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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________________
COMMISSION FILE NUMBER: 0-29292
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HAGLER BAILLY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
DELAWARE 54-1759180
(State or other jurisdiction of incorporation or organization) I.R.S. Employer Identification Number
</TABLE>
1530 WILSON BOULEVARD, SUITE 400, ARLINGTON, VA 22209
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
703-351-0300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 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. [X] Yes [ ] No
As of July 31, 2000, the Registrant had 17,927,812 shares of its common stock
outstanding.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
ITEM 1. FINANCIAL STATEMENTS ..............................................1
CONSOLIDATED BALANCE SHEETS (UNAUDITED) ...............................1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) .....................2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) .....................3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................................7
PART II
ITEM 1. LEGAL PROCEEDINGS ................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............13
ITEM 5. OTHER INFORMATION ................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................14
SIGNATURES ...............................................................22
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
HAGLER BAILLY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,352 $ 9,656
Accounts receivable, net of allowance for doubtful accounts of
$5,258 and $5,604 as of June 30, 2000 and December 31, 1999,
respectively 58,685 63,034
Current portion of notes receivable - 25
Prepaid expenses 2,662 2,173
Prepaid taxes 2,993 5,915
Deferred income taxes 1,701 1,701
Other current assets 1,234 960
---------------------------
Total current assets 72,627 83,464
Property and equipment, net 7,684 8,271
Intangible assets, net 21,524 22,449
Other assets 625 1,475
Note receivable, net of current portion 550 550
---------------------------
Total assets $ 103,010 $ 116,209
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 9,341 $ 13,948
Accrued compensation and benefits 12,326 19,072
Billings in excess of cost 3,853 5,812
Bank line of credit 3,391 -
Current portion of long-term debt 346 333
---------------------------
Total current liabilities 29,257 39,165
Deferred income taxes 2,383 2,383
Minority interest 9 8
Deferred rent and other deferred liabilities 1,928 2,028
Long-term debt, net of current portion 333 333
---------------------------
Total liabilities 33,910 43,917
Stockholders' equity:
Common stock, $0.01 par value, 50,000 shares authorized,
17,928 and 17,911 issued and outstanding at June 30, 2000
and December 31, 1999, respectively 179 179
Additional capital 81,083 80,996
Accumulated deficit (11,927) (8,718)
Foreign currency translation (235) (165)
---------------------------
Total stockholders' equity 69,100 72,292
---------------------------
Total liabilities and stockholders' equity $ 103,010 $ 116,209
===========================
</TABLE>
See accompanying notes.
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HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Commercial revenues $28,545 $31,277 $58,739 $61,134
Government revenues 12,204 12,960 23,579 22,790
Other revenues 327 320 677 863
-------- -------- -------- --------
Total revenues 41,076 44,557 82,995 84,787
Cost of services 31,506 33,718 64,083 64,341
-------- -------- -------- --------
Gross profit 9,570 10,839 18,912 20,446
Selling, general and administrative expenses 15,233 8,161 23,081 15,744
-------- -------- -------- --------
Income (loss) from operations (5,663) 2,678 (4,169) 4,702
Other income (expense) (118) 4 (130) 91
-------- -------- -------- --------
Income (loss) before income tax benefit
(expense) and income (loss) from equity
investment in joint venture (5,781) 2,682 (4,299) 4,793
Income tax benefit (expense) 1,803 (1,085) 992 (1,871)
-------- -------- -------- --------
Income (loss) before income (loss) from
equity investment in joint venture (3,978) 1,597 (3,307) 2,922
Income (loss) from equity investment in joint
venture 51 (87) 98 (230)
-------- -------- -------- --------
Net income (loss) ($3,927) $1,510 ($3,209) $2,692
======== ======== ======== ========
Net income per share:
Basic: ($.22) $.09 ($.18) $.16
Diluted: ($.22) $.09 ($.18) $.16
Weighted average shares outstanding:
Basic 17,928 16,508 17,920 16,533
======== ======== ======== ========
Diluted 17,928 16,701 17,920 17,041
======== ======== ======== ========
</TABLE>
See accompanying notes.
2
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HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(3,209) $2,692
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization
expense 2,624 2,865
Provision for accounts receivable allowance 1,529 850
Impairment of goodwill 148 -
(Gain)/loss on equity investment in joint
venture (98) 230
Minority interest 1 80
Changes in operating assets and liabilities
Accounts receivable 2,749 (1,658)
Note receivable 25 382
Prepaid expenses (489) (1,075)
Other current assets (274) (319)
Other assets 949 (337)
Accounts payable and accrued expenses (4,621) (1,563)
Accrued compensation and benefits (6,746) 1,083
Billings in excess of cost (1,958) (138)
Deferred rent and other deferred liabilities (99) 37
Income taxes payable (receivable) 2,935 (1,457)
-------- --------
Net cash provided by (used in) operating activities (6,534) 1,672
INVESTING ACTIVITIES
Acquisition of property and equipment (1,260) (1,506)
Purchase of acquired companies - (903)
-------- --------
Net cash provided by (used in) investing activities (1,260) (2,409)
FINANCING ACTIVITIES
Issuance of common stock - 125
Issuance of stock options 86 -
Purchase of treasury stock - (3,947)
Borrowings on line of credit 3,391 -
Borrowings (payments) on long-term debt 13 (19)
-------- --------
Net cash provided by (used in) financing activities 3,490 (3,841)
Net decrease in cash and cash equivalents (4,304) (4,578)
Cash and cash equivalents, beginning of period 9,656 16,165
-------- --------
Cash and cash equivalents, end of period $5,352 $11,587
======== ========
</TABLE>
See accompanying notes.
3
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HAGLER BAILLY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
Hagler Bailly, Inc. (the "Company") have been prepared pursuant to the rules of
the Securities and Exchange Commission ("SEC") for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
reflects all adjustments of a normal recurring nature, which are, in the opinion
of management, necessary for a fair presentation of results for these interim
periods.
The interim results of operations are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 2000.
NOTE 2. EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average
number of shares of common stock outstanding during the respective periods.
Diluted earnings per share is inclusive of the dilutive effect of unexercised
stock options using the treasury stock method.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
(in thousands) (in thousands)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (3,927) $ 1,510 $ (3,209) $ 2,692
========= ========== ========= =======
Weighted average shares of common
stock outstanding during the period 17,928 16,508 17,920 16,533
Effect of dilutive securities:
Stock options - 193 - 508
--------- ---------- --------- -------
Weighted average shares of common
stock and dilutive securities 17,928 16,701 17,920 17,041
========= ========== ========= =======
</TABLE>
NOTE 3. STOCK REPURCHASE PLAN
On March 22, 1999 the Company announced that its Board of Directors had
authorized the repurchase of up to 1.5 million shares of the Company's common
stock from time to time in the open market or in privately negotiated
transactions. To date the Company has repurchased
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559,700 shares. The Company did not repurchase any shares during the quarter
ended June 30, 2000.
NOTE 4. COMPONENTS OF COMPREHENSIVE INCOME
Comprehensive income includes the Company's net earnings adjusted for the
effects, net of tax, of cumulative foreign translation adjustments.
Comprehensive income for the three and six months ended June 30, 2000 and 1999
is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) (in thousands)
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comprehensive income:
Net income $(3,927) $1,510 $(3,209) $2,692
Foreign translation adjustment, net (84) (42) (70) (71)
------- ------- ------- -------
Total comprehensive income: $(4,011) $1,468 $(3,279) $2,621
======= ====== ======= ======
</TABLE>
NOTE 5. EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK OPTION AND RESTRICTED STOCK
PLAN
On February 2, 2000, the Board approved an amendment to the Employee Incentive
and Non-Qualified Stock Option and Restricted Stock Plan ("the Plan"), subject
to shareholder approval, to increase the number of shares of common stock
authorized to be issued under the Plan from five million to eight million. On
May 11, 2000 the shareholders of the Company approved this amendment to the
Plan.
NOTE 6. SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"). FAS 131 supercedes FAS 14
Financial Reporting for Segments of a Business Enterprise, replacing the
industry segment approach with the management approach, which requires
segmentation based upon the Company's internal organizational structure that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments.
The Company began organizing, reporting and managing its business as two
segments in 1999. Accordingly, the Company adopted FAS 131 in 1999, and all
prior periods have been presented to conform to the requirements of this
statement. The segments, which are based on differences in the Company's client
base, are Commercial Consulting and Government Consulting. Commercial Consulting
consists primarily of providing strategic advice and analysis to businesses in
developed countries on issues such as energy, transportation,
telecommunications, the environment, litigation and other matters. Government
Consulting consists primarily of providing advisory and technical services to
government sector clients
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worldwide in the energy and network industries (mainly in water and
transportation) and with respect to the environment.
The Company has subsidiaries in 11 countries outside North America which,
in aggregate, represent 13.7% of consolidated revenues. There is no single
foreign country for which revenues exceed 10.0% of consolidated revenues.
Revenues based on work performed for the United States Agency for International
Development (USAID) represent 59.5% of the Government Consulting segment's
consolidated revenues and 16.9% of the Company's consolidated revenues. The loss
of this client could have a material adverse effect on the Company's business,
financial condition and results of operations.
The following table presents revenue and income (loss) from operations
data by segment:
<TABLE>
<CAPTION>
For the three months For the six months ended
Ended June 30, June 30,
(in thousands) (in thousands)
Segment Information 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Commercial Consulting $28,545 $31,277 $58,739 $61,134
Government Consulting 12,204 12,960 23,579 22,790
Other 327 320 677 863
-------- -------- -------- --------
Total $41,076 $44,557 $82,995 $84,787
======== ======== ======== ========
Income (loss) from operations
Commercial consulting $1,702 $2,527 $3,558 $4,965
Government consulting 934 385 817 63
-------- -------- -------- --------
Segment Total 2,636 2,912 4,375 5,028
Other (8,299) (234) (8,544) (326)
-------- -------- -------- --------
Total ($5,663) $2,678 ($4,169) $4,702
======== ======== ======== ========
</TABLE>
NOTE 7. SUBSEQUENT EVENTS
On July 14, 2000, the Company sold all the assets of its wholly owned
subsidiary, Fieldston Publications, Inc., to Energy Argus, Inc. for $800,000 in
cash.
On August 2, 2000, $1.738 million was paid to Henri-Claude A. Bailly, Chairman
of the Board of Directors of the Company, as a result of his election to
terminate his employment agreement with the Company. Mr. Bailly had the right to
terminate the agreement upon a change of control (as defined in the agreement).
The resignation of William E. Dickenson, former President and Chief Executive
Officer of the Company on May 11, 2000, was an event that constituted a change
of control as defined in the agreement.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations that are not historical in nature are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. Forward-looking statements may be
identified by words including "anticipate," "believe," "estimate," "expect" and
similar expressions. The Company cautions readers that forward-looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, and income, are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements, due to
several important factors, such as concentration of the Company's revenues from
a relatively limited number of public and private clients involved in the energy
and network industries; the Company's ability to attract, retain and manage
professional and administrative staff; fluctuations in quarterly results; risks
related to acquisitions; and the fact that historical operations and performance
are not necessarily indicative of future operations and performance, among
others; and other risks and factors identified from time to time in the
Company's reports filed with the SEC, including the risk factors identified in
the Company's Registration Statement (No. 333-22207) on Form S-1 and the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The Company, together with its wholly owned subsidiaries, PHB Hagler
Bailly, Inc., Hagler Bailly Services, Inc., and its other domestic and foreign
wholly owned subsidiaries, is a leading worldwide provider of strategy,
economics and operations consulting services to clients in the energy and
network industries (including electric power, natural gas and water utilities,
and fuel providers), aviation transportation, telecommunications, commercial
litigation and the environment. As of June 30, 2000, the Company employed a
staff of 678, of which over two-thirds were consulting and technical
professionals. The Company's common stock is quoted on the NASDAQ National
Market under the symbol "HBIX".
The Company's revenues consist of commercial consulting revenues,
government consulting revenues and other revenues. Commercial consulting
revenues represent revenues billed at commercial rates for professional staff,
subcontractors and independent consultants, and client reimbursable expenses.
Commercial revenues are associated with the Company's primary business of
providing strategic advice and analysis to businesses in developed countries on
issues involving energy, transportation, telecommunications, commercial
litigation, the environment and other matters. Government consulting revenues
represent revenues billed at government rates for professional staff,
subcontractors and independent consultants, and client reimbursable expenses.
Government revenues are associated with providing advisory and technical
services to government sector clients worldwide in the energy and network
industries, particularly in water and transportation, and with respect to the
environment. Other revenues include and have included those derived from
information-based products and services, financial advisory services, and
publication of newsletters, reference manuals, and data series for the energy
and
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transportation industries. Revenue from commercial consulting is typically
characterized by higher gross margins than revenue from government consulting,
yet generally requires a higher level of infrastructure support. Consequently,
the Company's operating performance is affected by its commercial
consulting/government consulting business mix. Through strategic acquisitions
and internal growth, the Company has increased its commercial consulting client
base, and expects to continue to pursue such opportunities in the future.
On September 27, 1999, the Company announced that its Board of Directors
had retained Banc of America Securities LLC to assist the Company in exploring
strategic and financial alternatives to maximize shareholder value, including
the potential sale or merger of the Company. On June 19, 2000, the Company
announced that it had signed a definitive agreement with PA Holdings Limited and
certain of its affiliates ("PA"), a privately held management systems and
technology consulting firm headquartered in London, England, to sell all of its
outstanding shares of common stock for cash at a price of $5.32 per share,
subject to adjustment.
During the second quarter of 2000, the Company recognized $8.088 million
of compensation expense to two of its former and one of its current officers. On
May 11, 2000, William E. Dickenson, a former Director and President and Chief
Executive Officer of the Company, was paid a lump-sum amount of $2.376 million
pursuant to an Employment Separation Agreement and General Release dated May 3,
2000 between him and the Company. On May 12, 2000, Howard W. Pifer III, formerly
a member of the Board of Directors and Chairman of the Board of Directors of the
Company's wholly owned subsidiary PHB Hagler Bailly, Inc., exercised his right
to terminate his employment agreement with the Company. This action resulted in
a lump-sum payment to Mr. Pifer of $1.526 million on June 9, 2000, and
additionally the payment of $1.145 million in equal semi-monthly installments
over the succeeding 36 months. As of June 30, 2000, Henri-Claude A. Bailly,
Chairman of the Board of Directors of the Company, decided to terminate his
employment agreement with the Company, in accordance with the terms thereof.
This action resulted in a lump-sum payment to him of $1.738 million on August 2,
2000, and an additional payment of $1.303 million payable in equal semi-monthly
installments over the succeeding 36 months.
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RESULTS OF OPERATIONS
The following table presents for the periods indicated the percentage of
revenues represented by certain income and expense items, and the percentage
period-to-period increase (decrease) in such items:
<TABLE>
<CAPTION>
% Period-to- % Period-to-
Period Period
Percentage Increase Percentage Increase
of Revenues (Decrease) of Revenues (Decrease)
-------------------- --------------- ----------------------- -----------------
Three months Six months
ended June 30, ended June
Three months 2000 Six months ended 30, 2000
ended June 30, compared to June 30, compared to
three months six months
ended June ended June
30, 1999 30, 1999
-------------------- --------------- ----------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Commercial revenue 69.5% 70.2% (8.7)% 70.8% 72.1% (3.9)%
Government revenue 29.7 29.1 (5.8) 28.4 26.9 3.5
Other revenue 0.8 .7 2.2 .8 1.0 (21.6)
Total revenues 100.0 100.0 (7.8) 100.0 100.0 (2.1)
Cost of services 76.7 75.7 (6.6) 77.2 75.9 (.4)
Selling, general, and
administrative expenses 37.1 18.3 86.7 27.8 18.6 46.6
Income (loss) from
operations (13.8) 6.0 (311.5) (5.0) 5.5 (188.7)
Other income (expense), net (.3) 0.0 (3,050.0) (.2) .1 (242.9)
Income (loss) before income
tax benefit (expense) and
income (loss) from equity
investment in joint venture (14.1) 5.8 (315.5) (5.2) 5.6 (190.0)
Income tax benefit (expense) 4.4 (2.4) 266.2 1.2 (2.2) 153.0
Net income (loss) before
income (loss) from equity
investment in joint venture (9.7) 3.6 (349.1) (4.0) 3.4 (213.2)
Income (loss) from joint
venture 0.1 (.2) 158.6 .1 (.2) 142.6
Net income (loss) (9.6) 3.4 (360.1) (3.9) 3.2 (219.2)
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000, COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Revenues for the three months ended June 30, 2000 decreased $3.5 million,
or 7.8%, to $41.1 million as compared to the three months ended June 30, 1999.
Revenues from the Company's commercial consulting operating segment decreased
$2.7 million, or 8.7%, to $28.5 million for the three months ended June 30,
2000. This decrease in commercial consulting
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revenues can be attributed primarily to a reduction in staff and the number of
overall contracts, especially in the energy and litigation practices, and to the
divestiture of IGA, which generated $1.3 million of revenues during the second
quarter of 1999. This decrease was offset by an increase of $3.5 million of
revenue generated by GKMG (acquired in the third quarter of 1999) during the
second quarter of 2000, and by an additional $2 million of revenue generated by
Hagler Bailly Risk Advisors, Inc. ("HBRA") during the three months ended June
30, 2000 in comparison to the three months ended June 30, 1999. In the Company's
government consulting operating segment, revenues generated during the second
quarter of 2000 decreased by approximately $.8 million, or 6.2%, to $12.2
million. This reduction was primarily due to a reduction in the number of
consultants within the transportation practice.
Cost of services for the three months ended June 30, 2000 decreased by
$2.2 million, or 6.5%, to $31.5 million as compared to the three months ended
June 30, 1999. This decrease is primarily the result of a reduction in
compensation expenses associated with the decrease in the number of consultants
on staff.
Selling, general and administrative ("SG&A") expenses during the three
months ended June 30, 2000 totaled over $15.2 million. Approximately $8.1
million of this amount is the compensation expense for three members of
executive management, one of whom resigned and two of whom terminated their
employment agreements with the Company. Excluding this amount, SG&A decreased by
approximately $1.1 million, or about 13.4%. This change is due primarily to a
reduction in facility costs and business development expenses.
"Other income (expense), net" includes interest income, interest expense,
minority interest and other income and expense items. The major reason for the
increase in expense, from net income of approximately $4,000 to a net expense of
about $118,000 is interest expense. During the second quarter, the Company
borrowed on its line of credit to fund the compensation payouts detailed above.
As a result of the losses sustained by the Company, primarily the result
of one-time termination compensation costs, the Company reported a tax benefit
of about $1.8 million for the second quarter of 2000 (a rate of 31.2%), compared
to income tax expense of $1.1 million (a rate of 41.8%) in the second quarter of
1999.
SIX MONTHS ENDED JUNE 30, 2000, COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Revenues for the six months ended June 30, 2000 decreased $1.8 million,
or 2.1%, to $83 million, as compared to the six months ended June 30, 1999. In
the commercial consulting segment, revenues were $2.4 million, or 3.9%, less
during the first six months of 2000 compared to the $61.1 million reported in
the first six months of 1999. This decrease is primarily attributable to a
reduction in staff and the number of overall contracts within the energy and
litigation practices, and to the divestiture of IGA, which generated revenues of
about $2.4 million during the six month period ended June 30, 1999. These
decreases were offset by approximately $7.8 million of revenue generated by
GKMG, acquired during the third quarter of 1999, and by an increase of $3.2
million in revenues generated by HBRA during the first six months of 2000
compared to the first six months of 1999. Revenues from the Company's
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government consulting segment of the business increased by about $.8 million, or
3.5%, to $23.6 million for the six months ended June 30, 2000. This increase was
primarily attributable to an increase in pass-through equipment sales.
Cost of services for the six months ended June 30, 2000 decreased by
approximately $.3 million, or .4%, from $64.3 million during the six months
ended June 30, 1999. This small decrease for the six months ended June 30, 2000
is primarily attributable to a reduction of compensation expenses as a result
of a reduction in staff compared to the six months ended June 30, 1999, offset
by an increase in compensation cost due to retention bonuses recognized during
the current fiscal year.
SG&A expenses for the first six months of 2000 totaled $23.1 million, and
included $8.1 million of termination compensation for three members of executive
management. Exclusive of this one-time expense item, the resultant $15 million
of SG&A cost was $.7 million, or 4.8%, less than the $15.7 million for the six
months ended June 30, 1999. The primary reason for this reduction in cost is
lower facility and business development expenses.
"Other income (expense), net" includes interest expense, interest income,
minority interest and other income and expenses. For the six months ended June
30, 2000, other income (expenses), net decreased approximately $221,000 to an
expense of approximately $130,000 from the six months ended June 30, 1999. The
most significant change is a net interest expense of about $150,000 during the
six months ended June 30, 2000, compared to net interest income of $19,000 for
the six months ended June 30, 1999.
As a result of the losses sustained by the Company, primarily the result
of one-time termination compensation costs, the Company reported a tax benefit
of about $1 million for the six month period ended June 30, 2000 (a rate of
23.6%), compared to income tax expense of $1.9 million (a rate of 41%) for the
six months ended June 30, 1999.
Net income for the six months ended June 30, 2000 decreased by $5.9
million from the $2.7 million recognized for the first six months of 1999. The
reasons for this loss of $3.2 million are detailed above.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, working capital decreased to $43.4 million from
$44.3 million at December 31, 1999 due primarily to the utilization of cash to
pay termination compensation, resulting in the need to borrow $3.4 million on
the line of credit.
Net cash of approximately $6.5 million was used by operating activities
during the six months ended June 30, 2000. The primary uses of cash from
operating activities were the reduction of accounts payable and the payment of
bonuses (combined in excess of $11.3 million). This was offset partially by cash
provided by a reduction in both accounts receivable and prepaid income taxes.
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<PAGE> 14
Investment activities used approximately $1.3 million during the six
months ending June 30, 2000, due to the purchase of property and equipment.
As a part of its financing activities, the Company borrowed approximately
$3.4 million on its available bank line of credit during the six months ended
June 30, 2000.
The Company's primary source of liquidity for the past 12 months was cash
generated from operations, periodically supplemented by borrowings under a
revolving credit facility with Bank of America, N.A. (formerly NationsBank,
N.A.). The Company renegotiated the terms of its credit facility in the second
quarter 2000. The borrowing limit under the credit facility, capped at a maximum
limit of $18 million, is based on certain financial formulas. Based on these
formulas the available balance at June 30, 2000 was $11.4 million. For the
quarter ended June 30, 2000 the Company was in non-compliance with certain
covenants, which non-compliance Bank of America has waived. Based on the
Company's current projected cash flow and the expected availability of
financing, including borrowings under the Company's credit facility, management
of the Company believes it will be able to meet its anticipated cash
requirements for the next 12 months and for the foreseeable future.
YEAR 2000
The company experienced no significant system or application problems
resulting from the Year 2000 roll-over or from the Year 2000 "leap year" on
February 29, 2000. The Company will continue to maintain Year 2000 contingency
plans with regard to its computer programs and systems and those of its clients,
suppliers and vendors.
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<PAGE> 15
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to
litigation arising in the ordinary course of business. Neither the Company nor
any of its subsidiaries is a party to any pending material litigation nor are
any of them aware of any pending or threatened litigation that would have a
material adverse effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 11, 2000, the
stockholders voted on the (i) election of two directors to serve three-year
terms ending at the 2003 Annual Meeting of Stockholders; (ii) ratification and
approval of an amendment to the Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan (the "Stock Option Plan");
and (iii) ratification of Ernst & Young LLP as independent auditors for the
fiscal year ending December 31, 1999. A total of 9,046,005 shares of the
Company's common stock were represented at the Annual Meeting of Stockholders,
which constituted a quorum. Each of the matters voted upon was adopted, approved
or ratified by the stockholders. The voting for each item was as follows:
<TABLE>
<CAPTION>
The Election of Directors:
--------------------------
Name For Withheld
---- --- --------
<S> <C> <C>
Henri-Claude Bailly 8,194,976 851,029
Alain M. Streicher 8,187,476 858,529
</TABLE>
The Ratification of the Amendment to the Stock Option Plan:
<TABLE>
<CAPTION>
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
4,267,778 3,253,474 439,458
</TABLE>
The Ratification of the Selection of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 2000:
<TABLE>
<CAPTION>
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
8,910,737 135,228 40
</TABLE>
ITEM 5. OTHER INFORMATION
On August 12, 1999, the Company acquired all of the outstanding stock of
GKMG, Inc., a Washington, D.C. based consulting firm specializing in economic,
strategic, financial and regulatory analysis for the aviation industry. Under
the terms of the Share Exchange Agreement by and among the Company, GKMG and
former stockholders of GKMG, the former stockholders of GKMG received 1,420,000
shares of common stock and additional contingent consideration of up to $15
million.
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<PAGE> 16
As a condition of the closing of the sale of the Company to PA, the
Company is required to amend certain terms of the Share Exchange Agreement. If
the Share Exchange Agreement had not been amended as contemplated under the
agreement with PA, the consideration of $5.32 per share could have been reduced.
On June 30, 2000, the Company entered into a First Amendment to the Share
Exchange Agreement, pursuant to which the Company and the former stockholders of
GKMG amended the Share Exchange Agreement with respect to certain contingent
payment obligations as well as certain other terms. The effectiveness of the
First Amendment, with the exception of certain terms relating to the timing of
the payment of contingent consideration to the GKMG stockholders and relating to
the tolling of indemnity claims against the GKMG stockholders, is conditioned on
the closing of the sale of the Company to PA. PA has approved the terms of the
First Amendment and agreed that there will be no downward adjustment to the
consideration of $5.32 per share as a result of the First Amendment or the Share
Exchange Agreement. The Share Exchange Agreement and the First Amendment are
attached hereto as Exhibits 2.3 and 2.6, respectively, and are incorporated by
reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Sale Agreement between RCG International, Inc., and Hagler Bailly
Consulting, Inc. (1)
2.2 Agreement and Plan of Merger by and among Hagler Bailly, Inc., PHB
Acquisition Corp. and Putnam, Hayes and Bartlett, Inc., dated as of June
11, 1998. (5)
2.3 Share Exchange Agreement dated as of August 12, 1999 by and among Hagler
Bailly, Inc., GKMG, Inc. and certain former shareholders of GKMG,
Inc. (11)
2.4 Agreement and Plan Merger by and among Hagler Bailly, Inc., PA Consulting
Group, Inc., PA Holdings Inc. and PA Holdings Limited dated as of June
19, 2000. (14)
2.5 Voting Agreement dated as of June 19, 2000 by and among PA Consulting
Group, Inc., PA Holdings, Inc. and certain shareholders of Hagler Bailly,
Inc. (14)
2.6 First Amendment entered into as of the 30th day of June, 2000 to the
Share Exchange Agreement dated as of August 12, 1999 by and among Hagler
Bailly, Inc., GKMG, Inc. and certain former stockholders of GKMG, Inc.
3.1 Amended Restated Certificate of Incorporation of the Company. (7)
3.2 By-Laws of the Company, as amended. (6)
4 Specimen Stock Certificates. (1)
</TABLE>
14
<PAGE> 17
<TABLE>
<S> <C>
4.1 Registration Rights Agreement dated November 18, 1997 by and between
Hagler Bailly, Inc. and Richard R. Mudge, acting as Stockholders'
Representative. (3)
4.2 Form of Escrow Agreement by and among the Company, PHB Acquisition Corp.,
William E. Dickenson as Stockholders' Representative and State Street
Bank and Trust Company, as Escrow Agent. (5)
4.3 Registration Rights Agreement dated February 23, 1998 by and between
Hagler Bailly, Inc. and Michael J. Beck, acting as Stockholders'
Representative. (9)
4.4 Registration Rights Agreement dated November 17, 1998 by and between
Hagler Bailly, Inc. and the stockholders of Fieldston Publications, Inc.
and The Fieldston Company. (9)
4.5 Registration Rights Agreement dated as of August 12, 1999 by and between
Hagler Bailly, Inc. and James F. Miller, acting as Stockholders'
Representative. (11)
10.2 Form of Non-Compete, Confidentiality and Registration Rights Agreement
between the Company and each stockholder. (1)
10.3 Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated October 25, 1991. (1)
10.4 First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler
Bailly, Inc., dated February 26, 1993. (1)
10.5 Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler
Bailly, Inc. dated December 12, 1994. (1)
10.6 Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated
May 8, 1996. (1)
10.7 Lease by and between L.C. Fulenwider, Inc., and RCG/Hagler Bailly, Inc. dated
December 14, 1994. (1)
10.8 Lease by and between University of Research Park Facilities Corp. and RCG/Hagler
Bailly, Inc., dated April 1, 1995. (1)
10.9 Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank
and Trust Company, dated May 17, 1995. (1)
10.10 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State
Street Bank and Trust Company, dated as of June 20,1996. (1)
10.11 Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of August 1, 1996. (1)
</TABLE>
15
<PAGE> 18
<TABLE>
<S> <C>
10.12 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company, dated as of November 12, 1996. (1)
10.13 Term Note by and between Hagler Bailly Consulting, Inc., and State Street Bank
and Trust Company, dated May 26, 1995. (1)
10.14 Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State
Street Bank and Trust Company dated May 26, 1995. (1)
10.15 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc., and
State Street Bank and Trust Company, dated as of June 12, 1997. (1)
10.16 Credit Agreement by and among Hagler Bailly Consulting, Inc., Hagler Bailly Services,
Inc. and State Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.17 Promissory Note by Hagler Bailly Consulting, Inc. and Hagler Bailly Services, Inc.
to State Street Bank and Trust Company, dated September 30, 1997. (2)
10.18 Security Agreement by and between Hagler Bailly Consulting, Inc. and State
Street Bank and Trust Company, dated as of September 30, 1997. (2)
10.19 Security Agreement by and between Hagler Bailly Services, Inc. and State Street Bank
and Trust Company, dated as of September 30, 1997. (2)
10.20 Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust Company, dated
September 30, 1997. (2)
10.21 Guaranties by HB Capital, Inc. to State Street Bank and Trust Company, dated
September 30, 1997. (2)
10.22 Subordination Agreement and Negative Pledge/Sale Agreement by and between Hagler
Bailly, Inc. and State Street Bank and Trust Company for Hagler Bailly Consulting,
Inc., dated September 30, 1997. (2)
10.23 Subordination Agreement and Negative Pledge/Sale Agreement by and between Hagler
Bailly, Inc. and State Street Bank and Trust Company for Hagler Bailly Services,
Inc., dated September 30, 1997. (2)
10.24 Guaranty of Monetary Obligations to Bresta Futura V.B.V. by Hagler Bailly, Inc.,
dated July 23, 1997. (2)
10.25 Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and
State Street Bank and Trust Company dated May 18, 1998. (6)
10.26 Sublease Agreement by and between Coopers and Lybrand L.L.P. and Hagler Bailly, Inc.
dated December 5, 1997. (6)
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C>
10.27 Employment Agreement between the Company and Henri-Claude A. Bailly, dated August
27, 1998. (7)
10.28 Employment Agreement between the Company and William E. Dickenson, dated August 27,
1998. (7)
10.29 Employment Agreement between the Company and Howard W. Pifer III, dated June 10,
1998. (7)
10.30 Amended and Restated Hagler Bailly, Inc. Employee Incentive and Non-Qualified
Stock Option and Restricted Stock Plan. (10)
10.31 Credit Agreement by and between Hagler Bailly, Inc. and The Lenders From Time to Time
a Party thereto, as Lenders and NationsBank, N.A., dated November 20, 1998. (8)
10.32 Revolving Note by and between Hagler Bailly, Inc. and NationsBank, N.A., dated
November 20, 1998. (8)
10.33 Swing Line Note by and between Hagler Bailly, Inc. and NationsBank, N.A., dated
November 20, 1998. (8)
10.34 Subsidiary Guarantee by and among Hagler Bailly Services, Inc., Hagler Bailly
Consulting, Inc., HB Capital, Inc., Putnam, Hayes & Bartlett, Inc., TB&A Group,
Inc., Theodore Barry & Associates, Private Label Energy Services, Inc., Fieldston
Publications, Inc. and NationsBank, N.A., dated November 20, 1998. (8)
10.35 Form of Security Agreement by and between Hagler Bailly, Inc. and NationsBank, N.A.,
dated November 20, 1998. (8)
10.36 Security Agreement by and between Hagler Bailly Consulting, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.37 Security Agreement by and between Hagler Bailly Services, Inc. and NationsBank, N.A.,
dated November 20, 1998. (8)
10.38 Security Agreement by and between HB Capital, Inc. and Nations Bank, N.A., dated
November 20, 1998. (8)
10.39 Security Agreement by and between Putnam, Hayes & Bartlett, Inc. and NationsBank,
N.A., dated November 20, 1998. (8)
10.40 Security Agreement by and between TB&A Group, Inc. and Nations Bank, N.A., dated
November 20, 1998. (8)
10.41 Security Agreement by and between Theodore Barry & Associates and NationsBank, N.A.,
dated November 20, 1998. (8)
</TABLE>
17
<PAGE> 20
<TABLE>
<S> <C>
10.42 Security Agreement by and between PHB Hagler Bailly, Inc. and NationsBank, N.A.,
dated February 22, 1999. (8)
10.43 Security Agreement by and between Private Label Energy Services, Inc. and
NationsBank, N.A., dated November 20, 1998. (8)
10.44 Security Agreement by between Fieldston Publications, Inc. and NationsBank, N.A.,
dated November 20, 1998. (8)
10.45 Lease by and between One Memorial Drive Limited Partnership and Putnam, Hayes &
Bartlett, Inc. dated January 1, 1998. (8)
10.46 Lease by and between George H. Beuchert, Jr., Trustee, Thomas J. Egan, Trustee,
Oliver T. Carr, Jr., Trustee, William Joseph H. Smith, Trustee, and the Kiplinger
Washington Editors, Inc., Trustee, acting collectively as trustee on behalf of the
beneficial owner, The Greystone Square 127 Associates, and Putnam, Hayes & Bartlett,
Inc. dated March 31, 1997. (8)
10.47 First Amendment to Lease by and between Greystone Square 127 Limited Liability
Company, as successor in interest collectively to The Greystone Square 127
Associates, and George H. Beuchert, Jr., Trustee, and The Kiplinger Washington
Editors, Inc., Trustee, the owners of record who held legal title to the Building as
trustees on behalf of the Greystone Square 127 Associates, the former beneficial
owners of the Building, and Putnam, Hayes & Bartlett, Inc. dated February 10, 1998.
(8)
10.48 Employment agreement between Hagler Bailly Consulting, Inc. and Jasjeet S. Cheema
dated February 2, 1998. (9)
10.49 First amendment to revolving credit agreement between Hagler Bailly, Inc, the
lenders from time to time a party thereto, as lenders, and NationsBank, N.A., dated
as of March 22, 1999. (9)
10.50 Lease by and between TrizecHahn, 1550 Wilson Blvd. Management and Hagler Bailly
Services, Inc. dated August 29, 1999. (12)
10.51 Second amendment to revolving credit agreement between Hagler Bailly, Inc., the
lenders from time to time a party thereto, as lenders, and NationsBank, N.A., dated
as of August 11, 1999. (12)
10.52 Security Agreement by and between GKMG, Inc. and NationsBank, N.A., dated August 11,
1999. (12)
10.53 Security Agreement by and between GKMG Consulting Services, Inc. and
NationsBank, N.A., dated August 11, 1999. (12)
</TABLE>
18
<PAGE> 21
<TABLE>
<S> <C>
10.54 Employment Agreement between Putnam, Hayes & Bartlett, Inc. and John C. Butler,
dated August 28, 1999. (13)
10.55 Employment Agreement between Putnam, Hayes & Bartlett, Inc. and William H.
Hieronymus, dated August 28, 1999. (13)
10.56 Employment Agreement between Putnam, Hayes & Bartlett, Inc. and Walter H. A.
Vandaele, dated August 28, 1999. (13)
10.57 Employment Separation Agreement and General Release between Hagler Bailly, Inc. and
William E. Dickenson, dated as of May 3, 2000. (15)
10.58 Amended and restated employment agreement as last amended May 31, 2000 by and between
Hagler Bailly, Inc. and Geoffrey W. Bobsin.
10.59 Employment agreement entered into as of May 31, 2000 by and between Hagler Bailly,
Inc. and Stephen V.R. Whitman.
10.60 $18,000,000 amended and restated revolving credit agreement dated as of July 28, 2000
between Hagler Bailly, Inc. as Borrower and the Lenders from time to time a party
hereto, as lenders with Bank of America, N.A., as Agent.
10.61 Security Agreement dated as of July 28, 2000 between Hagler Bailly Risk Advisors,
Inc. as Debtor and Bank of America, N.A. as Agent.
10.62 Form of amended and restated subsidiary guarantee made by Hagler Bailly Services,
Inc. HB Capital, Inc., Private Label Energy Services, Inc., PHB Hagler Bailly, Inc.
and GKMG, Inc. in favor of Bank of America, N.A. as Agent for the lenders and other
financial institutions that are from time to time parties to the revolving credit
agreement. (16)
10.63 Engagement letter dated March 3, 1999 between Banc of America Securities LLC (F/K/A
NationsBanc Montgomery Securities LLC) and Hagler Bailly, Inc., for investment
banking services, and amendment thereto dated October 5, 1999 with attached
Indemnification and Contribution Agreement between the parties to the engagement
letter.
23 Consent of Independent Auditors dated March 29, 2000. (13)
27.1 Financial Data Schedule
</TABLE>
---------------------------------------------------------
(1) Included in the Company's Registration Statement on Form S-1 filed on
July 1, 1997 (No. 33-22207) and incorporated herein by reference thereto.
19
<PAGE> 22
<TABLE>
<S> <C>
(2) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, filed on November 14, 1997 and incorporated herein by reference
thereto.
(3) Included in the Company's Current Report on Form 8-K filed on December 16, 1997 and
incorporated herein by reference thereto.
(4) Included in the Company's Annual Report on Form 10-K for the year ended December 31,
1997, filed on March 31, 1998 and incorporated herein by reference thereto.
(5) Included in the Company's Proxy Statement for Special Meeting of Stockholders dated
July 24, 1998 on Form DEFS 14A and incorporated herein by reference thereto.
(6) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998, filed on August 14, 1998 and incorporated herein by reference thereto.
(7) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, filed on November 13, 1998 and incorporated herein by reference
thereto.
(8) Included in the Company's Annual Report on Form 10-K for the year ended December 31,
1998, filed on March 31, 1998 and incorporated herein by reference thereto.
(9) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, and incorporated herein by reference thereto.
(10) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, and incorporated herein by reference thereto.
(11) Included in the Company's Current Report on Form 8-K filed on August 26, 1999 and
incorporated herein by reference thereto.
(12) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference thereto.
(13) Included in the Company's Annual Report on Form 10-K for the year ended December 31,
1999, filed March 27, 2000 and incorporated herein by reference thereto.
(14) Included in the Company's current report on Form 8-K filed on June 30, 2000 and
incorporated herein by reference thereto.
(15) Included in the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000 and incorporated herein by reference thereto.
(16) Included as Exhibit C to the Amended and Restated Revolving Credit Agreement, which
is Exhibit No. 10.60 to this Form 10-Q.
</TABLE>
20
<PAGE> 23
<TABLE>
<S> <C>
(b) REPORTS ON FORM 8-K
On June 30, 2000 the Company filed a current report on Form 8-K to report the
Company's agreement to sell the Company to PA Consulting Group, Inc.
</TABLE>
21
<PAGE> 24
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.
/s/ Geoffrey W. Bobsin
-----------------------------------------------
Date: August 9, 2000 Geoffrey W. Bobsin
President, Chief Executive Officer, Chief
Financial Officer, Treasurer
-----------------------------------------------
22
