UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-28260
EP MEDSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3212190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Stierli Court, Mount Arlington, New Jersey 07856
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 398-2800
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, no par value, 9,875,417
shares outstanding at August 12, 1999.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART I. -- Financial INFORMATION Page
------------
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1999
(unaudited) 3
Consolidated Statements of Operations for three months
ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Operations for six months
ended June 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for six months
ended June 30, 1999 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7-8
Item 2. Management's Discussion and Analysis or Plan of
Operation 8-13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Secure 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 15
2
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PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30,
ASSETS 1999
-------------------
Current assets: (unaudited)
Cash and cash equivalents $ 1,060,046
Accounts receivable, net of allowances for
Doubtful accounts of $99,275 2,837,210
Inventories 2,217,731
Prepaid expenses and other current assets 90,636
-------------------
Total current assets 6,205,623
Property and equipment, net 1,355,878
Intangible assets, net 526,575
Other assets 32,274
-------------------
Total assets $ 8,120,350
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,168,865
Payables due to related parties 504,515
Accrued expenses 379,360
Deferred revenue 95,188
Customer deposits 46,572
Current portion of long-term debt 22,297
-------------------
Total current liabilities 2,216,797
Long-term debt, less current portion 491,425
-------------------
Total liabilities $ 2,708,222
-------------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding --
Common stock, $.001 stated value, 25,000,000
shares authorized, 9,875,417 shares issued
and outstanding 9,875
Additional paid-in capital 21,438,372
Accumulated deficit (16,036,119)
-------------------
Total shareholders' equity 5,412,128
-------------------
Total liabilities and shareholders' equity $ 8,120,350
===================
The accompanying notes are an integral part of these statements.
3
<PAGE>
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
June 30, June 30,
1999 1998
------------ --------------
Sales $ 2,421,601 $ 1,731,672
Cost of products sold 1,071,901 902,663
------------ --------------
Gross profit 1,349,700 829,009
Operating costs and expenses:
Sales and marketing expenses 1,013,219 842,786
General and administrative expenses 607,102 416,726
Research and development expenses 608,110 328,191
------------ ---------------
Loss from operations (878,731) (758,694)
Interest income, net 21,642 66,254
------------ ---------------
Net loss $ (857,089) $ (692,440)
============= ===============
Basic loss per share $ (0.09) $ (0.07)
============= ===============
Diluted loss per share $ (0.09) $ (0.07)
============= ===============
Weighted average shares outstanding used
to compute basic and diluted loss per share 9,873,109 9,634,807
============= ===============
The accompanying notes are an integral part of these statements.
4
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EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Six Months Ended
June 30, June 30,
1999 1998
-------------- --------------
Sales $ 4,956,011 $ 3,186,281
Cost of products sold 2,265,066 1,789,469
-------------- --------------
Gross profit 2,690,945 1,396,812
Operating costs and expenses:
Sales and marketing expenses 2,083,765 1,542,572
General and administrative expenses 1,204,683 764,992
Research and development expenses 1,052,847 677,541
-------------- --------------
Loss from operations (1,650,350) (1,588,293)
Interest income, net 49,190 100,469
-------------- --------------
Net loss $ (1,601,160) $ (1,487,824)
=============== ==============
Basic loss per share $ (0.16) $ (0.17)
=============== ==============
Diluted loss per share $ (0.16) $ (0.17)
=============== ==============
Weighted average shares outstanding used
to compute basic and diluted loss per share 9,872,765 8,622,983
=============== ==============
The accompanying notes are an integral part of these statements.
5
<PAGE>
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
June 30, June 30,
1999 1998
------------ ----------
Cash flows from operating activities:
Net loss $ (1,601,160) (1,487,824)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 141,560 140,543
Changes in assets and liabilities:
Increase in accounts receivable (531,712) (633,939)
(Increase) decrease in inventories (417,040) 210,644
Decrease in prepaid and other current assets 61,259 32,660
(Increase) decrease in other assets (12,851) 28,125
Increase (decrease) in payables due to related parties 315,726 (52,151)
Increase(decrease) in accounts payable 396,226 (152,890)
(Decrease) in accrued expenses, deferred
revenue and customer deposits (205,983) (174,319)
------------- -----------
Net cash used in operating activities $ (1,853,975) (2,089,151)
------------- -----------
Cash flows from investing activities:
Proceeds from maturity of investments 729,351 862,011
Patent costs -- (36,852)
Capital expenditures (667,983) (191,048)
----------- -----------
Net cash provided by investing activities $ 61,368 634,111
----------- -----------
Cash flows from financing activities:
Net proceeds from equity offering -- 4,661,708
Proceeds from exercise of stock options 6,000 29,925
Net borrowings under note payable 513,722 --
----------- ----------
Net cash provided by financing activities $ 519,722 4,691,633
----------- ----------
Net (decrease) in cash and cash equivalents (1,272,885) (3,236,593)
Cash and cash equivalents, beginning of period 2,332,931 752,068
----------- -----------
Cash and cash equivalents, end of period $ 1,060,046 3,988,661
=========== ===========
The accompanying notes are an integral part of these statements.
6
<PAGE>
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1. Basis of Presentation The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
financial information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (including normal recurring adjustments) considered necessary for a
fair presentation have been included.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The results of operations for the respective interim periods are not necessarily
indicative of the results to be expected for the full year. The accompanying
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and the notes thereto included in
the Company's Form 10-KSB for the year ended December 31, 1998 filed with the
Securities and Exchange Commission.
Note 2. Net Loss Per Common Share Effective for the year ended December 31,
1997, the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Shar" ("SFAS 128"). The Company' basic and diluted earnings per
share are equal, due to the exclusion of common stock equivalents, which would
make the earnings per share calculations anti-dilutive.
Note 3. Inventories
Inventories consist of the following:
June 30, 1999
-------------
Raw materials $ 851,655
Work in process 47,687
Finished goods 1,318,389
-------------
$ 2,217,731
=============
Note 4. Long-Term Debt
Effective June 30, 1999, the Company entered into two debt agreements with a
bank: a $2,000,000 revolving line of credit ("revolver") and a $500,000 term
note.
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The proceeds of the revolver, when drawn down are intended to fund future
working capital needs. Borrowings bear interest at either the bank's Prime Rate
plus 1/2% or LIBOR plus 3%. A facility fee is payable quarterly on the average
unused commitment at a rate of 3/4%.
The purpose of the term note is to fund the purchase of 7,500 square feet of
manufacturing and warehouse space at the Company's ProCath subsidiary and
building improvements. Interest is payable monthly in arrears at either Prime
plus 3/4 or LIBOR plus 3 1/4%. Principal is payable commencing January 2000 in
48 equal monthly installments under a 15 year amortization schedule with a
balloon payment due in December 2004
The Company is required to maintain certain financial ratios, and meet certain
net worth and indebtedness tests. The debt is collateralized by a first priority
lien on all corporate assets. The agreement also prohibits the Company from
incurring certain additional indebtedness, limits investments, advances or loans
and restricts substantial asset sales, capital expenditures and cash dividends.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
The Company was incorporated in New Jersey in January 1993 and operates in a
single industry segment. The Company develops, manufactures, markets and sells a
line of products for the cardiac electrophysiology ("EP") market used to
diagnose, monitor and treat irregular heartbeats known as arrhythmias. Since
inception, the Company has acquired technology, has developed new products and
has begun marketing various electrophysiology products, including the EP
WorkMate [registered] electrophysiology workstation, the EP-3 [trademark]
Stimulator, diagnostic electrophysiology catheters, internal cardioversion
catheters and related disposable supplies.
The Company has developed a new product for internal cardioversion of atrial
fibrillation known as the ALERT [registered] System, which uses a patented
electrode catheter to deliver measured, variable, low energy electrical impulses
directly to the inside of the heart in order to convert atrial fibrillation to a
normal heart rhythm. The ALERT [registered] System is not approved for sale in
the United States, but is currently undergoing clinical trials. The Company
intends to market a full family of internal cardioversion catheters around the
ALERT [registered] platform.
The Company has also developed an intracardiac ultrasound product line including
the ViewMate [trademark] ultrasound imaging console and U-View [trademark]
deflectable intracardiac imaging catheter. These products are designed to
improve a physician's ability to visualize inside the chambers of the heart,
including the internal anatomy of the heart. The Company believes that the
ViewMate [trademark] and U-View [trademark] may play an important role as new
and effective treatment options are developed for the treatment of complex
cardiac arrhythmias, including ventricular tachyarrhythmia and atrial
fibrillation. The Company's ultrasound products are not approved for sale and
the Company does not anticipate receiving approval to sell the ViewMate
[trademark] or U-View [trademark] for at least several months, if approved at
all.
Forward-Looking Statements
8
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This report contains certain statements of a forward-looking nature relating to
such matters as anticipated financial and operational performance, business
prospects, technological developments, results of clinical trials, new products,
research and development activities and similar matters. Stockholders are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors effecting the
industry and economy generally, as well as those identified in this report and
in the Company's other reports filed with the Securities and Exchange
Commission, which could cause actual results to differ materially from those
indicated by such forward-looking statements.
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared to six months ended June 30, 1998
Sales increased $1,770,000 (or 56%) in the six months ended June 30, 1999 as
compared to the prior period in 1998. The majority of the increase in revenue in
the quarter resulted from increased sales of the EP WorkMate [registered], which
represented a substantial percentage of sales during the six-month period in
1999. The Company also realized increased sales of certain of its catheter
products during the period.
The level of sales for the remaining six months of 1999 will depend materially
on sales of the EP WorkMate [registered] and diagnostic catheters and the
ability of the Company's direct sales force and network of international
independent distributors to effectively market and sell the Company's existing
products. The ALERT [registered] System is currently undergoing clinical trials
and is not approved for sale in the United States. The ALERT [registered] System
has been introduced for sale in Europe. However, the Company cannot accurately
determine the sales level of the ALERT [registered] System for the remaining
quarters in 1999 at this time or when it will be available at all in the United
States. The Company expects the ALERT [registered] System to contribute a
greater proportion of revenues in the second half of 1999 and beyond.
Cost of products sold increased $476,000 (or 27%) due to the 56% increase in
sales for the six months ended June 30, 1999 as compared to 1998. Gross profit
on sales for the six months ended June 30, 1999 was $2,691,000 (or 54% as a
percentage of sales), as compared with $1,397,000 (or 44% as a percentage of
product sales) for the comparable period in 1998. The Company realized an
increase in gross profit on sales of existing products during first half of 1999
primarily due to increased sales of the EP WorkMate, which currently yields a
higher gross margin than certain of the Company's other products. The Company
hopes to improve its overall gross profit percentage as sales of the ALERT
[registered] System and other catheter products increase, which may offset the
fixed costs associated with maintaining a catheter manufacturing operation.
Sales and marketing expenses increased $541,000 (or 35%), but decreased as a
percentage of revenue from product sales from 48% to 42% in the six months ended
June 30, 1999 as compared to 1998. The dollar increase during the first half
1999 was primarily due to the impact of increase in personnel, travel, trade
show related expenses, product promotion and
9
<PAGE>
physician educational materials in support of its sales efforts. The
international distribution network is currently supported by a team of direct
international sales and marketing professionals, international field clinical
engineers and administrative support personnel.
General and administrative expenses increased $440,000 (or 57%) but remained at
24% of sales in the six months ended June 30, 1999 as compared to 1998. The
increase during the first half of 1999 was due to increased personnel, occupancy
and other administrative costs necessary to support the increased operations. It
is anticipated that these expenses may decline as a percentage of revenues as
incremental sales are generated.
Research and development expenses increased $375,000 (or 55%), but remained at
21% of sales in the six months ended June 30, 1999 as compared to 1998. During
the six months ended June 30, 1999, the Company incurred research and
development expenses in connection with ongoing development efforts on existing
products, including the EP WorkMate [registered], costs associated with the
clinical trials for the ALERT [registered] System, development costs and costs
of preparing regulatory submissions for the new ultrasound imaging product line,
as well as costs associated with several new products under development. The
Company expects that research and development expenses are likely to increase in
future periods, in part due to ongoing expenses related to the ALERT
[registered] System clinical trials, new product development activities and
regulatory applications aimed at gaining approval to sell other new products.
The net loss for the six months ended June 30, 1999 was $1,601,000 as compared
to a net loss of $1,488,000 during the comparable period in 1998. The basic and
diluted loss per share for the six months ended June 30, 1999 was $0.16 per
share versus $0.17 per share in 1998.
Liquidity and Capital Resources
Since inception, the Company's expenses have exceeded its sales, resulting in an
accumulated deficit of approximately $16,036,000 at June 30, 1999.
The Company entered into two financing arrangements in March of 1999 with a
bank: a $2,000,000 revolving line of credit and a $500,000 term loan. Management
believes that its current liquidity position will be sufficient to meet the
needs of the Company until at least June 30, 2000. In the event that it cannot
generate additional capital funds during the remaining half of 2000, the Company
believes that it can reduce non-core related expenditures, which will allow it
to continue in its operations for a significant period.
Net cash used in operating activities for the six months ended June 30, 1999
decreased $235,000 (or 11%) as compared to 1998. The net use of cash in
operations during first quarter 1999 was primarily due to the Company's loss
from operations. Payables to related parties increased $316,000 due to an
increase in purchases of components for the Alert [registered] System. Payments
to related parties are made on terms similar to those of other suppliers.
10
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Capital expenditures, were $668,000 during first half 1999 as compared to
$191,000 in first half 1998. During February 1999, the Company purchased an
additional 7,500 square feet of manufacturing and warehouse space at ProCath for
a purchase price of approximately $400,000. Costs to prepare the space for
intended use are estimated to be $100,000. This purchase was financed via a
$500,000 term loan executed subsequent to December 31, 1998. The purchase
provided for expansion of the existing manufacturing operations, additional
warehousing, shipping and quality assurance activities and relocation of
ProCath's administrative offices.
Net borrowings under note payable increased $514,000 as compared to first half
1998 due primarily to the proceeds the Company received from the $500,000 term
loan.
As of the date of this Report on Form 10-QSB, the Company does not have any
other material commitments for capital expenditures. However, the Company
expects to purchase capital equipment and to expand its manufacturing and
assembly capabilities as it continues to grow. The Company leases office and
manufacturing space and certain office equipment under operating leases.
During February 1997, the Company licensed the rights to several ultrasound
technologies from EchoCath, for use in the field of electrophysiology. The
agreement with EchoCath calls for the Company to make payments totaling up to a
maximum of $700,000, in four installments, as certain development milestones and
initial sales are achieved on the EchoMark and EchoEye technologies. One of the
milestones calls for a $400,000 payment payable upon the completion of a
development program for the EchoEye. This milestone was only payable in the
event that the development was completed by September 30, 1998. To the best of
the Company's knowledge, the milestone was not achieved and no milestone
payments are accrued or payable to EchoCath as of June 30, 1999.
The Company expects its operating losses to continue in the near future as it
will continue to expend substantial funds for research and development, clinical
trials in support of regulatory approvals, increased manufacturing capacity and
expansion of sales and marketing activities. The amount and timing of future
losses will be dependent upon, among other things, increased sales of the
Company's existing products, clinical approval and market acceptance of the
ALERT [registered] System and developmental, regulatory and market success of
new products under development. There can be no assurance that any of the
Company's development projects will be successful or that if development is
successful, that the products will generate any sales. Based upon its current
plans and projections, the Company believes that its existing capital resources
will be sufficient to meet its anticipated capital needs for at least the next
twelve months.
Year 2000 Readiness
The Year 2000 issue could affect computers, software and other equipment used,
operated or maintained by the Company. The Company has substantially completed a
review of its internal computer programs and systems to ensure that the programs
and systems will be Year 2000 compliant. The Company presently believes that,
based on current plans and efforts to date, its internal programs and systems
will be Year 2000 compliant in a timely manner.
11
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The Year 2000 issue can also affect products sold by the Company, particularly
the EP WorkMate [registered] and ALERT [registered] Companion. The Company has
performed an assessment of its products and, as a result of this review,
believes that it has substantially identified and resolved the potential Year
2000 issues with these products. However, the Company also believes that it is
not possible to determine with complete certainty that all Year 2000 issues
affecting the Company's products have been identified or corrected due to the
complexity of these products and the fact that these products interact with
other third party products or operate on computer systems which are not under
the Company's control.
The Company believes that its greatest Year 2000 risk for disruption to its
business is the potential noncompliance of third parties. In this regard, the
Company has initiated communications with its vendors, major customers and
service providers in order to determine the extent to which the Company's
business is vulnerable to the third parties' failure to make their systems Year
2000 compliant. Since the Company has no control over the actions of these third
parties, there can be no assurance that these third parties will resolve any or
all Year 2000 issues. Any failure of these third parties to resolve Year 2000
issues in a timely manner could have a material adverse effect on the Company's
financial condition and results of operations.
The Company currently does not have a contingency plan in the event that
particular systems, including the systems of material third parties, are not
Year 2000 compliant. It is intended that such a plan will be developed if it
becomes clear that the Company is not going to achieve its scheduled compliance
objectives. Although no assurance can be given that there will be no
interruption of operations as a result of the Year 2000 issue, the Company
believes and assuming that third parties with whom the Company has material
business relationships successfully remediate their own Year 2000 issues) that
it has reasonably assessed its systems in order to ensure that the Company will
not suffer any material adverse effect from the Year 2000 issue. Though the
Company has used and will continue to use internal resources to resolve its Year
2000 issues, the Company may retain third party consultants to assist in this
regard.
Costs specifically associated with Year 2000 compliance are expensed as
incurred. To date, the Company has not spent a material amount on this project.
The Company does not expect the total costs relating to Year 2000 compliance to
have a material effect on the Company's results of operations or financial
condition. However, the total costs that the Company will incur in connection
with the Year 2000 issue will be influenced by (i) its ability to successfully
identify Year 2000 issues, (ii) the nature and amount of programming required to
remediate the issues, (iii) the related labor and/or consulting costs for such
remediation and (iv) the ability of third parties with whom the Company has
business relationships to successfully address their own Year 2000 concerns.
These and other unforeseen factors could have a material adverse effect on the
Company's results of operations or financial condition.
12
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
During October 1997, the Company filed a lawsuit against EchoCath in the United
States District Court for the District of New Jersey alleging, among other
things, that EchoCath made fraudulent misrepresentations and omissions in
connection with the prior sale of $1,400,000 of its preferred stock to the
Company.
EchoCath filed an answer to the complaint, denying the allegations and asserting
a counterclaim against the Company seeking its costs and expenses in the action.
EchoCath also filed a motion to dismiss the complaint. During October 1998, the
complaint was dismissed by the District Court. The Company is appealing the
decision. The Company believes that EchoCath's counterclaim and request for
reimbursement of its costs and expenses is without merit. As a result, the
Company has not accrued for such costs and expenses at June 30, 1999. In the
opinion of management, the ultimate resolution of the counterclaim will not have
a material adverse impact of the Company's financial condition or results of
operations. The Company cannot determine the outcome of the EchoCath litigation
at this time.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon 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
13
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(a) Exhibits
The following exhibits will be filed as part of this Form 10-QSB:
Exhibit 27 Financial Data Schedule (SEC filing only)
(b) Reports on Form 8-K
None
14
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EP MEDSYSTEMS, INC.
-------------------
(Registrant)
Date: August 12, 1999 By: /s/ David A. Jenkins
---------------------
David A. Jenkins
President and Chief Executive Officer
Date: August 12, 1999 By: /s/ Joseph M. Turner
---------------------
Joseph M. Turner
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ---------- ---------------------------
Exhibit 27 Financial Data Schedule
(SEC filing only)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS AND UNAUDITED CONSOLIDATED BALANCE
SHEET FOR THE PERIOD ENDED JUNE 30, 1999 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, "EARNINGS PER SHARE," BASIC EARNINGS PER SHARE AND DILUTED
EARNINGS PER SHARE HAVE BEEN INCLUDED IN THE FINANCIAL DATA SCHEDULE PRESENTED
BELOW IN PLACE OF PRIMARY EARNINGS PER SHARE AND FULLY DILUTED EARNINGS PER
SHARE.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,060
<SECURITIES> 0
<RECEIVABLES> 2,936
<ALLOWANCES> 99
<INVENTORY> 2,218
<CURRENT-ASSETS> 6,206
<PP&E> 2,055
<DEPRECIATION> 699
<TOTAL-ASSETS> 8,120
<CURRENT-LIABILITIES> 2,217
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 5,402
<TOTAL-LIABILITY-AND-EQUITY> 8,120
<SALES> 4,956
<TOTAL-REVENUES> 4,956
<CGS> 2,265
<TOTAL-COSTS> 4,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (49)
<INCOME-PRETAX> (1,601)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,601)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
