SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1998 Commission File Number 0-1738
GENERAL KINETICS INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-0594435
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
14130-A Sullyfield Circle, Chantilly, VA 20151
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 703-802-4848
------------
Indicate by checkmark 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
--- ---
The number of shares of Registrant's Common Stock outstanding
as of January 5, 1998 6,718,925 Shares
INDEX
PAGE NO.
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Cautionary Statement Under the Private Securities Litigation Reform Act of 1996........................... 3
Part I - Financial Information
Item I - Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
February 28, 1998 and May 31, 1997................................................................ 4
Condensed Consolidated Statements of Operations -
Three Months and Nine months Ended February 28, 1998 and February 28, 1997,
respectively....................................................................................... 5
Condensed Consolidated Statements of Cash Flows -
Three Months and Nine months Ended February 28, 1998 and
February 28, 1997, respectively.................................................................... 6
Notes to Condensed Consolidated Financial Statements............................................... 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................... 10
Item 4 - Submission of Matters to a Vote of Security Holders...................................................... 14
Part 2 - Other Information
Item 6 - Exhibits and Reports on Form 8-K.......................................................................... 14
2
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
Statements in this Quarterly Report on Form 10-Q under the caption "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including, but not limited to, the
risk that the Company may not be able to obtain additional financing if
necessary; the risk the Company may in the future have to comply with more
stringent environmental laws or regulations, or more vigorous enforcement
policies of regulatory agencies, and that such compliance could require
substantial expenditures by the Company; the risk that the Company may not be
able to continue the necessary development of its operations on a profitable
basis; and the risk that the Company's Common Stock will not continue to be
quoted on the OTC Bulletin Board services. In addition, the Company's business,
operations and financial condition are subject to substantial risks which are
described in the Company's reports and statements filed from time to time with
the Securities and Exchange Commission, including the Company's annual report on
Form 10-K, as amended, for the fiscal year ended May 31, 1997, and this Report.
PART I FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
The unaudited consolidated financial statements of General Kinetics
Incorporated ("GKI" or the "Company") set forth below have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. The Company believes that the disclosures made are adequate to make
the information presented not misleading.
In the opinion of management of the Company, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of
results for the periods presented. It is suggested that these consolidated
financial statements be read in conjunction with the audited financial
statements for the fiscal years ended May 31, 1997 and 1996 set forth in the
Company's annual report on Form 10-K, as amended, for the fiscal year ended
May 31, 1997.
3
General Kinetics Incorporated
Balance Sheets
February 28, May 31,
1998 1997
(Unaudited) (Audited)
----------- ---------
Assets
Current Assets:
Cash and cash equivalents $ 800,200 $ 1,482,300
Accounts receivable, net of allowance, $208,000 991,900 1,011,000
Inventories 953,500 649,500
Prepaid expenses and other 19,900 20,000
Note Receivable, current 200,000 200,000
Note Receivable, affiliate 175,000 150,000
------------ ------------
Total Current Assets 3,140,500 3,512,800
------------ ------------
Property, Plant and Equipment 4,828,900 4,712,100
Less: Accumulated Depreciation (3,424,500) (3,463,100)
------------ ------------
1,404,400 1,249,000
Note Receivable, less current portion 550,000 550,000
Other Assets 4,200 22,100
------------ ------------
Total Assets $ 5,099,100 $ 5,333,900
============ ============
Liabilities and Stockholders' Deficit
Current Liabilities:
Current maturities of long-term debt 103,000 160,300
Accounts payable, trade 542,900 635,500
Accrued expenses and other payables 644,500 646,600
------------ ------------
Total Current Liabilities 1,290,400 1,442,400
------------ ------------
Long-Term debt - less current maturities (including
$8,744,900 and $8,956,400 due to controlling shareholder) 9,650,600 9,679,300
Other long-term liabilities 256,200 285,000
------------ ------------
Total Long-Term Liabilities 9,906,800 9,964,300
------------ ------------
Total Liabilities 11,197,200 11,406,700
------------ ------------
Stockholders' Deficit:
Common Stock, $0.25 par value, 50,000,000 1,811,500 1,796,500
shares authorized, 7,245,557 shares issued, 6,718,925
shares outstanding
Additional Contributed Capital 7,239,400 7,224,400
Accumulated Deficit (14,698,800) (14,643,500)
------------ ------------
(5,647,900) (5,622,600)
Less: Treasury Stock, at cost (526,632 shares) (450,200) (450,200)
------------ ------------
Total Stockholders' Deficit (6,098,100) (6,072,800)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 5,099,100 $ 5,333,900
============ ============
The accompanying notes are an integral part of the above statements.
Page 4
General Kinetics Incorporated
Statements of Operations
Nine Months Ended Three Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
---- ---- ---- ----
Net Sales $ 4,763,000 $ 6,027,700 $ 1,821,200 $ 1,448,300
Cost of Sales 3,526,900 4,305,500 1,387,500 1,025,900
----------- ----------- ----------- -----------
Gross Profit 1,236,100 1,722,200 433,700 422,400
----------- ----------- ----------- -----------
Selling, General & Administrative 1,104,900 1,161,400 366,000 321,100
Product Research, Development & Improvement -- 59,100 -- --
----------- ----------- ----------- -----------
Total Operating Expenses 1,104,900 1,220,500 366,000 321,100
----------- ----------- ----------- -----------
Operating Income (loss) 131,200 501,700 67,700 101,300
Interest Expense 186,500 268,900 58,600 66,900
----------- ----------- ----------- -----------
Income (loss) from continuing operations (55,300) 232,800 9,100 34,400
Income (loss) from discontinued operations -- (185,000) -- 89,700
----------- ----------- ----------- -----------
Net Income (loss) $ (55,300) $ 47,800 $ 9,100 $ 124,100
----------- ----------- ----------- -----------
Basic Earnings per Share:
Earnings (loss) from continuing operations $ (0.01) $ 0.036 $ 0.001 $ 0.01
Earnings (loss) from discontinued operations -- $ (0.028) -- $ 0.01
----------- ----------- ----------- -----------
Basic Earnings (loss) per share $ (0.01) $ 0.007 $ 0.001 $ 0.02
=========== =========== =========== ===========
Weighted Average Number of Common Shares
Outstanding 6,718,925 6,508,925 6,718,925 6,508,925
----------- ----------- ----------- -----------
Diluted Earnings per Share:
Earnings (loss) from continuing operations $ 0.001 $ 0.012 $ 0.001 $ 0.002
Earnings (loss) from discontinued operations $ -- $ (0.007) $ -- $ 0.004
----------- ----------- ----------- -----------
Diluted Earnings (loss) per share $ 0.001 $ 0.005 $ 0.001 $ 0.006
----------- ----------- ----------- -----------
Weighted Average Number of Common Shares
and Dilutive Equivalents Outstanding 25,508,925 25,508,925 25,508,925 25,508,925
----------- ----------- ----------- -----------
The accompanying notes are an integral part of the above statements.
Page 5
General Kinetics Incorporated
Statements of Cash Flows
Nine Months Ended
February 28, February 28,
------------ ------------
1998 1997
---- ----
Cash Flows From Operating Activities:
Net Income/(Loss) $ (55,300) $ 47,800
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 123,200 168,700
Gain on disposition of discontinued operations (117,000)
Amortization of bond discount 48,500 48,500
(Increase) Decrease in Assets:
Accounts Receivable 19,100 (434,700)
Inventories (304,000) 278,800
Prepaid Expenses 100 (35,200)
Other assets 17,900 82,400
Increase (Decrease) in Liabilities:
Accounts Payable - Trade (92,600) (214,400)
Accrued Expenses (2,100) (21,200)
Other Long-Term Liabilities (28,800) (29,300)
----------- -----------
Net cash provided by/(used in) Operating Activites (274,000) (225,600)
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (278,600) (113,100)
Convertible note receivable from affiliate (125,000)
Net proceeds from disposition of discontined operations -- 1,535,800
Issuance of Notes Receivable (25,000) --
----------- -----------
Net cash provided by/(used in) Investing Activities (303,600) 1,297,700
----------- -----------
Cash Flows from Financing Activities:
Advances from Factor/Borrowings
on Demand Notes Payable -- 1,543,900
Repayments of Advances from Factor/
Demand Notes Payable -- (1,690,400)
Borrowings on Long-Term Debt -- --
Repayments on Long-Term Debt (104,500) (140,400)
----------- -----------
Net cash provided by/(used in) Financing Activities (104,500) (286,900)
----------- -----------
Net (decrease) increase in cash and cash equivalents (682,100) 785,200
Cash and Cash Equivalents: Beginning of Period 1,482,300 364,100
----------- -----------
Cash and Cash Equivalents: End of Period $ 800,200 $ 1,149,300
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 161,500 $ 334,274
Income Taxes 800 800
Supplemental Disclosures of Non Cash Investing
and Financing Activities
Note received upon disposition of discontinued operations -- $ 750,000
The accompanying notes are an integral part of the above statements.
Page 6
GENERAL KINETICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The condensed consolidated financial statements at May 31, 1997, and
for the three months and nine months ended February 28, 1998, and February 28,
1997, respectively, include the accounts of General Kinetics Incorporated
("GKI").
The financial information included herein is unaudited. In addition,
the financial information does not include all disclosures required under
generally accepted accounting principles in that certain note information
included in the Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
presentation of the results of the interim periods.
The results of operations for the three month and nine month periods
ended February 28, 1998, are not necessarily indicative of the results to be
expected for the full year.
Note 2 - Discontinued Operations
As of December 5, 1996, GKI completed the sale of the business of its
secure communications division ("SCD") to Cryptek Secure Communications, LLC
("Cryptek"), a Delaware limited liability company, the majority of whose equity
interests are owned by affiliates of Angelo Gordon & Co., L.P. As of May 30,
1997, the Company sold the stock in its wholly owned Food Technology Corporation
("FTC") subsidiary to the former Vice President and general manager of FTC. Both
SCD and FTC had experienced operating losses during the prior fiscal year.
The statements of operations for the three months and nine months ended
February 28, 1997 have been restated and the operating results of SCD and FTC
are shown separately as part of discontinued operations. The net loss for SCD
was $0 and $240,700 on net sales of approximately $700 and $1,626,300 for the
three months and nine months ended February 28, 1997, respectively. The net loss
for FTC was $27,300 and $61,300 on net sales of approximately $29,000 and
$176,600 for the three months and nine months ended February 28, 1997,
respectively. During the quarter ended February 28, 1997, the Company recorded a
gain on the sale of the secure communications division of $117,000. The total
net income/(loss) from discontinued operations was $89,700 and ($185,000) for
the three months and nine months ended February 28, 1997, respectively.
7
Note 3 - Net Income/(Loss) Per Share
For the quarter ended February 28, 1998, the Company adopted the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. Diluted earnings per share includes
approximately 18.8 million shares issuable upon conversion of Convertible
Subordinated Debentures issued to the Company's principal shareholder, Rabo
Investment Management Ltd. ("Rabo"), formerly Gutzwiller & Partner, AG.
Note 4 - Notes Payable
At February 28, 1998 and May 31, 1997 convertible debentures initially issued
to Rabo have an aggregate principal amount of $9.4 million, mature in August
2004, are convertible into common stock at a conversion price of 50 cents per
share, and bear interest at 1% per annum, which is payable annually. Shares
issuable upon conversion are also subject to certain rights to registration
under the Securities Act of 1933, as amended.
Other Real Estate Mortgage Loans
The Company was in violation of certain loan covenants of the real estate
mortgage agreement on the Company's Johnstown, Pennsylvania facility as of
February 28, 1998, however, the lender has agreed to waive the violations
through May 31, 1998.
Note 5 - Real Estate
Subsequent to quarter end, on April 3, 1998, the Company completed the
sale of its Orlando, Florida facility to an unrelated third party for $625,000.
The Company estimates that there will be a gain, net of related expenses, of
approximately $170,000 on the sale of the facility. During the past two fiscal
years, less than 2% of the Company's sales were manufactured in the Orlando
facility, and the Company believes that the Johnstown facility is adequate to
meet its current production requirements and has adequate excess capacity to
provide for the Company's expected short-term growth.
8
Note 6 - Notes Receivable
The Company did not receive as scheduled in December 1997 the $200,000 first
installment of the principal due from Cryptek on the $750,000 secured promissory
note which formed a portion of the consideration received from Cryptek in the
disposition of the Company's secure communications business in December 1996.
Representatives of the Company and Cryptek are discussing certain issues
relating to that disposition, which Cryptek believes may be relevant to such
payment, but the Company does not believe that there is any basis for
non-payment. Due to this belief and the fact that the note is secured by certain
inventory and fixed assets of Cryptek, the accompanying financial statements at
February 28, 1998 do not include a valuation reserve for the Cryptek note.
The Company has agreed to extend the repayment period for certain outstanding
convertible loans totaling $175,000 to Link2It, LLC. Such loans will now be
scheduled to mature on January 21, 1999.
Note 7 - Income Taxes
The Company's estimated effective tax rate for fiscal 1998 is 0%. This
estimated effective tax rate is lower than the statutory rate due to the
existence of net operating loss carryforwards.
9
GENERAL KINETICS INCORPORATED
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended February 28, 1998, Compared to Three Months Ended
- --------------------------------------------------------------------
February 28, 1997
- -----------------
Continuing Operations
Net sales for continuing operations for the three months ended February 28,
1998 were approximately $1.8 million compared to net sales of approximately $1.5
million for the quarter ended February 28, 1997. The increase in sales was due
primarily to a increase in demand for the three months ended February 28, 1998
as compared to the same period of the prior fiscal year. The gross margin
percentage decreased from 28.6% for the quarter ended February 28, 1997 to 23.8%
for the quarter ended February 28, 1998. The decrease was principally because
contracts completed in the third quarter of fiscal 1998 resulted in lower
margins than those in the corresponding quarter of the prior fiscal year.
Sales, General & Administrative costs were approximately $365,900 in the
third quarter of fiscal 1998 as compared to approximately $333,100 in the third
quarter of the prior fiscal year. This decrease was principally due to a
decrease in corporate overhead due to the sale of the secure communications
business.
For the three months ended February 28, 1998, the Company had operating
income from continuing operations of approximately $9,100 compared to an
operating income of $34,400 for the comparable quarter of the prior year. The
decrease was due principally to the lower gross margin discussed above.
Interest expense decreased from $66,900 in the third quarter of fiscal 1997
to $58,600 in the third quarter of fiscal 1998. This decrease occurred
principally because the Company factored accounts receivable in the prior
fiscal year, but did not factor accounts receivable in the three months ended
February 28, 1998.
The Company's estimated effective tax rate for fiscal 1998 is 0%. This
estimated effective tax rate is lower than the statutory rate due to the
existence of net operating loss carryforwards.
10
Discontinued Operations
The three months ended February 28, 1997 included losses from discontinued
operations of Food Technology Corporation totaling $27,300 on net sales of
approximately $29,000. During the quarter ended February 28, 1997, the Company
recorded a gain on the sale of the secure communications division of $117,000.
The total net income from discontinued operations was $89,700 for the three
months ended February 28, 1997.
Nine months Ended February 28, 1998, Compared to Nine months Ended
- ------------------------------------------------------------------
February 28, 1997
- -----------------
Continuing Operations
Net sales for continuing operations for the nine months ended February 28,
1998 were approximately $4.8 million compared to net sales of approximately $6.0
million for the nine months ended February 28, 1997. The decrease in sales was
due primarily to a decrease in demand for the nine months ended February 28,
1998 as compared to the same period of the prior fiscal year. The gross margin
percentage decreased slightly, from 27.7% for the nine months ended February 28,
1997 to 26.0% for the nine months ended February 28, 1998. The decrease was
principally due to the decrease in sales for the corresponding periods.
Sales, General & Administrative costs were approximately $1,104,900 in the
first nine months of fiscal 1998 as compared to approximately $1,198,700 in the
first nine months of the prior fiscal year. This decrease was principally due to
a decrease in corporate overhead due to the sale of the secure communications
business.
For the nine months ended February 28, 1998, the Company had operating income
from continuing operations of $131,200 compared to a operating income of
$440,400 for the comparable nine months of the prior year. The decrease was due
principally to the decrease in sales and the decrease in the gross profit margin
in the first nine months of fiscal 1998 as compared to the corresponding period
in the prior fiscal year.
Interest expense decreased from $268,900 in the first nine months of fiscal
1997 to $186,500 in the first nine months of fiscal 1998. This decrease occurred
principally because the Company factored accounts receivable in the first half
of the prior fiscal year, but did not factor accounts receivable in the nine
months ended February 28, 1998.
11
Discontinued Operations
The nine months ended February 28, 1997 included losses from discontinued
operations totaling $185,000. The net loss in the secure communications division
was $240,700 on net sales of approximately $1,626,300, and the net loss for Food
Technology Corporation was $61,3000 on net sales of approximately $176,600 for
the nine months ended February 28, 1997. During the quarter ended February 28,
1997, the Company recorded a gain on the sale of the secure communications
division of $117,000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 5, 1996, GKI completed the sale of the business of its secure
communications division ("SCD") to Cryptek Secure Communications, LLC
("Cryptek"), a Delaware limited liability company, the majority of whose equity
interests are owned by affiliates of Angelo Gordon & Co., L.P. As of May 30,
1997, the Company sold the stock in its wholly owned Food Technology Corporation
("FTC") subsidiary to the former Vice President and general manager of FTC. Both
SCD and FTC had experienced operating losses during the 1997 fiscal year.
The Company has suffered recurring losses from operations, and has a net capital
deficiency, that raise substantial doubt about the Company's ability to continue
as a going concern. However, the operating results for fiscal 1997 and 1998
showed significant improvement over the prior three fiscal years.
There was net income of $9,100 in the third quarter of fiscal 1998, which
reduced the net loss to $55,300 for the nine months ended February 28, 1998. The
contract backlog has increased from approximately $1.3 million at May 31, 1997
to approximately $1.7 million at February 28, 1998. The Company must continue to
market electronic enclosure products to government and commercial markets, and
enter into contracts which the Company can complete with favorable profit
margins, in order to operate profitably for the remainder of fiscal 1998.
The Company did not receive as scheduled in December 1997 the $200,000 first
installment of the principal due from Cryptek on the $750,000 secured promissory
note which formed a portion of the consideration received from Cryptek in the
disposition of the Company's secure communications business in December 1996.
Representatives of the Company and Cryptek are discussing certain issues
relating to that disposition, which Cryptek believes may be relevant to such
payment, but the Company does not believe that there is any basis for
non-payment. Due to this belief and the fact that the note is secured by certain
inventory and fixed assets of Cryptek, the accompanying financial statements at
February 28, 1998 do not include a valuation reserve for the Cryptek note.
12
The Company has outstanding debentures originally issued to Gutzwiller &
Partner, A.G., now Rabo Investment Management Ltd. ("Rabo"), totaling $9.4
million. The debentures mature in August 2004, are convertible into common stock
at a conversion price of 50 cents per share, and bear interest at 1% per annum
payable annually.
In June 1993, the Company entered into a factoring agreement with Reservoir
Capital Corporation ("Reservoir") in which Reservoir agreed to purchase eligible
accounts receivable from the Company at an assignment price equal to 80% of the
outstanding amount of such accounts receivable. The factoring agreement with
Reservoir was renewed in December 1994, and continues on a month-to-month basis.
At February 28, 1998, there was no balance due Reservoir. The Company does not
expect to continue to draw on this credit facility, but it is available in the
future to alleviate short-term cash requirements.
As of February 28, 1998, the Company had a balance of approximately $800,200
million in cash and cash equivalents. Management believes that cash on hand and
careful management of operating costs and cash disbursements should enable the
Company to meet its cash requirements through May 31, 1998.
Analysis of Cash Flows
Operating activities used approximately $274,000 in cash in the first nine
months of fiscal 1998. This reflects a net loss of $55,300 plus $390,400 in cash
to fund changes in working capital items, offset by $171,700 in non-cash
expenses. The cash used to fund working capital items was principally due to an
increase in inventories of $304,000 during the nine months ended February 28,
1998. This increase in inventories was due to the increase in contract backlog
on February 28, 1998 as compared to May 31, 1997.
Investing activities used $303,600 in the first nine months of fiscal 1998. The
Company acquired property, plant and equipment totaling $278,600, which included
approximately $165,100 for hardware and software for an upgraded accounting and
MIS system.
Financing activities used $104,500 in the nine months ended February 28, 1998,
which was used to repay certain long-term real estate debt.
13
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on January 16, 1998, the following
matters were voted on and approved:
1. Richard McConnell was elected as a Class III director for a term expiring
in 2000 or until his successor is elected and qualified. 4,670,039 shares
of common stock, or 99.1% of the shares voting, voted in favor of Mr.
McConnell, and 40,153, or 0.9% of the shares voting, withheld authority
to vote for Mr. McConnell. In addition to Mr. McConnell, Larry
Heimendinger remained as a Class I director and Marc Cotnoir remained as
a Class II director.
2. The Board's selection of BDO Seidman as the Company's independent public
accountants for the fiscal year ended May 31, 1998 was ratified.
4,682,625 shares of common stock, or 99.4% of the shares voting, voted in
favor of the proposal. 23,104 shares, or 0.5% of the shares voting, voted
against and 4,463, or 0.1% of the shares voting, abstained.
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports of Form 8-K
None
14
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.
GENERAL KINETICS INCORPORATED
Date: April 14, 1998 /s/ Larry M. Heimendinger
__________________ _____________________________
Chairman of the Board
(Principal Executive Officer)
Date: April 14, 1998 /s/ Sandy B. Sewitch
__________________ ______________________________
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
15