<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
/ / Transition report pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to ____________
Commission file number 000-24119
-----------
THE PATHWAYS GROUP, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 91-1617556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14201 N.E. 200TH STREET, WOODINVILLE, WA 98072
----------------------------------------------
(Address of principal executive offices)
(425) 483-3411
--------------
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: AS OF NOVEMBER 6,1998:
13,565,662 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements for the Company's fiscal quarter ended
September 30, 1998 are attached to this Report, commencing at page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for historical information, the material contained in this
Management's Discussion and Analysis or Plan of Operation is forward-looking.
This discussion includes, in addition to historical information, forward looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward looking
statements. Factors that could cause or contribute to such differences are
discussed below and in the Company's Registration Statements on Forms 10-SB, as
amended, and Form SB-2, each as filed with the Securities and Exchange
Commission. These risks and uncertainties include the rate of market
development and acceptance of smart card technology, the unpredictability of the
Company's sales cycle, the limited revenues and significant operating losses
generated to date, and the possibility of significant ongoing capital
requirements. For the purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995,
readers are urged to review the list of certain important factors set forth in
"Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995".
GENERAL
The Pathways Group, Inc. and its subsidiaries ("Pathways" or the
"Company") designs, markets and services custom smart card applications. The
Company develops unique solutions for creating and processing data and ensuring
secure electronic transactions by utilizing proprietary hardware and application
software systems. Pathways' technology establishes electronic commerce in
closed system environments. A key element of the Company's business plan is
the processing of transactions associated with its current and prospective smart
card installations. The Company also manufactures and markets automated
ticketing kiosks that the Company anticipates will be integrated with its smart
card applications.
The Company was organized in 1993 as a Washington corporation whose
operations are the successor to Pathways International, Ltd., which was
incorporated in Washington in June 1988. In May 1997 the Company reincorporated
in Delaware. The Company's executive offices are located at 14201 NE 200th
Street, Woodinville, Washington 98072 and its telephone number is (425)
483-3411. A primary processing center is located at 1221 North Dutton Avenue,
Santa Rosa, California 95404, and its telephone number is (707) 546-3010. A
sales and marketing office is located at Grosvenor Center, 2500 Makai Tower, 733
Bishop Street, Honolulu, Hawaii 96813.
The Company offered its common stock to the public in July 1997
pursuant to Regulation A of the Securities Act of 1993 ("Securities Act"). The
Company offered 833,333 shares of Common Stock, par value $.01 per share
("Common Stock"), for a purchase price of $6.00 per share. The offering
commenced on July 15, 1997, and terminated on July 21, 1997. All shares offered
were sold, providing $5,000,000 in gross proceeds to the Company.
The Company offered shares of its Common Stock in a private offering
in July and August 1998 pursuant to Rule 506 of Regulation D under the
Securities Act. The Company sold 654,508 shares at $13.75 per share to
accredited investors, resulting in gross proceeds to the Company of $8,999,485.
The Company engaged Allen & Company Incorporated and Mitchum Jones & Templeton
to act as placement
-1-
<PAGE>
agents for the offering, each of which received a placement fee of 5% of the
purchase price per share for shares placed by them.
RESULTS OF OPERATIONS
REVENUES. The Company has generated limited revenues from operations
to date as it has continued to develop and market its smart card systems. The
Company believes it will continue to report minimal revenues until additional
significant contracts are signed or until the existing contracts, discussed
below, proceed through the pilot stage to a full rollout. Revenues generated in
the three month- and nine month-periods ended September 30, 1998 and 1997,
primarily relate to credit card processing fees from its unattended ticketing
kiosks installed in several ski area and amusement park venues. In 1997,
revenues included sales of smart cards and affinity cards. Revenues decreased
$14,608 and $35,819 for the three months and nine months ended September 30,
1998, respectively, as compared to the corresponding periods in 1997 due to a
decrease in sales of smart and affinity cards in 1998, and lower credit card
transaction fees in 1998 vs. 1997. Credit card transaction fees were lower for
1998 as compared to 1997 due to a decrease in the number of kiosks in operation
as a result of the Company's focus on its smart card systems marketing efforts.
The Company's business model is based upon the Company's contracting
large membership based businesses to be a turnkey provider of smart card based
systems. The Company anticipates licensing its software for use by its clients
and entering into agreements whereby the Company will perform all backroom
processing of the transactions that occur over the system in addition to selling
smart cards and smart card readers programmed by the Company. The Company
expects to receive transaction-processing fees for its backroom processing
services. The Company anticipates that revenue generation from contracts will
be dominated initially by the sales of smart card terminals, readers and smart
cards in order to develop an appropriate concentration of merchants and smart
card users in a market area. After this initial phase, the sales mix for a
contract is expected to consist of a relatively high concentration of
transaction processing fees.
The Company is in progress with a pilot program pursuant to a signed
pilot agreement with the Department of Education in the State of Hawaii for the
implementation of an electronic school lunch program. The Company expects
completion of the pilot in the fourth quarter of 1998. After completion of the
pilot, if deemed successful by the Department of Education, the Company
anticipates it will negotiate a rollout schedule for the remaining schools in
the State of Hawaii. The Company signed a letter of intent with Coca-Cola
Bottling of Hawaii, which provides for Coca-Cola's participation in the school
lunch program. The Company expects a definitive agreement to be signed in the
fourth quarter. The Company has a signed pilot agreement with First Hawaiian
Bank for the use of smart cards in a retail program and expects to begin this
pilot in the first quarter of 1999.
In June of 1998, the Company signed a contract with Scrip Advantage of
Fresno, California to provide its proprietary Smart Script-TM- electronic scrip
and gift certificate product to Scrip Advantage and its members. The system
being installed was originally slated to be used in a pilot program for a
company called "SCRIP Plus", which was owned by the Signature Group, a wholly
owned subsidiary of Montgomery Ward, and one of the largest scrip resellers in
the country. When Montgomery Ward filed for bankruptcy, SCRIP Plus was unable
to support the signed pilot agreement with Pathways. Accordingly, Pathways
delayed installation and has now negotiated a new contract with Scrip Advantage,
which was started by the previous Chief Executive Officer of SCRIP Plus, Inc.
The agreement with Scrip Advantage calls for the Company to sell
terminals to participating merchants and smart cards to non-profit organizations
and their members. In addition, the Company will receive a fee for each smart
card, debit or credit card transaction processed. The agreement is for a term
of three years with annual renewals and includes early termination provisions
for both parties under certain conditions, including the failure of Pathways to
provide Scrip Advantage with competitive pricing. In connection with the
agreement with Scrip Advantage, the Company has advanced $50,000 to Scrip
Advantage in exchange for a demand note receivable. The note receivable is
convertible into common
-2-
<PAGE>
stock of Scrip Advantage at the Company's option, and provides the Company,
through Carey F. Daly, II, its Chief Executive Officer and President, to be
represented on the Board of Directors of Scrip Advantage.
The Company has signed agreements with Winter Park Ski Resort for the
installation of its Tickitbox II unattended ticketing and smart card system at
its Colorado location, and with Six Flags Great Adventure and Magic Mountain
Amusement Parks to upgrade their existing Tickitbox systems. These contracts
are accompanied by transaction processing agreements. The Company expects these
installations to occur in the fourth quarter of 1998. The Company has also a
signed letter of intent with Enchanted Parks, Inc. of Federal Way, Washington
for a pilot of its Tickitbox system in the fourth quarter of 1998.
GROSS MARGIN. Gross margins were 63% for the three months ended
September 30, 1998 as compared to 64% for the three months ended September 30,
1997. Gross margins were 70% for the nine months ended September 30, 1998 as
compared 69% for the nine months ended September 30, 1997. The decrease in
gross margin for the three months period in 1998 and 1997 as compared with the
nine months period in those same years relates to higher charge backs in the
third quarter as compared with the first and second quarter in both years.
The Company's gross margin as a percentage of revenues is primarily a
function of the sales mix between high margin transaction processing fees and
lower margin smart card and terminal sales. The Company expects future gross
margin percentages will be heavily influenced by potential competition as well
as the sales mix between hardware sales and transaction processing fees.
Although this mix is difficult to predict, margins generally will be lower at
the beginning of a new client system rollout due to the concentration of smart
card readers and smart card sales. Once the initial rollout is completed, gross
margins are expected to increase due to increases in use of the smart cards by
cardholders and the resulting transaction processing fees.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $962,903 or 146% and $2,301,857 or 130% during
the three months and nine months ended September 30, 1998, as compared to the
corresponding periods in 1997. This increase is primarily the result of
expanded payroll and employee support costs associated with an increased number
of full-time employees and additional compensation to a senior executive for
past performance. The Company had approximately fifty full-time employees at
September 30, 1998, as compared to twenty-five as of September 30, 1997. In
addition, the Company has incurred increases in sales and marketing related
expenditures commensurate with the increase in marketing personnel and in
administrative costs associated with becoming a publicly traded company,
including professional services and investor relations' expenditures. The
Company expects the level of selling, general and administrative costs to
continue to increase, although more modestly than in the past four quarters, as
a result of continued marketing and customer support activities and an increase
in the number of operating and technical personnel necessary to support its
expected sales efforts, product development, and customer support activity.
The Company has leased an 8,700 square foot facility in Santa Rosa,
California, which has been refurbished into a new state-of-the-art
transaction-processing center. Construction of the facility build-out occurred
in the second and third quarters of 1997 and the Company occupied this new
facility in September 1997. Additionally, the Company, through its wholly-owned
subsidiary, opened a sales and marketing office in Honolulu, Hawaii, during the
third quarter 1997 and expanded the office in September 1998. Consequently the
selling, general, and administrative expenses for the three months and nine
months ended September 30, 1998 reflect the costs of operating the Company's
three offices whereas the corresponding periods in 1997 reflect the operating
expense of only one office. The Company anticipates substantial investments in
its sales, marketing and product development activities in the foreseeable
future as it seeks to expand sales of its smart card systems and transaction
processing fees. In October 1998, the Company also leased and occupied a 6,390
square foot research and development facility. This space is also utilized in
the assembly and testing of Tikitbox II unattended ticketing and smart card
systems. Below
-3-
<PAGE>
is a detail of the increase in selling, general, and administrative expenses in
major categories for the three months and nine months periods ended
September 30, 1998 and 1997.
INCREASE IN THE THREE INCREASE IN THE NINE
MONTHS ENDED SEPTEMBER MONTHS ENDED
30, 1998 VS. THE THREE SEPTEMBER 30, 1998
SG&A INCREASE MONTHS ENDED SEPTEMBER VS. THE NINE MONTHS
ATTRIBUTABLE TO: 30, 1997 SEPTEMBER 30, 1997
- ----------------------------- ---------------------- ---------------------
Payroll and payroll
related expenses $688,294 $1,618,764
- ----------------------------- ---------------------- ---------------------
Rent, office, and facility
(including equipment)
expenses $ 82,740 $ 260,119
- ----------------------------- ---------------------- ---------------------
Marketing, selling, and
travel related expenses $142,751 $ 228,538
- ----------------------------- ---------------------- ---------------------
Professional and public
company related expenses $ 34,356 $ 125,784
- ----------------------------- ---------------------- ---------------------
Other SG&A related expenses $ 14,762 $ 68,652
- ----------------------------- ---------------------- ---------------------
Total Increase in SG&A $962,903 $2,301,857
- ----------------------------- ---------------------- ---------------------
AMORTIZATION OF SOFTWARE COSTS. Amortization of software costs
increased $20,479 and $58,130 for the three months and nine months ended
September 30, 1998 compared to the corresponding periods in 1997. This increase
is due to continued capitalization of software costs as a result of the
Company's product development efforts.
The Company notes that in accordance with prevailing standards for the
accounting for software development costs, the Company would, if it were
determined that an impairment of software development costs existed, write down
the value at which such software development costs are carried in the Company's
financial statements. Any such write-down, if made, would be reflected as a
charge to operations in the period any such impairment was determined and could
have a material adverse effect on the Company's financial position and results
of operations for such period. The Company believes its capitalized software is
not impaired, and is stated at net realizable value.
DEPRECIATION. Depreciation increased $47,610 and $150,149 for the
three months and nine months ended September 30, 1998, as compared to the
corresponding periods in 1997 primarily due to an increase in capital
expenditures. Capital expenditures increased during 1998 as compared to 1997
due to the addition of computer equipment to support an increase in marketing
and technical activities and personnel, the build-out of the Company's Santa
Rosa, California transaction processing center, and the opening of its Hawaii
office.
INTEREST EXPENSE (NET). For the nine months ended September 30, 1998,
the Company had net interest income as compared to interest expense for the nine
months ended September 30, 1997. For the three months ended September 30, 1998,
the Company had net interest income of $29,955 as compared with net interest
expense of $16,851 for the corresponding period in 1997. The increase in net
interest income was due to reductions in the total debt outstanding and
increased interest income from the investment of available funds from common
stock sales.
-4-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $6,286,388 and $3,148,595 at
September 30, 1998 and December 31, 1997, respectively. The higher working
capital at September 30, 1998 as compared to December 31, 1997 was primarily the
result of the receipt of proceeds from the Company's private offering completed
in August 1998, offset in part by a larger net loss incurred in the first three
quarters of 1998 as compared with 1997. On July 23, 1998, the Company commenced
a private offering of its Common Stock and completed the offering on August 21,
1998. The offering was conducted pursuant to Rule 506 of Regulation D under the
Securities Act. The Company sold 654,508 shares at $13.75 per share to
accredited investors including GE Capital, a wholly owned investment management
subsidiary of General Electric Company, and Whittier Trust. The Company engaged
Allen & Company Incorporated and Mitchum, Jones & Templeton to act as placement
agents for the offering, each of which received a placement fee of 5% of the
purchase price per share for shares placed by them. These shares were
subsequently registered for resale via the Company's Form SB-2 filed with the
Securities and Exchange Commission on September 24, 1998. The registration
statement became effective on October 9, 1998.
In 1997, the Company entered into a master lease agreement with a Bank
which provided up to $400,000 of credit to the Company for the lease of certain
computer and office equipment and furniture for a period of three years and
contains an option to acquire the equipment at the end of the lease term. The
lease provisions require the Company to maintain $200,000 in a certificate of
deposit at the bank as collateral for the lease and to deposit additional funds
if the Company's available cash and cash equivalents are not maintained above
$850,000. In June 1998, the Company determined that it was in breach of one of
the financial covenants contained in its $400,000 lease financing arrangement.
The Company received a waiver from the bank in August 1998. The Company has
been in compliance with the Bank's lease provisions since receiving the waiver.
The Company incurred increased capital expenditures in 1998 as
compared to 1997 primarily due to the purchase of computer equipment required to
support increased marketing and technical activities and personnel and the
operation of three facilities in 1998 as compared to one facility in 1997. The
Company incurred capital expenditures of $328,547 and $304,621 in 1998 and 1997
respectively for the Santa Rosa facility, and $51,672 and $17,736 in 1998 and
1997 respectively for the Hawaii facility. In August 1998, the Company leased
additional office space for a Research and Development facility in Santa Rosa,
as well as moved to a larger leased facility in Hawaii. Both of these events
will require additional expenditures for leasehold improvements, furniture and
computer equipment, which are expected to be incurred by the end of 1998.
The Company has historically relied upon proceeds from the sale or
issuance of its common shares and from the issuance of notes payable and lease
financing to satisfy its working capital requirements. The Company expects to
continue to depend upon equity financing to fund operations and satisfy its
working capital needs until it is able to generate significant sales or achieve
profitability. There can be no assurance that the Company will achieve sales of
the magnitude to generate sufficient cash flow from operations to continue to
execute its business plans. However, the Company believes that the potential
revenue to be realized from the rollout of its current contracts, its current
cash resources, including proceeds from its current private placement, and
available trade and other credit facilities are sufficient to meet its present
anticipated working capital needs for the next twelve months. In the event the
Company is unable to generate significant revenues from the rollout of its
current contracts or additional contracts the Company may negotiate, the Company
will be required to seek alternative sources of financing to fund its
operations. The Company's estimate of its cash requirements and its ability to
meet them are forward-looking statements, and there can be no assurance that the
Company's cash requirements will be met without additional debt or equity
financing. There can be no assurance that, if needed, additional financing will
be available on acceptable terms to the Company, if at all.
-5-
<PAGE>
YEAR 2000
During recent years, there has been significant global awareness
raised regarding the potential disruption to business operations worldwide
resulting from the inability of current technology to process properly the
change from the year 1999 to 2000. The Company is aware of the potential year
2000 problem, and has undertaken a Year 2000 project to address the Company's
readiness and exposure to Year 2000 issues. The Year 2000 project addresses the
Company's products; internally used operating systems, software, and other
technology; and third party vendors and suppliers. Each of these areas is
discussed below.
The Company believes that it has substantially identified and resolved
all potential Year 2000 problems with any of the products that it develops and
markets. In order to confirm its belief, the Company has implemented an ongoing
program to test its products for Year 2000 issues. The Company believes that if
any Year 2000 issues are identified, the Company will be able to correct the
problem with a minimal cost or time investment. However, management also
believes that it is not possible to determine with complete certainty that all
Year 2000 problems affecting the Company's products have been identified or
corrected due to the fact that these products interact with other third party
vendor systems not under the Company's control (see below). In addition, the
Company's evaluation is based on a limited number of actual customer
installations.
The Company is in the process of identifying all internally used
operating systems, software, and other technology that may be impacted by the
Year 2000 problem. This process is expected to be completed by the end of the
fourth quarter 1998. Once the internally used operating systems, software, and
technology are identified, the Company will assess the Year 2000 exposure
through testing and vendor inquiry. Material operating systems, software, and
other technology deemed to be adversely affected by the Year 2000 problem will
be upgraded or replaced. In addition to operating systems, software, and other
technology, the operation of office and facilities equipment, such as fax
machines, photocopiers, telephone systems, security systems, elevators, and
other common devices may be affected by the Year 2000 problem. Until the
Company's assessment is complete, the Company cannot give an estimate of
potential costs to mitigate or resolve any Year 2000 problems.
The Company is in the process of identifying major suppliers and other
third party vendors integral to the operations of the Company's business. Once
identified, the Company will initiate communications with those suppliers and
third party vendors to assess their readiness to deal with Year 2000 problems.
As part of the Year 2000 project, the Company will identify alternative
providers of products and services deemed material to the Company's operations.
This process is expected to be completed by the end of the first quarter 1999.
However, the Company has no control over and cannot predict the corrective
actions of these third party vendors and suppliers. Thus, while the Company
expects that it will be able to resolve any significant Year 2000 problems
related to third party products and services, there can be no assurance that it
will be successful in resolving any such problems. Any failure of these third
party vendors and suppliers to resolve Year 2000 problems with their systems in
a timely manner could have a material adverse effect on the Company's business,
financial condition, and results of operations.
The discussions of the Company's efforts relating to Year 2000
compliance are forward-looking statements. The Company's ability to achieve
Year 2000 compliance and the associated level of incremental costs could be
adversely impacted by, among other things, the availability and cost of
programming and testing resources, vendors' ability to modify proprietary
software, and other unanticipated problems. The failure to correct a material
Year 2000 problem could result in an interruption of certain normal business
activities or operations. Such failures could materially affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, the Company is unable at this
time to determine those consequences. The Company believes that, with the
completion of the Year 2000 project as scheduled, the possibility of significant
interruptions of normal operations should be reduced or eliminated.
-6-
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company offered shares of its Common Stock in a private offering
in July and August 1998 pursuant to Rule 506 of Regulation D under the
Securities Act. The Company sold 654,508 shares at $13.75 per share to
accredited investors, resulting in gross proceeds to the Company of $8,999,485.
The Company engaged Allen & Company Incorporated and Mitchum Jones & Templeton
to act as placement agents for the offering, each of which received a placement
fee of 5% of the purchase price per share for shares placed by them. These
shares were subsequently registered for resale via the Company's Form SB-2 filed
with the Securities and Exchange Commission on September 24, 1998. The
registration statement became effective on October 9, 1998. The Company will
not receive any of the proceeds from the resale of any of the shares of Common
Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In 1997, the Company entered into a master lease agreement with a Bank
which provided up to $400,000 of credit to the Company for the lease of certain
computer and office equipment and furniture for a period of three years and
contains an option to acquire the equipment at the end of the lease term. The
lease provisions require the Company to maintain $200,000 in a certificate of
deposit at the bank as collateral for the lease and to deposit additional funds
if the Company's available cash and cash equivalents are not maintained above
$850,000. In June 1998, the Company determined that it was in breach of one of
the financial covenants contained in its $400,000 lease financing arrangement.
The Company received a waiver from the bank in August 1998. The Company has
been in compliance with the Bank's lease provisions since receiving the waiver.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
As of October 30, 1998, the Company's Common Stock was accepted for
trading on the NASDAQ SmallCap Market, and will continue to trade under the
ticker symbol "PTHW".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 10.1 Letter of Intent, dated September 22, 1998,
between The Pathways Group and Coca Cola
Bottling Company of Hawaii.
Exhibit 10.2 Sprinticket Equipment Purchase, Credit Card
Authorization, and Transaction Processing
Agreement, dated September 28, 1998, between
The Pathways Group and Winter Park Resort.
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
None.
-7-
<PAGE>
THE PATHWAYS GROUP, INC.
Index to Consolidated Financial Statements (Unaudited)
for the Fiscal Quarter Ended September 30, 1998
<TABLE>
<S> <C>
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5
</TABLE>
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,014,689 $ 3,759,720
Accounts and interest receivable 110,480 66,493
Inventory 266,693 202,749
Prepaid expenses and deposits 75,756 101,407
----------- -----------
Total current assets 7,467,618 4,130,369
Restricted cash 200,000 70,500
Software, net 1,348,749 1,605,098
Property and equipment, net 1,070,020 722,678
Other assets 119,609 188,195
----------- -----------
TOTAL ASSETS $10,205,996 $ 6,716,840
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks, current maturities $ 454,387 $ 551,991
Accounts payable 550,312 206,986
Accrued expenses 176,531 222,797
----------- -----------
Total current liabilities 1,181,230 981,774
Notes payable to banks, net of current maturities 196,124 509,900
----------- -----------
TOTAL LIABILITIES 1,377,354 1,491,674
----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value;
1,000,000 shares authorized; no shares
issued and outstanding
Common stock, $0.01 par value; $ 135,657 $ 129,045
50,000,000 shares authorized;
13,565,662 and 12,904,487 issued
and outstanding at September 30,
1998 and December 31, 1997 respectively
Additional paid in capital 26,454,756 18,052,730
Accumulated deficit (17,761,771) (12,956,609)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,828,642 5,225,166
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,205,996 $ 6,716,840
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
Sales, net $ 8,698 $ 23,306
Cost of sales 3,199 8,285
----------- -----------
Gross profit 5,499 15,021
----------- -----------
Selling, general and administrative expenses 1,620,496 657,593
Amortization of software 171,915 151,436
Depreciation 110,472 62,862
----------- -----------
Total operating expenses 1,902,883 871,891
----------- -----------
Loss from operations (1,897,384) (856,870)
Net interest income (expense) 29,955 16,851
----------- -----------
NET LOSS $(1,867,429) $ (840,019)
=========== ===========
Net loss per share (basic and diluted) $ (0.14) $ (0.07)
Weighted average shares outstanding
(basic and diluted) 13,213,151 12,360,702
</TABLE>
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
Sales, net $ 22,578 $ 58,397
Cost of sales 6,700 18,024
----------- -----------
Gross profit 15,878 40,373
----------- -----------
Selling, general and administrative expenses 4,067,900 1,766,043
Amortization of software 499,120 440,990
Depreciation 289,052 138,903
----------- -----------
Total operating expenses 4,856,072 2,345,936
----------- -----------
Loss from operations (4,840,194) (2,305,563)
Net interest income (expense) 35,031 (63,675)
----------- -----------
NET LOSS $(4,805,163) $(2,369,238)
=========== ===========
Net loss per share (basic and diluted) $ (0.37) $ (0.20)
Weighted average shares outstanding
(basic and diluted) 13,008,505 11,944,369
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,805,163) $(2,369,238)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 289,052 138,903
Amortization of software 499,120 440,990
Effects of changes in operating
assets and liabilities:
Accounts and interest receivable (43,987) 16,143
Inventory (63,944) (22,659)
Prepaid expenses and deposits 25,651 (104,082)
Other assets 498 (3,840)
Accounts payable 343,326 (245,912)
Accrued expenses (46,265) (148,574)
----------- -----------
Net cash used in operating activities (3,801,712) (2,298,269)
----------- -----------
Cash flows from investing activities:
Capital expenditures (518,306) (399,728)
Capitalized software development costs (242,771) (384,988)
Restricted cash (129,500) --
Advance to Scrip Advantage (50,000) --
----------- -----------
Net cash used in investing activities (940,577) (784,716)
----------- -----------
Cash flows from financing activities:
Net proceeds from stock sold in private
placement and initial public offering 8,401,504 4,857,958
Principal payments on convertible debentures -- (2,500)
Principal payments on notes payable to banks (411,380) (34,750)
Proceeds from stock option exercise 7,134 7,134
Repurchase of common stock -- (28,000)
----------- -----------
Net cash provided by financing activities 7,997,258 4,799,842
----------- -----------
Increase in cash and cash equivalents 3,254,969 1,716,857
Cash and cash equivalents, beginning of period 3,759,720 2,390,127
----------- -----------
Cash and cash equivalents, end of period $ 7,014,689 $ 4,106,984
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements are unaudited, but
include all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position at such dates and the operations and cash flows for the
periods then ended. The financial information is presented in a condensed
format, and it does not include all of the footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles. Operating results for the periods ended September 30,
1998 and 1997 are not necessarily indicative of results that may be expected for
the entire year. The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and reported
amounts of revenue and expenses during the reporting period. Actual results
could differ materially from such assumptions and estimates. The accompanying
financial statements and related footnotes should be read in conjunction with
the Company's audited financial statements, included in its December 31, 1997
Form 10-SB and Form 10-SB/A-1 (File No. 000-24119) filed with the Securities and
Exchange Commission.
2. THE COMPANY
The accompanying consolidated financial statements include the
accounts of The Pathways Group, Inc. ("TPG") and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated. TPG's
subsidiaries include Pathways International, Ltd. ("PIL"), SPRINTICKET, Inc.
("ST"), PT Link, Inc. ("PT Link") and The Pathways Group, Inc., a wholly owned
subsidiary incorporated in the State of Hawaii. TPG and its subsidiaries (the
"Company") are primarily engaged in providing specialized transaction processing
services through the development of proprietary software and hardware systems
including credit card and multiple application smart card technologies. The
Company derives its revenue principally from transaction processing fees charged
to the merchant and the sale of related terminals, hardware systems and smart
cards. The Company has invested heavily in designing and developing its
proprietary hardware and application software systems and in establishing and
expanding its sales and marketing capabilities. The Company plans to continue
these efforts in preparation for, and in anticipation of, the growth in smart
card-based electronic commerce that the Company anticipates will create a
substantial market for its data and transaction processing services.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Smart cards and related packaging $ 167,328 $ 149,204
Smart card terminals and computer hardware 99,365 53,545
--------- ---------
$ 266,693 $ 202,749
========= =========
</TABLE>
4. Capital Stock Transactions/Initial Public Offering
PURCHASE OF MINORITY INTEREST
In March 1997, TPG acquired all of the remaining minority interest in
its majority-owned subsidiary, ST, through a payment of $75,000. This
transaction was accounted for as a purchase in
F-5
<PAGE>
accordance with generally accepted accounting principles. The purchase price of
$75,000 was allocated to software and is being amortized in accordance with the
Company's amortization policy.
REINCORPORATION
In May 1997, TPG reincorporated in the State of Delaware. At such
time, the number of authorized shares of common stock was reduced to 50,000,000,
the par value of common shares was changed to $0.01, and 1,000,000 shares of
preferred stock were authorized. All prior periods presented have been adjusted
to reflect these changes in the capital stock accounts.
AGREEMENTS WITH AND LOAN TO SCRIP ADVANTAGE
In June 1998, the Company signed a contract with Scrip Advantage of
Fresno, California to provide its proprietary Smart Script-TM- electronic scrip
and gift certificate product to Scrip Advantage and its members. The agreement
with Scrip Advantage calls for the Company to sell terminals to participating
merchants and smart cards to non-profit organizations and their members. In
addition, the Company will receive a fee for each smart card, debit or credit
card transaction processed. The agreement is for a term of three years with
annual renewals and includes early termination provisions for both parties under
certain conditions, including the failure of Pathways to provide Scrip Advantage
with competitive pricing.
In connection with the agreement with Scrip Advantage, the Company has
advanced $50,000 to Scrip Advantage in exchange for a demand promissory note.
The note is convertible into equity of Scrip Advantage at the Company's option.
In addition, Scrip Advantage has agreed to elect a Company designee to its Board
of Directors. Initially, Carey F. Daly II, the President and Chief Executive
Officer of the Company, has been elected to such Board.
STOCK OFFERINGS.
In July 1997, the Company received net proceeds of $4,857,956 from the
sale of 833,333 shares of common stock. These shares were sold pursuant to
Regulation A under the Securities Exchange Act of 1933. As of October 30, 1998
the Company's common stock is traded in the NASDAQ SmallCap Market under the
trading symbol PTHW.
In August 1998, the company received net proceeds of $8,401,504 from
the sale of 654,508 shares of common stock. The offering was conducted pursuant
to Rule 506 of Regulation D under the Securities Act. These shares were
subsequently registered for sale pursuant to a Registration Statement on Form
SB-2 which was declared effective by the Securities and Exchange Commission on
October 9, 1998.
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDING ENDING
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash paid for interest $85,341 $143,810
Non-cash transactions:
Notes payable converted to common stock -- $3,000
</TABLE>
In April 1997, the Company changed suppliers of its smart card
terminals and readers. In connection with this supplier change, the Company
returned $122,378 of smart card terminals previously
F-6
<PAGE>
recorded as inventory and accounts payable to its former supplier. On December
31, 1997, the Company recorded other assets of $118,088 for deposits on property
and equipment. During 1998, these items were placed in service.
6. BANK AGREEMENTS
In 1997, the Company entered into a master lease agreement with a Bank
which provided up to $400,000 of credit to the Company for the lease of certain
computer and office equipment and furniture for a period of three years and
contains an option to acquire the equipment at the end of the lease term. The
lease provisions require the Company to maintain $200,000 in a certificate of
deposit at the bank as collateral for the lease and to deposit additional funds
if the Company's available cash and cash equivalents are not maintained above
$850,000. In June 1998, the Company determined that it was in breach of one of
the financial covenants contained in its $400,000 lease financing arrangement.
The Company received a waiver from the bank in August 1998. The Company has
been in compliance with the Bank's lease provisions since receiving the waiver.
7. EARNINGS PER SHARE
The Company calculates earnings per share based on SFAS No.128,
"Earnings Per Share". Basic earnings per share is calculated using the average
number of common shares outstanding. Potentially dilutive shares resulting from
common stock options have been excluded from the computation of diluted earnings
per share for the three months and nine months ended September 30, 1998 and 1997
as they are antidilutive. The number of common stock options outstanding at
September 30, 1998 and 1997 that could be potentially dilutive are 410,833 and
213,333, respectively.
F-7
<PAGE>
SIGNATURE
In accordance with 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.
THE PATHWAYS GROUP, INC.
By /s/ CAREY F. DALY, II
----------------------------
Carey F. Daly, II
President and Chief Executive Officer
Date: November 13, 1998
<PAGE>
EXHIBIT 10.1
September 22, 1998
Mr. Ron Alba
Account Representative
BCI Coca-Cola Bottling Company of Los Angeles
d/b/a Coca-Cola Bottling Company of Hawaii
P.O.Box 30068
Honolulu, HI 96820
Re: Application of Smart Card Technology for use in a school lunch program
with an incentive system that provides for: (1) the accumulation of
points for the purchase of Coca-Cola products, (2) the accumulation of
points for eating in the school cafeteria, (3) the redemption of
points for discounts at designated merchant(s) .
Dear Mr. Alba,
In an effort to summarize the current understanding of discussions
between your company and the Pathways Group, Inc. (Pathways), we are submitting
this Letter of Intent (LOI). This LOI is consistent with recent discussions
between David Mayeda, Eileen Lota and me of Pathways and you representing the
BCI Coca-Cola Bottling Company of Los Angeles d/b/a Coca-Cola Bottling Company
of Hawaii (Coca-Cola). It is understood that this LOI and any ensuing
negotiations resulting between Pathways and Coca-Cola are covered by the
attached Non-Disclosure Agreement (NDA).
This letter is a statement of intent for both parties to work together
in good faith to (1) define the requirements to implement a pilot School Lunch
Incentive program (The Project) and (2) if the results are mutually acceptable
to negotiate a binding Implementation Agreement.
A binding Implementation Agreement between the parties for The Project
will arise only after all material terms have been agreed to by both parties and
a written agreement is signed by an officer of Pathways and Coca-Cola.
All documents concerning the proposed provisions of a binding agreement
which are exchanged in the course of negotiations, even if signed, shall be
considered only a part of negotiations and shall have no legal effect unless
subsequently incorporated in the fully executed Implementation Agreement. Each
party agrees that it will not contend to the contrary.
<PAGE>
1. Designation of Negotiators
The parties agree that the persons named below shall represent them in
the negotiations:
For BCI Coca-Cola Bottling Company of Los Angeles d/b/a Coca-Cola
Bottling Company of Hawaii:
Name and Title: Ron Alba
Cold Drink Manager
Business Address: P.O. Box 30068
Honolulu, HI 96820
Business Phone: (808) 839-6772
Business Fax: (808) 834-7718
For The Pathways Group, Inc:
Name and Title: David A. Mayeda
Vice President & General Manager
Business Address: The Pathways Group, Inc.
Grosvenor Center
733 Bishop Street, Suite 2500
Honolulu, HI 96813
Business Phone (808) 599-6190
Business Fax: (808) 537-3541
2. Conduct of Negotiations
All negotiations, including exchanges of drafts, proposals and other
information, shall be conducted only through the negotiators named above.
3. Points of Tentative Agreement and Further Negotiation
A. Both parties are working towards an agreement to implement
The Project.
B. In forming an Implementation Agreement, the parties agree
to the following general allocation of responsibilities which may be
modified on a case-by-case basis if circumstances warrant:
-2-
<PAGE>
(1) Pathways will provide an integrated system solution (the
System) to perform specifically identified functions, in which Pathways
will integrate the use of Smart Cards, related reader/writer devices
and terminals. Such a system will provide, as necessary, for database
management, reports, interfaces, security, card stock management,
personalization, fulfillment, clearance and the facilitation of account
settlement. The system will include all software necessary to perform
these functions and facilitate operation of the integrated system for
each identified function.
(2) Coca-Cola is responsible for the redemption agreement(s)
with participating merchant(s).
(3) Both organizations will market the concept to selected
schools and the Hawaii Department of Education jointly.
C. Coca-Cola and Pathways will provide to each other the
information necessary to fulfill their responsibilities under this
LOI and any subsequent implementation.
D. The parties anticipate working together on the
following projects:
(1) School Lunch Incentive program for
(2) Points redemption system with
4. Entire Letter of Intent
This Letter of Intent is intended for discussion purposes only and will
not create a binding obligation on the part of either BCI Coca-Cola Bottling
Company of Los Angeles d/b/a Coca-Cola Bottling Company of Hawaii or The
Pathways Group, Inc., and is subject to the parties entering into a
comprehensive and binding agreement.
THE PATHWAYS GROUP, INC. BCI COCA-COLA BOTTLING COMPANY
OF LOS ANGELES D/B/A COCA-COLA
BOTTLING COMPANY OF HAWAII
By: /s/ David A. Mayeda By: /s/ Ron Alba
--------------------------------------- ---------------------------
David A. Mayeda Ron Alba
Vice President & General Manager Cold Drink Manager
Date: Date:
------------------------------------- ---------------------------
-3-
<PAGE>
EXHIBIT 10.2
SPRINTICKET EQUIPMENT PURCHASE, CREDIT CARD AUTHORIZATION,
AND TRANSACTION PROCESSING AGREEMENT
THIS Equipment Purchase, Credit Card Authorization and Transaction Processing
Agreement (hereinafter referred to as this "Agreement" is entered into,
effective this 28th day of September, 1998, between Sprinticket, a Division of
The Pathways Group, Inc., a Delaware Corporation (hereinafter referred to as
"Sprinticket") and Winter Park Resort, a Colorado (Non-Profit) Corporation, of
677 Winter Park Dr., Winter Park, Colorado 80482 (hereinafter referred to as
"Customer.")
ARTICLE 1. RECITALS
The following recitals of fact are agreed to by the respective parties to be the
facts based upon which each made the decision to make this Agreement:
A. WHEREAS, Customer owns and operates a business under the name Winter
Park Resort, located in Winter Park, Colorado, for which Customer
sells tickets, vouchers, or goods, hereinafter referred to separately
or collectively as "Goods" to its clients from among the general
public; and
B. WHEREAS, Sprinticket has developed and owns the proprietary interest
in certain computer software, which is combined into a system briefly
described as:
(1) Automatic Goods dispensers (hereinafter referred to as
"Dispensers") which can automatically
print tickets or vouchers and dispense Goods; and
(2) Which are activated by use of any smart card, credit card, debit
card or proprietary card listed in Schedule D below (hereinafter
referred to separately or collectively as a "Card"); and
(3) Which are controlled by a computer hardware and software system
(hereinafter referred to as the "Sprinticket Automated Ticketing
System").
C. WHEREAS, the Sprinticket Automated Ticketing System operates as
follows:
(1) The Sprinticket Automated Ticketing System processes specific
Card information and specific proposed transaction information
which the Card user has input to the Dispenser.
(2) The processing is done by automatic access to the Card database
maintained by the acquiring processor. If the proposed
transaction is authorized by the acquiring processor, then (1)
the Dispenser automatically dispenses the Goods to the Card user
and (2) the Dispenser automatically records the completed
transaction.
(3) Sprinticket, on at least a daily basis, downloads batches of
completed transactions from the Dispensers and automatically
forwards the batches of completed transactions to the acquiring
processor for settlement.
(4) The acquiring processor causes the settled transaction amounts to
be deposited to Customer's bank account.
(5) Both Sprinticket and Customer can independently download
transaction data from the Dispensers by electronic means at any
time. Customer does this through the Manager Work Station
provided pursuant to this Agreement.
(6) Sprinticket prepares and submits to Customer weekly invoices for
the prior week. In these invoices, Sprinticket's service fees
pursuant to Section 4.02 below and the attached Schedule D
(hereinafter referred to as "Service Fees") are calculated from
summaries of the prior week's completed transactions; and
D. WHEREAS, Sprinticket has developed and/or markets various models of
Dispensers and other equipment required to implement the Sprinticket
Automated Ticketing System; and
E. WHEREAS, Customer has evaluated and accepted the proposal from
Sprinticket based on the system described in Paragraphs B and C
above, with Schedules A, B, C, and D, attached hereto and
incorporated herein by reference for all purposes mentioned in this
Agreement; and
F. WHEREAS, both parties desire to state the provisions of this
arrangement in a written Agreement; NOW THEREFORE, THE PARTIES AGREE
AS FOLLOWS:
ARTICLE 2. PURCHASE OF EQUIPMENT
Section 2.01 Agreement to Purchase.
Customer agrees to purchase from Sprinticket and Sprinticket agrees
to sell to Customer the equipment listed on Schedule A (hereinafter
referred to collectively or separately as "Equipment").
Section 2.02 Purchase Price.
The purchase price for each item of Equipment shall be as specified
on Schedule A.
Section 2.03 Site Preparation.
Prior to the installation of the Equipment, Customer shall prepare
the installation site so as to comply with Sprinticket's installation
requirements and procedures as specified in Schedule B.
<PAGE>
Section 2.04 Responsibility for Installation.
A. Customer warrants that it controls and has a right to install the
Equipment on the site(s) selected and specified by Customer as stated
in Schedule B. Customer shall be responsible to arrange
(1) access to necessary electrical, telephone, and other equipment
and facilities,
(2) the presence of any necessary electrical or telephone utility
personnel, and
(3) the presence of any necessary Customer personnel.
B. Sprinticket may, at its option, bill Customer for time spent by
Sprinticket staff waiting on Customer site as a result of the lack or
failure of such arrangements, at the rate set forth in Table 2 of
Schedule C. Customer may, at its option, bill Sprinticket for
Customer's actual cost for any time lost by Customer staff waiting on
Customer site due to the late arrival or non-arrival of Sprinticket
staff; however Customer shall make best efforts to minimize such
costs by returning its staff to their customary duties as soon as
possible.
C. Sprinticket shall install the Equipment and perform initial standard
test procedures to assure that the Equipment will operate initially
as intended within the Sprinticket Automated Ticketing System.
Section 2.05 Warranty of Title.
Sprinticket warrants that it has good title to the Equipment and the
right to sell it to Customer free of any proprietary rights of any
other party except for software owned by the Equipment manufacturer
and imbedded by the Equipment manufacturer or installed by
Sprinticket, which software is licensed to Customer pursuant to the
non exclusive limited license set forth in Article 3 of this
Agreement.
Section 2.06 Limited Warranty.
The Equipment furnished hereunder is warranted to be free from
defects in materials and workmanship for a warranty period of 365
days from the date of installation by Sprinticket on Customer's site.
Section 2.07 Warranty Service.
A. Sprinticket shall, at its own expense and option, either repair or
replace defective Equipment during the warranty period, provided that
Customer has notified Sprinticket and Sprinticket has determined that
the Equipment is defective. Repair or replacement of defective
Equipment may, at Sprinticket's option, be accomplished either by
Sprinticket personnel on Customer's site or on a Hot Swap basis as
defined in Paragraph 3 of the attached Schedule C.
B. Customer's sole and exclusive remedy hereunder shall be limited to
the repair or replacement specified herein.
Section 2.08 Warranty Service Charges.
Acknowledging that Customer's peak business occurs on weekends and
holidays, Sprinticket agrees to waive its customary weekend and
holiday surcharges for warranty service provided pursuant to Section
2.07 above.
Section 2.09 Warranty Conditions.
THE FOREGOING WARRANTIES ARE CONTINGENT UPON THE PROPER USE OF THE
EQUIPMENT IN ACCORDANCE WITH THE INSTRUCTIONS AND SPECIFICATIONS
PUBLISHED BY SPRINTICKET AND MAY NOT APPLY TO ANY EQUIPMENT THAT HAS
BEEN REPAIRED OR MODIFIED BY PERSONS OTHER THAN SPRINTICKET.
Section 2.10 Warranty Disclaimer.
THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
Section 2.11 Title.
Title to the Equipment shall pass to Customer on the date Sprinticket
receives the full balance due on the Equipment purchase, pursuant to
Subparagraph A of Section 5.03.
Section 2.12 Risk of Loss.
Prior to the date of delivery to Customer's site(s), the risk of loss
to the Equipment shall be on Sprinticket. The risk of loss shall pass
to Customer on the date of delivery to Customer's site(s).
ARTICLE 3. SOFTWARE LICENSE
Section 3.01 Ownership of Software.
Customer acknowledges and agrees that the various parts of the
software are proprietary to and owned by, respectively, the Equipment
manufacturer to the extent any software is imbedded in the Equipment;
the Equipment manufacturer, with respect to certain written
instructions for the Equipment and embedded software; Sprinticket, to
the extent that any software is installed on the Equipment; and
Sprinticket, with respect to all written instructions
<PAGE>
concerning the use or operation of the Sprinticket Automated
Ticketing System. The above described software and written
instructions are hereinafter referred to collectively or separately
as the "Software."
Section 3.02 Agreement to License.
Sprinticket agrees to grant and Customer agrees to accept a license
to use the Software subject to the provisions of Sections 3.03, 3.04,
3.05, and 3.06 below.
Section 3.03 Scope And Limitations of License.
A. Customer promises and agrees that each item of the Software,
including any subsequent updates provided hereunder, is furnished to
Customer under a nontransferable, nonexclusive license subject to the
limitations that Customer shall use the Software:
(1) only with the Equipment and at the site(s) shown on Schedule B,
and
(2) only for the Equipment in which it is imbedded or installed, and
(3) only while the provisions of Article 4 of this Agreement are in
effect, and
(4) only for the purpose of participation in the Sprinticket
Automated Ticketing System described in this Agreement.
B. Customer understands and agrees that all copies of the Software, in
whole or in part, including all updates, are the property of each
respective owner identified in Section 3.01 above, and no title to or
ownership of the Software, or any parts thereof is transferred to
Customer under this Agreement.
Section 3.04 Confidentiality; Agreement Not To Copy Or Reverse Engineer.
A. Customer agrees not to provide, disclose, or make available any
Software or any part thereof to any third party without the prior
written consent of Sprinticket and the party which owns the
particular Software. Customer further agrees not to copy the Software
or reverse engineer or attempt to reverse engineer the Software, or
permit anyone else to copy or reverse or attempt to reverse engineer
the Software.
B. Violation of the provisions of Paragraph A of this Section shall not
be an event of default if compelled by subpoena or other legal
process and Customer has complied with the provisions of Paragraph B
of Section 5.25 below.
Section 3.05 License Period.
This license shall be effective from the date on which this Agreement
is signed by Sprinticket and shall remain in effect until the date
this Agreement is terminated by Customer pursuant to Section 5.13 or
by Sprinticket pursuant to Section 5.11. Upon termination of this
Agreement, whether by Customer or by Sprinticket , Customer shall
destroy or return the Software to Sprinticket pursuant to the
provisions of Section 3.06 below.
Section 3.06 Repossession of Software.
A. Upon expiration of the Software license, whether at the end of its
term pursuant to Section 3.05 above, or as a result of termination of
this Agreement pursuant to Sections Section 5.11 or Section 5.13
below, the original and all copies of the Software shall be returned
to Sprinticket or destroyed. Customer shall, at Sprinticket's option,
do either or both of the following:
(1) Certify in writing to Sprinticket that, to the best of Customer's
knowledge, the original and all copies of the Software have been
returned to Sprinticket or destroyed, to the extent that return
or destruction is possible without damage to any Equipment in
which the Software may be imbedded.
(2) Allow Sprinticket to remove the original and all copies of the
Software from Customer's premises, including from any Equipment
in which it may be imbedded or installed, to the extent that
removal is possible without damage to such Equipment.
Section 3.07 Warranty of Title And Right to License Software.
Sprinticket warrants that it has good title to the Software and the
right to license its use to Customer free of any proprietary rights
of any other party or any other encumbrance whatever. Sprinticket
makes no warranty whatever with respect to any materials which may be
furnished by Customer, including but not limited to designs, plans,
specifications, images, text, and computer programs.
Section 3.08 Limited Software Warranty.
A. The Software is warranted to conform to Sprinticket's published
functional specifications. ANY MODIFICATION OF THE SOFTWARE BY ANY
PERSONS OTHER THAN SPRINTICKET SHALL VOID THIS WARRANTY.
B. During a period of 365 days after delivery of the Equipment with
imbedded and installed Software to Customer, Sprinticket shall, at
its own expense, correct Software defects that cause the Software to
fail to conform to Sprinticket's published functional specifications
and that significantly affect its performance in accordance with
those specifications, provided that Customer has notified Sprinticket
of any such defects and, upon inspection, Sprinticket has found the
Software to be nonconforming. Customer agrees that Customer's sole
and exclusive remedy under this Agreement shall be limited to that
corrective action.
<PAGE>
Section 3.09 Warranty Disclaimer.
THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE 4. CARD AUTHORIZATION AND TRANSACTION PROCESSING
Section 4.01 Collection of Funds Processed By the Sprinticket Automated
Ticketing System.
Only those Cards listed on Schedule D below may be
used with the Sprinticket Automated Ticketing System. Sprinticket
will set up all necessary arrangements with the acquiring processor
to have the funds from all completed transactions approved by the
acquiring processor deposited in an account controlled by Customer.
Section 4.02 Calculation of Service Fees.
A. Sprinticket shall prepare weekly invoices for its Service Fees by
Friday of each week for the preceding seven day week of Monday
through Sunday, inclusive. Each weekly invoice for Service Fees will
summarize all completed transactions which occurred during the
preceding seven day week period. The Service Fees for performing
Sprinticket's services pursuant to this Agreement shall be calculated
as follows:
(1) Sprinticket shall be entitled to Service Fees at the rates stated
in Schedule D.
(2) Calculations of any Service Fees owed to Sprinticket, based on
Schedule D, will be included in each weekly invoice, as provided
in Section 4.01 above, and will be based on the completed
transactions reported in that weekly invoice.
Section 4.03 Payment of Fees To Sprinticket.
Customer shall remit the Service Fees detailed on each weekly invoice
to Sprinticket by mail by the end of the week in which the invoice is
received.
Section 4.04 Chargebacks.
Sprinticket will make all reasonable efforts within its power to
provide information necessary to dispute chargebacks. However,
Sprinticket shall have no financial responsibility for any
chargebacks.
ARTICLE 5. GENERAL TERMS AND CONDITIONS
Section 5.01 Applicability.
The general terms and conditions contained in this Article shall
apply to any Equipment sold and Software licensed (hereinafter
collectively referred to as "Products") and services furnished to
Customer pursuant to this Agreement.
Section 5.02 Acceptance.
Subject to the provisions of Article 2, successful completion of
Sprinticket's standard test procedures on Products installed by
Sprinticket, including replacement, substitute, added, or
field-modified Products installed after acceptance of initially
installed Products, and the execution of a report form verifying such
successful test completion by representatives of Customer and
Sprinticket shall be sufficient to establish acceptance of Products.
Section 5.03 Payment For Products.
A. Unless otherwise agreed in writing, Customer agrees to pay thirty
percent (30%) of the total price for all Products as listed and shown
on Schedule A, at the time this Agreement is signed, and the balance
of the total price upon completion of installation and testing of
Products pursuant to Sections 2.04 and 5.02 above. Sprinticket shall
issue invoices for balance(s) due on or after the date of
installation of Products.
B. On the occurrence of any of the events of default listed in
Subparagraphs A(1) through A(6) of Section 5.10, Sprinticket may, in
addition to all other remedies it may have at law or in equity, make
a written demand for full or partial payment in advance, suspend
performance until that payment is made, or cancel Customer's order.
C. If Customer fails to pay any charges when due and payable, Customer
agrees that Sprinticket shall have the right to invoice and Customer
shall pay all costs, including reasonable attorneys' fees, expended
in collecting overdue charges and a late payment charge of one and
one-half percent per month but not in excess of the lawful maximum on
the unpaid balance.
Section 5.04 Taxes.
All of the prices and license fees provided for by this Agreement are
exclusive of all federal, state, municipal, or other political
subdivision taxes, including but not limited to excise, sales, use,
property, or like taxes now in force or enacted in the future and all
prices and license fees are therefore subject to increase equal to
any such taxes Sprinticket may be required to collect from Customer
upon the sale or delivery of the Products or services purchased or
licensed hereunder. This section shall not apply to taxes based on
Sprinticket's income.
Section 5.05 No Partnership or Joint Venture or Agency.
The parties acknowledge that no partnership or joint venture or
agency is intended or created with respect to this Agreement, each
other or the Software or the Equipment. Unless otherwise explicitly
provided thereunder, nothing herein shall be construed or interpreted
as appointing Sprinticket or Customer as an agent or representative
<PAGE>
of the other and neither Sprinticket nor Customer shall have any
authority whatsoever to act for, or incur, any liability or
obligation on behalf of the other. Customer and Sprinticket shall
take such steps as are reasonably necessary in dealing with third
parties to negate any inference that a partnership or joint venture
or agency exists.
Section 5.06 Defense Against Infringement Claims.
A. Customer agrees to notify Sprinticket immediately, without any delay,
of any action or claim alleging that the Products or Customer's use
of the Products violates the trade secret, trademark, copyright,
patent, or other proprietary rights of any other party, and further
agrees to cooperate with Sprinticket in the investigation and
resolution thereof.
B. If Sprinticket is so notified, Sprinticket shall defend Customer
against any and all such claims at its expense and shall pay any
costs and damages awarded therein; provided that Sprinticket shall
have sole control of the defense of any such action and all
negotiations for its settlement or compromise.
C. Subject to the limitations in Sections 5.07, 5.13, and 5.15 of this
Agreement, Sprinticket shall indemnify and hold Customer harmless
from any liability damage, costs, or other loss incurred by Customer
in connection with such claims.
D. Sprinticket shall not indemnify Customer against any claim, costs, or
liability based on Customer's modification or conversion of the
Equipment or Software and/or the subsequent use of that modification
or conversion. Sprinticket shall not have any liability to Customer
if the infringement or violation, or the claim thereof, is based upon
the use of Products in combination with other equipment or software
not provided by Sprinticket pursuant to Schedule A.
E. At any time during the course of any litigation arising out of a
claim that a Product infringes a patent or copyright or other
proprietary right, or, if in Sprinticket's opinion, a Product is
likely to become the subject of such a claim, Sprinticket may, at its
option and expense, either procure for Customer the right to continue
using the Product, replace or modify the Product so that it becomes
non-infringing, or grant Customer a credit or cash refund for the
Product as depreciated and accept its return. The depreciation shall
be an equal amount per year over the lifetime of the Product as
established by Sprinticket.
Section 5.07 Customer's Hold Harmless Agreement.
A. Customer shall indemnify, hold harmless and defend Sprinticket from
any claims by any third person(s) against Sprinticket arising out of
or based on any allegation that:
(1) Any patent, copyright, trademark, right of publicity, or right of
privacy was infringed or violated by Sprinticket's use of
designs, plans and specifications, images, text, or computer
programs furnished by Customer; or
(2) Any third person was harmed by the use of, or the presence of,
the Equipment on the sites and locations provided for in this
Agreement, or any other site or location to which the Equipment
may be moved or on which it may be located by or at the direction
and request of Customer. The claims which this Subparagraph shall
be deemed to include, but not limited to, are any personal injury
claims, any property damage claims, any wrongful death claims and
any trespass claims; provided, however, that Customer shall not
be held responsible for indemnity, hold harmless and defense
pursuant to this Subparagraph, if (1) Sprinticket is proven in
court to have been grossly negligent in causing the claims, and
such gross negligence is the primary cause of the harm for which
the claim is brought, or (2) the claim arises from a defect in
the design, manufacture or assembly of the internal electrical
components of the Equipment or from the process of installing the
Equipment.
B. No costs or expenses shall be incurred for or on behalf of
Sprinticket without Sprinticket's prior written consent.
Section 5.08 Confidentiality of Materials.
Except as otherwise provided in this Agreement, Customer agrees to
maintain in confidence and not to disclose, reproduce, or copy any
materials, data, documentation, or specifications that are provided
by Sprinticket pursuant to this Agreement and which are copyrighted,
patented, trademarked, or otherwise marked as confidential, secret,
or proprietary. Not withstanding the foregoing, Customer may make
copies of print materials as needed for training and maintenance
purposes, provided the copies are distributed only to Customer's
employees and provided the copies are destroyed on expiration or
termination of this Agreement.
Section 5.09 Support Services.
A. "Support Services" include assistance in implementation planning,
systems analysis and design, installation, evaluation, training of
Customer personnel, repair and maintenance of Equipment and Software,
and provision of parts and spares.
B. Customer shall be entitled to Support Services for Products provided
pursuant to this Agreement, subject to the limitations stated in
Schedule C, which lists both those Support Services which are to be
provided at no charge and those which are to be provided at hourly or
per item charges, including any minimum charges which may apply.
C. Provision of Support Services is subject to Customer's responsibility
to arrange (1) access to necessary electrical, telephone, and other
equipment and facilities, (2) the presence of any necessary
electrical or telephone utility personnel, and (3) the presence of
any necessary Customer personnel. Sprinticket may at its option bill
Customer, at the rate set forth in Table 2 of Schedule C, for time
spent by Sprinticket staff waiting on Customer site as a result of
the lack or failure of such arrangements.
<PAGE>
Section 5.10 Default by Customer.
A. Any of the following shall constitute events of default if not
remedied by Customer within thirty days following receipt of written
notice, as provided in Section 5.17 below:
(1) Customer's failure to make financial arrangements satisfactory to
Sprinticket for the purchase of Products or services;
(2) Customer's failure or neglect to perform or observe any of its
existing or future obligations under this Agreement, including,
without limitation, the timely payment of any sums due
Sprinticket;
(3) Any assignment of Customer's business for the benefit of
creditors;
(4) The filing of a petition in bankruptcy by or against Customer;
(5) The appointment of a receiver, trustee in bankruptcy, or similar
officer to take charge of all or part of Customer's property;
(6) The adjudication of Customer as a bankrupt or insolvent;
(7) Customer's violation of any of the Software licensing provisions
stated in Article 3 of this Agreement.
Section 5.11 Sprinticket's Remedies.
In the event of Customer's default pursuant to Section 5.10 above,
Sprinticket shall have the right, at its option, to terminate this
Agreement, to suspend part or all of its performance under this
Agreement, and/or to bring a claim for damages. No remedy of
Sprinticket pursuant to this Paragraph shall be exclusive of any
other remedy it has, whether under this Agreement or as provided by
law, but each shall be cumulative and in addition to every other
remedy.
Section 5.12 Default by Sprinticket.
A. Any of the following shall constitute events of default if not
remedied by Sprinticket within thirty days following receipt of
written notice, as provided in Section 5.17 below:
(1) Sprinticket's failure or neglect to perform or observe any of its
existing or future obligations under this Agreement;
(2) The Software provided pursuant to this Agreement fails to perform
the function described in this Agreement.
Section 5.13 Customer's Remedies.
A. In the event of Sprinticket's default pursuant to Section 5.12 above,
Customer shall have the right to terminate this Agreement.
B. Such termination right, if asserted by Customer, shall be in lieu of
any other rights or claims which Customer may have against
Sprinticket, except for processing of transaction data generated by
transactions completed prior to termination, pursuant to the
Provisions of Article 4 above. Such termination right, if exercised
by Customer, shall not preclude Sprinticket either from completing
its responsibilities of processing transaction data generated by
transactions completed prior to termination, or from invoicing
Customer for the resulting Service Fees pursuant to the provision of
Article 4 above and Schedule D below. Customer shall remain liable to
Sprinticket for all invoices reflecting Services Fees for
transactions completed prior to termination.
Section 5.14 Limitation of Customer's Remedies.
A. Customer agrees that the sole remedies for the breach of any of the
warranties contained in this Agreement and the sole remedies for
Sprinticket's liability of any kind with respect to the Products or
services provided pursuant to this Agreement shall be limited to the
remedies provided in this Agreement. Customer further agrees that in
no event shall Sprinticket's liability to Customer for damages of any
nature exceed:
(1) The total charges paid or payable for Support Services during one
year under this Agreement if the liability arises from Support
Services; or
(2) The purchase price of any specific Product if the liability
results from use of that specific Product.
Section 5.15 Consequential Damages.
CUSTOMER AGREES THAT SPRINTICKET SHALL NOT BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES OR FOR THE LOSS OF
PROFIT, REVENUE, OR DATA ARISING OUT OF THE SUBJECT MATTER OF THIS
AGREEMENT, EVEN IF SPRINTICKET SHALL HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.
Section 5.16 No Responsibility of Sprinticket For Products or Services of
Others.
Customer agrees that Sprinticket shall have no responsibility for any
hardware, software, or other items, or any services provided by any
persons other than Sprinticket.
Section 5.17 Notices.
Unless otherwise provided in this Agreement, any notice required or
permitted by this Agreement to either party shall be deemed to have
been duly given if in writing and delivered personally or mailed by
registered or certified mail, postage prepaid and addressed (when
intended for Customer) to V.P. of Finance, 677 Winter Park Dr.,
Winter Park,
<PAGE>
Colorado 80482 or (when intended for Sprinticket) to The Pathways
Group, Legal Department, 14201 NE 200th St., Woodinville, Washington
98072.
Section 5.18 No Assignment of Contract by Customer.
This Agreement and Customer's rights thereunder shall not be assigned
without the prior written consent of Sprinticket. Any attempt to make
such an assignment without Sprinticket's written consent shall be
void.
Section 5.19 Sprinticket's Right of Assignment.
This Agreement and Sprinticket's rights thereunder may be assigned,
pledged, mortgaged or otherwise disposed of by Sprinticket, provided
that Customer shall not be obligated to any assignee of Sprinticket
except after written notice of such assignment from Sprinticket.
Sprinticket's assignment of this Agreement or the Service Fees due or
to become due hereunder, or any other interest herein, shall not
release or relieve Customer from its Service Fees and other
obligations hereunder. Customer agrees unconditionally that if so
requested by Sprinticket, Customer will pay the Service Fees and all
other sums due under this Agreement directly to the
creditor/assignee, provided the Service Fees and/or other sums which
are asserted to be due have been billed to Customer, and provided
further that rights to such proceeds have been assigned to the
creditor/assignee by Sprinticket. The receipt by such assignee of
such payments shall discharge the obligations of Customer to
Sprinticket hereunder to the extent thereof. Customer agrees to
execute any and all documents including consent to assignment
presented to it by Sprinticket to enable Sprinticket to effect any
such assignment as described in this Section.
Section 5.20 Nonwaiver.
Customer and Sprinticket agree that no failure to exercise, and no
delay in exercising any right, power, or privilege under this
Agreement on the part of either party shall operate as a waiver of
any right, power, or privilege hereunder. Customer and Sprinticket
further agree that no single or partial exercise of any right, power,
or privilege hereunder shall preclude further exercise thereof.
Section 5.21 Severability.
If any part of this Agreement shall be adjudged invalid or
unenforceable by any court of competent jurisdiction, that judgment
shall not affect or nullify the remainder of this Agreement and its
effect shall be confined to the part immediately involved in the
controversy adjudged. Furthermore, Sprinticket shall have the right
to add, in lieu of such invalid or unenforceable provisions,
provisions as similar in terms to such invalid or unenforceable
provisions as may be valid and enforceable.
Section 5.22 Governing Law.
This Agreement shall be deemed to have been made in, and shall be
construed pursuant to, the laws of the State of Washington.
Section 5.23 Jurisdiction and Venue.
Any suit or proceeding brought by Sprinticket to enforce Section 3.04
of this Agreement shall be commenced in the King County Superior
Court of the State of Washington or the United States District Court
for the Western District of Washington, at Seattle, Washington, and
Customer consents to service of process by certified mail, return
receipt requested, addressed to Customer at the address set forth in
Section 5.17 above.
Section 5.24 Attorney's Fees.
If any legal action is commenced to enforce the terms of this
Agreement, the prevailing party shall be entitled to reasonable
attorney's fees in addition to any other relief to which that party
may be entitled. This provision shall be construed as applicable to
the entire Agreement.
Section 5.25 Injunctive Relief.
A. The parties recognize and agree that if Customer were to violate any
of the provisions of Paragraph A of Section 3.04 above, whether
during the term of the Software license or following its expiration
or termination pursuant to Section 3.05, whether directly or
indirectly, and whether voluntarily or under compulsion by subpoena
or other legal process, that the violation would cause irreparable
harm to Sprinticket and or its related corporations and that
Sprinticket would have no adequate remedy at law. Therefore, Customer
and Sprinticket agree that if Sprinticket believes in good faith that
Customer may be violating or about to violate any of the provisions
of Paragraph A of Section 3.04, whether during the term of the
Software license or following its expiration or termination pursuant
to Section 3.05 above, and whether voluntarily or involuntarily, then
Sprinticket shall be entitled to obtain a temporary restraining order
without delay, and proceed to obtain a preliminary injunction and
permanent injunction to prevent such violation or if necessary,
proceed to obtain a suitable Court Order to prevent the violation.
This provision is not intended to be exclusive; Sprinticket shall
also be entitled to bring a claim for damages or any other
appropriate relief for violations of Paragraph A of Section 3.04.
B. However, if Customer has violated the provisions of Paragraph A of
Section 3.04 while acting under compulsion by subpoena or other legal
process and has first notified Sprinticket as promptly as was
reasonably possible in order to allow Sprinticket an opportunity to
obtain a suitable Court Order to prevent the compelled violation, the
compelled violation shall not be deemed an event of default and shall
not entitle Sprinticket to bring a claim for damages.
<PAGE>
Section 5.26 Amendments.
Customer and Sprinticket agree that this Agreement shall be modified
only by a written agreement duly executed by persons authorized to
execute agreements on behalf of Customer and Sprinticket. The parties
further agree that the terms, conditions, and prices contained in
this Agreement shall prevail notwithstanding any variations or
additional terms on any purchase orders or other notifications
submitted by Customer.
Section 5.27 Binding Effect.
This Agreement shall be binding upon the parties herein, their
successors, assigns and legal representatives.
Section 5.28 Counterparts.
This Agreement may be executed in counterparts, each of which shall
be deemed an original.
Section 5.29 Entire Agreement.
Customer and Sprinticket acknowledge and agree that this Agreement is
the complete and exclusive statement of the mutual understanding of
the parties and that this Agreement supersedes and cancels all
previous written and oral agreements and communications relating to
the subject matter of this Agreement.
Section 5.30 Y2K.
Sprinticket guarantees Y2K compliance. /s/ CP /s/ BH Executed and accepted this
1st day of October, 1998, at Woodinville, Washington.
<TABLE>
<CAPTION>
SPRINTICKET CUSTOMER
<S> <C>
Sprinticket, a Division of The Pathways Group, Inc. Winter Park Recreation Association
[name of corporation or entity]
By: By:
/s/ Bob Haller /s/ Cray Pollitt
[signature] [signature]
Bob Haller Cray Pollitt
[printed name] [printed name]
SR VP Sales & Marketing VP - Finance
[printed title] [printed title]
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INDICATED BELOW AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,014,689
<SECURITIES> 0
<RECEIVABLES> 110,480
<ALLOWANCES> 0
<INVENTORY> 266,693
<CURRENT-ASSETS> 7,467,618
<PP&E> 1,770,675
<DEPRECIATION> 700,655
<TOTAL-ASSETS> 10,205,996
<CURRENT-LIABILITIES> 1,181,230
<BONDS> 196,124
0
0
<COMMON> 135,657
<OTHER-SE> 8,692,985
<TOTAL-LIABILITY-AND-EQUITY> 10,205,996
<SALES> 22,578
<TOTAL-REVENUES> 22,578
<CGS> 6,700
<TOTAL-COSTS> 6,700
<OTHER-EXPENSES> 4,856,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (35,031)
<INCOME-PRETAX> (4,805,163)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,805,163)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,805,163)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
