<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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 30,1996 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 ONCOLOGY, 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 7,685,307 shares as of August 8, 1996.
This filing consists of 15 sequentially numbered pages.
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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, 1996 and December 31, 1995..................... 3
Condensed Consolidated Statements
of Operations for the Three Months Ended
June 30, 1996 and June 30, 1995......................... 4
Condensed Consolidated Statements
of Operations for the Six Months Ended
June 30, 1996 and June 30, 1995......................... 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1996 and June 30, 1995......................... 6
Notes to Condensed Consolidated
Financial Statements.................................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................... 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders........................................ 13
Item 6. Exhibits and Reports on Form 8-K........................ 14
Signatures............................................................... 15
</TABLE>
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS June 30, 1996 December 31, 1995
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES ------------- -----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 156,021 $ 4,204,558
Short-term investments 100,000 361,718
Accounts receivable, less allowance for doubtful accounts
of $1,510,671 and $2,079,788 19,513,233 13,934,810
Supplies 1,396,416 1,119,671
Prepaid expenses 789,185 550,287
Due from affiliated physicians 2,269,400 - - -
Other current assets 1,144,360 465,738
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TOTAL CURRENT ASSETS 25,368,615 20,636,782
Property and equipment - at cost, less allowance for
depreciation and amortization of $7,223,730 and $6,235,730 5,492,805 3,822,425
Deferred charges, less allowances for amortization of $71,221 and $65,807 608,344 186,528
Management service agreements, less allowance for amortization of $281,747 43,839,012 - - -
Other assets 94,839 119,536
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44,542,195 306,064
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TOTAL ASSETS $75,403,615 $24,765,271
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $4,690,291 $3,690,937
Accrued expenses and other liabilities 3,045,881 1,134,688
Notes payable 636,451 - - -
Capital lease obligations 46,181 58,501
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TOTAL CURRENT LIABILITIES 8,418,804 4,884,126
Capital lease obligations, less current portion - - - 15,492
Notes payable, less current portion 33,378,362 - - -
Deferred tax liability 9,615,942 - - -
Minority interest 322,166 23,056
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $1.00 par value, authorized 3,000,000
shares; issued and outstanding 27,833 shares, at each period end, liquidating
preference $11.00 per share 27,833 27,833
Common Stock, $.01 par value, authorized 30,000,000 shares; issued and
outstanding 7,581,832 and 7,371,589 shares, respectively 75,818 73,716
Paid-in capital 62,817,203 60,054,215
Retained earnings (deficit) (39,252,513) (40,313,167)
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23,668,341 19,842,597
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $75,403,615 $24,765,271
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements as of that date.
See accompanying footnotes
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RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
Net revenue $15,098,582 $11,372,618
Other income 57,216 59,676
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15,155,798 11,432,294
COSTS AND EXPENSES
Operating 11,429,730 8,262,955
General and administrative 1,452,011 1,377,292
Depreciation and amortization 754,196 462,759
Interest 464,502 7,056
Provision for doubtful accounts 450,241 593,093
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14,550,680 10,703,155
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EARNINGS BEFORE MINORITY INTEREST 605,118 729,139
Minority owners' share of net earnings 60,742 - - -
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NET EARNINGS $ 544,376 $ 729,139
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EARNINGS PER COMMON SHARE $ 0.07 $ 0.10
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,851,520 7,582,875
=========== ===========
</TABLE>
See accompanying footnotes
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RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
Net revenue $28,439,467 $22,573,272
Other income 73,946 110,389
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28,513,413 22,683,661
COSTS AND EXPENSES
Operating 21,774,512 16,481,426
General and administrative 2,718,852 2,621,483
Depreciation and amortization 1,325,161 874,303
Interest 656,783 10,906
Provision for doubtful accounts 822,341 1,138,195
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27,297,649 21,126,313
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EARNINGS BEFORE MINORITY INTEREST 1,215,764 1,557,348
Minority owners' share of net earnings 155,110 - - -
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NET EARNINGS $ 1,060,654 $ 1,557,348
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EARNINGS PER COMMON SHARE $0.14 $ 0.22
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,765,641 6,942,059
=========== ===========
</TABLE>
See accompanying footnotes
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RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (13,338) $ 1,130,356
INVESTING ACTIVITIES
Purchase of property and equipment (780,102) (663,526)
(Purchase) sale of short-term investments 261,718 (3,114,289)
Advances to affiliated physician groups (2,269,400) - - -
Acquisition of non-medical assets of affiliated physician groups (23,118,958) - - -
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NET CASH USED IN INVESTING ACTIVITIES (25,906,742) (3,777,815)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 174,688 46,875
Principal payments on capital leases (27,812) (110,020)
Net proceeds from Working Capital Facility 80,636 - - -
Net payments on other notes payable (402,414) - - -
Proceeds from Acquisition Facility 12,046,445 - - -
Proceeds from note payable to parent company 10,000,000 - - -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 21,871,543 (63,145)
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DECREASE IN CASH AND CASH EQUIVALENTS (4,048,537) (2,710,604)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,204,558 2,922,266
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 156,021 $ 211,662
============ ============
</TABLE>
See accompanying footnotes
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<PAGE> 7
Response Oncology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 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 amounts have been reclassified for comparative purposes
with no effect on net earnings. Operating results for the six month period
ended June 30, 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 June 30. Patient services revenue is recorded net of
contractual allowances and discounts. The Company's revenue from practice
management affiliations includes practice operating expenses (other than
amounts retained by physicians) 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.
<TABLE>
<CAPTION>
Three months ended Six months ended
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Patient services revenue $ 8,676,924 $ 8,910,187 $16,792,010 $17,474,689
Pharmaceutical sales to physicians 3,215,437 2,334,780 6,437,582 4,701,933
Practice management service fees 2,995,721 - - - - 4,625,875 - - - -
Physician investigator studies 210,500 127,651 584,000 396,650
----------- ----------- ----------- -----------
$15,098,582 $11,372,618 $28,439,467 $22,573,272
</TABLE>
AMORTIZATION: Service agreements consist of the costs of purchasing management
service agreements with physician practices. These costs are amortized over
the initial noncancelable 40-year terms of the related management service
agreements. The agreements are noncancelable except for performance defaults.
In the event a practice breaches the agreement, or 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 service agreements is reviewed for impairment at the end of each
reporting period.
Deferred charges consist primarily of startup costs representing direct and
incremental expenses incurred prior to the operational date of a new IMPACT(R)
(IMPlementing Advanced Cancer Treatments) Center which are capitalized and
amortized from the operational date over a period of two years. Capitalized
financing costs are amortized over the term of the Credit Facility.
NET EARNINGS PER COMMON SHARE: Net earnings per common share for the quarters
and six months ended June 30, 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 notes delivered by the Company in
its management affiliations are excluded since they would have been anti-
dilutive in the quarter and six months ended June 30, 1996. The weighted
average number of common shares and net earnings per share for the period
ended June 30, 1995 have been restated to reflect a one-for-five reverse split
effected November 1, 1995.
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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 - Acquisitions
The Company executed purchase agreements with, and entered into long-term
management services agreements ("Service Agreements") with Oncology Hematology
Group of South Florida, P.A. on January 2, 1996, Knoxville Hematology Oncology
Associates on April 14, 1996 and Jeffrey L. Paonessa, M. D., P.A. on June 19,
1996 ('the Groups") which have a total of 16 practicing physicians. The total
consideration was approximately $37.7 million, approximately $23.1 million of
which was paid in cash, approximately $11.2 million by delivery of the
Company's long-term unsecured interest-bearing amortizing promissory notes,
approximately $2.6 million in the form of the Company's common stock and the
balance being paid over 16 calendar quarters at the rate of $50,000 per
quarter. Under the Service Agreements, the Company receives a fee to manage
the non-medical aspects of the practices and to coordinate practice enhancement
opportunities with the physicians.
The unaudited consolidated pro forma results of all current, continuing
operations assuming the above-referenced acquisitions had been consummated on
January 1, 1995 are as follows:
<TABLE>
<CAPTION>
Six months ended June 30
1996 1995
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<S> <C> <C>
Net revenue $37,131,195 $30,247,915
Net earnings 2,218,439 1,410,422
Earnings per common share $ 0.28 $ 0.20
Weighted average number of shares and share equivalents outstanding 7,961,795 7,138,213
</TABLE>
Note 4 - Due from Affiliated Physicians
Due from affiliated physicians consists of management fees earned and payable
pursuant to the Service Agreements during the quarter ended June 30, 1996. In
addition, the Company may also fund certain working capital needs of the Groups
from time to time.
Note 5 - Notes Payable
In May 1996, the Company entered into a $27.5 million Credit Facility with
NationsBank and Union Planters to fund the Company's acquisition and working
capital needs and to repay its existing debt with Union Planters. The
Credit Facility is comprised of a $20 million Acquisition Facility and a $7.5
million Working Capital Facility. The Acquisition Facility matures May 31,
1998 and bears interest at a variable rate equal to LIBOR plus a spread of
between 1.5% and 2.625%, depending upon borrowing levels. The Working Capital
Facility matures May 30, 1997, subject to a one year extension at the Company's
election, and bears interest at a variable rate equal to LIBOR plus a spread of
between 1.875% and 2.375%. The Credit Facility is secured by a pledge of
common stock in all of the Company's subsidiaries. In addition, the loan
agreement contains a covenant precluding the encumbrance of the Company's
assets without the consent of NationsBank and certain other affirmative,
negative and financial covenants. At June 30, 1996, $12,127,081 of principal
was outstanding under the Credit Facility with a current interest rate of
approximately 8.2%. The Company's available credit under the Acquisition
Facility at June 30, 1996 was $6.5 million.
Notes payable also includes a $10 million loan from Seafield which 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 the Company's common
stock at a conversion price equal to the market price of the common stock at
the time of conversion.
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<PAGE> 9
Additionally, notes payable includes the Company's long-term unsecured
amortizing promissory notes bearing interest at rates from 4% to 9% 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 $15.50 to $17.50. The unpaid principal amount of the long-term notes was
$11,113,681 at June 30, 1996.
Note 6 - Deferred Tax Liability
Upon the consummation of the acquisitions discussed in Note 3, 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 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, 1997, 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 general liability claims. Since inception, the
Company has incurred no professional or general liability losses and as of June
30, 1996, the Company was not aware of any material pending professional or
general liability claims.
The Company is committed under a definitive agreement with a certain physician
practice to fund liquidated damages in the amount of $250,000 in the event that
the practice affiliation is not consummated on or before November 1, 1996.
Note 8 - Recently Issued Statements of Financial Accounting Standards
In March and October, 1995, the Financial Accounting Standards Board issued
Statements No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and No. 123, "Accounting for Stock-Based
Compensation." Both Statements are effective in 1996, and neither is currently
expected to have a significant effect on the financial statements of the
Company.
Note 9 - Subsequent Events
Subsequent to June 30, 1996, the Company completed its fourth practice
management affiliation with Southeast Florida Hematology Oncology Group, a four
physician medical oncology and hematology practice in Fort Lauderdale, Florida.
The Company also executed definitive agreements with West Clinic, P.C., an eight
physician medical practice in Memphis, Tennessee and The Center for Hematology
Oncology, P.A., a three physician medical practice in Boca Raton, Florida.
Non-binding letters of intent have also been executed with an additional 16
physicians in Southeast Florida and East Tennessee.
On July 17, 1996, the Company filed a registration statement with the Securities
and Exchange Commission with respect to the public offering of 5,300,000 shares
of its common stock, $.01 par value per share. Of the 5,300,000 shares expected
to be offered, 4,700,000 shares are being offered by the Company and 600,000
shares by selling shareholders. The registration statement has not yet become
effective.
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<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Response Oncology 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 approximately 350 medical
oncologists; manages the business aspects of the practices of oncologists with
whom the Company has affiliated; and conducts clinical cancer research on
behalf of pharmaceutical manufacturers.
As of June 30, 1996, the Company owned or operated in joint ventures with
hospitals 41 Centers in 21 states. Commencing with the affiliations with
Oncology Hematology Group of South Florida, P.A. in January, 1996 ("OHGSF"),
Knoxville Hematology Oncology Associates in April, 1996, ("KHOA"), Jeffrey
L. Paonessa, M. D., P.A. in June, 1996 ("Paonessa"), the Company executed its
strategy of expanding its comprehensive cancer management services through
affiliations with premier oncology groups. Pursuant to Service Agreements, the
Company provides management services that extend to all non-medical aspects of
the operations of the affiliated practices. The Company is responsible for
providing facilities, equipment, supplies, support personnel and management and
financial advisory services. The Company's resulting revenue from Service
Agreements includes practice operating expenses (other than amounts retained by
physicians) 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.
The Company has completed an additional practice management affiliation with
Southeast Florida Hematology Oncology Group ("Fort Lauderdale") in July 1996,
and has executed two additional definitive agreements and five non-binding
letters of intent for practice management affiliations, furthering the
Company's expansion into the business of managing oncology practices.
Results of operations
The Company recorded net earnings of $544,000, or $.07 per share, and
$1,061,000, or $.14 per share, for the quarter and six months ended June 30,
1996 compared to net earnings of $729,000, or $.10 per share, and $1,557,000,
or $.22 per share, for the same periods last year.
Net revenue for the quarter ended June 30, 1996 was $15.1 million compared
to $11.4 million for the quarter ended June 30, 1995, an increase of $3.7
million or 33%. Net revenue for the six months ended June 30, 1996 was $28.4
million as compared to $22.6 million, an increase of $5.8 million or 26%.
The increase is primarily attributable to revenue from practice management
affiliations and an increase in pharmaceutical sales to physicians, which both
carry a lower operating margin than the Company's traditional patient services
revenue.
Operating expenses for the second quarter of 1996 were $11.4 million
compared to $8.3 million for the second quarter of 1995, an increase of $3.1
million or 38%. Operating expenses for the six months ended June 30, 1996 were
$21.8 million as compared to $16.5 million, an increase of $5.3 million or 32%.
These expenses consist of payroll costs, pharmaceutical and laboratory
expenses, medical director fees, rent expense and other operational expenses.
Operating expenses as a percentage of net revenue were 75% and 73% for the
quarters and 77% and 73% for the six month periods ended June 30, 1996 and
1995, respectively. This increase is primarily attributable to operating
expenses incurred in connection with the Company's diversification into
physician practice management. Pursuant to the management service agreements
with the practice affiliates, the Company is responsible for the operating
expenses of the practices (net of amounts retained by physicians). In
addition, pharmaceutical costs increased in connection with increased sales
of pharmaceuticals to physicians.
General and administrative costs for the quarters ended June 30, 1995 and 1996
increased by $75,000, or 5%, from $1.4 million to $1.5 million. These expenses
increased by $97,000, or 4%, from $2.6 million to $2.7 million for the six month
periods ended June 30, 1995 and 1996. The increases are primarily attributable
to additional administrative payroll and costs related to the Company's
diversification into physician practice management.
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<PAGE> 11
Depreciation and amortization expense was $754,000 and $463,000 for the
quarters ended June 30, 1996 and 1995, respectively, an increase of $291,000
or 63%. The expense increased $451,000, or 52%, from $874,000 to $1.3 million
between the six months ended June 30, 1995 and 1996. The increase is primarily
attributable to the amortization of Service Agreements purchased in recently
completed affiliations.
Interest expense was $465,000 and $7,000 for the quarters ended June 30, 1996
and 1995, respectively. Interest expense of $657,000 and $11,000 was incurred
during the six month periods ended June 30, 1996 and 1995, respectively. The
increases of $458,000 and $646,000 for the quarter and six months ended June
30, 1996 are related to notes issued in conjunction with practice management
affiliations.
The provision for doubtful accounts decreased $143,000 or 24%, from $593,000 to
$450,000, and $316,000 or 28%, from $1.1 million to $820,000, between the
quarters and six month periods ended June 30, 1995 and 1996, respectively. The
provision as a percentage of net revenue was 3% for the quarter and six months
ended June 30, 1996 and 5% for the quarter and six months ended June 30, 1995.
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.
EBITDA (earnings before interest, taxes, depreciation and amortization)
increased $624,000 or 52% from $1.2 million for the three months ended June 30,
1995 to $1.8 million for the same period in 1996. EBITDA also increased $755,000
or 31% from $2.4 million for the six month period ended June 1995 to $3.2
million for the same period in 1996. The increase is primarily due to the
additional revenues and amortization expense related to the management service
agreements with the affiliated physicians.
Minority interest of $61,000 and $155,000 was recorded during the quarter and
six month period ended June 30, 1996 related to the operations of the Company's
majority-owned or controlled IMPACT(R) Centers in joint ventures with
hospitals. The IMPACT(R) Centers were not operational during the comparable
periods in 1995.
Liquidity and Capital Resources
As of June 30, 1996, the Company's working capital was $17 million with current
assets of $25.4 million and current liabilities of $8.4 million. Working
capital as of June 30, 1996 increased $1.1 million compared to December 31,
1995. Cash and cash equivalents and short-term investments represent $256,000
of the Company's current assets; the decrease of $4.3 million as compared to
December 31, 1995 is due to cash consideration paid in the OHGSF practice
management affiliation in January 1996. The increases in other current assets
are related to receivables acquired through practice management affiliations and
amounts due from affiliated physicians for practice management service fees.
Current liabilities increased for amounts payable for operating expenses of
practices under management and liabilities assumed as consideration in the
practice management affiliations.
Net cash provided (used) by operating activities was $(13,000) and $1.1 million
for the six month periods ended June 30, 1996 and 1995 respectively with a
decrease of $1.1 million. The decrease is primarily due to an increase in
accounts receivable from higher physician sales, hospital management fees, and
contract research revenues.
In April 1996, the Company obtained a $10 million loan from Seafield which
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 the Company's
common stock at a conversion price equal to the market price of the common
stock at the time of conversion. Proceeds of the loan were used to finance
the KHOA practice management affiliation.
In May 1996, the Company entered into a $27.5 million Credit Facility with
NationsBank and Union Planters to fund the Company's transaction and working
capital needs and to repay its existing facility with Union Planters. The
Credit Facility is comprised of a $20 million Acquisition Facility and a $7.5
million Working Capital Facility. The Acquisition Facility matures May 31,
1998 and bears interest at a variable rate equal to LIBOR plus a spread of
between 1.5% and 2.625%, depending upon borrowing levels. The Working Capital
Facility matures May 30, 1997, subject to a one year extension at the Company's
election, and bears interest at a variable rate equal to LIBOR plus a spread of
between 1.875% and 2.375%. The Credit Facility is secured by a pledge of
common stock in all of the Company's subsidiaries. In addition, the loan
agreement contains a covenant precluding the encumbrance of the Company's
assets without the consent of NationsBank and certain other affirmative,
negative and financial covenants. At June 30, 1996 $12,127,000 aggregate
principal amount was outstanding under the Credit Facility with a current
interest rate of approximately 8.2%. The Company's available credit under the
Acquisition Facility at June 30, 1996 was $6.5 million.
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<PAGE> 12
Additionally, long-term unsecured amortizing promissory notes bearing interest
at rates from 4% to 9% 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 $15.50 to $17.50. The unpaid
principal amount of the long-term notes was $11,114,000 at June 30, 1996.
On February 10, 1996, 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.
The Company's primary capital requirement is to fund affiliations with medical
oncology practices. Subsequent to June 30, 1996, the Company completed its
fourth practice management affiliation with Southeast Florida Hematology
Oncology Group, a four physician medical oncology and hematology practice in
Fort Lauderdale, Florida. The Company also executed definitive agreements with
West Clinic, P.C., an eight physician medical practice in Memphis, Tennessee and
The Center for Hematology Oncology, P.A., a three physician medical practice in
Boca Raton, Florida. Non-binding letters of intent have also been executed with
an additional 16 physicians in Southeast Florida and East Tennessee. The unused
portion of the Credit Facility discussed above, cash flow from the Company's
operations and potential net proceeds from any new debt or equity offerings will
be utilized to fund practice management affiliations.
In order to consummate all of the above-referenced affiliations and to fund the
associated working capital requirements, additional cash of approximately $51
million will be required. The Company anticipates generating these funds through
the proceeds of the public offering described below or through expansion of the
existing credit facilities. In the event that the public offering of additional
stock is not successfully completed within a certain time frame, the Company
will explore other possible means of equity and debt financing.
The Company is committed under a definitive agreement with a certain physician
practice to fund liquidated damages in the amount of $250,000 in the event that
the practice affiliation is not consummated on or before November 1, 1996.
On July 17, 1996 the Company filed a registration statement with the Securities
and Exchange Commission with respect to the public offering of 5,300,000 shares
of its common stock, $.01 par value per share. Of the 5,300,000 shares
expected to be offered, 4,700,000 shares are being offered by the Company and
600,000 shares by selling shareholders. The registration statement has not yet
become effective.
New Accounting Standards
In March and October, 1995, the Financial Accounting Standards Board issued
Statements No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and No. 123, "Accounting for Stock-Based
Compensation." Both Statements are effective in 1996, and neither is currently
expected to have a significant effect on the financial statements of the
Company.
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<PAGE> 13
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
16, 1996 for the purpose of electing directors, approving the
appointment of auditors, approving a proposal to adopt the 1996 Stock
Incentive Plan providing for the issuance of up to 630,000 shares of
Common Stock, and approving an amendment to the Company's 1990
Non-Qualified Stock Option Plan to authorize the issuance of up to
265,000 shares of Common Stock. Proxies for the meeting were
solicited and there was no solicitation in opposition to management's
solicitations. Holders of 7,371,589 shares were eligible to vote and
6,732,028 shares or 91% 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 Withheld
-------- --- --------
<S> <C> <C>
J. T. Clark 6,726,130 5,898
W. T. Grant, II 6,726,190 5,838
Leonard A. Kalman 6,726,150 5,878
J. R. Seward 6,726,190 5,838
</TABLE>
The shareholders approved the appointment of KPMG Peat Marwick LLP as
independent auditors for the year ending December 31, 1996 by the
following vote:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
6,711,396 17,542 3,100
</TABLE>
The shareholders approved the proposal to adopt the 1996 Stock
Incentive Plan by the following vote:
<TABLE>
<CAPTION>
For Against Withheld Broker No Vote
--- ------- -------- --------------
<S> <C> <C> <C>
5,679,616 152,597 7,583 892,232
</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 Broker No Vote
--- ------- -------- --------------
<S> <C> <C> <C>
5,771,493 146,275 5,941 808,319
</TABLE>
-13-
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
The following documents related to practice acquisitions are incorporated
herein by reference:
- The Company's Current Report on Form 8-K dated January 2, 1996
- The Company's Current Report on Form 8-K/A dated January 2, 1996
- The Company's Current Report on Form 8-K dated April 15, 1996
- The Company's Current Report on Form 8-K/A dated April 15, 1996
- The Company's Current Report on Form 8-K dated June 20, 1996
- The Company's Current Report on Form 8-K/A dated June 20, 1996; and
- The Company's Current Report on Form 8-K dated July 3, 1996.
-14-
<PAGE> 15
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: August 14, 1996 By: /s/ Daryl P. Johnson
----------------------------------
Daryl P. Johnson
Chief Financial Officer
(duly authorized officer)
Date: August 14, 1996 by: /s/ Debbie Elliott
----------------------------------
Debbie Elliott
Chief Accounting Officer
(principal accounting officer)
-15-
