<PAGE> 1
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 September 30, 1998
Commission File Number 0-19841
i-STAT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2542664
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
104 Windsor Center Drive, East Windsor, New Jersey 08520
(Address of Principal Executive Offices) (Zip Code)
(609) 443-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practicable date.
Class November 10, 1998
Common Stock, $ .15 par value 15,247,749
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i-STAT CORPORATION
TABLE OF CONTENTS
PAGE
NUMBER
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Condensed Statements of Operations and
Comprehensive Income for the three months and nine months
ended September 30, 1998 and 1997 ....................... 3
Consolidated Condensed Balance Sheets
as of September 30, 1998 and December 31, 1997........... 4
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997................. 5
Notes to Consolidated Condensed Financial Statements......... 6 - 10
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 11 - 16
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings .................................... 17
ITEM 6 - Exhibits and Reports on Form 8-K ..................... 18
SIGNATURES ........................................................... 19
2
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i-STAT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .......................... $ 9,268 $ 9,645 $ 28,508 $ 26,597
Cost of sales ...................... 7,079 7,893 23,200 21,484
---------- ---------- ---------- ----------
Gross profit .............. 2,189 1,752 5,308 5,113
---------- ---------- ---------- ----------
Operating expenses:
Research and development ........ 1,700 1,547 5,491 4,974
General and administrative ...... 1,605 1,525 5,304 4,503
Consolidation of operations ..... 262 -- 991 --
Sales and marketing ............. 3,552 3,617 10,054 9,686
---------- ---------- ---------- ----------
Total operating expenses ..... 7,119 6,689 21,840 19,163
---------- ---------- ---------- ----------
Operating loss ............ (4,930) (4,937) (16,532) (14,050)
---------- ---------- ---------- ----------
Other income (expense), net ........ 378 559 1,132 1,197
---------- ---------- ---------- ----------
Net loss ........................... (4,552) (4,378) (15,400) (12,853)
---------- ---------- ---------- ----------
Other comprehensive income/(loss):
Foreign currency translation .... 2 2 (10) (1)
---------- ---------- ---------- ----------
Comprehensive loss ................. ($4,550) ($4,376) ($15,410) ($12,854)
========== ========== ========== ==========
Basic and diluted net loss per share ($0.28) ($0.29) ($0.99) ($0.90)
========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share ...... 16,051,784 15,273,690 15,592,304 14,224,786
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
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i-STAT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 43,322 $ 32,914
Accounts receivable, net ...................... 6,024 5,206
Inventories ................................... 6,726 5,927
Prepaid expenses and other current assets ..... 1,836 775
--------- ---------
Total current assets ....................... 57,908 44,822
Plant and equipment, net of accumulated
depreciation of $20,169 and $16,858 ............ 14,107 12,619
Other assets ..................................... 1,435 1,729
--------- ---------
Total assets ............................... $ 73,450 $ 59,170
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 2,088 $ 2,174
Accrued expenses .............................. 7,644 3,733
Deferred revenue .............................. 111 218
--------- ---------
Total current liabilities .................. 9,843 6,125
--------- ---------
Deferred revenue, non-current .................... 5,000 --
--------- ---------
Total liabilities .......................... 14,843 6,125
--------- ---------
Stockholders' equity:
Preferred Stock, $.10 par value, shares
authorized 7,000,000:
Series A Junior Participating Preferred
Stock, $.10 par value, 1,500,000 shares
authorized; none issued .................... -- --
Series B Preferred Stock, $.10 par value,
2,138,702 shares authorized and issued ..... 214 214
Common Stock, $.15 par value, shares authorized
25,000,000; shares issued 15,248,291 at
September 30, 1998 and 13,203,527 at
December 31, 1997 .......................... 2,287 1,981
Additional paid-in capital .................... 230,314 209,594
Other, net .................................... (230) (194)
Accumulated deficit ........................... (173,683) (158,273)
Accumulated other comprehensive
loss related to foreign currency
translation ................................ (295) (277)
--------- ---------
Total stockholders' equity ................. 58,607 53,045
--------- ---------
Total liabilities and stockholders' equity.. $ 73,450 $ 59,170
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
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i-STAT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................... ($15,400) ($12,853)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................... 3,401 2,837
Deferred revenue ................................. (106) (2,369)
Other ............................................ (56) (98)
Change in assets and liabilities ................... 6,540 173
-------- --------
Net cash used in operating activities ............ (5,621) (12,310)
-------- --------
Cash flows from investing activities:
Purchase of investments ............................ -- (22,976)
Purchase of equipment .............................. (4,799) (3,382)
Other .............................................. (170) (127)
-------- --------
Net cash used in investing activities ............ (4,969) (26,485)
-------- --------
Cash flows from financing activities:
Proceeds from sale of Common Stock ................. 325 302
Net proceeds from private placement of
Common Stock ..................................... 20,701 22,957
-------- --------
Net cash provided by financing activities ........ 21,026 23,259
-------- --------
Effect of currency exchange rate changes on cash ..... (28) (48)
-------- --------
Net increase (decrease) in cash and cash equivalents.. 10,408 (15,584)
Cash and cash equivalents at beginning of period ..... 32,914 28,417
-------- --------
Cash and cash equivalents at end of period ........... $ 43,322 $ 12,833
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
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i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
Basis of Presentation:
The information presented as of September 30, 1998 and 1997, and for
the periods then ended, is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) which the management of
i-STAT Corporation (the "Company") believes to be necessary for the
fair presentation of results for the periods presented. The results for
the interim periods are not necessarily indicative of results to be
expected for the year. Year end consolidated condensed balance sheet
data is derived from the audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. These condensed financial statements should be read in
conjunction with the Company's audited financial statements for the
year ended December 31, 1997, including the Notes thereto, which were
included as part of the Company's Annual Report on Form 10-K, File No.
0-19841.
Recently Issued Accounting Pronouncements:
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", which establishes standards for
the reporting and display of comprehensive income and its components in
a full set of financial statements. The adoption of this Statement had
no impact on the Company's net loss or stockholders' equity. Statement
No. 130 requires foreign currency translation adjustments, which prior
to adoption were reported separately in stockholders' equity, to be
included in other comprehensive earnings. Prior year financial
statements have been reclassified to conform to the requirements of
Statement No. 130.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" which establishes standards for the way that
public business enterprises report information about operating
segments, geographic areas, products and major customers. The Company
is required to adopt this standard as of the end of 1998 and is
currently evaluating the impact of this standard on the Company's
required disclosure.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement modifies financial statement
disclosures related to pension and other postretirement plans,
including standardization of disclosures for pension plans and other
postretirement plans, permitting the aggregation of information
regarding certain plans, additional disclosures related to the change
in benefit obligations and the fair value of plan assets, and
elimination of certain other disclosures. As with SFAS Nos. 130 and
131, this statement addresses disclosure issues and therefore will not
have an effect on the Company's financial position or results of
operations, and the Company is required to adopt this standard as of
the end of 1998.
Reclassification:
Certain reclassifications have been made to 1997 amounts to conform
them to the 1998 presentation.
6
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i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(continued)
2. NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" which requires the presentation of basic
earnings per share (EPS), and diluted earnings per share. Basic EPS
excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity. The Company has not included potential common shares in the
diluted per-share computation as the result is antidilutive.
The numerator (loss) and denominator (shares) of the basic and diluted
per share computations were as follows:
In thousands of dollars, except shares and per share amount
<TABLE>
<CAPTION>
Loss Shares Per-Share Amount Before
Comprehensive Income/(Loss)
<S> <C> <C> <C>
For the quarter ended September 30, 1998 ($4,552) 16,051,784 ($0.28)
======== ========== =======
For the quarter ended September 30, 1997 ($4,378) 15,273,690 ($0.29)
======== ========== =======
For the nine months ended September 30, 1998 ($15,400) 15,592,304 ($0.99)
======== ========== =======
For the nine months ended September 30, 1997 ($12,853) 14,224,786 ($0.90)
======== ========== =======
</TABLE>
Basic and diluted net loss per share is calculated using the weighted
average number of common shares and preferred shares outstanding for
all periods presented. Preferred shares have been included in the
calculations since their date of issuance as they are convertible into
common shares on a 1:1 basis and have substantially the same
characteristics as common stock.
Options to purchase 2,285,954 shares of common stock at $1.50 - $34.31
per share, which expire on various dates from February 1999 to August
2008, were outstanding at September 30, 1998. These shares were not
included in the computation of diluted EPS because the effect would be
antidilutive due to the net loss.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(In thousands of dollars)
<S> <C> <C>
Raw materials $2,257 $2,206
Work in process 2,314 1,482
Finished goods 2,155 2,239
------ ------
$6,726 $5,927
====== ======
</TABLE>
7
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i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(continued)
4. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a case entitled Nova Biomedical
Corporation, Plaintiff v. i-STAT Corporation, Defendant. The Complaint,
which was filed in the United States District Court for the District of
Massachusetts on June 27, 1995, alleges infringement by i-STAT of
Nova's U.S. Patent No. 4,686,479. In February 1998, the Court entered
summary judgment in favor of the Company on the issue of patent
infringement. Accordingly, the Company has been found not to infringe,
either literally or under the patent law "doctrine of equivalents",
Nova's patent. However, the plaintiff has appealed and should it
prevail on this issue, a prospect which the Company believes to be
unlikely, it could have a material impact on the financial position,
results of operations and cash flows of the Company. The Company had
asserted and is pursuing counterclaims under the antitrust laws
alleging that Nova commenced the action knowing that the patent was not
infringed and that it had reason to believe that the patent was
invalid.
The Company is a defendant in a class action complaint entitled Susan
Kaufman, on behalf of herself and all others similarly situated,
Plaintiff, v. i-STAT Corporation, William P. Moffitt, Lionel M.
Sterling, Imants R. Lauks and Matthias Plum, Jr. The class action was
brought by Susan Kaufman on her behalf and on behalf of all purchasers
of the Company's Common Stock between May 9, 1995 and March 19, 1996.
The complaint, which was filed in the Superior Court of New Jersey in
Mercer County on June 19, 1996, alleges New Jersey common law fraud and
negligent misrepresentation, and is predicated on a "fraud on the
market" theory in connection with certain sales of i-STAT stock by the
Company's chief executive officer, chief technology officer and two
outside directors during a nine-month period. The plaintiffs seek
unspecified compensatory damages, interest and payment of all costs and
expenses incurred in connection with the class action. The Company
believes the complaint is without merit and, on April 28, 1998, the
Court entered summary judgment in favor of all the defendants. However,
the plaintiffs have appealed and, should they prevail in this matter,
it could have a material impact on the financial position, results of
operations and cash flows of the Company.
The Company is a defendant in a case entitled Customedix Corporation,
Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was
filed in the United States District Court for the District of
Connecticut on December 26, 1996, alleges infringement by i-STAT of
Customedix's U.S. Patent No. 4,342,964. The Plaintiff seeks injunctive
relief and an accounting for i-STAT's profits and the damages to
Customedix from such alleged infringement. The case currently is in the
preliminary stages of discovery. The Company intends to contest the
case vigorously and does not believe that it has infringed the
Customedix patent. The Company has obtained an opinion from recognized
patent counsel to the effect that no infringement has occurred.
However, if the plaintiff should prevail in this matter, it could have
a material impact on the financial position, results of operation and
cash flows of the Company.
5. CONSOLIDATION OF OPERATIONS
In January 1998, the Company decided to consolidate all its cartridge
assembly operations in its manufacturing facility in Ontario, Canada.
In order to facilitate this move, the Company will relocate its
cartridge assembly operation in Plainsboro, New Jersey to its
manufacturing facility in Ontario, Canada. The relocation of cartridge
assembly commenced in June 1998, with the transfer of one assembly line
to Canada, and is expected to be completed by December 1998. As a
result of this consolidation of operations, 66 employees in the
cartridge assembly operations were notified during the first quarter of
1998 that their employment would be terminated. The Company's lease for
its instrument operations, engineering, customer support, selected
research and development, marketing and administrative facility in
Princeton, New Jersey, expired in September 1998. The Company relocated
these activities to a 37,474 square foot leased facility in East
Windsor, New Jersey. The product distribution operations currently
located in the Company's Plainsboro, New Jersey facility will relocate
to the Company's East Windsor, New Jersey facility in early 1999. The
charge to earnings in 1998 for these relocations, including severance
and retention payments to affected employees, the physical move of
equipment, rent and utilities on the unoccupied Plainsboro facility
until that lease expires in February 1999, and readdressing
8
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i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(continued)
packaging, marketing materials and stationery, and miscellaneous costs
is estimated to be approximately $1.5 million, with approximately $0.3
million and $1.0 million being recorded as a charge to earnings in the
three months and nine months ended September 30, 1998, respectively.
The charge to earnings in the first nine months of 1998 comprises
approximately $0.8 million for severance and retention payments, and
approximately $0.2 million for lease costs in respect of the unoccupied
Plainsboro facility and expenses associated with the move to the East
Windsor facility. Retention payments are charged to expense over the
retention period.
6. LONG-TERM SALES, MARKETING AND RESEARCH ALLIANCE
On September 2, 1998, the Company and Abbott Laboratories ("Abbott")
entered into agreements (the "Alliance Agreements") providing for a
long-term sales, marketing and research alliance. The Alliance
Agreements comprise a Distribution Agreement, a Research Agreement, a
Stock Purchase Agreement, a Standstill Agreement and a Registration
Rights Agreement.
Under the Distribution Agreement, Abbott will become, subject to the
existing rights of the Company's other international distributors, the
exclusive worldwide distributor of the Company's hand-held blood
analyzer products (including cartridges) and any new products the
Company may develop for use in the professionally attended human
healthcare delivery market. Abbott will assume the Company's current
product sales to U.S. customers (the "Base Business") at no profit to
Abbott, and the Company and Abbott will share in the incremental
profits derived from product sales beyond the Base Business. Abbott
will prepay to the Company a total of $25,000,000 during the first
three years of the Distribution Agreement as guaranteed future
incremental product sales. Such prepayments will be repaid by the
Company to Abbott as a credit against actual incremental product sales.
The first prepayment of $5,000,000 was received on September 2, 1998.
Distribution under the Distribution Agreement commenced in the United
States on November 1, 1998. A subsequent international rollout is
planned.
The Distribution Agreement expires on December 31, 2003, subject to
automatic extensions for additional one-year periods unless either
party provides the other with at least 12 months prior written notice,
except that the Company may terminate the Distribution Agreement after
December 31, 2001 if Abbott fails to achieve a three-year milestone
minimum growth rate in sales of the Company's products covered by the
Distribution Agreement. If the Distribution Agreement is terminated,
other than (i) by the Company for cause or for Abbott's failure to
achieve the minimum growth rate; or (ii) by Abbott if Abbott delivers
the requisite notice terminating the Distribution Agreement after the
initial term, then, the Company will be obligated to pay to Abbott a
one-time termination fee calculated to compensate Abbott for a portion
of its costs in undertaking the distribution relationship, and residual
payments for five years following termination based on a percentage of
Abbott's net sales of the Company's products during the final twelve
months of the Distribution Agreement. In the event that such
termination occurs within the first three years of the Distribution
Agreement, the Company also must refund to Abbott any prepayments made
and not yet credited to Abbott at the time of such termination.
Under the terms of the Research Agreement, the Company will conduct
research and will develop products primarily to be commercialized by
Abbott. Such research and development will be funded by Abbott and
Abbott will have exclusive worldwide commercialization rights to the
products developed under the Research Agreement subject to certain
limitations. The parties have identified two initial projects to pursue
under the Research Agreement, including the research and development of
tests useful in the diagnosis and treatment of myocardial infarction
and coronary artery disease. The Company and Abbott will jointly own
the intellectual property which is developed during the course of work
performed under the Research Agreement. The Research Agreement
terminates upon expiration or termination of the Distribution
Agreement, unless earlier terminated as provided therein. Upon such
expiration or earlier termination, both the Company and Abbott will be
permitted to distribute the products developed under the Research
Agreement in the territory covered by the Distribution Agreement.
9
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i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(continued)
Under the Stock Purchase Agreement, Abbott purchased 2,000,000 shares
(the "Purchased Shares") of the Company's Common Stock, at a price of $11.35 per
share, for an aggregate purchase price of $22,700,000 before expenses. The
Purchased Shares represented at closing approximately 11.5% of the outstanding
voting securities of the Company. The Stock Purchase Agreement, together with
the Registration Rights Agreement, contains certain terms and conditions
pertaining to the voting and transfer of the Purchased Shares.
The Standstill Agreement provides for limitations on Abbott's ability
to purchase the Company's Common Stock, or to propose any merger or business
combination with the Company or purchase of a material portion of the Company's
assets.
10
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i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL; RECENT DEVELOPMENTS
The Company was incorporated in Delaware in 1983 and develops,
manufactures and markets medical diagnostic products for blood analysis that
provide health care professionals with immediate and accurate critical,
diagnostic information at the point of patient care. The Company's current
products, known as the i-STAT(R) System, consist of portable, hand-held
analyzers and single-use disposable cartridges, each of which simultaneously
performs different combinations of commonly ordered blood tests in approximately
two minutes. The i-STAT(R) System also includes peripheral components that
enable the results of tests to be transmitted by infrared means to both a
proprietary information system for managing the user's point-of-care testing
program and to the user's information systems for billing and archiving.
The i-STAT(R) System currently performs blood tests for sodium,
potassium, chloride, glucose, urea nitrogen, hematocrit, ionized calcium,
arterial blood gases, and bicarbonate, and to derive certain other values, such
as total carbon dioxide, base excess, anion gap, hemoglobin and O(2) saturation,
by calculation from the tests performed. The Company continues to engage in
research and development in order to improve its existing products and develop
new products based on the i-STAT(R) System technology. The Company currently is
developing three tests for the measurement of coagulation: partial
thromboplastin time ("aPTT"), activated clotting time ("ACT") and prothombin
time ("PT"), and is studying the development of tests to measure enzymes,
hematology parameters (such as platelets and white blood cell counts) and other
analytes. Subject to receipt of clearance to market by the FDA, the Company
expects to commence commercialization of its first coagulation test during the
first half of 1999.
The Company currently markets and distributes its products in the
United States and Canada principally through its own direct sales and marketing
organization, in Japan through Japanese marketing partners, in Europe through
Hewlett-Packard Company ("HP") and in Mexico, South America, China, Australia,
and certain other Asian and Pacific Rim countries, through selected distribution
channels. Pursuant to a technology collaboration between the Company and HP, in
November 1997 HP commenced selling a patient monitoring system (the "Integrated
Analyzer") which integrates all of the blood diagnostics capabilities of the
i-STAT(R) System.
On September 2, 1998, the Company entered into a long-term sales,
marketing and research alliance with Abbott Laboratories ("Abbott") which, among
other things, is expected both to significantly affect the Company's research
and development programs and alter the manner in which the Company markets and
sells its products worldwide. See "Long-Term Sales, Marketing and Research
Alliance".
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
The Company generated revenues of approximately $9.3 million and $9.6
million for the three months ended September 30, 1998 and 1997, respectively,
including international revenues (as a percentage of total revenues) of $1.9
million (20.6%) and $3.1 million (32.2%), respectively. Sales to the Company's
Japanese marketing partners represented approximately 10.7% and 19.1% of the
Company's worldwide sales for the three months ended September 30, 1998 and
1997, respectively. International sales included deferred Japanese revenue of
approximately $0.8 million (8.1% of total revenues) for the three months ended
September 30, 1997. There was no comparable deferred revenue in the three months
ended September 30, 1998, as the balance of such deferred revenue was fully
amortized to income at December 31, 1997.
The $0.4 million (4.5%) increase in product revenues (excluding the
deferred revenue of $0.8 million in the same period of the prior year) was
primarily due to increased shipment volume of the Company's cartridges
reflecting higher cartridge consumption by existing hospital customers and the
addition of new hospital customers in the U.S. and internationally. Worldwide
cartridge shipments increased 22.6% to 1,436,675 units in the three months ended
September 30, 1998, from 1,171,875 units in the three months ended September 30,
1997. Revenues from the increased cartridge shipments were partially offset by
lower worldwide average selling prices per cartridge, which declined from
approximately $5.18 to $4.65 per cartridge in the same periods, reflecting a
shift to higher volume customers that receive lower cartridge list prices. For
the foreseeable future, cartridge average selling prices are expected to
continue to decline because of the product transfer pricing arrangements
applicable under the marketing and sales alliance recently entered into between
the Company and Abbott. See "Long-Term Sales, Marketing and Research Alliance".
11
<PAGE> 12
i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Gross profit increased by approximately $0.4 million to $2.2 million in
the quarter ended September 30, 1998, compared with a gross profit of $1.8
million in the quarter ended September 30, 1997. The prior year number for the
same period includes approximately $0.8 million of deferred Japanese revenue.
Exclusive of deferred revenue, gross profit on product revenue increased by
approximately $1.2 million (124.7%) from $1.0 million to $2.2 million. To the
extent that sales volume increases, the Company expects its gross profit to
improve as manufacturing costs (including direct labor and a large component of
overhead) are spread over a larger number of product units.
The Company incurred research and development costs (as a percentage of
sales) of approximately $1.7 million (18.3%) and $1.5 million (16.0%) for the
three months ended September 30, 1998 and 1997, respectively, consisting of
costs associated with the personnel, material, equipment and facilities
necessary for conducting new product development.
The Company incurred general and administrative expenses (as a
percentage of sales) of approximately $1.6 million (17.3%) and $1.5 million
(15.8%) for the three months ended September 30, 1998 and 1997, respectively.
General and administrative expenses consisted primarily of salaries and benefits
of personnel, office costs, professional fees and other costs necessary to
support the Company's infrastructure. The dollar increase from year to year is
primarily attributable to increased legal fees and expenses associated with the
defense of certain legal proceedings and other legal matters, and the Company's
increased need for management personnel and other services to support its
growth.
The Company incurred sales and marketing expenses (as a percentage of
sales) of approximately $3.6 million (38.3%) and $3.6 million (37.5%) for the
three months ended September 30, 1998 and 1997, respectively, consisting
primarily of salaries, benefits, travel, and other expenditures for sales
representatives, product literature, market research, clinical studies,
advertising and other sales and marketing costs.
The decrease in other income, net, to $0.4 million for the three months
ended September 30, 1998 from $0.6 million for the three months ended September
30, 1997 primarily reflects interest income earned on lower cash and cash
equivalent balances.
Net losses for the three months ended September 30, 1998 increased 4.0
percent to approximately $4.6 million, or 28 cents per share, compared with a
net loss of $4.4 million, or 29 cents per share, for the three months ended
September 30, 1997. The weighted average number of shares used in computing
basic and diluted net loss per share was 16.052 million and 15.274 million in
the 1998 and 1997 periods, respectively. Excluding the $0.8 million in deferred
revenue in the 1997 period, net loss for the 1998 period would have decreased by
11.7%.
NINE MONTHS ENDED SEPTEMBER 30, 1998
The Company generated revenues of approximately $28.5 million and $26.6
million for the nine months ended September 30, 1998 and 1997, respectively,
including international revenues (as a percentage of total revenues) of $7.5
million (26.3%) and $8.2 million (30.8%), respectively. Sales to the Company's
Japanese marketing partners represented approximately 10.8% and 19.7% of the
Company's worldwide sales for the nine months ended September 30, 1998 and 1997,
respectively. International sales included deferred Japanese revenue of
approximately $2.3 million (8.7% of total revenues) for the nine months ended
September 30, 1997. There was no comparable deferred revenue in the nine months
ended September 30, 1998, as the balance of such deferred revenue was fully
amortized to income at December 31, 1997.
The $4.2 million (17.4%) increase in product revenues (excluding the
deferred revenue of $2.3 million in the same period of the prior year) was
primarily due to increased shipment volume of the Company's cartridges
reflecting higher cartridge consumption by existing hospital customers and the
addition of new hospital customers in the U.S. and internationally. Worldwide
cartridge shipments increased 35.1% to 4,342,550 units in the nine months ended
September 30, 1998, from 3,213,543 units in the nine months ended September 30,
1997. Revenues from the increased cartridge shipments were partially offset by
lower worldwide average selling prices per cartridge, which declined from
approximately $5.39 to $4.73 per cartridge in the same periods, reflecting a
shift to higher volume customers that receive lower cartridge list prices. For
the foreseeable future, cartridge average selling prices are expected to
continue to decline because of the product transfer pricing arrangements
applicable under the marketing and sales alliance recently entered into between
the Company and Abbott. See "Long-Term Sales, Marketing and Research Alliance".
12
<PAGE> 13
i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Gross profit increased by approximately $0.2 million to $5.3 million in
the nine months ended September 30, 1998, compared with a gross profit of $5.1
million in the nine months ended September 30, 1997. The prior year number for
the same period includes approximately $2.3 million of deferred Japanese
revenue. Exclusive of deferred revenue, gross profit on product revenue
increased by approximately $2.5 million (90.3%) from $2.8 million to $5.3
million. To the extent that sales volume increases, the Company expects its
gross profit to improve as manufacturing costs (including direct labor and a
large component of overhead) are spread over a larger number of product units.
The Company incurred research and development costs (as a percentage of
sales) of approximately $5.5 million (19.3%) and $5.0 million (18.7%) for the
nine months ended September 30, 1998 and 1997, respectively, consisting of costs
associated with the personnel, material, equipment and facilities necessary for
conducting new product development.
The Company incurred general and administrative expenses (as a
percentage of sales) of approximately $5.3 million (18.6%) and $4.5 million
(16.9%) for the nine months ended September 30, 1998 and 1997, respectively.
General and administrative expenses consisted primarily of salaries and benefits
of personnel, office costs, professional fees and other costs necessary to
support the Company's infrastructure. The dollar increase from year to year is
primarily attributable to increased legal fees and expenses associated with the
defense of certain legal proceedings and other legal matters, and the Company's
increased need for management personnel and other services to support its
growth.
In January 1998, the Company decided to consolidate all its cartridge
assembly operations in its manufacturing facility in Ontario, Canada. In order
to facilitate this move, the Company will relocate its cartridge assembly
operation in Plainsboro, New Jersey to its manufacturing facility in Ontario,
Canada. The relocation of cartridge assembly commenced in June 1998, with the
transfer of one assembly line to Canada, and is expected to be completed by
December 1998. As a result of this consolidation of operations, 66 employees in
the cartridge assembly operations were notified during the first quarter of 1998
that their employment would be terminated. The Company's lease for its
instrument operations, engineering, customer support, selected research and
development, marketing and administrative facility in Princeton, New Jersey,
expired in September 1998. The Company relocated these activities to a 37,474
square foot leased facility in East Windsor, New Jersey. The product
distribution operations currently located in the Company's Plainsboro, New
Jersey facility will relocate to the Company's East Windsor, New Jersey facility
in early 1999. The charge to earnings in 1998 for these relocations, including
severance and retention payments to affected employees, the physical move of
equipment, rent and utilities on the unoccupied Plainsboro facility until that
lease expires in February 1999, and readdressing packaging, marketing materials
and stationery, and miscellaneous costs is estimated to be approximately $1.5
million, with approximately $0.3 million and $1.0 million being recorded as a
charge to earnings in, respectively, the three months and nine months ended
September 30, 1998. The charge to earnings in the first nine months of 1998
comprises approximately $0.8 million for severance and retention payments, and
approximately $0.2 million for lease costs in respect of the unoccupied
Plainsboro facility and expenses associated with the move to the East Windsor
facility. Retention payments are charged to expense over the retention period.
The Company expects the consolidation to reduce future manufacturing and
operating costs by approximately $2.0 million per year, commencing in the first
quarter of 1999. Such savings will come from lower personnel costs, after hiring
52 employees for the expanded cartridge assembly operations in Ontario, Canada,
and lower rent, utilities and other overhead expenses.
The Company incurred sales and marketing expenses (as a percentage of
sales) of approximately $10.1 million (35.3%) and $9.7 million (36.4%) for the
nine months ended September 30, 1998 and 1997, respectively, consisting
primarily of salaries, benefits, travel, and other expenditures for sales
representatives, product literature, market research, clinical studies,
advertising and other sales and marketing costs. The dollar increase from year
to year is attributable to increased sales and marketing personnel and other
marketing costs necessary to support the Company's growth in product sales.
The decrease in other income, net, to approximately $1.1 million for
the nine months ended September 30, 1998, from approximately $1.2 million for
the nine months ended September 30, 1997, primarily reflects interest income
earned on lower cash and cash equivalent balances.
Net losses for the nine months ended September 30, 1998 increased 19.8
percent to approximately $15.4 million, or 99 cents per share, compared with a
net loss of $12.9 million, or 90 cents per share, for the nine months ended
September 30, 1997. The weighted average number of shares used in computing
basic and diluted net loss per share was 15.592 million and 14.225 million in
the 1998 and 1997 periods, respectively. The increase in the weighted average
number of shares in 1998
13
<PAGE> 14
i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
primarily reflects the sale of 2 million shares of Common Stock to Abbott
Laboratories in September 1998. Excluding the $2.3 million in deferred revenue
in the 1997 period and the $1.0 million in consolidation costs discussed
previously, net loss for the 1998 period would have decreased by 5.1%.
LONG-TERM SALES, MARKETING AND RESEARCH ALLIANCE
On September 2, 1998, the Company and Abbott entered into agreements (the
"Alliance Agreements") providing for a long-term sales, marketing and research
alliance. The Alliance Agreements comprise a Distribution Agreement, a Research
Agreement, a Stock Purchase Agreement, a Standstill Agreement and a Registration
Rights Agreement.
Under the Distribution Agreement, Abbott will become, subject to the
existing rights of the Company's other international distributors, the exclusive
worldwide distributor of the Company's hand-held blood analyzer products
(including cartridges) and any new products the Company may develop for use in
the professionally attended human healthcare delivery market. Abbott will assume
the Company's current product sales to U.S. customers (the "Base Business") at
no profit to Abbott, and the Company and Abbott will share in the incremental
profits derived from product sales beyond the Base Business. Abbott will prepay
to the Company a total of $25,000,000 during the first three years of the
Distribution Agreement as guaranteed future incremental product sales. Such
prepayments will be repaid by the Company to Abbott as a credit against actual
incremental product sales. The first prepayment of $5,000,000 was received on
September 2,1998. Distribution under the Distribution Agreement commenced in the
United States on November 1, 1998. A subsequent international rollout is
planned.
The Distribution Agreement expires on December 31, 2003, subject to
automatic extensions for additional one-year periods unless either party
provides the other with at least 12 months prior written notice, except that the
Company may terminate the Distribution Agreement after December 31, 2001 if
Abbott fails to achieve a three-year milestone minimum growth rate in sales of
the Company's products covered by the Distribution Agreement. If the
Distribution Agreement is terminated, other than (i) by the Company for cause or
for Abbott's failure to achieve the minimum growth rate; or (ii) by Abbott if
Abbott delivers the requisite notice terminating the Distribution Agreement
after the initial term, then, the Company will be obligated to pay to Abbott a
one-time termination fee calculated to compensate Abbott for a portion of its
costs in undertaking the distribution relationship, and residual payments for
five years following termination based on a percentage of Abbott's net sales of
the Company's products during the final twelve months of the Distribution
Agreement. In the event that such termination occurs within the first three
years of the Distribution Agreement, the Company also must refund to Abbott any
prepayments made and not yet credited to Abbott at the time of such termination.
Under the terms of the Research Agreement, the Company will conduct
research and will develop products primarily to be commercialized by Abbott.
Such research and development will be funded by Abbott and Abbott will have
exclusive worldwide commercialization rights to the products developed under the
Research Agreement subject to certain limitations. The parties have identified
two initial projects to pursue under the Research Agreement, including the
research and development of tests useful in the diagnosis and treatment of
myocardial infarction and coronary artery disease. The Company and Abbott will
jointly own the intellectual property which is developed during the course of
work performed under the Research Agreement. The Research Agreement terminates
upon expiration or termination of the Distribution Agreement, unless earlier
terminated as provided therein. Upon such expiration or earlier termination,
both the Company and Abbott will be permitted to distribute the products
developed under the Research Agreement in the territory covered by the
Distribution Agreement.
Under the Stock Purchase Agreement, Abbott purchased 2,000,000 shares
(the "Purchased Shares") of the Company's Common Stock, at a price of $11.35 per
share, for an aggregate purchase price of $22,700,000 before expenses. The
Purchased Shares represented at closing approximately 11.5% of the outstanding
voting securities of the Company. The Stock Purchase Agreement, together with
the Registration Rights Agreement, contains certain terms and conditions
pertaining to the voting and transfer of the Purchased Shares.
The Standstill Agreement provides for limitations on Abbott's ability to
purchase the Company's Common Stock, or to propose any merger or business
combination with the Company or purchase of a material portion of the Company's
assets.
14
<PAGE> 15
i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The foregoing description of the Alliance Agreements is qualified in
its entirety by reference to the actual text of such agreements, copies of which
were filed with the Commission as exhibits to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1998.
The objective of the Abbott alliance is to strengthen the Company's
product marketing and distribution capability and accelerate the development of
new products. Because the alliance is in its very earliest implementation stage,
it is difficult at this time for the Company to predict, within a reasonable
degree of certainty, the likely impact of the alliance upon its operations,
particularly in the long-term. In the near term, the Company expects to
significantly reduce its sales and marketing expenses as Abbott assumes
principal responsibility for many of the Company's marketing and sales
activities. These savings will be partially offset by severance expenses
associated with the corresponding reduction in the Company's sales and marketing
personnel.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents of
approximately $43.3 million, an increase of approximately $10.4 million from the
December 31, 1997 balance of approximately $32.9 million. The increase primarily
reflects approximately $20.7 million, net cash, provided by the issuance of
2,000,000 shares of Common Stock to Abbott and the $5.0 million first prepayment
from Abbott against guaranteed future incremental product sales discussed above
in connection with the Long-Term Sales, Marketing and Research Alliance. The
Company expects its existing funds to be sufficient to meet its obligations and
its liquidity and capital requirements for the foreseeable future. However, the
Company regularly monitors capital raising alternatives in order to take
advantage of opportunities to supplement its current working capital upon
favorable terms, including joint ventures, strategic corporate partnerships or
other alliances and the sale of equity and/or debt securities. The Company's
need, if any, to raise additional funds to meet its working capital and capital
requirements will depend upon numerous factors, including the results of its new
product development efforts, success in achieving manufacturing efficiencies,
the success of the Company and its strategic partners, especially Abbott, in
commercializing the Company's products, new technological developments and
competitive conditions.
The impact of inflation on the Company's business has been minimal and
is expected to be minimal for the near-term.
IMPACT OF YEAR 2000
The "Year 2000" or "Y2K" issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has identified its Year 2000 risks in five categories:
internal business operations software, internal manufacturing control software,
software used in computer controlled manufacturing equipment, software used in
computer-controlled products and external noncompliance by suppliers and
customers.
INTERNAL BUSINESS OPERATIONS SOFTWARE: The Company runs its financial and
inventory operations using a commercially available package supplied by QAD Inc.
running on a UNIX operating system supplied by Hewlett Packard Corporation. The
Company's computer networks are controlled by software provided by Microsoft
Corporation and Novell(R) Inc., and applications used for miscellaneous business
operations are supplied by Microsoft Corporation. All the above mentioned
products are certified Year 2000 compliant by these vendors.
INTERNAL MANUFACTURING CONTROL SOFTWARE: Certain manufacturing operations
are managed by internally developed software tools. Date handling software
operations in most of these tools utilize software routines that are part of the
software "platform" upon which these tools operate. These platforms, primarily
supplied by Microsoft Corporation, are certified Y2K compliant. The Company has
identified only a few exceptions but has determined these tools either to be
15
<PAGE> 16
i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
compliant, not significant to the production process or require only minor
modifications included in planned upgrades. All upgrades are expected to be
completed during the first half of 1999.
SOFTWARE USED IN COMPUTER CONTROLLED MANUFACTURING EQUIPMENT: The Company
has identified all pieces of computer controlled manufacturing equipment used in
production processes and determined that where date handling functions are
significant to the production process, the functions are Y2K compliant.
SOFTWARE USED IN COMPUTER CONTROLLED PRODUCTS: Certain products made by
the Company have software components developed and maintained by the Company.
The Company has completed the software changes and testing necessary to certify
substantially all of these products as Y2K compliant, and expects to complete
the remaining changes and testing by mid-1999. The Company regularly distributes
software updates for these products as part of its normal business practices.
The cost of providing the updated, Y2K compliant software to customers has thus
been at no incremental cost to the Company.
EXTERNAL NON COMPLIANCE BY SUPPLIERS AND CUSTOMERS: The Company is
engaged in the process of monitoring the Y2K program status of critical
suppliers. The Company expects to establish the appropriate contingency plans
for suppliers that are not able to supply sufficient certification by early
1999. These contingency plans may include establishing alternative suppliers
and/or accumulating inventory as appropriate. By the year 2000 the Company's
revenues are expected to be substantially derived from a few authorized
distributors, including Abbott Laboratories and Hewlett Packard Company. The
Company believes that these companies have adequate Y2K compliance programs in
place. Accordingly, it has no reason to believe that additional operational
risks are presented by the Company's relationship with its most significant
customers.
The cost of the Company's activities related to the Year 2000 project
have not been, nor are expected to be, material. Where modifications have been
required these have been incremental additions to software upgrades driven by
other business needs. The principal Company resource allocated to the Y2K issue
has been, and at least until mid-1999 is expected to be, management time.
Despite the Company's activities in regards to the Year 2000 issue, there
can be no assurance that Year 2000 problems will not result in an interruption
in, or failure of, certain normal business activities or operations, that may
have a material adverse effect on the Company's results of operations, liquidity
or financial condition.
All statements contained in this management's discussion and analysis of
financial condition and results of operation other than statements of historical
financial information, are forward looking statements. Forward looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
which are other than historical facts. Although the Company believes that its
expectations are based on reasonable assumptions, the Company operates in a high
technology, emerging market environment that involves significant risks and
uncertainties which may cause actual results to vary from such forward looking
statements and to vary significantly from reporting period to reporting period.
These risks include, among others, competition from existing manufacturers and
marketers of blood analysis products who have greater resources than the
Company, the uncertainty of new product development initiatives, difficulties in
transferring new technology to the manufacturing stage, market resistance to new
products and point-of-care blood diagnosis, domestic and international
regulatory constraints, uncertainties of international trade, pending and
potential disputes concerning ownership of intellectual property, dependence
upon strategic corporate partners for assistance in product marketing and sales
and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. The Company does not undertake to update the
results discussed herein as a result of changes in risks or operating results.
16
<PAGE> 17
i-STAT CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in a case entitled Nova Biomedical Corporation,
Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in
the United States District Court for the District of Massachusetts on June 27,
1995, alleges infringement by i-STAT of Nova's U.S. Patent No. 4,686,479. In
February 1998, the Court entered summary judgment in favor of the Company on the
issue of patent infringement. Accordingly, the Company has been found not to
infringe, either literally or under the patent law "doctrine of equivalents",
Nova's patent. However, the plaintiff has appealed and should it prevail on this
issue, a prospect which the Company believes to be unlikely, it could have a
material impact on the financial position, results of operations and cash flows
of the Company. The Company had asserted and is pursuing counterclaims under the
antitrust laws alleging that Nova commenced the action knowing that the patent
was not infringed and that it had reason to believe that the patent was invalid.
The Company is a defendant in a class action complaint entitled Susan Kaufman,
on behalf of herself and all others similarly situated, Plaintiff, v. i-STAT
Corporation, William P. Moffitt, Lionel M. Sterling, Imants R. Lauks and
Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf
and on behalf of all purchasers of the Company's Common Stock between May 9,
1995 and March 19, 1996. The complaint, which was filed in the Superior Court of
New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law
fraud and negligent misrepresentation, and is predicated on a "fraud on the
market" theory in connection with certain sales of i-STAT stock by the Company's
chief executive officer, chief technology officer and two outside directors
during a nine-month period. The plaintiffs seek unspecified compensatory
damages, interest and payment of all costs and expenses incurred in connection
with the class action. The Company believes the complaint is without merit and,
on April 28, 1998, the Court entered summary judgment in favor of all
defendants. However, the plaintiffs have appealed and, should they prevail in
this matter, it could have a material impact on the financial position, results
of operations and cash flows of the Company.
The Company is a defendant in a case entitled Customedix Corporation, Plaintiff
v. i-STAT Corporation, Defendant. The Complaint, which was filed in the United
States District Court for the District of Connecticut on December 26, 1996,
alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The
Plaintiff seeks injunctive relief and an accounting for i-STAT's profits and the
damages to Customedix from such alleged infringement. The case currently is in
the preliminary stages of discovery. The Company intends to contest the case
vigorously and does not believe that it has infringed the Customedix patent. The
Company has obtained an opinion from recognized patent counsel to the effect
that no infringement has occurred. However, if the plaintiff should prevail in
this matter, it could have a material impact on the financial position, results
of operation and cash flows of the Company.
17
<PAGE> 18
i-STAT CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation (Form S-8/S-3
Registration Statement, File No. 33-48889)*
3.2 By-Laws (Form 10-K for fiscal year ended December 31,
1996)*
3.3 Certificate of Designation, Preferences and Rights of
Series A Preferred Stock (Form 8-K, dated July 10,
1995 and amended on September 11, 1995)*
3.4 Certificate of Designation, Preferences and Rights of
Series B Preferred Stock (Form 8-K, dated July 10,
1995 and amended on September 11, 1995)*
4.1 Stockholder Protection Agreement, dated as of
June 26, 1995, between Registrant and First Fidelity
Bank, National Association (Form 8-K, dated July 10,
1995 and amended on September 11, 1995)*
27 Financial Data Schedule
* These items are hereby incorporated by reference from
the exhibits of the filing or report indicated
(except where noted, Commission File No. 0-19841) and
are hereby made a part of this Report.
(b) Reports on Form 8-K
During the quarter for which this Report on Form 10-Q is
filed, two reports on Form 8-K were filed, on August 4, 1998
and September 17, 1998, disclosing, respectively, the
execution and the closing of the strategic alliance with
Abbott Laboratories.
18
<PAGE> 19
i-STAT CORPORATION
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.
DATE: November 12, 1998
i-STAT CORPORATION
(Registrant)
BY: /s/William P. Moffitt
----------------------------------
William P. Moffitt
President and Chief
Executive Officer
(Principal Executive Officer)
BY: /s/Roger J. Mason
----------------------------------
Roger J. Mason
Vice President of Finance,
Treasurer and Chief
Financial Officer
(Principal Financial Officer and
Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT NO.
-----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 43,322
<SECURITIES> 0
<RECEIVABLES> 6,114
<ALLOWANCES> (90)
<INVENTORY> 6,726
<CURRENT-ASSETS> 57,908
<PP&E> 34,276
<DEPRECIATION> (20,169)
<TOTAL-ASSETS> 73,450
<CURRENT-LIABILITIES> 9,843
<BONDS> 0
0
214
<COMMON> 2,287
<OTHER-SE> 56,106
<TOTAL-LIABILITY-AND-EQUITY> 58,607
<SALES> 28,508
<TOTAL-REVENUES> 28,508
<CGS> 23,200
<TOTAL-COSTS> 23,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,400)
<EPS-PRIMARY> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
