<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED AUGUST 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 0-23138
AMERICAN CINEMASTORES, INC.
------------------------------
(Exact name of registrant as specified in its charter)
California 95-4374952
- ---------------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1543 7th Street
Santa Monica, California 90401
- ---------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 310-394-6444
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No__________
The number of shares of common stock outstanding as of August 31, 1996:
6,892,638
<PAGE> 2
AMERICAN CINEMASTORES, INC.
FORM 10-QSB
ITEM 1 - DESCRIPTION OF BUSINESS
GENERAL
From May 1993, when the Company commenced operations, through May 31, 1996, the
Company was engaged in the operation of retail mini-stores offering
movie-related merchandise, such as apparel, posters, toys, compact discs and
cassette tapes of movie sound tracks, and other items. Initially, the
Company's mini-stores were located in the lobbies of movie theaters located in
California, Florida, New Jersey, and New York. Beginning in July 1994, the
Company also opened temporary mini-stores in regional shopping malls offering
merchandise similar to that offered by the theater lobby mini-stores. Because
mini-store operations did not generate the revenues and profits necessary to
successfully operate the Company, in the period May 1995 through May 1996, the
Company discontinued all retail operations.
During negotiations with the operators of various regional shopping malls, the
Company identified a market for fixtures for shopping malls and retail stores
(e.g., temporary retail stores, carts, kiosks, mall directory units and other
items). After investigation and analysis of this business opportunity, the
Company organized Sierra Fixture and Design, Inc. ("Sierra") in March 1995, as
a wholly-owned subsidiary to design, arrange for the manufacture of, market and
distribute mall fixtures to operators and developers of regional shopping
malls. Sierra delivered its first significant order of carts in August 1995.
In addition to growing the Sierra subsidiary, the Company has decided to
concentrate its efforts on consummating pending mergers with Superior Panoramic
Hand Prints, Inc. and Just Jackets Corporation (the "Target Companies") (See
Note 7 of the financial statements), and expanding Sierra's business.
The Target Companies design and produce value-added garments and other textile
products, such as beach and golf towels, for sale to distributors in the
advertising specialty industry and to retailers of souvenir and novelty
products. They add value to blank or plain textile products, such as t-shirts,
sweatshirts, jackets and towels, by decorating them with the logos, names or
messages of the advertisers or other customers of the advertising specialty
distributors with whom they do business and the graphic designs required by
their retail customers. Just Jackets also manufactures leather, leather and
fabric and fabric only jackets and sells such apparel to such distributors and
retail outlets. Superior was established in 1982, and Just Jackets was
established in 1993.
The Target Companies decorate blank garments and other textile products with
graphic designs primarily by means of screen printing and embroidery. They
believe that producing high quality graphic images on the garments they supply,
coupled with their ability to produce and deliver value added products within
short time frames, fortifies their reputation in the advertising specialty
industry. Superior maintains an internal graphic arts and design department of
four persons and state of the art imprinting and embroidery equipment to meet
the needs of customers.
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OPERATIONS OF SIERRA
Sierra, which commenced operations on March 1, 1995, is engaged in the design,
marketing and installation of fixtures used in retail shopping malls and stores
and mall service operations. Such fixtures consist of temporary retail units,
kiosks, carts and barricade units, some of which incorporate state of the art
electronics, computers and 3-dimensional technologies (e.g., touch video
screens in mall directory units). Sierra has a standard product line of
approximately 30 items and also offers custom design services. Sierra does not
maintain an inventory of finished retail fixtures, except for five mobile units
used for sales demonstrations. Standard and custom units are produced for
customers solely on a "job order" basis, which means that units are produced
only against firm purchase orders received from customers which have been
accepted by Sierra in each instance.
THE SHOPPING MALL AND RETAIL FIXTURES MARKET
The shopping mall and retail fixture market is highly fragmented. Suppliers of
shopping mall and retail store fixtures range from small closely-held local
firms to corporations having national markets. Most suppliers operate on a
local or regional basis. The portion of the market serviced by Sierra consists
of regional operators of shopping malls and developers of shopping malls on a
regional and national basis. The Company believes, based on its knowledge of
the industry, that the potential national market for its products is
approximately $150 million. Generally, the Company's products are marketed
locally to individual malls. The purchase decision is typically made by mall
employees in the marketing or temporary leasing department of the mall's
management. In some instances, however, management from the corporate office
of a multi-mall developer, such as The Hahn Company or General Growth
Properties, will acquire a number of units for distribution throughout their
mall network. Customers in the mall market have highly specialized needs.
Accordingly, the suppliers in this market, including Sierra, must often
customize their products to meet specific needs of the customer.
MARKETING AND SALES
Sierra maintains a showroom at its offices in Newport Beach, California at
which it displays some of its products as well as drawings covering its product
line of approximately 30 items. Sierra's marketing and sales programs are
implemented by its president and four independent sales representatives. The
sales representatives receive commission income from Sierra based solely on
orders solicited by them which have been accepted by Sierra. None of such
sales representatives is engaged by Sierra on an exclusive basis or devotes
substantially all of his or her time to selling Sierra's products. Sales
efforts involve visits to customers, attendance at trade shows throughout the
United States, particularly those sponsored by the International Council of
Shopping Centers, and visits by customer representatives to Sierra's showroom.
Sierra's president and independent sales representatives, supported by Sierra's
one-person design department, develop retail merchandising and advertising
units tailored to the customer's specific needs. Products range from permanent
mall fixtures and information centers to mobile carts, customized to a specific
theme, color scheme or presentation purpose for the mall developer or store
operator.
2
<PAGE> 4
Sierra's merchandising strategy is to offer a broad line of conventional
fixtures as well as custom designed fixtures so as to permit "one-stop"
shopping for its customers. When a custom design is required, Sierra's graphic
art person can usually produce a visual presentation of the product for
customer approval within five business days. The Company believes that Sierra
has developed strong customer relationships with large mall developers, such as
General Growth Properties and The Hahn Company that have large budgets to
support modernization of their mall fixtures. These relationships allow Sierra
to identify and develop other customer relationships and to respond to customer
requirements in the early stages of a merchandising or on-site advertising
program.
During the first fiscal quarter which ended August 31, 1996, Sierra sold units
to 4 customers, including General Growth Properties and The Walt Disney Company
who comprised approximately 96% of the net sales which totaled $404,295. Of
such number of customers, The Walt Disney Company accounted for 93% of such
revenues. Accordingly, the loss of this customer would have a material adverse
effect on the Company's mall and retail fixtures business.
The Company believes that conventional forms of on-site retail merchandising
and advertising units are rapidly evolving into forms utilizing interactive
video and other state of the art technologies and that such products represent
a low cost alternative to traditional retailing concepts which can be used by
mall developers and retailers to deliver specific messages to targeted
recipients. While the Company anticipates continued market acceptance of
Sierra's retail fixture designs, there can be no assurance that such designs
will achieve broad market acceptance by mall developers and retailers and
thereby generate sufficient revenues to permit the Company to achieve
profitable operating results.
PRODUCT DEVELOPMENT
Sierra's graphic designer and its president are involved in new product
development by assessing existing products and seeking to create "new looks"
through innovate design and artwork and providing samples and prototypes of new
styles and designs to customers in response to customer requirements. The
design of a new product can take from a few hours to several weeks depending on
the nature of the product and the number of units to be sold.
PRODUCTION
Sierra is entirely dependent on third party manufacturers to supply the
finished products necessary to fulfill outstanding customer orders. All of the
manufacturers with whom Sierra does business are located in Southern
California. As of the date of this report, Sierra has no long-term agreements
with any of its manufacturers and there can be no assurance it would be able to
enter into any such agreements on terms favorable to it or on any terms.
While the Company believes that Sierra has good relationships with its
manufacturers, Sierra is subject to the risk that a manufacturer may terminate
its relationship with Sierra at any time or that an order may be received by it
at a time when its manufacturers are working at full capacity. In such case,
the Company may not be in a position to accept the order or risk cancellation
of the order because of its inability to make shipment on a timely basis.
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The Company believes, based on its experience, that in the event a manufacturer
terminates its relationship with Sierra, or refuses to accept an order from
Sierra, it will be able to obtain alternative sources of supply that will
provide finished products in sufficient quantities, on a timely basis and at
acceptable prices to enable Sierra to satisfy customer requirements.
SEASONALITY
Sierra's business is seasonal. Sales are highest in the spring and summer
months. Mall and retail operators attempt to have all of their retail
merchandising units in place and tested prior to the onset of the Christmas
holiday season. Sales usually begin to decline in the fall of the year and do
not resurge until about March of the following year.
BACKLOG
As of the date of this report, Sierra has a backlog of firm orders of
approximately $485,000. The backlog consists primarily of merchandising units
being produced for The Center Court Concierge Company, and Cal-Mart. These
units will be shipped during the second fiscal quarter. As of May 31, 1996,
Sierra had a backlog of approximately $400,000, consisting of merchandising
units which were shipped during the first fiscal quarter which ended August 31,
1996.
COMPETITION
The shopping mall and retail fixtures business is extremely competitive. The
primary bases for competition are delivery, price, quality, customer service,
design and customization capabilities and product offerings. The Company
believes that Sierra competes effectively on the basis of quality products,
customer service, pricing and timely delivery. Although pricing is important,
the Company believes that product quality and timely delivery are almost of
equal importance. The Company believes that Sierra's relationships with its
suppliers permit it to meet customer demand for quality and timely delivery
while being price competitive.
The Company believes, based on Sierra's knowledge of the shopping mall and
retail fixtures industry in the United States, that its principal competitors
are T.L. Horton, Creations of Dallas and Wagon Sellers. Each of these
competitors has its own manufacturing facility and some of the competitors may
have greater capital resources than Sierra. The prices of products sold by
competitors may be less than the prices of similar merchandise sold by Sierra,
and such price competition may have a material adverse effect on the revenues
of the Company as well as its ability to effectively compete with other such
companies.
There are no legal barriers to entry into the shopping mall and retail fixtures
business and, as a practical matter, no financial barriers either. Some of the
Company's competitors have substantially greater financial and other resources.
There are usually no proprietary rights which can be protected from competition
by patents, copyrights, or similar intellectual property. There can be no
assurance that Sierra will continue to be able to effectively compete against
existing and future competitors.
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EMPLOYEES
As of the date of this report, the Company had eight employees, three of whom
are executives, three of whom are administrative/clerical employees, one of
whom manages Sierra's operations, and one of whom constitutes Sierra's design
department. Gill Champion, the Company's Chief Executive Officer, has agreed
to resign as an officer and director of the Company and the Company will file
the necessary documentation upon receipt of his resignation.
DESCRIPTION OF PROPERTIES
The Company does not own any properties.
The Company currently leases approximately 500 square feet of office space in
Santa Monica, California on a month to month basis at $1,000 per month. In
anticipation of a merger being consummated, the Company has terminated its
prior lease, consisting of 3,500 sq, ft., in Santa Monica without penalty and
will move its executive offices to Sierra or to the space currently leased by
the Target Companies in October, 1996.
The Company does not anticipate incurring any significant expenses regarding
its relocation. If a merger is not consummated, the Company intends to
relocate the Corporate offices to Sierra. Sierra currently leases
approximately 1,500 square feet of office and showroom space in Newport Beach,
California at a monthly rental of $1,500. Such lease expires in June 1999.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
From inception through May 31, 1996, the Company incurred significant losses in
connection with implementation of its plans to operate mini-retail stores in
movie theater lobbies and shopping malls. The Company, having determined that
its retailing concepts were not viable, discontinued all retail operations as
of May 31, 1996. Since revenue levels were not sufficient to attain
profitability, the Company has been attempting to increase revenues and cash
flow and attain profitability through implementation of a restructuring plan
involving the discontinuance of retail operations and reduction of operating
expenses, consummation of proposed mergers and expansion of its shopping mall
and retail fixtures business.
The Company's cash requirements continue to be significant and the Company has
been utilizing the proceeds of its 1994 public offering, together with its
limited operating revenues, to pay operating expenses. Such expenses include
expenditures necessary to support the operations of its shopping mall and
retail fixtures business, salaries of, and employee benefits for, its
executive, administrative and marketing personnel, rent and utilities.
The first step in the implementation of the Company's restructuring has been
the discontinuance of its retail operations. Although such termination has
reduced the Company's revenues, it has also significantly reduced operating
expenses. With the discontinuance of retail operations, the Company is
devoting a significant portion of its capital resources to the support of its
shopping mall and retail fixtures business, which is conducted through Sierra.
In light of Sierra's low overhead (when considered as a separate business
unit), the Company is currently seeking to determine the most efficient means
to increase Sierra's revenues. The final step in the implementation of the
restructuring plan has been the identification of the Target Companies by the
Company as suitable acquisition candidates (the "Mergers"). Toward that end,
the Company has formed two wholly-owned subsidiaries who, in turn, have entered
into merger agreements with the Target Companies pursuant to which the Company
it is obligated to raise at least $3 million through a private placement or
public offering of securities to provide funds for payment of the Cash
Consideration and to provide at least $1 million of working capital to the
acquired Target Companies following the consummation of the Mergers. Up to $3
million of the net proceeds of this offering have been allocated to such
purposes. In connection with the Mergers, the Company will be assuming up to
$1.4 million of institutional indebtedness of the Target Companies.
The following discussion should be read in conjunction with the Company's
consolidated financial statements for its fiscal quarters ended August 31,
1996, and 1995, respectively, including the notes thereto.
6
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RESULTS OF OPERATIONS - THE COMPANY
Fiscal Quarter Ended August 31, 1996 Compared to the Fiscal Quarter Ended May
31, 1995
Net Sales
Net sales from continuing operations for the quarter ended August 31, 1996 were
$404,734. Net sales from continuing operations consisted of sales generated by
Sierra, there were no sales from discontinued operations. Sales from
continuing operations for the quarter ended quarter 31, 1995 were $391,662. If
sales of $228,597 from the discontinued retail operations were included in the
net sales for the quarter ended August 31, 1995, net sales for such period
would have been $620,259. This slight increase in sales from continuing
operations is primarily attributable to orders from The Walt Disney Company
which totaled approximately $375,000.
Gross Profit
Gross profit from continuing operations for the quarter ended August 31, 1996
was $204,786, or 50% of net sales. Gross profit from continuing operations for
the period ended August 31, 1995 was $189,251 or 48%. If the gross profit of
$79,918 from discontinued retail operations were included in the net sales for
the quarter ended August 31, 1995, gross profit for such period would have been
$268,719 (or 43%). The reason for the improved gross profit for the quarter
ended August 31, 1996 as compared to the same period in the prior fiscal year
is primarily the result of Sierra's improved operating efficiencies since their
first year of operation.
Selling, general and administrative expenses
Selling expenses relating to continuing operations for the quarter ended August
31, 1996 were $15,737, consisting of commissions paid to outside sales
personnel for Sierra. Selling expenses attributable to continuing operations
for the quarter ended August 31, 1995 were $9,299 which are also attributable
to commissions paid by Sierra. There were no selling expenses from
discontinued operations for the quarter ended August 31, 1996. The reason for
the increase in selling expenses of continuing operations from August 31, 1995
to August 1996 is due to additional sales being generated by commissioned sales
representatives as compared to the period ended August 31, 1995 when fewer
sales representatives were used by Sierra.
General and administrative expenses relating to continuing operations for the
quarter ended August 31, 1996 were $464,278, as compared to $326,474 for the
quarter ended August 31, 1995. The reason for such increase was increased
advertising, travel, and trade show expenses from Sierra as well as continuing
overhead expenses from the parent while closing the merger/acquisition.
Interest Income
Interest received from cash investments declined from $23,020 to $8,537 during
the quarter ended August 31, 1996, as compared to the quarter ended August 31,
1995. The reason for this decrease in interest income is the result of cash
being used for working capital and consequently having decreasing amounts of
cash available for investment.
Net Loss
The Company incurred a net loss from operations for the quarter ended August
31, 1996 of $266,692, or $0.04 per share. There was a net loss of $123,503, or
$0.02 per share, from continuing operations and a net loss of $236,734, or
$0.03 per share from discontinued operations for the period ended August 31,
1995. As discussed in the selling, general and administrative section, the
increased net loss from continuing operations is primarily the result of
continuing corporate overhead expenses during the finalization of the
merger/acquisition.
7
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Fiscal Quarter Ended August 31, 1995 Compared to Fiscal Quarter Ended August
31, 1994
Net Sales
Net sales from continuing operations for the quarter ended August 31, 1995,
attributable solely to Sierra, were $391,662. There were no sales from
continuing operations for the quarter ended August 31, 1994. Sierra began
operations in March, 1995, the fourth fiscal quarter of fiscal 1995. Sales
from discontinued retail operations for the quarter ended August 31, 1995 were
$228,597, as compared to sales of $228,077 from discontinued retail operations
for the first quarter of fiscal 1994.
Gross Profit
Gross profit from continuing operations for the fiscal quarter ended August 31,
1995 was $189,251, 48% of net sales. There were no sales from continuing
operations during the fiscal quarter ended August 31, 1994. Gross profit from
discontinued retail operations was $79,917, 35% of sales, for the quarter ended
August 31, 1995 as compared to $95,966, 42% of net sales, for the fiscal
quarter ended August 31, 1994. Cost of sales consists of the cost of product
for resale, shipping costs and inventory shrinkage amounts. The decline in
gross profit from discontinued operations is the result of higher product costs
as well as booking additional provision for inventory obsolescence and
shrinkage.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SGA expenses") from continuing
operations for the fiscal quarter ended August 31, 1995 were $335,774. There
were no SGA expenses attributable to continuing operations for the fiscal
quarter ended August 31, 1994. The general and administrative expenses from
continuing operations for fiscal quarter ended August 31, 1995 relate to costs
associated with operations, as well as start-up and management costs associated
with Sierra. SGA expenses attributable to discontinued operations for the
first fiscal quarter of fiscal 1995 were $316,663, as compared to $391,067 for
fiscal 1994. This slight decrease is result of certain overhead expenses being
apportioned to the continuing Sierra business. Sierra did not exist in the
first fiscal quarter of 1994.
Net Loss
The Company had a net loss from continuing operations for the quarter ended
August 31, 1995 of $123,503 or $0.02 per share. Such loss is primarily
attributable to start-up expenses for Sierra. The net loss from discontinued
operations for the fiscal quarter ended August 31, 1995 was $236,744, or $0.03
per share, as compared to a net loss from discontinued operations for the
fiscal quarter ended August 31, 1994 of $275,101 or $0.06 per share.
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
Historically, the Company's primary cash requirements have been to support
retail operations. The Company has relied on the proceeds of its 1994 public
offering of Common Stock and cash flow from retail operations to fund its
working capital requirements. As of May 31, 1996, The Company had discontinued
all retail operations.
At August 31, 1996, the Company had working capital of $242,883, as compared to
working capital of $3,001,573 at August 31, 1995. The decrease in working
capital was primarily attributable to inventory write-downs and loss related to
discontinued retail operations. Included in the working capital amount for
fiscal 1995 is $451,287 related to the fixed assets of the retail operations
which were written off in the second fiscal quarter.
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Net cash used in operating activities was $260,834 for the quarter ended August
31, 1996, as compared to net cash used in operating activities of $549,323 for
the quarter ended August 31, 1995. The decrease in cash used in operating
activities was primarily attributable to the reduced net loss from continuing
operations as well as a substantial increase in deferred revenue which will be
converted to sales in the second fiscal quarter.
As a result of the discontinuance of retail operations, the Company has been
devoting its resources to support the operations of Sierra and to completing
its due diligence investigation of Target Companies, negotiating the merger
agreements (see Note 7 to the financial statements), and implementing its plan
to raise funds to finance the acquisition of the Target Companies and to
provide working capital to them subsequent to the completion of such Mergers.
The Company provides for income taxes in accordance with Statement of Financial
Standards ("SFAS") No. 109, Accounting for Income Taxes. As of May 31, 1996,
the Company has significant amounts of net operating loss carry-forwards which
result in deferred tax assets of $2.1 million (See Note 5 to The Financial
Statements). The Company provides a valuation allowance for deferred tax
assets when it is more likely than not, based upon available evidence, that
some portion or all of the deferred tax asset will not be realized. In
management's opinion, it can not be determined if it is more likely than not if
the Company will generate sufficient taxable income before The year 2012, two
years after all net operating loss carry forwards expire, to utilize all of the
Company's deferred tax asset. As of May 31, 1996, a valuation allowance has
been recognized for the full amount of the deferred tax asset of $2.1 million.
For federal income tax purposes, the Company has federal net operating loss
carry-forwards of $5,912,000 and state net operating loss carry-forwards of
$2,723,000 at May 31, 1996. These carry-forwards expire in the years 2008 to
2011. Federal tax rules impose limitations on the use of net operating losses
following certain changes in ownership. The Company experienced such a change
in March 1994, which will limit the use of the federal net operating loss
carryforward to $370,000 per year on a total of $985,000 incurred prior to the
change in ownership.
The Company believes it will generate sufficient cash flows from operations in
fiscal 1997 to meet cash requirements for existing subsidiary operations. In
the event the Company consummates the merger agreements, additional financing
may be required to meet operational and cash necessities of the new entity.
However, no assurance can be given that such financing will be obtained.
If the mergers are not effected, the Company intends to expand Sierra's
operations. The Company has also taken certain cost-cutting measures.
Effective September 1, 1996, the Company canceled its lease on the corporate
office facility of 3,500 sq. ft, without penalty, and will merge the corporate
office with Sierra's office in Newport Beach, California. The Company plans to
terminate corporate personnel in areas where duplication of functions occurs.
Statements of Financial Accounting Standards No. 121, Accounting for The
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
(SFAS No. 121) issued by The Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. The new standard establishes new guidelines regarding when
impairment losses on long-lived assets, which include plant and equipment, and
certain identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company does not expect adoption to have a
material effect on its financial position or results of operations.
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Statements of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) issued by The Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from non-employees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock based compensation or only provide the
required financial statement disclosures. As such, The impact on The Company's
financial position and results of operations is currently unknown. the Company
does not expect adoption to have a material effect on its financial position or
results of operations.
10
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Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
AMERICAN CINEMASTORES, INC.
By By STEVE NATALE
------------------------------ --------------------------------
Gill Champion, Steve Natale,
Chairman of The Board President, Director and
Chief Executive Officer and Chief Operating Officer
Secretary
By CHRISTOPHER J. EBERT
------------------------------
Christopher J. Ebert,
Chief Financial Officer
(Principal Financial Officer)
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AMERICAN CINEMASTORES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AUGUST 31, AUGUST 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 92,704 $ 311,054
Marketable securities 82,717 1,872,182
Accounts receivable, net (Note 8) 388,241 220,201
Notes receivable (Note 9) 93,095 -
Inventory 217,234 347,105
Prepaid and other 3,079 10,031
Net assets of discontinued operations (Note 6) - 451,287
- ---------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 877,069 3,211,860
- ---------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Office furnishings and equipment 152,056 153,215
Automobiles 17,326 17,326
Leasehold improvements 5,338 5,338
- ---------------------------------------------------------------------------------------------------------------
174,719 175,879
Less accumulated depreciation
and amortization 80,548 103,861
- ---------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 94,171 72,018
- ---------------------------------------------------------------------------------------------------------------
DEPOSITS 1,750 17,805
PRODUCT LICENSES - 15,000
DEFERRED ACQUISITION COSTS 351,688 -
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,324,678 $ 3,316,683
===============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements
12
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AMERICAN CINEMASTORES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AUGUST 31, AUGUST 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and
accrued expenses $ 388,727 $ 210,287
Deferred Revenue (Note 4) 246,149 -
- ---------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 634,876 210,287
- ---------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCY
(Note 4)
- ---------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
(Notes 1,2, and 3)
Preferred stock, $.01 par value
5,000,000 shares authorized,
none issued
Common stock: $.001 par value
15,000,000 shares authorized,
6,892,638 issued and outstanding
at August 31,1996 and August 31,1995 6,892 6,892
Additional paid-in capital 7,103,552 7,103,552
Accumulated deficit (6,420,641) (4,004,048)
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 689,803 3,106,396
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 1,324,678 $ 3,316,683
===============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements
13
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AMERICAN CINEMASTORES, INC
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 404,295 $ 391,662
COST OF SALES 199,509 202,861
- ---------------------------------------------------------------------------------------------------------------
GROSS PROFIT 204,786 189,251
- ---------------------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 480,015 335,774
- ---------------------------------------------------------------------------------------------------------------
OPERATING LOSS FROM CONTINUING OPERATIONS (275,229) (146,523)
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 8,537 23,020
- ---------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 8,537 23,020
- ---------------------------------------------------------------------------------------------------------------
Loss from continuing operations (266,692) (123,503)
Loss from discontinued operations - (236,744)
- ---------------------------------------------------------------------------------------------------------------
NET LOSS $ (266,692) $ (360,247)
- ---------------------------------------------------------------------------------------------------------------
NET LOSS PER COMMON STOCK SHARE
From continuing operations $ (0.04) $ (0.02)
From discontinued operations - (0.03)
- ---------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (0.04) $ (0.05)
WEIGHTED AVERAGE COMMON STOCK
SHARES OUTSTANDING 6,892,638 6,892,638
===============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements
14
<PAGE> 16
AMERICAN CINEMASTORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH EQUIVALENTS THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (266,692) $ (360,247)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,327 27,627
Increase (decrease) from changes in:
Accounts receivable (172,731) (196,884)
Inventory (144,024) 340
Prepaids and other 30,294 4,675
Deferred revenue 123,549 (67,500)
Accounts payable and accrued expenses 159,443 42,666
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (260,834) (549,323)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities 277,217 262,011
Acquisition of property and equipment (749) (20,273)
Deferred acquisition costs (36,927)
- ---------------------------------------------------------------------------------------------------------------
Net cash from investing activities 239,541 241,738
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (21,293) (307,585)
Cash and cash equivalents
at beginning of period 113,997 618,639
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 92,704 $ 311,054
==============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements
15
<PAGE> 17
AMERICAN CINEMASTORES, INC AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American CinemaStores, Inc. (the Company) was incorporated on June 2, 1992.
Principal business operations commenced on May 28, 1993. The Company had been
engaged in the installation and operation of mini-stores in movie theatre
lobbies and regional malls from which the Company sold movie related products
including clothing, posters, and toys as well as compact discs of movie
soundtracks and other popular music recordings. The Company also sold certain
top selling movie and music videos.
In the year ended May 31, 1995, the Company established a wholly-owned
subsidiary, Sierra Fixture and Design, Inc. to construct and sell small kiosks,
display booths and other portable store fixtures for use in mall stores.
In November 1995, the Company decided to discontinue all of its retail
operations. (Note 6)
The accompanying consolidated financial statements include the accounts of
American Cinema Stores, Inc. and subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The Company's marketable securities consist of United States Government
Treasury Bills that mature in six months and are stated at cost which
approximates market. The Company's policy is to hold such securities to
maturity, unless cash is needed for operations.
INVENTORY
Inventory is stated at the lower of cost (first-in/first-out) or market.
Inventory consists solely of purchased goods ready for sale.
EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is being provided on a
straight line basis over the estimated useful lives of the related assets which
range from three to ten years.
DEFERRED OFFERING AND ACQUISITION COSTS
Deferred offering and acquisition costs consist of legal and other professional
costs incurred in connection with the pending mergers and anticipated offering
of the Company's common stock to finance the mergers, as described in Note 7.
Of the $351,688 in deferred costs, $191,688 relates to the mergers. Upon
consummation of the mergers, the costs will be included in the determination of
the total cost of the mergers, with any resulting goodwill to be amortized over
its estimated useful life under the straight-line method.
16
<PAGE> 18
The remaining $160,000 relates to the anticipated offering and will be recorded
as a reduction of gross proceeds raised upon completion of the offering.
In the event the mergers and the offering are not completed, the costs will be
written off.
REVENUE RECOGNITION POLICY
The Company recognizes revenue at the time products are delivered to customers.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. SFAS
109 employs an asset and liability approach in accounting for income taxes,
the objective of which is to recognize the amounts of current and deferred tax
payable at the date of the financial statements using the provisions of enacted
tax laws.
LOSS PER SHARE
Loss per share is based on the weighted average number of shares of common
stock outstanding during the period using a treasury stock method, after giving
effect to the stock dividend described in Note 2.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards No. 121, Accounting for The
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
(SFAS No. 121) issued by The Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December
15, 1995. The new standard establishes new guidelines regarding when
impairment losses on long-lived assets, which include plant and equipment, and
certain identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company does not expect adoption to have a
material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123) issued by The Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from non-employees in exchange for equity
instruments. At the present time, The Company has not determined if it will
change its accounting policy for stock based compensation or only provide the
required financial statement disclosures. As such, the impact on The Company's
financial position and results of operations is currently unknown. The Company
does not expect adoption to have a material effect on its financial position or
results of operations.
17
<PAGE> 19
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to 1996 presentation.
18
<PAGE> 20
AMERICAN CINEMASTORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INITIAL PUBLIC OFFERING
In May 1993, the Company issued convertible warrants to subscribers for $30,000
which entitled the holders to purchase an aggregate of 3,000,000 shares of the
Company's common stock at $.25 per share. These warrants were automatically
converted into redeemable warrants at the closing date of the initial public
offering and, in May 1994, 1,500,000 redeemable warrants and 3,000,000 shares
of the Company's common stock underlying the redeemable warrants were
registered by the Company on behalf of the convertible warrant holders. The
amount of warrants and shares of Common Stock have been adjusted for the
Company's August 1994 stock dividend, Note 2.
Commencing six months from the close of The offering, September 21, 1994, and
up until their expiration date, the redeemable warrants will be subject to
redemption, at the Company's option, at $.05 per redeemable warrant if the
average closing bid price of the common stock equals or exceeds $3.50 per share
for any 20 consecutive trading days within a period of 30 trading days ending
on the fifth day prior to the date of the notice of redemption.
On March 21, 1994, the Company completed an initial public offering of
2,800,000 shares of its common stock at $2.50 per share and 1,000,000
redeemable warrants to purchase its 2,000,000 shares of common stock common
stock at $.125 per redeemable warrant for gross proceeds of $7,250,000. The
redeemable warrants are exercisable for two shares of common stock at any time
until March 13, 1998 at an exercise price of $3.00 per share. The amount of
warrants and shares of Common Stock have been adjusted for the Company's August
1994 stock dividend, Note 2.
In May 1994, the Company's underwriter exercised its over-allotment option and
the Company issued an additional 420,000 shares of its common stock at $2.50
per share and 300,000 redeemable warrants at $.125 per redeemable warrant.
The Company received net proceeds of $6,803,460 after payment of the
underwriter's commission and expense allowance and other expenses from the
offering (including the over-allotment).
NOTE 2 - OTHER CAPITAL TRANSACTIONS
In April 1993, The Company entered into a registration rights agreement (The
"Agreement") with all of its then current stockholders. In the Agreement, the
Company granted to its stockholders the right to request, on two occasions
during a five year period ending in April 1998, that the Company register the
shares of common stock owned by the stockholders, provided that the Company is
then eligible to use Securities and Exchange Commission Form S-3, which
requires that, among other things, the Company has been a public reporting
company for at least twelve months. The Company's stockholders were also
granted certain piggyback registration rights with respect to the shares of
common stock owned by them during the period commencing twelve months after the
consummation of the proposed public offering and ending seven years after the
date of the Agreement. The Company also entered into a similarly worded
registration rights agreement with the theatre to whom a warrant to purchase
The Company's common stock was issued, as described below.
19
<PAGE> 21
AMERICAN CINEMASTORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 8, 1993, the Company issued a warrant for $100 to purchase 724,832
shares of the Company's common stock at $.0055 per share. The warrant was
issued to one of the theaters with which the Company has an agreement to
operate a mini-store and was exercisable for period of five years. In April
1995, the Company entered into an amended agreement with the warrant holder
allowing the warrant holder a cashless exercise of the 724,832 warrants in
exchange for the surrender and cancellation of 2,362 shares of the Company's
common stock obtained in the exercise. The warrant was exercised in May 1995.
On August 17, 1993, pursuant to an agreement, an officer agreed to terminate
his relationship with the Company and to voluntarily surrender to the Company
543,624 shares of the Company's common stock held by him. The shares were
subsequently retired by the Company.
On July 19, 1994, the Board of Directors unanimously approved the declaration
of a stock dividend of one share of common stock for each share of common stock
issued and outstanding effective as of August 1, 1994. The stockholder equity
accounts, all per share data, and all applicable disclosures in the notes to
the financial statements, except as otherwise indicated, have been
retroactively adjusted to reflect the stock dividend.
During the year ended May 31, 1995, the Company issued 75,000 shares of its
common stock upon exercise of warrants by warrant holders at $3 per share,
resulting in total proceeds of $225,000 to the Company.
NOTE 3 - STOCK OPTION PLAN
The Company adopted a 1993 Stock Option Plan (the "Plan"). the Plan, as
amended, provides that 800,000 shares of the Company's Common Stock are
reserved for issuance upon exercise of options to acquire Common Stock granted
thereunder, subject to adjustment for stock dividends and splits, reverse stock
splits and other like changes in the Company's capitalization. The purpose of
the Plan is to assist the Company in attracting and retaining qualified persons
to serve as employees, directors and consultants of the Company.
The Plan is administered by the Board of Directors, but the Board may appoint a
committee (the "Committee") consisting of two non-employee directors to
administer the Plan. In general, the Board of Directors or the Committee (the
"Administrator") will select the persons to whom options will be granted and
will determine, subject to the terms of the Plan, the number, exercise period
and other provisions of such options. Options granted under the Plan will
become exercisable at such times as may be determined by the Administrator.
Options granted under the Plan may be either incentive stock options ("ISOs")
(as defined in the Internal Revenue Code of 1986, as amended), or non-ISOs.
ISOs may only be granted to persons who are employees of the Company, including
employees who are directors of the Company. Non-ISOs may be granted to any
person, including, but not limited to, employees of the Company, independent
agents and consultants, whom the Administrator selects. The Administrator
determines the exercise price of options granted under the Plan, provided that,
in the case of ISOs, such price may not be less than 100% (110% in the case of
ISOs granted to holders of 10% of the voting power of the Company's
20
<PAGE> 22
AMERICAN CINEMASTORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock) of the fair market value (as defined in the Plan) of the Common Stock on
the date of grant. The aggregate fair market value (determined at the time of
option grant) of shares with respect to which ISOs become exercisable for the
first time in any year cannot exceed $100,000.
Options generally vest over a four-year period at the discretion of the
Administrator. In addition, outstanding options vest upon the occurrence of
certain transactions, including certain mergers and other business
combinations. The term of each option may be not more than 10 years (five
years in the case of ISOs granted to holders of 10% of the voting power of the
Company's stock) from the date of grant. ISOs generally terminate upon an
optionee's termination of employment with the Company, for any reason other
than death or disability. Upon exercise of an option, the exercise price may
be paid to the Company in cash or in shares of Common Stock (based upon the
market value of the shares so surrendered).
As of the date of this filing, there are outstanding options under the Plan to
purchase an aggregate of 425,000 shares of Common Stock, including options
granted during the fiscal year ended May 31, 1995 to Messrs. Natale, Champion
and Ebert to purchase 140,000, 60,000 and 15,000 shares of Common Stock,
respectively, at an exercise price of $2.50 and options granted to Mr. Ebert
during the fiscal year ended May 31, 1996 to purchase 200,000 shares of Common
Stock at an exercise price of $2.50.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company had leased approximately 3,500 square feet of office space in Santa
Monica, California. The lease had a term of 36 months at $8,260 per month,
expiring February 1998. In anticipation of a merger being consummated (see
Note 7), the Company has terminated the lease without penalty, effective
September 1996, and will move its executive offices to Sierra or to the space
currently leased by the Target Companies.
The Company does not anticipate incurring any significant expenses regarding
its relocation. If a merger is not consummated, the Company intends to
relocate the Corporate offices to Sierra. Sierra currently leases
approximately 1,500 square feet of office and showroom space in Newport Beach,
California at a monthly rental of $1,200. Such lease expires in June 1999.
For income tax purposes, the Company has federal net operating loss
carry-forwards of $5,912,000 and state net operating loss carry-forwards of
$2,723,000 at May 31, 1996. These carry-forwards expire in the years 2008 to
2011. Federal tax rules impose limitations on the use of net operating losses
following certain changes in ownership. The Company experienced such a change
in March 1994, which will limit the use of the federal net operating loss
carryforward to $370,000 per year on a total of $985,000 incurred prior to the
change in ownership.
In August, 1996, the Company entered into agreements with three customers to
construct and sell retail, information/directory and concierge units for a
total of approximately $500,000. The Company received advances of $246,149
from these customers. The units associated with these advances will be
recognized as revenue during the second fiscal quarter. In may, 1996, the
Company received a $100,000 from a customer on an agreement to construct and
sell retail fixtures totaling $328,500. This agreement was fulfilled and the
$328,500 was recognized as revenue during this fiscal quarter.
21
<PAGE> 23
AMERICAN CINEMASTORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DISCONTINUED OPERATIONS
During November, 1995, the Company decided to terminate all of its retail
operations by the end of the fiscal year, May 31, 1996. This includes both
theatre lobby mini-stores as well as the mini-stores in regional malls. This
decision is the result of the retail operation's continued lack of
profitability. The regional mall stores remained open through the Christmas
season. The Company considers the fixed assets associated with the retail
operation impaired and therefore these fixed assets were written off during the
fiscal year ended 1996. The Company maintains physical ownership of these
assets and is seeking to dispose of them in a manner beneficial to The Company.
For the fiscal year ended May 31, 1995, the Company segregated for purposes of
comparative disclosure on the balance sheet the net assets of discontinued
operations of $571,629 as follows: accounts receivable of $22,621, inventory of
$318,893, fixed assets of $395,206, and accounts payable of $165,091.
Discontinued operations resulted in revenues of $742,894 and $826,728 for the
fiscal year ended May 31, 1996 and 1995, respectively.
NOTE 7 - MERGERS
On June 19, 1996 the Company signed definitive merger purchase agreements with
Superior Panoramic Hand Prints, Inc. and Just Jackets, Inc of North Hollywood,
California. The mergers have yet to be consummated pending the Company
raising sufficient capital. The Company intends to raise approximately
$3,000,000 in capital via financing instruments available to it. The Company
has also filed a Registration Statement Form SB-2 and a post-effective
amendment to register 5,225,000 shares of common stock underlying outstanding
redeemable warrants that may be exercised by the warrant holders to provide
additional capital.
Superior was formed in 1981 as a specialty merchandise company. Today its
focus is in the advertising specialty arena where it provides silk screen and
embroidery to textile blanks. Superior now employs in excess of 100 people
with production runs of 20 hours per day, six days per week. Its 1995 revenues
were nearly $8.5 million. Just Jackets was formed in 1993 and performs silk
screen and embroidery work similar to Superior for custom jackets and denim
shirts. Its 1995 revenues were approximately $1.2 million.
The terms of the anticipated merger state that Superior will fold into a newly
formed subsidiary of the Company and that the shareholders of Superior will
receive an aggregate of $1,960,000 and 975,000 shares of common stock of the
Company. Just Jackets will fold into a newly formed subsidiary of the Company
and the shareholders of Just Jackets will receive an aggregate of $80,000 in
cash and 50,000 shares of common stock of the Company. The Company will also
provide $1 million of working capital to the newly formed subsidiaries.
If the mergers are not effected, the Company intends to expand Sierra's
operations. The Company has also taken certain cost-cutting measures.
Effective September 1, 1996, the Company canceled its lease on the corporate
office facility, without penalty, and will merge the corporate office with
Sierra's office in Newport Beach, California. The Company plans to terminate
corporate personnel in areas where duplication of functions occurs.
22
<PAGE> 24
AMERICAN CINEMASTORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SIGNIFICANT CUSTOMERS
Sales to one customer represented approximately 93% of the Company's net sales
from continuing operations for the quarter ended August 31, 1996. The related
accounts receivable from this customer represented 65% of the accounts
receivable at August 31, 1996.
NOTE 9 - NOTE RECEIVABLE
At May 31, 1996, the Company has a note receivable of $93,095 from Superior
Panoramic Hand Prints, Inc., one of the companies with which a merger is
pending. The note bears interest at 12% per annum and is due upon demand. The
note is secured by equipment that Superior had purchased with the note
proceeds.
NOTE 10 - SIGNIFICANT SUBSEQUENT EVENT
On October 21, 1996 the Company received $500,000 from an investor to be
utilized for the acquisition of the Just Jackets portion of the Merger, see
Note 7. This portion of the merger is expected to be completed in the second
fiscal quarter and the Superior Panoramic portion of the merger is expected to
be completed in the third fiscal quarter. Upon completion of the Just Jackets
merger and incorporating the aforementioned cash, the Company's asset base will
be approximately $2 million.
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 92,704
<SECURITIES> 82,717
<RECEIVABLES> 481,336
<ALLOWANCES> 0
<INVENTORY> 217,234
<CURRENT-ASSETS> 877,069
<PP&E> 174,719
<DEPRECIATION> 80,548
<TOTAL-ASSETS> 1,324,678
<CURRENT-LIABILITIES> 634,876
<BONDS> 0
0
0
<COMMON> 6,892
<OTHER-SE> 682,910
<TOTAL-LIABILITY-AND-EQUITY> 1,324,678
<SALES> 0
<TOTAL-REVENUES> 404,295
<CGS> 199,509
<TOTAL-COSTS> 480,015
<OTHER-EXPENSES> (8,537)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (266,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (266,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (266,692)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
