UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended February 28, 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: 0-18105
VASOMEDICAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2871434
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
180 Linden Ave., Westbury, New York 11590
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number (516) 997-4600
-------------
Number of Shares Outstanding of Common Stock,
$.001 Par Value, at April 12, 1999 50,402,687
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the 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 [ ]
--- --
<PAGE>
Vasomedical, Inc. and Subsidiary
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements: Page
----
Consolidated Condensed Balance Sheets as of
February 28, 1999 and May 31, 1998 (Unaudited) 3
Consolidated Condensed Statements of Operations for
the Nine and Three Months Ended
February 28, 1999 and 1998 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Nine Months Ended
February 28, 1999 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended February 28, 1999 and 1998 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION 12
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,578,487 $4,367,986
Accounts receivable 451,293 976,341
Inventories 853,134 678,302
Other current assets 151,262 164,826
------------ ------------
Total current assets 3,034,176 6,187,455
PROPERTY AND EQUIPMENT, net 588,157 352,902
CAPITALIZED COST IN EXCESS OF FAIR
VALUE OF NET ASSETS ACQUIRED, net 621,551 781,373
OTHER ASSETS 23,114 23,516
------------ ------------
$4,266,998 $7,345,246
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $707,024 $436,730
Accrued warranty and customer support expenses 297,000 240,000
Accrued professional fees 116,478 225,833
Accrued commissions 144,033 176,553
Dividends payable 149,860 62,137
------------ ------------
Total current liabilities 1,414,395 1,141,253
ACCRUED WARRANTY COSTS 161,000 334,000
OTHER LONG-TERM LIABILITIES 76,440 117,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000
shares authorized; 175,000 and 225,750 shares
at February 28, 1999 and May 31, 1998, respectively,
issued and outstanding 1,750 2,258
Common stock, $.001 par value; 110,000,000 shares
authorized; 50,402,687 and 48,531,278 shares at
February 28, 1999 and May 31, 1998, respectively,
issued and outstanding 50,403 48,531
Additional paid-in capital 37,749,483 36,458,155
Accumulated deficit (35,186,473) (30,755,951)
------------ ------------
2,615,163 5,752,993
------------ ------------
$4,266,998 $7,345,246
------------ ------------
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
----------------------- -----------------------
February 28, February 28,
----------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Equipment sales $2,007,100 $3,650,080 $1,457,100 $1,625,664
Equipment rentals and services 469,179 205,231 227,079 52,499
---------- ---------- ---------- ----------
2,476,279 3,855,311 1,684,179 1,678,163
---------- ---------- ---------- ----------
Costs and expenses
Cost of sales and services 1,164,174 1,063,367 590,384 423,647
Selling, general and administrative 4,014,589 4,175,189 1,366,313 1,668,656
Research and development 470,752 1,279,966 130,989 331,101
Depreciation and amortization 324,559 275,179 122,850 92,863
Interest and financing costs 9,415 1,546 2,078 470
Interest and other income - net (102,101) (132,385) (18,036) (35,780)
---------- ---------- ---------- ----------
5,881,388 6,662,862 2,194,578 2,480,957
---------- ---------- ---------- ----------
NET LOSS (3,405,109) (2,807,551) (510,399) (802,794)
Deemed dividend on preferred stock (864,000) (857,000) - -
Preferred stock dividend requirement (161,413) (69,659) (53,342) (16,720)
---------- ---------- ---------- ----------
LOSS APPLICABLE TO
COMMON STOCK $(4,430,522) $(3,734,210) $(563,741) $(819,514)
---------- ---------- ---------- ----------
Net loss per common share (basic and
diluted) $(.09) $(.08) $(.01) $(.02)
----- ----- ----- -----
Weighted average common shares
outstanding (basic and diluted) 49,025,137 47,689,862 49,614,736 48,235,284
---------- ---------- ---------- ----------
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Total
Additional Accum- stock-
Preferred Stock Common stock paid-in ulated holders'
Shares Amount Shares Amount capital deficit equity
------ ------ ------ ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1998 225,750 $2,258 48,531,278 $48,531 $36,458,155 $(30,755,951) $5,752,993
Conversion of preferred stock (50,750) (508) 975,882 976 (468) -
Deemed dividend on preferred stock 864,000 (864,000) -
Preferred stock dividend requirement (161,413) (161,413)
Common stock issued in lieu of
preferred stock dividends 70,527 71 73,621 73,692
Exercise of warrants 825,000 825 354,175 355,000
Net loss (3,405,109) (3,405,109)
------- ------ ---------- ------- ----------- ------------ ----------
Balance at February 28, 1999 175,000 $1,750 50,402,687 $50,403 $37,749,483 $(35,186,473) $2,615,163
------- ------ ---------- ------- ----------- ------------ ----------
<FN>
The accompanying notes are an integral part of this condensed statement.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended February 28,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(3,405,109) $(2,807,551)
----------- -----------
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 324,559 275,179
Changes in operating assets and liabilities
Accounts receivable 525,048 (758,629)
Inventory (549,943) 88,772
Other current assets 13,564 (164,382)
Other assets 402 (403)
Accounts payable, accrued expenses
and other current liabilities 185,421 192,685
Other liabilities (213,560) 191,370
----------- -----------
285,491 (175,408)
----------- -----------
Net cash used in operating activities (3,119,618) (2,982,959)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (24,881) (23,891)
----------- -----------
Net cash used in investing activities (24,881) (23,891)
----------- -----------
Cash flows from financing activities
Proceeds from exercise of options and warrants 355,000 484,463
Proceeds from issuance of preferred stock, net 2,817,900
----------- -----------
Net cash provided by financing activities 355,000 3,302,363
----------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (2,789,499) 295,513
Cash and cash equivalents - beginning of period 4,367,986 1,753,004
----------- -----------
Cash and cash equivalents - end of period $1,578,487 $2,048,517
----------- -----------
Non-cash investing and financing activities were as follows:
Deemed dividend on preferred stock $864,000 $857,000
Issuance of common stock in lieu of preferred dividends 73,692 25,602
Inventories transferred to property and equipment,
attributable to operating leases - net 375,111 75,000
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
February 28, 1999
(unaudited)
NOTE A - BASIS OF PRESENTATION
The consolidated condensed balance sheet as of February 28, 1999 and the
related consolidated condensed statements of operations for the nine- and
three-month periods ended February 28, 1999 and 1998, changes in stockholders'
equity for the nine-month period ended February 28, 1999 and cash flows for the
nine-month periods ended February 28, 1999 and 1998 have been prepared by
Vasomedical, Inc. and Subsidiary (the "Company") without audit. In the opinion
of management, all adjustments (which include only normal, recurring accrual
adjustments) necessary to present fairly the financial position as of February
28, 1999 and for all periods presented have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Annual Report on Form 10-K for the year ended May 31, 1998. Results of
operations for the periods ended February 28, 1999 and 1998 are not necessarily
indicative of the operating results expected or reported for the full year.
NOTE B - STOCKHOLDERS' EQUITY
On April 30, 1998, the Company completed a second tranche of financing with
an accredited investor and issued 175,000 shares of newly created 5% Series C
Cumulative Convertible Preferred Stock ("Series C Preferred"), $.01 par value,
pursuant to Regulation D under the Securities Act of 1933 at a price of $20 per
share, for net cash proceeds of $3,294,000. The Series C Preferred has no voting
rights and was convertible into common stock of the Company at an effective
conversion price of the lower of (i) $2.08 or (ii) 85% of the average closing
bid price of the Company's common stock for the five (5) trading days
immediately preceding the conversion date (the "Average Closing Price"), as
defined in the Certificate of Designation of the Series C Preferred. In
addition, the investor was granted five-year warrants to purchase 413,712 shares
of common stock at an exercise price of $2.08 per share. The Company has
estimated the value of the deemed dividend, representing the discount resulting
from the allocation of proceeds to the beneficial conversion feature and the
fair value of the underlying warrants, to approximate $936,000. Such deemed
dividend has been recognized from the date of issuance through the date such
preferred stock was first convertible (on or about August 15, 1998).
Accordingly, the Company recognized a deemed dividend of $275,000 in the fourth
quarter of fiscal 1998 and recognized the remaining portion of the deemed
dividend of $661,000 in the first quarter of fiscal 1999.
Based upon negotiations between the Company and the holder of the Series C
Preferred in December 1998 relating to the delayed effectiveness of a
registration statement covering the underlying shares of common stock, the
conversion price with respect to the Series C Preferred has been reduced to the
lower of (i) $2.00 per share, or (ii) 81% of the Average Closing Price. The
Company has estimated the incremental value of the deemed dividend, representing
the additional discount resulting from the allocation of proceeds to the
beneficial conversion feature, to approximate $203,000. Accordingly, the Company
recognized this incremental deemed dividend in the second quarter of fiscal
1999.
In the first, second and third quarters of fiscal 1999, 9,250 shares, 8,000
shares and 33,500 shares of preferred stock were converted into 167,636 shares,
196,392 shares and 611,854 shares of common stock, respectively.
In January 1999, the Company's Board of Directors increased the number of
shares authorized for issuance under the Company's 1997 Stock Option Plan by
1,000,000 shares to 2,800,000 shares. In addition, the Board of Directors
granted stock options under the plan to directors, officers, employees and
consultants to purchase an aggregate of 830,000 shares, 470,000 shares, 313,500
shares, and 150,000 shares of common stock, respectively, at an exercise price
of $.875 per share (which represented the fair market value of the underlying
common stock at the time of grant). The stock options granted to consultants are
contingent upon certain performance criteria.
In the third quarter of fiscal 1999, warrants to purchase 825,000 shares of
common stock were exercised, aggregating $355,000.
<PAGE>
Vasomedical, Inc. and Subsidiary
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
February 28, 1999
(unaudited)
NOTE C - COMMITMENTS AND CONTINGENCIES
Employment Agreements
- ---------------------
Approximate aggregate minimum annual compensation obligations under active
employment agreements at February 28, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Twelve months ended February 28, Amount
-------------------------------- ------
<S> <C>
2000 $569,000
2001 498,000
2002 123,000
----------
$1,195,000
----------
</TABLE>
SEC Investigation
- -----------------
In February 1995, the Company received a subpoena duces tecum by the
broker-dealer branch of the Northeast Regional Office of the Securities and
Exchange Commission ("SEC") requesting certain documents from the Company
pursuant to a formal order of private investigation in connection with possible
registration and reporting violations. The Company has cooperated with the
investigation. As stated in the subpoena, the "investigation is confidential and
should not be construed as an indication by the SEC or its staff that any
violations of law have occurred, nor should it be interpreted as an adverse
reflection on any person, entity or security." The Company is not aware of any
activity concerning this investigation since April 1998, and is unable to
establish the likelihood of an unfavorable outcome or the existence or amount of
any potential loss.
Litigation
- ----------
In May 1996, an action was commenced in the Supreme Court of the State of
New York, Nassau County, against the Company, its directors and certain of its
officers and employees for the alleged breach of an agreement to appoint a
non-affiliated party as its exclusive distributor of EECP systems. The complaint
seeks damages in the approximate sum of $50,000,000, declaratory relief and
punitive damages. The Company denies the existence of any agreement, believes
that the complaint is frivolous and without merit and is vigorously defending
the claims as well as asserting substantial counterclaims. This matter is in its
preliminary stages and the Company is unable to establish the likelihood of an
unfavorable outcome or the existence or amount of any potential loss.
In May 1998, an action was commenced in the New York Supreme Court, Suffolk
County, against the Company and other parties. The action seeks damages in the
sum of $5,000,000 based upon alleged injuries resulting from the alleged
negligence of the defendants in the use of the Company's product. The Company
and its insurer believe that the complaint is frivolous and without merit and
are vigorously defending the claims. Furthermore, management believes that this
action is fully covered by insurance. This matter is in its preliminary stages
and the Company is unable to establish the likelihood of an unfavorable outcome
or the existence or amount of any potential loss.
In February 1999, an action was commenced in the Massachusetts Superior
Court, Essex County, against the Company. The action seeks damages in the sum of
$1,000,000 based upon an alleged breach of a sales contract. The Company
believes that the complaint is frivolous and without merit and is vigorously
defending the claims. This matter is in its preliminary stages and the Company
is unable to establish the likelihood of an unfavorable outcome or the existence
or amount of any potential loss.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
Results of Operations
- ---------------------
Nine and Three Months Ended February 28, 1999 and 1998
- ------------------------------------------------------
The Company generated revenues from the sale and lease of EECP systems of
$2,476,000 and $3,855,000 and $1,684,000 and $1,678,000 for the nine- and
three-month periods ended February 28, 1999 and 1998, respectively. The Company
incurred net losses of $3,405,000 and $2,807,000 for the nine months ended
February 28, 1999 and 1998, respectively (before deducting $864,000 and
$857,000, respectively, in deemed dividends on preferred stock which represented
the discount resulting from the allocation of proceeds to the beneficial
conversion feature and the fair value of the underlying warrants, and $161, 000
and $70,000, respectively, in dividend requirements, in connection with the
Company's April 1998 and June 1997 financings). The Company incurred net losses
of $510,000 and $803,000 for the three months ended February 28, 1999 and 1998,
respectively (before deducting $53,000 and $17,000, respectively, in dividend
requirements in connection with the Company's April 1998 and June 1997
financings).
The number of cardiology practices and hospitals interested in becoming
providers of enhanced external counterpulsation (EECP) has increased following
the announcement by the Health Care Financing Administration (HCFA) in February
1999 of its decision to extend Medicare coverage nationally to the Company's
noninvasive, outpatient treatment for coronary artery disease. HCFA is the
federal agency that administers the Medicare program for 38 million
beneficiaries. Interest in EECP therapy has also been spurred by the results of
the Company's one-year follow-up quality-of-life outcomes study presented at the
American Heart Association (AHA) annual meeting in November 1998 and additional
reports presented at the American College of Cardiology annual meeting in March
1999. The number of EECP systems placed in the first three quarters of fiscal
1999 has exceeded that of systems placed in all four quarters of the prior year;
however, revenues in the current fiscal year, particularly in the first two
fiscal quarters, have been adversely affected by the nature of the commercial
arrangements under which those units were placed. The Company expects,
especially as a result of HCFA's recent coverage decision, that several
placements made so far under rental or fee-for-use arrangements will convert to
financed leases or outright sales in the fourth quarter of fiscal 1999, although
there can be no assurance that this will occur.
Gross margins are dependent on a number of factors, particularly the mix of
EECP units sold and rented during the period, the ongoing costs of servicing
such units, and by certain fixed period costs, including facilities, payroll and
insurance. Gross margins are furthermore affected by the location of the
Company's customers and the amount and nature of training and other initial
costs required to place the EECP system in service for customer use.
Accordingly, the gross margin realized during the current period may not be
indicative of future margins.
<PAGE>
Selling, general and administrative (SGA) expenses for the nine- and
three-month periods ended February 28, 1999 and 1998 were approximately
$4,015,000 and $4,175,000, and $1,366,000 and $1,669,000, respectively. The
$161,000 decrease in SGA expenses for the comparable nine-month period resulted
primarily from the decrease in commissions and other related selling expenses as
a result of decreased revenues. The $302,000 decrease in SGA expenses for the
comparable three-month period resulted primarily from substantial expenditures
in the prior period for public relations programs related to the announcement of
the aforementioned multicenter study's results and for new promotional and
educational materials.
Research and development (R&D) expenses decreased $809,000 and $200,000 for
the nine and three months ended February 28, 1999 compared to the prior periods.
The decreases were the result of significant prior period expenses related to
the completion of the Company's multicenter clinical study of EECP (completed in
July 1997) and the front-loaded expenses for the development of a new model of
the EECP system. Current period expenses relate to the long-term follow-up phase
of the multicenter clinical study, i.e., a quality-of-life outcomes study
(completed in July 1998), the expansion of the International EECP Patient
Registry at the University of Pittsburgh, and the ongoing feasibility study in
congestive heart failure, all of which, to some extent, are expected to further
affect operating results in fiscal 1999.
Liquidity and Capital Resources
- -------------------------------
Working capital decreased by $3,426,000 from $5,046,000 at May 31, 1998 to
$1,620,000 at February 28, 1999, principally as a result of continuing operating
losses. In the third quarter of fiscal 1999, the Company received proceeds of
$355,000 from the exercise of warrants.
In fiscal 1998, the Company issued an aggregate of 325,000 shares of newly
created 5% Series B and Series C Convertible Preferred Stock to one accredited
investor at a price of $20 per share, realizing net cash proceeds of $6,112,000.
Dividends due on such preferred stock have been, and are expected to be, paid in
shares of the Company's common stock. Through February 28, 1999, all of the
Series B preferred stock (150,000 shares) have been converted into 2,135,946
shares of the Company's common stock. To date, none of the Series C preferred
stock has been converted into common stock.
Management believes that its present working capital position at February
28, 1999, along with the ongoing commercialization of the EECP system
(including, but not limited to, the conversion of current units under rental or
use arrangements to outright sales or financed leases), and possible further
proceeds from the exercise of options and warrants, will make it possible for
the Company to support its internal overhead expenses and to implement its
business plans for the next twelve months. Management will revise its business
plans in the event actual revenues deviate from current projections. If the
Company's future cash requirements are not adequately generated from the sale
and lease of EECP systems, the Company may require infusions of additional
capital from equity or debt issuances.
Impact of the Year 2000 on Information Systems
The Year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
<PAGE>
The Company's sole product is not expected to be affected by Year 2000 as
it does not rely on date- sensitive software or affected hardware. The Company's
current accounting and other systems were purchased "off-the-shelf". The Company
intends to timely update its accounting and other systems which are determined
to be affected by Year 2000 by purchasing Year 2000 compliant software and
hardware available from retail vendors at reasonable costs.
The Company has not yet contacted other companies on whose services the
Company depends to determine whether such companies' systems are Year 2000
compliant. If the systems of the Company or other companies on whose services
the Company depends, including the Company's customers, are not Year 2000
compliant, there could be a material adverse effect on the Company's financial
condition or results of operations.
Except for historical information contained herein, the matters discussed
are forward-looking statements that involve risks and uncertainties. When used
in this report, words such as "anticipate", "believe", "estimate", "expect" and
"intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of the Company's management, as well as assumptions
made by and information currently available to the Company's management. Among
the factors that could cause actual results to differ materially are the
following: the effect of the dramatic changes taking place in the healthcare
environment; the impact of competitive procedures and products and their
pricing; unexpected manufacturing problems in foreign supplier facilities;
unforeseen difficulties and delays in the conduct of clinical trials and other
product development programs; the actions of regulatory authorities and
third-party payers in the United States and overseas; uncertainties about the
acceptance of a novel therapeutic modality by the medical community; and the
risk factors reported from time to time in the Company's SEC reports.
<PAGE>
VASOMEDICAL, INC. AND SUBSIDIARY
--------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS:
Previously reported.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:
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:
Exhibits:
No. 27 Financial Data Schedule
Reports on Form 8-K:
None
<PAGE>
In accordance with to the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VASOMEDICAL, INC.
By: /s/ Anthony Viscusi
-------------------
Anthony Viscusi
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Joseph A. Giacalone
-----------------------
Joseph A. Giacalone
Secretary and Treasurer (Principal Financial and
Accounting Officer)
Date: April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated condensed financial statements for the nine-months ended February
28, 1999 and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 1,578,487
<SECURITIES> 0
<RECEIVABLES> 451,293
<ALLOWANCES> 0
<INVENTORY> 853,134
<CURRENT-ASSETS> 3,034,176
<PP&E> 1,001,292
<DEPRECIATION> (413,135)
<TOTAL-ASSETS> 4,266,998
<CURRENT-LIABILITIES> 1,414,395
<BONDS> 0
0
1,750
<COMMON> 50,403
<OTHER-SE> 2,563,010
<TOTAL-LIABILITY-AND-EQUITY> 4,266,998
<SALES> 2,476,279
<TOTAL-REVENUES> 2,476,279
<CGS> 1,164,174
<TOTAL-COSTS> 1,164,174
<OTHER-EXPENSES> 4,707,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,415
<INCOME-PRETAX> (3,405,109)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,405,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,405,109)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
