<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-12194
ZITEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 94-2566313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47211 Bayside Parkway 94538-6517
Fremont, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 440-9600
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 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
----- -----
The number of shares of the Registrant's Common Stock outstanding as of March
31, 1998 was 17,189,446.
<PAGE>
ZITEL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 (unaudited) and September 30, 1997 ..... 3
Condensed Consolidated Statements of
Operations (unaudited) - Three and Six Months
Ended March 31, 1998 and 1997 ........................ 4
Condensed Consolidated Statements of
Cash Flows (unaudited) - Six Months Ended
March 31, 1998 and 1997 ............................... 5
Notes to Condensed Consolidated
Financial Statements .................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations .................................. 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K .................. 16
</TABLE>
Page 2
<PAGE>
ZITEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's)
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, September 30,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,415 $ 4,224
Short-term investments -- 9,596
Accounts receivable, net 5,052 6,547
Inventories 1,915 3,050
Deferred and refundable taxes 3,546 3,540
Other current assets 1,181 993
------- -------
Total current assets 16,109 27,950
Fixed assets, net 3,259 3,700
Intangible assets, net 5,347 5,846
Other assets, net 13,560 11,798
------- -------
Total assets $38,275 $49,294
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,797 $ 4,768
Accrued liabilities 4,218 4,419
------- -------
Total current liabilities 7,015 9,187
Convertible subordinated debt 9,317 24,161
Shareholders' equity:
Common stock 43,065 27,081
Accumulated deficit (21,122) (11,135)
------- -------
Total shareholders' equity 21,943 15,946
------- -------
Total liabilities and
shareholders' equity $38,275 $49,294
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
ZITEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 4,183 $ 1,576 $11,546 $ 4,842
Royalty revenue 210 1,196 792 3,514
------- ------- ------- -------
Total revenue 4,393 2,772 12,338 8,356
Cost of goods sold 2,339 1,737 5,795 4,536
Research and development
expenses 1,963 1,613 3,951 3,235
Selling, general &
administrative expenses 5,182 3,007 11,860 5,498
------- ------- ------- -------
Operating loss (5,091) (3,585) (9,268) (4,913)
Other (income) expense 399 (594) 719 (1,035)
------- ------- ------- -------
Loss before income taxes (5,490) (2,991) (9,987) (3,878)
Benefit from income taxes -- (1,077) -- (1,396)
------- ------- ------- -------
Net loss $(5,490) $(1,914) $(9,987) $(2,482)
------- ------- ------- -------
------- ------- ------- -------
Basic and diluted loss
per share $ (.33) $ (.13) $ (.62) $ (.16)
------- ------- ------- -------
------- ------- ------- -------
Number of shares used in
basic and diluted loss
per share calculations 16,646 15,234 16,175 15,096
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
ZITEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($000's)
<TABLE>
<CAPTION>
(UNAUDITED)
Six Months Ended
March 31,
1998 1997
-------- -------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $(9,987) $(2,482)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of capitalized financing costs 482 --
Depreciation and amortization 1,530 556
Provision for doubtful accounts 102 99
Provision for inventory allowances 160 240
Gain on sale of trading securities 0 (777)
Proceeds from sale of trading securities 0 3,159
Change in operating assets and liabilities:
Decrease in accounts receivable 1,393 2,112
Decrease in inventories 975 439
Increase in deferred and refundable taxes (6) (1,395)
Increase in other current assets (188) (259)
Decrease in accounts payable (1,971) (732)
Increase in accrued liabilities 268 63
-------- -------
Net cash provided by (used in)
operating activities (7,242) 1,023
-------- -------
Cash flows provided by (used in)
investing activities:
Purchase of fixed assets (477) (811)
Purchase of other assets (862) (875)
Investment in unconsolidated company (1,495) (2,024)
Maturities of investments 9,596 --
-------- -------
Net cash provided by (used in)
investing activities 6,762 (3,710)
-------- -------
</TABLE>
Page 5
<PAGE>
ZITEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
($000's)
<TABLE>
<CAPTION>
(UNAUDITED)
Six Months Ended
March 31,
1998 1997
-------- -------
<S> <C> <C>
Cash flows provided by financing activities:
Issuance of common stock $ 671 $ 881
------- -------
Net cash provided by financing activities 671 881
------- -------
Net increase (decrease) in cash 191 (1,806)
Cash and cash equivalents, beginning of year 4,224 9,216
------- -------
Cash and cash equivalents, end of period $ 4,415 $ 7,410
-------- -------
-------- -------
Supplemental non-cash investing and
financing activities:
Conversion of subordinated debt and accrued
interest $15,313 $ --
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE>
ZITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands except per share data)
1. The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and should be read in conjunction
with the audited financial statements of the Company. Certain information
and footnote disclosures, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have been
condensed or omitted although the Company believes the disclosures which are
made are adequate to make the information presented not misleading. Further,
the condensed consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to present fairly the financial
position and results of operations as of and for the periods indicated. The
results of operations for the period ended March 31, 1998 are not necessarily
indicative of the results expected for the full year. The Company has
sustained recurring losses related primarily to lower than anticipated
revenues. Management believes that the Company will be able to meet its cash
requirements for the quarter ending June 30, 1998 from cash on hand, other
working capital, and cash flow from operations augmented by the recently
obtained bank line of credit. The Company currently plans to raise
additional capital to fund operations until cash flow from operating
activities are positive. Management is actively engaged in evaluating
alternative sources for capital and believes this effort will be successful.
There can be no assurance, however, that the Company would be successful in
raising the additional capital.
2. Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. The impact of
adopting SFAS No. 130, which is effective for the Company in fiscal year
1999, has not been determined.
Page 7
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 requires
publicly-held companies to report financial and other information about key
revenue-producing segments of the entity for which such information is
available and is utilized by the chief operations decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial statements
would be provided. SFAS No. 131 is effective for the Company in fiscal year
1999 and the impact of adoption has not been determined.
On October 27, 1997, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 97-2, "Software
Revenue Recognition". SOP 97-2 establishes the standard for the appropriate
recognition of software revenue, effective for the Company in fiscal year
1999. The effect of the new SOP 97-2 has yet to be determined.
3. Inventories:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------ -------------
<S> <C> <C>
Raw materials $ 819 $ 953
Work in process 255 576
Finished goods 841 1,521
------ ------
$1,915 $3,050
------ ------
------ ------
</TABLE>
4. Intangible Assets:
Intangible assets include goodwill and purchased technology, recorded in
connection with the acquisition of the three software companies, which are
being amortized on a straight-line basis over seven and five years,
respectively. The Company periodically assesses the recoverability of the
intangible assets by determining whether the amortization of the asset
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of impairment, if
any, is measured based on projected discounted future operating cash flows
and is recognized as a write down of the asset to net realizable value. As
of March 31, 1998, intangible assets consist of the following:
Page 8
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Goodwill $3,252 $3,242
Purchased technology 2,862 2,862
Less accumulated amortization (767) (258)
------ ------
$5,347 $5,846
------ ------
------ ------
</TABLE>
5. Deferred Software Implementation Costs:
The Company capitalizes substantially all costs related to the purchase
of software and its implementation which includes purchased software,
consulting fees and the use of certain specified Company resources, and are
being amortized on a straight-line basis over the estimated life of the
computer software, which is five years. As of March 31, 1998, $1.1 million
in costs had been capitalized and are included in other long-term assets.
Amortization in the amount of $113 thousand has been charged during the
six-month period in fiscal 1998. Amortization of $111 thousand had been
charged in fiscal year 1997.
6. Investment in Unconsolidated Company:
During the quarter ended December 31, 1997, Zitel invested an additional
$1.5 million in MatriDigm Corporation in exchange for a convertible
promissory note. The note is convertible into 1,050 thousand shares of
common stock. As of March 31, 1998, the Company's investment in MatriDigm
Corporation amounted to $7.37 million, consisting of 10.6 million shares of
preferred stock, 500 thousand shares of common stock and the convertible
promissory note.
7. Line of Credit:
In April 1998, the Company obtained a $1.5 million secured bank line of
credit. The line of credit expires on June 30, 1998, with a three-month
renewal through September 30, 1998, subject to compliance with specified
terms. Advances bear interest at the bank's prime rate plus 1%. Under terms
of the agreement, the borrowing base is 75% of eligible domestic and foreign
insured accounts receivable. Payment of interest is on a monthly basis, with
principal limited to the borrowing base and is due upon maturity. In
addition, the Company is required to maintain certain specified financial
ratios.
8. 5% Convertible Subordinated Debentures:
The current quarter includes a charge to interest expense in
Page 9
<PAGE>
the amount of $482 thousand related to the amortization of the capitalized
financing costs on the 5% convertible subordinated debentures. For the six
months ended March 31, 1998, approximately $15.3 million was converted into
1.4 million shares of common stock at an average price of $10.936 per share.
9. Earnings Per Share (EPS):
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), effective
December 31, 1997. SFAS 128 requires the presentation of basic and diluted
earnings per share. Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed giving effect to all
dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares consist of the incremental common shares
issuable upon the conversion of convertible subordinated debt (using the "if
converted" method) and exercise of stock options and warrants for all
periods. All prior period earnings per share amounts have been restated to
comply with the SFAS 128.
In accordance with the disclosure requirements of SFAS 128, a reconciliation
of the numerator and denominator of basic and diluted EPS is provided as
follow (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
l998 1997 1998 1997
------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator - Basic and Diluted EPS
Net loss $(5,490) $(1,914) $(9,987) $(2,482)
------- ------- ------- -------
------- ------- ------- -------
Denominator - Basic EPS
Common stock outstanding 16,646 15,234 16,175 15,096
Common equivalent stock -- -- -- --
------- ------- ------- -------
16,646 15,234 16,175 15,096
------- ------- ------- -------
Basic loss per share $ (.33) $ (.13) $ (.62) $ (.16)
------- ------- ------- -------
------- ------- ------- -------
Page 10
<PAGE>
Denominator - Diluted EPS
Denominator - Basic EPS 16,646 15,234 16,175 15,096
Effect of Dilutive Securities:
Common stock options -- -- -- --
Convertible preferred stock -- -- -- --
------- ------- ------- -------
16,646 15,234 16,175 15,096
------- ------- ------- -------
Diluted loss per share $ (.33) $ (.13) $ (.62) $ (.16)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
For the quarter and six-month period ended March 31, 1998, options to
purchase 738 thousand and 744 thousand shares, respectively, were not
included in the computation of diluted EPS because of the anti-dilutive
effect of including these shares in the calculation for both periods. For the
quarter and six-month period ended March 31, 1997, options to purchase 1,404
thousand and 1,422 thousand shares, respectively, were not included in the
computation of diluted EPS because of the anti-dilutive effect of including
these shares in the calculation for both periods. In addition, had the
subordinated debt been converted, it would have resulted in approximately 679
thousand and 1,659 thousand shares for the three and six months ended March
31, 1998, respectively. These shares were not included in the computation
due to their anti-dilutive effect.
Page 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Result of Operations
The Company recorded a net loss of $5,490,000 ($0.33 per share) for the
quarter ended March 31, 1998 compared with a net loss of $1,914,000 ($0.13
per share) for the same quarter of the prior year. Included in the quarter
results of the previous year was a tax benefit of $1,077,000 (36% of income
before income taxes) resulting from the recognition of deferred tax assets in
accordance with SFAS No, 109, "Accounting for Income Taxes". Weighted
average shares outstanding for the current quarter were 16,646,000 compared
to 15,234,000 for the same quarter of the prior year.
For the six months ended March 31, 1998, the net loss was $9,987,000 ($0.62
per share) compared with a net loss of $2,482,000 ($0.16 per share) for the
same period a year earlier. Included in the prior year results was a tax
benefit of $1,396,000. Year-to-date weighted average shares were 16,175,000
versus 15,096,000 in the prior year.
Total revenue for the current quarter was $4,393,000 versus total revenue of
$2,772,000 for the same quarter of the prior year, an increase of $1,621,000.
The increase in revenue is directly attributable to an increase in net
sales, partially offset by a decrease in royalty revenue. Net sales for the
current quarter were $4,183,000 versus $1,576,000 for the same quarter of the
prior year, an increase of $2,607,000. The increase in net sales is directly
attributable to the net sales generated by the software companies acquired
June 30, 1997. The Company's solution services business unit has not yet
generated revenue. Royalty revenue for the quarter just ended was $210,000
compared with $1,196,000 for the same quarter of the prior year.
For the six months ended March 31, 1998, total revenue was $12,338,000 versus
total revenue of $8,356,000 for the same period of the prior year, an
increase of $3,982,000. The increase in revenue is directly attributable to
an increase in net sales, partially offset by a decrease in royalty revenue.
For the six months just ended, net sales were $11,546,000 versus $4,842,000
for the same period of the prior year, an increase of $6,704,000. The
increase in net sales is directly attributable to the net sales generated by
the acquired software companies. Royalty revenue for the six-month period
was $792,000 compared
Page 12
<PAGE>
with $3,514,000 for the same period of the prior year. In April 1998, the
Company concluded negotiations for receipt of an additional $740,000 covering
remaining royalty obligations from the third party utilizing the Company's
technology.
Gross margin as a percent of net sales was 44% for the quarter ended March
31,1998 compared to a negative 10% for the same quarter of the prior year.
For the six-month period ended March 31, 1998, gross margin was 50% versus 6%
for the same period of the prior year. The improvement in the gross margin
percentage during the current quarter and six-month period is primarily
attributable to product mix as a result of net sales generated by the
software business unit. In addition, the gross margin of the storage
products, as a percent of net sales, also improved during the current quarter
and six-month period, as a result of lower material costs and a reduction in
other cost of sales which do not vary directly with sales volume. Future
gross margins may be affected by several factors including the mix of
products sold, the price of products sold, price competition, increases in
material costs and changes in other cost of sales which do not vary directly
with sales volume.
In April 1998, the Company announced the intention to divest the storage
business unit. A leading investment banker has been engaged to advise and
assist the Company with respect to the execution of the divestiture. The
Company is evaluating a number of alternative actions; however, there is no
assurance that the divestiture can be completed without incurring significant
costs.
Research and development expenses for the quarter ended March 31, 1998, were
45% of total revenue compared with 58% for the same quarter of the prior
year. Actual spending increased $350,000. For the six-month period just
ended, research and development expenses were 32% of total revenue compared
with 39% for the same period of the prior year. Actual spending increased
$716,000. The increase in spending during both periods is primarily
attributable to the added research and development by the acquired software
companies ($642,000 and $1,255,000 for the current quarter and six-month
period, respectively), partially offset by a reduction in research and
development and a reduction in engineering personnel of the storage business
unit ($292,000 and $539,000 for the current quarter and six-month period just
ended, respectively).
Selling, general and administrative (SG&A) expenses were 118% of total
revenue for the current quarter versus 108% for the same
Page 13
<PAGE>
quarter of the prior year. Actual spending increased $2,175,000. The
increase in spending is primarily attributable to the added SG&A expenses of
the acquired software companies of approximately $1,952,000.
For the six-month period just ended, SG&A expenses were 96% of total revenue
compared with 66% for the same period a year earlier. Actual spending
increased $6,362,000. The increase in spending is primarily attributable to
the added SG&A expenses of the acquired software companies of approximately
$4,476,000, an increase in SG&A of the solution services business unit of
approximately $769,000, an increase in salaries and related costs as a result
of an increase in SG&A personnel of approximately $200,000, an increase in
professional services of approximately $370,000, and an increase in
depreciation and amortization of approximately $250,000.
Other expense was $399,000 for the quarter just ended versus other income of
$594,000 in the same quarter of the prior year. For the current quarter,
other expense included $482,000 interest expense related to the convertible
subordinated debt, partially offset by interest income of $126,000. For the
comparable quarter of the prior year, other income included $479,000 in
realized gains from the sale of marketable securities and interest income of
$126,000.
Liquidity and Capital Resources
During the six-month period ended March 31, 1998, working capital decreased
$9,669,000 and cash flow utilized by operating activities was $7,242,000.
The utilization of cash in operating activities resulted primarily from the
net loss of $9,987,000 and a decrease in accounts payable of $1,971,000.
This was partially offset by a decrease in gross accounts receivable of
$1,393,000, a decrease in gross inventory of $975,000, an increase in accrued
liabilities of $268,000, and depreciation and amortization of $2,012,000.
During the current year, net cash provided by investing activities was
$6,762,000; $9,596,000 generated from the maturity of a short-term
investment. The Company invested an additional $1,495,000 in an
unconsolidated company, purchased other assets in the amount of $862,000 and
capital equipment in the amount of $477,000.
Net cash provided by financing activities was $671,000 from the exercise of
employee stock options and from the purchase of stock under the Company's
employee stock purchase plan.
Page 14
<PAGE>
In April 1998, the Company concluded negotiations for receipt of an
additional $740,000 covering remaining royalty obligations from the third
party utilizing the Company's technology. Additionally, the Company executed
a $1.5 million secured bank line of credit. Management believes that the
Company will be able to meet its cash requirements for the quarter ending
June 30, 1998 from cash on hand, other working capital, and cash flow from
operations augmented by the recently obtained bank line of credit. The
Company currently plans to raise additional capital to fund operations until
cash flow from operating activities are positive. Management is actively
engaged in evaluating alternative sources for capital and believes this
effort will be successful. There can be no assurance, however, that the
Company would be successful in raising the additional capital.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". In October 1997, the AICPA issued SOP 97-2, "Software Revenue
Recognition". Readers are referred to the "Recent Accounting Pronouncements"
section of the Notes to the Condensed Consolidated Financial Statements for
further discussion.
- --------------------------------------------------
- --------------------------------------------------
This report contains forward-looking statements which are subject to
uncertainties, including those contained in the Company's annual report on
Form 10-K for the fiscal year ended September 30, 1997.
- -------------------------------------------------------------
Zitel is a registered trademark of Zitel Corporation. All other product names
and brand names are trademarks or registered trademarks of their respective
holders.
Page 15
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed during the quarter for which
this report is filed.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZITEL CORPORATION
Date: May 13, 1998 Larry B. Schlenoff
Larry B. Schlenoff
Vice President, Finance &
Administration
(Chief Financial Officer and
Secretary)
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,415
<SECURITIES> 0
<RECEIVABLES> 5,052
<ALLOWANCES> 175
<INVENTORY> 1,915
<CURRENT-ASSETS> 16,109
<PP&E> 13,863
<DEPRECIATION> 10,604
<TOTAL-ASSETS> 38,275
<CURRENT-LIABILITIES> 7,015
<BONDS> 0
0
0
<COMMON> 43,065
<OTHER-SE> (21,122)
<TOTAL-LIABILITY-AND-EQUITY> 38,275
<SALES> 4,183
<TOTAL-REVENUES> 4,393
<CGS> 2,339
<TOTAL-COSTS> 7,145
<OTHER-EXPENSES> (114)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 513
<INCOME-PRETAX> (5,490)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,490)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,490)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
