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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission file number 0-28288
____________________
ECLIPSE SURGICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
______________________
CALIFORNIA 77-0223740
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
1049 KIEL COURT
SUNNYVALE, CALIFORNIA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(408) 747-0120
(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 No X
------ -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock outstanding as of the last practicable date.
15,730,051 shares
As of July 31, 1996
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements:
a. Balance Sheets
June 30, 1996 and December 31, 1995 ..........................3
b. Statements of Operations
Three and six months ended June 30, 1996 and 1995.............4
c. Statements of Cash Flows
Six months ended June 30, 1996 and 1995.......................5
d. Notes to Financial Statements.................................6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K..................................19
Signatures........................................................20
EXHIBITS
Index to Exhibits.................................................21
Exhibit 11.1 Statement Regarding Computation of Net Loss Per Share....... 22
2
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents . . . . . $ 29,599 $ 123
Short-term investments. . . . . . . 27,595
Accounts receivable, net of allowance 1,731 532
for doubtful accounts of $84 at
June 30, 1996 and $29 at December 31,
1995
Inventories . . . . . . . . . . . . 1,653 1,670
Other current assets. . . . . . . . 442 14
--------- ---------
Total current assets. . . . . . . . 61,020 2,339
Property and equipment, net . . . . . 226 98
Other assets. . . . . . . . . . . . . 29 22
--------- ---------
Total assets. . . . . . . . . . . . $ 61,275 $ 2,459
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Accounts payable. . . . . . . . . . $ 1,913 $ 1,217
Accrued liabilities . . . . . . . . 586 547
Customer deposits . . . . . . . . . 406 270
Short-term borrowings . . . . . . . - 45
Current portion of long-term debt . 343 1,809
--------- ---------
Total current liabilities . . . . . 3,248 3,888
Long-term debt, less current portion. 27
--------- ---------
Total liabilities . . . . . . . . . $ 3,275 $ 3,888
--------- ---------
Commitments and contingencies (Note 3).
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none
Common stock, no par value:
Authorized: 50,000 shares;
Issued and outstanding: 15,718 shares 64,669 4,690
at June 30, 1996 and 11,210 shares
at December 31, 1995
Notes receivable for sale of
common stock. . . . . . . . . . . . (104)
Accumulated deficit . . . . . . . . . (6,669) (6,015)
--------- ---------
Total shareholders' equity
(deficit) . . . . . . . . . . . . 58,000 (1,429)
--------- ---------
Total liabilities and shareholders'
equity (deficit). . . . . . . . . $ 61,275 $ 2,459
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements
3
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------ ------ ------ ------
Net revenues............. $ 2,209 $ 707 $ 3,962 $ 1,235
Cost of revenues......... 853 476 1,355 858
------ ------ ------- ------
Gross profit............ 1,356 231 2,607 377
------ ------ ------- ------
Operating expenses:
Research and
development............ 1,392 150 1,909 345
Sales and marketing..... 479 232 882 423
General and
administrative......... 322 151 531 350
------ ------ ------- ------
Total operating
expenses............ 2,193 533 3,322 1,118
------ ------ ------- ------
Operating loss (837) (302) (715) (741)
Interest expense (130) (236) (176) (458)
Interest income 237 - 237 1
------ ------ ------- ------
Net loss $ (730) $ (538) $ (654) $(1,198)
------ ------ ------- ------
Net loss per share $ (0.05) $ (0.04) $ (0.05) $ (0.09)
Shares used in per share
calculation 13,328 12,765 13,046 12,765
------ ------ ------- ------
The accompanying notes are an integral part of these financial statements
4
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
SIX MONTHS ENDED
JUNE 30,
1996 1995
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . $ (654) $(1,198)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization . . . . . 63 36
Amortization of discount and
financing costs. . . . . . . . . . . 334
Provision for doubtful accounts . . . . 55 (18)
Changes in operating assets and liabilities:
(increase) decrease in accounts
receivable. . . . . . . . . . . . . (1,254) 172
(Increase) decrease in inventories . . 17 (69)
(Increase) decrease in other assets
and deferred costs. . . . . . . . . (435) 219
Increase in accounts payable . . . . . 696 302
Increase in accrued liabilities . . . . 39 27
Increase in customer deposits . . . . . 136 46
Decrease in deferred revenues . . . . . (2)
-------- -------
Net cash used in operating
activities. . . . . . . . . . . . . . . (1,337) (151)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in short-term debt
securities . . . . . . . . . . . . (27,595)
Acquisition of property and
equipment . . . . . . . . . . . . (191) (11)
-------- -------
Net cash used in investing
activities . . . . . . . . . . . . (27,786) (11)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term borrowings . . . (45) (56)
Net proceeds from issuance of
common stock and warrants. . . . . . 59,979
Proceeds from short-term borrowings . . 254
Payments on long-term debt. . . . . . . (1,439)
Proceeds from notes receivable for
common stock 104
-------- -------
Net cash provided by financing
activities . . . . . . . . . . . 58,599 198
-------- -------
Net increase in cash and
equivalents . . . . . . . . . . 29,476 36
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . 123 132
-------- -------
Cash and cash equivalents at end
of period . . . . . . . . . . . . . . . $ 29,599 $ 168
-------- -------
The accompanying notes are an integral part of these financial statements
5
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF OPERATIONS:
Eclipse Surgical Technologies, Inc. (the Company) was founded in 1989 to
develop, manufacture and market surgical lasers and accessories for the
treatment of disease. Currently, the Company's emphasis is on development and
manufacture of products used for transmyocardial revascularization (TMR), a
cardiovascular procedure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
All highly liquid instruments purchased with an original maturity of three
months or less are considered cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost (principally standard cost, which
approximates actual cost on a first-in, first-out basis) or market value.
CERTAIN RISKS AND CONCENTRATIONS:
The Company maintains its excess cash balances in government bonds,
certificates of deposit and deposits with a major U.S. bank. The Company has
not experienced any losses on its deposits of cash and cash equivalents.
The Company sells its products to hospitals and other health care
providers in North America, Europe and Asia. The Company performs ongoing
credit evaluations of its customers and generally does not require
collateral. The Company maintains allowances for potential credit losses
that it believes to be adequate.
REVENUE RECOGNITION:
The Company typically recognizes product sales upon receipt of purchase
order and subsequent shipment of product. Where purchase orders allow
customers an acceptance period, revenue is recognized upon acceptance.
Revenues earned on a per procedure basis are recognized after the procedure
has been completed.
INTERIM FINANCIAL INFORMATION (UNAUDITED):
The interim financial statements in this report reflect all adjustments,
consisting of normal recurring accruals, that are, in the opinion of management,
necessary for a fair statement of financial position, results of operations and
cash flows for the interim periods covered and of the financial condition of the
Company at the interim balance sheet dates. Results for interim periods are not
necessarily indicative of results to be expected for the full fiscal year. The
year-end balance sheet information was derived from audited financial statements
but does not include all disclosures required by generally accepted accounting
principles. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1995, contained in the registration statement on Form S-1 declared
effective May 31, 1996.
6
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of shares
of common stock outstanding and common stock equivalent shares. Common stock
equivalent shares are included in the per share calculations where the effect of
their inclusion would be dilutive. Dilutive common stock equivalent shares
consist of stock options and warrants (using the treasury stock method in all
periods presented). Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common and common stock equivalent shares issued by
the Company during the twelve months preceding the initial offering date, using
the treasury stock method and the assumed public offering price per share, have
been included in the calculation of net loss per share for all periods
presented.
3. SHORT-TERM INVESTMENTS
Short-term investments consist of debt securities with remaining maturity of
more than three months when purchased. The Company has determined that all of
its debt securities should be classified as available-for-sale. The difference
between the cost basis and market value of the Company's investments was not
material at June 30, 1996.
4. COMMITMENTS AND CONTINGENCIES:
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions at this time, management
believes, based on review by its legal counsel, that any liabilities
resulting from such proceedings, or claims which are pending or known to be
threatened, will not have a material adverse effect on the Company's
financial position or results of operations.
The Company has entered into purchase commitments totalling approximately $1
million deliverable through December 31, 1996.
5. ISSUANCE OF COMMON STOCK AND COMPLETION OF INITIAL PUBLIC OFFERING:
On May 31, 1996 the Company issued 4,000,000 shares of its common stock in
its initial public offering. The Company received approximately $58,000,000,
net of issuance costs and underwriters' commissions. Of the proceeds,
approximately $1,350,000 was used to retire outstanding debt. The balance has
been invested in short-term investments.
A three for one split of the Company's common stock was effected in April
1996. Management has retroactively applied the effect of the stock split for
all periods presented.
7
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED IN ITEM 1 OF THIS QUARTERLY REPORT AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1,
DECLARED EFFECTIVE MAY 31, 1996.
OVERVIEW
The Company was founded in 1989. From 1989 through September 1995, the
Company engaged in research, development and sale of surgical laser products
principally for procedures such as atherectomy and arthroscopy. In 1995, the
Company determined that there is a significant opportunity in the TMR market,
and that the Company is well-positioned to enter this market because of the
Company's expertise with laser-based surgical techniques and the treatment of
cardiovascular disease. Accordingly, in late 1995, the Company changed its
strategic direction and began to apply its laser expertise toward the nascent
TMR market.
Since late 1995, the Company has been engaged in restructuring its
operations and expanding its management team in order to focus on the
development and commercialization of its TMR products. In September 1995, the
Company received an IDE from the FDA allowing it to begin selling its TMR
products for investigational use only, and commenced clinical trials in the
United States and Europe in November 1995. The Company is currently in Phase II
of its initial TMR clinical trial. As of June 30, 1996, the Company had shipped
a total of 29 TMR systems.
To date, the Company has focused on research and development activities
relating to surgical laser products, substantially contributing to annual
operating losses since inception. At June 30, 1996, the Company had an
accumulated deficit of $6.7 million. Research and development efforts have
been funded primarily through equity placements in the aggregate amount of
$64.6 million since inception and periodic borrowings from shareholders. The
Company expects to continue to incur operating losses related to research and
development activities including clinical studies, the expansion of sales
and marketing resources and the continued development of corporate
infrastructure. The timing and amounts of the Company's expenditures will
depend upon a number of factors, including the progress of the Company's
clinical trials, the status and timing of regulatory approval, the timing of
market acceptance, if any, of the Company's products, and the efforts
required to develop the Company's sales and marketing organization.
RESULTS OF OPERATIONS
REVENUES
Revenues increased to $3.9 million for the six months ended June 30, 1996
from $1.2 million in the corresponding period in 1995, and were $2.2 million in
the second quarter of 1996 compared to $707,000 in the second quarter of 1995.
These increases were primarily due to commencement of significant sales of the
Company's TMR products at the end of 1995. TMR products accounted for 87% and
88% of revenues in the
8
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three and six months ended June 30, 1996, respectively, as compared to 21%
and 12% of revenues for the quarter and six months ended June 30, 1995,
respectively. These increased sales also resulted in increased accounts
receivable of $1.7 million at June 30, 1996 compared to $532,000 at December
31, 1995.
Future revenues could be affected by the timing and manner of sale of a
limited number of units of TMR laser systems. In order to assist hospitals in
making the substantial investment in the Company's laser system, the Company
intends either to sell systems to hospitals outright or to place systems with
the hospital for a placement fee plus an additional fee for each procedure
performed. The list price of the Company's laser base units, the timing of
individual orders and shipments, as well as the manner of sale, could
significantly impact quarter to quarter results.
GROSS PROFIT
Gross profit increased to $2.6 million for the six months ended June 30,
1996 from $377,000 for the corresponding period in 1995. For the second quarter
of 1996, gross profit increased to $1.3 million as compared to $231,000 for the
corresponding period in 1995. The gross profit percentage increased to 61.4% and
65.8% for the quarter and six months ended June 30, 1996, respectively, from
32.7% and 30.5% for the corresponding periods of 1995. These increases in gross
profit and gross profit percentage reflect increased sales of TMR products which
generally have a higher margin than non-TMR surgical products.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $1.9 million or 48.2% of net
revenues for the six months ended June 30, 1996 from $345,000 or 27.9% of net
revenues for the six months ended June 30, 1995. In the second quarter of 1996
research and development expenses increased to $1.4 million or 63.0% of net
revenues from $150,000 or 21.2% in the corresponding period in 1995. In late
1995 the Company restructured its operations to focus on TMR products. As a
result, research and development expenses have increased significantly,
reflecting the expansion and progression of clinical trials and significant
increases in new product development costs. The Company believes that continued
investment in the development of new and improved products and procedures and
continued investment in the Company's clinical trials is critical to its future
success. Accordingly, the Company believes that research and development
expenses will continue to increase in future periods.
SALES AND MARKETING
Sales and marketing expenses increased to $882,000 or 22.3% of net revenues
in the six months ended June 30, 1996 from $423,000 or 34.3% of net revenues in
the corresponding period in 1995, and to $479,000 or 21.7% of net revenues in
the second quarter of 1996 from $232,000 or 32.8% of net revenues in the second
quarter of 1995. The increase in both the three and six months ended June
30,1996 reflects the Company's application of additional resources to the TMR
market including expansion of the Company's sales and marketing staff and
increased travel and trade show expenses, as well as expenses associated with
the commencement of clinical trials for the Company's TMR products in late 1995
and associated recruitment of participating physicians and hospitals. The
decrease in these expenditures as a percentage of revenue reflects the growth in
net revenues since 1995. The Company expects that sales and marketing expenses
will continue to increase significantly as the Company continues to focus
resources on the development of the TMR market.
9
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GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $531,000 or 13.4% of net
revenues for the six months ended June 30, 1996 from $350,000 or 28.3% of net
revenues for the six months ended June 30, 1995, and in the second quarter of
1996 increased to $322,000 or 14.6% of net revenues from $151,000 or 21.4% of
net revenues in the second quarter in 1995. These increases reflect the
establishment of an in-house patent/legal department in 1996, and increased
audit, legal and consulting expenses related primarily to operating as a
publicly traded entity. The Company anticipates that expenditures for general
and administrative expenses may increase substantially reflecting the commitment
of resources to expand the Company's systems and infrastructure as well as
compliance and other costs associated with operating as a publicly traded
corporation.
INTEREST INCOME AND EXPENSE
Interest income was $237,000 for the three and six months ended June 30,
1996. Prior to its initial public offering in May 1996, the Company had limited
cash balances and therefore earned little if any interest income. The interest
income earned in the second quarter of 1996 reflects income generated by
investment of the initial public offering proceeds.
Interest expense decreased to $130,000 and $176,000 in the quarter and six
months ended June 30, 1996, respectively, as compared to $236,000 and $458,000
in the corresponding periods of 1995. These decreases were attributable to
lower levels of indebtedness in 1996 and the cessation of amortization of a
discount on notes payable in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its capital requirements
primarily through sales of its equity securities and, to a lesser extent, loans
from shareholders. In addition, the Company's operations have been funded in
part through sales of the Company's products. At June 30, 1996, the Company
had an accumulated deficit of $6.7 million.
In the six months ended June 30, 1996, the Company's operating activities
used $1.3 million in cash, due primarily to the Company's net loss as well as
increases in accounts receivable and other assets, offset in part by an increase
in accounts payable. Financing activities during such period generated $60
million in cash, primarily due to the approximate $58 million in net proceeds
from the Company's initial public offering in May 1996 as well as additional
stock sales in March 1996. At June 30, 1996 the Company had aggregate cash
balances and investments of $57 million, and an aggregate of $343,000 of
indebtedness to shareholders bearing interest at 10% per annum.
The Company anticipates that the funds available from its current cash and
investment balances, together with sales of products for investigational use,
will be sufficient to meet the Company's capital requirements through at least
calendar year 1997. There can be no assurance, however, that the Company will
not require additional sources of cash at an earlier date in the future,
depending upon the progress of expansion of the Company's clinical trials, any
need for additional clinical trials or other testing of the Company's products,
and the timing of other required expenditures. If the Company is required to
obtain additional financing in the future, there can be no assurance that
capital will be available on terms acceptable to the Company, if at all.
10
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RISK FACTORS
The following discussion of risk factors describes certain aspects of the
business environment in which the Company operates. Users of this report should
carefully consider these risk factors in addition to the other information in
this report.
EARLY STAGE OF CLINICAL TRIALS
The Company must obtain marketing approval ("PMA") from the U.S. Food and
Drug Administration (the "FDA") before the Company will be able to offer its
products for transmyocardial revascularization ("TMR") on a commercial basis in
the U.S. A necessary prerequisite for submitting a PMA application is completion
of clinical testing to demonstrate the safety and effectiveness of the Company's
TMR products.
The Company is currently at an early stage of clinical testing. The Company
has completed Phase I and is currently in Phase II of its initial clinical
study. Phase II will involve a minimum of 126 patient trials. The study,
including 12-month patient follow-up reviews, is currently expected to be
completed in the fourth quarter 1997. The Company has also commenced Phase I of
its second clinical trial. Completion of the clinical studies on a timely basis
will depend on the Company's ability to establish TMR sites and enroll
participating patients. In addition, the clinical studies will require
substantial financial and management resources. There can be no assurance that
the Company will have the resources necessary to complete such clinical studies.
Furthermore, there can be no assurance that the Company's clinical studies will
be completed within the currently anticipated time frame or otherwise in a
timely manner, nor that such clinical studies will demonstrate the safety and
effectiveness of the Company's TMR products to the extent necessary to obtain
FDA and other regulatory approvals and establish a commercial market for the
Company's products. Moreover, results of the initial clinical testing are not
necessarily predictive of results to be achieved in later clinical studies, if
undertaken, or commercially, if a PMA is obtained. Failure to complete the
Company's clinical studies in a timely manner or to demonstrate the safety and
effectiveness of the Company's TMR products could delay or prevent regulatory
approval and would materially and adversely affect the Company's business,
financial condition and results of operations.
NO ASSURANCE OF FDA OR OTHER REQUIRED GOVERNMENTAL APPROVALS
The Company's products are regulated in the U.S. as medical devices by the
FDA under the Federal Food, Drug, and Cosmetic Act ("FDC Act") and, as such,
require FDA approval of a PMA application prior to commercial sale in the U.S.
The FDA approves PMA applications for specific indications only and FDA policy
prohibits commercial marketing of devices for indications that have not been
approved by the FDA. The process of obtaining required regulatory approvals from
the FDA and other regulatory authorities is lengthy, expensive and inherently
uncertain, generally takes several years or longer to complete, if approval is
obtained at all, and requires the submission of extensive clinical data and
supporting information to the FDA. There can be no assurance that FDA approval
of products developed by the Company will be obtained on a timely basis, if at
all. Furthermore, there can be no assurance that FDA approval will be obtained
for any or all indications sought by the Company. Failure to obtain FDA approval
on a timely basis or for the indications sought by the Company would materially
and adversely affect the Company's business, financial condition and results of
operations.
Sales of medical devices outside of the U.S. are subject to foreign
regulatory requirements that vary widely by country. In addition, the FDA must
approve the export of devices that require a PMA but are not yet approved
domestically. The time required to obtain approval for sale in foreign countries
may be longer or shorter than that required for FDA approval, and the
requirements may differ. Although the Company is seeking regulatory approval to
begin marketing of its products outside the U.S., there can be no assurance that
such approval will be received on a timely basis, if at all.
11
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Foreign and domestic regulatory approvals, if granted, may include
significant limitations on the indicated uses for which the product may be
marketed. In addition, to obtain such approvals, medical device manufacturers
must comply with numerous other requirements of the FDA and certain foreign
regulatory authorities. For example, the Company will be required to obtain the
European Conforming Mark (the "CE Mark") by June 1998 for its products in order
to continue to sell its products after such date in European Union countries.
Product approvals can be withdrawn for failure to comply with regulatory
standards or because of unforeseen problems following initial marketing. The
Company will also be required to follow applicable Good Manufacturing Practices
("GMP") regulations of the FDA, which include testing, control and documentation
requirements, as well as similar requirements in other countries, including
International Standards Organization ("ISO") 9000 standards. Failure to meet
these requirements would preclude the Company from marketing its products on a
commercial basis, and therefore would materially and adversely affect the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH NEW SURGICAL PROCEDURE; NO ASSURANCE OF MARKET ACCEPTANCE
The Company's ability to successfully commercialize its TMR products will
depend upon its ability to achieve acceptance of its TMR systems and procedures
among cardiologists, cardiac surgeons and other members of the medical
community. The Company believes that it will not achieve such acceptance until
such time, if any, as the Company's TMR products can be demonstrated to be safe,
efficacious and cost-effective. Even if the clinical safety and effectiveness of
the Company's TMR products is established, cardiologists, cardiac surgeons and
other members of the medical community may elect not to recommend TMR for any
number of other reasons. Broad use of the Company's TMR products will require
training of numerous physicians, and the time required to complete such training
could adversely affect market acceptance. Moreover, even if TMR becomes
generally accepted by the medical community, physicians trained in competitive
TMR products may elect not to consider the Company's products, or may elect
instead to recommend a competitor's products. Failure of the Company's products
to achieve significant market acceptance would materially and adversely affect
the Company's business, financial condition and results of operations.
DEPENDENCE ON SINGLE PRODUCT LINE
The Company has elected to focus its resources on the continued development
and refinement of its TMR products. If the Company is unable to obtain requisite
regulatory approvals or to achieve commercial acceptance of its TMR products,
the Company's business, financial condition and results of operations will be
materially and adversely affected and could result in cessation of the Company's
current business.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF
FUTURE LITIGATION
The Company's success will depend, in part, on its ability to obtain patent
protection for its products, preserve its trade secrets, and operate without
infringing the proprietary rights of others. The Company's policy is to seek to
protect its proprietary position by, among other methods, filing U.S. and
foreign patent applications related to its technology, inventions and
improvements that are important to the development of its business. The Company
holds five U.S. patents and related foreign patents relating to surgical
treatment with lasers and fiber-optic handpieces, and has applied for or is in
the process of applying for additional patents relating to its laser technology,
TMR applications and fiber-optic handpieces. There can be no assurance that any
of the Company's patents or patent applications will not be challenged,
invalidated or circumvented in the future or that the rights granted thereunder
will provide a competitive advantage. The Company intends to vigorously protect
and defend its intellectual property. It is uncertain whether patent protection
will continue to be available for surgical methods in the future. Costly and
time-consuming litigation brought by the Company may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the enforceability, scope and validity of the
proprietary rights of others.
12
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The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and advisors
to execute confidentiality and assignment of inventions agreements in connection
with their employment, consulting or advisory relationships with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Furthermore, no
assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
The medical device industry in general, and the industry segment that
includes products for the treatment of cardiovascular disease in particular,
have been characterized by substantial competition and litigation regarding
patent and other intellectual property rights. In this regard, competitors of
the Company have been issued a number of patents related to TMR. In September
1995, the Company received from a competitor a notice of potential infringement
of the competitor's patent regarding a method for TMR utilizing synchronization
of laser pulses to the electrical signals from the heart. In January 1996,
the Company received from a second competitor a notice of potential
infringement of the competitor's patent regarding a method to perform TMR
using fiber optics. The Company has concluded in each case, following
discussion with its patent counsel, that it does not utilize the process
and/or apparatus which is the subject of the patent at issue, and has
responded to the respective competitor to such effect. The Company has
received no further correspondence on either matter. There can be no
assurance, however, that further claims or proceedings will not be initiated
by either competitor, or that claims by other parties will not arise in the
future. Any such claims in the future, with or without merit, could be
time-consuming and expensive to respond to and could divert the attention of
the Company's technical and management personnel. The Company may be involved
in litigation to defend against claims of infringement by the Company, to
enforce patents issued to the Company, or to protect trade secrets of the
Company. If any relevant claims of third party patents are upheld as valid
and enforceable in any litigation or administrative proceeding, the Company
could be prevented from practicing the subject matter claimed in such
patents, or would be required to obtain licenses from the patent owners of
each such patent or to redesign its products or processes to avoid
infringement.
Patent applications in the U.S. are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a period after filing. Publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Accordingly, there can be no assurance that current
and potential competitors and other third parties have not filed or in the
future will not file applications for, or have not received or in the future
will not receive, patents or obtain additional proprietary rights that will
prevent, limit or interfere with the Company's ability to make, use or sell its
products either in the U.S. or internationally. In the event the Company were to
require licenses to patents issued to third parties, there can be no assurance
that such licenses would be available or, if available, would be available on
terms acceptable to the Company, or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement.
Accordingly, an adverse determination in a judicial or administrative proceeding
or failure to obtain necessary licenses could prevent the Company from
manufacturing and selling its products, which would materially and adversely
affect the Company's business, financial condition and results of operations.
EXPECTATION OF INTENSE MARKET COMPETITION
The Company expects that the market for TMR, which is currently in the early
stages of development, will be intensely competitive. Competitors are likely to
include two laser competitors, PLC Systems, Inc. ("PLC") and CardioGenesis
Corporation ("CardioGenesis"), both of which are currently selling TMR products
for investigational use in the U.S. and abroad. PLC and CardioGenesis have
already received the CE Mark which allows the sales of its products commercially
in all European Union countries. Other competitors may include additional
companies that elect to enter the market, including large companies in the
13
<PAGE>
laser and cardiac surgery markets. Many of these companies have significantly
greater financial, development, marketing and other resources than the
Company. In the event a competitor is able to obtain a PMA for its products
prior to the Company, the Company's ability to compete successfully could be
materially and adversely affected.
TMR also competes with other methods for the treatment of cardiovascular
disease, including drug therapy, PTCA and CABG. Although the Company is seeking
to demonstrate the safety and effectiveness of the Company's TMR procedures in
patients for whom other cardiovascular treatments are not likely to provide
relief, and in the future intends to pursue the safety and effectiveness of TMR
when used in conjunction with other treatments, there can be no assurance that
the Company's TMR products will be accepted in these markets. There can be no
assurance that physicians will use the Company's TMR procedures to replace or
supplement established treatments, or that the Company's TMR procedures will be
competitive with current or future technologies. Such competition could
materially and adversely affect the Company's business, financial condition and
results of operations.
Any product developed by the Company that gains regulatory approval will
face competition for market acceptance and market share. An important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, the relative pace at which the Company is able to develop
products, complete clinical testing and regulatory approval processes, gain
third party reimbursement acceptance and supply commercial quantities of the
product to the market are expected to be important competitive factors. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors. Failure to do so would materially and
adversely affect the Company's business, financial condition and results of
operations.
LIMITED HISTORY OF TMR OPERATIONS; HISTORY OF OPERATING LOSSES
Although the Company commenced operations in June 1989, the Company's
operations to date have consisted primarily of the manufacture and sale of
non-TMR related laser products and accessories. The Company commenced its
operations and clinical studies with respect to TMR products in September 1995,
and accordingly has limited experience to date with the TMR market and TMR
products.
From inception to June 30, 1996, the Company incurred cumulative net losses
of approximately $6.7 million. The Company's revenues and operating income will
continue to be constrained until such time, if ever, as FDA and other regulatory
approval is obtained for the Company's TMR products, and for an indefinite
period of time after any such approval is obtained. Furthermore, the Company
expects its expenses in all categories to increase as its clinical trial and
other business activities expand. Hence, there can be no assurance that the
Company will achieve or sustain profitability in the future. Failure to achieve
significant commercial revenues or profitability would materially and adversely
affect the Company's business, financial condition and results of operations.
POTENTIAL DIFFICULTIES IN MANAGING BUSINESS UNDERGOING RAPID CHANGE
The Company's future success will depend to a significant extent on the
ability of its current and future management personnel to operate effectively,
both independently and as a group. In this regard, a number of members of the
Company's senior management team have only recently joined the Company.
Moreover, certain members of such management team have limited or no experience
as a senior executive of a public corporation. There can be no assurance that
the management team will operate together effectively. To compete successfully
against current and future competitors, complete clinical trials in progress,
prepare additional products for clinical trials and develop future products, the
Company believes that it must continue to expand its operations, particularly in
the areas of research and development, sales and marketing, training, and
manufacturing. If the Company were to experience significant growth in the
future, such growth would likely result in new and increased responsibilities
for management personnel and
14
<PAGE>
place significant strain upon the Company's management, operating and
financial systems and resources. To accommodate such growth and compete
effectively, the Company must continue to implement and improve information
systems, procedures and controls, and to expand, train, motivate and manage
its work force. There can be no assurance that the Company's personnel,
systems, procedures and controls will be adequate to support the Company's
future operations. Any failure to implement and improve the Company's
operational, financial and management systems or to expand, train, motivate
or manage employees could materially and adversely affect the Company's
business, financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Results of operations are expected to fluctuate significantly from quarter
to quarter depending upon numerous factors, including the timing and results of
clinical trials; FDA limitations on the number of units sold while in clinical
trials; delays associated with the FDA and other regulatory approval processes;
health care reform and reimbursement policies; demand for the Company's
products; changes in pricing policies by the Company or its competitors; the
number, timing and significance of product enhancements and new product
announcements by the Company and its competitors; the ability of the Company to
develop, introduce and market new and enhanced versions of the Company's
products on a timely basis; customer order deferrals in anticipation of new or
enhanced products offered by the Company or its competitors; product quality
problems; personnel changes; changes in Company strategy; and the level of
international sales. Quarter to quarter operating results could also be affected
by the timing of the receipt of individual customer orders, order fulfillment
and revenue recognition with respect to small numbers of individual laser base
units, since each unit carries a high price per unit.
Significant resources are continually being expended to develop new and
improved treatment methodologies for coronary artery disease. Accordingly, the
market acceptance and commercial success of the Company's TMR products and
procedures will depend not only on the safety and effectiveness of the Company's
TMR products and procedures but also the relative safety and effectiveness of
alternative treatment measures, which alternatives could potentially include new
treatments or improvements or adjuncts to existing treatments. Accordingly, the
improvement of existing alternative treatment measures or emergence of new
alternative treatments would materially and adversely affect the Company's
business, financial condition and results of operations.
UNCERTAINTY REGARDING THIRD PARTY REIMBURSEMENT
The Company expects that its ability to successfully commercialize its
products will depend significantly on the availability of reimbursement for
surgical procedures using the Company's products from third party payors such as
governmental programs, private insurance and private health plans. Reimbursement
is a significant factor considered by hospitals in determining whether to
acquire new equipment. Notwithstanding FDA approval, if granted, third party
payors may deny reimbursement if the payor determines that a therapeutic medical
device is unnecessary, inappropriate, not cost-effective or experimental or is
used for a non-approved indication.
The Health Care Financing Administration ("HCFA") has recently issued a
policy indicating that Medicare coverage will not be precluded for
investigational procedures furnished in accordance with FDA-approved protocols
governing clinical trials. TMR procedures performed using the Company's
products, in the limited trials to date, have received Medicare reimbursement.
There can be no assurance, however, that HCFA will continue to provide
reimbursement for TMR, or will continue to provide such reimbursement at levels
adequate to permit hospitals to perform the Company's TMR procedures.
There can be no assurance as to whether third party payors will cover TMR or
as to the levels of reimbursement. There also can be no assurance that levels of
reimbursement, if any, will not be decreased in the future, or that future
legislation, regulation, or reimbursement policies of third party payors will
not otherwise adversely affect the demand for the Company's products or its
ability to sell its products on a
15
<PAGE>
profitable basis. Fundamental reforms in the healthcare industry in the U.S.
and Europe that could affect the availability of third party reimbursement
continue to be proposed, and the Company cannot predict the timing or effect
of any such proposal. If third party payor coverage or reimbursement is
unavailable or inadequate, the Company's business, financial condition and
results of operations could be materially and adversely affected.
LIMITED SALES, MARKETING AND DISTRIBUTION SYSTEMS
The Company has made limited sales of its TMR products to date, for
investigational use only. Accordingly, the Company has maintained a limited
sales and marketing organization in the U.S. and abroad. The Company plans to
market its TMR products, if approved, through a direct sales force in the U.S.
and through a relationship with a major cardiovascular surgical products company
or companies for international sales. Establishment of a sales force capable of
effectively commercializing the Company's TMR products will require substantial
efforts and require significant management and financial resources. There can be
no assurance that the Company will be able to establish such a sales capability
on a timely basis, if at all. Moreover, there can be no assurance that the
Company's international distributor will devote sufficient resources to
development of the markets for the Company's products or will be successful in
such commercialization efforts. The Company has granted its international
distributor exclusive foreign rights. This agreement may be terminated by the
Company under limited circumstances.
RISK OF PRODUCT LIABILITY
The Company faces an inherent and significant business risk of exposure to
product liability claims in the event that the use of its products results in
personal injury or death, and there can be no assurance that material product
liability claims will not be assessed against the Company in the future. The
Company maintains insurance against product liability claims in the amount of $3
million per occurrence and $3 million in the aggregate, and expects to seek to
increase such coverage if and when a PMA is obtained. However, there can be no
assurance that such coverage will continue to be available in the amount desired
or on terms acceptable to the Company, or that such coverage will be adequate
for liabilities actually incurred. Also, in the event that any of the Company's
products prove to be defective, the Company may be required to recall or
redesign such products. Any uninsured or underinsured claim brought against the
Company or any claim or product recall that results in significant cost to or
adverse publicity against the Company could materially and adversely affect the
Company's business, financial condition and results of operations.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON KEY SUPPLIERS
The Company's success will depend in part on its ability to manufacture its
products in a timely, cost-effective manner and in compliance with GMP, ISO 9000
and other regulatory requirements. The manufacture of the Company's products is
a labor-intensive, complex operation involving a number of separate processes
and components. The Company's manufacturing activities to date have consisted
primarily of manufacturing limited quantities of systems for use in clinical
trials. The Company does not have experience in manufacturing its products in
the commercial quantities that might be required if the Company receives
regulatory approval for its TMR products. Furthermore, as a condition to receipt
of PMA approval, the Company's facilities, procedures and practices will be
subject to pre-approval and ongoing GMP inspections by FDA.
Manufacturers often encounter difficulties in scaling up manufacturing of
new products, including problems involving product yields, quality control and
assurance, component and service availability, adequacy of control policies and
procedures, lack of qualified personnel, compliance with FDA regulations, and
the need for further FDA approval of new manufacturing processes and facilities.
There can be no assurance that manufacturing yields, costs or quality will not
be adversely affected as the Company seeks to increase production, and any such
adverse effect could materially and adversely affect the Company's business,
financial condition and results of operations.
16
<PAGE>
The Company currently purchases certain laser and fiber-optic components
from single sources. Although the Company has identified alternative vendors,
the qualification of additional or replacement vendors for certain components or
services is a lengthy process. There can be no assurance that materials obtained
from outside suppliers will continue to be available in adequate quantities or
at the times required by the Company or that the Company will be able to locate
alternative suppliers on a timely basis. Any significant supply interruption
would have a material adverse effect on the Company's ability to manufacture its
products and, therefore, would materially and adversely affect the Company's
business, financial condition and results of operations. The Company expects to
manufacture its products based on forecasted product orders, and intends to
purchase subassemblies and components prior to receipt of purchase orders from
customers. Lead times for materials and components ordered by the Company vary
significantly, and depend on factors such as the business practices of the
specific supplier, contract terms and general demand for a component at a given
time. As a result, there is a risk of excess or inadequate inventory if orders
do not match forecasts.
DEPENDENCE ON KEY PERSONNEL
The Company's future business and operating results depend in significant
part upon the continued contributions of its key technical and senior management
personnel, including Douglas Murphy-
Chutorian, M.D., the Company's Chief Executive Officer. The Company maintains a
key person life insurance policy on Dr. Murphy-Chutorian in the amount of $2
million. The Company's future business and operating results also depend in
significant part upon its ability to attract and retain qualified additional
management, manufacturing, technical, marketing and sales and support personnel
for its operations. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting or retaining such
personnel. The loss of any key employee, the failure of any key employee to
perform in his or her current position, or the Company's inability to attract
and retain skilled employees, as needed, could materially and adversely affect
the Company's business, financial condition and results of operations.
TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the initial public offering on May 31, 1996 , there was no public
market for the Company's common stock, and there can be no assurance that an
active trading market will develop or be sustained. The market price of the
common stock is likely to be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect to
patents or proprietary rights, conditions and trends in the medical device and
other technology industries, healthcare reform measures, adoption of new
accounting standards affecting the medical device industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stocks of early stage companies. These broad market fluctuations
may materially and adversely affect the market price of the Common Stock. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. Such litigation, if brought against the Company, could
result in substantial costs and a diversion of management's attention and
resources.
17
<PAGE>
CONCENTRATION OF SHARE OWNERSHIP
The present directors and executive officers of the Company and their
affiliates beneficially own approximately 33.1% of the outstanding common stock.
As a result, these shareholders will be able to exercise significant influence
over matters requiring shareholder approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of common stock in the public market
following the offering could adversely affect the market price for the common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and by lock-up agreements under which the holders of
such shares have agreed not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of the initial public offering, May 31,
1996, without the prior written consent of PaineWebber Incorporated. However,
PaineWebber Incorporated may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. As a result of these restrictions, based on shares outstanding as of
May 31, 1996, a total of 205,353 shares other than the 4,000,000 shares sold by
the Company in its initial public offering were eligible for sale from and after
May 31, 1996; an additional 133,335 shares will be eligible for sale 90 days
after May 31, 1996 pursuant to Rule 144; and an additional 9,680,508 shares will
be eligible for sale 180 days after May 31, 1996 under Rule 144, upon expiration
of the lock-up agreements. In addition, the Company registered a total of
4,444,756 shares of common stock subject to outstanding options or reserved for
issuance under the Company's Stock Option Plan, Director Stock Option Plan and
Employee Stock Purchase Plan. Further, upon expiration of the lock-up agreements
referred to above, holders of approximately 10,253,016 shares of common stock
will be entitled to certain registration rights, including 217,917 shares which
have the right to demand registration. Such demands may be made as early as 180
days following the offering. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could materially and adversely affect the market price for
the common stock.
DISCRETION OF MANAGEMENT IN USE OF PROCEEDS
The net proceeds of the initial public offering were approximately
$58 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company anticipates
that it will utilize approximately $15 million of the net proceeds for research
and development, approximately $15 million for expansion of sales and marketing
resources, approximately $3 million for capital expenditures, including
expansion of manufacturing facilities, and approximately $2 million for
repayment of outstanding indebtedness, and that the balance of the proceeds,
approximately $21 million, will be used for general corporate purposes including
working capital, however, management of the Company will have complete
discretion of the application of the proceeds. There can be no assurance that
business developments and opportunities will not require the Company to utilize
the proceeds in a manner different than presently anticipated, or that the Board
of Directors and management will not determine for other reasons to utilize the
proceeds in a different manner.
POTENTIAL NEED FOR ADDITIONAL CAPITAL
Although the Company anticipates that its current cash, cash equivalents and
investments, together with sales of products for investigational use, will be
sufficient to meet the Company's capital requirements through at least calendar
year 1997, there can be no assurance that the Company will not require
additional sources of cash at an earlier date. This will depend upon the
progress of expansion of the Company's clinical trials and any need for
additional trials or other testing of the Company's products, and the timing of
required expenditures. If the Company is required to obtain additional financing
in the future, there can be no assurance that capital will be available on terms
acceptable to the Company, if at all.
18
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material litigation outside of the
ordinary course of business.
ITEM 5. OTHER INFORMATION
On June 5, 1996, the Company closed its initial public offering from
which it received net proceeds of approximately $58 million from the sale of
4,000,000 shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBIT
See page 22 for Exhibit 11.1, Statement Regarding Computation of Net
Loss Per Share.
b.) REPORTS ON FORM 8-K
None
19
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ECLIPSE SURGICAL TECHNOLOGIES, INC.
Registrant
Date: August 12, 1996 /S/ BARBARA A. DREBLOW
------------------------------------
Barbara A. Dreblow
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 12, 1996 /S/ DOUGLAS MURPHY-CHUTORIAN, M.D.
------------------------------------
Douglas Murphy-Chutorian, M.D.
Chief Executive Officer
20
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
INDEX TO EXHIBIT
EXHIBIT
NUMBER
- --------
11.1 Statement Regarding Computation of Net Loss Per Share ...... 22
21
<PAGE>
EXHIBIT 11.1
ECLIPSE SURGICAL TECHNOLOGIES, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ------------------
JUNE 30, JUNE 30,
--------- --------
1996 1995 1996 1995
------ ------ ------ ------
Weighted average common shares
outstanding for the period...... 11,033 10,470 10,751 10,470
Common equivalent shares pursuant
to Staff Accounting
Bulletin No. 83 ................ 2,295 2,295 2,295 2,295
------ ------ ------ ------
Shares used in per share
calculations.................... 13,328 12,765 13,046 12,765
------ ------ ------ ------
Net loss ........................ $ (730) $ (538) $ (654) $(1,198)
------ ------ ------ ------
Net loss per share .............. $ (0.05) $ (0.04) $ (0.05) $ (0.09)
All share numbers reflect the Company's three-for-one stock split.
There is no difference between primary and fully diluted earnings per share
for each period presented.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 29,599
<SECURITIES> 27,595
<RECEIVABLES> 1,815
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<COMMON> 58,000
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