<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): APRIL 15, 1996
RESPONSE ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of incorporation)
0-15416 62-1212264
(Commission File Number) (I.R.S. Employer Identification No.)
1775 MORIAH WOODS BLVD., MEMPHIS, TENNESSEE 38117
(Address of principal executive offices, including Zip Code)
(901) 761-7000
(Registrant's telephone number, including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
On April 15, 1996, the Registrant filed a Current Report on Form 8-K reporting
the consummation of the acquisition of a business that is a significant
subsidiary. Pursuant to instruction (a)(4) to Item 7 in the Instructions to
Form 8-K, the Registrant elected an extension of time to file required
financial statements and pro forma financial information in respect to the
acquisition transaction. The Registrant hereby files this Amendment to the
previously filed Form 8-K in order to file the following financial statements
and pro forma financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
1. Audited Balance Sheet, Statement of Income, Statement of Shareholders'
Equity, and Statement of Cash Flows, including footnotes, as of and for
the year ended December 31, 1995 for Knoxville Hematology Oncology
Associates (The "Acquired Business").
2. Pro forma Balance Sheet and Statement of Operations for Registrant and
Acquired Business as of March 31, 1996 and for the year ended
December 31, 1995 and the three months ended March 31, 1996.
<PAGE> 3
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 hereunto duly authorized.
RESPONSE ONCOLOGY, INC.
BY: /s/ Daryl P. Johnson
-----------------------------------------
Daryl P. Johnson, Chief Financial Officer
Dated: June 27, 1996
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Partners
Knoxville Hematology Oncology Associates:
We have audited the accompanying balance sheet of Knoxville Hematology Oncology
Associates as of December 31, 1995, and the related statements of income,
partners' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Knoxville Hematology Oncology
Associates as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Nashville, Tennessee
March 22, 1996 except for Note 6
which is as of April 16, 1996
1
<PAGE> 5
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Balance Sheets
December 31, 1995 and March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1995 1996
------ ----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 31,851 166,362
Accounts receivable, less allowance for contractual adjustments
and uncollectible amounts of $570,502 in 1995
and $505,345 (unaudited) in 1996 1,128,993 998,657
Supplies 109,350 109,350
---------- ---------
Total current assets 1,270,194 1,274,369
Property and equipment, at cost (notes 3 and 4) 2,350,593 2,477,603
Less accumulated depreciation 720,024 779,124
---------- ---------
Net property and equipment 1,630,569 1,698,479
Other assets 3,794 --
---------- ---------
$2,904,557 2,972,848
========== =========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 264,405 245,001
Current portion of long-term debt (note 4) 1,591,646 1,713,757
Current portion of capital lease obligations (note 6) 46,947 46,947
---------- ---------
Total current liabilities 1,902,998 2,005,705
Long-term debt, less current portion (note 4) 221,605 23,131
Capital lease obligations, less current portion (note 6) 58,865 48,865
---------- ---------
Total liabilities 2,183,468 2,077,701
Partners' equity 721,089 895,147
---------- ---------
Commitments and contingencies (notes 5 and 6) $2,904,557 2,972,848
========== =========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 6
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Statements of Income
For the year ended December 31, 1995 and the
three-month period ended March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
Net patient service revenue $6,712,255 1,566,635
Other income 297,195 50,851
---------- ---------
7,009,450 1,617,486
Expenses:
Operating 3,025,441 563,890
General and administrative 1,090,113 150,868
Depreciation and amortization 237,622 59,100
Interest and other 244,629 23,328
---------- ---------
4,597,805 797,186
---------- ---------
Net income to partners $2,411,645 820,300
========== =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 7
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Statements of Partners' Equity
For the year ended December 31, 1995 and the
three-month period ended March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
GENERAL
PARTNERS
-----------
<S> <C>
Partners' equity, January 1, 1995 $ 634,437
Contributions from partners 15,100
Distributions to partners (2,340,093)
Net income to partners 2,411,645
-----------
Partners' equity, December 31, 1995 721,089
Distributions to partners (unaudited) (646,242)
Net income to partners (unaudited) 820,300
-----------
Partners' equity, March 31, 1996 (unaudited) $ 895,147
===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 8
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Statements of Cash Flows
For the year ended December 31, 1995 and the
three-month period ended March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
1995 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income to partners $ 2,411,645 820,300
Adjustments to reconcile net income to partners to net
cash provided by operating activities:
Depreciation and amortization 237,622 59,100
Management fees 41,009 --
Loss on sale of furniture, fixtures and equipment 19,674 --
Changes in operating assets and liabilities:
Accounts receivable (4,014) 130,336
Other assets (3,744) 3,794
Accounts payable and accrued expenses (161,284) (19,404)
----------- --------
Total adjustments 129,263 173,826
----------- --------
Net cash provided by operating activities 2,540,908 994,126
----------- --------
Cash flows from investing activities-capital expenditures (25,702) (127,010)
----------- ---------
Cash flows from financing activities:
Repayment of long-term debt (641,148) (76,363)
Proceeds from the issuance of debt 520,000 --
Principal payments on capital lease obligations (38,917) (10,000)
Contributions from partners 15,100 --
Distributions to partners (2,340,093) (646,242)
----------- ---------
Net cash used in financing activities (2,485,058) (732,605)
----------- ---------
Net increase in cash 30,148 134,511
Cash at beginning of the period 1,703 31,851
----------- ---------
Cash at end of the period $ 31,851 166,362
=========== =========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 146,110 23,328
=========== =========
</TABLE>
1995 disclosures:
The Company originated a $41,009 short-term note payable for management
fees incurred during the year (note 3).
The Company obtained a $33,059 note payable for the purchase of an
automobile (note 3).
The Company originated $127,857 in capital lease obligations for the
purchase of equipment (note 5).
See accompanying notes to financial statements.
5
<PAGE> 9
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Notes to Financial Statements
December 31, 1995 and March 31, 1996 (unaudited)
UNAUDITED INTERIM FINANCIAL INFORMATION
---------------------------------------
The balance sheet as of March 31, 1996 and the statements of income,
partners' equity and cash flows for the three-month period ended
March 31, 1996 (1996 interim financial information) have been prepared
by Knoxville Hematology Oncology Associates (the Company) and are
unaudited. In the opinion of the company, the 1996 interim financial
information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair statement of the results of
the 1996 interim period.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from the 1996
interim financial information. The 1996 interim financial information
should be read in conjunction with the Company's December 31, 1995
audited financial statements appearing herein. The results for the
three-month period ended March 31, 1996 may not be indicative of
operating results for the full year.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
--------------------------------------------------------
(A) DESCRIPTION OF BUSINESS
-----------------------
Knoxville Hematology Oncology Associates (the Company) was
established on December 10, 1979 in the State of Tennessee and is a
general partnership. The Company's four physician partners do not
receive compensation from the Company other than partnership
distributions. Distributions are based on the Company's operating
results. The Company is a medical group practice whose physicians
specialize in providing services to patients with cancer and/or blood
diseases.
(B) NET PATIENT SERVICE REVENUE
---------------------------
Net patient service revenue primarily consists of charges for patient
services rendered by the physicians based on established billing rates
less allowance and discounts for patients covered by contractual
programs. Payments received under these programs, which are generally
based on predetermined rates, are generally less than the established
billing rates and the differences are recorded as contractual
allowances or policy discounts. Net patient service revenue is net of
contractual adjustments and policy discounts of approximately
$3,030,000 for the year ended December 31, 1995 and approximately
$707,200 (unaudited) for the three months ended March 31, 1996.
(C) ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consists primarily of receivables from patients
and third-party payors. In the normal course of providing
healthcare services, the Company grants credit to patients,
substantially all of whom are resident in the Knoxville area. The
Company does not generally require collateral or other security in
extending credit to patients; however, it routinely obtains
assignments of (or is otherwise entitled to receive) patients'
benefits payable under their health insurance programs, plans or
policies (for example, Medicare, Medicaid, health maintenance
organizations, preferred provider organizations and commercial
insurance policies.
(D) SUPPLIES
--------
Supplies are recorded at the lower of cost (first-in, first-out) or
market.
(Continued)
6
<PAGE> 10
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Notes to Financial Statements
(E) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost. Furniture, fixtures and
equipment under capital leases are stated at the lower of the
present value of minimum lease payments at the beginning of the lease
term or fair value at the inception of the lease. Leasehold
improvements are amortized over the lesser of
the asset's estimated life or the lease term. Furniture, fixtures
and equipment held under capital leases are amortized on the
straight-line method over the shorter of the respective lease term
or estimated useful live of the asset.
Depreciation for furniture, fixtures and equipment is calculated
using the straight-line method over the estimated useful lives of the
assets, as follows:
Estimated useful lives
Furniture, fixtures and equipment 5-7 years
Automobiles 5 years
Leasehold improvements 11-14 years
(F) INCOME TAXES
------------
No provision for income taxes has been made in the accompanying
financial statements since, as a partnership, income and losses for
income tax purposes are allocated to the partners for inclusion in
their respective income tax returns.
(G) USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of all asset and liability financial instruments
approximate their estimated fair values at December 31, 1995. Fair value
of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
(2) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following at December 31, 1995:
Furniture, fixtures and equipment $ 520,705
Automobiles 151,742
Leasehold improvements 1,678,146
----------
2,350,593
Less accumulated depreciation 720,024
----------
$1,630,569
==========
(Continued)
7
<PAGE> 11
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Notes to Financial Statements
(4) LONG-TERM DEBT
--------------
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable, with interest at 7.625%, payable in monthly installments of
$24,775 including interest, personally guaranteed by partners, final
principal payment due March 1996 $ 1,195,997
Note payable, with variable interest rate at prime plus 1/4%,
(8.50% at December 31, 1995) interest payments monthly
beginning February 1996 with principal payment due
July 1996, personally guaranteed by partners 200,000
Note payable, with variable interest rate at prime plus 1/2%,
(8.75% at December 31, 1995) interest payments monthly with
principal payment due January 1997, personally guaranteed by partners 200,000
Note payable, with variable interest rate at prime plus 1/2%,
(8.75% at December 31, 1995) payable in monthly installments
of $11,932 including interest, personally guaranteed by
partners, final principal payment due January 1997 147,346
Note payable at 5%, payable in monthly installments of $6,935
including interest, personally guaranteed by partners,
final principal payment due June 1996 41,009
Non-interest bearing note payable, payable in monthly principal payments
of $1,102, secured by automobile, final payment due October 1997 23,131
Note payable at 9%, payable in monthly installments of $1,000 with interest,
personally guaranteed by partners, final principal payment due May 1996 5,768
-----------
Total long-term debt 1,813,251
Less current installments (1,591,646)
-----------
Long-term debt excluding current installments $ 221,605
===========
</TABLE>
Maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $1,591,646
1997 221,605
----------
$1,813,251
==========
</TABLE>
(5) EMPLOYEE BENEFIT PLAN
---------------------
The Company maintains a 401(k) Profit Sharing Plan (the "Plan"), which
covers substantially all employees. Employees who complete one year of
service and attain age 21 may participate in the plan. The Company's
contributions to the Plan are discretionary. Eligible employees ratably
vest in the Company's contributions over six years. The Company's
discretionary contribution for the year ended December 31, 1995 to the
Plan was $15,000 and such amount is payable at December 31, 1995.
(Continued)
8
<PAGE> 12
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Notes to Financial Statements
(6) Commitments and Contingencies
-----------------------------
(a) Leases
------
The partnership is obligated under various capital leases for
laboratory and office equipment that expire at various dates within
the next three years. The gross amount of capital leases included in
furniture, fixtures and equipment for the year ended December 31,
1995 was $151,036, with related accumulated depreciation of $34,434.
The partnership also has operating leases for equipment and office
space. The office space lease is with a company in which the Company's
physicians have an ownership interest. Total expense was
approximately $150,000 for the year ended December 31, 1995.
Future minimum lease payments under noncancelable operating leases
and the present value of minimum capital lease payments as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending:
1996 $54,140 140,056
1997 54,140 138,355
1998 7,930 134,336
1999 -- 132,485
2000 -- 121,791
2001 and following -- 525,071
------- ---------
116,210 1,192,094
=========
Less amount representing interest (at an 8.5% rate) (10,398)
-------
105,812
Less current installments of obligations under capital leases (46,947)
-------
Obligations under capital leases excluding current installments $58,865
=======
</TABLE>
(b) Medical Malpractice and Professional Liability Insurance
--------------------------------------------------------
The Company maintains professional liability insurance on a
claims-made basis. Incidents and claims reported during the policy
period are anticipated to be covered by the malpractice carrier.
At December 31, 1995, there are no asserted claims against the
Company, nor has the Company identified any incident which may have
occurred but have yet to be identified under its incident reporting
systems. Accordingly, the Company has made no accruals at December
31, 1995 for incurred but not reported claims.
(Continued)
9
<PAGE> 13
KNOXVILLE HEMATOLOGY ONCOLOGY ASSOCIATES
Notes to Financial Statements
(C) LEGAL MATTERS
-------------
The Company is involved in a dispute with an insurance company
concerning alleged overpayment by the insurance company. No lawsuit
has been filed. The Company is, however, attempting to negotiate a
settlement and repay a portion of the $102,000 amount claimed. The
Company has offered $80,000 as a settlement for the overpayment.
This amount has been accrued in the accompanying financial statements.
The Company is also involved in a civil action with a former partner
in the partnership for damages and amounts allegedly owed by the
Partnership to the former partner as a result of his termination.
The former partner seeks damages not to exceed $300,000. The
Company's position is that the former partner has been paid all sums
to which he is entitled. The Company is vigorously defending the
claim.
(7) SUBSEQUENT EVENTS
-----------------
On April 16, 1996, all outstanding partnership interests of the Company
were acquired by Response Oncology, Inc. (Response). Simultaneous with the
asset acquisition, the physicians moved their medical practice to a
separate limited liability company and executed a service agreement
whereby Response will provide the physicians with offices and facilities,
equipment, supplies, support personnel, and management of financial
advisory services. In turn for providing the services, Response will
receive service fees from the physician group.
10
<PAGE> 14
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The accompanying pro forma consolidated balance sheet as of March 31, 1996 and
the related pro forma consolidated statements of operations for the year ended
December 31, 1995 and the three months ended March 31, 1996 give effect to the
acquisitions of Knoxville Hematology Oncology Associates ("KHOA") and Oncology
Hematology Group of South Florida, P.A. ("OHG"), (collectively referred to as
the "Groups") as if the acquisitions of the Groups had occurred on January 1,
1995. The pro forma information is based on the historical audited financial
statements of Response Oncology, Inc. and subsidiaries (the "Company") and the
Groups, giving effect to the acquisitions under the purchase method of
accounting, and the assumptions and adjustments in the accompanying notes to
the pro forma consolidated financial information.
The pro forma statements have been prepared by the Company's management based
on the audited financial statements of the acquired entities. These pro forma
statements may not be indicative of the results that would have occurred if the
acquisitions had been in effect on the dates indicated or which may be obtained
in the future. The pro forma statements do not reflect the effect of expense
reductions and other operational changes, which, in the opinion of the Company,
is likely to result in profitable operations for the Groups. The pro forma
financial statements should be read in conjunction with the consolidated
financial statements and notes of Response Oncology, Inc. and subsidiaries.
<PAGE> 15
Response Oncology, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
HISTORICAL KHOA ADJUSTMENTS TOTALS
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Cash $ 483,191 $ 166,362 $ 1,546,933 $ 2,196,486
Short-term investments 361,718 361,718
Accounts receivable, net 15,100,543 998,657 (198,657) 15,900,543
Supplies 1,090,643 109,350 1,199,993
Prepaids 525,882 525,882
Advances to affiliated physician groups 3,112,552 3,112,552
Other current assets 2,089,590 2,089,590
--------------------------------------------------------
Total current assets 22,764,119 1,274,369 1,348,276 25,386,764
Property and equipment, net 3,695,637 1,698,479 (148,479) 5,245,637
Deferred charges, net 325,733 325,733
Intangible assets 11,656,558 11,656,558
Management Service Agreement 7,091,050 7,091,050
Other assets 176,805 176,805
--------------------------------------------------------
Total assets $ 38,618,852 $2,972,848 $ 8,290,847 $ 49,882,547
Accounts payable $ 5,696,496 $ 245,001 $ 318,294 $ 6,259,791
Accrued expenses 1,891,482 1,891,482
Notes payable 3,607,711 3,607,711
Capital lease obligations 57,622 46,947 (46,947) 57,622
Current portion of long term note 396,997 1,713,757 (1,713,757) 396,997
--------------------------------------------------------
Total current liabilities 11,650,308 2,005,705 (1,442,410) 12,213,603
Capital lease obligations 0 48,865 (48,865) 0
Notes Payable 6,265,369 23,131 10,126,869 16,415,369
Minority Interest 261,425 261,425
Stockholders' equity 0
Preferred stock 27,833 27,833
Common stock 73,782 73,782
Paid-in capital 60,137,024 550,400 60,687,424
Retained earnings (accumulated deficit) (39,796,889) 895,147 (895,147) (39,796,889)
--------------------------------------------------------
Total liabilities and stockholders equity $ 38,618,852 $2,972,848 $ 8,290,847 $ 49,882,547
========================================================
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE> 16
Response Oncology, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
PREVIOUS
ACQUISITION
HISTORICAL SUBSEQUENT TO PRO FORMA PRO FORMA
COMPANY DECEMBER 31, 1995 ADJUSTMENTS RESULTS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net revenue $44,297,798 $4,678,915 (b) $48,976,713
Other Income 282,011 282,011
Net patient service revenue $8,010,763 (8,010,763)(a) 0
------------------------------------------------------------------------------
Total Revenue 44,579,809 8,010,763 (3,331,848) 49,258,724
Expenses:
Operating expenses 32,892,728 7,395,423 (2,802,902)(a) 37,485,249
General and administrative 5,512,308 5,512,306
Depreciation and amortization 1,736,055 104,534 275,161 (d) 2,115,750
Interest 16,860 24,485 590,397 (c) 631,742
Provision for doubtful accounts 2,105,696 77,066 2,182,762
------------------------------------------------------------------------------
Total Expenses 42,263,645 7,601,508 (1,937,344) 47,927,809
Earnings before minority interest 2,316,164 409,255 (1,394,504) 1,330,915
Minority interest 1,806 1,806
------------------------------------------------------------------------------
Earnings before income taxes 2,314,358 409,255 (1,394,504) 1,329,109
Income tax expense 210,000 (210,000) (e) 0
------------------------------------------------------------------------------
Net earnings 2,314,358 199,255 (1,184,504) 1,329,109
Common stock dividend to
preferred stockholders 3,825 3,825
------------------------------------------------------------------------------
Net earnings to common stockholders $ 2,310,533 $199,255 ($1,184,504) $ 1,325,284
==============================================================================
PRO FORMA TOTAL
KHOA ADJUSTMENTS PRO FORMA PRO FORMA
------------------------------------------------------------------------------
Revenue:
Net revenue $4,577,171 (b) $4,577,171 $53,553,884
Other Income $ 297,195 (297,195) 0 282,011
Net patient service revenue 6,712,255 (6,712,255)(a) 0 0
------------------------------------------------------------------------------
Total Revenue 7,009,450 (2,432,279) 4,577,171 53,835,895
Expenses:
Operating expenses 3,025,441 (178,359)(a) 2,847,082 40,332,331
General and administrative 1,090,113 1,090,113 6,602,419
Depreciation and amortization 237,622 177,276 (d) 414,898 2,530,648
Interest 244,629 712,871 (c) 957,500 1,589,242
Provision for doubtful accounts 0 2,182,762
------------------------------------------------------------------------------
Total Expenses 4,597,805 711,788 5,309,593 53,237,402
Earnings before minority interest 2,411,645 (3,144,067) (732,422) 598,492
Minority interest 0 1,806
------------------------------------------------------------------------------
Earnings before income taxes 2,411,645 (3,144,067) (732,422) 596,686
Income tax expense 0 0
------------------------------------------------------------------------------
Net earnings 2,411,645 (3,144,067) (732,422) 596,686
Common stock dividend to
preferred stockholders 0 3,825
------------------------------------------------------------------------------
Net earnings to common stockholders $ 2,411,645 ($3,144,067) ($732,422) $ 592,861
==============================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE> 17
Response Oncology, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
Period Ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
COMPANY KHOA ADJUSTMENTS PRO FORMA
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net Revenue $13,340,885 $ 1,056,218 (b) $14,397,103
Other Income 16,729 $ 50,851 (50,851) 16,729
Net patient service revenue 1,566,635 (1,566,635)(a) 0
-----------------------------------------------------------
Total Revenue 13,357,614 1,617,486 (561,268) 14,413,832
Expenses:
Operating expenses 10,344,781 563,890 (25,889)(a) 10,882,782
General and administrative 1,266,840 150,868 1,417,708
Depreciation and amortization 570,965 59,100 44,319 (d) 674,384
Interest 192,281 23,328 216,047 (c) 431,656
Provision for doubtful account 372,100 0 372,100
-----------------------------------------------------------
Total Expenses 12,746,967 797,186 234,477 13,778,630
Earnings before minority interest 610,647 820,300 (795,745) 635,202
Minority interest 94,369 94,369
-----------------------------------------------------------
Net Earnings to common stockholders $ 516,278 $ 820,300 $ (795,745) $ 540,833
===========================================================
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE> 18
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying pro forma consolidated financial information presents the pro
forma financial condition of Response Oncology, Inc. and subsidiaries (the
"Company") as of March 31, 1996 and the results of their operations for the
year ended December 31, 1995 and the three months ended March 31, 1996.
On April 15, 1996, the Company acquired from unaffiliated individual sellers
100% of the issued and outstanding general partnership interest ("the Acquired
Interests") of Knoxville Hematology Oncology Associates ("KHOA"). In
connection with the acquisition of KHOA, the Company procured a $10 million
loan from the Company's parent, Seafield Capital Corporation ("Seafield") to be
used to finance the acquisition. The loan has a maturity date of December 31,
1998, bears interest at the rate of prime plus 1%, is unsecured, and after
August 1, 1996, is convertible at the option of Seafield into shares of
Response common stock at a conversion price equal to the market price of the
common stock at the time of the conversion.
The accompanying pro forma consolidated balance sheet includes the acquired
assets, assumed liabilities and effects of financing, as if KHOA had been
acquired on March 31, 1996. The accompanying pro forma consolidated statements
of operations reflect the pro forma results of operations, as adjusted, as if
all acquisition practices held by the Company had been acquired on January 1,
1995.
PRO FORMA CONSOLIDATED BALANCE SHEET
The adjustments reflected in the pro forma consolidated balance sheet are to
reflect the values of assets acquired and liabilities assumed in connection
with the acquisition of KHOA; to reflect the issuance of long-term debt and
cash payment to complete the acquisition; and to reflect the recording of
intangible assets required.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The adjustments reflected in the pro forma consolidated statement of operations
are as follows:
(a) To eliminate certain revenues and expenses of KHOA that would not
constitute revenue to the Company or be the responsibility of the Company
pursuant to the Service Agreement.
(b) To accrue net revenue resulting from service agreements related to the
acquisition of the Group. Amounts were calculated based upon actual
operating results for the period, as adjusted, under the terms of the
related service agreement.
(c) To reflect interest on the long-term debt issued. Interest was
calculated at annual rates ranging from 5% to 9.5%.
(d) To record amortization of the intangible asset related to the service
agreement. The asset is amortized over the service agreement period, or
40 years.
