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
MAY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-24426
C-PHONE CORPORATION
-------------------
(Exact name of small business issuer as specified in its charter)
NEW YORK 06-1170506
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6714 NETHERLANDS DRIVE
WILMINGTON, NORTH CAROLINA 28405
--------------------------------
(Address of principal executive offices)
(910) 395-6100
--------------
(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 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_____.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 5,203,356 shares of common
stock as of JULY 10, 1997.
Transitional Small Business Disclosure Form Yes_____ No __X__
<PAGE>
C-PHONE CORPORATION
FORM 10-QSB
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of February 28, 1997
and May 31, 1997 (unaudited) 3
Statements of Operations for the three
months ended May 31, 1996 and 1997
(unaudited) 4
Statements of Cash Flows for the three
months ended May 31, 1996 and 1997
(unaudited) 5
Notes to Unaudited Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C-PHONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, 1997 MAY 31, 1997
----------------- ------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,398,049 $ 4,187,900
Accounts receivable, net of allowance for
doubtful accounts of $120,000 at February
28, 1997 and $150,000 at May 31, 1997
(unaudited) 422,042 466,195
Inventories 1,341,931 1,137,584
Prepaid expenses and other current assets 82,066 115,463
------------ ------------
Total current assets 3,244,088 5,907,142
Property and equipment, net 251,913 257,770
Other assets 154,246 65,571
------------ ------------
Total assets $ 3,650,247 $ 6,230,483
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 587,877 $ 692,719
Accrued expenses 325,938 242,517
Current obligations under capital leases 11,507 7,302
------------ ------------
Total current liabilities 925,322 942,538
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 4,355,393 and
5,203,356 shares issued and outstanding
at February 28, 1997 and May 31, 1997
(unaudited) 43,554 52,034
Paid-in capital 13,530,208 19,949,816
Accumulated deficit (10,848,837) (12,713,905)
------------ ------------
Total shareholders' equity 2,724,925 5,287,945
------------ ------------
Total liabilities and shareholders' equity $ 3,650,247 $ 6,230,483
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
C-PHONE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
------------------
MAY 31,
-------
1996 1997
---- ----
Net sales $ 400,240 $ 436,800
Cost of goods sold 388,649 901,016
----------- -----------
Gross profit (loss) 11,591 (464,216)
----------- -----------
Operating expenses:
Selling, general
and administrative 661,940 1,162,212
Research, development
and engineering 267,721 280,739
----------- -----------
Total operating expenses 929,661 1,442,951
----------- -----------
Operating loss (918,070) (1,907,167)
Interest expense (811) (312)
Interest income 47,756 42,411
----------- -----------
Net loss $ (871,125) $(1,865,068)
=========== ===========
Per-share data:
Net loss per share $ (0.20) $ (0.38)
=========== ===========
Weighted average number
of common shares and
common share equivalents
outstanding 4,347,293 4,918,908
=========== ===========
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
C-PHONE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
--------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (871,125) $(1,865,068)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 33,823 26,597
Provision for doubtful accounts 30,000 30,000
Compensation expense of stock options -- 9,600
Compensation expense of stock issued -- 14,220
Changes in operating assets and liabilities:
Accounts receivable (53,040) (74,153)
Inventories (174,615) 204,347
Prepaid expenses and other current assets 37,221 (33,397)
Other assets (3,633) 88,675
Accounts payable (2,791) 104,842
Accrued expenses 11,129 (83,421)
----------- -----------
Net cash used in operating activities (993,031) (1,577,758)
----------- -----------
Cash flows from investing activities:
Equipment purchases (44,609) (32,454)
Purchase of short term investments (887,428) --
Maturities of short investments 967,323 --
----------- -----------
Net cash provided by (used in)
investing activities 35,286 (32,454)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 34,750
Proceeds from private placement of
common stock -- 4,369,518
Payment of capital lease obligations (4,233) (4,205)
----------- -----------
Net cash (used in) provided by
financing activities (4,233) 4,400,063
----------- -----------
Net (decrease) increase in cash
and cash equivalents (961,978) 2,789,851
Cash and cash equivalents, beginning of period 1,852,820 1,398,049
----------- -----------
Cash and cash equivalents, end of period $ 890,842 $ 4,187,900
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 811 $ 312
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
C-PHONE CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of C-Phone Corporation (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation SB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, such
financial statements include all adjustments necessary to present fairly, in all
material respects, the information set forth therein. Operating results for the
three months period ended May 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ending February 28, 1998. The
unaudited financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended February 28, 1997.
2. STOCK OPTIONS
As of May 31, 1997, options for 291,710 shares of common stock were outstanding
under the Company's 1994 Stock Option Plan (the "Plan") (46,250 of which are
non-qualified options exercisable at prices which range from $3.00 to $7.00 per
share, depending upon the date of grant, and 245,460 of which are incentive
stock options exercisable at prices which range from $3.125 to $10.625 per
share, depending upon the date of the grant), and options for 190,634 shares of
common stock were available for future grants. Due to vesting provisions
included in the options, only options representing 90,319 shares were
exercisable as of May 31, 1997, of which 17,350 are exercisable at $3.125 per
share, 6,250 are exercisable at $3.375 per share, 15,000 are exercisable at
$7.00 per share, 32,720 are exercisable at $7.25 per share, and 18,999 are
exercisable at $7.50 per share.
3. WARRANTS AND CONTINGENT VALUE RIGHTS
During the week of March 31, 1997, the Company completed a private placement
(the "1997 Placement"), through a placement agent, pursuant to which the Company
issued an aggregate of 833,667 shares of common stock (the "Original Shares") to
the participants (the "Investors") in the 1997 Placement and received net
proceeds of approximately $4,370,000 (after payment, or accrual, of fees and
expenses of approximately $632,000). Accompanying each of the Original Shares
was the right, under certain circumstances, to receive additional shares of
common stock in accordance with the terms of a "contingent value right" (the
6
<PAGE>
"Rights"). The Rights, which expire June 25, 1998, are automatically exercised
at the time, and from time to time as, the Original Shares are first publicly
sold through a broker dealer. The terms of the Rights provide that, upon the
first such sale of any Original Shares at a price of less than $8.00 per share,
the seller of the Original Shares will automatically receive, for each such
Original Share sold, and without the payment of any additional consideration,
such additional number of shares of common stock as equals (i) $8.00 divided by
the Adjusted Price, minus (ii) one; where the Adjusted Price will equal the
greater of (x) the average closing bid price per share of common stock on The
Nasdaq National Market for the ten trading days immediately preceding the date
of sale of the Original Shares, or (y) $2.00. In connection with the 1997
Placement, the Company issued to an affiliate of the placement agent warrants,
expiring September 23, 1997, to acquire an aggregate of 150,000 shares of common
stock at an exercise price of $9.60 per share. In addition to the foregoing, as
of May 31, 1997, the Company had outstanding warrants, expiring August 18, 1999,
to acquire an aggregate of 200,000 shares of comon stock at an exercise price of
$8.40 per share which were granted to the managing underwriter of the Company's
1994 initial public offering.
4. NET LOSS PER SHARE
Per-share data has been computed on the basis of the weighted average number of
shares of common stock outstanding during the periods. Common stock options and
warrants, and contingent value rights are not included for the periods presented
as they would be anti-dilutive.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Quarterly Report on Form 10-QSB contains, in addition to
historical information, certain forward-looking statements that involve
significant risks and uncertainties. Such forward-looking statements
are based on management's belief as well as assumptions made by, and
information currently available to, management pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements can generally be identified as such
because the context of the statement usually will include words such as
the Company "believes" or "expects" or words of similar import.
Similarly, statements that describe the Company's future plans,
objectives, estimates or goals are also forward-looking statements.
Such statements address future events and conditions concerning capital
expenditures, earnings, sales, liquidity and capital resources, and
accounting matters. The Company's actual results could differ
materially from those expressed in, or implied by, the forward-looking
statements contained herein. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in
"Financial Condition" below and in Item 1 - "Description of Business"
and elsewhere in the Company's Annual Report on Form 10-KSB for the
year ended February 28, 1997, as well as factors such as future
economic conditions, acceptance by customers of the Company's products,
changes in customer demand, legislative, regulatory and competitive
developments in markets in which the Company operates and other
circumstances affecting anticipated revenues and costs. The Company
undertakes no obligation to release publicly the result of any
revisions to these forward looking statements that may be made to
reflect events or circumstances after the date of this Quarterly Report
on Form 10-QSB or to reflect the occurrence of other unanticipated
events.
Overview
Since 1993, the Company has been primarily engaged in the
engineering, manufacturing and marketing of C-Phone(R), a line of PC-based video
conferencing systems. During the year ended February 28, 1997 ("Fiscal 1997"),
the Company commenced third-party contractual software development related to
its PC-based video conferencing systems and substantially completed development
of C-Phone Home(TM), a TV-based video phone.
In August 1994, the Company completed its initial public
offering of 2,000,000 shares of its common stock (the "1994 Public Offering"),
pursuant to which it received net proceeds of approximately $12,288,000, of
which approximately $1,947,000 was used for the repayment of indebtedness and
accrued interest thereon.
8
<PAGE>
During the week of March 31, 1997, the Company completed a
private placement (the "1997 Placement") of 833,667 shares of Common Stock,
subject to the issuance, for no further consideration, of up to 2,500,001
additional shares of Common Stock, pursuant to which it received net proceeds of
approximately $4,370,000. The Company expects to use such proceeds for sales and
marketing of C-Phone Home, the continued development of additional C-Phone
products and features and related products, for sales and marketing of C-Phone,
and working capital, including funding anticipated increases in inventories and
receivables.
The Company commenced operations in 1986 as a manufacturer of
promotional radios and, in 1990, developed data/fax modems under the name
"TWINCOM". In early 1993, because of continued price pressures, shrinking
margins and for competitive reasons, the Company shifted its primary focus from
modems to the development of C-Phone and, during the fiscal year ended February
28, 1995, the Company phased out its modem product line as it was no longer
profitable. Since 1993, the Company has invested significant resources in
product development, engineering and marketing activities for C-Phone and
related products, and expects that such investments will continue in the
foreseeable future. The Company began shipping its new C-Phone Home product in
March 1997. C-Phone Home may be purchased on a stand-alone basis or, similar to
the method by which most cellular telephones are sold, at a lower price when
purchased with telecommunications services offered by the Company. As a result
of these activities and the low volume of sales, the Company has incurred
significant losses during the three fiscal years ended February 28, 1997 and the
fiscal quarter ended May 31, 1997. The Company expects to continue to incur
significant losses in the foreseeable future due to its significant expenditures
for product development and its marketing strategy for C-Phone Home.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1997 ("1ST QUARTER 98") AS COMPARED TO
THREE MONTHS ENDED MAY 31, 1996 ("1ST QUARTER 97")
NET SALES. Net sales increased 9% to $436,800 in 1st Quarter
98 from $400,240 in 1st Quarter 97. Net sales for 1st Quarter 98 included sales
of C-Phone Home (the first shipments of which commenced during 1st Quarter 98).
As a result, net sales of other C-Phone products decreased approximately 18% in
1st Quarter 98 as compared to 1st Quarter 97. The Company believes that such
decrease was primarily related to a change in sales and marketing personnel in
the second half of Fiscal 1997, management's determination to focus on the
launch of C-Phone Home and the introduction of a variety of new products by
third parties which management believes may have affected the acceptance of
desktop video conferencing equipment.
COST OF GOODS SOLD. Cost of goods sold includes labor,
materials and other manufacturing costs (such as salaries, supplies, leasing
costs, depreciation related to production operations and the write-down of
inventory to net realizable value). Cost of goods sold increased 132% to
9
<PAGE>
$901,016 (206% of net sales) in 1st value). Cost of goods sold increased 132% to
$901,016 (206% of net sales) in 1st Quarter 98 from $388,649 (97% of net sales)
in 1st Quarter 97. The increase in cost of goods sold and the increase in the
percentage of cost of goods sold to net sales were both primarily related to the
cost of manufacture of C-Phone Home and the write-down of related inventory to
its net realizable value, based upon the Company's marketing strategy for
C-Phone Home.
GROSS PROFIT (LOSS). The gross loss from sales of goods was
$464,216 (106% of net sales) in 1st Quarter 98, as compared to a gross profit of
$11,591 (3% of revenues) in 1st Quarter 97. The gross loss was directly related
to the Company's marketing strategy for C-Phone Home.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased 76% to $1,162,212 (or 266% of net sales) in
1st Quarter 98 from $661,940 (or 165% of net sales) in 1st Quarter 97. The
primary reason for the increase was a 145% increase in selling and marketing
expenses to approximately $718,000 in 1st Quarter 98 from approximately $293,000
in 1st Quarter 97, substantially all of which increase was directly related to
the initial marketing launch of C-Phone Home. In addition, general and
administrative expenses increased as a result of increased personnel costs
resulting from additional customer support personnel and a reallocation of
duties of certain personnel from research, development and engineering. The
Company expects that it will continue to incur substantial selling, general and
administrative expenses during the fiscal year ending February 28, 1998 ("Fiscal
1998") as a result of the commercialization of C-Phone Home.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development
and engineering expenses increased 5% to $280,739 (64% of net sales) in 1st
Quarter 98 from $267,721 (67% of net sales) in 1st Quarter 97. The increase was
primarily the result of development and engineering expenses related to the
development of enhancements to C-Phone Home, offset by a decrease in personnel
costs resulting from a partial change in duties of certain personnel to selling,
general and administrative. All of these costs were charged to operations as
incurred and were funded by the Company's cash reserves. The Company expects to
continue to invest significant resources during the foreseeable future in new
product development and engineering.
OPERATING LOSS. As a result of the factors discussed above,
the Company's operating loss increased 108% to $1,907,167 in 1st Quarter 98 from
$918,070 in 1st Quarter 97.
INTEREST. Interest income decreased 11% to $42,411 in 1st
Quarter 98 from $47,756 in 1st Quarter 97 as a result of decreased investments,
as the Company utilized the net proceeds of the 1994 Public Offering for the
continuing development and commercialization of C-Phone products, offset by the
receipt in April 1997 of the net proceeds from the 1997 Placement.
10
<PAGE>
INCOME TAXES. The Company's losses for 1st Quarter 97 and 1st
Quarter 98 may be utilized as an offset against future earnings, although there
is no assurance that future operations will produce taxable earnings.
FINANCIAL CONDITION
The Company has financed its recent operations primarily as a
result of the 1994 Public Offering, which raised net proceeds of approximately
$12,288,000, and the 1997 Placement, which raised net proceeds of approximately
$4,370,000.
At May 31, 1997, the Company had working capital of $4,964,604
(an increase from $2,318,766 at February 28, 1997) and cash and cash equivalents
(including short-term investments) of $4,187,900 (as compared to $1,398,049 at
February 29, 1997). The Company's invested funds consist primarily of United
States Treasury Bills and obligations of United States government agencies.
During 1st Quarter 98, operating activities used $1,577,758 of net cash,
primarily to fund operating activities, investing activities used $32,454 of net
cash for equipment purchases, and financing activities provided $4,400,063 of
net cash primarily from the 1997 Placement. Due to the technical nature of the
Company's business and the anticipated expansion of its C-Phone technology into
new applications, management expects to continue to expend significant resources
for continued development and engineering as well as selling and marketing
expenses.
The Company believes that its current working capital, which
includes the net proceeds from the 1997 Placement, together with anticipated
funds from operations, will be sufficient to meet the Company's projected
operating needs and capital expenditures, including the initial
commercialization of C-Phone Home, through the end of the Fiscal 1998. However,
if C-Phone Home gains any market acceptance, of which there can be no assurance,
the Company's pricing strategy and the very substantial investment which would
then be required by the Company for manufacturing, inventory and marketing
expenditures and carrying of accounts receivable related to the
commercialization of C-Phone Home, would require the Company to obtain
additional working capital by the third fiscal quarter of the current fiscal
year. The Company has commenced the planning process to raise such funds. The
Company anticipates that such funds should be available through a private
placement of (i) its debt securities, (ii) authorized, but unissued, shares of
its Common Stock, or (iii) its debt securities which would be convertible into
such shares; and if and when still further funds are needed, that such funds may
be available through a possible public offering of its authorized, but unissued,
shares of Common Stock. There can be no assurance that additional funds needed
by the Company will be available when needed or, if available, that the terms of
such fundings will be favorable or acceptable to the Company.
Assuming acceptance of C-Phone Home by the marketplace, the
Company anticipates that it may take in excess of two years, if at all, to
11
<PAGE>
obtain positive cash flow from the Company's anticipated operations, during
which time the Company may be required to obtain still more financing. If the
Company is unable to timely obtain any of its required funds, its C-Phone Home
marketing strategy may not be attainable and its business could be materially
adversely affected. Unless adequate income from sales of C-Phone Home is
attained, the timing or receipt of which cannot be predicted, the Company may
require additional cash resources for the development of alternative products.
There can be no assurance that additional funds needed by the Company will be
available when needed or, if available, that the terms of such fundings will be
favorable or acceptable to the Company.
In connection with its 1994 Public Offering, the Company
issued warrants (the "1994 Warrants") to Josephthal Lyon & Ross Incorporated
("JLR") pursuant to a Representative's Warrant Agreement. On or about January
13, 1997, the Company received from the holders of a majority of the 1994
Warrants, most of whom are officers of JLR, a request to register the shares of
Common Stock issuable upon exercise of the 1994 Warrants. Although the Company
filed a registration statement with the Securities and Exchange Commission to
register such shares (which registration statement was declared effective by the
Securities and Exchange Commission on June 25, 1997), the Company's failure to
file the registration statement within 45 days after January 13, 1997 may have
given the holders of a majority of the 1994 Warrants the right to require the
Company to repurchase the 1994 Warrants for an aggregate of up to $1,370,000 at
any time prior to the sale of a majority of such shares pursuant to such
registration statement. If such holders successfully assert such right, the
Company may not have the financial ability to make such payment; and, in the
event that such right is successfully asserted at a time when the Company has
the financial ability to make such payment, such payment could materially
adversely affect the Company's financial condition and may deplete all of its
necessary cash resources for the continuation of its operations. The possible
existence of this repurchase right, and the possibility of its exercise, will
increase the difficulty of the Company raising its required additional working
capital on terms acceptable to the Company.
The development and recent introduction, of C-Phone Home has
placed a significant strain on the Company's limited personnel, management and
other resources. The Company's ability to manage any future growth effectively
will require it to continue to attract, train, motivate and manage its employees
successfully and to continue to improve its operational, financial and
management systems. The Company's failure to effectively manage its growth could
have a material adverse effect on the Company's business and operating results.
The Company leases its facility and has financed a portion of
its manufacturing equipment expenditures through capital leases. As of May 31,
1997, the Company had no material commitments for capital expenditures.
12
<PAGE>
At February 28, 1997, the Company estimates that it had
available net operating loss carryforwards of approximately $10,233,000 for
Federal purposes and net economic loss carryforwards of approximately
$10,482,000 for state purposes, which may be used to reduce future taxable
income, if any. The Federal carryforwards will expire starting in 2009 and the
state carryforwards will expire starting in 1999.
The Company believes that, during the past three years,
inflation has not had a significant impact on the Company's sales or operating
results. Certain of the components and sub-assemblies used by the Company in its
products, such as the CCD color camera presently used in C-Phone, are
manufactured outside of the United States and represents a material portion of
the unit cost of the Company's basic products. Although the Company has not
experienced any significant price increases to date as a result of changes in
foreign currency rates, there can be no assurance that, in the future, changes
in foreign currency rates will not affect the cost of its foreign purchased
components and sub-assemblies.
The Company's foreign sales are denominated in U.S. dollars
and the Company does not incur any foreign currency risks; however, fluctuations
in currency exchange rates could cause the Company's products to become
relatively more expensive to foreign customers, which would result in a
reduction in foreign sales or the profitability of any of such sales.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on
April 2, 1997, which responded to Item 5. "Other Events."
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
C-PHONE CORPORATION
Date: July 14, 1997 By: /S/ DANIEL P. FLOHR
-------------------
Daniel P. Flohr
President and Chief
Executive Officer
(Principal Executive Officer)
Date: July 14, 1997 By: /S/ PAUL H. ALBRITTON
---------------------
Paul H. Albritton
Vice President and Chief
Financial Officer
(Principal Accounting and
Financial Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED BALANCE SHEET AS OF MAY 31, 1997 AND THE
UNAUDITED STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000835585
<NAME> C-Phone Corporation
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 4,187,900
<SECURITIES> 0
<RECEIVABLES> 616,195
<ALLOWANCES> 150,000
<INVENTORY> 1,137,584
<CURRENT-ASSETS> 5,907,142
<PP&E> 1,119,143
<DEPRECIATION> 861,373
<TOTAL-ASSETS> 6,230,483
<CURRENT-LIABILITIES> 942,538
<BONDS> 0
0
0
<COMMON> 52,034
<OTHER-SE> 5,235,911
<TOTAL-LIABILITY-AND-EQUITY> 5,287,945
<SALES> 436,800
<TOTAL-REVENUES> 436,800
<CGS> 901,016
<TOTAL-COSTS> 901,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 312
<INCOME-PRETAX> (1,865,068)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,865,068)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,865,068)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
