<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24984
DOVE ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CALIFORNIA 95-4015834
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8955 BEVERLY BOULEVARD
LOS ANGELES, CALIFORNIA 90048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
----------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 786-1600.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the numbers of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date: 6,726,554 as of May 8,
1998.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DOVE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 1,555,000
Accounts receivable, net of allowances of $1,097,000 2,948,000
Due from related party 75,000
Inventory 2,867,000
Film costs 6,011,000
Prepaid expenses and other assets 718,000
------------
Total current assets 14,174,000
NON-CURRENT ASSETS
Production masters 1,408,000
Film costs, net 673,000
Property and equipment, net 3,883,000
Goodwill and other assets 5,981,000
------------
Total non-current assets 11,945,000
------------
Total assets $ 26,119,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,391,000
Notes payable 3,319,000
Royalties payable 607,000
Advances and deferred income 4,860,000
Accrued dividends 482,000
------------
Total current liabilities 15,659,000
NON-CURRENT LIABILITIES
Notes payable, less current portion 8,452,000
Accrued liabilities 766,000
------------
Total non-current liabilities 9,218,000
Total liabilities 24,877,000
COMMITMENTS AND CONTINGENCIES - note 9
SHAREHOLDERS' EQUITY
Preferred stock $.01 par value; 2,000,000 shares authorized and
220,033 shares issued and outstanding, liquidation
preference $7,259,000 2,000
Common stock $.01 par value; 20,000,000 shares authorized and
6,581,544 shares issued and outstanding 66,000
Additional paid-in capital 28,325,000
Accumulated deficit (27,151,000)
------------
Total shareholders' equity 1,242,000
------------
Total liabilities and shareholders' equity $ 26,119,000
============
</TABLE>
See accompanying notes to consolidated financial statements
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DOVE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Publishing, net $ 1,549,000 $ 1,068,000
Film 1,144,000 1,593,000
----------- -----------
2,693,000 2,661,000
Less: Cost of sales
Publishing 1,186,000 1,610,000
Film 944,000 2,143,000
----------- -----------
2,130,000 3,753,000
----------- -----------
Gross profit / (loss) 563,000 (1,092,000)
Less: Selling, general and administrative expenses 2,179,000 2,187,000
----------- -----------
Loss from operations (1,616,000) (3,279,000)
Less: Interest expense, net 147,000 136,000
----------- -----------
Loss before income taxes (1,763,000) (3,415,000)
Less: Income tax expense -- 9,000
----------- -----------
Net loss $(1,763,000) $(3,424,000)
=========== ===========
Basic and diluted loss
attributable to common shareholders $(1,870,000) $(3,482,000)
=========== ===========
Basic and diluted loss per common share $ (0.28) $ (0.66)
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 6,579,000 5,276,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 4
DOVE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,763,000) $(3,424,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 134,000 140,000
Amortization of goodwill 63,000 63,000
Amortization of production masters 473,000 884,000
Amortization of film costs 786,000 2,143,000
Changes in operating assets and liabilities
Accounts receivable (875,000) 1,663,000
Inventory 170,000 (182,000)
Prepaid expenses (214,000) 319,000
Expenditures for production masters (354,000) (780,000)
Film costs (5,826,000) (2,711,000)
Accounts payable and accrued expenses (340,000) 279,000
Advances and deferred revenue 4,336,000 (383,000)
Other 54,000 (5,000)
----------- -----------
Net cash used in operating activities (3,356,000) (1,994,000)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (82,000) (6,000)
----------- -----------
Net cash used in investing activities (82,000) (6,000)
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of preferred stock -- 3,244,000
Proceeds of bank borrowings 4,691,000 --
Repayments of bank borrowings and notes payable -- (387,000)
----------- -----------
Net cash provided by financing activities 4,691,000 2,857,000
----------- -----------
Net decrease in cash and cash equivalents 1,253,000 857,000
Cash and cash equivalents at beginning of the quarter 302,000 390,000
----------- -----------
Cash and cash equivalents at end of the quarter $ 1,555,000 $ 1,247,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH TRANSACTIONS:
Cash paid for interest $ 147,000 $ 136,000
Refunds received for income taxes $ -- 162,000
Common stock issued as payment for consulting fees to related party $ 300,000 $ --
Preferred stock dividends accrued $ 107,000 $ 16,000
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 5
DOVE ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements of Dove Entertainment, Inc.
(the "Company") are unaudited and have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB, for the fiscal year ended December 31, 1997. In
the opinion of management, the accompanying consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments) which
are necessary for a fair presentation. The results of operations for the quarter
ended March 31, 1998 are not necessarily indicative of results to be expected
for the full year.
The Company is a diversified entertainment company primarily engaged in
publication of audio and printed books, the production of television programming
through its wholly-owned subsidiary Dove Four Point, Inc. ("Dove Television"),
and the distribution of feature films and television product, both domestically
and internationally.
The Company acquires audio publishing rights for specific titles or groups of
titles for audio production and distribution, primarily in the United States of
America.
Dove Television is an independent production company which develops and produces
television productions for which rights are controlled by Dove Television. In
addition, Dove Television is a producer-for-hire in connection with a creative
concept and literary property owned by another party to produce all forms of
television productions, including pilots, series, telefilms, miniseries, talk
shows and game shows for network, cable and syndicated production.
At the Company's Annual General Meeting of Shareholders held on April 30, 1998,
shareholders approved a change of the Company's name to NewStar Media Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER COMMON SHARE
SFAS No. 128, "Earnings per Share", is effective for financial statements issued
for periods ending after December 15, 1997. SFAS No. 128 replaces Accounting
Principles Board Opinion ("APB") No. 15 and simplifies the computation of
earnings per share ("EPS") by replacing the presentation of primary EPS with a
presentation of basic EPS. Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution from securities that could share in the earnings of the Company,
similar to fully diluted EPS under APB No. 15. The statement requires dual
presentation of basic and diluted EPS by entities with complex capital
structures. The Company adopted SFAS No. 128 for the financial statements ended
March 31, 1998. SFAS No. 128 had no impact on the previously reported loss per
share. Dilutive securities have been omitted from the diluted calculation since
they are antidilutive. The net loss utilized in the calculation of net loss per
common share is increased by the following:
<TABLE>
<CAPTION>
Quarter Ended March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Accrued dividends on Preferred Stock $107,000 $ 16,000
Imputed dividends on Preferred Stock
-- 43,000
-------- --------
Total 107,000 $ 59,000
======== ========
</TABLE>
The imputed dividends on Preferred Stock have been treated as an increase and
decrease to Additional Paid-in Capital.
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<PAGE> 6
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates. Significant estimates include those related to ultimate revenues and
expenses related to film and television productions, the net realizability of
inventory and production masters and the allowance for returns on publishing
sales.
RECLASSIFICATION
Certain prior year accounts have been reclassified to conform to the current
year's presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment at March 31, 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Land $ 502,000
Building 2,161,000
Furniture, fixtures and equipment 2,496,000
Leasehold improvements 6,000
----------
Total 5,165,000
Less: Accumulated depreciation and amortization 1,282,000
----------
$3,883,000
==========
</TABLE>
NOTE 4 - PRODUCTION MASTERS
Production masters, net of accumulated amortization of $1,408,000 at March 31,
1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Released titles $1,005,000
Unreleased titles 403,000
----------
Total $1,408,000
==========
</TABLE>
NOTE 5 - FILM COSTS
Film costs, net of accumulated amortization, of $6,684,000 at
March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Current: Television and theatrical projects in production $6,011,000
Non-current: Television and theatrical projects released less
accumulated amortization 673,000
----------
Total $6,684,000
==========
</TABLE>
As of March 31, 1998 approximately 90% of the unamortized balance of film costs
will be amortized within the next three-year period based upon the Company's
revenue estimates at that date.
NOTE 6 - INCOME TAXES
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company provides for
income taxes during interim reporting periods based upon an estimate of its
annual effective tax rate. This estimate includes all anticipated federal, state
and foreign income taxes.
SFAS No. 109 requires that a valuation allowance be recorded against tax assets
which are not likely to be realized. Due to the uncertainty of their ultimate
realization based upon past earnings performance and the expiration dates of
carryforwards, the Company has established a valuation allowance against these
tax assets except to the extent
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<PAGE> 7
that they are realizable through carrybacks. Realization of additional amounts
is entirely dependent upon future earnings in specific tax jurisdictions. While
the need for this valuation allowance is subject to periodic review, if the
allowance is reduced, the tax benefits of the carryforwards will be recorded in
future operations as a reduction of the Company's income tax expense. At March
31, 1998, the Company had net deferred tax assets of approximately $10,142,000
against which a valuation allowance had been fully recorded.
NOTE 7 - NOTES PAYABLE
Notes payable at March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Current portion of notes payable:
Long term mortgage note payable $ 48,000
Capitalized leases
16,000
Chase Manhattan Bank "Futuresport" production loan
3,255,000
-----------
Total current portion of notes payable 3,319,000
Non-current notes payable:
Chase Manhattan Bank revolving credit loan 6,650,000
Long-term mortgage note payable, less current portion 1,770,000
Capitalized leases 32,000
-----------
Total non-current notes payable 8,452,000
-----------
Total notes payable $11,771,000
===========
</TABLE>
The long term mortgage note payable, from Asahi Bank of California, is secured
by a deed of trust on the Company's principal office building, 8955 Beverly
Boulevard, Los Angeles, CA 90048 and bears interest at a fixed rate of 8% per
annum. The loan matures in April 2001 and provides for a 20 year maturity
amortization payment rate through April 2001 with a repayment of the remaining
outstanding principal amount at that time.
On November 12, 1997, the Company entered into an agreement with The Chase
Manhattan Bank ("Chase Bank") providing the Company with an $8,000,000 loan
facility for working capital purposes ("Chase Loan"). The Chase Loan is secured
by substantially all of the Company's assets, other than the Company's building.
The Chase Loan runs for three years until November 4, 2000. The Chase Loan
establishes a "Borrowing Base" comprised of: (1) 35% of an independent valuation
of the Company's audio library, (2) 85% of the Company's eligible receivables
and (3) 30% of the Company's finished goods audio and book inventory. At any
time, the Company may borrow or have letters of credit issued up to the
Borrowing Base. In addition, the Company may borrow or have letters of credit
issued for an additional $2,000,000 (provided the aggregate amount borrowed does
not exceed $8,000,000) with the consent and guarantee of Media Equities
International L.L.C. ("MEI"). The Chase Loan provides for interest at the bank
prime rate (8 1/2% at March 31, 1998) plus 2% per annum or the bank's LIBOR rate
(5.69% six month rate at March 31, 1998) plus 3% per annum, at the option of the
Company. Both rates are applicable to Company draw-downs on the Chase Loan at
March 31, 1998. In addition, unused commitment fees are payable at 1/2% per
annum. The Chase Loan contains various covenants to which the Company must
adhere including limitations on additional indebtedness, investments,
acquisitions, capital expenditures and sale of assets, restrictions on the
payment of dividends and distributions to shareholders, and various financial
compliance tests. The Company was not in compliance with certain of the
financial compliance tests at December 31, 1997 but received a waiver and
amendment from Chase Bank. At March 31, 1998, the Company had borrowed
$6,650,000 against the facility. In addition, Chase Bank had provided a letter
of credit for $350,000. In April and May 1998, Chase Bank provided further
letters of credit in the aggregate of $466,000 under the Chase Loan.
In February 1998, the Company entered into an agreement with Chase Bank
providing the Company with an additional loan of a maximum of $3,289,000 for the
purpose of partly financing the made for television motion picture "Futuresport"
("Futuresport Loan"). The Futuresport loan is incorporated into the Chase Loan
under the same terms and conditions as the Chase Loan. The Futuresport Loan is
collateralized against the production of "Futuresport". The Futuresport Loan is
repayable in September 1998.
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<PAGE> 8
NOTE 8 - RELATED PARTY TRANSACTIONS
Pursuant to an employment termination agreement entered into in 1997
("Termination Agreement") with then principal shareholders and officers of the
Company ("Former Principals"), the Company paid such Former Principals $81,000
during the quarter ended March 31, 1998. The Termination Agreement provides for
the Former Principals to receive combined monthly payments ("the Payments") of
approximately $25,000, and medical insurance for 60 months from June 1997. In
addition, they are entitled to each receive a car allowance for 24 months from
June 1997 and reimbursement for certain medical and business expenses. Certain
payments under, and other provisions of, the Termination Agreement are subject
to arbitration proceedings.
To secure the Payments, the Company has issued into escrow 1,500 shares of its
Series E Preferred Stock, convertible into shares of Common Stock to the extent
set forth in the Certificate of Determination for the Series E Preferred Stock.
The Series E Preferred Stock will be held in escrow and will not be released to
the Former Principals except in the event of a default in the Payments by the
Company. In the event of a default in the Payments by the Company, the Series E
Preferred Stock will be released to the Former Principals, as the case may be,
in an amount equal to the portion of the Payments unpaid as a result of default
divided by the stated value of the Series E Preferred Stock. The Former
Principals have registration rights pursuant to a registration rights agreement,
dated June 10, 1997, among the Company and the Former Principals with respect to
any Series E Preferred Stock received by them.
In addition to full-time salary and payments pursuant to the Termination
Agreement, the Company made the following payments to the Former Principals in
the quarter ended March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Reimbursement of condominium rental $ 2,000
Accrued non-accountable expenses paid 181,000
Automobile lease, insurance and repair payments 13,000
Medical expense and life insurance reimbursements 1,000
Writing services 11,000
Interest in respect of partial funding of the movie "Wilde" 13,000
Commission in respect of the movie "Wilde" 75,000
--------
$296,000
========
</TABLE>
The above amounts were all paid or incurred prior to the date of the Termination
Agreement.
Certain other transactions with the Former Principals were carried out during
the quarter ended March 31, 1997 as fully described in the Company's Annual
Report on Form 10-KSB, for the fiscal year ended December 31, 1997.
During the quarter ended March 31, 1997, the Company paid consulting fees
amounting to $31,000 to Mr. Leider, then a director of the Company.
During the quarter ended March 31, 1998, the Company paid directors fees of
$1,000 to each of two independent directors.
During the quarter ended March 31, 1998, the Company accrued consulting fees of
$75,000 to MEI. On January 2, 1998, the Company issued MEI 240,000 shares of
Common Stock in payment of accrued and prepaid consulting fees amounting to
$300,000. These shares were issued at fair market value.
Pursuant to guarantee agreements dated November 4, 1997, each of the principals
of MEI (i.e. Messrs. Elkes, Gorman, Healy, Maggin and Lightstone) guaranteed
$500,000 borrowed under the Chase Loan. In order to secure the repayment of any
amounts the MEI principals may be required to pay to Chase Bank under the
guarantees, MEI has been granted a security interest in substantially all of the
assets of the Company, other than the Company's building. Such security interest
is junior to the security interest of Chase Bank which secures the Company's
obligations under the Chase Loan.
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<PAGE> 9
The Company acquired audio book rights for fifteen titles which were written by
a substantial shareholder. The Company recorded the following net audio sales
(net of returns) from titles written by a substantial shareholder:
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-----------------------
<S> <C> <C>
1998 1997
---- ----
$ 39,000 $ 14,000
</TABLE>
In January 1998, the Company and Mr. Ronald Ziskin, President of Dove
Television, agreed to cancel an option to purchase 300,000 shares of Common
Stock at an exercise price of $11.00 and in lieu thereof, the Company will grant
Mr. Ziskin the option to purchase 150,000 shares of Common Stock at an exercise
price of $1.50 per share.
In May 1998, the Company issued to Mr. Ronald Lightstone, President and Chief
Executive Officer, 107,407 shares of Common Stock representing vested shares for
the period June 6, 1997 to April 30, 1998 pursuant to his Employment Agreement.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a defendant in a case entitled Steven A. Stern and Steven A.
Stern as assignee of the claims of Sharmhill Productions (B.C.), Inc., a
bankrupt company v. Dove Audio, Inc. et al. (British Columbia Supreme Court,
Vancouver Registry No. C930935) in which the plaintiff claims that he had been
fraudulently induced to enter into an agreement relating to the film "Morning
Glory" and is seeking as damages approximately $4.5 million. The Company
believes that it has good and meritorious defenses to the action. Nevertheless,
there is no assurance that the Company will prevail in the action.
In February 1996, the Company was served with a complaint in an action entitled
Robert H. Tourtelot v. Dove Audio, Inc. etc. et al. (Los Angeles Superior Court
Case No. SC040739) (the "Tourtelot Action"). Mr. Tourtelot seeks in excess of a
million dollars in damages claiming that he had an oral agreement with the
Company to write a book that the Company would publish, and that information he
provided to the Company was used in another book published by the Company,
"Legacy of Deception." While the Company believes that it has good and
meritorious defenses to the Tourtelot Action, there is no assurance that the
Company will prevail in the Tourtelot Action.
In July 1997, the Company was served with a complaint in an action entitled Alan
Fields v. Dove Entertainment, Inc., et al. (Los Angeles Superior Court No. BC
174659) (the "Fields Action"). The Fields Action was brought by an alleged
purchaser of Common Stock against the Company and the Former Principals as a
putative class action on behalf of all persons who acquired Common Stock between
July 25, 1995 and August 20, 1996. The complaint alleges a cause of action for
violation of Section 25400(d) of the California Corporations Code based on the
alleged dissemination of false and misleading statements about, among other
things, the success of the Company's printed book operations, financial results,
business condition and future prospects. The plaintiff seeks unspecified damages
and other relief. In August 1997, an action entitled Global Asset Allocation
consultants, L.L.C. v. Dove Entertainment, Inc., et al. (Civil Action No.
97-6253-WDK) (the "Global Asset Action"), was commenced against the Company and
the Former Principals in the United States District Court for the Central
District of California. The Global Asset Action was brought by an alleged
purchaser of Common Stock as a putative class action on behalf of all persons
who acquired Common Stock between July 25, 1995 and August 20, 1996. The
complaint alleges a cause of action for violation of Section 10(b) of the
Securities and Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder
based on the conduct at issue in the Fields Action. The plaintiff seeks
unspecified damages and other relief. The Company has learned that another
putative federal securities class action was filed in the United States District
Court for the Central District of California by an alleged purchase of Common
Stock represented by the law firm of Berman, DeValerio & Pease LLP (the "Berman
Action"; and collectively with the Fields Action and the Global Asset Action,
the "Securities Actions"). The complaint is reportedly brought on behalf of all
persons who acquired Common Stock between April 15, 1996 and October 10, 1996
and to allege a cause of action against the Company and certain of its former
officers for violation of Section 10(b) of the Securities Exchange Act of 1934
and SEC Rule 10b-5 promulgated thereunder. As of December 31, 1997, the
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<PAGE> 10
Company has not been served with the complaints in the Global Asset Action or
the Berman Action. The Company has not yet filed a response to the complaints in
the Securities Actions. While the Company believes it has good and meritorious
defenses against the claim, the Company has taken a charge of $150,000 in the
quarter ended June 30, 1997 in respect of potential costs associated with the
claim.
In July 1997, the Company was served with a complaint in an action entitled
Steven A. Soloway v. Dove Entertainment, Inc., etc. et al. (Los Angeles Superior
Court Case No. BC 175516) (the "Soloway Action"). Mr. Soloway is a former
director and employee of the Company and has sought damages of approximately
$350,000 for breach of contract. Although the Company believes that it has good
and meritorious defenses and setoffs to the Soloway Action, there is no
assurance that the Company will prevail in the Soloway Action.
In December of 1997, the Company was served with a complaint in an action
entitled Gerald J. Leider V. Dove Entertainment, Inc. f.k.a. Dove Audio, Inc.
(Los Angeles Superior Court Case No. BC 183056) (the "Leider Action"). Mr.
Leider is a former Chairman of the Board and consultant to the Company and has
sought damages of approximately $287,000 for breach of contract and $60,000 for
unpaid consulting fees of certain records of the Company and an award of
expenses related thereto. Although the Company believes that it has good and
meritorious defenses and setoffs to such action, there is no assurance that the
Company will prevail in such action.
The Company has filed an appeal in the action entitled Greer v. Dove (Los
Angeles Superior Court Case No. BC 160871) (the "Greer Action"). In order to
file the appeal, the Company was required to post a bond in the amount of
approximately $179,000 (i.e. 150% of the judgment amount). Such bond is secured
by a letter of credit issued under the Chase Loan.
The Company is involved in a number of other legal proceedings as more fully
discussed in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 and those that are incidental to the Company's business.
NOTE 10 - CAPITAL ACTIVITIES
COMMON STOCK
In March 1998, the Company issued 240,000 shares of Common Stock to MEI in
payment of consulting fees. These shares were issued at fair market value.
STOCK OPTIONS AND WARRANTS
Options outstanding under the Company's stock incentive plan, (the "Plan") at
March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise Exercise
Shares Price Price
------ ----- -----
<S> <C> <C>
89,000 $2.50 - $6.00 $ 3.08
</TABLE>
At March 31, 1998, options to acquire 78,998 shares of Common Stock under the
Plan were exercisable.
In addition to the above options issued under the Plan, at March 31, 1998, the
following options to acquire shares of Common Stock were outstanding:
(1) 300,000 options at $11.00 per share issued in 1996 to one of the
principals of Four Point Entertainment, Inc. as part of an employment
agreement. None of these options were exercisable at March 31, 1998. In
January 1998, the Company agreed with the holder of such options to cancel
such options and in lieu thereof issue 150,000 options at $1.50 per share
under the Plan fully vested.
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<PAGE> 11
(2) 80,000 options issued in 1996 under the Plan, with an exercise price of
$3.50 per share to the Company's public relations firm. The Company has
terminated the agreement with the public relations firm.
On January 6, 1998, the Board approved the issuance of 601,500 options under the
Plan to employees, but no stock options were granted during the quarter ended
March 31, 1998.
Warrants outstanding as of December 31, 1997 and March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Number of
Equivalent Weighted
Number of Common Average
Warrants Shares Exercise Price Exercise Price
-------- ------ -------------- --------------
<S> <C> <C> <C>
4,712,763 4,664,013 $2.00 - $12.00 $ 5.06
</TABLE>
At March 31, 1998 warrants to acquire 4,664,013 Shares of common stock were
exercisable.
NOTE 11 - MAJOR CUSTOMERS AND SUPPLIERS
Revenues, net of returns from Customers exceeding 10% of Company revenues were:
<TABLE>
<CAPTION>
Quarter Ended March 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
67% 23%
</TABLE>
A significant quantity of audio inventory is supplied by two manufacturers. The
Company believes there are other suppliers and accordingly, the Company is not
dependent on these manufacturers as its sole source of product.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes to the
Consolidated Financial Statements included elsewhere in this report.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including those utilizing the phrases "will",
"expects", "intends", "estimates", "contemplates", and similar phrases, are
"forward-looking" statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended), including statements regarding, among other items, (i)
the Company's growth strategy, (ii) the Company's intention to acquire or
develop additional audio book, printed book and television product, (iii) the
Company's intention to enter or broaden distribution markets, and (iv) the
Company's ability to successfully implement its business strategy. Certain, but
not necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or be discussions of strategy that involve risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
and achievements of the Company and its subsidiaries to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to,
the following: uncertainty as to future operating results; growth and
acquisition risks; certain risks relating to the entertainment industry;
dependence on a limited number of projects; possible need for additional
financing; potential for liability claims; dependence on certain outlets for
publishing product; competition and legal proceedings and claims. Other factors
which may materially affect actual results include, among others, the following:
general economic and business conditions, industry capacity, changes in
political, social and economic conditions and various other factors beyond the
Company's control. The Company does not undertake and specifically declines any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statements to reflect events or
-11-
<PAGE> 12
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. See the relevant discussions elsewhere
herein, in the Company's registration statement on Form S-3 (Registration No.
333-43527) and in the Company's periodic reports and other documents filed with
the Securities and Exchange Commission for further discussions of these and
other risks and uncertainties applicable to the Company and its business.
OVERVIEW
The Company commenced business in 1985 as one of the pioneers of the audio book
industry and has become one of the leading independent producers (i.e.,
unaffiliated with any single book publisher) of audio books in the United
States. The Company produces and distributes approximately 100 to 120 new titles
annually and has built a library of approximately 1000 titles currently offered
for sale. Through its wholly-owned subsidiary Dove Four Point, Inc. ("Dove
Television"), the Company is engaged in the production and development of
television programming. Other activities of the Company include a limited
printed book publishing program and the distribution of feature films and
television programming.
Revenues for the quarter ended March 31, 1998 were $2,693,000 compared with
$2,661,000 for the same period in 1997. The Company incurred a net loss of
$1,763,000 for the quarter compared to a net loss of $3,424,000 for the same
period in 1997.
The increase in revenues was attributable to a 45% increase in publishing
revenues, partly offset by a reduction of 28% in television and film revenues.
The reduced net loss was primarily attributable to increased publishing margins
due to lower production and distribution costs and reduced returns. The quarter
ended March 31, 1998 was the first full quarter following completion of the
Company's restructuring plans in 1997 with audio books and printed books being
sold by the Company's own sales team for traditional markets and distributed by
the Company's new distributor.
In March 1998, the Company delivered the movie "Wilde" to Sony Pictures Classic.
"Wilde" was successfully screened as the opening film at the San Francisco Film
Festival in April 1998 and premiered on April 27, 1998 in Los Angeles. The film
opened for general viewing in Los Angeles and New York on May 1, 1998.
During the quarter ended March 31, 1998, Dove Television commenced production of
"Futuresport", a two-hour television motion picture starring Wesley Snipes, Dean
Cain and Vanessa L. Williams. Principal photography was completed in March 1998
and the motion picture is scheduled to be delivered to ABC Television in May
1998. Dove Television has entered into an agreement for the license of home
video rights and international marketing commenced at the annual MIP-TV
conference in Cannes, France in April 1998.
At the Company's Annual General Meeting on April 30, 1998, the Company changed
its name to NewStar Media Inc.
The demand for audio books is seasonal, with the majority of shipments taking
place in the third and fourth quarters of the year. The Company believes that
demand for audio books will remain seasonal, and this may adversely affect
results of operations for the first and second quarters. Because a significant
portion of the Company's expenses are relatively fixed, below-expectation sales
in any quarter could adversely affect operating results for that quarter.
From time to time, the Company may have several television projects in
development and generally seeks to limit its financial risk in the production of
television motion pictures and mini-series by pre-sales and licensing to third
parties. The production of television programming has been sporadic over the
last several years and significant variances in operating results from
year-to-year and quarter-to-quarter can be expected for television programming
revenues.
In accordance with the industry practice, substantially all of the Company's
sales of audio and printed book products are and will continue to be subject to
potential return by distributors and retailers. Although the Company
-12-
<PAGE> 13
estimates allowances and reserves for returned products, significant increases
in actual return rates above these estimates could materially and adversely
impact the Company's results of operations or financial condition.
RESULTS OF OPERATIONS
The following table sets forth revenues and operating expenses as a percentage
of total revenues:
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1998 1997
----- -----
<S> <C> <C>
REVENUES
Publishing 58% 40%
Television and Film 42 60
----- -----
Total 100% 100%
===== ====
OPERATING EXPENSES
Publishing 44% 61%
Television and Film 35 81
Selling, general & administrative 81 82
----- -----
Total 160% 224%
===== ====
</TABLE>
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Publishing
Revenues. Net publishing revenues for the quarter ended March 31, 1998 increased
$481,000 to $1,549,000 compared with $1,068,000 for the quarter ended March 31,
1997. The increase in net publishing revenues was primarily attributable to
improved audio book sales and substantially lower printed book returns. Leading
audio book publications during the quarter included Sudden Death by Robert B.
Parker, Perfect Witness by Barry Siegel, The Last hostage by John J. Nance and
Irish Whiskey by Andrew M. Greeley. Substantially all of the Company's sales of
book products are and will continue to be subject to potential returns by
distributors and retailers if not sold to the public. Although the Company makes
allowances and reserves for returned product that it believes are adequate,
significant increases in return rates can materially and adversely impact the
Company's financial condition or results of operations.
Cost of Sales. Cost of sales for the quarter ended March 31, 1998 decreased
$424,000 to $1,186,000 compared with $1,610,000 for the quarter ended March 31,
1997. The decrease was attributable to the decrease in returns of printed books
during the quarter ended March 31, 1998. Cost of sales as a percentage of net
publishing revenues decreased from 151% in the quarter ended March 31, 1997 to
77% for the quarter ended March 31, 1998 due primarily to the lower cost of
returns
Film and Television
Revenues. Film and television revenues for the quarter ended March 31, 1998
decreased $449,000 to $1,144,000, compared with $1,593,000 for the quarter ended
March 31, 1997. The reduction was due to timing factors related to production
delivery schedules. Film and television revenues for the quarter ended March 31,
1998 included completion of the second series of the syndicated production "Make
Me Laugh" distributed by Buena Vista Television for the cable network Comedy
Central.
Cost of sales. Film and television amortization for the quarter ended March 31,
1998 decreased $1,199,000 to $944,000 compared with $2,143,000 for the quarter
ended March 31, 1997. Cost of sales as a percentage of net film and television
revenues decreased from 135% in the quarter ended March 31, 1997 to 83% for the
quarter ended March 31, 1998, due primarily to the effect of cost overages
recorded in the quarter ended March 31, 1997.
-13-
<PAGE> 14
General
Gross Profit / (Loss). The Company experienced a gross profit of $563,000 for
the quarter ended March 31, 1998 versus a gross loss of $1,092,000 for the
quarter ended March 31, 1997, resulting from the matters previously discussed
regarding publishing and film revenues and cost of sales.
Selling, General and Administrative ("SG&A"). SG&A includes costs associated
with selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs, professional fees,
travel and entertainment. SG&A decreased to $2,179,000 for the quarter ended
March 31, 1998 compared to $2,187,000 for the quarter ended March 31, 1997.
Net Interest Expense. Net interest expense for the quarter ended March 31, 1998
was $147,000 compared with $136,000 for the quarter ended March 31, 1997. The
interest expense is primarily the result of the utilization of funds for working
capital purposes together with the cost of the mortgage on the Company's
principal office building. Interest expense is expected to increase due to
utilization of the Chase Loan.
LIQUIDITY AND CAPITAL RESOURCES
In March 1997, the Company entered into an agreement with MEI and the Former
Principals for an equity investment of approximately $6,000,000 through the sale
of Preferred Stock and warrants to purchase Common Stock of the Company in a
private placement. In the first of two closings, the Company received an
aggregate of $3,920,000 (including the contribution of $676,000 payable by the
Company to the Former Principals) and in a second closing completed May 31, 1997
received an additional $2,000,000.
In September 1997, the Company entered into an agreement with MEI providing the
Company with a $450,000 loan facility for working capital purposes ("MEI Loan").
On November 12, 1997, the MEI Loan was repaid in full with the proceeds from a
loan facility provided by Chase Bank, and the MEI Loan was terminated.
On November 12, 1997, the Company entered into an agreement with Chase Bank
providing the Company with an $8,000,000 loan facility for working capital
purposes ("Chase Loan"). The Chase Loan is secured by substantially all of the
Company's assets, other than the Company's building. The Chase Loan runs for
three years until November 4, 2000. The Chase Loan establishes a "Borrowing
Base" comprising: (1) 35% of an independent valuation of the Company's audio
library, (2) 85% of the Company's eligible receivables and (3) 30% of the
Company's finished goods audio and book inventory. At any time, the Company may
borrow or have letters of credit issued up to the Borrowing Base. In addition,
the Company may borrow or have letters of credit issued for a further $2,000,000
(provided the aggregate amount borrowed does not exceed $8,000,000) with the
consent and guarantee of MEI. The Chase Loan provides for interest at the bank
prime rate plus 2% per annum or the bank's LIBOR rate plus 3% per annum, at the
option of the Company. In addition, unused commitment fees are payable at 1/2%
per annum. The Chase Loan contains various covenants to which the Company must
adhere including limitations on additional indebtedness, investments,
acquisitions, capital expenditures and sale of assets, restrictions on the
payment of dividends and distributions to shareholders, and various financial
compliance tests. The Company was not in compliance with certain of the
financial compliance tests at December 31, 1997 but received a waiver and
amendment from Chase Bank. At March 31, 1998, the Company had borrowed
$6,650,000 against the facility. In addition, Chase Bank had provided a letter
of credit for $350,000. In April and May 1998, Chase Bank provided further
letters of credit in the aggregate of $466,000 under the Chase Loan.
In February 1998, the Company entered into an agreement with Chase Bank
providing the Company with an additional loan of a maximum of $3,289,000 for the
purpose of partly financing the made for television motion picture "Futuresport"
("Futuresport Loan"). The Futuresport loan is incorporated into the Chase Loan
under the same terms and conditions as the Chase Loan. The Futuresport Loan is
collateralized against the production of "Futuresport" and "Futuresport"
receivables. The Futuresport Loan is repayable in September 1998.
The Company has historically experienced significant negative cash flows from
operations, including $8,546,000 for the year ended December 31, 1997 and
$3,356,000 for the quarter ended March 31, 1998 - see "Financial Statements of
the Company - Consolidated Statements of Cash Flows". Such negative cash flows
have resulted from, among other things, use of working capital for expansion of
audio and printed book publishing, development
-14-
<PAGE> 15
of television programming and the acquisition of theatrical motion picture
product. The Company plans to significantly increase the level of activity in
both its audio book and television production operations. In addition, the
Company will consider acquisitions of properties or libraries or companies in
related lines of business. It will be necessary to obtain additional capital in
order to accomplish its growth objective. Such additional capital would likely
be obtained through sales of equity securities, by obtaining debt financing or
through the sale of assets. Even if the Company does not pursue its growth
objective, if the Company is unable to realize anticipated revenues or if the
Company incurs costs inconsistent with anticipated levels, the Company would
either need to obtain additional financing (through the sale of debt or equity
securities, by obtaining additional bank financing or through the sale of
certain assets), limit its commitments to new projects or possibly curtail its
current operations. There is no assurance that any such additional financing
will be available on acceptable terms.
The Company's television production activities can affect its capital needs in
that the revenues from the initial licensing of television programming may be
less than the associated production costs. The ability of the Company to cover
the production costs of particular programming is dependent upon the
availability, timing and the amount of fees obtained from distributors and other
third parties, including revenues from foreign or ancillary markets where
available. In any event, the Company from time to time is required to fund at
least a portion of its production costs, pending receipt of programming
revenues, out of its working capital. Although the Company's strategy generally
is not to commence principal photography without first obtaining commitments
which cover all or substantially all of the budgeted production costs, from time
to time the Company may commence principal photography without having obtained
commitments equal to or in excess of such costs. In such circumstances, the
Company will be required to fund at least a portion of production and
distribution costs, pending receipt of anticipated future revenues, from working
capital, from additional debt or equity financings from outside sources or from
other financing arrangements, including bank financing. There is no assurance
that any such additional financing will be available on acceptable terms. If the
Company is unable to obtain such financing, it may be required to reduce or
curtail certain operations.
In order to obtain rights to certain properties for the Company's publishing and
television operations, the Company may be required to make advance cash payments
to sources of such properties, including book authors and publishers. While the
Company generally attempts to minimize the magnitude of such payments and to
obtain advance commitments to offset such payments, the Company is not always
able to do so and there is no assurance it will be able to do so in the future.
The Company's operations in general, and its publishing and television
operations in particular, are capital intensive. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations and
anticipated outcomes of current litigation, that the projected cash flow from
operations and available cash resources, including its existing financing
arrangements, will be sufficient to satisfy its anticipated cash requirements
for the next twelve months. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the cash flow proves to be
insufficient to fund operations (due to unanticipated expenses, delays,
problems, difficulties or otherwise), the Company would be required to seek
additional financing sooner than anticipated or to curtail its activities.
As of May 8, 1998 the Company's unused sources of funds consisted primarily of
approximately $222,000 in cash and $240,000 available under the Chase Loan and
$69,000 available under the Futuresport Loan. The Company is in discussion with
Chase Bank and MEI with a view to extending the Chase Loan by $2,000,000. Any
draw-downs of such currently available amounts under the Chase Loan are subject
to approval and guarantee by MEI.
INFLATION
The Company does not believe its business and operations have been materially
affected by inflation.
-15-
<PAGE> 16
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, in the action entitled Robert H. Tourtelot v. Dove Audio, Inc.
etc. et al. (Los Angeles Superior Court Case No. SC040739), the Company
prevailed on summary judgment and obtained a dismissal of the infringement of
common law copyright, conversion, conspiracy and breach of duty claims alleged
in the action and such claims were dismissed with prejudice by the trial court.
All other claims alleged in the action continue.
On January 12, 1998, in an arbitration proceeding in which Michael Viner and
Deborah Raffin (the "Former Principals") claimed that their agreement with the
Company not to compete in the book and audio business is not enforceable, the
arbitrator determined that the Former Principals' contention that the
non-compete provision is invalid and unenforceable is without merit and that the
provision prohibiting the Former Principals from competing with the Company in
the audio book business for a period of four years from June 10, 1997 is valid
and enforceable, and the arbitrator enjoined the Former Principals from engaging
in the audio book business during such period.
In another arbitration proceeding involving the Former Principals and the
Company, the Former Principals claimed that the Company breached a termination
agreement by failing to prepare office space for use by the Former Principals
and interfering with their use of the space, failing to repair a toilet and
failing to provide for and pay secretaries for the Former Principals, and that a
subsequent purported occupancy agreement that allowed the Former Principals to
use the Company's offices at 301 N. Canon was enforceable. The Company claimed,
among other things, that the Company was entitled to compensatory damages plus
costs incurred in restoring the Former Principals' offices to their original
condition and the costs of recovering possession and that the occupancy
agreement was invalid because it was never disclosed to or approved, authorized
or ratified by the Company's shareholders or the Board. The arbitrator rendered
a decision on February 13, 1998 (amended and corrected on March 2, 1998), in
which he awarded the Company the sum of $14,093 plus costs, finding, among other
things, that neither of the Former Principals had the right to occupy the
Company's office space after September 1, 1997 and that the occupancy agreement
is invalid and unenforceable.
In the action brought against the Company by James Belasco, a former director of
the Company (Belasco v. Dove Entertainment, Inc. etc. et al. LASC case no. BC
180707), the parties have entered into a settlement agreement pursuant to which
the Company will make payments over time to Mr. Belasco totaling $150,000 and
Mr. Belasco will grant to the Company audio rights to certain current and future
books of Mr. Belasco and pay certain book commissions to the Company.
During the quarter ended March 31, 1998, there have been no other material
developments in legal proceedings pending against the Company or its properties
and no other legal proceedings against the Company or its properties (other than
routine litigation that is incidental to the Company's business) were instituted
or terminated.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1998, in reliance on Section 4(2) of the Securities Act of 1933, as
amended, the Company issued 240,000 shares of Common Stock to Media Equities
International, LLC ("MEI") for payment of consulting fees owed to MEI pursuant
to an agreement with the Company for the period from June 1997 to December 31,
1997 and for the fiscal year 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
-16-
<PAGE> 17
ITEM 5. OTHER INFORMATION
On May 4, 1998, the Company filed with the California Secretary of State an
amendment to its Articles of Incorporation, changing the name of the Company to
NewStar Media Inc.
The Company has been notified by Nasdaq that the Company is not in compliance
with the new listing requirements established by Nasdaq because the Company does
not have net tangible assets of at least $2 million or a market capitalization
of $35 million or net income of $500,000 in the most recently completed fiscal
year or in two of the last three most recently completed fiscal years. Nasdaq
has requested that the Company propose a plan to come into compliance with the
listing requirements. On May 14, 1998, the Company submitted a plan to Nasdaq.
There is no assurance that the plan submitted to Nasdaq will be acceptable to
Nasdaq, in which case it is possible that Nasdaq may initiate steps to delist
the Company's stock. If the stock is delisted, the liquidity of the stock would
be materially adversely affected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
-17-
<PAGE> 18
SIGNATURES
In accordance with Section 13 or 15(d) 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.
Date: May 15, 1998 DOVE ENTERTAINMENT, INC.
By /s/ Ronald Lightstone
------------------------------------
Ronald Lightstone, President,
Chief Executive Officer and Director
Date: May 15, 1998 By /s/ Neil Topham
------------------------------------
Neil Topham
Chief Financial Officer
-18-
<PAGE> 19
DOVE ENTERTAINMENT, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
27 Financial Data Schedule
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,555,000
<SECURITIES> 0
<RECEIVABLES> 4,045,000
<ALLOWANCES> 1,097,000
<INVENTORY> 2,867,000
<CURRENT-ASSETS> 14,174,000
<PP&E> 5,165,000
<DEPRECIATION> 1,282,000
<TOTAL-ASSETS> 26,119,000
<CURRENT-LIABILITIES> 15,659,000
<BONDS> 9,218,000
0
66,000
<COMMON> 2,000
<OTHER-SE> 1,174,000
<TOTAL-LIABILITY-AND-EQUITY> 26,119,000
<SALES> 2,693,000
<TOTAL-REVENUES> 2,693,000
<CGS> 2,130,000
<TOTAL-COSTS> 2,130,000
<OTHER-EXPENSES> 2,144,000
<LOSS-PROVISION> 35,000
<INTEREST-EXPENSE> 147,000
<INCOME-PRETAX> (1,763,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,763,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,763,000)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.30)
</TABLE>
