<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April, 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 0-19705
LINKON CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 13-3469932
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 Sherman Street,
Fairfield, Connecticut 06430
----------------------------
(Address of principal executive offices)
(203) 319-3175
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 practicable date.
Class Outstanding at May 26, 1998
----- ---------------------------
Common Stock, Par Value $.001 Per Share 13,321,252
==========
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
----- ----
<PAGE>
LINKON CORPORATION
FORM 10-QSB
QUARTERLY REPORT
For the Three Months Ended April 30, 1998
Page to Page
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet April 30, 1998 and 3-4
January 31, 1998
Consolidated Statements of Operations - Three Months
Ended April 30, 1998 and 1997 5
Consolidated Statements of Cash Flows Three Months
Ended April 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Exhibit I - Calculation of Earnings per Share 13
PART II. Other Information 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
PART 1- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
A S S E T S
-----------
April 30, January 31,
1998 1998
---- ----
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 775,041 $ 511,961
Accounts Receivable (Net of Allowance) 569,618 37,135
Notes Receivable -- --
Other Receivables -- 1,972
Inventory 576,654 400,625
Prepaid Expenses 39,914 16,773
---------- ----------
Total Current Assets 1,961,227 968,466
---------- ----------
MACHINERY & EQUIPMENT
- ---------------------
Machinery & Equipment, at cost 1,472,881 1,430,553
Less: Accumulated Depreciation (1,071,066) (1,020,066)
---------- ----------
Machinery & Equipment, Net 401,815 410,487
---------- ----------
OTHER ASSETS
- ------------
Software (Net of Amortization) 944,266 957,200
Investments, at cost 25,000 --
Prepaid Financing Costs 15,685 18,300
Security Deposits 12,119 10,688
Total Other Assets 997,070 986,188
---------- ----------
$3,360,112 $2,365,141
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this report.
3
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
April 30, January 31,
1998 1998
---- ----
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 654,735 $ 591,538
Notes Payable-Current 300,000 350,000
Customer Advance Deposits 64,330 154,679
Accrued Salaries 45,000 --
Taxes Payable 1,000 1,377
Interest Payable 14,538 234,865
Accrued Expenses 307,838 451,248
---------- -----------
Total Current Liabilities 1,387,441 1,783,707
---------- -----------
LONG TERM LIABILITIES
- ---------------------
Notes Payable, Net 968,727 957,328
---------- -----------
COMMITMENTS AND CONTINGENCIES -- --
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $.001 Par Value,
24,900,000 shares authorized,
13,321,252 shares issued and
outstanding 13,322 10,897
Preffered Stock, $.001 Par Value
1,000,000 shares authorized,
none issued and outstanding
Capital in Excess of Par Value 11,355,898 9,404,266
Retained Earnings (Accumulated Deficit) (10,365,276) (9,791,057)
------------ ------------
Total Stockholders' Equity 1,003,944 ( 375,894)
------------ ------------
$ 3,360,112 $ 2,365,141
============ ============
The accompanying notes to consolidated financial statements are an integral part
of this report.
4
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended April 30, Ended April 30,
1998 1997
---- ----
<S> <C> <C>
Gross Revenues $ 868,623 $ 722,549
Cost of Goods Sold Product 544,052 423,145
- Software amortization 96,120 96,366
---------- ---------
640,172 519,511
---------- ---------
Gross Margin On Sales 228,451 203,038
Selling, General and
Administrative Expenses 784,396 612,297
Research and Development 79,855 73,041
---------- ---------
864,251 685,338
---------- ---------
Operating Income (Loss) ( 635,800) (482,300)
OTHER INCOME (EXPENSE)
Interest Income 1,775 25
Interest Expense ( 49,108) ( 38,455)
---------- ---------
(47,333) ( 38,430)
---------- ---------
Income(Loss) Before Income Taxes ( 683,133) (520,730)
Income Taxes 1000 --
---------- ---------
Income (Loss)Before Extraordinary Item ( 684,133) (520,730)
Extraordinary item net gain on pay off
of note payable 109,914 --
---------- ---------
Net Income(Loss) $( 574,219) $(520,730)
========== =========
Earnings(Loss)per share
Before extraordinary item ($0.06) ($0.05)
Extraordinary Item $0.01 --
---------- ---------
Net Earnings(Loss) ($0.05) ($0.05)
---------- ---------
Average shares outstanding 11,502,502 10,817,252
---------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
5
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
------------------------------------
Net Income (Loss)- Before Extraordinary Item $( 684,133) $(520,730)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 155,414 151,246
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable ( 532,483) (457,991)
(Increase) Decrease in Other Receivables 1,972 3,359
(Increase) Decrease in Inventory ( 176,029) 11,521
(Increase) Decrease in Prepaid Expenses ( 23,141) ( 69,756)
(Increase) Decrease in Software ( 83,186) ( 91,709)
(Increase) Decrease in Prepaid Financing Cost 2,615 2,614
(Increase) Decrease in Security Deposits ( 1,431) --
Increase (Decrease) in Accounts Payable 63,197 338,939
Increase (Decrease) in Accrued Expenses ( 143,410) ( 38,400)
Increase (Decrease) in Interest Payable ( 220,327) 33,750
Increase (Decrease) in Accrued Salaries 45,000 --
Increase (Decrease) in Customer Deposits ( 90,349) --
Increase (Decrease) in Taxes Payable ( 377) --
----------- -------------
Net Cash Used in Operating Activities (1,686,668) ( 637,157)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Paid to Purchase Equipment ( 42,328) ( 8,805)
Investment in Non-Marketable Securities ( 25,000) --
----------- -------------
Net Cash Provided by (Used in) Investing Activities ( 67,328) ( 8,805)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from Sale of Common Stock 1,817,076 45,000
Proceeds from issuance of Note Payable 1,100,000 --
Principal payments on Notes Payable ( 900,000) --
----------- -------------
Net Cash Provided by (Used in) Financing Activities 2,017,076 45,000
----------- -------------
Net Increase (Decrease) in Cash 263,080 ( 600,962)
Cash and Cash Equivalents at Beginning of Period 511,961 630,726
----------- -------------
Cash and Cash Equivalents at End of Period $ 775,041 $ 29,764
============ =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
6
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
April 30, 1998
--------------
1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments(consisting of only normal recurring
accruals) necessary to present fairly the financial position as of April 30,
1998 and 1997, and January 31, 1997, and the results of operations for the three
month periods ended April 30, 1998 and 1997 and cash flows for the three month
periods ended April 30, 1998 and 1997.
The accounting policies followed by the Company are set forth in Note 3 to
the Company's financial statements in the Linkon Corporation Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1998.
2) ANALYSIS OF STOCKHOLDERS' EQUITY:
----------------------------------
Capital
Outstanding in Excess Accumulated
Shares Amount of Par Value Deficit
----------- ------ ------------ -----------
Balance January 31, 1998 10,896,252 $10,897 $ 9,404,266 $ (9,791,057)
Issuance of 2,425,000 $ 2,425 $ 1,814,651 --
Common Stock, Net of
Expenses
Value assigned to warrants -- -- 136,981 --
Loss for Three Months
Ended April 30, 1998 -- -- -- ( 574,219)
---------- ------- ----------- -------------
Balance April 30, 13,321,252 $13,322 $11,355,898 $(10,365,276)
========== ======= =========== =============
3) FINANCING OF OPERATIONS:
------------------------
See Management's Discussion and Analysis- Liquidity and Capital Resources as to
the Company's need for additional capital and any plans for the future financing
of its operations.
4) VALUE ASSIGNED TO WARRANTS
--------------------------
See Management's Discussion and Analysis- Liquidity and Capital Resources,
Issuance of Notes Payable/Gain on Payoff of Note Payable, as to issuance of
warrants.
7
<PAGE>
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
NET INCOME (LOSS)
- -----------------
The Company reported a net loss of $574,219 for the first three months
of fiscal 1999 as compared to a net loss of $520,730 for the same period during
the prior year, notwithstanding an increase in gross revenues of 20% for the
same period (see "Revenues" below). This increase in the net loss reported by
the Company was due to the following factors:
Selling, General and Administrative expenses increased from $612,297
in the first three months of fiscal year 1997 to $784,396 in the same three
months of fiscal year 1998. This is discussed more fully under the section
entitled "Selling, General and Administrative Expenses" below.
Gross Margin decreased from 28% in the first three months of fiscal
year 1997 to 26% in the same three months of fiscal year 1998. This is more
fully discussed under the section entitled "Cost of Goods Sold" below.
The increase in net loss due to the increase in Selling, General and
Administrative expenses and the decrease in gross margins, was offset in part by
a net gain of $109,914 realized on the payoff of notes payable ( This is more
fully dicussed in the "Issuance of Note Payable / Gain on Payoff of Note
Payable" section in Liquidity and Capital Resources below).
REVENUES
- --------
For the three months ended April 30, 1998 revenues increased by $146,074
from the three month period ended April 30, 1997, an increase of 20%. This
increase was due mainly to increased shipments to AT&T, the Company's largest
customer, and to Sequel Communications (see below). The Company's total order
backlog as of April 30, 1998 was approximately $350,000, and as of May 29, 1998
was approximately $2,264,000, which consisted of approximately $1,900,000 for
products and services for AT&T. Substantially the entire backlog is for
products scheduled to be shipped during the second quarter of fiscal 1999.
During the three months ended April 30, 1998, the Company deployed its
first major installation of LinkNetTM , its new Internet Telephony (Voice and
Fax over the Internet) product with SS7 signalling, to Sequel Communications.
The Company shipped approximately $400,000 of the approximately $515,000 order
during the first quarter of FY1999, with the balance scheduled to ship during
the second quarter of FY1999. The Company expects sales of this product to
increase during fiscal 1999 to a diverse base of customers.
The Company continues to concentrate on developing and expanding its
customer base and is currently working on several new projects for other major
customers which it anticipates will diversify its customer base and increase
revenues in both the near and long-term. While the certainty of these new
projects becoming future revenues for the Company cannot be measured at this
point in time, the management of the Company is encouraged by the inquiries it
is receiving concerning its products.
COST OF GOODS SOLD
- ------------------
Cost of goods sold for products, consisting of parts, supplies and
manufacturing costs for the Company's hardware and software products, including
software amortization, were $640,173 and $519,511, or 74% and 72% of revenues,
for the three months ended April 30, 1998 and 1997, respectively. Excluding
software amortization, Cost of goods sold for products, consisting of parts,
supplies and manufacturing costs for the Company's hardware and software
products were $544,053 and $423,145, or 63% and 59% of revenues, for the three
months ended April 30, 1998 and 1997, respectively.
8
<PAGE>
Management attributes the increase in cost of goods sold to highly competitive
pricing associated with initial shipments of its LinkNetTM product to Sequel
Communications. The cost of goods sold varies with each product line, with
software having little or no material cost (approximately 5-10%). The primary
costs incurred by the Company are for materials and equipment relating to its
hardware products, which also carry lower profit margins than the Company's
software products. The Company manufactures and assembles all hardware through
contracted third party suppliers under the direct supervision of the Company's
management.
While management continues to believe that its products can ultimately
be sold with a less than 50% cost of goods sold (excluding the software
amortization costs), management also realizes the need to gain market share for
its products and will, for the near term, continue to be aggressive in its
pricing policy. However, management also believes that the cost of sales will
go down as customers begin to order enhanced software features, which features
carry significantly lower costs than the Company's hardware products, as well as
a result of research and development projects aimed at increasing efficiency
while reducing cost.
Software amortization costs for the three months ending April 30, 1998
and 1997, were $96,120 and $96,366, respectively. These amounts were 11% and 13%
of revenues for the three months ending April 30, 1998 and 1997, and are
included in the Cost of Goods Sold total percentage of 74% and 72% for the above
periods being presented.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, General and Administrative expenses for the three months ended
April 30, 1998 and 1997 were $784,396 and $612,297, respectively. This
constituted approximately 90% and 85% of revenues for the three months ended
April 30, 1998 and 1997, respectively. This increase was due primarily to
increases in staffing in Sales, Marketing and Customer Support, travel to trade
shows and customer sites, and expenditures for Marketing and Advertising
programs for the LinkNet TM and EscapeTM products.
RESEARCH, DEVELOPMENT AND SOFTWARE
- ----------------------------------
The Company incurred total research, development and software costs of
approximately $152,755 and $145,941 for the three months ended April 30, 1998
and 1997, respectively. It is the policy of the Company to capitalize research
and development costs that are incurred subsequent to the establishment of
technological feasibility to produce the finished product. For the periods
ending April 30, 1998 and 1997 the amounts capitalized were $72,900 for both
periods. The increase in research and development costs was primarily due to
increases in staffing to support the continued development efforts on the
LinkNetTM product line. These amounts consist of internal salaries, outside
consulting services, equipment and fixed overhead costs. The Company expects
research, development and software costs to increase over the next several
quarters, as finances permit.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary capital requirements to date have been to fund
losses from operations. In addition, from time to time the Company has required
capital to fund increases in inventory of certain products necessary for the
Company to sell such products. The Company has funded its capital requirements
through the receipt of proceeds from private placements of convertible debt and
equity (see below), the exercise of warrants, interest earned from the
investment of such proceeds in interest earning assets, factoring facilities
(see below) and revenues from operations. During the three months ended April
30, 1998 the net cash deficit from operating activities was approximately
$1,686,000, net cash provided by financing activities was $2,017,000, and net
cash used for investment activities was approximately $67,000. This resulted in
a net increase in cash during the three months ended April 30, 1998 of
approximately $263,000, increasing the Company's cash and cash equivalents from
approximately $511,000 as of January 31, 1998 to approximately $714,000 as of
April 30, 1998. As of April 30, 1998, the Company's working capital position
(current assets minus current liabilities) was positive by approximately
$574,000 as compared to January 31, 1998 when it was negative by approximately
$815,000. However, even with this improvement in working capital, the rate at
which the Company lost money and consumed cash during the first quarter of
fiscal 1999 means that the Company will be dependent upon increased revenues
from product sales and/or future equity investments during the current fiscal
year in order to remain solvent. However, the Company's approximately $2.26
9
<PAGE>
million backlog as of May 29, 1998, as well as the Company's view of its
prospects for sales well in excess of historical levels (and at or above levels
that would be expected from its current backlog position), lead management to
conclude that its liquidity will be sufficient for the remainder of the current
fiscal year. There can be no assurances however, that such level of product
sales will be achieved and maintained.
FACTORING FACILITIES
--------------------
On March 19, 1998 the Company entered into an Agreement for Purchase
of Receivables (the "Imperial Factoring Agreement") with Imperial Bank
("Imperial") pursuant to which the Company may sell to Imperial accounts
receivable and other general intangibles ("Purchased Receivables") that are from
time to time identified by the Company and accepted by Imperial. Upon
acceptance by Imperial, Imperial is obligated to pay the Company 85% of the face
value of the Purchased Receivables (subject to adjustment), retaining the
remaining 15% of the face value of the Purchased Receivable as a reserve until
after the Purchased Receivables are paid by the Company's customers (i.e., the
account debtors). The Company is obligated to pay Imperial (i) a factor fee at a
rate of 1.75% per month on the face amount of each unpaid invoice relating to
Purchased Receivables and (ii) an administrative fee at a rate of 0.5% of the
face amount of each invoice for a Purchased Receivable. Imperial's purchase from
the Company of Purchased Receivables is with full recourse against the Company.
The Company's obligations under the Imperial Factoring Agreement are secured
primarily by its accounts receivable and other general intangibles and the
proceeds thereof. The term of the Imperial Agreement is one year and it will
automatically be renewed from year to year thereafter unless terminated by the
parties in accordance with the Imperial Factoring Agreement.
On March 26, 1998, the Company executed an addendum to the Imperial
Factoring Agreement that enables the Company to offer to sell to Imperial and
Imperial to elect to buy from the Company the Company's right to payment under
purchase orders given to the Company by its customers. The advance rate with
respect to purchased Company purchase orders is 20% (as opposed to the 85%
advance rate applicable to accounts receivable). The total amount of financing
to be provided to the Company with respect to the sale of purchase orders is
capped at the lesser of $400,000 or the outstanding reserve amount plus
$200,000.
After entering into the Imperial Factoring Agreement the Company
terminated its factoring arrangement with Boston Financial and Equity
Corporation (the "Boston Financial Factoring Arrangement"). The Company
believes that the Imperial Factoring Agreement represents an improvement from
the Boston Financial Factoring Arrangement. Imperial only reserves 15% of the
purchase price of Purchased Receivables as opposed to the 20% reserve required
under the Boston Financial Factoring Arrangement. The Company's borrowing
power on the date of sale of the Purchased Receivables is further enhanced under
the Imperial Factoring Agreement through the payment of the monthly factoring
fee on unpaid invoices relating to Purchased Receivables as compared to the 2%
discounted sale structure (i.e, a fee of 2% of the dollar amount of Purchased
Receivables was taken by Boston Financial upon the purchase of the Purchased
Receivables) used in the Boston Financial Factoring Arrangement. In addition,
the Company's inability under the addendum to the Imperial Factoring Agreement
to obtain financing in advance of shipment based upon customer purchase orders
(as opposed to accounts receivable) provides the Company with a new source of
financing not previously available under the Boston Financial Factoring
Arrangement.
SALES OF COMMON STOCK
---------------------
1) On April 6, 1998 the "RG Financing", an equity and debt financing
transaction (see below) with the RG Capital Fund, LLC (the "RG Fund"), was
consummated. The equity financing piece of the RG Financing involved the sale,
pursuant to the RG Subscription Agreement, to the RG Fund and ten investors
designated by the RG Fund of an aggregate of 2,400,000 shares of the Company's
Common Stock for an aggregate consideration of $1,800,000. Funding of the sale
to the investors designated by the RG Fund took place on April 14, 1998. The RG
Subscription Agreement provides, among other things, that the Company must
permit a designee of the RG Fund to be an unpaid advisor to the Board of
Directors of the Company. The RG Fund's designee has none of the voting rights
conferred upon directors of the Company, but does have the right to receive
notice of and to attend meetings of the Board of Directors of the Company and
committees thereof.
The RG Subscription agreement also contains covenants by the RG Fund in
favor of the Company relating to the voting of shares, additional purchases of
common stock, and resales of shares. The RG Fund is obligated, as long as the
Company is not in default under the RG Note or certain other agreements with the
RG Fund, to vote all shares of Common
10
<PAGE>
Stock purchased by it in the RG Financing in accordance with the recommendations
of the Board of Directors of the Company. The RG Fund is also prohibited from
purchasing additional shares of the Company's Common Stock on the open market or
from any person or entity other than the Company without the Company's prior
written consent. The voting agreement and restrictions on purchase remain in
effect until such time as the RG Fund and its affiliates own less than 5% of the
Company's outstanding common stock. In addition, for a period of two years the
RG Fund is prohibited from selling or otherwise transferring or disposing of its
shares, except in amounts that would otherwise be permitted under Rule 144 of
the Securities Act without giving effect to the holding period requirements
thereof unless such sale, transfer or disposition is pursuant to an underwritten
public offering of such shares.
The gross proceeds ($1,800,000) less $32,924, the legal and other costs
of closing the transaction, were recorded in the equity acccounts of the Company
in the quarter ending April 30, 1998.
2) During the quarter ending April 30, 1998 the holder of a convertible
note payable issued by the Company, in the amount of $50,000, elected, as
provided for in the provisions of the note, to convert the debt instrument to
equity. The Company issued 25,000 shares of common stock (the conversion rate
being $2.00 per share, as stipulated in the note) to the holder and cancelled
the note payable.
ISSUANCE OF NOTES PAYABLE / GAIN ON PAYOFF OF NOTE PAYABLE
----------------------------------------------------------
The debt portion of the RG Financing (see Sale of Common Stock #1, above)
consists of a loan to the Company by the RG Fund in the principal amount of
$1,100,000. The loan is evidenced by a promissory note issued by the Company to
the RG Fund in like principal amount bearing interest at an annual rate of 8%.
The RG Promissory Note is unsecured and is payable in full in one lump sum
payment on April 5, 2000. As long as the Note remains unpaid, the Company is
prohibited, unless it obtains the prior written consent of the RG Fund, from,
among other things, (i) issuing securities in reliance on Regulation S of the
Securities Act, (ii) issuing securities at a price that is less than 75% of the
public trading price of the Company's Common Stock, (iii) incurring indebtedness
for borrowed money other than in connection with factoring agreements, financed
purchases or leases of equipment (not to exceed $500,000) or existing
indebtedness of the Company, (iv) guarantying obligations of its affiliates, (v)
declaring dividends or redeeming capital stock, or (vi) selling assets outside
of the ordinary course of business. The proceeds of the loan were used by the
Company to pay off all amounts owed by the Company to IBJS Capital Corporation
("IBJS") pursuant to the Company's $1,000,000 Secured Convertible Debenture (the
"IBJS Debenture") and to retire all warrants held by IBJS, for a cash payment of
$1,092,833 (which was approximately $150,000 less than the amount then due on
the IBJS Debenture).
The gain of $150,000, as noted above, from the payoff of the IBJS debenture
was reduced by $40,086 of deffered financing that was still remaining to be
amortized as of the date of the payoff. The net gain of $109,914 was an addition
to net income during the quarter ending April 30, 1998 (see note on Net Income
above).
In addition to the RG Financing, the Company also entered into an investment
banking and financial advisory services relationship with Roberts & Green, Inc.,
an affiliate of the RG Fund ("R&G"), pursuant to which the Company appointed R&G
as its exclusive financial advisor and agreed to (i) pay R&G a monthly advisory
fee equal to $5,000 for a period of eighteen months and (ii) issue to R&G
warrants to purchase an aggregate of 1,000,000 shares of Common Stock at an
exercise price of $1.50, terminating in eighteen months.
The 2,400,000 shares of Common Stock issued to the RG Fund and the investors
designated by it and the 1,000,000 shares of Common Stock underlying the
warrants granted to R&G are entitled to the benefit of certain registration
rights which, among other things, required the Company to file a registration
statement with respect to such shares under the Securities Act on or before May
15, 1998. Said registration statement has been filed but is not yet effective.
The Company believes that the combination of its working capital surplus
subsequent to the closing of the RG Financing transaction, its improved
factoring facility with Imperial, its backlog and prospects for the remainder of
Fiscal 1999 as of April 30, 1998, and its ability to raise equity capital in the
past will be sufficient to provide it with adequate liquidity for fiscal 1999.
The Company's ability to have adequate capital for the fiscal year ending on
January 31, 2000 and periods
11
<PAGE>
thereafter (including the ability to repay the $1,100,000 due to the RG Fund in
April 2000) will be dependent upon the Company's ability to gain market
acceptance of its products and/or its ability to raise additional capital.
The Company does not currently contemplate any significant capital expenditures
during fiscal 1999. The Company does not believe that, except as stated herein,
any contingencies exist which would have a material adverse effect on the
Company's financial condition, future operating results or liquidity.
YEAR 2000 ISSUES
- ----------------
The "Year 2000 Issue" results from computer programs being written using two
digits, instead of four, to define a given year. Programs running time
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in disruptions to various activities and
operations, miscalculations and even system failures.
The Company has designed all of its currently manufactured software and
hardware to be Year 2000 ready. The Company has commenced an investigation and
is making written inquiry to its suppliers as to whether the component parts of
certain of its products that are supplied by such third parties are Year 2000
compliant. With respect to the Company's own operating systems, the Company is
taking steps to remediate any existing Year 2000 Issues and does not expect the
costs of such efforts to be material.
Based upon preliminary data, the Company does not believe that the Year 2000
Issue will have a material adverse impact on the Company's financial condition,
results of operation or future cash flows. If, however, the Company, its
suppliers and other third parties with whom the Company maintains business
relations are unable to resolve any arising Year 2000 problems in a timely
manner, risk to the Company's financial condition could result.
FORWARD LOOKING INFORMATION
- ---------------------------
The statements in this Annual Report on Form 10 KSB that are not statements of
historical fact constitute "forward looking statements." Said forward looking
statements involve risks and uncertainties which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performances or achievements, expressly predicted or implied by
such forward looking statements. These forward looking statements are identified
by their use of forms of such terms and phrases as "expects," "intends,"
"goals," "estimates," "projects," "plans," "anticipates," "should," "future,"
"believes," and "scheduled."
The important factors which may cause actual results to differ from the
forward looking statements contained herein include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain key management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
12
<PAGE>
EXHIBIT I
LINKON CORPORATION
------------------
CALCULATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
Three Months Three Months
Ended Ended
April 30, 1998 April 30, 1997
-------------- --------------
Loss for the Period $ ( 574,219) $ (520,730)
============= ===========
Weighted Number of Shares Outstanding 11,502,502 10,817,252
============= ===========
Loss Per Share: $ (.05) $ (.05)
============= ===========
13
<PAGE>
LINKON CORPORATION
------------------
PART II. OTHER INFORMATION
---------------------------
Item 2. Changes in Securities and Use of Proceeds
The disclosure appearing in ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sales of Common Stock and
- ------------------------------------------------------------------------
Issuance of Notes Payable/Gain on Payoff of Notes Payable of Part 1 of this
- ---------------------------------------------------------
report regarding (i) the sale by the Company of an aggregate 2,400,000 shares of
its Common Stock (the "RG Shares") to the RG Fund and certain investors
designated by the RG Fund, (ii) the issuance by the Company to R&G of warrants
(the "R&G Warrants") to purchase an aggregate 1,000,000 shares of the Company's
Common Stock at an exercise price of $1.50 per share (iii) the restrictions on
the Company's ability to pay dividends pursuant to the RG Promissory Note, and
(iv) the issuance by the Company of 25,000 shares of its Common Stock (the
"Conversion Shares") to the holder of a convertible note upon the conversion
thereof are incorporated into this Item 2 Of Part II by reference. The RG
Shares, the Conversion Shares and the R&G warrants were issued pursuant to the
exemptions from registration afforded by Section 4(2) of, and Regulation D
under, the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
Exhibit
No. Description of Document
-------
3.1 Amendment to Bylaws, dated May 12,1998
10.1 Employment Agreement, dated May 19, 1998, between the
Company and Lee W. Hill
10.2 Employment Agreement, dated May 19, 1998, between the
Company and Charles Castelli
10.3 Employment Agreement, dated May 19, 1998, between the
Company and Mark R. O'Brien
10.4 Employment Agreement, dated May 19, 1998, between the
Company and Thomas V. Cerabona
27 Financial Data Schedule for the period ended
April 30, 1998
b. Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
April 30, 1998.
14
<PAGE>
LINKON CORPORATION
------------------
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LINKON CORPORATION
------------------
Registrant
DATED: June 10, 1998 /s/ Lee W. Hill
---------------
BY: LEE W. HILL
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
DATED: June 10, 1998 /s/ Thomas V. Cerabona
-----------------------
BY: THOMAS V. CERABONA
SENIOR VICE PRESIDENT
PRINCIPAL ACCOUNTING OFFICER
15
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Document
------- -----------------------
3.1 Amendment to Bylaws, dated May 12,1998
10.1 Employment Agreement, dated May 19, 1998, between the
Company and Lee W Hill
10.2 Employment Agreement, dated May 19, 1998, between the
Company and Charles Castelli
10.3 Employment Agreement, dated May 19, 1998, between the
Company and Mark R O'Brien
10.4 Employment Agreement, dated May 19, 1998, between the
Company and Thomas V. Cerabona
27 Financial Data Schedule for the period ended
April 30, 1998
16
<PAGE>
EXHIBIT 3.1
AMENDMENT NUMBER 1
TO
BYLAWS OF
LINKON CORPORATION
* * *
Pursuant to Section 1 of Article VIII of the Bylaws of Linkon Corporation,
a Nevada corporation (the "Corporation"), and in accordance with resolutions
duly adopted by the board of directors of the Corporation the Bylaws of the
Corporation (the "Bylaws") are hereby amended as follows:
1. Amendment to Article II, Section 1. Section 1 of Article II of the
----------------------------------
Bylaws is hereby amended to read in its entirety as follows:
"Section 1. All annual and special meetings of the stockholders
of the corporation shall be held at such time and place within or
without the State of Nevada as shall be stated in the notice of
meeting or in a duly executed waiver of notice thereof."
2. Amendment to Article II, Section 2. Section 2 of Article II of the
----------------------------------
Bylaws is hereby amended to read in its entirety as follows:
"Section 2. At the annual meeting of stockholders the
stockholders of the corporation shall elect by a plurality vote a
board of directors, and transact such other business as may properly
be brought before the meeting."
3. Bylaws Remain in Force. Except as expressly set forth above, the
----------------------
Bylaws remain unmodified and in full force and effect.
* * *
<PAGE>
EXHIBIT 10.1
May 19, 1998
Lee W. Hill
62 Arch Street
Riverside, CT 06878
EMPLOYMENT AGREEMENT
--------------------
Dear Mr. Hill:
The purpose of this letter is to summarize the terms of our agreement for your
employment as President and CEO of Linkon Corporation. This full time position
reports to me as Chairman and to the Board of Directors. It is located in our
Fairfield, CT office. Following are the terms of employment:
1.) RESPONSIBILITY
- ------------------
You will have primary executive responsibility for the company. You will
specifically be responsible for the overall strategic direction, financial
results, daily operations and personnel decisions for Linkon Corporation as a
publicly traded company. Attachment 1 to this letter provides a more detailed
definition of duties.
2.) COMPENSATION
- ----------------
1. A monthly base salary of $12,500 which will be reviewed annually.
2. A performance bonus of $25,000 paid annually based upon achievement
of goals as defined in Attachment 2 of this letter.
3.) OPTIONS
- -----------
1. You will participate in the Linkon stock option plan.
2. You will receive in any event, 150,000 fully vested options as a
signing bonus with this contract.
4.) BENEFITS
- ------------
1. Linkon has health and life insurance programs for which you are
eligible.
2. Linkon has a 401K program for which you are eligible.
3. You will be entitled to one month vacation.
4. You will receive an auto allowance of $700 per month.
5.) TERM
- ---------
The term of this employment agreement shall commence on the day of the
signing of this employment agreement and shall continue for three years or
until otherwise terminated in this agreement.
<PAGE>
Lee W. Hill Employment Agreement
- --------------------------------
May 19, 1998
Page Two
6.) TERMINATION
- ---------------
1. In the event you are terminated for cause, you will receive no
compensation. "Cause" is defined as: (i) Violation of any rule or
regulation of any regulatory organization or Governmental agency
which is injurious to Linkon. (ii) Your conviction of a felony. (iii)
Your conviction of any crime involving moral turpitude. (iv) A
finding that you sexually harassed or discriminated against any
company employee. (v) A material breach of the terms of this offer.
2. Should Linkon terminate you, you will receive a severance payment
equal to one year salary plus any bonus earned and benefits.
3. In the event, Linkon undergoes a sales, merger or acquisition to a
3/rd/ Party resulting in your termination, you will receive a
severance payment equal to two years of base salary plus any bonus
earned and benefits.
7.) INDEMNIFICATION
- -------------------
Linkon will indemnify you for any and all claims, suits, proceedings, damages,
losses or liabilities incurred by you and arising out of any acts or decisions
done or made by Linkon from the signing of this agreement. Linkon agrees to pay
your reasonable expenses, including reasonable attorney's fees, actually
incurred by you in connection with the defense of any such action, suit or
proceedings and in connection with any appeal thereon including the cost of
court settlements if such settlement is agreed to by Linkon. Nothing contained
herein shall entitle you to indemnification by Linkon in excess of that
permitted by applicable law.
8.) NON-COMPETITION
- -------------------
You agree that in consideration for Linkon's agreement contained in this offer,
you will not directly operate any business which is in competition with the
business of Linkon.
Please sign this letter as an indication of your acceptance of these terms of
employment.
Sincerely,
Charles Castelli
Chairman and CTO
enclosure (2) I accept the terms of this employment agreement,
/s/ Lee W. Hill 5/19/98
-------------------------------- -------
Lee W. Hill Date
<PAGE>
EXBIBIT 10.2
May 19, 1998
Charles Castelli
141 E. Central Avenue
Palisades Park, NJ 07650
EMPLOYMENT AGREEMENT
--------------------
Dear Mr. Castelli:
The purpose of this letter is to summarize the terms of our agreement for your
employment as Chairman and Chief Technology Officer (CTO) of Linkon Corporation.
As CTO, this full time position reports to me as President and CEO and is
located in our Fairfield, CT office. Following are the terms of employment:
1.) RESPONSIBILITY
- ------------------
You will be responsible for the strategic direction of Linkon's product
offerings. You will survey the technical, trade and financial literature and
make recommendations on products or companies Linkon Corporation should create,
use or acquire. Attachment 1 to this letter provides a more detailed
definition of duties.
2.) COMPENSATION
- ----------------
1. A monthly base salary of $12,500 which will be reviewed annually.
2. A performance bonus of $25,000 paid annually based upon achievement
of goals as defined in Attachment 2 of this letter.
3.) OPTIONS
- -----------
1. You will participate in the Linkon stock option plan.
2. You will receive in any event, 100,000 fully vested options as a
signing bonus with this contract.
4.) BENEFITS
- ------------
1. Linkon has health and life insurance programs for which you are
eligible.
2. Linkon has a 401K program for which you are eligible.
3. You will be entitled to one month vacation.
4. You will receive an auto allowance of $700 per month.
<PAGE>
Charles Castelli Employment Agreement
May 19, 1998
Page Two
5.) TERM
- ---------
The term of this employment agreement shall commence on the day of the signing
of this employment agreement and shall continue for three years or until
otherwise terminated in this agreement.
6.) TERMINATION
- ---------------
1. In the event you are terminated for cause, you will receive no
compensation. "Cause" is defined as: (i) Violation of any rule or
regulation of any regulatory organization or Governmental agency
which is injurious to Linkon. (ii) Your conviction of a felony. (iii)
Your conviction of any crime involving moral turpitude. (iv) A
finding that you sexually harassed or discriminated against any
company employee. (v) A material breach of the terms of this offer.
2. Should Linkon terminate you, you will receive a severance payment
equal to one year salary plus any bonus earned and benefits.
3. In the event, Linkon undergoes a sales, merger or acquisition to a
3/rd/ Party resulting in your termination, you will receive a
severance payment equal to two years of base salary plus any bonus
earned and benefits.
7.) INDEMNIFICATION
- -------------------
Linkon will indemnify you for any and all claims, suits, proceedings, damages,
losses or liabilities incurred by you and arising out of any acts or decisions
done or made by Linkon from the signing of this agreement. Linkon agrees to pay
your reasonable expenses, including reasonable attorney's fees, actually
incurred by you in connection with the defense of any such action, suit or
proceedings and in connection with any appeal thereon including the cost of
court settlements if such settlement is agreed to by Linkon. Nothing contained
herein shall entitle you to indemnification by Linkon in excess of that
permitted by applicable law.
8.) NON-COMPETITION
- -------------------
You agree that in consideration for Linkon's agreement contained in this offer,
you will not, directly or indirectly, be employed by, manage, operate, control
or acquire an interest in, or otherwise engage or participate in any business
which is in competition with the business of Linkon.
Please sign this letter as an indication of your acceptance of these terms of
employment.
Sincerely,
Lee W. Hill
President and CEO
enclosure (2) I accept the terms of this employment agreement,
/s/ Charles Castelli________ 5/19/98
-------------------- -------
Charles Castelli Date
<PAGE>
EXHIBIT 10.3
May 19, 1998
Mark R. O'Brien
485 Camp Fuller Road
Wakefield, RI 02879
EMPLOYMENT AGREEMENT
--------------------
Dear Mr. O'Brien:
The purpose of this letter is to summarize the terms of our agreement for your
employment as Vice President, Business Development of Linkon Corporation. This
full time position reports to me as President and CEO. Following are the terms
of employment:
1.) RESPONSIBILITY
- ------------------
You will have primary responsibility for developing the company's revenue line.
You will specifically be responsible for the overall strategic sales direction,
sales of your named accounts, expense control and personnel decisions for your
functional areas. Attachment 1 to this letter provides a more detailed
definition of duties.
2.) COMPENSATION
- ----------------
1. A monthly base salary of $8,500 which will be reviewed annually.
2. A sales commission of 2% for sales to those accounts under your
responsibility. Commissions will be paid quarterly.
3. A performance bonus of $15,000 paid annually based upon achievement
of goals as defined in Attachment 2 of this letter.
3.) OPTIONS
- -----------
1. You will participate in the Linkon stock option plan.
2. You will receive in any event, 25,000 fully vested options as a
signing bonus with this contract.
4.) BENEFITS
- ------------
1. A stipend of $650 a month to cover your health insurance.
2. Linkon has a 401K program for which you are eligible.
3. You will be entitled to one month vacation.
4. You will receive an auto allowance of $500 per month.
<PAGE>
Mark R. O'Brien Employment Agreement
May 19, 1998
Page Two
5.) TERM
- ---------
The term of this employment agreement shall commence on the day of the signing
of this employment agreement and shall continue for two years or until otherwise
terminated in this agreement.
6.) TERMINATION
- ---------------
1. In the event you are terminated for cause, you will receive no
compensation. "Cause" is defined as: (i) Violation of any rule or
regulation of any regulatory organization or Governmental agency
which is injurious to Linkon. (ii) Your conviction of a felony. (iii)
Your conviction of any crime involving moral turpitude. (iv) A
finding that you sexually harassed or discriminated against any
company employee. (v) A material breach of the terms of this offer.
2. Should Linkon terminate you, you will receive a severance payment
equal to one year salary plus any bonus earned and benefits.
3. In the event, Linkon undergoes a sales, merger or acquisition to a
3/rd/ Party resulting in your termination, you will receive a
severance payment equal to one years of base salary plus any bonus
earned and benefits.
7.) INDEMNIFICATION
- -------------------
Linkon will indemnify you for any and all claims, suits, proceedings, damages,
losses or liabilities incurred by you and arising out of any acts or decisions
done or made by Linkon from the signing of this agreement. Linkon agrees to pay
your reasonable expenses, including reasonable attorney's fees, actually
incurred by you in connection with the defense of any such action, suit or
proceedings and in connection with any appeal thereon including the cost of
court settlements if such settlement is agreed to by Linkon. Nothing contained
herein shall entitle you to indemnification by Linkon in excess of that
permitted by applicable law.
8.) NON-COMPETITION
- -------------------
You agree that in consideration for Linkon's agreement contained in this offer,
you will not, directly or indirectly, be employed by, manage, operate, control
or acquire an interest in, or otherwise engage or participate in any business
which is in competition with the business of Linkon.
Please sign this letter as an indication of your acceptance of these terms of
employment.
Sincerely,
Lee W. Hill
President and CEO
enclosure (2) I accept the terms of this employment agreement,
/s/Mark R. O'Brien 5/19/98
-------------------------------- -------
Mark R. O' Brien Date
<PAGE>
EXHIBIT 10.4
May 19, 1998
Thomas V. Cerabona
3061 Dahlia Court
Yorktown Heights, NY 10598
EMPLOYMENT AGREEMENT
--------------------
Dear Mr. Cerabona:
The purpose of this letter is to summarize the terms of our agreement for your
employment as Senior Vice President, Operations of Linkon Corporation. This full
time position reports to me as President and CEO and is located in our Fairfield
headquarters Following are the terms of employment:
1.) RESPONSIBILITY
- ------------------
You will have primary responsibility for the company's day to day operations.
You will specifically be responsible for the overall strategic direction of the
company's accounting, manufacturing, materials management, sales support,
treasury and legal departments. You will have budgeting, expense control and
personnel decision making for your functional areas. Attachment 1 to this letter
provides a more detailed definition of duties.
2.) COMPENSATION
- ----------------
1. A monthly base salary of $10,417 which will be reviewed annually.
2. A performance bonus of $25,000 paid annually based upon achievement
of goals as defined in Attachment 2 of this letter.
3.) OPTIONS
- -----------
1. You will participate in the Linkon stock option plan.
2. You will receive in any event, 75,000 fully vested options as a
signing bonus with this contract.
4.) BENEFITS
- ------------
1. Linkon has health and life insurance program for which you are
eligible.
2. Linkon has a 401K program for which you are eligible.
3. You will be entitled to one month vacation.
4. You will receive an auto allowance of $500 per month.
<PAGE>
Thomas V. Cerabona Employment Agreement
May 19, 1998
Page Two
5.) TERM
- ---------
The term of this employment agreement shall commence on the day of the signing
of this employment agreement and shall continue for two years or until otherwise
terminated in this agreement.
6.) TERMINATION
- ---------------
1. In the event you are terminated for cause, you will receive no
compensation. "Cause" is defined as: (i) Violation of any rule or
regulation of any regulatory organization or Governmental agency
which is injurious to Linkon. (ii) Your conviction of a felony. (iii)
Your conviction of any crime involving moral turpitude. (iv) A
finding that you sexually harassed or discriminated against any
company employee. (v) A material breach of the terms of this offer.
2. Should Linkon terminate you, you will receive a severance payment
equal to one year salary plus any bonus earned and benefits.
3. In the event, Linkon undergoes a sales, merger or acquisition to a
3/rd/ Party resulting in your termination, you will receive a
severance payment equal to one year of base salary plus any bonus
earned and benefits.
7.) INDEMNIFICATION
- -------------------
Linkon will indemnify you for any and all claims, suits, proceedings, damages,
losses or liabilities incurred by you and arising out of any acts or decisions
done or made by Linkon from the signing of this agreement. Linkon agrees to pay
your reasonable expenses, including reasonable attorney's fees, actually
incurred by you in connection with the defense of any such action, suit or
proceedings and in connection with any appeal thereon including the cost of
court settlements if such settlement is agreed to by Linkon. Nothing contained
herein shall entitle you to indemnification by Linkon in excess of that
permitted by applicable law.
8.) NON-COMPETITION
- -------------------
You agree that in consideration for Linkon's agreement contained in this offer,
you will not, directly or indirectly, be employed by, manage, operate, control
or acquire an interest in, or otherwise engage or participate in any business
which is in competition with the business of Linkon.
Please sign this letter as an indication of your acceptance of these terms of
employment.
Sincerely,
Lee W. Hill
President and CEO
enclosure (2) I accept the terms of this employment agreement,
/s/Thomas V. Cerabona_____ 5/19/98
--------------------- -------
Thomas V. Cerabona Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM YHE
COMPANY'S CONSOLIDATED BALANCE SHEET DATED AS OF APRIL 30, 1998 AND THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 775,041
<SECURITIES> 0
<RECEIVABLES> 636,763
<ALLOWANCES> 67,145
<INVENTORY> 576,654
<CURRENT-ASSETS> 1,961,227
<PP&E> 1,472,881
<DEPRECIATION> 1,071,066
<TOTAL-ASSETS> 3,360,112
<CURRENT-LIABILITIES> 1,387,441
<BONDS> 968,727
<COMMON> 13,322
0
0
<OTHER-SE> 990,622
<TOTAL-LIABILITY-AND-EQUITY> 3,360,112
<SALES> 868,623
<TOTAL-REVENUES> 868,623
<CGS> 640,172
<TOTAL-COSTS> 640,172
<OTHER-EXPENSES> 864,251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,108
<INCOME-PRETAX> (573,219)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (574,219)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
