================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: August 31, 1998 Commission file number: 0-11411
Q-MED, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2468665
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 METRO PARK SOUTH, LAURENCE HARBOR, NEW JERSEY 08878
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (732) 566-2666
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 the registrant's common stock
on October 6, 1998: 9,659,519
================================================================================
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
August 31, 1998 November 30, 1997
--------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................................... $ 548,519 $ 640,266
Accounts receivable, net of
allowances of approximately
$409,000 and $250,000 respectively ...................... 185,215 197,901
Inventories .................................................. 539,032 667,255
Prepaid expenses and other current assets .................... 114,260 68,439
------------ ------------
1,387,026 1,573,861
Debt issue costs ............................................. 37,566 --
Product software development costs ........................... 41,392 60,998
Property and equipment, net .................................. 637,786 624,761
Other assets ................................................. 173,555 190,913
------------ ------------
$ 2,277,325 $ 2,450,533
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses ........................ $ 701,683 $ 770,446
------------ ------------
701,683 770,446
8% Convertible notes ......................................... 2,000,000 --
Leases payable - long term ................................... 120,435 77,522
Deferred warranty revenue .................................... 25,157 40,047
------------ ------------
2,847,275 888,015
Stockholders' equity
Common stock $.001 par value;
20,000,000 shares authorized;
9,659,519 and 9,648,519 shares
issued and 9,637,519 and 9,626,519
outstanding ............................................. 9,660 9,649
Paid-in capital .............................................. 18,057,155 18,041,941
Accumulated deficit .......................................... (18,561,140) (16,413,447)
------------ ------------
(494,325) 1,638,143
Less: treasury stock at cost, 22,000 common shares .......... (75,625) (75,625)
------------ ------------
Total stockholders' equity ................................... (569,950) 1,562,518
------------ ------------
$ 2,277,325 $ 2,450,533
============ ============
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine For the Nine For the Three For the Three
Months Ended Months Ended Months Ended Months Ended
August 31, 1998 August 31, 1997 August 31, 1998 August 31, 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue .............................. 1,443,299 1,649,754 474,291 483,424
Cost of revenue ...................... 828,036 658,691 253,867 206,612
----------- ----------- ----------- -----------
Gross profit ......................... 615,263 991,063 220,424 276,812
Selling, general and
administrative expenses ........ 2,126,735 3,010,260 575,037 966,365
Provision for uncollectible
accounts ....................... 198,581 30,548 79,381 3,499
Research and development
expenses ....................... 347,695 141,217 179,212 58,075
----------- ----------- ----------- -----------
Income (loss) from operations ........ (2,057,748) (2,190,962) (613,206) (751,127)
Interest expense ..................... (141,255) (19,081) (46,056) (4,849)
Other income ......................... 51,310 86,191 11,018 22,279
(Loss) on sale of securities ......... -- (30,574) -- (30,574)
----------- ----------- ----------- -----------
Net (loss) ........................... $(2,147,693) $(2,154,426) $ (648,244) $ (764,271)
=========== =========== =========== ===========
(Loss) per common share .............. $ (.22) $ (.23) $ (.07) $ (.08)
----------- ----------- ----------- -----------
Weighted average number of
shares of common stock
outstanding .................... 9,655,493 9,537,565 9,659,519 9,575,012
=========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended August 31, 1998
(Unaudited)
<CAPTION>
Common Stock
Held in Treasury
Common Paid-in Accumulated -------------------
Stock Capital Deficit Shares Amount Total
------ ----------- ------------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance--November 30, 1997 ..... $9,649 $18,041,941 $(16,413,447) 22,000 $(75,625) $1,562,518
Exercise of stock options
and warrants .............. 11 15,214 15,225
Net loss for the nine months
ended August 31, 1998 ..... (2,147,693) (2,147,693)
------ ----------- ------------ ------ -------- ----------
Balance--August 31, 1998 ....... $9,660 $18,057,155 $(18,561,140) 22,000 $(75,625) $ (569,950)
====== =========== ============ ====== ======== ==========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
----------------------------------
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $(2,147,693) $(2,154,426)
----------- -----------
Adjustments to reconcile net income
to cash (used in) operating
activities:
Depreciation and amortization ....................... 208,347 200,379
Loss on sale of securities .......................... -- 30,574
Changes in assets and liabilities:
Decrease in accounts receivable ................... 12,686 179,624
Decrease in inventories ........................... 128,223 382,309
(Decrease) increase in accounts payable
and accrued liabilities ......................... (68,763) 48,231
(Increase) in prepaid expenses and
other assets .................................... (45,821) (63,517)
Other, net ........................................ 24,304 72,616
----------- -----------
Total adjustments ............................... 258,976 850,216
----------- -----------
Net cash (used in) operating activities ........... (1,888,717) (1,304,210)
=========== ===========
Cash flows from investing activities:
Sale of securities .................................. -- 2,129,729
Capital expenditures, net ........................... (174,060) (357,040)
----------- -----------
Net cash provided by investing activities ........... (174,060) 1,772,689
=========== ===========
Cash flows from financing activities:
Net proceeds from issuance of 8%
Convertible Notes ................................. 1,955,805 --
Principal (payment) on note payable
to bank ........................................... -- (100,000)
Proceeds from issuance of common stock .............. 15,225 137,982
----------- -----------
Net cash provided by financing activities ........... 1,971,030 37,982
=========== ===========
Net (decrease) increase in cash and cash equivalents ......... (91,747) 506,461
Cash and cash equivalents at beginning of period ............. 640,266 680,686
----------- -----------
Cash and cash equivalents at end of period ................... $ 548,519 $ 1,187,147
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................ $ 21,255 $ 19,081
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, these financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended August 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending November 30, 1998. These consolidated condensed financial statements
should be read in conjunction with the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
November 30, 1997.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE
Effective for the Company's financial statements for the year ended November 30,
1998, the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share", (SFAS 128). SFAS 128 replaces the presentation of primary
earnings per share ("EPS") and fully diluted EPS with a presentation of basic
EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed
by dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding during the period. Diluted EPS assumes
conversion of dilutive options and warrants, and the issuance of common stock
for all other potentially dilutive equivalent shares outstanding. All
potentially dilutive equivalent shares outstanding are antidilutive for all
periods. The adoption of SFAS 128 did not have a material effect on the
Company's reported EPS amounts.
NOTE 2 -- RESULTS OF OPERATIONS
In the opinion of management, the financial statements for the nine months ended
August 31, 1998 and August 31, 1997 include all adjustments and accruals
necessary for a fair presentation. All such adjustments are of a normal
recurring nature. The results of operations for the nine months ended August 31,
1998 are not necessarily indicative of the results which may be expected for the
full year ended November 30, 1998.
NOTE 3 -- INVENTORIES
Inventories, consisting of finished units and raw materials, are stated at the
lower of cost (determined on a moving weighted average method) or market.
Inventories consist of the following:
August 31, November 30,
1998 1997
---------- -----------
(Unaudited)
Raw materials (component parts) .............. $202,139 $209,580
Finished units ............................... 336,893 457,675
-------- -------
$539,032 $667,255
======== ========
<PAGE>
During the nine month period ending August 31, 1998 approximately $43,000 was
written off as obsolete inventory and approximately $40,000 was capitalized as
fixed assets with an estimated useful life of 5 years.
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
August 31, November 30,
1998 1997
---------- -----------
(Unaudited)
Accounts payable trade .................. $146,397 $394,264
Deferred warranty revenue ............... 164,560 204,260
Accrued payroll and commissions ......... 115,075 76,997
Other accrued expenses .................. 155,651 94,925
Interest Payable ........................ 120,000 --
-------- --------
$701,683 $770,446
======== ========
NOTE 5 -- PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of qmed, Inc., its
83% owned subsidiary, Heart Map, Inc., and its 100% owned subsidiary,
Interactive Heart Management Corp., which was formed in March, 1995. Interactive
Heart Management Corp. provides coronary artery disease management services to
health care providers throughout the United States. All inter-company accounts
and transactions have been eliminated.
<PAGE>
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the percentage of total revenues for the periods
indicated and changes from period to period of certain items included in the
Company's Statements of Operations.
<TABLE>
<CAPTION>
For the Nine Months For the Three Months Period to Period Percentage Changes
Ended August 31, Ended August 31, For the Nine Months For the Three Months
----------------- ----------------- Ended August 31, Ended August 31,
1998 1997 1998 1997 1998 Vs. 1997 1998 Vs. 1997
----- ----- ----- ----- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................................... 100.0% 100.0% 100.0% 100.0% (14.3) (2.0)
Cost of revenue ............................ 57.3 39.8 53.5 42.7 25.7 22.9
----- ----- ----- -----
Gross profit ............................... 42.7 60.1 46.5 57.3 (38.0) (25.6)
Selling, general and administrative ........ 147.4 182.5 121.3 199.9 (41.6) (68.1)
Provision for uncollectible accounts ....... 13.8 1.9 16.8 .7 84.7 102.1
Research and development ................... 24.1 8.5 37.8 12.0 59.4 67.6
----- ----- ----- -----
(Loss) from continuing operations .......... (142.6) (132.8) (129.4) (155.3) (6.5) (22.5)
Interest expense ........................... (9.8) (1.2) (9.7) (1.0) 86.5 89.5
Other Income ............................... 3.6 5.2 2.4 4.5 (68.0) (102.2)
(Loss) on sale of securities ............... -- (1.8) -- (6.3) * *
----- ----- ----- -----
Net (loss) ................................. (148.8) (130.6) (136.7) (158.1) (.4) (17.9)
===== ===== ===== =====
- ----------
* Not meaningful
</TABLE>
NINE AND THREE MONTHS ENDED AUGUST 31, 1998
COMPARED WITH THE NINE AND THREE MONTHS ENDED AUGUST 31, 1997
Net sales for the nine months ended August 31, 1998 decreased by 14.3% or
approximately $206,000 when compared to the nine months ended August 31, 1997.
Net sales for the three months ended August 31, 1998 decreased by 2.0% or
approximately $9,000 when compared to the three months ended August 31, 1997.
This small reduction was primarily due to the stabilization of the Company's
revenue from capital equipment sales to the primary care marketplace. The
Company's management has focused primarily on the marketing of the ohms|cad(R)
system to managed care organizations through its wholly owned subsidiary,
Interactive Heart Management Corp. ("IHMC").
Revenues received through IHMC for ohms|cad services are generally structured on
a contractual basis whereby the Company receives a payment from physician groups
and health management organizations calculated as a percentage of the reduction
of the organization's costs of providing care for coronary artery disease
("CAD") patients. An initial baseline is selected and the total CAD costs are
computed as baseline costs. The ohms|cad system is then placed in service and
used throughout the contract period to reduce costs and improve the health
status of patients with coronary disease. At the end of each contract year the
total CAD costs are then calculated and compared to the baseline year costs. The
managed care organization then pays the Company the agreed portion of the
calculated reduction in such costs. From the inception of the contract, the
Company receives a monthly prepayment which is recorded as revenue, reflecting a
small percentage of the statistically determined share of the expected reduction
in costs of providing ohms|cad care for CAD patients. Once the actual reduction
of cost is calculated, the prepayments are subtracted and any additional revenue
is billed and recorded at that time.
The Company has continued to aggressively market ohms|cad to leading health care
providers throughout the United States. The Company began its enrollment of
patients from CIGNA Healthcare of Ohio during July pursuant to a contract which
was executed in December 1997, and has had discussions with other large
providers to use its ohms|cad system within their organizations to effectively
manage coronary artery disease. The Company expects revenue to increase as it
enters into contracts with managed care companies
<PAGE>
to use its ohms|cad system to manage coronary artery disease. Included in the
net loss of ($2,147,693) for the nine months ended August 31, 1998 was
approximately ($1,713,540) from IHMC.
The Company's gross profit margin decreased to 42.7% during the nine months
ended August 31, 1998 when compared to 60.1% for the nine months ended August
31, 1997. The Company's gross profit margin also decreased to 46.5% during the
three months ended August 31,1998 from 57.3% for the three months ended August
31, 1997. The overall decrease was primarily due to the reclassification of
certain expenses as direct costs related to the ohms|cad program. Management
believes the gross profit margin should remain consistent until new ohms|cad
programs are implemented or additional revenue is recognized pursuant to
existing ohms|cad contracts as a result of the sharing of cost savings described
above.
Selling, general and administrative expenses decreased by 41.6% or approximately
$884,000 for the nine months ended August 31, 1998 when compared to the nine
months ended August 31, 1997. Selling, general and administrative expenses for
the three months ended August 31, 1998 decreased by 68.1% or approximately
$391,000 when compared to the corresponding quarter of 1997. This decrease was
primarily due to a reclassification of certain expenses as direct costs related
to the ohms|cad program as well as reductions in overall administrative and
sales-related expenses.
The provision for uncollectible accounts increased by approximately $168,000 and
$76,000 respectively for the nine and three months ended August 31, 1998. This
increase was primarily due to the reservation of certain accounts receivable
related to an ohms|cad contract until data can be reviewed in determining actual
cost savings.
Research and development expenses for the nine and three months ended May 31,
1998 increased by approximately $206,000 and $121,000 respectively when compared
to the corresponding periods of the prior year. This increase is primarily due
to the development of ohms II which will enhance the capabilities of the present
ohms|cad system dramatically, which should be completed during the first half of
1999. Also included in research and development expenses for the current year
are costs to develop Year 2000 software upgrades for certain capital equipment
products currently being sold by the Company.
The Company has conducted a review of its computer systems and products to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. Any of the Company's
programs that have time sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. Certain of the Company's products will require a
software upgrade to resolve the problem. The Company has developed and has begun
to implement a Year 2000 upgrade for each of its products where warranted. All
related expenses to develop this upgrade have been charged to research and
development expense as incurred.
While the Company's ohms|cad system is fully compliant for the "Year 2000", the
Company relies on the information technology of its existing and prospective
customers for data utilized in proposing a contract and in measuring the amount
of costs saved through the implementation of ohms|cad. The Company cannot assess
the effect that Year 2000 programs implemented by these other companies will
have.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's principle sources of working capital have been provided
by proceeds from public and private placements of securities, operations and the
sale of certain assets. Since the Company's inception, sales of securities and
assets have generated approximately $18,000,000 less applicable expenses.
On December 18, 1997, the Company sold an aggregate $2,000,000 8% Convertible
Subordinated Notes due December 18, 2002 (the "Notes"), without discount or
premium, in a private placement to three
<PAGE>
investors led by Galen Partners III, L.P. (the "Galen Funds"). Interest on the
Notes is accrued monthly, compounded annually, and will be due at maturity. The
Notes are convertible into shares of the Company's common stock at the rate of
$5.60 per share. The Company may redeem the Notes in the event the average
closing price of shares of the Company's common stock equals or exceeds $12.00
for a period of 90 days at the following times with the following premiums and
may elect to pay the redemption price in shares of common stock:
Year Redemption Price
---- ----------------
1998 ............... 105%
1999 ............... 104%
2000 ............... 103%
2001 ............... 102%
2002 ............... 100%
The Company is required to redeem the Notes at higher premiums in the event of a
change of control. In connection with the sale of the Notes, the Company granted
certain rights to the purchasers, including registration rights and the right to
appoint a member of the Company's board of directors. The Note Purchase
Agreement prohibits the Company from paying dividends until the Notes are paid.
The Company had working capital of $685,343 at August 31, 1998 compared to
$803,415 at November 30, 1997 and ratios of current assets to current
liabilities of 1.9:1 as of August 31, 1998 and 2.0:1 as of November 30, 1997.
The working capital decrease of approximately $118,000 was primarily due to the
sale of the Notes described above during December 1997 less the accumulated
losses during the nine months ending August 31, 1998 of approximately
($2,148,000).
The Company anticipates that funds generated from operations, together with
cash and investments, will not be sufficient to meet its working capital
requirements for the current year. Accordingly, after seeking additional
financing to support the Company's operations, the Company has received a
proposal from the Galen Funds which involves a partial conversation of the above
described Notes into shares of the Company's Common Stock and a private
placement of additional shares of Common Stock to Galen and certain other
shareholders of the Company. The transaction is subject to be completed on or
before November 16, 1998. Although management is confident that the transaction
will be completed, the failure of the transaction to close will result in a
disruption of the Company's operations. See "Need for Additional Capital".
The Company maintains a general policy of net 30-day payment terms on equipment
sales to distributors, cash or third-party leasing arrangements with direct
sales to physicians and letters of credit for international sales. In some
instances, the Company has extended payment terms beyond net 30 to selected
distributors. The Company's receivables balance over 90 days past due was 19.4%
of the receivables balance at August 31, 1998 compared to 12.8% at November 30,
1997. The Company is aggressively seeking payment arrangements on these overdue
amounts.
The Company believes that there has not been a significant impact from inflation
on the Company's operations during the past three fiscal years.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
FUTURE OPERATING RESULTS. Future operating results may be impacted by a number
of factors that could cause actual results to differ materially from those
stated herein, which reflect management's current expectations. These factors
include worldwide economic and political conditions, industry specific factors,
the Company's ability to maintain access to external financing sources and its
financial liquidity, the acceptance of the ohms|cad system by managed care
organizations, and the Company's ability to manage expense levels.
NEED FOR ADDITIONAL CAPITAL As of August 31, 1998, the Company had approximately
$549,000 of cash and short term investments. The Company has experienced
negative cash flows since fiscal 1995 and expects the negative cash flow to
continue until significant service revenue is generated under agreements to
provide ohms|cad services. The Company expects that the monthly negative cash
flow will decrease as a result of increased activities related to ohms|cad and
the Company's efforts to reduce operating expenses. The Company's future success
is highly dependent upon its continued access to sources of financing which it
believes are necessary for the continued support of IHMC's sales effort. In the
event the Company is
<PAGE>
unable to maintain access to its existing financing sources, or obtain other
sources of financing there would be a material adverse effect on the Company's
business, financial position and results of operations.
REGULATION. The Company's products are subject to extensive government
regulation in the United States by federal, state and local agencies including
the Food and Drug Administration. The process of obtaining and maintaining FDA
and other required regulatory approvals for the Company's products is lengthy,
expensive and uncertain. There can be no assurance that changes in existing
regulations or the adoption of new regulations will not occur which will
adversely affect the Company.
STOCK PRICE FLUCTUATIONS. The Company's participation in a highly competitive
industry often results in significant volatility in the Company's common stock
price. This volatility in the stock price is significant risk investors should
consider.
FORWARD LOOKING STATEMENTS. This report contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth above and
elsewhere in this report, the inclusion of forward-looking information herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. The Company may
encounter competitive, technological, financial and business challenges making
it more difficult than expected to continue to market its products and services;
competitive conditions within the industry may change adversely; the Company may
be unable to retain existing key management personnel; the Company's forecasts
may not accurately anticipate market demand; and there may be other material
adverse changes in the Company's operations or business. Certain important
factors affecting the forward looking statements made herein include, but are
not limited to (i) accurately forecasting capital expenditures and (ii)
obtaining new sources of external financing. Assumptions relating to budgeting,
marketing, product development and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause the Company to alter its capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of operations.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No change from previous filing.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Q-MED, INC.
By: /s/ MICHAEL W. COX
---------------------------------
Michael W. Cox
President
Principal Executive and
Financial Officer
Dated: October 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1998
<CASH> 548,519
<SECURITIES> 0
<RECEIVABLES> 594,215
<ALLOWANCES> 409,000
<INVENTORY> 539,032
<CURRENT-ASSETS> 1,387,026
<PP&E> 2,804,555
<DEPRECIATION> 2,166,769
<TOTAL-ASSETS> 2,277,325
<CURRENT-LIABILITIES> 701,683
<BONDS> 0
0
0
<COMMON> 9,660
<OTHER-SE> 569,950
<TOTAL-LIABILITY-AND-EQUITY> 2,277,325
<SALES> 1,443,299
<TOTAL-REVENUES> 1,494,609
<CGS> 828,036
<TOTAL-COSTS> 2,474,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 198,581
<INTEREST-EXPENSE> 141,255
<INCOME-PRETAX> (2,147,693)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,147,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,147,693)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
