FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Mark One
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE OF 1934
FOR THE QUARTERLY PERIOD ENDED: December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO N/A
COMMISSION FILE NUMBER: 33-21239
TRAVEL DYNAMICS, INC.
------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 0462569
---------------------- --------------------------------------
STATE OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
4150 North Civic Center Boulevard, Penthouse Suite
SCOTTSDALE, AZ 85251
---------------------------------------- --------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(480) 949-9500
Indicate by check mark whether the Registration (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 files
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X YES _ NO
As of January 31, 2000, approximately 4,848,080 shares of common
stock ($.001 par value) were outstanding.
<PAGE>
TRAVEL DYNAMICS, INC.
INDEX
Page
PART I. Financial Information. . . . . . . . . . . . 3
Item 1. Financial Statements. [Unaudited]. . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 3
PART II. Other Information . . . . . . . . . . . . . 7
Item 2. Changes in Securities and Use of
Proceeds. . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . 7
Item 5. Other Information . . . . . . . . . . . . . 7
Item 6. Exhibits and Reports on Form 8-K. . . . . . 7
[Inapplicable Items Have Been Omitted]
-2-
<PAGE>
PART I. Financial Information
Item 1. Financial Statements. [Unaudited]
The Condensed Consolidated Financial Statements of Travel
Dynamics, Inc. for the six-month period ending December 31, 1999
are unaudited and are attached and incorporated by this reference
as Item 1.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Certain statements in this 10-QSB, including without limitation
information set forth under Item 2 entitled 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations" contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (the Act),
including, without limitation, statements regarding the Company's
expectations, beliefs, estimates, intentions, and strategies about
the future. Words such as, "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," or variations of such
words and similar expressions are intended to identify such
forward-looking statements, but their absence does not mean the
statement is not forward-looking. The Company desires to avail
itself of certain "safe harbor" provisions of the Act and is
therefore including this special note to enable the Company to do
so. Forward-looking statements in this 10-QSB or hereafter
included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's
shareholders and other publicly available statements issued or
released by the Company involve known and unknown risks,
uncertainties and other factors which could cause the Company's
actual results, performance (financial or operating) or
achievements to differ from the future results, performance
(financial or operating) or achievements expressed or implied by
such forward-looking statements and are not guarantees of future
performance. Similarly, statements that describe the Company's
future operating performance, financial results, plans, objectives
or goals are also forward-looking statements. Such future results
are based upon management's best estimates of current conditions
and the most recent results of operations. Such information
contained in such statements is difficult to predict; therefore
actual results may differ materially from those expressed or
forecasted. The forward-looking statements made herein are only
made as of the date of this 10-QSB and the Company undertakes no
obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
The accompanying condensed consolidated financial statements
include comparative data for the accounts of Travel Dynamics,
L.L.C. from July 1, 1998 through July 31, 1998 and the accounts of
Travel Dynamics, Inc. (now known as Travel Dynamic Services, Inc.)
from July 31, 1998 (inception) to September 29, 1998 (the date of
the reverse acquisition). The condensed consolidated financial
statements for comparative purposes also include the accounts of
Greenway Environmental Systems, Inc., (now known as "Travel
Dynamics, Inc.") through the date of the reverse acquisition on
September 29, 1998. These two entities (Travel Dynamics, Inc. as
the parent company and Travel Dynamics Services, Inc. as the sole
operating subsidiary) are collectively referred to herein as "the
Company."
Six Months and Three Months Ended December 31, 1999 Compared to
Six Months and Three Months Ended December 31, 1998
-3-
<PAGE>
The Company is a marketing firm that wholesales and
distributes educational and lifestyle products and materials to
independent sales associates ("ISAs"), who resell the packages.
These products and materials are designed to educate and support
individuals in their development of income sources for home-based
businesses. The products include discount entertainment and
travel packages and tax planning and organization packages. The
Company also engages in the organization and hosting of various
marketing, training and motivational seminars. The Company is
gaining increasing revenues through various direct marketing
activities, including the Internet.
Net sales for the six month and three month periods ended December
31, 1999 were $3,360,944 and $1,943,057. Net sales during the
six and three month periods ended December 31, 1999 increased by
$2,308,964 or 220% and $1,173,067 or approximately 152% as
compared to net sales for the comparable periods during the prior
fiscal year. This increase in both the six month and three month
periods was primarily attributable to the Company having
dramatically increased its customer base over the past year. For
the six months and three months ended December 31, 1998, the
Company was essentially a start-up company and in the early stages
of its current form of operations and had a minimal customer base
from which to generate revenues.
Gross margin for the six month and three month periods ended
December 31, 1999 was 49% and 44%. Gross margin during the six
and three month periods ended December 31, 1999 increased by 10.8%
and 6.3% as compared to gross margin for the comparable periods
during the prior fiscal year. The increases in both the six month
and three month periods relate to the entertainment and travel
packages and executive seminar products being sold at higher
margins as a result of volume purchasing and an increase in volume
of higher margin supplemental marketing products in the three
months ended December 31, 1999 as opposed to the same period
ending December 31, 1998 where the margins on the entertainment
and travel packages and executive seminars were lower due to
higher costs and the lack of supplemental marketing products.
Selling and general and administrative expenses for the six month
and three month periods ended December 31, 1999 was $1,499,348 and
$793,238. Selling and general and administrative expenses during
the six and three month periods ended December 31, 1999 increased
by $818,493 or 120% and $291,483 or 58% as compared to selling and
general and administrative expenses for the comparable periods
during the prior fiscal year. The increases in both the six month
and three month periods primarily relates to the Company adding
personnel and systems to the infrastructure to keep up with the
rapid rate of growth the Company experienced over the year. A
large portion of the increase was due to salaries of key personnel
who were hired in October 1998, January 1999 and November 1999,
and relate to the addition of full time employees serving as the
Chief Executive Officer, Chief Operating Officer, Vice President
of Marketing, Compliance Director, Marketing Communications
Director and Chief Technical Officer.
The Company's interest expense for the six month and three month
periods ended December 31, 1999 was $97,511 and $16,305, compared
to the comparable periods during the prior fiscal year, during
which the Company did not incur any significant interest expense.
This increase was primarily attributable to the interest expense
associated with the convertible debenture offering completed June
30, 1999. The Company recognized $63,250 of interest expense in
the three months ended September 30, 1999 due to the beneficial
-4-
<PAGE>
conversion feature of the debentures. The convertible debenture
offering is described in greater detail in Part II, Item 7,
"Management's Discussion & Analysis of Financial Condition &
Results of Operations" in the Company's amended and restated
10-KSB/A Report (Amendment No. 1) for the fiscal year ended
June 30, 1999, filed December 1999 and incorporated herein by
reference.
Net income for the six month and three month periods ended
December 31, 1999 was $57,347 and $42,459 compared with net loss of
$585,057 and $212,391 for the comparable periods in 1998. Net
results during the six and three month periods ended December 31,
1999 increased by $642,404 or 110% and $254,850 or 120% as
compared to the net results for the comparable periods during the
prior fiscal year. The increase in net income for both the six
month and three month periods is primarily attributable to the
increased sales activity and resulting revenue as compared to the
prior period coupled with the absence of one time merger and
reorganization expenses of approximately $307,983 the Company
incurred in the three months ended September 30, 1998. The Company
continues to experience increased sales activity and expects
improving net results over the next several quarters as compared
to the previous year's quarters.
Liquidity and Capital Resources
The Company's primary source of cash has been provided by
cash flow from operations and approximately $250,000 from the
issuance of the convertible debentures described in Part II, Item
7, "Management's Discussion & Analysis of Financial Condition &
Results of Operations" in the Company's amended and restated
10-KSB/A Report (Amendment No. 1) for the fiscal year ending June
30, 1999 and filed December 1999. The Company has experienced an
increase in its cash flow from operations and management anticipates
the cash generated from operations will be sufficient to satisfy
substantially all of the Company's working capital needs.
Net cash generated from operating activities for the three months
ended December 31, 1999 and 1998 was $151,047 and $28,485,
respectively. The difference in cash generated from operations is
mainly attributable to changes in operating assets and liabilities
related to the significant increase in customers and customer
transactions.
Expenditures for property and equipment and other assets totaled
$170,084 for the six months ended December 31, 1999. Expenditures
for property and equipment and other assets include $125,228 in
office equipment related to the Company's move into new, larger
offices and the increase in the number of personnel, and $44,856
in software for internal use.
Plan of Operations
Management estimates that the cash flow from operations over the
next 12 months, as well as the proceeds from the offering of
certain convertible debentures, completed June 30, 1999, will be
sufficient to continue the Company's operations and to cover its
operational expenses. Management reasonably believes that the
revenues will be sufficient to maintain Company operations.
Nevertheless, the Company reserves the right to raise additional
proceeds or incur debt or take such other actions to expand or
sustain its operations. However, as of the fiscal quarter ending
December 31, 1999 the Company did not specifically anticipate
raising any additional funds through debt or equity offerings of
securities.
The Company projects broadening its product and service line
through electronic commerce and including more on-line products
and services over the Internet. The Company also plans to provide
telephone support for its current products and services. The
Company began offering a tax support package to home-based
businesses and plans to continue to support and market this
program. The Company also plans to launch a retail electronic
-5-
<PAGE>
commerce web-site in the third quarter of the current fiscal year.
The Company plans to design this web site to contain a general
merchandise Internet mall with a wide variety of retailers. The
web-site may contain a replicating feature that will enable the
Company's ISAs to design and operate their individual web sites
under the ISA's designated name for availability to that ISA's
clients for a fee and transaction-based commissions from the web
site sales revenue.
The Company recently entered into a lease of its current principal
office in Scottsdale, Arizona with a remaining term of several
years. The Company anticipates increasing its number of employees
over the next 12 months to include clerical and other
administrative personnel to keep pace with the growth of the
Company, in addition to employees to provide telephone support as
previously described.
The historical background and general description of business is
more particularly set out in Part I, Item 1, "Description of Business"
in the last filed amended and restated 10-KSB/A Report (Amendment No.
1) for the fiscal year ending June 30, 1999, which was filed during
December 1999. A copy of this filing or other filings to date under
the Securities Act of 1934 by the Company will be made available by
the Company to any shareholder requesting the same, or to other
interested parties. All filed documents of the Company may further
be retrieved "on line" through the Internet at the SEC homepage at
http://www.sec.gov.
Until the Company achieves a sustained level of profitability, it
must be considered a start-up entity. Management considers the
growth of revenues and profitability to be positive and expects to
maintain profitability for the current fiscal year, however no
warranty of this projection can be made. The Company remains
dependent on continuing cash flows to meet certain operating
expenses and no assurance of financial success or economic
survival of the Company can be assured during this period.
It should also be noted that as a start up entity, the Company has
and will necessarily continue to incur certain types of start up
costs, including costs related to the commencement of business,
legal and accounting fees, initial filing fees, and advertising
and marketing fees which may not constitute ongoing fees; or, if
ongoing, may not be incurred at the same level or percentage of
revenues as experienced in the initial start-up period.
Management's general discussion of operations is limited by and
should be considered within the context of the actual Condensed
Consolidated Financial Statements and notes attached thereto and
incorporated as part of Item 1 above.
-6-
<PAGE>
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds.
During the second three months ending December 31, 1999, the
Company issued 96,000 shares of common stock, $.001 par value,
upon exercise of options held by the Company's officers, employees
and directors. At the Company's annual shareholder meeting on
November 29, 1999, the Company's shareholders approved the Travel
Dynamics Incentive Stock Option Plan reserving up to 1,275,000
shares of common stock to officers and managerial employees.
During the three months ended December 31, 1999, the Company
granted to officers of the Company, options to acquire up to
1,000,000 shares of common stock, subject to vesting over time.
Item 4. Submission of Matters to a Vote of Security Holders.
During the second quarter ending December 31, 1999, the Company
held its annual shareholder meeting on November 29, 1999 at the
Company's principal office. The shareholders of the Company had a
quorum and adopted the following proposals: (a) reelection of
James Piccolo, Brian K. Service, Thomas Dennis and Thomas Vergith
to the Board of Directors for another term, (b) ratification and
approval of the Travel Dynamics Incentive Stock Option Plan, for
the Company to issue up to 1,275,000 shares of common stock to
officers and managerial employees, (c) ratification of the
issuance of options, to the existing Board of Directors, to
acquire 325,000 shares of common stock at an exercise price of
$0.10/share and other compensation and any compensation for new
Board members as deemed appropriate by the Board of Directors and
(d) ratification and approval of the appointment of Hansen,
Barnett & Maxwell, Salt Lake City, Utah as independent auditors
and to prepare the Company's audited financial statements and take
such actions as determined by the officers of the Company.
Item 5. Other Information.
The Company hired Martin J. Matthews to serve as the
Company's Chief Operating Officer as of November 29, 1999. The
Company also contracted with Self & Associates to provide public
relations, marketing and investor communications services. As of
the end of the second quarter ending December 31, 1999, the
Company knows of no other material information other than as
described and set out above and under this Item 5.
Item 6. Exhibits and Reports on Form 8-K.
(1) The attached unaudited Condensed
Consolidated Financial Statements for the period
ending December 31, 1999, are attached and
incorporated as Part I.
(2) The Company made no 8-K Filings in the quarter
ending December 31, 1999.
..........................
OTHER EXHIBITS:
-7-
<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.
TRAVEL DYNAMICS, INC.
Date: February 14, 2000 By /S/ James Piccolo
------------------------------
James Piccolo
President, CEO and Director
Date: February 14, 2000 By /S/ Brian K. Service
------------------------------
Brian K. Service
CFO, Secretary and Director
-8-
<PAGE>
TRAVEL DYNAMICS, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheet - December
31, 1999 (Unaudited) . . . . . . . . . . . . . . . . . . . F-1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended December 31, 1999 and 1998
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . F-2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1999 and 1998 (Unaudited) . . F-3
Notes to Condensed Consolidated Financial Statements . . . . F-4
<PAGE>
TRAVEL DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents. . . . . . . . . . . . $ 416,331
Other receivables. . . . . . . . . . . . . . . . 307,045
Inventory. . . . . . . . . . . . . . . . . . . . 88,892
Prepaid assets . . . . . . . . . . . . . . . . . 62,747
Other current assets . . . . . . . . . . . . . . 37,677
-----------
Total Current Assets. . . . . . . . . . . . 912,692
-----------
Property and Equipment
Office equipment . . . . . . . . . . . . . . . . 241,388
Software for internal use. . . . . . . . . . . . 152,476
Less accumulated depreciation. . . . . . . . . . (59,557)
-----------
Net Property and Equipment. . . . . . . . . 334,307
-----------
Other Assets
Trademarks, net of $1,578 accumulated
amortization. . . . . . . . . . . . . . . . . . 3,681
Marketing master database, net of $35,297
accumulated amortization. . . . . . . . . . . . 82,360
Investments in certificates of deposit . . . . . 80,000
Other assets . . . . . . . . . . . . . . . . . . 86,745
-----------
Total Other Assets. . . . . . . . . . . . . 252,786
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . $ 1,499,785
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . $ 124,549
Accrued liabilities. . . . . . . . . . . . . . . 301,743
Deferred sales . . . . . . . . . . . . . . . . . 560,400
-----------
Total Current Liabilities . . . . . . . . . 986,692
-----------
Convertible Notes Payable. . . . . . . . . . . . 607,728
-----------
Stockholders' Deficit
Common stock -$0.001 par value; 50,000,000
shares authorized; 4,501,080 shares issued
and outstanding . . . . . . . . . . . . . . . 4,501
Additional paid-in capital . . . . . . . . . . . 857,045
Unearned compensation. . . . . . . . . . . . . . (10,828)
Accumulated deficit. . . . . . . . . . . . . . . (945,353)
-----------
Total Stockholders' Deficit . . . . . . . . (94,635)
-----------
Total Liabilities and Stockholders' Deficit. . . . . $ 1,499,785
===========
See the accompanying notes to condensed
consolidated financial statements.
F-1
<PAGE>
TRAVEL DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . $ 1,943,057 $ 769,990 $ 3,360,944 $ 1,051,980
Cost of Sales. . . . . . . . . . . . 1,091,055 480,626 1,706,738 648,199
----------- ----------- ----------- -----------
Gross Profit . . . . . . . . . . . . 852,002 289,364 1,654,206 403,781
----------- ----------- ----------- -----------
Expenses
Selling, general and
administrative expense . . . . . 793,238 501,755 1,499,348 680,855
Merger and reorganization expense - - - 307,983
Interest expense. . . . . . . . . 16,305 - 97,511 -
----------- ----------- ----------- -----------
Total Expenses. . . . . . . . 809,543 501,755 1,596,859 988,838
----------- ----------- ----------- -----------
Net Income (Loss). . . . . . . . . . $ 42,459 $ (212,391) $ 57,347 $ (585,057)
=========== =========== =========== ===========
Basic Earnings (Loss) Per Common
Share . . . . . . . . . . . . . . . $ 0.01 $ (0.05) $ 0.01 $ (0.20)
=========== =========== =========== ===========
Diluted Earnings (Loss) Per Common
Share . . . . . . . . . . . . . . . $ 0.01 $ (0.05) $ 0.01 $ (0.20)
=========== =========== =========== ===========
</TABLE>
See the accompanying notes to condensed
consolidated financial statements.
F-2
<PAGE>
TRAVEL DYNAMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended December 31,
----------------------
1999 1998
---------- ----------
Cash Flows From Operating Activities
Net income (loss). . . . . . . . . . . . . . $ 57,347 $ (585,057)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization . . . . . . 56,833 9,179
Compensation relating to common stock,
stock, options and debentures granted. . 31,815 183,703
Expenses paid with notes payable. . . . . - 149,090
Interest expense relating to beneficial
conversion feature . . . . . . . . . . . 63,250 -
Changes in operating assets and liabilities:
Other receivables. . . . . . . . . . . (163,989) 8,311
Prepaid expenses . . . . . . . . . . . (44,715) (28,764)
Inventory. . . . . . . . . . . . . . . (31,261) (8,107)
Other assets . . . . . . . . . . . . . (61,578) (144,166)
Accounts payable . . . . . . . . . . . (91,815) 143,274
Accrued liabilities. . . . . . . . . . 208,220 40,862
Deferred sales . . . . . . . . . . . . 126,940 260,160
---------- ----------
Net Cash and Cash Equivalents Provided
By Operating Activities. . . . . . . . . 151,047 28,485
---------- ----------
Cash Flows From Investing Activities
Payments to purchase property and
equipment and intangible assets . . . . . . (170,084) (11,469)
Increase in related party receivable . . . . - (37,923)
---------- ----------
Net Cash and Cash Equivalents
Used In Investing Activities . . . . . . (170,084) (49,392)
---------- ----------
Cash Flows From Financing Activities
Proceeds from issuance of common stock . . . 11,350 -
Proceeds from issuance of notes payable. . . 250,000 -
---------- ----------
Net Cash and Cash Equivalents Provided
By Financing Activities. . . . . . . . . 261,350 -
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents. . . . . . . . . . . . . . . . . . 242,313 (20,907)
Cash and Cash Equivalents at Beginning of Period 174,018 26,885
---------- ----------
Cash and Cash Equivalents at End of Period. . . $ 416,331 $ 5,978
========== ==========
See the accompanying notes to condensed
consolidated financial statements.
F-3
<PAGE>
TRAVEL DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1-INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been
prepared by Travel Dynamics, Inc. (the Company)
and are unaudited. In the opinion of management,
the accompanying unaudited financial statements
contain all necessary adjustments for fair
presentation, consisting of normal recurring
adjustments except as disclosed herein.
The accompanying unaudited interim financial
statements have been condensed pursuant to the
rules and regulations of the Securities and
Exchange Commission; therefore, certain
information and disclosures generally included in
financial statements have been condensed or
omitted. These financial statements should be
read in connection with the Company's annual
financial statements included in the Company's
annual report on Form 10-KSB as of June 30, 1999.
The financial position and results of operations
of the interim periods presented are not
necessarily indicative of the results to be
expected for the year ended June 30, 2000.
Amounts previously reported for December 31, 1998
and for the three and six months then ended have
been adjusted to conform to the audited
consolidated financial statements for June 30,
1999 and for the year then ended.
NOTE 2 - CONVERTIBLE NOTES PAYABLE
During the six months ended December 31, 1999,
the Company issued 10% convertible debentures
totaling $250,000 in cash. Interest accrues on
the debentures beginning June 30, 1999 and is
payable at the end of each quarter. The
convertible debentures mature and are redeemable
at their face value on January 2, 2015. The
debentures may be converted into common stock of
the Company at the rate of $1.00 per share
through June 30, 2001. Each debenture is callable
at 110% of its face value at any time after the
first anniversary date of the execution of the
note. The holders of the debentures, may upon
notice of the call, convert the debenture into
common stock within thirty days of receiving
written notice of such call. As described in Note
3 - Common Stock, 60,000 convertible debentures
were converted into common stock during the six
months ended December 31, 1999.
The Company recognized interest expense equal to
the difference between the $1.00 conversion price
per share and the market value of the Company's
stock on the day the debentures were issued,
which was $1.27 per share. Interest expense of
$63,250 was recognized due to the beneficial
conversion feature for the six months ended
December 31, 1999.
NOTE 3 - COMMON STOCK
During the three months ended December 31, 1999,
the Company issued 3,000 shares of common stock
for consulting services valued at $8,070, or
$2.69 per share. During the six months ended
December 31, 1999, the Company issued 5,000
shares of common stock for consulting services
valued at $10,445 with prices ranging from $1.19
per share to $2.69 per share.
F-4
<PAGE>
During the three months ended December 31, 1999,
the 10% convertible debentures were converted to
60,000 shares of common stock at the exercise
price of $1.00 per share or a total of $60,000.
Also during the three months ended December 31,
1999, the Company issued 96,000 shares of common
stock for cash of $11,350 upon the exercise of
options with exercise prices ranging from $0.10
to $0.15 per share.
NOTE 4 - BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
The following data shows the amounts used in
computing earnings per share for the three and
six months ended December 31, 1999 and 1998 and
the effect on income and weighted average number
of shares of dilutive potential common stock:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) used in basic
earnings per share . . . . . . . . $ 42,459 $ (212,391) $ 57,347 $ (585,057)
=========== =========== =========== ===========
Weighted average number of common
shares used in basic earnings
per shares . . . . . . . . . . . . 4,444,243 4,121,602 4,392,488 2,909,878
Incremental shares from assumed
conversion of stock options. . . . 1,981,209 - 980,381 -
----------- ----------- ----------- -----------
Weighted average number of common
shares and dilutive potential
common shares used in dilutive
earnings per share . . . . . . . . 6,425,452 4,121,602 5,372,869 2,909,878
=========== =========== =========== ===========
</TABLE>
The incremental shares from assumed conversion of
10% convertible debentures into 617,728 and
606,061 common shares for the three and six
months ended December 31, 1999, respectively,
have not been included in the weighted average
number of common shares and dilutive potential
common shares as they were anti-dilutive. The
weighted average number of common shares used in
the computation for basic and diluted loss per
share at December 31, 1998 does not include
options on 1,196,000 shares of common stock
because their effects would be anti-dilutive.
NOTE 5 - STOCK OPTIONS
A summary of the status of the Company's stock
options as of December 31, 1999 and 1998 and
changes during the six months then ended is
presented below:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, 1999 Ended December 31, 1998
----------------------- ------------------------
Weighted-Average Weighted Average
Exercise Exercise
Shares Price Shares Price
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period. . . . 1,500,000 $ 0.39 - $ -
Forfeited . . . . . . . . . . . . . . . . (12,000) 2.36 - -
Exercised . . . . . . . . . . . . . . . . (96,000) 0.12 - -
Granted . . . . . . . . . . . . . . . . . 1,000,000 1.09 1,196,000 0.10
----------- ---------- ----------- -----------
Outstanding at period end . . . . . . . . 2,392,000 0.68 1,196,000 0.10
=========== ===========
Options exercisable at period end . . . . 695,250 $ 0.58 130,000 0.10
=========== ===========
Weighted-average fair value of options
granted during the period. . . . . . . . $ 0.43 $ 0.11
=========== ===========
</TABLE>
F-5
<PAGE>
The Company measures stock-based compensation
from options granted to non-employees by the fair
value method set forth under Statement of
Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, and
measures compensation from options granted to
employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion
25, Accounting for Stock Issued to Employees, and
related interpretations. Stock-based compensation
charged to operations was $3,000 during the three
and six month periods ended December 31, 1998 and
$9,834 and $21,370 during the three and six month
periods ended December 31, 1999, respectively.
Had compensation cost for the Company's options
granted to an employee been determined based on
the fair value at the grant dates consistent with
the alternative method set forth under Statement
of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, net loss
and loss per share would have increased for the
three and six months ended December 31, 1999 and
1998 to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss):
As reported. . . . . . . . . . $ 42,459 $ (212,391) $ 57,347 $ (585,057)
Pro forma. . . . . . . . . . . (64,686) (217,891) (56,673) (590,557)
Basic earnings (loss) per share:
As reported. . . . . . . . . . $ 0.01 $ (0.05) $ 0.01 $ (0.20)
Pro forma. . . . . . . . . . . (0.01) (0.05) (0.01) (0.20)
Diluted earnings (loss) per share:
As reported. . . . . . . . . . $ 0.01 $ (0.05) $ 0.01 $ (0.20)
Pro forma. . . . . . . . . . . (0.01) (0.05) (0.01) (0.20)
</TABLE>
The fair value of each option granted was
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following weighted-average assumptions for the
period ended December 31, 1999: underlying common
stock value - $1.09, expected life of the options
- 3 years, expected volatility - 50% and
risk-free interest rate - 5.8%. The
weighted-average assumptions for the period ended
December 31, 1998 are as follows: underlying
common stock value - $0.15, expected life of the
options - 5 years, expected volatility - 75% and
risk-free interest rate - 4.4%.
F-6
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of December 31, 1999, and statements of operations for the six months
ended December 31, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 416,331
<SECURITIES> 0
<RECEIVABLES> 307,045
<ALLOWANCES> 0
<INVENTORY> 88,892
<CURRENT-ASSETS> 912,692
<PP&E> 403,864
<DEPRECIATION> (59,557)
<TOTAL-ASSETS> 1,499,785
<CURRENT-LIABILITIES> 986,692
<BONDS> 0
0
0
<COMMON> 4,501
<OTHER-SE> (99,136)
<TOTAL-LIABILITY-AND-EQUITY> 1,499,785
<SALES> 3,360,944
<TOTAL-REVENUES> 3,360,944
<CGS> 1,706,738
<TOTAL-COSTS> 1,706,738
<OTHER-EXPENSES> 1,499,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,511
<INCOME-PRETAX> 57,347
<INCOME-TAX> 0
<INCOME-CONTINUING> 57,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,347
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
