<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter period ended September 30, 1999
- 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 333-20709
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
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(Exact Name of small business issuer as specified in its charter)
Delaware 13-3391820
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22681/22687 Old Canal Road, Yorba Linda, CA 92887-4608
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(Address of principal executive offices)
(714) 974-7676
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the registrant (1) 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 periods 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 / /
The number of shares of common stock, $.01 par value, outstanding as of
November 10, 1999 was 598,734.
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INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - September 30, 1999 and
June 30, 1999.........................................................3
Condensed consolidated statements of operations - three months
ended September 30, 1999 and 1998.....................................4
Condensed consolidated statements of cash flows - three months
ended September 30, 1999 and 1998.....................................5
Notes to condensed consolidated financial statements -
September 30, 1999....................................................6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................7
PART II. OTHER INFORMATION
Item 5 Other Information ...................................................12
Item 6 Exhibits and Reports on Form 8-K ....................................13
Signatures...........................................................14
2
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PART I FINANCIAL INFORMATION
TRANSITION ANALYSIS COMPONENTS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited) SEPTEMBER 30 JUNE 30
1999 1999
----------- -----------
(000's omitted
except share data)
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash $ 188 $ 212
Accounts receivable, less allowances of $40 and $40, respectively 1,082 960
Prepaid expenses and other current assets 51 61
Deferred tax asset 98 98
----------- -----------
Total current assets 1,419 1,331
Furniture and equipment 768 758
Less accumulated depreciation and amortization 521 497
----------- -----------
247 261
Other assets
Security deposits 68 83
Software development costs - net 44 47
Excess of cost over fair value of net assets acquired, net 44 46
----------- -----------
Total assets $ 1,822 $ 1,768
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable and accrued expenses $ 282 $ 316
Accrued compensation expense 385 373
Accrued income taxes 4 98
Deferred income 625 531
Revolving line of credit 670 570
----------- -----------
Total current liabilities 1,966 1,888
Stockholders' equity (deficiency)
Common stock, par value $.01 per share; authorized 5,000,000 shares;
issued 598,734 shares as of September 30, 1999 and June 30, 1999
6 6
Additional paid-in capital 553 553
Accumulated deficit (703) (679)
----------- -----------
Total stockholders' equity (deficiency) (144) (120)
----------- -----------
Total liabilities and stockholders' equity (deficiency) $ 1,822 $ 1,768
=========== ===========
</TABLE>
Note: The consolidated balance sheet at June 30, 1999 has been derived from
the audited consolidated financial statements at that date.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
-------------------------
1999 1998
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(000's omitted, except
per share data)
<S> <C> <C>
Revenues $ 1,224 $ 924
Selling, general and administrative expenses 1,206 949
Depreciation of equipment 24 20
Amortization of software development costs and acquisition costs 5 5
Interest expense 13 18
--------- ---------
Loss before income taxes (24) (68)
Provision for income taxes -- --
--------- ---------
Net loss $ (24) $ (68)
========= =========
Net loss per common share - basic and diluted $ (.04) $ (.11)
========= =========
Number of shares used in computation - basic and diluted 598,734 598,734
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
----------- -----------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (24) $ (68)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 29 25
Changes in operating assets and liabilities:
Accounts receivable (122) (75)
Prepaid and other current assets 10 22
Accounts payable and accrued expenses (116) (146)
Deferred income 94 107
Rent security deposits 15 --
Net cash used in operating activities (114) (135)
----------- -----------
INVESTING ACTIVITIES
Purchase of equipment (10) (7)
Net cash used in investing activities (10) (7)
----------- -----------
FINANCING ACTIVITIES
Proceeds from lines of credit 150 225
Reduction in lines of credit (50) --
----------- -----------
Net cash provided by financing activities 100 225
Net increase (decrease) in cash and cash equivalents (24) 83
Cash at beginning of period 212 120
Cash at end of period $ 188 $ 203
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10- QSB and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2000.
NOTE B - ORGANIZATION
ACQUISITION OF RESEARCH ANALYSIS CORP.
On September 22, 1997, Transition Analysis Component Technology, Inc. ("TACTech"
or the "Company") acquired the net assets of Research Analysis Corporation
("RAC") pursuant to a merger (the "Merger") of Research Technology Analysis
Corp., a California corporation formed for this purpose and wholly-owned by the
Company with and into RAC. Upon consummation of the Merger, RAC, as the
surviving corporation, became a wholly-owned subsidiary of the Company. The RAC
acquisition was accounted for pursuant to the purchase method of accounting and
is effective as of September 1, 1997.
NOTE C - COMMON STOCK PURCHASE RIGHTS
During October 1999, TACTech filed a registration statement for the purpose of
distributing common stock purchase rights to all shareholders of record on the
record date established by the board of directors. The rights will have an
exercise price to be determined on the effective date, to enable the Company to
raise up to $2,500,000 in additional capital. Basic and diluted earnings per
share amounts will be restated for all prior periods presented subsequent to the
effective date.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain items from the statements of operations:
<TABLE>
<CAPTION>
PERCENT OF NET SALES
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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<S> <C> <C>
Revenues 100.0% 100.0%
Selling, general and administrative expenses 98.5 102.7
Depreciation and amortization of equipment and software development costs 2.4 2.7
Interest expense 1.1 1.9
---------- ----------
Loss before income taxes (2.0) (7.3)
Provision for income taxes - -
---------- ----------
Net loss (2.0)% (7.3)%
========== ==========
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1998
The Company reported a loss of $24,000 or $.04 per share (basic and diluted) for
the quarter ended September 30, 1999, as compared to a loss of $68,000 or $.11
per share (basic and diluted) for the quarter ended September 30, 1998.
The Company generates revenue primarily through licensing agreements. TACTech's
license agreements fall into two broad categories: (1) a basic semiconductor
information service ("the TACTech Service") which encompasses an electronic
semi-conductor library and database and (2) the TACTRAC bill of materials
indenturing service, which consists of the TACTech Service, combined with
proprietary software tools for the processing and handling of all customer bills
of materials and a workstation application that allows the customer to view
solutions, analyses and reports.
Revenues for the three months ended September 30, 1999 increased by $300,000, or
32% over the three months ended September 30, 1998. The increase is primarily
attributable to (1) the conversion of customers from the TACTech Service to the
TACTRAC service and (2) the increase in the subscription prices and up-front
fees associated with the TACTRAC service.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 99% for the three months ended September 30, 1999 compared to 103%
for the comparable 1998 period. The total dollar increase of approximately
$257,000 is attributable to the following: (1) salaries and related costs
associated with information systems in upgrading the TACTRAC product amounting
to approximately $75,000, (2) selling expenses, including sales and training
salaries amounting to approximately $88,000 relating to promoting TACTRAC sales
and (3) legal costs amounting to approximately $90,000 associated with
substantive discussions of a possible merger with and into another entity.
Negotiations relating to this possible merger terminated prior to the end of the
current fiscal quarter.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
Depreciation and amortization increased approximately $4,000 for the three
months ended September 30, 1999 as compared to the 1998 period due to the
acquisition of computers and related equipment in the fiscal year ended June 30,
1999.
Interest expense decreased approximately $5,000 for the three months ended
September 30, 1999 as compared to the comparable 1998 period because the level
of borrowing on the credit line was less during the current quarter as compared
to the same period in the prior fiscal quarter.
No provision for income taxes was made for the three months ended September 30,
1999 and 1998 because of the reported losses.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 1999 and September 30, 1998, cash from
the line of credit was used to fund operations.
Exclusive of expenditures for broadening the Company's product and service
offerings, developing World Wide Web enabled services and engaging additional
management, marketing and other personnel to enable the Company to penetrate new
markets, all of which are intended to be financed by the Company's common stock
purchase rights offering, the Company believes that its cash flow from
operations, combined with borrowings available under the existing line of
credit, will be sufficient to meet its current cash operating requirements,
including scheduled interest payments, capital expenditures and working capital
needs for the foreseeable future.
YEAR 2000 IMPACT - OVERVIEW
Nearly every aspect of a modern organization is supported by information
technology. As a result, the unavailability of computer services or errors in
data processing would have a considerable impact on most businesses.
Many computer systems and electronic devices process dates using two digits
instead of four. Therefore, all dates within these systems are assumed to be in
the 20th century. By January 1, 2000, and sometimes even sooner, unless these
systems' deficiencies in this area are addressed and resolved, these systems
could miscalculate dates or fail completely, which could result in disruption of
business operations controlled by such systems and devices.
The following discussion is based on management's best estimates, which were
derived using numerous assumptions of future events, including the continuing
availability of basic utilities and other resources, the availability of trained
personnel at reasonable cost, and the ability of third parties to cure
noncompliant software and hardware. There can be no guarantee that these
assumptions will prove accurate, and accordingly the actual results may
materially differ from those anticipated.
EVALUATION EFFORTS
TACTech has finished its assessment and upgrade of all systems that could be
affected by the Year 2000 problem. This includes software developed specifically
for license or sale, software developed for in-house use, third-party software
and hardware used by TACTech, and telecommunications systems.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In addition, TACTech is gathering Year 2000 compliance information from its
significant vendors and suppliers. Furthermore, TACTech is also actively
gathering Year 2000 compliance information from its customers.
READINESS AND COMPLIANCE PLAN
TACTech's Year 2000 compliance efforts fall into four major areas: Information
Technology (including production software, internal software and hardware),
Telecommunications Systems, Compliance by Vendors, and Compliance by Customers.
INFORMATION TECHNOLOGY
PRODUCTION SOFTWARE - TACTRAC AND TACTECH BASIC SITE SERVICES
TACTech currently markets information services based on two different sets of
software, one relating to TACTRAC service, and one relating to TACTech basic
library service.
TACTRAC. - TACTech has evaluated its TACTRAC software for Year 2000 readiness
and concludes that the TACTRAC software which is used by the subscriber is fully
Year 2000 compliant. However, information updates to the TACTRAC software are
part of the TACTRAC service. These updates are dependent upon software that runs
at TACTech's headquarters in Yorba Linda, California. This software has been
evaluated and has been determined to be only partially Year 2000 compliant.
TACTech determined that an operating system software upgrade and compiler
software upgrade was necessary to bring this software to Year 2000 compliance.
These upgrades were finished and successfully tested in May 1999.
Basic Library Services - TACTech has evaluated its basic library services
software for Year 2000 readiness and concluded that this software was only
partially Year 2000 complaint. TACTech determined that an operating system
software upgrade and compiler upgrade were necessary to bring this software to
Year 2000 compliance.
This upgrade was completed and successfully tested in May 1999.
INTERNAL IT SYSTEMS
TACTech has evaluated all of its internal IT Systems software and has performed
the necessary upgrades or modifications to ensure that 100% of its systems are
fully Year 2000 compliant.
TACTech has evaluated all of its internal IT Systems hardware that is critical
for continued business operations and has determined that it falls into the
following categories:
a) Approximately 80% of its hardware is fully Year 2000 compliant
b) Approximately 20% of its hardware is not fully Year 2000
compliant and will require manually setting the date to January
1, 2000. This fix is easily performed on any system after
January 1, 2000. For continued business operations, this
equipment is considered to be Year 2000 compliant.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
TELECOMMUNICATIONS SYSTEMS
In early January 1999, TACTech replaced its PBX telephone system and its voice
mail system with new models that are fully Year 2000 compliant.
VENDOR COMPLIANCE
TACTech is actively requesting Year 2000 compliance certificates from its
vendors. TACTech has grouped its vendor list into high, medium, and low risk
groups depending on the potential impact to TACTech if the vendor is not Year
2000 compliant. To date, TACTech has received responses as illustrated in the
following table:
High Risk Vendors 100%
Medium Risk Vendors 73%
Low Risk Vendors 26%
Not every vendor who replied is fully 100% Year 2000 compliant. However, all
vendors have stated they will be fully compliant by year's end.
CUSTOMER COMPLIANCE
TACTech is also requesting similar compliance certifications from its customers.
To date, TACTech has received responses from 75% of its customers. TACTech
cannot guarantee that all of its customers will either be Year 2000 compliant,
or will comply with TACTech's request for certification.
COST OF YEAR 2000 COMPLIANCE
TACTech estimates that the total cost of achieving Year 2000 compliance will be
approximately $20,000. The bulk of these costs are for new versions and upgrades
to software and operating systems and telephone equipment. Personnel and labor
costs are included in salaries and are not included in this total. In addition,
other software and operating system upgrades are already paid for by ongoing
maintenance contracts and are not included in the above total. Through September
30, 1999, TACTech has spent approximately $12,400 for its Year 2000 compliance
efforts.
CONTINGENCY PLAN
Since TACTech believes that is production software, information technology
systems, hardware and telecommunications systems are Year 2000 compliant, it has
not developed and does not plan to develop a contingency plan for noncompliant
software, information technology systems, hardware and telecommunications
systems.
Management believes that TACTech's ability to assemble and acquire the update
component data used in the basic TACTech library service and by its more robust
TACTRAC service is facilitated by, but is not dependent upon, electronic data
processing and telecommunications systems. If such systems were to fail as a
result of the advent of January 1, 2000 without its data suppliers having
achieved Year 2000 compliance, TACTech could, and will if necessary, continue to
obtain such data through available printed documentation as it has done in the
past and continues to do presently.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
TACTech provides its component compatibility and other information through
routine telephone and Internet connections. If TACTech's current Internet
service provider is unable to provide a certificate of compliance prior to
January 1, 2000, TACTech will select another provider from among the hundreds of
other such providers, many of whom are expected to have achieved Year 2000
compliance before such date. If Internet access is unavailable from any source,
at either the customer's site or at TACTech, direct telephone data transmission
will continue to be available.
In the event that one or more of TACTech's high risk vendors does not appear
that they will be Year 2000 compliant in time, TACTech will take steps to
determine the business risk to TACTech this vendor represents, and will take the
appropriate action at that time. Such action may include terminating the
relationship with the vendor and establishing a relationship with a different
vendor that provides similar goods or services and is also Year 2000 compliant.
11
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PART II OTHER INFORMATION
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
ITEM 5. OTHER INFORMATION
When used in this Form 10-QSB, and in future filings by TACTech with the
Securities and Exchange Commission, in TACTech's press releases and in any oral
statements made with the approval of an authorized TACTech executive officer,
the words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from historical earnings or those presently
anticipated or projected. TACTech wishes to caution readers not to place undo
reliance on such "forward-looking statements", which speak only as of the date
made. TACTech wishes to advise readers that factors listed below could affect
TACTech's financial performance and could cause TACTech's actual results for
future periods to differ materially from any opinion or statements expressed
with respect to future periods in any current statements.
TACTech will NOT undertake and specifically declines any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
DEPENDENCE ON KEY PERSONNEL
The business of TACTech is substantially dependent upon the active participation
and technical expertise of its executive officers. TACTech is dependent upon the
services of Malcolm Baca, its Executive Vice President and Chief Operating
Officer. The Company currently maintains a key-man life insurance policy on such
executive officer in the amount of $1,700,000. The Company's Board of Directors
regularly re-evaluates the need for and the amount of such key-man life
insurance. There can be no assurance, however, that TACTech can obtain
executives of comparable expertise and commitment in the event of death, or that
the business of TACTech would not suffer material adverse effects as the result
of the death (notwithstanding coverage by key-man insurance), disability or
voluntary departure or any such executive officer.
COMPETITION
TACTech's Basic Site Service license agreements are cancelable on thirty (30)
days notice. Approximately 50% of TACTech's information for its data bases comes
from numerous companies in the private sector. Accordingly, there can be no
assurance that existing arrangements with private suppliers of data will
continue in effect or, if they are canceled, that TACTech will be able to enter
into arrangements with other suppliers on terms as beneficial to TACTech as
those presently in effect. Moreover, there can be no assurance that other
companies, including existing customers of TACTech, will not avail themselves of
sources of data to develop their own software and data base services either in
competition with TACTech or to enable them to have their own sources for such
services or obtain such services from others. TACTech's software services and
data bases are protected by trade secret provisions of license agreements and by
copyright laws, but because such provisions and laws are frequently difficult or
costly to enforce, there can be no assurance that such protection will prove
effective.
12
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
TECHNICAL CHANGES
In the event of changes in the structure of the computer hardware systems used
by subscribers to operate TACTech's data software, TACTech would incur capital
costs for new equipment and development costs in connection with the
reconfiguring of its software programs, which cost could be substantial and
could have an adverse effect on TACTech's profitability.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein:
The Company did not file any report on Form 8-K during the three months
ended September 30, 1999.
13
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TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
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.
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
----------------------------------------------
(Registrant)
Date: November 10, 1999 Robert E. Schrader
----------------------------------------------
Robert E. Schrader
President and Chief Executive Officer
Date: November 10, 1999 Martin S. Fawer
----------------------------------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 188
<SECURITIES> 0
<RECEIVABLES> 1,122
<ALLOWANCES> (40)
<INVENTORY> 0
<CURRENT-ASSETS> 1,419
<PP&E> 768
<DEPRECIATION> (521)
<TOTAL-ASSETS> 1,822
<CURRENT-LIABILITIES> 1,966
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> (150)
<TOTAL-LIABILITY-AND-EQUITY> 1,822
<SALES> 1,224
<TOTAL-REVENUES> 1,224
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (24)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
