<PAGE> 1
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 period ended August 17, 1997
-----------------------------------------------
Commission file number 0-3833
---------------------------------------------
Morgan's Foods, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0562210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
24200 Chagrin Boulevard, Suite 126, Beachwood, Ohio 44122
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 360-7500
-------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ...X... No .......
As of September 29, 1997, the issuer had 2,930,841 shares of common stock
outstanding.
1
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Morgan's Foods, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
August 17, 1997 August 18, 1996
--------------- ---------------
<S> <C> <C>
REVENUES ................................ $ 9,714,000 $ 9,554,000
COST OF SALES:
FOOD, PAPER AND BEVERAGE ............... 3,093,000 3,056,000
LABOR AND BENEFITS ..................... 2,551,000 2,486,000
RESTAURANT OPERATING EXPENSES ........... 2,643,000 2,562,000
DEPRECIATION AND AMORTIZATION ........... 433,000 451,000
GENERAL AND ADMINISTRATIVE EXPENSES ..... 561,000 622,000
----------- -----------
OPERATING INCOME ........................ 433,000 377,000
INTEREST EXPENSE:
BANK DEBT AND NOTES PAYABLE ............ (212,000) (144,000)
CAPITAL LEASES ......................... (126,000) (129,000)
LOSS ON DISPOSAL OF RESTAURANT (NOTE 3) . - (95,000)
OTHER INCOME ............................ 15,000 20,000
----------- -----------
NET INCOME .............................. $ 110,000 $ 29,000
=========== ===========
NET INCOME PER COMMON SHARE ............. $ .04 $ .01
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .................. 2,939,044 2,969,405
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Morgan's Foods, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
Twenty-Four Weeks Ended
---------------------------------
August 17, 1997 August 18, 1996
--------------- ---------------
<TABLE>
<CAPTION>
<S> <C> <C>
REVENUES ................................ $18,610,000 $18,559,000
COST OF SALES:
FOOD, PAPER AND BEVERAGE ............... 5,861,000 5,874,000
LABOR AND BENEFITS ..................... 4,925,000 4,809,000
RESTAURANT OPERATING EXPENSES ........... 5,101,000 5,258,000
DEPRECIATION AND AMORTIZATION ........... 852,000 904,000
GENERAL AND ADMINISTRATIVE EXPENSES ..... 1,222,000 1,259,000
----------- -----------
OPERATING INCOME ........................ 649,000 455,000
INTEREST EXPENSE:
BANK DEBT AND NOTES PAYABLE ............ (403,000) (277,000)
CAPITAL LEASES ......................... (251,000) (258,000)
LOSS ON DISPOSAL OF RESTAURANT (NOTE 3) . - (95,000)
OTHER INCOME ............................ 31,000 52,000
----------- -----------
NET INCOME (LOSS) ....................... $ 26,000 $ (123,000)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE ...... $ .01 $ (.04)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .................. 2,944,182 2,969,405
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
MORGAN'S FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 17, 1997 MARCH 2, 1997
--------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND EQUIVALENTS ................................. $ 3,017,000 $ 3,013,000
MARKETABLE SECURITIES ................................ 151,000 198,000
RECEIVABLES .......................................... 101,000 112,000
INVENTORIES .......................................... 328,000 293,000
PREPAID EXPENSES ..................................... 85,000 191,000
----------- -----------
3,682,000 3,807,000
PROPERTY AND EQUIPMENT:
LAND ................................................. 1,949,000 1,724,000
BUILDINGS AND IMPROVEMENTS ........................... 6,492,000 5,973,000
PROPERTY UNDER CAPITAL LEASES ........................ 5,629,000 5,182,000
LEASEHOLD IMPROVEMENTS ............................... 3,259,000 3,323,000
EQUIPMENT, FURNITURE AND FIXTURES .................... 8,632,000 8,121,000
CONSTRUCTION IN PROGRESS ............................. 828,000 461,000
----------- -----------
26,789,000 24,784,000
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION ....... 11,531,000 10,875,000
----------- -----------
15,258,000 13,909,000
OTHER ASSETS .......................................... 1,449,000 996,000
DEFERRED TAXES ........................................ 600,000 600,000
----------- -----------
$20,989,000 $19,312,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT ................. $ 551,000 $ 324,000
CURRENT MATURITIES OF CAPITAL LEASE OBLIGATIONS ...... 399,000 409,000
ACCOUNTS PAYABLE ..................................... 1,921,000 1,914,000
ACCRUED LIABILITIES .................................. 2,092,000 2,044,000
----------- -----------
4,963,000 4,691,000
LONG-TERM DEBT ........................................ 8,111,000 6,474,000
LONG-TERM CAPITAL LEASE OBLIGATIONS ................... 4,660,000 4,847,000
SHAREHOLDERS' EQUITY
PREFERRED SHARES, 1,000,000 SHARES AUTHORIZED,
NO SHARES OUTSTANDING
COMMON STOCK
AUTHORIZED SHARES - 25,000,000
ISSUED SHARES - 2,969,405 ............................. 30,000 30,000
TREASURY STOCK - 38,564 AND 8,333 SHARES .............. (94,000) (23,000)
CAPITAL IN EXCESS OF STATED VALUE ...................... 28,875,000 28,875,000
ACCUMULATED DEFICIT .................................... (25,556,000) (25,582,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ............................. 3,255,000 3,300,000
----------- -----------
$20,989,000 $19,312,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
Morgan's Foods, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON SHARES TREASURY SHARES EXCESS OF ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT STATED VALUE DEFICIT EQUITY
------ ------ ------ ------ ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 3, 1996 .............. 2,969,405 $ 2,969,000 -- -- $ 25,936,000 $(21,527,000) $ 7,378,000
Change in stated value .............. -- (2,939,000) -- -- 2,939,000 -- --
Net loss ............................ -- -- -- -- -- (4,055,000) (4,055,000)
Purchase of treasury shares ......... -- -- (8,333) (23,000) -- -- (23,000)
----------- ----------- ------- -------- ------------ ------------ ------------
Balance, March 2, 1997 .............. 2,969,405 30,000 (8,333) $ (23,000) 28,875,000 (25,582,000) 3,300,000
Net income .......................... -- -- -- -- -- 26,000 26,000
Purchase of treasury shares ......... -- -- (30,231) (71,000) -- -- (71,000)
----------- ----------- ------- -------- ------------ ------------ ------------
Balance, August 17, 1997 ............ 2,969,405 $ 30,000 (38,564) $ (94,000) $ 28,875,000 $(25,556,000) $ 3,255,000
=========== =========== ======= ======== ============ ============ ============
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
Morgan's Foods, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Twenty-Four Weeks Ended
-------------------------------------
August 17, 1997 August 18, 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) .............................. $ 26,000 $ (123,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION ................. 852,000 904,000
LOSS ON DISPOSAL OF RESTAURANT ................ -- 95,000
CHANGE IN ASSETS AND LIABILITIES:
DECREASE IN RECEIVABLES ..................... 11,000 16,000
INCREASE IN INVENTORIES ..................... (35,000) (23,000)
DECREASE IN PREPAID EXPENSES ................ 106,000 99,000
INCREASE IN OTHER ASSETS .................... (30,000) (116,000)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE ..... 7,000 (93,000)
INCREASE IN ACCRUED EXPENSES ................ 48,000 183,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..... 985,000 942,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES ........................... (2,193,000) (987,000)
SALE OF PROPERTY AND EQUIPMENT ................. 12,000 21,000
PURCHASE OF FRANCHISE AGREEMENTS ............... (443,000) --
PROCEEDS FROM SALE AND MATURITY
OF MARKETABLE SECURITIES ...................... 47,000 43,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES .......... (2,577,000) (923,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM FINANCING FOR PROPERTY AND
EQUIPMENT AND FRANCHISE AGREEMENTS ............ 2,069,000 925,000
PRINCIPAL PAYMENTS ON LONG-TERM DEBT ........... (205,000) (110,000)
PRINCIPAL PAYMENTS ON CAPITAL LEASE OBLIGATIONS. (197,000) (166,000)
PURCHASE OF TREASURY SHARES .................... (71,000) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...... 1,596,000 649,000
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS .............. 4,000 668,000
CASH AND EQUIVALENTS, BEGINNING BALANCE ......... 3,013,000 2,666,000
----------- -----------
CASH AND EQUIVALENTS, ENDING BALANCE ............ $ 3,017,000 $ 3,334,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
Morgan's Foods, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED AUGUST 17, 1997 AND AUGUST 18, 1996
Note 1. Summary of Significant Accounting Policies
The interim consolidated financial statements of Morgan's Foods, Inc.
have been prepared without audit. In the opinion of Company Management, all
adjustments have been included. Unless otherwise disclosed, all adjustments
consist only of normal recurring adjustments necessary for a fair statement of
results of operations for the interim periods. These unaudited financial
statements have been prepared using the same accounting principles that were
used in preparation of the Company's annual report on Form 10-K for the year
ended March 2, 1997.
Note 2. Reverse Stock Split
On June 27, 1997, shareholders approved a one for six reverse stock
split of the Company's common shares which was effective on July 14, 1997. All
share and per share data have been restated to reflect the one for six reverse
stock split.
Note 3. Closing of Restaurants
During the quarter ended August 18, 1996, the Company closed two
unprofitable KFC restaurants in the St. Louis market. One of the restaurants was
at the end of the lease term and was closed. The second restaurant was closed
and the Company recognized a loss of $95,000 on the sale of the leasehold
interest to an independent restaurant operator for $21,000.
Note 4. Future Financial Statement Disclosures
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information, which will be effective for the Company's
1999 fiscal year. SFAS No. 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company has not yet completed its analysis of
SFAS No. 131 and accordingly has not yet determined what effect, if any, it may
have on future financial statement disclosures.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
DESCRIPTION OF BUSINESS. Morgan's Foods, Inc. ("the Company") operates
through wholly-owned subsidiaries Kentucky Fried Chicken ("KFC") restaurants
under franchises from KFC Corporation and has rights to operate, as a
franchisee, East Side Mario's restaurants in the Cleveland/Akron and Columbus,
Ohio areas. As of September 29, 1997, the Company operates 39 KFC restaurants,
three of which also offer Taco Bell products, and six East Side Mario's
restaurants. The Company's fiscal year is a 52 - 53 week year ending on the
Sunday nearest the last day of February.
REVENUES. Revenues for the quarter ended August 17, 1997 were
$9,714,000 compared to $9,554,000 for the quarter ended August 18, 1996. The
increase of $160,000 was the result of a $454,000 increase in KFC revenues
offset by a $294,000 decline in revenues from the East Side Mario's
restaurants. Comparable restaurant revenues in the KFC restaurants were flat,
with the increase resulting from the addition of two restaurants by acquisition
in December 1996 and one new build which opened June 5, 1997. The East Side
Mario's restaurants had a 12.0% comparable restaurant decline for the quarter.
The East Side Mario's restaurant revenues continued to decline due to the lack
of franchisor marketing support in the face of intense competition from other
restaurants and inadequate menu and food systems provided by the franchisor.
Revenues for the twenty-four weeks ended August 17, 1997 were $18,610,000
compared to $18,559,000 for the prior year period. The increase of $51,000 was
accounted for by an increase of $529,000 in KFC revenue partially offset by a
decrease of $478,000 in East Side Mario's revenue. The reasons for these changes
are the same as discussed above in the quarter analysis.
COSTS OF SALES - FOOD, PAPER AND BEVERAGES. Food, paper and beverage
costs for the fiscal 1998 second quarter decreased as a percentage of revenue
from 32.0% in fiscal 1997 to 31.8%. The decrease was entirely the result of
improvements in the food and paper costs of the KFC restaurants. Food, paper and
beverage costs in the East Side Mario's restaurants remained constant as a
percentage of sales despite declining revenue. Food, paper and beverage costs
for the twenty-four weeks ended August 17, 1997 decreased to 31.5% of revenue
compared to 31.7% in the year earlier period for the reasons discussed above.
COST OF SALES - LABOR AND BENEFITS. Labor and benefits increased as a
percentage of revenue for the quarter ended August 17, 1997 to 26.3% compared to
26.0% for the year earlier quarter. The increase is primarily due to the minimum
wage increase and temporary inefficiencies associated with the KFC and Taco Bell
additions described below. Labor and benefits increased as a percentage of
revenue for the twenty-four weeks ended August 17, 1997 to 26.5% from 25.9% in
the year earlier period for the reasons mentioned above.
RESTAURANT OPERATING EXPENSES. Restaurant operating expenses in the
second quarter increased slightly as a percentage of revenue from 26.8% in
fiscal 1997 to 27.2% in fiscal 1998. The increase was primarily caused by higher
promotional activities in both the East Side Mario's and KFC restaurants and the
fixed costs of the East Side Mario's restaurants remaining relatively constant
while revenues have declined. Restaurant operating expenses for the twenty-four
weeks ended August 17, 1997 decreased to 27.4% of revenue from 28.3% in the year
earlier period. The change was caused by lower promotional activity in the first
quarter of fiscal 1998, partially offset by the higher fixed costs and
promotional activity in the second quarter compared to the year earlier periods.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
fiscal 1998 second quarter declined to $433,000 from $451,000 in fiscal 1997 due
to asset write-downs recorded in the fourth quarter of fiscal 1997 for certain
East Side Mario's restaurant properties and for the goodwill remaining from a
previous KFC acquisition. This effect was partially offset by accelerated
amortization of leasehold improvements at KFC restaurants which were remodeled
and the addition of property and equipment for the KFC restaurants. Depreciation
and amortization for the twenty-four weeks ended August 17, 1997 decreased to
$852,000 from $904,000 for the year earlier period for the reasons discussed
above.
8
<PAGE> 9
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for fiscal 1998 were $561,000 compared to $622,000 in the second
quarter of fiscal 1997. The decrease was primarily the result of a decrease of a
previously recorded accrual for workers' compensation litigation expenses due to
settlement of the litigation in the second quarter of fiscal 1998. General and
administrative expenses for the twenty-four weeks ended August 17, 1997
decreased to $1,222,000 from $1,259,000 for the year earlier period for the
reasons discussed above.
OPERATING INCOME. Operating income in the current quarter increased to
$433,000 from $377,000 for the second quarter of fiscal 1997. Operating income
for the KFC restaurants in the second quarter of fiscal 1998 decreased slightly
compared to the prior year quarter primarily due to accelerated amortization of
leasehold improvements at remodeled restaurants. The operating loss for the East
Side Mario's restaurants decreased by $67,000 primarily due to the reversal of
the workers' compensation litigation accrual described above. Operating income
for the twenty-four weeks ended August 17, 1997 increased to $649,000 from
$455,000 in the year earlier period due to an improvement of $44,000 in KFC
operating income and a $150,000 reduction of the East Side Mario's operating
loss, which includes the litigation adjustment discussed above.
INTEREST EXPENSE. Interest expense on bank debt increased to $212,000
in fiscal 1998 from $144,000 in fiscal 1997 due to the increase in bank debt
balances for the purpose of funding KFC restaurant remodeling and acquisition.
Interest expense for the twenty-four weeks ended August 17, 1997 increased to
$403,000 from $277,000 for the reasons discussed above. Interest expense on
capitalized leases was substantially unchanged from the prior year second
quarter and for the twenty-four weeks.
OTHER INCOME. Other income decreased to $15,000 in the second quarter
of fiscal 1998 from $20,000 in the fiscal 1997 second quarter as the result of
lower interest income earned on cash balances during fiscal 1998. Other income
for the twenty-four weeks ended August 17, 1997 decreased to $31,000 from
$52,000 for the year earlier period for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES. Cash flow activity for the first
twenty-four weeks of fiscal 1998 and fiscal 1997 is presented in the
Consolidated Statements of Cash Flows. Cash provided by operating activities was
$985,000 in the first half of fiscal 1998. The Company paid scheduled long-term
bank and capitalized lease debt of $402,000 in the first two quarters of fiscal
1998 and received financing of $2,069,000 to fund acquisitions of KFC property
and equipment and new franchise agreements for all of its KFC restaurants.
Capital expenditures during fiscal 1998 include: a new KFC restaurant built in
Greensburg, Pennsylvania, purchase of a previously leased KFC restaurant in St.
Louis, Missouri, and refurbishment of seven KFC restaurants, including adding
three Taco Bell 2-in-1 facilities. The financing for one refurbishment will be
completed during the third fiscal quarter.
The KFC operations of the Company have historically provided sufficient
cash flow to service the Company's debt, refurbish and upgrade KFC restaurant
properties and cover administrative overhead. Management believes that operating
cash flow will provide sufficient capital to continue to operate and maintain
the KFC and East Side Mario's restaurants, service the Company's debt and
support required corporate expenses. In addition to the Company's operating cash
flow, management believes that additional financing, including long term leases
of build-to-suit restaurants and development lines of credit can be obtained for
use in the acquisition of new KFC properties and refurbishment of existing ones.
OTHER. The Company is currently not in full compliance with the
American Stock Exchange financial condition guidelines for continued listing.
Specifically, the guidelines indicate that any company with shareholders' equity
less than $4,000,000 and losses in 3 of its last 4 fiscal years may be
considered for delisting. This condition has been reviewed with representatives
of the American Stock Exchange who indicated that the Company's performance will
continue to be monitored by the Exchange.
Item 6. Exhibits
(a) Exhibit 27 - Financial Data Schedule
9
<PAGE> 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on June 27,
1997 and voting was conducted on two proposals:
Proposal One - The election of seven Directors. The following seven Directors
were elected:
<TABLE>
<CAPTION>
NAME FOR WITHHOLD ABSTAIN
- ---- --- -------- -------
<S> <C> <C> <C>
Leonard Stein-Sapir 15,045,388 191,164 3,230
Richard Arons 15,046,303 190,249 3,230
Lawrence S. Dolin 15,045,388 191,164 3,230
James J. Liguori 15,046,238 190,314 3,230
Steven S. Kaufman 15,046,403 190,149 3,230
Bernard Lerner 15,046,303 190,249 3,230
Kenneth L. Hignett 15,046,403 190,149 3,230
</TABLE>
Proposal Two - To effect a one-for-six reverse stock split with fractional
shares to be settled in cash. The vote totals were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<C> <C> <C>
14,806,896 274,536 158,350
</TABLE>
10
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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.
<TABLE>
<CAPTION>
<S> <C>
Morgan's Foods, Inc.
--------------------
(Registrant)
Dated: October 1, 1997 By: /s/ Kenneth L. Hignett
--------------- ------------------------
Kenneth L. Hignett
Senior Vice President,
Chief Financial Officer & Secretary
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-01-1998
<PERIOD-START> MAY-27-1996
<PERIOD-END> AUG-17-1997
<CASH> 3,017,000
<SECURITIES> 151,000
<RECEIVABLES> 101,000
<ALLOWANCES> 0
<INVENTORY> 328,000
<CURRENT-ASSETS> 3,682,000
<PP&E> 26,789,000
<DEPRECIATION> 11,531,000
<TOTAL-ASSETS> 20,989,000
<CURRENT-LIABILITIES> 4,963,000
<BONDS> 8,111,000
<COMMON> 30,000
0
0
<OTHER-SE> 3,225,000
<TOTAL-LIABILITY-AND-EQUITY> 20,989,000
<SALES> 9,714,000
<TOTAL-REVENUES> 9,714,000
<CGS> 5,644,000
<TOTAL-COSTS> 9,821,000
<OTHER-EXPENSES> 15,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338,000
<INCOME-PRETAX> 110,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 110,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
