UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 1-12756
ROTARY POWER INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3632860
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
P.O. Box 128, Wood-Ridge, New Jersey 07075-0128
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 777-7373
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) 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.
[X] Yes [ ] No par value $.01, as of November 1, 1996 was 4,641,432.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
<PAGE>
ROTARY POWER INTERNATIONAL, INC.
FORM 1O-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for
the Three Months and Nine Months ended
September 30, 1996 and September 30, 1995 4
Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1996 and
September 30, 1995 5
Notes to Unaudited Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, 1996 December 31, 1995
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 402 $ 328
Securities available for sale 49 631
Accounts receivable 682 1,738
Other receivable 2 15
Inventory 2,000 1,042
Prepaid expenses & other current assets 132 9
----- -----
Total current assets 3,267 3,763
Fixed assets 2,496 3,118
Patents 693 739
Investment held by trustee 3,854 3,638
Other assets 1,360 659
------ ------
Total assets $11,670 $11,917
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 180 $ 171
Accounts payable 561 530
Accrued liabilities 286 297
Other current liabilities 561 42
Deferred acquisition obligation, current 225 150
----- -----
Total current liabilities 1,813 1,190
Long-term liabilities:
Deferred acquisition obligation 2,788 2,733
Long term debt 6,677 6,813
Other long term liabilities 6 25
------ ------
Total liabilities 11,284 10,761
------ ------
Stockholders' equity:
Preferred stock, 500,000 shares authorized:
par value $.01; issued and outstanding 0 at
September 30, 1996 and December 31, 1995 0 0
Common stock, par value $.01; 10,000,000
shares authorized; issued and outstanding
4,641,432 and 3,391,432 at September 30, 1996
and December 31, 1995 respectively 46 34
Subscription receivable (3,150) 0
Paid in Capital 13,425 8,824
Accumulated deficit (9,935) (7,702)
------ ------
Total stockholders' equity 386 1,156
------ ------
Total liabilities and stockholders' equity $11,670 $11,917
====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----- ------ ----- -----
<S> <C> <C> <C> <C>
Revenues $ 878 $ 1,867 $ 5,257 $ 7,307
Costs and expenses:
Cost of revenues 752 1,309 4,504 4,937
General and administrative 614 615 1,806 1,843
Research and development 243 799 727 1,646
---- ----- ----- -----
1,609 2,723 7,037 8,426
Loss from Operations (731) (856) (1,780) (1,119)
Other Income (expense):
Interest expense (248) (249) (750) (752)
Interest income 83 82 295 272
Other, net 0 17 2 18
------ ------- ------- -------
Net income (loss) $ (896) $ (1,006) $(2,233) $ (1,581)
====== ======= ======= =======
Net Income (loss) per common share
Primary $ (.20) $ (.30) $ (.55) $ (.48)
====== ======= ======= =======
Weighted average common and common
equivalent shares outstanding:
Primary 4,391,432 3,384,765 4,073,358 3,309,752
======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE NINE MONTHS ENDED SEPTEMBER 30
(Dollars in thousands)
(unaudited)
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,233) $(1,581)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 706 628
Amortization 71 108
Interest (10) (1)
Change in assets and liabilities:
Accounts receivable 1,029 (510)
Other receivables 40 (56)
Inventory (958) (499)
Prepaid expenses (123) (58)
Other assets (727) (159)
Accounts payable 31 230
Accrued liabilities (11) 497
Other liabilities 500 17
------ ------
Net cash provided by (used in)
operating activities (1,685) (1,384)
====== ======
Cash flows from investing activities:
Purchase of securities available for sale (647) (628)
Sale of securities available for sale 1,229 1,611
Purchases of fixed assets (84) (454)
------ ------
Net cash provided by (used in) 498 529
investing ------ ------
Cash flows from financing activities:
Repayment of long term debt (127) (118)
Payment of deferred debt obligation (75) (150)
Issuance of common stock 1,463 653
------ ------
Net cash provided by (used in) 1,261 385
Net increase (decrease) in cash 74 (470)
Cash and cash equivalents at beginning of year 328 675
------ ------
Cash and cash equivalents at end
of period $ 402 $ 205
====== ======
Supplemental disclosure of cash flow information:
Interest paid during the period $ 534 $ 546
Income taxes paid during the period - -
See note 2 for supplemental cash flow information.
</TABLE>
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
ROTARY POWER INTERNATIONAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements for Rotary Power
International, Inc. (the "Company") have been prepared by the
Company, without audit, in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB. In the opinion of management, the
information contained herein reflects all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly
the results for the interim periods presented.
Information included in the Balance Sheet as of December 31,
1995 has been derived from audited financial statements, but does
not include all disclosures required by generally accepted
accounting principles.
The results of operations for the interim periods shown in
this report are not necessarily indicative of results to be
expected for the full year.
NOTE 2: SUPPLEMENTAL NON-CASH TRANSACTIONS
DEVIATION FROM PURCHASE AGREEMENT
Pursuant to a deviation from the purchase agreement between
John Deere Technologies International, Inc. ("JDTI") and the
Company, the Company postponed payment of $75,000 of the $150,000
deferred acquisition obligation due to JDTI on January 30, 1996 for
one year.
<PAGE>
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Revenue for the three month period ended September 30, 1996
decreased approximately 53%, or $989,000 to $878,000 from
$1,867,000 for the same three month period in 1995. This decrease
comprised a reduction in U. S. Government contract revenue of
$1,099,000 offset by an increase in commercial revenue of $110,000.
The primary contributor to the U. S. Government revenue decrease
was lower revenue of $923,000 from the five rotor 580 Series engine
under a United States Marine Corps (USMC) contract. For the nine
months of 1996, revenue decreased approximately 28%, or $2,050,000,
from $7,307,000 in the 1995 period to $5,257,000 in the 1996
period. This decrease resulted from lower U.S. Government contract
revenue of $2,664,000 which was offset by higher commercial revenue
of $614,000. The lower Government contract revenue was primarily
due to the termination of the Joint Tactical - Unmanned Aerial
Vehicle (JT-UAV) contract which was terminated in August 1995, and
the reduction in planned activity of the Company's original USMC
580 Series engine. Such reductions were offset by higher revenue
for the five rotor 580 Series engine under the USMC contract and
increases in other U. S. Government contracts. The higher
commercial revenue was for the Company's 65 Series natural gas
engines for the industrial markets and its 65 Series and 580 Series
marine engines for the recreational and commercial marine markets,
respectively.
Cost of revenue decreased approximately 43%, or $557,000, in
the third quarter of 1996 as compared to the same period in 1995
and decreased 9%, or $433,000, in the nine month period of 1996 as
compared to the nine month period of 1995. For the three month
period, the decrease consisted of $688,000 for Government contracts
offset by higher costs of $131,000 for commercial activity. For
the nine month period, the decrease in cost of revenue comprised a
decrease of $1,233,000 for Government activity and an $800,000
increase for commercial activity. The increase for the commercial
activity for both the three month and nine month period was due to
the fact that there was no commercial activity in either of the
1995 periods coupled with an expected gross margin loss on the
Company's first order for 65 Series natural gas engines, which
gross margin loss has been reflected in the cost of revenue, and
that the commercial marine gross margins are low which is
representative of start-up production activity. The change in cost
nine month period was due to higher overhead application resulting
from the lower volume of business offset by lower cost of revenue
associated with the lower volume.
General and administrative expenses slightly decreased from
$615,000 in the third quarter of 1995 to $614,000 in the third
quarter of 1996. For the nine months, general and administrative
expenses decreased approximately 2%, or $37,000 from $1,843,000 in
the nine months of 1995 to $1,806,000 in the nine months of 1996.
These decreases were primarily due to reduced expenses for
professional fees, trade shows and the elimination of royalty
expense associated with the Wankel GmbH License Agreement, which
was terminated. The decreases were offset by increases in expenses
for salaries and rent to support the Company's Rotary Power Marine,
Inc. subsidiary.
Research and development expenses decreased approximately 70%,
or $556,000, from $799,000 in the third quarter of 1995 to $243,000
in the third quarter of 1996 and approximately 56%, or $919,000,
from $1,646,000 in the nine month period of 1995 to $727,000 in the
nine month period of 1996. These decreases were due to reduced
efforts associated with independent research & development projects
for the development of 65 Series engines running on natural gas for
use in industrial markets and were offset by increases in research
and development expenses associated with the 65 Series marine
engine product.
Loss from operations decreased approximately 15%, or $125,000,
from a $856,000 loss in the third quarter of 1995 to a $731,000
loss in the third quarter of 1996 and increased approximately 59%,
or $661,000, from $1,119,000 loss in the nine month period of 1995
to a $1,780,000 loss in the nine month period of 1996. The lower
loss in the third quarter was due to lower research and development
expenses offset by lower margins. The higher loss in the nine
months was due to the lower margin resulting from the lower revenue
and from the 65 Series natural gas gross margin loss, as explained
above, offset by the lower research and development expenses
discussed above.
Interest expense was virtually unchanged in the three month
and nine month periods of 1996 as compared to the same periods in
1995. Interest income was also virtually unchanged in the third
quarter and increased 9% or $23,000 in the nine month period of
1996 as compared to the same period of 1995. This increase was
primarily associated with the interest paid by Hydro Lance Maritime
a loan more fully discussed below.
Due to the combination of the preceding factors, net loss
decreased 11% or $110,000 from $1,006,000 in the third quarter of
1995 to $896,000 in the third quarter of 1996 and increased 41% or
$652,000 from $1,581,000 for the nine month period of 1995 to
$2,233,000 for the nine month period of 1996.
Liquidity and Capital Resources:
The aggregate of the Company's cash, cash equivalents and
securities available for sale decreased approximately $508,000
during the nine month period of 1996 to $451,000.
On March 1, 1996, the Company entered into a termination
settlement agreement with Lockheed Martin ("LM") relating to the
Joint Tactical - Unmanned Aerial Vehicle contract between the
Company and LM. Pursuant to the settlement agreement, LM paid the
Company $833,000.
In February 1996, the Company entered into agreements with
Abejon Rotary Power Corporation ("Abejon") under which Abejon
purchased 1,000,000 shares of the Company's common stock at $4.00
per share (the "Sale"). Simultaneously with the Sale, the Company
loaned $3,750,000 to Hydro Lance to be repaid to the Company
between March 31, 1996 and March 31, 1998 upon the terms and
conditions more fully set forth in the loan agreement between the
Company and Hydro Lance. Further, coincident with the Sale, Abejon
issued a $2,350,000 purchase order to the Company for two six rotor
and nine two rotor 580 Series marine engines. As of September 30,
1996, Abejon had paid $500,000 as a down payment on this order.
During April 1996, Hydro Lance repaid $600,000 of the loan
plus interest. A $1,000,000 repayment was due on September 30, 1996
which has not yet been paid (the "September Installment"). The
Company gave Hydro Lance a 30-day extension for payment of the
$1,000,000 plus interest. On October 21, 1996 the Company notified
Hydro Lance that they were in default of the loan agreement. Under
the terms of the loan agreement Hydro Lance had ten days to cure
the default in order to avoid termination of the loan agreement.
Hydro Lance has not cured the default, however, the Company has not
terminated the loan agreement as of the date of this report. The
Company, Abejon and Hydro Lance are attempting to arrange a
settlement without the necessity of terminating the loan agreement.
Lady" (the "Ferry Boat") which was built by Abejon and which Hydro
Lance and Abejon are currently in the process of selling. Hydro
Lance and Abejon expect to execute a contract for the sale of the
Ferry Boat by no later than November 30, 1996 and to have the sale
closed by no later than December 15, 1996. The sale price of the
Ferry Boat will be a minimum of $2,700,000 and may be as high as
$3,100,000.
In order to cure Hydro Lance's default under the loan
agreement, the Company, Hydro Lance and Abejon have entered into a
letter agreement to establish, by November 15, 1996, a new limited
liability company or limited partnership (the "New Entity") which
will be established for the sole purpose of owning the Ferry Boat.
As soon as practicable after the establishment of the New Entity,
Abejon will transfer all of its right, title, and interest in the
Ferry Boat to the New Entity. For purposes of this transaction,
the parties have agreed that the Ferry Boat will have a value of
$2,700,000 and, based on such value, RPI will receive an ownership
interest in the New Entity which is approximately equal to the
amount owed by Hydro Lance under its Loan Agreement with RPI (i.e.,
the September Installment plus accrued interest at six percent (6%)
per annum from September 30, 1996 through the date of transfer of
title to the Ferry Boat to the New Entity). For example, if it is
assumed that Hydro Lance will owe RPI a total of $1,100,000 by the
date of transfer of title to the Ferry Boat to the New Entity, then
RPI will receive an ownership interest of approximately 40.7% of
the New Entity since $1,100,000 is approximately 40.7% of
$2,700,000. Simultaneously with the receipt of its ownership
interest in the New Entity, RPI will release 208,333 of the Abejon
Shares from their pledge and lien of the Pledge Agreement and such
Abejon shares will be returned to Abejon as required by the Pledge
Agreement.
The organizational documents creating the New Entity will
provide that if the New Entity receives a deposit on account of the
purchase price of the Ferry Boat prior to the closing of the sale
of the Ferry Boat, such deposit shall immediately be paid to RPI in
full or partial satisfaction of the September Installment, plus
accrued interest. If such deposit monies are sufficient to satisfy
the September Installment, plus accrued interest, then all of RPI's
ownership interest in the New Entity will immediately and
automatically transfer to Hydro Lance and Abejon. Between the date
of establishment of the New Entity and December 31, 1996, Hydro
Lance and Abejon shall have the exclusive right to arrange for the
sale of the Ferry Boat. If the Ferry Boat has not been sold by
for the sale of the Ferry Boat subject to the terms of the letter
agreement among RPI, Hydro Lance and Abejon.
Upon the closing of the sale of the Ferry Boat, the net
proceeds of the sale will be immediately disbursed to RPI first
until RPI shall receive an amount of the net proceeds which equals
the amount of the September Installment, plus accrued interest from
September 1, 1996 through the date of the transfer of title to the
Ferry Boat to the New Entity. Any and all net proceeds remaining
after such disbursement to RPI shall belong to Hydro Lance and
Abejon. If the net proceeds which RPI receives from the sale of the
Ferry Boat are not equal to the September Installment, plus accrued
interest from September 30, 1996 through the date of the transfer
of title to the Ferry Boat, then Hydro Lance remains liable to RPI
for the difference. Upon the sale of the Ferry Boat and the
distribution of the net proceeds thereof, the organizational
documents of the New Entity will provide that the New Entity will
automatically terminate and be dissolved.
As of the date of transfer of the ownership of the Ferry Boat
from Abejon to the New Entity, the above-described transaction will
have an immediate effect on RPI's balance sheet and will increase
total stockholders' equity by $1 million.
When Hydro Lance did not make the September Installment, the
Company took steps to reduce both its total payroll and other
expenses. Such expenses were further reduced after the payment was
not make on October 31, 1996.
The Company's current and anticipated cash resources are
expected to be sufficient to fund its operations until the November
15, 1996 payroll. Therefore, the long-term future of the Company
depends on its ability to obtain additional sources of financing
and/or further reduce its expenses. In this connection, the
Company is pursuing private financing sources to raise $750,000 in
a bridge loan in the near future. The $750,000 is expected to
allow the Company to pay a large portion of its past due payables.
Additional financing, beyond the $750,000, is required by the end
of November for the Company to continue to fund its operations.
There can be no assurance that the Company will be able to arrange
such financing on acceptable terms or at all.
Capital expenditures were approximately $84,000 in the nine
months of 1996. Capital expenditures for 1996 are expected to be
approximately $90,000. The source of funds for the additional
depreciation expense under cost-reimbursement contracts with the U.S.
Government.
Working capital at September 30, 1996 was $1,454,000 compared
to $2,573,000 at December 31, 1995. This change is primarily due
to an increase in inventory offset by a reduction in accounts
receivable and an increase in current liabilities associated with
the Abejon agreements.
"Safe Harbor" Statement
Forward looking statements made herein are based on current
expectations of the Company that involve a number of risks and
uncertainties and should not be considered as guarantees of future
performance. These statements are made under the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995.
The factors that could cause actual results to differ materially
include interruptions or cancellation of existing contracts, the
impact of competitive products and pricing, product demand and
market acceptance risks, the presence of competitors with greater
financial resources than the Company, product development and
commercialization risks and an inability to arrange additional debt
or equity financing.
<PAGE>
Part II - Other Information
Item 2 - Changes in Securities
In June 1996, warrants to purchase 250,000 shares of the
Common Stock of the Company at $2.50 per share were exercised. As
of September 30, 1996, the Company has received $625,000 for the
250,000 shares.
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on June
10, 1996, the following members were elected to the Board of
Directors:
Warren D. Bagatelle Robert L. Osborn
James M. Beggs Michael C. Stewart
Ken Brody Richard M. H. Thompson
William T. Figart Dr. James P. Wade
The vote for each director was 4,090,032 votes For, 29,002
votes Against and zero votes Abstained.
At the Annual Meeting of Shareholders, Coopers & Lybrand
L.L.P. was ratified as the Company's auditors for the fiscal year
ending December 31, 1996. The vote was 4,089,284 votes For, 23,200
votes Against and 6,550 votes Abstained.
In September 1996, Mr Stewart informed the Board of Directors
that effective September 1, 1996, he had resigned from the Board
for personal reasons.
Part II - Other Information
Item 5 - Other Information
On October 10, 1996, after the Company issued its press release
concerning its negative cash flow, the Company received a letter from
The Nasdaq Stock Market, Inc. ("NASDAQ") indicating that NASDAQ's staff
had reason to conclude that the Company did not meet the minimum
$1,000,000 capital and surplus requirement for continued listing on the
Nasdaq SmallCap Market (the "Market"). NASDAQ requested the Company
provide a definitive plan which the Company believed would result in its
meeting all the Market's continuing listing requirements.
On October 28, 1996, the Company provided such plan to NASDAQ. The
plan is to transfer ownership of the Ferry Boat to the New Entity and
secure additional financing, as more fully discussed in the Liquidity and
Capital Resources section of this 10-QSB.
On November 12, 1996, the Company received a letter from NASDAQ in
which NASDAQ summarized the Company's plan and concluded NASDAQ would not
provide the Company any additional time in which to achieve compliance
with the continuing listing requirements of the Market and that the
Company's Common Stock would be delisted from the Market effective with the
opening of business on Wednesday, November 20, 1996.
The Company is continuing its efforts toward implementing its plan to
achieve compliance with the continuing listing requirements. Over the next
week, as the Company implements each element of its plan, the Company will
issue proper notification to the NASDAQ, the Securities and Exchange
Commission and the public. It is the Company's objective to comply with the
requirements for continued listing prior to November 20, 1996 thereby
precluding the Company's Common Stock from being delisted. There is no
assurance that the Company will be successful in its attempts to achieve
compliance and to avoid delisting.
In the event the Company's Common Stock is delisted from trading on
the Market and the trading price of the Common Stock is less than $5.00
per share, trading in the Common Stock would also be subjuect to the
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended. Under such rule, broker/dealers who recommend such low-
priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act
of 1990 also require additional disclosure in connection with any trades
involving a stock defined as a "penny stock" (generally, according to recent
regulations adopted by the Securities and Exchange Commission, any non-
NASDAQ equity security that has a market price of less than $5.00 per share,
subject to certain exceptions), including delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and
the risks associated therewith. Such requirements could severely limit the
market liquidity of the Common Stock and ability of stockholders to sell
their securities in the secondary market.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) EXHIBITS TO 10-QSB
11 Computations of Earnings (Loss) Per Share for 15
the Three Months and Nine Months Ended
September 30, 1996 and September 30, 1995.
On October 15, 1996, the Company filed a Form 8-K with
the Securities and Exchange Commission. Such Form 8-K discussed a
press release of October 10, 1996 entitled "Rotary Power
International Announces Downsizing, Missed Payment by Hydro
Lance/Abejon and Cash Flow Difficulties".
<PAGE>
SIGNATURES
In accordance with 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.
ROTARY POWER INTERNATIONAL, INC.
--------------------------------
(Registrant)
Dated: November 14, 1996 s/Gerald Horowitz
------------------------
Gerald Horowitz
Vice President &
Corporate Controller
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY
Shares outstanding,
beginning of period 4,391,432 3,366,432 3,391,432 3,269,208
Weighted average number of shares
issued, retired and issuable
share equivalents - 18,333 681,926 40,544
--------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding 4,391,432 3,384,765 4,073,358 3,309,752
======= ======= ======== =======
Net income (loss) $ (897,126) $(1,006,078)$(2,236,495)$(1,580,639)
======== ======== ======== =======
Net income (loss) $ (.20) $ (.30) $ (.55) $ (.48)
per common share ======= ======= ====== ====
FULLY DILUTED
Weighted average number of common
and common equivalent shares
outstanding as adjusted for
full dilution 868,445 3,486,276 550,370 3,411,262
======= ======= ======= ========
Net income (loss) $ (897,126) $(1,006,078) $(2,233,495)$(1,580,639)
======= ======== ======== =======
Net income (loss) $ (1.03) $ (.29)* $ ( 4.06) $ (.46)*
per common share ====== ====== ===== ======
*These calculations are submitted in accordance with SEC requirements, although
they are not in accordance with APB Opinion No. 15 because they are anti-
dilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1108
<SECURITIES> 49
<RECEIVABLES> 684
<ALLOWANCES> 0
<INVENTORY> 2000
<CURRENT-ASSETS> 3267
<PP&E> 6830
<DEPRECIATION> 4334
<TOTAL-ASSETS> 11670
<CURRENT-LIABILITIES> 1813
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 340
<TOTAL-LIABILITY-AND-EQUITY> 11670
<SALES> 5257
<TOTAL-REVENUES> 5257
<CGS> 4504
<TOTAL-COSTS> 7037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> (2233)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2233)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (4.06)
</TABLE>
