<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended November 30,1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _______________
Commission File Number 0-22182
PATRIOT SCIENTIFIC CORPORATION
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 84-1070278
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
</TABLE>
12875 Brookprinter Place, Suite 300, Poway, California, 92064
(Address of principal executive offices)
(619) 679-4428
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO ____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
<S> <C>
Common Stock, $.00001 par value 32,623,145
- ------------------------------- ----------
(Class) (Outstanding at January 7, 1997)
</TABLE>
Transitional Small Business Disclosure Format (check one): YES __ NO X
1
<PAGE> 2
PATRIOT SCIENTIFIC CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of November 30, 1996 and
May 31, 1996 (unaudited) 3
Statements of Operations for the three and six months ended November
30, 1996 and 1995 and cumulative from inception to November 30,
1996 (unaudited) 4
Statements of Cash Flows for the six months ended
November 30, 1996 and 1995 and cumulative from
inception to November 30, 1996 (unaudited) 5
Notes to Interim Financial Statements 6
Item 2. Plan of Operation 7
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
* No information provided due to inapplicability of the item.
2
<PAGE> 3
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT SCIENTIFIC CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
November 30, May 31,
1996 1996
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,568,762 $ 838,160
Accounts Receivable 24,866 --
Inventories (Note 3) 142,118 145,800
Prepaid expenses and other 52,782 54,000
------------ -----------
1,788,528 1,037,960
Property and Equipment - net 290,646 274,919
Purchased Technology - net (Note 4) 306,167 612,333
Patents, trademarks and other - net 135,152 155,304
------------ -----------
Total Assets $ 2,520,493 $ 2,080,516
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 165,394 $ 291,360
------------ -----------
165,394 291,360
6% Convertible Subordinated Notes (Note 5) 1,050,000 --
------------ -----------
1,215,394 291,360
Stockholders' Equity
Common stock $.00001 par value; authorized
40,000,000 shares; 30,417,455 and 29,811,975
shares issued and outstanding 304 298
Additional paid-in capital 10,310,292 9,591,870
(Deficit) accumulated during the
development stage (9,005,497) (7,803,012)
------------ -----------
1,305,099 1,789,156
------------ -----------
Total Liabilities and Stockholders' Equity $ 2,520,493 $ 2,080,516
============ ===========
</TABLE>
See notes to interim financial statements.
3
<PAGE> 4
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Three Months Ended Six Months Ended (June 10, 1987)
November 30, November 30, to November 30,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 17,269 $ -- $ 19,362 $ -- $ 19,362
Cost of sales 12,055 -- 13,583 -- 13,583
------------ ------------ ------------ ------------ -----------
Gross margin 5,214 -- 5,779 -- 5,779
Operating expenses:
Research and development 214,726 274,990 449,853 466,601 3,578,053
Sales and marketing 64,352 38,456 111,889 55,460 500,598
General and administrative 220,191 91,748 339,914 203,296 3,585,177
Amortization 163,160 153,084 326,319 306,167 1,562,196
------------ ------------ ------------ ------------ -----------
662,429 558,278 1,227,975 1,031,524 9,226,024
------------ ------------ ------------ ------------ -----------
Other income (expenses):
Interest income 13,316 5,110 18,543 17,739 213,580
Other 1,065 -- 1,168 -- 1,168
------------ ------------ ------------ ------------ -----------
14,381 5,110 19,711 17,739 214,748
------------ ------------ ------------ ------------ -----------
Net loss $ (642,834) $ (553,168) $ (1,202,485) $ (1,013,785) $(9,005,497)
============ ============ ============ ============ ===========
Loss per share $ (0.03) $ (0.02) $ (0.05) $ (0.04)
============ ============ ============ ============
Weighted average number of
common shares outstanding
during the period (Note 5) 24,995,969 22,827,336 24,905,126 22,794,603
============ ============ ============ ============
</TABLE>
See notes to interim financial statements.
4
<PAGE> 5
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Six Months Ended (June 10, 1987)
November 30, to November 30,
1996 1995 1996
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) $(1,202,485) $(1,013,785) $(9,005,497)
Adjustments to reconcile net (loss)
to cash used in operating activities:
Amortization and depreciation 400,183 367,640 1,887,490
Equity issued for services 28,928 22,500 325,108
Stock compensation cost -- -- 1,875,000
Changes in:
Accounts receivable (24,866) -- (24,866)
Inventories 3,682 -- (142,118)
Prepaid and other assets 1,218 48,630 (51,458)
Accounts payable and accrued expenses (125,966) 30,701 165,394
Net cash used in operating ----------- ----------- -----------
activities (919,306) (544,314) (4,970,947)
----------- ----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment (89,592) (143,121) (588,536)
Organization costs paid -- -- (1,939)
Patent costs and other -- -- (150,004)
----------- ----------- -----------
Net cash used in investing activities (89,592) (143,121) (740,479)
----------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from issuance of common stock
and exercise of common stock warrants 239,500 250,000 5,780,188
Proceeds from issuance of convertible
notes 1,500,000 -- 1,500,000
----------- ----------- -----------
Net cash provided by financing activities 1,739,500 250,000 7,280,188
----------- ----------- -----------
Net Increase (Decrease) in Cash 730,602 (437,435) 1,568,762
Cash and cash equivalents at
beginning of period 838,160 1,105,641 --
----------- ----------- -----------
Cash and cash equivalents at
end of period $ 1,568,762 $ 668,206 $ 1,568,762
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Convertible notes exchanged for common
stock $ 450,000 $ -- $ 450,000
----------- ----------- -----------
</TABLE>
See notes to interim financial statements.
5
<PAGE> 6
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS
Patriot Scientific Corporation (the "Company"), is a development stage company
engaged in the development of semiconductor microprocessor technology ("ShBoom
Technology"), Integrated Services Digital Network ("ISDN") interface technology
(CyberShark digital modem) and radar and antenna technology ("GPR" technology).
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles. The interim financial statements and
notes thereto should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended May 31, 1996.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the three and six month
periods are not necessarily indicative of the results that may be expected for
the year.
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Inventories consisted of raw materials at
November 30, 1996.
4. PURCHASED TECHNOLOGY
Purchased technology at a cost of $1,837,000 relating to the Company's ShBoom
Technology is being amortized over its estimated useful life of three years.
Amortization expense of $306,167 was recorded related to this technology for the
six months ended November 30, 1996.
5. STOCKHOLDERS' EQUITY
The following table summarizes equity transactions during the six months ended
November 30, 1996:
<TABLE>
<CAPTION>
Common
Shares Dollars
<S> <C> <C>
Balance June 1, 1996 29,811,975 $ 9,592,168
Exercise of warrants @ $1.58 per share 151,583
239,500
Common stock issued for services @ $1.28 per share 22,600
28,928
Conversion of 6% Convertible Subordinated Notes
@ $1.04 per share 431,297 450,000
---------- -----------
Balance November 30, 1996 30,417,455 $10,310,596
========== ===========
</TABLE>
A total of 5,000,000 shares of the Company's outstanding common stock was issued
as a contingent cost of the Company's acquisition of its ShBoom Technology and
such shares are subject to an escrow arrangement. The shares are releasable from
escrow at the rate of 500,000 shares for each $500,000 of revenues earned by the
Company and upon the occurrence of certain defined major corporate events. The
shares are issued and outstanding and carry all shareholder rights. Any of the
escrowed shares not released prior to May 31, 1999 are to be returned to the
Company and canceled.
6
<PAGE> 7
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
5. STOCKHOLDERS' EQUITY (Continued)
These shares are excluded from the calculation of weighted average number of
common shares outstanding for the computation of (loss) per share until the
release conditions are met.
At November 30, 1996 the Company had 665,000 options outstanding pursuant to its
1992 ISO Stock Option Plan exercisable at prices ranging from $0.50 to $2.30 per
share expiring beginning 1997 through 2001. The Company had 700,000 options
outstanding pursuant to its 1992 NSO Stock Option Plan exercisable at prices
ranging from $0.30 to $2.30 per share expiring beginning 1997 through 2002. The
Company also had 1,640,000 options outstanding pursuant to its 1996 Stock Option
Plan exercisable at $1.95 to $2.30 per share expiring beginning in 1999 through
2001. Some of the options described in this paragraph are not presently
exercisable and are subject to meeting vesting criteria.
As of October 1, 1995 the Board of Directors adopted the 1995 Employee Stock
Compensation Plan providing for the issuance of up to 250,000 common shares to
Employees, as defined. Executive officers and directors are not eligible under
the Plan. Through November 30, 1996 the Company had issued 217,600 common shares
pursuant to the plan.
At November 30, 1996 the Company had a warrant outstanding exercisable into
50,000 common shares at $2.85 per share until March 18, 1998. These warrants are
exercisable only upon the holder meeting certain sales performance criteria.
None were exercisable at November 30, 1996.
In October, 1996 the Company issued for cash of an aggregate of $1,500,000 of
unsecured 6% Convertible Subordinated Promissory Notes due September 30, 1998
("Notes"). The principal and interest amount of each Note may at the election of
the Note holder be converted one or more times into fully paid and nonassessable
shares of common stock, $.00001 par value, ("Shares") of the Company, at a price
which is the lower of (i) $2.00 per share or (ii) 80% of five days market price
prior to conversion but not less than $0.80 per share. If the Company's shares
trade at $3.75 or more for ten consecutive days, the Company may force
conversion of the Notes and accrued interest.
As of November 30, 1996, $450,000 of the Notes had been converted into 431,297
Shares at a price of $1.04 per share. During December 1996, an additional
$850,000 of the Notes and $13,003 accrued interest on the Notes were converted
into an additional 933,622 Shares at a price of $0.85 to $1.08 per share.
6. SUBSEQUENT EVENT
Pursuant to an Exchange Offer and Letter of Transmittal dated December 4, 1996
(the "Offer"), the Company received 96.89% of the outstanding shares of Metacomp
Inc., a California corporation ("Metacomp"). As consideration for the shares
tendered pursuant to the Offer, in January, 1997 the Company issued 1,272,068
unregistered shares of its common stock. Metacomp, founded in 1978, is a
privately held, high technology company located in San Diego, California.
Metacomp designs, manufactures, and sells a wide range of high performance data
and telecommunications solutions for wide area networking and digital
telecommunications requirements. Metacomp's product line will compliment the
Company's ISDN product line.
7
<PAGE> 8
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
6. SUBSEQUENT EVENT (Continued)
The business combination effective as of December 26, 1996 is being treated as a
pooling-of-interests. The following unaudited summary, prepared from preliminary
information on a pro forma basis, combines the consolidated results of
operations of the Company and Metacomp for the six months ended November 30,
1996 as if the combination had occurred as of June 1, 1996:
<TABLE>
<S> <C>
Net sales $ 900,000
Net loss before extraordinary item (1,200,000)
Net income 600,000
Loss per share before extraordinary item $ (0.05)
Income per share 0.02
</TABLE>
The extraordinary item is a gain from the discharge of debt as a result of the
completion of Metacomp's Plan of Reorganization under Chapter 11 of the U.S.
Bankruptcy Code as of July, 1996.
ITEM 2. PLAN OF OPERATION
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING,
"FUTURE PERFORMANCE AND RISK FACTORS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB FOR THE YEAR ENDED MAY 31, 1996.
RESULTS OF OPERATIONS
During the fiscal year ended May 31, 1996 and the six months ended November 30,
1996, the Company's operations consisted primarily of research and development
activities towards the development of the ShBoom microprocessor technology and
the CyberShark ISDN technology, administrative activities related towards
financing and administrative operations and marketing expenditures incurred in
initial phases of market exploration.
The Company expended a total of $449,853 as research and development costs
during the six months ended November 30, 1996 primarily consisting of personnel
and consultancy costs. This represented a $16,748 reduction from the comparable
period of the prior year with the decrease consisting primarily of a reduction
in consultancy costs. General and administrative costs were $339,914 during the
six months ended November 30, 1996 comparable to the $203,296 for the
corresponding period of the prior fiscal year. This increase was due primarily
to the costs associated with the acquisition of Metacomp, increased legal,
personnel and consultancy costs. The Company incurred $111,889 of marketing
expenditures during the six months ended November 30, 1996 compared to $55,460
for the comparable period of the prior year. The $56,429 increase resulted
primarily from costs associated with initial marketing activities on the
Company's ShBoom technology and CyberShark product and the addition of a full
time marketing and sales executive. The Company expensed $326,319 as
amortization expense on purchased technology and patents for the six months
ended November 30, 1996.
During the six months ended November 30, 1996 the Company used cash of $919,306
in operating activities with $125,966 being used to reduce accounts payable and
accrued liabilities. The Company expended $89,592 in investing activities for
the purchase of equipment and software. The Company anticipates research and
development activities related to developing its technologies to continue at
comparable levels during the next twelve months with an increasing emphasis on
marketing initial ShBoom and CyberShark products.
8
<PAGE> 9
PLAN OF OPERATION FOR NEXT TWELVE MONTHS
Since late 1989, the Company has been engaged in developing its technologies.
The Company has not generated any significant operating revenues to date and
only recently commenced offering CyberShark and ShBoom products for sale. Sales
during the first six months of fiscal year 1997 consisted of ShBoom development
boards typically sold to prospective customers for evaluation and the initial
deliveries of the CyberShark. Orders are subject to rescheduling and
cancellation and there can be no assurance the Company can be successful in
future deliveries of products to customers or of future additional orders for
the Company's products.
The Company's plan of operation for the next twelve months is to expand the
marketing of ISDN products through its recent acquisition of Metacomp and
introduce to market and commence sales and licensing of ShBoom-architecture
microprocessors, design future generations of the ShBoom and ISDN technologies
and exploit the radar and antenna technology. There can be no assurance the
Company will be successful in exploiting its technologies.
At November 30, 1996, the Company had working capital of $1,623,134 compared to
working capital of $746,600 at May 31, 1996. During October 1996 the Company
received $1,500,000 from the sale of 6% subordinated convertible notes. Cash on
hand at November 30, 1996 was $1,568,762. The Company has commenced the redesign
of its ShBoom microprocessor from 0.8 micron fabrication to 0.5 micron in order
to improve speed and reduce power consumption and per-part cost. Management
estimates it will expend approximately $100,000 on this effort during the next
three months. The Company estimates it will expend approximately $300,000 as a
result of the acquisition of Metacomp of which approximately $250,000 is to
liquidate a bank note payable.
At November 30, 1996, in addition to one full-time and two part-time executive
officers, the Company had five full-time and one part-time research and
development employees, one full-time and one part-time marketing person and one
full-time and one part-time administrative persons. The acquisition of Metacomp
in December, 1996 increased the number of personnel by 16. Subject to
availability of resources, management is seeking to hire a new financial
executive. Other than attempting to fill this slot, management has no current
plans to hire additional personnel during the next twelve months except in
response to specific new development opportunities or funding, or as required to
support contract or commercialization activities, if any. Should CyberShark
product or ShBoom product sales or licensing develop, the Company may be
required to add technical and marketing support personnel. Likewise, if the
radar or antenna should prove successful, then during the next twelve months the
Company may require additional development, marketing and manufacturing
personnel, the number dependent upon a variety of factors not presently
determinable by management. The Company has in the past and may also in the
future engage outside consultants for specific development or marketing tasks.
The Company anticipates that it may require additional equipment, fabrication,
components and supplies during the next twelve months, not included in the
commitments outlined above, to continue development for the Company's
technologies. Product introductions such as those currently underway for ISDN
products and the ShBoom microprocessor may require significant inventory and
other expenditures not presently estimable by management. Further, if expanded
development is commenced or new generations of microprocessors or radar are
accelerated beyond current plans, additional expenditures, not currently
estimable by management, may be required.
It is possible therefore, that higher levels of expenditures may be required
than currently contemplated by management resulting from changes in development
plans or as required to support new developments or commercialization activities
or otherwise.
The Company has no other material sources of liquidity at this time. Based on
the current fiscal year's rate of cash operating expenditures and current plans
and assuming Metacomp neither uses or provides cash beyond the $300,000
described above, management anticipates a base level of cash operating
expenditures aggregating approximately $1,500,000 during the next twelve months.
Based on this estimate, the Company anticipates it will not have sufficient
operating funds for the next twelve months. In order to meet the cash
requirements of the Company, potential sources of future funds may include
improved product sales, the sale of additional Company equity securities, some
form of debt financing or the sale or licensing of certain of the Company's
technologies. There can be no assurance that any funds required during the next
twelve months or thereafter can be generated from operations or that such
required funds will be available from the aforementioned or other potential
sources. The lack of additional capital could force the Company to substantially
curtail or cease operations and would therefore have a material adverse effect
on the Company's business. Further there can be no assurance that any such
required funds, if available, will be available on attractive terms or that they
will not have a significantly dilutive effect on existing shareholders of the
Company.
9
<PAGE> 10
FUTURE PERFORMANCE AND RISK FACTORS
THIS REPORT CONTAINS A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH REFLECTS THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE.
THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE SUMMARIZED BELOW.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES
NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS, TO REFLECT
EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE OF THIS REPORT.
The Company is in the development stage and has experienced in the past and may
experience in the future many of the problems, delays and expenses encountered
by any business in the development stage, some of which are beyond the Company's
control. The Company has limited operating history, has incurred significant
cumulated losses, has only commenced marketing and sales of its products and has
not achieved a profitable level of operations. There can be no assurance of
future profitability. The Company may require additional funds in the future for
operations or to exploit its technologies. The Company's technologies are in
various stages of development and only the Company's CyberShark digital modem
and the ShBoom PSC1000 and certain Metacomp products have been developed to the
point of production of marketable product. There can be no assurance that any of
the other technologies in development can be completed to commercial
exploitation due to the inherent risks of new technology development limitations
on financing competition, obsolescence, loss of key technical personnel and
other factors. The Company's development projects are high risk in nature, where
unanticipated technical obstacles can arise at any time and result in lengthy
and costly delays or result in determination that further development is
unfeasible. There can be no assurance that the technologies, if completed, will
achieve market acceptance sufficient to sustain the Company or achieve
profitable operations. The Company acquired its ShBoom technology pursuant to a
chain of agreements and there is uncertainty regarding royalty payments, if any,
and indemnification from prior parties. The Company relies primarily on patents
to protect its intellectual property rights. There can be no assurance that
patents held by the Company will not be challenged and invalidated, that patents
will issue from any of the Company's pending applications or that any claims
allowed from existing or pending patents will be sufficient in scope or strength
or be issued in all countries where the Company's products can be sold to
provide meaningful protection or commercial advantage to the Company.
Competitors may also be able to design around the Company's patents. The
Company's common shares are traded on the OTC Bulletin Board, are thinly traded
and are subject to special regulations imposed on "penny stocks." The Company's
shares may experience significant price and volume volatility, increasing the
risk of ownership to investors.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - NONE
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November 30,
1996.
10
<PAGE> 11
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.
PATRIOT SCIENTIFIC CORPORATION
Date: January 10, 1997 By: /s/ ROBERT PUTNAM
---------------------
Robert Putnam, Secretary
Treasurer and Director
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
UNAUDITED INTERIM STATEMENTS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY REPORT ON FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 1,568,762
<SECURITIES> 0
<RECEIVABLES> 24,866
<ALLOWANCES> 0
<INVENTORY> 142,118
<CURRENT-ASSETS> 1,788,528
<PP&E> 624,438
<DEPRECIATION> 333,792
<TOTAL-ASSETS> 2,520,493
<CURRENT-LIABILITIES> 165,394
<BONDS> 1,050,000
0
0
<COMMON> 304
<OTHER-SE> 10,310,292
<TOTAL-LIABILITY-AND-EQUITY> 2,520,493
<SALES> 19,362
<TOTAL-REVENUES> 19,362
<CGS> 13,583
<TOTAL-COSTS> 13,583
<OTHER-EXPENSES> 1,227,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,202,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,202,485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,202,485)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
