<PAGE>
UNITED STATES
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 period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from _____________________ to ______________________
Commission file number
THE HAVANA GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1454529
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4450 Belden Village Street, N.W., Suite 406, Canton, Ohio 44718
(Address of principle executive offices)
(Zip Code)
(330) 492-8090
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
As of November 11, 1998, there were 1,860,000 shares of the Registrant's Common
Stock $.001 par value issued and outstanding.
Transitional Small Business Disclosure Format.
Yes [ ] No [X]
1
<PAGE>
INDEX
Consolidated Balance Sheets September 30, 1998 (Unaudited) and
December 31, 1997. 3
Consolidated Statements of Operations - Three Months and Nine Months Ended
September 30, 1998 and 1997 (Unaudited). 5
Consolidated Statements of Cash Flows - Three Months and Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis or Plan of Operation 10
Part II - Other Information 13
2
<PAGE>
THE HAVANA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1998 December 31, 1997
- - ------ ------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and Equivalents $1,800,109 $79,611
Accounts receivable - trade (less allowance for doubtful
accounts of $5,500) 45,962 37,574
Inventories 425,947 477,907
Deferred catalog expense 93,274 54,183
Due from affiliates 111,876 0
Prepaid expenses 4,338 3,587
----------- ----------
Total current assets 2,481,508 652,862
DEFERRED FEDERAL INCOME TAX 29,070 29,070
PROPERTY AND EQUIPMENT
Machinery and equipment 89,764 83,575
Furniture and fixtures 18,572 10,946
Data processing equipment 27,442 -
Leasehold improvements 89,224 83,945
----------- ----------
225,002 178,466
Less accumulated depreciation 93,272 84,649
----------- ----------
131,730 93,817
OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION
Customer lists 437,811 464,479
----------- ----------
$3,080,117 $1,240,228
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
THE HAVANA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
- - ------------------------------------ 1998 1997
---- ----
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $207,364 $177,893
Due to affiliates 0 130,392
Customer advances and other 2,187 8,830
---------- ----------
Total current liabilities 209,551 317,115
STOCKHOLDER'S EQUITY
Preferred stock - $.001 par value, 10,000,000 shares authorized:
Class A - 5,000,000 shares issued and outstanding 5,000 5,000
Class B - 1,100,000 shares issued and outstanding 1,100 1,100
Common stock, $.001 par value, 25,000,000 shares
Authorized, 1,860,000 and 1,000,000 shares issued and outstanding 1,860 1,000
Additional paid in capital 6,605,794 1,092,900
Retained earnings (3,743,188) (176,887)
---------- ----------
Total Stockholders' Equity 2,870,566 923,113
---------- ----------
$3,080,117 $1,240,228
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
THE HAVANA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $326,129 $ 357,290 $988,112 $1,015,417
COST OF SALES 201,033 170,244 611,809 528,607
---------- --------- --------- ----------
GROSS PROFIT 125,096 187,046 376,303 486,610
SELLING EXPENSES 83,494 57,574 296,045 212,991
GENERAL AND ADMINISTRATIVE
EXPENSES 135,345 86,774 321,873 278,972
---------- --------- --------- ----------
NET (LOSS) FROM OPERATIONS (93,743) 42,698 (241,615) (3,353)
OTHER INCOME (EXPENSE) 24,154 (5,341) 25,314 (19,954)
INTEREST EXPENSE RELATING TO
CONVERTIBLE LOAN - 3,350,000 -
---------- --------- --------- ----------
NET INCOME (LOSS) $ (69,589) $37,357 $(3,566,301) $(23,307)
========== ========= =========== ==========
BASIC INCOME (LOSS) PER SHARE (unaudited) $ (.04) $.04 $ (2.19) $(.02)
========== ========= =========== ==========
DILUTED INCOME (LOSS) PER SHARE (unaudited) $ (.04) $.04 $(2.19) $(.02)
========== ========= =========== ==========
Weighted Average Shares Outstanding 1,860,000 1,000,000 1,630,000 1,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
THE HAVANA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
---------------- --------------
<S> <C> <C>
Net (loss) $(3,566,301) $(23,307)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 35,292 29,028
Addback of non-cash interest expense relating to conversion of loan 3,350,000
Increase in accounts receivables - trade (8,388) (7,904)
(Increase) in inventories 51,960 (126,173)
(Increase) in deferred catalog expense (39,091) (24,448)
(Increase) decrease in prepaid expenses (4,338) 1,338
(Decrease) in accounts payable, customer
advances and other 22,827 (23,800)
----------- -----------
Net cash provided (used) by operating activities (158,039) (175,266)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in fixed assets (46,536) (12,808)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in due to affiliates (130,392) (396,462)
(Increase) in due from affiliates (108,289) 589,028
Sale of common stock net of offering costs 2,163,754 0
Borrowings on long-term debt - related parties (200,000) 0
Payments on long-term debt - related parties 200,000 0
Increase in due to affiliates
----------- -----------
Net cash provided by financing activities 1,925,073 192,566
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,720,498 4,492
CASH - BEGINNING 79,611 5,895
----------- -----------
CASH AND EQUIVALENTS - ENDING $1,800,109 $ 10,387
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
THE HAVANA GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Business
Business Description and Principles of Consolidation - The Havana Group, Inc.
(Company) is in the mail order business and sells to customers throughout the
United States. The Company sells tobacco, cigars, smoking pipes and accessories.
Products are purchased from a variety of manufacturers. The consolidated
financial statements include the accounts of The Havana Group, Inc., and its
wholly owned subsidiary, Monarch Pipe Company (Monarch). Monarch manufactures
smoking pipes and sells them exclusively to the Company. All significant
inter-company accounts and transactions have been eliminated in consolidation
B. Reorganization - The Company was formed as a wholly owned subsidiary of
Duncan Hill, Inc. in December 1997. The operations included in the accompanying
unaudited financial statements prior to December 1997 are those of E. A. Carey
of Ohio, Inc. (Carey), which was dissolved as part of the reorganization, and
Monarch. Carey and Monarch were both wholly owned subsidiaries of Duncan Hill,
Inc. prior to the reorganization. The Company acquired the assets and
liabilities of Carey and the common stock of Monarch Pipe in the reorganization,
which was accounted for at historical cost as a reorganization of companies
under common control.
Note 2. Basis of Presentation
A. The accompanying unaudited financial statements have been prepared by the
Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of the Company's
management, the disclosures made are adequate to make the information presented
not misleading, and the consolidated financial statements contain all
adjustments necessary to present fairly the financial position as of September
30, 1998, results of operations for the three months and nine months ended
September 30, 1998 and 1997, and cash flows for the nine months ended September
30, 1998 and 1997.
The results of operations for the three months and nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
Per Share Amounts - Net income per share is calculated using the weighted
average number of shares outstanding during the period. Since the effect of
adding the 588,316 warrants would be anti-dilutive, they are not considered in
the calculation for the periods considered. The number of shares outstanding in
computing basic and diluted earnings for the three months ended September 30,
1988 is 1,860,000; and for the nine months ended September 30, 1998, 1,630,000
were outstanding. For the three and nine months ended September 30, 1997, the
number of shares outstanding in computing basic and diluted earnings per share
was 1,000,000.
7
<PAGE>
THE HAVANA GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Basis of Presentation (continued)
B. Recently Issued Accounting Pronouncements
In June 1997, SFAS 130, "Reporting Comprehensive Income," was issued. SFAS 130
established new standards for reporting comprehensive income and its components
and is effective for fiscal years beginning after December 15, 1997. The Company
expects that comprehensive income will not differ materially from net income.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosure About Segments of an Enterprise and Related Information." SFAS 131
changes the standards for reporting financial results by operating segments,
related products and services, geographical areas and major customers. The
Company must adopt SFAS 131 no later than December 31, 1998. The Company
believes that the effect of adoption will not be material.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities on the balance sheet and measurement of those instruments at fair
value. If certain conditions are met, a derivative may be designated
specifically as (a) a hedge of the exposure to changes in fair value of a
recognized asset or liability or an unrecognized firm commitment (fair hedge),
(b) a hedge of the exposure to variable cash flows of a forecasted transaction
(a cash hedge), or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The Company does not anticipate having each of these types of
hedges, but will comply with requirements of SFAS 133 when adopted.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will adopt SFAS 133 beginning January 1, 2000.
The effect of adopting SFAS 133 is not expected to be material.
Note 3. Parent Corporation
Effective January 1, 1997, the Company contracted with Kids Stuff, Inc.
("Kids"), a subsidiary of Duncan Hill, Inc., to provide telemarketing, order
fulfillment, data processing and certain administrative functions. The Company
is charged for its portion of the expenses on a direct cost basis, as
applicable, or on a pro rata basis. Actual costs are those direct costs that can
be charged on a per order or per hour basis, fixed costs are allocated on a pro
rata basis by dividing the total assets of the Company by the sum of the total
assets of the Company and Kids. Effective January 1, 1998, the Company renewed
this contract with Kids at an annual cost of approximately $206,100 for the
administrative, executive and accounting services, as outlined below, and $2.40
per order processed. Management believes that this is substantially the same
cost that it would incur should it procure these services itself.
8
<PAGE>
Accounting and Payroll Services $34,000
Administration and Human Resource Management 51,600
Data Processing 34,900
Office Equipment and Facilities Use 32,200
Merchandising and Marketing Services 38,100
Purchasing Services 15,300
--------
Total $206,100
========
The Company's accounts receivable and inventories are pledged as collateral on
Kids line of credit. The Company is also a guarantor which is irrevocable. At
September 30, 1998, the balance on the line of credit was $732,000.
Note 4. Stockholders' Equity
A. Series B Preferred Stock
On December 8, 1997, the Company issued 1,100,000 shares of its Series
B Convertible Preferred Stock (Series B) to Duncan Hill. In return, Duncan Hill
assumed a $300,000 liability due to an affiliate. Series B has the same voting
privileges as the Common Stock. Each share of Series B stock is convertible into
one share of the Company's Common Stock at the option of either the holder or
the Company upon reaching net pre-tax earnings of at least $500,000. If declared
by the Board of Directors, Series B shareholders are entitled to receive
quarterly dividends of no more than $.025 per share, payable out of surplus or
net profits of the Company. As of July 23, 1998, the Board of Directors has not
declared any dividends. As the Series B Preferred pays an annual $.10 dividend
per share, the Company has recorded the Series B stock at $1.00 per share to
reflect its estimated fair value.
The Series B stock is not subject to redemption. In the event of a
voluntary or involuntary liquidation of the Company, each share of Series B
stock has a liquidation preference of $.001, which is subordinated to the
liquidation preference of the Series A stock.
In December 1997, the Company and its CEO entered into an employment
agreement, which among other terms, granted the CEO 200,000 Common Stock
Purchase Warrants at $6.00 per share. The warrants were converted into Class A
warrants upon the effectiveness of the Company's registration statement. The CEO
was also granted an option to purchase 200,000 shares of the Company's Common
Stock, which will vest 20% on each of the following dates: December 1, 1997;
January 1, 1998; January 1, 1999; January 1, 2000; and January 1, 2001,
regardless of whether the executive is employed on such dates by the Company.
The vested options will be immediately exercisable and will expire 10 years from
the date of the agreement. The exercise price of the options will be $6.00 per
share, subject to downward adjustments in the exercise price if the Company
meets certain performance goals.
Note 5. Fair Value of Stock Based Compensation
The Company has granted options to purchase 60,000 shares of Common
Stock to certain directors with the same terms as the options granted to the CEO
(Note 4).
The Company accounts for employee stock options in accordance with the
intrinsic value method and, accordingly, no compensation cost has been
recognized. If the Company had elected to recognize compensation using the fair
value method, the Company's net loss would have been increased by approximately
$58,600, or $0.03 per share, for the nine months ended September 30, 1998.
9
<PAGE>
For purposes of the pro forma disclosures presented above, the Company
computed the fair values of options granted using the Black-Scholes option
pricing model assuming no dividends, 45% volatility, an expected life of 50% of
the ten-year option terms, and a risk-free interest rate of 6.3%.
Note 6. Public Offering
On May 22, 1998, the Company completed its initial public offering
which was declared effective by the Securities and Exchange Commission on May
14, 1998, whereby the Company sold 460,000 units, each unit consisting of one
share of Common Stock, $.001 par value, and two Class A Warrants. The Company
realized net proceeds of approximately $2,163,754 after payment of offering
expenses of approximately $672,929.
During June 1998, additional 69,000 units were sold by Duncan Hill as
the overallotment of the Company's public offering.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This discussion should be read in conjunction with the information in
the financial statements of the Company and notes thereto appearing elsewhere.
Overview
The Havana Group, Inc. is a consumer catalog business specializing in smoking
pipes, tobaccos, cigars and related accessories. We are the manufacturer and
sole distributor of the "Magic Inch" and "Aerosphere" smoking pipe systems, and
the sole distributor of "Carey Honduran" lines of proprietary hand made cigars.
Our products are offered through our Carey's Smokeshop catalog. Carey Tobacco
Club is also offered through the catalog, which is a monthly program of tobacco
shipments to Club members. During December 1997 we opened, and have since been
developing, our Havana Group retail store.
On May 14, 1998, the Securities and Exchange Commission declared our initial
public offering effective, and it was subsequently completed on May 22, 1998.
Proceeds from that offering amounted to $2,163,754 net of offering expenses of
$672,929.
During the nine months ended September 30, 1998, catalog sales provided about
70% of gross revenues, Club member sales comprised another 20%, and the balance
was provided by the developing retail store.
In January 1998, the Company borrowed $100,000 from one private investor
evidenced by a promissory note of $100,000. This is the same private investor
mentioned in Note 4E, "Sale of Unregistered Securities." The note bore interest
at 8% per annum and was paid on May 22, 1998 out of proceeds of the Company's
initial public offering.
10
<PAGE>
RESULTS OF OPERATIONS
- - ---------------------
Three months ended September 30, 1998 compared to the three
months ended September 30, 1997.
Net revenues for the quarter ended September 30, 1998 were $326,129, down from
the previous quarter last year of $357,290 Tobacco Club sales declined slightly
from $66,855 to $65,391. Sales from the retail store during this quarter of
$31,289. This increase offset that decline producing the minimal change between
quarters.
Cost of sales increased from 47.6% of net revenues in 1997 to 60.4% in 1998
primarily due to lower gross margins experienced during the Company's August
promotional activity.
Selling expenses increased from 16.1% of net revenues in 1997 to 26.8% in 1998
because of higher printing costs for the catalog and the completion of staffing
for the retail store.
For the third quarter 1998, general and administrative expenses amounted to
$135,345 or 41.5% of revenues, as compared to $86,774, or 24.3% of sales, for
the same period last year. This increase was due to an $13,600 building rent
allocation from Kids Stuff, as well as an accounting charge of $11,000.
Additionally, there were higher than usual T & E costs of $6,600.
The operating loss from operations for the third quarter of 1998 was $93,793, or
28.7% of total sales, as compared to an operating loss of $23,307, or 2.30% of
total sales, for the same quarter last year. The greater operating loss was due
primarily to reductions in gross margin and increased general and administrative
costs.
During the previous quarter, we incurred a one-time interest charge of
$3,350,000 because of the accounting for the beneficial conversion feature of a
$100,000 convertible promissory note. On May 14, 1998, the note was converted
into 400,000 Common Stock shares and 1,400,000 Class A warrants of the Company.
Nine months ended September 30, 1998 compared to Nine months ended September 30,
1997.
Net sales for the nine months ended September 30, 1998 were $988,112 slightly
less than that reported for the same period last year of $1,015,417. Tobacco
Club sales declined from $283,317 to $203,137. Sales from the new retail store
during the current nine months of $92,193 offset that decline producing the
minimal change between quarters. We plan to increase marketing and market tests
to improve Tobacco Club membership and related sales, and to more fully develop
the new retail store.
Cost of sales increased from 52.1% of net revenues in 1997 to 61.5% in 1998
primarily due to initial, lower margins in the retail store and one-time charges
for cigar inventory losses.
Selling expenses increased from 21.0% of net revenues in 1997 to 30.4% in 1998
because of higher printing costs for the catalog and the sales staff costs for
the retail store.
The operating loss before interest expense for the first nine months of 1998 was
$241,615, or 24.5% of net sales, as compared to an operating loss of $3,353, or
.3% of net sales, for the same period last year. The higher operating loss was
due primarily to the one-time inventory charge, higher printing costs and costs
associated with the start-up of the retail store.
11
<PAGE>
For the nine months ended September 30, 1998, general and administrative
expenses amounted to $321,873 or 32.6% of net revenues, as compared to $276,972
or 27.3% of net revenues for the same period last year. This increase of $44,901
is primarily due to of building rental costs from Kids Stuff, (an affiliated
company) of $13,600, accounting fees of $11,000, and an accrual adjustment for
property and franchise taxes of $5,000, and higher than usual travel costs of
$6,600.
As a result of the accounting for the beneficial conversion feature previously
discussed, the net loss for the nine months ended September 30, 1998 amounted to
$3,566,301, as compared to a net loss of $23,307 for the same period last year.
Liquidity and Capital Resources
At September 30, 1998, our accumulated deficit increased $3,566,301 from
December 31, 1997 because of the net loss.
In addition to the net loss, cash was used by operating activities primarily to
reduce accounts payable and to increase accounts receivable. Cash uses were
somewhat offset by non-cash charges of $35,291 for depreciation and
amortization. In the nine months ended September 30, 1997, cash uses were
primarily utilized to increase inventories and the purchase of property and
equipment.
Cash was provided by financing activities as a result of our initial public
offering completed May 22, 1998. In addition, amounts due affiliates increased
$108,289 primarily due to activities associated with Monarch Pipe.
Currently, the Company has no credit facility. However, we have pledged our
assets as guarantee on Kids Stuff's bank line of credit. We do not expect any
liability to accrue to the Company as a result of this guarantee. This is a
credit line of $800,000 with an outstanding balance of $732,000 at September 30,
1998. Interest is accrued at the bank's prime lending rate plus 1.0%. Under the
terms of the lending agreement, a zero balance should be maintained for 30
consecutive days during the loan year. The bank has waived this requirement
until the new loan package has been negotiated.
The Company expects to meet cash needs over the next 12 to 15 months through
working capital provided by the recently completed offering and cash from
operations.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year in the
date field. Their programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. The
company is currently working to correct its computers and does not believe that
the expenditures will materially adversely impact the company, although no
assurances can be given in this regard. The Company purchases its materials from
numerous vendors. While the Company has not determined whether all its vendors
will be year 2000 compliant before the problem arises, Management believes that
since it is not dependent on any major vendor, its operations will not be
materially or adversely effected by the failure of a few vendors to timely
correct the problem. However, no assurances can be given that Management will be
correct in its belief.
12
<PAGE>
Forward Looking Statements and Associated Risks
Management's discussion and analysis contains forward looking
statements which reflect Management's current views and estimates of future
economic circumstances, industry conditions, company performance and financial
results. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond the Company's control. Actual results could differ materially
from these forward looking statements as a result of changes in the trends in
the tobacco or cigar retail and mail order industry, government regulations
imposed on the tobacco industry, competition, availability and price of goods,
credit availability, printers' schedules and availability, and other factors.
Any changes in such assumptions or factors could produce significantly different
results.
PART II. OTHER INFORMATION
(a) Exhibits filed as part of this report:
27. Financial Data Schedule
(b) No report on form 8-K was filed during the second quarter of 1998.
Signature
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.
The Havana Group, Inc.
Date: 11/12/98 /s/ William L. Miller
------------------------------
William Miller, CEO & CFO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED FOOTNOTES THERETO, OF THE HAVANA GROUP, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> $1,800,109
<SECURITIES> 0
<RECEIVABLES> 51,464
<ALLOWANCES> 5,500
<INVENTORY> 425,947
<CURRENT-ASSETS> 2,481,508
<PP&E> 225,002
<DEPRECIATION> 93,272
<TOTAL-ASSETS> 3,080,117
<CURRENT-LIABILITIES> 209,951
<BONDS> 0
0
6,100
<COMMON> 1,860
<OTHER-SE> 2,862,606
<TOTAL-LIABILITY-AND-EQUITY> 3,080,117
<SALES> 0
<TOTAL-REVENUES> 988,112
<CGS> 907,854
<TOTAL-COSTS> 907,854
<OTHER-EXPENSES> 321,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,355,333
<INCOME-PRETAX> (3,566,301)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,566,301)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,566,301)
<EPS-PRIMARY> (2.19)
<EPS-DILUTED> (2.19)
</TABLE>
