SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------------------------------
FORM 10-QSB-QUARTERLY OR TRANSITIONAL REPORT
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended January 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
COMMISSION FILE NUMBER 0-12873
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FIRECOM, INC.
- -------------------------------------------------------------------------------
(Exact name of Small Business Issuer in its charter)
New York 13-2934531
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39-27 59th Street, Woodside, New York 11377
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (718) 899-6100
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 and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
As of February 28, 1999, the Registrant had 6,217,330 shares of Common Stock
outstanding, and 5,062,563 shares of Class A Common Stock outstanding.
1
<PAGE>
INDEX
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PAGE NO.
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Safe Harbor Statement 3
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-January 31, 1999 4-5
Consolidated Statements of Income-
Nine Months and Three Months Ended
January 31, 1999 and 1998 6
Consolidated Statements of Cash Flows-
Nine Months Ended January 31, 1999 and 1998 7-8
Notes to Consolidated Financial Statements 9-11
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-13
PART II OTHER INFORMATION 13
2
<PAGE>
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q for the nine months ended January 31, 1999 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "should"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. The matters set forth under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Cautionary
Statements" herein constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to differ materially from
those in such forward-looking statements.
3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 1999
----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,054,000
Accounts receivable, net of allowance for doubtful
accounts of $650,000. 3,261,000
Inventories 1,872,000
Deferred tax asset 673,000
Prepaid expenses and other 228,000
-----------
Total current assets $10,088,000
-----------
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT $ 1,560,000
Less: Accumulated Depreciation & Amortization 970,000
-----------
Total Fixed Assets $ 590,000
-----------
OTHER ASSETS
Intangible assets, less accumulated amortization of $72,000 $ 88,000
-----------
TOTAL ASSETS $10,766,000
===========
4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 1999
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 648,000
Accounts payable 1,215,000
Revolving Loan - Chase Bank 500,000
Accrued expenses 1,397,000
-----------
Total current liabilities $ 3,760,000
-----------
LONG-TERM LIABILITIES:
Notes payable, less current portion 1,132,000
Accrued compensation 248,000
Deferred tax liability 67,000
-----------
Total Long-Term liabilities $ 1,447,000
-----------
SHAREHOLDERS' EQUITY
Preferred Stock, par value $1; authorized 1,000,000
shares, none issued $ -0-
Common Stock, par value $.01: Authorized 30,000,000 shares.
Issued: 7,248,324 Outstanding: 6,217,330 72,000
Class A Common Stock, par value $.01: Authorized 10,000,000 shares.
Issued: 6,093,557 Outstanding: 5,062,563 61,000
Additional Paid-In Capital 2,764,000
Retained Earnings 3,888,000
-----------
Sub-Total $ 6,785,000
Less: Treasury Stock, at cost, 1,030,994 shares of both
Common and Class A 1,226,000
-----------
Total Shareholders' Equity $ 5,559,000
-----------
TOTAL LIABILITIES & EQUITY $10,766,000
===========
5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
---------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------------
JANUARY 31 JANUARY 31
---------- ----------
1999 1998 1999 1998
---- ---- ---- ----
NET SALES:
Product $2,880,000 $2,111,000 $ 8,378,000 $ 5,352,000
Service 1,679,000 1,574,000 4,848,000 4,818,000
---------- ---------- ----------- -----------
Total Sales 4,559,000 3,685,000 13,226,000 10,170,000
---------- ---------- ----------- -----------
COST OF SALES:
Product 2,013,000 1,297,000 6,062,000 3,481,000
Service 824,000 754,000 2,385,000 2,359,000
---------- ---------- ----------- -----------
Total Cost of Sales 2,837,000 2,051,000 8,447,000 5,840,000
---------- ---------- ----------- -----------
GROSS PROFIT 1,722,000 1,634,000 4,779,000 4,330,000
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Selling, general
and administrative 1,134,000 1,108,000 3,124,000 3,080,000
Research and development 188,000 188,000 510,000 481,000
---------- ---------- ----------- -----------
Total operating
expenses 1,322,000 1,296,000 3,634,000 3,561,000
---------- ---------- ----------- -----------
INCOME FROM OPERATIONS 400,000 338,000 1,145,000 769,000
---------- ---------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 44,000 33,000 148,000 71,000
Interest expense (55,000) (62,000) (166,000) (173,000)
Other 24,000 (114,000) 86,000 (87,000)
---------- ---------- ----------- -----------
Total Other
Income (Expense) 13,000 (143,000) 68,000 (189,000)
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAX 413,000 195,000 1,213,000 580,000
INCOME TAX EXPENSE 194,000 92,000 571,000 273,000
NET INCOME $ 219,000 $ 103,000 $ 642,000 $ 307,000
========== ========== =========== ===========
NET INCOME PER
COMMON SHARE:
Basic $ .02 $ .01 $ .06 $ .03
Diluted $ .02 $ .01 $ .05 $ .03
WEIGHTED AVERAGE NUMBER
OF SHARES USED IN
COMPUTING EPS:
Basic 10,743,400 9,517,188 11,229,356 9,290,310
Diluted 11,202,842 10,078,675 11,688,798 10,558,144
6
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31
----------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 642,000 $ 307,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 181,000 129,000
Provision for doubtful accounts 250,000 171,000
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Accounts receivable (767,000) 1,447,000
Inventories (371,000) (398,000)
Prepaid expenses and other (88,000) 51,000
Accounts payable 459,000 (236,000)
Accrued expenses 283,000 (207,000)
Accrued compensation (95,000) 89,000
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 494,000 1,353 ,000
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES,
Capital expenditures (72,000) (78,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (264,000) (241,000)
Purchase of May family stock (308,000) -0-
Increase in debt -0- 500,000
Preferred Stock Dividend -0- (905,000)
Proceeds from stock issuance -0- 452,000
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (572,000) (194,000)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (150,000) 1,081,000
CASH AND CASH EQUIVALENTS:
Beginning of year 4,204,000 2,465,000
---------- ----------
End of nine months $4,054,000 $3,546,000
========== ==========
7
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31
----------
1999 1998
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest during the period $ 165,000 $ 165,000
========== ==========
Cash paid for income taxes during the period $ 654,000 $ 437,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable issued for purchase of
May Common Stock $ 308,000 $ -0-
========== ==========
Note payable issued for acquisition
of business $ -0- $ 135,000
========== ==========
Conversion of Series A Preferred Stock
for Common Stock $ -0- $1,437,000
========== ==========
8
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FIRECOM, INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: ACCOUNTING POLICIES:
The accounting policies followed by the Company are set forth in Note 1 of the
Company's financial statements on Form 10-KSB for the fiscal year ended
April 30, 1998.
In the opinion of management the accompanying consolidated financial statements
contain the necessary adjustments, all of which are of a normal and recurring
nature, to present fairly Firecom Inc. and its subsidiaries' financial position
at January 31, 1999 and the results of operations for the three and nine months
ended January 31, 1999 and 1998, and cash flows for the nine months ended
January 31, 1999 and 1998.
All share information has been restated giving effect to the distribution of
Class A Common Stock (which is convertible on a share for share basis to Common
Stock) which took place on December 17, 1997, and treats the Class A Common
Stock as if converted to Common Stock. The only distinction between the two
classes is that the Class A Common Stock has thirty (30) votes per share and
generally cannot be transferred without conversion into Common Stock.
Certain reclassifications were made in the 1998 financial statements to conform
to the classifications used in the 1999 financial statements.
NOTE 2: INVENTORIES
Inventories consist of the following at January 31, 1999:
Raw materials and sub-assemblies $1,864,000
Work-in-process 8,000
----------
$1,872,000
==========
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at January 31, 1999:
Building improvements $ 310,000
Machinery and equipment 721,000
Furniture and fixtures 529,000
----------
$1,560,000
Less accumulated depreciation
and amortization 970,000
----------
$ 590,000
==========
NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following at January 31, 1999:
Notes payable to banks and other:
First mortgage note $286,000
Note payable to Norwood Venture 984,000
Note payable to May Family (first
transaction)(See Note 6) 123,000
Note payable to May Family (second
transaction)(See Note 6) 309,000
Other note payable 78,000
----------
$1,780,000
Less current portion 648,000
----------
$1,132,000
==========
9
<PAGE>
NOTE 5: INCOME PER COMMON SHARE
Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128
requires dual presentation of basic and diluted earnings per share for all
periods presented. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
A reconciliation of the income and weighted-average shares used in both
calculations follows:
Periods ended January 31, 1999
------------------------------
Three Months Nine Months
--------------------------- ----------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $219,000 10,743,400 $.02 $642,000 11,229,356 $.06
Effect of
Stock options - 459,442 -0- - 459,442 $(.01)
-------- ---------- ---- -------- ---------- ----
Diluted EPS $219,000 11,202,842 $.02 $642,000 11,688,798 $.05
-------- ---------- ---- -------- ---------- ----
Periods ended January 31, 1998
------------------------------
Three Months Nine Months
--------------------------- ----------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $103,000 9,517,188 $.01 $307,000 9,290,310 $.03
Effect of
Stock options - 561,487 -0- - 1,267,834 -0-
-------- ---------- ---- -------- ---------- ----
Diluted EPS $103,000 10,078,675 $.01 $307,000 10,558,144 $.03
-------- ---------- ---- -------- ---------- ----
Unexercised employee stock options to purchase 200,660 shares of the Company's
common stock for the three and nine months ended January 31, 1999 were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of the Company's common stock during
the respective periods.
NOTE 6: STOCKHOLDERS' EQUITY TRANSACTIONS
In 1995 the Company purchased 1,072,988 shares of the Company's common stock
held by certain members of the May family at $.45 per share (first transaction).
Terms of the agreement provide for a cash payment in the amount of $174,448 and
a five (5) year note in the amount of $308,397, bearing interest at 12% per
annum. Interest is payable monthly. The principal is to be paid in five equal
annual installments of $61,679. The Company's obligation under the note is
collateralized by a pledge by the Company to the noteholder of certain shares of
the repurchased common stock.
On July 22, 1997, the holders of the Series A Preferred Stock having a
liquidation preference of $1,437,000 exchanged their shares for an aggregate of
2,299,200 shares of the Company's common stock.
On July 22, 1997, all of the cumulative dividends in arrears on the Series A
Preferred Stock which approximated $905,000, were paid. 50% of the payment was
used by the holders of the preferred stock to exercise warrants which expired on
July 31, 1997 for 754,500 shares of the Company's common stock at $.60 per
share.
On September 2, 1998 the Company purchased 536,494 shares of the Company's $.01
par value common stock and an equal number of shares of class A common stock
held by certain members of the May family at $.575 per share (second
10
<PAGE>
transaction). Terms of the agreement provide for a cash payment in the amount of
$308,485 and a five (5) year note in the amount of $308,485, bearing interest at
11.5% per annum. The principal is to be paid in five equal installments of
$61,697. The Company's obligation under the note is collateralized by a pledge
by the Company to the noteholders of certain repurchased shares.
NOTE 7: COMMITMENTS AND CONTINGENCIES:
On December 31, 1992, the Company entered into an employment agreement with the
Chairman of the Company, which was amended on March 28, 1995, providing for base
salary plus incentive compensation and fringe benefits as defined in the
agreement, through April 30, 2000. At January 31, 1999, the Company has accrued
approximately $203,000 of incentive compensation and $149,000 of accrued fringe
benefits.
In connection with the purchase of certain assets, the Company entered into a
Consulting and Non-competition Agreement with the President of the corporation
from whom the assets were acquired, and have continuing payment requirements of
$25,000 per quarter through September 2000.
NOTE 8: STOCK DIVIDEND:
The Company declared a share dividend on its Common Stock, par value $.01 per
share (the "Common Stock"), payable in shares of the newly authorized Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), at the rate
of one share of the Class A Common Stock for each share of the Common Stock
issued and outstanding at the close of business on December 5, 1997. The
dividend shares were issued on December 17, 1997.
The Class A Common Stock, entitle the holders to vote together with the holders
of the Common Stock as a single class and to cast thirty votes per share. Shares
of the Class A Common Stock are non-transferable, but convertible at any time at
the option of the holder into the Company's regular Common Stock. The Class A
Common Stock participates in the earnings of the Company on the same basis as
the Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
----------------------------------------------------------------------------
LIQUIDITY
Net cash provided by operations for the nine months ended January 31, 1999 was
$494,000. The increases in accounts receivable and inventories were partially
offset by the increases in accounts payable and accrued expenses. The Company's
revolving financing agreement with a major New York bank, dated July 8, 1994,
was amended on April 1, 1996. This amendment provided the Company with a
revolving line of credit not to exceed $2 million (there was an outstanding
balance of $500,000 as of January 31, 1999) and a first mortgage note (the
balance was $286,000 as of January 31, 1999). These loan facilities are
collateralized by substantially all of the Company's assets and are subject to
certain covenants.
Availability of funds under the terms of revolving line of credit is based on
eligible accounts receivable and inventory. The initial commitment for $2
million, under the terms of the note, is reduced by $500,000 each six months
commencing on October 1, 1999.
Management believes that it will be able to maintain adequate working capital
and cash balances to meet its current needs.
11
<PAGE>
On January 4, 1999, the Company signed a commitment letter with a bank which
provides the Company with a $5,000,000 secured revolving credit/converting term
facility, and a first mortgage for the lesser of $800,000 or 85% of appraised
value of the Company's real property and improvements. This facility is to
refinance existing bank loans, supplement the Company's working capital and
assist future acquisition financing.
RESULTS OF OPERATIONS
Consolidated sales and net income for the quarter ended January 31, 1999 were
$4,559,000 and $219,000 respectively as compared to $3,685,000 and $103,000 for
the quarter ended January 31, 1998. Consolidated sales and net income for the
nine months ended January 31, 1999 were $13,226,000 and $642,000 respectively as
compared to $10,170,000 and $307,000 for the nine months ended January 31, 1998.
Sales increased by 30% during the nine months ended January 31, 1999 versus the
same period last year. These higher sales reflect the higher backlog of orders
as of April 30, 1998 versus the same period in 1997 and the increase in
subcontract work taken.
Gross profit percentage for the nine months ended January 31, 1999 was 36.1% as
compared to 42.6% for the nine months ended January 31, 1998. Gross profit
percentage for the three months ended January 31, 1999 was 37.8% as compared to
44.3% for the three months ended January 31, 1998. The decrease in gross profit
percentage was primarily due to an increase in new construction jobs and
subcontracting, which have a lower gross profit percentage than maintenance and
service.
Operating income for the nine months ended January 31, 1999 was $1,145,000 as
compared to $769,000 for the nine months ended January 31, 1998. As a percentage
of revenue, the operating income for the nine months ended January 31, 1999 was
8.7% versus 7.6% in the same period in 1998. The increase in operating income
and its percentage to revenue was primarily due to increase in revenues.
The Company's backlog for its life safety and other systems totaled $2,443,000
at January 31, 1999 as compared to $2,742,000 at April 30, 1998. Due to
fluctuations in the Company's backlog, management remains cautious about
predicting revenue in the fiscal year. Orders continue to be booked on the
Company's fire safety system being marketed outside of New York City, and
management is encouraged about future growth in this product category.
Significant changes in balance sheet items from April 30, 1998 to January 31,
1999 are highlighted as follows:
1: Cash decreased primarily due to the cash payment on the purchase of
the May family stock.
2: Accounts receivable increased due to increased sales.
3: Inventories increased as a result of stocking requirements for the
National Product.
4: The increase in accounts payable and accrued expenses reflect an
increase in inventory purchases and subcontracting costs.
5: Long term debt increased due to the purchase of the May family
stock, less payments made on current maturities of the long term
debt.
COMPUTER ISSUES FOR THE YEAR 2000
As a provider of life safety systems which are computer based, the Company is
aware of the potential problems the year 2000 could have on its computer systems
and programs. The Company has completed a review of its computer systems and
programs to determine which, if any, systems and programs are not capable of
recognizing the year 2000. The Company has concluded that all of its systems and
programs are year 2000 compliant. The computer system on which the accounting
records are kept are in the process of being updated to be year 2000 compliant.
12
<PAGE>
CAUTIONARY STATEMENTS
Information or statements provided by the Company from time to time contain
certain "forward-looking information" relating to such matters as liquidity,
projected sales and anticipated margins. The cautionary statements made herein
are being made pursuant to the Private Securities Litigation Reform Act of 1995
(the "Act") and with the intention of obtaining the benefits of the "safe
harbor" provisions of the Act for any such forward-looking information. The
Company cautions readers that any forward-looking information provided by the
Company is not a guarantee of future performance and that actual results may
differ materially from those in the forward-looking information as a result of
various factors, including but not limited to the acceptance in what is a new
market for the Company, the national marketing (historically, the vast majority
of the Company's revenues have been derived from the New York City market) of
the Company's newly-introduced line of life safety products. The principal
manufacturers against whom the Company expects to compete in the national market
are generally better financed, have products accepted in the market and have
long-established distribution and servicing networks.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Exhibits and Reports on Form 8-K - None
SIGNATURES
Firecom, Inc.
-------------
Dated: March 11, 1999 /s/ Paul Mendez
-------------------- -----------------------------
Paul Mendez
Chairman of the Board
President and Chief Executive
Officer
/s/ Jeffrey Cohen
-----------------------------
Jeffrey Cohen
Vice President-Finance,
Chief Financial Officer, and
Principal Accounting Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
EXHIBIT 27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FIRECOM, INC.'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME
AND STATEMENT OF CASH FLOW FOR THE PERIOD ENDED JANUARY 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JAN-31-1999
<CASH> 4,054
<SECURITIES> 0
<RECEIVABLES> 3,911
<ALLOWANCES> 650
<INVENTORY> 1,872
<CURRENT-ASSETS> 10,088
<PP&E> 1,560
<DEPRECIATION> 970
<TOTAL-ASSETS> 10,766
<CURRENT-LIABILITIES> 3,760
<BONDS> 0
<COMMON> 72
0
0
<OTHER-SE> 5,487
<TOTAL-LIABILITY-AND-EQUITY> 10,766
<SALES> 13,226
<TOTAL-REVENUES> 13,226
<CGS> 8,447
<TOTAL-COSTS> 8,447
<OTHER-EXPENSES> 3,206
<LOSS-PROVISION> 194
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> 1,213
<INCOME-TAX> 571
<INCOME-CONTINUING> 642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 642
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
