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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 ____________ .
COMMISSION FILE NUMBER: 0-28272
AVIGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3647113
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
</TABLE>
1201 HARBOR BAY PARKWAY, SUITE 1000, ALAMEDA, CALIFORNIA 94502
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(510) 748-7150
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
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 October 25, 1999, 12,468,700 shares of the registrant's Common Stock,
$.001 par value, were issued and outstanding.
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AVIGEN, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Balance Sheets
June 30, 1999 and September 30, 1999...................... 3
Condensed Statements of Operations
Three months ended September 30, 1998 and 1999 and for the
period from October 22, 1992 (inception) through September
30, 1999.................................................. 4
Condensed Statements of Cash Flows
Three months ended September 30, 1998 and 1999 and for the
period from October 22, 1992 (inception) through September
30, 1999.................................................. 5
Notes to Condensed Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 10
Item 2. Changes in Securities and Use of Proceeds................... 10
Item 3. Defaults upon Senior Securities............................. 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
Item 5. Other Information........................................... 10
Item 6. Exhibits.................................................... 10
Signatures........................................................... 11
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
(NOTE) (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................... $ 2,945 $ 2,746
Investment in marketable securities....................... 11,936 9,992
Accounts receivable....................................... 185 25
-------- --------
Total current assets.............................. 15,066 12,763
Property and equipment, net................................. 1,050 1,075
Deposits and other assets................................... 67 122
-------- --------
Total assets...................................... $ 16,183 $ 13,960
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 251 $ 152
Accrued compensation and related expenses................. 343 213
Other accrued liabilities................................. 304 437
Capital lease obligations -- current portion.............. 697 575
-------- --------
Total current liabilities......................... 1,595 1,377
Accrued rent.............................................. 153 143
Capital lease obligations (less current portion).......... 112 61
Stockholders' equity:
Common Stock, $.001 par value, 30,000,000 shares
authorized, 12,358,898 shares issued and outstanding at
June 30, 1999, 12,468,697 shares issued and outstanding
at September 30, 1999.................................. 12 12
Additional paid-in capital................................ 51,087 51,505
Deferred compensation..................................... (5) --
Deficit accumulated during the development stage.......... (36,771) (39,138)
-------- --------
Total stockholders' equity........................ 14,323 12,379
-------- --------
Total liabilities and stockholders' equity........ $ 16,183 $ 13,960
======== ========
</TABLE>
See accompanying notes.
3
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
1992
THREE MONTHS ENDED (INCEPTION)
SEPTEMBER 30 THROUGH
------------------------- SEPTEMBER 30,
1998 1999 1999
---------- ----------- -------------
<S> <C> <C> <C>
Grant revenue........................................ $ 150 $ -- $ 548
Expenses:
Research and development........................... 1,663 1,523 26,611
General and administrative......................... 756 910 13,954
---------- ----------- --------
Total expenses............................. 2,419 2,433 40,565
---------- ----------- --------
Loss from operations................................. (2,269) (2,433) (40,017)
Interest expense..................................... (54) (28) (1,158)
Interest income...................................... 82 94 1,877
Other income (expense)............................... (2) -- 160
---------- ----------- --------
Net loss............................................. $ (2,243) $ (2,367) $(39,138)
========== =========== ========
Basic and diluted net loss per share................. $ (0.29) $ (0.19)
========== ===========
Shares used in calculation of net loss per share..... 7,805,004 12,373,477
========== ===========
</TABLE>
See accompanying notes.
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED OCTOBER 22, 1992
SEPTEMBER 30, (INCEPTION)
------------------ THROUGH
1998 1999 SEPTEMBER 30, 1999
------- ------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $(2,243) $(2,367) $(39,138)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 161 103 2,930
Amortization of deferred compensation................ 10 5 163
Write-off of organization costs...................... -- -- 146
Noncash interest expense............................. -- -- 510
Common stock issued for services..................... -- -- 11
Stock options issued for services.................... -- -- 68
Changes in operating assets and liabilities:
Deposits and other assets............................ (312) (55) (122)
Accounts receivable.................................. -- 160 (25)
Accounts payable, other accrued liabilities and
accrued compensation and related expenses......... (117) (96) 1,099
Accrued rent......................................... (10) (10) 143
------- ------- --------
Net cash used in operating activities.................. (2,511) (2,260) (34,215)
INVESTING ACTIVITIES
Purchases of property and equipment.................... (24) (128) (3,754)
Disposal of property and equipment..................... -- -- 47
Organization costs..................................... -- -- (219)
Purchase of marketable securities...................... -- -- (73,532)
Sale of marketable securities.......................... 1,264 1,944 63,541
------- ------- --------
Net cash provided by (used in) investing activities.... 1,240 1,816 (13,917)
FINANCING ACTIVITIES
Proceeds from notes payable............................ -- -- 2,133
Repayment of notes payable............................. -- -- (1,710)
Proceeds from 1996 bridge financing.................... -- -- 1,937
Payment of bridge financing costs...................... -- -- (194)
Repayment of 1996 bridge financing..................... -- -- (1,937)
Proceeds from sale-leaseback of equipment.............. -- -- 1,927
Payments on capital lease obligations.................. (154) (173) (1,518)
Proceeds from issuance of preferred stock, net of
issuance
costs................................................ -- -- 9,885
Proceeds from issuance of common stock, net of issuance
costs and repurchases................................ 2,747 418 40,355
------- ------- --------
Net cash provided by financing activities.............. 2,593 245 50,878
Net (decrease) increase in cash and cash equivalents... 1,322 (199) 2,746
Cash and cash equivalents, beginning of period......... 1,280 2,945 --
------- ------- --------
Cash and cash equivalents, end of period............... $ 2,602 $ 2,746 $ 2,746
======= ======= ========
</TABLE>
See accompanying notes.
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AVIGEN, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
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, the accompanying financial
statements include all adjustments, consisting only of normal recurring
adjustments and accruals, that Avigen, Inc. (the "Company") considers necessary
for a fair presentation of its financial position as of September 30, 1999 and
its results of operations and cash flows for the three months ended September
30, 1998 and 1999, and period from inception to September 30, 1999. These
unaudited interim financial statements should be read in conjunction with the
audited financial statements of the Company and the notes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended June 30,
1999, filed with the Securities and Exchange Commission.
2. BASIC AND DILUTED NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Basic net loss per share is computed using the weighted
average number of common shares outstanding. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. The
potential shares to be issued upon the assumed exercise of the options and
warrants using the treasury stock method are not added to the previously
reported fully diluted earnings per share. The potential shares to be issued
upon the assumed exercise of the options and warrants using the treasury stock
method are not added to the denominator for the diluted net loss per share
computation because the inclusion of the shares would be antidilutive due to the
loss for the period. All net loss per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
3. COMPREHENSIVE LOSS VERSUS NET LOSS
There is no difference between the Company's net loss and comprehensive
loss for either of the three month periods ended September 30, 1998 or September
30, 1999.
4. SUBSEQUENT EVENT -- PRIVATE PLACEMENT
The Company has completed a private placement with a series of closing
dates beginning October 29, 1999. The private placement raised approximately $37
million in cash (net of issuance costs). In connection with the private
placement, the Company will issue shares of common stock at the reported closing
Nasdaq National Market prices on each of the closing dates. In addition the
Company will issue one five year Warrant for every five shares purchased at a
twenty-five percent premium of the closing Nasdaq market price on the
corresponding closing dates of the private placement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and management's
discussion and analysis of financial conditions and results of operations
contained in the Company's Annual Report on Form 10-K for the year ended June
30, 1999, filed with the Securities and Exchange Commission.
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including statements regarding Avigen's
drug development programs, clinical trials, receipt of regulatory approval,
capital needs, intellectual property, expectations and intentions. The words
"believe," "anticipate," "expect," "intend," and words of similar import are
intended to identify these statements as forward-looking statements. The
Company's actual results could differ materially from the results discussed in
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed herein and under
the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the
year ended June 30, 1999 filed with the Securities and Exchange Commission.
OVERVIEW
Avigen is a leader in the development of gene therapy products derived from
adeno-associated virus ("AAV") for the treatment of inherited diseases. Avigen's
proposed gene therapy products are designed for in vivo administration to
achieve the production of therapeutic proteins within the body. Avigen has honed
it's strategic focus on developing a broad-based proprietary gene delivery
technology, AAV vector. Avigen believes AAV vectors can be used to deliver genes
for the treatment of hemophilia, thalassemia, hereditary emphysema and Gaucher's
disease.
Since its inception, the Company has devoted substantially all of its
resources to research and development activities. The Company is a development
stage company and has not received any revenue from the sale of products. The
Company does not anticipate generating revenue from the sale of products in the
foreseeable future. The Company expects its source of revenue, if any, for the
next several years to consist of government grants and payments under
collaborative arrangements. The Company has incurred losses since its inception
and expects to incur substantial losses over the next several years due to
ongoing and planned research and development efforts, including preclinical
studies and clinical trials. At September 30, 1999, the Company had an
accumulated deficit of $39.1 million.
RESULTS OF OPERATION
Three Months Ended September 30, 1998 and 1999
Grant revenue decreased from $150,000 for the three month period ended
September 30, 1998 to $0 for the three month period ended September 30, 1999.
Grant revenue consisted of reimbursements under a National Institute of Health
grant. Revenues earned under research grants are determined by the timing of the
award from the issuing agency. As a result, research grant revenue earned in one
period is not predictive of research grant revenue to be earned in future
periods. Revenues earned under research grants are determined by the timing and
amounts of the award from the issuing agency and achievement of milestones by
the Company. As a result, research grant revenue earned in one period is not
predictive of research grant revenue to be earned in future periods.
The Company's research and development expenses decreased from
approximately $1,663,000 for the three month period ended September 30, 1998 to
approximately $1,523,000 for the three month period ended September 30, 1999.
The decrease from 1998 to 1999 was due primarily to the reduction of outside lab
expenses and temporary help as the Company has begun the clinical trial for its
first product.
General and administrative expenses increased from $756,000 for the three
month period ended September 30, 1998 to $910,000 for the three month period
ended September 30, 1999. The increase from 1998 to 1999 was primarily due to
the expenses related to compensation of key employees, the increased use of
business consultants and the license fees associated with the Company's patents.
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Interest expense decreased from approximately $54,000 for the three month
period ended September 30, 1998 to approximately $28,000 for the three month
period ended September 30, 1999, primarily as a result of paying down the
Company's equipment lease with Transamerica Business Credit.
Interest income increased from approximately $82,000 for the three month
period ended September 30, 1998 to approximately $94,000 for the period ended
September 30, 1999, as a result of increased short term investments from the
proceeds of the private placements in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was approximately $2,510,000 during the three month
period ended September 30, 1998, compared to approximately $2,259,000 during the
three month period ended September 30, 1999. The change was due primarily to
decreases in accounts receivable and in accounts payable, accrued compensation
and other accrued expenses which were slightly offset by an increase in deposits
and other assets and a larger net loss.
At September 30, 1999, the Company had cash, cash equivalents and
investments in marketable securities of approximately $12.7 million compared to
approximately $14.9 million at June 30, 1999. The Company expects its cash
requirements to increase significantly in future periods. The Company believes
that available cash and cash equivalents and short-term investments, as of
September 30, 1999, will be sufficient to meet the Company's operating expenses
and capital requirements for at least the next nine months. The Company will
require substantial funds to conduct the research and development activities and
preclinical studies and clinical testing of its potential products and to
manufacture and market any products that are developed.
The Company will be required to seek additional funds through public or
private financings or collaborative arrangements with corporate partners.
Issuances of additional equity securities could result in substantial dilution
to existing stockholders. There can be no assurances that additional funding
will be available on terms acceptable to the Company, if at all. The failure to
fund its capital requirements would have a material adverse effect on the
Company's business.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funding to complete the
research and development activities currently contemplated, to commercialize its
proposed products and to maintain minimum Nasdaq continued listing requirements.
If it does not obtain such funds, it will not be able to develop its products or
maintain its Nasdaq listing.
The Company's future operating and capital requirements. The Company
anticipates that its capital resources as of September 30, 1999, will be
adequate to fund its needs for at least the next nine months. The Company's
future operating and capital requirements will depend on many factors,
including:
- continued scientific progress in research and development programs;
- the scope and results of preclinical studies and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in filing, prosecuting and enforcing patent claims;
- competing technological developments;
- the cost of manufacturing scale-up;
- the cost of commercialization activities; and
- other factors which may not be within the Company's control.
The Company intends to seek additional funding through public or private
equity or debt financing, when market conditions allow. If the Company raises
additional funds by issuing equity securities, there may be
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further dilution to existing stockholders. The Company cannot assure its
investors that it will be able to enter into such financing arrangements on
acceptable terms or at all. Without such additional funding, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs.
The Company needs to maintain its Nasdaq listing. The Company believes that
maintaining its listing on the Nasdaq National Market is central to its ability
to raise additional funds as well as to provide liquidity to investors. The
Company may be required to generate sufficient revenue or raise additional
capital to maintain Nasdaq listing requirements in fiscal year 2000.
The Company's facility is approximately 23,000 square feet leased through
May 2003. The Company believes that it will be able to renew the lease for this
facility or find suitable alternate facilities in the same general area without
a material disruption of its operations. It is anticipated that the Company
would be required to pay a premium for new facilities, as the overall rates in
the area have increased and are expected to increase, but at a lesser rate;
however, there can be no assurance that the Company can find suitable
alternative facilities on terms acceptable to the Company. To the extent the
Company decides to develop its own manufacturing facilities, it would require
substantial additional capital.
The Company's cash requirements may vary materially from those now planned
because of the results of research, development and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of commercialization
activities and arrangements and the purchase or lease of additional capital
equipment.
YEAR 2000
The Company uses computer software programs and operating systems in its
operations, including applications used in financial business systems and
various administrative functions. To the extent that these software applications
contain source code that is unable to appropriately interpret the upcoming
calendar year 2000, some level of modification, or possible replacement of such
source code or applications will be necessary. This condition is commonly
referred to as the Year 2000 Issue.
Any spending for modifications and updates are being expensed as incurred
and is not expected to have a material impact on the Company's results of
operations or cash flows. The cost of the Company's Year 2000 project is being
funded through available funds. The Company anticipates that its costs
associated with the upgrades and/or conversion of computer software relating to
the Year 2000 issue is less than $30,000. However, there can be no assurance
that these estimates will be achieved, and actual results could differ
materially from those anticipated.
All personal computers, servers, workstations and e-mail systems are now
Year 2000 compliant. The accounting software, Platinum, has been upgraded during
the quarter and is also compliant. The in house laboratories and equipment, such
as: plate reader, AKTA, HPLC & image master, are Year 2000 compliant. Avigen,
Inc. has been informed by its lessor that the security and the phone systems
have been brought into compliance during the month of October, 1999.
The Company continues communications with its significant suppliers to
determine the extent to which the Company's operations are vulnerable to those
third parties' failure to solve their own Year 2000 issues. Contingency plans
have been installed to utilize vendors whose systems are Year 2000 compliant in
the event that the Company's primary vendors fail to adequately address their
Year 2000 issues. However, there can be no assurance that the systems of other
companies with which the Company transacts business will be converted on a
timely basis and will not have an adverse effect on the Company's operations.
Like most business enterprises, the Company is dependent upon its own
internal computer technology and relies upon the timely performance of its
suppliers/vendors. A large-scale Year 2000 failure could impair the Company's
ability to timely complete its research and development, mainly due to problems
arising from the Company's vendors and service providers. The Company is in the
process of identifying and minimizing
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this risk. The Company is continually refining its understanding of the risk the
Year 2000 poses our suppliers/vendors and service providers. This refinement
will continue through the rest of calendar 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not hold derivative financial investments, derivative
commodity investments or other financial investments or engage in foreign
currency hedging or other transactions that exposes it to material market risk.
The Company has also evaluated the risk associated with its Wells Capital
Management investments in marketable securities and, due to the short term
nature of these debt instruments has concluded that such risks are immaterial.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company has completed a private placement with a series of closing
dates beginning October 29, 1999. The private placement raised approximately $37
million in cash (net of issuance costs). In connection with the private
placement, the Company will issue shares of common stock at the reported closing
Nasdaq National Market prices on each of the closing dates. In addition the
Company will issue one five year Warrant for every five shares purchased at a
twenty-five percent premium of the closing Nasdaq market price on the
corresponding closing dates of the private placement.
ITEM 6. EXHIBITS
(a) The following exhibits are included herein:
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EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIGEN, INC.
(Registrant)
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Date: November 15, 1999 /s/ JOHN MONAHAN
-----------------------------------------------------
John Monahan
Chief Executive Officer and President
Date: November 15, 1999 /s/ THOMAS J. PAULSON
-----------------------------------------------------
Thomas J. Paulson
Vice President Finance,
Chief Financial and Accounting Officer,
and Secretary
</TABLE>
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LIST OF EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,746
<SECURITIES> 9,992
<RECEIVABLES> 25
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,763
<PP&E> 3,927
<DEPRECIATION> 2,852
<TOTAL-ASSETS> 13,960
<CURRENT-LIABILITIES> 1,377
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 12,367
<TOTAL-LIABILITY-AND-EQUITY> 13,960
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (2,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,367)
<EPS-BASIC> (0.19)
<EPS-DILUTED> 0
</TABLE>
