<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number: 0-28078
FemRx, Inc.
(Exact name of registrant as specified in its charter)
Delaware 77-0389440
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1221 Innsbruck Drive
Sunnyvale, CA 94089
(Address of principal executive office)
(408) 752-8580
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
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. [ X ] Yes [ ] No
The number of outstanding shares of the registrant's Common Stock, $.001 par
value, was 8,930,104 as of August 2, 1998.
1
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FemRx, Inc.
<TABLE>
<CAPTION>
Index
PAGE
<S> <C>
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Balance Sheets - June 30, 1998 and
December 31, 1997 3
Condensed Statements of Operations - Three months
ended June 30, 1998 and 1997, and the six months
ended June 30, 1998 and 1997 4
Condensed Statements of Cash Flows - Six months
ended June 30, 1998 and 1997 5
Notes to Condensed 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 12
Part II: Other Information 13
Signature 14
Index to Exhibits 15
</TABLE>
2
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
FemRx, Inc.
Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Assets
June 30, December 31,
1998 1997
-------------- ----------------
(unaudited) (see note below)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,232 $ 3,091
Short term investments 1,250 5,300
Accounts receivable, net 567 693
Inventories 557 637
Prepaid and other current assets 250 173
--------------- ----------------
Total current assets 3,856 9,894
Property and equipment, net 938 1,139
Deposits and other assets 562 240
--------------- ----------------
Total assets $ 5,356 $ 11,273
=============== ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 1,214 $ 1,822
Deferred revenue 403 579
Current portion of capital
lease obligations 166 163
-------------- ----------------
Total current liabilities 1,783 2,564
Noncurrent portion of capital lease
obligations 70 142
Stockholders' equity:
Common stock 33,385 33,339
Deferred compensation (255) (369)
Accumulated deficit (29,627) (24,403)
--------------- ----------------
Total stockholders' equity 3,503 8,567
--------------- ----------------
Total liabilities and
stockholders' equity $ 5,356 $ 11,273
=============== ================
</TABLE>
Note:The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed financial statements
3
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FemRx, Inc.
Condensed Statements of Operations
(In thousands, except net loss per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales $ 633 $ 403 $ 1,206 $ 483
Costs and expenses:
Cost of goods sold 746 796 1,842 1,370
Research and development 627 872 1,694 1,578
Selling, general and administrative 1,020 1,808 3,011 3,362
-------- -------- -------- -------
Total costs and expenses 2,393 3,476 6,547 6,310
-------- -------- -------- -------
Loss from operations (1,760) (3,073) (5,341) (5,827)
Interest income 44 218 135 472
Interest expense (8) (11) (18) (24)
-------- -------- -------- -------
Net loss $(1,724) $(2,866) $(5,224) $5,379)
======== ======== ======== =======
Basic and diluted net loss per share $ (0.20) $ (0.34) $ (0.60) $(0.64)
======== ======== ======== =======
Shares used in computing basic and
diluted net loss per share 8,760 8,411 8,707 8,364
======== ======== ======== =======
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
FemRx, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1998 1997
----------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (5,224) $ (5,379)
Adjustments to reconcile net loss to net cash
used by operatingactivities:
Depreciation and amortization 419 497
Net loss on disposal of fixed assets 38 ---
Changes in assets and liabilities:
Accounts receivable 126 (236)
Inventories 80 6
Prepaids and other (77) (10)
assets
Accounts payable and accrued liabilities (607) 70
Deferred revenue (176) 201
----------- ---------
Net cash used in operating activities (5,421) (4,851)
Cash flows from investing activities:
Purchases of securities available-for-sale (13,255) (22,982)
Proceeds from sale of securities available-for-sale 17,305 27,419
Capital expenditures (152) (469)
Net change in other assets (322) (203)
----------- ---------
Net cash provided by investing activities 3,576 3,765
Cash flows from financing activities:
Capital lease payments (69) (50)
Net proceeds from issuance of stock 55 68
----------- ---------
Net cash used in financing activities (14) 18
----------- ---------
Net decrease in cash and cash equivalents (1,859) (1,068)
Cash and cash equivalents at beginning of period 3,091 2,250
----------- ---------
Cash and cash equivalents at end of period $ 1,232 $ 1,182
=========== =========
</TABLE>
See accompanying notes to condensed financial statements
5
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FemRx, Inc.
Notes to Condensed Financial Statements
June 30, 1998
(Unaudited)
1. Basis of presentation
The accompanying unaudited financial statements of FemRx, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. In the opinion of management, all
adjustments necessary to present fairly the financial position at June 30, 1998,
and the results of operations and cash flows for the six months ended June 30,
1998 and 1997, have been made. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared has been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
The accompanying financial data should be reviewed in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K filed with the SEC (File No 000-28078) on March 26, 1998, as
amended on April 29, 1998 and July 20, 1998.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998.
2. Comprehensive income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130").
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components, accordingly, the adoption of this
statement had no impact on the Company's net loss or stockholders' equity.
Comprehensive income is the same as net income as there are no necessary
adjustments reported in stockholders' equity.
3. Disclosures about Segments of an Enterprise and Related Information
The Company will adopt the disclosures, if any, required by the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related information
("Statement 131") in the annual report on Form 10-K. Statement 131 superseded
Statement of Financial Accounting Standards No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 established standards for the
way that public business enterprises report information about operation segments
in annual financial statements and requires that those enterprises report
selected information about segments in interim financial reports. Statement 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of Statement 131 is not
expected to affect the results of operations or financial position, but may
affect the disclosure of the segment information that may be disclosed in the
annual report on Form 10-K.
4. Net loss per share
In accordance with Statement of Financial Accounting Standards No. 128,
basic and diluted net loss per share has been computed using the weighted
average number of shares of common stock outstanding during the period.
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in computation of basic net loss per share
as well as an additional 1,568,377 and 1,883,193 shares for the six months ended
June 30, 1998 and 1997, respectively, relating to outstanding options and
warrants (prior to the application of the treasury stock method) and stock
subject to repurchase.
6
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5. Inventories
Inventories are stated at lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Raw materials $ 56 $ 50
Work-in-process 290 442
Finished goods 211 145
--- ---
Total $ 557 $ 637
</TABLE>
Reserves for excess and obsolete inventory included in the above balances,
amounted to approximately $198,000 and $266,000 at June 30, 1998 and December
31, 1997 respectively.
6. Restructuring Charge
In March 1998, the Company completed a corporate restructuring designed to
increase the Company's focus and reduce expenses. As part of the restructuring,
the Company reduced the number of its employees by approximately one-third, or
23 employees. The charges associated with the restructuring totaled
approximately $250,000, $37,000 of which was charged to cost of goods sold,
$48,000 of which was charged to research and development expenses and $165,000
of which was charged to selling, general and administrative expenses. The
charges associated with the restructuring were recognized in the first quarter
ended March 31, 1998, and were fully paid as of June 30, 1998.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I Item 1 of this
quarterly report and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1997 contained in the Company's
Annual Report on Form 10-K filed with the SEC (File No 000-28078) on March 26,
1998, as amended on April 29, 1998 and July 20, 1998.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the sections entitled Overview, Results of Operations, Liquidity and Capital
Resources, and Additional Factors That May Effect Future Results, and those
discussed in the Company's Annual Report on Form 10-K filed with the SEC (File
No 000-28078) on March 26, 1998, as amended on April 29, 1998 and July 20, 1998.
Overview
In 1997, FemRx, Inc. ("FemRx" or the "Company") began sales of the OPERA
STAR System and related products. The OPERA STAR System is an innovative
surgical system for the diagnosis and treatment of gynecologic disorders. OPERA
stands for Out-Patient Endometrial Resection/Ablation. OPERA is a less invasive
alternative to hysterectomy for patients suffering from abnormal uterine
bleeding. OPERA consists of diagnosis by a gynecologic surgeon and the use of
the Company's OPERA STAR resectoscope under visual guidance to collect a
pathology sample, resect the endometrial lining together with any submucosal
fibroids and coagulate the entire uterine cavity. The Company has also developed
a proprietary fluid management system, called the Flo-Stat System, for use in
gynecologic procedures. In September 1997, the Company introduced Diva, a
proprietary laparoscopic morcellator, designed to be used in surgical procedures
to assist in the removal of large tissue masses such as fibroids.
The Company markets its products through its Center of Excellence and
National Providers of Excellence programs which are partnerships between FemRx
and healthcare providers aimed at increasing the awareness of the OPERA
procedure through jointly sponsored patient outreach and physician training.
These programs sell a hospital or surgical center an OPERA STAR System and a
Flo-Stat System which allow gynecologic surgeons to perform the OPERA procedure.
The Company has also established a network of independent distributors to
support sales of the Company's Diva laparoscopic morcellator.
The Company commenced commercial shipments of its OPERA STAR System and
Flo-Stat System in October 1996. The Company commenced commercial shipments of
the Diva in September 1997. The Company currently sells its products in the
United States to physicians, hospitals and surgical centers. Sales in the U.S.
are currently made through either a small direct sales force or a network of
independent distributors. Sales are conducted on credit terms.
The Company has experienced significant operating losses since inception
and, as of June 30, 1998, had an accumulated deficit of approximately $29.6
million. The Company expects to continue to generate substantial losses due to
operating expenditures, primarily attributed to product development, clinical
trials, commercial manufacturing, marketing and sales activities, exceeding
revenues. The Company expects that its results of operations will fluctuate
significantly from quarter to quarter due to a variety of factors including the
timing of expenditures, timing in the receipt of orders, the rate of acceptance
of the Company's products in the marketplace, introduction of new products by
competitors of the Company, pricing of competitive products and the cost and
effect of promotional discounts and marketing programs. The Company's gross
margins, if any, will be depressed for several quarters due to manufacturing and
overhead costs allocated over low production volumes. There can be no assurance
that the Company will ever achieve significant revenue or profitability.
8
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Results of Operations
Three months ended June 30, 1998 and June 30, 1997
Net sales for the three months ended June 30, 1998 increased to $633,000
from $403,000 for the three months ended June 30, 1997 due to the increased
number of participants in the Company's Center of Excellence and National
Providers of Excellence programs. This has resulted in an increase in the number
of procedures performed using FemRx products and an increase in sales of
disposable products.
Cost of goods sold for the three months ended June 30, 1998 decreased to
$746,000 from $796,000 for the three months ended June 30, 1997, due primarily
to lower manufacturing overhead costs resulting from the restructuring that took
place in March 1998.
Research and development expenses for the three months ended June 30, 1998
decreased to $627,000 from $872,000 for the three months ended June 30, 1997,
due primarily to lower personnel costs resulting from the restructuring that
took place in March 1998.
Selling, general and administrative expenses for the three months ended
June 30, 1998 decreased to $1,020,000 from $1,808,000 for the three months ended
June 30, 1997, due primarily to lower personnel and program costs resulting from
the restructuring that took place in March 1998.
Interest income for the three months ended June 30, 1998 decreased to
$44,000 from $218,000 for the three months ended June 30, 1997, due to interest
received on lower average cash balances. Interest expense has remained
consistent in the comparable periods.
Six months ended June 30, 1998 and June 30, 1997
Net sales for the six months ended June 30, 1998 increased to $1,206,000
from $483,000 for the six months ended June 30, 1997 due to the increased number
of participants in the Company's Center of Excellence and National Providers of
Excellence programs. This has resulted in an increase in procedural volumes and
related sales of the Company's disposable products.
Cost of goods sold for the six months ended June 30, 1998 increased to
$1,842,000 from $1,370,000 for the six months ended June 30, 1997. This increase
is primarily due to the increased sales volume for the six months ended June 30,
1998 offset by lower manufacturing overhead costs resulting from the
restructuring that took place in March 1998.
Research and development expenses for the six months ended June 30, 1998
increased to $1,694,000 from $1,578,000 for the six months ended June 30, 1997,
due primarily to increased costs associated with clinical trials, additional
product research, prototype development, patent preparation and filing offset by
lower personnel costs resulting from the restructuring that took place in March
1998.
Selling, general and administrative expenses for the six months ended June
30, 1998 decreased to $3,011,000 from $3,362,000 for the six months ended June
30, 1997, due primarily to lower personnel and program costs resulting from the
restructuring that took place in March 1998.
Interest income for the six months ended June 30, 1998 decreased to
$135,000 from $472,000 for the six months ended June 30, 1997, due to interest
received on lower average cash balances. Interest expense has remained
consistent in the comparable periods.
Liquidity and Capital Resources
Net cash used by operations in the six months ended June 30, 1998 was
$5,421,000 primarily due to the Company's funding of sales and marketing
9
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activity and on-going research and development expenses. During the six months
of 1998 the Company used $152,000 to purchase equipment for operations and
$69,000 in capital lease payments.
Since its incorporation in November 1994, the Company has incurred
significant cumulative losses totaling approximately $29.6 million and expects
to incur additional losses for the next several years. Having completed its
restructuring the Company believes that its existing cash and short term
investments will be sufficient to finance its capital requirements and
operations through at least September 1998. The Company's current operating plan
shows that the Company will require substantial additional capital to fund its
operations, continue research and development programs and market its products.
To date, the Company has financed its operations with the net proceeds from
private placements and public offerings of its equity securities and capital
equipment lease financing. The Company is seeking additional funding through
private financing or other arrangements with third parties. There can be no
assurance that additional funding will be available on acceptable terms, if at
all.
Impact of Year 2000
The Company has reviewed its systems for their ability to recognize the
year 2000. None of the Company's systems interact with customer or supplier
systems. None of the Company's products include software affected by dates. The
Company's accounting system is not currently Year 2000 compliant. Under the
terms of a maintenance agreement with the software vendor for this system, the
Company will receive an upgraded version of the system that is Year 2000
compliant. Based on information from the system vendor, the Company expects to
receive and install this upgrade in early 1999. The upgrade is included as part
of the maintenance agreement, at no additional cost. The cost of installation is
estimated to be less than $25,000.
Additional Factors That May Affect Future Results
Dependence on OPERA STAR System, Diva device and Flo-Stat System
The OPERA STAR System, Diva device and Flo-Stat System are currently the
Company's only products. The Company expects that the OPERA STAR System, Diva
device and the Flo-Stat System will account for substantially all of the
Company's revenues for the foreseeable future. Even though the OPERA STAR
System, Diva device and Flo-Stat System have received FDA clearance, there can
be no assurance that the Company can successfully manufacture, market, or
realize any significant revenues from these products on a timely basis. The
Company's products will require further development and regulatory clearances or
approvals before they can be marketed internationally. There can be no assurance
that the Company's development and marketing efforts will be successful or that
the OPERA STAR System, Diva device, Flo-Stat System or other potential products
developed by the Company will be capable of being manufactured in commercial
quantities at acceptable costs. Failure to manufacture in commercial quantities
at acceptable cost the OPERA STAR System, Diva device and Flo-Stat System would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Uncertainty of Market Acceptance
The Company believes that market acceptance of the Company's products will
depend, in part, on the Company's ability to provide evidence to the medical
community of the safety, efficacy and cost-effectiveness of its products and the
procedures in which these products are intended to be used. To date, the OPERA
STAR System and Diva device have been used to treat a limited number of patients
and no published reports regarding the use of the OPERA STAR System and Diva
device exist to support the Company's marketing effort. Furthermore, there is
little long-term follow-up data on patients who underwent OPERA using the OPERA
STAR System or procedures using the Diva device. If the Company is not able to
demonstrate long-term success with the OPERA STAR System or Diva device, market
acceptance would be materially adversely affected.
The Company's OPERA STAR System is designed for use by a gynecologic
surgeon trained in the OPERA procedure. Market acceptance of the Company's
products will require a willingness on the part of gynecologic surgeons to be
trained to perform OPERA using the Company's products. Furthermore, market
acceptance may be limited because some physicians and payors, recognizing that
10
<PAGE>
the removal of the uterus in a hysterectomy precludes the potential reoccurrence
of uterine disorders, will be reluctant to substitute the OPERA procedure (which
allows the patient to retain her uterus) for hysterectomy. The Company believes
that most gynecologists view hysterectomy as an appropriate therapy to treat a
variety of uterine disorders. As a result, the Company believes that
recommendations and endorsements of its products by influential physicians will
be essential for market acceptance of its products. No assurances can be made
that the Company will receive such recommendations or endorsements.
The Company's Diva device is designed for use by a gynecologic surgeon in
laparoscopic procedures. Market acceptance of the Company's products will
require a willingness on the part of gynecologic surgeons to perform
laparoscopic morcellation using the Company's products. As a result, the Company
believes that recommendations and endorsements of its products by influential
physicians will be essential for market acceptance of its products. No
assurances can be made that the Company will receive such recommendations or
endorsements.
The Company further believes that the ability of health care providers to
obtain adequate reimbursement for OPERA procedures using the OPERA STAR System
will be critical to market acceptance of the Company's products. There can be no
assurance that the cost of procedures in which the OPERA STAR System is used
will be adequately reimbursed by third-party payors under existing reimbursement
policies and codes. The Company has no experience in gaining reimbursement in
the U.S. or any foreign market. The Company prices its disposable resectoscope
at a premium over the prices currently charged for the disposable components of
competitive resectoscopes. Failure of the Company's products to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.
Limited Operating Experience
The Company has a limited history of operations. 1997 represented the first
full year of commercial production and sales of the Company's products,
accordingly, it has limited experience manufacturing in commercial quantities,
marketing or selling products. The Company has experienced significant operating
losses since inception and expects these losses to continue for the next several
years. There can be no assurance that the Company will be successful in
achieving significant sales volumes of the OPERA STAR System, the Diva device
and Flo-Stat System or any other products of the Company. Whether the Company
can successfully manage the transition to a large-scale commercial enterprise
will depend upon a number of factors, including obtaining selected international
regulatory and reimbursement approvals for its existing or potential products,
establishing its commercial manufacturing capability, developing its U.S.
marketing and selling capabilities, and establishing a distribution network in
international markets. Failure to make such a transition successfully would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Need for Additional Capital
The Company's current operating plan shows that the Company will require
substantial additional capital to fund its operations, continue research and
development programs and market its products. The Company is seeking additional
funding through public or private financing or other arrangements with third
parties. If additional funding is not available on acceptable terms, the Company
may be required to scale back its operations, including research, product
development, and marketing and sales activities. Failure to obtain additional
capital would have a material adverse effect on the Company's business,
financial condition and results of operations.
History of Losses
The Company has experienced significant operating losses since its
inception and, as of June 30, 1998 had an accumulated deficit of approximately
$29.6 million. The Company expects to generate substantial additional losses for
the next several years due to increased operating expenditures primarily
attributable to research and development activities, including clinical trials,
seeking regulatory and reimbursement approvals and establishing manufacturing,
marketing and sales activities. There can be no assurance that the Company will
ever achieve significant revenue or profitability. Failure to achieve
significant revenue or profitability would have a material adverse effect on the
Company's business, financial condition and results of operations.
11
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
12
<PAGE>
Part II: Other Information
Item 1. Legal Proceedings
In June 1998, the Company filed suit in United States District Court,
Northern District of California, against Cryogen, Inc. and its founder,
John D. Dobak III, asking for declaratory relief for patent invalidity and
noninfringement with respect to United States Patent No. 5,275,595 covering
cryosurgical instrumentation.
Item 2. Change in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
13
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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.
FemRx, Inc.
By: /s/ EDWARD W. UNKART
-------------------------
Edward W. Unkart
Vice President, Finance and Administration,
Chief Financial Officer and Assistant Secretary
(Duly Authorized and Principal Financial and
Accounting Officer)
Date: August 12, 1998
14
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FemRx, Inc.
Index to Exhibits
Exhibit
Number Exhibit
27.1 Financial Data Schedule June 30, 1998
27.2 Restated Financial Data Schedule June 30, 1997
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS
AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,232
<SECURITIES> 1,250
<RECEIVABLES> 567 <F1>
<ALLOWANCES> 0
<INVENTORY> 557 <F1>
<CURRENT-ASSETS> 3,856
<PP&E> 938 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,356
<CURRENT-LIABILITIES> 1,783
<BONDS> 0
0
0
<COMMON> 33,385
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,356
<SALES> 1,206
<TOTAL-REVENUES> 1,206
<CGS> 1,842
<TOTAL-COSTS> 1,842
<OTHER-EXPENSES> 1,694 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (5,224)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,224)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.60)
<FN>
<F1>ITEM SHOWN NET OF ALLOWANCES, CONSISTENT WITH THE BALANCE
SHEET PRESENTATION.
<F2>ITEM SHOWN NET OF DEPRECIATION, CONSISTENT WITH THE BALANCE
SHEET PRESENTATION.
<F3>ITEM CONSISTS OF RESEARCH AND DEVELOPMENT.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE>
5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS
AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,182
<SECURITIES> 13,231
<RECEIVABLES> 296<F1>
<ALLOWANCES> 0
<INVENTORY> 334<F1>
<CURRENT-ASSETS> 15,309
<PP&E> 1,524<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,073
<CURRENT-LIABILITIES> 1,767
<BONDS> 0
0
0
<COMMON> 33,278
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,073
<SALES> 483
<TOTAL-REVENUES> 483
<CGS> 1,370
<TOTAL-COSTS> 1,370
<OTHER-EXPENSES> 1,578<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (5,379)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,379)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,379)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
<FN>
<F1>ITEM SHOWN NET OF ALLOWANCES, CONSISTENT WITH THE BALANCE
SHEET PRESENTATION.
<F2>ITEM SHOWN NET OF DEPRECIATION, CONSISTENT WITH THE BALANCE
SHEET PRESENTATION.
<F3>ITEM CONSISTS OF RESEARCH AND DEVELOPMENT.
</FN>
</TABLE>
