations of our systems and our sales mix by
distribution channel.
Our revenue in any quarter depends significantly on the timing of systems
shipped and installations completed. Any unexpected delays or cancellations of
shipments or installations at the end of a quarter could substantially reduce
revenue in that quarter, hurt our revenue and impair our business in future
periods. Because we do not know when, or if, our potential customers will
place orders, finalize contracts and permit installation,
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we cannot accurately predict revenue and profitability for future quarters. In
addition, the mix of sales between distribution channels will have a
significant impact on quarterly and annual revenue and profitability because
we receive higher revenue and gross margin on direct sales, including those
made through our alliances with strategic partners, than we do on original
equipment manufacturer sales.
In addition, because Data Critical only began operations in March 1996, and
because the market for our hospital and physician based systems is new and
evolving, it is very difficult to predict future financial results. We plan to
significantly increase our sales and marketing, research and development and
general and administrative expenses in 2000. Our expenses are partially based
on our expectations regarding future revenues, and are largely fixed in
nature, particularly in the short term. As a result, if our revenues in a
period do not meet our expectations, our financial results will likely suffer.
We believe that quarter-to-quarter comparisons of our financial statements
are not a good indication of our future performance. It is likely that in
future quarters our revenue and earnings may be below the expectations of
securities analysts and investors and, as a result, the price of our common
stock may fall. Our revenue and earnings have varied in the past, and we
expect that they will continue to vary significantly from quarter to quarter.
We are dependent on sales of StatView for a large portion of our revenue;
failure to maintain and continue to grow sales of StatView systems would
likely reduce our revenue.
During 1998 and 1999, substantially all of our revenue was derived from
sales of our StatView system. Although we expect that our MobileView ECG Stat
and AlarmView systems will account for an increasing portion of revenue in the
future, it is likely that sales of our StatView system will continue to
represent a substantial portion of our revenue for at least the next 18
months. Any factors that reduce the pricing of, demand for or market
acceptance of our StatView system, including competition or technological
change, could significantly reduce our revenue.
Our internet-based business model may not be successfully implemented and is
difficult to evaluate because it is new and unproven.
We have only recently implemented our internet-based business model, and we
do not have an operating history with this model upon which you can evaluate
our prospects. In attempting to implement our internet-based business model,
we are significantly changing our business operations, sales and
implementation practices, customer service and support operations and
management focus. Developing and marketing our internet systems to the
physician and to the at-home consumer healthcare industry will also be costly
and time-consuming. Our internet systems require that hospitals, physicians
and consumers manage information in a new and different way. In order to
maximize the benefits of our internet systems, at-home healthcare consumers
must be willing to allow sensitive personal information to be stored on our
internet databases. We have not yet fully determined how to commercialize our
internet systems, and we cannot assure you that hospitals, physicians and the
at-home consumer healthcare industry will accept these systems.
We are also facing new risks and challenges, including a lack of meaningful
historical financial data upon which to plan future budgets, the need to
develop strategic relationships and other risks described below. For each of
the last three fiscal years, all of our revenue was generated from the sale of
hospital communication systems and services and no revenue was derived from
our internet-based products and services. Our operating history is not
indicative of our future performance under our internet-based business model,
and you should not rely upon our past performance to predict our future
performance. If we fail to develop or market our internet systems, or if
hospitals, physicians and the at-home consumer healthcare industry fails to
accept our internet systems, the future growth of our business would likely
suffer.
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We have recently made acquisitions and may make additional acquisitions in the
future and we may not successfully assimilate the acquired operations or
products.
We have recently acquired the businesses of Physix and Elixis and may make
additional acquisitions in the future, although there can be no assurance that
suitable companies, products or technologies will be available for
acquisition. Acquisitions entail numerous risks, including assimilation of the
operations and products, retention of key employees, diversion of our
management's attention, and uncertainties in our ability to maintain key
business relationships the acquired entities have established. In addition, if
we undertake future acquisitions, we may issue dilutive securities, assume or
incur additional debt obligations, incur large one-time expenses, and acquire
intangible assets that would result in significant future expense. Also,
recently the Financial Accounting Standards Board ("FASB") voted to eliminate
pooling of interests accounting for acquisitions and voted to eliminate the
immediate write-off of acquired in-process research and development. The
effect of these changes would be to increase the portion of the purchase price
for any future acquisitions that must be charged to our cost of revenues and
operating expenses in the periods following any such acquisitions. Any of
these events could have a material adverse effect upon our business, operating
results and financial condition.
If we are unable to keep pace with technological innovation in our industry,
our ability to continue the rapid growth of our business will be impaired.
The industries in which we operate are characterized by rapid technological
change, changes in end user preferences and the emergence of new industry
standards and practices that could render our existing systems and proprietary
technology obsolete. Our success depends, in part, on our ability to continue
to enhance our existing systems and to develop new systems that meet the
changing needs of our customers. If we are unable to develop and introduce in
a timely manner new and enhanced systems that incorporate the latest
developments in medical equipment and wireless communications technologies,
our sales will be harmed. The pace of change in information-dependent markets,
such as the healthcare industry, is rapid and there are frequent new product
introductions and evolving industry standards. We may be unsuccessful in
responding to technological developments and changing customer needs. In
addition, our systems may become obsolete due to the adoption of new
technologies or standards by our customers or competitors. We have experienced
development delays in the past and may experience similar or more significant
delays in the future. Difficulties in system development could delay or
prevent the successful introduction or marketing of new or enhanced systems.
Our infrastructure may be unable to keep pace with, and as a result, hinder
our growth.
We have rapidly and significantly expanded our operations and expect this
expansion to continue. Our revenue grew from $471,000 in 1997 to $4.1 million
in 1998 to $9.5 million in 1999. During 1999, we moved our Redmond, Washington
headquarters and assembly plant into new facilities in Bothell, Washington. In
addition, we expect to hire a significant number of new employees to implement
and expand our operational, sales, marketing and customer support activities.
We expect to face increasing daily operational challenges as our business
continues to grow, and we may fail to properly manage our growth, and as a
result, could face reduced revenue and earnings.
We may not be able to effectively compete in the market for hospital-based
wireless data communications and may be forced to reduce prices, leading to
decreased revenue.
Many companies selling products using traditional methods of patient
monitoring, including direct patient oversight and monitoring through wired
systems and voice communications, are well positioned to compete with us in
our hospital-based systems business. If these companies are drawn into our
market, we may be unable to effectively compete. To maintain and improve our
competitive position, we must continue to:
. successfully demonstrate the benefits of our systems to current and
potential customers;
. market to hospitals and healthcare professionals;
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. maintain stable and constructive alliances with key manufacturers of
complementary medical equipment; and
. develop new and improved technologies.
Many of our potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
better name recognition and a larger installed base of customers. Many of our
potential competitors may also have well-established relationships with our
existing and prospective customers. Due to these and other advantages, our
potential competitors may develop products comparable or superior to our
systems or adapt more quickly to new technologies, evolving industry
standards, new product introductions or changing customer requirements. In
addition, there is the possibility that one or more of our strategic partners
or other medical equipment manufacturers may decide to develop products that
directly compete with our systems. We also expect that competition will
increase as a result of medical equipment, wireless and software industry
consolidation. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any one of which could cause
our sales to decline.
If our customers experience system defects, delays in transmission or security
breaches with our systems, we could face damage to our business reputation and
potential legal liability.
Our customer satisfaction and our reputation could be harmed if we or our
customers experience any system defects, delays, failures or loss of data. We
depend on the efficient operation of wireless networks and the internet for
communication. A major catastrophic event or other event beyond our control,
including a major security breach in the transmission of data on our systems
or a well-publicized compromise of internet security, could cause loss of
revenue and market share, damage our reputation and result in liability to us.
In addition, our systems may be vulnerable to computer viruses, programming
errors, attacks by third parties or similar disruptive problems. Furthermore,
patient care could suffer and we could be liable if our systems fail to
deliver correct information in a timely manner. Our contracts attempt to limit
our liability arising from our errors; however, these provisions may not be
enforceable and may not protect us from future liability. While we have
general liability and product liability insurance, including coverage for
errors and omissions, we may not be able to maintain this insurance on
reasonable terms in the future. In addition, our insurance may not be
sufficient to cover large claims, and our insurer could disclaim coverage on
claims. If we are liable for an uninsured or underinsured claim, or if our
premiums increase significantly, our growth and earnings could be harmed.
Our failure to successfully enhance current products and services could
adversely affect the implementation of our internet-based business model.
Failure to enhance our product and service offerings to add functionality in
areas such as interfacing with the products of our strategic partners could
make it more difficult for us to implement our internet-based business model.
Developing, integrating, enhancing and customizing our products and services
will be expensive and time consuming.
Intense competition in the internet healthcare industry may hinder sales of
our internet systems.
The internet healthcare industry is intensely competitive and subject to
fragmentation, high growth and rapid technological change. We may face
significant competition from traditional healthcare information system vendors
and internet healthcare companies as they expand their product offerings. Many
of these companies have significantly greater financial resources, well-
established brand names and large installed customer bases. We may be unable
to compete unsuccessfully against these organizations.
Failure to continue to expand and adapt our network infrastructure to
accommodate increased use by our customers could make it difficult to
successfully implement our internet-based business model.
To successfully implement our internet-based business model, we must
continue to expand and adapt our network infrastructure to accommodate
additional users, increased transaction volumes and changing customer
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requirements. Our infrastructure may not accommodate increased use while
maintaining acceptable overall performance. To date, we have processed a
limited number and variety of internet-based transactions. In addition, our
internet products and services have only been used by a limited number of
physicians and healthcare consumers. An unexpectedly large increase in the
volume or pace of traffic on our web site, the number of physicians using our
internet products or our other internet-based products and services, or orders
placed by customers may require us to expand and further upgrade our
technology. This expansion and adaptation would be expensive and will divert
our attention from other activities.
Our sales are dependent on third party single-source and limited-source
suppliers; this dependency reduces our control over the manufacturing process
of our systems, which could reduce our revenue and earnings.
We use third party manufacturers to purchase necessary components and to
manufacture and test key parts of our systems, including the StatView receiver
and the AlarmView transmitter. Certain components, including the bitmap
display, are presently only available from a single source. Other parts and
components that we rely on are available from limited sources. Our reliance
upon these single or limited-source suppliers and third party manufacturers
involves risks and uncertainties, including the possibility of a shortage or
discontinuation of key components and reduced control over delivery schedules,
manufacturing capability, quality and cost. Any reduced availability of these
components or key parts, when needed, could delay the delivery of complete
systems, result in the delayed payment or cancellation of orders by our
customers and cause our revenue and earnings to decline.
If we lose members of our senior management team, we may not be able to
successfully manage our business or achieve our objectives and our competitive
position and growth would suffer.
Our success will depend significantly on the continued contributions of our
senior management team, many of whom would be difficult to replace. In
particular, we believe that our future success depends on Dr. David Albert,
Chief Scientist and Chairman of the Board; Jeffrey Brown, President and Chief
Executive Officer; Michael Singer, Chief Financial Officer. We maintain key
person life insurance on the life of Jeffrey Brown in the amount of $1.0
million.
We may not be able to hire and retain the personnel necessary to support our
expanding business, which could threaten our future growth.
We believe our future success will depend in large part on our ability to
identify, attract and retain engineering, sales and marketing, and customer
service and support personnel. Because of the complexity of our systems and
technologies, we are substantially dependent upon the continued service of our
existing engineering personnel as well as future hiring of engineers with high
levels of experience in designing complex systems like ours. In addition,
although we have recently expanded our direct sales force and plan to hire
additional sales personnel, we need to substantially expand our sales
operations and marketing efforts, both domestically and internationally, in
order to increase market awareness and sales of our systems. Our systems
require a sophisticated sales effort targeted at several people within the
information technology departments of our prospective customers.
Furthermore, we currently have a small customer service and support
organization and will need to increase our staff to support new customers and
the expanding needs of existing customers. Hiring personnel is highly
competitive in our industry due to the limited number of people available with
the necessary technical skills. We face intense competition for this
personnel, and we cannot assure you that we will be able to hire and retain
them in sufficient numbers.
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Federal and state legislation and regulation affecting the healthcare industry
could severely restrict our ability to operate our business.
We are subject to federal and state legislation and regulation affecting the
healthcare industry. Existing and new laws and regulations applicable to the
healthcare industry could have a material adverse effect on our ability to
operate our business. The federal and state governments extensively regulate
the confidentiality and release of patient records. Additional legislation
governing the distribution of medical records and health information has been
proposed at both the federal and state level. It may be expensive to implement
security or other measures designed to comply with any new legislation.
Moreover, we may be restricted or prevented from delivering patient records or
health information electronically.
Other legislation currently being considered at the federal level could also
negatively affect our business. For example, the Health Insurance Portability
and Accountability Act of 1996 mandates the use of standard transactions and
identifiers, prescribed security measures and other provisions within two
years after the adoption of final regulations by the Department of Health and
Human Services. Because we intend to market some of our services as meeting
these regulatory requirements, our success will also depend on other
healthcare participants complying with these regulations.
A federal law commonly known as the Medicare/Medicaid anti-kickback law, and
several similar state laws, prohibit payments that are intended to induce
physicians or others to acquire, arrange for or recommend the acquisition of
healthcare products or services. Another federal law, commonly known as the
Stark law, prohibits physicians from referring Medicare and Medicaid patients
for designated health services to entities with which they have a financial
relationship, unless that relationship qualifies for an explicit exception to
the referral ban. The application and interpretation of these laws are complex
and difficult to predict and could constrain our financial and marketing
relationships or our ability to obtain pharmaceutical company sponsorship for
our products.
State restrictions on the practice of medicine may negatively affect our
activities.
Any finding in a state that we are not in compliance with its laws could
require us to restructure our services, which could adversely affect our
revenues or share price. The laws in some states prohibit some business
entities, such as Data Critical, from practicing medicine. This is commonly
referred to as the prohibition against the "corporate practice of medicine."
These laws generally prohibit us from employing physicians to practice
medicine or from directly furnishing medical care to patients. Each state
requires licensure for the practice of medicine within that state, and some
states consider the receipt of an electronic transmission of selected
healthcare information in that state to be the practice of medicine. Some
states have similar prohibitions on corporate practice and licensure
requirements for other regulated health care professions (for example, nurse
practitioners or pharmacists). These laws restrict our activities and the
extent to which we can provide medical advice to consumers, physicians and
others. If challenged, our activities may not be found to be in compliance
with these laws. We are also expanding internationally, and may face similar
restrictions on our activities outside the United States.
The internet is subject to many legal uncertainties and potential government
regulations that may decrease demand for our systems, increase our cost of
doing business or otherwise have a material adverse effect on our financial
results or prospects.
Our internet business model is subject to evolving government regulation of
the internet. Existing as well as new laws and regulations could severely
restrict our ability to operate our business. Any new law or regulation
pertaining to the internet, or the application or interpretation of existing
laws, could decrease demand for our internet systems, increase our cost of
doing business or otherwise have a material adverse effect on our financial
results and prospects.
Laws and regulations may be adopted in the future that address internet-
related issues, including online content, user privacy, pricing and quality of
products and services. For example, although it was held
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unconstitutional, in part, the Communications Decency Act of 1996 prohibited
the transmission over the internet of various types of information and
content. In addition, several telecommunications carriers are seeking to have
telecommunications over the internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services. Because
the growing popularity and use of the internet has burdened the existing
telecommunications infrastructure in many areas, local exchange carriers have
petitioned the FCC to regulate internet service providers in a manner similar
to long distance telephone carriers and to impose access fees on the internet
service providers.
The United States or foreign nations may adopt legislation aimed at
protecting internet users' privacy. This legislation could increase our cost
of doing business and negatively affect our financial results. For example,
the Federal Trade Commission will start enforcing requirements under the
Children's Online Privacy Protection Act in April 2000. The act applies to the
online collection of personal information from children under 13, and imposes
significant compliance burdens and potential penalties on operators of web
sites that collect covered information. Moreover, it may take years to
determine the extent to which existing laws governing issues like property
ownership, libel, negligence and personal privacy are applicable to the
internet. Currently, U.S. privacy law consists of disparate state and federal
statutes regulating specific industries that collect personal data. Most of
them predate and therefore do not specifically address online activities.
However, European nations are now implementing a European Union Data Privacy
Directive regulating the transmission and storage of personal information and
data. In addition, a number of comprehensive legislative and regulatory
privacy proposals are now under consideration by federal, state and local
governments in the United States. In some cases, such as the European
Directive, these comprehensive privacy proposals include special rules that
provide added protections for sensitive information, including information
about health and medical conditions.
The applicability to the internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is also uncertain and may take years to resolve. Demand for
our internet-based systems may be affected by additional regulation of the
internet in these areas.
State and federal laws that protect individual health information may limit
our plans to collect, use and disclose that information.
If we fail to comply with current or future laws or regulations governing
the collection, dissemination, use and confidentiality of patient health
information, this failure could have a material adverse effect on our
business, operating results and financial condition.
Consumers sometimes enter private health information about themselves or
their family members when using our services. Physicians or other health care
professionals who use our products will directly enter health information
about their patients, including information that constitutes a medical record
under applicable law, that we will store on our computer systems. Also, our
systems record use patterns when consumers access our databases that may
reveal health-related information or other private information about the user.
Numerous federal and state laws and regulations, the common law, and
contractual obligations govern collection, dissemination, use and
confidentiality of patient-identifiable health information, including:
. state privacy and confidentiality laws;
. our contracts with customers and partners;
. state laws regulating health care professionals, such as physicians,
pharmacists and nurse practitioners;
. Medicaid laws;
. the Health Insurance Portability and Accountability Act of 1996 and
related rules proposed by the Health Care Financing Administration; and
. Health Care Financing Administration standards for internet transmission
of health data.
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The U.S. Congress has been considering proposed legislation that would
establish a new federal standard for protection and use of health information.
In addition, the laws of other countries also govern the use of and disclosure
of health information. Any failure by us or our personnel or partners to
comply with any of these legal and other requirements could result in material
liability. Although we have systems in place for safeguarding patient health
information from unauthorized disclosure, these systems may not preclude
successful claims against us for violation of applicable law or other
requirements. Other third-party sites or links that consumers access through
our web sites also may not maintain systems to safeguard this health
information, or may circumvent systems we put in place to protect the
information from disclosure. In some cases, we may place our content on
computers that are under the physical control of others, which may increase
the risk of an inappropriate disclosure of health information. For example, we
currently contract out the hosting of our websites to third parties. In
addition, future laws or changes in current laws may necessitate costly
adaptations to our systems.
In 2000, the Department of Health and Human Service expects to finalize
proposed regulations at the federal level authorized under the Health
Insurance Portability and Accountability Act of 1996. These proposed
regulations will establish a new federal standard for privacy of health
information. We believe that these regulations, which will not be effective
until two years from finalization, will directly regulate some aspects of our
business. Achieving compliance with these regulations could cost us
significant amounts or delay or prevent implementation of our business model,
and any noncompliance by us could result in civil and criminal penalties. In
addition, development of related federal and state regulations and policies on
confidentiality of health information could negatively affect our business.
We intend to develop medical information systems and market research
services that we will use to collect, analyze and report aggregate medical
care, medical research, outcomes and financial data pertaining to items such
as prescribing patterns and usage habits. Some states have enacted legislation
regulating the aggregation of health information and the manipulation, use and
ownership of that aggregated data, even when this data does not reveal the
patient's identity. Because this area of the law is rapidly changing, our
collection, analysis and reporting of aggregate healthcare data maintained in
our database may not at all times and in all respects comply with laws or
regulations governing the ownership, collection and use of this data. Future
laws or changes in current laws governing the ownership, collection and use of
aggregate healthcare data may necessitate costly adaptations to our systems or
limit our ability to use this data.
We may experience substantial delays or difficulties in obtaining required
governmental approvals; failure to obtain governmental approvals would hinder
our ability to provide our existing systems or introduce future systems and
could reduce our sales.
As a manufacturer of wireless telecommunications systems, we are regulated
under the Communications Act of 1934, as amended, the Telecommunications Act
of 1996 and Federal Communications Commission regulations, as well as the
applicable laws and regulations of the various states administered by state
public service commissions. Regulatory requirements affecting our operations
may change. Any changes may hurt our business by hindering our ability to
compete with other wireless telecommunications product manufacturers, to
continue providing our existing systems or to introduce future systems or
system enhancements. Our systems are also considered medical devices and are
regulated by the FDA. Before we can market our systems, we must obtain pre-
market notification clearance under Section 510(k) of the Federal Food, Drug,
and Cosmetic Act. In addition, material changes to our systems may also
require FDA review and clearance prior to marketing or sale in the U.S. The
process of obtaining 510(k) clearance can be expensive and time-consuming, and
may require the submission of extensive supporting data. If the 510(k) process
is extended for a considerable length of time for any of our new systems, the
commencement of commercial sales of our new systems will be delayed
substantially or indefinitely.
Because we are a provider of healthcare related systems, extensive and
frequently changing federal regulations govern the licensing, conduct of
operations, and other aspects of our business. Federal certification
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and licensing programs establish standards for day-to-day operation of our
research and manufacturing facilities. Regulatory agencies verify our
compliance with these standards through periodic inspections. Although we have
been found to be in compliance with all these standards to date, our
facilities may not pass future inspections conducted to ensure compliance with
federal or any other applicable licensing or certification laws.
We must also comply with extensive federal and state regulation relating to
the confidentiality and release of patient medical records. New legislation
governing the distribution of medical records has been proposed at both the
federal and state levels. It may be costly to implement security or other
measures designed to comply with any new legislation. Moreover, we may be
restricted or prevented from delivering patient records electronically. We
cannot assure you that we will not be required to incur significant costs to
comply with current or future laws or that we will not be materially hurt by
the cost of the compliance.
Furthermore, we may expand sales of our systems to international markets. An
expansion would require us to comply with a wide variety of foreign laws and
practices, tariffs and other trade barriers. If we fail to obtain the
necessary regulatory approvals in foreign markets on a timely basis, our
revenue could be materially reduced.
FDA and FTC regulations on advertising and promotional activities may be
burdensome and may negatively affect our ability to provide some applications
or services, which could lead to higher than anticipated costs or lower than
anticipated revenue.
Complying with Food and Drug Administration and Federal Trade Commission
regulations may be time consuming, burdensome and expensive and could
negatively affect our ability to continue providing some of our internet
systems, or to introduce new internet systems in a timely manner. This may
result in higher than anticipated costs or lower than anticipated revenues.
Any current or future regulatory requirements that the FDA or the FTC impose
on us or our advertisers and sponsors could harm us by:
. making it harder to persuade pharmaceutical, biotechnology and medical
device companies to advertise or promote their products on our web
sites, or to sponsor programs that we offer to healthcare professionals
and the public;
. restricting our ability to continue to provide some of our services or
content, or to introduce new services or content in a timely manner; or
. making it more expensive and time-consuming to comply with new
requirements.
As a consequence of these harms, we might lose advertising or sponsorship
revenue, spend significant amounts of our limited resources on regulatory
experts in the area of FDA or FTC compliance, or receive adverse publicity
that negatively affects share value. In addition to existing FDA and FTC
regulation of advertising and promotion by pharmaceutical, biotechnology and
medical device companies, our business faces a potential risk of increased FDA
and FTC regulation of these activities in an online context.
Changes in existing FDA regulatory requirements or policies, or our failure to
comply with current or future requirements or adoption of new requirements
could increase the cost of our internet-based business model and cause our
revenue to decline.
We face potential FDA regulation of software that we develop for use on our
website. Some computer applications and software are considered medical
devices and are subject to regulation by the FDA. If FDA regulations were
applicable to any of our products and services, complying with those
regulations would be time consuming, burdensome and expensive and could delay
or prevent introduction of new products or services.
While the FDA's policies regarding the regulation of software are evolving,
based on the FDA's informal policy statements regarding the scope of its
regulation of stand-alone software, we do not believe that our current
23
<PAGE>
internet systems are subject to FDA regulation as medical devices because they
do not meet the statutory definition of a device. However, the FDA may take
the view that some of our current or future internet systems do in fact meet
the definition of a medical device and, therefore, are subject to regulation,
or the FDA may change its policies or regulations with respect to regulation
of software or internet technologies. Also, we may expand our internet system
offerings into areas that subject us to FDA regulation. If the FDA finds that
our software is subject to regulation as a medical device, the applicable
regulatory controls could include both premarket and postmarket requirements
and the FDA might require us to:
. obtain premarket clearance or approval of the medical device software
from the FDA, which might include the conduct of supporting clinical
trials or other studies;
. register ourselves as a medical device manufacturer and to list our
devices with the FDA;
. create our software in compliance with the FDA design and manufacturing
standards;
. permit the FDA to inspect our facilities and records; and
. make periodic reports to the FDA.
Political, economic and regulatory changes and consolidation in the healthcare
industry could force us to make costly modifications to how we price and sell
our systems.
The healthcare industry is highly regulated and is influenced by changing
political, economic and regulatory factors. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could cause us to make
unplanned modifications to our systems or result in delays or cancellations of
orders. Federal and state legislatures have periodically considered programs
to reform or amend the U.S. healthcare system at both the federal and state
level. These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates or otherwise change the
environment in which healthcare industry participants operate. Healthcare
industry participants may respond by reducing or postponing investment
decisions, including investments in our systems. We do not know what effect
these proposals would have on our business. Many healthcare providers are
consolidating to create integrated healthcare delivery systems with greater
market power. These providers may try to use their market power to negotiate
price reductions for our systems. If we are forced to reduce our prices, our
revenue and earnings would be harmed. As the healthcare industry consolidates,
competition for customers will become more intense.
Our activities may expose us to malpractice and other liability inherent in
healthcare delivery.
We may be exposed to malpractice or other liability against which we may not
be adequately insured, resulting in a decline in our financial results. Our
systems provide data for use by physicians, consumers and other healthcare
participants. This data may be obtained from our physician customers,
strategic partners, other third parties or, with patient consent, from the
aggregation of patient health records. Claims for injuries relating to the use
of this data may be made in the future. Also, patients who file lawsuits
against doctors often name as defendants all persons or companies with any
relationship to the doctors. As a result, patients may file lawsuits against
us based on treatment provided by physicians who use our systems. In addition,
a court or government agency may take the position that our delivery of health
information directly, including through licensed physicians, or delivery of
information by a third-party site that a consumer accesses through our web
sites, exposes us to malpractice or other personal injury liability for
wrongful delivery of healthcare services or erroneous health information. The
amount of insurance we maintain with insurance carriers may not be sufficient
to cover all of the losses we might incur from these claims and legal actions.
In addition, insurance for some risks is difficult, impossible or too costly
to obtain and, as a result, we may not be able to purchase insurance for some
types of risks.
24
<PAGE>
We may fail to protect our proprietary technology and to maintain access to
the proprietary information of third parties that support our competitive
position; as a result, our growth may be hurt.
Our owned and licensed intellectual property is important to our business.
We could have intellectual property infringement claims asserted against us as
the number of our competitors grows and the functionality of our systems
overlaps with competitive offerings. These claims, even if not meritorious,
could be expensive and divert our attention from our core business operations.
If we become liable to third parties for infringement of their intellectual
property rights, we could be required to pay substantial damages and to
develop alternative non-infringing technology, obtain a license or cease
selling the systems that contain the infringing intellectual property. We may
be unable to develop non-infringing technology or obtain a license on
commercially reasonable terms, if at all. In addition, we may not be able to
protect against misappropriation or infringement of our intellectual property
by third parties. If misappropriation or infringement occurs, we may not be
able to detect it or to effectively enforce our rights.
Our international expansion plans involve risks.
A key component of our strategy is expanding our operations into
international markets. To date, we have limited experience in developing and
distribution channels for our systems and we may not be able to successfully
execute our business model in these markets. Our success in these markets will
be directly linked to the success of our business partners in such activities.
If our business partners fail to successfully establish operations and sales
and marketing efforts in these markets, our business could suffer.
In addition, we face a number of risks inherent in doing business in
international markets, including, among others:
. unexpected changes in regulatory requirements;
. potentially adverse tax consequences;
. export controls relating to encryption technology;
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. changing economic conditions;
. exposures to different legal standards (particularly with respect to
intellectual property and distribution of information over the
internet);
. burdens of complying with a variety of foreign laws;
. fluctuations in currency exchange rates; and
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
If any of these risks occur, our business could suffer.
Our existing capital resources may not be sufficient to fund our system
development efforts and marketing plans; if we are required to raise
additional capital, your investment may be diluted.
We expect that the proceeds generated from our initial public offering,
combined with our current cash resources and credit facilities, will be
sufficient to meet our capital requirements for at least the next 12 months.
However, we may need to raise additional capital at an earlier time to support
expansion, develop new or enhanced systems, respond to competitive pressures,
acquire complementary businesses or technologies or take advantage of other
unanticipated opportunities. In addition, we have from time to time failed to
comply with
25
<PAGE>
covenants required by our working capital line of credit and subordinated debt
facility agreements. Both of our lenders have granted us waivers for this
noncompliance, but if we are unable to comply with these covenants in the
future, and if our lenders do not waive our noncompliance, we may need to
raise additional capital sooner than anticipated through the sale of debt or
equity securities or by entering into strategic alliances or other
arrangements. If we are unable to raise additional capital on reasonable terms
and in a timely fashion, our financial position will decline. Furthermore, any
additional issuance of equity securities will dilute your investment.
Trading in our shares may be affected by extreme price fluctuations, and you
could experience difficulties selling your shares.
The trading price of our common stock may be volatile. The stock market in
general, and the market for technology companies in particular, has
experienced extreme volatility that often has been unrelated to the operating
performance of particular companies. These broad market and industry
fluctuations may decrease the trading price of our common stock, regardless of
our actual operating performance, and may make it difficult for you to resell
your shares at or above the initial offering price.
Significant fluctuations in the market price of our common stock could result
in securities class action claims against us, which could seriously harm our
cash position.
Securities class action claims have been brought against companies in the
past where volatility of the market price of that company's securities has
taken place. This kind of litigation could be very costly and could divert our
management's attention and resources. Any negative determination in this
litigation could also subject us to significant liabilities, any or all of
which could seriously harm our cash position.
State laws and our certificate of incorporation may inhibit potential
acquisition bids that could be beneficial for stockholders.
Delaware law and Washington law may inhibit potential acquisition proposals.
We are restricted by the anti-takeover provisions of the Delaware General
Corporation Law, which regulates corporate acquisitions. Delaware law prevents
us from engaging in a business combination with any interested stockholder for
three years following the date that the stockholder became an interested
stockholder.
For purposes of Delaware law, a business combination includes a merger or
consolidation or the sale of more than 10% of our assets. In general, Delaware
law defines an interested stockholder as any entity or person beneficially
owning 15% or more of the outstanding voting stock of a corporation and any
entity or person affiliated with or controlling or controlled by the entity or
person. Under Delaware law, a Delaware corporation may opt out of the
antitakeover provisions. We do not intend to opt out of these antitakeover
provisions of Delaware law. The laws of Washington, where our principal
executive offices are located, also impose restrictions on some transactions
between foreign corporations and significant stockholders. Chapter 23B.19 of
the Washington Business Corporation Act prohibits a target corporation, with
exceptions, from engaging in significant business transactions with an
acquiring person for a period of five years after the acquisition, unless the
transaction or acquisition of the shares is approved by a majority of the
members of the target corporation's board of directors prior to the time of
acquisition. A corporation may not "opt out" of this statute and, therefore,
we anticipate this statute will apply to us. Depending upon whether we meet
the definition of a target corporation, Chapter 23B.19 of the WBCA may have
the effect of delaying, deferring or preventing a change in control of us.
In addition, we have adopted provisions in our certificate of incorporation
that may discourage potential acquisition proposals and delay or prevent a
change in control of our company. These provisions include the following:
. our board of directors may issue up to three million shares of preferred
stock and determine the applicable powers, preferences and rights and
the qualifications, limitations or restrictions of the stock, including
voting rights, without any vote or further action by stockholders;
26
<PAGE>
. our directors are elected to staggered three-year terms;
. stockholders cannot call special meetings;
. the nomination of a director or the taking of certain actions requires
advance notice; and
. stockholders cannot take action by written consent.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on
our investment portfolio and on the increase or decrease in the amount of any
interest expense we must pay with respect to outstanding debt instruments. The
risk associated with fluctuating interest expense is limited, however, to the
exposure related to those debt instruments and credit facilities which are
tied to market rates. We do not plan to use derivative financial instruments
in our investment portfolio. We plan to protect the safety and preservation of
our invested principal funds by limiting default risk, market risk and
investment risk. We plan to mitigate default risk by investing in low-risk
securities. At March 31, 2000 we had an investment portfolio of money market
funds, commercial securities and U.S. Government securities, including those
classified as short-term investments, of $31.0 million.
We have assessed our vulnerability to certain market risks, including
interest rate risk associated with financial instruments included in cash and
cash equivalents. Due to the short-term nature of these investments and our
investment policies and procedures, we believe that the risk associated with
interest rate fluctuations related to these financial instruments does not
pose a material risk to the Company.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of Proceeds
On November 8, 1999, our registration statement on Form S-1, file number
333-78059, became effective. The offering date was November 8, 1999. The
offering has terminated as a result of all of the shares offered being sold.
The managing underwriters were Donaldson, Lufkin & Jenrette, U.S. Bancorp
Piper Jaffray, Warburg Dillon Read LLC and DLJdirect Inc. The offering
consisted of 4,025,000 shares of our common stock, including 525,000 shares of
common stock pursuant to the exercise of the underwriter's over-allotment
option. The aggregate price of the shares offered and sold was $40.3 million.
After accounting for approximately $2.8 million in underwriting discounts and
commissions and $932,000 in other expenses, we received proceeds of
$36.5 million. We generated interest income of approximately $465,000 for the
three months ended March 31, 2000. The proceeds and generated interest income
remain in temporary investments consisting of money market accounts available
on a daily basis and short-term commercial paper.
From the time of receipt through March 31, 2000, we have applied the
proceeds of the IPO accordingly:
Repayment of indebtedness: $2.0 million
Working capital: $1.9 million
Acquisitions: $1.5 million
The foregoing amount represents our best estimates of our use of proceeds
for the period indicated. We have not used any of the net offering proceeds
for construction of a plant, building or facilities, or purchases of real
estate. None of the net offering proceeds were paid, and none of the
offerings' expenses were for payments, directly or indirectly to directors,
officers or general partners of us or our associates, persons owning 10% or
more of any class of our securities, or affiliates of us.
27
<PAGE>
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
3.1(A) Amended and Restated Certificate of Incorporation of Data Critical.
3.2(A) Amended and Restated Bylaws of Data Critical.
4.2(A) Amended and Restated Registration Rights Agreement dated February
22, 1995, as amended.
4.3(A) Warrant Agreement dated April 13, 1995 between Data Critical and
Spencer Trask Securities Incorporated with Form of Common Stock
Purchase Warrant issued in connection with the Series B and Series
C Preferred Stock financings.
4.4(A) Form of Common Stock Purchase Warrant issued in connection with the
bridge loan financings.
4.5(A) Common Stock Purchase Warrant dated July 10, 1996 issued by Data
Critical in favor of Nomadics, Inc.
4.6(A) Common Stock Purchase Warrant dated July 10, 1996 issued by Data
Critical in favor of Colin Cumming.
10.5(B) Amendment to Employment Agreement dated February 24, 2000 between
Data Critical and Michael E. Singer.
10.16(B)** Second Amendment to Distribution and License Agreement dated
January 19, 2000 between Data Critical and GE Marquette Medical
Systems, Inc.
27.1 Financial Data Schedule
</TABLE>
- --------
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
(A) Incorporated herein by reference to the Company's Form S-1, as amended
(File No. 333-78059) filed with the Commission on May 7, 1999.
(B) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
(b) Reports on Form 8-K.
On March 1, 2000 we filed a report on Form 8-K/A pertaining to our
acquisition of substantially all the business, assets and rights of Physix,
Inc.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf by the
undersigned thereunto duly authorized.
DATA CRITICAL CORPORATION
(Registrant)
Date: May 15, 2000
/s/ Michael E. Singer
By: _________________________________
Michael E. Singer
Vice President and Chief
Financial Officer
(Authorized Officer and Principal
Financial Officer)
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
3.1(A) Amended and Restated Certificate of Incorporation of Data Critical.
3.2(A) Amended and Restated Bylaws of Data Critical.
4.2(A) Amended and Restated Registration Rights Agreement dated February
22, 1995, as amended.
4.3(A) Warrant Agreement dated April 13, 1995 between Data Critical and
Spencer Trask Securities Incorporated with Form of Common Stock
Purchase Warrant issued in connection with the Series B and Series
C Preferred Stock financings.
4.4(A) Form of Common Stock Purchase Warrant issued in connection with the
bridge loan financings.
4.5(A) Common Stock Purchase Warrant dated July 10, 1996 issued by Data
Critical in favor of Nomadics, Inc.
4.6(A) Common Stock Purchase Warrant dated July 10, 1996 issued by Data
Critical in favor of Colin Cumming.
10.5(B) Amendment to Employment Agreement dated February 24, 2000 between
Data Critical and Michael E. Singer.
10.16(B)** Second Amendment to Distribution and License Agreement dated
January 19, 2000 between Data Critical and GE Marquette Medical
Systems, Inc.
27.1 Financial Data Schedule
</TABLE>
- --------
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
(A) Incorporated herein by reference to the Company's Form S-1, as amended
(File No. 333-78059) filed with the Commission on May 7, 1999.
(B) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE 3 MONTHS ENDING MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 30,537
<SECURITIES> 0
<RECEIVABLES> 2,739
<ALLOWANCES> 210
<INVENTORY> 1,061
<CURRENT-ASSETS> 34,577
<PP&E> 2,603
<DEPRECIATION> 984
<TOTAL-ASSETS> 38,280
<CURRENT-LIABILITIES> 4,383
<BONDS> 0
0
0
<COMMON> 61,982
<OTHER-SE> (28,264)
<TOTAL-LIABILITY-AND-EQUITY> 38,280
<SALES> 3,705
<TOTAL-REVENUES> 3,705
<CGS> 1,472
<TOTAL-COSTS> 1,472
<OTHER-EXPENSES> 4,531
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> (2,021)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,021)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,021)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
