<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, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the 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 TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.002 Par Value 34,927,615 shares as of August 9, 1995.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
June 30, 1995 and December 31, 1994 3
Condensed Consolidated Statements
of Operations for the Three Months Ended
June 30, 1995 and June 30, 1994 4
Condensed Consolidated Statements
of Operations for the Six Months Ended
June 30, 1995 and June 30, 1994 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1995 and June 30, 1994 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RESPONSE TECHNOLOGIES, INC. AND SUBSIDIARIES June 30, December 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1995 1994
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<S> <C> <C>
ASSETS (Unaudited) (Note)
CURRENT ASSETS
Cash and cash equivalents $ 211,662 $ 2,922,266
Short-term investments 3,214,289 100,000
Accounts receivable, less allowances for doubtful accounts
of $2,868,179 and $3,934,794 14,751,815 12,399,569
Supplies 1,022,712 941,481
Prepaid Expenses 312,528 324,637
Other current assets 311,881 97,878
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TOTAL CURRENT ASSETS 19,824,887 16,785,831
PROPERTY AND EQUIPMENT--at cost, less allowances for
depreciation and amortization of $5,442,798 and $4,651,829 3,908,556 4,020,799
OTHER ASSETS
Deferred charges, less allowances for amortization of $126,360 and $253,621 166,513 152,520
Other assets 75,324 77,565
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241,837 230,085
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TOTAL ASSETS $ 23,975,280 $ 21,036,715
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,222,953 $ 3,249,147
Accrued expenses and other liabilities 1,550,078 1,023,163
Notes payable 0 71,558
Capital lease obligations 91,088 157,030
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TOTAL CURRENT LIABILITIES 5,864,119 4,500,898
CAPITAL LEASE OBLIGATIONS 0 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, $.002 par value, authorized 60,000,000 shares; issued
and outstanding 34,922,615 and 34,822,157 shares, respectively 69,845 69,644
Paid-in capital 59,083,660 59,036,487
Retained earnings (deficit) (41,070,177) (42,627,525)
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18,111,161 16,506,939
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,975,280 $ 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
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RESPONSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1995 June 30, 1994
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<S> <C> <C>
NET REVENUE $11,372,618 $ 9,303,135
OTHER INCOME--principally interest 59,676 37,702
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11,432,294 9,340,837
COSTS AND EXPENSES
Operating 8,262,955 7,526,993
General and administrative 1,377,292 1,128,758
Depreciation and amortization 462,759 535,704
Interest 7,056 40,974
Provision for doubtful accounts 593,093 654,381
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10,703,155 9,886,810
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NET EARNINGS (LOSS) $ 729,139 $ (545,973)
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EARNINGS (LOSS) PER COMMON SHARE $ 0.02 $ (0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES $34,914,373 34,745,955
=========== ===========
</TABLE>
See accompanying notes.
4
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RESPONSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995 June 30, 1994
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<S> <C> <C>
NET REVENUE $22,573,272 $17,791,801
OTHER INCOME--principally interest 110,389 102,304
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22,683,661 17,894,105
COSTS AND EXPENSES
Operating 16,481,426 14,807,411
General and administrative 2,621,483 2,166,214
Depreciation and amortization 874,303 1,087,701
Interest 10,906 96,555
Provision for doubtful accounts 1,138,195 1,254,610
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21,126,313 19,412,491
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NET EARNINGS (LOSS) $ 1,557,348 $(1,518,386)
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EARNINGS (LOSS) PER COMMON SHARE $ 0.04 $ (0.04)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 34,874,314 34,710,293
=========== ===========
</TABLE>
See accompanying notes.
5
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RESPONSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995 June 30, 1994
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,130,356 $ 1,332,490
INVESTING ACTIVITIES
Purchase of property and equipment (663,526) (212,993)
Purchase of short-term investments (3,114,289) 0
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NET CASH USED IN INVESTING ACTIVITIES (3,777,815) (212,993)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 46,875 72,750
Principal payments on capital leases (110,020) (206,455)
Net payments on line of credit 0 (1,689,924)
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NET CASH USED IN FINANCING ACTIVITIES (63,145) (1,823,629)
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DECREASE IN CASH AND CASH EQUIVALENTS (2,710,604) (704,132)
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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 $ 211,662 $ 2,396,499
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</TABLE>
See accompanying notes.
6
<PAGE> 7
Response Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 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 six month period ended June 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 Technologies,
Inc. and Subsidiaries' annual report of Form 10-K for the year ended December
31, 1994.
Note 2 - Parent Company
Response Technologies, Inc. is a subsidiary of Seafield Capital Corporation
("Seafield").
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.
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 June
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 June
30, 1995, the Company was not aware of any material pending professional or
general liability claims.
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 outpatient 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 outpatient 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 infusion. The Centers also
provide home pharmacy and outpatient infusional services for their patients.
7
<PAGE> 8
Beginning in 1994, the Company began expanding its network of centers to
include hospital-affiliated centers. These centers may entail 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.
As of June 30, 1995, the Company had twenty-eight IMPACT Centers, seven managed
centers, and one jointly owned center located in nineteen states. Subsequent
to quarter-end, the Company announced the establishment of two additional
jointly owned centers. 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 $729,000 and $1,557,000 for the quarter
and six months ended June 30, 1995 compared to net losses of ($546,000) and
($1,518,000) for the same periods last year.
Net revenue for the quarter ended June 30, 1995 of $11,373,000 increased
$2,069,000 or 22% when compared to the quarter ended June 30, 1994. Net
revenue for the six months ended June 30, 1995 of $22,573,000 increased
$4,781,000 or 27% compared to the six months ended June 30, 1994. The increase
is primarily attributable to increased patient referrals. Net revenue for the
quarter and six months ended June 30, 1995 also included approximately $297,000
and $567,000, respectively, related to the Company's efforts to begin
conducting pharmaceutical contract research in parallel with its clinical
trials data management activities.
Operating expenses for the quarter ended June 30, 1995 increased $736,000 or
10% when compared to the quarter ended June 30, 1994. Operating expenses for
the six months ended June 30, 1995 increased $1,674,000 or 11% when compared to
the six months ended June 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 73% and 81% for the quarters and 73% and 83% for the six month
periods ended June 30, 1995 and 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.
General and administrative costs for the quarter ended June 30, 1995 increased
$249,000 or 22% when compared to the quarter ended June 30, 1994. These
expenses increased $455,000 or 21% for the six months ended June 30, 1995 when
compared to the six months ended June 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 12% for all
periods reported.
Depreciation and amortization expense for the quarter ended June 30, 1995
decreased $73,000 or 14% when compared to the quarter ended June 30, 1994. The
expense decreased $213,000 or 20% between the six months ended June 30, 1994
and 1995. The decrease is primarily attributable to the startup costs of many
Centers being fully amortized.
The provision for doubtful accounts decreased $61,000 or 9% and $116,000 or 9%
between the quarters and six month periods ended June 30, 1995 and 1994,
respectively. The provision as a percentage of net revenue was 5% for the
quarter and six months ended June 30, 1995 and 7% for
8
<PAGE> 9
the quarter and six months ended June 30, 1994. The decrease is attributable
to a higher proportion of contract 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.
Liquidity and Capital Resources
As of June 30, 1995, the Company's working capital was $13,961,000 with current
assets of $19,825,000 and current liabilities of $5,864,000. Cash and cash
equivalents and short-term investments represent $3,426,000 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.
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 June
30, 1995.
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.
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.
No material commitments for capital expenditures existed as of June 30, 1995.
New Accounting Standards
No recently issued accounting standards presently exist which will require
adoption in future periods by the Company.
9
<PAGE> 10
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Shareholders of the
Company was held May 26, 1995 for the purpose of
electing directors, approving the appointment of
auditors, and approving an amendment to the Company's
1990 Non-Qualified Stock Option Plan to increase the
number of shares issuable under the plan from
3,300,000 to 4,300,000 shares of Common Stock, to
reserve the additional 1,000,000 shares for issuance,
to amend limitations in section 7(b) regarding the
maximum number of option grants to directors and
officers to correlate with the increased shares; and
to provide for automatic vesting of options under the
plan upon a change in control of the Company.
Proxies for the meeting were solicited and there was
no solicitation in opposition to management's
solicitations. Holders of 34,847,615 shares were
eligible to vote and 31,987,876 shares were
represented at the meeting either in person or by
proxy.
(b) All of management's nominees for directors as
listed in the proxy statement were elected with the
following vote:
<TABLE>
<CAPTION>
Director For Against Withheld
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<S> <C> <C> <C>
J.T. Clark 31,821,682 9,484 156,710
J.R. Seward 31,823,482 9,484 154,910
P.A. Jacobs 31,823,482 9,484 154,910
J.C. Hutts 31,825,382 9,484 153,010
J.O. Bovender 31,827,982 9,484 150,410
F. Bumstead 31,818,243 9,484 160,149
W.H. West 31,829,982 9,484 148,410
</TABLE>
The shareholders approved the appointment of KPMG
Peat Marwick LLP as independent auditors for the year
ending December 31, 1995 by the following vote:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
31,858,706 115,560 13,610
</TABLE>
The shareholders approved the amendment to the
Company's 1990 Non-Qualified Stock Option Plan by the
following vote:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
31,433,401 493,939 60,536
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 --- Financial Data Schedule for SEC use
only.
10
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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 Technologies, Inc.
Date: August 14, 1995 By: /s/ Daryl P. Johnson
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Daryl P. Johnson
Chief Financial Officer
(duly authorized officer)
Date: August 14, 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 JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 212
<SECURITIES> 3,214
<RECEIVABLES> 17,620
<ALLOWANCES> 2,868
<INVENTORY> 1,023
<CURRENT-ASSETS> 19,825
<PP&E> 9,351
<DEPRECIATION> 5,443
<TOTAL-ASSETS> 23,975
<CURRENT-LIABILITIES> 5,864
<BONDS> 0
<COMMON> 70
0
28
<OTHER-SE> 18,013
<TOTAL-LIABILITY-AND-EQUITY> 23,975
<SALES> 0
<TOTAL-REVENUES> 22,684
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</TABLE>
