<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
------------------
or
[ ] 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 0-27212
ENDOCARE, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0618093
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7 STUDEBAKER, IRVINE, CALIFORNIA 92618
--------------------------------------- ----------------------
(Address of principal executive office) (Zip Code)
(714) 595-4770
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
18 Technology Drive, Suite 134, Irvine, California 92618
- --------------------------------------------------------------------------------
(Former Address)
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 [ ]
The number of shares of the Registrant's Common Stock, par value $.001 per
share, outstanding on November 13, 1997 was 8,270,437.
<PAGE> 2
ENDOCARE, INC.
FORM 10-Q
Quarter Ended September 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I. Financial Information
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations for the fiscal quarters
and nine months ended September 30, 1997 and 1996 3
Condensed Balance Sheets at September 30, 1997
and December 31, 1996 4
Condensed Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk None
Part II. Other Information
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signature Page 12
</TABLE>
2
<PAGE> 3
ENDOCARE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 535,110 $ 499,073 $ 1,423,111 $ 1,287,914
Collaborative agreements 20,832 -- 62,496 1,600
----------- ----------- ----------- -----------
Total revenues 555,942 499,073 1,485,607 1,289,514
Costs and expenses:
Cost of sales 349,525 233,542 930,568 709,706
Research and development 459,833 323,161 1,173,622 686,816
Selling, general and
administrative 834,759 309,432 2,263,470 907,317
Impairment loss on long-lived
assets -- -- -- 324,878
----------- ----------- ----------- -----------
Total costs and expenses 1,644,117 866,135 4,367,660 2,628,717
----------- ----------- ----------- -----------
Loss before income taxes (1,088,175) (367,062) (2,882,053) (1,339,203)
Provision for income taxes 2,000 -- 7,400 --
----------- ----------- ----------- -----------
Net loss $(1,090,175) $ (367,062) $(2,889,453) $(1,339,203)
=========== =========== =========== ===========
Net loss per share of common stock $ (.13) $ (.07) $ (.36) $ (.24)
=========== =========== =========== ===========
Weighted average shares and common
stock equivalents outstanding 8,244,000 5,638,943 7,960,000 5,633,068
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ENDOCARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,890,559 $ 476,854
Accounts receivable, net 254,782 587,945
Inventories 955,544 396,725
Prepaid expenses and other current assets 95,648 41,398
----------- -----------
Total current assets 6,196,533 1,502,922
Property and equipment, net 284,915 178,788
Other assets 17,677 69,191
----------- -----------
Total assets $ 6,499,125 $ 1,750,901
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 943,091 $ 668,761
Accrued liabilities 466,287 196,589
Deferred revenues 83,333 118,333
----------- -----------
Total current liabilities 1,492,711 983,683
Deferred revenue 104,171 166,667
Convertible note payable -- 750,000
Shareholders' equity (deficiency):
Common stock, $.001 par value 8,260 5,645
Additional paid-in capital 9,314,884 1,376,354
Accumulated deficit (4,420,901) (1,531,448)
----------- -----------
Total shareholders' equity (deficiency) 4,902,243 (149,449)
----------- -----------
Total liabilities and equity (deficiency) $ 6,499,125 $ 1,750,901
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
Endocare, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,889,453) $(1,339,203)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 82,148 25,385
Amortization of warrant value 58,474 --
Impairment loss on long-lived assets -- 324,878
Changes in operating assets and liabilities:
Accounts receivable 333,163 (72,628)
Inventories (558,819) (59,623)
Accounts payable 274,330 429,186
Accrued liabilities 269,698 113,176
Other (29,472) (53,025)
----------- -----------
Net cash used in operating activities (2,459,931) (631,854)
Cash flows from investing activities:
Purchases of property and equipment (188,275) (24,991)
Proceeds from sale of property and equipment -- 27,374
----------- -----------
Net cash provided (used) in investing (188,275) 2,383
activities
Cash flows from financing activities:
Borrowing on convertible note -- 750,000
Issuance of common stock, Medstone Distribution -- 500,000
Issuance of common stock, other 7,061,911 65,365
----------- -----------
Net cash provided by financing activities 7,061,911 1,315,365
----------- -----------
Net increase in cash and cash equivalents 4,413,705 685,894
Cash and cash equivalents, beginning of period 476,854 1,941
----------- -----------
Cash and cash equivalents, end of period $ 4,890,559 $ 687,835
=========== ===========
Non-Cash Transactions:
Conversion of note payable to common stock $ 850,250 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ENDOCARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Operations of the Company
ENDOcare, Inc. (the "Company" or "ENDOcare") designs, manufactures, and
markets medical devices to treat prostate diseases worldwide.
Since its formation in 1990, ENDOcare operated first as a research and
development department, then later as a division of Medstone International,
Inc. ("Medstone"). Effective January 1, 1996, ENDOcare became a totally
independent, publicly-owned corporation. At the beginning of 1996, ENDOcare
issued 5,616,528 shares of ENDOcare common stock to Medstone in exchange for
$500,000 cash and the accounts receivable, inventory, and other net assets
of the ENDOcare Division. On February 6, 1996, Medstone distributed to
existing Medstone shareholders a stock dividend of one share of ENDOcare
common stock for each share of Medstone common stock outstanding on December
29, 1995.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared by
ENDOcare in accordance with Securities and Exchange Commission rules and
regulations. In the opinion of Company management, the unaudited financial
statements include all entries and adjustments necessary for a fair
presentation.
During its third quarter of 1996, the Company recognized a sale relating to
the shipment of product to an international distributor. The total revenue
recognized on this sale approximated $140,000. Due to the lack of payment by
the customer, the Company provided an allowance for doubtful accounts for a
substantial portion of the sale in the fourth quarter of 1996. However, the
Company became aware that the product had been shipped from the Company's
warehouse in error. As a result, the Company previously restated the results
of operations for the third quarter of 1996. Though revenues, cost of
product sales and selling, general and administrative expenses for the year
ended December 31, 1996 were restated, there was no net change to the net
loss for the year ended December 31, 1996. In addition, the above
restatement was reflected in the Company's balance sheet at December 31,
1996, primarily as a reduction of net accounts receivable and certain
current liabilities and an increase in inventories. The accompanying balance
sheet at December 31, 1996 and statements of operations for the three and
nine months ended September 30, 1996 reflect the impact of the
above-mentioned restatement.
These financial statements should be read in conjunction with the audited
financial statements and other information included in the Company's Form
10-KA Amendment No. 3 for the year ended December 31, 1996. Financial
results for this interim period are not necessarily indicative of results to
be expected for the full year 1997.
3. 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 at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
4. Supplemental Financial Statement Data
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Inventories:
Raw materials $642,387 $213,154
Work in process 62,428 86,130
Finished goods 250,729 97,441
-------- --------
Total inventories $955,544 $396,725
======== ========
</TABLE>
6
<PAGE> 7
5. Net Loss Per Share
Net loss per share is computed using the weighted average number of actual
shares of common stock outstanding for the periods presented. Fully diluted
earnings per share amounts are not presented because they approximate
primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No.
128). This statement is effective for both interim and annual periods ending
after December 31, 1997, and replaces the presentation of "primary" earnings
per share with "basic" earnings per share and the presentation of "fully
diluted" earnings per share with "diluted" earnings per share. Earlier
application is not permitted. When adopted, all previously reporting
earnings per common share amounts must be restated based on the provision of
SFAS No. 128. Management does not expect that the adoption of SFAS No. 128
will have a material effect on the loss per share amounts of the Company
previously reported.
6. Convertible Loan Payable
On August 26, 1996, ENDOcare obtained a two-year $1,500,000 borrowing
facility from four partnerships (the "Partnerships") managed by Technology
Funding Inc., a venture capital firm. In connection with entering into this
loan, ENDOcare issued to the four Partnerships 10,000 shares of common stock
as an origination fee and warrants to purchase an aggregate of up to 150,000
shares of ENDOcare common stock. The warrants are exercisable at any time
between August 26, 1996 and August 26, 2001, at an exercise price of $3.00
per share, subject to adjustment. At December 31, 1996, $750,000 was
outstanding under this loan, accruing interest at a rate of 16% per year.
On January 27, 1997, the Partnerships converted their $750,000 principal
amount and accrued interest into 320,000 shares of ENDOcare common stock at
the conversion rate of $2.50 per share. Also, 12,000 additional shares of
common stock were issued to the Partnerships as an inducement to convert at
that time. At ENDOcare's election, the remaining $750,000 borrowing facility
was cancelled on that same date.
7. Private Placement of Common Stock
On January 27, 1997, ENDOcare sold 2,218,714 shares of common stock at a
price of $3.50 per share in a private placement, with Oppenheimer & Co.,
Inc. ("Oppenheimer") acting as placement agent. After expenses, the net
contribution to the Company's capital was approximately $7,050,000. Expenses
deducted from the proceeds include a commission to Oppenheimer of $543,585
and legal, accounting, and other professional expenses of approximately
$160,000. In addition, Oppenheimer received a warrant to purchase 177,497
shares of ENDOcare common stock for a period of five years at a price of
$4.20 per share. The warrants are exercisable at any time between January
27, 1998 and January 27, 2002.
7
<PAGE> 8
ITEM 2.
ENDOCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited financial
statements and notes thereto included in Part I--Item 1, the audited financial
statements, and notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Annual Report on
Form 10-KA Amendment No. 3 for the fiscal year ended December 31, 1996.
General
ENDOcare designs, manufactures, and markets medical devices to treat diseases of
the prostate, including prostate cancer and prostate enlargement. ENDOcare began
marketing disposable surgical devices in 1993 with the introduction of the
Prolase laser catheter. In late 1995, ENDOcare began marketing two new
disposable product families, the Uroloop and Vaporbar electrosurgical cutting
elements, sales of which became the more significant portion of revenue in early
1996. In May 1996, the Company introduced its new CRYOcare cryosurgical system
for the treatment of prostate cancer. In November 1996, ENDOcare signed a
distribution agreement with Boston Scientific Corporation granting that company
exclusive world-wide marketing rights for CRYOcare systems for urological
applications.
ENDOcare currently is developing additional, innovative therapies for prostate
enlargement. The Company does not expect to be profitable in the immediate
future because of increased operating expenses from expanded research and
development efforts and support of clinical trials for products currently under
development.
Since its formation in 1990, ENDOcare operated first as a research and
development department, then later as a division of Medstone International, Inc.
Effective January 1, 1996, ENDOcare was spun out and began operating as an
independent corporation.
Results of Operations
Product revenue for the three months ended September 30, 1997 increased 7% to
$535,000 compared to $499,000 in 1996. This increase resulted primarily from the
quarter to quarter increase in cryoprobe sales offset by a decline in sales of
surgical disposable products.
Product revenue for the nine months ended September 30, 1997 increased 11% to
$1,423,000 compared to $1,288,000 in 1996. The increase was due to the first
sales of CRYOcare systems to Boston Scientific Corporation in the first quarter
of 1997 partially offset by the decline in surgical disposable product revenue
describe above.
Revenue from collaborative agreements for the three months ended September 30,
1997 increased to $21,000 from zero in 1996. The 1997 amount represented the
third quarter amortization of a lump-sum payment from Boston Scientific
Corporation based upon the distribution agreement entered into in November 1996.
Revenue from collaborative agreements for the nine months ended September 30,
1997 increased to $62,000 compared to $1,600 in 1996. The increase was due to
three quarters amortization of the Boston Scientific Corporation lump sum
payment as described above. The 1996 amount represented engineering services
provided by ENDOcare to its former parent, Medstone International, none of which
is continuing in 1997.
Gross margins on product sales were 35% for the three months ended September 30,
1997, compared to 53% in 1996. The decline in gross margins resulted primarily
from the additional infrastructure and personnel costs associated with the
company's new manufacturing facility in Irvine, California. ENDOcare currently
manufactures all of its products at its new facility.
Gross margins on product sales for the nine months ended September 30, 1997 were
35% compared to 40% in the same period of 1996. The decline is attributable to
product mix, current period discounted sales to Boston Scientific Corporation
for demonstration purposes under the distribution agreement and additional costs
associated with the Company's new manufacturing facility as described above.
8
<PAGE> 9
Research and development expense increased 42% to $460,000 for the three months
ended September 30, 1997 compared to $323,000 for the corresponding period in
1996. The increase reflects the continuing investment the Company is making in
the form of additional personnel and related infrastructure to support the
Horizon Stent, CRYOcare and general product improvement development efforts.
Research and development expense for the nine months ended September 30, 1997
increased 71% to $1,174,000 compared to $687,000 for the same period in 1996.
The increase is attributable to the reasons described above.
Selling, general and administrative expense increased 170% to $835,000 for the
three months ended September 30, 1997 compared to $309,000 for the same period
in 1996. The 1997 amount included costs for additional sales, marketing and
administrative personnel, increased costs associated with ENDOcare's larger
corporate facility, and increased professional fees associated with legal
matters and SEC filings.
Selling, general and administrative expense for the nine months ended September
30, 1997 increased 150% to $2,263,000 compared to $907,000 for the same period
in 1996. In addition to the reasons described above, selling, general and
administrative expense increased for the nine months ended September 30, 1997 as
compared to the same period in 1996 due to first quarter 1997 professional
expenses and costs associated with the offering and sale of common stock in the
private placement, the annual meeting of stockholders, and the related reports
required of public companies. Additionally, 1997 expenses reflect one time
non-cash interest and warrant charges of $79,000 resulting from the conversion
of notes from the four partnerships managed by Technology Funding Inc. into
common stock offset by interest income of $193,000 earned on the proceeds from
the private placement. The reserve for bad debt for the nine months ended
September 30, 1997 was $172,000 compared to $16,000 for the corresponding period
in 1996. This increase generally resulted from the change in product mix of
sales from inexpensive disposable products in 1996 to costly capital equipment
sales of CRYOcare systems in 1997.
ENDOcare's net loss for quarter ended September 30, 1997 was $1,090,000, or 13
cents per share on 8,244,000 weighted average shares outstanding compared to a
net loss of $367,000 or 7 cents per share on 5,639,000 weighted average shares
outstanding for the same period in 1996. Net loss for the nine months ended
September 30, 1997 was $2,889,000 or 36 cents per share on 7,960,000 weighted
average shares outstanding compared to a net loss of $1,339,000, or 24 cents per
share on 5,633,000 weighted average shares outstanding for the same period in
1996. The increase in net loss for the 1997 periods presented resulted from
lower product gross margins, higher selling, general and administrative costs,
and higher research and development expenses.
Liquidity and Capital Resources
At September 30, 1997, ENDOcare's cash and cash equivalent balance was
$4,891,000, compared to $477,000 at December 31, 1996. Outstanding debt at
September 30, 1997 was zero, compared to $750,000 at December 31, 1996. This
improvement in liquidity and capital resources resulted from two financing
transactions consummated on January 27, 1997.
In January 1997, ENDOcare sold 2,218,714 shares of common stock at a price of
$3.50 per share in a private placement, with Oppenheimer & Co. Inc. acting as
placement agent. After deducting commissions and other expenses of the sale,
this offering added approximately $7,050,000 to ENDOcare's capital base.
Also in January 1997, the four partnerships managed by Technology Funding Inc.
converted the outstanding principal amount of their $750,000 promissory notes
and $50,000 of accrued interest into common stock at the conversion rate of
$2.50 per share. To induce conversion at that time, ENDOcare issued to the
partnerships an additional 12,000 shares of stock, with a fair market value on
that date of approximately $50,000.
Additional working capital has been used as ENDOcare's operations have increased
in 1997. Net accounts receivable decreased to $255,000 at September 30, 1997,
compared to $588,000 at December 31, 1996. Inventory increased to $956,000 at
September 30, 1997, compared to $397,000 at the beginning of the year. Additions
to property and equipment during the first nine months of 1997 were
approximately $188,000. Accounts payable increased to $943,000 from $669,000 at
December 31, 1996.
At September 30, 1997 ENDOcare's net working capital was $4,704,000 and the
ratio of current assets to current liabilities was 4 to 1.
9
<PAGE> 10
The Company believes that its existing cash resources and anticipated cash flow
from future operations, including new product licensing fees, will provide
sufficient resources to meet present and reasonably foreseeable working capital
requirements and other cash needs through the end of 1998. Insofar as the
Company elects not to enter into product licensing arrangements and/or elects
to undertake or accelerate significant research and development projects for new
products or pursue corporate acquisitions, it may require additional outside
financing prior to such time.
The preceding forward-looking statements are subject to uncertainties in
economic conditions, regulatory issues, and other risk factors. Such factors may
cause actual future results to differ significantly from management's current
expectations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 27, 1996, Cryomedical Sciences, Inc. ("CMS") filed a
complaint in the Circuit Court for Montgomery County, Maryland against
the Company and Dr. Chang, the Company's Vice President of Research and
Development and former employee of CMS. The suit alleges that Dr. Chang
breached his employment contract with CMS, that the Company tortiously
interfered with the employment contract and the prospective business
relations of CMS, misappropriated trade secrets and confidential
information, competed unfairly with and conspired against CMS. CMS is
seeking injunctive relief and damages of at least $10,000,000 and
punitive damages of $20,000,000. On September 23, 1997, the court
granted Dr. Chang's motion (which the Company joined) to modify an
earlier injunction prohibiting Dr. Chang from performing services for
the Company, based on the language contained in an employment agreement
between Dr. Chang and CMS that ostensibly prohibits Dr. Chang from
working for a CMS competitor. Under the modification obtained by Dr.
Chang and the Company, Dr. Chang is entitled to provide consulting
services to the Company in the area of stent technology, subject to
certain restrictions and to periodic review of Dr. Chang's activities
by a neutral third party. The Company is subject to the terms of this
modified injunction, insofar as necessary to enforce the restrictions
on Dr. Chang's activities. No other injunctive or other relief has been
granted to CMS. On October 17, 1997, the Company filed a comprehensive
motion for summary judgment seeking dismissal of all claims against it
brought by CMS, on a variety of legal and undisputed factual grounds.
Shortly thereafter, on November 4, 1997, the parties filed a request
that the court stay all proceedings pending efforts to resolve the case
through mediation. The Company continues to deny all allegations of
wrongdoing in the complaint and intends to defend the litigation
vigorously. However, the costs of defending the lawsuit could be
material, and there can be no assurance that damages, which could have
a material adverse effect on the Company, will not be assessed. The
Company is not a party to any other legal proceedings.
Item 2. Changes in Securities
Stock Options
During the period from July 1, 1997 through September 30, 1997, the
Company granted stock options to 10 individuals covering an aggregate
of 222,500 shares of its common stock. All such options were granted at
fair market value, vest over a four year period, and are exercisable
over a ten year period. In addition, pursuant to the Company's 1995
Directors' Option Plan (a formula plan), options covering an aggregate
of 20,000 shares of common stock were granted to two non-employee
directors. These directors options were granted at fair market value,
vest over a one year period, and are exercisable over a ten year
period. No consideration was paid for any of such options. Such grants
were exempt from the registration requirement of the Securities Act as
not involving the sale of a security.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
10
<PAGE> 11
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 -- Calculation of Earnings Per Share
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K -- None
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENDOCARE, INC.
Date: November 13, 1997 By: /s/ PAUL W. MIKUS
----------------------------
Paul W. Mikus
Chief Executive Officer
and President
(Duly Authorized Officer)
By: /s/ WILLIAM R. HUGHES
--------------------------------
William R. Hughes
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
11 Calculation of Earnings Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
ENDOCARE, INC.
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1997
------------- -------------
<S> <C> <C>
Net loss $1,090,175 $2,889,453
========== ==========
Weighted average number of common
shares outstanding during the period 8,244,000 7,960,000
========== ==========
Primary net loss per share $ (.13) $ (.36)
========== ==========
Fully diluted net loss per share $ (.13) $ (.36)
========== ==========
</TABLE>
The effect of potential exercise of common stock options and warrants is not
included in these calculations because such effect would be anti-dilutive.
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,890,559
<SECURITIES> 0
<RECEIVABLES> 499,217
<ALLOWANCES> 244,435
<INVENTORY> 955,544
<CURRENT-ASSETS> 6,196,533
<PP&E> 636,067
<DEPRECIATION> 351,152
<TOTAL-ASSETS> 6,499,125
<CURRENT-LIABILITIES> 1,492,711
<BONDS> 0
0
0
<COMMON> 8,260
<OTHER-SE> 9,314,884
<TOTAL-LIABILITY-AND-EQUITY> 6,499,125
<SALES> 1,423,111
<TOTAL-REVENUES> 1,485,607
<CGS> 930,568
<TOTAL-COSTS> 930,568
<OTHER-EXPENSES> 3,437,092
<LOSS-PROVISION> 171,796
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,882,053)
<INCOME-TAX> 7,400
<INCOME-CONTINUING> (2,889,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,889,453)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
