1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
( ) 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 1-13333
DBT ONLINE, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 85-0439411
--------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
5550 W. Flamingo Road, Suite B-5
Las Vegas, Nevada 89103
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(Address of principal executive offices)
(702) 257-1112
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(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter periods 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
---- ----
The number of common shares outstanding as of September 30, 1997 was 18,377,126.
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DBT ONLINE, INC.
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996..................................................................3
Consolidated Statements of Operations for the Three Months Ended September 30, 1997
and 1996...............................................................................4
Consolidated Statements of Operations for the Nine Months Ended September 30, 1997
and 1996...............................................................................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996......................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................8
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..............................................................................11
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................................11
Item 3. DEFAULTS UPON SENIOR SECURITIES................................................................11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................11
Item 5. OTHER INFORMATION..............................................................................11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................11
Signature........................................................................................................13
EXHIBITS
Exhibit 10.1 Employment Agreement.................................................................E-1
Exhibit 27.1 Financial Data Schedule..............................................................E-6
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
DBT ONLINE, INC. and subsidiaries
CONSOLIDATED BALANCE SHEETS
================================================================================
September 30, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $23,524,600 $ 6,965,600
Investments 27,168,800 0
Accounts receivable, less allowance:
September 30, 1997-$289,000; December 31, 1996-
$250,000 4,175,800 2,397,600
Prepaid expenses and other current assets 908,300 375,100
----------- ------------
Total current assets 55,777,500 9,738,300
Property and equipment, net 8,612,400 6,064,300
Patents, less amortization:
September 30, 1997-$1,893,600; December 31, 1996-
$622,300 11,949,200 13,220,500
Intangible assets, less amortization:
September 30, 1997 - $137,700 5,644,600 0
Other assets 560,000 532,900
----------- ------------
Total assets $82,543,700 $ 29,556,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,331,300 $ 1,653,200
Current portion of long-term debt 0 1,415,500
Bank line-of-credit 0 200,000
Due to other patent interest holders 1,190,700 1,411,300
Income taxes payable 510,400 618,200
Customer deposits 200,000 322,300
----------- ------------
Total current liabilities 5,232,400 5,620,500
Long-term debt, less current portion 0 1,365,800
Deferred income taxes 4,028,100 4,339,200
Stockholders' equity:
Preferred stock, $.10 par value
5,000,000 shares authorized; no shares issued or
outstanding -- --
Common stock, $.10 par value 40,000,000
shares authorized; 18,377,126 shares
and 15,447,612 shares issued and outstanding
at September 30, 1997 and December 31, 1996,
respectively 1,837,600 1,544,800
Additional paid in capital 68,261,200 17,440,300
Retained earnings (deficit) 3,184,400 (754,600)
----------- ------------
Total stockholders' equity 73,283,200 18,230,500
----------- ------------
Total liabilities and stockholders' equity $82,543,700 $ 29,556,000
=========== ============
See notes to consolidated financial statements.
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DBT ONLINE, INC. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
Three Months Ended September 30,
1997 1996
---- ----
(Unaudited) (Unaudited)
Revenues $8,414,700 $4,472,900
Patent royalties 1,718,100 843,000
----------- ------------
Total revenues and royalties 10,132,800 5,315,900
Cost of revenues 4,227,700 2,515,500
Selling and promotion 956,300 551,500
Research and development 592,800 509,300
General and administrative 2,357,200 1,159,000
----------- ------------
Total expenses 8,134,000 4,735,300
----------- ------------
Income from operations 1,998,800 580,600
Interest income (expense), net 627,700 (43,400)
----------- ------------
Income before income taxes 2,626,500 537,200
Provision for income taxes 998,100 238,500
----------- ------------
Net income $1,628,400 $298,700
=========== ============
Net income per common share $0.08 $0.02
=========== ============
Weighted average shares outstanding 19,295,800 12,846,000
=========== ============
See notes to consolidated financial statements.
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DBT ONLINE, INC. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
Nine Months Ended September 30,
1997 1996
---- ----
(Unaudited) (Unaudited)
Revenues $21,515,300 $11,611,700
Patent royalties 5,053,100 843,000
----------- -----------
Total revenues and royalties 26,568,400 12,454,700
Cost of revenues 10,899,900 5,930,300
Selling and promotion 2,253,600 1,357,000
Research and development 1,747,700 1,493,000
General and administrative 6,211,100 2,778,000
----------- -----------
Total expenses 21,112,300 11,558,300
----------- -----------
Income from operations 5,456,100 896,400
Interest income (expense), net 897,100 (145,000)
----------- -----------
Income before income taxes 6,353,200 751,400
Provision for income taxes 2,414,200 301,000
----------- -----------
Net income $3,939,000 $450,400
=========== ===========
Net income per common share $0.22 $0.04
=========== ===========
Weighted average shares outstanding 17,520,900 11,118,800
=========== ===========
See notes to consolidated financial statements.
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DBT ONLINE, INC. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
Nine Months Ended September 30,
1997 1996
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,939,000 $ 450,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,839,800 1,861,000
Deferred taxes (311,100) (123,000)
Changes in operating assets and liabilities:
Accounts receivable (1,574,100) (1,238,500)
Prepaid expenses and other current assets (533,200) (119,000)
Accounts payable and accrued liabilities 1,539,300 243,600
Due to other patent interest holders (220,600) 503,500
Income taxes payable (107,800) (990,000)
Customer deposits (122,300) 297,000
--------- ---------
Net cash provided by operating
activities 6,449,000 885,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased (4,885,300) (4,970,000)
Decrease (increase) in other assets 7,400 (191,000)
Cash (used) acquired in acquisition (2,487,300) 8,505,000
--------- ---------
Net cash (used in) provided by
investing activities (7,365,200) 3,344,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 46,812,000 0
Purchases of investments (27,168,800) 0
Proceeds from exercise of stock options 813,300 143,000
Net change in bank line-of-credit (200,000) 500,000
Issuance of long-term debt 0 1,744,000
Repayments on long-term debt (2,781,300) (903,000)
---------- ---------
Net cash provided by financing
activities 17,475,200 1,484,000
---------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 16,559,000 5,713,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,965,600 1,643,000
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,524,600 $ 7,356,000
========== ==========
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of DBT Online, Inc. (the "Company") and its wholly-owned subsidiaries, Database
Technologies, Inc., a Florida corporation ("DBT"), The Information Connectivity
Group, Inc. (since August 1, 1997, date of acquisition), a Nevada corporation
("ICON") and Patlex Corporation (since August 20, 1996, date of merger), a
Pennsylvania corporation ("Patlex"). The interim consolidated financial
statements as of September 30, 1997 and for the nine months ended September 30,
1997 and 1996 are unaudited. All significant intercompany accounts and
transactions have been eliminated. The accompanying consolidated financial
statements reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. Such adjustments
consist solely of normal recurring accruals. Results for the interim periods are
not necessarily indicative of results for a full year.
NOTE 2. STOCK SPLIT
The Company announced on September 16, 1997, a two-for-one stock split
where the Company would distribute to each shareholder of record on September
26, 1997 one share of Common Stock for each share of Common Stock outstanding.
All share and per share amounts have been restated to give effect to the split.
NOTE 3. ACQUISITION
On August 1, 1997, the Company acquired all of the stock of The
Information Connectivity Group, Inc. for consideration in both cash and stock
totaling approximately $6 million. For accounting purposes, the transaction was
treated as a purchase. The Company recorded intangible assets of approximately
$5.8 million in connection with this acquisition.
NOTE 4. PRO FORMA INFORMATION
On August 20, 1996, the former shareholders of Patlex approved a plan
of reorganization pursuant to which the Company was reorganized into a holding
company structure and each share of Patlex was converted into a share of the
Company. Also on August 20, 1996, a wholly-owned subsidiary of the Company
merged with DBT. Pursuant to the terms of the merger and reorganization, the
former shareholders of Patlex received approximately 33.2% of the Company and
the former owners of DBT received 66.8% of the Company, based on the shares and
options outstanding at August 20, 1996. For accounting purposes, the transaction
was treated as a purchase of Patlex with DBT as the accounting acquirer.
If the merger and reorganization had been completed on January 1, 1996,
pro forma results for the nine months ended September 30, 1996 would be as
follows (the pro forma information is not necessarily indicative of the combined
results of operations that would have occurred had the merger and reorganization
been completed as of January 1, 1996):
Revenues $ 17,769,000
Net Income $ 2,729,000
Net Income Per Common Share $0.17
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ITEM 2: MANAGEMENT=S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto. This information
contains certain statements regarding future trends, the accuracy of which is
subject to many risks and uncertainties. Such trends, and their anticipated
impact upon the Company, could differ materially from those presented in this
Form 10-Q.
OVERVIEW OF THE COMPANY AND 1996 REORGANIZATION
The Company is a holding company that operates its business through
DBT, ICON and Patlex. DBT and ICON are on-line providers of integrated database
services and related reports primarily to law enforcement and other governmental
agencies, law firms, insurance companies and licensed investigation companies.
Patlex is engaged in the exploitation and enforcement of two laser patents and
generates its revenues through patent royalties.
The Company was reorganized into its current structure on August 20,
1996. At that time, Patlex was reorganized to become a wholly-owned subsidiary
the Company and the Company acquired the stock of DBT in a merger (the
"Merger"). The Company is the successor registrant to Patlex.
For accounting purposes the Merger was treated as a purchase business
acquisition of Patlex by DBT (a reverse acquisition) and a recapitalization of
DBT. Assets and liabilities of Patlex acquired in the Merger were recorded at
their fair value as of August 20, 1996.
In August, 1997, the Company acquired ICON, a provider of database
services. The acquisition of ICON has been treated as a purchase and its results
are included since August 1, 1997.
REVENUES
The Company's revenues increased 91% to $10,132,800 for the three
months ended September 30, 1997 from $5,315,900 for the same period in 1996. DBT
and ICON (acquired in August, 1997) contributed $8,176,400 and $238,300,
respectively, to the Company's revenues for the three months ended September 30,
1997. The increase in DBT's revenues was attributable to an increase in the
number of active customers and the number of minutes users spent on line. DBT's
active customers (defined as customers accessing the system in a given month)
increased 73% to 10,200 at September 30, 1997 from 5,900 at September 30, 1996.
Total system usage was 5.6 million minutes for the three months ended September
30, 1997, up from 3.2 million minutes for the same period in 1996, an increase
of 76%. Revenues from on-line charges were $7,630,800 and $4,199,700 for the
three months ended September 30, 1997 and 1996, respectively, an increase of
82%. Patlex contributed $1,718,100 of patent royalties to the Company's revenues
for the three months ended September 30, 1997.
The Company's revenues increased 113% to $26,568,400 for the nine
months ended September 30, 1997 from $12,454,700 for the same period in 1996.
DBT contributed $21,277,000 to the Company's revenues for the nine months ended
September 30, 1997. Total system usage was 14.8 million minutes for the nine
months ended September 30, 1997, up from 8.1 million minutes for the same period
in 1996, an increase of 83%. Revenues from on-line charges were $19,802,100 and
$10,914,300 for the nine months ended September 30, 1997 and 1996, respectively,
an increase of 81%. Patlex contributed $5,053,100 of patent royalties for the
nine months ended September 30, 1997.
COST OF REVENUES
The Company's cost of revenues increased 68% to $4,227,700 for the
three months ended September 30, 1997 from $2,515,500 for the same period in
1996. As a percentage of total revenues, cost of revenues decreased to 41.7% for
the three months ended September 30, 1997 from 47.3% for the same period in
1996. The dollar increase in the Company's cost of revenues was due primarily to
increases in both purchased data costs and depreciation expense as DBT continued
to invest both in its computer facilities and in the expansion of its databases
and to the acquisition of ICON. For the three months ended September 30, 1997,
Patlex's cost of revenues, which consisted solely of the amortization of its
patents, was $423,800.
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The Company's cost of revenues increased 84% to $10,899,900 for the
nine months ended September 30, 1997 from $5,930,300 for the same period in
1996. As a percentage of total revenues, cost of revenues decreased to 41.0% for
the nine months ended September 30, 1997 from 47.6% for the same period in 1996.
The dollar increase in the Company's cost of revenues was due primarily to
increases in both purchased data costs and depreciation expense as DBT continued
to invest both in its computer facilities and in the expansion of its databases.
For the nine months ended September 30, 1997, Patlex's cost of revenues, which
consisted solely of the amortization of its patents, was $1,271,300.
SELLING AND PROMOTION EXPENSES
The Company's selling and promotion expenses increased 73% to $956,300
for the three months ended September 30, 1997 from $551,500 for the same period
in 1996. The increase was primarily due to the acquisition of ICON and to
increases in DBT's payroll and trade show expenses. As a percentage of total
revenues, selling and promotion decreased to 9.4% for the three months ended
September 30, 1997 from 10.3%, for the same period in 1996.
The Company's selling and promotion expenses increased 66% to
$2,253,600 for the nine months ended September 30, 1997 from $1,357,000 for the
same period in 1996. The increase was primarily due to increases in payroll and
trade show expenses at DBT. As a percentage of total revenues, selling and
promotion decreased to 8.5% for the nine months ended September 30, 1997 from
10.9%, for the same period in 1996.
RESEARCH AND DEVELOPMENT EXPENSES
The Company's research and development expenses increased 16% to
$592,800 for the three months ended September 30, 1997 from $509,300 for the
same period in 1996. This increase was caused by an increase in payroll and
related expenses at DBT. As a percentage of the Company's total revenues,
research and development expenses decreased to 5.9% for the three months ended
September 30, 1997, from 9.6% for the same period in 1996.
The Company's research and development expenses increased 17% to
$1,747,700 for the nine months ended September 30, 1997 from $1,493,000 for the
same period in 1996. This increase was caused by an increase in payroll and
related expenses at DBT. As a percentage of the Company's total revenues,
research and development expenses decreased to 6.6% for the nine months ended
September 30, 1997, from 12% for the same period in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses increased 103% to
$2,357,200 for the three months ended September 30, 1997 from $1,159,000 for the
same period in 1996. This increase was due to the acquisition of ICON and
increases in payroll and related expenses at DBT. Patlex's general and
administrative expenses, which consisted principally of salaries, were $424,700
for the three months ended September 30, 1997. As a percentage of total
revenues, general and administrative expenses remained relatively consistent at
23.3% and 21.8% for the three months ended September 30, 1997 and 1996,
respectively.
The Company's general and administrative expenses increased 124% to
$6,211,100 for the nine months ended September 30, 1997 from $2,778,000 for the
same period in 1996. Excluding Patlex's general and administrative expenses of
$967,600 and $131,000 for the nine months ended September 30, 1997 and 1996,
respectively, the Company's general and administrative expenses increased 98%.
This increase was due to the acquisition of ICON and increases in payroll and
related expenses at DBT. As a percentage of total revenues, general and
administrative expenses remained relatively consistent at 23.4% and 22.3% for
the nine months ended September 30, 1997 and 1996, respectively.
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INTEREST INCOME
Net interest income was $627,700 for the three months ended September
30, 1997 compared to net interest expense of $43,400 for the same period in
1996. The net interest income is due to the Company's investment earnings on
proceeds from the issuance of common stock in May, 1997.
INCOME TAXES
The Company's effective income tax rate was 38% for the nine months
ended September 30, 1997 compared to 40% for the same period in 1996.
NET INCOME
The Company had net income of $3,939,000 for the nine months ended
September 30, 1997 compared to $450,400 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations were $6,449,000 and $885,000
for the nine months ended September 30, 1997 and 1996, respectively. The
Company's capital expenditures of $4,885,300 and $4,970,000 for the nine months
ended September 30, 1997 and 1996, respectively, were primarily attributable to
the acquisition of computer equipment for DBT. The Company had working capital
at September 30, 1997 of $50,545,100 (including cash and cash equivalents of
$23,524,600) compared to $4,417,800 (including cash and cash equivalents of
$6,965,600) at December 31, 1996. The increase in working capital at September
30, 1997 is principally due to receipt by the Company of the proceeds from its
issuance of 1,345,000 shares of common stock in May, 1997. The Company expects
to fund future working capital requirements from its existing cash balances and
cash generated from operations.
INFLATION
The rate of inflation has not had a material impact on the operations
of the Company. Moreover, if inflation remains at its recent levels, it is not
expected to have a material impact on the operations of the Company for the
foreseeable future.
NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS No. 128"), Earnings Per Share, in the fourth
quarter of 1997. The effects of adopting SFAS No. 128 are not expected to be
material in relation to the Company's financial statements.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information contained above with respect to the Company's investment in
its computer facilities and the expansion of its databases, and other statements
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations, regarding expected future events and financial results is
forward-looking and subject to risks and uncertainties. Those statements are
forward-looking statements within the meaning of Section 31E of the Securities
Exchange Act of 1934. The following important factors could affect the future
results of the Company and could cause those results to differ materially from
those expressed in the forward-looking statements: (i) the ability to manage
DBT's rapid expansion, (ii) protecting DBT's proprietary technology, (iii)
impact of future government regulation on the availability of public records,
and (iv) the extent, timing and success of competition from other database
providers.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to report.
ITEM 5. OTHER INFORMATION
TWO-FOR-ONE STOCK SPLIT
On September 16, 1997, the Board of Directors of the Company declared a
two-for-one stock split, payable October 14, 1997 to all shareholders
of record at the close of business on September 26, 1997. As a result
of the stock split, each shareholder of the Company received one
additional share for each share held of record at the close of business
on September 26, 1997.
NEW YORK STOCK EXCHANGE LISTING
On September 17, 1997, the Company listed its common stock on the New
York Stock Exchange. It had previously been listed on the Nasdaq
National Market. The Company's common stock is now trading on the New
York Stock Exchange under the ticker symbol "DBT."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1* Employment Agreement, dated August 15, 1997, between
the Registrant and Charles A. Lieppe.
27.1* Financial Data Schedule (for SEC use only).
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(b) Reports on Form 8-K
Form 8-K dated August 4, 1997, was filed with the Securities
and Exchange Commission on August 6, 1997, reporting under
Item 5 the acquisition of The Information Connectivity Group,
Inc.
Form 8-K dated August 20, 1997, was filed with the Securities
and Exchange Commission on August 22, 1997, reporting under
Item 5 that Charles A. Lieppe was named the President and
Chief Executive Officer.
- ------------
* Filed herewith.
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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.
DBT ONLINE, INC.
/s/ TIMOTHY M. LEONARD
----------------------------------
TIMOTHY M. LEONARD
Vice President, Finance, Treasurer
and Chief Financial Officer
(Duly authorized officer
and chief financial officer)
Date: November 13, 1997
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EXHIBIT INDEX
Exhibit 10.1 Employment Agreement, dated August 15, 1997, between the
Registrant and Charles A. Lieppe.
Exhibit 27 Financial Data Schedule (for SEC use only).
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