<PAGE> 1
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 SEPTEMBER 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 0-25560
CELERITEK, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0057484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3236 SCOTT BLVD., SANTA CLARA, CA 95054
(Address of principal executive offices) (Zip code)
(408) 986-5060
(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: [ X ] Yes [ ] No
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Common Stock, No Par Value: 7,029,633 shares as of October 27, 1996
<PAGE> 2
CELERITEK, INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C>
Item 1: Financial Statements (Unaudited) 1
Condensed Consolidated Balance
Sheets: September 30, 1996 and March 31, 1996
Condensed Consolidated Statements of Income: 2
Three and Six months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows: 3
Three and Six months ended September 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations. 5 - 9
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 10
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE> 3
CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ---------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,598 $ 3,311
Short-term investments 8,650 7,500
Accounts receivable, net 9,119 9,675
Inventories 5,763 6,398
Prepaid expenses and other current assets 138 126
Deferred tax assets 1,703 1,703
------- -------
Total current assets 31,971 28,713
Property and equipment, net 6,078 5,121
Other assets 43 43
------- -------
Total assets $38,092 $33,877
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,744 $ 2,145
Accrued payroll 1,126 1,156
Accrued liabilities 3,832 2,657
------- -------
Total current liabilities 7,702 5,958
Shareholders' equity 30,390 27,919
------- -------
Total liabilities and shareholders' equity $38,092 $33,877
======= =======
</TABLE>
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
Page 1
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- ------------------------
1996 1995 1996 1995
----------- -------- --------- --------
<S> <C> <C> <C> <C>
Total Net Sales $ 11,657 $ 8,731 $ 23,175 $ 16,734
Cost of Goods Sold 7,355 5,570 14,607 10,739
-------- -------- -------- --------
Gross Profit 4,302 3,161 8,568 5,995
Operating expenses:
Research and development 1,050 914 2,131 1,863
Selling, general and administrative 1,705 1,448 3,574 2,923
-------- -------- -------- --------
Total operating expenses 2,755 2,362 5,705 4,786
Income from operations 1,547 799 2,863 1,209
Interest income (expense) and other 109 (100) 253 (211)
-------- -------- -------- --------
Income before income tax 1,656 699 3,116 998
Provision for income taxes 630 279 1,185 399
-------- -------- -------- --------
Net income $ 1,026 $ 420 $ 1,931 $ 599
======== ======== ======== ========
Net income per share $ 0.14 $ 0.08 $ 0.26 $ 0.11
======== ======== ======== ========
Shares used in per share calculations 7,336 5,502 7,330 5,496
======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE> 5
CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income 1,931 599
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other 981 927
Changes in operating assets and liabilities 3,163 (758)
------ ------
Net cash provided by operating activities 6,075 768
INVESTING ACTIVITIES
Purchase of property and equipment (1,938) (351)
Purchase of short-term investments (9,325) --
Proceeds from maturities and sales of
short-term investments 8,175 --
------ ------
Net cash used in investing activities (3,088) (351)
FINANCING ACTIVITIES
Payments on lines of credit -- (1,250)
Borrowings under lines of credit -- 1,250
Payments on long-term debt -- (670)
Borrowings on long-term debt -- 285
Payments on obligations under capital leases -- (195)
Proceeds from issuance of common stock 300 17
------ ------
Net cash provided by (used in) financing activities 300 (563)
Increase (decrease) in cash and cash equivalents 3,287 (146)
Cash and cash equivalents at beginning of period 3,311 2,194
------ ------
Cash and cash equivalents at end of period 6,598 2,048
====== ======
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest -- 249
Income taxes 804 391
Capital lease obligations incurred to
acquire equipment -- 188
</TABLE>
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. This financial information should be read in conjunction
with the consolidated financial statements and notes thereto included
in the Company's annual report on Form 10-K for the year ended March
31, 1996. Operating results for the three- and six-month periods ended
September 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended March 31, 1997. During the quarter
ended September 30, 1996, the Company recorded a provision of $800,000
for potential vendor cancellation claims related to a delayed
commercial contract.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
---- ----
(In Thousands)
<S> <C> <C>
Raw materials .................................... .. $1,784 $2,107
Work-in-process .................................. .. 3,979 4,291
------ ------
$5,763 $6,398
====== ======
</TABLE>
3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
outstanding shares of common stock, dilutive common equivalent shares
from convertible preferred stock (using the if-converted method), and
dilutive common equivalent shares from stock options (using the
treasury stock method). Pursuant to Securities and Exchange
Commission's Staff Accounting Bulletins, common and common equivalent
shares issued during the twelve-month period prior to the initial
public offering are included in the calculation as if they were
outstanding for all periods through September 30, 1995 (using the
treasury stock method at the
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initial public offering price). The difference between primary and
fully diluted net income per share is not material for any periods
presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below under "Risks, Trends, and Uncertainties."
RESULT OF OPERATIONS - SECOND QUARTER OF FISCAL 1996 COMPARED TO SECOND QUARTER
OF FISCAL 1997:
Total net sales were $8.7 million for the second quarter of fiscal 1996
as compared to $11.7 million for the second quarter of fiscal 1997. Total net
sales to commercial customers increased 33% from $6.1 million for the second
quarter of fiscal 1996 to $8.1 million for the second quarter of fiscal 1997,
primarily as a result of increased sales to the terrestrial-based communications
market. Total net sales to defense customers also increased by 38% from $2.6
million in the second quarter of fiscal 1996 to $3.6 million for the second
quarter of fiscal 1997. The Company believes the increased sales to the defense
market are the result of the Company's achieving greater market share due to a
decrease in the number of competitors, as opposed to market growth. The Company
intends to continue to selectively pursue sales to certain defense customers.
Gross margin increased from 36% of sales in the second quarter of
fiscal 1996 to 37% of sales in the second quarter of fiscal 1997. The increase
in gross margin was primarily the result of increased production volumes, lower
warranty costs, and a change in commercial product mix. These improvements were
partially offset by a provision of $800,000 for potential vendor cancellation
claims related to a delayed commercial contract.
Research and development expenses increased from $0.9 million, or 10%
of sales, in the second quarter of fiscal 1996 to $1.1 million, or 9% of sales,
in the second quarter of fiscal 1997 reflecting the Company's continuing
investment in commercial product development. The Company has hired several new
design engineers for commercial products and expects research and development
expenses to continue to increase in future periods. See "Risks, Trends, and
Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $1.4
million, or 17% of sales, in the second quarter of fiscal 1996 to $1.7 million,
or 15% of sales, in the second quarter of fiscal 1997. The increase was due to
personnel costs and a provision for bad debt.
Interest expense and other, net was $100,000 of expense in the second
quarter of fiscal 1996 as compared to $109,000 of income in the second quarter
of fiscal 1997. The
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change is due to increased interest income on increased cash and investment
balances as a result of proceeds from the initial public offering and the
elimination of interest expense as a result of no outstanding borrowings in the
second quarter of fiscal 1997.
RESULT OF OPERATIONS - FIRST SIX MONTHS OF FISCAL 1996 COMPARED TO FIRST SIX
MONTHS FISCAL 1997:
Total net sales were $16.7 million for the first six months of fiscal
1996 as compared to $23.2 million for the first six months of fiscal 1997. Total
net sales to commercial customers increased 38% from $11.8 million for the first
six months of fiscal 1996 to $16.3 million for the first six months of fiscal
1997, as a result of increased sales to both the satellite-based and
terrestrial-based communications markets. The increased sales to the
satellite-based communications market included the completion of an order for
transceivers for a mobile phone system for which no additional business is
forecast. Total net sales to defense customers also increased by 41% from $4.9
million in the first six months of fiscal 1996 to $6.9 million for the first six
months of fiscal 1997. The Company believes the increased sales to the defense
market are the result of the Company achieving greater market share due to a
decrease in the number of competitors, as opposed to market growth. The Company
intends to continue to selectively pursue sales to certain defense customers.
Gross margin increased from 36% of sales in the first six months of
fiscal 1996 to 37% of sales in the first six months of fiscal 1997. The increase
in gross margin was primarily the result of increased production volumes, lower
warranty costs, and a change in commercial product mix. These improvements were
partially offset by a provision of $800,000 for potential vendor cancellation
claims related to a delayed commercial contract.
Research and development expenses increased from $1.9 million, or 11%
of sales, in the first six months of fiscal 1996 to $2.1 million, or 9% of
sales, in the first six months of fiscal 1997 reflecting the Company's
continuing investment in commercial product development. The Company has hired
several new design engineers for commercial products and expects research and
development expenses to continue to increase in future periods. See "Risks,
Trends, and Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $2.9
million, or 17% of sales, in the first six months of fiscal 1996 to $3.6
million, or 15% of sales, in the first six months of fiscal 1997. The increase
was due to personnel costs, a provision for bad debts and increased
administrative costs.
Interest expense and other, net was $211,000 of expense in the first
six months of fiscal 1996 as compared to $253,000 of income in the first six
months of fiscal 1997. The change is due to increased interest income on
increased cash and investment balances as a result of proceeds from the initial
public offering and the elimination of interest expense as a result of no
outstanding borrowings in the first six months of fiscal 1997.
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FINANCIAL CONDITION
The Company has funded its operations to date primarily through cash
flows from operations and sales of equity securities including the initial
public offering of common stock completed in December 1995 and January 1996,
which generated net proceeds of approximately $12.1 million.
As of September 30, 1996, the Company had $6.6 million of cash and cash
equivalents, $8.7 million of short-term investments and $24.3 million of working
capital. The Company believes that the current capital resources combined with
cash generated from operations will be sufficient to meet its liquidity and
capital expenditure requirements at least through fiscal 1997.
RISKS, TRENDS, AND UNCERTAINTIES
The following risk factors should be carefully reviewed in addition to the other
information contained in this Quarterly Report in Form 10-Q.
Potential Fluctuations in Quarterly Results. The Company's quarterly
results have fluctuated in the past, and may continue to fluctuate in the
future, due to a number of factors, including: the timing, cancellation or delay
of customer orders; the mix of products sold; the timing of new product
introductions by the Company or its competitors; the long sales cycles
associated with the Company or its competitors; the long sales cycles associated
with the Company's application-specific products; market acceptance of the
Company's and its customers' products; variations in average selling prices of
semiconductors; variations in manufacturing yields; changes in inventory levels;
changes in manufacturing capacity and variations in the utilization of this
capacity; and other competitive factors. Any unfavorable changes in the factors
listed above or others could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to maintain quarterly profitability in the future.
Continued Penetration of Commercial Markets; New Product Introductions.
The Company's ability to grow will depend substantially on its ability to
continue to apply its radio frequency ("RF") and microwave signal processing
expertise and GaAs semiconductor technologies to existing and emerging
commercial wireless communications markets. If the Company is unable to design,
manufacture and market new products for existing or emerging commercial markets
successfully, its business, operating results and financial condition will be
adversely affected. Furthermore, if the markets for the Company's products in
the commercial wireless communications area fail to grow, or grow more slowly
than anticipated, the Company's business, operating results and financial
condition could be materially adversely affected.
Dependence on a Limited Number of OEM Customers. A relatively limited
number of OEM customers historically have accounted for a substantial portion of
the Company's sales. In fiscal 1996 and the six months ended September 30, 1996
sales to the Company's top ten customers accounted for approximately 74% and
77%, respectively, of total net sales. In the six months ended September 30,
1996, three of the Company's customers accounted for 22%, 19% and 10% of total
net sales. The Company expects that sales of its products to a limited number of
OEM customers will continue to account for a high percentage of its sales for
the foreseeable future, although sales to any
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single customer are subject to significant variability from quarter to quarter.
Such fluctuations could have a material adverse effect on the Company's
business, operating results and financial condition.
No Assurance of Product Performance and Reliability. The Company's
customers establish demanding specifications for performance and reliability.
There can be no assurance that problems will not occur in the future with
respect to performance and reliability of the Company's products. If such
problems occur, the Company could experience increased costs, delays in or
reductions, cancellations or rescheduling of orders and shipments, product
returns and discounts, and product redesigns, any of which would have a material
adverse effect on the Company's business, operating results and financial
condition.
Rapid Technological Change. The markets in which the Company competes
are characterized by rapidly changing technologies, evolving industry standards
and continuous improvements in products and services. There can be no assurance
that the Company will be able to respond to technological advances, changes in
customer requirements or changes in regulatory requirements or industry
standards, and any significant delays in the development, introduction or
shipment of products could have a material adverse effect on the Company's
business, operating results and financial condition.
The High Degree of Fixed Costs in the Manufacturing Operation. The
Company's fixed costs consist primarily of investments in manufacturing
equipment, repair, maintenance and depreciation costs of such equipment and
fixed labor costs related to manufacturing and process engineering. The Company
has in the past and may in the future experience significant delays in product
shipments due to lower than expected production yields, and there can be no
assurance that the Company will not experience problems in maintaining
acceptable yields in the future. The Company's manufacturing yields vary
significantly among products, depending on a given product's complexity and the
Company's experience in manufacturing the product. To the extent that the
Company does not maintain acceptable yields, its operating results could be
adversely affected. In addition, during periods of decreased demand, high fixed
wafer fabrication costs could have a material adverse effect on the Company's
operating results.
Competition. The markets in which the Company competes are intensely
competitive and the Company expects competition to increase. Most of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company and
have achieved market acceptance of their existing technologies. The ability of
the Company to compete successfully depends upon a number of factors, including
the rate at which customers incorporate the Company's products into their
systems, product quality and performance, price, experienced sales and marketing
personnel, rapid development of new products and features, evolving industry
standards and the number and nature of the Company's competitors. There can be
no assurance that the Company will be able to compete successfully in the
future, which could have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Suppliers. Certain components used by the Company in
its existing products are only available from single sources, and certain other
components are presently available or acquired only from a limited number of
suppliers. In the event that
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its single source suppliers are unable to fulfill the Company's requirements in
a timely manner, the Company may experience an interruption in production until
alternative sources of supply can be obtained, which could damage customer
relationships or have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Personnel. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical and managerial employees or that it can attract, assimilate or retain
other highly qualified technical and managerial personnel in the future which
could have a material adverse effect on the Company's business, operating
results and financial condition.
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PART 2 - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on August 1,
1996. The results of the voting were as follows:
Proposal 1: Election of the Board of Directors of the Company.
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Tamer Husseini 5,981,982 3,471
Robert C. Mullaley 5,982,354 3,099
William D. Rasdal 5,982,354 3,099
Charles P. Waite 5,982,354 3,099
William H. Younger, Jr 5,982,126 3,327
</TABLE>
Proposal 2: Ratification of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending March 31, 1997.
Votes For: 5,984,598
Votes Against: 400
Votes Abstaining: 455
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Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
Exhibit 11: Statement re: Computation of earnings per share
Exhibit 27: Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended
September 30, 1996.
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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.
Celeritek, Inc.
(Registrant)
Date: November 14, 1996 /s/ MARGARET E. SMITH
-------------------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
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INDEX TO EXHIBITS
EXHIBIT
11 Statement re: Computation of Earnings per Share
27 Financial Data Schedule
<PAGE> 1
Exhibit 11
CELERITEK, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------------------------------
Primary 1996 1995 1996 1995
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net income ....................................... $1,026 $ 420 $1,931 $ 599
====== ====== ====== ======
Common and common equivalent shares
outstanding:
Common Stock ................................. 7,009 1,786 6,981 1,780
Convertible Preferred Stock ................. -- 3,201 -- 3,201
Options ...................................... 327 257 349 257
Common and common stock equivalent shares related
to stock and option issuances in accordance with
SAB No. 55, 64, and 83 ......................... -- 258 -- 258
------ ------ ------ ------
Common and common equivalent shares used in
computing per share amounts .................... 7,336 5,502 7,330 5,496
====== ====== ====== ======
Net income per share ............................. $ 0.14 $ 0.08 $ 0.26 $ 0.11
====== ====== ====== ======
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------------------------------
Fully Diluted 1996 1995 1996 1995
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net income ....................................... $1,026 $ 420 $1,931 $ 599
====== ====== ====== ======
Common and common equivalent shares
outstanding:
Common Stock ................................. 7,009 1,786 6,981 1,780
Convertible Preferred Stock ................. -- 3,201 -- 3,201
Options ...................................... 339 262 358 259
Common and common stock equivalent shares related
to stock and option issuances in accordance with
SAB No. 55, 64, and 83 ......................... -- 258 -- 258
------ ------ ------ ------
Common and common equivalent shares used in
computing per share amounts .................... 7,348 5,507 7,339 5,498
====== ====== ====== ======
Net income per share ............................. $ 0.14 $ 0.08 $ 0.26 $ 0.11
====== ====== ====== ======
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,598
<SECURITIES> 8,650
<RECEIVABLES> 9,668
<ALLOWANCES> 549
<INVENTORY> 5,763
<CURRENT-ASSETS> 31,971
<PP&E> 20,319
<DEPRECIATION> 14,241
<TOTAL-ASSETS> 38,092
<CURRENT-LIABILITIES> 7,702
<BONDS> 0
0
0
<COMMON> 23,823
<OTHER-SE> 6,567
<TOTAL-LIABILITY-AND-EQUITY> 38,092
<SALES> 11,657
<TOTAL-REVENUES> 11,657
<CGS> 7,355
<TOTAL-COSTS> 7,355
<OTHER-EXPENSES> 2,755
<LOSS-PROVISION> 549
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,656
<INCOME-TAX> 630
<INCOME-CONTINUING> 1,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,026
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
