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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to ______
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)
330-487-1110
(Registrant's telephone number, including area code)
---------------------
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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Number of shares of Common Stock, $.01 par
value, outstanding at March 31, 1998 6,366,902
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THE INDEX OF EXHIBITS TO THIS QUARTERLY REPORT APPEARS ON PAGE 12
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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 and Comprehensive 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 12
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
MARCH 31, DECEMBER 31, MARCH 31,
1998(1) 1997 1997(1)
--------- ------------ ---------
Current assets:
Cash and cash equivalents $ 471 $ 1,097 $ 680
Accounts receivable 20,437 26,049 17,329
Inventories 16,864 16,639 21,191
Refundable income taxes 5 5 2
Prepaid expenses and other
current assets 2,683 1,055 3,482
Deferred income taxes 4,903 5,027 2,156
Assets held for sale 1,729 1,729 --
-------- -------- --------
Total current assets 47,092 51,601 44,840
Equipment, furniture, and
fixtures, net 4,071 3,950 6,933
Patents and trademarks 460 460 896
Other assets 470 475 546
Deferred income taxes 4,652 4,652 4,209
-------- -------- --------
Total assets $ 56,745 $ 61,138 $ 57,424
======== ======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
Current liabilities:
Revolving credit facility $ 4,025 $ 7,237 $ --
Accounts payable 7,113 7,775 7,056
Accrued income taxes 83 101 163
Accrued compensation 746 714 321
Accrued discontinuation
expense 3,317 3,929 --
Other accrued expenses 1,887 2,495 2,700
-------- -------- --------
Total current liabilities 17,171 22,251 10,240
-------- -------- --------
Long-term debt -- -- 2,233
Stockholders' equity:
Capital stock 69 68 68
Paid-in capital 54,811 54,454 54,055
Currency translation
adjustment (94) (73) (49)
Accumulated deficit (11,948) (12,291) (6,053)
Cost of common stock held in
treasury (3,264) (3,271) (3,070)
-------- -------- --------
Total stockholders'
equity 39,574 38,887 44,951
-------- -------- --------
Total liabilities and
stockholders' equity $ 56,745 $ 61,138 $ 57,424
======== ======== ========
(1) Unaudited
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)(Unaudited)
THREE MONTHS ENDED MARCH 31,
1998 1997
-------- --------
Net Sales $ 18,576 $ 22,380
Cost of sales 11,326 15,623
-------- --------
Gross profit 7,250 6,757
Selling, general and administrative expenses 6,603 7,071
-------- --------
Operating income (loss) 647 (314)
Interest expense 140 99
Interest income (2) (5)
Other (income)expenses, net (41) 24
-------- --------
Income (loss) before income taxes 550 (432)
Income tax (expense) benefit (207) 151
-------- --------
Net income (loss) 343 (281)
-------- --------
Other comprehensive income (loss):
Foreign currency translation adjustments (21) (24)
Tax benefit related to foreign currency
translation adjustments 8 8
-------- --------
(13) (16)
-------- --------
Comprehensive income (loss) $ 330 $ (297)
======== ========
Net income (loss) per share:
Basic $ 0.05 $ (0.04)
======== ========
Diluted $ 0.05 $ (0.04)
======== ========
Weighted average common stock outstanding:
Basic 6,338 6,313
======== ========
Diluted 6,650 6,313
======== ========
The accompanying notes are an integral part of these financial statements.
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UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)(Unaudited)
THREE MONTHS ENDED MARCH 31,
1998 1997
-------- --------
Cash provided by (used for) operating activities:
Net income (loss) $ 343 $ (281)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 402 478
Deferred income taxes 124 (214)
Issuance of common stock for
retirement plan 25 39
Provision for bad debts 95 --
Discontinuation expense (612) --
Issuance of treasury shares to directors 12 --
Changes in operating assets and liabilities:
Receivables 5,517 2,835
Inventories (224) 17
Other assets (1,624) (216)
Payables and accruals (1,238) (367)
Accrued income taxes (18) (28)
-------- --------
Net cash provided by operating activities 2,802 2,263
-------- --------
Cash used for investing activities:
Acquisition of fixed assets (506) (683)
Trademarks (16) (27)
Loan repayments by employees
for common stock purchases -- 66
-------- --------
Net cash used for investing activities: (522) (644)
-------- --------
Cash provided by (used for)financing
activities:
Short-term debt borrowings 14,819 --
Short-term debt payments (18,031) (950)
Proceeds from stock options exercised 327 --
Treasury stock purchased -- (475)
-------- --------
Net cash provided by (used for) financing
activities (2,885) (1,425)
-------- --------
Effect of exchange rates on cash (21) (24)
-------- --------
Net increase (decrease) in cash and cash
equivalents (626) 170
Cash and cash equivalents at beginning of
period 1,097 510
-------- --------
Cash and cash equivalents at end of period $ 471 $ 680
======== ========
The accompanying notes are an integral part of these financial statements.
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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 financial statements.
Inventories
- -----------
Inventories consist of the following (in thousands):
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
-------- -------- --------
Components $ 4,834 $ 6,479 $ 7,746
Finished goods 12,030 10,160 13,445
-------- -------- --------
Total inventories $ 16,864 $ 16,639 $ 21,191
======== ======== ========
Net Income (Loss) Per Share
- ---------------------------
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net income
(loss) per share is computed by dividing the net income (loss) by the weighted
average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares for all periods presented are
computed utilizing the treasury stock method.
Comprehensive Income
- --------------------
Effective in the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement establishes for reporting and display of comprehensive income and its
components in the Company's consolidated financial statements. Comprehensive
income represents the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. Total
comprehensive income and its components are included in the accompanying
Consolidated Statement of Income and Comprehensive Income.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform with the
presentation utilized in the quarter ended March 31, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the 1998 first quarter were $18.6 million, an increase of 12.3%
over the net sales of $16.5 million for the same quarter last year, after
excluding the net sales of $5.9 million related to the Company's discontinued
North American retail business. Net income increased substantially to a first
quarter record $343,000 or $0.05 per share (basic and diluted), from a loss of
$281,000 or $0.04 per share (basic and diluted) for the first quarter of 1997.
First quarter net sales in the Company's Technology Businesses (subscription
broadcasting, OEM and private label) rose 21% to $14.4 million from $11.9
million for the same period last year. The international One For All(R) business
posted solid sales growth, up about 10% to $3.5 million from $3.2 million for
last year's first quarter. The Company's continuing Retail Business, including
both international One For All and Eversafe(R) declined 10% from the year
earlier. This was primarily due to the significant sales of garage door openers
during the first quarter of 1997.
Gross margins for the 1998 first quarter were 39.0% compared to 30.2% for the
same period in 1997. Approximately 4 percentage points of the increase can be
attributed to the discontinuation of the Company's lower margin North American
retail business. The remaining 5 percentage point improvement is a result of the
increase in the subscription broadcast and international One For All businesses.
Selling, general and administrative expenses were $6.6 million in the first
quarter of 1998, compared to $6.3 million in 1997, after excluding approximately
$800,000 related to the Company's North American retail business. As a percent
of sales, selling, general and administrative expenses decreased to 35.5% in
1998 from 38.2% in 1997.
The Company recorded interest expense of approximately $140,000 related to
borrowings under its revolving credit line for the first quarter of 1998
compared to approximately $99,000 for the first quarter of 1997. The increase is
the result of a higher average outstanding borrowings compared to the same
period in 1997.
The income tax expense of approximately $207,000 for the first quarter of 1998
as compared to a benefit of approximately $151,000 for the same quarter of 1997.
BACKLOG
As of the end of the first quarter of 1998, the Company had backlog orders of
$16.2 million. This reflects a decrease in orders of 13.8% as of the same date
in 1997 when the Company had backlog orders representing $18.8 million in sales.
The decrease is primarily due to the reduction of orders from the Company's One
For All retail business. Although the Company believes current orders to be firm
and expects that substantially all of the backlog will be shipped in 1998, 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 $2.8 million for the
first quarter of 1998 compared to $2.3 million for the same period in 1997. The
improvement in cash flow is principally due to efforts taken by management to
reduce accounts receivable balances.
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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 credit facility, which was renewed on April
30, 1998, provides the Company with borrowing availability of $15 million and
bears interest equal to the bank's prime rate plus one-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
March 31, 1998, the interest rate charged on the outstanding balance of this
credit line was 8.75%. Under the terms of this revolving credit facility, the
Company's ability to pay cash dividends on its common stock and the acquisition
of treasury shares is generally restricted, however, the Company has authority
under this credit facility to acquire up to 1,000,000 shares of its common stock
in market purchases and, to date, the Company has acquired approximately 541,000
shares of stock which it holds as treasury shares and are available for reissue
by the company. Presently, except for using a small number of these treasury
shares to compensate its outside board members, the Company has no plans to
distribute these shares.
Amounts available for borrowing are reduced by the outstanding balance of the
Company's import letters of credit. As of March 31, 1998, the Company had
utilized approximately $4.0 million of the credit facility for the acquisition
of its facility in Ohio, treasury stock purchases and other working capital
needs. The Company had approximately $500,000 of outstanding import letters of
credit. 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 quarters of 1998 and 1997 were approximately
$506,000 and $683,000, respectively. The 1998 and 1997 capital expenditures
related primarily to product tooling and the relocation of the Company's
facilities from Ohio to California in 1998 and relocation of the California
facility in 1997.
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.
RISKS AND SAFEHARBOR STATEMENT
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.
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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 single 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. 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. 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 the Company's business and results of operations because numerous
other manufacturers are available to fulfill the Company's requirements,
however, the loss of any of the Company's major manufacturers could adversely
affect the Company's business until alternative 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. Furthermore, 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
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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
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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 will achieve consumer acceptance and if
acquired, will sustain that 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 a significant amount of funds for
research and development, tooling, manufacturing 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.
Dependence on Major Customers
- -----------------------------
The Company's performance is affected by the economic strength and weakness of
its worldwide customers. The Company sells its remote control products and
proprietary technologies to private label customers, original equipment
manufacturers ("OEMs"), and companies involved in the subscription broadcast
industry. 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. In addition, as is typical in
the Company's industry and the nature and kind of business in which the Company
is engaged, from time to time, various claims, charges and litigation are
asserted or commenced by
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third parties against the Company or by the Company against
third parties arising from or related to product liability, infringement of
patent or other intellectual property rights, breach of warranty, contractual
relations, or employee relations. The amounts claimed may be substantial but may
not bear any reasonable relationship to the merits of the claims or the extent
of any real risk of court awards. While it is the opinion of management that the
Company's products do not infringe any third parties' patent or other
intellectual property rights, the costs associated with defending or pursuing
any such claims or litigation could be substantial and amounts awarded as final
judgments, if any, in any such potential or pending litigation, could have a
significant and material adverse effect on the Company's financial condition or
results of operations.
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
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11.1 Statement re: Computation of Per 14
Share Earnings (filed herewith).
(B) Reports on Form 8-K
There were no reports on Forms 8-K filed during the
quarter ended March 31, 1997.
(C) Exhibit 27 Financial Data Schedule 15
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SIGNATURES
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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: May 14, 1998 \s\Paul D. Arling
-----------------------------------------------
Paul D. Arling
Senior Vice President & Chief Financial Officer
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Exhibit 11.1
UNIVERSAL ELECTRONICS INC.
COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED
MARCH 31,
1998 1997
----------- -----------
Common stock
outstanding, beginning
of period 6,312,199 6,372,025
----------- -----------
Weighted average common
stock outstanding from
exercise of stock options,
treasury stock purchases and
employee benefit plan 6,334 (59,352)
----------- -----------
Weighted average common
stock outstanding - basic 6,318,533 6,312,673
Stock Options 312,281 --
----------- -----------
Weighted average common stock outstanding - diluted 6,630,814 6,312,673
=========== ===========
Net income attributable to common stockholders $ 343,903 $ (280,786)
=========== ===========
Net income (loss) per share:
Basic $ 0.05 $ (0.04)
=========== ===========
Diluted $ 0.05 $ (0.04)
=========== ===========
14
5
3-MOS
DEC-31-1997
JAN-01-1998
MAR-31-1998
471
0
23,483
(3,046)
16,864
47,092
9,204
(3,403)
56,745
17,171
0
0
0
69
39,505
56,745
18,576
18,576
11,326
6,603
0
98
140
550
(207)
343
0
0
0
343
0.05
0.05
