UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1998
OR
[ ] 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: 1-14190
INTELLIGENT MEDICAL IMAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0136178
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
4360 NORTHLAKE BOULEVARD, SUITE 214, PALM BEACH GARDENS, FLORIDA 33410
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 627-0344
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 __
AS OF MAY 11, 1998, THERE WERE OUTSTANDING 11,384,019 SHARES OF COMMON STOCK,
PAR VALUE $.01, OF THE REGISTRANT.
<PAGE>
INTELLIGENT MEDICAL IMAGING, INC.
QUARTER ENDED MARCH 31, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
CONDENSED BALANCE SHEETS AS OF
MARCH 31, 1998 AND DECEMBER 31, 1997 3
CONDENSED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 4
CONDENSED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 5
NOTES TO CONDENSED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
INTELLIGENT MEDICAL IMAGING, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- --------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $482,604 $853,164
Investments available for sale 2,549,413 6,230,009
Accounts receivable, net 776,431 671,905
Notes receivable related parties 622,267 --
Inventory 5,295,831 5,933,815
Prepaid expenses and other current assets 37,126 74,950
Current portion of investment in sales-type leases 63,027 222,213
-------------- --------------
Total current assets 9,826,699 13,986,056
Revenue equipment, net 375,551 263,632
Property and equipment, net 3,099,156 2,789,693
Investment in sales-type leases, net 310,537 240,145
Other assets 186,413 126,884
-------------- --------------
============== ==============
$13,798,356 $17,406,410
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $994,474 $1,298,811
Accrued salaries and benefits 443,575 394,190
Other accrued liabilities 78,317 101,816
Current portion of deferred revenue 106,543 74,673
-------------- --------------
Total current liabilities 1,622,909 1,869,491
Deferred revenue 257,047 219,574
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value-authorized 2,000,000 shares;
no shares issued or outstanding -- --
Common stock, $.01 par value-authorized 30,000,000 shares;
issued and outstanding, shares at 11,031,562 March 31, 1998
and 11,023,938 at December 31, 1997 110,316 110,239
Additional paid-in capital 42,553,647 42,537,633
Deferred compensation (204,939) (228,252)
Accumulated deficit (30,540,624) (27,102,275)
-------------- --------------
Total stockholders' equity 11,918,400 15,317,345
============== ==============
$13,798,356 $17,406,410
============== ==============
See accompanying notes
</TABLE>
<PAGE>
INTELLIGENT MEDICAL IMAGING, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
------------- -------------
<S> <C> <C>
Sales $1,042,298 $841,705
Cost of sales 761,292 406,243
------------- -------------
281,006 435,462
Operating expenses:
Selling, general and administrative 2,349,725 1,494,638
Research and development 1,417,025 716,184
------------- -------------
Total operating expenses 3,766,750 2,210,822
------------- -------------
Loss from operations (3,485,744) (1,775,360)
Other income:
Investment and interest income 68,158 306,857
------------ -------------
Net loss ($3,417,586) ($1,468,503)
============= =============
Loss per common share-basic and diluted ($0.31) ($0.13)
============= =============
Weighted average common
shares outstanding 11,025,640 10,902,766
============= =============
See accompanying notes
</TABLE>
<PAGE>
INTELLIGENT MEDICAL IMAGING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($3,417,586) ($1,468,503)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 292,702 124,266
Amortization of deferred revenue (22,486) --
Services exchanged for common stock 23,313 23,313
Changes in operating assets and liabilities
Accounts receivable (104,526) (835,790)
Inventory 223,507 (377,204)
Prepaid expenses and other current assets 37,824 (85,686)
Investment in sales-type leases 88,794 --
Other assets (59,529) (144,135)
Revenue equipment (111,919) --
Accounts payable (304,337) (364,037)
Accrued salaries and benefits 49,385 (16,897)
Other accrued liabilities (23,500) (363,430)
Deferred revenue 91,829 --
---------------- ----------------
Net cash used in operating activities (3,236,529) (3,508,103)
INVESTING ACTIVITIES
Purchases of property and equipment (187,688) (251,727)
Sales of investments available for sale 3,659,833 4,988,771
Advances to related parties (622,267) --
---------------- ----------------
Net cash provided by investing activities 2,849,878 4,737,044
FINANCING ACTIVITIES
Proceeds from issuance of common stock 16,091 16,100
---------------- ----------------
Net cash provided by financing activities 16,091 16,100
Net (decrease) increase in cash and cash equivalents (370,560) 1,245,041
Cash and cash equivalents at beginning of period 853,164 288,001
---------------- ----------------
Cash and cash equivalents at end of period $482,604 $1,533,042
================ ================
SUPPLEMENTAL INFORMATION
Inventory transferred to property and equipment $414,477 $292,391
================ ================
See accompanying notes
</TABLE>
<PAGE>
INTELLIGENT MEDICAL IMAGING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These financial statements, footnotes and discussions should be read
in conjunction with audited financial statements and related footnotes included
in Intelligent Medical Imaging, Inc.'s ("IMI" or "the Company") annual report on
Form 10-K for the year ended December 31, 1997. Operating results for the three
month period ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
2. REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition" which
the Company has adopted for transactions entered into during the year beginning
January 1, 1998. SOP 97-2 provides guidance for recognizing revenue on software
transactions and supersedes SOP 91-1, "Software Revenue Recognition". In March
1998, the AICPA issued SOP 98-4, "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition". SOP 98-4 defers, for one year, the
application of certain passages in SOP 97-2 which limit what is considered
vendor-specific objective evidence necessary to recognize revenue for software
licenses in multiple-element arrangements when undelivered elements exist.
Additional guidance is expected to be provided prior to adoption of the deferred
provision of SOP 97-2. The Company will determine the impact, if any, the
additional guidance will have on the current revenue recognition practices when
issued. Adoption of the remaining provisions of SOP 97-2 did not have a material
impact on revenue recognition during the first quarter of 1998.
3. INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale consist of asset backed securities, corporate
bonds and U.S. Government agency bonds. Management determines the proper
classifications of investments in obligations with fixed maturities and
marketable equity securities at the time of purchase and re-evaluates such
designations as of each balance sheet date. At March 31, 1998 and December 31,
1997, all securities were designated as available-for-sale. Accordingly, these
securities are stated at fair market value, with unrealized gains and losses
reported as a separate component of stockholders' equity. Realized gains and
losses on sales of investments, as determined on a specific identification
basis, are included in the statements of operations.
Investment securities available for sale at March 31, 1998 and December 31,
1997, are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
Unrealized Market Unrealized Market
Cost Gains (Losses) Value Cost Gains (Losses) Value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $1,404,475 $0 $1,404,475 $164,708 $0 $164,708
U.S. Government agency bonds
and mortgages $775,170 ($0) $775,170 $3,677,946 $5,466 $3,683,412
U.S. Corporate bonds and
asset backed securities $380,010 ($10,242) $369,768 $2,356,350 $25,539 $2,381,889
=============================================================================================
Total investments
available-for-sale $2,559,655 ($10,242) $2,549,413 $6,199,004 $31,005 $6,230,009
==============================================================================================
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31, DECEMBER 31,
1997 1997
----------------- ----------------
Furniture, fixtures and office
equipment $2,289,023 $1,403,234
Computer equipment 2,678,526 2,962,150
----------------- ----------------
4,967,549 4,365,384
Accumulated depreciation (1,868,393) (1,575,691)
----------------- ----------------
$3,099,156 $2,789,693
================= ================
5. NOTE RECEIVABLE RELATED PARTIES
In January 1998, $196,000 was advanced to the Company's President and $424,000
was advanced to a member of the Board of Directors. These advances, which are
secured by shares of the Company's common stock and bear interest at the rate of
prime plus 1% per annum, are due 180 days from the date of the first advance.
6. COMMITMENTS AND CONTINGENCIES
In November 1996, IMI and DiaSys Corporation ("DiaSys") (Nasdaq, DIYS) entered
into a Product Integration Agreement (the "DiaSys Agreement"). DiaSys designs,
develops, manufactures and distributes workstation products which prepare fluid
samples. Under the DiaSys Agreement, IMI was granted a nonexclusive,
nontransferable license to integrate the patented DiaSys wet-preparation
specimen handling system together with the MICRO21 in order to produce
integrated systems for resale to MICRO21 end users. The DiaSys Agreement was
terminated in July 1997, when IMI rejected products delivered by DiaSys and
returned them. The DiaSys Agreement provides for mandatory and binding
arbitration of disputes between the parties. On January 12, 1998, DiaSys filed a
demand for arbitration of the dispute. In its demand for arbitration, DiaSys
seeks damages in excess of $1,000,000 for IMI's alleged breach of the DiaSys
Agreement and IMI's alleged defamation of DiaSys and its products. IMI filed its
response on February 9, 1998. In its response, IMI denies that it breached the
DiaSys Agreement or defamed DiaSys, and states that it properly rejected
products supplied by DiaSys due to non-conformance. IMI also seeks damages for
libelous statements made by DiaSys in a July 2, 1997 press release issued by
DiaSys, and for delays in IMI's product development efforts caused by DiaSys's
breach of the DiaSys Agreement. Management is unable to make a meaningful
estimate of the likelihood or amount or range of loss that could result from an
unfavorable outcome of the pending arbitration. As of March 31, 1998, the
Company has not accrued any loss contingencies or related expenses in connection
with this arbitration. The Company believes that DiaSys's claims are without
merit, and that the Company will prevail in the arbitration. However, there can
be no assurance that the Company will prevail in the arbitration or in its
counterclaim asserted against DiaSys, or that any resolution of the dispute,
which is expected to occur within one year, will not have a material adverse
effect on the Company's liquidity, financial condition and results of
operations. The Company and DiaSys are presently in the process of selecting the
panel of arbitrators and no hearing date for the arbitration has been scheduled.
On March 7, 1997, the Company entered into a settlement agreement with
International Remote Imaging Systems, Inc. ("IRIS") effective March 1, 1997.
Under the settlement agreement, IRIS granted the Company a fully-paid,
royalty-free license for worldwide direct sales of the MICRO21 system by the
Company. The Company agreed to pay a 4 percent royalty on future sales of the
MICRO21 system through third-party distributors in the United States. Since the
Company's current business plan is to sell its products primarily on a direct
basis, without reliance on third-party distributors, the Company does not
believe the 4 percent royalty on U.S. sales through distributors will
significantly adversely impact the Company's results of operations during the
term of the license. This license and royalty obligation expire in September
2000, when the IRIS patents that are the subject of the license expire. The
Company has the right, but not the obligation, to request a license from IRIS
for sales through third-party distributors outside of the United States;
however, the Company does not believe that the MICRO21 system infringes any
foreign patents held by IRIS and the Company has no current plans to request
such a license.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company has developed and is marketing the MICRO21(TM)system, an
intelligent, automated microscope system, for diagnostic use in hospital,
commercial reference and physician group laboratories. The MICRO21 system is
designed to automate a broad range of manual microscopic procedures, potentially
enabling the clinical laboratory to reduce costs and exposure to liabilities,
enhance analytical accuracy and consistency, increase the productivity of
medical technologists and improve patient care.
The Company began to build up internal sales and service organizations following
termination of its exclusive sales and distribution agreement with Coulter
Corporation (the "Coulter Agreement"). Since October 1, 1996, the Company's
sales, marketing and service personnel have increased from 8 to 49 through March
31, 1998. IMI's marketing group has developed a comprehensive plan that includes
lead fulfillment, targeted advertising and an aggressive trade show schedule for
both domestic and international markets. In the US, the Company has established
three regions comprising nine territories and employs a national accounts
manager. Each US territory is assigned a team consisting of a sales
representative, a technical application specialist and a regional manager. The
Company's domestic service organization consists of four regional field service
offices and centralized customer support personnel providing 24-hour coverage.
In July 1997, the Company opened an office in the Netherlands to coordinate
sales and service efforts in European markets. In January 1998, the Company
hired a consultant to coordinate distributors in other international market
areas. IMI has field personnel located in Europe, and certified distributors are
service representatives in international markets other than Europe.
During the fourth quarter of 1997, the Company began to offer a short-term
rental program which provides for monthly or annual rentals of the MICRO21
system. The Company believes that this program will augment its sales and
long-term lease programs by giving potential customers the ability to fund a
MICRO21 with operating funds, thereby overcoming potential cost barriers
associated with limited or non-existent capital expenditure funds. Expansion of
the short-term rental program may require that the Company secure additional
financing.
RESULTS OF OPERATIONS
Product sales were $1,042,298 for the three months ended March 31, 1998 compared
with $841,705 for the three months ended March 31, 1997, an increase of
$200,593. The increase in sales for the three months ended March 31, 1998 as
compared to March 31, 1997 was primarily due to increased sales of the MICRO21
system to hospitals and laboratories.
Cost of sales was $761,292 for the three months ended March 31, 1998 compared
with $406,243 for the three months ended March 31, 1997, an increase of
$355,049. The increase in cost of sales for the three months ended March 31,
1998 was primarily due to support of evaluation units installed with customers
and depreciation recorded on rental units.
Selling, general and administrative expenses were $2,349,725 for the three
months ended March 31, 1998 compared with $1,494,638 for the three months ended
March 31, 1997, an increase of $855,087. The increase in selling, general and
administrative expenses was primarily due to increased expenses related to the
continued growth of the Company and the need for additional personnel following
the termination of the Coulter Agreement.
Research and development expenses were $1,417,025 for the three months ended
March 31, 1998 compared with $716,184 for the three months ended March 31, 1997,
an increase of $700,841. The increase in research and development expenses was
primarily due to resources being utilized in the development of new procedures,
technologies and products for the MICRO21 system.
Interest income was $68,158 for the three months ended March 31, 1998 compared
with $306,857 for the three months ended March 31, 1997, a decrease of $238,699.
The decrease for the three months ended March 31, 1998 was primarily due to the
sale of investment securities to fund operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and liquid investments with a maturity
of 90 days or less. Investments available-for-sale consist of asset backed
securities, corporate bonds and U.S. Government agency bonds. Management
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designation as of each balance sheet date.
Unrealized holding gains and losses on securities classified as
available-for-sale are reported as a separate component of stockholders' equity.
For the three months ended March 31, 1998, net cash used in operating activities
of $3,236,529 was primarily due to the Company's operating loss.
For the three months ended March 31, 1998, net cash provided by investing
activities of $2,849,878 was primarily the result of sales of investments
available-for-sale, partially offset by purchases of computer equipment to be
used in research and development and advances to the Company's Chief Executive
Officer and a member of the Board of Directors.
For the three months ended March 31, 1998, net cash provided by financing
activities of $16,091 was primarily the result of proceeds from the exercise of
common stock options.
At March 31, 1998, the Company had a net operating loss ("NOL") carryforward of
approximately $26,000,000 available for income tax purposes that expire through
the year 2012. Section 382 of the Internal Revenue Code, as amended, limits the
amount of federal taxable income that may be offset by pre-existing NOLs of a
corporation following a change in ownership ("Ownership Change") of the
corporation. A portion of the Company's NOLs are currently subject to these
limitations because the Company experienced an Ownership Change on June 30,
1995, due to the issuance of common stock.
The Company's 1998 operating plan contemplates expanding sales revenue through
the efforts of its internal sales, marketing and service force. During the third
quarter of 1997, the Company established a division in Europe to further expand
its marketing efforts. During the fourth quarter of 1997, the Company began to
offer a short-term rental program. The Company's 1998 operating plan also
contemplates implementing cost controls, seeking alternative sources of
financing and exploring strategic alternatives. Although management believes
that its plan will be successful, there can be no assurance that the Company
will be successful in its attempt to expand revenue, secure additional financing
or consummate a strategic alternative.
The Company believes that cash, cash equivalents and investments held for sale,
together with projected cash flow from operations, will be sufficient to meet
the Company's liquidity and capital requirements for projected annual
expenditures through 1998, although no assurance exists that the Company will
not require additional capital prior to the end of such period. Additional funds
may be sought through equity or debt financings. There can be no assurance that
commitment for such financings can be obtained on favorable terms, if at all.
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company cautions
that a number of important factors could cause the Company's actual results for
1998 and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Forward-looking statements involve a number of risks and uncertainties
including, but not limited to, the Company's history of operating losses;
uncertainty of profitability and uncertainty of widespread market acceptance for
the MICRO21 system; uncertainty, risks and costs associated with the Company's
need to expand and enhance its own sales and marketing organization to replace
Coulter; the anticipated loss of revenue and earnings during the period of
transition of sales, marketing and service responsibilities from Coulter to the
Company; the delays and impediments to customer acceptance associated with
industry and market perception of the historical dispute between the Company and
Coulter; the risk that expansion of sales in foreign markets may be possible
only through distributors, such as Coulter, at transfer prices too low for
favorable profitability; the inability of the Company to enter into an
alternative exclusive distribution arrangement due to certain rights granted to
Coulter under the Coulter Settlement Agreement; the delays and impediments
associated with the industry and market perception of the dispute, even if
amicably settled, between the Company and DiaSys, and the inability of the
Company to resolve its dispute with DiaSys amicably; possible delays in the
development of monolayer procedures as a result of the termination of the
license agreement with MonoGen, Inc.; potential delays and technical problems in
the development and commercial release of new products and procedures such as
the proposed MICRO21 Microscopic Workstation System; delays in closing sales of
systems placed for evaluation due to length of the closing cycle, uncertainty
due to industry consolidation and customer budget processes and restrictions;
the expense of product development and the related delay and uncertainty as to
receipt of any requisite FDA clearance or other governmental clearance or
approval for new products and new procedures for use on the MICRO21 system; the
uncertainty of profitability and sustainability of revenues and profitability;
the uncertainty of availability of capital for future capital needs, especially
in the event of further delays in anticipated market acceptance and market
penetration of MICRO21 systems; the Company's limited manufacturing experience;
fluctuations in operating results; the Company's ability to its protect trade
secrets and proprietary technology; competition and technological change in the
industry in which the Company is engaged; product liability and the ability of
the Company to obtain adequate insurance for product liability; uncertainty of
third party reimbursement and health care reform policies; and government
regulation. The Company cannot assure that it will be able to anticipate or
respond timely to any of the factors, or changes in any of the factors, listed
above, which could adversely affect the operating results in one or more fiscal
quarters. Results of operations in any past period should not be considered
indicative of the results to be expected for future periods. Fluctuations in
operating results may also result in fluctuations in the price of the Company's
common stock.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
LIST OF EXHIBITS DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
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.
INTELLIGENT MEDICAL IMAGING, INC.
Date: MAY 15, 1998 BY: /S/ TYCE M. FITZMORRIS
----------------------------------
Tyce M. Fitzmorris, President and
Chief Executive Officer
Date: MAY 15, 1998 BY: /S/ GENE M. COCHRAN
---------------------------------
Gene M. Cochran, Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000930090
<NAME> INTELLIGENT MEDICAL IMAGING, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 482,604
<SECURITIES> 2,549,413
<RECEIVABLES> 1,438,698
<ALLOWANCES> 40,000
<INVENTORY> 5,330,034
<CURRENT-ASSETS> 9,860,902
<PP&E> 4,967,549
<DEPRECIATION> (1,868,393)
<TOTAL-ASSETS> 13,798,356
<CURRENT-LIABILITIES> 1,622,909
<BONDS> 0
0
0
<COMMON> 110,316
<OTHER-SE> 11,808,084
<TOTAL-LIABILITY-AND-EQUITY> 13,798,356
<SALES> 1,042,298
<TOTAL-REVENUES> 1,042,298
<CGS> 761,292
<TOTAL-COSTS> 761,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,417,586)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,417,586)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,417,586)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> 0.00
</TABLE>
