<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1998
OR
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 0-16453
-------
HEARX LTD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
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DELAWARE 22-2748248
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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1250 NORTHPOINT PARKWAY, WEST PALM BEACH, FLORIDA 33407
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 478-8770
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK X 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
ON MAY 1, 1998, 100,770,250 SHARES OF THE REGISTRANT'S COMMON STOCK WERE
OUTSTANDING.
<PAGE> 2
INDEX
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<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements:
Consolidated Balance Sheets
March 27, 1998 and December 26, 1997 3
Consolidated Statements of Operations
Three months ended March 27, 1998 and March 28, 1997 4
Consolidated Statements of Cash Flows
Three months ended March 27, 1998 and March 28,1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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2
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HEARX LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 27, December 26,
1998 1997
------------ ------------
(unaudited) (audited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,508,204 $ 3,644,838
Investment securities 9,480,953 10,281,913
Accounts and notes receivable, less allowance for
doubtful accounts of $ 241,546 and $246,371 3,805,844 3,256,716
Inventories 526,945 523,356
Prepaid expenses 222,634 312,866
Other 501,820 143,371
------------ ------------
Total current assets 16,046,400 18,163,060
PROPERTY AND EQUIPMENT - NET 8,924,023 9,014,190
OTHER 1,194,346 1,182,297
------------ ------------
$ 26,164,769 $ 28,359,547
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,133,887 $ 3,062,062
Accrued salaries and other compensation 579,103 914,156
Current maturities of long term debt 1,010,334 1,050,695
------------ ------------
Total current liabilities 4,723,324 5,026,913
------------ ------------
LONG TERM DEBT, LESS CURRENT MATURITIES 174,897 177,897
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Non-redeemable preferred stock:
(Aggregate liquidation preference $ 7,235,103 and
$7,447,163) $1 par; 2,000,000 shares authorized;
issued and outstanding:
1997 Convertible - 6,815 shares 6,815 7,115
------------ ------------
Total preferred stock 6,815 7,115
Common stock; $.10 par; 130,000,000 shares authorized;
100,764,250 and 99,211,436 shares issued
and outstanding 10,076,425 9,921,144
Additional paid-in capital 70,639,345 70,646,172
Accumulated deficit (59,371,249) (57,326,412)
Unrealized gain on marketable securities 19,196 20,156
Unamortized deferred compensation (103,984) (113,438)
------------ ------------
Total stockholders' equity 21,266,548 23,154,737
------------ ------------
$ 26,164,769 $ 28,359,547
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
3
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HEARX LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 27, 1998 AND MARCH 28, 1997
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<CAPTION>
1998 1997
------------- -------------
(Unaudited) (Unaudited)
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NET SALES $ 7,094,329 $ 5,748,257
------------- -------------
COSTS AND EXPENSES:
Cost of products sold 2,080,047 1,811,763
Center operating expenses 4,664,455 4,002,188
General and administrative expenses 1,716,068 1,421,079
Depreciation and amortization 555,055 404,710
Interest expense 19,506 -
------------- -------------
Total expenses 9,035,131 7,639,740
------------- -------------
LOSS BEFORE DIVIDENDS ON PREFERRED STOCK (1,940,802) (1,891,483)
DIVIDENDS ON PREFERRED STOCK 104,035 55,186
------------- -------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,044,837) $ (1,946,669)
============= =============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.02) $ (0.02)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 100,353,997 82,964,258
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements
4
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HEARX LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
THREE MONTHS ENDED MARCH 27, 1998 AND MARCH 28, 1997
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1998 1997
----------- -----------
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,044,837) $(1,946,669)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation and amortization 555,055 377,214
Provision for doubtful accounts (750) 30,000
Loss on disposition of property 13,382 -
(Increase) decrease in:
Accounts and notes receivable (549,135) (492,187)
Inventories (3,590) (850)
Prepaid expenses 90,232 55,482
Other current assets and deferred charges (387,183) (7,963)
Accounts payable and accrued expenses (263,223) 355,208
----------- -----------
Net cash used in operating activities (2,589,579) (1,629,765)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (451,706) (1,127,966)
Purchase/sale on investments 800,918 995,688
----------- -----------
Net cash provided (used) by investing activities $ 349,212 $ (132,278)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of:
Long-term debt - 73,471
Principle payments:
Short-term borrowings - (8,004)
Long-term debt (43,360) (46,445)
Forgiveness of long-term debt - (80,591)
Proceeds from the issuance of capital stock, net of
offering costs 147,093 9,909,177
----------- -----------
Net cash provided by financing activities 103,733 9,847,608
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,136,634) 8,085,565
Cash and cash equivalents at beginning of period 3,644,838 1,811,437
----------- -----------
Cash and cash equivalents at end of period $ 1,508,204 $ 9,897,002
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
5
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HEARX LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited consolidated financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended December 26, 1997. All adjustments, consisting of
normal recurring accruals, which are, in the opinion of management,
necessary for a fair statement of results for interim periods have been
made.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified in order to conform to the 1998 presentation.
2. STOCKHOLDERS' EQUITY
Conversion of Series B-1 and B-2 Preferred Stock into shares of Common
Stock
During the quarter ended March 27, 1998, 300 shares of the 1997
Convertible Preferred Stock were converted into 218,341 shares of
Common Stock.
Common Stock
During the quarter ended March 27, 1998, warrants were exercised
resulting in the issuance of 1,316,848 shares of Common Stock and
employee stock options were exercised resulting in the issuance of 47,625
shares of Common Stock.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income,
which establishes standards for reporting and presentation of
comprehensive income and its components. SFAS 130 is effective for
periods beginning after December 15, 1997 and is not expected to have a
material impact on the Company's financial statements.
Additionally in June 1997, the FASB issued SFAS 131, Disclosure about
Segments of an Enterprise and Related Information. SFAS 131 establishes
standards for the way public enterprises are to report operating segments
in annual financial statements and requires reporting of selected
information about operating segments in interim reports. SFAS 131 is
effective for periods beginning after December 15, 1997 and is not
expected to have a material impact on the Company's financial
statements.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management believes the shift of patients from the Medicare population to
managed care, which has occurred in recent years, will continue and
increase in the future. To the extent the Company is successful in
contracting with the providers of Medicare managed care for the provision
of hearing care goods and services, the Company can enjoy the benefits of
this shift.
HEARx intends, as its ultimate goal, to establish a nationwide network of
hearing care centers, located in the metropolitan areas or regions with
concentrations of elderly consumers who are more likely to need the
Company's products or services. During the first quarter of 1998, the
Company slowed its center expansion to just two centers (one in the
Southeast, Florida market and the other in the Northeast US market). At
this point in time, the Company believes the existing center network is
adequate to service all current contracts. Future expansion will be
controlled and deliberate. At the end of the first quarter of 1998,
HEARx operated 75 centers. Those include 34 centers in Florida, 16 in
New York, 15 in New Jersey, 4 in Connecticut, 5 in Pennsylvania and one
center in Virginia.
In the first quarter of 1998, HEARx continued to expand its healthcare
provider business. New or expanded contracts have been signed covering
patients in geographic areas where HEARx centers are located. On February
17,1998, HEARx announced the signing of its first nationwide contract to
provide hearing care services with CIGNA Healthcare. On April 20, 1998,
HEARx announced the signing of three more contracts covering Medicare,
Medicaid, and commercial patients in the Company's Florida and Northeast
US markets. These new contracts bring the Company's number of covered
Medicaid patients to 130,000. Medicaid is an under-serviced segment of
the hearing care market which HEARx expects to grow, especially as more
states channel Medicaid beneficiaries into managed care. In total, the
Company has more than 160 contracts now in place with over 60 health
insurance providers.
Management has recognized that a number of managed care organizations
have been experiencing significant difficulties arising from the
widespread growth and reach of available plans and benefits, as well as
the diverse nature of some of the defined participant populations. Many
of these organizations, including some of those with whom HEARx has
contracts, have focused substantial resources on correcting their own
administrative and information systems instead of expanding their plan
memberships. In an effort to supplement its existing and growing base of
sales to and through the healthcare provider contracts which continue to
account for the majority of the Company's sales, the Company has, since
late 1997, developed and refined its marketing programs oriented toward
the non-insured "self pay" patient.
With the Company's center network in place and completion of all
information and accounting systems expected by the end of the second
quarter, the Company has shifted its emphasis from opening new centers to
increasing referrals to our existing centers through additional contracts
(primarily in the Northeast) and increasing "self-pay" business.
Management believes that this shift, coupled with an intent to slow the
rate of increase in center operating and general and administrative
expenses, will further our goal of achieving profitability.
Net Sales for the first quarter were $7,094,329, which are the highest
quarterly net sales in the Company's history and 23.4% above those of the
comparable quarter of 1997. There can be no assurance that these sales
increases will continue throughout 1998.
HEARx realized operating profit for the first quarter of 1998 from
company-owned centers of $349,827 (before corporate expenses of general
and administration, depreciation, interest and preferred dividends).
This compares to an operating loss from company-owned centers of $342,279
in the fourth quarter of 1997 and a loss of $65,694 in the comparable
first quarter of 1997.
There can be no assurance that all of the Company's provider contracts
will either start up on a timely basis or produce the revenues
anticipated. These contracts call for the managed care or insurance
companies to reimburse the Company for all, or a portion, of the costs
incurred by their
7
<PAGE> 8
members for hearing care services provided by the Company. The balance
of the cost is borne by the member. The Company is reimbursed by the
insurer on either a "fee for service" basis, or through a "capitated"
plan. Capitation contracts are those contracts which provide for
payments to the Company on a per member per month basis. Under those
contracts, a member is entitled to testing services and a product credit
with respect to a hearing aid purchase. These credits (discounted from
published retail prices) are then applied to the member's purchase of
hearing aids. As generally provided in those contracts, the member can
receive this credit once every three years. The price of the services and
products provided on the first visit, above the group discount, as well
as any additional services or products purchased, are the obligation of
the member.
The Company believes that the loss of any single managed care or
insurance contract would not have a material adverse effect on its
financial condition or results of operations. Each of the existing
managed care and insurance contracts are achieving expected gross profit
margins and contributing positively to the Company's results of
operations.
The Company has conducted a comprehensive review of its computer systems
to identify any system that could be affected by the "Year 2000" issue.
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's programs that have time sensitive software may recognize a
date using "00" as the year 1900 rather than 2000. This could result in
a system malfunction or miscalculation. Management believes the Year 2000
problem will not pose significant operational problems for the Company.
The Company's computer operational programs have been written within the
past three years and use four digits to define the applicable year. The
Company plans to send confirmations to outside vendors and principal
customers to ensure their programs are Year 2000 compatible.
RESULTS OF OPERATIONS
For the three months ended March 27, 1998 Compared to March 28, 1997
Net sales increased $1,346,072, or 23.4%, to $7,094,329 in the first
quarter of 1998 from $5,748,257 in the same period of 1997. The increase
in net sales primarily resulted from the increase in the Company's
non-insured "self-pay" business and the effect of new contracts signed
with major managed care companies.
Cost of products sold increased $268,284, or 14.8%, to $2,080,047 in the
first quarter of 1998 from $1,811,763 in the same period of 1997. The
increase is attributable to the 23.4% increase in net sales from new and
existing centers. Cost of products sold, as a percentage of net sales,
was significantly lower in 1998 due to improved pricing from the
Company's hearing aid suppliers and a change in the Company's product
mix.
Center operating expenses increased $662,267, or 16.5%, to $4,664,455 in
the first quarter of 1998 from $4,002,188 in the same period of 1997.
This increase is partially due to an increase in advertising expense of
$190,950, a 27.2% increase over the comparable period of 1997. The 1998
level of advertising expenditures is expected to be adjusted quarterly
depending on results. The remaining increase of $471,317, or 11.8%, is
attributable to the 9.2% increase in the average number of centers
operating in the first quarter of 1998 (74.6) compared to the first
quarter of 1997 (68.3).
General and administrative expenses increased $294,989, or 20.8%, to
$1,716,068 in the first quarter of 1998 from $1,421,079 in the same
period of 1997. The increase is primarily attributable to the expansion
of staff and functions in the marketing and insurance claims processing
departments as well as an increase in outside consulting fees in the
areas of public relations, quality assurance and center office
management, each of which was implemented or increased in order to
accomplish the Company's objectives for 1998. At this point in time, the
Company believes its current level of general and administrative expenses
is adequate to support its existing and anticipated operations, including
all current and anticipated insurance and managed care contracts for its
Northeast US and Florida markets.
8
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Depreciation and amortization expense increased $150,345, or 37.1%, to
$555,055 in the first quarter of 1998 from $404,710 in the same period of
1997. The increase was attributable to the depreciation and amortization
of the leasehold improvements, medical and computer equipment, and
furniture associated with the new centers opened in the 1997 fiscal year
and the first quarter of 1998. The increase was only $27,289, or 6%,
over the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $1,813,071 to $11,323,076 as of March 27, 1998
from $13,136,147 as of December 26, 1997. The Company believes that its
current working capital and revenues from operations are sufficient to
support the Company's foreseeable capital requirements and operating
needs through 1998 in accordance with its strategic plan, although there
can be no assurance that other cash needs will not arise.
Net cash used by operating activities increased from $1,629,765 in the
first quarter of 1997, to $2,589,579 in the first quarter of 1998. The
increase in cash used by operating activities was primarily the result of
operating losses resulting from the Company's decision to expand its
operations to accommodate the new contract signings and the accompanying
expansion into the Northeast U.S. market in advance of patient usage.
Also contributing to the increase was an increase in other current assets
and deferred charges of $387,183 and a decrease in accounts payable and
accrued expenses of $263,223.
Net cash provided by investing activities increased from cash being used
by investing activities of $132,278, in the first quarter of 1997, to
cash being provided by investing activities of $349,212 in 1998. This
increase resulted from a $676,260 reduction of cash ($1,127,966 in 1997
to $451,706 in 1998) used in the construction of leasehold improvements
and related purchase of property and equipment for new, relocated or
remodeled centers. In addition, funds from the sale of investments
decreased to $800,918 in the first quarter of 1998 from $995,688 in the
same period of 1997, slightly offsetting the aforementioned reduction.
Cash from financing activities decreased from $9,847,608 in the first
quarter of 1997, to $103,733 in the first quarter of 1998. This decrease
was primarily the result of funds in the amount of $9,909,177, from a
preferred stock offering being included in the first quarter of 1997.
Certain of the statements made in this discussion and analysis contain
forward-looking information. Such statements involve certain risks and
uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. Potential risks and
uncertainties include the ability of the Company to capitalize on its
newer contracts as well as those risks described in the Company's filings
with the Securities and Exchange Commission, including the Form 10K for
the fiscal year ended December 26, 1997 and the Form S-3 resale
registration statement dated June 25, 1997.
9
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 27, 1998, 300 shares of the 1997
Convertible Preferred Stock plus accrued dividends of $13,889 were
converted into 218,341 shares of the Company's Common Stock. The 1997
Convertible Preferred Stock was issued to certain "accredited investors"
pursuant to Rule 506 of Regulation D, and the shares issued upon
conversion thereof were also issued pursuant to Rule 506 of Regulation
D.
During the quarter ended March 27, 1998, warrants to purchase shares of
the Company's Common Stock were exercised as follows:
1. 1,089,000 warrants were exercised at $.01 per share
resulting in the issuance of 1,082,231 shares of the
Company's Common Stock. These warrants were issued
in conjunction with the issuance of the Company's
Common Stock to the 3M Company in 1991 pursuant to
Rule 506 of Regulation D, and the shares issued upon
exercise of the warrants were also issued pursuant to
Rule 506 of Regulation D. The warrants were
exercised pursuant to the terms of cashless exercise
provisions contained in the warrants, resulting in a
reduction in the number of shares of Common Stock
issued upon exercise of the warrants.
2. 50,000 warrants were exercised at $1.25 per share
resulting in the issuance of 50,000 shares of the
Company's Common Stock. These warrants were
initially issued in 1993 to certain "accredited
investors" pursuant to Rule 506 of Regulation D, and
the shares issued upon the exercise of the warrants
were also issued pursuant to Rule 506 of Regulation
D.
3. 184,508 warrants were exercised at $.55 per share
resulting in the issuance of 156,514 shares of the
Company's Common Stock. The warrants were exercised
pursuant to the terms of cashless exercise provisions
contained in the warrants, resulting in a reduction
in the number of shares of Common Stock issued upon
exercise of the warrants. These warrants were issued
to certain "accredited investors" in connection with
the sale of the Company's 1997 Convertible Preferred
Stock. The warrants were issued pursuant to Rule 506
of Regulation D, and the shares issued upon exercise
of the warrants were also issued pursuant to Rule 506
of Regulation D.
4. 50,739 warrants were exercise at $.63 per share
resulting in the issuance of 33,103 shares of the
Company's Common Stock. The warrants were exercised
pursuant to the terms of cashless exercise provisions
contained in the warrants, resulting in a reduction
in the number of shares of Common Stock issued upon
exercise of the warrants. These warrants were issued
to certain "accredited investors" in connection with
the sale of the Company's 1997 Convertible Preferred
Stock. The warrants were issued pursuant to Rule 506
of Regulation D, and the shares issued upon exercise
of the warrants were also issued pursuant to Rule 506
of Regulation D.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1(1) Restated Certificate of Incorporation of
HEARx Ltd., including certain certificates of
designations, preferences and rights of
certain preferred stock of the Company. [3]
3.2(2) Amendment to Restated Certificate of
Incorporation. [3.1A]
3.3(3) Certificate of Designations, Preferences and
Rights of the Company's 1997 Convertible
Preferred Stock. [3]
3.4(4) By-Laws of HEARx Ltd. [3.2]
27 Financial Data Schedule (provided for the
information of the Securities and Exchange
Commission only).
=======================================================================
1 Filed as an exhibit to the Company's Current
Report on Form 8-K, filed May 17, 1996, as
the exhibit number indicated in brackets, and
incorporated herein by reference.
2 Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the period
ended June 28,1996, as the exhibit number
indicated in brackets, and incorporated
herein by reference.
3 Filed as an exhibit to the Company's Current
Report on Form 8-K, filed March 26, 1997, as
the exhibit number indicated in brackets, and
incorporated herein by reference.
4 Filed as an exhibit to the Company's
Registration Statement on Form S-18
(Registration No. 33-17041-NY) as the
exhibit number indicated in brackets, and
incorporated herein by reference.
(b) Reports on Form 8-K:
None
11
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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.
HEARx Ltd.
(Registrant)
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Date: May 11, 1998 By: /s/Stephen J. Hansbrough
------------------------
Stephen J. Hansbrough
President and
Chief Operating Officer
Date: May 11, 1998 By: /s/James W. Peklenk
-------------------
James W. Peklenk
Vice President and
Chief Financial Officer
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR HEARx LTD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-26-1997
<PERIOD-END> MAR-27-1998
<CASH> 1,508,204
<SECURITIES> 9,480,953
<RECEIVABLES> 4,047,390
<ALLOWANCES> (241,546)
<INVENTORY> 724,454
<CURRENT-ASSETS> 16,046,400
<PP&E> 14,070,207
<DEPRECIATION> (5,146,184)
<TOTAL-ASSETS> 26,164,769
<CURRENT-LIABILITIES> 4,723,324
<BONDS> 174,897
0
6,815
<COMMON> 10,076,425
<OTHER-SE> 11,391,276
<TOTAL-LIABILITY-AND-EQUITY> 26,164,769
<SALES> 7,094,329
<TOTAL-REVENUES> 7,094,329
<CGS> 2,080,047
<TOTAL-COSTS> 6,955,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,940,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,940,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 104,035
<CHANGES> 0
<NET-INCOME> (2,044,837)
<EPS-PRIMARY> ($0.02)
<EPS-DILUTED> ($0.02)
</TABLE>
