<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
(x) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended MARCH 31, 1997
------------------------------------------
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 0-26488
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R.F. MANAGEMENT CORP.
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(Exact name of registrant as specified in its charter)
NEW YORK 22-3318886
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
95 MADISON AVENUE, SUITE 301, MORRISTOWN, N.J. 07960
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 292-2833
----------------------
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 shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 21, 1997
- ---------------------------------------- ----------------------------------
Common stock, par value $.0001 per share 3,460,833 shares
<PAGE>
R.F. MANAGEMENT CORP.
MARCH 31, 1997
(Unaudited)
I N D E X
PAGE NO.
PART I - Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as at March 31, 1997 (Unaudited)
and September 30, 1996 . . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Operations
For the Six and Three Months Ended March 31, 1997
and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 1997
and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . . . . 7-12
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 13-16
PART II - Other Information
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 17
Item 2 Changes in Securities . . . . . . . . . . . . . . . . . . 17
Item 3 Defaults upon Senior Securities . . . . . . . . . . . . . 17
Item 4 Submission of Matters to a Vote of Security Holders . . . 17
Item 5 Other Information . . . . . . . . . . . . . . . . . . . . 17
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit 11.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
R.F. MANAGEMENT CORP.
CONSOLIDATED BALANCE SHEETS
A S S E T S
March 31, September 30,
1997 1996
------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 274,147 $2,258,333
Certificates of deposit 719,303 408,266
Accounts receivable 2,845,678 296,893
Due from affiliate - 19,743
Loans receivable 445,250 -
Deferred income taxes 348,113 218,798
Other current assets 905,518 101,210
----------- ----------
Total current assets 5,538,009 3,303,243
----------- ----------
Other assets:
Loans receivable - non-current 432,008 -
Equipment (net of accumulated depreciation
of $1,004,533 and $24,969, respectively) 6,363,065 130,730
Investment in limited partnership 10,886 11,120
Investment in joint venture 350,000 350,000
Deferred consulting fees 943,480 -
Deposits and other assets 418,788 80,866
Goodwill 2,871,469 -
Organization costs (net of accumulated
amortization of $6,640 and $76, respectively) 19,797 192
----------- ----------
Total other assets 11,409,493 572,908
----------- ----------
$16,947,502 $3,876,151
----------- ----------
----------- ----------
See notes to consolidated financial statements.
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<PAGE>
R.F. MANAGEMENT CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1997 1996
----------- --------------
(Unaudited)
Current liabilities:
Lines of credit $ 437,000 $ 167,700
Accounts payable 1,349,260 47,505
Accrued expenses 661,272 32,766
Due to affiliates 1,515,060 -
Deferred income taxes 69,161 -
Notes payable - current portion 1,806,774 -
Notes payable - stockholders 150,000 150,000
----------- ----------
Total current liabilities 5,988,527 397,971
----------- ----------
Other liabilities:
Notes payable - net of current portion 6,363,675 -
Notes payable - stockholders 150,000 300,000
Consulting fees payable 1,008,810 -
----------- ----------
Total other liabilities 7,522,485 300,000
----------- ----------
Minority interest in equity of subsidiaries 212,756 -
Commitments and contingencies
Stockholders' equity:
Common stock - $0.0001 par value
Authorized - 15,000,000 shares
Issued and outstanding - 3,460,833 and
3,327,500 shares, respectively 334 333
Additional paid-in capital 4,223,640 4,123,641
Deficit ( 1,000,240) ( 945,794)
----------- ----------
Total stockholders' equity 3,223,734 3,178,180
----------- ----------
$16,947,502 $3,876,151
----------- ----------
----------- ----------
See notes to consolidated financial statements.
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<PAGE>
R.F. MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------- -----------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Net service revenue $3,911,960 $ - $3,377,615 $ -
Construction revenue 1,568,544 - 1,568,544 -
Management fees 370,812 174,425 224,339 52,769
---------- -------- ---------- --------
Total revenues 5,851,316 174,425 5,170,498 52,769
---------- -------- ---------- --------
Costs and expenses:
Operating expenses 4,808,108 715,455 3,844,498 315,490
Construction costs 1,344,649 - 1,344,649 -
Interest 154,816 32,818 139,717 16,880
Depreciation and amortization 255,358 8,838 248,330 6,484
Interest income ( 62,913) ( 104,874) ( 24,937) ( 44,579)
---------- -------- ---------- --------
Total costs and expenses 6,500,018 652,237 5,552,257 294,275
---------- -------- ---------- --------
Loss from operations ( 648,702) ( 477,812) ( 381,759) ( 241,506)
Gain on sale of subsidiary 489,228 - 489,228 -
---------- -------- ---------- --------
Income (loss) from operations
before income taxes
(recovery) ( 159,474) ( 477,812) 107,469 ( 241,506)
Income taxes (recovery) ( 12,441) 1,837 36,772 18,364
---------- -------- ---------- --------
Income (loss) from operations
before partnership income
(loss) ( 147,033) ( 479,649) 70,697 ( 259,870)
Income (loss) from a limited
partnership - net of
income taxes ( 138) 990 381 ( 637)
---------- -------- ---------- --------
Income (loss) before
minority interest ( 147,171) ( 478,659) 71,078 ( 260,507)
Minority interest in loss
from subsidiaries 92,725 - 94,942 -
---------- -------- -------- --------
Net income (loss) ($ 54,446) ($478,659) $166,020 ($260,507)
---------- -------- -------- --------
---------- -------- -------- --------
Primary
Weighted average shares
outstanding 3,371,944 3,327,500 3,416,833 3,327,500
--------- --------- --------- ---------
Income (loss) per share ($ .02) ($ .14) $ .05 ($ .08)
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
R.F. MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
MARCH 31,
------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 54,446) ($ 478,659)
------------ -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 234,451 8,838
Deferred income taxes ( 60,154) ( 66,766)
Investment in limited partnership 234 -
Minority interest in income from subsidiaries 92,725 -
Consulting fees 65,330 -
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable ( 2,548,785) ( 138,330)
Other current assets ( 804,308) ( 43,852)
Organization costs ( 26,169) -
Accounts payable and accrued expenses 1,930,261 31,059
Income taxes payable - ( 23,783)
----------- ----------
Total adjustments ( 1,116,415) ( 232,834)
----------- ----------
Net cash used in operating activities ( 1,170,861) ( 711,493)
----------- ----------
Cash flows from investing activities:
Equipment additions ( 6,460,222) ( 110,200)
Increase in minority interest 120,031 -
Investment in limited partnership - ( 990)
Acquisition of goodwill ( 2,471,469) -
Investment in joint venture - ( 350,000)
Investment in certificate of deposit ( 311,037) -
Note receivable - ( 1,725)
Increase in loans receivable ( 877,258) -
Deposits and other assets ( 337,922) ( 4,700)
----------- ----------
Net cash used in investing activities ( 10,337,877) ( 467,615)
----------- ----------
Cash flows from financing activities:
Advances from affiliates 1,534,803 -
Repayments to stockholders ( 150,000) ( 150,000)
Increase in notes payable, net of payments 7,870,449 -
Advances from lines of credit 269,300 -
----------- ----------
Net cash provided by (used in) financing activities 9,524,552 ( 150,000)
----------- ----------
Net decrease in cash and cash equivalents ( 1,984,186) ( 1,329,108)
Cash and cash equivalents - beginning 2,258,333 4,620,520
----------- ----------
Cash and cash equivalents - ending $ 274,147 $3,291,412
----------- ----------
----------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ 449 $ 599
----------- ----------
----------- ----------
Interest $ 125,021 $ 28,892
----------- ----------
----------- ----------
Supplemental Schedule of Noncash Investing and Financing Transactions:
Acquisition of consulting services in
connection with an asset purchase,
resulting in the following:
Deferred consulting fees $ 998,979 $ -
----------- ----------
----------- ----------
Consulting fees payable $ 998,979 $ -
----------- ----------
----------- ----------
</TABLE>
During the six months ended March 31, the Company acquired a subsidiary for
common stock valued at $100,000 and a note payable of $300,000, resulting in
goodwill of $521,010.
See notes to consolidated financial statements.
-6-
<PAGE>
R.F. MANAGEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES.
The consolidated balance sheet as of March 31, 1997 and the
consolidated statements of operations and cash flows for the six and three
months ended March 31, 1997 and 1996 have been prepared by the Company and
are presented herein without audit.
In the opinion of management, the accompanying financial statements
referred to above contain all necessary adjustments, consisting of normal
accruals and recurring entries only, which are necessary to present fairly
the Company's consolidated results for the interim periods being presented.
The accounting policies followed by the Company are set forth in Note
2 to the Company's financial statements included in its Annual Financial
Statement filed on Form 10-K for the year ended September 30, 1996, which
is incorporated herein by reference. Specific reference is made to that
report for a description of the Company's securities and the notes to
financial statements included therein.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and short-term debt approximate fair value due to the
short maturity of the instruments and the provision for what management
believes to be adequate reserves for potential losses. It was not
practicable to estimate the fair value of long-term debt because quoted
market prices do not exist and an estimate could not be made through other
means without incurring excessive costs.
The results of operations and cash flows for the six and three months
ended March 31, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
NOTE 2 - INCOME (LOSS) PER COMMON SHARE.
Income (loss) per common share is computed by dividing the net income
(loss) by the weighted average number of common shares and common
equivalent shares outstanding during each period.
-7-
<PAGE>
NOTE 3 - RELATED PARTY TRANSACTIONS.
The Company entered into an agreement with an affiliated company to
provide marketing services to the Company. For the six and three months
ended March 31, 1997 and 1996, compensation for these services totalled
$4,500 and $-0-, and $19,400 and $19,000, respectively.
The Company has entered into an agreement with an affiliated company to
finance a portion of their accounts receivable. Loans receivable under the
agreements amounted to approximately $106,000 and $111,000 at March 31,
1997 and September 30, 1996, respectively.
Included in other assets, the Company has an outstanding note receivable
from one of its officers for approximately $24,000. The conditions and
repayment terms of the note have not yet been determined.
NOTE 4 - INVESTMENT IN A LIMITED PARTNERSHIP.
The Company has a one percent (1%) ownership in Union Diagnostic
Facilities Group, L.P. The investment is recorded on the equity method
since the Company is the only general partner. The Company's duties
include contract negotiations, site selection, equipment procurement,
construction, office personnel and physician staffing, office management
and marketing. The Company records its investments in the limited
partnership and its income from the limited partnership monthly.
The following is a summary of condensed financial data from the
financial statements of the limited partnership in which the Company has an
investment at March 31, 1997 (unaudited) and September 30, 1996:
<TABLE>
<CAPTION>
TOTAL LONG-TERM TOTAL TOTAL
ASSETS DEBT LIABILITIES CAPITAL
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
March 31, 1997 (unaudited) $981,113 $ 74,858 $624,592 $356,521
September 30, 1996 821,822 102,702 402,117 419,704
<CAPTION>
ASSETS LIABILITIES
------------------------ -----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
March 31, 1997 (unaudited) $622,236 $ 358,877 $549,734 $ 74,858
September 30, 1996 454,465 367,356 299,415 102,702
<CAPTION>
NET ALLOCATION
NET INCOME OF INCOME
REVENUES (LOSS) (LOSS)
---------- ----------- ----------
<S> <C> <C> <C>
For the six months ended
March 31, 1997 (unaudited) $ 869,723 ($ 23,433) ($ 234)
For the year ended September 30, 1996 1,642,128 13,637 135
</TABLE>
Gross profit and income from continuing operations does not differ from net
income. The partnership has no redeemable securities or minority interest.
-8-
<PAGE>
NOTE 5 - ACQUISITIONS.
On May 31, 1995, R.F. Management Corp. (R.F.) acquired one hundred
percent (100%) of the outstanding shares (one hundred (100) shares of no
par value common stock) of Northern New Jersey Medical Management, Inc.
("Northern"), a New Jersey Corporation, engaged in the management of a
medical diagnostic facility in Union, New Jersey. The terms of the
agreement call for a payment of one hundred and fifty thousand dollars
($150,000) and a six hundred thousand dollar ($600,000) note, which bears
interest at prime plus one percent (1%) and requires principal payments of
one hundred and fifty thousand dollars ($150,000), plus accrued interest,
on January 30, 1996, 1997, 1998 and 1999. The annual principal payments
are subject to a one-third (1/3) reduction in the event that the gross
revenues of Northern fall below two hundred thousand dollars ($200,000) per
annum. The Company accounted for the business combination in a manner
similar to a pooling of interest due to the stockholders' common control of
both R.F. and Northern.
On December 27, 1995, R.F. acquired forty percent (40%) of the
outstanding shares of Mobile Medical Services Limited ("Mobile"), a
privately held Company incorporated in Ireland, and a fifty one percent
(51%) interest in the property owned or leased by its subsidiaries for
$350,000. The payment terms call for the Company to make payments directly
to designated creditors on behalf of Mobile. As of March 31, 1997,
$350,000 is reflected as an investment in joint venture.
On November 15, 1996, the Company acquired a 75% interest in
Mobiletec, Inc. ("Mobiletec"), a newly formed entity incorporated in the
State of New Jersey. Mobiletec provides mobile M.R.I. facilities to
doctors, hospitals and medical groups for which it receives a per-test fee.
The results of operations from its inception are included in these
consolidated financial statements.
On December 1, 1996, the Company acquired certain assets and assumed
certain liabilities from Luther W. Brady & Associates, P.C. and Bucks
Radiation Oncology, Inc. The assets are used to provide radiation therapy
services and are located in Voorhees, New Jersey and Havertown and
Langhorne, Pennsylvania. The purchase price for these assets was
$3,700,000. The Company also assumed certain notes payable totalling
approximately $837,000. The fair value of the assets acquired aggregated
approximately $3,635,000. The difference between the purchase price and
the fair value of the assets, net of liabilities assumed, resulted in the
creation of goodwill of approximately $902,000. In connection with the
acquisition, the Company has arranged for financing of the purchase price
aggregating $3,500,000, in the form of installment notes, payable in 60
monthly installments including interest at 11.6%, totalling approximately
$77,150 per month. Repayment of these notes commenced March 1, 1997.
On December 27, 1996, the Company acquired 65% of the outstanding
capital stock of Empire State Imaging Associates, Inc. ("Empire"), a New
York corporation, from an affiliated company for a total of $250,000.
Empire operates an imaging center which provides non-claustrophobic MRI, CT
scanning, mammography, ultrasound and x-ray services. As part of the
purchase price, the Company issued an installment note, in the principal
sum of $225,000, payable in nine
-9-
<PAGE>
NOTE 5. ACQUISITIONS. (Continued)
monthly installments plus interest at prime plus 1% on the unpaid balance.
As of March 31, 1997, the amount outstanding under this installment loan is
$175,000.
On January 1, 1997, the Company acquired 52% of the outstanding
capital stock of Hamilton McGregor International, Inc. ("Hamilton") in a
private transaction with a related party for a total purchase price of
$750,000. Hamilton, through a wholly-owned subsidiary, is a general
construction contractor. As part of the purchase price, the Company issued
an installment note in the sum of $600,000, without interest payable in
four annual installments on the anniversary date of the agreement. When
discounted, assuming the Company's normal cost of funds, the purchase price
has been recorded as approximately $615,000 and resulted in the creation of
goodwill amounting to approximately $350,000. Hamilton's financial
position and results of operations as at and for the three months ended
March 31, 1997 have been included in these consolidated financial
statements.
Payment of any of the installments may be deferred for up to one year.
Payments may also be taken in the form of common stock of the Company at
equivalent values. Both of these options are solely at the discretion of
the seller.
On January 31, 1997, the Company acquired 52% of the outstanding
capital stock of Atrium Radiology Corp. ("Atrium") for 133,333 shares of
the Company's common stock, having a fair value of $100,000 on the date of
acquisition. The agreement also calls for the seller to receive the first
$300,000 of net profits to be earned from future operations. The
acquisition resulted in the creation of goodwill amounting to approximately
$521,000. Atrium's financial position and results of operations as at and
for the two months ended March 31, 1997 have been included in these
consolidated financial statements.
In February 1997, the Company acquired a 75% interest in Open MRI and
Diagnostic Services of Toms River, Inc. ("Open MRI"), a newly formed
corporation. On March 19, 1997, the Company and its affiliate (which owned
the remaining 25%) sold all the outstanding capital stock to Advanced Open
MRI and Diagnostic Imaging, P.A., an unrelated party, for the principal sum
of $1,000,000. The Company's share of the proceeds of $750,000 resulted in
a gain of $592,340. Of the purchase price, $75,000 was received at the
signing of the contract, $175,000 was received at the closing in April 1997
and the balance of $750,000 is payable in 30 equal installments of $25,000
commencing 90 days after the opening of the facility. The first
installment is expected to be received on December 1, 1997. Using the
present value of the note, discounted at 11%, the Company has recorded a
gain on the sale of its stock amounting to approximately $489,000. The
note is collateralized by 52% of the common stock of Open MRI, which is
held in escrow.
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<PAGE>
NOTE 6 - LINE OF CREDIT.
On April 30, 1996, the Company entered into a one year $400,000 line
of credit agreement with a bank which has been renewed for an additional
year. Interest is payable on a quarterly basis at prime plus one percent.
The line is collateralized by a certificate of deposit which matures on
April 30, 1998. As of March 31, 1997, the amount outstanding under this
line of credit amounted to $387,000. Additionally, the Company, through
one of its subsidiaries has a $50,000 unsecured line of credit. As of
March 31, 1997, the outstanding balance was $50,000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES.
On March 20, 1996, the Company formed a wholly-owned subsidiary, RF
Management Corp. of Toms River "RFTR", a New Jersey corporation. In April
1996, RFTR entered into an agreement to lease a 9,000 square foot facility
for five years with a base annual rental cost of $117,000.
In July 1996, RFTR entered into a lease and management service
agreement with Surgical Associates, P.A. to provide space, equipment and
nonprofessional services, including management and billing and collection
functions to a newly formed Surgical Center.
On May 30, 1996, the Company entered into a five-year lease and
management service agreement with Associates in Otolaryngology of New
Jersey, P.A. to provide management, administrative marketing, operational
and related services to the physicians office in addition to providing the
necessary fixtures and equipment to be utilized in the practice. The
Company has also guaranteed the rental payments on the facility for the
term of the management service agreement. The five year term of this
agreement commences with the completion of the new facility construction.
On December 1, 1996, in connection with the aforementioned asset
purchase agreement, the Company entered into a consulting agreement with
Luther W. Brady, M.D. The agreement is for a period of six years and calls
for Dr. Brady to provide the Company with a variety of consulting services.
For his services, the Company has agreed to pay Dr. Brady $250,000 a year
for an aggregate of $1,500,000, payable in equal monthly installments of
$20,833 and commencing on the date of this agreement. The parties to the
agreement have verbally agreed to defer the commencement of the payments
until August 27, 1997. Under the terms of the agreement, the Company is
obligated to pay the fee to Dr. Brady, his designees or his heirs
regardless of his ability to render such services.
Therefore, the Company has recorded a liability, discounted at 11.6%
to its present value, which at March 31, 1997 amounted to approximately
$1,009,000 and a non-current asset for consulting services, which amounted
to approximately $943,000 at March 31, 1997.
The Company has recognized consulting fees in connection with this
agreement which amounted to $65,331 and $23,707 for the six and three
months ended March 31, 1997, respectively.
-11-
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES. (Continued)
The Company has financed the acquisition of the assets of Luther W.
Brady & Associates, P.C. and Bucks Radiation Oncology, Inc. with three
notes totalling $3,500,000, issued to DVI Financial Services, Inc. As a
prerequisite to making the loans, the Company was obligated to open an
irrevocable standby letter of credit in the amount of $300,000. This
letter of credit is due to expire on August 17, 1997 and is secured by a
certificate of deposit in an equal principal sum.
In connection with its acquisition of a majority interest in Atrium
Radiology Corp., the Company is obligated to fund its pro-rata share of
cash flow deficits.
-12-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
R.F. Management Corp. (the "Company") was formed in August of 1994, for the
purpose of establishing, administering and managing free-standing outpatient
ambulatory surgery centers. The Company is responsible for the day to day
management of the site, including hiring and selection of non-medical employees,
marketing and the responsibility of all computer operations at the site.
Medical professionals employed at the Center provide all medical and diagnostic
services at the site. The Company is not engaged in the practice of medicine.
On May 31, 1995, the Company acquired 100% of the outstanding shares of Northern
New Jersey Medical Management, Inc. ("Northern") in a business combination
accounted for as a pooling of interests. Northern, a New Jersey corporation
formed in 1986, is engaged in the management of a diagnostic imaging center
located in Union, New Jersey. All references to the Company's prior operating
history relates to the operations of Northern.
On December 27, 1995, R.F. acquired 40% of the outstanding shares of Mobile
Medical Services Limited ("Mobile"), a privately held Company incorporated in
Ireland, and a 51% interest in the property owned or leased by its subsidiaries
for $350,000. Mobile Medical Services Limited provides mobile MRI, CT,
Lithotripsy and Cardiac Catheterization services in the Netherlands, Italy and
Germany. The payment terms call for the Company to make payments directly to
designated creditors on behalf of Mobile. As of March 31, 1997, $350,000 is
reflected as an investment in joint venture.
On March 20, 1996, the Company formed a wholly-owned subsidiary, R.F. Management
Corp. of Toms River ("RFTR"), a New Jersey corporation, who in July 1996 entered
into a lease and management service agreement with Surgical Associates, PA.
This agreement is to commence upon the completion of the construction of a one
room surgical suite.
On May 30, 1996, the Company entered into a five year lease and management
service agreement with Associates in Otolaryngology of New Jersey, PA. This
agreement is to commence upon the completion of the construction of a one room
surgical suite.
-13-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INTRODUCTION (Continued)
On November 15, 1996, the Company acquired a 75% interest in Mobiletec, Inc.
("Mobiletec"), a newly formed entity incorporated in New Jersey. Mobiletec
provides mobile MRI facilities to doctors, hospitals and medical groups for
which it receives a per-test fee. Mobiletec's results of operations have been
included in the consolidated financial statements.
On December 1, 1996, the Company acquired certain assets and assumed certain
liabilities from Luther W. Brady & Associates, P.C. and Bucks Radiation
Oncology, Inc. The assets are employed in the operation of three radiation
treatment centers located in Voorhees, New Jersey and Havertown and Langhorne,
Pennsylvania. The Company acquired the assets for $3,700,000 and also assumed
certain liabilities totalling approximately $837,000. The transaction resulted
in the creation of goodwill of approximately $902,000.
On December 27, 1996, the Company acquired 65% of the outstanding capital stock
of Empire State Imaging Associates, Inc. ("Empire"), a New York corporation,
from an affiliated company for $250,000. Empire operates an imaging center in
Yonkers, New York which provides non-claustrophobic MRI, CT scanning,
mammography, ultrasound and x-ray services. The transaction resulted in the
creation of goodwill of approximately $138,000.
On January 1, 1997, the Company acquired 52% of the outstanding capital stock of
Hamilton McGregor International, Inc. ("Hamilton") from a related party for
$750,000. Hamilton, through a wholly-owned subsidiary, is a general
construction contractor engaged primarily in the construction of medical suites
for the provision of various outpatient services. The transaction resulted in
the creation of goodwill of approximately $350,000.
On January 31, 1997, the Company acquired 52% of the outstanding capital stock
of Atrium Radiology Corp. ("Atrium") for 133,333 shares of the Company's common
stock, valued at $100,000 and a guarantee that the first $300,000 in net profits
would be paid to the seller. The Company has recorded the purchase in the
amount of $400,000. The transaction resulted in the creation of goodwill of
approximately $521,000. Atrium presently provides radiological services and is
expected to be able to offer MRI scans in the future.
On March 19, 1997, the Company sold its 75% interest in Open MRI and Diagnostic
Services of Toms River, Inc. ("Open MRI"), a New Jersey corporation formed in
February 1997, for $750,000. The gain has been recorded at its present value in
the amount of approximately $489,000.
SIX AND THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO
SIX AND THREE MONTHS ENDED MARCH 31, 1996.
RESULTS OF OPERATIONS
Total revenues increased $5,676,891 (3,254.6%) and $5,117,729 (9,698.4%) for the
six and three months ended March 31, 1997, respectively when compared to the
comparable period for 1996. The dramatic increases are attributable to the net
service income generated with the recent acquisitions of Empire, Mobiletec and
the radiation oncology centers acquired from Dr. Brady
-14-
<PAGE>
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (Continued)
($3,911,960 and $3,377,615, respectively) and the construction revenue for the
three months ended March 31, 1997 resulting from the acquisition of Hamilton
McGregor ($1,568,544 in each period). Revenue from management fees increased
$196,387 and $171,570 for the six and three month periods respectively.Item
Costs and expenses increased $5,847,781 (896.6%) and $5,257,982 (1786.8%) for
the six and three months ended March 31, 1997, respectively when compared to the
comparable period for 1996. The increases are attributable to increases
in operating expenses ($4,092,653 and $3,529,008, respectively) caused by the
operations of Empire, Mobiletec and the aforementioned radiation oncology
centers. Construction costs for the three months ended March 31, 1997 were
$1,344,649.
Interest expense increased $121,998 and $122,837 for the six and three months
ended March 31, 1997, respectively as compared to 1996 as a result of the
Company's ability to obtain financing related to these various acquisitions.
Depreciation and amortization increased $246,520 and $241,846 for the six and
three months ended March 31, 1997, respectively as a result of the purchases
referenced above and the related goodwill acquired or created which amounts to
approximately $2,870,000.
Interest income decreased $41,961 and $19,642 for the respective six and three
month periods. The decreases are directly attributable to the Company's
employment of available funds as it continued to expand its operations.
Loss from operations increased $170,890 and $140,253 to $648,702 and $381,759
for the six and three months ended March 31, 1997, respectively. During the
period, Mobiletec was unable to generate any revenue for approximately one and a
half months due to its mobile MRI's being out of service.
The Company recognized a gain on the sale of a subsidiary amounting to $489,228
in the quarter ended March 31, 1997.
Net loss for the six months ended March 31, 1997 decreased $424,213 to $54,446.
Net income for the three months ended March 31, 1997 was $166,020, compared to a
loss for the comparable period of $260,507, an improvement of $426,527. Both
improvements are directly attributable to the aforementioned sale of Open MRI.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a decrease in cash and cash equivalents for the six
months ended March 31, 1997 totalling $1,984,186. In addition to the net loss
for the period, accounts receivable increases accounted for $2,548,785 which
were partially offset by increases in accounts payable and accrued expenses
totalling $1,930,261. Total cash used in operations amounted to $1,170,861.
-15-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company used $10,337,877 in investing activities during the period. These
included the acquisitions of equipment for $6,460,222, goodwill for $2,471,469,
increases in loans receivable of $877,258 and the investment in a certificate of
deposit for $311,037 which collaterlized a standby letter of credit.
The Company obtained $9,524,552 from financing activities. These consisted
primarily in increases in notes payable of $7,870,449, of which $3,500,000 were
created for the acquisition of three radiation oncology centers and advances
from affiliates of $1,534,803. Additionally, the Company received $269,300 in
advances from banks under various lines of credit.
The Company presently has a working capital deficit of $450,518 as compared to
working capital of $2,905,272 at September 30, 1996. This decrease and
resultant deficit is attributable to the Company's recent and rapid expansion.
The Company expects its recent acquisitions will start to generate positive cash
flow in the short term. Management also plans to continue to seek additional
financing for future expansion plans on terms which are favorable to the
Company.
There are not other known trends, demands, commitments or events that will
impact the Company's results of operations, liquidity and/or capital resources.
-16-
<PAGE>
PART II - Other Information
Item 1 Legal Proceedings
Not applicable.
Item 2 Changes in Securities
Not applicable.
Item 3 Defaults upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
On April 18, 1997, the Annual Meeting of RF Management
Corporation was held at the Governor Morris Hotel,
Morristown, New Jersey.
The Board of Directors of RF Management were unanimously
reelected for a term of three (3) years.
Item 5 Other Information
Not applicable.
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits:
11.1 Computation of per share earnings
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant
during the quarterly period ended March 31, 1997
-17-
<PAGE>
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 thereunto duly authorized.
------------------------
R.F. Management Corp.
(Registrant)
/s/ Roger Findlay
Date: May 21, 1997 ------------------------
Roger Findlay, President
Chief Executive Officer
/s/ Louis D'Esposito
Date: May 21, 1997 ------------------------
Louis D'Esposito
Chief Financial Officer
-18-
<PAGE>
R.F. MANAGEMENT CORP.
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Exhibit 11.1
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ($ 54,446) ($ 478,659) $ 166,020 ($ 260,543)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary
Weighted average shares 3,371,944 3,327,500 3,416,833 3,327,500
Assumed conversions
A warrants and
B warrants - 162,500 - 74,710
--------- --------- --------- ---------
Total weighted average
shares outstanding 3,371,944 3,490,000 3,416,833 3,402,210
--------- --------- --------- ---------
Earnings (loss) per
share amounts ($ .02) ($ 0.14) $ .05 ($ 0.08)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted
Weighted average shares 3,327,500 3,327,500
Assumed conversions
A warrants and
B warrants 1,955,000 1,955,000
--------- ---------
Total weighted average
shares outstanding 5,282,500 5,282,500
--------- ---------
--------- ---------
Loss per share amounts ($ 0.09) ($ 0.05)
---------- ----------
---------- ----------
</TABLE>
