<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION 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 0-8358
MICRO GENERAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2621545
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2510 N. Red Hill Avenue, Suite 230,
Santa Ana, California 92705
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(949) 622-4444
- --------------------------------------------------------------------------------
(Registrant's telephone 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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
$.05 par value Common Stock 7,606,666 shares as of May 13, 1999
Exhibit Index appears on page 11 of 11 sequentially numbered pages.
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1999
TABLE OF CONTENTS
Part I: FINANCIAL INFORMATION Page Number
-----------
Item 1. Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 3
B. Condensed Consolidated Statements of Operations
for the three-month periods ended March 31, 1999
and 1998 (Restated) 4
C. Condensed Consolidated Statements of Cash Flows
for the three-month periods ended March 31, 1999
and 1998 (Restated) 5
D. Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 9
Part II: OTHER INFORMATION
Items 1. - 5. of Part II have been omitted because they are not
applicable with respect to the current reporting period
Item 6. Exhibits and Reports on Form 8-K 11
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.
MICRO GENERAL CORPORATION
-------------------------
(Registrant)
By: /s/ David N. Kenneally Date: May 13, 1999
-------------------------------
David N. Kenneally
Chief Accounting Officer
2
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
MICRO GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 830,491 $ 914,796
Trade accounts receivable, less allowance for doubtful
accounts of $594,539 in 1999 and $485,936 in 1998 ........ 4,030,167 1,835,968
Trade accounts receivable due from affiliates ............... 11,422,372 4,350,790
Inventories, net ............................................ 1,006,962 785,204
Prepaid expenses and other assets ........................... 591,451 359,884
------------ ------------
Total current assets .................................... 17,881,443 8,246,642
Notes receivable ................................................ -- 29,850
Property and equipment, net ..................................... 3,637,054 3,321,005
Capitalized software development costs, less accumulated
amortization of $2,985,535 in 1999 and $2,794,275 in 1998 ..... 1,886,785 1,505,719
Cost in excess of net assets acquired, less accumulated
amortization of $1,367,887 in 1999 and $872,996 in 1998 ....... 9,627,003 9,976,845
------------ ------------
$ 33,032,285 $ 23,080,061
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses ....................... $ 9,354,266 $ 4,916,314
Income and other taxes payable .............................. 117,328 138,647
Deferred tax liabilities .................................... 361,726 361,726
Deferred revenue ............................................ 14,140 189,839
------------ ------------
Total current liabilities ............................... 9,847,460 5,606,526
Amounts and notes payable to affiliates ......................... 23,815,471 16,888,947
------------ ------------
Total liabilities ....................................... 33,662,931 22,495,473
------------ ------------
Commitments and contingencies
Subsequent events
Stockholders' equity (deficiency):
Preferred stock, $.05 par value. Authorized 1,000,000 shares;
none issued and outstanding ............................... -- --
Common stock, $.05 par value. Authorized 20,000,000 shares;
issued and outstanding 7,596,666 at March 31, 1999 and
7,546,666 shares at December 31, 1998, respectively ..... 379,833 377,333
Additional paid-in capital .................................. 6,549,107 6,357,608
Accumulated deficiency ...................................... (7,559,586) (6,150,353)
------------ ------------
Total stockholders' equity (deficiency) ................. (630,646) 584,588
------------ ------------
$ 33,032,285 $ 23,080,061
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
MICRO GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three month periods ended
March 31,
------------------------------
1999 1998
------------ ------------
(Unaudited)
(Restated)
<S> <C> <C>
Hardware and software sales and maintenance revenues .............. $ 4,231,147 $ 2,223,387
Telecommunication service revenues ................................ 11,203,803 722,248
Service and license revenues ...................................... 3,877,525 844,878
------------ ------------
Total revenues ............................................ 19,312,475 3,790,513
------------ ------------
Hardware, software and maintenance cost of sales .................. 5,093,112 2,517,027
Telecommunication service cost of sales ........................... 11,015,219 378,414
Service and license cost of sales ................................. 1,993,702 437,604
------------ ------------
Total cost of sales ....................................... 18,102,033 3,333,045
------------ ------------
Gross profit .............................................. 1,210,442 457,468
------------ ------------
Operating expenses:
Selling, general and administrative expenses .................. 1,697,196 917,009
Amortization of cost in excess of net assets acquired and
capitalized software development costs ...................... 686,151 175,871
------------ ------------
Total operating expenses .................................. 2,383,347 1,092,880
------------ ------------
Operating loss ............................................ (1,172,905) (635,412)
Interest income (expense), net .................................... (235,528) 2,643
------------ ------------
Loss before income taxes .................................. (1,408,433) (632,769)
Income tax expense (benefit) ...................................... 800 (249,030)
------------ ------------
Net loss .................................................. $ (1,409,233) $ (383,739)
============ ============
Loss per share - basic and diluted ................................ $ (.19) $ (.08)
============ ============
Number of shares used in per share computations - basic and diluted 7,563,000 4,597,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
MICRO GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three month periods ended
March 31,
----------------------------
1999 1998
------------ ------------
(Unaudited)
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................... $ (1,409,233) $ (383,739)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................. 893,121 241,511
Changes in assets and liabilities:
Trade accounts receivable ...................................... (2,192,582) (6,722)
Inventories .................................................... (221,758) (267,013)
Prepaid expenses and other assets .............................. (231,567) (457,279)
Accounts payable and accrued expenses .......................... 4,437,603 28,578
Income and other taxes payable ................................. (21,319) --
Deferred revenue ............................................... (175,699) --
Amounts due from affiliates .................................... (7,071,582) 1,145,029
----------- -----------
Net cash provided by (used in) operating activities ..... (5,993,016) 300,365
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ................................ (476,391) (680,589)
Decrease in notes receivable ....................................... 29,850 3,368
Acquisition of Interactive Associates, Inc., net ................... 1,054 --
Capitalization of software development costs ....................... (572,326) --
----------- -----------
Net cash used in investing activities ................... (1,017,813) (677,221)
----------- -----------
Cash flows from financing activities - amounts and notes payable to
affiliate........................................................... 6,926,524 (453,928)
----------- -----------
Net cash provided by (used in) financing activities ..... 6,926,524 (453,928)
----------- -----------
Net increase (decrease) in cash and cash equivalents .... (84,305) 830,874
Cash and cash equivalents at beginning of period ....................... 914,796 830,784
----------- -----------
Cash and cash equivalents at end of period ............................. $ 830,491 $ --
=========== ===========
Supplemental cash flow information:
Income taxes paid .................................................. $ 60,000 $ --
=========== ===========
Interest paid ...................................................... $ 87,083 $ --
=========== ===========
Noncash investing and financing activities:
Acquisition of Interactive Associates, Inc. for common stock ....... $ 194,000 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
Notes to Condensed Consolidated Financial Statements
(1) Basis of Financial Statements
The financial information included in this report includes the accounts of Micro
General Corporation and its subsidiaries (collectively, the "Company") and has
been prepared in accordance with generally accepted accounting principles and
the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation, have been included. This report should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain reclassifications have been made in the 1998 condensed consolidated
financial statements to conform to classifications used in 1999.
(2) Description of Business
Historically, the operations of Micro General Corporation consisted of the
design, manufacture and sale of computerized parcel shipping systems, postal
scales and piece-count scales. These operations are currently performed through
the Company's postage meter and scale division. Following the acquisition of ACS
Systems, Inc. ("ACS"), which is described below, the Company shifted its primary
focus to information technology and telecommunication services.
On May 14, 1998, the Company and Fidelity National Financial, Inc. ("FNFI")
completed the merger of Micro General with ACS, a wholly-owned subsidiary of
FNFI. As a result of the merger, all of the outstanding shares of ACS were
exchanged for 4.6 million shares of Micro General common stock. The transaction
was appraised at $1.3 million. Following the merger of Micro General and ACS,
FNFI owned approximately 81.4% of the common stock of the Company on an
undiluted basis. The transaction has been accounted for as a reverse merger,
i.e., Micro General has been acquired by FNFI as a majority-owned subsidiary
through a merger with ACS, with Micro General as the legal surviving entity and
ACS as the surviving entity for accounting purposes. Therefore, the condensed
consolidated financial statements as of and for the quarter ended March 31, 1998
have been restated to reflect the operations of ACS prior to the merger. At
March 31, 1999, FNFI owned approximately 70% of the outstanding common stock of
the Company.
ACS was founded in 1985 as a software company specializing in products for the
real estate industry, in particular, escrow software. ACS was acquired by FNFI
in April 1994, and was subsequently merged with the Company as described above.
ACS, through its various divisions, is currently a full-service enterprise
solutions provider that offers total voice, data and systems integration
solutions for small and medium sized businesses, primarily in the real estate
sector.
The Company generated 36% and 79% of its revenue during the quarters ended March
31, 1999 and 1998, respectively, from multiple servicing arrangements with FNFI
and its subsidiaries.
In addition, as a result of the acquisition of LDExchange.com, Inc.
("LDExchange"), which closed on November 17, 1998, the Company has been able to
enter the international telecommunications market, which complements the range
of services offered by ACS. LDExchange is an emerging multinational carrier
focused primarily on the international long distance market. LDExchange offers
reliable, low cost switched voice services on a wholesale basis, primarily to
U.S. based long distance carriers. The LDExchange purchase price was $3.1
million, payable $1.1 million in cash and $2.0 million in Company common stock
(1,000,000 shares). The acquisition was accounted for as a purchase.
(3) Acquisition of Interactive Associates, Inc.
In March 1999, the Company acquired Interactive Associates, Inc.
("Interactive"), a privately held distributor of computer telephony hardware and
services. This acquisition provided for the purchase of 100% of the common stock
of Interactive in exchange for 100,000 shares of Micro General common stock,
subject to certain conditions, primarily related to financial performance. The
Company has issued 50,000 shares of common stock, valued at $194,000, in
connection with this transaction through May 13, 1999. Interactive's business
activities have been merged with those of ACS. This acquisition has been
accounted for using the purchase method. The financial position and results of
operations of Interactive are not material to the Company.
6
<PAGE> 7
Notes to Condensed Consolidated Financial Statements -- (Continued)
(4) Segment Information
The Company's condensed consolidated financial statements as of and for the
quarter ended March 31, 1999 include three reportable segments. Prior to May
1998, the Company consisted only of ACS.
<TABLE>
<CAPTION>
CORPORATE AND
POSTAGE METER
AND SCALE
ACS LDEXCHANGE DIVISION TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenue $ 9,020,399 $ 9,390,432 $ 901,644 $ 19,312,475
============ ============ ============ ============
Operating profit (loss) $ (168,993) $ 199,430 $ (1,203,342) $ (1,172,905)
Interest expense, net (101,550) -- (133,978) (235,528)
------------ ------------ ------------ ------------
Loss before income taxes $ (270,543) $ 199,430 $ (1,337,320) $ (1,408,433)
============ ============ ============ ============
Assets $ 23,295,284 $ 3,196,491 $ 6,540,510 $ 33,032,285
============ ============ ============ ============
</TABLE>
(5) Pro Forma Information
Selected unaudited pro forma combined results of operations for the quarters
ended March 31, 1999 and 1998, assuming the Micro General/ACS merger, LDExchange
and Interactive acquisitions occurred on January 1, 1999 and 1998, respectively,
are presented as follows:
<TABLE>
<CAPTION>
Quarter ended March 31,
----------------------------
1999 1998
----------- ----------
<S> <C> <C>
Total revenue $19,332,943 $7,025,650
Net loss (1,426,613) (200,265)
Loss per share - basic and diluted (.19) (.03)
</TABLE>
(6) Subsequent Event
On May 3, 1999, the Company entered into a Memorandum of Understanding to sell
the assets of the postage scale division. The sale will not have a significant
impact on the Company's financial position or results of operations.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Factors That May Affect Operating Results
The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
The reader should consult the risk factors listed from time to time in the
Company's reports on Forms 10-Q, 10-K and filings under the Securities Act of
1933, as amended.
Comparison of Quarters ended March 31, 1999 and 1998
Revenue
Revenues increased $15.5 million, or 409%, to $19.3 million in the quarter ended
March 31, 1999 from $3.8 million in the quarter ended March 31, 1998, primarily
as a result of the acquisition of LDExchange, continued growth in products and
services provided to FNFI, including an increase in telecommunication services
provided by ACS, and the acquisition of the postage scale and meter division.
Gross Profit
Gross profit increased $753,000, or 165%, to $1.2 million, representing a gross
profit margin of 6%, in 1999 from $457,000, a gross profit margin of 12%, in
1998. The increase in absolute dollars is consistent with the increase in
revenues. Gross profit margin as a percentage has decreased in 1999 compared to
1998 primarily as a result of the addition of the new segments. The LDExchange
and postage meter and scale division segments represent lower margin businesses
than the information technology and telecommunication businesses of ACS.
Expenses
Generally, selling, general and administrative expenses ("S, G & A") trend
consistently with revenues. S, G & A expenses increased $780,000, or 85%, to
$1.7 million in the first quarter of 1999 from $917,000 in the first quarter of
1998. The increase is primarily a result of the growth of ACS, which occurred in
response to the increased demand for its products and services, the acquisition
of LDExchange and the acquisition of the postage scale and meter division. The
expansion in the amount of products and services provided to FNFI required
additional personnel and S, G & A in order to meet the demand and to provide an
adequate level of service and support. As ACS began to offer additional
information technology services and telecommunication services, additional
personnel were required and S, G & A related to the new offerings was incurred.
The acquisition of LDExchange and the postage scale and meter division also
resulted in the addition of personnel and other S, G & A related to the
operation of these new segments. LDExchange's business is not as S, G & A
intensive as that of ACS and the postage scale and meter division is not
material to the S, G & A in the aggregate.
The amortization of cost in excess of net assets acquired and capitalized
software development costs are a function of the characteristics of the
intangible assets recorded during a particular period and the estimated useful
life of the intangible assets. Fluctuations in the amortization of cost in
excess of net assets acquired and capitalized software result from the amount,
mix and characteristics of the intangible assets recorded as well as the
circumstances surrounding the Company's estimate of the appropriate useful life.
Interest income (expense), net, is related to the use of the Company's available
working capital, which is in the form of available cash and lines of credit. The
year over year fluctuation in interest income (expense) can be attributed to the
increase in average borrowings outstanding during the first quarter of 1999
compared to the first quarter of 1998.
Income tax expense (benefit) is recorded based on the amounts that the Company
estimates, based on the Company's taxation structure, will be due to Federal and
state taxation authorities. During the first quarter of 1998, ACS was included
in the FNFI consolidated tax returns and income tax expense (benefit) was
calculated as such. During the first quarter of 1999, ACS was included in the
Micro General consolidated group, which pays only minimum taxes based on current
operating results due to the fact that Micro General has not historically
generated earnings.
8
<PAGE> 9
Liquidity and Capital Resources
The Company's current cash requirements include debt service, personnel and
other operating expenses, capital expenditures and capital for acquisitions and
expansion. The Company believes that all anticipated cash requirements will be
met from internally generated funds, future lines of credit and additional
availability from lines of credit from affiliates. Internally generated funds
fluctuate in a pattern generally consistent with revenues. Since the Company has
repositioned itself as a result of the merger with ACS Systems, Inc. and the
acquisition of LDExchange, the revenue, and therefore, cash flow base has
stabilized, particularly as a result of the amount of revenues generated by
affiliates. The Company believes that as a result of its current revenue base
and the anticipated availability of funds in the form of additional lines of
credit from affiliates and non-affiliates, all cash requirements will be met for
at least the next twelve months.
The Company relies on FNFI as the primary source of capital to fund its
operations in the form of revenues generated by the Company related to products
and services provided to FNFI and as a source of funds via available financing
arrangements.
The Company has suffered losses and negative cash flows from operations for each
of the years in the three-year period ended December 31, 1998 and for the three
months ended March 31, 1999. In addition, the Company has an accumulated
deficiency and a significant amount of outstanding debt as of March 31, 1999.
FNFI has represented that it has the ability and intent to provide the Company
with the cash necessary to continue as a going concern for a period of at least
twelve months following March 31, 1999.
The Company must comply with certain affirmative and negative covenants related
to its outstanding debt and notes payable. The Company was in compliance with or
has received waivers related to these covenants.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not believe there have been any material changes in the market
risks since December 31, 1998, which would impact the fair value of certain
liabilities included in the condensed consolidated balance sheets.
Year 2000 Issues
Information technology is an integral part of the Company's business. The
Company also recognizes the critical nature of and the technological challenges
associated with the Year 2000 issue. The Year 2000 issue ("Y2K") results from
computer programs and computer hardware that utilize only two digits to identify
a year in the date field, rather than four digits. If such programs or hardware
are not modified or upgraded information systems could fail, lock up, or in
general fail to perform according to normal expectations. The Company has
implemented a program and committed both personnel and other resources to
determine the extent of potential Y2K issues. Included within the scope of this
program are systems used in title plants, title policy processing, escrow
production, claims processing, real estate related services, financial
management, human resources, payroll and infrastructure. In addition to a review
of internal systems, the Company has initiated formal communications with third
parties with which it does business in order to determine whether or not they
are Y2K compliant and the extent to which the Company may be vulnerable to third
parties' failure to become Y2K compliant. The Company is in the process of
identifying Y2K compliant issues in its systems, equipment and processes. The
Company is making changes to such systems, updating or replacing such equipment,
and modifying such processes to make them Y2K compliant.
The Company has developed a four phase program to become Y2K compliant. Phase I
is, "Plan Preparation and Identification of the Problem." This is an ongoing
phase that will continue beyond the year 2000 itself. Phase II is, "Plan
Execution and Remediation." Phase III is, "Testing." Phase IV is, "Maintaining
Y2K Compliance." The Company anticipates that its systems processes will be
substantially Y2K compliant by July 1999. The status of the Y2K compliance
program is monitored by senior management of the Company and by the Audit
Committee of the Company's Board of Directors. The costs of the Y2K related
efforts incurred to date have not been material, and the estimate of remaining
costs to be incurred is not considered to be material. Due to the complexities
of estimating the cost of modifying applications to become Y2K compliant and the
difficulties in assessing third parties', including various local governments
upon which the Company relies upon to provide title-related data, ability to
become Y2K compliant, estimates may be subject to change.
9
<PAGE> 10
Management of the Company believes that its electronic data processing and
information systems will be Y2K compliant; however, there can be no assurance
that all of the Company's systems will be Y2K compliant, that the costs to be
Y2K compliant will not exceed management's current expectations, or that the
failure of such systems to be Y2K compliant will not have a material adverse
effect on the Company's business. The Company believes that functions currently
performed with the assistance of electronic data processing equipment could be
performed manually or outsourced if certain systems were determined not to be
Y2K compliant on or after January 1, 2000.
The Company has not yet completed a contingency plan in the event that any
systems are not Y2K compliant, but will do so once the Phase III process of its
compliance program is begun. We expect this contingency plan to be complete by
July 1999.
This entire section, "Year 2000 Issues", is hereby designated a "Year 2000
Readiness Disclosure", as defined in the Year 2000 Information and Readiness
Disclosure Act.
10
<PAGE> 11
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K:
Current Report on Form 8-K/A, dated January 29, 1999, related to
the acquisition of LDExchange.com, Inc., including Financial
Statements and Pro Forma Information.
Current Report on Form 8-K, dated March 5, 1999, related to
resignation of Stanley Bruce Crair, Chief Operating Officer and
President.
11
<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> 830,491
<SECURITIES> 0
<RECEIVABLES> 16,047,078
<ALLOWANCES> 594,539
<INVENTORY> 0
<CURRENT-ASSETS> 17,881,443
<PP&E> 4,061,472
<DEPRECIATION> (500,148)
<TOTAL-ASSETS> 33,032,285
<CURRENT-LIABILITIES> 9,847,460
<BONDS> 23,815,471
0
0
<COMMON> 379,833
<OTHER-SE> (1,010,479)
<TOTAL-LIABILITY-AND-EQUITY> 33,032,285
<SALES> 19,312,475
<TOTAL-REVENUES> 19,312,475
<CGS> 18,102,033
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,383,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,528
<INCOME-PRETAX> (1,408,433)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,409,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,409,233)
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
