UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 1-4438
O'SULLIVAN CORPORATION
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0463029
--------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1944 Valley Avenue, P.O.Box 3510, Winchester, Virginia 22601
--------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(703) 667-6666
--------------------------------------------------------------
(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 [ ]
As of March 31, 1995 there were 16,502,766 shares of Common Stock,
Par Value $1, outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1995 1994
ASSETS ------------ ------------
Current Assets
Cash and cash equivalents $ 6,841,761 $ 9,701,801
Receivables 41,936,700 40,367,968
Inventories 38,909,049 32,475,205
Deferred income tax assets 2,724,211 2,642,523
Other current assets 3,034,837 3,485,292
------------ ------------
Total current assets $ 93,446,558 $ 88,672,789
------------ ------------
Property, Plant and Equipment $ 45,700,224 $ 44,605,639
------------ ------------
Intangibles $ 686,025 $ 751,609
------------ ------------
Other Assets $ 10,296,719 $ 10,498,851
------------ ------------
Total assets $150,129,526 $144,528,888
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 45,875 $ 52,073
Accounts payable 19,053,922 16,729,891
Accrued expenses 14,197,203 13,941,121
------------ ------------
Total current liabilities $ 33,297,000 $ 30,723,085
------------ ------------
Long-Term Debt $ 1,683,096 $ 1,652,996
------------ ------------
Other Long-Term Liabilities $ 1,809,468 $ 2,006,974
------------ ------------
Deferred Income Tax Liabilities $ 3,585,580 $ 3,503,530
------------ ------------
Commitments and Contingencies $ - - $ - -
------------ ------------
Shareholders' Equity
Common stock, par value $1.00 per
share; authorized 30,000,000
shares $ 16,502,766 $ 16,484,831
Additional paid-in capital 10,117,204 9,963,516
Retained earnings 83,467,774 80,539,058
Cumulative translation adjustments (333,362) (345,102)
------------ ------------
Total shareholders' equity $109,754,382 $106,642,303
------------ ------------
Total liabilities and
shareholders' equity $150,129,526 $144,528,888
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
For The Three Months Ended March 31,
-----------------------------------
1995 1994
----------- -----------
Net sales $55,052,191 $47,405,015
Cost of products sold 42,860,588 37,740,809
----------- -----------
Gross profit $12,191,603 $ 9,664,206
----------- -----------
Operating expenses
Selling and warehousing $ 2,912,578 $ 2,936,106
General and administrative 2,522,506 1,901,820
----------- -----------
$ 5,435,084 $ 4,837,926
----------- -----------
Income from operations $ 6,756,519 $ 4,826,280
----------- -----------
Other income (expense)
Interest income $ 281,997 $ 28,612
Interest expense (36,073) (195,586)
Other, net (114,869) 72,450
----------- -----------
$ 131,055 $ (94,524)
----------- -----------
Income from continuing
operations before income
taxes $ 6,887,574 $ 4,731,756
Income taxes 2,803,690 1,893,868
----------- -----------
Income from continuing
operations $ 4,083,884 $ 2,837,888
Discontinued operations:
Loss from discontinued
operations, net of taxes - - (226,823)
----------- -----------
Net income $ 4,083,884 $ 2,611,065
=========== ===========
Net income per common share:
Income from continuing
operations $ .25 $ .17
Loss from discontinued
operations - - (.01)
----------- -----------
Net income per common share $ .25 $ .16
=========== ===========
Dividends per common share $ 0.07 $ 0.07
=========== ===========
Average common shares outstanding 16,487,807 16,494,920
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
------------------------------------
1995 1994
Cash Flows From Operating Activities ------------ ------------
Net income $ 4,083,884 $ 2,611,065
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,721,985 3,035,751
Provision for doubtful accounts 156,201 60,230
Change in operating assets and liabilities:
Receivables (1,724,933) (11,131,132)
Inventories (6,433,844) (4,255,063)
Other current assets 113,132 526,098
Accounts payable 2,313,522 4,254,901
Accrued expenses (17,918) 2,835,476
------------ ------------
Net cash provided by (used in)
operating activities $ 212,029 $ (2,062,674)
------------ ------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment $ (2,753,143) $ (2,917,921)
Acquisition of intangible assets - - (150,000)
Payments received from non-
operating notes receivable - - 80,278
Decrease in deposits 192,951 - -
Other, net 483,216 (53,366)
------------ ------------
Net cash (used in) investing activities $ (2,076,976) $ (3,041,009)
------------ ------------
Cash Flows From Financing Activities
Changes in short-term debt $ - - $ 7,425,268
Net change in line of credit borrowings - - 1,000,000
Repayment of long-term debt (12,804) (3,513,843)
Purchase of common stock (190) (570)
Sale of common stock 171,813 - -
Cash dividends paid (1,153,912) (1,153,920)
------------ ------------
Net cash provided by (used in)
financing activities $ (995,093) $ 3,756,935
------------ ------------
Decrease in cash and cash equivalents $ (2,860,040) $ (1,346,748)
------------ ------------
Cash and cash equivalents at beginning
of period $ 9,701,801 $ 3,099,636
Less cash and cash equivalents of
discontinued operations - - (19,396)
------------ ------------
Cash and cash equivalents of continuing
operations at beginning of period $ 9,701,801 $ 3,080,240
------------ ------------
Cash and cash equivalents at end of period $ 6,841,761 $ 1,733,492
============ ============
The accompanying notes are in integral part of the consolidated financial
statements.
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements
include the accounts of O'Sullivan Corporation and its
wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in
consolidation.
In the opinion of management of the Corporation, the
unaudited consolidated financial statements contain all
material adjustments necessary to fairly present the
Corporation's financial position as of March 31, 1995 and
December 31, 1994 and the results of its operations and cash
flows for the three months ended March 31, 1995 and 1994.
Such adjustments consist only of normal recurring items.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have not been
included in these statements. These statements should be
read in conjunction with the financial statements, notes and
other disclosures thereto included in the Corporation's 1994
Annual Report to Shareholders and Form 10-K.
The results of operations for the three months ended March
31, 1995 are not necessarily indicative of the operating
results for the full year.
Note B. Discontinued Operations
On December 2, 1994, the Corporation sold certain specified
assets of the Corporation's Gulfstream Division to
Automotive Industries Holding, Inc. The assets sold
consisted primarily of property, plant and equipment,
inventories and the capital stock of Capitol Plastics of
Ohio, Inc., a subsidiary of O'Sullivan Corporation. In
addition, certain specified liabilities, consisting
primarily of employee compensation payables were assumed by
Automotive Industries Holding, Inc. The Corporation
received $46,537,017 in cash and $4,000,000 in an unsecured
note receivable for the net assets sold.
The loss from discontinued operations of the Gulfstream
Division for the quarter ended March 31, 1994 is shown
separately in the accompanying income statements. The
income tax benefit applicable to this period was $154,904.
Net sales of the Gulfstream Division were $38,404,029 for
the quarter ended March 31, 1994. This amount is not
included in the net sales in the accompanying income
statements for the quarter ended March 31, 1994.
Note C. Receivables
Receivables are presented net of an allowance for doubtful
accounts of $1,071,043 at March 31, 1995 and $884,467 at
December 31, 1994. Receivable balances for automotive
related business were $11,345,696 at March 31, 1995 and
$9,507,357 at December 31, 1994.
Note D. Inventories
At March 31, 1995 and December 31, 1994 inventories were
composed of the following:
March 31, December 31,
1995 1994
------------ ------------
Finished goods $ 9,157,405 $ 8,848,411
Work in process 10,271,157 7,581,465
Raw materials 15,684,538 13,163,840
Supplies 3,795,949 2,881,489
------------ ------------
$ 38,909,049 $ 32,475,205
============ ============
Slow-moving inventories at March 31, 1995 amounted to
$1,553,154 less a reserve of $398,691. At December 31, 1994
slow-moving inventories amounted to $1,044,138 less a
reserve of $329,906. Slow-moving inventories is an estimate
of inventory held in excess of one year's requirements,
based on historical sales volumes.
Note E. Property, Plant and Equipment
At March 31, 1995 and December 31, 1994 property, plant and
equipment were composed of the following:
March 31, December 31,
1995 1994
------------ ------------
Land $ 1,243,896 $ 1,243,761
Buildings 24,231,806 23,980,895
Machinery and equipment 63,968,277 61,457,280
Transportation equipment 3,483,881 3,533,039
------------ ------------
$ 92,927,860 $ 90,214,975
Less accumulated
depreciation 47,227,636 45,609,336
------------ ------------
$ 45,700,224 $ 44,605,639
============ ============
Note F. Accrued Expenses
At March 31, 1995 and December 31, 1994 accrued expenses
were comprised of the following:
March 31, December 31,
1995 1994
------------ ------------
Accrued compensation $ 2,361,198 $ 2,367,513
Employee benefits 2,361,363 1,989,047
Dividends payable 1,154,830 1,153,614
Contingency reserve for
discontinued operations 3,348,538 5,543,042
Other accrued expenses 4,971,274 2,887,905
------------ ------------
$ 14,197,203 $ 13,941,121
============ ============
Note G. Debt
Melnor Inc., a subsidiary of the Corporation had short-term
debt at March 31, 1995 and December 31, 1994 consisting of a
revolving credit facility ("revolving loan") with a
financial institution in the aggregate amount not to exceed
$15,000,000 that expires March 3, 1996, and shall be
automatically renewed for one year periods thereafter,
unless terminated by either party. Termination will occur
(180) days after notification. The loan is collateralized
by substantially all assets of Melnor Inc. and the maximum
principal amount outstanding at any one time is based on a
formula using the carrying values of eligible accounts
receivable and inventory. Interest is payable monthly at a
fluctuating rate equal to prime plus 1.25%, but at no time
shall the rate be less than 6%. The rates at March 31, 1995
and December 31, 1994 were 10.25% and 9.75%, respectively.
The loan agreement also provides for certain financial
covenants, all of which have been waived by the lender. In
December, 1994, the loan was paid off and the lender was
given notice that Melnor Inc. intended to terminate the
loan.
Long-Term Debt
March 31, December 31,
1995 1994
---------- -----------
Unsecured non-interest bearing
promissory note payable to
Melnor Industries, Inc.
discounted at 9.0% due on
November 24, 1996. The
principal amount of the note
is $1,622,791. $1,391,924 $1,360,945
March 31, December 31,
1995 1994
---------- -----------
Non-interest bearing
obligation payable to Melnor
Industries, Inc., discounted
at 9.0%. Payment is
contingent upon Melnor
Industries, Inc. satisfying
its obligation under the New
Jersey Environmental Cleanup
Responsibility Act and the
release by the State of the
escrow fund of $300,000
established to fund
environmental cleanup activities. 258,359 252,632
Notes payable from Melnor Inc.
to equipment finance companies
due in monthly payments
totaling $906 including
interest at rates from 11.7%
to 15.5%. The notes are
secured by equipment with a
book value of $12,481. 5,247 7,754
Capital lease obligations 73,441 83,738
---------- ----------
$1,728,971 $1,705,069
Less current maturities 45,875 52,073
---------- ----------
$1,683,096 $1,652,996
========== ==========
Note H. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
For the Three Months Ended March 31,
------------------------------------
1995 1994
---------- ----------
Cash payments for interest,
net of interest capitalized $ 182 $ 267,120
========== ==========
Cash payments for income taxes $ 489,015 $ 403,441
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (First Quarter, 1995 versus First Quarter, 1994)
- ----------------------------------------------------------------------
Consolidated Operating Results
O'Sullivan Corporation consolidated net sales from continuing
operations for the first quarter of 1995 were $55.1 million which
represents an increase of $7.7 million (16.1%) over sales of $47.4
million for the first quarter of 1994. Consolidated net income from
continuing operations was $4.1 million for the first quarter of 1995
and $2.8 million for the first quarter of 1994, an increase of $1.3
million (43.9%).
Plastics Products Segment Operating Results
Net sales for the Plastics Products segment were $41.6 million for the
first quarter of 1995 and $34.7 million for the first quarter of 1994.
The 1995 sales represent an increase of $6.9 million (19.9%).
Approximately two-thirds of the sales increase was from non-automotive
products. Of the sales increase, approximately 54% is the result of
unit volume increases. The remaining increase is the result of price
increases implemented during the past twelve months. Competitive
pressures in the markets in which this segment operates continue to
preclude virtually any unit price increases except as pass-throughs of
raw material price increases.
The gross margin for this segment showed a slight improvement over the
first quarter of 1994 (20.6% versus 19.4%). The improvement was
primarily a result of lower labor and variable manufacturing costs as
a percent of sales.
Selling expenses for the first quarter of 1995 were $1.3 million,
representing 3.2% of net sales. Selling expenses for the first
quarter of 1994 were $1.4 million, representing 4.0% of net sales for
the segment. The reduction in selling expenses both in amount and as
a percentage of net sales is primarily a result of consolidations
within the selling area which reduced compensation and commission
costs and a reduction in transportation costs allocated to this area.
General and administrative expenses for the first quarter of 1995 were
$1.7 million as compared to $1.4 million for the first quarter of
1994. As a percent of net sales these expenses were 4.0% for 1995 and
3.9% for 1994. In conjunction with the disposal of the Corporation's
Gulfstream Division in December of 1994, management has identified
several areas of general and administrative expenses which it believes
will be reduced, particularly as a percent of net sales, during this
year.
Other income of this segment showed a moderate increase over the first
quarter of 1994 of $86 thousand. Interest income increased by
approximately $250 thousand due to the investment of funds received
from the sale of the Gulfstream Division. This increase was offset by
reduced revenues from other miscellaneous income categories.
Consumer Products Segment Operating Results
Net sales were $13.4 million for the Consumer Products segment for the
first quarter of 1995. Net sales for the first quarter of 1994 were
$12.7 million. The net sales for 1995 represents an increase of 5.9%.
Changes in customer purchasing patterns and production delays by
suppliers served to reduce sales below expected levels by
approximately $1.6 million.
This segment demonstrated a significant improvement in its gross
margin for the first quarter of 1995 (26.9%) as compared to the first
quarter of 1994 (19.4%). The improvement was due primarily to
reductions in material costs.
Selling expenses for this segment represented 11.7% of net sales for
the first quarter of 1995 as compared to 12.3% for the first quarter
of 1994.
General and administrative expenses for the segment for the first
quarter of 1995 increased by $292 thousand over the first quarter of
1994. The entire increase can be attributed to expenses associated
with the anticipated move of certain manufacturing and administrative
operations of the segment to a new location. Without these expenses,
this area of cost represented 4.1% of net sales for the first quarter
of 1995 and 4.3% of net sales for the first quarter of 1994.
Interest expense associated with this segment was $36 thousand for the
first quarter of 1995 and $196 thousand for the first quarter of 1994.
The reduction in expense can be attributed to the utilization of funds
received from the sale of the Corporation's Gulfstream Division to pay
back funds borrowed under several credit arrangements available to
this segment.
Income Taxes
Income tax expense for continuing operations was $2.8 million for the
first quarter of 1995 and $1.9 million for the first quarter of 1994.
The increase in income tax expense is related to higher taxable income
levels and a slightly higher effective tax rate for 1995( 40.7% as
compared to 40.0% for 1994).
Liquidity and Capital Resources
- -------------------------------
Cash flows for the quarter ended March 31, 1995 resulted in a net
decrease in cash and cash equivalents of $2.9 million. The primary
reasons for the decrease are increases in receivables and inventories
since December 31, 1994. Such a reduction is not unusual for the
first quarter of each year due to seasonal account receivable and
inventory requirements of the Consumer Products segment of the
Corporation. The reduction can be expected to reverse itself by the
third quarter as accounts receivable are collected and inventory
requirements are reduced.
Net cash provided by operating activities was $212 thousand for the
first quarter of 1995. For the first quarter of 1994 net cash used in
operating activities was $2.1 million.
Capital outlay was $2.8 million for the first quarter of 1995.
Current capital expenditures are primarily to provide additional
capacity and modernize present equipment to produce products for which
orders currently exist. Total capital outlay for 1995 is expected to
be between $8 and $11 million.
Total corporate debt was $1.7 million at March 31, 1995 and $56.6
million at March 31, 1994. The reduction was accomplished through
improved profitability in both segments of the Corporation's
operations and the use of funds received from the sale of the
Corporation's Gulfstream Division. The Corporation still has in place
a $35 million line of credit to provide capital to finance capital
outlay and/or acquisitions.
Management believes that net cash flow from operating activities,
along with available financing capabilities will be adequate to meet
the Corporation's funding requirements for 1995.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of O'Sullivan Corporation was held
on April 25, 1995, for the purpose of electing a board of directors,
approving the appointment of auditors and voting on two other
proposals contained in the Corporation's Proxy Statement dated April
1, 1995.
All nominees for election to the Board of Directors were elected with
the following vote:
Shares Shares Shares
Voted Voted Not
For Against Voted
---------- ---------- ----------
John J. Armstrong 13,315,107 99,716 3,087,943
C. Hugh Bloom, Jr. 13,316,904 97,919 3,087,943
Arthur H. Bryant, II 13,319,918 94,905 3,087,943
Magalen O. Bryant 13,316,515 98,308 3,087,943
Robert L. Burrus, Jr. 13,228,800 186,023 3,087,943
Max C. Chapman, Jr. 13,303,504 111,319 3,087,943
James T. Holland 13,317,415 97,408 3,087,943
R. Michael McCullough 13,294,078 120,745 3,087,943
Stephen P. Munn 13,296,289 118,534 3,087,943
The appointment of Yount, Hyde and Barbour, P.C. as independent
auditor for 1995 was approved by the following vote:
Shares Shares Shares
Voted Voted Shares Not
For Against Abstained Voted
---------- ---------- ---------- ----------
13,299,158 41,330 74,334 3,087,944
The proposal to adopt O'Sullivan Corporation 1995 Stock Option Plan
was approved by the following vote:
Shares Shares Shares
Voted Voted Shares Not
For Against Abstained Voted
---------- ---------- ---------- ----------
12,654,497 596,774 163,552 3,087,943
The proposal to adopt O'Sullivan Corporation 1995 Outside Directors
Stock Option Plan was approved by the following vote:
Shares Shares Shares
Voted Voted Shares Not
For Against Abstained Voted
---------- ---------- ---------- ----------
11,885,139 1,347,016 182,667 3,087,944
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 O'Sullivan Corporation Amended and Restated Articles of
Incorporation, including the Articles of Amendment,
dated April 30, 1985, filed with the State Corporation
Commission of Virginia on May 6, 1985, adopted by
stockholders of O'Sullivan Corporation at the annual
meeting held April 30, 1985. (Incorporated by reference
to the March 31, 1985, Quarterly Report on Form 10-Q of
the Corporation.)
3.2 O'Sullivan Corporation Bylaws as amended to January 29,
1985. (Incorporated by reference to the March 31, 1985,
Quarterly Report on Form 10-Q of the Corporation.)
3.3 O'Sullivan Corporation Amended and Restated Articles of
Incorporation dated April 25, 1989, filed with the State
Corporation Commission of Virginia on May 5, 1989,
adopted by stockholders of O'Sullivan Corporation at the
annual meeting held April 25, 1989. (Incorporated by
reference to the March 31, 1989 Quarterly Report on Form
10-Q of the Corporation.)
27 Article 5 of Regulation S-X, Financial Data Schedule for
the first quarter Form 10-Q.
99.1 The O'Sullivan Corporation 1995 Stock Option Plan filed
as exhibit 99.1 to the Corporation's Form S-8
registration statement (Registration Number 033-58895)
filed with the Commission on April 28, 1995 and
incorporated herein by reference.
99.2 The O'Sullivan Corporation 1995 Outside Directors Stock
Option Plan filed as exhibit 99.2 to the Corporation's
Form S-8 registration statement (Registration Number 033-
58895) filed with the Commission on April 28, 1995 and
incorporated herein by reference.
99.3 1985 Incentive Stock Option Plan, Amended and Restated
as of July 27, 1993. (Incorporated by reference to the
Annual Report on Form 10-K for the Year Ended December
31, 1993.)
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended March 31, 1995.
S I G N A T U R E S
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.
O'SULLIVAN CORPORATION
/s/ James T. Holland
---------------------------
James T. Holland
President and Chief Operating
Officer
/s/ C. Bryant Nickerson
---------------------------
C. Bryant Nickerson
Secretary, Treasurer and
Chief Financial Officer
May 12, 1995
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<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
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0
<OTHER-SE> 93,251,616
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