FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
December 31, 1997 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State incorporation) (IRS Employer Identification No.)
One Gateway Center, Suite 411, Newton, MA. 02158
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (617) 527-9933
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 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 __
The number of shares of common stock outstanding as of February 4, 1998 is
1,322,005.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
FORM 10-Q
Index
Page
Part I: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Unaudited consolidated balance sheets at
December 31, 1997 and March 31, 1997 3
Unaudited consolidated statements of operations for the
three and nine months ended December 31, 1997 and 1996 5
Unaudited consolidated statements of stockholders'
investment for the years ended March 31, 1996 and 1997
and the nine months ended December 31, 1997 6
Unaudited consolidated statements of cash flows for
the nine months ended December 31, 1997 and 1996 7
Notes to unaudited consolidated financial statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II: OTHER INFORMATION 14
SIGNATURE 15
<PAGE>
<TABLE>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
December 31, 1997 March 31, 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,097,879 $ 1,634,270
Marketable securities - 99,472
Accounts receivable, less reserves
Of $73,000 at December 31, 1997
$102,000 at March 31, 1997,
Respectively 2,385,369 2,546,221
Inventories 3,242,559 2,526,389
Prepaid expenses 356,296 280,915
Other current assets 29,540 83,257
Total current assets 8,111,643 7,170,524
EQUIPMENT, at cost:
Manufacturing and computer equipment 2,052,882 1,896,432
Furniture and fixtures 379,541 403,882
Leasehold improvements 216,247 232,237
Vehicles 65,052 101,818
2,713,722 2,634,369
Less - Accumulated depreciation
and amortization 2,125,286 2,053,107
588,436 581,262
OTHER ASSETS, net 877,822 816,047
$ 9,577,901 $ 8,567,833
<FN>
The accompanying notes are an integral part of these consolidated
financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<CAPTION>
December 31, 1997 March 31, 1997
<S> <C> <C>
CURRENT LIABILITIES:
Short-term notes payable and
Current portion of long-term debt $ 191,064 $ 54,375
Accounts payable 2,613,092 1,464,128
Accrued expenses 1,635,817 1,219,551
Customer advances 52,200 193,572
Accrued income taxes 162,721 33,287
Total current liabilities 4,654,894 2,964,913
LONG-TERM DEBT, net of current
portion 30,755 41,029
DEFERRED TAXES 78,112 347,993
MINORITY INTEREST - 240,830
COMMITMENTS AND CONTINGENCIES
(Note 4)
STOCKHOLDERS' INVESTMENT:
Preferred stock, $.01 par value,
Authorized-1,000,000 shares
Issued and outstanding-none
Common stock, $.01 par value,
Authorized-6,000,000 shares
Issued-1,322,005 shares at
December 31, and March 31, 13,220 13,220
1997
Capital in excess of par value 4,882,390 4,882,390
Cumulative translation (158,530) 148,696
adjustment
Retained earnings 77,060 (71,238)
Total stockholders' investment 4,814,140 4,973,068
$ 9,577,901 $ 8,567,833
<FN>
The accompanying notes are an integral part of these consolidated
</FN> financial statements
</TABLE>
<PAGE>
<TABLE>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION> For Three Months For the Nine Months
Ended December 31, Ended December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES $3,519,515 $3,211,250 $8,999,519 $10,602,204
COST OF REVENUES 2,614,735 2,456,635 6,660,004 7,943,684
Gross profit 904,780 754,615 2,339,515 2,658,520
OPERATING EXPENSES:
Sales & marketing 77,704 275,129 508,225 853,973
Research and development 330,793 (122,759) 923,962 644,716
General and
administrative 495,981 588,838 1,353,315 1,605,303
904,478 741,208 2,785,502 3,103,992
Income (loss) from
operations 302 13,407 (445,987) (445,472)
Interest Expense (16,429) (2,165) (55,602) (29,252)
Interest Income 25,186 9,285 56,394 33,457
Other Income (Expense)(NOTE4) 609,814 (13,747) 642,107 (106,979)
618,873 6,780 196,912 (548,246)
Provision for (Benefit
From) Income Taxes 136,353 52,572 48,614 (12,331)
482,520 (45,792) 148,298 (535,915)
Minority Interest
(Note 3) (9,037) (5,200) - 5,227
Net income (loss) $ 473,483 $ (50,992) $ 148,298 $ (530,688)
Net Income per Share $ 0.36 $ (0.04) $ 0.11 $ (0.40)
Weighted Average Common
Shares Outstanding 1,322,005 1,322,005 1,322,005 1,322,005
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Novitron International, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
AND THE NINE MONTHS ENDED DECEMBER 31, 1997 (unaudited)
<CAPTION>
Common Stock Capital Cumulative
Number In Excess of Translation Retained
Of Shares Par Value Par Value Adjustment Earnings
<S> <C> <C> <C> <C> <C>
BALANCE at March 31, 1,322,005 $ 13,220 $4,882,390 $1,068,490 $ 2,016,945
1995
Translation - - - (283,267) -
adjustment
Net loss - - - - (1,505,633)
BALANCE at March 31, 1,322,005 13,220 4,822,390 785,223 511,312
1996
Translation - - - (636,527) -
adjustment
Net loss - - - - (582,550)
BALANCE at March 31, 1,322,005 13,220 4,822,390 148,696 (71,238)
1997
Translation - - - (307,226) -
adjustment
Net Income - - - - 148,298
BALANCE at December
31, 1997 1,322,005 $ 13,220 $4,822,390 $ (158,530) $ 77,060
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Novitron International, Inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ 148,298 $ (530,688)
Adjustments to reconcile
Net income (loss) to net cash
Provided by (used in)
Operating activities -
Depreciation and amortization 235,857 304,444
Minority interest (245,065) (5,227)
Accounts receivable (3,796) 1,921,802
Inventories (896,251) 1,374,568
Prepaid expenses (95,032) (149,875)
Other current assets 49,258 11,736
Accounts payable 1,267,251 (990,215)
Accrued expenses 499,045 (284,405)
Customer advances (131,319) 602
Accrued income taxes 138,172 (127,347)
Deferred income taxes (252,109) 344,807
Net cash provided by
operating activities 714,309 1,870,202
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities 99,472 174,755
Other assets (227,038) (750,893)
Purchase of equipment (289,378) (180,768)
Sales of equipment 26,657 24,694
Other, including foreign exchange
Effects on cash 4,474 (118,087)
Net cash used in
Investing activities (385,813) (850,299)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-term debt $ 142,880 $ 138,611
Proceeds from long-term debt (7,767) 10,030
Net cash provided by
Financing activities 135,113 148,641
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 463,609 1,168,544
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,634,270 1,018,501
CASH AND CASH EQUIVALENTS
AT December 31, 1997 and 1996 $2,097,879 $2,187,045
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Basis of Presentation
Novitron International, Inc. ("the Company") prepared the consolidated
financial statements included herein pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information normally included
in footnote disclosures in financial statements prepared in accordance with
generally accepted accounting principles was condensed or omitted pursuant to
such rules and regulations. In management's opinion, the consolidated
financial statements and footnotes reflect all adjustments necessary to
disclose adequately the Company's financial position at December 31, 1997 and
December 31, 1996. Management suggests these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997.
(1) Operations and Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries: Clinical Data BV, Clinical Data (Australia), Pty. Ltd.,
NovaChem BV, Spectronetics NV, and Vital Scientific NV. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market, and
consist of cash and marketable financial instruments with original maturities
of 90 days or less. Cash and cash equivalents consist of the following at
December 31, and March 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
<S> <C> <C>
Cash and money market
instruments $ 2,094,855 $ 1,630,638
Time deposits 3,024 3,632
$ 2,097,879 $ 1,634,270
</TABLE>
(c) Marketable Securities
The Company accounts for marketable securities under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Under SFAS No. 115, marketable
securities which the Company has the ability and positive intent to hold to
maturity are recorded at amortized cost and classified as "held to maturity"
securities. For the period ended March 31, 1997, marketable securities
consisted of United States Treasury securities and were stated at cost, which
approximated market value.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market,
include material, labor and manufacturing overhead, and consist of the
following at December 31, and March 31, 1997:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
<C> <S> <S>
Raw materials $ 905,887 $ 496,248
Work-in-process 1,678,544 1,252,249
Finished goods 658,128 777,892
$ 3,242,559 $ 2,526,389
</TABLE>
(e) Revenue Recognition
The Company recognizes revenue from the sale of products and supplies at the
time of shipment.
(f) Net Income (Loss) per Share
Net income or (loss) per share for the three and nine month periods ended
December 31, 1997 and 1996 is based on the weighted average number of common
shares outstanding during the respective fiscal period. The Company has
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("SFAS No. 128") effective December 31, 1997. SFAS No. 128 has new
guidelines about the calculation of earnings per share and requires the
restatement of previously stated earnings per share for comparability
purposes. There are no diluted earnings per share as there are no potentially
dilutive shares available for issuance during the periods presented in these
financial statements.
(g) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents, marketable securities, accounts receivable and long-
term debt, approximates their carrying value.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(h) Foreign Currency Translation
The Company accounts for foreign currency transaction and translation gains
and losses in accordance with SFAS No. 52, "Foreign Currency Translation."
The functional currency of Clinical Data BV, Vital Scientific NV and
Spectronetics NV is the Dutch guilder. During fiscal 1997, the functional
currency of Clinical Data Australia became the Australian dollar in
recognition of the shift of its operations to a more domestic focus. Also in
fiscal 1997, NovaChem BV changed its functional currency to the United States
dollar because the majority of its operations are now based in the United
States. Gains and losses from translating asset and liability accounts that
are denominated in currencies other than the respective functional currency
and foreign currency transaction gains and losses are included in other
expense in the consolidated statements of operation. The translation
adjustment required to report those subsidiaries whose functional currency is
other than the United States dollar into U.S. dollars is credited or charged
to cumulative translation adjustment, included as a separate component of
stockholders' investment in the accompanying consolidated balance sheets.
(i) Depreciation and Amortization of Equipment and Intangibles
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
("SFAS No. 121"), requires the Company to continually evaluate whether events
and circumstances have occurred that indicate that the estimated remaining
useful life of long-lived assets and such intangibles as goodwill may warrant
revision or that the carrying value of those assets may be impaired. To
compute whether assets have been impaired, the estimated gross cash flows for
the estimated remaining useful life of the asset are compared to the carrying
value. To the extent that the gross cash flows are less than the carrying
value, the assets are written down to the estimated fair value of the of the
asset. At December 31, and March 31, 1997, the Company's remaining goodwill
relates to its investment in Vital Scientific NV.
(j) Concentration of Credit Risk
Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit Risk," requires
disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet credit risk
such as foreign exchange contracts, option contracts or other foreign hedging
arrangements. The Company maintains the majority of its cash balances with
financial institutions.
(k) Postretirement Benefits
The Company has no obligations for post retirement benefits.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(l) Management's 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.
(m) Warranty Policy
The Company provides for a warranty reserve on its manufactured products for
one year, which covers parts and materials.
(n) Software Development Costs
In connection with the development of software included as a significant
component of a new analysis product, the Company has applied the provisions
of Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS
No. 86"). SFAS No. 86 requires the Company to capitalize those costs incurred
for the development of computer software that will be sold, leased or
otherwise marketed once technological feasibility has been established up to
the time at which the product is available for sale to the customer. These
capitalized costs are subject to an ongoing assessment of the recoverability
based on anticipated future revenues and changes in hardware and software
technologies.
Amortization of the capitalized software development costs begins when the
product is available for general release. Amortization is provided on a
product-by-product basis on either the straight-line method over periods not
exceeding five years or the sales ratio method. Unamortized capitalized
software development costs determined to be in excess of net realizable value
of the product are expensed immediately.
During the nine-month period ended December 31, 1997 and the year ended March
31, 1997, the Company capitalized $217,619 and $502,331, respectively, under
SFAS No. 86, included as a component of other assets in the accompanying
consolidated balance sheets. The Company has not recorded any amortization
for the year then ended, as the capitalized costs pertain to a product that
is not yet available for general release.
(o) Reclassifications
Certain reclassifications have been made to the prior year's presentation in
order to conform to that of the current year.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Continued)
(2) Reverse Stock Split
On November 12, 1996, the Company declared a 1 for 3 reverse stock split of
the Common Stock payable on December 4, 1996 to stockholders of record on
November 25, 1996. No fractional shares were distributed and the Common Stock
issued to each stockholder was rounded up to the nearest whole number of
shares. The financial statements for the periods presented were restated to
reflect an estimated number of shares outstanding. As of September 30, 1997,
the actual number of shares outstanding was verified; all share and per share
amounts for all periods presented have been restated to reflect the final
number of shares outstanding after the reverse stock split.
(3) Vital Scientific NV
On October 21, 1997, the Company purchased the remaining six (6%) percent of
Vital Scientific NV from the minority shareholder for NLG400,000. The
transaction has been recorded as a purchase and the resultant NLG73,000 of
gain on the purchase of the minority interest has been reflected as a
reduction of the goodwill on the books relating to past purchases of Vital
Scientific shares. The remaining goodwill is being amortized over 15 years on
a straight-line basis. The minority interest shown on the financial statements
for the quarter ended December 31, 1997 reflects the recording of the
purchase transaction.
(4) Settlement of a Dispute
In December 1997, the Company amicably settled all outstanding issues with E.
Merck related to the performance of each party under a series of distribution
agreements. The settlement, net of legal expenses, included a cash payment to
the Company and the release of certain indebtedness owed by the Company in the
aggregate amount of $623,223 which is reflected in Other Income.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations Third Quarter ended December 31, 1997 compared to the
Third Quarter ended December 31, 1996
Revenues for the three-month period ended December 31, 1997 increased
9.6% as compared to the same period last year. For the quarterly reporting
period when expressed in Dutch Guilders, there was a 23.8% increase in sales.
When translated, however, into U.S. dollars, the increase was offset by a
14.2% decline in the value of the Dutch Guilder. The year-to-date revenues
declined 15.1% from the same period last year. Sales were flat when
expressed in Dutch Guilders; the decline is due to the aforementioned
strengthening of the U.S. dollar against the Company's primary functional
currency, the Dutch Guilder.
The gross profit margin improved from 23.5% to 25.7% for the three-month
periods ending December 31, 1996 and 1997, respectively and from 25.1% to
26.0% for the nine-month reporting periods ended on the aforementioned
respective dates. The increase in gross profit is attributable to improving
margins from the sales of instruments and spare parts at Vital Scientific and
diagnostic assays at Clinical Data (Australia).
When analyzing the comparative figures for the three and nine month
reporting periods, the aforementioned 14.2% decline in the value of the Dutch
Guilder against the U.S. dollar effected each of the expense categories noted
below.
Sales and marketing expenses decreased 71.8% and 40.5% for the three and
nine month periods, respectively. The decline is attributable to a reduction
in the sales expenses at NovaChem BV and Clinical Data (Australia) coupled
with a release of certain reserves no longer deemed necessary.
Research and development expenses, as shown on the income statement
increased $454,000 for the three-month comparison and $279,000 for the year
to date. For the nine months ended December 31, 1997, the Company spent
an additional $735,000 which was capitalized in the third quarter of fiscal
1997, pursuant to Statement of Financial Standards No. 86 (see Note 1(n) in
the Notes to the Consolidated Financial Statements). For the three and nine
month periods ended December 31, 1997, the Company expended and capitalized
$99,000 and $255,000, respectively, under the same Financial Standard.
General and administrative expenses decreased 15.8% for the three-month
and 15.7% for the year-to-date periods ended December 31, 1997 when compared
to the same periods ended December 31, 1996.
Interest income increased from additional funds available for investment.
Interest expense increased at Vital Scientific from interest paid on loans
provided by a special program for research and development. Other income and
expense included the effect of foreign currency transaction gains and
losses, and as described in Note 4 in the Notes to the Consolidated Financial
Statements, the results of a settlement of a dispute with a major customer.
For the quarter ended December 31, 1996, the minority interest of
$5,200 is attributable to the 6% of Vital Scientific NV not held by the
Company. On October 21, 1997, Vital Scientific became a wholly owned
subsidiary of the Company. The minority interest of $9,037 reported for
the quarter ended December 31, 1997, represents the amount attributable to
minority interest up until October 21, 1997.
<PAGE>
Financial Condition and Liquidity
The effect of foreign currency transaction exchange on the result of
operations is included in other income and expense and is not material to the
financial statements. Any impact on the Company's liquidity is largely
dependent on the exchange rates in effect at the time the predominant
functional currency, the Dutch guilder, is translated into U.S. Dollars.
Approximately $107,000 of the December 31, 1997 balance of $2,098,000 in cash
and cash equivalents is denominated in U.S. dollars. The effect of
translation into U.S. dollars is reflected as a separate component of
stockholders' investment in the balance sheet. The effects of currency
exchange rates on future quarterly or fiscal periods on the results of
operations are difficult to estimate.
There are no formal hedging procedures employed by the Company. The primary
risk is to monetary assets and liabilities denominated in currencies other
than the U.S. dollar. Approximately $8.0 million of the $8.1 million of
current assets reside in the Company's foreign subsidiaries.
The Company generated approximately $714,000 of cash from operations during
the nine months ended December 31, 1997. The increase in funds comes from the
increase in accounts payable and accrued expenses offset by an increase in
the level of inventory and a decrease in deferred income taxes. The Company
used approximately $386,000 during the nine months for investing activities.
These included the capitalization of software development costs and the
purchase of equipment coupled with the effect of foreign currency exchange.
Financing activities provided $135,000 for the year thus far, principally
from the use of short-term lines of credit. The Company's sources of cash
include cash balances and a 2,000,000 Dutch guilder standby line of credit
from a Dutch bank. The Company believes that available funds will provide it
with sufficient working capital during the remainder of fiscal year 1998.
Part II. OTHER INFORMATION
Items 1-6:
None
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Novitron International, Inc.
(Registrant)
Israel M. Stein, MD
Date: February 5, 1998 Israel M. Stein, MD
President
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2098
<SECURITIES> 0
<RECEIVABLES> 2458
<ALLOWANCES> 73
<INVENTORY> 3243
<CURRENT-ASSETS> 8112
<PP&E> 2714
<DEPRECIATION> 2125
<TOTAL-ASSETS> 9578
<CURRENT-LIABILITIES> 4655
<BONDS> 31
0
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<COMMON> 31
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<TOTAL-LIABILITY-AND-EQUITY> 9578
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</TABLE>