<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934. For the fiscal year ended December 31, 1999.
[ ] Transition report under Section 13 or 15(d) of the Securities Act of 1934.
(No fee required). For the transition period from ____________ to
______________.
Commission file number: 0-11744.
PUBLISHERS EQUIPMENT CORPORATION
----------------------------------------------
(Name of Small Business Issuer In Its Charter)
Texas 75-1653425
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
16660 Dallas Parkway, Suite 1100, Dallas, TX 75248
- -------------------------------------------- --------------
(Address of principal executive offices) (zip code)
(972) 931-2312
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of each class On Which Registered
- ------------------- --------------------
None --
Securities registered under Section 12(g) of the Exchange Act:
Title of Class
--------------------------
Common Stock, No Par Value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to Form 10-KSB. [ ]
The issuers revenues for the fiscal year ended December 31, 1999 were
$11,590,802.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 27, 2000, based on the closing sales price of the common
stock on the Nasdaq Stock Market on that date was approximately $997,371.
Indicated below is the number of shares outstanding of each class of the
issuer's common stock as of March 27, 2000.
Title of each class of common stock Number Outstanding
- ----------------------------------- ------------------
Common Stock, No Par Value 5,249,321
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of the issuer to be
held during 2000 are incorporated hereby by reference in Part III.
Page 1 of 41 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
INDEX TO THE DECEMBER 31, 1999 FORM 10-KSB
<TABLE>
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PAGE
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PART I
Item 1. Business............................................................. 3
Item 2. Properties........................................................... 5
Item 3. Legal Proceedings.................................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders..................................................... 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters...................................... 6
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................ 7
Item 7. Financial Statements and Supplementary
Data................................................................. 11
Item 8. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure................................................. 25
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act.................................... 25
Item 10. Executive Compensation............................................... 25
Item 11. Security Ownership of Certain
Beneficial Owners and Management..................................... 25
Item 12. Certain Relationships and Related
Transactions......................................................... 26
Item 13. Exhibits, Lists and Reports on
Form 8-K............................................................. 26
</TABLE>
2
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PART I
Item 1. Business
General
Publishers Equipment Corporation (the "Company") serves the single-width
newspaper, commercial and semi-commercial printing markets through its
wholly-owned subsidiary, King Press Corporation ("King Press"). King Press,
acquired by the Company in 1984, manufactures and markets single-width web
offset presses worldwide and has been an active force in the market since the
early 1960's. Single-width printing equipment prints two newspaper pages across
at one time and is generally utilized by daily, weekly, and bi-weekly
newspapers, as well as by commercial and semi-commercial printers. The markets
for single-width equipment consist of a large number of individual equipment
users that produce a wide variety of products that includes newspapers, flyers,
inserts, brochures and catalogs.
Until the mid-1960's, publishers and printers in the United States utilized
equipment employing the "letterpress" printing process. During the 1960's, many
newspapers replaced their letterpress equipment with "offset" printing equipment
because of its capability to produce sharper images and better quality color,
qualities important to advertisers who provide a newspaper's principal source of
revenue. The transition to offset presses occurred rapidly in the single-width
newspaper industry due to a relatively low capital investment in existing
letterpresses and a less demanding operating environment. Today, the vast
majority of single-width equipment in production worldwide by publishers and
printers employs the offset printing process. Suppliers of single-width web
offset equipment, including the Company, have continued to make equipment
improvements that enhance speed, productivity and color capabilities in response
to the demands of a changing mix of equipment users and their changing equipment
needs.
The Company was incorporated under the laws of the state of Texas in 1979 and
maintains its principal executive offices at 16660 Dallas Parkway, Suite 1100,
Dallas, Texas 75248, telephone number (972) 931-2312. As of December 31, 1999,
the Company employed 110 persons. King Press' manufacturing personnel are
represented by the International Association of Machinists and Aerospace Workers
of the AFL-CIO under a five-year contract that expires November 20, 2000. All
subsequent references to the Company include Publishers Equipment Corporation
and its wholly-owned subsidiary, King Press, unless the context requires
otherwise.
Principal Customers and Marketing
The Company markets its single-width equipment products through sales offices in
the U.S. as well as through independent international sales agents located in
over 50 countries. In addition, the Company's executive officers engage in sales
activities for its single-width equipment products.
In recent years the Company has realigned its international dealer network to
increase effectiveness and expand into new market areas. During 1999, the
Company derived
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approximately 38 percent of its revenues from foreign sales, which included
customers in Europe, Africa and South America. During 1998, the Company derived
approximately 30 percent of its revenues from foreign sales. (See Item 6.
Results of Operations. Revenues.)
The Company's revenues are derived from sales to a broad base of small
newspapers as well as commercial and semi-commercial printers. During 1999,
three customers accounted for approximately 44 percent of the Company's
revenues. During 1998, three customers accounted for approximately 43 percent of
the Company's revenues.
Equipment and Services
The Company's line of single-width offset equipment products meets the needs of
printers and publishers ranging from cost effective presses for newspaper
production to heatset equipment that meets the high quality requirements of
commercial printers.
<TABLE>
<CAPTION>
Product Application
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<S> <C>
News King Printing Press Newspaper, Small
and Add-On Units
Litho King Printing Press Newspaper, Small
and Add-On Units and Mid-Size
Color King Printing Press Newspaper; Semi-
and Add-On Units Commercial, Heatset
and Non-Heatset
Process King Printing Press Commercial, Heatset
and Add-On Units and Non-Heatset
Media King Printing Press Newspaper, Mid-Size;
and Add-On Units Semi-Commercial, Heatset
and Non-Heatset
Print King IV Newspaper, Mid-Size;
Printing Presses and Add-On Semi-Commercial, Heatset
Units and Non-Heatset
</TABLE>
The Company warrants the performance of its products for a period of one year
against defects in both materials and workmanship, in addition to supplemental
contractual warranties and performance guarantees as agreed to with individual
customers. Because of the complex nature of printing presses, the Company's
contracts provide for a continuing involvement with its customers' operations
following the completion of a project in order to assure that the performance of
the equipment meets both contractual obligations and customer requirements.
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During 1999, approximately $419,000 was charged to operations for warranty
costs, compared to approximately $329,000 charged to operations for warranty
costs in 1998.
Product Development
The Company separately funds research and development activities as required to
accomplish its stated goals. In 1990, a heat-set version of the Process King was
introduced for the European market. In 1992, the Company introduced an improved
steel side-framed News King printing unit. In 1993, the Company introduced the
Media King, a modular four-high stackable unit targeted for use by printers and
publishers requiring four color capability in a compact press arrangement, and
the Litho King, a highly featured version of the Company's News King unit. The
first installation of Media King units was completed in late 1994 for a West
European customer. In 1995, 1996 and 1997, the Company's research and
development activities were directed primarily at improvements and modifications
to its current product lines, including the adaptation of equipment for the
printing requirements of the emerging former East Block countries. In 1998, the
Company introduced the Print King IV printing unit, an economical four-high
printing unit designed for four color newspaper and some commercial printing.
This printing unit is a complementary addition to other King Press products. The
first Print King IV printing units were installed at a domestic customer's
location in the first quarter of 1999. The Company's new and redesigned products
are designed to enable the Company to compete effectively in both domestic and
international markets.
The Company, in addition, conducts research and development activities in
connection with customer contracts for new and improved equipment, with the cost
of these activities included in the contract price. Currently, research and
development activities are directed towards new single-width equipment products
that will complement the Company's current products and services, as well as
improvements to the Company's current product lines.
During 1999, the Company spent approximately $152,000 on such research and
development activities. During 1998, the Company spent approximately $190,000 on
research and development activities not connected with customer contracts.
Competition
King Press' operations compete on a worldwide basis, principally with U.S. based
Heidelberg Web Press, Inc., Goss Graphic Systems, Inc., Dauphin Graphic
Machines, Inc. and Solna International AB. The Company believes its single-width
presses provide a price/performance combination superior to its competitors.
Item 2. Properties
The Company leases 1,925 square feet for its principal executive offices at
16660 Dallas Parkway, Suite 1100, Dallas, Texas, which is used for its corporate
management offices. The lease on this office expires in 2001, at which time the
Company expects to negotiate a renewal of the lease.
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The Company owns a 137,000 square foot office and manufacturing facility in
Joplin, Missouri, which is used as the principal offices of King Press.
Item 3. Legal Proceedings
The Company has from time to time become involved in various claims and lawsuits
incidental to their businesses. In the opinion of management of the Company, any
ultimate liability arising out of currently pending claims and lawsuits will not
have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock has traded on the Nasdaq Stock Market under the
symbol PECN since January 7, 1986 and prior to that time in the over-the-counter
market. The following table sets forth the range of the daily high and low sales
prices for the common stock, as reported by the National Association of
Securities Dealers, Inc. through NASDAQ for all periods after January 1, 1998.
<TABLE>
<CAPTION>
Stock
----------------
High Low
---- ---
<S> <C> <C>
1998
First Quarter ............................... 0.41 0.26
Second Quarter .............................. 0.41 0.20
Third Quarter ............................... 0.27 0.19
Fourth Quarter .............................. 0.26 0.15
1999
First Quarter ............................... 0.31 0.22
Second Quarter .............................. 0.25 0.20
Third Quarter ............................... 0.25 0.19
Fourth Quarter .............................. 0.24 0.16
2000
First Quarter ............................... 0.19 0.19
(Through March 27, 2000)
</TABLE>
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As of March 27, 2000, there were approximately 408 record holders of the
Company's common stock.
The Company has not paid any dividends on its common stock since its inception.
Periodically, the Company will consider the payment of dividends in light of the
Company's earnings, capital requirements, financial condition and other factors,
but there is no assurance that the Company will decide to pay dividends in the
future. The loan agreement pertaining to the Company's revolving line of credit
includes restrictions on the payment of dividends.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Position and Liquidity
King Press was supported in 1999 by a secured $2,000,000 revolving line of
credit that expires July 15, 2000 and a secured $2,500,000 term loan that
matures July 15, 2001. The loan agreement pertaining to the revolving line of
credit includes restrictions on indebtedness, liens, the disposal of assets and
requires that certain financial ratios be maintained; and provides security
through a cross collateralization of all King Press Corporation assets.
At December 31, 1999, King Press had $1,748,000 outstanding under the revolving
line of credit and a balance of $2,275,000 owed under the term loan, $177,000 of
which is current. King Press Corporation was in default of provisions of the
line of credit pertaining to certain financial ratios at December 31, 1999. The
lender has agreed to waive the default under those provisions.
The Company has a $1,000,000 Convertible Subordinated Note due December 31,
2000. The maturity date of this note has been extended in the past, and the
Company expects to negotiate a further extension of the maturity date.
The Company's backlog at December 31, 1999, totaled $3,387,000, compared to
$3,600,000 at December 31, 1998. These backlog amounts exclude a $3.3 million
equipment order for a customer in Saudi Arabia that was placed on hold by the
Company in the fourth quarter of 1997 when the customer requested a restructured
contract payment schedule. The restructuring of the payment schedule was
accomplished, but the customer did not make a scheduled payment required to
restart the contract. This contract will be excluded from backlog until payment
terms are renegotiated and such payments by the customer resume.
Results of Operations
Revenues. Revenues of $11,591,000 for 1999 compare to $15,180,000 for 1998, a
reduction of approximately 24 percent. Revenues derived from sales to domestic
customers decreased approximately 32 percent in 1999 compared to 1998, a
reduction that the Company attributes to delays in booking certain equipment
orders. Each of these equipment orders remain active
7
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entering 2000, and join additional domestic sales opportunities to form a strong
domestic sales prospect list for 2000.
Domestic printing equipment markets were active in 1999 as two of the most
important factors governing equipment sales were favorable. Print advertising
expenditures, which represent the major source of income for the Company's
customer base, were at a healthy level and newsprint cost, which represents the
major component of newspaper production expense, remained relatively stable.
Trade publications report that total domestic newspaper advertising expenditures
grew by approximately 5.4 percent in 1999. Classified advertising, the largest
category, is estimated to have increased by 4.2 percent over 1998, with national
and retail growing approximately 15.3 percent and 3.6 percent respectively. For
2000, total domestic newspaper advertising expenditures are forecast to increase
by approximately 5.3 percent over 1999. Classified advertising is forecast to
grow 4.0 percent, with national and retail growing approximately 10.8 percent
and 4.7 percent respectively. With this level of advertising expenditures,
domestic printing equipment markets can be expected to remain active in 2000.
Classified and retail print advertising expenditure rates have been affected by
the growth of e-commerce, and although online advertising has not had a material
effect on total print advertising expenditures, this issue could become a
concern as e-commerce continues to expand. Domestic newspapers have responded to
this diversion of an important revenue source by investing in websites that
utilize their news gathering services, with many of them carrying classified
advertising. It is estimated that 90 percent of domestic newspapers currently
have websites, up from only 30 such sites in 1996. The Company is monitoring all
developments in this area and does not expect the growth of online commerce to
have a significant effect on its equipment sales in the near term.
An industry association study conducted in 1999 indicates that the Internet has
not had an impact on newspaper readership. This study found that newspaper
readership among online users is higher than the general adult population, and
is even stronger among those who visit online newspaper sites. A second study by
this same association found that 70 percent of job seekers continue to use
newspapers as their primary source of information.
Domestic newspapers have also faced a slow decline in circulation and readership
due to the availability of alternative news sources, primarily television. To
reverse the declines in readership and circulation, and increase the
effectiveness of advertising, domestic newspapers have improved services for
both readers and advertisers, principally by increasing targeted distribution of
their products. Newspapers have increased local news coverage and included
targeted supplements, inserts and circulars, with their publications. As a
result, the business mix of newspapers has included an increasing content of
these focused printing materials, which are delivered to targeted market areas.
These short press-run products are produced more cost effectively, with less
waste, on single-width press equipment as sold by the Company. The Company has
delivered equipment for this purpose to a leading U.S. newspaper group, and
expects similar orders in the future.
Domestic newsprint cost was volatile in the decade of the `90s, reaching a high
of over $700 a metric ton in 1995, declining to close to $500 a metric ton in
early 1997 and averaging
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approximately $510 for 1999. Trade publications forecast an average newsprint
cost for 2000 of $553 a metric ton, an approximate 9 percent increase over 1999.
Newsprint cost can account for as much as 20 percent of newspapers' cost, and
the cost reduction since 1995 has been very beneficial to newspaper operating
results, but price stability is also important for business planning purposes.
Newspapers negotiate contracts to lock in newsprint cost long term, and some
have converted to narrower web widths, which can reduce newsprint cost by as
much as 7 percent.
In recent years domestic demand for printing equipment has been marked by the
need for increased product color capability and flexibility in production. The
Company responded to this demand by the introduction of the Media King printing
press and, more recently, the Print King IV printing press. These printing
presses feature high quality 4-color capability with vertically stackable
printing units that can be purchased as part of a new press or as add-ons to
existing King Press Equipment. The compact design arrangement of this equipment
provides improved color capability within relatively small space requirements.
The first domestic order of Print King IV equipment was placed in successful
production in the first quarter of 1999, and generated interest from both
domestic and foreign sales prospects.
Revenues derived from sales to foreign customers deceased approximately 5
percent in 1999 compared to 1998, accounting for approximately 38 percent of
total revenues in 1999 compared to approximately 30 percent in 1998. The single
largest factor affecting foreign printing equipment sales in both 1999 and 1998
was the continued currency crisis in Southeast Asia. The Pacific Rim had been
one of the most rapidly emerging markets for printing equipment in the world,
and only in late 1999 began to show some renewed sales quotation activity as the
currency crisis eased.
During 1999, the Company delivered equipment orders to customers in Africa,
Brazil and the Netherlands. Included in equipment delivered to the Netherlands
was the first sale of the Company's Print King IV press equipment to a foreign
customer. Foreign printing equipment markets, like domestic markets, are seeing
a demand for increased color capability in printed products.
The Company's foreign sales efforts are conducted by a dealer network that
includes Sales Representatives in over 50 countries. The Company has been
successful in selling its full equipment line to foreign customers, and has
equipment installations in over 60 countries around the world. The Company
expects revenues derived from sales to foreign customers to remain a significant
component of its total revenues in 2000.
With domestic market conditions forecast to remain favorable in 2000 and broad
opportunities in foreign markets, the Company expects to be successful in
booking an increased number of equipment orders during the new year. The Company
through the years has upgraded exiting press lines and added new equipment to
ensure that its product lines meet the evolving needs of its domestic and
foreign customer bases with high quality, cost effective equipment printing
offerings (See Item 1. Product Development).
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Gross Profit. Gross profit of $2,332,000, or 20.1 percent of revenues, for 1999
compares to $3,147,000, or 20.7 percent of revenues, for 1998. The Company's
gross profit expressed as a percent of revenues was adversely affected in both
1999 and 1998 by competitive pricing practices in both domestic and foreign
markets. Certain of the Company's larger competitors used deeply discounted
pricing in both years to secure equipment orders. The Company will not compete
for an order on less than a break-even basis, and as a consequence has had to
withdraw from the competition for some orders while absorbing an erosion of
profit margins on contracts won.
One of the Company's major domestic competitors underwent a reorganization under
Chapter 11 of the bankruptcy code in the last half of 1999, which the Company
believes was a result of its product pricing practices. The Company expects this
supplier to remain a viable competitor, but believes that its pricing practices
must return to a more sustainable level, which would be for the benefit of all
equipment suppliers.
During 1999, a reduction in the Company's warranty reserve of approximately
$143,000 was made to bring this reserve in line with the estimated liability at
year end (See Note 5 of Notes to Consolidated Financial Statements).
Selling, General and Administrative Expense. Selling, general and administrative
expense of $2,453,000, or 21.2 percent of revenues for 1999 compares to
$2,618,000, or 17.2 percent of revenues, for 1998. The increase in selling,
general and administrative expense expressed as a percent of revenues in 1999 is
a result of the lower level of revenues in 1999 compared to 1998.
Other Income (Expense). Interest expense of $374,000 for 1999, derived primarily
from borrowings under the King Press Corporation revolving line of credit and
term note, compares to $322,000 for 1998 derived from these same sources (See
Financial Position and Liquidity). The increase in interest expense in 1999
compared to 1998 is attributable primarily to a full 12-months interest being
incurred in 1999 on the term note which originated in mid-1998.
Net other income of $13,000 in 1999 compares to net other income of $95,000 in
1998, which included a customer deposit forfeited by a canceled order.
Provision For Taxes. The Company utilized available net operating loss
carryforwards to offset federal and state income tax liabilities for 1998. (See
Note 7 of Notes to Consolidated Financial Statements).
Net Income (Loss). A net loss of $481,000, or 4.1 percent of revenues, for 1999
compares to net income of $304,000, or 2.0 percent of revenues, for 1998.
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Item 7. Financial Statements and Supplementary Data
<TABLE>
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Page
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Index to Consolidated Financial Statements
and Financial Statement Schedules:
Report of Independent Public Accountants ........................ 12
Consolidated Balance Sheet as of
December 31, 1999 ............................................. 13
Consolidated Statements of Income -
two years in the period ended
December 31, 1999 ............................................. 14
Consolidated Statements of Shareholders'
Equity - two years in the period
ended December 31, 1999 ....................................... 15
Consolidated Statements of Cash Flows -
two years in the period ended
December 31, 1999 ............................................. 16
Notes to Consolidated Financial
Statements .................................................... 17
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Publishers Equipment Corporation:
We have audited the accompanying consolidated balance sheet of Publishers
Equipment Corporation (a Texas corporation) as of December 31, 1999, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Publishers Equipment
Corporation as of December 31, 1999, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 8, 2000
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 42,911
Trade accounts receivable (net of allowance for
doubtful accounts of $36,210) ...................... 775,817
Inventories (Note 3) .................................... 8,679,329
Prepaid expenses and other current assets ............... 113,177
------------
Total current assets ................................ 9,611,234
------------
Property, plant and equipment, at cost (Note 5):
Land .................................................... 30,138
Building ................................................ 1,689,265
Transportation equipment ................................ 62,631
Furniture and fixtures .................................. 878,670
Machinery and tools ..................................... 1,826,443
------------
4,487,147
Less accumulated depreciation ........................... 3,325,338
------------
Net property, plant and equipment ................... 1,161,809
------------
$ 10,773,043
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .................................. $ 952,395
Accrued liabilities ..................................... 901,315
Accrued warranty expense (Note 4) ....................... 100,177
Customer deposits ....................................... 102,388
Current portion long-term debt .......................... 193,386
Short-term debt (Note 5) ................................ 2,748,158
------------
Total current liabilities ........................... 4,997,819
------------
Long-term debt ............................................. 2,165,756
------------
Other liabilities .......................................... 117,870
------------
Contingencies and commitments (Note 6)
Shareholders' equity (Notes 8 and 9):
Preferred stock, no par value; 1,000,000 authorized;
Series A convertible preferred stock, 250,000 shares
authorized, 14,534 issued,
liquidation value of $6.88 per share (Note 8) ...... 100,000
Common stock, no par value; 9,000,000 shares authorized,
5,280,501 issued ................................... 19,214,871
Treasury stock, 45,714 shares at cost ................... (168,496)
Retained deficit ........................................ (15,654,777)
------------
Total shareholders' equity ....................... 3,491,598
------------
$ 10,773,043
============
</TABLE>
See accompanying notes
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues ........................... $ 11,590,802 $ 15,180,029
Cost of revenues ................... 9,258,658 12,033,202
------------ ------------
Gross profit ....................... 2,332,144 3,146,827
Selling, general and administrative
expenses (Note 10) ............. 2,453,543 2,618,460
------------ ------------
Operating profit (loss) ............ (121,399) 528,367
Other income (expense):
Interest expense ................ (374,191) (321,463)
Interest income ................. 1,483 2,392
Other income, net ............... 13,380 95,141
------------ ------------
Income (loss) ...................... $ (480,727) $ 304,437
============ ============
Earnings (loss) per share (Note 2):
Basic and diluted ............... $ (0.09) $ 0.06
Weighted average shares outstanding:
Basic ........................... 5,234,787 5,220,253
Diluted ......................... 5,234,787 5,260,172
</TABLE>
See accompanying notes.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
------ ------------ --------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ....... 43,602 300,000 5,251,433 19,014,871
Issuance of shares upon conversion
of preferred stock (Note 8) .... (14,534) (100,000) 14,534 100,000
Net income ....................... -- -- -- --
-------- ------------ --------- ------------
Balance at December 31, 1998 ....... 29,068 200,000 5,265,967 19,114,871
Issuance of shares upon conversion
of preferred stock (Note 8) .... (14,534) (100,000) 14,534 100,000
Net loss ......................... -- -- -- --
-------- ------------ --------- ------------
Balance at December 31, 1999 ....... 14,534 $ 100,000 5,280,501 $ 19,214,871
======== ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
--------------
Shares Amount Retained Deficit Total
------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ....... 45,714 (168,496) (15,478,487) 3,667,888
Issuance of shares upon conversion
of preferred stock (Note 8) .... -- -- --
Net income ....................... -- -- 304,437 304,437
------ ------------ ------------ ------------
Balance at December 31, 1998 ....... 45,714 (168,496) (15,174,050) 3,972,325
Issuance of shares upon conversion
of preferred stock (Note 8) .... -- -- --
Net loss ......................... -- -- (480,727) (480,727)
------ ------------ ------------ ------------
Balance at December 31, 1999 ....... 45,714 $ (168,496) $(15,654,777) $ 3,491,598
====== ============ ============ ============
</TABLE>
See accompanying notes.
15
<PAGE> 16
PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................... $ (480,727) $ 304,437
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................. 182,579 187,484
Change in assets and liabilities:
Decrease (increase) in accounts receivable .... 645,329 (35,414)
Decrease (increase) in inventories ............ (464,262) 42,373
Decrease (increase) in other current assets ... 75,118 (69,136)
Increase (decrease) in accounts payable and
accrued liabilities ..................... 332,082 (859,068)
Increase (decrease) in accrued warranty expense (356,216) 65,436
Decrease in customer deposits ................. (480,118) (585,864)
------------ ------------
Net cash used in operations ........................... (546,215) (949,752)
Cash flows from investing activities:
Sale of property, plant and equipment .............. 16,336 --
Additions to property, plant and equipment ......... (251,657) (216,923)
------------ ------------
Net cash used in investing activities ................. (235,321) (216,923)
Cash flows from financing activities:
Total borrowings ................................... 8,701,420 11,127,000
Total repayments ................................... (7,919,187) (9,955,933)
------------ ------------
Net cash provided by financing activities ............. 782,233 1,171,067
------------ ------------
Net increase in cash and cash equivalents ................ 697 4,392
Cash and cash equivalents at beginning of period ......... 42,214 37,822
------------ ------------
Cash and cash equivalents at end of period ............... $ 42,911 $ 42,214
============ ============
</TABLE>
See accompanying notes.
16
<PAGE> 17
PUBLISHERS EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Publishers Equipment Corporation (the "Company") is a multinational manufacturer
of single-width newspaper, commercial and semi-commercial printing presses. The
Company markets its products through its wholly-owned subsidiary, King Press
Corporation ("King Press"). King Press was acquired by the Company in 1984 and
has served printing equipment markets since the early 1960's. Presses are sold
primarily to small newspapers as well as commercial and semi-commercial printers
and publishers located throughout the world.
During 1999 the company incurred a loss of $480,727 and had net cash used in
operations of $546,000. In response to the operating results the Company has
refocused its sales and marketing efforts to take advantage of the strong
domestic market conditions. In the domestic printing market the most important
factors governing equipment sales is print advertising and classified
advertising expenditures. The domestic printing equipment markets were active in
1999 as these two factors were favorable. Management feels the decline in the
1999 revenues is attributable to delays in bookings and not market conditions.
For 2000 both of these market factors are forecasted to increase and this should
result in strong domestic market conditions. Management expects to be successful
in obtaining an increased number of equipment orders during 2000 as a result of
the domestic conditions combined with opportunities in various foreign markets.
The Company's primary operations at King Press are supported by a secured
$2,000,000 revolving line of credit that expires July 15, 2000. This credit
facility has historically had a term of one year and management expects to renew
the revolving line of credit at its maturity at similar terms. If this credit
line was not renewed or replaced, the Company would be unable to continue normal
operations.
Management believes that cash provided by operations and borrowings available
under the credit agreement will provide the Company with adequate cash flow to
meet its obligations. However, no assurance can be given that the operating
goals will be achieved and that all assets will be realized in the normal course
of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The Consolidated Financial Statements of the
Company include the accounts of Publishers Equipment Corporation and King Press
Corporation. All significant intercompany transactions are eliminated.
REVENUE RECOGNITION - Revenues from sales of manufactured presses and parts are
recognized when shipped.
17
<PAGE> 18
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
ACCOUNTS RECEIVABLE - A majority of the Company's accounts receivable are due
from companies in the printing industry. Credit is extended based on evaluation
of the customer's financial condition and, generally, collateral is not
required.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out)
or market.
DEPRECIATION - Depreciation is determined for financial reporting by the
straight-line method using the following estimated useful lives:
<TABLE>
<S> <C>
Building 30 years
Transportation equipment 3 years
Furniture and fixtures 3 to 10 years
Machinery and tools 2 to 20 years
</TABLE>
For income tax purposes, depreciation is determined by accelerated methods.
RESEARCH AND DEVELOPMENT COSTS - The costs and expenses related to basic
research, engineering, and product development are expensed as incurred. During
1999 and 1998, research and development costs aggregated approximately $152,000
and $190,000, respectively.
INCOME TAXES - Deferred income taxes are provided for differences in the
recognition of income and expenses for financial statement and tax reporting
purposes (See Note 7).
EARNINGS PER SHARE - Basic earnings per common share are computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the reporting period. Diluted earnings per common share are determined on
the assumed exercise of dilutive options and the assumed conversion of
convertible preferred stock, as determined by applying the treasury stock
method.
CASH EQUIVALENTS - The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
18
<PAGE> 19
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
3. INVENTORIES
<TABLE>
<CAPTION>
Year ended
December 31,
1999
-----------
<S> <C>
Raw materials ......... $ 107,951
Work-in process ....... 990,746
Finished goods ........ 8,101,475
Used presses .......... 233,225
-----------
9,433,397
Less inventory reserves (754,068)
-----------
$ 8,679,329
===========
</TABLE>
4. WARRANTY
The Company warrants the performance of its products for a period of one year
against defects in both materials and workmanship, in addition to supplemental
contractual warranties and performance guarantees as agreed to with individual
customers.
Warranty expense provided was approximately $419,000 in 1999 and $329,000 in
1998, and is included in cost of revenues in the accompanying Consolidated
Statements of Income. During 1999, a reduction to the Company's warranty reserve
of approximately $143,000 was made to bring this reserve in line with the
estimated liability for equipment in warranty at year end.
The change in the reserve from December 31, 1998 to December 31, 1999 is as
follows:
<TABLE>
<S> <C>
Balance, December 31, 1998 $ 456,393
Provision 206,162
Charges against the reserve (419,378)
Adjustment to the reserve (143,000)
---------
Balance December 31, 1999 $ 100,177
=========
</TABLE>
19
<PAGE> 20
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
5. DEBT
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
<S> <C>
Amount outstanding under
the King Press bank revolving line
of credit, interest at U.S. Prime Rate
plus 0.5% (9.0% at December 31, 1999)
due July 15, 2000, secured by all real
and personal property of King Press.............. $1,748,158
Amount outstanding under the King Press
bank term loan, interest at 8.75%,
due July 15, 2001, monthly payments of
principal and interest of $31,000, secured
by all real and personal property of
King Press.................................... 2,274,758
Subordinated note, convertible into
common stock at $7.50 per share
(subject to anti-dilution provisions),
interest at German Prime Rate due
December 31, 2000, unsecured..................... 1,000,000
Amount outstanding under capital lease,
interest at 7.769%, due May 2004................. 84,384
---------
5,107,300
Less current maturities........................... 2,941,544
---------
$2,165,756
==========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000 ..... $2,941,544
2001 ..... 2,116,037
2002 ..... 19,453
2003 ..... 21,019
2004 ..... 9,250
----------
$5,107,303
==========
</TABLE>
20
<PAGE> 21
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
At December 31, 1999, King Press may borrow up to $2,000,000 under a revolving
credit line expiring July 15, 2000. At December 31, 1999, King Press had
$1,748,000 outstanding under the revolving credit line. At December 31, 1999,
King Press had a balance owing of $2,274,758 under the term loan, $176,724 of
which is current. The loan agreement pertaining to the revolving line of credit
and term loan includes restrictions on indebtedness, liens, disposal of assets
and requires that certain financial ratios be maintained. At December 31, 1999
and through March 8, 2000, the Company was in compliance with all provisions of
the loan agreement to be changed due to waivers.
The Company paid interest of approximately $359,000 in 1999 and $317,000 in
1998.
6. CONTINGENCIES
The Company has from time to time become involved in various claims and lawsuits
incidental to its business. In the opinion of management, any liability arising
out of currently pending claims and lawsuits will not have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
7. INCOME TAXES
The Company applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS 109 requires
recognition of deferred tax liabilities and assets for the expected future
consequences of events that have been included in a company's financial
statements and tax returns in different years. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates.
The Company had no provision for federal or state income taxes for 1999 or 1998.
The following is a reconciliation of the U.S. Federal statutory rate to the
effective tax rate.
<TABLE>
1999 1998
---- ----
<S> <C> <C>
U.S. Federal statutory rate (benefit) (34%) 34%
Loss producing no current tax benefit 34% --
Utilization of net operating loss carryforwards -- (34%)
--- ---
0% 0%
=== ===
</TABLE>
21
<PAGE> 22
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
At December 31, 1999, the Company had deferred tax liabilities of $155,000,
deferred tax assets of $5,445,000 and a valuation allowance of $5,290,000. The
principal temporary differences included above are long term capital loss
carryforwards ($2,581,000), net operating loss carryforwards ($1,601,000),
general business credits ($224,000), minimum tax credit ($108,000), uniform
inventory cost capitalization ($412,000), depreciation $140,000 and accruals and
other ($504,000).
The Company has long term capital loss carryforwards for U.S. tax purposes of
$7,592,000, net operating loss carryforwards of $4,708,000 and general business
credit carryforwards of $224,000. The long term capital loss carryforwards, the
net operating loss carryforward and general business credit carryforwards expire
beginning in 2001, 2004 and 1999, respectively.
8. PREFERRED STOCK
In connection with the acquisition of a Swedish subsidiary whose operations were
discontinued in 1991, the Company issued 145,349 shares of its Series A
Convertible Preferred Stock ("Series A"), no par value, to AB Bonnierforetagen.
The terms of the Series A shares provide that such shares shall be nonvoting
stock with a nonparticipating liquidation preference of $6.88 per share. The
Series A shares shall be entitled to receive dividends at the same rate as the
common stock on an "as converted" basis. The terms of the Series A further
provide that all of the issued shares will be converted to common stock ratably
over a 10 year period commencing January 1, 1991. The Series A will not be
convertible at the option of the holder unless and until the occurrence of
certain events, such as a merger, recapitalization or change in control of the
Company. The Series A shares are convertible at a rate of one share of preferred
stock for one share of common stock and the conversion rate is subject to
certain anti-dilution adjustments. On each January 1, 1992 through 1999, 14,534
shares of the Series A converted to 14,534 shares of common stock. As a result
of the foregoing, the Company has reserved 14,534 common shares for issuance
upon conversion of the outstanding Series A shares.
9. STOCK OPTIONS AND PREEMPTIVE RIGHTS
The Company has granted incentive stock options to key employees and directors
of the Company at prices equal to the greater of $0.25 or market value at date
of grant. The stock options are exercisable in 25% cumulative annual
installments beginning at the date of grant.
22
<PAGE> 23
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
A summary of option transactions in 1998 and 1999 follows:
<TABLE>
<CAPTION>
Options Total Option
(Shares) Price
------- ------------
<S> <C> <C>
Outstanding at
December 31, 1997 .................. 331,992 $ 180,311
Granted .............................. 1,500 480
Cancelled ............................ (14,500) (12,250)
Exercised ............................ -- --
------- ---------
Outstanding at
December 31, 1998 .................. 318,992 $ 168,541
Granted .............................. 1,500 375
Cancelled ............................ (119,250) (116,250)
Exercised ............................ -- --
------- ---------
Outstanding at
December 31, 1999 .................. 201,242 $ 52,666
------- ---------
Exercisable at end of 1999 ........... 150,557
Common stock reserved for
options at end of 1999 ............. 252,733
Exercise price of options
outstanding at end of 1999 ......... $0.25-$1.00
</TABLE>
The Company has adopted the disclosure-only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). SFAS No. 123 established financial accounting and reporting standards
for stock-based compensation plans and to transactions in which an entity issues
its equity instruments to acquire goods and services from non-employees. Since
the effect of SFAS No. 123 is not material, the Company has made no disclosure
of pro forma net income and earnings per share as if SFAS No. 123 had been
adopted.
23
<PAGE> 24
PUBLISHERS EQUIPMENT CORPORATION
NOTES (Continued)
10. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan available to the non-bargaining unit employees of
the Company after six months of service. The plan provides for voluntary
contributions from participating employees. A participant may elect to make
contributions up to the maximum permissible amount (the lesser of $30,000 or 25%
of the participant's annual compensation) on a before tax basis. The 401(k) plan
allows the Company to make voluntary contributions to the accounts of
participating employees. The Company made no contributions to the 401(k) plan
for 1999 or 1998. The Company pays all fees and expenses incurred for
administration of the 401(k) plan.
Employees of the Company participate in defined contribution pension plans.
Contributions to the pension plans are based on hours worked and wages earned.
Contributions to the plans are funded currently. The costs of the pension plans
were approximately $274,000 in 1999 and $229,000 in 1998. Effective January 1,
2000, the non-bargaining unit defined contribution pension plan was merged into
the 401(k) plan.
11. EXPORT SALES
Included in revenues are export sales to foreign customers which aggregated
approximately $4,356,000 in 1999 and $4,602,000 in 1998.
12. SIGNIFICANT CUSTOMERS
During 1999, three customers accounted for approximately 44 percent of the
Company's revenues. During 1998, three customers accounted for approximately 43
percent of the Company's revenues.
24
<PAGE> 25
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Executive Officers Of The Company
<TABLE>
<CAPTION>
Name Age Present Position
--------- --- ----------------
<S> <C> <C>
Evans Kostas 65 Chairman of the Board
Chief Executive Officer
and President
Roger R. Baier 57 Chief Financial Officer
and Vice President
Finance
</TABLE>
Both of the Executive Officers of the Company have served in their present
capacities for the Company for at least the past five years.
[The remaining information required by Part III, Items 9, 10, 11 and 12 are set
forth in the Proxy Statement to be delivered to Shareholders in connection with
the Company's Annual Meeting of Shareholders presently scheduled to be held on
June 18, 1999, which information is incorporated herein by reference.]
Item 10. Executive Compensation
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation", which information is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information concerning Security Ownership of Certain Beneficial Owners and
Management is set forth in the Proxy Statement under the heading "Security
Ownership of Management and Principal Shareholders", which information is
incorporated herein by reference.
25
<PAGE> 26
Item 12. Certain Relationships and Related Transactions
The information concerning Certain Relationships and Related Transactions is set
forth in the Proxy Statement under the heading "Certain Transactions", which
information is incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits.
See Index to Exhibits.
(b) Reports on Form 8-K.
Not applicable.
26
<PAGE> 27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PUBLISHERS EQUIPMENT CORPORATION
By: /s/ Evans Kostas
------------------------------------- Date: March 31, 2000
Evans Kostas --------------------
Chairman of the Board,
President and Chief Executive Officer
In accordance with the Exchange Act, the report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Evans Kostas Chairman of the Board March 31, 2000
- -------------------------- President and Chief -----------------
Evans Kostas Executive Officer
/s/ Roger R. Baier Vice President-Finance March 31, 2000
- -------------------------- and Treasurer (Principal -----------------
Roger R. Baier Financial and Accounting
Officer)
/s/ Simon Bonnier Director April 11, 2000
- -------------------------- -----------------
Simon Bonnier
/s/ James K. Feeney Director April 3, 2000
- -------------------------- -----------------
James K. Feeney
/s/ Robert S. Hamilton Director April 3, 2000
- ------------------------- -----------------
Robert S. Hamilton
/s/ Ole B. Rygh Director April 10, 2000
- -------------------------- -----------------
Ole B. Rygh
/s/ Reinhart Siewert Director April 6, 2000
- -------------------------- -----------------
Reinhart Siewert
</TABLE>
27
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
3.1 Articles of Incorporation of the
Company, together with Articles
of Amendment and Form of Amendment *
3.2 Articles of Amendment to Articles
of Incorporation of the Company,
filed with the Office of the Secre-
tary of State of Texas on June 2,
1988 **
3.3 Certificate of Correction of
Articles of Incorporation of the
Company, filed with the Office of
the State of Texas on April 9, 1990 ***
3.4 Amended and Restated Bylaws of the
Company ***
10.1 Loan Agreement, dated as of July
15, 1999, between the Company and
Mercantile Bank of Western Missouri P
10.2 Promissory Note, dated as of July
15, 1999, between the Company and
Mercantile Bank of Western Missouri P
10.3 Promissory Note, dated as of July
15, 1998, between the Company and
Mercantile Bank of Western Missouri *****
10.4 Publishers Equipment Corporation
Stock Option Plan, as Amended ***
10.5 Purchase Agreement for 7%
Convertible Subordinated Notes
Due 1993, dated as of December
6, 1986, by and among the
Company, Windmoller & Holscher
and Koenig & Bauer AG ****
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.6 Employment Agreement, dated as
of May 2, 1988, as Amended by
and between the Company and
Robert S. Hamilton ****
21 Subsidiaries of the Company 29
</TABLE>
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
---- ----------------
<S> <C> <C>
King Press Corporation Missouri
Applied Graphics, Inc. Texas
23 Consent of Independent Public
Accountants 41
27 Financial Data Schedule
</TABLE>
- --------------
* Incorporated by reference from the Exhibits to the Company's Registration
Statement on Form S-1 (Registration No. 2-28017).
** Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988.
*** Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989.
**** Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1992.
*****Incorporated by reference from the Exhibits to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-8142) pertaining to the Stock Option Plan of Publishers Equipment
Corporation, and in the related Prospectus, of our report dated March 8, 2000,
with respect to the financial statements and schedules of Publishers Equipment
Corporation included in this Annual Report (Form 10-KSB) for the year ended
December 31, 1999. It should be noted that we have not audited any financial
statements of the company subsequent to December 31, 1999 or performed any
auditing procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,911
<SECURITIES> 0
<RECEIVABLES> 775,817
<ALLOWANCES> 0
<INVENTORY> 8,679,329
<CURRENT-ASSETS> 9,611,234
<PP&E> 1,161,809
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,773,043
<CURRENT-LIABILITIES> 4,997,819
<BONDS> 0
0
100,000
<COMMON> 19,214,871
<OTHER-SE> (15,654,777)
<TOTAL-LIABILITY-AND-EQUITY> 10,773,043
<SALES> 0
<TOTAL-REVENUES> 11,590,802
<CGS> 9,258,658
<TOTAL-COSTS> 9,258,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 374,191
<INCOME-PRETAX> (480,727)
<INCOME-TAX> 0
<INCOME-CONTINUING> (480,727)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480,727)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
