<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------------------
Quarter Ended June 30, 1997 Commission File No. 0-10385
VOICE CONTROL SYSTEMS, INC.
(Name of small business issuer in its charter)
DELAWARE 75-1707970
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
14140 MIDWAY ROAD
DALLAS, TEXAS 75244 (972) 726-1200
(Address of principal executive (Registrant's telephone
offices) number, including area code)
-----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
11,127,518 SHARES of Common Stock, $.01 par value outstanding at June 30, 1997.
<PAGE> 2
VOICE CONTROL SYSTEMS, INC.
FORM 10-QSB QUARTERLY REPORT
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to S.E.C. rules and
regulations although the Company believes the disclosures made are adequate to
make the information presented not misleading, and in the opinion of
management, all adjustments have been reflected which are necessary for a fair
statement of the information shown.
2
<PAGE> 3
VOICE CONTROL SYSTEMS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30,
1997
---------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 14,342,770
Accounts receivable (net of $113,000 allowance
for doubtful accounts) (Note 7) 3,964,859
Inventory 530,149
Prepaid expenses 153,621
------------
TOTAL CURRENT ASSETS 18,991,399
NET PROPERTY AND EQUIPMENT 1,416,655
OTHER ASSETS 155,826
------------
$ 20,563,880
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable and accrued expenses (Note 5) $ 1,402,361
Deferred revenue 691,593
TOTAL CURRENT LIABILITIES 2,093,954
------------
LONG TERM DEBT --
TOTAL LIABILITIES 2,093,954
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; $1.00 par value; 300,000 shares
authorized; none issued and outstanding --
Common stock, $.01 par value: 20,000,000 shares
authorized; 11,127,518 issued and outstanding 111,275
Paid-in capital 37,134,513
Receivable from shareholders (70,010)
Deficit (18,705,852)
-------------
TOTAL STOCKHOLDERS' EQUITY 18,469,926
------------
$ 20,563,880
============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
VOICE CONTROL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
SALES (NOTE 7) $ 4,262,181 3,087,832 8,264,882 6,787,545
COST OF SALES 1,045,178 512,890 1,696,098 1,452,385
----------- ----------- ------------ ----------
GROSS PROFIT 3,217,003 2,574,942 6,568,784 5,335,160
COSTS AND EXPENSES:
Research and development 1,336,939 1,693,010 2,595,115 3,296,858
Selling, general and administrative 1,703,220 1,601,058 3,493,307 3,130,626
Other interest expense (Income), net (185,670) (184,815) (381,659) (268,863)
Interest, to affiliates 0 29,690 0 59,626
------------ ----------- ----------- ----------
TOTAL COSTS AND EXPENSES 2,854,489 3,138,943 5,706,763 6,218,247
------------ ----------- ----------- ----------
NET INCOME BEFORE TAXES 362,513 (564,001) 862,020 (883,087)
INCOME TAXES (NOTE 6) 7,250 0 10,750 0
------------ ----------- ------------ ----------
NET INCOME $ 355,263 $ (564,001) $ 851,270 $ (883,087)
============ =========== ============ ==========
NET INCOME PER SHARE:
Primary $ 0.03 $ (0.07) $ 0.07 $ (0.12)
============ =========== ============ ==========
Fully diluted $ 0.03 $ (0.07) $ 0.07 $ (.0.12)
============ =========== ============ ==========
WEIGHTED AVERAGE OUTSTANDING SHARES:
Primary 12,541,152 8,260,637 12,679,240 7,569,324
============ =========== ============ ==========
Fully diluted 12,541,152 8,260,637 12,679,240 7,569,324
============ =========== ============ ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
VOICE CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Ended June 30,
-------------------------
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 851,270 $ (883,087)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 246,405 217,140
Changes in operating assets and liabilities:
Accounts receivable (1,457,097) (565,303)
Inventory (77,471) 161,752
Prepaid expenses (56,031) 1,684
Other assets (103,973) 46,932
Accounts payable and accrued expenses 421,945 82,273
Deferred revenue (734,171) 43,079
------------ ------------
Net cash provided by (used in) operating activities (909,123) (895,529)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (195,298) (383,256)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of principal on notes payable -- (1,277)
Proceeds from note receivable 48,745 35,627
Proceeds from note payable -- 500,000
Net proceeds from common stock issuance (Note 4) -- 13,446,261
Proceeds from exercise of stock options 171,622 1,115,883
------------ ------------
Net cash provided by financing activities 220,367 15,096,494
------------ ------------
Net increase in cash and cash equivalents (884,054) 13,817,709
Cash and cash equivalents at beginning of year 15,226,824 2,556,717
------------ ------------
Cash and cash equivalents at June 30 $ 14,342,770 $ 16,374,426
============ ============
Supplemental disclosures of cash flow information
Interest paid $ 242 $ 59,626
Conversion of debt and interest by an affiliate
to 1,300,694 shares of stock 1,195,078 --
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
VOICE CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
Voice Control Systems, Inc. (the "Company" or "VCS") engages in the
design of voice recognition systems that allow for the voice control of
electronic machines and/or devices. Operating results for the six months ending
June 30, 1997 are not necessarily indicative of the expected results for the
year. The unaudited financial statements include all adjustments, consisting
primarily of normal recurring accruals, which management considers necessary
for a fair presentation of such information.
2. BUSINESS ACQUISITION
The Company and Voice Processing Corporation ("VPC") entered into an
Agreement and Plan of Merger, approved on October 29, 1996 by each Company's
stockholders of record, pursuant to which VPC was merged into the Company.
Effective November 4, 1996, all of VPC's common stock was converted into and
exchanged for 0.87091 shares of VCS common stock in a transaction accounted for
using the pooling-of-interest method of accounting. In addition, all options
and warrants to purchase VPC shares were exchanged for options and warrants to
purchase VCS shares at the 0.87091 exchange rate. The stock conversion referred
to above has been retroactively reflected in the financial statements for all
periods presented.
Separate results of operation for the periods prior to the merger with
VPC are provided below.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1996
<S> <C>
REVENUES:
VCS 4,044,336
VPC 2,743,209
----------
COMBINED 6,787,545
NET INCOME (LOSS):
VCS 247,567
VPC (1,130,654)
----------
COMBINED (883,087)
</TABLE>
6
<PAGE> 7
VOICE CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. PER SHARE INFORMATION
Earnings per common and common equivalent share are computed based
upon the weighted average number of outstanding shares of common stock and
common stock equivalents.
4. STOCK OFFERING
On February 14, 1996, the Company completed the sale of 1,269,402
shares of common stock. In March 1996, the underwriters exercised their
overallotment option for an additional 220,500 shares of common stock. Net
proceeds to the Company from the stock offering and from stock options
excerised in conjunction with the offering totaled $14,432,000.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at June
30, 1997:
<TABLE>
<S> <C>
Accounts payable $ 618,537
Accrued expenses 783,824
-----------
$ 1,402,361
===========
</TABLE>
6. INCOME TAXES
The combined net operating loss (NOL) carryforwards of the merged
Company expire from 1997 to 2011 and total approximately $23,698,000 as of June
30, 1997. The Company has provided an allowance against its entire deferred tax
asset relating primarily to NOL carryforwards of approximately $8,114,000. In
connection with the Industries acquisition, effective as of August 11, 1994,
the Company had an ownership change as defined by Internal Revenue Code Section
382 (IRC 382). The effect of such change limited the use of the Company's NOL
in future years to approximately $1,355,000 annually. In connection with the
merger with VPC, VPC had an ownership change as defined by IRC 382. The effect
of such change limits the use of VPC's NOL in future years to approximately
$850,000 annually. On a combined basis, the NOL of the Company is limited in
its use against future earnings, if any, to approximately $2,205,000 Annually.
The Company has provided an allowance for its entire deferred tax
asset as its realization is dependent upon future generation of taxable income,
which is not assured. Until such realization can be reasonably determined based
on established sources of earnings sufficient to utilize the NOL carryforward,
management will continue to provide an allowance for the entire deferred tax
asset.
7
<PAGE> 8
VOICE CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The following reconciles income tax expense at the federal statutory
rate to the actual tax expense for the six months ended June 30:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Income taxes at the statutory rate $ 302,000 $ -
State taxes based on income 39,000 -
Effect on taxes resulting from:
Utilization of NOL carry forwards (341,000) -
Federal Alternative Minimum Taxes 10,750 -
--------- ---------
$ 10,750 $ -
========= =========
</TABLE>
7. MAJOR CUSTOMERS
Two customers accounted for 32% and 14% of total sales revenue for the
six months ended June 30, 1997. Three customers accounted for 25%, 10% and 10%
of total sales revenue for the six months ended June 30, 1996.
The Company's largest customer was also the holder of its short-term
convertible debt. The promissory note and accrued interest was converted to
1,300,694 shares of common stock on January 1, 1997. Accounts receivable from
the two largest customers were 9% and 16% of the total receivable balance at
June 30, 1997.
8. NEW ACCOUNTING PRONOUNCEMENT
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". This statement simplifies the standards for computing and presenting
earnings per share ("EPS") and makes them comparable to international EPS
standards. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. While early adoption is not permitted, disclosure of the
effect of the adoption of the standard is required. If SFAS 128 was applied to
the six-month periods ended June 30, 1997 and 1996, the earnings per share
would be as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------- --------
<S> <C> <C>
Basic earnings per common share $ .07 $ (.12)
Diluted earnings per common share $ .07 $ (.12)
</TABLE>
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Six months Ended June 30, 1997 vs. June 30, 1996
Sales increased 22% from $6,787,000 during the six months ending June 30, 1996
to $8,265,000 during the six months ending June 30, 1997. Two customers,
Dialogic and Glenayre, accounted for 32% and 14%, respectively, of total sales
for the six months ending June 30, 1997. Dialogic, Brite and Periphonics
accounted for 25%, 10% and 10%, respectively, of total sales for the six months
ending June 30, 1996. Royalty, development and license fees, which increased
49% over the six months ending June 30, 1996, were 30% of total revenues for
the six months ending June 30, 1997. Hardware sales, which increased 16% over
the six months ending June 30, 1996, were 64% of revenues in the six months
ending June 30, 1997. This increase in hardware sales is a result of the
company's contract with OKI Telecom.
Cost of sales includes the cost of components and subcontracted manufacturing
related to hardware products. Gross profit as a percent of sales was flat at
79% in the six months ending June 30, 1996 and 1997 as a result of the product
mix sold.
Research and development expenses decreased 21% from $3,297,000 in the six
months ending June 30, 1996 to $2,595,000 in the six months ending June 30,
1997. This decrease reflects cost reductions as a result of the merger with
VPC.
Selling, general, and administrative expenses increased 12% from $3,131,000 in
the six months ending June 30, 1996 to $3,493,000 in the six months ending June
30, 1997. Additional sales persons have been added to help support a growing
customer base of firms utilizing speech recognition technology.
The combined net operating loss ("NOL") carryforwards of the merged Company
expire from 1997 to 2011 and total approximately $23,698,000 as of June 30,
1997. The Company has provided an allowance against its entire deferred tax
asset relating primarily to NOL carryforwards of approximately $8,114,000.
Effective August 11, 1994, the Company had an ownership change as defined by the
Internal Revenue Code Section 382 (IRC 382). The effect of the change limited
the use of the Company's NOL in future years to approximately $1,355,000
annually. In connection with the merger with VPC, VPC had an ownership change as
defined by IRC 382. The effect of such change limits the use of VPC's NOL in
future years to $850,000 annually. On a combined basis, the NOL of the Company
is limited in its use against future earnings, if any, to approximately
$2,205,000 annually. Federal income taxes and state franchise taxes based on
income have been offset by net operating loss carryforwards thus far in 1997.
The Company has incurred a tax based on the federal alternative minimum tax of
$10,750 for the six months ended June 30, 1997.
9
<PAGE> 10
Three months Ended June 30, 1997 vs. June 30, 1996
Sales increased 38% from $3,088,000 during the three months ending June 30,
1996 to $4,262,000 during the three months ending June 30, 1997. Three
customers, Dialogic, Glenayre, and OKI Telecom, accounted for 29% and 18%, and
13% respectively, of total sales for the three months ending June 30, 1997.
Dialogic, Brite and Periphonics accounted for 19%, 16% and 10%, respectively,
of total sales for the three months ending June 30, 1996. Royalty, development
and license fees, which increased 24% over the three months ending June 30,
1996, were 24% of total revenues for the three months ending June 30, 1997.
Hardware sales, which increased 55% over the three months ending June 30, 1996,
were 70% of revenues in the three months ending June 30, 1997. This increase in
hardware sales is a result of the company's contract with OKI Telecom.
Cost of sales includes the cost of components and subcontracted manufacturing
related to hardware products. Gross profit as a percent of sales decreased from
83% in the three months ending June 30, 1996 to 75% in the comparable 1997
period as a result of the increase in hardware sales for the period.
Research and development expenses decreased 21% from $1,693,000 in the three
months ending June 30, 1996 to $1,337,000 in the three months ending June 30,
1997. This decrease reflects cost reductions as a result of the merger with
VPC.
Selling, general, and administrative expenses increased 6% from $1,601,000 in
the three months ending June 30, 1996 to $1,703,000 in the three months ending
June 30, 1997. Additional sales persons have been added to help support a
growing customer base of firms utilizing speech recognition technology.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements to date have been to fund working
capital and capital expenditures in order to support its sales growth. Net
working capital at June 30, 1997 was $16,743,000. In the past, the Company's
working capital needs were financed primarily through cash flow from operations
and proceeds from the exercise of warrants and stock options. A stock offering
was completed during the first quarter of 1996 that provided net proceeds of
$13,446,000 to the Company.
At June 30, 1997, the Company held $14,343,000 in cash and cash equivalents.
Cash and cash equivalents are invested in institutional cash investment
accounts with preservation of capital being the primary consideration. All
investments currently have overnight liquidity. Historically, the Company's
primary source of liquidity has been the timely collection of its accounts
receivable. The average day's sales in accounts receivable was 86 days as of
June 30, 1997.
The Company's inventory as of June 30, 1997 was $530,000 of which non-telecom
products were approximately 58% of the inventory.
10
<PAGE> 11
The Company maintained no debt obligations as of June 30, 1997.
The Company's capital expenditures were $195,000 for the six months ended June
30, 1997. The expenditures were primarily for computer equipment.
VCS believes that its existing sources of liquidity, funds generated by
operations and the funds received from the stock offering will be sufficient to
provide the capital resources necessary to support increased operating needs
and finance continued growth in the foreseeable future.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1* Distribution agreements dated June 23, 1997 between
the company and Dialogic Corporation.
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter covered by this report.
* Confidential treatment has been requested for a portion of this exhibit.
12
<PAGE> 13
SIGNATURES
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.
VOICE CONTROL SYSTEMS, INC.
Dated: August 13, 1997 By: /s/ Peter J. Foster
-------------------
Peter J. Foster
Chief Executive Officer and President
/s/ Kim S. Terry
--------------------
Kim S. Terry
Principal Financial and Accounting Officer
13
<PAGE> 14
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1* Distribution agreement dated June 23, 1997 between
the company and Dialogic Corporation.
27 Financial Data Schedule
</TABLE>
* Confidential treatment has been requested for a portion of this exhibit.
<PAGE> 1
Exhibit 10.1
DISTRIBUTION AGREEMENT
This Distribution Agreement is made this 23rd day of June, 1997 by and
between Dialogic Corporation, a New Jersey corporation, with headquarters at
1515 Route 10, Parsippany, New Jersey 07054 ("Dialogic"), and Voice Control
Systems, Inc., a Delaware corporation, with headquarters at 14140 Midway Road,
Suite 100, Dallas, Texas 75244 ("VCS").
BACKGROUND INFORMATION
Dialogic is a manufacturer of voice processing components. One of
Dialogic's products lines is based on its SCSA architecture; the speech
recognition platform that is available in the SCSA architecture is known as
Antares. VCS has developed speech recognition technology that is available with
a variety of capabilities. Dialogic has licensed certain speech recognition
capabilities from VCS under a License Agreement dated June 8, 1990, that has
subsequently been amended several times. VCS provides support to Dialogic for
the Basic Technology it has licensed under a Support Agreement dated September
20, 1991, as subsequently amended. In addition to the Basic Technology that
Dialogic has licensed, VCS has certain Enhanced Technologies available that
provide capabilities such as High-Density Continuous, Speaker-Dependent,
Speaker Verification, PowerBundle, Discrete Word Spotting, and Alphanumeric.
VCS continues to develop new Enhanced Technologies such as Password
Verification. Dialogic currently sells Antares products with VCS' Basic
Technology, and Dialogic wishes to offer Enhanced Technologies to its customers
who are then purchasing or have already purchased Antares products with Basic
Technology ("Customers"). VCS is willing to permit Dialogic to do so on the
terms and conditions of this Agreement.
Accordingly, in consideration of the above and the mutual agreements below, and
using certain terms herein in accordance with the definitions attributed to
them in Addendum I attached hereto and incorporated herein by reference,
Dialogic and VCS agree as follows:
SUBSTANTIVE PROVISIONS
1. Appointment. VCS hereby appoints Dialogic as its non-exclusive
distributor of licenses for Enhanced Technologies for use on Dialogic's Antares
products and Dialogic accepts the appointment. Dialogic will offer and actively
promote VCS' Enhanced Technologies to Antares Customers. In order to induce
Antares Customers to order VCS' Enhanced Technologies, Dialogic agrees to
credit * ports towards a Customer's VPA contract for each port of VCS' Enhanced
Technologies that the Customer licenses from Dialogic.
2. Configuration. Dialogic will offer Enhanced Technologies in fixed board
configurations based on the maximum DSP loads of each technology. The
preliminary list of configurations is set forth in Exhibit B attached hereto
and incorporated herein by reference; Dialogic has developed or will develop
Dongles and VCS will develop software packages of the Enhanced Technologies in
these
* Confidential treatment requested.
<PAGE> 2
configurations in each operating system that the companies mutually agree
provide the best business opportunity. Each software package will include the
appropriate Enhanced Technologies, release notes, a license, an instruction
letter in the form of Exhibit A attached hereto and incorporated herein by
reference and any other software required to run the Enhanced Technologies on
the Antares platform. The package will be sealed with appropriate instructions
regarding the order in which to open envelopes within the package. The
configuration list will be expandable, and VCS and Dialogic agree to work
together to determine the appropriate number and configuration of product
offerings. As configurations are added to the list by mutual agreement of the
parties (which shall be evidenced by initializing amendments to Exhibit A),
Dialogic will develop Dongles for them. Additions to the configuration list
require at least two to three weeks lead time. If a Customer has an immediate
need for a non-standard configuration, Dialogic will provide non-production
Dongles and VCS will provide an appropriate software package software for
Enhanced Technologies the Customer has ordered for shipment to the Customer.
The configuration represented in the non-production Dongles will be added to
the configuration list after shipment, and Dialogic will develop a production
Dongle for that configuration. The Customer who received a non-production
Dongle will be required to exchange it for the production Dongle when it is
available.
2.1 Enhanced API Features In Basic Packages. VCS desires to maintain a
single code base and include its Enhanced Technology API functions in the Basic
Technology software packages tested and shipped by Dialogic, but Dialogic is
concerned that problems encountered with these elements of the Enhanced
Technology API functions could cause Dialogic to re-test and re-release Basic
Technology software packages that would have otherwise have required no action.
Therefore, the parties will limit the number of Basic Technology software
package re-tests and re-releases to one per quarter per operating system, which
may be exceeded if both parties agree it is in their mutual best interest or if
a problem is encountered in elements of the Basic Technology software package.
3. Order Fulfillment and Payment. Dialogic will purchase software
packages for each configuration from VCS at a price of * per package. Upon
accepting a purchase order for VCS Enhanced Technologies, Dialogic will deliver
the Dongle and software package that the Customer requires to implement the
Enhanced Technologies he has ordered. Dialogic will bill the Customer for the
Enhanced Technologies and collect its charges. Dialogic shall pay VCS for each
Enhanced Technology software package sold according to the price schedule shown
in Exhibit C attached hereto and incorporated herein by reference. Payments
will be due quarterly by the 15th day of April, July, October, and January for
Enhanced Technologies software packages sold during the preceding calendar
quarter, as evidenced by either shipment of the software package or invoicing.
Dialogic will also provide Enhanced Technologies sales reports on a monthly
basis, by including Enhanced Technology sales information in the reports
currently prepared and delivered for Basic Technology sales. Each monthly
report will furnish VCS the name of each customer who purchased an Enhanced
Technology during the month, its VPA level, a summary of the Dongles and
software packages purchased, and any other information reasonably requested by
VCS. With respect to any amount owed to VCS that is not paid by the due date,
VCS shall have the right to require that Dialogic pay VCS interest from the due
date to date of payment at the rate of one and one-half (1-1/2%) percent per
month on the unpaid balance (or such lower rate as may be the
* Confidential treatment requested.
<PAGE> 3
maximum allowable by law), together with VCS' costs of collection (including
reasonable attorney's fees).
3.1 Upgrades. Customers using existing Basic Technologies and wishing
to upgrade to an Enhanced Technology product will be required to order and
license the appropriate Enhanced Technology Dongle and software package. Upon
receiving the Enhanced Technology Dongle, the Customer will return the Basic
Technology Dongle to Dialogic and receive full credit for the Basic Technology
license. No other credits will be allowed for open packages of software.
4. Audit Rights. Dialogic hereby grants to VCS' duly accredited
representative, who shall be a certified public accountant, the right to
periodically inspect and make copies of Dialogic's books of accounts and
records pertaining to shipment of Dongles and Enhanced Technologies during
ordinary business hours, only for the purpose of (a) verifying payments made
under this Agreement, and/or (b) to obtain information as to payments due and
payable. Such inspections shall be made no more often than annually and only
upon five days prior written notice to Dialogic. The cost of such inspection
will be borne by VCS, except if upon examination it is agreed that VCS has been
underpaid by 5% or more by Dialogic, then such payment and all reasonable costs
associated with the examination shall be paid by Dialogic within ten (10) days
following such agreement.
5. Modification. VCS may modify the vocabulary or other elements of the
Enhanced Technologies software, including, without limitation, modifying a
PowerBundle by adding words to the basic vocabulary to meet a Customer's
requirements, but VCS will not add ports, modify the configuration or change
the basic functionality.
6. Warranty. VCS warrants that the diskette on which Enhanced
Technologies are furnished to the Customer shall be free from defects in
materials and workmanship under normal use for a period of 90 days from the
date of delivery to the Customer. If such a defect appears within the warranty
period, the Customer may return the defective diskette to VCS for replacement
without charge. Replacement is the Customer's sole remedy with respect to such
a defect.
7. Support. Dialogic will provide support for Customers for problems
incurred during downloading and running the Antares demonstration program
(a.k.a. Rec-Play demo). Customers purchasing Enhanced Technologies will be
automatically shipped the Basic Technology package by Dialogic in addition to
the Enhanced Technology software. Customers will be instructed to install,
configure and run the Basic Technology demonstration programs first. Customers
will be instructed to contact Dialogic directly if any problems are encountered
to this point. If the Basic Technology has been installed and run to the
Customer's satisfaction, they will then be instructed to install and configure
the Enhanced Technology software. From this point forward, all support calls
will be directed to VCS. Customers using a mixture of Basic and Enhanced
Technologies in the same system will receive all support for both Basic and
Enhanced technologies directly from VCS after initial basic installation as
described here.
8. Additional VCS Charges. VCS may charge Customers who acquire Enhanced
Technologies engineering fees and support fees for services rendered to them.
VCS will provide the appropriate Dialogic Account Manager with the details of
such arrangement including the
* Confidential treatment requested.
<PAGE> 4
anticipated charges. Such charges will be negotiated by VCS and paid directly
by the Customer to VCS.
9. Term. This Agreement shall become effective on the date hereof and
unless sooner terminated extend for a period of one year; this Agreement will
be renewed from year to year thereafter unless terminated by either party by
giving written notice of non-renewal at least 30 days prior to the end of the
then-current term.
10. Termination. This Agreement may be terminated as follows:
10.1 If either party fails to fulfill any material obligations or
conditions hereof, or commits any other breach or is in default in any other
way with regard to any of the provisions of this Agreement, and such failure,
breach, or default is not cured within thirty (30) days of written notice to
the defaulting party by the other party specifying the nature of the default,
the aggrieved party will have the right to terminate this Agreement by giving
written notice of termination to the defaulting party, whereupon this Agreement
shall automatically terminate on the 30th day after such termination notice is
given. Either party will have the right to cure any such default up to but not
after receiving notice of termination.
10.2 In the event that under the laws of the United States either
party files for bankruptcy or is deemed insolvent or is obliged to cease to
trade or to wind-up its affairs and go into liquidation, or should it seek
protection from its creditors or a rearrangement of its obligations by legal
process, or otherwise, or a committee of creditors be appointed, or any similar
proceedings be had or commenced pursuant to the laws of any jurisdiction or
otherwise, the other party shall be entitled to give written notice terminating
this Agreement forthwith without prejudice to any rights of either Licensee or
VCS which may have accrued hereunder at or as of the date of such termination.
10.3 If Dialogic's annual payments to VCS under all agreements between
them, including, without limitation, this Agreement, any license agreement or
any support agreement do not exceed * in any calendar year, VCS shall have the
right to terminate this Agreement by giving written notice to Dialogic.
Termination of this Agreement for any cause shall not be construed as
a waiver in respect of either party of any of its rights, claims (including
claims for damages) or obligations that have accrued up to and including the
date of termination, including Dialogic's obligation to pay any sums accrued to
VCS.
11. Patent Warranty and Indemnity. VCS represents and warrants that it
has the right to grant licenses to Customers regarding use of its Enhanced
Technologies. VCS and Dialogic will cooperate to assure that all requisite
patent, trademark and copyright notices are provided. VCS shall indemnify and
hold Dialogic and Customers harmless against any and all costs, claims,
damages, expenses, losses and demands (including legal expenses) incurred by or
against Dialogic or a Customer as a result of or in connection with any claim
made or alleged that an Enhanced Technology infringes any United States or
European Union patent, copyright, trade secret, trademark or other intellectual
property rights of any third party, conditioned on the following:
* Confidential treatment requested.
<PAGE> 5
(A) That VCS shall be notified promptly in writing by Dialogic of any
notice of such claims; and
(B) That VCS shall have the sole control of the defense of any action
on such claim and all negotiations for its settlement or compromise.
Should an Enhanced Technology be held, or in VCS' opinion be likely to
be held, to infringe such intellectual property rights, VCS shall, at its
expense, (i) procure for Customers the right to continue using the Enhanced
Technology, (ii) replace or modify the same so that it becomes noninfringing
but still performs substantially the same functions that the Enhanced
Technology performed prior to replacement or modification, or (iii) withdraw
the Enhanced Technology and refund to Customer the amortized charge for the
Enhanced Technology paid to VCS by Dialogic as herein provided, as amortized
ratably over sixty months.
Notwithstanding the foregoing, VCS shall have no liability to Dialogic
or its Customers with respect to any claim of patent infringement which is
based upon a claim that an application in which an Enhanced Technology is used
violates the intellectual property rights of another person or entity.
12. Training. VCS will provide training to Dialogic's sales force to
assist in selling Enhanced Technologies.
13. Exclusivity. VCS will generally refer Antares Customers desiring
Enhanced Technologies to Dialogic and endeavor to persuade Antares Customers to
order Enhanced Technologies from Dialogic; however, this Agreement is
non-exclusive and VCS is permitted to market its Enhanced Technologies to
Antares Customers where business reasons indicate such action is appropriate.
14. Headings. Headings used in this Agreement are to facilitate reference
only, do not form a part of this Agreement, and shall not in any way affect the
interpretation hereof.
15. Assignability. This Agreement, and all rights and obligations
hereunder, are personal as to the parties hereto and may not be assigned, in
whole or in apart, by any of the parties to any other person, firm or
corporation without the prior written consent thereto by the other party
hereto, which consent shall not be unreasonably withheld; except that either
party may freely assign any or all of its rights and obligations hereunder to
any Affiliate. An Affiliate assignee will thereupon be free to assign the
rights and obligations under this Agreement to any other Affiliate. Any
assignment contrary to the terms hereof shall be null and void and of no force
or effect.
16. No Waiver. No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof. Nor shall any single or partial exercise of any right or remedy
hereunder exclude any other or further exercise thereof or the exercise of any
other right hereunder.
17. Entire Agreement. This Agreement and all schedules and exhibits
annexed hereto constitute the entire agreement among the parties respecting the
subject matter hereof and supersedes all prior
* Confidential treatment requested.
<PAGE> 6
agreements among the parties relative to the subject matter hereof. In entering
this Agreement, Dialogic did not rely on any representations or warranties of
VCS or its employees or agents other than those set forth in this Agreement.
This Agreement may not be modified or amended except by a writing that states
that it is an amendment to this Agreement and that is signed by duly authorized
representative of the parties. In the event of any conflict between the terms
of this Agreement and any purchase orders, acknowledgments, submissions,
correspondence, memoranda, listing sheets or any other documents, the terms of
this Agreement, as amended from time to time, will govern and prevail.
18. Notices. All notices required or permitted to be given hereunder shall
be in writing and will be valid and sufficient if dispatched either (i) by hand
delivery, (ii) by telex, cable or facsimile transceiver, with confirming letter
mailed promptly thereafter in accordance with clause (iv) hereof, (iii) by
reputable overnight express courier or (iv) by certified mail, postage prepaid,
return receipt requested, deposited in any post office in the United States, in
any case, addressed to the addresses set forth on the first page of this
Agreement, or such other addresses as may be provided from time to time in the
manner set forth above. When sent by cable or facsimile as aforesaid, notices
given as herein provided will be considered to have been received when sent
during normal business hours; otherwise, notices will be considered to have
been received only upon delivery or attempted delivery during normal business
hours.
19. Partial Invalidity. If any clause or provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Agreement, then and in that event, it is the
intention of the parties hereto that the remainder of this Agreement shall not
be affected thereby, and it is also the intention of the parties to this
Agreement that in lieu of each clause or provision of this Agreement that is
held to be illegal, invalid, or unenforceable, there be added as a part of this
Agreement a clause or provision as similar in terms to such illegal, invalid,
or unenforceable clause or provision as may be possible and still be legal,
valid, and enforceable.
20. Costs and Attorneys' Fees. The prevailing party in any litigation,
arbitration or other proceedings arising out of this Agreement shall be
reimbursed by the other party for all costs and expenses incurred in such
proceedings, including reasonable attorneys' fees.
21. Force Majeure. No party hereto shall be liable for delay or default in
performing hereunder, other than a delay or default in payment of any monies
due to the other party, if such performance is delayed or prevented by a Force
Majeure Condition. If a Force Majeure Condition occurs, the party delayed or
unable to perform shall give prompt notice of such occurrence to the other
party. The party affected by the other party's inability to perform may, after
sixty (60) days, elect to either terminate this Agreement or continue
performance with the option of extending the terms of the Agreement up to the
length of time the Force Majeure Condition endures. The party experiencing the
Force Majeure Condition must inform the other party in writing when such a
condition ceases to exist.
22. Confidentiality. Each party covenants and agrees that at all times
hereafter it will keep secret all information communicated to it which has been
designated as confidential or proprietary, and that it will not divulge the
same to any person, firm, or corporation or use it for its benefit or for
* Confidential treatment requested.
<PAGE> 7
the benefit of others without the prior written consent of the other party.
This obligation shall apply only if in the case of written communication, the
document has been conspicuously labeled as "confidential" or "proprietary" and
in the event of an oral communication, the information has been identified as
confidential or proprietary at the time of disclosure and a written summary of
the confidential or proprietary information, conspicuously marked as such, has
been prepared by the disclosing party and sent to the receiving party within 30
days of the disclosure. The recipient shall take reasonable steps to safeguard
such confidential information, using at a minimum the same degree of care that
the recipient uses to protect its own similar categories of confidential and
proprietary information. The provisions of this Article shall not apply to:
(A) Information that at the time of receipt can be shown by reasonable
evidence to be in the public domain;
(B) Information that can be shown by reasonable evidence to have been
legally in possession of the party receiving such information prior to
the time of it being received from the other party; or
(C) Information that can be shown by reasonable evidence to have
legally become part of the public domain, other than by acts or
omissions of the party receiving such information.
For the purpose of sub-paragraphs (A) and (C) of this section,
information shall not be considered to be in the public domain merely because a
more generalized disclosure of information, which does not specify the details
of the information received, is in the public domain.
If any party is required to disclose information to a third party
pursuant to a lawfully issued subpoena or other formal demand for the
production of information by a court of competent jurisdiction or a regulatory
body with jurisdiction over the party, the party ordered to produce such
information shall promptly notify the other party and shall use its best
efforts to maintain the confidentiality of such information. In addition, if
either party determines that this Agreement is a "material contract," that
party may file this Agreement with the Securities and Exchange Commission,
provided that it notifies the other party at least fifteen (15) days prior to
such filing and cooperates with the other party to seek confidential treatment
of provisions reasonably designated by the other party for such treatment. Each
party may use confidential information obtained solely as a result of this
Agreement only for the purpose of performing hereunder. Neither party may use
the other party's confidential information for any other purpose without the
express written agreement of the owner.
The parties will cooperate in taking steps to protect the confidential
information, including software, from copying by others, including Customers.
VOICE CONTROL SYSTEMS, INC. DIALOGIC CORPORATION
By: /s/ Kim S. Terry By: /s/ A. Jeff Hill
-------------------------- -----------------------------
Its: V.P. Finance Its: Senior Product Manager
* Confidential treatment requested.
<PAGE> 8
ADDENDUM I
"Affiliate" means (a) an entity that owns all or substantially all of the
outstanding stock or other indicia of ownership of a party to this Agreement,
(b) an entity all or substantially all of whose stock or other indicia of
ownership is owned by a party to this Agreement, or (c) an entity under common
ownership with a party to this Agreement.
"Alphanumeric" means the ability to recognize letters of the alphabet in
addition to the basic vocabulary available in the Basic Technology.
"Antares Customer" means a customer who has purchased an Antares board with
Basic Technology.
"Basic Technology" means the technology licensed by VCS to Dialogic under that
certain License Agreement dated June 8, 1990, as amended.
"Customer" means an Antares Customer who has ordered an Enhanced Technology.
"Digit verification" means the ability to authenticate a speaker of a
prerecorded digit string.
"Dongle" means a piece of equipment that enables an Antares board to accept a
configuration of Enhanced Technologies.
"Enhanced Technology" means any speech recognition product VCS currently makes,
or in the future will make, available to customers who have Basic Technology to
provide additional capabilities such as PowerBundle, speaker-dependent, word
spotting, alpha-numeric, digit verification, and high density continuous.
"Force Majeure Condition" shall mean any condition or event beyond the control
of the party affected thereby, including, but not limited to, fire, explosion,
or other casualty, act of God, war or civil disturbance, acts of public
enemies, embargo, the performance or non-performance of third parties, acts of
city, state, local or federal governments in their sovereign, regulatory, or
contractual capacity, labor difficulties, and strikes.
"High Density Continuous" means an ability to provide continuous digit speech
recognition on 8 channels for each Texas Instruments C-31 50Mz digital signal
processor.
Speaker Dependent" means technology that permits the user to train the
recognizer to respond in a user-programmed manner to inputs that he chooses,
the vocabulary being dependent on the inputs the user selects.
"Discrete Word Spotting" means high rejection, speaker-independent vocabulary
supporting recognition of a single key word spoken in isolation.
Addendum 1 - Page 1 of 2
<PAGE> 9
"PowerBundle" means a bundled software package available only for terrestrial
telecommunications applications suitable for use in voice dialing consisting of
continuous speaker independent and speaker dependent speech recognition.
Addendum 1 - Page 2 of 2
<PAGE> 10
EXHIBIT A
SUPPORT LETTER
Dear VCS Enhanced Technology Customer:
Thank you for purchasing VCS Enhanced Technologies on the Antares
Platform. We greatly appreciate your business and request that you review this
brief letter before continuing. To provide the most efficient support structure
for this product, VCS and Dialogic have developed a special support scheme for
their customers. To quickly contact the appropriate technical support
specialist assigned to your product, please perform the following:
1) Make sure that you have received two software packages with this
shipment:
a. The Dialogic Antares Developers Base Package.
b. The VCS Enhanced Technology software contained in
the VCS-labeled brown package.
If you have not received both of these packages, please contact your Dialogic
Account Manager at 1-800-781-1079.
2) Before installing any software, please read the Getting Started With a
Technology on Antares booklet provided in package a above (booklet
part numbers by operating system: MS-DOS, 05-0599-001; UNIX,
05-0600-002; OS/2, 05-0601-002; WinNT, 05-0687-001). Having read this
document, please proceed as follows:
a. Configure your Dialogic system,
b. Install the System Release and Antares host software,
c. Run the Antares Record/Play demo (as described in the
"Troubleshooting" section of the Getting Started With
a Technology on Antares booklet).
If any difficulty is encountered while performing these steps, please contact
Dialogic Customer Engineering at 1-201-993-1443.
3) If no problems are encountered during the installation and set-up of
the Dialogic boards or software, and the Antares Record/Play demo
operates properly, proceed to install the software in the VCS package
according to the installation instructions in the VCS Enhanced
Technology release notes. If any difficulty is encountered at this
point, please contact VCS' Technical Support Group directly at (972)
386-0300.
Since we have developed this support program to expedite our
customers' integration of advanced technologies into their applications, we
trust that this improved access to the appropriate system experts will reduce
your development cycle time and further enable your
Exhibit A - Page 1 of 2
<PAGE> 11
market success. Thank you again for choosing Dialogic and VCS, and we look
forward to our continued relationship.
Exhibit A - Page 2 of 2
<PAGE> 12
EXHIBIT B
PRELIMINARY LIST OF CONFIGURATIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------
DIALOGIC VCS ENHANCED NUMBER OF
PART NUMBER TECHNOLOGY CHANNELS
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------
26-0145-002 PowerBundle 2
--------------------------------------------------------------
26-0146-002 PowerBundle 4
--------------------------------------------------------------
26-0147-002 PowerBundle 6
--------------------------------------------------------------
26-0148-002 PowerBundle 8
--------------------------------------------------------------
26-0184-001 Digit Verification* 8
--------------------------------------------------------------
26-0185-001 Digit Verification* 16
--------------------------------------------------------------
26-0186-001 Digit Verification* 24
--------------------------------------------------------------
26-0187-001 Digit Verification* 32
--------------------------------------------------------------
26-0188-001 Alphanumeric 8
--------------------------------------------------------------
26-0189-001 Alphanumeric 16
--------------------------------------------------------------
26-0190-001 Alphanumeric 24
--------------------------------------------------------------
26-0191-001 Alphanumeric 32
--------------------------------------------------------------
26-0192-001 Continuous w/cut-thru 4
--------------------------------------------------------------
Alphanumeric 16
--------------------------------------------------------------
26-0193-001 Discrete w/cut-thru 8
--------------------------------------------------------------
Alphanumeric 16
--------------------------------------------------------------
26-0194-001 Discrete 16
--------------------------------------------------------------
Alphanumeric 16
--------------------------------------------------------------
26-0195-001 Discrete w/cut-thru 4
--------------------------------------------------------------
Continuous w/cut-thru 4
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
26-0196-001 Discrete 8
--------------------------------------------------------------
Continuous w/cut-thru 4
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
26-0197-001 Discrete w/cut-thru 4
--------------------------------------------------------------
Continuous w/cut-thru 2
--------------------------------------------------------------
</TABLE>
Exhibit B - Page 1 of 2
<PAGE> 13
<TABLE>
<S> <C> <C>
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
26-0198-001 Discrete 8
--------------------------------------------------------------
Continuous w/cut-thru 2
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
26-0199-001 Continuous w/cut-thru 2
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
26-0200-001 Discrete w/cut-thru 4
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
26-0201-001 Discrete 8
--------------------------------------------------------------
Alphanumeric 8
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
* When available, current availability expected in 4th quarter
1997.
Exhibit B - Page 2 of 2
<PAGE> 14
EXHIBIT C
Dialogic will pay VCS the greater of (a) * of its charges for Enhanced
Technologies licensed to Customers in accordance with this Agreement or (b) the
amount determined from the following schedules:
For licenses to Customers who are not enrolled in a Dialogic VPA program, a
per-port amount based on the Enhanced Technology acquired:
<TABLE>
<S> <C>
Speaker Dependent *
Discrete Word Spotting *
Continuous HD *
Alphabet *
PowerBundle *
Digit Verification *
</TABLE>
For licenses to Customers who are enrolled in a Dialogic VPA program, a
per-port amount based on the Enhanced Technology acquired and the number of
ports of Dialogic products the Customer has committed to purchase from Dialogic
in the year as follows:
VPA LEVEL
<TABLE>
<CAPTION>
====================================================================================================================
400 1000 2000 4000 6000 8000 10,000 12,000 15,000
- ------------------------- --------- --------- ---------- --------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Speaker Dependent@ or * * * * * * * * *
Discrete Word Spotting@
- ------------------------- --------- --------- ---------- --------- -------- --------- --------- --------- ----------
Continuous HD+@ * * * * * * * * *
- ------------------------- --------- --------- ---------- --------- -------- --------- --------- --------- ----------
Alphabet * * * * * * * * *
- ------------------------- --------- --------- ---------- --------- -------- --------- --------- --------- ----------
PowerBundle# * * * * * * * * *
- ------------------------- --------- --------- ---------- --------- -------- --------- --------- --------- ----------
Digit Verification* * * * * * * * * *
====================================================================================================================
</TABLE>
@ requires custom development, business opportunity only
# available only to Customers who have acquired continuous Basic Technology
through Dialogic
* When available, currently expected availability 4th quarter 1997
+ requires engineering and support contract
For Enhanced Technologies developed after the date of this Agreement, such as
Password Verification, the parties will agree upon the minimum per port payment
schedule prior to Dialogic soliciting any orders for that Enhanced Technology.
The schedules are subject to change by VCS on 90 days prior written notice to
Dialogic, but not more than once annually and no increase shall exceed the
price that would result from cumulative annual increases of *.
* Confidential treatment requested.
Exhibit C - Page 1 of 1
<PAGE> 15
EXHIBIT C-1
Continuous HD Pricing (32 PORTS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6-24 25-99 100-249 250-499 400 1,000 2,000 4,000 6,000 8,000
Units Units Units Units Ports Ports Ports Ports Ports Ports
VCS Royalty * * * * * * * * * *
10,000 12,000 15,000 20,000 25,000 30,000 40,000 50,000
Ports Ports Ports Ports Ports Ports Ports Ports
VCS Royalty * * * * * * * *
ContinuousHD Pricing (16 PORTS)
6-24 25-99 100-249 250-499 400 1,000 2,000 4,000 6,000 8,000
Units Units Units Units Ports Ports Ports Ports Ports Ports
VCS Royalty * * * * * * * * * *
10,000 12,000 15,000 20,000 25,000 30,000 40,000 50,000
Ports Ports Ports Ports Ports Ports Ports Ports
VCS Royalty * * * * * * * *
</TABLE>
* Confidential treatment requested.
Exhibit C-1 - Page 1 of 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,342,770
<SECURITIES> 0
<RECEIVABLES> 3,964,859
<ALLOWANCES> 113,000
<INVENTORY> 530,149
<CURRENT-ASSETS> 18,991,399
<PP&E> 3,883,083
<DEPRECIATION> 2,466,428
<TOTAL-ASSETS> 20,563,880
<CURRENT-LIABILITIES> 2,093,954
<BONDS> 0
0
0
<COMMON> 111,275
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,563,880
<SALES> 4,262,181
<TOTAL-REVENUES> 4,262,181
<CGS> 1,045,178
<TOTAL-COSTS> 1,045,178
<OTHER-EXPENSES> 2,854,489
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 362,513
<INCOME-TAX> 7,250
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355,263
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
