<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997
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Commission File Number 1-31070
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Derma Sciences, Inc.
(Exact name of small business issuer as specified in its Charter)
Pennsylvania 23-2328753
(State or other jurisdiction (IRS employer
of Incorporation) identification number)
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Address including zip code and telephone
number, of principal executive offices)
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| |
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Date: June 30, 1997 Class: Common Stock, par value $.01 per share
Shares Outstanding: 4,067,632
<PAGE>
DERMA SCIENCES, INC.
FORM 10-QSB
INDEX
Description Page
Part I - Financial Information
Item 1. Condensed Financial Statements
Balance Sheet - June 30, 1997.......................................... 2
Statements of Operations - Three months ended June 30, 1996
and June 30, 1997................................................... 3
Statements of Operations - Six months ended June 30, 1996
and June 30, 1997................................................... 4
Statements of Cash Flows - Six months ended June 30, 1996
and June 30, 1997................................................... 5
Notes to Condensed Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 7
Part II - Other Information
Item 1. Legal Proceedings............................................... 12
Item 4. Submission of Matters to a Vote of Shareholders................. 12
Item 6. Exhibits and Reports on Form 8-K................................ 12
<PAGE>
DERMA SCIENCES, INC.
BALANCE SHEET
June 30, 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 144,962
Short-term investments 837,929
Accounts receivable, net 798,851
Inventory 779,097
Other current assets 250,187
----------------
Total Current Assets 2,811,026
PROPERTY AND EQUIPMENT, NET 94,858
OTHER ASSETS 697,439
----------------
TOTAL ASSETS $ 3,603,323
================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable $ 789,000
Accounts payable 631,708
Other current liabilities 551,199
----------------
Total Current Liabilities 1,971,907
NOTES PAYABLE 95,000
---------------
TOTAL LIABILITIES 2,066,907
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 15,000,000 shares,
issued and outstanding 4,067,632 shares 40,676
Additional paid-in capital 4,644,741
Retained deficit (3,149,001)
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Total Shareholders' Equity 1,536,416
----------------
Total Liabilities and Shareholders' Equity $ 3,603,323
================
See accompanying notes.
<PAGE>
DERMA SCIENCES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
-----------------------------
-----------------------------
1996 1997
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NET SALES $1,453,223 $ 796,246
COST OF SALES 225,356 225,852
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GROSS PROFIT 1,227,867 570,394
OPERATING EXPENSES:
Product development 197,710 33,521
Selling, general and administrative 966,968 1,645,710
------------ --------------
Total Operating Expenses 1,164,678 1,679,231
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INCOME (LOSS) FROM OPERATIONS 63,189 (1,108,837)
OTHER INCOME (EXPENSE):
Interest income 37,378 1,728
Interest expense (16,065) (10,926)
------------ --------------
Total Other Income (Expense) 21,313 (9,198)
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INCOME (LOSS) BEFORE INCOME TAXES: 84,502 (1,118,035)
Income taxes (30,429) 0
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NET INCOME (LOSS) $ 114,931 ($1,118,035)
============= ==============
NET INCOME (LOSS) PER COMMON SHARE $0.03 ($0.27)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,054,233 4,067,632
============= ==============
See accompanying notes.
<PAGE>
DERMA SCIENCES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
---------------------------------
---------------------------------
1996 1997
---------------- ---------------
NET SALES $2,496,398 $1,547,979
COST OF SALES 485,217 409,707
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GROSS PROFIT 2,011,181 1,138,272
OPERATING EXPENSES:
Product development 402,286 230,109
Selling, general and administrative 1,866,786 2,396,549
---------------- ---------------
Total Operating Expenses 2,269,072 2,626,658
---------------- ---------------
LOSS FROM OPERATIONS (257,891) (1,488,386)
OTHER INCOME (EXPENSE):
Interest income 78,829 31,412
Interest expense (30,547) (27,418)
---------------- ---------------
Total Other Income (Expense) 48,282 3,994
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LOSS BEFORE INCOME TAXES: (209,609) (1,484,392)
Income taxes (55,217) 0
---------------- ---------------
NET LOSS ($ 154,392) ($ 1,484,392)
================ ===============
NET LOSS PER COMMON SHARE ($0.04) ($0.36)
================ ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,054,233 4,067,632
================ ===============
See accompanying notes.
<PAGE>
DERMA SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
1996 1997
----------- -----------
OPERATING ACTIVITIES:
Net Loss ($ 154,392)($ 1,484,392)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation and amortization 24,638 98,464
Provision for bad debts 166,477
Changes in operating assets and liabilities:
Accounts receivable 13,012 354,525
Inventory 75,694 58,562
Other current assets 17,310 (25,413)
Other assets (359,699) (52,517)
Accounts payable 133,792 (113,834)
Accrued expenses (36,964) (102,753)
Income taxes payable (66,290)
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Net Cash Used in Operating Activities (352,899) (1,100,881)
INVESTING ACTIVITIES:
(Increase) decrease in short-term investments (22,949) 1,049,242
Purchases of property and equipment, net (48,642) (74,176)
Increase in patents and trademarks (24,830)
----------- -----------
Net Cash (Used in) Provided by Investing
Activities (96,421) 975,066
FINANCING ACTIVITIES:
Net change in revolving line of credit 100,000 (11,000)
Principal payments on long-term debt and
capitalized lease obligations (247)
Proceeds from acquisition 190,000
Net change in officers' notes receivable 221,569
------------ ------------
Net Cash Provided by Financing Activities 289,753 210,569
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (159,567) 84,754
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 195,773 60,208
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $36,206 $ 144,962
============== ==========
See accompanying notes.
<PAGE>
DERMA SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed 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
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 1997,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1996, included
in Form 10-KSB filed with the Securities and Exchange Commission on March 24,
1997.
Note 2 - Contingency
ABS Life Sciences, Inc. has instituted litigation against the Company. For
further information relative to the ABS litigation, please refer to Form 10-KSB
filed by the Company on March 24, 1997.
Note 3 - Officers' Note Receivable
Various officers of the Company received draws against incentive
compensation during 1994 totaling approximately $296,156. The Compensation
Committee of the Board of Directors subsequently determined that no incentive
compensation was payable relative to 1994. Accordingly, the officers executed
promissory notes requiring repayment of the incentive compensation over a period
of ten years with interest of 8.01% per annum. The Board of Directors has
determined that the officers may tender either common stock of the Company or
cash in payment of the promissory notes.
In January, 1997, a former officer repaid his promissory note in the amount
of $77,893 inclusive of principal and interest from the proceeds of his
severance compensation. Also in January, 1997, two officers tendered common
stock of the Company at the stock's closing price quoted by Nasdaq on the date
of tender ($2.00 per share) in satisfaction of payments due during 1996 with
respect to their promissory notes. In May, 1997, a former officer's promissory
note in the amount of $74,247.68 was forgiven pursuant to his severance
agreement. For further information, refer to Form 8-K filed with the Securities
and Exchange Commission on July 1, 1997.
<PAGE>
DERMA SCIENCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996
Results of Operations
Net Sales and Gross Profit
Net sales for the second quarter, 1997 decreased $656,977, or 45%, to
$796,246 from $1,453,223 in the second quarter, 1996. The decrease in net sales
is attributable both to the restructuring of the Company's distribution system
and the elimination or reduction of Medicare reimbursement for Dermagran
Ointment, Dermagran Spray and Dermagran Zinc Saline Wet Dressing.
Net sales of Dermagran Ointment decreased $580,227, or 53%, to $523,828 in
the second quarter, 1997 from $1,104,055 in the second quarter, 1996. Net sales
of Dermagran Spray decreased $48,892, or 54%, to $42,084 in the second quarter,
1997 from $90,976 in the second quarter, 1996. Net sales of Dermagran
Zinc-Saline Wet Dressing decreased $26,685, or 62%, to $16,682 in the second
quarter, 1997 from $43,367 in the second quarter, 1996. These decreases are
attributable to the factors discussed above. Net sales of Dermagran Hydrophilic
Wound Dressing increased marginally to $217,171 in the second quarter, 1997
versus $211,337 in the second quarter, 1996. Sales of Dermagran Wet Dressing
(Saline) were not a material revenue producing factor in the second quarter,
1997 or the second quarter, 1996.
Cost of sales, expressed as a percentage of net sales, increased from 16%
in the second quarter, 1996 to 28% in the second quarter, 1997. This increase is
attributable primarily to the sales decreases, discussed above, in the Company's
relatively high margin Dermagran Ointment and Dermagran Spray. Aggregate cost of
sales increased marginally to $225,852 in the second quarter, 1997 from $225,356
in the second quarter, 1996.
Gross profit, expressed as a percentage of net sales, decreased from 84% in
the second quarter, 1996 to 72% in the second quarter, 1997. Aggregate gross
profit decreased $657,473, or 54%, to $570,394 in the second quarter, 1997 from
$1,227,867 in the second quarter, 1996. These decreases are attributable to the
increase in cost of sales discussed above.
Operating Expenses
Operating expenses increased $514,553, or 44%, from $1,164,678 in the
second quarter, 1996 to $1,679,231 in the second quarter, 1997. This increase
represents the net effect of the increase in selling, general and administrative
expense and the decrease in product development expense discussed below.
<PAGE>
Product development expense for the second quarter, 1997 decreased
$164,189, or 83%, to $33,521 from $197,710 in the second quarter, 1996. This
decrease is attributable to a decrease in product development staffing together
with increased outsourcing of product development functions.
Selling, general and administrative expense for the second quarter, 1997
increased $678,742, or 70%, to $1,645,710 in the second quarter, 1997 from
$966,968 in the second quarter, 1996. The aggregate increase is primarily
attributable to increases in wages and benefits expense and bad debt expense
together with the incurrence of recruiting expense.
Wages and benefits expense for the second quarter, 1997 expressed as a
percentage of sales increased to 76% from 16% in the second quarter, 1996.
Aggregate wages and benefits expense increased $371,446 to $605,682 for the
second quarter, 1997 from $234,236 for the second quarter, 1996. These increases
are attributable to severance costs of $251,992 and compensation incident to the
hiring of marketing and sales personnel of $119,454.
Bad debt expense for the second quarter, 1997 expressed as a percentage of
sales increased to 15% from a negative 2% in the second quarter, 1996. Aggregate
bad debt expense, net of recoveries, increased $140,582 to $116,477 for the
second quarter, 1997 from a negative $24,105 for the second quarter, 1996. These
increases are primarily attributable to an increase in the allowance for
doubtful accounts of $125,000 from $100,000 to $225,000.
Recruiting fees of $83,000 were incurred in the second quarter, 1997 in
connection with the hiring of marketing and sales personnel. No comparable costs
were incurred in the second quarter, 1996.
Income (Loss) from Operations
The Company incurred a loss from operations for the second quarter, 1997 in
the amount of $1,108,837 compared to income from operations of $63,189 for the
second quarter, 1996. This loss from operations for the second quarter, 1997 is
attributable to the decrease in net sales and increase in operating expenses
discussed above under "Net Sales and Gross Profit" and "Operating Expenses."
Net (Loss) Income
The Company incurred a loss of $1,118,035, or $0.27 per share, for the
second quarter, 1997 compared to net income of $114,931, or $.03 per share, for
the second quarter, 1996. The loss for the second quarter, 1997 is attributable
to the factors discussed above under "Income (Loss) from Operations."
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Results of Operations
Net Sales and Gross Profit
Net sales for the six months ended June 30, 1997 decreased $948,419, or
38%, to $1,547,979 from $2,496,398 in the six months ended June 30, 1996. The
decrease in net sales is attributable both to the second quarter, 1997
restructuring of the Company's distribution system and the elimination or
reduction of Medicare reimbursement for Dermagran Ointment, Dermagran Spray and
Dermagran Zinc Saline Wet Dressing.
Net sales of Dermagran Ointment decreased $713,170, or 42%, to $986,331 in
the six months ended June 30, 1997 from $1,699,501 in the six months ended June
30, 1996. Net sales of Dermagran Spray decreased $74,580, or 47%, to $84,761 in
the six months ended June 30, 1997 from $159,341 in the six months ended June
30, 1996. Net sales of Dermagran Zinc-Saline Wet Dressing decreased $46,099, or
59%, to $32,569 in the six months ended June 30, 1997 from $78,668 in the six
months ended June 30, 1996. Net sales of Dermagran Hydrophilic Wound Dressing
decreased $53,486, or 11%, to $442,582 in the six months ended June 30, 1997
from $496,068 in the six months ended June 30, 1996. Net sales of Dermagran Wet
Dressing (Saline) decreased $13,114, or 97%, to $346 in the six months ended
June 30, 1997 from $13,460 in the six months ended June 30, 1996. These
decreases are attributable to the factors discussed above.
Cost of sales, expressed as a percentage of net sales, increased from 19%
in the six months ended June 30, 1996 to 26% in the six months ended June 30,
1997. This increase is attributable primarily to the sales decreases, discussed
above, in the Company's relatively high margin Dermagran Ointment and Dermagran
Spray. Aggregate cost of sales decreased to $409,707 in the six months ended
June 30, 1997 from $485,217 in the six months ended June 30, 1996.
Gross profit, expressed as a percentage of net sales, decreased from 81% in
the six months ended June 30, 1996 to 74% in the six months ended June 30, 1997.
Aggregate gross profit decreased $872,909, or 43%, to $1,138,272 in the six
months ended June 30, 1997 from $2,011,181 in the six months ended June 30,
1996. These decreases are attributable to the increase in cost of sales
discussed above.
Operating Expenses
Operating expenses increased $357,586, or 16%, from $2,269,072 in the six
months ended June 30, 1996 to $2,626,658 in the six months ended June 30, 1997.
This increase represents the net effect of the increase in selling, general and
administrative expense and the decrease in product development expense discussed
below.
<PAGE>
Product development expense for the six months ended June 30, 1997
decreased $172,177, or 43%, to $230,109 from $402,286 for the six months ended
June 30, 1996. This decrease is attributable to a decrease in product
development staffing together with increased outsourcing of product development
functions.
Selling, general and administrative expense for the six months ended June
30, 1997 increased $529,763, or 28%, to $2,396,549 in the six months ended June
30, 1997 from $1,866,786 in the six months ended June 30, 1996. The increase in
selling, general and administrative expense is primarily attributable to
increases in wages and benefits expense and bad debt expense together with the
incurrence of recruiting expense.
Wages and benefits expense for the six months ended June 30, 1997 expressed
as a percentage of sales increased to 53% from 18% in the six months ended June
30, 1996. Aggregate wages and benefits expense increased $360,573 to $818,160
for the six months ended June 30, 1997 from $457,587 for the six months ended
June 30, 1996. These increases are attributable to severance costs of $251,992
and compensation incident to the hiring of marketing and sales personnel of
$108,581.
Bad debt expense for the six months ended June 30, 1997 expressed as a
percentage of sales increased to 11% from 1% in the six months ended June 30,
1996. Aggregate bad debt expense increased $130,192 to $166,477 for the six
months ended June 30, 1997 from $36,285 for the six months ended June 30, 1996.
These increases are primarily attributable to an increase in the allowance for
doubtful accounts of $125,000 from $100,000 to $225,000.
Recruiting fees of $83,000 were incurred in the second quarter, 1997 in
connection with the hiring of marketing and sales personnel. No comparable costs
were incurred in the six months ended June 30, 1996.
Loss from Operations
The Company incurred a loss from operations for the six months ended June
30, 1997 in the amount of $1,488,386 compared to a loss from operations of
$257,891 for the six months ended 1996. The increased loss from operations for
the six months ended June 30, 1997 is attributable to the decrease in net sales
and increase in operating expenses discussed above under "Net Sales and Gross
Profit" and "Operating Expenses."
Net Loss
The Company incurred a net loss of $1,484,392, or $.36 per share, for the
six months ended 1997 compared to a net loss of $154,392, or $.04 per share, for
the six months ended 1996. The increased net loss for the six months ended June
30, 1997 is attributable to the factors discussed above under "Loss from
Operations."
<PAGE>
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments at June 30,
1997 decreased $1,455,739, or 60%, to $982,891 from $2,438,630 at June 30, 1996.
The Company's working capital at June 30, 1997 decreased $2,521,072, or 75%, to
$839,119 from $3,360,191 at June 30, 1996. These decreases are attributable to
lower net sales and increased operating expenses which occasioned increased use
of the Company's short-term investments and line-of-credit.
The Company has a bank line-of-credit, secured by inventory and accounts
receivable, whose balance at June 30, 1997 was $789,000. This line-of-credit is
renewable (payable in full) September 30, 1997. The Company believes that it
will be able either to secure renewal of its current credit line or secure
credit upon comparable terms with another financial institution.
The Company has instituted several measures with a view to increasing
sales. Among these are included: (a) the hiring of a new vice president for
marketing and a new vice president for sales together with four regional sales
managers and directors, (b) restructuring of the Company's distribution system
to eliminate non-producing distributors, increase profit margins and improve
territorial coverage, (c) expansion of the Company's product line via the
licensing of wound care products from other companies, and (d) licensing the
Company's proprietary products for distribution under private labels. The
Company has also taken steps to reduce its operating expenses, including: (a)
downsizing administrative staff, (b) reducing the size of leasehold facilities,
and (c) outsourcing financial and R&D functions. The Company expects that the
foregoing measures will enable it to significantly narrow its operating loss in
the third quarter, 1997, achieve break-even in the fourth quarter, 1997 and meet
it's obligations in the ordinary course of buisness.
The Company is presently investigating several sources of investment
capital relative to the financing of its growth strategies. Although there can
be no assurance that these efforts will be successful, the Company believes that
it will be able to secure financing in the amounts, and upon terms, acceptable
to it.
Statements that are not historical facts, including statements about the
Company's confidence and strategies, and expectations about new or existing
products, technologies and opportunities, market demand or acceptance of new or
existing products are forward-looking statements that involve risks and
uncertainties. These uncertainties include, but are not limited to, product
demand and market acceptance risks, impact of competitive products and prices,
product development, commercialization or technological delays or difficulties,
and trade, legal, social, financial and economic risks.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Information required by Item 103 of Regulation S-B and required hereunder,
as filed with the Securities and Exchange Commission on Form 10-KSB on March 24,
1997, is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Shareholders
On May 14, 1997, the Company held its annual meeting of shareholders. The
items for consideration by the shareholders were the election of directors and
the ratification of the selection of Ernst & Young LLP as independent auditors
for the year ended December 31, 1997. Proxies for the meeting were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934. All
nominees for director were elected for one year terms. The selection of Ernst &
Young LLP as independent auditors was ratified by a vote of 3,140,536 in favor
and 47,019 against with 26,550 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. With the exception of the following, all exhibits required by
Item 601 of Regulation S-B and required hereunder, as filed with the Securities
and Exchange Commission on Form 10-KSB on March 24, 1997 and on Form 8-K on July
1, 1997 are incorporated herein by reference.
Item Description
3.1 Bylaws effective May 14, 1997
10.01* Stock Option Agreement between the Company and Stephen T.
Wills, CPA, MST dated July 23, 1997
27 Financial Data Schedule (filed electronically with the U. S.
Securities and Exchange Commission only)
*Management Contract
(b) Reports on Form 8-K. On May 6, 1997 and May 23, 1997 the Company filed
Forms 8-K relative to the hiring/promotion of several executives and the
execution of a letter of intent to form a joint venture with Innovative
Technologies Group plc, respectively.
Bylaws
of
DERMA SCIENCES, INC.
Article 1
Shareholders
Section 1.1 Annual Meeting
An annual meeting of the shareholders shall be held in each calendar year,
on such date as may be fixed by the board of directors, for the purpose of
electing directors and for the transaction of any other business that may
properly come before the meeting. If the day fixed for the annual meeting is a
legal holiday in the state where the meeting is to be held, the meeting shall be
held on the next succeeding day.
Section 1.2 Special Meetings
Special meetings of the shareholders may be called at any time by either
the board of directors, the chairperson of the board, the president or by the
holders of not less than 20% of all the shares entitled to vote at the meeting.
Upon written request of any person who has duly called a special meeting, the
secretary shall fix the time of the meeting, which shall be held not more than
sixty (60) days after the receipt of the request. If the secretary neglects or
refuses to fix the time of the meeting, the person or persons calling the
meeting may do so.
Section 1.3 Place of Meeting
All meetings of the shareholders shall be held at the registered office of
the Corporation or at such other place, within or outside the Commonwealth of
Pennsylvania, as may be designated by the board of directors.
Section 1.4 Notice
Except as provided in Section 1.6 of these bylaws, written notice of every
meeting of the shareholders shall be given by, or at the direction of, the
secretary or other authorized person or, if he or she neglects or refuses to do
so, may be given by the person or persons calling the meeting, to each
shareholder of record entitled to vote at the meeting, at least ten (10) days
prior to the day named for the meeting, unless a greater period of notice is
required by statute in the particular case. The notice of meeting shall specify
the place, day and hour of the meeting and, in the case of a special meeting,
the general nature of the business to be transacted, and, if applicable, the
notice shall state that the purpose, or one of the purposes, of the meeting is
to consider the adoption, amendment or repeal of the bylaws. In that case, the
notice shall include, or be accompanied by, a copy of the proposed amendment or
a summary of the changes to be made by the amendment.
Section 1.5 Quorum
A shareholders' meeting duly called shall not be organized for the
transaction of business unless a quorum is present. The presence in person or by
proxy of shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
meeting shall constitute a quorum for the purposes of consideration and action
on the matter. The shareholders present at a duly organized meeting can continue
to do business until adjournment even though the withdrawal of shareholders
leaves less than a quorum. If a meeting cannot be organized because a quorum has
not attended, those present may adjourn the meeting to such time and place as
they may determine. Those shareholders entitled to vote, who attend a meeting
called for the election of directors that has previously been adjourned for lack
of a quorum, although less than a quorum as fixed in these bylaws, shall
nevertheless constitute a quorum for the purpose of electing directors. In other
cases, those shareholders entitled to vote, who attend a meeting of shareholders
that has been previously adjourned for one or more periods totaling at least
fifteen (15) days because of absence of a quorum, although less than a quorum as
fixed in these bylaws, shall nevertheless constitute a quorum for the purpose of
acting on any matter set forth in the notice of the meeting, provided that the
notice of the meeting states that those shareholders who attend such adjourned
meeting shall constitute a quorum for the purpose of acting upon that matter.
<PAGE>
Section 1.6 Adjournments
Adjournment or adjournments of any annual or special meeting of
shareholders, including one at which directors are to be elected, shall be taken
for such period or periods as the presiding officer of the meeting or the
shareholders present in person or by proxy and entitled to vote shall direct.
When a meeting of shareholders is adjourned, it shall not be necessary to give
any notice of the adjourned meeting or of the business to be transacted at the
adjourned meeting other than by announcement at the meeting at which the
adjournment is taken, unless the board of directors fixes a new record date for
the adjourned meeting or unless notice of the business to be transacted was
required by the Pennsylvania Business Corporation Law of 1988, as it may be
amended, to be set forth in the original notice of the meeting, and such notice
had not been previously given. Subject to quorum requirements, at any such
adjourned meeting any business may be transacted might have been transacted at
the meeting as originally planned by the notice.
Section 1.7 Action by Shareholders
Whenever any corporate action is to be taken by vote of the shareholders,
it shall be authorized upon receiving the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote on the matter, and if any
shareholders are entitled to vote on the matter as a class, upon receiving the
affirmative vote of a majority of the votes cast by the shareholders entitled to
vote as a class on the matter, except where a different vote is required by law,
the articles of incorporation or these bylaws.
Section 1.8 Voting Rights of Shareholders
Unless otherwise provided in the articles of incorporation, every
shareholder shall be entitled to one vote for every share of capital stock
outstanding in the shareholder's name on the books of the Corporation except as
expressly provided to the contrary in the articles of incorporation.
Section 1.9 Proxies
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for that shareholder by proxy. The
presence of, or vote or other action at a meeting of shareholders, or the
expression of consent or dissent to corporate action in writing, by a proxy of a
shareholder shall constitute the presence of, vote or action by, or written
consent or dissent of the shareholder. Every proxy shall be executed in writing
by the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the Corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a written document executed
by a shareholder or attorney-in-fact shall be treated as properly executed if it
contains a confidential and unique identification number or other mark furnished
by the Corporation to the shareholder for purposes of a particular meeting or
transaction. Notwithstanding any other agreement or any provision in the proxy
to the contrary, a proxy shall be revocable at will unless coupled with an
interest, but the revocation of a proxy shall not be effective until written
notice of the revocation has been given to the secretary of the Corporation. An
unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided in the proxy. A proxy shall
not be revoked by the death or incapacity of the maker unless, before the vote
is counted or the authority is exercised, written notice of the death or
incapacity is given to the secretary of the Corporation. Where two or more
proxies of a shareholder are present, the Corporation shall, unless otherwise
expressly provided in the proxy, accept as the vote of all shares represented by
the proxy, the vote cast by a majority of them and, if a majority of the proxies
cannot agree whether the shares represented shall be voted or upon the manner of
voting the shares, the voting of the shares shall be divided equally among those
persons.
Section 1.10 Voting List
The officer or agent having charge of the transfer books for shares of the
Corporation shall make a complete list of the shareholders entitled to vote at
any meeting of shareholders, arranged in alphabetical order, with the address of
and the number of shares held by each. The list shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting. Failure to comply with the
requirements of this bylaw shall not affect the validity of any action taken at
a meeting prior to a demand to examine the list at the meeting by any
shareholder entitled to vote.
<PAGE>
Section 1.11 Determination of Shareholders of Record
The board of directors may fix a time prior to the date of any meeting of
shareholders as a record date for the determination of the shareholders entitled
to notice of, or to vote at, the meeting, which time, except in the case of an
adjourned meeting, shall be not more than ninety (90) days prior to the date of
the meeting of shareholders. In this case, only shareholders of record on the
date fixed shall be entitled to notice of, or to vote at, the meeting,
notwithstanding any transfer of shares on the books of the Corporation after the
record date fixed. The board of directors may similarly fix a record date for
the determination of shareholders of record for payment of dividends or for any
other purpose. When a determination of shareholders of record has been made as
provided in this bylaw for purposes of a meeting, the determination shall apply
to any adjournment of it unless the board fixes a new record date for the
adjourned meeting.
Section 1.12 Certification by Nominee
The board of directors may from time to time adopt a procedure whereby a
shareholder of the Corporation may certify in writing to the Corporation that
all or a portion of the shares registered in the name of the shareholder are
held for the account of a specified person or persons. Upon receipt by the
Corporation of a certification complying with this procedure, the persons
specified in the certification shall be considered, for the purposes stated in
the certification, to be the holders of record of the number of shares specified
in place of the shareholder making the certification.
Section 1.13 Presiding Officer
All meetings of the shareholders shall be called to order and presided over
by the chairperson of the board or, if there is no chairperson or in the
chairperson's absence, by the president or, in the absence of the president, by
an officer or director of the Corporation appointed by the board of directors
or, if none of those persons are present, by a chairperson of the meeting
elected by the shareholders.
Section 1.14 Voting by Fiduciaries and Pledges
Shares of this Corporation standing in the name of a trustee or other
fiduciary and shares held by an assignee for the benefit of creditors or by a
receiver may be voted either in person or by proxy by the trustee, fiduciary,
assignee or receiver. A shareholder whose shares are pledged shall be entitled
to vote the shares, in person or by proxy, until the shares have been
transferred into the name of the pledgee or a nominee of the pledgee.
Section 1.15 Voting by Joint Holders of Shares
Where shares of the Corporation are held jointly or as tenants in common by
two or more persons, as fiduciaries or otherwise: (a) if only one or more of the
persons is present in person or by proxy, all of the shares standing in the
names of those persons shall be deemed to be represented for the purpose of
determining a quorum and the Corporation shall accept as the vote of all the
shares the vote cast by that person or a majority of the persons who are
present; and (b) if the persons present are equally divided upon whether the
shares held by them shall be voted or upon the manner of voting the shares, the
voting of those shares shall be divided equally among the persons present
without prejudice to the rights of the joint owners or the beneficial owners
among themselves. If, however, there has been filed with the secretary of the
Corporation a copy, certified by an attorney-at-law to be correct, of the
relevant portions of the agreement under which the shares are held, the
instrument by which the trust or estate was created, the order of court
appointing them, or an order of court directing the voting of those shares, the
persons specified as having such voting power in the latest document filed, and
only those persons, shall be entitled to vote the shares, but only in accordance
with the filed document.
Section 1.16 Voting by Corporations
Any other domestic or foreign corporation for profit or not-for-profit that
is a shareholder of this Corporation may vote by any of its officers or agents,
or by proxy appointed by any officer or agent, unless some other person is
appointed its general or special proxy by resolution of its board of directors
or under a provision of its articles of incorporation or bylaws. In the latter
case, a copy of the resolution or article or bylaw provision certified to be
correct by one of the shareholder corporation's officers must be filed with the
secretary of this Corporation, and the person so appointed shall be entitled to
vote the shares. Shares of the Corporation owned, directly or indirectly, by the
Corporation and controlled, directly or indirectly, by the board of directors of
the Corporation, as such, shall not be voted at any meeting and shall not be
counted in determining the total number of outstanding shares for voting
purposes at any given time.
<PAGE>
Section 1.17 Election of Directors
Only candidates for director who have been duly nominated in accordance
with Section 2.5 of these bylaws shall be eligible for election. In election of
directors, voting need not be by ballot, unless required by vote of the
shareholders before the voting for election of directors begins. The duly
nominated candidates receiving the highest number of votes from each class or
group of classes, if any, entitled to elect directors separately up to the
number of directors to be elected by the class or group of classes shall be
elected. If at any meeting of shareholders, directors of more than one class are
to be elected, each class of directors shall be elected in a separate election.
Section 1.18 Judges of Election
In advance of any meeting of shareholders, the board of directors may
appoint judges of election, who need not be shareholders, to act at the meeting
or any adjournment of it. If judges of election are not appointed, the presiding
officer of the meeting may, and on the request of any shareholder or of any
shareholder's proxy, shall make an appointment at the meeting. The number of
judges shall be one or three. No person who is a candidate for office to be
filled at the meeting shall act as a judge. In case any person appointed as a
judge fails to appear or fails or refuses to act, the vacancy may be filled by
appointment made by the board of directors in advance of the convening of the
meeting or at the meeting by the presiding officer. The judge or judges of
election shall determine the number of shares outstanding, the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies, shall receive votes or ballots,
shall hear and determine all challenges and questions in any way arising in
connection with the right to vote, shall count and tabulate all votes and
determine the result and shall do any acts that may be proper to conduct the
election or vote with fairness to all shareholders. The judge or judges of
election shall perform their duties impartially, in good faith, to the best of
their ability, and as expeditiously as is practical. If there are three judges
of election, the decision, act or certificate of a majority shall be considered
in all respects to be the decision, act or certificate of all. On request of the
presiding officer of the meeting, or of any shareholder or proxy of any
shareholder, the judge or judges shall make a report in writing of any challenge
or question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated in that document.
<PAGE>
Article 2
Board of Directors
Section 2.1 General
All powers vested by law in the Corporation shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the board of directors.
Section 2.2 Number, Qualifications and Term of Office
The board of directors of the Corporation shall consist of at least three
(3) and not more than fifteen (15) directors, the exact number to be set from
time to time by resolution of the board of directors of the Corporation. Each
director shall be a natural person of full age but need not be a resident of
Pennsylvania or a shareholder of the Corporation. Each director shall hold
office until the expiration of the term for which he or she was elected and
until that director's successor has been elected and qualified or until that
director's earlier death, resignation or removal. No reclassification of the
board of directors or decrease in its size or the size of any class of the board
shall have the effect of shortening the term of any incumbent director.
Section 2.3 Election and Classification
The board of directors of the Corporation shall be classified and elected
by the shareholders in accordance with the articles of incorporation.
Section 2.4 Vacancies
Vacancies in the board of directors, including vacancies resulting from an
increase in the number of directors, may be filled by a majority vote of the
remaining members of the class of directors in which the vacancies occur though
less than a quorum, or by a sole remaining director of said class, and each
person so elected shall hold office until the next election of the class for
which the director has been chosen and until his or her successor has been
elected and qualified or until his or her earlier death, resignation or removal.
When one or more directors resign from the board effective at a future date, the
directors then in office, including those who have resigned, shall have power by
the applicable vote to fill the vacancies. The vote will then take effect when
the resignations become effective.
Section 2.5 Nominations
Nominations for election to the board of directors may be made by directors
or by any shareholder of the Corporation entitled to notice of, and to vote for
directors of the class sought to be nominated, at any meeting called for the
election of directors. Nominations, other than those made by or on behalf of
directors of the Corporation, shall be made in writing and shall be received by
the chairperson of the board of the Corporation not later than (i) for an
election of directors to be held at an annual meeting of shareholders, sixty
(60) days prior to the anniversary date of the immediately preceding annual
meeting, and (ii) for an election of directors to be held at a special meeting
of shareholders, the close of business on the fifteenth (15th) day following the
date on which notice of the meeting is first given to shareholders or public
disclosure of the meeting is made. Such notification shall contain the following
information to the extent known to the notifying shareholder: (a) the name and
residence address of each proposed nominee and of the notifying shareholder; (b)
the principal occupation of each proposed nominee; (c) a representation that the
notifying shareholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (d) the total number of
shares of the Corporation that will be voted for each proposed nominee; (e) the
total number of shares of the Corporation owned by the notifying shareholder;
(f) a description of all arrangements or understandings between the notifying
shareholder and each nominee and any other person or persons (naming that person
or persons) pursuant to which the nomination or nominations are to be made by
the notifying shareholder; (g) any other information regarding each nominee
proposed by the shareholder that would be required to be included in a proxy
statement filed with the Securities and Exchange Commission; and (h) the consent
of each nominee to serve as a director of the Corporation if elected. If the
information submitted to the Corporation within the time prescribed above is
determined by the chairperson of the board of the Corporation to be deficient in
any manner, the chairperson shall advise the notifying shareholder in writing of
the deficiencies not later than the close of business on the fifth (5th) day
following the date that the Corporation first received written notice of the
nomination made by the notifying shareholder. The notifying shareholder must
then cure such deficiencies by sending a revised notification to the chairperson
of the board of the Corporation, giving the required information that must be
received by the chairperson of the board in writing not later than the fifth
(5th) day following the date that the notifying shareholder received notice from
the Corporation of the deficiencies in his or her written nomination.
Notwithstanding the above, these nominating procedures shall not apply to any
special meeting of the shareholders of the Corporation called for the election
of directors in which notice of the meeting was not given to shareholders at
least twenty (20) days prior to the day named for the meeting.
<PAGE>
Section 2.6 Removal for Cause
(a) Removal by action of shareholders. The entire board of directors, or an
entire class of directors where the board is classified with respect to the
power to elect directors, or any individual director may be removed from office
only for cause (as defined in these bylaws) by the vote of shareholders, or of
the holders of a class or series of shares entitled to elect directors, or the
class of directors.
For purposes of this Section "cause" shall mean any one of the following:
(i) a director is judicially declared to be of unsound mind; (ii) a director is
convicted of an offense punishable by imprisonment for a term of more than one
year; (iii) a director breaches or fails to perform the statutory duties of that
director's office and the breach or failure constitutes self-dealing, willful
misconduct or recklessness; or (iv) within (60) days after notice of his or her
election, a director does not accept the office either in writing or by
attending a meeting of the board of directors and fulfilling any other
requirements of qualification that these bylaws or the articles of incorporation
may provide.
Notwithstanding the above, the entire board of directors, or an entire
class of directors, may be removed at any time with or without cause by the
unanimous vote or consent of shareholders entitled to elect the directors, or
class of directors.
(b) Amendment or repeal. The repeal of the provisions of the bylaws
prohibiting or the addition of a provision to the bylaws permitting the removal
by the shareholders of directors without assigning any cause shall not apply to
any incumbent director during the balance of the term for which that director
was elected.
(c) Removal by action of the directors. The board of directors may declare
vacant the office of a director if that director: (i) has been judicially
declared of unsound mind; (ii) has been convicted of an offense punishable by
imprisonment for a term of more than one year; or (iii) if within sixty (60)
days after notice of his or her election, the director does not accept the
office either in writing or by attending a meeting of the board of directors and
fulfilling any other requirements of qualification that these bylaws or the
articles of incorporation may provide.
(d) Other removal. The provisions of this Section shall not void any
statutory provision authorizing the removal of any director or directors.
(e) Resignation. Any director may resign at any time from his or her
position as a director of the Corporation upon written notice to the
Corporation. The resignation shall be effective upon its receipt by the
Corporation or at a later time that may be specified in the notice of
resignation.
<PAGE>
Section 2.7 Regular Meetings
The board of directors shall hold an annual meeting for the election of
officers and the transaction of other proper business either as soon as
practicable after, and at the same place as, the annual meeting of shareholders
or at such other day, hour and place as may be fixed by the board. The board of
directors may designate by resolution the time and place, within or outside the
Commonwealth of Pennsylvania, of other regular meetings.
Section 2.8 Special Meetings
Special meetings of the board may be called by the chairperson of the
board, the president or one third of the directors. The person or persons
calling the special meeting may fix the day, hour and place, within or outside
the Commonwealth of Pennsylvania, of the meeting, provided that the place shall
be within 150 miles of Wilkes Barre, Pennsylvania unless all of the directors
agree that the meeting may be held outside of that radius.
Section 2.9 Notice of Meetings
No further notice of any annual or regular meeting of the board of
directors need be given other than transmitting to the directors a copy of the
resolution fixing the times and places of them. Written notice, or oral notice
with written confirmation no later than the date of the meeting, of each special
meeting of the board of directors, specifying the place, day and hour of the
meeting, shall be given to each director at least 48 hours before the time set
for the meeting. When a meeting of directors is adjourned, notice need not be
given of the adjourned meeting other than by announcement at the meeting at
which the adjournment is made. Notwithstanding the above notice requirements, if
any meeting of directors cannot be organized because a quorum is not present, a
majority of the directors present may adjourn the meeting to such time and place
as they may determine, subject to the bylaws of the Corporation. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the board need be specified in the notice of the meeting.
Section 2.10 Quorum of and Action by Directors
A majority of the directors in office shall constitute a quorum for the
transaction of business, and the acts of a majority of directors present and
voting at a meeting at which a quorum is present shall be the acts of the board
of directors except where a different vote is required by law, the articles of
incorporation or these bylaws. Every director shall be entitled to one vote.
Section 2.11 Interested Directors or Officers and Quorum
A contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise in which one or more of the Corporation's directors or
officers are directors or officers or have a financial or other interest, shall
not be void or voidable solely for that reason, or solely because the common or
interested director or officer is present at or participates in the meeting of
the board that authorizes the contract or transaction, or solely because the
common or interested director's or officer's vote is counted for such purpose,
if: (1) the material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the board of directors and
the board authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors even though the disinterested directors
are less than a quorum; or (2) the material facts as to the director's or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote on the matter, and
the contract or transaction is specifically approved in good faith by vote of
those shareholders; or (3) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the board
of directors or the shareholders. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the board of directors
that authorizes such a contract or transaction specified in this Section.
<PAGE>
Section 2.12 Compensation
By resolution of the board of directors, each director may be paid his or
her expenses, if any, of attendance at each meeting of the board of directors or
its committee, and may be paid a stated salary as director or a fixed sum for
attendance at each meeting of the board of directors or committee or both. No
such payment shall prevent any director from serving the Corporation in any
other capacity and receiving compensation therefor, and a director may be a
salaried officer or employee of the Corporation.
Section 2.13 Presumption of Assent
A director of the Corporation who is present at a meeting of the board of
directors, or of a committee of the board, at which action on any corporate
matter is taken on which the director is generally competent to act, shall be
presumed to have assented to the action taken unless his or her dissent is
entered in the minutes of the meeting or unless the director files his or her
written dissent to the action with the secretary of the meeting before its
adjournment or transmits the dissent in writing to the secretary of the
Corporation immediately after the adjournment of the meeting. This right to
dissent shall not apply to a director who voted in favor of the action. Nothing
in this section shall bar a director from asserting that minutes of a meeting
incorrectly omitted that director's dissent if, promptly upon receipt of a copy
of the minutes, the director notified the secretary, in writing, of the asserted
omission or inaccuracy.
Section 2.14 Presiding Officer
All meetings of the board of directors shall be called to order and
presided over by the chairperson of the board of directors or, if there is no
chairperson or in the chairperson's absence, by the president or, in the absence
of the chairperson and president, by a chairperson of the meeting elected by the
board of directors.
<PAGE>
Article 3
Committees of the Board
Section 3.1 Committees of the Board
The board of directors may, by resolution adopted by a majority of the
directors in office, establish one or more committees, each committee to consist
of one or more of the directors of the Corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee or for purposes of
any written action of the committee. Except in the case of the audit,
compensation, and stock option committees, if any, in the absence or
disqualification of any member or alternate member or members of a committee,
the member or members present at any meeting and not disqualified from voting,
though less than a quorum, may unanimously appoint another director to act at
the meeting in the place of the absent or disqualified member. A committee, to
the extent provided in the resolution of the board of directors creating it,
shall have and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or authority as to:
(i) the submission to shareholders of any action requiring the approval of
shareholders under the Pennsylvania Business Corporation Law of 1988, as it may
be amended, (ii) the creation or filling of vacancies in the board of directors,
(iii) the adoption, amendment or repeal of the bylaws, (iv) the amendment,
adoption or repeal of any resolution of the board that by its terms is amendable
or repealable only by the board, or (v) action on matters committed by the
bylaws or resolution of the board to another committee of the board. Each
committee of the board shall serve at the pleasure of the board.
Section 3.2 Committee Rules
Unless the board of directors provides otherwise by resolution, each
committee shall conduct its business and take action in the same manner as the
board conducts its business under the articles of incorporation of the
Corporation and these bylaws. In the absence of a resolution of the board to the
contrary, a majority of the entire authorized number of members of a committee
shall be necessary to constitute a quorum for the transaction of business. The
acts of a majority of the members present and voting at a meeting if a quorum is
then present shall be the acts of the committee, and in other respects each
committee shall conduct its business and take action in the same manner as the
board conducts its business under the articles of incorporation of the
Corporation and these bylaws.
<PAGE>
Article 4
Officers
Section 4.1 Officers and Qualifications
The Corporation shall have a chairperson of the board of directors, a
president, a secretary, and a treasurer, each of whom shall be elected or
appointed by the board of directors. The board may also elect or provide for the
appointment of one or more vice presidents, a controller, and any other officers
and assistant officers that the board deems necessary or advisable. All officers
must be natural persons of full age. Any two or more offices may be held by the
same person. It shall not be necessary for officers to be directors or employees
of the Corporation except that the chairperson of the board must be a director.
Officers of the Corporation, as between themselves and the Corporation, shall
have the authority and perform such duties in the management of the Corporation
as is provided by or according to these bylaws or in the absence of controlling
provisions in these bylaws as is determined by or according to resolutions or
orders of the board of directors.
Section 4.2 Election, Term and Vacancies
The officers and assistant officers of the Corporation shall be elected by
the board of directors at the annual meeting of the board or from time to time
as the board shall determine. Each officer shall hold office for one (1) year
and until his or her successor has been duly elected and qualified or until the
officer's earlier death, resignation or removal. A vacancy in any office
occurring in any manner may be filled by the board of directors and, if the
office is one for which these bylaws prescribe a term, shall be filled for the
unexpired portion of the term.
Section 4.3 Removal, Resignation and Bond
(a) Removal. Any officer or agent of the Corporation may be removed by the
board of directors with or without cause, but the removal shall be without
prejudice to the contract rights, if any, of the person removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Officers or agents appointed or elected other than by the board may also be
removed with or without cause by the persons or officers entitled to appoint or
elect them.
(b) Resignation. Any officer may resign at any time upon written notice to
the Corporation. The resignation shall be effective upon its receipt by the
Corporation or at a later time that may be specified in the notice of
resignation.
(c) Bond. The Corporation may secure the fidelity of any or all of its
officers by bond or otherwise.
<PAGE>
Section 4.4 Chairperson of the Board
The chairperson of the board of directors, if any, shall preside at all
meetings of the shareholders and of the directors at which he or she is present,
and shall have such authority and perform such duties as the board of directors
may from time to time designate.
Section 4.5 Office of the Chief Executive
The chairperson of the board and the president shall constitute the office
of the chief executive of the Corporation. Subject to the control of the board
of directors, the office of the chief executive shall: (a) have general and
active management of all the business, property and affairs of the Corporation;
(b) see that all orders and resolutions of the board of directors and its
committees are carried into effect; (c) appoint and remove subordinate officers
and agents, other than those appointed or elected by the board of directors, as
the business of the Corporation may require; (d) act as the duly authorized
representative of the board in all matters except where the board has formally
designated some other person or group to act; (e) perform all duties incident to
the exercise of executive authority by, or on behalf of, the Corporation; and
(f) perform any other duties that may be assigned by the board of directors. The
exercise of executive authority by the office at the chief executive shall be
effected in such manner as the board of directors may, from time to time,
designate, or, in absence of such designation, as the chairperson of the board
shall determine.
Section 4.6 President
The president shall, in the absence of the chairperson of the board,
preside at all meetings of the shareholders and of the board of directors at
which he or she is present, and shall have such authority and perform such
duties as the board of directors may from time to time designate.
Section 4.7 Vice Presidents
Each vice president, if any, shall perform such duties as may be assigned
to him or her by the board of directors or the office of the chief executive.
Section 4.8 Secretary
The secretary shall: (a) keep or cause to be kept the minutes of all
meetings of the shareholders, the board of directors, and any committees of the
board of directors in one or more books kept for that purpose; (b) have custody
of the corporate records, stock books and stock ledgers of the Corporation; (c)
keep or cause to be kept a register of the address of each shareholder, which
address has been furnished to the secretary by the shareholder; (d) see that all
notices are duly given in accordance with the law, the articles of
incorporation, and these bylaws; and (e) in general perform all the usual duties
incident to the office of secretary and other duties that may be assigned to him
or her by the board of directors or the office of the chief executive . The
secretary may delegate any of his or her duties to any management officer or to
any duly elected or appointed assistant secretary and may delegate custody of
the Corporation's stock books, stock ledgers, shareholder lists and the like to
a duly appointed stock transfer agent and/or registrar or, in the case of
records regarding debt instruments, to an indenture or bond trustee, registrar
or similar entity.
Section 4.9 Assistant Secretary
The assistant secretary, or assistant secretaries if more than one, shall
perform the duties of the secretary in his or her absence and shall perform
other duties that the board of directors, the office of the chief executive or
the secretary may from time to time designate.
<PAGE>
Section 4.10 Treasurer
The treasurer shall have general supervision of the fiscal affairs of the
Corporation. The treasurer shall, with the assistance of the office of the chief
executive and managerial staff of the Corporation: (a) see that a full and
accurate accounting of all financial transactions is made; (b) invest and
reinvest the capital funds of the Corporation in whatever manner the board may
direct, unless that function shall have been delegated to a nominee or agent;
(c) deposit or cause to be deposited in the name and to the credit of the
Corporation, in depositories the board of directors shall designate, all monies
and other valuable effects of the Corporation not otherwise employed; (d)
prepare any financial reports that may be requested from time to time by the
board; (e) cooperate in the conduct of the annual audit of the Corporation's
financial records by certified public accountants duly appointed by the board;
and (f) in general perform all the usual duties incident to the office of
treasurer and other duties that may be assigned to him or her by the board of
directors or the office of the chief executive. The treasurer shall also be ex
officio an assistant secretary of the Corporation.
Section 4.11 Controller
The controller, if any, shall (a) have general charge of the accounting of
the Corporation, and (b) in general perform all the usual duties incident to the
office of controller and other duties that may be assigned to him or her by the
board of directors, the office of the chief executive or the treasurer.
Section 4.12 Other Management Officers
The office of the chief executive may, subject to ratification by the
board, elect and appoint any other management officers that it deems advisable,
who shall have the authority and perform such duties as may from time to time be
prescribed by the board or assigned by the office of the chief executive.
Section 4.13 Salaries
Unless otherwise provided by the board, the salaries of each of the
officers elected by the board shall be fixed from time to time by the board of
directors and the salaries of all other officers of the Corporation shall be
fixed from time to time by the office of the chief executive or another person
as may be designated from time to time by the office of the chief executive or
the board.
<PAGE>
Article 5
Share Certificates and Transfers
Section 5.1 Certificates
Share certificates shall be in a form approved by the board of directors
and shall state: (i) that the Corporation is incorporated under the laws of the
Commonwealth of Pennsylvania, (ii) the name of the person to whom issued, and
(iii) the number and class of shares and the designation of the series, if any,
that the share certificate represents.
If the Corporation is authorized to issue shares of more than one class or
series, each share certificate shall also state, on the face or back of the
certificate, that the Corporation will furnish to any shareholder upon request
and without charge a full or summary statement of the designations, voting
rights, preferences, limitations and special rights of the shares of each class
or series authorized to be issued so far as they have been fixed and determined
and the authority of the board of directors to fix and determine the
designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the Corporation.
Every share certificate shall be executed, by facsimile or otherwise, by or
on behalf of the Corporation, by the chairperson, president or any vice
president, and be countersigned by the treasurer or an assistant treasurer or by
the secretary or an assistant secretary.
Section 5.2 Transfer of Shares
Transfer of shares of the Corporation shall be made only on the stock
transfer records of the Corporation which may be kept in written or computer
form. Transfers shall be made by the Corporation or its duly authorized agent as
required by law. Except as otherwise stated in Section 1.12 of these bylaws
(Certification by Nominee), the Corporation shall be entitled to treat the
person in whose name shares stand on the books of the Corporation as the owner
of those shares for all purposes.
Section 5.3 Registrar, Transfer Agent and Authenticating Trustee
The Corporation may, but need not, designate another organization to act as
authenticating trustee, transfer agent, registrar or other agent for the
Corporation in the registration of transfer of its securities, the issuance of
new securities or the cancellation of surrendered securities, and to perform
such other functions as agent for the Corporation as the Corporation may deem
appropriate.
Section 5.4 Lost, Destroyed or Stolen Certificates
If the registered owner of a share certificate claims that the security has
been lost, destroyed or wrongfully taken, another may be issued in lieu of the
security in a manner and upon the terms authorized by the board of directors,
and shall be issued in place of the original security, in accordance with 13
Pa.C.S. 8405(2), if the owner: (a) makes the request before the Corporation has
notice that the security has been acquired by a bona fide purchaser; (b) files
with the Corporation a sufficient indemnity bond; and (c) satisfies any other
reasonable requirements imposed by the Corporation.
<PAGE>
Article 6
Manner of Giving Notice, Waiver of Notice, Action
Without Meeting, Meetings by Conference
Telephone and Modification of Proposals
Section 6.1 Manner of Giving Notice
Whenever written notice is required to be given to any person under the
provisions of the Business Corporation Law, by the articles of incorporation or
these bylaws, it may be given to the person either personally or by sending a
copy of it by: (1) first class or express mail, postage prepaid; (2) telegram
(with messenger service specified), telex or TWX (with answer back received) or
courier service, charges prepaid; (3) facsimile transmission, to the
shareholder's address (or to the shareholder's telex, TWX, or facsimile number)
appearing on the books of the Corporation; or, (4) in the case of directors, in
such other manner as may be supplied by the director to the Corporation for the
purpose of notice. Notice sent by mail, by telegraph or by courier service shall
be deemed to have been given when deposited in the United States mail, with a
telegraph office or courier service for delivery except that, in the case of
directors, notice sent by regular mail shall be deemed to have been given 48
hours after being deposited in the United States mail or, in the case of telex,
TWX or facsimile, when dispatched.
Section 6.2 Waiver of Notice
Whenever any written notice is required to be given by statute, the
articles of incorporation or these bylaws, a waiver of the notice in writing,
signed by the person or persons entitled to the notice, whether before or after
the time stated in it, shall be deemed equivalent to the giving of the notice.
Neither the business to be transacted at, nor the purpose of, a meeting need be
specified in the waiver of notice of the meeting. Attendance of a person, either
in person or by proxy, at any meeting shall constitute a waiver of notice of the
meeting, except where the person attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
Section 6.3 Board Action by Unanimous Written Consent
Any action required or permitted to be taken at a meeting of the directors
or of any committee of directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents in writing setting forth the
action so taken is signed by all of the directors in office, or by all of the
members of a committee in office, as the case may be, and is filed with the
secretary of the Corporation.
Section 6.4 Meetings by Means of Conference Telephone
One or more persons may participate in a meeting of the directors, or of
any committee of directors, but not a meeting of the shareholders, by means of
conference telephone or similar communications' equipment by means of which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person at the meeting.
Section 6.5 Modification of Proposals
Whenever the language of a proposed resolution is included in a written
notice of a meeting required to be given by statute, the articles of
incorporation or bylaws, the meeting considering the resolution may without
further notice adopt it with any clarifying or other amendments that do not
enlarge its original purpose.
<PAGE>
Article 7
Inspection of Corporate Records
Section 7.1 Inspection of Corporate Records
Every shareholder shall, upon written verified demand stating the purpose
of the demand, have a right to examine, in person or by agent or attorney,
during the usual hours for business for any proper purpose, the share register,
books and records of the proceedings of the incorporators, shareholders and
directors and to make copies or extracts from those documents. A proper purpose
shall mean a purpose reasonably related to the interest of the person as a
shareholder. In every instance where an attorney or other agent is the person
who seeks the right of inspection, the demand shall be accompanied by a verified
power of attorney or other written document that authorizes the attorney or
other agent to act on behalf of the shareholder for this purpose. The demand
shall be directed to the Corporation at its registered office in Pennsylvania or
at its principal place of business wherever situated.
<PAGE>
Article 8
Personal Liability, Indemnification
and Insurance
Section 8.1 Personal Liability of Directors
A director of the Corporation shall not be personally liable for monetary
damages for any action taken, or any failure to take any action, unless the
director has breached or failed to perform the duties of his or her office under
1713 of the Pennsylvania Business Corporation Law of 1988, as it may be
amended, and such breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness; provided, however, that the foregoing provision
shall not eliminate or limit (i) the responsibility or liability of a director
under any criminal statute, or (ii) the liability of a director for the payment
of taxes according to local, state or federal law. Any repeal, modification or
adoption of any provision inconsistent with Section 8.1 of these bylaws shall be
prospective only, and neither the repeal or modification of this bylaw nor the
adoption of any provision inconsistent with this bylaw shall adversely affect
any limitation on the personal liability of a director of the Corporation
existing at the time of the repeal or modification or the adoption of the
inconsistent provision.
Section 8.2 Permissive Indemnification of Officers and Other Representatives
(a) The Corporation shall have the power, to the full extent not prohibited
by law, to indemnify and hold harmless each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in (as a witness or
otherwise) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether or not by
or in the right of the Corporation or otherwise (hereinafter, a proceeding), by
reason of the fact that he or she, or a person of whom he or she is the heir,
executor, or administrator, is or was an officer or other representative whether
compensated or non-compensated of the Corporation or is or was serving at the
request of the Corporation as an officer, director, trustee or other
representative of another corporation or of a partnership, joint venture, trust
or other enterprise (including without limitation service with respect to
employee benefit plans), or where the basis of the proceeding is any alleged
action or failure to take any action by such person while acting in an official
capacity as an officer or other representative of the Corporation, or in any
other capacity on behalf of the Corporation while that person is or was serving
as an officer or other representative of the Corporation, against any or all
expenses, liability and loss, including but not limited to attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement (whether with or without court approval), actually incurred or
paid by such person in connection with the proceeding.
(b) Notwithstanding the foregoing, to the extent that an officer or other
representative of the Corporation has been successful on the merits or otherwise
in defense of any proceeding, the Corporation shall indemnify that person
against expenses, including but not limited to attorneys' fees, actually and
reasonably incurred by that person in connection with the proceeding.
(c) Notwithstanding the foregoing, except as stated in Section 8.3 below,
the Corporation may indemnify any such person seeking indemnification in
connection with a proceeding (or part of it) initiated by that person only if
the proceeding (or part of it) was authorized by the board of directors of the
Corporation.
(d) Expenses incurred by an officer or other representative in defending
any proceeding may be paid by the Corporation in advance of the final
disposition of the proceeding upon receipt from or on behalf of the party or
parties of an undertaking to repay such expenses if and to the extent it shall
ultimately be determined that they are not entitled to be indemnified by the
Corporation and upon receipt by the Corporation of a request for indemnification
stating in reasonable detail the expenses incurred.
(e) Any right to indemnification and advancement of expenses provided in
these bylaws or conferred under the power granted herein shall continue for a
person who has ceased to be an officer or other representative of the
Corporation or to serve in any of the other capacities described herein, and
shall inure to the benefit of the heirs, executors and administrators of that
person.
(f) Except in instances where the officer or other representative of the
Corporation has been successful on the merits or otherwise, the indemnification
and/or advancement of expenses provided for in Section 8.2(a) through (e) above
shall be made by the Corporation only as authorized in the specific case upon a
determination that the officer or other representative of the Corporation should
be indemnified and/or expenses should be advanced because he or she acted in
good faith and in a manner that he or she reasonably believed to be in, or not
opposed to, the best interests of the Corporation. Such determination shall be
made: (a) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding; or (b) if such quorum is not
obtainable or if the board directs it, by independent legal counsel. In no
event, however, shall any payment be made where indemnification is not permitted
by law.
<PAGE>
Section 8.3 Payment of Indemnification
If a claim for indemnification under Section 8.2 of these bylaws is not
paid in full by the Corporation within thirty (30) days after the later of: (a)
compliance with Section 8.2(f), and (b) a written claim for indemnification has
been received by the Corporation, the claimant may bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part on the merits or otherwise in establishing his or her right to
indemnification or to the advancement of expenses, the claimant shall be
entitled to be paid the expenses of prosecuting the claim.
Section 8.4 Non-exclusivity of Rights
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of a final disposition conferred in Section
8.2 and the right to payment of expenses conferred in Section 8.3 shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses hereunder may be entitled under any bylaw, agreement,
vote of shareholders, vote of directors or otherwise, both as to actions in his
or her official capacity and as to actions in any other capacity while holding
that office. The Corporation shall have the express authority to enter into such
agreements or arrangements as the board of directors deems appropriate for the
indemnification of and advancement of expenses to present or future directors
and officers as well as employees, representatives or agents of the Corporation
in connection with their status with or services to or on behalf of the
Corporation or any other corporation, partnership, joint venture, trust or other
enterprise, including any employee benefit plan, for which the person is serving
at the request of the Corporation.
Section 8.5 Funding
The Corporation may create a fund of any nature, which may, but need not
be, under the control of a trustee, or otherwise secure or insure in any manner
its indemnification obligations, including its obligation to advance expenses,
whether arising under or pursuant to this Article or otherwise.
Section 8.6 Insurance
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director or officer or representative of the Corporation, or is
or was serving at the request of the Corporation as a representative of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against that person and incurred by that person in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation has the power to indemnify that person against such liability under
the laws of this or any other state.
Section 8.7 Modification or Repeal
Neither the modification, amendment, alteration or repeal of this Article
or any of its provisions nor the adoption of any provision inconsistent with
this Article or any of its provisions shall adversely affect the rights of any
person to indemnification and advancement of expenses existing at the time of
the modification, amendment, alteration or repeal or the adoption of the
inconsistent provision.
<PAGE>
Article 9
General Provisions
Section 9.1 Registered Office
The registered office of the Corporation in the Commonwealth of
Pennsylvania shall be that address as may be designated from time to time by the
board of directors.
Section 9.2 Other Offices
The Corporation may have additional offices and places of business in such
places, within or outside the Commonwealth of Pennsylvania, as the board of
directors may designate or as the business of the Corporation may require.
Section 9.3 Corporate Seal
The Corporation may have a corporate seal, which shall have inscribed on it
the name of the Corporation, the year of organization, and the words "Corporate
Seal-Pennsylvania" or such inscription as the board of directors may determine.
The seal may be used by causing it or a facsimile of it to be impressed or
affixed, or in any manner reproduced.
Section 9.4 Fiscal Year
The fiscal year of the Corporation shall end on the 31st day of December in
each year.
Section 9.5 Amendment of Bylaws
These bylaws may be amended or repealed, and new bylaws may be adopted, by
vote of a majority of the directors of the Corporation then in office, except
where the power to repeal, adopt or amend a bylaw on any subject is expressly
committed to the shareholders by the articles of incorporation or the
Pennsylvania Business Corporation Law of 1988, as it may be amended, and subject
always to the power of the shareholders to change any action taken by the board.
Any change in the bylaws shall take effect when adopted unless otherwise
provided in the resolution making the change. Any action required or permitted
to be taken with respect to these bylaws by the shareholders shall be taken only
by the affirmative vote of a majority of the outstanding shares of capital stock
of the Corporation entitled to vote on the matter, and this provision may itself
be amended, modified or repealed only by said affirmative vote of shareholders.
DERMA SCIENCES, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, made and dated as of the 23rd day of July,
1997 between Derma Sciences, Inc., a Pennsylvania corporation (the "Company"),
and Stephen T. Wills, CPA, MST (the "Optionee").
WHEREAS, the Company desires to afford the Optionee, in consideration for
his services to the Company as its Chief Financial Officer, an opportunity to
purchase shares of Common Stock of the Company ("Shares") as hereinafter
provided,
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the legal sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right and
option to purchase all or any part of an aggregate of 75,000 shares (the
"Option") which Option is intended as a "nonqualified stock option". The Option
is in all respects limited and conditioned as hereinafter provided.
2. Purchase Price. The purchase price per share (the "Option Price") of the
Shares covered by the Option (the "Option Shares") shall be the offering price
of the Company's Common Stock in the Company's current private offering, to wit:
$1.00.
3. Term. The Option shall expire on July 22, 2007 (the "Expiration Date").
4. Vesting and Exercise of Option. The right of the Optionee to purchase
the Option Shares may be exercised, cumulatively and in whole or in part, at the
times hereinbelow provided:
Date Installment Number of
Becomes Exercisable Option Shares
August 22, 1997 4,166
September 22, 1997 4,167
October 22, 1997 4,167
November 22, 1997 4,166
December 22, 1997 4,167
January 22, 1998 4,167
February 22, 1998 4,166
March 22, 1998 4,167
April 22, 1998 4,167
May 22, 1998 4,166
June 22, 1998 4,167
July 22, 1998 4,167
August 22, 1998 4,166
September 22, 1998 4,167
October 22, 1998 4,167
November 22, 1998 4,166
December 22, 1998 4,167
January 22, 1999 4,167
5. Acceleration of Vesting. Vesting of the Option shall accelerate and the
Option shall become 100% exercisable upon the occurrence of either of the
following: (1) the sale by the Company of all or substantially all of its assets
to any person (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934), the consolidation of the Company with any person, or the
merger of the Company with any person as a result of which merger the Company is
not the surviving entity, or if the surviving entity, the Company is owned by a
parent company; or (2) the sale or transfer by one or more of the Company's
shareholders in one or more transactions, related or unrelated, to one or more
persons under circumstances whereby any person and its "affiliates" (as defined
herein) shall own, as a result of such sale or transfer, at least Fifty percent
(50%) of the outstanding shares of the Company.
<PAGE>
6. Method of Exercising Option. (a) Subject to the terms and conditions of
this Option Agreement, the Option may be exercised by giving written notice to
the Company at its principal office specifying the number of Option Shares to be
purchased and accompanied by payment in full of the aggregate purchase price for
the Shares. Only full Shares shall be delivered and any fractional share which
might otherwise be deliverable upon exercise of an Option granted hereunder
shall be forfeited. Attached as Exhibit 1 is a form of written notice acceptable
to the Company.
(b) The purchase price shall be payable: (i) in cash or its
equivalent, or (ii) in whole or in part through the transfer of Common
Stock previously acquired by the Optionee.
(c) Upon receipt of such notice and payment, the Company, as promptly
as possible, shall deliver or cause to be delivered a certificate or
certificates representing the Shares with respect to which the Option is so
exercised. The certificate or certificates for such Shares shall be
registered in the name of the person or persons exercising the Option (or,
if the Optionee shall so request in the notice exercising the Option, in
the name of the Optionee and his spouse, jointly, with right of
survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising the Option. In the event
the Option is exercised by any person or persons after the death or legal
disability of the Optionee, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise the Option. All
shares that are purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.
7. Non-transferability of Option. Save as hereinafter provided, the Option
is not assignable or transferable, in whole or in part, by the Optionee other
than by will or by the laws of descent and distribution. During the lifetime of
the Optionee, the Option shall be exercisable only by the Optionee or, in the
event of his legal disability, by his legal representative. Provided, however,
Optionee may assign, without limitation, the unexercised portion of this Option
to the firm of Golomb, Wills & Company, Princeton, New Jersey.
8. Withholding of Taxes. The obligation of the Company to deliver Shares
upon the exercise of any Option shall be subject to any applicable federal,
state and local tax withholding requirements.
9. Governing Law. This Agreement shall, to the maximum extent possible, be
construed in a manner consistent with the Internal Revenue Code provisions
concerning nonqualified stock options and its interpretation shall otherwise be
governed by Pennsylvania law.
IN WITNESS WHEREOF, the parties have set their hands and seals as of the
day and year first hereinabove written.
DERMA SCIENCES, INC.
By: /s/ Edward J. Quilty
----------------------
Edward J. Quilty, Chairman
OPTIONEE
By: /s/ Stephen T. Wills, CPA, MST
-------------------------------
Stephen T. Wills, CPA, MST
<PAGE>
EXHIBIT 1
DERMA SCIENCES, INC.
NOTICE OF EXERCISE OF STOCK OPTION
I hereby exercise nonqualified stock options granted to me on
_______________ by Derma Sciences, Inc. with respect to the following number of
shares of Derma Sciences, Inc. Common Stock, $.01 par value per share,
("Shares") covered by said option:
Number of Shares to be purchased ________________
Option price per Share ________________
Total option price ________________
Enclosed is my check in the amount of $_______ (and/or ______ Shares)1.
Please have the certificate or certificates representing the purchased Shares
registered in the following name or names2 ________________________________ and
sent to _________________________________________________.
DATED: ______________, ____.
OPTIONEE
_________________________
- --------
1The option price may be paid in whole or in part by delivery of Shares, subject
to the terms of the Optionee's Stock Option Agreement.
2Certificates may be registered in the name of the Optionee alone or in the
joint names of the Optionee and his/her spouse.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Balance Sheet at June 30, 1997 (unaudited) and the Condensed
Statement of Operations for the quarter ended June 30, 1997 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000892160
<NAME> Derma Sciences, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 144,962
<SECURITIES> 0
<RECEIVABLES> 798,851
<ALLOWANCES> 0
<INVENTORY> 779,097
<CURRENT-ASSETS> 2,811,026
<PP&E> 94,858
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,603,323
<CURRENT-LIABILITIES> 1,971,907
<BONDS> 0
0
0
<COMMON> 40,676
<OTHER-SE> 1,495,740
<TOTAL-LIABILITY-AND-EQUITY> 3,603,323
<SALES> 796,246
<TOTAL-REVENUES> 796,246
<CGS> 225,852
<TOTAL-COSTS> 225,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,926
<INCOME-PRETAX> (1,118,035)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,118,035)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,118,035)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> 0
</TABLE>
