U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________________ to ___________________
COMMISSION FILE NO. 0-22908
BIG ENTERTAINMENT, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0385686
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 GLADES ROAD, SUITE 237 WEST
BOCA RATON, FLORIDA 33431
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(561) 998-8000
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
As of August 11, 1997, the number of shares outstanding of the issuer's
Common Stock, $.01 par value, was 6,880,958.
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BIG ENTERTAINMENT, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30,
1997 (unaudited) and December 31,
1996.......................................... 3
Consolidated Statements of Operations for
the three and six months ended June 30,
1997 and 1996 (unaudited) .................... 4
Consolidated Statements of Cash Flows for
the six months ended June 30, 1997 and
1996 (unaudited).............................. 5
Notes to Unaudited Consolidated Financial
Statements.................................... 6
Item 2. Management's Discussion and Analysis or Plan of
Operations........................................ 7 - 18
PART II OTHER INFORMATION
Item 2. Changes in Securities............................. 19
Item 6. Exhibits and Reports on Form 8-K.................. 19
Signature........................................................ 20
2
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<TABLE>
<CAPTION>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 1997 and December 31, 1996
JUNE 30, DECEMBER 31,
1997 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 410,505 $ 1,675,852
Trade receivables, net 136,664 95,547
Merchandise inventories 1,530,886 1,410,603
Prepaid expenses 376,235 654,255
Franchise fee receivable 700,000 700,000
Other current assets 154,236 64,167
------------ -------------
Total current assets 3,308,526 4,600,424
PROPERTY AND EQUIPMENT, net 2,150,436 2,349,108
INVESTMENT - NETCO PARTNERS 2,052,090 201,311
INTANGIBLE ASSETS, net 275,018 491,265
GOODWILL, net 335,537 345,257
OTHER ASSETS 263,154 256,054
------------ -------------
TOTAL ASSETS $ 8,384,761 $ 8,243,419
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,304,207 $ 1,021,264
Accrued expenses 271,155 522,509
Deferred revenue 1,146,560 1,268,455
Loan from shareholder/officer 912,000 -
Advances on line of credit 425,000 -
Current portion of capital lease obligations 503,103 503,103
------------ -------------
Total current liabilities 4,562,025 3,315,331
------------ -------------
CAPITAL LEASE OBLIGATIONS, less current portion 512,722 731,807
------------ -------------
COMMON STOCK SUBJECT TO REDEMPTION, $.01 par value,
50,000 shares - -
------------ -------------
MINORITY INTEREST 20,223 4,414
------------ -------------
SHAREHOLDERS' EQUITY:
Series A variable rate convertible preferred
stock, $6.25 stated value, 217,600 shares
authorized; 217,600 issued and outstanding
at June 30, 1997 and 217,600 shares issued
and outstanding at December 31, 1996.
Liquidation preference of $1,388,491 at
June 30, 1997. 1,360,000 1,360,000
Series B variable rate convertible preferred
stock, $5.24 stated and liquidation value,
142,223 shares authorized; 121,393 and
29,767 issued and outstanding at June 30,
1997 and at December 31, 1996, respectively. 640,000 160,000
Series C variable rate convertible preferred
stock, $100 stated value, 100,000 shares
authorized; 20,000 issued and outstanding
at June 30, 1997 and at December 31, 1996.
Liquidation preference of $2,000,000 at
at June 30, 1997. 2,000,000 2,000,000
Common stock, $.01 par value, 25,000,000 shares
authorized; 5,880,956 and 5,870,601 shares
issued and outstanding at June 30, 1997 and at
December 31, 1996, respectively. 58,810 58,706
Additional paid-in capital 22,098,674 22,039,194
Warrants outstanding 570,700 566,600
Accumulated deficit (23,438,393) (21,992,633)
------------ -------------
Total shareholders' equity 3,289,791 4,191,867
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,384,761 $ 8,243,419
============ =============
</TABLE>
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
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BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
NET REVENUES $3,730,067 $ 1,888,275 $ 5,437,389 $ 3,423,898
COST OF SALES 1,025,697 1,253,117 1,980,102 2,223,209
---------- ----------- ----------- -----------
Gross profit 2,704,370 635,158 3,457,287 1,200,689
---------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative 1,406,592 880,970 2,553,172 2,109,105
Salaries and benefits 837,118 770,388 1,787,579 1,538,443
Amortization of goodwill
and intangibles 113,151 112,407 226,296 224,814
---------- ----------- ----------- -----------
Total operating
expenses 2,356,861 1,763,765 4,567,047 3,872,362
---------- ----------- ----------- -----------
Operating income
(loss) 347,509 (1,128,607) (1,109,760) (2,671,673)
OTHER (INCOME) EXPENSE:
Interest (income) expense 70,514 61,683 119,622 119,411
Other, net (9,974) (12,950) (20,194) (18,275)
---------- ----------- ----------- -----------
Income (loss)
before minority
interest and
income taxes 286,969 (1,177,340) (1,209,188) (2,772,809)
MINORITY INTEREST (101,759) (145,943) (133,739) (198,159)
---------- ----------- ----------- -----------
Net income (loss) $ 185,210 $(1,323,283) $(1,342,927) $(2,970,968)
========== =========== =========== ===========
Net income (loss) per
common and common
equivalent share $ 0.03 $ (0.24) $ (0.23) $ (0.58)
========== =========== =========== ===========
Weighted average number of
common and common
equivalent shares
outstanding 5,929,206 5,439,359 5,875,836 5,081,618
========== =========== =========== ===========
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these consolidated financial statements.
4
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<TABLE>
<CAPTION>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED June 30, 1997 AND 1996
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,342,927) $(2,970,968)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 566,628 513,870
Equity in net earnings of Netco Partners (1,822,500) --
Issuance of compensatory stock options and warrants 17,662 --
Amortization of deferred sale-leaseback charge 20,194 --
Minority interest 133,739 198,159
Changes in assets and liabilities:
Trade receivables (41,117) (330,662)
Prepaid expenses 278,020 (62,760)
Merchandise inventories (120,283) (254,822)
Other current assets (90,070) (14,431)
Other assets (7,100) 51,663
Accounts payable 282,943 (911,172)
Accrued professional fees -- (36,491)
Deferred revenue (121,895) 319,561
Other accrued expenses (237,301) (95)
----------- -----------
Net cash used in operating activities (2,484,007) (3,498,148)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Netco Partners (28,279) (106,398)
Capital expenditures, net (141,660) (458,927)
Investment in Patents and Trademarks (19,769) (48,445)
Return of capital from Tekno Books to minority partner (149,548) (328,253)
----------- -----------
Net cash provided by (used in) investing activities (339,256) (942,023)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred stock 480,000 560,000
Proceeds from the issuance of warrants -- 4,873,465
Proceeds from unsecured line of credit 425,000 --
Loan from shareholders/officers 912,000 --
Proceeds from sale of 8.5% convertible promissory note -- 500,000
Proceeds from sale of Assets -- 803,372
Dividends on preferred stock (40,000) --
Repayments under capital lease obligations (219,085) (187,700)
Receipts of subscription receivable -- 184,600
----------- -----------
Net cash (used in) provided by financing activities 1,557,915 6,733,737
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,265,348) 2,293,566
CASH AND CASH EQUIVALENTS, beginning of period 1,675,852 606,376
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 410,505 $ 2,899,942
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 108,811 $ 109,525
=========== ===========
</TABLE>
Non-Cash Investing and Financing Activities:
In Q2-97 the Company entered into capital lease transactions totaling
$23,064
In Q2-97 the Company accrued stock dividends on the Series A & B Convertible
Preferred Stock in the amount of $32,179
The accompanying Notes to Unaudited Consolidated Financial Statements
are an integral part of these consolidated financial statements.
5
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BIG ENTERTAINMENT INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations. However, the Company
believes that the disclosures contained herein are adequate to make the
information presented not misleading.
The financial statements reflect, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
The results of operations for the three and six months ended June 30, 1997, and
cash flows for the six months ended June 30, 1997, are not necessarily
indicative of the results of operations or cash flows which may be recorded for
the remainder of 1997.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996.
2) SUPPLEMENTAL NON-CASH DISCLOSURES:
In June 1997, the Company accrued non-cash dividends on its Series A Convertible
Preferred Stock, in the amount of 5,979 shares of Common Stock with an aggregate
market value of $29,213. In June 1997, the Company accrued non-cash dividends on
its Series B Convertible Preferred Stock, in the amount of 704 shares of Common
Stock with an aggregate market value of $3,391.
3) RECENTLY ISSUED ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board issued FASB No. 128,
"Earnings Per Share" effective for fiscal years ending after December 15, 1997.
SAFS No. 128 simplifies the calculation of earnings per share to measure the
performance of an entity over a reporting period for both basic earnings per
share and diluted earnings per share. SAFS No. 128 does not currently have an
impact on the Company's earning per share as the Company is incurring net
losses, on a year to date basis.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion contains, in addition to historical information,
"forward-looking statements" with respect to Big Entertainment, Inc. (the
"Company"), which represent the Company's expectations or beliefs, including,
but not limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, growth and acquisition strategies,
margins, and growth in sales of the Company's products. For this purpose, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors. Such factors include, but are not limited to, the Company's limited
operating history; operating losses and accumulated deficit; possible need for
additional financing; dependence on relationships with authors; risks related to
retail operations; competition; dependence on management; risks related to
trademarks and proprietary rights; dependence on distributors; and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
GENERAL
Big Entertainment is a diversified entertainment company, which owns exclusive
rights to certain original characters and concepts created by best-selling
authors and media celebrities, including, for example, Tom Clancy, Leonard
Nimoy, Gene Roddenberry, Mickey Spillane, Arthur C. Clarke, John Jakes, Anne
McCaffrey, Margaret Weis and Isaac Asimov. The Company generally uses
illustrated novels to introduce and develop new characters and concepts
(collectively, its "intellectual property") in the marketplace and then the
Company seeks to license these properties across all media, including films and
television, and in books, multimedia software, toys and other merchandise. The
Company acquires the rights to its intellectual properties pursuant to
agreements that grant it, on an exclusive basis, all rights in the intellectual
property itself (including, but not limited to, the right to license the
intellectual property for films, television, books, multimedia software, toys
and other merchandise) as well as the right to use the creator's name in the
title of the intellectual property.
The Company's intellectual properties include, among others: TOM CLANCY'S
NETFORCE; LEONARD NIMOY'S PRIMORTALS; ARTHUR C. CLARKE'S CRIOSPHINX; GENE
RODDENBERRY'S XANDER IN LOST UNIVERSE; ISAAC ASIMOV'S IOBOTS; MICKEY SPILLANE'S
MIKE DANGER; JOHN JAKES' MULLKON EMPIRE; ANNE MCCAFFREY'S ACORNA: THE UNICORN
GIRL; ANNE MCCAFFREY'S SARABAND; MARGARET WEIS' TESTAMENT OF THE DRAGON; TAD
WILLIAMS' MIRROR WORLD; NEIL GAIMAN'S MR. HERO -- THE NEWMATIC MAN; NEIL
GAIMAN'S TEKNOPHAGE; NEIL GAIMAN'S LADY JUSTICE; NEIL GAIMAN'S WHEEL OF WORLDS;
and CATHY CASH SPELLMAN'S MILLENNIUM. Certain of the Company's intellectual
properties are owned by a joint venture known as NetCo Partners ("NetCo
Partners"), owned 50% by the Company and 50% by C.P. Group, Inc. ("C.P. Group"),
in which Tom Clancy is a substantial shareholder. The Company is continually
negotiating with other best-selling authors and media celebrities to create and
develop additional intellectual properties for the Company and/or NetCo Partners
to license for use in various media and merchandise.
A number of the Company's and/or NetCo Partners' intellectual properties have
been licensed for use in books, feature films, television series and merchandise
by various licensees, including The ABC Television Network ("ABC"), a division
of The Walt Disney Company, for development of a television mini-series based on
TOM CLANCY'S NETFORCE; The Berkley Publishing Group, a division of Putnam
Berkley, for hardcover and paperback
7
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publishing rights to TOM CLANCY'S NETFORCE; Warner Books, a division of
Time-Warner, Inc., for hardcover and paperback book publishing rights; Playmates
Toys, Inc. for a line of toys; HarperCollins, a division of Rupert Murdoch's
News Corporation, for hardcover and paperback book publishing rights; Alliance
Productions, Ltd., a division of Alliance Communications Corporation, the
largest Canadian entertainment company, for television rights; Sierra On-Line, a
publisher of interactive entertainment, productivity and educational software,
for CD-ROM rights; and Miramax Films, a division of The Walt Disney Company, for
feature film and television rights. The licensing agreements generally provide
for the payment by the licensee of advances to the Company or NetCo Partners, as
the case may be, as well as royalty payments based on sales after the advance
has been earned out. The Company and NetCo Partners are actively negotiating
additional licensing opportunities for their intellectual properties.
The Company has four operating divisions: the publishing division, the licensing
division, the book licensing and packaging division and the entertainment retail
division. The publishing and licensing divisions are the primary means by which
the Company utilizes its intellectual properties, the publishing division by
focusing on development of the Company's intellectual properties through the
publication of illustrated novels, and the licensing division by focusing on
licensing the Company's intellectual properties for books, feature films,
television series, toys and merchandise, and interactive multimedia products.
The Company's book licensing and packaging division focuses on developing and
executing book projects, typically with bestselling authors. The entertainment
retail division focuses on developing, operating and franchising the Company's
in-line retail stores and retail kiosks known as "Entertainment
Super/bullet/Kiosks." The Company has recently entered into an agreement with
ABC for the use of ABC programming in the Entertainment Super/bullet/Kiosks in
exchange for promotional and advertising spots for the Entertainment
Super/bullet/Kiosks on ABC affiliate television stations.
The Company's divisions are described as follows:
PUBLISHING. Big Entertainment's publishing division focuses on
introducing and developing the Company's intellectual properties to
explore their potential for licensing, through the publication and
distribution of illustrated novels. During 1996, the Company began
reducing its comic book titles, which had previously been a format
also utilized by the Company to introduce and develop its
intellectual properties, and exited comic book publishing in the
first quarter of 1997. The Company's illustrated novels generally
tell a story in one issue, are targeted at a more sophisticated
audience than typical comic book readers and are generally sold by
traditional book retailers. The Company believes that its
illustrated novels have a wider distribution potential for its
titles, longer shelf lives and higher initial retail prices as
compared to comic books. Retail cover prices of the Company's
illustrated novels generally range from $9.95 to $19.95.
The Company's philosophy is to produce high-quality publications
utilizing state-of-the-art graphics and publishing techniques. Big
Entertainment's illustrated novels are targeted primarily to young
adults and adult readers.
In November 1996, the Company entered into an agreement with
HarperCollins Publishers, Inc., a division of News Corporation
("HarperCollins"), granting to HarperCollins certain rights to
publish, reproduce and distribute initially four of the Company's
entertainment properties as hardcover and paperback novels as well
as illustrated novels (the "HarperCollins Agreement"). Under the
HarperCollins Agreement, HarperCollins has assumed all
responsibility for the printing and distribution of the covered
titles. HarperCollins has agreed to pay to the Company advances
against royalties to be earned, which advances the Company
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currently believes will cover its development costs for the related
title. Further, the HarperCollins Agreement will enable the Company
to significantly reduce its expenses after initial development of
the titles and will eliminate the Company's risk of return of unsold
books. As of the date hereof, the Company has delivered several
manuscripts or completed books to HarperCollins, which are
proceeding toward the publication stage.
The HarperCollins Agreement fundamentally changes the way this
division does business. Before the effect of the HarperCollins
Agreement, the Company advanced one hundred percent of all costs
associated with the development of its titles. Furthermore, the
Company paid for the printing of all books, and was responsible for
returns, which are a normal part of book publishing. HarperCollins'
advance payments to the Company are a source of funds for the
Company to use for development costs; HarperCollins will be paying
the costs of printing; and HarperCollins will be solely responsible
for all returns.
In addition to the Company's agreement with HarperCollins, U.S. and
international distribution of the Company's illustrated novels,
books and other products is also handled by the Company's licensees
or joint venturers, such as Warner Books and Sierra On-Line (see
"Licensing Division," below).
Substantially all of the costs in this division are expensed as
incurred. Since most development costs of the Company's
entertainment properties are expensed in the illustrated novel
division, there are expected to be minimal incremental additional
expenses associated with licensing revenue anticipated to be
generated from the Company's entertainment properties.
LICENSING DIVISION. Big Entertainment's licensing division seeks to
exploit the Company's intellectual properties by licensing them for
feature films, television series, books and merchandise such as
apparel, toys, trading cards, posters and similar items. The Company
is represented in its efforts to secure book licenses with
publishers by the William Morris Agency.
In particular, the Company believes that successful feature films
and/or television series will significantly enhance the value of its
intellectual property that is the basis for such feature film and/or
television series, resulting in increased licensing and
merchandising revenues.
NetCo Partners (see "NetCo Partners," below), reached an agreement
with ABC, a division of The Walt Disney Company, to develop and
license a television mini-series based on TOM CLANCY'S NETFORCE. The
agreement provides for a license fee paid to NetCo Partners of
$8,000,000 for such mini-series, plus other specified rights fees
and profit participation for NetCo Partners. All of such fees and
profit participation are to be split equally between the Company and
C.P. Group, each of which is a 50% partner of NetCo Partners. In the
event that NetCo Partners and ABC do not reach agreement as to a
teleplay for the mini-series, the agreement provides for the payment
of $1.6 million to NetCo Partners. The mini-series based on TOM
CLANCY'S NETFORCE is currently scheduled to air for four hours over
two nights during the sweeps period in May 1998.
In April 1997, NetCo Partners entered into an agreement with The
Berkley Publishing Group ("Berkley"), a division of Penguin Putnam
Inc., which is part of the international media group Pearson plc, to
publish a series of up to six original novels based on TOM CLANCY'S
NETFORCE. The contract, with total maximum advances of $22,000,000,
calls for initial publication of the first book to coincide with the
airing of the ABC mini-series referred to above. An initial
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advance payment of $1,687,500 was received by NetCo Partners and
distributed, subsequent to June 30, 1997, as part of NetCo's normal
distributions to the Company and C.P. Group, its partners.
Additional advances relating to delivery and acceptance of the first
manuscript are due under this contract. The contract calls for
royalties on paperback sales to be earned by NetCo Partners at 15%
of the Publisher's Suggested Retail Price.
In April 1997, NetCo Partners also entered into a second agreement
with Berkley to publish up to eighteen young adult novels based on
TOM CLANCY'S NETFORCE. The contract, with a total maximum advance of
$900,000, calls for initial publication of the first book to
coincide with the airing of the ABC mini-series referred to above.
An initial advance payment of $450,000 was received by NetCo
Partners and distributed, subsequent to June 30, 1997, as part of
NetCo's normal distributions to the Company and C.P. Group, its
partners. Additional advances relating to delivery and acceptance of
the first manuscript are due under this contract. The contract calls
for royalties on paperback sales to be earned at 10% of the
Publisher's Suggested Retail Price.
Both of the Berkley contracts grant to Berkley the North American
publishing rights to TOM CLANCY'S NETFORCE. NetCo Partners is
currently seeking to license the rights to TOM CLANCY'S NETFORCE in
numerous countries throughout the world in all major languages. It
is currently anticipated that the aggregate of such foreign licenses
will generate approximately 20% to 40% of the revenue being
generated by the North American book licenses referenced above.
In April 1997, NetCo Partners entered into an agreement with the
Dodge division of Chrysler Corporation regarding placement of
Chrysler and Dodge products in TOM CLANCY'S NETFORCE illustrated
novels. An initial advance payment of $100,000 was received by NetCo
Partners and distributed, subsequent to June 30, 1997, as part of
NetCo's normal distributions to the Company and C.P.
Group, its partners.
NetCo Partners previously entered into an agreement with Playmates
Toys, Inc. ("Playmates Toys") to develop, manufacture and market a
line of toys based on the TOM CLANCY'S NETFORCE. Playmates Toys,
which specializes in boys' action figures, is currently the master
toy licensee of STAR TREK(TM) and TEENAGE MUTANT NINJA TURTLES(TM).
The agreement with Playmates Toys provides for the payment to NetCo
Partners of a $1,000,000 advance against royalties to be earned by
NetCo Partners under the agreement. Royalties are based on a
percentage of Playmates Toys' receipts on worldwide sales. Initial
advance payments amounting to $250,000 were received by NetCo
Partners prior to June 30, 1997.
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Other licensing agreements include:
/bullet/ A joint CD-ROM publishing venture with Sierra On-Line, one
of the largest worldwide publishers of interactive
entertainment, productivity and educational software, for
LEONARD NIMOY'S PRIMORTALS.
/bullet/ A joint publishing agreement with HarperCollins, one of the
largest publishers in the world and a wholly-owned
subsidiary of The News Corporation, to publish hardcover
books, paperback books, and illustrated novels for ANNE
MCCAFFREY'S ACORNA: QUEEN OF THEUNICORNS, ISAAC ASIMOV'S
I-BOTS, and MARGARET WEIS' TESTAMENT OF THE DRAGON.
/bullet/ An agreement by NetCo Partners to license TAD WILLIAMS'
MIRRORWORLD to HarperCollins to publish as an illustrated
novel.
/bullet/ An agreement with Alliance Television Productions, a
division of Alliance Communications Corporation, to license
JOHN JAKES' MULKON EMPIRE for television.
/bullet/ A publishing agreement with Warner Books, a division of
Time Warner, Inc.
/bullet/ A film licensing agreement with Miramax Films, a subsidiary
of the Walt Disney Company.
Merchandising of character-related products such as the Playmates
Toys line of toys is conducted principally through the grant of
licenses to independent third parties who would manufacture their
own products incorporating the Company's or NetCo Partners'
characters and distribute such products through their normal
distribution channels. Generally, these licenses are expected to
provide payment of royalties to the Company based on specified
percentages of the sales of licensed products. To date, products
featuring the Company's intellectual properties have included
T-shirts, caps, trading cards, posters, buttons and telephone
calling cards. These products have been sold through independent
distributors and by the Company at its retail outlets.
BOOK LICENSING AND PACKAGING. Big Entertainment's 51%-owned book
licensing and packaging division, Tekno Books, is a leading book
packager of fiction and non-fiction, with over 900 books published
to date (approximately 200 published since the fourth quarter of
1994, when the Company acquired its interest in Tekno Books) and
approximately another 175 books under contract that are forthcoming.
In addition to providing access for the Company to a number of
best-selling authors, Tekno Books creates book projects by
developing concepts, negotiating publishing agreements and executing
substantially all aspects of the book projects. Tekno Books has
worked with approximately 50 New York Times best-selling authors,
including Tom Clancy, Jonathan Kellerman, Mary Higgins Clark, Dean
Koontz, Tony Hillerman, Robert Ludlum and Scott Turow, and numerous
media celebrities, including David Copperfield, Louis Rukeyser and
Willard Scott. These books have been published with more than 30
publishers (including HarperCollins, Doubleday, Random House, Simon
& Schuster, Viking Penguin and Warner Books), translated into 28
languages, and selected by 17 different
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book clubs. Tekno Books is also a leading producer of novels and
anthologies in the science fiction, fantasy, mystery, horror and
Western genres. This division is an excellent source of referring
authors to the Company for the development of licensable
entertainment properties. This division has two streams of revenue,
one being advances paid to this division by publishers in return for
granting certain publication rights to such publishers, and the
other being royalties from the division's expanding library of
titles.
ENTERTAINMENT RETAIL. The Company operated 30 Entertainment
Super/bullet/Kiosks and one in-line store in the Mall of America as
of June 30, 1997, and opened three additional Entertainment
Super/bullet/Kiosks in July, 1997. The Company currently plans to
open approximately two additional Entertainment Super/bullet/Kiosks
and approximately four in-line retail stores during the third and
fourth quarters of 1997.
Big Entertainment's strategy for opening its Entertainment
Super/bullet/Kiosks is to seek prime locations in regional and major
shopping malls in geographic areas determined by management as
having desirable demographic characteristics. Development of the
Company's retail outlets has been and is expected to continue to be
accomplished through relationships established with major mall
developers, including the Simon-DeBartolo Group, the largest U.S.
mall manager/developer, The Rouse Company, Trizec/Hahn, and
Westfield Corp.
In March 1997, the Company entered into an exclusive programming
agreement with the ABC Television Network ("ABC"), a division of The
Walt Disney Company. Under this programming agreement, beginning May
1, 1997, the Company commenced running two times each hour on the
video monitors at each of its Entertainment Super/bullet/Kiosks a
12-minute programming segment provided by ABC and its local
affiliate television stations, on an exclusive basis. The
programming is devoted to upcoming television programs to appear on
ABC (including ABC Entertainment, ABC News, ABC Daytime and ABC
Sports) and its affiliate stations and new, non-repetitive
programming will be provided to the Company each month. The Company
also agreed to display ABC's logo and other promotional materials
complementing the then-current video monitor campaigns. In exchange
for its agreement to run the ABC programming exclusively, ABC
affiliate stations in markets where the Company's Entertainment
Super/bullet/Kiosks are located are expected to run promotional and
advertising spots on the ABC affiliate stations featuring the
Company's Entertainment Super/bullet/Kiosks. The Company has also
agreed to sell at the Entertainment Super/bullet/Kiosks, as part of
its product mix, mutually selected ABC products featuring the ABC
logo or its programs (such as "Home Improvement" T-shirts and
"Monday Night Football" caps), on terms to be agreed upon. The
Company believes that this arrangement with ABC will provide its
Entertainment Super/bullet/Kiosks with a steady source of current
programming for the Entertainment Super/bullet/Kiosks that will
appeal to the target customers of the Entertainment
Super/bullet/Kiosks, at no cost to the Company. Additionally and
most importantly, the promotional spots featuring the Company's
Entertainment Super/bullet/Kiosks to be run by the ABC affiliate
stations are expected to provide the Company with substantial
television advertising in the markets where the retail units are
located at no additional expense to the Company. Based on the
current and projected number of ABC affiliates that will be running
the ad spots, the Company estimates that the value of ad spots it
will be receiving on such ABC affiliate stations amounts to
approximately $2.5 million over the next 12 months. As additional
retail units are opened by the Company, the value of such ad spots
is expected to increase.
12
<PAGE>
As part of its expansion strategy, the Company is in the process of
implementing a franchise program and has engaged the services of an
experienced franchise sales firm to handle these sales. In the
franchise program, the Company is offering through its wholly-owned
subsidiary, Big Entertainment Franchise Corp., franchises in the
United States and internationally to qualified and experienced area
developers and franchisees who are committed to the development of
multiple Entertainment Super/bullet/Kiosks in such areas. It is
expected that area developers will either develop Entertainment
Super/bullet/Kiosks on their own or in conjunction with
sub-franchisees.
In December 1995, the Company entered into an agreement with Martin
Ergas, a non-affiliate of the Company, granting to Mr. Ergas certain
exclusive territorial franchise rights for Canada (excluding the
Province of Alberta) for a term of 10 years in exchange for a
non-refundable franchise fee of $700,000 and providing for the
purchase by Mr. Ergas of two fully outfitted and installed
Entertainment Super/bullet/Kiosks for $300,000. The Canadian
franchise rights granted to Mr. Ergas consist primarily of the right
to open, operate and sub-franchise Entertainment Super/bullet/Kiosks
under the Company's name in the specified territory. The
nonrefundable franchise fee of $700,000 is expected to be received
prior to the opening of the first two units and upon the completion
of certain training by the Company of employees of the franchisee.
The Company has filed its Uniform Franchise Offering Circular and
the terms of its standard area development and franchise agreements.
The agreements provide for an initial term with renewal options and
payment of an initial franchise fee upon execution, with additional
fees paid upon the opening of each retail unit. In addition,
franchisees will be required to pay a continuing royalty based upon
sales. The Company will also retain a substantial portion of the
revenues from advertising displayed on the video monitors of each
Entertainment Super/bullet/Kiosk. The terms and conditions of the
area development and franchise agreements will vary depending upon a
number of factors, including the experience and resources of the
franchisee, the size and density of the covered territory, the
number of retail units to be developed, the development schedule,
capital requirements and other matters. In connection with the
Company's planned sale of franchises, the Company will be subject to
Federal Trade Commission regulation, as well as certain state laws
regulating the offer and sale (and in some cases, the negotiation)
of franchises and certain rights of the continuing relationship
between the franchisor and franchisees.
On May 1, 1997, the Company signed its first U.S. franchise
agreement, under which one Big Entertainment retail unit is expected
to be built by the franchisee in the Philadelphia area by the end of
1997. The agreement, with a private investor, also provides for up
to three more franchise stores in the Philadelphia region.
13
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 ("Q2-97") AS COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 1996 ("Q2-96"), AND SIX MONTHS ENDED JUNE 30, 1997
("Y2-97") AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996 ("Y2-96").
The following table summarizes the revenues, cost of sales and gross
profit attributable to each of the Company's divisions for Q2-97, Q2-96, Y2-97,
and Y2-96:
<TABLE>
<CAPTION>
INTELLECTUAL PROPERTY RETAIL
------------------------------------- -------------
BOOK
LICENSING LICENSING PUBLISHING ENTERTAINMENT TOTAL
AND RETAIL
PACKAGING
------------------------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Q2-97
Net Revenues $602,102 $1,875,425 $ 8,483 $1,244,057 $3,730,067
Cost of sales 323,296 - 39,837 662,564 1,025,697
-------- ---------- ---------- ---------- ----------
Gross profit
(loss) $278,806 $1,875,425 $ (31,354) $ 581,493 $2,704,370
======== ========== =========== ========== ==========
Q2-96
Net Revenues $608,845 $ 189,394 $ 359,317 $ 730,719 $1,888,275
Cost of sales 263,764 68,000 516,489 404,864 1,253,117
-------- ---------- ----------- ---------- ----------
Gross profit
(loss) $345,081 $ 121,394 $ (157,172) $ 325,855 $ 635,158
======== ========== =========== ========== ==========
Y2-97
Net Revenues $975,592 $1,946,646 $ 33,941 $2,481,210 $5,437,389
Cost of sales 567,831 - 72,173 1,340,098 1,980,102
-------- ---------- ----------- ---------- ----------
Gross profit
(loss) $407,761 $1,946,646 $ (38,232) $1,141,112 $3,457,287
======== ========== =========== ========== ==========
Y2-96
Net Revenues $949,191 $ 287,227 $ 802,487 $1,384,993 $3,423,898
Cost of sales 449,039 68,000 956,804 749,366 2,223,209
-------- ---------- ----------- ---------- ----------
Gross profit
(loss) $500,152 $ 219,227 $ (154,317) $ 635,627 $1,200,689
======== ========== =========== ========== ==========
</TABLE>
NET REVENUES
Revenues are generated through the Company's intellectual property
activities, including publishing, book licensing and packaging, and through
licensing of rights to its licensees (i.e. book rights, television rights, toy
rights, etc.), and through its entertainment retail business. Net revenues for
Q2-97 increased by 98%, to $3,730,067, an increase of $1,841,792 from $1,888,275
for Q2-96. The increase noted in Q2-97 over Q2-96 is substantially due to the
Company's share of its NetCo Partners joint venture's earnings, as well as the
increased revenues for additional retail outlets opened after June 30, 1996. Net
revenues for Y2-97 increased by 59%, to $5,437,389, an increase of $2,013,491
from $3,423,898 for Y2-96.
14
<PAGE>
GROSS PROFIT
Overall Company gross profit increased by 326%, or $2,069,212, to
$2,704,370 in Q2-97 from $635,158 in Q2-96. As a percentage of net revenues,
gross profit increased to 73% in Q2-97 from 34% in Q2-96. The Company's overall
gross profit increased 188%, or $2,256,598, to $3,457,287 in Y2-97 from
$1,200,689 for Y2-96. As a percentage of net revenues, gross profit increased to
64% in Y2-97 from 35% in Y2-96. The increase in gross profit is primarily due to
the Company's share of its NetCo Partners joint venture's earnings .
INTELLECTUAL PROPERTY
/bullet/ BOOK LICENSING AND PACKAGING
NET REVENUES. Total net revenues from Tekno Books, which is 51% owned
by the Company, decreased 1.1 %, or $6,743, to $602,102 for Q2-97 from $608,845
for Q2-96. Net revenues increased 3%, or $26,401, to $975,592 for Y2-97 from
$949,191 for Y2-96. Tekno Books' deferred revenues decreased by 48.4%, or
$258,368, to $275,783 at June 30, 1997 from $534,151 at June 30, 1996. Tekno
Books' net revenues consist of two sources of revenue: (1) cash advances
recognized as revenues upon the acceptance by publishers of books, and (2)
royalties on books sold to and published by third-party publishers. Tekno Books
generates significant cash flow from cash advances received upon the execution
of publishing agreements with publishers for books to be published in the
future. Such cash advances are only recognized as revenue when the work to which
they relate is accepted by the publisher, resulting in a deferral of revenue
recognition following receipt of the cash advance. Historically, virtually all
books delivered by Tekno Books have been accepted. Additionally, Tekno Books has
a library of books totaling over 900 titles which generate royalty payments to
Tekno Books. The decrease in deferred revenues, from Q2-96 to Q2-97, reflect the
completion of larger than average projects which were in process in Q2-96.
Management believes that this is not an indication of any change in performance
of this division. This division continues to grow with several significant works
currently in Tekno Books' product pipeline.
GROSS PROFIT. Gross profit for Tekno Books in Q2-97 was 46% as compared
to 57% in Q2-96. For Y2-97, gross profit as a percent of net revenues was 42%
compared to 53% for Y2-96. The decrease in gross profit percentage in Q2-97 and
Y2-97 is due to revenue recognition in Q2-96 and Y2-96 related to several high
margin works which were published during Q2-97. This is not an indication of any
change in performance of this division. Management believes that this division
continues to grow with several significant works currently in Tekno Books'
product pipeline.
/bullet/ LICENSING
NET REVENUES. Net revenues from the licensing division include
$1,822,500 from the Company's joint venture, NetCo Partners, in which the
Company has a 50% interest. During Q2-97, NetCo's contracts with Berkley, the
Dodge Division of Chrysler Corporation and ABC, produced revenues related to TOM
CLANCY'S NETFORCE projects which have progressed to the stage where revenues
have been earned. The amount included in revenue equals the Company's 50% share
of NetCo's earnings.
GROSS PROFIT. Licensing gross profit percentage in Q2-97 is 100%,
as compared to 64% in Q2-96. The margin for Q2-97 is possible because all
costs related to the development of the entertainment properties licensed were
expensed by the publishing division, where the Company's intellectual properties
are created and developed.
15
<PAGE>
/bullet/ PUBLISHING
The Company continues to use illustrated novels to introduce and develop its
intellectual properties. The illustrated novels are published under the
Company's contract with HarperCollins and revenues under this contract are
reflected as licensing revenues. Publishing revenues and costs during the
quarter reflect residual payments and related costs due for comic books and
other works published in prior quarters.
RETAIL
/bullet/ ENTERTAINMENT RETAIL
NET REVENUES. The Company's entertainment retail division net revenues
increased by 70%, or $513,338, to $1,244,057 for Q2-97 from $730,719 for Q2-96
and by 79%, or $1,096,217, to $2,481,210 for Y2-97 from $1,384,993 for Y2-96.
Net revenues are derived from sales of entertainment products and merchandise,
including T-shirts (such as STAR WARS(TM) T-shirts), hats (such as X-FILES(TM)
hats), action figures (such as BATMAN(TM) action figures) and related items,
CD-ROMS, trading cards, videos, comic books, collectible art, and other
entertainment merchandise, at the Company's retail units located in major malls
in various parts of the United States. The Company had 30 retail units in
operation at June 30, 1997, as compared to 19 retail units in operation at June
30, 1996. The increase in revenues was due to two factors: (1) an increase in
the number of retail units in operation, and (2) an increase in same store sales
comparisons. In Q2-97 same store sales increased by 5.5% as compared to Q2-96.
For Y2-97 same store sales increased by 11.4% as compared to Y2-96. Same store
sales statistics include only those units that have been open at least 12 months
from the beginning of the period being compared.
GROSS PROFIT. Gross profit for the entertainment retail division
increased by 78%, or $255,638, to $581,493 for Q2-97 from $325,855 for Q2-96, or
by 79%, or $505,485, to $1,141,112 for Y2-97 from $635,627 for Y2-96. As a
percentage of entertainment retail division revenues, gross profit was 46% for
both Y2-97 and Y2-96, and increased to 47% in Q2-97 from 45% in Q2-96. Cost of
sales for the entertainment retail division includes direct costs of goods
purchased for resale net of existing inventories valued at the lower of cost
using the first-in, first-out method or market. The cost of promotional items
and inventory reductions due to shrinkage are included in selling, general and
administrative expenses.
OPERATING EXPENSES
Total operating expenses consist of selling, general and administrative
expenses, salaries and benefits and amortization. Total operating expenses
increased by 34%, or $593,096, to $2,356,861 for Q2-97 from $1,763,765 for
Q2-96. As a percentage of net revenues, total operating expenses decreased to
63% in Q2-97 from 93% in Q2-96. Total operating expenses increased by 18%, or
$694,685, to $4,567,047 for Y2-97 from $3,872,362 for Y2-96. As a percentage of
the Company's net revenues, total operating expenses decreased to 84% in Y2-97
from 113% in Y2-96. The decreased expenses reflect reductions in operating
expenses in the publishing division and corporate overhead, although this was
partly offset by increases in salaries and benefits related to increases in the
entertainment retail division due to the need to add overhead to support
additional retail units.
16
<PAGE>
OTHER EXPENSE
Other expense for Q2-97 increased by 24%, or $11,807, to $60,540 from
$48,733 for Q2-96, and decreased by 2% or $1,708 to $99,428 in Y297 from
$101,136 in Y296.
SHAREHOLDER'S EQUITY
Shareholder's equity increased 25% or $654,530 to $3,289,791 at June
30, 1997, as compared to shareholder's equity of $2,635,261 as of March 31,
1997, and decreased 33% or $902,076 to $3,289,791 at June 30, 1997, as compared
to shareholder's equity of $4,191,872 as of December 31, 1996. The changes are
primarily due to the results of operations for the quarter and six months ended
June 30, 1997, and the issuance of 91,626 shares of Series B preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $410,505
and working capital deficit of $1,253,499, compared to cash and cash equivalents
of $1,675,852 and working capital of $1,285,093 at December 31, 1996. Net cash
used in operating activities during Y2-97 was $2,484,007, primarily representing
cash used to fund the Company's net loss during Q1-97. Net cash used by
investing activities was $339,256 and $1,557,915 in cash was provided by
financing activities, for a total decrease in cash and cash equivalents of
$1,265,348 during Q2-97. Net cash used in operating activities during Y2-96 was
$3,498,148, primarily representing cash used to fund the Company's operations.
At June 30, 1996, the Company had cash and cash equivalents of $2,899,942 and
working capital of $2,504,817. Net cash used in investing activities was
$942,023 and $6,733,737 in cash was provided by financing activities, for a
total increase in cash of $2,293,566 during Y2-96.
Subsequent to June 30, 1997, the Company completed a $3.5 million
private placement whereby 35 units of 28,571-1/2 shares each were sold to
investors at a price of $100,000 per unit. The aggregate number of common shares
issued was 1,000,002 shares, based approximately on a per share price calculated
using a formula of 70% of the average closing sale price of the Company's common
stock for the 20 trading days immediately preceding the initial closing. These
shares have a six month lock-up period and may not be sold or traded during such
six month period without the prior written consent of the Company. Net proceeds
of $3,115,800 were received subsequent to June 30, 1997 and will be used for
working capital, as well as towards the cost of additional retail units to be
opened in the second half of 1997.
BankBoston has extended a proposal to the Company, subject to due
diligence and further bank approval, to establish a $5 million, 48 month,
revolving line of credit with a subsidiary of BankBoston for the purpose of
financing the Company's retail inventory. It is currently expected that 50% to
60% of inventory costs for both present and future retail operations during such
48 month period will be financed through this facility. The terms call for
interest computed at BankBoston Prime plus 1% per annum, payable monthly. The
rate is reduced to 1/2% over prime for years three and four. There is a
commitment fee that will be due BankBoston of 1% of the loan amount, payable
annually throughout the loan's term. This loan facility would be secured by a
security interest in the Company's retail inventory. There can be no assurance
or guaranty that this loan facility will be finalized.
The Company's Chairman of the Board and Chief Executive Officer and the
Company's Vice Chairman and President extended to the Company a $1.1 million
line of credit facility providing for interest only payments calculated at the
JP Morgan Bank prime rate of interest; prepayable at any time without penalty by
the
17
<PAGE>
Company; and payable on demand of the holders. As of June 30, 1997 the Company
had a balance outstanding of $912,000 under this line of credit, which was
repaid in full subsequent to June 30, 1997. The line of credit currently remains
available to the Company.
Based on currently proposed plans and assumptions relating to its
operations, the Company anticipates that its current capital resources, when
combined with anticipated cash flows from operations, will be sufficient to
satisfy the Company's contemplated working capital requirements for
approximately the next twelve months. The Company's management expects to
require additional financing for the expansion of its business, and in
particular the growth of the Company's retail business, and to support working
capital requirements in future years. The Company currently is exploring
financing alternatives to allow the Company to finance such expansion.
However, there can be no assurance that such financing alternatives will be
available to the Company or will be implemented on terms favorable to the
Company.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine the precise effects of
inflation, it does not believe inflation has a material effect on sales or
results of operations. The Company considers its business to be somewhat
seasonal and expects net revenues to be generally higher during the second and
fourth quarters of each fiscal year for its Tekno Books book licensing and
packaging division as a result of the general publishing industry practice of
paying royalties semi-annually and during the summer (when schools and colleges
are not in session) and holiday seasons for its entertainment retail division.
Accordingly, as the Company expands its chain of Entertainment
Super/bullet/Kiosks, it anticipates that its results of operations will be
increasingly affected by seasonality.
18
<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
On June 30, 1997, the Company issued to Tekno Simon LLC ("Tekno
Simon") 91,626 shares of the Company's Series B Variable Rate Convertible
Preferred Stock (the "Series B Preferred Stock") pursuant to the Preferred Stock
Purchase Agreement, as amended, between the Company and Tekno Simon for an
aggregate purchase price of $480,000. Each share of Series B Preferred Stock is
convertible into one share of the Company's Common Stock until November 28,
1997, after which time the Series B Preferred Stock will be redeemable by the
Company at its option at a redemption price equal to 115% of the final stated
value (as defined in the terms of the Series B Preferred Stock) of each share
of Series B Preferred Stock redeemed.
The foregoing shares of Series B Preferred Stock were issued by the
Company in reliance on the exemption from registration set forth in Section 4(2)
of the Securities Act of 1933, as amended, as it was a transaction by the
Company not involving a public offering.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG ENTERTAINMENT, INC.
Date: August 14, 1997 By: /s/ MITCHELL RUBENSTEIN
----------------------------------------
Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer and Principal Financial and
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 410,505
<SECURITIES> 0
<RECEIVABLES> 136,664
<ALLOWANCES> 0
<INVENTORY> 1,530,886
<CURRENT-ASSETS> 3,308,526
<PP&E> 3,320,237
<DEPRECIATION> 1,169,801
<TOTAL-ASSETS> 8,384,761
<CURRENT-LIABILITIES> 4,562,025
<BONDS> 0
0
4,000,000
<COMMON> 58,810
<OTHER-SE> (769,019)
<TOTAL-LIABILITY-AND-EQUITY> 8,384,761
<SALES> 5,437,389
<TOTAL-REVENUES> 5,437,389
<CGS> 1,980,102
<TOTAL-COSTS> 4,567,047
<OTHER-EXPENSES> (20,194)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,622
<INCOME-PRETAX> (1,342,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,342,927)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,342,927)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
