U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended December 31, 1998 Commission File No.33-30476-D
ISO BLOCK PRODUCTS USA, INC.
(Exact name of registrant as specified in its charter)
COLORADO
(State or other jurisdiction of
incorporation or organization)
8037 South Datura Street
Littleton, Colorado 80120
(Address of Principal's Executive Offices)
84-1O26503
(I.R.S. Employer Identification No.)
(303) 795-9729
(Registrant's Telephone No. Incl. area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) Has been subject to
such filing requirements for at least the past: 90 days.
Yes ___ No X
The number of shares outstanding of each of the Registrant's classes of
common equity, as of April 26, 1999, are as follows:
Class of Securities Shares Outstanding
------------------- ------------------
Common Stock, no par value 3,924,730
INDEX
Page of
Report
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets:
As of December 31, 1998 (unaudited) and March
31,1998....................................................... 3
Consolidated Statements of Operations (unaudited)
For the three-month periods ended December 31, 1998 and
1997.......................................................... 4
Consolidated Statements of Cash Flows (unaudited)
For the three-month periods ended December 31, 1998 and
1997.......................................................... 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.............................. 9
Signatures.................................................... 9
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE BALANCE SHEET
December 31, March 31,
1998 1998
---------- ----------
ASSETS
------
Current Assets
--------------
Cash 15,886 4,234
Accounts Receivable - Officer - 2,000
Accounts Receivable - trade 4,582 135,850
Mortgages Receivable 16,200 16,200
Inventory-work in progress 54,790 235,494
---------- ----------
Total Current Assets 91,458 393,778
Property & Equipment
--------------------
Office Equipment 9,071 9,071
Vehicle 14,273 14,273
Less: Accumulated Depreciation (3,833) (2,333)
---------- ----------
Net Property & Equipment 19,511 21,011
Other Assets
------------
Deposits 2,551 2,551
Franchise & License 114,233 114,233
---------- ----------
Total Other Assets 116,784 116,784
TOTAL ASSETS 227,202 531,573
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
-------------------
Accounts Payable 54,383 81,381
Notes payable 164,000 310,360
Payroll Withholding 1,969 -
Accrued Interest payable 0 14,349
Capitalized lease payable 3,838 3,838
---------- ----------
Total Current Liabilities 224,190 409,928
Stockholders' Equity
--------------------
Preferred Stock, No Par Value,
10,000,000 Shares Authorized,
116,370 and 116,370 Shares
Outstanding, Respectively. 114,690 114,690
Common Stock, 50,000,000 Shares
Authorized, 3,854,730 and
3,854,730 Shares Outstanding,
Respectively. 2,887,464 2,867,464
Accumulated Deficit (2,999,142) (2,860,509)
---------- ----------
3,012 121,645
---------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY 227,202 531,573
========== ==========
The accompanying notes are an integral
part of these financial statements.
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE STATEMENT OF OPERATIONS
------------------------------------------------
For the three months ended December 31, 1998 and 1997
Six months Ended Three Months Ended
Dec. 31, Dec. 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
INCOME
------
Sales 366,662 55,376 29,315 8,363
Interest Income 4 12,839 - 245
---------- ---------- ---------- ----------
Total Income 366,666 68,215 29,315 8,608
COST OF SALES
-------------
Cost of Goods Sold 291,785 152,953 9,585 24,683
Cost of Mamaterials - 174,747 - 13,865
---------- ---------- ---------- ----------
Total Cost of Sales 291,785 327,700 9,585 38,548
GROSS PROFIT (LOSS) 74,881 (259,485) 19,730 (29,940)
OPERATING EXPENSES
------------------
General and Admin. 213,514 224,767 84,429 82,522
---------- ---------- ----------- ---------
NET LOSS (138,633) (484,252) (64,699) (112,462)
========== ========== =========== =========
LOSS PER COMMON SHARE ( .03) ( .23) ( .01) ( .05)
Weighted Average
Shares Outstanding 3,894,730 2,145,792 3,914,730 2,222,335
The accompanying notes are an integral
part of these financial statement.
ISO BLOCK PRODUCTS USA, INC.
CONSOLIDATED COMPARATIVE STATEMENT OF CASH FLOWS
------------------------------------------------
For the three months ended December 31, 1998 and 1997
December 31,
Cash Flows From Operating Activities 1998 1997
------------------------------------ ---- ----
Net Income (Loss) (64,699) (112,462)
Depreciation 500 -
Account receivable - trade 4,582 -
Mortgages Receivable - -
Inventory (20,250) -
Accounts Payable - (27,526)
Other 311 (74,081)
----------- ----------
Net Cash Used in Operating Activities (79,556) (214,069)
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchase of Property & Equipment - (340)
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Proceeds From Preferred Stock - 16,786
Proceeds From Common Stock - -
Promissory notes 64,000 184,000 -
----------- ----------
Net Cash Provided by (Used In)
Financing Activities 64,000 200,786
NET INCREASE (DECREASE) IN CASH (15,556) (13,623)
CASH - Beginning of Period 31,442 17,944
----------- ----------
CASH - End of Period 15,886 4,321
=========== ==========
The accompanying notes are an integral
part of these financial statements.
ISO BLOCK PRODUCTS USA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1.
- - ------
Company Description. Iso Block Products USA, Inc. ("Company") was
incorporated in the State of Colorado on April 28, 1986 under the
name Champion Computer Rentals, Inc. The Company was formed to
obtain funding from a public offering in order to engage in the sale
and leasing of computers and related equipment. As March 31, 1992,
the Company ceased those sale and leasing operations.
Note 2.
- - -------
Summary of Significant Accounting Policies. The accompanying un-
audited financial statements of the Company have been prepared on
the accrual basis and in accordance with the instructions to Form
10-QSB and do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(considered necessary for a for a fair presentation have been in-
cluded. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the fiscal year ended March 31, 1997.
Following is a summary of significant accounting policies.
Organization costs.
-------------------
Certain costs incurred to set up the Company are capitalized and were
amortized over five years. These costs were fully amortized at March
31, 1994.
Income taxes.
-------------
The Company accounts for income taxes under SFAS No. 109. Deferred
income taxes result from temporary differences. Temporary differences
are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result
in taxable or deductible amounts in future years.
Foreign Currency Translation.
-----------------------------
The functional currency for the Company's operations is the applic-
able local currency. The translation of the applicable foreign
currency into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average rate during
the period. The gains or losses resulting from such translation
are included in stockholder's equity.
ISO BLOCK PRODUCTS USA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(continued)
Income (Loss) Per Common Share.
-------------------------------
Income (loss) per common share is based upon the weighted average
number of common shares outstanding during each period. Options and
warrants outstanding to purchase common stock are included as common
stock equivalents when diluted.
Concentrations of Credit Risk.
------------------------------
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of mortgages receivable. These
mortgages receivable are concentrated in German real estate but are
not concentrated in a limited number of borrowers. The mortgages are
from high quality entities and secured by high value German real estate
to limit the Company's concentrations of credit risk.
Note 3.
- - ------
During the quarter ended December 31, 1998, the Company incurred a
net loss of $64,699, and as of that date had accumulated a deficit
of $2,999,142. The Company had slight operations during the third
fiscal quarter covered by these statements and earned a small profit
for the quarter of $19,730.
Note 4.
- - ------
Future working capital requirements are dependent on the Company's
ability to attain profitable operations and to obtain financing or
new capital as required. It is not possible at this time to predict
the outcome of future operations or whether the necessary financing
or investment can be arranged.
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Business Operations
The Company's principal business operations through March 31, 1992
consisted of leasing out computers, peripheral products and software.
The Company realized only nominal revenues through March 31,
1992.Due to lack of significant revenues or operations, the Company
remained in the developmental stage, as defined in Financial
Accounting Standards Board Statement No. 7 until fiscal year ended
March 31, 1994.
The first half of the business year of 1994 was occupied in establishing
the infra structure to gear up for the planned operational activities of
the German subsidiary, ISO-Block GmbH. The Company had a very
difficult time trying to raise capital to start single-family and
multi-family developmental projects as a general contractor. The
Company decided to begin building single family custom homes at
first, using the Company's proprietary building system, before
attempting larger and more aggressive projects. Not until the first
quarter of 1995 was the Company able to raise sufficient additional
capital to begin operations.
The Company had a difficult but promising start, and the wholly owned
subsidiary Iso-Block GmbH began custom home construction in
Germany in the second quarter of 1995. A proof-of-concept home was
built to demonstrate the Company's proprietary building system,
several homes were completed for customers and others were initiated.
Bigger projects were planned, some with partial financing from local
governments. The weather in Germany in the fall and winter of 1995
(third and fourth quarter 1995) did turn so bad that it was practically
impossible, under those circumstances, to build anything for several
months. Also a very negative business climate developed in Germany
with an abnormally high unemployment rate, the highest since Word
War II. The weather improved but the business climate in Germany did
not. The construction industry, in general, in Germany hit bottom in
1995.
The Company had operating losses for 1995 and 1996 of
approximately $1,031,000 of which the major amount was due to the
very adverse business climate in Germany as outlined above.
However, in addition the previous Chairman of the Board and CEO,
Mr. Josef Ratey, resident of Germany, and the Company's major
shareholder did not provide the required direction and guidance. The
US side of the Company, represented by Mr. Egin Bresnig, was
challenged with taking over the offices of CEO and the presidency of
the Company from Mr. Josef Ratey. After this change of leadership, the
Company and its new management initiated drastic action to stop
the financial bleeding. The process of extraditing the Company from its
overseas operations was very costly because of the archaic business
practices still in place in Germany. The Company could not leave
projects unfinished but rather completed them knowing that these
projects would lose money. The Company explored other business
opportunities in the United States. Management of the Company
decided to cease all operational activities in Germany. The better
part of 1996 was spent winding down and closing the German
operation.
During the 1996 fiscal year, the Company discontinued its European
operations because of the continuing recession in Germany and the
difficulty in managing its European subsidiaries from Denver,
Colorado. Iso-Block GmbH ceased operations in July, 1996. The
Company incurred dissolution expenses in ceasing operations of its two
European subsidiaries of $166,000. The Company retained assets of
$126,000 consisting of undeveloped property in Kehl, Germany and
an account receivable for completed construction of one residential
property in Germany. On December 9, 1996 the Company sold its
Iso-Block GmbH subsidiary, including all liabilities and
assets, to Big B Tex A.G. (CH), a Swiss company domiciled in Zurich,
and the Company paid $40,000 to the buyer in addition to transferring
its Iso-Block GmbH assets. Big B Tex A.G. assumed all Iso-Block
GmbH liabilities and future contingent liabilities, if any.
Results of Operations.
----------------------
During the third fiscal quarter ended December 31, 1998, the
Company had revenues of $29,315 and engaged in limited operations
primarily those of initial franchise operations in comparison to
revenues of $8,608 in the third fiscal quarter of 1997. The Company
realized a loss of $64,699 in the third quarter of 1998 compared to
a loss of $112,462 in the third quarter of 1997. The Company has
accumulated a deficit since inception totaling $2,999,142. The loss
realized was primarily due to $84,429 spent for general and
administrative expenses.
Liquidity and Capital Resources.
--------------------------------
The Company has total assets of $227,202 including cash or cash
equivalents at the end of the third fiscal quarter 1998 of $15,886
compared to total assets of $531,573 including cash or cash
equivalents of $4,234 at the end of fiscal 1997.
Income Taxes and Net Operating Losses
-------------------------------------
At December 31, 1998, the Company had net operating loss carryforwards
for United States and German income tax purposes totaling $2,999,142,
which are available to offset future taxable income. These NOL's
expire through 2008.
Plan of Operation
-----------------
The Company intends to continue as general contractor in the United
States and has purchased two residential building sites in the Outlook
subdivision in Broomfield, Colorado, located approximately five miles
northwest of Denver, Colorado, The Company had the capacity to build
at least one speculative house at a constructed retail price of
$270,000. Construction was started June 1997 and was complete in the
second fiscal quarter of 1998. The first house was completed and sold
to the public in September 1998. With the first residential house
sold, the Company will soon begin construction on its second
building site . The Company expects to continue its construction
program as long as the residential real estate business climate
continues its intensity in Colorado. According to the March 7, 1997
issue of The Rocky Mountain News "SunMicrosystems' $200 million
planned research and development campus in Broomfield, Colorado
already has helped jump-start the metro area's home building activity.
" One of the strongest areas of the Denver Metro home construction
industry is expected to be Broomfield, Colorado, thanks to SunMicro-
systems, which will create 4,000 jobs at an average salary of $70,000.
The Company is positioned correctly to take advantage of this
growth by establishing itself as general contractor in Broomfield. If
the Company realizes its profit goals by completing the first two
speculative homes then it intends to become a developer of housing
projects. Even though the current management of the Company
has limited building experience the availability of professional
construction consultants should provide the necessary guidance to the
Company. Management believes it will be successful in raising
additional capital required to become a meaningful player in the
Broomfield and Metro Denver housing construction market.
The Company is very excited about its completion of ownership of The
Franchise Connection, Inc. because of the importance of franchising in
today's economy. Franchising has been responsible for over 35% of the
United State's total retail sales in the 1990s and is projected too
grow to over 50% of all retail sales in the twenty-first century.
Franchising has proved to be an outstanding method of distribution and
market penetration. Established franchise organizations are growing by
11% annually and service related and business format franchises are
growing by 39% annually. Franchising has added two million jobs to
the US economy the past ten years. The Franchise Connection, Inc.
intends to capitalize on this predominate and enormous growth trend by
exploiting its franchise expertise in conjunction with viable, talented
entrepreneurs whom know and understand their business. These
business owners work diligently to insure that their business will be
successful and that it maintains its strong niche that can be
duplicated on a national and/or international scale through franchising.
By working in a "partnership" relationship with The Franchise
Connection, Inc., these entrepreneurs can continue to make their
business ever better while using The Franchise Connection, Inc. to
recruit franchises and expand their concept globally. Using this
strategic alliance, marketing costs, administration costs, and legal
expenses can be controlled and, thus, general overhead can be
reduced. The Franchise Connection's corporate objective is to acquire
successful business concepts and via franchise sales to multiply its
revenues over the next three years. The Franchise Connection, Inc. has
formed alliances with the following companies; each representing
a successful prototype and possessing a unique position in their
industry. They all have a proprietary product with the ability to
dominate their market if expanded rapidly. The concepts are very
teachable, have a universal consumer base and have very
affordable entry investment. Each one has management in place with
the technical expertise to operate the business. With the
franchising knowledge and marketing know-how of the Franchise
Connection they all have the ability to exceed five hundred units in a
reasonable period of time. The demand has never been
higher to get into business. The opportunity seeker is more
knowledgeable and seeking more than just buying a job.
Performance Marketing, Inc. offers marketing and training services to
small businesses that are custom designed to fit the client and his
budget. Performance Marketing offers a proprietary
product," The Living Marketing Manual" featuring an annualized
marketing blueprint that gets guaranteed results. With more than 22.5
million businesses currently operating the US and an additional
800,000 new businesses starting up every year the marketing
niche for this business is unlimited. Performance Marketing has a letter
of intent to provide marketing product to be made available for
distribution by a network of over 500 representatives. Encore Nails is
an upscale nail studio in the fast growing nail beautification industry.
It uses a revolutionary, proprietary process to offer clients
attractive, durable, environmentally safe, and technologically advanced
nail coverings. The product was tested for four years in a very
successful studio prior to being offered outside the control market. A
new unit opened in March, 1997 to serve as a prototype unit and has
proved to be successful. With the growth in the nail industry
exploding, Encore Nails is on the leading edge. Franchise Connection
has acquired the franchise rights which includes a 40% ownership of
Encore Nails and 50% of all franchise fees and has a letter of
intent to joint venture the franchising with financial partners who
will have day to day operation responsibility. Hydro-Physics is the
first of its kind, national video pipe inspection service franchise
that saves commercial and residential customers thousands of dollars
in unnecessary repair cost. The company utilizes a self-contained
portable state-of the-art video technology to identify, locate, and
verify underground pipeline problems. The market is wide-open
with limited competition. Hydro-Physics has a five-year history of
profitability. By using technology in insure portability with the
ability to inspect 3-inch pipes by a one-man crew the concept has
wide appeal. The company has in operation two franchises
(Idaho and Missouri). Franchise Connection has the exclusive marketing
rights and receives 25% of royalty over five years with a conversion
factor to own 30% of the parent company. It is expected that five new
units will be opened over the next 12 months. Footlab is a full
service, compact, self-contained foot insole manufacturing station
that produces hand-make custom shaped foot support inserts from a
variety of materials depending on the intended use in less that five
minutes. Re-designed from a 25 year old invention from Switzerland
and in use in the winter ski industry for many years this concept can
be located in athletic footwear stores, sporting good stores, golf
pro shops, and department stores. With approximately 90 % of the 275
million US and Canadian population needing foot inserts the market is
very large. The operating units require less than 20 sq. feet, which
opens up many avenues of opportunity. Franchise Connection is the
franchisor and owns 100% of Footlab with a contract to pay 10%
royalty fees to the founder who also has the responsibility to
provide all research and development of product. LARSON LEARNING
CENTERS, a program of supplemental education, offering development
and enrichment in all core academic subjects as well as basic skills
in reading, writing and math.
The principal business of MAGNA-DRY LLC is the manufacturing,
re-packaging, distribution and licensing of leading-edge environ-
mentally safe cleaning services developed by Australian formulator
Charles C. Borg. Franchise Connection, Inc. enjoys exclusive
territorial rights to manufacture and distribute Magna-Dry products
in the United States. Specifically, the operational aims and proposed
development plans are as follows: (1). Increase resources for the
sales and operations team and strengthen middle management to
support future growth of Magna-Dry (2). Magna-Dry sub-franchising,
forming synergistic services with other up-market carpet retailers,
existing laundry and cleaning businesses, upholstery and soft
furnishings businesses, car distributors and manufactures and rapid
numerical growth of the sales and operational teams (3). Magna-Dry
Area Franchising. Franchise Connection, Inc. has spent an additional
$175,000 in marketing and operational development costs for its
Magna-Dry subsidiary. Currently, Magna-Dry LLC has franchise
operations in Denver, Colorado, Reno, Nevada, Memphis, Tennessee and
Winnipeg, Canada. Additional locations are scheduled for Seattle, WA,
dependent upon funding.
The Magna-Dry carpet and drape cleaning system has expanded to 22
countries around the world including the United Kingdom, Germany,
France, Belgium, the Netherlands, Luxembourg, Italy and Asia.
Magna-Dry has over one thousand units operating internationally that
produce gross revenues in excess of $300,000,000. In many areas
Magna-Dry has captured over 60% of the market. Unlike competitors
using conventional wet or shampoo cleaning methods, Magna-Dry
employs a revolutionary cleaning process with magnetic ionization
technology that cleans faster and more efficiently. It is a proven
system that is safe, fast and reliable and suitable for cleaning
carpets, curtains, upholstery and mattresses of all material types.
Year 2000 Compliance
--------------------
General Description of the Year 2000 Issue and the Nature and Effects
of the Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable
year. Any of the Company's computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
The Company presently leases one computer hardware and related
software. The Company also uses services from other company's and
does believe that all related computers are Year 2000 compliant.
Computer Hardware
-----------------
The Company believes that the one leased computers hardware is Year
2000 compliant.
Computer Software
-----------------
The Company believes that the one leased computers software is Year
2000 compliant.
Operating Equipment
-------------------
The Company does not own any related operating equipment.
Nature and Level of Importance of Third Parties and Their Exposure to
the Year 2000
The Company continues to conduct surveys of its banking and other
vendor relationships to assess risks regarding their Year 2000
readiness. The Company has banking relationships all of which have
indicated their compliance efforts will be complete before July 1999.
The Company's contingency plan in this regard is to move accounts
from any institution that cannot be certified Year 2000 compliant
by August 1, 1999.
The Company does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors
who share information systems with the Company (external agents). To
date, the Company is not aware of any external agent with a Year 2000
compliance issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has
no means of ensuring that external agents will be Year 2000 compliant.
Management does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will
have a material impact on the financial position or results of
operations of the Company. However, the effect of non-compliance by
external agents is not readily determinable.
Costs to Address Year 2000
--------------------------
The total cost of the Year 2000 project is $0. To date, the Company
has incurred $0 related to all phases of the Year 2000 project. Of
the total remaining project costs, approximately $0 is attributable
to the purchase of new software and operating equipment.
Risks Associated with the Year 2000
-----------------------------------
Management believes it has no risk associated with the Year 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. NONE
(b) Reports on Form 8-K NONE
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report on Form 10-QSB to be signed on its behalf by the under-
signed thereunto duly authorized.
Dated: May 6, 1999
ISO BLOCK PRODUCTS USA, INC.
By /S/ Egin Bresnig
------------------------------
Egin Bresnig,
Chief Executive Officer
By /S/ Dean Wicker
-------------------------------
Dean Wicker,
Chief Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-QSB FOR THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 20,782
<ALLOWANCES> 0
<INVENTORY> 54,790
<CURRENT-ASSETS> 91,458
<PP&E> 19,511
<DEPRECIATION> (3,833)
<TOTAL-ASSETS> 227,202
<CURRENT-LIABILITIES> 224,190
<BONDS> 0
0
114,690
<COMMON> 2,887,464
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<TOTAL-LIABILITY-AND-EQUITY> 227,202
<SALES> 29,315
<TOTAL-REVENUES> 0
<CGS> 9,585
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<OTHER-EXPENSES> 84,429
<LOSS-PROVISION> 0
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