U.S. 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
For the Quarterly Period Ended October 31, 1998 Commission File No. 0-14234
KINGS ROAD ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
Delaware 95-3587522
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1901 Avenue of the Stars, Suite 1545
Los Angeles, California 90067
(Address of principal executive office)
Issuer's telephone number: (310) 552-0057
Check whether the issuer (1) 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 ___
As of December 11, 1998 the registrant had 3,389,315 shares of its common stock
outstanding.
Transitional Small Business Disclosure Format: YES ___ NO X_
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
KINGS ROAD ENTERTAINMENT, INC.
BALANCE SHEET
(UNAUDITED)
AS OF
OCT. 31, 1998
--------------------
ASSETS
Cash and Cash Equivalents $2,456,168
Accounts Receivable, net of allowance of $10,000 396,959
Film Costs, net of amortization of $168,253,673 312,397
Prepaid Expenses 57,399
Fixed Assets 14,927
Other Assets 2,500
-------------------
TOTAL ASSETS $3,240,350
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable $127,209
Accrued Expenses 8,160
Deferred Revenue 8,400
-------------------
TOTAL LIABILITIES 143,769
COMMITMENTS AND CONTINGENCIES 0
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, 12,000,000
shares authorized, 1,911,748 shares issued
and outstanding at Oct. 31, 1998 51,040
Additional Paid-In Capital 21,085,278
Deficit (18,039,737)
-------------------
TOTAL SHAREHOLDERS' EQUITY 3,096,581
-------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,240,350
===================
The accompanying notes are an integral part of this balance sheet.
2
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
1998 1997 1998 1997
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
REVENUES
Feature Films $72,247 $313,147 $222,164 $671,062
Interest Income 34,452 34,214 66,699 94,520
--------- ---------- ---------- ----------
106,699 347,361 288,863 765,582
COSTS AND EXPENSES
Costs Related to Revenue 1,500 265,990 8,857 302,497
Selling Expenses 21,008 18,533 29,473 22,535
General & Administrative Expenses 167,324 235,702 312,587 498,971
--------- ---------- ----------- ----------
189,832 520,225 350,917 824,003
--------- ---------- ----------- ----------
LOSS BEFORE INCOME TAXES (83,133) (172,864) (62,054) (58,421)
Provision for Income Taxes 174 725 (18,940) 822
--------- ---------- ----------- ----------
NET LOSS ($83,307) ($173,589) ($43,114) ($59,243)
========= ========= ========= =========
Net Loss Per Share - Basic ($0.04) ($0.09) ($0.02) ($0.03)
========= ========= ========= =========
Weighted Average Number of
Common Shares - Basic 1,911,748 1,884,141 1,911,748 1,839,776
========= ========= ========= =========
Net Loss Per Share - Diluted ($0.04) ($0.09) ($0.02) ($0.03)
========= ========= ========= =========
Weighted Average Number of
Common Shares and Common
Share Equivalents - Diluted 1,916,715 1,914,071 1,939,733 1,886,718
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Common Additional Retained Total
Stock Stock Paid-In Earnings/ Shareholders'
Shares Amount Capital (Deficit) Equity
------------------ ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Balance,
April 30, 1997 1,706,581 $45,716 $24,902,177 ($18,035,440) $6,912,453
Exercise of
Stock Options 205,167 5,324 139,797 ----- 145,121
Distribution to
Shareholders ----- ----- (3,956,696) ----- (3,956,696)
Net Income ----- ----- ----- 38,817 38,817
----------------- ----------------- ----------------- ----------------- -----------------
Balance,
April 30, 1998 1,911,748 51,040 21,085,278 (17,996,623) 3,139,695
Net Loss ----- ----- ----- (43,114) (43,114)
----------------- ----------------- ----------------- ----------------- -----------------
Balance,
Oct. 31, 1998 1,911,748 $51,040 $21,085,278 ($18,039,737) $3,096,581
========== ========== =========== ============= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED OCT. 31,
1998 1997
------------------ -------------------
<S>
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net Loss ($43,114) ($59,243)
Adjustments to reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 12,974 305,704
Changes in Assets and Liabilities:
Increase in Accounts Receivable (23,496) (31,486)
Increase in Prepaid Expenses (9,558) (34,093)
Decrease in Accounts Payable (105,958) (93,631)
Decrease in Accrued Expenses (6,840) 0
Decrease in Income Taxes Payable 0 (3,482)
Decrease in Deferred Revenue (1,200) (12,100)
------------------ -------------------
NET CASH AND CASH EQUIVALENTS (USED IN)/
PROVIDED BY OPERATING ACTIVITIES (177,192) 71,669
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Marketable Securities 0 3,610,914
(Purchase)/Disposal of Fixed Assets (4,560) 4,359
Gross Additions to Film Costs (20,580) (97,737)
------------------ -------------------
NET CASH AND CASH EQUIVALENTS (USED IN)/
PROVIDED BY INVESTING ACTIVITIES (25,140) 3,517,536
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Stock Options 0 145,121
Distribution to Shareholders 0 (3,956,696)
------------------ -------------------
NET CASH AND CASH EQUIVALENTS
USED IN FINANCING ACTIVITIES 0 (3,811,575)
------------------ -------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (202,332) (222,370)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,658,500 248,204
------------------ -------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,456,168 $25,834
================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements.
Accordingly, they do not include all of the information and disclosures required
for annual financial statements. These financial statements should be read in
conjunction with the financial statements and related footnotes for the year
ended April 30, 1998, included in the Kings Road Entertainment, Inc. ("Company"
or "Registrant") annual report on Form 10-KSB for that period.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of October 31, 1998 and the results of operations and cash flows for
the three and six month periods ended October 31, 1998 and 1997 have been
included.
The results of operations for the three and six month periods ended October 31,
1998 are not necessarily indicative of the results to be expected for the full
fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended April 30, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The Company has adopted Statement of Financial Accounting Standard No. 128,
Earnings Per Share ("SFAS No. 128"), which became effective for financial
statements issued for periods ending after December 15, 1997. In accordance with
SFAS No. 128, prior year earnings per share ("EPS") amounts have been restated.
SFAS No. 128 was issued to simplify the standards for calculating EPS previously
set forth in Accounting Principles Board No. 15, Earnings Per Share. SFAS No.
128 replaces the presentation of primary EPS with basic EPS. The new rules also
require dual presentation of basic and diluted EPS on the face of the statements
of operations.
In April 1998, the Company effected a 1-for-3 reverse stock split for
shareholders of record on April 17, 1998. All share and per share data in the
financial statements reflect the reverse stock split for all periods presented.
NOTE B - FILM COSTS
Film costs consist of:
As Of
Oct. 31, 1998
-------------
Released Films, less amortization $202,660
Films in Production 0
Films in Development 109,737
--------
$312,397
========
6
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C - LITIGATION AND CONTINGENCIES
In the ordinary course of business, the Company has or may become involved in
disputes or litigation. On the basis of information available to it, management
believes such contingencies will not have a materially adverse impact on the
Company's financial position or results of operations.
NOTE D - STOCK OPTIONS
The Company's 1998 Stock Option Plan ("1998 Plan") provides for the grant of
options to purchase up to 400,000 shares of the Company's common stock. At
October 31, 1998 Options to purchase up to 100,667 shares were outstanding under
the 1998 Plan at an exercise price of $1.22 per share. Of the outstanding
options, 66,667 were held by the Company's then Chief Executive Officer and
34,000 were held by another officer of the Company. On November 6, 1998, in
connection with a November 6, 1998 Stock Acquisition Agreement ("Acquisition
Agreement"), all of the outstanding options under the 1998 Plan were canceled.
For such cancellation, the option holders received, in the aggregate, the sum of
$113,754, representing the difference between $2.35, the per share purchase
price under the Acquisition Agreement, and the exercise price of $1.22 times the
number of outstanding options. (See "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent
Developments")
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, requires the use of valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share under the fair
value accounting method for the three and six month periods ended October 31,
1998 and 1997 has not been presented as the amounts are immaterial.
NOTE E - INCOME TAXES
A reconciliation of the provision for income taxes to the expected income tax
expense at the statutory federal tax rate of 34% is as follows:
Six Months Ended Six Months Ended
Oct. 31, 1998 Oct. 31, 1997
------------- -------------
Computed Expected Tax at Statutory Rate ($21,098) ($19,863)
Benefit of Prior Years Amended Returns (19,286) 0
Foreign Taxes 346 822
Valuation Allowance 21,098 19,863
------ ------
($18,940) $822
======== ======
7
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E - INCOME TAXES (CONTINUED)
The Company filed amended federal and state tax returns for the fiscal years
ended April 30, 1997 and 1996 that resulted in a reduction in income tax expense
of $19,286 recorded during the six month period ended October 31, 1998.
For federal income tax purposes, the Company has available investment tax
credits of approximately $2,166,000 after being reduced by 35% as a result of
the Tax Reform Act of 1986 (expiring between 2000 and 2002) and net operating
loss carryforwards of approximately $16,626,000 (expiring between 2001 and 2007)
to offset future income tax liabilities.
Deferred tax assets result from temporary differences between financial and tax
accounting in the recognition of revenue and expenses. Temporary differences and
carryforwards which give rise to deferred tax assets are as follows:
As Of
Oct. 31, 1998
-------------
Deferred Revenue $4,000
Film Cost Amortization 18,000
Net Operating Loss Carryforwards 6,650,000
Investment Tax Credit Carryforwards 2,166,000
Foreign Tax Credit Carryforwards 400,000
---------
9,238,000
Valuation Allowance (9,238,000)
---------
$0
=========
A valuation allowance of $9,238,000 has been recorded to offset the net deferred
tax assets due to the uncertainty of realizing the benefits of the tax assets in
the future.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Developments
Subsequent to the fiscal year ended April 30, 1995, the Company has not
produced any new films and has derived revenues almost exclusively from the
exploitation of films produced prior to April 30, 1995. Following the death on
October 4, 1996 of Mr. Stephen Friedman, the Company's founder and then Chairman
of the Board of Directors and Chief Executive Officer, the Company has explored
various business options, including, among other things, the liquidation of the
Company, the sale of the Company as a going concern to an outside party, the
sale of substantially all of the assets of the Company to an outside party and
the issuance of shares of common stock to an outside party which would provide a
new source of financing for the Company. The Company had discussions with over
twenty outside parties which expressed varying degrees of interest in acquiring
all or part of the Company or in supplying additional capital in return for an
equity interest in the Company.
On November 6, 1998, pursuant to the Acquisition Agreement, FAB Capital
Corporation ("FAB"), MBO Music Verlag GmbH ("MBO"), Western Union Leasing Ltd.
("Western") and RAS Securities Corp. (collectively, the "Acquirors") purchased
962,360 shares of the Company's common stock (approximately 50.3% of the
Company's then outstanding common stock) from the Estate of Stephen Friedman
("Estate") and Christopher Trunkey, the Chief Financial Officer of the Company,
for a purchase price of $2.35 per share or $2,261,546 in the aggregate. In
addition, Music Action Ltd. ("MAC") has agreed that it will, as soon as
practicable but in any event within 120 days after November 6, 1998, make or
cause to be made an offer to each of the Company's shareholders other than the
Acquirors, the Estate and Mr. Trunkey, for the purchase of up to ninety percent
(90%) of such shareholder's shares at a price of $2.35 per share ("Purchase
Offer"). MAC has also agreed that, in the event the Purchase Offer is not made
within ninety days after November 6, 1998, it will deposit $1,800,000 into
escrow to be applied toward the Purchase Offer. FAB has agreed to make the
$1,800,000 deposit into escrow in the event MAC does not do so.
Effective November 9, 1998, the Company acquired 20% of the common
stock of Immediate Entertainment Group, Inc. ("Immediate") from FAB, MBO and
Western for a price of $2.50 per share paid by a combination of the issuance of
1,477,567 new shares of the Company's common stock and $2,510,803 in cash. The
Company also entered into a non-binding letter of intent, pursuant to which
Immediate will merge into a newly formed, wholly owned subsidiary of the Company
in a proposed tax-free transaction. The merger is conditioned upon the
negotiation and execution of definitive final agreements and the satisfaction of
any legal requirements including the consent of shareholders, if required.
Immediate's principal business is the production, acquisition and distribution
of audio and video CD's as well as CD-ROM by engaging artists and producers to
create recordings or acquiring previously completed recordings.
9
<PAGE>
Results of Operations
The Three Months Ended October 31, 1998 vs. the Three Months Ended
October 31, 1997
For the quarter ended October 31, 1998 feature film revenues were
approximately $72,000 as compared to approximately $313,000 for the quarter
ended October 31, 1997. The substantial decrease in feature film revenues of
approximately 77% results primarily from the fact that the Company has not
produced any new films since the fiscal year ended April 30, 1995. Until such
time as the Company either produces new films or develops and implements a new
overall strategic plan, the Company expects that its feature film revenues will
continue to decline.
Costs related to revenue as a percentage of feature film revenues
decreased to approximately 2% for the quarter ended October 31, 1998 from
approximately 85% for the quarter ended October 31, 1997. This decrease results
from the fact that a significant portion of the costs associated with the
Company's films have previously been amortized. All of Me, Lovin' Molly and The
Redemption, for example, generated significant revenues during the quarter with
little or no amortization of costs associated with those revenues. Selling
expenses increased to approximately $21,000 during the quarter ended October 31,
1998 versus approximately $19,000 during the same quarter last year.
General and administrative costs decreased by approximately 29% to
approximately $167,000 during the quarter ended October 31, 1998 versus
approximately $236,000 during the same period last year. This decrease results
primarily from a substantial decrease of approximately $109,000 in legal
expenditures due to the resolution in December 1997 and April 1998 of certain
litigation involving the Company partially offset by increased staff and
executive salary expenses.
The Company had a net loss of approximately $83,000 for the quarter
ended October 31, 1998 versus approximately $174,000 for the quarter ended
October 31, 1997 reflecting lower costs related to revenue and general and
administrative costs.
The Six Months Ended October 31, 1998 vs. the Six Months Ended October 31, 1997
For the six months ended October 31, 1998 feature film revenues were
approximately $222,000 as compared to approximately $671,000 for the six months
ended October 31, 1997. The substantial decrease in feature film revenues of
approximately 67% results primarily from the fact that the Company has not
produced any new films since the fiscal year ended April 30, 1995. Until such
time as the Company either produces new films or develops and implements a new
overall strategic plan, the Company expects that its feature film revenues will
continue to decline. Interest income decreased to approximately $67,000 for the
six months ended October 31, 1998 from approximately $95,000 during the same six
month period last year, reflecting the decrease in marketable securities held
during the six month period ended October 31, 1998.
10
<PAGE>
Costs related to revenue as a percentage of feature film revenues
decreased to approximately 4% for the six months ended October 31, 1998 from
approximately 45% for the six months ended October 31, 1997. This decrease
results from the fact that a significant portion of the costs associated with
the Company's films have previously been amortized. Selling expenses increased
to approximately $29,000 during the six months ended October 31, 1998 versus
approximately $23,000 during the same six month period last year.
General and administrative costs decreased by approximately 37% to
approximately $313,000 during the six months ended October 31, 1998 versus
approximately $499,000 during the same six month period last year. This decrease
results primarily from a substantial decrease of approximately $212,000 in legal
expenditures due to the resolution in December 1997 and April 1998 of certain
litigation involving the Company which was partially offset by increased public
company expenditures and executive salary expenses.
The Company had a net loss of approximately $43,000 for the six months
ended October 31, 1998 versus approximately $59,000 for the quarter ended
October 31, 1997 reflecting lower costs related to revenue and general and
administrative costs.
Liquidity and Capital Resources
The production of motion pictures requires substantial capital. In
producing a motion picture, the Company may expend substantial sums for both the
production and distribution of a picture, before that film generates any
revenues. In many instances the Company may obtain advances or guarantees from
its distributors but these advances and guarantees generally may defray only a
portion of a film's cost. The Company's principal source of working capital
during the six months ended October 31, 1998 was motion picture licensing
income. Except for the financing of film production costs, management believes
that its existing cash resources will be sufficient to fund its ongoing
operations.
For the six months ended October 31, 1998, the Company's net cash flow
used in its operating activities was approximately $177,000, a decrease of
approximately $249,000 as compared to approximately $72,000 of net cash flow
provided by operating activities during the six months ended October 31, 1997.
This decrease is due primarily to the substantial decrease of approximately 67%
in feature film revenues during the six month period ended October 31, 1998 as
compared to the same period in 1997. During the six months ended October 31,
1997, the Company used cash flow, primarily generated by the sale of marketable
securities, to make a cash distribution to shareholders of approximately
$3,957,000 on June 27, 1997. As of October 31, 1998, the Company had cash, cash
equivalents and marketable securities of approximately $2,456,000 as compared to
approximately $2,382,000 as of October 31, 1997.
11
<PAGE>
Future Commitments
The Company has no material commitments for capital expenditures. The
Company will evaluate the adequacy of and need for capital resources once a
final strategic plan has been developed. (See "Recent Developments").
Forward-Looking Statements
The foregoing discussion, as well as the other sections of this
Quarterly Report on Form 10-QSB, contains forward-looking statements that
reflect the Company's current views with respect to future events and financial
results. Forward-looking statements usually include the verbs "anticipates,"
believes," "estimates," "expects," "intends," "plans," "projects," "understands"
and other verbs suggesting uncertainty. The Company reminds shareholders that
forward-looking statements are merely predictions and therefore inherently
subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statements. Potential factors that
could affect forward-looking statements include, among other things, the
Company's ability to identify, produce and complete film projects that are
successful in the marketplace, to arrange financing, distribution and promotion
for these projects on favorable terms in various markets and to attract and
retain qualified personnel. In addition, the Company is currently seeking merger
and acquisition proposals for the Company and its plans, strategies and future
results are subject to the outcome of any such proposals.
12
<PAGE>
PART II - OTHER INFORMATION
Item 5 - Other Information
On November 6, 1998, a change in control of the Company occurred which
resulted from the purchase of 962,360 shares of Company's common stock from the
Estate of Stephen Friedman and Christopher Trunkey, the Chief Financial Officer
of the Company by FAB Capital Corp., MBO Music Verlag GmbH, Western Union
Leasing Ltd. and RAS Securities Corp. pursuant to the Acquisition Agreement
dated November 6, 1998. Under the Acquisition Agreement, the then existing
members of the Company's board of directors resigned and elected in their place
Phillip Cook and James Leaderer. In addition, Kenneth Aguado resigned as the
Company's Chief Executive Officer and Phillip Cook was appointed President and
James Leaderer was appointed Senior Vice President. The Company also reported
that it had acquired 20% of the common stock of Immediate Entertainment Group,
Inc. for a combination of cash and newly issued shares of the Company's common
stock.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Stock Acquisition Agreement, dated November 6, 1998, between
the Estate of Stephen Friedman, RAS Securities Corp., FAB
Capital Corporation, Christopher Trunkey and the Company. (1)
10(b) Stock Purchase Agreement, dated November 9, 1998, between
Western Union Leasing Ltd., FAB Capital Corporation, MBO Music
Verlag GmbH, Immediate Entertainment Group, Inc. and the
Company. (1)
27 Financial Data Schedule.
---------------
(1) Incorporated by reference to the exhibit of the same number in
the Schedule 13D relating to the Company's securities dated November
13, 1998 filed by FAB Capital Corp., RAS Securities Corp., MBO
Music Verlag GmbH, Western Union Leasing Ltd., Christoph Martin
and Michael Berresheim.
(b) Forms 8-K
On November 20, 1998, the Company filed a Form 8-K reporting under Item
1 thereof a change in control of the Company as described in Item 5 -
Other Information above.
13
<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.
Date: December 11, 1998 KINGS ROAD ENTERTAINMENT, INC.
By: /s/Christopher M. Trunkey
--------------------------
Christopher M. Trunkey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 2,456,168
<SECURITIES> 0
<RECEIVABLES> 406,959
<ALLOWANCES> (10,000)
<INVENTORY> 312,397
<CURRENT-ASSETS> 3,222,923
<PP&E> 237,627
<DEPRECIATION> (222,700)
<TOTAL-ASSETS> 3,240,350
<CURRENT-LIABILITIES> 135,369
<BONDS> 0
<COMMON> 21,136,318
0
0
<OTHER-SE> (18,039,737)
<TOTAL-LIABILITY-AND-EQUITY> 3,240,350
<SALES> 72,247
<TOTAL-REVENUES> 106,699
<CGS> 1,500
<TOTAL-COSTS> 189,832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (83,133)
<INCOME-TAX> 174
<INCOME-CONTINUING> (83,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,307)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
