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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
----------------- -------------------
Commission file number 033-23/38-D
HEARTSOFT, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 87-0456766
- --------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
3101 North Hemlock Circle, Broken Arrow, Oklahoma 74012
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(Address of principal executive offices)
(918) 251-1066
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(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
As of December 31, 1999, 10,869,137 shares of Heartsoft, Inc. Common Stock,
$0.0005 par value, were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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PART I. FINANCIAL INFORMATION PAGE
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Item 1: Balance Sheet as of December 31, 1999 3
Statement of Income for the Three Months and 4
Nine Months ended December 31, 1999 and
December 31, 1998
Statement of Cash Flows for the Nine Months Ended 5
December 31, 1999 and December 31, 1998
Item 2: Notes to Financial Statements 6
Item 3: Management's Discussion, Analysis of
Financial Condition, and Results of Operations 6
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PART II. OTHER INFORMATION PAGE
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Item 1: Legal Proceedings 13
Item 2: Changes in Securities. 14
Item 3: Defaults Upon Senior Securities. 14
Item 4: Submission of Matters to a Vote of
Security Holders. 14
Item 5: Other Information. 14
Item 6: Exhibits and Reports on Form 8-K. 14
Signature Page 15
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheet
As of December 31, 1999
(unaudited)
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1999
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ASSETS
Cash & Cash Equivalents $ 141,309
Inventory $ 37,376
Prepaid Expenses & Deposits $ 40,730
Total Current Assets $ 219,414
Fixed Assets- Net $ 97,251
Developed Software $ 686,259
Deferred Tax Benefit $ -
Total Long Term Assets $ 783,510
Total Assets $ 1,002,924
LIABILITIES
Accounts Payable Trade $ 180,416
Notes Payable- Current Portion $ 185,145
Taxes Payable $ 14,359
Total Current Liabilities $ 379,920
Long Term Liabilities $ 245,082
Total Liabilities $ 625,002
STOCKHOLDER'S EQUITY
Retained Earnings $ (3,227,175)
Common Stock $ 4,585
Preferred Stock $ -
Paid-In Capital $ 4,383,071
Net Profit (Loss) $ (782,559)
Total Stockholders Equity $ 377,922
Total Liabilities & Equity $ 1,002,924
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Income Statement
(unaudited)
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For the Three Months Ended For the Nine Months Ended
31-Dec-99 31-Dec-98 31-Dec-99 31-Dec-98
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REVENUE
Gross Sales $ 90,821 $ 143,156 $ 306,909 $ 470,453
Sales Returns & Discounts $ (6,079) $ (9,494) $ (16,475) $ (32,244)
Net Sales $ 84,742 $ 133,663 $ 290,434 $ 438,209
Total Cost of Goods $ 10,963 $ 11,365 $ 30,209 $ 33,185
Gross Margin $ 73,779 $ 122,298 $ 260,225 $ 405,024
EXPENSES
Payroll Expenses $ 85,935 $ 34,838 $ 196,118 $ 140,598
Administrative Expense $ 435,169 $ 107,389 $ 846,666 $ 949,791
Total Operating Expenses $ 521,104 $ 142,227 $ 1,042,784 $ 1,090,388
Gain on Sale of Asset $ - $ - $ - $ 165,511
Net Operating Income (Loss) $ (447,325) $ (19,929) $ (782,559) $ (519,854)
Net Income (Loss)
Earnings per Share $ (0.041) $ (0.003) $ (0.072) $ (0.068)
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Statement of Cash Flows
Nine months ended December 31,
(unaudited)
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(782,559) $ 5,074
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 87,857 -
Changes in current assets:
Accounts receivable 16,306 (198,626)
Prepaid expense (27,376) (50,409)
Inventories (16,902) (8,118)
Changes in current liabilities
Accounts payable (13,324) 89,785
Other current liabilities (1,406) (274)
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Total cash flow from operating activities (737,404) (162,568)
CASH FLOWS FROM INVESTING ACTIVITIES
Developed software (140,197) 43,144
Property, plant & equipment (57,960) 1,953
Depreciation of disposed assets - 14,000
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Total cash flow from investing activities (198,157) 59,097
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 137,650
Principal payment of long-term debt (94,527) -
Long-term debt (46,904) (254,470)
Preferred stock (3,799) -
Common stock 6 -
Paid -in capital 1,143,593 258,510
Retained earnings - (34,865)
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Total cash flow from financing activities 998,369 106,825
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Net increase (decrease) in cash 62,808 3,354
Cash at beginning of year 41,589 4,411
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Cash at end of year $ 104,397 $ 7,765
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ITEM 2. NOTES TO FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with instructions to Form 10-QSB as prescribed by the Securities and
Exchange Commission. In the opinion of management, all adjustments required
to make a fair presentation of the results of Heartsoft, Inc., a Delaware
corporation ("Heartsoft," or the "Company," including its subsidiary), for
the period ended December 31, 1999 have been included. The results of
operating for the nine months ended December 31, 1999 are not necessarily
indicative of the results of operations that may be achieved for the entire
fiscal year.
REVENUE RECOGNITION
Revenues from the sale of software products are recognized upon shipment,
provided that no significant obligations remain outstanding and collection of
the receivable is probable. In October 1999, with the addition of Ms. Nita Seng,
the Company changed its policy regarding shipment of product on preview. As of
October, the Company would no longer accept orders for shipment on a preview
basis. Allowances for estimated returns are provided at the time of the sale.
The Company continually evaluates the adequacy of allowances for returns and
doubtful accounts primarily based upon evaluation of historical and expected
sales experience. To the extent the future market, customer mix, channels of
distribution, product pricing and general economic and competitive conditions
change, the estimated allowances required for returns and doubtful accounts may
also change.
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-QSB contains "forward-looking" statements
regarding potential future events and developments affecting the business of
the Company. Such statements relate to, among other things:
- - future operations of Heartsoft;
- - the development of new products and distribution channels and product
sales;
- - competition for customers for Heartsoft's products;
- - the uncertainty of developing or obtaining rights to new products that
will be accepted by the market;
- - the timing of the introduction of new products into the market;
- - the limited market life of Heartsoft's products; and
- - other statements about Heartsoft or the educational software market.
Forward-looking statements may be indicated by the words "expects," "estimates,"
"anticipates," "intends," "predicts," "believes" or other similar expressions.
Forward-looking statements appear in a number of places in this Form 10-QSB and
may address the intent, belief or current expectations of Heartsoft and its
Board of Directors and Management with respect to Heartsoft
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and its business. Heartsoft's ability to predict results or the effect of any
future events on Heartsoft's operating results is subject to various risks
and uncertainties. Some of these risks and uncertainties include competition
for products and customers, the Company's ability to develop or obtain rights
to new products and the limited market life of Heartsoft's current products.
RISK FACTORS
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's quarterly revenues and operating results have varied significantly
in the past and are likely to vary substantially in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including:
- - changes in the level of operating expenses;
- - demand for the Company's products;
- - the introduction of new products and product enhancements by the
Company or its competitors;
- - changes in customer budgets;
- - competitive conditions in the industry; and
- - general economic conditions.
Further, the Company's customers often experience delays associated with
internal authorization procedures when purchasing the Company's products. For
these and other reasons, the sales cycles for the Company's products are
typically lengthy and subject to a number of significant risks outside the
Company's control including customers' budgetary constraints and internal
authorization reviews. The Company historically has operated with little backlog
because its software products are generally shipped as orders are received. The
Company cannot ensure that it will be profitable in future quarters.
RAPID TECHNOLOGICAL CHANGE
The educational software market is subject to rapid technological change, new
product introductions, evolving industry standards and changes in customer
demands. The introduction of new technologies and the emergence of new industry
standards can render existing products obsolete and unmarketable. The Company's
future success will depend in part on its ability to enhance existing products
and to develop new products that meet changing client requirements. The Company
is in the process of developing a secure Internet browser for children. The
development of any new products utilizing the Internet involves significant
technical risks. The Company may not be successful in developing and marketing
product enhancements or new products. The Company could experience difficulties
that delay or prevent the successful development and marketing of product
enhancements or new products. The Company cannot guarantee that any new products
and product enhancements it may introduce will achieve market acceptance.
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INTENSE COMPETITION
The educational software market is highly competitive and rapidly changing. A
number of companies offer products similar to the Company's products and target
the same customers as the Company. The Company believes its ability to compete
depends upon many factors including:
- - the timely development and introduction of new products and product
enhancements;
- - product functionality;
- - product performance;
- - price;
- - product reliability;
- - customer service and support;
- - sales and marketing efforts; and
- - product distribution.
Some of the Company's primary and potential competitors are substantially larger
than the Company and have significantly greater financial, technical and
marketing resources as well as established channels of distribution. As a
result, these competitors may be able to respond more quickly to emerging
technologies and changes in customer requirements and can devote greater
resources to their businesses. The Company also expects that competition will
increase as a result of software industry consolidation. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or prospective customers. Accordingly, new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which would have a
material adverse effect on the Company's business, operating results and
financial condition. The Company cannot ensure it will be able to compete
successfully against current or future competitors.
MANAGEMENT OF CHANGING BUSINESS; DEPENDENCE ON MANAGEMENT AND KEY EMPLOYEES
The Company has experienced significant changes in its business, including an
expansion in the Company's staff and customer base, and the expansion of its
product lines. Such changes have placed and may continue to place a significant
strain on the Company's management and operations. In order to manage such
change in the future, the Company must continue to enhance its operational,
financial and management information systems and to hire, train and manage
employees. If the Company is unable to implement these systems and manage such
changes effectively, the Company's business, operating results and financial
condition could be materially and adversely affected.
The Company believes that its future success will also depend in large part upon
its ability to attract and retain highly skilled technical, managerial and
marketing personnel. Competition for such personnel is intense. The Company
cannot ensure that it will be successful in attracting and retaining the
personnel it requires to continue growing. Because of the Broken Arrow, Oklahoma
(Tulsa Metropolitan area) location of the Company's headquarters, the Company
may have
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difficulty in attracting and retaining qualified management and technical
employees who may be required to move to become employed by the Company.
The Company's success depends to a significant extent on the performance and
continued services of its senior management and certain other key employees. The
loss of one or more of senior management and key employees could have a material
adverse effect upon the Company. In October 1999, the Company began entering
into employment agreements with its key employees in order to reduce the risk of
loss of key employees.
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its confidential and proprietary
intellectual property. The Company presently has no patents or patent
applications pending. Rather, the Company relies primarily on a combination of
copyright, trademark and trade secrets laws, confidentiality procedures and
contractual provisions to protect its proprietary rights. Trade secret and
copyright laws afford only limited protection. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as well as the laws of the United
States. The Company cannot guarantee that its means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.
The Company does not believe that any of its products infringe upon the
proprietary rights of third parties. However, third parties could claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers such as itself will
increasingly be subject to infringement claims as the number of products in the
educational software market increase and the functionality of such products
overlap. Defense of any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all. Any dispute regarding the proprietary rights of third
parties could have a material adverse effect upon the Company's business,
operating results and financial condition.
MANAGEMENT OF GROWTH
The Company is experiencing a period of transition and product introductions
that has and may continue to place a significant strain on its resources.
Expansion of the Company's product lines, additional product development and
product introductions, or acquisitions of other technologies, will further place
a strain on the Company's resources and personnel when added to the day-to-day
activities of the Company. In particular, the Company is currently developing a
new secure Internet browser for children, INTERNET SAFARI-Registered Trademark-,
scheduled to be released during the first quarter of the calendar year 2000.
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RISK OF PRODUCT DEFECTS
Prior to release of new products or upgrades to existing products, the Company
conducts exhaustive testing of those products. However, despite testing, new
products or enhancements may contain undetected errors or "bugs" that are
discovered only after a product has been installed and used by customers. There
can be no assurance that such errors will not be discovered in the future. Such
errors can cause delays in shipments that materially and adversely affect the
Company's competitive position and operating results. Although the Company has
not experienced material adverse effects resulting from any such errors to date,
the Company cannot ensure that its new products or releases will be error free
even after commencement of commercial shipments. Discovery of errors in the
Company's products after the commencement of commercial shipping could result in
the following:
- - loss of revenues;
- - delays in market acceptance;
- - diversion of development resources;
- - damage to the Company's reputation; and
- - increased service and warranty costs.
Any of these occurrences could have a material adverse effect upon the Company's
business, financial condition and results of operations.
DEPENDENCE ON PRINCIPAL PRODUCTS
To date, the Company has derived substantially all of its revenue from the sale
of its 40 educational products. Accordingly, the Company's results will depend
on continued market acceptance of these existing products and acceptance of its
new products, including INTERNET SAFARI-Registered Trademark-. Failure to
achieve such acceptance could have a material adverse effect on the Company's
financial condition and results of operations.
DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENT OF EXISTING PRODUCTS
In order to remain competitive in the educational software market, the Company
must develop and introduce new products and product enhancements on a timely
basis. If the Company fails to develop and introduce new products and
enhancements on a timely basis, it could have a material adverse effect on the
Company's financial condition and results of operations.
LIMITED RESOURCES
Although the Company believes that its current cash reserves and cash flows from
operations will be adequate to fund its operations for at least the next twelve
months, such resources may be inadequate. Consequently, the Company may require
additional operating funds during or after such period. Additional financing may
not be available on favorable terms or at all. The Company is currently planning
a private placement of equity to be completed by the first calendar quarter of
2000. If the Company raises additional funds by selling stock, the percentage
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ownership of the Company's current shareholders will be reduced. If the Company
cannot raise adequate funds to satisfy its capital requirements, the Company may
have to limit its operations significantly. The Company's future capital
requirements depend upon many factors, including:
- - the rate at which the Company expands its sales and marketing
operations;
- - the extent to which the Company develops its products;
- - the rate at which the Company updates its technology;
- - the Company's ability to complete its planned private placement;
- - the rate at which the Company expands; and
- - the response of competitors to the Company's product and service
offerings.
OVERVIEW
Heartsoft, Inc. is a publicly held Delaware Corporation, incorporated January
15, 1988, and traded OTC (Symbol: HTSF). Presently, 30,000,000 shares of common
stock are authorized, with 10,869,137 shares issued and outstanding. During the
period from October, 1999 to December, 1999, the high and low bids for the
Company's stock, as reported by the National Association of Securities Dealers,
Inc, were $4.84375 and $1.25, respectively.
Heartsoft is engaged in the design and publishing of its own proprietary
educational software products for distribution to the education market and
consumer market. To date, Heartsoft's Core Products Division has designed and
published more than 40 educational software titles. One of the Company's best
selling proprietary titles is THINKOLOGY-Registered Trademark-, a software
series that teaches young children the skills of critical thinking and higher
order reasoning skills. Released in late 1998, THINKOLOGY-Registered Trademark-
has garnered the prestigious Media & Methods Portfolio Award for 1999.
THINKOLOGY-Registered Trademark- has also received several favorable reviews in
top educational and consumer magazines, including FamilyPC and Multimedia
Schools.
Other popular Heartsoft titles include:
- - TOMMY THE TIME TURTLE, an animated turtle that teaches children ages
5-7 how to tell time;
- - COIN CHANGER, which introduces children ages 5-7 to the denominations
of coins; and
- - the HEARTSOFT BESTSELLER SITE LICENSE, which consists of 12 of the
Company's top selling titles under a license allowing the teacher to
copy the software for every computer in the school.
Three of the Company's best selling products, HEARTSOFT BESTSELLER SITE LICENSE
(covering 12 software titles) and HEARTSOFT K-8 LIBRARY (containing all 38
titles in the current product line) and its most recent release,
THINKOLOGY-Registered Trademark-, sell from prices ranging from approximately
$400 to $1,400, depending on the configuration. Further, each product license
allows multiple use of the software throughout the school. Within
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the consumer, or home market, the Company's products sell in the price range
from approximately $10 to over $100 depending on configuration and
educational support materials.
During the third fiscal quarter of 1999, the Company continued development of
INTERNET SAFARI-Registered Trademark-, a secure Internet browser for children.
This proprietary product has been under in-house development and is expected to
be available during the first calendar quarter of 2000. INTERNET
SAFARI-Registered Trademark- is designed for children ages 4 through 12 years to
help simplify their use of the Internet. INTERNET SAFARI-Registered Trademark-
will offer its young users access to the Internet with an exciting cartoon
interface built around a safari theme with jungle sounds, music and animation.
The new browser will also utilize artificial intelligence combined with advanced
image detection and analysis software to protect users from inappropriate
Internet content such as adult content, pornography, violence, hate crimes, etc.
INTERNET SAFARI-Registered Trademark- will be distributed to both the consumer
and educational markets.
NET REVENUES
Net Sales of the Company's educational software for the three months ended
December 31, 1999 were $90,821 compared to $143,156 for the same period ending
December 31, 1998, a decrease of 36%. Net sales for the nine months ended
December 31, 1999 were $306,909 compared to $470,453 for the same period one
year ago, a year to date decrease of 34%. The decrease can be attributed to
various reasons, including preparation for Y2K (see Industry Trends). It is
anticipated that software sales will begin an upward trend during the first half
of calendar 2000.
INDUSTRY TRENDS
The educational technology industry is composed of hardware, which includes
infrastructure, and software sales to schools. Sales in these categories tend to
run counter to one another and in any given year will be proportionally much
higher in one category than the other. The software industry as a whole finished
calendar 1999 with sales significantly down from the previous year. Technology
budgets for schools continued to be focused on hardware and infrastructure, with
software purchases postponed while school districts worked to bring the Internet
to all classrooms and examined Y2K issues at the administrative level.
Additionally, Federal Title I funds traditionally allocated for software
expenditures were not released until late in the fourth calendar quarter. These
funds are traditionally available for expenditures in September.
COST OF GOODS SOLD
Cost of goods sold account for all costs associated with the acquisition of
components, assembly of the finished products, warehousing, shipping and payroll
for all personnel associated with the production and shipping of the finished
product. Cost of goods sold for the quarter ended December 31, 1999 were $10,963
compared to $11,365 for the same period one year ago. For period ended December
31, 1999 the Company has achieved a 9% cost of goods sold compared to the 12%
recorded for the same period one year ago. This decline can be attributed to
capital
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infusion, which allowed the Company to obtain better printing costs and
practice more cost-effective inventory management.
OPERATING EXPENSES
General operating expenses increased a total of 366% for the quarter ended
December 31, 1999 when compared to the quarter ended December 31, 1998. The
increase in Operating Expenses can be attributed primarily to the growth of the
Sales and Marketing division of the Company and to the final development stages
of INTERNET SAFARI-Registered Trademark. In October 1999, the Company began an
extensive expansion of the sales and marketing team as part of its strategic
business plan. This expansion involved the addition of Ms. Nita Seng as VP of
Sales and Marketing along with an Inside Sales Manager and 4 inside Sales
Representatives; as well as the addition of two employees to the development
staff, increasing payroll a total of 246%. As a part of its strategic business
plan, the Company increased its capital expenditures and infrastructure costs
related to additional office space, furnishings, equipment and
telecommunications upgrades. General expenses rose 405% as the Company
recognized the expenses related to legal and accounting costs for compliance to
new SEC guidelines. The Company forecasts higher than average expenses through
the fiscal year ending March 31, 2000 as additional sales staff will be added
and expenses are incurred in anticipation of the introduction of INTERNET
SAFARI-Registered Trademark.
NET INCOME
For the nine months ended December 31, 1999, the Company reported a loss of
$782,559 compared to $519,854 for the same period one year ago. Unforeseen
trends in software buying for the school market (see Industry Trends) and the
implementation of the planned growth of the Company attributed to the loss.
Management anticipates that the decline in software sales during the nine months
ended December 31, 1999 will not continue as industry forecasters predict that
the impact of Y2K will not carry into calendar year 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's principal sources of liquidity
included cash and accounts receivables of $141,309. During the quarter ended
December 31, 1999, the Company received $225,000 of capitalization. As the
Company continues to expand its sales and marketing capabilities, the Company
anticipates additional funding to be made available through a private
placement of equity.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. On June 29, 1999, the Franklin Group, Inc.
("Franklin") filed a petition against Heartsoft in the District Court of Tulsa
County, the State of Oklahoma. Franklin
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alleges that Heartsoft failed to tender common stock of the Company owed to
Franklin due to services Franklin provided pursuant to a Business Consulting
and Public Relations Agreement.
Franklin claims that it fully performed under the terms of the Consulting
Agreement and it is entitled to 25,000 free trading shares and 150,000
restricted shares of Heartsoft's common stock. Franklin has requested a judgment
against Heartsoft for these shares or, in the alternative, the cash equivalent
of such shares plus reasonable attorney's fees and costs.
On August 27, 1999, Heartsoft answered Franklin's petition by denying that
Franklin was entitled to any compensation under the Consulting Agreement.
Heartsoft also counterclaimed alleging that Franklin had failed to perform under
a separate Marketing Agreement. Heartsoft further alleges that it paid, in
advance, for Franklin's services under the Marketing Agreement by transferring
75,000 shares of the Company to Franklin. Through its counterclaim, Heartsoft is
seeking the return of these 75,000 shares or, in the alternative, the cash
equivalent of such shares plus reasonable attorney's fees and costs. This matter
is still in the early stages of discovery.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS:
27.1 Financial Data Schedule.
B. REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed by the Company during
the fiscal quarter ended December 31, 1999 that related to the
quarter ended December 31, 1999.
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.
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HEARTSOFT, INC.
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(Registrant)
Date: 2/10/00 /s/ Benjamin P. Shell
------------------------------------------------------
Benjamin P. Shell, Chairman & Chief Executive Officer
Date: 2/10/00 /s/ Jimmy L. Butler, Jr.
------------------------------------------------------
Jimmy L. Butler, Jr., Vice-President
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 141,309
<SECURITIES> 0
<RECEIVABLES> 121,582
<ALLOWANCES> 89,979
<INVENTORY> 37,376
<CURRENT-ASSETS> 219,414
<PP&E> 97,251
<DEPRECIATION> (780,521)
<TOTAL-ASSETS> 1,002,924
<CURRENT-LIABILITIES> 379,920
<BONDS> 0
0
0
<COMMON> 4,585
<OTHER-SE> 4,383,071
<TOTAL-LIABILITY-AND-EQUITY> 1,002,924
<SALES> 290,434
<TOTAL-REVENUES> 290,434
<CGS> 30,209
<TOTAL-COSTS> 208,556
<OTHER-EXPENSES> 834,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (782,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (782,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (782,559)
<EPS-BASIC> 0
<EPS-DILUTED> 0
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