<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1998
Commission File Number: 333-37441
MEDICAL SCIENCE SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)
TEXAS 94-3123681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N.E. LOOP 410, SUITE 1350
SAN ANTONIO, TEXAS 78216-4749
(Address of principal executive offices)(Zip Code)
Issuer's Telephone Number: (210) 349-6400
Securities registered under Section 12(b) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
COMMON STOCK, NO PAR VALUE BOSTON STOCK EXCHANGE
Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
COMMON STOCK, NO PAR VALUE
Check whether the issuer (1) 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. YES (X) NO ( )
Title of Each Class Outstanding at August 1, 1998
- ------------------- -----------------------------
Common stock, no par value 5,540,895
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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<PAGE> 2
MEDICAL SCIENCE SYSTEMS, INC.
Form 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets (Unaudited) at June 30,1998....2
Condensed Consolidated Statements of Operations
(Unaudited) as of the three-month and six-month periods
ending June 30, 1998 and June 30, 1997........................... 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the three-month and six-month periods
ending June 30, 1998 and June 30, 1997............................4
Notes to Condensed Consolidated Financial Statements
(Unaudited).......................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................10
Item 2. Changes in Securities...............................................10
Item 3. Default Upon Senior Securities......................................10
Item 4. Submission of Matters to a Vote of Security Holders.................10
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................11
</TABLE>
i
<PAGE> 3
PART I
FINANCIAL INFORMATION
1
<PAGE> 4
MEDICAL SCIENCE SYSTEMS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents $ 3,206,999
Investments 4,112,749
Accounts receivable, net 58,473
Inventories 45,056
Prepaid expenses 153,147
------------
Total current assets 7,576,424
Furniture and equipment, net 475,044
Patents, net of amortization 596,986
TOTAL ASSETS $ 8,648,454
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 280,951
Accrued expenses 542,693
Deferred income 199,894
Current portion of long-term debt 14,778
Current portion of capitalized lease obligations 81,202
------------
Total current liabilities 1,119,518
Long-term debt, net 555,222
Capitalized lease obligations, net 120,603
------------
Total liabilities 1,795,343
------------
Preferred stock, no par value, 5,000,000 shares authorized,
none issued and outstanding 0
Common stock, no par value, 10,000,000 shares authorized,
5,540,895 shares issued and outstanding 16,652,199
Retained earnings (Accumulated deficit) (9,799,088)
Total shareholders' equity 6,853,111
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,648,454
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
MEDICAL SCIENCE SYSTEMS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 102,616 $ 72,006 $ 161,510 $ 100,289
Cost of sales 84,005 94,046 114,092 104,596
----------- ----------- ----------- -----------
Gross profit 18,611 (22,040) 47,418 (4,307)
Research and development 349,810 137,279 866,732 647,443
Selling, general, and
administrative expenses 2,035,447 861,877 3,820,965 1,151,503
----------- ----------- ----------- -----------
Total expenses 2,385,257 999,156 4,687,697 1,798,946
----------- ----------- ----------- -----------
Loss from operations (2,366,646) (1,021,196) (4,640,279) (1,803,253)
Other income (expense):
Interest income 106,691 38 252,340 38
Interest expense (23,135) (16,037) (47,420) (30,690)
Other income 2,436 0 2,436 0
----------- ----------- ----------- -----------
Total other income (expense) 85,992 (15,999) 207,351 (30,652)
----------- ----------- ----------- -----------
Loss before provision for
income taxes (2,280,654) (1,037,195) (4,432,928) (1,833,905)
Provision for taxes 0 (850) 850 0
----------- ----------- ----------- -----------
NET LOSS $(2,280,654) $(1,036,345) $(4,433,778) $(1,833,905)
=========== =========== =========== ===========
Net loss per share (0.41) (0.29) (0.80) (0.53)
Shares used in computing net
loss per share 5,540,895 3,536,571 5,540,895 3,478,315
</TABLE>
3
<PAGE> 6
MEDICAL SCIENCE SYSTEMS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(4,433,778) $(1,833,905)
Reconciling adjustments:
Depreciation and amortization 71,907 15,999
Issuance of stock options for a reduction in salary 0 148,377
Accretion of investments (157,036) 0
(Increase) decrease in:
Accounts receivable (21,358) (28,075)
Inventories 5,156 0
Prepaid expenses (110,635) 0
Increase (decrease) in:
Accounts payable 25,674 226,809
Accrued expenses 415,011 76,829
Deferred income 126,893 0
----------- -----------
Net cash used in operating activities (4,373,076) (1,393,966)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment (318,361) (25,023)
Increases in patents (144,811) (67,005)
Maturity of investments 2,052,000 0
----------- -----------
Net cash provided by investing activities 1,588,828 (85,463)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 0 1,371,380
Proceeds from capitalized lease obligations 79,454 0
Increase in deferred offering costs 0 (31,081)
Borrowings on line of credit, net 0 146,277
Retirement of long-term debt (558,538) 0
Proceeds from long-term borrowings 570,000 0
Principal payments of long-term debt (73,762) (18,654)
Principal payments of capitalized lease obligations (30,966) (14,477)
----------- -----------
Net cash provided by (used in) financing activities (13,812) (1,453,445)
----------- -----------
Net increase (decrease) in cash and equivalents (2,798,060) (25,984)
Cash and equivalents, beginning of period 6,005,059 55,966
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 3,206,999 $ 29,982
=========== ===========
</TABLE>
4
<PAGE> 7
MEDICAL SCIENCE SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - PRESENTATION OF INTERIM INFORMATION
As contemplated by the Securities and Exchange Commission under Item 310(b)
of Regulation S-B, the accompanying consolidated financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. The interim financial
data are unaudited; however, in the opinion of the management of Medical
Science Systems, Inc. and subsidiary (the "Company"), the accompanying
unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to make the
interim financial information not misleading. Results for interim periods
are not necessarily indicative of those to be expected for the full year.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company
maintains cash deposits at one bank. Deposits at this bank are insured by
the Federal Deposit Insurance Corporation up to $100,000. The Company has
not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
NOTE 3 - INVESTMENTS
The Company's investments, which consist of United States treasury debt
securities, are classified as held-to-maturity and are reported at amortized
cost. These securities have original maturities ranging from six months to
one year. The amortized cost is approximately equal to the fair market value
at June 30, 1998.
NOTE 4 - EARNINGS PER SHARE
The Company computes earnings (loss) per share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
SFAS No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects
of options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per share.
Basic earnings per share is computed using the weighted-average number of
common shares outstanding during the period. Common equivalent shares are
excluded from the computation if their effect is anti-dilutive. Net loss per
share amounts for all periods have been restated to conform to SFAS No. 128
requirements. Prior to SFAS No. 128, the Securities and Exchange Commission
("SEC") required that, even where anti-dilutive, common and common
equivalent shares issued during the twelve-month period prior to the filing
of an IPO be included in the calculation of earnings per share as if they
were outstanding for all periods presented (using the treasury stock method
and the IPO price). Because of new requirements issued in 1998 by the SEC
for companies that recently completed an IPO and interpretation by FASB of
the initial application of SFAS No. 128, the number of shares used in the
calculation of basic net loss per share has changed to exclude common
equivalent shares, even when anti-dilutive. Net loss per share for all
periods presented has been restated to conform with SFAS No. 128 and Staff
Accounting Bulletin No. 98.
5
<PAGE> 8
NOTE 5 - STOCK OPTIONS
During the quarter ended June 30, 1998, the Company issued 40,000
incentive stock options and 35,000 non-qualified stock options to
certain employees and consultants. The options entitle the holder to
purchase shares of the Company's common stock at prices from $3.88 to
$6.00 per share and expire ten years from the date of issuance.
Incentive stock options generally are granted with a 4-year vesting
schedule.
NOTE 6 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 130, "Reporting Comprehensive Income." This
statement requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 is effective for
financial statements issued for fiscal years beginning after December
15, 1997. Management believes that SFAS No. 130 will not have a material
effect on the Company's financial statements.
The FASB also issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes
additional standards for segment reporting in the financial statements
and is effective for fiscal years beginning after December 15, 1997.
Management believes that SFAS No. 131 will not have an effect on the
Company's financial statements.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
- -------
OVERVIEW
Medical Science Systems, Inc. is dedicated to the development and
commercialization of genetic susceptibility tests for common diseases that are
treatable and preventable. The Company has initially concentrated on four
disease areas: periodontal disease (gum disease), osteoporosis (bone disease),
coronary artery disease (heart disease), and diabetic retinopathy (blindness
associated with diabetes). Recently the Company announced a new program in
asthma (lung disease). Additional discovery and development work is focused on
identifying markers and therapeutic targets for other chronic inflammatory
diseases in which genetics plays an important role.
The Company has followed a strategy of working with strategic partners
at the fundamental discovery stage. This strategy has given the Company access
to discoveries while reducing up-front research expenses. Since 1994, the
Company has had a strategic alliance with the Section of Molecular Medicine at
Sheffield University in the United Kingdom, now known as the Department of
Molecular and Genetic Medicine ("MGM"). Under this alliance, MGM has provided to
the Company the fundamental discovery and genetic analysis from MGM's research
laboratories and the Company has focused on product development, including
clinical trials, and the commercialization of these discoveries. The Company has
entered into multiple joint development and commercialization project agreements
with MGM, and anticipates entering into additional collaborative arrangements
with MGM and other parties during the year.
In October 1997, the Company commercially launched its first genetic
susceptibility test in the US. The test is for periodontal disease, and is known
as PST(R). PST(R) is the first in a series of genetic susceptibility tests that
the Company plans to bring to market during the next several years.
Management is pleased to report indications of growing acceptance for
PST(R) tests during the quarter. Such indications include purchases of PST(R)
tests by new dentists and increased interest from managed healthcare
organizations. The improvement is reflected in the $102,616 in revenues from 623
tests processed during the second quarter compared to revenue of $58,840 from
355 tests during the previous quarter, a 174% increase in revenue. In addition,
during the second quarter of 1998 the Company reported "pre-paid" revenue of
$200,000 from 1,697 tests or a 4.6% increase over the $191,194 from 1,558 tests
"pre-paid" for the previous quarter ended March 31, 1998. Pre-paid revenue
represents orders placed in preparation for the doctors to commence testing
patients. Such pre-paid revenue is reported as a liability until tests are
actually performed, at which time revenue is recognized by the Company.
In December 1997, the Company entered into an agreement with Medicadent,
a French corporation ("Medicadent"), to market and sell PST(R). Medicadent will
act as exclusive independent sales representative for sales of PST(R) in the
territory of France. The Company anticipates that the commercial introduction of
PST(R) through Medicadent will commence in France during the second quarter of
1998. The Company anticipates additional international agreements later in the
year.
The Company has been awarded three patents, and has eleven patents
pending. The U.S. Patent & Trademark Office awarded patents to the Company for
its osteoporosis and periodontal disease susceptibility tests. The Company has
also received a patent award for its biologic modeling technology called
BioFusion(R), which is used by the Company in the discovery, development and
commercialization process.
In November 1997, the Company completed its initial public offering of
Common Stock raising gross proceeds of $16.2 million. The Company is using the
proceeds of the offering predominantly to fund sales, marketing
7
<PAGE> 10
and commercial operations for its genetic susceptibility testing business and
continued development of new genetic susceptibility tests.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 VERSUS THREE MONTHS ENDED JUNE 30, 1997
Gross revenue for the three months ended June 30, 1998 was $102,616 as
compared to $72,006 for the same period ended June 30, 1997, representing an
increase of $60,610 or 69%. The increases in revenue are primarily attributable
to the introduction of the Company's first genetic test. Cost of sales was
$84,005 for the three months ended June 30, 1998 as compared to $94,046 for
1997, representing a decrease of 11%. The decrease in cost of sales is
attributable primarily to volume discounts with outside vendors for lab charges
for genetic susceptibility tests.
For the three months ended June 30, 1998, the Company had R&D expenses
of $349,810 as compared to $137,279 for the second quarter of 1997, an increase
of 155%. This increase is due to the addition of key scientists for our coronary
artery disease and osteoporosis genetic susceptibility tests, as well as for new
clinical trials which have commenced for the same two tests.
Selling, general and administrative expenses increased significantly in
the second quarter of 1998 to $2,035,447 from $861,877, an increase of
$1,173,570 or 136%. Such increase was anticipated by the Company and is
primarily attributable to building the infrastructure to support commercial
operations and the increased marketing and sales efforts required to support the
Company's genetic susceptibility testing business. Additionally, general and
administrative expenses increased to support the research and development
efforts of the Company, as well as to provide the reports and other activities
required of a reporting company. The Company has increased its number of full
time (or equivalent) employees from 32 as of December 31, 1997 to 45 at June 30,
1998.
During the second quarter of 1998, the Company consolidated its
corporate headquarters from Newport Beach, California into the Company's San
Antonio Research Facility. As a result of this relocation, the Company amended
its existing lease in San Antonio to extend the term and expand its premises.
The amended lease expires on May 31, 2003 and extends its square footage from
approximately 1,961 square feet to 8,131 square feet. Also, as a result of the
move from California, the Company has subleased its leased office space in
Newport Beach. The sublease expires on the same date of the Company's lease,
April 30, 2001.
Interest income from the second quarter of 1998 increased to $106,691
from $38 in the second quarter of 1997. Such increase is attributable entirely
to the interest income generated by the unused net proceeds of the initial
public offering. Interest expense of $23,135 was incurred during the period
ended June 30, 1998, an increase of 44% on $16,037 over the same period in 1997.
Such increase is attributable to the added interest expense incurred on new
equipment leases for computer and office equipment.
Total losses increased to $2,280,654 for the second quarter of 1998, as
compared to $1,036,345 for the second quarter of 1997, an increase of $1,244,309
or 120%. Such increased loss is a result of the increased expenses of building
the infrastructure to support commercial operations and of marketing and selling
the periodontal disease genetic test. The Company anticipates that it will
continue to experience losses resulting from such expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its cash and cash equivalents and investments
are the most significant indicators of the Company's liquidity position. As of
June 30, 1998, the Company had cash and cash equivalents of $3,206,999 and
investments of $4,112,749 for a total of $7,319,748. The Company's investments
consisted predominantly of short-term U.S. Treasury Notes and other securities
the Company believes to be highly liquid and relatively low-risk. Such
investments generated interest income of $106,691 in the second quarter of 1998.
The Company does not have any commitments for material long-term capital
expenditures, but anticipates that it will continue to enter into new capital
and operating leases for computer and office equipment. The Company's obligation
at June 30, 1998 for such leases totaled $201,805, of which long term debt is
$120,603 and short term debt is $81,202.
8
<PAGE> 11
During the second quarter of 1998 the Company changed the terms of its
long-term bank loan with the Bank of America NT&SA. The two existing loans were
combined into a single term loan which matures in June 2005, representing a
three-year extension from the previous loans. The principal balance on this loan
at June 30, 1998 was $570,000, of which $555,222 is long term debt and $14,778
is short term debt. Three officers of the Company who had served as guarantors
on the two previous loans were removed as guarantors on the new loan. The
Company has provided a $570,000 certificate of deposit as security for this
loan. The Company believes that all long-term obligations will be paid and
payable from the cash and cash equivalents and investments available to the
Company.
The Company anticipates that the existing cash and investments, together
with interest income anticipated thereon and anticipated revenue, will be
sufficient to conduct its operations as planned through 1998. However, the
Company's future capital requirements are anticipated to be substantial, and the
Company does not have commitments for additional capital at this time. Such
capital requirements are expected to arise from the commercial launch of
additional genetic tests, continued marketing and sales efforts for PST(R),
continued research and development efforts, the protection of the Company's
intellectual property rights (including preparing and filing of patent
applications), the negotiation of distribution and other collaborative
arrangements for sales of the Company's products and operational, administrative
and legal expenses. The Company believes that, because its future capital needs
are significant, it will attempt to raise capital through equity and debt
issuance when, and if, such capital is available to it.
IMPACT OF THE YEAR 2000 ISSUE
The Company has completed a review of its existing and planned computer
software and hardware and has determined that the costs and/or consequences
associated with the Year 2000 issue are not expected to have a material effect
on the Company's business, operations or future financial results or future
financial condition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that this report on Form 10-QSB contains certain
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties which
could cause actual results to differ materially from these described in the
forward-looking statements. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including, but not limited to, the following: difficulties
inherent in developing genetic tests once genes have been discovered; the
Company's limited marketing and sales experience and the risk that tests which
the Company has or may develop may not be able to be marketed at acceptable
prices or receive commercial acceptance in the markets that the Company is
targeting or expects to target; uncertainty as to whether there will exist
adequate reimbursement for the Company's services from government, private
health care insurers and third-party payors; and uncertainties as to the extent
of future government regulation of the Company's business. As a result, the
Company's future development efforts involve a high degree of risk. For further
information, refer to the more specific risks and uncertainties disclosed in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
9
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is its property the subject of, any
pending legal proceeding.
ITEM 2. CHANGES IN SECURITIES
The following table sets forth the Company's use of proceeds from its
initial public offering, from the closing of the offering until June 30, 1998:
Direct or indirect payments
to anyone other than
directors, officers, persons
owning ten percent or more of
any class of equity
securities of the Company,
and affiliates of the Company
(of which there were no such
payments).
- --------------------------------------------------------------------------------
Cash and investments $ 9,433,793
- --------------------------------------------------------------------------------
Research and development expenses $ 905,530
- --------------------------------------------------------------------------------
Marketing and sales expenses $ 2,329,686
- --------------------------------------------------------------------------------
General and administrative expenses $ 2,234,991
- --------------------------------------------------------------------------------
Total net proceeds: $ 14,904,000
- --------------------------------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual Meeting of Stockholders on Tuesday,
June 9, 1998, to vote on two proposals. Proxy statements were sent to all
stockholders. The first proposal was for the election of directors, including
Paul J. White, Michael G. Newman, Ronald A. LaRosa, Kenneth S. Kornman and
Thomas A. Moore. All five directors were elected with the following votes
tabulated as follows:
Total Vote for Total Votes Total Vote Withheld
Name of Director Each Director Against From Each Director
- ---------------- -------------- ----------- -------------------
Mr. White 4,035,034 0 3,800
Mr. Newman 4,035,034 0 3,800
Mr. LaRosa 4,035,034 0 3,800
Mr. Kornman 4,035,034 0 3,800
Mr. Moore 4,035,034 0 3,800
The second proposal was for an amendment of the 1996 Equity Incentive Plan to
increase the number of shares of the Company's common stock authorized for
issuance under such Plan by an additional 300,000 shares. The amendment was
approved with the following votes tabulated:
FOR AGAINST ABSTAIN BROKER NON-VOTES
4,021,854 11,900 2,800 2,280
ITEM 5. OTHER INFORMATION
None.
10
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
11
<PAGE> 14
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.
MEDICAL SCIENCE SYSTEMS, INC.
Date: August 13, 1998 By: /s/ U. Spencer Allen
--------------------------------
U. Spencer Allen
Chief Financial Officer
and Treasurer
12
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,206,999
<SECURITIES> 4,112,749
<RECEIVABLES> 63,473
<ALLOWANCES> 5,000
<INVENTORY> 45,056
<CURRENT-ASSETS> 7,576,424
<PP&E> 712,330
<DEPRECIATION> 237,286
<TOTAL-ASSETS> 8,648,454
<CURRENT-LIABILITIES> 1,119,518
<BONDS> 0
0
0
<COMMON> 16,652,199
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,648,454
<SALES> 161,510
<TOTAL-REVENUES> 161,510
<CGS> 114,092
<TOTAL-COSTS> 4,687,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,420
<INCOME-PRETAX> (4,432,928)
<INCOME-TAX> 850
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,433,778)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 29,982
<SECURITIES> 0
<RECEIVABLES> 40,434
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 70,416
<PP&E> 208,641
<DEPRECIATION> 116,740
<TOTAL-ASSETS> 414,598
<CURRENT-LIABILITIES> 863,253
<BONDS> 0
0
0
<COMMON> 1,691,257
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 414,598
<SALES> 100,289
<TOTAL-REVENUES> 100,289
<CGS> 104,596
<TOTAL-COSTS> 1,798,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,690
<INCOME-PRETAX> (1,833,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,833,905)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
