<PAGE>
- ------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
- ----------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
- ----------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
COMMISSION FILE NUMBER 0-21366
TRICORD SYSTEMS, INC.
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1590621
------------- --------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2905 NORTHWEST BOULEVARD, SUITE 20, PLYMOUTH, MINNESOTA 55441
--------------------------------------------------------------------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 557-9005
-----------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
OUTSTANDING AT
CLASS JULY 30, 1999
----- -------------
Common Stock,
$0.01 par value 19,905,068
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRICORD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- ---------------------------------------
(In thousands, except per share data) 1999 1998 1999 1998
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 118 617 361 1,423
Service contracts 256 376 604 885
-------- -------- -------- --------
374 993 965 2,308
Cost of goods sold:
Product sales 113 596 327 1,281
Service contracts 91 64 187 181
-------- -------- -------- --------
204 660 514 1,462
Gross margin 170 333 451 846
-------- -------- -------- --------
Operating expenses:
Research and development 786 644 1,497 1,355
Sales and marketing 717 354 1,707 598
General and administrative 429 146 924 488
Nonrecurring items, net -- (195) -- (195)
-------- -------- -------- --------
1,932 949 4,128 2,246
-------- -------- -------- --------
Operating loss (1,762) (616) (3,677) (1,400)
-------- -------- -------- --------
Other income (expense):
Interest, net 50 46 116 98
Other, net 13 15 24 55
-------- -------- -------- --------
63 61 140 153
-------- -------- -------- --------
Net loss $ (1,699) (555) (3,537) (1,247)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per share - basic and diluted $ (0.09) (0.04) (0.19) (0.09)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares
outstanding - basic and diluted 19,061 14,369 19,024 14,119
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
1
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TRICORD SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
(In thousands, except per share data) 1999 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,259 6,215
Accounts receivable, net 83 162
Inventories, net 376 637
Other current assets 92 96
--------------- ----------------
Total current assets 3,810 7,110
Equipment and improvements, net 361 243
--------------- ----------------
Total Assets $ 4,171 7,353
--------------- ----------------
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 252 398
Accrued payroll, benefits and related taxes 270 344
Deferred revenue 214 525
Other accrued expenses 142 244
--------------- ----------------
Total current liabilities 878 1,511
Stockholders' equity:
Common stock, $0.01 par value; 75,000 and 27,000 shares
authorized, 19,065 and 18,961 shares issued and outstanding 191 190
Additional paid-in capital 87,690 87,483
Unearned stock compensation (4,784) (5,564)
Accumulated deficit (79,804) (76,267)
--------------- ----------------
Total stockholders' equity 3,293 5,842
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 4,171 7,353
--------------- ----------------
--------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
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TRICORD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
($ in thousands) 1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,537) $(1,247)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of unearned stock compensation 780 -
Depreciation and amortization 115 207
Provision for losses on inventories - 123
Recoveries on accounts receivable (13) (97)
Other (25) 186
Changes in operating assets and liabilities:
Accounts receivable 92 521
Inventories 261 290
Other current assets 4 58
Accounts payable (11) (145)
Accrued payroll, benefits and related taxes 1 (59)
Deferred revenue (311) (184)
Other accrued expenses (102) 76
------- -------
Net cash used in operating activities (2,746) (271)
------- -------
Cash flows from investing activities:
Capital expenditures (235) (37)
------- -------
Net cash used in investing activities (235) (37)
------- -------
Cash flows from financing activities:
Stock option transactions 25 360
------- -------
Net cash provided by financing activities 25 360
------- -------
Net increase (decrease) in cash and cash equivalents (2,956) 52
Cash and cash equivalents at beginning of period 6,215 3,713
------- -------
Cash and cash equivalents at end of period $ 3,259 3,765
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TRICORD SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated statements of operations,
balance sheet and statements of cash flows reflect all adjustments of a
normal recurring nature, which are, in the opinion of management, necessary
for a fair presentation of the consolidated financial position at June 30,
1999, and of consolidated results of operations and cash flows for the
interim periods ended June 30, 1999 and 1998. The unaudited consolidated
financial statements should be read in conjunction with Tricord Systems
Inc.'s (the "Company's") audited consolidated financial statements for the
year ended December 31, 1998, which were incorporated by reference in the
Company's 1998 Annual Report on Form 10-K. The year-end balance sheet data
included herein is derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The results of operations for the interim period ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year or any
future periods.
2. BALANCE SHEET AND SUPPLEMENTAL CASH FLOW INFORMATION
Balance Sheet Information:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 158 841
Allowance for doubtful accounts (75) (679)
------- -------
$ 83 162
======= =======
Inventories, net:
Spare parts and expansion products $ 2,959 3,946
Inventory reserves (2,583) (3,309)
------- -------
$ 376 637
======= =======
</TABLE>
Supplemental Cash Flow Information:
During the second quarter of 1999, expenses for outside directors meeting
fees of $14 were settled through the issuance of 5,748 shares of common stock
of the Company. During the first quarter of 1999, $75 of accrued payroll
obligations, $15 of expenses for
4
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outside directors meeting fees and $79 of expenses for consulting fees were
settled through the issuance of 70,499 shares of common stock of the Company.
3. BUSINESS SEGMENTS
The Company reports its operations in two business segments, Server and
Software. Revenues to date are for the server line of business only. There
are no intersegment revenues. Cost allocations are necessary in the
determination of operating results by segment. For this reason, management
does not represent that these segments, if operated as independent
businesses, would result in the operating results shown.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating income (loss):
Server business $ 91 325 314 711
Software business (1,853) (941) (3,991) (2,111)
------------- ------------- ------------- -------------
$ (1,762) (616) (3,677) (1,400)
============= ============= ============= =============
</TABLE>
4. NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding during each period. Potentially dilutive
common shares are excluded from the calculation of net loss per share as
their impact is antidilutive. Net loss per share does not include common
stock options and warrants ultimately exercisable for the purchase of
approximately 8,900,000 shares as of June 30, 1999.
5. COMPREHENSIVE INCOME (LOSS)
The Company has no significant comprehensive income (loss) items other than
net loss.
6. SUBSEQUENT EVENTS
In July 1999, the Company sold 840,000 shares of the Company's common stock
at a price of $2.50 per share to a group of private investors. Such shares
have not been registered by the Company and are subject to certain
restrictions on resale by the private investors.
5
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
Throughout 1998 and the first six months of 1999, the Company continued to focus
its development efforts exclusively on storage system management software, the
strategy it defined in 1997. The storage system management software architecture
includes an entirely new generation of distributed file system and
file-intelligent I/O ("input/output") technology known as Tricord Storage
Management Software ("TSMS"). No revenues were generated by TSMS through June
30, 1999, and the Company may not receive revenues from TSMS-based products
during the remainder of 1999.
The Company has historically engaged in the business of designing,
manufacturing, marketing and supporting high-performance enterprise servers for
use in mission critical applications, principally running on Microsoft Windows
NT(R) and Novell(R) NetWare(R). All revenues generated through June 30, 1999
relate to the server line of business (sometimes referred to as the "legacy
business").
In February 1997, the Company announced that it had changed its business
strategy to focus on the development of its distributed file system software
technology (now known as TSMS) and would wind down its legacy business. The
Company continues to streamline its operations, including accelerated wind
down of the legacy business. As part of this streamlining, the Company
effected a workforce reduction in July 1999. The Company expects this
workforce reduction to have favorable effects on the costs of the Company in
the fourth quarter of 1999.
See "Certain Important Factors" at the end of this section for a discussion of
forward looking statements.
RESULTS OF OPERATIONS
REVENUES
Revenues for the second quarter and six months ended June 30, 1999 were
$374,000 and $965,000, respectively, compared to $993,000 and $2,308,000,
respectively, for the second quarter and six months ended June 30, 1998.
Revenues decreased in 1999 from the comparable periods in 1998 as a result of
the Company's 1997 decision to redefine its corporate strategy to focus its
development efforts exclusively on storage system management software.
The Company currently anticipates that revenues will continue to decrease
during the remainder of 1999 as the Company continues to focus its resources
on developing and marketing TSMS. The Company intends to sell its remaining
enterprise server product inventories, consisting primarily of spare parts
and expansion products, as long as there is sufficient customer demand and
materials are available. The Company will honor its existing service
agreements. Management believes that it may be in the best interests of the
Company to sell or transfer the legacy business to a third party and is
pursuing such sale or transfer.
6
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Since the Company has not completed its development of TSMS products, the
Company may not receive revenues during the remainder of 1999 from TSMS-based
products.
GROSS MARGIN
Gross margin decreased to $170,000 and $451,000, respectively, for the second
quarter and six months ended June 30, 1999 from $333,000 and $846,000,
respectively, for the second quarter and six months ended June 30, 1998,
primarily due to the decrease in revenues over the same periods. The Company
currently anticipates that gross margin will continue to decline in 1999 because
of the anticipated decrease in revenues in 1999 as discussed above.
RESEARCH AND DEVELOPMENT
Research and development expenses were $786,000 and $1,497,000, respectively,
for the second quarter and six months ended June 30, 1999, compared to
$644,000 and $1,355,000, respectively, for the second quarter and six months
ended June 30, 1998. Research and development in the second quarter of 1999
increased primarily due to an increase of $125,000 in non-cash stock
compensation expense related to certain options granted and restricted stock
issued in 1998. Research and development for the first six months of 1999
increased due to a similar increase of $260,000 in non-cash stock
compensation expense, but was offset by decreases in project costs and
research and development consulting. The Company anticipates that research
and development costs will rise during 1999 compared to 1998 levels.
SALES AND MARKETING
Sales and marketing expenses increased to $717,000 and $1,707,000, respectively,
for the second quarter and six months ended June 30, 1999 from $354,000 and
$598,000, respectively, for the second quarter and first six months of 1998,
primarily due to increases in personnel costs related to headcount additions,
expenses related to marketing research and analysis for TSMS and an increase of
$125,000 and $261,000, respectively, for the second quarter and first six months
of 1999 in non-cash stock compensation expense related to certain options
granted and restricted stock issued in 1998. The Company currently anticipates
that sales and marketing expenses will be significantly higher in 1999 compared
to 1998 levels.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $429,000 and $924,000,
respectively, for the second quarter and six months ended June 30, 1999 from
$146,000 and $488,000, respectively, for the second quarter and first six months
of 1998, primarily due to an increase in non-cash stock compensation expense of
$97,000 and $201,000, respectively, related to certain options granted and
restricted stock issued in 1998, an increase in personnel costs related to the
December 1998 addition of the Company's Vice President
7
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and General Counsel, and an increase in professional fees. In addition, the
second quarter of 1998 includes certain bad debt recoveries. The Company
currently anticipates that general and administrative expenses for 1999 will
be greater than 1998 levels due to these factors.
LIQUIDITY AND CAPITAL RESOURCES
The aggregate net decrease in cash and cash equivalents during the first six
months of 1999 was $2,956,000, including $2,746,000 of cash used in operating
activities due primarily to the net loss for the first six months of 1999
(adjusted by non-cash stock compensation expense related to certain options
granted and restricted stock issued in 1998) and capital expenditures of
$235,000. The Company may purchase additional capital equipment, primarily for
research and development, depending on the timing and specific requirements of a
potential OEM or other strategic investment or alliance. The Company has no
material commitments for the purchase of capital equipment.
As of June 30, 1999, the Company had $3,259,000 in cash and cash equivalents. In
July 1999, the Company sold 840,000 shares of the Company's common stock at a
price of $2.50 per share to a group of private investors raising a total of
$2,100,000. The Company believes that it will be able to manage its cash
resources to continue operations for at least the next twelve months. However,
should the Company incur additional increases in research and development costs
and sales and marketing costs within the next twelve months, the Company may
need to adjust its operating plans.
The Company will need to raise additional capital in order to complete
development of TSMS. The Company may seek such additional capital through the
sale of debt or equity securities. In addition, the Company continues to look
for additional capital through OEM or other strategic investments or alliances.
There can be no assurance, however, that additional capital will be available on
acceptable terms or at all, and the failure to obtain additional capital as
needed may have a material adverse effect on the Company.
YEAR 2000
The Company previously initiated a project to prepare its computer systems for
the Year 2000. This project encompasses information technology ("IT") systems,
non-IT systems, Company products and third party products and systems.
The Company has reviewed its main IT system and to date has concluded that a
Year 2000 problem does not exist in that system. However, the Company has
other smaller supporting business systems which it is continuing to review.
In the event that the Company determines that its smaller supporting business
systems will not transition properly at the end of 1999, the Company will
transition these systems to its main business system in order to reduce the
risk of any business disruption.
The Company has completed an evaluation of its telephone, gas and electric
systems and its building systems and determined that a Year 2000 problem does
not exist in those
8
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systems. The Company has other non-IT systems which it is continuing to
review for Year 2000 readiness. The Company will take remedial action as
necessary.
The Company has also reviewed its software related to its legacy business and
has completed a fix for the Year 2000 issue. The Company has made this fix
available to its customers on its web site. The Company has commenced to contact
as many of its legacy business customers as practicable. The Company has not yet
released any TSMS-based products, but it intends to review and correct any Year
2000 issues, if necessary, prior to release to market of these products.
The Company has reviewed suppliers for its legacy business and has determined
that, due to the declining revenues associated with sales of spare parts, there
is no material impact to the Company. The Company has not yet released any
TSMS-based products, but it intends to work with future suppliers to ensure that
no Year 2000 issues will exist prior to release to market of these products.
Substantially all of the Company's Year 2000 efforts have been made using
internal personnel, therefore, the costs associated with the Year 2000
assessment and corrections have not been, and currently are not anticipated to
be, material to the Company. All such costs to date have been expensed as
incurred.
Based on its efforts to date, management believes the Year 2000 issue will not
have a significant impact on operations. If additional modifications and
conversions are necessary, however, and cannot be completed on a timely basis,
the Year 2000 issue could have an adverse effect on the Company's operations. At
this time, the Company believes that it is unnecessary to adopt a contingency
plan covering the possibility that additional modifications and conversions will
be needed, but, as part of the overall project, the Company will continue to
assess the need for such a contingency plan, and will continue to analyze its
computer systems to determine if additional modifications and conversions will
be needed.
CERTAIN IMPORTANT FACTORS
This Quarterly Report on Form 10-Q contains certain forward looking statements
within the meaning of the Private Securities Reform Act of 1995. For this
purpose, any statements contained in this Quarterly Report that are not
statements of historical fact are deemed to be forward looking statements.
Without limiting the foregoing, words such as "may," "will," "should,"
"expects," "anticipates," "estimates," "believes," or "plans," or comparable
terminology, are intended to indicate forward looking statements. These
statements by their nature are based on current expectations and assumptions and
entail various risks and uncertainties that could cause actual results to differ
materially from those expressed in such forward looking statements, including
the following risks:
- - The Company will not realize sufficient revenues from the operation or
sale of its legacy business to fund its ongoing TSMS product
development. The Company intends to manage its current cash to fund its
operations; however, continued
9
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aggressive product development and product introduction necessarily
requires that the Company obtain additional funds from investors.
The Company continues to pursue additional sources of capital,
however, there can be no assurance that funds will be obtained.
- - The market window for the Company's products is limited inasmuch as
many competitors with established brand identity are beginning to enter
the market with products that will be positioned against the Company's
products. Although the Company believes that it has a significant
headstart and that its technology is superior, established product
channels and bundling arrangements may impede the Company's product
introduction and market acceptance.
- - The market for distributed file system products for the Windows NT and
UNIX environment is new and developing. The Company believes that its
future success will depend upon the continued growth and acceptance of
the Windows NT operating system and the growth in demand for attached
storage. In addition, the Company's success is dependent upon its
ability to develop, test and release products for this market on a
timely basis.
- - The market for storage products currently is characterized by rapid
technological change and evolving industry standards and is expected to
be highly competitive with respect to timing of product innovation. The
introduction of products embodying new technology and the emergence of
new industry standards can render products, either existing or under
development, obsolete and unmarketable. The Company's success is
dependent in part upon its ability to anticipate changes in technology
and industry standards and to successfully develop and introduce new
and enhanced products on a timely basis. If the Company is unable for
technological or other reasons to develop products in a timely manner
in response to changes in the industry, or if products or product
enhancements that the Company develops do not achieve market
acceptance, the Company's business will be materially and adversely
affected.
- - The Company continues to explore market opportunities for TSMS through
OEM and other channels, and the failure to establish such
relationships on acceptable terms could adversely affect the Company's
ability to introduce and market TSMS-based products successfully.
- - To maintain its listing, the Company will need to maintain compliance
with the Nasdaq SmallCap Market requirements.
- - Many of the Company's potential competitors in the market for UNIX and
Windows NT storage products are the same companies that represent
potential OEM partners. The Company's ability to introduce and market
its products could be adversely affected if one or more of these
competitors elects to develop and market its own products.
Additionally, the Company's ability to market its products will
necessarily require the endorsement of industry leaders if the
Company's products are to gain wide-scale acceptance by the industry.
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- - The Company's sales' lead time may be longer than most storage products
due to the general market reluctance to accept new entrants and due to
the sensitivity of the data on today's storage devices.
- - The Company will need to attract new team members and consultants and
retain existing team members and consultants.
11
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ITEM 3:
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
FINANCIAL INSTRUMENTS
The Company invests excess funds not required for current operations in cash
equivalents, primarily money market funds or commercial paper. As of June 30,
1999, cash equivalents had an average maturity of less than three months. Market
risk was estimated as the potential decrease in interest income resulting from a
hypothetical one percent decrease in interest rates for the cash equivalents,
which would result in an annual interest income decrease of approximately
$40,000.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1999, the Company entered into a mediation settlement with Novell,
Inc. ("Novell") to settle a 1997 dispute regarding alleged royalties owed to
Novell with respect to Novell's software that the Company disposed of when
such software could not be sold and settling the Company's claim of alleged
copyright infringement against Novell. The terms of the settlement will
remain confidential, however, the resolution of this dispute had no
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual stockholders meeting was held on May 21, 1999, during
which the following items were voted on and approved under applicable law:
1. Election of Directors
Mr. Tom R. Dillon was elected as a Class C Director, with 15,332,389
votes cast for Mr. Dillon and 86,371 votes withheld, and Mr. John J.
Mitcham was elected as a Class C Director with 15,333,349 votes cast for
Mr. Mitcham and 85,411 votes withheld.
2. On the proposal to ratify the appointment of PricewaterhouseCoopers LLP,
certified public accountants, as independent accountants for the Company
for the year ended December 31, 1999, 15,349,661 shares were cast for,
27,210 shares were cast against, and 41,889 shares abstained from voting
on such proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial data schedule
(b) Reports on Form 8-K
On May 18, 1999, the Company filed a report on Form 8-K under Item 5,
related to the appointment of Mr. Rod Canion to the newly-created Office
of the CEO. No financial statements were included as part of this filing.
13
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
TRICORD SYSTEMS, INC.
(REGISTRANT)
By: /s/ John J. Mitcham
------------------------------
John J. Mitcham, Chairman and
Co-Chief Executive Officer
By: /s/ John F. Gribi
------------------------------
John F. Gribi, Vice President
and Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
Date: August 10, 1999
14
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------- ------
<S> <C> <C>
27.1 Financial data schedule 16
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,259
<SECURITIES> 0
<RECEIVABLES> 158
<ALLOWANCES> (75)
<INVENTORY> 376
<CURRENT-ASSETS> 3,810
<PP&E> 1,476
<DEPRECIATION> (1,115)
<TOTAL-ASSETS> 4,171
<CURRENT-LIABILITIES> 878
<BONDS> 0
0
0
<COMMON> 191
<OTHER-SE> 3,102
<TOTAL-LIABILITY-AND-EQUITY> 4,171
<SALES> 374
<TOTAL-REVENUES> 374
<CGS> 204
<TOTAL-COSTS> 204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (13)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,699)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,699)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
