<PAGE>
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 JUNE 30, 1999
-- or --
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
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0-25250
COMMISSION FILE NUMBER
OSTEX INTERNATIONAL, INC.
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
STATE OF WASHINGTON 91-1450247
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER IDENTIFICATION NUMBER
INCORPORATION OR ORGANIZATION
2203 AIRPORT WAY SOUTH, SUITE 400, SEATTLE, WASHINGTON 98134
206-292-8082
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
[N/A]
FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT
------------------
Indicate by checkmark whether the registrant (1) has filed all Yes /X/
reports required to be filed by Section 13 or 15(d) of the Securities No [ ]
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.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF
AUGUST 2, 1999 WAS 12,521,500.
------------------
<PAGE>
OSTEX INTERNATIONAL, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS
Condensed Balance Sheets F-1
Condensed Statements of Operations F-2
Condensed Statements of Cash Flow F-3
Notes to Condensed Financial Statements F-4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 6
PART II -- OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 6
</TABLE>
-1-
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached hereto are Ostex International, Inc.'s (the "Company's" or
"Ostex'") unaudited condensed balance sheet as of June 30, 1999, and audited
condensed balance sheet as of December 31, 1998, the unaudited condensed
statements of operations for the three and six months ended June 30, 1999 and
1998, and the unaudited condensed statements of cash flow for the six months
ended June 30, 1999 and 1998. Notes follow the unaudited financial
statements and are an integral part thereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results or the timing of certain events to differ materially from
historical results or those anticipated. Words used herein such as "believes,"
"anticipates," "expects," "intends," and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements. In addition, the disclosures in this Item 2 under
the caption "Other Factors that May Affect Operating Results", consist
principally of a brief discussion of risks which may affect future results and
are thus, in their entirety, forward-looking in nature. Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports previously filed with the
Securities and Exchange Commission (the "Commission"), including the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, that
attempt to advise interested parties of the risks and factors that may affect
the Company's business.
OVERVIEW
Ostex was incorporated in the State of Washington in 1989. The Company is
engaged in the discovery and commercialization of products associated with
osteoporosis and other collagen-related diseases. The Company believes that its
lead product, the OSTEOMARK-Registered Trademark- test, now available in
multiple test formats, incorporates breakthrough and patented technology for the
management and prevention of osteoporosis. As of June 30, 1999, the Company had
33 employees.
Osteoporosis is a significant health problem. One hundred million people
worldwide are currently at risk of osteoporotic fracture. Twenty-five percent
of all postmenopausal women are affected by osteoporosis. Thirty-five million
people suffer from bone loss from other diseases. According to the National
Osteoporosis Foundation (the "NOF"), annual osteoporosis-related costs in the
U.S. exceed $14 billion. In spite of the serious human and economic
consequences of these diseases (according to the NOF, the direct healthcare and
indirect lost productivity costs of osteoporosis exceed $10 billion annually in
the U.S. alone), medical intervention usually commences only after pain,
immobility, fractures, or other symptoms have appeared. The Company expects the
osteoporosis therapeutic market will continue to increase as the elderly
population grows. The Company also believes new therapeutic products are under
development for osteoporosis, some of which are in late-stage clinical trials,
and that the Osteomark test can be used to effectively predict a patient's
response to osteoporosis therapy and monitor existing therapies and other
therapies which may be developed.
The Company is the exclusive licensee of the Osteomark technology, known
clinically as the NTx test, which is available in urine and serum formats that
can aid in healthcare decision-making at early menopause and beyond. The
Osteomark test is a non-invasive diagnostic test which quantitatively indicates
the level of bone resorption. Individuals who are losing bone collagen at
accelerated rates may progress to low bone mass, a major cause of osteoporosis.
The Company believes that early identification of high levels of bone resorption
provides the opportunity to predict skeletal response (bone mineral density) to
hormonal antiresorptive therapy in
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<PAGE>
postmenopausal women which are intended to prevent the onset of osteoporosis.
The Company also believes that the Osteomark test aids clinicians in
monitoring the effects of antiresorptive therapies in postmenopausal women,
as well as in older patients who have already lost significant bone mass.
In May 1995, the Company's Osteomark test became commercially available in
the United States as a urinary test that provides a quantitative measure of the
excretion of cross-linked N-telopeptides of Type I collagen (NTx) as an
indicator of human bone resorption. In July 1996, the Company received expanded
claims from the Food and Drug Administration (the "FDA") for the urine test. The
1996 claims allow that an Osteomark test measurement, if taken prior to the
initiation of hormonal antiresorptive therapy, can be utilized to predict a
patient's response to that therapy, in terms of its effect on bone mineral
density. Additionally, the claims allow that the test can be used for
therapeutic monitoring of antiresorptive therapies in postmenopausal women, as
well as individuals diagnosed with osteoporosis and Paget's disease, and for
therapeutic monitoring of estrogen-suppressing therapies. In March 1998 the
claims were further expanded by allowing that, in addition to the 1996 claims,
an Osteomark test measurement can identify the probability of a decrease in bone
mineral density in postmenopausal women taking calcium supplements relative to
those treated with hormonal antiresorptive therapy. The Company is
manufacturing and marketing the Osteomark test in an Enzyme-linked Immunosorbent
Assay ("ELISA") format for testing urine or serum samples.
In February 1999, the Company received clearance to market Osteomark NTx
Serum. Osteomark NTx Serum is the first and only commercially available test in
the United States that measures specific bone breakdown by osteoclasts using a
blood sample. The Company believes that the use of a serum NTx test provides a
number of advantages to testing laboratories, including the elimination of the
requirement to normalize NTx values to creatinine concentration.
Worldwide promotion of the Osteomark urine test kits is also supported by
Johnson & Johnson Clinical Diagnostics, Inc. ("Johnson & Johnson"). In 1995 the
Company entered into research, development, license and supply agreements with
Johnson & Johnson. These agreements grant Johnson & Johnson a license to
manufacture, sell and distribute certain products using Ostex's bone resorption
technology. Currently, Johnson & Johnson distributes in the United States and
certain foreign countries the Osteomark test in the existing microtiter plate
format. Ortho-Clinical Diagnostics, a Johnson & Johnson company, announced in
March 1999 that it had gained FDA clearance for the Osteomark test on its
Vitros-Registered Trademark- automated analyzer. Ostex will receive payments
for Ostex supplied reagents plus royalties from Johnson & Johnson on sales of
products incorporating the Ostex technology.
In 1992, Ostex entered into a research and development agreement and a
license agreement with Mochida Pharmaceutical Co., Ltd. ("Mochida"), a Japanese
pharmaceutical company, for the commercialization of the Osteomark test in
Japan. Under the research and development agreement, Mochida has an option to
license the NTx serum test and has paid Ostex $3,350,000 in development fees to
date. Future payments of $750,000 under the agreement are contingent upon
Mochida's decision to exercise its option. Under the license agreement, Ostex
granted Mochida exclusive marketing and distribution rights to certain Ostex
products in Japan. Since 1992, Mochida has paid Ostex $2,500,000 in licensing
fees for the Osteomark test. In January 1998, Mochida launched the Osteomark
urine test in Japan for the management of patients with hyperparathyroidism and
for patients with metastatic bone tumors. Ostex sells Mochida the critical
reagents to be assembled into finished products in Japan by Mochida.
The Company also plans to develop the Osteomark test in other formats,
including formats suitable for use in the physician's office. The Company has
an agreement with Metrika, Inc. ("Metrika"), a diagnostic device company, to
develop a physician's office "point-of-care" Osteomark test device. The Company
and Metrika are in the final stages of developing this fully disposable
point-of-care NTx test as an indicator of bone resorption that computes NTx
values and displays them digitally.
-3-
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Total revenues were $1,127,000 for the quarter ended June 30, 1999,
compared to $1,011,000 for the quarter ended June 30, 1998. The increase in
product sales was due to higher sales of Osteomark urine kits from domestic
reference laboratories and initial sales of the Osteomark serum kits.
The Company's gross margin increased to 76% in the quarter ended June 30,
1999, compared to 74% in the second quarter of 1998. Cost of products sold
primarily includes labor costs, materials, equipment and facility costs. The
increase in cost of products sold in the second quarter of 1999 compared to the
same quarter in 1998 resulted from the 11% increase in total revenues. Cost of
products sold as a percentage of sales decreased in the second quarter of 1999
compared to the same quarter in 1998 due to an increase in the average sales
price per kit based on the customer mix offset by lower production volume
compared to the 1998 second quarter. Since the majority of the product cost is
fixed, the lower the volume of production, the higher the cost per unit.
Although the cost per unit allocated to cost of products sold was higher than
the previous year, gross margin was higher in the second quarter of 1999 than
1998 due to the increase in the average sales price per kit. The gross margin
is expected to continue to fluctuate depending on the average sales price per
kit and the cost per unit allocated to cost of products sold.
The Company's research and development expenditures totaled $478,000 for
the quarter ended June 30, 1999, compared to $686,000 for the quarter ended June
30, 1998. The $208,000 decrease was attributable to lower labor and overhead
costs resulting from the restructuring plan implemented by the Company in
December 1998 and the Company's decision to reduce the level of funding to
outside companies for the NTx point-of-care development programs.
Selling, general and administrative expenses totaled $999,000 for the
quarter ended June 30, 1999, compared to $1,774,000 for the quarter ended June
30, 1998. The $775,000 decrease in the 1999 quarter was due to lower labor and
overhead costs resulting from the restructuring plan implemented by the Company
in December 1998, lower litigation costs, and a decrease in spending on
marketing programs.
Net other income consists primarily of interest income and totaled $121,000
for the quarter ended June 30, 1999, compared to $187,000 for the quarter ended
June 30, 1998. The decrease is due to lower invested balances resulting from
using cash to fund the Company's operating losses.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Total revenues were $2,028,000 for the six month period ended June 30,
1999, compared to $1,592,000 for the six month ended June 30, 1998. The
increase in product sales was due to higher orders for Osteomark urine kits from
domestic reference laboratories and initial sales of the Osteomark serum kits.
The Company's gross margin increased to 74% in the six month period ended
June 30, 1999, compared to 72% during the same six month period of 1998. Cost of
products sold primarily includes labor costs, materials, equipment and facility
costs. The increase in cost of products sold in the second quarter of 1999
compared to the same quarter in 1998 resulted from the 27% increase in total
revenues. Cost of products sold as a percentage of sales decreased in the
second quarter of 1999 compared to the same quarter in 1998 due to an increase
in the average sales price per kit based on the customer mix offset by lower
production volume compared to the 1998 second quarter. Since the majority of
the product cost is fixed, the lower the volume of production, the higher the
cost per unit. Although the cost per unit allocated to cost of products sold
was higher than the previous year, gross margin was higher in 1999 than 1998 due
to the increase in the average sales price per kit. The gross margin is expected
to continue to fluctuate depending on the average sales price per kit and the
cost per unit allocated to cost of products sold.
The Company's research and development expenditures totaled $949,000 for
the six month period ended June 30, 1999, compared to $1,521,000 for the six
month period ended June 30, 1998. The $572,000 decrease was
-4-
<PAGE>
attributable to lower labor and overhead costs resulting from the
restructuring plan implemented by the Company in December 1998 and the
Company's decision to reduce the level of funding to outside companies for
the NTx point-of-care development programs.
Selling, general and administrative expenses totaled $1,943,000 for the six
month period ended June 30, 1999, compared to $4,025,000 for the six month
period ended June 30, 1998. The $2,082,000 decrease was due to lower labor and
overhead costs resulting from the restructuring plan implemented by the Company
in December 1998, lower litigation costs, and a decrease in spending on
marketing programs.
Net other income consists primarily of interest income and totaled $247,000
for the six month period ended June 30, 1999, compared to $390,000 for the six
month period ended June 30, 1998. The decrease is due to lower invested
balances resulting from using cash to fund the Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash and cash equivalents and
short-term investments of $8,958,000, working capital of $9,406,000 and total
shareholders' equity of $12,090,000. As a result of funding operating losses
during the six months ended June 30, 1999, cash, cash equivalents and
short-term investments decreased by $2,021,000, working capital decreased by
$1,218,000 and shareholders equity decreased by $1,398,000. During the six
month period ended June 30, 1999, the Company purchased $34,000 in property
plant and equipment, reduced notes payable by $102,000, and repurchased
$229,000 of common stock as part of its stock repurchase program.
The Company's future capital requirements depend upon many factors,
including the effectiveness of Osteomark NTx Serum and Urine tests
commercialization activities and arrangements; continued scientific progress in
its research and development programs; the costs involved in filing, prosecuting
and enforcing patent claims; and the time and costs involved in obtaining
regulatory approvals. Additional funds from equity or debt financing will be
required. There can be no assurance that such additional funds will be
available on favorable terms, if at all. Because of the Company's significant
long-term cash requirements, it may seek to raise additional capital if
conditions in the public equity markets are favorable or through private
placements, even if the Company does not have an immediate need for additional
cash at that time. If additional financing is not available, the Company
believes that its existing available cash, its future license and research
revenues from existing collaboration agreements, its current level of product
sales and interest income from short-term investments will be adequate to fund
operations through 2000.
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of factors
including, but not limited to, volume and timing of product sales, pricing,
market acceptance of the Company's products, changing economic conditions in the
healthcare industry, activities of competitors, delays and increased costs of
product and technology development, the Company's ability to develop and
maintain collaborative arrangements, the outcome of litigation, and the effect
of the Company's accounting policies and other risk factors detailed in the
Company's 1998 Form 10-K and other SEC filings. All of the foregoing factors
are difficult for the Company to predict and can materially adversely affect the
Company's business and operating results.
The Company is currently upgrading its financial and manufacturing
information system software to a Year 2000 compliant version. The Company is in
the process of testing this system upgrade and expects it to be fully
implemented by December 31, 1999. The Company has assessed the Year 2000
compliance of its other computer system software and manufacturing equipment and
expects to complete all necessary upgrades to be Year 2000 compliant no later
than December 31, 1999. In addition, the Company has contacted all key vendors
and suppliers regarding Year 2000 compliance and has received no responses
indicating that any vendor or supplier will not be Year 2000 compliant. The
Company has also created a Year 2000 project team that periodically reviews
relevant issues regarding compliance. The costs of Year 2000 initiatives have
primarily been incurred and are not expected to be material to the Company's
results of operations or financial position in future periods. Failure to
timely complete the Company's Year 2000 initiatives could result in the
Company's software being rendered
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<PAGE>
inoperative. Although the company has no formal contingency plans in place,
in such event, the Company would attempt to perform its MIS functions, and
other functions currently implemented by software, manually through the
dedication of additional personnel to performing such functions. While the
Company believes its planning efforts are adequate to address its Year 2000
concerns, there can be no assurance that the systems and products of other
companies of which the Company's operations rely will be converted on a
timely basis and will not have a material adverse effect on the Company's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 2, 1999, the Company held its 1999 Annual Meeting of Shareholders
(the "Annual Meeting"), at which the following members were elected to the Board
of Directors:
<TABLE>
<CAPTION>
Affirmative Votes
Votes Withheld
----- --------
<S> <C> <C>
Thomas J. Cable 11,669,218 88,248
John H. Trimmer 11,717,193 40,273
</TABLE>
The following members continued their terms on the Board of Directors:
David R. Eyre, Ph.D.
Fredric Feldman, Ph.D.
Thomas A. Bologna
Elisabeth L. Evans, M.D.
Gregory D. Phelps
The following proposals were also approved at the annual meeting:
<TABLE>
<CAPTION>
Affirmative Votes Votes
Votes Against Withheld
----- ------- --------
<S> <C> <C> <C>
Ratification of Arthur Andersen LLP as 11,727,119 14,100 16,247
the Company's independent auditors for
the fiscal year ending December 31, 1999
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith:
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
-6-
<PAGE>
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.
OSTEX INTERNATIONAL, INC.
DATED: August 11, 1999 By /s/ Thomas A. Bologna
---------------------------------------
Thomas A. Bologna
Chairman, President and Chief Executive
Officer (principal financial and
principal accounting officer)
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<PAGE>
OSTEX INTERNATIONAL, INC.
CONDENDSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents 1,203,000 $ 2,744,000
Short-term investments 7,755,000 8,235,000
Trade receivables and other current assets, net 955,000 858,000
Inventory, at cost 284,000 247,000
------------ ------------
Total current assets 10,197,000 12,084,000
------------ ------------
Property, Plant and Equipment, net 2,085,000 2,382,000
Other Assets 599,000 599,000
------------ ------------
Total assets $ 12,881,000 $ 15,065,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 175,000 $ 557,000
Accrued expenses 394,000 696,000
Current portion of note payable 222,000 207,000
------------ ------------
Total current liabilities 791,000 1,460,000
------------ ------------
Noncurrent Liabilities
Note payable, net of current portion - 117,000
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 authorized;
12,521,500 and 12,696,250 issued and outstanding
at June 30, 1999 and December 31, 1998 respectively 125,000 127,000
Additional paid-in capital 45,441,000 45,642,000
Accumulated items of comprehensive loss (116,000) (58,000)
Accumulated deficit (33,360,000) (32,223,000)
------------ ------------
Total shareholders' equity 12,090,000 13,488,000
------------ ------------
Total liabilities and shareholders' equity $ 12,881,000 $ 15,065,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
F-1
<PAGE>
OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Year to Date
-------------------------- -------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales and research testing services $ 1,127,000 $ 1,011,000 $ 2,028,000 $ 1,592,000
Cost of products sold 274,000 263,000 520,000 452,000
----------- ----------- ----------- -----------
Gross Margin 853,000 748,000 1,508,000 1,140,000
Operating Expenses:
Research and development 478,000 686,000 949,000 1,521,000
Selling, general and administrative 999,000 1,774,000 1,943,000 4,025,000
----------- ----------- ----------- -----------
Total operating expenses 1,477,000 2,460,000 2,892,000 5,546,000
----------- ----------- ----------- -----------
Loss from operations (624,000) (1,712,000) (1,384,000) (4,406,000)
Other Income, net 121,000 187,000 247,000 390,000
----------- ----------- ----------- -----------
Net loss $ (503,000) $(1,525,000) $(1,137,000) $(4,016,000)
=========== =========== =========== ===========
Basic and diluted net loss per common $ (0.04) $ (0.12) $ (0.09) $ (0.32)
Shares used in calculation of net
loss per share 12,530,000 12,696,000 12,557,000 12,696,000
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
F-2
<PAGE>
OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Year to Date
-----------------------------
June 30, June 30,
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (1,614,000) (4,555,000)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (5,451,000) (29,809,000)
Proceeds from sales and maturities of short-term investments 5,873,000 34,174,000
Proceeds from the sale of property, plant and equipment 15,000 -
Purchases of property, plant and equipment (34,000)
------------ -------------
Net cash provided by investing activities 403,000 4,294,000
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of stock options 1,000 -
Purchase of treasury stock (229,000) -
Payments on note payable (102,000) (89,000)
------------ -------------
Net cash provided used in financing activities (330,000) (89,000)
------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,541,000) (350,000)
CASH AND CASH EQUIVALENTS, beginning of period 2,744,000 2,201,000
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 1,203,000 $ 1,851,000
============ =============
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
F-3
<PAGE>
OSTEX INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited condensed financial statements include the accounts of Ostex
International, Inc. (a Washington corporation) (the "Company"). These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and pursuant to the
rules and regulations of the Securities and Exchange Commission. While these
statements reflect all normal recurring adjustments which are, in the opinion
of management, necessary for fair presentation of the results of the interim
periods, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report filed on Form 10-K for the
year ended December 31, 1998.
2. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", which was effective for the
Company beginning January 1, 1998, establishes standards for reporting and
disclosure of comprehensive income. The components of comprehensive income
for the six months ended June 30, 1999 and June 30, 1998, are as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
----------- -----------
<S> <C> <C>
Net Loss from operations $(1,137,000) $(4,016,000)
Unrealized gain/(loss) on short-term investments (58,000) (35,000)
----------- -----------
Total comprehensive loss $(1,195,000) $(4,051,000)
=========== ===========
</TABLE>
F-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,203,000
<SECURITIES> 7,755,000
<RECEIVABLES> 767,000
<ALLOWANCES> 80,000
<INVENTORY> 284,000
<CURRENT-ASSETS> 10,197,000
<PP&E> 4,789,000
<DEPRECIATION> 2,704,000
<TOTAL-ASSETS> 12,881,000
<CURRENT-LIABILITIES> 791,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 11,965,000
<TOTAL-LIABILITY-AND-EQUITY> 12,881,000
<SALES> 2,028,000
<TOTAL-REVENUES> 2,028,000
<CGS> 520,000
<TOTAL-COSTS> 520,000
<OTHER-EXPENSES> 2,892,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> (1,137,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,137,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,137,000)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
