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): June 20, 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)
2
On July 5, 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 Jeffrey L. Paonessa, M.D., P.A.
(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.
3. Exhibit 10(t) - Service Agreement dated as of June 19, 1996 by and among
Response Oncology, Inc., J. Paonessa, M.D., P.A. and Jeffrey L.
Paonessa, M.D.
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.
Dated: July 12, 1996 By: /s/ John A. Good
-----------------------------------------
John A. Good, Executive Vice President
4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jeffrey L. Paonessa, M.D., P.A.
(d/b/a Paonessa and Peterson):
We have audited the accompanying balance sheet of Jeffrey L. Paonessa,
M.D., P.A. (d/b/a Paonessa and Peterson) as of December 31, 1995, and the
related statements of income, stockholder's 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 Jeffrey L. Paonessa, M.D.,
P.A. (d/b/a Paonessa and Peterson) 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
St. Petersburg, Florida
June 4, 1996
5
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
BALANCE SHEETS
MARCH 31,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
ASSETS
Current assets:
Cash............................................................... $ 965 $ 9,998
Accounts receivables, net of allowance for contractual adjustments
and uncollectible amounts of $707,382 at December 31, 1995 and
$964,348 at March 31, 1996 (unaudited).......................... 864,577 1,178,648
Supplies........................................................... 181,500 139,631
Due from related party (note 4).................................... 271,213 277,313
Prepaid expenses................................................... 6,689 3,875
------------ -----------
Total current assets....................................... 1,324,944 1,609,465
------------ -----------
Property and equipment:
Furniture and fixtures............................................. 184,660 211,708
Medical equipment.................................................. 127,413 127,852
Automobile......................................................... 40,000 40,000
------------ -----------
352,073 379,560
Less accumulated depreciation...................................... 118,279 132,068
------------ -----------
Net property and equipment................................. 233,794 247,492
------------ -----------
$1,558,738 $ 1,856,957
========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................. $ 337,711 $ 212,986
Accrued employee compensation...................................... 58,690 101,772
------------ -----------
Total current liabilities.................................. 396,401 314,758
------------ -----------
Stockholder's equity:
Common stock, $1 par value. Authorized 10,000 shares; issued and
outstanding 1,000 shares........................................ 1,000 1,000
Retained earnings.................................................. 1,161,337 1,541,199
------------ -----------
Total stockholder's equity................................. 1,162,337 1,542,199
------------ -----------
Commitments and contingencies (notes 3 and 5)........................
------------ -----------
$1,558,738 $ 1,856,957
========== =========
See accompanying notes to financial statements.
6
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
STATEMENTS OF INCOME
THREE-MONTH
PERIOD
ENDED MARCH
YEAR ENDED 31,
DECEMBER 31, 1996
1995 -----------
------------ (UNAUDITED)
Revenue:
Net patient service revenue........................................ $7,896,188 $2,470,571
Other income....................................................... 55,158 29,404
------------ -----------
Total revenue.............................................. 7,951,346 2,499,975
------------ -----------
Expenses:
Operating.......................................................... 4,374,291 1,356,487
Depreciation....................................................... 40,359 13,789
Other.............................................................. 368,164 149,837
------------ -----------
4,782,814 1,520,113
------------ -----------
Net income................................................. $3,168,532 $ 979,862
========== ==========
See accompanying notes to financial statements.
7
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
STATEMENTS OF STOCKHOLDER'S EQUITY
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------ ---------- -------------
Balance, December 31, 1994.................................... $1,000 $1,102,805 $ 1,103,805
Net income.................................................. -- 3,168,532 3,168,532
Stockholder distributions................................... -- (3,110,000) (3,110,000)
------ ---------- -------------
Balance, December 31, 1995.................................... 1,000 1,161,337 1,162,337
Net income (unaudited)...................................... -- 979,862 979,862
Stockholder distributions (unaudited)....................... -- (600,000) (600,000)
------ ---------- -------------
Balance, March 31, 1996 (unaudited)........................... $1,000 $1,541,199 $ 1,542,199
====== ========= =========
See accompanying notes to financial statements.
8
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
STATEMENTS OF CASH FLOWS
THREE-MONTH
PERIOD
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
Cash flows from operating activities:
Net income......................................................... $3,168,532 $ 979,862
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 40,359 13,789
Changes in operating assets and liabilities:
Accounts receivables, net..................................... (101,908) (314,071)
Supplies...................................................... 5,530 41,869
Prepaid expenses.............................................. (52,997) 2,814
Accounts payable and accrued expenses......................... 226,832 (124,725)
Accrued employee compensation................................. 5,975 43,082
------------ -----------
Net cash provided by operating activities.................. 3,292,323 642,620
------------ -----------
Cash flows from investing activities:
Expenditures for property and equipment............................ (145,616) (27,487)
Due from related party............................................. (48,438) (6,100)
------------ -----------
Net cash used in investing activities...................... (194,054) (33,587)
------------ -----------
Cash flows from financing activity -- Stockholder distributions...... (3,110,000) (600,000)
------------ -----------
Net increase (decrease) in cash............................ (11,731) 9,033
Cash, beginning of year.............................................. 12,696 965
------------ -----------
Cash, end of year.................................................... $ 965 $ 9,998
========== ===========
See accompanying notes to financial statements.
9
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
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 related statements of
income, shareholder's equity and cash flows for the three-month period ended
March 31, 1996 (1996 interim financial information) have been prepared by
Jeffrey L. Paonessa, M.D., P.A. (d/b/a Paonessa and Peterson) (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 months 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
The Company was incorporated on April 11, 1991 in the state of Florida. The
Company is a medical group practice whose physicians specialize in providing
services, including drug therapy, to patients with cancer.
(b) Net Revenue
Net 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 allowance or policy discounts. Net patient service revenue is net of
contractual adjustments and policy discounts of approximately $6,200,000 for the
year ended December 31, 1995 and $1,750,000 for the three-month period ended
March 31, 1996 (unaudited).
(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
Tampa Bay 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).
The majority of the Company's net revenue and receivables is from
third-party payment programs. As of December 31, 1995 and March 31, 1996
(unaudited), approximately 98 percent of total revenue and receivables consists
of amounts from Medicare (38 percent) and various commercial plans (60 percent).
(d) Supplies
Inventories of supplies consists of pharmaceuticals and medications which
are stated at the lower of cost or market on a first-in, first-out basis.
10
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation for equipment is
calculated using the straight-line method over the estimated useful lives of the
assets, as follows:
ESTIMATED
USEFUL LIVES
------------
Office equipment.......................................................... 7 years
Medical equipment......................................................... 5-7 years
Automobile................................................................ 5 years
(f) Stockholder Distribution
Stockholder distributions are paid and recorded on a monthly basis as
available cash flow permits.
(g) Income Taxes
The Company has elected to be treated as an S-Corporation under the
regulations of the Internal Revenue Code. Under the S-selection, items of
revenue and expense are passed directly to the stockholder. Accordingly, income
tax expense is not reflected in the financial statements.
(h) 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of patients' accounts receivable, due from related
party, accounts payable, and accrued expenses, and accrued employee compensation
approximate fair value because of the short maturity of those instruments.
(3) EMPLOYEE BENEFIT PLANS
Effective July 15, 1995 the Company adopted 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 and include separate components for
annual profit sharing and matching of employee salary deferrals. For the year
ended December 31, 1995 and the three-month period ended March 31, 1996
(unaudited), the Company's expense under the Plan was $26,808 and $7,805,
respectively.
(4) DUE FROM RELATED PARTY
The Company has amounts due from an entity owned by a relative of the
stockholder. The amounts due are evidenced through a secured promissory note
bearing interest at 9% which is payable monthly through April 1, 2003. It is the
intention of the Company and the debtor that the note will be collected in
connection with the reorganization prior to the sale (note 6), accordingly, the
note and accrued interest are reflected as current assets. Interest income
recognized amounted to $21,000 for the year ended December 31, 1995 and $6,100
for the three-month period ended March 31, 1996 (unaudited).
11
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company purchased an automobile from the stockholder with
a cost of $40,000. The Company believes the purchase price was consistent with
that which would be available from an unrelated third party.
(5) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company is obligated under noncancelable operating leases for office
space and an automobile. Future minimum lease payments under the noncancelable
operating leases (with initial or remaining lease terms in excess of one year)
as of December 31, 1995 are as follows:
YEAR ENDED
DECEMBER 31, AMOUNT
-------------------------------------------------------------------------- --------
1996...................................................................... $ 95,660
1997...................................................................... 98,010
1998...................................................................... 96,250
1999...................................................................... 83,020
--------
Total minimum lease payments.............................................. $372,940
========
Total rental expense for operating leases was $104,620 for the year ended
December 31, 1995 and $28,134 for the three-month period ended March 31, 1996
(unaudited).
(b) Medical Malpractice and Professional Liability Insurance
The Company maintains professional liability insurance on a claims-made
basis at $1,000,000 per claim and $3,000,000 in the aggregate. Incidents and
claims reported during the policy period are anticipated to be covered by the
malpractice carrier.
At December 31, 1995 and March 31, 1996 (unaudited), there are no asserted
claims against the Company, nor has the Company identified any incident which
may have occurred but has yet to be identified under its incident reporting
systems. Accordingly, the Company has made no accruals at December 31, 1995 and
March 31, 1996 (unaudited) for incurred, but not reported, claims.
(c) Employment Contract
The Company is obligated under an employment contract with a physician that
extends through September 30, 1999. Minimum compensation to the physician in
1996 under the employment contract is $180,000. Compensation levels under the
employment contract subsequent to 1996 is based on a percentage of accounts
receivable collections.
(6) SUBSEQUENT EVENTS
On May 7, 1996, the Company entered into a letter of intent for the sale of
all issued and outstanding common stock to Response Oncology, Inc. ("Response").
Under the terms of the letter of intent, prior to such sale, a reorganization
will be executed whereby certain assets will be excluded from the purchase.
12
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 Jeffrey L. Paonessa, M.D., P.A. ("Paonessa"), 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.
13
Response Oncology, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
March 31, 1996
(Unaudited)
Previous
Acquisition
Historical Subsequent to Pro Forma Pro Forma
Company March 31, 1996 Adjustments Results
------------------------------------------------------------
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)
Notes Payable 6,265,369 23,131 10,126,869 16,415,369
Minority Interest 261,425 261,425
Stockholders' equity
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 liabities and stockholders equity $38,618,852 $2,972,848 $8,290,847 $49,882,547
============================================================
Pro Forma Total
Paonessa Adjustments Pro Forma Proforma
----------------------------------------- ------------
Cash $ 9,998 $(9,447,498) $(9,437,500) $(7,241,014)
Short-term investments 0 361,718
Accounts receivable, net 1,178,648 1,178,648 17,079,191
Supplies 139,631 139,631 1,339,624
Prepaids 3,875 3,875 529,757
Advances to affiliated physician groups 0 3,112,552
Other current assets 277,313 (29,821) 247,492 2,337,082
---------------------------------------- -----------
Total current assets 1,609,465 (9,477,319) (7,867,854) 17,518,910
Property and equipment, net 247,492 (247,492) 5,245,637
Deferred charges, net 325,733
Intangible assets 11,656,558
Management Service Agreement 15,322,612 15,322,612 22,413,662
Other assets 176,805
---------------------------------------- -----------
Total assets $1,856,957 $ 5,597,801 $ 7,454,758 $57,337,305
Accounts payable $ 314,758 $ 314,758 $ 6,574,549
Accrued expenses 1,891,482
Notes payable 5,100,000 5,100,000 8,707,711
Capital lease obligations 57,622
Current portion of long term note 396,997
---------------------------------------- -----------
Total current liabilities 314,758 5,100,000 5,414,758 17,628,361
Capital lease obligations
Notes Payable 16,415,369
Minority Interest 261,425
Stockholders' equity
Preferred stock 27,833
Common stock 1,000 962 1,962 75,744
Paid-in capital 2,038,038 2,038,038 62,725,462
Retained earnings (accumulated deficit) 1,541,199 (1,541,199) (39,796,889)
---------------------------------------- -----------
Total liabities and stockholders equity $1,856,957 $ 5,597,801 $ 7,454,758 $57,337,305
======================================== ===========
See accompanying notes to pro forma consolidated financial information.
14
Response Oncology, Inc. and Subsididaries
Pro Forma Consolidated Statement of Operations
Period Ended March 31, 1996
(Unaudited)
Previous
Acquisition
Historical Subsequent to Pro Forma Pro Forma
Company March 31, 1996 Adjustments Results
----------------------------------------------------------------
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 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
================================================================
Pro Forma Total
Paonessa Adjustments Pro Forma Pro Forma
----------------------------------------- -----------
Revenue:
Net revenue $1,774,012 (b) $1,774,012 $16,171,115
Other Income $ 29,404 (29,404) 0 16,729
Net patient service revenue 2,470,571 (2,470,571)(a) 0 0
----------------------------------------- -----------
Total Revenue 2,499,975 (725,963) 1,774,012 16,187,844
Expenses:
Operating expenses 1,506,324 (271,101)(a) 1,235,223 12,118,005
General and administrative 1,417,708
Depreciation and amortization 13,789 95,766 (d) 109,555 783,939
Interest 51,000 51,000 482,656
Provision for doubtful 0 372,100
----------------------------------------- -----------
Total Expenses 1,520,113 (124,335) 1,395,778 15,174,408
Earnings before minority interest 979,862 (601,628) 378,234 1,013,436
Minority interest 0 94,369
----------------------------------------- -----------
Net Earnings to common stockholders $ 979,862 $ (601,628) $ 378,234 $ 919,067
========================================= ===========
See accompanying notes to pro forma consolidated financial information.
15
Response Oncology, Inc. and Subsididaries
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1995
(Unaudited)
Previous
Acqusitions
Historical Subsequent to Pro Forma Pro Forma
Company December 31, 1995 Adjustments Results
----------------------------------------------------------------
Revenue:
Net revenue $44,297,798 $ 9,256,086 (b) $53,553,884
Other Income 282,011 $ 297,195 (297,195) 282,011
Net patient service revenue 14,723,018 (14,723,018)(a) 0
----------------------------------------------------------------
Total Revenue 44,579,809 15,020,213 (5,764,127) 53,835,895
Expenses:
Operating expenses 32,892,728 11,510,977 (2,981,261)(a) 41,422,444
General and administrative 5,512,306 5,512,306
Depreciation and amortization 1,736,055 342,156 452,437 (d) 2,530,648
Interest 16,860 269,114 1,303,268 (c) 1,589,242
Provision for doubtful accounts 2,105,696 77,066 2,182,762
----------------------------------------------------------------
Total Expenses 42,263,645 12,199,313 (1,225,556) 53,237,402
Earnings before minority interest 2,316,164 2,820,900 (4,538,571) 598,493
Minority interest 1,806 1,806
----------------------------------------------------------------
Earnings before income taxes 2,314,358 2,820,900 (4,538,571) 596,687
Income tax expense 210,000 (210,000)(e) 0
----------------------------------------------------------------
Net earnings 2,314,358 2,610,900 (4,328,571) 596,687
Common stock dividend to
preferred stockholders 3,825 3,825
----------------------------------------------------------------
Net earnings to common stockholders $ 2,310,533 $2,610,900 $(4,328,571) $ 592,862
================================================================
Pro Forma Total
Paonessa Adjustments Pro Forma Pro Forma
---------------------------------------------- -----------
Revenue:
Net revenue $ 5,918,057 (b) $5,918,057 $59,471,941
Other Income $ 55,158 (55,158) 0 282,011
Net patient service revenue 7,896,188 (7,896,188)(a) 0 0
---------------------------------------------- -----------
Total Revenue 7,951,346 (2,033,289) 5,918,057 59,753,952
Expenses:
Operating expenses 4,742,455 (964,757)(a) 3,777,698 45,200,142
General and administrative 0 5,512,306
Depreciation and amortization 40,359 383,065 (d) 423,424 2,954,072
Interest 204,000 (c) 204,000 1,793,242
Provision for doubtful accounts 0 2,182,762
---------------------------------------------- -----------
Total Expenses 4,782,814 (377,692) 4,405,122 57,642,524
Earnings before minority interest 3,168,532 (1,655,597) 1,512,935 2,111,428
Minority interest 0 1,806
---------------------------------------------- -----------
Earnings before income taxes 3,168,532 (1,655,597) 1,512,935 2,109,622
Income tax expense 0 0
---------------------------------------------- -----------
Net earnings 3,168,532 (1,655,597) 1,512,935 2,109,622
Common stock dividend to
preferred stockholders 0 3,825
---------------------------------------------- -----------
Net earnings to common stockholders $3,168,532 $(1,655,597) $1,512,935 $ 2,105,797
============================================== ===========
See accompanying notes to pro forma consolidated financial information.
16
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 June 20, 1996, the Company acquired from unaffiliated individual sellers
100% of the issued and outstanding general partnership interest ("the Acquired
Interests") of Jeffrey L. Paonessa, M.D., P.A. ("Paonessa").
The accompanying pro forma consolidated balance sheet includes the acquired
assets, assumed liabilities and effects of financing, as if Paonessa 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 acqusition 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 Paonessa to reflect the issuance of long-term debt and
cash payment to complete the acquisition; and to reflect the recording of
management service agreements acquired.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The adjustments reflected in the pro forma consolidated statements of operations
are as follows:
(a) To eliminate certain revenues and expenses of Paonessa 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 the annual rate of 6.5%.
(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.
17
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------- ------------------------
10(s) Stock Purchase Agreement by and among Response
Oncology, Inc., Jeffrey L. Paonessa, M.D., and
J. Paonessa, M.D., P.A. dated as of June 19, 1996*
10(t) Service Agreement by and among Response Oncology, Inc.,
J. Paonessa, M.D., P.A. and Jeffrey L. Paonessa, M.D.
dated as of June 19, 1996**
* Previously filed
** Portions of Exhibit 10(t) have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment