<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-21284
SALIVA DIAGNOSTIC SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 91-1549305
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11719 NE 95TH STREET
VANCOUVER, WA 98682
(Address of principal executive offices and zip code)
(360) 696-4800
(Issuer's telephone number including area code)
Check whether the issuer (1) 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 the Registrant's Common Stock as of October
29, 1998 was 5,231,888 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
SALIVA DIAGNOSTIC SYSTEMS, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
- -------------------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -September 30, 1998
and December 31, 1997 2
Consolidated Statements of Operations -Three Months
and Nine Months Ended September 30, 1998 and 1997 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
1
<PAGE> 3
SALIVA DIAGNOSTIC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------ ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 73,845 $ 271,312
Accounts receivable, less allowance of $42,000 (1998)
and $42,000 (1997) 267,950 154,052
Inventories 336,701 458,177
Prepaid expenses 25,856 51,876
-------------------- -------------------
Total current assets 704,352 935,417
Property and equipment, less accumulated
depreciation of $1,066,731(1998) and $995,853 (1997) 322,458 434,457
Deposits 14,307 40,162
Restricted cash 120,500 120,500
Patents and trademarks, less accumulated
amortization of $55,297 (1998) and $48,375 (1997) 101,619 108,541
-------------------- -------------------
$ 1,263,236 $ 1,639,077
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 777,968 $ 670,400
Accrued expenses 1,290,456 1,473,944
Accrued interest payable 68,240 68,240
Current portion of long-term debt and
obligations under capital leases 22,140 33,779
-------------------- -------------------
Total current liabilities 2,158,804 2,246,363
Long-term debt and obligations under capital
leases, net of current portion 42,644 59,401
-------------------- -------------------
Total liabilities 2,201,448 2,305,764
Stockholders' equity:
Series 1998-B Convertible Preferred Stock, $.01 par value,
500 shares issued and outstanding 5 --
Common stock, $.01 par value, 50,000,000
shares authorized, issued and outstanding:
1998:5,231,888 and 1997: 2,934,462 52,319 29,344
Additional paid-in capital 30,971,957 27,914,252
Note receivable from shareholder for stock (83,825) (83,825)
Accumulated deficit (31,878,668) (28,526,458)
-------------------- -------------------
Total stockholders' equity (938,212) (666,687)
-------------------- -------------------
$ 1,263,236 $ 1,639,077
==================== ===================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE> 4
SALIVA DIAGNOSTIC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
September 30,
-----------------------------------------------------
1998 1997
------------------------- -------------------------
<S> <C> <C>
Revenues $ 290,726 $ 296,302
Costs and expenses:
Cost of products sold 271,305 414,136
Research and development expense 42,890 170,921
Selling, general and administrative
expense 696,953 818,878
Restructuring expense -- 194,000
-------------------- --------------------
Loss from operations (720,422) (1,301,633)
Interest income 3,976 8,680
Interest expense (5,735) (2,441)
Other income (expense) 216 (1,981)
-------------------- --------------------
Net loss (721,965) (1,297,375)
Dividends including deemed dividends
on preferred stock (293,660) --
-------------------- --------------------
Net loss to common stockholders $ (1,015,625) $ (1,297,375)
==================== ====================
Basic and diluted net loss per share $ (0.23) $ (0.49)
==================== ====================
Shares used in per share calculations 4,374,424 2,668,038
==================== ====================
<CAPTION>
Nine months ended
September 30,
------------------------------------------------
1998 1997
---------------------- -----------------------
<S> <C> <C>
Revenues $ 739,835 $ 1,008,205
Costs and expenses:
Cost of products sold 839,082 1,060,484
Research and development expense 357,928 521,757
Selling, general and administrative
expense 1,967,122 3,074,769
Restructuring expense 25,000 194,000
------------------ -------------------
Loss from operations (2,449,297) (3,842,805)
Interest income 14,330 22,808
Interest expense (8,440) (411,725)
Other income (expense) 52,348 6,049
------------------ -------------------
Net loss (2,391,059) (4,225,673)
Dividends including deemed dividends
on preferred stock (961,151) --
------------------ -------------------
Net loss to common stockholders $ (3,352,210) $ (4,225,673)
================== ===================
Basic and diluted net loss per share $ (1.02) $ (1.78)
================== ===================
Shares used in per share calculations 3,297,312 2,369,784
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SALIVA DIAGNOSTIC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------------------------------
1998 1997
------------------------ ------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,391,059) $ (4,225,673)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 161,149 209,310
Compensation expense on issuance of stock options -- 397,749
Gain (loss) on sale of property and equipment (43,479) 9,446
Interest expense related to conversion of Debentures -- 404,395
Changes in current assets and liabilities:
Accounts receivable (113,898) (44,937)
Inventories 121,476 (209,209)
Prepaid expenses and deposits 51,875 (15,958)
Accounts payable and accrued expenses (50,320) 409,007
------------------- -------------------
Net cash used in operating activities (2,264,256) (3,065,870)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (49,304) (61,049)
Proceeds from sale of property and equipment 33,482 --
------------------- -------------------
Net cash provided by (used in) investing activities (15,822) (61,049)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Stock, net of issuance costs 250,000 2,063,414
Exercise of Common Stock options and warrants -- 450
Proceeds from sale of Preferred Stock, net of issuance costs 1,850,000 --
Proceeds from Convertible Debentures, net of
issuance costs -- 1,380,000
Repayment of long term debt and capital lease obligations (17,389) (28,184)
------------------- -------------------
Net cash provided by financing activities 2,082,611 3,415,680
------------------- -------------------
Cumulative foreign translation adjustment -- 82,436
Net increase (decrease) in cash and cash equivalents (197,467) 371,197
Cash and cash equivalents, beginning of period 271,312 776,380
------------------- -------------------
Cash and cash equivalents, end of period
$ 73,845 $ 1,230,013
=================== ===================
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Conversion of Debentures into Common Stock $ -- $ 1,380,000
Dividends and deemed dividends on Convertible
Preferred Stock 961,151 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
SALIVA DIAGNOSTIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of and for the
three and nine month periods ended September 30, 1998 and 1997 have been
prepared in conformity with generally accepted accounting principles. The
financial information as of December 31, 1997 is derived from Saliva Diagnostic
Systems, Inc. (the "Company") consolidated financial statements included in the
Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1997.
Certain information or footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements include all adjustments necessary
(which are of a normal and recurring nature) for the fair presentation of the
results of the interim periods presented. The accompanying consolidated
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1997, as included in the
Company's Annual Report on Form 10-KSB/A for the year ended December 31, 1997.
Operating results for the three and nine month periods ended September 30, 1998
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 31, 1998, or any other portion thereof.
Certain prior year amounts have been restated in the consolidated financial
statements for the periods ended September 30, 1997 due to adjustments made as a
result of the audit of the Company's Annual Report on Form 10-KSB/A for the year
ended December 31, 1997.
2. INVENTORIES
Inventories are stated at the lower of cost or market determined on a first-in,
first-out (FIFO) basis, and consist of the following:
<TABLE>
<CAPTION>
September 30, December
1998 31, 1997
----------------------- ---------------------
<S> <C> <C>
Raw materials $ 226,587 $ 280,438
Work in process 23,262 11,569
Finished goods 86,852 166,170
-------------------- ---------------------
$ 336,701 $ 458,177
==================== =====================
</TABLE>
3. LOSS PER SHARE
The Company has adopted Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). SFAS 128 changes the standards for computing and presenting earnings per
share (EPS) and supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share." Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the period. Diluted
earnings per common share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares related to stock
options and warrants outstanding during the period.
A net loss was reported in the third quarters and first nine months of both 1998
and 1997, and accordingly, the denominator was equal to the weighted average
outstanding shares with no consideration for outstanding options and warrants to
purchase shares of the Company's common stock, because to do so would have been
5
<PAGE> 7
anti-dilutive. Stock options for the purchase of 207,750 shares and warrants for
the purchase of 294,722 shares for the periods ended September 30, 1998 were not
included in loss per share calculations, because to do so would have been
anti-dilutive.
4. ACCRUED EXPENSES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------- --------------------
<S> <C> <C>
Accrued wages and salaries $ 453,958 $ 493,352
Accrued payroll taxes 71,783 92,144
Accrued restructuring expenses 13,040 135,522
Litigation contingencies 750,000 750,000
Other accrued liabilities 1,675 2,926
---------------- ---------------
$ 1,290,456 $ 1,473,944
================ ===============
</TABLE>
5. SERIES 1998-A AND 1998-B CONVERTIBLE PREFERRED STOCK
On January 26, 1998, the Company entered into a Securities Purchase Agreement
with an investor for the issuance and sale of shares of the Company's newly
designated Series 1998-A Convertible Preferred Stock, stated value $1,000 per
share (the "1998-A Preferred Stock") (the "Preferred Offering"). Pursuant to the
Securities Purchase Agreement, the Company sold a total of 1,500 shares of the
1998-A Preferred Stock to an investor for an aggregate purchase price of
$1,380,000 (net of $120,000 issuance costs). On July 30, 1998, the Company
amended the Securities Purchase Agreement to eliminate the redemption rights
pursuant to the Securities Purchase Agreement for the Series 1998-A Convertible
Preferred Stock. As of September 30, 1998 all outstanding shares of the 1998-A
Preferred Stock had been converted into 1,804,251 shares of common stock. See
Management's Discussion and Analysis-Liquidity and Capital Resources for
additional disclosure regarding the 1998-A Preferred Stock.
In connection with the issuance of the 1998-A Preferred Stock, the Company
issued warrants to purchase up to 75,000 shares of Common Stock at an exercise
price of $3.375 per share, which expire on January 26, 2003.
On July 31, 1998, the Company amended the Securities Purchase Agreement with an
investor for the issuance and sale of shares of the Company's newly designated
Series 1998-B Convertible Preferred Stock, stated value $1,000 per share (the
"1998-B Preferred Stock"). In August 1998, pursuant to the Securities Purchase
Agreement, the Company sold 500 shares of the 1998-B Preferred Stock to the
investor for an aggregate purchase price of $470,000 (net of issuance costs of
$30,000). The investor is entitled to receive a number of shares of the
Company's common stock upon conversion of the 1998-B Preferred Stock as
determined by dividing the purchase price of the 1998-B Preferred Stock by the
lesser of (i) $1.69, and (ii) 80% of the average closing bid price of the
Company's common stock for the five trading days prior to conversion. The
investor is committed purchase an additional 500 shares of Series 1998-B
Convertible Preferred Stock for an aggregate purchase price of $470,000 (net of
issuance costs of $30,000) on or before December 3, 1998, and an additional 500
shares of Series 1998-B Convertible Preferred Stock for an aggregate purchase
price of $470,000 (net of issuance costs of $30,000) on or before April 3, 1999.
The 1998-B Preferred Stock is convertible into Common Stock of the Company at a
beneficial conversion ratio and, as a result, a discount of $125,000 was
recorded at the date of issuance of the first 500 shares of the 1998-B Preferred
Stock. The discount will be accreted to deemed preferred dividends over the
conversion period, which ends November 1, 1998. At September 30, 1998, $84,722
of deemed dividends had been recorded relating to the beneficial conversion
ratio.
6
<PAGE> 8
In connection with the issuance of the 1998-B Preferred Stock, the Company
issued warrants to purchase up to 25,000 shares of Common Stock at an exercise
price of $3.375 per share, which expire on January 26, 2003. The fair value of
these warrants of $253,750 will be accreted to deemed preferred dividends over
the conversion period which ends November 1, 1998. Deemed dividends of $171,986
have been recorded as of September 30, 1998 related to the fair value of the
warrants.
6. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) during the first quarter of 1998.
This statement establishes standards for reporting and displaying comprehensive
income and its components in a full set of general purpose financial statements.
The objective of SFAS 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the period
other than transactions with owners. Comprehensive loss did not differ from
currently reported net loss in the periods presented.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 also requires that changes in the derivative instrument's
fair value be recognized currently in results of operations unless specific
hedge accounting criteria are met. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company expects that adoption of SFAS 133
will have no impact on the Company's financial condition or results of
operations.
7. CONTINGENCIES
Luc Hardy, a former director and officer of the Company, filed a complaint in
Federal court against the Company and several individual defendants, including
former directors and officers of the Company, making certain allegations,
including breach of Mr. Hardy's employment agreement with the Company,
intentional interference with contract by the individual defendants, slander and
deceptive trade practices, all arising from his termination. The complaint seeks
damages and punitive damages in an unspecified amount. A jury verdict for the
plaintiff, which is not a final judgment, was rendered on July 25, 1997 in the
approximate amount of $740,000. In October 1997, a hearing was held on the
Company's motions to set aside the jury verdict and for a new trial. The Company
is currently awaiting a decision. There can be no assurance such motions will be
granted. A final judgment consistent with the jury verdict in this case will
have a material adverse effect on the Company.
In February 1998, a lawsuit was filed by Ronald Lealos, the former President of
the Company, who resigned in December 1996. The complaint alleges that Mr.
Lealos was entitled to certain cash payments and benefits under an employment
agreement whereby he would serve as the Company's president, and that the
Company's failure to make such payments and grant such benefits constituted
anticipatory breach and breach of that contract. In addition, the complaint
alleges that the Company wrongfully rescinded options to purchase 385,500 shares
of Common Stock in breach of a stock option agreement with Mr. Lealos. In March
1998, the Company filed an answer to the complaint in which it stated that the
alleged employment agreement was not intended to be effective and was rescinded
by the parties, and that the stock option agreement was not breached by the
Company. The Company's answer also asserted numerous counterclaims against Mr.
Lealos, including breach of fiduciary duty and conversion, for which the Company
is seeking damages in excess of $1,500,000. There can be no assurance that the
litigation will not be decided adverse to the Company and that such an adverse
decision would not have a material adverse effect on the Company.
7
<PAGE> 9
8. REVERSE STOCK SPLIT
On August 3, 1998, the Company amended the Company's Certificate of
Incorporation declaring that each ten outstanding shares of the Company's Common
Stock be converted and reconstituted into one share of Common Stock. As a
result, all share amounts and values in these financial statements have been
restated to reflect the reverse stock split.
9. PUBLICLY TRADED COMMON STOCK PURCHASE WARRANTS
The Company has outstanding publicly traded warrants to purchase 138,000 shares
of the Company's common stock at $12.50 per share which were scheduled to expire
on September 30, 1998. On September 30, 1998, the Company announced the
extension of such warrants to December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Since July 1990, the Company has been engaged almost exclusively in research and
development activities focused on developing proprietary saliva based collection
devices and rapid assays for infectious diseases. Other than sales of the
Company's collection devices, the Company has not yet commenced any significant
product commercialization. The Company has incurred significant operating losses
since its inception, resulting in an accumulated deficit of $31,878,668 at
September 30, 1998. Such losses are expected to continue for the foreseeable
future and until such time, if ever, as the Company is able to attain sales
levels sufficient to support its operations. The Company believes that its
current cash position, cash received from the sale of its preferred stock in
August 1998 and the cash expected to be received from the sale of 500 additional
shares of Series 1998-B Preferred Stock on or before December 3, 1998, combined
with revenues and other cash receipts, will be sufficient to fund the Company's
operations through 1998. However, substantial additional financing will be
required in 1999. There can be no assurance that such financing will be achieved
or that financings will be on terms favorable to the Company. The Company's
significant operating losses and significant capital requirements raise
substantial doubt about the Company's ability to continue as a going concern.
On August 3, 1998, the Company effected a one-for-ten reverse split of shares of
its outstanding Common Stock. As a result, all share amounts and values
described below reflect the reverse stock split.
RESULTS OF OPERATIONS
THIRD QUARTER AND FIRST NINE MONTHS OF 1998 COMPARED TO THIRD QUARTER AND FIRST
NINE MONTHS OF 1997
REVENUES. The Company's revenues consist of product sales. Revenues decreased 2%
to $290,726 in the third quarter of 1998 from $296,302 in the third quarter of
1997, and decreased 27% to $739,835 in the first nine months of 1998 from
$1,008,205 in the first nine months of 1997. The decreases in revenues were
primarily attributable to costs associated with establishing a manufacturing
base in Vancouver and delays in commissioning equipment earlier in 1998. Sales
to three customers represented approximately 52% of total revenues in the first
nine months of 1998, and sales to two customers represented approximately 36% of
total revenues in the nine months ended September 30, 1997.
COST OF PRODUCTS SOLD. Costs of products sold decreased to $271,305 (93% of
product sales) in the third quarter of 1998 from $414,136 (140% of product
sales) in the third quarter of 1997, and decreased to $839,082 (113% of product
sales) in the first nine months of 1998 from $1,060,484 (105% of product sales)
in the first nine months of 1997. This decrease is attributable to revised
production processes and a reduction in personnel.
8
<PAGE> 10
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
75% to $42,890 in the third quarter of 1998 from $170,921 in the third quarter
of 1997, and decreased 31% to $357,928 in the first nine months of 1998 from
$521,757 in the first six months of 1997, primarily as a result of reduced
payroll and related expenses. Additionally, the amount of clinical trial
activity and expense can vary from quarter to quarter. The Company has
maintained its focus on controlling costs in all departments, including research
and development, and thus intentionally reduced these costs. This has been
achieved without compromising standards in research and development.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 15% to $696,953 in the third quarter of 1998
from $818,878 in the third quarter of 1997, and decreased 36% to $1,967,122 in
the first nine months of 1998 from $3,074,769 in the first nine months of 1997,
primarily as a result of the closure of facilities in Singapore, a reduction in
the number of administrative personnel and an ongoing focus on controlling
costs.
INTEREST EXPENSE. Interest expense increased to $5,735 in the third quarter of
1998 from $2,441 in the third quarter of 1997. Interest expense decreased to
$8,440 in the first nine months of 1998 from $411,725 in the first nine months
of 1997 due to a non-recurring interest charge on the Convertible Debentures,
due February 28, 1999, then outstanding.
INCOME TAXES. The Company is in a net deferred tax asset position and has
generated net operating losses to date. Accordingly, no provision for or benefit
from income taxes has been recorded in the accompanying statements of
operations. The Company will continue to provide a valuation allowance for its
deferred tax assets until it becomes more likely than not, in management's
assessment, that the Company's deferred tax assets will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its capital requirements through
proceeds from its public offering of Common Stock in March 1993 and the exercise
of Common Stock purchase warrants pursuant to such offering, proceeds from sales
of convertible debentures, proceeds from private placements of Common Stock and
preferred stock, and the exercise of Common Stock purchase warrants and stock
options. In March 1997, the Company raised net proceeds of approximately
$1,380,000 (net of issuance costs of $120,000) from the private sale of $1.5
million Convertible Debentures, due February 28, 1999. In June 1997 and August
1997, the Company entered into three separate Common Stock subscription
agreements for the issuance and sale of a total of 408,290 shares of Common
Stock for an aggregate purchase price of $2,063,000 (net of issuance costs). In
January 1998, the Company entered into a securities purchase agreement with an
investor for the issuance and sale of 1,500 shares of the Company's newly
designated Series 1998-A Convertible Preferred Stock (the "1998-A Preferred
Stock") for an aggregate purchase price of $1,380,000 (net of issuance costs of
$120,000). In May 1998, the Company entered into a securities purchase agreement
with an investor for the issuance and sale of 156,250 shares of its Common Stock
for an aggregate purchase price of $250,000. In August 1998, the Company entered
into a securities purchase agreement with an investor for the issuance and sale
of 500 shares of the Company's Series 1998-B Convertible Preferred Stock for an
aggregate purchase price of $470,000 (net of issuance costs of $30,000).
Pursuant to such securities purchase agreement, the investor is obligated to
purchase an additional 500 shares of Series 1998-B Convertible Preferred Stock
for an aggregate purchase price of $470,000 (net of issuance costs of $30,000)
on or before December 3, 1998, and an additional 500 shares of Series 1998-B
Convertible Preferred Stock for an aggregate purchase price of $470,000 (net of
issuance costs of $30,000) on or before April 3, 1999.
Cash used in operating activities in the first nine months of 1998 was
$2,264,256. This was primarily a result of a net loss of $2,391,059, adjustments
for depreciation and amortization, a decrease inventories and an increase in
accounts receivable. Accounts receivable increased due to timing of sales in the
third quarter of 1998, and inventories decreased due to improved control of raw
materials purchasing.
9
<PAGE> 11
Accrued expenses totaled $1,290,456 at September 30, 1998 compared to $1,473,944
at December 31, 1997. Accrued wages and salaries decreased to $453,958 at
September 30, 1998 from $493,352 at December 31, 1997. Accrued restructuring
costs decreased to $13,040 at September 30, 1998 from $135,522 at December 31,
1997 due to the completion of the closure of the Singapore operation. The
residual amount will be paid during the statutory liquidation of the Singapore
subsidiary. Litigation contingencies were unchanged in the period.
Cash used in investing activities in the first nine months of 1998 was $15,822,
which represented acquisition costs of property and equipment related to the
construction of drying facilities and re-engineering of molds, offset by
proceeds from the sale of property and equipment, primarily in Singapore.
Cash provided by financing activities in the first nine months of 1998 was
$2,082,611. This was primarily a result of net proceeds of $1,850,000 from the
sale of 1998-A and 1998-B Preferred Stock and $250,000 from the sale of Common
Stock.
On January 26, 1998, the Company entered into a securities purchase agreement
with an investor for the issuance and sale of shares of its 1998-A Preferred
Stock. Pursuant to the securities purchase agreement, the Company sold a total
of 1,500 shares of the 1998-A Preferred Stock to the investor for an aggregate
purchase price of $1,380,000 (net of issuance costs of $120,000). The investor
is entitled to receive a number of shares of the Company's Common Stock upon
conversion of the 1998-A Preferred Stock as determined by dividing the purchase
price of the 1998-A Preferred Stock by the lesser of (i) $3.375, and (ii) 80% of
the average closing bid price of the Company's Common Stock for the five trading
days prior to conversion. On July 30, 1998, the Company amended the Securities
Purchase Agreement to eliminate the redemption rights pursuant to the Securities
Purchase Agreement for the Series 1998-A Convertible Preferred Stock. As of
September 30, 1998 all outstanding shares of the 1998-A Preferred Stock has been
converted into 1,804,251 shares of Common Stock.
In connection with the issuance and sale of the 1998-A Preferred Stock, the
Company entered into a separate registration rights agreement with the investor
under which the Company is required to file a registration statement covering
resales of shares of the Common Stock issuable upon conversion of the 1998-A
Preferred Stock. The Agreement provides that the Company will pay certain
amounts to the investor if the registration statement is not filed on or before
February 26, 1998 or is not declared effective by the Securities and Exchange
Commission by April 26, 1998. A registration statement on Form S-3 was filed on
February 26, 1998. Because the Company is no longer eligible to file on Form S-3
due to the delisting of the Company's securities from Nasdaq, the Company has
filed pre-effective amendments to the registration statement on Form SB-2. The
terms of the 1998-A Preferred Stock provide that, if the registration statement
is not declared effective by April 26, 1998, the Company shall pay, upon demand
of the investor, an amount equal to two percent (2%) of the purchase price of
the 1998-A Preferred Stock for the period from April 26, 1998 until the date the
registration statement is declared effective. The investor has indicated that he
will make no demand for payment.
In connection with the issuance of the 1998-A Preferred Stock, the Company paid
a cash fee to the investor of 7.5% of the gross proceeds ($112,500) and
attorney's fees equal to 0.5% of the gross proceeds ($7,500). The Company also
issued warrants to the investor to purchase up to 75,000 shares of Common Stock
at an exercise price of $3.375 per share, which expire on January 26, 2003. The
fair value of these warrants of $248,250 has been reflected as a discount to the
1998-A Preferred Stock and was accreted as deemed preferred dividends over the
conversion period, which ended July 25, 1998. The investor was entitled to
receive a number of shares of the Company's common stock upon conversion of the
1998-A Preferred Stock as determined by dividing the purchase price of the
1998-A Preferred Stock by the lessor of (i) $3.375 or (ii) 80% of the average
closing bid price of the Company's common stock for the five trading days prior
to conversion. The fair value of this beneficial conversion feature, $300,000,
was recorded as a discount to the 1998-A Preferred Stock and was accreted to
deemed preferred dividends over the conversion period which ended July 25, 1998.
The following summarizes deemed dividends and earned dividends on the Series A
Preferred Stock and related accretion as of September 30, 1998.
10
<PAGE> 12
<TABLE>
<CAPTION>
Accreted or Earned
Total as of
Value September 30, 1998
-------------------- -------------------------------
<S> <C> <C>
Beneficial conversion feature $ 300,000 $ 300,000
Issuance costs 120,000 120,000
Warrants 248,250 248,250
Earned dividends (6% of preferred
principal value) 36,193 36,193
==================== ==================
Total $ 704,443 $ 704,443
==================== ==================
</TABLE>
On April 28, 1998, the Company issued to the Tail Wind Fund Ltd. ("Tail Wind")
149,663 shares of its Common Stock, which Tail Wind was entitled to receive
pursuant to the terms of a common stock purchase agreement dated as of June 30,
1997 between Tail Wind and the Company. The agreement provided for the issuance
of such additional reset shares upon the occurrence of certain conditions
related to the market price of the Company's Common Stock during a specified
period. Also, on April 28, 1998, the Company issued to Biscount Overseas Limited
153,756 shares of its Common Stock upon the conversion of 140 shares of the
1998-A Preferred Stock.
On May 26, 1998, the Company entered into a Common Stock subscription agreement
with Paul Bernstein for the issuance and sale of 156,250 shares of its Common
Stock for an aggregate purchase price of $250,000.
On July 22, 1998, the Company issued to Biscount Overseas Limited 68,291 shares
of its Common Stock upon the conversion of 60 shares of the 1998-A Preferred
Stock.
On July 28, 1998, the Company issued to Tail Wind 51,376 shares of its Common
Stock, which Tail Wind was entitled to receive pursuant to the terms of the
common stock purchase agreement dated as of June 30, 1997 between Tail Wind and
the Company, which provided for the issuance of such additional reset shares
upon the occurrence of certain conditions related to the market price of the
Company's Common Stock during a specified period. Under the terms of such common
stock purchase agreement, Tail Wind remains entitled to receive an additional
17,410 shares of Common Stock.
On August 3, 1998, the Company appointed Paul Bernstein as a member of the Board
of Directors. Also, on August 3, 1998, the Company entered into a securities
purchase agreement with an investor for the issuance and sale of shares of its
newly designated Series 1998-B Convertible Preferred Stock (the "1998-B
Preferred Stock"). Pursuant to the securities purchase agreement, the Company
sold a total of 500 shares of the 1998-B Preferred Stock to the investor for an
aggregate purchase price of $470,000 (net of issuance costs of $30,000). The
investor is entitled to receive a number of shares of the Company's common stock
upon conversion of the 1998-B Preferred Stock as determined by dividing the
purchase price of the 1998-B Preferred Stock by the lesser of (i) $1.69, and
(ii) 80% of the average closing bid price of the Company's common stock for the
five trading days prior to conversion. In addition, the investor is committed to
purchase an additional 1,000 shares of 1998-B Preferred Stock prior to April 3,
1999 for an aggregate purchase price of $940,000 (net of issuance costs of
$60,000).
The 1998-B Preferred Stock is convertible into Common Stock of the Company at a
beneficial conversion ratio and, as a result, a discount of $125,000 was
recorded at the date of issuance of the 1998-B Preferred Stock. The discount
will be accreted to deemed preferred dividends over the conversion period, which
ends November 1, 1998. At September 30, 1998, $84,722 had been recorded as
deemed dividends.
In connection with the issuance of the 1998-B Preferred Stock, the Company
issued warrants to purchase up to 25,000 shares of Common stock at an exercise
price of $3.375 per share, which expire on January 26, 2003. The fair value of
these warrants of $253,750 will be accreted to deemed preferred dividends over
the conversion period which ends November 1, 1998. Deemed dividends of $171,986
have been recorded as of September 30, 1998 related to the fair value of the
warrants. The following summarizes deemed dividends on the Series B Preferred
Stock and related accretion as of September 30, 1998.
<TABLE>
<CAPTION>
Total Accreted as of
Value September 30, 1998
------------- --------------------
<S> <C> <C>
Beneficial conversion feature $ 125,000 $ 84,722
Warrants 253,750 171,986
============= =============
Total $ 378,750 $ 256,708
============= =============
</TABLE>
On July 31, 1998, the US Food and Drug Administration notified the Company that
it has granted Certificates of Exportability covering all required countries for
all of the Company's HIV diagnostic devices,
11
<PAGE> 13
after determining that the Company's Vancouver facility was compliant with FDA
Good Manufacturing Practices (GMP) regulations.
On August 7, 1998, the US Food and Drug Administration advised the Company that
it has cleared the Company's Stat-Simple(TM) pylori test for diagnostic use in
humans. Stat-Simple(TM) pylori is a finger-prick test for the bacterial
infection responsible for the majority of stomach ulcers and certain other
gastrointestinal diseases in humans, and may allow physicians to diagnose the
infection at the time of patient visit, thereby avoiding the expense and time
consumed in traditional laboratory-based testing.
The Company's capital requirements have been and will continue to be
significant. The Company currently has an accumulated deficit due to its history
of losses. The Company is dependent upon its effort to raise capital to finance
its future operations, including the cost of manufacturing and marketing of its
products, to conduct clinical trials and submissions for FDA approval of its
products and to continue the design and development of its new products.
Marketing, manufacturing and clinical testing may require capital resources
substantially greater than the resources available to the Company.
The Company believes that its current cash position, cash received from the sale
of its preferred stock in August 1998 and the cash expected to be received from
the sale of 500 additional shares of Series 1998-B Preferred Stock on or before
December 3, 1998, combined with revenues and other cash receipts, will be
sufficient to fund the Company's operations through 1998. However, substantial
additional financing will be required in 1999. There can be no assurance that
such financing will be achieved or that financings will be on terms favorable to
the Company. The Company will continue to seek public or private placement of
its equity securities and corporate partners to develop products. The Company's
future capital needs will depend upon numerous factors, including the progress
of the approval for sale of the Company's products in various countries,
including the United States, the extent and timing of the acceptance of the
Company's products, the cost of marketing and manufacturing activities and the
amount of revenues generated from operations, none of which can be predicted
with certainty. The Company's significant operating losses and capital
requirements raise substantial doubt about the Company's ability to continue as
a going concern.
REVERSE STOCK SPLIT
On August 3, 1998, the Company effected a one-for-ten reverse split of shares of
its outstanding common stock, which was previously approved by the Company's
shareholders at a special meeting held on February 28, 1998. Warrants to
purchase the Company's common stock, including the Company's publicly-held
warrants, and options, preferred stock, and other securities convertible into
shares of the Company's common stock, will be adjusted in accordance with their
terms to reflect the reverse stock split. Upon exercise or conversion, holders
of such securities will be entitled to receive one-tenth of the number of shares
of post-split common stock as they were entitled to receive of pre-split common
stock.
YEAR 2000 ISSUE
The Company is assessing its computer systems and software to determine
readiness for the Year 2000. For this purpose, the term "computer systems and
software" includes systems that are commonly thought of as information
technology ("IT") systems, including enterprise software, operating systems,
networking components, application and data servers, PC hardware, accounting,
data processing and other information systems, as well as systems that are not
commonly thought of as IT systems, such as telephone systems, fax machines,
manufacturing equipment and other miscellaneous systems and equipment. Both IT
and non-IT systems may contain imbedded technology, which complicates the
Company's Year 2000 assessment, remediation and testing efforts. The inability
of computer software programs and operating systems accurately to recognize,
interpret and process date codes designating the year 2000 and beyond could
cause systems to yield inaccurate results or encounter operating problems,
including disruption of the business operations these systems control. The
Company believes it is approximately 80% complete with its internal assessment
and expects to complete the internal assessment by the end of December 1998.
12
<PAGE> 14
The Company also may be exposed to risks from computer systems of parties with
which the Company transacts business. The Company has contacted most of its
critical suppliers to determine the extent to which the Company may be
vulnerable to those parties' failures to remedy their own Year 2000 issues and
to ascertain what actions, if needed, may be taken by the Company in response to
such risks. To date, the Company has received responses from approximately 10%
of the suppliers contacted to date, most of which have indicated they are, or
expect to be, Year 2000 compliant. It is expected that the Company's assessment
of critical suppliers' Year 2000 compliance will be completed by the end of
January 1999.
The Company currently estimates that it will spend between $15,000 and $20,000
in addressing the Year 2000 issue, of which approximately $1,000 has been
incurred as of September 30, 1998. The estimates are subject to change as
additional information is obtained in connection with the Company's assessment
of the Year 2000 issue.
The Company believes that Year 2000 issues will not pose significant problems
for the Company. However, if all Year 2000 issues are not properly identified,
or assessment, remediation and testing are not effected timely with respect to
Year 2000 problems that are identified, there can be no assurance that the Year
2000 issue will not have a material adverse impact on the Company's business,
financial condition or results of operations, or adversely affect the Company's
relationships with customers, vendors or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities, such as one or more of
the Company's critical customers or suppliers, will not have a material adverse
impact on the Company's systems or its business, financial condition or results
of operations.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by the end of March 1999.
The costs of the Company's Year 2000 assessment, remediation and testing efforts
and the dates on which the Company believes it will complete such efforts are
based upon management's best estimates. There can be no assurance that these
estimates will prove to be accurate, and actual results could differ materially
from those currently anticipated.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 1998, Hardy v. Saliva Diagnostic Systems, Inc., Ronald L.
Lealos, Eugene Seymour and Richard S. Kalin, was filed in United States District
Court, District of Connecticut in August 1994 by Luc Hardy, a former director
and officer of the Company. The complaint alleges several causes of action
against the Company and individual defendants, including former directors and
officers of the Company, including breach of Mr. Hardy's employment agreement
with the Company, intentional interference with contract by the individual
defendants, slander and deceptive trade practices, all arising from his
employment termination by the Company. The complaint seeks damages and punitive
damages in an unspecified amount. A jury verdict for the plaintiff, which is not
a final judgment, was rendered on July 25, 1997 in the approximate amount of
$740,000. In October 1997, a hearing was held on the Company's motions to set
aside the jury verdict and for a new trial. The Company is currently awaiting a
decision on these motions. There can be no assurance such motions will be
granted. A final judgment in this case consistent with the jury verdict will
have a material adverse effect on the Company.
13
<PAGE> 15
As discussed in the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 1998, Lealos v. Saliva Diagnostic Systems, Inc. was filed
in Superior Court in Clark County in the State of Washington by Ronald Lealos,
the former President of the Company, in February 1998. The complaint alleges
that Mr. Lealos was entitled to certain cash payments and benefits under an
employment agreement whereby he would serve as the Company's president, and that
the Company's failure to make such payments and grant such benefits constituted
anticipatory breach and breach of that contract. In addition, the complaint
alleges that the Company wrongfully rescinded options to purchase 385,000 shares
of Common stock in breach of a stock option agreement with Mr. Lealos. In March
1998, the Company filed an answer to the complaint in which it stated that the
alleged employment agreement was not intended to be effective and was rescinded
by the parties, and that the stock option agreement was not breached by the
Company. The Company's answer also asserted numerous counterclaims against Mr.
Lealos, including breach of fiduciary duty and conversion, for which the Company
is seeking damages in excess of $1,500,000. Although management of the Company
intends to vigorously defend against the suit, there can be no assurance that
the litigation will not be decided adverse to the Company and that such an
adverse decision would not have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES
On August 3, 1998, the Company amended its Certificate of Incorporation to
effect a one-for-ten reverse split of its common stock. As of that date, each
ten outstanding shares of the Company's common stock were converted and
reconstituted into one share of common stock, par value $0.01 per share. The
number of authorized shares of common stock of the Company was not affected by
the reverse stock split and remains at 50,000,000. Warrants to purchase the
Company's common stock, including the Company's publicly-held warrants, and
options, preferred stock and other securities convertible into shares of the
Company's common stock will be adjusted in accordance with their terms to
reflect the reverse stock split. Upon exercise or conversion, holders of such
securities will be entitled to receive one-tenth of the number of shares of
post-split common stock as they were entitled to receive of pre-split common
stock.
On August 3, 1998, the Company entered into a securities purchase agreement with
an investor for the issuance and sale of shares of its newly designated Series
1998-B Convertible Preferred Stock (the "1998-B Preferred Stock"). Pursuant to
the securities purchase agreement, the Company sold a total of 500 shares of the
1998-B Preferred Stock, and the investor committed to purchase an additional
1,000 shares of 1998-B Preferred Stock prior to April 3, 1999 for an aggregate
purchase price of $1,500,000. Net proceeds to the Company at the end of that
period will total $1,410,000. See Management's Discussion and Analysis -
Liquidity and Capital Resources for additional information regarding the 1998-B
Preferred Stock. In the event of liquidation, dissolution or winding up of the
Company prior to conversion of the 1998-B Preferred Stock, holders of 1998-B
Preferred Stock will be entitled to share ratably in all assets available for
distribution prior to distributions to holders of Common Stock. In addition, no
distributions may be made to holders of Common Stock until holders of 1998-B
Preferred Stock shall have received the stated value of the 1998-B Preferred
Stock ($1,000 per share) plus an amount equal to six percent per annum of such
stated value for the period from the date of issuance until the date of final
distribution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<C> <S>
3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibits 2.1 through 2.6 of the Company's
Registration Statement No. 33-46648 filed on Form S-1 (the "Form S-1"); and to Exhibit 2.7 of the Company's Annual
Report on Form 10-KSB for its fiscal year ended December 31, 1995
3.2 Certificate of Amendment, dated February 25, 1997, incorporated by reference to Exhibit 2.2 of the Company's Annual
Report on Form 10-KSB for its fiscal year ended December 31, 1996
3.3 Certificate of Amendment, dated November 21, 1997, incorporated by reference to Exhibit 3.3 of the
</TABLE>
14
<PAGE> 16
<TABLE>
<C> <S>
Company's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1997
3.4 Certificate of Amendment, dated July 31, 1998, incorporated by reference to Exhibit 3.4 of the Company's Report on
Form 10-QSB for its fiscal quarter ended September 30, 1998.
3.5 Company's By-laws, as amended, incorporated by reference to Exhibit 3.4 of the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1997
4.1 Specimen of Certificate Representing Common stock, incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-46648)
4.2 Form of Underwriter's Warrant, incorporated by reference to Exhibit 4.2 of the Form S-1.
4.3 7.5% Convertible Debenture due February 28, 1999, issued by the Company to The Tail Wind Fund, Ltd. on March 11, 1997,
incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-QSB for its fiscal quarter ended
March 31, 1997.
4.4 Common Stock Purchase Warrant for 89,552 shares, issued by the Company to Grayson & Associates on March 14, 1997,
incorporated by 4.4 reference to Exhibit 4.3 of the Company's Registration Statement on Form SB-2 (Registration No.
333-26795).
4.5 Letter Agreement dated May 28, 1997 among the Company and The Tail Wind Fund Ltd. and Joseph Kaufman, incorporated by
reference to Exhibit 4.9 to the Company's Current Report on Form 8-K dated June 5, 1997 (File No. 000-21284) (the
"June 1997 8-K").
4.6 Letter Agreement dated June 27, 1997 among the Company and The Tail Wind Fund Ltd. and Joseph Kaufman, incorporated by
reference to Exhibit 4.10 to the June 1997 8-K.
4.7 Common Stock Subscription Agreement dated as of June 30, 1997 by and between the Company and The Tail Wind Fund Ltd.,
incorporated by reference to Exhibit 4.2 of the June 1997 8-K.
4.8 Common Stock Subscription Agreement dated as of June 30, 1997 by and between the Company and the investors set forth on
Schedule A thereto, incorporated by reference to Exhibit 4.3 of the June 1997 8-K.
4.9 Registration Rights Agreement dated as of June 30, 1997 between the Company and The Tail Wind Fund Ltd., incorporated by
reference to Exhibit 4.4 of the June 1997 8-K.
4.10 Form of Registration Rights Agreement dated as of June 30, 1997 between the Company and the investors set forth on
Schedule A to the Common Stock Subscription Agreement dated as of June 30, 1997 by and between the Company and the
investors set forth on Schedule A thereto, incorporated by reference to Exhibit 4.5 of the June 1997 8-K.
4.11 Form of Warrant issued to each of Grayson & Associates, Inc. and The Tail Wind Fund Ltd., incorporated by reference to
Exhibit 4.1 of the June 1997 8-K.
4.12 Common Stock Subscription Agreement dated as of August 22, 1997 by and between the Company and David Freund, incorporated
by reference to Exhibit 10.5 of Amendment No. 1 to the Company's Registration Statement on Form S-3 dated September 26,
1997 (Registration No. 333-33429) (the "S-3/A").
4.13 Registration Rights Agreement dated as of August 22, 1997 between the Company and David Freund, incorporated by reference
to Exhibit 10.6 of the S-3/A.
4.14 Certificate of Designations, Rights and Preferences of the Series 1998-A Convertible Preferred Stock, incorporated by
reference to Exhibit 4.14 4.1 of the Company's Current Report on Form 8-K, dated January 26, 1998.
4.15 Amended Certificate of Designations, Rights and Preferences of the Series 1998-A Convertible Preferred Stock,
incorporated by reference to 4.15 Exhibit 4.14 of the Company's Report on Form 10-QSB for its fiscal quarter ended
June 30, 1998.
4.16 Warrant dated as of January 26, 1998 issued to Biscount Overseas Limited, incorporated by reference to Exhibit 4.3 of
the Company's Registration Statement on Form S-3 dated February 26, 1998 (Registration No. 333-46961).
4.17 Certificate of Designations, Rights and Preferences of the Series 1998-B Convertible Preferred Stock, incorporated by
reference to Exhibit 4.17 4.16 of the Company's Report on Form 10-QSB for its fiscal quarter ended June 30, 1998.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended September
30, 1998.
15
<PAGE> 17
SIGNATURES
In accordance with 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.
Dated: November 16, 1998
SALIVA DIAGNOSTIC SYSTEMS, INC.
By: /s/ KENNETH J. McLACHLAN
--------------------
Kenneth J. McLachlan
President, Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements found in the Company's Report on Form 10-QSB
for the nine months ended September 30, 1998, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 73,845
<SECURITIES> 0
<RECEIVABLES> 309,950
<ALLOWANCES> 42,000
<INVENTORY> 336,701
<CURRENT-ASSETS> 704,352
<PP&E> 1,329,189
<DEPRECIATION> 1,066,731
<TOTAL-ASSETS> 1,263,236
<CURRENT-LIABILITIES> 2,158,804
<BONDS> 0
0
5
<COMMON> 52,319
<OTHER-SE> (990,536)
<TOTAL-LIABILITY-AND-EQUITY> 1,263,236
<SALES> 739,835
<TOTAL-REVENUES> 739,835
<CGS> 839,082
<TOTAL-COSTS> 839,082
<OTHER-EXPENSES> 2,350,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,440
<INCOME-PRETAX> (2,391,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,391,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,352,210)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
