SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
Commission File No. 0-17816
Sunrise Technologies International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 77-0148208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
47265 Fremont Boulevard, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 623-9001
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 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
----- -----
There were 29,132,776 shares of the registrant's Common Stock issued and
outstanding on October 31, 1997.
<PAGE>
<TABLE>
INDEX
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Operations--Three and nine months ended September 30,
1997 and 1996 1
Condensed Consolidated Balance Sheets--September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows--Nine months ended September 30,
1997 and 1996 3
Notes to Condensed Consolidated Financial Statements--September 30, 1997 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------- -----------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net revenues $ 76 $ 1,767 $ 2,539 $ 4,327
Cost of revenues 200 1,046 2,159 3,084
-------- -------- -------- --------
Gross profit (124) 721 380 1,243
Other costs and expenses:
Engineering and development 226 149 570 494
Sales, marketing and regulatory 413 942 2,046 2,938
General and administrative 704 668 2,606 1,873
-------- -------- -------- --------
Total other costs and expenses 1,343 1,759 5,222 5,305
-------- -------- -------- --------
Loss from operations (1,467) (1,038) (4,842) (4,062)
Gain on sale of dental assets -- -- 1,740 --
Interest income 42 10 74 43
Interest expense, including non-cash interest
associated with redeemable convertible notes (132) -- (1,080) --
-------- -------- -------- --------
Net loss $ (1,557) $ (1,028) $ (4,108) $ (4,019)
======== ======== ======== ========
Net loss per share $ (0.06) $ (0.04) $ (0.15) $ (0.16)
======== ======== ======== ========
Shares used in calculation of
net loss per share 27,932 26,932 27,896 25,898
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(unaudited)
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,691 $ 647
Accounts receivable, net of allowance 203 472
Inventories, net 427 2,135
Other current assets 247 288
------------ ------------
Total current assets 3,568 3,542
Property and equipment, net 112 199
------------ ------------
Total assets $ 3,680 $ 3,741
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 391 $ 1,586
Accrued payroll and related expenses 318 209
Accrued warranty 199 199
Other accrued expenses 541 475
------------ ------------
Total current liabilities 1,449 2,469
Redeemable convertible notes 3,786 --
Commitments and contingencies -- --
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized, none issued or outstanding -- --
Common Stock, $.001 par value, 75,000,000
shares authorized, 28,000,102 and
27,868,613 shares issued and outstanding
at September 30, 1997 and
December 31, 1996, respectively 28 28
Additional paid-in capital 32,969 31,688
Accumulated deficit (34,552) (30,444)
------------ ------------
Total stockholders' equity (deficit) (1,555) 1,272
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 3,680 $ 3,741
============ ============
<FN>
NOTE: The consolidated balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements.
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
<CAPTION>
Nine months ended September 30,
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Cash flows for operating activities:
Net loss $(4,108) $(4,019)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 120 85
Provision for doubtful accounts 176 --
Provision for excess and obsolete inventory 210 --
Gain on sale of dental assets (1,740) --
Non-cash interest expense 991 --
Changes in assets and liabilities:
Accounts receivable 92 4
Inventories 120 (365)
Prepaid expenses 41 (51)
Accounts payable (1,446) (327)
Accrued payroll and related expenses 109 125
Other accrued expenses (34) 20
------- -------
Total adjustments (1,361) (509)
------- -------
Net cash used in operating activities (5,469) (4,528)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (75) (38)
------- -------
Net cash used in investing activities (75) (38)
------- -------
Cash flows from financing activities:
Issuance of common stock, net of offering costs 256 2,495
Issuance of redeemable convertible notes, net of
issuance costs 3,743 --
Proceeds from sale of dental assets 4,000 --
Costs associated with sale of dental assets (411) --
------- -------
Net cash provided by financing activities 7,588 2,495
------- -------
Net increase (decrease) in cash and cash equivalents 2,044 (2,071)
Cash and cash equivalents at beginning of period 647 3,514
======= =======
Cash and cash equivalents at end of period $ 2,691 $ 1,443
======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1997
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of all material
intercompany balances and transactions. Certain reclassifications have been made
to prior year amounts in order to conform to the current presentation.
The condensed consolidated financial data for the periods ended
September 30, 1997 and 1996 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) that the management of the
Company believes to be necessary for fair presentation of the financial position
and results of operations for the periods presented. Interim results are not
necessarily indicative of results for the full year. The financial statements
should be read in conjunction with the audited financial statements for the year
ended December 31, 1996 included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
The Company has incurred significant losses for the last several years
and at September 30, 1997 has an accumulated deficit of approximately
$34,552,000. The accompanying condensed financial statements have been prepared
assuming the Company will continue as a going concern. Although the Company's
management believes existing working capital will provide sufficient funds for
the Company's planned operations through 1997, the Company's long term ability
to continue as a going concern is dependent upon performing profitably or
obtaining further financing. Management recognizes the need for additional cash
infusion and is pursuing various options which include debt or equity financing.
There can be no assurance that such financing, if necessary, will be available,
in which case management may need to curtail or suspend certain or all
operations.
The preparation of unaudited financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. Net Loss per Share
Net loss per share for the periods ended September 30, 1997 and 1996 is
based solely on weighted average shares of common stock outstanding during the
period. Common equivalent shares have not been considered in the computation
since their inclusion would have an antidilutive effect.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will not be included. The computed basic earnings per share will
not be different from the primary earnings per share for the periods ended
September 30, 1997 and September 30, 1996.
3. Revenue Recognition
Revenues are recognized at time of shipment. A provision for the estimated
future cost of warranty is made at the time a sale is recorded.
4
<PAGE>
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following on the dates indicated:
September 30, December 31,
1997 1996
---------------------- --------------------
(In thousands)
Raw materials $ 28 $1,180
Work-in-process 252 299
Finished goods 147 656
====== ======
$ 427 $2,135
====== ======
5. Income Taxes
Due to the Company's losses from operations, all deferred tax assets, which
primarily result from net operating loss carry forwards, have been offset in
full by a valuation allowance in accordance with SFAS No. 109.
6. Issuance of Redeemable Convertible Notes
In February and March 1997, the Company completed a series of private
placements (collectively, the "1997 Notes Placement") of 5% redeemable
convertible notes due 1999 (convertible into common stock) (the "Notes") and
warrants to purchase common stock (the "Warrants"). The total face amount of the
Notes is approximately $4,100,000, and net proceeds aggregated approximately
$3,700,000. In accordance with recent Securities and Exchange Commission
Division of Corporation Finance guidance, the Company has recorded a premium
representing an initial conversion discount of approximately $769,000 as
additional interest expense associated with the Notes and paid-in capital.
Because the Notes are immediately convertible at the holders' option, the entire
amount has been recorded as interest expense upon issuance of the Notes. The
Company has recorded the Notes net of debt offering costs of approximately
$358,000 and the value associated with the Warrants of approximately $256,000,
which will be amortized as interest expense over the period that the Notes are
outstanding.
7. Sale of Dental Assets
In June 1997, the Company completed the sale of assets associated with
the Company's dental laser, air abrasive and composite curing systems (the
"Dental Assets") to Lares Research. The purchase price paid for the Dental
Assets was $5,500,000, consisting of $4,000,000 in cash paid at closing and
$1,500,000 in the form of a promissory note, with two installments due in three
and four years, respectively (the "Lares Note"). Although the Company
anticipates collecting interest and principal on the Lares Note, due to
subordination of the Lares Note to Lares' Bank, collection is not reasonably
assured and the Company intends to recognize proceeds from the sale and interest
on the Lares Note as cash is received. On collection of the Lares Note principal
the Company will pay to American Dental Technologies ("ADT") an additional
transfer fee of ten percent of cash collected on the $1,000,000 first
installment of the Lares Note. The gain on sale of the Dental Assets is
comprised as follows:
In thousands
Cash proceeds from sale of dental assets $ 4,000
Less: Inventory and equipment sold (1,498)
ADT transfer fee (275)
Transaction fees (237)
Other costs (250)
-------
Gain on sale of dental assets $ 1,740
=======
5
<PAGE>
8. Subsequent Events
On October 24, 1997, the Company's Board of Directors adopted a
Stockholders Rights Agreement that consists of common stock purchase rights
("Rights") that will be distributed as a dividend at the rate of one Right for
each share of common stock of the Company held by stockholders of record as of
the close of business on October 24, 1997. The Rights Agreement will expire on
October 24, 2007. Each Right will entitle stockholders to buy newly issued
shares of common stock of the Company at an exercise price of $20.00. The rights
will be exercisable only if a person or group acquires beneficial ownership of
15% or more of the Company's common stock or commences a tender offer or
exchange offer, upon consummation of which, such person or group would
beneficially own 15% or more of the Company's common stock.
On October 24, 1997, the Company's Board of Directors also adopted
Indemnification Agreements for the executive officers and directors of the
Company and Change of Control Agreements for the executive officers of the
Company that specify certain severance benefits available to executives whose
positions are effectively eliminated upon a change in control of 51% or more of
the Company's common stock.
On November 3, 1997, the Company's Registration Statement on Form S-2,
as amended, was declared effective by the Securities and Exchange Commission.
The purpose of the registration was to register 10,273,519 shares of the
Company's common stock on behalf of the selling securityholders who acquired
their interest in such shares either: (a) in July and August 1996, pursuant to
private placements in the United States in reliance on Regulation D and outside
of the United States in reliance on Regulation S under the Securities Act of
1933, as amended (collectively, the "1996 Equity Placement"); or (b) in the 1997
Notes Placement, as described in footnote 6. Certain of the registered shares
have not been issued by the Company but may be issued at any time upon
conversion of the notes or exercise of the warrants by certain selling
securityholders pursuant to the terms of the 1997 Notes Placement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
This Quarterly Report on Form 10-Q, as it may be amended or supplemented,
and certain documents incorporated by reference herein contain or may contain
both statements of historical fact and statements that are based on projections
of revenue, income, earnings per share and other financial items or relate to
management's future plans and objectives of the Company's future economic
performance. Such statements are "forward-looking statements" within the meaning
of Section 27A (I) of the Securities Act of 1933, as amended, and Section 21E
(I) of the Securities Exchange Act of 1934, as amended.
Although any forward-looking statements contained herein or otherwise
expressed by or on behalf of the Company are, to the knowledge and in the
judgment of the officers and directors of the Company, expected to prove true
and to come to pass, management is not able to predict the future with absolute
certainty. Accordingly, stockholders and potential investors are hereby
cautioned that certain events or circumstances, as described in the Form 10-K
and the Form S-2, could cause actual results to differ materially from those
projected or predicted. In addition, forward-looking statements are based on
management's knowledge and judgment as of the date hereof, and the Company does
not intend to update any forward-looking statements to reflect events occurring
or circumstances existing hereafter.
The Company develops, manufactures and markets laser systems for
applications in ophthalmology and, prior to June 26, 1997, dentistry. The
Company had also developed, manufactured and marketed an air abrasive cavity
preparation system for dentistry. A substantial portion of the Company's
revenues (98% in 1996 and
6
<PAGE>
77% for the first nine months of 1997) were derived from the domestic and
international sales of the Company's dental laser and air abrasive products.
Since mid-1992, the Company has focused a portion of its efforts on
engineering and development of its laser corneal shaping product (the "LTK
System") for the treatment of refractive errors of the eye, such as hyperopia
(farsightedness). The LTK System is based upon patented technology acquired in
the Company's acquisitions of in-process technology from Laser Biotech, Inc. and
Emmetropix Corporation in 1992. The Company is in Phase II of its U.S. clinical
trials of the LTK System and expects no significant revenue from this product
until the product is approved for sale in the United States and, therefore, the
Company expects to continue to have net losses at least through the year the LTK
System is approved for sale in the United States. While the results from the
clinical trials have been satisfactory to date, there can be no assurance that
the LTK System will be approved for sale in the United States.
The Company has incurred substantial losses in the past five years which
have seriously depleted its working capital. The Company's independent auditors
have included an explanatory paragraph in their report covering the Company's
financial statements for the year ended December 31, 1996, which paragraph
emphasizes substantial doubt as to the Company's ability to continue as a going
concern, based primarily on the recurring operating losses that have been
incurred by the Company. Failure to return to profitable operations or to obtain
other financing could result in a reorganization or complete liquidation of the
Company. Historically, the Company has been able to raise additional working
capital for all aspects of its business through the private placement of its
common stock and securities convertible into common stock. Private placements of
common stock raised approximately $15,296,000 in net proceeds between 1994 and
1996. In the first quarter of 1997, the Company issued in a series of private
placements (collectively, the "1997 Notes Placement") 5% redeemable convertible
notes due 1999 (convertible into common stock) and warrants to purchase common
stock for aggregate net proceeds of approximately $3,743,000.
In June 1997, the Company completed the sale of the Company's Dental Assets
to Lares Research. Lares is a privately-held company located in Chico,
California. Lares paid the Company $4,000,000 in cash at closing and delivered a
promissory note for $1,500,000, which bears interest at the rate of 8%. Under
the Lares Note $1,000,000 is payable on the third anniversary of the closing,
and $500,000 is payable on the fourth anniversary of the closing. The Lares Note
is subordinate in right of payment to Lares' obligations to its bank (the
"Bank"). Lares has agreed that so long as the Lares Note is outstanding, its
aggregate obligations to the Bank will not exceed $4,750,000. Although the
Company anticipates collecting interest and principal on the Lares Note, due to
subordination of the Lares Note to Lares' Bank, collection is not reasonably
assured and the Company intends to recognize proceeds from the sale and interest
on the Lares Note as cash is received. On collection of the Lares Note
principal, the Company will pay to American Dental Technologies ("ADT") an
additional transfer fee of ten percent of cash collected on the $1,000,000 first
installment of the Lares Note. This transaction was approved by the Company's
stockholders on June 26, 1997.
Financial Condition
As of September 30, 1997, the Company had $2,691,000 in cash and cash
equivalents. The Company's operating activities used $5,469,000 in the nine
months ended September 30, 1997 and used $4,528,000 in cash during the same
period in 1996. Substantial portions of the 1996 and 1997 losses were funded by
a series of private placements of the Company's common stock in 1996, for
aggregate net proceeds of approximately $2,245,000 (collectively, the "1996
Stock Placements"), and the 1997 Notes Placement, for aggregate net proceeds of
approximately $3,743,000.
The Company's current operations continue to be cash flow negative,
limiting the Company's working capital resources. Working capital at September
30, 1997 amounted to approximately $2,119,000. At December 31, 1996, working
capital amounted to approximately $1,073,000. The Company's ability to continue
as a going concern is dependent upon performing profitably or obtaining further
financing. Management believes existing working capital will provide sufficient
funds for the Company's planned operations for the remainder of 1997.
Results of Operations
Revenues of $76,000 and $2,539,000 for the three and nine month periods
ended September 30, 1997 represent a 96% decrease and 41% decrease,
respectively, from revenues of $1,767,000 and $4,327,000 for the same periods in
1996. These results are due to the sale of the Company's dental business at the
end of the
7
<PAGE>
second quarter of 1997 and, consequently, no revenue from the dental operations
in the third quarter of 1997. For the nine-month period ended September 30,
1997, sales of dental laser and air abrasive products accounted for 77% of total
revenue.
Costs of revenues and related negative margins for the three-month period
ended September 30, 1997 result from reserves for excess and obsolete inventory
and the underabsorption of manufacturing overhead due to the low revenue levels.
Gross profits as a percentage of revenue of 41% in 1996 resulted primarily from
the sale of dental products. Gross profits as a percentage of revenue were 15%
for the nine-month period ended September 30, 1997, as compared to 29% for the
same period in 1996. This decrease is due primarily to an increase in the
reserve for excess and obsolete inventory in the third quarter of 1997 and the
underabsorption of manufacturing overhead during the same period.
Engineering and development expenses totaled $226,000 and $570,000 for the
three and nine-month periods ended September 30, 1997 compared to $149,000 and
$494,000 for the same periods of 1996. The increase in the engineering and
development expenses is due to the increase in expenditures related to the
development of the LTK System offset by the elimination of expenditures related
to the development of dental products during the third quarter of 1997.
Sales, marketing and regulatory costs were $413,000 and $2,046,000 for the
three and nine-month periods, respectively, ended September 30, 1997 compared to
$942,000 and $2,938,000 for the same periods of 1996. The decrease for the
three-month period is due primarily to increased marketing and regulatory
spending for the ophthalmic products offset by the elimination of marketing
expenses for dental products. The decrease for the nine-month period is due
primarily to higher costs in the first quarter of 1996 incurred in connection
with the launch of the Associate(R), a dental, air-abrasive product and the
elimination of any marketing and regulatory costs for the dental products in the
third quarter of 1997.
General and administrative expenses were $704,000 and $2,606,000 for the
three and nine-month periods, respectively, of 1997, compared to $668,000 and
$1,873,000 for the same periods of 1996. The increase in general and
administrative expenses for the three-month period ended September 30, 1997 as
compared to the same period in 1996 is primarily due to an increase in the
reserve for doubtful accounts in the third quarter of 1997. The increase in
general and administrative expenses for the nine-month period ending September
30, 1997 as compared to the same period in 1996 is primarily as a result of
changes in the Company's management team, including charges related to the
separation and release of certain executive officers and directors and an
increase in the reserve for doubtful accounts.
Gain on sale of dental assets for the nine-month period ended September 30,
1997 of $1,740,000 results from $4,000,000 cash proceeds from the sale less the
$1,498,000 cost of assets sold and the ADT transfer fee, transaction fees and
other costs of approximately $762,000. The Company intends to recognize gain on
the remaining $1,500,000 of the purchase price as cash is collected on the Lares
Note, less additional transfer fees payable to ADT when the first installment of
the Lares Note is received by the Company.
Interest and other expense for the three and nine-month periods ended
September 30, 1997 of $132,000 and $1,080,000 respectively, represents primarily
non-cash interest charges pursuant to the 1997 Notes Placement and related
payments.
The net loss for the three-month period ended September 30, 1997 of
$1,557,000 is primarily due to the lack of revenue from the ophthalmic products
to offset the expenses associated with the development and regulatory approval
of the LTK System. The net loss of $4,108,000 for the nine-month period ended
September 30, 1997 is due primarily to the expenses associated with the
development and regulatory approval of the LTK system, decreased demand for the
Company's dental products and non-cash interest expense of $943,000 associated
with the 1997 Notes Placement, offset by the gain on sale of the Company's
Dental Assets in June.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Number Description
------ -----------
27 Financial Data Schedule
- -----------
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (File No. 1-10428, should have been File
No. 0-17816)
B. Report on Form 8-K
The Company filed the following reports on Form 8-K (or Form 8-K/A) during the
third quarter of 1997:
Date of Filing Date of Report Items Reported
- --------------------------------------------------------------------------------
July 11, 1997 June 26, 1997 2, 7
August 6, 1997 June 26, 1997 5, 7
August 13, 1997 June 26, 1997 7
(Form 8-K/A)
Items 1, 2, 3, 4 and 5 of Part II are omitted because of the absence of
conditions under which they are required.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereundo duly authorized.
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Date: November 14, 1997 By: /s/ C. Russell Trenary, III
-----------------------------------
President and Chief Executive
Officer
Date: November 14, 1997 By: /s/ Timothy A. Marcotte
-----------------------------------
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,691,000
<SECURITIES> 0
<RECEIVABLES> 553,000
<ALLOWANCES> 350,000
<INVENTORY> 427,000
<CURRENT-ASSETS> 3,568,000
<PP&E> 395,000
<DEPRECIATION> 283,000
<TOTAL-ASSETS> 3,680,000
<CURRENT-LIABILITIES> 1,449,000
<BONDS> 3,786,000
0
0
<COMMON> 28,000
<OTHER-SE> (1,583,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,680,000
<SALES> 76,000
<TOTAL-REVENUES> 76,000
<CGS> 200,000
<TOTAL-COSTS> 200,000
<OTHER-EXPENSES> 1,343,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,000
<INCOME-PRETAX> (1,557,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,557,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,557,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
