UNITED STATES
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 October 5, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 33-95796
HARVEST RESTAURANT GROUP, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0406417
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
----------------------------------------------------------
(Address of principal executive offices, including zip Code)
(210) 824-2496
-----------------------------
(Registrant's telephone number)
CluckCorp International, Inc
-------------------------------------
(Former name, address, or fiscal year,
if changed since last report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
2,492,630 shares as of November 15, 1997
<PAGE>
HARVEST RESTAURANT GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
ITEM 1. Financial Statements
Consolidated Balance Sheets -
October 5, 1997 and December 29, 1996 3
Consolidated Statements of Operations -
12 and 40 Weeks Ended
October 5, 1997 and October 6, 1996 4
Consolidated Statements of Cash Flows -
40 Weeks Ended
October 5, 1997 and October 6, 1996 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of
Securities holders 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
<PAGE>
HARVEST RESTAURANT GROUP, INC.
Consolidated Balance Sheets
October 5, December 29,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current Assets
Cash $ 1,048,779 $ 1,271,443
Cash, restricted -- 220,000
Inventories 13,580 8,658
Prepaid expenses 35,874 --
Other current assets -- 10,590
------------ ------------
Total Current Assets 1,098,233 1,510,691
Property and Equipment, net 1,830,448 1,156,362
Other Assets
Notes receivable from financed area
developers, net of provision of
$1,340,807 in 1997 1,536,430 --
Intangible property rights, net of
accumulated amortization of $209,206
in 1997 and $139,825 in 1996 190,294 259,675
Deposits 118,818 83,257
Other assets 41,877 127,727
------------ ------------
1,887,419 470,659
------------ ------------
$ 4,816,100 $ 3,137,712
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 378,938 $ 134,204
Accrued liabilities 198,032 220,406
Notes payable to bank, current 211,004 200,000
------------ ------------
Total Current Liabilities 787,974 554,610
Deferred franchise revenue 40,000 --
Note payable to bank, less current portion 45,724 --
Stockholders' Equity
Preferred stock - $1.00 par value,
authorized 5,000,000, issued 515,000
in 1997 and none in 1996 515,000 --
Common stock - $.01 par value, authorized
20,000,000, issued 2,492,630 in 1997
and 2,112,750 1996 24,926 21,128
Additional paid-in capital 10,564,383 6,138,770
Accumulated deficit (7,161,907) (3,576,796)
------------ ------------
Total Stockholders' Equity 3,942,402 2,583,102
------------ ------------
$ 4,816,100 $ 3,137,712
============ ============
See notes to financial statements (unaudited).
3
<PAGE>
<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC.
Consolidated Statements of Operations (Unaudited)
12 Weeks Ended 40 Weeks Ended
-------------- --------------
October 5, October 6, October 5, October 6,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 621,243 $ 47,430 $ 1,737,607 $ 157,827
Costs and Expenses
Cost of food and paper 223,102 21,105 699,930 68,624
Salaries and benefits 170,858 25,879 582,297 87,846
Occupancy and other operating expenses 203,585 34,570 693,175 98,021
Preopening expenses 74,414 28,288 254,741 63,044
General and administrative expenses 724,995 216,296 1,570,146 718,754
Depreciation and amortization 71,656 21,366 203,947 73,165
----------- ----------- ----------- -----------
Total costs and expenses 1,468,610 347,504 4,004,236 1,109,454
----------- ----------- ----------- -----------
Loss from operations (847,367) (300,074) (2,266,629) (951,627)
Other income (expense)
Financed area developer loss provision (1,054,748) -- (1,340,807) --
Interest income 16,992 21,681 37,378 22,392
Interest and debt discount expense (3,902) (3,799) (15,053) (451,496)
----------- ----------- ----------- -----------
(1,041,694) 17,882 (1,318,482) (429,104)
----------- ----------- ----------- -----------
Net Loss $(1,889,061) $ (282,192) $(3,585,111) $(1,380,731)
=========== =========== =========== ===========
Preferred stock dividends (185,400) -- (185,400) --
Net loss applicable to common stock (2,074,461) -- (3,770,511) --
Net loss per common share $ (.88) $ (.13) $ (1.61) $ (1.00)
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares outstanding 2,368,673 2,108,750 2,346,922 1,386,661
=========== =========== =========== ===========
See notes to financial statements (unaudited).
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
40 Weeks Ended
----------------------------
October 5, October 6,
1997 1996
----------- -----------
Operating Activities:
<S> <C> <C>
Net loss for the period $(3,585,111) $(1,380,731)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 203,947 73,165
Amortization of bridge note discount -- 367,153
Financed area developer loss provision 1,340,807 --
Changes in operating assets and liabilities:
Cash, restricted 220,000 (200,000)
Inventories (4,922) 1,390
Deferred financing costs -- 118,964
Other current assets (25,284) 34,710
Accounts payable and accrued liabilities 222,360 (34,899)
Deferred franchise revenue 40,000 --
----------- -----------
Net cash (used) in operating activities (1,588,203) (1,020,248)
Investing Activities:
Purchase of property and equipment (797,802) (350,313)
Additions to deposits (35,561) (42,555)
Acquisition of assets (1,121,405) --
Issuance of notes receivable to area developers (1,755,832) --
Reductions in other assets 75,000 18,342
----------- -----------
Net cash (used) in investing activities (3,635,600) (374,526)
Financing Activities:
Proceeds from sale of common stock and warrants 568,875 4,740,290
Proceeds from sale of common stock subject
to rescission -- 209,884
Proceeds from sale of preferred stock and warrants 4,375,536 --
Proceeds from issuance of bridge notes -- 376,370
Proceeds from bank borrowing 65,000 200,000
Repayments of bank borrowings (8,272) (1,684,500)
----------- -----------
Net cash provided by financing activities 5,001,139 3,842,044
----------- -----------
Net increase (decrease) in cash (222,664) 2,447,270
Cash at beginning of year 1,271,443 126,447
----------- -----------
Cash at end of period $ 1,048,779 $ 2,573,717
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 15,053 $ 130,243
=========== ===========
Federal income taxes paid $ -- $ --
=========== ===========
Supplemental disclosure of noncash investing activities:
Sale of assets to area developer for note receivable $ 1,121,405 $ --
=========== ===========
See notes to financial statements (unaudited).
5
</TABLE>
<PAGE>
HARVEST RESTAURANT GROUP, INC.
Notes to Financial Statements (Unaudited)
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
Organization - Harvest Restaurant Group, Inc., owns, operates and franchises
quick service restaurants under the name "Harvest Rotisserie". The Company has
four Company-owned restaurants in operation in San Antonio and Corpus Christi,
Texas and has sold franchises for ten restaurants. The restaurants provide high
quality, quick service food featuring marinated oak-roasted rotisserie chicken,
oak-roasted turkey breast, roast ham, pot roast, an assortment of sandwiches and
other home-style food items.
The accompanying consolidated financial statements include the accounts of
Harvest Restaurant Group, Inc. and its franchising subsidiary, Harvest
Restaurants, Inc., and are referred to collectively as the "Company". All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared by the Company in accordance with the instructions
to Form 10-QSB. Accordingly, certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted. In the opinion of
management, all adjustments (consisting of normal recurring accruals and
adjustments) considered necessary for a fair presentation have been made. The
statements are subject to year-end adjustment. The consolidated results of
operations for the 40 weeks ended October 5, 1997 may not be indicative of the
results for the full fiscal year. For further information, refer to the
Company's audited financial statements as filed with the Securities and Exchange
Commission in the Company's Form 10-KSB for the year ended December 29, 1996.
NOTE B - REVENUE RECOGNITION
Revenue from company-owned restaurant sales are recognized in the period in
which the food and beverage products are sold. Revenue from nonrefundable area
development fees and initial franchise fees are recognized when all material
services or conditions related to the sale have been substantially performed by
the Company, which is generally determined to be when the franchise store opens.
Royalties are recognized in the same period that the franchise revenue is
generated. Interest and fees for services are recognized as earned.
NOTE C - FISCAL YEAR
The Company has adopted a 52/53-week fiscal year ending on the last Sunday in
December. The fiscal year is divided into thirteen four-week periods. The first
quarter consists of four periods and each of the remaining three quarters
consists of three periods, with the first, second and third quarters ending 16
weeks, 28 weeks and 40 weeks respectively, into the fiscal year.
6
<PAGE>
NOTE D - IMPACT OF NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, effective for fiscal years ending after December 15,
1997. Implementation of this Statement is not expected to have a significant
impact on the earnings per share calculation of the Company.
NOTE E - STOCKHOLDERS' EQUITY
In June 1997 the Company completed the sale of 515,000 shares of 12% Convertible
Preferred Stock and 1,723,400 Preferred Stock Purchase Warrants in a public
offering. The Company realized net proceeds of $4,375,536 from the offering.
The Preferred Stock is convertible at the option of the holder at any time after
March 11, 1998 into shares of Common Stock at a conversion rate of 2.7 shares of
Common Stock for each share of Preferred Stock. The Preferred Stock will
automatically convert to Common Stock at the conversion rate if the closing
price for the preferred Stock equals or exceeds $20.00 per share for ten
consecutive days at any time after March 11, 1998. The Preferred Stock may be
redeemed in whole or in part at the option of the Company after March 11, 1998,
upon 30 days written notice, at 110% of the average bid price per share for the
Preferred Stock for the 20 trading days prior to the redemption date.
Dividends are cumulative and payable quarterly in arrears at a rate of $.30 per
share per quarter. The redemption price and dividends may be paid in cash or in
Common Stock of the Company at the Company's sole discretion.
Each Preferred Stock Purchase Warrant entitles the holder to purchase one share
of Preferred Stock at $10.50 per share at any time after December 11, 1997 until
June 11, 2002. The Preferred Warrants may be redeemed by the Company for $.01
per Warrant upon 30 day's notice at any time after March 11, 1998 if the closing
price of the Company's Preferred Stock averages at least $11.00 per share for a
period of 20 consecutive trading days or if the Company redeems the Preferred
Stock.
NOTE F - ACQUISITION OF RESTAURANT PROPERTIES
On June 25, 1997 the Company completed the purchase of certain assets of eight
Kenny Rogers Roasters restaurants located in Florida, Indiana, and North
Carolina from Roasters Corp., a Florida Corporation. The purchase price included
$1,050,000 in cash and the assumption of certain liabilities and lease
obligations. The acquisition was accounted for as a purchase, and accordingly,
the purchase price, including related acquisition expenses of $71,405 was
allocated to identified assets and liabilities, with no excess of purchase price
over the net assets acquired. Effective concurrent with the acquisition, the
Company resold these assets to its area developers in exchange for a promissory
note and the assignment of the assumed liabilities. The Company realized no gain
or loss on the resale of the properties to the area developers.
7
<PAGE>
On June 20, 1997 the Company entered into area development agreements with three
separate unaffiliated corporations, each of which is majority-owned and
controlled by the same individual. The area development agreements provide for
the development of up to a total of 30 franchised Harvest Rotisserie restaurants
over a two to three year period, of which nine were opened as of October 5,
1997.
NOTE G - AREA DEVELOPER FINANCING
Effective June 25, 1997, the Company began offering convertible secured debt
financing to its three area developers to finance the purchase of the acquired
Roaster properties, and the costs to renovate and reopen the properties as
Harvest Rotisserie restaurants. The Company also agreed to finance a portion of
the area developers initial working capital needs. The loans may be drawn upon
during a two to three year period up to the maximum amount as set in the loan
agreements. During the draw period, interest only is payable to the Company.
Upon expiration of the draw period, the loan converts to a ten year amortizing
loan with a balloon payment after the fifth year. The loans bear interest at
prime (as set by Frost National Bank of Texas) plus 4%. The loans are secured by
a pledge of substantially all of the assets of the area developer and of all the
outstanding stock held by the owners of the area developer.
a) Loan Conversion Option
- -------------------------
The Company may convert all or any part of the loan amount at any time after the
draw period into equity of the area developer. The conversion rate is set to
give the Company majority ownership of the developer upon conversion. To the
extent that the loan has not been fully drawn or drawn and repaid, the Company
has a corresponding option to purchase at the conversion rate the amount of
additional equity it could have obtained through conversion of the loan had the
maximum loan amount been outstanding.
There can be no assurance that the Company will exercise future rights to
convert into an equity interest in any area developer or that such exercise of a
conversion option would result in a majority interest in the area developer.
b) Commitments to Extend Area Developer Financing
- -------------------------------------------------
All three of the Company's existing area developers are receiving financing from
the Company. The Company has committed to loan a total of $3,268,000 under its
financed area developer loan program, of which $2,877,237 has been loaned as of
October 5, 1997.
c) Credit Risk and Allowance for loan losses
- --------------------------------------------
The Company's three financed area developers are all majority owned and
controlled by the same individual. These area developers accounted for 100% the
notes receivable from financed area developers and all development and franchise
fees recognized during the quarter. An allowance of the Company's notes
receivable from financed area developers is maintained at a level that in
management's judgment is adequate to provide for estimated possible loan losses.
The amount of the allowance is based on management's review of loan proceeds,
status of development schedule, store performance trends, type and amount of
collateral securing the loan, prevailing economic conditions, and other factors
that management deems relevant at the time. Due to the limited store operating
history to base a credit evaluation, management has recorded an allowance for
estimated losses of the financed area developers of $1,340,807.
8
<PAGE>
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company is the primary lessee under all property lease agreements for
restaurants operated by the Company and its franchisees. The Company subleases
the restaurant sites to its area developers under the same terms as under the
lease. The lease terms generally have initial terms of ten years with two or
three five-year renewal options. Most of the leases contain escalation clauses
and require the payment of common area maintenance charges or taxes, insurance
and other expenses. The Company remains liable on the properties subleased to
area developers. The Company also is continently liable for various equipment
operating leases which the Company assigned to the area developers. Total future
minimum rental payments under leases assigned or subleased to area developers
with remaining non-cancelable terms in excess of one year is approximately
$6,000,000 as of October 5, 1997.
The Company has also guaranteed certain promissory notes of its area developers
payable to third parties totaling $1,466,542.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements
Except for the historical information contained herein, the matters set
forth in this report are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks are detailed in
the Company's various reports filed with the Securities and Exchange Commission.
These forward-looking statements speak only as of the date hereof. The Company
disclaims any intent or obligation to update these forward-looking statements.
General
The Company was organized in June 1993 and as of October 5, 1997, the
Company has four company-owned restaurants in operation and has sold franchises
for ten additional restaurants.
Results of Operations - For the 12 and 40 week periods ended October 5,
1997 compared to the 12 and 40 week periods ended October 6, 1996.
Revenues. Total revenues for the 12 weeks ended October 5, 1997 increased
to $621,243 approximately 13 times the amount of revenue as compared to same
period in 1996. The significant increase was due to the opening of three
additional company-owned restaurants from November 1996 to February 1997, and
the recognition of franchise and development rights for four franchised
restaurants that open during the quarter. The Company deferred revenue
recognition on the sale of one additional franchised restaurant sold during the
period.
Costs and Expenses. Cost of food and paper were 52.8% and 52.3% of
restaurant revenues for the 12 and 40 week periods ended October 5, 1997 as
compared to 44.5% and 43.5% for the same periods in 1996. The increase in food
and paper costs was due to the opening of new restaurants in the first quarter
of 1997. Costs of sales is generally higher as a percentage of revenue for newly
opened restaurants than for mature restaurants due to increased food usage for
opening promotions and inefficiencies caused by less experience employees.
Salaries, benefits, occupancy and operating expenses include all other
restaurant level operating expenses, the major components of which are direct
and indirect labor, payroll taxes and benefits, operating supplies, rent,
advertising, repairs and maintenance, utilities, and other occupancy costs. The
combined total of these expenses was 89% and 95% of restaurant revenues for the
12 and 40 week periods ended October 5, 1997, as compared to 127% and 118% for
the same comparable periods in 1996. Substantial portions of these costs are
fixed or indirectly variable. These costs were disproportionate to revenues in
1997 due to the opening of new restaurants, which have higher expenses during
the initial periods after opening.
General and administrative expenses increased 3.35 times and 2.18 times for the
12 and 40 week periods ended October 5, 1997 as compared to the same periods in
1996. The increase resulted from the development of a corporate infrastructure
needed to support the planned expansion of company-owned and franchised
restaurants, and continued expenses associated with creating brand name
recognition for the company's restaurants.
Preopening expenses increased by $46,126 and $191,697 for the 12 and 40 week
periods ended October 5, 1997 as compared to the same periods in 1996. The
increase relates to initial costs associated with the development of new Harvest
Rotisserie restaurants and lease costs for maintaining future restaurant sites.
10
<PAGE>
Provision for financed area developer operations. Due to limited operating
history to date to base an evaluation of credit risk, the Company has recorded a
provision for estimated losses on its financed area developer loans of
$1,054,784 and $1,340,807 for the 12 weeks and 40 weeks ended October 5, 1997.
Interest and debt discount expense. Interest and debt discount expense
decreased $436,443 for the 40 weeks ended October 5, 1997 as compared to the
same period in 1996. The decrease was due to the repayment of $1,684,500 of
notes payable in July 1996.
Net Loss. The Company incurred a net loss of $1,889,061 and $3,585,111 for
the 12 and 40 week periods ended October 5, 1997 as compared to $282,192 and
$1,380,731 for the same periods in 1996. The increase in net loss for the
quarter was primarily due to a financed area developer loss provision of
$1,054,784. The Company expects to incur losses in future periods until it
generates sufficient revenues from an expanded base of restaurants to offset
ongoing operating, financing and expansion costs.
Liquidity and Capital Resources
The Company has incurred losses from operations since inception and as of
October 5, 1997 has an accumulated deficit of $7,161,907. The Company is not
presently generating sufficient revenues to meet its operating needs. Management
anticipates that the Company must increase revenues from existing restaurants,
open additional company-owned restaurants and realize additional revenues from
its franchise program to generate a positive cash flow from operations, although
there can be no such assurance.
The Company requires capital principally for the development of restaurants, to
provide financing for its area developers, and for working capital to promote
brand awareness for its restaurants and the continual development of a corporate
infrastructure to support the planned expansion in operations. During 1997, the
Company invested $1,121,405 for the acquisition of eight restaurant properties
and provided $1,755,832 of financing to its area developers for restaurant
development and working capital. The Company also invested $797,802 primarily
for the development of two company-owned restaurants that opened in 1997. To
date, the Company has funded its capital and operations needs with funds
provided from the sale of its securities, including the sale of preferred stock
and warrants completed in June 1997 which raised net proceeds of $4,375,536. The
Company does not have a working capital line of credit with any financial
institution.
The Company used a substantial portion of the proceeds of the preferred offering
for the acquisition of eight restaurant properties and for loans made to its
area developers under the Company's financed area developer program. The
acquired properties were resold by the Company to three area developers in
return for a promissory note which has been included in the Company's financed
area developer loan program. The area developers have converted the eight
properties to Harvest Rotisserie restaurants and are now operating them as
franchised units. The Company has committed to loan a total of $3,268,000 under
the financed area developer loan program, of which $2,877,327 has been loaned as
of October 5, 1997.
Sources of capital are limited to the Company achieving profitable operations in
future periods or raising additional capital from investors. The Company
anticipates that it will require additional capital to continue its expansion
program and maintain its current level of operations. If the Company is
unsuccessful in generating additional capital, its expansion plans and
operations will be curtailed.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting of its shareholders on September 30,
1997 to vote on a change of the Company's name to Harvest Restaurant Group,
Inc., and to increase the number of authorized shares of common stock from
10,000,000 to 20,000,000 shares. Both proposals based by a majority vote of the
shareholders, as follows:
For Against Abstain
--- ------- -------
Proposal 1: Company Name Change 1,430,483 11,300 3,800
Proposal 2: Increase Authorized Shares 1,305,458 113,825 26,300
ITEM 6. Exhibits and Reports on Form 8-K
The Company filed an amended Form 8-K/A during the Quarter ended October 5,
1997 for an original report that was dated June 25, 1997. The Form 8-K/A
reported under item 2 (Acquisition and Disposition of Assets) the purchase of
certain assets of eight Kenny Rogers Roaster restaurants.
SIGNATURES
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.
HARVEST RESTAURANT GROUP, INC.
Date: November 15, 1997 By: /s/ William J. Gallagher
----------------------- ---------------------------------
William J. Gallagher,
Chairman of the Board and Chief
Executive Officer
(Duly Authorized Signatory)
Date: November 15, 1997 By: /s/ Joseph Fazzone
----------------------- ---------------------------
Joseph Fazzone
Chief Financial Officer
(Duly Authorized Signatory)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-QSB for period ended 10/05/97.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> OCT-05-1997
<CASH> 1,048,779
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 13,580
<CURRENT-ASSETS> 1,098,233
<PP&E> 2,051,436
<DEPRECIATION> 220,988
<TOTAL-ASSETS> 4,816,100
<CURRENT-LIABILITIES> 787,974
<BONDS> 0
0
515,000
<COMMON> 24,926
<OTHER-SE> 3,402,476
<TOTAL-LIABILITY-AND-EQUITY> 4,816,100
<SALES> 422,167
<TOTAL-REVENUES> 621,243
<CGS> 223,102
<TOTAL-COSTS> 597,545
<OTHER-EXPENSES> 74,414
<LOSS-PROVISION> 1,034,748
<INTEREST-EXPENSE> 3,902
<INCOME-PRETAX> (1,889,061)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,889,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,889,061)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
