SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997 Commission file number 1-4680
EA INDUSTRIES, INC.
-------------------
(Exact Name of Registrant as Specified in its Charter)
New Jersey 21-0606484
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
185 Monmouth Parkway 07764-9989
West Long Branch, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (908) 229-1100
Former name, former address and former fiscal year, if changed since last report
NOT APPLICABLE
----------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----------------------------------------------------------------
As of June 28, 1997, there were 8,405,376 outstanding shares of the
Registrant's Common Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(thousands of dollars)
<TABLE>
<CAPTION>
------------- -------------
June 28, 1997 Dec. 31, 1996
------------- -------------
(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 3,776 $ 461
Receivables, less allowance of $989 in 1997
and $1,100 in 1996 for doubtful accounts 9,116 11,211
Inventories 11,000 10,068
Prepaid expenses and other assets 655 579
-------- --------
TOTAL CURRENT ASSETS 24,547 22,319
-------- --------
Equipment and leasehold improvements 19,995 18,581
Less accumulated depreciation (8,398) (8,059)
-------- --------
11,597 10,522
-------- --------
Investment in Common Stock of Aydin Corp. held for sale 0 5,605
-------- --------
Other Investments held for sale 1,050 1,050
-------- --------
Intangible assets 12,331 12,331
Less accumulated amortization (2,042) (1,632)
-------- --------
10,289 10,699
-------- --------
Other assets 539 776
-------- --------
$ 48,022 $ 50,971
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving Credit Facility $ 6,997 $ 8,054
Current portion of Capital Lease Obligations 1,817 1,455
Current portion of Convertible Notes and 5,738 2,725
Debentures
Accounts payable 10,393 14,702
Accrued expenses 4,604 4,549
-------- --------
TOTAL CURRENT LIABILITIES 29,549 31,485
-------- --------
Long-Term Liabilities:
Long-term portion of Capital Lease Obligations 3,551 2,937
Convertible Notes and Debentures 8,836 8,109
Other long-term liabilities 1,034 1,354
-------- --------
TOTAL LONG-TERM LIABILITIES 13,421 12,400
-------- --------
TOTAL LIABILITIES 42,970 43,885
-------- --------
Shareholders' Equity:
Common Stock 88,200 80,535
Accumulated deficit since January 1, 1986 (83,084) (73,245)
-------- --------
5,116 7,290
Less common stock in treasury, at cost (64) (204)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 5,052 7,086
-------- --------
$ 48,022 $ 50,971
======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
2
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(UNAUDITED)
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Note 1) (Note 1)
<S> <C> <C> <C> <C>
Net Sales $ 16,677 $ 22,388 $ 31,302 $ 46,413
----------- ----------- ----------- -----------
Cost of Sales 16,751 20,799 31,211 43,433
Selling, general and
administrative expenses 3,425 2,345 5,326 4,565
----------- ----------- ----------- -----------
Total 20,176 23,144 36,537 47,998
----------- ----------- ----------- -----------
Loss from operations (3,499) (756) (5,235) (1,585)
----------- ----------- ----------- -----------
Interest expense 3,478 2,563 4,328 5,193
Interest Income (17) (81) (25) (196)
Other expense, net 276 395 301 920
----------- ----------- ----------- -----------
Net loss ($ 7,236) ($ 3,633) ($ 9,839) ($ 7,502)
=========== =========== =========== ===========
Loss per common share ($ 0.93) ($ 0.77) ($ 1.29) ($ 1.69)
=========== =========== =========== ===========
Weighted average common
shares outstanding 7,783,262 4,738,309 7,614,003 4,446,272
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
3
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Shareholders' Equity
For The Six Months Ended June 28, 1997
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Accumulated
Shares Amount Shares Amount Deficit
Since
Jan. 1,
1986
------------------------------------------------------------------------------
Balance, December 31, 1996
<S> <C> <C> <C> <C> <C>
5,624,001 $ 80,535 (23,369) ($ 204) ($ 73,245)
Net Loss (9,839)
Exercise of stock
options 2,276 10
Cash received on note
receivable from exercise of
warrant -- 700
Debt conversion 2,757,551 3,568 16,000 140
Imbedded Interest on Convertible
Debentures -- 1,761
Value of Warrants Issued in
Connection with Financing -- 990
Value of Options Granted for Services -- 589
Shares Granted for Services 28,917 87
Other -- (40)
------------------------------------------------------------------------------
Balance, June 28, 1997 8,412,745 $ 88,200 (7,369) ($ 64) ($ 83,084)
==============================================================================
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
4
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 28, June 29,
1997 1996
-------- --------
Cash Flows from Operating Activities:
<S> <C> <C>
Net Loss ($ 9,839) $ (7,502)
Adjustments to reconcile net loss to net
Cash provided/(used) by operating activities:
Depreciation and amortization 1,580 1,546
Valuation adjustment - Note Receivable -- 192
Discount on Convertible Subordinated Debentures 1,761 4,200
Non-cash interest charges 73 --
Value of Convertible Debentures issued for services 315 --
Equity in loss of affiliate -- 577
Value of warrants issued in connection with financing 990 --
Value of options granted for services 589 --
Value of Shares issued for services 87 --
Gain on Sale of Aydin common stock (820)
Cash provided/(used) by changes in:
Receivables 2,095 (2,208)
Inventories (932) 2,068
Prepaid expenses & other assets (76) 217
Accounts payable and accrued expenses (4,254) (3,091)
Accrued excess leased space costs (293) (216)
Other operating items - net (49) (574)
-------- --------
Net cash provided/(used) by operations (8,773) (4,791)
-------- --------
Cash flows from Investing Activities:
Capital Expenditures (2,216) (4,230)
Investments, including those in affiliates -- (12,030)
Net proceeds from sale of Aydin Corp. Common Stock 6,425 --
-------- --------
Net cash provided/(used) by investing activities 4,209 (16,260)
-------- --------
Cash flows from Financing Activities:
Net borrowings/(repayments) under credit facilities (1,057) 1,038
Net proceeds (repayments) from capital leases 976 2,485
Net proceeds from convertible subordinated debt 7,250 8,100
Proceeds from the exercise of stock options 10 8
Net proceeds from exercise of warrants 700 319
-------- --------
Net cash provided/(used) by financing activities 7,879 11,950
-------- --------
Net Increase/(Decrease) in Cash and Cash Equivalents 3,315 (9,101)
Cash and Cash Equivalents at Beginning of Period 461 9,830
-------- --------
Cash and Cash Equivalents at End of Period $ 3,776 $ 729
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,017 $ 844
======== ========
Non cash financing activities:
Conversion of debt to equity $ 3,825 $ 7,074
Common shares issued in payment of interest -- 75
======== ========
$ 3,825 $ 7,149
======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
5
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Description of Business and Basis of Presentation
-------------------------------------------------
EA Industries, Inc., a New Jersey corporation formerly known as
"Electronic Associates, Inc." ("EAI" or the "Company"), through
its wholly-owned subsidiary, Tanon Manufacturing, Inc.
("Tanon"), is engaged principally in the business of providing
contract electronic manufacturing services ranging from the
assembly of printed circuit boards to the complete procurement,
production, assembly, test and delivery of entire electronic
products and systems.
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's
latest annual report on Form 10-K/A for the year ended December
31, 1996. These condensed financial statements reflect, in the
opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
results for the interim period. Results of operations for the
interim period ended June 28, 1997 are not necessarily
indicative of results of operations expected for the full year.
The consolidated financial statements include the accounts of
all majority-owned subsidiaries other than the investment in
Electronic Associates Technologies Israel, Ltd. ("EATI"), an
unconsolidated subsidiary held for sale, which is reflected in
the accompanying financial statements at $1,050,000, its
estimated net realizable value. The Company has signed a
preliminary letter of intent to sell its interest in EATI and
accordingly, such interest has been classified as an
unconsolidated subsidiary held for sale. Amounts in the year
1996 have been reclassified to conform to the 1997 presentation.
Certain of the convertible notes and debentures issued in
December 1995 and 1996 contained conversion features which
provided for 18 - 20% discounts from the market price of the
Company's Common Stock at the conversion date. This incremental
yield embedded in the conversion terms totaled $4,200,000 in
1996 and was charged to interest expense in the fourth quarter
of 1996. The results for the quarter and for the six months
ended June 29, 1996, have been restated to reflect the
amortization of the incremental yield applicable to the quarter
and for the six months ended June 29, 1996. As a result,
interest expense and net loss for the quarter ended June 29,
1996 increased by $2,005,000 and loss per common share increased
by $.68; interest expense and net loss for the six months ended
June 29, 1996 increased by $4,200,000 and loss per common share
increased by $1.51.
All references in the consolidated financial statements
referring to shares, share prices, per share amounts and stock
option plans have been adjusted to give
6
<PAGE>
retroactive effect to a one-for-four reverse stock split (the
"Reverse Stock Split") as of the close of business on December
27, 1996 (the "Record Date"). Each holder of record on the
Record Date was entitled to receive, as soon as practicable
thereafter, one (1) share of no par value Common Stock of the
Company for every four (4) shares of no par value Common Stock
held by such person on the Record Date.
The Company operates on a 52 week year, with each fiscal week
and quarter ending on Saturday, except for the fourth quarter
which ends on December 31.
Loss per share amounts have been computed based on the weighted
average number of common shares outstanding. Shares issuable
upon the exercise of stock options, warrants and convertible
notes and debentures have not been included in per share
computations, because their impact would have been antidilutive
in each period.
(2) Operations and Liquidity
During the fourth quarter of 1996 and the first six months of
1997, the Company borrowed $1,270,000 and $2,250,000,
respectively, from the then Chairman of its Board of Directors,
certain family trusts benefiting his family, and an unaffiliated
investor. These loans are represented by certain 10% Series A
Convertible Notes(the "Series A Notes").
The Series A Notes, in the aggregate of $3,520,000, will mature
on January 22, 1999 and are convertible at the option of the
holder (i) after January 1, 1998, into shares of Common Stock of
the Company at a conversion price of $3.50 per share, or (ii)
into shares of Common Stock of Tanon after completion of an
initial public offering of shares of Common Stock of Tanon at a
conversion price equal to the quotient of (a) twenty five
million dollars ($25 million), divided by (b) the number of
shares of Common Stock of Tanon that were issued and outstanding
at the close of business on the day immediately prior to the
effective date of the registration statement covering the shares
of Common Stock of Tanon offered in such initial public
offering, without giving effect to the number of shares of
Common Stock of Tanon being offered in such initial public
offering. The holders of the Series A Notes may require that
interest be paid in Common Stock of the Company at the
conversion price described above.
The Series A Notes bear interest at the rate of 10% per annum,
payable annually in arrears on January 15, 1998 and January 22,
1999. Repayment of the Series A Notes will be secured by a
second lien on the stock of Tanon held by the Company and on
substantially all the assets of Tanon. These notes are
subordinated to amounts owed by Tanon to Schroder and the
ability of Tanon to distribute or loan funds to the Company to
make interest payments on the Series A Notes is restricted
pursuant to the Schroder Loan Facility.
In addition, during January 1997, the Company borrowed
$1,000,000 from each of two unrelated parties, Ace Foundation,
Inc. ("Ace") and Millenco, LP ("Millenco"). These loans were
repaid in May 1997. In consideration for such loans, the Company
granted a warrant to purchase 50,000 shares of Common Stock of
the Company at an exercise price of $1.50 per share to each of
Ace Foundation, Inc. (the "Ace Warrant") and Millenco, LP (the
"Millenco Warrant"). Management
7
<PAGE>
charged the estimated value of these warrants, $175,000, to
expense in the first quarter of 1997.
The Company also sold convertible notes ( the "6% Notes") in the
aggregate amount of $4,500,000 in April 1997. These notes bear
interest at 6% per annum payable quarterly and have a maturity
date of April 30, 1999. The Company has granted piggyback
registration rights to the note holders. The notes originally
provided that if the shares underlying the convertible notes are
not covered by an effective registration statement and listed on
the NYSE within one hundred and twenty days, to pay a ten
percent penalty, and the holders may accelerate the entire
balance of the notes. In consideration of an extension until
December 1, 1997 of that deadline the Company has agreed to
modify the conversion price to a conversion price per share
equal to the lesser of (i) three dollars and thirty nine and one
half cents ($3.395) per share or (ii) seventy six and one half
percent (76.5%) of the volume weighted average price of the
Company's Common Stock as traded on the NYSE for the five days
preceding the date of notice to the Company that the holder
wishes to exercise its conversion right.
In April 1997, the Company borrowed $1,000,000 from an
unaffiliated investor. This loan is represented by certain 10%
Series B Convertible Notes (the "Series B Notes") issued by the
Company. The Series B Notes will mature on January 22, 1999 and
are convertible at the option of the holder (i) after January 1,
1998, into shares of Common Stock of the Company at a conversion
price of $2.50 per share, or (ii) into shares of Common Stock of
Tanon after completion of an initial public offering of shares
of Common Stock of Tanon at a conversion price equal to the
quotient of (a) twenty five million dollars ($25 million),
divided by (b) the number of shares of Common Stock of Tanon
that were issued and outstanding at the close of business on the
day immediately prior to the effective date of the registration
statement covering the shares of Common Stock of Tanon offered
in such initial public offering, without giving effect to the
number of shares of Common Stock of Tanon being offered in such
initial public offering. The Company has the option to make
interest payments to the holders of the Series B Notes in Common
Stock of the Company at the conversion price described above.
The Series B Notes bear interest at the rate of 10% per annum,
payable annually in arrears on January 15, 1998 and January 22,
1999. These notes are subordinated to amounts owed by Tanon to
Schroder and the ability of Tanon to distribute or loan funds to
the Company to make interest payments on the Series B Notes is
restricted pursuant to the Schroder Loan Facility.
The Company in April 1997, arranged for standby financing of up
to $4,500,000 to provide additional working capital. This
commitment was originally irrevocable until April 1, 1998 and
was to be reduced based on the proceeds the Company received
from the sale of its shares of common stock of Aydin and from
any additional equity or convertible debt financing. The Company
has issued warrants exercisable at $4.125 per share for 600,000
shares as of April 18, 1997 in consideration of this commitment
and an additional 200,000 shares as of June 10, 1997 also
exercisable at $4.125 per share. The estimated value of these
warrants, $815,000, was charged to expense in the second quarter
of 1997. The Commitment was terminated in June 1997.
8
<PAGE>
The Company's projections with respect to cash needs are based
on its forecasts of the results of operations at Tanon and
expenses of EAI. If results of operations at Tanon are
significantly below forecasts, or expenses at EAI are greater
than expected, this would raise doubts about the Company's
ability to continue its operations without raising additional
capital or a significant financial restructuring, which would
include a major reduction in general and administrative expenses
and liquidation of assets involving sale of all or part of
Tanon. There can be no assurance that such restructuring would
enable the Company to continue its operations or that the
Company would be successful in raising additional capital. The
financial statements do not reflect any adjustments that might
result from the restructuring and other measures being
unsuccessful. For further discussion see Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
The Company has incurred significant losses and had negative
cash flows from operations in each of the last six years and in
the six months ended June 28, 1997. The Company's financial
projections indicate that operating losses and negative cash
flows will continue into the second half of 1997. The Company
is, however, forecasting an increase in sales during the second
half of 1997 resulting from the Company's increase in its sales
force and sales efforts. Management believes such increase will
result in an improvement in cash flows from operations, and that
such increase, along with the net proceeds from the sale of the
Aydin Shares, and the funds from the convertible notes sold in
April 1997 will provide sufficient capital to meet its capital
needs during 1997.
(3) Investment in Aydin Corporation ("Aydin")
On May 6, 1996, the Company purchased 596,927 shares of the
common stock of Aydin (the "Aydin Shares"), a New York Stock
Exchange listed company (symbol, AYD), in a private purchase
from the then Chairman and Chief Executive officer of Aydin.
During May, 1997, the Company sold 500,000 of the Aydin Shares
at $10.75 per share for a total of $5,375,000 to a group of
investors introduced to the Company by the Chairman of Aydin.
The Company used some of the proceeds to pay off the two
promissory notes (described in Note 2) secured by the Aydin
Shares. In June, 1997 the remaining 96,927 Aydin Shares were
sold, also at $10.75 per share. The resulting gain of $820,000
is reflected in Other Expense, net.
The Company has also agreed to provide consulting services to
Aydin for three years in assisting Aydin in soliciting customers
internationally and exploring strategic joint ventures. In
exchange for those services, the Company has received a warrant
to purchase 200,000 shares of Aydin common stock, one-half at an
exercise price of $12.10 per share and one-half at an exercise
price of $13.20 per share. On June 28, 1997, the closing price
of the Common Stock of Aydin as reported by the New York Stock
Exchange was $12.25 per share. This warrant expires in May,
2000.
(4) Joint Venture with Israel Aircraft Industries, Ltd. ("IAI").
9
<PAGE>
The Company has determined that its joint venture with IAI (the
"Joint Venture") conducted through its partially owned
subsidiary EATI is not an essential element of its core strategy
and has signed a preliminary letter of intent to sell its
interest in the Joint Venture..
(5) Tri-Star Technologies Co., Inc.
On December 23, 1996, the Company signed letters of intent to
acquire Tri-Star Technologies Co., Inc. ("Tri-Star") and the
approximately 120,000 square foot building and real property
occupied by Tri-Star in Methuen, Massachusetts. In May, 1997,
the Company and Tri-Star jointly announced that they had decided
to terminate discussions concerning the possible acquisition of
Tri-Star by the Company. A non-refundable deposit of $1 million
paid in January 1997 by the Company to Tri-Star was written off
to Other Expense, net.
(6) Restructuring
During 1996, the Company decided to sell its interest in the
Joint venture with IAI, cease making advances to BarOn
Technologies, Ltd. (in which the Company owns a one-third
interest), discontinue the business combination discussions with
Aydin and decided to focus its resources on the business of
providing contract manufacturing services. As a result, the
Company determined in the second quarter of 1997 that it would
be necessary to restructure its senior management and Board of
Directors (see Item 5.). In addition, the Company has closed
its Philadelphia office and consolidated the activities
previously handled at such office, and the staff at such office,
with the offices of Tanon in West Long Branch, New Jersey.
The Company had recorded an aggregate provision of $600,000 in
1996 relating to certain of the above and has recorded an
additional provision of $1,260,000 in the second quarter of 1997
reflecting the estimated cost of hiring a new President and
Chief Executive Officer, recruiting new members of the Company's
Board of Directors, closing the Company's Philadelphia office
and the acceleration of the vesting of certain options for
former key executives and former members of the Board of
Directors.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
On January 4, 1995, the Company acquired Tanon, a privately-owned contract
electronic manufacturing firm with operations located in Fremont, California. In
May 1996, concurrent with, and as a condition to, closing a new loan facility
with IBJ Schroder Bank & Trust Company ("Schroder") ("Schroder Loan Facility"),
the Company consolidated all of its contract electronic manufacturing business
into Tanon, by assigning to Tanon all of the assets and liabilities related to
the contract electronic manufacturing business conducted directly by the
Company. As a result, the Company is now principally a holding company.
On January 16, 1995, the Company acquired an equity interest in BarOn, a
privately-owned Israeli corporation based in Haifa, Israel. BarOn is a
development stage company which has developed and was in the process of
commercializing an electronic computer input device that can directly digitize
handwriting in a variety of languages, from any surface. During the fourth
quarter of 1996 the Company determined that its investment and advances to BarOn
were unrecoverable and charged those amounts to expense.
On August 8, 1995, the Company, through a 52.3% owned subsidiary, EATI,
entered into a Joint Venture Agreement with IAI to review, develop and exploit
non-classified technological applications developed by IAI. The Company has
decided to sell or otherwise dispose of its interest in the Joint Venture and
the Company has signed a preliminary letter of intent to sell its interest in
the Joint Venture. The Joint Venture has been classified as an unconsolidated
subsidiary held for sale.
On May 6, 1996, the Company purchased 596,927 shares of the common stock of
Aydin, representing approximately 11.64% of the outstanding common shares of
Aydin. During May 1996, the Company initiated discussions with the Board of
Directors of Aydin concerning a possible merger or other combination with Aydin.
After due diligence and numerous discussions, the Company made an offer to merge
with Aydin, however, Aydin's Board of Directors rejected the Company's final
offer. The Company withdrew its offer on October 8, 1996 and terminated
discussions with Aydin. During the fourth quarter of 1996 the Company decided to
sell its investment in Aydin and wrote down the investment to its estimated net
realizable value of $5,605,000. In May and June 1997, the Company sold its
entire investment in Aydin for approximately $6,425,000.
On December 23, 1996, the Company's contract manufacturing subsidiary,
Tanon, signed a binding letter of intent to acquire Tri-Star and in January,
1997 placed an initial non-refundable deposit of $1.0 million toward the
purchase of Tri-Star. In May, 1997 the Company and Tri-Star mutually agreed to
terminate the acquisition discussions and the $1.0 million deposit was written
off to Other Expense, net.
As a result of the decisions to sell its interest in the Joint venture with
IAI, cease making advances to BarOn Technologies, Ltd. (in which the Company
owns a one-third interest), discontinue the business combination discussions
with Aydin and to refocus its resources on the business of providing contract
manufacturing services, the Company determined in the second quarter of 1997
that it would be necessary to restructure its senior management and Board of
Directors (see Item 5). In addition, the Company has closed its Philadelphia
office and consolidated the activities previously handled at such office, and
the staff at such office, with the offices of Tanon in West Long Branch, New
Jersey.
11
<PAGE>
Results of Operations
During the first six months of 1997, the Company's sales and cost of sales
decreased in total value but cost of sales increased as a percentage of sales.
Selling, general and administrative expenses increased both in total and as a
percentage of sales. The Company had a net loss of approximately $9,839,000 for
the first six months of 1997, which included non-recurring charges of $1,761,000
which represents the amortization of the fixed discount feature of convertible
notes issued in April, 1997, a charge of approximately $175,000 representing the
value of warrants granted in connection with the issuance of two promissory
notes in the principal amount of $1,000,000 each, a charge of $815,000
representing the value of warrants granted in April and June 1997 in connection
with the standby financing commitment of $4,500,000, a charge of $1,260,000 for
restructuring of senior management and the Board of Directors. and the charge of
approximately $1,020,000 for the write-off of the non-refundable deposit
concerning the acquisition discussions held with Tri-Star. This compared with a
net loss of approximately $7,500,000 for the same period in 1996, which included
a charge of approximately $4,200,000 which represents the amortization of the
fixed discount feature of convertible notes issued in December 1995.
The decrease in sales to $31,302,000 in the first six months of 1997 from
$46,413,000 during the same period in 1996 resulted primarily from a decrease in
the level of business conducted with the Company's three largest customers and,
to a lesser extent, the phase-out of five customers, partially offset by sales
to seven new customers. The Company chose to disengage from two of these
customers, while the other three either began their own manufacturing or
consolidated their manufacturing at another manufacturing company. Sales to the
three large customers were unusually high during the first half of 1996 and then
declined to less than normal levels during the second half of 1996. Sales volume
to the three large customers began to improve in the first half of 1997 and the
Company expects continued improvement in the second half of 1997. The Company
also expects an increase in sales to new customers in the second half of 1997.
Sales of $16,677,000 in the second quarter of 1997 decreased from $22,388,000
during the same period in 1996, however, they were higher by approximately
$2,100,000 than the quarter ended March 29, 1997 due to the factors discussed
above.
Cost of sales decreased to $31,211,000 in the first six months of 1997 from
$43,433,000 in the same period in 1996 and increased, as a percentage of revenue
to 99.7% in the first six months of 1997 compared with 93.6% in the same period
in 1996. The decline is primarily a result of the lower level of sales in the
first six months of 1997 as compared to the same period in 1996. A large
percentage of cost of sales consists of fixed costs and, as a result, cost of
sales as a percentage of revenue increases as revenue falls. Gross profit was
approximately $100,000 for the first six months of 1997, compared to
approximately $3,000,000 for the same period in 1996, reflecting the decline in
sales for the first six months of 1997, as well as a slight increase in fixed
overhead.
Selling, general and administrative expenses increased to approximately
$5,326,000 in the first six months of 1997 from approximately $4,565,000 in the
same period in 1996. The increase is primarily due to the charge for $1,260,000
for restructuring, partially offset by reductions in non-essential personnel at
Tanon. Selling, general and administrative expenses as a percentage of revenue
increased to 17.0% in 1997 from 9.8% in the same period in 1996 primarily as
result of the above and the decline in sales. Selling, general and
administrative expenses increased to approximately $3,425,000 in the second
quarter of 1997 from $2,345,000 in the second quarter of 1996 and increased, as
a percentage of revenue to
12
<PAGE>
20.5% in the second quarter of 1997, compared with 10.5% in the same quarter in
1996. The increase in quarterly selling, general and administrative expenses are
primarily the result of the factors discussed above.
Interest expense was $4,328,000 in the first six months of 1997 as compared
to $5,193,000 in the same period of 1996. The decline is primarily due to
charges of $4,200,000 for the first six months of 1996 representing the
amortization of the fixed discount feature of convertible notes issued in
December 1995 versus similar charges of $1,761,000 in the same period in 1997,
the latter relating to convertible notes issued in April 1997 and the charge of
$815,000 representing the estimated value of warrants issued in connection with
the April, 1997 standby financing arrangement. Interest expense relating to
revolving credit agreements, subordinated debt, and capitalized leases increased
from approximately $1,012,000 in the first six months of 1996 to approximately
$1,324,000 in the first six months of 1997 due to higher subordinated debt
borrowings, capital leases in 1996 and 1997 offset by a decline in revolving
credit borrowings. Interest expense for the second quarter of 1997 was
$3,478,000 as compared to $2,563,000 for the same period in 1996. The increase
is substantially due to an increase in interest expense relating to certain
credit arrangements.
Interest income decreased $171,000 in the first six months of 1997, as
compared to the same period, respectively, in 1996. This decline was primarily
the result of the Company's reduced level of cash for most of the first half of
1997.
Other expense decreased from approximately $920,000 in the first six months
of 1996 to an expense of approximately $301,000 in the first six months of 1997.
The decrease was primarily due to a gain realized on the sale of the Aydin
common stock of approximately $820,000 and various gains on the sale of fixed
assets plus miscellaneous refunds totaling $150,000, offset by the expense
relating to the write-off of the Tri-Star non-refundable deposit of
approximately $1,020,000. In addition, due to the Company's decision not to
provide additional funding to BarOn and to fully write off its investment in
BarOn, the Company did not record a loss from BarOn in the first six months of
1997 as compared to the approximately $425,000 in the same period in 1996. The
Company also recorded a charge of approximately $190,000 in the first six months
of 1996 reflecting the reduction in the market value of the Company's Common
Stock securing a note receivable. The decrease in Other Expense for the quarter
ended June 28, 1997 as compared to the quarter ended June 29, 1996 was primarily
due to the factors discussed above.
During 1996, the Company decided to sell its interest in the Joint venture
with IAI, cease making advances to BarOn (in which the Company owns a one-third
interest), discontinue the business combination discussions with Aydin and
decided to focus its resources on the business of providing contract
manufacturing services. As a result, the Company determined in the second
quarter of 1997 that it would be necessary to restructure its senior management
and Board of Directors (see Item 5, below). In addition, the Company has closed
its Philadelphia office and consolidated the activities previously handled at
such office, and the staff at such office, with the offices of Tanon in West
Long Branch, New Jersey.
The Company had recorded an aggregate provision of $600,000 in 1996
relating to certain of the above and has recorded an additional provision of
$1,260,000 in the second quarter of 1997 reflecting the estimated cost of hiring
a new President and Chief Executive Officer, recruiting new members of the
Company's Board of Directors, closing the Company's Philadelphia office and the
acceleration of the vesting of certain options for former key executives and
former members of the Board of Directors.
The Company's consolidated backlog at June 28, 1997 was $46,416,000, as
compared to $35,213,000 for the same period in 1996.
13
<PAGE>
The Company typically receives orders from its customers on a flexible
schedule to meet the sales/delivery schedule to the ultimate consumer. These
purchase orders specify delivery of product over periods ranging from as short
as 30 days or as long as a year and are adjusted as the sales by the Company's
customers to ultimate consumers change. The amount of inventory produced and
stored on behalf of customers also varies from time to time. Consequently, the
Company's backlog at the end a period is not necessarily indicative of future
shipments to those customers.
Liquidity and Capital Resources
Liquidity, as discussed below, is measured in reference to the consolidated
financial position of the Company at June 28, 1997, as compared to the
consolidated financial position of the Company at December 31, 1996. Net cash
used by operations of $8,773,000 in the first six months of 1997 increased by
$3,982,000 from cash used in operations of $4,791,000 in the same period in
1996. Net cash used by operations was primarily the result of the net loss for
the six months ended June 28, 1997 and a decrease in accounts payable, partially
offset by a decrease in accounts receivable.
Liquidity, as measured by cash and cash equivalents, increased to
$3,776,000 at June 28, 1997 from $461,000 at December 31, 1996. Liquidity as
measured by working capital, was a negative $5,002,000 at June 28, 1997 as
compared with a negative working capital of $9,166,000 at December 31, 1996. The
increase in working capital was primarily a result of the issuance of $7,250,000
of promissory notes and convertible notes, net of repayments, partially offset
by a reduction in the amount borrowed under the Schroder Loan Facility and the
net loss for the first six months of 1997. For the first six months of 1997,
revenue from contract manufacturing services decreased by $15,111,000 from
$46,413,000 in the same period in 1996. Accounts receivable decreased by
$2,095,000 in the first six months of 1997, primarily reflecting the decrease in
revenue from contract manufacturing services.
Cash flows from financing activities during the first six months of 1997
amounted to $7,879,000 resulting primarily from the issuance of the 10% Series A
Convertible Notes for $2,250,000, the issuance of the 10% Series B Convertible
Notes for $1,000,000, the collection of $700,000 on a note receivable from a
1996 exercise of Class A and Class B Warrants, and the issuance of the 6%
Convertible Notes for $4,500,000, partially offset by a reduction in the
Schroder Loan Facility of approximately $1,057,000.
Net cash in the amount of $4,209,000 was provided through investing
activities for the first six months of 1997. Funds in the amount of $6,425,000
were provided through the sale of 596,927 shares of Aydin common stock. Funds in
the amount of $2,025,000 were used to purchase a new Fuji high speed surface
mount line for the Company's New Jersey facility.
On May 3, 1996, Tanon replaced the Company's existing asset based credit
facility and the Tanon separate revolving line of credit with a new asset based
credit facility provided by Schroder to Tanon. Advances under the Schroder Loan
Facility can only be used to fund the Company's electronic contract
manufacturing operations which are now being conducted solely by Tanon. At June
28, 1997, $6,997,000 was outstanding under the Schroder Loan Facility which
represented approximately 80% of the calculated availability, calculated in
accordance with the availability formula of the Schroder Loan Facility. The
agreement with Schroder requires Tanon to maintain certain financial ratios,
including current assets to current liabilities and earnings to certain fixed
charges, and to maintain a minimum net worth. At June 28, 1997, Tanon was in
compliance with all of these requirements.
14
<PAGE>
The Company has incurred significant losses and had negative cash flows
from operations in each of the last six years and in the six months ended June
28, 1997. The Company raised approximately $10,000,000 in December, 1995 and
$9,370,000 and $9,960,000 during 1996 and January 1, 1997 through June 28, 1997,
respectively, from the exercise of stock options and warrants, borrowings
secured by the shares of Aydin owned by the Company and the sale of convertible
notes and debentures. Among such capital raising activities, in December 1995,
the Company completed the sale of 7% convertible notes of the Company in the
aggregate principal amount of $10,000,000 to GFL Advantage Fund Limited and GFL
Performance Fund Limited. As of this date $7,930,000 of such notes have been
converted into 810,661 shares of the Company's Common Stock in accordance with
their terms. In May and June, 1996, the Company raised an additional $8,100,000
from the sale of 9% convertible debentures which was used in part, in purchasing
approximately 11.64% of the outstanding shares of common stock of Aydin (see
Note 3 to Financial Statements in Part I of this Report). On August 19, 1996,
GFL Performance Fund Limited transferred and assigned its $2,070,000 outstanding
principal amount note of the Company to Irwin L. Gross, former Chairman of the
Company and certain related family trusts (the "Note Holders"). In connection
with such assignment, the Company canceled the prior note held by GFL Advantage
Fund and reissued certain 7% convertible subordinated notes of the Company in
the aggregate principal amount of $2,070,000 due December 29, 1997 to the Note
Holders. These convertible notes had a maturity date of December 29, 1997 and
were convertible into shares of the Company's Common Stock at the conversion
price per share of $2.67. On February 6, 1997, the Company amended these
convertible notes by (i) increasing the aggregate principal amount of such notes
to $2,725,000 (the purchase price paid by the Note Holders for the convertible
notes) and (ii) reducing the fixed conversion price of such notes to $1.50 per
share, in return for the Note Holders foregoing interest and making available
certain other loans to the Company.
The purchase of the Aydin common stock and advances to BarOn and EATI in
1996 resulted in the need to raise additional capital. In addition, the
Company's contract manufacturing operations conducted through Tanon required
additional working capital as a result of operating losses by Tanon and capital
expenditures by Tanon.
During the period beginning on October 25, 1996 and ending on April 10,
1997, the Company has borrowed a total of $3,520,000 from the Chairman of its
Board of Directors, certain related trusts and unaffiliated investors. These
loans are represented by certain 10% Series A Convertible Notes (the "Series A
Notes") issued by the Company. The Series A Notes will mature on January 22,
1999 and are convertible at the option of the holder (i) after January 1, 1998,
into shares of Common Stock of the Company at a conversion price of $3.50 per
share, or (ii) into shares of Common Stock of Tanon after completion of an
initial public offering of shares of Common Stock of Tanon at a conversion price
equal to the quotient of (a) twenty five million dollars ($25 million), divided
by (b) the number of shares of Common Stock of Tanon that were issued and
outstanding at the close of business on the day immediately prior to the
effective date of the registration statement covering the shares of Common Stock
of Tanon offered in such initial public offering, without giving effect to the
number of shares of Common Stock of Tanon being offered in such initial public
offering.
The Series A Notes bear interest at the rate of 10% per annum, payable
annually in arrears on January 15, 1998 and January 22, 1999. Repayment of the
Series A Notes will be secured by a second lien on the stock of Tanon held by
the Company and on substantially all the assets of Tanon. These notes are
subordinated to amounts owed by Tanon to Schroder and the ability of Tanon to
distribute or loan funds to the Company to make interest payments on the Series
A Notes is restricted pursuant to the Schroder Loan Facility.
In addition, during January 1997, the Company borrowed $1,000,000 from each
of two unrelated parties, Ace and Millenco. These loans were repaid in May 1997.
In consideration
15
<PAGE>
for such loans, the Company also granted a warrant to purchase 50,000 shares of
Common Stock of the Company at an exercise price of $1.50 per share to each of
Ace Foundation, Inc. (the "Ace Warrant") and Millenco, LP (the "Millenco
Warrant"). Management charged the estimated value of these warrants, $175,000,
to expense in the first quarter of 1997.
To pay the remaining unpaid cost incurred in connection with the terminated
merger discussions with Aydin, fund the future holding company expenses, provide
additional working capital to Tanon to fund (i) unpaid prior losses of Tanon,
(ii) projected Tanon losses for the first half of 1997 and (iii) costs
associated with projected growth in sales during the second half of 1997, the
Company sold convertible notes in the aggregate amount of $4,500,000 in April
1997. These notes bear interest at 6% per annum payable quarterly and have a
maturity date of April 30, 1999. The Company has granted piggyback registration
rights to the note holders. The notes originally provided that if the shares
underlying the convertible notes are not covered by an effective registration
statement and listed on the NYSE within one hundred and twenty days, to pay a
ten percent penalty, and the holders may accelerate the entire balance of the
notes. In consideration of an extension until December 1, 1997 of that deadline
the Company has agreed to modify the conversion price to a conversion price per
share equal to the lesser of (i) three dollars and thirty nine and one half
cents ($3.395) per share or (ii) seventy six and one half percent (76.5%) of the
volume weighted average price of the Company's Common Stock as traded on the
NYSE for the five days preceding the date of notice to the Company that the
holder wishes to exercise its conversion right.
The Company in April 1997, arranged for standby financing of up to
$4,500,000 to provide additional working capital. This commitment was originally
irrevocable until April 1, 1998 and was to be reduced based on the proceeds the
Company received from the sale of its shares of common stock of Aydin and from
any additional equity or convertible debt financing. The Company has issued
warrants exercisable at $4.125 per share for 600,000 shares as of April 18, 1997
in consideration of this commitment and an additional 200,000 shares as of June
10, 1997 also exercisable at $4.125 per share. The estimated value of these
warrants, $815,000, was charged to expense in the second quarter of 1997. The
Commitment was terminated in June 1997
During May 1997, the Company sold 500,000 shares of its Aydin shares at
$10.75 per share for a total of $5,375,000. to a group of investors introduced
to the Company by the Chairman of Aydin Corporation. The Company used some of
the proceeds to pay off the two promissory notes from Ace Foundation, Inc. and
Millenco, LP for $1,000,000. each. In June 1997, the remaining 96,927 shares of
Aydin were sold, also at $10.75 per share. The resulting gain of approximately
$820,000 is reflected in Other expense, net.
The Company's projections with respect to cash needs are based on its
forecasts of the results of operations at Tanon and expenses of EAI. If the
Company's results of operations at Tanon are significantly below forecasts, or
expenses at EAI are greater than expected, this would raise doubts about the
Company's ability to continue its operations without raising additional capital
or a significant financial restructuring, which would include a major reduction
in general and administrative expenses and liquidation of assets involving sale
of all or part of Tanon. There can be no assurance that such restructuring would
enable the Company to continue its operations or that the Company would be
successful in raising additional capital. The financial statements do not
reflect any adjustments that might result from the restructuring and other
measures being unsuccessful.
The Company has incurred significant losses and had negative cash flows
from operations in each of the last six years and in the six months ended June
28, 1997. The Company's financial projections indicate that operating losses and
negative cash flows will continue into the second half of 1997. The Company is,
however, forecasting an increase in sales
16
<PAGE>
during the second half of 1997 resulting from the Company's increase in its
sales force and sales efforts. Management believes such increase will result in
an improvement in cash flows from operations, and that such increase, along with
the net proceeds from the sale of the Aydin Shares, and the funds from the
convertible notes sold in April 1997 will provide sufficient capital to meet its
capital needs during 1997.
At June 28, 1997, the Company had accounts payable of $10,393,000 of which
approximately $874,000 had been outstanding for over 90 days. This compares with
$14,702,000 of accounts payable at December 31, 1996, of which approximately
$2,281,000 had been outstanding for over 90 days.
Except for historical matters contained in this Report, statements made in
this Report are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that these forward-looking statements reflect numerous assumptions
and involve risks and uncertainties which may affect the Company's business and
prospects and cause actual results to differ materially from these
forward-looking statements, including loss of current customers, reductions in
orders from current customers, or delays in ordering by current customers,
failure to obtain anticipated contracts or orders from new customers, or
expected order volume from such customers, failure to obtain financing, higher
material or labor costs, unfavorable results in litigation against the Company,
economic, competitive, technological, governmental, and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
Although the Company does not believe its business is affected by seasonal
factors, the Company's sales and net income may vary from quarter to quarter,
depending primarily upon the timing of manufacturing orders and related
shipments to customers. The operating results for any particular quarter may not
be indicative of results for any future quarter.
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" which is effective for fiscal 1997. This statement
establishes accounting standards for computing and presenting earnings per
shares (EPS). It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic EPS and diluted EPS for
companies with complex capital structures. The Company's reported loss per share
is equivalent to basic loss per share under the new standard. The Company is not
required to present diluted per share amounts because it has incurred a net
loss.
17
<PAGE>
PART II -OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Lemco Associates. In October, 1992, Lemco Associates L.P., a limited partnership
("Lemco"), the owner of property previously owned by EAI, initiated an action
against EAI and others alleging, among other things, that the defendants created
environmental contamination at the property and is seeking damages in
unspecified amounts. EAI has denied Lemco's allegations, asserted numerous
defenses to the claims asserted and asserted a counterclaim against Lemco and
cross claims against co-defendants and others for indemnification and
contribution. In addition, the Company has made a demand upon its insurance
carriers for coverage for the claims made by Lemco and cross claims and third
party claims may be filed against these insurance companies seeking
indemnification against these claims. To date, the Company's insurance carriers
have agreed to pay 71% of its defense costs under a reservation of rights.
Discovery in this matter is ongoing. By letter dated January 22, 1997, Lemco
provided the Company with a statement of its remediation costs to date, as well
as an estimate of future remediation costs associated with the contamination for
which it seeks recovery in this action. Specifically, Lemco claims that it has
expended approximately $609,000 in remediation costs, including fees for legal
oversight and consultation. It further estimates that its future remediation
costs will amount to approximately $5,000,000. Such amount is included in a
report made by Lemco's environmental consultants based on their current
assessment of the extent of contamination and the method and period required to
complete the remediation, as well as anticipated New Jersey Department of
Environmental Protection and Energy ("DEPE") oversight costs and fees for legal
oversight and consultation. Further, by letter dated June 7, 1995, Lemco
provided the Company with an appraisal report made by a real estate appraisal
company engaged by Lemco in support of Lemco's claim for diminution in the value
of the property. Such report states that it is the appraisal company's opinion
that the market value of the property as of May 23, 1988 was $3.6 million and as
of April 14, 1995 was $750,000. Lemco's appraisal expert subsequently determined
in October 1995 that the value of the property as of April 14, 1995 was
$960,000. Lemco purchased the property in question in 1979 for approximately
$400,000. Lemco's environmental consultants have recently issued a new report
indicating that, based upon further hydrogeologic data, the contamination
occurred before 1979. The Company's experts have estimated that, based upon
hydrogeologic data gathered to date by Lemco's experts, the major source of
continuing contamination of groundwater was released into the water table about
late 1984 or, using more conservative extrapolations, about mid-1979. Based on
the foregoing, management believes that the range of possible loss in this
matter ranges from zero to approximately $8.24 million, not including costs and
expenses, such as legal and expert fees, which will be incurred in connection
with this matter, and not taking into account the amount of any loss which may
be offset by insurance coverage as discussed above. The Company and its
consultants recently completed the investigation and evaluation of additional
information received from Lemco and have determined that Lemco's remediation
cost estimates are overstated. The Company's experts have estimated the cost of
remediation as between $1.5 million and $2.5 million. There is no assurance that
the outcome of this matter will come within the above-mentioned range of
possible loss.
The Company is vigorously defending this matter. On May 3, 1996, the
Superior Court of New Jersey referred this case to mediation in an effort to
explore opportunities for settlement. Mediation proceedings commenced and
continued through March 1997 and the case is currently scheduled for trial
beginning on October 6, 1997.
18
<PAGE>
ITEM 5. OTHER INFORMATION
In May 1997 the Company restructured its senior management and Board of
Directors. The Company engaged Frank G. Brandenberg as President and Chief
Executive Officer replacing Irwin L. Gross in those positions. In June 1997,
Jules M. Seshens, Executive Vice President and Paul E. Finer, Vice President and
President of Tanon resigned from their respective positions as executive
officers of the Company. In July 1997, the then current members of the Board of
Directors resigned and were replaced by outside, independent directors. The
Company is currently seeking an additional outside director and has also been in
discussions with a potential candidate to serve as a non-employee Chairman of
the Board. The directors selected will stand for election at the 1997 Annual
Shareholders' Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27, Financial Data Schedule
(b) The registrant filed the following Form 8-K during the
quarter for which this report is filed:
NONE
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.
EA INDUSTRIES, INC.
(Registrant)
Date: August 12, 1997 By: /s/ Stanley O. Jester
---------------------
Stanley O. Jester,
Treasurer and Vice President - Finance
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<CASH> 3,776
<SECURITIES> 0
<RECEIVABLES> 10,105
<ALLOWANCES> (989)
<INVENTORY> 11,000
<CURRENT-ASSETS> 24,547
<PP&E> 19,995
<DEPRECIATION> (8,398)
<TOTAL-ASSETS> 48,022
<CURRENT-LIABILITIES> 29,549
<BONDS> 8,836
<COMMON> 88,200
0
0
<OTHER-SE> (83,084)
<TOTAL-LIABILITY-AND-EQUITY> 48,022
<SALES> 31,302
<TOTAL-REVENUES> 31,302
<CGS> 31,211
<TOTAL-COSTS> 37,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,328
<INCOME-PRETAX> (9,839)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,839)
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<NET-INCOME> (9,839)
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