SEC File No. 33-85044-d
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31,1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File number 33-85044-d
NACO Industries, Inc.
(Exact Name of Registrant as specified in its charter)
Utah 48-0836971
(State of Incorporation) (Federal I.R.S. No.)
395 West 1400 North, Logan, Utah 84341
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 801-753-8020
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
As of May 31, 1997, the Registrant had 1,843,750 shares of Common Stock
and 165,412 shares of Preferred Stock outstanding.
Transitional Small Business Disclosure Format Yes No X
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
See attached Consolidated Financial Statements for May 31, 1997.
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NACO Industries, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1997
3
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 31 November 30
------------- -----------
ASSETS 1997 1996
- ------ ------------- -----------
Current assets:
<S> <C> <C>
Cash $ 305,857 198,306
Accounts receivable, net of allowances
of $92,200 / $73,570 987,008 615,775
Inventory 758,407 668,501
Prepaid income taxes 48,400 48,600
Other current assets 61,585 72,202
------------- -----------
Total current assets 2,161,257 1,603,384
------------- -----------
Property and equipment:
Land 40,700 40,700
Buildings and improvements 579,164 526,329
Equipment and vehicles 2,196,936 2,033,174
Equipment construction in progress 132,081 93,130
------------- -----------
Total property and equipment 2,948,881 2,693,333
Accumulated depreciation (1,304,506) (1,195,036)
------------- -----------
Net property and equipment 1,644,375 1,498,297
------------- -----------
Other assets:
Intangible and other assets 107,058 105,907
------------- -----------
Total other assets 107,058 105,907
------------- -----------
Total assets $ 3,912,690 3,207,588
============= ===========
</TABLE>
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NACO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
February 28 November 30
----------- -----------
LIABILITIES: 1997 1996
- ------------ ----------- -----------
Current liabilities:
<S> <C> <C>
Accounts payable $ 537,285 544,074
Accrued expenses 154,734 188,076
Income taxes payable 0 0
Line of credit 654,326 664,326
Current portion of long-term obligations 240,547 316,215
Payable to related party (1,254) 34,382
----------- -----------
Total current liabilities 1,585,638 1,747,073
Long-term liabilities:
Long-term obligations, less current portion 843,816 896,379
Deferred income taxes 79,100 79,100
----------- -----------
Total long-term liabilities 922,916 975,479
----------- -----------
Total liabilities 2,508,554 2,722,552
Stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 2,262,301 issued
(including 418,551 shares in treasury) 22,624 19,186
Preferred Stock, 7% Cumulative, convertible $3.00 par value
Shares authorized; 330,000. shares issued 165,412 and 132,412,
respectively (Aggregate liquidation preference $992,472 and
$794,472, respectively) 496,236 397,236
Additional paid-in capital 987,881 115,637
Retained earnings 38,964 94,546
----------- -----------
1,545,705 626,605
Less: treasury stock - at cost (141,569) (141,569)
----------- -----------
Total stockholders' equity 1,404,136 485,036
----------- -----------
Total liabilities and
stockholders' equity $ 3,912,690 3,207,588
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
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NACO INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
May 31 May 31
--------------------- ---------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales, net $ 2,449,863 2,312,664 3,981,058 3,455,621
Cost of goods sold 1,528,285 1,275,865 2,487,591 1,981,023
--------- --------- --------- ---------
Gross profit 921,578 1,036,799 1,493,467 1,474,598
Operating expenses:
Selling expenses 408,828 339,178 755,001 615,191
General and administrative expenses 304,675 248,239 646,877 550,840
Other 0 0 0 0
--------- --------- --------- ---------
Total operating expenses 713,503 587,417 1,401,878 1,166,031
--------- --------- --------- ---------
Income (loss) from operations 208,075 449,382 91,589 308,567
Other income (expense):
Interest income 283 438 719 1,506
Interest expense (54,025) (56,189) (109,807) (112,363)
--------- --------- --------- ---------
Total other income (expense) (53,742) (55,751) (109,088) (110,857)
--------- --------- --------- ---------
Income (loss) before income taxes 154,333 393,631 (17,499) 197,710
Income tax expense (benefit) 900 69,159 900 69,159
--------- --------- --------- ---------
Net income (loss) $ 153,433 324,472 (18,399) 128,551
Adjustment for preferred dividends (17,310) (12,006) (45,493) (22,707)
--------- --------- --------- ---------
Adjusted net to Common Stockholders 136,123 312,466 (63,892) 105,844
--------- --------- --------- ---------
Earnings (loss) per common share:
Primary:
Earnings (loss) from net income 0.09 0.22 (0.01) 0.09
Dividends in arrears (0.01) (0.01) (0.03) (0.02)
--------- --------- --------- ---------
Net Earnings (loss) $ 0.08 $ 0.21 $ (0.04) $ 0.07
========= ========= ========= =========
Fully Diluted:
Earnings (loss) from net income $ 0.08 0.19 (0.04) 0.07
========= ========= ========= =========
Weighted average number of common shares outstanding:
Primary 1,699,196 1,500,000 1,699,196 1,500,000
========= ========= ========= =========
Fully Diluted 1,984,805 1,716,854 1,984,805 1,716,854
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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NACO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
May 31 May 31
-------------------
1997 1996
------ ------
Cash flows from operating activities
<S> <C> <C>
Net income (loss) $ (18,399) 128,551
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 109,470 107141
Amortization 1,478 0
Deferred income taxes 0 (8,241)
(Increase) decrease in:
Accounts receivable, net (371,234) (656,916)
Inventory (89,906) 81,452
Prepaid income taxes 200 0
Taxes Receivable 0 120,226
Other 9,139 (60,636)
Increase (decrease) in:
Accounts payable (6,789) 340,294
Accrued expenses (33,342) (42,620)
Income taxes payable 0 72,468
--------- ----------
Net cash provided by (used in)
operating activities (399,383) 81,719
--------- ----------
Cash flows from investing activities
Net change property and equipment (255,548) (94,319)
Investment in intangible and other assets (1,151) 193,801
--------- ----------
Net cash provided by (used in) investing activities (256,699) 99,482
Cash flows from financing activities
Net change in line of credit (10,000) 30,000
Payments on related party loan (35,636) (2,483)
Payments on long-term debt (146,699) (633,907)
Proceeds from short term notes payable
Proceeds from long-term loans 18,468 0
Proceeds from issuance of common stock 742,500 0
Proceeds from issuance of preferred stock 195,000 394,073
Purchase of treasury stock 0 0
--------- ----------
Net cash provided by (used in) financing activities 763,633 (212,317)
--------- ----------
Increase (decrease) in cash 107,551 (31,116)
Cash, beginning of period 198,306 133,481
--------- ----------
Cash, end of period $ 305,857 102,365
========= ==========
See Notes to Consolidated Financial Statements
Supplemental disclosures:
Income taxes paid $ 0 0
Interest Paid $ 93,599 123,184
</TABLE>
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NACO INDUSTRIES, INC.
Notes to Consolidated Financial Statements (Unaudited)
May 31, 1997
NOTE A - BASIS OF PRESENTATION
Management has elected to omit substantially all footnotes to these unaudited
consolidated quarterly financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month and six month periods ended May 31, 1997, are not necessarily indicative
of the results that may be expected for the fiscal year ending November 30,
1997. These statements should be read in conjunction with the consolidated
financial statements and related notes in the Company's Annual Report on Form
10-KSB for the year ended November 30, 1996.
NOTE B - INVENTORY
Inventory consists of the following:
May 31, Nov. 30,
1997 1996
---- ----
Raw Materials $ 236,054 242,388
Work In Process 15,343 3,750
Finished goods 507,010 422,363
------- -------
Total $ 758,407 668,501
NOTE C - DIVIDENDS
Dividends on the preferred stock are cumulative at 7%. At May 31, 1997, the
cumulative amount of dividends accrued was $45,493. Of this amount $28,183 was
in arrears.
NOTE D - EARNINGS PER SHARE
Primary earnings per common share are calculated by dividing adjusted net income
by the average shares of Common Stock of the Company and Common Stock
equivalents outstanding during the period. Net income has been adjusted for
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dividends in arrears as of May 31, 1997. Common Stock equivalents represent
certain outstanding stock options and warrants. During the period the market
price did not exceed the option price for the outstanding options and warrants
and therefore no dilution occurred.
The calculation of fully diluted earnings per share of Common Stock assumes the
diluting effect of the Company's Cumulative Preferred Stock.
NOTE E - CONSULTING AGREEMENTS, WARRANTS AND OPTIONS
In September 1996 the Company entered into an agreement with Extol International
Corporation ("Extol") to provide investor relations and financial consulting
services to the Company. As part of this agreement, Extol has the right to
purchase for $100, a warrant to purchase 50,000 shares of the Company's Common
Stock at $3.50 per share. This warrant is exercisable for five (5) years from
the date of issuance, and will carry "piggyback" registration rights.
NOTE F - COMMON STOCK
On March 5, 1997, the Company entered into an offshore securities subscription
agreement with Britannia Holdings Ltd. of England and on March 5, 1997, the
Company sold 343,750 Units for an aggregate purchase price of $825,000. The sale
was made without registration under the Securities Act of 1933 in reliance upon
Regulation S. Each Unit consists of one share of Common Stock and forty-four one
hundredth (.44) of a warrant to purchase an additional share of Common Stock at
an exercise price of $3.50 per share. The Warrant will expire in three years,
subject to extension as described below. The Warrants are currently callable by
the Registrant anytime after its Common Stock trades for a bid price of $7.50 or
higher for 30 trading days in a row.
The Company also granted Britannia Holdings Ltd. a 12 month option to purchase
an additional 343,750 Units in connection with the sale of the above Units. If
the Purchaser purchases all of the Units subject to the Option, the Registrant
will extend the exercise period of all of the Warrants issued as part of Units
(including the Units issued on March 5, 1997) from 3 years to 7 years, and
increase the call price on such Warrants from $7.50 to $15.00.
As part of the consideration for the stock agreement, the Company has agreed to
credit additional shares of common stock to Britannia Holdings Ltd. of England
if the Company does not establish a market for NACO Common Stock that trades for
at least $6.00 per share for any 10 consecutive days within twenty-four months
after March 5, 1997.
A finders fee of 10% was paid to James Czirr who is an employee of Extol and is
nominated to the board of directors of the Company.
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NOTE G - PREFERRED STOCK
On March 7, 1996, the Company initiated an offering of Units exempt from
registration under the Securities Act of 1933. The offering consisted of 175,000
Units at an offering price of $6.00. Each Unit consists of one share of Series 1
Class A 7% Cumulative Convertible Preferred Stock and a Warrant to purchase one
share of Common Stock at an exercise price of $3.75 per common
share. The offering is made on a "best efforts" basis and will continue until
the earlier of the sale of a maximum of 175,000 Units, or June 30, 1997. Selling
commissions equal to 10% of the offering price of the Units will be paid to
placement agents participating in the offering.
Through May 31, 1997, the Company sold 52,000 units and received net proceeds of
$280,800.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
NACO Industries, Inc., (NACO or the Company) is a manufacturing company that
produces and sells polyvinyl chloride (PVC) products. The Company's primary line
of business consists of PVC pipe fittings and valves, which are sold throughout
the United States through wholesale distributors to irrigation, industrial,
construction and utility industries. The Company manufactures and sells
fabricated fittings (4" through 36" in diameter), as well as molded fittings (4"
though 10" in diameter). Pipe fittings produced by the Company include tees,
reducers, elbows, couplers, end caps, and bolted repair couplers. NACO also
manufacturers and sells PVC valves (4" through 12" in diameter). NACO
Composites, Inc., a wholly owned subsidiary of NACO produces related and
non-related composite products.
RESULTS OF OPERATIONS
The Company's fiscal year ends on November 30. In the following discussion the
quarters ended May 31, 1997, and May 31, 1996, are the 2nd quarter of fiscal
years ending November 30, 1997, and November 30, 1996, and are referred to
herein as 2Q97 and 2Q96, respectively. The six months ended May 31, 1997, and
May 31, 1996, are referred to herein as 6M97 and 6M96 respectively.
NEW OPERATION
The Company, on October 11, 1996, formed a wholly owned subsidiary, NACO
Composites, Inc., and acquired the assets of Draeger Manufacturing in a business
combination accounted for as a purchase. The existing fiberglass operations of
the Company were combined into the new subsidiary and moved to a new facility in
Ogden, Utah. The creation of NACO Composites, Inc., gives the Company the
capability to produce other related composite products and increased
manufacturing capacity for existing products. The contribution of composite
products to the results of operations has been negative to date, but is
anticipated by management to have a positive impact on future operating results.
GENERAL DISCUSSION OF QUARTERS OPERATING RESULTS.
During the 2Q97, the Company had an operating profit before tax of $151,361
compared to an operating profit before tax of $393,631 for 2Q96. The quarter of
March to May is typically the best quarter of the year due to the seasonality of
the agricultural market. For the six months ended May 31, 1997, (6M97), the
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Company sustained an operating loss before tax of $(20,471) compared to an
operating profit before tax of $197,710 for 6M96. The decline in profitability
between the two periods is primarily a result of low margins on composite
products during the 2Q97 and 6M97 and an unusually large sale that occurred in
2Q96 as more fully discussed below.
SALES
Net sales increased by 5.9% to $2,449,863 for 2Q97 compared to net sales of
$2,312,664 in 2Q96 due mainly to increased volume. Plastic sales in 2Q97
decreased $76,299 or 3.4% compared to 2Q96. The decreased volume was due mainly
to a large one time sale in 2Q96 of $492,000 that was not repeated in 2Q97. If
that sale is disregarded in the comparison, the plastic sales for 2Q97 increased
$415,701 or 24% over 2Q96. This increased volume was due partly to the addition
of large diameter fittings from 27" to 36" to the Company's product line.
Composite products sales in 2Q97 increased $216,498 or 136% over 2Q96 primarily
as a result of the acquisition of the assets of Draeger Manufacturing and the
Company's new facilities for NACO Composites Inc. Composite sales increased to
13.0% of total revenues in 2Q97 compared to 3.9% in 2Q96. Net sales increased
$525,437 or 15.2% to $3,981,058 for 6M97 compared to net sales of $3,455,621 for
6M96 due mainly to the addition of large diameter fittings to the product line
and to increases in composite sales as explained above.
GROSS MARGIN
Gross margin as a percentage of sales for 2Q97 was 37.6% compared to 44.8% for
2Q96. Gross margin as a percentage of sales for 6M97 was 37.5% compared to 42.7%
for 6M97. The decrease in gross margin is mainly due to the higher percentage of
sales from the composite product lines. Gross margin on composites was $(57,068)
for 2Q97 and $(44,757) for 6M97 primarily as a result of startup costs,
increased manufacturing overhead expenses associated with the new facilities and
a large contract that was acquired as part of the acquisition of Draeger
Manufacturing that was bid at a price below the Company's actual costs to
produce the products. The new facilities were acquired to provide the Company
with sufficient manufacturing facilities for the planned growth in this segment
of its business. The contract acquired in connection with the acquisition was
completed in 2Q97 and bidding procedures with checks and balances have been
updated to improve operations which management believes will improve margins on
composite products in future quarters. The gross margin on plastic sales for
2Q97 was 45.6% compared to 46.1% for 2Q96. The Company believes that gross
margin as a percentage of sales will improve as sales of composites increase in
the future. Gross margin, however, could be adversely affected by lower than
anticipated growth, increased overhead expenses, increased competition, and
lower than anticipated sales prices.
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SELLING
Selling expenses were $408,828 or 16.7% of net sales for 2Q97 compared to
$339,178 or 14.7% for 2Q96. Salaries increased $27,418 mainly due to the
addition of a salesman for composite products, and an approximate 5% increase in
salaries in September of 1996. Freight expense increased $31,329 mainly due to
the large order mentioned above on which the buyer paid the freight. The
increase in sales in 2Q97 was a more normal mix on which a portion of the
freight is typically paid by the Company. Selling expenses were $755,001 or
19.0% of net sales for 6M97 compared to $615,191 or 17.8% for 6M96. For the six
months ended 5/31/97 salaries increased $52,636 mainly for the same reasons as
discussed above. Freight expense increased $57,528 due mainly to increased sales
and the mix of sales as explained above.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $304,675 or 12.4% of net sales for 2Q97
compared to $248,239 or 10.7% of net sales for 2Q96. Salaries increased $19,255
or 15.8% from 2Q96 to 2Q97 mainly due to annual pay increases given in September
1996 and to the addition of one accounting clerk in 2Q97. Outside labor
increased $11,809 from $9,330 to $21,139 due mainly to environmental concerns,
SEC filings and sales of stock. Employee benefits were up 76% or $8,134 from
2Q96 to 2Q97 mainly due to several management personnel having completed a year
of employment during 1996 making them eligible for benefits. Insurance expenses
were up 60% or $5,982 mainly due to the addition of the Composite facility.
General and administrative expenses were $646,877 or 16.2% of net sales for 6M97
compared to $550,840 or 15.9% for 6M96. Salaries increased $25,595 from 6M96 to
6M97 mainly due to annual pay increases given in September 1996 and to the
addition of one accounting clerk in 2Q97. Outside labor and employee benefits
also increased as explained above.
INTEREST EXPENSE
Interest expense for 2Q97 was $54,025 or 2.2% of net sales compared to $56,189
or 2.4% of net sales for 2Q96. Interest expense for 6M97 was $109,807 or 2.7% of
net sales compared to $112,363 or 3.2% of sales for 6M96. Interest expense
decreased as a percentage of revenues mainly due to increased sales volume. The
effective interest rate (interest expense divided by the average debt balance
for the period) for 6M97 and 6M96 were 11.84% and 12.12% respectively.
FACTORS AFFECTING FUTURE RESULTS
The Company's operating results are subject to certain inherent risks that
could adversely affect the Company's operating results and its ability to
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operate profitably. If cash generated by operations, or available from current
debt and equity financing sources is not sufficient to meet the Company's
working capital and operational requirements, this will likely have a material
adverse effect on the Company's operating results. In addition, the Company's
operating results also could be adversely affected by increased competition in
the markets, competitors offering products at prices below the Company's prices,
manufacturing delays and inefficiencies associated with expanding the Company's
manufacturing capacity, adverse weather conditions, changes in economic
conditions in its markets, unanticipated expenses or events and other factors
discussed in this report.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity have been cash from operations, credit
facilities and equity financing. Cash used in operating activities was $402,355
in 6M97 primarily because the second quarter typically has more sales as a
result of the seasonality of the Company's business. This causes more resources
to be in inventory, up $89,906, and accounts receivable, up $371,234.
Cash as of the end of 2Q97 was $305,857, up $107,551 from the end of the
Company's previous fiscal year.
On March 5, 1997, the Company entered into an offshore securities subscription
agreement with Britannia Holdings Ltd. of England and on March 5, 1997, the
Company sold 343,750 Units for net proceeds of $742,500. Also during 2Q97, the
Company sold an additional 25,000 units of preferred stock and warrants for net
proceeds of $147,000. The additional capital from this equity financing is being
used to finance continued growth and to reduce debt. The Company at quarter end
was current in all of its financial obligations to lending institutions and to
its trade vendors. The Company still has $445,674 available under its line of
credit. In addition, the Company continues to address cash flows by controlling
inventory levels, increasing the sales effort, and reducing expenses.
The Company believes that its capital resources on hand at May 31, 1997,
together with anticipated revenues from sales, its lending arrangements and
equity financing will be sufficient to satisfy its working capital requirements
for the remainder of the fiscal year. However, if the Company's operating
results are lower than currently anticipated, the Company may require additional
debt or equity financing in order to fund its working capital requirements. In
addition, the Company may require additional financing to finance the growth of
the Company. If such financing is required, there can be no assurance that the
Company will be able to obtain financing on terms favorable to the Company, if
at all.
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FORWARD LOOKING STATEMENTS
Information contained in this Report contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as "may,"
"will," "should," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. These
forward-looking statements are subject to risk and uncertainties that include,
but are not limited to, those identified in this report, described from time to
time in the Company's other Securities and Exchange Commission filings, or
discussed in the Company's press releases. Actual results may vary materially
from expectations.
15
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended May 31, 1997, the Company sold the following
units of preferred stock and warrants (the "Units") pursuant to a private
offering of Units being made to accredited investors in reliance upon Regulation
D as described in Footnote F to the financial statements contained herein:
1. 5,000 Units on March 7, 1997 at a purchase price of $30,000; and
2. 20,000 Units on March 7, 1997 at a purchase price of $120,000.
A 10% commission was paid on the 5,000 unit sale.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports for Form 8-K. A current report dated March 5, 1997 was filed
reporting the sale of 343,750 units pursuant to Regulation S.
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SIGNATURES
The unaudited interim consolidated financial statements furnished by management
reflect all adjustments that are, in the position of management, necessary for a
fair presentation of financial position and results of operation.
In accordance with the requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NACO Industries, Inc.
Registrant
By /s/ Verne E. Bray July 3, 1997
--- ----- -- ---- ---- -- ----
Verne E. Bray Date
President
By /s/ Jeffrey J. Kirby July 3, 1997
--- ------- -- ----- ---- -- ----
Jeffrey J. Kirby Date
Principal Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 305857
<SECURITIES> 0
<RECEIVABLES> 1079208
<ALLOWANCES> 92200
<INVENTORY> 758407
<CURRENT-ASSETS> 2161257
<PP&E> 2948881
<DEPRECIATION> 1304506
<TOTAL-ASSETS> 3912690
<CURRENT-LIABILITIES> 1585638
<BONDS> 0
0
496236
<COMMON> 22624
<OTHER-SE> 885276
<TOTAL-LIABILITY-AND-EQUITY> 3912690
<SALES> 3981058
<TOTAL-REVENUES> 3981058
<CGS> 2487591
<TOTAL-COSTS> 2487591
<OTHER-EXPENSES> 1401878
<LOSS-PROVISION> 47200
<INTEREST-EXPENSE> 109807
<INCOME-PRETAX> (17499)
<INCOME-TAX> 900
<INCOME-CONTINUING> (18399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18399)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
