<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 September 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 8,942,192 shares as of November 12, 1996.
This filing consists of 14 sequentially numbered pages.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
September 30, 1996 and December 31, 1995..........................3
Condensed Consolidated Statements
of Operations for the Three Months Ended
September 30, 1996 and September 30, 1995.........................4
Condensed Consolidated Statements
of Operations for the Nine Months Ended
September 30, 1996 and September 30, 1995.........................5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1996 and September 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 6. Exhibits and Reports on Form 8-K ...............................13
Signatures .................................................................14
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS September 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 $ 220,160 $ 4,204,558
Short-term investments 361,718
Accounts receivable, less allowance for doubtful accounts
of $1,728,718 and $2,079,788 20,685,273 13,934,810
Supplies 1,634,567 1,119,671
Prepaid expenses 1,539,088 550,287
Due from affiliated physicians 3,547,480 - - -
Other current assets 1,445,685 465,738
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TOTAL CURRENT ASSETS 29,072,253 20,636,782
Property and equipment - at cost, less allowance for
depreciation and amortization of $8,131,693 and $6,235,730 5,069,646 3,822,425
Deferred charges, less allowances for amortization of $152,903 and $65,807 417,574 186,528
Management service agreements, less allowance for amortization of $664,024 70,630,546 - - -
Other assets 94,318 119,536
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71,142,438 306,064
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TOTAL ASSETS $ 105,284,337 $ 24,765,271
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,484,683 $ 3,690,937
Accrued expenses and other liabilities 4,476,048 1,134,688
Notes payable 5,555,281 - - -
Capital lease obligations 40,994 58,501
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TOTAL CURRENT LIABILITIES 14,557,006 4,884,126
Capital lease obligations, less current portion - - - 15,492
Notes payable, less current portion 35,050,385 - - -
Deferred tax liability 19,875,377 - - -
Minority interest 276,938 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 8,609,522 and 7,371,589 shares, respectively 86,096 73,716
Paid-in capital 73,988,962 60,054,215
Retained earnings (deficit) (38,578,260) (40,313,167)
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35,524,631 19,842,597
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 105,284,337 $ 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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<PAGE> 4
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996 September 30, 1995
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<S> <C> <C>
Net revenue $ 17,913,611 $ 11,221,751
Other income 42,808 97,510
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17,956,419 11,319,261
COSTS AND EXPENSES
Operating 13,397,721 8,327,012
General and administrative 1,589,886 1,442,268
Depreciation and amortization 1,036,985 387,530
Interest 741,678 4,734
Provision for doubtful accounts 395,873 552,914
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17,162,143 10,714,458
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EARNINGS BEFORE MINORITY INTEREST 794,276 604,803
Minority owners' share of net earnings 120,023 - - -
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NET EARNINGS $ 674,253 $ 604,803
============= ============
EARNINGS PER COMMON SHARE $ 0.08 $ 0.08
============= ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 8,391,461 7,618,730
============= ============
</TABLE>
See accompanying footnotes
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<PAGE> 5
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996 September 30, 1995
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<S> <C> <C>
Net revenue $ 46,353,078 $ 33,795,022
Other income 116,754 207,899
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46,469,832 34,002,921
COSTS AND EXPENSES
Operating 35,172,089 24,811,188
General and administrative 4,308,882 4,061,001
Depreciation and amortization 2,362,146 1,261,833
Interest 1,398,461 15,640
Provision for doubtful accounts 1,218,214 1,691,109
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44,459,792 31,840,771
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EARNINGS BEFORE MINORITY INTEREST 2,010,040 2,162,150
Minority owners' share of net earnings 275,133
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NET EARNINGS $ 1,734,907 $ 2,162,150
============= ============
EARNINGS PER COMMON SHARE $ 0.22 $ 0.28
============= ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,971,115 7,588,791
============= ============
</TABLE>
See accompanying footnotes
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<PAGE> 6
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996 September 30, 1995
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<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 1,752,510 $ 1,735,563
INVESTING ACTIVITIES
Purchase of property and equipment (1,197,509) (1,043,315)
(Purchase) sale of short-term investments 361,718 (250,000)
Advances to affiliated physician groups (3,547,480) - - -
Acquisition of non-medical assets of affiliated physician groups (37,916,482) - - -
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NET CASH USED IN INVESTING ACTIVITIES (42,299,753) (1,293,315)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 178,373 54,125
Principal payments on capital leases (31,048) (147,564)
Net proceeds from Working Capital Facility 4,917,081 - - -
Net payments on other notes payable (501,561) - - -
Proceeds from Acquisition Facility 22,000,000 - - -
Proceeds from issuance of stock to parent company 10,000,000 - - -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 36,562,845 93,439
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,984,398) 348,809
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,204,558 2,922,266
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 220,160 $ 3,271,075
============= ============
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION
Cash paid during period for:
Interest $ 1,370,107 $ 4,734
</TABLE>
See accompanying footnotes
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<PAGE> 7
Response Oncology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 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 three and nine month period
ended September 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' (the "Company") 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 September 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 Nine months ended
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Patient services revenue $ 8,646,996 $ 8,594,886 $25,439,006 $26,069,574
Pharmaceutical sales to physicians 3,509,355 2,446,015 9,946,937 7,147,948
Practice management service fees 5,483,799 - - - 10,109,674 - - -
Physician investigator studies 273,461 180,850 857,461 577,500
=========== =========== =========== ===========
$17,913,611 $11,221,751 $46,353,078 $33,795,022
</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 three and
nine months ended September 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 three and nine months ended September 30, 1996. The
weighted average number of common shares and net earnings per share for the
period ended September 30, 1995 have been restated to reflect a one-for-five
reverse split effected November 1, 1995.
Note 2 - Parent Company
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<PAGE> 8
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; Jeffrey L. Paonessa, M. D., P.A. on June 19, 1996;
Southeast Florida Hematology Oncology Group on July 3, 1996; and Rosenberg &
Kalman, M.D., P.A. on September 1, 1996 ('the Groups") which have a total of 24
practicing physicians. The total consideration was approximately $55.6 million,
approximately $37.9 million of which was paid in cash, approximately $13.1
million by delivery of the Company's long-term unsecured interest-bearing
amortizing promissory notes, approximately $3.8 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 and
the exchange of the Seafield Note had taken place on January 1, 1995, are as
follows:
<TABLE>
<CAPTION>
Nine months ended September 30
1996 1995
----------- -----------
<S> <C> <C>
Net revenue $56,023,715 $49,874,360
Net earnings 2,343,186 1,502,418
Earnings per common share $ 0.26 $ 0.17
Weighted average number of shares and share equivalents outstanding 8,988,364 8,811,635
</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 nine months ended September 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 $22 million Acquisition Facility and a $5.5 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 and bears interest at a
variable rate equal to LIBOR plus a spread of between 1.875% and 2.375%.
Proceeds of loans advanced under The Working Capital Facility may also be used
for acquisitions. 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 September 30, 1996, $26.9 million of principal was outstanding under the
Credit Facility with a current interest rate of approximately 7.7%. The
Company's available credit under the Credit Facility at September 30, 1996,
was $.6 million.
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<PAGE> 9
Notes payable also 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 $13.75 to
$17.50. The unpaid principal amount of the long-term notes was $13.7 million at
September 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. In addition, the Company
maintains an umbrella liability policy. Since inception, the Company has
incurred no professional or general liability losses and as of September 30,
1996, the Company was not aware of any material pending professional or general
liability claims.
The Company executed an agreement to affiliate with West Clinic, P.C., an eight
physician medical practice in Memphis, Tennessee. This agreement is subject to
certain conditions which if not met by December 31, 1996 will cause its
termination.
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 September 30, 1996, the Company completed practice management
affiliations with The Center for Hematology Oncology, P.A., a three physician
medical practice in Boca Raton, Florida; Weinreb, Weisberg, and Weiss, P.A., a
three physician practice in Tamarac, Florida; Drs. Haraf, Antonucci, McCormack,
and Kerns Medical Partnership, a four physician practice in Knoxville,
Tennessee; Hematology Oncology Associates of the Treasure Coast, P.A., a three
physician practice in Port St. Lucie, Florida; and Lawrence A. Snetman, M.D.,
P.A., a one physician practice in Miami, Florida. The total consideration was
approximately $31.5 million, approximately $14.5 million of which was paid in
cash, approximately $6.4 million by delivery of the Company's long-term
unsecured interest-bearing amortizing promissory notes, approximately $4.2
million in the form of the Company's common stock and approximately $6.4 million
by delivery of irrevocable standby letters of credit expiring on January 2,
1997.
In October, 1996, the Company procured a $23.5 million credit facility from
Seafield (the "Seafield Facility") to be used to finance acquisitions and for
working capital. The loan is payable upon the earlier of the closing of a
Response equity offering or August 1998. The Seafield Facility bears interest
at a rate of 8% escalating at certain points during the term of the loan, is
unsecured and is convertible at the election of Seafield into shares of
Response common stock at a conversion price equal to the market price of the
common stock at the date of conversion provided, however that after December
31, 1996 the conversion price will be the lower of market or $11.00 per
share.
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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 which owns and/or
operates a network of outpatient treatment centers, or IMPACT(R) Centers, which
provide stem cell supported high dose chemotherapy and other advanced cancer
treatment services under the direction of practicing oncologists; owns the
assets and/or manages the business aspects of oncology practices; and conducts
clinical cancer research on behalf of pharmaceutical manufacturers. Over 300
medical oncologists are associated with the Company through these programs.
As of September 30, 1996, the Company owned or operated in joint ventures with
hospitals 41 Centers in 20 states. In January, 1996, the Company began a
strategy of expanding its comprehensive cancer management services through
practice management affiliation 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.
Results of Operations
Net revenue for the quarter ended September 30, 1996 was $17.9 million compared
to $11.2 million for the quarter ended September 30, 1995, an increase of $6.7
million or 60%. Net revenue for the nine months ended September 30, 1996 was
$46.35 million compared to $33.8 million for the corresponding period in 1995,
an increase of $12.55 million or 37%. The increase is primarily attributable to
revenue from practice management affiliations and an increase in pharmaceutical
sales to physicians which carries a lower operating margin than the Company's
traditional patient services revenue.
EBITDA (earnings before interest, taxes, depreciation, and amortization)
increased $1.46 million or 146% from $1 million for the three months ended
September 30, 1995 to $2.45 million for the same period in 1996. EBITDA also
increased $2.06 million or 60% from $3.44 million for the nine month period
ended September 1995 to $5.5 million for the same period in 1996. The increase
reflects further progress in the Company's diversification into practice
management.
Net revenue from patient services increased $52,000 between the quarters ended
September 30, 1996 and 1995 but decreased $631,000 between the nine month
periods ended September 30, 1996 and 1995. The decline on a year-to-date basis
is primarily due to the closure of three IMPACT(R) Centers pursuant to
affiliations by referring physicians with other physician practice management
companies prior to the Company establishing its own practice management
alternative for medical oncologists. However, several joint venture IMPACT(R)
Centers became operational during the period resulting in the increase between
the quarters ended September 30, 1996 and 1995.
Operating expenses for the third quarter of 1996 were $13.4 million compared to
$8.3 million for the third quarter of 1995, an increase of $5.1 million or 61%.
Operating expenses for the nine months ended September 30, 1996 were $35.2
million as compared to $24.8 million, an increase of $10.4 million or 42%. 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 74% for the quarters and
76% and 73% for the nine month periods ended September 30, 1996 and 1995,
respectively. This increase is primarily attributable to the increase in
affiliated physician practices under management. Pursuant to the 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 relative to increased sales of
pharmaceuticals to physicians.
The Company recorded net earnings of $674,000, or $0.08 per share, and
$1,735,000, or $0.22 per share, for the quarter and nine months ended September
30, 1996 compared to net earnings of $605,000, or $0.08 per share and
$2,162,000, or $0.28 per share, for the same periods last year.
General and administrative costs for the quarters ended September 30, 1995 and
1996 increased by $.2 million, or 14%, from $1.4 million to $1.6 million. These
expenses increased by $.2 million, or 6%, from $4.1 million to $4.3 million for
the nine month periods ended September 30, 1995 and 1996. The increases are
primarily attributable to increases in administrative payroll and other related
costs.
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<PAGE> 11
Depreciation and amortization expense was $1,037,000 and $388,000 for the
quarters ended September 30, 1996 and 1995, respectively, an increase of
$649,000 or 167%. The expense increased $1.1 million, or 87%, from $1,262,000 to
$2,362,000 million between the nine months ended September 30, 1995 and 1996.
The increase is primarily attributable to the amortization of Service Agreements
purchased in recently completed affiliations.
Interest expense was $742,000 and $5,000 for the quarters ended September 30,
1996 and 1995, respectively. Interest expense of $1,398,000 and $16,000 was
incurred during the nine month periods ended September 30, 1996 and 1995,
respectively. The increases of $737,000 and $1,382,000 for the quarter and nine
months ended September 30, 1996 are related to borrowings under the Credit
Facility and notes issued in conjunction with practice management affiliations.
The provision for doubtful accounts decreased $157,000 or 28%, from $553,000 to
$396,000, and $473,000 or 28%, from $1,691,000 to $1,218,000 between the
quarters and nine month periods ended September 30, 1995 and 1996,
respectively. The provision as a percentage of net patient service revenue was
5% for the quarter and nine months ended September 30, 1996, and 6% for
the quarter and nine months ended September 30, 1995. The decrease is
attributable to a higher proportion of contract patient accounts, improved
collections performance and an increase in revenues from hospital managed
centers for which collection is more certain.
Minority interest of $120,000 and $275,000 were recorded during the quarter and
nine month periods ended September 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 September 30, 1996, the Company's working capital was $14.5 million with
current assets of $29 million and current liabilities of $14.6 million. Working
capital as of September 30, 1996 increased $2.9 million compared to December
31, 1995. Cash and cash equivalents and short-term investments represent .2
million of the Company's current assets; the decrease of $3.9 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 $1,753,000 and $1,736,000
for the nine month periods ended September 30, 1996 and 1995 respectively with
an increase of $17,000.
In April 1996, the Company obtained an unsecured, $10 million loan (the
"Seafield Note") from Seafield bearing interest at the rate of prime plus 1%,
which after August 1, 1996, became convertible at the election of Seafield into
shares of the Company's common stock. Proceeds of the loan were used to finance
the KHOA practice management affiliation. The loan was exchanged for 909,090
shares of common stock during August, 1996.
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 $22 million Acquisition Facility and a $5.5 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.
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<PAGE> 12
The Working Capital Facility matures May 30, 1997, subject to a one year
extension, 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 September 30, 1996 $26.9 million aggregate principal amount was
outstanding under the Credit Facility with a current interest rate of
approximately 7.7%. The Company's available credit under the Acquisition
Facility at September 30, 1996, was $.6 million.
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 $13.75 to $17.50. The unpaid principal
amount of the long-term notes was $13.7 million at September 30, 1996.
In October, 1996 Response procured a $23.5 million credit facility from
Seafield (the "Seafield Facility") to be used to finance acquisitions and for
working capital. The loan is payable upon the earlier of the closing of a
Response equity offering or August 1998. The Seafield Facility bears interest
at a rate of 8% escalating at certain points during the term of the loan, is
unsecured and is convertible at the election of Seafield into shares of
Response common stock at a conversion price equal to the market price of the
common stock at the date of conversion provided, however that after December
31, 1996, the conversion price will be the lower of market or $11.00 per share.
The Company's primary capital requirement is to fund affiliations with medical
oncology practices. Subsequent to September 30, 1996, the Company completed
practice management affiliations with The Center for Hematology Oncology, P.A.,
a three physician medical practice in Boca Raton, Florida; Weinreb, Weisberg,
and Weiss, P.A., a three physician practice in Tamarac, Florida; Drs. Haraf,
Antonucci, McCormack, and Kerns Medical Partnership, a four physician practice
in Knoxville, Tennessee; Hematology Oncology Associates of the Treasure Coast,
P.A., a three physician practice in Port St. Lucie, Florida; and Lawrence A.
Snetman, M.D., P.A., a one physician practice in Miami, Florida. The total
consideration was approximately $31.5 million, approximately $14.5 million of
which was paid in cash, approximately $6.4 million by delivery of the Company's
long-term unsecured interest-bearing amortizing promissory notes, approximately
$4.2 million in the form of the Company's common stock and approximately $6.4
million by delivery of irrevocable standby letters of credit expiring on January
2, 1997. The cash consideration for these affiliations was primarily funded
through borrowings under the Seafield Facility.
The Company has also executed an agreement to affiliate with West Clinic, P.C.,
an eight physician medical practice in Memphis, Tennessee. This agreement is
subject to certain conditions which if not met by December 31, 1996 will cause
its termination. The cash required to consummate the affiliation with the West
Clinic, P.C. is approximately $27.5 million.
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 because of current market
conditions, the Company is continuing to evauate a number of financing options
both private and public.
The Company has received a commitment to increase the Credit Facility a minimum
of $5 million. The Company anticipates that working capital generated from
operations, amounts available under the Seafield Facility and amounts to be
available under the Credit Facility will be adequate to expand the IMPACT(R)
Center network and to manage the practices with which the Company has
affiliated for the next 12 months. The Company's acquisition strategy is
dependent upon capital resources in excess of working capital generated from
operations and currently available credit facilities.
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.
-12-
<PAGE> 13
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 --- Financial Data Schedule for SEC use only.
b. Reports on Form 8K
The following documents related to practice acquisitions are incorporated herein
by reference:
- The Company's Current Report on Form 8-K dated July 3, 1996.
- The Company's Current Report on Form 8-K/A dated July 3, 1996
- The Company's Current Report on Form 8-K dated September 3, 1996.
-13-
<PAGE> 14
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: November 14, 1996 By: /s/ Debbie Elliott
----------------- ------------------
Debbie Elliott
Executive Vice President, Finance
(principal accounting officer)
Date: November 14, 1996 By: /s/ Dena Mullen
----------------- -------------------
Dena Mullen
Controller
(principal accounting officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q OF RESPONSE ONCOLOGY FOR THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
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<RECEIVABLES> 22,414
<ALLOWANCES> 1,729
<INVENTORY> 1,635
<CURRENT-ASSETS> 29,072
<PP&E> 13,201
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<COMMON> 86
<OTHER-SE> 35,411
<TOTAL-LIABILITY-AND-EQUITY> 105,284
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