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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended January 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________________ to ______________________.
Commission file number 0-23001
SIGNATURE EYEWEAR, INC.
(Exact Name of Registrant as Specified in its Charter)
California 95-3876317
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
498 North Oak Street
Inglewood, California 90302
(Address of Principal Executive Offices)
(310) 330-2700
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, par value $0.001
per share, 5,084,689 shares issued and outstanding as of March 12, 1999.
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SIGNATURE EYEWEAR, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Balance Sheets as of January 31, 1999 (unaudited)
and October 31, 1998............................................................. 3
Statement of Income (unaudited) for the Three Months
Ended January 31, 1999 and 1998.................................................. 4
Statement of Cash Flows (unaudited) for the Three
Months Ended January 31, 1999 and 1998........................................... 5
Notes to Financial Statements..................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................ 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................. 17
</TABLE>
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNATURE EYEWEAR, INC.
Balance Sheets
<TABLE>
<CAPTION>
Assets January 31, 1999 October 31, 1998
---------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................... $ 3,685,408 $ 4,256,655
Accounts receivable, trade.................................................. 6,011,704 5,854,722
Inventories................................................................. 9,848,060 11,308,589
Deferred tax asset.......................................................... 368,000 368,000
Prepaid expenses and other current assets................................... 1,730,957 1,760,108
----------- -----------
21,644,129 23,548,074
----------- -----------
Property and Equipment (at cost, net of accumulated
depreciation and amortization).............................................. 1,460,627 1,472,954
----------- -----------
Other Assets:
Deposits and other.......................................................... 125,117 123,312
Deferred tax asset.......................................................... 7,000 7,000
----------- -----------
132,117 130,312
----------- -----------
$23,236,873 $25,151,340
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade..................................................... $ 2,571,331 $ 4,309,026
Current portion of long-term debt........................................... 41,667 0
Accrued expenses and other current liabilities.............................. 866,047 1,427,369
----------- -----------
3,479,045 5,736,395
----------- -----------
Long-term Debt................................................................. 458,333 0
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock (authorized 5,000,000 shares, $.001
par value, none issued or outstanding)....................................... 0 0
Common stock (authorized 30,000,000 shares, $.001 par
value, 5,084,689 shares issued and outstanding at
January 31, 1999 and 5,119,337 shares issued
and outstanding at October 31, 1998)......................................... 9,216 9,251
Paid-in capital................................................................ 14,390,009 14,544,284
Retained earnings.............................................................. 4,900,270 4,861,410
----------- -----------
19,299,495 19,414,945
----------- -----------
$23,236,873 $25,151,340
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
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SIGNATURE EYEWEAR, INC.
Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
---------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Net Sales.............................................................. $9,035,901 $6,722,486
Cost of Sales.......................................................... 3,984,947 2,751,206
---------- ----------
Gross Profit........................................................... 5,050,954 3,971,280
---------- ----------
Operating Expenses:
Selling............................................................. 3,107,270 1,919,560
General and administrative.......................................... 1,923,941 1,511,417
---------- ----------
5,031,211 3,430,977
---------- ----------
Income from Operations................................................. 19,743 540,303
---------- ----------
Other Income:
Interest income, net................................................ 38,024 107,963
Sundry income....................................................... 4,092 6,339
---------- ----------
42,116 114,302
---------- ----------
Income before Income Taxes............................................. 61,859 654,605
Provision for Income Taxes............................................. 23,000 263,164
---------- ----------
Net Income............................................................. $ 38,859 $ 391,441
========== ==========
Earnings Per Share, Basic and Diluted:
Earnings per common share........................................... $ 0.01 $ 0.07
========== ==========
Weighted average number of common shares outstanding................ 5,106,619 5,268,027
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
4
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SIGNATURE EYEWEAR, INC.
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income......................................................................... $ 38,859 $ 391,441
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization................................................... 155,272 120,976
Provision for bad debts......................................................... 100 2,500
Deferred income taxes........................................................... 0 (50,000)
Changes in assets - (increase) decrease:
Accounts receivable, trade................................................... (157,082) (48,726)
Inventories.................................................................. 1,460,529 (820,287)
Prepaid expenses and other assets............................................ 27,346 (181,855)
Changes in liabilities - increase (decrease):
Accounts payable, trade...................................................... (1,737,695) (261,216)
Income taxes payable......................................................... 0 (46,836)
Accrued expenses and other current liabilities............................... (561,322) (601,982)
----------- -----------
Net cash used in operating activities.............................................. (773,993) (1,495,985)
----------- -----------
Cash Flows Used in Investing Activities:
Purchases of property and equipment................................................ (142,945) (26,456)
----------- -----------
Cash Flows from Financing Activities:
Net borrowings on note payable, bank............................................... 500,000 0
Principal payments on long-term debt............................................... 0 (3,294)
Repurchases of Common Stock........................................................ (154,309) 0
----------- -----------
Net cash provided by (used in) financing activities................................ 345,691 (3,294)
----------- -----------
Net Decrease in Cash and Cash Equivalents............................................. (571,247) (1,525,735)
Cash and Cash Equivalents, Beginning of Period........................................ 4,256,655 8,133,423
----------- -----------
Cash and Cash Equivalents, End of Period.............................................. $ 3,685,408 $ 6,607,688
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest..................................................................... $ 5,299 $ 0
=========== ===========
Income taxes................................................................. $ 0 $ 360,722
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
5
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SIGNATURE EYEWEAR, INC.
Notes to the Financial Statements
(Unaudited)
Note 1--Unaudited Interim Financial Statements
- ----------------------------------------------
Interim financial statements are prepared pursuant to the requirements for
reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual
financial statements prepared in accordance with generally accepted accounting
principles are omitted.
In the opinion of the management of the Company, all adjustments, consisting
solely of normal recurring adjustments, necessary for the fair presentation of
the financial statements for those interim periods have been included. The
current period's results of operations are not necessarily indicative of results
which ultimately may be achieved for the year.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2--Basis of Presentation
- -----------------------------
A summary of significant accounting policies is as follows:
Income Taxes--The Company's effective income tax rate at January 31, 1999 varies
from the federal statutory tax rate of 34% principally due to state income
taxes.
Earnings Per Share--The Company has adopted Statement of Financial Accounting
Standards No. 128 as of January 31, 1998. This Statement establishes standards
for computing and presenting earnings per share by replacing the presentation of
primary earnings per share with a presentation of basic earnings per share. It
also requires the dual presentation of basic and diluted earnings per share on
the face of the income statement. Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
For the Quarter Ended January 31, 1999
------------------------------------------------------------
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- -------------- -----------
<S> <C> <C> <C>
Basic and diluted EPS income available
to common stockholders $34,359 5,106,619 $0.01
============== ============== ===========
</TABLE>
For the quarter ended January 31, 1999, there was no difference between basic
and diluted EPS. Warrants and options to purchase 180,000 shares and 419,000
shares of common stock at $12 and $10 per share, respectively, were outstanding
during the quarter. They were not included in the computation of diluted EPS
because the warrants' and options' exercise prices were greater than the average
market price of the common stock during the quarter ended January 31, 1999.
Note 3--Term Loan
- -----------------
In December 1998, the Company entered into an agreement with its commercial bank
to provide the Company with an unsecured term loan of $500,000, with interest
accruing at a fixed rate of 6.75% per year, and interest and principal payments
scheduled throughout the life of the term loan. The term loan matures in
November 2001. At January 31, 1999, $500,000 was due to the bank under the term
loan.
Note 4--Operating Lease
- -----------------------
In February 1999, the Company entered into an operating lease for the use of
computer equipment and software. The total commitment under the operating lease
amounts to $2,400,000, payable in monthly installments over a 45-month period
beginning in March 1999.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Signature Eyewear, Inc. ("Signature" or the "Company") designs, markets and
distributes prescription eyeglass frames primarily under exclusive licenses for
Laura Ashley Eyewear, Eddie Bauer Eyewear and Hart Schaffner & Marx Eyewear, as
well as its own private labels. The Laura Ashley Eyewear collection is one of
the leading women's brand-name collections in the United States.
The following discussion and analysis, which should be read in connection
with the Company's Financial Statements and accompanying footnotes, contain
forward-looking statements that involve risks and uncertainties. Important
factors that could cause actual results to differ materially from the Company's
expectations are set forth in "Year 2000" and "Factors That May Affect Future
Results" below as well as those discussed elsewhere in this Form 10-Q. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by "Year 2000" and "Factors That May Affect Future Results." Those
forward-looking statements relate to, among other things, the Company's cash
flows and working capital requirements.
Results of Operations
The following table sets forth, for the indicated periods, selected statement of
income data shown as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended January 31,
----------------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Net sales.............................................................. 100.0% 100.0%
Cost of sales.......................................................... 40.9 44.1
-------------- --------------
Gross profit........................................................... 59.1 55.9
-------------- --------------
Operating expenses:
Selling............................................................. 28.6 34.4
General and administrative.......................................... 22.5 21.3
-------------- --------------
Total operating expenses......................................... 51.1 55.7
-------------- --------------
Income from operations................................................. 8.0 0.2
-------------- --------------
Other income, net...................................................... 1.7 0.4
-------------- --------------
Income before provision for income taxes............................... 9.7 0.6
Provision for income taxes............................................. 3.9 0.2
-------------- --------------
Net income............................................................. 5.8% 0.4%
============== ==============
</TABLE>
Net Sales. Net sales were $9,036,000 for the quarter ended January 31, 1999
(the "1999 first quarter"), an increase of 34.4% compared to net sales of
$6,722,000 for the quarter ended January 31, 1998 (the "1998 first quarter").
This increase was due principally to $2,751,000 of net sales of Eddie Bauer
Eyewear (which was not introduced until after the 1998 first quarter), offset in
part by an aggregate decrease of $437,000 in the net sales of the Company's Hart
Schaffner & Marx Eyewear, Jean Nate Eyewear (discontinued September 30, 1998)
and private label collections. Laura Ashley Eyewear sales for the 1999 first
quarter were comparable to the 1998 first quarter sales.
Gross Profit. Gross profit increased from $3,971,000 in the 1998 first
quarter to $5,051,000 for the 1999 first quarter, due to the increase in net
sales. However, the Company's gross profit margin decreased from 59.1% in the
1998 first quarter to 55.9% in the same period in fiscal 1999, primarily due to
the sell down of certain styles at lower margins to reduce the Company's
inventory, the decrease in sales of the Company's higher margin supporting lines
caused by competitive pressures in the marketplace, and to a lesser extent by
the comparative weakening of the U.S. dollar against the foreign currencies in
which the Company makes payments for eyeglass frames.
7
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Operating Expenses. Operating expenses increased from $3,431,000 in the 1998
first quarter to $5,031,000 in the 1999 first quarter. Operating expenses for
the 1999 first quarter included a $1,183,000 increase in selling expenses and a
$417,000 increase in general and administrative expenses. Selling expenses
increased from 28.6% of net sales for the 1998 first quarter to 34.4% of net
sales for the 1999 first quarter, due to a $590,000 increase in expenses
incurred in connection with the sales and marketing of Eddie Bauer Eyewear, a
$400,000 increase in Laura Ashley Eyewear marketing and merchandising expenses,
and a $95,000 one-time expense for upgrading the Company's inventory control
systems. General and administrative expenses for the 1999 first quarter
increased principally as a result of a $290,000 increase in compensation
expenses related to the Company's hiring of new management personnel to prepare
for the Company's planned expansion. General and administrative expenses for the
1999 first quarter, however, decreased as a percentage of net sales from 22.5%
in the 1998 first quarter to 21.3% in the 1999 first quarter.
Other Income Net. Other income was $42,000 in the 1999 first quarter and
$114,000 in the 1998 first quarter, a $72,000 decrease due to a reduction in
interest income.
Provision for Income Taxes. The Company's income tax provision was $23,000
for the 1999 first quarter and $263,000 for the 1998 first quarter, due to a
decrease in net income.
Net Income. Net income was $391,000 in the 1998 first quarter and $39,000 in
the 1999 first quarter, due to the factors set forth above.
Liquidity and Capital Resources.
At January 31, 1999, the Company had $3,685,000 in cash and cash equivalents,
of which $3,162,000 was invested in commercial paper with interest rates ranging
from 4.52% to 4.82% per annum, and $509,000 was invested in money market funds
bearing interest at 4.16% per annum.
The Company entered into a credit agreement with its commercial bank (the
"Credit Agreement") in October 1997. Under the Credit Agreement, the bank has
agreed to provide to the Company an unsecured revolving line of credit up to an
aggregate of $5,000,000. At the Company's option, interest may be based on the
London Interbank Offered Rate plus 2%, or at the bank's prime rate. At January
31, 1999, no amounts were due to the bank under the Credit Agreement. In
December 1998, the Company entered into an agreement with its commercial bank to
provide the Company with an unsecured term loan of $500,000 (the "Term Loan"),
with interest accruing at a fixed rate of 6.75% per year, and interest and
principal payments scheduled throughout the life of the Term Loan. The Term Loan
matures in November 2001. At January 31, 1999, $500,000 was due to the bank
under the Term Loan. The Company entered into the Term Loan to borrow funds at
a favorable interest rate while preserving its cash and its bank credit line for
the Company's projected future growth.
Of the Company's accounts payable at January 31, 1999, $468,570 were payable
in foreign currency. To monitor risks associated with currency fluctuations,
the Company on a weekly basis assesses the volatility of certain foreign
currencies and reviews the amounts and expected payment dates of its orders and
accounts payable in those currencies. Based on those factors, the Company may
from time to time mitigate some portion of that risk by purchasing forward
commitments to deliver foreign currency to the Company. The Company held no
forward commitments at January 31, 1999.
8
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In the second quarter of fiscal 1999 the Company began a project to upgrade
its warehouse and computer systems, including software and hardware. A
significant portion of the project will be funded by an operating lease for
$2,400,000 with a 45-month term and even monthly payments throughout the term.
The Company anticipates that for this project in fiscal 1999, approximately
$400,000 will be capitalized and from $900,000 to $1,200,000 will be charged to
general and administrative expenses (including $475,000 in payments under the
operating lease), largely in the Company's fiscal quarters ended July 31, 1999
and October 31, 1999.
The Company believes that cash generated from operations, borrowings from
its commercial bank, credit from its suppliers, and credit under the operating
lease will be sufficient to fund its working capital requirements at least
through fiscal 1999.
Year 2000
Commencing in 1996, the Company began a project to address the potential
impact of the Year 2000 problem on the processing of date-sensitive information
by the information technology systems used by the Company and its key customers
and vendors. The Year 2000 problem is the result of computer programs being
written using two digits to define the applicable year. As a result, certain
computer programs may recognize a date using "00" as the year 1900 rather than
2000, which could cause miscalculations or system failures. The objectives of
the Company's Year 2000 project are to determine and assess the risks of the
Year 2000 problem and to plan and institute mitigating actions to minimize those
risks to acceptable levels.
The Company is not heavily dependent upon internally developed information
technology systems. The Company's core operations systems are largely standard
package systems for business management and inventory control, which have been
developed by vendors whose products are widely used in industry. The Company has
already contacted its major information technology vendors and suppliers, and
has obtained assurances that the technology is Year 2000 compliant. Between now
and its 1999 fiscal year end, the Company will contact its remaining information
technology vendors and suppliers as to their Year 2000 compliance to determine
what changes, if any, must be made to the information technology systems used by
the Company in its operations. The Company does not presently anticipate any
material Year 2000 issues or significant expenses from the conversion of its own
information systems, databases or programs. However, if the Company's current
estimates of the resources required to address and resolve Year 2000 issues
prove to be understated, the additional costs and resources required to address
the Year 2000 problem could result in a material financial risk. There can be no
assurance that there will not be a delay in, or increased costs associated with,
the implementation of the necessary systems and changes to address the Year 2000
issues, and the Company's inability to implement such systems and changes in a
timely manner could have a material adverse effect on future results of
operations.
Because third party failures could have a material impact on the Company's
ability to conduct business, the Company has begun sending questionnaires to
substantially all of the Company's key vendors and business partners, including
manufacturers of the Company's eyeglass frames and significant retailers of the
Company's products. The purposes of these questionnaires are to obtain
reasonable assurances about the Year 2000 readiness status of these key vendors
and business partners, and their plans to become Year 2000 compliant. The
returned questionnaires will be assessed by the Company, categorized based upon
readiness for the Year 2000, and prioritized in order of significance to the
business of the Company. To the extent that vendors and business partners do
not provide the Company with satisfactory evidence of their readiness to handle
Year 2000 issues, contingency plans will be developed. At this time, the
Company does not know what measures its customers and vendors have taken to
address the Year 2000 problem or how that problem's effect on its customers and
vendors will impact the Company. Based on
9
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the Company's current assessment, the costs of addressing potential problems are
not currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
However, the failure by any of these key vendors or customers to adequately
address the Year 2000 problem could result in disruptions in the supply or sale
of the Company's products, either of which would have a material adverse effect
on the Company's business, financial condition and results of operations.
Accordingly, the Company plans to devote the necessary resources to resolve all
significant Year 2000 issues in a timely manner.
Factors That May Affect Future Results
The following is a discussion of certain factors that may affect the
Company's financial condition and results of operations.
Substantial Dependence upon Laura Ashley License
Net sales of Laura Ashley Eyewear accounted for 74.6%, 72.5%, and 56.4% of
the Company's net sales in fiscal 1996, fiscal 1997, and fiscal 1998,
respectively. Net sales of Laura Ashley Eyewear accounted for 49.8% of the
Company's net sales in the 1999 first quarter. In March 1998, the Company
launched the Eddie Bauer Eyewear collection, which accounted for 20.9% of the
Company's 1998 fiscal year net sales although it was on the market for eight
months of that fiscal year. Net sales of Eddie Bauer Eyewear accounted for 30.6%
of the Company's net sales in the 1999 first quarter. While the Company intends
to continue reducing its dependence on the Laura Ashley Eyewear line through the
development of Eddie Bauer Eyewear and other brand names and product offerings,
the Company expects the Laura Ashley Eyewear line to continue to be one of the
Company's leading sources of revenue for the foreseeable future. The Company
designs, markets and distributes Laura Ashley Eyewear through an exclusive
license with Laura Ashley entered into in 1991. The Laura Ashley license
terminates in 2001, but may be renewed by the Company at least through January
2006 so long as the Company is not in breach of the license agreement and meets
certain minimum net sales requirements. Laura Ashley may terminate the license
before its term expires if (i) the Company commits a material breach of the
license agreement and fails to cure that breach within 30 days after notice is
given, (ii) the management or control of the Company passes from Bernard Weiss
and Julie Heldman to other parties whom Laura Ashley may reasonably regard as
unsuitable, (iii) the Company fails to propose a selection of styles of eyewear
which Laura Ashley in exercising good faith is willing to approve for
manufacture and distribution, (iv) the Company fails to have net sales of Laura
Ashley Eyewear sufficient to generate minimum royalties in each of any two
years, (v) the Company is unable to pay its debts in the ordinary course of
business or enters into liquidation, becomes bankrupt or insolvent, or is placed
in the control of a receiver or trustee, or (vi) the Company in any year fails
to spend a specified percentage of net sales of Laura Ashley Eyewear on
advertising and promotion. For purposes of renewal and early termination of the
license agreement, the Company must generate total Laura Ashley Eyewear minimum
net sales of $11,000,000, $12,000,000, and $13,000,000 for the contract years
ending January 31, 2000, 2001 and 2002, respectively. The Company has
substantially exceeded its minimum net sales requirements each year under the
license agreement. The termination of the Laura Ashley Eyewear license would
have a material adverse effect on the Company's business, operating results and
financial condition.
Approval Requirements of Brand-Name Licensors
The Company's business is predominantly based on its brand-name licensing
relationships. In addition to its licensing relationship with Laura Ashley, the
Company licenses the right to use proprietary marks from Eddie Bauer and Hart
Schaffner & Marx. Each of the Laura Ashley, Eddie Bauer and Hart
10
<PAGE>
Schaffner & Marx licenses requires mutual agreement of the parties for
significant matters. Each of these licensors has final approval over all
eyeglass frames and other products bearing the licensor's proprietary marks, and
the frames must meet the licensor's general design specifications and quality
standards. Consequently, each licensor may, in the exercise of its approval
rights, delay the distribution of eyeglass frames bearing its proprietary marks.
The Company expects that each future license it obtains will contain similar
approval provisions. Accordingly, there can be no assurance that the Company
will be able to continue to maintain good relationships with each licensor, or
that the Company will not be subject to delays resulting from disagreements
with, or an inability to obtain approvals from, its licensors. These delays
could materially and adversely affect the Company's business, operating results
and financial condition.
Limitations on Ability to Distribute other Brand-Name Eyeglass Frames
Each of the Company's licenses limits the Company's right to market and sell
products with competing brand names. The Laura Ashley license prohibits the
Company from selling any range of designer eyewear that is similar to Laura
Ashley Eyewear in price and any of style, market position and market segment.
The Eddie Bauer license prohibits the Company from entering into license
agreements with companies which Eddie Bauer believes are its direct competitors.
The Hart Schaffner & Marx license prohibits the Company from marketing and
selling another men's brand of eyeglass frames under a well-known fashion name
with a wholesale price in excess of $40. The Company expects that each future
license it obtains will contain some limitations on competition within market
segments. The Company's growth, therefore, will be limited to capitalizing on
its existing licenses in the prescription eyeglass market, introducing eyeglass
frames in other segments of the prescription eyeglass market, and manufacturing
and distributing products other than prescription eyeglass frames such as
sunglasses. In addition, there can be no assurance that disagreements will not
arise between the Company and its licensors regarding whether certain brand-name
lines would be prohibited by their respective license agreements. Disagreements
with licensors may adversely affect sales of the Company's existing eyeglass
frames or prevent the Company from introducing new eyewear products in market
segments the Company believes are not being served by its existing products.
Dependence Upon Contract Manufacturers; Foreign Trade Regulation
The Company's frames are manufactured to its specifications by a number of
contract manufacturers located outside the United States, principally in Hong
Kong/China, Japan, Italy and France. The manufacture of high quality metal
frames is a labor-intensive process which can require over 200 production steps
(including a large number of quality-control procedures) and from 90 to 180 days
of production time. These long lead times increase the risk of overstocking, if
the Company overestimates the demand for a new style, or understocking, which
can result in lost sales if the Company underestimates demand for a new style.
While a number of contract manufacturers exist throughout the world, there can
be no assurance that an interruption in the manufacture of the Company's
eyeglass frames will not occur. An interruption occurring at one manufacturing
site that requires the Company to change to a different manufacturer could cause
significant delays in the distribution of the styles affected. This could cause
the Company to miss delivery schedules for these styles, which could materially
and adversely affect the Company's business, operating results and financial
condition.
In addition, the purchase of goods manufactured in foreign countries is
subject to a number of risks, including foreign exchange rate fluctuations,
economic disruptions, transportation delays and interruptions, increases in
tariffs and duties, changes in import and export controls and other changes in
governmental policies. For frames purchased other than from Hong Kong/China
manufacturers, the
11
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Company pays for its frames in the currency of the country in which the
manufacturer is located and thus the costs (in United States dollars) of the
frames vary based upon currency fluctuations. Increases and decreases in costs
(in United States dollars) resulting from currency fluctuations generally do not
affect the price at which the Company sells its frames, and thus currency
fluctuations can impact the Company's gross margin and results of operations.
Relationships with Domestic Distributors
The Company distributes its eyeglass frames to independent optical retailers
in the United States (other than California and Arizona) largely through
distributors who sell competing lines of eyeglass frames. The optical industry
is undergoing a period of consolidation, and during fiscal 1997 and fiscal 1998,
three of the Company's distributors were acquired by other companies. Although
the Company believes that its distributors currently devote a great deal of time
and resources to promoting the Company's products, there can be no assurance
that these distributors will continue to do so. The Company does not have
written agreements with its domestic distributors except for written
understandings not to resell or divert Laura Ashley Eyewear through unauthorized
channels of distribution, and not to expand the territories in which they sell
the Company's products without the Company's prior consent. Accordingly, the
Company's domestic distributors may spend an increased amount of effort and
resources marketing competing products, and may terminate their relationships
with the Company at any time without penalty. There can be no assurance that the
informal nature of the Company's relationships with its domestic distributors
will not lead to disagreements between the Company and its distributors or
between the distributors themselves, which could have a material adverse impact
on the Company's business, operating results and financial condition.
International Sales
International sales accounted for approximately 8.8%, 7.7%, 8.4% and 12.6% of
the Company's net sales in fiscal 1996, fiscal 1997, fiscal 1998 and the 1999
first quarter, respectively. These sales were primarily in England, Canada,
Australia, New Zealand, France and the Netherlands. The Company's international
business is subject to numerous risks, including the need to comply with export
and import laws, changes in export or import controls, tariffs and other
regulatory requirements, the imposition of governmental controls, political and
economic instability, trade restrictions, the greater difficulty of
administering business overseas and general economic conditions. Although the
Company's international sales are principally in United States dollars, sales to
international customers may also be affected by changes in demand resulting from
fluctuations in interest and currency exchange rates. There can be no assurance
that these factors will not have a material adverse effect on the Company's
business, operating results and financial condition.
Product Returns
The Company has a product return policy which it believes is standard in the
optical industry. Under that policy, the Company generally accepts returns of
non-discontinued product for credit, upon presentment and without charge.
According to the 1996 U.S. Optical Industry Handbook, the existence of this
policy in the optical business has led to some companies having return rates as
high as 20%. While the Company's product returns for fiscal 1996, fiscal 1997,
and fiscal 1998 amounted to 12.1%, 12.5%, and 13.8% of gross sales (sales before
returns), respectively, and while the Company maintains reserves for product
returns which it considers adequate, the possibility exists that the Company
could experience returns at a rate significantly exceeding its historical
levels, which could have a material adverse impact on the Company's business,
operating results and financial condition.
12
<PAGE>
Availability of Vision Correction Alternatives
The Company's future success could depend to a significant extent on the
availability and acceptance by the market of vision correction alternatives to
prescription eyeglasses, such as contact lenses and refractive (optical)
surgery. While the Company does not believe that contact lenses, refractive
surgery or other vision correction alternatives materially and adversely impact
its business at present, there can be no assurance that technological advances
in, or reductions in the cost of, vision correction alternatives will not occur
in the future, resulting in their more widespread use. Increased use of vision
correction alternatives could result in decreased use of the Company's eyewear
products, which would have a material adverse impact on the Company's business,
operating results and financial condition.
Acceptance of Eyeglass Frames; Unpredictability of Discretionary Consumer
Spending
The Company's success will depend to a significant extent on the market's
acceptance of the Company's brand-name eyeglass frames. If the Company is unable
to develop new, commercially successful styles to replace revenues from older
styles in the later stages of their life cycles, the Company's business,
operating results and financial condition could be materially and adversely
affected. The Company's future growth will depend in part upon the effectiveness
of the Company's marketing and sales efforts as well as the availability and
acceptance of other competing eyeglass frames released into the market place at
or near the same time, the availability of vision correction alternatives,
general economic conditions and other tangible and intangible factors, all of
which can change and cannot be predicted.
The Company's success also will depend to a significant extent upon a number
of factors relating to discretionary consumer spending, including the trend in
managed health care to allocate fewer dollars to the purchase of eyeglass
frames, and general economic conditions affecting disposable consumer income,
such as employment business conditions, interest rates and taxation. Any
significant adverse change in general economic conditions or uncertainties
regarding future economic prospects that adversely affect discretionary consumer
spending generally, and purchasers of prescription eyeglass frames specifically,
could have a material adverse effect on the Company's business, operating
results and financial condition.
Competition
The markets for prescription eyewear are intensely competitive. There are
thousands of styles, including hundreds with brand names. At retail, the
Company's eyewear styles compete with styles that do and do not have brand
names, styles in the same price range, and styles with similar design concepts.
To obtain board space at an optical retailer, the Company competes against many
companies, both foreign and domestic, including Luxottica Group S.p.A., Safilo
Group S.p.A. and Marchon Eyewear, Inc. Signature's largest competitors have
significantly greater financial, technical, sales, manufacturing and other
resources than the Company. They also employ direct sales forces that are
significantly larger than the Company's, and are thus able to realize a higher
gross profit margin. At the distributor level, sales representatives often carry
many lines of eyewear, and the Company must vie for their attention. At the
major retail chains, the Company competes not only against other eyewear
suppliers, but also against the chains themselves, which design, manufacture and
sell frames in their own stores under their private labels or brand names that
they license. Luxottica, one of the largest eyewear companies in the world, is
vertically integrated in that it manufactures frames, distributes them through
direct sales forces in the United States and throughout the world, and owns
LensCrafters, one of the largest United States retail optical chains.
13
<PAGE>
The Company competes in its target markets through the quality of the brand
names it licenses, its marketing, merchandising and sales promotion programs,
the popularity of its frame designs, the reputation of its styles for quality,
and its pricing policies. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition.
Dependence on Key Personnel
The Company's success has and will continue to depend to a significant extent
upon its executive officers, including Bernard Weiss (Chief Executive Officer),
Julie Heldman (President), Michael Prince (Chief Financial Officer), Robert
Fried (Senior Vice President of Marketing) and Robert Zeichick (Vice President
of Advertising and Sales Promotion). The loss of the services of one or more of
these key employees could have a material adverse effect on the Company. The
Company has entered into employment agreements with each of Ms. Heldman and
Messrs. Weiss, Prince, Fried and Zeichick, pursuant to which they have agreed to
render services to the Company until October 31, 2000. The Company maintains and
is the sole beneficiary of "key person" life insurance on Ms. Heldman and
Messrs. Weiss, Prince, Fried and Zeichick in the amount of $1,500,000 each. In
the event of the death of an executive officer, a portion of the proceeds of the
applicable policy would be used to pay the Company's obligation under the
officer's employment agreement. There can be no assurance that the remaining
proceeds of these policies will be sufficient to offset the loss to the Company
due to the death of that executive officer. In addition, the Company's future
success will depend in large part upon its ability to attract, retain and
motivate personnel with a variety of creative, technical and managerial skills.
There can be no assurance that the Company will be able to retain and motivate
its personnel or attract additional qualified members to its management staff.
The inability to attract and retain the necessary managerial personnel could
have a material adverse effect on the Company's business, operating results and
financial condition.
Management of Growth
The Company has grown rapidly in recent years, with net sales increasing from
$20.1 million in fiscal 1994 to $40.9 million in fiscal 1998, and the number of
employees increasing from approximately 50 at October 31, 1994 to 130 at October
31, 1998. The Company's growth has placed substantial burdens on its management
resources, and as a result of its growth, the Company has made additions to its
management team. The Company's ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and controls and to train, motivate and manage a larger
number of employees. There can be no assurance that the Company will be able to
sustain its historic rate of revenue growth, continue its profitable operations
or manage future growth successfully.
Control by Directors and Executive Officers
The directors and executive officers of the Company owned approximately 56.5%
of the Company's outstanding shares at January 31, 1999. As a result, the
directors and executive officers control the Company and its operations,
including the approval of significant corporate transactions and the election of
at least a majority of the Company's Board of Directors and thus the policies of
the Company. The voting power of the directors and executive officers could also
serve to discourage potential acquirors from seeking to acquire control of the
Company through the purchase of the Common Stock,
14
<PAGE>
which might depress the price of the Common Stock.
Quarterly and Seasonal Fluctuations
The Company's results of operations have fluctuated from quarter to quarter
and the Company expects these fluctuations to continue in the future.
Historically, the Company's net sales in the quarter ending January 31 (its
first quarter) have been lower than net sales in other fiscal quarters. The
Company attributes lower net sales in the first fiscal quarter in part to low
consumer demand for prescription eyeglasses during the holiday season and year-
end inventory adjustments by distributors and independent optical retailers. A
factor which may significantly influence results of operations in a particular
quarter is the introduction of a brand-name collection, which results in
disproportionate levels of selling expenses due to additional advertising,
promotions, catalogs and in-store displays. Introduction of a new brand may
also generate a temporary increase in sales due to initial stocking by
retailers. Other factors which can influence the Company's results of
operations include customer demand, the mix of distribution channels through
which the eyeglass frames are sold, the mix of eyeglass frames sold, product
returns, delays in shipment and general economic conditions.
No Dividends Anticipated
The Company does not currently intend to declare or pay any cash dividends
and intends to retain earnings, if any, for the future operation and expansion
of the Company's business.
Possible Anti-Takeover Effects
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those of
the Common Stock. Following the Offering, no shares of Preferred Stock of the
Company will be outstanding, and the Company has no present intention to issue
any shares of Preferred Stock. However, the rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, which may depress the market value of
the Common Stock. In addition, each of the Laura Ashley, Hart Schaffner & Marx,
and Eddie Bauer licenses allows the licensor to terminate its license upon
certain events which under the license are deemed to result in a change in
control of the Company. See "--Substantial Dependence Upon Laura Ashley
License." The licensors' rights to terminate their licenses upon a change in
control of the Company could have the effect of discouraging a third party from
acquiring or attempting to acquire a controlling portion of the outstanding
voting stock of the Company and could thereby depress the market value of the
Common Stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks, which include foreign exchange
rates and changes in U.S. interest rates. The Company does not engage in
financial transactions for trading or speculative purposes.
Foreign Currency Risks. During fiscal 1998, a maximum of $2,174,000 and a
minimum of
15
<PAGE>
$667,000 of the Company's accounts payable were payable in foreign currency.
During the 1999 first quarter, a maximum of $2,174,000 and a minimum of $363,000
of the Company's accounts payable were payable in foreign currency. These
foreign currencies included Japanese Yen, Italian Lire and French Francs. Any
significant change in foreign currency exchange rates could therefore materially
affect the Company's business, operating results and financial condition. To
monitor risks associated with currency fluctuations, the Company on a weekly
basis assesses the volatility of certain foreign currencies and reviews the
amounts and expected payment dates of its purchase orders and accounts payable
in those currencies. Based on those factors, the Company may from time to time
mitigate some portion of that risk by purchasing forward commitments to deliver
foreign currency to the Company. The Company held forward commitments for
foreign currencies in the amount of $59,000 at October 31, 1998. The Company
held no forward commitments for foreign currencies at January 31, 1999.
International sales accounted for approximately 8.4% of the Company's net sales
in fiscal 1998 and 12.6% of the Company's net sales in the 1999 first quarter.
Although the Company's international sales are principally in United States
dollars, sales to international customers may also be affected by changes in
demand resulting from fluctuations in interest and currency exchange rates.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business, operating results and financial condition. For
frames purchased other than from Hong Kong/China manufacturers, the Company pays
for its frames in the currency of the country in which the manufacturer is
located and thus the costs (in United States dollars) of the frames vary based
upon currency fluctuations. Increases and decreases in costs (in United States
dollars) resulting from currency fluctuations generally do not affect the price
at which the Company sells its frames, and thus currency fluctuation can impact
the Company's gross margin.
Interest Rate Risk. Under the Company's Credit Agreement, its bank has
agreed to provide the Company an unsecured revolving line of credit up to an
aggregate of $5,000,000. At the Company's option, interest may be based on the
London Interbank Offered Rate ("LIBOR") plus 2%, or at the bank's prime rate.
At October 31, 1998, no amounts were due to the bank under the Credit Agreement.
Any interest which may in the future become payable on the Company's bank line
of credit will be based on variable interest rates and will therefore be
affected by changes in market interest rates. In addition, the Company has
fixed income investments consisting of cash equivalents, which are also affected
by changes in market interest rates. The Company does not use derivative
financial instruments in its investment portfolio. The Company places its cash
equivalents with high-quality financial institutions, limits the amount of
credit exposure to any one institution and has established investment guidelines
relative to diversification and maturities designed to maintain safety and
liquidity.
16
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.1 Promissory Note, dated as of December 8, 1998,
between Registrant and City National Bank.
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by this
quarterly report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 17, 1999 SIGNATURE EYEWEAR, INC.
By: /s/ Michael Prince
------------------------
Michael Prince
Chief Financial Officer
/s/ Michael Prince
------------------------
Michael Prince
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE>
EXHIBIT 10.1
<TABLE>
<CAPTION>
PROMISSORY NOTE
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 12-8-1998 11-01-2001 31429 496077 KEB
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded are for Lender's use only and do not limit the applicability of this document
to any particular loan or item
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <C> <C> <S>
Borrower: SIGNATURE EYEWEAR, INC., Lender: City National Bank, a National Banking Association
A CALIFORNIA CORPORATION San Gabriel Valley Commercial Banking Center #051000
408 NORTH OAK STREET 13191 Crossroads Parkway North
INGLEWOOD, CA 90302 City of Industry, CA 91746
</TABLE>
<TABLE>
<S> <C> <C>
Principal Amount: $500,000.00 Interest Rate: 6.750% Date of Note: December 8, 1998
</TABLE>
PROMISE TO PAY. SIGNATURE EYEWEAR, INC., A CALIFORNIA CORPORATION ("Borrower")
promises to pay to City National Bank, a National Banking Association
("Lender"), or order, in lawful money of the United States of America, the
principal amount of Five Hundred Thousand & 00/100 Dollars ($500,000.00),
together with interest at the rate of 6.750% on the unpaid principal balance
from November 18, 1998, until paid in full.
PAYMENT. Borrower will pay this loan in 23 principal payments of $20,833.33
each and one final principal and interest payment of $20,954.50. Borrower's
first principal payment is due December 1, 1999, and all subsequent principal
payments are due on the same day of each month after that. In addition,
Borrower will pay regular monthly payments of all accrued unpaid interest due as
of each payment date. Borrower's first interest payment is due December 1,
1998, and all subsequent interest payments are due on the same day of each month
after that. Borrower's final payment due November 1, 2001 will be for all
principal and accrued interest not yet paid. The annual interest rate for this
Note is computed on a 365/360 basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment
of this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $100.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (g) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the Indebtedness is impaired. (h) Lender in good faith deems itself
insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the interest rate on this Note 5.000 percentage points. Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Los Angeles
County, the State of California. This Note shall be governed by and construed
in accordance with the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of the Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
<PAGE>
11-18-1998 Page 2
Loan No. 31429 PROMISSORY NOTE
(Continued)
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
SIGNATURE EYEWEAR, INC., A CALIFORNIA CORPORATION
By: /s/ Michael Prince
--------------------------
MICHAEL PRINCE, CFO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS OF SIGNATURE EYEWEAR, INC. AS OF AND FOR THE THREE MONTHS
ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 3,685,408
<SECURITIES> 0
<RECEIVABLES> 6,083,272
<ALLOWANCES> 71,568
<INVENTORY> 9,848,060
<CURRENT-ASSETS> 21,644,129
<PP&E> 3,048,423
<DEPRECIATION> 1,587,796
<TOTAL-ASSETS> 23,236,873
<CURRENT-LIABILITIES> 3,479,045
<BONDS> 0
0
0
<COMMON> 9,216
<OTHER-SE> 19,290,279
<TOTAL-LIABILITY-AND-EQUITY> 23,236,873
<SALES> 9,035,901
<TOTAL-REVENUES> 9,035,901
<CGS> 3,984,947
<TOTAL-COSTS> 5,031,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 61,859
<INCOME-TAX> 23,000
<INCOME-CONTINUING> 38,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,859
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
