John E. Wall - Page 6




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                  Year              Net Revenues     Net Income                       
                  1987              $21,922,286     $1,615,877                        
                  1988              25,060,137      1,314,997                         
                  1989              27,256,611      1,361,810                         
                  1990              29,770,281      1,002,367                         
                  1991              30,536,365      511,072                           
                  1992 (Projected)  31,260,786      1,434,198                         
               As the foregoing table shows, Demco’s net revenues increased           
          steadily from 1987 to 1991 and were projected to continue to                
          increase in 1992.  Demco’s net income, however, decreased from              
          1987-90, then fell more sharply in 1991, but was projected to               
          recover in 1992.                                                            
               The decrease in Demco’s net income was not caused by any               
          increase in Demco’s cost of goods sold; Demco’s gross margin                
          increased from 43.9 percent of net revenues in 1987 to 45.5                 
          percent of net revenues in 1991.  Rather, Demco’s declining                 
          profitability was attributable to increases in its marketing and            
          administrative expenses.  From 1987 to 1991, Demco’s marketing              
          expenses increased from 16.5 percent of net revenues to 19.3                
          percent; administrative expenses increased even more sharply over           
          the same period, from 9.7 percent of net revenues to 16.3                   
          percent.                                                                    


               2(...continued)                                                        
          expert Gary L. Schroeder (Mr. Schroeder) considered this                    
          information to be reliable and used it to prepare his report.               





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