-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I5/1RE0NOaL4iHj+L6qOGHwR8umNtzr9HAdqc6yi4Z0SCFv1KLoFuxVvKI9D2u1M 3AiRmyIvv0Y7ivyq5THaMA== 0000950144-96-002615.txt : 19960517 0000950144-96-002615.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950144-96-002615 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPONSE ONCOLOGY INC CENTRAL INDEX KEY: 0000763098 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 621212264 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09922 FILM NUMBER: 96567417 BUSINESS ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 BUSINESS PHONE: 9017617000 MAIL ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 FORMER COMPANY: FORMER CONFORMED NAME: RESPONSE TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIOTHERAPEUTICS INC DATE OF NAME CHANGE: 19891221 10-Q 1 RESPONSE ONCOLOGY, INC. 10-Q 03-31-96 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 March 31, 1996 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.) 1775 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 7,378,189 shares as of May 13, 1996. This filing consists of 12 sequentially numbered pages. 2 INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets, March 31, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements -- March 31, 1996 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
2 3 ITEM 1. FINANCIAL STATEMENTS
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 1996 1995 ASSETS ----------- ------------ CURRENT ASSETS (Unaudited) (Note) Cash and cash equivalents $ 483,191 $4,204,558 Short-term investments 361,718 361,718 Accounts receivable, less allowances for doubtful accounts of $1,899,384 and $2,079,788 15,100,543 13,934,810 Supplies 1,090,643 1,119,671 Prepaid expenses 525,882 550,287 Advances to affiliated physician group 3,112,552 --- Other current assets 2,089,590 465,738 ----------- ----------- TOTAL CURRENT ASSETS 22,764,119 20,636,782 PROPERTY AND EQUIPMENT--at cost, less allowances for depreciation and amortization of $6,904,986 and $6,235,730 3,695,637 3,822,425 OTHER ASSETS Deferred charges, less allowances for amortization of $94,222 and $65,807 325,733 186,528 Intangible assets, less allowances for amortization of $66,550 11,656,558 --- Other assets 176,805 119,436 ----------- ----------- 12,159,096 306,064 ----------- ----------- TOTAL ASSETS $38,618,852 $24,765,271 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 5,696,496 $3,690,937 Accrued expenses and other liabilities 1,891,482 1,134,688 Notes payable 3,607,711 --- Capital lease obligations 57,622 58,501 Current portion of long-term note and other liabilities 396,997 --- ----------- ----------- TOTAL CURRENT LIABILITIES 11,650,308 4,884,126 CAPITAL LEASE OBLIGATIONS --- 15,492 LONG-TERM NOTE AND OTHER LIABILITIES 6,265,369 --- MINORITY INTEREST 261,425 23,056 STOCKHOLDERS' EQUITY Series A Convertible Preferred Stock, $1.00 par value, authorized 3,000,000 shares; issued and outstanding 27,833 at each period end 27,833 27,833 Common Stock, $.01 par value, authorized 30,000,000 shares; issued and outstanding 7,378,189 and 7,371,589 shares, respectively 73,782 73,716 Paid-in capital 60,137,024 60,054,215 Retained earnings (deficit) (39,796,889) (40,313,167) ----------- ----------- 20,441,750 19,842,597 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,618,852 $24,765,271 =========== ===========
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. See accompanying notes. 3 4 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, 1996 March 31, 1995 -------------- -------------- NET REVENUE $13,340,885 $11,200,653 OTHER INCOME--principally interest 16,729 50,714 ----------- ----------- 13,357,614 11,251,367 COSTS AND EXPENSES Operating 10,344,781 8,218,471 General and administrative 1,266,840 1,244,190 Depreciation and amortization 570,965 411,544 Interest 192,281 3,850 Provision for doubtful accounts 372,100 545,103 ----------- ----------- 12,746,967 10,423,158 ----------- ----------- EARNINGS BEFORE MINORITY INTEREST $ 610,647 $ 828,209 Minority interest 94,369 --- ----------- ----------- NET EARNINGS $ 516,278 $ 828,209 =========== =========== NET EARNINGS PER COMMON SHARE $ 0.07 $ 0.12 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,669,105 6,966,762 =========== ===========
See accompanying notes. 4 5 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1996 March 31, 1995 -------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,656,596 $ 669,802 INVESTING ACTIVITIES Purchases of equipment (218,095) (308,628) Advances to affiliated physician group (3,112,552) --- Acquisition of non-medical assets of affiliated physician group (5,343,750) --- ----------- ---------- NET CASH USED IN INVESTING ACTIVITIES (8,674,397) (308,628) FINANCING ACTIVITIES Proceeds from the exercise of stock options 82,875 21,875 Net proceeds from line of credit 3,528,345 --- Principal payments on notes payable (298,415) --- Principal payments on capital lease obligations (16,371) (61,030) ----------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,296,434 (39,155) ----------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,721,367) 322,019 Cash and cash equivalents at beginning of period 4,204,558 2,922,266 ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 483,191 $3,244,285 =========== ==========
Supplemental disclosures of cash flow information: Cash paid for interest was $171,735 and $3,850 for the periods ended March 31, 1996 and 1995, respectively. Non-Cash Investing and Financing Activities: During the quarter ended March 31, 1996, the Company acquired the assets of, and entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. (the "Group"). The total consideration was approximately $12.1 million, approximately $5.3 million of which was paid in cash, approximately $6.0 million was paid by delivery of the Company's long-term unsecured interest-bearing amortizing promissory note and the balance being paid over 16 calendar quarters at the rate of $50,000 per quarter. See accompanying notes. 5 6 Response Oncology, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 1996 (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 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 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. Certain 1995 amounts have been reclassified for comparative purposes with no effect on net earnings. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. NET REVENUE: The following table is a summary of net revenue by source for the respective periods ended March 31. Patient services revenue is recorded net of contractual allowances and discounts. Practice management service fees from the Company's first practice management affiliation are paid pursuant to a management services agreement with the affiliated practice and are comprised of the clinic expense portion (which is aggregate practice expenses prior to physician expenses) and a fixed portion.
1996 1995 ---- ---- Patient Services Revenue $ 8,115,085 $ 8,564,501 Pharmaceutical Sales to Physicians 3,222,145 2,367,153 Practice Management Service Fees 1,630,155 --- Physician Investigator Studies 373,500 268,999 ----------- ----------- $13,340,885 $11,200,653
AMORTIZATION Intangible assets consist of the costs of purchasing management services agreements with physician practices. These costs are amortized over the initial noncancelable 40-year terms of the related management services agreements. The agreements are noncancelable except for performance defaults. In the event a practice breaches the agreement, of if the Company terminates with cause, the practice is required to purchase all tangible assets at fair market value and pay substantial liquidating damages. The carrying value of the management services agreements is reviewed for impairment at the end of each reporting period. NET EARNINGS PER COMMON SHARE: Net earnings per common share for the quarters ended March 31, 1996 and 1995 have been computed by dividing net earnings by the weighted average number of shares of common stock and common stock equivalents outstanding during the respective periods. Shares issuable pursuant to the conversion of the long-term note delivered by the Company in its first practice management affiliation would have been antidilutive in the period ended March 31, 1996. The weighted average number of common shares and net earnings per share for the period ended March 31, 1995 have been restated to reflect a one-for-five reverse split effected November 1, 1995. 6 7 Note 2 - Parent Company Response Oncology, Inc. is a subsidiary of Seafield Capital Corporation ("Seafield"). On February 10, 1995, Seafield announced its retention of a 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 - Acquisition On January 2, 1996, the Company acquired certain assets of, and entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. (the "Group"). The total consideration was approximately $12.1 million, approximately $5.3 million of which was paid in cash, approximately $6.0 million was paid by delivery of the Company's long-term unsecured interest-bearing amortizing promissory note and the balance being paid over 16 calendar quarters at the rate of $50,000 per quarter. The Group, consisting of nine physicians, is located on the campus of Baptist Hospital in Miami, Florida. Under the management services agreement, the Company receives a management fee to manage the non-medical aspects of the practice and to coordinate practice enhancement opportunities with the physicians. Note 4 - Advances to Affiliated Physician Groups Pursuant to the management services agreement between the Company and the Group, the Company receives a management fee to manage the non-medical aspects of the Group's practice. The management fee earned during the quarter was included in Advances to Affiliated Physician Groups at March 31, 1996. In addition, the Company funded certain working capital needs of the Group which comprised the balance of the amount due from the Group at March 31, 1996. The Group repaid approximately $2,500,000 of the advances by May 1996. Note 5 - Notes Payable As of March 31, 1996, the Company had a $5,000,000 revolving bank line of credit, secured by eligible accounts receivable, bearing interest at the bank's prime rate plus one percent. Borrowings of $3,528,000 were outstanding under the line at March 31, 1996 at an interest rate of 9.25%. The current line expires June 1, 1996 and is subject to renewal at the bank's discretion. Note 6 - Long-term Note and Other Liabilities Long-term notes payable and other liabilities primarily consists of the Company's long-term unsecured amortizing promissory note bearing interest at 9% issued as partial consideration for the acquisition of certain assets of the Group. The quarterly payments of interest and principal under the long-term note may, at the election of the holders, be paid in shares of common stock of the Company based on a conversion price in excess of the market price at the closing date of the acquisition, or $17.50. The unpaid principal amount of the long-term note was $5,912,366 at March 31, 1996. The remaining balance is attributable to other acquisition related liabilities. Note 7 - 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 March 31, 7 8 1996, the Company was not aware of any material pending professional or general liability claims. Note 8 - Subsequent Events Subsequent to March 31, 1996, the Company announced the completion of its second practice management affiliation with Knoxville Hematology Oncology Associates, a medical oncology and hematology practice in Knoxville, Tennessee. In addition, two non-binding letters of intent for practice management affiliations have been signed. The Company also announced subsequent to March 31, 1996 that it had procured a $10 million loan from Seafield to be used to finance the practice management affiliation with Knoxville Hematology Oncology Associates. The loan has a maturity date of December 31, 1996, bears interest at the rate of prime plus 1%, is unsecured and, after August 1, 1996, is convertible at the option of Seafield into shares of Response common stock at a conversion price equal to the market price of the common stock at the time of conversion. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Response Oncology is a comprehensive cancer management company which owns and/or operates a network of outpatient treatment centers or IMPACT(R) (IMPlementing Advanced Cancer Treatments) Centers, which provide stem cell supported high-dose chemotherapy and other advanced cancer treatment services under the direction of practicing oncologists; owns the assets of and manages oncology practices; and conducts clinical cancer research on behalf of pharmaceutical manufacturers. As of March 31, 1996, the Company owned or operated in joint ventures with hospitals 43 IMPACT(R) Centers in 21 states, providing advanced treatment capabilities and facilities to over 300 medical oncologists. On January 2, 1996, the Company acquired the assets of, and entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. (the "Group"). The Group, consisting of nine physicians, is located on the campus of Baptist Hospital in Miami, Florida. Under the management services agreement, the Company receives a management fee to manage the non-medical aspects of the practice and to coordinate practice enhancement opportunities with the physicians. The Company will seek improvements in the operating results of the Group through a professional focus on management and managed care relationships, economies of scale, and the addition of new services. The Company completed its second practice management affiliation in April 1996 and has entered into two additional letters of intent for practice management affiliations, furthering the Company's movement into the business of managing oncology practices. Results of Operations The Company reported net earnings for the first quarter of 1996 of $516,000, or $.07 per share, compared to net earnings of $828,000, or $.12 per share, for the comparable period last year. Net revenue for the first quarter of 1996 was $13,341,000, an increase of $2,140,000, or 19%, when 8 9 compared to the first quarter of 1995. The increase is primarily attributable to revenue from the first practice management affiliation, newly established high-dose chemotherapy centers in joint venture with host hospitals and increased pharmaceutical sales to physicians. Patient services revenue decreased $449,000, or 5%, between the quarters ended March 31, 1996 and 1995 due primarily to an unacceptable utilization level at the IMPACT Center in Hampton Roads, Virginia. The Company closed the Center in April 1996. Operating expenses increased $2,126,000 or 26% between the quarters ended March 31, 1996 and 1995. These expenses consist of payroll costs, pharmaceutical and laboratory expenses, medical director fees, rent expense and other operational expenses, and display a high degree of variability in proportion to patient services revenue. Operating expenses as a percent of net revenue were 78% compared to 73% for the comparable period of 1995. This increase is primarily attributable to an increase in lower margin revenue from practice management affiliations and sales of pharmaceuticals to physicians. In addition, expenses were incurred related to network development in South Florida and the implementation of the practice management division, both of which the Company believes to be strategically required to accommodate future growth. General and administrative costs increased $23,000 or 2% between the quarters ended March 31, 1996 and 1995. As a percentage of net revenue, general and administrative costs were 9% compared to 11% for the comparable period of 1995. Depreciation and amortization expense increased by $159,000 or 39% when compared to the first quarter of 1995. The increase is attributable to the amortization of the excess of cost over net acquired assets in the Company's first practice management affiliation over the management services agreement period, or 40 years. Interest expense increased by $188,000 when compared to the first quarter of 1995. The increase is attributable to an increase in the average borrowings outstanding under the line of credit between the periods ended March 31, 1996 and 1995. The provision for doubtful accounts decreased $173,000 or 32% between the quarters ended March 31, 1996 and 1995. The provision as a percentage of net revenue was 3% and 5% for the quarters ended March 31, 1996 and 1995, respectively. The decrease is attributable to a higher proportion of contracted patient accounts, improved collections performance and an increase in revenues from practice management affiliation, pharmaceutical sales to physicians, hospital management fees, and contract research for which collection is more certain. Minority interest of $94,000 was recorded during the period ended March 31, 1996 related to the operations of the Company's majority-owned or controlled Centers in joint venture with hospitals. The Centers were not operational during the comparable period in 1995. 9 10 Liquidity and Capital Resources As of March 31, 1996, the Company's working capital was $11,114,000 with current assets of $22,764,000 and current liabilities of $11,650,000. Cash and cash equivalents and short-term investments represent $845,000 of the Company's current assets. Net cash provided by operating activities increased $987,000 between the quarters ended March 31, 1996 and 1995. The increase is primarily attributable to an increase in accounts payable and accrued expenses due in part to the increased operating expenses from the Company's first practice management affiliation. As of March 31, 1996, the Company had a $5,000,000 revolving bank line of credit secured by eligible accounts receivable bearing interest at the bank's prime rate plus one percent. Borrowings of $3,528,000 were outstanding under the line at March 31, 1996 at an interest rate of 9.25%. On January 2, 1996, the Company acquired the assets of, and entered into a long-term management services agreement with the Group. The total consideration was approximately $12.1 million, approximately $5.3 million of which was paid in cash, approximately $6.0 million was paid by delivery of the Company's long-term unsecured interest-bearing amortizing promissory note and the balance being paid over 16 calendar quarters at the rate of $50,000 per quarter. The practice management affiliation with the Group resulted in net increases of $1.2 million in other receivables, $.2 million in equipment, $11.7 in intangible assets, and $.6 million in accounts payable and accrued expenses. Subsequent to March 31, 1996, the Company announced the completion of its second practice management affiliation with Knoxville Hematology Oncology Associates, a medical oncology and hematology practice in Knoxville, Tennessee. In addition, two additional non-binding letters of intent for practice management affiliations have been signed. The Company also announced subsequent to March 31, 1996 that it had procured a $10 million loan from Seafield to be used to finance the practice management affiliation with Knoxville Hematology Oncology Associates. The loan has a maturity date of December 31, 1996, bears interest at the rate of prime plus 1%, is unsecured and, after August 1, 1996, is convertible at the option of Seafield into shares of Response common stock at a conversion price equal to the market price of the common stock at the time of conversion. The Company is currently evaluating means of optimally financing anticipated acquisitions, and it is contemplated that such acquisitions will be financed through combinations of debt and equity. New Accounting Standards No recently issued accounting standards presently exist which will require adoption in future periods by the Company. 10 11 PART II. - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 27 --- Financial Data Schedule --- as filed electronically by the Registrant b. Reports on Form 8-K Form 8-K dated January 2, 1996 Item 2. Acquisitions Registrant announced that it had acquired the assets of, and entered into a long-term management services agreement with Oncology Hematology Group of South Florida, P.A. Form 8-K dated January 2, 1996 Item 5. Other Events Press release announcing appointment of new director and other executive management changes. Form 8-K/A dated January 2, 1996 Item 2. Acquisitions Pro forma financial information filed pursuant to acquisition of Oncology Hematology Group of South Florida, P.A. 11 12 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 thereunder duly authorized. Response Oncology, Inc. Date: May 15, 1996 By: /s/ Daryl P. Johnson ------------ ------------------------------ Daryl P. Johnson Chief Financial Officer (signed on behalf of the registrant and as principal financial officer) Date: May 15, 1996 By: /s/ Debbie K. Elliott ------------ ------------------------------ Debbie K. Elliott Controller (principal accounting officer) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR THE PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 483 362 17,000 1,899 0 22,764 10,601 6,905 38,619 11,650 0 0 74 28 20,340 38,619 0 13,340 0 10,345 1,838 372 192 516 0 0 0 0 0 516 .07 .07
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