Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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 0-28422
GeoScience Corporation
(Exact name of Registrant as specified in its charter)
Nevada 76-0497775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 Westoffice Drive, Suite 210, Houston, Texas 77042
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: 713/780-1881
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, 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.
Common Outstanding at October 31, 1997
Common Stock, $.01 par value 9,979,850
<PAGE>
Form 10-Q
GeoScience Corporation
INDEX
Page No.
Part I. Financial Information:
Consolidated Balance Sheet September 30, 1997
and December 31, 1996 1
Consolidated Statement of Income and Accumulated
Earnings for the Quarter Ended September 30,
1997 and 1996 2
Consolidated Statement of Income and Accumulated
Earnings for the Nine Months Ended September 30,
1997 and 1996 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GeoScience Corporation
Consolidated Balance Sheet
(stated in thousands,
except share amounts)
September 30, December 31,
1997 1996
--------- ---------
(unaudited)
Assets
Current assets:
Cash and cash equivalents .................. $ 1,841 $ 1,306
Receivables ................................ 28,617 30,793
Inventories ................................ 53,709 45,845
Other ...................................... 3,547 2,632
Net assets of discontinued operation ....... 12,018
--------- ---------
Total current assets ................. 99,732 80,576
Property, plant and equipment ................ 22,792 25,093
Long-term receivables ........................ 4,520 9,899
Other assets ................................. 2,506 8,258
--------- ---------
Total assets ......................... $ 129,550 $ 123,826
========= =========
Liabilities
Current liabilities:
Notes payable and current
maturities of long-term debt .............. $ 24,912 $ 16,197
Accounts payable ........................... 7,930 8,336
Unearned revenue ........................... 2,374 3,232
Taxes on income ............................ 2,813
Payable to Tech-Sym Corporation ............ 11,256 5,126
Other accrued liabilities .................. 5,295 8,009
--------- ---------
Total current liablilites ............ 51,767 43,713
Long-term debt ............................... 8,005 4,620
Other liabilities and deferred credits ....... 276 689
--------- ---------
Total liabilities .................... 60,048 49,022
Shareholders' Investment
Common stock - authorized 35,000,000
shares, $.01 par value; issued
10,498,850 and 10,497,600 shares ............ 105 105
Additional capital ........................... 44,893 44,877
Accumulated earnings ......................... 31,110 32,597
Common stock held in treasury
at cost (519,000 and 240,000 shares) ........ (6,314) (3,046)
Cumulative translation adjustments ........... (292) 271
--------- ---------
Total shareholders' investment ....... 69,502 74,804
--------- ---------
Total liabilities and
shareholders' investment ............ $ 129,550 $ 123,826
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 2 Form 10-Q
GeoScience Corporation
Consolidated Statement of Income and
Accumulated Earnings
(stated in thousands,
except per share amounts)
For the Quarter
Ended September 30,
----------------------
1997 1996
-------- --------
(unaudited)
Revenue ............................................ $ 18,163 $ 28,008
Cost of revenue .................................... 12,579 18,610
-------- --------
Gross profit from
continuing operations ..................... 5,584 9,398
-------- --------
Expenses:
Selling, general and administrative
expenses ....................................... 5,213 4,863
Research and development expense ................. 2,168 1,632
Interest expense ................................. 267 803
Interest and other expense(income), net .......... 14 (676)
-------- --------
7,662 6,622
-------- --------
Income (loss) from continuing
operations before income taxes ............. (2,078) 2,776
Provision (benefit) for income taxes
from continuing operations ....................... (644) 911
-------- --------
Income (loss) from continuing
operations ................................ (1,434) 1,865
Discontinued operation:
Loss from discontinued operation net
of applicable income taxes of $0
and $362, respectively ......................... 727
-------- --------
Net income (loss) ........................... (1,434) 1,138
Accumulated earnings:
Beginning of period ............................ 32,544 29,532
-------- --------
End of period .................................. $ 31,110 $ 30,670
======== ========
Earnings (loss) per common share:
Continuing operations ............................ $ (0.14) $ 0.18
Discontinued operation ........................... (0.07)
-------- --------
Net income (loss) ........................... $ (0.14) $ 0.11
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 3 Form 10-Q
GeoScience Corporation
Consolidated Statement of Income and
Accumulated Earnings
(stated in thousands,
except per share amounts)
For the Nine Months
Ended September 30,
-----------------------
1997 1996
-------- --------
(unaudited)
Revenue .......................................... $ 64,815 $ 66,877
Cost of revenue .................................. 41,211 41,574
-------- --------
Gross profit from
continuing operations ................... 23,604 25,303
-------- --------
Expenses:
Selling, general and administrative
expenses ..................................... 16,391 13,385
Research and development expense ............... 5,965 5,246
Interest expense ............................... 1,226 1,429
Interest and other (income), net ............... (124) (1,020)
-------- --------
23,458 19,040
-------- --------
Income from continuing operations
before income taxes ...................... 146 6,263
Provision for income taxes
from continuing operations ..................... 45 2,028
-------- --------
Income from continuing operations ......... 101 4,235
Discontinued operation:
Loss from discontinued operation net
of applicable income taxes of $713
and $1,195, respectively ..................... 1,588 2,495
-------- --------
Net income (loss) ......................... (1,487) 1,740
Accumulated earnings:
Beginning of period .......................... 32,597 28,930
-------- --------
End of period ................................ $ 31,110 $ 30,670
======== ========
Earnings (loss) per common share:
Continuing operations .......................... $ 0.01 $ 0.46
Discontinued operation ......................... (0.16) (0.27)
-------- --------
Net income (loss) ......................... $ (0.15) $ 0.19
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 4 Form 10-Q
GeoScience Corporation
Consolidated Statement of Cash Flows
(stated in thousands)
For the Nine Months
Ended September 30,
--------------------
1997 1996
-------- --------
(unaudited)
Cash flows from operating activities:
Net income (loss) .................................... ($ 1,487) $ 1,740
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization ..................... 6,363 5,140
Sale of equipment under operating leases .......... 1,172
Change in operating assets and liabilities:
Receivables ....................................... (670) (8,311)
Inventories ....................................... (7,910) (8,455)
Other current assets .............................. (1,335) 1,298
Long-term receivables ............................. (167) (2,058)
Other assets ...................................... (808) (3,953)
Accounts payable .................................. (12) 3,684
Unearned revenue .................................. 675 (3,057)
Taxes on income ................................... (2,813) 1,484
Other liabilities ................................. (1,069) 2,034
Payable to Tech-Sym ............................... 950
-------- --------
Net cash used for operating activities ............... (7,111) (10,454)
-------- --------
Cash flows from investing activities:
Capital expenditures ................................. (6,581) (6,447)
-------- --------
Net cash used for investing activities ............... (6,581) (6,447)
-------- --------
Cash flows from financing activities:
Net borrowings from (payments to)
Tech-Sym Corporation ................................ 5,180 (19,446)
Net borrowings (payments) under line of
credit agreements .................................. 3,864 (1,316)
Proceeds from long-term debt ......................... 2,038 24
Payments on long-term debt ........................... (888) (568)
Purchase of treasury stock ........................... (3,268) (2,759)
Proceeds from issuance of common stock ............... 40,381
Proceeds from sale of notes receivable ............... 7,848
Proceeds from exercise of stock options .............. 16
Other ................................................ (563) (106)
-------- --------
Net cash provided by financing activities ............ 14,227 16,210
-------- --------
Net increase (decrease) in cash and cash equivalents ... 535 (691)
Cash and cash equivalents at beginning of period ..... 1,306 1,668
-------- --------
Cash and cash equivalents at end of period ........... $ 1,841 $ 977
======== ========
Cash flow from operating activities include:
Interest paid ........................................ $ 1,648 $ 912
Income taxes paid .................................... 1,202 130
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5 Form 10-Q
GeoScience Corporation
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements of
GeoScience Corporation and its subsidiaries ("the Company") have been
prepared in accordance with the instructions to Form 10-Q. 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 financial statements and notes
thereto appearing in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
In the opinion of the Company's management, all adjustments necessary for a
fair presentation of the results of operations for all periods reported
have been included. Such adjustments consist only of normal recurring
items.
The consolidated statements of income for the three and nine months ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the full year ending December 31, 1997.
The consolidated financial statements have been restated to reflect the
Company's geoscientific software subsidiary as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30 (see Note 2).
2. Effective June 30, 1997 ("the measurement date"), the Company adopted a
plan to sell its geoscientific software subsidiary, CogniSeis Development,
Inc. ("CogniSeis"). Accordingly, CogniSeis is reported as a discontinued
operation for the periods presented.
On October 14, 1997 ("the disposal date"), the Company completed the sale
of CogniSeis to Paradigm GeoPhysical Corporation for $8.9 million in cash
plus future royalties ranging between $8.5 million and the net present
value as of the closing date of $12.0 million.
The Company expects to recognize a net gain of approximately $3.8 million
on the sale. Accordingly, the results of CogniSeis' operations from the
measurement date through the disposal date have been deferred.
<PAGE>
Page 6 Form 10-Q
GeoScience Corporation
Notes to Consolidated Financial Statements - Continued
The operating results (unaudited) of the discontinued operation are
summarized as follows (in thousands):
Quarter Ended
September 30,
------------------------
1997 1996
------- -------
Revenue ...................................... $ $ 4,929
======= =======
Loss before provision for
income taxes ................................ 1,089
Provision for income taxes ................... 362
------- -------
Net loss ..................................... $ $ 727
======= =======
Nine Months Ended
September 30,
------------------------
1997 1996
------- -------
Revenue ...................................... $11,398 $16,210
======= =======
Loss before provision for income taxes ....... 2,301 3,690
Provision for income taxes ................... 713 1,195
------- -------
Net loss ..................................... $ 1,588 $ 2,495
======= =======
The net assets (unaudited) of the discontinued operation are summarized as
follows (in thousands):
September 30, 1997
------------------
Current assets ........................................... $ 7,770
Property, plant and equipment, net ....................... 2,923
Other assets ............................................. 5,310
Current liabilities ...................................... (3,985)
--------
Net assets .......................................... $ 12,018
========
3. Inventories, stated at the lower of cost (first-in, first-out) or
market, are summarized as follows (in thousands):
September 30, December 31,
1997 1996
------- -------
(unaudited)
Raw Materials ....................... $13,829 $12,669
Work in Process ..................... 17,163 16,292
Finished Goods ...................... 22,717 16,884
------- -------
Total inventories .............. $53,709 $45,845
======= =======
<PAGE>
Page 7 Form 10-Q
GeoScience Corporation
Notes to Consolidated Financial Statements - Continued
4. Earnings per common share are based on the weighted average number of
shares outstanding during each period (10,046,000 and 10,437,000 for the
quarter ended September 30, 1997 and 1996, respectively, and 10,123,000 and
9,179,000 for the nine month period ended September 30, 1997 and 1996,
respectively).
5. During the first quarter of 1997, the Company sold notes receivable in
the amount of $7,848,000 to a bank. In accordance with Statement of
Financial Accounting Standards No. 125 (FAS 125), TRANSFERS AND SERVICING
OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, the consolidated
financial statements reflect both the asset and the
liability associated with this transaction.
6. In 1997, Statement of Financial Accounting Standards No. 128 (FAS 128),
EARNINGS PER SHARE, was issued. FAS 128 is effective for earnings per share
calculations for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Adoption of FAS 128 is
not expected to have a material effect on the Company's financial position
or operational results.
<PAGE>
Page 8 Form 10-Q
GeoScience Corporation
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
In June 1997, the Company adopted a plan to sell its geoscientific software
subsidiary, CogniSeis Development, Inc. ("CogniSeis"). CogniSeis is accounted
for as a discontinued operation. Accordingly, the consolidated financial
statements have been restated to report separately the operating results of the
continuing operations. The operating results of the discontinued operation from
June 30, 1997 ("the measurement date") through October 14, 1997 ("the disposal
date") have been deferred as the Company expects to recognize a net gain on the
sale. All prior year amounts have been restated.
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 1996
Revenue decreased $9,845,000 or 35% to $18,163,000 for the quarter ended
September 30, 1997. The decrease in revenue resulted primarily from the delay by
some customers in placing anticipated orders for seismic hardware equipment due
to their internal logistical issues. The consolidated gross profit margin
decreased from 34% to 31% of revenue for the quarter ended September 30, 1997,
compared to the same quarter in the prior year. The decrease in gross profit
margin during the quarter is attributed to increased engineering, manufacturing
and warranty costs associated with the 24-bit seismic data acquisition module
and increased manufacturing costs within the domestic seismic cable
manufacturing facility. The change in the sales mix to a larger percentage of
seismic cable products, which traditionally have lower margins than the seismic
data acquisition modules, also contributed to the lower gross margin.
Consolidated selling, general and administrative expenses increased 7% to
$5,213,000 during the third quarter of 1997. These expenses as a percentage of
revenue increased from 17% to 29% in comparison to the same quarter a year ago.
The increase as a percent of revenue resulted from the abnormally low revenue
level and increased expenditures. The increase in expenditures was primarily a
result of support personnel added at the domestic manufacturing operations to
support the anticipated general growth in the Company's business and higher
consultant costs associated with increased seismic cable sales and a new
management information system that is being implemented. Research and
development expenses were $2,168,000 for the quarter ended September 30, 1997
compared to $1,632,000 for the quarter ended September 30, 1996. The increase
resulted from design changes on the 24-bit seismic data acquisition module which
were made to enhance the performance and reliability of the module and addi-
<PAGE>
Page 9 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
tional engineering efforts on the PolySeis product to enhance its capabilities
to better meet customer demands.
Interest expense decreased to $267,000 during the third quarter of 1997 from
$803,000 during the third quarter of 1996 as a result of lower borrowings on the
Company's credit lines during the quarter. Other expense (net) was $14,000 for
the quarter ended September 30, 1997 compared to other income (net) of $676,000
for the quarter ended September 30, 1996. The decrease was a result of a
reduction in interest income on interest bearing receivables during the quarter.
The effective tax rate for the quarter ended September 30, 1997, was 31%
compared to 33% for the same period in the prior year. The Company's effective
tax rate is lower than the statutory United States rate primarily due to tax
benefits generated from foreign sales.
The loss from continuing operations for the third quarter of 1997 was $1,434,000
or $.14 per share as compared to income of $1,865,000 or $.18 per share for the
corresponding quarter a year ago.
The results from the discontinued operation for the quarter ended September 30,
1997 were deferred and will be included in the gain on disposal of the
discontinued operation. The sale of the discontinued operation was finalized on
October 14, 1997.
Net loss for the quarter ended September 30, 1997 was $1,434,000 or $.14 per
share compared to net income of $1,138,000 or $.11 per share for the quarter
ended September 30, 1996, reflecting the results of lower revenue, lower gross
profit margin and higher operating expenses.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
SEPTEMBER 30, 1996
Revenue decreased 3% to $64,815,000 for the nine months ended September 30,
1997, from $66,877,000 for the same period in the prior year. The decrease in
revenue for the year to date period occurred within the third quarter in the
seismic hardware equipment area which more than offset the increase in revenue
that had occurred during the first six months of the year. The reason for the
decrease was explained above. The consolidated gross profit margin decreased
from 38% to 36% of revenue for the nine months ended September 30, 1997, for the
same reasons provided in the
<PAGE>
Page 10 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
discussion of the results of operations for the quarter ended September 30,
1997.
Consolidated selling, general and administrative expenses increased to
$16,391,000 for the period ended September 30, 1997, from $13,385,000.
Correspondingly, these expenses as a percentage of revenue increased from 20% to
25% in comparison to the same period a year ago. The primary reasons for the
increase were (i) the additional support personnel costs associated with the
higher employment levels added in anticipation of accelerated business growth,
(ii) higher consulting costs associated with increased seismic cable sales and a
new management information system that is being implemented, and (iii) the
additional costs of managing the consolidated business and being a publicly
traded company. Research and development expenses were $5,965,000 for the period
ended September 30, 1997, compared to $5,246,000 for the period ended September
30, 1996. The increase resulted primarily from the costs incurred for design
changes made to the 24-bit seismic data acquisition module manufactured by the
Company.
Interest expense decreased to $1,226,000 from $1,429,000 in the previous nine
month period as a result of lower borrowings within the three month period ended
September 30, 1997. Other income decreased to $124,000 from $1,020,000 due to a
reduction in interest bearing receivables.
Income from continuing operations for the nine month period of 1997 was $101,000
compared to $4,235,000 and earnings per common share were $.01 compared to $.46
for the corresponding period a year ago. The decrease in income from continuing
operations resulted from lower gross margins due to the reasons discussed above
combined with higher operating costs.
Loss from the discontinued operation for the nine months ended September 30,
1997, decreased $907,000 or $.11 per share from the same period in the prior
year as a result of a higher gross margin due to product sales mix and lower
operating expenses due to staffing reductions made during and after the third
quarter of 1996. Additionally, the results of discontinued operation from the
measurement date through the disposal date were deferred and will be included in
the gain on disposal of the discontinued operation to be recognized in the
fourth quarter of 1997.
Net loss for the nine months ended September 30, 1997, was $1,487,000 or $.15
per share compared to net income of $1,740,000 or $.19 per share for the same
period in the prior year, as a
<PAGE>
Page 11 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
result of lower revenue, lower gross profit margin and higher operating costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently satisfying its working capital and capital expenditure
requirements through internally generated cash from operations, bank borrowings
and loans from an affiliate, Tech-Sym Corporation. At September 30, 1997, the
Company's working capital balance was $47,965,000, compared to $36,863,000 at
December 31, 1996. The increase in working capital is a result of segregating
the net assets of the discontinued operation as a current asset at September 30,
1997. Cash used for operations was $7,111,000 for the nine months ended
September 30, 1997, compared to $10,454,000 for the same period in the prior
year. The primary use of cash from operations was to purchase additional
inventories in anticipation of the growth in business.
As of September 30, 1997, the Company had uncommitted bank lines of credit
aggregating approximately $22,796,000. Borrowings under these lines were
$19,127,000, including the discontinued operation. The Company had a working
capital ratio of 1.93 to 1.0 and debt to total capitalization of 39%. The
Company believes that its current financial position and available lines of
credit will provide ample sources of funds to meet foreseeable requirements.
Purchases of property, plant and equipment totaled $6,581,000 for the nine
months ended September 30, 1997, compared to $6,447,000 for the corresponding
prior year period. The Company estimates that capital expenditures for property,
plant and equipment during the remainder of 1997 will be approximately
$4,525,000. Most of the anticipated capital expenditures are not subject to firm
commitments and the Company may modify its plans depending on future results of
operations or other factors.
Forward-looking statements in this document are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, including, without limitation, risks associated with the
uncertainty of market acceptance of the Company's products, limited number of
customers, as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, risk of delays in
receiving customer orders, and other risks detailed in the Company's filings
with the Securities and Exchange Commission.
<PAGE>
Page 12 Form 10-Q
GeoScience Corporation
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule which is deemed not to be filed
for purposes of liability under the federal securities laws.
(b) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated September 2, 1997 (Item 5. Other
Events -- reported the information as set forth in the press release
dated September 2, 1997, concerning third quarter preliminary
results).
<PAGE>
Page 13 Form 10-Q
GeoScience Corporation
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.
GEOSCIENCE CORPORATION
Registrant
Date: November 13, 1997 /s/ Richard F. Miles
Richard F. Miles, President
Date: November 13, 1997 /s/ Ray F. Thompson
Ray F. Thompson, Vice-
President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM GEO SCIENCE FORM 10-Q 3RD QUARTER 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,841
<SECURITIES> 0
<RECEIVABLES> 28,617
<ALLOWANCES> 0
<INVENTORY> 53,709
<CURRENT-ASSETS> 99,732
<PP&E> 22,792
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,550
<CURRENT-LIABILITIES> 51,767
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 129,550
<SALES> 64,815
<TOTAL-REVENUES> 0
<CGS> 41,211
<TOTAL-COSTS> 64,669
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,226
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