SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended March 31, 1997.
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from _______________ to _____________
Commission file number 0-15873
LASERGATE SYSTEMS, INC.
(Exact name of small business issuer in its charter)
Florida 59-2543206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28050 US 19 N, Suite 502, Clearwater, Florida 34621
(Address of principal executive office) (Zip Code)
Issuer's telephone number: (813) 725-0882
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.
Class Outstanding at May 14, 1997
- ----- ---------------------------
Common stock $0.03 par value 7,362,061
Transitional Small Business Disclosure Format (check one) Yes [_] No [X]
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of March 31, 1997 3
(unaudited) and December 31, 1996
Consolidated Statements of Operations 4
(unaudited) for the three months ended
March 31, 1997 and March 31, 1996
Consolidated Statements of Cash Flows 5
(unaudited) for the three months ended
March 31, 1997 and March 31, 1996
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan 9
of Operation
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 634,507 $ 1,924,825
Accounts receivable, net of allowance for
doubtful accounts of $159,624 and $147,124 786,102 868,931
Inventories 122,028 254,901
Prepaid expenses 85,378 40,966
------------ ------------
Total current assets 1,628,015 3,089,623
Property and equipment, net 326,894 304,024
Note receivable-trade 144,856 --
Systems and software costs, net of amortization of $1,539,131
and $1,525,856 321,554 242,739
Goodwill, net of amortization of $298,815 and $265,568 2,349,458 2,382,705
Customer lists and support contracts, net of amortization of
$159,375 and $141,667 265,625 283,333
Other assets, net 45,685 134,521
------------ ------------
Total assets $ 5,082,087 $ 6,436,945
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank 27,403 28,628
Accounts payable, trade 633,201 542,671
Deferred revenues 423,152 909,516
Accrued product costs 578,362 570,919
Accrued expenses 726,213 1,128,658
------------ ------------
Total current liabilities 2,388,331 3,180,392
Obligations to issue common stock 140,000 140,000
------------ ------------
Total liabilities 2,528,331 3,320,392
Stockholders' equity:
Preferred stock, $.03 par value, 2,000,000 shares
authorized, 8,000 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively 240 240
Common stock, $.03 par value, 20,000,000 shares authorized,
7,362,061 issued and outstanding at
March 31, 1997 and December 31, 1996 , respectively 220,862 220,862
Additional paid-in capital 19,818,769 19,818,769
Less: Common stock, $.03 par value, 20,000 shares
at March 31, 1997 and December 31, 1996, respectively,
subject to put options (140,000) (140,000)
Accumulated deficit (17,346,115) (16,783,318)
------------ ------------
Total stockholder's equity 2,553,756 3,116,553
------------ ------------
Total liabilities and stockholders' equity $ 5,082,087 $ 6,436,945
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
Revenues $ 1,278,576 $ 1,465,989
Operating Expenses:
Cost of revenues 853,299 751,890
Development 132,637 26,677
Selling, general and administrative 867,083 863,810
----------- -----------
Operating loss (574,443) (176,388)
Other income (expense)
Interest 10,241 (7,125)
Other, net 1,405 19,558
----------- -----------
Loss before income taxes (562,797) (163,955)
Income taxes -- --
----------- -----------
Net loss $ (562,797) $ (163,955)
=========== ===========
Net loss per common share $ (.08) $ (.04)
=========== ===========
Weighted Average Common Stock Outstanding 7,362,061 4,632,809
=========== ===========
The accompanying notes are an integral part of these statements..
-4-
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (562,797) $ (163,955)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation of property and equipment 33,822 4,379
Amortization of intangibles 71,313 132,496
Increase in provision for doubtful accounts 12,500 7,777
Compensation recognized from grant of stock options -- 46,875
Decrease (increase) in:
Accounts receivable, trade 70,329 (479,782)
Inventories 132,873 30,723
Prepaid expense (44,412) 57,407
Other 81,753 10,007
Increase (decrease) in:
Accounts payable and accrued expenses (311,915) 17,686
Accrued product costs 7,443 (203,193)
Deferred revenue (486,364) 192,949
----------- -----------
Net cash used in operating activities (995,455) (346,631)
Cash flows from investing activities:
(Additions) to, disposal of, property and equipment (56,692) 1,632
Capitalized software development costs (92,090) --
----------- -----------
Net cash provided (used) in investing activities (148,782) 1,632
Cash flows from financing activities:
Issuance of note receivable (144,856) --
Repayment of loans, other (1,225) --
----------- -----------
Net cash provided by financing activities (146,081) --
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,290,318) (344,999)
Cash and cash equivalents, beginning of period 1,924,825 656,506
----------- -----------
Cash and cash equivalents, end of period 634,507 $ 311,507
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1- FINANCIAL STATEMENT PRESENTATION AND OTHER INTERNAL PRESENTATION
INTERIM PRESENTATION
The interim consolidated financial statements of Lasergate Systems, Inc. (the
"Company") are unaudited and should be read in conjunction with the consolidated
financial statements and notes thereto in its Form 10-KSB for the year ended
December 31, 1996. In the opinion of management, the accompanying consolidated
financial statements (with all explanations contained in these Notes ) contain
all adjustments necessary for a fair presentation of the results of operations
for this interim period. Interim results are not necessarily indicative of the
results for a full fiscal year.
OPERATIONAL AND FUNDING MATTERS AND REPORTING BASIS
The information contained in Note 3 to the Financial Statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996 remains current related to the status of certain of the Company's
operational and funding matters and, accordingly, should be referred to in
conjunction with this Form 10-QSB.
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. For the three months ended March 31, 1997, the
Company incurred a loss of $562,797 and has an accumulated deficit of
$17,346,115 and used cash in operating activities of $995,455 during the first
quarter of 1997.
In recent years the Company has relied upon proceeds from private and public
placements and loans (some of which were converted to stock) from former
principal stockholders to fund its operations.
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the Company's balance
sheet is dependent upon continued operation of the Company, which in turn is
dependent upon the Company's ability to succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
REVENUE RECOGNITION
Revenues from the sale of equipment and software licenses, which have been
predominately under short-term contracts during the periods presented herein,
are recognized upon the acceptance of the system by the customer provided that
no significant vendor or post-contract support obligations remain outstanding
and collection of the resulting receivable is probable. Revenues from special
sales sold under evaluation periods are recognized at the end of this period.
Revenues from the sale of equipment and software licenses with a planned
installation period exceeding 90 days are accounted for using the percentage of
completion method.
Revenues from post contract customer support and maintenance are recognized
ratably over the maintenance period if collectibility is probable.
-6-
<PAGE>
CLASSIFICATION OF EXPENSES
Cost of revenues includes the costs associated with the hardware and software
acquired for the Company's customers and the estimated direct costs associated
with the engineering (mostly software customization) and installation of the
system. Cost of revenues also includes the estimated direct cost related to the
support and maintenance of the Company's service contracts. Net Loss Per Common
Share
NET LOSS PER COMMON SHARE
The net loss per common share amount is based on the weighted average number of
common shares outstanding during the period. Common stock equivalents (options
and warrants) and the effect of the convertible securities were not included in
the calculation of net loss per share because they are antidilutive.
NOTE 2-SYSTEMS AND SOFTWARE COSTS
Historically, the Company has marketed products that typically require
substantial customization in order to meet the customers' particular
requirements. During 1996, the company changed its strategy and decided to
design products in a modular fashion. The modules will consist of a primary
product with optional pre-developed modules and a configuration layer to meet
specific customer needs that would require limited or no customization by the
Company. The implementation of this project will afford the Company the
opportunity to use the same development tool (high level programming language)
for each module, thus providing a certain degree of consistency and efficiency
in the product development process. Accordingly, the Company commenced the
development of this new product. As of March 1997, the Company had installed
limited functionality versions at four different sites. As of May 13, 1997 the
Company had completed the general release version of the new general admission
product including all modules originally planned, and has installed it at 8
sites including all sites which had earlier versions. The development effort is
now focused on a group of functions for the ski industry. A beta test of the ski
product is currently scheduled for July 1, 1997 and general availability is
currently scheduled for August 1, 1997.
As a result of this development effort and new product introduction, the Company
expects to achieve cost reductions beginning in late 1997 in areas of product
development and customer support. In addition, the product will have a new
appearance which is more user friendly and will allow the user to modify a
configuration layer (without access to the source code) which can remain in
place when updating the product to a new revision level. As a result, the
Company expects its new products to be more competitive in the market.
The Company estimates the cost of developing the new general admission products
incorporating the modular concept will total approximately $400,000 to $450,000
by the second quarter of 1997. In the first quarter of 1997, $92,000 of these
costs were capitalized. Since inception, development costs incurred total
$223,000, and a total of $117,000 has been capitalized.
NOTE 3 - NOTE RECEIVABLE-TRADE
In connection with an early sale of the Company's new product, the Company
accepted a note receivable from a customer in the amount of $144,856 with a term
of 3 years and bearing interest at the rate of 10% per annum. Payments of
principal and interest are to be made on December 31, 1997, 1998, and 1999 in
the amounts of $50,000, $61,185 and $65,000 respectively. This note is
classified as a long-term asset.
NOTE 4 - PRODUCT COST LIABILITY (WARRANTY ALLOWANCE)
An accrued warranty allowance of $578,362 has been provided to cover the cost of
enhancements to be made (free of charge) to systems installed in prior periods.
During the first quarter of 1997, $40,000 was spent for these enhancements and
subsequently charged against this allowance. Management has reviewed warranty
costs incurred within the past year, and as a result has decided to provide for
known and unknown warranty costs by recording a warranty allowance of 3.7% of
revenues. Management believes 3.7% of revenues is a conservative estimate of
these costs but will continue to monitor them to ensure they are provided for on
a current basis in order to match the cost with associated revenue.
-7-
<PAGE>
NOTE 5 - LEGAL PROCEEDINGS
The Company's founder and former President and Chief Executive Officer, has
commenced an action against the Company in Florida state court. The former
president alleges, among other things, that he was wrongfully terminated from
his employment and seeks damages which in the aggregate could exceed $1,000,000.
The Company believes that the former president's suit is without merit and
intends to vigorously defend the action. There have been no significant changes
regarding this action since the last quarter.
Derek Betty and James Potter have instituted actions against the Company arising
pursuant to agreements entered into at the time of the sale of Delta Information
Services, Inc. ("Delta"). The first action is entitled Derek Betty v. Lasergate
Systems, Inc. ("the Betty Action") and the second action is entitled James
Potter v. Lasergate Systems, Inc. and 1103065 Ontario, Inc. ("the Potter
Action"). Both actions are pending in the Circuit Court of the Sixth Judicial
Circuit in and for Pinellas County, Florida. The Betty Action alleges that the
Company has failed to return shares of the Company's stock which are being held
in escrow pursuant to a Collateral Stock Pledge Agreement executed in connection
with the sale of Delta to the Company. The Betty Action also alleges a breach of
the terms and conditions of a Registration Rights and Put Option Agreement
executed in connection with the sale of Delta to the Company. The Betty Action
seeks damages in an amount in excess of $15,000, which is the jurisdiction
amount, but it is anticipated that damages could be in excess of $25,000. The
Potter Action also alleges a breach of the Registration Rights and Put Option
Agreement. Moreover, the Potter Action includes allegations concerning James
Potter's Consulting Agreement with the Company and a Non-Compete Agreement. The
Potter Action seeks a declaratory judgment determining that the Company and
1103065 Ontario, Inc. are in material breach of the Non-Compete Agreement and
that Potter is relieved of all obligations to perform under the Non-Compete
Agreement. The Company has moved to dismiss both actions and to compel
arbitration pursuant to an arbitration provision in the Stock Purchase Agreement
relating to the acquisition of Delta. The Company's motion to compel arbitration
in the Betty Action was granted on May 2, 1997, and the motion to compel
arbitration in the Potter Action was granted on May 14, 1997. The Company
intends to vigorously defend both actions.
The Company is also involved in other legal actions. Management does not believe
that the ultimate resolution of these and the above matters will have a material
effect on the Company's financial position.
NOTE 6-SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest And Income Taxes Paid:
Three Months Ended
------------------
1997 1996
---- ----
Interest $460 --
Income taxes -- --
-8-
<PAGE>
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussions should be read in conjunction with the financial
statements and notes thereto, and is qualified in its entirety by reference
thereto.
The statements contained in or incorporated by reference into this Quarterly
Report which are not historical facts contain forward looking information with
respect to plans, projections or future performance of the Company, the
occurrence of which involve certain risks and uncertainties that could cause the
Company's actual results to differ materially from those expected by the
Company, including the history of operating losses; uncertainty of future
financial results; possible negative cash flow from operating activities;
additional financing requirements; no assurance of successful and timely
development of new products; risks inherent in software development; customer
acceptance; employee turnover; litigation; dependance on regulatory approvals;
uncertainty of software and hardware pricing or profitability; unpredictability
of patent protection; rapid technological change; competition; and other
uncertainties detailed in the Company's Annual Report on Form 10-KSB.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 VERSUS THREE MONTHS ENDED MARCH 31, 1996
Revenues:
Revenues were $1,278,576 and $1,465,989 in the first quarter of 1997 and the
first quarter of 1996 respectively, representing a decrease of $187,413 or 13%.
Product sales represented $1,184,595 and $1,305,559 in the first quarter of 1997
and 1996 respectively and revenue from maintenance and support of existing
customers represented $93,981 and $160,430 in the first quarter of 1997 and 1996
respectively. Revenue from product sales in the first quarter of 1997 includes
five sales of the new general admission product totaling $881,000. Revenue from
product sales in the first quarter of 1996 included $324,000 of product sold to
Bayindir Insaat Turizm Ticaret, a customer whose total purchases of
approximately $505,000 represented 12% of the Company's revenues in the first
quarter of 1996. Revenue from maintenance and support has decreased due to less
customers accepting maintenance contracts on the legacy products.
Cost of Revenues:
Cost of revenues were $853,299 and $751,890 in the first quarter of 1997 and the
first quarter of 1996 respectively representing a $101,409, or 13%, increase. As
a percentage of revenues, cost of revenues in the first quarter of 1997 was 67%
of revenues compared to 51% of revenues in the first quarter of 1996. This was
primarily due to increased costs associated with early installations of the new
general admission product and a reduction of maintenance and support revenues on
the legacy products of $66,449.
Development Costs:
Development costs were $132,637 and $26,677 in the first quarter of 1997 and the
first quarter of 1996 respectively representing an increase of $105,960, or 397%
. This was primarily due to the development staff dedicating most of its time in
the first quarter of 1996 to resolving warranty issues instead of new product
development. In addition, the development staff is now approximately 29% larger
(9 employees in the first quarter of 1997 versus 7 employees in the first
quarter of 1996). Development costs for the first quarter of 1997 do not include
$92,000 of capitalized costs. The Company expects to continue development
efforts at approximately the same level (9 employees) for the remainder of 1997
with the majority of the development effort focused on its new modular products
(see Note 2 to the Financial Statements).
Selling, General and Administrative:
Selling, general and administrative expenses were $867,083 and $863,810 in the
first quarter of 1997 and the first quarter of 1996 respectively, representing a
$3,273 or 0.4% decrease. This was primarily due to an increase in legal expenses
of $39,000
-9-
<PAGE>
offset by a decrease in amortization of software costs in the amount of $61,183
due to the write-down of capitalized software costs in June, 1996. All other
selling, general and administrative expenses combined increased $25,000. As a
percentage of revenues, selling, general and administrative expenses were 68% in
the first quarter of 1997 and 59% in the first quarter of 1996. An increase in
this percentage of nine percentage points can be attributed to the $187,413
decrease in revenues, a decrease of five percentage points can be attributed to
the $61,183 decrease in amortization expense and an increase of five percentage
points can be attributed to the increase in legal and other selling, general and
administrative expenses, as explained above.
Net loss increased to $562,797 ($.08 a share) for the first quarter of 1997 from
$163,955 ($.04 a share) for the first quarter of 1996. The components of the
increase in the Company's net loss are explained above.
The FASB has issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. The adoption of this new standard is
not expected to have a material impact on the disclosure of earnings per share
in the financial statements. The effect of adopting this new standard has not
been determined.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. In the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, the Company's auditors qualified their
opinion as to a going concern. The information contained in Note 3 to the
Financial Statements included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 remains current related to the status of
certain of the Company's operational and funding matters and, accordingly,
should be referred to in conjunction with this Form 10-QSB.
For the three months ended March 31, 1997, the Company used $995,455 of cash in
operating activities and incurred a loss of $562,797. From its inception in
March 1985 through March 31, 1997, the Company has incurred a cumulative loss of
$17,346,115. In recent years the Company has relied upon proceeds from private
and public placements and loans in order to fund its operations.
Warranty costs accrued during the first quarter of 1997 were $47,000 and the
value of warranty work performed was $40,000. Management continues to monitor
these costs to ensure that sufficient provisions have been recorded in order to
reasonably match these costs with the associated revenues as well as to ensure
that this work is performed as efficiently as possible.
During the first quarter of 1997, accounts receivable decreased $82,829
primarily due to increased collection efforts, inventory decreased $132,873 due
to fewer installations being in process at March 31, 1997 than at December 31,
1996, and accounts payable decreased $ 311,915 primarily due to the payment of
accrued payroll, payroll taxes and other expenses which were accrued at year
end. The decrease in accrued payroll and payroll taxes arose because payroll is
payable on the last day of each month, but near year-end the Company changed its
payroll service provider and the new provider did not charge the Company for the
December 31, 1996 payroll until January 2, 1997. At December 31, 1996 accrued
payroll and payroll taxes were $210,000 and at March 31, 1997 accrued payroll
and payroll taxes were $2,000. All other accounts payable and accrued expenses
decreased $104,000 during the first quarter of 1997.
Also, during the first quarter of 1997, an installation was completed for a
customer who agreed to participate in the development process by being an early
installation site for the new product in exchange for extended payment terms on
approximately half of their purchase. As a result, the Company accepted a note
receivable from the customer in the amount of $144,856 with a term of three
years and bearing interest at the rate of 10% per annum.
The Company estimates the cost of developing the new general admission products
incorporating the modular concept will total approximately $400,000 to $450,000
by the second quarter of 1997. In the first quarter of 1997, $92,000 of these
costs were capitalized. Since inception, development costs incurred total
$223,000 and a total of $117,000 has been capitalized.
-10-
<PAGE>
Since the Company does not purchase components for its products until an order
is received, there is typically a backlog of orders for systems. The Company
defines backlog as a signed contract, typically with some type of financial
assurance such as a deposit. As of March 31, 1997 and December 31, 1996, the
Company's backlog was approximately $368,000 and $963,000, respectively.
Although no assurance can be given, management believes that an on-schedule
product launch of the new Admits general admission product combined with a
recently expanded sales force will enable the Company to achieve an increase in
revenues and a reduction of the operating loss by the end of 1997 and lay the
foundation for future profitability. While continuing to work on improved
financial performance, the Company intends to seek and actively pursue a
possible relationship with a strategic partner, which might include an equity
investment in the Company and may review other financing opportunities.
-11-
<PAGE>
Part II-Other Information
Item 6-Exhibits and Reports on Form 8-K
(a) Exhibits: 27.1 Financial Data Schedule.
(b) Reports on Form 8-K: The Company has not filed any reports on Form 8-K
during the quarter ended March 31, 1997.
All other items required in Part II have been previously filed or are not
applicable for the quarter ended March 31, 1997.
-12-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Lasergate Systems, Inc.
Registrant
Date: May 15, 1997 /s/ Philip P. Signore
----------------------------
Philip P. Signore
Vice President
Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000797324
<NAME> LASERGATE SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 634,507
<SECURITIES> 0
<RECEIVABLES> 945,726
<ALLOWANCES> 159,624
<INVENTORY> 122,028
<CURRENT-ASSETS> 1,628,015
<PP&E> 326,894
<DEPRECIATION> 105,135
<TOTAL-ASSETS> 5,082,087
<CURRENT-LIABILITIES> 2,388,331
<BONDS> 0
0
240
<COMMON> 220,862
<OTHER-SE> 2,332,654
<TOTAL-LIABILITY-AND-EQUITY> 5,082,087
<SALES> 1,278,576
<TOTAL-REVENUES> 1,278,576
<CGS> 853,299
<TOTAL-COSTS> 999,720
<OTHER-EXPENSES> (11,646)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (562,797)
<INCOME-TAX> 0
<INCOME-CONTINUING> (562,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (562,797)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
