<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
__________to __________
Commission File No. 1-4766
----------
GATEWAY ENERGY CORPORATION
------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 44-0651207
- ------------------------------ ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
500 Dallas Street, Suite 2615
Houston, TX 77002
(Address of principal executive offices)
Issuer's telephone number: (713) 336-0844
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
As of July 12, 1999, the Issuer had 15,242,494 shares of its common
stock outstanding.
Transitional Small Business Disclosure Format: Yes No X
---- ----
<PAGE>
FORM 10-QSB
PART I
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
Page
<S> <C> <C>
Unaudited Consolidated Balance Sheet
as of May 31, 1999. 3
Unaudited Consolidated Statements of Operations for
the three months ended May 31, 1999
and May 31, 1998. 4
Unaudited Consolidated Statements of Cash Flows for
the three months ended May 31, 1999
and May 31, 1998. 5
Notes to Consolidated Financial Statements 6
</TABLE>
2
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents................................................ $ 148,285
Certificates of deposit.................................................. 939,576
Trade accounts receivable................................................ 733,834
Notes receivable, current portion ....................................... 68,565
Inventories ............................................................. 77,868
Prepaid expenses and other assets ....................................... 122,780
-------------
Total current assets................................................ 2,090,908
-------------
PROPERTY AND EQUIPMENT-AT COST
Gas gathering, processing and transportation............................. 9,854,450
Equipment and office furniture........................................... 722,085
-------------
10,576,535
Less accumulated depreciation............................................ (2,675,304)
-------------
7,901,231
-------------
OTHER ASSETS
Notes receivable, less current portion................................... 294,833
Equity investment in partnership......................................... 303,679
Other.................................................................... 356,967
-------------
955,479
-------------
$ 10,947,618
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................................................... $ 689,605
Accrued expenses and other liabilities................................... 104,348
Current maturities of long-term debt..................................... 116,368
-------------
Total current liabilities........................................... 910,321
-------------
LONG-TERM DEBT, LESS CURRENT MATURITIES..................................... 1,047,964
-------------
STOCKHOLDERS' EQUITY
Common stock- $0.25 par value; 17,500,000 shares
Authorized; 15,242,494 shares issued and outstanding...................... 3,810,624
Additional paid-in capital............................................... 15,963,859
Accumulated deficit...................................................... (10,785,150)
-------------
8,989,333
-------------
$ 10,947,618
-------------
-------------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating revenues
Natural gas sales............................................. $ 1,042,305 $ 1,364,300
Transportation and processing................................. 324,706 167,200
Other......................................................... 52,183 4,430
------------ ------------
1,419,194 1,535,930
Operating costs and expenses
Cost of natural gas purchased................................. 830,962 1,093,900
Operation and maintenance..................................... 285,962 274,100
Depreciation and amortization................................. 147,258 177,800
General and administrative.................................... 557,452 535,100
------------ ------------
1,821,634 2,080,900
------------ ------------
Operating loss................................................... (402,440) (544,970)
Other income (expense)
Interest income............................................... 20,820 79,600
Interest expense.............................................. (39,127) (112,800)
Equity in earnings of partnership............................. 20,072 22,570
Other income (expense), net................................... 5,620 -
------------ ------------
7,385 (10,630)
------------ ------------
Loss before income taxes......................................... (395,055) (555,600)
Income taxes..................................................... 112 1,000
------------ ------------
Net loss......................................................... $ (395,167) $ (556,600)
------------ ------------
------------ ------------
Basic and diluted loss per share................................. $ (0.03) $ (0.04)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities
Net loss................................................................ $ (395,167) $ (556,600)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Equity in undistributed earnings of partnerships..................... (13,683) (1,040)
Depreciation, depletion and amortization............................. 147,258 177,800
Non-cash expenses, net............................................... 6,918 54,000
Other................................................................ 3,455 (8,060)
Net change in cash and cash
equivalents, resulting from changes in:
Trade accounts receivable......................................... 106,696 4,100
Inventories....................................................... 444 2,400
Prepaid expenses and other current assets......................... 38,014 69,100
Accounts payable.................................................. 127,226 52,900
Accrued expenses and other liabilities............................ (23,888) (41,200)
----------- -----------
Net cash used in operating activities........................ (2,727) (246,600)
----------- -----------
Cash flows from investing activities
Capital expenditures................................................. (51,792) (305,000)
Collections of notes receivable...................................... 22,067 558,800
(Increase) decrease in certificate of deposit........................ (11,376) 1,379,900
Other................................................................ - 15,300
----------- -----------
Net cash from (used in) investing activities................. (41,101) 1,649,000
----------- -----------
Cash flows from financing activities
Proceeds from borrowings............................................. - 120,000
Payments on borrowings............................................... (31,580) (1,036,500)
----------- -----------
Net cash used in financing activities........................ (31,580) (916,500)
----------- -----------
Net change in cash and cash equivalents.............................. (75,408) 485,900
Cash and cash equivalents at beginning of period..................... 223,693 439,800
----------- -----------
Cash and cash equivalents at end of period........................... $ 148,285 $ 925,700
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Principles of Consolidation and Nature of Business
The consolidated financial statements include the accounts of Gateway
Energy Corporation and its wholly owned subsidiary companies, Gateway Pipeline
Company, Gateway Offshore Pipeline Company, Gateway Energy Marketing Company,
Fort Cobb Fuel Authority, L.L.C. and Gateway Processing Company, plus a small
amount of activity in its two remaining joint ventures and one partnership.
Based on its ownership, the Company proportionally consolidates its joint
venture interests, and accounts for its partnership interest on the equity
method. All significant intercompany transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared
by the Company, without audit. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
financial position and results of operations in accordance with generally
accepted accounting principles. The financial statements should be read in
conjunction with the financial statements and the Notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended February 28, 1999.
Certain minor reclassifications to the prior period statements have been made to
conform with the May 31, 1999 presentation.
The Company owns and operates natural gas gathering, transportation and
distribution systems and related facilities in Texas, Oklahoma and Louisiana,
and offshore in state and federal waters of the Gulf of Mexico. The Company also
operates a natural gas distribution company in Oklahoma.
(2) Earnings Per Share
Basic earnings per share is computed by dividing net earnings or loss
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net earnings or loss by the
weighted average number of shares outstanding, after giving effect to
potentially dilutive common share equivalents outstanding during the period.
Potentially dilutive common share equivalents are not included in the
computation of diluted earnings per share if they are anti-dilutive. For the
three-month periods ended May 31, 1999 and 1998, the diluted loss per common
share is the same as basic since the effect of potentially dilutive common
shares arising from convertible debt and outstanding stock options and warrants
was anti-dilutive.
The weighted average number of common shares outstanding used in the
computation of basic and diluted earnings per share for the three-month periods
ended May 31, 1999 and 1998 were 15,242,494 and 14,454,700, respectively.
(3) Notes Payable
The Company had no outstanding current notes payable as of May 31,
1999, but had borrowing capacity available under its operating line of credit.
The line of credit provides for maximum borrowings of $500,000 through February
2000. Interest is payable monthly at 6.4% per
6
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
annum and principal is due on demand, or if no demand is made, at maturity. The
line is collateralized by the Company's certificate of deposit.
(4) Commitments and Contingencies
In the Company's Form 10-KSB for the fiscal year ended February 28,
1999, it reported a jury verdict rendered against it in an action
entitled STANLEY ROSENTHAL V. SHOREHAM PIPELINE CO., ET AL. On May 20,
1999, the jury in the action awarded actual damages to Mr. Rosenthal in
the amount of $1,656,072 and exemplary damages and damages under the
Texas Deceptive Trade Practices Act which when tripled represent
$1,500,000 against each of Shoreham Pipeline Company and the Company.
A final order has not yet been entered by the Court, although it
appears that the non-compensatory damage portion of the judgement will
be reduced from $1,500,000 to $750,000. The Company intends to file a
motion for new trial. If that motion is denied, then a notice of appeal
will be filed following entry of the final order. The Company and
counsel believe that the Company has significant grounds for appeal and
should ultimately prevail.
(5) Long-term Debt
Long-term debt at May 31, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Subordinated notes $ 1,040,202
Note payable to PCI 124,130
------------
1,164,332
Less current maturities 116,368
------------
$1,047,964
------------
------------
(6) Supplemental Disclosures of Cash Flow Information
Cash paid during the periods is as follows:
Three Months Ended May 31,
--------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Interest $ 32,926 $ 48,400
Income taxes 2,955 12,400
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following management's discussion and analysis contains trend
analysis and other forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements throughout this document as a
result of the risk factors set forth below in the section entitled FACTORS
AFFECTING FUTURE RESULTS and elsewhere in this document.
RESULTS OF OPERATIONS
GENERAL
The Company evaluates each of its activities based on the operating
margin it produces. The Company defines operating margin as revenues, less the
cost of purchased gas and operating and maintenance expenses. Management reviews
and evaluates the operations of three main segments--onshore operations,
offshore operations and Fort Cobb operations.
THREE MONTHS ENDED MAY 31, 1999 COMPARED TO MAY 31, 1998
TOTAL OPERATIONS
The following table sets forth information for the three months ended
May 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Revenues...................................... $ 1,419,194 $ 1,535,930
Operating margins............................. 302,270 167,930
Depreciation.................................. 147,258 177,800
Operating margins for the three months ended May 31, 1999 increased
$134,000 compared to the same period of the prior year. In fiscal 2000 the
Company continues to focus on enhancing the profitability of its existing
systems by reviewing and renegotiating marketing contracts, when appropriate,
and controlling operating and maintenance costs through internal, rather than
third-party, management. Onshore and Offshore Operations margins increased
$135,000 and $54,000, respectively, partially offset by a decrease in Fort Cobb
margins of $55,000. These segments are discussed individually below in greater
detail. The change in depreciation is due primarily to a reevaluation and
extension of the useful lives of some of the Company's pipeline assets.
ONSHORE OPERATIONS
The following table sets forth information for the three months ended
May 31, 1999 and 1998:
1999 1998
--------------- --------------
<S> <C> <C>
Revenues...................................... $ 1,149,575 $ 1,293,828
Operating margins............................. 328,690 193,718
Depreciation.................................. 85,917 107,610
</TABLE>
8
<PAGE>
Operating margins for onshore operations increased in the first quarter
of the fiscal year by $135,000 over the same period of the prior year. The main
increases were due to new throughput volumes on the Company's Leleux system in
Louisiana, and operations enhancements on the Waxahachie system in Texas,
partially offset by the impact of throughput declines on several systems.
OFFSHORE OPERATIONS
The following table sets forth information for the three months ended
May 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Revenues........................................ $ 120,925 $ 46,109
Operating margins............................... 28,908 (24,886)
Depreciation.................................... 21,252 29,621
Operating margins for offshore operations increased in the first
quarter of the fiscal year by $54,000 over the same period of the prior year,
and are directly related to throughput volumes. The Company is actively
evaluating several opportunities offshore in the Gulf of Mexico.
FORT COBB OPERATIONS
The following table sets forth information for the three months ended
May 31, 1999 and 1998:
1999 1998
------------- --------------
<S> <C> <C>
Revenues........................................ $ 148,694 $ 195,993
Operating margins............................... (55,328) (902)
Depreciation.................................... 40,089 40,569
Operating margins for Fort Cobb operations decreased in the first
quarter of the fiscal year by $54,000 over the same period of the prior year
primarily due to declines in volumes delivered to local farmers for crop
irrigation fuel.
OPERATIONS SUPPORT
The following table sets forth information for the three months ended
May 31, 1999 and 1998:
1999 1998
------------- --------------
<S> <C> <C>
General and administrative...................... $ 557,452 $ 535,100
Interest income................................. 20,820 79,600
Interest expense................................ (39,127) (112,800)
Other income (expense).......................... 5,620 -
</TABLE>
General and administrative expenses for the three months ended May 31,
1999 and 1998 are both higher than normal due, respectively, to the legal costs
associated with the Rosenthal litigation and the settlement of issues with
Shoreham Pipeline Company, the Company's former joint venture partner. The
increase in general and administrative expense between the two periods reflects
9
<PAGE>
additional employee costs, plus consulting expense incurred to review and
evaluate potential opportunities available to the Company.
Interest income varies directly with the balance on deposit in the
Company's certificate of deposit and short-term money market accounts.
Interest expense for the prior period included $53,000 of debt
conversion costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities totaled $2,727 for the three
months ended May 31, 1999, compared to $246,600 for the same period last year.
The improvement is directly attributable to the increase in operating margins
between the two periods which is discussed by segment in the preceding section.
The Company has cash and cash equivalents and certificates of deposit
totaling $1,087,861 at May 31, 1999. Additionally, the Company has in place an
operating line of credit with a bank for maximum borrowings of up to $500,000,
with no balance outstanding as of May 31, 1999. The Company's long-term debt to
total capitalization ratio was approximately 10%, which should provide
opportunity for the Company to utilize conventional long-term financing to fund
acquisition or construction projects.
Absent acquisitions or significant development projects, the Company
will continue to fund its operations through internally generated funds and
available cash and the certificates of deposit. The Company believes its cash
flows from operations and available cash and certificates of deposit will be
sufficient to fund its ongoing operations for the foreseeable future. Any
significant property acquisitions or development projects will require outside
project financing.
FACTORS AFFECTING FUTURE RESULTS
The Company's strategies for enhancing stockholder value include, among
other things: (i) focusing on gathering, processing, transporting and marketing
of natural gas; (ii) expanding the Company's asset base in core geographic
areas; (iii) developing a niche that will create demand for our services, and;
(iv) acquiring or constructing properties in one or more new core areas.
The Company must provide services to its customers, primarily
producers, at a competitive price. Therefore, in order to be successful the
Company must contain its costs in line with industry competitors. The Company's
access to reasonably priced long-term capital will have a significant effect on
its ability to acquire additional properties to increase operating margins
sufficiently to cover its fixed overhead costs. The Company believes that its
low debt, available cash reserves and experienced operating management will
allow the Company to access capital and find properties which can provide
attractive returns. However, there can be no assurance that the Company will be
successful in this endeavor.
The Company's ability to generate long-term value for the common
stockholder is dependent upon the enhancement of its core assets and the
successful acquisition of additional midstream assets. There are many companies
participating in the midstream segment of the natural gas industry,
10
<PAGE>
many with resources greater than the Company. Greater competition for
profitable operations can increase prices and make it more difficult to
acquire assets at reasonable multiples of cash flow.
The Company believes that it will be able to compete in this
environment and will be able to find attractive investments which compliment its
existing properties; however, it is not possible to predict competition or the
effect this will have on the Company's operations.
The Company's operations are also significantly affected by factors
which are outside the control of the Company. Gas gathering and processing is
dependent on throughput volume. Throughput on the Company's systems is
significantly dependent on natural gas production which is affected by natural
gas prices as prices affect the willingness of producers to invest the required
capital to obtain geological and geophysical information, drill development or
exploratory wells, and to rework or maximize production on existing wells.
Natural gas prices have recently stabilized at levels which should provide
adequate incentive to producers; however, there is no assurance that such prices
will remain at current levels, and that producers will continue to react
positively to the current prices.
The Company's revenues, particularly in its retail operations, are also
affected by weather. Much of the retail demand is for crop irrigation and
drying. Heavy precipitation in the growing season and hot, dry weather in the
fall can significantly reduce demand for natural gas in the Company's retail
service areas.
YEAR 2000 ISSUES
The Year 2000 issue refers to the inability of computers, software or
embedded microchips to reliably recognize, process and retain dates subsequent
to December 31, 1999. The Company is assessing its risks of business disruption
from the Year 2000 issue and has determined the following:
- The Company's systems are not now fully compliant, but are currently
being updated and will be made fully compliant before September 30,
1999.
- The costs to address remaining Year 2000 issues are nominal.
- The risk to the Company due to the lack of preparedness of its business
partners does not appear to be material.
The Company does not believe that its state of preparedness, or that of its
business partners, will have a material effect on its operations.
11
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
In the Company's Form 10-KSB for the fiscal year ended
February 28, 1999, it reported a jury verdict rendered against
it in an action entitled STANLEY ROSENTHAL V. SHOREHAM
PIPELINE CO., ET AL. On May 20, 1999, the jury in the action
awarded actual damages to Mr. Rosenthal in the amount of
$1,656,072 and exemplary damages and damages under the Texas
Deceptive Trade Practices Act which when tripled represent
$1,500,000 against each of Shoreham Pipeline Company and the
Company.
A final order has not yet been entered by the Court, although
it appears that the non-compensatory damage portion of the
judgement will be reduced from $1,500,000 to $750,000. The
Company intends to file a motion for new trial. If that motion
is denied, then a notice of appeal will be filed following
entry of the final order. The Company and counsel believe that
the Company has significant grounds for appeal and should
ultimately prevail.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries
27 Financial Data Schedule.
b) Reports on Form 8-K:
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GATEWAY ENERGY CORPORATION
/s/ Michael T. Fadden
-------------------------------------
President and Chief Executive Officer
/s/ Scott D. Heflin
-------------------------------------
Chief Financial Officer and Treasurer
July 15, 1999
- --------------------
(Date)
13
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED MAY 31,
1999 1998
-------------- -------------
<S> <C> <C>
Weighted average number of common shares
outstanding 15,242,494 14,454,700
Add shares issuable pursuant to warrant
agreements less shares assumed repurchased
at the average market price - (1) 56,700 (1)
Add shares issuable pursuant to stock options
less shares assumed repurchased at the
average market price - (1) 22,000 (1)
Add shares issuable from assumed conversion
of convertible notes - (1) 1,863,700 (1)
-------------- -------------
Tentative number of shares for computation
of fully diluted earnings per share 15,242,494 16,397,100
-------------- -------------
-------------- -------------
Loss applicable to common stock $ (395,167) $ (556,600)
Add back interest expense for convertible
promissory notes assumed converted - (1) 13,600 (1)
-------------- -------------
Tentative earnings (loss) for computation of
fully diluted earnings per share $ (395,167) $ (543,000)
-------------- -------------
-------------- -------------
Basic loss per common share $ (0.03) $ (0.04)
-------------- -------------
-------------- -------------
Fully diluted loss per common share $ (0.03) $ (0.04)
-------------- -------------
-------------- -------------
</TABLE>
(1) Not used in fully diluted earnings per share calculations as effect
would be antidilutive.
14
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY STATE PERCENT OWNED
------- ----- -------------
<S> <C> <C>
Gateway Processing Company Texas 100%
Gateway Pipeline Company Texas 100%
Gateway Energy Marketing Company Louisiana 100%
Fort Cobb Fuel Authority, L.L.C. Oklahoma 100%
Gateway Offshore Pipeline Company Nebraska 100%
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 148,285
<SECURITIES> 939,576
<RECEIVABLES> 802,399
<ALLOWANCES> 0
<INVENTORY> 77,868
<CURRENT-ASSETS> 2,090,908
<PP&E> 10,576,535
<DEPRECIATION> 2,675,304
<TOTAL-ASSETS> 10,947,618
<CURRENT-LIABILITIES> 910,321
<BONDS> 1,047,964
0
0
<COMMON> 3,810,624
<OTHER-SE> 5,178,709
<TOTAL-LIABILITY-AND-EQUITY> 10,947,618
<SALES> 1,419,194
<TOTAL-REVENUES> 1,465,706
<CGS> 830,962
<TOTAL-COSTS> 1,116,924
<OTHER-EXPENSES> 704,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,127
<INCOME-PRETAX> (395,055)
<INCOME-TAX> 112
<INCOME-CONTINUING> (395,167)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (395,167)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
