<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 17, 1999
Data Critical Corporation
(Exact name of registrant as specified in its charter)
Delaware 333-78059 91-1901482
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation or organization) Identification No.)
19820 North Creek Parkway, Suite 100
Bothell, Washington 98011
(Address of principal executive offices)
425-482-7000
(Registrant's telephone number, including area code)
<PAGE>
On December 17, 1999, Data Critical Corporation, a Delaware corporation
(the "Registrant"), pursuant to an Asset Purchase Agreement dated December 8,
----------
1999 (the "Agreement"), purchased substantially all of the business, assets and
---------
rights of Physix, Inc., a Texas corporation ("Seller"), subject to some of
------
Seller's debts. The purpose of this Amendment is to amend Item 7 (a) to provide
financial statements of business acquired and to amend Item 7(b) to provide
certain pro forma combined condensed consolidated financial information with
respect to the asset purchase of Seller, which was impracticable to provide at
the time the Registrant filed its Current Report on Form 8-K dated December 22,
1999.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements with Report of Independent Accountants of
--------------------------------------------------------------
Business Acquired.
-----------------
Audited Financial Statements:
(i) Report of PricewaterhouseCoopers LLP dated September 20, 1999.
(ii) Physix, Inc. Balance Sheets for the years ended December 31,
1998 and 1997.
(iii) Physix, Inc. Statement of Operations for the years ended
December 31, 1998 and 1997.
(iv) Physix, Inc. Statements of Stockholders' (Deficit) Equity for
the years ended December 31, 1998 and 1997.
(v) Physix, Inc. Statements of Cash Flows for the years ended
December 31, 1998 and 1997.
(vi) Physix, Inc. Notes to Financial Statements.
(b) Pro Forma Financial Information.
-------------------------------
Pro Forma Combined Condensed Consolidated Financial Statements
(unaudited):
(i) Unaudited Pro Forma Condensed Balance Sheet for the year ended
December 31, 1998.
(ii) Unaudited Pro Forma Condensed Statements of Operations for the
year ended December 31, 1998 and the nine month period ended
September 30, 1999.
(iii) Notes to Unaudited Pro Forma Condensed Financial Statements.
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<PAGE>
(c) Exhibits.
--------
2.1* Asset Purchase Agreement dated December 8, 1999 between the
Registrant and Physix, Inc.
4.1* Registration Rights Agreement dated December 8, 1999 between the
Registrant and Physix, Inc.
10.1* Employment Agreement dated December 8, 1999 between the Registrant
and Thomas Giannulli
20.1* Press Release dated December 9, 1999 announcing "Data Critical
Corporation to Acquire Physix, Inc."
20.2* Press Release dated December 20, 1999 announcing "Data Critical
Corporation Completes Acquisition of Physix, Inc."
* Incorporated by reference from the Registrant's Current Report on Form
8-K dated December 22, 1999.
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<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Physix, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' (deficit) equity and cash flows present
fairly, in all material respects, the financial position of Physix, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Houston, Texas
September 20, 1999
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<PAGE>
PHYSIX, Inc.
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
December 31,
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 420,424 $ 711,669
Restricted cash 73,333 153,333
Accounts receivable 100,185 292,008
Prepaids and other current assets 80,572 93,137
Inventory 1,773 14,516
-------------- --------------
Total current assets 676,287 1,264,663
Property and equipment, net 553,002 560,862
Intangibles, net 17,213 15,274
-------------- --------------
Total assets $ 1,246,502 $ 1,840,799
============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Cash overdraft $ - $ 79,853
Note payable 1,250,000 750,000
Current maturities of long-term debt 73,333 80,000
Current maturities of capital lease obligation 2,708 2,498
Accounts payable, trade 198,857 183,659
Accrued liabilities 246,655 327,881
-------------- --------------
Total current liabilities 1,771,553 1,423,891
Long-term debt - 73,333
Capital lease obligations 8,401 10,642
Convertible notes payable - -
-------------- --------------
Total liabilities 1,779,954 1,507,866
-------------- --------------
Commitments and contingencies
Stockholders' (deficit) equity:
Cumulative convertible preferred stock, $.001 par value, 5,000,000
shares authorized;
Series D, 712,308 shares issued and outstanding at December 31, 1998,
$4.50 per share liquidation preference 712 -
Series A, 550,000 shares issued and outstanding at December 31, 1998 and
1997, respectively, $1.00 per share liquidation preference 550 550
Series B, 1,125,000 shares issued and outstanding at December 31, 1998 and
1997, respectively, $3.11 per share liquidation preference 1,125 1,125
Series C, 225,000 shares issued and outstanding at December 31, 1998 and
1997, respectively, $4.50 per share liquidation preference 225 225
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C>
Common stock; $.001 par value, 10,000,000 shares authorized, 1,505,840 and
1,500,292 shares issued and outstanding at December 31, 1998 and
1997, respectively 1,506 1,500
Common stock unissued; 1,667 shares - 2
Additional paid-in capital 8,027,739 4,991,214
Accumulated deficit (8,565,309) (4,661,683)
-------------- --------------
Total stockholders' (deficit) equity (533,452) 332,933
-------------- --------------
Total liabilities and stockholders' (deficit) equity $ 1,246,502 $ 1,840,799
============== ==============
</TABLE>
See the accompanying notes which are an integral part of the financial
statements.
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<PAGE>
Physix, Inc.
Statements of Operations
for the years ended December 31, 1998 and 1997
December 31,
1998 1997
Net revenues $ 1,242,372 $ 1,478,716
Operating expenses:
Cost of revenues 278,183 353,220
Selling, general and administrative 2,415,446 2,704,842
Research and development 2,328,320 1,886,049
----------------- -----------------
Loss from operations (3,779,577) (3,465,395)
Other income (expense):
Interest expense (154,275) (19,885)
Other income (expense) 30,226 85,235
----------------- -----------------
Net loss $ (3,903,626) $ (3,400,045)
================= =================
See the accompanying notes which are an integral part of the financial
statements.
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<PAGE>
Physix, Inc.
Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------------------------------------
Series D Series A Series B Series C
--------------------- -------------------- --------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 550,000 $ 550 1,125,000 $ 1,125
Issuance of Series C preferred
stock ($4.50 per share) 225,000 $ 225
Issuance of common stock for
stock options exercised
Net loss for the year
---------- --------- ---------- --------- ---------- --------- --------- ----------
Balance, December 31, 1997 550,000 550 1,125,000 1,125 225,000 225
Issuance of common stock in lieu of payment
for services rendered ($6.00 per share)
Issuance of common stock for stock
options exercised
Issuance of Series D preferred stock
($4.50 per share) 712,308 $ 712
Issuance of common stock for proceeds
received in prior periods
Net loss for the year
---------- --------- ---------- --------- ---------- --------- --------- ----------
Balance, December 31, 1998 712,308 $ 712 550,000 $ 550 1,125,000 $ 1,125 225,000 $ 225
========== ========= ========== ========= ========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Issued and Outstanding Unissued Additional
---------------------- -------------- Paid-In
Shares Amount Shares Amount Capital
---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1,500,000 $ 1,500 1,667 $ 2 $ 4,014,972
Issuance of Series C preferred
stock ($4.50 per share) 976,213
Issuance of common stock for
stock options exercised 292 29
Net loss for the year
---------- --------- ---------- --------- -----------
Balance, December 31, 1997 1,500,292 1,500 1,667 2 4,991,214
Issuance of common stock in lieu of payment
for services rendered ($6.00 per share) 2,929 3 17,571
Issuance of common stock for stock
options exercised 952 1 436
Issuance of Series D preferred stock
($4.50 per share) 3,018,518
Issuance of common stock for proceeds
received in prior periods 1,667 2 (1,667) (2)
Net loss for the year
---------- --------- ---------- --------- -----------
Balance, December 31, 1998 1,505,840 $ 1,506 -- $ -- $ 8,027,739
========== ========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit Total
<S> <C> <S>
Balance, January 1, 1997 $ (1,261,638) $ 2,756,511
Issuance of Series C preferred
stock ($4.50 per share) 976,438
Issuance of common stock for
stock options exercised 29
Net loss for the year (3,400,045) (3,400,045)
----------- -----------
Balance, December 31, 1997 (4,661,683) 332,833
Issuance of common stock in lieu of payment
for services rendered ($6.00 per share) 17,574
Issuance of common stock for stock
options exercised 437
Issuance of Series D preferred stock
($4.50 per share) 3,019,230
Issuance of common stock for proceeds
received in prior periods --
Net loss for the year (3,903,626) (3,903,626)
----------- -----------
Balance, December 31, 1998 $(8,565,309) $ (533,452)
=========== ===========
</TABLE>
See the accompanying notes which are an integral part of the financial
statements.
-8-
<PAGE>
Physix, Inc.
Statements of Cash Flows
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,903,626) $(3,400,045)
Adjustments to reconcile net loss to net cash required
by operating activities:
Depreciation and amortization 138,926 99,379
Issuance of common stock for services 17,574 -
Changes in operating assets and liabilities:
Accounts receivable 191,823 (238,665)
Prepaids and other current assets 12,565 (53,997)
Inventory 12,743 4,863
Accounts payable 15,198 (43,755)
Accrued liabilities (81,226) 292,033
----------- -----------
Total adjustments 307,603 59,858
----------- -----------
Net cash required by operating activities (3,596,023) (3,340,187)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (129,246) (335,536)
Purchase of intangible assets (3,759) (2,532)
----------- ----------
Net cash used in investing activities (133,005) (338,068)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 3,019,230 976,438
Proceeds from issuance of common stock 437 29
Proceeds from borrowings under note payable 500,000 750,000
Proceeds from borrowings under long term debt - 200,000
Payments on long-term debt (80,000) (46,667)
Payments on capital lease obligation (2,031) (1,585)
(Increase) decrease in restricted cash 80,000 (153,333)
Increase (decrease) in cash overdraft (79,853) 79,853
----------- -----------
Net cash provided by financing activities 3,437,783 1,804,735
----------- -----------
Net decrease in cash and cash equivalents (291,245) (1,873,520)
Cash and cash equivalents at the beginning of period 711,669 2,585,189
----------- -----------
Cash and cash equivalents at end of period $ 420,424 $ 711,669
=========== ===========
Supplemental cash flow information:
Cash paid during the year for interest $ 132,966 $ 15,729
=========== ===========
</TABLE>
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<PAGE>
Noncash Disclosure of Cash Flow Information
- -------------------------------------------
In 1997, the Company acquired $14,725 in property and equipment which was
financed by a capital lease obligation.
In 1998, the Company issued $17,574 of common stock in lieu of payment for
services rendered.
See the accompanying notes which are an integral part of the financial
statements.
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<PAGE>
Physix, Inc.
Notes to Financial Statements
1. The Company:
Physix, Inc. (the "Company"), located in Houston, Texas, designs,
manufactures and supports clinical information systems that include
applications for the collection and use of patient data at the point of
care, electronic medical records and clinical practice management.
2. Summary of Significant Accounting Policies:
Revenue Recognition
Revenue from the sale of software is recognized upon product shipment
if no significant vendor obligations remain and collection of the
resulting receivable is assured. Maintenance contract revenue is
recognized ratably over the life of the contract.
The Company's Compendia system is sold under a "shared-risk" contract
whereby the customer agrees to pay 50% of the cost when it is received
and the remaining 50% when they have accepted the product. Under the
terms of the sales agreement, the customer is not eligible for a refund
on the initial 50% payment, and once they have accepted the product,
the sale is final. The Company recognizes 50% of the revenue when the
software is delivered with the remaining 50% recognized upon final
acceptance of the product by the customer and realization is assured.
The Company's stand-alone units, collectively referred to as
Pocket-docs, are sold with a 10 day warranty. Customers are allowed to
return the product during that time frame for a full refund.
Cash and Cash Equivalents
For purposes of reporting cash flows the Company considers any highly
liquid debt instruments, excluding restricted cash, purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are stated at cost which approximates market value.
Inventories
Inventories are stated at the lower of cost or market determined under
the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Additions and improvements
that increase the value or extend the life of an asset are capitalized
while expenditures for repairs and maintenance are expensed as
incurred. Disposals are removed at cost less accumulated depreciation
and any gain or loss from disposition is reflected in income.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the respective assets as follows:
Computer equipment 3-5
Office furniture and fixtures 5-7
Leasehold improvements 5-7
Impairment of Long-Lived Assets
Property and equipment are reviewed for impairment whenever an event or
change in circumstances indicates the carrying amount of an asset or
group of assets may not be recoverable. The impairment review includes
comparison of future cash flows expected to be generated by the asset
or group of assets with their associated carrying value. If the
carrying value of the asset or group of assets exceeds the expected
future cash flows (undiscounted and
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<PAGE>
Physix, Inc.
Notes to Financial Statements
without interest charges), an impairment loss is recognized to the
extent the carrying amount of the asset exceeds its fair value.
Intangible Assets
Intangible assets consist of patents and trademarks which are stated at
cost. Amortization is provided for by the straight-line method over
periods ranging from five to fifteen years. The Company periodically
reviews its patents and trademarks to determine whether carrying costs
will be recovered based on future undiscounted operating cash flows.
Income Taxes
The financial statements are prepared in conformity with the liability
method of accounting for income taxes whereby deferred tax assets and
liabilities are determined based on the differences between the
financial reporting and tax bases of the Company's assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. A
valuation allowance is provided to reduce deferred tax assets to their
estimated realizable value.
Deferred Rent
Certain of the Company's operating leases contain predetermined fixed
escalations of the minimum rentals during the original term of the
leases. For these leases, the Company recognizes the related rental
expense on a straight-line basis over the life of the lease and records
the difference between the amounts charged to operations and amounts
paid as deferred rent.
Research and Development
Research and development costs are expensed as incurred.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments and receivables. The Company maintains cash deposits, which
exceed federally insured limits, with two financial institutions.
Management periodically assesses the financial condition of the
financial institutions and investees and believes that any possible
credit risk is minimal. The Company performs ongoing credit evaluations
of its clients and does not require collateral for services.
To date, the Company has not experienced any losses related to its
temporary cash investments or receivables.
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.
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<PAGE>
Physix, Inc.
Notes to Financial Statements
Segment Reporting
Effective in January 1998, Physix adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services,
geographic areas, and major customers. Physix has determined that it
operates in only one segment. Accordingly, the adoption of SFAS 131 had
no impact on Physix's financial statements.
3. Going Concern Matter:
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the balance sheet as of December 31, 1998, the Company has an
accumulated deficit of $8,565,309 with negative working capital and
notes payable due during the next twelve months. As described in Note
4, the Company was not in compliance with the covenants of its
revolving line of credit during the year ended December 31, 1998. These
factors, among others, may indicate that the Company will be unable to
continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to obtain additional capital and to generate sufficient cash
flow to meet its obligations and to comply with the terms of its
financing agreements. In an attempt to obtain additional capital, the
Company is pursuing strategic relationships with corporate entities,
which may include merger/acquisition, licensing arrangements, and/or
investment. The Company has had preliminary discussions with parties
interested in acquiring the Company and/or making a direct investment
in the Company. However, there can be no assurance that the Company
will be successful in developing a level of interest necessary to
support the Company's ability to merge the Company or raise additional
capital. The Company will continue to focus its efforts towards
increased sales to achieve positive cash flow. However, there can be no
assurance that the Company will be successful in developing a level of
customer interest necessary to support the Company's level of operating
expenses. If a significant level of sales or an investment in or a sale
of the Company does not occur, the Company will implement a campaign to
drastically reduce the operating expenses of the Company. These
factors, among others, may indicate that the Company may be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
4. Note Payable:
In September 1998, the Company renewed its revolving credit agreement
with Imperial Bank. Under the renewed agreement, the Company may
request advances up to $1,250,000 to be financed at the bank's prime
rate plus 3% per year. The agreement is collateralized by money market
funds held by Imperial Bank. As of December 31, 1998, outstanding
borrowings under the agreement were $1,250,000. At December 31, 1998,
the bank's prime rate was 7.75%. The revolving line of credit matures
on September 30, 1999.
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<PAGE>
Physix, Inc.
Notes to Financial Statements
The revolving credit agreement requires that the Company meet specific
financial covenants that contain certain restrictions and limitations
including the maintenance of specific financial ratios. At December 31,
1998, the Company was in violation of certain financial covenants as
contained in the loan agreement. On March 17, 1999, the covenants were
amended to bring the Company into compliance with the covenants for
periods subsequent to December 31, 1998.
5. Property and Equipment, Net:
Property and equipment, net, consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Computer equipment $ 494,370 $ 426,054
Office furniture and fixtures 232,964 172,033
Leasehold improvements 85,474 85,474
----------- -----------
812,808 683,561
Less accumulated depreciation (259,806) (122,699)
----------- -----------
$ 553,002 $ 560,862
=========== ===========
</TABLE>
Depreciation expense totaled approximately $137,000, and $98,000 for
the years ended December 31, 1998 and 1997, respectively.
6. Long-Term Debt:
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Note payable to a financial institution bearing interest at prime
plus 0.75% per year, due in monthly payments of $6,667
plus accrued interest through November 1999. $ 73,333 $ 153,333
Less current maturities 73,333 80,000
----------- ------------
Long term debt $ - $ 73,333
=========== ============
</TABLE>
The long term debt is collateralized by a certificate of deposit held
by the financial institution. The Company is required to maintain a
minimum account balance equal to the outstanding balance of the debt.
In February 1999, the Company paid the remaining balance in full.
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<PAGE>
Physix, Inc.
Notes to Financial Statements
7. Lease Obligations:
The Company leases a photocopier under a long-term capital lease and
leases certain office equipment and its principal place of operation
under noncancelable operating leases expiring at various dates
thereafter. At December 31, 1998, the minimum future payments due under
these capital and operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
<S> <C> <C>
1999 $ 4,382 $ 128,340
2000 4,382 130,009
2001 4,382 137,501
2002 1,460 137,501
2003 - 137,501
Thereafter - 34,375
----------- ------------
Total payments 14,606 $ 705,227
============
Less: Amount representing interest 3,497
-----------
Present value of net minimum capital lease payments 11,109
Less: Current portion 2,708
-----------
Long-term portion $ 8,401
===========
</TABLE>
Total rent expense incurred under the operating leases as determined on
a straight-line basis over the life of each lease was approximately
$174,000, and $138,000 for the years ended December 31, 1998 and 1997,
respectively.
8. Accrued Liabilities:
The components of accrued liabilities were as follows:
December 31,
1998 1997
Compensation and related expenses $ 134,736 $ 176,575
Deferred rent 52,420 33,048
Deferred revenue 42,175 103,462
Other 17,324 14,796
------------ ------------
Accrued liabilities $ 246,655 $ 327,881
============ ============
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<PAGE>
Physix, Inc.
Notes to Financial Statements
9. Income Taxes:
The composition of the deferred tax assets and the related tax effects
was as follows:
December 31,
1998 1997
Net operating loss carryforward $ 3,090,000 $1,651,000
Less valuation allowance (3,090,000) (1,651,000)
------------ -----------
Net deferred tax asset $ - $ -
============ ===========
The Company has net operating loss carryforwards for which realization
of tax benefits is uncertain and therefore the deferred tax assets have
been fully reserved at December 31, 1998 and 1997.
Income tax benefit is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Deferred:
Federal $ 1,228,000 $ 1,036,000
State 170,000 201,000
--------------- --------------
Total deferred 1,398,000 1,237,000
--------------- --------------
Less: Change in reserve for valuation allowance (1,398,000) (1,237,000)
--------------- --------------
Total income tax benefit $ - $ -
=============== ==============
</TABLE>
The difference between the benefit for federal and state income taxes
and the amount that would result if the U.S. federal statutory rate of
34% and the net state tax rate of 3% were applied to pretax loss is as
follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Expected benefit at the federal statutory tax rate 34 % 34 %
Expected benefit at the net state tax rate 3 % 3 %
Net operating losses reserved due to uncertainty
of realization (37)% (37)%
-------- --------
- % - %
======== ========
</TABLE>
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<PAGE>
Physix, Inc.
Notes to Financial Statements
At December 31, 1998, the Company had net operating loss carryforwards
for both regular and alternative minimum tax purposes of approximately
$8,300,000 which expire through 2010. Special limitations exist under
the tax law that may restrict the utilization of the regular tax net
operating loss carryforwards.
10. Stockholders' Equity:
Preferred Stock
The Series A Preferred Stock, $.001 par value, is convertible to common
stock at the option of the holder, with the value of Series A Preferred
Stock initially fixed at $1.00 per share, subject to adjustment as
defined in the stock agreement. The conversion rate is one share of
preferred stock to one share of common stock. Effective August 1, 1999,
dividends begin to commence at the rate of $0.08 per share per year,
payable in preference to any payment of dividends on common stock.
On August 29, 1996, the Company's board of directors authorized the
issuance of 1,125,000 shares of Series B Cumulative Preferred Stock
("Series B Preferred Stock"), $.001 par value. The Series B Preferred
Stock is convertible to common stock at the option of the holder, with
the value of Series B Preferred Stock initially fixed at $3.11 per
share, subject to adjustment as defined in the stock agreement. The
conversion rate is one share of preferred stock to one share of common
stock. Effective August 29, 2000, dividends begin to commence at the
rate of $0.25 per share per year, payable in preference to any payment
of dividends on common stock.
On January 23, 1997, the Company's board of directors authorized the
issuance of 225,000 shares of Series C Cumulative Preferred Stock
("Series C Preferred Stock"), $.001 par value. The Series C Preferred
Stock is convertible to common stock at the option of the holder, with
the value of Series C Preferred Stock initially fixed at $4.50 per
share, subject to adjustment as defined in the stock agreement. The
conversion rate is one share of preferred stock to one share of common
stock. Effective January 31, 2001, dividends begin to commence at the
rate of $0.36 per share per year, payable in preference to any payment
of dividends on common stock.
On July 28, 1998, the Company's board of directors authorized the
issuance of 1,500,000 shares of Series D Cumulative Preferred Stock
("Series D Preferred Stock"), $.001 par value to a group of private
venture capital investors. The Company raised approximately $3.2
million in this offering by selling 712,308 shares. The Series D
Preferred Stock is convertible to common stock at the option of the
holder, with the value of Series D Stock initially fixed at $4.50 per
share, subject to adjustment as defined in the stock agreement. The
conversion rate is one share of preferred stock to one share of common
stock. Effective 2001, dividends begin to commence at the rate of $0.36
per share per year, payable in preference to any payment of dividends
on common stock.
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<PAGE>
Physix, Inc.
Notes to Financial Statements
The Series D Preferred Stock is senior to all other Series of Preferred
and Common Stock. In the event of a liquidation (which shall be deemed
to include any merger, sale of assets or other control change
transaction), proceeds shall be distributed first to all holders of the
Series D Preferred Stock until such holders shall have received an
amount per share equal to the greater of (a) two times the purchase
price paid to acquire the Series D Preferred Shares or (b) an amount
equal to the purchase price compounded from the date of purchase to the
effective date of such liquidation at the annual rate of 30%. Remaining
proceeds, if any, shall next be ratably distributed to holders of
outstanding shares of the Series A, B and C Preferred Shares in
proportion to their price per share. Further remaining proceeds, if
any, shall next be distributed to holders of Common Stock according to
the following table based on the aggregate value of the transaction:
Less than $30 million $1.00 per share
Between $30 million and $40 million $1.50 per share
$40 million or greater $2.00 per share
After distribution of the foregoing preferential amounts, any remaining
proceeds shall be distributed to holders of Series A, B, C and D
Preferred Stock and Common Stock on an as-converted basis.
Stock Purchase Warrants
In February 1998, the Company amended its line of credit agreement and
issued 27,778 Series C preferred stock purchase warrants to Imperial
Bank. The warrants are exercisable at $4.50 per share and expire on
February 9, 2003.
In May 1998, the Company amended its line of credit agreement and
issued 8,333 Series C preferred stock purchase warrants to Imperial
Bank. The warrants are exercisable at $4.50 per share and expire on May
15, 2003.
In June 1998, the Company amended its line of credit agreement and
issued 8,333 Series C preferred stock purchase warrants to Imperial
Bank. The warrants are exercisable at $4.50 per share and expire on
June 3, 2003.
In July 1998, the Company amended its line of credit agreement and
issued 8,333 Series C preferred stock purchase warrants to Imperial
Bank. The warrants are exercisable at $4.50 per share and expire on
July 6, 2003.
In August 1998, the Company amended its line of credit agreement and
issued 20,833 Series D preferred stock purchase warrants to Imperial
Bank. The warrants are exercisable at $4.50 per share and expire on
August 21, 2003.
In the first quarter of 1998, the Company issued bridge loans with
various investors which were subsequently converted in March 1998 to
Series D preferred stock. In connection with this transaction, the
Company issued warrants for 49,282 shares of common stock with an
exercise price of $4.50 per share, exercisable at any time prior to
April 15, 2005.
For all of the warrants referred to above, the Company has deemed the
value of the warrants to be immaterial at the date of issuance based on
the Black-Scholes model.
-18-
<PAGE>
Physix, Inc.
Notes to Financial Statements
Incentive Stock Option Plan
Effective August 14, 1995, the board of directors adopted the Company's
Incentive Stock Option Plan (the "Plan"). The Plan provides for the
granting of options to purchase the Company's common stock to officers
or other key employees of the Company upon the terms and conditions
determined by the committee of the Board of Directors that administers
the Plan. The Company has reserved 700,000 shares of $.001 par value
common stock for issuance under the Plan. Options granted under the
Plan generally vest four years from the date of grant. Options under
the Plan have been granted based upon an estimated fair market value on
the date of grant of approximately $0.10 to $0.90 per share as
determined by the Company's Board of Directors. These options have
contractual terms of 10 years. The following is an analysis of stock
option activity in the Plan for the years ended December 31, 1998 and
1997:
Weighted
Number Average
of Exercise
Shares Price
Outstanding at January 1, 1997 360,000 $0.00
Granted $0.85
Exercised 110,500 $0.10
Forfeited (525) $0.22
Expired (24,975) $0.00
-
----------
Outstanding at December 31, 1997 445,000 $0.56
Granted
Exercised 208,810 $0.88
Forfeited (427) $0.90
Expired (36,875) $0.73
(2,798) $0.86
---------
Outstanding at December 31, 1998 613,710 $0.66
=========
As of December 31, 1998 and 1997, there were 276,054 and 137,512,
respectively, of shares exercisable under the Plan. The weighted
average fair value of options granted during the years ended December
31, 1998 and 1997 was $0.22 and $0.22, respectively.
The fair value of each new stock option granted is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: no dividend yield for each of
the periods; risk-free interest rates range from 4.98% to 6.46% per
year; and the expected life of the options is 5 years.
-19-
<PAGE>
Physix, Inc.
Notes to Financial Statements
The following table summarizes information related to stock options
outstanding and exercisable at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1998 Life Price 1998 Price
$0.10 - $0.50 105,500 6.95 $0.13 86,542 $0.14
$0.51 - $0.90 508,210 8.63 $0.77 189,512 $0.69
-------------------- ----------------- ------------- ------------- ----------------- -------------
$0.10 - $0.90 613,710 8.34 $0.66 276,054 $0.52
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations,
in accounting for its Plan. Accordingly, no compensation expense has
been recognized for the plans. Had compensation cost for the Plan been
determined based upon the fair value at the grant date for awards under
the plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company's net loss would have increased by the pro
forma amounts indicated below:
December 31,
1998 1997
Net loss - as reported $ (3,903,626) $ (3,400,045)
================ ================
Net loss - pro forma $ (3,932,070) $ (3,409,150)
================ ================
11. Litigation and Claims:
The Company is a party to various litigation in the ordinary course of
business. Management vigorously defends all claims, and believes that
such claims will not have a material adverse effect on the Companies'
financial position or results of operations.
12. Related Party Transactions:
On October 31, 1997 the Company entered into a software license and
distribution agreement with Corometrics Medical Systems, a subsidiary
of Marquette Medical Systems, one of the Company's stockholders. Under
the Agreement, the Company granted Corometrics exclusive rights to
market and distribute software for the Company's home care product line
in return for
-20-
<PAGE>
Physix, Inc.
Notes to Financial Statements
royalty payments. Approximately 5% and 16% of net revenues in 1998 and
1997, respectively, represent royalties under this agreement. The
agreement was terminated in April 1999.
13. Subsequent Events (Unaudited):
Convertible Notes Payable
During March 1999, the Company issued $650,000 principal amount of 10%
convertible notes (the "Convertible Notes") due March 2001. Interest on
the Convertible Notes is payable semi-annually in September and March
of each year, commencing in September 1999. The Convertible Notes are
convertible into 144,445 shares of the Company's Series D preferred
stock, at the option of the holder, at a conversion price of $4.50 per
share. The Convertible Notes are redeemable at the Company's option, in
whole or in part, upon the earlier of (i) a change of control of the
Company, (ii) the consummation of a sale of equity securities in the
Company, or (iii) March 9, 2001.
During the second quarter of 1999, the Company issued $85,691 principal
amount of 10% convertible notes (the "Convertible Notes") in lieu of
compensation. The Convertible Notes are due March 2001. Interest on the
Convertible Notes is payable semi-annually in September and March of
each year, commencing in September 1999. The Convertible Notes are
convertible into 38,085 shares of the Company's Series D preferred
stock, at the option of the holder, at a conversion price of $2.25 per
share. The Convertible Notes are redeemable at the Company's option, in
whole or in part, upon the earlier of (i) a change of control of the
Company, (ii) the consummation of a sale of equity securities in the
Company, or (iii) March 9, 2001.
During June 1999, the Company issued $527,000 principal amount of 10%
convertible notes (the "Convertible Notes") due June 2001. Interest on
the Convertible Notes is payable semi-annually in September and March
of each year, commencing in September 1999. The Convertible Notes are
convertible into 117,111 shares of the Company's Series D preferred
stock, at the option of the holder, at a conversion price of $4.50 per
share. The Convertible Notes are redeemable at the Company's option, in
whole or in part, upon the earlier of (i) a change of control of the
Company, (ii) the consummation of a sale of equity securities in the
Company, or (iii) June 1, 2001.
Stock Purchase Warrants
In March 1999, the Company amended its line of credit agreement and
issued 6,794 Series C preferred stock purchase warrants to Imperial
Bank. The warrants are exercisable at $4.50 per share and expire on
March 17, 2004. The Company has deemed the value of the warrants to be
immaterial at the date of issuance based on Black-Scholes model.
Stock Contribution to the Company
Effective May 1999, one stockholder of the Company contributed 100,000
shares of common stock to the Company. These shares have been recorded
by the Company as treasury stock at the stockholders' original cost of
$.001 per common share.
Incentive Stock Option Plan
In May 1999, the Company increased the reserved shares under the Plan
to 810,000 shares.
-21-
<PAGE>
Physix, Inc.
Notes to Financial Statements
Sale of the Company
On December 17, 1999, the Company sold substantially all of its
business, assets and rights to Data Critical Corporation ("Data
Critical") for up to approximately $4.9 million. Under the terms of the
agreement, Data Critical issued 200,000 shares of common stock, all of
which were placed in escrow. Of the 200,000 shares, 100,000 will be
released if not required to satisfy Data Critical's indemnification
obligations under the Agreement, and the remaining 100,000 shares
("contingency shares") will be released based upon the achievement of
certain milestones. If the performance milestones are not met within
one year, the number of contingency shares will be reduced on a sliding
scale, up to the total 100,000 contingency shares, and the unreleased
shares will be returned to Data Critical for retirement. Data Critical
also paid approximately $1.5 million in cash to repay certain of the
Company's obligations and assumed certain other liabilities totaling
approximately $600,000. Additionally, the Company's board of directors
and holders of Series D Preferred Stock approved the payment of a
management bonus pool out of the liquidation preference payable on the
shares of Series D Preferred Stock. The bonuses shall be paid on a pro
rata basis with the holders of Series D Preferred Stock but shall not
be paid until the holders of Series D Preferred Stock have received at
least $4.50 per share, and shall not exceed the greater of $800,000 or
17.5% of the total amount payable from the second preference on the
Series D Preferred Stock.
-22-
<PAGE>
Data Critical Corporation
Unaudited Pro Forma Condensed Balance Sheet
(In 000's)
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------
Pro Forma
Adjustments
Assets Data Critical Physix (Note 1) Pro Forma
------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,053 $ 420 $ (1,952) (a)(f) $ 1,521
Restricted cash - 74 (74) (f) -
Accounts receivable, net 1,182 100 - 1,282
Inventories, net 281 2 - 283
Prepaid expenses and other 271 81 - 352
------------- ------------- -------------- ------------
4,787 677 (2,026) 3,438
Note receivable from officer 45 - - 45
Investment in , and advances to - - - -
unconsolidated affiliate 211 - - 211
Property, equipment and software, net 444 553 - 997
Other assets, net 138 17 1,323 (e)(f) 1,478
------------- ------------ -------------- ------------
Total assets $ 5,625 $ 1,247 $ (703) $ 6,169
============= ============ ============== ============
Liabilities and Stockholders' (Deficit) Equity
Accounts payable $ 486 $ 199 $ (199) (d) $ 486
Line of credit 250 - - 250
Note payable - 1,250 (1,250) (d) -
Current portion of notes payable and - - - -
capital leases 98 76 100 (a) 274
Deferred revenues 442 - 500 (a) 942
Other current liabilities 1,168 246 137 1,551
------------- ------------ -------------- -----------
2,444 1,771 (712) 3,503
Notes payable and capital leases,
net of current portions 151 8 - 159
------------- ------------ -------------- -----------
2,595 1,779 (712) 3,662
Commitments and contingencies
Mandatorily redeemable and convertible
preferred stock 19,248 4 (4) (b) 19,248
------------- ------------ -------------- -----------
Stockholders' (Deficit) Equity
Common stock 1,321 8,029 (6,698) (a)(b) 2,652
Deferred compensation (552) - - (552)
Accumulated deficit (16,987) (8,565) 6,711 (18,841)
------------- ------------ -------------- -----------
(16,218) (536) (13) (16,741)
------------ ------------ -------------- -----------
Total liabilities and shareholders' (deficit) equity $ 5,625 $ 1,247 $ (703) $ 6,169
============ ============ ============== ===========
</TABLE>
Note 1. The pro forma condensed balance sheet has been prepared to
reflect the acquisition by Data Critical of the assets of
Physix, Inc as follows:
(a) The issuance of 100,000 shares of common stock with a value of
$1.3 million, $1.5 million of cash and $600,000 of assumed
liabilities and $200,000 of acquisition costs.
(b) The elimination of shareholders' (deficit) equity accounts of
Physix, Inc.
(d) The elimination of liabilities of Physix, Inc. not assumed.
(e) The value assigned to developed technology.
(f) The elimination of assets not acquired.
23
<PAGE>
Data Critical Corporation
Unaudited Pro Forma Condensed Statement of Operations
(In 000's except for share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------------------------
Pro Forma
Adjustments
Data Critical Physix (Note 2) Pro Forma
--------------- ---------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Revenue $ 4,137 $ 1,242 - $ 5,379
Cost of revenue 1,841 278 - 2,119
--------------- ---------------- -------------------- -------------------
2,296 964 - 3,260
Research and development 2,194 2,328 - 4,522
Sales and marketing 3,512 1,023 - 4,535
General and administrative 2,564 1,393 $ 447 (a) 4,404
--------------- ---------------- -------------------- -------------------
Loss from operations (5,974) (3,780) (447) (13,461)
Interest income (expense) 152 (154) 154 (b) 152
Other income (expense) 30 - 30
--------------- ---------------- -------------------- -------------------
Net loss $ (5,822) $ (3,904) $ (293) $ (13,279)
=============== ================ ==================== ===================
Preferred stock dividends and accretion
of mandatory redemption obligations (1,226) - - (1,226)
--------------- ---------------- -------------------- -------------------
$ (7,048) $ (3,904) $ (293) $ (12,053)
--------------- ================ ==================== ===================
Basic and diluted loss per share $ (5.03)
===============
Pro forma net loss per share $ (8.02)
===================
Shares used in calculating per share data 1,402 100 1,502
=============== ==================== ===================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
--------------------------------------------------------------------------
Pro Forma
Adjustments
Data Critical Physix (Note 2) Pro Forma
------------------ ---------------- ------------------ -----------
<S> <C> <C> <C> <C>
Revenue $ 5,906 $ 1,452 - $ 7,358
Cost of revenue 2,296 188 - 2,484
------------------ ---------------- ------------------ -----------
3,610 1,264 - 4,874
Research and development 1,602 1,355 - 2,957
Sales and marketing 2,863 710 - 3,573
General and administrative 2,881 949 $ 335 (a) 4,165
------------------ ---------------- ------------------ -----------
Loss from operations (3,736) (1,750) (335) (10,695)
Interest income (expense) (44) (166) 166 (b) (44)
Other income (expense) 114 - 114
------------------ ---------------- ------------------ -----------
Net loss $ (3,780) $ (1,802) $ (169) $ (10,625)
================== ================ ================== ===========
Preferred stock dividends and accretion
of mandatory redemption obligations 1,062 - - 1,062
------------------ ---------------- ------------------ -----------
$ (4,842) $ (1,802) $ (169) $ (11,687)
------------------ ================ ================== ===========
Basic and diluted loss per share $ (3.43)
==================
Pro forma net loss per share $ (7.73)
===========
Shares used in calculating per share data 1,411 100 1,511
================== ================== ===========
</TABLE>
Note 2. The pro forma statements of operations give effect to the following
pro forma adjustments necessary to reflect the acquisition described
in Note 1. The Acquisition in the notes to unaudited pro forma
condensed financial statements. The pro forma statement does not
include a non recurring charge for acquired in-process research &
development in the amount of $1.8 million.
(a) Amortization of value assigned to acquired developed technology
(b) Elimination of interest income (expense)
<TABLE>
<CAPTION>
Annual
Purchase Price Amortization Amortization
Allocation Period (Years) Expense
---------------- ---------------- -------------
<S> <C> <C> <C>
Working capital acquired (net) $ 196
Other LT assets and liabilities (net) 306
Product technology 1,340 3 $ 447
Acquired in process research and development 1,758
---------------- -------------
$ 3,600 $ 447
================ =============
</TABLE>
-24-
<PAGE>
DATA CRITICAL CORPORATION AND PHYSIX, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. The Acquisition
On December 17, 1999, Data Critical Corporation (Data Critical) acquired
substantially all of the business, assets and rights of Physix, Inc. (Physix)
for up to approximately $4.9 million. Under the terms of the agreement Data
Critical issued 200,000 shares of common stock, all of which were placed in
escrow. Of these 200,000 shares, 100,000 shares will be released if not required
to satisfy Physix indemnification obligations, and the other 100,000 shares (the
"contingency shares") will only be released upon the achievement of certain
milestone obligations. If these performance milestones are not met within one
year, the number of contingency shares to be released to Physix will be reduced
on a sliding scale, up to the total 100,000 shares, and the unreleased shares
will be returned to Data Critical for retirement. Data Critical also paid
approximately $1.5 million in cash to repay certain Physix obligations and
assumed certain other Physix liabilities.
Per APB 16, "Consideration that is issued or issuable at the expiration
of a contingency period . . .shall be disclosed but not recorded as a liability
or shown as outstanding securities unless the contingency is determinable beyond
a reasonable doubt". Accordingly, Data Critical has reduced the purchase price
by the value of the 100,000 contingency shares or $1.3 million until the
contingency period expires at which time Data Critical will record the value of
the contingency shares issued as goodwill.
2. The Periods, Combined
The unaudited pro forma condensed balance sheet is based on the individual
audited balance sheets of Data Critical and Physix appearing elsewhere and has
been prepared to reflect the acquisition by Data Critical of the assets of
Physix as of December 31, 1998. The unaudited pro forma condensed statements of
operations is based on historical results of operations of Data Critical and
Physix for the year ended December 31, 1998 and the nine months ended September
30, 1999 after giving effect to the acquisition of Physix as if it had occurred
at the beginning of the period presented.
3. Pro Forma Basis of Presentation
These Unaudited Pro Forma Condensed Financial Statements are based on
estimates and assumptions and should be read in conjunction with the historical
financial statements and notes thereto of Data Critical and Physix. The pro
forma adjustments made in connection with the development of the pro forma
information are preliminary and have been made solely for purposes of developing
such pro forma information as necessary to comply with the disclosure
requirements of the Securities and Exchange Commission. The Unaudited Pro Forma
Condensed Financial Statements do not purport to be indicative of the combined
financial position or results of operations of future periods or indicative of
the results of operations of future periods or indicative of the results that
actually would have been realized had the entities been a single entity during
these periods.
-25-
<PAGE>
4. Pro Forma Earnings Per Share
The Unaudited Pro Forma Condensed Financial Statements for Data Critical
have been prepared as if the asset purchase was completed at the beginning of
the periods presented. The pro forma basic net loss per share is based on the
combined weighted average number of shares of Data Critical Common Stock
outstanding during the period and the number of Data Critical Common Stock to be
issued in exchange as discussed in Note 1.
The Pro Forma diluted net loss per share is computed using the weighted
average number of Data Critical Common Stock and dilutive common equivalent
shares outstanding during the period and the number of shares of Data Critical
Common Stock to be issued in exchange. Common equivalent shares consist of
incremental common shares issuable upon conversion of the exercise of stock
options and warrants using the treasury stock method. Common equivalent shares
are excluded from the computation if their effect is antidilutive. The combined
Company had a pro forma net loss for the pro forma condensed statements of
operations presented herein; therefore, none of the options and warrants
outstanding during each of the periods presented were included in the
computation of pro forma dilutive earnings per share as they were antidilutive.
5. Pro Forma Statements of Operations Adjustments
The objective of the pro forma information is to show what the significant
effects on the historical financial information might have been had the asset
purchase been effected at the beginning of the period presented.
Under the purchase method of accounting, the purchase price is allocated to
the net assets acquired based on their estimated fair value. The following
represents the purchase price allocation for Physix, Inc.
Book value of net assets acquired $ 502
Core technology 1,340
In-process research and development 1,758
----------
Fair value of assets acquired $ 3,600
==========
Cash paid $ 1,500
Fair value of shares issued 1,300
Liabilities assumed 600
Acquisition costs 200
----------
Purchase price $ 3,600
==========
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATA CRITICAL CORPORATION
(Registrant)
Date: March 1, 2000 By: /s/ Michael E. Singer
-------------------------
Michael E. Singer
Vice President and Chief Financial Officer
-27-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1* Asset Purchase Agreement dated December 8, 1999 between the
Registrant and Physix, Inc.
4.1* Registration Rights Agreement dated December 8, 1999 between the
Registrant and Physix, Inc.
10.1* Employment Agreement dated December 8, 1999 between the Registrant
and Thomas Giannulli
20.1* Press Release dated December 9, 1999 announcing "Data Critical
Corporation to Acquire Physix, Inc."
20.2* Press Release dated December 20, 1999 announcing "Data Critical
Corporation Completes Acquisition of Physix, Inc."
* Incorporated by reference from the Registrant's Current Report on Form 8-K
dated December 22, 1999.
-28-
