<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
or
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION ERIOD FROM ___________ TO ___________
--------------------
FINE.COM INTERNATIONAL CORP.
Name of small business issuer as specified in its charter
0-22805
Commission File Number
STATE OF WASHINGTON 91-1657402
State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization
1525 FOURTH AVENUE, SUITE 800
SEATTLE, WASHINGTON 98101
Address of Principal Executive Offices
206-292-2888
Issuer Telephone Number
--------------------
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Yes [X] No [_] Securities Exchange Act of 1934
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.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
The number of shares of the registrant's common stock, no par value per share,
outstanding as of December 15, 1998 was 2,669,590.
<PAGE>
fine.com INTERNATIONAL Corp.
FORM 10-QSB
FOR THE QUARTER ENDED OCTOBER 31, 1998
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INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (Unaudited) 2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits 10
SIGNATURE PAGE 11
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
fine.com INTERNATIONAL corp.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1998
---------------- ----------------
<S> <C> <C>
ASSETS (unaudited) (restated)
CURRENT ASSETS:
Cash and cash equivalents $ 377,403 $1,571,861
Marketable securities 923,745 1,593,032
Accounts receivable, less allowances 2,081,123 1,097,354
Work-in-progress 141,314 191,841
Prepaid expenses and other 255,126 157,780
Notes receivable from officer 24,442 26,686
----------- ----------
TOTAL CURRENT ASSETS 3,803,153 4,638,554
Marketable securities -- 2,325,236
Other long-term assets 106,536 103,561
Deferred income tax asset -- 220,318
Equipment & furniture, net 1,426,166 698,453
----------- ----------
TOTAL ASSETS $ 5,335,855 $7,986,122
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 461,931 $ 395,267
Accrued expenses 260,954 48,581
Advance payments -- 70,500
Deferred revenue 436,004 422,101
Deferred income tax liabilities -- 322,337
Capitalized lease obligations 91,984 71,166
----------- ----------
TOTAL CURRENT LIABILITIES 1,250,873 1,329,952
Long-term capital leases 82,523 70,436
SHAREHOLDERS' EQUITY:
Common Stock, no par value:
10,000,000 shares authorized; 2,669,590 shares issued and outstanding at
October 31, 1998 and 2,633,720 shares issued and
outstanding at January 31, 1998 6,906,409 6,737,929
Accumulated deficit (2,903,950) (122,699)
Accumulated other comprehensive loss -- (29,496)
----------- ----------
Total shareholders' equity 4,002,459 6,585,734
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,335,855 $7,986,122
=========== ==========
</TABLE>
See accompanying notes.
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fine.com INTERNATIONAL Corp.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------------ ---------------------------------
1998 1997 1998 1997
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Gross revenue $ 1,889,104 $1,606,759 $ 4,617,513 $4,324,380
Direct salaries and costs 1,006,746 973,152 3,004,145 2,787,074
----------- ---------- ----------- ----------
Gross profit 882,358 633,607 1,613,368 1,537,306
Selling, general and
administrative expenses 2,006,179 612,600 4,628,118 1,524,401
----------- ---------- ----------- ----------
Operating income (loss) (1,123,821) 21,007 (3,014,750) 12,905
Interest income 32,864 72,237 179,533 72,237
Interest expense (6,533) (18,664) (25,229) (50,385)
----------- ---------- ----------- ----------
Income (loss) before income taxes (1,097,490) 74,580 (2,860,446) 34,757
Provision (benefit) for income taxes -- 41,000 (120,000) 77,821
----------- ---------- ----------- ----------
Net income (loss) $ (1,097,490) $ 33,580 $ (2,740,446) $ (43,064)
=========== ========== ========= ========
Basic and diluted net income
(loss) per share $ (0.41) $ 0.01 $ (1.03) $ (0.03)
Shares used in computation of net income
(loss) per share:
Basic 2,669,590 2,414,227 2,668,013 1,681,587
Diluted 2,669,590 2,455,909 2,668,013 1,681,587
</TABLE>
See accompanying notes.
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fine.com INTERNATIONAL Corp.
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $(2,740,446) $ (43,064)
Depreciation and amortization 246,396 127,058
Deferred income tax (benefit) (117,213) 77,822
Non cash stock-based compensation expense 25,000 --
Interest related to shareholder loan -- (15,000)
Net changes in:
Accounts receivable (955,919) (794,026)
Work-in-process 50,527 (123,460)
Prepaid expenses and other (141,126) (160,822)
Accounts payable 66,664 98,852
Accrued expenses 141,871 135,425
Deferred revenue 13,903 206,506
----------- -----------
Total cash used in operating activities (3,410,343) (460,709)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment purchases -- (3,962,959)
Investment sales 3,039,215 --
Purchase of equipment and furniture (858,479) (267,222)
----------- -----------
Total cash provided by (used in)
investing activities 2,180,736 (4,230,181)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable to bank -- 276,000
Change in capital lease obligations 32,905 (15,452)
Net change in notes receivable from officer 2,244 (23,744)
Accrued offering costs -- 41,116
Cash received from common stock -- 6,331,458
----------- -----------
Total cash provided by financing activities 35,149 6,609,378
----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,194,458) 1,888,488
Cash and cash equivalents at beginning of period 1,571,861 159,205
----------- -----------
Cash and cash equivalents at end of period $ 377,403 $2,047,693
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Acquisition of Pacific Analysis and Computing, in February 1998, in exchange for
35,870 shares of common stock:
Common stock 143,480
Net current assets 27,850
Non-current assets 115,630
</TABLE>
See accompanying notes.
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<PAGE>
fine.com INTERNATIONAL Corp.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
fine.com International Corp. (the "Company") in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do
not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of the Company's management, all adjustments (consisting of normal recurring
accruals and certain non-recurring charges) necessary for a fair presentation
have been included. For further information, refer to the financial statements
and footnotes thereto for the fiscal year ended January 31, 1998, included with
the Company's Form 10-KSB and Form 8-K/A, as filed with the Securities and
Exchange Commission (the "Commission"). Results of operations for the three-
month and nine-month periods ended October 31, 1998 are not necessarily
indicative of performance for a full fiscal year or for future periods.
On July 31, 1998, Meta4 Digital Design, Inc. ("Meta4") was merged with
and into a wholly-owned subsidiary of the Company through the issuance of
253,655 shares of Company common stock, which were exchanged for all of the
outstanding shares of Meta4. The merger qualified as a tax-free reorganization
and was accounted for as a pooling-of-interests. Accordingly, the Company's
financial statements have been restated to include the results of Meta4 for all
periods presented.
New Accounting Pronouncements. In 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", which
requires disclosure of an additional basis of measuring income. Comprehensive
income for the nine months ended October 31, 1998 was a loss of $2,710,950
and $82,640 for the same period in 1997.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended October 31 Nine months Ended October 31
1998 1997 1998 1997
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)............................. $ (1,097,490) $ 33,580 $ (2,740,446) $ (43,064)
=========== ========== =========== ==========
Denominator for basic earnings per share -
Weighted average common stock................. 2,669,590 2,414,227 2,668,013 1,681,587
Effect of dilutive securities:
Weighted average convertible preferred stock.. 11,907
Employee stock options........................ 29,775
----------- ---------- ----------- ----------
Denominator for diluted earnings per share - 2,669,590 2,455,909 2,668,013 1,681,587
Basic and diluted earnings (loss) per share... $ (0.41) $0.01 $ (1.03) $ (0.03)
=========== ========== =========== ==========
</TABLE>
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3. BUSINESS REORGANIZATION
For the three months ended October 31, 1998, additional
non-recurring charges of approximately $628,000 were incurred relating to an
operational restructuring which included severance payments, an increase to the
accounts receivable reserve and write-offs of certain assets and uncollectable
or unbillable work-in-progress.
4. BANK LINE OF CREDIT
At October 31, 1998, there were no amounts outstanding under the
Company's Revolving Line of Credit with its bank. The Company was, at that
time, out of compliance with certain covenants contained in its Revolving Line
of Credit with its bank, including requirements for minimum working capital and
minimum tangible net worth. The Company has renegotiated the terms with its
bank and has received a commitment letter from the bank to enter into a revised
credit facility. The terms of the revised credit facility provide for a reduced
line of credit in the amount of $750,000, to expire on April 1, 1999. Amounts
outstanding under the revised credit facility will bear interest at the bank's
prime rate plus 0.25% per annum (an effective rate of 8% at December 15,
1998). The new facility will be secured by all accounts receivable of the
Company and such other property and assets of the Company as the bank may
require, and contains certain covenants and restrictions typical for a credit
facility of such amount. The Company anticipates that the new credit facility
will be in place by December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking
statements which reflect the Company's current plans and views with respect to
future events and financial performance. These forward-looking statements are
subject to certain uncertainties that could cause actual results to differ
materially from historical results or those anticipated. Words used in this
Report such as "anticipate," "expect," "may," "will" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to update or revise these forward-looking statements to reflect any
future events or circumstances. In addition, the disclosures under the caption
"Other Factors that may Affect Operating Results" consist principally of a brief
discussion of risks that may affect future results and are, in their entirety,
forward-looking in nature. Readers are urged to carefully review and consider
the various disclosures made by the Company in this Report, as well as the
disclosures in the "Risk Factors" section appearing in the Form 10-KSB for the
fiscal year ended January 31, 1998 and the Company's registration statement on
Form SB-2, both on file with the Commission, and those described from time to
time in the Company's press releases and other communications, which attempt to
advise interested parties of the risks and factors that may affect the Company's
business (collectively, the "Risk Factors Disclosure").
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with (i) the
financial statements and accompanying notes appearing in this Report, (ii) the
Company's financial statements and accompanying notes appearing in the Company's
Form 10-KSB for the fiscal year ended January 31, 1998, as filed with the
Commission and (iii) the Company's pro forma financial statements and
accompanying notes giving effect to the Meta4 acquisition, as filed with the
Commission on Form 8-K/A on October 13, 1998.
OVERVIEW
Company Business. The Company plans, develops, maintains and hosts Web
sites for major national and international corporate clients and others. In
addition, the Company provides consulting services to its clients as to the
strategic uses of the Internet to further their corporate goals and objectives.
Such services relate to e-commerce, Intranet and Extranet applications, and the
intricacies of utilizing the Internet on an international basis.
The Company generates the majority of its revenues from fees associated
with the planning and development of commercial Web sites for clients. These
fees are generally earned pursuant to fixed fee, time and materials or cost
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reimbursement contracts (with terms typically ranging from two to seven months).
Revenues generated from these contracts are recognized under the
percentage-of-completion method based upon the attainment of specific contract
milestones (based on the ratio of costs incurred to total estimated project
costs). All other revenue is recorded on the basis of performance of services.
The Company assumes greater financial risk on fixed fee contracts than on either
time-and-material or cost-reimbursable contracts. Failure to anticipate
technical problems, estimate costs accurately or control costs during
performance of a fixed fee contract may reduce the Company's profit or cause a
loss on a particular project.
The Company's Web site development process utilizes marketing expertise
and state of the art interactive database compilation and dissemination
techniques and technologies. Through the planning, development and maintenance
of interactive Web presentations, the Company enhances clients' marketing
campaigns and fosters the collection of demographic data which is utilized by
clients.
Through fiscal year 1998, the Company had conducted all of its operations
from its headquarters in Seattle, Washington. In fiscal 1999, the Company began
a process of opening domestic and international service offices, for the
purposes of both better serving existing Company clients as well as expanding
the Company's business in new markets. As of October 31, 1998, the Company had
regional offices located in Bethesda, Maryland, Livingston, New Jersey, and
London, England. In September 1998, the Company closed its regional office in
Santa Monica, California, due to its inability to generate expected levels of
revenues and performance. The Company continues to operate most of its business
and derive most of its revenues from its headquarters in Seattle, Washington.
The Company also has a sales and marketing presence in Tokyo, Japan through the
Company's business arrangements with Mitsui & Co., Ltd.
On July 31, 1998, the Company acquired Meta4 Digital Design, Inc.
("Meta4"), a private company, which provides Internet-based business solutions.
At October 31, 1998, the Company had 21 employees at its Meta4 office in New
Jersey. The Company's major clients serviced through its Meta4 office include
General Electric, Fuji Film, and WowFactor. The Meta4 acquisition better enables
the Company to provide service to the New York and New Jersey areas, provides
expertise in Unix to complement the Company's historical Microsoft NT expertise
and provides additional resources to execute large operating system projects.
As previously announced, on November 24, 1998 the Company began
implementation of an operational restructuring focused on strategically growing
sales, increasing its internal productivity, decreasing its overhead cost
structure, analyzing its existing contracts and examining its receivable and
asset base. As a result, the Company is refocusing its sales initiatives on the
high-end, interactive Web development market to leverage the skills and scale of
its Internet development teams. In addition, the Company is taking steps to
improve internal productivity and staff utilization levels and has implemented a
revised organizational structure including the hiring of a new Executive Vice
President of Finance and Operations. In an effort to reduce administrative
costs, the Company has decreased its non-billable administrative staff by eight
people, which the Company expects will result in annualized cost savings of
approximately $600,000. Finally, in connection with the restructuring, the
Company has recorded certain non-recurring charges to earnings in the third
quarter of fiscal 1999 of approximately $628,000. These non-recurring charges
consist primarily of (i) severance payments and salary adjustments of $120,000,
(ii) an increase of $220,000 to the accounts receivable reserves for accounts
considered by management to be uncollectable or unrealizable and (iii) write-
offs in the amount of $288,000 for certain assets and work-in-progress
considered by management to be uncollectable or unbillable.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
Gross Revenue. Consolidated gross revenue for the three months ended
October 31, 1998 and 1997 was $1,889,000 and $1,607,000, respectively. The 18%
increase was due to the addition of new clients and a general increased level of
sophistication of the projects undertaken.
Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific project-
related expenditures. The Company's consolidated direct salaries and costs were
$1,007,000 and $973,000 for the three months ended October 31, 1998 and 1997,
respectively, representing a 3% increase from the prior period. As a percentage
of
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gross revenues, direct sales and costs were 53% for the three months ended
October 31, 1998, as compared to 61% for the prior period. These costs consisted
primarily of direct salaries, payroll taxes and benefits of $742,000 and
$369,000 for the three months ended October 31, 1998 and 1997, respectively,
and, secondarily, other direct costs which are incurred and primarily charged
through to the Company's clients of $265,000 and $604,000, respectively.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $2,006,000 and $613,000 for the three
months ended October 31, 1998 and 1997, respectively. For the three months ended
October 31, 1998, additional non-recurring charges of approximately $628,000
were incurred relating to an operational restructuring which included severance
payments, an increase to the accounts receivable reserve and write-offs of
certain assets and uncollectable or unbillable work-in-progress. The substantial
increase in such expenses from the comparable periods in fiscal 1998 to fiscal
1999 is primarily a result of implementing the Company's operational
restructuring and secondarily of increased marketing and business development
activities, hiring administrative personnel and office expansion, professional
fees incurred in connection with the Meta4 transaction and other expenses in
connection with being a publicly traded company. Management recognizes that its
selling, general and administrative expenses have increased at a rate in excess
of its revenue growth and, accordingly, the Company is undertaking initiatives
to lower these costs. These operational restructuring steps include among
others, reduction in the size of the Company's administrative staff by eight
people, which the Company expects will result in annualized cost savings of
approximately $600,000.
Taxes. The Company's effective tax rate for the third quarter of fiscal
1999 differed from the statutory 34% tax rate due to operating losses for which
no tax benefit was recorded. The Company has recorded a valuation allowance for
the entire deferred tax asset as a result of the uncertainties regarding the
realization of the balance.
Net Income (Loss). The Company recognized a consolidated net loss of
$1,097,000 for the three-month period ending October 31, 1998, which includes
the non-recurring charge of $628,000 in connection with the Company's
operational restructuring, compared to net income of $34,000 for the same period
in fiscal 1998. The decrease in profitability is due to the factors discussed
above.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
Gross Revenue. Consolidated gross revenue for the nine months ended
October 31, 1998 and 1997 was $4,618,000 and $4,324,000, respectively. The 7%
increase was due to the addition of new clients and a general increased level of
sophistication of the projects undertaken.
Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific project-
related expenditures. The Company's consolidated direct salaries and costs were
$3,004,000 and $2,787,000 for the nine months ended October 31, 1998 and 1997,
respectively, representing an 8% increase from the prior period. As a percentage
of gross revenues, direct sales and costs were 65% for the nine months ended
October 31, 1998, as compared to 64% for the prior period. These costs consisted
primarily of $2,193,000 and $1,080,000 for the nine months ended October 31,
1998 and 1997, respectively, paid as direct salaries, payroll taxes and benefits
and, secondarily, of $811,000 and $1,707,000, respectively, as other direct
costs which are incurred and primarily charged through to the Company's clients.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $4,628,000 and $1,524,000 for the nine
months ended October 31, 1998 and 1997, respectively. These expenses consisted
of sales and administrative salaries, office rent and related occupancy costs,
marketing and new business development costs, depreciation of fixed assets,
professional fees, telephone and related Internet connectivity fees, computer
network costs, office expenses and supplies. The amounts for the nine months
ended October 31, 1998, include additional non-recurring charges of
approximately $628,000 incurred in the third quarter of fiscal 1999 relating to
an operational restructuring which included severance payments, an increase to
the accounts receivable reserve and write-offs of certain assets and
uncollectable or unbillable work-in-progress. As a percentage of gross revenues,
the selling, general and administrative expenses increased from 35% to 100%. The
increase in selling, general and administrative expenses was
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primarily a result of the non-recurring charges in connection with the Company's
operational restructuring and secondarily of increased sales and administrative
salaries, transaction costs related to mergers and acquisitions, marketing and
new business development costs, depreciation of fixed assets, professional fees,
office rent and related occupancy costs, and costs related to SEC reporting and
other regulatory requirements.
Taxes. During the first nine months of fiscal 1999, the Company
recorded a tax benefit of $120,000, which represented the tax benefit associated
with the carryback of the operating losses to previous years. No future income
tax benefit has been recorded for remaining deferred tax assets given that these
represent net operating loss carryforwards and the uncertainty as to their
future realizability.
Net Income (Loss). The Company recognized a consolidated net loss of
$2,740,000 for the first nine months of fiscal 1999 as compared to a net loss of
$43,000 for the same period in fiscal 1998. The decrease in profitability is due
to the factors discussed above.
CAPITAL RESOURCES AND LIQUIDITY
The Company funded its operating activities in the first nine months of
fiscal 1999 primarily through earnings and proceeds from the Company's public
offering. The Company has historically funded its capital requirements through
earnings, borrowings from affiliates and commercial lenders and equity financing
and private placements of its capital stock. The Company had cash, cash
equivalents, short term and long term marketable securities in the aggregate
amount of $1,301,000 at October 31, 1998 and $5,490,000 at January 31, 1998.
The Company's working capital decreased $756,000 from $3,309,000 at
January 31, 1998 to $2,552,000 at October 31, 1998. Operating activities for the
nine months ended October 31, 1998 required net cash in the amount of
$3,410,000, primarily due to the net loss incurred and increases in accounts
receivable. Accounts receivable increased $984,000, from $1,097,000 at January
31, 1998 to $2,081,000 at October 31, 1998. As part of its operational
restructuring, the Company implemented a plan to examine its assets and
receivables and to increase collections of its accounts receivable. To date, the
Company has collected approximately $658,000 of the third quarter-end accounts
receivable balance.
During the nine months ended October 31, 1998, the Company purchased
certain equipment and furniture, requiring cash expenditures in the amount of
$858,000. These equipment purchases were primarily for computer hardware and
software, furniture, fixtures and leasehold improvements to accommodate an
increase in Company personnel. Net cash provided from financing activities was
$35,000.
At October 31, 1998, there were no amounts outstanding under the
Company's Revolving Line of Credit with its bank. The Company was, at that time,
out of compliance with certain covenants contained in its Revolving Line of
Credit with its bank, including requirements for minimum working capital and
minimum tangible net worth. The Company has renegotiated the terms with its bank
and has received a commitment letter from the bank to enter into a revised
credit facility. The terms of the revised credit facility provide for a reduced
line of credit in the amount of $750,000, to expire on April 1, 1999. Amounts
outstanding under the revised credit facility will bear interest at the bank's
prime rate plus 0.25% per annum (an effective rate of 8% at December 15,
1998). The new facility will be secured by all accounts receivable of the
Company and such other property and assets of the Company as the bank may
require, and contains certain covenants and restrictions typical for a credit
facility of such amount. The Company anticipates that the new credit facility
will be in place by December 31, 1998.
The Company believes that its existing cash and cash equivalent
balances, cash generated from operations, together with the remaining proceeds
from the initial public offering, and its revised credit facility will be
sufficient to fund its operations through the next fiscal year. The Company's
liquidity position, however, will depend in part on its ability to collect
outstanding accounts receivable and to implement the cost-reduction measures of
its operational
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restructuring plan. To the extent that the Company experiences any additional
significant losses, it may be required to attempt to obtain additional
borrowings, sales of equity or debt securities or sales of assets.
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of
factors, including, but not limited to any of the following: the ability of the
Company's office in Seattle, Washington and its regional offices in Maryland,
New Jersey, and London, England and its marketing presence in Tokyo, Japan to
generate revenues or profitability in accordance with management's timetable or
expectations; collection of the Company's accounts receivable on a timely basis;
changes in the level of operating expenses; the Company's ability to increase
internal productivity and staff utilization levels; the volume and timing of
sales; the ability of the Company to manage and integrate operations from its
regional offices; the ability of the Company to develop strategic relationships
with third parties; changes in management and personnel; the ability of the
Company to hire qualified development personnel and its ability to generate
revenue from such personnel; the availability of additional financing or capital
resources; and general economic conditions in the Internet industry. All of the
above factors are difficult for the Company to forecast, and can materially
adversely affect the Company's business, capital resources and operating results
for one quarter or a series of quarters.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From the effective date of the Company's Registration Statement on Form
SB-2, as amended (file number 333-26855), relating to the Company's initial
public offering of the Company's common stock, through the end of the Company's
fiscal quarter ended October 31, 1998, the Company has applied its net proceeds
as follows:
<TABLE>
<S> <C>
Net proceeds from IPO......................................................... $ 6,228,042
Accounts receivable, work-in-process and other working capital
requirements.............................................................. (2,645,608)
Capital expenditures for fixed assets ........................................ (1,737,769)
Repayment of indebtedness..................................................... (545,031)
----------
Unapplied proceeds held in money market funds and marketable
securities at October 31, 1998............................................ $1,299,634
==========
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Employment Agreement dated November 24, 1998 with
Timothy J. Carroll
27.1 Financial data schedule
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on August 13, 1998 to report the
acquisition of Meta4 Digital Design, Inc., which was effective July 31, 1998.
Subsequently, on October 13, 1998, the Company filed an amended report on Form
8-K/A reporting certain historical financial information of Meta4 and the pro
forma financial information for the acquisition.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated December 14, 1998.
fine.com International Corp.
-----------------------------------------
(Registrant)
By /s/ Daniel M. Fine
-----------------------------------------
Daniel M. Fine
President and Chief Executive Officer
(principal executive officer)
By /s/ Timothy J. Carroll
-----------------------------------------
Timothy J. Carroll
Executive Vice President of Finance and Operations
(principal accounting officer)
-11-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------
10.1 Employment Agreement dated November 24, 1998 with Timothy J. Carroll
27.1 Financial data schedule
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
Between
fine.com International Corp. and Timothy J. Carroll
The purpose of this Agreement is to confirm the terms of the employment
relationship between FINE.COM INTERNATIONAL CORP. ("Employer"), and TIMOTHY J.
CARROLL ("Employee").
The parties acknowledge and agree that Employee was initially employed
as an at-will employee for Employer on October 19, 1998 as its Vice President of
Finance. Effective on November 23, 1998, Employee was promoted to Executive Vice
President of Finance and Operations of Employer and the parties hereto desire to
enter into this employment agreement to set forth the terms and conditions of
the parties' employment relationship.
1. TERM OF AGREEMENT. Employer and Employee agree that the Employee will be
employed by Employer beginning October 19, 1998, until October 19, 2001 (the
"Base Term"), unless employment is sooner terminated as provided herein. This
Agreement shall automatically be renewed for two (2) successive one-year terms
(each referred to as an "Extended Term") unless either party gives written
notice of nonrenewal at least ninety (90) days before the expiration of the Base
Term or the first Extended Term, as the case may be. An Extended Term may also
terminate before the expiration of such term as provided herein.
2. POSITION AND DUTIES. Employer and Employee agree that Employee will be
employed as Executive Vice President of Finance and Operations. In this
capacity, Employee's responsibilities will include, but are not limited to, the
following: responsible for the accounting and administrative functions of the
Company and its subsidiaries; responsible for reporting the results of
operations and the status of corporate assets; responsible to the chief
executive officer for all long-range financial matters and for the establishment
of Company-wide financial and administrative objectives, policies, programs,
controls and practices to ensure a continuously sound financial and
administrative structure. The Executive Vice President of Finance and Operations
Vice-President:will control the flow of cash through the organization and
maintains the integrity of funds and securities. He will also be responsible in
conjunction with others for the timely and accurate reporting of SEC disclosure
documents and will assist with the investor relations and other functions with
timely, accurate and detailed information as requested. It is understood that
from time to time Employee may be assigned other duties or titles in addition to
or in lieu of those described above and that Employee's responsibilities may be
modified at any time in the reasonable discretion of Employer in order to
accommodate the needs of Employer.
2.1 Employee agrees to devote his full-time efforts to his duties with Employer
and further agrees that Employee will not directly or indirectly engage or
participate in any activities while employed with Employer that would conflict
with the best interests of Employer.
2.2 Employee's obligation to devote his full time, attention and energy to the
business of Employer shall not be construed as preventing Employee from
investing his assets so long as any such investment will not require any
services on the part of Employee in the operation of the affairs of the
company(ies) or business(es) in which such investment(s) is (are) made.
3. EMPLOYER'S REIMBURSEMENTS. Employer agrees to reimburse Employee for all
reasonable business expenses incurred by Employee while on Employer's business,
in accordance with Employer's polices as may be in effect from time to time.
Employee shall maintain such records as will be necessary to enable Employer to
properly deduct such items as business expenses when computing Employer's
federal income tax.
4. COMPENSATION.
4.1 SALARY. For services rendered by Employee under this Agreement,
Employer shall pay Employee an annual salary of $115,000 for the first year
hereunder. Employee shall receive annual salary increases at each anniversary
date at a percentage rate which is at least equal to the average salary increase
of the four highest compensated officers of the Company and its subsidiary.
Employee shall be paid this salary in equal periodic installments consistent
with Company's
<PAGE>
normal payroll procedures, minus all lawful and agreed upon payroll deductions.
Employee shall also be eligible for annual performance bonuses, as determined in
the sole and absolute discretion of Employer's Board of Directors.
4.2 OPTION GRANT. Employee shall also be granted, upon the commencement
of his employment and subject to approval or ratification of Employer's Board of
Directors, a stock option to purchase 15,000 shares of Common Stock of Employer,
and upon completion of the first year of employment and subject to approval or
ratification of Employer's Board of Directors, an additional stock option to
purchase 20,000 shares of Common Stock of Employer (the "Option Grant"). The
exercise price, vesting schedule and other terms and provisions of the Option
Grant shall be as reflected in Employer's standard form Stock Option Agreement
and the terms and provisions of Employer's then current Stock Option Plan for
employees. The terms of the vesting schedule on any option granted to Employee
by Employer shall in no way imply or be construed as an extension or
modification of the term of employment under this Agreement.
4.3 OTHER COMPENSATION. Employee shall also receive a parking space and a
cellular phone subsidy.
5. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Concurrent with the
execution of this Agreement, Employee also executes and hereby delivers a
Proprietary Information and Inventions Agreement.
6. FRINGE BENEFITS. Employer and Employee agree that during the term of this
Agreement, Employee shall be entitled to participate in all fringe benefits and
incentive compensation plans as may be authorized and adopted from time to time
by the Employer for the benefit of employees generally and for which Employee is
eligible.
7. VACATION. Employee shall be entitled to 10 days paid vacation per calendar
year. Such time shall be accounted for pursuant and subject to Employer's
vacation policies of general applicability.
8. CONFIDENTIAL INFORMATION. It is understood and agreed that as a result of
Employee's employment hereunder, Employee will be acquiring and making use of
confidential information about Employer's business as well as financial
information. Employee agrees that he will respect the confidences of Employer
and will not at any time during or within one (1) year following the period of
his employment hereunder, directly or indirectly divulge or disclose for any
purpose whatsoever or use for his own benefit, any confidential information that
has been obtained by or disclosed to Employee as a result of his employment
hereunder. "Confidential information" as used herein does not include
information that is in the public domain and information received by Employee
from third parties who have the right to disseminate the information. The
covenant of this Section 8 is in addition to and in no way qualifies or limits
the terms of Proprietary Information and Inventions Agreement referred to in
Section 5 above.
9. TERMINATION. This Agreement shall be terminated upon the occurrence of any
one of the following events:
9.1 Death of Employee or legal inability to perform his duties hereunder.
9.2 If Employee shall have been incapacitated from illness, accident or
other disability and unable to perform his normal duties hereunder for a
cumulative period of three (3) months in any period of six (6) consecutive
months, upon Employer or Employee giving the other party not less than thirty
(30) days' written notice. In the event of such termination, Employee shall be
entitled to all benefits due Employee under any accident, sickness, disability,
health or hospitalization plan or insurance policy of Employer, if any, then in
effect.
9.3 Expiration of this Agreement or any renewal or extension thereof.
9.4 By Employee, upon Employer receiving ninety (90) days' notice as provided
in Section 12.3 of this Agreement.
9.5 By Employer for cause. For purposes of this subsection, "cause" includes
the following:
(a) Breach by Employee of any material provision of this Agreement, which
breach is not cured within thirty (30) days notice as provided in Section 12.3
of this Agreement;
(b) Material violation by Employee of any statutory or common law duty of
loyalty to Employer; or
<PAGE>
(c) Personal or professional conduct of Employee, which, in the
reasonable and good faith judgment of Employer, after a thorough
investigation, injures or tends to injure the reputation of Employer or
otherwise adversely affects the interests of Employer. Such conduct may
include, but is not limited to, dishonesty, chronic absenteeism,
alcoholism, drug addiction, and conviction of a felony or misdemeanor
involving moral turpitude.
9.6 Upon the cessation of business by Employer; provided, however, that the
confidentiality provisions contained in Section 8 of this Agreement and the
provisions of the Proprietary Information and Inventions Agreement referred to
in Section 5 above shall continue in full force and effect according to its
terms.
10. EFFECT OF TERMINATION. Upon termination of Employee's employment, Employer
agrees to pay Employee all salary or other remuneration which is due and owing
to Employee as of the date of termination, less legal deductions or offsets
Employee may owe to Employer for such items as salary advances or loans.
Employee agrees that his signature on this Agreement constitutes his
authorization for all such deductions. Employee agrees to return all of
Employer's property of any kind which may be in Employee's possession. In the
event of termination of this Agreement, the terms and provisions of this
Agreement shall also terminate, with the exception of the confidentiality
provision contained in Section 8 and the provisions of the Proprietary
Information and Inventions Agreement referred to in Section 5 above.
Such provisions shall continue in full force and effect according to their
terms.
11. CHANGE OF CONTROL.
11.1 GENERAL. To induce Employee to remain in the employ of Employer
and to encourage a high level of effective management in the best interests of
Employer and its shareholders, this paragraph sets forth certain benefits
Employer agrees will be provided to Employee if Employee's employment with
Employer is terminated (other than by death, disability, expiration of the
Agreement or for cause, as provided in Sections 9.1, 9.2, 9.3 or 9.5
respectively) subsequent to a Change of Control of Employer as defined and set
forth herein. Accordingly, if this Agreement is terminated by Employer within a
period of twenty four (24) months following a Change of Control, or if Employee
terminates this Agreement for Good Reason during such period, then the parties
agree that the following compensation shall be immediately due to Employee and
that Employee shall not be entitled to any other compensation except as set
forth below:
(a) Acceleration of Stock Options. (i) All options or other rights to
-----------------------------
acquire Common Stock or other equity securities of Employer then held by
Employee shall immediately and automatically vest and become exercisable in
full as to all such Common Stock and other equity securities subject
thereto, notwithstanding any term or provision to the contrary in any
plans, agreements or other documents evidencing the options and other
rights or pursuant to which the options and other rights were granted, (ii)
all restrictions with respect to such Common Stock and other equity
securities under any plans, agreements or other documents evidencing the
options and other rights or pursuant to which the options and other rights
were granted (other than restrictions on transfer under federal and
applicable state securities laws), including but not limited to contractual
restrictions on transfer, rights of repurchase or first refusal in favor of
Employer and restrictions on certificates for such Common Stock and other
equity securities (other than restrictions on certificates designed to
promote compliance with federal and applicable state securities laws) shall
automatically terminate, and (iii) such options and other rights shall
remain exercisable until a period of eighteen (18) months has elapsed
following the Change of Control or until the respective dates provided for
exercise of such options and other rights under any plans, agreements and
other documents by which they are evidenced, whichever is later,
notwithstanding any term or provision to the contrary in any plans,
agreements or other documents evidencing the options and other rights or
pursuant to which the options and other rights were granted.
(b) Monetary Compensation. Employer shall pay Employee (i)
---------------------
Employee's full base salary through the date of any Notice of Termination
plus payment for all accrued vacation, and any deferred compensation to
which Employee is entitled for the year most recently ended, and the pro
rata share of any such compensation which would be due in the year of
termination, up to the date of termination, to the extent not already paid
and (ii) an amount equal to the remainder of Employee's base compensation,
and any payment in lieu of accrued vacation to which Employee is entitled
under this Agreement, through the end of the Base Term, or an Extended
Term, as the case may be.
(c) Employee Benefits. Employer shall maintain in full force
-----------------
and effect for the remaining term of this Agreement, all other employee
benefit plans, programs and policies (including any life or health
insurance plans) in which Employee were entitled to participate immediately
prior to Employee's termination, provided that
<PAGE>
Employee's continued participation is possible under the general terms and
provisions of such plans, programs and policies. If Employee's
participation in any such plan, program or policy is not possible under its
terms and conditions, Employer shall arrange to provide Employee with
benefits substantially similar to those which Employee would have been
entitled to receive under each plan, program or policy.
11.2 CHANGE OF CONTROL DEFINED: For purposes of this Agreement, "Change of
Control" shall be limited to:
(a) Any sale or exchange of Common Stock of Employer, any sale or
exchange of assets of Employer (other than in the ordinary course of
business), or any merger, statutory share exchange or other similar
transaction (the "Significant Transaction"), provided that (i) as a result
of the Significant Transaction, together with all other similar
transactions that have occurred during the period of eighteen (18) months
ending on the date of the Significant Transaction, there has been during
that period a transfer of ownership or control of more than sixty percent
(60%) of the stock, voting power, assets or business of Employer; or
(b) The acquisition by any person or entity or any group of persons
or entities acting in concert of the ownership of, or the power to vote,
more than fifty percent (50%) of the outstanding voting securities of
Employer (for which purpose, securities which are convertible into voting
securities shall be deemed voting securities); or
(c) The acquisition by any person of the power, directly or
indirectly, to exercise a controlling influence over the management or
policies of Employer (either alone or pursuant to an arrangement or
understanding with one or more other persons), whether through the
ownership of voting securities, through one or more intermediary persons,
by contract, or otherwise.
For purposes of this Section 11 the term "Person" shall include a
natural person, corporation, partnership, association, joint-stock company,
trust fund, or organized group of persons.
11.3 GOOD REASON DEFINED. For purposes of this Agreement, "Good Reason"
shall be limited to the happening within a period of twenty four (24) months
following a Change of Control of one of the following without Employee's express
written consent:
(a) Without Employee's express written consent, (i) the assignment to
Employee of any duties not customarily performed by officers of Employer
and inconsistent with Employee's position as Executive Vice President of
Finance and Operations Chief Financial of Employer prior to a "Change of
Control," or the failure of Employer to maintain Employee in an officer
position; or (ii) the assignment to Employee of a job title that is not of
comparable prestige and status within the industry as Employee's title
within ninety (90) days prior to the Change of Control; or (iii) failure to
provide Employee with the normal perquisites of an officer of Employer,
such as an office and appropriate support services; or
(b) A reduction by Employer in Employee's base salary as in effect
prior to a Change of Control unless such reduction is applied to all
officers of Employer and does not exceed the average percentage reduction
in base salary for all officers of Employer, or the failure by Employer to
increase such base salary each year following a Change of Control by an
amount which equals at least one-half (1/2), on a percentage basis, the
average percentage increase in base salary for all officers of Employer,
and its subsidiaries; or
(c) Employee determines in Employee's good faith discretion, not
earlier than six (6) months after the date of a Change of Control, that his
work environment has become professionally or personally uncomfortable for
whatever reason; or
(d) A material reduction in the overall level of employee benefits
available to Employee (including Employer's executive bonus plan, group
life insurance plan, and medical and dental plans) in which Employee was
participating at any time within 90 days preceding the date of a Change of
Control or at any time thereafter, unless such plan is replaced with a plan
that provides substantially equivalent compensation or benefits to
Employee; or
<PAGE>
(e) Employer's requiring Employee to be based anywhere more than
fifty (50) miles from Employer's principal business location at the time of
the Change of Control other than for required travel in connection with the
business of Employer; or
(f) The insolvency or the filing (by any party, including Employer)
of a petition for bankruptcy of Employer, which petition is not dismissed
within 60 days; or
(g) Any material breach by Employer of any provision of this
Agreement; or
(h) Any purported termination of Employee's employment for Cause by
Employer which does not comply with the terms of Section 9.5; or
(i) Any event or condition described in Sections 11.3(a) through (h)
above that occurs prior to a Change of Control but which the Employee
reasonably demonstrates either was at the request of a third party or
otherwise arose in connection with, or in anticipation of, a Change of
Control that actually occurs. In such event, the date of a Change of
Control with respect to Employee shall mean the date immediately prior to
the date of such termination of the Employee's employment.
11.4 PAYMENTS AND DISPUTES.
(a) Except as provided in Section 11.3(i) above, for purposes of this
Agreement, Employee's date of termination will be the date Employer gives
written notice of termination to Employee. If termination is under
circumstances invoking the benefits of this Section 11, then the sums
specified herein will be paid no more than ten (10) business days after the
date of termination, except that the portion of the payment based upon the
amounts payable under any Employer bonus plan shall be paid no later than
ten (10) business days after the amounts payable under such plans have been
determined following availability of results necessary for computation of
such amounts.
(b) If Employer wishes to contest or dispute a termination for "good
reason" by Employee, it must have delivered to Employee written notice of
such dispute within the ten (10) day period after the date of termination.
If Employee desires to contest or dispute a termination by Employer, or any
failure to make payments claimed to be due hereunder, Employee must give
written notice of such dispute within thirty (30) days of receiving a
Notice of Termination or, if no Notice is provided, within thirty (30) days
of Employee's actual termination by Employer. In the event of a dispute,
Employer shall continue to pay Employee's full base salary and continue all
Employee's employee benefits in force until final resolution of any such
dispute by mutual agreement or the final judgment, decree or order of a
court of competent jurisdiction (including any appeals, if such are
perfected). Employee may, at Employee's or Employer's option, be suspended
from all duties during the pendency of such a contest or dispute. If
Employee prevails in any such contest or dispute, Employer shall thereupon
be liable for the full amounts due under this Section 11 as of the date of
termination after adjustments for amounts already paid.
(c) Employer will pay all fees and expenses, including full
attorneys' fees, incurred by Employee in good faith in contesting or
disputing any termination after a Change of Control or in seeking to obtain
or enforce any right or benefit provided by this Agreement.
(d) If any payments due hereunder shall be delayed for any reason for
more than ten (10) business days from the date of termination (or
availability of results under the company's bonus plan), the amounts due
shall bear the maximum legal rate of interest until paid.
(e) Notwithstanding the provisions as to time of payment as above set
forth, Employee may at Employee's sole option elect to have some or all of
such amounts due Employee deferred to a date or dates of Employee's
choosing over a period not to exceed two (2) years, in which event the
unpaid balances shall not bear interest during the deferred period elected
by Employee.
11.5 MITIGATION. Employee shall not be required to mitigate the amount
of any payment due under this Section 11 by seeking other employment.
<PAGE>
12. CONSTRUCTION OF AGREEMENT.
12.1 ESSENTIAL TERMS AND MODIFICATION OF AGREEMENT. It is understood and
agreed that the terms and conditions described in this Agreement and the
agreements expressly referenced herein constitute the essential terms and
conditions of the employment arrangement between Employer and Employee, all of
which have been voluntarily agreed upon. Employer and Employee agree that there
are no other essential terms or conditions of the employment relationship that
are not described or referenced within this Agreement, and that any change in
the essential terms and conditions of this Agreement or any such referenced
agreement will be written down in a supplemental agreement which shall be signed
by both Employer and Employee before it is effective.
12.2 SEVERABILITY. If any term, covenant, condition or provision of this
Agreement or the application thereof to any person or circumstance shall, at any
time, or to any extent, be determined invalid or unenforceable, the remaining
provisions hereof shall not be affected thereby and shall be deemed valid and
fully enforceable to the extent permitted by law.
12.3 NOTICES. Any notice hereunder shall be sufficient if in writing and
delivered to the party or sent by certified mail, return receipt requested and
addressed as follows:
(a) If to Employer: fine.com International Corp.
1525 Fourth Avenue, Suite 800
Seattle, WA 98101
(b) If to Employee: Timothy J. Carroll
4127 NE 103rd
Seattle, WA 98125
Either party may change the address herein specified by giving to the other,
written notice of such change.
12.4 GOVERNING LAW. This Agreement is made and shall be construed and
performed under the laws of the State of Washington.
12.5 WAIVER OF AGREEMENT. The waiver by Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver by Employer of any subsequent breach by Employee.
12.6 CAPTIONS. The captions and headings of the Sections of this Agreement
are for convenience and reference only and are not to be used to interpret or
define the provisions hereof.
12.7 ASSIGNMENT AND SUCCESSORS. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of Employer. The rights and obligations of Employee
hereunder are nonassignable. Employer may assign its rights and obligations to
any entity in which Employer or a company affiliated to Employer, has a majority
ownership interest.
DATED as of the 23rd day of November, 1998.
EMPLOYEE: EMPLOYER:
Timothy J. Carroll fine.com International Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE THIRD QUARTER ENDED OCTOBER 31, 1998, AND
FROM THE RESTATED UNAUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
JANUARY 31, 1998 (AS RESTATED IN CONNECTION WITH THE COMPANY'S ACQUISITION OF
META4 DIGITAL DESIGN, INC., WHICH WAS ACCOUNTED FOR AS A POOLING OF INTERESTS)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1999
<PERIOD-START> FEB-01-1997 FEB-01-1998
<PERIOD-END> JAN-31-1998 OCT-31-1998
<CASH> 1,571,861 377,403
<SECURITIES> 1,593,032 923,745
<RECEIVABLES> 1,097,354 2,081,123
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,638,554 3,764,595
<PP&E> 1,014,017 1,995,203
<DEPRECIATION> 315,564 569,037
<TOTAL-ASSETS> 7,986,122 5,335,855
<CURRENT-LIABILITIES> 1,329,952 1,250,873
<BONDS> 0 0
0 0
0 0
<COMMON> 6,737,929 6,906,409
<OTHER-SE> (152,195) (2,903,950)
<TOTAL-LIABILITY-AND-EQUITY> 7,986,122 5,335,855
<SALES> 6,023,402 4,617,513
<TOTAL-REVENUES> 6,023,402 4,617,513
<CGS> 3,901,570 3,004,145
<TOTAL-COSTS> 3,901,570 3,004,145
<OTHER-EXPENSES> 2,243,480 4,628,118
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,725 25,229
<INCOME-PRETAX> (8,838) (2,860,446)
<INCOME-TAX> 46,567 (120,000)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (55,405) (2,740,446)
<EPS-PRIMARY> (0.03) (1.03)
<EPS-DILUTED> (0.03) (1.03)
</TABLE>
