SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 27, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9348
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QMS, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0737870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE MAGNUM PASS, MOBILE, AL 36618
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(Address of principal executive offices) (Zip Code)
(334) 633-4300
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of the issuer's common stock, as of the latest practicable date
10,697,065 AT JANUARY 24, 1997.
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QMS, INC. AND SUBSIDIARIES
==========================
INDEX
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of December 27, 1996 and
September 27, 1996 3 - 4
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended
December 27, 1996 and December 29, 1995 5
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended
December 27, 1996 and December 29, 1995 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 10
PART II - OTHER INFORMATION 11 - 12
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
(b) Reports on Form 8 - K
SIGNATURES 13
</TABLE>
QMS, INC. AND SUBSIDIARIES
==========================
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of December 27, 1996 and September 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, September 27,
in thousands 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 57 $ 190
Trade Receivables (less allowance for doubtful
accounts of $361 at December 1996 and $383
at September 1996) 23,137 24,145
Notes Receivable 2,667 2,667
Inventories, Net (Note 3) 28,771 28,366
Other Current Assets 3,150 2,908
------------- -------------
Total Current Assets 57,782 58,276
PROPERTY, PLANT, AND EQUIPMENT 62,679 62,534
Less Accumulated Depreciation 43,235 42,252
------------- -------------
Total Property, Plant, and Equipment, Net 19,444 20,282
NOTES RECEIVABLE, Net 2,100 2,267
OTHER ASSETS, Net (Note 4) 11,724 10,893
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TOTAL ASSETS $ 91,050 $ 91,718
============= =============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED BALANCE SHEETS
as of December 27, 1996 and September 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, September 27,
in thousands 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 10,442 $ 7,463
Revolving Credit Loan and Short-Term Debt (Note 5) 12,297 14,432
Other Current Liabilities (Note 6) 16,981 18,646
------------- -------------
Total Current Liabilities 39,720 40,541
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 506 531
OTHER LIABILITIES 3,236 3,214
STOCKHOLDERS' EQUITY 47,588 47,432
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 91,050 $ 91,718
============= =============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 27, 1996 and December 29, 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 27, December 29,
in thousands, except per share amounts 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES
Printers and Supplies $ 23,115 $ 29,447
U.S. Service 8,353 7,898
---------------- ---------------
Total Net Sales 31,468 37,345
COST OF GOODS SOLD
Printers and Supplies 16,851 20,292
U.S. Service 4,896 4,636
---------------- ---------------
Total Cost of Goods Sold 21,747 24,928
---------------- ---------------
GROSS PROFIT
Printers and Supplies 6,264 9,155
U.S. Service 3,457 3,262
---------------- ---------------
Total Gross Profit 9,721 12,417
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SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 9,273 10,973
OPERATING INCOME 448 1,444
---------------- ---------------
OTHER INCOME (EXPENSE)
Interest Income 100 79
Interest Expense (325) (574)
Miscellaneous Expense (155) (330)
----------------- ----------------
Total Other Expense (380) (825)
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INCOME BEFORE INCOME TAXES 68 619
INCOME TAX PROVISION 6 0
---------------- ---------------
NET INCOME $ 62 $ 619
================ ===============
EARNINGS PER COMMON SHARE (Note 2)
Primary & Fully Diluted $ 0.01 $ 0.06
SHARES USED IN PER SHARE COMPUTATION (Note 2)
Primary 10,757 10,677
Fully Diluted 10,758 10,679
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 27, 1996 and December 29, 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 27, December 29,
in thousands 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 62 $ 619
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation of Property, Plant and Equipment 1,282 1,424
Amortization of Capitalized and Deferred Software 1,476 1,082
Provision for Losses on Inventory 618 609
Other (5) 20
Net Change in Assets and Liabilities that provided cash 879 9,892
-------------- --------------
Net Cash Provided by Operating Activities 4,312 13,646
Cash Flows from Investing Activities:
Additions to Notes Receivable 0 (7,500)
Collections of Notes Receivable 167 0
Purchase of Property, Plant and Equipment (492) (294)
Additions to Capitalized and Deferred Software Costs (2,094) (1,535)
Proceeds from Divestiture of Businesses 0 7,668
Other 39 (252)
-------------- ---------------
Net Cash Used in Investing Activities (2,380) (1,913)
Cash Flows from Financing Activities:
Proceeds from Debt and Capital Lease Obligations 185 12,727
Payments of Debt and Capital Lease Obligations (2,345) (23,611)
Payments of Bank Loans 0 (7,764)
Other 79 156
-------------- --------------
Net Cash Used in Financing Activities (2,081) (18,492)
Effect of Exchange Rate Changes on Cash 16 (118)
-------------- ---------------
Net Change in Cash and Cash Equivalents (133) (6,877)
Cash and Cash Equivalents at Beginning of Period 190 7,431
-------------- --------------
Cash and Cash Equivalents at End of Period $ 57 $ 554
============== ==============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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QMS, INC. AND SUBSIDIARIES
==========================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. MANAGEMENT OPINION
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary to present fairly the financial position of
the Company as of December 27, 1996, the results of operations for the three
months ended December 27, 1996 and December 29, 1995 and changes in cash
flows for the three months ended December 27, 1996 and December 29, 1995.
All adjustments included in the condensed consolidated financial statements
are of a normal recurring nature except amounts related to the restructuring
reserves (see Note 8). The results of operations for the three months ended
December 27, 1996 are not necessarily indicative of the results to be
expected for the fiscal year ending October 3, 1997.
2. PER COMMON SHARE COMPUTATIONS
Per share computations are based on the weighted average number of common
shares outstanding during the period and the dilutive effect of the assumed
exercise of stock options. This effect was not material for the three-month
periods ending December 27, 1996 and December 29, 1995 and did not change the
amounts of the primary and fully diluted earnings per common share.
3. INVENTORIES
Inventories at December 27, 1996 and September 27, 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 27, September 27,
1996 1996
---------------- ------------------
<S> <C> <C>
Raw materials $ 7,460 $ 6,164
Work in process 972 1,426
Finished goods 24,168 25,953
Inventory reserves (3,829) (5,177)
--------------- ----------------
TOTAL $ 28,771 $ 28,366
=============== ================
</TABLE>
4. OTHER ASSETS
Other assets at December 27, 1996 and September 27, 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 27, September 27,
1996 1996
---------------- -------------------
<S> <C> <C>
Capitalized and deferred software costs $ 10,146 $ 9,528
Other 1,578 1,365
--------------- ----------------
TOTAL $ 11,724 $ 10,893
=============== ================
</TABLE>
5. CLASSIFICATION OF REVOLVING CREDIT LOAN AND SENIOR SECURED NOTES PAYABLE
In compliance with FASB Emerging Issues Task Force Issue No. 95-22, "Balance
Sheet Classification of Borrowings Outstanding Under Revolving Credit
Arrangements That Include a Subjective Acceleration Clause and a Lock-Box
Arrangement," the Company's revolving credit loan is classified as short-
term debt in the financial statements. This revolving credit agreement
expires in November 1999. The Company was in full compliance with all the
covenants of this agreement as of December 27, 1996.
6. OTHER CURRENT LIABILITIES
Other current liabilities at December 27, 1996 and September 27, 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 27, September 27,
1996 1996
---------------- -------------------
<S> <C> <C>
Employment costs $ 2,876 $ 3,714
Deferred service revenue 10,212 10,362
Accrued expenses 1,190 1,075
Restructuring reserves 406 466
Other 2,297 3,029
--------------- ----------------
TOTAL $ 16,981 $ 18,646
=============== ================
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
As of December 27, 1996, the Company had a commitment of approximately $13.1
million to purchase print engines under purchase contracts.
The Company was contingently liable for approximately $524,000 as of December
27, 1996, the result of letters of credit issued in the normal course of
business for the purchase of inventory.
8. RESTRUCTURING RESERVES
At September 27, 1996 the Company had reserves for restructuring charges and
business divestitures totaling $466,000. During the first quarter of fiscal
1997, total net charges of $60,000 were taken against these reserves leaving
a balance of $406,000 at December 27, 1996.
9. RECLASSIFICATIONS
Certain reclassifications have been made to fiscal 1996 amounts to conform to
the fiscal 1997 presentation.
QMS, INC. AND SUBSIDIARIES
==========================
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net income for the first quarter of fiscal 1997 was $62,000 on net sales of
$31.5 million compared to net income of $619,000 for the first quarter of fiscal
1996 on net sales of $37.3 million.
Table of Net Sales Comparisons for Key Channels of Distribution
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<TABLE>
<CAPTION>
First Quarter ended
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December 27, December 29,
(000's) 1996 1995 Difference
------- --------------- --------------- ----------------
<S> <C> <C> <C>
U.S. Direct $ 13,615 $ 12,737 $ 878
U.S. Service 8,353 7,898 455
U.S. Reseller 1,789 4,775 (2,986)
Europe 2,767 5,108 (2,341)
Japan 1,178 2,502 (1,324)
Canada 2,033 3,081 (1,048)
QMS Circuits 514 873 (359)
All Other 1,219 371 848
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Total $ 31,468 $ 37,345 $ (5,877)
==========================================================
</TABLE>
Net sales for the first fiscal quarter of 1997 declined by $5.9 million from the
first quarter of fiscal 1996. Sixty-two percent of the decline is attributable
to lower revenues from Europe and Japan. This decrease was due primarily to the
reduction of inventory levels of the 16 page-per-minute product which is being
replaced by the new QMS(R) 2060 print system, a 20 page-per-minute printer.
Substantially all of the decline in net income is attributable to these same
factors. The decline of approximately $3.0 million in the U.S. reseller channel
from fiscal 1996 to fiscal 1997 is due to the color printer and related
consumables/service strategy that was implemented in the first quarter of fiscal
1996. At that time, the QMS Colorscript(R) LX was being sold at very low
markups to increase sales volumes and the installed base of color laser
printers. With this accomplished, increased sales of high margin color
consumables and service contracts were realized in the first quarter of fiscal
1997 compared to the comparable period in fiscal 1996.
Gross margins declined from 33.2% in the first quarter of fiscal 1996 to 30.9%
in the first quarter of fiscal 1997. The principal reasons for the decline are
the reduced sales and related commissions to our European and Japanese trading
partners coupled with the lower overall sales volumes in fiscal 1997 which
resulted in the factory operating at a lower volume, causing manufacturing
variances to increase.
The Company purchases print engine mechanisms and memory components from several
Japanese suppliers. Fluctuations in foreign currency exchange rates will affect
the prices of products. The Company attempts to mitigate possible negative
impacts through yen-sharing arrangements with suppliers, foreign exchange
contracts and price negotiations; however, material price increases resulting
from exchange rate fluctuations could develop which would adversely affect
operating results.
Operating expenses for the first quarter of fiscal 1997 were $9.3 million, or
29.5% of sales, compared to $11.0 million, or 29.4% of sales, for the comparable
period of fiscal 1996. The decrease of $1.7 million reflects both the
continuing success of the Company's expense management program (implemented
during the first half of fiscal 1996) and the Company's ability to keep expenses
in line with revenues.
Total other expense for the first quarter of fiscal 1997 was $380,000, compared
to $825,000 in the comparable period of fiscal 1996. This reduction of
$445,000, or 53.9%, is principally the result of reduced interest expense.
Total interest-bearing debt has been reduced from $19.7 million at December 29,
1995 to $12.8 million at December 27, 1996.
FINANCIAL CONDITION
- -------------------
Inventories increased $405,000 in the first quarter of 1997 due primarily to the
lower than anticipated sales. This increase was offset in part by a strong
focus on the disposal of end-of-life products. Current liabilities decreased
$821,000 during this quarter. The increase in accounts payable, due in large
part to the timing of disbursements during the Christmas holidays, was more than
offset by reductions in debt and other current liabilities.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of fiscal 1997, the Company's working capital and
capital expenditure requirements came principally from operations and borrowings
under the revolving credit facility. The Company's net working capital as of
December 27, 1996 was $18.1 million compared to $17.7 million at September 27,
1996.
At December 27, 1996, borrowings under the Foothill credit facility were $8.2
million with total borrowing capacity under this credit facility of $15.2
million, plus the availability of a $5 million term loan, which expires March 1,
1997.
In compliance with FASB Emerging Issues Task Force Issue No. 95-22, "Balance
Sheet Classification of Borrowings Outstanding Under Revolving Credit
Arrangements That Include a Subjective Acceleration Clause and a Lock-Box
Arrangement," the Company's revolving credit loan is classified as short-term
debt in the financial statements. This revolving credit facility expires in
November 1999. The Company was in full compliance with all the covenants of
this agreement as of December 27, 1996.
At December 27, 1996, the Company was not in compliance with certain covenants
contained in the 6.15% senior secured notes payable and, accordingly, this
obligation is classified as short-term debt. Although the Company has not
received a waiver of the non-compliance, the holder of the senior secured notes
has not taken steps to accelerate repayment of this debt and, in management's
opinion, the status of this debt is unlikely to change. The Company's revolving
credit facility provides the Company with the capacity to pay off the senior
secured notes in the unlikely event that repayment of these notes is
accelerated.
Management believes that the Company's continuing working capital and capital
expenditure requirements will be met by cash flow from operations and borrowings
under the revolving credit facility.
QMS, INC. AND SUBSIDIARIES
==========================
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
The Company is a defendant in a case in the United States District Court for the
Southern District of Alabama involving a former employee alleging violation of
the plaintiff's civil rights and certain other acts of wrongful conduct. The
Company has filed an answer denying all allegations of wrongful conduct in the
complaint. The Company cannot predict the ultimate outcome of this case;
however, it does not expect the resolution of this matter to materially affect
the Company's financial condition or results of operations.
ITEM 2 - CHANGES IN SECURITIES - None.
- ------------------------------
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
(a) At December 27, 1996, the Company was not in compliance with certain
covenants contained in the 6.15% senior secured notes payable. Covenant
violations include noncompliance with minimum net income and current ratio
requirements. Although the Company has not received a waiver of the
noncompliance, the holder of the senior secured notes has not taken steps to
accelerate repayment of this debt and, in management's opinion, the status of
this debt is unlikely to change. The Company's revolving credit facility
provides the Company with the capacity to pay off the senior secured notes in
the unlikely event that repayment of these notes is accelerated. The revolving
credit facility expires in November 1999. The Company was in full compliance
with all of the covenants in this agreement as of December 27, 1996.
(b) None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company's Annual Meeting of Stockholders (the "Meeting") was held on
January 21, 1997. The results of the voting on the election of directors were
as follows:
<TABLE>
<CAPTION>
Nominee For Withheld Total Votes Cast
------- --- -------- ----------------
<S> <C> <C> <C>
Donald L. Parker, Ph.D. 9,656,961 175,511 9,832,472
F. Rigdon Currie 9,645,375 187,097 9,832,472
Accordingly, all nominees for the Board of Directors were elected.
The results of the voting on the amendment to the Stock Option Plan for Directors described in the Proxy
Statement delivered in connection with the Meeting were as follows:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
4,972,098 562,276 158,870 4,139,228
Accordingly, the amendment to the Stock Option Plan for Directors was approved.
The results of the voting on the Company's 1997 Stock Incentive Plan described in the Proxy Statement delivered
in connection with the Meeting were as follows:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
4,318,998 1,228,323 145,923 4,139,228
Accordingly, the 1997 Stock Incentive Plan was adopted.
</TABLE>
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ITEM 5 - OTHER INFORMATION - None.
- --------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports: None.
QMS, INC. AND SUBSIDIARIES
==========================
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.
QMS, INC.
(Registrant)
Date: February 6, 1997 /s/ Gerald G. Roenker
-------------------------- ----------------------------
GERALD G. ROENKER
Executive Vice President, Chief
Operating Officer and Acting Chief
Financial Officer (Mr. Roenker is the
Principal Operating and Financial
Officer and has been duly authorized to
sign on behalf of the Registrant.)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-03-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> DEC-27-1996
<EXCHANGE-RATE> .00001
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 23498
<ALLOWANCES> 361
<INVENTORY> 28771
<CURRENT-ASSETS> 57782
<PP&E> 62679
<DEPRECIATION> 43235
<TOTAL-ASSETS> 91050
<CURRENT-LIABILITIES> 39720
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 47470
<TOTAL-LIABILITY-AND-EQUITY> 91050
<SALES> 31468
<TOTAL-REVENUES> 31468
<CGS> 21747
<TOTAL-COSTS> 21747
<OTHER-EXPENSES> 9273
<LOSS-PROVISION> 618
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 68
<INCOME-TAX> 6
<INCOME-CONTINUING> 62
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
