There are approximately 4,900 hospitals in the United States, which provide inpatient care to more than 36 million patients annually. Hospital costs represented approximately 30% of total healthcare expenditures in the United States, or approximately $486 billion, in 2002. Although fewer than 12% of hospital patients require ICU care, these patients may account for approximately $110 million to $170 million, or 22% to 34%, of total hospital costs. Approximately four million adult patients are treated in intensive care units , or ICUs, each year, resulting in direct ICU costs of $35 billion to $55 billion per year.

ICU patients are often physiologically unstable with one or more organs failing, which increases the likelihood of medical errors and adverse events. The inherent instability of these patients requires constant monitoring and access to the appropriate expertise of caregivers with a broad knowledge base and ability to prioritize among competing problems. In a study sponsored by the Agency for Healthcare Research and Quality, researchers reported that approximately 20% of ICU patients experience an adverse event, of which almost half may be preventable. According to a study from The Advisory Board, approximately 30% of total hospital costs are spent in the ICU. It is estimated that 40% to 50% of ICU costs are spent on only 14% of ICU patients. According to the Advisory Board study, the average total cost per day of caring for an ICU patient is four times the cost of caring for a patient on a general medical and surgical floor.

The Leapfrog Group, a coalition of more than 170 large public and private organizations, has estimated that improved ICU care directed by intensivists could result in as much as a 30% reduction in hospital mortality, or an estimated 54,000 lives annually. However, a shortage of intensivists in the United States has prevented hospitals from providing additional intensivist oversight in the ICU. In the United States, only 10% to 20% of hospitals currently have the dedicated intensivists on staff needed to meet the Leapfrog Group’s ICU physician staffing criteria.

The Company’s eICU Program consists of eCareManager suite of software products, the underlying platform and networking technology and clinical program guides and services. The eCareManager system and services enable the customers to establish and operate an eICU Center. The Company’s advanced eCareManager suite of software products provides the primary functionality for the eICU Program. The Company’s software is used to operate an eICU Center networked to multiple ICU beds in one or more hospitals. The eICU Center is staffed by the hospital’s intensivists and critical care nurses.

The Company’s eCareManager suite of software products is comprised of Patient Care and Best Practice Tools and Reporting Solutions Core Reports. eCareManager Patient Care displays clinical information in views and formats that allow the user to quickly evaluate an individual patient’s status and move quickly to other patients. A patient profile screen automatically summarizes vital sign trends, organ systems, interventions, current treatments and results. The eICU staff uses the patient profile to prepare, update and review a detailed care plan and enter progress notes.

Core Reports generate detailed information about overall hospital ICU practice patterns and performance. The eCareManager software generates Core Reports from the data captured in its database. By profiling how ICU care is delivered, Core Reports provide information not normally available to ICU physicians or administrators, such as blood glucose levels among all patients in the ICU over a period of time, appropriate use of beta blockers and occurrence of complications in the ICU.

The Company focuses on delivering effective implementation, user training and workflow redesign and ongoing support services as an integral part of its program.

The Company’s technology integration and clinical transformation services departments provide system installation and activation and ensure that the eICU Program is integrated into a customer’s technical and operational environment. Each implementation project, whether for a new client or an expansion by an existing client, begins with engagement of the customer’s executive team to set the expectations and commitment for their organization. The Company’s clinical transformation services team of physicians and nurses assists the customers’ ICU staff and physicians to effectively transition and implement the eICU Program.

Total direct cost of revenues for the nine months ended September 30, 2005 was $2.6 million, an increase of $1.6 million, or 165%, over total direct cost of revenues of $1.0 million for the comparable period in 2004.

Gross profit increased from $2.5 million, or 71% of total revenues, for the nine months ended September 30, 2004 to $9.9 million, or 79% of total revenues, for the nine months ended September 30, 2005.

Sales and marketing expenses for the nine months ended September 30, 2005 were $2.8 million, an increase of $474,000, or 20%, over sales and marketing expenses of $2.4 million for the comparable period in 2004.

Other income for the nine months ended September 30, 2005 was $224,000, compared to approximately $4,000 for the comparable period in 2004.