<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO .
Commission file number 1-11064
BRITESMILE, INC.
........................................................................
(Exact name of small business issuer as specified in its charter)
UTAH 87-0410364
................................. ..........................
(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
Airport Business Center
200 Diplomat Drive, Suite 204
Lester, Pennsylvania 19113
........................................................
(Address of principal executive offices with Zip Code)
(610) 362-1111
................................
(Issuer's telephone number)
.......................................................
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock of the Registrant outstanding as of
September 30, 1998 was 7,697,273.
<PAGE>
Index
- -----
PART I - FINANCIAL INFORMATION
Page No.
--------
Item 1 - Financial Statements 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Manangement's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of
Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT 15
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
BRITESMILE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Sept. 30, March 31,
1998 1998
(unaudited)
--------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,905 $ 503
Accounts receivable, less allowance
of $285 and $190 at September 30, 1998
and March 31, 1998, respectively 31 531
Inventories -- 321
Prepaid expenses 19 59
Assets held for sale 1,300 1,668
-------- ------
Total current assets 3,255 3,082
-------- ------
Property, plant and equipment, net 245 766
Investment in joint venture -- 175
Patent costs, net -- 426
Other assets 12 213
-------- ------
Total assets $3,512 $4,662
======== ======
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
BRITESMILE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Sept, 30, March 31,
1998 1998
(unaudited)
------------ ------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 12 $ 30
Accounts payable 482 723
Accrued expenses 759 953
Accrued warranty costs 69 85
Current portion of long-term debt 37 94
------------ ------------
Total current liabilities 1,359 1,885
------------ ------------
Long-term debt less current portion 781 931
------------ ------------
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 50,000,000
Issued and outstanding shares -
September 30, 1998 - 7,697,273
March 31, 1998 - 5,809,307 8 6
Additional paid-in capital 16,930 11,902
Accumulated deficit (15,566) (10,012)
Cumulative translation adjustment -- (50)
------------ ------------
Total shareholders' equity 1,372 1,846
------------ ------------
Total liabilities and shareholders' equity $ 3,512 $ 4,662
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
BRITESMILE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For six months ended For three months ended
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 501 $ 3,104 $ 141 $1,084
Cost of products sold:
Product sales 423 1,940 141 774
Inventory write-downs 418 -- 64 --
------- ------- ------- ------
Total cost of products sold 841 1,940 205 774
Gross margin (340) 1,164 (64) 310
Selling and administrative expenses 1,140 1,819 790 1,035
Research and development expenses 1,397 313 628 178
Termination benefits, impairment charges
and asset write-downs 2,709 -- 1,972 --
------- ------- ------- ------
(5,586) (968) (3,454) (903)
Other income (expense) 32 (36) 15 (25)
------- ------- ------- ------
Loss before income taxes (5,554) (1,004) (3,439) (928)
Income tax (expense) benefit -- -- -- --
------- ------- ------- ------
Net loss $(5,554) $(1,004) $(3,439) $ (928)
======= ======= ======= ======
Earnings (loss) per common share-
basic and diluted $ (.76) $ (.18) $ (.45) $ (.17)
======= ======= ======= ======
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
BRITESMILE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For six months ended
----------------------
Sept. 30, Sept. 30,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(5,554) $(1,004)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 71 190
Provision for losses on accounts receivable 6 26
Loss on sale of properties 101 --
Termination benefits, impairment charges and
asset write-downs 2,157 --
Changes in operating assets and liabilities:
Accounts receivable, inventory and prepaid expenses 171 163
Other assets -- 85
Accounts payable and accrued liabilities (417) (328)
Income taxes payable -- 10
Accrued warranty costs (16) 14
---------- ----------
Net cash used in operating activities (3,481) (844)
---------- ----------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (57) (397)
Patent costs (9) (92)
Proceeds from sale of properties 145 --
---------- ----------
Net cash provided by (used in) investing activities 79 (489)
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of debt -- 112
Payments on debt (226) (35)
Proceeds from sale of common stock 5,030 3,168
---------- ----------
Net cash provided by financing activities 4,804 3,245
---------- ----------
Net increase in cash and cash equivalents 1,402 1,912
Cash and cash equivalents at beginning of period 503 55
---------- ----------
Cash and cash equivalents at end of period $ 1,905 $ 1,967
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
On August 12, 1998, Ion Laser Technology, Inc. changed its name to BriteSmile,
Inc. The unaudited, condensed, consolidated financial statements of BriteSmile,
Inc. (the "Company") as of September 30, 1998 and March 31, 1998 and for the six
months and three months ended September 30, 1998 and 1997 were prepared by the
Company without audit in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-QSB and the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all necessary adjustments to the financial statements have been made
to present fairly the financial position and results of operations and cash
flows of the Company. The results of operations for the periods presented are
not necessarily indicative of the results for the respective complete years.
For further information, refer to the consolidated financial statements and the
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended March 31, 1998.
Earnings Per Share
- ------------------
Earnings per share is computed based on the weighted average number of shares of
common stock and common stock equivalent shares outstanding during each period.
Because the Company reported a net loss for each of the periods presented, all
common stock equivalents are anti-dilutive and accordingly have been excluded
from the earnings per share computations. The weighted average numbers of shares
outstanding were 7,328,697 and 5,490,073 for the six months ended September
30, 1998 and 1997, respectively. The weighted average numbers of shares
outstanding were 7,682,742 and 5,637,790 for the three months ended September
30, 1998 and 1997, respectively.
Reclassifications
- -----------------
Certain reclassifications, none of which affect net income, have been made to
the prior periods' amounts in order to conform to the current presentation.
Private Placement
- -----------------
In May 1998, the Company completed a private placement of 1,860,465 shares of
its common stock, resulting in proceeds to the Company of $5,000,000.
Subsequent Event
- ----------------
In October 1998, the Company, as part of its renewed focus to develop a new line
of chemical whitening products and reagents, discontinued production and sale of
its old line of whitening chemicals, including its take-home tooth whitening,
in-office bleaching, and laser whitening kits.
2. TERMINATION BENEFITS, IMPAIRMENT CHARGES AND ASSET WRITE-DOWNS
In April 1998, the Company's Board of Directors and management decided to close
its Utah operating facility, discontinue all activities related to the
industrial and scientific lines of business and move its headquarters to
Pennsylvania. As a result of the Company's decision to relocate its operations
to Pennsylvania and to focus exclusively in the dental whitening market, nearly
all of the Company's workforce of 63 employees in Utah was scheduled for
termination. A termination benefits liability of $200,000 was established and
charged to expense during the three month period ended June 30, 1998. At
September 30, 1998, the Company completed its termination plan and paid benefits
of approximately $200,000 to former employees. During the three months ended
June 30, 1998, the Company recorded charges of $891,000 related to the
impairment and write-down of certain assets which will provide limited or no
future benefits to the Company including accounts receivable, inventory and
fixed assets. During the three months ended September 30, 1998, charges of
$2,036,000 were recorded to recognize the discontinuation of the laser based
business and exclusive focus on new light activated tooth whitening technology.
These charges include: the impairment and write-down of patents and a joint
venture related to discontinued technology, settlement of canceled purchase
commitments and losses associated with the disposal of property.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED BY THE COMPANY AND DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE
DISCUSSED BELOW IN THE SECTION ENTITLED "FORWARD-LOOKING STATEMENTS."
RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1998 (FISCAL 1999) VS. SECOND
QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1997 (FISCAL 1998)
Net Sales
- ---------
Sales for the second quarter ended September 30, 1998 declined from the same
period in the prior year by $943,000 or 87%. Sales for the six month period
ended September 30, 1998 declined from the same period in the prior year by
$2,603,000 or 84%. The decrease in sales was due to the fact that the Company
had no sales of its laser-based arc lamp tooth whitening (LTW) system in the
three and six month periods ended September 30, 1998 and has discontinued all
development work on the LTW system. Additionally, sales of take-home and in-
office tooth whitening chemical products declined as a result of the termination
of marketing efforts for the LTW System and management's shift in focus to
development of a new tooth whitening technology. Management anticipates the
introduction of its new Light Activated Tooth Whitening ("LATW") technology,
including its new whitening device (BriteSmile 2000), new whitening gel, and new
whitening process, in January 1999. The Company plans to begin opening
BriteSmile Whitening Centers in the first calendar quarter of 1999. The
Whitening Centers, which will be operated by dentists, will provide the latest
in tooth whitening technology directly to consumers, and feature the Company's
propriety BriteSmile Light Activated Tooth Whitening Device and Gel.
Cost of Sales
- -------------
Cost of sales, exclusive of inventory write-downs, for the second quarter ended
September 30, 1998 increased to 100% of sales from 71% in the same period of the
prior year. Cost of sales, exclusive of inventory write-downs, for the six month
period ended September 30, 1998, increased to 84% of sales from 62% in the same
period of the prior year. The increase is attributable to a reduction in sales
of higher margin LTW systems, and increased warranty costs as a percentage of
sales.
Selling & Administrative Expenses
- ---------------------------------
Selling and administrative expenses in the second quarter and six months ended
September 30, 1998 decreased from the same periods in the prior year by $245,000
and $679,000,respectively, due to the reduction in staffing and related costs
associated with the Company's discontinued lines of business and move from Salt
Lake City, UT. to Lester, PA. Partially offsetting this decrease is an
increase in legal and administrative costs associated with the launch of
BriteSmile Tooth Whitening Centers in calendar 1999, the relocation to
Pennsylvania, and termination of the Company's plans to acquire Excimer Vision
Leasing.
Research & Development Expenses
- -------------------------------
Research and development expenses increased in the second quarter and six months
ended September 30, 1998 from the same periods in the prior year by $450,000 and
$1,084,000, respectively, due to the significant research and development
activities during these periods related to the Company's BriteSmile
9
<PAGE>
2000 whitening device, whitening chemistry and whitening process. Management
anticipates that research and development expenditures will continue at rates
comparable to current spending levels through the remainder of fiscal 1999.
Termination Benefits, Impairment Charges and Asset Write-Downs
- --------------------------------------------------------------
In April 1998, the Company's Board of Directors and management decided to close
its Utah operating facility, discontinue all activities related to the
industrial and scientific laser lines of business, discontinue development and
sales of its laser-based LTW device--the arc lamp tooth whitening system, and
move its headquarters to Pennsylvania. As a result of the Company's decision to
relocate its operations to Pennsylvania and to focus exclusively on the tooth
whitening market, nearly all of the Company's 63 employees located in Utah were
scheduled for termination. A termination benefits liability of $200,000 was
established and charged to expense during the three month period ended June 30,
1998. At September 30, 1998, the Company completed its termination plan and
paid benefits of approximately $200,000 to former employees.
In addition to employee termination costs, the Company recorded other charges of
$2,927,000 in the six month period ending September 30, 1998, including $418,000
of inventory write-downs classified as cost of products sold. The Company
recorded $2,036,000 of this amount in the three month period ended September 30,
1998. These charges are related to: (i) the impairment and write-down of
patents and a joint venture related to discontinued technology (assets which
will provide limited or no future benefit to the Company), (ii) settlement of
canceled purchase commitments, and (iii) losses associated with the disposal of
property. Included in the charges recorded in the three month period ended
September 30, 1998 were the following: (a) $432,000 impairment write-down of
patents; (b) $225,000 impairment write-down of an investment in a joint
venture; (c) $402,000 settlement of canceled purchase commitments; (d) $367,000
impairment write-down on assets available for sale; (e) $101,000 loss on sale of
properties and (f) $509,000 charge related to uncollectable accounts receivable,
obsolete inventories and accrued expenses.
Income Taxes
- ------------
Due to its operating loss, the Company had no income tax expense during fiscal
1998 or for the three and six month periods ending September 30, 1998.
Furthermore, no income tax benefit was recognized due to the uncertainty
associated with the Company's ability to realize its deferred assets, comprised
primarily of net operating loss carryforwards.
Inflation
- ---------
The Company actively strives to contain costs on parts from suppliers by
renegotiating purchase order contracts. Inflation has not been a major factor
in the past and is not seen as a major factor that will impact the Company'
operations in the immediate future.
Net Income (Loss)
- -----------------
The Company incurred net losses of $3,439,000 and $5,554,000 for the three and
six month periods ending September 30, 1998, respectively. The net losses are
attributable to the employee termination benefits, and the impairment charges
and asset write-downs which represented $2,036,000 and $3,127,000 of the net
losses incurred for the three and six month periods ended September 30, 1998.
These impairment charges are principally related to the Company's
discontinuation of several lines of business and the closing of its Utah
facility. The remainder of the Company's net loss is attributable to decreases
in sales and increases in reseach and development costs related to the Company's
shift in focus from laser-based systems to development of its new LATW system,
and the opening of BriteSmile Tooth Whitening Centers in calendar 1999.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing activities resulted in an increase in cash of $4,804,000
during the six month period ended September 30, 1998, due primarily to the
$5,000,000 of equity capital raised in May, 1998. This increase was offset by
the $3,481,000 of cash used by operating activities, principally research and
development expenses related to the Company's new LATW technology,
administrative expenses related to preparing for the distribution of the new
technology, and the reduction in accounts payable and accrued expenses.
In this section, the term "Current Ratio" means current assets divided by
current liabilities. "Working Capital" means current assets less current
liabilities.
The Company's Current Ratio and Working Capital at September 30, 1998 and March
31, 1998 were as follows:
September 30, 1998 March 31, 1998
------------------ --------------
Current Ratio 2.40 1.63
Working Capital $1,896,000 $1,197,000
In May 1998, the Company completed a private placement of its common stock in
which it obtained proceeds of approximately $5,000,000. At September 30, 1998,
the Company had outstanding purchase orders and commitments related to its LATW
technology of approximately $700,000, which the Company will be obligated to pay
over the next 12 months. In addition, the launch of the BriteSmile Tooth
Whitening Centers planned for calendar 1999 will require significant additional
financing. Management is currently involved in discussions with potential
investors and/or lenders, and believes that the Company can obtain the funding
necessary to complete development of the LATW System and launch the BriteSmile
Whitening Centers as planned. However, no binding commitments for such
financing have been reached, and no assurance can be given that additional
financing will be available on favorable terms. Any financing which involves
the sale of equity securities, or instruments convertible into such securities,
could result in immediate and significant dilution to existing shareholders.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Standard will become effective for the
Company's 1999 fiscal year. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of general-
purpose financial statements. Management is currently assessing the impact of
implementation of this Standard on the consolidated financial statements of the
Company and does not believe that the implementation will have a material impact
on the Company's financial statements.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
This is referred to widely as the "Year 2000" issue. As a result of the May
1998 closure of its Salt Lake City manufacturing facility and downsizing of its
operations, the potential impact of the Year 2000 issue on the Company is
greatly reduced. Additionally, the Company is in the process of upgrading its
primary financial and management systems, which upgrades are planned to be Year
2000 compliant. The Company continues to evaluate the Year 2000 exposures
presented by its significant suppliers and other vendors whose systems may
impact the Company's operations. However, based on the significant reduction in
operations noted above, management believes that the Year 2000 issue will not
have a material impact on the Company's operations.
11
<PAGE>
Forward-Looking Statements
The statements contained in this Report on Form 10-QSB that are not purely
historical are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 21E of the Securities
Exchange Act. These statements relate to the Company's expectations, hopes,
beliefs, anticipations, commitments, intentions and strategies regarding the
future. They may be identified by the use of words or phrases such as
"believes," "expects," "anticipates," "should," "plans," "estimates," and
"potential," among others. Forward-looking statements include, but are not
limited to, statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations regarding the Company's financial
performance, revenue and expense levels in the future and the sufficiency of its
existing assets to fund future operations and capital spending needs. Actual
results could differ materially from the anticipated results or other
expectations expressed in such forward-looking statements. The Company believes
that many of the risks set forth here and in the Company's SEC filings are part
of doing business in the industry in which the Company operates and competes and
will likely be present in all periods reported. The forward-looking statements
contained in this Report are made as of the date of this Report and the Company
assumes no obligation to update them or to update the reasons why actual results
could differ from those projected in such forward-looking statements. Among
others, risks and uncertainties that may affect the business, financial
condition, performance, development, and results of operations of the Company
include:
. government regulation of the Company's products and tooth whitening
procedures;
. failure of the Company to generate, sustain or manage growth, including
failure to develop new products;
. the loss of product market share to competitors and/or development of new or
superior technologies by competitors;
. ongoing operating losses associated with the Company's abandonment of its
industrial laser product line and laser-based tooth whitening technologies, in
favor of development of new, light-activated tooth whitening technologies;
. failure of the Company to secure additional financing to complete research
and development activities and to establish a broad base of tooth whitening
centers nationwide;
. unproven market for the Company's new whitening products, whitening process,
and "whitening center" concept; and
. lack of diversity of products.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no new legal proceedings involving the Company or any of its
directors, officers or affiliates, nor any material developments with respect to
pending legal proceedings, which are required to be discussed in this Report.
ITEM 2. CHANGES IN SECURITIES. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on August 11, 1998, the
shareholders of the Company voted on the following four proposals:
Proposal 1--To elect the following five directors, each to serve until the
next annual meeting of shareholders and until his successor is elected and
shall have qualified: Richard V. Trefz, Anthony M. Pilaro, Brian G.
Delaney, R. Eric Montgomery, and Linda S. Oubre. In addition to election
of directors, the shareholders also voted on the following proposals:
Proposal 2--To amend Article 1 of the Articles of Incorporation of the
Company to change the name of the Company to BriteSmile, Inc.;
Proposal 3--To approve the Company's Revised 1997 Stock Option and
Incentive Plan; and
Proposal 4--To approve the Board of Directors' selection of Ernst & Young
LLP as the Company's independent auditors.
Voting results were as follows:
For Against Abstain Broker Non-votes
--------- ------- ------- ----------------
Mr. Trefz 6,224,795 6,455 43,706 0
Mr. Pilaro 6,224,795 6,455 43,706 0
Mr. Delaney 6,229,160 2,090 43,706 0
Mr. Montgomery 6,224,795 6,455 43,706 0
Ms. Oubre 6,224,470 6,780 43,706 0
Proposal 2 6,226,595 37,056 10,805 0
Proposal 3 3,438,621 150,840 41,876 2,638,275
Proposal 4 6,153,215 112,686 9,055 0
ITEM 5. OTHER INFORMATION.
Effective October 28, 1998, the Board of Directors of the Company increased the
number of directors on its board from five to six, and appointed Jennifer Scott
as a new director of the Company to fill the vacancy, to serve until the next
annual meeting of shareholders and until her successor is elected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule for September 30, 1998 Form 10-QSB.
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during the quarter
for which this Report is filed.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned thereunto duly
authorized.
BRITESMILE, INC.
Date: November 13, 1998 /s/ Michael F. Bonner
----------------------------
Michael F. Bonner
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,905,000
<SECURITIES> 0
<RECEIVABLES> 316,000
<ALLOWANCES> 285,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,255,000
<PP&E> 1,077,000
<DEPRECIATION> 832,000
<TOTAL-ASSETS> 3,512,000
<CURRENT-LIABILITIES> 1,359,000
<BONDS> 0
0
0
<COMMON> 8,000
<OTHER-SE> 1,364,000
<TOTAL-LIABILITY-AND-EQUITY> 3,512,000
<SALES> 501,000
<TOTAL-REVENUES> 501,000
<CGS> 841,000
<TOTAL-COSTS> 841,000
<OTHER-EXPENSES> 5,246,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,000
<INCOME-PRETAX> (5,554,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,554,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,554,000)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
