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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-14078
BLUE FISH CLOTHING, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 22-2781253
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
No. 3 Sixth Street, Frenchtown, New Jersey 08825
------------------------------------------------
(Address of Principal Executive Offices)
(908) 996-3844
--------------
(Issuer's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year if
Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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_____
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: As of May 19, 1998,
4,599,200 shares of Common Stock, $.001 par value per share, were issued and
outstanding.
Transitional Small Business Disclosure Format (check one): YES____ NO__X__
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BLUE FISH CLOTHING, INC.
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - December 31, 1997 and March 31, 1998 3
Statements of Operations - For the Three Months Ended 4
March 31, 1997 and March 31, 1998
Statements of Cash Flows - For the Three Months Ended 5
March 31, 1997 and March 31, 1998
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS ON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 14
HOLDERS
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
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<TABLE>
<CAPTION>
Blue Fish Clothing, Inc.
BALANCE SHEETS
(unaudited)
December 31, March 31,
ASSETS 1997 1998
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 350,477 $ 127,321
Restricted cash 116,065 82,388
Certificate of deposit 500,000 -
Receivables, net of allowance of 1,180,962 819,491
$40,000 and $25,229
Inventories, net 2,944,166 3,378,605
Other current assets 175,736 141,751
Total current assets 5,267,406 4,549,556
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated 1,898,489 1,826,748
depreciation of $819,575 and $958,517
OTHER ASSETS:
Restricted certificate of deposit 300,000 300,000
Security deposits 254,551 254,551
$ 7,720,446 $ 6,930,855
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES
Line of credit $ 500,000 $ 500,000
Current portion of long-term debt 222,786 219,350
Receivable purchase line of credit 1,160,648 823,881
Accounts payable 808,893 1,121,915
Accrued expenses 364,947 511,389
Total current liabilities 3,057,274 3,176,535
DEFERRED RENT AND OTHER NON-CURRENT LIABILITIES 267,553 264,421
LONG-TERM DEBT 1,055,195 1,040,379
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 11,000,000
shares authorized, 4,599,200 shares
issued and outstanding 4,599 4,599
Additional paid-in capital 3,799,815 3,799,815
Retained (deficit) (463,990) (1,354,894)
Total stockholders' equity 3,340,424 2,449,520
$ 7,720,446 $ 6,930,855
=============== ================
The accompanying notes are an integral part of these statements.
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</TABLE>
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<TABLE>
<CAPTION>
Blue Fish Clothing, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
-----------------------------------
1997 1998
<S> <C> <C>
SALES $ 3,442,855 $ 2,337,299
COST OF GOODS SOLD 1,600,926 1,183,937
Gross margin 1,841,929 1,153,362
OPERATING EXPENSES 1,710,757 1,993,953
Income (loss) from operations 131,172 (840,591)
INTEREST EXPENSE, NET 61,895 50,313
INCOME (LOSS) BEFORE INCOME TAXES 69,277 (890,904)
INCOME TAX EXPENSE 32,283 ____-__
NET INCOME (LOSS) $ 36,994 $ (890,904)
================ ================
Net income (loss) per share:
Basic $ 0.01 $ (0.19)
================ ================
Diluted $ 0.01 $ (0.19)
================ ================
Weighted Average Shares Outstanding:
Basic 4,599,200 4,599,200
================ ================
Diluted 4,641,674 4,599,200
================ ================
The accompanying notes are an integral part of these statements.
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</TABLE>
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<TABLE>
<CAPTION>
BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOW
(unaudited)
Three Months Ended March 31,
-------------------------------------------
1997 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 36,994 $ (890,904)
Adjustments to reconcile net income (loss) to net cash
used in operating activities -
Provision for deferred rent 32,011 (3,132)
Depreciation and amortization 84,683 138,942
Provision for losses on accounts receivable 12,501 9,842
(Increase) decrease in assets -
Accounts receivable (705,352) 351,629
Inventory 5,156 (434,439)
Other assets (126,383) 33,985
Increase (decrease) in liabilities -
Accounts payable 75,964 313,022
Accrued expenses (54,389) 146,442
Net cash used in operating activities (638,815) (334,613)
INVESTING ACTIVITIES:
Payments for purchases of property and equipment (420,440) (67,201)
Proceeds from certificate of deposit - 500,000
Net cash (used in) provided by investing activities (420,440) 432,799
FINANCING ACTIVITIES:
Receivable purchase line of credit, net 704,519 (336,767)
Repayments on long-term debt (43,356) (2,479)
Payments on capital lease obligations (17,091) (15,773)
S corporation distributions paid (22,531) -
Net cash provided by (used in) financing activities 621,541 (355,019)
NET DECREASE IN CASH AND CASH EQUIVALENTS (437,714) (256,833)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,928,340 466,542
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,490,626 $ 209,709
================ ===============
CASH PAID DURING THE PERIOD FOR:
Interest $ 61,509 $ 52,263
================ ===============
Taxes $ 29,575 $ 2,500
================ ===============
The accompanying notes are an integral part of these statements.
5
</TABLE>
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BLUE FISH CLOTHING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING MARCH 31, 1998
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION:
The accompanying unaudited financial statements are presented in accordance with
the requirements for Form 10-QSB and do not include all the disclosures required
by generally accepted accounting principles for complete financial statements.
Reference should be made to the Blue Fish Clothing, Inc.'s (the "Company")
annual report on Form 10-KSB, for additional disclosures including a summary of
the Company's accounting policies and a discussion of the Company's ability to
continue as a going concern.
In the opinion of management of the Company, the financial statements include
all adjustments, consisting of only normal recurring accruals, necessary for a
fair presentation of the financial position of Blue Fish Clothing, Inc. The
results of operations for the three months ended March 31, 1998 or any other
interim period, are not necessarily indicative of the results to be expected for
the full year.
The Company incurred losses in 1996, 1997 and the first quarter of 1998. The net
sales in the first quarter of 1998 declined $1,105,556 as compared to the first
quarter of 1997. In addition, the Company has committed to capital and lease
obligations which require funding in 1998 (see Note 5). The Company's existing
financing structure is not deemed adequate to support the projected 1998 cash
flow needs. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern for a reasonable period of
time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis to comply with the terms of its financing
agreements, to obtain equity investments, additional financing or increased
availability, as may be required and ultimately to attain successful operations.
Management is currently seeking equity investments, refining its operating
structure, reorganizing its marketing function and has begun negotiations for
additional financing so that it can meet its obligations and sustain operations.
There can be no assurance, however, that Management's efforts will ultimately be
successful.
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES:
Inventories
The components of inventory as presented are as follows:
December 31, March 31,
1997 1998
----------- ------------
Raw materials $ 296,700 $ 400,633
Work-in-process 810,737 543,217
Finished goods, net 1,836,729 2,434,755
----------- ------------
$ 2,944,166 $ 3,378,605
=========== ============
Major Customers and Concentration of Credit Risk
The Company has one significant customer that accounted for 18.0% and 13.9% of
total sales for the three months ended March 31, 1997 and March 31, 1998,
respectively. This same customer accounted for 10.8% and 7.2% of net accounts
receivable at December 31, 1997 and March 31, 1998, respectively.
NOTE 3 - INCOME TAXES:
Due to recurring losses, the Company has provided a full valuation for the tax
benefit associated with the 1998 loss.
NOTE 4 - FINANCING ARRANGEMENTS
On June 25, 1997, the Company entered into a Business Loan Agreement with a bank
and received a promissory note in the amount of $800,000. This note was
initially secured by an $842,000 certificate of deposit and guaranteed by
Jennifer Barclay, a principal shareholder. On September 30, 1997, this Agreement
was modified and the bank reduced its security interest in the certificate of
deposit to $300,000 and the Company agreed to maintain a minimum deposit account
with the bank in an amount not less than $500,000. This minimum deposit amount
was spent for working capital needs during the first quarter of 1998.
At December 31, 1997, the Company had a line of credit of $500,000 subject to a
maximum outstanding amount not to exceed 50% of finished goods inventory plus
25% of work in process. This line of credit bears interest at the bank's prime
interest rate plus 0.75% payable on demand or monthly. In March 1998, the line
was increased to $1,000,000 subject to borrowing limits based on inventory and
extended to April 1999. These additional funds were borrowed on April 10, 1998.
The Company also has a receivable purchase line of credit agreement, which
provides for the assignment and processing of Company receivables with recourse
to a maximum outstanding assigned amount of $1,500,000 for a term of one year.
The Company assigns 100% of its wholesale credit sales. The Company can borrow
up to 90% of these assigned
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receivables, with the remaining 10% held in reserve in the event of
customer payment default. The receivable purchase line of credit bears interest
at 1.5% as a discount to all receivables assigned, and the Company is
responsible for reimbursing the bank for all uncollectible accounts. In March
1998, the receivable purchase line of credit was renewed and extended through
March 1999, however, this line can be terminated by either party upon notice, as
defined.
Both the line of credit and the receivable purchase line of credit are secured
by a stockholder guarantee and have a first lien on all accounts receivable,
inventory, equipment, fixtures and deposit accounts. Borrowings under the
receivable purchase line, the line of credit, and the note payable to a bank
contain cross-default and cross-collateralization provisions.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Leases
In December 1996, the Company entered into a lease for a new Corporate facility.
The lease is currently scheduled to commence in June 1998. It is estimated that
the building will be available for occupancy in August 1998. Minimum lease
payments are due monthly and begin at $267,120 per year and increase 3% per year
throughout the term plus a common area maintenance charge at the greater of
$15,000 or 5% of base rent.
In 1997, the lease was amended and obligates the Company to purchase the
Corporate facility and other buildings in the complex for $3,800,000 during the
sixth year after the Company takes possession of the premises. A deposit of
$200,000 was required which will be applied to the purchase price of the
property. This was funded through receipt of an economic development grant and
has been included in other non-current liabilities on the accompanying balance
sheet until all obligations related to the grant have been achieved. In
addition, the Company is obligated to make payments of approximately $340,000
related primarily to building improvements at this site of which $50,000 was
paid as of March 31, 1998. The lease will be accounted for as a capital lease
upon commencement. The Company is currently in the process of renegotiating this
lease; no assurance, however, can be given as to the eventual outcome.
In April 1998, the Company entered into an Agreement to purchase its production
facility in Frenchtown, New Jersey for $375,000 and paid a deposit of $37,500
upon execution of the Agreement. The scheduled closing date is June 30, 1998,
and the Company's lease for the premises expires that same date. The Company
entered into this agreement to ensure that production continues uninterrupted
because it is not clear that the Company will be able to occupy its new
Corporate facility when the lease for its current facility expires June 30,
1998.
Severance Obligations
The Company recorded a charge in the first quarter of 1998 for severance to be
paid out to former employees of approximately $123,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 ("1998 PERIOD") COMPARED TO THREE MONTHS
ENDED MARCH 31, 1997 ("1997 ERIOD")
SALES. The Company's sales decreased by $1,105,556 or 32.1% to $2,337,299 in the
1998 period as compared to the 1997 period. The Company's wholesale sales
decreased by 50.0% from $2,605,495 in the 1997 period to $1,302,167 in the 1998
period, its retail sales increased by 7.8% from $741,076 in the 1997 period to
$799,241 in the 1998 period and craft fair sales increased by 145.0% from
$96,284 in the 1997 period to $235,891 in the 1998 period. The Company
attributes the wholesale sales decrease during the 1998 period primarily to the
decreased sales of the Spring 1998 line. The Company began requiring customers
to buy the Spring line in prepack assortments and modified its grading
structure. These changes were not received well by the customers. Boutique sales
declined by 25.2% and department store sales declined by 51.5%. The retail sales
increase was primarily due to stores which opened in March 1997 and October 1997
generating sales during the 1998 period partially offset by a same store sales
decrease of 25.4%. Same store sales decreased primarily due to increased
customer returns and a grading problem for larger size customers who did not
purchase goods in the period. Craft sales increased due to additional craft
shows being scheduled to sell prior season inventory as well as increased
revenues at existing venues.
GROSS MARGIN. The major components affecting gross margin are raw material and
production costs, wholesale and retail maintained margins and sales mix. The
Company's gross margin decreased, as a percentage of sales, by 4.2 percentage
points from 53.5% in the 1997 period to 49.3% in the 1998 period. This decrease
was primarily due to the writedown of inventory in the period and increased
markdowns taken at the Company's retail stores.
OPERATING EXPENSES. The Company's operating expenses increased by $283,196 or
16.6% from $1,710,757 in the 1997 period to $1,993,954 in the 1998 period. The
increase in operating expenses in the 1998 period was primarily due to expenses
of two new retail stores which did not exist in the 1997 period, depreciation
and advertising expenses and the recording of severance charges (See Note 5 in
Notes to Financial Statements). See Liquidity and Capital Resources for
management actions in response to the increased operating expenses.
INTEREST EXPENSE, NET. The Company's interest expense, net, decreased by $11,582
or 18.7% from $61,895 in the 1997 period to $50,313 in the 1998 period. Interest
expense decreased by $20,128 primarily due to a decrease in assigned wholesale
credit receivables as a result of decreased wholesale sales partially offset by
increased borrowings for the Company's working capital needs. Interest income
decreased by $8,546 as a result of spending a portion of the Company's initial
investment of approximately $3.9 million
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of cash raised from the initial public offering which was held in intrest
bearing instruments in 1996.
PRE-TAX INCOME (LOSS). As a result of the foregoing, income before income tax
provision decreased $960,181 from $69,277 of pre-tax income in the 1997 period
to a pre-tax loss of $890,904 in the 1998 period.
INCOME TAX (BENEFIT) PROVISION. Due to recurring losses, the tax benefit of the
net loss has been fully reserved in the 1998 period. During the 1997 period the
effective tax rate was 48.5% primarily due to Federal and state taxes and the
impact of certain non-deductible expenditures.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $209,709 in cash and cash equivalents (of
which $82,388 was restricted) a receivable purchase line of credit for up to
$1,500,000 (with $823,881 outstanding and in transit) and a demand bank line of
credit for up to $1,000,000 (with a $500,000 outstanding balance), an $800,000
note payable to a bank (with an $800,000 outstanding balance) which requires a
$300,000 certificate of deposit as security, and a $345,000 loan from a
shareholder. At March 31, 1998, the Company had working capital of $1,373,021,
reflecting a decrease in working capital of $837,111 from $2,210,132 on December
31, 1997. Working capital is defined as current assets less current liabilities.
Net cash used in operations was ($334,613) during the three months ended March
31, 1998, consisting primarily of a decrease in accounts receivable of $351,629
and an increase in accounts payable of $313,022, partially offset by net loss
before depreciation and amortization of $751,962 and an increase in inventory of
$434,439. The decrease in accounts receivable and increase in inventory are
primarily due to lower wholesale sales. Net cash used in operating activities
during the same period for 1997 was ($638,815), which consisted primarily of
increases in accounts receivable of $705,352 and other assets of $126,383
partially offset by net income before depreciation and amortization of $121,677.
Net cash provided by investing activities in the 1998 period was $432,799
consisting of proceeds from a certificate of deposit of $500,000, partially
offset by capital expenditures. Net cash used in investing activities in the
1997 period was ($420,440) which consisted of capital expenditures to purchase
property and equipment, including construction and buildout of the Company's New
York retail store which opened in March, 1997, and the ongoing implementation of
the Company's Management Information System.
Net cash used in financing activities in the 1998 period was ($355,019),
consisting primarily of a decrease in the Company's receivable purchase line of
credit of $336,767. Net cash provided by financing activities in the 1997 period
was $621,541, which
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consisted primarily of an increase in the Company's receivable purchase line of
credit of $704,519.
On June 25, 1997, the Company entered into a Business Loan Agreement with a bank
and received a promissory note in the amount of $800,000. This note is subject
to monthly interest payments beginning July 25, 1997, with interest calculated
on the unpaid principal balances at an interest rate of two percentage points
over the Index. The Index represents the bank's one year certificate of deposit
yield. Four principal payments of $50,000 are to be paid in annual installments
commencing June 25, 1998 through June 25, 2001, and one principal payment of
$600,000 is to be paid on June 25, 2002. This note was initially secured by an
$842,000 certificate of deposit and guaranteed by Jennifer Barclay, a principal
shareholder. On September 30, 1997, this Agreement was modified and the bank
reduced its security interest in the certificate of deposit to $300,000. In
addition, the Company agreed to maintain a minimum deposit account with the bank
in an amount not less than $500,000. This minimum deposit amount was spent for
working capital needs during the first quarter of 1998.
At December 31, 1997, the Company had a line of credit of $500,000 subject to a
maximum outstanding amount not to exceed 50% of finished goods inventory plus
25% of work in process. This line of credit bears interest at the bank's prime
interest rate plus 0.75% payable on demand or monthly. In March 1998, the line
was increased to $1,000,000 subject to borrowing limits based on inventory and
extended to April 1999. These additional funds were borrowed on April 10, 1998.
The Company also has a receivable purchase line of credit agreement, which
provides for the assignment and processing of Company receivables with recourse
to a maximum outstanding assigned amount of $1,500,000 for a term of one year.
The Company assigns 100% of its wholesale credit sales. The Company can borrow
up to 90% of these assigned receivables, with the remaining 10% held in reserve
in the event of customer payment default. The receivable purchase line of credit
bears interest at 1.5% as a discount to all receivables assigned, and the
Company is responsible for reimbursing the bank for all uncollectible accounts.
In March 1998, the receivable purchase line of credit was renewed and extended
through March 1999, however, this line can be terminated by either party upon
notice, as defined.
Both the line of credit and the receivable purchase line of credit are secured
by a stockholder guarantee and have a first lien on all accounts receivable,
inventory, equipment, fixtures and deposit accounts. Borrowings under the
receivable purchase line, the line of credit, and the note payable to a bank
contain cross-default and cross-collateralization provisions.
In December 1996, the Company entered into a lease agreement for a new corporate
headquarters and production facility in Palmer Township, Pennsylvania,
commencing in June 1998 at an annual rent of approximately $267,000 during the
first year, $275,000 during the second year, with a three percent (3%) escalator
per year thereafter, plus taxes and operating expenses. This rent, plus
anticipated moving expenses, constitutes a
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significant increase over the Company's current occupancy cost. In addition, the
Company has committed to pay approximately $340,000 related to building
improvements at this site during 1998. If the Company is unable to generate
sufficient funds from operations to finance these additional costs, the Company
will require additional debt or equity financing. In addition, the lease
agreement, as amended, provides that the Company must purchase the leased
premises plus adjoining space and a building comprising a total of approximately
96,000 square feet and 7.5 acres of land during the sixth year after the Company
takes possession of the leased premises for $3,800,000. The Company plans to
pursue mortgage financing for this purchase. The Company is currently in the
process of renegotiating this lease; no assurance, however, can be given as to
the eventual outcome.
In April 1998, the Company entered into an Agreement to purchase its production
facility in Frenchtown, New Jersey for $375,000 and paid a deposit of $37,500
upon execution of the Agreement. The scheduled closing date is June 30, 1998,
and the Company's lease for the premises expires that same date. The Company
entered into this agreement to ensure that production continues uninterrupted
because it is not clear that the Company will be able to occupy its new
Corporate facility when the lease for its current facility expires June 30,
1998.
GOING CONCERN
During the first quarter of 1998, the Company experienced diminishing cash flow,
due primarily to a significant drop in wholesale sales. The Company experienced
a reduction in net sales in the first quarter of 1998 as compared to the first
quarter of 1997 and expects to report a loss in 1998. In response, the Company
has undertaken cost reductions, including personnel, and is negotiating with its
existing lender and potential lender(s) for an increased debt facility. No
assurance can be given that the Company will be successful in securing this
increased debt facility. In their report on the Company's financial statements
for the year ended December 31, 1997, the Company's independent public
accountants have included an explanatory paragraph raising substantial doubt
about the Company's ability to continue as a going concern, unless the Company
is able to secure additional financing to meet its obligations on a timely basis
and to increase sales. Management intends to continue to make cost reductions
where possible and to initiate various management actions to address the sales
shortfall, as well as to pursue aggressively additional sources of financing and
evaluate ways to sell excess inventory. No assurance can be given that these
management actions will be successful.
In the month of April 1998, the Company generated revenues totaling
approximately $1,050,000 in part due to the sale of non-current inventory at its
own retail stores at reduced margins. The Company plans to pursue different
avenues to sell existing non-current inventory in order to generate additional
cash. The Company anticipates a significant decline in wholesale sales in the
second quarter of 1998 during its Summer selling season and reduced margins
throughout 1998 as cash flow is generated through the sale of excess
merchandise. No assurance can be given that the Company will be
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successful in this non-current inventory sales effort, or in otherwise
addressing the Company's cash flow deficiencies.
FORWARD LOOKING INFORMATION
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "LIQUIDITY AND CAPITAL
RESOURCES." THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE
REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) UNCERTAIN FUTURE SALES GROWTH AND OPERATING
RESULTS; (2) COMPETITION; (3) SEASONALITY; (4) DEPENDENCE ON FOUNDER AND
EXECUTIVE OFFICERS; (5) RELIANCE ON AND POSSIBLE LIMITED APPEAL OF THE "BLUE
FISH CONCEPT"; (6) SENSITIVITY OF APPAREL DESIGN; (7) SIGNIFICANT WHOLESALE
CUSTOMERS; AND (8) FUTURE CAPITAL NEEDS. THE COMPANY HAS NO DUTY UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD LOOKING
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB AND THE COMPANY DOES NOT
INTEND TO PROVIDE SUCH UPDATES.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
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 INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.40 Agreement of Sale dated as of April 16, 1998 by and among
Richard D. Krause, William P. Krause and the Registrant for
the premises at 3 Sixth Street, Frenchtown, New Jersey.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On March 27, 1998, the Company announced that Marc Wallach, President,
Chief Executive Officer and a Director of the Company had resigned to
pursue other interests and that Jeffrey L. Haims had been appointed
as Acting Chief Executive Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Frenchtown in the
State of New Jersey on May 20, 1998.
BLUE FISH CLOTHING, INC.
(Registrant)
DATE: May 20, 1998 /s/ Jeffrey L. Haims
--------------------
Jeffrey L. Haims
Acting Chief Executive Officer
DATE: May 20, 1998 /s/ Richard E. Swarttz
----------------------
Richard E. Swarttz
Chief Financial Officer and
Treasurer
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EXHIBIT 10.40
AGREEMENT OF SALE
AGREEMENT OF SALE (this "Agreement"), dated as of April 16, 1998
between Richard D. Krause, having an address of 26 Fawn Drive, Flemington, NJ
08822 and William P. Krause, having an address of 713 Rosedale Road, Princeton,
NJ 08540 ("Seller") and Blue Fish Clothing, Inc., a Pennsylvania corporation
having an office at 3 Sixth Street, Frenchtown, NJ 08825 ("Purchaser").
ARTICLE 1
1.1 Sale of Premises. Seller hereby agrees to sell to Purchaser, and
Purchaser hereby agrees to purchase and acquire from Seller, fee
simple title to the property described in Schedule A annexed
hereto (the "Premises").
1.2 Title to Premises. Title to the Premises shall be good, marketable
and insurable at regular rates by a title insurer licensed in the
State of New Jersey ("Title Insurer") subject to the existing
tenancies, easements and restrictions of record listed in Schedule
A and such state of facts as the survey attached as Schedule B may
disclose ("Permitted Exceptions").
1.3 Title Defects. Purchaser shall furnish to Seller within thirty
(30) days from the date hereof, a copy of a title commitment
issued by the Title Insurer with respect to the Premises together
with a statement specifying any defects in title which are not
Permitted Exceptions ("Purchaser's Statement"). Seller shall
proceed in good faith and with due diligence to remove any such
defects. If Seller cannot or will not remove such defects within
sixty (60) days of receipt of Purchaser's Statement, Purchaser
shall have the right, upon notice to Seller and the Escrow Agent,
as defined herein, given within ten (10) days after expiration of
such sixty (60) day period, either to (a) waive the defect(s) and
close title without abatement or reduction in the purchase price,
or (b) terminate this Agreement and obtain a refund of the
Deposit, as defined
<PAGE> 2
herein, and upon such refund, this Agreement and all rights and
obligations of the respective parties hereunder shall be null and
void. If Purchaser does not advise Seller and the Escrow Agent of
its election to terminate this Agreement within such period,
Purchaser shall conclusively be deemed to have waived such right
of termination on account of such defect(s).
ARTICLE 2
2.1 Purchase Price. The purchase price for the Premises shall be Three
Hundred Seventy Five Thousand ($375,000) Dollars (the "Purchase
Price").
2.2 Payment of Purchase Price. The Purchase Price shall be payable as
follows:
(a) upon execution of this Agreement by both parties, the sum
of Thirty Seven Thousand Five Hundred ($37,500) Dollars
shall be paid by Purchaser to the Escrow Agent, as defined
herein, by check (subject to collection) to be held
pursuant to the provisions of Section 2.3 hereof (the
"Deposit");.
(b) upon closing of title (i) the Deposit and any interest
earned thereon and (ii) the balance of the purchase price,
Three Hundred Thirty Seven Thousand Five Hundred
($337,500) Dollars, plus or minus any net closing
adjustments provided herein, payable by certified,
cashier's or attorneys' trust account check or by wire
transfer of immediately available federal funds (the
"Purchase Price Balance").
2.3 Escrow Terms.
(a) The Deposit shall be held in escrow by John A. Schaff,
Esquire (the "Escrow Agent") in an interest bearing
account until disbursed as herein provided. Any interest
accrued on the Deposit shall be paid to whichever party is
entitled to the Deposit in accordance with the
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<PAGE> 3
provisions of this Agreement but shall not be credited
against any portion of the Purchase Price. The Deposit
shall be held and disbursed by Escrow Agent in the
following manner:
(i) to Seller at the closing; or
(ii) to Seller upon receipt of written demand
therefor, stating that either (x) this
Agreement has been terminated pursuant to a
provision herein which states that Seller is
entitled to the Deposit upon termination, and
certifying the basis for such termination or
(y) Purchaser has defaulted in the performance
of Purchaser's obligations under this Agreement
and the facts and circumstances underlying such
default; provided however, that the Escrow
Agent shall not honor such demand until at
least ten (10) days after it has sent a copy of
such demand to Purchaser, nor thereafter if
Escrow Agent shall have received written notice
of objection from Purchaser in accordance with
the provisions of clause (b) of this Section
2.3; or
(iii) to Seller upon termination of this Agreement by
Purchaser, pursuant to any provision hereof
which states that Seller is entitled to the
Deposit upon such termination; or
(iv) to Purchaser upon receipt of written demand
therefor, stating that either (x) this
Agreement has been terminated pursuant to a
provision hereof which states that Purchaser is
entitled to the Deposit upon termination, and
certifying the basis for such termination, or
(y) Seller has defaulted in performance of
Seller's obligations under this Agreement and
the facts and circumstances underlying such
default or that Purchaser is otherwise entitled
to the Deposit under the provisions of this
Agreement; provided, however, that Escrow Agent
shall not honor such demand until at least ten
(10) days after it has sent a copy of such
demand to Seller, nor thereafter if Escrow
Agent
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<PAGE> 4
shall have received written notice of objection
from Seller in accordance with the provisions
of clause (b) of this Section 2.3
(b) Upon receipt of written demand for the Deposit by
Purchaser or Seller pursuant to clause (ii), (iii) or (iv)
of Section 2.3, Escrow Agent shall promptly send a copy
thereof to the other party. The other party shall have the
right to object to the delivery of the Deposit by sending
written notice of such objection to Escrow Agent within
the greater of five (5) days or three (3) business days
after Escrow Agent delivers a copy of the written demand
to the objecting party but not thereafter. Such notice
shall set forth the basis for objecting to the delivery of
the Deposit. Upon receipt of such notice, Escrow Agent
shall promptly send a copy thereof to the party who made
the written demand.
(c) In the event of any dispute between the parties regarding
the Deposit, Escrow Agent, at its option, may disregard
all instructions received and either (i) hold the Deposit
until the dispute is mutually resolved and Escrow Agent is
advised of this fact in writing by both Seller and
Purchaser, or Escrow Agent is otherwise instructed by a
final unappealable judgment of a court of competent
jurisdiction, or (ii) deposit the Deposit into a court of
competent jurisdiction (whereupon Escrow Agent shall be
released and relieved of any and all liability and
obligations hereunder from and after the date of such
deposit).
(d) In the event Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive conflicting
instructions, claims or demands from the parties hereto,
or instructions which conflict with any of the provisions
of this Agreement, Escrow Agent shall be entitled (but not
obligated) to refrain from taking any action other than to
keep safely the Deposit until Escrow Agent shall be
instructed otherwise in writing signed by both Seller and
Purchaser, or by final judgment of a court of competent
jurisdiction.
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<PAGE> 5
ARTICLE 3
3.1 Due Diligence Period. Purchaser shall have the right to make such
due diligence analysis and inspection, upon prior written
notification to Seller, to conduct such inspections of the
Premises as Purchaser shall in its sole discretion deem advisable
("Permitted Activities"). All Permitted Activities shall be at the
sole expense of Purchaser and Purchaser shall repair any damage or
disturbance to the Premises. Purchaser shall defend, indemnify,
protect, release, and hold Seller harmless from all actions,
claims, costs, judgments, suits, fines, enforcement actions,
damages or expenses, including, but not limited to, reasonable
attorneys' fees and all litigation and settlement costs, arising
from Purchaser's conduct of Permitted Activities. All such
inspections shall be done within thirty (30) days from the date
this Agreement is executed by all parties (the "Due Diligence
Period"). This Section 3.1 shall survive the Closing, as
hereinafter defined.
3.2 Right of Termination. Purchaser shall have the right to terminate
this Agreement within five (5) days after the expiration of the
Due Diligence Period by written notice to Seller.
3.3 ISRA Non-Applicability. Upon satisfaction of all other
contingencies Seller shall make application to the New Jersey
Department of Environmental Protection for a Letter of
Non-Applicability under the New Jersey Industrial Site Recovery
Act with respect to the transactions contemplated by this
Agreement. In the event Seller is unable to obtain such a letter
either party may elect to terminate this Agreement by written
notice to the other..
3.4 Effect of Termination. In the event this Agreement is terminated
pursuant to Sections 3.2 or 3.3 the Deposit shall be paid to
Purchaser and neither party shall have any further liability to
the other hereunder.
3.5 Representations and Warranties; Release and Indemnification.
Purchaser understands and agrees that Seller makes no
representations or warranties respecting the Premises except as
are set forth herein and that the Premises are being sold "AS IS".
Purchaser accepts and assumes all risks and liabilities
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associated with the Premises resulting from current and past uses
by Seller and any predecessor owner or user of the Premises
including, but not limited to, risks and liabilities arising under
any and all present, future and contingent laws and regulations
including, but not limited to, the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), the New Jersey
Compensation and Control Act ("Spill Act") and any and all common
law theories including, but not limited to, strict liability
("Common Law"). Purchaser waives all present, future and
contingent rights, claims and actions the Purchaser has or may
have against Seller related in any way to the Premises arising
under any and all present, future and contingent laws and
requirements including, but not limited to, CERCLA, the Spill Act
and Common Law This Section 3.5 shall survive the Closing, as
hereinafter defined
3.6 Buyer's Acceptance. By closing on the sale of the Premises and
accepting title to the Premises from Seller, Purchaser represents
and warrants that Purchaser has had the opportunity to undertake
appropriate due diligence investigation activities regarding all
matters which may materially and adversely affect the Premises
including, but not limited to, any and all environmental matters
that may be identified during the course of appropriate due
diligence investigations conducted prior to the sale of real
property and that Purchaser has either exercised or waived this
opportunity. Purchaser also represents and warrants that Seller
has not made any representations to Purchaser, either verbal or
written, concerning the condition of the Premises and that
Purchaser is relying solely on Purchaser's due diligence
investigation to determine the condition of the Premises. This
Section 3.6 shall survive the Closing, as hereinafter defined.
ARTICLE 4
4.1 Closing Date. The closing of the transaction contemplated hereby
shall occur on or about June 30, 1998 (the "Closing").
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4.2 Deliveries by Seller. On the Closing Seller shall deliver to
Purchaser the following:
(a) duly executed Deed of Bargain and Sale with Covenant
Against Grantor's Acts for the Premises in proper
statutory form for recordation;
(b) duly executed Affidavit of Title;
(c) original tax bill for the Premises; and
(d) such other documents and instruments as Purchaser or its
Title Insurer may reasonably request in order to perfect
title to the Premises in Purchaser in accordance with the
terms of this Agreement or otherwise to carry out the
purposes of this Agreement.
4.3 Deliveries by Purchaser. On the Closing, Purchaser shall pay to
Seller the Purchase Price Balance and shall deliver to Seller the
following:
(a) resolution of the Board of Directors of Purchaser
authorizing the execution and delivery of this Agreement
and the consummation of the transactions contemplated
hereby, certified as a true copy by the Secretary of
Purchaser; and
(b) an incumbency certificate with respect to the officers of
Purchaser who executed this Agreement on behalf of
Purchaser.
4.4 Form 1099. On the Closing Date the Seller and Purchaser shall
execute and deliver a Form 1099 and shall instruct counsel for
Purchaser to file the same with the Internal Revenue Service.
ARTICLE 5
5.1 Closing Adjustments. The following apportionments and adjustments
shall be made as of 12:00 midnight on the day preceding the
Closing Date:
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(a) real estate taxes assessed against the Premises based on
the calendar year assessed;
(b) the amount of real estate transfer tax payable shall be
allowed as a credit to Purchaser;
(c) if there are any confirmed or unconfirmed special
assessments against the Premises, Purchaser shall be
allowed a credit if the work giving rise to the assessment
was completed prior to the date of this Agreement, but if
the work giving rise to the assessment was completed
subsequent to the date of this Agreement, same shall be
paid or assumed by Purchaser;
(d) rents, and
(e) all charges for utilities (unless such utilities are the
obligation of Purchaser under the present lease to the
Premises).
ARTICLE 6
6.1 Default. Either Seller or Purchaser may terminate this Agreement
by notice to the other party in the event of a material default by
the other party which remains uncured for ten (10) business days
after notice thereof unless such default cannot be cured by the
payment of money and cannot with due diligence be cured within
such ten (10) day period, in which case the defaulting party shall
have such longer period as shall be necessary to cure such
default, so long as the defaulting party proceeds to promptly cure
such default within such ten (10) day period, prosecutes such cure
to completion with due diligence and advises the other party of
the actions which the defaulting party is taking and the progress
being made. If the defaulting party decides to utilize such longer
period to cure such default, such default shall be cured within
thirty (30) days following the aforesaid ten (10) day period. If
such default is
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<PAGE> 9
not cured within such thirty (30) day period, the non-defaulting
party may terminate this Agreement.
6.2 Remedies.
(a) By Seller. If Seller fulfills its obligations hereunder
but Purchaser materially breaches any agreement contained
herein, Seller shall have the right to terminate this
Agreement and receive the Deposit together with all
interest earned thereon, and such payment when received by
Seller shall constitute and be liquidated and agreed
damages, whereupon this Agreement shall terminate and the
parties shall be relieved of any further liability or
obligation to each other.
(b) By Purchaser. If Purchaser fulfills its obligations
hereunder, but Seller materially defaults under this
Agreement beyond any applicable cure period, Purchaser
shall be entitled, as its sole and exclusive remedies, to
terminate this Agreement and recover the Deposit together
with interest earned thereon, and when received by
Purchaser shall constitute and be liquidated and agreed
damages, whereupon this Agreement shall terminate and the
parties hereto shall be relieved of any further liability
to each other, it being expressly understood that such
remedies shall be the sole and exclusive rights and
remedies of Purchaser, and constitute fair and reasonable
remedies for the damage sustained by Purchaser by reason
of Seller's breach of this Agreement. Under no
circumstances shall Seller be liable to Purchaser for any
damages other than specified above, whether such damages
are direct or consequential. Purchaser may hold over in
the Premises between July 1, 1998 and September 30, 1998
at its current rental rate in the event that Seller is
unable to close on June 30, 1998.
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<PAGE> 10
ARTICLE 7
7.1 Brokerage Commission. The parties agree that they have dealt with
each other and not through any real estate broker, person, firm or
entity who would, by reason of such dealings, be able to claim a
real estate brokerage or finder's fee as the procuring cause of
this transaction. Each of the parties agrees to indemnify the
other and hold the other harmless of and from any and all loss,
cost, damage, injury or expense arising out of, or in any way
related to, assertions, by any other person, firm or entity, of a
claim to real estate brokerage or finder's fee based on the
alleged contacts between the claiming party and the indemnifying
party which have resulted in allegedly providing a broker or
finder with the right to claim such commission or finder's fee.
The provisions of this Section 7.1 shall survive the closing of
title.
7.2 Assignment. Purchaser may assign this Agreement and all its rights
hereunder with prior notice to Seller. An assignee of this
Agreement, in the event of any assignment, shall personally assume
all of Purchaser's obligations hereunder in a writing delivered to
Seller, and Purchaser shall continue to remain liable hereunder as
a principal and not as a surety.
7.3 Notices. All notices or other communications required or permitted
to be given hereunder shall be given in writing and delivered
personally or by a reputable priority delivery service such as
Federal Express, addressed as to the appropriate party to the
address provided at the beginning. with copies to: John A. Schaff,
Esq., 115 Highway 202, Ringoes, NJ, 08551 and. Stanley V.
Ragalevsky, Esq., Warner & Stackpole, LLP, 75 State Street,
Boston, MA 02109.
The forgoing addresses may be changed or supplemented
by written notice given as above provided. Any such notice sent
by priority delivery service shall be deemed to have been
received by the addressee on the day after transmittal, or, if
delivered personally, on the date of such delivery.
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7.4 Attorneys' Fees. In the event any action or proceeding is
commenced to obtain a declaration of rights hereunder, to enforce
any provision hereof, or to seek rescission of this Agreement for
default contemplated herein, whether legal or equitable, the
prevailing party in such action shall be entitled to recover its
reasonable attorneys' fees in addition to all other relief to
which it may be entitled therein. All indemnities provided for
herein shall include, but without limitation, the obligation to
pay costs of defense in the form of court costs and attorneys'
fees and disbursements.
7.5 Heirs, Successors and Assigns. The terms agreements and conditions
herein contained shall be binding upon and inure to the benefit of
the heirs, successors and assigns of the parties hereto.
7.6 Recordation. This Agreement shall not be recorded.
7.7 Governing Law and Venue. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
New Jersey. Any action relating to this Agreement shall be filed
or instituted in the appropriate federal or state court in New
Jersey, which shall be the exclusive venue for resolution of any
dispute under this Agreement.
7.8 Incorporation of Prior Agreements. This Agreement contains the
entire understanding of the parties hereto with respect to the
subject matter hereof, and no prior or other written or oral
agreement or understanding pertaining to any such matter shall be
effective for any purpose.
7.9 Modification of Agreement. This Agreement may not be amended or
modified, nor may any obligation or right hereunder be waived
orally, and no such amendment, modification or waiver shall be
effective for any purpose, unless it is in writing and signed by
the party against whom enforcement thereof is sought.
7.10 Counterparts. This Agreement may be executed and delivered in
several counterparts, each of which, when so executed and
delivered, shall constitute an original, fully enforceable
counterpart for all purposes.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
WITNESS:
/s/ Richard Krause
----------------------------------
Richard Krause
/s/ John A. Schaff
- -----------------------------------
/s/ William P. Krause
----------------------------------
William P. Krause
ATTEST: Blue Fish Clothing, Inc.
/s/ Richard E. Swarttz By /s/ Jeffrey L. Haims
- ----------------------------------- ----------------------------------
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SCHEDULE A
"KNOW YOUR LAND" 1/23/92
[S. M. NORKEVICH LOGO]
S. M. NORKEVICH
SURVEYOR
P.O. BOX 118 FRENCHTOWN, NEW JERSEY 08825
(908) 996-2020
Description of lands of Frederick A. Krause, being Lot 1 in Block 20,
situated in the Borough of Frenchtown, County of Hunterdon, State of New
Jersey.
Beginning at a corner in Sixth Street, being the Southwesterly corner to
lands of Joseph J. Szwed and also being the termination of course No. 1 as
recorded in Deed Book 1018, Page 976 at the Hunterdon County Clerk's Office.
Said corner is on a reference course of S 84[degree symbol] 26' 30" W a
distance of 284.0 feet from a spike found at the intersection of Sixth Street
and Harrison Street. Thence:
1) S 84[degree symbol] 26' 30" W a distance of 154.94 feet along Sixth Street
to an iron pipe found marking the Northwesterly corner to lands of Susan Stone
and being in line of lands of the State of New Jersey-Department of
Environmental Protection. Thence:
2) N 09[degree symbol] 45' W a distance of 194.02 feet along the lands of the
State of New Jersey to an iron for a corner to a tract of land of Frederick A.
Krause. Thence:
3) N 84[degree symbol] 21' 25" E a distance of 169.13 feet along said lands of
Krause and running along the portion of an alley previously vacated by the
Borough of Frenchtown, then along the middle of the public alley for
approximately 29 feet at the termination of this course, to a spike in said
alley which mark the Northwesterly corner to the above mentioned lands of
Joseph J. Szwed. Thence:
4) S 05[degree symbol] 33' 30" E a distance of 193.75 feet along the lands of
Szwed, and running Easterly of a stone cartway which runs from Sixth Street to
Seventh Street through this parcel, to the point and place of beginning.
Containing 0.72 of a calculated acre, in accordance with a survey performed
by S.M. Norkevich - Surveyor.
Basis of bearing for the foregoing description is referenced to the New
Jersey State Plane Grid System.
Subject to the rights of the public in the use of a 6 foot wide strip of
land, approximately 29 feet in length at the Easterly end of course No. 3 being
one-half the width of a 12 foot wide alley.
Subject to the rights of the public, as the same now exist, in the use of
Sixth Street.
<PAGE> 14
Subject to the rights of others in the use of the stone cartway along
course No. 4, in accordance with an agreement between Frederick A. Krause and
the Borough of Frenchtown, to allow the passage of fire apparatus and rescue
equipment and to allow useage by adjoining property owners.
Subject to drainage easement reserved by the Borough of Frenchtown through
the vacated alley as recorded in Deed Book 681, Page 1.
Subject to a 20 foot wide sanitary sewer easement of the Borough of
Frenchtown along course No. 2, herein.
Subject to electric company and/or telephone company easements of record.
Subject to Easement Agreement of Access to Loading Dock - Sprinkler System.
Subject to terms of License Agreement for Parking
<PAGE> 15
SCHEDULE B
Plan of Survey of the lands of Frederick A. Krause dated January 23, 1992.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 209,709
<SECURITIES> 0
<RECEIVABLES> 844,720
<ALLOWANCES> 25,229
<INVENTORY> 3,378,605
<CURRENT-ASSETS> 4,549,556
<PP&E> 2,785,265
<DEPRECIATION> 958,517
<TOTAL-ASSETS> 6,930,855
<CURRENT-LIABILITIES> 3,176,535
<BONDS> 1,040,379
0
0
<COMMON> 4,599
<OTHER-SE> 2,444,921
<TOTAL-LIABILITY-AND-EQUITY> 6,930,855
<SALES> 2,337,299
<TOTAL-REVENUES> 2,337,299
<CGS> 1,183,937
<TOTAL-COSTS> 1,183,937
<OTHER-EXPENSES> 1,993,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,313
<INCOME-PRETAX> (890,904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (890,904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (890,904)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
