UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
--------------------- ----------------------
March 31, 1998 0-29414
PREMIUM CIGARS INTERNATIONAL, LTD.
(Exact name of small business issuer as specified in its charter)
Arizona 86-0846405
(state or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
15849 North 77th Street
Scottsdale, Arizona 85260
(Address of principal office) (Zip code)
Registrant's telephone number, including area code: (602) 922-8887
Securities registered pursuant to Section 12(b) of the Act:
No par value common stock
Securities registered pursuant to Section 12(g) of the Act:
No par value common stock
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 and Exchange Act of 1934
during the preceding 12 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 90 days.
Yes X No
----- -----
As of March 31, 1998, there were 3,469,092 shares of Premium Cigars
International, Ltd. common stock, no par value outstanding.
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements....................................................3
Condensed Consolidated Balance Sheet (Unaudited) as of March 31, 1998............3
Condensed Consolidated Statement of Operations (Unaudited) for the
three months ended March 31, 1998 and 1997.......................................4
Condensed Consolidated Statement of Cash Flows (Unaudited) for the three months
ended March 31, 1998 and 1997....................................................5
Notes to Condensed Consolidated Financial Statements.............................6
Special Note Regarding Forward-Looking Statements................................8
Item 2 - Management's Discussion and Analysis or Plan of Operation...............9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings......................................................12
Item 2 - Changes in Securities and Use of Proceeds..............................12
Item 3 - Defaults Upon Senior Securities........................................13
Item 4 - Submission of Matters to a Vote of Security Holders....................14
Item 5 - Other Information......................................................14
Item 6 - Exhibits and Reports on Form 8-K.......................................14
SIGNATURES...........................................................................15
</TABLE>
2
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
1998
-----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 281,557
Available for sale securities 3,013,905
Accounts receivable - trade, net 511,414
Inventory, net (Note 3) 1,465,505
Other current assets (Notes 5 and 6) 272,605
-----------
Total Current Assets 5,544,986
-----------
Property and Equipment, net (Note 6) 230,660
-----------
Other Assets:
Humidors, net 853,676
Other assets 53,954
-----------
907,630
-----------
$ 6,683,276
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 4) 1,376,299
-----------
Total current liabilities 1,376,299
-----------
Commitments and Contingencies (Note 6) --
-----------
Stockholders' Equity:
Common stock - no par value, 10,000,000 shares
authorized, 3,469,092 shares issued and outstanding 8,807,049
Foreign currency translation adjustment (934)
Accumulated deficit (3,499,138)
-----------
Total Stockholders' Equity 5,306,977
-----------
$ 6,683,276
===========
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
Net Sales $ 1,255,904 $ 332,926
Cost of Sales 1,081,461 250,126
----------- -----------
Gross Profit 174,443 82,800
Selling, General and Administrative 1,232,554 203,966
Severance Packages (Note 4) 395,173
Stock Based Compensation 207,625
----------- -----------
Loss from Operations (1,453,284) (328,791)
Other Income (Expense) 65,671 (11,740)
----------- -----------
Net Loss $(1,387,613) $ (340,531)
=========== ===========
Basic Loss per Share $ (0.40) $ (0.23)
=========== ===========
Weighted Average Number of Shares Outstanding 3,469,092 1,480,500
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,387,613) $ (340,531)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 131,491 967
Deposits on equipment and office furniture (125,125)
Accrual of severance packages 244,111
Stock issued for services and compensation 207,625
Net change in other assets and liabilities (40,504) 221,386
----------- -----------
Net cash provided by (used for) operating activities (1,177,640) 89,447
----------- -----------
Cash flows from investing activities:
Purchase of humidors (207,776) (15,650)
Purchase of equipment (49,674) (23,302)
Other uses (net) (146,911)
Proceeds from sale of available for sale securities 456,566
----------- -----------
Net cash provided by (used for) investing activities 199,116 (185,863)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 60,350
Proceeds from issuance of common stock 42,415
----------- -----------
Net cash provided by financing activities -- 102,765
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (4,284) --
----------- -----------
Net increase (decrease) in cash and cash equivalents (982,808) 6,349
Cash and cash equivalents, beginning of period 1,264,365 51,669
----------- -----------
Cash and cash equivalents, end of period $ 281,557 $ 58,018
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
<PAGE>
PREMIUM CIGARS INTERNATIONAL, LTD. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Interim Information
In the opinion of the management of Premium Cigars International, LTD. and
Subsidiary (the "Company"), the accompanying condensed consolidated financial
statements include all normal adjustments considered necessary to present fairly
the financial position as of March 31, 1998, and the results of operations for
the three months ended March 31, 1998 and 1997, and cash flows for the three
months ended March 31, 1998 and 1997. Interim results are not necessarily
indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by the instructions to Form 10-QSB, and therefore do not contain
certain information included in the Company's audited consolidated financial
statements and notes for the nine month period ended December 31, 1997.
2. Financial Statements
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated.
3. Inventories
As of March 31, 1998, inventory consists of the following:
Cigars and cigar accessories $1,525,649
Reserve for inventory spoilage (60,144)
----------
$1,465,505
==========
4. Severance Packages
Subsequent to January 1, 1998 , the company terminated employment agreements
with certain former officers and employees of the Company. Under the terms of
the various employment agreements, severance pay ranges from six to nine months
of salary, payable over the same six or nine month period. Additionally, three
of the former officers received lump-sum payments of $40,000 each as settlement
for potential claims against the company. As part of the settlement, each of the
individuals agreed to extend their non-compete clauses for an additional six
months for a total of a full year and one-half following termination of
employment and released the Company from all claims or causes of action relating
to their respective employment agreement and their employment with the company.
The severance packages are broken out as follows:
6
<PAGE>
Severance pay $251,500
Payroll taxes 18,553
Other benefits 5,120
Lump sum payments 120,000
--------
$395,173
========
5. Related Party Transactions
In March of 1998, the Company terminated its distributorship agreement with Rose
Hearts, Inc., which is wholly-owned by a director of the Company, after it
determined that in practice, the agreement was not as favorable to the Company
as those generally available with unaffiliated third parties.
The company has notes receivable from two director/shareholders of the Company
in the aggregate amount of $86,225. The notes, which bear interest at 6%, are
due on March 31,1999. Accrued interest as of March 31, 1998 is $8,623. The total
of the notes receivable plus accrued interest is included in other current
assets in the Company's condensed consolidated balance sheet.
6. Commitments
At March 31, 1998 the Company had placed deposits with vendors totaling $125,125
for the purchase of equipment and office furniture. This represents
approximately 50% of the total purchase price for these items. The deposits are
included in other current assets in the Company's condensed consolidated balance
sheet.
7
<PAGE>
Special Note Regarding Forward-looking Statements
Some of the statements contained in this report discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Important factors that may cause actual
results to differ from forward-looking statements and projections include, for
example:
o our ability to maintain an adequate capital position and a sufficient
cash flow as we add retail stores required by commitments with our
customers and distributors;
o our ability to raise additional capital, if current financing is
depleted, to enable us to maintain sufficient working capital for
operating activities;
o any decision by major retail chains to discontinue selling all tobacco
products or to place our humidors in a disadvantageous location within
their stores;
o changes in government regulations, tax rates and similar matters,
including any restriction on the self-service nature of merchandising
displays and marketing promotions;
o the ability of our in-house Customer Service Department to
significantly improve over the support and sales order processing
results previously managed by an out-sourced telemarketing contractor;
o our ability to establish a stable management team and attract and
retain quality employees;
o the risk of any significant uninsured loss from potential passenger
claims as a result of a September 1997 automobile accident in which one
of our employees was the driver;
o the possible negative impact of a settlement announced June 20, 1997 of
litigation among 40 States and major U.S. cigarette manufacturers;
o our ability to buy quality premium cigars at favorable prices and the
effect on cigar prices and availability, of weather and other
conditions in the countries that import cigars to the U.S. and Canada;
o our ability to negotiate and maintain favorable distribution
arrangements with our customers;
o the effect of changing economic conditions;
8
<PAGE>
o a decline in the popularity of cigar smoking and/or possible adverse
public opinion against cigars and cigar smoking; and
o other risks which were described in our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997 or which may be described
in our future filings with the SEC. We do not promise to update
forward-looking information to reflect actual results or changes in
assumptions or other factors that could affect those statements.
Item 2 - Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
You must read the following discussion on the financial condition and results of
operations of Premium Cigars International, LTD. ("PCI") in conjunction with
PCI's condensed consolidated financial statements, including the notes included
elsewhere in this Form 10-QSB filing. Historical results are not necessarily an
indicator of trends in operating results for any future period.
PCI is an international distributor of premium cigars from its humidors located
in high traffic retail outlets. PCI operates in one business segment and has a
December 31 fiscal year.
Results of Operations
- ---------------------
The following table sets forth, for the three months ended March 31, 1998 and
1997, certain items from PCI's Condensed Consolidated Statements of Income
expressed as a percentage of net sales.
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
---------- ----------
NET SALES 100.0% 100.0%
COST OF SALES 86.1% 75.1%
---------- ----------
GROSS PROFIT 13.9% 24.9%
SELLING, GENERAL & ADMINISTRATIVE 129.6% 123.6%
---------- ----------
LOSS FROM OPERATIONS (115.7%) (98.8%)
OTHER INCOME (EXPENSE) 5.2% (3.5%)
---------- ----------
NET LOSS (110.5%) (102.3%)
========== ==========
Net Sales
- ---------
Net sales for the quarter ended March 31, 1998 increased by $923,000, a 277%
increase over the same period last year. The number of stores with humidors as
of March 31, 1998 increased by approximately 7,100 stores from March 31, 1997,
over a 1,000% increase. Although the new store count grew by approximately 24%
from December 31, 1997 to March 31, 1998, our net sales for the same period were
basically flat versus the prior quarter. As discussed in the 1997 Form 10-KSB,
PCI management has addressed the disappointing same-store sales results by
bringing the customer service function in-house as of April 1, 1998.
We believe that a combination of increased humidor placements, the pursuit of
sell-through programs designed to meet the needs of grocery, mass merchandisers,
drug stores and warehouse clubs, leveraged with an effective customer service
department, represent significant opportunities for revenue growth, in line with
our strategic goals that were outlined in the 1997 Form 10-KSB.
9
<PAGE>
Cost of Sales/Gross Margin
- --------------------------
Cost of sales for the quarter ended March 31, 1998 increased $831,000, an
increase of 332% over the same period last year. The gross margin as a
percentage of net sales was 14% for the quarter ended March 31, 1998, versus 25%
for the comparable period a year ago.
The gross margin for the quarter ended March 31, 1998 was adversely affected by
several factors: 1) a higher than normal percentage of low margin cigars was
sold in Canada. These low margin cigars are being phased out during the second
quarter of 1998 and will be replaced with higher margin cigars; 2) additional
labor costs were incurred to consolidate warehouse space and inspect inventory
for possible damage; 3) decreased efficiencies due to excess shipping and
warehousing infrastructure that was established in anticipation of higher sales
volumes.
In addition, we have made pricing adjustments that went into effect on April 1,
1998, which will further improve the gross margins.
Selling, General & Administrative
- ---------------------------------
SG&A for the quarter ended March 31, 1998 increased $1,029,000, or 504%, versus
the same quarter last year. These costs are disproportionately high relative to
net sales because it represents the investment in an infrastructure that has
been put into place to generate future revenue and manage operations; however,
as discussed previously the expected revenue growth has not yet occurred. SG&A
for the first quarter of 1998 also included higher than normal legal and
professional expenses attributable to our initial Form 10-KSB filing, proxy
preparation and mailing, and general corporate matters, including negotiation of
severance packages, as we completed the transition to a public company.
As the expected revenue growth begins in the second quarter of 1998, we
anticipate that SG&A will decline as a percentage of net sales.
Severance Packages
- ------------------
As discussed in Note 4 to the accompanying financial statements, we took a
one-time charge in the first quarter of 1998 to reflect the cost of severance
packages for previous Management. The amount charged against earnings was
$395,173.
Stock Based Compensation
- ------------------------
During the quarter ended March 31, 1997 certain employees purchased Common Stock
at a per share price that was determined to have a market value in excess of the
amount paid by the employees. Additional compensation was recorded for the
amount of the excess market value, or $207,625.
Other Income/Expense
- --------------------
Other income for the quarter ended March 31, 1998 consists primarily of interest
income from Treasury Bills which were purchased with a portion of the net
proceeds from our initial public offering . Interest income is expected to
decline as the net proceeds are used in our operations.
10
<PAGE>
Other expense for the quarter ended March 31, 1997 consists primarily of
interest expense on notes payable.
Liquidity and Capital Resources
- -------------------------------
We require capital to market our PCI Cigar program, obtain additional inventory
and humidors to supply our increasing distribution network, and develop the
personnel, facilities, assets, and organization infrastructure necessary to
support our expanding business. Prior to our initial public offering, we raised
capital through the issuance of stock and notes payable, as well as obtaining a
line of credit from a bank. On September 29, 1997 we completed an initial public
offering that resulted in net proceeds to PCI of $8,131,664. See Item 2(c), "Use
of Proceeds" for application of the proceeds.
As of March 31, 1998 the combined balance of cash and available for sale
securities totaled $3,295,000, a decrease of $1,439,000 or 30% from December 31,
1997. As a percentage of total assets, the combined balance at March 31, 1998
represents 49% of total assets versus 60% of total assets at December 31,1997.
The decline is due to the net loss incurred for the quarter ended March 31,
1998, additional investments in humidors and equipment, and payments made to
former management under settlement agreements relating to the termination of
their employment relationships with PCI. As of March 31, 1998 we had funds on
deposit with vendors for the purchase of equipment and office furniture in the
amount of $125,000, with a remaining commitment on these items of $125,000.
Accounts receivable at March 31, 1998 decreased $126,000, or 20% from December
31, 1997. This represents 7.6% of total assets at March 31, 1998 versus 8.1% at
December 31, 1997. The decrease is attributable to an increased focus on
collections.
Net inventories at March 31, 1998 increased $143,000, or 11% from December 31,
1997. This represents 21.9% of total assets at March 31, 1998 versus 16.8% at
December 31, 1997. The increase is attributable to: 1) gift packs for Father's
Day were packaged beginning in April for May shipment, necessitating additional
inventory on hand at March 31; 2) maintaining sufficient inventory for the
trade-out program (discussed in our 1997 Form 10-KSB) that began in April and 3)
a gradual shift in inventory mix to higher priced, and therefore, higher cost
cigars.
Accounts payable and accrued expenses at March 31, 1998 increased $224,000, or
19% from December 31, 1997. The increase is mainly due to the accrual of
severance packages for former management that will be paid out during 1998.
We believe that the remaining net proceeds from the initial public offering will
be sufficient to meet our anticipated expansion and working capital needs for
the foreseeable future. However, we cannot assure you that we will be able to
maintain an adequate capital position and sufficient cash flow as we add stores
required by our customers and distributors. Nor can we assure you that we will
be able to raise additional capital, if current financing is depleted, to enable
us to maintain sufficient working capital for operating activities. We have no
plans to conduct any significant product research and development, to purchase
or sell any significant plant or equipment other than that discussed above, to
significantly change our number of employees or to obtain additional outside
capital. However, if additional funding is required, we may raise capital
through the issuance of long-tem or short-term debt or the issuance of
securities in public or private transactions. We cannot assure you that we can
generate sufficient revenues to satisfy the cash flow necessary to meet our
anticipated future expansion or our working capital needs.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
None
Item 2 - Changes in Securities and Use of Proceeds
-----------------------------------------
(a) None.
(b) None.
(c) Use of Proceeds.
The Company provides the following information in accordance with Item
701(f) of Regulation S-B:
1. The Company's Registration Statement on Form SB-2 (File No.
333-29985) was declared effective on August 21, 1997;
2. The offering commenced on August 21, 1997.
3. The offering did not terminate before any securities were
sold.
4(i). On August 29, 1997, PCI closed the sale of 1,900,000 shares of
its common stock to W.B. McKee Securities, Inc., the
Underwriters' Representative (the "main offering"). On
September 24, 1997, W.B. McKee Securities, Inc. purchased
88,592 of the 285,000 shares available for the over-allotment
option provided for in PCI's Underwriting Agreement (the
"over-allotment offering"). See "Underwriting" section of
PCI's Registration Statement on Form SB-2 and Item 5 of the
Company's Annual Report on Form 10-KSB. The over-allotment
option on the remaining 196,408 shares of common stock expired
on September 29, 1997. Therefore, the main offering terminated
on August 29, 1997, after the sale of all of the securities
registered; the over-allotment offering terminated on
September 29, 1997, with 196,408 registered shares unsold.
4(ii). W.B. McKee Securities, Inc. served as the managing underwriter
for the offering.
4(iii). PCI registered common stock, no par value, in this
Registration Statement on Form SB-2.
4(iv). PCI registered 2,185,000 shares of common stock, no par value,
in its Registration Statement on Form SB-2, for an aggregate
offering price of $11,471,250. These figures include the full
over-allotment of 285,000 shares;
12
<PAGE>
however, as stated above, only 88,592 over-allotment shares
were purchased by the Underwriters' Representative.
Accordingly, PCI has sold 1,988,592 shares at an aggregate
offering price of $10,440,108.
4(v). The amount of expenses incurred through December 31, 1997 in
connection with the issuance and distribution of the
securities registered was $2,309,444. This amount is made up
of $1,044,011 in underwriter's discounts and commissions,
$313,203 in underwriter's non-accountable expenses, and
$952,230 in other expenses, including consulting fees of
$108,662 to David S. Hodges ($92,245 of which was paid in 1997
and $16,417 was accrued in 1997 for amounts paid in 1998) and
consulting fees of $10,000 to director William L. Anthony.
4(vi). The net offering proceeds after deducting the above expenses
were $8,130,664.
4(vii). From the effective date of PCI's Registration Statement,
August 21, 1997 to March 31, 1997, the net offering proceeds
were applied as follows: $1,200,000 to repayment of debt,
$686,529 to purchase humidors, $1,715,523 to purchase
inventory, $1,109,795 for sales and marketing and $3,418,817
in temporary investments and other net working capital.
4(viii). In addition, net offering proceeds were applied to the
following items, which represent a material change from the
use of proceeds described in the Prospectus dated August 21,
1997:
In response to this subparagraph 4(viii), the Registrant
incorporates by reference its response to subparagraph 4(viii)
of Item 5 of its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998.
Item 3 - Defaults upon Senior Securities
-------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5 - Other Information
- --------------------------
None
13
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit Exhibit Name Method of Filing
- ------- ------------ ----------------
Number
- ------
3.1 Articles of Incorporation *
3.2 By-Laws, as amended **
4.1 Specimen Common Stock Certificate ***
4.2 Description of Rights of Security Holders ****
27.1 Financial Data Schedule Exhibit filed herewith
99.1 "Underwriting" section of Registration *****
Statement on Form SB-2
* Incorporated by reference to Exhibit 3.1 of Registration Statement on
Form SB-2 (file no. 333-29985) declared effective on August 21, 1997.
** Incorporated by reference to Exhibit 3.2 of Registration Statement on
Form SB-2 (file no. 333-29985) declared effective on August 21, 1997.
*** Incorporated by reference to Exhibit 4.2 of Registration Statement on
Form SB-2 (file no. 333-29985) declared effective on August 21, 1997.
**** Incorporated by reference to Exhibit 4.1 of Registration Statement on
Form SB-2 (file no. 333-29985) declared effective on August 21, 1997.
***** Incorporated by reference to pages 56-57 of Registration Statement on
Form SB-2 (file no. 333-29985) declared effective on August 21, 1997.
14
<PAGE>
(b) Reports on Form 8-K
Date of Date
Report Filed Description
------ ----- -----------
11/19/97 03/6/98 Subsequent to the December 31, 1997 fiscal
year end, reporting Management and Director
changes and settlement of dispute with
departing officers.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PREMIUM CIGARS INTERNATIONAL, LTD.
(Registrant)
/s/ John E. Greenwell Date: May 14, 1998
- -------------------------------------------
John E. Greenwell
President & Chief Executive Officer
/s/ Stanley R. Hall Date: May 14, 1998
- -------------------------------------------
Stanley R. Hall
Controller and principal accounting officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 281,557
<SECURITIES> 3,013,905
<RECEIVABLES> 511,414
<ALLOWANCES> 94,220
<INVENTORY> 1,465,505
<CURRENT-ASSETS> 5,544,986
<PP&E> 230,660
<DEPRECIATION> 44,126
<TOTAL-ASSETS> 6,683,276
<CURRENT-LIABILITIES> 1,376,299
<BONDS> 0
0
0
<COMMON> 8,807,049
<OTHER-SE> (934)
<TOTAL-LIABILITY-AND-EQUITY> 6,683,276
<SALES> 1,255,904
<TOTAL-REVENUES> 0
<CGS> 1,081,461
<TOTAL-COSTS> 2,709,188
<OTHER-EXPENSES> (65,671)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> (1,387,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,387,613)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> 0
</TABLE>
