<PAGE>

================================================================================

                                 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 September 30, 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)

            Delaware                                         91-1901482
    (State or other jurisdiction                          (I.R.S. Employer
  of 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)

                               -----------------

     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: 12,684,205 shares of
common stock, $.001 par value, at November 9, 2000.

================================================================================

                                       1
<PAGE>

                           DATA CRITICAL CORPORATION
                                     INDEX

<TABLE>
<CAPTION>
                                                                                                    Page
                                                                                                    -----
<S>                                                                                                 <C>
                                             PART I. FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS.......................................................    3

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS...................................................................   11

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .............................   29

                                              PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.......................................................................   30

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS...............................................   30

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K........................................................   31

</TABLE>

                                       2
<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,    September 30,
                                                                                             1999            2000
                                                                                         ------------    -------------
                                                                                                          (Unaudited)
<S>                                                                                      <C>             <C>
                                      ASSETS
Current Assets:
  Cash and cash equivalents............................................................    $ 33,976        $ 27,020
  Accounts receivable, net of allowance of $149 and $293, respectively.................       2,223           5,114
  Inventories, net.....................................................................         863           1,834
  Prepaid expenses and other...........................................................         377             487
                                                                                           --------        --------
      Total current assets.............................................................      37,439          34,455
Note receivable from officer...........................................................          45              45
Investment in and advances to unconsolidated affiliate.................................         215             220
Property, equipment and software, net..................................................       1,492           2,294
Intangible assets, net.................................................................
Other assets, net......................................................................       1,860          12,515
                                                                                           --------        --------
      Total assets.....................................................................    $ 41,051        $ 49,529
                                                                                           ========        ========

                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current portion of notes payable and capital leases..................................         268             146
  Accounts payable.....................................................................       1,224           1,415
  Deferred revenues....................................................................       1,304           2,152
  Other current liabilities............................................................       1,521           3,676
                                                                                           --------        --------
      Total current liabilities........................................................       4,317           7,389
Notes payable and capital leases, net of current portion...............................       1,169             108
                                                                                           --------        --------
      Total liabilities................................................................       5,486           7,497
                                                                                           --------        --------
Commitments and contingencies
Stockholders' Equity
 Undesignated preferred stock, $0.01 par value; 3,000,000 authorized, 0 issued
  and outstanding, respectively........................................................           -               -
 Common stock and additional paid-in capital, $.001 per value, 25,000,000
  shares authorized; 10,564,789 and 12,582,516 shares issued and outstanding,
  respectively.........................................................................      61,912          77,268
 Deferred compensation.................................................................      (1,327)         (1,075)
 Accumulated deficit...................................................................     (25,020)        (34,161)
                                                                                           --------        --------
      Total stockholders' equity.......................................................      35,565          42,032
                                                                                           --------        --------
      Total liabilities, and stockholders' equity......................................    $ 41,051        $ 49,529
                                                                                           ========        ========
</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      For the Nine Months
                                                                            Ended September 30,      Ended September 30,
                                                                           --------------------      --------------------
                                                                            1999         2000         1999         2000
                                                                           -------      -------      -------     --------
<S>                                                                       <C>          <C>          <C>         <C>
Revenue................................................................    $ 2,321      $ 5,286      $ 5,906     $ 13,607
Cost of revenue........................................................        879        2,052        2,296        5,247
                                                                           -------      -------      -------     --------
  Gross margin.........................................................      1,442        3,234        3,610        8,360
                                                                           -------      -------      -------     --------
Operating expenses:
  Acquired in-process research and development.........................          -            -            -        2,800
  Research and development.............................................        504        1,217        1,536        4,003
  Sales and marketing..................................................        858        2,252        2,835        5,937
  General and administrative...........................................      1,212        1,835        2,774        4,937
  Depreciation and amortization........................................         77          487          201        1,138
                                                                           -------      -------      -------     --------
     Total operating expenses..........................................      2,651        5,791        7,346       18,815
                                                                           -------      -------      -------     --------
     Loss from operations..............................................     (1,209)      (2,557)      (3,736)     (10,455)
Interest (expense), income net.........................................        (50)         532          (44)       1,314
                                                                           -------      -------      -------     --------
Net loss...............................................................     (1,259)      (2,025)      (3,780)      (9,141)
                                                                           =======      =======      =======     ========
Preferred stock dividends and accretion of mandatory redemption
 obligations...........................................................        354            -        1,062            -
                                                                           -------      -------      -------     --------
Net loss attributable to common stock..................................    $(1,613)     $(2,025)     $(4,842)    $ (9,141)
                                                                           =======      =======      =======     ========
Basic and diluted loss per common share................................     $(1.13)      $(0.16)      $(3.39)      $(0.80)
                                                                           =======      =======      =======     ========
Weighted average shares used to calculate basic and diluted loss per
 common share..........................................................      1,427       12,305        1,429       11,384
                                                                           =======      =======      =======     ========
</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...................................       276,966           195             -             --             195
  Common stock issued and stock
    purchase option, net........................     1,230,770         9,907            --             --           9,907
  Common stock issued for acquisition of
    Elixis Corporation..........................       209,991         2,441            --             --           2,441
  Common stock issued for acquisition of
    Paceart G.P., Inc...........................       300,000         2,634            --             --           2,634
  Deferred stock compensation...................             -           179          (179)            --              --
  Amortization of deferred stock
    compensation................................             -             -           431             --             431
  Net loss......................................             -             -            --         (9,141)         (9,141)
                                                    ----------       -------       -------       --------         -------
Balance, September 30, 2000.....................    12,582,516       $77,268       $(1,075)      $(34,161)        $42,032
                                                    ==========       =======       =======       ========         =======
</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 Nine Months
                                                                                               Ended September 30,
                                                                                              ---------------------
                                                                                                1999         2000
                                                                                              --------     --------
<S>                                                                                         <C>          <C>
Cash Flows From Operating Activities:
  Net loss.................................................................................    $(3,780)     $(9,141)
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization.........................................................        209        1,312
     Amortization of deferred stock compensation...........................................        415          433
     Acquired in-process research and development..........................................         --        2,800
     Issuance of common stock for compensation.............................................         77           --
     Issuance of warrants for consulting services..........................................          1           --
     Loss on disposal of assets............................................................         --          134
     Non cash interest charge..............................................................         --          156
     Changes in assets and liabilities:
        Accounts receivable................................................................        247       (2,345)
        Inventories........................................................................       (736)        (525)
        Prepaid expenses and other current assets..........................................        (84)         (30)
        Deferred offering costs............................................................       (549)
        Accounts payable and other current liabilities.....................................        875          514
        Deferred revenues..................................................................        471         (104)
                                                                                               -------      -------
           Net cash used in operating activities...........................................     (2,854)      (6,796)
                                                                                               -------      -------
Cash Flows From Investing Activities:
  Loan to Elixis Corporation...............................................................         --         (200)
  Cash paid in the acquisition of Elixis Corporation, net of cash acquired.................         --          (85)
  Cash paid in the acquisition of Paceart Associates, L.P. and Paceart G.P., Inc.,
     net of cash acquired..................................................................         --       (6,015)
  Purchases of property and equipment......................................................       (410)      (1,322)
  Other assets.............................................................................        (79)        (312)
                                                                                               -------      -------
           Net cash used in investing activities...........................................       (489)      (7,934)
                                                                                               -------      -------
Cash Flows From Financing Activities:
  Proceeds from issuance of common stock and stock purchase option, net....................         31       10,102
  Proceeds from lines of credit............................................................        650           --
  Payment on lines of credit...............................................................         --         (115)
  Proceeds from notes payable..............................................................      1,500           --
  Payment on notes payable and capital leases..............................................        (95)      (2,213)
                                                                                               -------      -------
           Net cash provided by financing activities.......................................      2,086        7,774
                                                                                               -------      -------
Net increase in cash and cash equivalents..................................................     (1,257)      (6,956)
Cash and cash equivalents at beginning of period...........................................      3,053       33,976
                                                                                               -------      -------
Cash and cash equivalents at end of period.................................................    $ 1,796      $27,020
                                                                                               =======      =======
Supplemental disclosure of non-cash investing and financing activity
  Cash paid for interest...................................................................    $   104      $    47
  Equipment acquired through capital lease arrangements....................................    $   309
  Issuance of warrants to purchase common stock in connection with certain financing
   arrangements............................................................................    $   375

  Common stock issued to acquire Elixis Corporation........................................         --      $ 2,441
  Common stock issued to acquire Paceart G.P., Inc.........................................                 $ 2,634
</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 ("Data Critical" or "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, physician 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.

     We sell our systems through a national direct field sales force, alliances
with strategic partners and 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., Edwards Life Sciences
and Protocol Systems, Inc. (Welch-Allyn). We also sell our systems through OEM
relationships with GE Marquette Medical Systems, Inc.

     In addition, on November 9, 2000, the Company announced a distribution
agreement with Medtronic Physio-Control, Corp. ("Medtronic Physio-Control") that
appoints Medtronic Physio-Control the exclusive direct to hospital distributor
of the Company's wireless alarm notification systems for in-hospital use. Under
the agreement, beginning January 1, 2001, the parties expect that Medtronic
Physio-Control will hire approximately 25 employees of the Company's current
hospital sales and implementation staff for positions in Medtronic Physio-
Control's sales and service network, and Medtronic will undertake a significant
portion of the Company's direct product distribution. This agreement upon its
effectiveness will significantly change the Company's business model, as our
hospital revenue is heavily dependent on the success of our distribution
partners.

     The accompanying unaudited consolidated financial statements of Data
Critical Corporation and its subsidiaries 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, ("SEC"). 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 filed with the SEC on March 30, 2000.


2.   Summary of Significant Accounting Principles

     The financial statements consolidate the accounts of Data Critical
Corporation and its wholly owned direct and indirect subsidiaries,
datacritical.com, inc., Paceart Associates, L.P. and Paceart G.P., Inc. 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 original equipment manufacturers ("OEM's"),
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

                                       7
<PAGE>

require revenues earned on software arrangements involving multiple elements
such as software 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,  September 30,
                                               1999          2000
                                           ------------  -------------
                                                 (In thousands)
<S>                                        <C>           <C>
Purchased components.....................     $ 842         $1,722
Finished goods...........................        21            112
                                              -----         ------
                                              $ 863         $1,834
                                              =====         ======
</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); 1,041,445 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 SEC Staff
Accounting Bulletin 98.

                                       8
<PAGE>

                           DATA CRITICAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.   Acquisitions

Elixis

     On April 3, 2000, the Company acquired Elixis Corporation ("Elixis"), by
statutory merger into datacritical.com inc., a wholly-owned subsidiary of the
Company. Under the terms of the agreement, the Company issued approximately
210,000 shares of its common stock. The Company also paid an aggregate of
approximately $110,000 to Elixis' option holders in exchange for cancellation of
all outstanding Elixis options and assumed other Elixis liabilities amounting to
approximately $1,327,000.

Paceart

     On September 11, 2000, pursuant to a limited partnership interest and stock
purchase agreement, the Company's wholly-owned subsidiary, datacritical.com,
inc., acquired Paceart Associates, L.P., a New Jersey limited partnership
("Paceart") and Paceart's corporate general partner, Paceart G.P., Inc., a New
Jersey corporation ("Paceart GP"). Under the terms of the purchase agreement,
the Company paid an initial purchase price of $6,162,000 in cash and 300,000
unregistered shares of the Company's common stock. A portion of the initial
purchase price was withheld and placed in an escrow account for the next 18
months. In addition, if and to the extent that the division or subsidiary of the
Company comprised of the operations of the former Paceart after the acquisition
achieves sales revenues of more than $5,000,000 during the fiscal year ending
December 31, 2001, the Company will pay an additional earn-out payment of
$400,000 in cash to the former owners of Paceart and Paceart GP.

                                       9
<PAGE>

     The acquisition was accounted for as a purchase and, accordingly, the
financial statements reflect valuation of all assets, including identifiable
intangibles at their estimated fair market values. Paceart's results of
operations from the date of acquisition are included in the accompanying
statement of operations. Goodwill will be amortized over 10 years.

<TABLE>
<CAPTION>
                                                       Purchase
                                                         Price
                                                      Allocation
                                                     -------------
                                                     (In thousands)
<S>                                                  <C>
   Tangible assets.................................     $  624
   Goodwill........................................      9,195
                                                        ------
   Total consideration.............................     $9,819
                                                        ======
</TABLE>

     The following unaudited pro forma information has been prepared assuming
Elixis and Paceart had been acquired as of January 1, 1999. The pro forma
information is presented for informational purposes only and is not necessarily
indicative of what would have occurred if the acquisitions had been made as of
January 1, 1999. In addition, the pro forma information is not intended to be a
projection of future results.

<TABLE>
<CAPTION>
                                                            Nine Months      Nine Months
                                                               Ended            Ended
                                                            September 30,    September 30,
                 Pro forma information                          1999             2000
---------------------------------------------------------   -------------    -------------
       (In thousands, except per share amounts)
<S>                                                        <C>               <C>
  Revenue................................................       $ 6,297          $ 8,016
  Net loss...............................................        (1,435)          (3,355)
  Loss per common share basic and diluted................          (.75)            (.26)
</TABLE>


5.   Capital Stock

     On June 5, 2000, the Company completed the sale of 1,230,770 shares of its
common stock to Aether Systems, Inc. ("Aether") pursuant to a Common Stock
Purchase Agreement dated June 2, 2000. In addition, Data Critical granted Aether
a nine-month option ("the Option") to purchase shares of the Company's common
stock worth $10 million at a purchase price of $15.00 per share (if the Option
is exercised within 135 days of June 5, 2000) or $20.00 per share (if the Option
is exercised more than 135 days after June 5, 2000). The Company raised $10
million in the sale of such shares, and intends to use the proceeds of the sale
for general corporate purposes, including, without limitation, for marketing
expenses, appliance provisioning, software development and business development.


6.   Subsequent Events

     On November 2, 2000, the Company accepted a unsecured promissory note
pursuant to which the borrower thereunder may borrow up to $1,500,000. All
outstanding principal and interest under the Note is due November 2, 2001.
Principal will accrue interest at a rate of the Prime Rate + two percent (2%).
In the event the borrower does not consummate an offering of equity securities
resulting in net proceeds of not less than $5,000,000 within sixty days after
the initial borrowing date, then this Note together with interest accrued
thereon shall bear interest at the rate of the Prime Rate plus three and
one-half percent (3-1/2%) per annum until paid in full in cash.

     On November 9, 2000, the Company announced a distribution agreement
with Medtronic Physio-Control, Corp. ("Medtronic Physio-Control") that appoints
Medtronic Physio-Control the exclusive distributor of the Company's wireless
alarm notification systems for in-hospital use. Under the agreement, beginning
January 1, 2001, the parties expect that Medtronic Physio-Control will hire
approximately 25 employees of the Company's current hospital sales and
implementation staff for positions in Medtronic Physio-Control's sales and
service network, and Medtronic will undertake a significant portion of the
Company's direct product distribution.

                                       10
<PAGE>

                           DATA CRITICAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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 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., Edwards Life Sciences
and Protocol Systems, Inc. (Welch-Allyn). We also sell our systems through OEM
relationships with GE Marquette Medical Systems, Inc. In addition, effective
January 1, 2001, a substantial amount of the direct product distribution of
certain alarm notification products to the in-hospital market will be
exclusively distributed by Medtronic Physio-Control, Corp. This agreement upon
its effectiveness will significantly change the Company's business model,
relying much more heavily on indirect distribution of its hospital alarm
notification products.


Technology from the Elixis Acquisition

     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 209,991 shares of our common stock in exchange for all of the issued and
outstanding capital stock of Elixis. This transaction was accounted for using
the purchase method of accounting including the acquisition of Elixis technology
and accordingly, the total purchase price was allocated to the tangible and
intangible assets acquired and the liabilities assumed based on their fair
values at the acquisition date. Total goodwill recorded in connection with the
purchase was approximately $0.8 million and is being amortized over 7 years. In
the second quarter of 2000, we wrote off approximately $2.8 million of
in-process research and development in connection with the Elixis acquisition.

     We anticipated receiving a number of synergies as a result of the Elixis
acquisition, including gaining knowledgeable staff and acquiring products and
services at least partially developed, which together may reduce time-to-market
for subsequent wireless-internet product development and implementation. We
anticipate that any successful wireless-internet products or services will, when
generating material revenues, yield economies of scale in company-wide selling,
general and administrative expenses. However, there can be no assurance that we
will realize any of such benefits. See "Factors Affecting Data Critical's
Operating Results, Business Prospects and Market Price of Stock--Potential
Acquisition."

                                       11
<PAGE>

Technology from the Paceart Acquisition

     On September 11, 2000, pursuant to a limited partnership interest and stock
purchase agreement, the Company's wholly-owned subsidiary, datacritical.com,
Inc., acquired Paceart Associates, L.P., a New Jersey limited partnership
("Paceart") and Paceart's corporate general partner, Paceart G.P., Inc., a New
Jersey corporation ("Paceart GP"). Under the terms of the purchase agreement,
the Company paid an initial purchase price of $6,162,000 in cash and 300,000
unregistered shares of the Company's common stock. A portion of the initial
purchase price was withheld and placed in an escrow account for the next 18
months. In addition, if and to the extent that the division or subsidiary of the
Company comprised of the operations of the former Paceart after the acquisition
achieves sales revenues of more than $5,000,000 during the fiscal year ending
December 31, 2001, the Company will pay an additional earn-out payment of
$400,000 in cash to the former owners of Paceart and Paceart GP.

     This transaction was accounted for using the purchase method of accounting
and accordingly, the total purchase price was allocated to the tangible and
intangible assets acquired and the liabilities assumed based on their fair
values at the acquisition date. Total goodwill recorded in connection with the
purchase was approximately $9.1 million and is being amortized over 10 years.

                                       12
<PAGE>

     We anticipated receiving a number of synergies as a result of the Paceart
acquisition, including gaining knowledgeable staff and acquiring products and
services. We anticipate that any successful products or services will, when
generating material revenues, yield economies of scale in company-wide selling,
general and administrative expenses. However, there can be no assurance that we
will realize any of such benefits. See "Factors Affecting Data Critical's
Operating Results, Business Prospects and Market Price of Stock--Potential
Acquisitions."

                                       13
<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>
                                                                         For the                      For the
                                                                    Three Months Ended            Nine Months Ended
                                                                       September 30,                September 30,
                                                                    --------------------         -------------------
                                                                     1999           2000          1999          2000
                                                                    -----          -----         -----         -----
<S>                                                                <C>            <C>            <C>          <C>
  Revenue.......................................................    100.0%         100.0%        100.0%        100.0%
  Cost of revenue...............................................     37.9%          38.8%         38.9%         38.6%
                                                                    -----          -----         -----         -----
     Gross margin...............................................     62.1%          61.2%         61.1%         61.4%
                                                                    -----          -----         -----         -----
  Operating expenses:
     Acquired in-process research and development...............                     0.0%                       20.6%
     Research and development...................................     21.7%          23.0%         26.0%         29.4%
     Sales and marketing........................................     37.0%          42.6%         48.0%         43.6%
     General and administrative.................................     52.2%          34.7%         47.0%         36.3%
     Depreciation and amortization..............................      3.3%           9.2%          3.4%          8.4%
                                                                    -----          -----         -----         -----
        Total operating expenses................................    114.2%         109.6%        124.4%        117.7%
                                                                    -----          -----         -----         -----
        Loss from operations....................................    (52.1)%       (48.4)%        (63.3)%       (56.3)%
  Interest income...............................................     (2.2)%         10.1%         (0.7)%         9.7%
                                                                    -----          -----         -----         -----
        Net loss................................................    (54.2)%        (38.3)%       (64.0)%       (46.6)%
                                                                    -----          -----         -----         -----
</TABLE>


     Revenue.  Revenue increased $3.0 million or 127.7% to $5.3 million for the
three months ended September 30, 2000 compared to $2.3 million for the
comparable period in 1999. Revenue increased $7.7 million or 130.4% to $13.6
million for the nine months ended September 30, 2000 compared to $5.9 million
for the comparable period in 1999. Of the $7.7 million increase $5.3 million was
from direct and OEM sales of our primary product StatView systems. For the nine
months ended September 30, 2000 compared to the same period of 1999 our average
StatView direct system selling price increased 9% while associated unit sales
increased 48%. The remaining $2.4 million of increased revenue is comprised of
$1.6 million from the sale of physician products and services and $0.8 million
from the Paceart division.

     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 $1.8 million or
124.3%, for the three months ended September 30, 2000 compared to $1.4 million
from the comparable period in 1999. Gross margin increased $4.8 million to $8.4
million or 131.6% for the nine months ended September 30, 2000 compared to $3.6
million from the comparable period in 1999. Gross margin as a percentage of
revenue decreased to 61.2% in the third quarter of 2000 from 62.1% 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, hospital
products, were approximately 61% offset slightly by higher margins for our
physician products.

     Research and development.  Research and development expenses consist
primarily of personnel and related costs, travel and contract engineering
services. Research and development expenses increased $0.7 million or 141.5% to
$1.2 million for the three months ended September 30, 2000 compared to $0.5
million for the comparable period in 1999. Research and development expenses
increased $2.5 million or 160.6% to $4.0 million for the nine months ended
September 30, 2000 compared to $1.5 million for the comparable period in 1999.
Research and development costs represented 23.0% of total revenues for the three
months ended September 30, 2000 and 21.7% 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. in December 1999, Elixis Corporation in April 2000 to develop and
enhance Data Critical's 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 $1.4 million or 162.5% to $2.3 million for the three months
ended September 30, 2000 compared to $0.9 million for the comparable period in
1999. Sales and marketing expenses increased $3.1 million or 109.4% to $5.9
million for the nine months ended September 30, 2000 compared to $2.8 million
for the comparable period in 1999. This increase was primarily due to increased
sales personnel and increased sales and marketing expenses, such as sales
commissions, trade shows and public relations. Sales and marketing expenses
represented 42.6% of total revenues in the third quarter of 2000 and 37.0% in
the third 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 for the Physician business. Our new distribution agreement with
Medtronic will reduce the selling expenses for the Hospital business, and our
marketing costs will be reduced. Therefore, overall we expect to see a reduction
in costs for sales and marketing.

     General and administrative.  General and administrative expenses consist
primarily of personnel and related expenses, travel, communication and
professional fees. General and administrative expenses increased $0.6 million or
51.4% to $1.8 million the three months ended September 30, 2000 compared to $1.2
million for the comparable period in 1999. General and administrative expenses
increased $2.2 million or 78.0% to 4.9 million for the nine months ended
September 30, 2000 compared to $2.8 million for the comparable period in 1999.
General and administrative expenses represented approximately 34.7% of total
revenues in the third quarter of 2000 and 52.2% in the comparable period of
1999. This is exclusive of depreciation and amortization which increased $0.4
million to $0.5 million the three months ended September 30, 2000 compared to
$0.1 million for the comparable period in 1999. For the nine months ended
September 30, 2000 depreciation and amortization was $1.1 million, compared with
$0.2 million for the comparable period in 1999. We believe that general and
administrative expenses will continue to increase slightly 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.
We expect depreciation and amortization expense to increase with the
addition of goodwill related to the Paceart acquisition.

     Operating expenses.  Operating expenses increased $3.1 million or 118.4% to
$5.8 million in the third quarter of 2000 compared to $2.7 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 increased to 109.6% in the three months ended September 30, 2000 from
114.2% in the comparable period of 1999.

     Other income (expense), net.  Other income (expense), net, increased
$582,000 to a net other income of $532,000 in the three month period ended
September 30, 2000 from a net other expense of $50,000 in the comparable period
of 1999. The net figure is a combination of interest income and expense. The
increase is primarily due to interest income generated from proceeds of our
initial public offering in November of 1999 and proceeds from an issuance of
common stock of approximately $10 million in June 2000. We expect other income
to increase 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

     The following table calculates the net operating loss before depreciation
and amortization:

<TABLE>
<CAPTION>
                                                            Three Months Ended         Nine Months Ended
                                                               September 30,              September 30,
                                                            --------------------      --------------------
                                                              1999        2000         1999         2000
                                                            --------     -------      -------      -------
<S>                                                         <C>          <C>          <C>          <C>
Net operating loss                                           $(1,259)    $(2,025)     $(3,780)     $(9,141)
Depreciation and amortization                                     77         487          201        1,138
                                                            --------     -------      -------      -------
Net operating loss before depreciation and amortization     $(1,182)     $(1,538)     $(3,579)     $(8,003)
                                                            ========     =======      =======      =======

</TABLE>

     Company management believes net operating loss before depreciation and
amortization to be an important indicator of the operational strength and
performance of the Company, including the ability to provide cash flows to fund
operations and other expenditures as required. This indicator, however, should
not be considered an alternative to operating or net income (loss) as an
indicator of the performance of the Company, or as an alternative to cash flows
from operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. The Company's
definition of net operating loss before depreciation and amortization may not be
comparable to similarly titled measures reported by other companies.

     As of September 30, 2000, we had $27.0 million of cash and cash equivalents
down from $34.0 million at December 31, 1999. As of September 30, 2000, our
principal commitments consisted of obligations outstanding under capital and
operating leases. Working capital decreased to $27.1 million at September 30,
2000 from $33.1 million at December 31, 1999.

     Net cash used in operating activities was $6.8 million in the nine months
ended September 30, 2000 and $2.9 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, depreciation and amortization and other non-cash adjustments.
Any such increases can be expected to reduce cash and cash equivalents.

     Net cash used in investing activities was $7.9 million in the nine months
ended September 30, 2000 and $489,000 for the same comparable period in 1999.
Net cash used in investing activities in the nine months ended September 30,
2000 consisted of $200,000 for the issuance of a note receivable to Elixis
Corporation, $85,000 in net cash paid for and acquired in connection with the
acquisition of Elixis Corporation and $1,326,000 for purchases of equipment and
systems, and $6,162,000 for Paceart.

     Net cash provided by financing activities was $7.8 million for the nine
months ended September 30, 2000, while net cash in the amount of $2.1 million
was provided during the same comparable period in 1999. Net cash provided by
financing activities during the first nine months of 2000 consisted of net
proceeds in the amount of $10 million from the issuance of our common stock as
the result of common stock option and warrant exercises and the sale of 1.2
million shares, offset by $2.2 million in notes payable and line of credit
repayments. Net cash provided by financing activities during the comparable
period 1999 consisted of net proceeds from the sale of common stock in

                                       14
<PAGE>

the amount of $31,000, $650,000 from lines of credit, $1,500,000 the issuance of
convertible notes offset by payments on notes payable and capital leases in the
amount of $94,500.

     From January 1, 1997 through September 30, 2000, we have invested a total
of approximately $3.3 million in fixed assets, consisting primarily of
manufacturing equipment, research and development equipment, computer equipment,
related software, office furniture and leasehold improvements. We expect to
spend an additional $300,000 over the next 12 months for additional fixed
assets, principally completion of a data center for hosting the physician
applications and additional production test equipment and a product content
management system.

     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%. The Company's ability to draw against this line
expired April 2000. The Company does not intend to seek renewal of this line. As
of September 30, 2000, no borrowings were outstanding under this line.

     We have two standby letters of credit, each in the approximate amount of
$170,000, secured by certificates of deposit issued to provide collateral for
our Bothel facility lease. These certificates automatically renew in December
2000 and March 2001 so long as the Company maintains adequate cash reserves for
collateralization.

     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 with an effective interest rate of 7.6%. The
Company's ability to draw against the lease line expired in April 2000. The
Company does not intend to seek renewal of this lease line of credit. As of
September 30, 2000, $120,100 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 the investment from Aether Systems and 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.


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 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 nor 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 December 1999, SEC Staff Accounting Bulletin: No. 101--Revenue
Recognition in Financial Statements (SAB 101) was issued. This pronouncement
summarizes certain of the SEC Staff's views on applying generally accepted
accounting principles to revenue recognition. SAB 101 is required to be adopted
by the Company for the year ended December 31, 2000. The Company is currently
reviewing the requirements of SAB 101.

     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.

                                       15
<PAGE>

     In March 2000, the EITF reached a consensus on EITF Issue 00-3. This
consensus indicates that a software element covered by AICPA Statement of
Position ("SOP 97-2") is only present in a software hosting arrangement if the
customer has the contractual right to take possession of the software at any
time during the hosting period without significant penalty and it is feasible
for the customer to either run the software on its own hardware or contract with
another party unrelated to the vendor to host the software. Therefore, SOP 97-2
only applies to hosting arrangements in which the customer has such an option.
Arrangements that do not give the customer such an option are service contracts
and are outside the scope of SOP 97-2. The Task Force observed that hosting
arrangements that are service arrangements may include multiple elements that
affect how revenue should be attributed. The Company recognizes revenue related
to software hosting as service is provided, therefore this consensus is not
expected to have any material effect on the Company's results of operations or
its financial position.


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 products and services, our growth and revenue will be limited.

     Our business model depends on our ability both to sell our products and
services 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 wireless transmission of critical data through networked and non-
networked medical monitoring equipment within and outside of hospitals using our
technology 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 technologies, products and services
offered by others.

     We believe that we must gain significant market share in the healthcare
industry with our products and services before competitors introduce alternative
technologies 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 certain of our products and services
by physicians and other healthcare stakeholders would also severely limit our
ability to implement our physician-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.

                                       16
<PAGE>

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, $6.8 million in 1999
and $9.1 million through September 30, 2000. As of September 30, 2000, we had an
accumulated deficit of $34.2 million. We expect to continue to incur net losses
excluding depreciation and amortization for at least the next six to nine
months, although this timeframe could be longer. We anticipate continuing to
incur increased 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 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 a number of strategic
alliances. We currently maintain co-marketing partnerships with Agilent
Technologies, Inc. (formerly a division of Hewlett-Packard Company), Protocol
Systems, Inc. (Welch-Allyn), Siemens Medical Systems, Inc. Edwards Life
Sciences, 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, 1999 and the first 6
months of 2000 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.

     We have signed a distribution agreement with Medtronic Physio-Control,
Corp., for direct sales distribution of a significant portion of our alarm
notification products to the in-hospital market. The agreement has a term of
three years but may be cancelled early under certain circumstances. If Medtronic
Physio-Control, Corp., fails to market or sell our products at the level the
Company intends and expects, 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 may not be able to execute our business model
and the growth of our business could possibly 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 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 results 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. Our hospital-based wireless alarm notification systems are
significantly dependent on both the success of third party hospital medical
monitoring company sales and overall hospital medical monitoring demands.
Because we do not know when, or if, our potential customers will place orders,
finalize contracts and permit installation, 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

                                       17
<PAGE>

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 we 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 increase our
sales and marketing, research and development and general and administrative
expenses in 2000 as business needs dictate. 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.

     On November 9, 2000, the Company announced an distribution agreement with
Medtronic Physio-Control that appoints Medtronic Physio-Control the primary
distributor of the Company's wireless alarm notification systems for in-hospital
use. Under the agreement, beginning January 1, 2001, Medtronic Physio-Control
will undertake a significant portion of the Company's direct product
distribution. This agreement results in an increased dependency by the Company
on a third-party distributor. As a result, our quarterly financial results are
likely to fluctuate based on the performance of Medtronic Physio-Control as our
primary direct sales distribution partner for hospital alarm notification
products. In addition, our revenue may be substantially reduced in the fourth
quarter of fiscal year 2000 as a result of the effects of transitioning some of
our sales force to Medtronic Physio-Control.

     We believe that quarter-to-quarter comparisons of our financial results 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 they may 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, 1999 and the first nine months of 2000 a large portion of our
revenue was derived from sales of our StatView system. Although we expect that
our MobileView ECG Stat, AlarmView systems and physician related product
revenues 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 12 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 physician-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 physician-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 physician-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 systems to the physician and to the at-home
consumer healthcare industry will also be costly and time-consuming. Our systems
require that hospitals, physicians and consumers manage information in a new and
different way. In order to maximize the benefits of our systems, at-home
healthcare consumers must be willing to allow sensitive personal information to
be stored on our databases. We have not yet fully determined how to
commercialize our 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 systems, the future growth
of our business would likely suffer.

                                       18
<PAGE>

We have recently made acquisitions and may make additional acquisitions in the
future and we may not successfully assimilate the acquired operations or
products.

     During the calendar year 2000, we have acquired the businesses of Elixis
and Paceart 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.
Recently the Financial Accounting Standards Board ("FASB") issued an exposure
draft which in 2001 would eliminate pooling of interests accounting for
acquisitions and 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 and $13.6 million the first nine months of 2000.
During 1999, we moved our Redmond, Washington headquarters and assembly plant
into new facilities in Bothell, Washington. In addition, as our business grows
we may be required to hire a 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;

     .  maintain stable and constructive alliances with key manufacturers of
        complementary medical equipment; and

                                       19
<PAGE>

     .  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 physician-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 physician-based business model.
Developing, integrating, enhancing and customizing our products and services
will be expensive and time consuming.

                                       20
<PAGE>

Intense competition in the physician healthcare industry may hinder sales of our
internet systems.

     The physician 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 physician-based business model.

     To successfully implement our physician-based business model, we must
continue to expand and adapt our network infrastructure to accommodate
additional users, increased transaction volumes and changing customer
requirements. Our infrastructure may not accommodate increased use while
maintaining acceptable overall performance. To date, we have processed a limited
number and variety of physician-based transactions. In addition, our physician
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 and Michael Singer, Executive Vice President Corporate
Development/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 entered into a distribution agreement with Medtronic
Physio-Control Corp., with an intent to enhance our product distribution
capabilities, we may need to nevertheless

                                       21
<PAGE>

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.


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.

                                       22
<PAGE>

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 physician 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 physician 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 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 started 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 have
implemented 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
directives and 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:

                                       23
<PAGE>

     .  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.

     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

                                       24
<PAGE>

systems or to introduce future systems or system enhancements. Many of our
systems are also considered medical devices and are regulated by the FDA. Before
we can market these 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 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.

                                       25
<PAGE>

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 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 as 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

                                       26
<PAGE>

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.


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

                                       27
<PAGE>

     .  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 and
subsequent equity issuances 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 covenants required by our working capital line of
credit and subordinated debt facility agreements. As of September 30, 2000 we
were in compliance with all required covenants. In the event that 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, our certificate of incorporation and our shareholder rights plan 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

                                       28
<PAGE>

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;

     .  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.

     In accordance with the above-described provisions, our board of directors
adopted a shareholder rights plan on June 14, 2000 pursuant to which each holder
of our common stock received a dividend of one right per share of common stock
held by such holder for the purchase of 1/1000th of a share of our Series A
Participating Preferred Stock for a price of $75.00 (as adjusted for stock
adjustments, the "Exercise Price"). The rights will become exercisable on the
earliest of (i) 10 days after a public announcement that a person has acquired
20% or more of the outstanding shares of our common stock or (ii) the close of
business 10 days after the commencement of a, or public announcement of a,
tender offer for our common stock which would result in a person owning 20% or
more of our common stock. Upon any person so acquiring 20% or more of our common
stock (other than in a transaction approved by the board of directors), the
rights would further entitle the holders (other than the acquiring holder) to
acquire (by paying the then current Exercise Price) shares of our common stock
having a market value equal to twice the then current Exercise Price. If after
the rights become exercisable and we are subsequently acquired by another
company or person, the rights would further entitle the holder to acquire shares
of the common stock of the acquiring entity (by payment of the Exercise Price)
again having a market value of twice then current Exercise Price. At any time
prior to their becoming exercisable, the rights may be redeemed the board of
directors. The rights plan has been filed as an exhibit to our Registration
Statement dated July 12, 2000 and should be referred to for the complete terms
and conditions of the plan and the rights.


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 preserve the value 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 September 30, 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 $24.6 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.

                                       29
<PAGE>

                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     From time to time, we may be involved in litigation that arises in the
normal course of our business operations. As of the date of this filing, we are
not party to any litigation that we believe could adversely affect our business
relationship and our financial results.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     Pursuant to the Rights Plan dated June 15, 2000 between the Company and
ChaseMellon Shareholder Services, L.L.C., on July 21, 2000 the Company issued a
dividend to its common stockholders of approximately 12,245,829 rights (one
right for each outstanding share of common stock) to purchase 1/1000 of a
share of the Company's Series A Participating Preferred Stock at a price of
$75.00 (subject to adjustment) for each 1/1000 of such share.

     On November 8, 1999, our registration statement on Form S-1, file number
333-78059, became effective. The offering has terminated as a result of all of
the shares offered being sold. 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.

     On June 5, 2000, the Company completed the sale of 1,230,770 shares of its
Common Stock to Aether Systems, Inc. ("Aether") pursuant to a Common Stock
Purchase Agreement dated June 2, 2000. In addition, the Company granted Aether a
nine-month option ("the Option") to purchase shares of the Company's common
stock worth $10 million at a purchase price of $15.00 per share (if the Option
is exercised within 135 days of June 5, 2000) or $20.00 per share (if the Option
is exercised more than 135 days after June 5, 2000). The Company raised $10
million in the sale of such shares, and intends to use the proceeds of the sale
for general corporate purposes, including, without limitation, for marketing
expenses, appliance provisioning, software development and business development.

     On September 11, 2000, the Company issued 300,000 unregistered shares of
its common stock to the former owners of Paceart G.P., Inc. as partial
consideration for the acquisition of all the outstanding shares of common stock
of Paceart G.P., Inc. by datacritical.com, inc. Such sale of the Company's
securities was exempt from registration requirements pursuant to Regulation D as
promulgated under Section 4(2) of the Securities Act of 1933, as amended.

                                       30
<PAGE>

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

Number                                 Description
---------   --------------------------------------------------------------------
2.1(F)      Limited Partnership Interest and Stock Purchase Agreement, dated
            as of August 31, 2000, among Data Critical Corporation,
            datacritical.com, inc., Paceart Associates, L.P., the limited
            partners of Paceart Associates, L.P., Paceart G.P., Inc., the
            stockholders of Paceart G.P., Inc., and Dr. Michael N. Bergelson, as
            Sellers' Agent.

3.1(A)      Amended and Restated Certificate of Incorporation of Data Critical
            Corporation.

3.2(A)      Amended and Restated Bylaws of Data Critical Corporation.

3.3(E)      Certificate of Designations of Rights, Preferences and Privileges of
            Series A Participating Preferred Stock of Data Critical Corporation.

3.4         Amendment No. 1 to Amended and Restated Bylaws of Data Critical
            Corporation.

4.1(A)      Amended and Restated Registration Rights Agreement dated February
            22, 1995, as amended.

4.2(A)      Warrant Agreement dated April 13, 1995 between Data Critical
            Corporation 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.

4.3(A)      Form of Common Stock Purchase Warrant issued in connection with the
            bridge loan financings.

4.4(A)      Common Stock Purchase Warrant dated July 10, 1996 issued by Data
            Critical Corporation in favor of Nomadics, Inc.

4.5(A)      Common Stock Purchase Warrant dated July 10, 1996 issued by Data
            Critical Corporation in favor of Colin Cumming.

4.6(C)      Registration Rights Agreement, dated as of June 2, 2000, by and
            between Data Critical Corporation and Aether Systems, Inc.

4.7(D)      Rights Agreement, dated as of June 15, 2000, between Data Critical
            Corporation and ChaseMellon Shareholder Services, L.L.C.

4.8         Omnibus Consent and Amendment to Registration Rights Agreement,
            dated as of the Effective Date (as defined therein), by and among
            Data Critical Corporation, Aether Systems, Inc. and the persons
            listed as Demand Holders on the signature pages thereto.

4.9(F)      Registration Rights Agreement, dated as of August 31, 2000, among
            Data Critical Corporation, Dr. Michael N. Bergelson, Richard W.
            Schurig, Richard Puzo, Wayne Casebolt, Eric Reidman and Anthony
            Marchesini.

10.1(B)     Amendment to Employment Agreement dated February 24, 2000 between
            Data Critical Corporation and Michael E. Singer.

10.2(B)**   Second Amendment to Distribution and License Agreement dated January
            19, 2000 between Data Critical Corporation and GE Marquette Medical
            Systems, Inc.

10.3(C)     Common Stock Purchase Agreement, dated as of June 2, 2000, by and
            between Data Critical Corporation and Aether Systems, Inc.

10.4(C)     Option Agreement, dated as of June 5, 2000, by and between Data
            Critical Corporation and Aether Systems, Inc.

10.5(F)     Employment Agreement, dated as of August 31, 2000, by and between
            Data Critical Corporation and Dr. Michael N. Bergelson.

10.6***     Distribution Agreement, dated as of November 9, 2000, by and between
            Data Critical Corporation and Medtronic Physio-Control, Corp.

27.1        Financial Data Schedule
------------
**    Registrant sought and was granted confidential treatment pursuant to
      Rule 406 for portions of the referenced exhibit.

***   Registrant has sought confidential treatment pursuant to Rule 406 for
      portions of the referenced exhibit.

      (A)  Incorporated herein by reference to the Company's Registration
           Statement on 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.

      (C)  Incorporated herein by reference to the Company's Current Report on
           Form 8-K filed on June 22, 2000.

      (D)  Incorporated herein by reference to the Company's Registration
           Statement on Form 8-A filed July 12, 2000.

      (E)  Incorporated herein by reference to the Company's Quarterly Report on
           Form 10-Q for the quarterly period ended June 30, 2000.

      (F)  Incorporated herein by reference to the Company's Current Report
           on Form 8-K filed on September 21, 2000.

     (b)  Reports on Form 8-K.

     On April 18, 2000 we filed a Current Report on Form 8-K reporting our April
3, 2000 acquisition of Elixis Corporation.

     On June 22, 2000 we filed a Current Report on Form 8-K reporting our June
2, 2000 sale of 1,230,770 shares of Common Stock to Aether Systems, Inc.

     On July 12, 2000 we filed a Current Report on Form 8-K reporting our
adoption of a Rights Plan and the issuance of a rights dividend to our common
stockholders.

     On September 21, 2000 we filed a Current Report on Form 8-K reporting the
September 11, 2000 acquisition by datacritical.com, inc., of Paceart Associates,
L.P. and Paceart G.P., Inc.

     On November 9, 2000 we filed an Amended Current Report on Form 8-KA
reporting the September 11, 2000 acquisition by datacritical.com, inc., of
Paceart Associates, L.P. and Paceart G.P., Inc.

                                       31
<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:  November 14, 2000
                                  By:        /s/  Michael E. Singer
                                     -------------------------------------------
                                                  Michael E. Singer
                                              Executive Vice President
                                              Corporate Development and
                                               Chief Financial Officer
                                               (Authorized Officer and
                                             Principal Financial Officer)

                                       32
<PAGE>

                                 EXHIBIT INDEX

    Number                              Description
--------------  ----------------------------------------------------------------
2.1(F)          Limited Partnership Interest and Stock Purchase Agreement,
                dated as of August 31, 2000, among Data Critical Corporation,
                datacritical.com, inc., Paceart Associates, L.P., the limited
                partners of Paceart Associates, L.P., Paceart G.P., Inc., the
                stockholders of Paceart G.P., Inc., and Dr. Michael N.
                Bergelson, as Sellers' Agent.

3.1(A)          Amended and Restated Certificate of Incorporation of Data
                Critical Corporation.

3.2(A)          Amended and Restated Bylaws of Data Critical Corporation.

3.3(E)          Certificate of Designations of Rights, Preferences and
                Privileges of Series A Participating Preferred Stock of Data
                Critical Corporation.

3.4             Amendment No. 1 to Amended and Restated Bylaws of Data Critical
                Corporation.

4.1(A)          Amended and Restated Registration Rights Agreement dated
                February 22, 1995, as amended.

4.2(A)          Warrant Agreement dated April 13, 1995 between Data Critical
                Corporation 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.

4.3(A)          Form of Common Stock Purchase Warrant issued in connection with
                the bridge loan financings.

4.4(A)          Common Stock Purchase Warrant dated July 10, 1996 issued by Data
                Critical Corporation in favor of Nomadics, Inc.

4.5(A)          Common Stock Purchase Warrant dated July 10, 1996 issued by Data
                Critical Corporation in favor of Colin Cumming.

4.6(C)          Registration Rights Agreement, dated as of June 2, 2000, by and
                between Data Critical Corporation and Aether Systems, Inc.

4.7(D)          Rights Agreement, dated as of June 15, 2000, between Data
                Critical Corporation and ChaseMellon Shareholder Services,
                L.L.C.

4.8             Omnibus Consent and Amendment to Registration Rights Agreement,
                dated as of the Effective Date (as defined therein), by and
                among Data Critical Corporation, Aether Systems, Inc. and the
                persons listed as Demand Holders on the signature pages thereto.

4.9(F)          Registration Rights Agreement, dated as of August 31, 2000,
                among Data Critical Corporation, Dr. Michael N. Bergelson,
                Richard W. Schurig, Richard Puzo, Wayne Casebolt, Eric Reidman
                and Anthony Marchesini.

10.1(B)         Amendment to Employment Agreement dated February 24, 2000
                between Data Critical Corporation and Michael E. Singer.

10.2(B)**       Second Amendment to Distribution and License Agreement dated
                January 19, 2000 between Data Critical Corporation and GE
                Marquette Medical Systems, Inc.

10.3(C)         Common Stock Purchase Agreement, dated as of June 2, 2000, by
                and between Data Critical Corporation and Aether Systems, Inc.

10.4(C)         Option Agreement, dated as of June 5, 2000, by and between Data
                Critical Corporation and Aether Systems, Inc.

10.5(F)         Employment Agreement, dated as of August 31, 2000, by and
                between Data Critical Corporation and Dr. Michael N. Bergelson.

10.6***         Distribution Agreement, dated as of November 9, 2000, by and
                between Data Critical Corporation and Medtronic Physio-Control,
                Corp.

27.1            Financial Data Schedule
----------------
**    Registrant sought and was granted confidential treatment pursuant to
      Rule 406 for portions of the referenced exhibit.

***   Registrant has sought confidential treatment pursuant to Rule 406 for
      portions of the referenced exhibit.

      (A)  Incorporated herein by reference to the Company's Registration
           Statement on 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.

      (C)  Incorporated herein by reference to the Company's Current Report on
           Form 8-K filed on June 22, 2000.

      (D)  Incorporated herein by reference to the Company's Registration
           Statement on Form 8-A filed July 12, 2000.

      (E)  Incorporated herein by reference to the Company's Quarterly Report on
           Form 10-Q for the quarterly period ended June 30, 2000.

      (F)  Incorporated herein by reference to the Company's Current Report
           on Form 8-K filed on September 21, 2000.

                                      33