<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1999
--------------
Commission File No. 0-23204
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BOSS HOLDINGS, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1972066
- -------- -----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
221 West First Street
Kewanee, Illinois 61443
-------------------------
(Address of principal executive offices)
(309) 856-8068
--------------
(Issuer's telephone number)
Check 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 at least
the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at April 30, 1999
- ----- -----------------------------
<S> <C>
Common Stock, $.25 par value 1,949,072
</TABLE>
<PAGE>
PART I.- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
December 26,
March 27, 1999 1998
-------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,039 $ 2,131
Accounts receivable, net 5,203 6,484
Inventories 13,943 13,777
Prepaid expenses & other 693 611
-------------- ------------
Total current assets 21,878 23,003
-------------- ------------
PROPERTY AND EQUIPMENT, NET 4,823 4,743
NOTE RECEIVABLE, NET 1,038 1,038
OTHER ASSETS 49 186
-------------- ------------
$27,788 $28,970
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 714 $ 1,278
Current portion of long-term obligations 831 840
Accrued payroll and related expenses 628 629
Accrued liabilities & other 1,714 1,893
-------------- ------------
Total current liabilities 3,887 4,640
-------------- ------------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 4,052 4,495
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock 487 486
Additional paid-in capital 67,433 67,453
Accumulated deficit (46,215) (46,235)
Currency translation (106) (119)
-------------- ------------
21,599 21,585
Less: treasury shares - at cost 1,750 1,750
-------------- ------------
Total Stockholders' equity 19,849 19,835
-------------- ------------
$27,788 $28,970
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Quarter ended
March 27, March 28,1998
--------------------------------
<S> <C> <C>
Net Sales $ 9,130 $ 10,219
Cost of Sales 6,269 7,037
----------- -----------
Gross profit 2,861 3,182
Operating expenses 2,744 2,963
----------- -----------
Operating profit 117 219
Other income and (expense)
Interest (96) (37)
Other 0 16
Income (loss) before income tax 21 198
Income tax expense (1) (10)
----------- -----------
Net income $ 20 $ 188
----------- -----------
----------- -----------
Weighted average shares outstanding 1,931,413 1,803,596
Basic earnings per common share $ 0.01 $ 0.10
----------- -----------
----------- -----------
Diluted earnings per common share $ 0.01 $ 0.10
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Quarter ended
March 27, 1999 March 28,1998
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $ 20 $ 188
Adjustments to reconcile net profit to net cash provided
by operations:
Depreciation and amortization 81 80
(Gain) Loss on disposal of property and equipment -- --
(Increase) decrease in operating assets:
Accounts receivable 1,281 1,475
Inventories (166) 589
Prepaid expenses and other current assets (82) 42
Deferred charges and other assets 137 82
Increase (decrease) in operating liabilities:
Accounts Payable (564) (201)
Accrued liabilities (180) (770)
--------------- ----------------
Net cash provided by operating activities 527 1,485
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (161) (27)
--------------- ----------------
Net cash used by investing activities (161) (27)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 9,848 9,462
Payments on long-term obligations (10,300) (11,642)
Purchase and retirement of stock (43) --
Proceeds from exercise of stock options and warrants 24 89
--------------- ----------------
Net cash used by financing activities (471) (2,091)
--------------- ----------------
Effect of exchange rates on cash and cash equivalents 13 11
--------------- ----------------
Net decrease in cash during period (92) (622)
Cash and cash equivalents at the beginning of the period 2,131 2,122
--------------- ----------------
Cash and cash equivalents at the end of the period $ 2,039 $ 1,500
--------------- ----------------
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 27, 1999
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements included in this report have been
prepared by Boss Holdings, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission for interim reporting and
include all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation. These financial statements have
not been audited by an independent accountant. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations
for interim reporting. The Company believes that the disclosures are adequate to
make the information presented not misleading. However, these financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K, for the year ended
December 26, 1998. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete year.
Certain amounts in prior year's financial statements have been
reclassified to conform to the 1999 presentation.
NOTE 2. EARNINGS PER SHARE
Basic net earnings per common share is based upon the weighted average
number of common shares outstanding during the period. Diluted net earnings per
common share is based upon the weighted average number of common shares
outstanding plus dilutive potential common shares, including options and
warrants outstanding during the period.
NOTE 3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 27, Dec 26,
1999 1998
---------- ---------
<S> <C> <C>
Raw materials $ 1,767 $ 2,056
Work-in-process 545 433
Finished goods 11,631 11,288
---------- ---------
$13,943 $13,777
---------- ---------
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements, other than statements of historical fact, included
in this Quarterly Report including, without limitation, the statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are, or may be deemed to be, forward-looking statements that involve
significant risks and uncertainties, and accordingly, there is no assurance that
these expectations will be correct. These expectations are based upon many
assumptions that the registrant believes to be reasonable, but such assumptions
ultimately may prove to be materially inaccurate or incomplete, in whole or in
part and, therefore, undue reliance should not be placed on them. Several
factors which could cause actual results to differ materially from those
discussed in such forward-looking statements include, but are not limited to:
uncertainties and changes in general economic conditions, unusual weather
patterns which could affect domestic demand for the registrant's products,
performance and price issues with international suppliers, the unanticipated
impact of Year 2000 issues, pricing policies of competitors and the ability to
attract and retain employees in key positions. All subsequent forward-looking
statements attributable to the registrant or persons acting on its behalf are
expressly qualified in their entirety.
SALES
<TABLE>
<CAPTION>
--------------------------------------------------------------
Sales by Segment $(000) 1999 1998
--------------------------------------------------------------
<S> <C> <C>
Work Gloves & Protective Wear 7,938 8,350
--------------------------------------------------------------
Pet Supplies 722 1,242
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Corporate & Other 470 627
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Total Sales 9,130 10,219
--------------------------------------------------------------
</TABLE>
Total revenues for the three months ended March 27, 1999 were
$9,130,000, down $1,121,000, or 10.9%, from the comparable quarter in 1998.
Sales in the work gloves and protective wear segment declined $412,000, or 4.9%,
and represented approximately 87% of the Company's total sales in the first
quarter of 1999. The sales reduction in this segment occurred in the industrial
market and was primarily attributable to lower selling prices. Selling prices
fell from the first quarter of 1998 because of competitive pressure and lower
purchase costs on imported goods.
In the pet supplies segment, sales were down $552,000, or 43.3%, from
the prior year due to the relocation of facilities during the first quarter of
1999 which temporarily reduced shipping efficiency. In addition, sales declined
because of initial stocking orders recorded in the first quarter of 1998 for
certain stores added to the pet supplies distribution channel by a major
customer.
Sales in the corporate and other segment consist primarily of balloon
revenues. The Company discontinued production of certain balloons at its
Kewanee, Illinois location during the first quarter and initiated purchasing of
these products from a manufacturer in Mexico.
7
<PAGE>
COST OF SALES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
COST OF SALES BY SEGMENT $(000) 1999 % SALES 1998 % SALES
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 5,527 69.6 5,881 70.4
--------------------------------------------------------------------------------------------------------
Pet Supplies 445 61.6 747 60.1
--------------------------------------------------------------------------------------------------------
Corporate & Other 297 63.2 409 65.2
--------------------------------------------------------------------------------------------------------
Total Cost of Sales 6,269 68.7 7,037 68.9
--------------------------------------------------------------------------------------------------------
</TABLE>
Cost of sales for the three months ended March 27, 1999 were $6,269,000
compared to $7,037,000 in the corresponding period of 1998. The drop in cost of
sales expense is due primarily to the reduction in the purchase price of goods
and also reflects in the sales decrease previously discussed. On a percentage of
sales basis, cost of sales totaled 68.7%, essentially unchanged from 1998. The
Company maintained relatively consistent gross margins in each segment, but
experienced an overall decline in gross margin dollars (gross profit) due to
lower revenues.
OPERATING EXPENSES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
OPERATING EXPENSES BY SEGMENT $(000) 1999 % SALES 1998 % SALES
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 2,137 26.9 2,102 25.2
-------------------------------------------------------------------------------------------------------
Pet Supplies 245 33.9 423 34.1
-------------------------------------------------------------------------------------------------------
Corporate & Other 362 77.0 438 69.9
-------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,744 30.1 2,963 29.0
-------------------------------------------------------------------------------------------------------
</TABLE>
Operating expenses (selling, general and administrative expenses)
totaled $2,739,000 for the three months ended March 27, 1999, compared to
$2,963,000 for the corresponding period in 1998. This decrease is primarily
attributable to cost reductions in the pet supplies segment arising from a
recent staff reorganization and the relocation of facilities from Florida to
Kewanee, Illinois.
In addition, the Company reduced certain legal and administrative
expenses in its corporate and other segment. However, operating expenses
increased 7.1% as a percentage of sales in this segment due to reduced revenues.
Operating expenses were essentially unchanged in the work gloves and protective
wear segment, but increased 1.7% as a percentage of sales due to lower revenues.
OPERATING INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
OPERATING INCOME BY SEGMENT $(000) 1999 % SALES 1998 % SALES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 274 3.5 367 4.4
------------------------------------------------------------------------------------------------------
Pet Supplies 32 4.4 72 5.8
------------------------------------------------------------------------------------------------------
Corporate & Other (189) (40.2) (220) (35.1)
------------------------------------------------------------------------------------------------------
Total Operating Income 117 1.3 219 2.1
------------------------------------------------------------------------------------------------------
</TABLE>
Operating income declined $93,000 in the work gloves and protective
wear segment and $40,000 in the pet supplies segment due primarily to lower
sales in these segments. The operating loss in the corporate and other segment
was $31,000 less than the comparable 1998 period.
8
<PAGE>
OTHER INCOME (EXPENSE)
The Company incurred $96,000 in interest expense during the first
quarter of 1999, an increase of $59,000 from the comparable period in 1998.
Interest expense increased in 1999 due to higher borrowings under the Company's
revolving line of credit during the quarter.
TAXES
Tax expense consists of estimated state income taxes for certain of the
Company's operations. Because of losses in prior years, the Company recorded no
federal income tax expense during the periods presented and has available
substantial net operating loss carryforwards for federal income tax purposes.
These carryforwards have certain limitations due to changes in control
experienced in previous years.
YEAR 2000
INFORMATION SYSTEMS
During 1998, the Company determined that various internally developed
information systems key to business operations were not Year 2000 compliant. To
address this problem, management made the decision to purchase new hardware and
enterprise software in 1998. The Company utilized the resources of certain
outside consultants to evaluate systems, assist in re-engineering business
processes and develop implementation plans. Implementation of the software is
now scheduled for completion in the third quarter of 1999.
Certain accounting related modules of the new software were operational
at the end of the first quarter of 1999. Conversion programs to transfer data
from the current internally developed systems to the new system should be
completed by the end of the second quarter. Training, prototyping and testing on
the new software is in process for all remaining modules. Final training and
testing are scheduled for completion during the third quarter.
In each functional area of the Company, teams have been formed with key
managers assigned specific training, testing and prototyping responsibilities. A
detailed implementation schedule has been developed which includes operational
milestones in each functional area to measure progress and determine readiness.
The new enterprise system currently being implemented by the Company is
expected to cost in excess of $500,000 including hardware, software and
implementation training and consulting. Essentially all costs will be
capitalized and depreciated over the expected useful life. Such costs do not
include internal management time.
Beyond providing Year 2000 compliance, the new enterprise system should
enable the Company to operate more efficiently through system integration and
on-line information capabilities. Availability of real-time information is
expected to help the Company improve asset utilization as well as customer
support.
9
<PAGE>
OTHER SYSTEMS
The Company believes it has limited reliance on systems or equipment in
other operational areas which rely on embedded chips. Management has assigned a
team to conduct a further assessment of any such items. Should this assessment
note additional reliance on embedded chip technology, appropriate corrective
action will be taken to upgrade or replace affected systems and equipment.
OTHER YEAR 2000 ISSUES
The scope of the Year 2000 issue remains uncertain. The Company may be
subject to numerous associated risks, many beyond its control, such as failure
of communications, power, inbound and outbound shipping and financial systems.
At this time, the Company cannot quantify the potential impact of these
failures.
Assuming no major systemic failures, the most reasonably likely worst
case scenario would center around failure to complete the current system
implementation and inability to obtain certain imported products. The Company
believes appropriate loss minimization strategies such as reprogramming internal
systems and purchasing products from alternative suppliers should limit the cost
and down-time of such a scenario without materially impacting the Company's
liquidity or financial condition. The Company plans to develop appropriate
contingency plans to address issues within the Company's control.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $527,000 in cash flows in the first
quarter of 1999, down $958,000 from 1998. This reduction was due in large part
to a $166,000 increase in inventories during 1999 versus a $589,000 reduction in
inventories in 1998. The Company's sales for the first quarter of 1999 as well
as the fourth quarter of 1998 were below expectations and resulted in higher
than planned inventory levels. Other factors causing the reduction in cash flows
from operating activities were lower income in 1999 and a smaller reduction in
accounts receivable in 1999 compared to 1998.
Cash used by investing activities totaled $161,000 during the first
quarter of 1999, an increase of $134,000 from 1998 due primarily to capital
expenditures associated with system implementation activities during the first
quarter of 1999. In addition, the Company incurred certain capital expenditures
during the first quarter to renovate Kewanee facilities in connection with the
relocation of the pet supplies operations.
The Company's cash used by financing activities totaled $471,000 in
1999, down from $2,091,000 in the prior year. Because of the reduced cash
provided by operating activities in the current year, the Company made fewer
payments to reduce its revolving line of credit during the first quarter of 1999
than in the previous year.
Under the terms of its $10,000,000 revolving line of credit, the
Company had drawn approximately $3,650,000, leaving $6,350,000 available to be
drawn as of March 27, 1999. The availability under the current credit facility
should provide adequate liquidity for the Company's expected working capital and
operating needs.
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company has minimal exposure to market risks such as changes in
foreign currency exchange rates and interest rates. The value of the Company's
financial instruments is generally not impacted by changes in interest rates and
the Company has no investments in derivatives. Fluctuations in interest rates
are not expected to have a material impact on the interest expense incurred
under the Company's revolving credit facility.
PART II.--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of
commercial disputes. Management believes the ultimate disposition of these
matters should not materially impair the Company's consolidated financial
position or liquidity.
In April 1996, the Company was notified by the SEC that it had
commenced an informal investigation of the Company related to the activities of
its former management. The status of the investigation was changed to a formal
private investigation in January, 1997. The Company previously responded to the
SEC's request for information and will continue to cooperate with the SEC in
this matter.
The Company has been named in an adversary proceeding styled ALABASTER
INDUSTRIES, INC. V. BOSS HOLDINGS, INC. AND W.R. HILL CO., INC. filed in the
United States Bankruptcy Court for the Northern District of Alabama, Southern
Division. The adversary proceeding was commenced in December, 1998, in
connection with the Chapter 11 bankruptcy reorganization case of Alabaster
Industries, Inc. The suit alleges a fraudulent conveyance by the Company in the
1997 sale of its stock in Alabaster Industries, Inc. This action seeks recovery
of the $500,000 down payment received by the Company and further seeks to set
aside the $1.5 million note and mortgage held by the Company. The Company has
vigorously defended itself in this proceeding and believes it has valid defenses
in this action. The bankruptcy proceedings of Alabaster Industries were recently
converted to a Chapter 7 liquidation under the U.S. Bankruptcy Code and the
Company is actively pursuing enforcement of the note and mortgage.
The Company is a plaintiff in an action entitled BOSS MANUFACTURING
COMPANY V. HUGO BOSS AG, ET AL., filed in November, 1997 and currently pending
in the U.S. District Court for the Southern District of New York alleging
trademark infringement, trademark dilution and breach of contract. The Company
seeks damages against Hugo Boss in connection with the sale and distribution in
the U.S. of gloves, boots and other products bearing the "Boss" trademark. The
Company has obtained injunctive relief which prevents Hugo Boss AG from selling
gloves and boots in the United States during the pendency of the action and
requires Hugo Boss to recall certain boots and gloves from the U.S. market. The
parties currently have stayed proceedings in this litigation in order to pursue
a possible settlement. The Company intends to continue defending its valuable
trademark and tradename rights by all appropriate proceedings.
ITEM 2. CHANGES IN SECURITIES
11
<PAGE>
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Shyam H. Gidumal has resigned from his position as president of the
Company in order to devote his attention to his other business
endeavors. Mr. Gidumal remains a director of the Company. G. Louis
Graziadio, III, continues to serve as Chairman of the Board and
Chief Executive Officer of the Company, including direct authority
for matters previously handled by Mr. Gidumal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule (filed electronically with the SEC only)
(b) REPORTS ON FORM 8-K
For the current quarter, no reports on Form 8-K were filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BOSS HOLDINGS, INC.
Dated: May 10, 1999 By: /s/ J. Bruce Lancaster
-------------- -----------------------------
J. Bruce Lancaster
Chief Financial Officer
(principal financial officer)
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
VISTA 2000, INC.
Dated: By:
--------------- ------------------------------
J. Bruce Lancaster
Chief Financial Officer
(principal financial officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
27, 1999 UNAUDITED FINANCIAL STATEMENTS OF BOSS HOLDINGS, INC., AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM 10-Q FOR THE
QUARTER AND THREE MONTHS ENDED MARCH 27, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-27-1999
<CASH> 2,039,000
<SECURITIES> 0
<RECEIVABLES> 5,203,000
<ALLOWANCES> 0
<INVENTORY> 13,943,000
<CURRENT-ASSETS> 21,878,000
<PP&E> 4,823,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,788,000
<CURRENT-LIABILITIES> 3,887,000
<BONDS> 0
0
0
<COMMON> 487,000
<OTHER-SE> 19,382,000
<TOTAL-LIABILITY-AND-EQUITY> 27,788,000
<SALES> 9,130,000
<TOTAL-REVENUES> 9,130,000
<CGS> 6,269,000
<TOTAL-COSTS> 2,744,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,000
<INCOME-PRETAX> 21,000
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 20,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>