-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KmLQB1qEJYeMM0oyFGOfeQir67yaoqU4CPAFObFNXuAJ/0RmpcDVQSdVBsGxDphN bJHUooInW8QB3b7jD7Sgtg== 0000892569-97-003291.txt : 19971120 0000892569-97-003291.hdr.sgml : 19971120 ACCESSION NUMBER: 0000892569-97-003291 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971119 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAPHIX ZONE INC /DE/ CENTRAL INDEX KEY: 0001015446 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 330697932 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28676 FILM NUMBER: 97724337 BUSINESS ADDRESS: STREET 1: 42 CORPORATE PARK STE 200 CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148333838 MAIL ADDRESS: STREET 1: 42 CORPORATE PARK STREET 2: SUITE 200 CITY: IRVINE STATE: CA ZIP: 92714 10-Q 1 QUARTERLY REPORT FOR THE QUARTER ENDED 09/30/97 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 0-28676 GRAPHIX ZONE, INC. (Exact name of registrant as specified in its charter) Delaware 33-0697932 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2915 Daimler Street, Santa Ana, California 92705 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 833-3838 Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 17, 1997, 16,179,003 shares of the issuer's only class of common stock, $.01 par value per share, were outstanding. 2 GRAPHIX ZONE, INC. INDEX TO FORM 10-Q
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - September 30, 1997 and June 30, 1997...................................... 3 Consolidated Statements of Operations - Three months ended September 30, 1997 and 1996............................ 4 Consolidated Statements of Cash Flows - Three months ended September 30, 1997 and 1996............................ 5 Notes to Interim Unaudited Consolidated Financial Statements ............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................................................ 12 PART II OTHER INFORMATION Item 3. Defaults Upon Senior Securities........................................... 13 Item 5. Other Information......................................................... 13 Item 6. Exhibits and Reports on Form 8-K.......................................... 14 SIGNATURES............................................................................ 15
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) GRAPHIX ZONE, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND JUNE 30, 1997 (Unaudited)
September 30, June 30, 1997 1997 ------------- ------------ Assets Cash and cash equivalents $ 440,865 $ 726,443 Accounts receivable, net 224,180 387,707 Inventories -- 34,001 Other current assets 355,860 326,963 ------------ ------------ Total current assets 1,020,904 1,475,114 Property and equipment, net 217,470 250,000 Intangibles, net -- -- Other assets, net 23,081 26,570 ------------ ------------ TOTAL ASSETS $ 1,261,455 $ 1,751,684 ============ ============ Liabilities and Stockholders' Equity (Deficiency) Notes payable $ 4,787,875 $ 4,561,895 Accounts payable 2,709,817 2,852,819 Accrued royalties 1,409,730 1,609,730 Accrued liabilities 1,509,500 1,509,167 Accrued restructuring charge -- 75,000 Deferred revenue -- -- ------------ ------------ Total current liabilities 10,416,923 10,608,611 Other liabilities 51,147 51,147 ------------ ------------ Total liabilities 10,468,070 10,659,758 Mandatory Redeemable Series C Convertible Preferred Stock, 1,300,000 shares authorized, 1,185,185 issued and outstanding at September 30, 1997 and June 30, 1997, (Liquidation preference $4,000,000) 2,986,074 2,881,185 Stockholders' equity (deficiency) Preferred stock, $.01 par value, 25,000,000 shares authorized-all classes: Series B Convertible Preferred Stock, $.01 par value, 3,500 shares authorized, 1,806 and 2,225 issued and outstanding at September 30, 1997 and June 30, 1997, respectively 1,136,948 1,585,948 Common stock, $.01 par value, 100,000,000 shares authorized, 15,929,004 and 12,745,503 issued and outstanding at September 30, 1997 and June 30, 1997, respectively 159,290 127,455 Additional paid-in capital 41,781,040 41,469,405 Accumulated deficit (55,269,967) (54,972,067) ------------ ------------ Net stockholders' equity (deficiency) (12,192,689) (11,789,259) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,261,455 $ 1,751,684 ============ ============
See accompanying notes to financial statements 3 4 GRAPHIX ZONE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
September 30, September 30, 1997 1996 ------------- ------------- Net revenues $ 675,466 $ 3,455,135 Cost of revenues 54,001 871,820 ------------ ------------ Gross margin 621,465 2,583,315 ------------ ------------ Operating expenses: Research and development 76,617 843,903 Sales and marketing 11,167 919,452 General and administrative 256,408 747,052 Restructuring charge -- (263,831) ------------ ------------ Total operating expenses 344,192 2,246,576 Operating income (loss) 277,273 336,739 Interest expense, net (187,707) (33,901) Other income (expenses), net (387,466) -- ------------ ------------ Net income (loss) $ (297,900) $ 302,838 ============ ============ Income (loss) per share of common stock $ (0.02) $ 0.03 ============ ============ Weighted average common shares 14,560,676 10,617,968 ============ ============
See accompanying notes to financial statements 4 5 GRAPHIX ZONE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Unaudited)
September 30, September 30, 1997 1996 ------------- ------------- Cash flows from operating activities: Net income (loss) $(297,900) $ 302,838 Additions for non-cash interest 50,984 -- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 26,997 228,937 Provision for sales returns and doubtful accounts -- (229,678) Amortization of discount on convertible debentures -- -- Amortization of discount on mandatory redeemable preferred 104,889 -- Stock option and warrant compensation expense -- -- Change in operating assets and liabilities: Decrease (increase) in accounts receivable 163,527 (717,810) Decrease (increase) in inventories 34,001 (56,349) Increase in other current assets (28,897) (106,147) Increase (decrease) in other assets 3,489 40,697 Decrease in accounts payable (143,002) (228,326) Increase (decrease) in accrued royalties (200,000) 409,702 Decrease in accrued liabilities 333 (297,256) Decrease in accrued restructuring charge -- (451,143) Decrease in deferred revenue -- (114,225) Decrease in other liabilities -- (117,241) --------- ----------- Net cash used in operating activities (285,578) (1,336,001) Cash flows from investing activities: Purchase of property and equipment -- (126,020) --------- ----------- Net cash used in investing activities -- (126,020) Cash flows from financing activities: Payments for redemption of stock -- (75,062) Payments on notes payable -- -- Proceeds from notes payable -- -- Proceeds from exercise of stock options and warrants -- 10,297 Proceeds from preferred stock issuances, net -- 939,950 --------- ----------- Net cash provided by financing activities -- 875,185 Net Decrease in cash (285,578) (586,836) Cash and cash equivalents at beginning of period 726,443 1,288,196 --------- ----------- Cash and cash equivalents at end of period $ 440,865 $ 701,360 ========= =========== Supplemental disclosure of cash flow information Cash paid during period for interest $ -- $ 73,028
See accompanying notes to financial statements 5 6 GRAPHIX ZONE, INC. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL INFORMATION AND CURRENT STATUS OF COMPANY ORGANIZATION Graphix Zone, Inc., a Delaware corporation (the "Company"), was incorporated on January 17, 1996 for the purpose of acquiring GZ Multimedia, Inc. (formerly Graphix Zone, Inc.), a California corporation ("GZ-CA"), and StarPress, Inc., a Colorado corporation ("StarPress"). Both GZ-CA and StarPress were publishers of entertainment-oriented interactive multimedia software. On June 28, 1996, the Company acquired GZ-CA and StarPress in reverse triangular mergers and the companies became wholly-owned subsidiaries of the Company (the "Reorganization"). Following the consummation of the Reorganization, the Company's principal business was developing, producing and marketing CD-ROM and on-line products for the personal computer industry. In addition, the Company operated certain other businesses, including developing and operating WILMA, an Internet site for live music venues and developing and marketing certain Internet access and exploration products. RECENT DEVELOPMENTS AND CURRENT STATUS OF COMPANY In March 1997, the Company hired a new executive management team for the purpose of evaluating the current business and operations and financial condition of the Company and, if necessary, restructuring the Company. The management team performed an in-depth review of the Company's past history of operating losses, current financial condition, current strategic position within the entertainment software industry, competitors in such industry and capital requirements for new product development. In June 1997, based on the results of its review, the management team proposed to the Board of Directors of the Company a restructuring plan (as described below, the "Restructuring Plan") for the Company, which included terminating the Company's existing business operations. On June 3, 1997, the Board of Directors of the Company adopted the Restructuring Plan proposed by the management team. The Restructuring Plan adopted by the Board of Directors of the Company consists of the following elements: Business -- Divest or dispose of the Company's existing businesses related to the personal computer industry and explore opportunities to enter into new businesses and industries; Senior Secured Debt -- Renegotiate the terms of the Company's senior secured loan and the related collateral agreements to extend the term of the loan, reduce the interest rate thereof and provide for later payments of amounts due thereunder and to reduce the senior lender's warrant position in the Company; Outstanding Unsecured Debt -- Pay to unsecured creditors $.30 for each $1.00 of debt outstanding; Outstanding Convertible Preferred Stock -- Exchange outstanding shares of the Company's Series B and Series C Convertible Preferred Stock, each $.01 par value per share (collectively, the "Preferred Stock"), for shares of the Company's common stock, $.01 par value per share ("Common Stock"), at an exchange price of 6 7 NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) approximately $0.75 per share; and Additional Capital -- Evaluate alternatives for raising additional funds for the Company. By June 24, 1997, the Company had taken steps to cease its principal business operations and had terminated all employees other than Mr. David Hirschhorn, the Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Treasurer of the Company. Since July 1997, the Company's business activities have consisted of licensing and attempting to enter into licenses for certain of the entertainment software products held in its library, divesting or disposing of its businesses and products related to the personal computer industry and attempting to restructure its debt obligations, equity structure and business operations. As of November 18, 1997, the Company has no operating business. Management continues to attempt to restructure its debt obligations and equity structure, raise additional capital and position the Company to take advantage of potential business opportunities. On each of July 14, 1997 and August 29, 1997, the Company received from its senior secured lender, Madeleine, LLC, a New York limited liability company ("Madeleine"), a Notice of Default and Demand for Payment based on the Company's failure to make certain interest payments when due. As of November 18, 1997, the Company has not paid the past-due amounts owing under the senior secured loan and Madeleine has not foreclosed on the senior secured loan. As of November 18, 1997, the outstanding principal balance under the senior secured loan is $5,382,158 and accrued and unpaid interest is $50,458. The Company has attempted to negotiate a settlement with its unsecured creditors pursuant to which the Company would pay to such creditors $0.30 for each $1.00 of debt outstanding provided that it raised the capital needed to pay such amounts. Preliminary discussions with the creditors seemed to indicate that most of the creditors would agree to such terms. However, as of November 18, 1997, the Company has not been successful in entering into settlement agreements with the majority of its unsecured creditors. In addition, the Company has attempted to negotiate the conversion of its outstanding shares of Series B and Series C Convertible Preferred Stock into shares of Common Stock. As of November 18, 1997, certain of the holders of Series B Convertible Preferred Stock and all of the holders of Series C Convertible Preferred Stock have not agreed to convert their shares. The Company is depleting its cash reserves and is in critical need of an immediate capital infusion. The capital is required for three primary purposes: (i) to pay past-due amounts currently outstanding under the Company's senior secured loan with Madeleine, (ii) to fund the proposed settlements being negotiated with unsecured creditors and to repay the principal amount of its senior secured loan which becomes due on January 30, 1998 and (iii) to pursue future business opportunities that have been presented to the Company. The Company requires a minimum of $3.0 million in new capital to complete its Restructuring Plan. The Company has contacted numerous current stockholders, investment banks, investment funds and other organizations that specialize in investing in turn-around situations in an effort to raise capital. As of November 18, 1997, the Company has not been able to obtain the minimum $3.0 million of funds required to complete the Company's restructuring. 7 8 NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) BASIS OF PRESENTATION The interim unaudited consolidated financial statements included herein have been prepared by the Company in conformity with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Results for the three month period ended September 30, 1997 are not necessarily indicative of the results of operations for the entire fiscal year ending June 30, 1998. The interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997. (3) GOING CONCERN The Company has incurred significant losses since its inception, and, as of September 30, 1997, the Company's net working capital deficiency was ($9,396,019). By June 24, 1997, the Company had taken steps to cease its principal business operations. As of November 18, 1997, the Company has ceased all business operations. The Company does not have the necessary funds to pay its secured and unsecured debt obligations. The Company is in default under the terms of its senior secured loan and agreements with other creditors and has received two Notices of Default and Demand for Payment from its senior secured lender. In connection with its Restructuring Plan, the Company is attempting to renegotiate the terms of its senior secured loan, negotiate the payment of $.30 for each $1.00 of unsecured debt, convert outstanding shares of Preferred Stock into shares of Common Stock, and raise operating funds for the Company. However, the Company has not been successful in negotiating agreements with such parties or raising operating funds. There can be no assurances that the Company will be able to successfully complete its Restructuring Plan and continue as a going concern. If the Company is unsuccessful in completing its Restructuring Plan, the Company will be left with a diminishing list of alternatives including reviewing its options under the U.S. Bankruptcy Laws, exchanging all outstanding equity and debt for new equity and dissolving the Company. Alternatively, Madeleine may foreclose upon all of the assets of the Company and pursue the dissolution of the Company. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CURRENT STATUS OF COMPANY Until June 1997, the principal business operations of the Company consisted of developing, producing and marketing interactive entertainment and multimedia products for the personal computer industry. During the third quarter of the fiscal year ended June 30, 1997, the Company hired a new executive management team to evaluate the current business and operations and financial condition of the Company and, if necessary, restructure the Company (the "Restructuring"). On June 3, 1997, the Board of Directors of the Company adopted the restructuring plan proposed by the management team, which included terminating the Company's existing business operations. By June 24, 1997, the Company had taken steps to cease its principal business operations and had terminated all employees other than Mr. David Hirschhorn, the Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Treasurer of the Company. On each of July 14, 1997 and August 29, 1997, the Company received a Notice of Default and Demand for Payment from its senior secured lender based on the Company's failure to make certain interest payments when due. As of November 18, 1997, the Company has not paid the past-due amounts and the senior secured lender has not foreclosed on the senior secured loan. Since July 1997, the Company's business activities have consisted of licensing and attempting to enter into licenses for certain of the entertainment software products held in its library, divesting or disposing of its businesses and products related to the personal computer industry, and attempting to restructure its debt obligations, equity structure and business operations. As of November 18, 1997, the Company has no operating business; accordingly, the Company does not expect any material amount of revenues in subsequent quarters. Management continues to attempt to restructure its debt obligations and equity structure, raise additional capital and position the Company to take advantage of potential business opportunities. The Company is depleting its cash reserves in its effort to raise capital, implement a restructuring plan and comply with the requirements of a reporting company under the Securities Exchange Act of 1934, as amended. It is in critical need of an immediate capital infusion to fund the payment of the Company's secured and unsecured obligations and to provide working capital to the Company to pursue potential business opportunities that have been presented to the Company. As of November 18, 1997, the Company has not been able to raise the capital necessary to effect the Restructuring and pursue future business opportunities. 9 10 RESULTS OF OPERATIONS The following table sets forth certain items from the Company's Consolidated Statements of Operations as a percentage of net revenues for the three month periods ended September 30, 1997 and 1996.
Three Months Three Months Ended Ended September 30, 1997 September 30, 1996 ------------------ ------------------ Net revenues 100% 100% Cost of revenues 8% 25% --- --- Gross margin 92% 75% Research and development expenses 11% 24% Sales and marketing expenses 2% 27% General and administrative expenses 38% 22% Restructuring charge -- (8)% --- --- Operating Income 41% 10% Interest expense, net 28% 1% Other expenses, net 57% -- --- --- Net income (loss) (44)% 9% === ==
NET REVENUES Net revenues for the three months ended September 30, 1997 were $675,466 compared to $3,455,135 for the three months ended September 30, 1996, a decrease of 80%. Net revenues decreased as a result of the implementation of the Restructuring. Net revenues for the three months ended September 30, 1997 were comprised of revenues from licensing activities and sales of entertainment software products from the Company's library. Substantially all of net revenues for the three months ended September 30, 1997 relate to non-recurring payments under license agreements. COST OF REVENUES Cost of revenues for the three months ended September 30, 1997 were $54,001 compared to $871,820 for the three months ended September 30, 1996, a decrease of 94%. Cost of revenues decreased as a result of the implementation of the Restructuring. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for the three months ended September 30, 1997 were $76,617 compared to $843,903 for the three months ended September 30, 1996, a decrease of 91%. The decrease is a result of the implementation of the Restructuring. The Company does not anticipate the release of any future products, consequently, the Company is not engaged in any ongoing research and development. 10 11 SALES AND MARKETING EXPENSES Sales and marketing expenses for the three months ended September 30, 1997 were $11,167 compared to $919,452 for the three months ended September 30, 1996, a decrease of 99%. The decrease is a result of the implementation of the Restructuring. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the three months ended September 30, 1997 were $256,408 compared to $747,052 for the three months ended September 30, 1996, a decrease of 66%. The decrease in general and administrative expenses is a result of the implementation of the Restructuring, including the termination of all employees of the Company other than Mr. David Hirschhorn who is the Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Treasurer of the Company. RESTRUCTURING CHARGE During the three months ended September 30, 1996, the Company reversed $263,831 of restructuring charges expensed during a prior period. The Company did not incur any similar amounts during the three months ended September 30, 1997. INTEREST EXPENSES AND OTHER EXPENSES Interest expenses for the three months ended September 30, 1997 were $187,707 compared to $33,901 for the three months ended September 30, 1996, an increase of 454%. The increase in interest expenses is primarily related to the increase in the Company's notes payable balance as a result of borrowing $3,740,000 in January 1997 and $1,300,000 in June 1997 from its senior secured lender. Other expenses, which are made up of amortized loan expenses, for the three months ended September 30, 1997 were $387,466 and the Company did not incur any similar expenses during the three months ended September 30, 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of liquidity is cash. At September 30, 1997, the balance of cash and cash equivalents was $440,865, the net working capital deficiency was ($9,396,019) and net stockholders' deficiency was ($12,192,689). At June 30, 1997, the balance of cash and cash equivalents was $726,443, the net working capital deficiency was ($9,133,497) and net stockholders' deficiency was ($11,789,259). The decrease in the balance of cash and cash equivalents from June 30, 1997 to September 30, 1997 was primarily due to the Company's use of the cash to fund operations. The Company does not have the necessary funds to pay its secured and unsecured debt obligations and, as noted above, is in default under its senior secured loan and various other credit agreements. See Notes to Interim Unaudited Consolidated Financial Statements - Note (1) and Part II - Other Information, Item 3 Defaults Upon Senior Securities. As part of the Restructuring, the Company is attempting to negotiate settlements with all trade creditors and debtors related to its prior business activities pursuant to which the Company 11 12 would pay to such creditors and debtors $.30 for each $1.00 of debt. The Company is in default under agreements with many of these creditors and debtors. The Company's obligations to such trade creditors and debtors were approximately $6,000,000 as of September 30, 1997. In concert with settlement negotiations, the Company is investigating various sources of capital in an effort to raise funds for the Company to be used to satisfy its existing obligations. In addition, the Company is exploring opportunities to enter different businesses and industries. The Company's short-term liquidity is principally contingent on its ability to (a) raise funds through private and/or public debt and equity placements, (b) reach settlements with its trade creditors and debtors, and (c) obtain from its senior secured lender a waiver of defaults under the senior secured loan (the "Amended Loan Agreement"). The Company's immediate liquidity needs include paying existing trade debt and amounts past due under the Amended Loan Agreement and obtaining sufficient working capital to sustain its Restructuring efforts and service the debt payments under the Amended Loan Agreement. Long-term liquidity needs include repayment of borrowings under the Amended Loan Agreement which matures on January 30, 1998 and working capital needs for continuing operations. There can be no assurances that the Company will be able to obtain the necessary capital to satisfy its existing debt obligations and continue as a going concern. To the extent that the Company is unable to complete any step of its Restructuring Plan, it is likely that the Company's senior secured lender will foreclose on all of the assets of the Company and pursue the dissolution of the Company. FORWARD-LOOKING STATEMENTS/FUTURE PROSPECTS Included in this "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Report are certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends that such forward-looking statements shall be protected by the safe harbors provided for in such sections. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward-looking statements. As of November 18, 1997, it is unlikely that the Company will be able to effect the Restructuring in light of the fact that all efforts to raise capital have failed to date and an insufficient percentage of the unsecured creditors (both in terms of dollar amount and number of creditors) have executed settlement agreements. If the Company cannot raise capital and effect the Restructuring, the Company's options on a going-foward basis decrease significantly. Among the remaining alternatives for the Company are to further investigate its options under the U.S. Bankruptcy Laws, exchange all outstanding equity and debt for new equity and explore dissolution scenarios. In addition, at any time, the secured creditor may institute a foreclosure proceeding against the Company. If the Company is able to raise additional capital, effect the Restructuring and pursues other business interests, the Company may experience significant fluctuations in future operating results due to a number of economic, competitive and other factors. These factors and others could cause operating results to vary significantly from those prior periods. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of the factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 under the heading "Item 1. Business -- Risk Factors." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 12 13 PART II - OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES On July 14, 1997, the Company received a Notice of Default and Demand for Payment from Madeleine, LLC, a New York limited liability company ("Madeleine"), with respect to the amended loan agreement between the Company and Madeleine (the "Amended Loan Agreement") based on the Company's failure to make certain interest payments when due. The notice stated that the Company was in default under the terms of the Amended Loan Agreement and demanded that all past due amounts be paid to Madeleine by July 18, 1997. The Company did not pay to Madeleine the past due amounts by the July 18, 1997 deadline. On August 29, 1997, the Company received a second Notice of Default and Demand for Payment (the "August Notice") from Madeleine. The August Notice stated that in the event that the Company did not pay the past due amounts by September 5, 1997, Madeleine would exercise its rights to declare all obligations under the Amended Loan Agreement immediately due and payable. The Company did not pay the past due amounts by September 5, 1997. As of November 18, 1997, the Company has not paid the past due amounts under the Amended Loan Agreement and Madeleine has not declared all obligations under the Amended Loan Agreement immediate due and payable. The Company has attempted to negotiate with Madeleine to obtain a waiver of defaults under the Amended Loan Agreement and to amend the terms of the Amended Loan Agreement to extend its term, reduce the interest rate thereof and provide for later payments of amounts thereunder. However, as of November 18, 1997, Madeleine has not been willing to agree to the Company's proposals. As of November 18, 1997, the outstanding principal balance under the Amended Loan Agreement is $5,382,158 and accrued and unpaid interest is $50,458. ITEM 5. OTHER INFORMATION The information set forth under the captions "Notes to Interim Unaudited Consolidated Financial Statements -- Note (1) General Information and Current Status of Company -- Recent Developments and Current Status of Company" in Item 1 of Part I in this Report and "Forward-Looking Statements/Future Prospects" in Item 2 of Part I in this Report is hereby incorporated by reference in its entirety into this Item 5. 13 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The exhibits listed below are filed with the U.S. Securities and Exchange Commission as part of this quarterly report on Form 10-Q.
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Graphix Zone, Inc., a Delaware corporation (the "Company"), previously filed with the U.S. Securities and Exchange Commission (the "Commission") as Exhibit 3.1 to the Company's Registration Statement on Form S-4 dated March 25, 1996 (Registration No. 333- 2642) (the "Registration Statement"), which is incorporated herein by reference. 3.2 Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996 (File No. 0-28676) (the "September 1996 Quarterly Report"), which is incorporated herein by reference. 3.3 Certificate of Amendment of Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.4 to the Company's September 1996 Quarterly Report, which is incorporated herein by reference. 3.4 Certificate of Amendment of Certificate of Designations of Series A Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.4 to the Company's Annual Report on Form 10-K for the annual period ended June 30, 1997 (File No. 0-28676), and filed with the Commission on October 14, 1997, which is incorporated herein by reference. 3.5 Certificate of Designations of Series B Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.1 to the Company's Current Report on Form 8-K dated February 18, 1997, and filed with the Commission on March 5, 1997 (File No. 0-28676), which is incorporated herein by reference. 3.6 Certificate of Designations of Series C Convertible Preferred Stock of the Company, previously filed as Exhibit 10.34 to the Company's Current Report on Form 8-K dated March 5, 1997, and filed with the Commission on March 20, 1997 (File No. 0-28676), which is incorporated herein by reference. 3.7 Bylaws of the Company, previously filed with the Commission as Exhibit 3.2 to the Registration Statement, which is incorporated herein by reference. 10.1 Letter Agreement dated June 26, 1997 between the Company and GT Interactive Software Corp. 27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the Company's first quarter ended September 30, 1997. 14 15 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. GRAPHIX ZONE, INC., a Delaware corporation Date: November 18, 1997 By /S/ DAVID J. HIRSCHHORN ------------------------------------ David J. Hirschhorn Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Treasurer 15 16 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Graphix Zone, Inc., a Delaware corporation (the "Company"), previously filed with the U.S. Securities and Exchange Commission (the "Commission") as Exhibit 3.1 to the Company's Registration Statement on Form S-4 dated March 25, 1996 (Registration No. 333- 2642) (the "Registration Statement"), which is incorporated herein by reference. 3.2 Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996 (File No. 0-28676) (the "September 1996 Quarterly Report"), which is incorporated herein by reference. 3.3 Certificate of Amendment of Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.4 to the Company's September 1996 Quarterly Report, which is incorporated herein by reference. 3.4 Certificate of Amendment of Certificate of Designations of Series A Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.4 to the Company's Annual Report on Form 10-K for the annual period ended June 30, 1997 (File No. 0-28676), and filed with the Commission on October 14, 1997, which is incorporated herein by reference. 3.5 Certificate of Designations of Series B Convertible Preferred Stock of the Company, previously filed with the Commission as Exhibit 3.1 to the Company's Current Report on Form 8-K dated February 18, 1997, and filed with the Commission on March 5, 1997 (File No. 0-28676), which is incorporated herein by reference. 3.6 Certificate of Designations of Series C Convertible Preferred Stock of the Company, previously filed as Exhibit 10.34 to the Company's Current Report on Form 8-K dated March 5, 1997, and filed with the Commission on March 20, 1997 (File No. 0-28676), which is incorporated herein by reference. 3.7 Bylaws of the Company, previously filed with the Commission as Exhibit 3.2 to the Registration Statement, which is incorporated herein by reference. 10.1 Letter Agreement dated June 26, 1997 between the Company and GT Interactive Software Corp. 27 Financial Data Schedule
16 EX-10.1 2 LETTER ARGEEMENT W/COMPANY & GT INTERACTIVE 1 EXHIBIT 10.1 GT Interactive Software - -------------------------------------------------------------------------------- DEPARTMENT OF LEGAL AFFAIRS June 26, 1997 Mr. David J. Hirschhorn Chief Executive Officer Graphix Zone, Inc. d/b/a Ignite 42 Corporate Park Suite 200 Irvine CA 92714 Dear David: Thank you for your continued interest in GT Interactive Software Corp. ("GT"). Except as expressly stated otherwise below, this letter supersedes the agreement dated March 13, 1996 as subsequently amended by offer and acceptance letters of July 1, 1996 and by an undated letter agreement concerning agreement Exhibit A (together, the "1996 Agreement") by which GT, its subsidiaries and affiliates shall manufacture, package and distribute computer programs published, vended or created either by Graphix Zone, Inc. d/b/a Ignite, a Delaware corporation, or its affiliates, subsidiaries, parent companies and licensors, including, without limitation, StarPress, Inc. and its successors in interest (together, "Ignite"). 1. Definitions: a. "Software Package" means a Title on floppy disk or CD-ROM, along with any applicable manuals and packaging. "Inventory Software Package" means Software Packages currently in possession or control of GT, its subsidiaries or affiliates, as delivered to them, or manufactured at their direction, under the 1996 Agreement. b. "Title" means a computer program for which Ignite shall have the right to grant to GT its rights of manufacture, packaging and distribution under the terms of this agreement. 2. Grant of Rights: GT is exclusively granted all rights in the Territory to duplicate, manufacture and package and to contract for the duplication, manufacture and packaging (together, "Manufacture") and to distribute Software Packages of the Titles set forth in the attached Exhibit A. In addition, GT is granted 1 - -------------------------------------------------------------------------------- 16 East 40th Street New York NY 10016 Tel (212) 726-6500 Fax (212) 679-3064 web: http//www.gtinteractive.com 2 the non-exclusive rights to sell off Inventory Software Packages of the Titles set forth in the attached Exhibit B, without payment to Ignite of any further sums with respect to them. GT shall have the right to compile Software Packages containing the Titles set forth in Exhibit A with each other in any combination, to sell those Titles in boxes or in jewel-case packaging, or otherwise to package them for sale to the trade or consumers. 3. Exclusive Option: Ignite grants GT the exclusive option to purchase existing inventory of finished Software Packages and components of unfinished Software Packages of the Titles named in the following chart. Listed opposite each is the number finished Software Packages which Ignite represents and warrants remain in inventory accessible to it for sale to GT: Title Quantity Wheel of Fortune/jeopardy! Side by Side Bundle 3283 Wheel of Fortune/Jeopardy! Back to Back Bundle 3687 Wheel of Fortune 9379 Jeopardy! 16772 Jeopardy! Sports Pack 2874 Jeopardy! TV-Movies Pack 1535 Jeopardy! in Jewel Case Packaging 1718 Wheel of Fortune in Jewel Case Pack. 1550 For each finished Software Package so purchased by GT pursuant to its exclusive option, it shall pay, at GT's option, Ignite or its agent or subcontractor the sum of two dollars ($2.00). For each unfinished Software Package so purchased by GT pursuant to its exclusive option, it shall directly pay the manufacturer or duplicator in whose possession the materials remain a sum to be negotiated between that party and GT. Ignite shall notify those third parties as to the existence of GT's exclusive option and shall reasonably cooperate in facilitating GT's exploitation of its rights under that option, without further payment by GT to Ignite. With respect to the above-named Titles, Ignite represents and warrants that none of the finished Software Packages shall be sold and that none of the unfinished Software Packages shall be completed and sold except to GT in the exercise of its option rights as set forth in this agreement. 4. Term: a. The term of this agreement shall commence as of the date first set forth above and continue through September 1, 1997 (the "Term"), plus the applicable sell-off period. b. GT's rights under this agreement with respect to each Exhibit A Title shall continue for the greater of the duration of the Term, followed by a sell-off period of six (6) months. GT's 2 3 rights under this agreement with respect to each Exhibit B Title shall continue until sell-off is complete. c. This agreement shall remain in effect unless earlier terminated by either party as provided below. d. In the event a party is given notice that it is in material breach of this agreement, it shall have thirty (30) days from receipt to cure its breach in all material respects. On the failure to cure, the non-breaching party may terminate this agreement. However, either party may, at its option, immediately terminate this agreement if (i) a receiver is appointed for the other party or its property, (ii) the other party becomes insolvent or unable to pay its debts as they mature, or makes an assignment for the benefit of its creditors, (iii) the other party seeks relief or if proceedings are commenced against the other party or on its behalf under any bankruptcy, insolvency or debtor's relief law, and those proceedings have not been vacated or set aside within sixty (60) days from the date of their commencement, or (iv) if the other party is liquidated or dissolved. 5. Channels of Distribution in the Territory: all. 6. Territory: The "Territory" means the United States (and its territories, military facilities and possessions), Canada and Mexico. 7. Compensation and Statements: a. In consideration for the rights and options granted to it by Ignite in this agreement, GT shall pay Ignite a single fee, regardless of the number of Software Packages ultimately affected, of five hundred thousand dollars ($500,000) (the "Fee"). The Fee shall be paid as follows: (i) two hundred fifty thousand dollars ($250,000) upon the full execution of this agreement, (ii) one hundred thousand dollars ($100,000) on receipt of all materials set forth in Subsection 10(a), (iii) seventy-five thousand dollars ($75,000) three (3) months after full execution, and (iv) seventy-five thousand dollars ($75,000) six (6) months after full execution. b. As an express exception to the forgoing, in the event that, prior to September 1, 1997, GT manufactures greater than one hundred thousand (100,000) Software Packages of either of the Titles Jeopardy! and Wheel of Fortune (excluding add-on packs), it shall pay Ignite the bonus sum of two dollars ($2.00) per Software Packages so manufactured, if sold through prior to the expiration of the applicable sell-off period. That payment shall be made upon conclusion of the applicable sell-off period. The sell through of the foregoing number of Software Packages of one of the titles named in this Subsection (b) shall only entitle 3 4 Ignite to the bonus sum for that Title. c. As an express exception to the superseding of the 1996 Agreement, compensation (and only compensation) with respect to sell-off of Software Packages of Titles set forth in Exhibit B shall be as provided in the 1996 Agreement. That compensation shall be paid upon conclusion of that sell off. d. Within sixty (60) days following the end of the Term, GT will provide Ignite with a statement itemizing the remaining quantities of Software Packages of Exhibit A Titles in its possession. Within sixty (60) days following the end of the sell-off period for Software Packages of Exhibit A Titles, GT will provide Ignite with a statement itemizing the remaining quantities of Exhibit A Title Software Packages in its possession. 8. Shelf Price: Retailers have the discretion to set the street price for Software Packages distributed under this agreement. 9. Promotional copies: GT shall have the right to distribute promotional copies and to use Software Packages as premiums, without compensation. 10. Materials, Art Work and Co-operative Advertising: a. Within two (2) days of full execution, Ignite shall supply to GT all master disks, art work, end-user documentation and other materials necessary for the Manufacture of the Titles in accordance with all prevailing industry and licensor standards and requirements. All Software Package, promotional and CD-ROM art work shall be provided by Ignite on SyQuest disk at no charge to GT. b. Ignite shall provide GT with any necessary technical assistance to facilitate the Manufacturing process. c. GT shall assume responsibility for up to thirty thousand dollars ($30,000) worth of co-operative advertising documented to the satisfaction of GT as having been previously contracted for by Ignite and not yet paid for (the "Coop Ads"). Ignite shall be responsible for all other Coop Ads in any amount and of any kind or nature; however, if the event that any party makes a claim against GT with respect to any such other Coop Ads, GT may, at its option, in the interest of fostering good will and without admission as to liability, elect to satisfy all or part of those claims and deduct the amount or value of that satisfaction from any amounts otherwise owed to Ignite under this agreement. Ignite represents and warrants that attached to this agreement as Exhibit C are all Coop Ad commitments made Ignite as of the date first set forth above with respect to the Titles. In the event 4 5 that any retailer claims to GT that additional Coop Ad commitments have been made, GT shall notify Ignite of that claim orally or in writing in order to allow Ignite the opportunity to comment upon that claim. 11. Intellectual-Property Rights: The Software Packages shall contain appropriate notices evidencing ownership of applicable intellectual-property rights of Ignite in forms reasonably acceptable to Ignite. If any Software Package contains intellectual property of GT, including, without limitation, any of its trademarks, it shall contain appropriate notices evidencing ownership of applicable intellectual-property rights of GT in forms reasonably acceptable to GT. During the Term, in connection with GT's advertisement, promotion and distribution of Software Packages, GT is licensed by Ignite, on a royalty-free, non-exclusive basis, to use the trademarks Ignite uses for Software Packages. 12. Advertising: Advertising and promotion shall be the responsibility of GT. To the extent that Ignite has any advertising or promotional materials for the Titles, it shall provide them to GT at no charge. 13. Confidentiality: During the term of this agreement, each party will have access to, and may become acquainted with, certain confidential information relating to merchandising, Manufacturing, distribution and financial arrangements with the other party. Both parties agree that they shall not, until the later of the expiration of the term of this agreement or until such time as the information is made public either directly or indirectly, by the party originally responsible for disclosing the information to the other party, make known to any person, firm or corporation other than a party to this agreement, any of the foregoing information. These obligations shall not apply to any information which is required to be disclosed in the context of an administrative, regulatory or judicial process or review. 14. Product Technical Support: End-user product technical support will be provided by GT if and only if Ignite shall have named, on full execution of this agreement, and it shall maintain until the end of the last sell-off period, a technical-support expert fully conversant with the Titles and who shall be available without further charge to GT to assist GT in the provision of technical support. 15. Notices: Notice shall be given to the receiving party at its address set forth above or at any other address as may be designated in a notice given in the manner prescribed in this section. Except as otherwise expressly provided in this agreement, all notices shall be in writing and sent by registered or certified mail with return receipt requested, by secure courier (such as FedEx) or personally delivered to an appropriate 5 6 officer of the party and, in the case of GT, its vice president of legal affairs. Copies of notices may be sent simultaneously by fax for information purposes only. 16. Warrants: As an express exception to the superseding of the 1996 agreement, its provisions with respect to Ignite Warrants (including, without limitation, Ignite's applicable representations and warranties), and all related rights granted to GT with respect to them, remain in full force and effect. Nothing contained in this agreement shall modify, amend or abrogate the terms of (i) Grafix Zone, Inc. warrant certificate No. 1, representing the eight hundred thousand (800,000) Ignite warrants granted to GT, or (ii) the registration rights agreement between the parties, dated March 13, 1996. The parties acknowledge that, on June 26, 1996, GT exercised warrants for the purchase of eighty thousand (80,000) shares of Ignite common stock, the purchase price of which it has paid in full. 17. Further Representations and Warranties of Ignite: Ignite further represents and warrants (a) that it is duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated, (b) that it has the full right, power, legal capacity and authority to enter into this agreement and to carry out its terms, (c) that it owns or has obtained all intellectual-property rights and all related rights to the Titles, (d) that nothing contained in the Titles, Software Packages or any materials relating to them originating with Ignite or furnished by it shall infringe upon the rights of any third-party, (e) that it has the unencumbered right to license GT as a Manufacturer and distributor, (f) that, as of the date first set forth above, Ignite shall have contracted for and not yet paid for no more than thirty thousand dollars ($30,000) worth of Coop Ads, (g) that Ignite's rights to manufacture, publish and distribute the Titles Jeopardy! and Wheel of Fortune shall terminate by contract on September 1, 1997 and that its contractual sell-off rights are for six (6) months thereafter, and that (h) the following is a true and accurate account of all remaining Title Software Packages in distribution and retail channels outside of Ignite's control and, if contained in single boxed-unit packaging, the wholesale prices charged for them: Title Quantity Wholesale Wheel/Jeop Side/Side Bundle 9358 28.25 Wheel/Jeop Back/Back Bundle 3127 28.25 Wheel of Fortune 24619 18.00 Jeopardy! 15911 18.00 Jeopardy! Sports Pack 4891 9.50 Jeopardy! TV-Movies Pack 3785 9.50 Ignite hereby indemnifies and holds GT harmless from and against any liability arising out of any breach by it of the terms of this agreement, its representations or warranties. Ignite 6 7 further agrees to defend, indemnify and hold harmless GT from any loss, damage or liability for any claimed infringement of any patent, copyright, trademark, trade secrets, or other claims asserted by any third party arising out of GT's manufacture or distribution of any Software Packages under the terms of this agreement. 18. Representations and Warranties of GT: GT represents and warrants (a) that it is duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated, and (b) that it has the full right, power, legal capacity and authority to enter into this agreement and to carry out its terms. GT hereby indemnifies and holds Ignite harmless from and against any liability arising out of any breach by it of the terms of this agreement, its representations or warranties. 19. Miscellaneous: a. This agreement will be governed by and construed in accordance with the internal laws of the state of New York applicable to agreements entered into, and to be performed entirely within New York, without reference to conflict of laws principles. The forum for the resolution of disputes concerning this agreement shall be the courts of the state of New York, County of New York, including federal courts located there. b. This agreement shall not be construed to create a joint venture, partnership, franchise or the relationship of principal and agent between the parties, nor to impose upon either party any obligations for any losses, debts or other obligations incurred by the other party except as expressly set forth in it. c. No waiver of any default or breach of this agreement by either party shall be deemed a continuing waiver or a waiver of any other breach or default. d. If any provision contained in this agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, that provision shall be of no force or effect while that infirmity shall exist. The infirmity shall have no effect upon the binding force or effectiveness of any of the other provisions. e. This agreement sets forth the entire agreement between the parties with respect to its subject matter and except as set forth above supersedes any prior oral or written agreements between the parties. This agreement may not be changed, modified, amended or supplemented, except in writing signed by the parties. Each of the parties acknowledges and agrees that the other has not made any representations, warranties or agreements of any kind, except as may be expressly set forth in 7 8 this agreement. f. The section headings used in this agreement are for convenience only and shall have no legal effect. Sections 4(b), 7, 8, 11, 13, 15, 16, 17, 18 and 19 shall survive the expiration of the term or earlier termination of this agreement. The performance of any of the rights or obligations by GT may be made by any of its subsidiaries or affiliates, which shall be third-party beneficiaries under this agreement. GT may contract with others as it deems necessary for its performance under this agreement. "Sale" is a term of art for the lawful licensure of software to end users; nothing contained in this agreement shall be deemed to imply that any intellectual-property rights of Ignite in its Titles shall be transferred to end users or GT. Where appropriate in context, the use of the singular shall include the plural, the conjunctive shall include the disjunctive, any shall include all, and vice versa. By your countersignature below, you agree to the foregoing. Sincerely, GT Interactive Software Corp. By: /s/ CHUCK BOND --------------------------------- Chuck Bond President, Value-Price and Distribution Divisions Execution Date: 7/2/97 --------------------- Accepted and agreed: Graphix Zone, Inc. d/b/a Ignite By: /s/ DAVID HIRSCHHORN --------------------------------- Name: David Hirschhorn Title: President Execution Date: 7/2/97 --------------------- 8 9 EXHIBIT A TITLES Wheel of Fortune Jeopardy! Jeopardy! Sports Pack (Add-On) Jeopardy! Television/Movies Pack (Add-On) 9 10 EXHIBIT C CO-OP COMMITMENTS MADE BY GRAPHIX ZONE (IGNITE)
Account Month Vehicle Amount - ------- ----- ------- ------ Computer City October Cashwrap $22,000 Fas-Track August Catalog $ 250 The Edutainment Co. Fall Catalog $ 750 Lechmere July Mailer $ 1,000 Home Express July Insert $ 1,000 Electric Ave Fall Mailer $ 2,000 Micro Center July Broadsheet $ 1,000 Micro Center August Broadsheet $ 1,000 Micro Center September Broadsheet $ 1,000 ------- TOTAL $30,000
EX-27 3 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS JUN-30-1998 JUL-1-1997 SEP-30-1997 1 440,865 0 224,180 0 0 1,020,904 217,470 0 1,261,455 10,416,923 0 2,986,074 1,136,948 41,940,330 (55,269,967) (12,192,689) 675,466 675,466 54,001 54,001 344,192 0 575,173 (297,900) 0 (297,900) 0 0 0 (297,900) (0.02) 0
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