<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED Commission File Number
SEPTEMBER 30, 1997 0-20963
UROQUEST MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 59-3176454
(state or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
173 CONSTITUTION DRIVE, MENLO PARK, CALIFORNIA 94025
(Address of principal executive offices) (Zip Code)
(650) 463-5180
(Registrant's telephone number, including area code)
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 No x
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the last practicable date.
<TABLE>
<CAPTION>
Class Outstanding at October 18, 1997
- ----------------------------- -------------------------------
<S> <C>
Common Stock, $.001 par value 11,906,507
</TABLE>
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the
Three Months and the Nine Months Ended September 30,
1997 (unaudited) and September 30, 1996 (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 and Use of Proceeds
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
UROQUEST MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
------------ ---------- ------------ ----------
(Note 1) (Note 1)
<S> <C> <C> <C> <C>
Net sales .......................... $ 4,287,298 $ -- $ 11,947,676 $ --
Cost of sales ...................... 2,515,033 -- 6,577,120 --
------------ ---------- ------------ ----------
Gross profit ..................... 1,772,265 -- 5,370,556 --
------------ ---------- ------------ ----------
Operating expenses:
Research and development ......... 680,025 244,977 1,975,321 784,160
General and administrative ....... 1,147,471 107,931 2,864,533 332,947
Sales and marketing .............. 613,495 -- 1,413,297 45,787
Severance costs .................. -- -- 1,600,000 --
Amortization of goodwill ......... 157,359 -- 485,996 --
------------ ---------- ------------ ----------
Total operating expenses ....... 2,598,350 352,908 8,339,147 1,162,894
------------ ---------- ------------ ----------
Operating loss ..................... (826,085) (352,908) (2,968,591) (1,162,894)
Other income (expense):
Interest expense ................. (43,816) (13,136) (142,224) (36,536)
Interest income .................. 157,763 1,171 451,976 17,723
------------ ---------- ------------ ----------
113,947 (11,965) 309,752 (18,813)
Loss before income taxes ........... (712,138) (364,873) (2,658,839) (1,181,707)
Provision for income taxes ......... 40,000 -- 122,000 --
------------ ---------- ------------ ----------
Net loss ...................... $ (752,138) $ (364,873) $ (2,780,839) $ (1,181,707)
============ ============ ============ ============
Net loss per share:
Historical ......................... $ (0.06) $ (0.08) $ (0.23) $ (0.25)
============ ============ ============ ============
Pro forma .......................... $ (0.06) $ (0.20)
============ ============
Weighted average shares used
in computing net loss per share:
Historical ......................... 11,879,566 4,793,160 11,856,385 4,782,472
============ ============ ============ ============
Pro forma .......................... 6,045,832 6,035,144
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
UROQUEST MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1997 1996
(Unaudited) (Note 1)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 11,241,157 $ 12,694,047
Accounts receivable, net of allowance for doubtful accounts 3,088,725 2,161,849
Inventories ................................................ 2,906,257 2,622,812
Prepaid expenses and other current assets .................. 194,187 226,040
Income tax receivable ...................................... 77,849 145,808
Deferred income taxes ...................................... 129,000 124,000
------------ ------------
Total current assets ..................................... 17,637,175 17,974,556
------------ ------------
Property and equipment, net .................................. 4,547,685 4,542,950
Intangibles, at cost, less accumulated amortization .......... 11,928,164 12,522,011
------------ ------------
Total assets ............................................. $ 34,113,024 $ 35,039,517
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable under line of credit ......................... $ - $ 150,000
Current portion of long-term debt .......................... 473,000 442,364
Accounts payable ........................................... 686,208 562,442
Accrued compensation ....................................... 205,346 146,460
Accrued selling and distribution expenses .................. 50,000 137,500
Accrued severance costs .................................... 762,601 -
Other accrued expenses ..................................... 1,199,992 544,500
------------ ------------
Total current liabilities ................................ 3,377,147 1,983,266
------------ ------------
Long-term liabilities:
Long-term debt, net of current portion ..................... 1,426,526 1,787,437
Deferred income taxes ...................................... 833,000 782,500
------------ ------------
Total long-term liabilities .............................. 2,259,526 2,569,937
------------ ------------
Shareholders' equity:
Common stock, $.001 par value; 31,000,000 shares authorized;
11,906,507 and 11,844,602 shares issued and outstanding
as of September 30, 1997 and December 31, 1996,
respectively ............................................ 11,907 11,845
Additional paid-in capital ................................. 36,960,158 36,203,483
Deferred compensation ...................................... (48,567) (62,706)
Accumulated deficit ........................................ (8,447,147) (5,666,308)
------------ ------------
Total stockholders' equity ............................... 28,476,351 30,486,314
------------ ------------
Total liabilities and stockholders' equity ............... $ 34,113,024 $ 35,039,517
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
UROQUEST MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (2,780,839) $ (1,181,707)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................................... 1,114,603 140,140
Severance expense related to accelerated vesting of stock options 712,983 -
Changes in operating assets and liabilities:
Accounts receivable ......................................... (926,876) -
Inventories ................................................. (283,445) (2,072)
Prepaid expenses and other current assets ................... 31,853 (493,480)
Accounts payable ............................................ 123,766 326,293
Accrued severance costs ..................................... 762,601 -
Accrued expenses ............................................ 626,878 65,617
Deferred income taxes ....................................... 45,500 -
Income taxes ................................................ 67,959 -
------------ ------------
Net cash used in operating activities ................ (505,017) (1,145,209)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment, net .................... (510,931) (64,238)
------------ ------------
Net cash used in investing activities ................ (510,931) (64,238)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ...................... 43,333 37,954
Proceeds from issuance of notes payable and long-term debt .. - 550,000
Repayment of notes payable and long-term debt ............... (480,275) (50,000)
------------ ------------
Net cash (used in) provided by financing activities (436,942) 537,954
------------ ------------
Net decrease in cash and cash equivalents ......................... (1,452,890) (671,493)
Cash and cash equivalents at beginning of period .................. 12,694,047 1,113,594
------------ ------------
Cash and cash equivalents at end of period ........................ $ 11,241,157 $ 442,101
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................... $ 142,224 $ 11,700
Cash paid for income taxes .................................. 80,000 -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
UROQUEST MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the assets
and liabilities of UroQuest (the "Company") and its wholly owned subsidiaries.
All significant intercompany transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position as of September 30, 1997, and the results of
operations and cash flows for the three months and the nine months ending
September 30, 1997 and 1996. The results of operations for any interim period
are not necessarily indicative of results to be expected for the full fiscal
year. The balance sheet at December 31, 1996 has been derived from audited
financial statements at such date, but does not include all of the information
and footnotes required by generally accepted accounting principles.
The accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's Form 10-K (File No. 0-20963) filed with the
Securities and Exchange Commission.
Certain reclassifications were made to the 1996 condensed
consolidated financial statements to conform with the 1997 presentation.
NOTE 2 - NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares issued during the 12-month period
prior to the Company's initial public offering at prices below the assumed
public offering price have been included in the calculation as if they were
outstanding for all periods presented through September 30, 1996 (using the
treasury stock method for stock options and warrants).
Pro forma net loss per share for the three and nine month periods
ended September 30, 1996 has been computed as described above, and also gives
retroactive effect from the date of issuance to the conversion of preferred
stock, which automatically converted to common stock upon closing of the
Company's initial public offering.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (FAS 128), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact of
FAS 128 on the calculation of primary and fully diluted earnings per share is
not expected to be material.
<PAGE> 7
NOTE 3 - INVENTORIES
Inventories at September 30, 1997 and December 31, 1996 consist of
the following:
<TABLE>
<CAPTION> September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Finished goods ........... $ 707,487 $ 748,268
Work-in-process .......... 1,195,310 1,100,104
Raw materials and supplies 1,003,460 774,440
---------- ----------
2,906,257 2,622,812
========== ==========
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations of UroQuest Medical Corporation (the "Company") should be read in
conjunction with the Condensed Consolidated Financial Statements and the related
Notes thereto included herein. The following Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1993 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results of operations could differ materially from those
anticipated by such forward-looking statements as a result of certain factors,
including those set forth below and under "Factors Affecting Operating Results".
OVERVIEW
Since its inception in April 1992, the Company has devoted its
efforts to the design and development of advanced products for the management
and diagnosis of both male and female urological disorders. The Company's
principal product, the On-Command Catheter, is an intraurethral (inside the
urethra) catheter incorporating a proprietary anchoring system and a proprietary
patient controlled, magnetically activated valve used to regulate urine flow.
The On-Command Catheter is designed to enable persons with either urinary
incontinence or urinary retention to manage their condition without the
restricted mobility, medical complications, discomfort and embarrassment
generally associated with many of the existing management alternative, including
intermittent, Foley, external and suprapubic catheters, diapers and absorbents,
and penile clamps.
The Company has experienced substantial losses since inception and,
as of September 1997, had an accumulated deficit of $8.4 million. In October
1996, the Company raised approximately $17.8 million through the initial public
offering of its Common Stock.
ACQUISITION OF BMT
On October 30, 1996, the Company acquired Bivona Medical
Technologies, Inc. ("BMT"), pursuant to which BMT became a wholly owned
subsidiary of the Company. BMT develops, manufactures and markets a line of
proprietary silicone medical device products as well as provides engineering
design, development and manufacturing services for silicone products on an OEM
basis for other medical device companies. BMT is one of a limited number of
specialty manufacturers of silicone catheters in the United States. The
acquisition of BMT constitutes the Company's first acquisition of another
business. BMT's operations are significantly different in many respects from the
Company's current operations, and the acquisition may result in a number of
unforeseen difficulties and problems that could have a material adverse effect
on the Company's business, financial condition and results of operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996:
Net sales and costs of sales. Sales of $4,287,298 for the three
months ended September 30, 1997 related to BMT sales of proprietary airway
management products and other medical device products to OEM customers. Costs of
sales of $2,515,033 related to the BMT sales. The gross margin percentage of
41.3% for the three months ended September 30, 1997 was lower than expected
primarily due to a greater percentage of lower margin OEM product sales compared
to higher margin proprietary product sales, scale-up and validation costs
related to other OEM product lines and increased training costs. The Company had
no sales and no costs of sales for the three months ended September 30, 1996.
<PAGE> 9
Research and development. Research and development expenses include
product development, clinical testing and regulatory expenses. For the three
months ended September 30, 1997 research and development expenses increased to
$680,025 from $244,977 for the three months ended September 30, 1996. Included
in the 1997 expenses were research and development expenses related to BMT
totaling $378,402. The remaining increase was attributable primarily to
increased personnel costs, clinical study costs and other research and
development expenditures primarily related to the On-Command Catheter.
General and administrative. General and administrative expenses
increased to $1,147,471 for the quarter ended September 30, 1997 from $107,931
for the quarter ended September 30, 1996. Included in the 1997 expenses were
general and administrative expenses related to BMT totaling $680,201. The
remaining increase was attributable primarily to additional personnel costs,
public company expenses and office relocation expenses.
Sales and marketing. Sales and marketing expenses increased to
$613,495 for the three months ended September 30, 1997 from $ -0- for the three
months ended September 30, 1996. This increase was primarily attributable to the
inclusion of sales and marketing expenses related to BMT totaling $437,177. The
remainder of the increase was attributable primarily to marketing and
international selling efforts.
In September 1997, the Company terminated its relationship with B.
Braun Biotrol. Previously, UroQuest had signed a Letter of Intent with B. Braun
Biotrol that included, among other items, a possible five year distribution
agreement for numerous European countries. B. Braun Biotrol also had
responsibilities for initiating a Male On-Command Catheter clinical trial in
France, which trial never commenced. The Company is currently pursuing other
distribution alternatives.
Amortization of goodwill. Amortization of goodwill of $157,359 for
the three months ended September 30, 1997 related to the amortization of
goodwill recognized as a result of the acquisition of BMT in October 1996. The
goodwill is being amortized over an estimated 20 year life. The Company had no
goodwill or related amortization for the three months ended September 30, 1996.
Other income (expense). Other income (expense) increased to net
interest income of $113,947 for the three months ended September 30, 1997 from a
net interest expense of $11,965 for the three months ended September 30, 1996.
The increase is attributable to higher net average cash balances, due primarily
to the receipt of proceeds from the Company's initial public offering (IPO), for
the three months ended September 30, 1997 in comparison to the three months
ended September 30, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996:
Net sales and costs of sales. Sales of $11,947,676 for the nine
months ended September 30, 1997 related to BMT sales of proprietary airway
management products and other medical device products to OEM customers. Costs of
sales of $6,577,120 related to the BMT sales. The Company had no sales and no
costs of sales for the nine months ended September 30, 1996.
Research and development. Research and development expenses include
product development, clinical testing and regulatory expenses. For the nine
months ended September 30, 1997 research and development expenses increased to
$1,975,321 from $784,160 for the nine months ended September 30, 1996. Included
in the 1997 expenses were research and development expenses related to BMT
totaling $1,044,325. The remaining increase was attributable primarily to
increased personnel costs, clinical study costs and other research and
development expenditures primarily related to the On-Command Catheter.
General and administrative. General and administrative expenses
increased to $2,864,533 for the nine months ended September 30, 1997 from
$332,947 for the nine months ended September 30, 1996. Included in the 1997
expenses were general and administrative expenses related to BMT totaling
$1,818,094. The remaining increase was attributable primarily to additional
personnel costs, public company expenses and office relocation expenses.
Sales and marketing. Sales and marketing expenses increased to
$1,413,297 for the nine months ended September 30, 1997 from $45,787 for the
nine months ended September 30, 1996. This increase was primarily attributable
to the inclusion of sales and marketing expenses related to BMT totaling
$1,215,814.
In September 1997, the Company terminated its relationship with B.
Braun Biotrol. Previously, UroQuest had signed a Letter of Intent with B. Braun
Biotrol that included, among other items, a possible five year distribution
agreement for numerous European countries. B. Braun Biotrol also had
responsibilities for initiating a Male On-Command Catheter clinical trial in
France, which trial never commenced. The Company is currently pursuing other
distribution alternatives.
<PAGE> 10
Severance costs. Severance costs amounted to $1,600,000 for the nine
months ended September 30, 1997. No severance costs were incurred for the nine
months ended September 30, 1996. The severance costs related to the employment
termination of certain members of senior management in May 1997. Of this amount,
approximately $713,000 is related to non-cash compensation expense due to the
acceleration of vesting periods for stock options.
Amortization of goodwill. Amortization of goodwill of $485,996 for
the nine months ended September 30, 1997 related to the amortization of goodwill
recognized as a result of the acquisition of BMT in October 1996. The Company
had no goodwill or related amortization for the nine months ended September 30,
1996.
Other income (expense). Other income (expense) increased to net
interest income of $309,752 for the nine months ended September 30, 1997 from a
net interest expense of $18,813 for the nine months ended September 30, 1996.
The increase is attributable to higher net average cash balances, due primarily
to the receipt of proceeds from the Company's initial public offering ("IPO"),
for the nine months ended September 30, 1997 in comparison to the nine months
ended September 30, 1996.
INCOME TAXES
The Company has not generated any federal taxable income to date
and, therefore, has not paid any federal income taxes since its inception. The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109. Realization of deferred tax assets is dependent on future
earnings, if any, the timing and amount of which are uncertain. Accordingly,
valuation allowances, in amounts equal to certain net deferred tax assets, have
been established in each period to reflect these uncertainties.
The Company incurs income tax liability in certain states. The
income tax provision reflects primarily a tax liability for income that cannot
be offset by losses that occur in other tax jurisdictions.
At December 31, 1996, the Company had net operating losses, for tax
purposes, of approximately $4,400,000 that can be carried forward to reduce
future federal income taxes. However, utilization of net operating losses and
any tax credit carryforwards will be subject to annual limitations due to the
ownership change limitations of the Internal Revenue Code of 1986, as amended,
and similar state provisions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the public
and private sales of equity securities and through bank-provided working capital
financing, short-term borrowings and equipment lease financing. Since inception,
the Company has raised approximately $27 million in net proceeds of equity
financing.
During the nine months ended September 30, 1997 net cash flows used
in operating activities amounted to $505,017. During the nine months ended
September 30, 1996 net cash used in operating activities amounted to $1,145,209.
The decrease in net cash flows used in operating activities in 1997 from 1996
was due to cash provided by BMT's operations and cash provided from investment
income.
The Company's primary internal sources of liquidity presently
consist of existing borrowings, cash balances and cash generated from BMT's
operations. The Company's primary external sources of liquidity are private
debt, equity financings and bank-provided debt financing.
As of September 30, 1997 and December 31, 1996, the Company had cash
of $11,241,157 and $12,694,047, respectively. The decrease since December 31,
1996 was due to the net cash used in operations, purchases of fixed assets and
repayment of long-term debt. As of September 30, 1997, the Company had no
significant noncancelable commitments for capital expenditures or raw material
<PAGE> 11
purchases, although the Company may enter into such commitments in the future.
The Company's capital requirements depend on numerous factors,
including the extent to which the On-Command Catheter and other products gain
market acceptance, actions relating to regulatory and reimbursement matters,
progress of clinical trials, the effect of competitive products, the cost and
effect of future marketing programs, the resources the Company devotes to
manufacturing and developing its products, the success of proprietary airway
management products and OEM sales, general economic conditions and various other
factors. The timing and amount of such capital requirements cannot adequately be
predicted. Consequently, although the Company believes that the net proceeds
from its IPO, together with existing borrowings and cash anticipated to be
generated from BMT's operations, will provide adequate funding for its currently
anticipated capital requirements through calendar 1998, there can be no
assurance that the Company will not require additional funding within this time
frame or that such additional funding, if needed, will be available on terms
satisfactory to the Company, if at all. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company expects its operating losses to continue until the
On-Command Catheter achieves significant market acceptance, as the Company
continues to expend substantial resources in funding clinical trials in support
of regulatory and reimbursement approvals, expansion of marketing and sales
activities, and research and development. In addition, the Company's results of
operations may fluctuate significantly during future quarterly periods.
FACTORS AFFECTING OPERATING RESULTS
This quarterly report on Form 10-Q contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated by such forward-looking
statements as a result of certain factors including those set forth in the
following risk factors and elsewhere in this quarterly report on Form 10-Q.
LACK OF REGULATORY APPROVAL AND LIMITED CLINICAL DATA
The Company's principal product, the On-Command Catheter, is an
investigational device that has not been approved by the FDA and will not be
available for commercial distribution in the United States unless and until such
approval is obtained. The Male On-Command Catheter is currently in a controlled,
randomized clinical study in the United States with respect to single use
insertions up to 30 days. During the past several months, the Company has
expanded the number of sites participating in the clinical study, hired
additional clinical and site-monitoring personnel and increased the training and
clinical product availability at these clinical sites in order to obtain product
performance feedback necessary to direct current and future product designs and
to assist in the completion of the clinical study necessary to support a PMA
submission. There can be no assurance that the FDA will determine that the data
derived from the clinical study will support the safety and efficacy of the
device nor that the data will be sufficient to file a PMA application or that
such application will be approved by the FDA. A feasibility study of the Female
On-Command Catheter is nearing completion. The results of this study will be
used to prepare an IDE ("Investigational Device Exemption") submission for a
controlled, randomized clinical study of this device. There can be no assurance
that the FDA will approve such a submission. If either the Male or Female
On-Command Catheter does not prove to be safe and effective in clinical testing
to the satisfaction of the FDA, the Company will not be able to market or
commercialize these On-Command Catheters in the United States. Furthermore,
approval for single use insertions of the On-Command Catheter, if obtained, does
not mean that use of successive device insertions will be approved. There can be
no assurance that either single use or successive insertion use of the
On-Command Catheter will prove to be safe and effective in the United States, or
that FDA approval will be obtained on a timely basis, if at all. In addition,
the clinical studies may identify technical, manufacturing, design or other
factors that could delay completion of such
<PAGE> 12
testing, as has been experienced in early clinical trials of the Male On-Command
Catheter. If the On-Command Catheter does not prove to be safe and effective in
clinical testing or if the Company is otherwise unable to obtain necessary
regulatory approval, the Company's business, financial condition and results of
operations will be materially adversely affected.
DEPENDENCE UPON THE ON-COMMAND CATHETER
The Company expects to derive a substantial majority of its future
revenues from sales of the On-Command Catheter. Although the operations of BMT
are expected to be the sole source of revenues in the short-term, the Company's
long-term revenues and future success are substantially dependent upon its
ability to market and commercialize the On-Command Catheter in the United States
and abroad. Although the Company markets a line of proprietary medical device
products through BMT, there can be no assurance that such products will receive
continued market acceptance or generate significant sales. Furthermore, even
though the Company is in the process of developing new products in addition to
the On-Command Catheter, there can be no assurance that such development efforts
will be successful or that any resulting products will achieve market
commercialization. The product life cycle of the On-Command Catheter is
difficult to estimate, particularly in light of current and future technological
developments, competition and other factors. The failure of the Company to
successfully commercialize the On-Command Catheter or to realize significant
revenues therefrom would have a material adverse effect on the business,
financial condition and results of operations of the Company.
UNCERTAINTY OF MARKET ACCEPTANCE
The On-Command Catheter represents a new management modality for
urinary dysfunction, and there can be no assurance that the On-Command Catheter
will gain any significant degree of market acceptance among physicians, health
care payors or patients, even if necessary domestic or international regulatory
and reimbursement approvals are obtained. The Company believes that
recommendations of the On-Command Catheter by physicians will be essential for
market acceptance of the On-Command Catheter, and there can be no assurance that
any such recommendations will be obtained. Broad use of the On-Command Catheter
will require the training of numerous physicians, and time required to complete
such training could result in a delay or dampening of market acceptance.
Moreover, health care payors' approval of reimbursement for the On-Command
Catheter will be an important factor in establishing market acceptance. Patient
acceptance of the device will depend on many factors, including physician
recommendations, the degree, rate and severity of potential complications, the
cost and benefits compared to competing products, lifestyle implications,
available reimbursement and other conditions. Failure of the On-Command Catheter
to achieve substantial market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
The Company has a limited history of operations. Since its inception
in April 1992, the Company has primarily engaged in research and development of
the On-Command Catheter. The Company has experienced substantial operating
losses since inception and, as of September 30, 1997 had an accumulated deficit
of approximately $8.4 million. The Company expects its operating losses to
continue until the On-Command Catheter achieves significant market acceptance as
the Company continues to expend substantial resources in funding clinical trials
in support of regulatory and reimbursement approvals, expansion of marketing and
sales activities, and research and development. There can be no assurance that
the Company will achieve or sustain profitability in the future.
GOVERNMENT REGULATION
The Company's products, including the On-Command Catheter, will be
subject to pervasive and continuing regulation by the FDA. Pursuant to the
Federal Food, Drug and Cosmetic Act (the "FDC Act"). The FDA regulates the
preclinical and clinical testing, manufacture, labeling, distribution and
promotion of
<PAGE> 13
medical devices in the United States. Prior to commercialization in the United
States, a medical device generally must receive FDA clearance or approval, which
can be an expensive, lengthy and uncertain process. Regulatory agencies in
various foreign countries in which the Company's products may be sold may impose
additional or varying regulatory requirements. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance of approval
for devices, withdrawal of marketing clearances or approvals, and criminal
prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
Companies desiring to market a new medical device generally must
obtain either a premarket notification clearance under Section 510(k) of the FDC
Act ("510(k)") or premarket approval ("PMA") prior to the introduction of such
medical device into the market. In addition, changes to a medical device that
significantly affect the safety or efficacy of the device are also subject to
FDA review and clearance or approval. Although generally believed to be a
shorter, less costly regulatory path than a PMA, the process of obtaining a
510(k) clearance generally requires the submission of supporting data, which may
include data from clinical trails of the device. The time period required to
assemble and compile this data can be extensive and can extend the regulatory
process for a considerable length of time. The PMA process can take several
years longer from initial filing and requires the submission of extensive
clinical data and supporting information.
Regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be marketed. FDA
enforcement policy strictly prohibits the marketing of approved medical devices
for unapproved uses. The Company will be required to adhere to applicable FDA
regulations regarding Good Manufacturing Practices ("GMP") and similar
regulations in other countries, which include testing, control, and
documentation requirements, and with Medical Device Reporting ("MDR")
requirements. Ongoing compliance with GMP and other applicable regulatory
requirements will
<PAGE> 14
be monitored through periodic inspections by state and federal agencies,
including the FDA, and by comparable agencies in other countries. In addition,
changes in existing regulations or adoption of new governmental regulations or
policies could prevent or delay regulatory approval of the Company's products.
Sales of medical devices outside the United States are subject to
foreign regulatory requirements that vary widely for country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company has received the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives, to the Male On-Command
Catheter. Some countries in which the Company intends to sell devices through
distributors (for example, France, Germany and Spain) either do not currently
regulate medical devices such as the On-Command Catheter or have minimal
registration requirements. However, these countries may develop more extensive
regulations in the future that could impact the Company's ability to market
On-Command Catheter.
There can be no assurance that the Company will be able to obtain
PMA approval to market the On-Command Catheter or other products in the United
States for their intended uses on a timely basis or at all, and delays in
receipt of or failure to receive such clearances or approvals, or failure to
comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is registered with the FDA and is a manufacturer, distributor, initial
importer, repackager and relabeler of medical devices. Among its activities, BMT
markets a range of proprietary and OEM products, most of which have received
510(k) clearance. BMT has made modifications to one or more of its cleared
proprietary devices that BMT believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA.
LACK OF MARKETING AND SALES EXPERIENCE
To date, the Company has not sold any On-Command Catheter products.
The Company is currently analyzing various sales and marketing methods it
intends to use to market the On-Command Catheter in the United States, if and
when necessary regulatory approvals are obtained. The Company currently employs
a small number marketing and no sales employees for the On-Command Catheter. In
addition, the Company intends to market the On-Command Catheter internationally
through independent foreign distribution arrangements, none of which are
currently in place. There can be no assurance that the Company can attract and
retain its own additional qualified marketing or sales personnel, establish
acceptable international arrangements or otherwise design and implement an
effective marketing and sales strategy for the On-Command Catheter.
<PAGE> 15
MANUFACTURING RISKS
Through BMT, the Company has only manufactured the On-Command
Catheter in limited quantities for clinical testing purposes. Although BMT has
extensive experience in manufacturing custom silicone products, including
urological catheters, the Company does not have experience in manufacturing the
On-Command Catheter in commercial quantities. The Company may encounter
difficulties, delays and significant expenses in scaling up production of the
On-Command Catheter, including potential problems involving production yields,
quality control, component supply and shortages of qualified personnel. The
Company may also experience higher than expected manufacturing costs that could
prevent the Company from selling the On-Command Catheter at a commercially
reasonable price. There can be no assurance that difficulties or unfavorable
costs will not be encountered in mass-production of the On-Command Catheter and,
in such an event, these difficulties or cost could result in a material adverse
effect on the Company's business, financial conditions and results of
operations.
RELIANCE ON PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively will depend, in part,
on its ability to develop and maintain proprietary aspects of its technology.
There can be no assurance that the Company's issued patents, or any patents
which may be issued as a result of the Company's applications, will offer any
degree of protection. Legal standards related to the enforceability, scope and
validity of patents are in transition and are subject to uncertainty due to
broad judicial discretion and evolving case law. Moreover, there can be no
assurance that any of the Company's patents or patent applications will not be
challenged, invalidated or circumvented in the future. In addition, there can be
no assurance that competitors, many of which have substantial resources and have
made significant investments in competing technologies, will not seek to apply
for and obtain patents that may prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or
internationally.
In addition to patents, the Company relies on trade secrets and
proprietary know-how, which it seeks to protect, in part, through proprietary
information agreements with certain of its employees, consultants and other
parties. The Company's proprietary information agreements with employees and
consultants contain standard confidentiality provisions and, in certain
instances, require such individuals to assign to the Company without additional
consideration any inventions conceived or reduced to practice by them while
employed or retained by the Company, subject to customary exceptions. There can
be no assurance that proprietary information agreements with employees,
consultants and others will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors. The Company
also seeks to protect its trademarks through registration. There can be no
assurance, however, that registration of such marks will provide any significant
protection.
INTENSE COMPETITION AND TECHNOLOGICAL ADVANCES
Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes its
principal competition will come from existing incontinence management
modalities, such as adult diapers and absorbents. The market for adult
absorbents is currently dominated by companies such as Kimberly-Clark
Corporation, Procter & Gamble Company and Johnson & Johnson Co. The Company also
expects to face significant competition from other domestic and international
companies that are developing similar and other products and technologies for
the management of incontinence. Most of the Company's competitors and potential
competitors have significantly greater financial, technical, research,
manufacturing, marketing, sales, distribution and other resources than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing or marketing technologies and products that are more
effective or commercially attractive than any which may be offered by the
Company, or that such competitors will not succeed in obtaining regulatory
approval, introducing or commercializing any such products prior to the Company.
Such
<PAGE> 16
developments could have material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT
In the United States and in foreign countries, third-party
reimbursement is generally available for medical devices such as intermittent,
Foley, external and suprapubic catheters for the management of urinary outflow
dysfunction, including incontinence and retention. Products such as diapers and
absorbents that are widely used for incontinence management generally do not
receive third-party reimbursement and are paid for by the patient. The Company
believes, based on the availability of third-party reimbursement paid for
certain other medical devices, that the On-Command Catheter will generally be
eligible for coverage by third-party reimbursement programs. There can be no
assurance, however, that such reimbursement will be available. The Company is
unable to determine whether the On-Command Catheter reimbursement amount, if
any, will be sufficient to cover the cost of the product. If third-party
reimbursement is unavailable, consumers will have to pay for the On-Command
Catheter themselves, resulting in greater relative out-of-pocket costs for the
device as compared to surgical procedures and other management options for which
third-party reimbursement is available. The Company does not expect that
third-party reimbursement will be available, if at all, unless and until FDA and
foreign regulatory approval is received. After such time, if ever, as applicable
regulatory approval is received, third-party reimbursement for the On-Command
Catheter will be dependent upon decisions by the Health Care Financing
Administration for Medicare in the United States and similar authorities abroad,
as well as by private insurers and other payers.
Changes in the availability of third-party reimbursement for the
On-Command Catheter, for products of the company's competitors or for surgical
procedures may affect the pricing of the On-Command Catheter or the relative
cost to the patient. Regardless of the type of reimbursement systems, the
Company believes that physician advocacy of the On-Command Catheter will be
required to obtain reimbursement. There can be no assurance that reimbursement
for the Company's products will be available in the United States or in
international markets under either governmental or private reimbursement
systems, or that physicians will support the On-Command Catheter. Failure to
obtain such reimbursement may have a material adverse effect on the Company's
business, financial condition and results of operations.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's capital requirements depend on numerous factors,
including the extent to which the On-Command Catheter and other products gain
market acceptance, actions relating to regulatory and reimbursement matters,
progress of clinical trials, the effect of competitive products, the cost and
effect of future marketing programs, the resources the Company devotes to
manufacturing and developing its products, the success of non-urological
operations, general economic conditions and various other factors. The timing
and amount of such capital requirements cannot adequately be predicted.
Consequently, although the Company believes that the net proceeds from its IPO,
together with existing borrowings and cash anticipated to be generated from
non-urological operations, will provide adequate funding for its currently
anticipated capital requirements through calendar 1998, there can be no
assurance that the Company will not require additional funding or that such
additional funding, if needed, will be available on terms satisfactory to the
Company, if at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve significant
restrictive convenants. Failure to raise capital when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE UPON KEY EMPLOYEES
The Company is dependent upon a number of key management and
technical personnel. The loss of the services of one or more key employees would
have a material adverse effect on the Company. The Company's ability to manage
its transition to commercial-scale operations, and hence its success, will
<PAGE> 17
depend in large part on the efforts of these individuals. The Company's success
will also depend on its ability to attract and retain additional highly
qualified management and technical personnel. The Company faces intense
competition for qualified personnel, and there can be no assurance that the
Company will be able to attract and retain such personnel.
INTERNATIONAL SALES RISKS
The Company plans to sell the On-Command Catheter and other products
both in the United States and in foreign markets. Any international sales are
expected to be made through independent foreign distributors and involve a
number of inherent risks. Consequently, there can be no assurance that the
Company will be able to achieve significant sales of the On-Command Catheter or
other products in any foreign market. International sales may be adversely
affected by the imposition of government controls, export license and product
registration requirements, political instability, trade restrictions, changes in
tariffs, distributor difficulties, communications problems, fluctuations in
foreign currency rates, foreign competition and other factors. Any one or more
of these factors could limit the Company's international sales and have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT LIABILITY RISK; PRODUCT RECALL RISK
The manufacture and sale of medical devices entails significant
product liability and recall risks. A recent United States Supreme Court
decision held that product liability may exist despite FDA approval and future
court decisions may also affect the Company's risk of product liability.
Although the Company maintains product liability insurance with respect to its
products, a successful product liability claim or series of claims brought
against the Company which are in excess of the Company's insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
product recalls, which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.
ENVIRONMENTAL RISKS
Through BMT, the Company utilizes many raw materials in the
manufacturing process that are subject to various environmental laws and
regulations. Proper disposal of waste including metals and chemicals used in the
manufacturing process is a major consideration for medical device manufactures.
In the event of violation of environmental laws, the Company could be held
liable for damages and for the cost of remedial actions and could also be
subject to revocation of permits necessary to conduct its business. Any such
revocations could require the Company to cease or limit production at its
facilities, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is also
subject to environmental laws relating to the storage, use and disposal of
chemicals, solid waste and other hazardous materials, as well as air quality
regulations. Changes or restrictions on discharge limits, emissions levels, or
material storage or handling might require a high level of unplanned capital
investment and/or subsequent relocation to another location. There can be no
assurance that the Company will be able to comply with the discharge levels
mandated or that the costs of complying with such regulations will not require
additional capital expenses. Furthermore, there can be no assurance that
compliance with such regulations will not have a material adverse effect on the
Company's business, financial condition and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. In addition, the market price of the Common
Stock is likely to be highly volatile. Factors such as fluctuations in the
Company's operating results, announcements of technological innovations or new
products by the Company or its competitors, FDA and international regulatory
actions, developments with
<PAGE> 18
respect to reimbursement matters, developments with respect to patents or
proprietary rights, public concern as to the safety of products developed by the
Company or others, changes in health care policy in the United States and
internationally, changes in stock market analyst recommendations regarding the
Company, other medical device companies or the medical device industry generally
and general market conditions may have a significant effect on the market price
of the Common Stock. In addition, it is likely that during future quarterly
periods, the Company's results of operations may fluctuate significantly or may
fail to meet the expectations of stock market analysts and investors and, in
such event, the Company's stock price could be materially adversely affected. In
the past, securities class action litigation has often been initiated following
periods of volatility in the market price of a company's securities. Such
litigation, if brought against the Company, could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
<PAGE> 19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable.
Item 2 - Changes in Securities and Use of Proceeds
The following information is provided as an amendment to the initial
report on Form SR, "Report of Sales of Securities and Use of Proceeds
Therefrom", regarding the use of proceeds from the sale of common stock under
the Company's Registration Statement on Form S-1 (SEC file number 333-07277),
which was declared effective on October 24, 1996 (CUSIP number 917285). The
information provided is for the period from October 24, 1996 through September
30, 1997.
The total expenses incurred in connection with the issuance and
distribution of the securities registered are estimated to be $2,296,650. This
amount includes the actual payment of $1,407,000 for underwriting discounts and
commissions; the remaining $889,650 is the estimated total for other expenses
such as legal fees, accounting fees, directors and officers insurance, and
printing charges. All the above amounts represent direct or indirect payments to
third parties. No amounts were paid directly or indirectly for the above
purposes to directors or officers of the Company, to persons owning ten percent
or more of any class of equity securities of the Company, and to affiliates of
the Company. The net offering proceeds to the Company after deducting the above
offering expenses is $17,803,350.
The following table indicates how the net proceeds have been used
to date. All amounts in the table below represent actual payments, unless
otherwise stated.
<TABLE>
<CAPTION>
Use of Net Proceeds Directors/Officers(1) Others(2) Total
- ------------------- ------------------- ------- -----
<S> <C> <C> <C>
Construction of plant, building, -- -- --
and facilities
Purchases and installation of -- 154,311 154,311
machinery and equipment
Purchases of real estate -- -- --
Acquisition of other business 8,476,330 1,523,670 10,000,000
Repayment of indebtedness 152,219 750,331 902,550
Working capital/general corporate
purposes 437,706 1,381,725 1,819,431
Other purposes:
-Clinical trials and research and
development 87,634 663,547 751,181
-Sales and marketing activities 22,383 66,316 88,699
-Severance payments 121,748 2,668 124,416
---------- ---------- ----------
9,298,020 4,542,568 13,840,588
Temporary investment:
Cash and cash equivalents -- 3,962,762 3,962,762
---------- ---------- ----------
9,298,020 8,505,330 17,803,350
========== ========== ==========
</TABLE>
(1) Direct or indirect payments to directors, officers, general partners of the
Company or their associates; to persons owing ten percent or more of any
class of equity securities of the Company; and to affiliates of the
Company.
(2) Direct or indirect payments to others.
There is no material change in the use of net proceeds as described
in the prospectus, except that the Company has used approximately $1.8 million
for working capital and general corporate purposes.
<PAGE> 20
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT
NUMBER EXHIBIT
------ -------
11.1 Statement of Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on September 8, 1997
regarding a change in accountants.
<PAGE> 21
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.
UROQUEST MEDICAL CORPORATION
Date: November 12, 1997 /s/ TERRY E. SPRAKER
---------------------------------
Terry E. Spraker, Ph.D.
President and Chief Executive
Officer
Date: November 12, 1997 /s/ JEFFREY L. KAISER
---------------------------------
Jeffrey L. Kaiser
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer)
<PAGE> 22
INDEX TO EXHIBITS
Exhibit
Number Description
- ----- -----------
11.1 Statement of Computation of Net Loss Per Share
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
UroQuest Medical Corporation
Statement of Computation of Net Loss Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (752,138) $ (364,873) $ (2,780,839) $ (1,181,707)
Historical:
Weighted average common stock outstanding 11,879,566 3,287,446 11,856,385 3,276,758
Shares related to Staff Accounting Bulletin Nos. 55, 64 and 83:
Stock options 77,143 77,143
Warrants 1,428,571 1,428,571
------------ ------------ ------------ ------------
Total shares used in calculating net loss per share 11,879,566 4,793,160 11,856,385 4,782,472
------------ ------------ ------------ ------------
Net loss per share $ (0.06) $ (0.08) $ (0.23) $ (0.25)
============ ============ ============ ============
Pro forma:
Shares used in calculating net loss per share (per above) 4,793,160 4,782,472
============ ============
Preferred stock if-converted 1,252,672 1,252,672
============ ============
Total shares used in calculating pro forma net loss per share 6,045,832 6,035,144
============ ============
Pro forma net loss per share $ (0.06) $ (0.20)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF UROQUEST MEDICAL
CORPORATION, INCLUDING THE NOTES THERETO, OF SEPTEMBER 30 1997 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,241,157
<SECURITIES> 0
<RECEIVABLES> 3,148,725
<ALLOWANCES> 60,000
<INVENTORY> 2,906,257
<CURRENT-ASSETS> 17,637,175
<PP&E> 6,491,107
<DEPRECIATION> 1,943,422
<TOTAL-ASSETS> 34,113,024
<CURRENT-LIABILITIES> 3,377,147
<BONDS> 0
0
0
<COMMON> 11,907
<OTHER-SE> 28,464,444
<TOTAL-LIABILITY-AND-EQUITY> 34,113,024
<SALES> 11,947,676
<TOTAL-REVENUES> 11,947,676
<CGS> 6,577,120
<TOTAL-COSTS> 8,339,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,224
<INCOME-PRETAX> (2,658,839)
<INCOME-TAX> 122,000
<INCOME-CONTINUING> (2,780,839)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,780,839)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
