TEMPE, Ariz., July 23 -- Three-Five Systems, Inc. reported record net sales of $31.6 million for the second quarter of 1999, an increase of 39 percent over second quarter 1998 revenue of $22.7 million. Net income for the quarter was $1.0 million, or $0.15 per share (diluted), as compared with net income of $1.1 million, or $0.14 per share (diluted) for the same quarter in 1998. An increase in earnings per share despite a decrease in net earnings was attributed to the company's 1998 share repurchase program. Sales of $54.6 million for the first six months of the fiscal year were 33 percent higher than sales of $41.2 million for the same period in 1998. Net income for the first six months of 1999 was $398,000, or $0.06 per share (diluted) compared with $2.1 million, or $0.26 per share (diluted) for the same period in 1998. The company attributed the decline in net income for the first half of 1999 as compared with the same period in 1998 to lower margins on new programs, a shortage of LCD driver integrated circuits, and a variety of other one-time factors such as yield start-up issues and product mix. All of these issues primarily took place during the first quarter of the current fiscal year.