<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
________________.
Commission file number 0-6523
MICRO THERAPEUTICS, INC.
(exact name of small business issuer as specified in its charter)
Delaware 33-0569235
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
1062 Calle Negocio #F, San Clemente, California 92673
(Address of principal executive offices)
(949) 361-0616
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 14, 1998
----- ---------------------------
<S> <C>
Common Stock, $.001 par value 6,606,291
</TABLE>
Page 1 of 21 Pages
Exhibit Index on Page 19
<PAGE> 2
MICRO THERAPEUTICS, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
<S> <C>
Item 1.Financial Statements
Balance Sheet as of March 31, 1998 (unaudited).............................3
Statements of Operations for the Three Months Ended March 31, 1997
and 1998 (unaudited)...................................................4
Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1998 (unaudited)...................................................5
Notes to Financial Statements............................................6-7
Item 2.Management's Discussion and Analysis or Plan of Operation..................8-16
PART II. OTHER INFORMATION
Item 1.Legal Proceedings............................................................17
Item 6.Exhibits and Reports on Form 8-K.............................................17
SIGNATURES..................................................................................18
</TABLE>
2
<PAGE> 3
MICRO THERAPEUTICS, INC.
BALANCE SHEET
March 31, 1998
(Unaudited)
-----------
<TABLE>
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,940,010
Short term investments 6,299,971
Accounts receivable 436,617
Inventories, net of reserve for obsolescence of $31,000 694,102
Prepaid expenses and other current assets 335,716
------------
Total current assets 10,706,416
Property and equipment, net of accumulated depreciation of $620,734 612,220
Patents and licenses, net of accumulated amortization of $63,324 834,006
Other assets 70,380
------------
Total assets $ 12,223,022
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of equipment line of credit $ 65,934
Accounts payable 346,138
Accrued liabilities 500,162
------------
Total current liabilities 912,234
Equipment line of credit 129,247
Convertible note payable, net of discount of $914,000 4,086,398
------------
Total liabilities 5,127,879
------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized, --
no shares issued and outstanding
Common stock, $.001 par value, 20,000,000 shares authorized,
6,591,890 shares issued and outstanding 6,592
Additional paid-in capital 26,277,732
Unearned compensation (101,587)
Accumulated deficit (19,087,594)
------------
Total stockholders' equity 7,095,143
------------
Total liabilities and stockholders' equity $ 12,223,022
============
</TABLE>
See notes to unaudited financial statements.
3
<PAGE> 4
MICRO THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1998
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net sales $ 510,039 $ 905,729
Cost of sales 490,317 426,663
----------- -----------
Gross margin 19,722 479,096
Costs and expenses:
Research and development 1,021,397 1,159,154
Selling, general and administrative 1,038,104 1,353,397
----------- -----------
Total costs and expenses 2,059,501 2,512,551
----------- -----------
Loss from operations (2,039,779) (2,033,455)
Other income (expense):
Interest income 72,613 136,260
Interest expense (7,441) (107,619)
Other income (expense), net 165,258 (1,326)
----------- -----------
230,430 27,315
----------- -----------
Loss before provision for income taxes (1,809,349) (2,006,140)
Provision for income taxes 800 800
----------- -----------
Net loss ($1,810,149) ($2,006,940)
=========== ===========
Per share data:
Net loss per share (basic and diluted) ($ 0.52) ($ 0.31)
=========== ===========
Weighted average shares outstanding 3,452,000 6,537,000
=========== ===========
Pro forma:
Net loss per share (basic and diluted) ($ 0.34)
===========
Weighted average shares outstanding 5,367,000
===========
</TABLE>
See notes to unaudited financial statements.
4
<PAGE> 5
MICRO THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1998
(Unaudited)
-----------
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 1,810,149) ($ 2,006,940)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 86,579 89,394
Amortization of note payable discount -- 38,142
Compensation related to stock options
vesting 29,874 18,003
Gain on sale of investment (167,456) --
Change in operating assets and
liabilities:
Accounts receivable (4,597) (36,796)
Inventories (88,677) (75,431)
Prepaid expenses and other assets (106,882) (202,473)
Accounts payable 91,719 55,386
Accrued liabilities 136,022 28,343
------------ ------------
Net cash used in operating activities (1,833,567) (2,092,372)
------------ ------------
Cash flows from investing activities:
Purchase of short-term investments (5,860,618) (1,958,005)
Maturity of short-term investments -- 1,962,468
Additions to property and equipment (108,400) (84,364)
Additions to patents and licenses (26,854) (142,341)
Decrease in other assets -- 202
------------ ------------
Net cash used in investing activities (5,995,872) (222,040)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 10,267,200 --
Costs of equity issuances (494,190) --
Proceeds from exercise of stock options 23,900 93,811
Borrowings on equipment line of credit 15,465 --
Repayments on equipment line of credit (12,058) (15,076)
------------ ------------
Net cash provided by financing
activities 9,800,317 78,735
------------ ------------
Net increase (decrease) in cash and
cash equivalents 1,970,878 (2,235,677)
Cash and cash equivalents at the beginning
of the period 4,157,147 5,175,687
------------ ------------
Cash and cash equivalents at the end of the
period $ 6,128,025 $ 2,940,010
============ ============
Supplemental schedule of non-cash activities:
Unearned compensation related to
terminated employees $ -- $ 55,379
</TABLE>
See notes to unaudited financial statements.
5
<PAGE> 6
MICRO THERAPEUTICS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Description of The Company:
Micro Therapeutics, Inc. ("MTI" or the "Company") was incorporated in June
1993 in California and was reincorporated in Delaware in November 1996 to
develop, manufacture and market minimally invasive medical devices for
diagnosis and treatment of neuro and peripheral vascular diseases.
2. Summary of Significant Accounting Policies:
Unaudited Interim Financial Information:
----------------------------------------
The financial statements included in this Form 10-QSB have been prepared
pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-QSB, are unaudited and do not contain all of
the information required by generally accepted accounting principles to be
included in a full set of financial statements. The financial statements in
the Company's 1997 annual report on Form 10-KSB include a summary of
significant accounting policies of the Company and should be read in
conjunction with this Form 10-QSB. In the opinion of management, all
material adjustments necessary to present fairly the results of operations
for such periods have been included. All such adjustments are of a normal
and recurring nature. The results of operations for any interim period are
not necessarily indicative of the results of operations for the entire year.
New Accounting Pronouncements
-----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments
of an Enterprise and Related Information", which establishes standards for
public business enterprises to report financial and descriptive information
about operating segments in annual financial statements on the basis that is
used internally for evaluating segment performance and deciding how to
allocate resources to segments. SFAS No. 131 also establishes the standards
for related disclosures about products and services, geographic areas and
major customers. This statement is effective for fiscal years beginning
after December 15, 1997. Management is currently evaluating the requirements
of SFAS No. 131.
3. Genyx Medical, Inc.
On March 12, 1998, Genyx Medical, Inc. ("Genyx"), entered into a $3 million
equity financing agreement. As a result of this financing, the Company's
ownership in Genyx was reduced from 85% to 27%. Because the Company's
carrying value of its investment in Genyx is $0, the Company, in conformity
with generally accepted accounting principles, is currently not required to
recognize its equity share of Genyx losses for the period from March 12,
1998 through March 31, 1998. Expenditures related to Genyx for the period
from January 1, 1998 to March 12, 1998 had been recorded by the Company as
research and development expenses, and amounted to $38,139.
6
<PAGE> 7
4. Net Loss Per Share:
Net loss per share for all periods presented is calculated under the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings
per Share", (which the Company adopted in the fourth quarter of 1997) by
dividing net loss by the weighted average number of common shares issued and
outstanding during the period. For the 1997 pro forma calculation, such
weighted average includes common shares that were issued upon conversion of
all outstanding shares of the Company's Preferred Stock, in connection with
the Company's Initial Public Offering of its Common Stock in February 1997,
as if such conversion had taken place at the beginning of 1997. Potential
common shares, represented by options, warrants and convertible debt, have
been excluded from the calculations due to their anti-dilutive effect. Basic
and diluted loss per share are the same for the periods presented.
Such calculations also conform to the requirements set forth in Staff
Accounting Bulletin ("SAB") Topic 98, issued by the Securities and Exchange
Commission in February 1998. SAB 98 provides that stock options and warrants
granted during the twelve months prior to the date of the filing of a
company's initial public offering at prices less than the per share initial
public offering price be excluded from loss per share calculations.
Previously existing rules set forth by SAB Topic 4-D had required that such
options and warrants be included in loss per share calculations.
Accordingly, the historical net loss per share amount for 1997 shown in the
accompanying statement of operations is different from the $.33 net loss per
share previously reported.
Reconciliations of net loss and shares used in the calculations of net
loss per share are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1997
-----------------------------------------
Net Loss Shares Net Loss
(Numerator) (Denominator) Per Share
----------- ------------- ---------
<S> <C> <C> <C>
Loss available to common stockholders ($1,810,149)
Pro forma weighted average shares
outstanding, giving effect to the
conversion of Preferred Stock as
of the beginning of the period 5,367,000
------------ ----------
Pro forma net loss per share (basic
and diluted) (1,810,149) 5,367,000 ($.34)
Reduction of weighted average shares
outstanding, to give effect to the
conversion of Preferred Stock as of
the effective date of the IPO (1,915,000) (.18)
------------ ---------- -----
Net loss per share (basic and diluted) ($1,810,149) 3,452,000 ($.52)
============ ========== =====
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1998
-----------------------------------------
Net Loss Shares Net Loss
(Numerator) (Denominator) Per Share
----------- ------------- ---------
<S> <C> <C> <C>
Loss available to common stockholders ($2,006,140)
Weighted average shares outstanding 6,537,000
------------ ---------
Net loss per share (basic and diluted) ($2,006,140) 6,537,000 ($0.31)
=========== ========= ======
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Quarterly
Report on Form 10-QSB. This Quarterly Report on Form 10-QSB contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Certain Factors That May Affect
the Company's Business and Future Results."
OVERVIEW
Since its inception in June 1993, MTI has been primarily engaged in the
design, development and marketing of minimally invasive devices for treatment of
vascular disease. The Company has a limited history of operations and has
experienced significant operating losses since inception. Operating losses are
expected to continue as the Company expends substantial resources to fund
research and development, clinical trials, regulatory approvals and
increased marketing and sales activities.
The Company commenced U.S. commercial shipments of its first
thrombolytic infusion catheters in November 1994, but did not generate
significant revenues until it established a direct domestic sales force in the
second half of 1995. To date, the majority of the Company's revenues have been
derived from sales of its initial infusion catheters and related accessories.
The Cragg Thrombolytic Brush(TM) received FDA approval in August 1997 and the
Castaneda Over-The-Wire Brush(TM) received FDA approval in February 1998, with
market introductions having been made upon obtaining such approvals. The Company
expects sales of the products mentioned above, and similar products, to provide
the majority of the Company's revenues at least through 1998.
The Company currently sells its products in international markets
through a limited number of distributors and, in November 1997, signed an
agreement with Guidant Corporation to distribute the Company's neurological
products in Europe. To date, no revenues have been received under the Guidant
arrangement and no significant revenues are expected until the Company's
EMBOLYX(TM) Liquid Embolic System receives CE Mark certification. CE Mark
certification for many of the Company's products was received in 1997. The
Company expects that it will obtain CE Mark certification for its currently
released products in 1998, however there can be no assurance that such
certification will be obtained.
The Company's products are currently manufactured by the Company at its
facility in San Clemente, California. Certain accessories are manufactured and
processes are performed by contract manufacturers.
Future revenues and results of operations may fluctuate significantly
from quarter to quarter and will depend upon, among other factors, actions
relating to regulatory and reimbursement matters, the extent to which the
Company's products gain market acceptance, the rate at which the Company
establishes its international sales and distribution network, the progress of
clinical trials, and the introduction of competitive products for diagnosis and
treatment of neuro and peripheral vascular disease. The Company's limited
operating history makes accurate prediction of future operating results
difficult or impossible. Although the Company has experienced sales growth in
recent periods, there can be no assurance that, in the future, the Company will
sustain sales growth or gain profitability on a quarterly or annual basis or
that its growth will be consistent with predictions made by securities analysts
in the future.
The Company currently manufactures product for stock and ships product
shortly after the receipt of orders, and anticipates that it will do so in the
future. Accordingly, the Company has not developed a significant backlog and
does not anticipate that it will develop a significant backlog in the near term.
8
<PAGE> 9
RESULTS OF OPERATIONS
Net sales in the quarter ended March 31, 1998 increased 78% to $906,000
as compared to $510,000 in the first quarter of 1997. While revenues in 1998
were higher than 1997 for all product lines, 59% of the revenue increase was
attributable to sales of the Cragg Thrombolytic Brush and Castaneda
Over-The-Wire Brush, products which were introduced in August 1997 and March
1998, respectively, and 27% of the revenue increase was attributable to higher
sales of peripheral infusion products. Revenues were also higher as a result of
a 5% price increase which was implemented February 1, 1998 for certain of the
Company's products.
Cost of sales decreased to $427,000 for the quarter ended March 31, 1998
from $490,000 in the first quarter of 1997. This decrease was attributable to
increased efficiencies achieved in manufacturing, which allowed the Company to
re-deploy certain individuals to research and development functions starting
primarily in the fourth quarter of 1997. Cost of sales as a percentage of sales
decreased from 96% in the first quarter of 1997 to 47% in the first quarter of
1998 due to the increase in sales volume and the aforementioned efficiencies.
Research and development expenses, including regulatory and clinical
expenses, increased 13% from $1,021,000 in the first quarter of 1997 to
$1,159,000 in the first quarter of 1998. This increase was primarily
attributable to increases in the number of employees as the result of the
transfer of process engineering personnel from manufacturing to research and
development, increased expenditures related to development of the EMBOLYX(TM)
technology, expenses related to Genyx Medical, Inc. and a research grant. The
Company expects to continue to significantly increase research and development
costs during the remainder of 1998 particularly for human clinical trials of
EMBOLYX(TM) and other applications in the neuro and peripheral areas.
Selling, general and administrative expenses increased 30% from
$1,038,000 in the first quarter of 1997 to $1,353,000 in the first quarter of
1998. This increase was primarily attributable to sales incentives related to
increased revenues, the mid-1997 addition of an Executive Vice President of
Marketing and Sales, studies commissioned by the Company and higher levels of
expenses commensurate with the Company's publicly-held status. The closure of
the European office in the fourth quarter of 1997, resulted in a $92,000
decrease in expenses in the first quarter of 1998 as compared with the first
quarter of 1997.
Other income declined from $230,000 in the first quarter of 1997 to
$27,000 in the first quarter of 1998. Included in other income for the first
quarter of 1997 was non-recurring income of $167,000 from the sale of common
stock of a privately held company in which MTI had held a minority interest. The
first quarter of 1998 reflects higher interest income, due to higher average
cash and short-term investment balances during the quarter, and higher interest
expense related to the convertible note payable to Guidant.
As a result of the items discussed above, the Company had a net loss of
$2.0 million for the first quarter of 1998 compared to $1.8 million for the
first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of $19.1 million at
March 31, 1998. To fund its operations, the Company raised approximately $15.3
million from the private placement of equity securities, and completed an
initial public offering in February 1997 of 1,840,000 shares of Common Stock,
raising net proceeds of approximately $10 million. Additionally, in November
1997, the Company received $5 million from Guidant Corporation under terms of a
convertible note agreement. Achievement of certain milestones, before December
31, 1998, as defined in the note agreement, provides the Company with the option
to require Guidant to purchase up to an additional $3 million of the Company's
stock and loan the Company up to an additional $2 million. On April 29, 1998, by
the filing of a 510(k) application covering certain applications of its
EMBOLYX(TM) Liquid Embolic System with the U.S. Food and Drug Administration,
the Company achieved one of the two milestones. The Company has elected to have
Guidant loan it $2 million and purchase from the Company $500,000 of common
stock at approximately $10.50 per share. There can be no assurance, however,
that the Company will be able to achieve the second of such milestones before
December 31, 1998.
As of March 31, 1998, the Company had cash, cash equivalents and short
term investments of $9.2 million compared to $12.0 million at March 31, 1997.
Cash used in the Company's operations for the three months ended March 31, 1998
was approximately $2.1 million, reflecting the loss from operations, as well as
increases in accounts receivable, inventories, prepaid expenses and other
assets, net of decreases in accounts payable and accrued liabilities. Cash used
in investing activities for the three months ended March 31, 1998 was $222,000
primarily reflecting expenditures for property and equipment of $84,000 and
patents and licenses of $142,000. The Company plans to finance its capital and
operational needs principally from its existing capital resources at March 31,
1998, and, to the extent available, from bank and lease financing. There can be
no assurance, however, that such financing options will be available to the
Company, or, if available, will be upon terms acceptable to the Company.
9
<PAGE> 10
MTI believes current resources will be sufficient to fund its operations
into early 1999. However, the Company's future liquidity and capital
requirements will depend upon numerous factors, including the progress of the
Company's clinical research and product development programs, the receipt of and
the time required to obtain regulatory clearances and approvals, and the
resources the Company devotes to developing, manufacturing and marketing its
products. The Company's capital requirements will also depend on the demands
created by its operational and development programs, including requirements for
domestic sales and marketing growth. The Company anticipates modest expansion of
its manufacturing facilities to be able to meet revenue targets. However, there
can be no assurance that the Company will not require additional financing
within this time frame and, therefore, may 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
acceptable terms, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND FUTURE
RESULTS
THIS QUARTERLY REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT INVOLVE
RISKS AND UNCERTAINTIES. IN ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE
ORAL FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS OF THE COMPANY'S BUSINESS,
OPERATING RESULTS AND FINANCIAL CONDITION ARE UNCERTAIN AND MAY BE IMPACTED BY
THE FOLLOWING FACTORS, AMONG OTHERS, WHICH MAY CAUSE THE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENT. BECAUSE
OF THESE AND OTHER FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION, THE COMPANY'S PAST PERFORMANCE SHOULD NOT BE
CONSIDERED AN INDICATOR OF FUTURE PERFORMANCE AND INVESTORS SHOULD NOT USE
HISTORICAL RESULTS TO ANTICIPATE RESULTS OR TRENDS IN FUTURE PERIODS.
Early Stage of Development. The Company has only recently commercially
introduced a number of products. Several of its key products are in the early
stage of development. The EMBOLYX(TM) Liquid Embolic System ("LES") has not yet
entered full clinical trials in the United States and the Company recently filed
its 510(k) pre-market notifications covering certain applications of the LES and
certain of its micro-catheters for neuro vascular use. Commercialization of the
Company's products will depend on a number of factors, including the Company's
ability to demonstrate the safety and efficacy of such products in the clinical
setting. There can be no assurance that the Company's products will be safe and
effective in clinical trials or will ultimately be cleared for marketing by U.S.
or foreign regulatory authorities. Failure to develop safe and effective
products, which are approved for sale on a timely basis would have a material
adverse effect on the Company's business, operating results and financial
condition.
Uncertainty of Market Acceptance. Even if the Company is successful in
developing safe and effective products that have received marketing clearance,
there can be no assurance that the Company's products will gain market
acceptance. Acceptance of the Company's LES and Thrombolytic Brush products will
require the Company to satisfactorily address the needs of potential customers.
The target customers for the Company's products are interventional radiologists
and interventional neuroradiologists. However, there can be no assurance that
acceptance of the Company's products by interventional radiologists and
interventional neuroradiologists will translate into sales. In addition, no
assurance can be given that the Company's market share for its existing products
will grow or that its products which have yet to be introduced will be accepted
in the market. If the Company is unable to gain market acceptance of its current
and future products, the Company's business, operating results and financial
condition would be materially adversely affected.
Rapid Technological Change; New Product Development. The markets for the
Company's products are characterized by rapidly changing technologies and new
product introductions and enhancements. In addition to the risks associated with
market acceptance of the Company's products, the Company's success will depend
to a significant extent upon its ability to enhance and expand the utility of
its products and to develop and introduce
10
<PAGE> 11
innovative new products that gain market acceptance. Moreover, the Company may
encounter technical problems in connection with its product development that
could delay introduction of new products or product enhancements. There can be
no assurance that new technologies, products or drug therapies developed by
others will not reduce the demand for the Company's products. The Company
maintains research and development programs to continually improve its product
offerings, including adding interventional devices. There can be no assurance
however that such efforts will be successful or that other companies will not
develop and commercialize products based on new technologies that are superior
in either performance or cost-effectiveness to the Company's products.
Intense Competition. The medical technology industry is characterized by
intense competition. The Company's products will compete with other medical
devices, surgical procedures and pharmaceutical products. A number of the
companies in the medical technology industry, including manufacturers of neuro
vascular and peripheral vascular products, have substantially greater capital
resources, larger customer bases, broader product lines, greater marketing and
management resources, larger research and development staffs and larger
facilities than the Company. Such entities have developed, or may develop,
additional products competitive with the Company's products. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more readily accepted than those
developed or marketed by the Company or that such competing products would not
render the Company's technology and products obsolete or noncompetitive.
Although the Company believes that its products may offer certain advantages
over its competitors' currently-marketed products, earlier entrants in the
market often obtain and maintain significant market share relative to later
entrants. While the Company has designed its products to be cost effective and
more efficient than competing technologies, there can be no assurance that
competitors will not provide better methods or products at comparable or lower
costs. The Company may experience competitive pricing pressures that may
adversely affect unit prices and sales levels and, consequently, materially
adversely affect the Company's business, operating results and financial
condition.
The Company also competes with other manufacturers of medical devices
for clinical sites to conduct human trials. No assurance can be given that the
Company will be able to locate such clinical sites on a timely basis, a delay in
which could have a material adverse effect on the Company's ability to conduct
trials of its products which may be necessary to obtain required FDA clearance
or approval of such products. Such delays could have a material adverse effect
on the Company's business, operating results and financial condition.
Limited Operating History; Absence of Profitability. The Company was
incorporated in 1993. To date, the Company's business has generated limited
product sales. From its inception through March 31, 1998, the Company incurred
cumulative losses of approximately $19.1 million. The Company expects to incur
additional losses as it expands its research and development, manufacturing and
marketing efforts. No assurance can be given that the Company will achieve
significant sales of its products or that such sales will lead to profitability.
There can be no assurance that the Company will not encounter substantial delays
and unexpected expenses related to the introduction of its current and future
products, or the Company's research and development, manufacturing and marketing
efforts. Such delays or expenses could have a material adverse effect on the
Company's business, operating results and financial condition.
Possible Need for Additional Funds; Uncertainty of Additional Financing.
The Company's operations to date have consumed substantial amounts of cash, and
the Company expects its capital and operating expenditures to increase. The
Company believes that its existing capital resources and anticipated cash flow
from planned operations, together with the net proceeds from its initial public
offering and under the terms of a convertible subordinated note agreement with
Guidant Corporation ("Guidant") entered into in November 1997, and the interest
earned thereon, should be adequate to satisfy its capital requirements through
1998. There can be no assurance, however, that the Company will not need
additional capital before such time. The Company's need for additional financing
will depend upon numerous factors, including the extent and duration of the
Company's future operating losses, the level and timing of future revenues and
expenditures, market acceptance of new products, the results and scope of
ongoing research and development projects, competing technologies, and market
and regulatory developments. The Company achieved the first of its two
milestones, as defined in the agreement with Guidant, thereby allowing the
Company to receive up to a maximum of $2.5 million in exchange for common
11
<PAGE> 12
stock, debt (limited to a maximum of $2 million) or a combination thereof. There
is no assurance, however, that the Company will achieve the second of these
milestones before December 31, 1998, or, should the Company achieve this
milestone, that the resulting proceeds under the agreement with Guidant would
satisfy the Company's then-current working capital requirements. The Company
currently has no other committed external sources of funds. To the extent that
existing resources are insufficient to fund the Company's activities, the
Company may seek to raise additional funds through public or private financing.
There can be no assurance that additional financing will be available or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing equity securities, further dilution to then-existing
stockholders may result. If adequate funds are not available, the Company's
business, operating results and financial condition may be materially adversely
affected.
Dependence on Patents and Proprietary Technology. The success of the
Company will depend, in part, on its ability to obtain and maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of others. The patent position of a
medical device company may involve complex legal and factual issues. As of March
31, 1998, the Company held sixteen issued U.S. patents, one issued foreign
patent and has thirty-four U.S. and twenty foreign patent applications pending.
The Company's issued U.S. patents cover technology underlying the Cragg
MicroValve, infusion wire, Cragg Thrombolytic Brush, LES and carotid and
intra-cerebral stent products. The expiration dates of these patents range from
February 2009 to December 2015. The pending claims cover various aspects of its
infusion catheter, infusion wire, Thrombolytic Brush, micro catheter, LES,
carotid and intra-cerebral stent technologies, coatings and non-vascular liquid
embolic products. Each product area the Company is pursuing is covered by at
least one issued and pending patent. One of the patents used by the Company is
currently licensed by the Company from Andrew Cragg, M.D. There can be no
assurance that issued patents will provide significant proprietary protection,
that pending patents will be issued, or that products incorporating the
technology in issued patents or pending applications will be free of challenge
from competitors. There also can be no assurance that patents belonging to
competitors will not require the Company to alter its technology and products,
pay licensing fees or cease to market or develop its current or future
technology and products. The Company also relies on trade secrets to protect its
proprietary technology, and no assurance can be given that others will not
independently develop or otherwise acquire equivalent technology or that the
Company can maintain such technology as trade secrets. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as the laws of the United States. The failure of the Company to
protect its intellectual property rights could have a material adverse effect on
its business, operating results and financial condition.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. There can
be no assurance that infringement, invalidity, right to use or ownership claims
by third parties will not be asserted against the Company in the future.
Although patent and intellectual property disputes in the medical device
industry have often been settled through licensing or similar arrangements,
costs associated with such arrangements may be substantial and there can be no
assurance that necessary licenses would be available to the Company on
satisfactory terms or at all. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling its products, which
would have a material adverse effect on the Company's business, operating
results and financial condition. In addition, should the Company decide to
litigate such claims, such litigation could be expensive and time consuming,
could divert management's attention from other matters and could have a material
adverse effect on the Company's business, operating results and financial
condition, regardless of the outcome of the litigation.
Limited Marketing Experience; Lack of Distribution. The Company's sales
force consists of eight people in the United States, all of whom have been with
the Company for a limited time. The Company believes it will have to increase
the number of sales personnel to fully cover its target markets. Moreover, there
is competition for sales personnel experienced in interventional medical device
sales and, as a result, the Company has experienced significant turnover in its
sales force. There can be no assurance that the Company will be able to
successfully respond to this competition and attract, motivate and retain
qualified sales personnel. The Company intends to market and sell its products
outside the United States principally through distributors and believes that it
will need to significantly expand its distributor network or develop its own
sales force. The Company's ability to market its products in certain areas may
depend on strategic alliances with marketing partners. There can be no assurance
that the Company will be able to enter into distribution agreements on
acceptable terms or at all, that such agreements will be successful in
developing the Company's marketing capabilities or that the Company will be able
to successfully develop a direct sales force. Such failure could have a material
adverse effect on the Company's business, operating results and financial
condition.
Limited Manufacturing Experience. The Company's experience in
manufacturing its products is limited. The Company anticipates that it will be
necessary to expand its manufacturing capacity in connection with the continued
commercialization of its products. Such commercialization may require the
additional commitment of
12
<PAGE> 13
capital resources for facilities, tooling and equipment and for leasehold
improvements. The Company expects that the expansion of its manufacturing
capacity within the next eighteen months will be achieved from improved
efficiencies, automation and the acquisition of additional tooling and
equipment. The Company anticipates a modest expansion of its manufacturing
facilities during the next eighteen months. Any delay or inability in expanding
its manufacturing capacity or in obtaining the commitment of such resources
could materially adversely affect the Company's manufacturing ability, business,
operating results and financial condition.
Government Regulation. The development, testing, manufacturing and
marketing of MTI's products in the United States are regulated by the U.S. Food
and Drug Administration ("FDA") as well as various state agencies. The FDA
requires governmental clearance of such products before they are marketed. The
process of obtaining FDA and other required regulatory clearances is lengthy,
expensive and uncertain. Moreover, regulatory clearance, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed. Failure to comply with applicable regulatory requirements can result
in, among other things, warning letters, fines, suspensions of approvals,
product seizures, injunctions, recalls of products, operating restrictions and
criminal prosecutions. The restriction, suspension or revocation of regulatory
approvals or any other failure to comply with regulatory approvals or
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations. The offer and sale of the
Company's current products required the submission of information to the FDA in
the form of a 510(k) pre-market notification to substantiate label claims and to
demonstrate "substantial equivalence" to a legally marketed Class I or II
medical device or a Class III medical device for which the FDA has not called
for premarket approvals ("PMAs"). Although the Company has received FDA
clearance for many of these products, there can be no assurance that the Company
will be able to obtain the necessary regulatory clearance for the manufacture
and marketing of enhancements to its existing products or future products either
in the United States or in foreign markets on a timely basis or at all. The
Company has made modifications which affect substantially all of its products
covered under four 510(k) clearances, which modifications, the Company believes,
do not affect the safety or efficacy of the products and thus, under FDA
guidelines, do not require the submission of new 510(k) notices. There can be no
assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to a device. If the FDA requires the Company to submit a new 510(k)
notice for any device modification, the Company may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA. Utilization
of the Company's LES may require submission of a PMA application to the FDA,
which generally involves a substantially longer and less certain review process
than that of a 510(k) pre-market notification. In either event, such approvals
or clearances may require human clinical testing prior to any action on such
products by the FDA. Based on the information presented by the Company regarding
the material composition of the LES, the Company believes the LES would be
regulated as a device. There can be no assurance, however, that upon more
detailed review of the LES, the FDA will not at a later date determine that the
LES should be regulated as a drug. Such a change could significantly delay the
commercial availability of the LES and have a material adverse effect on the
Company's business, operating results and financial condition. Delays in receipt
of, or failure to receive, regulatory approvals or clearances to market such
products, or loss of previously received approvals or clearances, would
materially adversely affect the marketing of such products and the Company's
business, operating results and financial condition.
In the European Union, the Company will be required to maintain the
certifications necessary to affix the CE Mark to its products other than LES,
and to obtain the certifications with respect to LES, in order to sell its
products in member countries of the European Union after mid-1998. Although the
CE Mark requirement for medical devices does not become effective until June
1998, the Company's experience to date in European Union countries is that
affixing products with the CE Mark is already necessary to achieve meaningful
sales. The Company received its CE Mark certification in March 1997 with respect
to products other than the LES, however, there can be no assurance that the
Company will be able to maintain such certification, or, with respect to LES,
obtain such certification, in the future. In addition, federal, state, local and
international government regulations regarding the manufacture and sale of
health care products and diagnostic devices are subject to future change and
additional regulations may be adopted which may materially adversely affect the
Company's business, operating results and financial condition.
Commercial distribution and clinical trials in most foreign countries
also are subject to varying government regulations which may delay or restrict
marketing of the Company's products. Any inability or delay in obtaining
approvals would materially adversely affect the Company's business, operating
results and financial condition.
13
<PAGE> 14
Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed Quality
System Requirements, which include development, testing, control and
documentation requirements. The Company's manufacturing processes also are
subject to stringent federal, state and local regulations governing the use,
generation, manufacture, storage, handling and disposal of certain materials and
wastes. Although the Company believes that it has complied in all material
respects with such laws and regulations, the Company is subject to periodic
inspection to ensure its compliance with such laws and regulations. There can be
no assurance that the Company will not be required to incur significant costs in
the future in complying with manufacturing and environmental regulations, or
that the Company will not be required to cease operations in the event of its
continued failure to effect compliance.
Risk of Product Liability Claims. The nature of the Company's business
exposes it to risk from product liability claims. The risk of such claims has
increased in light of a U.S. Supreme Court decision in 1996 concluding that the
FDA regulatory framework does not necessarily preempt personal injury actions
against medical device manufacturers. The Company currently maintains product
liability insurance for its products, with limits of $2 million per occurrence
and an annual aggregate maximum of $2 million. However, such coverage is
becoming increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at acceptable rates. Any losses that the Company may suffer from any liability
claims, and the effect that any product liability litigation may have upon the
reputation and marketability of the Company's products, may divert management's
attention from other matters and may have a material adverse effect on the
Company's business, operating results and financial condition.
Dependence on Single Source Suppliers; Independent Contract
Manufacturers. The Company purchases certain components used in its products and
receives certain services with respect to its products from third parties. The
Company's dependence on third-party suppliers involves several risks, including
limited control over pricing, availability, quality and delivery schedules. Any
delays in delivery of such components or provision of such services or shortages
of such components could cause delays in the shipment of the Company's products,
which could cause the Company's business, operating results and financial
condition to be adversely affected. The Company's single-source components are
generally acquired pursuant to purchase orders placed in the ordinary course of
business, and the Company has no guaranteed supply arrangements with any of its
single-source suppliers. Because of the Company's reliance on these vendors, the
Company may also be subject to increases in component costs which could have a
material adverse effect on its business, operating results and financial
condition. There can be no assurance that the Company will not experience
quality control problems, supply shortages or price increases with respect to
one or more of these components in the future. The establishment of additional
or replacement suppliers for certain of these components may delay accessibility
of such components as the Company qualifies such suppliers. Any quality control
problems, interruptions in supply or component price increases with respect to
one or more components could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company relies on independent contract manufacturers for the
manufacture and assembly of certain of its products and components. Reliance on
independent contract manufacturers involves several risks, including the
potential inadequacy of capacity, the unavailability of or interruptions in
access to certain process technologies and reduced control over product quality,
delivery schedules, manufacturing yields and costs. Such manufacturers have
possession of and at times title to molds for certain manufactured components of
the Company's products. Shortages of raw materials, production capacity
constraints or delays by the Company's contract manufacturers could negatively
affect the Company's ability to meet its production obligations and result in
increased prices for affected parts. Any such reduction, constraint or delay may
result in delays in shipments of the Company's products or increases in the
prices of components, either of which could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
has no supply agreements with its current contract manufacturers and utilizes
purchase orders which are subject to supplier acceptance. The unanticipated loss
of any of the Company's contract manufacturers could cause delays in the
Company's ability to deliver product while the Company identifies and qualifies
a replacement manufacturer. There can be no assurance that current or future
independent contract manufacturers will be able to meet the Company's
requirements for manufactured products. Such an event would have a material
adverse effect on the Company's business, operating results and financial
condition.
Dependence Upon Key Personnel. The Company is dependent to a significant
extent upon the contributions, experience and expertise of its founders, certain
members of its management team and key consultants. The Company maintains a
key-man life insurance policy in the amount of $1 million on the life of George
Wallace, the Company's President and Chief Executive Officer, however, there can
be no assurance that the Company's insurance is adequate. In addition, the
Company's success will depend upon its ability to attract and retain additional
highly qualified management, sales, technical, clinical and consulting
personnel, particularly as the Company increases its manufacturing capability.
The loss of the services of any of such key personnel or the inability to
attract and retain such personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
14
<PAGE> 15
Third-Party Reimbursement. In the United States, health care providers
such as hospitals and physicians that purchase medical devices generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic procedures. With the implementation of Medicare's Prospective Payment
System for hospital inpatient care (Diagnosis Related Groups or "DRGs") in the
1980s, public and private payors began to reimburse providers on a fixed payment
schedule for patients depending on the nature and severity of the illness. Many
tests and procedures that would have been performed under cost-plus
reimbursement formulas are subject to scrutiny and must be justified in terms of
their impact on patient outcomes. As a result, the incentives are now to conduct
only those tests that will optimize cost-effective care.
The Company could be materially adversely affected by changes in
reimbursement policies of governmental (both domestic and international) or
private healthcare payors to the extent any such changes affect reimbursement
for therapeutic or diagnostic procedures in which the Company's products are
used. Adverse changes in governmental and private third party payors' policies
toward reimbursement for such procedures would have a material adverse effect on
the Company's business, operating results and financial condition.
Risks Associated with International Sales. To date, the Company has
derived very little revenue from international sales. The Company believes that
its future performance will be dependent in part upon its ability to increase
international sales. Although the perceived demand for certain products may be
lower outside the United States, the Company intends to continue to expand its
international operations and to enter additional international markets, which
will require significant management attention and financial resources. There can
be no assurance, however, that the Company will be able to successfully expand
its international sales. The Company's success in international markets will
depend on its ability to establish and maintain agreements with suitable
distributors, or establish a direct sales presence.
Furthermore, international sales in general are subject to inherent
risks, including unexpected changes in regulatory requirements, fluctuating
exchange rates, difficulties in staffing and managing foreign sales and support
operations, additional working capital requirements, customs, duties, tariff
regulations, export license requirements, political and economic instability,
potentially limited intellectual property protection and difficulties with
distributors. In addition, sales and distribution of the Company's products
outside the United States are subject to extensive foreign government
regulation. The Company has in the past avoided losses due to fluctuating
exchange rates associated with international sales by selling its products in
U.S. dollars; however, the Company expects to sell products in selected markets
in local currency and thus be subject to currency exchange risks in association
with such sales. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, operating results and financial
condition.
Large-scale market acceptance of the Company's products will depend on
the availability and level of reimbursement in international markets targeted by
the Company. Reimbursement systems in international markets vary significantly
by country, and by region within some countries, and reimbursement approvals
must be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Obtaining reimbursement approvals in each country
can require 12-18 months or longer.
Anti-Takeover Provisions. The Company's Certificate of Incorporation
provides for 5,000,000 authorized shares of Preferred Stock, the rights,
preferences, qualifications, limitations and restrictions of which may be fixed
by the Board of Directors without any further vote or action by the
stockholders. In addition, the Company's stock option plans provide for the
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company.
Further, Section 203 of the General Corporation Law of Delaware prohibits the
Company from engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders, and
therefore could materially adversely affect the price of the Company's Common
Stock.
15
<PAGE> 16
Possible Volatility of Stock Price. The stock market has from time to
time experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies. These broad market
fluctuations may materially adversely affect the market price of the Company's
Common Stock. In addition, the market price of the shares of Common Stock is
likely to be highly volatile. Factors such as fluctuations in the Company's
results of operations, failure of such results of operations to meet the
expectations of public market analysts and investors, timing and announcements
of technological innovations or new products by the Company or its competitors,
FDA and foreign regulatory actions, developments with respect to patents and
proprietary rights, timing and announcements of developments, including clinical
trials related to the Company's products, public concern as to the safety of
technology and products developed by the Company or others, changes in health
care policy in the United States and internationally, changes in stock market
analyst recommendations regarding the Company, the medical device industry
generally and general market conditions may have a material adverse effect on
the market price of the Common Stock. In addition, it is likely that during a
future quarterly period, the Company's results of operations will fail to meet
the expectations of stock market analysts and investors and, in such event, the
Company's stock price could be materially and adversely affected.
Risks Associated with Year 2000 Issue. In the next two years, many
companies will face a potentially serious information systems (computer) problem
because many software applications and operational programs written in the past
may not properly recognize calendar dates beginning in the Year 2000. This
problem could force computers to either shut down or provide incorrect
information and could result in an inability to process transactions, send
invoices or engage in normal business activities. Based on a recent assessment,
which included correspondence the Company obtained from the manufacturer of the
financial system software utilized by the Company, the Company believes that
such software will not be affected by the Year 2000 issue. In addition, the
Company believes that its existing information systems equipment, primarily
composed of personal computers, will be minimally impacted by the Year 2000
Issue, as the Company intends to replace the majority of those systems which may
be affected by this problem by the end of 1999 due to technological
obsolescence. The Company has not initiated communications with any of its
vendors regarding the Year 2000 Issue. If the Company determines a particular
vendor will be impacted by this problem, the Company may attempt to identify
additional or replacement vendors, which could delay accessibility of the
products and/or services provided by such vendors. Such a delay or failure to
identify an additional or replacement vendor could have a material adverse
effect on the Company's business, operating results and financial condition.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See Index to Exhibits on Page 19 of this Quarterly Report on Form
10-QSB.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarterly period ended March 31, 1998, and none were required.
17
<PAGE> 18
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.
MICRO THERAPEUTICS, INC.
Date: May 14, 1998 By: /s/ Harold A. Hurwitz
-------------------------------
Harold A. Hurwitz
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
27.1 Financial Data Schedule - Q1 1998 20
27.2 Financial Data Schedule - Q1 1997 Restated for Earnings per Share Data 21
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENTS OF OPERATIONS IN FORM 10-QSB FOR THE FIRST QUARTER ENDED
MARCH 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,940
<SECURITIES> 6,300
<RECEIVABLES> 437
<ALLOWANCES> 0
<INVENTORY> 694
<CURRENT-ASSETS> 10,706
<PP&E> 1,233
<DEPRECIATION> 621
<TOTAL-ASSETS> 12,223
<CURRENT-LIABILITIES> 912
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 7,088
<TOTAL-LIABILITY-AND-EQUITY> 12,223
<SALES> 906
<TOTAL-REVENUES> 906
<CGS> 427
<TOTAL-COSTS> 2,513
<OTHER-EXPENSES> (135)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> (2,006)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,007)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENTS OF OPERATIONS IN RESTATED FORM 10-QSB FOR THE FIRST QUARTER
ENDED MARCH 31, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,128
<SECURITIES> 5,861
<RECEIVABLES> 248
<ALLOWANCES> 0
<INVENTORY> 520
<CURRENT-ASSETS> 13,126
<PP&E> 1,112
<DEPRECIATION> 372
<TOTAL-ASSETS> 14,259
<CURRENT-LIABILITIES> 841
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 13,224
<TOTAL-LIABILITY-AND-EQUITY> 14,259
<SALES> 510
<TOTAL-REVENUES> 510
<CGS> 490
<TOTAL-COSTS> 2,060
<OTHER-EXPENSES> (238)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (1,809)
<INCOME-TAX> 1
<INCOME-CONTINUING> (1,810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,810)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
