FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
December 31, 1995
For the quarterly period ended: _______________________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________, 19__ to ______________, 19__.
0-14306
Commission file number: _______________________________________________________
INTERCELL CORPORATION
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0928627
- - ---------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S employer identification number)
incorporation or organization)
4455 East Camelback Road, E-160, Phoenix, Arizona, 85018
- - -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
602-952-1528
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
Yes __ No __ Not applicable _X_
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of May 8, 1996,
there were 11,673,791 shares of registrant's sole class of common shares and
210,000 Series A preferred shares outstanding.
2
<PAGE>
PART 1 - FINAN6IAL INFORMATION
Item 1. Financial Statements
- - ------- --------------------
INTERCELL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JANUARY 31, 1995
(Prepared Internally By Management)
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
INTERCELL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31 AND JANUARY 31, 1995
(Prepared internally by management)
12-31-95 01-31-95
ASSETS
Current assets
Cash and cash equivalents $ 54,156 $ 125,685
Accounts receivable 510,379 569,498
Inventory 778,851 639,955
Prepaid expenses 76,057 100,000
--------- ---------
1,419,443 1,435,138
Equipment held for sale 250,000 -
Property, plant and equipment, net 896,823 925,155
Research and development 11,943 -
Investment in American Microcell - 500,000
Note receivable - 1,250,000
Intangible assets 387,527 383,465
--------- ---------
$ 2,965,736 $ 4,493,758
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable to bank $ 163,022 $ -
Accounts payable and accrued liabilities 1,022,267 614,168
Notes payable 508,387 799,860
--------- ----------
1,693,676 1,414,028
Long term debt 47,286 61,997
--------- ---------
Total liabilities 1,740,962 1,476,025
--------- ---------
Stockholders' equity:
Preferred stock, Series A, 210,000
shares authorized and issued at
a stated value of $10.00 per share 250,000 -
Common stock, no par value
100,000,000 shares authorized
10,630,850 issued and outstanding 3,148,293 3,108,543
Retained earnings (deficit) (2,173,519) ( 90,810)
--------- ---------
Total stockholders' equity 1,224,774 3,017,733
--------- ---------
$ 2,965,736 $ 4,493,758
========= =========
4
<PAGE>
INTERCELL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND
AND THE THREE MONTHS ENDED JANUARY 31, 1995 AND 1994
(Prepared internally by management)
Three Months Ended Three Months Ended
December 31, 1995 January 31
----------------- ----------------
1995 1994
---- ----
SALES (net of returns) $ 852,618 $ 1,053,390 $ -
COST OF GOODS SOLD 498,916 666,710 -
--------- --------- --------
GROSS PROFIT 353,702 386,680 -
--------- --------- --------
OPERATING EXPENSES
Amortization and depreciation 3,411 30,548 -
Consulting fees 57,281 241,579 6,000
Interest 24,697 13,802 125
Legal and accounting 61,141 25,026 55,111
General and administrative 176,508 220,623 22,275
Promotion and marketing 563 1,968 152,798
Royalties 71,883 79,472 -
--------- --------- --------
395,484 613,018 236,309
--------- --------- ---------
OPERATING LOSS (INCOME) 41,782 226,338 236,309
OTHER EXPENSES (INCOME) ( 5,082) ( 955,369) 45,095)
----------- --------- --------
LOSS (INCOME) FOR THE PERIOD $ 36,700 $( 729,031) $ 191,214
=========== ========== =========
NET LOSS (EARNINGS) PER SHARE $ 0.003 $(0.053) $(0.025)
===== ===== =====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,457,547 13,794,324 7,619,534
========== ========== =========
5
<PAGE>
INTERCELL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND
THE THREE MONTHS ENDED JANUARY 31, 1995
(Prepared internally by management)
12-31-95 01-31-95
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $( 36,700) $ 725,481
Amortization and depreciation 3,411 30,548
Write off of deferred
development costs - 44,631
Increase in accounts receivable 126,554 ( 99,881)
Increase in inventory ( 6,094 ( 142,420)
Increase in prepaid expenses 3,197 111,639
Increase (decrease) in
current liabilities ( 105,720) ( 191,329)
--------- ---------
Net cash provided by operating activities ( 15,352) 478,669
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Note receivable,
Reland International, Inc. - (1,250,000)
Less cost of technology - 250,000
--------- ---------
- (1,000,000)
Acquisition of property, plant
and equipment ( 15,190) 687
Research and development ( 11,943) -
Deposits - 7,202
Investment in American Microcell - ( 500,000)
Advances to Interpretel, Inc. (net) - ( 100,000)
--------- ---------
( 27,133) (1,592,111)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Share capital issued 39,750 819,938
Mortgage payable ( 524) ( 1,503)
---------
Loan from stockholder
39,226 818,435
-------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ( 3,259) ( 295,007)
CASH AND CASH EQUIVALENTS AT START OF PERIOD 57,415 420,692
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54,156 $ 125,685
======== =========
6
<PAGE>
INTERCELL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Prepared Internally By Management)
Basis of Presentation
- - ---------------------
The consolidated balance sheet as of December 31, 1995 and the consolidated
statements of operations and cash flows for the three months ended December 31,
1995 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at December 31, 1995 and for all periods presented have been made.
In accordance with the Agreement and Plan of Reorganization entered into by and
between the Company and Modern Industries, Inc. (see Note 1), the Company issued
5,412,191 common shares to Modern, representing approximately 52% of the
10,409,244 shares of the Company outstanding on completion of the transaction.
Modern was therefore deemed to be the acquiring company in this transaction and
accordingly reverse takeover accounting principles have been applied in the
preparation of these financial statements. In addition, the financial statements
for the three month periods ended January 31, 1995 and 1994 reflect the
consolidated financial position and results of operations of Modern Industries,
Inc.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. While the Company believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these financial statements be read in conjunction with the
September 30, 1995 financial statements of Intercell Corporation, the notes
thereto and the Independent Auditors' Report thereon.
1. Nature Of Operations And Summary Of Significant Accounting Policies
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General
-------
Intercell Corporation (the Company or Intercell) was incorporated under
the laws of Colorado on October 4, 1983, and was previously engaged in
the sale of business and cellular telephone equipment. This business
was abandoned and all remaining assets liquidated or otherwise
abandoned during 1991, with all obligations being paid or otherwise
satisfied. Beginning in July, 1992, the Company adopted a business plan
to take advantage of new investment opportunities.
Acquisition of the Assets and Liabilities of Modern Industries Inc.
-------------------------------------------------------------------
An Agreement and Plan of Reorganization dated July 7, 1995 was entered
into between the Company and Modern Industries, Inc. (Modern). The
Company issued 5,412,191 shares of common stock to Modern in exchange
for all of the assets and liabilities of Modern and its wholly owned
subsidiary, California Tube Laboratory, Inc. (CTL).
The 5,412,191 shares issued to Modern represented approximately 52% of
the Company's outstanding stock upon completion of the transaction. As
such, the transaction was accounted for as a purchase of Intercell
Corporation by Modern. Accordingly, the assets of Intercell have been
recorded at their fair market value at the date of acquisition and
Intercell's results of operations have been included in these
consolidated financial statements since the date of acquisition.
7
<PAGE>
Modern Industries, Inc.
-----------------------
Modern was incorporated in the state of Delaware on April 16, 1991 for
the purpose of merging with Mamba Corporation (Mamba), a company
incorporated in the state of Texas on November 9, 1987. Mamba was
organized primarily for the purpose of raising capital to take
advantage of domestic and foreign business investment opportunities. On
May 1, 1991, Mamba merged with Modern, with each 112 shares of the
issued and outstanding common stock of Mamba being converted into 1
share of common stock of Modern. Mamba ceased to exist as a corporate
entity, with the surviving entity being Modern.
On June 22, 1993, Modern formed a wholly owned subsidiary named Modern
Resources, Inc. (MRI), a New Mexico corporation. The purpose of MRI was
to allow Modern to conduct business in the state of New Mexico and to
develop mining resources in that state. During the 1995 fiscal year,
the operations of MRI were terminated and all assets and liabilities of
MRI were assumed by Modern.
Purchase of California Tube Laboratory, Inc.
--------------------------------------------
Effective May 1, 1994, Modern acquired all of the issued and
outstanding shares of CTL for 762,031 shares of its common stock
(valued at $1,069,140) and notes payable to two major stockholders of
CTL for $955,860. As of September 30, 1995, the amounts due to the
major stockholders had been reduced to $495,731.
In addition to the above, Modern bought out an employment contract with
a former owner of CTL for 222,572 shares of Modern common stock (valued
at $312,272).
CTL began operations in 1949 under the laws of the state of California.
CTL is in the electronic parts and repair business. CTL manufactures
and rebuilds magnetrons, klystrons, high power triodes and tetrodes,
electron guns and linear accelerators for customers primarily in the
United States.
Significant Accounting Policies
-------------------------------
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include all of the assets and
liabilities of the parent company, Intercell Corporation, as well as
those of California Tube Laboratory, Inc. All intercompany
transactions, accounts and balances have been eliminated on
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The accounting records of the Company and its financial statements are
maintained and presented on the accrual basis. Revenues are recognized
when earned, generally on shipment. Provision is made for estimated
customer returns and warranty costs at the time of sale.
INVENTORIES
Raw material inventories are stated at the lower of cost (first in,
first out) or market. For CTL, the manufacture of new tubes is done on
a standard cost basis with the costs of raw materials, labor and
overheads adjusted periodically when costs change. Each tube repair is
unique and is costed out on a specific item basis with costs
accumulated as incurred. Tubes rebuilt for the U.S. government follow
governmental cost allocation guidelines.
8
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is
provided by use of accelerated and straight-line methods over the
estimated useful lives of the assets, generally 5 to 12 years for
furniture and equipment and 40 years for the condominium.
INTANGIBLES
Propriety technology, trade names and other intangibles are carried at
cost less accumulated amortization which is calculated on a
straight-line basis over 15 years. The recoverability of carrying
values of intangible assets is evaluated on a recurring basis.
3. Property, Plant And Equipment
-----------------------------
Intercell Corporation
---------------------
On December 29, 1994, the Company acquired certain assets consisting of
microwave transmission and associated support equipment, in exchange
for 210,000 shares of Series A redeemable, convertible preferred stock.
As of December 31, 1995, the microwave equipment is held for sale. The
equipment and the associated preferred shares issued to acquire the
equipment were valued at $250,000 at September 30, 1995, management's
estimate of the minimum realizable value to be received on a sale of
this equipment.
California Tube Laboratory, Inc.
--------------------------------
The equipment of California Tube Laboratory, Inc. is highly specialized
and was either purchased or built on location to assist in tube repair
or manufacture. Much of the purchased equipment has also been modified
to fulfill the specific needs of CTL. The internally built equipment
costs were accumulated and capitalized. The condominium listed below is
located approximately twenty miles from the plant and is used for
out-of-town guests.
Cost
----
Furniture and fixtures $ 85,437
Equipment and machinery 436,522
Vehicle 7,335
Condominium (including land) 180,649
----------
709,943
Accumulated depreciation 519,826
----------
$ 190,117
==========
4. Note Receivable, Reland International, Inc.
-------------------------------------------
On January 16, 1995, Modern Industries, Inc. sold its rights to a
technology which utilizes microwaves to enhance the production of oil
wells to Reland International, Inc. for $1,250,000 plus certain royalty
payments. Payment of the $1,250,000 was made by a note, with 6%
interest payable annually on or before January 15th of each year and
principal payable from the gross revenues of Reland from licensing the
technology in amounts up to $250,000 per year on or before January 15th
of each year. Any remaining balance is to be paid on or before January
16, 2000. In addition to payments on the note, the holder of the note
will receive 10% of the gross licensing revenues Reland generates for
the next ten years.
The Company acquired this note from Modern Industries, Inc. on July 7,
1995 as described in Note 1. Due to concerns about collectibility,
this note has been fully reserved as of September 30 and December 31,
1995. No interest has been received on this note.
9
<PAGE>
5. Investment in American Microcell
--------------------------------
In connection with the acquisition of the assets of Modern Industries,
Inc., the Company acquired a 15% interest in the Phoenix based company
American Microcell. American Microcell was engaged in the research and
development of improved technologies for cellular phones. However,
American Microcell proved unsuccessful in its efforts to finance
continuing development of the technologies acquired, and the rights to
these technologies reverted to the original developers. Accordingly,
the Company's investment was written off at September 30, 1995.
6. Advances to Interpretel
-----------------------
The Company acquired Modern Industries, Inc.'s interest in a $100,000
cash advance to Interpretel, Inc. This advance, is repayable by cash in
the amount of $45,000 (paid) and 100,000 shares of Wavetech, Inc.
7. Notes Payable
-------------
As of December 31, 1995, the Company had an outstanding promissory note
payable in the principle amount of $497,877, plus accrued interest of
$10,510. The note is due on September 30, 1996 and bears interest at
the rate of 8% per annum, due monthly.
8. Long Term Debt
--------------
The Company has a long term debt commitment which is the mortgage on
the condominium owned by CTL. The monthly payment is $577.92 until May,
2008. The fixed annual interest rate on this mortgage is 9.75%.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- - ------- -----------------------------------------------------------------------
Results of Operations
---------------------
On July 7, 1995, the Company entered into an Agreement and Plan of
Reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986 with Modern Industries, Inc., a Delaware corporation. The Company issued
Five Million Four Hundred Twelve Thousand One Hundred Ninety One (5,412,191)
restricted common shares out of its authorized but unissued capital to Modern
Industries, Inc., in exchange for all of the assets and liabilities of Modern
Industries, Inc. and its wholly owned subsidiary, California Tube Laboratory,
Inc. The transaction was approved under Delaware law, by the consent of persons
holding more than a majority of the voting power of the outstanding common stock
of Modern Industries, Inc. Pursuant to the Agreement, Modern Industries, Inc.
agreed and covenanted not to make any distribution of the securities acquired
from the Company on or before one (1) year from the date of the transaction.
Such distribution will be registered , on the appropriate form, with the
Securities and Exchange Commission prior to distribution.
10
<PAGE>
The issuance of Five Million Four Hundred Twelve Thousand One Hundred
Ninety One (5,412,191) shares by the Company to Modern Industries, Inc.,
represents approximately Fifty Two (52%) percent of the Ten Million Four Hundred
Nine Thousand Two Hundred Forty Four (10,406,244) shares of the Company
outstanding upon completion of the transaction.
Pursuant to the Agreement, the Company acquired certain leaseholds,
equipment and other physical property located at the principal executive offices
and plant facilities of Modern Industries, Inc., located in Santa Cruz,
California. These assets were and are primarily used in manufacturing and
rebuilding of electron power tubes. The Company intends to continue and in fact
significantly expand the scope of the operations acquired.
During fiscal 1994 and prior to the acquisition of the assets and
liabilities of Modern Industries, Inc. referred to above, the Company had
devoted its efforts towards the telecommunications industry. On December 30,
1994, the Company consummated an Asset Purchase Agreement with Asia Skylink
Corporation, which resulted in the acquisition of certain assets by the Company.
These assets are comprised of microwave transmission and associated support
equipment. The Company intends to use these assets in providing video, voice and
data transmission facilities on a private basis within the Denver metropolitan
area and the surrounding front range region. The Company is presently reviewing
joint venture opportunities for this purpose.
LIQUIDITY
On the acquisition of the assets and liabilities of Modern Industries,
Inc., the Company commenced financing its operations from the cash flow of
California Tube Laboratory, Inc. The Company intends to improve its working
capital position in the near future through a combination of debt and equity
financing and improved cash flow from its operating entity.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- - ------- ------------------
No material legal proceedings (other than routine litigation incidental
to the business) to which the Company (or any officer or director of the
Company, or any affiliate or owner of record or beneficially of more than five
percent of the Common Stock, to management's knowledge) is a party or to which
the property of the Company is subject is pending and no such material
proceeding is known by management of the Company to be contemplated. Previously,
however, certain litigation was initiated prior to the period covered by this
report by the former President of the Company, William B. Fulks. The complaint
was filed in District Court, Montezuma County, Colorado, on August 9, 1990. The
complaint alleges that Mr. Fulks was owed $5,777.78 in unpaid salary at the time
of his resignation, and further alleges he is owed $2,888.89 as a penalty for
the failure by the Company to pay the unclaimed salary. The Company has offered
to pay Mr. Fulks the sum of $2,000 in settlement of this matter, but he has not
responded to the offer. If the matter goes to trial, the Company believes it has
meritorious defenses and will vigorously defend itself.
Item 2. Changes in Securities.
- - ------- ----------------------
During the period covered by and to the date of this report, none of
the constituent instruments defining the rights of the holders of any class of
registered securities have been materially modified, and further, none of the
rights evidence by any class of registered securities have been materially
limited or qualified in any manner.
Item 3. Defaults Upon Senior Securities.
- - ------- --------------------------------
The Company had no class of senior securities outstanding during the
period covered by or to the date of this report.
Item 4. Submission of Matters to a Vote by Security Holders.
- - ------- ----------------------------------------------------
No matters were submitted by the Company to its security holders during
the fiscal period covered by this report.
Item 5. Other Information.
- - ------- ------------------
The Form 10-K of the Company for the year ended December 31, 1994,
under "Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters - Outstanding Shares and Shareholders of Record" incorrectly reported
210 shares of preferred stock outstanding. This number should have been 210,000
shares.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
- - ------- ---------------------------------
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports:
Form 8-K dated July 7, 1995 disclosed the change of control of
the Company and the acquisition of the assets and liabilities
of Modern Industries, Inc., as discussed above.
Form 8-K dated December 4, 1995 disclosed the dismissal of
Halliburton, Hunter & Associates, P.C. and the engagement of
KPMG Peat Marwick, L.L.P. as the Company's new principal
independent accountants, effective December 4, 1995.
Form S-8 dated January 24, 1996 disclosed details of the
Company's 1995 Compensatory Stock Option Plan and the
registration of 3,581,160 Common Shares of the Company
issuable under this Plan.
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.
INTERCELL CORPORATION
(Registrant)
/s/ Gordon Sales
Date: May 10, 1996 By: __________________________________________
Gordon Sales, President and Chief
Executive Officer
/s/ Alan Smith
Date: May 10, 1996 By: ___________________________________________
Alan Smith, Secretary and Chief
Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERCELL
CORPORATION'S FORM 10-Q FOR QUARTER ENDING DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000745655
<NAME> INTERCELL CORPORATION
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.000
<CASH> 54,156
<SECURITIES> 0
<RECEIVABLES> 510,379
<ALLOWANCES> 0
<INVENTORY> 778,851
<CURRENT-ASSETS> 1,419,443
<PP&E> 1,415,468
<DEPRECIATION> 518,645
<TOTAL-ASSETS> 2,965,736
<CURRENT-LIABILITIES> 1,693,676
<BONDS> 47,286
0
250,000
<COMMON> 3,148,293
<OTHER-SE> (2,173,519)
<TOTAL-LIABILITY-AND-EQUITY> 2,965,736
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