32
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1999.
[ ] Transition Report under Section13 or 15 (d) of the Securities Exchange
Act of 1934 for the transition period from ___________to___________
Commission File No. 0-23806
I/NET, Inc.
(Name of Small Business Issuer in its Charter)
DELAWARE 87-0046720
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (IRS Employer I.D. No.)
Incorporation or Organization)
643 W. Crosstown Parkway
Kalamazoo, Michigan 49008
(Address of Principal Executive Officers)
Issuer's Telephone Number: (616) 344-3017
Securities Registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities Registered under Section 12(g) of the Exchange Act:
$0.001 par value common voting stock
(Title of Class)
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.
(1) Yes X No____ (2) Yes X No____
----- ----
Check if there is no disclosure of delinquent files in response to item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
State Issuer's revenues for its most recent fiscal year: $1,792,881
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: $10,690,075. This valuation is based upon the average
bid price for shares of common voting stock of the Registrant on the
"Over-the-Counter Bulletin Board" of the National Association of Securities
Dealers, Inc. ("NASD") on February 29, 2000.
There are approximately 17,816,792 shares of common voting stock of the
Registrant held by non-affiliates.
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
31,037,652
as of March 1,2000
Transitional Small Business Disclosure Format (check one): Yes___ NO__X_
-THIS SPACE INTENTIONALLY LEFT BLANK-
<PAGE>
TABLE OF CONTENTS
Item 1. Description of Business ..............................................4
Item 2. Description of Property...............................................7
Item 3. Legal Proceedings.....................................................7
Item 4. Submission of Matters to a Vote of Security Holders...................7
Item 5. Market for Common Equity and Related Stockholder Matters..............8
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................8
Item 7. Financial Statements.................................................10
Item 8. Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure.............................................10
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....................11
Item 10. Executive Compensation...............................................12
Item 11. Security Ownership of Certain Beneficial Owners and Management.......13
Item 12. Certain Relationships and Related Transactions.......................14
Item 13. Reports on Form 8-K and Exhibits....................................14
Signatures....................................................................15
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
I/Net, Inc. (The "Company" or "I/NET") was organized under the laws of the state
of Delaware in 1986 under the name of a predecessor corporation. The Company
registered its initial public offering with the Securities and Exchange
Commission in 1987. The Company currently develops Internet computer systems for
International Business Machines Corporation (IBM) and its computer software for
IBM's AS/400 midrange computer. The Company also provides web site consulting as
well as services to deliver secure financial transactions over the Internet.
BUSINESS DEVELOPMENT
I/NET was formed as a contract research and development firm specializing in
software development for digital imaging and voice recognition. Systems created
by I/NET are currently in service in real estate, pharmaceutical research,
government, newspapers, and information management.
BUSINESS
I/NET, in prior years, was engaged in the business of providing a wide range of
contract research systems planning, development, and implementation services on
a fee basis to public and private sector clients. It was founded in response to
demand for high-quality information systems services on the part of government,
commercial, and not-for-profit organizations, requiring digital imaging as part
of their overall solution. Since its formation, I/NET has delivered and
installed microcomputer-based decision support systems for systems sold
worldwide, supporting hundreds of users and employing distributed databases,
sophisticated telecommunications networks, and state-of-the-art development
tools. Past projects which the Company has undertaken in multi-media
applications have incorporated digital imaging and voice recognition.
The Company has performed development work under contract with IBM for many
years, including developing multi-media software running on the IBM system
AS/400, a mid-range computer system with nearly 500,000 installations worldwide.
During 1995, I/NET brought to the marketplace its own Web Server/400TM as the
first commercially available product which can connect the AS/400 computers
worldwide to the Internet.
I/NET's Commerce Server/400TM was introduced in August 1996. This product
provides AS/400 users with the ability to conduct secured encrypted financial
and other transactions over the Internet. In February 1997, IBM bestowed upon
I/NET the prestigious Partner in Development "Product of the Year Award" for
Commerce Server/400TM. During 1998, the Company was licensed by the United
States Department of Commerce to export its strong encrypted version of this
product to various end users throughout the world.
<PAGE>
Another I/NET product, Merchant/400, allows Commerce Server/400 users the
opportunity to easily sell goods and services over the Web. This product ensures
security and complete credit card authorization.
Recently developed products include Netscape Enterprise Server for the AS/400
which I/NET ported for use on the AS/400. Webulator/400 provides instant Web
access to existing AS/400 applications without code changes. I/NET's newest
product, NetPrint/400, was introduced in November of 1999, allows for seamless
ad-hoc printing of AS/400 reports without requiring complex host or client
setup.
The Company currently has a contract with IBM for providing Website consulting
services. This contract, while cancelable upon ninety days notice, has been
extended until March 2001.
The Company has a ten year contract with Internet Financial Services, Ltd.
(IFS), a privately held Internet and software services company, based in the
Cayman Islands, which specializes in website design, hosting and servicing of
financial transactions for offshore clients. IFS has contracted with I/NET to
design and develop the first-ever Internet based offshore asset management and
trading system for a client of IFS, SEGOES, LTD, a Caymanian corporation. SEGOES
is the first and only Internet based securities trading system designed
exclusively for the offshore world. SEGOES is operational and is conducting
brokerage transactions in the U.S. market today. Much like other trading
systems, SEGOES offers U.S. stocks, options, and mutual funds over the Internet.
But SEGOES also offers its users fixed income products, IPO access, secondary
offerings and private placement securities over the same interface. SEGOES is
also currently preparing to offer these same products to exchanges around the
world such as Canada, London, Frankfurt, Tokyo, Hong Kong and Singapore.The past
few years have seen a significant increase in the use of Internet securities
trading and the Company expects this trend to continue even in the offshore
financial services industry, which has been traditionally slow to adopt
innovative change.
I/NET in prior years created certain computer technology and software
(Career/NET) to facilitate the placement of job applicants with employers over
the Internet. I/NET granted to Career/NET, L.L.C. the exclusive license to sell
this product in consideration for providing I/NET with a percentage of revenues
generated by the licensee, as well as fees for ongoing programming and website
development work. Ownership of the product remains with I/NET.
DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES
The Company has signed exclusive worldwide marketing and distribution agreements
with various organizations for the distribution of its Webserver products.
Appsmall.com (formerly International Marketing Strategies) has the exclusive
right until September, 2000 to distribute the Company's products in the United
States, Canada, Europe, the Middle East and Africa. General Business Services
Co. LTD (GBS) of Tokyo, Japan has the exclusive territory of Japan for 2000.
COMPETITIVE BUSINESS CONDITIONS AND THE SMALL BUSINESS ISSUER'S COMPETITIVE
POSITION IN THE INDUSTRY AND METHODS OF COMPETITION
The Company's contract work performed for IBM has been competitively acquired,
and usually the final selection is between I/NET and departments within IBM. The
business conditions for all Webserver products is very competitive with many
large organizations, including IBM, Advanced Business Links and ROI Connect,
offering similar products, sometimes at lower cost.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF PRINCIPAL SUPPLIERS
Developing software requires few tangible raw materials. The most important
element in this process is the personnel who plan, design, and develop the
software code. I/NET has consistently hired the best talent available. It
recruits top-of-the-class talent from two Kalamazoo-based colleges as well as
candidates from the East Coast of the United States. I/NET's business is
dependent on attracting and retaining talented personnel. Today's market for
technology experts is highly competitive and there can be no assurances that
I/NET will continue to be able to attract and retain quality personnel.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The Company provided Internet products, Website consulting services and support
services to three major customers totaling $1,734,000 and $1,746,000 for the
years ended December 31, 1999 and 1998 respectively. These three customers in
the aggregate accounted for 97% and 99% of the Company's revenues in 1999 and
1998, respectively.
<PAGE>
PATENTS, TRADEMARKS, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR
CONTRACTS, INCLUDING DURATION
I/NET has various trademarks for its products, including Webserver/400, Commerce
Server/400, and Career/NET.
On September 30, 1997, the Company entered into a software license agreement
with Netscape wherein Netscape granted to the Company the right to port certain
of its Internet Server products to the IBM AS/400 platform. This agreement is
for a period of three years and allows the Company to market and distribute the
ported products upon their modification to the AS/400 platform.
In exchange for this license agreement, I/NET has agreed to pay minimum
royalties to Netscape in the amount of $3,000,000, which are fully guaranteed
by IBM in the event that product sales are insufficient to repay amounts due
under the agreement according to the following repayment schedule:
Paid by IBM in October, 1997 $ 250,000
Paid by IBM in September, 1998 $ 750,000
Paid by IBM in September 1999 $1,000,000
September 30, 2000 $1,000,000
IBM provided advances against royalties in the amount of $600,000. These amounts
will be reimbursed to IBM after deduction of Netscape royalties in the amount of
10% of total revenue received from the sale of the ported products. If the
revenue from the sales of these Netscape products are insufficient, I/NET will
not have to repay any of these royalties advanced. The Company recognized
$10,000 of revenue in 1999 and $390,000 of revenue in 1998 from these advances.
Sales of this product have been insignificant to date.
NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
The performance of services and the supply of products by the Company are not
subject to governmental approval except as they relate to strong encrypted
software products, which are under government regulation.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGUALTIONS ON THE BUSINESS
No present governmental regulations have any adverse significant impact on the
present or contemplated business operations of the Company, and no such probable
governmental regulations are anticipated to have any adverse effect. However,
there are numerous proposals pending to regulate the Internet. The Company
cannot predict the impact that the adoption of any of these proposals could have
on the Company's business.
ESTIMATE OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON
RESEARCH AND DEVELOPMENT ACTIVITIES, AND IF APPLICABLE, THE EXTENT TO WHICH THE
COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS
There were minimal research and development costs incurred by the Company during
the calendar years ended December 31, 1999 and 1998. The Company completed the
development of the Netscape and NetPrint/400 products with little additional
costs.
COST AND EFFECT OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE, AND
LOCAL)
There are no foreseeable adverse effects on the Company's present or
contemplated business operations resulting from environmental laws, rules, or
regulations.
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES
As of December 31, 1999, the Company had 15 full time employees.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive and administrative offices are located at 643
West Crosstown Parkway, Kalamazoo, Michigan, which is comprised of approximately
5,600 square feet. This facility is leased and rental payments on the space
amounted to $78,000 for 1999.
Management considers its offices to be well maintained, in good operating
condition and suitable and adequate for their intended purposes.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of 1999.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The Company's common stock is listed on the Nasdaq Over-the counter Bulletin
Board under the symbol "INNI". The high and low bid prices for the calendars
1999 and 1998 are summarized by quarter below:
1998 1998 1998 1998 1999 1999 1999 1999
1st qtr 2nd qtr 3rd qtr 4th qtr 1st qtr 2nd qtr 3rd qtr 4th qtr
- --------------------------------------------------------------------------------
HIGH $0.24 $0.36 $0.28 $1.03 $1.91 $1.03 $0.66 $0.79
LOW $0.18 $0.17 $0.13 $0.08 $0.74 $0.50 $0.31 $0.29
These bid prices are quotations of broker-dealers that reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent
actual transactions.
HOLDERS
The number of record holders of the Company's common stock as of December 31,
1999, was 279. There were approximately 3,000 beneficial holders as of that
date.
DIVIDENDS
There are currently present material restrictions that limit the ability of the
Company to pay dividends on its common stock as it has a deficit in its
stockholders' equity. The Company has not paid any dividends with respect to its
common stock nor does it intend to do so in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Calendar Years Ended December 31, 1999 and 1998
RESULTS OF OPERATIONS
Revenues for the year ended December 31, 1999, were $1,792,881 as compared to
$1,768,379 for the year ended December 31, 1998. When analyzed by product
category, revenues of Website consulting services to IBM were $941,000 in 1999,
as compared to $700,000 in 1998. This increase is due to additional services
being requested by IBM, which were not provided for in the original contract.
Internet products accounted for revenues of $534,000 in 1999 and $970,000 in
1998. This decrease is primarily due to the substantial completion of the
Netscape product during 1998. Licensing fees from the Career/NET product
increased by $193,000 over 1998 due to Career/NET, LLC's desire to be relieved
of its original support agreement with I/NET. In exchange for this relief,
Career/NET issued I/NET a $209,000 interest bearing demand note. I/NET
negotiated a fee for and is performing ongoing support services.
Cost of revenues decreased by $102,000 as compared to 1998. The primary cause
for this decrease was the termination of personnel for the Netscape project, as
well as other expenses associated with the Netscape project. Gross profit as a
percent of sales increased from 49% in 1998 to 56% in 1999. In addition, the
recognition of the revenue associated with the Career/NET L.L.C. support
services agreement increased margins as there were minimal costs associated with
this transaction.
General and administrative expenses increased by $82,000 as compared to 1998.
The cause for this increase was additional Michigan Single Business Tax and
increased professional fees relating to increased public relations activities.
Selling and administrative expenses as a percentage of sales increased from 29%
in 1998 to 33% in 1999.
Interest expenses decreased by $22,000 due to the continued repayment of
borrowings during 1999 and 1998.
FINANCIAL CONDITION AND LIQUIDITY
The Company's primary need for capital will be to invest in computer software
development. As of December 31, 1999, the Company's working capital deficit was
$639,000, compared to a deficit of $936,000 at December 31, 1998. The resulting
decrease in working capital deficit is primarily due to earnings in 1999 of
$355,000 and continued repayment of its debt obligations.
The Company believes that the additional sales provided by the above mentioned
agreements and the continued development of new products should provide the
Company with sufficient working capital to fund its needs for 2000. However,
there can be no assurance these activities will be successful. The Company
continues to explore alternative options to reduce its debt obligations, which
could also increase the Company's financial stability.
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has suffered
recurring losses from operations in prior years, has a significant working
capital deficit, and requires additional capital to continue its product
development. Accordingly, the Company's independent public accountants have
included a modification in their report on the Company's financial statements
for the year ended December 31, 1999 discussing the Company's ability to
continue as a going concern. Management believes the Company will continue as a
going concern and is actively marketing its products to enable the Company to
meet its current obligations and provide additional funds for continued new
product development. In addition, management is currently negotiating several
additional contracts for its services and products. Management is also embarking
on other strategic initiatives to expand its business opportunities. However,
there can be no assurance these activities will be successful.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS 133 regarding derivative instruments is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The
statement will become effective for the Company for the quarter ended March 31,
2001. Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect the adoption of this new standard to affect its financial
statements.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Section Page Number
Report of Independent Certified Public Accountants............................18
Consolidated Balance Sheets as of December 31, 1999 and 1998...............19-20
Consolidated Statements of Earnings for the years ended
December 31, 1999 and 1998....................................................21
Consolidated Statements of Capital Deficit for the years
ended December 31, 1999 and 1998..............................................22
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and l998....................................................23
Summary of Accounting Policies.............................................24-25
Notes to Consolidated Financial Statements.................................26-32
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and offices held by all directors and
executive officers of the Company for the calendar year ended December 31, 1999,
and to the date hereof, and the year since which each such director or executive
officer has served in their respective positions.
Name Position Held Date of Election or Designation
- --------------------------------------------------------------------------------
James C. Knapp Chairman of the Board of Directors 1986
Stephen J. Markee President and CEO, 1985
Director, 1986
and CFO 1995
Paul A. Bertoldi Vice President Systems Development 1989
TERM OF OFFICE
The terms of office of the current directors and executive officers shall
continue until their replacements are duly qualified and elected.
BUSINESS EXPERIENCE
James C, Knapp, Chairman: Mr. Knapp, one of I/NET's initial founders, is 49
years of age, and received a BBA Degree from the University of Maryland in 1972.
He began his computer education at the age of 15 in a special program sponsored
by IBM, and served in the United States Air Force as a teacher for missile
computer guidance systems. He has been listed in the ACR Directory of Top
Computer Executives since 1981, and was inducted into the "Who's Who in the
Computer Industry" in 1990. His efforts in digital imaging and voice recognition
have been recognized internationally. Mr. Knapp has been a featured speaker at
the Massachusetts Institute of Technology and the Harvard Business School. He is
also an international speaker on Internet security.
Stephen J. Markee, President, CEO and CFO: Mr. Markee is 54 years of age. He
received a BS Degree from Ferris State University in 1970 and an MBA from
Western Michigan University ("WMU") in 1971. He is a licensed certified public
accountant in the state of Michigan. Mr. Markee served in the United States Army
during the Viet Nam conflict, and was decorated and medically retired in 1968.
After completing his education, he served as assistant Auditor General for the
State of Michigan before joining WMU as Director of Internal Auditing in 1976.
While at WMU, he also taught accounting classes in the MBA program. He then
changed directions, from public to private sector, as Vice President of Planning
and Control for a division of Standex International Corporation, where he was
responsible for information systems, accounting, and human resources. He joined
I/NET in 1985 as President and CEO. He has guided I/NET to a successful equity
partnership with IBM, and engineered the sale of intellectual property rights to
IBM. Mr. Markee has served on the Board of Directors of the Kalamazoo County
Chamber of Commerce, Chairman of the Kalamazoo County Convention and Visitors
Bureau, Past President of the local chapter of the Institute of Management
Accountants, and President of the Parchment Schools Foundation. He is a frequent
speaker to civic and business groups, and has appeared on the Financial News
Network ("FNN").
<PAGE>
Paul A. Bertoldi, Vice President, Systems Development: Mr. Bertoldi is 37 years
of age. He has received BBA and MBA degrees from WMU. He graduated magna cum
laude and was named a Presidential Scholar as one of the top undergraduates of
WMU. Since becoming one of I/NET's first employees, Mr. Bertoldi has helped
design the architecture of state-of-the-art imaging and voice recognition
systems in the field of real estate, medical imaging, and document imaging. Mr.
Bertoldi is currently involved in the development of website consulting and
Internet computer software products. He is an active member in various
professional organizations.
FAMILY RELATIONSHIPS
With the exception that Mr. Bertoldi is married to the sister of Mr. Knapp,
there are no family relationships between any directors or executive officers of
the Company.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Under the Delaware Corporation Law, a corporation has the power to indemnify any
person who is made a party to any civil, criminal, administrative or
investigative proceeding, other than action by or any right of the corporation,
by reason of the fact that such person was a director, officer, employee or
agent of the corporation, against expenses, including reasonable attorney's
fees, judgments, fines and amounts paid in settlement of any such actions;
provided however, in any criminal proceeding, the indemnified person shall have
had no reason to believe the conduct committed was unlawful. However, it is the
position of the Securities and Exchange Commission that indemnification against
liabilities for violation of the federal securities law, rules, and regulations
is against public policy.
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation
The following table sets forth the aggregate compensation paid by the Company
for services rendered during the periods indicated.
-----------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------
------------------- ------------ -------------- ------------- ---------------
Name and Year Ended Salary Bonus All Other
Principal Position Dec. 31 Compensation
------------------- ------------ -------------- ------------- ---------------
------------------- ------------ -------------- ------------- ---------------
James C. Knapp 1999 $115,092 $5,130*
------------------- ------------ -------------- ------------- ---------------
------------------- ------------ -------------- ------------- ---------------
Stephen J. Markee 1999 $125,680
------------------- ------------ -------------- ------------- ---------------
------------------- ------------ -------------- ------------- ---------------
Paul A. Bertoldi 1999 $ 75,660
------------------- ------------ -------------- ------------- ---------------
-----------------------------------------------------------------------------
*Approximate value of life insurance premiums paid by the Company
-----------------------------------------------------------------------------
BONUSES AND DEFERRED COMPENSATION
None
COMPENSATION PURSUANT TO PLANS
The Company maintains an incentive stock option plan that provides for the
granting of options to officers and other key employees at an exercise price not
less than 100% of the fair market value on the date of the grant. Twenty percent
of the options become exercisable each year following the date they were
granted, and can remain outstanding for five years following the day they become
fully vested. Changes in options outstanding are summarized as follows:
Weighted
Option Price Average Price Per
Shares Per Share Share
- --------------------------------------------------------------------------------
January 1, 1998 and 1999 115,000 $ .37- 2.50 $.65
Lapsed in October 1999 (100,000) .37 .37
Granted in December 1999 50,000 .29 .29
- --------------------------------------------------------------------------------
December 31, 1999 65,000 $0.29-2.50 $.80
- --------------------------------------------------------------------------------
At December 31, 1999, 582,255 shares of common stock are reserved for the
incentive stock option plan and 15,000 options were vested and exercisable. The
remaining weighted average contractual life of these options is five years. The
remaining 50,000 options are not vested and have a remaining contractual life of
ten years.
PENSION PLAN
The Company has a profit sharing and defined contribution pension plan covering
substantially all employees. Under the plan, employees may make tax deferred
voluntary contributions which, at the discretion of the Company's Board of
Directors, may be matched within certain limits by the Company. In addition, the
Company may make additional discretionary contributions to the plan as profit
sharing contributions. All contributions to the plan are limited by applicable
Internal Revenue Code regulations. There were no Company contributions charged
against operations in 1999 or 1998.
COMPENSATION OF DIRECTORS
See Cash Compensation of this Item.
EMPLOYMENT CONTRACTS
There are no employment contracts for any employees or officers as of December
31, 1999.
TERMINATION OF EMPLOYMENT AND CHANGES OF CONTROL ARRANGEMENT
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Summary
Compensation Table set out above which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of such person's employment with the Company or its subsidiaries, or
any change in control of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on its review of Forms 3,4 and 5 furnished to it, the Company
believes that each director, officer and beneficial owner of 10% or more of the
Company's stock made all required filings under Section 16(a) of the Exchange
Act during 1999.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the share holdings of the Company's directors and
executive officers and those persons or entities who own more than 5% of the
Company's outstanding common stock.
Amount and Nature of
Name Address Beneficial Ownership Percent of Class
- --------------------------------------------------------------------------------
Paul A. Bertoldi Kalamazoo, MI 410,699 1.32%
James C. Knapp Kalamazoo, MI 5,417,719 17.46%
Stephen J. Markee Richland, MI 6,196,743 19.97%
------------------- ---------------
Total 12,025,161 38.75%
=================== ===============
CHANGES IN CONTROL
To the knowledge of management, there are no present arrangements or pledges of
securities of the Company which may result in a change in control of the
Company.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James C. Knapp, Chairman of the Board of Directors and Stephen J. Markee,
President, CEO and CFO, have loaned the Company funds for working capital. These
funds are provided at an interest rate of 8%. The balance outstanding at
December 31, 1999 was $407,142. At December 31, 1999, the Company owed $146,892
to Mr. Knapp and $260,250 to Mr. Markee. These loans are secured by all of the
Company's assets. With the exception of this transaction, there were no material
transactions to which the Company or any of its subsidiaries was or is to be a
party, in which the amount involved exceeded $60,000 and in which any promoter,
founder, director or executive officer, or any security holder who is known to
the Company to own or record of beneficially more than 5% of any class of the
Company's common stock, or any member of the immediate family of any of the
foregoing persons, had an interest during the last two calendar years ended
December 31, 1999 and 1998.
"SAFE HARBOR" PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
Statements in this filing that are not historical facts are forward-looking
statements, which involve risks and uncertainties that could affect the
Company's results of operations, financial position and cash flows. Actual
results may differ materially from those projected in the forward-looking
statements, due to a variety of factors, some of which may be beyond the control
of the Company. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
ITEM 13. REPORTS ON FORM 8-K AND EXHIBITS
REPORTS ON FORM 8-K:
None
EXHIBITS:
None
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act of 1934, as amended, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto being duly authorized.
I/NET, Inc.
Date: March 30, 2000 By: /s/ Stephen J. Markee
---------------------------------
Stephen J. Markee, Director
President, CEO, and CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: March 30, 2000 By: /s/ Stephen J. Markee
--------------------------------
Stephen J. Markee, Director
President, CEO and CFO
Date: March 30, 2000 By: /s/ James C. Knapp
--------------------------------
James C. Knapp, Chairman
of the Board of Directors
Date: March 30, 2000 By: /s/ Paul A. Bertoldi
--------------------------------
Paul A. Bertoldi, Vice President
Systems Development
<PAGE>
I/NET, Inc.
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Consolidated Financial Statements
Years ended December 31, 1999 and 1998
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I/NET, Inc.
Contents
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Report of Independent Certified Public Accountants........................18
Financial Statements:
Consolidated Balance Sheets.....................................19-20
Consolidated Statements of Earnings................................21
Consolidated Statements of Capital Deficit.........................22
Consolidated Statements of Cash Flows..............................23
Summary of Accounting Policies.........................................24-25
Notes to Consolidated Financial Statements.............................26-32
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
I/NET, Inc.
Kalamazoo, Michigan
We have audited the accompanying consolidated balance sheets of I/NET, Inc. as
of December 31, 1999 and 1998, and the related consolidated statements of
earnings, capital deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of I/NET, Inc. at
December 31, 1999, and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered recurring losses from operations
in prior years, has a significant working capital deficit and requires
additional capital to continue its product development. These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 13. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Kalamazoo, Michigan /s/BDO SEIDMAN, LLP
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January 12, 2000 Certified Public Accountants
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December 31, 1999 1998
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Assets (Note 3)
Current:
Cash and cash equivalents $ 171,681 $ 103,847
Trade Receivables (Note 5) 364,253 201,961
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Total Current Assets 535,934 305,808
Office Furniture and Equipment,
less accumulated depreciation
of $97,451 and $123,308 16,587 31,100
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$ 552,521 $336,908
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I/NET, Inc.
Consolidated Balance Sheets
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December 31, 1999 1998
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Liabilities and Capital Deficit
Current Liabilities:
Accounts payable $ 17,618 $ 124,500
Accruals:
Commissions (Note 1) 258,000 258,000
Interest 171,402 141,507
Other 33,500 21,600
Advances from stockholders (Note 2) 95,500 100,780
Current maturities of long-term debt (Note 3) 599,000 595,000
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Total Current Liabilities 1,175,020 1,241,387
Long-term Debt, less current maturities (Note 3) 504,196 576,736
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Total Liabilities 1,679,216 1,818,123
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Commitments and Contingencies (Notes 7, 8, 11 and 13)
Capital Deficit (Notes 4 and 9):
Common stock, $.001 par value - shares
authorized 50,000,000 issued and
outstanding 31,037,652 in 1999
and 1998 31,038 31,038
Additional paid-in capital 11,886,674 11,886,674
Deficit (13,044,407) (13,398,927)
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Total Capital Deficit (1,126,695) (1,481,215)
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$ 552,521 $ 336,908
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
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I/NET, Inc.
Consolidated Statements of Earnings
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Year ended December 31, 1999 1998
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Revenues (Note 5) $1,792,881 $1,768,379
Cost of Revenues 797,507 899,606
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gross profit 995,294 868,773
Selling, General, and Administrative Expenses 588,474 506,270
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Earnings from operations 406,820 362,503
Interest Expense - net of interest income
$10,764 in 1999
and $6,502 in 1998 52,300 74,607
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Net Earnings $354,520 $287,896
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Net Earnings per Share (Note 12)
Basic and Diluted $ .01 $ .01
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Average Number of Basic Common
Shares Outstanding (Note 12) 31,037,652 31,037,652
Average Number of Diluted Common
Shares Outstanding (Note 12) 31,178,533 31,037,652
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
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I/NET, Inc.
Consolidated Statements of Capital Deficit
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Common Stock Additional
Paid
Shares Amount Capital Deficit Total
Balance, January 1,
1998 31,037,612 $31,038 $11,886,674 $(13,686,823) $(1,769,111)
Net earnings for
the year - - - 287,896 287,896
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Balance, December 31,
1998 31,037,652 31,038 11,886,674 (13,398,927) (1,481,215)
Net earnings
for the year - - - 354,520 354,520
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Balance, December 31,
1999 31,037,652 $31,038 $11,886,674 $(13,044,407) $(1,126,695)
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
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I/NET, Inc.
Consolidated Statements of Cash Flows
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Year ended December 31, 1999 1998
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Operating Activities
Net earnings $ 354,520 $ 287,896
Depreciation 17,238 28,345
Changes in assets and liabilities:
Receivables (162,292) (122,205)
Accounts payable (106,882) (32,432)
Accruals 41,795 (24,669)
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Cash Provided by Operating Activities 144,379 201,799
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Investing Activities
Capital expenditures (2,725) (23,150)
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Cash Used In Investing Activities (2,725) (23,150)
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Financing Activities
Principal payments on long-term debt (39,613) (167,312)
Principal payments on notes to stockholders (34,207) (43,429)
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Cash Used In Financing Activities (73,820) (210,741)
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Increase (Decrease) in Cash and Cash Equivalents 67,834 (32,092)
Cash and Cash Equivalents, beginning of year 103,847 135,939
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Cash and Cash Equivalents, end of year $ 171,681 $ 103,847
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
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I/NET, Inc.
Summary of Accounting Policies
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BASIS OF PRESENTATION
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The consolidated financial statements include the accounts of the Company,
I/NET, Inc., (a Deleware Corporation), and it's wholly owned subsidiary I/NET,
Inc. (a Michigan Corporation). Only the subsidiary remains an active Company and
therefore the consolidated financial statements presented within are those of
the subsidiary.
DESCRIPTION OF THE BUSINESS
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The Company operates in one segment consisting of Website consulting services
and development of Internet computer software products. The Company does not
operate based upon product lines but as one business unit. Its major customers
are International Business Machines Corporation (IBM) and Appsmall.com formerly
International Marketing Strategies (IMS). (See Note 5)
USE OF ESTIMATES
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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 period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
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For purposes of the statement of cash flows, the Company considers all highly
liquid investments with maturity of three months or less when purchased to be
cash equivalents.
OFFICE FURNITURE, EQUIPMENT, AND DEPRECIATION
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Office furniture and equipment are stated at cost. Depreciation is computed
principally by the straight-line method for financial reporting purposes over
the estimated useful lives of the assets and by accelerated methods for tax
purposes.
DEVELOPED COMPUTER SOFTWARE
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Software development costs are accounted for in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Cost of Computer Software To Be Sold, Leased or Otherwise Marketed."
Software development costs and certain product enhancements, when significant,
are capitalized subsequent to the establishment of technological feasibility for
the product and prior to the products general release to customers.
Costs incurred prior to technological feasibility or subsequent to the product's
general release to customers, as well as selling, general, and administrative
costs associated with the products, are expensed as incurred.
See accompanying notes to consolidated financial statements.
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I/NET, Inc.
Summary of Accounting Policies
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FAIR VALUE OF FINANCIAL INSTRUMENTS
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The Company's financial instruments consist of cash, receivables, and notes
payable, accounts payable and long-term debt. Due to the short-term nature of
the items, other than long-term debt, and the variable interest rates on a
substantial portion of the long-term debt, management estimates that carrying
amounts of the Company's financial instruments approximate their fair values at
December 31, 1999.
REVENUE RECOGNITION
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Revenues for the sale of the Company's Internet products are recognized when the
product has been accepted by the customer. The Company records revenue for its
long-term contracts on the percentage-of-completion basis. Under this method,
revenues are determined by comparing costs incurred to date to the estimated
total costs for the contract. The proportionate amounts of contract revenue are
then recorded based on this percentage of completion of costs.
EARNINGS PER SHARE
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Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of common shares issuable upon
exercise of stock options and warrants.
NEW ACCOUNTING PRONOUNCEMENTS
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SFAS 133 regarding derivative instruments is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000, as amended by SFAS 137. The
statement will become effective for the Company for the quarter ended March 31,
2001. Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to affect its financial statements.
See accompanying notes to consolidated financial statements.
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I/NET, Inc.
Notes to Consolidated Financial Statements
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1. COMMISSIONS
During a prior year, the Company negotiated to release a distributor from its
exclusive contract to distribute certain I/NET products. In exchange for this
release I/NET is required to pay commissions totaling $258,000 at December 31,
1999.
2. SHORT-TERM ADVANCES FROM STOCKHOLDERS
Advances from stockholders consist of:
December 31, 1999 1998
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Non-interest bearing notes payable to
stockholders, due on demand $ 13,500 $ 10,280
Secured stockholder's advances bearing
Interest at 8%, due on demand 82,000 96,500
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$ 95,500 $ 100,780
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3. LONG-TERM DEBT
Long-term debt consists of:
December 31, 1999 1998
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Notes payable to vendors (see below) $ 791,554 $ 831,167
Notes payable to stockholders
bearing interest at 8% and due in
December, 2001, secured by all
the Company's assets 311,642 340,569
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1,103,196 1,171,736
Less current maturities 599,000 595,000
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Total Long-term Debt $ 504,196 $ 576,736
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I/NET, Inc.
Notes to Consolidated Financial Statements
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NOTES PAYABLE TO VENDORS
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Unsecured notes payable to various vendors totaling $791,554 are due in various
installments and at varying interest rates.
Two notes totaling $440,655 are due on demand. These notes bear interest at the
prime rate plus 2% (effectively 10.50 % at December 31, 1999).
Another note in the amount of $80,948 is due in monthly installments at the rate
of 5% of the previous month's cash receipts (as defined) but at a minimum of
$2,000 bi-monthly. The principle balance of this note was due in September 1996.
The Company is in default on repayment on this note but continues to make
payments as required by the original note. This note bears interest at 8% and is
classified as current.
Another note in the amount of $217,587 is due in monthly installments of 5% of
the previous month's cash receipts (as defined) but at a minimum rate of $10,000
bi-monthly and bears interest at the prime rate plus 2%. Final payment, assuming
minimum payments only, is July 2004.
Another vendor note in the amount of $52,364 is due in monthly installments of
5% of the previous month's cash receipts (as defined) but at a minimum rate of
$3,500 monthly and bears interest at 10%. Final payment, assuming minimum
payments only, is May 2001.
Aggregate maturities of long-term debt over the next five years assuming
repayment of stockholders' advances (Note 2) and notes are as follows:
2000 $695,000
2001 $369,000
2002 $49,000
2003 $54,000
2004 $32,000
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I/NET, Inc.
Notes to Consolidated Financial Statements
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4. STOCK WARRANTS
The Company issued 460,000 warrants at prices ranging from $.50 to $1.00, with a
weighted average price of $.69. These warrants were issued in connection with
obtaining the right for the Company to port certain Netscape Communications
Corporation Internet products to the IBM AS/400 platform. These warrants expire
in 2000.
5. MAJOR CUSTOMERS
The Company provided Internet products, websight consulting services and support
services to three major customers totaling $1,734,000 and $1,746,000 for the
years ended December 31, 1999 and 1998 respectively. These three customers in
the aggregate accounted for 97% and 99% of the Company's revenue in 1999 and
1998, respectively.
During 1998, the Company signed a licensing agreement and supplemental support
services agreement for its previously developed Career/NET product, an Internet
resume management service, with Career/NET L.L.C. These agreements allowed the
licensee the perpetual license to use and sell the product. In consideration for
granting the license, I/NET would receive 30% of the net revenues received by
the licensee. In exchange for these revenues, I/NET would perform all
programming and website design and development.
In March 1999, the licensee desired to be relieved of the supplemental support
services agreement. In exchange for this relief, it gave to I/NET a $209,000
demand promissory note which bears interest at 7% per annum. The revenue from
this transaction has been recorded in 1999 and the note is included in trade
receivables as of December 31, 1999. In addition, the Company has negotiated a
fee-for-service agreement for all ongoing programming and website development
work.
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I/NET, Inc.
Notes to Consolidated Financial Statements
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6. TAXES ON INCOME
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:
December 31, 1999 1998
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Deferred Tax Assets:
Accruals $ 88,000 $ 88,000
Trademark 51,000 56,000
Net operating loss carryforward 3,406,000 3,409,000
Tax credit carryforwards 27,000 42,000
Capital loss carryforwards 24,000 24,000
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Total Deferred Tax Assets 3,596,000 3,619,000
Valuation Allowance (3,596,000) (3,619,000)
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$ - $ -
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As of December 31, 1999, the Company had a net operating loss carryforward of
approximately $10,017,000 and investment tax credit carryforwards of
approximately $22,000 available to reduce future taxable income and taxes,
respectively. These carryforwards expire from 2000 through 2011.
7. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing and defined contribution pension plan covering
substantially all employees. Under the plan, employees may make tax deferred
voluntary contributions which, at the discretion of the Company's Board of
Directors, may be matched within certain limits by the Company. In addition, the
Company may make additional discretionary contributions to the plan as profit
sharing contributions. All contributions to the plan are limited by applicable
Internal Revenue Code regulations. There were no Company contributions charged
against operations in 1999 or 1998.
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I/NET Inc.
Notes to Consolidated Financial Statements
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8. OPERATING LEASE
The Company leases its facilities and certain equipment under non-cancelable
operating leases. Rental expense under these leases was approximately $117,000
and $105,000 for each of the years ended December 31, 1999 and 1998. Future
minimum annual lease payments subsequent to December 31, 1999 are as follows:
2000 $ 101,000
2001 $ 69,000
9. INCENTIVE STOCK OPTION PLAN
The Company maintains an incentive stock option plan that provides for the
granting of options to officers and other key employees at an exercise price not
less than 100% of the fair market value on the date of the grant. Twenty percent
of the options become exercisable each year following the date they were
granted, and can remain outstanding for five years following the day they become
fully vested. Changes in options outstanding are summarized as follows:
Option Price Weighted Average
Shares Per Share Price Per Share
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January 1, 1998 and 1999 115,000 $.37-2.50 $ .63
Lapsed October 1999 (100,000) .37 .37
Granted December 1999 50,000 .29 .29
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December 31, 1999 65,000 $.29-2.50 $ .80
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At December 31, 1999, 582,255 shares of common stock are reserved for the
incentive stock option plan and 15,000 options were vested and exercisable at
$2.50 per share. The remaining weighted average contractual life on these
options is five years. The 50,000 options are not vested and have a remaining
contractual life of ten years.
Under SFAS No. 123, "Accounting for Stock Based Compensation", the Company is
required to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plan had been
determined in accordance with the fair value based method prescribed in SFAS No.
123. The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model with the following assumptions
used for the grant in 1999: expected volatility of 80 percent,-risk free
interest rate of 6.2 percent and an expected option life of 7.2 years. Net
income for 1999 and 1998 would not have been materially affected. The fair value
of the options granted during 1999 was $.19 per share.
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I/NET, Inc.
Notes to Consolidated Financial Statements
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10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid for the years ended December 31, 1999 and 1998, was $22,000 and
$50,000, respectively. The Company paid no income taxes during 1999 and 1998.
11. CONTINGENCIES
ROYALTIES
In a prior year, the Company entered into a software license agreement with
Netscape wherein Netscape granted to the Company the right to port certain of
its Internet Server products to the IBM AS/400 platform. This agreement is for a
period of three years and allows the Company to market and distribute the ported
products upon their modification to the AS/400 platform.
In exchange for this license agreement, I/NET has agreed to pay minimum
royalties to Netscape in the amount of $3,000,000 according to the following
repayment schedule:
Paid by IBM on behalf
of I/NET in October, 1997 $ 250,000
Paid by IBM on behalf
of I/NET in September, 1998 $ 750,000
Paid by IBM on behalf
of I/NET in September, 1999 $1,000,000
September 30, 2000 $1,000,000
IBM Corporation has guaranteed to Netscape the above listed royalties in the
event that product sales are insufficient to repay amounts due under this
agreement.
IBM has provided advances against royalties in the amount of $600,00 as certain
tasks were completed. These amounts will be reimbursed to IBM after deduction of
Netscape royalties in the amount of 10% of total revenue received from the sale
of the ported products. If the revenue from the sales of these Netscape products
are insufficient, I/NET will not have to repay any of these royalties advanced.
The Company recognized $10,000 of revenue from these advances in 1999 and
$390,000 in 1998 as certain milestone events were met.
LITIGATION
The Company is involved in various legal actions arising from the normal course
of business. Management does not anticipate any material losses as a result of
these proceedings.
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I/NET, Inc.
Notes to Consolidated Financial Statements
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12. EARNINGS PER SHARE
A reconciliation of shares used in calculating basic and diluted earnings per
share follows:
Year ended December 31, 1999 1998
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Basic Effect of assumed conversion of
options and warrants 31,037,652 31,037,652
140,881 -
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Diluted 31,178,533 31,037,652
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For 1999, warrants to purchase 115,000 shares of common stock at $1.00 per share
and options to purchase 15,000 shares of common stock at $2.50 per share were
not included in the computation of diluted earnings per share because they were
anti-dilutive. For 1998, all warrants and options outstanding were
anti-dilutive.
13. CONTINUED EXISTENCE
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has suffered
recurring losses from operations in prior years, has a significant working
capital deficit, and requires additional capital to continue its product
development. Management believes the Company will continue as a going concern
and is actively marketing its products which would enable the Company to meet
its current obligations and provide additional funds for continued new product
development. In addition, management is currently negotiating several additional
contracts for its services and products. Management is also embarking on other
strategic initiatives to expand its business opportunities. However, there can
be no assurance these activities will be successful.
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(Replace this text with the legend)
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<CIK> 0000789860
<NAME> I/NET
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<CURRENCY> $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 171,681
<SECURITIES> 0
<RECEIVABLES> 364,253
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 535,934
<PP&E> 114,038
<DEPRECIATION> 97,451
<TOTAL-ASSETS> 552,521
<CURRENT-LIABILITIES> 1,271,020
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0
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<COMMON> 31,038
<OTHER-SE> 11,886,674
<TOTAL-LIABILITY-AND-EQUITY> 552,521
<SALES> 1,792,881
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<CGS> 797,507
<TOTAL-COSTS> 797,507
<OTHER-EXPENSES> 588,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,300
<INCOME-PRETAX> 354,520
<INCOME-TAX> 0
<INCOME-CONTINUING> 354,520
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<NET-INCOME> 354,520
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