U.S. 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 QUARTER ENDED MARCH 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________
TO ____________
Commission File Number 1-12614
SEVENTH GENERATION, INC.
(Exact name of small business issuer as specified in its charter)
Vermont 03-0300509
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
1 Mill Street, Box A26, Burlington, VT 05401-1530
(Address of principal executive offices)
(802) 658-3773
(Issuer's telephone number)
- - - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 number of shares of Common Stock, $.000333 par value, outstanding as of
March 31, 1996 was 2,428,791. The number of Redeemable Common Stock Purchase
Warrants outstanding as of March 31, 1996 was 1,603,080.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
TOTAL NUMBER OF PAGES: 31 EXHIBIT INDEX APPEARS ON PAGE: 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEVENTH GENERATION, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
ASSETS
<TABLE>
March 31, December 31,
1996 1995
===================== =====================
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,025,943 $ 1,609,476
Accounts receivable-trade, net of allowance for doubtful
accounts of $64,790 and $56,800 at March 31, 1996 and
December 31, 1995, respectively 812,935 600,534
Accounts receivable-other 72,352 49,118
Inventories 304,309 183,977
Other prepaid expenses 121,708 97,351
Other assets 31,870
--------------------- ---------------------
Total current assets 2,369,117 2,540,456
--------------------- ---------------------
Equipment:
Computer equipment 39,696 37,990
Office equipment and furniture 28,735 27,948
--------------------- ---------------------
68,431 65,938
Less accumulated depreciation and amortization 45,347 42,877
--------------------- ---------------------
Equipment, net 23,084 23,061
--------------------- ---------------------
Deposits and other assets 13,965 14,203
--------------------- ---------------------
Total assets $ 2,406,166 $ 2,577,720
===================== =====================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SEVENTH GENERATION, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
March 31, December 31,
1996 1995
===================== =====================
(Unaudited)
<S> <C> <C>
Current liabilities:
Current installments of subordinated convertible debentures $ 100,000 $ 180,000
Accounts payable-trade 368,297 298,507
Other accrued expenses 133,270 106,511
Deferred income 12,500
--------------------- ---------------------
Total current liabilities 601,567 597,518
Long-term debt:
Subordinated convertible debentures,
excluding current installments 720,000 820,000
--------------------- ---------------------
Total liabilities 1,321,567 1,417,518
--------------------- ---------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.001 par value; 2,500,000 shares authorized;
none issued
Common stock-$.000333 par value; 15,000,000 shares authorized;
2,428,791 shares issued and outstanding in 1996 and 1995 809 809
Additional paid-in capital 12,264,623 12,264,623
Accumulated deficit (11,180,833) (11,105,230)
--------------------- ---------------------
Total stockholders' equity 1,084,599 1,160,202
--------------------- ---------------------
Total liabilities and stockholders' equity $ 2,406,166 $ 2,577,720
===================== =====================
</TABLE>
See accompanying notes to financial statements.
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SEVENTH GENERATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
For the Three Months Ended
March 31, March 31,
1996 1995
=================== ====================
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Sales $ 1,318,604 $ 543,933
Cost of sales 891,937 333,709
------------------- --------------------
Gross profit 426,667 210,224
Other operating income 12,500
------------------- --------------------
439,167 210,224
------------------- --------------------
Operating expenses:
Selling and marketing expenses 220,748 133,818
Operations and distribution expenses 120,655 96,177
General and administrative expenses 168,058 92,111
------------------- --------------------
Total operating expenses 509,461 322,106
------------------- --------------------
Loss from continuing operations (70,294) (111,882)
------------------- --------------------
Other income/(expense):
Interest income 18,597 13,104
Interest expense (23,669) (26,540)
Other (237) (238)
------------------- --------------------
Total other expense, net (5,309) (13,674)
------------------- --------------------
Net loss from continuing operations (75,603) (125,556)
------------------- --------------------
Discontinued operations:
Loss from discontinued operations (77,698)
------------------- --------------------
Net loss $ (75,603) $ (203,254)
=================== ====================
Loss per common share:
Loss from continuing operations $ (0.03) $ (0.05)
Loss from discontinued catalog operation (0.03)
------------------- --------------------
Net loss per common share $ (0.03) $ (0.08)
=================== ====================
Weighted average shares outstanding during the period 2,428,791 2,428,791
=================== ====================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SEVENTH GENERATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
For the Three Months Ended
March 31, March 31,
1996 1995
===================== =====================
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (75,603) $ (203,254)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,470 26,971
Provision for doubtful accounts 7,990
Changes in assets and liabilities:
(Increase) decrease in accounts receivable-trade (220,391) 21,651
(Increase) decrease in accounts receivable-other (23,234) 15,513
(Increase) decrease in inventories (120,332) 247,410
(Increase) decrease in prepaid catalog costs 216,044
(Increase) decrease in other prepaid expenses (24,357) 20,472
(Increase) decrease in other assets (31,632) (3,764)
Increase (decrease) in accounts payable-trade 69,790 (487,347)
Increase (decrease) in accrued expenses 26,759 18,136
Increase (decrease) in deferred income (12,500)
Increase (decrease) in customer deposits 11,315
--------------------- ---------------------
Net cash used in operating activities (401,040) (116,853)
--------------------- ---------------------
Cash flows from investing activities:
Proceeds from disposal of equipment 1,800
Purchases of equipment (2,493) (653)
--------------------- ---------------------
Net cash (used in) provided by investing activities (2,493) 1,147
--------------------- ---------------------
Cash flows from financing activities:
Principal payments on subordinated convertible debentures (180,000) (60,000)
Principal payments on capital lease obligations (2,789)
--------------------- ---------------------
Net cash used in financing activities (180,000) (62,789)
--------------------- ---------------------
Net decrease in cash and cash equivalents (583,533) (178,495)
Cash and cash equivalents, beginning of period 1,609,476 1,117,651
--------------------- ---------------------
Cash and cash equivalents, end of period $ 1,025,943 $ 939,156
===================== =====================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
SEVENTH GENERATION, INC.
Notes to Financial Statements
March 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. The consolidated financial statements include
the accounts of Seventh Generation, Inc., a Vermont corporation, and its
wholly-owned subsidiary, Seventh Generation Wholesale, Inc., a Vermont
corporation. All significant intercompany balances have been eliminated in
consolidation.
In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair statement of the
interim financial data have been included. Results from operations for the three
month period ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1996.
For further information, please refer to the financial statements and
footnotes filed as Item 7 in the Form 10-KSB for Seventh Generation, Inc. for
the fiscal year ended December 31, 1995, under Commission File # 1-12614.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE BUSINESS.
Seventh Generation, Inc. (the "Company") began operations in 1988 for the
purpose of marketing a variety of environmentally friendly consumer products
primarily through its mail-order catalog. In 1992 the Company began selling
its Seventh Generation brand products to retailers on a wholesale basis.
Since the sale of the catalog in May 1995, the Company focuses exclusively
on the wholesale business.
PRINCIPLES OF CONSOLIDATION.
Effective January 1, 1994, Seventh Generation, Inc. formed a wholly owned
subsidiary, Seventh Generation Wholesale, Inc., to carry on the operations
of its wholesale business. The accompanying consolidated financial
statements include all of the accounts of Seventh Generation, Inc. and its
wholly owned subsidiary, Seventh Generation Wholesale, Inc. All
significant and transactions have been eliminated in consolidation.
NET LOSS PER COMMON SHARE.
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the respective periods.
USE OF ESTIMATES.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (FAS 123). FAS 123 establishes fair value-based method of
accounting for stock-based compensation plans. Entities may either adopt
FAS 123 or elect to continue accounting for the issuance of stock under
compensation plans in accordance with APB Opinion No. 25 "Accounting for
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Stock Issued to Employees". The Company has not yet selected the accounting
method it will use to account for stock-based compensation plans and has
not measured the impact of changing its method from APB Opinion No. 25 to
FAS 123.
3. DISCONTINUED OPERATIONS
In 1995, the Company reached the conclusion that the financial resources
necessary to develop both the catalog and wholesale businesses were beyond
its means. The Company sold the assets of the catalog business to Gaiam,
Inc. (Gaiam) on May 24, 1995. Accordingly, the results of operations of
this business segment have been accounted for as discontinued operations for
all periods in the Consolidated Statement of Operations. Net sales of
discontinued operations were approximately $1,684,600 for the three months
ended March 31, 1995.
The Company also entered into Licensing, Reimbursement and Supply Agreements
with Gaiam. Under the Licensing agreement, Gaiam operates a catalog using
the Seventh Generation name, in consideration for which Gaiam paid the
Company a fee of $200,000, of which $187,500 was recognized in 1995 as other
operating income. The Licensing Agreement also requires Gaiam to pay an
annual licensing fee of $100,000, commencing on May 24, 1997, if Gaiam
continues to use the Seventh Generation name. Through the Reimbursement
Agreement, certain of the Company's management provide services towards the
operation of the catalog for Gaiam and certain office and personnel expenses
are shared. Gaiam reimburses the Company for the cost of these services.
Such reimbursement totaled approximately $32,000 for the three months ended
March 31, 1996. The Operating Agreement expires on December 31, 1996.
Through the Supply Agreement, Gaiam purchases Seventh Generation brand
product for resale to its catalog customers. Gaiam is required to purchase
and the Company is required to make reasonable effort to supply a minimum of
$2.5 million in Seventh Generation products at a 20% markup. After Gaiam
has purchased this minimum amount of product, the Company is required to
sell any additional product to Gaiam at a 5% markup. Included in the
Company's sales for the three months ended March 31, 1996 is approximately
$275,000 to Gaiam under the terms of the Supply Agreement, of which
approximately $227,000 is applicable towards the minimum.
4. SUBORDINATED CONVERTIBLE DEBENTURES
<TABLE>
March 31, December 31,
Subordinated convertible debentures consist of the following: 1996 1995
----- ----
<C> <C>
10% subordinated convertible debentures, unsecured, $180,000 due February 28,
1996, convertible at a price per share of $13.33 and $620,000 due February 28,
<S>
1998, convertible at a price per common share of $6.67 $ 620,000 $ 800,000
10% subordinated convertible debentures, unsecured,
due November 30, 1998, convertible at a price per
common share of $6.67 100,000 100,000
12% subordinated convertible debentures, unsecured,
due February 28, 1997, convertible at a price per
common share of $6.67 100,000 100,000
----------- -----------
Total subordinated convertible debentures 820,000 1,000,000
Less current installments (100,000) (180,000)
------------ ------------
Subordinated convertible debentures, less current installments $ 720,000 $ 820,000
=========== ===========
</TABLE>
During 1995, the holders of $240,000 in subordinated convertible
debentures due February 28, 1995 agreed to extend the due dates for $180,000 of
those debentures to February 28, 1996. The $180,000 was paid with accrued
interest in February, 1996.
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The number of shares of common stock reserved for the potential
conversion of these debentures was 136,444 at March 31, 1996.
5. COMMITMENTS AND CONTINGENCIES
Uncertainties:
The company has historically incurred losses from operations which
resulted in part from its catalog operations. In 1995, the Company sold the
catalog business and focused on expanding sales through the wholesale
distribution channels. The Company relies on a limited number of wholesale
distributors, including Gaiam, the purchaser of the catalog segment. If the
number of distributors and retailers were reduced or Gaiam was unable to meet
its commitments, the Company may not have adequate liquidity.
Litigation:
In conjunction with the sale of catalog assets to Gaiam, Inc., the
investment banking firm of Ulin & Holland alleges that the Company owes it a fee
of $98,500. The Company denies any liability and filed suit in the United States
District Court for the District of Vermont on October 23, 1995 seeking a
declaratory judgment that it has no such liability. Ulin & Holland has answered
the Complaint and filed a Counterclaim against the Company alleging breach of
contract, fraudulent misrepresentation, and violation of the Massachusetts Fair
Business Practices Act. The Company has moved to dismiss the latter two
counterclaims for failure to state a claim upon which relief may be granted.
Ulin & Holland seeks $98,500 on its breach of contract claim. Its fraudulent
misrepresentation and Fair Business Practices Act claims seek, in addition to
the contract damages, punitive damages (or triple damages) and attorneys' fees.
While management believes it has meritorious defenses against the suit, the
ultimate resolution remains an uncertainty. In the event of a material loss,
such loss could have a material effect on the financial position of the Company
and the results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Seventh Generation, Inc.'s primary strategic objective is to establish
Seventh Generation as the leading brand name for environmentally responsible
consumer products. Seventh Generation, Inc. (the "Company" ) believes that today
it is one of the leading marketers of environmentally friendly household
products in the United States. The Company sells Seventh Generation brand name
products through distributors to natural food stores throughout the United
States, and the Company is expanding sales of its brand name products into
upscale supermarkets primarily in the Northeast. The Company's products are also
marketed through the "Seventh Generation" mail order catalog (the "Catalog"),
which was sold to Gaiam, Inc. ("Gaiam") on May 24, 1995, and is operated by
Gaiam using the "Seventh Generation" trademarked name pursuant to a Licensing
Agreement further described below.
Seventh Generation brand name products include: paper towels, bathroom and
facial tissue, napkins and paper plates made from 100% recycled fiber,
manufactured without the use of chlorine bleach; cleaning and laundry products
that are renewable resource based, phosphate free and biodegradable; plastic
trash bags made from 100% recycled plastic; and feminine hygiene products
manufactured without the use of chlorine bleach. The Company markets and
distributes, but does not manufacture, its products.
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Seventh Generation brand name products are available in the natural food
industry's larger retail chains. In 1995, the Company's sales to the natural
food industry grew significantly over sales in 1994 as a result of increased
same store sales, new product introductions, consumer promotions, and continued
market penetration. The Company plans to continue its efforts to introduce new
products and expand distribution in the natural food industry.
In January 1995, the Company made its first sales to supermarkets in the
northeastern United States. The Company's sales efforts are now focused
primarily on upscale supermarket retailers and wholesalers. Although the Company
is starting to realize sales to this market segment, there can be no assurance
that the Company will be successful with its marketing strategy.
The Company plans to continue with its primary focus of expanding
distribution in the natural foods industry and to continue sales to supermarket
chains in the Northeast, coupled with brand name product sales to the Seventh
Generation mail order catalog operated by Gaiam, as well as other catalog
companies. The Company continues to explore other opportunities to expand
distribution, including a new program called Shop & Care (TM) designed to help
not for profit organizations raise funds by selling the Company's products,
which the Company introduced in the first quarter of 1996.
Results of Operations
Three Months Ended March 31, 1996 Compared to the Three Months Ended
March 31, 1995
The Company's Consolidated Statement of Operations for the three months
ended March 31, 1996 and 1995 present the catalog operations in the
Discontinued Operations section of the Statement.
Operations
Sales from continuing operations to natural food customers, supermarkets
and Gaiam during the three months ended March 31, 1996 were $1,318,604, an
increase of $774,671, or 142%, compared to $543,933 during the three months
ended March 31, 1995. This favorable performance was due to the continued growth
of sales to natural food customers and the commencement of sales to supermarkets
and Gaiam.
Gross profits were $426,667, an increase of $216,443, or 103%, compared to
$210,224 during 1995. Gross margins decreased to 32.4% as a percentage of sales,
from 38.6% in 1995, primarily due to the changing mix of sales.
Operating expenses were $509,461, or 38.6% of sales, an increase of
$187,355, or 58.2%, compared to $322,106, or 59.2% of sales during 1995. The
increase was due primarily to variable selling and marketing expenses and
operations and distribution expenses, which increase with the sales volume.
Additionally, these expenses increased due to start up costs related to start up
costs related to the Company's new Shop & Care(TM) marketing program and
increased general and administrative expenses, which in the 1995 quarter were in
part allocated to the catalog business. Included in operating expenses are
general and administrative costs, which include the expense of maintaining the
Company's status as a "public" company (filing fees, transfer agent costs, legal
fees, officers and directors liability insurance, and the cost of annual reports
and proxy statements). Also included in operating expenses is the effect of
reimbursement by Gaiam to the Company of approximately $32,000 under the
Reimbursement and Operating Agreements described below.
The loss from continuing operations was $75,603, a decrease of $49,953, or
40%, compared to $125,556 in 1995. This improvement can be attributed to the
combined effect of higher sales and lower operating expenses as a percentage of
sales, coupled with the recognition of $12,500 in licensing fees from Gaiam for
the use of the "Seventh Generation" name on the Gaiam mail order catalog. In
each of the third and fourth quarters of 1995, the Company recognized $75,000 of
licensing revenue. The lower amount recognized in the first quarter adversely
9
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affected the results of the Company's continuing operations in comparison to the
1995 third and fourth quarters. After the first quarter of 1996, no further
licensing revenue may be earned until May 25, 1997.
Transactions with Gaiam
Pursuant to a Supply Agreement with Gaiam, the Company now sells its brand
name products to Gaiam, which Gaiam resells through its mail order catalog.
These sales increased the Company's wholesale sales in the first quarter of
1996. Gross margins from these sales of 16.7% are lower than on natural food and
supermarket sales. As part of the Supply Agreement, Gaiam is obligated to
purchase from the Company a minimum of $2,500,000 of brand name products over a
three year period, beginning May 24, 1995, at cost plus 20%. After Gaiam has
purchased this minimum amount of product, the Company is required to sell
additional product to Gaiam at cost plus 5%. As of March 31, 1996, Gaiam has
purchased approximately $1,155,000 of product under the Supply Agreement, of
which approximately $969,000 is applicable toward the minimum. Pursuant to the
Licensing Agreement, Gaiam has paid the Company an initial license fee of
$200,000 and will pay an annual license fee of $100,000, commencing May 25,
1997, if it continues to use the rights. Pursuant to the Operating Agreement
(subsequently re-named the "Reimbursement Agreement") the Company's President
and his assistant assist Gaiam with the operation of its catalog, and certain
office equipment expenses are shared between the two companies. This Agreement
has helped lower the Company's overall operating expenses. The term of the
Reimbursement Agreement expires on December 31, 1996. During the quarter ended
March 31, 1996, the Company was reimbursed for approximately $32,000 of
expenses. The Reimbursement Agreement is of more limited scope than the
Operating Agreement and is expected to reimburse the Company for approximately
$100,000 of expenses for the period February 1, 1996 to December 31, 1996.
Discontinued Operations
On May 24, 1995, the Company entered into the Operating and Licensing
Agreements mentioned above and sold the assets of its catalog business to Gaiam
for $1,270,000 in cash and the assumption of over $500,000 in liabilities. The
Company had no activity from discontinued operations in the first quarter of
1996. This compares to a loss of $77,698 in the first quarter of 1995 from
the operation of the catalog business.
Summary
The net loss for the quarter ending March 31,1996 was $75,603, an
improvement of $127,651 over the net loss of $203,254 in 1995.
Liquidity and Capital Resources
The Company has historically financed its operations through equity and
debt financing, and the extension of credit by its trade creditors and its
landlord. During its history, the Company has raised $12,265,432 in equity
investments, while generating $11,180,833 in accumulated deficits through March
31, 1996.
On May 24, 1995, the Company sold the assets of the Catalog to Gaiam. The
infusion of cash from the sale, the payments received under the associated
Supply, Operating and Licensing Agreements, the elimination of the catalog
operating losses, and the need for capital resources necessary to fund catalog
marketing costs and inventories are all significant factors in improving the
liquidity of the Company. The catalog asset sale provided the Company immediate
liquidity and allows the Company, through the Supply Agreement, to continue to
market its brand name products in the Seventh Generation(R) mail order catalog,
while reducing the operating loss exposure and capital requirements, which had
been a continual drain on the Company's resources. Furthermore, it allows the
Company to concentrate its efforts and resources on expanding the distribution
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<PAGE>
of its brand name products to the natural foods industry, regional supermarkets,
other mail order catalogs and new channels of distribution.
To date, the Company's wholesale expansion into supermarkets has proceeded
more slowly than expected. As a result, the Company's sales strategy has evolved
and changed to focus primarily on the natural food industry and, secondarily, on
sales to select supermarkets, mail order catalogs, and other new distribution
channels that the Company is exploring without having to materially increase its
operating costs, including the Shop & Care (TM) program mentioned above. This
more targeted sales approach is designed to reduce the Company's risks by
focusing sales efforts on primarily those accounts who serve customers similar
to the Company's current customer base. This has helped to reduce operating
expenses and losses.
The Company still intends to rely primarily on a non-traditional marketing
strategy to stimulate consumer trial and repeat purchases in supermarkets,
rather than more costly traditional marketing strategies such as television
advertising and mass delivered consumer promotions. However, some traditional
marketing expenses have been and will continue to be incurred on a limited basis
when appropriate. Although the Company is starting to realize sales to
supermarkets, there can be no assurance that the Company will be successful with
its marketing strategy.
The Company incurred during 1995, and expects to continue to incur during
1996, expenditures to support the expansion of its wholesale distribution
business. At a minimum, the Company will need to purchase additional inventory
and incur additional marketing expenses. The Company will also incur
expenditures relating to public relations, product development, retail
promotions, and package design. If the planned expansion is successful, the
Company will have to increase its inventory and carry a higher level of
receivables, both of which will impact the Company's liquidity. During the first
quarter of 1996, the Company's operations and debt repayment utilized $583,533
of the Company's available cash balances. The Company used $235,635 to fund an
increase in accounts receivable, which increased 36% to $885,287 from $649,652
at December 31, 1995. The Company also used $120,332 to increase its
inventories. These expenses result from the Company's sales increasing 30% to
$1,318,604 in the first quarter of 1996 from $1,014,437 in the fourth quarter of
1995. In addition, on February 29, 1996, the Company repaid $180,000 of its
outstanding 10% Subordinated Convertible Debentures. On February 28, 1997, an
additional $100,000 of its outstanding 12% Subordinated Convertible Debentures
will come due.
The Company has three customers whose purchases of the Company's products
accounted for more than 10% each of the Company's total sales in the first
quarter of 1996, collectively accounting for 51% of the Company's sales. The
loss of any one of these customers, a decision by one of them to significantly
reduce its purchases, or any disruption to the relationship the Company
maintains with them, would affect the Company's liquidity.
As the Company continues its expansion into targeted supermarkets in the
Northeast and other targeted markets, it plans to carefully monitor its
expenses, and will focus on reducing them when possible. During the quarter
ended March 31, 1996, the Company reduced its loss from continuing operations by
$49,953, or 40%, from $125,556 in 1995 to $75,603 in 1996. A factor in the
Company's improved performance during this period was the $12,500 of licensing
income realized during the period. In the prior three quarters, the second,
third and fourth quarters of 1995, the Company realized a total of $187,500 of
licensing income. Because this licensing income will not be realized after the
first quarter of 1996, and may not be realized again until May 23, 1997, the
Company's operating results will be affected during the balance of 1996.
While the Company had not reached revenue levels during 1995 which allowed
it to be profitable on continuing operations, management believes that it has
taken the steps necessary to control losses while building the business. The
Company has experienced liquidity problems from time to time, which has resulted
in insufficient resources to pay its creditors within terms. The sale of the
catalog assets to Gaiam, and Gaiam's assumption of certain liabilities, has
significantly improved the Company's liquidity. The Company is current in all of
its obligations. The Company's working capital as of March 31, 1996 was
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$1,767,550, and the current ratio (current assets/current liabilities) was 3.9
to 1. The Company believes that the cash infusion from the Catalog sale,
together with significantly lower operating losses, will allow the Company
sufficient liquidity to pay its obligations on a timely basis.
The Company has faced a number of significant challenges prior to 1995. The
sale of the Catalog assets to Gaiam, however, has allowed the Company to
eliminate the losses from its catalog business and put the Company in a
significantly improved liquidity position. Management believes the Company has
positioned itself to control its losses and continue the expansion of its
revenue base in order to achieve profitability, while pursuing its mission of
making Seventh Generation the leading brand of environmentally friendly
household products.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In conjunction with the sale of catalog assets to Gaiam, the investment
banking firm of Ulin & Holland alleges that the Company owes it a fee of
$98,500. The Company denies any liability and filed suit in the United States
District Court for the District of Vermont on October 23, 1995 seeking a
declaratory judgment that it has no such liability. Ulin & Holland has answered
the Complaint and filed a Counterclaim against the Company alleging breach of
contract, fraudulent misrepresentation, and violation of the Massachusetts Fair
Business Practices Act. The Company has moved to dismiss the latter two
counterclaims for failure to state a claim upon which relief may be granted.
Ulin & Holland seeks $98,500 on its breach of contract claim. Its fraudulent
misrepresentation and Fair Business Practices Act claims seek, in addition to
the contract damages, punitive damages (or triple damages) and attorneys' fees.
While management believes it has meritorious defenses against the suit, the
ultimate resolution remains an uncertainty. In the event of a loss, such loss
could have a material effect on the financial position of the Company and the
results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
12
<PAGE>
EXHIBITS:
Exhibit # Description
(10.1) Incentive Plan*
(10.2) Reimbursement Agreement
(11) Statement re: Computation of Per Share Loss
(*) Management Compensation Plan
(b) Reports on Form 8-K:
No reports on Form 8K were filed during the quarter ended March 31, 1996.
13
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SEVENTH GENERATION, INC.
Date: May 13, 1996 By: /S/Jeffrey A. Hollender
Jeffrey A. Hollender
President and Chief Executive Officer
(Principal Executive & Financial Officer)
14
<PAGE>
EXHIBIT INDEX:
Exhibit # Description Page
(10.1) Incentive Plan 17
(10.2) Reimbursement Agreement 23
(11) Statement Re: Computation of per share loss 31
15
<PAGE>
EXHIBIT 10.1
16
<PAGE>
SEVENTH GENERATION, INC.
INCENTIVE PLAN
SEVENTH GENERATION, INC., a Vermont corporation with a place of business in
Burlington, Vermont, does hereby establish this Incentive Plan (the "Plan").
Section 1. PURPOSE. The purpose of the Plan is to benefit the Company by
enabling it to attract and retain highly qualified and motivated key executive
employees and Board members and to aid the Company in retaining its present
management and Board, while offering such employees a chance to share in the
growth of the Company.
Section 2. ADMINISTRATION AND INTERPRETATION OF THE PLAN. The Plan shall be
administered by the Compensation Committee of the Board of Directors of the
Company (the "Committee"), as such Committee shall be composed from time to
time. The Committee shall have exclusive authority to select persons for
participation in the Plan and to make all determinations required under this
Plan. In furtherance thereof, the Committee shall have full power and authority
to interpret, construe and administer this Plan, and the Committee's
interpretations and construction thereof, and actions thereunder, including any
valuation of an Incentive Account (as defined in Section 4 below), or the amount
or recipient of the payment to be made therefrom, shall be binding and
conclusive on all persons for all purposes. No member of the Committee shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Plan unless attributable to that
member's own willful misconduct or lack of good faith.
Section 3. PARTICIPATION. The Committee from time to time shall select
participants from key executive employees and Directors of the Company and award
Incentive Units (as defined in Section 4 below) to such employees in accordance
with this Plan.
Section 4. AWARD OF INCENTIVE UNITS.
(a) The Committee shall establish one or more bookkeeping accounts
(the "Incentive Account") for each individual whom it
designates to be a Participant in the Plan (the
"Participant"). The Company shall credit to each Participant's
Incentive Account the number of Incentive Units awarded to the
Participant by the Committee and shall adjust such Incentive
Account pursuant to provisions of this Plan.
(b) Each Incentive Unit shall be deemed to be equal to the value
of one share of common stock of the Company, with such
valuation to be determined in accordance with Section 6(f) of
the Plan as of the date such Unit is credited to the
Participant's Incentive Account. The maximum number of
Incentive Units that may be awarded under the Plan shall not
exceed an aggregate of 300,000. Units that are distributed and
subsequently canceled for any reason may be added back to
this aggregate number.
Section 5. VESTING OF INCENTIVE UNITS.
(a) Except as otherwise provided herein, an award of Incentive
Units shall become 100% vested three (3) years from the date
of the grant, with no vesting occurring prior to the third
anniversary of the grant.
17
<PAGE>
(b) If a Participant's employment with the Company terminates
because of his/her death or disability, he/she shall be
partially vested in all Incentive Units previously awarded to
him/her as set forth in Section 6(c). If a Participant's
employment terminates for any other reason (except for
"Cause," as defined below), the award of Incentive Units to
him/her shall be subject to the vesting schedule set forth in
Section 5(a), and any unvested Incentive Units shall be
canceled.
(c) A Participant's interest in his Incentive Account shall also
be 100% vested in the event of a sale of all or substantially
all of the assets of the Company or a change in control of the
Company. A "change in control" means the acquisition by any
person, firm, corporation or other legal entity, or two or
more persons acting in concert (with the meaning of Rule 13d-3
of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 50% or more of the outstanding shares
of voting stock of the Company, whether by merger,
consolidation or otherwise.
(d) If a Participant is terminated for "Cause," he/she shall
forfeit all of his/her outstanding Incentive Units, regardless
of whether he/she is then vested in any or all of such
Incentive Units. For purposes of this Section 5(d), Cause
shall mean dishonesty with respect to the Company,
insubordination, substantial malfeasance or nonfeasance of
duty, unauthorized disclosure of confidential information, and
conduct substantially prejudicial to the business of the
Company or any affiliate of the Company. The determination of
the Committee as to the existence of Cause will be conclusive
on the Participant and the Company.
(e) Any Incentive Unit forfeited hereunder may be reallocated to
other Participants in accordance with this Plan.
Section 6. DETERMINATION AND DISTRIBUTION OF INCENTIVE AWARDS.
(a) Upon a Determination Date (as defined in Section 6(e) below)
the Committee shall determine the value of the Participant's
vested Incentive Units in his/her Incentive Account and shall
subtract from such amount the value of his/her vested
Incentive Units determined as of the date such Units were
awarded to the Participant. A Participant's non-vested
Incentive Units shall be ignored until they become vested. The
value arrived at shall be the Participant's Incentive Award;
however, in the event that the amount arrived at is a negative
number, no Incentive Award shall be made.
(b) Subject to the exception in the immediately following
sentence, a Participant's Incentive Award shall be paid to
him/her in three equal annual installments, commencing as
promptly as reasonably possible after the Determination Date,
subject to the Participant's compliance with any agreements
entered into with the Company pursuant to Section 7. In no
event will payments of an Incentive Award commence prior to
January 1, 1999, except for events as set forth in 5(c).
(c) Notwithstanding the provisions of Section 6(b), if a
Participant's service as an employee is terminated by reason
of his/her death or if the Participant dies before he/she has
received all of his/her Incentive Award, then the Company
shall distribute or shall cause to be distributed a portion of
the balance based upon a percentage of vesting period elapsed
before death. That portion of the Participant's Incentive
Award to the Participant's beneficiary designated pursuant to
Section 9 shall be paid in three annual installments,
beginning on the later of January 1, 1999 or sixty (60) days
from the date of death.
18
<PAGE>
(d) Payment of a Participant's Incentive Award may be in whole or
in part cash, promissory notes or common stock of the Company,
as determined by the Committee in its sole discretion. In the
event that the Company issues common stock, transferability of
shares of the common stock will be subject to restrictions
imposed by federal and state securities laws. All payments
shall be subject to and conditioned on payment by Participant
of all tax and other withholdings required by law.
(e) A Determination Date means the earliest date on which any of
the following occurs:
(i) Vesting date of the Incentive Units;
(ii) The Participant terminates his/her employment for any
reason;
(iii) The Participant's death; or (iv) An event described in
Section 5(c).
(f) For purposes of the Plan, the value of a share of common stock
means:
(i) If such shares are then listed on any national
securities exchange or traded in the over-the-counter
market and sales prices are regularly reported for
the shares, either (a) the average of the closing or
last prices of the shares on the Composite Tape or
other comparable reporting system for the ten (10)
consecutive trading days immediately preceding the
applicable date, or (b) the closing or last price of
the shares on the Composite Tape or other comparable
reporting system for the trading day immediately
preceding the date of grant, as the Committee shall
determine.
(ii) If the shares are not then traded on a national
securities exchange, but are traded on the over-the-
counter market, if sales prices are not regularly
reported for the common stock for the trading day or
days referred to in subparagraph (i) above, and if
the bid and asked prices for the shares are regularly
reported, either (a) the average of the mean between
the bid and asked price for the common stock at the
close of trading in the over-the-counter market for
the ten (10) trading days on which common stock was
traded immediately preceding the applicable date, or
(b) the mean between the bid and asked price for the
common stock at the close of trading in the over-the
-counter market for the trading day immediately
preceding the applicable date, as the Committee shall
determine.
(iii) If the market value cannot be determined under the
preceding two paragraphs, such value as the Committee
shall determine.
Section 7. COVENANT NOT TO COMPETE OR SOLICIT OR DISCLOSE CONFIDENCES.
As a precondition to an employee participating in the
Plan and receiving any payment of his/her Incentive Award,
the employee shall enter into a covenant not to compete with
the Company or to solicit its customers or employees or to
use any confidential or proprietary information of the
Company in accordance with the letter agreement to be agreed
upon by the employee and the Company, unless the employee is
already subject to a similar agreement, as determined by the
Compensation Committee of the Board. Such a covenant shall
be enforced for as long as the employee participates in the
Plan and for two years thereafter, and his/her adhering to
such covenant shall be a pre-condition to his/her receiving
any benefits under Section 6 hereof, and the employee shall
be obligated to repay any amount distributed if such employee
breaches the confidentiality and non-compete agreement during
its term.
19
<PAGE>
Section 8. NATURE OF INCENTIVE ACCOUNTS.
(a) All amounts credited to Incentive Accounts shall remain the
sole property of the Company and shall be usable by it as a
part of its general funds for any legal purpose whatever; the
Incentive Accounts shall exist only for the purpose of
facilitating the computation of benefits hereunder; nothing
contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create
a trust or escrow of any kind, or a fiduciary relationship
between the Company and the Participant, the designated
beneficiary or any other person; and to the extent that any
person acquires a right to receive payments from the Company
under this Plan, such right shall be no greater than the right
of any unsecured general creditor of the Company.
(b) It is the intention of all parties that this Plan be unfunded
for purposes of the Internal Revenue Code of 1986, as amended,
and Title I of the Employee Retirement Income Security Act of
1974, as amended.
(c) No Participant shall be entitled to any voting rights or to
receive any dividends with respect to any Incentive Units.
Section 9. BENEFICIARY DESIGNATION.
A Participant may designate a beneficiary to receive, in
the event of Participant's death, all amounts which are then
and thereafter payable under the Plan. Beneficiaries shall
receive such amounts in accordance with the provisions of
this Plan. Such designation and any subsequent changes
thereto shall be made in writing and filed with the Committee.
In the event of the Participant's death prior to receipt of
the total Incentive Account and without so designating a
beneficiary, the balance of said Incentive Account shall be
paid to Participant's spouse, if then living; otherwise, to
Participant's estate.
Section 10. NOT A CONTRACT OF EMPLOYMENT.
Inclusion in the Plan shall not be construed as a contract of
employment or as giving a Participant any right to be retained
in the service of the Company without the Company's consent,
nor shall it interfere with the right of the Company to
discharge or discipline a Participant, nor shall it give the
Participant any right, claim, or interest in any benefits
described herein, except upon fulfillment of the provisions and
requirements of the Plan.
Section 11. NONTRANSFERABILITY.
No right to payment under this Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance
or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge the same shall be void. No
right to payment shall, in any manner, be liable for or
subject to the debts, contracts, liabilities or torts of the
person entitled thereto. If, at the time when payments are to
be made hereunder, Participant or the beneficiary are indebted
to the Company, then any payments remaining to be made
hereunder may, at the discretion of the Company, be reduced by
the amount of such indebtedness. An election by the Company
not to reduce such payments shall not constitute a waiver of
its claim for such indebtedness.
Section 12. ADJUSTMENTS FOR STOCK SPLITS, RECAPITALIZATION, ETC.
In the event of any change in the outstanding shares of common
stock of the Company by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off,
reorganization or similar corporate change, then the Committee
may determine in its sole discretion to adjust the
Participant's Incentive Accounts to take into account such
changes, and such adjustments shall be made by the Committee
and be binding and conclusive on all parties.
Section 13. NO TRUST.
Nothing contained in this Plan and no action taken pursuant to
the provisions of this Plan shall create or be construed to
create a trust of any kind, or a fiduciary relationship between
the Company and the employee, his/her designated beneficiary,
or any other person. To the extent that any person acquires a
20
<PAGE>
right to receive payments from the Company under this Plan,
such right shall be no greater than the right of any unsecured
general creditor to the Company.
Section 14. SEVERABILITY.
If any provision of this Plan shall be declared void or
unenforceable by any judicial or administrative authority,
such provision shall be deemed stricken from this Plan and the
validity of any other provision and of the entire Plan shall
not be affected thereby.
Section 15. SUCCESSORS AND ASSIGNS.
This Plan shall be binding upon and inure to the benefit of
the Company, its successor and assigns, and the Participant and
the Participant's heirs, executors, administrators and legal
representatives.
Section 16. AMENDMENT AND TERMINATION.
The Company may, in its sole discretion, at any time, amend or
terminate this Plan with respect to any future period;
provided, however, that no such amendment or termination shall
reduce the Participant's benefits which had accrued prior to
such amendment or termination, and no such amendment shall have
the effect of reducing the amounts otherwise payable in
accordance with this Plan.
21
<PAGE>
EXHIBIT 10.2
22
<PAGE>
REIMBURSEMENT AGREEMENT
This Reimbursement Agreement (hereinafter "Agreement") is made this 11th
day of April, 1996, by and between SEVENTH GENERATION, INC., a Vermont
corporation (hereinafter "Seventh Generation"), and GAIAM, INC., a
Colorado corporation (hereinafter "Gaiam").
1. Services to be Provided by Seventh Generation.
General Services.
During the term of this Agreement, Seventh Generation agrees to provide
Gaiam at Gaiam's reasonable request and direction, with assistance in
the management and operations of the day-to-day affairs of the Catalog.
Seventh Generation shall make available to Gaiam the employees listed
on Schedule 1.1 to perform the foregoing services. Jeffrey Hollender
and Anita Lavoie shall remain employees of Seventh Generation
throughout the term of the Agreement.
Seventh Generation is providing only consultation and advice, and is
not responsible for the directions, policies, or success of the
Catalog, or any other aspect of Gaiam's business.
2. Payments to be Made by Gaiam.
Gaiam will pay Seventh Generation for the services provided pursuant to
Schedule 1.1. Gaiam shall also compensate Seventh Generation for an
amount equal to all budgeted out-of-pocket expenses incurred by Mr.
Hollender in the course of performing services, including travel and
entertainment expenses. All payments shall be paid at the same time
as such payments are made by Seventh Generation, either to a third
party or directly to Seventh Generation.
23
<PAGE>
3. Use and Payment for Certain Equipment by Seventh Generation.
During the term of this Agreement, Gaiam agrees to make available to
Seventh Generation the following equipment: the phone system, the
facsimile machine, the copy machine, and the postage meter, for a
monthly fee of $400. Such amounts shall cover the use of equipment
only; both parties shall pay their own direct costs, such as postage,
long distance telephone, and similar charges.
4. Term and Termination.
This Agreement shall commence on January 1, 1996, and shall continue
until December 31, 1996. However, either party may terminate this
Agreement during the continuance of a material breach by the other
party under this Agreement, which breach has not been cured within ten
(10) business days of notice from the other party. Termination of this
Agreement shall not relieve either party for liabilities accrued prior
to such termination, or as a result of such termination. However,
after December 31, 1996, this Agreement shall remain in effect from
month to month until one party shall notify the other party in writing
of its intention to terminate, giving the other party at least 90 days
notice.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal
as of the date first set forth above.
SEVENTH GENERATION, INC.
By: /s/ Jeffrey Hollender
GAIAM, INC.
By: /s/ Lynn Powers
24
<PAGE>
SCHEDULES
Schedule 1.1 Individuals Providing Services/Salaries/
% to be Paid by Gaiam
Schedule 1.2 Bonus for Jeffrey Hollender
25
<PAGE>
SCHEDULE 1.1
EMPLOYEE POSITION MONTHLY FEE (1) PERCENTAGE (2)
- - - -------- -------- ----------- ----------
OF TOTAL
--------
Jeffrey Hollender Chief Executive Officer $6,525.00 (3) 50%
Anita Lavoie Executive Assistant $1,501.50 (4) 50%
---------
TOTAL MONTHLY FEE FOR STAFF SERVICES,
TAXES & BENEFITS: $8,026.50
=========
(1) This amount includes taxes and benefits based on actual costs in 1995.
(2) Percentage of total time these individuals will on average perform
work for Gaiam.
(3) This does not include bonus amount.
(4) Based on 40 Hours a week plus 10% benefits.
26
<PAGE>
SCHEDULE 1.2
MEMO
TO: Lynn Powers
FROM: Jeffrey Hollender
DATE: April 15, 1996
RE: Objectives for 1996 Incentive (Revised)
- - - -------------------------------------------------------------------------------
The following Memo describes the key objectives that I propose I will
need to accomplish to earn a quarterly bonus.
1. Circulation
Develop a circulation plan to significantly increase sales and circulation
for Fall/Holiday 1996. This plan should analyze the profit and loss
implications, both short and long term, for various rates of growth; house
file growth implications; as well as the risk levels associated with the
different options.
2. Merchandising
Lead the merchandising process necessary to add 8 pages to Holiday '96,
bringing the catalog to 64. Develop new merchandise categories and
expand current categories as is appropriate to accomplish the above goals.
Continue development of the Department.
29
<PAGE>
3. In Stock Targets
Ensure that on all new items for the Catalog purchase orders are placed
early enough to insure arrival prior to customer orders being received and
that on new items the initial order results in a target in-stock rate of
95% of all dollars ordered based on a weekly analysis and in no event
results in an in-stock rate less than 90%. Additionally, initial orders
must be of sufficient quantity to allow purchasing to re-order as soon as
a sales pattern is clear without creating additional back orders.
4. Catalog Production and Design
Continue to oversee catalog production and lead the process of evolving
the catalog design to continually increase sales, broaden the potential
market of customers, and ensure the Catalog continues to excite and
please our current customers.
5. New Customer Acquisition
Develop, execute and evaluate, when and if approved, new test marketing
programs to determine the potential for cost effectively acquiring new
customers through other means than catalog circulation.
6. General Marketing Development
Continue to develop the marketing programs initiated in 1995, including:
zip code modeling, testing of customer databases, development of
marketing and merchandising database, and development of new sales
programs such as the Automatic Delivery Service.
7. Budgeting & Sales Forecasting
Forecast sales and assist in the preparation of budgets and revised
forecasts as necessary for the 1996-97 period.
8. General Management & Leadership
Continue to provide the Catalog's Marketing and Merchandising staff with
the management, leadership and direction necessary to accomplish
objectives, meet and exceed budgetary goals, and motivate and continue
the development of individual staff members.
28
<PAGE>
Bonus Structure
The bonus period will run from February 1 to December 31, 1996.
The bonus will be paid in four equal amounts for progress made and the
accomplishments of the above objectives.
Bonus payments will be made on: April 30, of $5,000
July 31, of $5,000
Oct. 31, of $5,000
Dec. 31, of $5,000
for a total of $20,000. This is to be paid in addition to 50% of the base
salary of $135,000, together with benefits and expenses as defined in the
revised Reimbursement Agreement.
JH
JH/abl
29
<PAGE>
EXHIBIT 11
30
<PAGE>
EXHIBIT 11
SEVENTH GENERATION, INC.
Calculation of Shares Used In Determining
Net Loss Per Common Share
Three Months Ended March 31,
1996 1995
Weighted Average Shares Outstanding
During the Period 2,428,791 2,428,791
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
See accompanying notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1025943
<SECURITIES> 0
<RECEIVABLES> 812935
<ALLOWANCES> 0
<INVENTORY> 304309
<CURRENT-ASSETS> 2369117
<PP&E> 68431
<DEPRECIATION> 45347
<TOTAL-ASSETS> 2406166
<CURRENT-LIABILITIES> 601567
<BONDS> 0
0
0
<COMMON> 809
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2406166
<SALES> 1318604
<TOTAL-REVENUES> 0
<CGS> 891937
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 509461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23669
<INCOME-PRETAX> (75603)
<INCOME-TAX> (75603)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75603)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
