SUN HYDRAULICS CORP, 10-Q, 1998-08-11

SUN HYDRAULICS CORP
10-Q, 1998-08-11
MISCELLANEOUS FABRICATED METAL PRODUCTS

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998 Commission file number 0-21835

SUN HYDRAULICS CORPORATION
(Exact Name of Registration as Specified in its Charter)

- -------------------------------------------------------------------------------

FLORIDA 59-2754337
--------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

1500 WEST UNIVERSITY PARKWAY
SARASOTA, FLORIDA 34243
--------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)

941/362-1200
----------------
(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 (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 Registrant had 6,350,922 shares of common stock, par value $.001,
outstanding as of August 10, 1998.

<PAGE> 2

Sun Hydraulics Corporation
INDEX
For the second quarter ended June 30, 1998

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 3

Consolidated Statements of Income for the
Three Months Ended June 30, 1998 and 1997 (unaudited) 4

Consolidated Statements of Income for the
Six Months Ended June 30, 1998 and 1997 (unaudited) 5

Consolidated Statement of Changes in Shareholders' Equity for the Six
Months Ended June 30, 1998 (unaudited) and the Year Ended
December 31, 1997 6

Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1997 (unaudited) 7

Notes to Consolidated Financial Statements 8

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11

Forward Looking Information 16

PART II. OTHER INFORMATION 18

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K
</TABLE>

<PAGE> 3

PART I: FINANCIAL INFORMATION
Item 1.
SUN HYDRAULICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED)
<S> <C> <C>

ASSETS
Current assets:
Cash and cash equivalents $ 3,314 $ 1,249
Accounts receivable, net of allowance for
doubtful accounts of $44 and $47 5,871 4,558
Inventories 7,113 6,775
Other current assets 814 932
------------ -------------

Total current assets 17,112 13,514

Property, plant and equipment, net 41,027 39,789
Other assets 216 86
------------ -------------

Total assets $ 58,355 $ 53,389
============ =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,667 $ 2,847
Accrued expenses and other liabilities 2,394 2,174
Long-term debt due within one year 3,342 1,035
Notes payable to related parties due within one year 814 757
Dividends payable 254 221
Income taxes payable 932 380
------------ -------------

Total current liabilities 10,403 7,414

Long-term debt due after one year 6,330 6,620
Notes payable to related parties due after one year 730 1,152
Deferred income taxes 3,212 3,203
------------ -------------

Total liabilities 20,675 18,389
------------ -------------

Commitments and contingencies

Shareholders' equity:
Preferred stock - -
Common stock (Note 3) 6 6
Capital in excess of par value 24,244 24,163
Retained earnings 13,045 10,732
Equity adjustment for foreign currency translation 385 99
------------ -------------

Total shareholders' equity 37,680 35,000
------------ -------------

Total liabilities and shareholders' equity $ 58,355 $ 53,389
============ ============
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.

<PAGE> 4

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
(UNAUDITED)
1998 1997
---- ----
<S> <C> <C>

NET SALES $ 17,584 $ 15,276

Cost of sales 12,599 10,444
----------- ---------

GROSS PROFIT 4,985 4,832

Selling, engineering and
administrative expenses 3,033 2,849
----------- ---------

OPERATING INCOME 1,952 1,983

Interest expense 231 216
Miscellaneous expense (income) (45) 72
----------- ---------

INCOME BEFORE INCOME TAXES 1,766 1,695

Income tax provision 586 616
----------- ---------

NET INCOME $ 1,180 $ 1,079
=========== =========

BASIC NET INCOME PER COMMON SHARE $ 0.19 $ 0.17

WEIGHTED AVERAGE SHARES OUTSTANDING 6,339 6,300

DILUTED NET INCOME PER COMMON SHARE $ 0.18 $ 0.17

WEIGHTED AVERAGE SHARES OUTSTANDING 6,553 6,501
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.

<PAGE> 5

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 36,717 $ 29,874

Cost of sales 25,946 20,646
---------- ----------

GROSS PROFIT 10,771 9,228

Selling, engineering and
administrative expenses 6,047 5,566
---------- ----------

OPERATING INCOME 4,724 3,662

Interest expense 491 368
Miscellaneous expense (income) (2) 14
---------- ----------

INCOME BEFORE INCOME TAXES 4,235 3,280

Income tax provision 1,415 1,184
---------- ----------

NET INCOME $ 2,820 $ 2,096
========== ==========

BASIC NET INCOME PER COMMON SHARE $ 0.45 $ 0.33

WEIGHTED AVERAGE SHARES OUTSTANDING 6,332 6,300

DILUTED NET INCOME PER COMMON SHARE $ 0.43 $ 0.32

WEIGHTED AVERAGE SHARES OUTSTANDING 6,524 6,504
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.

<PAGE> 6

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
CAPITAL IN FOR FOREIGN
COMMON EXCESS OF RETAINED CURRENCY
SHARES STOCK PAR VALUE EARNINGS TRANSLATION TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,000,002 $ 2,179 $ 2,719 $ 17,450 $ 49 $ 22,397

Net proceeds from stock offering 2,300,000 2 19,250 19,252
Distributions to shareholders (10,545) (10,545)
Dividends declared (883) (883)
Net income 4,710 4,710
Merger with Sun Holdings (Note 3) (2,175) 2,123 (52)
Exercise of stock options 22,000 71 71
Adjustment for foreign
currency translation 50 50
--------- --------- -------- -------- --------- ---------

Balance, December 31, 1997 6,322,002 6 24,163 10,732 99 35,000

Dividends declared (507) (507)
Net income 2,820 2,820
Exercise of stock options 23,920 81 81
Adjustment for foreign
currency translation 286 286
--------- --------- -------- -------- --------- ---------

Balance, June 30, 1998 (unaudited) 6,345,922 $ 6 $ 24,244 $ 13,045 $ 385 $ 37,680
========= ========= ======== ======== ========= =========
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.

<PAGE> 7

SUN HYDRAULICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)
1998 1997
---- ----
<S> <C> <C>

Cash flows from operating activities:
Net income $ 2,820 $ 2,096
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,269 1,852
(Increase) decrease in:
Accounts receivable (1,313) (2,009)
Inventories (338) (1,142)
Other current assets 118 289
Other assets (130) 1,033
Increase (decrease) in:
Accounts payable (180) (769)
Accrued expenses and other liabilities 220 (38)
Income taxes payable, net 561 702
Other liabilities - (20)
------ -------
Net cash provided by operating activities 4,027 1,994
------ -------

Cash flows from investing activities:
Capital expenditures (3,629) (3,566)
Proceeds from dispositions of equipment 122 2
------- -------
Net cash used in investing activities (3,507) (3,564)
------- -------

Cash flows from financing activities:
Proceeds from debt 4,261 3,722
Repayment of debt (2,244) (8,970)
Repayment of notes payable to related parties (365) (316)
Proceeds from exercise of stock options 81 -
Net proceeds from stock offering (Note 3) - 19,252
Cash paid for Sun Holdings merger (Note 3) - (52)
Dividends to shareholders (474) -
Distributions to shareholders - (11,273)
------- -------
Net cash provided by financing activities 1,259 2,363
------- -------

Adjustment for foreign currency translation 286 (24)
------- -------
Net increase in cash and cash equivalents 2,065 769
Cash and cash equivalents, beginning of period 1,249 1,038
------- -------
Cash and cash equivalents, end of period $ 3,314 $ 1,807
======== =========

Supplemental disclosure of cash flow information:
Cash paid for:
Interest (including amounts capitalized) $ 496 $ 616
======== =========
Income taxes $ 854 $ 482
======== =========
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these financial statements.

<PAGE> 8

SUN HYDRAULICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share data)

1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain
information and footnotes required by generally accepted accounting principles
for complete financial statements are not included herein. The financial
statements are prepared on a consistent basis (including normal recurring
adjustments) and should be read in conjunction with the consolidated financial
statements and related notes contained in the Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, filed by Sun Hydraulics Corporation
(the "Company") with the Securities and Exchange Commission on March 30, 1998.

2. BUSINESS

Sun Hydraulics Corporation, and its wholly-owned subsidiary, design,
manufacture and sell screw-in cartridge valves and manifolds used in hydraulic
systems. The Company has facilities in the United States, the United Kingdom
and Germany. Sun Hydraulics Corporation ("Sun Hydraulics"), located in
Sarasota, Florida, designs, manufactures and sells through independent
distributors in the United States. Sun Hydraulik Holdings Limited ("Sun
Holdings"), a wholly-owned subsidiary of the Company, was formed to provide a
holding company vehicle for the European market operations, its wholly-owned
subsidiaries are Sun Hydraulics Limited (a British corporation, "Sun Ltd.") and
Sun Hydraulik GmbH (a German corporation, "GmbH"). Sun Ltd. operates a
manufacturing and distribution facility located in Coventry, England. GmbH,
located in Erkelenz, Germany, markets the Company's products in German-speaking
European markets.

3. REORGANIZATION AND INITIAL PUBLIC OFFERING

The consolidated financial statements of the Company consist of the
financial position and results of operations of Sun Hydraulics and Sun
Holdings. In January 1997, Sun Hydraulics effected a 9.90372627 for 1 stock
split. All prior year share amounts reflected in the financial statements
include the effect of the stock split. Additionally, Sun Hydraulics issued
374,811 shares of common stock and made a nominal cash payment of $52 in
exchange for all of the issued and outstanding stock of Sun Holdings (the
"Reorganization"). The Reorganization was accounted for in a manner similar to
a pooling of interests except for shares held by the minority shareholders
which were accounted for at the fair market value of their proportionate share
of related assets and liabilities, which approximated book value on the date of
the transaction.

The Company filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission effective January 9, 1997, and issued 2,300,000 shares
of common stock in an initial public offering ("IPO"), with an initial offering
price of $9.50. The IPO net proceeds of $19,252, the exchange of shares with
Sun Holdings, and the distribution of previously taxed S Corporation retained
earnings are reflected in the statement of changes in shareholders' equity.

<PAGE> 9

The $19,252 of net proceeds from the IPO were used as follows: an S
Corporation distribution of $9,446, representing 90% of the total distribution
of $10,545 was made, $7,676 was paid to extinguish debt, $1,000 was paid to
reduce the mortgage on the United States construction loan, and $1,130 was
retained as working capital.

The Company has 20,000,000 authorized shares of common stock, par value
$0.001, with 6,345,922 shares outstanding at June 30, 1998. The Company also
has 2,000,000 authorized shares of preferred stock, par value $0.001, with no
shares outstanding.

4. COMPREHENSIVE INCOME

Effective in the first quarter ended March 31, 1998, the Company adopted
SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in the
Company's consolidated financial statements. Comprehensive income is defined in
SFAS 130 as the change in equity (net assets) of a business enterprise during a
period resulting from transactions and other events and circumstances from
non-owner sources. Total comprehensive income was $3,010 and $2,081 for the six
months ended June 30, 1998 and 1997, respectively. The difference between net
income as reported and total comprehensive income is the tax effected change in
the cumulative foreign currency translation adjustment.

5. RECENT ACCOUNTING PRONOUNCEMENTS

Segment Reporting

In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 131, "Disclosure about Segments of an Enterprise and Related Information."
Under FAS 131 the basis for determining an enterprise's operating segments is
the manner in which management operates the businesses. The statement is
effective for fiscal years beginning after December 15, 1997 but does not
require compliance with interim reporting requirements until the second year of
implementation. The standard addresses disclosure issues and therefore will not
affect the Company's financial position or results of operations.

Derivative Instruments And Hedging Activities

The FASB has issued FAS 133, "Accounting for Derivative Instruments and
Hedging Activities," which is effective for the Company's fiscal year beginning
December 31, 1999. This Statement requires that derivative instruments be
recognized as assets or liabilities and measured at fair value. The Company
does not anticipate a material effect upon adoption of this standard.

Computer Software Development Costs

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidence for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not anticipate a material impact on its results of operations as a result of
the adoption of SOP 98-1.

9
<PAGE> 10

6. LONG-TERM DEBT (in thousands)

<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Lines of credit agreements $ 3,054 $ 666

Mortgage note payable-U.S. manifold facility ("Manatee") 4,925 4,990
Mortgage note payable-German facility 1,693 1,999
-------- -------
9,672 7,655
Less amounts due within one year (3,342) (1,035)
-------- -------
$ 6,330 $ 6,620
======== =======
</TABLE>

The Company has three revolving lines of credit; one in the United States,
one in England, and one in Germany. None of these arrangements contain
pre-payment penalties.

The United States had a $1,700 revolving credit agreement, secured by all
inventory and accounts receivable, bearing interest at the lender's prime rate
with a maturity date of March 1, 1997. In February 1997, the Company negotiated
a one-year, unsecured revolving credit facility to replace the $1,700 revolving
credit agreement. This credit facility provided for a maximum availability of
$10,000, payable on demand at the lender's prime rate of interest, and
contained no debt covenants. In February 1998, the Company renegotiated this
unsecured credit facility for an additional one year term and an interest rate
equal to the bank lender's prime rate less 1%, or LIBOR plus 1.9% for
predetermined periods of time at the Company's option. At June 30, 1998, $3,000
was outstanding under this credit facility.

In England, the Company has a $1,200 line of credit, denominated in
British pounds, which bears interest at a floating rate equal to 2.25% over the
bank's base rate and is payable on demand. At June 30, 1998 there was no
balance outstanding on this credit facility.

The German line of credit is a demand note denominated in German Marks
with interest payable at the lender's prime rate. At June 30, 1998, $54 was
outstanding under this credit facility.

A 10-year mortgage note of $6,187 was obtained at a fixed interest rate of
8.25% for construction of the manifold facility. Terms on the construction note
were interest-only on the balance drawn down through the completion of
construction and then conversion to a 10-year mortgage note with a 15-year
amortization schedule. The Company applied $1,000 of the IPO proceeds toward
repayment of this note. In March 1998, this mortgage note was renegotiated to
an interest rate of 7.875%. Terms are monthly principal and interest payments
of $43 for 8.25 years with remaining principal due July 1, 2006. At June 30,
1998, $4,925 was outstanding under this credit facility.

<PAGE> 11

In May 1996, the Company obtained a mortgage loan of approximately $2,400,
denominated in German marks, for the new facility in Erkelenz, Germany. The
loan has a term of 12 years and bears interest at 6.47%. At June 30, 1998,
$1,693 was outstanding under this credit facility.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is a leading designer and manufacturer of high-performance,
screw-in hydraulic cartridge valves and manifolds which control force, speed
and motion as integral components in fluid power systems. The Company sells its
products globally through independent distributors.

Orders in the second quarter of 1998 were $17.2 million, a decrease of
$0.7 million or 3.9%, from the second quarter of 1997, and a $1.7 million
decrease or 9.0% from the first quarter of 1998. The decrease in orders from
the first quarter of 1998 was seen across all major domestic market areas with
a significant drop in demand from Asian customers. National Fluid Power
Association data supports the Company's belief that the order growth rate has
slowed for the United States mobile and industrial hydraulics markets.

The second quarter decrease in orders did not appreciably affect net
sales, except for United States manifold operations, as the Company continued
to ship against its strong backlog of cartridge orders. The backlog for
manifolds was significantly reduced in the first quarter of 1998, which led to
a lower level of sales for manifolds during the second quarter of 1998.

Daily production of cartridges in the first and second quarters of 1998
has continued at levels 20% higher than the same periods in 1997, largely as a
result of physical capacity expansion in the United States and the
implementation of cellular production for high volume cartridges. However, even
with the increased production rate, 1998 cartridge sales continue to be
adversely affected by capacity constraints in the United States cartridge
facility ("Sarasota"). In order to continue to increase cartridge production
capacity, cellular production equipment for high volume cartridges will be
moved during the fourth quarter of 1998 to the Company's current manifold
facility ("Manatee"). Additionally, cellular machinery and equipment will be
added beginning in the fourth quarter of 1998, to further increase capacity for
high volume products.

The relocation of high volume production to a separate facility will
create space in the Sarasota facility that will increase production capacity
for new products as well as the Company's broad range of complementary products
which are produced in smaller quantities. In conjunction with the move of high
volume cartridge production to the Manatee facility, plans are underway to
construct a slightly smaller, new facility that will house manifold production.
Construction of this new facility will be in close proximity to the current
United States operations and is planned for completion by the end of 1999.

The production of manifolds for prototype and quick delivery requirements,
together with some assembly and conversion of cartridges, is scheduled to begin
in the German plant during

<PAGE> 12

the fourth quarter of 1998. Local production in the German market is expected
to provide significantly improved support for timely product deliveries.

Expansion plans for the production facility in Coventry, England are in
process and construction will commence in the first quarter of 1999. An
additional 12,300 square feet will be added to the Coventry facility on
property currently owned by the Company. The additional space at this facility
will be used to further increase manufacturing and assembly capacity for the
Company's products sold in the European market.

Sales of the newest addition to the cartridge product line, the Series "0"
products, are limited as a result of the restrictions on production capacity.
The Company plans to intensify marketing and sales activities for these
products as the production capacity for cartridges increases.

COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1997

Net sales increased 15.1%, or $2.3 million to $17.6 million in the
three-month period ended June 30, 1998, compared to $15.3 million in the
three-month period ended June 30, 1997. This increase reflects the Company's
increased production capacity versus a year ago and the strong backlog of
orders for cartridge products. Domestic net sales increased 21.6% or $2.1
million to $11.7 million in the three-month period ended June 30, 1998.
International net sales increased 3.8% or $0.2 million to $5.8 million despite
significant slowing in Asian sales. European net sales increased 18.4% and
Asian net sales decreased 48.8%. Net sales decreased 8.1% from the first
quarter of 1998, primarily due to the decrease in United States manifold sales
and a decrease in net sales of cartridges resulting from the allocation of a
greater proportion of shipments to the Company's European subsidiaries, which
were not immediately converted into third party sales.

Gross profit increased 3.2% or $0.2 million to $5.0 million in the
three-month period ended June 30, 1998, compared to $4.8 million in the
three-month period ended June 30, 1997. This increase was primarily due to the
increase in net sales. Gross profit as a percentage of net sales was 28.3% in
the three-month period ended June 30, 1998, compared to 31.6% in the
three-month period ended June 30, 1997. The decrease in gross profit as a
percentage of net sales was primarily a result of increased material costs of
cartridges. The material cost increase was due, in part, to greater shipments
of cartridges produced by the high volume cell operation, which have a higher
material content. Additional material cost increases resulted from product
design improvements and the outsourcing of parts to help improve product
delivery times.

Selling, engineering and administrative expenses increased 6.5% or $0.2
million to $3.0 million in the three-month period ended June 30, 1998, compared
to $2.8 million in the three-month period ended June 30, 1997. This increase
was due to trade show and travel expenses in the United States and new system
implementation costs in the United Kingdom. Selling, engineering and
administrative expenses as a percentage of net sales decreased to 17.2% from
18.7% for the same quarter last year.

Interest expense was $0.2 million for the three-month period ended June
30, 1998, approximately the same as the three-month period ended June 30, 1997.
Miscellaneous income for the three-month period ended June 30, 1998, consisted
primarily of interest income.

The provision for income taxes in the three-month period ended June 30,
1998, was 33.2% of pretax income compared to 36.3% of pretax income in the
three-month period ended June 30,

12
<PAGE> 13

1997. This decrease in rate was due primarily to the change in mix of pretax
income among the Company's three operating units in Germany, the United Kingdom
and the United States. Additionally, tax savings were realized from the Sun
Hydraulics Foreign Sales Corporation in the United States.

Net income for the three-month period ended June 30, 1998, increased to
$1.2 million representing 6.7% of net sales compared to $1.1 million,
representing 7.1% for the three-month period ended June 30, 1997.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997

Net sales increased 22.9%, or $6.8 million to $36.7 million in the
six-month period ended June 30, 1998, compared to $29.9 million in the
six-month period ended June 30, 1997. Domestic net sales increased 30.5% or
$5.8 million to $24.8 million in the six-month period ended June 30, 1998. This
increase reflected strength in both the mobile and industrial equipment sectors
of the fluid power industry and the Company's increased production capacity
versus the same period in 1997. International net sales increased 9.7%, or $1.1
million to $11.9 million in the six-month period ended June 30, 1998. European
net sales increased 22.5% and sales to Asia decreased 32.9%.

Gross profit increased 16.7% or $1.5 million to $10.8 million in the
six-month period ended June 30, 1998, compared to $9.2 million in the six-month
period ended June 30, 1997. Gross profit as a percentage of net sales was 29.3%
in the six-month period ended June 30, 1998, compared to 30.9% in the six-month
period ended June 30, 1997. The gross profit percentage decrease was primarily
due to the increased material costs resulting from product mix, product design
improvements and outsourcing.

Selling, engineering and administrative expenses increased 8.6% or $0.5
million to $6.0 million in the six-month period ended June 30, 1998, compared
to $5.6 million in the six-month period ended June 30, 1997. This increase was
due to additional personnel and expenses required in the manifold plant in the
United States, travel and trade show costs in the United States, and new system
implementation costs in the United Kingdom. Selling, engineering and
administrative expenses as a percentage of net sales decreased to 16.5% for the
six-months ended June 30, 1998, from 18.6% for the six-months ended June 30,
1997.

Interest expense was $0.5 million for the six-month period ended June 30,
1998, an increase of $0.1 million compared to the six-month period ended June
30, 1997. This increase was due to increased debt related to the completion of
the new plants in Germany and the United States subsequent to the first quarter
of 1997, and working capital financing required during the second quarter of
1998. Miscellaneous income for the period ended June 30, 1998, consisted
primarily of interest income in the United States and the United Kingdom,
partially offset by exchange losses in the United Kingdom. Interest income for
the second quarter of 1998 was lower than the second quarter of 1997 due to the
temporary investment of IPO proceeds in 1997.

The provision for income taxes in the six-month period ended June 30,
1998, was 33.4% of pretax income compared to 36.1% of pretax income in the
six-month period ended June 30, 1997. This decrease in rate was due primarily
to the change in mix of pretax income among the Company's three operating units
in Germany, the United Kingdom and the United States. Additionally, tax savings
were realized from the Sun Hydraulics Foreign Sales Corporation in the United
States.

<PAGE> 14

Net income for the six-month period ended June 30, 1998, increased to $2.8
million representing 7.7% of net sales compared to $2.1 million, representing
7.0% for the six-month period ended June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's primary source of capital has been cash
generated from operations, although short-term fluctuations in working capital
requirements have been met through borrowings under revolving lines of credit.
The Company's principal uses of cash have been to pay operating expenses, make
capital expenditures, pay dividends to shareholders and service debt.

At June 30, 1998, the Company had working capital of $6.7 million. Cash
flow from operations for the six months ended June 30, 1998, was $4.0 million
compared to $2.0 million for the six months ended June 30, 1997. Approximately,
$0.8 million of the $2.0 million increase in cash flow from operations was
related to the increase in net income, $0.4 million was due to depreciation and
approximately $0.8 was due to improved utilization of working capital.

Capital expenditures for the six months ended June 30, 1998, were $3.6
million, approximately the same as the six months ended June 30, 1997. These
expenditures were primarily for machinery and equipment.

The Company has three revolving lines of credit: one in the United States,
one in England, and one in Germany. None of these arrangements contain
pre-payment penalties.

In February 1998, the Company renegotiated its one-year, unsecured
revolving credit facility in the United States. The credit facility provides
for a maximum availability of $10.0 million, payable on demand and does not
contain any debt covenants. The interest rate is equal to the bank lender's
prime rate less 1% or LIBOR plus 1.9% for predetermined periods of time, at the
Company's option. At June 30, 1998, there was $3.0 million outstanding under
this credit facility.

A 10-year mortgage note of $6.1 million was obtained by the Company in May
1996, which bears interest at a fixed rate of 8.25% for construction of the new
manifold facility in Sarasota, Florida. Terms on the new mortgage note were
interest-only on the balance drawn down through the completion of construction
and then conversion to a 10-year note with a 15-year amortization schedule. In
March 1998, this mortgage note was renegotiated to an interest rate of 7.875%.
Terms are monthly principal and interest payments for 8.25 years with remaining
principal due July 1, 2006. At June 30, 1998, $4.9 million was outstanding on
this facility.

In addition, the Company has notes payable to former shareholders, which
bear interest at a weighted rate of 15%, and which have terms ranging from
three to five years. These notes were issued by the Company in 1989 and 1990,
in connection with the repurchase of shares of common stock from the former
shareholders, and do not allow for prepayment by the Company. At June 30, 1998,
$1.5 million was outstanding under these notes.

In 1996, the Company was awarded a grant of $0.4 million by the German
government, which helped to offset the cost of the German facility. This grant
requires that the German operation have employed 26 people by June 30, 1998.
The Company anticipates that this headcount requirement will be met in the
first half of 1999, and the Company believes that an

<PAGE> 15

extension may be available from the German authorities. If the Company fails to
obtain an extension of time to meet the terms of the grant, then the $0.4
million will have to be repaid. This amount has been recorded as a deferred
grant. Therefore, the repayment of the $0.4 million would only affect cash and
would have no effect on net income.

The Company has submitted a business interruption insurance claim of $2.3
million to its insurance carrier. The claim is related to a fire in the
manifold plant in the United States which occurred while the plant was under
construction. The Company believes that this fire delayed the opening of the
new plant which, in turn, delayed the rearrangement of the cartridge operation
and the creation of the cellular production for high volume models. The
validity and amount of the claim continue to be evaluated by the Company's
insurance carrier. No amounts have been recorded related to this claim in the
Company's financial statements.

The Company believes that cash generated from operations and its borrowing
availability under its revolving lines of credit will be sufficient to satisfy
the Company's operating expenses and capital expenditures for the foreseeable
future.

The Company declared a quarterly dividend of $0.04 per share to
shareholders of record on March 31, and June 30, 1998, which were paid on April
15, and July 15, 1998, respectively.

YEAR 2000

Management continues to evaluate the issues associated with the Year 2000.
In general, these issues arise from the fact that many existing computer
programs only use the last two digits to refer to a year. Accordingly, many of
these computer programs will not properly recognize a year that begins with
"20" instead of the familiar "19." If not corrected, these computer
applications could fail or create erroneous results.

The Company currently is assessing the extent of its Year 2000 problem by
(i) conducting an inventory of its systems, including hardware, software and
embedded systems (such as the Company's CNC equipment), (ii) identifying
critical applications, (iii) gathering internal source codes, and (iv)
surveying the Company's material suppliers, distributors, and customers to
determine their respective Year 2000 exposure. The Company expects to
significantly complete this assessment phase by the end of the fourth quarter
of 1998. There can, however, be no assurance that this deadline will be met,
particularly with regard to item (iv) above.

The Company expects that the assessment phase will be followed by (i) a
testing phase, during which all critical applications will be tested for Year
2000 readiness, (ii) a renovation phase, during which faulty systems will be
corrected, replaced or retired, and (iii) a validation phase, during which
upgraded systems will be re-tested. While the assessment and testing phases are
not yet completed, the Company believes that the computer systems in two of its
four locations (the United States cartridge operation and the United Kingdom
operation) currently are incapable of correctly processing data related to the
year 2000.

The Company expects all phases of its Year 2000 readiness plan to be
completed, with regard to its U.S. and German operations, by the end of the
fourth quarter of 1998, and with regard to its United Kingdom operation, by the
end of the first quarter of 1999. There can, however, be no assurance that
these deadlines will be met or precisely when the Company will be Year 2000
ready. The Company defines "Year 2000 ready" to mean that neither the
performance nor functionality of any of its critical systems, including both

<PAGE> 16

information technology and non-information technology systems, will be
materially affected by dates prior to, during and after the year 2000.

While management believes the Company could operate in a manual
environment for a short period of time, the Company cannot currently estimate
with any certainty the impact a failure to be Year 2000 ready would have on the
Company's business and results of operations, nor has the Company developed a
complete contingency plan to deal with this possibility, although it does
anticipate establishing such a plan in the future. The Company does not expect
the costs of the Company's readiness plan, including the cost of renovating any
non-compliant systems, to significantly impact its results of operations. As
with any new system implementation, however, there can be no assurance that the
conversion will not significantly impact operations. Also, there can be no
assurance that the systems of other companies on which the Company relies will
be timely converted or that any such failure to convert by another company will
not have an adverse effect on the Company's operations.

SEASONALITY AND INFLATION

The Company does not believe that inflation had a material effect on its
operations for the six months ended June 30, 1998 and June 30, 1997. There can
be no assurance, however, that the Company's business will not be affected by
inflation in the future.

FORWARD-LOOKING INFORMATION

Certain oral statements made by management from time to time and certain
statements contained herein that are not historical facts are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and, because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Forward-looking statements, including those in
Management's Discussion and Analysis of Financial Condition and Results of
Operations are statements regarding the intent, belief or current expectations,
estimates or projections of the Company, its Directors or its Officers about
the Company and the industry in which it operates, and assumptions made by
management, and include among other items, (i) the Company's strategies
regarding growth, including its intention to develop new products; (ii) the
Company's financing plans; (iii) trends affecting the Company's financial
condition or results of operations; (iv) the Company's ability to continue to
control costs and to meet its liquidity and other financing needs; (v) the
declaration and payment of dividends; (vi) the Company's Year 2000 readiness
plans and costs; and (vii) the Company's ability to respond to changes in
customer demand domestically and internationally, including as a result of
standardization. Although the Company believes that its expectations are based
on reasonable assumptions, it can give no assurance that the anticipated
results will occur.

Important factors that could cause the actual results to differ materially
from those in the forward-looking statements include, among other items, (i)
the economic cyclicality of the capital goods industry in general and the
hydraulic valve and manifold industry in particular, which directly affect
customer orders, lead times and sales volume; (ii) conditions in the capital
markets, including the interest rate environment and the availability of
capital; (iii) changes in the competitive marketplace that could affect the
Company's revenue and/or cost bases, such as increased competition, lack of
qualified engineering, marketing, management or other personnel, and increased
labor and raw materials costs; (iv) changes in technology or customer
requirements, such as standardization of the cavity into which screw-in
cartridge valves must fit,

<PAGE> 17

which could render the Company's products or technologies noncompetitive or
obsolete; (v) new product introductions, product sales mix and the geographic
mix of sales nationally and internationally; (vi) the Company's ability timely
to become Year 2000 ready, including the Company's ability to identify all
critical systems that will be impacted by the Year 2000, the Company's ability,
in a cost-efficient manner, to correct, upgrade or replace such systems, and
the Year 2000 readiness of third parties with which the Company has material
relationships; and (vii) changes relating to the Company's international sales,
including changes in regulatory requirements or tariffs, trade or currency
restrictions, fluctuations in exchange rates, and tax and collection issues.
Further information relating to factors that could cause actual results to
differ from those anticipated is included but not limited to information under
the headings "Risk Factors" in the Form S-1 Registration Statement and
Prospectus for the Company's initial public offering, and "Business" in the
Company's Form 10-K for the year ended December 31, 1997. The Company disclaims
any intention or obligation to update or revise forward-looking statements,
whether as a result of new information, future events or otherwise.

<PAGE> 18

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.
None.

Item 2. Changes in Securities.
None.

Item 3. Defaults upon Senior Securities.
None.

Item 4. Submission of Matters to a Vote of Security Holders.

The Annual Meeting of Shareholders of the Company was held on May 23, 1998.
At the meeting, the following actions were taken by the shareholders:

1. Clyde G. Nixon was reelected as a Director to serve until the Annual
Meeting in 2001, and John S. Kahler was elected to the board to serve
until the Annual Meeting in 2000, and Ferdinand E. Megerlin was elected
to the board to serve until the Annual Meeting in 2001, and until their
successors are elected and qualified or until their earlier
resignation, removal from office or death. The votes cast for and
against each were as follows:

For Withheld
------ -------------
<S> <C> <C>
Clyde G. Nixon 5,524,639 1,720
John S. Kahler 5,524,639 2,020
Ferdinand E. Megerlin 5,524,639 2,020
</TABLE>

2. The appointment of Price Waterhouse, LLP, as the Company's independent
certified public accountants for the year 1998 was ratified and
approved. The voting on the proposal was as follows:

<TABLE>
<S> <C>
FOR 5,460,535
AGAINST 1,000
ABSTAIN 64,824
</TABLE>

Item 5. Other Information.
None.

Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:

<PAGE> 19

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>

3.1 Amended and Restated Articles of Incorporation of the Company
(previously filed as Exhibit 3.1 in the Pre-Effective
Amendment No. 4 to the Company's Registration Statement on
Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).

3.2 Amended and Restated Bylaws of the Company (previously filed
as Exhibit 3.2 in the Pre-Effective Amendment No. 4 to the
Company's Registration Statement on Form S-1 filed on December
19, 1996 (File No. 333-14183) and incorporated herein by
reference).

4.1 Revolving Credit Agreement, dated March 9, 1992, between Sun
Hydraulics Corporation and Northern Trust Bank of
Florida/Sarasota, N.A. (previously filed as Exhibit 4.1 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

4.2 Modification Agreement, dated March 25, 1993, amending
Revolving Credit Agreement dated March 9, 1992, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.2 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

4.3 Second Modification to Revolving Credit Agreement, dated May
__, 1995, between Sun Hydraulics Corporation and Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.3
in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein
by reference).

4.4 Revolving Line of Credit Renewal Note, dated May __, 1995, in
the amount of $1,700,000.00 given by Sun Hydraulics
Corporation to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.4 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No.
333-14183) and incorporated herein by reference).

4.5 Mortgage and Security Agreement, dated January 9, 1992,
between Suninco, Inc., Sun Hydraulics Corporation, and
Northern Trust Bank of Florida, N.A. (previously filed as
Exhibit 4.5 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).

4.6 Loan Agreement, dated March 29, 1996, between Suninco, Inc.,
Sun Hydraulics Corporation, and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.6 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

</TABLE>

<PAGE> 20

4.7 Security Agreement, dated March 29, 1996, between Suninco,
Inc., Sun Hydraulics Corporation, and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.7 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

4.8 Modification and Additional Advance Agreement, dated March 29,
1996, between Suninco, Inc. and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.8 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

4.9 Consolidated Note, dated March 29, 1996, in the amount of
$2,475,000.00, given by Suninco, Inc. to Northern Trust Bank
of Florida, N.A. (previously filed as Exhibit 4.9 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

4.10 Loan Agreement, dated May 20, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.10 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

4.11 Security Agreement, dated May 20, 1996, between Sun Hydraulics
Corporation and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.11 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

4.12 Consolidated Note, dated May 20, 1996, in the amount of
$3,063,157.00, given by Sun Hydraulics Corporation to Northern
Trust Bank of Florida, N.A. (previously filed as Exhibit 4.12
in the Company's Registration Statement on Form S-1 filed on
October 15, 1996 (File No. 333-14183) and incorporated herein
by reference).

4.13 Loan Agreement, dated June 14, 1996, between Sun Hydraulics
Corporation, Suninco Inc., and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.13 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

4.14 Mortgage, dated June 14, 1996, between Sun Hydraulics
Corporation, Suninco Inc., and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.14 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).
</TABLE>

<PAGE> 21

4.15 Security Agreement, dated June 14, 1996, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.15 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

4.16 Promissory Note, dated June 14, 1996, in the amount of
$6,187,000.00, given by Sun Hydraulics Corporation and
Suninco, Inc. to Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.16 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

4.17 Revolving Loan Facility letter agreement, dated July 30, 1996,
in the amount of (pound)800,000, between Sun Hydraulics Ltd.
and Lloyds Bank Plc. (previously filed as Exhibit 4.17 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

4.18 Overdraft and Other Facilities letter agreement, dated June 7,
1996, in an amount not to exceed (pound)250,000, between Sun
Hydraulics Ltd. and Lloyds Bank Plc. (previously filed as
Exhibit 4.18 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).

4.19 Mortgage, dated April 11, 1996, between Sun Hydraulik GmbH and
Dresdner Bank (previously filed as Exhibit 4.19 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by
reference).

4.20 Amendment to Recommended Offer by Sun Hydraulics Corporation
to acquire the whole of the issued share capital of Sun
Hydraulik Holdings Limited, dated December 17, 1996
(previously filed as Exhibit 2.1 in the Pre-Effective
Amendment No. 4 to the Company's Registration Statement on
Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).

4.21 Master Note, dated February 3, 1997, in the amount of
$10,000,000.00, made by the Company to evidence a line of
credit granted to the Company by Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.21 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).

4.22 Renewal Master Note, dated February 3, 1998, in the amount of
$10,000,000.00, made by the Company to evidence a line of
credit granted to the Company by Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.22 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).

</TABLE>

<PAGE> 22

4.23 Modification Agreement, dated March 1, 1998, between the
Company and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).

4.24 Modification Note, dated March 1, 1998, in the amount of
$4,965,524.51, between the Company and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.24 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).

10.1 Form of Distributor Agreement (Domestic) (previously filed as
Exhibit 10.1 in the Company's Registration Statement on Form
S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).

10.2 Form of Distributor Agreement (International) (previously
filed as Exhibit 10.2 in the Company's Registration Statement
on Form S-1 filed on October 15, 1996 (File No. 333-14183) and
incorporated herein by reference).

10.3+ 1996 Sun Hydraulics Corporation Stock Option Plan (previously
filed as Exhibit 10.3 in the Pre-Effective Amendment No. 4 to
the Company's Registration Statement on Form S-1 filed on
December 19, 1996 (File No. 333-14183) and incorporated herein
by reference).

10.4+ Amendment No. 1 to 1996 Stock Option Plan (previously filed as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and incorporated herein by
reference).

10.5+ Form of Indemnification Agreement (previously filed as Exhibit
10.4 in the Pre-Effective Amendment No. 4 to the Company's
Registration Statement on Form S-1 filed on December 19, 1996
(File No. 333-14183) and incorporated herein by reference).

27.1 Financial Data Schedule for quarter ended June 30, 1998 (for SEC
purposes only)
</TABLE>

+ Executive management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

Report on Form 8-K dated May 28, 1998, announcing a $0.04 per
share dividend on the Registrant's common stock, payable on July
15, 1998, to shareholders of record on June 30, 1998.

<PAGE> 23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Sarasota, State of Florida on August 11, 1998.

SUN HYDRAULICS CORPORATION

By: /s/ Richard J. Dobbyn
----------------------------------
Richard J. Dobbyn
Chief Financial Officer (Principal
Financial and Accounting Officer)

<PAGE> 24

EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
(previously filed as Exhibit 3.1 in the Pre-Effective
Amendment No. 4 to the Company's Registration Statement on
Form S-1 filed on December 19, 1996 (File No. 333-14183) and
incorporated herein by reference).

<PAGE> 25

<TABLE>
<S> <C>
4.7 Security Agreement, dated March 29, 1996, between Suninco,
Inc., Sun Hydraulics Corporation, and Northern Trust Bank of
Florida, N.A. (previously filed as Exhibit 4.7 in the
Company's Registration Statement on Form S-1 filed on October
15, 1996 (File No. 333-14183) and incorporated herein by reference).

4.8 Modification and Additional Advance Agreement, dated March 29,
1996, between Suninco, Inc. and Northern Trust Bank of Florida, N.A.
(previously filed as Exhibit 4.8 in the Company's Registration
Statement on Form S-1 filed on October 15, 1996 (File No. 333-14183)
and incorporated herein by reference).

<PAGE> 26

<TABLE>
<S> <C>
4.15 Security Agreement, dated June 14, 1996, between Sun
Hydraulics Corporation and Northern Trust Bank of Florida,
N.A. (previously filed as Exhibit 4.15 in the Company's
Registration Statement on Form S-1 filed on October 15, 1996
(File No. 333-14183) and incorporated herein by reference).

<PAGE> 27

<TABLE>
<S> <C>
4.23 Modification Agreement, dated March 1, 1998, between the
Company and Northern Trust Bank of Florida, N.A. (previously
filed as Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).

27.1 Financial Data Schedule for quarter ended June 30, 1998 (for SEC
purposes only).
</TABLE>

+ Executive management contract or compensatory plan or arrangement.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF THE REGISTRANT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,314
<SECURITIES> 0
<RECEIVABLES> 5,915
<ALLOWANCES> 44
<INVENTORY> 7,113
<CURRENT-ASSETS> 17,112
<PP&E> 58,461
<DEPRECIATION> 17,434
<TOTAL-ASSETS> 58,355
<CURRENT-LIABILITIES> 10,403
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 37,680
<TOTAL-LIABILITY-AND-EQUITY> 58,355
<SALES> 36,717
<TOTAL-REVENUES> 36,717
<CGS> 25,946
<TOTAL-COSTS> 31,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 491
<INCOME-PRETAX> 4,235
<INCOME-TAX> 1,415
<INCOME-CONTINUING> 2,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,820
<EPS-PRIMARY> .45
<EPS-DILUTED> .43

</TABLE>