1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30,1996
Commission File Number: 0-21044
UNIVERSAL ELECTRONICS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0204817
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1864 ENTERPRISE PARKWAY WEST, TWINSBURG, OHIO 44087
(Address of principal executive offices) (Zip Code)
216-487-1110
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, $.01
par value, outstanding at June 30, 1996 6,775,463
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THE INDEX OF EXHIBITS TO THIS QUARTERLY REPORT APPEARS ON PAGE 11
Page 1 of 14
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UNIVERSAL ELECTRONICS INC.
--------------------------
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Page 2 of 14
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
ASSETS
------
JUNE 30, DECEMBER 31, JUNE 30,
1996 1995 1995
---- ---- ----
(UNAUDITED) (AUDITED) (UNAUDITED)
(Dollars in thousands)
Current assets:
Cash and cash equivalents $ 722 $ 872 $ 491
Accounts receivable 19,364 26,106 16,685
Inventories 32,868 30,278 38,536
Refundable income taxes 36 795 52
Prepaid expenses 3,518 2,110 2,313
Deferred income taxes 4,377 3,702 5,615
-------- -------- --------
Total current assets 60,885 63,863 63,692
Equipment, furniture, and
fixtures, net 7,278 5,187 3,929
Other assets 969 1,055 845
-------- -------- --------
Total assets $ 69,132 $ 70,105 $ 68,466
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Revolving credit facility $ 4,986 $ 6,120 $ 10,668
Accounts payable 9,463 9,162 5,667
Accrued income taxes 339 307 364
Accrued compensation 363 756 435
Other accrued expenses 1,863 3,522 3,876
-------- -------- --------
Total current liabilities 17,014 19,867 21,010
-------- -------- --------
Long-term debt 2,000 -- --
Stockholders' equity:
Capital stock 68 68 67
Paid-in capital 53,869 53,623 53,496
Currency translation adjustment (19) 25 82
Retained (deficit) (3,800) (3,478) (6,189)
-------- -------- --------
Total stockholders'
equity 50,118 50,238 47,456
-------- -------- --------
Total liabilities and
Stockholders' equity $ 69,132 $ 70,105 $ 68,466
======== ======== ========
The accompanying notes are an integral part of these financial statements.
Page 3 of 14
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended June Six Months Ended June
30, 30,
1996 1995 1996 1995
---- ---- ---- ----
(Dollars and shares in
thousands,except per share
amounts.)
Net Sales $ 21,526 $ 24,667 $ 43,431 $ 43,241
Cost of sales 14,902 17,631 30,965 31,566
-------- -------- -------- --------
Gross profit 6,624 7,036 12,466 11,675
Selling, general and
administrative expenses 6,080 6,827 13,191 14,262
Restructuring expenses -- -- -- 977
-------- -------- -------- --------
Operating income (loss) 544 209 (725) (3,564)
Interest expense 186 281 344 547
Interest income (11) (9) (20) (13)
Other (income) expenses, net (5) (127) (144) (345)
-------- -------- -------- --------
Income (loss) before income
taxes 374 64 (905) (3,753)
Income tax (expense) benefit (126) (3) 583 1,361
-------- -------- -------- --------
Net (income)loss $ 248 $ 61 (322) $ (2,392)
======== ======== ======== ========
Net (income)loss per share $ 0.04 $ 0.01 $ (0.05) $ (0.36)
======== ======== ======== ========
Weighted average common and
common stock equivalents
outstanding 6,945 6,775 6,765 6,742
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
Page 4 of 14
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
(Dollars in Thousands) 1996 1995
---- ----
Cash provided by (used for) operating
activities
Net loss $ (322) $ (2,392)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation and amortization 767 661
Deferred income taxes (676) (1,990)
Changes in operating assets and liabilities:
Receivables 6,804 65
Inventories (2,623) 4,456
Other assets (1,327) 3,731
Payables and accruals (1,273) (3,584)
Accrued income taxes 329 (61)
-------- --------
Net cash provided by
operating activities 1,679 886
-------- --------
Cash used for investing activities:
Acquisition of fixed assets (2,820) (968)
Trademarks (99) (100)
-------- --------
Net cash used for investing activities: (2,919) (1,068)
-------- --------
Cash provided by financing activities:
Short-term bank borrowings 28,715 38,197
Short-term bank payments (29,849) (39,009)
Long-term debt 2,000 --
Proceeds from stock options
exercised 246 --
-------- --------
Net cash provided by (used for) financing
activities 1,112 (812)
-------- --------
Effect of exchange rates on cash (22) 45
-------- --------
Net decrease in cash and cash equivalents (150) (949)
Cash and cash equivalents at beginning of
period 872 1,440
-------- --------
Cash and cash equivalents at end of period $ 722 $ 491
======== ========
Supplemental Information to the
Consolidated Statement of Cash Flows
Cash paid (received) during the period for:
Interest $ 349 $ 552
======== ========
Income taxes $ (615) $ 146
======== ========
Page 5 of 14
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADJUSTMENTS
All adjustments, consisting of recurring adjustments necessary for a fair
presentation of financial position and results of operations of these unaudited
interim periods, have been included in the accompanying consolidated financial
statements.
INVENTORIES
Inventories consist of the following (in thousands):
June 30, 1996 December 31, 1995 June 30, 1995
Components $12,649 $14,127 $16,875
Finished goods 20,219 16,151 21,661
------- ------- -------
Total inventories $32,868 $30,278 $38,536
======= ======= =======
The Company provides certain components to its contract manufacturers for
inclusion in the Company's finished goods.
NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted average
of common stock and common stock equivalents outstanding. Common stock
equivalents are computed using the treasury stock method.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
presentation utilized in the quarter ended June 30, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Net sales for the second quarter were $21.5 million compared to $24.7 million
for the same quarter a year earlier. Net income was $248,000, or $0.04 per
share, for the second quarter ended June 30, 1996 as compared to net income of
$61,000, or $0.01 per share, for the same quarter of 1995.
Net sales for the first six months of 1996 increased to $43.4 million from $43.2
million in the first six months of 1995. The Company experienced a loss for the
first six months of 1996 equal to $322,000, or $0.05 per share, compared to a
loss of $2.4 million, or $0.36 per share in the first six months of 1995.
Included in the 1995 first half loss was a restructuring charge of $0.09 per
share ($977,000 pre-tax) associated with personnel severence and facilities
closures.
Net sales in the Company's Retail Businesses decreased 5.8% to $26.8 million in
the first half of 1996 from $28.4 in the first half of 1995. The decrease,
primarily in the second quarter, was due to a decline in the Company's Private
Label Business driven by the loss of a large, but low margin customer. Excluding
the Private Label decline, the Retail Business was up 6.5% in the second quarter
of 1996 compared to the same period in 1995. First half of 1996 net sales in the
Company's Technology Businesses (Cable, Cable OEM, OEM) were $16.7 million for a
12.3% increase over net sales of $14.8 million for the first half of 1995. For
the quarter, however, the Company's Technology Business declined to $8.2 million
from $8.7 million in 1996 and 1995, respectively, driven largely by the loss of
an OEM customer. Despite the decline in net sales for the second quarter, the
Company foresees some sales improvement in the second half of 1996.
Gross margins for the first six months of 1996, were 28.7% compared to 27.0% for
the same period in 1995. Gross margins for the 1996 second quarter were 30.8%
compared to 28.5% for the 1995 second quarter. During the second quarter, the
decline of some of the Company's lower margin businesses and introduction of the
new One For All and product lines contributed to the gross margin improvement.
Gross profit margins will fluctuate due to a variety of factors, including,
among other things, shifts in product mix, changes in product pricing,
fluctuations in manufacturing and freight costs, and changes in customer mix.
Selling, general and administrative expenses decreased by 7.5% to $13.2 million
in the first half of 1996 as compared to $14.3 million in the first half of
1995. As a percentage of sales, these expenses also decreased in the first half
of 1996 to 30.4% from 33.0% in the first half of 1995. The decrease in S,G&A is
due primarily to the decrease in professional legal fees and personal property
taxes.
The Company recorded interest expense of approximately $344,000 related to
borrowings under its revolving credit line for the first half of 1996 compared
to approximately $547,000 for the first half of 1995. The decrease is the result
of a lower average outstanding balance and reduced interest rate in the first
half of 1996 compared to the same period in 1995.
The Company recorded an income tax benefit of approximately $583,000 for the
first half of 1996 as compared to a benefit of approximately $1.4 million for
the same period of 1995. The 1996 benefit includes the release of approximately
$174,000 during the first quarter of 1996, in the valuation allowance created in
1994 due to uncertainties of the recoverability of certain deferred tax assets.
The continuing improvement and return to profitable operations has permitted
management to reevaluate the Company's position and recognize the tax benefit
because management believes the related tax credits should be realized before
their statutory expiration.
Backlog
As of the end of the second quarter of 1996, the Company had backlog orders of
$7.9 million. Although the Company believes current orders to be firm and
expects that substantially all of the backlog will be shipped in 1996, there can
be no assurance that such orders will be shipped. The Company further believes
that backlog is not a meaningful indicator of its future performance.
Liquidity and Capital Resources
The Company's principal sources of funds are its operations and bank credit
facilities. Cash provided from operating activities was $1.7 million for the
first half of 1996 compared to $886,000 in 1995. This improvement in cash flow
is due primarily to efforts taken by management to reduce expenses, inventories
and receivables.
The Company's bank credit facilities include a revolving credit line which is
available to fund the Company's seasonal working capital needs and for general
operating purposes. This revolving
Page 7 of 14
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credit facility provides the Company with borrowing availability of $22 million
and bears interest equal to the bank's prime rate minus three-quarter percent.
The credit facility is secured by a first priority security interest in the
accounts receivable, inventory, equipment, and general intangibles of the
Company. At June 30, 1996, the interest rate charged on the outstanding balance
of this credit line was 7.5%. Under the terms of this revolving credit facility,
the Company's ability to pay cash dividends on its common stock is restricted
and amounts available for borrowing are reduced by the outstanding balance of
the Company's import letters of credit. As of June 30, 1996, the Company had
utilized approximately $5.0 million of the credit facility for the acquisition
of inventory to support future sales and for other general operating purposes
and had approximately $1.9 million of outstanding import letters of credit. In
addition, the Company had approximately $2.0 million of the credit facility
outstanding for the acquisition of and improvements to its Twinsburg, Ohio
facility. This amount has been classified as long-term in the accompanying
balance sheet as it is the Company's intention to secure a term loan for this
amount. The Company's borrowing under this revolving credit facility and
outstanding import letters of credit fluctuates due to, among other things,
seasonality of the business, the timing of supplier shipments, customer orders
and payments, and vendor payments.
Capital expenditures in the first six months of 1996 and 1995 were approximately
$2.8 million and $968,000, respectively. Approximately $1.7 million of 1996
first half capital expenditures were for the acquisition of the Twinsburg, Ohio
facility. The balance of the 1996 and 1995 capital expenditures were primarily
for new product tooling.
It is the Company's policy to carefully monitor the state of its business, cash
requirements and capital structure. The Company believes that funds generated
from operations and available from its borrowing capacity will be sufficient to
fund its currently anticipated cash needs, however, there can be no assurances
that this will occur.
RISK FACTORS PERTAINING TO THE SECOND QUARTER 1996
The Company cautions that the following important factors, among others
(including but not limited to factors mentioned from time to time in the
Company's reports filed with the Securities and Exchange Commission), could
affect the Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
The factors included here are not exhaustive. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements. Therefore, forward-looking statements should not be
relied upon as a prediction of actual future results.
DEPENDENCE UPON KEY SUPPLIERS
Most of the components used in the Company's products are available from
multiple sources; however, the Company has elected to purchase integrated
circuit components used in the Company's products, principally its remote
control products, and certain other components used in the Company's products,
from several selected sources. The Company has recently developed alternative
sources of supply for these integrated circuit components. However, there can be
no assurance that the Company will be able to continue to obtain these
components on a timely basis or in the quantities necessary to maintain or meet
the forecasted requirements. The Company generally maintains inventories of its
integrated chips, which could be used in part to mitigate, but not eliminate,
delays resulting from supply interruptions. An extended interruption or
termination in the supply of any of the components used in the Company's
products, or a reduction in their quality or reliability, would have an adverse
effect on the Company's business and results of operations.
DEPENDENCE ON FOREIGN MANUFACTURING
Third-party manufacturers located in foreign countries manufacture substantially
all of the Company's remote controls products. The Company's arrangements with
its foreign manufacturers are subject to the risks of doing business abroad,
such as import duties, trade restrictions, work stoppages, political instability
and other factors which could have a material adverse effect on the Company's
business and results of operations. The Company believes that the loss of any
one or more of its manufacturers would not have a long-term material adverse
effect on
Page 8 of 14
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the Company's business and results of operations because numerous other
manufacturers are available to fulfill the Company's requirements. In addition
to continuing to seek out alternative and additional third party manufacturers
both domestically and abroad, the Company has recently commenced manufacturing a
small amount of its remote controls in-house. Such in-house manufacturing,
however, does not presently reduce its dependence on its third party
manufacturers. However, the loss of any of the Company's major manufacturers
could adversely affect the Company's business until alterative manufacturing
arrangements are secured.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly financial results may vary significantly depending
primarily upon factors such as the timing of significant orders, the timing of
new product offerings by the Company and its competitors and product
presentations. In addition, the Company's business historically has been
seasonal, with the largest proportion of sales occurring in September, October
and November of each calendar year. Factors such as quarterly variations in
financial results could aversely affect the market price of the Common Stock and
cause it to fluctuate substantially. In addition, the Company (i) may from time
to time increase its operating expenses to fund greater levels of research and
development, increase its sales and marketing activities, develop new
distribution channels, improve its operational and financial systems and broaden
its customer support capabilities and (ii) may incur significant operating
expenses associated with any new acquisitions. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially adversely
affected.
The Company expects to experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company and
its competitors, market acceptance of new products, price reductions by the
Company or its competitors, mix of distribution channels through which products
are sold, level of product returns, mix of products sold, component pricing, mix
of international and North American revenues, and general economic conditions.
In addition, as a strategic response to changes in the competitive environment,
the Company may from time to time make certain pricing or marketing decisions or
acquisitions that could have a material adverse effect on the Company's
business, results of operations or financial condition. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarters the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's common stock would likely be materially adversely affected.
DEPENDENCE ON CONSUMER PREFERENCE
The Company is susceptible to fluctuations in its business based upon consumer
demand for its products. The Company believes that its success depends in
substantial part on its ability to anticipate, gauge and respond to such
fluctuation in consumer demand. However, it is impossible to predict with
complete accuracy the occurrence and effect of any such event that will cause
such fluctuations in consumer demand for the Company's products.
DEPENDENCE UPON TIMELY PRODUCT INTRODUCTION
The Company's ability to remain competitive in the remote control products
market will depend in part upon its ability to successfully identify new product
opportunities and to develop and introduce new products and enhancements on a
timely and cost effective basis. There can be no assurance that the Company will
be successful in developing and marketing new products or in enhancing its
existing products, that new products such as its Finder(TM) or its universal
garage door opener will achieve ongoing consumer acceptance, that products
developed by others will not render the Company's products non-competitive or
obsolete or that the Company will be able to obtain or maintain the rights to
use proprietary technologies developed by others which are incorporated in the
Company's products. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, the introduction of new products which the Company may introduce in
the future may require the expenditure of funds for research and development,
tooling, manufacuturing processes, inventory and marketing. In order to achieve
high volume production of any new product, the Company may have to make
substantial investments in inventory and expand its production capabilities.
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DEPENDENCE ON MAJOR CUSTOMERS
The Company's performance is affected by the economic strength and weakness of
its worldwide customers. The Company sells its products to mass merchants, such
as Wal-Mart, Kmart, and Sears and to technology oriented business such as
companies doing business in the cable and telecommunications industries. The
Company also supplies its products to its wholly-owned, non-U.S. subsidiaries
and to independent foreign distributors, who in turn distribute the Company's
products worldwide, with the United Kingdom, Europe, and Australia currently
representing the Company's principal foreign markets. The loss of any one or
more of the Company's key customers either in the United States or abroad due to
the financial weakness or bankruptcy of any such customer may have an adverse
affect on the Company's financial condition or results of operations.
COMPETITION
The remote control industry is characterized by intense competition based
primarily on product availability, price, speed of delivery, ability to tailor
specific solutions to customer needs, quality and depth of product lines. The
Company's competition is fragmented across its product lines, and accordingly,
the Company does not compete with any one company across all product lines. The
Company competes with a variety of entities, some of which have greater
financial and other resources than the Company. The Company's ability to remain
competitive in this industry depends in part on its ability to successfully
identify new product opportunities and develop and introduce new products and
enhancements on a timely and cost effective basis.
GENERAL ECONOMIC CONDITIONS
General economic conditions, both domestic and foreign, have an impact on the
Company's business and financial results. From time to time the markets in which
the Company sells its products experience weak economic conditions that may
negatively affect the sales of the Company's products. To the extent that
general economic conditions affect the demand for products sold by the Company,
such conditions could have an adverse effect on the Company's business.
Moreover, operating its business in countries outside of the United States
exposes the Company to fluctuations in foreign currency exchange rates, exchange
ratios, nationalization or expropriation of assets, import/export controls,
political instability, variations in the protection of intellectual property
rights, limitations on foreign investments and restrictions on the ability to
convert currency are risks inherent in conducting operations in geographically
distant locations, with customers speaking different languages and having
different cultural approaches to the conduct of business, any one of which alone
or collectively, may have an adverse affect on the Company's international
operations, and consequently on the Company's business, operating results and
financial condition.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits Page
11.1 Statement re: Computation of Per 13
Share Earnings (filed herewith).
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during the
quarter ended June 30, 1996.
(C) Exhibit 27 Financial Data Schedule 14
Page 11 of 14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) Universal Electronics Inc.
Date: August 14, 1996 /s/ David M. Gabrielsen
---------------------------------------------
David M. Gabrielsen
President and Chief Executive Officer
Date: August 14, 1996 /s/ Paul Arling
---------------------------------------------
Paul Arling
Senior Vice President & Chief Financial Officer
Page 12 of 14
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Exhibit 11.1
UNIVERSAL ELECTRONICS INC.
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Common stock
outstanding, beginning
of period 6,750,898 6,741,578 6,750,898 6,741,578
----------- ----------- ----------- -----------
Weighted average common
stock outstanding from
exercise of stock
options 21,064 -- 14,269 --
----------- ----------- ----------- -----------
Weighted average common
stock outstanding 6,771,962 6,741,578 6,765,167 6,741,578
=========== =========== =========== ===========
Stock options 173,121 32,988 -- --
=========== =========== =========== ===========
Weighted average common
and common stock
equivalents outstanding 6,945,083 6,774,566 6,765,167 6,741,578
=========== =========== =========== ===========
Net income (loss)
attributable to common
stockholders $ 247,656 $ 61,142 $ (322,496) $(2,392,021)
=========== =========== =========== ===========
Net income (loss) per
common and common stock
equivalents $ 0.04 $ 0.01 $ (0.05) $ (0.36)
=========== =========== =========== ===========
Page 13 of 14
5
6-MOS
DEC-31-1995
JAN-01-1996
JUN-30-1996
722
0
19,691
(327)
32,868
60,885
10,375
(3,097)
69,132
17,014
2,000
68
0
0
50,050
69,132
43,431
0
30,965
13,191
0
60
344
(905)
(583)
(322)
0
0
0
(322)
(0.05)
0
