<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
March 31, 1997 0-16288
HALIS, INC.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-1366235
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 641-5555
---------------------------------
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the last 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
------- -------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 Par Value 32,547,747
---------------------------- --------------------------
Class Outstanding at May 9, 1997
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALIS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets
Cash $ 13,208
Customer claims and premium funds 179,052
Receivables, less allowance for possible losses
of $45,091 430,405
Inventories 10,178
Other current assets 118,355
----------
Total current assets 751,198
Property and equipment, at cost
Computer equipment 191,662
Office furniture and fixtures 500,676
Real estate 54,526
----------
746,864
Less accumulated depreciation (442,890)
----------
303,974
Other assets
Deposits 60,092
Goodwill, net of accumulated
amortization of $155,950 4,163,788
Capitalized software development costs,
net of accumulated amortization of $101,905 1,794,902
Other intangibles, net of
accumulated amortization of $5,507 19,897
Officer loans 547,791
Long term investments 5,000
----------
6,591,470
----------
TOTAL ASSETS $7,646,642
==========
</TABLE>
See accompanying notes
2
<PAGE> 3
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
Current liabilities
Convertible notes payable $ 1,506,000
Accounts payable and accrued expenses 1,525,902
Deferred revenue and customer deposits 565,936
Payroll and sales taxes payable 359,792
Customer claims and premiums payable 176,101
Notes payable 176,066
Notes payable - related party 74,000
Deferred rent - current 78,513
------------
4,462,310
Long-term debt, net of current portion
Deferred rent-long term 75,551
Stockholders' equity
Common stock $.01 par value, 100,000,000
authorized; 29,941,551 issued and outstanding 299,415
Additional paid-in capital 18,645,667
Stock subscription receivable (681,122)
Accumulated deficit (15,148,429)
Treasury stock (6,750)
------------
3,108,781
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,646,642
============
</TABLE>
See accompanying notes
3
<PAGE> 4
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
COMBINED STATEMENTS OF OPERATIONS
OF THE PREDECESSOR
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
[Predecessor]
1997 1996
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<S> <C> <C>
Sales revenue $ 1,320,353 $ 680,076
Costs and expenses
Cost of goods sold 431,085 540,657
Selling, general, and administrative 1,486,291 352,162
Research and development 284,674 36,817
----------- ---------
Operating loss (881,697) (249,560)
Other income [expenses]
Gain [loss] on asset disposal 8,678 -
Interest expense (38,379) -
Interest income 8,334 -
Other income 8,668 -
Merger costs (13,904) -
Net loss $ (908,300) $(249,560)
=========== =========
Net loss per common share $ (.03)
===========
Weighted average shares outstanding 27,744,693
===========
</TABLE>
See accompanying notes
4
<PAGE> 5
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
COMBINED STATEMENTS OF CASH FLOWS
OF THE PREDECEESOR FOR THE
THREE MONTHS ENDED
MARCH 31, 1996
<TABLE>
<CAPTION>
[Predecessor]
Cash flow from operating activities 1997 1996
---- ----
<S> <C> <C>
Net loss $(908,300) $(249,560)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 20,313 20,000
Amortization 232,444 -
Changes in assets and liabilities:
Increase in customer deposit funds 118,835 -
Increase in accounts receivable (173,691) (286,383)
Decrease in inventory 1,301 1,727
Decrease in other current assets 9,870 19,370
Increase in deposits (30,355) -
Increase in accounts payable
and accrued expenses 47,476 168,926
Decrease in sales & payroll taxes (6,336) (54,747)
Decrease in premiums pay (118,835) -
(Decrease)Increase in deferred revenue
and customer deposits (12,136) 4,125
Increase(Decrease) in other current liabilities 29,518 (6,908)
Increase in cash overdraft - 69,848
--------- ---------
Total adjustments 118,404 (64,042)
--------- ---------
Net cash [used] by
operating activities (789,896) (313,602)
Cash flows from investing activities
Net cost of acquisitions (79,877) (138,011)
Acquisition of fixed assets (56,333) (21,158)
Payments received on officer loans 7,592
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Net cash provided by investing activities (128,618) (159,169)
Cash flows from financing activities
(Decrease)Increase in long term debt (205,904) 344,120
Private placement 417,637 -
--------- ---------
Net cash provided by financing activities 211,733 344,120
Net decrease in cash (706,781) (128,651)
Cash, beginning of period 719,989 128,651
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Cash, end of period $ 13,208 $ -
========= =========
</TABLE>
5
<PAGE> 6
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1997 AND MARCH 31, 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
On November 19, 1996, HALIS, Inc. (f/k/a Fisher Business Systems, Inc.) issued
15,000,000 shares (66.8%) of its common stock in exchange for 100% of the
capital stock of AUBIS Hospitality Systems, Inc. (AHS), AUBIS Systems
Integration, Inc. (ASI), and HALIS Software, Inc. (HSI), which included
ProHealth Solutions, Inc.
The acquisitions set out in the preceding paragraph are being accounted for as
the reverse acquisition of HALIS, Inc. by an "accounting entity" consisting of
AHS, ASI, and HSI [collectively, the Predecessor] because, following the
transaction, the former shareholders of AHS, ASI, and HSI are in control of the
Company. Accordingly, the financial statements of the Company are the
financial statements of the "accounting entity" adjusted for the assumed
acquisition of the net assets of HALIS, Inc. in exchange for the issuance of
HALIS, Inc. common stock outstanding before the transaction. The net assets of
the Predecessor are accounted for at their historical cost.
In accordance with purchase accounting principles pursuant to Accounting
Principles Board Statement No. 16, Business Combinations (APB 16), the Company
accounted for the net assets of HALIS, Inc. acquired at the fair value of such
net assets as of November 19, 1996.
As a result of the acquisitions of The Compass Group, Inc.
("Compass"), Software Manufacturing Group, Inc. ("SMG") and American Benefit
and Administrative Services, Inc and Third Party Administrators, Inc.
("ABAS/TPA") during the first quarter of 1997, the results of operations for
these three acquired companies are included in the Company's consolidated
financial statements from their respective dates of acquisition (January 10,
January 24 and January 31, respectively) through the period end of March 31,
1997.
Principles of Consolidation
The consolidated financial statements include the accounts of HALIS, Inc. and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The combined financial statements of the Predecessor include the accounts of
AUBIS Hospitality Systems, Inc., AUBIS Systems Integration, Inc., HALIS
Software, Inc. and ProHealth Solutions, Inc. All significant intercompany
accounts and transactions have been eliminated.
6
<PAGE> 7
Merger Agreements:
During January 1997, the Company effected three merger agreements with
companies that have been accounted for as purchases under APB 16 by the
Company. It is the opinion of management and legal counsel that these
transactions qualify as tax-free reorganizations within the meaning of Section
368 (a) of the Internal Revenue Code of 1986. Management of all companies
represent they have no plans or intentions which would adversely affect the
operations of any of the companies.
The three companies, and the number of shares of HALIS, Inc. common stock
issued in conjunction with these mergers, are as follows:
<TABLE>
<S> <C>
The Compass Group, Inc. 350,000
The Software Manufacturing Group, Inc. 3,072,000
American Benefit Administrative Services, Inc. 1,875,000
</TABLE>
Additionally, the Company acquired TG Marketing Systems, Inc. on May 2, 1997
through the issuance of 2,388,060 shares of common stock.
Legal expenses associated with completed mergers and acquisitions are
capitalized and amortized over 5 years.
Convertible Notes Payable
7% convertible promissory notes were issued in a private placement by the
acquired company, HALIS, Inc., in early 1996 and mature January 15, 1998. The
notes are convertible into common stock of the Company at any time until their
maturity date at $1.00 per share. Forty-three notes were issued by the Company
in amounts ranging from $10,000 to $80,000 generating $1,470,000 in proceeds.
Additionally, $36,000 of notes were issued in consideration for services
rendered to HALIS, Inc. $455,000 of these notes were issued to related parties
at terms identical to the terms of notes issued to third parties.
PRIVATE PLACEMENT OF COMMON STOCK:
During 1996 and first quarter of 1997, the Company effected a private placement
of shares of common stock in accordance with Regulation D of the Securities and
Exchange Commission. The shares were sold at $1.20 per share. For every three
shares of stock sold, one common stock warrant was issued to the purchaser,
which represents the right to purchase an additional share at $1.75 per share.
In aggregate, 1,516,975 shares of common stock and 657,356 warrants were
issued, which included an additional 151,698 warrants issued to the placement
agent. All warrants expire December 31, 1999. The Company raised $1,638,818
in capital after payment of issuance costs and related fees as of December 31,
1996. An additional $183,000 was raised by the Company in this offering in
January 1997.
7
<PAGE> 8
During the first quarter of 1997, the Company initiated an additional private
placement of common stock which provides for the issuance of up to 2,000,000
shares of stock at a price of $1.50 per share. For every three shares of stock
sold, one common stock warrant was issued to the purchaser, which represents
the right to purchase an additional share at $1.75 per share. As of March 31,
1997, the Company had issued 500,000 shares of common stock and 216,667 common
stock purchase warrants (including 50,000 warrants issued to the placement
agent) for proceeds of $681,122 which are net of certain placement costs of
$68,878.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements of HALIS, Inc. and subsidiaries contained
elsewhere herein.
FINANCIAL CONDITION
Total assets increased $6,508,513 or 472% during the three months
ended March 31, 1997, due primarily to goodwill and capitalized software
development costs associated with the acquisition of Compass, SMG and ABAS/TPA
during the period. In addition, the Company received net proceeds of $417,637
from private placements during the period. See "- Liquidity and Capital
Resources."
Current liabilities increased $1,717,645 or 100% during the three
months ended March 31, 1997, due primarily to increases is accounts payable and
accrued expenses and deferred revenue and customer deposits associated with the
acquisitions of Compass, SMG and ABAS/TPA during the period. At March 31, 1997,
the Company had a working capital deficit of $3,711,112. The Company's current
liabilities include convertible notes payable, due January 15, 1998.
RESULTS OF OPERATIONS
Revenues, which consist of system sales and services, increased 94%
from $680,076 for the three months ended March 31, 1996 ("fiscal 1996") to
$1,320,353 for the three months ended March 31, 1997 ("fiscal 1997"), primarily
due to revenues contributed by Compass, SMG and ABAS/TPA from their respective
dates of acquisition.
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<PAGE> 10
Cost of goods sold decreased $109,572 or 20% during fiscal 1997, as
compared to the prior year period, primarily as a result of a shift in product
mix away from higher cost hardware and support and in favor of software sales
and support.
Selling, general and administrative expenses increased $1,134,129 or
322% during fiscal 1997, as compared to the prior year period, primarily as a
result of corporate overhead related to the acquisitions of Compass, SMG and
ABAS/TPA. In addition, amortization expense of $232,444 was recorded during the
period, primarily as a result of goodwill and capitalized software development
costs associated with the acquisitions of Compass, SMG and ABAS/TPA.
Research and development expenses increased $247,857 or 673% during
fiscal 1997, as compared to the prior year period, primarily as a result of the
Company's investment in its proprietary software products and those of SMG.
Other expenses in fiscal 1997 include interest expense of $38,379
related to the Company's convertible promissory notes and other notes payable,
as well as interest on the Company's sales and use tax liabilities. Other
expenses also include merger costs of $13,904.
As a consequence of the increase in selling, general and
administrative expenses and research and development expenses during the
period, the Company incurred a net loss of $908,300 or $.03 per share for fiscal
1997. This compares to a net loss of $249,560 for fiscal 1996.
Management believes that the January 1997 acquisitions of Compass, SMG
and ABAS/TPA help to position the Company to capitalize on its healthcare
software ("HES") product as it is introduced into the various healthcare
marketplaces during 1997 and 1998. ABAS, for example, will utilize the HES
product in its current healthcare administration business, and will serve what
the Company believes will be a substantial market of clients who wish to take
advantage of this new technology, but would prefer a transaction fee
arrangement, rather than in-house implementation. SMG will continue to market
its existing software product to the orthodontics market, and will utilize its
sales force to introduce the HES product into the southeastern region of the
U.S. Compass will continue to provide technical electronic data processing
consulting to a variety of businesses and will, in addition, assist in the
development of Business Partner relationships for the marketing of the HES
product. Management's acquisition strategy is to grow the business by adding
independent business units which will project a positive cash-flow within the
first year following acquisition.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, operating activities used $789,896 in cash,
primarily due to a net loss of $908,300 for the period. The net loss stemmed
primarily from the increase in selling, general and administrative and research
and development expenses during the period.
During fiscal 1997, investing activities used $128,618, primarily from
the net cost of acquisitions during the period, as well as fixed asset
acquisitions.
-10-
<PAGE> 11
Financing activities during fiscal 1997 provided $211,733, primarily
the result of proceeds from the issuance of stock in the first quarter of 1997,
offset somewhat by a decrease in long-term debt.
In January 1997, the Company completed a private placement of
1,684,975 shares of Common Stock and 730,156 Warrants, resulting in net
proceeds to the Company of approximately $1.8 million. The net proceeds of the
offering were utilized by the Company to expand its sales and marketing
efforts, enhance its software products, support the growth of its
administrative infrastructure, to fund expenses related to the acquisition of
selected healthcare software and service companies and for general corporate
purposes.
Until such time as the Company's healthcare software is accepted in
the marketplace and generates revenues sufficient to support the operations of
the Company, operations will be financed, in part, from outside sources. The
Company has engaged Attkisson, Carter & Akers Incorporated, a licensed
broker-dealer (the "Placement Agent"), to offer and sell, on a best-efforts
basis, up to 2,000,000 shares of Common Stock at a price of $1.50 per share.
For each three (3) shares of Common Stock sold in the offering, the Company
will also issue a warrant to purchase one share of Common Stock (up to a
maximum of 666,667 warrants), exercisable at a price of $1.75 per share.
Proceeds from the offering will be utilized by the Company to expand the
Company's sales and marketing efforts, expand the Company's services
infrastructure, fund expenses related to the acquisition of selected healthcare
software, service and systems integration companies and for general corporate
purposes. As of May 9, 1997, the Company had issued 766,666 shares of Common
Stock and 332,222 Warrants in the offering (including 76,667 Warrants issued to
the Placement Agent), resulting in net proceeds to the Company of approximately
$800,000.
The Company will likely require additional capital or other financing
after the completion of this offering to finance its operations and continued
growth, particularly if less than all of the shares offered thereby are sold.
There can be no assurance that the Company will be able to obtain such
financing if and when needed, or that if obtained, it will be sufficient or on
terms and conditions acceptable to the Company.
The Company is in negotiations with a former employee of HSI with
respect to the amount of severance owed by HSI pursuant to the employee's
employment contract. The parties have reached a preliminary agreement on a
settlement of $138,000 (which amount had been accrued by the Company at
December 31, 1996), with $50,000 payable in installments through July 1997 and
a lump sum payment of $88,000 due August 1, 1997. The lump sum amount may,
under certain conditions, be paid in stock of the Company. There can be no
assurance, however, that a settlement of this matter will be obtained or, if
obtained, will be on the terms described above.
No provision has been made in the financial statements for any
settlements or judgments relating to either of the matters discussed in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
In the event of a material judgment or settlement resulting from either of
these matters, the Company would experience an adverse effect on its liquidity.
Additionally, all agreements to date for the HES product have been for pilot
sites and have contingencies. In the event that the pilot testing identifies
substantive modifications to the product
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<PAGE> 12
which are mandatory for marketplace feasibility, additional development costs
and/or delays in launching the product could have a material adverse effect on
liquidity.
INFLATION
The Company is affected by inflation through increased personnel costs
and other selling, general and administrative expenses. Hardware costs have
generally declined, and this trend is expected to continue.
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
and Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. These statements include the plans and
objectives of the Company for future operations. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based
on the assumption that the Company's entry into the healthcare industry will be
successful, that competitive conditions within the healthcare industry will not
change materially or adversely and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements included herein are
reasonable, the inclusion of such information should not be regarded as a
representation by the Company, or any other person, that the objectives and
plans of the Company will be achieved.
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<PAGE> 13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On January 10, 1997, the Company issued 350,000 shares of Common Stock
in connection with the acquisition of The Compass Group, Inc.
On January 24, 1997, the Company issued 3,072,000 shares of Common
Stock in connection with the acquisition of Software Manufacturing Group, Inc.
On January 31, 1997, the Company issued 1,875,000 shares of Common
Stock in connection with the acquisition of American Benefit and Administrative
Services, Inc and Third Party Administrators, Inc.
On January 21, 1997, the Company issued 168,000 shares of Common Stock
and 72,800 Warrants, resulting in proceeds of $201,600. Each Warrant entitles
the holder to purchase one share of Common Stock at a price of $1.75 per share.
Warrants are exercisable for a period expiring on December 31, 1999. The
securities were sold on behalf of the Company by Attkisson, Carter & Akers
Incorporated (the "Placement Agent"), who received a commission of 8.0% of the
sales price of each share sold in the offering, plus one Warrant to purchase
shares of Common Stock for each ten (10) shares of Common Stock sold in the
offering. Commissions totaling $16,128 were paid to the Placement Agent and
warrants to purchase 16,800 shares of Common Stock were issued to the Placement
Agent on January 21, 1997.
On March 31, 1997, the Company issued 500,000 shares of Common Stock
and 216,667 Warrants, resulting in proceeds of $750,000. Each Warrant entitles
the holder to purchase one share of Common Stock at a price of $1.75 per share.
Warrants are exercisable for a period expiring on December 31, 1999. The
securities were sold on behalf of the Company by Attkisson, Carter & Akers
Incorporated (the "Placement Agent"), who received a commission of 8.0% of the
sales price of each share sold in the offering, plus one Warrant to purchase
shares of Common Stock for each ten (10) shares of Common Stock sold in the
offering. Commissions totaling $60,000 were paid to the Placement Agent and
warrants to purchase 50,000 shares of Common Stock were issued to the Placement
Agent on March 31, 1997.
The issuance of securities described above were made in reliance on
the exemption from registration provided by Section 3(b) and/or 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation, the
certificates bear restrictive legends and appropriate stop transfer
instructions have been or will be given to the transfer agent. Except as
described above, no underwriter was involved in the transactions and no
commissions were paid.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-KSB for a
description of certain actual and threatened legal proceedings involving the
Company.
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<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibit is filed with this report:
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. The following reports on Form 8-K
were filed during the quarter ended March 31, 1997: Current Report on Form 8-K
dated January 10, 1997 (reporting acquisition of The Compass Group, Inc.), as
amended by Form 8-K/A (Amendment No. 1) dated March 25, 1997; Current Report on
Form 8-K dated January 24, 1997 (reporting acquisition of Software
Manufacturing Group, Inc.); and Current Report on Form 8-K dated January 31,
1997 (reporting acquisition of American Benefit and Administrative Services,
Inc and Third Party Administrators, Inc.).
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALIS, INC.
Dated: May 19, 1997 By: /s/ Paul W. Harrison
---------------------------------------
Paul W. Harrison, Chairman of the Board
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,208
<SECURITIES> 5,000
<RECEIVABLES> 475,496
<ALLOWANCES> 45,091
<INVENTORY> 10,178
<CURRENT-ASSETS> 751,198
<PP&E> 746,864
<DEPRECIATION> (442,890)
<TOTAL-ASSETS> 7,646,642
<CURRENT-LIABILITIES> 4,462,310
<BONDS> 0
0
0
<COMMON> 299,415
<OTHER-SE> 2,809,366
<TOTAL-LIABILITY-AND-EQUITY> 7,646,642
<SALES> 1,320,353
<TOTAL-REVENUES> 1,320,353
<CGS> 431,085
<TOTAL-COSTS> 530,720
<OTHER-EXPENSES> 26,603
<LOSS-PROVISION> 6,315
<INTEREST-EXPENSE> 38,379
<INCOME-PRETAX> (908,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (908,300)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>