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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
<TABLE>
<S> <C>
(Mark One)
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)
- -----
For the quarterly period ended June 30, 1997
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
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Commission file number 0-15318
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</TABLE>
BALLISTIC RECOVERY SYSTEMS, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-1372079
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(State or Other Jurisdiction of (IRS Employer ID Number)
Incorporation or Organization)
300 Airport Road, South St. Paul, Minnesota, 55075-3541
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(Address of Principal Executive Offices)
(612) 457-7491
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(Issuer's Telephone Number Including Area Code)
- --------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding as of August 11, 1997: 4,454,474
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1
<PAGE> 2
INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited). Page
----
Balance sheets as of June 30, 1997 and September
30, 1996. 3
Statements of operations for the three months and nine
months ended June 30, 1997 and 1996. 4
Statements of cash flow for the nine months ended
June 30, 1997 and 1996. 5
Notes to financial statements at June 30, 1997. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
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PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 49,172 $ 117,343
Accounts receivable - net of allowance of $12,500 181,544 73,793
Inventories 303,589 307,213
Prepaid expenses 11,797 4,197
---------- ----------
Total current assets 546,102 502,546
---------- ----------
Furniture and fixtures 153,704 75,747
Less accumulated depreciation (73,209) (59,901)
---------- ----------
Furniture and equipment - net 80,495 15,846
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Other assets:
Patents less accumulated amortization of
$7,067 and $6,552, respectively 4,598 5,112
Covenant not to compete less accumulated
amortization of $63,240 and $34,782, respectively 316,198 344,656
---------- ----------
Total other assets 320,796 349,768
---------- ----------
Total assets $ 947,393 $ 868,160
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,924 $ 60,923
Customer deposits 92,081 126,017
Accrued payroll 27,460 26,314
Other accrued liabilities 100,389 117,747
Line-of-credit borrowings --- 25,000
Current portion of bank note 8,700 ---
Current portion of covenant not to compete 33,000 31,334
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Current liabilities 321,554 387,335
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Long-term bank note and covenant not to compete,
less current portion 331,575 314,325
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Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares author-
ized; shares issued and outstanding of 4,454,474) 44,545 44,545
Additional paid-in capital 2,620,282 2,620,282
Accumulated deficit (2,370,563) (2,498,327)
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Total shareholders' equity 294,264 166,500
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Total liabilities and shareholders' equity $ 947,393 $ 868,160
========== ==========
</TABLE>
See Notes to Financial Statements.
3
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended June 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 577,843 $ 579,124 $1,422,005 $1,348,813
Cost of sales 376,074 361,875 929,323 866,090
--------- --------- ---------- ----------
Gross profit 201,769 217,249 492,682 482,723
Selling, general and administrative 99,967 120,876 299,553 292,326
Research and development (8,147) (3,092) (10,299) 43,710
--------- --------- ---------- ----------
Income from operations 109,949 99,465 203,428 146,687
Other income (expense):
Interest expense (11,195) (12,247) (34,037) (30,017)
Covenant amortization (9,486) (9,486) (28,458) (25,296)
Other income (expense) --- --- (13,169) ---
--------- --------- ---------- ----------
Net income $ 89,268 $ 77,732 $ 127,764 $ 91,374
========= ========= ========== ==========
Primary earnings per share $ 0.01 $ 0.01 $ 0.02 $ 0.01
========= ========= ========== ==========
Weighted average number of shares
outstanding 6,379,492 6,379,492 6,379,492 6,379,492
========= ========= ========== ==========
Fully diluted earnings per share $ 0.01 $ 0.01 $ 0.02 $ 0.01
========= ========= ========== ==========
Weighted average number of shares
outstanding 6,379,492 6,379,492 6,379,492 6,379,492
========= ========= ========== ==========
</TABLE>
See Notes to Financial Statements.
4
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
For the Nine Months Ended June 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash flow from operating activity:
Net income $127,764 $ 91,374
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 13,822 5,544
Amortization of covenant not to compete 28,458 25,296
Inventory valuation reserve 29,000 24,000
(Increase) decrease in:
Accounts receivable (107,751) (4,369)
Inventories (25,376) (125,780)
Prepaid expenses (7,600) (2,661)
Increase (decrease) in:
Accounts payable (999) 9,760
Accrued expenses (50,148) 13,449
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Net cash from operating activities 7,170 36,613
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Cash flow from investing activities:
Capital expenditures (77,957) (7,724)
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Net cash from investing activities (77,957) (7,724)
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Cash flow from financing activities:
Net borrowing under line-of-credit agreement (25,000) 30,000
Proceeds from bank note 70,000 ---
Principal payments on bank note (5,863) ---
Principal payments on covenant not to compete (36,521) (22,216)
-------- --------
Net cash from financing activities 2,616 7,784
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Increase (decrease) in cash (68,171) 36,673
Cash - beginning of year 117,343 16,977
-------- --------
Cash - end of period $ 49,172 $ 53,650
======== ========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's summary annual report for the year ended September 30, 1996.
B. INVENTORIES
The components of inventory consist of the following:
06/30/97 09/30/96
-------- --------
Raw materials $210,209 $195,291
Work in process 53,976 50,146
Finished goods 93,404 86,776
Less valuation reserve (54,000) (25,000)
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Total inventories $303,589 $307,213
======== ========
C. CUSTOMER DEPOSITS
The Company periodically receives partial or complete down payments for
orders. These down payments are recorded as customer deposits. The
deposits are recognized as revenue when the product is shipped.
D. RESEARCH AND DEVELOPMENT FUNDING AND INCOME RECOGNITION
In 1994, the Company received initial funding and signed letters of intent
for two research and development contracts for larger emergency parachute
systems. One of the projects is ongoing for a companies is developing a
four place composite, certified aircraft. If successfully certified, this
aircraft will be the first FAA certified aircraft to offer one of the
Company's recovery systems as standard equipment. The other project was
for a company is developing three experimental category aircraft. This
second project was suspended during fiscal year 1995. Both of the
companies are privately held.
Under the ongoing contract, funding earned was reflected as an offset to
research and development expenses for the quarters ended June 30, 1997 and
1996.
Additional funding, although not guaranteed, is expected to be received on
a monthly basis over the next 6 to 9 months as the research and
development progresses. Although exact time lines and production volumes
are uncertain, it is expected that manufacturing of production units will
commence at the end of the funding time line.
6
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(UNAUDITED)
D. RESEARCH AND DEVELOPMENT FUNDING AND INCOME RECOGNITION (CONTINUED)
The Company will retain the developed technology for the parachute systems
in general and the outside companies will retain the developed technology
that is specific to their individual aircraft. In order to retain the
developed technology, the Company will offer the company with the ongoing
project, a discount on future purchases of completed systems which will
total 110% of the advanced amount.
The other company's project has been suspended and future work with this
company is not certain. The Company did not establish a liability for the
funding taken as an offset to expense to date under these projects due to
the uncertainty of the future of the project and the future viability of
the products to be developed. In addition, the Company feels that the
establishment of a reserve for a potential future obligation would be
misleading to the financial statements as presented. Any future purchase
discounts that will be earned upon completion of the project will be
offset against any future sales made to that company.
The Company expects to be able to utilize the developed technology for
applications on a wide range of aircraft. The future applications will
depend on a complete review of market conditions, product acceptance and
available funding.
E. SMALL BUSINESS INNOVATION RESEARCH GRANT (SBIR)
In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research of
low-cost, lightweight aircraft emergency recovery systems. The $69,736
grant over a six month period was used by the Company to expand its
research in the area of lightweight fabrics and components for use in
recovery systems. The Phase I was completed in June 1995 and a proposal
for Phase II funding was submitted at that time. The $69,736 grant was
recognized as an offset to research and development expenses during fiscal
year 1995.
The Company signed a Phase II contract with NASA on March 8, 1996 and work
on that project commenced at that time. The total contract award was for
a firm fixed price grant of $581,875 for a period not to exceed 24 months.
Funding earned was reflected as an offset to research and development
expenses for the quarters ended June 30, 1997 and 1996 for work performed
on the Phase II project.
F. ADDITIONAL CONTRACT RESEARCH AND DEVELOPMENT
In June 1996, the Company received a purchase order from a defense
subcontractor for the development of a parachute recovery system for an
unmanned aircraft that is being developed for possible military use. The
purchase order, with revisions, is for a total of $151,365 and covers an
18 month period. The purchase order calls for development funding for the
recovery system as well as the delivery of completed recovery systems.
Work is current underway on the purchase order. No assurances can be made
as to the success of the development project or if its completion will
lead to future revenues. Also, no assurances can be made that the project
will proceed as intended in the purchase order.
7
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(UNAUDITED)
G. COVENANT NOT TO COMPETE
On October 26, 1995 the Company entered into an agreement with the
president and majority shareholder of Second Chantz Aerial Survival
Equipment, Inc. (SCI), the Company's sole US competitor, whereby:
1. SCI ceased all business activities, and
2. SCI's president and majority shareholder entered into a ten
year covenant not to compete with the Company.
In exchange for the above the Company agreed to make payments on the
covenant not to compete. The agreement did not involve a stock or asset
purchase. In addition, the Company did not agree to assume any
liabilities of SCI or its president. The payments required under this
agreement contains a non-interest bearing portion and a portion that bears
interest at a rate below the Company's incremental borrowing rate. Under
generally accepted accounting principles the future payments have been
discounted at the Company's incremental borrowing rate of 11.0% as
follows:
Future Present
Dollars Dollars
-------- --------
Cash at signing $ 5,000 $ 5,000
Parachute systems 15,000 15,000
Non-interest bearing four year note 80,000 63,732
4% ten year note: principal 400,000 295,706
interest 84,362 ---
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$584,362 $379,438
======== ========
The non interest bearing note calls for monthly payments of $1,500 for
forty-six months (February 1996 to November 1999). The 4% ten year note
calls for monthly payments of $4,036 (November 1995 to October 2005).
Payments under this agreement are unsecured.
The present value of the Company's obligation under this agreement was
recorded as an intangible asset and is being amortized over ten years as
shown in the accompanying financial statements.
Future payments under this agreement are as follows:
Future Present
Dollars Dollars
--------- --------
1997 $ 77,184 $ 43,747
1998 66,436 34,960
1999 66,436 39,005
2000 62,436 39,935
2001 48,436 29,204
Thereafter 197,781 158,808
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$496,961 $345,659
======== ========
The Company also granted SCI's president an option to purchase 50,000
shares of the Company's common stock at an exercise price of $.25. This
option has a ten year life and vests 20% per year over five years.
8
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(UNAUDITED)
H. LONG TERM DEBT
In November 1996, the Company received a loan for use in renovating and
improving a new production facility. The new facility was obtained under
a long term lease which was signed on October 1, 1996. The loan in the
amount of $70,000 is for a period of 5 years with payments commencing
December 1996 at an interest rate of 2% over the banks index rate. The
current rate is 10.5%. The note is collateralized by the assets of the
Company.
I. LINE OF CREDIT
In December 1996, the Company re-negotiated a $35,000 line-of-credit for
use in operations. The line-of-credit is established on a annual renewal
basis which expires in mid-December 1997. The line calls for a variable
interest rate of 2% over prime. There was no outstanding balance at June
30, 1997.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
Sales for the third quarter of the current fiscal year were basically
flat with those of the same prior year period. This stability was
anticipated due to the strong performance in the prior fiscal year
quarter. On a year to date basis, the increase in sales is
attributable to continuing improvement in ultralight aircraft sales for
both currently existing aircraft designs as well as those of new
manufacturers. In addition, the Company believes that the departure of
the Company's only domestic competitor, during the Company's first
quarter of fiscal year 1996, has stimulated an increase in the
Company's sales. The sales plans that were implemented in previous
fiscal years have also contributed by expanding the Company's dealer
base and expanding sales to the existing dealers. At the end of the
current quarter, the flow of new orders had begun to slow down as a
result of a general slowdown in sales of ultralight aircraft. However,
by the middle of the subsequent quarter, order flow had resumed at a
higher pace with levels close to that of the previous year.
Gross margins were down slightly as a result of an increase in
operating expenses for the new production facility. An increase
in labor efficiency generated by the new facility helped to minimize
the impact on the gross margin.
Selling, general and administrative expenses were down as a percentage
of sales as well as actual dollars for the current quarter. The
decrease is partially a result in the timing of different expenditures
between quarters and the reduction of certain expenses including legal
fees. Increases in operating costs attributed to the new production
facility have been offset by cost containment measures in other areas.
Net research and development costs were lower for the current fiscal
year quarter compared to the prior year as a result of the outside
research and development projects with which the Company is involved.
This trend is consistent with the Company's desire to establish outside
funding for the majority of its research and development efforts.
The other income and expense category was consistent with that of the
prior year. On a year to date basis for the period ending June 30,
1997,the Company incurred one-time expenses in moving to and renovating
its new production facility. The expense of $13,169 represents costs
that are not classified as leasehold improvements and are therefore
expensed when incurred.
LIQUIDITY AND CAPITAL RESOURCES:
Management intends to continue to improve the Company's operations and
cash flows in 1997 by continuing to monitor and enhance cost saving
plans adopted in the prior years and implementation of new ones. The
following outlines management's plans:
The Company's focus on research and development has shifted over the
past several years. Following the completion of the GARD-150 project,
it became the intention of the Company to find outside sources for
research and development funding in order to continue its efforts
towards long-term product development and expansion. In 1994, the
Company received initial funding and signed letters of intent for two
research and development contracts for larger emergency parachute
systems. One of the projects is ongoing and that company is developing
a four place composite, certified aircraft. The other project was for
a company developing three experimental category aircraft consisting
of two place, five place and seven place composite aircraft. This
second project was suspended in 1995. The successful completion
of either of these projects cannot be assured. With the signing of
these two agreements, the Company believes that it has begun the
process of possibly expanding its research and development efforts into
a profit center for the Company through outside funding. In addition,
the receipt of outside funding has increased the Company's
opportunities to develop products for expanded applications throughout
the general aviation and experimental aircraft markets. It will
always be the intention of the Company to retain the rights to any
developed technology and the rights to manufacture any related
products.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES: (CONTINUED)
In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research
of low-cost, lightweight aircraft emergency recovery systems. The
$70,000 grant was used to provide a feasibility study to determine
whether or not future funding through NASA in the form of a Phase II
grant is warranted. The Phase I research was completed in June 1995 and
the Phase II grant was applied for as part of the final report.
The Company signed a Phase II contract with NASA on March 8, 1996 and
work on that project commenced at that time. The total contract award
was for a firm fixed price grant of $581,875 for a period not to
exceed 24 months. No assurances can be made as to the future success of
this project, or whether or not all of the contract amount will be
allocated and received over the life of the contract.
The Company anticipates pursuing additional grants and contracts over
the coming fiscal years through the SBIR program and other programs
sponsored by NASA, other government agencies and private companies. No
assurances can be made as to the future success of the current grant
nor the likelihood of the receipt or success of any future grants or
contracts.
In October 1995, the Company entered into a non-compete agreement with
its only domestic competitor, SCI. As a result of other sales efforts
that were underway, the exact benefit of the SCI transaction in terms
of sales volumes cannot be specifically determined. Although the
agreement calls for debt service over a ten year period, the Company
believes that the agreement will have a positive impact on both
profitability and cash flow. This agreement, in addition to other sales
programs that have been implemented by the Company over the past
several years, should continue to strengthen the Company's revenues and
profitability into the future.
In July 1996, the Company received a purchase order from a defense
subcontractor for the development of a parachute recovery system for an
unmanned aircraft that is being developed for possible military use.
The purchase order with revisions was for a total of $151,365 and
covers an 18 month period. The purchase order calls for development
funding of the recovery system as well as the delivery of completed
recovery systems. No assurances can be made as to the success of the
development project or if its completion will lead to future revenues.
Also, no assurances can be made that the project will proceed as
intended in the purchase order.
Management intends to fund all of its continuing operation out of its
current revenues with the exception of expanded research and
development. Management believes that the current business operation is
adequate to support the ongoing operations of the Company during the
next twelve month period and will maintain expenses at the necessary
levels until further funding opportunities materialize.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
There are no exhibits and the Company did not file any reports on Form
8-K for the three months ended June 30, 1997.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BALLISTIC RECOVERY SYSTEMS, INC.
By /s/ Mark B. Thomas
-------------------
Mark B. Thomas
Chief Executive Officer and Chief Financial Officer
Dated August 13, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 49,172
<SECURITIES> 0
<RECEIVABLES> 194,044
<ALLOWANCES> 12,500
<INVENTORY> 303,589
<CURRENT-ASSETS> 546,102
<PP&E> 153,704
<DEPRECIATION> 73,209
<TOTAL-ASSETS> 947,393
<CURRENT-LIABILITIES> 321,554
<BONDS> 331,575
0
0
<COMMON> 44,545
<OTHER-SE> 249,719
<TOTAL-LIABILITY-AND-EQUITY> 947,393
<SALES> 1,422,005
<TOTAL-REVENUES> 1,422,005
<CGS> 929,323
<TOTAL-COSTS> 929,323
<OTHER-EXPENSES> 289,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,495
<INCOME-PRETAX> 127,764
<INCOME-TAX> 0
<INCOME-CONTINUING> 127,764
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,764
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
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