<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Quarterly Period Ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _________ to __________
Commission File No. 1-12559
CRAGAR INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 86-0721001
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4636 North 43rd Avenue, Phoenix, Arizona 85031 (Address of
principal executive offices)
(623) 247-1300
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Number of shares of common stock, $.01 par value, outstanding as of
March 31, 2000: 2,456,990.
Transitional small business disclosure format. Yes [ ] No [X]
<PAGE>
CRAGAR INDUSTRIES, INC.
Condensed Balance Sheets
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- -----------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 140,981 $ 1,387
Accounts receivable, net of allowance for
doubtful accounts of $133,119 946,963 1,443,886
Inventory, net 261,702 540,373
Investments 237,500 437,500
Prepaid expenses 102,988 78,665
---------------- ------------
Total current assets 1,690,134 2,501,811
Property and Equipment, net 186,746 207,245
Other Assets 57,624 57,624
---------------- ------------
Total Assets $ 1,934,504 $ 2,766,680
================ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 788,807 $ 773,474
Accrued interest 47,684 53,947
Deferred revenue 132,073 275,000
Accrued expenses 701,445 826,997
---------------- ------------
Total current liabilities 1,670,009 1,929,418
Line of Credit 1,856,681 2,331,548
Long Term Debt 460,000 460,000
---------------- ------------
Total Liabilities 3,986,690 4,720,966
---------------- ------------
Stockholders' Deficit
Preferred stock, par value $.01; authorized 200,000 shares
22,500 shares issued and outstanding 225 225
Additional paid-in capital - preferred 2,166,956 2,166,956
Common stock, par value $.01; authorized 5,000,000 shares
2,456,990 shares issued and outstanding 24,570 24,570
Additional paid-in capital - common 12,244,515 12,244,515
Accumulated deficit (16,488,452) (16,390,552)
---------------- ------------
Total stockholders' deficit (2,052,186) (1,954,286)
---------------- ------------
Total Liabilities and Stockholders' Deficit $ 1,934,504 $ 2,766,680
================ ============
</TABLE>
See accompanying notes to condensed financial statements
2
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CRAGAR INDUSTRIES, INC.
Condensed Statements of Operations
Three Months Ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
---------------- ------------
<S> <C> <C>
Net sales $ 316,351 $ 4,186,763
Royalty revenues 142,927 -
---------------- ------------
Total revenues 459,278 4,186,763
Cost of goods sold 332,051 3,313,470
---------------- ------------
Gross profit 127,227 873,293
Selling, general and administrative expenses 187,704 588,782
---------------- ------------
Income (loss) from operations (60,477) 284,511
---------------- ------------
Non-operating income (expenses), net
Interest expense (63,979) (185,105)
Other 26,556 1,049
---------------- ------------
Total non-operating income (expenses), net (37,423) (184,056)
---------------- ------------
Net earnings (loss) before income taxes (97,900) 100,455
Income taxes - -
---------------- ------------
Net earnings (loss) $ (97,900) $ 100,455
================= ============
Basic earnings (loss) per common share $ (0.06) $ 0.02
================= ============
Diluted earnings (loss) per common share $ (0.06) $ 0.01
================= ============
Weighted average shares outstanding 2,456,990 2,456,990
================= ============
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
CRAGAR INDUSTRIES, INC.
Condensed Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
---------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (97,900) $ 100,455
Adjustments to reconcile net earnings (loss) to net cash used
in operating activities:
Provision for (write-off of) doubtful accounts (16,741) 1,252
Reduction in (increase in) provision for obsolete and slow
moving inventory (72,633) (166,389)
Depreciation and amortization of property and equipment 20,500 73,952
Gain on sale of property and equipment (20,609)
Increase (decrease) in cash resulting from changes in:
Accounts receivable 513,664 (1,367,614)
Inventory 351,304 469,920
Investments 200,000 -
Prepaid expenses (24,323) (13,487)
Accounts payable and accrued expenses (239,945) 398,844
Accrued interest (26,864) 6,423
---------------- ------------
Net cash provided by (used in) operating activities 607,062 (496,644)
---------------- ------------
Cash flows from investing activities
Purchases of property and equipment - (6,191)
Disposition of property and equipment 20,609
---------------- ------------
Net cash provided by (used in) investing activities - (6,191)
---------------- ------------
Cash flows from financing activities
Net borrowings (repayments) on bank credit line (467,468) 400,080
Proceeds from long-term debt 260,000
Repayments of long-term debt (62,600)
---------------- ------------
Net cash provided by (used in) financing activities (467,468) 597,480
---------------- ------------
Net increase (decrease) in cash and equivalents 139,594 94,645
Cash and cash equivalents at beginning of period 1,387 -
---------------- ------------
Cash and cash equivalents at end of period $ 140,981 $ 94,645
================= ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 70,242 $ 178,682
================= ============
</TABLE>
See accompanying notes to condensed financial statements
4
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CRAGAR INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Three Months Ended March 31, 2000
(Unaudited)
1. Summary of Significant Accounting Policies Basis of Presentation:
The interim financial data of Cragar Industries, Inc., ("CRAGAR" or
`the Company") presented as of and for the three months ended March
31, 2000 and 1999 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods.
The year-end balance sheet information was derived from audited
financial statements. These interim financial statements should be
read in conjunction with the Company's audited financial statements.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
(Unaudited)
-------------- -----------------
<S> <C> <C>
Raw Materials ............... $ 902,502 $ 682,854
Work in Process ............. -- 172,308
Finished Goods .............. 679,201 1,077,844
-------------- -----------------
1,581,703 1,933,006
Less allowance for obsolete
and slow-moving
inventory ................. 1,320,001 1,392,633
-------------- -----------------
Inventories, net $ 261,702 $ 540,373
============== =================
</TABLE>
3. Net Earnings (loss) per Share
Net Earnings (loss) per common share amounts are based on the weighted
average number of common shares and common stock equivalents
outstanding as reflected on Exhibit 11 to this Quarterly Report on
Form 10-QSB.
4. Preferred Stock and Warrants
During the first quarter ended March 31, 1998, the Company issued
22,500 shares of Series A Preferred Stock for $1,350,000 cash and the
conversion of $900,000 in principal amount of investor notes payable.
The Company also granted warrants valued at $229,333 to purchase
333,333 shares of Common Stock at a price of $8.75 per share in
connection with the preferred stock issuance. On April 20, 1998, the
Company issued warrants to NationsCredit Commercial Funding valued at
$21,960 to purchase 50,000 shares of Common Stock at a price of $5.25
per share. On August 8, 1998, the Company agreed to grant warrants to
certain individuals who provided bridge loans to the Company in the
aggregate principal amount of $900,000 during December 1997 and
January 1998. For each $100,000 made available to the Company, the
Company granted warrants to purchase 1,500 shares of Common Stock at
an exercise price of $3.00 per share. The principal amounts of the
loans were subsequently converted into 90,000 shares of Series A
Preferred Stock. In addition, the Company agreed to grant warrants to
certain individuals who continue to pledge assets to secure the
Company's obligations under the Loan and Credit Agreement with
NationsCredit Commercial Funding. The Company agreed to grant warrants
to purchase 7,000 shares for each $100,000 in value
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of the assets pledged on an annual basis, which warrants will be
exercisable at an exercise price equal to the price of the Company's
Common Stock on the date of grant. On May 15, 1998, the Company
granted options to each of Sidney Dworkin, Donald McIntyre and Mark
Schwartz, Directors of the Company, to purchase 2,000 shares of Common
Stock at an exercise price of $5.25 per share. During November 1998,
all previously granted options under the Directors' Stock Option Plan
were repriced at $4.125 per share, which was the fair market price of
the Common Stock on the date of repricing. During the first quarter
ended March 31, 2000, no warrants or options to purchase shares of
Common Stock were exercised and no Series A Preferred Stock was
converted to Common Stock. Dividends in arrears for outstanding
Preferred Stock at March 31, 2000 totaled $332,500, which are payable,
at the discretion of the Company, in cash or additional shares of the
Company's Series A Preferred Stock. See "Factors That May Affect
Future Results and Financial Condition - Dependence on External
Financing."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Additional written or
oral forward-looking statements may be made by the Company from time to time in
filings with the Securities Exchange Commission or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements may include, but not be
limited to, projections of revenues, income or loss, estimates of capital
expenditures, plans for future operations, products or services, and financing
needs or plans, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. The following
disclosures, as well as other statements in the Company's report, including
those contained below in this Item 2, "Management's Discussion and Analysis of
Financial Condition or Plan of Operation," and in the Notes to the Company's
Financial Statements, describe factors, among others, that could contribute to
or cause such differences. Specifically, management is uncertain whether the
anticipated cash flow from operations will be sufficient to fund the Company's
anticipated operations and working capital needs. Therefore, the Company is
seeking to secure additional working capital through the sale of equity or debt
securities. There can be no assurance that the Company's cash flow will be
sufficient to finance its operations as currently planned or that it will be
able to supplement its cash flow with additional financing. No assurance can be
given regarding the Company's ability to obtain such financing on favorable
terms, it at all. If the Company is unable to obtain additional financing, its
ability to meet its anticipated operating and working capital needs could be
materially and adversely affected. As a result of the Company's stockholders'
deficit and the uncertainty surrounding the Company's ability to meet its
anticipated operating and working capital needs, the independent auditors'
report on the Company's 2000 financial statements has been qualified for a going
concern.
INTRODUCTION
From the Company's inception in 1992 extending through the first nine
months of 1999, the Company designed, produced, and sold high-quality custom
vehicle wheels and wheel accessories. The Company sold its wheel products in the
automotive aftermarket through a national distribution network of value-added
resellers, including tire and automotive performance warehouse distributors and
retailers and mail order houses.
In connection with a reassessment of its business strategy, the Company
considered combinations and strategic alliances with other companies that could
complement the Company's existing business, including outsourcing its
manufacturing and sales operations. In furtherance of this business strategy, on
September 30, 1999, the Company granted an exclusive worldwide license to Weld
Racing, Inc. ("Weld") to manufacture, sell, and distribute its line
6
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of wheels with non-cast wrought aluminum alloy outer rims and related
accessories ("Wrought Wheel Business") in exchange for a royalty based on sales
of the licensed products and sold certain assets to Weld related to its Wrought
Wheel Business. The Company and Weld completed this transaction in October 1999.
On October 15, 1999, the Company entered into a similar transaction
pursuant to which the Company granted an exclusive worldwide license to
Carlisle Tire and Wheel Co. ("Carlisle") to manufacture, sell, and distribute
its line of wheels with steel outer rims and related accessories ("SOR Wheel
Business") in exchange for a royalty based on sales of the licensed products
and sold certain assets to Carlisle related to its SOR Wheel Business. The
Company and Carlisle completed this transaction in December 1999.
Because the licensing of the Company's SOR Wheel Business and sale of
related assets to Carlisle, combined with the licensing of the Company's
Wrought Wheel Business and sales of related assets to Weld, could have been
considered a sale of substantially all of the Company's assets, the proposed
transaction with Carlisle was submitted for approval by the Company's
shareholders in accordance with Delaware law at a Special Meeting of
Shareholders held on December 22, 1999. The proposed transaction was approved
by a shareholder vote with over 67% of the Company's shareholders voting in
favor of the proposed transaction.
As a result of the transactions with Weld and Carlisle, the Company no
longer engages in the manufacture, marketing, sale or distribution of any
products related to its Wrought Wheel Business and SOR Wheel Business. In
general, the outsourcing of the manufacturing, marketing, sales and
distribution operations with respect to the licensed products, together with
the sale of the related assets, is expected to result in a substantial
decrease in the Company's revenues and related operating and marketing costs.
The Company anticipates that the decrease in revenues will be replaced by a
stream of royalty payments generated by the net sales of the licensed
products by the Company's licensing partners. The Company is relying on
Weld's and Carlisle's greater financial, operational and distribution
capabilities to increase net sales of the licensed products and generate a
stream of revenues in the form of quarterly royalty payments. In addition,
the Company is entitled to royalties based on net sales of any new products
developed by Carlisle related to the SOR Wheel Business under the CRAGAR
brand name, including products and related accessories for vehicles other
than automobiles, trucks and vans, such as all-terrain vehicles and golf
carts. Furthermore, the Company is entitled to royalties and based on net
sales of any new products developed by Weld related to the Wrought Wheel
Business under the CRAGAR brand name. Because the licensing partners' primary
fiduciary obligation is to their shareholders rather than the Company's
shareholders, Weld and Carlisle may make decisions or take steps that may
result in lower royalty payments or could adversely affect the CRAGAR brand
name. See "Factors That May Affect Future Results and Financial Condition -
Dependence on Third Parties to Generate Royalties."
As part of the Company's new business strategy, the Company also intends to
pursue licensing opportunities for the Company's remaining line of one-piece
aluminum cast wheels and other aftermarket performance automotive products
through the utilization of the CRAGAR brand name.
RECENT DEVELOPMENTS
During the fiscal quarter ended December 31, 1999, the Company
entered into a Stock Purchase Agreement with an individual investor of
Wrenchead.com, Inc. ("Wrenchead") to exchange $150,000 in cash for 240,000
shares of Wrenchead common stock. Wrenchead is a provider of e-commerce tools
for both business-to-consumer and business-to-business for the automotive
aftermarket. Through its website (www.wrenchead.com), Wrenchead offers brand
name auto and truck parts, accessories, performance products and consumer
items for sale via the Internet. Wrenchead also services "do-it-yourselfers"
and professional mechanics with installation, maintenance and repair
expertise. Wrenchead is headquartered in White Plains, N.Y. Lead investors
include Polaris Venture Partners, SFX Entertainment and CBS.
During the fiscal quarter ended December 31, 1999, the Company also
entered into a Stock Option Agreement with the individual to exchange
$300,000 in cash for an irrevocable option to purchase 315,000 shares of
Wrenchead's common stock and 312,500 shares of Wrenchead's Series A Preferred
Stock for $8.08 per share ($5,070,000 in cash, less the $300,000 option
premium) and 75,000 shares of common stock of the Company. The option was
exercisable on April 27, 2000. During the first quarter ended March 31, 2000,
the Stock Option Agreement was amended, with the Company assigning its rights
to
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purchase a specified number of shares of Wrenchead is capital stock to
certain other investors in Wrenchead. For $204,000 in cash the Company
assigned to certain investors its irrevocable option to purchase 214,602
shares of Wrenchead's common stock and 212,898 shares of Wrenchead's Series A
Preferred Stock, leaving the Company an irrevocable option to purchase
100,398 shares of Wrenchead's common stock and 99,602 shares of Wrenchead's
Series A Preferred Stock for $8.56 per share ($1,712,000 in cash, less the
$96,000 paid with the option). The difference in the option price, or
$204,000, was repaid to the Company in February 2000. The option, as amended,
was exercised on April 27, 2000.
During the fiscal quarter ended December 31, 1999, the Company also
entered into a Sales Agreement with this investor pursuant to which the
Company agreed to pay $363,300 in cash for 45,000 shares of Wrenchead common
stock. This transaction closed on April 27, 2000. As a result of these
transactions, the Company currently owns 385,398 shares of Wrenchead common
stock and 99,602 shares of Wrenchead Series A Preferred Stock.
To finance the two transactions described above, the Company
established Cragar Investment Limited Partnership with the Company acting as
General Partner of the partnership. As of May 7, 2000, the Company had placed
149,000 shares of Wrenchead common stock into the limited partnership in
exchange for $2,235,000, in cash, which was primarily used to complete the
transactions. In addition, the Company still retains 236,398 shares of
Wrenchead common stock and 99,602 of Wrenchead Series A Preferred Stock.
Results of Operations
The following table sets forth various items as a percentage of net
sales revenue for the three month periods ended March 31, 2000 and March 31,
1999:
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------ ------
<S> <C> <C>
Total revenues 100.0 % 100.0 %
Cost of goods sold 72.3 79.1
------ ------
Gross profit 27.7 20.9
SG&A 40.9 14.1
------ ------
Income (loss) from operations (13.2) 6.8
Non-operating expense, net 8.1 4.4
Income taxes - -
------ ------
Net earnings (loss) (21.3)% 2.4 %
====== ======
</TABLE>
Comparison of Quarter Ended March 31, 2000 and Quarter Ended March 31, 1999
The comparison of the Company's financial results for the fiscal
quarters ended March 31, 2000 and 1999 set forth below has been significantly
affected by the Company's significant change in business strategy in the
fourth quarter of 1999. As a result of this change in strategy, which
contemplates royalties from net sales of CRAGAR brand products from its
licensing partners as its primary source of revenue, the Company anticipates
a dramatic reduction in revenues and related costs and expenses in the future.
Total revenues consist of gross sales, less returns, discounts, and
allowances, plus royalty revenues. Net sales for the quarter ended March 31,
2000 were $316,351, compared to $4,186,763 during the quarter ended March 31,
1999, representing a 92.4% decrease in net sales. Net sales for the quarter
ended March 31, 2000, consisted of sales of the remaining inventory not sold
as part of the Weld and Carlisle transactions. The decrease was primarily
attributable to the Company no longer actively manufacturing and distributing
wheels. The decrease in net sales in the fiscal quarter ended March 31, 2000,
was partially offset by royalty income of $142,927 earned under the Weld and
Carlisle licensing agreements. Returns, discounts, and allowances decreased
by 100.0% between the quarter ended March 31, 2000 and the quarter ended
March 31, 1999. The decrease in returns, discounts, and allowances was
primarily attributable to the Company's decision to no longer manufacture and
distribute wheels. All anticipated returns, discounts and allowances related
to the sale of the remaining inventory had been reserved for as of December
31, 1999.
Gross profit is determined by subtracting cost of goods sold from total
revenues. Cost of goods sold consists primarily of the costs of raw materials,
including steel and aluminum, overhead, material processing, and labor used in
the production of the Company's products, as well as the freight costs of
shipping product to the Company's customers. Gross profit for the quarter ended
March 31, 2000 was $127,227 compared to
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$873,293 for the quarter ended March 31, 1999. As a percentage of net sales,
gross profit increased in the first quarter of 2000 compared to the first
quarter of 1999, from 20.9% to 27.7%. The Company believes that it set aside
adequate reserves as of December 31, 1999, to account for any pricing
discounts necessary to sell the remaining inventory at current market
conditions.
Selling, general, and administrative ("SG&A") expenses consist
primarily of salaries and wages, marketing expenses and promotional programs,
office expenses, legal and accounting expenses, commissions, bad debt
reserves, product development expenses, and general overhead. These expenses
for the first quarter ended March 31, 2000 were $187,704 compared to $588,782
for the quarter ended March 31, 1999. This decrease of $401,078, or 68.1%,
was primarily due to the Company's change in business strategy during the
quarter ended December 31, 1999, which resulted in significant reductions in
its SG&A expenses, primarily related to sales, marketing and personnel.
Non-operating expenses, net, for the first quarter of 2000 were $37,423
compared to $184,056 for the first quarter of 1999. The decrease of $146,633, or
79.7%, is primarily attributable to a decrease in interest expense resulting
from the Company's decrease in the amount outstanding and related loan fees and
costs charged under its credit facility.
Because of its carry-forward losses from previous years, the Company
had no income tax provision in the first quarter of 2000 and 1999.
Net loss for the first quarter ended March 31, 2000 was $97,900
compared to net earnings of $100,455 for the first quarter ended March 31,
1999, a decrease in earnings of $198,355. Basic loss per share for the first
quarter ended March 31, 2000, was $.06 compared to a basic earnings per
share, after deducting the dividends due holders of the Series A Preferred
Stock, equal to $0.02 for the first quarter ended March 31, 1999. See Exhibit
11 to this Quarterly Report on Form 10-QSB.
LIQUIDITY AND CAPITAL RESOURCES
On April 20, 1998, the Company secured a credit facility (the "NCFC
Credit Facility") with NationsCredit Commercial Funding Corporation ("NCFC").
The terms of the NCFC Credit Facility specify a maximum combined term loan and
revolving loan totaling $8.5 million at an interest rate of 1.25% above the
prime rate. The NCFC Credit Facility is secured by substantially all of the
Company's assets and certain pledged assets from three investors and expires on
April 19, 2002. As of March 31, 2000 the outstanding balance under the NCFC
Credit Facility was approximately $1,857,000, and the Company had excess
availability of approximately $25,000. The NCFC Credit Facility contains no
financial performance covenants and requires prior approval rights to any
declarations of cash dividend payments.
At March 31, 2000, the Company had an accumulated deficit of
$16,488,451. For the quarter ended March 31, 2000, the Company's operating
activities provided $607,062 of cash, which was primarily attributable to the
collection of accounts receivable and the sales of the remaining inventory,
offset by decreases in accounts payable and accrued expenses. During the quarter
ended March 31, 2000, the Company's financing activities used $467,468 in cash.
The decrease in cash from financing activities was due to $467,468 in net
payments under the revolving line of the NCFC Credit Facility.
The Company does not anticipate any major capital budget
expenditures in 2000. In addition, the Company does not believe its operating
activities will generate sufficient cash flow to meet its operating cash flow
requirements and other current obligations, including the pay-off of the NCFC
Credit Facility as the remaining inventory and equipment are sold and accounts
receivable are collected. Consequently, it is likely the Company will be
required to raise additional funds from equity or debt financings. No assurance
can be given that such additional financing will be available on terms
acceptable to the Company, if at all.
9
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ACCOUNTING MATTERS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" (SFAS No. 132) which becomes
effective for the Company on January 1, 1999. SFAS No. 132 establishes standards
for the information that public enterprises report in annual financial
statements. The adoption of SFAS No. 132 did not have a material impact on the
Company.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) which becomes effective for
the Company on July 1, 1999. Management does not expect the adoption of SFAS No.
133 to have a material impact on the Company.
SEASONALITY
Historically, the Company has experienced higher revenue in the first
two quarters of the year than in the latter half of the year. The Company
believes that this results from seasonal buying patterns resulting, in part,
from an increased demand for certain automotive parts and accessories and its
ultimate customers having added liquidity from income tax refunds during the
first half of the year.
INFLATION
Increases in inflation generally result in higher interest rates.
Higher interest rates on the Company's borrowings would decrease the
profitability of the Company. To date, general price inflation has not had a
significant impact on the Company's operations; however, increases in metal
prices have from time to time, and could in the future, adversely affect the
Company's gross profit.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's future operating results and financial condition are
dependent upon, among other things, the Company's ability to implement its
business strategy. Potential risks and uncertainties that could affect the
Company's profitability are set forth below.
HISTORY OF PREVIOUS LOSSES
The Company was incorporated in December 1992 and has incurred
significant losses in each of its completed fiscal years. For the quarter
ended March 31, 2000, the Company incurred an additional loss of $97,900.
There can be no assurance that the Company will be profitable in the future.
Although net sales for the year ended December 31, 1999 increased to
$12,828,329 from $12,081,884 for the year ended December 31, 1998, net sales
for the three months ended March 31, 2000 decreased to $316,351 from
$4,186,763 for the same period in 1999, as a result of the Company's change
in business strategy. In addition, for the fiscal quarter ended March 31,
2000, the Company realized royalty revenues of $142,927. As of March 31,
2000, the Company had cumulative losses of $16,488,451 and a total
stockholders' deficit of $2,052,185.
As a result of the Company's total stockholders' deficit and the
uncertainty regarding the Company's ability to meet its anticipated operating
and working capital needs, the independents auditors' report on the Company's
1999 financial statements was qualified for a going concern.
DEPENDENCE ON EXTERNAL FINANCING
On April 20, 1998, the Company executed the NCFC Credit Facility, a portion
of the proceeds of which were used to pay off the Company's previous credit
facility with Norwest Business Credit, Inc., which expired on April 15, 1998.
The terms of this new credit facility provide for a maximum combined term loan
and revolving loan totaling $8.5 million at an interest rate of 1.25% above the
prime rate. As of March 31, 2000,
10
<PAGE>
the outstanding amount owed by the Company under the NCFC Credit Facility was
approximately $1,856,700. The NCFC Credit Facility is secured by substantially
all of the Company's assets and has a term of four years. The NCFC Credit
Facility also is secured by certain investment property with a value of
approximately $1,500,000 that was pledged to NCFC by two private investors. In
exchange for that pledge, the Company agreed to grant warrants to purchase 7,000
shares of Common Stock on an annual basis as long as the pledge remains
outstanding, which warrants are exercisable at a price equal to the price of the
Company's Common Stock on the date of grant. As of March 31, 2000, the Company
had approximately $25,000 of excess availability under the NCFC Credit Facility.
In addition, since the NCFC Credit Facility is collateralized by accounts
receivable, inventory and equipment, as those assets are converted to cash, the
credit facility will be paid down. There can be no assurance that the proceeds
from the disposition of those assets will be sufficient to pay-off the NCFC
Credit Facility. As a result, it is likely that the Company will be required to
raise additional funds through equity or debt financings. No assurance can be
given that additional financing will be available on terms acceptable to the
Company, if at all.
DEPENDENCE ON THIRD PARTIES TO GENERATE ROYALTIES
As a result of the Company's change in business strategy, the Company's
revenues and operating results will be substantially dependent on the efforts
and success of its third party licensing partners. Because the amount of
royalties payable to the Company are determined by the net sales of those
products by the Company's licensing partners, the Company's revenues will be
subject to the abilities of its licensing partners to generate substantial net
sales and deliver a high-quality product on a timely basis to its customers. In
addition, because the primary fiduciary obligations of the Company's licensing
partners are to their shareholders rather than the Company's shareholders, they
may make decisions or take steps that would result in lower royalty payments
than would otherwise be the case. If either licensing partner does not meet its
obligations under its respective licensing agreement, the Company's primary
remedy is to terminate that license agreement, which may be an effective remedy
only if the Company can identify and secure other capable licensees of the
affected products.
INABILITY TO SUPPORT MANUFACTURING, MARKETING, SALE AND DISTRIBUTION IF THIRD
PARTY TERMINATES THE LICENSE AGREEMENT
If either licensing partner terminates its license agreement or the
Company terminates the license agreement for any reason, the Company will be
forced to incur the cost of manufacturing, marketing, selling and distributing
the licensed products without the financial resources and distribution
capabilities of its licensees. In the alternative, the Company would be forced
to secure another licensee capable of manufacturing, marketing, selling and
distributing the licensed products on behalf of the Company and paying any
royalties based on the net sales of those products. There can be no assurance
that the Company would be able to meet these obligations in the event that one
or more of the license agreements is terminated.
ROYALTY PAYMENTS WILL DECREASE AS A PERCENTAGE OF SALES AS ROYALTIES INCREASE
The royalty structure negotiated by the Company with its current licensing
partners provides for a decrease in the applicable percentage of net sales that
determines royalty payments to the Company as net sales increase above certain
levels. The consequence of this structure is that the Company's ability to
realize the benefits of a substantial increase in sales with respect to any
group of its licensed products will be limited by the negotiated royalty fee
structure as net sales of the licensed products increase.
CHANGE IN BUSINESS STRATEGY MAY DEPRESS THE PRICE OF COMMON STOCK
The completion of the sale and licensing of the Company's Wrought Wheel and
SOR Wheel businesses and any other related licensing arrangement the Company may
complete in the future represents a significant change in the Company's business
model. In general, the outsourcing of the manufacturing, marketing, sales and
distribution operations with respect to the licensed products, together with the
sale of the related assets, will result in a substantial decrease in the
Company's revenues and operating and marketing costs. The Company anticipates
that the decrease in revenues and operating and marketing costs will be replaced
by a stream of royalty payments generated by the net sales of the licensed
products by the Company's licensing
11
<PAGE>
partners. As a result, the Company does not have a history of financial results
upon which shareholders can rely to make a determination that the new business
strategy will be successful. Given the uncertainty of the consequences of this
change in business strategy, as well as the significant decrease in revenues
expected to occur, there can be no assurance that the change will result in a
profitable stream of royalty payments. As a result of this uncertainty, the
price of the Company's common stock may be adversely affected.
EXTENSION OF CRAGAR BRAND NAMES TO OTHER PRODUCTS MAY NOT BE SUCCESSFUL
The Company's new business strategy contemplates the extension of the
CRAGAR brand names to new products developed by its licensees as well as to
non-wheel related products within the automotive aftermarket industry. The
Company regards this extension of its brand names to new products as a key
element of a strategy that is designed to increase net sales of CRAGAR brand
products to generate increased royalty revenues. There can be no assurance,
however, that either the Company or its licensees will be successful in
developing and marketing any new products under the CRAGAR brand names, or if
any new products are developed, that the net sales of these products will have a
positive impact on the Company's financial results.
NO DUTY TO DISTRIBUTE ROYALTY PAYMENTS TO ITS SHAREHOLDERS
Any royalty payments made to the Company pursuant to the licensing
agreements initially will be used by the Company to increase its working capital
and reduce its debt. The Company has never paid any cash dividends on its common
stock and does not anticipate doing so in the foreseeable future. As a result,
shareholders should not anticipate that they will receive any distribution of
the royalties generated by the Company's licensing transactions.
DEPENDENCE ON KEY CUSTOMERS; LICENSEES ABILITY TO MARKET AND SELL TO EXISTING
AND NEW CUSTOMERS
A limited number of customers have historically accounted for a
substantial portion of the Company's revenues in each year. Given the Company's
change in business strategy, The Company expects that its current licensing
partners will account for an even greater percentage of its revenues in the
future. The financial condition and success of its customers and the Company's
ability to obtain orders from new customers have been critical to the Company's
success and will be critical to the success of the Company's licensing partners.
As a result of its change in business strategy as described above, the Company
expects that its revenues will decline and that an increasing percentage of
revenues will be dependent on royalties from sales of CRAGAR products by Weld
and Carlisle. There can be no assurance that any of the licensees will be
successful in their sales and marketing efforts.
INVESTMENT IN WRENCHEAD MAY NOT BE PROFITABLE
The Company has made a substantial investment in Wrenchead and
increased that investment in April 2000. There can be no assurance that the
current or future investment in Wrenchead will turn out to be profitable.
RISKS ASSOCIATED WITH ESTABLISHMENT OF INTERNET-BASED MARKETING
The Company intends to expand the attributes and functionality of its
existing website and utilize other E-commerce websites, possibly through the
investment in such ventures, including the sites of any CRAGAR licensees, to
enable the marketing and sale of certain of its custom vehicle wheels, wheel
accessories, and possibly other CRAGAR branded products through the Internet.
Although the Company believes that marketing and selling its products online
could significantly expand the market for its products, there can be no
assurance that the Company will be successful in implementing this strategy or
that the sale of the Company's products on the Internet will be successful. To
further this strategy, the Company established a relationship with Wrenchead, an
e-commerce provider that offers automotive aftermarket products foe sale via the
internet. The Company is an investor in Wrenchead having acquired 485,000 shares
of Wrenchead's preferred and common stock. See "Management's Discussion and
Analysis or Plan of Operations - Recent Developments."
12
<PAGE>
HIGHLY COMPETITIVE INDUSTRY
The market for the Company's products is highly competitive. The
Company historically competed primarily on the basis of product selection (which
includes style and vehicle fit), timely availability of product for delivery,
quality, design innovation, price, payment terms, and service. The Company
anticipates that its licensing partners will compete on those same terms. The
Company believes that Weld and Carlisle have superior financial, operational and
distribution capabilities to compete effectively within the custom aftermarket
wheel industry. However, there can be no assurance that the Company's licensing
partners, Weld and Carlisle, will be successful in marketing custom aftermarket
wheels under the CRAGAR brand names. Increased competition could result in price
reductions (which may be in the form of rebates or allowances), reduced margins,
and loss of market share, all of which could have a material adverse effect on
the Company's licensing partners, possibly resulting in the reduction or
elimination of royalty payments due the Company.
GENERAL ECONOMIC FACTORS
The automobile aftermarket industry is directly impacted by certain
external factors, such as the general demand for aftermarket automotive parts,
prices for raw materials used in producing the Company's products, fluctuations
in discretionary consumer spending, and general economic conditions, including
employment levels, business conditions, interest rates, and tax rates. While the
Company believes that current economic conditions favor stability in the markets
in which its products are sold, various factors, including those listed above,
could lead to decreased sales and increased operating expenses. There can be no
assurance that various factors will not adversely affect the Company's licensing
partners' businesses in the future, causing a decrease in royalty payments due
the Company, or prevent the Company from successfully implementing its business
strategies.
NO ASSURANCE OF ADDITIONAL SUCCESSFUL ALLIANCES
In furtherance of the Company's change in business strategy and sale of
the Company's Wrought Wheel and SOR Wheel businesses, the Company continues to
consider alliances with other companies that could complement the Company's new
business strategy, including other licensing opportunities involving one-piece
cast aluminum wheels or other complementary automotive aftermarket product lines
where the Company can capitalize on the CRAGAR brand name. There can be no
assurance that suitable licensing candidates can be identified, or that, if
identified, adequate and acceptable licensing terms will be available to the
Company that would enable it to consummate such transactions. Furthermore, even
if the Company completes one or more licensing agreements, there can be no
assurance that the licensing partners will be successful in manufacturing,
marketing, selling and distributing the licensed products. In addition, there is
no assurance that the Company's investment in Wrenchead will be profitable. See
- - "Management's Discussion and Analysis or Plan of Operations - Recent
Developments".
Moreover, any additional investment by the Company in Wrenchead or
other companies may result in a potentially dilutive issuance of equity
securities, or the incurrence of additional debt which could adversely affect
the Company's financial position. Alliances, whether through licensing or direct
investments in companies, involve numerous risks, such as the diversion of the
attention of the Company's management from other business concerns and the
entrance of the Company into markets in which it has had no or only limited
experience, both of which could have a material adverse effect on the Company.
VARIABILITY IN OPERATING RESULTS; SEASONALITY
The Company's results of operations have historically been subject to
substantial variations as a result of a number of factors. In particular, the
Company's operating results have varied due to the size and timing of customer
orders, delays in new product enhancements and new product introductions, vendor
quality control and delivery difficulties, market acceptance of new products,
product returns, product rebates and allowances, seasonality in product
purchases by distributors and end users, and pricing trends in the automotive
aftermarket industry in general and in the specific markets in which the Company
participates. Historically, the Company's net sales have been highest in the
first and second quarters of each year. Significant variability in orders during
any period has had an impact on the Company's cash flow or workflow. The Company
13
<PAGE>
believes that any period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. The Company expects that its licensing partners will be subject to
the same variations and industry seasonality as the Company has experienced in
the past. These variations may cause fluctuations in the sales of CRAGAR branded
products thereby causing fluctuations in the royalties due the Company.
CHANGING CUSTOMER TRENDS; NEED FOR PRODUCT DEVELOPMENT
The Company's success will depend, in part, on the ability of its
licensing partners to correctly and consistently anticipate, gauge, and respond
in a timely manner to changing consumer preferences. There can be no assurance
that the Company's licensed products will continue to enjoy acceptance among
consumers or that any of the future CRAGAR branded products developed and
marketed by its licensing partners will achieve or maintain market acceptance.
Any misjudgment by the Company's licensing partners of the market for a
particular product or product extension, or their failure to correctly
anticipate changing consumer preferences, could have a material adverse effect
on their businesses, financial condition, and results of operations. Any
material adverse effect experienced by either of the Company's licensing
partners may have an adverse effect on the Company and its financial condition
and results of operations.
REGULATORY COMPLIANCE
The Company historically has been subject to various federal and state
governmental regulations related to occupational safety and health, labor, and
wage practices as well as federal, state, and local governmental regulations
relating to the storage, discharge, handling, emission, generation, manufacture,
and disposal of toxic or other hazardous substances used to produce the
Company's products. The Company believes that it has been and is currently in
material compliance with such regulations. In the ordinary course of its
business, the Company used metals, oils, and similar materials, which were
stored on site. The waste created by use of these materials was transported
off-site on a regular basis by a state-registered waste hauler. Although the
Company is not aware of any material claim or investigation with respect to
these activities, there can be no assurance that such a claim may not arise in
the future or that the cost of complying with governmental regulations in the
future will not have a material adverse effect on the Company.
The Company is subject to regulation as a publicly-traded company under
the Securities Exchange Act of 1934. In addition, as a consequence of the
sale and licensing of its Wrought Wheel and SOR Wheel businesses, which could
have been considered a sale of substantially all of its assets, in exchange
for the receipt of a stream of royalty payments, the Company could face
regulatory issues under the Investment Company Act of 1940 if the royalty
payments are considered investment securities. If the Company is considered
to be an investment company under the 1940 Act, it would be required to
register under that Act as an investment company. As a registered investment
company, the Company would be subject to further regulatory oversight of the
Division of Investment Management of the Commission, and its activities would
be subject to substantial and costly regulation under the 1940 Act. The
Company does not believe that its activities will subject it to the 1940 Act
and accordingly does not intend to register as an investment company under
the Act, although there can be no assurance that such registration would not
be required in the future.
RELIANCE ON INTELLECTUAL PROPERTY
The Company owns the rights to certain trademarks and patents, relies
on trade secrets and proprietary information, technology, and know-how, and
seeks to protect this information through agreements with employees and vendors.
There can be no assurance that the Company's patents will preclude the Company's
competitors from designing competitive products, that proprietary information or
confidentiality agreements with licensees, employees, both current and former,
and others will not be breached, that the Company's patents will not be
infringed, that the Company would have adequate remedies for any breach or
infringement, or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors.
14
<PAGE>
CONTROL BY EXISTING STOCKHOLDERS
The directors, officers, and principal stockholders of the Company
beneficially own approximately 51.5% of the Company's outstanding Common Stock.
As a result, these persons have a significant influence on the affairs and
management of the Company, as well as on all matters requiring stockholder
approval, including electing and removing members of the Company's Board of
Directors, causing the Company to engage in transactions with affiliated
entities, causing or restricting the sale or merger of the Company, and changing
the Company's dividend policy. Such concentration of ownership and control could
have the effect of delaying, deferring, or preventing a change in control of the
Company even when such a change of control would be in the best interest of the
Company's other stockholders.
EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Company's Amended and Restated Certificate of Incorporation
authorizes the Board of Directors of the Company to issue "blank check"
preferred stock, the relative rights, powers, preferences, limitations, and
restrictions of which may be fixed or altered from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting, or other rights that could adversely affect the voting power and other
rights of the holders of Common Stock. In the first quarter of 1998, for
example, the Company issued 22,500 shares of its Series A Preferred Stock for
approximately $2,250,000 in additional capital, which, as of March 31, 2000,
could have been converted into approximately 792,620 shares of Common Stock at
the option of the holders of the Series A Preferred Stock. Additional series of
preferred stock could be issued, under certain circumstances, as a method of
discouraging, delaying, or preventing a change in control of the Company that
stockholders might consider to be in the Company's best interests. There can be
no assurance that the Company will not issue additional shares of preferred
stock in the future.
NO CASH DIVIDENDS
The Company has never paid cash or stock dividends on its Common Stock
and does not anticipate that it will pay cash dividends in the foreseeable
future. It is contemplated that any earnings will be used to finance the growth
of the Company's business. The Company is required to pay dividends on its
Series A Preferred Stock, however; it anticipates those dividends will be paid
in kind, rather than in cash, with additional shares of Series A Preferred
Stock. In addition, the Company's NCFC Credit Facility prohibits the payments of
cash dividends without the lender's consent.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is an unsecured creditor in the matter of in Re Super
Shops, Inc., et al., Case No. LA 97-46094-ER, a bankruptcy action filed by Super
Shops, Inc., previously the Company's primary customer. Because the Company is
an unsecured creditor in this matter, the amount and timing of the recovery, if
any, on its account receivable from Super Shops, Inc. is uncertain.
The Company has filed a complaint in the matter of Cragar Industries,
Inc. versus Keystone Automotive Operations, Inc. ("Keystone") in the Superior
Court of Arizona, County of Maricopa, Case No. CV99-21619, seeking to recover in
excess of $290,000 in past due amounts for product purchased from the Company by
Keystone.
The Company has filed a complaint in the matter of Cragar Industries,
Inc. versus RELCO Corporation ("RELCO") in the United States District Court for
the District of Arizona, Case No. CIV00-0210, seeking to recover in excess of
$247,000 in past due amounts for product purchased from the Company by RELCO.
15
<PAGE>
The Company has filed a complaint in the matter of Cragar Industries,
Inc. versus Titan Wheel International, Inc. and Titan International, Inc.
("Titan") in the United States District Court for the District of Arizona, Case
No. CIV99-0649, seeking damages of more than $2,250,000, claiming breach of
contract, breach of warranty, and conversion arising out of a supply contract
with Titan's subsidiary Automotive Wheel, Inc. for the delivery of automotive
wheels to the Company.
There are currently no other material pending proceedings to which the
Company is a party or to which any of its property is subject, although The
Company from time to time is involved in routine litigation incidental to the
conduct of its business.
The Company currently maintains discontinued product liability
insurance, with limits of $1.0 million per occurrence and $2.0 million in the
aggregate per annum. However, this coverage is becoming increasingly expensive
and difficult to obtain. There can be no assurance that the Company will be able
to maintain adequate product liability insurance at commercially reasonable
rates or that the Company's insurance will be adequate to cover future product
liability claims. Any losses that the Company may suffer as a result of claims
in excess of the Company's coverage could have a material adverse effect on the
Company's business, financial condition, and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company had dividends in arrears for outstanding Series A Preferred
Stock at March 31, 2000 totaling $332,500, which are payable, at the discretion
of the Company, in cash or additional shares of the Company's Series A Preferred
Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No. Description
------------ -----------
<S> <C>
3.1 Second Amended and Restated
Certificate of Incorporation of the Registrant filed
with State of Delaware on October 1, 1996*
3.2 Amended and Restated Bylaws of the Registrant*
11 Schedule of Computation of Earnings per Share
27.1 2000 Financial Data Schedule for the Three Months
Ended March 31, 2000
(b) Reports on Form 8-K
None
</TABLE>
- ---------------------------
- - Incorporated by reference to the Company's Registration Statement on
Form SB-2 (No. 333-13415).
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAGAR INDUSTRIES, INC.
Dated: May 15, 2000 By:_/s/ Michael L. Hartzmark
------------ ----------------------------
Michael L. Hartzmark
CEO
Dated: May 15, 2000 By:_/s/ Richard P. Franke
------------ -------------------------
Richard P. Franke
Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
<PAGE>
Exhibit 11
CRAGAR INDUSTRIES, INC.
Schedule of Computation of Earnings Per Share
<TABLE>
<CAPTION>
Earnings (Loss) Per Share Three Months Ended March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Net Earnings (Loss) $ (97,900) $ 100,455
Less: Preferred Stock Dividends in Arrears (39,375) (39,375)
-------------- --------------
Earnings (Loss) Available for Common Stockholders $ (137,275) $ 61,080
============== ==============
Basic EPS - Weighted Average Shares Outstanding 2,456,990 2,453,990
============== ==============
Basic Earnings (Loss) Per Share $ (0.06) $ 0.02
============== ==============
Basic EPS - Weighted Average Shares Outstanding 2,456,990 2,453,990
Effect of Diluted Securities:
Stock Options and Warrants (1) 1,659,611
Convertible Preferred Stock 722,800
-------------- --------------
Diluted EPS - Weighted Average Shares Outstanding 2,456,990 4,836,401
============== ==============
Diluted Earnings (Loss) Per Share $ (0.06) $ 0.01
============== ==============
</TABLE>
(1) - The Company's outstanding stock options, warrants, and convertible
preferred stock have antidilutive effect on net loss per share for the three
months ended March 31, 2000. As a result, such amounts have been excluded from
the computations of diluted loss per share for that period.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 140,981
<SECURITIES> 0
<RECEIVABLES> 1,080,082
<ALLOWANCES> 133,119
<INVENTORY> 261,702
<CURRENT-ASSETS> 1,690,134
<PP&E> 1,163,465
<DEPRECIATION> 976,719
<TOTAL-ASSETS> 1,934,504
<CURRENT-LIABILITIES> 1,662,608
<BONDS> 0
0
225
<COMMON> 24,570
<OTHER-SE> (2,076,980)
<TOTAL-LIABILITY-AND-EQUITY> 1,934,504
<SALES> 316,351
<TOTAL-REVENUES> 459,278
<CGS> 332,051
<TOTAL-COSTS> 187,704
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,979
<INCOME-PRETAX> (97,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,900)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
