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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
( ) 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 0-16055
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
(FORMERLY PHOTOMATRIX, INC.)
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3267788
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1958 KELLOGG AVE., CARLSBAD, CALIFORNIA 92008
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(Address of principal executive offices) (Zip Code)
(760) 431-4999
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the 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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At February 15, 2000, 10,061,894 shares of Common Stock of National
Manufacturing Technologies, Inc. were outstanding.
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Transitional Small Business Disclosure Format.
Yes No X
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INDEX
NATIONAL MANUFACTURING TECHNOLOGIES, INC
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated balance sheets as of December 31, 1999 (unaudited) and March 31,1999 2
Unaudited consolidated statements of operations for the three and nine months
ended December 31, 1999 and 1998 3
Unaudited consolidated statements of cash flows for the nine months ended
December 31, 1999 and 1998 4
Unaudited notes to consolidated financial statements 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5: OTHER INFORMATION 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
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NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31, 1999
ASSETS (UNAUDITED) MARCH 31, 1999
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Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,000 $ 42,000
Accounts receivable, net of allowance
of $217,000 and $292,000 . . . . . . . . . . . . . 1,380,000 1,448,000
Inventories, net of allowance
Of $824,000 and $798,000 . . . . . . . . . . . . . 1,193,000 725,000
Land & building held for sale . . . . . . . . . . . . . -- 2,674,000
Net assets of discontinued operations . . . . . . . . . -- 386,000
Prepaid expenses and other. . . . . . . . . . . . . . . 61,000 8,000
------------------- -----------------
Total current assets . . . . . . . . . . . . . . . 2,677,000 5,283,000
Property and equipment, net . . . . . . . . . . . . . . . 1,836,000 1,918,000
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . 2,344,000 2,088,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . 15,000 65,000
------------------- ----------------
$ 6,872,000 $ 9,354,000
=================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 1,590,000 $ 1,724,000
Accrued liabilities. . . . . . . . . . . . . . . . . . 593,000 745,000
Credit facility. . . . . . . . . . . . . . . . . . . . 1,227,000 2,122,000
Mortgage on land & building held for sale. . . . . . . -- 2,023,000
Net liabilities of discontinued operations . . . . . . 1,049,000 --
Current maturities of long-term debt . . . . . . . . . 427,000 158,000
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Total current liabilities. . . . . . . . . . . . . 4,886,000 6,772,000
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Long-term debt. . . . . . . . . . . . . . . . . . . . . . 1,400,000 1,009,000
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Shareholders' equity:
Preferred Stock, no par value; 3,173,000 shares
Authorized, no shares issued and outstanding . . . . . -- --
Common stock, no par value; 30 million shares
Authorized, 10,022,000 and 9,914,000 shares issued
and outstanding, respectively. . . . . . . . . . . 21,413,000 21,376,000
Additional paid-in capital . . . . . . . . . . . . . . 69,000 53,000
Accumulated deficit. . . . . . . . . . . . . . . . . . (20,896,000) (19,856,000)
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Total shareholders' equity . . . . . . . . . . . . 586,000 1,573,000
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$ 6,872,000 $ 9,354,000
=================== ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
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Revenue . . . . . . . . . . . . . . . . . . . . $2,105,000 $1,600,000 $ 6,349,000 $ 2,926,000
Cost of revenues. . . . . . . . . . . . . . . . 1,405,000 1,143,000 4,355,000 2,058,000
----------- ----------- ------------ ------------
Gross profit. . . . . . . . . . . . . . . . . . 700,000 457,000 1,994,000 868,000
----------- ----------- ------------ ------------
Selling, general and administrative expenses 1,313,000 1,111,000 3,966,000 1,774,000
----------- ----------- ------------ ------------
Operating loss. . . . . . . . . . . . . . . . . (613,000) (654,000) (1,972,000) (906,000)
----------- ----------- ------------ ------------
Other income/(expense), net . . . . . . . . . . 180,000 (28,000) 171,000 (137,000)
----------- ----------- ------------ ------------
Loss from continuing operations . . . . . . . . (433,000) (682,000) (1,801,000) (1,043,000)
Income/(loss) from discontinued operations. . . -- 42,000 761,000 (246,000)
----------- ----------- ------------ ------------
Net loss. . . . . . . . . . . . . . . . . . . . $ (433,000) $ (640,000) $(1,040,000) $(1,289,000)
=========== =========== ============ ============
Basic and diluted net income/(loss) per share:
Continuing operations . . . . . . . . . . . . . $ (0.04) $ (0.07) $ (0.18) $ (0.12)
Discontinued operations . . . . . . . . . . . . $ -- $ 0.01 $ 0.08 $ (0.03)
----------- ----------- ------------ ------------
Net loss. . . . . . . . . . . . . . . . . . . . $ (0.04) $ (0.06) $ (0.10) $ (0.15)
=========== =========== ============ ============
Weighted average number of
Common shares outstanding. . . . . . . . . 9,983,000 9,965,000 9,940,000 8,797,000
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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NINE MONTHS ENDED DECEMBER 31
1999 1998
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Cash flows from operating activities:
Net loss:. . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,040,000) $(1,289,000)
Net income/(loss) from discontinued operations . . . . . . . . . 761,000 (246,000)
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Net loss from continuing operations. . . . . . . . . . . . . . . (1,801,000) (1,043,000)
Adjustments:
Depreciation and amortization. . . . . . . . . . . . . . . 211,000 110,000
Amortization of goodwill . . . . . . . . . . . . . . . . . 63,000 36,000
Provision for doubtful accounts. . . . . . . . . . . . . . 62,000 35,000
Provision for inventory. . . . . . . . . . . . . . . . . . 26,000 6,000
Options issued for compensation. . . . . . . . . . . . . . 16,000 30,000
Changes in assets and liabilities, net of assets acquired:
Accounts receivable . . . . . . . . . . . . . . . . . . 6,000 (634,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . (494,000) (559,000)
Prepaid expenses and current assets . . . . . . . . . . (53,000) 239,000
Other assets. . . . . . . . . . . . . . . . . . . . . . 50,000 (16,000)
Accounts payable. . . . . . . . . . . . . . . . . . . . (134,000) 262,000
Accrued liabilities . . . . . . . . . . . . . . . . . . 117,000 (678,000)
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Cash used in continuing operations . . . . . . . . . . . . . (1,931,000) (2,212,000)
Cash provided by discontinued operations . . . . . . . . . . 2,143,000 1,962,000
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Cash provided by (used in) operations. . . . . . . . . . . . . . 212,000 (250,000)
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Cash flows from investing activities:
Acquisition of property and equipment. . . . . . . . . . . . (76,000) (1,626,000)
Cost of Acquisitions . . . . . . . . . . . . . . . . . . . . (319,000) (308,000)
Cash provided by the issuance of stock . . . . . . . . . . . 37,000 200,000
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Cash used in investing activities. . . . . . . . . . . . . . . . (358,000) (1,734,000)
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Cash flows from financing activities:
Borrowings/(payments) under credit facility and long-term debt . (504,000) 2,567,000
(Acquisition)/disposal of land & building held for sale. . . . . 651,000 1,000
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Cash provided by financing activities. . . . . . . . . . . . . . 147,000 2,568,000
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Effects of exchange rate of discontinued operation on cash . . . -- (11,000)
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ 573,000
Cash at beginning of period. . . . . . . . . . . . . . . . . . . 42,000 12,000
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Cash at end of period. . . . . . . . . . . . . . . . . . . . . . $ 43,000 $ 585,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
1. GENERAL
Basis of Presentation
-----------------------
The accompanying unaudited consolidated financial statements reflect the
accounts of National Manufacturing Technologies, Inc. (formerly Photomatrix,
Inc.; the "Company"), together with its subsidiaries. The Company is a
value-added manufacturing company, specializing in the manufacture of enclosed
electronic systems and their various component assemblies. On June 5, 1998, the
Company acquired I-PAC Manufacturing, Inc. ("I-PAC"). On July 1, 1998, the
Company acquired the assets and business of MGM Techrep, Inc., and formed PHRX
Rep Co. On November 27, 1998, the Company acquired certain assets and the
business operations of Amcraft and incorporated the operations as I-PAC
Precision Machining, Inc. On December 18, 1998, the Company acquired certain
assets and the business operations of Greene International West, Inc. ("GIW")
and incorporated the operations as National Metal Technologies, Inc. ("NMT").
All acquisitions were treated as purchases for accounting and financial
reporting purposes. These companies comprise the manufacturing group. Under
the purchase method of accounting, the results of operations of the acquired
companies are combined with those of the Company from the date of acquisition.
In addition, on June 21, 1999, the Company sold product rights and certain
assets of its document scanner operations to Scan-Optics, Inc. Accordingly,
operational results of the scanner operations have been reclassified as
discontinued operations for the respective periods presented herein. The
balance sheets of the scanner operations have similarly been reclassified as net
assets (liabilities) of discontinued operations. As a result, the three and nine
months ended December 31, 1999, reflect the combined operations of I-PAC, PHRX
Rep Co., I-PAC Precision Machining and NMT. The three and nine months ended
December 31, 1998 reflect the operating results of I-PAC, and PHRX Rep Co. from
the dates of acquisition, and less than one full month of activity related to
the I-PAC Precision Machining and NMT acquisitions. The scanner operations are
classified as discontinued for all periods shown. All significant intercompany
transactions and balances have been eliminated.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to prevent the
information from being misleading. These unaudited consolidated financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present the Company's results of
operations and financial position as of the dates and for the periods presented.
These unaudited consolidated financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended March 31, 1999. The results for the interim
periods presented are not necessarily indicative of results to be expected for a
full year.
2. CREDIT FACILITY
On June 18, 1999 the Company entered into a $1,500,000 credit facility with a
lender that included a $1,200,000 A/R line of credit and a $300,000 term loan
which matures in August, 2001. The A/R line of credit began funding on July 8,
1999 and the $300,000 term loan was funded on September 9, 1999. In December
1999, the A/R credit line was increased to $2,000,000, and two inventory lines
totaling $650,000 were added to the existing credit facility. Outstanding
borrowings are collateralized by primarily all of the Company's assets. The
lines of credit expire on June 30, 2001. The balances outstanding as of March
23, 2000 were $1,657,000 on the A/R credit line, $255,000 on the term loan, and
$401,000 on the inventory lines.
The lines of credit accrue interest on outstanding borrowings at the prime rate
plus 4% per annum. Under the terms of the new agreement, total borrowings under
the A/R line of credit are limited to the lesser of $2,000,000 or 80% of
eligible accounts receivable (as defined under the agreement). Total borrowings
under the metal inventory line is limited to the lesser of $300,000 or 70% of
the cost of eligible metal inventory (as defined under the agreement). Total
borrowings under the electronics inventory is limited to the lesser of $350,000
or 35% of eligible electronics inventory (as defined under the agreement). The
new lines of credit expire in June, 2001.
3. DISCONTINUED OPERATIONS
Photomatrix Imaging, Inc. and Photomatrix, Ltd.
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On March 2, 1999, the Company approved a plan to sell certain product rights,
assets and liabilities of Photomatrix Imaging, Inc. ("Imaging") and its
wholly-owned subsidiary, Photomatrix, Ltd. ("Ltd."). On June 21, 1999, the
Company completed the transaction whereby it sold product rights and certain
assets of its document scanner operations to Scan-Optics, Inc of Manchester,
Connecticut ("Scan-Optics"). Under the terms of the agreement, Scan-Optics paid
the Company approximately $2,100,000 in cash to acquire all receivables,
inventory and certain equipment. Scan-Optics also assumed nearly $2 million of
current and future liabilities of Imaging and Ltd. Scan-Optics also assumed
lease commitments associated with the Company's engineering facilities located
in Chandler, Arizona, as well as its facilities in Great Britain. In addition,
Scan-Optics agreed to pay certain royalties, not to exceed $250,000 over a
three-year period, and also entered into a Transition Agreement and a five year
Manufacturing Agreement, under which Imaging will continue to manufacture
document scanner parts for Scan-Optics. Proceeds from this sale were used to
reduce short-term debt and provide working capital to the Company. The purchase
price is subject to adjustment based upon audit and verification by Scan-Optics
on the closing balance sheet.
Current and prior period balances have been reclassified to present Imaging and
Ltd. as a discontinued operation.
Lexia Systems, Inc.
- ---------------------
Included in net liabilities from discontinued operations are certain liabilities
under dispute by Lexia Systems, Inc., a wholly owned subsidiary that was
discontinued in December, 1996. Currently, Lexia carries on its books accounts
payable and unpaid rent claims of International Computers Limited, Inc. ("ICL")
and related entities in the amount of $457,000. Lexia disputes any liability
with respect to ICL in light of its own offsetting claims and defenses. There
is no assurance that Lexia will be successful in prevailing in its position with
regard to the outstanding claims previously made by ICL.
4. BASIC AND DILUTED LOSS PER SHARE
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
supersedes APB No. 15 and replaces "primary" and "fully diluted" earnings per
share ("EPS") under Accounting Principles Board ("APB") Opinion No. 15 with
"basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive
effects of options, warrants and other convertible securities. The weighted
average number of common shares outstanding used in computing basic earnings per
share ("EPS") was 9,983,000 and 9,965,000, for the three months ended December
31, 1999 and 1998, respectively, and 9,940,000 and 8,797,000, in the nine months
ended December 31, 1999 and 1998, respectively. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of the
Company. Options and warrants representing approximately 2,208,000 and
1,645,000 shares were excluded from the computations of net loss per common
share for the three months ended December 31, 1999 and 1998, respectively, and
for the nine months ended December 31, 1999 and 1998, respectively, as their
effect is antidilutive. The adoption of SFAS No. 128 did not have a material
effect on the Company's net income/loss per common share.
5. ACQUISITION OF I-PAC MANUFACTURING, INC.
On March 16, 1998, the Company entered into an Agreement and Plan of Merger and
Reorganization with I-PAC Manufacturing, Inc. The Agreement was approved by the
shareholders of the Company on June 5, 1998, and the transaction closed on June
11, 1998. As a result of the Merger, the 8,500 outstanding shares of I-PAC
common stock were exchanged for 4,848,000 shares of The Company's Common Stock
and possibly additional 4,652,000 shares of the Company's common stock in the
event that I-PAC achieves certain performance milestones during a twelve month
period commencing on July 1,1998 or outstanding options to purchase the
Company's common stock are exercised. As of December 31, 1999, the Company has
not made a determination as to whether any performance milestones have been
achieved.
If any performance milestones are met, the issuance of additional shares awarded
to I-PAC shareholders under the earn-out formula and/or in connection with the
exercise of the Company's outstanding options and warrants will be treated as
additional costs of the acquired enterprise and amortized accordingly over the
benefit period. On December 30, 1999, Roy Gayhart former Chief Financial
Officer of National Manufacturing Technologies, Inc., exercised a stock option
grant for the purchase of 40,000 shares of the Company's common stock. Per the
terms of the Merger this stock option exercise triggered the issuance of
additional 40,000 shares to the I-PAC Shareholders (the I-PAC Shareholders are
Patrick W. Moore, the Company's Chief Executive Officer, Chairman of the Board
and major shareholder, William L. Grivas, a major shareholder, James P. Hill, a
director and major shareholder and Michael Moore, a director), allocated among
them in proportion to their ownership of I-PAC shares as of the closing date of
the Merger. This issuance was ratified by the Board of Directors Compensation
Committee on January 7, 2000. The Merger was accounted for as a purchase of
I-PAC by the Company for accounting and financial reporting purposes. Under the
purchase method of accounting, upon closing of the Merger, I-PAC's results of
operations were combined with those of the Company, and I-PAC's assets and
liabilities were recorded on the Company's books at their respective fair
values. The purchase price, amounting to $2,191,000, was comprised of the value
of the stock plus acquisition costs and was allocated among the assets acquired
and the liabilities assumed. The issuance of additional shares awarded to I-PAC
shareholders under the earn-out formula and/or in connection with the exercise
of The Company's outstanding options and warrants will be treated in accordance
with APB 16, in that any additional shares will be treated as additional costs
of the acquired enterprise and amortized accordingly over the benefit period.
The $2,200,000 excess of the purchase price over the fair value of I-PAC's net
assets will be amortized over a twenty year period.
If the I-PAC transaction had been consummated at the beginning of the fiscal
year 1998, the Company's consolidated revenues, net income (loss) and net income
(loss) per share for the nine months ended December 31, 1999 would have been:
<TABLE>
<CAPTION>
Nine Months Ended December 31, 1998
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Revenues . . . . . . . . . . . . . . . . . . . . . . $ 3,474,000
Net loss from continuing operations . . . . . . . $ (1,277,000)
Net loss per share from continuing operations, basic
and diluted . . . . . . . . . . . . . . . . . . $ (0.15)
</TABLE>
6. ACQUISITION OF NATIONAL METAL TECHNOLOGIES
On December 18, 1998, the Company entered into an Agreement to acquire certain
assets and the business operations of Greene International West, Inc. ("GIW"), a
metal stamping company located in Oceanside, California. GIW had recently
emerged from a Chapter 11 Federal Bankruptcy proceeding, which was canceled
through the infusion of new capital funds from its major shareholders. The new
operation has been incorporated as National Metal Technologies, Inc. ("NMT").
Under the terms of the agreement, NMT will pay a total of $500,000, comprised of
a down payment of $150,000 satisfied by the issuance of 75,000 shares of the
Company's common stock and a five year note in the amount of $350,000, for the
purchase of GIW's customer list, supplier registrations, contract backlog,
proprietary trade data, rights to hire employees and general intangibles of GIW.
Future note payments may be made in a combination of the Company's stock and
cash at the election of the parties. In addition, NMT agreed to enter into a
capital lease of GIW equipment, with an option to purchase the equipment for
$490,000 at the end of the one-year period. The first year rental payments under
the equipment lease will be satisfied with the issuance of 25,000 shares of the
Company's common stock. As the capital lease was a condition of the acquisition,
the Company has recorded the assets held under the capital lease at their
estimated fair value of $943,000 and the related bargain purchase obligation of
$490,000 as part of the net assets acquired. The Company exercised its option
to purchase this equipment on December 1, 1999 and now is obligated, to GIW,
under a four year note in the amount of $490,000 which bears interest at 8%.
The Company agreed to price protect the shares issued to GIW shareholders at a
price of $2.00 per share, at a point two years from the closing date, for the
100,000 initial shares issued.
National Metal Technologies also entered into a fifteen year lease of the 80,000
square foot facility housing the metal stamping operation, under terms that
provide rent abatements for the first three years of the facility lease. NMT
also agreed to purchase GIW's accounts receivable and usable inventory, and pay
certain royalties (1.75% of sales to existing customers) over a three-year
period. All royalties are payable in common stock or cash, at the Company's
election. As of March 1, 2000, a total of 116,000 shares of common stock had
been issued to GIW for the first 12 months of royalty payments. On March 5,
2000, the agreement with GIW was modified so that all future royalty payments
are payable in cash. The $185,000 excess of the purchase price over the fair
value of NMT's net assets acquired is being amortized over twenty years.
7. ACQUISITION OF AMCRAFT
On November 27, 1998, the Company entered into an agreement to acquire certain
assets and the business operations of Amcraft, Inc., a precision metal machining
company located in Carlsbad, California. The new operation has been incorporated
as I-PAC Precision Machining, Inc. ("Precision Machining")
The Company acquired the business assets of Amcraft out of an assignment for the
benefit of creditors proceeding. Under the terms of the purchase, the Company
paid a total of $20,000 for the purchase of work-in-process inventory,
miscellaneous equipment, customer list and backlog, rights to hire employees and
the business name of Amcraft. The Company also entered into leases of
approximately $450,000 primarily of CNC precision machining equipment, which had
previously been used by Amcraft. In addition, the Company leased the 10,000
square foot facility previously occupied by the Amcraft operations through April
of 1999, at which time the precision metal machining operation was relocated to
the newly acquired NMT facility located in Oceanside, California. The $66,000
excess of the purchase price over the fair market value of Amcraft's net assets
is being amortized over twenty years.
<PAGE>
8. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires the cumulative
translation adjustment to be included as a component of comprehensive loss in
addition to net loss for the period. The Company had no components of other
comprehensive income during the periods presented.
9. ACQUISITION OF ASSETS OF TECNOLOGIAS NACIONALES MANUFACTURERAS DE
MEXICO.
On September 17, 1999, the Company entered into an Asset Purchase Agreement with
Mirror USA and Espejomex, S.A. DE C.V. to acquire certain assets in Tijuana,
Mexico which will be used by the Company's newly-created subsidiary, Tecnologias
Nacionales Manufactureras de Mexico. On August 25, 1999 Tecnologias Nacionales
Manufactureras de Mexico executed a lease of a 18,000 square foot manufacturing
facility located approximately five miles from the Otay Mesa border crossing in
Tijuana. The asset acquisition was a cash purchase. The 3-year lease agreement
calls for monthly lease payments of $4,500 for the first four months, $5,700
until August 2000, $5,900 until August 2001 and $6,000 until August 2002.
10. CORPORATE NAME CHANGE
On September 23, 1999 the Company's shareholders approved a change in the name
of the Company from Photomatrix, Inc. to National Manufacturing Technologies,
Inc. ("NMT"). The Company changed its name to National Manufacturing
Technologies, Inc. to better reflect the Company's currently diverse vertically
integrated contract manufacturing business operations. The Company closed its
sale of product rights and related assets of its scanner division to Scan-Optics
on June 21, 1999. During this past year, the Company has continued to
accomplish its strategy of vertically integrating complementary manufacturing
services to OEM customers, as demonstrated by its recent acquisitions of
National Metal Technologies, Inc. and I-PAC Precision Machining, Inc. Also, the
Company believes that the word "manufacturing" is more expressive of its basic
core competency, namely the creation of value-added manufactured goods.
11. RELATED PARTY TRANSACTIONS
During the three months ended December 31, 1999, the Company recorded
approximately $4,000 of goodwill related to earn-out accruals from the July 1,
1998 acquisition of MGM Techrep, Inc., (a company previously owned by Patrick W.
Moore, National Manufacturing Technologies' Chief Executive Officer, Chairman of
the Board and major shareholder, William L. Grivas, a major shareholder, and
James P. Hill, a Director and major shareholder) as compared to $36,000 in the
three months ended December 31, 1998. During the nine months ended December 31,
1999, the Company recorded approximately $46,000 of goodwill related to these
earn out accruals as compared to $62,000 during the nine months ended December
31, 1998. During the three months ended December 31, 1999 the company paid
$7,100 of these earn out accruals as compared to $36,000 during the three months
ended December 31, 1998. In the nine months ended December 31, 1999 the Company
paid $58,000 of these earn out accruals as compared to $81,000 in the nine
months ended December 31, 1998.
During the quarter ended December 31, 1999 the Company made no payments to
Sullivan, Hill, Lewin, Rez, Engle and LaBazzo, ("SHLRE") a law firm in which
James P. Hill, a director and major shareholder, is a partner, as compared to
$113,000 in the quarter ended December 31, 1998. There were no accruals of
additional payables to SHLRE during the quarter ended December 31, 1999 as
compared to $44,000 during the quarter ended December 31, 1998.
The Company also paid William L. Grivas, a major shareholder, approximately
$45,000 in consulting fees during this quarter. Of this amount $12,000 was
related to prior quarter earnings and $33,000 was for current quarter earnings.
Additional earnings in the quarter ended December 31, 1999 of approximately
$6,700 will be paid in the quarter ending March 31, 2000. There were no
additional accruals of consulting fees to William L. Grivas.
All related party transactions are reviewed and approved by the Audit Committee
of the Board of Directors.
12. SEGMENT INFORMATION
The Company's operations are classified into two reportable business segments:
Electronic Manufacturing Services and Metal Manufacturing Services. Electronic
Services manufactures and sells electronic products, including electronic
enclosed systems, utilized in technology intensive products and business
environments. This segment is primarily comprised of I-PAC. Metal Services
manufactures and sells stamped and machined metal products and services,
including phosphate and heat treat services, utilized in military, government
and commercial weaponry products. This segment is comprised of NMT and
Precision Machining.
In evaluating financial performance, management focuses on operating income as a
measure of profit or loss. Operating income is before interest expense, interest
income and income tax expense. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies. The
following table summarizes financial information by business segment from
continuing operations.
<TABLE>
<CAPTION>
Three Months Nine Months
-------------------- --------------------
(000's omitted) Ended December 31, Ended December 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue: . . . . . . . . . . . 1999 1998 1999 1998
--------- --------- --------- ----------
Electronic Manufacturing Services. $ 1,570 $ 1,485 $ 4,267 $ 2,811
Metal Manufacturing Services . . . $ 535 $ 115 $ 2,082 $ 115
Other. . . . . . . . . . . . . . . -- -- -- --
--------- --------- --------- ----------
Total. . . . . . . . . . . . . . . $ 2,105 $ 1,600 $ 6,349 $ 2,926
--------- --------- --------- ----------
Three Months Nine Months
-------------------- --------------------
Ended December 31, Ended December 31,
-------------------- --------------------
Segment operating profit/(loss): 1999 1998 1999 1998
--------- --------- --------- ----------
Electronic Manufacturing Services. $ (144) $ (582) $ (640) $ (834)
Metal Manufacturing Services . . . $ (471) $ (72) $ (1,360) $ (72)
Other. . . . . . . . . . . . . . . $ 2 -- $ 28 -
--------- --------- --------- ----------
Total. . . . . . . . . . . . . . . $ (613) $ (654) $ (1,972) $ (906)
--------- --------- --------- ----------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and unaudited notes to consolidated financial statements included
elsewhere herein.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1998
Continuing Operations
- ----------------------
On June 5, 1998, the Company acquired I-PAC and on July 1, 1998 the Company
acquired MGM. Both acquisitions were treated as purchases for accounting and
financial purposes. Accordingly, the three month period ending December 31,
1999 represents the second full quarter of comparative results with the prior
year for the Electronic Manufacturing Services Group ("EMS"). On November 27,
1998 the Company acquired certain assets and the business operations of Amcraft
and incorporated the operations as I-PAC Precision Machining, Inc. On December
18, 1998 the Company acquired certain assets and the business operations of
Greene International West, Inc. and incorporated the operations as National
Metal Technologies, Inc. Both acquisitions were treated as purchases for
accounting and financial purposes. These two entities comprise the Metal
Manufacturing Services Group ("MMS") of National Manufacturing Technologies,
Inc. Accordingly, the three month period ending December 31, 1999 represents
less than one full month of comparative results with the prior year for the MMS
Group.
Consolidated revenues for the quarter ended December 31, 1999 increased
approximately $505,000 or 31.6% to $2,105,000 from $1,600,000 for the quarter
ended December 31, 1998. EMS revenue increased $85,000 or 5.7% to $1,570,000
from $1,485,000 for the quarter ended December 31, 1998. MMS revenue increased
$420,000 or 365.2% to $535,000 from $115,000 for the quarter ended December 31,
1998. An increase in the EMS group backlog is expected to generate additional
revenue growth in the March 31, 2000 quarter. The large increase in the MMS
Group revenue is due to the fact that the MMS Group was only in operation for
less than one month in the quarter ended December 31, 1998.
Consolidated gross margin for the quarter ended December 31, 1999 increased
$243,000 or 53.2% to $700,000 or 33.3% from $457,000 or 28.6% for the quarter
ended December 31, 1998. This increase is primarily attributable to improved
margins in the EMS Group, and the inclusion of one full quarter of activity for
the MMS Group as compared to less than one month of activity in the same period
of 1998. Total gross margin as a percent of revenues was 33.3% for the three
months ended December 31, 1999 as compared to 28.6% during the same period of
1998. The 1999 amount is comprised of approximately $645,000 or 41.1% of
electronic manufacturing services gross margin, and $55,000 or 10.2% of metal
manufacturing services gross margin. EMS gross margin increased approximately
11.0% to 41.1% from 30.1% in the quarter ended December 31, 1998. The
consolidated gross margin represents an amount considered by management to be
less than expected under normal operating conditions. The MMS gross margin is
significantly less than expected under normal operating conditions due to the
low volume of activity. Increased backlog will result in improved margins as
the capacity of the metal stamping operation becomes more fully utilized.
Consolidated selling, general, and administrative ("SG&A") expenses for the
quarter ended December 31, 1999 increased $202,000 or 18.2% to approximately
$1,313,000. This amount is comprised of approximately $401,000 of corporate
SG&A expenses, $485,000 of electronic manufacturing services SG&A expenses, and
$427,000 of metal manufacturing services SG&A expenses. No corporate general
and administrative expenses were allocated to discontinued operations; therefore
all SG&A expenses for the full quarter are allocated to continuing operations.
Consolidated other income for the quarter ended December 31, 1999 totaled
approximately $180,000 compared to an expense of $28,000 for the quarter ended
December 31, 1998. It was comprised primarily of interest expense of $40,000
and other income of $220,000. The other income resulted from accounts payable
settlements in the amount of $33,000, rental income of $16,000, bad debt
recovery of $11,000, purchase accounting adjustments for NMT of $132,000,
purchase accounting adjustments for I-PAC Precision Machining of $24,000, and
miscellaneous income of $4,000.
The net effect of the increases in revenues and increases in other income
resulted in a consolidated net loss from continuing operations of $433,000
($0.04 per share) for the quarter ended December 31, 1999. This is a decrease
of $207,000 or 32.3% from the net loss from continuing operations from the same
period in 1998 of $640,000. This decrease was comprised of a net loss in the
MMS Group of $337,000 or 63.0%, and a net loss in the EMS Group of $96,000 or
6.1%. This is a decrease in the EMS Group net loss of $495,000 or 83.9%,
compared to a net loss of $590,000 or 39.7% for the quarter ended December 31,
1998. The loss in the MMS Group was due mainly to low volume.
Management believes that the MMS Group was still operating significantly below
full capacity levels for the period ending December 31, 1999. Revenues for the
quarter ending March 31, 2000 will exceed the December 31, 1999 quarter as the
Company begins its initial shipments against orders received at the end of 1999.
The Company has arranged for additional reliable supplies of quality cold rolled
steel to support the increased demand for MMS products.
There was no gain or loss during the quarter ended December 31, 1999 from
discontinued operations, therefore the net loss for the quarter ended December
31, 1999 was $433,000 ($0.04 per share) compared to a net loss for the quarter
ended December 31, 1998 of $640,000 ($0.07 per share).
Discontinued Operations
- ------------------------
On June 21, 1999, the Company closed the sale of its scanner operations to
Scan-Optics.
There was no income related to the discontinued operations in the current
quarter. This compares with income from discontinued operations for the three
months ended December 31, 1998 of $42,000. Current liabilities related to the
disposal of the scanner operation total approximately $518,000. The Company is
in the process of negotiating settlements on some of these remaining liabilities
and may generate additional savings based on these settlements, although there
can be no assurance that these settlements will result in additional income.
During fiscal 1997, the Company sold its court reporting business (Xscribe Legal
Systems, Inc.) and discontinued Lexia Systems, Inc. Current liabilities related
to Lexia Systems, Inc. total approximately $531,000. Of this total $457,000 is
related to accounts payable and unpaid rent claims to ICL as stated above.
Lexia disputes any liability with respect to ICL in light of its own offsetting
claims and defenses. There is no income for the three months ended December 31,
1999 related to Lexia Systems, Inc.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE NINE MONTHS ENDED DECEMBER
31, 1998
During the quarter ended December 31, 1998, the Company completed the
acquisition of certain assets and the business operations of Greene
International West, Inc. and incorporated the operations as National Metal
Technologies, Inc. The Company also completed the acquisition of certain assets
and the business operations of Amcraft and incorporated the operations as I-PAC
Precision Machining, Inc. These operations comprise the Metal Manufacturing
Services Group ("MMS")of National Manufacturing Technologies, Inc. Thus the
comparative results include less than one month of operating activity for the
MMS Group in the quarter ending December 31, 1998.
Consolidated revenues in the nine months ended December 31, 1999 increased
$3,423,000 or 117.0% to $6,349,000 from $2,926,000 in the nine months ended
December 31, 1998. This increase was primarily attributable to the fact that the
Electronic Manufacturing Services Group ("EMS") Group was not operating for a
full nine months in 1998 but only from June 5, 1998 through December 31, 1998.
The MMS Group was operating for less than one month during this time period in
1998. If the EMS Group had operated for a full nine months the revenues would
have increased $908,000 or 27.0% to $4,267,000 from $3,359,000. The increase is
primarily attributable to a rise in demand from major customers.
Consolidated gross margin in the nine months ended December 31, 1999 increased
$1,126,000 or 129.7% to $1,994,000 from $868,000 in the nine months ended
December 31, 1998. The overall 31.4% gross margin during the nine months just
ended was greater than the 29.7% gross margin percentage for the same period of
the prior year. Of the $1,994,000 gross margin, $476,000 was related to the MMS
Group and $1,518,000 was related to the EMS Group.
Selling, general and administrative expenses ("SG&A") in the nine months ended
December 31, 1999 increased $2,192,000 or 123.6% to $3,966,000 from $1,774,000
in the nine months ended December 31, 1998. These increases were primarily the
result of the inclusion of MMS expenses and a shorter time period in 1998 for
EMS expenses. As a percent of revenue, SG&A in the nine months ended December
31, 1999 increased to 62.4% from 60.6% in the nine months ended December 31,
1998.
Other income of $171,000 in the nine months ended December 31, 1999 compares to
expense of $137,000 in the nine months ended December 31, 1998. This income is
comprised of $191,000 of interest expense, $206,000 of income from rent and
accounts payable settlements, and $156,000 of purchase accounting adjustments
for the NMT and I-PAC Precision Machining acquisitions. The net decrease of
$308,000 is primarily the result of settlement income and purchase accounting
adjustments.
There was no provision for income taxes booked in the nine months ended December
31, 1999, the same as in the nine months ended December 31, 1998, because of the
effects of net operating loss carry forwards.
The net effect of the increases in SG&A and the low volume in the MMS Group
resulted in an increase in the loss from continuing operations between years of
$758,000, to $1,801,000 in the nine months ended December 31, 1999, or $0.18
per share. This compares to $1,043,000 or $0.12 per share in the nine months
ended December 31, 1998. There was income from discontinued operations in the
current nine months ended December 31, 1999 of $761,000, or $0.08 per share,
compared to a loss of $246,000, or $.03 per share from discontinued operations
in the nine months ended December 31, 1998. The results were a net loss of
$1,040,000 or $0.10 per share in the current nine-month period compared to a
loss of $1,289,000 or $0.15 per share in the prior nine-month period.
Significant contract awards to the MMS Group and an increase in backlog for the
EMS Group will result in increased revenues in the quarter ending March 31,
2000. Total Company backlog, including multi-year contracts, exceeds $19
million.
LIQUIDITY AND CAPITAL RESOURCES
RECENT AND FUTURE SOURCES OF AND DEMANDS ON LIQUIDITY AND CAPITAL RESOURCES
---------------------------------------------------------------------------
On June 18, 1999, the Company entered into a $1,500,000 credit facility with its
primary lender that included a $1,200,000 A/R line of credit and a $300,000 term
loan. Under the terms of this agreement, total borrowings under the line of
credit were limited to the lesser of $1,200,000 or 80% of eligible accounts
receivable (as defined under the agreement). In December 1999, the A/R line was
increased to $2,000,000, and two inventory lines for $650,000 were added to the
existing line. Outstanding borrowings are collateralized by primarily all of
the Company's assets. Total borrowings under the metal inventory line is
limited to the lesser of $300,000 or 70% of the cost of eligible metal inventory
(as defined under the agreement). Total borrowings under the electronics
inventory is limited to the lesser of $350,000 or 35% of eligible electronics
inventory (as defined under the agreement). The line of credit expires on June
30, 2001. The balance outstanding as of March 23, 2000 was $1,657,000 on the
A/R line, $255,000 on the term loan, and $401,000 on the inventory lines. The
line of credit accrues interest on outstanding borrowings at the bank's prime
rate plus 4% per annum.
In December 1998, NMT became obligated under a five-year note, payable to GIW,
in the amount of $350,000, bearing interest at 8%. Future note payments may be
made in a combination of National Manufacturing Technologies stock and cash at
the election of the parties. In addition, NMT entered into a capital lease for
the purchase of GIW equipment, with an option to purchase the equipment for
$490,000 at the end of the one-year period. The first year rental payments
under the equipment lease were satisfied with the issuance of 25,000 shares of
National Manufacturing Technologies common stock valued at $2.00 per share.
National Manufacturing Technologies agreed to price protect the shares issued to
GIW shareholders at a price of $2.00 per share, at a point two years from the
closing date, for these initial shares issued for the first year's payments on
the note and the equipment lease. The Company exercised its option to purchase
this equipment on December 1, 1999 and now is obligated, to GIW, under a four
year note in the amount of $490,000 which bears interest at 8%. NMT also agreed
to pay GIW certain royalties (1.75% of sales to existing customers) over a
three-year period. All royalties are payable in common stock or cash, at the
Company's election. As of March 1, 2000, a total of 116,000 shares of common
stock had been issued to GIW for the first 12 months of royalty payments. On
March 5, 2000, the agreement with GIW was modified so that all future royalty
payments are payable in cash.
The Company is obligated under a series of notes payable totaling $271,000 as of
December 31, 1999. These notes bear interest at a rate of 8% per annum and
mature in April 2000. Interest and principal payments totaling $16,000 are due
monthly. Since October 1998, the Company made two payments on these notes in
July 1999 and August 1999. The Company is attempting to accelerate the monthly
payments required under these notes. These notes are included in net
liabilities of discontinued operations.
The Company also has certain equipment notes in the aggregate amount of $29,000
with interest rates varying between 8% and 26.6% with final payments due between
2000 and 2005. These notes are collateralized by equipment. In addition, the
Company also has certain capital leases in the aggregate amount of $238,000,
calling for minimum monthly payments aggregating approximately $15,000 per
month.
During September 1998, The Company's wholly owned subsidiary, Lexia Systems,
settled its outstanding dispute with Fujitsu. As a result, the Company reduced
its previously recorded liability of $340,000 to Fujitsu to $200,000 and began
making payments against this liability in November 1998 with the final payment
due to Fujitsu in June 1999. As of December 1999, the Company has made payments
totaling $25,000 since July 1999 on this liability which is currently at a
balance of $65,000. Lexia also has recorded liabilities reflecting accounts
payable and unpaid rent claims of ICL and related entities in the amount of
$457,000 at December 31, 1999. These liabilities are included in net
liabilities of discontinued operations. Lexia disputes any liability with
respect to ICL in light of its own offsetting claims and defenses. There is no
assurance that Lexia will be successful in prevailing in its position with
regard to outstanding claims previously made by ICL.
The Company's sources of future short-term liquidity are its cash balance of
$43,000 as of December 31 1999, and the unused amount of its $2.95 million
credit facility. $2.0 million of this credit facility is a line of credit
against eligible accounts receivable. $300,000 of the credit facility is a term
loan that funded on September 30, 1999 and is due in equal monthly installments
of $6,250 over 2 years with a final payment of $150,000. $650,000 of the credit
facility can be used against eligible inventory. Availability under the line of
credit can be limited based upon the balance of eligible accounts receivable as
described above. Availability under the inventory lines of credit can be
limited based upon the balance of eligible metal inventory and electronics
inventory as described above. Increased limits for this line were established
in December, 1999. The A/R line was increased to $2.0 million from $1.2 million
to aid revenue growth in the metals and electronics segments.
The Company is currently obligated as a guarantor under an assignment agreement
of a lease in the amount of approximately $18,550 per month through September
2002. As of December 31, 1999, the Company has not been required to pay any
amounts related to this guarantee. The Company is also obligated to pay
approximately $5,000 per month on various other leases. Aside from these
commitments, the Company has not made any material commitments.
The Company anticipates that its current cash position, revenue from operations,
and funds from its existing line of credit, will be sufficient to finance its
working capital and capital requirements for the next twelve months. However,
the Company's capital requirements may increase as a result of competitive and
technological developments and the terms and conditions of any future strategic
transactions. Although there can be no assurance that the Company will be able
to raise additional capital under favorable terms, if at all, the Company was
successful in negotiating an increase of $1,450,000 in its credit facility
during the quarter ended December 31, 1999.
NEW ACCOUNTING PRONOUNCEMENT
----------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" ("SFAS 133") issued by the FASB is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. The Company does not
expect adoption of SFAS 133 to have a material effect on its financial position
or results of operations.
YEAR 2000
The Company believes that its products are fully Year 2000 compliant. All in
house computers have been tested and upgraded to be Year 2000 compliant. In
house financial software has been upgraded to be Year 2000 compliant.
The Company has contingency plans to address Year 2000 issues that do arise.
Although no assurance can be made, given the nature of its major customers, the
Company does not expect that it will encounter significant problems with respect
to customer compliance with Year 2000 issues.
The SEC's recent guidance for Year 2000 disclosure also calls on companies to
describe their most likely worst case Year 2000 scenario. The Company believes
that the most likely worst case scenario is the requirement to add additional
staff or reassign existing staff or acquire additional equipment or software
during the time period leading up to and immediately following December 31,
1999, in order to address Year 2000 issues that unexpectedly arise. As of March
10, 2000 there have been no significant Year 2000 issues that have affected the
Company's operations.
THIS 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS
RELATING TO THE COMPANY'S PLANS AND OBJECTIVES FOR FUTURE OPERATIONS
INCLUDING ACQUIRING OTHER BUSINESSES, INCREASING SALES AND IMPROVING
MARGINS, ASSUMPTIONS AND STATEMENTS RELATING TO THE COMPANY'S FUTURE
ECONOMIC PERFORMANCE AND OTHER NON-HISTORICAL INFORMATION. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT
LIMITATION, THOSE RISKS DISCUSSED UNDER THE HEADING "ADDITIONAL RISK
FACTORS" AS WELL AS OTHER FACTORS AS DISCUSSED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED MARCH 31, 1999.
<PAGE>
PART II - OTHER INFORMATION
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. Reports on Form 8-K
None
b. Exhibits
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
<TABLE>
<CAPTION>
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
<S> <C>
Date: March 23, 2000 by /s/ Patrick W. Moore
------------------------
Patrick W. Moore
Chairman, Chief Executive
Officer and President
Date: March 23, 2000 by /s/ Larry Naritelli
------------------------
Larry Naritelli
Controller
Principal Accounting Officer
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PERIOD TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC 31-1999
<CASH> 43,000
<SECURITIES> 0
<RECEIVABLES> 1,597,000
<ALLOWANCES> (217,000)
<INVENTORY> 1,193,000
<CURRENT-ASSETS> 2,677,000
<PP&E> 2,797,000
<DEPRECIATION> (961,000)
<TOTAL-ASSETS> 6,872,000
<CURRENT-LIABILITIES> 4,886,000
<BONDS> 0
0
0
<COMMON> 21,413,000
<OTHER-SE> 69,000
<TOTAL-LIABILITY-AND-EQUITY> 6,872,000
<SALES> 2,105,000
<TOTAL-REVENUES> 2,105,000
<CGS> 1,405,000
<TOTAL-COSTS> 1,405,000
<OTHER-EXPENSES> 1,313,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,000
<INCOME-PRETAX> (433,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (433,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433,000)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
