<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22885
AUTOCYTE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1995728
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
112 Orange Drive, Elon College, North Carolina 27244
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
336 584-0250
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at May 6, 1998
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 12,671,076
<PAGE> 2
AUTOCYTE, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)...............2
Condensed consolidated balance sheets
March 31, 1998 and December 31, 1997..........................2
Condensed consolidated statements of operations
Three months ended March 31, 1998 and 1997....................3
Condensed consolidated statements of cash flows
Three months ended March 31, 1998 and 1997....................4
Notes to condensed consolidated financial statements
March 31, 1998................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................6
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................10
Item 2. Changes in Securities and Use of Proceeds...........................10
Item 3. Defaults 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....................................10
Signatures...................................................................11
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AUTOCYTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,234,106 $ 28,655,082
Accounts receivable, net 1,185,475 906,154
Inventory 2,015,107 2,191,995
Other current assets 378,535 415,248
------------ ------------
Total current assets 29,813,223 32,168,479
Property and equipment, net 2,236,385 2,018,142
Goodwill 2,796,875 2,834,375
------------ ------------
Total assets $ 34,846,483 $ 37,020,996
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,062,517 $ 1,129,016
Accrued expenses 733,171 815,998
------------ ------------
Total current liabilities 1,795,688 1,945,014
Long-term liabilities 46,364 48,768
Stockholders' equity:
Common stock, $0.01 par value; 20,650,000 shares authorized;
12,666,055 and 12,505,412 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 126,661 125,054
Additional paid in capital 49,585,514 49,553,302
Deferred compensation (2,527,589) (2,743,280)
Accumulated deficit (14,180,155) (11,907,862)
------------ ------------
Total stockholders' equity 33,004,431 35,027,214
------------ ------------
Total liabilities and stockholders' equity $ 34,846,483 $ 37,020,996
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
AUTOCYTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ -----------
<S> <C> <C>
Net sales $ 1,077,078 $ 383,397
Cost of goods sold 676,913 346,766
------------ -----------
Gross profit 400,165 36,631
Operating expenses:
Research and development 1,044,283 1,194,108
Selling, general and administrative 2,001,700 1,289,185
------------ -----------
3,045,983 2,483,293
------------ -----------
Operating loss (2,645,818) (2,446,662)
Interest income 378,132 108,169
Interest expense (4,607) --
------------ -----------
Net loss $ (2,272,293) $(2,338,493)
============ ===========
Net loss per common share (basic and diluted) $ (0.18) $ (0.55)
============ ===========
Weighted-average common shares outstanding 12,603,993 4,279,389
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
AUTOCYTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Net cash used in operating activities: $ (2,062,671) $ (1,569,013)
Cash flows from investing activities:
Purchases of property and equipment (389,720) (136,040)
------------------ -----------------
Net cash used in investing activities (389,720) (136,040)
Cash flows from financing activities:
Proceeds from issuance of common stock 33,819 -
Reduction in long-term liabilities (2,404) -
------------------ -----------------
Net cash provided by financing activities 31,415 -
Net decrease in cash and cash equivalents (2,420,976) (1,705,053)
Cash and cash equivalents at beginning of period 28,655,082 9,517,274
------------------ -----------------
Cash and cash equivalents at end of period $ 26,234,106 $ 7,812,221
================== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
AUTOCYTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments (consisting of normal, recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods presented. The results of operations for such periods are not
necessarily indicative of the results expected for the full year or for any
future period. The accompanying financial statements should be read in
conjunction with the Company's audited consolidated financial statements for the
period ended December 31, 1997, included in the Company's Annual Report on Form
10-K (File No. 0-22885).
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 660,863 $ 560,297
Finished goods 1,354,244 1,631,698
---------- ----------
$2,015,107 $2,191,995
========== ==========
</TABLE>
3. NET LOSS PER SHARE OF COMMON STOCK
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for fiscal years
ending after December 15, 1997 and replaces the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Upon
adoption, all prior period earnings per share amounts (including quarterly
information) are required to be restated. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities, and only reflects actual common shares outstanding. The
Company's calculation of earnings (loss) per share reflects the completion of
its initial public offering (the "Offering") and the simultaneous conversion of
its convertible preferred stock into common stock in September 1997. Prior to
the adoption of SFAS 128, approximately 4.9 million shares of convertible
preferred stock were assumed to be outstanding in calculating previously
reported loss per share amounts. Under SFAS 128, these shares are not included
as shares outstanding until their conversion at the time of the Offering.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. As the Company incurred losses during all periods
presented, the effect of options, warrants and convertible preferred stock is
anti-dilutive and accordingly, there is no difference between basic and diluted
loss per share.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Overview
AutoCyte, Inc. ("AutoCyte" or the "Company") develops, manufactures and markets
the only integrated automated sample preparation and image analysis system to
support cytology professionals in cervical cancer screening. The Company is
currently pursuing regulatory approval of its products for sale in the United
States and has begun sales in several foreign countries. The Company's
integrated system is comprised of the AutoCyte PREP ("PREP") sample preparation
system and the AutoCyte SCREEN ("SCREEN") image analysis system. The Company's
Pathology Workstation product line further integrates AutoCyte's product
offerings into tools for data handling of cytology and pathology images, and
tools for determining prognosis of disease from cytology and pathology
specimens.
PREP is a proprietary automated liquid-based sample preparation system that
produces slides with a homogeneous layer, or "monolayer," of cervical cells. The
Company believes PREP will improve laboratory productivity and significantly
reduce interpretation errors by producing cell samples that are clearer, more
uniform and easier to interpret than conventional Pap smear samples. PREP is
designed to operate both as an independent sample preparation system and in
conjunction with SCREEN as part of an integrated diagnostic system.
SCREEN is an automated image analysis system which combines proprietary imaging
technology and classification software with off-the-shelf computer hardware to
screen slides prepared using PREP. SCREEN is designed to be an interactive
support tool for the cytology professional in the primary screening of cervical
cells and may serve quality control and adjunctive testing purposes. By
designing PREP and SCREEN to function together, AutoCyte has developed a system
which the Company believes will operate with higher throughput and greater
diagnostic sensitivity than the conventional Pap smear test and other cervical
cancer screening systems.
AutoCyte was formed in October 1996 to acquire the cytology and pathology
automation business then owned by Roche Image Analysis Systems, Inc. ("RIAS"), a
wholly-owned subsidiary of Roche Holding Ltd. ("Roche"). Roche had previously
operated such business as part of Roche Biomedical Laboratories, Inc., ("RBL"),
a predecessor company to Laboratory Corporation of America, Inc. ("LabCorp"),
the largest clinical laboratory chain in the United States and formerly a
wholly-owned subsidiary of Roche. The business was acquired from RIAS in
November 1996 in exchange for 3.7 million shares of the Company's Common Stock.
Contemporaneously with this acquisition, Ampersand Ventures and the Sprout
Group, together with certain members of the Company's management and other
investors, purchased $9.8 million of redeemable convertible preferred stock of
the Company. Included in the management group making an equity investment in the
Company was Dr. James B. Powell, the Company's Chief Executive Officer and a
former President and Chief Executive Officer of LabCorp and RBL.
The PREP, SCREEN and Pathology Workstation technologies had been under
development by RIAS or other Roche affiliates for several years prior to the
acquisition. From 1990 to 1996, Roche invested more than $50 million in the
cytology and pathology automation business, including over $30 million since the
beginning of 1994. At the time of the acquisition in November 1996, clinical
trials for PREP were in progress and had only recently begun for SCREEN.
Following completion of clinical trials for gynecological applications, the
Company submitted a premarket approval application ("PMA") for PREP to the
United States Food and Drug Administration ("FDA") on May 12, 1997, which was
accepted for substantive review by the FDA on June 11, 1997.
6
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Upon accepting the PREP PMA for substantive review, the FDA informed the Company
that the PMA would not be submitted to its Medical Devices Advisory Panel for
review since information in the PMA substantially duplicated information
previously reviewed by the panel in a PMA submitted by a different company
relating to an alternative monolayer slide preparation product.
After reviewing the PREP PMA and receiving input on it from members of its
advisory panel, the FDA met with representatives from the Company in December
1997 to address certain of the FDA's questions relating to the PREP PMA. At the
meeting, the Company presented additional analyses of certain of the data from
the PREP PMA. The FDA advised the Company that it would need to amend the PREP
PMA to include this and other information, and indicated that it would notify
the Company in writing as to the scope of the required response to the agency's
questions.
In February 1998 the Company received a letter from the FDA providing detail on
additional information it needed to continue review of the PREP PMA. The FDA did
not request that the Company perform any additional clinical trials. The FDA
requested that the Company's response be in the form of an amendment to the PREP
PMA. After preparing the requested information, the Company submitted the
amendment to the FDA on March 4, 1998.
FDA regulations provide that the FDA may extend the review period for a PMA by
up to 180 days from the date of submission of an amendment requested by the
agency. While the FDA review of the PREP PMA amendment may be shorter than 180
days, there can be no assurance that the FDA's review will not take 180 days or
longer or that the PREP PMA will be approved within that period or at all.
The Company has completed the clinical trials for SCREEN, and anticipates filing
its PMA in the second quarter of 1998.
In the United States, the Company cannot market PREP for use in preparing
monolayer slides or SCREEN for screening monolayer slides until the respective
PMA approvals are received from the FDA. If such approvals are obtained, the
Company intends to focus its marketing efforts on such products for cervical
cytology applications. The Company expects to generate a substantial majority of
its future revenues from the PREP and SCREEN systems. The Company's long-term
revenues and future success are substantially dependent upon its ability to
obtain regulatory approval for, and market and commercialize the PREP and SCREEN
systems for, cervical cancer screening in the United States and abroad.
The Company generates PREP revenue from both system sales and rentals. For
system sales, customers purchase the PREP instrument and make separate purchases
of related reagents and other disposables. For system rentals, the Company
places the PREP instrument at the customer's site, and customers make monthly
payments that include rent and the purchase of a minimum monthly quantity of
reagents and other disposables. The term of the PREP rentals ranges from
month-to-month to three years. For SCREEN customers in the United States, the
Company intends to place instruments without charge at customer locations and to
charge customers on a per test, or Fee-Per-Use ("FPU"), basis. In foreign
markets, the Company plans to either sell or license SCREEN. As an important
element of its business strategy, the Company intends to seek third-party
financing to support rentals of PREP and FPU placements of SCREEN. There can be
no assurance that the Company will be able to obtain such financing or, if so,
on favorable terms. Failure to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Future revenues and results of operations may fluctuate significantly from
quarter to quarter and will depend upon, among other factors, the timing and
outcome of the FDA review of the PREP PMA submission, the extent to which the
Company's products gain market acceptance, the timing and volume
7
<PAGE> 9
of sales and rental orders, regulatory and reimbursement matters, the timing and
outcome of the SCREEN PMA submission and the FDA review thereof, introduction of
alternative technologies by competitors, pricing of competitive products, the
cost and effect of promotional discounts and marketing programs adopted by the
Company.
The Company anticipates that if FDA approval is received to market PREP for
gynecological uses, its marketing and sales expenditures will increase
significantly. The Company also anticipates that research and development
expenses, both in the areas of product enhancement and new product development,
and manufacturing expenses will also increase as product commercialization
increases. The Company additionally expects to incur compensation expense of
$2.5 million as its deferred compensation balance is amortized.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
Revenues for the first quarter of 1998 were $1.1 million, an increase of 181%
from $383,000 in the first quarter of 1997. The majority of the increase was due
to an increase in sales of PREP units and related consumables. The Company's
gross margin during the three months ended March 31, 1998 was 37%, an increase
from 10% in the corresponding period of 1997. This increase was due primarily to
a change in product mix towards the PREP line of products.
Operating expenses for the quarter were $3.0 million, an increase of 23% from
$2.5 million in the first quarter of 1997. Research and development costs
decreased $150,000 from the first quarter of 1997, resulting from decreased
costs associated with the preparation of the PREP PMA, which was submitted to
the FDA for review in mid-1997. Selling, general and administrative costs
increased $713,000 from the first quarter of 1997, due primarily to higher
personnel costs as the Company increased its staffing levels to support
anticipated product commercialization. Additionally, certain of the Company's
other administrative expenses increased as a result of becoming a public
company, primarily insurance premiums and professional fees.
Net interest income for the first quarter of 1998 was $374,000, an increase of
245% from $108,000 in the corresponding quarter of 1997. The increase was
attributable to the short-term investment of proceeds from the Company's initial
public offering in September 1997.
The net loss for the first quarter of 1998 remained unchanged from first quarter
of 1997 at $2.3 million. Net loss per share was $0.18, a decrease from a net
loss per share of $0.55 in the first quarter of 1997. (See Footnote 3 of the
Condensed Consolidated Financial Statements with respect to the effect of
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share.")
LIQUIDITY AND CAPITAL RESOURCES
Since its formation on October 24, 1996, the Company's expenses have
significantly exceeded its revenues, resulting in an accumulated deficit of
$14.2 million as of March 31, 1998. The Company has funded its operations
primarily through the private placement and public sale of equity securities,
resulting in net proceeds of $38.0 million, and limited product sales. As of
March 31, 1998, the Company had cash and cash equivalents of $26.2 million.
Cash used in the Company's operations was $2.1 million during the three months
ended March 31, 1998 and $1.6 million during the corresponding period of 1997.
Negative operating cash flow during both
8
<PAGE> 10
periods was caused primarily by operating losses. The Company's capital
expenditures were $390,000 during the three months ended March 31, 1998 and
$136,000 during the corresponding period of 1997, with the increase primarily
attributable to the purchase of PREP units for rental and demonstration
purposes. The Company has no material commitments for capital expenditures.
The Company believes that existing cash and anticipated additional debt and
lease financing for rental placements of PREP and FPU placements of SCREEN (if
and when FDA approval is received) will be sufficient to enable the Company to
meet its future cash obligations through 1999. The Company's future liquidity
and capital requirements will depend upon numerous factors, including the timing
of the Company's receipt of FDA approval of its PMA for PREP, the availability
of financing for the Company's anticipated equipment lease and rental programs,
the level of placements of rental PREP systems and FPU SCREEN systems, the
resources required to further develop its marketing and sales capabilities
domestically and internationally, the timing and outcome of its PMA for SCREEN,
the resources required to expand manufacturing capacity and the extent to which
the Company's products generate market acceptance and demand. In particular, if
the FDA approves the PREP PMA, the Company anticipates that marketing and sales
expenditures for the PREP market launch for gynecological uses in the United
States, capital expenditures associated with placements of PREP rental units,
and expenditures related to manufacturing and other administrative costs will
increase significantly. There can be no assurance that the Company will not
require additional financing or will not in the future seek to raise additional
funds through bank facilities, debt or equity offerings or other sources of
capital. Additional funding may not be available when needed or on terms
acceptable to the Company, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
This report contains forward looking statements which are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company's operating results and financial condition have varied and may in the
future vary significantly depending on a number of factors. The statements
contained in this report which are not strictly historical information,
including, without limitation, statements regarding the receipt of regulatory
approvals, implementation of the Company's full-scale marketing and sales
activities, management's plans and objectives for future operations, product
plans and performance, management's assessment of market factors, as well as
statements regarding the strategy and plans of the Company, constitute forward
looking statements which involve risks and uncertainties. The following factors,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. These factors include the Company's
early stage of development and limited sales to date, uncertainty of FDA
approval of its principal products, uncertainty of market acceptance of the
Company's principal products, competition and technological change, history of
operating losses and uncertainty of future profitability, dependence on a
limited number of products, the possibility of future capital needs and the
uncertainty of availability of additional financing, dependence on patents,
copyrights, licenses and proprietary rights, risk of third-party claims of
infringement, extensive government regulation, dependence on third-party
reimbursement, international sales and operations risks, limited marketing and
sales resources, risk associated with product liability claims, limited number
of potential customers, limited manufacturing experience, and dependence on
single or limited-source suppliers. Such factors, among others, are described in
greater detail in Exhibit 99.1 to the Company's Annual Report on Form 10-K (File
No. 0-22885) under the heading "Important Factors Regarding Forward-Looking
Statements." These factors may have a material adverse effect upon the Company's
business, results of operations and financial conditions. Because of these and
other factors, past financial performance should not be considered an indication
of future performance.
9
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
Use of proceeds information is provided herewith in connection with the
Offering. The Company's Registration Statement on Form S-1 (File No. 333-30227)
was declared effective by the Securities and Exchange Commission on September 4,
1997. The first closing for the Offering was held on September 10, 1997 and a
second overallotment closing was held on October 10, 1997. The Offering has
terminated.
In the aggregate the Company sold in its two closings 3,125,000 shares (with an
aggregate offering price to the public of $31,250,000) out of the 3,565,000
shares of Common Stock (with an aggregate offering price of $35,650,000)
registered in the Offering. The managing underwriters of the Offering were SBC
Warburg Dillon Read Inc. and UBS Securities.
In connection with the Offering, the Company incurred the following expenses
through March 31, 1998: underwriting discounts and commissions of $2,187,000 and
other expenses of $1,169,339. After expenses incurred through March 31, 1998,
the Company's net proceeds from the Offering were $27,893,661 as of March 31,
1998. From September 5, 1997 (the effective date of the Company's Registration
Statement on Form S-1) through March 31, 1998, the amount of net offering
proceeds used by the Company was as follows: $1,044,785 for purchases of
machinery and equipment, $4,257,417 to fund current operations (of which
$899,027 was paid to officers of the Company), $356,971 for working capital
purposes, and the remaining $22,234,488 was invested in short-term securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
ITEM 5. OTHER INFORMATION:
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. See exhibit index on page 12
(b) Reports on Form 8-K. None
10
<PAGE> 12
AUTOCYTE, INC.
FORM 10-Q
MARCH 31, 1998
SIGNATURE
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.
AUTOCYTE, INC.
DATE: May 12, 1998 BY: /s/ William O. Green
---------------------
William O. Green
Duly Authorized Officer and
Principal Financial Officer
11
<PAGE> 13
EXHIBIT INDEX
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of the Company. Filed as
Exhibit 3.5 to the Company's Registration Statement on Form
S-1 (File No. 333-30227) and incorporated herein by reference.
3.2 Amended and Restated By-laws of the Company. Filed as Exhibit
3.7 to the Company's Registration Statement on Form S-1 (File
No. 333-30227) and incorporated herein by reference.
4.1 Specimen of Common Stock Certificate. Filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (File No.
333-30227) and incorporated herein by reference.
27 Financial Data Schedule (for EDGAR filing purposes only)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,234,106
<SECURITIES> 0
<RECEIVABLES> 1,310,475
<ALLOWANCES> 125,000
<INVENTORY> 2,015,107
<CURRENT-ASSETS> 29,813,223
<PP&E> 2,888,467
<DEPRECIATION> 652,082
<TOTAL-ASSETS> 34,846,483
<CURRENT-LIABILITIES> 1,795,688
<BONDS> 0
0
0
<COMMON> 126,661
<OTHER-SE> 32,877,770
<TOTAL-LIABILITY-AND-EQUITY> 34,846,483
<SALES> 1,077,078
<TOTAL-REVENUES> 1,077,078
<CGS> 676,913
<TOTAL-COSTS> 676,913
<OTHER-EXPENSES> 3,005,983
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 4,607
<INCOME-PRETAX> (2,272,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,272,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,272,293)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
