<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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------
Commission file number 1-9167
------
MEDICORE, INC.
- --------------------------------------------------------------------------------
(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
- -------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(305) 558-4000
--------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-------------------------------------------------------------------
(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 July 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 six months ended June 30, 1996 and June 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 six months ended June 30, 1996 and June 30, 1995.
2) Consolidated Condensed Balance Sheets as of June 30, 1996 and
December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the three
months and six months ended June 30, 1996 and June 30, 1995.
4) Notes to Consolidated Condensed Financial Statements as of
June 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Sales $ 7,523,999 $ 9,511,393 $15,753,557 $17,085,533
Gain on securities offering of subsidiary 1,521,127 1,521,127
Realized gain on sale of marketable securities 923,817 68,662 1,485,846 68,662
Other income 142,083 75,504 262,863 170,006
Litigation settlement 139,645
------------ ----------- ----------- -----------
10,111,026 9,655,559 19,163,038 17,324,201
COST AND EXPENSES
Cost of goods sold 6,128,252 7,895,199 12,764,939 13,868,482
Selling, general and administrative expenses 1,776,842 1,084,277 3,066,132 2,121,194
Interest expense 58,071 62,244 112,990 124,260
------------ ----------- ----------- -----------
7,963,165 9,041,720 15,944,061 16,113,936
------------ ----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 2,147,861 613,839 3,218,977 1,210,265
Income tax provision 826,783 134,213 1,016,710 274,235
------------ ----------- ----------- -----------
INCOME BEFORE MINORITY
INTEREST 1,321,078 479,626 2,202,267 936,030
Minority interest in (income) loss of consolidated
subsidiaries (39,752) 8,716 (195,688) 13,236
------------ ----------- ----------- -----------
NET INCOME $ 1,281,326 $ 488,342 $ 2,006,579 $ 949,266
============ =========== =========== ===========
Net income per share $ .21 $ .09 $ .33 $ .17
============ =========== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MEDICORE, INC. AND SUBSIDIARIES JUNE 30, DECEMBER 31,
1996 1995(A)
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,994,526 $ 4,836,512
Marketable securities 2,617,010 855,351
Short-term investments 127,192 188,954
Accounts receivable, less allowance of $227,000 at
June 30, 1996 and $244,000 at December 31, 1995 4,007,236 3,853,913
Inventories, less allowance for obsolescence of $207,000 at
June 30, 1996 and $309,000 at December 31, 1995 3,133,449 3,872,912
Current portion of note receivable from Viragen, Inc. 146,245
Prepaid expenses and other current assets 634,343 745,192
----------- -----------
TOTAL CURRENT ASSETS 20,513,756 14,499,079
PROPERTY AND EQUIPMENT
Land and improvements 1,005,255 1,005,255
Building and building improvements 2,843,337 2,814,785
Equipment and furniture 5,947,663 5,300,487
Leasehold improvements 386,178 367,743
----------- -----------
10,182,433 9,488,270
Less accumulated depreciation and amortization 4,470,740 3,880,549
----------- -----------
5,711,693 5,607,721
DEFERRED EXPENSES AND OTHER ASSETS 243,878 393,943
COSTS IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED,
less accumulated amortization of $334,000 at June 30,
1995 and $311,000 at December 31, 1995. 724,079 746,411
----------- -----------
$27,193,406 $21,247,154
=========== ===========
</TABLE>
<PAGE> 5
CONSOLIDATED CONDENSED BALANCE SHEETS -- Continued
<TABLE>
<CAPTION>
MEDICORE, INC. AND SUBSIDIARIES JUNE 30, DECEMBER 31,
1996 1995(A)
------------ -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,339,547 $ 3,532,971
Accrued expenses and other current liabilities 1,537,913 1,692,985
Current portion of long-term debt 848,000 1,434,000
Income taxes payable 913,386 480,481
Deferred income taxes 994,464 325,033
----------- -----------
TOTAL CURRENT LIABILITIES 6,633,310 7,465,470
LONG-TERM DEBT 1,603,993 963,980
DEFERRED INCOME TAXES 2,142,757 1,564,757
MINORITY INTEREST IN SUBSIDIARIES 3,671,375 1,498,508
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value authorized 12,000,000 shares;
issued and outstanding 5,456,940 share at June 30, 1996 and
5,454,940 shares at December 31, 1995 54,569 54,549
Capital in excess of par value 11,497,720 11,540,953
Deficit 198,856 (1,807,723)
Foreign currency translation adjustment (231,720) (237,258)
Notes receivable from options exercise (326,400)
Unrealized gain on marketable securities for sale 1,622,546 530,318
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,141,971 9,754,439
----------- -----------
$27,193,406 $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> 6
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
MEDICORE, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1996 1995
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,006,579 $ 949,266
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 319,063 247,594
Amortization 38,269 34,116
Bad debt expense 80,113 58,024
Gain on Viragen note collection (29,490)
Provision for inventory obsolescence 65,143 193,760
Gain on sale of securities (1,485,846) (68,662)
Gain on subsidiary stock offering (1,521,127)
Minority interest 195,688 (13,236)
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 (243,900) (1,522,129)
Inventories 656,359 (1,491,753)
Prepaid expenses and other current assets 87,142 (350,944)
Accounts payable (1,177,128) 1,486,382
Accrued expenses and other current liabilities (143,570) 451,491
Income taxes payable 433,929 231,246
----------- ----------
Net cash provided by operating activities 209,655 205,155
INVESTING ACTIVITIES
Additions to property and equipment, net of minor
disposals (396,448) (411,080)
Payments received on note receivable from Viragen, Inc. 175,735 10,735
Proceeds from short-term investments 188,954 181,230
Short-term investments (127,192) (186,607)
Proceeds from sale of securities 1,485,846 103,708
Deferred expenses and other assets 148,630 (173,925)
Purchase portion of minority interest in subsidiary (15,000)
----------- ----------
Net cash provided by (used in) investing activities 1,475,525 (490,939)
FINANCING ACTIVITIES
Net proceeds from subsidiary stock offering 3,445,158
Proceeds from long-term borrowings 181,476
Payments on long-term borrowings (138,394) (175,378)
Deferred financing costs (14,697)
Proceeds from exercise of stock options 1,300
----------- ----------
Net cash provided by (used in) financing activities 3,474,843 (175,378)
----------- ----------
Effect of exchange rate fluctuations on cash (2,009) (6,441)
----------- ----------
Increase (decrease) in cash and cash equivalents 5,158,014 (467,603)
Cash and cash equivalents at beginning of year 4,836,512 1,450,260
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 9,994,526 $ 982,657
=========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 7
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 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 64.3% 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>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Electronic and mechanical components, net:
Finished goods $ 521,515 $ 617,851
Work in process 429,999 692,964
Raw materials and supplies 1,627,626 2,202,381
---------- ----------
2,579,140 3,513,196
Medical Supplies 554,309 359,716
---------- ----------
$3,133,449 $3,872,912
========== ==========
</TABLE>
<PAGE> 8
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --CONTINUED
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.
Sales by Techdyne (Scotland) to its major customer are expected to be
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 represents 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 represents 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.
<PAGE> 9
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --CONTINUED
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 six months ended June 30, 1996
and June 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 six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1996.
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 481,000 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.
<PAGE> 10
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 3--TRANSACTIONS WITH VIRAGEN, INC.--CONTINUED
During the first six months of 1996, the Company sold 470,000 shares of Viragen
stock and recognized a gain of approximately $ 1,486,000. 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 June 1996 and
by the National Quotation Bureau, Inc. prior to that time.
The Company has a second mortgage and related note due from Viragen. Under the
terms of this note, the receivable is payable in monthly installments of
$1,789, with a final payment of all unpaid principal and interest due August 6,
1996. The note bears interest at 1% over prime. The note balance includes
amounts due from Viragen that were previously written off by the Company. At
June 30, 1996, the total outstanding note balance was $196,000 which is offset
by an allowance of the same amount for amounts previously written off as
uncollectable. In March, 1996, Viragen prepaid $165,000 on this note. The
Company has recognized gains of approximately $29,000 in the first half of 1996
as a result of collecting a portion of the previously reserved amount and will
recognize a gain in the third quarter of 1996 as a result of Viragen repaying
the balance due in August 1996. Interest earned on the note amounted to $
6,000 and $ 15,000 for the three months and six months ended June 30, 1996 and
$10,000 and $ 19,000 for the same periods of the preceding year.
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 six months ended June 30, 1996 and $16,000 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 June 30, 1996
and no amounts have been drawn down on this line as of June 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 $703,000 at June 30, 1996 has a 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.
<PAGE> 11
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 4--LONG-TERM DEBT--CONTINUED
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 $ 187,000 at June 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 June 30,
1996 and December 31, 1995, with interest payable monthly at prime with the
note maturing April 1997.
In July 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 SFAS 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 July, 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 $579,000 at June 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 $308,000 at June 30, 1996 and $620,000 at
December 31, 1995. No amounts were outstanding under this line of credit as
of June 30, 1996 or December 31, 1995.
<PAGE> 12
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 4--LONG-TERM DEBT--CONTINUED
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 SFAS 95. This mortgage had a balance of
approximately $ 88,000 at June 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 $540,000 and $576,000 at June 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.
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 SFAS 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 $169,000 and $185,000 at June 30, 1996 and December 31, 1995,
respectively.
The prime rate was 8.25% as of June 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 $ 59,000 and $ 116,000
for the three months and six months ended June 30, 1996 and $63,000 and $
124,000 for the same periods of the preceding year.
NOTE 5 -- INCOME TAXES
At June 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 June 30, 1996, primarily relate to Techdyne. Techdyne net
operating loss carryforwards are only available to offset future Techdyne (US)
taxable income which became a 62.5% owned subsidiary pursuant to its public
offering completed on October 2, 1995 and which will file 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 June 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
<PAGE> 13
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 5 -- INCOME TAXES -- CONTINUED
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 $994,000, 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
$2,400,000 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 $200,000. 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 June 30, 1996 and $2,209,000 December 31, 1995.
The Company had a domestic income tax expense of approximately $109,000 and
$123,000 for the three months and six months ended June 30, 1996 and $15,000 and
$40,000 for the same periods of the preceding year.
Techdyne (Scotland) had income tax expense of $140,000 and $316,000 for the
three months and six months ended June 30, 1996 and $119,000 and $234,000 for
the same periods of the preceding year.
Income tax payments were approximately $ 10,000 for the six months ended June
30, 1996 with no payments during the second quarter of 1996 and $16,000 and $
43,000 for the three months and six months ended June 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 June 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.
<PAGE> 14
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 6 -- STOCK OPTIONS AND STOCK COMPENSATION -- CONTINUED
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 currently 222,800 outstanding, 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 1,300 shares
were exercised during the second quarter of 1996.
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 currently 203,000 outstanding, 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.
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 the stock options granted during 1995 and 1994 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.
<PAGE> 15
MEDICORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
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> 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Consolidated revenues increased approximately $455,000 (5%) and $ 1,839,000
(11%) for the three months and six months ended June 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 Note 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 $2,519,000 (29%) and $2,328,000 (15%) for the three
months and six months ended June 30,1996 compared to the same periods of the
preceding year. Domestic revenues of Techdyne ,which included the litigation
settlement during the first quarter of 1996, decreased $3,013,000 (51%) and
$4,011,000 (39%) and European-based revenues increased $ 494,000 (18%) and
$1,683,000 (32%).
Approximately 74% of Techdyne's consolidated sales and 61% of the Company's
consolidated sales for the six months ended June 30, 1996 were made to four
customers of which Compaq accounted for 47% and 39% and IBM for 13% and 10%.
The other two customers each accounted for less than 10% of Techdyne's and the
Company's consolidated sales for the first half of 1996. 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 six months ended June 30, 1996 amounted to approximately $39,000 and
$198,000 compared to $2,376,000 and $3,419,000 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 90% and 89% of the sales of Techdyne (Scotland) for the three
months and six months ended June 30, 1996 and 83% and 81% 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 anticipated
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 $68,000 (17%) and $266,000 (31%) for
the three months and six months ended June 30, 1996 compared to the same
periods of the preceding year. This increase included sales of approximately
$55,000 and $221,000 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 $522,000 (115 %) and $974,000 (109%)
for the three months and six months ended June 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 June 1995 and Wellsboro, Pennsylvania
in October 1995, which accounted for approximately $437,000 and $813,000 in
sales revenues for the three months and six months ended June 30, 1996 with the
new Lemoyne center having revenues of $39,000 for June 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> 17
RESULTS OF OPERATIONS -- CONTINUED
Cost of goods sold as a percentage of consolidated sales amounted to 81% and
83% of sales revenues for the three months and six months ended June 30, 1996
compared to 81% for the same periods of the preceding year.
Cost of goods sold for Techdyne increased to 86% for the three months and six
months ended June 30, 1996 compared with 85% and 84% for the same periods of
the preceding year. The increase was largely attributable to the decrease in
sales to the major customer noted above which had relatively higher margins.
Cost of goods sold for the medical products division was 74% and 66% for the
three months and six months ended June 30, 1996 compared to 63% 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 amounted to 62% and 66% for the three months and
six months ended June 30,1996 compared to 73% and 66% for the same periods of
the preceding year. Increased efficiencies related to the increased revenues
during the second quarter of 1996 were largely responsible for the reduction in
cost of medical services during this period.
Selling, general and administrative expenses increased $693,000 and $945,000
for the three months and six months ended June, 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 June 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 $4,000 and $11,000 for the three
months and six months ended June 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 June 30, 1996
and 8.5% at December 31, 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $13,880,000 at June 30, 1996, an increase of $6,846,000
during the first half 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 $1,521,000. Also included were an increase of
$1,092,000 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
$5,158,000 in cash and cash equivalents, which included net cash provided by
operating activities of $ 210,000, net cash provided by investing activities of
$1,475,000 (including proceeds of $1,485,000 from the sale of Viragen stock,
$176,000 in payments received on the Viragen note receivable, and additions to
property plant and equipment of $396,000) and net cash provided by financing
activities of $3,475,000 (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 $138,000).
<PAGE> 18
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 June 30, 1996 and no amounts have been drawn down on this
line of credit as of June 30, 1996. A $712,500 term loan which had a balance
of $703,000 at June 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 $187,000 at
June 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 borrowing's of $145,000 from a local bank with interest
payable monthly and the notes maturing April, 1997. In July 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 $88,000 and
$95,000 at June 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 $308,000 at June 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 June 30, 1996 or December 31, 1995. In July, 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 $579,000 and $591,000 at June 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 $540,000 and $576,000 at June 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 June, 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 facilities which had a remaining principal balance of
$169,000 and $185,000 at June 30, 1996 and December 31, 1995, respectively.
<PAGE> 19
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 June 1, 1993 in the amount of $429,400, which is
being 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 has
recognized gains of approximately $29,000 in 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 due in August 1996 which will
result in the Company recognizing a gain in the third quarter of 1996.
Interest is at prime plus 1%. Interest earned under the note amounted to $
6,000 and $15,000 for the three months and six months ended June 30, 1996 and
$10,000 and $ 19,000 for the three months and six months ended June 30, 1995.
See Note 3.
During the first half of 1996, the Company sold 470,000 shares of Viragen stock
realizing a gain and cash proceeds of $1,486,000. 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
June 30, 1996 have been recorded at an estimated fair value of $2,617,000 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 $2,913,000 at June 30, 1996, after $350,000 of the note was
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 subsequently increased to 64.3% in June 1996 when the
Company converted a portion of its convertible promissory note with Techdyne .
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.
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.
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES -- CONTINUED
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> 21
PART II -- OTHER INFORMATION
Item 4. Results of Votes of Security Holders
On June 5, 1996, the Company held its annual shareholders meeting to
elect one member, Peter D. Fischbein, to the Class I members of the
Board of Directors to serve for a three year term until the annual
meeting of shareholders in 1999. Mr. Fischbein received 4,922,793
votes for his election, with 10,596 votes against, 12,235 abstentions
and no broker non-votes. The Class 2 director, Anthony C. D'Amore,
continues to serve as a director until the 1997 annual shareholders
meeting, and the Class 3 directors, Thomas K. Langbein and Seymour
Friend, continue to serve until the 1998 annual shareholders meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Part I Exhibits
(11) Statements re: computation of per share earnings
Part II Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended June
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: August 9, 1996
<PAGE> 22
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 SIX MONTH ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 5,456,171 5,454,940 5,456,555 5,454,940
Net effect of dilutive stock options-based on the
modified treasury stock method using average
market price 664,948 287,222 671,936 275,761
---------- ---------- ----------- --------------
6,121,119 5,742,162 6,128,491 5,730,701
========== ========== =========== ==============
Net income $1,281,326 $ 488,342 $ 2,006,579 $ 949,266
========== ========== =========== ==============
Net income per share $ .21 $ .09 $ .33 $ .17
========== ========== =========== ==============
</TABLE>
Note: Fully diluted earnings per share has not been presented for 1996 or 1995
as it is not dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,994,526
<SECURITIES> 2,617,010
<RECEIVABLES> 4,007,236<F1>
<ALLOWANCES> 0
<INVENTORY> 3,133,449<F2>
<CURRENT-ASSETS> 20,513,756
<PP&E> 10,182,433
<DEPRECIATION> 4,470,740
<TOTAL-ASSETS> 27,193,406
<CURRENT-LIABILITIES> 6,633,310
<BONDS> 1,603,993
0
0
<COMMON> 54,569
<OTHER-SE> 13,087,402
<TOTAL-LIABILITY-AND-EQUITY> 27,193,406
<SALES> 15,753,557
<TOTAL-REVENUES> 19,163,038
<CGS> 12,764,939
<TOTAL-COSTS> 12,764,939
<OTHER-EXPENSES> 3,066,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,990
<INCOME-PRETAX> 3,218,977
<INCOME-TAX> 1,016,710
<INCOME-CONTINUING> 2,006,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,006,579
<EPS-PRIMARY> .33
<EPS-DILUTED> 0
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $227,000 AT JUNE 30, 1996.
<F2>INVENTORIES ARE NET OF RESERVE OF $207,000 AT JUNE 30, 1996.
</FN>
</TABLE>
