<PAGE> 1
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
For the quarterly period ended September 30, 1996
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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 1-9167
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MEDICORE, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-0941551
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2337 West 76th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 558-4000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
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] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value --5,456,940 shares as of October 31, 1996.
<PAGE> 2
MEDICORE, INC. AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Income (Unaudited) for the
three months and nine months ended September 30, 1996 and September 30, 1995
include the accounts of the Registrant and all its subsidiaries.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Income for the three
months and nine months ended September 30, 1996 and September
30, 1995.
2) Consolidated Condensed Balance Sheets as of September 30, 1996
and December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the three
months and nine months ended September 30, 1996 and September
30, 1995.
4) Notes to Consolidated Condensed Financial Statements as of
September 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
MEDICORE, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Sales $6,633,610 $9,094,828 $22,387,167 $26,180,361
Gain on securities offering of subsidiary 1,521,127
Realized gain on sale of marketable securities 307,834 97,080 1,793,680 165,742
Other income 373,986 63,161 636,849 233,167
Litigation settlement 139,645
---------- ---------- ----------- -----------
7,315,430 9,255,069 26,478,468 26,579,270
COST AND EXPENSES
Cost of goods sold 5,345,390 7,487,805 18,110,329 21,356,287
Selling, general and administrative expenses 1,406,694 1,106,264 4,472,826 3,227,458
Interest expense 56,021 60,838 169,011 185,098
---------- ---------- ----------- -----------
6,808,105 8,654,907 22,752,166 24,768,843
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 507,325 600,162 3,726,302 1,810,427
Income tax provision 108,679 173,268 1,125,389 447,503
---------- ---------- ----------- -----------
INCOME BEFORE MINORITY
INTEREST 398,646 426,894 2,600,913 1,362,924
Minority interest in (income) loss of consolidated
subsidiaries (65,540) (56,952) (261,228) (43,716)
---------- ---------- ----------- -----------
NET INCOME $ 333,106 $ 369,942 $ 2,339,685 $ 1,319,208
---------- ---------- ----------- -----------
Net income per share $ .06 $ .06 $ .39 $ .23
========== ========== =========== ===========
$ .22
===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
CONSOLIDATED CONDENSED BALANCE SHEETS
MEDICORE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995(A)
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,456,016 $ 4,836,512
Marketable securities 1,571,390 855,351
Short-term investments 129,472 188,954
Accounts receivable, less allowance of $254,000 at
September 30, 1996 and $244,000 at December 31, 1995 3,751,968 3,853,913
Inventories, less allowance for obsolescence of $134,000 at
September 30, 1996 and $309,000 at December 31, 1995 3,603,768 3,872,912
Current portion of note receivable from Viragen, Inc. 146,245
Prepaid expenses and other current assets 705,034 745,192
----------- -----------
Total current assets 19,217,648 14,499,079
Property and Equipment
Land and improvements 1,006,455 1,005,255
Building and building improvements 2,873,559 2,814,785
Equipment and furniture 6,025,630 5,300,487
Leasehold improvements 388,778 367,743
----------- -----------
10,294,422 9,488,270
Less accumulated depreciation and amortization 4,601,106 3,880,549
----------- -----------
5,693,316 5,607,721
Deferred expenses and other assets 267,796 393,943
Costs in excess of net tangible assets acquired, less accumulated
amortization of $345,000 at September 30, 1995 and $311,000
at December 31, 1995. 712,913 746,411
----------- -----------
$25,891,673 $21,247,154
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,507,552 $ 3,532,971
Accrued expenses and other current liabilities 1,075,260 1,692,985
Current portion of long-term debt 834,000 1,434,000
Income taxes payable 540,032 480,481
Deferred income taxes 597,128 325,033
----------- -----------
Total current liabilities 5,553,972 7,465,470
Long-term debt 1,562,595 963,980
Deferred income taxes 2,143,336 1,564,757
Minority interest in subsidiaries 3,794,714 1,498,508
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value authorized 12,000,000 shares;
issued and outstanding 5,456,940 shares at September 30, 1996
and 5,454,940 shares at December 31, 1995 54,569 54,549
Capital in excess of par value 11,493,753 11,540,953
Retained earnings (deficit) 531,962 (1,807,723)
Foreign currency translation adjustment (217,490) (237,258)
Notes receivable from options exercise (326,400)
Unrealized gain on marketable securities for sale 974,262 530,318
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,837,056 9,754,439
----------- -----------
$25,891,673 $21,247,154
=========== ===========
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 filed with the Securities and Exchange
Commission in March, 1996.
See notes to consolidated condensed financial statements.
<PAGE> 5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MEDICORE, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,339,685 $1,319,208
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 484,932 384,000
Amortization 58,736 52,604
Bad debt expense 127,290 65,772
Gain on Viragen note collection (227,703)
Provision for inventory obsolescence 32,367 237,000
Gain on sale of securities (1,793,680) (165,742)
Gain on subsidiary stock offering (1,521,127)
Minority interest 261,228 43,716
Forgiveness of options exercise notes and accrued interest 344,871
Stock compensation 5,560
Deferred income taxes 578,000
Increase (decrease) relating to operating activities from:
Accounts receivable (34,036) (590,495)
Inventories 230,688 (889,053)
Prepaid expenses and other current assets 19,817 (318,200)
Accounts payable (1,018,724) 558,983
Accrued expenses and other current liabilities (609,447) 372,123
Income taxes payable 59,823 106,340
---------- ----------
Net cash (used in) provided by operating activities (661,720) 1,176,256
INVESTING ACTIVITIES
Additions to property and equipment, net of minor disposals (550,318) (878,775)
Payments received on note receivable from Viragen, Inc. 373,948 16,103
Proceeds from short-term investments 285,146 272,737
Short-term investments (225,664) (280,461)
Proceeds from sale of securities 1,793,680 200,788
Deferred expenses and other assets 115,462 (237,329)
Purchase portion of minority interest in subsidiary (15,000)
---------- ----------
Net cash provided by (used in) investing activities 1,792,254 (921,937)
FINANCING ACTIVITIES
Net proceeds from subsidiary stock offering 3,445,158
Proceeds from long-term borrowings 181,476
Payments on long-term borrowings (201,097) (324,073)
Deferred financing costs (14,452) (9,950)
Proceeds from exercise of stock options 53,000
Dividend payment to minority shareholder (6,107)
---------- ----------
Net cash provided by (used in) financing activities 3,457,978 (334,023)
Effect of exchange rate fluctuations on cash 30,992 2,147
---------- ----------
Increase (decrease) in cash and cash equivalents 4,619,504 (77,557)
Cash and cash equivalents at beginning of year 4,836,512 1,450,260
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,456,016 $1,372,703
---------- ----------
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Condensed Financial Statements include the accounts of
Medicore, Inc., Medicore's 67.2% owned subsidiary, Dialysis Corporation of
America ("DCA") (99.1% prior to DCA's securities offering. See Note 8) and
Medicore's 63.6% owned subsidiary, Techdyne, Inc. ("Techdyne") (including its
wholly-owned subsidiary Techdyne (Scotland) Limited ("Techdyne (Scotland)"),
collectively known as the Company. All material intercompany accounts and
transactions have been eliminated in consolidation.
Sale of Stock By Subsidiaries
The Company follows an accounting policy of income statement recognition for
sales of stock by its subsidiaries. See Note 8.
Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Electronic and mechanical components, net:
Finished goods $ 604,032 $ 617,851
Work in process 335,199 692,964
Raw materials and supplies 2,093,827 2,202,381
---------- ----------
3,033,058 3,513,196
Medical Supplies 570,710 359,716
---------- ----------
$3,603,768 $3,872,912
========== ==========
</TABLE>
Business
The Company manufactures and distributes medical products, and through its 80%
owned subsidiary All American Medical & Surgical Supply Corp., is engaged in
the sale and lease of home healthcare durables, principally in the Northeastern
United States. The Company, through its subsidiary, Techdyne, including its
wholly-owned subsidiary, Techdyne (Scotland), is an international contract
manufacturer of electronic, electro-mechanical and plastic insert injection
molded products used by original equipment manufacturers and distributors
primarily in the data processing, telecommunication and instrumentation
industries. The Company, through DCA (See Note 8), operates three kidney
dialysis centers, which are located in Florida and Pennsylvania, and has
agreements to provide inpatient dialysis treatments to various hospitals and
provides supplies and equipment for dialysis home patients.
Major Customers
A majority of the Company's electro-mechanical sales are to certain major
customers. The loss of, or substantially reduced sales to, any of these
customers would have an adverse effect on the Company's operations, if such
sales were not replaced.
<PAGE> 7
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Sales by Techdyne (Scotland) to its major customer are substantially reduced
commencing in the third quarter of 1996. In addition, Techdyne has experienced
the loss of a majority of its sales to one of its major domestic customers for
1995. See Item 2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
Medical services revenues, which represent revenues of DCA, the Company's
dialysis division, are attributable to payments received under Medicare, which
is supplemented by Medicaid or comparable benefits in the states in which the
Company operates. Reimbursement rates under these programs are subject to
regulatory changes and governmental funding restrictions. Although the Company
is not aware of any future rate changes, significant changes in reimbursement
rates could have a material effect on the Company's operations.
Medical products revenues, which represent medical supply and durable medical
equipment sales, are highly dependent, in the durable equipment division, on
payments received under Medicare and Medicaid and, therefore, are subject to
regulatory changes and governmental funding restrictions. Although the Company
is not aware of any future rate changes, significant changes in reimbursement
rates could have a material adverse effect on the Medical Products Division.
Medical supply sales are highly dependent on government contracts which have
become increasingly difficult to secure due to changes in government
procurement procedures. Significant reductions in government contract revenues
would have a material adverse effect on the operations of the Medical Products
Division.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
Long-lived assets
In 1996, the Company has adopted the provisions of FAS 121 - Accounting for the
Impairment of Long-Lived Assets. FAS 121 requires impairment losses to be
recorded on long-lived assets when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Based on current circumstances, the Company is
not aware of any significant impairment losses.
Stock-Based Compensation
In 1996, the Company adopted the provisions of FAS 123 - Accounting for
Stock-Based Compensation. The Company will continue to account for stock-based
compensation plans under the provisions of APB 25 - Accounting for Stock Issued
to Employees. The Company will disclose the pro forma information required for
stock-based compensation plans in its annual reports in accordance with FAS 123.
NOTE 2 -- INTERIM ADJUSTMENTS
The financial summaries for the three months and nine months ended September 30,
1996 and September 30, 1995 are unaudited and include, in the opinion of
management of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the earnings for such periods. Operating
results for the three months and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996.
<PAGE> 8
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 2 -- INTERIM ADJUSTMENTS -- CONTINUED
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report for the
year ended December 31, 1995.
NOTE 3 -- TRANSACTIONS WITH VIRAGEN, INC.
The Company owns approximately 412,000 shares of common stock of Viragen,
formerly a majority-owned subsidiary of the Company. The carrying value of
these securities was written off as of December 31, 1991.
During the first nine months of 1996, the Company sold approximately 539,000
shares of Viragen stock and recognized a gain of approximately $1,794,000.
During 1995, the Company sold 173,000 shares of Viragen stock and recognized a
gain of approximately $183,000. The Company has recorded these securities at
fair value with the unrealized gain credited to a separate component of
stockholders' equity, net of income tax effect. Fair value was determined
using quoted market prices by the Nasdaq stock market commencing September 1996
and by the National Quotation Bureau, Inc. prior to that time.
The Company had a second mortgage and related note due from Viragen. Under the
terms of this note, the receivable was payable in monthly installments of
$1,789, with a final payment of all unpaid principal and interest due August 6,
1996. The note bore interest at 1% over prime. The note balance included
amounts due from Viragen that were previously written off by the Company. In
March, 1996, Viragen prepaid $165,000 on this note. The Company recognized a
gain of approximately $29,000 in the first half of 1996 as a result of
collecting a portion of the previously reserved amount and recognized a gain in
the third quarter of 1996 of $198,000 as a result of Viragen repaying the
balance which had been offset by an allowance for amounts previously
written-off as uncollectible. Interest earned on the note amounted to $14,000
for the nine months ended September 30, 1996 and $13,000 and $31,000 for the
three months and nine months ended September 30, 1995.
The Company has a royalty agreement with Viragen, pursuant to which it receives
a royalty on Viragen's net sales of interferon and related products. The terms
of the agreement include an aggregate of $2.4 million to be paid based on the
following percentages of Viragen sales: 5% of the first $7 million, 4% of the
next $10 million, and 3% of the remaining $55 million. Royalty payments are
due quarterly. Under the agreement, approximately $108,000 of royalties earned
pursuant to a previous agreement, will comprise the final payment under the new
agreement. Royalty income accrued under the amended agreement amounted to
$1,000 for the nine months ended September 30, 1996 and $21,000 for the same
period of the preceding year.
NOTE 4 -- LONG-TERM DEBT
On February 8, 1996, Techdyne refinanced its term loan by entering into several
loans with a Florida bank. One credit facility is a $2,000,000 line of credit,
due on demand, secured by Techdyne's accounts receivable, inventory, furniture,
fixtures and intangible assets and bears interest at the bank's prime rate plus
1.25%. There were no amounts outstanding under this loan as of September 30,
1996 and no amounts have been drawn down on this line as of September 30, 1996.
The bank has also extended two commercial term loans to Techdyne, one for
$712,500 for five years expiring on February 7, 2001 at an annual rate of
interest equal to 8.28% with monthly payments of principal and interest of
$6,925 based on a 15-year amortization schedule with the unpaid principal and
accrued interest due on the expiration date. This term loan which had an
outstanding balance of $697,000 at September 30, 1996 has a
<PAGE> 9
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 4 -- LONG-TERM DEBT -- CONTINUED
prepayment penalty and is secured by a mortgage on properties in Hialeah,
Florida owned by the Company, two of which properties are leased to Techdyne
and one parcel being vacant land used as a parking lot. Under this term loan,
Techdyne is obligated to adhere to a variety of affirmative and negative
covenants.
The second commercial term loan is for the principal amount of $200,000 for a
period of five years bearing interest at a per annum rate of 1.25% over the
bank's prime rate and requiring monthly principal payments with accrued
interest of $3,333 through expiration on February 7, 2001. This $200,000 term
loan, which had an outstanding balance of $177,000 at September 30, 1996,
carries no prepayment penalty and is secured by all of Techdyne's tangible
personal property, goods and equipment, and all cash or noncash proceeds of
such collateral.
The Company has unconditionally guaranteed the payment and performance by
Techdyne of the $2,000,000 revolving loan and the two commercial term loans.
A default of the $712,500 term loan will be deemed a default of the $2,000,000
revolving line, but only a financial default of the $2,000,000 revolving line
will be deemed a default of the $712,500 term loan.
Techdyne has a promissory note payable to a local bank of $145,000 at September
30, 1996 and December 31, 1995, with interest payable monthly at prime with the
note maturing April 1997.
In October 1994, the Company obtained a $230,000 mortgage to refinance a
mortgage note and a second mortgage note secured by land and building leased to
Techdyne which represents a noncash financing activity and is a supplemental
disclosure required by FAS 95. This mortgage had a remaining balance of
$213,000 at December 31, 1995. As part of Techdyne's bank loan refinancing,
the balance of this mortgage was paid off.
In October, 1994, Techdyne (Scotland) finalized the purchase of the facility
which houses its operations at a cost of approximately $730,000. This mortgage
had a remaining balance of $575,000 at September 30, 1996 and $591,000 at
December 31, 1995. Techdyne (Scotland) has a line of credit with a Scottish
bank with a U.S. dollar equivalency of approximately $312,000 at September 30,
1996 and had an option for additional funding which provided a total line of
$620,000 at December 31, 1995. No amounts were outstanding under this line of
credit as of September 30, 1996 or December 31, 1995.
The Company obtained a $130,000 mortgage on vacant land for possible future
expansion in April 1993. The Company received $30,000 cash proceeds from the
mortgage with $100,000 representing a noncash financing activity which is a
supplemental disclosure as required by FAS 95. This mortgage had a balance of
approximately $86,000 at September 30, 1996 and $95,000 at December 31, 1995.
In December 1988, DCA obtained mortgages through November 2003 on its buildings
in Lemoyne, Pennsylvania and Easton, Maryland with interest at 1% over the
prime rate. The remaining combined principal balance under these mortgages
amounted to approximately $522,000 and $576,000 at September 30, 1996 and
December 31, 1995, respectively. Commencing November 30, 1993 the bank has the
right to demand repayment on the outstanding balance of the borrowings under
these mortgages which have accordingly been classified as current liabilities.
At December 31, 1995, DCA was in violation of certain covenants under these
loans principally relating to net worth and debt service ratio requirements for
DCA. The lender waived these defaults as of December 31, 1995 and waived
compliance with these covenants through December 31, 1996.
<PAGE> 10
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 4 -- LONG-TERM DEBT -- CONTINUED
Other debt includes various capital lease and other financing obligations.
Such new financing obligations, net of down payments, represents a noncash
financing activity which is a supplemental disclosure required by FAS 95. The
Company has an equipment purchase agreement for kidney dialysis machines for
its dialysis facilities in Pennsylvania. The initial principal balance was
$195,130 after a down payment of $8,870. Monthly payments are $4,435
commencing September 1995, including principal and interest, through 2000 with
interest at 12%. The remaining principal balance under this agreement amounted
to approximately $161,000 and $185,000 at September 30, 1996 and December 31,
1995, respectively.
The prime rate was 8.25% as of September 30, 1996 and 8.5% as of December 31,
1995.
The carrying amount of borrowings approximate their fair value.
Interest payments on long-term debt amounted to $ 54,000 and $ 170,000 for the
three months and nine months ended September 30, 1996 and $60,000 and $184,000
for the same periods of the preceding year.
NOTE 5 -- INCOME TAXES
At September 30, 1996 and December 31, 1995, the Company had net operating loss
carryforwards of approximately $5 million and $5.7 million, respectively, that
expire in years 2005 through 2008. The remaining net operating loss
carryforwards at September 30, 1996, primarily relate to Techdyne. Techdyne
net operating loss carryforwards were only available to offset future Techdyne
(US) taxable income subsequent to its public offering completed on October 2,
1995. Techdyne files separate federal and state income tax returns with its
income tax liability reflected on a separate return basis subsequent to that
date. DCA likewise will file separate federal and state income tax returns
subsequent to its public offering which became effective on April 17, 1996.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A deferred tax liability
of $2,053,000 at September 30, 1996 and $1,475,000 December 31, 1995 resulted
from income tax expense recorded on gains recognized for financial reporting
purposes, but not for income tax purposes resulting in a difference between
book and tax basis of the Company's investments in Techdyne and DCA. This
temporary difference would reverse upon the occurrence of certain events
relating to the divestiture of these subsidiaries. Management of the Company
currently has no plans to effect a transaction that will result in such a
divestiture. A deferred tax liability of approximately $597,000, has been
recorded for the unrealized gain on marketable securities. See Note 3.
Other deferred tax liabilities, which total approximately $ 300,000, result
from temporary differences including tax over book depreciation and are more
than offset by deferred tax assets. Deferred tax assets of approximately
$2,200,000 result primarily from the net operating loss carryforwards and from
temporary differences in book and tax bases of receivables and inventory, which
result in related deferred tax assets of approximately $300,000. Deferred tax
assets have not been reflected in the financial statements as a result of their
being offset by a valuation allowance which amounted to approximately $
1,800,000 at September 30, 1996 and $2,209,000 December 31, 1995.
<PAGE> 11
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 5 -- INCOME TAXES -- CONTINUED
The Company had a domestic income tax expense of approximately $120,000 and
$821,000 for the three months and nine months ended September 30, 1996,
including deferred taxes of $578,000 in the second quarter of 1996 on the
Dialysis Corporation of America stock offering (see Note 8), and $36,000 and
$77,000 for the same periods of the preceding year.
Techdyne (Scotland) had income tax expense (benefit) of $(12,000) and $304,000
for the three months and nine months ended September 30, 1996 and $137,000 and
$371,000 for the same periods of the preceding year.
Income tax payments were approximately $487,000 and $497,000 for the three
months and nine months ended September 30, 1996 and $272,000 for the three
months and nine months ended September 30, 1995.
NOTE 6 -- STOCK OPTIONS AND STOCK COMPENSATION
In September 1994, the Company granted options to a consulting firm to purchase
400,000 shares of common stock exercisable at $1.25 per share through September
30, 1997.
In September 1994, options to purchase 480,000 shares of common stock at $.69
per share were exercised. The Company received cash payment of the par value
and the balance in three year promissory notes, presented in the Stockholder's
Equity section of the balance sheet, with interest at 5.36%. The notes were
secured by the 480,000 shares purchased, held in escrow by the Company, with
voting rights held by the shareholders until default, if any, under the notes.
In September 1996, the Company forgave the balances due under the notes
including accrued interest, in accordance with which it recorded approximately
$ 344,000 in compensation expense in the second quarter of 1996.
The Company has 1,000,000 shares of common stock reserved for future issuance
pursuant to its 1989 Stock Option Plan. On April 18, 1995, the Company granted
809,000 options, of which there are currently 807,000 outstanding, as a service
award to officers, directors, consultants and certain employees of the Company
and certain of its subsidiaries under its 1989 Stock Option Plan. The options
are exercisable at $3.00 per share for 10 years and are exercisable 50% on or
after the first anniversary date of grant and in full on or after the second
anniversary date of grant.
On May 6, 1996, the Company adopted a Key Employee Stock Plan reserving 100,000
shares of its common stock for issuance from time to time to officers,
directors, key employees, advisors and consultants as bonus or compensation for
performances and or services rendered to the Company or otherwise providing
substantial benefit for the Company. 2,000 shares under this plan have been
issued to the managing director of the Company's European operations for which
the Company recorded approximately $6,000 in compensation expense during the
second quarter of 1996.
In May 1994, Techdyne adopted a stock option plan for up to 250,000 options.
Pursuant to this plan, in May 1994, Techdyne's Board of Directors granted
227,500 options, of which there are 179,200 outstanding as of September 30,
1996, to certain of its officers, directors, employees and consultants. These
options are excercisable for a period of five years at $1 per share. Options
for 400 shares were exercised in the fourth quarter of 1995. Options for 400
shares were exercised in the fourth quarter of 1995, options for 1300 shares
were exercised during the second quarter of 1996, and options for 44,200 shares
were exercised in the third quarter of 1996.
<PAGE> 12
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 6 -- STOCK OPTIONS AND STOCK COMPENSATION -- CONTINUED
On February 27, 1995 Techdyne granted stock options, not part of the 1994
Plan, to directors of Techdyne and its subsidiary for 142,500 shares
exercisable at $1.75 per share for five years. In April 1995, Techdyne granted
a stock option for 10,000 shares, not part of the 1994 Plan, to its general
counsel at the same price and terms as the directors' options.
In November 1995, DCA adopted a stock option plan for up to 250,000 options.
Pursuant to this plan, in November 1995, DCA's Board of Directors granted
210,000 options, of which there are 197,000 outstanding as of September 30,
1996 to certain of its officers, directors, employees and consultants. These
options are exercisable for a period of five years through November 9, 2000 at
$1.50 per share. In August 1995, DCA's Board granted 15,000 options to the
medical directors at its three kidney dialysis centers. These options are
exercisable for a period of 3 years through August 18, 1999 at $4.75 per share.
The Board of Directors of the Company has determined that the fair value of the
underlying common stock was not in excess of the exercise price on the date of
grant for stock options granted and, therefore, no amounts have been charged to
operations in connection with any grants of options.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Upon completion of DCA's public offering in April 1996, DCA retained the
representative of the underwriters to provide financial consulting services
pertaining to DCA's business, at a monthly fee of $3,000 per month for a period
of 18 months, which sum was paid in advance upon on the closing of the
offering. See Note 8.
In the first quarter of 1996, a temporary worker provided by a temporary
personnel agency was injured while working at Techdyne. The worker was insured
through the temporary personnel agency. While the full extent of the temporary
worker's injuries and the ultimate costs associated with those injuries are not
presently known, the Company anticipates that its insurance is adequate to
cover any potential claims which might arise.
A litigation initiated by Techdyne in 1994 in the Florida courts has been
settled on terms favorable to Techdyne.
NOTE 8 -- SUBSIDIARY STOCK OFFERINGS
In October 1995, Techdyne completed a public offering of its securities
providing that subsidiary with net proceeds of approximately $3,321,000 for
which the Company recognized a gain of approximately $2,002,000 with applicable
income taxes of $761,000, which resulted in a net gain of approximately
$1,241,000. See Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
DCA completed a public offering in April 1996, with net proceeds of the
offering, including the exercise of the overallotment option for 150,000
units, of approximately $3,445,000 for which the Company has recorded a gain of
approximately $1,521,000 with applicable income taxes of $ 578,000, which
resulted in a net gain of approximately $943,000. See Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Consolidated revenues decreased approximately $1,940,000 (21%) and $100,000 for
the three months and nine months ended September 30, 1996 compared to the same
periods of the previous year including a gain of $1,521,000 on DCA's security
offering recorded in the second quarter of 1996 and $140,000 from a litigation
settlement recorded in the first quarter of 1996 (see Notes 7 and 8). Gain on
sale of marketable securities represents a gain attributable to the sale of
Viragen common stock for which the carrying value had been written-off in
previous periods (see Note 3). Techdyne revenues decreased $2,755,000 (34%)
and $5,083,000 (22%) for the three months and nine months ended September
30,1996 compared to the same periods of the preceding year. Domestic revenues
of Techdyne ,which included a litigation settlement during the first quarter of
1996, decreased $1,054,000 (22%) and $5,065,000 (34%) and European-based
revenues decreased $1,701,000 (52%) and $18,000 for the three months and nine
months ended September 30, 1996, compared to the same periods of the preceding
year.
Approximately 67% of Techdyne's consolidated sales and 54% of the Company's
consolidated sales for the nine months ended September 30, 1996 were made to
four customers of which Compaq accounted for 22% and 18% and IBM for 14% and
11%. The other two customers each accounted for less than 10% of Techdyne's
and the Company's consolidated sales. The loss, or substantially reduced sales
to, any of these customers would have an adverse effect on the Company's
operations. Techdyne had sales of $5,653,000 to another major customer for
1995. Sales to that customer for the three months and nine months ended
September 30, 1996 amounted to approximately $28,000 and $226,000 compared to
$1,832,000 and $5,250,000 for the same periods of the preceding year. As a
result of a change in the product produced for that customer, and not based on
quality or service, Techdyne anticipates a loss of a majority of its sales to
that customer during 1996. Techdyne is pursuing new business development
efforts to replace these lost sales, although there can be no assurance as to
the success of such efforts
The revenues of Techdyne's Scottish-based subsidiary, Techdyne (Scotland),
continue to be highly dependent on sales to Compaq, which accounted for
approximately 74% and 86% of the sales of Techdyne (Scotland) for the three
months and nine months ended September 30, 1996 and 87% and 83% for the same
periods of the preceding year. While the Company believes that Techdyne
(Scotland) will maintain significant sales to Compaq, the bidding for Compaq
orders in Scotland has become more competitive, which the Company anticipates
will result in substantially reduced Compaq sales and lower profit margins on
remaining Compaq sales. Techdyne (Scotland) is pursuing new business
development efforts to replace significant reductions in Compaq business
beginning in the third quarter of 1996 and to pursue cost reduction efforts to
remain competitive with respect to Compaq, although there can be no assurance
as to the success of such efforts.
Medical product sales revenues increased $36,000 (9%) and $303,000 (24%) for
the three months and nine months ended September 30, 1996 compared to the same
periods of the preceding year. This increase included sales of approximately
$32,000 and $253,000 attributable to All American Medical & Surgical Supply
Corp., the Company's 80% owned subsidiary which commenced operations in January
1996.
Medical services sales revenues, which represents revenues of DCA, the
Company's dialysis division, increased $298,000 (44%) and $1,271,000 (81%) for
the three months and nine months ended September 30, 1996 compared to the same
periods of the preceding year. This increase primarily resulted from expanded
patients and treatments at the Company's new dialysis centers which commenced
operations in Lemoyne, Pennsylvania in September 1995 and Wellsboro,
Pennsylvania in October 1995, which accounted for approximately $487,000 and
$1,300,000 in sales revenues for the three months and nine months ended
September 30, 1996 with the new Lemoyne center having revenues of $186,000 and
$224,000 for the three months and nine months ended September 30, 1995.
Although the new Lemoyne and Wellsboro, Pennsylvania centers are expected to
result in increased revenues, during their developmental stage, these centers
will adversely affect the Company's results of operations.
<PAGE> 14
RESULTS OF OPERATIONS -- CONTINUED
Cost of goods sold as a percentage of consolidated sales remained relatively
stable, amounting to 81% of sales revenues for the three months and nine months
ended September 30, 1996 compared to 82% for the same periods of the preceding
year.
Cost of goods sold for Techdyne remained relatively stable, amounting to 85%
for the three months and nine months ended September 30, 1996 compared with 85%
and 84% for the same periods of the preceding year.
Cost of goods sold for the medical products division was 64% and 65% for the
three months and nine months ended September 30, 1996 compared to 58% and 60%
for the same periods of the preceding year, which reflects reduced margins on
the principal product of the medical supply division and relatively low margins
for the Company's new medical durable subsidiary, All American Medical &
Surgical Supply Corp.
Cost of medical services sales were relatively stable amounting to 66% for the
three months and nine months ended September 30, 1996 compared to 67% and 66%
for the same periods of the preceding year.
Selling, general and administrative expenses increased $300,000 and $1,245,000
for the three months and nine months ended September, 30, 1996 compared to
same periods of the preceding year. This increase included the Company's two
new Pennsylvania dialysis centers and the Company's new 80% owned subsidiary,
All American Medical & Surgical Supply Corp. Also included was stock
compensation expense during the second quarter of 1996 of approximately
$344,000 for forgiveness of notes from option exercises and accrued interest.
The Company's stock traded on the American Stock Exchange until September 1996
when it commenced trading on the Nasdaq National Market in connection with
which a fee of approximately $30,000 was incurred during the second quarter of
1996.
Interest expense decreased by approximately $5,000 and $16,000 for the three
months and nine months ended September 30, 1996 compared to the same periods of
the previous year as a result of changes in both average outstanding borrowings
and average interest rates associated with those borrowings.
The bulk of the Company's outstanding borrowings are related to real property
and tied to the prime interest rate. The prime rate was 8.25% at September 30,
1996 and 8.5% at December 31, 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $13,664,000 at September 30, 1996, an increase of
$6,630,000 during the nine months of 1996. The increase reflects net proceeds
of DCA's public offering of approximately $3,445,000 and proceeds from sales of
Viragen stock of approximately $1,794,000. Also included were an increase of
$444,000 in the net of tax valuation of marketable securities pursuant to
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities and a substantial reduction in
current debt as a result of Techdyne's bank refinancing and the litigation
settlement proceeds.
Included in the changes in components of working capital was an increase of
$4,620,000 in cash and cash equivalents, which included net cash used in
operating activities of $662,000, net cash provided by investing activities of
$1,792,000 (including proceeds of $1,794,000 from the sale of Viragen stock,
$374,000 in payments received on the Viragen note receivable, and additions to
property plant and equipment of $550,000) and net cash provided by financing
activities of $3,458,000 (including proceeds from DCA's securities offering of
approximately $3,445,000 and from the bank refinancing of $181,000 and
repayments on long-term debt of $201,000).
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
In February 1996, Techdyne refinanced its bank loan agreement with another
Florida bank. The new financing provides for a $2,000,000 line of credit, due
on demand, secured by Techdyne's accounts receivable, inventory, furniture,
fixtures and intangible assets. There were no amounts outstanding under this
credit facility at September 30, 1996 and no amounts have been drawn down on
this line of credit as of September 30, 1996. A $712,500 term loan which had a
balance of $697,000 at September 30, 1996 is secured by two buildings and land
owned by the Company. The second term loan for $200,000 which had a balance of
$177,000 at September 30, 1996 is secured by Techdyne's tangible personal
property, goods and equipment. The Company has guaranteed these loans and has
subordinated $2,500,000 due from Techdyne, provided that Techdyne may make
payments to the Company on this subordinated debt from funds from Techdyne's
security offering and from earnings. Techdyne further agreed that in the event
that it should sell its interest in Techdyne (Scotland), which is not
anticipated, 50% of the selling price would be used to repay the $712,500 term
loan facility. See Note 4.
Techdyne has outstanding borrowings of $145,000 from a local bank with interest
payable monthly and the notes maturing April, 1997. In October 1994, the
Company obtained a replacement mortgage of $230,000 to refinance the first and
second mortgages on a building it leases to Techdyne. The principal balance
under this mortgage amounted to $213,000 at December 31, 1995. This loan was
paid off through the refinanced Techdyne bank loan agreement which became
effective in February 1996. In April 1993, the Company purchased a vacant lot
adjacent to Techdyne's facility in Hialeah, Florida for possible future
expansion. In connection with this purchase, the Company obtained a $130,000
mortgage. The principal balance outstanding under this mortgage amounted to
$86,000 and $95,000 at September 30, 1996 and December 1995, respectively.
Techdyne (Scotland) has a line of credit with a Scottish bank, with a U.S.
dollar equivalency of approximately $312,000 at September 30, 1996 and had an
option for additional funding which provided a total line of $620,000 at
December 31,1995. The Company has decided not to utilize this option for
additional funding. The line of credit is secured by the assets of Techdyne
(Scotland) and guaranteed by Techdyne. This line of credit operates as an
overdraft facility. No amounts were outstanding under this line of credit as
of September 30, 1996 or December 31, 1995. In October, 1994, Techdyne
(Scotland) purchased the facility housing its operations for approximately
$730,000, obtaining a 15-year mortgage which had a U.S. dollar equivalency of
approximately $575,000 and $591,000 at September 30, 1996 and December 31,
1995, respectively.
During 1988, the Company, through DCA, its dialysis subsidiary, obtained
mortgages totaling $1,080,000 on its two buildings, one in Lemoyne,
Pennsylvania and the other in Easton, Maryland, which housed the Company's
dialysis centers. These centers were sold in October, 1989. The mortgages had
a combined remaining balance of $522,000 and $576,000 at September 30, 1996 and
December 31, 1995, respectively. DCA was in default of certain covenants
principally relating to net worth and debt service ratio requirements under
these loan agreements as of December 31, 1995. The lender has waived
compliance with these covenants through December 31, 1996.
The bank has liens on the real and personal property of DCA, including a lien
on all rents due and security deposits from the rental of these properties.
The loans contain a provision allowing the bank mandatory repayment upon 90
days written notice after five years, which period has elapsed. Accordingly,
while no notice has been given, the unpaid principal balance is carried as a
current liability. An unaffiliated Maryland dialysis center continues to lease
space from the Company in its building. The Pennsylvania center relocated
during 1995 and the Company constructed its own new dialysis center at that
property which commenced treatments in September, 1995. The Company also
opened a new dialysis center in a leased facility in Wellsboro, Pennsylvania
in October 1995. See Note 4.
The Company has an equipment purchase agreement for kidney dialysis machines
for its Pennsylvania dialysis facilities which had a remaining principal
balance of $161,000 and $185,000 at September 30, 1996 and December 31, 1995,
respectively. See Note 3.
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
Since the Company established Viragen in 1980, it had advanced substantial
sums to that former subsidiary, spun-off in 1986. In August 1993, the Company
and Viragen executed a modified mortgage and promissory note, with interest at
prime plus 1%, effective as of September 1, 1993 in the amount of $429,400,
which was amortized over a 20 year term in equal monthly installments with a
balloon payment of all remaining unpaid principal and interest due August 1,
1996. In March 1996, Viragen prepaid $165,000 on this note. The Company
recognized gains of approximately $29,000 in the first half of 1996, included
in other income, as a result of the Company collecting a portion of the
previously reserved note balance. Viragen repaid the remaining balance which
had been offset by an allowance for amounts previously written off as
uncollectible which resulted in the Company recognizing a gain of $198,000 in
the third quarter of 1996. Interest was at prime plus 1%. Interest earned
under the note amounted to $14,000 for the nine months ended September 30, 1996
and $13,000 and $31,000 for the three months and nine months ended September
30, 1995. See Note 3.
During the first nine months of 1996, the Company sold 539,000 shares of
Viragen stock realizing a gain and cash proceeds of $1,794,000. During 1995,
the Company sold 173,000 shares of Viragen common stock, realizing a gain and
cash proceeds of $183,000. The carrying value of these securities was
previously written off. Under the provisions of FASB Statement No. 115, the
remaining shares at September 30, 1996 have been recorded at an estimated fair
value of $1,571,000 with the unrealized gain, net of income tax effect,
credited to a separate component of stockholder's equity.
Techdyne completed a public offering of 1,000,000 shares of common stock and
1,000,000 common stock purchase warrants on October 2, 1995, realizing net
proceeds of approximately $3,321,000 from which it repaid $1,500,000 of
intercompany indebtedness to the Company with the balance of the proceeds to be
used to establish new facilities, expand existing products, upgrade plant and
equipment, hire additional direct sales personnel and for working capital.
There is a convertible note issued by Techdyne, convertible at $1.75 per share
for the balance of intercompany indebtedness due to the Company which amounted
to approximately $2,955,000 with $350,000 of the note converted into 200,000
shares of Techdyne common stock in June 1996. As a result of the offering, the
Company's ownership in Techdyne decreased from 83.1% to 62.5% and is presently
63.6%. In connection with the Techdyne offering, in the fourth quarter of
1995, the Company recognized a gain of approximately $2,002,000, with
applicable income taxes of $761,000, which resulted in a net gain of
approximately $1,241,000. See Note 8.
In November 1995, DCA, the Company's dialysis subsidiary, authorized the
declaration of a $1.30 per share dividend for which the Company's portion
related to its ownership interest in DCA amounted to approximately $3,134,000
which was paid by a reduction in the intercompany advances receivable from the
Company and the minority interest portion of approximately $29,000 was paid in
cash. In October 1995, after receiving a $1,500,000 repayment from Techdyne on
intercompany advances, the Company repaid approximately $1,000,000 of its
intercompany indebtedness to DCA. In the second quarter of 1996, DCA completed
a public offering of 1,000,000 units at $3.75 each, with each unit including
one share of common stock and two redeemable common stock purchase warrants,
with the underwriters' overallotment option for 150,000 units having also been
exercised, realizing net proceeds of approximately $ 3,445,000. In connection
with the DCA offering, in the second quarter of 1996, the Company recognized a
gain of approximately $1,521,000, with applicable income taxes of $578,000,
which resulted in a net gain of approximately $943,000. As a result of the
offering, the Company's ownership in DCA decreased from 99.1% to 67.2%. See
Note 8.
DCA, having operated on a larger scale in the past, is seeking to expand its
outpatient dialysis treatment facilities and inpatient dialysis care. Such
expansion, whether through acquisition of existing centers, or the development
of its own dialysis centers, requires capital, which was the basis for DCA's
securities offering. No assurance can be given that DCA will be successful in
implementing its growth strategy or that the funds from the public sale of the
DCA securities will be adequate.
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
Dialysis Corporation of America has entered into agreements for medical
directors, and is negotiating building leases and construction contracts for
two new dialysis centers which it intends to establish, one in New Jersey and
one in Pennsylvania. It is anticipated that the new centers would become
operational in the second quarter of 1997. Development of new centers is
estimated to cost from $600,000 to $750,000 per dialysis center; including
working capital requirements. After the new centers commence operations,
during their developmental stage, they are expected to adversely affect the
Company's results of operations.
The bulk of the Company's cash balances are carried in interest yielding
vehicles at various rates and mature at different intervals depending on the
anticipated cash requirements of the Company.
Given its current level of working capital, Techdyne's refinanced bank loan and
the proceeds of DCA's public offering, completed in April 1996, management
believes current levels of working capital are adequate to successfully meet
liquidity demands for at least the next twelve months.
INFLATION
Inflationary factors have not had a significant effect on the Company's
operations. The Company attempts to pass on increased costs and expenses by
increasing selling prices when and where possible and by developing different
and improved products for its customers that can be sold at targeted profit
margins. However, in the Company's medical services segment, revenue per
dialysis treatment is subject to reimbursement rates established and regulated
by the federal government. These rates do not automatically adjust for
inflation. Any rate adjustments relate to legislation and executive and
Congressional budget demands, and have little to do with the actual cost of
doing business. Therefore, dialysis services revenues cannot be voluntarily
increased to keep pace with increases in nursing and other patient care costs.
<PAGE> 18
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Part I Exhibits
(11) Statements re: computation of per share
earnings
(27) Financial Data Schedule (for SEC use
only)
Part II Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-k filed for the
quarter ended September 30, 1996.
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.
MEDICORE, INC.
By /s/ DANIEL R. OUZTS
-------------------------------------
DANIEL R. OUZTS, Vice President/
Finance, Controller and Principal
Accounting Officer
Dated November 8, 1996
<PAGE> 19
EXHIBIT INDEX
Exhibit
No.
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
<PAGE> 1
MEDICORE, INC. AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTH ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 5,456,940 5,454,940 5,456,020 5,454,940
Net effect of dilutive stock options-based on the modified
treasury stock method using average market price 459,768 676,364 616,756 400,283
---------- ---------- ---------- ----------
5,916,708 6,131,304 6,072,776 5,855,223
---------- ---------- ---------- ----------
Net income $ 333,106 $ 369,942 $2,339,685 $1,319,208
---------- ---------- ---------- ----------
Net income per share $ .06 $ .06 $ .39 $ .23
---------- ---------- ---------- ----------
FULLY DILUTED
Weighted average shares outstanding 5,456,940 5,454,940 5,454,940
Net effect of dilutive stock options-based on the modified
treasury stock method using ending market price 592,789 720,667 562,322
---------- ---------- ----------
6,049,729 6,175,607 6,017,262
---------- ---------- ----------
Net income $ 333,106 $ 369,942 $1,319,208
---------- ---------- ----------
Net income per share $ .06 $ .06 $ .22
---------- ---------- ----------
</TABLE>
Note: Fully diluted earnings per share has not been presented for the nine
months ended September 30, 1996 as it is not dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,456,016
<SECURITIES> 1,571,390
<RECEIVABLES> 3,751,968<F1>
<ALLOWANCES> 0
<INVENTORY> 3,603,768<F2>
<CURRENT-ASSETS> 19,217,648
<PP&E> 10,294,422
<DEPRECIATION> 4,601,106
<TOTAL-ASSETS> 25,891,673
<CURRENT-LIABILITIES> 5,553,972
<BONDS> 1,562,595
0
0
<COMMON> 54,569
<OTHER-SE> 12,782,487
<TOTAL-LIABILITY-AND-EQUITY> 25,891,673
<SALES> 22,387,167
<TOTAL-REVENUES> 26,478,468
<CGS> 18,110,329
<TOTAL-COSTS> 18,110,329
<OTHER-EXPENSES> 4,472,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,011
<INCOME-PRETAX> 3,726,302
<INCOME-TAX> 1,125,389
<INCOME-CONTINUING> 2,339,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,339,685
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
<FN>
<F1> ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $254,000 AT SEPTEMBER
30, 1996.
<F2> INVENTORIES ARE NET OF RESERVE OF $134,000 AT SEPTEMBER 30, 1996.
</FN>
</TABLE>
