<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 Securities
--- Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the transition period from to
---------
Commission file number 0-15416
---------
RESPONSE ONCOLOGY, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1212264
--------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1805 Moriah Woods Blvd., Memphis, TN 38117
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(901) 761-7000
--------------
(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 [ ]
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, 12,290,406 shares as of August 8, 2000.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
<S> <C> <C>
Consolidated Balance Sheets,
June 30, 2000 and December 31, 1999------------------------------- 3
Consolidated Statements
of Operations for the Three Months Ended
June 30, 2000 and June 30, 1999----------------------------------- 4
Consolidated Statements of Operations for
the Six Months Ended June 30, 2000
and June 30, 1999------------------------------------------------- 5
Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 2000 and June 30, 1999 ---------------------------------- 6
Notes to Consolidated
Financial Statements---------------------------------------------- 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations---------------------------------------------------- 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ----------------------------------------------- 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings------------------------------------------------ 20
Item 2. Changes in Securities and Use of Proceeds------------------------ 20
Item 3. Defaults Upon Senior Securities---------------------------------- 20
Item 4. Submission of Matters to a Vote of Security Holders-------------- 20
Item 5. Other Information------------------------------------------------ 21
Item 6. Exhibits and Reports on Form 8-K -------------------------------- 21
Signatures ----------------------------------------------------------------- 22
</TABLE>
- 2 -
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(Unaudited) (Note 1)
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,777 $ 7,195
Accounts receivable, less allowance for doubtful
accounts of $2,597 and $2,632 16,164 16,007
Pharmaceuticals and supplies 3,519 3,485
Prepaid expenses and other current assets 3,845 4,778
Due from affiliated physician groups 16,926 16,884
Deferred income taxes 344 114
--------- ---------
TOTAL CURRENT ASSETS 47,575 48,463
Property and equipment, less accumulated
depreciation and amortization of $13,093
and $12,366 3,927 4,222
Deferred charges, less accumulated amortization
of $190 and $86 287 380
Management service agreements, less accumulated
amortization of $9,645 and $8,206 63,891 66,113
Other assets 513 467
--------- ---------
TOTAL ASSETS $ 116,193 $ 119,645
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,648 $ 15,665
Accrued expenses and other liabilities 4,060 5,440
Current portion of notes payable 36,262 3,745
Current portion of capital lease obligations 268 267
--------- ---------
TOTAL CURRENT LIABILITIES 56,238 25,117
Notes payable, less current portion 1,292 35,445
Capital lease obligations, less current portion 444 580
Deferred income taxes 9,512 9,802
Minority interest 1,314 924
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $1.00 par
value (aggregate involuntary liquidation preference
$183) authorized 3,000,000 shares; issued and
outstanding 16,631 shares at each period end 17 17
Common stock, $.01 par value, authorized 30,000,000
shares; issued and outstanding 12,290,406 and
12,270,406 shares, respectively 123 123
Paid-in capital 102,011 101,979
Accumulated deficit (54,758) (54,342)
--------- ---------
47,393 47,777
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 116,193 $ 119,645
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE> 4
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
NET REVENUE $ 34,639 $ 34,053
COSTS AND EXPENSES
Salaries and benefits 5,310 6,442
Pharmaceuticals and supplies 23,901 19,756
Other operating costs 2,192 2,691
General and administrative 1,240 1,687
Depreciation and amortization 1,147 1,119
Interest 830 843
Provision for doubtful accounts 76 504
------------ ------------
34,696 33,042
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (57) 1,011
Minority owners' share of net earnings (135) (274)
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (192) 737
Income tax provision (benefit) (69) 280
------------ ------------
NET EARNINGS (LOSS) $ (123) $ 457
============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (0.01) $ 0.04
============ ============
Diluted $ (0.01) $ 0.04
============ ============
Weighted average number of common shares:
Basic 12,290,406 11,931,731
============ ============
Diluted 12,290,406 11,961,986
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE> 5
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
NET REVENUE $ 70,225 $ 70,362
COSTS AND EXPENSES
Salaries and benefits 10,823 13,008
Pharmaceuticals and supplies 48,067 40,243
Other operating costs 4,670 6,120
General and administrative 2,714 3,368
Depreciation and amortization 2,283 2,236
Interest 1,657 1,706
Provision for doubtful accounts 286 695
------------ ------------
70,500 67,376
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (275) 2,986
Minority owners' share of net earnings (390) (386)
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (665) 2,600
Income tax provision (benefit) (249) 988
------------ ------------
NET EARNINGS (LOSS) $ (416) $ 1,612
============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (0.03) $ 0.13
============ ============
Diluted $ (0.03) $ 0.13
============ ============
Weighted average number of common shares:
Basic 12,286,272 11,990,206
============ ============
Diluted 12,286,272 12,023,887
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE> 6
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30, June 30,
2000 1999
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (416) $ 1,612
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,283 2,236
Deferred income taxes (249) --
Provision for doubtful accounts 286 695
Gain on sale of property and equipment (31) --
Minority owners' share of net earnings 390 386
Changes in operating assets and liabilities:
Accounts receivable (444) 1,562
Pharmaceuticals and supplies, prepaid expenses and
other current assets 894 1,296
Deferred charges and other assets 41 54
Due from affiliated physician groups (457) (179)
Accounts payable and accrued expenses (595) (2,226)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,702 5,436
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 36 --
Purchase of equipment (496) (500)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (460) (500)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 32 --
Distributions to joint venture partners -- (353)
Financing costs incurred -- (416)
Principal payments on notes payable (1,557) (1,136)
Principal payments on capital lease obligations (135) (166)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (1,660) (2,071)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (418) 2,865
Cash and cash equivalents at beginning of period 7,195 1,083
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,777 $ 3,948
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE> 7
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
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 with 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 for complete financial statements by generally accepted accounting
principles. 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 and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in Response
Oncology, Inc. and Subsidiaries' (the "Company's") annual report on Form 10-K
for the year ended December 31, 1999.
Net Revenue: The Company's net patient service revenue includes charges to
patients, insurers, government programs and other third-party payers for medical
services provided. Such amounts are recorded net of contractual adjustments and
other uncollectible amounts. Contractual adjustments result from the differences
between the amounts charged for services performed and the amounts allowed by
government programs and other public and private insurers.
The Company's revenue from practice management affiliations includes a fee equal
to practice operating expenses incurred by the Company (which excludes expenses
that are the obligation of the physicians, such as physician salaries and
benefits) and a management fee either fixed in amount or equal to a percentage
of each affiliated oncology group's adjusted net revenue or net operating
income. In certain affiliations, the Company may also be entitled to a
performance fee if certain financial criteria are satisfied.
Pharmaceutical sales to physicians are recorded based upon the Company's
contracts with physician groups to manage the pharmacy component of the groups'
practice. Revenue recorded for these contracts represents the cost of
pharmaceuticals plus a fixed or percentage fee.
Clinical research revenue is recorded based upon the Company's contracts with
certain pharmaceutical manufacturers to manage clinical trials and is generally
measured on a per patient basis for monitoring and collection of data.
The following table is a summary of net revenue by source for the respective
three and six-month periods ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(In Thousands) June 30, June 30,
--------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net patient service revenue $ 3,627 $ 7,778 $ 8,260 $15,927
Practice management service fees 19,210 16,712 39,203 34,301
Pharmaceutical sales to physicians 11,637 9,361 22,418 19,105
Clinical research revenue 165 202 344 1,029
------- ------- ------- -------
$34,639 $34,053 $70,225 $70,362
======= ======= ======= =======
</TABLE>
Revenue is recognized when earned. Sales and related cost of sales are generally
recognized upon delivery of goods or performance of services.
- 7 -
<PAGE> 8
Net Earnings (Loss) Per Common Share:
A reconciliation of the basic earnings (loss) per share and the diluted earnings
(loss) per share computation is presented below for the three and six-month
periods ended June 30, 2000 and 1999.
(Dollar amounts 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>
Weighted average shares outstanding 12,290,406 11,931,731 12,286,272 11,990,206
Net effect of dilutive stock options and
warrants based on the treasury stock method --(A) 30,255 --(A) 33,681
---------- ----------- ---------- -----------
Weighted average shares and common stock
equivalents 12,290,406 11,961,986 12,286,272 12,023,887
========== =========== ========== ===========
Net earnings (loss) $ (123) $ 457 $ (416) $ 1,612
========== =========== ========== ===========
Diluted per share amount $ (0.01) $ 0.04 $ (0.03) $ 0.13
========== =========== ========== ===========
</TABLE>
(A) Stock options and warrants are excluded from the weighted average number of
common shares due to their anti-dilutive effect.
NOTE 2 -- NOTES PAYABLE
The terms of the Company's original lending agreement provided for a $42.0
million Credit Facility, which matures June 2002, to fund the Company's working
capital needs. The Credit Facility, comprised of a $35.0 million Term Loan
Facility and a $7.0 million Revolving Credit Facility, is collateralized by the
assets of the Company and the common stock of its subsidiaries. The Credit
Facility bears interest at a variable rate equal to LIBOR plus a spread between
1.375% and 2.5%, depending upon borrowing levels. The Company is also obligated
to a commitment fee of .25% to .5% of the unused portion of the Revolving Credit
Facility. At June 30, 2000, $35.2 million aggregate principal was outstanding
under the Credit Facility with a current interest rate of approximately 9.8%.
The Company is subject to certain affirmative and negative covenants which,
among other things, require the Company to maintain certain financal ratios,
including minimum fixed charge coverage, funded debt to EBITDA and minimum net
worth.
In November 1999, the Company and its lenders amended certain terms of the
Credit Facility. As a result of this amendment, the Revolving Credit Facility
was reduced from $7.0 million to $6.0 million and the interest rate was adjusted
to LIBOR plus a spread of 3.25%. The Company's obligation for commitment fees
was adjusted from a maximum of .5% to .625% of the unused portion of the
Revolving Credit Facility. Repayment of the January 1, 2000 quarterly
installment was accelerated. In addition, certain affirmative and negative
covenants were added or modified, including minimum EBITDA requirements for the
fourth quarter of 1999 and the first quarter of 2000. Certain covenants were
also waived for the quarters ending September 30, 1999 and December 31, 1999.
On March 30, 2000, the Company and its lenders amended various terms of the
Credit Facility. As a result of this amendment, certain affirmative and negative
covenants were added (including minumum quarterly cash flow requirements through
March 2001), and certain other existing covenants were modified. Additionally,
certain principal repayment terms were modified and certain future and current
compliance with specific covenants was waived. Finally, the maturity date of the
Credit Facility was accelerated to June 2001. The
- 8 -
<PAGE> 9
Company expects to have a longer-term facility in place prior to the June 2001
maturity date, but there can be no assurances that such facility will in fact be
consummated. Furthermore, in light of the uncertainty surrounding the clinical
data relative to the treatment of breast cancer with high dose chemotherapy and
the termination of certain pharmaceutical sales contracts, there can be no
assurance that the Company will remain in compliance with the terms of the
Credit Facility, as amended. In such event, the Company would be required to
obtain waivers relative to the covenant violations or renegotiate certain terms
of the Credit Facility.
In June 1999, the Company entered into a LIBOR based interest rate swap
agreement ("Swap Agreement") effective July 1, 1999 with the Company's lender as
required by the terms of the Credit Facility. Amounts hedged under the Swap
Agreement accrue interest at the difference between 5.93% and the ninety-day
LIBOR rate and are settled quarterly. The Company hedged $18.0 million under the
terms of the Swap Agreement. The Swap Agreement matured on July 1, 2000.
In June 2000, the Company entered into a new Swap Agreement effective July 1,
2000 with the Company's lender as required by the terms of the Credit Facility.
Amounts hedged under the Swap Agreement accrue interest at the difference
between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The
Company has hedged $17.0 million under the terms of the Swap Agreement. The Swap
Agreement matures on July 1, 2001.
The installment notes payable to affiliated physicians and physician practices
were issued as partial consideration for the practice management affiliations.
Principal and interest under the long-term notes may, at the election of the
holders, be paid in shares of common stock of the Company based on conversion
prices ranging from $11.50 to $16.97.
NOTE 3 -- INCOME TAXES
Upon the consummation of the physician practice management affiliations, the
Company recognized deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of purchased assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
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, 2001, 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 $10,000,000 umbrella policy with respect to
potential professional and general liability claims. Since inception, the
Company has incurred no professional or general liability losses and as of June
30, 2000, the Company was not aware of any pending professional or general
liability claims that would have a material adverse effect on the Company's
financial condition or results of operations.
NOTE 5 -- DUE FROM AFFILIATED PHYSICIANS
Due from affiliated physicians consists of management fees earned and due
pursuant to the management service agreements ("Service Agreements"). In
addition, the Company may also fund certain working capital needs of the
affiliated physicians from time to time.
- 9 -
<PAGE> 10
NOTE 6 -- SEGMENT INFORMATION
The Company's reportable segments are strategic business units that offer
different services. The Company has three reportable segments: IMPACT Services,
Physician Practice Management and Cancer Research Services. The IMPACT Services
segment provides stem cell supported high dose chemotherapy and other advanced
cancer treatment services under the direction of practicing oncologists as well
as compounding and dispensing pharmaceuticals to certain medical oncology
practices. The Physician Practice Management segment owns the assets of and
manages oncology practices. The Cancer Research Services segment conducts
clinical cancer research on behalf of pharmaceutical manufacturers.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's annual audited
consolidated financial statements except that the Company does not allocate
interest expense, taxes or corporate overhead to the individual segments. The
Company evaluates performance based on profit or loss from operations before
income taxes and unallocated amounts. The totals per the schedules below will
not and should not agree to the consolidated totals. The differences are due to
corporate overhead and other unallocated amounts which are reflected in the
reconciliation to consolidated earnings (loss) before income taxes.
(In thousands)
<TABLE>
<CAPTION>
Physician
IMPACT Practice Cancer Research
Services Management Services Total
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
For the three months ended June 30, 2000:
Net revenue $15,264 $19,210 $ 165 $ 34,639
Total operating expenses 14,763 16,524 156 31,443
------- ------- ------ --------
Segment contribution 501 2,686 9 3,196
Depreciation and amortization 104 987 -- 1,091
------- ------- ------ --------
Segment profit $ 397 $ 1,699 $ 9 $ 2,105
======= ======= ====== ========
Segment assets $19,006 $85,210 $1,210 $105,426
======= ======= ====== ========
Capital expenditures $ 141 $ 98 -- $ 239
======= ======= ====== ========
<CAPTION>
Physician
IMPACT Practice Cancer Research
Services Management Services Total
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
For the three months ended June 30, 1999:
Net revenue $17,139 $16,712 $ 202 $ 34,053
Total operating expenses 14,980 14,282 263 29,525
------- ------- ------- --------
Segment contribution (loss) 2,159 2,430 (61) 4,528
Depreciation and amortization 135 934 -- 1,069
------- ------- ------ --------
Segment profit (loss) $ 2,024 $ 1,496 $ (61) $ 3,459
======= ======= ======= ========
Segment assets $23,281 $88,182 $ 2,521 $113,984
======= ======= ======= ========
Capital expenditures $ 116 $ 36 -- $ 152
======= ======= ======= ========
</TABLE>
- 10 -
<PAGE> 11
Reconciliation of consolidated earnings (loss) before
income taxes:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Segment profit $ 2,105 $ 3,459
Unallocated amounts:
Corporate salaries, general and administrative 1,411 1,883
Corporate depreciation and amortization 57 51
Corporate interest expense 829 788
------- -------
Earnings (loss) before income taxes $ (192) $ 737
======= =======
</TABLE>
(In thousands)
<TABLE>
<CAPTION>
Physician
IMPACT Practice Cancer Research
Services Management Services Total
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
For the six months ended June 30, 2000:
Net revenue $30,678 $39,203 $ 344 $ 70,225
Total operating expenses 29,402 34,038 337 63,777
------- ------- ------ --------
Segment contribution 1,276 5,165 7 6,448
Depreciation and amortization 197 1,974 -- 2,171
------- ------- ------ --------
Segment profit $ 1,079 $ 3,191 $ 7 $ 4,277
======= ======= ====== ========
Segment assets $19,006 $85,210 $1,210 $105,426
======= ======= ====== ========
Capital expenditures $ 151 $ 270 -- $ 421
======= ======= ====== ========
<CAPTION>
Physician
IMPACT Practice Cancer Research
Services Management Services Total
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
For the six months ended June 30, 1999:
Net revenue $35,032 $34,301 $1,029 $ 70,362
Total operating expenses 30,248 29,190 779 60,217
------- ------- ------ --------
Segment contribution 4,784 5,111 250 10,145
Depreciation and amortization 281 1,855 -- 2,136
------- ------- ------ --------
Segment profit $ 4,503 $ 3,256 $ 250 $ 8,009
======= ======= ====== ========
Segment assets $23,281 $88,182 $2,521 $113,984
======= ======= ====== ========
Capital expenditures $ 146 $ 53 $ 4 $ 203
======= ======= ====== ========
</TABLE>
Reconciliation of consolidated earnings (loss) before income taxes:
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Segment profit $ 4,277 $8,009
Unallocated amounts:
Corporate salaries, general and administrative 3,182 3,657
Corporate depreciation and amortization 112 101
Corporate interest expense 1,648 1,651
------- ------
Earnings (loss) before income taxes $ (665) $2,600
======= ======
</TABLE>
- 11 -
<PAGE> 12
Reconciliation of consolidated assets:
<TABLE>
<CAPTION>
As of June 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
Segment assets $105,426 $113,984
Unallocated amounts:
Cash and cash equivalents 6,777 3,948
Prepaid expenses and other assets 3,144 3,905
Property and equipment, net 846 945
-------- --------
Consolidated assets $116,193 $122,782
======== ========
</TABLE>
- 12 -
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Response Oncology, Inc. (the "Company") is a comprehensive cancer management
company. The Company provides advanced cancer treatment services through
outpatient facilities known as IMPACT(R) Centers under the direction of
practicing oncologists; compounds and dispenses pharmaceuticals to certain
medical oncology practices for a fee; owns the assets of and manages the
nonmedical aspects of oncology practices; and conducts clinical research on
behalf of pharmaceutical manufacturers. Approximately 300 medical oncologists
are associated with the Company through these programs. As of June 30, 2000, the
Company's total network included 38 IMPACT Centers located in 20 states and the
District of Columbia. The network consists of 22 wholly owned centers, 13
managed programs, and 3 centers owned and operated in joint venture with a host
hospital.
In May of 1999, the results of certain breast cancer studies were released at
the meeting of the American Society of Clinical Oncology (ASCO). These studies,
involving the use of high dose chemotherapy, sparked controversy among
oncologists, and, in the aggregate, caused confusion among patients, third-party
payers, and physicians about the role of high dose chemotherapy in the treatment
of breast cancer. Since the release of these data, the Company's high dose
business has slowed, as evidenced by a 52% decrease in high dose procedures in
the first six months of 2000 as compared to the first six months of 1999. The
Company closed 12 marginal IMPACT Centers in 1999 due to decreased patient
volumes and 4 additional IMPACT Centers in the first six months of 2000.
The Company anticipates that maturity of existing breast cancer data along with
the release of new data will clarify the role of high dose therapies for breast
cancer. At the 2000 ASCO annual meeting, additional data on this topic was
presented by affiliates of the Company and other researchers that indicated
favorable preliminary results. Despite these results, the Company has not
experienced an increase in referrals of breast cancer patients. If additional
follow-up data is negative, conflicting, or inconclusive, it could result in a
further decrease in high dose referrals and procedures and adversely affect the
financial results of this line of business. In response to this uncertainty, the
Company is evaluating new diseases that could potentially be managed through the
IMPACT Center network. However, there can be no assurance that other such
diseases can be identified, related treatment protocols implemented, and
effectively managed through the existing network.
During the first quarter of 2000, the Company decided to expand into the
specialty pharmaceutical business and began to put in place certain of the
resources necessary for this expansion. In this move, the Company intends to
leverage its expertise and resources in the delivery of complex pharmaceuticals
to cancer patients into the delivery of specialty drugs to patients with a wide
range of chronic, costly and complex diseases. Specifically, this will include
the distribution of new drugs with special handling requirements, and is
expected to involve the use of the Company's regional network of specialized
pharmaceutical centers. In addition, the Company intends to use its national
network of IMPACT Centers and its highly trained healthcare professionals to
administer the most fragile compounds to the expanded patient population. The
Company has hired an expert consultant to assist in the development of the
business plan and is in the process of recruiting a chief medical officer and
director of managed care. The Company has also engaged in initial discussions
with potential strategic partners. The soft launch of the specialty
pharmaceutical business is expected to occur by the end of third quarter 2000.
In its practice management relationships, the Company has predominantly used two
models of Service Agreements: (i) an "adjusted net revenue" model; and (ii) a
"net operating income" model. Service
- 13 -
<PAGE> 14
Agreements utilizing the adjusted net revenue model provide for payments out of
practice net revenue, in the following order: (A) physician retainage (i.e.
physician compensation, benefits, and perquisites, including malpractice
insurance) equal to a defined percentage of net revenue ("Physician Expense");
(B) a clinic expense portion of the management fee (the "Clinic Expense
Portion") equal to the aggregate actual practice operating expenses exclusive of
Physician Expense; and (C) a base service fee portion (the "Base Fee") equal to
a defined percentage of net revenue. In the event that practice net revenue is
insufficient to pay all of the foregoing in full, then the Base Fee is first
reduced, followed by the Clinic Expense Portion of the management fee, and
finally, Physician Expense, therefore effectively shifting all operating risk to
the Company. In each Service Agreement utilizing the adjusted net revenue model,
the Company is entitled to a Performance Fee equal to a percentage of Annual
Surplus, defined as the excess of practice revenue over the sum of Physician
Expense, the Clinic Expense Portion, and the Base Fee.
Service Agreements utilizing the net operating income model provide for a
management fee equal to the sum of a Clinic Expense Portion (see preceding
paragraph) plus a percentage (the "Percentage Portion") of the net operating
income of the practice (defined as net revenue minus practice operating
expenses). Practice operating expenses do not include Physician Expense. In
those practice management relationships utilizing the net operating income model
Service Agreement, the Company and the physician group share the risk of expense
increases and revenue declines, but likewise share the benefits of expense
savings, economies of scale and practice enhancements.
Each Service Agreement contains a liquidated damages provision binding the
physician practice and the principals thereof in the event the Service Agreement
is terminated "for cause" by the Company. The liquidated damages are a declining
amount, equal in the first year to the purchase price paid by the Company for
practice assets and declining over a specified term. Principals are relieved of
their individual obligations for liquidated damages only in the event of death,
disability, or retirement at a predetermined age. Each Service Agreement
provides for the creation of an oversight committee, a majority of whom are
designated by the practice. The oversight committee is responsible for
developing management and administrative policies for the overall operation of
each clinic. However, under each Service Agreement, the affiliated practice
remains obligated to repurchase practice assets, typically including intangible
assets, in the event the Company terminates the Service Agreement for cause.
In 1998 the Company recorded an impairment charge related to three under
performing Service Agreements in accordance with Financial Accounting Standards
Board Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of" ("SFAS No. 121"). The structure of
these contracts failed over time to align physician and Company incentives,
producing deteriorating returns and negative cash flows to the Company. In
February 1999 and April 1999, respectively, the Company announced that it had
terminated its Service Agreements with Knoxville Hematology Oncology Associates,
PLLC, and Southeast Florida Hematology Oncology Group, P.A., two of the
Company's three under performing net revenue model relationships. Since these
were not "for cause" terminations initiated by the Company, the affiliated
practices were not responsible for liquidated damages. The Company currently has
no plans to terminate the Service Agreement with the third physician group.
In the fourth quarter of 1999, the Company terminated its Service Agreement with
one single-physician practice in Florida. This termination was initiated on a
"for cause" basis and the Company is seeking recovery of liquidated damages.
During the same period, the Company began negotiations to terminate another
Service Agreement with a single-physician practice. Since this is not a "for
cause" termination initiated by the Company, the affiliated practice is not
responsible for liquidated damages. The Company experienced deteriorating
returns on this particular Service Agreement and concluded that continuing the
relationship was not economically feasible. At December 31, 1999, the Company
recorded a loss contingency related to the Service Agreements and associated
assets in accordance with Financial Accounting Standards Board Statement
- 14 -
<PAGE> 15
No. 5 "Accounting for Contingencies". The Company terminated the second Service
Agreement in April of 2000.
During the second quarter of 2000, the Health Care Financing Administration
("HCFA"), which runs the Medicare program, announced its intent to overhaul
pharmaceutical reimbursements. HCFA has targeted dozens of drugs, principally
those used for the treatment of cancer and AIDS. More specifically, Medicare
utilizes the average wholesale price ("AWP") of pharmaceuticals as the benchmark
for reimbursement. It is their position that some drug companies are reporting
artificially inflated AWPs to industry guides that are used for
government-reimbursement purposes resulting in overpayments by Medicare and
profits for physicians and other providers. This change is scheduled to take
effect on October 1, 2000, but is subject to further analysis and debate. Should
this change be adopted, it would have a material adverse effect on reimbursement
for certain pharmaceutical products utilized by the Company's affiliated
physicians in the practice management division. Consequently, the Company's
management fee in its practice management relationships would be materially
reduced.
RESULTS OF OPERATIONS
Net revenue increased 2% to $34.6 million for the quarter ended June 30, 2000,
compared to $34.0 million for the quarter ended June 30, 1999. The $4.2 million,
or 54%, decrease in IMPACT Center revenue was offset by a $2.3 million, or 24%,
increase in pharmaceutical sales to physicians and a $2.5 million, or 15%,
increase in practice management service fees. Net revenue was $70.2 million for
the six months ended June 30, 2000, compared to $70.4 million for the same
period in 1999. IMPACT Center revenue decreased by $7.7 million, or 48%, and
clinical research revenue decreased by $.7 million, or 67%. Pharmaceutical sales
to physicians increased $3.3 million, or 17%, while practice management service
fees increased $4.9 million, or 14%. The decrease in high dose chemotherapy
revenues continues to reflect the confusion and related pullback in breast
cancer admissions resulting from the high dose chemotherapy/breast cancer study
results presented at ASCO in May 1999. The increase in pharmaceutical sales to
physicians is due to growth and increased drug utilization by the physicians
serviced under these agreements. Clinical research revenue decreased primarily
as a result of a decline in the number of research studies being conducted by
the Company and a decrease in patient accruals on open studies. The Company is
currently evaluating its strategy and business plan relative to standard and
high dose chemotherapy clinical trials. Finally, the increase in practice
management service fees is due to growth in utilization of both ancillary and
non-ancillary services, and occurred despite a 5% and 12% decrease in the number
of physicians under management agreements between the quarter and six months
ended June 30, 2000, as compared to the same periods in 1999. On a
same-physician basis, practice management service fees increased 19% and 23% for
the quarter and six months ended June 30, 2000, as compared to the same periods
in 1999.
Salaries and benefits costs decreased $1.1 million, or 17%, from $6.4 million
for the second quarter of 1999 to $5.3 million in 2000. For the six months ended
June 30, salaries and benefits costs decreased $2.2 million, or 17%, from $13.0
million in 1999 to $10.8 million for the same period in 2000. The decrease is
primarily due to the termination of certain Service Agreements, the modification
of a Service Agreement which resulted in a change in the manner in which
physician compensation is recorded, the closing of various IMPACT Centers and a
reduction in corporate staffing.
Pharmaceuticals and supplies expense increased $4.1 million, or 21%, and $7.9
million, or 20%, for the quarter and six months ended June 30, 2000 as compared
to the same periods in 1999. The increase is primarily related to increased
volume in pharmaceutical sales to physicians and greater utilization of new
chemotherapy agents with higher costs in the practice management division, thus
causing a decrease in the overall operating margin. Pharmaceuticals and supplies
as a percent of net revenue was 69% and 58% for the quarters ending June 30,
2000 and 1999, respectively. For the six months ended June 30, 2000 and 1999,
supplies and pharmaceuticals
- 15 -
<PAGE> 16
expense as a percentage of net revenue was 68% and 57%, respectively.
General and administrative expenses decreased $.5 million, or 29%, from $1.7
million in the second quarter of 1999 to $1.2 million in the second quarter of
2000. For the six months ended June 30, general and administrative expenses
decreased $.7 million, or 21%, from $3.4 million in 1999 to $2.7 million for the
same period in 2000. The decrease is primarily due to the closure of various
IMPACT Centers and the termination of certain Service Agreements. In addition,
the Company terminated its Service Agreement with a single-physician practice
during the second quarter of 2000. This termination resulted in the receipt of a
$.2 million settlement that reduced general and administrative expenses in the
second quarter of 2000.
Other operating expenses decreased $.5 million, or 19%, from $2.7 million for
the second quarter of 1999 to $2.2 million for the second quarter of 2000. For
the six months ended June 30, other operating expenses decreased $1.4 million,
or 23%, from $6.1 million in 1999 to $4.7 million for the same period in 2000.
Other operating expenses consist primarily of medical director fees, purchased
services related to global case rate contracts, rent expense, and other
operational costs. The decrease is primarily due to the closure of various
IMPACT Centers and lower purchased services and physician fees as a result of
lower IMPACT and cancer research volumes as compared to the quarter and six
months ended June 30, 1999.
EBITDA (earnings before interest, taxes, depreciation and amortization)
decreased $.9 million, or 33%, to $1.8 million for the quarter ended June 30,
2000 as compared to $2.7 million for the quarter ended June 30, 1999. For the
six months ended June 30, EBITDA decreased $3.2 million, or 49%, to $3.3 million
in 2000, as compared to $6.5 million for the same period in 1999. The reduction
is principally due to the decrease in IMPACT Center and cancer research volumes
as compared to the same periods in 1999. EBITDA from the IMPACT services segment
decreased $1.7 million, or 77%, and $3.5 million, or 73%, for the quarter and
six months ended June 30, 2000 as compared to the same periods in 1999. The
decrease is primarily due to a decrease in breast cancer referral volumes.
During the second quarter of 2000, the Company received notices of termination
of pharmaceutical sales agreements from two physician practices effective July
1, 2000. The EBITDA contribution from these agreements totalled $.2 million for
the six months ended June 30, 2000. While the Company is currently marketing
these services to other physician practices, there can be no assurance that new
agreements will be executed to replace the EBITDA contributed by the terminated
agreements. EBITDA from the physician practice management segment increased 11%
for the quarter ended June 30, 2000 and 1% for the six months ended June 30,
2000 as compared to the same periods in 1999. The lower increase in EBITDA for
the six months ended June 30, 2000 is principally due to increases in
pharmaceutical and supply costs, increases in contractual adjustments, and the
termination and modification of certain Service Agreements. The increase in this
division EBITDA for the second quarter of 2000 is principally due to the
modification and settlement of certain Service Agreements. EBITDA from cancer
research services decreased $.2 million for the six months ended June 30, 2000
as compared to the same period in 1999. The decrease is primarily due to a
decline in the number of research studies being conducted by the Company and
decrease in patient accruals on open studies.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's working capital was ($8.6) million with current
assets of $47.6 million and current liabilities of $56.2 million. The Company's
Credit Facility matures on June 30, 2001. Consequently, the entire outstanding
principal balance on the Company's Credit Facility is classified as a current
liability at June 30, 2000. Cash and cash equivalents represented $6.8 million
of the Company's current assets.
Cash provided by operating activities was $1.7 million in the first six months
of 2000 compared to $5.4 million for the same period in 1999. This decrease is
largely attributable to the $.4 million net loss incurred by the Company in the
first six months of 2000 as compared to $1.6 million in net earnings for the
first six months of 1999. In addition, the Company has experienced a slow down
of inflows from accounts receivable in the
- 16 -
<PAGE> 17
IMPACT division due to a decrease in revenue in 2000 as compared to 1999. This
decrease is also due to the timing of inventory purchases and payments of
accounts payable. Cash used in investing activities, principally related to the
purchase of equipment, was $.5 million for both the six months ended June 30,
2000 and 1999. Cash used in financing activities was $1.7 million for the six
months ended June 30, 2000 and $2.1 million for the same period in 1999. This
decrease is primarily attributable to distributions to joint venture partners
and financing costs incurred during the first six months of 1999, tempered by an
increase in principal payments on notes payable during the first six months of
2000.
The terms of the Company's original lending agreement provided for a $42.0
million Credit Facility which matures June 2002, to fund the Company's working
capital needs. The Credit Facility, comprised of a $35.0 million Term Loan
Facility and a $7.0 million Revolving Credit Facility, is collateralized by the
assets of the Company and the common stock of its subsidiaries. The Credit
Facility bears interest at a variable rate equal to LIBOR plus a spread between
1.375% and 2.5%, depending upon borrowing levels. The Company is also obligated
to a commitment fee of .25% to .5% of the unused portion of the Revolving Credit
Facility. At June 30, 2000, $35.2 million aggregate principal was outstanding
under the Credit Facility with a current interest rate of approximately 9.8%.
The Company is subject to certain affirmative and negative covenants which,
among other things, require the Company to maintain certain financial ratios,
including minimum fixed charge coverage, funded debt to EBITDA and minimum net
worth.
In November 1999, the Company and its lenders amended certain terms of the
Credit Facility. As a result of this amendment, the Revolving Credit Facility
was reduced from $7.0 million to $6.0 million and the interest rate was adjusted
to LIBOR plus a spread of 3.25%. The Company's obligation for commitment fees
was adjusted from a maximum of .5% to .625% of the unused portion of the
Revolving Credit Facility. Repayment of the January 1, 2000 quarterly
installment was accelerated. In addition, certain affirmative and negative
covenants were added or modified, including minimum EBITDA requirements for the
fourth quarter of 1999 and the first quarter of 2000. Certain covenants were
also waived for the quarters ending September 30, 1999 and December 31, 1999.
On March 30, 2000, the Company and its lenders amended various terms of the
Credit Facility. As a result of this amendment, certain affirmative and negative
covenants were added (including minumum quarterly cash flow requirements through
March 2001), and certain other existing covenants were modified. Additionally,
certain principal repayment terms were modified and certain future and current
compliance with specific covenants was waived. Finally, the maturity date of the
Credit Facility was accelerated to June 2001. The Company expects to have a
longer-term facility in place prior to the June 2001 maturity date, but there
can be no assurances that such facility will in fact be consummated.
Furthermore, in light of the uncertainty surrounding the clinical data relative
to the treatment of breast cancer with high dose chemotherapy and the
termination of certain pharmaceutical sales contracts, there can be no assurance
that the Company will remain in compliance with the terms of the Credit
Facility, as amended. In such event, the Company would be required to obtain
waivers relative to the covenant violations or renegotiate certain terms of the
Credit Facility.
In June 1999, the Company entered into a LIBOR based interest rate swap
agreement ("Swap Agreement") effective July 1, 1999 with the Company's lender as
required by the terms of the Credit Facility. Amounts hedged under the Swap
Agreement accrue interest at the difference between 5.93% and the ninety-day
LIBOR rate and are settled quarterly. The Company hedged $18.0 million under the
terms of the Swap Agreement. The Swap Agreement matured on July 1, 2000.
In June 2000, the Company entered into a new Swap Agreement effective July 1,
2000 with the Company's lender as required by the terms of the Credit Facility.
Amounts hedged under the Swap Agreement accrue interest at the difference
between 7.24% and the ninety-day LIBOR rate and are settled quarterly. The
Company has hedged $17.0 million under the terms of the Swap Agreement. The Swap
Agreement matures on July 1, 2001.
- 17 -
<PAGE> 18
Long-term unsecured amortizing promissory notes bearing interest at rates from
4% to 9% were issued as partial consideration for the practice management
affiliations consummated in 1996. Principal and interest under the long-term
notes may, at the election of the holders, be paid in shares of common stock of
the Company based upon conversion rates ranging from $11.50 to $16.97. The
unpaid principal amount of the long-term notes was $2.3 million at June 30,
2000.
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
The federal Health Insurance Portability and Accountability Act of 1996
("HIPAA"), required that standards be developed for the privacy and protection
of individually identifiable health information. As directed by HIPAA, the
federal government recently proposed detailed regulations to protect individual
health information that is maintained or transmitted electronically from
improper access, alteration or loss. Final regulations are expected sometime
this year. The Company expects that health care organizations will be required
to comply with the new standards 24 months after the date of adoption. The
Company expects to begin to address HIPAA issues during fiscal year 2000.
Because the HIPAA regulations have not been finalized, the Company has not been
able to determine the impact of the new standards on its financial position or
results. The Company does expect to incur costs to evaluate and implement the
rules, and will be actively evaluating such costs and their impact on financial
position and operations.
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
filing are forward-looking statements that involve a number of risks and
uncertainties. The actual future results of the Company could differ
significantly from those statements. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to:
(i) a continued decline in high dose chemotherapy referrals due to the high dose
chemotherapy breast cancer results; (ii) difficulty in transitioning operating
responsibilities to new members of senior management; (iii) continued decline in
margins for cancer drugs; (iv) reductions in third-party reimbursement from
managed care plans and private insurance resulting from stricter utilization and
reimbursement standards; (v) the inability of the Company to recover all or a
portion of the carrying amounts of the cost of service agreements, resulting in
an additional charge to earnings; (vi) the Company's dependence upon its
affiliations with physician practices, given that there can be no assurance that
the practices will remain successful or that key members of a particular
practice will remain actively employed; (vii) changes in government regulations;
(viii) risk of professional malpractice and other similar claims inherent in the
provision of medical services; (ix) the Company's dependence on the ability and
experience of its executive officers; (x) the Company's inability to raise
additional capital or refinance existing debt; and (xi) potential volatility in
the market price of the Company's common stock. The Company cautions that any
forward-looking statement reflects only the beliefs of the Company or its
management at the time the statement is made. The Company undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement was made.
- 18 -
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure is to changes in interest rates
obtainable on its Credit Facility. The Company's interest rate risk objective is
to limit the impact of interest rate fluctuations on earnings and cash flows and
to lower its overall borrowings by selecting interest periods for traunches of
the Credit Facility that are more favorable to the Company based on the current
market interest rates. The Company has the option of fixing current interest
rates for interest periods of 1, 2, 3 or 6 months.
The Company is also a party to a LIBOR based interest rate swap agreement ("Swap
Agreement"), effective date July 1, 2000, with the Company's lender as required
by the terms of the Credit Facility. Amounts hedged under the Swap Agreement
accrue interest at the difference between 7.24% and the ninety-day LIBOR rate
and are settled quarterly. The Swap Agreement matures July 1, 2001. The Company
does not enter into derivative or interest rate transactions for speculative
purposes.
At June 30, 2000, $35.2 million aggregate principal was outstanding under the
Credit Facility with a current interest rate of approximately 9.8%. The Company
does not have any other material market-sensitive financial instruments.
- 19 -
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on June 13, 2000, the following
proposals were adopted by the margins indicated:
(1) To elect three directors to hold office for a term of one year until
the annual meeting of stockholders in the year 2001 (Class III
Directors):
<TABLE>
<CAPTION>
Votes For Votes Withheld Abstain
--------- -------------- -------
<S> <C> <C> <C>
Anthony M. LaMacchia 9,666,833 74,745 2,405
W. Thomas Grant, II 9,665,789 75,789 2,405
James R. Seward 9,682,034 59,544 2,405
</TABLE>
William H. West, M.D., Frank M. Bumstead and Leonard A. Kalman,
M.D., continue serving as directors until the annual meeting of
stockholders in the year 2001 (Class I Directors). P. Anthony Jacobs
and Lawrence N. Kugelman continue serving as directors until the
annual meeting of stockholders in the year 2001 (Class II
Directors).
(2) To amend the 1996 Stock Incentive Plan to authorize the issuance of
an additional 500,000 shares of Common Stock.
<TABLE>
<CAPTION>
Votes For Votes Against Abstain
--------- ------------- -------
<S> <C> <C>
9,383,462 299,868 60,653
</TABLE>
(3) Ratification of selection of KMPG, LLP as the Company's independent
auditors for the 2000 fiscal year.
<TABLE>
<CAPTION>
Votes For Votes Against Abstain
--------- ------------ -------
<S> <C> <C>
9,652,781 9,992 81,210
</TABLE>
- 20 -
<PAGE> 21
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)EXHIBITS
10(t) Employment Agreement between Registrant and Patrick J. McDonough
10(u) Swap Agreement dated June 29, 2000 between Registrant and Bank of
America, N.A.
27 Financial Data Schedule (for SEC use only)
- 21 -
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Response
Oncology, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESPONSE ONCOLOGY, INC.
By: /s/ Peter A. Stark
--------------------------------------
Peter A. Stark
Vice President, Finance
and Principal Accounting Officer
Date: August 14, 2000
By: /s/ Anthony M. LaMacchia
--------------------------------------
Anthony M. LaMacchia
President and Chief Executive Officer
Date: August 14, 2000
