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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A-2
Amendment No. 2
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-16052
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QUADRAX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0420158
- ------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 High Point Avenue Portsmouth, Rhode Island 02871
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(Address of principal executive offices) (Zip Code)
(401) 683-6600
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(Registrant's telephone number, including area code)
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(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 10, 1996
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Common Stock, par value 22,356,867 shares
$.000009 per share
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QUADRAX CORPORATION
INDEX TO FORM 10-QSB/A-2
PART I - FINANCIAL INFORMATION PAGE
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1996 and at December 31, 1995 3-4
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and March 31, 1995 5
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31,
1996 and March 31, 1995 6-7
Notes to Condensed Consolidated Financial
Statements 8-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
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QUADRAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including $100,000 and $481,146 $ 442,575 $2,613,555
of restricted cash, respectively
Accounts receivable, net of allowances for doubtful 1,348,764 1,265,301
accounts of $24,000
Inventories 1,761,180 1,466,813
Other current assets 89,239 134,197
----------------- ----------------
TOTAL CURRENT ASSETS 3,641,758 5,479,866
----------------- ----------------
Property and equipment, at cost:
Machinery and equipment 3,337,106 3,319,881
Office equipment 851,844 851,160
Leasehold improvements 1,071,532 1,071,532
----------------- ----------------
5,260,482 5,242,573
Less accumulated depreciation and amortization 3,153,756 3,000,093
----------------- ----------------
NET PROPERTY AND EQUIPMENT 2,106,726 2,242,480
----------------- ----------------
Goodwill 116,577 118,553
Other assets 268,068 267,855
License agreement, net of amortization of $150,000 and 450,000 480,000
$120,000, respectively
Deferred assets, net of amortization of $64,084 and 216,983 211,498
$61,912, respectively
----------------- ----------------
TOTAL ASSETS $6,800,112 $8,800,252
================= ================
</TABLE>
See accompanying notes.
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QUADRAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------------- ---------------
<S> <C> <C>
Current liabilities:
Accounts payable $1,205,630 $ 870,988
Accrued expenses 695,018 1,200,779
Notes payable to related party 0 300,000
Notes payable 1,217,913 1,114,301
----------------- ---------------
TOTAL CURRENT LIABILITIES 3,118,561 3,486,068
Long-term debt, less current portion 330,876 356,034
Convertible debentures payable 0 2,250,000
----------------- ---------------
TOTAL LIABILITIES 3,449,437 6,092,102
----------------- ---------------
Stockholders' equity:
Original convertible preferred stock 6 6
Common stock 199 160
Additional paid-in capital 60,648,106 58,288,953
Retained earnings (deficit) (55,941,252) (54,198,191)
----------------- ---------------
4,707,059 4,090,928
Less:
Treasury stock, at cost (1,043,009) (1,043,009)
Unearned compensation and deferred expenses (313,375) (339,769)
----------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 3,350,675 2,708,150
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,800,112 $8,800,252
================= ===============
</TABLE>
See accompanying notes.
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QUADRAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1996 1995
---------------- ----------------
<S> <C> <C> <C>
Revenue:
Sales $1,087,018 $1,074,643
Interest income 15,968 8,995
Other income 0 0
---------------- ----------------
TOTAL REVENUE 1,102,986 1,083,638
---------------- ----------------
Expenses:
Cost of goods sold 936,438 714,420
Research and development 219,567 236,074
Selling, general and administrative 1,438,385 1,411,606
Depreciation and amortization 187,811 203,672
Interest expense 63,846 4,390
---------------- ----------------
TOTAL EXPENSES 2,846,047 2,570,162
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NET LOSS ($1,743,061) ($1,486,524)
================ ================
NET LOSS PER COMMON SHARE ($0.09) ($0.14)
================ ================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 19,282,782 10,779,444
================ ================
</TABLE>
See accompanying notes
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QUADRAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,743,061) ($1,486,524)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation & amortization of fixed assets 153,663 120,929
Amortization of intangibles 34,148 82,745
Amortization of unearned compensation 26,394 0
Common stock issued for expenses 98,984 34,616
Effect on cash flows of changes in assets and liabilities:
Accounts receivable and other (83,463) (1,034,519)
Inventories (294,367) 251,045
Prepaid expenses and other assets 44,958 6,974
Receivables/payables from officers and employees (300,000) 0
Accounts payable 334,642 506,557
Accrued expenses (505,761) (551,838)
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Net cash used in operating activities (2,233,863) (2,070,015)
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Cash flows from investing activities:
Capital expenditures, net (17,909) (221,039)
Other intangible assets purchased (7,662) 0
Payments for businesses acquired
net of cash acquired 0 140,000
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Net cash provided by (used in) investing
activities (25,571) (81,039)
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Cash flows from financing activities:
Proceeds from exercise of common stock options 10,000 25,300
Net proceeds from sale of stock and warrants 0 2,949,394
Issuance of debt 78,454 0
Repayment of debt 0 (20,000)
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Net cash provided by financing activities 88,454 2,954,694
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Net increase (decrease) in cash and cash equivalents (2,170,980) 803,640
Cash and cash equivalents at beginning of period 2,613,555 382,721
--------------- --------------
Cash and cash equivalents at end of period $442,575 $1,186,361
=============== ==============
</TABLE>
See accompanying notes
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QUADRAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND MARCH 31, 1995
Supplemental schedule of significant noncash transactions:
1996:
The Company issued 4,080,886 shares of its common stock in exchange
for the cancellation of $2,250,000 of its convertible debentures.
1995:
The Company assumed $750,000 of debt due its former chairman from
Conagher & Co., Inc. for Conagher's purchase of the original
preferred stock.
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QUADRAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited condensed consolidated financial statements presented herein
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and note disclosures required by
generally accepted accounting principles. In the opinion of management,
such condensed consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the Company's financial position as of March 31, 1996 and the results of
operations for the three months ended March 31, 1996 and March 31, 1995.
The results of operations for the three month period ended March 31, 1996
may not be indicative of the results that may be expected for the year
ending December 31, 1996. It is suggested that these Condensed Consolidated
Financial Statements be read in conjunction with the Consolidated Financial
Statements and the notes thereto included in the Company's latest annual
report to the Securities and Exchange Commission on Form 10-KSB for the year
ended December 31, 1995.
2. Debt
----
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Note payable - bank $ 891,000 $ 801,000
Notes payable - Lion shareholders 325,028 331,634
Equipment notes payable 82,761 87,701
Other non-interest bearing note 250,000 250,000
------- -------
1,548,789 1,470,335
Less current maturities (1,217,913) (1,114,301)
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$ 330,876 $ 356,034
========== ==========
</TABLE>
Note Payable - Bank
The Company's wholly-owned subsidiary, Lion Golf of Oregon, Inc., an Oregon
corporation ("Lion Golf"), has a $1,000,000 revolving line of credit with
its bank which is secured by substantially all of the subsidiary's assets
and which is guaranteed by the Company and the former majority shareholder
of Lion Golf. The note was renewed January 2, 1996 and bears interest at
10.75% per annum. Loan advances are limited to 75% of "eligible accounts
receivable" plus 45% of "eligible inventories" up to a maximum of $500,000,
as such terms are defined under the line of credit. The Company's current
outstanding balance due on the line of credit is approximately $891,000.
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QUADRAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes Payable - Lion Shareholders
Lion Golf has three unsecured notes bearing interest at the rate of 8% per
annum, payable to its former shareholders. These notes are subordinated to
the bank credit line. The first of the notes, for the principal amount of
$270,000, has annual principal payments of $54,000 commencing March 31,
1997. These annual payments can be limited to the extent of Lion Golf's
pretax profits as defined in the Purchase Agreement among the Company, Lion
Golf, and Lion Golf's former shareholders dated December 29, 1995 (the
"Purchase Agreement"). The second note for the principal amount of
$50,200, has monthly principal payments of $2,400 until paid-in-full. The
third note is a demand note in the principal amount of $10,500.
3. Shareholders Equity
The Company's capital shares are as follows:
Original Convertible Preferred Stock, $.01 par value, 1,172 shares
authorized at March 31, 1996 and December 31, 1995, 318 shares issued and
outstanding at both March 31, 1996 and March 31, 1995. Subsequent to March
31, 1996, all shares of Original Convertible Preferred Stock were converted
into common stock which were then redeemed by the Company for a nominal
consideration.
Common Stock, $.000009 par value, 90,000,000 shares authorized at March 31,
1996 and December 31, 1995, and 21,737,841 and 17,772,812 shares
outstanding at March 31, 1996 and December 31, 1995, respectively.
4. Earnings Per Share
For the fiscal quarters ending March 31, 1996 and March 31, 1995, the net
loss per share was computed using the weighted number of average shares
outstanding during the respective periods. Common Stock equivalents did
not enter into the computation because the impact would have been
anti-dilutive.
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ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain matters discussed in this
section and elsewhere in this Form 10-Q are forward-looking statements. These
forward-looking statements involve risks and uncertainties including, but not
limited to, economic conditions, product demand and industry capacity,
competition, and other risks.
Competition. As the Company enters the sporting goods and recreational
equipment market, it faces competition from other materials used in the
manufacture of such goods and equipment, and from other suppliers of
thermoplastic composites. The Company's success in entering this market will
depend largely upon its ability to displace other materials currently in use.
If the Company is unsuccessful in creating a niche within the sporting goods
and recreational equipment market by convincing the market of the strategic
benefits of thermoplastic composites, the Company would be adversely affected.
Many of the companies whose product offerings compete with the Company's
product offerings have significantly greater financial, manufacturing and
marketing resources than the Company.
Development of Distribution Channels. Success in the sporting goods and
recreational equipment market will also hinge on the Company's ability to
develop distribution channels, including both retailers and distributors, and
there can be no assurance that the Company will be able to effectively develop
such channels.
Continued Investment. Maintaining the Company's technological and
strategic advantages over its competitors will require continued investment by
the Company in design and development, sales and marketing, and customer
service and support. There can be no assurance that the Company will have
sufficient resources to make such investments.
Technological Advances. The Company's ability to maintain a competitive
edge by making technological advances ahead of its competition will have a
significant impact on the success of the Company.
Outside Financing. The Company believes that it will need significant
outside financing over the next five years. There can be no assurance that it
will be able to obtain such financing.
RESULTS OF OPERATIONS FOR QUARTER ENDED MARCH 31, 1996 AS COMPARED TO QUARTER
ENDED MARCH 31, 1995
The Company's net loss from operations for the quarter ended March 31,
1996 ("1996 first quarter") of approximately $1,740,000 was approximately
$250,000 greater than its net loss from operations of approximately
$1,490,000 for the quarter ended March 31, 1995 ("1995 first quarter"). The
primary reason for this loss increase was the reduction in gross margins
which was caused by the change in the Company's primary source of revenues
from defense related products to consumer oriented products in the first
three months of fiscal 1996.
Total revenue recognized during the 1996 first quarter was stable at
$1,087,018 compared to $1,074,643 in the 1995 first quarter. An increase in
sales for the first three months ending March 31, 1996 of approximately
$805,000 for the Company's Lion Golf subsidiary, ("Lion)", which the
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Company acquired as of December 31, 1995, was offset by a decrease in
revenues of approximately $790,000 in the Company's Advanced Materials
Systems division, ("AMS"). The decrease in the AMS division reflects the
completion of the defense programs late in 1995 with no corresponding
increase in consumer product shipments in 1996. The AMS 1996 sales are
primarily lacrosse sticks, $150,000 and thermoplastic tape, $100,000.
Interest income increased by approximately $7,000 in the three months
ended March 31, 1996, as compared to the same period one year ago. The
reason for this is the higher amount of money the Company had on deposit in
interest bearing paper in 1996.
Costs of goods sold for the first quarter of 1996 of $936,438 increased
approximately $222,000 in the three months ended March 31, 1996 vis-a-vis the
three months ended March 31, 1995. The reason for this increase is that the
1995 defense contract in progress during this period, the F-22 program, had
greater margins than the Lion Golf division enjoyed in 1996.
Research and development expenses were $219,567 in the 1996 first
quarter, a negligible decrease of approximately $16,000 as compared to
$236,074 in the 1995 first quarter.
Selling, general and administrative expenses increased by the negligible
amount of approximately $27,000 to $1,438,000 in the three months ended March
31, 1996 over the comparable period a year ago.
Depreciation and amortization expense decreased by $16,000 to $187,811 in
the first quarter of 1996. This decrease is due primarily to the Company's
write-off of the book value of the CMI machine in fiscal 1995.
Interest expense for the first quarter of 1996 increased by approximately
$59,000 to $63,846. This reflects the Company's 1996 subordinated debt,
along with the financing costs associated with the financing leases which the
Company entered into during the past year.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had total assets of $6,800,112 and
stockholders' equity of $3,350,675. Current assets were $3,641,758 and current
liabilities were $3,118,561 resulting in working capital of approximately $0.5
million which is a decrease of approximately $1.5 million from December 31,
1995, when working capital was approximately $2.0 million. This decrease in
working capital resulted was caused primarily by the Company's use of
approximately $1,789,000, of its cash-on-hand at December 31, 1995 to fund its
operations.
Cash and cash equivalents decreased by approximately $2,170,000 from
December 31, 1995. This decrease is due to the Company's use of approximately
$1,789,000 to fund its operations, in addition to the Company's payment of
$381,000 to Richard Fisher, its former chairman and chief executive officer, in
February 1996.
Accounts receivable increased by approximately $83,000. The reasons for
this increase are twofold; one, Lion Golf's sales occurred primarily in March
1996, and; two, collections on certain portions of the Advanced Materials
Systems division sales slowed down, particularly, monies due from Wimbledon
sales in calendar 1995.
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Inventories increased by approximately $294,000. This increase is due to
the build-up of product required for Lion Golf's anticipated shipments during
the Spring season.
Other current assets decreased by approximately $45,000 between March 31,
1996 and December 31, 1995. This decrease was caused by the amortization of
insurance premiums that were prepaid.
Notes payable increased by approximately $104,000. This reflects increased
usage of the Company's line of credit with the Bank of the Cascades.
Accounts payable and accrued expenses decreased approximately $171,000 from
$2,072,000 at December 31, 1995. This decrease was caused by payments made to
former employees in 1996, which were charged against the reserve for
restructuring costs accrued for as of December 31, 1995.
Notes payable to related parties decreased $300,000 to zero at March 31,
1996. The reason for this decrease is that the Company paid Richard Fisher,
its former chairman and chief executive officer, in full in February 1996
pursuant to the December 1995 settlement agreement.
Long term debt decreased approximately $25,000 to about $331,000 at March
31, 1996. The reasons for this decrease are the payments the Company made on
its Advanced Materials Systems division financing leases, along with several
payments made on the subordinated debt of Lion Golf.
Convertible debentures decreased to zero at March 31, 1996 from $2,250,000
at December 31, 1995 due to the debenture holder's conversion of all its
debentures to common stock during the three months ended March 31, 1996.
In the first three months of fiscal 1996, capital expenditures were
approximately $18,000, a negligible amount. The Company anticipates capital
expenditures in 1996 will be approximately $1,500,000 for the purchase of a
golf shaft manufacturing line and an additional thermoplastic tape
manufacturing line. These equipment acquisitions are expected to be paid for
through equipment leasing programs and from funds raised through the placement
of the Company's securities.
The Company generated revenues of approximately $1,100,000 in the first
three months of fiscal 1996, and as a result, operations were not a source of
funds or liquidity for the Company. The Company continues to depend on outside
financing for the cash required to fund its operations. Net funds provided by
financing activities in the first quarter of fiscal 1996, after giving effect
to the repayment of debt, totaled approximately $90,000 during the period ended
March 31, 1996.
The Company believes that proceeds of approximately $1,700,000 from
additional sales of debentures in April 1996, together with funds provided by
operations and cash on hand (approximately $440,000 at March 31, 1996), will be
sufficient to meet the Company's near-term cash requirements. In addition, the
Company believes that it will be able to raise $3,300,000 from the sale of
debentures prior to the end of fiscal 1996.
The Company received a going concern qualification from its outside
independent auditors on its fiscal 1995 audited financial statements. While
the Company believes it has made and will continue to make substantial progress
towards achieving profitability, the results to date have not yet been
sufficient to negate the auditors' qualifications. During this transition,
management continues to
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redirect the Company's focus from the defense related products to consumer
oriented products. Management believes that the Company will be able to
continue to raise money from outside third parties in sufficient amounts to
support its operations until the time in which the Company's consumer product
programs generate sufficient revenues.
The Company believes that it can achieve viability and profitability by
continuing to expand sales of golf and tennis products, as well as other
products that employ its thermoplastic materials. Management believes that the
Company's acquisition of Lion Golf in late 1995 will further this strategy
because of Lion Golf's manufacturing expertise and access to new distribution
channels, such as golf and tennis pro shops. Sales of composite based lacrosse
sticks and continuing efforts to develop and market other consumer products,
will also contribute to its efforts.
There is no assurance that the Company's efforts to achieve viability and
profitability or to raise money will be successful or that the forecasts will
be achieved. It is difficult for the Company to predict with accuracy the
point at which the Company will be viable and profitable or whether it can
achieve viability or profitability at all, due to the difficulty of predicting
accurately the amount of revenues that the Company will generate, the amount of
expenses that will be required by its operations, and the Company's ability to
raise additional capital.
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QUADRAX CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None since Form 10-KSB for fiscal year ended
December 31, 1995 was filed on April 12, 1996.
(b) Reports on Form 8-K
None since Form 10-KSB for fiscal year ended
December 31, 1995 was filed on April 12, 1996.
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QUADRAX CORPORATION
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.
QUADRAX CORPORATION
-------------------
(Registrant)
February 13, 1996 /s/ James J. Palermo
-------------------------- ----------------------------------
(Date) James J. Palermo, Chairman and
Chief Executive Officer
February 13, 1996 /s/ Edward A. Stoltenberg
-------------------------- ----------------------------------
(Date) Edward A. Stoltenberg, Senior Vice
President, Chief Financial Officer
(Principal Accounting Officer)
15
