<PAGE> 1
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
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Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934
For the transition period from to
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Commission file number 0-15416
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RESPONSE ONCOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Response Technologies, Inc.
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(Former Name if Applicable)
Tennessee 62-1212264
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1775 Moriah Woods Blvd., Memphis, TN 38117
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(Address of principal executive offices) (Zip Code)
(901) 761-7000
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(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 for such 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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value, approximately 6,986,923 shares as of November 7,
1995.
This filing consists of 11 sequentially numbered pages.
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INDEX
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
September 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements
of Operations for the Three Months Ended
September 30, 1995 and 1994 4
Condensed Consolidated Statements
of Operations for the Nine Months Ended
September 30, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION
Item 2. Change in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES September 30, December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1995 1994
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ASSETS (Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,271,075 $ 2,922,266
Short-term investments 350,000 100,000
Accounts receivable, less allowances for doubtful accounts
of $2,253,886 and $3,934,794 14,634,358 12,399,569
Supplies 1,047,202 941,481
Prepaid Expenses 417,916 324,637
Other current assets 541,014 97,878
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TOTAL CURRENT ASSETS 20,261,565 16,785,831
PROPERTY AND EQUIPMENT--at cost, less allowances for
depreciation and amortization of $5,782,730 and $4,651,829 3,988,250 4,020,799
OTHER ASSETS
Deferred charges, less allowances for amortization of $98,957 and $253,621 176,918 152,520
Other assets 142,869 77,565
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319,787 230,085
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TOTAL ASSETS $24,569,602 $21,036,715
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $4,613,774 $3,249,147
Accrued expenses and other liabilities 1,139,233 1,023,163
Notes payable 0 71,558
Capital lease obligations 74,569 157,030
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TOTAL CURRENT LIABILITIES 5,827,576 4,500,898
CAPITAL LEASE OBLIGATIONS 18,812 28,878
STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock, $1.00 par value, authorized 3,000,000
shares; issued and outstanding 27,833 and 28,333 shares respectively;
liquidating preference $11.00 per share 27,833 28,333
Common Stock, $.01 par value, authorized 30,000,000 shares; issued and
outstanding 6,985,923 and 6,964,431 shares, respectively 69,859 69,644
Paid-in capital 59,090,897 59,036,487
Retained earnings (deficit) (40,465,375) (42,627,525)
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18,723,214 16,506,939
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,569,602 $21,036,715
============ ===========
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date. See accompanying notes.
3
<PAGE> 4
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1995 September 30, 1994
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<S> <C> <C>
NET REVENUE $11,221,751 $10,837,746
OTHER INCOME--principally interest 97,510 40,640
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11,319,261 10,878,386
COSTS AND EXPENSES
Operating 8,327,012 8,746,915
General and administrative 1,442,268 1,056,193
Depreciation and amortization 387,530 524,579
Interest 4,734 18,649
Provision for doubtful accounts 552,914 624,505
Loss on disposal 0 45,966
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10,714,458 11,016,807
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NET EARNINGS (LOSS) $604,803 ($138,421)
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EARNINGS (LOSS) PER COMMON SHARE $0.08 ($0.02)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,618,730 6,964,020
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</TABLE>
Note: The weighted average number of common shares and earnings (loss) per
common share results reflect a one-for-five reverse stock split.
See accompanying notes.
4
<PAGE> 5
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995 September 30, 1994
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<S> <C> <C>
NET REVENUE $33,795,022 $28,629,547
OTHER INCOME--principally interest 207,899 142,944
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34,002,921 28,772,491
COSTS AND EXPENSES
Operating 24,811,188 23,554,327
General and administrative 4,061,001 3,222,406
Depreciation and amortization 1,261,833 1,612,280
Interest 15,640 115,203
Provision for doubtful accounts 1,691,109 1,879,116
Loss on disposal 0 45,966
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31,840,771 30,429,298
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NET EARNINGS (LOSS) $2,162,150 ($1,656,807)
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EARNINGS (LOSS) PER COMMON SHARE $0.28 ($0.24)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,588,791 6,949,459
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</TABLE>
Note: The weighted average number of common shares and earnings (loss) per
common share results reflect a one-for-five reverse stock split.
See accompanying notes.
5
<PAGE> 6
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995 September 30, 1994
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,735,563 $1,440,077
INVESTING ACTIVITIES
Purchase of property and equipment (1,043,315) (323,204)
Purchase of short-term investments (250,000) 0
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NET CASH USED IN INVESTING ACTIVITIES (1,293,315) (323,204)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 54,125 73,938
Principal payments on capital leases (147,564) (291,573)
Net payments on line of credit 0 (2,420,670)
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NET CASH USED IN FINANCING ACTIVITIES (93,439) (2,638,305)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 348,809 (1,521,432)
Cash and cash equivalents at beginning of period 2,922,266 3,100,631
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,271,075 $1,579,199
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Supplemental cash flow information:
Cash paid during the period for interest was $15,640
</TABLE>
See accompanying notes.
6
<PAGE> 7
Response Oncology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1995
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month and nine month periods ended September
30, 1995 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in Response
Oncology, Inc. and Subsidiaries' annual report on Form 10-K for the year ended
December 31, 1994.
The Company, formerly known as Response Technologies, Inc., changed its name to
Response Oncology, Inc. effective November 2, 1995.
Net Earnings (Loss) Per Common Share: Net earnings per common share for the
quarter and nine months ended September 30, 1995 have been computed by dividing
net income by the weighted average number of shares of Common Stock and Common
Stock equivalents outstanding during the year. For the quarter and nine months
ended September 30, 1994, loss per common share has been computed by dividing
net loss by the weighted average number of shares of Common Stock outstanding
during the period as common stock equivalents were antidilutive. The weighted
average number of common shares and earnings (loss) per common share results
reflect a one-for-five reverse stock split.
Note 2 - Parent Company
Response Oncology, Inc. is a subsidiary of Seafield Capital Corporation.
On February 10, 1995, Seafield announced its retention of Alex. Brown and Sons,
Incorporated as financial advisor to evaluate and recommend steps to enhance
the value of Seafield to its shareholders. Any transaction pursued by Seafield
will be likely to result in a significant change in the Company's ownership.
Note 3 - Line of Credit
The Company has a $2,500,000 revolving bank line of credit, secured by eligible
accounts receivable, bearing interest at the bank's prime rate plus one
percent, or 9.75% at September 30, 1995. The line, which expires April 1,
1996, is expected to be renewed for additional one year terms. There were no
borrowings outstanding under the line as of September 30, 1995.
Note 4 - Commitments and Contingencies
With respect to professional and general liability risks, the Company currently
maintains an insurance policy that provides coverage during the policy period
ending August 1, 1996, on a claims-made basis, for $1,000,000 per claim in
excess of the Company retaining $25,000 per claim, and $3,000,000 in the
aggregate. Costs of defending claims are in addition to the limit of
liability. In addition, the Company maintains a $50,000,000 umbrella policy
with respect to potential general liability claims. Since inception, the
Company has incurred no professional or general liability losses and as of
September 30, 1995, the Company was not aware of any pending professional or
general liability claims.
7
<PAGE> 8
Note 5 - Common Stock
On November 2, 1995, the Company effected a one-for-five reverse split of its
Common Stock. Information related to issued and outstanding shares and per
share results of operations in the financial statements has been adjusted for
the effect of the reverse stock split.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is a leading provider of advanced cancer treatments and related
services, principally on an out-patient basis, through treatment centers owned
or managed by the Company. The centers, known as IMPACT(R) (IMPlementing
Advanced Cancer Treatments) Centers, are staffed by experienced oncology
nurses, pharmacists, laboratory technologists, and other support personnel to
deliver out-patient services under the direction of private practicing
oncologists. The primary treatments provided by the Centers involve high-dose
chemotherapy coupled with support of the patient's immune system through the
use of autologous peripheral blood stem cell reinfusion. The Centers also
provide home pharmacy and out-patient infusional services for its patients.
Beginning in 1994, the Company began expanding its network of centers to
include hospital-affiliated centers. These centers entail either a management
agreement ("managed centers") or a jointly owned entity ("jointly owned
centers"). For managed centers, the Company provides technical and
administrative services, including treatment protocols and data management,
employee training and reimbursement support. Patient care and laboratory
services are provided and billed to third parties by the host hospital, with a
management fee paid to the Company.
For jointly owned centers, the Company and the host hospital contribute cash
and other forms of capital to establish an entity to provide outpatient and
inpatient services to its patients. These entities will purchase services from
the hospital to deliver and manage complex cancer treatments. The Company
contemplates that it will maintain management control of these jointly owned
programs, and accordingly plans to include the results of operations on a
consolidated basis.
The Company plans to expand its operations to include the acquisition and
management of oncology physician practices as discussed more fully hereinafter.
As of September 30, 1995, the Company had twenty-seven IMPACT Centers, seven
managed centers, and five jointly owned centers located in twenty-one states.
The five jointly owned centers were not operational as of September 30, 1995.
The Company anticipates continued nationwide expansion over the next few years,
primarily through the establishment of jointly owned centers.
Results of Operations
The Company recorded net earnings of $605,000 and $2,162,000 for the quarter
and nine months ended September 30, 1995 compared to net losses of ($138,000)
and ($1,657,000) for the same periods last year.
Net revenue for the quarter ended September 30, 1995 of $11,222,000 increased
$384,000 or 4% when compared to the quarter ended September 30, 1994. Net
revenue for the nine months ended September 30, 1995 of $33,795,000 increased
$5,165,000 or 18% compared to the nine months ended September 30, 1994. The
increase is primarily attributable to increased patient referrals. Net revenue
for the quarter and nine months ended September 30, 1995 also included
approximately $180,850 and $577,500 respectively, related to the Company's
efforts to conduct pharmaceutical contract research in parallel with its
clinical trials data management activities.
Operating expenses for the quarter ended September 30, 1995 decreased $420,000
or 5% when compared to the quarter ended September 30, 1994. Operating expenses
for the nine months ended September 30, 1995 increased $1,257,000 or 5% when
compared to the nine months ended September 30, 1994. These expenses consist
of payroll costs, pharmaceutical and laboratory expenses, rent expense and
other operational expenses. Operating expenses display a high degree of
variability in proportion to patient services revenue. Operating expenses as a
percentage of net revenue were 74% and 81% for the quarters and 73% and 82% for
the nine month periods ended September 30, 1995 and September 30, 1994,
respectively. This decrease is primarily attributable to operating
efficiencies at higher levels of center activity and certain fixed operating
expenses being spread over a larger revenue base.
8
<PAGE> 9
General and administrative costs for the quarter ended September 30, 1995
increased $386,000 or 37% when compared to the quarter ended September 30,
1994. These expenses increased $839,000 or 26% for the nine months ended
September 30, 1995 when compared to the nine months ended September 30, 1994.
The increase is primarily attributable to increases in administrative payroll
and related costs. General and administrative costs as a percentage of net
revenue were 13% and 10% for the quarters and 12% and 11% for the nine months
ended September 30, 1995 and 1994, respectively.
Depreciation and amortization expense for the quarter ended September 30, 1995
decreased $137,000 or 26% when compared to the quarter ended September 30,
1994. The expense decreased $350,000 or 22% between the nine months ended
September 30, 1994 and 1995. The decrease is primarily attributable to the
startup costs of many Centers being fully amortized after a two-year
operational period.
The provision for doubtful accounts decreased $72,000 or 11% and $188,000 or
10% between the quarters and nine months ended September 30, 1995 and 1994,
respectively. The provision as a percentage of net revenue was 5% for the
quarter and nine months ended September 30, 1995 and 6% and 7% for the quarter
and nine months ended September 30, 1994. The decrease is attributable to a
higher proportion of contracted patient accounts, improved collections
performance and an increase in revenues from physician sales, hospital
management fees, and contract research for which collection is more certain.
Tax net operating loss carryforwards were utilized to fully offset current year
taxable income.
Liquidity and Capital Resources
As of September 30, 1995, the Company's working capital was $14,434,000, with
current assets of $20,262,000 and current liabilities of $5,828,000. Cash and
cash equivalents and short-term investments represent $3,621,000 of the
Company's current assets.
The Company has a $2,500,000 revolving bank line of credit, secured by eligible
accounts receivable bearing interest at the bank's prime rate plus one percent,
or 9.75% at September 30, 1995. The line, which expires April 1, 1996, is
expected to be renewed for additional one year terms. There were no borrowings
outstanding under the line at September 30, 1995.
Management believes that the Company's cash and capital resources, together
with available credit facilities, will be sufficient to finance current
operations and anticipated expansion of the Company's network of IMPACT
Centers.
Subsequent to September 30, 1995, the Company engaged Smith Barney, Inc. to
assist in the development of a physician practice acquisition and management
strategy, including the development of financing alternatives for such
contemplated acquisitions. The Company has entered into a letter of intent to
purchase and manage the assets of a leading oncology-hematology practice, and
expects that further acquisitions will be forthcoming. However, there are no
assurances that the Company will successfully consummate the acquisition of
this or any additional practices. The Company is currently evaluating means of
optimally financing these acquisitions, and it is contemplated that such
acquisitions will be financed through combinations of cash, debt, and equity.
Accordingly, the Company will evaluate possible offerings of its Common Stock
in public or private markets as means of raising additional equity capital.
No material commitments for capital expenditures existed as of September 30,
1995.
9
<PAGE> 10
New Accounting Standards
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" is required to be implemented for the year ending December 31,
1996. The adoption of this statement is not expected to have any significant
impact on the Company's financial position or results of operations.
No other recently issued accounting standards presently exist which will require
adoption in the future periods by the Company.
PART II. - OTHER INFORMATION
Item 2. Changes in Securities
On November 1, 1995, an amendment to the Company's charter was
approved at a Special Meeting of Shareholders decreasing the
number of authorized shares from 60,000,000 shares, $.002 par
value, to 30,000,000 shares, $.01 par value, with a
corresponding reclassification to which each issued and
outstanding share will be reclassified, converted and changed
into one-fifth (1/5) of an issued and outstanding share. The
amendment became effective November 2, 1995. The number of
shares of Common Stock outstanding prior to the one-for-five
reverse split was 34,934,615.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders of the Company was held
November 1, 1995 for the purpose of approving an amendment to
the Company's charter (i) decreasing the number of shares of
Common Stock that the Company is authorized to issue from
60,000,000 shares, par value $.002 per share, to 30,000,000
shares, par value $.01 per share, with a corresponding
reclassification of the Company's Common Stock pursuant to
which each share of issued and outstanding Common Stock of the
Company held by each holder thereof will be reclassified,
converted and changed into one-fifth (1/5) of an issued and
outstanding share of Common Stock, with each fractional share
resulting from such conversion being redeemed by the Company
for cash; and (ii) changing the name of the Company to
"Response Oncology, Inc." Holders of 34,927,615 shares were
eligible to vote and 23,687,506 shares were represented at the
meeting. The amendment was approved by 100% of the voting
securities present.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 --- Financial Data Schedule for SEC use only.
b. Reports on Form 8-K
None
10
<PAGE> 11
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 thereafter duly authorized.
Response Oncology, Inc.
Date: November 13, 1995 By: /s/ Daryl Johnson
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Daryl Johnson
Chief Financial Officer
(duly authorized officer)
Date: November 13, 1995 By: /s/ Debbie Elliott
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Debbie Elliott
Controller
(principal accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,271
<SECURITIES> 350
<RECEIVABLES> 16,888
<ALLOWANCES> 2,254
<INVENTORY> 1,047
<CURRENT-ASSETS> 20,262
<PP&E> 9,770
<DEPRECIATION> 5,783
<TOTAL-ASSETS> 24,570
<CURRENT-LIABILITIES> 5,828
<BONDS> 0
<COMMON> 70
0
28
<OTHER-SE> 18,626
<TOTAL-LIABILITY-AND-EQUITY> 24,570
<SALES> 0
<TOTAL-REVENUES> 34,003
<CGS> 0
<TOTAL-COSTS> 30,134
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<LOSS-PROVISION> 1,691
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<NET-INCOME> 2,162
<EPS-PRIMARY> .29
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</TABLE>
