U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter ended: September 30, 1998
Commission File No. 0-23780
MEDIAX CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
84-1107138
(I.R.S. Employer Identification Number)
8522 National Boulevard, Suite 110, Culver City, California 90232
(Address of Principal Executive Offices, Including Zip Code)
(310) 815-8002
Issuer's Telephone Number
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK, $.0001 PAR VALUE
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No []
The aggregate market value of the Issuer's Common Stock, $.0001 Par Value, held
by non-affiliates of the Issuer, based on the closing sale price of the Common
Stock on October 30,1998 as reported on the OTC Bulletin Board, was
approximately $1,000,000.
As of October 30, 1998 there were 19,693,580 shares of the Issuer's Common
Stock, $.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
[MEDIAX\10Q:10Q0998.doc]-6
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<PAGE>
MEDIAX CORPORATION
FORM 10-QSB
Page
PART I
Item 1. Financial Statements
Condensed Balance Sheet as of September 30, 1998 (unaudited) ....2
Condensed Statements of Operations for
the Three and Nine Months Ended September 30, 1998
and 1997 (unaudited) .......................................3
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).....................5
Notes to Condensed Financial Statements .........................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................7
PART II
Item 1. Legal Proceedings................................................10
Item 2. Changes In Securities............................................10
Item 3. Defaults Upon Senior Securities..................................10
Item 4. Submission of Matters to a Vote of Security Holders..............10
Item 5. Other Information................................................10
Item 6. Exhibits And Reports On Form 8-K.................................10
Signatures.......................................................11
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<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Balance Sheet (Unaudited)
September 30,
ASSETS 1998
---------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 28,698
Accounts receivable, net 234,278
Inventories 66,190
Prepaid advertising costs 100,000
Other prepaid expenses 34,535
---------------------
Total current assets 463,701
Property and equipment
Computers and office equipment 217,584
Software 145,605
Furniture and fixtures 18,759
---------------------
381,948
Less: accumulated depreciation (215,781)
166,167
Other assets
Note and interest receivable - officer 110,830
Deferred software development costs 255,000
License agreement and trademark 22,043
Deposits and other assets 11,141
---------------------
399,014
1,028,882
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Convertible notes payable 902,327
Non-convertible notes payable 532,022
Accrued expenses 170,669
Accounts payable 279,716
Product refund reserve 77,184
Obligation under capital lease 1,597
---------------------
1,963,515
Commitments, contingency and subsequent events --
Stockholders' equity (deficit)
Preferred stock, $.0001 par value per shares; 10,000,000 shares
authorized and no shares issued --
Common stock, $.0001 par value per share; 75,000,000 shares
authorized; 19,068,580 shares issued and outstanding 1,907
Additional paid-in capital 3,663,631
Deficit accumulated during the development stage (4,600,171)
----------------------
(934,633)
$ 1,028,882
======================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
[MEDIAX\10Q:10Q0998.doc]-6
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<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Three Months Ended
September 30,
1998 1997
----------------------- -----------------------
<S> <C> <C>
Sales/Cost of sales
Sales $ 13,871 90,000
Allowances for returns (39,038) --
Cost of sales (140,263) (208,711)
---------------------- -----------------------
Gross profit (165,430) (118,711)
----------------------- -----------------------
Other Operating Expenses
Amortization and depreciation 30,271 16,453
Professional, legal and accounting services 48,698 73,355
Marketing and selling 60,752 12,101
Rent and utilities 38,421 29,866
Salaries 168,674 98,429
General and administrative 68,619 47,318
----------------------- ----------------------
415,435 277,522
---------------------- ----------------------
OTHER INCOME (EXPENSES)
Interest income 1,476 5,534
Interest expense (38,355) (19,173)
Other (loss) income -- --
---------------------- ----------------------
(36,879) (13,639)
---------------------- ----------------------
Net loss $(617,744) $ (409,872)
======================= ======================
Basic and diluted weighted average number of
common shares 18,556,788 14,706,346
===================== ======================
Basic and diluted net loss per common share $ (.03 ) $ (.03)
====================== ======================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
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<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Nine Months Ended
September 30,
1998 1997
----------------------- ----------------------
<S> <C> <C>
Sales/Cost of sales
Sales $ 337,670 $ 243,511
Allowances for returns (155,320) --
Cost of sales (408,116) (595,432)
---------------------- -----------------------
Gross profit (225,766) (351,921)
----------------------- -----------------------
Other Operating Expenses
Amortization and depreciation 89,436 44,017
Professional, legal and accounting services 257,119 225,628
Marketing and selling 867,719 17,473
Rent and utilities 93,748 54,786
Salaries 429,763 269,118
General and administrative 275,504 123,434
----------------------- ----------------------
2,013,289 734,456
----------------------- ----------------------
OTHER INCOME (EXPENSES)
Interest income 5,730 11,813
Interest expense (85,565) (43,514)
Other (loss) income (2,093) 10,305
---------------------- ----------------------
(81,928) (21,396)
---------------------- ----------------------
Net loss $(2,320,983) $ (1,107,773)
======================= ======================
Basic and diluted weighted average number of
common shares 17,314,503 14,435,436
===================== ======================
Basic and diluted net loss per common share $ (.13 ) $ (.08)
====================== ======================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
[MEDIAX\10Q:10Q0998.doc]-6
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<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
For the Nine Ended
September 30,
-----------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (2,320,983) $ (1,107,773)
Adjustments to reconcile to net cash provided by operating
activities:
Amortization and depreciation 88,936 44,016
Changes in assets and liabilities
(Increase) decrease in accounts receivable (226,797) 89,898
Decrease in prepaid expense 505,716 --
(Increase) in inventories (14,373) --
(Increase) in deposits and other assets (4,115) (29,039)
Increase (decrease) in accounts payable - trade 200,100 5,831
(Decrease) in accounts payable - related parties (23,806) --
Increase in accrued and other expenses 159,140 --
Increase in product refund reserve 77,184 --
-------------------- --------------------
Net cash (used) by operating activities (1,558,998) (997,067)
-------------------- --------------------
Cash Flows from Investing Activities:
Reduction in goodwill -- 227,157
Purchase of fixed assets (8,566) (49,352)
Purchase of intangible asset -- (70,000)
Proceeds from sale of fixed assets -- 12,536
-------------------- -------------------
Net cash (used) provided by investing activities (8,566) 120,341
-------------------- --------------------
Cash Flow from Financing Activities:
Principal payments on capital lease (4,073) (3,997)
Net proceeds from sale of stock to private investors 625,000 1,032,000
Payments on notes payable -- (312,448)
Proceeds received from issuance of notes payable 582,662 802,981
-------------------- --------------------
Net cash provided by financing activities 1,203,589 1,518,536
-------------------- --------------------
(Decrease) increase in cash and cash equivalents (363,975) 641,810
Cash and cash equivalents, beginning of period 392,673 224,331
-------------------- --------------------
Cash and cash equivalents, end of period $ 28,698 $ 866,141
==================== ====================
</TABLE>
Supplemental Disclosures of Cash Flow information:
No cash was paid during the quarter for income taxes or interest
The accompanying notes are an integral part of this condensed statement.
[MEDIAX\10Q:10Q0998.doc]-6
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Note 1: BASIS OF PRESENTATION
The condensed financial statements of MediaX Corporation (the "Company") for the
three months ended September 30, 1997 and 1998 are unaudited and reflect all
adjustments, consisting of normal recurring adjustments as well as additional
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. These condensed
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1997. The results of operations
for the three months ended September 30, 1998 are not necessarily indicative of
the results for the entire year ending December 31, 1998.
Note 2: NET EARNINGS (LOSS) PER SHARE
Net earnings per share is based on the weighted average number of common and
common equivalent shares outstanding during each period. Common stock
equivalents have been excluded from the computation for the three months ended
September 30, 1997 and 1998, loss periods, as their inclusion would be
anti-dilutive.
Note 3: GOING CONCERN
The Company has minimal capital resources presently available to meet
obligations which normally can be expected to be incurred by similar companies,
and to carry out its planned operations and has an accumulated deficit of
$4,600,171 at September 30, 1998. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
Management believes that its cash flow requirements in the next year can be met
from its anticipated cash flows from the sale of "Big Brother", from E-commerce
sales, and other projects currently in negotiations and that the Company can
also obtain additional equity or debt financing. There is no assurance that the
Company will be able to obtain such financing. The financial statements, herein,
do not include any adjustments that might result from the outcome of this
uncertainty.
Note 4: OTHER TRANSACTIONS
On September 7, 1998, the Company sold 551,470 shares of common stock to an
accredited unrelated investor for $75,000. On September 9, 1998, warrants to
convert 200,000 shares of common stock were exercised by an accredited unrelated
investor for $50,000.
Note 5: RECLASSIFICATION OF PRIOR YEAR AMOUNTS
To enhance comparability, the fiscal 1997 financial statements have been
reclassified, where appropriate, to conform with the financial statement
presentation used in the fiscal 1998 financial statements.
[MEDIAX\10Q:10Q0998.doc]-6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED
IN THIS FORM 10-QSB ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN SUCH FORWARD LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S DEPENDENCE ON THE
TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF PRODUCTS, THE IMPACT
OF COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY OF THE COMPANY TO
REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED CAPITAL, THE EFFECT OF
CHANGING ECONOMIC CONDITIONS, AND RISKS IN TECHNOLOGY DEVELOPMENT.
GOING CONCERN
The Company has experienced recurring net losses and has limited liquid
resources. Management's intent is to increase the Company's sales and continue
to secure additional sources of capital. In the interim, the Company will
continue operating with minimal overhead and administrative functions will be
provided by key employees and consultants, some of whom are compensated
primarily in the form of the Company's common stock. The Company may need to
utilize its common stock to fund its operations through fiscal 1998.
Accordingly, the accompanying consolidated financial statements have been
presented under the assumption the Company will continue as a going concern.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
The Company's gross sales for the three months ended September 30, 1998
was $13,871 as compared to $90,000 for the comparable period last year. The
sales during the current quarter were attributable to sales of the Company's
product, Peter Norton PC Guru, where as, sales during the same quarter last year
were attributable to sales of web site development projects. Allowances for
returns increased to $39,038 during the current quarter resulting from lower
than expected acceptance of Peter Norton PC Guru in the market place.
The Company's cost of sales for the three months ended September 30, 1998
was $140,263 as compared to $208,711 for the comparable period last year,
resulting in a change of $68,448 or 32%. The decrease in cost of sales is again,
primarily attributable to the lower sales of the Company's product, Peter Norton
PC Guru and its continued overhead related to the production of the new
products.
The Company's total amortization and depreciation for the three months
ended September 30, 1998 was $30,271 as compared to $16,453 for the comparable
period last year. The change is primarily attributable to the amortization of
software development cost associated with Peter Norton PC Guru.
The Company's professional, legal and accounting services were $48,698 for
the three months ended September 30, 1998, as compared to $73,355 for the
comparable period last year. The change is primarily attributable to a decrease
in professional services provided by consultants under professional advisory and
management agreements over the same period last year.
The Company's marketing and selling expenses for the current quarter were
$60,752 as compared to $12,101 for the same quarter last year. The change is
directly related to the marketing and selling of the Company's product, Peter
Norton PC Guru and the continued marketing of the Company as an international
software developer.
[MEDIAX\10Q:10Q0998.doc]-6
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The Company's rent and utilities for the current quarter was $38,421 as
compared to $29,866 for the same quarter last year. The change is a direct
result of renewed leases of the Company's premises affecting the current quarter
over the same quarter last year.
The Company's salaries for the current quarter increased to $168,674 from
$98,429 from the same quarter last year. The increase is attributable to
additional employees and salary increases which includes provisional increases
in the company's agreements with its executive officers.
The Company's interest expense for the current quarter was $38,355 as
compared to $19,173 for the same quarter last year. The change is a direct
result of having additional interest bearing debt during the current period over
the same time last year.
The Company's net loss for the three months ended September 30, 1998 was
$617,744 as compared to $409,872 for the comparable period last year. The
increase in net loss is mostly attributable to lower sales and an increase in
marketing and selling expenses, generating promotion for the Company's product,
Peter Norton PC Guru, including initial overhead associated with the production
of the new product. Also, additional overhead and development costs have been
incurred on the Company's newest product, "Big Brother".
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
The Company's gross sales for the nine months ended September 30, 1998 was
$337,670 as compared to $243,511 for the comparable period last year, resulting
in an increase of $94,159 or 39 %. The increase is primarily attributable to the
introduction and sales of the Company's product, Peter Norton PC Guru, which
encompassed ninety percent (90%) of the Company's sales mix during the current
period. Allowances for returns increased to $155,320 during the current period
resulting from lower than expected acceptance of Peter Norton PC Guru in the
market place.
The Company's cost of sales for the nine months ended September 30, 1998
was $408,116 as compared to $595,432 for the comparable period last year,
resulting in a decrease of $187,316 or 32%. The change in cost of sales is
primarily attributable to lower introduction and costs of the Company's product,
Peter Norton PC Guru and its lower overhead related to the production of the new
product over the same period last year. A change in sales mix also caused a
decrease of .22% in relative cost of sales.
The Company's total amortization and depreciation for the nine months
ended September 30, 1998 was $89,436 as compared to $44,017 for the comparable
period last year. The increase is primarily attributable to the amortization of
software development cost associated with Peter Norton PC Guru.
The Company's professional, legal and accounting services were $257,119
for the nine months ended September 30, 1998, as compared to $225,628 for the
comparable period last year. The change is primarily attributable to a small
increase in professional services provided by consultants under professional
advisory and management agreements over the same period last year.
The Company's marketing and selling expenses for the nine months ended
September 30, 1998, were $867,719 as compared to $17,473 for the same period
last year. The increase is directly related to the marketing and selling of the
Company's product, Peter Norton PC Guru and the continued marketing of the
Company as an international software developer.
The Company's rent and utilities for the nine months ended September 30,
1998, was $93,748 as compared to $54,786 for the same period last year. The
increase is a direct result of renewed leases of the Company's premises
affecting the current period over the same time last year.
[MEDIAX\10Q:10Q0998.doc]-6
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<PAGE>
The Company's salaries for the nine months ended September 30, 1998,
increased to $429,763 from $269,118 from the same period last year. The increase
is attributable to additional employees and salary increases which includes
provisional increases in the company's agreements with its executive officers.
The Company's interest expense for the current period was $85,565 as
compared to $43,514 for the same period last year. The change is a direct result
of having additional interest bearing debt during the current period over the
same time last year.
The Company's net loss for the nine months ended September 30, 1998 was
$2,320,983 as compared to $1,107,773 for the comparable period last year. The
increase in net loss of $1,213,210 is primarily attributable to an increase in
marketing and selling expenses as well as additional employees and overhead
costs, generating promotion for the Company's product, Peter Norton PC Guru.
Also, additional overhead and development costs have been incurred on the
Company's newest product, "Big Brother".
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had negative working capital of
$1,499,814 , as compared to working capital of $134,046 at December 31, 1997.
The decline in working capital is attributable to the Company utilizing its
working capital for the payment of current liabilities for on going operations
during the nine months ended September 30, 1998.
The Company's success and ongoing financial viability is contingent upon
its selling of its products and the related generation of cash flows. The
Company is currently generating relatively little revenue and related cash flows
and anticipates this trend will continue until such time, if any, new products
are released and current products accepted in the marketplace. Management
believes that its existing cash and working capital balances will be sufficient
to meet its working capital needs for the balance of the fiscal year ending
December 31, 1998. However, the Company may need to utilize its common stock to
fund its operations through fiscal 1998. If the Company decides to commence with
additional productions, it may be necessary to raise additional financing.
The Company evaluates its liquidity and capital needs on a continuous
basis and based on the Company's requirements and capital market conditions may,
from time to time, raise working capital through additional debt or equity
financing. There is no assurance that such financing will be available in the
future to meet additional capital needs of the Company, or as to the terms or
conditions of any such financing that is available. Should there be any
significant delays in the release of new products, or lack of acceptance in the
marketplace for such products if released, or the Company's working capital
needs otherwise exceed its resources, the adverse consequences would be severe.
The generation of the Company's current growth and the expansion of the
Company's current business involve significant financial risk and require
significant capital investment.
As of the date of this Report, the Company had no material commitments for
capital expenditures.
CASH FLOWS
Cash used by operating activities was $1,558,998 for the nine months ended
September 30, 1998 as compared to $997,067 for the comparable period last year.
The change is primarily attributable to the increase in operating net loss and
slower collections on growing receivables resulting from an increase in sales
over the same period last year. Additionally, the change in operating cash flows
is attributable to the new production and overhead associated with the
production of the Peter Norton PC Guru product.
Cash used in investing activities was $8,566 for the nine months ended
September 30, 1998 as compared to $120,341 cash provided for the comparable
period last year. The change is primarily attributable to having fewer purchases
of tangible and intangible assets offset by a reduction in goodwill during the
current period as there was during the same time last year.
Cash provided by financing activities was $1,203,589 for the nine months
ended September 30, 1998 as compared to $1,518,536 for the comparable period
last year. The change is primarily attributable to higher payments on notes
payable last year and having fewer issuances of debt during the current period
over the same time last year.
[MEDIAX\10Q:10Q0998.doc]-6
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<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings, and the Company is not aware of
any threatened legal proceedings to which it is a party.
ITEM 2. CHANGES IN SECURITIES
On September 7, 1998, the Company sold 551,470 shares of common stock to
an accredited unrelated investor for $75,000. On September 9, 1998, warrants to
convert 200,000 shares of common stock were exercised by an accredited unrelated
investor for $50,000.
Exemption from registration under the Securities Act of 1933, as amended
(the "Act"), is claimed for the sale of all the securities set forth above in
reliance upon the exemption afforded by Section 4(2) of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER TRANSACTIONS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS.
NUMBER DESCRIPTION LOCATION
------ ----------------------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K.
No Reports on Form 8-K were filed during the Company's fiscal quarter
ended September 30, 1998.
[MEDIAX\10Q:10Q0998.doc]-6
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: November 13, 1998 MEDIAX CORPORATION
Nancy Poertner
---------------------------------------
Nancy Poertner, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature
/s/ Nancy Poertner
- ----------------------------------
Nancy Poertner
President, Secretary
/s/ Rainer Poertner
- ----------------------------------
Rainer Poertner
/s/ Matthew MacLaurin
- ----------------------------------
Matthew MacLaurin
[MEDIAX\10Q:10Q0998.doc]-6
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 28,698
<SECURITIES> 0
<RECEIVABLES> 234,278
<ALLOWANCES> 0
<INVENTORY> 66,190
<CURRENT-ASSETS> 463,701
<PP&E> 381,948
<DEPRECIATION> (215,781)
<TOTAL-ASSETS> 1,028,822
<CURRENT-LIABILITIES> 1,963,515
<BONDS> 0
0
0
<COMMON> 1,907
<OTHER-SE> (936,540)
<TOTAL-LIABILITY-AND-EQUITY> 1,963,515
<SALES> 13,871
<TOTAL-REVENUES> (25,167)
<CGS> 140,263
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 415,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (38,355)
<INCOME-PRETAX> (617,744)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (617,744)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
