<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 June 30, 1997
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
( ) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------------------- --------------------
Commission File Number 0-26488
-------------------------------------------------------
R.F. Management Corp.
- ------------------------------------------------------------------------------
(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 June 30, 1997
- ---------------------------------------- ----------------------------------
Common stock, par value $.0001 per share $3,460,833 shares
-1-
<PAGE>
R.F. MANAGEMENT CORP.
JUNE 30, 1997
(Unaudited)
I N D E X
<TABLE>
Page No.
--------
<S> <C>
PART I--Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as at June 30, 1997 (Unaudited)
and September 30, 1996........................................ 3-4
Consolidated Statements of Operations For the Nine and Three
Months Ended June 30, 1997 and 1996 (Unaudited)............... 5
Consolidated Statements of Cash Flows For the Nine Months Ended
June 30, 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
</TABLE>
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<PAGE>
R.F. MANAGEMENT CORP.
CONSOLIDATED BALANCE SHEETS
A S S E T S
JUNE 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED)
Current assets:
Cash and cash equivalents.......................... $ 537,647 $2,258,333
Certificates of deposit............................ 728,111 408,266
Accounts receivable................................ 3,626,804 296,893
Due from affiliate................................. -- 19,743
Loans receivable................................... 244,946 --
Deferred income taxes.............................. 423,316 218,798
Other current assets............................... 630,932 101,210
----------- ------------
Total current assets............................. 6,191,756 3,303,243
----------- ------------
Other assets:
Loans receivable--non-current...................... 387,230 --
Equipment (net of accumulated depreciation
of $1,238,269 and $24,969, respectively)......... 6,321,552 130,730
Investment in limited partnership.................. 10,627 11,120
Investment in joint venture........................ 350,000 350,000
Deferred consulting fees........................... 735,359 --
Deposits and other assets.......................... 344,321 80,866
Goodwill........................................... 2,804,800 --
Organization costs (net of accumulated amortization
of $37,489 and $76, respectively)................ 95,477 192
----------- ------------
Total other assets............................... 11,049,366 572,908
----------- ------------
$17,241,122 $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
JUNE 30, SEPTEMBER 30,
1997 1996
------------ -------------
(UNAUDITED)
Current liabilities:
Lines of credit..................................... $ 597,000 $ 167,700
Accounts payable.................................... 1,611,838 47,505
Accrued expenses and other current liabilities...... 871,307 32,766
Due to affiliates................................... 1,841,520 --
Consulting fees payable............................. 101,624 --
Notes payable--current portion...................... 1,809,134 --
Notes payable--stockholders......................... 373,986 150,000
----------- -----------
Total current liabilities......................... 7,206,409 397,971
----------- -----------
Other liabilities:
Notes payable--net of current portion............... 5,550,327 --
Notes payable--stockholders......................... 516,557 300,000
Consulting fees payable............................. 956,714 --
----------- -----------
Total other liabilities........................... 7,023,598 300,000
----------- -----------
Minority interest in equity of subsidiaries.......... 162,797 --
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............................. 346 333
Additional paid-in capital.......................... 4,223,628 4,123,641
Deficit............................................. (1,375,656) (945,794)
----------- -----------
Total stockholders' equity........................ 2,848,318 3,178,180
----------- -----------
$17,241,122 $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 NINE MONTHS FOR THE THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ -------------------------
1997 1996 1997 1996
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Net service revenue........................................ $ 3,417,576 $ -- $ 1,544,613 $ --
Construction revenue....................................... 3,506,025 -- 1,937,481 --
Management fees............................................ 900,159 249,415 529,347 74,990
------------ ---------- ------------ -----------
Total revenues.............................................. 7,823,760 249,415 4,011,441 74,990
------------ ---------- ------------ -----------
Costs and expenses:
Operating expenses......................................... 5,010,236 1,017,747 2,241,125 301,445
Construction costs......................................... 2,984,940 -- 1,640,291 --
Interest................................................... 585,854 43,498 431,038 10,680
Depreciation and amortization.............................. 535,074 15,653 279,716 6,815
Interest income............................................ (88,261) (136,856) (25,348) (31,982)
------------ ---------- ------------ -----------
Total costs and expenses.................................... 9,027,843 940,042 4,566,822 286,958
------------ ---------- ------------ -----------
Loss from operations........................................ (1,204,083) (690,627) (555,381) (211,968)
Gain on sale of subsidiary.................................. 489,228 -- -- --
------------ ---------- ------------ -----------
Loss from operations before income tax recovery............. (714,855) (690,627) (555,381) (211,968)
Income tax recovery......................................... (142,601) (8,935) (130,160) (10,368)
------------ ---------- ------------ -----------
Loss from operations before partnership income (loss)....... (572,254) (681,692) (425,221) (201,600)
Income (loss) from a limited partnership--net of income
taxes..................................................... (292) 245 (154) (341)
------------ ---------- ------------ -----------
Loss before minority interest............................... (572,546) (681,447) (425,375) (201,941)
Minority interest in loss from subsidiaries................. 142,685 -- 49,960 --
------------ ---------- ------------ -----------
Net loss.................................................... ($ 429,861) ($ 681,447) ($ 375,415) ($ 201,941)
------------ ---------- ------------ -----------
------------ ---------- ------------ -----------
Primary
Weighted average shares outstanding........................ 3,400,760 3,347,127 3,408,333 3,327,500
------------ ---------- ------------ -----------
------------ ---------- ------------ -----------
Loss per share............................................. ($ 0.13) ($ 0.20) ($ 0.11) ($ 0.06)
------------ ---------- ------------ -----------
------------ ---------- ------------ -----------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
R.F. MANAGEMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ ($ 429,861) ($ 681,447)
------------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization...................................................... 535,074 15,653
Deferred income taxes.............................................................. (204,518) (149,927)
Investment in limited partnership.................................................. 493 --
Minority interest in income from subsidiaries...................................... (142,685) --
Consulting fees.................................................................... 322,979 --
Increase (decrease) in cash flows as a result of changes in asset and liability
account balances:
Accounts receivable................................................................ (3,329,911) (88,273)
Other current assets............................................................... (529,723) (77,001)
Organization costs................................................................. (104,255) --
Accounts payable, accrued expenses and other current liabilities................... 2,402,874 (26,164)
Income taxes payable............................................................... -- (3,825)
------------- -----------
Total adjustments.................................................................... (1,049,672) (329,537)
------------- -----------
Net cash used in operating activities................................................ (1,479,533) (1,010,984)
Cash flows from investing activities:
Equipment additions................................................................. (6,650,257 (112,923)
Increase in minority interest....................................................... 305,482 --
Investment in limited partnership................................................... -- (350,000)
Acquisition of goodwill............................................................. (2,471,469) --
Investment in joint venture......................................................... -- (414)
Investment in certificate of deposit................................................ (319,845) (403,275)
Note receivable..................................................................... -- 20,000
Increase in loans receivable........................................................ (632,176) --
Deposits and other assets........................................................... (263,455) (23,900)
------------- -----------
Net cash used in investing activities................................................ (10,031,720) (870,512)
------------- -----------
Cash flows from financing activities:
Advances from affiliates............................................................ 1,861,263 --
Advances from (repayments to) stockholders.......................................... 440,543 (150,000)
Increase in notes payable, net of payments.......................................... 7,059,461 --
Advances from lines of credit....................................................... 429,300 42,700
------------- -----------
Net cash provided by (used in) financing activities.................................. 9,790,567 (107,300)
------------- -----------
Net decrease in cash and cash equivalents............................................ (1,720,686) (1,988,796)
Cash and cash equivalents--beginning................................................. 2,258,333 4,620,520
------------- -----------
Cash and cash equivalents--ending.................................................... $ 537,647 $ 2,631,724
------------- -----------
------------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes....................................................................... $ 1,064 $ --
------------- -----------
------------- -----------
Interest........................................................................... $ 466,542 $ 39,745
------------- -----------
------------- -----------
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 nine months ended June 30, 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
JUNE 30, 1997
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES.
The consolidated balance sheet as of June 30, 1997 and the
consolidated statements of operations and cash flows for the nine and
three months ended June 30, 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 nine and three
months ended June 30, 1997 and 1996 are not necessarily indicative of
the results to be expected for the full year.
NOTE 2--LOSS PER COMMON SHARE.
Loss per common share is computed by dividing the net 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 nine and three
months ended June 30, 1997 and 1996, compensation for these services
totalled $4,500 and $-0-, and $47,000 and $27,600, 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 $88,000 and
$111,000 at June 30, 1997 and September 30, 1996, respectively.
The Company has an outstanding note receivable from one of its
officers for approximately $24,000 included in other assets. 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 June 30, 1997 (unaudited) and September 30, 1996:
<TABLE>
<CAPTION>
TOTAL LONG-TERM TOTAL TOTAL
ASSETS DEBT LIABILITIES CAPITAL
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1997 (unaudited)...................................... $ 1,096,427 $ 142,186 $ 765,784 $ 330,643
September 30, 1996............................................. 821,821 102,702 402,117 419,704
</TABLE>
<TABLE>
<CAPTION>
ASSETS LIABILITIES
---------------------- ----------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
June, 30 1997 (unaudited)........................................ $ 637,064 $ 459,363 $ 623,598 $ 142,186
September 30, 1996............................................... 454,465 367,356 299,415 102,702
</TABLE>
<TABLE>
<CAPTION>
NET ALLOCATION
NET INCOME OF INCOME
REVENUES (LOSS) (LOSS)
------------ ---------- -----------
<S> <C> <C> <C>
For the nine months ended June 30, 1997 (unaudited)......................... $ 1,271,460 ($ 49,311) ($ 493)
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 June 30, 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 June 30, 1997, the amount outstanding under this
installment loan is $150,000.
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 six months ended June 30, 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 five months ended June 30,
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.
In March 1997, the Company formed a new wholly-owned subsidiary,
Brady Cancer Centers, Inc. and transferred the assets acquired from
Luther W. Brady & Associates, P.C. and Bucks Radiation Oncology, Inc.
to the subsidiary.
-10-
<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 June 30, 1997, the
amount outstanding under this line of credit amounted to $397,000.
Additionally, the Company, through one of its subsidiaries has a
$200,000 unsecured line of credit. As of June 30, 1997, the
outstanding balance was $200,000.
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 June 30, 1997 amounted to
approximately $1,058,000 and a non-current asset for consulting
services, which amounted to approximately $902,000 at June 30, 1997.
The Company has recognized consulting fees in connection with
this agreement which amounted to $97,000 and $41,600 for the nine and
three months ended June 30, 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.
Certain of the assets purchased from Luther W. Brady &
Associates, P.C. ("Associates") have been subjected to a claim by a
former Associates of Dr. Brady. The individual claims to have a first
option to acquire the assets which comprise the facility in Voorhees,
New Jersey, based on the terms of an employment contract entered into
between the individual and Associates.
In accordance with the terms of the employment agreement, the
matter has been submitted to arbitration. Should the aforementioned
individual prevail, the Company may be forced to relinquish its
rights to those assets. The portion of the purchase price relating to
those assets is presently being held in escrow and would be returned
to the Company in the event of an unfavorable outcome. The Company
has continued to operate the facility pending resolution of the
matter.
-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 June 30, 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.
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.
-13-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INTRODUCTION (Continued)
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.
In March 1997, the Company formed a wholly-owned subsidiary (Brady Cancer
Centers, Inc.) and transferred the assets and liabilities relating to its
three Radiation Oncology Centers to the subsidiary.
Nine and three months ended June 30, 1997 compared to
nine and three months ended June 30, 1996.
RESULTS OF OPERATIONS
Total revenues increased $7,574,345 (3,036.8%) and $3,936,451 (5,249.3%) for
the nine and three months ended June 30, 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>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (Continued)
($3,417,576 and $1,544.613,respectively) and the construction revenue for the
six and three months ended June 30, 1997 resulting from the acquisition of
Hamilton McGregor ($3,506,025 and $1,937,481, respectively). Revenue from
management fees increased $650,744 and $454,357 for the nine and three month
periods respectively. Total Costs and expenses increased $8,087,801 (860.4%)
and $4,279,864 (1,491.5%) for the nine and three months ended June 30, 1997,
respectively when compared to the comparable period for 1996. The increases
are attributable to increases in operating expenses ($3,992,489) and
$1,939,680, respectively) caused by the operations of Empire, Mobiletec and
the aforementioned radiation oncology centers. Construction costs for the six
and three months ended June 30, 1997 were $2,984,940 and $1,640,291,
respectively.
Interest expense increased $542,356 and $420,358 for the nine and three
months ended June 30, 1997, respectively as compared to 1996 as a result of
the Company's ability to obtain financing related to the various
acquisitions. Depreciation and amortization increased $519,421 and $272,901
for the nine and three months ended June 30, 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 $48,595 and $6,634 for the respective nine and
three month periods. The decreases are directly attributable to the Company's
employment of available funds as it continues to expand its operations.
Loss from operations increased $513,456 and $343,413 to $1,204,083 and
$555,381 for the nine and three months ended June 30, 1997, respectively.
During the period, Mobiletec has been unable to generate any significant
revenue due to recurring breakdown with its mobile MRI's. The Company is in
the process of upgrading its equipment and expects to start generating
significant revenues in the first quarter of next year.
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 nine months ended June 30, 1997 decreased $251,586 to
$429,861, as a direct result of the aforementioned sale of Open MRI in the
second fiscal quarter. Net loss for the three months ended June 30, 1997 was
$375,415, compared to a loss for the comparable period of $201,941.
Management anticipates that continued growth and improving facility
management will reverse this trend.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a decrease in cash and cash equivalents for the nine
months ended June 30, 1997 totalling $1,720,686. In addition to the net loss
for the period, accounts receivable increases accounted for $3,329,911 which
were partially offset by increases in accounts payable and accrued expenses
totalling $2,402,874. Total cash used in operations amounted to $1,479,533.
-15-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company used $10,031,720 in investing activities during the period. These
included the acquisitions of equipment for $6,650,257, goodwill for
$2,471,469, increases in loans receivable of $632,176 and the investment in a
certificate of deposit for $319,845 which collateralized a standby letter of
credit.
The Company obtained $9,790,567 from financing activities. These consisted
primarily in increases in notes payable of $7,059,461, of which $3,500,000
were created for the acquisition of three radiation oncology centers and
advances from affiliates of $1,861,263. Additionally, the Company received
$429,300 in advances from banks under various lines of credit.
The Company presently has a working capital deficit of $1,014,653 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 no 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 June 30, 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)
Date: August , 1997 /s/ Roger Findlay
----------------------------
Roger Findlay, President
Chief Executive Officer
Date: August , 1997 /s/ Wayne Miller
----------------------------
Wayne Miller
President
-18-
<PAGE>
R.F. MANAGEMENT CORP.
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Exhibit 11.1
<TABLE>
<CAPTION>
FOR THE NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net.......................................................... ($ 429,861) ($ 681,447) ($ 375,415) ($ 201,941)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary
Weighted average shares..................................... 3,400,760 3,327,500 3,408,333 3,327,500
Assumed conversions
A warrants and B warrants.................................. -- 19,627 -- --
----------- ----------- ----------- -----------
Total weighted average shares outstanding.................. 3,400,760 3,347,127 3,408,333 3,327,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per share amounts.......................... ($ 0.13) ($ 0.20) $ 0.11 ($ 0.06)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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..................................... ($ 0.13) ($ 0.04)
----------- -----------
----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
balance sheets, and consolidated statements of income of the Company in the
Company's Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,265,758
<SECURITIES> 0
<RECEIVABLES> 3,626,804
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,191,756
<PP&E> 7,559,821
<DEPRECIATION> 1,238,269
<TOTAL-ASSETS> 17,241,122
<CURRENT-LIABILITIES> 7,206,409
<BONDS> 6,066,884
0
0
<COMMON> 4,223,974
<OTHER-SE> (1,375,656)
<TOTAL-LIABILITY-AND-EQUITY> 17,241,122
<SALES> 0
<TOTAL-REVENUES> 7,823,760
<CGS> 0
<TOTAL-COSTS> 8,441,989
<OTHER-EXPENSES> 292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 585,854
<INCOME-PRETAX> (714,855)
<INCOME-TAX> (142,601)
<INCOME-CONTINUING> (429,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (429,861)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
