<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 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: 0-19450
OAKHURST COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
--------------------------- -----------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS
75050
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
(214) 660-4499
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(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 No
--- ---
As of July 1, 1996, 3,201,144 shares of the Registrant's Common Stock,
$0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Balance Sheets at May 31, 1996 (unaudited)
and February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations for the three month periods ended
May 31, 1996 and May 31, 1995 (unaudited) . . . . . . . . . . . . . 4
Statement of Stockholders' Equity for the three months
ended May 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the three month periods ended
May 31, 1996 and May 31, 1995 (unaudited) . . . . . . . . . . . . . 6
Notes to financial statements (unaudited) . . . . . . . . . . . . . . 7
</TABLE>
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<PAGE> 3
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS MAY 31, FEBRUARY 29,
1996 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 503 $ 318
Trade accounts receivable, less allowance of $448 and $558, respectively.. 5,024 4,027
Commissions receivable.................................................... 149 230
Other receivables......................................................... 526 564
Inventories............................................................... 7,731 8,080
Deferred tax asset........................................................ 112 145
Other..................................................................... 768 467
--------- ---------
Total current assets............................................ 14,813 13,831
--------- ---------
Property and equipment, at cost............................................. 3,305 3,216
Less accumulated depreciation............................................. (1,224) (1,109)
--------- ---------
2,081 2,107
--------- ---------
Deferred tax asset, less valuation allowance of $46,800..................... 3,974 3,941
Excess of cost over net assets acquired, net................................ 5,937 6,035
Other assets................................................................ 473 203
--------- ---------
10,384 10,179
--------- ---------
$ 27,278 $ 26,117
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 6,380 $ 5,762
Note payable.............................................................. 105 -
Accrued compensation...................................................... 328 369
Current maturities of long-term obligations............................... 380 284
Current maturities of long-term obligations, related parties.............. 148 169
Net obligation of discontinued business segment-current portion........... 482 465
Other..................................................................... 433 600
--------- ---------
Total current liabilities....................................... 8,256 7,649
--------- ---------
Long-term obligations:
Net obligation of discontinued business segment........................... 678 678
Long-term debt............................................................ 6,283 5,179
Long-term debt, related parties........................................... 1,492 1,574
Other long-term obligations............................................... 134 138
--------- ---------
8,587 7,569
--------- ---------
Commitments and contingencies...............................................
Stockholders' equity:
Preferred stock, par value $0.01; authorized 1,000,000 shares, none issued - -
Common stock, par value $0.01 per share; authorized 14,000,000
shares; issued 3,201,144 and 3,195,235 shares, respectively............ 32 32
Additional paid-in capital................................................ 46,529 46,522
Deficit (Reorganized on August 26, 1989).................................. (36,125) (35,654)
Treasury stock, at cost, 207 common shares................................ (1) (1)
--------- ---------
Total stockholders' equity...................................... 10,435 10,899
--------- ---------
$ 27,278 $ 26,117
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE> 4
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1996 1995
---------- ----------
<S> <C> <C>
Sales................................................. $ 10,892 $ 13,026
Other income.......................................... 45 45
---------- ----------
10,937 13,071
---------- ----------
Cost of goods sold, including occupancy and
buying expenses..................................... 8,480 10,139
Operating, selling and administrative expenses........ 2,574 2,716
Provision for doubtful accounts....................... 30 62
Amortization of excess of cost over net assets
acquired............................................ 112 137
Interest expense...................................... 204 195
---------- ----------
11,400 13,249
---------- ----------
Net loss before income taxes.......................... (463) (178)
Income tax expense..................................... (8) (38)
---------- ----------
Net loss.............................................. $ (471) $ (216)
========== ==========
Net loss per share.................................... $ (0.15) $ (0.07)
========== ==========
Weighted average number of shares outstanding
used in computing per share amount.................. 3,197,183 3,190,365
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE> 5
OAKHURST COMPANY, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1996
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
---------------------- PAID-IN EARNINGS -----------------
SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
--------- --------- ---------- -------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Balances, February 29, 1996........ 3,195,235 $32 $46,522 ($35,654) 207 ($1)
Net loss for the period............ (471)
Stock award........................ 5,909 * 7
--------- --- ------- -------- --- ---
Balances, May 31, 1996............. 3,201,144 $32 $46,529 ($36,125) 207 ($1)
========= === ======= ======== === ===
</TABLE>
*Rounds to less than one thousand
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE> 6
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (471) $ (216)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization........................ 281 233
Loss on retirement of assets......................... 5 -
Stock awards......................................... 7 19
Other changes in operating assets and liabilities:
Accounts receivable.................................. (947) 188
Inventories.......................................... 512 332
Accounts payable..................................... 583 354
Other................................................ (232) (385)
--------- --------
Net cash (used in) provided by operating activities of:
Continuing operations.................................. (262) 525
Discontinued operations................................ 17 21
--------- --------
Net cash (used in) provided by operating activities...... (245) 546
--------- --------
Cash flows from investing activities:
Additions to property and equipment.................... (70) (109)
Acquisition of a subsidiary, net of cash acquired...... (79) -
Net change in the excess of cost over net assets
acquired............................................. - (125)
Other.................................................. - (10)
--------- --------
Net cash used in investing activities.................... (149) (244)
--------- --------
Cash flows from financing activities:
Net borrowings under revolving credit agreement........ 1,154 25
Proceeds from issuance of long-term debt............... 1,500 -
Repayment of note payable.............................. - (45)
Principal payments on long-term obligations............ (1,878) (143)
Deferred loan costs.................................... (197) -
--------- --------
Net cash provided by (used in) financing activities...... 579 (163)
--------- --------
Net increase in cash and cash equivalents................ 185 139
Cash and cash equivalents at beginning of period......... 318 314
--------- --------
Cash and cash equivalents at end of period............... $ 503 $ 453
========= ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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<PAGE> 7
OAKHURST COMPANY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MAY 31, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") was formed as a
result of a merger transaction (the "merger") in fiscal 1992 between Steel City
Products, Inc. ("SCPI") and an Oakhurst subsidiary. The merger resulted in a
restructuring of SCPI such that it became a majority-owned subsidiary of
Oakhurst. In accordance with the merger, Oakhurst owns 10% of the outstanding
common stock of SCPI and all of SCPI's Series A Preferred Stock. The merger
was structured such that the aggregate fair market value of SCPI's common stock
and Series A Preferred Stock owned by Oakhurst would be approximately 90% of
the aggregate fair market value of SCPI. Accordingly, Oakhurst controls
approximately 90% of the voting power of SCPI. The accompanying financial
statements reflect this control and include the accounts of SCPI.
Oakhurst owns all of the outstanding capital stock of H&H
Distributors, Inc. d/b/a Harry Survis Auto Centers, ("H&H"), of Dowling's Fleet
Service Co., Inc. ("Dowling's") and of Puma Products, Inc. ("Puma"). In March
1995, Oakhurst formed Oakhurst Management Corporation ("OMC"), a wholly-owned
subsidiary, to coordinate the provision of certain corporate administrative,
legal, and accounting services to the Company and its subsidiaries. In March
1996, Dowling's acquired the outstanding capital stock of G&O Sales Company
("G&O") (see Note 2). The accompanying consolidated financial statements
include the accounts of these subsidiaries, and all significant intercompany
accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods presented. All adjustments made are of a normal, recurring nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the fiscal year ended February
29, 1996 ("fiscal 1996") as filed in the Company's Annual Report on Form 10-K.
2. DOWLING'S ACQUISITION OF A SUBSIDIARY
On March 28, 1996, Dowling's acquired all of the outstanding capital
stock of G&O, a radiator distributor based in Philadelphia, Pennsylvania. The
purchase price of approximately $210,000 consisted of $105,000 in cash, with
the balance in the form of a note payable to the seller. The note bears
interest at 7%, and is due on the first anniversary of the acquisition date,
together with interest thereon. The seller continues with G&O under a four
year employment agreement.
In connection with the acquisition, Dowling's entered into a
non-competition agreement with the seller that provides for payments of
$315,000 over a three year period, and for payments of 7.5% of the defined
profits of G&O for the next four years. The non-compete agreement has been
discounted using an imputed interest rate of 9.75%, and the related asset is
being amortized over the life of the agreement, which is ten years.
The acquisition did not have an impact on Oakhurst's earnings per
share, and accordingly, pro forma information has not been presented. In
connection with the acquisition, assets were acquired and liabilities were
assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired . . . $279
Liabilities assumed . . . . . . . . 67
----
Net assets acquired . . . . . . $212
====
</TABLE>
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<PAGE> 8
3. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation". This statement is effective beginning in the
Company's current fiscal year. The new standard defines a fair value method
of accounting for stock options and similar equity instruments. Pursuant to
the new standard, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies
are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and earnings per share as if the
company had applied the new method of accounting.
In the first quarter, the Company elected not to adopt the fair value
method of accounting for employee stock-based transactions and will continue
to account for such transactions under the provisions of APBO No. 25.
- 8 -
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), a holding
company, was formed as part of a merger transaction in July 1991, in which
Steel City Products, Inc. ("SCPI") became a special, limited purpose,
majority-owned subsidiary of Oakhurst. Management believes that the corporate
structure resulting from the merger transaction will facilitate capital
formation by Oakhurst while permitting Oakhurst and its subsidiaries to file
consolidated tax returns so that both may utilize the tax benefits (including
approximately $149 million of net operating loss carryforwards) attributable to
SCPI. Through Oakhurst's ownership of SCPI, primarily in the form of preferred
stock, Oakhurst retains the value of SCPI, and receives substantially all of
the benefit of SCPI's operations through dividends on such preferred stock.
Oakhurst's ownership of SCPI facilitates the preservation and utilization of
SCPI's net operating loss carryforwards.
Oakhurst, through SCPI and three wholly-owned subsidiaries, is
primarily a distributor of products to the automotive after-market. Its
largest business, which is conducted by SCPI under the trade name "Steel City
Products", is the distribution of automotive parts and accessories to
independent retailers from a facility in Pittsburgh, Pennsylvania. H&H
Distributors, Inc., d/b/a Harry Survis Auto Centers ("H&H") is a
Pittsburgh-based company that distributes and installs automotive accessories,
including stereos, alarms and cellular phones. Dowling's Fleet Service Co.,
Inc. ("Dowling's") is a New York-headquartered distributor of automotive
radiators and related products. Puma Products, Inc. ("Puma") is a Texas-based
distributor of after-market products to the light truck and van conversion
industry.
On March 28, 1996, Dowling's acquired all of the outstanding capital
stock of G&O Sales Company, Inc. ("G&O"), also a distributor of radiators that
is based in Philadelphia, Pennsylvania, with the intent of expanding into the
greater Philadelphia market. The purchase price of approximately $210,000
consisted of $105,000 in cash, with the balance in the form of a note payable
to the seller. The note bears interest at 7%, and is due on the first
anniversary of the acquisition date, together with interest thereon. In
connection with the acquisition, Dowling's entered into a non-competition
agreement with the seller that provides for payments of $315,000 over a three
year period, and for payments of 7.5% of certain defined profits of G&O for the
next four years. The non-compete agreement has been discounted using an
imputed discount rate of 9.75%, and the related asset is being amortized over
the life of the agreement, which is ten years. The G&O acquisition did not
have a material impact on Oakhurst's financial position.
In addition to cash derived from the operations of its four
subsidiaries, Oakhurst's liquidity and financing requirements are determined
principally by the working capital needed to support each subsidiary's level of
business, together with the need for capital expenditures and the cash required
to repay debt. Each subsidiary's level of working capital needs varies
primarily with the amount of inventory carried, which can change seasonally,
the size and timeliness of payment of receivables from customers, especially at
the SCPI subsidiary which from time to time grants extended payment terms for
seasonal inventory build-ups, and the amount of credit extended by suppliers.
At May 31, 1996, Oakhurst's debt primarily consisted of (i) a credit
facility with an institutional lender (the "Credit Facility"), which included a
SCPI term loan with a balance of approximately $1.5 million, and borrowings of
approximately $4.9 million under a revolving credit facility (the "Revolver"),
(ii) debt in connection with the acquisitions of Puma, Dowling's and G&O, and
(iii) notes payable with outstanding principal balances aggregating
approximately $1.1 million that were issued in connection with the settlement
of certain contingent liabilities related to SCPI's former retail division.
- 9 -
<PAGE> 10
Oakhurst and its subsidiaries obtained the two year Credit Facility on
March 28, 1996. The initial aggregate amount borrowed under the Revolver was
approximately $4.2 million, which was used primarily to repay existing
revolving debt. In connection with the new financing, Oakhurst and its
subsidiaries incurred loan costs and fees of approximately $250,000.
Oakhurst and its subsidiaries have available financing under the
Revolver up to a maximum of $8 million, subject to defined levels of the
subsidiaries' accounts receivable and inventories. Management believes that
the Revolver will provide adequate funding for the Company's foreseeable working
capital requirements, including seasonal fluctuations.
From time to time the information provided by the Company or
statements made by its employees may contain so-called "forward looking"
information that involves risks and uncertainties. In particular, statements
contained in this Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are not historical facts
(including, but not limited to statements concerning anticipated sales, profit
levels, customers and cash flows) are forward looking statements. The
Company's actual future results may differ significantly from those stated in
any forward looking statements. Factors that may cause such differences
include, but are not limited to the factors discussed above as well as the
accuracy of the Company's internal estimates of revenue and operating expense
levels. Each of these factors and others are discussed from time to time in
the Company's Securities and Exchange Commission filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
At May 31, 1996, there had been no material changes in the Company's
financial condition from February 29, 1996, as discussed in Item 7 of the
Company's Annual Report on Form 10-K for fiscal 1996.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1996 COMPARED WITH THREE MONTHS ENDED MAY 31, 1995
Consolidated sales for the current year first quarter decreased by
approximately $2.1 million, or by 16.4% when compared with the prior year. The
decrease was primarily caused by the loss of two of SCPI's largest customers
during the prior year. One customer was lost in October 1995 due to its
bankruptcy, while the other changed its source of supply in January 1996.
Sales to these two customers in the first quarter of the prior year aggregated
$3.6 million. Sales of car alarms and stereo accessories decreased by $135,000
due to the lower retail demand, and cellular phone commissions also decreased
by $195,000 due to a lower average commission rate this year, combined with
fewer activations due to increased competition in this market. Sales of light
truck and van aftermarket accessories decreased by $195,000, due primarily to
the loss by Puma of two large converter customers in the prior year.
The addition of new customers by SCPI and of new product lines by H&H
together accounted for $1.2 million in new sales, partially offsetting the
decrease. Sales of radiators and related products by Dowling's increased over
the first quarter of the prior year by $1.1 million, representing an increase
of over 50%, which is attributed to an improved competitive situation this year
in Dowling's markets, combined with higher spring temperatures that tend to
adversely affect car radiators.
Management expects that sales attributable to SCPI will continue to be
lower in the second and third quarters of the current year than in the same
quarters of the prior year, because sales to new customers are not expected to
completely offset the business lost during the prior year. However, there can
be no assurances that
- 10 -
<PAGE> 11
SCPI can obtain a sufficient number of new customers or sufficient levels of
new business to return sales to historical levels achieved in years prior to
fiscal 1996. As part of a strategic evaluation of the business, SCPI has
reduced expenses so as to mitigate negative cash flow from operations while
further new customers and product lines are sought, and in the first quarter of
the current year, cash flow from SCPI's operations was positive, despite the
lower sales levels. The sales recovery at Dowling's is also expected to
continue, and should partially offset the negative impact of lower sales by
SCPI.
Gross profits were $2.4 million, or 22.1% of sales, in the current
year first quarter compared with $2.9 million, or 22.2% of sales, in the prior
year period, with the decrease in profits resulting from lower levels of sales.
There were improvements in all of the Company's subsidiaries' gross
margin levels, except those which were attributable to SCPI, which reported a
small decline. The improvements related principally to radiator and cellular
phone profits, and gross margin on these products is expected to continue at
current levels for the remainder of fiscal 1997. However, the decrease in
SCPI's gross margin, attributed primarily to the product mix of its customers,
offset these gains.
Operating, selling and administrative expenses decreased by $142,000
when compared to the prior year, which primarily reflected management's efforts
to reduce expenses and its work force in reaction to lower levels of sales.
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<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: July 12, 1996 By: /s/ Mark Auerbach
--------------------------------------
Mr. Mark Auerbach
Chief Executive Officer
Chief Financial Officer
- 13 -
<PAGE> 14
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 503
<SECURITIES> 0
<RECEIVABLES> 5,472
<ALLOWANCES> 448
<INVENTORY> 7,731
<CURRENT-ASSETS> 14,813
<PP&E> 3,305
<DEPRECIATION> 1,224
<TOTAL-ASSETS> 27,278
<CURRENT-LIABILITIES> 8,256
<BONDS> 8,587
<COMMON> 32
0
0
<OTHER-SE> 10,403
<TOTAL-LIABILITY-AND-EQUITY> 27,278
<SALES> 10,892
<TOTAL-REVENUES> 10,937
<CGS> 8,480
<TOTAL-COSTS> 8,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> (463)
<INCOME-TAX> (8)
<INCOME-CONTINUING> (471)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
