<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996 Commission File No. 0-21579
SMARTALK TELESERVICES, INC.
_______________________
Incorporated under the laws IRS Employer Identification
of California No. 95-4502740
1640 S. Sepulveda Boulevard
Suite 500
Los Angeles, California 90025
Telephone: 310-444-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes [_] No [X]*
* The Registrant has not been subject to such filing requirements for the past
90 days
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at December 6, 1996:
Voting, No par value: 12,824,834
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMARTALK TELESERVICES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
As of
--------------------------------------
December 31, September 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 2,115,351 $ 256,619
Trade accounts receivable (less allowance for doubtful
accounts of $11,460 and $87,866, respectively) 224,974 1,731,899
Inventories 718,045 613,250
Other current assets 759,718 769,292
Prepaid expenses 3,078 100,444
----------- -----------
Total current assets 3,821,166 3,471,504
Non-current assets:
Deposits 16,100 79,425
Other non-current assets -- 318,577
Property and equipment, net 4,486 623,494
----------- -----------
Total assets $ 3,841,752 $ 4,493,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
------------------------------------
Current liabilities:
Accounts payable $ 923,900 $ 2,753,319
Deferred revenue 3,696,515 3,751,944
Accrued marketing costs 381,429 155,070
Other accrued expenses 219,682 573,782
Note payable and current portion of long-term debt -- 1,555,305
----------- -----------
Total current liabilities 5,221,526 8,789,420
Long-term debt less current portion -- 2,656,752
----------- -----------
Total liabilities 5,221,526 11,446,172
----------- -----------
Shareholders' deficit:
Common stock, no par value; authorized 35,000,000 shares;
8,824,834 shares issued and outstanding 315,000 315,000
Additional paid in capital -- 24,000
Common stock subscribed (300,000) --
Accumulated deficit (1,394,774) (7,292,172)
----------- -----------
Total shareholders' deficit (1,379,774) (6,953,172)
----------- -----------
Total liabilities and shareholders' deficit $ 3,841,752 $ 4,493,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SMARTALK TELESERVICES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ----------------------------
1995 1996 1995 1996
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue $ 185,900 $ 4,588,844 $ 227,638 $ 8,266,864
Cost of revenue 129,858 3,459,440 159,769 6,201,555
--------- ----------- --------- -----------
Gross profit 56,042 1,129,404 67,869 2,065,309
Sales and marketing 194,671 1,199,140 367,913 2,842,566
General and administrative 46,249 1,010,184 170,271 2,469,477
--------- ----------- --------- -----------
Operating loss (184,878) (1,079,920) (470,315) (3,246,734)
Interest income 64 3,431 64 28,503
Interest expense 1,596 85,695 1,596 215,139
--------- ----------- --------- -----------
Loss before income taxes (186,410) (1,162,184) (471,847) (3,433,370)
Provision for income taxes -- -- -- --
--------- ----------- --------- -----------
Net loss $(186,410) $(1,162,184) $(471,847) $(3,433,370)
Net loss per share $ (0.02) $ (0.12) $ (0.05) $ (0.37)
========= =========== ========= ===========
Weighted average number of
shares 9,335,348 9,335,348 9,335,348 9,335,348
========= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SMARTALK TELESERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID IN STOCK ACCUMULATED
SHARES AMOUNT CAPITAL SUBSCRIPTION DEFICIT TOTAL
--------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 4,941,904 $ 5,000 $ -- $ -- $ (65,472) $ (60,472)
Shares issued 1,235,481 310,000 -- -- -- 310,000
Stock subscribed 2,647,449 -- -- (300,000) -- (300,000)
Net loss -- -- -- -- (1,329,302) (1,329,302)
--------- --------- ---------- ------------ ----------- -----------
December 31, 1995 8,824,834 315,000 -- (300,000) (1,394,774) (1,379,774)
--------- --------- ---------- ------------ ----------- -----------
Funds received from stock
subscription -- -- -- 300,000 -- 300,000
Purchase of assets of related
entity -- -- -- -- (2,464,028) (2,464,028)
Compensation under stock options
issued -- -- 24,000 -- -- 24,000
Net loss -- -- -- -- (3,433,370) (3,433,370)
--------- --------- ---------- ------------ ----------- -----------
September 30, 1996 8,824,834 $ 315,000 $ 24,000 $ -- $(7,292,172) $(6,953,172)
========= ========= ========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SMARTALK TELESERVICES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
1995 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(471,847) $(3,433,370)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation -- 51,801
Compensation expense associated
with stock options issued -- 24,000
Changes in assets and liabilities
which increase (decrease) cash:
Accounts receivable (394,388) (1,506,925)
Receivable from related party 3,400 --
Inventories (321,858) 104,795
Other current assets (109,645) (9,575)
Prepaid expenses (9,774) (97,366)
Deposits -- (63,325)
Other non-current assets -- (318,577)
Accounts payable 454,057 1,829,419
Deferred revenue 535,433 55,429
Accrued marketing costs (37,061) (226,359)
Other accrued expenses 387,266 354,100
--------- -----------
Net cash provided (used)
by operating activities 35,583 (3,235,953)
Cash flows from investing activities:
Purchase of LCN, net of equipment
acquired -- (464,027)
Capital expenditures -- (545,809)
--------- -----------
Net cash used by
investing activities -- (1,009,836)
Cash flows from financing activities:
Common stock proceeds -- 300,000
Note payable to shareholder 42,900 --
Note payable to related party -- 1,200,000
Revolving line of credit with
related party -- 500,000
Revolving line of credit with a bank -- 210,000
Term loan with related party -- 250,000
Payment on subordinated term note
with LCN -- (22,943)
Payment on term loan with Pacific
Bell Information Services -- (50,000)
--------- -----------
Net cash provided by
financing activities 42,900 2,387,057
Increase (decrease) in cash and cash
equivalents 78,483 (1,858,732)
Cash and cash equivalents at beginning
of period 391 2,115,351
--------- -----------
Cash and cash equivalents at end of
period $ 78,874 $ 256,619
========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,596 $ 215,139
========= ===========
Note payable issued for LCN purchase $ -- $ 2,000,000
========= ===========
Purchase of VoiceChoice Platform
through issuance of note payable $ -- $ 125,000
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SMARTALK TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF INTERIM PRESENTATION
The accompanying interim period financial statements are unaudited, and include,
in the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair statement of the results for the
periods indicated; which, however, are not necessarily indicative of results
which may be expected for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to certain rules and regulations of the Securities and Exchange
Commission. The financial statements should be read in conjunction with the
financial statements and the notes thereto for the year ended December 31, 1995
and other information included in the Company's Registration Statement on Form
S-1 and the amendments thereto ("Form S-1") as filed with the Securities and
Exchange Commission.
2. SUBSEQUENT EVENT
On October 23, 1996, the Company completed the sale of 4,000,000 shares of its
stock in a public offering. The Company raised proceeds of $53,940,000 after
deducting the underwriting discount. A portion of the proceeds were used to
repay all of the Company's outstanding loans except for a revolving credit
facility with Southern California Bank.
3. DIVIDENDS
There were no dividends declared or paid for the nine months ended September 30,
1996 or 1995.
4. STOCK SPLIT AND NET LOSS PER SHARE
On February 15, 1996, the Company's board of directors declared a 3,500 for 1
stock split distributable on February 13, 1996 to stockholders of record on
February 13, 1996. On May 23, 1996, the board of directors declared a 2.51 for
1 stock split distributable on May 23, 1996 to shareholders of record on that
date. On August 15, 1996, the Company effected a 0.5625 reverse stock split
distributable on August 15, 1996 to shareholders of record on that date. In the
accompanying statements, per share amounts and numbers of shares have been
restated to reflect the stock splits. Net loss per share is based on the
weighted average number of common shares and common stock equivalents
outstanding during each period, after retroactive adjustment for the stock
splits. Pursuant to requirements of the Securities and Exchange Commission,
shares related to stock sold and options issued subsequent to August 15, 1995
have been shown as outstanding for all periods presented.
6
<PAGE>
SMARTALK TELESERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
GENERAL
SmarTalk provides convenient, easy to use, cost-effective
telecommunications products and services to individuals and businesses primarily
through its "SmarTalk Card". The SmarTalk Card provides customers with a single
point of access to prepaid telecommunications services at a fixed rate charge
per minute regardless of the time of day or, in the case of domestic calls, the
distance of the call. The Company's services currently include domestic calling
and outbound international long distance calling to more than 150 countries, as
well as enhanced features such as sequential calling, speed dial and message
delivery. The SmarTalk Card may also be recharged on-line with a major credit
card, allowing the user to add minutes as needed.
SmarTalk services are delivered through proprietary switching, application
and database access software which run on two interactive call processing
SmarTalk platforms, one of which, the "VoiceChoice Platform", the Company owns.
The SmarTalk platforms and the Company's proprietary software allow users in the
system to access SmarTalk services, and provide the Company with the flexibility
to customize and add features to SmarTalk services on a platform-wide basis.
SmarTalk's revenue originates from (i) Company and co-branded phone card
sales through retailers, (ii) recharges of existing phone cards, (iii) cards
sold for promotional marketing campaigns, (iv) corporate sales to businesses and
(v) certain services provided to one of the Company's strategic partners.
Under sales agreements with the majority of retailers, the Company sells
cards to the retailer at a set price with normal credit terms. The Company
generally invoices the retailer upon shipment, recognizing deferred revenue.
The Company recognizes revenue and reduces the deferred revenue account as the
customer utilizes calling time or upon expiration of cards containing unused
calling time. The Company also recognizes deferred revenue upon recharge of
existing phone cards and recognizes the revenue upon the usage or expiration of
the recharge minutes.
The Company was formed in October 1994 and had limited operations until
June 1995. On October 23, 1996, the Company completed the sale of 4,000,000
shares of its stock in a public offering, which is now listed on the NASDAQ
national stock market. The Company raised proceeds of $53,940,000 after
deducting the underwriting discount. A portion of the proceeds were used to
repay all of the Company's indebtedness except for a revolving credit facility
with Southern California Bank.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenue. Revenue increased to $8,266,864 for the nine months ended
September 30, 1996 from $227,638 for the nine months ended September 30, 1995.
The substantial increase in revenue reflects an increase in usage of SmarTalk
services by users of the SmarTalk Card, an increase in the number of retail
storefronts in which the Company's product is distributed and greater brand
awareness and consumer acceptance. Revenue generated from recharges comprised
approximately 10% of total revenue for the nine months ended September 30, 1996
compared to 5.1% for the comparable period in 1995. This increase in recharge
revenue is due to a greater number of SmarTalk cards eligible for recharge in
the marketplace. In addition, $2,682,897 of revenue for the nine months ended
September 30, 1996, was attributable to a distribution and processing agreement
entered into on June 1, 1996 with West Interactive Corporation. The
7
<PAGE>
Company recognizes revenue under this agreement based on minute usage, which is
consistent with the manner in which the Company recognizes revenue on cards sold
to retailers.
Cost of Revenue. Cost of revenue increased to $6,201,555 for the nine
months ended September 30, 1996 from $159,769 for the nine months ended
September 30, 1995. The increase was primarily attributable to greater use of
the Company's services. The gross profit percentage for the nine months ended
September 30, 1996 was 25% as compared to 29.8% for the nine months ended
September 30, 1995. The gross margin percentage decreased primarily due to the
lower gross margin associated with the above-mentioned distribution and
processing agreement and the costs associated with operating the VoiceChoice
platform which was purchased on June 15, 1996. Transport costs constituted a
greater percentage of cost of revenue in the 1996 period as the fulfillment and
card cost percentage declined.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$2,842,566 or (34.3% of revenue) for the nine months ended September 30, 1996
from $367,913 (or 162% of revenue) for the nine months ended September 30, 1995.
The increase in dollar amount was primarily due to commissions paid to sales
representatives generally and to retailers for recharges, as well as the
continued expansion of the Company's marketing activities, which include co-op
advertising, manufacturers development funds and free promotional goods. The
decrease as a percentage of revenue was due to increased revenue growth in 1996.
General and Administrative Expenses. General and administrative expenses
increased to $2,469,477 (or 29.9% of revenue) for the nine months ended
September 30, 1996 from $170,271 (or 74.8% of revenue) for the nine months ended
September 30, 1995. The increase in dollar amount was primarily due to the
addition of personnel and costs associated with the growth in the company's
business. The decrease as a percentage of revenue was due to increased revenue
growth in 1996. General and administrative costs for the nine months ended
September 30, 1996 included rent associated with the Company's move into a new
office on March 1, 1996, VISA and MasterCard processing fees associated with the
Company's on-line recharge feature, as well as increased general operating
expenses. General and administrative costs for the nine months ended September
30, 1995 primarily included expenses related to establishing regulatory
compliance in all 50 states, the cost of developing the Company's product and
packaging concept, and costs to file documentation related to the procurement of
corporate servicemarks and patents.
Interest Expense. Net interest expense, net of interest income for the
nine months ended September 30, 1996 was $186,636 as compared to $1,532 for the
nine months ended September 30, 1995. This increase was due to an increase in
debt financing in 1996.
Income Taxes. The Company had losses for the nine months ended September
30, 1996 and 1995. Accordingly, there was no provision for income taxes.
Net Loss. As a result of the above items, net loss increased to
$3,433,370 for the nine months ended September 30, 1996 from $471,847 for the
nine months ended September 30, 1995.
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1995
Revenue. Revenue increased to $4,588,844 for the quarter ended September
30, 1996 from $185,900 for the third quarter ended September 30, 1995. The
substantial increase in revenue reflects an increase in usage of SmarTalk
services by users of the SmarTalk Card, an increase in the number of retail
storefronts in which the company's product is distributed and greater brand
awareness and consumer acceptance. Revenue generated from recharges increased
significantly and comprised approximately 9.8% of total revenue for the quarter
ended September 30, 1996 and 5.3% for the same quarter in 1995. This increase in
recharge revenue is due to a greater number of SmarTalk cards eligible for
recharge in the marketplace. In addition, $2,222,897, or approximately 48.4% of
revenue for the third quarter ended September 30, 1996, was earned under a
distribution and processing agreement entered into on June 1, 1996 with West
Interactive. The Company recognizes revenue under this agreement based on minute
usage, which is consistent with the manner in which the Company recognizes
revenue on cards sold to retailers.
8
<PAGE>
Cost of Revenue. Cost of revenue increased to $3,459,440 for the third
quarter ended September 30, 1996 from $129,858 for the quarter ended September
30, 1995. The increase was primarily attributable to greater use of the
Company's services. The gross profit percentage for the third quarter ended
September 30, 1996 was 24.6% as compared to 30.1% for the quarter ended
September 30, 1995. Gross margin decreased primarily due to the lower gross
margin associated with the above mentioned distribution and processing agreement
and the costs associated with operating the VoiceChoice platform which was
purchased on June 15, 1996. Transport costs constituted a greater percentage of
cost of revenue in the 1996 period as the fulfillment and card cost percentage
declined.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$1,199,140 (or 26.1% of revenue) for the quarter ended September 30, 1996 from
$194,671 (or 105% of revenue) for the quarter ended September 30, 1995. The
increase in dollar amount was primarily due to commissions paid to sales
representatives generally and to retailers for recharges, as well as the
continued expansion of the Company's marketing activities, which include co-op
advertising, manufacturers development funds and free promotional goods. The
decrease as a percentage of revenue was due to increased revenue growth in 1996.
General and Administrative Expenses. General and administrative expenses
increased to $1,010,184 (or 22% of revenue) for the quarter ended September 30,
1996 from $46,249 (or 24.8% of revenue) for the third quarter ended September
30, 1995. The increase in dollar amount was primarily due to the addition of
personnel and costs associated with the growth in the Company's business. The
decrease as a percentage of revenue was due to increased revenue growth in 1996.
General and administrative costs for the quarter ended September 30, 1996
included rent associated with the Company's move into a new office on March 1,
1996, VISA and MasterCard processing fees associated with the Company's on-line
recharge feature, as well as increased general operating expenses. General and
administrative costs for the quarter ended September 30, 1995 primarily included
expenses related to establishing regulatory compliance in all 50 states, the
cost of developing the Company's product and packaging concept, and costs to
file documentation related to the procurement of corporate servicemarks and
patents.
Interest Expense. Net interest expense, net of interest income for the
third quarter ended September 30, 1996 was $82,264 as compared to $1,532 for the
quarter ended September 30, 1995. The increase was due to an increase in debt
financing in 1996.
Income Tax. The Company had losses for the quarters ended September 30,
1996 and 1995. Accordingly, there was no provision for income taxes.
Net Loss. As a result of the above items, net loss increased to $1,162,184
for the quarter ended September 30, 1996 from $186,410 for the quarter ended
September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On October 23, 1996, the Company completed the sale of 4,000,000 shares of its
stock in a public offering, which is now listed on the NASDAQ national stock
market. The Company raised proceeds of $53,940,000 after deducting the
underwriting discount. A portion of the proceeds were used to repay all of the
Company's outstanding loans except for a revolving credit facility with Southern
California Bank.
From inception through September 30, 1996, the Company has funded operations
primarily from cash generated by operations and borrowings under its debt
agreements. The Company's operating activities used net cash of $3,235,953 for
the nine months ended September 30, 1996. The cash used by operating activities
is primarily attributable to the Company's continued efforts to increase its
penetration of the retail distribution channel.
9
<PAGE>
In September 1996, the Company entered into a revolving line of credit with
Southern California Bank ("SCB Line of Credit"). Pursuant to the terms of
the SCB Line of Credit, the Company can borrow up to $1,000,000 secured by a
first priority lien on substantially all of the Company's assets. Interest on
the outstanding principal balance, calculated from the date of each advance to
the repayment of each advance, is at the prime rate (as published in the Wall
Street Journal) plus 2.375%. Interest payments are due monthly with the Company
being required to make a minimum interest payment of $4,429 per month for one
year. If the line of credit is paid off prior to one year, the remaining minimum
monthly payments become due and payable. The SCB Line of Credit will become due
and payable September 1, 1997. As of December 6, 1996, there was $510,000
outstanding pursuant to the SCB Line of Credit.
The Company believes that the proceeds from the Offering, together with the
funds anticipated to be generated from operations, will be sufficient to finance
the Company's operations for the next 18 months.
10
<PAGE>
SMARTALK TELESERVICES, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
3.1 Amended and Restated Articles of Incorporation of
SmarTalk TeleServices, Inc. (Incorporated by
reference from Amendment No. 1 to the Registration
Statement on Form S-1, filed September 25, 1996.
Registration No. 333-10391 as Exhibit 3.1 thereof)
3.2 Amended and Restated Bylaws of Incorporation of
SmarTalk TeleServices, Inc. (Incorporated by
reference from Amendment No. 1 to the Registration
Statement on Form S-1, filed September 25, 1996,
Registration No. 333-10391 as Exhibit 3.2 thereof)
4.1 Registration Rights Agreement (Incorporated by
reference from the Registration Statement on Form S-
1, filed August 18, 1996, Registration No. 333-10391
as Exhibit 4.1 thereof)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company for
the three months ended September 30, 1996
11
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SmarTalk TeleServices, Inc.
---------------------------
(Registrant)
Date: December 6, 1996 By: /s/ Andrew Folck
---------------------------
Andrew Folck
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of SmarTalk TeleServices, Inc.
(Incorporated by reference from the Registration Statement on Form S-1, filed August
18, 1996, Registration No. 333-10391 as Exhibit 4.1 thereof).
3.2 Amended and Restated Bylaws of Incorporation of SmarTalk TeleServices, Inc.
(Incorporated by reference from Amendment No. 1 to the Registration Statement on
Form S-1, filed September 25, 1996, Registration No. 333-10391 as Exhibit 3.2
thereof).
4.1 Registration Rights Agreement (Incorporated by reference from the Registration
Statement on Form S-1, filed August 18, 1996, Registration No. 333-10391 as Exhibit
4.1 thereof).
27.1 Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 256,619
<SECURITIES> 0
<RECEIVABLES> 1,819,765
<ALLOWANCES> 87,866
<INVENTORY> 613,250
<CURRENT-ASSETS> 3,471,504
<PP&E> 675,295
<DEPRECIATION> 51,801
<TOTAL-ASSETS> 4,493,000
<CURRENT-LIABILITIES> 8,789,420
<BONDS> 0
0
0
<COMMON> 315,000
<OTHER-SE> 24,000
<TOTAL-LIABILITY-AND-EQUITY> 4,493,000
<SALES> 8,266,864
<TOTAL-REVENUES> 8,266,864
<CGS> 6,201,555
<TOTAL-COSTS> 6,201,555
<OTHER-EXPENSES> 5,312,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,636
<INCOME-PRETAX> (3,433,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,433,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,433,370)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
