SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
[ ] 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: 0-16159
LECTEC CORPORATION
------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-1301878
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10701 Red Circle Drive, Minnetonka, Minnesota 55343
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 933-2291
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, par
value $0.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [ ]
The number of shares outstanding of the registrant's common stock as of November
11, 1998 was 3,908,729 shares.
<PAGE>
LECTEC CORPORATION
FORM 10-Q - QUARTERLY REPORT FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements............ I-1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. I-7
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ I-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. II-1
Item 2. Changes in Securities............................................. II-1
Item 3. Defaults Upon Senior Securities................................... II-1
Item 4. Submission of Matters to a Vote of Security Holders .............. II-1
Item 5. Other Information................................................. II-1
Item 6. Exhibits and Reports on Form 8-K ................................. II-1
Signature Page.................................................... II-2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,005,757 $ 2,186,532
Receivables
Trade, net of allowances of $95,578 (unaudited) and $90,818
at September 30, 1998 and June 30, 1998 2,252,878 2,251,757
Refundable income taxes 59,544 59,544
Other 28,720 30,624
------------ ------------
2,341,142 2,341,925
Inventories
Raw materials 1,100,185 1,184,778
Work-in-process 91,941 15,055
Finished goods 654,439 518,178
------------ ------------
Total inventories 1,846,565 1,718,011
Prepaid expenses and other 199,923 103,063
Deferred income taxes 379,000 379,000
------------ ------------
Total current assets 6,772,387 6,728,531
PROPERTY, PLANT AND EQUIPMENT - AT COST
Building and improvements 1,832,182 1,816,277
Equipment 6,826,925 6,791,765
Furniture and fixtures 394,237 384,260
------------ ------------
9,053,344 8,992,302
Less accumulated depreciation 5,125,156 4,933,465
------------ ------------
3,928,188 4,058,837
Land 247,731 247,731
------------ ------------
4,175,919 4,306,568
OTHER ASSETS
Patents and trademarks, less accumulated amortization of $1,036,467
(unaudited) and $1,001,157 at September 30, 1998 and June 30, 1998 266,251 273,999
Long-term investments 8,676 8,676
------------ ------------
274,927 282,675
------------ ------------
$ 11,223,233 $ 11,317,774
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
I-1
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1998 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,164,779 $ 809,147
Accrued expenses
Payroll related 381,489 384,135
Other 204,753 199,388
------------ ------------
Total current liabilities 1,751,021 1,392,670
DEFERRED INCOME TAXES 222,000 222,000
SHAREHOLDERS' EQUITY
Common stock, $.01 par value: 15,000,000 shares authorized; issued and
outstanding 3,945,100 shares (unaudited) at September 30, 1998 and
4,036,000 shares at June 30, 1998 39,451 40,360
Additional paid-in capital 11,469,287 11,769,053
Unrealized losses on securities available-for-sale (8,508) (8,508)
Deficit in retained earnings (2,250,018) (2,097,801)
------------ ------------
9,250,212 9,703,104
------------ ------------
$ 11,223,233 $ 11,317,774
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
I-2
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 2,903,057 $ 3,630,810
Cost of goods sold 1,885,804 2,421,951
------------ ------------
Gross profit 1,017,253 1,208,859
Operating expenses
Sales and marketing 333,533 260,345
General and administrative 586,461 531,346
Research and development 280,013 246,592
------------ ------------
1,200,007 1,038,283
------------ ------------
Earnings (loss) from operations (182,754) 170,576
Other income, net 31,801 8,794
------------ ------------
Earnings (loss) before income taxes (150,953) 179,370
Income tax expense 1,264 27,677
------------ ------------
Net earnings (loss) $ (152,217) $ 151,693
============ ============
Net earnings (loss) per share
Basic $ (0.04) $ 0.04
============ ============
Diluted $ (0.04) $ 0.04
============ ============
Weighted average shares outstanding
Basic 3,983,198 3,842,818
============ ============
Diluted 3,983,198 3,860,081
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
I-3
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (152,217) $ 151,693
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 227,001 211,774
Loss on sale of investments -- 5,060
Changes in operating assets and liabilities:
Trade and other receivables 783 (717,450)
Refundable income taxes -- 8,337
Inventories (128,554) (64,154)
Prepaid expenses and other (96,860) (65,771)
Accounts payable 355,632 361,923
Accrued expenses 2,719 6,565
------------ ------------
Net cash provided by (used in) operating activities 208,504 (102,023)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (61,042) (164,946)
Investment in patents and trademarks (27,562) (15,875)
Sale of investments -- 197,349
------------ ------------
Net cash provided by (used in) investing activities (88,604) 16,528
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of common stock (300,675) --
------------ ------------
Net cash used in financing activities (300,675) --
------------ ------------
Net decrease in cash and cash equivalents (180,775) (85,495)
Cash and cash equivalents at beginning of period 2,186,532 665,190
------------ ------------
Cash and cash equivalents at end of period $ 2,005,757 $ 579,695
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
I-4
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ -- $ 366
Income taxes 8,400 8,500
</TABLE>
See accompanying notes to the consolidated financial statements.
I-5
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
(1) GENERAL
The accompanying consolidated financial statements include the accounts
of LecTec Corporation (the "Company"), LecTec International Corporation, a
wholly-owned subsidiary, and Pharmadyne Corporation, a wholly-owned subsidiary
which was merged into LecTec Corporation on December 31, 1997. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company's financial statements for the three months ended September 30, 1998
should be read in conjunction with its Annual Report on Form 10-K and its Annual
Report to Shareholders for the fiscal year ended June 30, 1998. The interim
financial statements are unaudited and in the opinion of management, reflect all
adjustments necessary for a fair presentation of results for the periods
presented. Results for interim periods are not necessarily indicative of results
for the year.
The Company's basic net earnings (loss) per share amounts have been
computed by dividing net earnings (loss) by the weighted average number of
outstanding common shares. The Company's diluted net earnings (loss) per share
amounts have been computed by dividing net earnings (loss) by the weighted
average number of outstanding common shares and common share equivalents, when
dilutive. Options and warrants to purchase 867,579 and 592,514 shares of common
stock with a weighted average exercise price of $7.75 and $9.08 were outstanding
during the three months ended September 30, 1998 and 1997, but were excluded
because they were antidilutive.
(2) STOCK REPURCHASE PROGRAM
In April 1998, the Company's Board of Directors authorized a stock
repurchase program pursuant to which up to 500,000 shares, or approximately
12.4% of the Company's outstanding common stock, may be repurchased. The shares
may be purchased from time to time through open market transactions, block
purchases, tender offers, or in privately negotiated transactions. The total
consideration for all shares repurchased under this program cannot exceed
$2,000,000. During the quarter ended September 30, 1998, 90,850 shares were
repurchased for $300,675. During the period from October 1, 1998 through
November 11, 1998 the Company repurchased an additional 36,400 shares for
$113,575 bringing the total number of shares repurchased under this program to
156,750 at a cost of $538,813.
(3) NEW ACCOUNTING PRONOUNCEMENTS
In June of 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which was required to be adopted in the first quarter of
fiscal 1999. SFAS No. 130 established standards for the reporting and display of
amounts representing comprehensive income and its components as part of the
Company's basic financial statements. Comprehensive income includes certain
non-owner changes in equity that currently are excluded from net income. Because
the Company historically has not experienced transactions that would be included
in comprehensive income, the adoption of SFAS No. 130 did not have a material
effect on the consolidated financial position, results of operations, or cash
flows of the Company.
Additionally, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," effective July 1, 1998. SFAS
No. 131 requires the Company to disclose financial and other information about
its business segments, their products and services, geographic areas, sales,
profits, assets and other information. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997, however the statement
does not need to be applied to interim financial statements in the initial year
of application. Comparative information for the interim period in the initial
year of application will be reported in the Company's financial statements for
interim periods in fiscal 2000.
I-6
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1999 were $2,903,057 compared
to net sales of $3,630,810 for the first quarter of fiscal 1998, a decrease of
20.0%. The decrease was primarily the result of decreased therapeutic product
and medical tape sales. Conductive product sales, the Company's largest product
group, decreased by 3.6% from the prior year while medical tape product sales,
the Company's second largest product group, decreased by 28.0% and therapeutic
product sales decreased by 66.0%. The conductive sales decrease was primarily
the result of decreased volumes to existing customers. Medical tape product
sales decreased primarily due to the absence of sales in fiscal 1999 to a large
customer who purchases intermittently. The therapeutic product sales decrease
was primarily the result of decreased analgesic patch sales volume due to the
absence in fiscal 1999 of sales to CNS, Inc. and a former direct marketing
distributor. Effective July 1, 1998 the Company assumed responsibility for the
retail distribution of the analgesic patch product that CNS, Inc. had previously
handled. In September 1998, the Company began the launch of its TheraPatch(R)
family of patch products.
Gross profit for the first quarter of fiscal 1999 was $1,017,253
compared to $1,208,859 for the first quarter of fiscal 1998. Gross profit as a
percent of net sales for the first quarter of fiscal 1999 was 35.0% compared to
33.3% for the first quarter of fiscal 1998. The increase in gross profit percent
for the quarter resulted primarily from lower obsolescence expense, due in part
to decreased inventory levels, and decreased labor costs. Labor costs were
higher in the prior year primarily due to increased overtime and incentive costs
necessary to meet higher than usual sales volume in the last month of the
quarter.
Sales and marketing expenses were $333,533 and $260,345 during the
first quarters of fiscal 1999 and 1998, and as a percentage of net sales, were
11.5% and 7.2%. The increase in sales and marketing expense for the quarter was
primarily due to staffing level increases and increased travel expenses, both
associated with the launch of the TheraPatch family of patch products. The
Company anticipates that sales and marketing expenses as a percent of sales for
the remainder of fiscal 1999 will be comparable to the first quarter of fiscal
1999 due to marketing programs associated with patch sales.
General and administrative expenses were $586,461 and $531,346 during
the first quarters of fiscal 1999 and 1998, and as a percentage of net sales,
were 20.2% and 14.6%. The increase in general and administrative expenses for
the quarter was primarily due to the addition of regulatory compliance and
quality assurance staff. These increased costs were partially offset by
decreased legal expenses.
Research and development expenses for the first quarters of fiscal 1999
and 1998 were $280,013 and $246,592, and as a percentage of net sales, were 9.6%
and 6.8%. The increase in research and development expense for the quarter
primarily reflects increased costs for the testing of products under
development.
Other income, net increased in the first quarter of fiscal 1999 to
$31,801 from $8,794 in the first quarter of 1998. Other income was higher in
fiscal 1999 due to increased investment income as a result of higher cash and
cash equivalent balances in the first quarter of fiscal 1999 compared to cash,
cash equivalent and short-term investment balances during the first quarter of
1998, and the presence in fiscal 1998 of a loss on the sale of investments.
The Company recorded a loss before income taxes of $150,953 in the
first quarter of 1999 compared to earnings before income taxes of $179,370 for
the first quarter of 1998. The loss for the current quarter was primarily the
result of decreased sales and increased operating expenses.
I-7
<PAGE>
The Company recorded income tax expense of $1,264 in the first quarter
of fiscal 1999 compared to income tax expense of $27,677 in 1998. Income tax
expense in the first quarter of fiscal 1999 reflects minimal tax expense
associated with the Company's foreign sales corporation subsidiary and does not
include any loss benefit as it may not be realizable. Income tax expense in the
first quarter of fiscal 1998 reflected the expected annual effective tax rate
for 1998.
Inflation has not had a significant impact on the Company's operations
or cash flow.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $180,775 to $2,005,757 during
the first quarter of fiscal 1999. Inventories increased by $128,554 to
$1,846,565 primarily due to increased finished goods inventory, which was
largely comprised of increased patch inventory associated with the launch of the
TheraPatch product family. Accounts payable increased by $355,632 to $1,164,779
during the first quarter of fiscal 1999 primarily due to increased raw material
payables related to the launch of the TheraPatch product family. Capital
spending totaled $61,042 during the first quarter of fiscal 1999. There were no
material commitments for capital expenditures at September 30, 1998.
Working capital decreased to $5,021,366 at the end of the first quarter
of fiscal 1999 from $5,335,861 at the end of fiscal 1998. The Company had a
current ratio at the end of the first quarter of fiscal 1999 of 3.9 as compared
to 4.8 at the end of fiscal 1998.
The Company had no short or long-term debt as of September 30, 1998.
During August 1997 the Company obtained an unsecured $1,000,000 working capital
line of credit which expired in September 1998. There were no borrowings
outstanding on the line of credit during the first quarters of fiscal 1999 and
1998. Shareholders' equity decreased by $452,892 to $9,250,212 during the first
quarter of fiscal 1999. Of this decrease, $300,675 was due to the repurchase of
shares under the stock purchase program announced in April of 1998 authorizing
the repuchase of up to 500,000 shares. As of November 11, 1998 the Company has
repurchased a total of 156,750 shares at a cost of $538,813 under the share
repurchase program.
Management believes that existing cash and cash equivalents,
internally-generated cash-flow and the expected renewal of the short-term line
of credit will be sufficient to support anticipated operating and capital
spending requirements for the remainder of fiscal 1999.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 ("Y2K") issue is the result of computer systems using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. A number of other date issues (i.e. incorrect handling of leap
years) may also cause problems. All of these issues are collectively referred to
as Y2K. In fiscal 1998, the Company developed a comprehensive program for Y2K
compliance consisting of two parts; internal systems compliance and third party
compliance.
The internal systems compliance program includes informational,
manufacturing, financial and communication systems. A committee consisting of
representatives from all key areas of the Company developed the program. The
internal systems compliance program consists of four-phases. Phase I is the
identification of all internal computer systems in the Company, including
embedded microprocessor or similar circuitry. Phase II is the determination of
Y2K compliance for these systems. Phase III is development and implementation of
action plans to achieve compliance where needed, and is followed by the testing
in Phase IV of these systems after action plans have been completed.
The third party compliance program consists of three phases with Phase
I being the identification of major and/or critical third party vendors and
customers. Phase II consists of contacting these third parties and determining
their Y2K compliance. Phase III involves establishing risk and developing
I-8
<PAGE>
contingency plans where necessary (i.e. third party compliance can not be
established or the risks associated with noncompliance are significant).
The Company has completed Phases I and II of the internal systems
compliance program and has found the majority of its systems and all of its core
systems to be Y2K compliant. Plans have been developed and are underway to
achieve Y2K compliance for the non-core systems by the end of calendar 1998. The
Y2K compliant status of the core systems benefited from upgrades undertaken
during the past several years to make these systems adequate for the business
needs of the Company. Phase IV of the program, testing of systems after
implementation of changes, is being undertaken concurrently with Phase III and
will continue through the end of calendar 1998. The Company is approximately 75%
complete with Phase III and 75% complete with Phase IV. The Company expects to
have substantially completed all aspects of the internal systems compliance
program before the end of calendar 1998 and considers the risk that compliance
will not be achieved to be minimal. Costs to-date for this program have been
immaterial.
The Company has completed Phase I of the third party compliance program
and is approximately 75% complete with Phase II. Initial questionnaires have
been sent to major and/or critical third party vendors and customers, and
approximately 85% of those contacted have responded. Responses are being sought
from the remaining major and/or critical vendors and customers. The Company is
approximately 25% complete with Phase III, the evaluation of responses,
establishment of risk and the development of contingency plans. Because of the
diversity of sources available for the Company's raw material, packaging
material and supplies, the Company believes that third party Y2K compliance
issues for these third parties will not have a material adverse effect on the
Company's financial position, operations or cash flow. There can, however, be no
assurance that this will be the case. If certain critical third party providers,
such as those providers supplying electricity, water or telephone service,
experience difficulties resulting in disruption of service to the Company, a
shutdown of the Company's operations at individual facilities could occur for
the duration of the disruption. The Company expects to have substantially
completed all phases of the third party compliance program by the end of
calendar 1998. Costs to-date for the third party compliance program have also
been immaterial.
All costs for Y2K compliance which have been incurred have been
expensed in the period incurred and have been paid from operating funds. The
Company does not expect the cumulative costs for Y2K compliance to be material.
The Company's ability to successfully identify and address Y2K issues
involves inherent risks and uncertainties, and depends upon a number of factors
including, but not limited to, the availability of key Y2K personnel, the
Company's ability to locate and correct all relevant computer codes, the
readiness of third parties, and the Company's ability to respond to unforeseen
Y2K complications. Depending upon such factors, the Y2K issues faced by the
Company could result in, among other things, business disruption, operation
problems, financial loss, legal liability and similar adverse consequences.
Forward-Looking Statements
From time to time, in reports filed with the Securities and Exchange
Commission, in press releases, and in other communications to shareholders or
the investment community, the Company may provide forward-looking statements
concerning possible or anticipated future results of operations or business
developments which are typically preceded by the words "believes", "expects",
"anticipates", "intends", "will", "may", "should" or similar expressions. Such
forward-looking statements are subject to risks and uncertainties which could
cause results or developments to differ materially from those indicated in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to, the buying patterns of major customers; competitive forces including
new products or pricing pressures; costs associated with and acceptance of the
Company's new brand strategy; impact of interruptions to production; dependence
on key personnel; need for regulatory approvals; changes in governmental
regulatory requirements or accounting pronouncements, unforeseen Y2K
complications and third party disruptions; and ability to satisfy funding
requirements for operating needs, expansion or capital expenditures.
I-9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
I-10
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
There have been no changes in the rights of security holders.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Financial data schedule.
(b) REPORTS ON FORM 8-K
None.
II-1
<PAGE>
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.
LECTEC CORPORATION
Date November 12, 1998 /s/ Rodney A. Young
-------------------- ----------------------------------------------------
Rodney A. Young, Chief Executive Officer & President
Date November 12, 1998 /s/ Deborah L. Moore
-------------------- ----------------------------------------------------
Deborah L. Moore, Chief Financial Officer
II-2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 2,005,757
<SECURITIES> 0
<RECEIVABLES> 2,436,720
<ALLOWANCES> 95,578
<INVENTORY> 1,846,565
<CURRENT-ASSETS> 6,772,387
<PP&E> 9,301,075
<DEPRECIATION> 5,125,156
<TOTAL-ASSETS> 11,223,233
<CURRENT-LIABILITIES> 1,751,021
<BONDS> 0
0
0
<COMMON> 39,451
<OTHER-SE> 9,210,761
<TOTAL-LIABILITY-AND-EQUITY> 11,223,233
<SALES> 2,903,057
<TOTAL-REVENUES> 2,903,057
<CGS> 1,885,804
<TOTAL-COSTS> 1,885,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (150,953)
<INCOME-TAX> 1,264
<INCOME-CONTINUING> (152,217)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (152,217)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
