Emageon (EMAG)

 

 

The increase in research and development expenses in 2007 of $2.8 million, or 16.2%, is the result of a higher level of utilization and higher costs of outsourced research and development and related services. We engaged additional third-party consultants in 2007 in an effort to improve our software product offerings and their delivery to customers, and expect that effort to continue through 2008. In addition, in 2006 we utilized a portion of our cardiology research and development personnel to fulfill customer obligations existing at the date of our acquisition of Camtronics, and accordingly charged costs related to that effort to costs of revenue rather than research and development. Those personnel returned to research and development activities in 2007. Partially offsetting the effects of these increases in research and development was a reduction in our research and development salaries and benefits expense resulting from our reduction in engineering workforce in May 2007.

 

The increase in research and development expense in 2006 compared to 2005 of $5.7 million, or 49.1%, is almost entirely the result of the acquisition of Camtronics on November 1, 2005 and the inclusion of the former Camtronics research and development expenses in our financial statements for a full twelve month period in 2006. Increased research and development expense resulting from the Camtronics acquisition aside, the level of increase in research and development expense in 2006 was minimized by a decline in direct headcount and related expenses and in the number of operations personnel performing research and development activities as the result of the consolidation of engineering staffs between the companies and the efficiencies that resulted from that consolidation. Partially offsetting the effects of the decline in headcount were increased research and development overhead expenses, primarily depreciation, related to the upgrade of laboratory facilities during 2005 and 2006 and the physical consolidation of facilities into a single location in 2006, and increased stock-based compensation expense recognized in 2006 as the result of initial adoption of SFAS No. 123R.

 

 

 

The increase in research and development expenses in 2007 of
$2.8 million, or 16.2%, is the result of a higher level of
utilization and higher costs of outsourced research and
development and related services. We engaged additional
third-party consultants in 2007 in an effort to improve our
software product offerings and their delivery to customers, and
expect that effort to continue through 2008. In addition, in
2006 we utilized a portion of our cardiology research and
development personnel to fulfill customer obligations existing
at the date of our acquisition of Camtronics, and accordingly
charged costs related to that effort to costs of revenue rather
than research and development. Those personnel returned to
research and development activities in 2007. Partially
offsetting the effects of these increases in research and
development was a reduction in our research and development
salaries and benefits expense resulting from our reduction in
engineering workforce in May 2007.

 

The increase in research and development expense in 2006
compared to 2005 of $5.7 million, or 49.1%, is almost
entirely the result of the acquisition of Camtronics on
November 1, 2005 and the inclusion of the former Camtronics
research and development expenses in our financial statements
for a full twelve month period in 2006. Increased research and
development expense resulting from the Camtronics acquisition
aside, the level of increase in research and development expense
in 2006 was minimized by a decline in direct headcount and
related expenses and in the number of operations personnel
performing research and development activities as the result of
the consolidation of engineering staffs between the companies
and the efficiencies that resulted from that consolidation.
Partially offsetting the effects of the decline in headcount
were increased research and development overhead expenses,
primarily depreciation, related to the upgrade of laboratory
facilities during 2005 and 2006 and the physical consolidation
of facilities into a single location in 2006, and increased
stock-based compensation expense recognized in 2006 as the
result of initial adoption of SFAS No. 123R.

 

 

 

The increases in research and development expense for the twelve months ended December 31, 2005 and 2004 as compared to corresponding periods in 2004 and 2003, respectively, are mainly attributable to increases in personnel, both through internal growth and growth through acquisitions of other companies. During the twelve months ended December 31, 2005, personnel and related expenses accounted for $3.1 million of the expense growth compared to the corresponding period in 2004. In addition, Camtronics, which we acquired November 1, 2005, contributed $0.8 million of personnel expense during the two months included in 2005 consolidated expenditures. An increase of $1.7 million in research and development cost for the twelve months ended December 31, 2004 from the corresponding period in 2003 is attributable to personnel increases throughout 2004 along with the inclusion of a full year of expense from personnel added through the Ultravisual merger in May 2003. Headcount has increased from 57 employees at December 31, 2004 to 150 employees at December 31, 2005, including the employees added through the Camtronics acquisition. Along with the integration of the research and development teams, the department has reorganized into operating divisions that we believe will provide increased productivity and efficiency during the development phase of a software release and lead to more effective product roadmaps.