UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(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 0-26208
KERAVISION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0328942
(State of Incorporation) (I.R.S. Employer
Identification No.)
48630 MILMONT DRIVE
FREMONT, CA 94538
(Address of principal executive offices)
(510) 353-3000
(Registrant's telephone number)
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 April 30, 1998 there were 12,668,950 shares of Common Stock
outstanding.
<PAGE>
INDEX
-----
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
for the three-month periods ended
March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows
for the three-month periods ended
March 31, 1998 and 1997
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Items
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
KERAVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents.......................... $3,475 $2,574
Available-for-sale investments..................... 5,828 11,539
Prepaid expenses and other current assets.......... 1,183 1,265
----------- -----------
Total current assets................................. 10,486 15,378
----------- -----------
Property and equipment, at cost:
Manufacturing and laboratory equipment............. 3,665 3,298
Office furniture and fixtures...................... 585 586
Leasehold improvements............................. 395 383
----------- -----------
4,645 4,267
Accumulated depreciation and amortization............ (2,561) (2,398)
----------- -----------
Net property and equipment......................... 2,084 1,869
Other assets......................................... 98 98
----------- -----------
Total assets......................................... $12,668 $17,345
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $1,543 $1,089
Accrued payroll and related expenses............... 647 489
Accrued clinical trial costs....................... 1,362 1,211
Other accrued liabilities.......................... 271 414
Current portion of capital lease obligations....... 394 355
----------- -----------
Total current liabilities............................ 4,217 3,558
Capital lease obligations............................ 870 850
Commitments and contingencies
Stockholders' equity:
Common stock....................................... 13 13
Additional paid-in capital......................... 76,681 76,540
Deferred compensation.............................. (142) (179)
Accumulated deficit................................ (68,168) (62,634)
Notes receivable from stockholders................. (803) (803)
----------- -----------
Total stockholders' equity........................... 7,581 12,937
----------- -----------
Total liabilities and stockholders' equity........... $12,668 $17,345
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
KERAVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales........................... $152 $56
Costs and expenses:
Cost of sales and manufacturing
expenses........................ 961 770
Research and development......... 2,903 2,373
Selling, general and
administrative................ 1,911 1,379
--------- ---------
Total costs and expenses............ 5,775 4,522
--------- ---------
Operating loss...................... (5,623) (4,466)
Interest income, net................ 93 373
--------- ---------
Net Loss........................... ($5,530) ($4,093)
========= =========
Basic and diluted net loss per
common share....................... ($0.44) ($0.33)
========= =========
Shares used in calculation of
net loss per common share.......... 12,636 12,457
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
KERAVISION, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Loss................................................ ($5,530) ($4,093)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization......................... 163 168
Amortization of deferred compensation................. 37 37
Other current assets................................ 82 (554)
Accounts payable.................................... 454 (228)
Accrued liabilities................................. 166 451
--------- ---------
Total adjustments.................................... 902 (126)
--------- ---------
Net cash used in operating activities................ (4,628) (4,219)
--------- ---------
Cash flows from investing activities:
Purchases of available-for-sale investments............. (2,404) (5,783)
Sales of available-for-sale investments................. 8,111 3,185
Maturities of available-for-sale investments............ -- 3,999
Capital expenditures.................................... (378) (266)
Other assets............................................ -- 2
--------- ---------
Net cash provided by investing activities............ 5,329 1,137
--------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligations...... (121) (79)
Proceeds from sales-leaseback of capital equipment...... 180 --
Proceeds from issuance of equity securities, net
of repurchases........................................ 141 131
--------- ---------
Net cash provided by financing activities............ 200 52
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 901 (3,030)
Cash and cash equivalents at the beginning of the period. 2,574 8,291
--------- ---------
Cash and cash equivalents at the end of the period....... $3,475 $5,261
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
KERAVISION, INC.
Notes to Condensed Consolidated Financial Statements, (unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements of
KeraVision, Inc. (the "Company" or "KeraVision"), have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. The balance sheet as of March 31,1998,
the statements of cash flows for the three-month periods ended March
31,1998 and 1997 and the statements of operations for the three-month
periods ended March 31,1998 and 1997 are unaudited but include all
adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for a fair presentation of the financial
position at such date and the operating results and cash flows for those
periods. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission.
The accompanying financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Annual Report and Form 10-K for the year ended December 31, 1997. The
accompanying condensed consolidated balance sheet at December 31, 1997
is derived from audited financial statements at that date.
Results for any interim period are not necessarily indicative of
results for any other interim period or for the entire year.
2. Management's Plans and Financing
The Company's financial statements are prepared and presented on a
basis assuming it continues as a going concern. At December 31, 1997,
the Company had an accumulated deficit of $62.6 million and incurred a
net loss of $19.4 million for the year ended December 31, 1997.
Management's planned expenditures for 1998 exceed current cash, cash
equivalents and available-for-sale investments. The Company will need
to obtain additional funds to continue its research and development
activities, fund operating expenses and pursue regulatory approvals for
its products under development. Management believes that sufficient
funds will be available from additional investors to support planned
operations through December 1998. The Company intends to raise
additional funds through the sale of its equity securities and/or debt
financings. The Company may also enter into collaborative arrangements
with corporate partners that could provide the Company with additional
funding in the form of equity, debt or license fees in exchange for the
Company's rights with respect to certain markets or technology. There
can be no assurance that the Company will be able to raise any
additional funds or enter into any such collaborative arrangements on
terms favorable to the Company, or at all. If the Company is unable to
obtain the necessary capital, significant reductions in spending and the
delay or cancellation of planned activities or more substantial
restructuring options may be necessary. In such event, the Company
intends to implement expense reduction plans in a timely manner to
enable the Company to meet its operating cash requirements through at
least December 31, 1998. These actions would have material adverse
effects on the Company's business, results of operations and prospects.
3. Net Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (FAS 128). Due to the Company's net loss
in all periods presented, net loss per share includes only weighted
average shares outstanding. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform
to the FAS 128 requirements.
3. Comprehensive Income
As of January 1, 1998, the Company adopted Statement No. 130,
"Reporting Comprehensive Income". Statement No. 130 establishes new
rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement No. 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity to be included
in other comprehensive income. Total comprehensive income was not
significant during the periods ended March 31, 1998 and 1997.
4. Available-for-sale investments
The Company's available-for-sale investments at March 31,1998 were
composed of the following (in thousands):
Gross Estimated
Unrealized Fair
Cost Gain Value
----------- ----------- -----------
Certificate of deposit......... $660 $ -- $660
U.S. Treasury bills & other
government agency
obligations................... 729 -- 729
Corporate debt securities...... 4,414 25 4,439
----------- ----------- -----------
Available-for-sale
investments................... $5,803 $25 $5,828
=========== =========== ===========
All available-for-sale investments mature within one year. Gross
realized and unrealized gains/losses were not significant during the periods
ended March 31,1998 and 1997.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions. These assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Management believes that all of the assumptions used in the preparation
of financial statements contained in this Quarterly Report are
reasonable and have a reasonable basis. Actual results could differ
from these estimates.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
The following discussion should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I --
Item 1 of this Quarterly Report and the audited financial statements and
notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual
Report and Form 10-K for the year ended December 31, 1997.
Overview
Since its founding in November 1986, the Company has been engaged
in the research and development of the KeraVision Ring and related
technology. Although the Company recorded its first revenue in the
quarter ended December 31, 1996, the Company expects to continue to
incur substantial losses at least through the year ending December 31,
1998 and until sufficient revenue and margin can be generated to offset
expenses. Given the uncertainties in developing a new market, revenues
may not significantly accelerate in the foreseeable future.
Furthermore, the Company expects its expenses in all categories to
increase as its clinical and other activities increase.
The Company is currently conducting a Phase III trial for the
KeraVision Ring in the United States for myopia in the range of -1.0 to
- -3.5 diopters and a Phase II trial for myopia in the range of -3.5 to -
5.0 diopters. The Company was granted the right to affix the CE mark on
the KeraVision Ring for myopia which allows the Company to sell product
in the range of -1.0 to -5.0 diopters in European Union countries.
The research, manufacture, sale and distribution of medical
devices such as the KeraVision Ring are subject to numerous regulations
imposed by governmental authorities, principally the FDA and
corresponding state and foreign agencies. The regulatory process is
lengthy, expensive and uncertain. Prior to commercial sale in the United
States, most medical devices, including the Company's KeraVision Ring,
must be cleared or approved by the FDA. Securing FDA approvals and
clearances will require the submission to the FDA of extensive clinical
data and supporting information. Current FDA enforcement policy strictly
prohibits the marketing of medical devices for uses other than those for
which the product has been approved or cleared. After approvals have
been given, product approvals and clearances can be withdrawn for
failure to comply with regulatory standards or for the occurrence of
unforeseen problems following initial marketing. Foreign governments or
agencies also have review processes for medical devices which present
many of the same risks. The right to affix the CE mark can be
withdrawn, resulting in an inability to sell products in European
countries.
There can be no assurance that the Company's research and
development efforts will be successfully completed, and until the
development and testing processes for the KeraVision Ring are complete,
there can be no assurance that the KeraVision Ring will perform in the
manner anticipated. Although the Company does have approval to sell
product in the European Union, there can be no assurance that the
KeraVision Ring will prove to be safe or effective over the long term in
correcting vision, that the product will be approved for marketing by
the FDA or other government agencies or the approvals that the Company
has obtained will not be withdraw. There can also be no assurance that
the KeraVision Ring or any other product developed by the Company, if
any, will be commercially successful, will be successfully marketed or
achieve market acceptance. There can be no assurance that the Company
will ever achieve either significant revenues from sales of the
KeraVision Ring or any other products, if developed, or ever achieve
profitable operations.
Results of Operations
Three Months Ended March 31,1998 and 1997
Net revenues for the quarter ended March 31, 1998 increased to
$152,000 from $56,000 for the same period in the previous year as a
result of increased unit shipments. Sales were concentrated in Germany
and France where the Company has focused its market development efforts
following European Union approval of the KeraVision Ring in November
1996.
Cost of sales exceeded revenues, reflecting currently low
production volumes and certain fixed costs associated with the Company's
higher volume manufacturing capabilities.
Research and development expenses, which include clinical and
regulatory expenses, for the three-month period ended March 31, 1998
were $2.9 million, an increase of $0.5 million from the three-month
period ended March 31, 1997. The increase in expenses is attributable to
applications for patent coverage for KeraVision technologies and
instruments and expenditures associated with the United States clinical
trials. Management expects research and development expenses to
continue to increase, as clinical trials continue in Europe and the
United States.
Selling, general and administrative expenses of $1.9 million were
incurred in the three-month period ended March 31, 1998, an increase of
$0.5 million from the $1.4 million incurred in the comparable prior year
period. The increase was primarily due to market-development
investments in Europe, Canada and the Far East.
The Company recorded $0.1 million of net interest income for the
three-month period ended March 31, 1998, as compared to $0.4 million for
the previous year. Interest income decreased due to lower average cash
and investment balances from period to period. The net loss of $5.5
million for the three-month period ended March 31,1998, increased $1.4
million from the $4.1 million reported in the comparable prior year
period. The Company believes that its net loss may significantly
increase in future periods.
Liquidity and Capital Resources
The Company's financial statements are prepared and presented on a
basis assuming it continues as a going concern. At December 31, 1997,
the Company had an accumulated deficit of $62.6 million and incurred a
net loss of $19.4 million for the year ended December 31, 1997.
Management's planned expenditures for 1998 exceed current cash, cash
equivalents and available-for-sale investments. The Company will need
to obtain additional funds to continue its research and development
activities, fund operating expenses and pursue regulatory approvals for
its products under development. Management believes that sufficient
funds will be available from additional investors to support planned
operations through December 1998. The Company intends to raise
additional funds through the sale of its equity securities and/or debt
financings. The Company may also enter into collaborative arrangements
with corporate partners that could provide the Company with additional
funding in the form of equity, debt or license fees in exchange for the
Company's rights with respect to certain markets or technology. There
can be no assurance that the Company will be able to raise any
additional funds or enter into any such collaborative arrangements on
terms favorable to the Company, or at all. If the Company is unable to
obtain the necessary capital, significant reductions in spending and the
delay or cancellation of planned activities or more substantial
restructuring options may be necessary. In such event, the Company
intends to implement expense reduction plans in a timely manner to
enable the Company to meet its operating cash requirements through at
least December 31, 1998. These actions would have material adverse
effects on the Company's business, results of operations and prospects.
The Company has financed its operations since incorporation
primarily through its initial public offering, private sales of
preferred stock, interest income and equipment financing arrangements.
The Company completed an initial public offering of its Common Stock on
August 2, 1995, from which it realized net proceeds (after underwriting
discounts and expenses) of $44.4 million. Prior to the initial public
offering, the Company had raised approximately $29.5 million from the
sale of preferred stock, related warrants and common stock. Cash used in
operating activities for the first three months of 1998 has increased to
$4.6 million from $4.2 million in the same period of the prior year,
reflecting increasing net losses principally related to increased
selling, general and administrative and research and development
expenditures. Cash, cash equivalents and available-for-sale investments
decreased to $9.3 million at March 31, 1998 from $14.1 million at
December 31, 1997. Capital expenditures increased from $0.3 million in
the first quarter of 1997 to $0.4 million in the first quarter of 1998.
The Company's cash requirements may vary materially from those now
planned because of results of research, development, and clinical
testing, establishment of relationships with strategic partners, changes
in focus and direction of the Company's research and development
programs, changes in the scale, timing, or cost of the Company's
commercial manufacturing facility, competitive and technological
advances, the FDA or other regulatory processes, changes in the
Company's marketing and distribution strategy, and other factors.
Forward Looking Statements
The Company notes that certain of the foregoing statements in this
report are forward looking and that actual results may differ materially
due to a variety of factors including, but not limited to (i) slower
than anticipated market acceptance of the KeraVision Ring and challenges
associated with creating a market for a new products in the European
Union and the United States, (ii) significant unforeseen delays in the
FDA or foreign regulatory approval processes, (iii) determinations by
the FDA or foreign regulatory bodies that the clinical data collected
are insufficient to support safety and efficacy of the KeraVision Ring,
(iv) the FDA's failure to schedule advisory review panels, (v) changes
in FDA or foreign regulatory review guidelines, procedures, regulations
or administrative interpretations, (vi) complications relating to the
KeraVision Ring, the surgical procedure to insert the KeraVision Ring or
use of the KeraVision Ring, (vii) competitive products and technology
and (viii) other risk factors described under the heading "Risk Factors
Affecting the Company, its Business and its Stock Price" set forth in
Item 1 of the Company's Form 10-K for the year ended December 31, 1997
and in other filings made with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July 1997, an interference action was brought in the
United States Patent Trademark Office before the Board of
Patent Appeals and Interferences in the matter of Loomas et.
al. vs. Simon et. al., Interference No. 103,973. The
interference involves the issue of the priority of
inventions relating to technology for forming corneal
channels in which an implant or implants may be placed.
Settlement discussions are in progress. However, no
assurance can be made that a settlement can be reached and,
if not reached, that the interference will be resolved
favorably to the Company.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Items
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.25 Promissory Notes, dated April 1, 1998, executed
by Thomas Loarie in favor of the Registrant.
10.26 Promissory Note, dated April 1, 1998, executed
by Mark Fischer-Colbrie in favor of the Registrant.
10.27 Promissory Note, dated April 1, 1998, executed
by Thomas Silvestrini in favor of the Registrant.
27.1 Financial Data Schedule (filed via the EDGAR system)
(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.
KERAVISION, INC.
/s/Mark Fischer-Colbrie
-----------------------
Mark Fischer-Colbrie
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 12, 1998
FULL RECOURSE
PROMISSORY NOTE
$19,687.50 Milpitas, California
April 1, 1998
FOR VALUE RECEIVED, Thomas M. Loarie ("Borrower") promises to pay
to KeraVision, Inc., a Delaware corporation (the "Company"), the
principal sum of Nineteen Thousand Six Hundred Eighty Seven Dollars and
Fifty Cents ($19,687.50), together with interest on the unpaid principal
hereof from the date hereof at the rate of 5.62% per annum, compounded
semi-annually.
All principal and accrued interest shall be due and payable in
full on the earliest of (a) April 1, 2002 or (b) the termination of
Borrower's employment or consulting relationship with the Company for
any reason (or for no reason). Payments of principal and interest shall
be made in lawful money of the United States of America and shall be
credited first to the accrued interest, with the remainder applied to
principal.
Borrower may at any time prepay all or any portion of the
principal or interest owing hereunder.
The holder of this Note shall have full recourse against Borrower.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid
by Borrower.
/s/Thomas M. Loarie
Thomas M. Loari
FULL RECOURSE
PROMISSORY NOTE
$55,312.50 Milpitas, California
April 1, 1998
FOR VALUE RECEIVED, Thomas M. Loarie ("Borrower") promises to pay
to KeraVision, Inc., a Delaware corporation (the "Company"), the
principal sum of Fifty Five Thousand Three Hundred Twelve Dollars and
Fifty Cents ($55,312.50), together with interest on the unpaid principal
hereof from the date hereof at the rate of 5.62% per annum, compounded
semi-annually.
All principal and accrued interest shall be due and payable in
full on the earliest of (a) April 1, 2002 or (b) the termination of
Borrower's employment or consulting relationship with the Company for
any reason (or for no reason). Payments of principal and interest shall
be made in lawful money of the United States of America and shall be
credited first to the accrued interest, with the remainder applied to
principal.
Borrower may at any time prepay all or any portion of the
principal or interest owing hereunder.
The holder of this Note shall have full recourse against Borrower.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid
by Borrower.
/s/Thomas M. Loarie
Thomas M. Loarie
FULL RECOURSE
PROMISSORY NOTE
$94,669.00 Milpitas, California
April 1, 1998
FOR VALUE RECEIVED, Mark Fischer-Colbrie ("Borrower") promises to
pay to KeraVision, Inc., a Delaware corporation (the "Company"), the
principal sum of Ninety Four Thousand Six Hundred Sixty Nine Dollars
($94,669.00), together with interest on the unpaid principal hereof from
the date hereof at the rate of 5.62% per annum, compounded semi-
annually.
All principal and accrued interest shall be due and payable in
full on the earliest of (a) April 1, 2002 or (b) the termination of
Borrower's employment or consulting relationship with the Company for
any reason (or for no reason). Payments of principal and interest shall
be made in lawful money of the United States of America and shall be
credited first to the accrued interest, with the remainder applied to
principal.
Borrower may at any time prepay all or any portion of the
principal or interest owing hereunder.
The holder of this Note shall have full recourse against Borrower.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid
by Borrower.
/s/Mark Fischer-Colbrie
Mark Fischer-Colbrie
FULL RECOURSE
PROMISSORY NOTE
$81,494.00 Milpitas, California
April 1, 1998
FOR VALUE RECEIVED, Thomas A. Silvestrini ("Borrower") promises to
pay to KeraVision, Inc., a Delaware corporation (the "Company"), the
principal sum of Eighty One Thousand Four Hundred Ninety Four Dollars
($81,494.00), together with interest on the unpaid principal hereof from
the date hereof at the rate of 5.62% per annum, compounded semi-
annually.
All principal and accrued interest shall be due and payable in
full on the earliest of (a) April 1, 2002 or (b) the termination of
Borrower's employment or consulting relationship with the Company for
any reason (or for no reason). Payments of principal and interest shall
be made in lawful money of the United States of America and shall be
credited first to the accrued interest, with the remainder applied to
principal.
Borrower may at any time prepay all or any portion of the
principal or interest owing hereunder.
The holder of this Note shall have full recourse against Borrower.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid
by Borrower.
/s/Thomas A. Silvestrini_______
Thomas A. Silvestrini
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,475
<SECURITIES> 5,828
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,486
<PP&E> 4,645
<DEPRECIATION> 2,561
<TOTAL-ASSETS> 12,668
<CURRENT-LIABILITIES> 4,217
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 7,568
<TOTAL-LIABILITY-AND-EQUITY> 12,668
<SALES> 152
<TOTAL-REVENUES> 152
<CGS> 961
<TOTAL-COSTS> 961
<OTHER-EXPENSES> 4,814
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,530)
<EPS-PRIMARY> ($0.44)
<EPS-DILUTED> ($0.44)
</TABLE>
