<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998 Commission File Number 0-24418
SYSTEMSOFT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 04-3121799
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE INNOVATION DRIVE
NATICK, MASSACHUSETTTS 01760
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
508-651-0088
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
---
Registrant had 26,870,348 shares of Common Stock, $.01 par value, outstanding at
June 9, 1998.
<PAGE> 2
SYSTEMSOFT CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheets as of April 30, 1998
(Unaudited) and January 31, 1998 3
b) Consolidated Statements of Operations for the
three months ended April 30, 1998 and 1997
(Unaudited) 4
c) Consolidated Statements of Cash Flows for the
three months ended April 30, 1998 and 1997
(Unaudited) 5
d) Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
SYSTEMSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1998
------------ -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $7,511,528 $10,763,795
Accounts receivable, less allowance for doubtful accounts
of $1,765,831 as of April 30, 1998 and $1,566,705 as of
January 31, 1998, respectively 4,707,549 6,328,056
Prepaid royalties 2,532,105 2,553,704
Prepaid expenses and other current assets 1,786,106 2,727,184
----------- -----------
Total current assets 16,537,288 22,372,739
Property and equipment, net 6,904,281 6,807,337
Purchased software and software development costs, net 3,134,465 3,559,399
Prepaid royalties, long-term portion 596,957 819,450
----------- -----------
Total assets $27,172,991 $33,558,925
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $735,904 $1,086,991
Accrued expenses 1,252,281 1,965,995
Income taxes payable 43,346 118,875
Accrued compensation and benefits 1,873,723 2,037,380
Accrued royalties 2,645,878 2,296,500
Deferred revenue 1,353,225 628,613
----------- -----------
Total current liabilities 7,904,357 8,134,354
Other long-term liabilities 1,056,592 1,480,143
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued and outstanding
Common stock, $.01 par value; 90,000,000 authorized;
26,857,237 and 26,807,443 shares issued 268,584 268,074
Additional paid-in capital 83,422,564 83,328,220
Accumulated other comprehensive income (671,518) (744,100)
Less treasury stock, at cost, 159,246 shares (427,187) (427,187)
Accumulated deficit (64,380,401) (58,480,579)
----------- -----------
Total stockholders' equity 18,212,042 23,944,428
----------- -----------
Total liabilities and stockholders' equity $27,172,991 $33,558,925
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE> 4
SYSTEMSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Software license fees $ 3,404,886 $10,855,643
Engineering services 607,568 1,621,331
----------- -----------
Total revenues 4,012,454 12,476,974
----------- -----------
Cost of revenues:
Software license fees 1,365,208 971,496
Engineering services 580,693 1,460,444
----------- -----------
Total cost of revenues 1,945,901 2,431,940
----------- -----------
Gross profit 2,066,553 10,045,034
Operating expenses:
Research and development 3,530,282 3,134,740
Sales and marketing 2,950,117 2,906,497
General and administrative 1,446,114 986,370
----------- -----------
Total operating expenses 7,926,513 7,027,607
----------- -----------
(Loss) income from operations (5,859,960) 3,017,427
Interest income 50,113 52,583
Interest expense (82,988) (23,924)
Foreign exchange loss (6,987) (31,994)
----------- -----------
(Loss) income before provision for income taxes (5,899,822) 3,014,092
Provision for income taxes - 994,717
----------- -----------
Net (loss) income ($5,899,822) $2,019,375
=========== ===========
Per share net (loss) income
Basic ($0.22) $0.08
Diluted ($0.22) $0.08
Weighted average shares outstanding
Basic 26,678,908 25,023,611
Diluted 26,678,908 26,856,019
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE> 5
SYSTEMSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30,
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
----------- -----------
<S> <C> <C>
Net (loss) income ($5,899,822) $2,019,375
Adjustments to reconcile net (loss) income to cash used in
operating activities:
Depreciation and amortization 1,342,610 1,120,845
Provision for doubtful accounts 100,000 75,000
Other (173,296) -
Changes in operating assets and liabilities:
Accounts receivable 1,520,507 (4,064,681)
Prepaid expenses and other current assets 934,996 (221,885)
Prepaid royalties 244,092 (5,447,560)
Accounts payable (351,087) (331,074)
Accrued expenses (815,138) (788,594)
Other long term liabilities (423,551) -
Income taxes payable (85,582) 695,090
Accrued compensation and benefits (165,713) 451,755
Accrued royalties 349,378 3,878,913
Deferred revenue 724,612 -
----------- -----------
Net cash used in operating activities (2,697,994) (2,612,816)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (516,116) (517,743)
Proceeds from sale of property and equipment 60,192 -
Software development costs - -
Purchased software and software development costs (241,972) (1,147,238)
----------- -----------
Net cash used in investing activities (697,896) (1,664,981)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 44,474 400,711
----------- -----------
Net cash provided by financing activities 44,474 400,711
----------- -----------
Effects of exchange rate changes on cash and cash equivalents 99,149 -
Net decrease in cash and cash equivalents (3,252,267) (3,877,086)
Cash and cash equivalents at beginning of period 10,763,795 11,807,691
Cash and cash equivalents at end of period $ 7,511,528 $ 7,930,605
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
5
<PAGE> 6
SYSTEMSOFT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of SystemSoft Corporation and its wholly owned subsidiaries (the
"Company"), and have been prepared by the Company in accordance with generally
accepted accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998.
Certain reclassifications have been made to the prior year's financial
statements to conform with the fiscal 1999 presentation.
The results of operations for the three month period ended April 30, 1998 are
not necessarily indicative of the results that may be expected for the full year
or for any future period.
2. EARNINGS PER SHARE
The Company computes basic and diluted earnings per share in accordance with
SFAS 128, "Earnings per Share", which the Company adopted as of January 31,
1998. Accordingly, all prior period EPS data presented has been restated to
conform to the provisions of SFAS 128. Basic earnings per share is based upon
the weighted average number of common shares outstanding during the period.
Common equivalent shares result from the assumed exercise of stock options and
warrants, the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method.
Options to purchase 5,636,027 shares of common stock and warrants to purchase
750,000 shares of common stock outstanding during the quarter ended April 30,
1998 were excluded from the calculation of diluted net loss per share as the
effect of their inclusion would have been anti-dilutive.
The following is a reconciliation of the numerator and denominator of the basic
and diluted per-share computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
BASIC EPS
- ---------
Numerator:
Net (loss) income $(5,899,822) $ 2,019,375
Denominator:
Common shares outstanding 26,678,908 25,023,611
Basic EPS (.22) .08
=========== ===========
DILUTED EPS
- -----------
Numerator:
Net (loss) income (5,899,822) 2,019,375
Denominator:
Common shares outstanding 26,678,908 25,023,611
Common stock equivalents - 1,832,408
----------- -----------
26,678,908 26,856,019
Diluted EPS $ (.22) $ .08
=========== ===========
</TABLE>
6
<PAGE> 7
3. COMPREHENSIVE INCOME
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are recognized. The
components of comprehensive income for the Company include net income and
foreign currency translation adjustments. The financial statements of prior
periods have been reclassified for comparative purposes.
Comprehensive income for the three months ended April 30, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30
---------------------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Net (loss) income ($5,899,822) $2,019,375
Foreign currency translation 72,582 -
----------- ----------
Total comprehensive (loss) income ($5,827,240) $2,019,375
=========== ==========
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued which
provides guidance on applying generally accepted accounting principles in
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998, and will result in the capitalization of certain
qualifying costs incurred in the development of software for internal use. The
Company will adopt the guidelines of SOP 98-1 as of January 31, 1999 and its
adoption is not expected to have a material impact on the Company's financial
position and results of operations.
5. LITIGATION
On March 3, 1998, a purported securities class action lawsuit was filed in the
United States District Court for the District of Massachusetts against the
Company and others, including certain officers and directors of the Company. The
lawsuit alleges, among other things, that the Company, during a purported class
period of January 25, 1996 through March 3, 1997, made misrepresentations and
omissions to the investing public regarding its revenue, product development and
business prospects in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. Several additional complaints were filed against the
Company and others in subsequent weeks in the same federal court alleging
similar claims. Seven of the complaints allege a longer class period ending
February 5, 1998. On May 8, 1998, the court consolidated each of these separate
actions. The plaintiffs in these consolidated actions seek unspecified damages
against the Company and other defendants. The Company believes that the
allegations of the several complaints are without merit and it intends to defend
these consolidated actions vigorously.
7
<PAGE> 8
SYSTEMSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended April 30, 1998 and 1997.
The Company designs, develops, markets, licenses and supports to the personal
computer industry call-avoidance software and system-level software designed to
be the communication path between the personal computer hardware and its
operating system software. The principal markets for the Company's products are
U.S. and Asia Pacific based manufacturers of personal computers and related
devices.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues (except cost of revenues items, which are
set forth as a percentage of the corresponding revenue items):
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Software license fees 84.9% 87.1%
Engineering services 15.1 12.9
--------------------------
Total revenues 100.0 100.0
--------------------------
Cost of revenues:
Software license fees 40.1 9.0
Engineering services 95.6 90.1
--------------------------
Total cost of revenues 48.5 19.5
--------------------------
Gross margin 51.5 80.5
Operating expenses:
Research and development 88.0 25.1
Sales and marketing 73.5 23.3
General and administrative 36.0 7.9
--------------------------
Total operating expenses 197.5 56.3
--------------------------
(Loss) income from operations (146.0) 24.2
Other expense (1.0) 0.0
--------------------------
(Loss) income before provision for (147.0) 24.2
income taxes
Provision for income taxes 0.0 8.0
--------------------------
Net (loss) income (147.0)% 16.2%
==========================
</TABLE>
8
<PAGE> 9
Comparison of Three Months Ended April 30, 1998 and 1997
Revenues. Revenues were $4,012,000 and $12,477,000 in the three months ended
April 30, 1998 and 1997, respectively, a decrease of approximately 68%. Software
license fees decreased to $3,405,000 from $10,856,000, or approximately 69%.
This decrease was primarily due to a softening market for PC CARD technologies,
reduced licensing fees from the VoiceView product line, including source code
fees, the impact of recent Asian economic uncertainty, and the Company's
rebuilding of its sales force.
Engineering services revenue decreased approximately 63% to $607,000 from
$1,621,000. This decrease was due to a drop in engineering services for PC Card
and Platform products and the expiration of the Development and License
Agreement, as amended, with Intel Corporation (The "Intel Agreement"). There
were no revenues under the Intel Agreement in the three months ended April 30,
1998 versus revenues of $375,000 in the three months ended April 30, 1997.
Cost of Revenues. Cost of revenues was $1,946,000 and $2,432,000 in the three
months ended April 30, 1998 and 1997, respectively. Cost of revenues consists
primarily of amortization of software development costs and purchased software,
royalties and engineering costs associated with engineering services revenues.
Cost of revenues as a percentage of revenues increased by 30% to 49% from 19% in
the three months ended April 30, 1998 and 1997, respectively. Cost of software
license fees as a percentage of software license fees revenues increased to 40%
from 9% in the three months ended April 30, 1998 and 1997, respectively,
primarily due to: (i) increased cost of sales associated with increased sales of
Inside Line Product; (ii) increased amortization of purchased software and
software development costs; (iii) the fixed nature of certain costs; and (iv)
the substantial relative decrease in revenues. Cost of engineering services
decreased 60% on an absolute basis primarily due to related a decrease in
engineering service revenues.
Research and Development. Research and development expenses, consisting
primarily of payroll and related expenses, were $3,530,000 and $3,135,000 in the
three months ended April 30, 1998 and 1997, respectively, an increase of
approximately 13%. The increase in research and development was due primarily to
staff additions and the impact of the Company's discontinuing the capitalization
of software costs in the fourth quarter of fiscal 1998. Software costs of
approximately $180,000 were capitalized in the quarter ended April 30, 1997.
Research and development expenses as a percentage of revenue increased to 88%
from 25% due to the substantial relative decrease in revenues. Also, included in
Research and Development costs for the three months ended April 30, 1997 are
costs associated with work performed under the Intel Agreement.
Sales and Marketing. Sales and marketing expenses, consisting primarily of
payroll and related expenses, costs of marketing programs and events, sales
commissions to internal sales personnel and travel costs, were $2,950,000 and
$2,907,000 in the three months ended April 30, 1998 and 1997, respectively.
Total sales and marketing expense was largely unchanged due to realized savings
from headcount reductions, offset by increased costs of marketing programs and
events and additional travel costs. Sales and marketing expenses as a percentage
of revenues increased to 74% from 23% due to the substantial relative decrease
in revenues.
General and Administrative. General and administrative expenses, consisting
primarily of payroll and related expenses, provision for doubtful accounts and
professional fees, were $1,446,000 and $986,000 in the three months ended April
30, 1998 and 1997, respectively, an increase of approximately 47%. The increase
was largely due to additions to executive staff and an increase in legal and
professional fees. General and administrative expenses as a percentage of
revenues increased to 36% from 8% due to the factors mentioned above and the
substantial relative decrease in revenues.
Provision for Income Taxes. Provision for income taxes was $0 and $995,000 in
the three months ended April 30, 1998 and 1997, respectively. Additionally,
losses in the three months ended April 30, 1998 were not benefited. The decrease
in the provision for income taxes is due to the pre-tax loss of $5,899,000 in
the three months ended April 30, 1998 versus pre-tax profit of $3,014,000 in the
three months ended April 30, 1997.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1998, the Company had cash and cash equivalents of $7,512,000
and working capital of $8,633,000. During the three months ended April 30, 1998
the Company's operating activities used $2,698,000 of cash. The Company's
investing activities used cash of $698,000 in the three months ended April 30,
1998. The principal investing activities of cash were the purchase of property
and equipment of $516,000 and purchased software costs of $242,000. During the
three months ended April 30, 1998, the Company's financing activities provided
cash of $44,000 due to the exercise of stock options.
The Company believes that its current cash balances, combined with cash flows
from operations and availability under its revolving line of credit, will be
sufficient to meet its working capital requirements through at least the next
nine months. This operating cash flow expectation assumes a return to
profitability by the Company during the second half of fiscal 1999. Without a
return to profitability in fiscal 1999, the Company may be required to seek
additional financing or reduce current operating costs in order to meet its
current cash requirements over the next nine months. However, there can be no
assurance that the Company would be successful in procuring such financing, or
that it could do so on terms favorable to the Company. As part of its efforts to
reduce its operating costs, in May 1998, the Company reduced its total headcount
from 239 full time employees as of February 1, 1998 to 185 full time positions.
Severance and related costs of the headcount reduction were approximately
$390,000. As a result of the reduction in headcount, the Company will realize
quarterly salary and benefit savings of approximately $545,000. To date,
inflation has not had a material impact on the Company's financial results.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information provided by the Company or statements made by its employees may
contain "forward-looking" information which involves risk and uncertainties. In
particular, statements contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts
(including, but not limited to, statements concerning sufficiency of funds for
the Company's working capital) are "forward-looking statements." The Company's
actual future results may differ significantly from those stated in any
forward-looking statements. Factors that may cause such differences include, but
are not limited to, the factors discussed below as well as the accuracy of the
Company's internal estimates of revenue and operating expense levels. Each of
these factors, and others, are discussed from time to time in the Company's
Securities and Exchange Commission filings.
The Company's future results are subject to substantial risks and uncertainties.
Revenue growth rates experienced by the Company to date may not be indicative of
future growth rates and there can be no assurance that the Company will remain
profitable in the future. The market for the Company's system-level and
call-avoidance software is characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. The
Company's future success will depend upon its ability to enhance its current
software and to develop and introduce new software which keeps pace with
technological developments and evolving industry standards as well as to respond
to changes in customer requirements. The Company may confront new competitors as
it introduces new products and expands into new markets. Certain current and
potential competitors of the Company are more established, benefit from greater
market recognition and have substantially greater financial, development and
marketing resources than the Company. Competitive pressures or other factors,
including entry into new markets or regional economic conditions, may result in
unit royalty erosion that could have a material adverse effect on the Company's
results of operations. The Company believes that its success to date has been
largely dependent on the adoption of its software by key participants in the PC
industry the loss of which could adversely affect the Company's product
development efforts. In addition, the inability of the Company to replace
revenues provided by a key customer could have a material adverse effect on the
Company's business and financial condition. The Company's success to date also
has depended to a significant extent upon a number of key management and
technical employees. The loss of services of one or more of these key employees
could have a material adverse effect on the Company's business and financial
condition. As discussed in Note 5 to the accompanying Unaudited Consolidated
Financial Statements, the Company has been named as a defendant in a series of
purported securities class action lawsuits. Although the Company believes that
the allegations in these complaints are without merit and intends to vigorously
defend against them, the ultimate outcome, including the amount of possible
loss, if any, of litigation cannot be determined at this time.
10
<PAGE> 11
The Company believes that future results of operations may fluctuate
significantly based upon numerous factors including the timing of new product
introductions, product mix, activities of competitors and the ability of the
Company to penetrate new markets. The volume and timing of new contracts could
have a significant impact on operating results for a particular quarter and may
result in unanticipated quarterly earnings, shortfalls or losses. In such an
event, the price of the Company's Common Stock would likely be materially
adversely affected.
PART II. OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) EXHIBITS.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K dated February 5, 1998 was filed
during the Company's current quarter. The Current Report on
Form 8-K was filed pursuant to Item 5 of Form 8-K announcing
preliminary results for the quarter ended January 31, 1998 and
the formation of a new entity to focus on the USB technology.
In addition, a Current Report on Form 8-K dated March 5, 1998
was filed during the Company's current quarter. The Current
Report on Form 8-K was filed pursuant to Item 5 of Form 8-K
announcing actual results for the quarter ended January 31,
1998 and for fiscal 1998.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SYSTEMSOFT CORPORATION
June 12, 1998 By: /s/ Robert F. Angelo
----------------------------------
Robert F. Angelo
Chief Executive Officer and
Chairman of the Board
June 12, 1998 By: /s/ Jeffrey R. Wakely
----------------------------------
Jeffrey R. Wakely
Vice President, Finance and
Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1999 JAN-31-1998
<PERIOD-START> FEB-1-1998 FEB-1-1997
<PERIOD-END> APR-30-1998 APR-30-1997
<CASH> 7,511,528 7,930,605
<SECURITIES> 0 101,507
<RECEIVABLES> 6,473,380 15,927,909
<ALLOWANCES> 1,765,831 987,445
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,537,288 36,038,579
<PP&E> 14,501,494 9,453,020
<DEPRECIATION> 7,597,213 4,572,124
<TOTAL-ASSETS> 27,172,991 46,764,981
<CURRENT-LIABILITIES> 7,904,357 9,188,662
<BONDS> 0 0
0 0
0 0
<COMMON> 268,584 252,461
<OTHER-SE> 17,943,458 35,681,717
<TOTAL-LIABILITY-AND-EQUITY> 27,172,991 46,764,981
<SALES> 4,012,454 11,905,572
<TOTAL-REVENUES> 4,012,454 12,476,974
<CGS> 1,945,901 2,431,940
<TOTAL-COSTS> 9,872,414 9,459,547
<OTHER-EXPENSES> 6,987 31,994
<LOSS-PROVISION> 100,000 75,000
<INTEREST-EXPENSE> 82,988 23,924
<INCOME-PRETAX> (5,899,822) 3,014,092
<INCOME-TAX> 0 994,717
<INCOME-CONTINUING> (5,899,822) 2,019,375
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,899,822) 2,019,375
<EPS-PRIMARY> (0.22) 0.08
<EPS-DILUTED> (0.22) 0.08
</TABLE>
