<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{X} Quarterly report pursuant to Section 13 and 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended DECEMBER 31, 1996
-----------------
or
{_} 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 0-27248
-------
LEARNING TREE INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-3133814
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
6053 WEST CENTURY BOULEVARD, LOS ANGELES, CA 90045
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 417-9700
----------------
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 (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
------- -------
The number of shares of common stock, $.0001 par value, outstanding as of
January 27, 1997, is 21,994,507 shares.
Total number of pages 11
--------
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LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I--FINANCIAL STATEMENTS
Item 1. Financial Statements:
Consolidated Balance Sheets............................. 3
Consolidated Statements of Operations................... 4
Consolidated Statements 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 1. Legal Proceedings....................................... 10
Item 2. Changes in Securities................................... 10
Item 3. Defaults Upon Senior Securities......................... 10
Item 4. Submission of Matters to a Vote of Security Holders..... 10
Item 5. Other Information....................................... 10
Item 6. Exhibits and Reports on Form 8-K........................ 10
SIGNATURES............................................................. 11
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $26,513,000 $24,541,000
Short-term interest-bearing investments..................................... 39,467,000 37,000,000
Trade accounts receivable, net.............................................. 13,864,000 12,652,000
Prepaid marketing expenses.................................................. 40,000 1,084,000
Prepaid expenses and other.................................................. 2,280,000 2,333,000
----------- -----------
Total current assets...................................................... 82,164,000 77,610,000
Equipment, property and leasehold improvements, net............................. 14,499,000 11,646,000
Deferred income taxes........................................................... 285,000 279,000
Other assets.................................................................... 2,210,000 1,994,000
----------- -----------
Total assets.............................................................. $99,158,000 $91,529,000
=========== ===========
LIABILITIES
Current liabilities:
Current portion of debt and capital leases.................................. $ 118,000 $ 125,000
Trade accounts payable...................................................... 9,597,000 10,599,000
Deferred revenue............................................................ 18,731,000 15,611,000
Accrued liabilities......................................................... 7,392,000 5,712,000
Income taxes payable........................................................ 1,691,000 2,200,000
----------- -----------
Total current liabilities................................................. 37,529,000 34,247,000
Long-term debt and capital leases, net of current portion....................... 104,000 134,000
Deferred facilities rent........................................................ 1,562,000 1,642,000
----------- -----------
Total liabilities......................................................... 39,195,000 36,023,000
----------- -----------
Commitments
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 25,000,000 shares authorized,
21,995,000 shares issued and outstanding................................ 2,000 2,000
Additional paid-in capital.................................................. 42,992,000 42,992,000
Notes receivable from stockholders.......................................... (107,000) (144,000)
Deferred compensation--stockholders......................................... (187,000) (207,000)
Cumulative foreign currency translation..................................... (467,000) (753,000)
Retained earnings........................................................... 17,730,000 13,616,000
----------- -----------
Total stockholders' equity................................................ 59,963,000 55,506,000
----------- -----------
Total liabilities and stockholders' equity................................ $99,158,000 $91,529,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues................................... $36,010,000 $23,178,000
Costs of revenues.......................... 14,342,000 9,232,000
----------- -----------
Gross profit.............................. 21,668,000 13,946,000
----------- -----------
Operating expenses:
Course development........................ 2,382,000 1,242,000
Sales and marketing....................... 9,891,000 6,208,000
General and administrative................ 3,749,000 3,343,000
----------- -----------
16,022,000 10,793,000
----------- -----------
Income from operations..................... 5,646,000 3,153,000
----------- -----------
Other income (expense):
Interest expense.......................... (8,000) (9,000)
Interest income........................... 870,000 238,000
Foreign exchange.......................... 13,000 (56,000)
Other..................................... (288,000) (16,000)
----------- -----------
587,000 157,000
----------- -----------
Income before provision for income taxes... 6,233,000 3,310,000
Provision for income taxes................. 2,119,000 943,000
----------- -----------
Net income................................. $ 4,114,000 $ 2,367,000
=========== ===========
Net income per common share and common
equivalent share.......................... $ 0.19 $ 0.13
=========== ===========
Weighted average number of common and
common equivalent shares 22,033,000 18,118,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows--operating activities:
Net income............................................................... $ 4,114,000 $ 2,367,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................ 1,027,000 630,000
Deferred facilities rent charges..................................... (103,000) (69,000)
Amortization of deferred compensation................................ 20,000 20,000
Unrealized foreign exchange losses................................... -- 54,000
Change in net assets and liabilities:
Trade accounts receivable.......................................... (1,008,000) (19,000)
Prepaid marketing expenses......................................... 120,000 191,000
Prepaid expenses and other......................................... 246,000 10,000
Income taxes....................................................... (708,000) 450,000
Trade accounts payable............................................. (1,219,000) (922,000)
Deferred revenue................................................... 2,726,000 1,282,000
Accrued liabilities................................................ 2,446,000 852,000
----------- -----------
Net cash provided by operating activities............................ 7,661,000 4,846,000
----------- -----------
Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements.............. (3,999,000) (1,776,000)
Retirements of equipment, property and leasehold improvements............ 287,000 64,000
Proceeds from short-term interest-bearing investments held to maturity... 2,433,000 --
Purchases of short-term interest-bearing investments:
Investments held to maturity........................................... (4,500,000) --
Investments held for sale.............................................. (400,000) --
Other, net............................................................... (219,000) 9,000
----------- -----------
Net cash used in investing activities................................ (6,398,000) (1,703,000)
----------- -----------
Cash flows--financing activities:
Principal payments of debt and capital leases............................ (36,000) (59,000)
Sales of Common Stock.................................................... -- 26,108,000
Collections of stockholder notes......................................... 36,000 26,000
----------- -----------
Net cash provided by (used in) financing activities.................. -- 26,075,000
----------- -----------
Effects of exchange rates on cash.......................................... 709,000 (80,000)
----------- -----------
Net increase in cash and cash equivalents.................................. 1,972,000 29,138,000
Cash and cash equivalents at the beginning of the period................... 24,541,000 10,029,000
----------- -----------
Cash and cash equivalents at the end of the period......................... $26,513,000 $39,167,000
=========== ===========
Supplemental disclosures:
Income taxes paid...................................................... $ 1,248,000 $ 563,000
=========== ===========
Interest paid.......................................................... $ 9,000 $ 23,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Operations and Significant Accounting Policies
----------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. 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
regulations. Certain prior period balances have been reclassified to conform
with the current period presentation. The condensed consolidated financial
statements reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature. The condensed consolidated financial statements in this
Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
September 30, 1996 that are contained in the Company's 1996 Annual Report on
Form 10-K.
Note 2. Stock Dividend
--------------
On December 16, 1996, the Company paid a 50% stock dividend to all of
the holders of its Common Stock, $.0001 Par Value ("Common Stock"). All share
and per share amounts in the accompanying financial statements and footnotes
have been retroactively restated to reflect the stock dividend.
Note 3. Computation of Net Income per Common Share and Common Equivalent Share:
----------------------------------------------------------------------
Net income per common share and common equivalent share is computed
using the weighted average number of shares of Common Stock outstanding during
the period. For fiscal 1996, the weighted average number of common and common
equivalent shares outstanding was computed pursuant to the rules of the
Securities and Exchange Commission. Such rules require that common stock and
common stock equivalents issued by the Company during the twelve months
preceding the Company's initial public offering, at prices below the public
offering price (654,000 shares), be included in the calculation of the shares
outstanding for all periods presented using the treasury stock method.
Note 4. Stock Option Plan
-----------------
In October 1995, the Company and its stockholders adopted the 1995
Stock Option Plan (the "Stock Option Plan"), which provides for the issuance of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and non-qualified stock options to purchase an aggregate of up to
2,250,000 shares of the Common Stock of the Company. The Stock Option Plan
permits the grant of options to officers, employees, directors and consultants
of the Company. The exercise price of incentive stock options granted must be
greater than or equal to the fair market value of the Common Stock on the date
of grant and the exercise price of a non-qualified stock option must be greater
than or equal to 75% of the fair market value of the Common Stock on the date of
grant. The maximum term of all options may not exceed ten years. The vesting
schedule and the period required for full exercisability of the stock options
are at the discretion of the Board of Directors but in no event can they be less
than six months.
On October 1, 1996, non-qualified options for approximately 654,000
shares were granted under the Stock Option Plan to substantially all employees
with at least one year of service with the Company. The exercise price of
options granted was equal to the fair market value of the Common Stock at the
date of grant and the terms of the options are five years. The options are
subject to a four year vesting schedule at 25 percent per year on each
anniversary date.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Learning Tree International, Inc. (the "Company"), is a leading worldwide
provider of education and training for corporate information technology ("IT")
professionals in business and government organizations. The Company develops,
markets and delivers a broad, proprietary library of instructor-led course
titles which are focused on client/server systems, Internet/intranets, local and
wide area computer networks, operating systems, programming languages, database
systems, graphical user interfaces, object-oriented technology and IT
management. The Company tests and certifies IT professionals in 21 IT job
functions. The Company's courses are recommended for college credit by the
American Council on Education.
In addition to its instructor-led courses, the Company has developed and is
expanding a line of interactive computer-based training courses incorporating
audio and graphical elements ("multimedia CBT") that are designed for both
stand-alone CD-ROM and network-based delivery.
RESULTS OF OPERATIONS
For the first quarter of fiscal 1997, which ended December 31, 1996,
revenues increased by $12.8 million or 55% to $36.0 million from $23.2 million
for the same quarter in the prior year. Income from operations for the quarter
ended December 31, 1996 increased $2.4 million or 79% to $5.6 million from $3.2
million for the first quarter of fiscal 1996. For the quarter ended December
31, 1996, net income increased by $1.7 million or 74% to $4.1 million from $2.4
million for the quarter ended December 31, 1995.
The growth of revenues is due primarily to an increase in the number of
course participants to 24,029 in the quarter ended December 31, 1996, from
16,359 participants in the corresponding quarter of the prior year. The
additional course participants are primarily attributable to increased marketing
and sales expenditures and an increase in the number of course titles to 120 in
the first quarter of fiscal 1997, compared to 91 in the same period a year
earlier. Revenues for the three month period ended December 31, 1996, also
reflect slightly higher average revenue per course participant as well as
revenues from the Company's multimedia CBT product line.
The Company's cost of revenues primarily includes the costs associated with
the course instructor, course materials and equipment, freight, classroom
facilities and refreshments. The cost of revenues for the first quarter of
fiscal 1997 increased $5.1 million or 55% to $14.3 million from $9.2 million for
the same quarter in 1996. The increase in the cost of revenues for the three
month period ended December 31, 1996 as compared to the same period in the prior
year, is primarily the result of an increased number of course events. The
number of course events increased 39% in the quarter ended December 31, 1996 to
1,485 course events from 1,066 course events in the quarter ended December 31,
1995. Costs per course event increased approximately 10% compared to the
corresponding period in the prior year. The change in the average cost per
course event primarily reflects the higher costs of conducting more course
events at sites other than education centers due to education center capacity
constraints, costs of recruiting and training new instructors to expand the
instructor force and costs of course equipment. To accommodate the growth in
course enrollments, the Company has increased and is seeking additional
education center facilities in certain locations.
In response to the continued strength in enrollments, the Company intends
to: a) continue to expand its library of course titles, including the
development of a series of new 1-day seminars; b) further expand its sales,
advertising and marketing expenditures to capture additional market share; c)
recruit and train additional instructors for both new and existing course titles
and d) as noted above, add additional education centers and expand the number
of classrooms in its existing education centers. Accordingly, the Company's
cost of revenues, course development and sales and marketing expenditures are
expected to increase. There can be no assurance that the Company will be able
to achieve increased market share after making the expenditures required by
these activities.
Course development expense includes the costs of developing new course
titles and updating the Company's existing course library. The principal costs
are for internal course development staff and independent consultants who serve
as subject matter experts. Course development expense increased by $1.2 million
or 92% to $2.4 million for the first quarter ended December 31, 1996 from $1.2
million in the quarter ended December 31, 1995. This increase reflects the
costs associated with the Company's strategy of expanding its instructor-led
course library to meet its customers' growing technology training needs,
7
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updating and maintaining the growing course title library and developing the
multimedia CBT product line. The Company introduced its first multimedia CBT
course title in February 1996. As of December 31, 1996, the Company had
released 20 multimedia CBT course titles and plans to continue to accelerate its
multimedia CBT course title development process.
Sales and marketing expense consists of salaries, commissions and travel-
related costs of sales and marketing personnel, the costs of designing,
producing and distributing direct mail marketing and media advertisements, and
the costs of information systems to support these activities. Sales and
marketing expenses increased $3.7 million or 59% to $9.9 million for the quarter
ended December 31, 1996 from $6.2 million for the quarter ended December 31,
1995. The increase in sales and marketing expenses is due to an increase in
telemarketing and field sales staff and direct mail marketing intended to reach
a broader range of potential customers, to expand business with current
customers, to expand the Company's presence in certain U.S. cities and to
communicate the availability of new course titles.
General and administrative expense increased $406,000 or 12% to $3.7
million for the quarter ended December 31, 1996 from $3.3 million for the
quarter ended December 31, 1995. As a percentage of revenue, these costs
decreased to 10% in the quarter ended December 31, 1996 from 14% in the
corresponding quarter of the prior year as a result of increased leveraging of
the Company's infrastructure to support a higher sales volume.
Other income (expense) is comprised of interest income, interest expense,
foreign currency gains and losses and other. Total other income increased
$430,000 to $587,000 for the quarter ended December 31, 1996 from $157,000 for
the same quarter in the prior year. This increase was attributable to
additional interest income arising from the increased cash balances which have
been generated by operations and from the proceeds of the Company's initial
public offering in December 1995 and secondary public offering in September
1996.
The provision for income taxes increased $1.2 million to $2.1 million for
the quarter ended December 31, 1996 from $943,000 for the quarter ended December
31, 1995. The increase in the income tax provision reflects an increase in
income before taxes as well as an increase in the Company's effective tax rate
for fiscal 1997. The effective tax rate for fiscal 1996 reflected the
utilization of certain foreign tax loss carryforwards and all of the Company's
remaining tax loss carryforwards were used in that year.
BACKLOG
At December 31, 1996, the Company had a backlog of orders for courses of
$21.8 million, which represented a 59% increase over the backlog of $13.7
million at December 31, 1995. However, the prior year's backlog, at December
31, 1995, may have been adversely affected by the U.S. Government's budget
impasse and the French transportation strike which occurred in the November and
December 1995 timeframe. Only a portion of the Company's backlog is funded.
There can be no assurance that the growth in the backlog will continue or that
orders comprising the backlog will be realized as revenue.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate based on various factors,
including the frequency of course events, the timing, frequency and size of, and
response to, the Company's direct mail marketing and advertising campaigns, the
timing of the introduction of new course titles and alternate delivery methods,
the mix between customer-site course events and Learning Tree-site course
events, competitive forces within the current and anticipated future markets
served by the Company, the spending patterns of its customers, currency
fluctuations, inclement weather and general economic conditions. Fluctuations
in quarter-to-quarter results may also occur depending on differences in the
timing of, and the time period between, the Company's expenditures on the
development and marketing of its courses and the receipt of revenues.
The Company's revenues and income have historically varied significantly
from quarter to quarter due to seasonal and other factors. The Company
generally has greater revenue and operating income in the second half of its
fiscal year (April through September) than in the first half of its fiscal year
(October through March). This seasonality is due in part to seasonal spending
patterns of the Company's customers arising from budgetary and other business
factors as well as weather, holiday and vacation considerations. In addition,
the seasonality of the Company's operating results reflects the quarterly
differences in the frequency and size of the Company's direct mail marketing
campaigns. There can be no assurance that these seasonal effects will remain
the same in the future.
8
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term interest-bearing investments
increased to $66.0 million at December 31, 1996 from $61.5 million at September
30, 1996, primarily as a result of the cash provided by operations. In the
quarter ended December 31, 1996, cash provided by operations was approximately
$7.7 million compared to $4.8 million during the same period in the prior year.
The increase in cash provided by operations reflects the increase in
profitability and increases in deferred revenues arising from prepaid multi-
enrollment programs. At December 31, 1996 the Company had working capital of
$44.6 million and had unused available lines of credit of approximately
$385,000.
During the quarter ended December 31, 1996, the Company invested $4.0
million in equipment and facilities compared to $1.8 million in the same period
of the prior year. This increase is primarily related to additional course
equipment to support the growth of course events and to upgrade course equipment
capabilities and to the build-out of office facilities. While the Company
expects to purchase additional course equipment and to enter into leases for
additional facilities during fiscal 1997, as of December 31, 1996, the Company
had no material future purchase obligations, capital commitments or debt and
believes that its cash and cash equivalents, its short-term interest-bearing
investments and the cash provided by its operations will be sufficient to meet
its cash requirements for the foreseeable future.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters discussed
in this Form 10-Q are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's dependence on the
timely development, introduction and customer acceptance of new courses and
products, the impact of competition and downward pricing pressures, the effect
of changing economic conditions, risks in technology development, the risks
involved in currency fluctuations, and the other risks and uncertainties
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including the Company's 1996 Annual Report on Form 10-K.
9
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PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None
Item 2: CHANGES IN SECURITIES
Not Applicable
Item 3: DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
first quarter of fiscal 1997, through the solicitation of proxies or
otherwise.
Item 5: OTHER INFORMATION
Not Applicable
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended December 31, 1996.
10
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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.
LEARNING TREE INTERNATIONAL, INC.
Dated: January 27, 1997 By: /s/ Gary R. Wright
---------------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,513,000
<SECURITIES> 39,467,000
<RECEIVABLES> 13,864,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82,164,000
<PP&E> 14,499,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,158,000
<CURRENT-LIABILITIES> 37,529,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 99,158,000
<SALES> 36,010,000
<TOTAL-REVENUES> 36,010,000
<CGS> 14,342,000
<TOTAL-COSTS> 14,342,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 6,233,000
<INCOME-TAX> 2,119,000
<INCOME-CONTINUING> 4,114,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,114,000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
