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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14482
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CARVER CORPORATION
(Exact Name of Registrant as specified in its charter)
WASHINGTON 91-1043157
- ---------------------------------- -----------------------------
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
20121 - 48TH AVENUE WEST, LYNNWOOD, WA 98036
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(Address of principal executive offices) (Zip Code)
(206) 775-1202
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(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
AT SEPTEMBER 30, 1996, 3,719,832 SHARES OF $.01 PAR VALUE COMMON STOCK OF
THE REGISTRANT WERE OUTSTANDING.
Page 1 of 27 pages.
Exhibit Index appears at Page 18.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARVER CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
Sept. 30, December 31,
1996 1995
(Unaudited)
Current Assets
Cash and cash equivalents $ 137,000 $ 261,000
Marketable securities 5,000 5,000
Accounts receivable, trade, net 2,576,000 2,304,000
Raw materials 689,000 893,000
Working 1,389,000 1,284,000
Finished 2,004,000 1,750,000
------------ -------------
Inventories 4,082,000 3,927,000
Current portion of note receivable 249,000 1,342,000
Prepaid expenses 955,000 377,000
------------ -------------
Total current assets 8,004,000 8,216,000
Property and equipment,
Land 440,000 440,000
Buildings and improvements 2,452,000 2,452,000
Equipment 2,006,000 2,019,000
------------ -------------
4,898,000 4,911,000
less accumulated depreciation (2,717,000) (2,620,000)
------------ -------------
2,181,000 2,291,000
Other assets and deferred charges 185,000 167,000
------------ -------------
Total Assets $ 10,370,000 $ 10,674,000
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable $ 711,000 $ 1,216,000
Accounts payable 389,000 842,000
Accrued liabilities
Commissions and advertising 148,000 104,000
Payroll and related taxes 161,000 198,000
Warranty 83,000 73,000
Other 22,000 156,000
Current portion of long-term debt 696,000
------------ -------------
Total current liabilities 1,514,000 3,285,000
------------ -------------
Shareholders' equity
Preferred Stock, par value $.01 per share
2,000,000 shares authorized, 1,411,764
shares issued and outstanding 14,000
Cstock, par value $.01 per share
20,000,000 shares authorized, 3,719,832
shares issued and outstanding 37,000 37,000
Additional paid-in capital 18,882,000 15,940,000
Accumulated deficit (10,077,000) (8,588,000)
------------ -------------
Total shareholders' equity 8,856,000 7,389,000
------------ -------------
Total liabilities and shareholders' equity $ 10,370,000 $ 10,674,000
------------ -------------
------------ -------------
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
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CARVER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 4,336,000 $ 4,494,000 $ 11,729,000 $ 14,655,000
Cost of sales 3,093,000 3,416,000 9,148,000 11,689,000
------------ ------------ ------------ ------------
Gross profit 1,243,000 1,078,000 2,581,000 2,966,000
Operating expense
Selling 674,000 702,000 1,856,000 2,750,000
General & administrative 461,000 340,000 1,470,000 1,294,000
Engineering, research & development 176,000 117,000 507,000 685,000
------------ ------------ ------------ ------------
1,311,000 1,159,000 3,833,000 4,729,000
------------ ------------ ------------ ------------
Loss from operations (68,000) (81,000) (1,252,000) (1,763,000)
Other income (expense)
Interest expense (37,000) (82,000) (180,000) (274,000)
Interest income 1,000 22,000 50,000 65,000
Other 15,000 (10,000) (62,000) (114,000)
------------ ------------ ------------ ------------
Net loss $ (89,000) $ (151,000) $ (1,444,000) $ (2,086,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Loss per common share $ (0.02) $ (0.04) $ (0.39) $ (0.57)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
*Weighted average number of
shares outstanding 3,709,101 3,679,538 3,697,965 3,679,106
*Options outstanding and Preferred Stock conversion are excluded as the effect on loss per share is antidilutive.
</TABLE>
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CARVER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (1,444,000) $ (2,086,000)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization 179,000 311,000
Changes in:
Accounts receivable (272,000) 1,117,000
Inventories (155,000) 1,929,000
Prepaid expenses (578,000) 204,000
Accounts payable and accrued liabilities (571,000) (401,000)
Other assets & deferred charges (18,000) (45,000)
------------ ------------
Net cash (used) provided by operating activities (2,859,000) 1,029,000
------------ ------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment, net (69,000) (42,000)
Proceeds from notes receivable 1,093,000 7,000
------------ ------------
Net cash (used) provided by investing activities 1,024,000 (35,000)
------------ ------------
FINANCING ACTIVITIES:
Increase (decrease) in notes payable (505,000) (1,183,000)
Repayment of long-term debt (696,000) (15,000)
Issuance of common stock 2,000
Issuance of Preferred Stock 2,912,000
------------ ------------
Net cash (used) provided by financing activities 1,711,000 (1,196,000)
------------ ------------
Decrease of cash and cash equivalents (124,000) (202,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 261,000 249,000
------------ ------------
End of period $ 137,000 $ 47,000
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 180,000 $ 274,000
4
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CARVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PREPARATION
In the opinion of management, the consolidated financial statements include
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the changes in financial position and results of operations
for the interim periods reported. The results of operations for any interim
period are not necessarily indicative of the results for the entire year.
The financial statements should be read with reference to "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained herein and the "Notes to Consolidated Financial Statements" set
forth in the Company's 10-K filing for the year ended December 31, 1995.
The Company has adopted SFAS 123 but will continue to apply APB 25 for the
measurement of stock options granted by the Company. The application of SFAS
123 and APB25 to warrants granted by the Company may result in compensation
expense to the Company depending on the terms of each agreement.
NOTE 2 - EARNINGS PER COMMON SHARE
The earnings per share computations are based upon the weighted average
number of shares outstanding for the interim periods presented. The earnings
per share calculation for periods in which a loss is recorded excludes common
share equivalents because the effect would be antidilutive.
NOTE 3 - INCOME TAXES - Income tax expense is determined using an asset and
liability approach. There was no effect on the Company's financial position
or results of operations as a result of implementing this accounting
standard. Management is of the opinion that it is not appropriate to record a
benefit for net operating loss carryforwards of approximately $14,960,000 at
this time. As future operating results improve, management will re-assess
its position in this matter.
NOTE 4 - COMMITMENTS - As of November 12, 1996, the Company has committed to
purchase approximately $2,722,000 of inventory expected to be received in
1996 from various offshore vendors most of which is payable in U.S. dollars.
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NOTE 5 - STOCKHOLDERS EQUITY - Under the terms of the Stock Purchase Agreement
with Renwick Capital Management (See Item 2. "Changes in Securities") dividends
paid in Common Stock are reflected in the stockholders equity section of the
Balance Sheet as a decrease in Retained Earnings and increase to Common Stock
and Paid in Capital. As of September 30, 1996 15,323 shares of Common Stock
have been issued under the terms of this agreement.
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PART 1. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD - LOOKING INFORMATION -
Statements in this report concerning future performance, achievements,
developments, expectations, events or trends, including the discussion of the
Company's strategy, product development and introduction plans and
anticipated improvements in gross margin, constitute forward-looking
statements which are subject to a number of known and unknown risks,
uncertainties and other factors which might cause actual results to differ
materially from those expressed or implied by such statements. These include
the risks and uncertainties described below or under the caption "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and those identified by the Company from time to time in
other filings with the Commission, press releases and other communications.
RESULTS OF OPERATIONS -
The following tables set forth items in the consolidated statement of income
as a percentage of net sales for the three-month and nine-month periods ended
September 30, 1996 and 1995.
PERCENTAGE OF NET SALES
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net Sales 100% 100% 100% 100%
Cost of Sales 71.3 76.0 78.0 79.7
---- ---- ---- ----
Gross Profit 28.7 24.0 22.0 20.2
Operating Expenses
Selling 15.5 15.6 15.8 18.7
G & A 10.6 7.6 12.5 8.8
Engineering, research
and development 4.1 2.6 4.3 4.7
---- ---- ---- ----
Loss from operations (1.6) (1.8) (10.7) (12.0)
Interest expense (0.9) (1.9) (1.5) (1.9)
Interest income 0.0 0.5 0.4 0.5
Other expense (0.3) (0.2) (0.5) (0.8)
---- ---- ---- ----
Net loss (2.1)% (3.4)% (12.3)% (14.2)%
---- ---- ---- ----
---- ---- ---- ----
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RECENT DEVELOPMENTS -
BOARD MEMBER RESIGNATION. On August 14, 1996 the Board of Directors
accepted the resignation of Robert W. Carver, who had rejoined the Board in
December 1995.
PRIVATE PLACEMENT OF SECURITIES. As described more fully under the caption
"Liquidity and Capital Resources" below in this Item 2, on June 12, 1996, the
Company entered into a Stock Purchase Agreement with Renwick Capital
Management, Inc. ("Renwick") and certain Renwick affiliates (the
"Agreement"). Pursuant to the Agreement, during June and the third quarter
of 1996 the Company sold 1,411,764 shares of Series A Cumulative Convertible
Preferred Stock (the "Preferred Stock") and issued five year warrants (the
"Warrants") to acquire up to 300,000 shares of the Company's Common Stock
yielding gross proceeds to the Company of $3,000,000. The proceeds from this
offering have been used, among other things, to bring current a number of
payment obligations and purchase inventory.
SALE OF THE COMPANY'S BUILDING. Previously the Company reported that it
had entered into an agreement to sell its Lynnwood, Washington headquarters
and manufacturing facility which was expected to close by the end of 1996,
subject to satisfaction of a number of conditions. Certain of these
conditions have not been satisfied and the purchaser has elected to terminate
the agreement. Accordingly, the property has been relisted for sale.
SALE OF PROFESSIONAL AUDIO PRODUCT LINE. In November 1995, the Company sold
all of the tangible and intangible assets related to its professional audio
products line to Phoenix Gold International, Inc. ("Phoenix Gold"). The
transaction included a license which allows Phoenix Gold to use the name
"Carver Professional", and an agreement by the Company not to compete against
Phoenix Gold in the professional audio market for a period of five years from
the date of the sale.
CIRCUIT CITY DISTRIBUTION AGREEMENT. Late in 1995, the Company entered into a
distribution arrangement with Circuit City. Sales to Circuit City are
projected to be as much as 50%, or more, of the Company's revenue in 1996.
However, Circuit City may not be able to successfully market and sell the
Company's products. Factors which could affect the volume of sales by Circuit
City include factors which generally influence retail sales of electronic
products. The agreement between the Company and Circuit City may be
terminated by either party for any reason upon 30 days advance, written
notice without penalty. If sales to Circuit City fall short of expectations
for any reason,
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the Company may not be able to change its operations quickly enough to
respond to a significantly lower level of sales.
SEASONALITY. The markets for consumer audio equipment are moderately
seasonal, with somewhat higher sales expected to occur in the last six months
of the year. The introduction of new products may affect this seasonality and
quarter-to-quarter comparisons. Demand for audio products also exhibits some
cyclicality, reflecting the general state of the economy and consumer
expectations.
NET SALES AND NET LOSSES -
Net sales for the quarter ended September 30, 1996 were $4,336,000, a
decrease of 4% from net sales of $4,494,000 for the third quarter of 1995.
Net sales for the nine months ended September 30, 1996 were $11,729,000, a
20% decrease from net sales of $14,655,000 for the first nine months of 1995.
These decreases are attributable largely to the November 1995 sale of the
Company's professional product line and certain related OEM accounts to
Phoenix Gold. In the first nine months of 1995 net sales included sales of
professional products of $3,801,000 and OEM sales of $1,348,000 of which
$967,000 and $699,000, respectively, were sold in the third quarter. In the
first nine months of 1996, net sales included sales of professional products
of $432,000 and OEM sales of $118,000 of which $62,000 and $91,000,
respectively, were sold in the third quarter. Contracts which represented 95%
of the Company's 1995 OEM sales were included in the assets sold with the
professional products line.
Domestic sales of the Company's consumer products increased to $9,672,000 or
42% compared to sales of $6,808,000 in the first nine months of 1995. Of the
domestic sales, approximately $5,206,000 or 53% were sales made by the
Company to Circuit City. During the quarter ending September 30, 1996
domestic consumer products sales increased to $3,767,000 or 90% when compared
to the same period of the prior year, of which $2,021,000 or 54% were sales
to Circuit City.
Sales outside of the United States decreased approximately 55% from
$2,185,000 to $985,000 in the first nine months of 1996. In addition,
international sales for the quarter decreased 53% to $293,000 when compared
to the prior year. The Company believes this is attributable to limited
availability of product to sell to its international distributors.
Approximately 58% of the Company's sales in the first nine months of 1996
were attributable to products which the Company sources offshore compared to
45% for the same period of the prior year.
The Company's sales of consumer products, although higher in 1996 than in the
corresponding period last year, were negatively affected by the
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Company's strategy in 1995 of reducing its product line, especially those at
the low end of the price range and with low margins. Also, both domestic and
export sales have been adversely effected by a severe shortfall in working
capital during most of 1995 and in the first half of 1996. In addition, one
of the Company's offshore vendors failed to deliver two products on their
scheduled delivery dates due to production problems. As a result, the
Company was not able to stock enough of the products which its sources
offshore to consistently fill orders. In addition, most of the products
sourced offshore are products which often generate additional sales of
products manufactured by the Company (e.g. preamplifier/tuners and compact
disc players). Also, the Company's inability promptly to fill orders from
dealers in some cases caused dealers to cancel orders. The Company believes
these factors had a significant negative impact on the Company's sales during
the first nine months of 1996. (See "Liquidity and Capital Resources" below.)
Net losses for the quarter and nine month periods ended September 30, 1996
were $89,000 (2.1% of net sales) or $0.02 per common share and $1,444,000
(12.3% of net sales) or $0.39 per common share, respectively. This compares
to net losses of $151,000 (3.4% of net sales) or $0.04 per share for the
quarter and $2,086,000 (14% of net sales) or $0.57 per share for the nine
months ended September 30, 1995.
GROSS PROFIT -
Gross profit increased as a percent of net sales to 28.7% in the third
quarter of 1996 from 24% in the third quarter of 1995. Gross profit for the
first nine months of 1996 increased to 22% from 20.2% in the same period of
the prior year. Sales during the nine months ended September 30, 1996
included $432,000 of sales of professional products to the purchaser of the
Company's professional product line pursuant to an agreement entered into at
the time of the sale of the line. Pursuant to the agreement, these sales were
at the Company's cost and, therefore, yielded no margin. In addition,
approximately $5,206,000 in sales to Circuit City in the first nine months
were at a lower margin than the Company realizes on its sales to other
domestic customers. Despite these negative factors, the Company experienced
improvements in gross profit as it increased its domestic production. Margins
are expected to continue to improve as the Company purchases new products to
be introduced in 1996 from offshore vendors located outside of Japan.
However, there can be no assurance that foreign exchange rates, cost
increases or other factors will not negatively impact margins. (See
"Liquidity and Capital Resources" below.)
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OPERATING EXPENSE -
Operating expense decreased in the first nine months of the year in
comparison to the prior year by 19% due to the elimination of expenses
attributable to the Company's professional products line. This reduction
affected selling, general and administrative as well as research and
development. Operating expense increased in the quarter to quarter comparison
by 13% due to increased research and development investment, use of
consultants as well as increased field sales support and media advertising
OTHER INCOME AND EXPENSE -
Average borrowings were down in the first nine months of 1996 from the same
period of 1995, and therefore interest expense decreased approximately
$94,000 and $45,000 during the nine months and quarter ended September 30,
1996 when compared to the corresponding periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES -
The Company's working capital on September 30, 1996 was $6,490,000 which
included cash and short term investments aggregating approximately $137,000.
This compares with working capital of $4,931,000 and cash and short-term
investments of $266,000 at December 31, 1995. At November 8, 1996, the
Company's immediate capital resources consisted of approximately $46,000 in
cash (and cash equivalents) and the credit facility described below.
The Company has a $6,000,000 revolving line of credit, $1,000,000 of which
can be used to open commercial letters of credit. Borrowings under this
agreement are restricted to 70% of eligible accounts receivable and 50% of
eligible inventory. At November 8, 1996, the Company had borrowed $291,000 of
the $2,968,000 then available under this facility. The line is
collateralized by substantially all assets of the Company and bears interest
at the lender's prime rate plus 2%. The lender has agreed to make temporary
advances to the Company over the amount otherwise available under the
formulas described above. The terms of the temporary accommodation allow the
Company to borrow up to an additional $1,000,000 through March 31, 1997,
$500,000 through April 30, 1997, and $250,000 through May 31, 1997. The
Company granted its lender a deed of trust on Carver's Lynnwood, Washington
facility as security for the temporary accommodation. The Company has no
borrowings against this over-line availability. The Company's line of credit
expires on July 31, 1998.
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The Company's inventory has increased $155,000 from December 31, 1995
primarily due to receipt of finished goods from offshore suppliers. Accounts
receivable has increased $272,000 from the end of 1995 due to increased sales.
During most of 1995 and the first half of 1996 the Company operated under a
severe cash shortage which caused it to push out payments to vendors, and
defer the purchase of source product for several months. As the Company's
borrowing base is dependent on its inventory and receivables, the borrowing
availability had contracted to a level at which the Company was experiencing
a cash shortfall and was forced to delay payment of its accounts payable
which delayed receipt of major sourced product purchases. Several of the
Company's major suppliers changed payment terms in 1996 to require
prepayment. The Company believes that it has lost sales in the first nine
months of 1996 due to lack of availability of product.
Late in the second quarter and during the third quarter of 1996 the Company
sold 1,411,764 shares of Series A Cumulative Convertible Preferred Stock (the
"Preferred Stock") and issued five year warrants (the "Warrants") to acquire
up to 300,000 shares of the Company's Common Stock pursuant to a Stock
Purchase Agreement with Renwick Capital Management, Inc. ("Renwick") and
certain Renwick affiliates (the "Agreement"). The Shares of Preferred Stock
and Warrants are convertible into or exercisable for 1,711,764 shares of
Common Stock, or approximately 46% of the current shares outstanding.
The price of the Preferred Stock was $2.125 per share and each share of
Preferred Stock is convertible at any time at the option of the holder into
one share of Common Stock, subject to certain potential antidultion
adjustments to be triggered by the issuance of additional shares of Common
Stock at less than the lesser of the then current market price or $2.125.
The Preferred Stock is entitled to an 8% compounding annual dividend payable
quarterly. In the first year, such dividend will be and has been paid with
shares of Common Stock. In years two and three (the Preferred Stock will
automatically be converted into Common Stock on the third anniversary of
issuance, thereby terminating the accruing dividend), the Company has the
option of paying the dividend either in cash or with shares of Common Stock.
If paid with Common Stock, the number of shares will be based on the greater
of $2.125 per share or the average of the closing bid prices for the Common
Stock for the 30 days prior to the dividend payment date. The number of
shares of Common Stock which might be issued over the life of the dividend
cannot be determined at this time as such number will vary with the market
price of the Common Stock.
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The holders of the Preferred Stock are entitled to one vote for each share of
Common Stock into which the Preferred Stock is convertible. In addition, the
holders of the Preferred Stock are entitled to elect two representatives to
the Company's Board of Directors. The Company's Board of Directors was
increased by two positions, and Raj K. Bhatia and James R. McCullough have
been appointed to the Board of Directors to represent holders of the
Preferred Stock. Messrs. Bhatia and McCullough are partners of Renwick. By
virtue of the number of votes to be controlled by Renwick and its affiliates,
their right to elect two of the Company's seven directors and the fact that
various actions may not be taken by the Company without the approval of the
holders of at least a majority of the Preferred Stock, such holders may be
deemed to have acquired control of the Company. Certain actions by the
Company, such as a merger or liquidation of the Company, the sale of
substantially all of its assets, payment of dividends, amendment of the
Company's articles of incorporation, the issuance of additional securities or
the incurrence of certain indebtedness, will require the approval of at least
a majority of the Preferred Stock. The Agreement also provides that the
investors will have preemptive rights to subscribe for additional shares
issued by the Company and rights to have the Company register shares of
Common Stock issued upon conversion of the Preferred Stock or exercise of the
Warrants.
The exercise price of the Warrants is $1.50 per share of Common Stock, if
exercised from the date of the initial closing through the date two years
from the date of the initial closing, $1.75 for the next year, $2.00 for the
next year, $2.125 for the final year, again subject to certain potential
antidilution adjustments.
Renwick is a New York-based investment banking firm founded in 1994 which
specializes in the identification of undervalued growth companies exhibiting
the potential for an operational turn-around. Renwick actively supports its
principal investments through the involvement of the industry and Wall Street
professionals familiar with turn-around situations.
The Company had entered into an agreement to sell its headquarters in
Lynnwood, Washington for $3,675,000. The Purchaser did not remove the
necessary contingencies required for the sale to be consummated. As such,
the property remains listed for sale.
The Company believes that its available working capital and anticipated cash
flows from operations will satisfy the Company's projected working capital
and capital expenditure requirements for at least the next 12 months.
However, if the Company's sales do not increase or if the Company incurs
unanticipated expenses, existing sources of working
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capital may not be sufficient and there can be no assurance that additional
financing would be available on acceptable terms, or at all, if and when
needed. Any additional financing may involve substantial additional dilution
to the interests of the Company's shareholders.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS.
The Company's operating results may fluctuate due to factors such as the
timing of new product announcements and introductions by the Company, its
major customers and its competitors, market acceptance of new or enhanced
versions of the Company's products, changes in the product or customer mix of
revenues, changes in the level of operating expenses, competitive pricing
pressures, the gain or loss of significant customers, increased research and
development expense associated with new product introductions, and general
economic conditions. All of the above factors are difficult for the Company
to forecast, and these or other factors can materially adversely affect the
Company's business and operating results for one quarter or a series of
quarters.
EFFECTS OF INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES.
Due to the competitive conditions in the market for consumer electronics,
historically the Company has been limited in its ability to increase prices
for its products in amounts sufficient to offset increased production and
operating costs. The Company increased prices for its domestic products in
January 1995 and its export products in July 1995 an average of 5%. The
Company intends to continue to monitor costs and its market and adjust prices
taking into consideration the Company's costs and competitive conditions.
All sales of the Company's products are in U.S. dollars.
Approximately 43% of the Company's net sales in 1995 and 58% year to date in
1996 were of products designed by and/or manufactured to the Company's
specifications by overseas suppliers. Historically, the Company purchased a
substantial portion of these products at an agreed per unit price payable in
Japanese yen. Accordingly, the weakening in the value of the dollar versus
the yen has had an adverse effect on the Company's gross margin in 1995. The
Company's 1996 plan presently is for 58% of its revenues to be from product
sourced offshore. The Company is in the process of replacing certain
Japanese built products with product sourced from countries that do not
require payment in Japanese Yen. However, the transition to alternate
suppliers may involve quality control issues, delays in delivery dates or
other transitional problems.
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Historically, the Company has had a policy of generally hedging its foreign
currency exposure between the date orders are placed with overseas suppliers
and the date at which payment is made. Due to credit restrictions under its
line of credit, the Company has not been hedging. At November 11, 1996, the
Company had committed to the purchase of approximately $2,722,000 of
inventory scheduled for delivery in 1996. Of this amount, approximately
$35,000 is denominated for payment in Japanese Yen. As a result, changes in
the value of the Yen against the U.S. dollar would not have a material effect
on the amount the Company has committed to purchase.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
As described more fully under the caption "Liquidity and Capital
Resources" in Item 2 of Part I above, late in the second quarter and during
the third quarter of 1996 the Company sold 1,411,764 shares of Series A
Cumulative Convertible Preferred Stock (the "Preferred Stock") and issued
five year warrants (the "Warrants") to acquire up to 300,000 shares of the
Company's Common Stock pursuant to a Stock Purchase Agreement with Renwick
Capital Management, Inc. ("Renwick") and certain Renwick affiliates (the
"Agreement"). The Shares of Preferred Stock and Warrants are convertible
into or exercisable for 1,711,764 shares of Common Stock or 46% of the
current shares outstanding. In the event of liquidation of the Company,
holders of the Preferred Stock are entitled to receive the price paid for
their shares of Preferred Stock plus accrued but unpaid dividends before
holders of the Company's outstanding shares of Common Stock receive any
distributions.
Each share of Preferred Stock is convertible at any time at the option of
the holder into one share of Common Stock, subject to certain potential
antidilution adjustments to be triggered by the issuance of additional shares
of Common Stock at less than the lesser of the then current market price or
$2.125. The Preferred Stock is entitled to cumulative dividends at the annual
rate of $0.17 per share payable quarterly and the holders of Preferred Stock
are entitled to one vote per share. Certain actions by the Company, such as
a merger or liquidation, the sale of substantially all of its assets, payment
of dividends, amendment of the Company's articles of incorporation, the
issuance of additional securities or the incurrence of certain indebtedness,
require the approval of the holders of at least a
15
<PAGE>
majority (or in some cases, two-thirds) of the holders of the Preferred Stock.
In addition, the holders of the Preferred Stock are entitled to elect
two representatives to the Company's Board of Directors. The Company's Board
of Directors has been increased by two positions, and Raj K. Bhatia and James
R. McCullough (principals of Renwick) have been appointed to the Board of
Directors to represent holders of the Preferred Stock. By virtue of the
number of votes to be controlled by Renwick and its affiliates, their right
to elect two of the Company's seven directors and the fact that various
actions may not be taken by the Company without the approval of the holders
of at least a majority of the Preferred Stock, such holders may be deemed to
have acquired control of the Company.
See "Liquidity and Capital Resources" in Item 2 of Part I above.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 10.42
Agreement for Financial Public Relations Services
(b) Exhibit 10.43
Sixteenth Amendment to Carver Corporation Accounts
Financing Agreement
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARVER CORPORATION
Dated: /s/Debra L. Griffith
---------------------- Vice President - Finance
17
<PAGE>
CARVER CORPORATION
EXHIBIT INDEX
EXHIBIT TITLE PAGE
- --------------------------------------------------------------------------
10.42 Agreement for Financial Public 19
Relations Services
10.43 Sixteenth Amendment to Carver Corporation 25
Accounts Financing Agreement
18
<PAGE>
EXHIBIT 10.42
[LETTERHEAD]
AGREEMENT FOR
FINANCIAL PUBLIC RELATIONS SERVICES
THIS AGREEMENT is entered into on this 22nd day of August 1996 by and between
CORPORATE RELATIONS GROUP (hereinafter "CRG") , with its principal place of
business at 2030 Main Street, Suite 620, Irvine, California 92614 and CARVER
CORPORATION hereinafter ("Client"), a Washington corporation, with its
principal place of business at 20121 48th Avenue West, Lynnwood, WA 98036 --
206 -775-1202 .
HEREAFTER, the Client and CRG are referred to collectively as "Parties", and
singularly as "Party".
WHEREAS, the Parties desire to set forth the terms and conditions under which
the said services shall be performed.
NOW, THEREFORE, in consideration of these promises of the mutual covenants
herein, the Parties hereto agree as follows:
ARTICLE I - SCOPE OF SERVICES
CRG agrees to perform for the Client the financial services described as
follows:
(a) CRG will develop, implement, and maintain an ongoing stock market
support system with the general objective of expanding stockbroker awareness
of the Client's activities, and hence to commensurate interest in the
Client's stock. This market support system will have a four part approach:
(i) A SHAREHOLDER COMMUNICATION SYSTEM to keep existing stockholders
informed about the Client's activities and potential.
(ii) A STOCKBROKER SUPPORT SYSTEM to build a national network of
stockbrokers who are informed about and interested in the Client.
(iii) AN INVESTOR GENERATION SYSTEM to develop leads for selected brokers and
to assist them in their marketing activity of the Client's stock.
(iv) A MEDIA RELATIONS SYSTEM to increase corporate visibility through
informational press releases, placement of articles and copy consulting on
annual and quarterly reports.
-1-
<PAGE>
(b) Optional Services. Additional projects, such as design and production
of annual and quarterly reports, video or slide presentations, speech
writing, and consulting related to financing activities, will be performed
and billed as mutually agreed upon by both Parties.
(c) CRG agrees to provide the Client with a written investor relations
update each quarter which outlines activities undertaken by CRG on the
Client's behalf and to be available to meet with the Client to evaluate the
program's progress and direction.
ARTICLE II - PERIOD OF PERFORMANCE
The period of performance under this agreement shall be for a primary
term of six (6) months from the date hereof. This Agreement may be terminated
at the end of the six (6) month period by either Party upon at least 30 days
written notice. Notice of termination may only be given on or before the last
day of the initial six month term. If no notice of termination is received
at that time the Agreement automatically renews for one successive six (6)
month period under the same terms and conditions. Adjustments in
compensation structure and the issuance of additional options (a new Option
Agreement) will be considered after each year of service under the Agreement
(two six month periods).
ARTICLE III - CONTRACTUAL RELATIONSHIP
In performing the services under this Agreement, CRG shall operate as,
and have the status of an independent contractor. The Client and CRG will be
mutually responsible for determining the means and the methods for performing
the services described in ARTICLE I.
ARTICLE IV - COMPENSATION
As full consideration for the performance of the basic (four-part)
services described above, the Client shall pay CRG compensation as follows:
(a) CASH: $3,000 per month, which includes expenses for telephone/facsimile
charges and postage for press release mailings.
(i) Initial payment for the first month and an equal amount as a deposit
against expenses and/or retainer amounts shall be due at the time this
Agreement is signed ($6,000). Following the initial payment, ensuing
payments are payable monthly in advance to CRG's principal place of business
and are due on the first day of each month.
(b) EXPENSES: Additional expenses include, but are not limited to, the
following: travel and lodging; fare of public carrier; photocopy and
printing; wire service (PR Newswire) charges; and postage for specially
targeted mailings other than press releases. CRG agrees to obtain prior
client approval for any single expense over $50.00. CRG shall submit a
monthly invoice to the Client, which covers the monthly fee and reimbursable
expenses. The Client agrees to indemnify and pay CRG for all authorized
expenses committed to on behalf of the Client prior to termination of this
Agreement for any reason.
-2-
<PAGE>
(c) OPTIONS: Three Options (or Warrants) to purchase the Client's common
stock shall be granted to CRG.
(i) OPTION A - Immediately exercisable option to purchase 60,000 shares of
Client's Common Stock at an exercise price equal to the closing bid price on
the date of this Agreement (subject to adjustment as provided herein). This
Option A may be exercised from the date of this Agreement until 11:59 p.m.
(Los Angeles time) on the date that is 12 months after the date of this
Agreement. Any portion of this Option A not exercised on or before its
expiration date shall expire.
(ii) OPTION B - Immediately exercisable option to purchase 60,000 shares of
Client's Common Stock at an exercise price equal to 150% of the closing bid
price on the date of this Agreement (subject to adjustment as provided
herein). This Option B may be exercised from the date of this Agreement
until 11:59 p.m. (Los Angeles time) on the date that is 18 months after the
date of this Agreement. Any portion of this Option B not exercised on or
before its expiration date shall expire.
(iii) OPTION C - Immediately exercisable option to purchase 60,000 shares
of Client's Common Stock at an exercise price equal to 200% of the closing
bid price on the date of this Agreement (subject to adjustment as provided
herein). This Option C may be exercised from the date of this Agreement
until 11:59 p.m. (Los Angeles time) on the date that is 24 months after the
date of this Agreement. Any portion of this Option C not exercised on or
before its expiration date shall expire.
(iv) MISCELLANEOUS: The Options pursuant to this Agreement may not be
transferred, assigned, pledged or hypothecated in any manor (whether by
operation of law or otherwise) without the prior written consent of Client.
The Options may be exercised in whole or in part by means of a written notice
of exercise delivered to Client accompanied by payment of the full exercise
price in cash or by certified or cashier's check. CRG agrees that it will
also pay to Client, the amount necessary , if any, for Client to satisfy its
withholding obligations imposed by the Internal Revenue Code. CRG
acknowledges that the issuance of shares of Common Stock upon exercise of the
forgoing Options, and any resale of the shares of Common Stock, may only be
affected in accordance with applicable state and federal laws and
regulations. CRG shall furnish evidence satisfactory to Client (including a
written and signed representation letter and a consent to be bound by all
transferred restrictions imposed by applicable law) to that effect upon
exercise of any of the Options and that it is not entitled to any rights as a
shareholder with respect to any shares of Common Stock issuable pursuant to
the Options until the Options have been exercised.
(v) PIGGYBACK REGISTRATION RIGHTS: If at any time prior to August 31, 1999,
Client proposes to register any of its Common Stock under the Securities Act
Of 1933 in connection with a firmly underwritten public offering of Common
Stock for cash for its own account on a registration form that may be used
for the registration of the sale of Common Stock issued upon exercise of the
Options ( "Registerable Shares" ), at least 20 days before filing such
registration statement Client will notify CRG of such determination, and upon
the request of CRG given in writing, within twenty (20) days after receipt of
the Client's notice, Client shall use its reasonable best efforts to cause
any of the Registerable Shares specified by CRG to be included in such
registration statement.
-3-
<PAGE>
(ARTICLE IV (C) (V) - CONTINUED)
However, if any managing underwriter for such public offering determines in
its reasonable good faith judgment that the inclusion of all Registerable
Shares requested by CRG and the Common Stock proposed to be offered by Client
and by other shareholders, whether originally covered by requests for
registration or otherwise included, might interfere with the successful
marketing of such securities within a price range reasonably acceptable to
Client, then Client shall be required to include in the registration only
that number of securities, including Registerable Shares, which the managing
underwriter believes will not jeopardize the success of the offering and the
number of shares otherwise to be included in the registration statement shall
be reduced as follows: (1) there shall first be excluded Common Stock
proposed to be included by other shareholders not possessing legal rights to
include the same pursuant to this Agreement or any similar agreement; and (2)
any further reduction shall be pro rata among all other shareholders (having
such legal rights) requesting inclusion of there Common Shares in such
registration (with the exception of holders of rights pursuant to the
Registration Rights Agreement dated June 12, 1996 among Client and Renwick
Capital Management, Inc. and its affiliates (the "Senior Registration Rights
Agreement")), in the proportion of the number of shares of Common Stock then
owned by each with respect to which it has registration rights; and (3) any
further reduction shall be determined in accordance with the terms of the
Senior Registration Rights Agreement. CRG agrees not to seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement. Client shall not be required to include
any Registerable Shares in a registration pursuant to this Agreement unless
CRG accepts the terms of the underwriting as agreed upon between Client and
the underwriters selected by Client. CRG shall cooperate with Client in
connection with the preparation of a registration statement, and shall
provide to Client, in writing, for use in the registration statement, all
such information regarding CRG and his or its plan of distribution with
respect to the Registerable Shares covered thereby as Client from time to
time may reasonably request to prepare the Registration Statement and
prospectus covering the Registerable Shares, to maintain the currency and
effectiveness thereof and otherwise to comply with all applicable
requirements of law in connection therewith.
(vi) S-8 REGISTRATION: If Client has not registered shares as described
above, then upon the written request of CRG thereafter, the Client shall use
its reasonable best efforts to cause all shares underlying the Options
granted to CRG to be registered via an S-8 Registration.
ARTICLE V - ADJUSTMENTS TO OPTIONS
The Exercise Price and the number of shares of Common Stock and classes of
capital stock of the Company purchasable upon the exercise of each Option are
subject to adjustment from time to time as follows:
(a) If the Company: (i) pays a dividend or makes a distribution on its
Common Stock, in each case, in shares of its Common Stock; (ii) subdivides
its outstanding shares of Common Stock into a greater number of shares; (iii)
combines its outstanding shares of Common Stock into a smaller number of
shares; (iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock or (v) issues by reclassification of
its shares of Common Stock any shares of its capital stock; then the number
and classes of shares purchasable upon exercise of each Option in effect
immediately prior to such action shall be adjusted so that the holder of any
Option thereafter exercised may receive the number and classes of shares of
capital stock of the Company which such holder would have owned immediately
following such action if such holder had exercised the Option immediately
prior to such action.
-4-
<PAGE>
(b) If the Client is a party to a consolidation, merger or transfer of
assets which reclassifies or changes its outstanding Common Stock, the
successor corporation (or corporation controlling the successor corporation
or the Company, as the case may be) shall by operation of law assume the
Client's obligations under this Agreement.
(c) Upon consummation of such transaction the Options shall automatically
become exercisable for the kind and amount of securities, cash or other
assets which the holder of an Option would have owned immediately after the
consolidation, merger or transfer if the holder had exercised the Option
immediately before the effective date of such transaction. As a condition to
the consummation of such transaction, the Client shall arrange for the person
or entity obligated to issue securities or deliver cash or other assets upon
exercise of the Option to, concurrently with the consummation of such
transaction, assume the Client's obligations hereunder by executing an
instrument so providing and further providing for adjustments which shall be
as nearly equivalent as may be practical to the adjustments provided herein.
ARTICLE VI - CLIENT INFORMATION
Since CRG must at all times rely upon the accuracy and completeness of
information supplied to it by the Client's officers, directors, agents, and
employees, the Client agrees to indemnify, hold harmless, and defend, CRG,
its officers, agents, employees at the Client's expense, in any proceeding or
suit which may arise out of and/or due to any inaccuracy or incompleteness of
such material supplied by the Client to CRG.
ARTICLE VII - GRANT OF LICENSE
(a) CRG hereby grants a license to the Client, through the duration of this
Agreement, to use CRG's exclusive system, lists, manuals and trademarked and
copyrighted materials. Due to the unique and proprietary nature of these
systems and materials, CRG will revoke this license upon termination of this
Agreement for any reason and all such materials and lists must be returned to
CRG immediately thereafter and their use by the Client discontinued.
(b) CRG agrees that all information disclosed to it about the Client's
products, processes and services are the sole property of the Client and it
will not assert any rights to any confidential or proprietary information or
material, nor will it directly or indirectly, except as required in the
conduct of its duties under the Agreement, disseminate or disclose any such
confidential information; and
(c) Upon termination of this Agreement, CRG will return to the Client all
documents, records, notebooks and similar items of or containing confidential
information then in its possession, including copies thereof, whether
prepared by CRG or others.
ARTICLE VIII - REPRESENTATIVE AND NOTICES
Notices provided for hereunder shall be in writing and may be served
personally to the Client's Representative and CRG's representative at their
respective place of business or by registered mail to the address of each
Party as first set forth herein above or may be transmitted by FAX.
-5-
<PAGE>
ARTICLE IX - ARBITRATION/JURISDICTION OF COURT
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in the County of Orange,
California, in accordance with the rules of the American Arbitration
Association there in effect, except that the parties thereto shall have any
right to discovery as would be permitted by the Federal Rules of Civil
Procedure and the prevailing Party shall be entitled to actual costs and
actual attorney's fees from arbitration or any other civil action. Judgment
upon the award rendered therein may be entered in any Court having
jurisdiction thereof. Jurisdiction for any legal action is stipulated
between the Parties to lie in the County of Orange, California.
ARTICLE X - MISCELLANEOUS
This Agreement constitutes the entire agreement between the Client and CRG
relating to providing financial relations services. It supersedes all prior
or contemporaneous communications, representations or agreements, whether
oral or written, with respect to the subject matter hereof and has been
induced by no representations, statements or agreements other than those
herein expressed. No agreement hereafter made between the Parties shall be
binding on either Party unless reduced to writing and signed by an authorized
officer of the Party bound thereby.
This Agreement shall in all respects be interpreted and construed, and the
rights of the Parties hereto shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers.
CARVER CORPORATION CORPORATE RELATIONS GROUP
By: /s/J.P.WORLD By: /s/SHANNON T. SQUYRES
------------------ -----------------------
Shannon T. Squyres
Date: 9-9-96 Date: 8/22/96
---------------- ---------------------
-6-
<PAGE>
EXHIBIT 10.43
November 11, 1996
Congress Financial Corporation (Northwest)
101 S.W. Main Street, Suite 725
Portland, OR 97204
Re: SIXTEENTH AMENDMENT TO CARVER CORPORATION ACCOUNTS FINANCING
AGREEMENT
Ladies and Gentlemen:
This Sixteenth Amendment to Accounts Financing Agreement (this
"Amendment") is for the purpose of amending the Accounts Financing Agreement
[Security Agreement] which we entered into on or about December 20, 1990, as
it has been previously amended (the "Accounts Financing Agreement").
For valuable consideration, receipt and sufficiency of which are
acknowledged, we agree as follows:
1. Section 2.7 is revised in its entirety as follows:
"2.7 In addition to amounts otherwise available
under the formulas described above, and
notwithstanding the Maximum Credit limit, you will temporarily
allow us an overadvance of up to the lesser of
(i) fifty percent of the market value of that certain real
property in Lynnwood, Washington, more fully
described in Exhibit C hereto (the "Lynnwood Property") as
established by an MAI appraisal satisfactory to
you; or (ii)$1,000,000 (the lesser of (i) or
(ii) being referred to hereinafter as the "Overadvance
Limit"). All overadvance amounts shall bear
interest at the rate prescribed in Section 3 hereof. The
Overadvance Limit will be reduced by the following amounts, and
any overadvance amounts in excess of such reduced Overadvance
Limit must be repaid, on or before the dates listed below:
DATE REDUCTION AMOUNT
3/1/97 $500,000
4/1/97 $250,000
5/1/97 $250,000
Any remaining balance of the overadvance shall be repaid in full on May 1,
1997.
25
<PAGE>
2. For the accommodation described in this Amendment, we agree to
pay you a fee in the sum of $5,000.
3. To induce you to accept this Amendment, we make the following
representations, warranties, and covenants:
(a) Each and every recital, representation, and warranty
contained in this Amendment, the Accounts Financing Agreement, and the Deed
of Trust is correct as of the date of this Amendment.
(b) No event has occurred or is continuing which constitutes
or, with the giving of notice, the passage of time, or both, would
constitute, an Event of Default under the Accounts Financing Agreement.
4. We shall pay all expenses, including attorney fees, which you
incur in connection with the preparation and implementation of this Amendment
and any related documents.
5. Except as specifically provided above, the Accounts Financing
Agreement remains fully valid, binding, and enforceable according to its
terms.
6. We waive and discharge any and all defenses, claims,
counterclaims, and offsets which we may have against you and which have
arisen or accrued up to the date of this Amendment. We acknowledge that you
and your employees, agents and attorneys have made no representations or
promises to us except as specifically reflected in this Amendment and in the
written agreements which have been previously executed. In this connection,
we specifically waive the provisions of California Civil Code Section 1542,
which provides as follows:
"A general release does not extend
to claims which the creditor does
not know or suspect to exist in his
favor at the time of executing the
release, which, if known by him,
must have materially affected his
settlement with the debtor."
Very truly yours,
CARVER CORPORATION
By /s/ John P. World
Its Executive Vice President
The undersigned guarantor acknowledges that Congress Financial
Corporation (Northwest) ("Congress") has no obligation to provide it with
notice of, or to obtain its consent to, the terms of this Amendment. The
undersigned guarantor nevertheless hereby (i) acknowledges and agrees to the
terms and conditions of this Amendment; (ii) acknowledges that its guaranty
remains fully valid, binding and enforceable; and (iii) waives any and all
defenses, claims, counterclaims and offsets against Congress which may have
accrued to date. In connection with these waivers, the undersigned guarantor
specifically waives the provisions of California Civil Code Section 1542,
which provides as follows:
"A general release does not extend
to claims which the creditor does
not know or suspect to exist in his
favor at the time of executing the
release, which, if known by him,
must have materially affected his
settlement with the debtor."
26
<PAGE>
USS CORPORATION, dba US Sound
By /s/ John P. World
Its Secretary
ACCEPTED AND AGREED:
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
By /s/ Drew Stawin
Its Vice President
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 137,000
<SECURITIES> 5,000
<RECEIVABLES> 2,576,000
<ALLOWANCES> 202,934
<INVENTORY> 4,082,000
<CURRENT-ASSETS> 8,004,000
<PP&E> 4,898,000
<DEPRECIATION> 2,717,000
<TOTAL-ASSETS> 10,370,000
<CURRENT-LIABILITIES> 1,514,000
<BONDS> 0
0
14,000
<COMMON> 37,000
<OTHER-SE> 8,805,000
<TOTAL-LIABILITY-AND-EQUITY> 10,370,000
<SALES> 4,336,000
<TOTAL-REVENUES> 4,336,000
<CGS> 3,093,000
<TOTAL-COSTS> 3,093,000
<OTHER-EXPENSES> 1,362,000
<LOSS-PROVISION> 23,730
<INTEREST-EXPENSE> 37,000
<INCOME-PRETAX> (89,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,000)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
