SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended March 31, 1999
Commission file number: 1-14831
DIGITAL LAVA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4584080
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
10850 Wilshire Boulevard, Suite 1260
Los Angeles, CA 90024
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 470-1149
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 May 17, 1999, the Registrant had outstanding 4,634,387 shares of its
$.0001 par value Common Stock and no shares of convertible preferred stock,
$.0001 par value, issued and outstanding.
<PAGE>
Digital Lava Inc.
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securites and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
DIGITAL LAVA INC.
Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .................................. $ 30,893 $ 5,151,113
Short term investments ..................................... -- 5,368,446
Accounts receivable ........................................ 204,196 93,790
Other current assets ....................................... 16,731 88,628
Deferred Offering Costs .................................... 888,493 --
------------ ------------
Total current assets ............................... 1,140,313 10,701,977
Fixed assets, net ................................................ 59,647 97,259
Other assets ..................................................... 16,965 19,616
------------ ------------
$ 1,216,925 $ 10,818,852
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable ........................................... $ 698,746 $ 143,740
Accrued interest ........................................... 998,619 --
Accrued expenses ........................................... 404,537 45,173
Notes payable, net of debt discount ........................ 5,008,634 --
Deferred revenue ........................................... 186,909 151,605
------------ ------------
Total current liabilities .......................... 7,297,445 340,518
------------ ------------
Stockholders' equity /deficit:
Convertible preferred stock - Series A, B, B-1
and C, $.0001 par value; 5,000,000 shares authorized;
98,349 shares issued and outstanding
(liquidation preference of $1,626,965) at December 31,
1998; none issued and outstanding at March 31, 1999 ... 9 --
Common stock, $0.0001 par value; 35,000,000 shares
authorized; 131,524 and 4,634,387 shares issued
and outstanding, respectively ........................ 13 463
Additional paid-in capital ................................. 4,618,297 26,085,901
Accumulated deficit ........................................ (10,698,839) (15,608,030)
------------ ------------
Total stockholders' equity(deficit) ................ (6,080,520) 10,478,334
------------ ------------
$ 1,216,925 $ 10,818,852
============ ============
</TABLE>
See accompanying notes to the unaudited financial statements.
3
<PAGE>
DIGITAL LAVA INC.
Statement of Operations
(Unaudited)
Three Months Ended March 31,
--------------------------
1998 1999
----------- -----------
Revenues:
Software licenses .......................... $ 39,350 $ 92,158
Consulting and services .................... 76,877 84,721
----------- -----------
Total revenues ..................... 116,227 176,879
----------- -----------
Cost of revenues:
Cost of software licenses .................. 130 2,044
Cost of consulting and services ............ 46,323 38,426
----------- -----------
Total cost of revenues ............. 46,453 40,470
----------- -----------
Gross profit ....................... 69,774 136,409
----------- -----------
Operating costs and expenses:
Selling, general and administrative ........ 746,010 1,061,047
Research and development ................... 139,486 134,463
----------- -----------
Total operating costs and
expenses ....................... 885,496 1,195,510
----------- -----------
Loss from operations ............... (815,722) (1,059,101)
Interest expense ................................. (456,741) (177,434)
----------- -----------
Loss before extraordinary item ..... (1,272,463) (1,236,535)
Extraordinary loss on extinguishment of debt ..... -- (3,672,656)
----------- -----------
Net loss ............................. (1,272,463) (4,909,191)
=========== ===========
Net loss available to common stockholders ........ ($1,272,463) ($5,569,204)
=========== ===========
Basic and diluted loss per share:
Loss before extraordinary item ............. $ (8.60) $ (0.99)
Extraordinary loss on extinguishment of debt -- (1.93)
=========== ===========
Net loss ......................................... $ (8.60) $ (2.92)
=========== ===========
Weighed average common shares
used in basic and diluted loss per
share .................................... 147,933 1,904,783
=========== ===========
See accompanying notes to the unaudited financial statements.
4
<PAGE>
DIGITAL LAVA INC.
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $ (1,272,463) $ (4,909,191)
Adjustments to reconcile net loss
to net cash used in operating activities:
Extraordinary loss on extinguishment of debt -- 3,672,656
Deferred revenues ......................... -- (35,304)
Depreciation and amortization ............. 67,781 13,177
Amortization of debt discount ............. 140,414 130,758
Compensation from grant of
non-employee stock options
and warrants ........................ 3,960 --
Changes in assets and liabilities
affecting operating cash flows:
Accounts receivable ................... 88,610 110,406
Other assets .......................... (8,594) (78,065)
Accounts payable ...................... (226,599) (555,006)
Accrued interest ...................... 316,776 (523,952)
Accrued expenses ...................... 37,769 (359,364)
------------ ------------
Net cash used in operating activities ................. (852,346) (2,533,885)
------------ ------------
Cash flows used in investing activities:
Purchases of short term investments ............... (5,368,446)
Acquisition of fixed assets ....................... (15,122) (52,478)
------------ ------------
Net cash used in investing activities ................. (15,122) (5,420,924)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable ....................... 1,050,000 --
Repayment of notes payable ........................ (3,923,500)
Proceeds from issuance of common stock ............ 19,831,011
Cost of common stock issuance ..................... (2,832,482)
------------ ------------
Net cash provided by financing activities ............. 1,050,000 13,075,029
------------ ------------
Net increase in cash and cash equivalents ............. 182,532 5,120,220
Cash and cash equivalents at beginning of
period ............................................ 173,262 30,893
------------ ------------
Cash and cash equivalents at end of period ............ $ 355,794 $ 5,151,113
============ ============
</TABLE>
See accompanying notes to the unaudited financial statements.
5
<PAGE>
DIGITAL LAVA INC.
Notes to Unaudited Financial Statements
1. The Company
Digital Lava Inc., a Delaware corporation (the "Company"), develops and
markets video publishing software applications for corporate training,
communications, distance learning, research and other applications. The
Company's technology allows users to organize and manage video content, link
video to other types of files and publish video with all of the linked
information on CD-ROM or DVD, corporate intranets or the public Internet.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation
The accompanying balance sheet as of March 31, 1999 and the statements of
operations and cash flows for the three month periods ended March 31, 1998 and
1999 have been prepared by the Company without audit. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation have been included. The results of operations
for the three month period ended March 31, 1999 are not necessarily indicative
of the operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10-KSB for the year ended December 31, 1998.
3. Net loss per share:
The Company's net loss per share calculations are based upon the weighted
average number of shares of common stock outstanding. Because their effects are
anti-dilutive, net loss per share for the three periods ended March 31, 1998 and
1999 does not include the effect of 1) 98,349 (983,490 shares of common stock on
an as-if converted basis) shares of convertible preferred stock outstanding as
of March 31, 1998; 2) 59,618 and 242,897 of stock options outstanding as of
March 31, 1998 and 1999, respectively; and 3) 17,125 (171,250 on an as-if
converted basis) warrants to purchase outstanding shares of a series A
convertible preferred stock as of March 31, 1998, and 446,254 and 1,921,421
warrants to purchase common stock as of March 31, 1998 and 1999, respectively.
Net loss available to common stockholders represents net loss for the three
months ended March 31, 1999 increased by a dividend of $659,990 issued in
February 1999 to the then holders of Series B and C convertible preferred stock
in conjunction with the change in conversion rates of such shares (Note 5).
4. Short Term Investments
During the first quarter of 1999, the Company purchased short-term
investments comprising of Euro Dollar bonds and medium and short term notes. The
Company accounts for short-term investments in accordance with Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities". This statement addresses the
accounting and reporting for investments in equity securities which have
6
<PAGE>
readily determinable fair values and all investments in debt securities. The
Company's short-term investments are classified as available-for-sale under SFAS
115 and reported at fair value, with changes in the unrealized holding gains or
losses included in stockholders' equity. At March 31, 1999, available-for-sale
securities comprised of Euro Dollar bonds and medium and short term notes of
$4,337,899 and $1,030,547, respectively. Net unrealized gains or losses on these
investments were immaterial at March 31, 1999.
5. Underwritten public offering
On February 22, 1999, the Company completed an underwritten public offering
of 1,200,000 units at a price of $15.10 per unit. Each unit consists of two
shares of common stock and a warrant to purchase one share of common stock at a
price of $7.50 per share of common stock plus $.10 per warrant. Proceeds, net of
discounts and commissions of $1,514,832, and offering expenses of $2,008,722,
totaled $14,596,446. In addition, on March 30, 1999 the underwriter exercised
their over-allotment option to purchase an additional 113,312 units for total
proceeds net of discounts and commissions of $143,113, and offering expenses of
$54,308 of $1,513,590. Upon completion of the Company's IPO, all shares of the
Company's convertible preferred stock and certain debt, accrued interest and
warrants converted into common stock of the Company. This transaction was
reflected in the Company's first quarter 1999 results as follows:
Return of shares by officers of the Company
In conjunction with the completion of the IPO, the Company cancelled 8,824
of series A convertible preferred stock (which converted to 88,240 shares of
common stock) and 11,030 shares of common stock returned by certain officers of
the Company. This resulted in the cancellation of 99,270 shares of common stock
and was recorded as contributed capital.
Conversion of series A and B-1 convertible preferred stock
Each share of the Company's series A and B-1 convertible preferred stock
outstanding converted into 797,600 and 20,411 shares of common stock,
respectively.
Conversion of series B and C convertible preferred stock
In conjunction with the completion of the IPO, the Company changed the
conversion rate for series B and C convertible preferred stock to 20.3099 to 1
and 19.3702 to 1, respectively. As such, each share of the Company's series B
and C convertible preferred stock outstanding converted into 112,763 and 63,586
shares of common stock, respectively. The value based on the IPO price of the
88,003 incremental common shares issued to Series B and C preferred holders
resulting from the change in conversion rates was recorded as a dividend to the
preferred stockholders in the amount of $659,990.
Conversion of outstanding warrants
In conjunction with the completion of the IPO, the Company canceled
warrants to acquire 107,687 shares of common stock in exchange for 30,836 shares
of common stock.
6. Extraordinary Loss
In conjunction with the completion of the IPO, the Company repaid
approximately $4,489,000 in principal of notes payable, accrued but unpaid
interest and other related fees. The
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Company also converted approximately $1,891,000 of principal of notes payable,
accrued interest and outstanding warrants into 849,600 shares of common stock
and cancelled warrants to purchase series A convertible preferred and common
stock of 10,669 and 344,413, respectively, at exercise prices ranging from $6.85
to $182.78. The Company recorded an extraordinary loss of $3,672,656 on
extinguishment of this debt based on the difference between (a) cash paid and
the value of stock issued and (b) the book value of debt, accrued interest and
warrants.
7. Recent Accounting Pronouncements
In December 1998, the Accounting Standards Executive Committee released
Statement of Position ("SOP") No. 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." This SOP amends SOP
97-2 to provide a limited exception to the full deferral of revenue that the
provisions of SOP 97-2 may require. Specifically, for software in which the
entity has a contracted price for the entire arrangement and vendor-speicific
objective evidence ("VSOE") of the fair value of each undelivered element
exists, revenue for the delivered element(s) may be recognized based on the
difference between the contract price and the VSOE of the fair value of the
undelivered element(s), provided that all other revenue-recognition criteria of
SOP 97-2 are met and the total fair value of the undelivered element(s) is less
than or equal to the price for the entire software arrangement. The provisions
of SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. The Company does not believe that adoption
of SOP 98-9 will have a material impact on the Company's financial position or
results of operations.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements contained in this document that are not purely historical
are forward-looking statements concerning the business and products of the
company. Actual results may differ from those projected or implied by such
forward-looking statements depending on a number of risks and uncertainties
including, but not limited to, the following: development, shipment and market
acceptance. Other risks inherent in the business of the company are described in
Securities and Exchange Commission filings, including the Company's prospectus
dated February 17, 1999 on Form SB-2. The Company undertakes no obligation to
revise or update any forward-looking statements after the date hereof.
Overview
Digital Lava invested significant resources in sales, marketing,
development and other operating activities during the quarter ended March
31,1999. Digital Lava believes that its success depends largely on building
superior technology and quality into its products, extending its technological
lead on the competition and developing brand recognition early in a product's
life cycle. Accordingly, Digital Lava expects to continue spending heavily on
these activities in the near future. Despite these heavy investments in
marketing and product development, the historical growth in software license
fees may not be sustainable in the future. In light of Digital Lava's limited
operating history and rapid improvements in technology and marketing of its
products, Digital Lava believes that period-to-period comparisons of its
revenues and operating results, including its gross profit and operating
expenses as a percentage of total net revenues, are not necessarily meaningful
and should not be relied upon as indications of future performance.
Digital Lava has incurred significant net losses and negative cash flows
from operations since inception, and as of March 31, 1999, had an accumulated
deficit of $15,608,030. Digital Lava intends to continue to invest heavily in
technology and infrastructure development, and marketing and promotion. As a
result, Digital Lava believes that it will continue to incur operating losses
and negative cash flows from operations for the foreseeable future and that the
rate at which these losses will be incurred may increase from current levels.
There can be no assurance that Digital Lava will be able to achieve or sustain
revenue growth, profitability, or positive cash flow on either a quarterly or
annual basis.
Results of Operations
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998
Revenues
Revenues increased to $176,879 for the quarter ended March 31, 1999 from
$116,227 for the quarter ended March 31, 1998. The increase of $60,652 or 52.2%
was primarily due to an increase in sales of software licenses mainly
attributable to repeat business from the current customer base. Software license
revenues accounted for approximately 52.1% and 33.9% of revenues for the quarter
ended March 31, 1999 and 1998, respectively. Consulting and services revenues
accounted for approximately 47.9% and 66.1% of revenues for the quarter ended
March 31, 1999 and 1998, respectively. Digital Lava's largest customer accounted
for 19.2% and 55.3% of revenues for the three months ended March 31, 1999 and
1998, respectively. Digital Lava anticipates that software license revenue will
continue to account for a larger share of revenues
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for the foreseeable future.
Cost of Revenues
Cost of revenues consist primarily of the cost of materials, freight and
applicable labor incurred for the delivery of the product or service. Costs of
revenues decreased to $40,470, or 22.9% of revenues, for quarter ended March 31,
1999 from $46,323, or 39.9% of revenues, for the quarter ended March 31, 1998.
This decrease was primarily due to decreased costs associated with consulting
and services revenue in the first quarter of 1999. Digital Lava expects its cost
of revenue to continue to increase in dollar amount while declining as a
percentage of revenue as Digital Lava expands its customer base.
Operating Costs and Expenses
Selling, General and Administrative Expense. Selling, general and
administrative expenses consist primarily of salaries, taxes and benefits and
related costs for general corporate functions, including executive management,
finance, accounting, facilities, legal, fees for professional services and
depreciation and amortization. Selling, general and administrative expenses
increased to $1,061,047, or 599.9% of revenues, for the quarter ended March 31,
1999, from $746,140, or 642.0% of revenues, for the quarter ended March 31,
1998. The increase was primarily due to increased compensation, increased
spending on, trade shows, additional personnel and professional fees required to
build an infrastructure to support Digital Lava's products and anticipated
growth. Digital Lava expects that selling, general and administrative expenses
will increase in absolute dollars as Digital Lava continues to hire personnel
and incurs expense related to the further growth of the business and its
operation as a public company.
Research and Development Expenses. Research and development expenses
consist of expenditures related to technology and software development expenses.
Research and development expenses decreased to $134,463, or 76.0% of revenues,
for the quarter ended March 31, 1999 from $139,486, or 120.0% of revenues, for
the quarter ended March 31, 1998. The dollar decrease was primarily due to the
reduced usage of outside contractors in the first quarter of 1999. Research and
development expenses decreased as a percentage of revenue because of the growth
level in revenues relative to the growth in the cost structure for research and
development. Digital Lava believes that significant investments in technology
and content development are required to maintain a technological lead and remain
competitive and, therefore, expects that its research and development expenses
will increase in absolute dollars for the foreseeable future; however, research
and development expenses are presently anticipated to continue to decline as a
percentage of revenues.
Interest Expense. Interest expense includes interest expense related to
Digital Lava's financing obligations and the amortization of debt discount.
Interest expense decreased to $177,434 for the quarter ended March 31, 1999 from
$456,741 for the quarter ended March 31, 1998. The decrease was primarily due to
the retirement of notes payable issued by Digital Lava in conjunction with the
completion of the initial public offering. Interest expense for the quarter
ended March 31, 1999 and march 31, 1998 included amortization of debt discount
of $130,758 and $140,414, respectively.
Loss before extraordinary item. For the quarter ended March 31, 1999,
Digital Lava's loss before extraordinary item totaled $1,236,535 as compared to
$1,272,463 for the quarter ended March 31, 1998.
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Extraordinary Item. In the quarter ended March 31, 1999, the Company
recorded an extraordinary charge of $3,672,656 associated with the
extinguishment of debt.
Liquidity and Capital Resources
On February 22, 1999, Digital Lava completed an initial public offering of
1,200,000 units, each unit consisting of two shares of common stock and one
redeemable warrant, and received aggregate proceeds of $18,120,000 and net
proceeds of $14,596,446. On March 30, 1999 Digital Lava completed the exercise
by its underwriter of the over allotment option of 113,312 units and received
aggregate proceeds of $1,711,011 and net proceeds of $1,513,590. During the
period from completion of the Offering through March 31, 1999, Digital Lava has
used approximately 1) $4,489,000 of the proceeds to repay bridge notes; 2)
$135,000 for product development expenses; 3) $325,000 for sales and marketing
expenses; 4) $116,000 for facilities and other capital expenditures; and 5)
$558,000 for working capital and general corporate purposes. In addition, during
the first quarter of 1999, Digital Lava used approximately $1.4 million of such
net proceeds to pay expenses of the offering. None of the payments described in
this paragraph represented a direct or indirect payment to (i) directors,
officers or general partners of the Company or to their associates, (ii) persons
owning 10% or more of any class of equity securities of the Company or (iii)
affiliates of the Company.
Net cash used in operating activities was $2,533,885 for the quarter ended
March 31, 1999 as compared to $852,346 for the quarter ended March 31, 1998
resulting primarily from the net loss and payment of accrued expenses partially
offset by the non-cash extraordinary loss.
Cash flows used in investing activities was $5,420,924 for the quarter
ended March 31, 1999 as compared to $15,122 for March 31, 1998 resulting
primarily from the purchase of short term securities.
Net cash provided by financing activities was $13,075,029 for the quarter
ended March 31, 1999 as compared to $1,050,000 for the quarter ended March 31,
1998. The increase was due to net proceeds received due to the completion of the
company's initial public offering and the underwriter's exercise of their
over-allotment option offset by repayment of notes payable.
Digital Lava's capital requirements depend on numerous factors, including
market acceptance of Digital Lava's products and services, the amount of
resources Digital Lava devotes to investments in its products, the resources
Digital Lava devotes to marketing and selling its services and its brand
promotions and other factors. Digital Lava has experienced a substantial
increase in its capital expenditures since its inception consistent with the
growth in Digital Lava's operations and staffing, and anticipates that this will
continue for the foreseeable future. Additionally, Digital Lava will continue to
evaluate possible investments in businesses, products and technologies, and
plans to expand its sales and marketing programs and conduct more aggressive
brand promotions.
Digital Lava currently anticipates that current cash balances, short-term
investments and cash provided by operations will be sufficient to meet its
anticipated needs for working capital and capital expenditures for at least the
next 12 months. Digital Lava anticipates it will be required to seek additional
funding either through additional public or private sales of its securities or
through debt financing. Such options are currently under consideration.
Year 2000 Risk
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results. We believe that our products and
internal systems are currently year 2000 compliant. We have confirmed our year
2000 compliance by obtaining representations by third party vendors of their
products' year 2000
12
<PAGE>
compliance, as well as specific testing of our products. We have not incurred
significant costs to date complying with year 2000 requirements and we do not
believe that we will incur significant costs for these purposes in the
foreseeable future. However, should products or systems maintained by third
parties or our products and systems fail to be year 2000 compliant, despite the
representations of third parties and the testing of our products, we could incur
significant expenses to remedy any problems and our business could be seriously
damaged.
13
<PAGE>
Part II
Other Information
Item 1 Legal Proceedings NONE
Item 2 Changes in Securities and Use of Proceeds
Use of Proceeds from IPO
On February 22, 1999, Digital Lava completed an initial public offering of
1,200,000 units, each unit consisting of two shares of common stock and one
redeemable warrant, and received aggregate proceeds of $18,120,000 and net
proceeds of $14,596,446. On March 30, 1999 Digital Lava completed the exercise
by its underwriter of the over allotment option of 113,312 units and received
aggregate proceeds of $1,711,011 and net proceeds of $1,513,590. During the
period from completion of the Offering through March 31, 1999, Digital Lava has
used approximately 1) $4,489,000 of the proceeds to repay bridge notes; 2)
$135,000 for product development expenses; 3) $325,000 for sales and marketing
expenses; 4) $116,000 for facilities and other capital expenditures; and 5)
$558,000 for working capital and general corporate purposes. In addition, during
the first quarter of 1999, Digital Lava used approximately $1.4 million of such
net proceeds to pay expenses of the offering. None of these offering expenses
represented a direct or indirect payment to (i) directors, officers or general
partners of the Company or to their associates, (ii) persons owning 10% or more
of any class of equity securities of the Company or (iii) affiliates of the
Company.
Item 3 Defaults upon Senior Securities NONE
Item 4 Submission of Matters to Vote of Security Holders NONE
Item 5 Other Information NONE
Item 6 Exhibits and Reports on Form 8-K NONE
14
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL LAVA INC.
Dated: May 17, 1999
by: /s/ Danny Gampe
--------------------------------------------
Danny Gampe
Chief Financial Officer
(Principal Accounting and Financial Officer)
and Vice President, Finance
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,151,113
<SECURITIES> 5,368,446
<RECEIVABLES> 93,790
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,701,977
<PP&E> 237,608
<DEPRECIATION> (140,349)
<TOTAL-ASSETS> 10,818,852
<CURRENT-LIABILITIES> 340,518
<BONDS> 0
0
0
<COMMON> 463
<OTHER-SE> 10,478,334
<TOTAL-LIABILITY-AND-EQUITY> 10,818,852
<SALES> 0
<TOTAL-REVENUES> 176,879
<CGS> 40,470
<TOTAL-COSTS> 40,470
<OTHER-EXPENSES> 1,195,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,434
<INCOME-PRETAX> (1,236,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,236,535)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,672,656)
<CHANGES> 0
<NET-INCOME> (4,909,191)
<EPS-PRIMARY> (2.92)
<EPS-DILUTED> (2.92)
</TABLE>
