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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    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: 000-51865
 Visicu, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    52-2107238(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 217 East Redwood Street, Suite 1900
Baltimore, Maryland 21202-3315  (Address of principal executive offices)  (410) 276-1960  (Registrants telephone number, including area code)
  Common Stock, $0.0001 par value per share
    
    The NASDAQ Stock Market LLC(Title of each class)
    
    (Name of each exchange on which registered)
 
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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VISICU, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
Table of Contents
 PagePart IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    25Item 2.
    
    Properties
    
    
    26Item 3.
    
    Legal Proceedings
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Part IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    27Item 6.
    
    Selected Financial Data
    
    
    29Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    41Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    56Item 9A.
    
    Controls and Procedures
    
    
    56Item 9B.
    
    Other Information
    
    
    56Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    57Item 11.
    
    Executive Compensation
    
    
    57Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    57Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    57Item 14.
    
    Principal Accounting Fees and Services
    
    
    57Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    58Signatures
    
    
    
    
    59
 2




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PART I
 
 Item 1. Business
  Overview
      Industry Background
  3




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Increasing Number, Acuity and Costs of ICU Patients
  Shortage of Intensivists and ICU Nurses
  Lack of Available ICU Beds Cause Hospital Bottlenecks
  Our Solution
  Improved Patient Outcomes.
 Reduced Hospital Costs.
 Increased Productivity and Improved Quality of Life of Critical Care Professionals.
 4




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Increased Hospital Revenue Potential.
 Our eICU Program
    eCareManager Patient Care and Best Practice Tools.
    Reporting Solutions.
 5




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##### 



Transforming Critical Care Services
  Technology Integration and Clinical Transformation Services.
 Technology Integration Services.
 Clinical Transformation Services.
  Clinical Optimization Services.
 Our Strategy
  Increasing Sales and Marketing Efforts in the United States.
 Expanding Penetration with our Existing Customer Base.
 6




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Enhancing our Program Offerings.
 
    
    improving the utility of Smart Alert prompts;
    
    expanding Reporting Solutions with more advanced analytic
and data mining tools, reports and benchmarking metrics and
customer direct access to underlying data;
    
    refining our clinical optimization services department to
provide more effective, data-driven consulting services to
assist customers to successfully improve their critical
care program; and
    
    reducing the resources, costs and time for both us and our
customers that are needed to implement and upgrade our
program through improved project methods, additional remote
services and advanced software configuration design.
 Evaluating Opportunities to Expand our eICU Program Model.
 Pursuing International Sales of the eICU Program.
 Sales, Marketing and Customers
 Sales
    Marketing
  
    
    working with customers to obtain local and national news coverage and journal articles;
    
    obtaining national news recognition and awards;
    
    exhibiting at healthcare trade shows;
    
    advertising in medical healthcare technology magazines; and
    
    conducting web-based seminars targeted at key hospital decision makers.
 7




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USA Today Wall Street Journal U.S. News & World Report Prevention
 Customers
    
    
    Sentara Healthcare was our first eICU Program customer and
participated in our Critical Care Medicine study. Sentara
operates a five hospital system in the Norfolk, Virginia
area. It is consistently named one of the top health
systems in the country.
    
    Advocate Health Care in Chicago initially implemented our
eICU Program to monitor 44 beds, and as of December 31,
2006 was monitoring over 240 beds from a single eICU
Center.
    
    The University of Pennsylvania, a leading academic medical
center, uses the eICU Program to monitor ICUs in its main
hospital and in one of its community hospitals.
    
    Avera Health, based in South Dakota, uses the eICU Program
at its larger hospitals and is offering the eICU Program to
small, outlying critical access hospitals.
    
    The United States Army uses the eICU Program at Tripler
Army Hospital in Honolulu to monitor patients thousands of
miles away in Guam.
  Customer Support Services
  8




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Technology, Research and Development
 Technology
    Research and Development
   Products and Applications Under Development
  
    
    architecture;
    
    usability;
    
    new functions;
    
    integration; and
    
    support/installation.
 9




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Intellectual Property
       TM TM TM
 10




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##### 



Competition
     
    
    ease of integration of our technology with existing clinical programs, infrastructure and services;
    
    speed of implementation;
    
    length of development cycles of our technology and our clinical program;
    
    product innovation and development of new products and features;
    
    product quality, features and performance;
    
    cost-effectiveness;
    
    customer service and support;
    
    the experience of our clinical services professionals; and
    
    the product and policy decisions announced by our competitors.
 Government Regulation
  11




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Food and Drug Administration
          
    
    FDAs quality system regulation, which requires
manufacturers to follow design, testing, control,
documentation and other quality assurance procedures for
manufacturing, labeling, packaging, storage and shipping of
products;
    
    labeling regulations, which govern product labels and
labeling, prohibit the promotion of products for unapproved
or off-label uses and impose other restrictions on
labeling and promotional activities;
    
    medical device reporting regulations, which require that
manufacturers report to the FDA if their device may have
caused or contributed to a death or serious injury or
malfunctioned in a way that would likely cause or
contribute to a death or serious injury if it were to
recur;
    
    notices of correction or removal and recall regulations,
which require that manufacturers report to the FDA field
corrections and product recalls or removals if undertaken
to reduce a risk to health posed by the device or to remedy
a violation of the FDC Act that may present a risk to
health; and
    
    post-market surveillance regulations, which apply when
necessary to protect the public health or to provide
additional safety and effectiveness data for the device.
 12




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
    
    untitled letters and warning letters;
    
    fines, injunctions, consent decrees and civil penalties;
    
    repair, replacement, refunds, recall, seizure or removal of authority to distribute our products;
    
    operating restrictions, partial suspension or total shutdown of production;
    
    refusing our request for 510(k) clearance of new products;
    
    withdrawing 510(k) clearance or premarket approvals that have already been granted; and
    
    criminal prosecution.
   HIPAA Privacy and Security Regulations
    
    
    as to how we will use and disclose the protected health information;
    
    that appropriate administrative, physical and technical safeguards are in place to prevent misuse of information;
    
    that we will enter into similar agreements with our agents and subcontractors that have access to the information;
    
    that we will report security incidents and inappropriate uses or disclosures of the information; and
    
    that we will assist the covered entity with certain of its duties under the Privacy Rules.
  13




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##### 



Government Reimbursement
   Fraud and Abuse
  Anti-Kickback Law.
 Stark Law.
 State Law.
 Emerging Certification Requirements
  14




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##### 



Foreign Regulations
  European Union Regulation.
 Other Foreign Regulation.
 Employees
   
 Item 1A. Risk Factors
  If our eICU Program is not widely accepted, we will be unable to generate significant revenue
growth.
   
    
    reluctance by hospitals to reduce their reliance on traditional ICU practices, monitoring systems and on-site personnel;
    
    inability of hospitals to successfully integrate our eICU Program into an ICU due to lack of on-site physician
adoption, including the resulting harm to our reputation;
    
    financial and budget constraints of hospitals; and
    
    the availability, price, performance and reliability of competing products and services;
  The loss of our U.S. patent or any significant limitation in its scope could provide less legal
protection for our business and products by permitting competitors to more easily enter the market
and to utilize methods developed by us.
  15




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If our products are alleged or found to infringe the intellectual property rights of others, we
could be involved in costly disputes or disruptions and be required to redesign our products or
methods, pay royalties or enter into license agreements with third parties.
   Any failure to protect our intellectual property rights could materially and adversely affect our
business and financial condition.
    We have been sued by Cerner Corporation over our U.S. patent. A ruling by the court in favor of
Cerner on one or more of its claims could materially and adversely affect our business and
financial condition.
   Increasing competition for our products and services could make it harder for us to sell our eICU
Program.
  16




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##### 



If we are required to change the way in which we recognize revenue in the future, our financial results
could fluctuate significantly, which may result in volatility in the price of our common stock.
    We have a relatively short operating history and a limited number of customers. We are unable to
predict whether our customers will renew their support agreements after the initial term, and low
renewal rates could adversely affect our revenues and our business.
  A downturn or upturn in our sales may not be immediately reflected in our operating results because
we recognize revenues from license fees and implementation fees ratably over the term of our
agreements.
  Our revenues from existing customers may decrease and we may be required to provide refunds to
existing customers if we offer lower pricing terms for comparable purchases to another customer.
  We have incurred significant operating losses in the past and may incur significant operating
losses in the future.
  17




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Defects in or performance problems with our eICU Program could diminish demand for our products and
services and harm our reputation.
  Product liability claims may require us to pay damages, reduce the demand for our eICU Program and
harm our reputation.
  Our inability to effectively manage our growth could adversely affect our business and our
operating results.
  Our inability to successfully introduce new, enhanced and competitive products that keep pace with
rapidly changing technology, industry standards and customer requirements could adversely affect
our ability to compete effectively.
  Any loss of the third-party intellectual property and technology licenses on which we rely in
providing our eICU Program could result in additional costs or interruptions in the functionality
of our products and services.
  18




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We are dependent on our senior executive management, and the loss of any member of our senior
executive management may prevent us from managing and growing our business effectively.
  We depend on highly specialized personnel, and the loss or failure to identify, hire, develop,
motivate and retain these personnel could adversely affect our ability to grow our business.
   Any efforts we may make in the future to expand our eICU Program beyond the adult ICU market may
not yield a sufficient return on our investment.
  We intend to increase sales of our eICU Program to government agencies, which subjects us to risks
inherent in government contracts.
    19




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We intend to expand our international sales efforts, which exposes us to risks inherent in
international operations, and we do not have substantial experience in international markets.
  
    
    localization of our program, including translation into foreign languages and associated expenses;
    
    laws and business practices favoring local competitors;
    
    compliance with multiple, conflicting and changing governmental laws and regulations, including
healthcare, employment, tax, privacy, healthcare information technology and data protection laws
and regulations;
    
    laws regulating exports of technology products from the United States and foreign government
restrictions on acquisitions of U.S.-origin products;
    
    fluctuations in foreign currency exchange rates;
    
    difficulties in staffing and managing foreign operations; and
    
    longer accounts receivable payment cycles and other collection difficulties.
  The long sales cycles for our eICU Program may cause our operating results to fluctuate
significantly, which may result in volatility in the price of our common stock.
  Acquisitions and investments could result in integration difficulties, dilution or other adverse
financial consequences.
  20




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The requirements related to being a public company will subject us to increased costs and may
strain our resources and distract our management. If we do not comply with these requirements, we
may be subject to penalties and investors may lose confidence in us.
   Because our operating results may fluctuate significantly and may be below the expectations of
analysts and investors, the market price for our stock may be volatile.
  
    
    the size, timing, terms and conditions of orders from our customers;
    
    changes in hospitals budgets and procurement policies and priorities, and funding delays;
    
    new competitors and the introduction of enhanced products from new or existing competitors;
    
    expenses incurred in pursuing and closing acquisitions and in follow-up integration efforts;
    
    unforeseen legal expenses, including litigation costs;
    
    unanticipated delays or problems in releasing new products and services; and
    
    the amount and timing of our investments in research and development activities.
   We might require additional capital to support our business growth, and this capital might not be
available.
  21




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##### 



If we fail to obtain and maintain necessary U.S. FDA clearances for our
products and indications or if clearances for future products and indications are delayed or not
issued, our business would be harmed.
   After clearance or approval of our products, we are subject to continuing regulation by the FDA. If
we fail to comply with these FDA regulations, our business could suffer.
   
    
    untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
    
    repair, replacement, refunds, recall, seizure or removal of authority to distribute our products;
    
    operating restrictions, partial suspension or total shutdown of production;
    
    refusing a request for 510(k) clearance of new products;
    
    withdrawing 510(k) clearance or premarket approvals that have already been granted; and
    
    criminal prosecution.
  The FDA could retroactively determine that modifications that we have made to our eICU Program
following FDA clearance were improper and require us to stop marketing and recall the modified
products.
  22




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##### 



Federal regulatory reforms may adversely affect our ability to sell our products profitably.
  If we fail to comply with the FDAs Quality System Regulation, our manufacturing operations could
be halted and our business would suffer.
  We may face additional compliance costs and liability risks under HIPAA.
  
    
    transaction and code set standards that prescribe specific
transaction formats and data code sets for specified
electronic healthcare transactions;
    
    privacy standards that protect individual privacy by
limiting the uses and disclosures of individually
identifiable health information; and
    
    data security standards that require covered entities to implement
administrative, physical and technological safeguards to ensure the
confidentiality, integrity, availability and security of individually
identifiable health information in electronic form.
   
    
    a description of our permitted uses of individually identifiable health information;
    
    a covenant not to disclose the information other than as permitted under the agreement and to make our subcontractors, if
any, subject to the same restrictions;
    
    assurances that appropriate administrative, physical and technical safeguards are in place to prevent misuse of the
information;
    
    an obligation to report to our customer any use or disclosure of the information not provided for in the agreement;
    
    a prohibition against our use or disclosure of the information if a similar use or disclosure by our customer would violate
the HIPAA standards;
    
    the ability for our customers to terminate the underlying support agreement if we breach a material term of the business
associate agreement and are unable to cure the breach;
    
    the requirement to return or destroy all individually identifiable health information at the end of our support agreement; and
    
    access by the Secretary of the Department of Health and Human Services to our internal practices, books and records to
validate that we are safeguarding individually identifiable health information.
  23




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##### 



We may face compliance costs and liability risks under other privacy protection laws and
regulations.
  If our security measures are breached and unauthorized access is obtained to patient data, we may
face liabilities and our program may be perceived as not being secure, causing customers to curtail
or stop using our program, which may lead to a decline in revenues.
  Our stock price may be volatile, and your investment in our common stock could suffer a decline in
value.
  
    
    regulatory developments and funding priorities;
    
    market conditions for our products and services in general;
    
    announcements of technological innovations or new products by us or our competitors;
    
    adoption of industry standards that our products and services do not satisfy;
    
    the loss of any of our key management or technical personnel;
    
    restatements of our financial results and material weaknesses in our internal controls;
    
    changes in financial estimates or recommendations by securities analysts;
    
    the results of the pending, and any future, intellectual property-related lawsuits, claims or actions involving us;
    
    sales of large blocks of our common stock; and
    
    sales of our common stock by our executive officers, directors and significant stockholders.
  If securities analysts downgrade our stock or discontinue coverage of our company, our stock price
could decline.
  24




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##### 



Our executive officers, directors and principal stockholders own a significant percentage of our
company and could exert
significant influence over matters requiring stockholder approval.
  Because we do not intend to pay dividends, our stockholders will benefit from their investment in
shares of our common stock only if it appreciates in value.
  Provisions of our certificate of incorporation, bylaws and Delaware law could make an acquisition
of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove the current members of our board and management.
     
 Item 1B. Unresolved Staff Comments
  25




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##### 



Item 2. Properties
  
 Item 3. Legal Proceedings
    ex parte
    
 Item 4. Submission of Matters to a Vote of Security Holders
  26




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##### 



PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
 Stock Market Information
  Fiscal Year 2006
    
    High
    
    LowSecond quarter (commencing April 5, 2006)
    
    $
    25.92
    
    
    $
    15.80Third quarter
    
    $
    19.33
    
    
    $
    8.85Fourth quarter
    
    $
    11.20
    
    
    $
    7.00
 Holders
  Dividends
  Rule 10b5-1 Trading Plans
  Securities Authorized for Issuance under Equity Compensation Plans
  (a)
    
    
    (b)
    
    
    (c)Number of securitiesremaining available forfuture issuance under equityNumber of securities to be
    
    
    Weighted-average
    
    
    compensation plansissued upon exercise of
    
    
    exercise price of
    
    
    (excluding securitiesoutstanding options,
    
    
    outstanding options,
    
    
    reflected inPlan category
    
    warrants and rights
    
    
    warrants and rights
    
    
    column (a))Equity compensation plans
approved by security holders
    
    
    3,438,000
    
    
    $
    2.25
    
    
    
    747,000Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,438,000
    
    
    $
    2.25
    
    
    
    747,000
  27




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##### 



Performance Graph
  Comparison of Cumulative Total Return
For the Period April 5, 2006 Through December 31, 2006
 
 4/5/06
    
    4/30/06
    
    5/31/06
    
    6/30/06
    
    7/31/06
    
    8/31/06
    
    9/30/06
    
    10/31/06
    
    11/30/06
    
    12/31/06Visicu, Inc.
    
    $
    100
    
    
    $
    149
    
    
    $
    116
    
    
    $
    110
    
    
    $
    81
    
    
    $
    76
    
    
    $
    56
    
    
    $
    61
    
    
    $
    63
    
    
    $
    70NASDAQ Composite
Index
(U.S. Companies)
    
    $
    100
    
    
    $
    98
    
    
    $
    93
    
    
    $
    93
    
    
    $
    89
    
    
    $
    93
    
    
    $
    96
    
    
    $
    101
    
    
    $
    103
    
    
    $
    103NASDAQ Computer and
Data Processing
Index
    
    $
    100
    
    
    $
    97
    
    
    $
    89
    
    
    $
    92
    
    
    $
    90
    
    
    $
    95
    
    
    $
    101
    
    
    $
    106
    
    
    $
    109
    
    
    $
    108
  Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.
 Issuance of Common Stock upon Exercise of Warrant
  28




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##### 



Item 6. Selected Financial Data
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Year Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(in thousands, except per share data)Statements of Operations:Revenues:License revenue
    
    $
    17
    
    
    $
    686
    
    
    $
    2,268
    
    
    $
    8,160
    
    
    $
    13,458Service revenue
    
    
    1,428
    
    
    
    1,532
    
    
    
    3,246
    
    
    
    10,192
    
    
    
    16,787Total revenues
    
    
    1,445
    
    
    
    2,218
    
    
    
    5,514
    
    
    
    18,352
    
    
    
    30,245Direct cost of revenues:Cost of licenses
    
    
    1
    
    
    
    66
    
    
    
    120
    
    
    
    404
    
    
    
    872Cost of services
    
    
    1,081
    
    
    
    702
    
    
    
    1,347
    
    
    
    3,462
    
    
    
    4,885Total direct cost of revenues
    
    
    1,082
    
    
    
    768
    
    
    
    1,467
    
    
    
    3,866
    
    
    
    5,757Gross profit
    
    
    363
    
    
    
    1,450
    
    
    
    4,047
    
    
    
    14,486
    
    
    
    24,488Operating expenses:Sales and marketing
    
    
    1,647
    
    
    
    2,722
    
    
    
    3,284
    
    
    
    4,140
    
    
    
    4,588Research and development
    
    
    2,698
    
    
    
    3,233
    
    
    
    4,251
    
    
    
    5,279
    
    
    
    5,530General and administrative
    
    
    3,510
    
    
    
    3,889
    
    
    
    4,638
    
    
    
    6,757
    
    
    
    9,189Total operating expenses
    
    
    7,855
    
    
    
    9,844
    
    
    
    12,173
    
    
    
    16,176
    
    
    
    19,307Income (loss) from operations
    
    
    (7,492
    )
    
    
    (8,394
    )
    
    
    (8,126
    )
    
    
    ( 1,690
    )
    
    
    5,181Total other income
    
    
    36
    
    
    
    1
    
    
    
    19
    
    
    
    331
    
    
    
    4,436Income (loss) before income taxes
    
    
    (7,456
    )
    
    
    (8,393
    )
    
    
    (8,107
    )
    
    
    (1,359
    )
    
    
    9,617Income tax expense (benefit)
    
    
    
    
    
    
    12
    
    
    
    (3,980
    )
    
    
    (11,426
    )
    
    
    3,595Net income (loss)
    
    
    (7,456
    )
    
    
    (8,405
    )
    
    
    (4,127
    )
    
    
    10,067
    
    
    
    6,022Accretion of redeemable preferred stock
    
    
    (1,949
    )
    
    
    (1,993
    )
    
    
    (2,019
    )
    
    
    (354
    )
    
    
    Net income (loss) attributable to
common stockholders
    
    $
    (9,405
    )
    
    $
    (10,398
    )
    
    $
    (6,146
    )
    
    $
    9,713
    
    
    $
    6,022Net income (loss) attributable to
common stockholders per share:Basic
    
    $
    (3.22
    )
    
    $
    (3.30
    )
    
    $
    (1.83
    )
    
    $
    2.61
    
    
    $
    0.24Diluted
    
    $
    (3.22
    )
    
    $
    (3.30
    )
    
    $
    (1.83
    )
    
    $
    0.38
    
    
    $
    0.18Weighted average shares outstanding used in
computing per share amounts:Basic
    
    
    2,917
    
    
    
    3,146
    
    
    
    3,352
    
    
    
    3,722
    
    
    
    24,781Diluted
    
    
    2,917
    
    
    
    3,146
    
    
    
    3,352
    
    
    
    26,816
    
    
    
    32,787
 
  Year Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(in thousands)Non-cash stock-based
compensation expense:Cost of services
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    48
    
    
    $
    179Sales and marketing expense
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    322
    
    
    
    640Research and development expense
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    266
    
    
    
    411General and administrative expense
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    422
    
    
    
    1,303Total non-cash
stock-based compensation
expense
    
    $
    
    
    
    $
    
    
    
    $
    29
    
    
    $
    1,058
    
    
    $
    2,533Balance Sheet Data:Cash and cash equivalents
    
    $
    2,423
    
    
    $
    2,493
    
    
    $
    8,639
    
    
    $
    11,379
    
    
    $
    74,188Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,007Working capital (deficit)
    
    
    1,479
    
    
    
    (1,086
    )
    
    
    3,317
    
    
    
    3,208
    
    
    
    108,159Total assets
    
    
    5,318
    
    
    
    8,039
    
    
    
    24,751
    
    
    
    44,700
    
    
    
    157,012Total deferred revenue
    
    
    2,615
    
    
    
    13,228
    
    
    
    33,091
    
    
    
    47,613
    
    
    
    49,364Redeemable preferred stock
    
    
    29,783
    
    
    
    31,802
    
    
    
    33,822
    
    
    
    
    
    
    
    Total stockholders equity (deficit)
    
    
    (28,239
    )
    
    
    (38,617
    )
    
    
    (44,615
    )
    
    
    (6,941
    )
    
    
    104,328
 29




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
     Sources of Revenue
   30




---



##### 



Direct Cost of Revenues
  
    
    salaries, benefits and stock-based compensation for personnel to provide professional and support services to customers;
    
    cost of customer-related services provided by subcontractors;
    
    billable and non-billable travel, lodging and other out-of -pocket customer-related expenses; and
    
    license fees for third-party software used to enhance our program.
  Operating Expenses
 Sales and Marketing.
 
    
    salaries, benefits and stock-based compensation related to sales and marketing personnel;
    
    commissions;
    
    travel, lodging and other out-of -pocket expenses; and
    
    marketing programs such as trade shows and advertising campaigns.
  Research and Development.
 General and Administrative.
 
    
    salaries, benefits and stock-based compensation related to general and administrative personnel;
    
    professional fees; and
    
    facilities and other related overhead.
  31




---



##### 



Legal and Regulatory Proceedings
  Critical Accounting Policies
   Revenue Recognition
 Software Revenue Recognition
   Allowance for Doubtful Accounts
   32




---



##### 



Deferred Contract Costs
  Software Development Costs
 Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.
  Stock-Based Compensation
 Accounting for Stock Issued to Employees. Accounting for Stock-Based Compensation, Accounting for Stock-Based Compensation-Transition and Disclosure.
 Share-Based Payment,
   33




---



##### 



Income Taxes
    34




---



##### 



Results of Operations
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues:License revenue
    
    
    41
    %
    
    
    44
    %
    
    
    44
    %Service revenue
    
    
    59
    
    
    
    56
    
    
    
    56Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100Direct cost of revenues:Cost of licenses
    
    
    2
    
    
    
    2
    
    
    
    3Cost of services
    
    
    24
    
    
    
    19
    
    
    
    16Total direct cost of revenues
    
    
    27
    
    
    
    21
    
    
    
    19Gross profit
    
    
    73
    
    
    
    79
    
    
    
    81Operating expenses:Sales and marketing
    
    
    60
    
    
    
    23
    
    
    
    15Research and development
    
    
    77
    
    
    
    29
    
    
    
    18General and administrative
    
    
    84
    
    
    
    37
    
    
    
    30Total operating expenses
    
    
    221
    
    
    
    88
    
    
    
    64Income (loss) from operations
    
    
    (147
    )
    
    
    (9
    )
    
    
    17Other income:Total other income:
    
    
    0
    
    
    
    2
    
    
    
    15Income (loss) before income taxes
    
    
    (147
    )
    
    
    (7
    )
    
    
    32Income tax expense (benefit)
    
    
    (72
    )
    
    
    (62
    )
    
    
    12Net income (loss)
    
    
    (75
    )%
    
    
    55
    %
    
    
    20
    %
 Years Ended December 31, 2006 and 2005
 Revenues.
     35




---



##### 



Direct Cost of Revenues.
  Gross Profit.
 Sales and Marketing Expense.
 Research and Development Expense.
 General and Administrative Expense.
 Other Income.
 Income Taxes.
 Years Ended December 31, 2005 and 2004
 Revenues.
    36




---



##### 



Direct Cost of Revenues.
  Gross Profit.
 Sales and Marketing Expense.
 Research and Development Expense.
 General and Administrative Expense.
 Other Income.
 Income Taxes.
 37




---



##### 



Quarterly Results of Operations
  Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006(in thousands, except per share data)Revenues:License revenue
    
    $
    1,499
    
    
    $
    1,860
    
    
    $
    2,191
    
    
    $
    2,610
    
    
    $
    3,018
    
    
    $
    3,384
    
    
    $
    3,536
    
    
    $
    3,520Service revenue
    
    
    1,996
    
    
    
    2,333
    
    
    
    2,679
    
    
    
    3,184
    
    
    
    3,651
    
    
    
    4,145
    
    
    
    4,622
    
    
    
    4,369Total revenues
    
    
    3,495
    
    
    
    4,193
    
    
    
    4,870
    
    
    
    5,794
    
    
    
    6,669
    
    
    
    7,529
    
    
    
    8,158
    
    
    
    7,889Direct cost of revenues:Cost of licenses
    
    
    61
    
    
    
    81
    
    
    
    119
    
    
    
    143
    
    
    
    171
    
    
    
    228
    
    
    
    231
    
    
    
    242Cost of services (1)
    
    
    694
    
    
    
    796
    
    
    
    904
    
    
    
    1,068
    
    
    
    1,232
    
    
    
    1,210
    
    
    
    1,308
    
    
    
    1,135Total direct cost of revenues
    
    
    755
    
    
    
    877
    
    
    
    1,023
    
    
    
    1,211
    
    
    
    1,403
    
    
    
    1,438
    
    
    
    1,539
    
    
    
    1,377Gross profit
    
    
    2,740
    
    
    
    3,316
    
    
    
    3,847
    
    
    
    4,583
    
    
    
    5,266
    
    
    
    6,091
    
    
    
    6,619
    
    
    
    6,512Operating expenses:Sales and marketing (1)
    
    
    1,006
    
    
    
    966
    
    
    
    1,013
    
    
    
    1,155
    
    
    
    1,305
    
    
    
    1,143
    
    
    
    834
    
    
    
    1,306Research and development (1)
    
    
    1,285
    
    
    
    1,362
    
    
    
    1,229
    
    
    
    1,403
    
    
    
    1,397
    
    
    
    1,442
    
    
    
    1,325
    
    
    
    1,366General and administrative (1)
    
    
    1,507
    
    
    
    1,562
    
    
    
    1,640
    
    
    
    2,048
    
    
    
    2,112
    
    
    
    2,390
    
    
    
    2,470
    
    
    
    2,217Total operating expenses
    
    
    3,798
    
    
    
    3,890
    
    
    
    3,882
    
    
    
    4,606
    
    
    
    4,814
    
    
    
    4,975
    
    
    
    4,629
    
    
    
    4,889Income (loss) from operations
    
    
    (1,058
    )
    
    
    (574
    )
    
    
    (35
    )
    
    
    (23
    )
    
    
    452
    
    
    
    1,116
    
    
    
    1,990
    
    
    
    1,623Total other income, net
    
    
    39
    
    
    
    71
    
    
    
    114
    
    
    
    107
    
    
    
    138
    
    
    
    1,183
    
    
    
    1,570
    
    
    
    1,545Income (loss) before income taxes
    
    
    (1,019
    )
    
    
    (503
    )
    
    
    79
    
    
    
    84
    
    
    
    590
    
    
    
    2,299
    
    
    
    3,560
    
    
    
    3,168Income tax expense (benefit)
    
    
    1
    
    
    
    1
    
    
    
    (11,349
    )
    
    
    (79
    )
    
    
    276
    
    
    
    1,056
    
    
    
    1,060
    
    
    
    1,203Net income (loss)
    
    
    (1,020
    )
    
    
    (504
    )
    
    
    11,428
    
    
    
    163
    
    
    
    314
    
    
    
    1,243
    
    
    
    2,500
    
    
    
    1,965Accretion of redeemable preferred stock
    
    
    (354
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
(loss) attributable to common
stockholders
    
    $
    (1,374
    )
    
    $
    (504
    )
    
    $
    11,428
    
    
    $
    163
    
    
    $
    314
    
    
    $
    1,243
    
    
    $
    2,500
    
    
    $
    1,965Net income (loss) attributable to common
stockholders per share:Basic
    
    $
    (0.40
    )
    
    $
    (0.15
    )
    
    $
    3.04
    
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.06Diluted
    
    $
    (0.40
    )
    
    $
    (0.15
    )
    
    $
    0.42
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.07
    
    
    $
    0.06Weighted average shares outstanding used in
computing per share amounts:Basic
    
    
    3,429
    
    
    
    3,474
    
    
    
    3,762
    
    
    
    4,215
    
    
    
    5,276
    
    
    
    29,080
    
    
    
    31,987
    
    
    
    32,142Diluted
    
    
    3,429
    
    
    
    3,474
    
    
    
    27,383
    
    
    
    27,922
    
    
    
    27,500
    
    
    
    33,844
    
    
    
    34,628
    
    
    
    34,534In the preceding table, cost of revenues and operating expenses include non-cash stock based
compensation expense as follows:Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006(in thousands)Non-cash stock-based compensation
expense:Cost of services
    
    $
    3
    
    
    $
    11
    
    
    $
    16
    
    
    $
    18
    
    
    $
    35
    
    
    $
    45
    
    
    $
    49
    
    
    $
    50Sales and marketing expense
    
    
    41
    
    
    
    62
    
    
    
    79
    
    
    
    140
    
    
    
    127
    
    
    
    143
    
    
    
    44
    
    
    
    326Research and development expense
    
    
    52
    
    
    
    39
    
    
    
    55
    
    
    
    120
    
    
    
    118
    
    
    
    136
    
    
    
    41
    
    
    
    116General and administrative expense
    
    
    27
    
    
    
    66
    
    
    
    126
    
    
    
    203
    
    
    
    291
    
    
    
    334
    
    
    
    327
    
    
    
    351Total non-cash stock-based
compensation expense
    
    $
    123
    
    
    $
    178
    
    
    $
    276
    
    
    $
    481
    
    
    $
    571
    
    
    $
    658
    
    
    $
    461
    
    
    $
    843
 Liquidity and Capital Resources
   38




---



##### 



Contractual Obligations
  Payment Due By PeriodLess ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 YearsCapital lease
    
    $
    84
    
    
    $
    32
    
    
    $
    52
    
    
    $
    Operating leases
    
    
    1,188
    
    
    
    339
    
    
    
    647
    
    
    
    202Total
    
    $
    1,272
    
    
    $
    371
    
    
    $
    699
    
    
    $
    202
 Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  39




---



##### 



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  40




---



##### 



Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    42Balance Sheets as of December 31, 2005 and 2006
    43Statements of Operations for each of the three years in the period ended December 31, 2006
    44Statements of Stockholders Equity (Deficit) for each of the three years in the period ended
December 31, 2006
    45Statements of Cash Flows for each of the three years in the period ended December 31, 2006
    46Notes to Financial Statements
    47
 41




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based
Payment
  
 42




---



##### 



VISICU, INC.
 BALANCE SHEETS
  December 31,2005
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    11,379
    
    
    $
    74,188Marketable securities
    
    
    
    
    
    
    46,047Accounts receivable
    
    
    8,971
    
    
    
    11,465Prepaid expenses and other current assets
    
    
    527
    
    
    
    1,686Deferred tax assets
    
    
    9,300
    
    
    
    7,915Total current assets
    
    
    30,177
    
    
    
    141,301Property and equipment:Computer equipment and software
    
    
    2,667
    
    
    
    2,496Office furniture and equipment
    
    
    327
    
    
    
    362Leasehold improvements
    
    
    104
    
    
    
    1823,098
    
    
    
    3,040Accumulated depreciation
    
    
    1,318
    
    
    
    1,4091,780
    
    
    
    1,631Deferred contract costs
    
    
    4,538
    
    
    
    4,477Deferred tax assets
    
    
    6,604
    
    
    
    6,140Marketable securities
    
    
    
    
    
    
    2,960Other assets
    
    
    1,601
    
    
    
    503Total assets
    
    $
    44,700
    
    
    $
    157,012Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable and accrued expenses
    
    $
    1,950
    
    
    $
    1,244Accrued compensation and related costs
    
    
    1,478
    
    
    
    1,581Deferred revenue
    
    
    23,516
    
    
    
    30,290Other current liabilities
    
    
    25
    
    
    
    27Total current liabilities
    
    
    26,969
    
    
    
    33,142Other long-term liabilities
    
    
    575
    
    
    
    468Deferred revenue
    
    
    24,097
    
    
    
    19,074Total liabilities
    
    
    51,641
    
    
    
    52,684Commitments and contingenciesStockholders equity (deficit):Series A Preferred Stock, $.0001 par
value; 3,500,000 shares authorized in
2005 and none in 2006; 3,375,000 shares
issued and outstanding in 2005 and none
in 2006
    
    
    
    
    
    
    Series B Preferred Stock, $.0001 par
value; 11,500,000 shares authorized in
2005 and none in 2006; 11,016,057 shares
issued and outstanding in 2005 and none
in 2006
    
    
    1
    
    
    
    Series C Preferred Stock, $.0001 par
value; 15,000,000 shares authorized in
2005 and none in 2006; 4,994,228 shares
issued and outstanding in 2005 and none
in 2006
    
    
    1
    
    
    
    Preferred Stock, $.0001 par value; No
shares authorized in 2005 and 10,000,000
in 2006; no shares issued and
outstanding in 2005 and 2006
    
    
    
    
    
    
    Common stock, $.0001 par value;
30,000,000 shares authorized in 2005 and
100,000,000 in 2006; 4,537,841 shares
issued and outstanding in 2005 and
32,485,185 in 2006
    
    
    
    
    
    
    3Additional paid-in capital
    
    
    32,905
    
    
    
    133,202Unearned stock-based compensation
    
    
    (4,949
    )
    
    
    Accumulated deficit
    
    
    (34,899
    )
    
    
    (28,877
    )Total stockholders equity (deficit)
    
    
    (6,941
    )
    
    
    104,328Total liabilities and stockholders equity (deficit)
    
    $
    44,700
    
    
    $
    157,012
 See accompanying notes to financial statements.
 43




---



##### 



VISICU, INC.
 STATEMENTS OF OPERATIONS
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues:License revenue
    
    $
    2,268
    
    
    $
    8,160
    
    
    $
    13,458Service revenue
    
    
    3,246
    
    
    
    10,192
    
    
    
    16,787Total revenues
    
    
    5,514
    
    
    
    18,352
    
    
    
    30,245Direct cost of revenues:Cost of licenses
    
    
    120
    
    
    
    404
    
    
    
    872Cost of services (1)
    
    
    1,347
    
    
    
    3,462
    
    
    
    4,885Total direct cost of revenues
    
    
    1,467
    
    
    
    3,866
    
    
    
    5,757Gross profit
    
    
    4,047
    
    
    
    14,486
    
    
    
    24,488Operating expenses:Sales and marketing (1)
    
    
    3,284
    
    
    
    4,140
    
    
    
    4,588Research and development (1)
    
    
    4,251
    
    
    
    5,279
    
    
    
    5,530General and administrative (1)
    
    
    4,638
    
    
    
    6,757
    
    
    
    9,189Total operating expenses
    
    
    12,173
    
    
    
    16,176
    
    
    
    19,307Income (loss) from operations
    
    
    (8,126
    )
    
    
    (1,690
    )
    
    
    5,181Other income (expense):Interest income
    
    
    31
    
    
    
    357
    
    
    
    4,442Interest expense
    
    
    (12
    )
    
    
    (26
    )
    
    
    (6
    )19
    
    
    
    331
    
    
    
    4,436Income (loss) before income taxes
    
    
    (8,107
    )
    
    
    (1,359
    )
    
    
    9,617Income tax expense (benefit)
    
    
    (3,980
    )
    
    
    (11,426
    )
    
    
    3,595Net income (loss)
    
    
    (4,127
    )
    
    
    10,067
    
    
    
    6,022Accretion of redeemable preferred stock
    
    
    (2,019
    )
    
    
    (354
    )
    
    
    Net income (loss) attributable to common stockholders
    
    $
    (6,146
    )
    
    $
    9,713
    
    
    $
    6,022Net income (loss) attributable to common stockholders per share:Basic
    
    $
    (1.83
    )
    
    $
    2.61
    
    
    $
    0.24Diluted
    
    $
    (1.83
    )
    
    $
    0.38
    
    
    $
    0.18Shares used in computing per share amounts:Basic
    
    
    3,352
    
    
    
    3,722
    
    
    
    24,781Diluted
    
    
    3,352
    
    
    
    26,816
    
    
    
    32,787Dividends per common and preferred share
    
    $
    
    
    
    $
    0.33
    
    
    $
    
 
 (1) Amounts include non-cash stock-based compensation expense as follows:Cost of services
    
    $
    
    
    
    $
    48
    
    
    $
    179Sales and marketing expense
    
    
    11
    
    
    
    322
    
    
    
    640Research and development expense
    
    
    12
    
    
    
    266
    
    
    
    411General and administrative expense
    
    
    6
    
    
    
    422
    
    
    
    1,303Total non-cash
stock-based
compensation
expense
    
    $
    29
    
    
    $
    1,058
    
    
    $
    2,533 See accompanying notes to financial statements.
 44




---



##### 



VISICU, INC.
 STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
  Additional
    
    
    Unearned
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Stock - Based
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Equity (Deficit)Balance at January 1,
2004
    
    
    
    
    
    $
    
    
    
    
    3,217
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (38,617
    )
    
    $
    (38,617
    )Non-employee stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Exercise of options for
common stock
    
    
    
    
    
    
    
    
    
    
    206
    
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    119Accretion of preferred
stock to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (148
    )
    
    
    
    
    
    
    (1,871
    )
    
    
    (2,019
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,127
    )
    
    
    (4,127
    )Balance at December
31, 2004
    
    
    
    
    
    
    
    
    
    
    3,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,615
    )
    
    
    (44,615
    )Non-employee stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321
    
    
    
    
    
    
    
    
    
    
    
    321Issuance of stock options
to employees and directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,686
    
    
    
    (5,686
    )
    
    
    
    
    
    
    Vesting of employee stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    737
    
    
    
    
    
    
    
    737Exercise of warrants for
Series B Preferred Stock
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    68Excess tax benefit upon
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Exercise of options for
common stock
    
    
    
    
    
    
    
    
    
    
    1,115
    
    
    
    
    
    
    
    464
    
    
    
    
    
    
    
    
    
    
    
    464Accretion of preferred
stock to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (351
    )
    
    
    (354
    )Dividend declared to
common and preferred
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,833
    )
    
    
    
    
    
    
    
    
    
    
    (7,833
    )Reclassification of Series
A Preferred Stock to
stockholders equity
    
    
    3,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,172
    
    
    
    
    
    
    
    
    
    
    
    5,172Reclassification of Series
B Preferred Stock to
stockholders equity
    
    
    10,966
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    20,572
    
    
    
    
    
    
    
    
    
    
    
    20,573Reclassification of Series
C Preferred Stock to
stockholders equity
    
    
    4,994
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    8,429
    
    
    
    
    
    
    
    
    
    
    
    8,430Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,067
    
    
    
    10,067Balance at December
31, 2005
    
    
    19,385
    
    
    
    2
    
    
    
    4,538
    
    
    
    
    
    
    
    32,905
    
    
    
    (4,949
    )
    
    
    (34,899
    )
    
    
    (6,941
    )Elimination of unearned
stock-based compensation
expense against additional
paid-in capital upon
adoption of SFAS No.
123(R)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,949
    )
    
    
    4,949
    
    
    
    
    
    
    
    Non-employee stock-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    76Vesting of employee stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,457
    
    
    
    
    
    
    
    
    
    
    
    2,457Vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    260Exercise of options for
common stock
    
    
    
    
    
    
    
    
    
    
    1,621
    
    
    
    
    
    
    
    883
    
    
    
    
    
    
    
    
    
    
    
    883Exercise of warrant for
common stock
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess tax benefit from
exercise of options for
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001
    
    
    
    
    
    
    
    
    
    
    
    1,001Issuance of common stock,
net of issuance costs of $9,830
    
    
    
    
    
    
    
    
    
    
    6,900
    
    
    
    1
    
    
    
    100,569
    
    
    
    
    
    
    
    
    
    
    
    100,570Conversion of preferred
stock to common stock
    
    
    (19,385
    )
    
    
    (2
    )
    
    
    19,385
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,022
    
    
    
    6,022Balance at December
31, 2006
    
    
    
    
    
    $
    
    
    
    
    32,485
    
    
    $
    3
    
    
    $
    133,202
    
    
    $
    
    
    
    $
    (28,877
    )
    
    $
    104,328
 See accompanying notes to financial statements.
 45




---



##### 



VISICU, INC.
 STATEMENTS OF CASH FLOWS
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Operating activitiesNet income (loss)
    
    $
    (4,127
    )
    
    $
    10,067
    
    
    $
    6,022Adjustments to reconcile net income (loss) to net cash provided by operating
activities:Depreciation
    
    
    479
    
    
    
    666
    
    
    
    845Amortization
    
    
    52
    
    
    
    125
    
    
    
    119Deferred income taxes
    
    
    (4,000
    )
    
    
    (11,875
    )
    
    
    1,849Non-cash stock-based compensation
    
    
    29
    
    
    
    1,058
    
    
    
    2,533Excess tax benefit from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (1,001
    )Loss on disposal of property and equipment
    
    
    58
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,933
    )
    
    
    (2,558
    )
    
    
    (2,483
    )Prepaid expenses and other current assets
    
    
    (238
    )
    
    
    (73
    )
    
    
    (1,159
    )Deferred contract costs
    
    
    (1,672
    )
    
    
    (699
    )
    
    
    61Accounts payable and accrued expenses
    
    
    502
    
    
    
    196
    
    
    
    1,061Accrued compensation and related costs
    
    
    203
    
    
    
    74
    
    
    
    103Deferred revenue
    
    
    19,862
    
    
    
    13,873
    
    
    
    1,921Net cash provided by operating activities
    
    
    7,215
    
    
    
    10,854
    
    
    
    9,871Investing activitiesPurchase of property and equipment
    
    
    (956
    )
    
    
    (1,153
    )
    
    
    (700
    )Purchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    (146,651
    )Maturities of marketable securities
    
    
    
    
    
    
    
    
    
    
    97,644Capitalized software additions
    
    
    (172
    )
    
    
    (96
    )
    
    
    (140
    )Change in other assets
    
    
    (52
    )
    
    
    47
    
    
    
    25Net cash used in investing activities
    
    
    (1,180
    )
    
    
    (1,202
    )
    
    
    (49,822
    )Financing activitiesProceeds from issuance of common stock, net of issuance costs of $9,680 in 2006
    
    
    
    
    
    
    
    
    
    
    100,720Change in other liabilities
    
    
    
    
    
    
    (3
    )
    
    
    Payment of financing costs for initial public offering
    
    
    
    
    
    
    (150
    )
    
    
    Repayment of obligations under capital lease
    
    
    (8
    )
    
    
    (24
    )
    
    
    (24
    )Exercise of options to purchase common stock
    
    
    119
    
    
    
    964
    
    
    
    1,063Exercise of warrants to purchase preferred stock
    
    
    
    
    
    
    68
    
    
    
    Excess tax benefit from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,001Dividend paid
    
    
    
    
    
    
    (7,767
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    111
    
    
    
    (6,912
    )
    
    
    102,760Net increase in cash and cash equivalents
    
    
    6,146
    
    
    
    2,740
    
    
    
    62,809Cash and cash equivalents at beginning of year
    
    
    2,493
    
    
    
    8,639
    
    
    
    11,379Cash and cash equivalents at end of year
    
    $
    8,639
    
    
    $
    11,379
    
    
    $
    74,188Supplemental cash flow information:Interest paid
    
    $
    2
    
    
    $
    4
    
    
    $
    5Income taxes paid
    
    $
    20
    
    
    $
    302
    
    
    $
    1,046Unpaid financing costs related to initial public offering
    
    $
    
    
    
    $
    765
    
    
    $
    
 See accompanying notes to financial statements.
 46




---



##### 



VISICU, INC.
 NOTES TO FINANCIAL STATEMENTS
December 31, 2006
 1.
    
    Organization and Summary of Significant Accounting Policies
 Organization and Description of Business
 ®
 Use of Estimates
  Cash, Cash Equivalents and Marketable Securities
   Fair Value of Financial Instruments
  Revenue Recognition and Direct Costs
     47




---



##### 



Accounts Receivable
    Property and Equipment
  Other Assets
   Advertising Costs
  Income Taxes
  Share-Based Payments
    48




---



##### 



Segment Data
  Recent Accounting Pronouncements
   2.
    
    Stock-Based Compensation
 Description and Terms of the Plan
   Summary of Stock-Based Compensation Expense and Pro Forma Stock-Based Compensation Expense
   49




---



##### 



Fair-Value of Common Stock
 Volatility
 Risk-Free Interest Rate
 Dividend Yield
 Expected Life of Stock-based Awards
  Year ended December 31,2004
    
    2005
    
    2006Risk-free interest rate
    
    2.8%-3.2%
    
    3.5 %-4.1%
    
    4.4%-5.0%Expected life (in years)
    
    4
    
    4
    
    4Volatility
    
    N/A
    
    N/A
    
    64%Dividend yield
    
    0%
    
    0%
    
    0%
   December 31,2004
    
    
    2005Net income (loss) attributable to common stockholders, as reported
    
    $
    (6,146
    )
    
    $
    9,713Add: Stock-based compensation expense included in the determination of
net income (loss), net of income taxes
    
    
    29
    
    
    
    726Deduct: Pro forma stock-based compensation expense, net of income taxes
    
    
    158
    
    
    
    872Pro forma net income (loss) attributable to common stockholders
    
    $
    (6,275
    )
    
    $
    9,567Net income (loss) attributable to common stockholders per share:Basic  as reported
    
    $
    (1.83
    )
    
    $
    2.61Basic  pro forma
    
    $
    (1.87
    )
    
    $
    2.57Diluted  as reported
    
    $
    (1.83
    )
    
    $
    0.38Diluted  pro forma
    
    $
    (1.87
    )
    
    $
    0.37
  50




---



##### 



Summary of 2006 Stock Option Activity
  Weighted-AverageWeighted-
    
    Remaining
    
    AggregateNumber of
    
    Average
    
    Contractual
    
    IntrinsicOptions
    
    Exercise
    
    Term
    
    Value(in thousands)
    
    Price
    
    (in years)
    
    (in thousands)Options outstanding at January 1, 2006
    
    
    4,463
    
    
    $
    0.84Options granted
    
    
    628
    
    
    
    8.22Options exercised
    
    
    (1,621
    )
    
    
    0.66
    
    
    
    
    
    
    $
    6,564Options forfeited
    
    
    (32
    )
    
    
    3.12Options outstanding at December 31, 2006
    
    
    3,438
    
    
    $
    2.25
    
    
    
    7.03
    
    
    $
    31,381Vested and expected to vest at December 31, 2006
    
    
    3,300
    
    
    $
    2.25
    
    
    
    7.03
    
    
    $
    30,125Exercisable at December 31, 2006
    
    
    1,985
    
    
    $
    0.99
    
    
    
    5.91
    
    
    $
    20,324
  Restricted Common Stock
    Weighted-AverageNumber of shares
    
    Grant(in thousands)
    
    Date Fair ValueRestricted stock at January 1, 2006
    
    
    250
    
    
    $
    5.00Granted
    
    
    100
    
    
    $
    4.87Vested
    
    
    (139
    )
    
    $
    4.61Restricted stock at December 31, 2006
    
    
    211
    
    
    $
    5.19
 Summary of Unrecognized Stock-Based Compensation
  51




---



##### 



3.
    
    Net Income (Loss) Attributable to Common Stockholders Per Share
  Year ended December 31,2004
    
    2005
    
    2006NumeratorBasic:Income (loss) attributable to common stockholders
    
    $
    (6,146
    )
    
    $
    9,713
    
    
    $
    6,022Diluted:Income (loss) attributable to common stockholders
    
    $
    (6,146
    )
    
    $
    9,713
    
    
    $
    6,022Accretion of redeemable preferred stock
    
    
    
    
    
    
    354
    
    
    
    Total
    
    $
    (6,146
    )
    
    $
    10,067
    
    
    $
    6,022DenominatorBasic:Weighted-average shares outstanding
    
    
    3,352
    
    
    
    3,722
    
    
    
    24,781Diluted:Weighted-average shares outstanding
    
    
    3,352
    
    
    
    3,722
    
    
    
    24,781Dilutive effect of:Stock options
    
    
    
    
    
    
    3,747
    
    
    
    2,632Assumed conversion of preferred stock
    
    
    
    
    
    
    19,346
    
    
    
    5,374Total
    
    
    3,352
    
    
    
    26,816
    
    
    
    32,787Net income (loss) attributable to common
stockholders per shareBasic
    
    $
    (1.83
    )
    
    $
    2.61
    
    
    $
    0.24Diluted
    
    $
    (1.83
    )
    
    $
    0.38
    
    
    $
    0.18
   4.
    
    Preferred Stock
   5.
    
    Common Shares Reserved for Future Issuance
  Exercise of outstanding stock options
    
    
    3,438Available
for future awards of stock options and other stock-based compensation
    
    
    7474,185
  52




---



##### 



6.
    
    Operating Leases
  2007
    
    $
    3392008
    
    
    3302009
    
    
    3172010
    
    
    202Total
    
    $
    1,188
   7.
    
    Income Taxes
  December 31,2004
    
    
    2005
    
    
    2006Current:Federal
    
    $
    
    
    
    $
    199
    
    
    $
    470State
    
    
    20
    
    
    
    245
    
    
    
    67520
    
    
    
    444
    
    
    
    1,145Deferred:Federal
    
    
    (3,625
    )
    
    
    (10,259
    )
    
    
    2,254State
    
    
    (375
    )
    
    
    (1,611
    )
    
    
    196$
    (4,000
    )
    
    $
    (11,870
    )
    
    $
    2,450Total income tax expense (benefit)
    
    $
    (3,980
    )
    
    $
    (11,426
    )
    
    $
    3,595
  December 31,2005
    
    
    2006Deferred tax assets:Operating loss carryforwards
    
    $
    5,368
    
    
    $
    873Alternative minimum tax credit carryforward
    
    
    198
    
    
    
    204Research and development credits
    
    
    
    
    
    
    1,223Stock-based compensation
    
    
    140
    
    
    
    444Accrued expenses
    
    
    158
    
    
    
    175Deferred revenue
    
    
    11,987
    
    
    
    13,112Other deductible temporary differences
    
    
    18
    
    
    
    Total deferred tax assets
    
    
    17,869
    
    
    
    16,031Deferred tax liabilities:Capitalized software
    
    
    (62
    )
    
    
    (70
    )Prepaid expenses and other assets
    
    
    (98
    )
    
    
    (136
    )Deferred contract costs
    
    
    (1,805
    )
    
    
    (1,770
    )Net future income tax benefit
    
    
    (1,965
    )
    
    
    (1,976
    )Net deferred tax asset
    
    $
    15,904
    
    
    $
    14,055
 53




---



##### 



Year Ended December 31,2004
    
    
    2005
    
    
    2006Income tax expense (benefit) at statutory rate
    
    $
    (2,756
    )
    
    $
    (462
    )
    
    $
    3,418Effect of non-deductible stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    465Effect of other permanent differences
    
    
    
    
    
    
    313
    
    
    
    58State income tax expense (benefit), net of federal
tax effect
    
    
    (375
    )
    
    
    119
    
    
    
    635Tax benefit resulting from change in estimated
enacted tax rates
    
    
    
    
    
    
    (63
    )
    
    
    (196
    )Increase (decrease) in valuation allowance
    
    
    (965
    )
    
    
    (11,352
    )
    
    
    Amended return benefit for research and
development credits, net of reduction in net
operating loss carryforwards
    
    
    
    
    
    
    
    
    
    
    (1,001
    )Current year research and development credit
    
    
    
    
    
    
    
    
    
    
    (277
    )Unrecognized tax benefits
    
    
    
    
    
    
    
    
    
    
    412Other
    
    
    116
    
    
    
    19
    
    
    
    81Income tax expense (benefit)
    
    $
    (3,980
    )
    
    $
    (11,426
    )
    
    $
    3,595
      8.
    
    Dividends
  9.
    
    Concentrations of Credit Risk and Customer Concentrations
   54




---



##### 



Year Ended December 31,2004
    
    2005
    
    2006Customer A
    
    
    23
    %
    
    
    *
    
    
    
    *Customer B
    
    
    23
    %
    
    
    12
    %
    
    
    *Customer C
    
    
    20
    %
    
    
    13
    %
    
    
    *Customer D
    
    
    10
    %
    
    
    *
    
    
    
    *
 
 *
    
    Represents less than 10%.
 10.
    
    Defined Contribution Plan
  11.
    
    Contingencies
  55




---



##### 



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures
    
 Item 9B. Other Information
  56




---



##### 



Part III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  57




---



##### 



Part IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    1. The following financial statements of Visicu, Inc. are filed as part of this Annual
Report under Item Item 8. Financial Statements and Supplementary Data:
 Report of Independent Registered Public Accounting Firm
    
    42Balance Sheets as of December 31, 2005 and 2006
    
    43Statements of Operations for each of the three years in the period ended December 31, 2006
    
    44Statements of Stockholders Equity (Deficit) for each of the three years in the period
ended December 31, 2006
    
    45Statements of Cash Flows for each of the three years in the period ended December 31, 2006
    
    46Notes to Financial Statements
    
    47
 (a)
    
    2. Financial statement schedules have been omitted because the information required to
be set forth therein is not applicable.(a)
    
    3. The following exhibits are filed herewith or are incorporated by reference to exhibits
previously filed with the SEC:
 ExhibitNo.
    
    Exhibit Title3.1
    *
    
    Fourth Amended and Restated Certificate of Incorporation of the Company3.2
    *
    
    Amended and Restated Bylaws of the Company4.1
    *
    
    Specimen Common Stock Certificate10.1
    *
    
    Visicu, Inc. Equity Incentive Plan10.2

**
    
    Form of Incentive Stock Option Agreement under the Visicu, Inc. Equity Incentive Plan10.3

**
    
    Form of Nonstatutory Stock Option Grant Agreement under the Visicu, Inc. Equity Incentive Plan10.4

**
    
    Employment Agreement between Visicu, Inc. and Frank T. Sample dated as of September 17, 2001, as
amended on April 15, 200410.5

**
    
    Form of Indemnification Agreement for directors and Section 16 executive officers10.6

**
    
    Lease between Redwood Tower Limited Partnership and Visicu, Inc. dated as of June 22, 200410.7

**
    
    Warrant dated July 17, 2003 to Comerica Bank to purchase 43,796 shares of Series C Preferred Stock10.8

**
    
    Offer Letter to Vincent E. Estrada, dated as of August 8, 200510.9

**
    
    Management Severance Plan10.10

***
    
    Assignment Pursuant to 37 CFR §3.56, dated April 14, 2000, executed by Brian A. Rosenfeld, M.D.
and Michael Breslow23.1
    
    
    Consent of Ernst & Young LLP31.1
    
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act31.2
    
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32.1
    
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 135032.2
    
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
 
 *
    
    Incorporated herein by reference to the Registration Statement on
Form S-1/A, File No. 333-129989, filed on March 13, 2006.**
    
    Incorporated herein by reference to the Registration Statement on
Form S-1, File No. 333-129989, filed on November 29, 2005.***
    
    Incorporated herein by reference to the Registration Statement on
Form S-1/A, File No. 333-129989, filed on January 19, 2006.
    
    Indicates a management
contract or any compensatory plan, contract or arrangement. 58




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##### 



SIGNATURES
  VISICU, INC.Date: March 13, 2007
    
    By:
    
    /s/ Frank T. SampleFrank T. SamplePresident, Chief Executive Officer andChairman of the Board of DirectorsDate: March 13, 2007
    
    By:
    
    /s/ Vincent E. EstradaVincent E. EstradaSenior Vice President andChief Financial Officer
  /s/ Frank T. Sample
    
    President, Chief Executive Officer and Chairman of the Board(principal
executive officer)/s/ Vincent E. Estrada
    
    Executive Vice President and Chief Financial Officer(principal
accounting and financial officer)/s/ Michael J. Breslow, M.D.
    
    Executive Vice President, Clinical Research and Development and Director/s/ Stuart H. Altman
    
    Director/s/ Michael G. Bronfein
    
    Director/s/ John K. Clarke
    
    Director/s/ Frances M. Keenan
    
    Director/s/ James A. Oakey
    
    Director/s/ Thomas G. McKinley
    
    Director/s/ Ralph C. Sabin
    
    Director
 59