<PAGE> 1
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 000-22755
---------
COMPUTER MOTION, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified on in its charter)
DELAWARE 77-0458805
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
130-B CREMONA DRIVE
GOLETA, CA 93117
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(805) 968-9600
(Registrant's telephone number, including area code)
Indicate by check [X] whether the registrant (1) has filed all reports required
to be filed by Sections 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
--- ---
As of October 30, 1998 there were 8,034,000 shares of the Registrant's common
stock outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER MOTION, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997(1)
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,534,000 $ 22,555,000
Marketable securitiees 8,803,000 10,179,000
Accounts Receivable 2,009,000 1,804,000
Inventories 2,697,000 992,000
Prepaid expenses 419,000 283,000
----------- -----------
Total current assets 28,462,000 35,813,000
Plant and equipment, net 2,284,000 1,108,000
Other assets 275,000 392,000
------------ ------------
Total assets $ 31,021,000 $ 37,313,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabiliites:
Accounts payable $ 1,362,000 $ 1,218,000
Acrued expenses 1,648,000 1,180,000
------------ ------------
Total current liabilities 3,010,000 2,398,000
Shareholders' equity
Preferred stock, $.001 par value;
authorized 5,000,000 shares --
Common stock, $.001 par value;
authorized 25,000,000 shares
outstanding - 8,031,939 and 7,670,589 shares 8,000 8,000
Additional paid-in capital 59,680,000 58,341,000
Deferred compensation expense (1,296,000) (1,781,000)
Accumulated deficit (30,381,000) (21,653,000)
Total shareholders' equity 28,011,000 34,915,000
------------ ------------
Total liabilities and shareholder's equity $ 31,021,000 $ 37,313,000
============ ============
</TABLE>
- -----------
(1) Derived from audited financial statements for the year ended December 31,
1997. See notes to condensed financial statements.
2
<PAGE> 3
COMPUTER MOTION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30 September 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 2,807,000 $ 1,685,000 $ 7,157,000 $ 4,541,000
Cost of revenue 1,218,000 678,000 3,062,000 2,053,000
----------- ----------- ----------- -----------
Gross profit 1,589,000 1,007,000 4,095,000 2,488,000
Selling, general and administrative
expense 2,775,000 1,938,000 8,216,000 5,615,000
Research and development expense 2,129,000 1,126,000 5,713,000 2,472,000
----------- ----------- ----------- -----------
Loss from operations (3,315,000) (2,057,000) (9,834,000) (5,599,000)
Other expense (income) (327,000) 128,000 (1,125,000) 1,495,000
----------- ----------- ----------- -----------
Loss before income taxes (2,988,000) (2,185,000) (8,709,000) (7,094,000)
Provision for taxes 6,000 -- 19,000 1,000
----------- ----------- ----------- -----------
Net loss $(2,994,000) $(2,185,000) $(8,728,000) $(7,095,000)
=========== =========== =========== ===========
Weighted average shares outstanding used
to compute net loss per share 8,011,000 6,045,000 7,916,000 3,277,000
=========== =========== =========== ===========
Net loss per share- basic and diluted $(0.37) $(0.36) $(1.10) $(2.16)
=========== =========== =========== ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
COMPUTER MOTION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows form operating activiites:
Net loss $(8,728,000) $(7,095,000)
Adjustements to reconcile net loss to cash used
by operating activities:
Depreciation and amoritzation 336,000 289,000
Provision for doubtful accounts 178,000 25,000
Common Stock issued for services 46,000 44,000
Financing costs attributable to fixed conversion feature
of a convertible debenture and warrants issued with certain debt -- 1,442,000
Compensation expense for stock options, warrants and common stock
issued below fair market value 485,000 938,000
Increase (decrease) in working capital (1,535,000) (144,000)
----------- -----------
Net cash used by operating activities (9,218,000) (4,501,000)
Cash flows from investing activities
Purchase of plant and equipment (1,508,000) (434,000)
Net proceeds from short-term investments 1,376,000 --
----------- -----------
Net cash used by investing activites (132,000) (434,000)
Cash flows from financing activities:
Repayment of debt, net of debt issuance (61,000) (4,467,000)
Proceeds from common stock and warrant issuance -- 5,230,000
Proceeds from poreferred stock issuance -- 2,341,000
Proceeds from IPO, net of expense -- 36,808,000
Investment in sales-type lease 112,000 (137,000)
Proceeds from warrant and stock option exercises 1,278,000 307,000
----------- -----------
Net cash provided by financing activities 1,329,000 40,082,000
----------- -----------
Increase (decrease) in cash and cash equyivalents (8,021,000) 35,147,000
Cash and cash equivalents at beginning of period 22,555,000 432,000
----------- -----------
Cash and cash equivalents at end of period $14,534,000 $35,579,000
=========== ===========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
COMPUTER MOTION, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
financial information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.
The operating results of the interim periods presented are not
necessarily indicative of the results expected for the year ending December 31,
1998 or for any other interim period. The accompanying condensed financial
statements should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 1997 included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 as filed with
the Securities and Exchange Commission.
NOTE 2. NET LOSS PER SHARE
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
Per Share," requires presentation of both basic and diluted net loss per share
in the financial statements. The Company's basic net loss per share is the same
as its diluted net loss per share because inclusion of outstanding stock options
and warrants in the calculation is antidilutive. Net loss per share is based on
the weighted average number of common shares outstanding. Under SFAS No. 128,
outstanding shares no longer include the dilutive effect of common shares
issued, or issuable pursuant to the exercise of warrants issued or options
granted, during the 12 months immediately preceding the Company's initial public
offering.
NOTE 3. INITIAL PUBLIC OFFERING
The Company closed its initial public offering ("IPO") of 2,500,000
shares of common stock at a price of $14.00 per share in August 1997. In
September 1997, the underwriters exercised an option to purchase an additional
375,000 shares of common stock at $14.00 per share. Net proceeds of
approximately $37,000,000 were received by the Company. All shares of
convertible preferred stock were converted to common stock upon the IPO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ materially due to factors
that include, but are not limited to, the risks discussed herein under "Risk
Factors That May Affect Future Results" as well as those discussed in the "Risk
Factors That May Affect Future Results" section of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
5
<PAGE> 6
OVERVIEW
Computer Motion, Inc. (the "Company") develops and markets proprietary
robotic and computerized surgical systems that are intended to enhance a
surgeon's performance and centralize and simplify a surgeon's control of the
operating room ("OR"). The Company believes that its commercialized products and
products under development will provide surgeons with the precision and
dexterity necessary to perform complex, minimally invasive surgical procedures,
as well as enable surgeons to control critical devices in the OR through simple
verbal commands. The Company believes that its commercialized products and
products under development will broaden the scope and increase the effectiveness
of minimally invasive surgery, improve patient outcomes, and create a safer,
more efficient and cost effective OR.
The Company's AESOP(R) line of robotic endoscope positioning systems is
Food and Drug Administration ("FDA") cleared. AESOP allows direct surgeon
control of the endoscope through simple verbal commands, eliminating the need
for a member of a surgical staff to manually control the camera and providing a
more stable and sustainable endoscopic image. The Company believes that AESOP is
the world's first FDA-cleared robot and first voice control interface for a
surgical device. Several hundred AESOP units have been sold worldwide, which the
Company believes have been used to perform tens of thousands of procedures.
The Company's HERMES(TM) Control Center is designed to enable a surgeon
to directly control multiple OR devices, including various laparoscopic,
arthroscopic and video devices, as well as the Company's robotic devices,
through simple verbal commands. HERMES also provides standardized visual and
digitized voice feedback to a surgical team. The Company believes that the
enhanced control and feedback provided by HERMES has the potential to improve
safety, increase efficiency, shorten procedure times and reduce costs. Six 510
(k) submissions relating to HERMES have been cleared by the FDA and Stryker
Corporation has commenced marketing of HERMES under an OEM agreement with the
Company.
The Company's ZEUS(TM) Robotic Surgical System is designed to
fundamentally improve a surgeon's ability to perform complex surgical procedures
and enable new, minimally invasive surgical procedures, including fully
endoscopic multivessel coronary artery bypass grafts ("E-CABG(TM)") which are
currently very difficult or impossible to perform endoscopically. ZEUS is
comprised of three surgeon-controlled robotic arms, one of which positions the
endoscope and two of which manipulate surgical instruments. The Company believes
that ZEUS will improve a surgeon's dexterity and precision and enhance
visualization of, and access to, confined operative sites. The Company also
believes that new minimally invasive surgical procedures performed with ZEUS
will result in reduced patient pain and trauma, fewer complications, lessened
cosmetic concerns and shortened convalescent periods and will increase the
number of patients qualified for certain surgical procedures. In addition, the
Company believes that an increase in minimally invasive procedures will result
in lower overall healthcare costs to providers, payors and patients. The Company
has completed a feasibility clinical trial for ZEUS-based tubal reanastomosis
procedures under an Investigational Device Exemption ("IDE") as well as a
pre-clincial study for ZEUS-based cardiac procedures. The Company is currently
seeking clearance from the FDA to commence ZEUS-based cardiac clinical trials in
the United States and will be seeking clearance from the FDA to commence
ZEUS-based non-cardiac clinical trials within the next several months.
6
<PAGE> 7
The Company has sustained significant losses since inception and expects
to continue to incur significant losses due to research and development efforts,
costs associated with obtaining regulatory approvals and clearances, continued
marketing expenditures to increase sales and other costs associated with the
Company's anticipated growth. Furthermore, the Company anticipates that its
operating results may fluctuate significantly from quarter to quarter in the
future, depending on a number of factors, many of which are outside the
Company's control. These factors include timing and results of pre-clinical and
clinical trials, delays associated with FDA and other clearance processes,
clinician, hospital and payor acceptance of the Company's products, changes in
pricing policy by the Company or its competitors, the number, timing and
significance of product enhancements and new products by the Company and its
competitors, health care reimbursement policies and product quality issues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997.
REVENUE. Revenue increased $1,122,000 (67%) to $2,807,000 for the three
months ended September 30, 1998 from $1,685,000 for the same period in 1997. The
increase resulted mainly from a $1,020,000 (81%) increase in AESOP revenue from
the third quarter 1997 to the third quarter 1998, as AESOP robotic arm unit
sales increased 37% and average selling prices ("ASP's") increased by 42%. Unit
sales were up due to increased domestic demand which resulted from expansion of
the domestic sales force. Higher ASP's reflected the shift to sale of the higher
priced AESOP 3000 and a higher percentage of domestic shipments. The third
quarter 1998 also included $357,000 of revenue related to the Company's HERMES
Control Center, the majority of which was related to the Company's original
equipment manufacturer (OEM) agreement with Stryker Corporation, and $163,000 of
development related revenue for the Company's ZEUS product line.
GROSS PROFIT. Gross profit increased $582,000 (58%) to $1,589,000 for
the three months ended September 30, 1998 from $1,007,000 for the same period in
1997. Gross margin decreased to 56.6% in the third quarter 1998 from 59.8% in
the third quarter 1997. Gross margin was negatively affected by costs associated
with the ZEUS product line as older products in the field are replaced with
upgraded or new products. Pressure on gross margins will continue until the
Company receives FDA clearance for ZEUS and is able to produce and sell at a
greater volume.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense increased $837,000 (43%) to $2,775,000 for the three months ended
September 30, 1998 from $1,938,000 for the same period in 1997. The increase was
due mainly to the addition of sales and marketing personnel as the Company
expanded its domestic sales force and product management capability, related
recruiting and relocation costs, higher commissions on increased AESOP sales,
and higher travel and business related expenses. The Company expects selling,
general and administrative expense to increase in future periods as it continues
to expand its sales, service and training capability.
7
<PAGE> 8
RESEARCH AND DEVELOPMENT. Research and development expense increased
$1,003,000 (89%) to $2,129,000 for the three months ended September 30, 1998
from $1,126,000 for the same period in 1997, primarily as a result of the
addition of personnel, increased development efforts and pre-clinical and
clinical trial activities related principally to the ZEUS product line. The
Company expects research and development expenditures to increase as it
continues to develop its technologies and conduct clinical trials.
OTHER EXPENSE (INCOME). Other income of $327,000 for the three months
ended September 30, 1998 compared to other expense of $128,000 for the three
months ended September 30, 1997. Other income for the three months ended
September 30, 1998, included interest income derived from proceeds of the
Company's IPO which was completed in August 1997. Other expense for the three
months ended September 30, 1997 was net of interest income earned on IPO
proceeds.
NET LOSS. The net loss for the third quarter 1998 was $2,994,000 ($.37
per share) compared to $2,185,000 ($.36 per share) for the third quarter 1997 as
increased operating expenses more than offset increased gross profits derived
from increased revenue. Weighted average shares outstanding increased from
6,045,000 to 8,011,000 mainly as a result of the Company's August 1997 IPO of
2,500,000 shares.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997.
REVENUE. Revenue increased $2,616,000 (58%) to $7,157,000 for the nine
months ended September 30, 1998 from $4,541,000 for the same period in 1997. The
increase resulted principally from an increase in AESOP revenue of $1,587,000,
which reflected a 46% increase in average selling price, as well as $1,055,000
of revenue related to the HERMES product line.
GROSS PROFIT. Gross profit increased $1,607,000 (65%) to $4,095,000 for
the nine months ended September 30, 1998 from $2,488,000 for the same period in
1997. Gross margin improved from 54.8% to 57.2% between the two periods. The
increase in gross margin was primarily due to increased AESOP average selling
prices.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense increased $2,601,000 (46%) to $8,216,000 for the first nine months of
1998 as compared to $5,615,000 for the first nine months of 1997. The increase
was due to the addition of sales and managerial personnel, related recruiting
and relocation costs, greater travel and business expenses and higher
commissions based on increased AESOP sales.
RESEARCH AND DEVELOPMENT. Research and development expense increased
$3,241,000 (131%) to $5,713,000 for the first nine months of 1998 as compared to
$2,472,000 for the first nine months of 1997, primarily as a result of
additional personnel and increased development efforts with respect to HERMES
and ZEUS, as well as for building additional R&D infrastructure.
OTHER EXPENSE (INCOME). Other income of $1,125,000 in the first nine
months 1998 compared to other expense of $1,495,000 for the first nine months of
1997. Other income for the
8
<PAGE> 9
nine months ended September 30, 1998 included interest income derived from
proceeds of the Company's IPO which was completed in August 1997. Other expense
in the first nine months of 1997 included the amortization of $1,442,000 of
interest costs attributable to the fixed conversion feature of a convertible
debenture and warrants issued with certain debt.
INCOME TAXES. Minimal provisions for the state franchise taxes have been
recorded for the Company's pre-tax losses to date. As of December 31, 1997, the
Company had federal and state net operating loss (NOL) carryforwards of
approximately $17,000,000 and $5,000,000, respectively which are available to
offset future federal and state taxable income. Federal carryforwards expire
fifteen years after the year of loss and state carryforwards expire from five to
seven years after the year of loss. The Company has provided a full valuation
allowance on the deferred tax asset because of the uncertainty regarding its
realization.
FINANCIAL CONDITION
Since its inception, the Company's expenses have significantly exceeded
its revenue, resulting in an accumulated deficit of $30,381,000 as of September
30, 1998. Until its initial public offering in August 1997, the Company had
primarily relied on proceeds from issuance of preferred and common stock and
bridge debt financing to fund its operations.
During the third quarter 1997 the Company filed an S-1 registration
statement with the Securities and Exchange Commission (Registration No.
333-29505) for 2,875,000 shares of its common stock and on August 15, 1997 the
Company completed its initial public offering by selling 2,500,000 shares of its
common stock at $14.00 per share, less underwriting discounts and commissions of
$.98 per share, to its underwriters, Montgomery Securities and Piper Jaffray,
Inc. The Company received net proceeds of $32,550,000 from this sale before
deducting offering expenses. Effective upon the closing of the IPO, all of the
outstanding shares of convertible preferred stock of the Company were converted
into 2,344,387 shares of common stock.
In September 1997, the underwriters exercised their option to purchase
an additional 375,000 shares of common stock directly from the Company at a
price of $14.00 per share, less underwriting discounts and commissions of $.98
per share. The Company received net proceeds of $4,883,000 from this sale before
deducting offering expenses.
In conjunction with completing the IPO, the Company incurred total
direct offering expenses of $727,000. Total net proceeds to the Company from the
IPO and the exercise of the over-allotment option, after deducting underwriting
discounts and commissions and total direct offering expenses, was $36,706,000.
In 1997, the Company used $3,250,000 of the net proceeds from the IPO
for repayment of certain outstanding indebtedness and $490,000 to make capital
purchases. In the first nine months of 1998, the Company made capital purchases
totaling $1,508,000. Proceeds from the IPO are also funding the Company's
current operating losses. The remaining net proceeds of the IPO of approximately
$23,000,000 have been invested in short-term investment grade debt securities.
9
<PAGE> 10
At September 30, 1998, the Company's current ratio (current assets
divided by current liabilities) was 9.5 to 1 versus 14.9 to 1 at December 31,
1997, and reflects the use of the initial public offering proceeds to fund
operations.
For the nine months ended September 30, 1998, the Company had net cash
used in operating activities of $9,218,000 primarily attributable to the net
loss and, to a lessor extent, an increase in inventories.
For the nine months ended September 30, 1998, cash outflow from
purchases of plant and equipment was $1,508,000. The Company currently has no
material commitments for capital expenditures, but is planning to procure
additional leased space in anticipation of continued business growth.
For the nine months ended September 30, 1998, net cash provided by
financing activities of $1,329,000 was almost entirely attributable to proceeds
from stock option and warrant exercises of $1,278,000.
The Company's operations to date have consumed substantial amounts of
cash, and the Company expects its capital and operating expenditures to continue
to increase. The Company believes that the net proceeds of its initial public
offering should be adequate to fund its expected operating losses and satisfy
its capital requirements through 1999. The Company's need for additional
financing will depend upon numerous factors, including, but not limited to, the
extent and duration of the Company's future operating losses, the level and
timing of future revenue and expenditures, the progress and scope of clinical
trials, the timing and costs required to receive both United States and
international governmental approvals or clearances, market acceptance of new
products, the results and scope of ongoing research and development projects,
the costs of training physicians to become proficient in the use of the
Company's products and procedures, and the costs of further developing marketing
and distribution capabilities. To the extent that existing resources are
insufficient to fund the Company's activities, the Company may seek to raise
additional funds through public or private financing. There can be no assurance
that additional financing, if required, would be available on acceptable terms,
if at all. If adequate funds are not available, the Company's business,
financial condition and results of operations would be materially adversely
affected.
YEAR 2000 COMPLIANCE
The Company has completed its assessment of the impact of Year 2000. The
Company's products have no Year 2000 issues. The Company will be required to
update or replace its internal business systems software so that its business
systems will continue to function properly. Completion of this activity is
expected by September 1999 at a cost estimated at less than $250,000.
10
<PAGE> 11
The Company is unable to control whether its suppliers and service
providers will be Year 2000 compliant. However, the Company has initiated
communications with its significant vendors to determine the extent to which the
Company's operations may be vulnerable to a failure by those vendors to properly
address Year 2000 issues. While there can be no absolute assurance that there
will not be Year 2000-related problems caused by significant vendors or other
third parties, the Company does not believe that Year 2000 changes will have a
material adverse impact on its business, financial condition or results of
operations.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion summarizes some of these risks which could affect the Company's
actual future results and could cause them to differ materially from any
forward-looking statements made by the Company.
The Company has a limited operating history and has not yet made a
profit. The HERMES and ZEUS product lines are important to the Company's future
success and ZEUS has not achieved regulatory approval or clearance, and neither
product has achieved market acceptance. Government regulation of the medical
device industry is strict and regulatory approvals are generally lengthy,
expensive and uncertain. There are alternative treatments and procedures to
using the Company's products. The Company's products are subject to rapid
technological change and the success of the Company, in part, is based on its
ability to obtain patent protection for its products. The Company is dependent
on sole source suppliers for principal components of its products. The Company's
anticipated growth will place significant demands on the Company's management
and resources, particularly in research and development, sales and marketing and
manufacturing. A more detailed discussion of factors that could affect the
Company's future results can be found in the "Risk Factors That May Affect
Future Results" section of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and you are strongly encouraged to review same.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Reference is made to the discussion of the use of proceeds of the Company's
initial public offering under the caption "Financial Condition" in Management's
Discussion and Analysis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27.1 - Financial data schedule
b) No Reports on Form 8-K were filed during the quarter ended
September 30, 1998.
11
<PAGE> 12
SIGNATURE
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 6, 1998 COMPUTER MOTION, INC.
By: /s/ STEPHEN L. WILSON
-----------------------------------
Stephen L. Wilson
Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
12
<PAGE> 13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF OPERATIONS FOUND ON PAGES
TWO AND THREE OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE 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> 14,534,000
<SECURITIES> 8,803,000
<RECEIVABLES> 2,143,000
<ALLOWANCES> 134,000
<INVENTORY> 2,697,000
<CURRENT-ASSETS> 28,462,000
<PP&E> 3,788,000
<DEPRECIATION> 1,504,000
<TOTAL-ASSETS> 31,021,000
<CURRENT-LIABILITIES> 3,010,000
<BONDS> 0
0
0
<COMMON> 8,000
<OTHER-SE> 28,003,000
<TOTAL-LIABILITY-AND-EQUITY> 31,021,000
<SALES> 7,157,000
<TOTAL-REVENUES> 7,157,000
<CGS> 3,062,000
<TOTAL-COSTS> 3,062,000
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 178,334
<INTEREST-EXPENSE> 33,000
<INCOME-PRETAX> (8,709,000)
<INCOME-TAX> 19,000
<INCOME-CONTINUING> (8,728,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,728,000)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
