SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 1998
Commission File Number: 1-13427
STRATESEC INCORPORATED
(formerly Securacom, Incorporated)
State of Incorporation: Delaware I.R.S. Employer I.D.: 22-2817302
105 Carpenter Drive
Sterling, Virginia 20164
(703) 709-8686
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
There were 6,103,502 shares of Common Stock, par value $0.01 per share,
outstanding at August 12, 1998.
<PAGE>
STRATESEC INCORPORATED
Quarter ended June 30, 1998
Index
- --------------------------------------------------------------------------------
Page
Part I. Financial information
Item 1. Financial Statements........................................ 3
Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited)....................................................... 3
Statements of Operations for the three months ended
June 30, 1997 and 1998 (unaudited) and the six months
ended June 30, 1997 and June 30, 1998 (unaudited)................. 4
Statements of Cash Flows for the six months
ended June 30, 1997 and June 30, 1998 (unaudited)................. 5
Notes to Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 8
Part II. Other information
Item 2. Changes in Securities and Use of Proceeds................... 11
Item 4. Submission of Matters to a Vote of Security Holders.........
Item 6. Exhibits and Reports on Form 8-K........................... 11
Signature............................................................ 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STRATESEC INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997* 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 998,312 $ 859,340
Cash-restricted............................................................ 2,063,539 1,940,048
Accounts receivable, net of allowance for doubtful
accounts of $49,000 in 1997 and 1998..................................... 3,330,542 1,222,075
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................................... 2,108,134 1,012,254
Inventory.................................................................. 598,415 598,415
Prepaid expenses and other................................................. 140,870 167,990
-------------- --------------
Total currents assets................................................. 9,239,812 5,800,122
Plant and equipment, net...................................................... 740,156 494,078
Other assets.................................................................. 128,414 136,592
-------------- --------------
$ 10,108,382 $ 6,430,791
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of capital lease obligations $ 51,100 $ 63,904
Accounts payable........................................................... 1,997,014 1,332,094
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................................... 69,734 125,568
Accrued expenses and other................................................. 2,938,789 2,588,636
-------------- --------------
Total current liabilities............................................. $ 5,056,637 $ 4,110,202
Long-term liabilities:
Capital lease obligations, less current maturities 196,285 203,326
Notes payable.............................................................. -- 1,450,000
Stockholders' equity (deficiency):
Common stock, $0.01 par value per share; authorized
20,000,000 shares; issued and outstanding
6,103,502 shares in 1997 and 1998........................................ 61,035 61,035
Additional paid-in capital................................................. 21,072,430 21,072,430
Accumulated deficit........................................................ (16,278,005) (20,466,201)
-------------- --------------
4,855,460 667,264
-------------- --------------
$ 10,108,382 $ 6,430,791
============== ==============
</TABLE>
* Derived from audited financial statements as of December 31, 1997.
The accompanying notes are an integral part of these statements.
3
<PAGE>
STRATESEC INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1998 1997 1998
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Earned revenues................................ $ 3,942,299 $ 1,372,086 $ 7,240,240 $ 2,692,500
Provision for contract adjustment.............. -- 2,491,156 -- 2,491,156
Cost of earned revenues........................ 2,883,953 1,178,681 5,210,176 2,285,044
------------- --------------- ------------- --------------
Gross profit................................ 1,058,346 (2,297,751) 2,030,064 (2,083,700)
Selling, general and administrative
expenses.................................... 735,415 1,010,493 1,380,514 2,083,532
------------- --------------- ------------- --------------
Operating income (loss)........................ 322,931 (3,308,244) 649,550 (4,167,232)
Loss on sale of plant and equipment............ -- -- -- (37,839)
Interest and financing fees.................... (100,135) (36,296) (231,778) (49,104)
Interest and other income...................... -- 58,781 11,168 65,979
------------- --------------- ------------- --------------
Net income (loss).............................. $ 222,796 $ (3,285,759) $ 428,940 $ (4,188,196)
============= =============== ============= ==============
Net income (loss) per share - basic
and diluted................................. $ .04 $ (.54) $ .09 $ (.69)
============= =============== ============= ==============
Weighted average common shares
outstanding................................. 5,275,860 6,103,522 4,605,000 6,103,522
============= =============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
STRATESEC INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ 428,940 $ (4,188,196)
------------- --------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization.............................................. 63,205 70,233
Loss of sale of plant and equipment........................................ -- 39,162
Amortization of debt discount.............................................. 21,000 --
Changes in operating assets and liabilities:
Cash restriction............................................................. -- 123,491
Accounts receivable.......................................................... (712,103) 2,108,467
Costs and estimated earnings in excess of
billings on uncompleted contracts.......................................... (1,322,855) 1,095,880
Prepaid expenses and other................................................... 20,641 (27,120)
Other assets................................................................. (13,398) (8,177)
Accounts payable............................................................. 1,401,305 (664,820)
Billings in excess of costs and estimated
earnings on uncompleted contracts.......................................... (2,134) 56,834
Accrued expenses and other................................................... 121,047 (350,158)
------------- --------------
Total adjustments........................................................ (423,292) 2,443,692
------------- --------------
Net cash from operating activities....................................... 5,648 (1,744,503)
------------- --------------
Cash flows from investing activities:
Investment in SSIH, Ltd...................................................... (700,000) --
Sale of plant and equipment.................................................. -- 240,000
Acquisition of plant and equipment........................................... -- (53,908)
------------- --------------
Net cash used by investing activities........................................ (700,000) 186,092
------------- --------------
Cash flows from financing activities:
Proceeds from notes payable.................................................. 700,000 1,450,000
Principal payments of capital lease
obligations................................................................ (15,224) (30,561)
------------- --------------
Deferred registration cost................................................... (474,566) --
Net cash provided by financing activities.................................... 210,210 1,419,439
------------- --------------
Net (decrease) in cash and cash equivalents..................................... (484,142) (138,972)
Cash and cash equivalents at beginning of period................................ 609,342 998,312
------------- --------------
Cash and cash equivalents at end of period...................................... $ 125,200 $ 859,340
============= ==============
</TABLE>
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, the unaudited financial statements at
June 30, 1998 and for the six months ended June 30, 1997 and 1998, include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
periods. Results of operations for the six months ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year.
During the second quarter a major firm fixed price contract experienced
significant unforeseen and continuing delays for a variety of reasons, many of
which were outside the control of the Company. As a result actual costs and
estimates of future costs to complete the contract rapidly increased throughout
the quarter. As a result, the Company entered into an agreement with the Prime
Contractor whereby the Prime Contractor will assume the remaining costs and all
associated risks and liabilities for completing the contract. The Company will
take a one-time charge of $2,491,156 associated with the agreement. The Company
believes that this will alleviate a significant, near-term cash burden on the
Company, mitigate operating liabilities moving forward and eliminate future
risks relating to the contract.
2. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts at December 31,
1997 and June 30, 1998 which are expected to be collected within one year are as
follows;
December 31, June 30,
1997 1998
--------------- ---------------
Costs incurred on contracts................ $ 14,229,410 $ 16,353,696
Estimated earnings......................... 3,473,560 1,285,022
--------------- ---------------
17,702,970 17,638,718
Less billings to date...................... 15,664,570 16,752,033
--------------- ---------------
$ 2,038,400 $ 886,685
=============== ===============
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis of the Company's financial condition and
historical results of operations should be read in conjunction with the
condensed financial statements and the related notes thereto included elsewhere
in this report.
Overview
The Company is a single-source provider of comprehensive,
technology-based security solutions for medium and large commercial and
government facilities in the United States and abroad. The Company offers a
broad range of services, including: (i) consulting and planning; (ii)
engineering and design; (iii) systems integration; and (iv) maintenance and
technical support.
During the second quarter a major firm fixed price contract experienced
significant unforseen and continuing delays for a variety of reasons, many of
which were outside the control of the Company. As a result, actual costs and
estimates of future costs to complete the contract rapidly increased throughout
the quarter. As a result, the Company entered into an agreement with the prime
contractor whereby the prime contractor will assume the remaining costs and all
associated risks and liabilities for completing the contract. In the second
quarter of 1998, the Company took a one-time charge of $2,491,156 associated
with the agreement. The Company believes that this will alleviate a significant,
near-term cash burden on the Company, mitigate operating losses moving forward
and eliminate future risks relating to the contract.
The Company derives its revenues from a mixture of different contract
types including firm, fixed-price contracts, cost plus fixed fee, and time and
materials contracts. Earnings for fixed-price contracts are recognized based
upon the Company's estimates of the cost and percentage of completion of
individual contracts. Earned revenues equal the project's total contract amount
multiplied by the proportion that direct project costs incurred on a project
bear to estimated total project costs. Project costs include direct labor and
benefits, direct material, subcontract costs, project related travel and other
direct expenses. Earnings for cost plus fixed fee contracts are based on the
cost incurred plus the percentage authorized by the contract. Earnings for time
and materials contracts are based on the rate specified in the contract for the
category of labor expended multiplied by the number of hours worked in the
period.
Clients are invoiced based upon negotiated payment terms for each
individual contract. Terms for the fixed-price contracts usually include a 25%
down payment and the balance as stages of the work are completed. Terms for cost
plus fixed fee contracts allow for billing as the material is received or at the
end of the month in which the material was received. Terms for time and
materials contracts provide for billing each month for the number of hours
worked during the month. Maintenance contracts are billed in advance, monthly,
or quarterly. As a result, the Company records as an asset cost estimated
earnings in excess of billings and as a liability billings in excess of costs
and estimated earnings for the fixed-price contracts.
In the quarter and for the first half of the year, the Company has
continued to diversify its client base and reduce its dependence on a very small
number of large contracts. This diversification is expected to continue for the
rest of the year.
7
<PAGE>
Results of Operations
The following table sets forth the percentages of earned revenues
represented by certain items reflected in the Company's statements of
operations.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
------------------------ ------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earned Revenues........................................... 100.0% 100.0% 100.0% 100.0%
Provision for contract adjustment......................... -- 181.6 -- 92.5
Cost of earned revenues................................... 73.2 85.9 72.0 84.9
----------- ----------- ----------- -----------
Gross profit........................................... 26.8 (167.5) 28.0 (77.4)
Selling, general and administrative expenses.............. 18.7 73.6 19.1 77.4
----------- ----------- ----------- -----------
Operating income (loss)................................ 8.2 (241.1) 9.0 (154.8)
Loss on sale of plant and equipment....................... -- -- -- (1.4)
Interest and financing fees............................... (2.5) (2.6) (3.2) (1.7)
Interest and other income................................. -- 4.3 0.2 2.5
----------- ----------- ----------- -----------
Net income (loss)...................................... 5.7% (239.5)% 5.9% (154.1)%
=========== =========== =========== ===========
</TABLE>
Three Months Ended June 30, 1998 Compared With Three Months Ended June 30, 1997
Revenues decreased by 65.2% from $3.9 million in the three months ended
June 30, 1997 to $1.4 million in the three months ended June 30, 1998. The
decrease was due primarily to a decline in work completed on existing projects.
Revenues from the World Trade Center project declined from $2.2 million in the
1997 period to $0.1 million in the 1998 period. In addition, revenues from the
Metropolitan Washington Airport Authority declined from $0.8 million in the 1997
period to $0.6 million in the 1998 period. The revenue from MCI also declined
$0.1 million for the comparable periods.
Cost of earned revenues decreased from $2.9 million in the three months
ended June 30, 1997 to $1.2 million in the three months ended June 30, 1998,
primarily due to the decrease in revenues. Gross margin decreased from 26.6% in
the 1997 period to (167.5)% in the 1998 period due to a one-time charge of $2.5
million to transfer the costs and risks associated with completing a firm fixed
price contract to the prime contractor.
Selling, general and administrative expenses increased by 37.4% from
$0.7 million in the three months ended June 30, 1997, to $1.0 million in the
three months ended June 30, 1998. Overhead salaries increased by $0.2 million
from the previous year's period as project staff worked less on jobs due to the
decreased revenues, professional fees increased by $0.05 million due to
recruiting fees for the new corporate officers and office expenses increased
$0.05 due to increased office space.
Interest expense and financing fees decreased 63.8% from $0.1 million
in the three months ended June 30, 1997 to $0.04 million in the three months
ended June 30, 1998 due to a decrease in outstanding indebtedness resulting from
the repayment of the subordinated debentures in October 1997.
8
<PAGE>
Due to a decrease in revenue, net income decreased from net income of
$0.2 million in the three months ended June 30, 1997 to a net loss of $(3.3)
million in the three months ended June 30, 1998, after accounting for a one-time
charge of $2,491,156 associated with an agreement with a prime contractor to
transfer the remaining costs and all associated risks for completion of a major
firm fixed price contract to the prime contractor.
Six Months Ended June 30, 1998 Compared With Six Months Ended June 30, 1997
Revenues decreased by 58.5% from $7.2 million in the six months ended
June 30, 1997 to $2.7 million in the six months ended June 30, 1998. The
decrease was due primarily to a decline in work completed on existing projects.
Revenues from the World Trade Center project declined from $4.1 million in the
1997 period to $0.6 million in the 1998 period. In addition, revenues from the
Metropolitan Washington Airport Authority declined from $1.6 million in the 1997
period to $0.9 million in the 1998 period. The revenue from MCI also declined
$0.1 million for the comparable periods.
Cost of earned revenues decreased from $5.2 million in the six months
ended June 30, 1997 to $2.3 million in the six months ended June 30, 1998,
primarily due to the decrease in revenues. Gross margin decreased from 28.0% in
the 1997 period to (77.4)% in the 1998 period due to the one-time charge of $2.5
million.
Selling, general and administrative expenses increased by 51% from $1.4
million in the six months ended June 30, 1997, to $2.1 million in the six months
ended June 30, 1998. Overhead salaries increased by $0.5 million from the
previous year's period as project staff worked less on jobs due to the decreased
revenues and as a result of overlap during a transition to new corporate
management. Professional fees increased by $0.1 million for recruiting fees for
the new corporate officers and office expenses increased $0.1 million due to
increased office space.
Interest expense and financing fees decreased 79% from $0.2 million in
the six months ended June 30, 1997 to $0.05 million in the six months ended June
30, 1998 due to a decrease in outstanding indebtedness resulting from the
repayment of the subordinated debentures in October 1997.
Net income decreased from net income of $0.4 million in the six months
ended June 30, 1997 to a net loss of $(4.1) million after the one-time charge
for the six months ended June 30, 1998. This decrease in net income was
primarily due to a decrease in revenue and the one-time charge of $2,491,156
associated with an agreement with a prime contractor to transfer the remaining
cost and all associated risks for completion of a major firm fixed price
contract to the prime contractor.
Liquidity and Capital Resources
Prior to the Offering in October 1997, the Company's primary sources of
cash were the proceeds from private placements of Common Stock and notes from
1992 through 1995 and of subordinated debentures and warrants during 1995, 1996,
and the first three months of 1997. During each of those years, the Company's
operations had negative cash flows as the Company increased its marketing
efforts, opened new offices and hired additional staff to support anticipated
growth. The net use of cash from operations in 1994, 1995, and 1996 was $1.9
million, $1.9 million and $1.6 million. For the year ended December 31, 1997,
the use of cash from operations was $7.4 million, primarily due to the operating
loss, the restriction of $1.9 million in cash as collateral for the appeal bond
posted in litigation, and a
9
<PAGE>
reduction in accounts payable. For the six months ended June 30, 1998, the
Company had negative cash flow from operations of $1.7 million as a result of
its operating loss.
From 1992 through 1995, members of a private investor group purchased
an aggregate of 3.6 million shares of Common Stock at a total purchase price of
$8.3 million, generating net proceeds to the Company of $8.0 million, and $0.5
million aggregate principal amount of 10% demand notes, generating an equal
amount of net proceeds to the Company. The demand notes were converted in 1995
into 103,000 shares of Common Stock.
In addition, from 1995 through March 31, 1997, members of the same
investor group purchased $3.4 million aggregate principal amount of 10%
subordinated debentures, together with warrants to purchase 478,580 shares of
Common Stock at an exercise price of $7.00 per share, generating net proceeds to
the Company of $3.2 million. In 1996, an additional $0.2 million was raised
through the exercise of warrants by members of the Board of Directors.
In October 1997, the Company completed the Offering, which resulted in
net proceeds to the Company of approximately $9.7 million after payment of
offering expenses by the Company. Following the Offering, the Company's interest
in a partnership was redeemed at its cost of $0.7 million plus interest of $0.02
million. In the fourth quarter of 1997, the Company received proceeds of
approximately $0.7 million upon the exercise of warrants to purchase 269,382
shares of Common Stock by employees. In October 1997, the Company used proceeds
of the Offering to repay $3.4 million of outstanding notes payable.
During April 1998, the Board of Directors approved the issuance of up
to $2.0 million of convertible subordinated debentures to provide additional
working capital. As of May 13, 1998, the Company had issued and sold $1,450,000
of debentures. The debentures have an interest rate of 10%, are due on December
31, 1999 and are convertible into common stock of the Company at $8.50 per
share. In addition, the holders were issued 100 warrants for each $1,000 of
investment with an exercise price of $2.50 and a term of three years.
As of June 30, 1998, the Company has $0.8 million in unrestricted cash
and working capital of $1.7 million. Of that amount, $1.9 million of current
assets is in the form of restricted cash. This cash is restricted to serve as
collateral for a bond posted by the Company pending appeal of a $1.9 million
judgment against the Company. If the Company fails to win the appeal of the
lawsuit, it may require additional working capital to fund operations during the
remainder of the year.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company's Registration Statement on Form S-1 (File No. 333-26439)
relating to the initial public offering (the "Offering") of an aggregate of
2,208,000 shares (the "Shares") of its Common Stock, par value $0.01 per share,
was declared effective by the Securities and Exchange Commission on October 1,
1997. Of the 2,208,000 shares of Common Stock registered under the Registration
Statement, 1,400,000 were sold by the Company and 808,000 were sold by a
stockholder of the Company that owns more than 10% of the Company's outstanding
Common Stock (the "Selling Stockholder"). The 808,000 shares sold by the Selling
Stockholder included 288,000 shares sold upon exercise of an over-allotment
option granted to the underwriters of the Offering. The managing underwriters of
the Offering were Cruttenden Roth Incorporated and Scott & Stringfellow, Inc.
The Offering commenced on October 1, 1997, and the sale of the Shares
was completed on October 7, 1997. The Shares were sold at a price of $8.50 per
share, for aggregate proceeds of $11,900,000 and $6,868,000 to the Company and
the Selling Stockholder, respectively. After deducting underwriting discounts
and commissions of $0.7225 per share and a $408,000 non-accountable expense
allowance paid to the Representatives (of which $297,500 was paid by the Company
and $110,500 was paid by the Selling Stockholder), the Selling Stockholder
received net proceeds of $6,173,720 and the Company received net proceeds of
$10,591,000 less expenses incurred in connection with the Offering, all of which
were paid by the Company. On October 7, 1997, the Company also issued to the
Representatives, at a purchase price of $0.001 per warrant, warrants to purchase
up to an aggregate of 140,000 shares of Common Stock.
Expenses incurred in connection with the Offering were:
(A) (B)
Underwriting discounts and commissions..... 1,011,500
Other expenses............................. 113,000 1,040,000
Through December 31, 1997, the use of net proceeds of $9.7 million has been as
follows:
(A) (B)
Repayment of indebtedness............... 3,350,000
Working capital......................... 6,385,500
(A) Direct or indirect payments to directors or officers of
the issuer.
(B) Direct or indirect payments to others.
During April 1998, the Board of Directors approved the issuance of up
to $2.0 million of convertible subordinated debentures to provide additional
working capital. As of May 13, 1998, the Company had issued and sold $1,450,000
of debentures. The debentures have an interest rate of 10%, are due on December
31, 1999 and are convertible into common stock of the Company at $8.50 per
share. In addition, the holders were issued 100 warrants for each $1,000 of
investment with an exercise price of $2.50 and a term of three years. These
transactions were exempt from registration under the Securities Act of 1933 (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
thereunder.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on June 10, 1998. At
the meeting, the shareholders elected the following individuals as members of
the Board of Directors: Wirt D. Walker, III, Charles W. Archer, Ronald C.
Thomas, Mishal Yousef Saud Al Sabah, Marvin P. Bush, Robert B. Smith, and Lt.
General James A. Abrahamson, USAF (Retired).
The voting results of the election of directors and the other matters
voted upon at the meeting are as follows:
Election of Directors:
Votes Withheld
For Authority
Nominee:
Wirt D. Walker, III............................ 4,949,253 41,566
Charles W. Archer.............................. 4,951,453 39,366
Ronald C. Thomas............................... 4,947,253 43,566
Mishal Yousef Saud Al Sabah.................... 4,950,453 40,366
Robert B. Smith................................ 4,951,253 39,566
Marvin P. Bush................................. 4,949,253 41,566
James A. Abrahamson............................ 4,951,453 39,366
Other Matters:
Abstentions
and
Description of Votes Votes Broker
Matter For Against Non-Votes
Approval of amendment to the
Company's 1997 Stock Option
Plan................................... 2,881,797 189,666 1,919,356
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Calculation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
b. Reports on Form 8-K.
None
12
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATESEC INCORPORATED
/s/BARRY MCDANIEL
- -----------------------------------------------------
Barry McDaniel
Chief Operating Officer
August 14, 1998
13
EXHIBIT 11
Calculation of Weighted Average Shares
Outstanding for Net Income (Loss) Per Share
<TABLE>
<CAPTION>
June 30,
1997 1998
------------- --------------
<S> <C> <C>
Earnings:
Net Income (Loss).......................................................... $ 222,796 $ (4,188,196)
============= ==============
Shares:
Weighted Average Number of Common Shares
Outstanding............................................................. 4,605,000 6,103,522
Additional Shares Under Treasury Stock Method
from Warrants Issued 12 Months Prior to 3/31/97*........................ 670,860 --
------------- --------------
Average Common Shares Outstanding and Equivalents.......................... 5,275,860 6,103,522
============= ==============
Net Income (Loss) Per Share................................................ $ .04 $ (.69)
============= ==============
</TABLE>
* -- Calculation would be antidilutive for 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 859,340
<SECURITIES> 0
<RECEIVABLES> 1,271,075
<ALLOWANCES> (49,000)
<INVENTORY> 598,415
<CURRENT-ASSETS> 5,800,122
<PP&E> 929,249
<DEPRECIATION> 435,171
<TOTAL-ASSETS> 6,430,791
<CURRENT-LIABILITIES> 4,110,202
<BONDS> 0
0
0
<COMMON> 61,035
<OTHER-SE> 606,229
<TOTAL-LIABILITY-AND-EQUITY> 6,430,791
<SALES> 2,692,500
<TOTAL-REVENUES> 2,692,500
<CGS> 4,776,200
<TOTAL-COSTS> 4,776,200
<OTHER-EXPENSES> 2,083,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,104
<INCOME-PRETAX> (4,188,196)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,188,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,188,196)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> 0
</TABLE>
