<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________
to _______________.
COMMISSION FILE NO. 0-17816
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0148208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
47265 FREMONT BOULEVARD, FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 623-9001
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
--- ---
There were 33,786,230 shares of the registrant's Common Stock issued and
outstanding on April 30, 1998.
<PAGE> 2
INDEX
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Operations--Three months ended March 31,
1998 and 1997 1
Condensed Consolidated Balance Sheets--March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Cash Flows--Three months ended March 31,
1998 and 1997 3
Notes to Condensed Consolidated Financial Statements--March 31, 1998 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
-------- --------
(In thousands except per
share amounts)
<S> <C> <C>
Net revenues $ 102 $ 1,009
Cost of revenues 255 958
-------- --------
Gross profit (153) 51
Other costs and expenses:
Engineering and development 482 273
Sales, marketing and regulatory 493 659
General and administrative 932 706
-------- --------
Total other costs and expenses 1,907 1,638
-------- --------
Loss from operations (2,060) (1,587)
Interest income 101 11
Interest expense, including
non-cash interest associated
with redeemable convertible notes (1,791) (812)
-------- --------
Net loss $ (3,750) $ (2,388)
======== ========
Net loss per share $ (0.11) $ (0.09)
======== ========
Shares used in calculation of net loss per share 33,208 27,871
======== ========
</TABLE>
See accompanying notes.
1
<PAGE> 4
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------- ------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,305 $ 1,958
Accounts receivable, net of allowance 113 312
Inventories, net 186 127
Other current assets 117 140
-------- --------
Total current assets 10,721 2,537
Property and equipment, net 210 204
Other non-current assets 53 208
-------- --------
Total assets $ 10,984 $ 2,949
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 34 $ 31
Accounts payable 509 284
Accrued payroll and related expenses 192 221
Accrued warranty 25 25
Other accrued expenses 120 594
-------- --------
Total current liabilities 880 1,155
Long-term debt, net of current portion 6,999 945
Commitments and contingencies Stockholders'
equity (deficit):
Preferred Stock, $0.001 par value,
2,000,000 shares authorized, none issued
or outstanding -- --
Common Stock, $.001 par value, 75,000,000
shares authorized, 33,418,875 and 32,307,990
shares issued and outstanding at
March 31, 1998 and December 31, 1997,
respectively 33 32
Additional paid-in capital 44,690 38,151
Deferred compensation (802) (272)
Accumulated deficit (40,816) (37,062)
-------- --------
Total stockholders' equity (deficit) 3,105 849
-------- --------
Total liabilities and stockholders' equity (deficit) $ 10,984 $ 2,949
======== ========
</TABLE>
NOTE: The consolidated balance sheet at December 31, 1997 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
2
<PAGE> 5
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- -------
(In thousands)
<S> <C> <C>
CASH FLOWS FOR OPERATING ACTIVITIES:
Net loss $ (3,750) $(2,388)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 34 8
Amortization of deferred compensation 586 --
Amortization of debt issuance costs 169 --
Warrant accretion and beneficial conversion
features associated with 1997 and 1998 Notes 1,371 812
Issuance of common stock for services 140 --
Provision for doubtful accounts -- 15
Provision for excess and obsolete inventory -- --
Changes in assets and liabilities:
Accounts receivable 198 (358)
Inventories (60) (90)
Other current assets 24 74
Accounts payable 193 (886)
Other accrued liabilities (332) 24
Other long-term liabilities 146 --
-------- -------
Total adjustments 2,469 (401)
-------- -------
Net cash used in operating activities (1,281) (2,789)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (38) --
-------- -------
Net cash used in investing activities (38) --
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations (12) --
Issuance of common stock, net of offering costs 342 17
Issuance of redeemable convertible notes,
net of issuance costs 9,350 3,743
Capitalization of debt issuance costs (14) --
-------- -------
Net cash provided by financing activities 9,666 3,760
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,347 971
Cash and cash equivalents at beginning of period 1,958 647
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,305 $ 1,618
======== =======
</TABLE>
See accompanying notes.
3
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of all material
intercompany balances and transactions. Certain reclassifications have been made
to prior year amounts in order to conform to the current presentation.
The condensed consolidated financial data for the periods ended March
31, 1998 and 1997 are unaudited, but include all adjustments (consisting only of
normal recurring adjustments) that management of the Company believes to be
necessary for fair presentation of the financial position and results of
operations for the periods presented. Interim results are not necessarily
indicative of results for the full year. The financial statements should be read
in conjunction with the audited financial statements for the year ended December
31, 1997 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
The Company has incurred significant losses for the last several years
and at March 31, 1998 has an accumulated deficit of approximately $40,816,000.
The accompanying condensed financial statements have been prepared assuming the
Company will continue as a going concern. Although the Company's management
believes existing working capital will provide sufficient funds for the
Company's planned operations through 1999, the Company's long term ability to
continue as a going concern is dependent upon performing profitably or obtaining
further financing. Management recognizes the long-term need for additional cash
infusion and is pursuing various options which include debt or equity financing.
There can be no assurance that such financing, if necessary, will be available,
in which case management may need to curtail or suspend certain or all
operations.
The preparation of unaudited financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. NET LOSS PER SHARE
Net loss per share for the periods ended March 31, 1998 and 1997 is
based solely on weighted average shares of common stock outstanding during the
period. Common equivalent shares have not been considered in the computation
since their inclusion would have an antidilutive effect.
Effective December 31, 1997, the Company adopted Financial Accounting
Standards Board No. 1228 "Earnings Per Share" (EPS) and, accordingly, all prior
periods have been restated. Basic EPS is computed as net income (loss) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities.
Common equivalent shares are excluded from the computation of net loss per share
if their effect is anti-dilutive.
3. REVENUE RECOGNITION
Revenues are recognized at time of shipment. A provision for the estimated
future cost of warranty is made at the time a sale is recorded.
4
<PAGE> 7
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following on the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(In thousands)
<S> <C> <C>
Raw materials $ 336 $ 416
Work-in-process 271 167
Finished goods 225 190
----- -----
832 773
Less reserves (646) (646)
----- -----
Inventory, net $ 186 $ 127
===== =====
</TABLE>
5. INCOME TAXES
Due to the Company's losses from operations, all deferred tax assets, which
primarily result from net operating loss carry forwards, have been offset in
full by a valuation allowance in accordance with SFAS No. 109.
6. ISSUANCE OF REDEEMABLE CONVERTIBLE NOTES
In January 1998, the Company completed a $9,300,000 private placement of
convertible notes (convertible into the Company's common stock) with warrants,
net of offering costs. The promissory notes are convertible at any time, at the
option of the holder. The notes bear interest at a rate of 12%, payable-in-kind
semi-annually (additional convertible notes), and convert at a price of $3.00
per share. The notes have a maturity date of January 2001 and the Company has an
option to extend the notes for an additional two years for additional warrant
consideration. Warrants to purchase 1,870,000 shares of the Company's common
stock were issued as part of this private placement with an exercise price of
$3.00 per share and an expiration date of January 2003.
7. SALE OF DENTAL ASSETS
In June 1997, the Company completed the sale of the Company's assets
associated with the Company's dental laser, air abrasive and composite curing
systems (the "Dental Assets") to Lares Research. The purchase price paid for the
Dental Assets was $5,500,000, consisting of $4,000,000 in cash paid at closing
and $1,500,000 in the form of a promissory note, with two installments due in
three and four years, respectively (the "Lares Note"). Although the Company
anticipates collecting interest and principal on the Lares Note, due to
subordination of the Lares Note to Lares' Bank, collection is not reasonably
assured and the Company intends to recognize proceeds from the sale and interest
on the Lares Note as cash is received. The gain on sale of the Dental Assets is
comprised as follows:
<TABLE>
<CAPTION>
In thousands
<S> <C>
Cash proceeds from sale of dental assets $ 4,000
Less: Inventory and equipment sold (1,498)
ADT transfer fee (275)
Transaction fees (237)
Other costs (250)
-------
Gain on sale of dental assets $ 1,740
=======
</TABLE>
5
<PAGE> 8
8. SUBSEQUENT EVENTS
In April 1998, the Company loaned $60,000 to one of the officers of the
Company on an unsecured basis. The loan bears interest at 7% per annum and
matures in April 2000. Interest is to be paid annually.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
All statements contained herein that are not historical facts including, but
not limited to, statements regarding the Company's plans for future development
and operation of its business, are based on current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: a lack of
sufficient capital to finance the Company's business plan on terms satisfactory
to the Company; changes in labor, equipment and capital costs; the Company's
inability to obtain the necessary authorizations from the Food and Drug
Administration ("FDA") to enable it to market its products domestically;
competitive factors, such as the introduction of new technologies and
competitors into the ophthalmic laser business; general business and economic
conditions; and the other risk factors described from time to time in the
Company's reports filed with the Securities and Exchanged Commission ("SEC").
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
The Company develops, manufactures and markets laser systems for
applications in ophthalmology. Prior to June 26, 1997 the Company had developed,
manufactured and marketed lasers and air abrasion cavity preparation systems for
use in dentistry. A substantial portion of the Company's revenues (85% for the
first three months of 1997) were derived from the domestic and international
sales of the Company's dental laser and air abrasive products.
In June 1997, the Company completed the sale of the Company's assets
associated with the Company's dental laser, air abrasive and composite curing
systems (the "Dental Assets") to Lares Research. Lares is a privately held
company located in Chico, California. Lares paid the Company $4,000,000 in cash
at closing and delivered a promissory note for $1,500,000, which bears interest
at the rate of 8%. Under the Lares Note $1,000,000 is payable on the third
anniversary of the closing, and $500,000 is payable on the fourth anniversary of
the closing. The Lares Note is subordinate in right of payment to Lares'
obligations to its bank (the "Bank"). Lares has agreed that so long as the Lares
Note is outstanding, its aggregate obligations to the Bank will not exceed
$4,750,000. Although the Company anticipates collecting interest and principal
on the Lares Note, due to subordination of the Lares Note to Lares' Bank,
collection is not reasonably assured and the Company intends to recognize
proceeds from the sale and interest on the Lares Note as cash is received. This
transaction was approved by the Company's stockholders on June 26, 1997.
Since mid-1992, the Company has focused a portion of its efforts on
engineering and development of its laser corneal shaping product, known as Laser
Thermal Keratoplasy (the "LTK System") for the treatment of refractive errors of
the eye, such as hyperopia (farsightedness) and presbyopia. The LTK System is
based upon patented technology acquired in the Company's acquisitions of
in-process technology from Laser Biotech, Inc. and Emmetropix Corporation in
1992. The Company is in Phase III of its U.S. clinical trials of the LTK System
and expects no significant revenue from this product until the product is
approved for sale in the United States and, therefore, the Company expects to
continue to have net losses at least through the year the LTK System is approved
for sale in the United States. While the results from the clinical trials have
been satisfactory to date, there can be no assurance that the LTK System will be
approved for sale in the United States or that the Company will successfully
develop or market the LTK System.
6
<PAGE> 9
The Company has incurred substantial losses in the past six years which have
seriously depleted its working capital. Sales of its existing ophthalmic
products at current levels will not be sufficient to sustain the continued
development and regulatory licensing of the LTK System. Historically, the
Company has been able to raise additional working capital for all aspects of its
business, through the private placement of its common stock and securities
convertible into common stock. Private placements of common stock raised
approximately $15,296,000 in net proceeds between 1994 and 1996. In the first
quarter of 1997, the Company issued in a series of private placements
(collectively, the "1997 Notes Placement") 5% redeemable convertible notes due
1999 (convertible into common stock) and warrants to purchase common stock for
aggregate net proceeds of approximately $3,743,000.
In January 1998, the Company completed a $9,300,000 private placement of
convertible notes (convertible into the Company's common stock) with warrants
(the "1998 Notes Placement"), net of offering costs. The promissory notes are
convertible at any time, at the option of the holder. The notes bear interest at
a rate of 12%, payable-in-kind semi-annually (additional convertible notes), and
convert at a price of $3.00 per share. The notes have a maturity date of January
2001 and the Company has an option to extend the notes for an additional two
years for additional warrant consideration. Warrants to purchase 1,870,000
shares of the Company's common stock were issued as part of this private
placement with an exercise price of $3.00 per share and an expiration date of
January 2003.
FINANCIAL CONDITION
As of March 31, 1998, the Company had $10,305,000 in cash and cash
equivalents. The Company's operating activities used $1,281,000 in the three
months ended March 31, 1998 and used $401,000 in cash during the same period in
1997. Substantial portions of the 1997 and 1998 losses were funded with the
proceeds of a series of private placements. The 1997 Notes Placement had
aggregate net proceeds of approximately $3,743,000 and the 1998 Notes Placement
generated aggregate net proceeds of $9,300,000.
The Company's current operations continue to be cash flow negative, limiting
the Company's working capital resources. Working capital at March 31,1998
amounted to approximately $9,842,000. At December 31, 1997, working capital
amounted to approximately $1,382,000. The Company's ability to continue as a
going concern is dependent upon performing profitably or obtaining further
financing. Management believes existing working capital will provide sufficient
funds for the Company's planned operations through 1999.
RESULTS OF OPERATIONS
Revenues of $102,000 for the three month period ended March 31,1998
represents a 90% decrease from revenues of $1,009,000 for the same period in
1997. The vast majority of this revenue decline was due to the fact that the
Company had no revenue from dental operations in the first quarter of 1998 since
it sold the Dental Assets during the second quarter of 1997. In addition,
ophthalmic revenues for the first quarter of 1998 were $44,000 lower, or 30%, as
compared to the same period in 1997.
Costs of revenues and related negative margins for the three-month period
ended March 31,1998 resulted from the underabsorption of manufacturing overhead
due to the Company's low revenue levels. Gross profits as a percentage of
revenue for the first quarter in 1997 were 5%.
Engineering and development expenses totaled $482,000 for the three month
period ended March 31,1998, compared to $273,000 for the same period in 1997.
The increase in the engineering and development expenses was due to the increase
in expenditures related to the development of the LTK System offset by the
elimination of expenditures related to the development of dental products during
the first quarter of 1997.
Sales, marketing and regulatory costs were $493,000 for the three month
period ended March 31,1998, compared to $659,000 for the same period in 1997.
The decrease for the three-month period was due primarily to increased marketing
and regulatory spending for the ophthalmic products offset by the elimination of
marketing expenses for dental products.
7
<PAGE> 10
General and administrative expenses were $932,000 for the three month period
ended March 31, 1998, compared to $706,000 for the same period of 1997. The
increase in general and administrative expenses for the three-month period ended
March 31,1998 as compared to the same period in 1997 was primarily due to the
expenses associated with warrants and stock options to consultants of the
Company.
Interest and other expense for the three month period ended March 31,1998 of
$1,690,000 represents primarily non-cash interest charges pursuant to the 1997
and 1998 Notes Placements and related warrants.
The net loss for the three-month period ended March 31,1998 of $3,750,000
was primarily due to the lack of revenue from the ophthalmic products to offset
the expenses associated with the development and regulatory approval of the LTK
System and the general expenses associated with the operations of the Company.
The Company's current operations continue to be cash flow negative, further
straining the Company's working capital resources. The level of current product
sales is not sufficient to provide enough cash to support the ongoing
development and regulatory approval of the LTK System, as well as maintain the
Company's basic corporate infrastructure. In order to continue its current level
of operations beyond 1999 and have sufficient funds to launch the LTK System in
the United States, it will be necessary for the Company to obtain additional
working capital resources, whether from debt or equity sources. If the Company
is unable to obtain additional working capital resources from the placement of
debt or equity instruments or the sale of some of its assets, it may be
necessary for the Company to curtail or suspend operations in their entirety.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millenium (year 2000) approaches. The "year
2000" problem is pervasive and complex, as virtually every computer operation
will be affected in the same way by the rollover of the two-digit year value to
00. The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test the systems for year 2000 compliance. It is
anticipated that all reprogramming efforts will be completed by December 31,
1998, allowing adequate time for testing. This process includes getting
confirmations from the Company's primary vendors that plans are being developed
or are already in place to address processing of transactions in the year 2000.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely will also be converted in a timely manner, or that
any such failure to convert by another company would not have an adverse effect
on the Company's systems. Management is in the process of completing its
assessment of the year 2000 compliance costs; however, based on information to
date (excluding the possible impact of vendor systems), management does not
believe that it will have a material effect on the Company's earnings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any hedge or derivative financial instrument
transactions.
8
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
Number Description.
------ ------------
<S> <C>
10.1 Lease Agreement with Bayside Spinnaker Partners III for the
lease of facilities at 47265 Fremont Boulevard, Fremont,
California dated January 23, 1998 (1)
10.2 Form of U.S. Note and Warrant Purchase Agreement related to
the Regulation D private placement of 12% convertible
Subordinated Pay-In-Kind Notes Due 2001 and accompanying
Warrants in January 1998(1)
27 Financial Data Schedule
</TABLE>
- ----------------------
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 0-17816)
B. REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K (or Form 8-K/A) during the
first quarter of 1998:
<TABLE>
<CAPTION>
Date of Filing Date of Report Items Reported
- -------------------------------------------------------------------------
<S> <C> <C>
January 27, 1998 January 26, 1998 7, 9
March 30, 1998 March 23, 1998 5
</TABLE>
Items 1, 2, 3, 4 and 5 of Part II are omitted because of the absence of
conditions under which they are required.
9
<PAGE> 12
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.
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Date: May 14, 1998 By: /s/ C. Russell Trenary, III
-------------------------------------
President and Chief Executive Officer
Date: May 14, 1998 By: /s/ Timothy A. Marcotte
------------------------------------
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
10
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description.
------ ------------
<S> <C>
10.1 Lease Agreement with Bayside Spinnaker Partners III for the
lease of facilities at 47265 Fremont Boulevard, Fremont,
California dated January 23, 1998 (1)
10.2 Form of U.S. Note and Warrant Purchase Agreement related to
the Regulation D private placement of 12% convertible
Subordinated Pay-In-Kind Notes Due 2001 and accompanying
Warrants in January 1998(1)
27 Financial Data Schedule
</TABLE>
- ----------------------
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 0-17816)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,305,000
<SECURITIES> 0
<RECEIVABLES> 113,000
<ALLOWANCES> 85,000
<INVENTORY> 186,000
<CURRENT-ASSETS> 10,721,000
<PP&E> 546,000
<DEPRECIATION> 336,000
<TOTAL-ASSETS> 10,984,000
<CURRENT-LIABILITIES> 879,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 6,999,000
<TOTAL-LIABILITY-AND-EQUITY> 10,984,000
<SALES> 102,000
<TOTAL-REVENUES> 102,000
<CGS> 260,000
<TOTAL-COSTS> 260,000
<OTHER-EXPENSES> 1,906,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,690,000
<INCOME-PRETAX> (3,750,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,750,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,750,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
