<PAGE>
UNITED STATES
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 JUNE 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE
TRANSITION PERIOD FROM ______________ TO ________________
Commission File Number 333-5278-NY
AGATE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in charter)
Delaware 94-3334052
(State or other (IRS Employer
jurisdiction Identification No.)
of incorporation)
46783 Lakeview Boulevard
Fremont, California 94538
(Address of principal executive offices)
(510) 492-5430
(Issuer's telephone number)
The Company had 12,932,004 shares of common stock, par value $0.0001 per share
outstanding as of August 13, 1999.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
<TABLE>
<CAPTION>
INDEX
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999. 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1999 AND 1998. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED JUNE 30, 1999 AND 1998. 5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE THREE MONTHS ENDED JUNE 30, 1999. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8-13
PART 2. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
-2-
<PAGE>
PART 1. FINANCIAL INFORMATION
AGATE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 1999
------------
<S> <C>
ASSETS
Current Assets:
Cash and Equivalents $ 1,733,829
Accounts Receivables, Net of Allowance 116,123
For Doubtful Accounts $27,999
Inventories 345,668
Prepaid Expenses and Other Current Assets 146,386
-------------
Total Current Assets 2,342,006
Restricted cash 151,853
Property and Equipment, net 101,644
Other Assets 27,925
-------------
Total Assets $ 2,623,428
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 35,036
Accrued Liabilities 362,479
Long Term Debt, Current Portion 259,917
Obligation under capital lease, current portion 4,031
-------------
Total Current Liabilities $ 661,463
STOCKHOLDERS' EQUITY
Convertible Preferred Stock, $0.0001 par value:
15,000,000 Shares Authorized
1,825,000 Shares Issued and Outstanding
Liquidation Preference $6,387,500 183
Common Stock, $0.0001 par value
75,000,000 Shares Authorized,
12,932,004 Shares Issued and Outstanding 1,293
Additional Paid In Capital 8,876,345
Accumulated Deficit (6,915,856)
-------------
Total Stockholder's Equity 1,961,965
-------------
Total Liabilities and Stockholder's Equity $ 2,623,428
=============
</TABLE>
-3-
<PAGE>
AGATE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
1999 1998
-----------------------------------------
<S> <C> <C>
Net Sales $ 359,730 $ 125,964
Cost of Sales 51,975 62,139
-----------------------------------------
Gross Profit $ 307,755 $ 63,825
Operating Expenses:
Research and Development 150,226 236,926
Sales and Marketing 285,113 267,367
General and Administrative 301,558 338,635
-----------------------------------------
Total Operating Expenses $ 736,897 $ 842,928
-----------------------------------------
Operating Loss (429,142) (779,103)
Interest and other Income 17,760 36,168
Interest Expense and other Expense (5,519) (7,790)
-----------------------------------------
Loss before Income Taxes (416,901) (750,725)
Income Taxes (19,891) -
-----------------------------------------
Net Loss $ (436,792) $ (750,725)
=========================================
Net Loss per Common Share - Basic & Fully Diluted (0.04) (0.07)
-----------------------------------------
Weighted Average number of Common Shares Outstanding 10,632,099 10,575,000
=========================================
</TABLE>
-4-
<PAGE>
AGATE TECHNOLOGIES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
1999 1998
--------------------------------------------
<S> <C> <C>
Cash flows from Operating Activities
Net Loss $ (436,792) $ (750,725)
Adjustments to reconcile net loss to net
cash used for operating activities:
Loss on disposal of property, equipment 364 26,243
Depreciation and Amortization 20,813 29,877
Changes in Assets and Liabilities:
Account Receivables 78,409 40,883
Inventories 49,612 51,241
Prepaid Expense and Other Assets (96,340) (55,103)
Accounts Payable and accrued liabilities (163,665) 131,333
--------------------------------------------
Net Cash Used in Operating Activities $ (547,599) (526,251)
Cash flows from Investing Activities
Restricted Cash (1,956) (50,000)
Acquisition of property and equipment (3,009) (28,933)
Proceeds from sales of property and equipment 600
--------------------------------------------
Net Cash Used in Investing Activities (4,365) (78,933)
Cash flows from Financing Activities
Proceeds from Notes Payable 76,985 -
Repayment of Notes Payable - (7,215)
Proceeds from Capitalized Leases - 315
Repayment of Capitalized Leases (2,296) -
Proceeds from Issuance of Common Stock 198,501 -
--------------------------------------------
Net Cash provided by Financing Activities 273,190 (6,900)
--------------------------------------------
Net Decrease in Cash and Cash Equivalents (278,774) (612,084)
Cash and Cash Equivalent at beginning of period 2,012,603 3,837,877
--------------------------------------------
Cash and Cash Equivalent at end of period $ 1,733,829 $ 3,225,793
============================================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for: 5,519 1,890
Interest 19,891 -
Income Tax
</TABLE>
-5-
<PAGE>
AGATE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Shares Amount Share Amount
<S> <C> <C> <C> <C>
Balance at April 1, 1999 2,075,000 7,256,589 7,050,000 1,188,068
Net loss
Issuance of common stock for cash 321,336 241,002
Common stock subscription receivable upon (42,501)
issuance of common stock for cash 198,501
Conversion of preferred stock into common stock (250,000) (875,000) 250,000 875,000
Exchange of Agate-California common stock
for Agate-Delaware (formerly ARCA) (7,621,336) (2,261,569)
common stock 11,432,004 1,143
Exchange of Agate-California preferred stock
for Agate-Delaware (formerly ARCA) (1,825,000) (6,381,589)
preferred stock 1,825,000 183
Issuance of Agate-Delaware common stock
in exchange for common stock of ARCA
upon Merger of ARCA with Agate-Delaware 1,500,000 150
Balance at June 30, 1999 1,825,000 $ 183 12,932,004 $ 1,293
Total
Shareholders'
Additional Accumulated Equity
Paid-in Capital Deficit (Deficit)
Balance at April 1, 1999 234,663 (6,479,063) 2,200,257
Net loss (436,793) (436,793)
Issuance of common stock for cash 241,002
Common stock subscription receivable upon (42,501)
issuance of common stock for cash 198,501
Conversion of preferred stock into common stock 0
Exchange of Agate-California common stock
for Agate-Delaware (formerly ARCA) 2,261,569
common stock (1,143) 0
Exchange of Agate-California preferred stock
for Agate-Delaware (formerly ARCA) 6,381,589
preferred stock (183) 0
Issuance of Agate-Delaware common stock
in exchange for common stock of ARCA
upon Merger of ARCA with Agate-Delaware (150) 0
Balance at June 30, 1999 $8,876,345 $(6,915,856) $1,961,965
</TABLE>
-6-
<PAGE>
AGATE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Unaudited Financial Statements
The consolidated balance sheets as of June 30 1999, the consolidated
statements of operations and cash flow for the three months ended June 30,
1999, and June 30, 1998, and the related information contained in these
notes have been prepared by management without audit. In the opinion of
management, all accruals (consisting of normal recurring accruals) which are
necessary for a fair presentation of financial position and results of
operations for such period have been made. Results for an interim period
should not be considered as indicative of results for a full year. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's audited financial
statements as of and for the three month period ended March 31, 1999, and as
of and for the fiscal years ended December 31, 1998, and December 31, 1997,
included in the Form 8-K/A-1 filed by the Company on August 13, 1999.
2) General
During June of 1999, holders of 250,000 Series A Preferred shares converted
such shares into common shares. Also, during June 1999, the Company raised
$241,002 by selling 321,336 common shares in a private placement at $0.75
cents per share.
On June 29 1999, all former shareholders of Agate Technologies Inc., a
California corporation ("Agate- California") were issued shares in ARCA
Corp, a New Jersey corporation ("ARCA") with no known assets or liabilities,
in exchange for the contribution of their Agate-California shares. Each
common shareholder received 1.5 ARCA common shares for each Agate-California
share exchanged. Each Series A Preferred shareholder received an equal
number of ARCA Series A Preferred Shares, which had substantially identical
rights, preferences, privileges, and restrictions, except each share is
convertible into 1.5 ARCA common shares. As a result, shareholders of Agate-
California owned in excess of 90% of ARCA's outstanding shares and Agate-
California became a wholly owned subsidiary of ARCA. The transaction between
ARCA and Agate-California will be
-7-
<PAGE>
considered to be an acquisition of ARCA by Agate-California (reverse
acquisition)
On June 30 1999, ARCA was merged into its other wholly-owned subsidiary, Agate
Technologies, Inc., a Delaware corporation,("Agate-Delaware") in order to re-
incorporate ARCA in Delaware. Agate-Delaware has Series A Preferred Stock
that has identical in rights, preferences, privileges and restrictions, to the
ARCA Series A Preferred Stock. Each ARCA shareholder received one share of
Agate-Delaware in exchange for each ARCA share.
3. Basis of Consolidation
As at June 30, 1999, the consolidated financial statements accounts reflect
the accounts of the Parent Company, Agate Technologies Inc., a Delaware
corporation and its wholly owned subsidiary, Agate-California. The accounts of
ATI Malaysia Sdn Bhd, a wholly owned subsidiary of Agate-California, are
included in the consolidated accounts.
All intercompany accounts and transactions have been eliminated in the
financial statements.
4. Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity with
FAS No. 128 "Earnings per Share" ("FAS 128") for all periods presented. In
accordance with FAS 128, basic and diluted loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. The weighted average number common shares outstanding, for all
periods presented, has given effect to the exchange of 1.5 common shares of
ARCA for each common share of Agate-California. (See not 2 above). Common
stock equivalents associated with stock options have been excluded from the
weighted average shares outstanding since the effect of these securities would
be anti-dilutive.
Summary of Significant Accounting Policies
The summary of significant accounting policies is included in the notes to the
consolidated financial statements for the three month period ended March 31,
1999, and the fiscal years ended December 31, 1998, and December 31 1997 which
were audited and appear in the Form 8K/A-1 filed by the Company on August 13,
1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
The discussion below includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's expectations
and beliefs concerning future events and trends impacting the Company and are
subject to uncertainties and risks that could cause actual results of the
Company to differ materially from those matters expressed in or implied by
forward-looking statements. The Company believes that the following factors,
among others, could affect its future performance and cause actual results of
the Company to differ materially from those expressed in or implied by forward-
looking statements made by or on behalf of the Company: (a) the effect of
changes in interest rates (b) the demand for its products and the stability of
its suppliers (c) uninsurable risks and (d) general economic conditions. In this
report, the words "anticipates," "believes," "excepts," "intends," "future," and
similar expressions identify forward-looking statements. Readers are cautioned
not to place under reliance on these forward-looking statements, which speak
only as of the date hereof.
OVERVIEW
Agate Technologies Inc. develops and markets software technologies that enable
next generation plug and play solutions and products. These software solutions
expand across various product lines and focus on high data availability,
accessibility, mobility and security for users in both Desktop and Notebook
environments. Agate Technologies Inc. has incurred losses from operations
since inception and had an accumulated deficit of $6,915,856 as at June 30,
1999. The cumulative losses were a result of significant research and
development costs and sales and marketing expenses.
To date, the Company's revenues have been primarily derived from OEM software
licenses. The Company plans to expand distribution of its products into retail
channels during fiscal year 2000. Additional information concerning
Registrant's business can be found in the Information Statement comprising
Exhibit O to Exhibit 10.19 to Registrant's Form 8-K filed on June 10, 1999.
-8-
<PAGE>
RESULTS OF OPERATIONS
The following discussion is for the three months ended June 30, 1999, and June
30, 1998, respectively.
REVENUES
Composition of Sales for the comparative quarters ending June 1998 and June 1999
were as follows:-
<TABLE>
<CAPTION>
Qtr ended June 1999 Qtr ended June 1998
<S> <C> <C> <C> <C>
Net Sales
Products 106,678 30% 80,470 64%
Licensing & Service Revenue 253,051 70% 45,494 36%
- ---------------------------------------------------------------------------
Total Net Revenue 359,730 125,964
Cost of Sales 51,975 62,139
Gross Profit 307,755 63,825
Gross Margin 85.5% 50.8%
Products as % of Net Sales 51.2% 22.7%
</TABLE>
Total net revenues for the three months ended June 30 1999 were $359,730
representing an increase of 186% over the comparative quarter ended June 30,
1998 of $125,964. Sales during the three months ended June 30 1998 reflected
sales in the initial stages since the Company commenced sales during the late
calendar quarter of 1997.
Licensing & service revenues increased from $45,494 in the three months ended
June 30, 1998, to $253,051 in the three months ended June 30, 1999, an estimate
four-fold increase over the previous quarter. This was due to an increase in the
number of OEM license agreements and the escalation of shipments of the licensed
software during the fiscal 2000 first quarter. The Company records revenue from
licensing agreements upon shipment of the software by the OEM. Product revenues
increased from $80,470 in the three months ended June 1998 to $106,678 in the
three months ended June 1999, representing a 33% increase due to more units
shipped.
Cost of Sales
Cost of Sales consists primarily of cost of materials, inward freight and for
Software products, it includes software packaging, documentation and physical
media costs.
Cost of Sales decreased to $51,975 in the three months ended June 30, 1999,
compared to $62,139 in the three months ended June 30, 1998. Gross margins were
higher at 85.5% in the three months ended June 30, 1999, compared to 50.8% in
the three months ended June 30, 1998, due primarily to increased licensing and
service revenues.
Research and Development
Research and Development expenses decreased significantly from $236,926 in the
three-month period ending June 30, 1998, to $150,226 in the three months ended
June 30, 1999. This represented a decrease of 37% and was primarily due to a
headcount decrease in certain development areas. The Company has streamlined its
development resources, eliminating the hardware development area which it now
outsources to certain contractors. Its focus in research and development
continues to be building resources in the software development team. The
Company, however, will streamline its
-9-
<PAGE>
software development team and invest in the development of product lines aimed
at sales opportunities that the Company believes will expand its installed base
of customers.
Research and development expenses are anticipated to be maintained at the
present level and could vary depending on phases in the Company's product
development efforts.
Sales and Marketing Expense
Sales and marketing expenses were relatively flat increasing by $17,746 or 6.6%
from $267,367 in the three months ended June 30 1998 to $285,113 in the three
months ended June 30, 1999. The Company does not expect to significantly raise
its Sales and Marketing personnel and instead will work with outside Sales
Representatives to complement its lead generation efforts. Marketing and
Promotion expenses, however, are expected to increase with the introduction of
new products and public relation costs.
General and Administrative Expenses
General and administrative expenses decreased by 7% to $301,558 in the three
months ended June 30, 1999 from $338,635 in the three months ended June 30,
1998. In the three months ended June 30, 1999, the Company incurred $101,807 in
expenses related to the cost of acquisition of ARCA CORP., the public company.
In the three months ended June 30, 1998, the Company incurred $54,678 in
expenses due to the closure of the Company's wholly owned subsidiary, ATI
Technologies (M) Sdn Bhd. Outside of this non-recurring expense, general and
administrative expenses in the three months ended June 30, 1998, were $283,957.
Thus, recurring general and administrative expenses decreased by 30% from
$283,957 to $199.751 in comparing the first fiscal quarters of 1999 to 2000. In
general, the Company expects general and administrative expenses to increase in
the future due to the increased expenses associated with being a public company.
Interest and Other Income
Interest and other income consists primarily of interest income earned on cash
and cash equivalents, income received from sublease, fixed asset disposal
Interest and other income decreased to $17,760 in the three months ended June
30, 1999 compared to $36,168 in the three months ended June 30, 1998. The 50%
drop in interest and other income was primarily due to reduced interest
earnings on a lower cash balance than the comparative period ending June 30,
1998.
-10-
<PAGE>
Liquidity and Capital Resources
As at June 30, 1999, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $1,733,829 compared to $2,012,603 as at March 31
1999. The Company's net cash used in operating activities was $ 547,599 for the
three months ended June 30, 1999 compared to $526,252, for the three months
ended June 30, 1998.
On April 01 1999, the Company had cash of $2,012,603. During the three months
ended June 30, 1999, the Company received $198,501 in proceeds from issuance of
common stock. The Company received $76,985 from an increase in bank loan and
$600 from sale of property and equipment. The Company used $547,599 in
operating activities, $3,009 in acquisition of property and equipment and repaid
$2,296 in capitalized leases. The net decrease in cash was $278,774. The
Company had $1,733,829 in cash on June 30, 1999 excluding cash held in
restricted accounts.
Currently, about 70% of the Company's assets of $2,623,428 are represented by
cash or cash equivalents and Management believes that under its current business
plans, its current working capital, cash flows from operating activities and
funds available from borrowing arrangements are adequate to fund its operations
and capital requirements through March 2000.
There is no assurance, however that the Company's financial position, liquidity
or result of operations may not be adversely impacted, should a material adverse
change occur in the Company's operations or business environment.
The Company's future liquidity and capital requirements will depend on numerous
factors, including the progress of the Company's product development programs,
the resources the Company devotes to developing and marketing its products, the
extent to which the Company's products generate market acceptance and demand,
and other factors.
Impact of the Year 2000 Issue
The Company's State of Readiness
The Company has determined that its current computer systems are Year 2000 ready
and would function properly with respect to dates in the year 2000 and beyond.
However, the Company has plans to replace its current computer systems to meet
the needs of the business as the Company continues to grow. The replacement
system will be Year 2000 compliant. The Company has yet to initiate discussions
with all of its third-party relationships to ensure that those parties have
appropriate plans to remedy Year 2000 issues where their systems impact the
Company's operation. The Company is assessing the extent to which its
operations are vulnerable should those organizations fail to properly remedy
their computer systems. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no guarantee that the
systems of other companies on which the Company's operations rely will be
converted on a timely basis and will not have a material effect on the Company.
The cost of the Year 2000 initiative is not expected to be material to the
Company's results of operations or its financial position.
OTHER FACTORS AFFECTING FUTURE RESULTS:
RECENT AND EXPECTED LOSSES. From inception, the Company has never been
profitable. There can be no assurance that it ever will generate positive
revenues from its operating activities, or that it will achieve and sustain a
profit during any future period. Failure to achieve significant revenues or
profitability would materially and adversely affect the Company's business,
financial condition and results of operations.
NEED FOR ADDITIONAL CAPITAL. Although the Company anticipates that its current
cash balances will be sufficient to meet the Company's capital requirements
through March of 2000, there can be no assurance that the Company will not
require additional sources of cash at an earlier date. This will depend on the
revenues generated in the upcoming periods, and the timing of required
expenditures. If the Company is required to obtain additional financing in the
future, there can be no assurance that capital will be available on terms
acceptable to the Company, if at all.
CONCENTRATION OF CONTROL. The Company is controlled in the majority by Francis
Khoo and Vincent and Shirley Ooi through their individual ownership and
ownership through Pacific Rim Trading Co., Ltd. As a result, these shareholders
may be
-11-
<PAGE>
able to exercise significant influence over all matters involving shareholder
approval, including the election of directors and approval of significant
corporate transactions.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon a number of key management employees, in particular, upon Francis
Khoo and Vincent and Shirley Ooi. Loss of the services of any one of them would
be materially detrimental. The Company has key person life insurance on some of
these individuals, but there can be no assurance that proceeds from the
insurance would be sufficient. There can be no assurance that the Company will
be successful in retaining these individuals and other key technical and
management personnel.
PERSONNEL RECRUITMENT. The Company intends to recruit a chief operating officer
who will be critical to the success of the company. There can be no assurance
that such person will be located. Also the Company needs to retain current and
recruit additional engineering talent which is difficult in the intensely
competitive job market of Silicon Valley. If the Company is unable to obtain and
retain highly skilled individuals to fulfill technical and managerial functions,
the Company's business and financial condition may be materially affected.
UNEXPLORED MARKETS. The Company is actively looking for new OEMs and markets
and distribution channels for its soon to be released products. There can be no
assurance that the company will be successful in these regards.
SUPPLY RELATIONSHIPS WITH THIRD PARTIES. The Company will be dependent upon the
hardware products of third parties for its products that are "bundled" with
other products for sale. There is no assurance that the relationship between
the Company and the third parties will continue to be beneficial to the Company.
There can be no assurance that the third parties will continue to produce
products in the future that retain their current level of market acceptance,
that the products will continue to be available in adequate quantities at the
times required by the Company, nor that the third party products will not
contain defects or errors. The Company may experience lost revenues due to the
third party's delay in correcting defects in their products, delay in getting an
adequate supply of their products to the Company, or from any resulting loss of
market share.
TECHNOLOGICAL CHANGE AND MARKET COMPETITION. Competition in the date storage
industry is intense, and the industry is characterized by changing technologies
and customer demands for new products. Third parties could develop products and
technologies which cause those of the Company to become obsolete. Most of the
Company's competitors have significantly greater financial, development,
marketing and other resources than the Company. In light of the intense
competition in the industry, there can be no assurance that the Company will be
successful in its ability to enhance current products and develop and introduce
future products that will achieve market acceptance. The company's future is
largely dependent on development of new products. While these products are
largely developed, there can be no assurance that these products will be
successfully or timely completed.
MINIMAL MARKET IN AGATE STOCK. Prior to its take-over by Agate-California
shareholders on June 29, 1999, ARCA stock was very thinly traded. The three
market makers sold less than 10,000 shares during the first five months of 1999.
There can be no assurance that any material trading market will develop for
Agate-Delaware stock. Such lack of active trading may cause a hesitance to
purchase Agate shares on the part of potential shareholders, due to the
perceived illiquidity of the shares, thereby perpetuating the lack
-12-
<PAGE>
of a market in the stock and a corresponding artificial depression in value of
Agate stock.
INTELLECTUAL PROPERTY. The Company has copyrighted its software executable
code. However, to protect the remainder of its intellectual property, the
Company currently relies primarily on trade secret law and the Company's
perpetual innovation of its products. The nature of the Company's product line
is such that the products are susceptible to reverse engineering by competitors.
The Company has applied for a patent to protect some of its technology; however,
there can be no assurance that such patent will be granted, and if it should be
granted, that it will be sufficient to be effective against competitors. In
addition, there can be no assurance that a third party have not filed or will
not file applications for patents or obtain additional proprietary rights that
will prevent, limit, or interfere with the Company's ability to make, use, or
sell its products. In the event the Company found it necessary to acquire a
license to a product from a third party, there can be no assurance that such
license would be available, or if available, would be available on terms
acceptable to the Company, or that the Company could successfully redesign its
products to avoid infringement of the third party's patent.
SUPPLY OF STOCK. Currently only 450,000 shares are available for trading under
SEC rules. Three months after the closing date of June 29, 1999, 100,000 shares
become available and six months after the closing date, an additional 450,000
become available. Eleven and one-half months after the closing date an
additional 450,000 shares become available, and twelve months after the closing
date, another 13,500,000 shares become available for trading. The large
availability of shares for trading could affect the market adversely and drive
the market price down.
SUBORDINATION. The Company's common stock is subordinate to any Series A
Preferred Stock which may result from the exchange if Agate preferred
shareholders elect to receive ARCA preferred stock. In addition, the Company's
common stock will be subordinate to any future preferred stock that the Company
creates and issues. No vote of the Company's common shareholders is required to
issue preferred stock.
MANUFACTURING. The Company's custom ASIC HotChip is sole sourced. The Company
attempts to reduce the adverse impact a problem with the supplier could cause by
maintaining a safety stock; however, there can be no assurance that the Company
would be able to replace the supplier before its safety stock ran out.
-13-
<PAGE>
PART 2. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
(a) On June 30, 1999, Registrant, then known as ARCA Corp., a New Jersey
corporation ("ARCA"), merged into its wholly-owned subsidiary, Agate
Technologies, Inc., a Delaware corporation ("Agate-Delaware"), in order to re-
incorporate in Delaware. The outstanding common and Series A Preferred shares
of ARCA were converted one-for-one into common and Series A Preferred shares of
Agate-Delaware. Although Registrant attempted not to change the relative
rights, preferences, privileges, and restrictions of the common and Series A
Preferred shares of ARCA and Agate-Delaware, they may differ none the less
because of differing provisions in the corporate law of New Jersey and Delaware.
(b) As described in Item 2(a) above, while Registrant knows of no material
limitation or modification of the rights of the common shareholders due to its
re-incorporation in Delaware, there may none the less have been such a
limitation or modification due to differences in New Jersey and Delaware
corporate law.
(C) Unregistered Stock Issuances.
i. Registrant, then ARCA, on June 20, 1999, issued 500,000 common shares
to Bresner Partners, Ltd. in consideration for services rendered valued
at $0.50 per share or $250,000 in the aggregate. Such services were
rendered in connection with the transaction described in Item 2(c)(ii)
below with Agate Technologies, Inc., a California corporation ("Agate-
California"). Registrant relied on the exemption from registration
under the Securities Act of 1933, as amended (the "Act") provided by
Act Section 4(2) and Rule 506 promulgated under Act Regulation D.
ii. Registrant, also then ARCA, on June 29, 1999, issued 1,825,000 Series A
Preferred shares and 11,432,004 common shares to the former
shareholders of Agate-California who contributed to Registrant their
1,825,000 Agate-California Series A Preferred shares and 7,621,336
Agate-California common shares, respectively. As a result, Agate
California became a wholly-owned subsidiary of Registrant and Agate-
California shareholders owned in excess of 90% of Registrant's
outstanding common equivalents. Registrant relied on the exemption from
registration under the Act provided by Act Section 4(2) and Rule 506
promulgated under Act Regulation D.
ITEMS 3 DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On June 28, 1999, Registrant, then ARCA, held an annual shareholders
meeting.
(b) At the meeting, Harry J. Santoro and Stephen M. Robinson were re-elected as
directors. (On June 29, 1999, they appointed Francis CS Khoo and Shirley
Ooi as directors and resigned.)
-14-
<PAGE>
(c) The notice of this meeting and an information statement sent to
Registrant's shareholders were included as Exhibit I to Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated June 4, 1999, filed with the
SEC on June 10, 1999. All of the items listed in said notice and described
in said information statement were voted upon and were approved unanimously
by the 620,209 shares represented in person or by proxy at the meeting.
ITEM 5 OTHER INFORMATION
NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(a) (1) The financial statements filed as part of this Report at Item 1 are
listed in the Index to Financial Statements and Financial Statement Schedules on
page 2 of this Report.
(a)(2) The following exhibits are filed with this Quarterly Report on Form
10-QSB:
3.01 Registrant's Articles of Incorporation as amended to date are
incorporated by reference from Exhibit O to Exhibit 10.19 to Registrant's
Current Report on Form 8-K, filed June 10, 1999.
3.02 Registrant's bylaws, as amended to date are incorporated by reference
from Exhibit O to Exhibit 10.19 to Registrant's Current Report on Form 8-K,
filed June 10, 1999.
4.0 Exhibit 3.01 above is hereby incorporated by reference.
10.20 Registrant's 1999 Dual Stock Option Plan is attached as Exhibit 10.20.
10.21 Stock Contribution and Stock Issuance Agreement between ARCA Corp.,
Agate Technologies, Inc. and Certain of their Shareholders, and Apta
Holdings, Inc., is hereby incorporated by reference as Exhibit 10.21
from Exhibit 10.19 to Registrant's Current Report on Form 8-K filed on
June 10, 1999.
27.00 Financial Data Schedule is attached as Exhibit 27.00
(b) Reports on Form 8-K
(1) Dated June 28, 1999, Filed July 9, 1999 - The Form reported the following
items:
Item 1. Changes in Control of Registrant
Item 2. Acquisition and Disposition of Assets
Item 4. Change in Registrant's Certifying Accountant
Item 7. Financial Statements and Exhibits
Item 8. Change in Fiscal Year
However, no financial statements were provided due to the impracticality of
providing such statements. The financial statements were to be provided by
amendment to the Form 8-K not later than seventy-five (75) days after June 4,
1999, the date of the transaction which caused the Form 8-K to be filed. These
financial statements were contained in Amendment 1 to this Form 8-K which was
filed on August 13, 1999.
(2) Dated June 15, 1999, Filed June 16, 1999 - The Form reported the following
items:
Item 2. Acquisition or Disposition of Assets
-15-
<PAGE>
Item 7. Financial Statements and Exhibits
No financial statements were filed with this Form 8-K.
(3) Dated June 4, 1999, Filed June 10, 1999 - The Form reported the following
items:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
No financial statements were filed with this Form 8-K.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGATE TECHNOLOGIES, INC.
Date: August 13, 1999 /s/ Francis CS Khoo
----------------------- -------------------------------------
By: Francis CS Khoo
Chairman of the Board and CEO
-16-
<PAGE>
Exhibit 10.20
AGATE TECHNOLOGIES, INC.
1999 DUAL STOCK OPTION PLAN
1. Purposes
--------
Agate Technologies, Inc., a Delaware corporation (hereinafter called
the "Company") has adopted this Plan to enhance the interest and concern of the
Company's key employees, officers, directors and consultants in the success of
the Company by giving them an ownership interest in the Company, and to give
them an incentive to continue their service to the Company.
2. Stock Subject to Plan
---------------------
The Company shall reserve 4,500,000 shares of its $.0001 par value
Common Stock (hereinafter called the "Shares") to be issued upon exercise of the
options which may be granted from time to time under this Plan. As it may from
time to time determine, the Board of Directors of the Company (hereinafter
called the "Board") may authorize that the Shares may be comprised, in whole or
in part, of authorized but unissued shares of the Common Stock of the Company or
of issued shares which have been reacquired. If options granted under this Plan
terminate or expire before being exercised in whole or in part, the Shares
subject to those options which have not been issued may be subjected to
subsequent options granted under the Plan.
3. Administration of the Plan
--------------------------
The Board shall appoint a Stock Option Committee (hereinafter called
the "Committee") which shall consist of not less than two (2) members of the
Board, and, at the election of the Board or if the Board consists of less than
three directors, may consist of the entire Board, to administer the Plan.
Subject to the express provisions of this Plan and guidelines which may be
adopted from time to time by the Board, the Committee shall have plenary
authority in its discretion (a) to determine the individuals to whom, and the
time at which, options are granted, and the number and purchase price of the
Shares subject to each option; (b) to determine whether the options granted
shall be "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986 (hereinafter called the "Code"), or non-statutory
stock options, or both; (c) to interpret the Plan and prescribe, amend and
rescind rules and regulations relating to it; (d) to determine the terms and
provisions (and amendments thereof) of the respective option agreements subject
to Section 6 of the Plan, which need not be identical, including, if the
Committee shall determine that a particular option is to be an incentive stock
option, such terms and provisions (and amendments thereof) as the Committee
deems necessary to provide for an incentive stock option or to conform to any
change in any law, regulation, ruling or interpretation applicable to incentive
stock options; and (e) to make any and all determinations which the Committee
deems necessary or advisable in administering the Plan. The Committee's
determination on the foregoing matters shall be conclusive. The Committee may
delegate any of the foregoing authority to the President with respect to options
granted to or which are held by non-officers.
4. Persons Eligible
----------------
Options may be granted under the Plan to employees of and consultants
to the Company and its subsidiaries, including officers and directors.
Employees may be granted either incentive or non-statutory options while
consultants may be granted only non-statutory options. Officers and directors
shall be deemed to be consultants for the foregoing purposes unless they are
also employees. For purposes of this Plan, "employee" shall conform to the
requirements of Section 422A of the Code, and "subsidiary" shall mean subsidiary
corporations as defined in Section 425 of the Code.
The aggregate fair market value (determined as of the time the option
is granted) of the Shares with respect to which incentive stock options are
1
<PAGE>
exercisable for the first time by an optionee during any calendar year (under
all incentive stock option plans of the Company or its parent or subsidiaries)
shall not exceed $100,000.
5. Changes in Capital Structure
----------------------------
(a) Effect on the Plan. In the event of changes in the outstanding
------------------
capital stock of the Company by reason of any stock dividend, stock split or
reverse split, reclassification, recapitalization, merger or consolidation,
acquisition of 80 percent or more of its gross assets or stock, reorganization
or liquidation, the Committee and/or the Board shall make such adjustments in
the aggregate number and class of shares available under the Plan as it deems
appropriate, and such determination shall be final, binding and conclusive.
(b) In Outstanding Options.
----------------------
(i) Stock Splits and Like Events.
----------------------------
Should a stock dividend, stock split, reverse stock split,
reclassification, or recapitalization occur, then the Committee and/or the Board
shall make such adjustments in (i) the number and class of shares to which
optionees will thereafter be entitled upon exercise of their options and (ii)
the price which optionees shall be required to pay upon such exercise as it in
its sole discretion in good faith deems appropriate, and such determination
shall be final, binding and conclusive. Notwithstanding the foregoing, such
adjustment shall have the result that an optionee exercising an option
subsequent to such occurrence would pay the same aggregate exercise price to
exercise the entire option and would then hold the same class and aggregate
number of shares as if such optionee would have exercised the outstanding option
immediately prior to such occurrence.
(ii) Recapitalizations; Assumption of Options.
----------------------------------------
(A) Definition of "Event".
---------------------
An "Event" shall mean the occurrence of any of the following
transactions:
(I) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the options granted under this Plan are assumed by the successor
corporation, which assumption shall be binding on all optionees);
(II) a dissolution or liquidation of the Company;
(III) the sale of substantially all of the assets of
the Company; or
(IV) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Code wherein the shareholders of the
Company give up all of their equity interest in the Company (except for the
acquisition, sale or transfer of all or substantially all of the outstanding
shares of the Company).
(B) Effect of "Event".
-----------------
Upon the consummation of an Event, the Board shall make arrangements
which shall be binding upon the holders of unexpired options then outstanding
under this Plan as the Board, in its sole discretion, in good faith determines
to be in the best interests of the Company, which determination shall be final
and conclusive. The possible arrangements include, but are not limited to, the
substitution of new options for any portion of such unexpired options, the
assumption of any portion of such unexpired options by any successor to the
Company, the acceleration of the expiration date of any portion of such
unexpired options to a date not earlier than thirty (30) days after notice to
the optionee,
2
<PAGE>
or the cancellation of such portion in exchange for the payment by any successor
to the Company of deferred compensation to the optionee. (Such deferred
compensation may (but need not) be in an amount equal to the difference between
the fair market value of the Shares subject to such unexpired portion and the
aggregate exercise price of the Shares under the terms of such unexpired portion
on the date of the Event and may (but need not) be paid in installments which
correspond to the vesting schedule of the unexpired option.) The Board shall not
be obligated to arrange such substitution or assumption to comply with Section
425(a) of the Code or to accelerate the exercisability of a portion of an option
when it accelerates the expiration date of such portion.
(C) Company Acquisitions.
--------------------
The Company, from time to time, also may substitute or
assume outstanding awards granted by another company, whether in connection with
an acquisition of such other company or otherwise, by either (i) granting an
option under the Plan in substitution of such other company's award, or (ii)
assuming such award as if it had been granted under the Plan if the terms of
such assumed award could be applied to an option granted under the Plan. Such
substitution or assumption shall be permissible if the holder of the substituted
or assumed option would have been eligible to be granted an option under the
Plan if the other company had applied the rules of the Plan to such grant. In
the event the Company assumes an award granted by another company, the terms and
conditions of such award shall remain unchanged (except that the exercise price
and the number and nature of shares issuable upon exercise of any such option
will be adjusted appropriately pursuant to Section 424(a) of the Code). In the
event the Company elects to grant a new option rather than assuming an existing
option, such new option may be granted with a similarly adjusted exercise price.
6. Terms and Conditions of Options
-------------------------------
Each option granted under this Plan shall be evidenced by a stock
option agreement (hereinafter called "Agreement") which is not inconsistent with
this Plan, and the form of which the Committee and/or Board may from time to
time determine, provided that the Agreement shall contain the substance of the
following:
(a) Option Price. The option price shall be not less than 100% of
------------
the fair market value of the Shares at the time the option is granted, which
shall be the date the Committee and/or Board, or its delegate, awards the grant,
except that in the case of a grant of a non-statutory option to a key employee
of the Company, the option price shall not be less than 85% of such fair market
value. If the optionee, at the time of the option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
the classes of stock of the Company or of its parent or subsidiaries (a
"Principal Shareholder"), the option price of incentive stock options shall be
not less than 110% of the fair market value of the Shares at the time the option
is granted. The fair market value of the Shares shall be determined and the
option price of the Shares set by the Committee and/or Board in accordance with
the valuation methods described in Section 20.2031-2 of the Treasury
Regulations.
(b) Method of Exercise. At the time of purchase, Shares purchased
------------------
under options shall be paid for in full either (i) in cash, (ii) at the
discretion of the Board, with a promissory note secured by the Shares purchased,
(iii) at the discretion of the Committee and/or Board, with outstanding stock of
the Company at such value as the Board shall determine in its sole discretion to
be the fair market value of such stock, or (iv) a combination of promissory note
(if permitted pursuant to (ii) above), stock (if permitted pursuant to (iii)
above), and/or cash. To the extent that the right to purchase Shares has
accrued under an option, the optionee may exercise said option from time to time
by giving written notice to the Company stating the number of Shares with
respect to which the optionee is exercising the option, and submitting with said
notice payment of the full purchase price of said Shares either in cash or, at
the discretion of the Board and/or Committee as described above, with a
promissory note, outstanding stock of the Company, or a combination of cash,
promissory note, and/or such stock. As soon as practicable after receiving such
notice and payment, the Company shall issue, without transfer or issue tax to
the optionee (or other
3
<PAGE>
person entitled to exercise the option), and at the main office of the Company
or such other place as shall be mutually acceptable, a certificate or
certificates representing such Shares out of authorized but unissued Shares or
reacquired Shares of its capital stock, as the Board and/or Committee, or its
delegate, may elect, for the number of Shares to be delivered. The time of such
delivery may be postponed by the Company for such period as may be required for
it with reasonable diligence to comply with such procedures as may, in the
opinion of counsel to the Company, be desirable in view of federal and state
laws, including corporate securities laws and revenue and taxation laws. If the
optionee (or other person entitled to exercise the option) fails to accept
delivery of any or all of the number of Shares specified in such notice upon
tender of delivery of the certificates representing them, the right to exercise
the option with respect to such undelivered Shares may be terminated.
(c) Option Term. The Committee and/or Board may grant options for
-----------
any term, but shall not grant any options for a term longer than ten (10) years
from the date the option is granted (except in the case of an incentive option
granted to a Principal Shareholder in which case the term shall be no longer
than five (5) years from the date the option is granted). Each option shall be
subject to earlier termination as provided in this section 6 of this Plan.
(d) Exercise of Options. Each option granted under this Plan shall
-------------------
be exercisable on such date or dates, upon or after the occurrence of certain
events, or upon or after the achievement of certain performance milestones
(which occurrences or achievements may be waived in whole or in part or extended
at the discretion of the Committee and/or Board) and during such period and for
such number of Shares as shall be determined by the Committee and/or Board.
Provided, however, for so long as the Company is relying upon California
Corporations Code Section 25102(0) for exemption from qualification under the
California Blue Sky law, and for so long as required by said Section 25102(0) or
regulations implementing it, each option, unless granted to an officer, director
or consultant of the Company, shall nevertheless become exercisable as to not
less than twenty percent (20%) of the Shares subject to the option per year
elapsed from the date of the grant. An incentive option granted to a non-
officer may not be exercised at any time unless the optionee shall have
continuously served, to the extent determined by the Committee and/or Board, as
an employee of the Company or its subsidiary throughout a period commencing at
the date an option is granted and ending no more than three (3) months and no
less than thirty (30) days before an attempted exercise of the option, and, if
applicable, unless the Committee and/or Board shall determine and notify the
optionee in writing that certain events have occurred or certain performance
milestones have been achieved. If an option becomes exercisable upon the
occurrence of certain events or achievements of certain performance milestones,
the option, unless granted to an officer, director or consultant of the Company,
shall nevertheless become exercisable as to not less than twenty percent (20%)
of the Shares subject to the option per year elapsed from the date of the grant;
but otherwise may not be exercised unless the Committee and/or Board shall
determine and notify the optionee in writing that such events have occurred or
that such performance milestones have been achieved.
(e) Nonassignability of Option Rights. No option shall be assignable
---------------------------------
or transferable by the optionee except by will or by the laws of descent and
distribution. During the life of an optionee, the option shall be exercisable
only by the optionee.
(f) Effect of Termination of Employment or Death or Disability. In
----------------------------------------------------------
the event the optionee's employment with the Company or its subsidiaries ceases,
as determined by the Committee during the optionee's life for any reason,
including retirement, any incentive option or unexercised portion thereof
granted to a non-officer optionee which is otherwise exercisable shall terminate
unless exercised within a period not to exceed three (3) months nor to be less
than thirty (30) days of the date on which such employment ceased but not later
than the date of expiration of the option period. In the event of the death or
disability (as defined in Code Section 22(e)(3)) of the optionee while employed
or within a period not to exceed three months nor to be less than thirty (30)
days of the date on which such employment ceases, any option or unexercised
portion thereof granted to the optionee, if otherwise exercisable by the
optionee at the
4
<PAGE>
date of death or disability, may be exercised by the optionee (or by the
optionee's personal representatives, heirs or legatees) at any time prior to the
expiration of one year from the date of death or disability of the optionee but
not later than ten (10) years from the date of grant of such option except that,
in the case of an incentive option granted to a Principal Shareholder, not later
than five years from the date of grant of such option.
(g) Rights of Optionee. The optionees shall have no rights as a
------------------
stockholder with respect to any Shares subject to an option until the date of
issuance of a stock certificate to the optionee for such Shares. No adjustment
shall be made for dividends or other rights of which the record date is prior to
the date such stock certificate is issued. Neither this Plan, nor any action or
agreement thereunder, shall confer any rights of employment, any rights to
election or retention as an officer or director, or any rights to serve as a
consultant.
(h) Tax Withholding. To the extent required by applicable law, the
---------------
Company shall withhold from the pay of an optionee any taxes required to be
withheld upon exercise of an option. The Company may instead at its discretion
require that the taxes be paid to the Company concurrently with the exercise of
the option as a condition to the exercise of the option. The Company, at the
discretion and upon the approval of the Board, may permit the optionee to pay
some or all of the taxes by tendering to the Company outstanding shares of the
Company's stock held by the optionee, meeting the same criteria and valued in
the same manner as stock tendered to pay the exercise price as set forth in
Section 6(d) above, or by reducing at the optionee's instructions, the number of
shares to be issued upon exercise of the option, with such shares similarly
valued.
(i) Restrictions of Shares. To the extent required by the Company's
----------------------
bylaws, the Board, and/or the Committee, shares of Stock issued upon exercise of
options shall be subject to a right of first refusal and market stand-off and
holders of such shares may be required to execute non-disclosure agreements
prior to being shown certain information concerning the Company.
7. Use of Proceeds
---------------
The proceeds from the sale of stock pursuant to options granted under
the Plan shall constitute general funds of the Company.
8. Amendment of Plan
-----------------
The Board of Directors may at any time amend the Plan, provided that
no amendment may affect any then outstanding options or any unexercised portions
thereof, and provided further that any such amendment increasing the number of
Shares reserved under the Plan, altering the employees or class of employee
eligible to be granted incentive stock options under the Plan, causing options
granted to employees and intended to be incentive options under the Plan not to
qualify as "incentive stock options" under Section 422A of the Code, or amending
this Section 8 shall be subject to shareholder approval.
9. Financial Information
---------------------
Whenever the Company provides financial statements, whether audited or
unaudited, to all of its shareholders as a group, the Company shall concurrently
provide each optionee with a copy of such financial statements. Notwithstanding
the foregoing, the Company shall provide each optionee at the end of its fiscal
year with a copy of its financial statements for such fiscal year, either
audited or unaudited, within ninety (90) days after the end of such fiscal year
if such person is then an optionee. In connection with such provision, the
Company may require the optionee to enter into a nondisclosure agreement;
provided, however, that such nondisclosure agreement may not contain provisions
which are more stringent than those the Company imposes on its shareholders
which are also receiving the financial statements.
5
<PAGE>
10. Effective Date and Termination of Plan
--------------------------------------
This Plan was adopted by the Board of Directors on June 4, 1999, and
approved by the shareholders on June 28, 1999. The Board may terminate this
Plan at any time. If not earlier terminated, this Plan shall terminate on June
28, 2009.
This Plan, the granting of any option hereunder, and the issuance of
stock upon the exercise of any option, shall be subject to such approval or
other conditions as may be required or imposed by any regulatory authority
having jurisdiction to issue regulations or rules with respect thereto,
including the securities laws of various governmental entities.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL STATEMENTS OF AGATE TECHNOLOGIES, INC. FOR THE THREE MONTHS ENDED
JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,733,829
<SECURITIES> 0
<RECEIVABLES> 144,122
<ALLOWANCES> (27,999)
<INVENTORY> 345,668
<CURRENT-ASSETS> 2,342,006
<PP&E> 290,883
<DEPRECIATION> (189,239)
<TOTAL-ASSETS> 2,623,428
<CURRENT-LIABILITIES> 661,463
<BONDS> 0
0
183
<COMMON> 1,293
<OTHER-SE> 8,876,345
<TOTAL-LIABILITY-AND-EQUITY> 2,623,428
<SALES> 359,730
<TOTAL-REVENUES> 359,730
<CGS> 51,975
<TOTAL-COSTS> 51,975
<OTHER-EXPENSES> 736,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,519
<INCOME-PRETAX> (416,901)
<INCOME-TAX> 19,891
<INCOME-CONTINUING> (436,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (436,792)
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
