UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
Commission File Number 0-26488
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 or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
95 Madison Avenue, Suite 301, Morristown, NJ 07960
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(Address principal executive offices) (zip code)
Registrant's telephone number, including area code (973) 292-2833
--------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock
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Class A Common Stock Purchase Warrant
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Class B Common Stock Purchase Warrant
- - - - --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities and 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 |_|.
The number of shares outstanding of Registrant's Common Stock as of
09/30/96: 4,123,641, $.0001 par value.
<PAGE>
PART I
Item 1. BUSINESS
R.F. Management Corp. (the "Company"), through its wholly owned
subsidiary, Northern New Jersey Medical Management, Inc. ("Northern") is engaged
in the business of administering and managing a free standing outpatient center
owned by radiologists who perform diagnostic services at such Center. In May
1995, the Company entered into a Stock Acquisition Agreement with Northern New
Jersey Medical Management, Inc. ("Northern"), incorporated in the State of New
Jersey in January 1985, wherein the Company purchased all of the issued and
outstanding shares of Common Stock of Northern. Northern is now a wholly owned
subsidiary of the Company. The Company and Northern are hereinafter collectively
referred to as the Company. The Company has no plans to expand the business
conducted by Northern. In addition, the Company contracted to establish two (2)
free standing outpatient centers performing ambulatory surgery. These Centers,
once established, will be managed by the Company and owned by physicians.
Diagnostic imaging centers managed by the Company will be owned by (i) hospitals
or (ii) radiologists actively performing diagnostic procedures at such centers.
Ambulatory surgical centers managed by the Company will be owned by (i)
hospitals or (ii) surgeons who utilize such centers to perform surgery on their
own patients. The Company will not perform any medical services.
The past year has shown rapid expansion through acquisition of existing
diagnostic and treating centers along with the formation of a new entity.
The Company formed a joint venture with MobilTec Management to form
MobilTec, Inc. ("MobilTec"). The Company owns 75% of MobilTec. MobilTec provides
mobile MRI facilities to physicians and hospitals. Along with MobilTec, the
Company acquired two (2) Mobile MRI's in trailers. In addition, the Company
acquired certain assets from Luther Brady & Associates, P.C. and Bucks Radiation
Oncology, Inc. The assets are used to provide radiation therapy services in New
Jersey and Pennsylvania. These assets were transferred in March of 1997 to newly
formed wholly-owned subsidiary, Brady Cancer Centers, Inc. The Company has also
expanded its diagnostic imaging business through acquisition of 65% of the
outstanding capital stock of Empire Imaging Associates, Inc. ("Empire") a New
York Corporation, acquisition of 52% of the outstanding capital stock of Atrium
Radiology Corp. ("Atrium"), and a 75% interest in open MRI and Diagnostic
Services of Tomes River, Inc. ("Open MRI") a newly formed Corporation. Empire
and Atrium both provide diagnostic imaging. Empire provides services in Yonkers,
New York, and Atrium provides services in Manalapan, New Jersey. The Company has
subsequently sold its interest in open MRI but has maintained a management and
marketing agreement with the facility.
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Additionally, the Company has entered the medical construction business
through an acquisition of 52% of the outstanding stock of Hamilton McGregor
International, Inc. ("Hamilton"). Hamilton through a wholly-owned subsidiary is
a general construction contractor.
The Company focuses on obtaining patient referrals for its out-patient
surgical centers from sources such as health maintenance organizations (HMO's),
preferred provider organizations (PPO's), union contracts and hospital
contracts. The Company intends to position itself to participate in the
expanding managed healthcare market through direct solicitation of HMO's, PPO's
and physicians. See "Use of Proceeds".
Diagnostic Centers
Medical diagnostic imaging systems facilitate the diagnosis of disease and
disorders at an early stage, often minimizing the amount of cost and care needed
to stabilize or cure the patient and frequently obviate the need for invasive
diagnostic procedures, such as exploratory surgery. Diagnostic imaging systems
are based on the ability of energy waves to penetrate human tissue and generate
images of the body which can be displayed either on film or on a video monitor.
Imaging systems have evolved from conventional X-ray to the advance
technologies.
The Company's diagnostic centers offer several services including X-ray
(Radiography), Ultrasonography (Ultra-sound), Mammography, Nuclear Medicine, CAT
Scan and MRI.
Presently, the Company has no plans to expand the business conducted by
Northern.
Pursuant to a written agreement, dated January 25, 1986, the Company is
providing administrative services for an outpatient diagnostic medical imaging
center located in Union, New Jersey. The term of the agreement is twenty (20)
years. The Company is responsible for the day-to-day managing of the center,
including hiring and selection of non-medical employees, marketing and the
responsibility of all computer operations at the site. Medical professionals
employed by the Center provide all medical and diagnostic services at the site.
The Company is not engaged in the practice of medicine at the Center.
Ambulatory Surgery Centers
An outpatient surgical center is a specially equipped physician's office
which is established to provide minor surgery which does not require the patient
to be admitted to a hospital.
The Company markets its services to physicians and/or hospitals which the
Company believes are seeking outpatient
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surgical centers. The Company will first review the area where the proposed site
is to be located and will review a general outline or business plan. Information
that will be considered will include other centers in the area, patient
financial class, patient demographics in the area served, and potential
subscribers to the service. In the case of a hospital, the Company will consider
the number of diagnostic or outpatient surgical procedures that the hospital can
provide. Managed care groups and HMO's will be contacted to determine if
contracts for providing services are available and to ascertain the membership
in the service area of the potential new sites. If the site is considered to be
positive, a request will be made to the equipment manufacturers for a bid on the
equipment the Company deems necessary. After all information needed by the
Company is received, the Company will determine the financial viability of the
project. Based on the criteria above, the Company will review each site to
determine if utilization and proliferation of the equipment and services is a
concern.
The Company will not own any interest in these planned centers. For
consideration of the management fee the Company receives, the Company will
provide all startup funding necessary, including the purchase of medical and
surgical equipment, and all administrative, marketing and management functions.
See "Use of Proceeds."
The Company will establish Centers, then service (support) these centers
by providing administrative, marketing and management functions. As part of the
Company's planned operations, the Company will purchase or lease equipment to be
utilized in the surgical centers. The cost of such equipment will be factored in
to the calculation for the management fee to be charged to the
physician/hospital who owns the Center. In addition to the cost of the
equipment, various other factors including the particular services required at a
particular center will be factored into the management fee.
The Company offers a full range of administrative services, including
contract negotiations, site selection, equipment procurement, construction,
office personnel, office management, patient scheduling, patient billing, cash
collections, personnel management and marketing. The Company can provide either
a full or limited range of administrative services at the Centers depending upon
the needs of the Centers' owners.
The Company has arranged for financing to lease all the equipment and
space necessary to provide a surgical suite to a physician or a group of
physicians to practice medicine in a private office. The Company offers a full
range of services to hospitals or physician clients, including the selection and
acquisition of appropriate equipment, the design and supervision of facility
construction, the provision and training of technical and support staff, patient
billing and collection and the provision of
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overall marketing and management services. The equipment which the Company will
procure will include but is not limited to surgical tables, crash carts,
monitoring equipment, all diagnostic imaging equipment and surgical instruments
needed to operate a diagnostic and/or out-patient surgical center.
The Company was incorporated in the State of New York in August 1994 and
its executive offices are located at 95 Madison Avenue, Suite 301, Morristown,
New Jersey 07960. It's telephone number is (973) 292-2833.
Range of Services
The Company provides the full range of services discussed below. The needs
of a particular hospital or physician group determines the extent of the
services provided by the Company at a particular Center. The Company can deliver
services on a limited basis or through a full service medical center.
Equipment and Related Services. The Company consults with a physician or
hospital to identify the equipment best suited to meet the customer's needs on a
cost-effective basis and then acquire the equipment through lease/purchase
agreement. In addition, the Company assists the physicians and their personnel
in complying with licensing and other regulatory requirements. The Company
supervises the installation and testing of the equipment and provides periodic
inspection of the equipment at the facility. The Company undertakes to maintain
the equipment which it provides and enters into agreements with equipment
manufacturers or other third parties for the delivery of maintenance services.
Technical and Support Staffing. The Company provides non-physician
staffing who operate the equipment at the facility. The Company trains and
provide on-going safety instruction and educational programs for its staff. The
Company does not provide any medical services at the Center.
Marketing. The Company provides its customers with marketing services,
including the design and formulation of a marketing program for each facility to
inform the physician community as to the technology and services available at
the facility.
Patient Scheduling, Billing and Collection. At the Centers, the Company
schedules patients and prepare all patient billing and is responsible for
collection. The Company will also be responsible for related administrative and
record-keeping functions and all management information services.
Management. The Company assumes full managerial responsibility over
facility operations, including all of the foregoing services, at each of the
future Centers.
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Delivery of Services
The Company delivers its services to its customers through either
contractual arrangements with hospitals or medical center arrangements with
physician groups.
Growth Strategy and Marketing
The Company markets its services to physicians and hospitals through
various methods. These include direct solicitation, direct mail, sponsorship of
inservice education programs for physicians, nurses and technical staff, and
personal visits to physician offices. The Company also attends many of the
surgical seminars throughout the country.
The Company is pursing a strategy of aggressively seeking to establish new
hospital centers with hospitals which currently have existing centers as well as
with hospitals without existing centers. In addition, the Company attempts to
educate surgeons as to the benefit of establishing their own ambulatory surgical
center, to which the Company can offer its services. The Company engages in
intensive marketing in areas of specialized physicians group, HMO's, PPO's,
union locals, municipalities and insurance companies. The Company attempts to
negotiate discounts with large suppliers of patients as allowed by law. The
Company's objective is to respond to the concerns of spiraling health costs
while maintaining quality of care to the patient. This is attainable based on
the premise that increased volume results in a reduction of cost per procedure
which is passed along to the Company's contracted clients.
The Company applies a variety of criteria in evaluating each perspective
hospital customer. These criteria include the extent of the hospitals'
competitive environment; the site and type of hospital; the number of surgical
and orthopedic physicians; the patient volume and the nature of the payors
(private insurance programs, government reimbursement programs or other health
or medical organizations). The Company performs a similar analysis regarding
physician-owned centers.
The Company's plan of operation is to identify and establish customers
during the remainder of this year. The Company, with its direct marketing
efforts, continues to seek clients, whether through acquisition of sites or
startups.
Equipment Sources
The Company can obtain its medical equipment and supplies from various
manufacturers. The Company is not dependent on any one supplier of equipment.
The Company believes that equipment should be financed by the Company (typically
with terms of five years) with lenders and lessors, with equipment serving as
security for
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the loans. The Company's acquisition methods (purchase or lease) depends upon
the specific circumstances of each transaction.
Licenses, Regulation and Governmental Reimbursement
Licenses. The Company provides administrative and management services to
free-standing outpatient centers performing diagnostic imaging. The diagnostic
imaging centers are owned by radiologists who actively perform diagnostic
testing at such center. In addition, the Company has established a free-standing
outpatient center performing ambulatory surgery located in West Orange, New
Jersey. The ambulatory surgical centers will be owned by surgeons to perform
surgery on their own patients. The Company does not perform medical services.
However, government regulations do apply to the Company with respect to payment
on third party Medicare and Medicaid reimbursement. The Company will be subject
to the Anti-Kickback Laws, the "Stark Bill" as well as in New Jersey, the Health
Care Cost Reduction Act which are discussed herein. In the future, however, the
Company may be required to maintain licenses or certificates of need issued by
individual states. A number of states require hospital physicians to obtain a
Certificate-of-Need ("CON") prior to the development of the surgical centers.
The CON programs vary considerably from state to state, but all attempt to
regulate the ambulatory surgery services. Some states regulate indirectly
through rate commissions which prescribe hospital rates. The Company engages in
both diagnostic and a outpatient surgical center in New Jersey. Presently, in
the State of New Jersey, one room surgical suites are excluded from the
Certificate of Need (CON) requirements. However, if the Company were to plan for
the operation of a multi-suite center, a CON would have to be filed with the
appropriate state agency.
Government Reimbursement. In major areas of its business, the Company may
rely for payment on third party (in large part governmental) reimbursement. Its
charges are predominantly paid by its clients which in turn receive
reimbursement from such sources.
The Centers that the Company is affiliated with participate in many
reimbursement programs such as Medicare and Medicaid as well as other private
insurers. Under these arrangements the Center agrees to accept the approved
amount of reimbursement from each individual payor. Monthly statements are only
sent out when allowed by contractual arrangements with the insurers.
Regulations. In order to curb the potential for fraud and abuse under the
Medicare and Medicaid programs, Congress has enacted certain laws (the
"Anti-Kickback Laws") prohibiting the payment or receipt of any remuneration in
return for the referral of patients to a healthcare provider for the furnishing
of medical services or equipment, the payment for which may be made in whole or
in part by the Medicare or Medicaid programs. New Jersey, as well as other
states, have enacted similar laws. It should be
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noted that the Anti-Kickback Laws apply to both sides of the referral
relationship: the provider making the referral and the provider receiving the
referral. Violation of the Anti-Kickback Laws is a criminal felony punishable by
fines of up to $25,000 and/or up to five years imprisonment for each violation.
Federal law also permits the Department of Health and Human Services ("HHS") to
assess civil fines against violators of the Anti-Kickback Laws and to exclude
them from participation in the Medicare and Medicaid programs. These civil
sanctions can be imposed in proceedings that do not involve the same procedural
requirements and standards of proof as would be required in a criminal trial.
The Anti-Kickback Laws are broadly drafted and judicial decisions rendered
thus far, while made in the context of overt payments explicitly in exchange for
referrals, have broadly interpreted the scope of these laws. Several federal
courts considering the issue, including the U.S. Court of Appeals, have
concluded that the Anti-Kickback Laws would be violated if "any purpose" of a
challenged economic arrangement is to induce or pay for referrals, no matter how
incidental that purpose may be or how many other legitimate purposes may exist
for the arrangement in question. Accordingly, many types of business
relationships between healthcare providers, including investments in healthcare
providers by physicians, hospitals or others who are in a position to refer
patients could be held to fall within the prohibitions of the Anti-Kickback Laws
or similar state laws.
HHS has proposed regulations specifying "safe harbors" for various payment
practices between healthcare providers and their referral sources; that is, if a
payment practice were to come within the safe harbor, it would not be treated as
an illegal Medicare/Medicaid kickback or grounds for exclusion from the
Medicare/Medicaid programs. While failure to fall within a safe harbor does not
mean that the practice is illegal, HHS had indicated that it may give such
arrangements closer scrutiny. In their present proposed form, no safe harbor
would cover an investment interest in the Company. Congress has enacted
legislation (the "Stark Law") which generally prohibits an entity from
furnishing a service to an individual for which payment would be made by
Medicare or Medicaid if the individual's referring
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physician, or an immediate family member of such referring physician, had an
ownership or other financial interest in the entity. The Company cannot predict
whether other regulatory or statutory provisions will be enacted by federal or
state authorities which would prohibit or otherwise regulate referrals by
physicians to the Company.
In 1991, New Jersey enacted the Healthcare Cost Reduction Act, or
so-called "Codey Bill", (N.J.S.A. 45: 9-22.4 et seq.) which provided in part
that a medical practitioner shall not refer a patient, or direct one of its
employees to refer a patient, to a healthcare service in which the practitioner
and/or the practitioner's immediate family had any beneficial interest. The bill
specifically provided that for beneficial interests which were created prior to
the effective date of the Act, July 31, 1991, the practitioner could continue to
refer patients, or direct an employee to do so, if the practitioner disclosed
such interest to his patients. The disclosure must take the form of a sign
posted in a conspicuous place in the practitioner's office informing the
patients of such interest and stating that a listing of alternative health care
service providers could be found in the telephone directory.
Under the "Stark Law", a physician who has a financial relationship with
an entity may not make a referral to the entity for the furnishing of clinical
laboratory services for which payment is made under the Medicare or Medicaid
programs. The Stark Law expands the application of the Medicare ban on
self-referrals after December 31, 1994. The Stark Law also extends the
self-referral ban to physician therapy services, radiology services including
MRI and CT scans, ultrasound services, radiation therapy services and the
furnishing of durable medical equipment, the furnishing of parenteral and
enteral nutritional equipment and supplies, the furnishing of out-patient
prescription drugs, ambulance services, home infusion therapy services,
occupational therapy services and in-patient and out-patient hospital services
(including services furnished in a psychiatric or rehabilitation hospital).
The diagnostic centers currently managed by the Company are owned by
radiologists who actively engage in the performance of diagnostic testing at the
Centers. No investment interest or financial relationship exists between the
Center and any physician who is not a radiologist administering procedures at
the Center. The Company's planned surgical centers will be owned by surgeons who
will utilize the Centers to perform surgical procedures on their own patients.
No ownership interest or financial relationship will exist between such Centers
and any physician who is not a surgeon performing operations on his/her patient
at such Centers. The Company does not and will not have any ownership or
financial interest in the outpatient surgical or diagnostic imaging centers
other than the administration and management of such centers
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pursuant to written agreements.
Competition
The Company competes with many firms that offer similar services. This
segment of the industry is highly competitive and many of the Company's
competitors have financial, marketing and other resources substantially greater
than those of the Company. Some of the Company's competitors enjoy an additional
competitive advantage by reason of their ability to offer discounts and other
services. Accordingly, the Company seeks to address smaller markets which have a
need for free-standing or out-patient centers performing diagnostic or
outpatient ambulatory surgery. The Company has identified the State of New
Jersey as its area of operation because of its favorable legislation regarding
one room surgical and diagnostic suites.
The medical diagnostic business is characterized by a high degree of
competition. In the Company's case, this competition comes from a number of
independent local operators specializing in one or two medical applications, and
from a few large diversified healthcare companies (primarily larger hospitals
having the resources and capability to provide mobile diagnostic services to
other healthcare facilities) which provide ultrasound and other diagnostic
services as part of their overall medical business. Although the Company
believes that it has a competitive advantage over most of the small operators
(the Company competes in its marketplace based upon its performance, marketing
and its ability to customize its contractual arrangement), the Company may be
vulnerable to competition from the larger healthcare companies, at least one of
which can be found in each of the Company's geographic markets, and all of which
are substantially larger and possess
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greater financial resources than the Company.
Marketing
The Company markets its services through direct solicitation by various
employees, as well as direct mail, independent marketing companies, medical
staff in-service programs, and personal sales visits to physicians, the primary
emphasis of which is to educate the physician about program services. In
addition, the Company will focus its marketing efforts by obtaining patient
referrals to its centers from sources such as health maintenance organizations
(HMO), preferred provider organizations (PPO), union contracts and hospital
contracts. The Company will position itself to participate in the expanding
managed healthcare market through direct solicitation of HMO's, PPO's and
physicians. The Company intends to establish joint ventures with hospitals and
physician managed ambulatory surgery centers to provide services to subscribers
at reduced rates. See "Use of Proceeds".
Insurance
The Company carries general liability insurance with coverage of up to
$1,000,000 per claim and a commercial umbrella policy of $2,000,000. The Company
believes that such coverage will be adequate.
Employees
As of September, 1997, the Company employed 5 persons on a full-time
basis. Of the 5 employees, 3 are in management, 1 is in sales/marketing and 1 is
clerical/administrative.
Item 2. PROPERTIES
The Company's offices, at present, are located at 95 Madison Avenue, Suite
301, Morristown, New Jersey 07960. These premises are leased by Northern. The
premises are utilized by Northern, the Company and other entities related to the
Company and/or the management. Expense in connection with the use of such
premises are allocated among the businesses that share the facility. At this
time, the Company does not have any proposals for new facilities for its
proposed operations.
Item 3. LEGAL PROCEEDINGS
In April 1997, the Company was named as co-defendant in a lawsuit against
Dr. Luther Brady, his affiliates and associates, his attorneys and an alleged
employee of the Company. The suit, filed by a former associate of Dr. Brady's,
alleges that this individual had certain prior contractual rights to acquire the
assets employed in the operation of the Company's radiation therapy center,
located in Voorhees, New Jersey. The plaintiff seeks unspecified damages against
the Company for alleged fraud, equitable fraud and tortious interference with
the contract. The Company has denied these allegations in its response.
In June 1997, the Company filed a third-party complaint against various
Brady affiliates and their attorneys, alleging that it has no knowledge of any
pre-existing rights to acquire the assets and that failure to disclose such
rights is a breach of numerous representations and warranties contained in the
asset purchase agreement. The Company seeks contribution and indemnity, damages,
partial recession of the various agreements entered into between the Company and
the Brady affiliates, injunctive relief and the return of certain monies held in
escrow.
In October 1997, Dr. Brady's and the Company agreed to allow Dr. Brady and
his affiliates to oversee daily operations and the related cash flows of the
three centers. Dr. Brady has submitted a schedule of the proceeds and uses
thereof, but to date there has been no full accounting. Dr. Brady alleges that
the centers have operated at a cash short fall during this period, which his
affiliates have subsidized.
Also in October 1997, the Brady affiliates returned $1,500,000 of the
funds being held in escrow to the Company's lender. These finds are being held
in escrow by the lender pending a resolution of the various legal issues
involved.
In addition to the aforementioned legal issues associated with the
acquisition of the "Brady" assets, the agreement called for the Company to
receive six times the weekly average of accounts receivable generated during the
period from January 1 to June 1, 1996, which the Company had previously
estimated at $350,000. The Company and Dr. Brady had been unable to arrive at an
agreed upon amount and as a result, the Company has reserved the amount in full
pending a resolution of the dispute.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
R.F. Management Corp.'s initial public offering closed on July 21, 1995.
Neither a cash or stock dividend has been paid or issued.
The Company's Common Stock is traded in the NASDAQ over-the-counter market
under the symbol RFMC. It's "A Warrant" and "B Warrant" are traded under the
symbols RFMCW and RFMCZ. As quoted in the Monthly Statistical Reports of the
National Association of Securities Dealers, Inc., the approximate high and low
bid prices for the year ended September 30, 1997 are as follows:
COMMON STOCK
Date High Low
---- ---- ---
10/96 1 3/4 15/16
11/96 1 13/16 1 1/8
12/96 1 1/8 3/4
01/97 1 3/4
02/97 13/16 1/2
03/97 3/4 1/2
04/97 13/16 11/16
05/97 27/32 5/8
06/97 1 1/32 3/4
07/97 1 3/16 15/16
08/97 1 1/4 21/32
09/97 1 7/16 1 1/16
A WARRANT
Date High Low
---- ---- ---
10/96 7/16 1/9
11/96 25/64 3/16
12/96 1/4 5/32
01/97 5/32 5/32
02/97 5/32 5/32
03/97 5/32 1/8
04/97 1/16 1/16
05/97 1/16 1/64
06/97 1/16 1/32
07/97 1/32 1/32
08/97 n/a n/a
09/97 n/a n/a
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B WARRANT
Date High Low
---- ---- ---
10/96 3/16 1/16
11/96 1/16 1/16
12/96 1/16 1/16
01/97 3/32 1/32
02/97 1/32 1/32
03/97 1/32 1/32
04/97 1/32 1/32
05/97 1/32 1/32
06/97 1/32 1/32
07/97 1/32 1/64
08/97 n/a n/a
09/97 n/a n/a
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Item 6. SELECTED FINANCIAL DATA
The selected financial data presented below as of September 30, 1997,
1996, 1995, 1994, 1993 and 1992 were derived from the Company's financial
statements. The information set forth below is qualified in its entirety by
reference to, and should be read in conjunction with, the financial statements
and related notes contained elsewhere in this Form 10-K.
Selected Statement of Operations Data:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenue 11,369,924 312,971 355,029 333,002 281,445 248,448
Operating expenses 13,198,711 1,579,288 458,047 331,622 299,853 220,657
Income (loss) from
operations (1,828,847) (1,170,018) (75,012) 1,380 (18,408) 27,791
Net income (loss) (1,624,720) (952,214) (50,244) 3,157 (10,394) 18,820
Earnings (loss)
per share (.48) (.29) (0.02) NIL NIL NIL
Selected Balance Sheet Data:
Working (deficit) (1,669,508) 2,905,272 4,513,996 102,599 151,742 151,381
Capital
Total Assets 16,013,081 3,876,151 4,814,154 158,096 160,113 157,721
Total Liabilities 14,359,621 697,971 683,760 98,432 105,606 92,820
Shareholders'
Equity 1,653,460 3,178,180 4,130,394 59,664 54,507 64,901
</TABLE>
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Item 7. 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, administrating and managing free-standing
outpatient ambulatory surgery centers. In 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.
The Company presently administers and manages three outpatient diagnostic
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 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. Mobile Medical Services
Limited provides mobile MRI, CT, Lithotripsy and Cardiac Catheterization
services in the Netherlands, United Kingdom, Italy and Germany. The payment
terms call for the Company to make payments directly to designated creditors on
behalf of Mobile. As of September 30, 1996, $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 the State of New
Jersey. MobileTec provides mobile MRI facilities to doctors, hospitals and
medical groups for which it receives a per-test or daily rental fee. The results
of operations
15
<PAGE>
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 $3,280,000. 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 $1,257,000. 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 of 11.6%, totalling approximately
$77,150 per month. Repayment of these notes commenced March 1, 1997.
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.
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 monthly installments plus interest at prime plus 1% on the unpaid balance.
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 $221,000. Atrium's financial position and
results of operations as and for the eight months ended September 30, 1997 have
been included in these consolidated financial statements.
16
<PAGE>
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
May 1, 1998. 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.
Results of Operations
Year ended September 30, 1997 compared to the year ended September 30,
1996:
Results of operations, which presents operating data for the Company and
Northern New Jersey Medical Management, Inc. reflects total operating revenues
of $988,600 as compared to approximately $675,600 or 46%. The increase in
management fees resulted from expansion associated with efforts to establish new
and existing surgical and diagnostic centers.
Results of operations from this medical construction business, which began
this year, reflects total revenue of $3,506,000.
Results of operations from medical services such as diagnostic imagery
business and radiation therapy, which resulted from acquisitions and ventures in
this past year, resulted in revenues of approximately $6,875,000.
Operating expenses for the year ended September 30, 1997 were
approximately $3,938,000, as compared to approximately $1,579,000 for the year
ended September 30, 1996, an increase of approximately $2,359,000. Management
attributes this increase to expenditures made for salaries, professional fees,
consulting expenses and travel and entertainment costs associated with efforts
to establish and manage new and existing surgical centers, cash flow for new
acquisitions and new entities.
Interest expense for the year ended September 30, 1997 was approximately
$868,000 as compared to approximately $56,000 for the year ended September 30,
1996. This is primarily attributed to the financing of the new acquisitions and
new entities.
17
<PAGE>
Interest income aggregated approximately $122,000 for the year ended
September 30, 1997 as compared to approximately $131,000 for the year ended
September 30, 1996. This decrease of approximately $9,000 is due to the
Company's decrease in the investment balance from the proceeds of the initial
public offering.
Net loss increased to approximately $1,625,000 or $.48 per share for the
year ended September 30, 1997 as compared to $952,000 or $.29 for the year ended
September 30, 1996, on a primary basis.
The explanation of this increase is a direct result of the increase in
expansion associated with the efforts to establish new and existing surgical
centers, as well as emergence into new markets.
The healthcare dollar for the past few years has been earmarked for
reductions. Although third party payors are shrinking the amount of healthcare
payments, quality care and highly technological equipment is still a priority.
With increases in the cost of highly technological equipment and the cost to
borrow money, profit margins will be reduced. It is the Company's aim to address
the effects of lower healthcare reimbursement and increased equipment costs by
handling a larger volume of patients at its newly acquired centers and at its
future centers through a managed care network.
Year ended September 30, 1996 compared to the year ended September 30,
1995:
Results of operations, which presents operating data for the Company and
Northern New Jersey Medical Management, Inc. reflects total operating revenues
of $313,000 as compared to approximately $355,000 in 1995, a decrease of
approximately $42,000 or 12%. The decrease in management fees resulted from a
decrease in the realization under third party reimbursement agreements at the
diagnostic imaging center it manages.
Operating expenses for the year ended September 30, 1996 were
approximately $1,579,000, as compared to approximately $458,000 for the year
ended September 30, 1995, an increase of approximately $1,121,000. Management
attributes this increase to expenditures made for salaries, professional fees,
consulting expenses and travel and entertainment costs associated with efforts
to establish and manage new and existing surgical centers.
Interest expense for the year ended September 30, 1996 was approximately
$56,000 as compared to approximately $14,000 for the year ended September 30,
1995. This is primarily attributed to the unpaid principal pertaining to the
acquisition of Northern on May 31, 1995 which accrues interest at the rate of
prime plus one percent. In addition, on April 30, 1996, a bank line of credit
was established bearing interest at prime plus one percent.
18
<PAGE>
Interest income aggregated approximately $175,000 for the year ended
September 30, 1996 as compared to approximately $44,000 for the year ended
September 30, 1995. This increase of approximately $131,000 is due to the
Company's investment balance from the proceeds of the initial public offering.
Net loss increased to approximately $952,000 or $.48 per share for the
year ended September 30, 1996 as compared to $50,000 or $.02 for the year ended
September 30, 1995, on a primary basis. The explanation of this increase is a
direct result of the increase in expansion associated with the efforts to
establish new and existing surgical centers.
The healthcare dollar for the past few years has been earmarked for
reductions. Although third party payors are shrinking the amount of healthcare
payments, quality care and highly technological equipment is still a priority.
With increases in the cost of highly technological equipment and the cost to
borrow money, profit margins will be reduced. It is the Company's aim to address
the effects of lower healthcare reimbursement and increased equipment costs by
handling a larger volume of patients at its newly acquired centers and at its
future centers through a managed care network.
Year ended September 30, 1995 compared to the year ended September 30, 1994:
Management fees for the year ended September 30, 1995 were approximately
$335,000 as compared to approximately $333,000 for 1994, an increase of
approximately $22,000. This increase is attributable to an increase in referrals
and the number of patients handled at the center.
Operating expenses for the year ended September 30, 1995 aggregated
approximately $458,000 as compared to approximately $331,000 in 1994, an
increase of approximately $127,000. Management attributes this increase
primarily to the establishment of a sales and marketing team and the
expenditures associated with their efforts to establish and manage new Surgical
Centers.
Interest income aggregated approximately $44,000 for the year ended
September 30, 1995 as compared to $0 for the year ended September 30, 1994. This
increase is due to the investment income earned on the proceeds of the initial
public offering.
Net loss for the year ended September 30, 1995 aggregated approximately
$50,000 as compared to net income of approximately $3,000 for the year ended
September 30, 1994. Explanation of this decrease can be derived from the
operational analysis provided above.
19
<PAGE>
Liquidity and Capital Resources
On December 15, 1994, the Company completed a Private Placement Offering
of its $.0001 par value Common Stock. The offering, which raised for the Company
$700,000 before expenses, called for the sale of up to 4,100,000 shares at a
price of $2.00 per share (giving effect to the 4-for-1 stock split on December
22, 1994). The Company closed the offering upon the sale of 350,000 shares
(giving effect to the 4-for-1 stock split on December 22, 1994), which raised
the Company $615,995, net of expenses.
On July 21, 1995, the Company's Initial Public Offering was declared
effective by the United States Securities and Exchange Commission and closed on
July 27, 1995. the offering included the sale of 977,500 shares of common stock,
977,500 A Warrants and 977,500 B Warrants. The Company received proceeds of
$4,205,899, net of expenses of $1,365,851.
The Company has a working capital surplus of $2,905,272 at September 30,
1996 when compared to a working capital surplus of $4,513,996 at September 30,
1995. This decrease is primarily the result of expenditures incurred in the
expansion and development of new business.
The Company experienced a net decrease in cash and equivalents aggregating
approximately $2,362,000 for the year ended September 30, 1996. This decrease
results primarily from the net loss and other operating activities aggregating
approximately $1,442,000, the investments in a joint venture, certificate of
deposit and fixed assets aggregating approximately $882,000 and the repayment of
$150,000 of notes payable to stockholders less advances from a line of credit of
approximately $168,000.
On April 30, 1996, the Company entered into a one year $400,000 line of
credit agreement with a bank which bears interest on the unpaid principal at
prime plus one percent (9.25%). The line is collateralized by a one year
certificate of deposit. As of September 30, 1996, the amount outstanding under
the line of credit aggregated approximately $168,000.
The Company believes that it has sufficient resources to support the
operations of Northern and begin its proposed surgical center operations and it
has working capital to administer and manage the centers for the next twelve
months. The Company believes that the net proceeds from the Initial Public
Offering will be sufficient to meet its plans with respect to the management and
the administration of sites in the next twelve months and its working capital
needs for the foreseeable future. It is the belief of the Company that the
normal cash flow generated from the administration and management from the
Centers will provide excess cash (capital) which will be used for expenses and
future capital needs.
20
<PAGE>
The Company further believes that the operations of Northern will provide
sufficient capital (net of expenses) and cash flows to repay the annual
installments of $150,000 for the loan payable, plus interest due to Northern's
former shareholders. If funds from Northern's operations are not sufficient for
repayment of the annual installments, the installments will be reduced to
$100,000 if the gross annual revenues fall below $200,000 and the amount left
unpaid by reason of such adjustment shall be forfeited.
There are no other known trends, demands, commitments or events that will
impact the Company's results of operations, liquidity and/or capital resources.
Item 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements of R.F. Management Corp. and
Subsidiaries as of September 30, 1997 and 1996 and for the three year period
ended September 30, 1997.
Page
----
Independent Auditor's Report F-1,F-2
Consolidated Financial Statements
Consolidated Balance Sheets F-3,F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholder's Equity F-6
Consolidated Statements of Cash Flows F-7,F-8
Notes to Consolidated Financial Statements F-9,F-16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 1. Changes in control of Registrant
N/A
Item 2. Acquisition of Disposition
N/A
Item 3. Bankruptcy or Receivership
N/A
Item 4. Changes in Registrant's Certifying Accountant
On March 9, 1998, the Company dismissed Weinick Sanders Leventhal & Co.,
LLP, located at 1515 Broadway, New York, New York 10036.
In connection with the recent fiscal year and subsequent interim period
preceding Weinick Sanders Leventhal & Co., LLP's dismissal there were
disagreements with Weinick Sanders Leventhal & Co., LLP, on matters of auditing
scope and procedure. These disagreements include: Management has not revaluated
the carrying value of its goodwill arising from operating entities that
sustained substantial losses since their Acquisition; Audited financial
statements for a material Acquisition for the prior two (2) years are
unavailable; Assets of a material subsidiary are no longer in control by the
company; Unable to obtain independent verifications of the amount of and
existence of material receivables from a party with whom the Company is involved
in litigation. As a result of these above issues, which also limited our audit
scope, Weinick Sanders Leventhal & Co., would of had to disclaim an opinion on
the registrants' financial statement unless all such issues were resolved in an
acceptable manner. These disagreements were not resolved to the former
accountant's satisfaction.
Weinick Sanders Leventhal & Co., LLP's report on the financial statements
for the past year did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified.
The Company has requested that Weinick Sanders Leventhal & Co., LLP
furnish them with a letter addressed to the Securities and Exchange Commission
(the "Commission") stating whether they agree with the statements made by the
Company in response to this item, and if not, stating the respects in which they
do not agree.
The decision to dismiss the accountants was recommended and approved by
the Board of Directors.
The Company has filed on form 8-K the above referenced information. The
Company has engaged Vincent J. Batyr & Co., located at 27 North Broadway,
Tarrytown, New York 10591 as its new Certified Public Accountant.
21
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are listed in the
table below and brief summaries of their business experience and certain other
information with respect of them are set forth thereafter:
Name Age Position
---- --- --------
Roger Findlay 50 Chairman of the Board of
Directors
Wayne P. Miller 47 President, Secretary
and Director
Louis A. D'Esposito 65 Vice President, Chief
Financial Officer and
Director (retired 10/1/97
as Vice President and Chief
Financial Officer) Director
Patrick O'Connor 44 Director
Each of the above officers and directors shall hold office until the next
annual meeting of the Company's shareholders and until a successor is selected
and qualified.
Roger Findlay is co-founder and has been Chairman of the Board of
Directors since its inception. He resigned as President of the Company,
effective May 1997. Since June 1990, Mr. Findlay is also co-founder, President
and Chairman of the Board of Modern Medical Modalities Corporation, a public
company listed on Nasdaq Small Capital Market, that leases magnetic resonance
imaging and computerized axial tomography equipment to hospitals and physicians
("Modern Medical"). Mr. Findlay since 1989 has also been co-founder of
Technology Services, Inc. a software support company for medical offices and
commercial accounts ("Technology Services"). Mr. Findlay from 1986-1989 was
President of Advacare, Inc., a practice management and physician billing
company. He was co-founder and President of Effective Management Services, Inc.,
from 1984 to 1986, which provided facilities management and custom programming
for hospitals, universities and physician groups. Mr. Findlay from 1984 to 1986
was also co-founder and President of Medical Accounts Management Services, a
software development company. Additionally, from 1986, he has been founder and
President of Northern New Jersey Medical Management, Inc., a general partner of
a diagnostic imaging center. From 1984 to 1986, Mr. Findlay was Chief Operating
Officer of NMR of America, Inc., a publicly traded Company engaged in MRI sites.
Mr. Findlay from 1972 to 1986 was President and co-owner of Medical Billing
22
<PAGE>
Services. Mr. Findlay will devote his full time to the affairs of the Company.
Wayne P. Miller was elected President of the Company, effective May 1997.
He has been Secretary and Director of the Company since December 1995. Mr.
Miller from December 1989 to November 1995 was employed by Modern Medical
Modalities Corp., a company that leases magnetic resonance imaging and
computerized axial tomography equipment to hospitals and physicians, and then by
its wholly owned subsidiary Medical Marketing & Management Inc. as National
Marketing/Sales Director. Since 1991 Mr. Miller has been employed by The
Physicians Network, a company that provides turnkey medical billing systems to
billing companies, hospitals and physicians. From 1991 to 1995, Mr. Miller was
an independent consultant providing billing and computerized consulting services
to physicians and hospitals. Mr. Miller from 1990 to 1991 was Vice President of
Billing for Healthnet a company engaged in the business of physician billing and
receivable management. From 1986 to 1990, Mr. Miller was Vice President of
Marketing with HealthCare Technologies, a company specializing in total turnkey
physician billing solutions. Mr. Miller from 1983 to 1986 was contracted by
Health Corp. of the Archdiocese of Newark as Vice President of PrimeMark, to
establish a hospital based collection agency for three hospitals and create a
physician fee-for-service billing company for the hospitals' billing procedures.
Louis A. D'Esposito was Vice President, Chief Financial Officer and
Director of the Company since October 1995 and has retired September 1997. Mr.
D'Esposito is an independent director of the Company. From 1993 to 1995, Mr.
D'Esposito was the Eastern Regional Manager of DVI Financial Services, Inc., an
equipment leasing and finance company specializing in the leasing and financing
of high-tech medial equipment. Mr. D'Esposito from 1983 to 1993 was the Regional
Manager of U.S. Concord, Inc. a division of the Hong Kong and Shanghai Banking
Corporation, also specializing in the leasing and financing of medical
equipment.
Mr. O'Connor is currently an independent director of the Company. Mr.
O'Connor is also President of Medical Martketing and Management Inc., a
wholly-owned subsidiary of Modern Medical. Mr. O'Connor joined Modern Medical in
October 1994 as Vice-President of Sales, Marketing and Project Development.
Previous experience has been in the role of acting President of Modern Medical
from 1/96 thru 7/97. Other positions held MRI Sales Specialist, Account
Executive and Account Specialist with Picker International from August 1982
until October 1994. Other positions held were Hospital Radiological
Administrator and Radiological Technician.
23
<PAGE>
Executive Compensation
The following table sets forth the executive compensation and distribution
paid to each executive officer of the Company during the Year ended September
30, 1997.
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
- - - - ------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- - - - ------------------------------------------------------------------------------------------------
Name and Restricted
Principal Fiscal Other Stock Options/ LTIP All Other
Other Position Year Salary Bonus Compensation Awards SARSs Payouts Compensation
- - - - -------------- ---- ------ ----- ------------ ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger Findlay
Chairman and 1997 115,392 -- -- -- -- -- --
Director
Wayne P. Miller
President, 1997 86,183 -- -- -- -- -- --
Secretary
and Director
Louis A. D'Esposito
Vice President, 1997 63,345 -- -- -- -- -- --
Chief Financial
Officer and Director
- - - - ------------------------------------------------------------------------------------------------
</TABLE>
Employment Contracts.
In June 1997, the Company entered into an employment agreement with Wayne
P. Miller which provides for a five year term of employment, commencing in June
1997 at a salary of $85,000 for each year. The agreement provides that Mr.
Miller is to receive an amount equal to three times his annual salary if this
contract is cancelled by the Company.
24
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of this date of this
Prospectus, and as adjusted to reflect the sale of the Securities offered
hereby, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of Common Stock, by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's directors; and (iii) all
directors and officers of the Company as a group.
Name Amount
and Address and Nature
of Beneficial of Beneficial
Owner Ownership(1)
- - - - ------------- -------------
Roger Findlay 236,096
95 Madison Avenue
Morristown, NJ
Wayne P. Miller 40,000
8 Fredon-Greendale Road
Newton, NJ 07860
Louis A. D'Esposito ---
29 Glen Drive
Bardonia, NY 10954
Patrick O'Connor ---
255 Serpentine Drive
Bayville, NJ 08721
Officers and 998,000
Directors
as a group
(4 Persons)
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date of this Prospectus upon the exercise of warrants or
options.
25
<PAGE>
Item 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The Company was incorporated as R.F. Management Corp. in the State of New
York on August 4, 1994, for the purpose of providing free standing or outpatient
centers performing ambulatory surgery.
In May 1995, the Company entered into a Stock Acquisition Agreement (the
"Agreement") with Northern New Jersey Medical Management, Inc. ("Northern") a
corporation formed in the State of New Jersey in January 1986 with offices
located at 95 Madison Avenue, Morristown, New Jersey 07960. Northern administers
and manages a free standing outpatient center performing diagnostic services.
The sole officers, directors and principal shareholders of Northern were Roger
Findlay and Gregory Maccia, who are officers, directors and principal
shareholders of the Company.
Pursuant to the terms of the Agreement, the Company purchased all of the
issued and outstanding shares of common stock of Northern. In consideration, the
Company will pay Messrs. Findlay and Maccia an aggregate of $750,000 in
accordance with the following terms:
$150,000 paid upon execution of the agreement; the balance of
$600,000 will be paid in the form of a promissory note, with
interest at prime plus 1% on the unpaid principal balance, payable
as follows:
$150,000 on January 30, 1996;
$150,000 on January 30, 1997;
$150,000 on January 30, 1998;
$150,000 on January 30, 1999.
In the event that the gross annual revenue for any calendar year from
1995-1998 for Northern falls below $200,000 then the payment due on January 30
of the subsequent year will be reduced by 1/3, and the amount left unpaid by
reason of such adjustment shall be forfeited. The Company and Northern further
agreed, that all payments pursuant to the promissory note will only be
distributed from operating revenues and not from the Use of Proceeds of the
offering. The Company will not use or finance the purchase of Northern with
proceeds from the offering.
In addition, both the Company and Northern made standard representations
and warranties with respect to their respective operations and affairs. Northern
now operates as a wholly owned subsidiary of the Company. Northern further
represented and warranted that its present contract in Union, New Jersey will
remain in full force and effect for an additional eleven years.
26
<PAGE>
As a result of the acquisition of Northern, Messrs. Findlay and Maccia
have received and will continue to receive financial benefits consisting of
aggregate cash payments totalling $750,000. The Company did not obtain a
fairness opinion in connection with the Northern purchase price. The Company
relied upon its review of historical financial information as well as projected
future operation in determining the $750,000 purchase. Accordingly, there is no
assurance that unrelated parties would not have paid less for Northern than the
Company paid. Neither Mr. Findlay nor Mr. Maccia voted with respect to the
Company's acquisition of Northern. Mr. Goldberg, who was not affiliated with
Northern, approved the Company's purchase of Northern shares.
27
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The financial statements for R.F. Management Corp.
and subsidiaries are included in Part II Item 8 -
See Index to Financial Statements on Page F.
(a)(2) The following financial statements for Union
Diagnostic Facilities Group, L.P. are submitted
herewith:
Page
----
Union Diagnostic Facilities Group, L.P.
Independent Auditors' Report F-17
Financial Statements
Balance Sheets F-18, F-19
Statements of Income F-20
Statements of Partners' Capital F-21
Statements of Cash Flows F-22
Notes to Financial Statements F-23, F-27
(a)(3) The following schedules for the years ended
September 30, 1996, 1995 and 1994
R.F. Management Corp.
Schedule IV - Indebtedness of and to Related
Parties - Not Current F-28
Union Diagnostic Facilities Group, L.P.
Independent Auditors' Report on Accompanying
Information F-29
Schedule IV - Indebtedness of an to Related
Parties - Not Current F-30
Schedule VIII - Valuation and Qualifying
Accounts F-31
(a)(4) Exhibits. Not Applicable.
(b) Reports on Form 8-K. Not Applicable
(c) Exhibits. Not Applicable.
Item 14(a)
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
By /s/Roger Findlay
-------------------------------------
Roger Findlay
Chairman of the Board of Directors
Date
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/Roger Findlay
-------------------------------------
Roger Findlay
Chairman of the Board of Directors
Date
-------------------------------------
* * *
By /s/Wayne P. Miller
-------------------------------------
Wayne P. Miller
Director, President and Secretary
Date
-------------------------------------
* * *
By /s/Louis A. D'Esposito
-------------------------------------
Louis A. D'Esposito
Director
Date
------------------------------------
By /s/Patrick O'Connor
-------------------------------------
Patrick O'Connor
Director
29
<PAGE>
To the Board of Directors and Stockholders
of R.F. Management Corp.
We have audited the accompanying consolidated balance sheets of R.F.
Management Corp. and Subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997. 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 audits. We did not audit the financial statements of Northern New Jersey
Medical Management, Inc., a wholly-owned subsidiary, which statements reflected
total assets of $520,373 and $255,388, as of September 30, 1997 and 1996, ;and
total revenues of $341,292, $309,067, and $355,029 for the three year period
ended September 30, 1997. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
amounts included for Northern New Jersey Medical Management, Inc., is based
solely on the report of the other auditors.
We conducted our audits 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
misstatements. 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 audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of R.F. Management Corp. and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1887 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Vincent J. Batyr & Co.
Vincent J. Batyr & Co.
Certified Public Accountants
Tarrytown, New York
March 6, 1998
F-1
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
-------------------------
1997 1996
----------- -----------
Current assets:
Cash and cash equivalents $ 523,772 $ 2,258,333
Certificates of deposit 707,073 408,266
Accounts receivable 3,923,513 296,893
Note receivable - current portion 39,827 --
Loans receivable - stockholders and officers 32,024 --
Due from affiliates -- 19,743
Loans receivable 33,367 --
Deferred income taxes 5,650 218,798
Other current assets 107,285 101,210
----------- -----------
Total current assets 5,372,511 3,303,243
----------- -----------
Other assets:
Note receivable - net of current portion 441,152 --
Equipment (net of accumulated depreciation
of $617,821 and $24,969, respectively) 5,835,756 130,730
Investment in a limited partnership 10,250 11,120
Investment in joint venture 350,000 350,000
Deferred consulting fees 810,599 --
Deposits and other assets 245,605 80,866
Goodwill (net of accumulated amortization of
$149,554) 2,865,901 --
Organization costs (net of accumulated
amortization of $49,696 and $ - , respectively) 81,307 192
----------- -----------
Total other assets 10,640,570 572,908
----------- -----------
$16,013,081 $ 3,876,151
=========== ===========
See Notes to Consolidated Financial Statements
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current liabilities:
Lines of credit $ 397,000 $ 167,700
Accounts payable 2,127,854 47,505
Consulting fees payable - current portion 45,591 --
Accrued expenses and other current liabilities 905,894 32,766
Due to affiliates 947,816 --
Deferred income taxes 61,605 --
Notes payable - equipment - current portion 2,099,342 --
Notes payable - related parties - current portion 456,917 150,000
------------ ------------
Total current liabilities 7,042,019 397,971
------------ ------------
Other liabilities:
Notes payable - equipment - net of current portion 4,756,021 --
Notes payable - related parties -
net of current portion 1,546,798 300,000
Consulting fees payable - net of current portion 990,808 --
------------ ------------
Total other liabilities 7,293,627 300,000
------------ ------------
Minority interest in equity of subsidiaries 23,975 --
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.0001 par value,
Authorized - 15,000,000 shares
Issued and outstanding - 3,460,833 shares
and 3,327,500 shares, respectively 346 333
Additional paid-in capital 4,223,628 4,123,641
Deficit (2,570,514) (985,794)
------------ ------------
Total stockholders' equity 1,653,460 3,178,180
------------ ------------
$ 16,013,081 $ 3,876,151
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------
September 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Net service revenue $ 6,875,310 $ -- $ --
Construction revenue 3,506,025 -- --
Management fees 988,589 312,971 355,029
------------ ------------ ------------
Total revenues 11,369,924 312,971 355,029
------------ ------------ ------------
Costs and expenses
Operating expenses 8,937,626 1,579,288 458,047
Construction costs 2,722,924 -- --
Interest 868,305 55,615 14,259
Depreciation and amortization 792,102 22,817 1,836
Interest income (122,186) (174,731) (44,101)
------------ ------------ ------------
Total costs and expenses 13,198,711 1,482,989 430,041
------------ ------------ ------------
Loss from operations (1,828,847) (1,170,018) (75,012)
Gain on sale of subsidiary 489,228 -- --
------------ ------------ ------------
Loss from operations
before income tax (provisions) recovery (1,339,619) (1,170,018) (75,012)
Income tax (provision) recovery (320,932) 217,724 23,398
------------ ------------ ------------
Loss from operations before partnership income
(loss) (1,660,551) (952,294) (51,614)
Income (loss) from a limited partnership -
net of income taxes (515) 80 1,370
------------ ------------ ------------
Loss before minority interest (1,661,066) (952,214) (50,244)
------------ ------------ ------------
Minority interest in income from subsidiaries 36,346 -- --
------------ ------------ ------------
Net loss $ (1,624,720) $ (952,214) $ (50,244)
============ ============ ============
Primary:
Weighted average shares outstanding 3,415,902 3,327,500 3,123,406
============ ============ ============
Loss per share $ (.48) $ (.29) $ (.02)
============ ============ ============
Fully diluted:
Weighted average shares outstanding 5,370,902 5,282,500 5,282,500
============ ============ ============
Loss per share $ (.30) $(.18) $ (.01)
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
-----------------------------------------
September 30,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(1,624,720) $ (952,214) $ (50,244)
Adjustments to reconcile net income
(loss) to net cash provided by
(used) in operating activities
Depreciation and amortization 792,102 22,817 1,836
Deferred income taxes (151,543) (218,347) (28,159)
Changes in operating assets and
liabilities
Accounts receivable (3,566,971) (206,275) 33,473
Other current assets (6,075) (84,785) (34,284)
Accounts payable and accrued
expenses 2,999,068 336 78,184
Income taxes payable (3,825) 3,825
Other receivables (12,281) -- --
Other payables 2,099,342 -- --
----------- ----------- -----------
Net cash provided by (used
in)operating activities 409,624 (1,442,293) 5,631
----------- ----------- -----------
Investing activities:
Fixed asset additions (6,347,574) (123,357) (28,500)
Investment in a limited partnership (870) (135) (2,317)
Investment in a joint venture -- (350,000) --
Investment in a certificate of deposit (298,807) (408,266) --
Acquisition of subsidiary (3,015,455) -- (150,000)
Note receivable (480,979) 20,000 (20,000)
Deposits and other assets (164,739) (75,836) --
Advances from affiliates 947,816 -- --
----------- ----------- -----------
Net cash used in
investing activities (9,360,608) (937,594) (200,817)
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the Years Ended
-----------------------------------------
September 30,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Financing activities:
Organizational expenses $ 81,115 $ -- $ (268)
Deferred offering costs -- -- 1,116
Repayment to stockholders (306,917) (150,000) (15,000)
Sale of common stock 100,000 -- 4,824,774
Advances from line of credit 229,300 167,700 --
Additions to long term debt 6,993,627 -- --
----------- ----------- -----------
Net cash provided by
financing activities 7,097,125 17,700 4,810,622
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,734,561) (2,362,187) 4,615,436
Cash and cash equivalents - beginning 2,258,333 4,620,520 5,084
----------- ----------- -----------
Cash and cash equivalents - end $ 523,772 $ 2,258,333 $ 4,620,520
=========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid during year for
Interest $ 49,418 $ 9,672 $ --
Income taxes $ 600 $ 3,825 $ 937
Noncash transactions
Issuance of notes payable to
stockholders in connection with the
acquisition of subsidiary $ -- $ 600,000
Contribution of note payable -
shareholders to additional paid in
capital $ -- $ 46,200
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Retained
Number of Common Paid-In Subscriptions Earnings
Shares Stock Capital Receivable (Deficit) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ 2,000,000 $ 200 $ 5,680 $ (2,880) $ 56,664 $ 59,664
Net proceeds from issuances of
common stock - private
placement offering (net of
expenses of $84,005) 350,000 35 615,960 -- -- 615,9995
Issuance of common stock -
collection of subscription
receivable -- -- -- 2,880 -- 2,880
Contributions of note payable -
stockholders -- -- 46,200 -- -- 46,200
Acquisition of Northern New
Jersey Medical Management,
Inc. in a manner similar to
a pooling of interests -- -- (750,000) -- -- (750,000)
Net proceeds from issuance of
common stock - initial public
offering (net of expenses of
$1,365,851) 977,500 98 4.205.801 -- -- 4,205,899
Net loss for the year ended
September 30, 1995 -- -- -- -- (50,244) (50,244)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1996 3,327,500 333 4,123,641 -- 6,420 4,130,394
Issuance of common stock for the
acquisition of Atrium
Radiology Corp. 133,333 13 99,987 -- -- 100,000
Net loss for the year ended
September 30, 1997 -- -- -- -- (1,624,720) (1,624,720)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 $ 3,460,833 $ 346 $ 4,223,628 $ -- $(2,570,514) $ 1,653,460
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 1 - GENERAL AND ACCOUNTING POLICIES
(a) Organization:
R.F. Management Corp. ("R.F.") was incorporated in the State of New York
on August 4, 1994. On December 22, 1994, pursuant to an action of the
Board of Directors, R.F. affected a 4-for-1 stock split of its $0.0001 par
value common stock. The financial statements contained herein have been
restated to reflect the stock split and all references to shares issued or
outstanding in the accompanying financial statements are on a post-split
basis.
(b) Principal Business Activity:
R.F.'s business is to provide management advisory and other services in
connection with the establishment and operation of free standing,
outpatient centers performing ambulatory surgery, diagnostic imaging and
radiation therapy. R.F. offers a full range of services, including
contract negotiations, site selection, equipment procurement,
construction, office personnel and physician staffing, office management,
patient scheduling, patient billing, cash collections, personnel
management and marketing.
F-8
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
(c) Summary of Significant Accounting Policies:
(1) Consolidation Policy:
The consolidated financial statements include the accounts of R.F.
Management Corp. ("R.F."), its wholly-owned subsidiaries, Northern
New Jersey Medical Management, Inc. ("Northern"), R.F. Management
Corp. of Toms River ("RFTR"), Brady Cancer Centers, Inc. ("BCC"),
and Open MRI and Diagnostic Services of Toms River, Inc. ("Open
MRI"), and its majority owned subsidiaries, Empire State Imaging
Associates, Inc. ("Empire"), Mobiletec, Inc. "(Mobiletec"), Hamilton
McGregor International, Inc. ("Hamilton"), and Atrium Radiology
corp. ("Atrium"), in which R.F. has a 65%, 75%, 52% and 52%
interest, respectively. R.F., Northern, RFTR, BCC, Open MRI, Empire,
Mobiletec, Hamilton and Atrium are hereafter collectively referred
to as ("the Company"). All significant intercompany transactions and
accounts have been eliminated in consolidation.
(2) Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
Company places its cash with high credit quality financial
institutions which at times, may be in excess of the FDIC insurance
limit.
(3) Accounts Receivable:
Accounts receivable is stated net of contractual allowances. Based
upon its past history, the Company estimates the amount of the
accounts receivable it does not expect to receive. The Company
values its uncollected accounts receivable as part of its
determination of profit and constantly reviews the valuation. The
continuing review and gathering of additional information, as well
as changing reimbursement rates, may cause adjustment.
F-9
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 1 - GENERAL AND ACCOUNTING POLICIES. (Continued)
(c) Summary of Significant Accounting Policies: (Continued)
(4) Equipment:
Furniture, fixtures, equipment and leasehold improvements are stated
at cost. Depreciation and amortization are provided for, generally
using the straight-line method over the lease term or the estimated
useful lives of the related asset, 5 to 7 years for office
equipment. Expenditures which are not expected to extend the
economic life of an asset are expensed as incurred.
(5) Goodwill:
The Company has recorded goodwill relating to the acquisition of
subsidiaries which is being amortized over a period of fifteen
years.
(6) Organizational Expenses:
Organizational expenses incurred in the set-up of the Company and
its subsidiaries have been capitalized and will be amortized over a
period of 5 years from the commencement of operations.
(7) Deferred Offering Costs:
All deferred offering costs incurred by the Company in conjunction
with the private placement offering and initial public offering
(IPO) have been charged to additional paid-in capital upon the
completion of the offering (see Note 3).
F-10
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 1 - GENERAL AND ACCOUNTING POLICIES. (Continued)
(c) Summary of Significant Accounting Policies: (Continued)
(8) Revenue Recognition:
Revenue, consisting primarily of management fees generated through
contracting agreements between the Company and doctors or physician
groups practicing at the Company's facilities, are recognized when
the services are rendered. The Company is responsible for the
operational management of the facility including non-medical
personnel, acquiring or leasing medical equipment, leasing a
facility procuring all necessary supplies and billing and collection
services.
Additionally revenue is derived from construction services rendered
through its subsidiary, Hamilton and is recognized on an accrual
basis under the percentage of completion method of accounting.
(9) Use of Estimates:
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.
F-11
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 1 - GENERAL AND ACCOUNTING POLICIES. (Continued)
(c) Summary of Significant Accounting Policies: (Continued)
(10) Income Taxes:
The Company adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) NO. 109,
"Accounting for Income Taxes", for financial statements reporting
purposes, which required a change from the deferred method (APB 11)
to the assets and liability method of accounting for income taxes.
The assets and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities and the effect of future
tax planing strategies to reduce any deferred tax liability. Under
this method, deferred tax liabilities and assets are determined
based on the differences between the financial statement carrying
amounts and tax basis of assets and liabilities using enacted rates
in effect in the years in which the differences are expected to
reverse. The adoption of SFAS 109 did not have a material impact on
the consolidated financial statements.
(11) Loss Per Share:
Loss per share has been computed by dividing the net loss by the
weighted average number of common shares and common equivalent
shares outstanding during each period.
(12) Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, contracts
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.
F-12
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 2 - GOING CONCERN.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has a working
capital deficiency of $1,669,508 as of September 30, 1997, and has
sustained continued losses from operations, which raise substantial doubt
about the Company's ability to continue as a going concern.
On September 18, 1997 the Company's Board of Directors resolved to pursue
a potential merger with Modern Medical Modalities Corp., and affiliated
company. That plan is presently in the exploratory stage.
The Company has also begun implementation of a restructuring plan for its
subsidiaries and believes this plan will make the Company profitable in
future periods. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of
liabilities that might result should the Company be unable to continue as
a going concern.
An agreement has been negotiated with the principle of Mobile Medical
Services Ltd. to convert the stock purchase to a note receivable with the
Company maintaining the stock and assets as collateral. The payments are
to commence in March, 1998. The general terms call for a $20,000 payment
in March and for quarterly payments of $10,000 increasing to $20,000.
During August, 1998, management expects to finalize the Brady equipment
payments which will result in an additional $45,000 in monthly net cash to
Brady Cancer Centers, Inc.
Additional cash will be realized from a proposed offering of Hamilton
McGregor International, Inc.
The Company has also entered into a marketing agreement with an unrelated
facility. This agreement will bring an additional $4,000 a month to the
Company over the next nine months. In addition, the Company has been
approached by a facility in Scranton, PA to provide management, marketing
and billing for a monthly fee and percentage of collections.
F-13
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 2 - GOING CONCERN. (Continued)
The Company is in the process of financing $200,000 of Union Diagnostic's
accounts receivable which will go toward paying the Company its accrued
management fees. The time frame is approximately the third week in March,
1998.
The Company's officers have voluntarily agreed to forego drawing a salary
until cash flow is again positive. This will result in a reduction of
approximately $12,000 of salaries per month.
Effective March 5, 1998 the Company and its 52%-owned subsidiary,
Hamilton-McGregor International, Inc. ("Hamilton"), restructured its note
payable to a related party. Under the terms of the amended agreements, the
principal amount of the not would be reduced to $200,000 in cash, payable
over thirty-six months, plus interest calculated at prime plus 1% and a
thirty-six month option to purchase 250,000 shares of Hamilton stock at
$.05.
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS.
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 terms
of the agreement called for the Company to make payments directly to
designated creditors on behalf of Mobile. As of September 30, 1997,
$350,000 is reflected as an investment in joint venture.
On November 15, 1996, the Company acquired seventy-five percent (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 or daily rental fee. The results of operations from its
inception are included in these consolidated financial statements.
F-14
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
On December 1, 1996, the Company acquired certain assets and assumed
certain liabilities form 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 totaling
approximately $837,000. The fair value of the assets acquired aggregated
approximately $3,280,000. 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 $1,257,000. 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%, totaling approximately
$77,150 per month. Repayment of these notes commenced March 1, 1997.
In March, 1997, the Company formed a new wholly-owned subsidiary, Brady
cancer Centers, Inc. and transferred to assets acquired from Luther W.
Brady & Associates, P.C. and Bucks Radiation Oncology, Inc. to the
subsidiary.
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 monthly installments plus interest at
prime plus 1% on the unpaid balance.
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 of approximately $350,000. Hamilton's fiscal year
ends on June 30. Hamilton's financial position and results of operations
as of and for the six months ended June 30, 1997 have been included in
these consolidated financial statements.
F-15
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
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 $221,000. Atrium's financial position and results of
operations as of and for the eight months ended September 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., and 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 May 1, 1998.
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.
F-16
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 4 - RESTRICTED CASH.
Restricted cash consists of two certificates of deposit in the aggregate
principal sum of $700,000, which amounted to $707,073 including accrued
interest at September 30, 1997. The first certificate, in the principal
sum of $400,000, has been pledged as collateral to secure the Company's
revolving line of credit with a bank (See Note 10) and matures on April
30, 1998. The second certificate in the principal sum of $300,000, has
been pledged as collateral to secure a standby letter of credit for the
benefit of DVI Financial Services, Inc. and matures on February 20, 1998.
The certificates of deposit earn interest at the annual rates of 5.16% and
4.69%, respectively.
NOTE 5 - NOTE RECEIVABLE.
In conjunction with the aforementioned sale in March 1997 of Open MRI and
Diagnostic Services of Toms River, Inc. ("Open MRI"), the Company received
a 75% interest in a note receivable of $750,000, payable in 30 equal
monthly installments of $25,000. Payments under the note are to commence
90 days after the opening of the center, which is expected to be April 1,
1998. The note bears no stated rate of interest and has therefore been
discounted using an interest rate of 11% (the rate at which the Company
could presently borrow funds) to arrive at its present value.
The present value and annual maturities of the note receivable at
September 30, 1997 is as follows:
Face amount of note $ 750,000
Less: Discount @ 11% 108,696
----------
Present value of future payments 641,304
Less: Affiliate portion in note 160,326
----------
$ 480,978
==========
F-17
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 5 - NOTE RECEIVABLE. (Continued)
Annual maturities are as follows:
Years ending
September 30, 1997
1998 $ 39,827
1999 185,648
2000 207,131
2001 48,372
----------
$ 480,978
==========
NOTE 6 - EQUIPMENT
Furniture, fixtures, equipment and leasehold improvements consist of the
following:
September 30,
1997 1996
Buildings $ 680,000 $ --
Equipment 5,158,510 118,990
Furniture and fixtures 337,190 34,978
Leasehold improvements 184,588 1,731
Computer equipment 106,330 --
Vehicles 186,209 --
---------- ----------
6,652,827 155,699
Less: Accumulated depreciation and
amortization 817,071 24,969
---------- ----------
$5,835,756 $ 130,730
========== ==========
F-18
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 7 - 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 income from the limited partnership
monthly.
Effective January 1, 1995, the limited partnership changes its reporting
period from December 31 to September 30, for financial statement purposes.
The following is a summary of condensed financial data from the audited
financial statements of the limited partnership in which the Company has
an investment at September 30, 1997, 1996 and 1995 and December 31, 1994,
1993 and 1992:
Total Long-Term Total Total
Assets Debt Liabilities Capital
----------- -------------- ------------ -----------
09/30/97 $1,173,998 $ 122,857 $ 881,091 $ 272,907
09/30/96 821,822 102,702 402,117 419,704
09/30/95 703,809 56,175 251,117 452,692
12/31/94 629,545 69,004 240,138 389,407
12/31/93 331,949 - 99,287 232,662
Assets Liabilities
Non- Non-
Current Current Current Current
----------- -------------- ------------- ---------
09/30/97 $ 648,785 $ 525,213 $ 758,234 $ 122,857
09/30/96 454,465 367,356 299,415 102,702
09/30/95 445,849 257,960 194,942 56,175
12/31/94 405,566 223,979 171,134 69,004
12/31/93 214,488 117,461 99,287 -
F-19
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 7 - INVESTMENT IN A LIMITED PARTNERSHIP. (Continued)
Net Allocation
Net Income of Income
Revenues (Loss) (Loss)
-------------- ------------- -----------
09/30/97 $1,637,445 ($87,047) ($870)
09/30/96 1,642,128 13,637 135
09/30/95 1,243,165 169,285 1,693
12/31/94 1,648,846 249,495 2,495
12/31/93 1,454,038 181,800 1,818
12/31/92 1,341,140 155,461 1,555
Gross profit and income from continuing operations does not differ from
net income. The partnership has no redeemable securities or minority
interest.
NOTE 8 - DEFERRED CONSULTING FEES.
In connection with the asset purchase agreement between the Company and
Luther W. Brady & Associates, P.C. et al., as described more fully in Note
3, the Company has entered into a consulting agreement with Dr. Brady.
Under the terms of the agreement, Dr. Brady has agreed to make himself
available for consultation with regard to acquisitions, design,
operations, staffing, patient care, medical education and equipment
acquisitions and installation for the existing and any future radiation
treatment centers.
The agreement is for an initial term of six years and is automatically
renewable for one year periods thereafter. The Company is obligated to pay
Dr. Brady whether he is called upon to render these services or not and
regardless of any incapacity or event of death. Under the initial term of
the agreement the Company has agreed to pay Dr. Brady $250,000 a year,
payable in equal monthly installments of $20,833, for a total of
$1,500,000.
As a result of its contractual obligation to pay Dr. Brady or his
successors, the Company has recorded the obligation on a present value
basis and the corresponding deferred asset derived therefrom.
F-20
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 8 - DEFERRED CONSULTING FEES. (Continued)
As of September 30, 1997, the present value of deferred consulting fees,
using an assumed interest rate of 11.7% amounted to $810,599. The annual
amortization of the deferred asset is as follows:
Years Ending
September 30,
-------------
1998 $ 156,890
1999 156,890
2000 156,890
2001 156,890
2002 156,890
2003 26,149
NOTE 9 - LINE OF CREDIT.
The Company established a revolving line of credit with a bank to borrow
up to $400,000, with interest charged on a monthly basis at the bank's
prime rate plus 1%. The line is collateralized by a certificate of deposit
which matures on April 30, 1998, the expiration date of the line. As of
September 30, 1997 and 1996, amounts outstanding under this facility
totaled $397,000 and $168,000, respectively.
F-21
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 10 - NOTES PAYABLE.
Notes payable consist of the following:
A $200,000 note payable to a bank, bearing
interest at prime plus 1% maturing on December
31, 1997. The Company and the bank
subsequently established a monthly payment
schedule of $20,000 of principal plus interest
for the repayment of the note commencing on
October 30, 1997. If all payments are paid as
agreed, the bank agrees to extend the maturity
date until . The loan is guaranteed
by certain stockholders $ 200,000
Capital lease obligations for the acquisition
of equipment amounting to $9,101,243, payable
in monthly installments of $394 to $61,350,
including interest at a rate varying from 9.00%
to 14.79% per annum. 6,655,362
-----------
6,855,362
Less: Current maturities 2,099,341
-----------
$ 4,756,021
===========
The annual principal maturities under these notes are as follows:
Years Ending
September 30,
-------------
1998 $ 2,099,341
1999 1,826,183
2000 1,335,341
2001 1,032,845
2002 561,652
-----------
$ 6,855,362
===========
F-22
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 11 - NOTES PAYABLE - RELATED PARTIES.
Notes payable - related parties consists of the following:
A $225,000 note issued in connection with the
purchase of Empire State Imaging Associates,
Inc., payable in 9 monthly installments of
$25,000 plus 1% interest on the unpaid balance. $ 100,000
A $600,000 note issued in connection with the
purchase of Northern New Jersey Medical
Management, Inc. payable in 4 annual installments
of $150,000, which bears interest at prime plus
1% per month. 300,000
A $600,000 note issued in connection with the
purchase of Hamilton McGregor International,
Inc., payable without interest payable in 4
annual installments of $150,000, discounted to
its present value using an assumed interest rate
of 11%. 503,760
A $1,000,000 note issued in connection with the
purchase of Prime Contracting Corp. See Note
16(d) 1,000,000
A $113,181 loan advanced from a stockholder,
payable on demand bearing interest at 9.5% per
annum. 99,955
-----------
$ 2,003,715
===========
F-23
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 11 - NOTES PAYABLE - RELATED PARTIES. (Continued)
The annual principal maturities under these notes are as follows:
Years Ending
September 30,
-------------
1998 $ 456,917
1999 1,268,727
2000 131,788
2001 146,283
-----------
$ 2,003,715
===========
NOTE 12 - NOTE PAYABLE - CONSULTING
In conjunction with the acquisition of the "Brady" assets, the Company
entered into a consulting agreement with Dr. Brady for an initial term of
6 years at an annual compensation of $250,000 per year payable in monthly
installments of $20,833, for a total of $1,500,000. The agreement is
automatically renewable for one year increments unless either party
provides written notice of their intent to terminate at least 180 days
prior to the expiration of any term.
The company is obligated to pay Dr. Brady or his designees whether or not
he renders these services, regardless of incapacity or death. Therefore,
the Company has recorded the liability on its books, discounted to its
present value using an assumed interest rate of 11.6% (the rate at which
the Company could borrow funds), which amounted to $1,036,399 at September
30, 1997.
The term of the agreement was due to commence on December 1, 1996, but as
a result of the initial delay in closing on the asset purchase agreement
and the subsequent litigation as described more fully in Note 18, the
Company anticipates it will begin making payments under this agreement
commencing in March 1998.
F-24
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 12 - NOTE PAYABLE - CONSULTING. (Continued)
Future annual payments due under this agreement are as follows:
Years Ending
September 30,
-------------
1998 $ 166,667
1999 250,000
2000 250,000
2001 250,000
2002 250,000
Thereafter 333,333
----------
1,500,000
Less: Amount representing
interest 463,601
----------
$1,036,399
==========
NOTE 13 - INCOME TAXES.
Loss before income taxes, income tax benefit, partnership income, income
tax expense on partnership income and net loss are as follows:
September 30,
------------------------------------------------
1997 1996 1995
---------------- -------------- --------------
Loss before income taxes $ (1,339,619) $ (1,170,018) $ (75,012)
Income tax (provision)
benefit (320,932) 217,724 23,398
-------------- ------------ ------------
(1,660,551) (952,294) (51,614)
------------ ------------
Partnership income (loss) (870) 135 2,317
Income tax expense on
partnership income 355 55 947
-------------- ------------ ------------
(515) 80 1,370
-------------- ------------ ------------
F-25
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
Net loss $ (1,624,720) $ (952,214) $ (50,244)
============== ============ ============
F-26
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 13 - INCOME TAXES. (Continued)
The following is a reconciliation of the U.S. federal statutory tax rate and the
apparent tax rate:
September 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
U.S. federal tax (34.00%) (34.00%) (34.00%)
State taxes, net of federal tax (6.00%) 6.00%)
benefit (6.00%) (6.00%) (6.00%)
Benefit from net operating loss
(NOL) carryforward -- -- 12.13%
Valuation allowance -- 20.88% --
Other 2.04% 0.51% (3.32%)
------ ------ ------
Apparent tax rate (37.96%) (18.61%) (31.19%)
====== ====== ======
NOTE 14 - STOCKHOLDERS' EQUITY
(a) Private Placement Offering:
In August 1994, the Board of Directors of the Company passed a resolution
authorizing the management of the Company to initiate steps to make a
private placement of the Company's securities in order to raise capital.
On December 22, 1994, the Company's common stock was split 4-for-1. The
effect of the split is being reflected retroactively. In December of 1994,
the Company completed an offering of its securities under an exemption
pursuant to Regulation D - Rules Governing the Limited Offer and Sale of
Securities Without Registration Under the Securities Act of 1933. The
$800,000 offering was to include the sale of 400000 shares (after giving
effect to the 4-for-1 stock split). The offering closed on December 15,
1994, with the sale of 350,000 (shares after giving effect to the 4-for-1
stock split on December 22, 1994) of the Company's $0.0001 par value
voting common stock at the offering price of $2.00 per share (after giving
effect to toe 4-for-1 stock split) that raised an aggregate of $615,995,
net of expenses of $84,005, for the Company.
F-27
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 14 - STOCKHOLDERS' EQUITY. (Continued)
(b) Initial Public Offering:
In December 1994, the Board of Directors of the Company passed a
resolution authorizing the management of the Company to initiate steps to
make an initial public offering (IPO) of the Company's securities in order
to raise capital. Management was granted authority to file a registration
statement (on Form S-1) with the United States Securities and exchange
Commission (SEC) pursuant to the Securities Act of 1933 (as amended) and
to register the securities in any state jurisdiction that management felt
was required and appropriate. The initial public offering called for the
Company to offer up to 850,000 shares (977,500 shares if the underwriter's
over-allotment is exercised) of common stock (the "Common Stock") at $5.50
per share, 850,000 (977,500, if the underwriter's over-allotment is
exercised) Class A Redeemable Common Stock Purchase Warrants (the "A
Warrants") at $0.10 per warrant and 850,000 (977,500 shares if the
underwriter's over-allotment is exercised) Class B Redeemable Common Stock
Purchase Warrants (the "B Warrants") at $0.10 per warrant. Each A Warrant
entitles the holder to purchase one (1) share of common Stock for a period
of eighteen (18) months from the effective date of the offering at a price
of $5.50. Each B Warrant entitles the holder to purchase one (1) share of
common Stock for a period of thirty-six (36) months from the effective
date of the offering at a price of $7.00. The offering was declared
effective by the United States Securities and Exchange Commission on July
21, 1995, and closed on July 27, 1995 with the sale of 977,500 B Warrants,
and raised an aggregate of $4,205,899, net of expenses of $1,365,851, for
the Company.
F-28
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 15 - RELATED PARTY TRANSACTIONS.
Operating Expenses:
The Company maintains an office at 95 Madison Avenue, Suite 301,
Morristown, New Jersey. Expenses incurred in the operation of the
Company's office facility including rent, telephone and office expenses
are allocated to numerous businesses which share the facility. The
allocations are based on usage and revenues. Management believes that the
allocations are reasonable and proper. The expenses for the years ended
September 30, 1997, 1996, and 1995 aggregated $75,550, $63,560, and
$12,142, respectively. During the year ended September 30, 1996, the
Company paid $60,000 for consulting services to an affiliated company.
Furthermore, during the year ended September 30, 1996, the Company
acquired software from another related party at an approximate cost of
$35,000.
The Company entered into an agreement with an affiliated company to
provide marketing services to the Company. For the year ended September
30, 1996, compensation for services totaled approximately $50,000.
The Company has entered into an agreement with two affiliated companies to
finance a portion of the affiliates' accounts receivable. At September 30,
1996, there was a total balance outstanding of approximately $111,000.
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.
F-29
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 16 - COMMITMENTS AND CONTINGENCIES.
(a) Letter of Intent and Underwriters Agreement:
Pursuant to a signed letter of intent with Landmark Commodities, Inc.
d/b/a Landmark International Equities ("Landmark"), the Company has
successfully completed the sale of its securities in an initial public
offering (IPO) (See Note 15). In addition, the Company has agreed to sell
Landmark an option to purchase 977,500 shares of Common Stock including
the underwriter's over-allotment, 977,500 A Warrants including the
underwriter's over-allotment, and 977,500 B Warrants including the
underwriter's over-allotment for a period of four (4) years at one-hundred
and twenty percent (120%) of the offering price of $6.60, $0.12 and $0.12,
respectively. In January 1995, the Company paid Landmark $50,000, in
advance, for financial consulting services. The services are for the
period from February 1, 1995 to January 31, 1996.
(b) Employment Agreement:
Effective June, 1997, the Company entered into a five (5) year employment
agreement with its president. The agreement provides for an annual salary
of eighty thousand dollars ($80,000), plus benefits, and sets forth duties
and non-compete clauses.
(c) Lease and Management Service Agreements:
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. Included in the other assets at September 30, 1996 is
approximately $19500 of rental payments, which will be expensed upon
the opening of the facility.
In July 1996, RFTR entered into a lease and management service agreement
with Surgical associates, P.A. to provide space, equipment and
non-professional services, including management and billing and collection
functions to a newly formed Surgical Center.
F-30
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 16 - COMMITMENTS AND CONTINGENCIES. (Continued)
(c) Lease and Management Service Agreements: (Continued)
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.
(d) Subsequent Events:
An agreement has been negotiated with the principle of Mobile Medical
Services Ltd. to convert the stock purchase to a note receivable with the
Company maintaining the stock and assets as collateral. The payments are
to commence in March, 1998. The general terms call for a $20,000 payment
in March and for quarterly payments of $10,000 increasing to $20,000.
During August, 1998, management expects to finalize the Brady equipment
payments which will result in an additional $45,000 in monthly net cash to
Brady Cancer Centers, Inc.
Additional cash will be realized from a proposed offering of Hamilton
McGregor International, Inc.
The Company has also entered into a marketing agreement with an unrelated
facility. This agreement will bring an additional $4,000 a month to the
Company over the next nine months. In addition, the Company has been
approached by a facility in Scranton, PA to provide management, marketing
and billing for a monthly fee and percentage of collections.
F-31
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 16 - COMMITMENTS AND CONTINGENCIES. (Continued)
(d) Subsequent Events: (Continued)
The Company is in the process of financing $200,000 of Union Diagnostic's
accounts receivable which will go toward paying the Company its accrued
management fees. The time frame is approximately the third week in March,
1998.
The Company's officers have voluntarily agreed to forego drawing a salary
until cash flow is again positive. This will result in a reduction of
approximately $12,000 of salaries per month.
Effective March 5, 1998 the Company and its 52%-owned subsidiary,
Hamilton-McGregor International, Inc. ("Hamilton"), restructured its note
payable to a related party. Under the terms of the amended agreements, the
principal amount of the note would be reduced to $200,000 in cash, payable
over thirty-six months, plus interest calculated at prime plus 1% and a
thirty-six month option to purchase 250,000 shares of Hamilton stock at
$.05.
Effective December 1, 1997, the $600,000 Note issued to a related Party
(see Note 11) in connection with the Purchase of Hamilton McGregor
International, Inc. was forgiven. The related promissory note was
cancelled, therefore resulting in no further obligation.
NOTE 17 - LITIGATION
In October 1995, Northern New Jersey Medical Management, Inc. the
Company's wholly owned subsidiary, was named as a party in a lawsuit
initiated by several of the limited partners in Union Diagnostic
Facilities Group, L.P. The suit alleges, among other things, breach of
fiduciary duty, mismanagement and negligence. The suit is presently in the
discover stage and, therefore, no determination as to the possible outcome
can be made. The Company believes the suit is without merit and intends to
vigorously defend itself.
F-32
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
NOTE 17 - LITIGATION. (Continued)
In April 1997, the Company was named as co-defendant in a lawsuit against
Dr. Luther Brady, his affiliates and associates, his attorneys and an
alleged employee of the Company. The suit, filed by a former associate of
Dr. Brady's, alleges that this individual had certain prior contractual
rights to acquire the assets employed in the operation of the Company's
radiation therapy center, located in Voorhees, New Jersey. The plaintiff
seeks unspecified damages against the Company for alleged fraud, equitable
fraud and tortious interference with the contract. The Company has denied
these allegations in its response.
In June 1997, the Company filed a third-party complaint against various
Brady affiliates and their attorneys, alleging that it has no knowledge of
any pre-existing rights to acquire the assets and that failure to disclose
such rights is a breach of numerous representations and warranties
contained in the asset purchase agreement. The Company seeks contribution
and indemnity, damages, partial recession of the various agreements
entered into between the Company and the Brady affiliates, injunctive
relief and the return of certain monies held in escrow.
In October 1997, Dr. Brady's and the Company agreed to allow Dr. Brady and
his affiliates to oversee daily operations and the related cash flows of
the three centers. Dr. Brady has submitted a schedule of the proceeds and
uses thereof, but to date there has been no full accounting. Dr. Brady
alleges that the centers have operated at a cash short fall during this
period, which his affiliates have subsidized.
Also in October 1997, the Brady affiliates returned $1,500,000 of the
funds being held in escrow to the Company's lender. These funds are being
held in escrow by the lender pending a resolution of the various legal
issues involved.
In addition to the aforementioned legal issues associated with the
acquisition of the "Brady" assets, the agreement called for the Company to
receive six times the weekly average of accounts receivable generated
during the period from January 1 to June 1, 1996, which the Company had
previously estimated at $350,000. The Company and Dr. Brady had been
unable to arrive at an agreed upon amount and as a result, the Company has
reserved the amount in full pending a resolution of the dispute.
F-33
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders:
Northern New Jersey Medical Management, Inc.
We have audited the accompanying balance sheets of Northern New Jersey Medical
Management, Inc. as of September 30, 1997 and 1996, and the related statements
of income, changes in stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1997. 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 audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Northern New Jersey Medical
Management, Inc. as of September 30, 1997 and 1996 and the results of its
operations and its cash flows for the three year period ended September 30, 1997
in conformity with generally accepted accounting principles.
/s/ Davenprot & Associates, PA
DAVENPORT & ASSOCIATES, PA
Certified Public Accountants
Colonia, New Jersey
November 20, 1997
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Balance Sheets
September 30, 1997 and 1996
1997 1996
-------- --------
Assets
Current Assets:
Cash and cash equivalents $ 430 $ 5,047
Accounts receivable (Note 1) 418,690 185,698
Deferred income taxes (Notes 1 and 5) 58,699 18,485
Other current assets 3,600 3,100
-------- --------
Total current assets 481,419 212,330
-------- --------
Other Assets:
Equipment, net of accumulated depreciation of
$8,669 and $5,435, respectively (Notes 1 and 2) 23,674 26,908
Investment in limited partnership (Note 3) 10,250 11,120
Security deposits 5,030 5,030
-------- --------
Total other assets 38,954 43,058
-------- --------
Total Assets $520,373 $255,388
======== ========
See accompanying notes to financial statements.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Balance Sheets
September 30, 1997 and 1996
1997 1996
-------- --------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 20,165 $ 472
Income taxes payable (Notes 1 and 5) -- --
Deferred income taxes payable (Notes 1 and 5) 61,605 43,257
Advances from stockholder (Note 6) 398,713 139,000
-------- --------
Total current liabilities 480,483 182,729
Other Liabilities:
Loan payable - stockholders (Note 6) -- --
-------- --------
Total liabilities 480,483 182,729
-------- --------
Commitments and contingencies (Notes 1, 6, and 8)
Stockholders' Equity:
Capital stock:
Common stock - No par value; 2,500 shares
authorized; 100 shares issued and
outstanding -- --
Additional paid-in capital 47,200 47,200
Retained earnings (deficit) (7,310) 25,459
-------- --------
Total Stockholders' Equity 39,890 72,659
-------- --------
Total Liabilities and Stockholders' Equity $ 520,373 $ 255,388
========= =========
See accompanying notes to financial statements
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Statements of Income
For the years ended September 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Management fee income $ 341,292 $ 309,067 $ 355,029
--------- --------- ---------
Costs and expenses:
Salaries and consulting fees - officers
and affiliated companies (Note 6) 300,000 300,000 270,616
Payroll 35,244 13,272 269
Payroll taxes 5,783 1,015 9,546
Rent 1,200 1,200 1,200
Office expense 6,063 1,774 2,908
Professional fees 40,940 36,204 7,921
Travel 1,880 4,809 17,643
Depreciation expense 3,234 3,234 1,809
Interest expense 513 192 --
Interest income -- (2,175) --
--------- --------- ---------
Total costs and expenses 394,857 359,525 311,912
--------- --------- ---------
Income (loss) from continuing operations
before provision for (recovery of)
income taxes (53,565) (50,458) 43,117
Provision for (recovery of) income taxes
(Notes 1 and 5) (21,311) (19,178) 21,027
--------- --------- ---------
Income (loss) from continuing operations
before partnership income (32,254) (31,280) 22,090
Income (loss) from limited partnership -
net of income taxes (Notes 1, 3 and 5) (515) 80 1,370
--------- --------- ---------
Net income (loss) $ (32,769) $ (31,200) $ 23,460
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Statements of Stockholders' Equity
For the years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Number Common Paid-In Retained
of Shares Stock Capital Earnings Total
--------- ----- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 100 $ -- $ 1,000 $ 56,664 $ 57,664
Net income for the year ended
September 30, 1995 -- -- -- 23,460 23,460
Additions to additional paid-in
capital for the year ended
September 30, 1995 -- -- 46,200 -- 46,200
Dividends paid during the year
ended September 30, 1995 -- -- -- (23,465) (23,465)
--- ------ --------- --------- ---------
Balance at September 30, 1995 100 -- 47,200 56,659 103,859
Net loss for the year ended
September 30, 1996 -- -- -- (31,200) (31,200)
--- ------ --------- --------- ---------
Balance at September 30, 1996 100 -- 47,200 25,459 72,659
Net loss for the year ended
September 30, 1997 -- -- -- (32,769) (32,769)
--- ------ --------- --------- ---------
Balance at September 30, 1997 100 $ -- $ 47,200 $ (7,310) $ 39,890
=== ====== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Statements of Cash Flows
For the years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows From (Note 7):
Operating activities:
Net income (loss) $ (32,769) $ (31,200) $ 23,460
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 3,234 3,234 1,809
Deferred income taxes (21,866) (19,202) 16,266
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (232,992) (95,080) 33,473
(Increase) decrease in other current assets (500) (3,100) 1,883
Increase (decrease) in accounts payable
and accrued expenses 19,693 (5,359) 5,080
Increase (decrease) in income taxes payable -- (3,825) 3,825
--------- --------- ---------
Net cash provided by (used in) operating activities (265,200) (154,532) 85,796
--------- --------- ---------
Investing activities:
Additions to fixed assets -- -- (28,500)
Investment in limited partnership 870 (135) (2,317)
Addition to note receivable -- (2,175) (20,000)
Collections on note receivable (Note 4) -- 22,175 --
--------- --------- ---------
Net cash provided by (used in) investing activities 870 19,865 (50,817)
--------- --------- ---------
Financing activities:
Increase (decrease) in advances from stockholder 259,713 139,000 --
Repayment of loans payable - stockholders -- -- (15,000)
Dividends paid -- -- (23,465)
--------- --------- ---------
Net cash provided by (used in) financing activities 259,713 139,000 (38,465)
--------- --------- ---------
Net increase (decrease) in cash (4,617) 4,333 (3,486)
Cash - beginning of period 5,047 714 4,200
--------- --------- ---------
Cash - end of period $ 430 $ 5,047 $ 714
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies:
The following is a summary of significant accounting policies employed in the
preparation of these financial statements. The policies conform to generally
accepted accounting principles and have been consistently applied.
a. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments with a maturity of three months or
less at the time of purchase to be cash equivalents.
b. Accounts Receivable
Accounts receivable is stated net of contractual allowances. Based
upon its past history, the Company estimates the amount of the
accounts receivable that it does not expect to receive. The Company
values its uncollected accounts receivable as part of its
determination of profit and constantly reviews the valuation. The
continuing review and gathering of additional information, as well
as changing reimbursement rates, may cause adjustments.
c. Fixed Assets
Fixed assets are stated at cost. Depreciation is provided for over
the estimated useful lives of the assets by the straight-line method
for financial reporting purposes and by accelerated methods for
income tax purposes. At the time of retirement or other disposition
of fixed assets, the cost and accumulated depreciation are removed
from the accounts and any gains or losses are reflected in the
statement of income. Maintenance, repairs and minor renewals are
charged to income as incurred except that expenditures which
substantially increase the useful lives of the respective properties
are capitalized.
d. Revenue Recognition
Management fees are generated, through a contractual agreement
between the Company and a limited partnership, Union Diagnostic
Facilities Group, L.P. ("Union"), based on a percentage of revenues
generated. The Company recognizes management fees when diagnostic
imaging services are rendered by Union. The Company owns a minority
interest and is the general partner and managing agent. The
Company's responsibilities include contract negotiations, site
selection, equipment procurement, construction, office personnel and
physician staffing, office management, patient scheduling, patient
billings, cash collections, personnel management and marketing.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies (continued):
e. Income Taxes
Effective October 1, 1993, the Company has adopted Financial
Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", for
financial statement reporting purposes, which required a change from
the deferred method (APB 11) to the assets and liabilty method of
accounting for income taxes. The assets and liability approach
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and
liabilities and the affect of future tax planning strategies to
reduce any deferred tax liability. Under this method, deferred tax
assets and liabilities are determined based on the differences
between the financial statement carrying amounts and tax basis of
assets and liabilites using enacted rates in effect in the years in
which the differences are expected to reverse. The adoption of SFAS
109 did not have a material impact on the financial statements.
f. Fiscal Year
The Company has adopted a September 30 year end.
2. Depreciation:
The principal rates used in calculating depreciation are as follows:
Class Rates per Annum
----- ---------------
Equipment 10%
Equipment and related accumulated depreciation at September 30, 1997, 1996 and
1995 consist of the following:
1997 1996 1995
-------- -------- --------
Equipment $32,343 $32,343 $32,343
Less: accumulated depreciation 8,669 5,435 2,201
------- ------- -------
Total $23,674 $26,908 $30,142
======= ======= =======
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
3. Investment in Limited Partnership:
The Company has a one (1%) percent 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, patient scheduling, patient billing, cash
collections, personnel management and marketing. The Company records its
investment in the limited partnership and its income from the limited
partnership monthly.
Effective January 1, 1995, the limited partnership changed its reporting period
from December 31 to September 30, for financial statement purposes. The
following is a summary of condensed financial data from the audited financial
statements of the limited partnership.
Total Long-Term Total Total
Assets Debt Liabilities Capital
---------- ---------- ---------- ----------
September 30, 1997 $1,173,998 $ 122,857 $ 881,091 $ 292,907
September 30, 1996 821,821 102,702 402,117 419,704
September 30, 1995 703,809 56,175 251,117 452,692
Assets Liabilities
----------------------- ------------------------
Current Non-Current Current Non-Current
---------- ----------- ---------- -----------
September 30, 1997 $648,785 $525,213 $758,234 $122,857
September 30, 1996 454,465 367,356 299,415 102,702
September 30, 1995 445,849 257,960 194,942 56,175
Net Allocation
Gross Income of Income
Revenues (Loss) (Loss) (1%)
------------ ----------- -------------
September 30, 1997 $1,637,445 $ (87,047) $ (870)
September 30, 1996 1,642,128 13,637 135
September 30, 1995 1,243,165 169,285 1,693
December 31, 1994 1,648,846 249,495 2,495
Gross profit and income from continuing operations does not differ from net
income. The partnership has no redeemable securities or minority interest.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
4. Note Receivable:
Note receivable consisted of a $20,000 note with interest at 9% per annum, due
on or before April 1, 2000. This note was secured by one Limited Partnership
share in Union Diagnostic Facilities Group, L.P. The note was repaid on June 25,
1996.
5. Income Taxes:
The Company has adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) Number 109, "Accounting for Income Taxes",
for financial statement reporting purposes. SFAS Number 109 requires the Company
to recognize deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between financial statement
carrying amounts and tax basis of the assets and liabilities using enacted rates
in effect in the years in which the differences are expected to reverse.
The Company does not report income, for tax reporting purposes, on the accrual
basis of accounting. As a result of the adoption of SFAS 109, the Company has
recorded deferred income tax assets and deferred income tax liabilities, at
September 30, 1997, 1996 and 1995 which represent temporary differences arising
primarily from the recognition of income on the cash receipts and cash
disbursements basis of accounting for income tax reporting purposes at the
statutory rates of 35% for Federal income tax purposes and 9% for state income
tax purposes, which are expected to be realized in future years. A summary of
deferred income tax assets and deferred income tax liabilities is as follows:
1997 1996 1995
------- ------- -------
Deferred tax assets $58,699 $18,485 $ 2,382
======= ======= =======
Deferred tax liabilities $61,605 $43,257 $46,356
======= ======= =======
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
5. Income Taxes (continued):
The Company has a net operating loss (NOL) carry-forward for Federal income tax
purposes of $130,038, $44,779 and $-0- at September 30, 1997, 1996 and 1995,
respectively, available to offset income taxes in future periods until the year
ended September 30, 2011. Provision for (recovery of) Federal and State income
taxes for the years ended September 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995
------- ------- ------
Income taxes - current
State $ 200 $ 79 $ 966
Federal -- -- 4,742
------- ------- ------
Total income taxes - current 200 79 5,708
------- ------- ------
Income taxes - deferred
State (4,724) (4,230) 3,445
Federal (17,142) (14,972) 12,821
------- ------- ------
Total income taxes - deferred (21,866) (19,202) 16,266
------- ------- ------
Total provision for (recovery
of) income taxes $(21,666) $(19,123) $ 21,974
======== ======== ========
Income (loss) before income taxes, income tax expense (recovery), partnership
income (loss), income tax expense (recovery) on partnership income and net
income (loss) are as follows:
1997 1996 1995
-------- -------- --------
Income (loss) from continuing operations
before income taxes $(53,565) $(50,458) $ 43,117
Income tax expense (recovery) (21,311) (19,178) 21,027
-------- -------- --------
Income (loss) from continuing operations
before partnership income (32,254) (31,280) 22,090
-------- -------- --------
Partnership income (loss) (870) 135 2,317
Income tax expense (recovery) on
partnership income (loss) (355) 55 947
-------- -------- --------
Income (loss) from limited partnership -
net of income taxes (515) 80 1,370
-------- -------- --------
Net income (loss) $(32,769) $(31,200) $ 23,460
======== ======== ========
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
5. Income Taxes (continued):
The following is a reconciliation of the U.S. Federal statutory rate and the
apparent tax rate:
1997 1996 1995
------ ------ ------
U.S. Federal tax (35.00)% (35.00)% 35.00 %
State taxes, net of Federal tax benefit (5.85)% (5.85)% 6.00 %
Benefit from net operating loss (NOL)
carry-forward - % - % (12.13)%
Other 1.05 % 2.85 % 3.90 %
------ ------ ------
Apparent tax rate (39.80)% (38.00)% 32.77 %
====== ====== =====
Temporary differences and carry-forwards which give rise to a significant
portion of deferred tax assets and liabilities at September 30, 1997 are as
follows:
Deferred Tax
Gross --------------------------
Amount Assets Liabilities
-------- -------- -----------
Accounts receivable $129,822 $ -- $ 53,032
Accumulated depreciation 17,635 -- 7,204
Investment in limited partnership 3,351 -- 1,369
Accounts payable and accrued expenses 13,831 5,650 --
Net operating loss carry forwards 130,038 53,049 --
-------- --------
Subtotal 58,699 61,605
Valuation allowances -- --
-------- --------
Total deferred tax assets and liabilities $ 58,699 $ 61,605
======== ========
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
5. Income Taxes (continued):
Temporary differences and carry-forwards which give rise to a significant
portion of deferred tax assets and liabilities at September 30, 1996 are as
follows:
Deferred Tax
Gross ------------------------
Amount Assets Liabilities
-------- -------- -----------
Accounts receivable $84,649 $ -- $ 34,579
Accumulated depreciation 18,447 -- 7,535
Investment in limited partnership 2,797 -- 1,143
Accounts payable and accrued expenses 472 193 --
Net operating loss carry forwards 44,779 18,292 --
-------- --------
Subtotal 18,485 43,257
Valuation allowances - -
-------- --------
Total deferred tax assets and liabilities $ 18,485 $ 43,257
======== ========
Temporary differences and carry-forwards which give rise to a significant
portion of deferred tax assets and liabilities at September 30, 1995 are as
follows:
Deferred Tax
Gross ------------------------
Amount Assets Liabilities
-------- -------- -----------
Accounts receivable $90,618 $ -- $ 37,018
Accumulated depreciation 18,290 -- 7,471
Investment in limited partnership 4,572 -- 1,867
Accounts payable and accrued expenses 5,831 2,382 --
-------- --------
Subtotal 2,382 46,356
-------- --------
Valuation allowances - -
-------- --------
Total deferred tax assets and liabilities $ 2,382 $ 46,356
======== ========
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
6. Related Party Transactions:
a. Advances From Stockholder
R.F. Management Corp., the sole stockholder of the Company, made
certain advances to the Company. These advances aggregated $398,713
and $139,000 at September 30, 1997 and 1996, respectively, and are
anticipated to be repaid by the Company within the next twelve
months.
b. Loan Payable - Stockholders
Certain stockholders of the Company have made advances to the
Company. These advances aggregated $-0- at September 30, 1997, 1996
and 1995.
c. Acquisition
On May 31, 1995, Northern New Jersey Medical Management, Inc. was
acquired by R.F. Management Corp. Two of the officers, stockholders
and directors of R.F. Management Corp. were also officers,
stockholders and directors of Northern New Jersey Medical
Management, Inc. (See acquisition, Note 8 for further details).
d. Operating Expenses
The Company presently maintains an office address at 95 Madison
Avenue, Suite 301, Morristown, New Jersey, in the office of the
Company's president. The Company utilizes an executive office which
is approximately 120 square feet plus a common area consisting of
copy and fax machines. Expenses incurred in the operation of the
Company's office facility including rent, telephone and office
expenses are allocated to numerous businesses which share the
facility. The allocations are based on usage and revenues.
Management believes that the allocations are reasonable and proper.
<PAGE>
NORTHERN NEW JERSEY MEDICAL MANAGEMENT, INC.
Notes to Financial Statements
For the years ended September 30, 1997, 1996 and 1995
7. Statement of Cash Flows:
The Company has adopted Financial Accounting Standards Boards (FASB)
Statement of Financial Accounting Standards (SFAS) No. 95,
"Statement of Cash Flows", for financial statement reporting
purposes. The statements of cash flows are presented for the years
ended September 30, 1997, 1996 and 1995. These statements present
cash flow information as well as the required supplemental
information and the effects of non-cash transactions during the
periods presented.
The Company has no non-cash investing or financing activity during
the years ended September 30, 1997, 1996 and 1995.
Supplemental disclosures of cash flow information for the years
ended September 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995
------ ------ -----
Interest $ 513 $ 192 $ --
====== ====== =====
Income taxes $ -- $2,025 $ --
====== ====== =====
8. Acquisition:
On May 31, 1995, R.F. Management Corp. 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. The terms of the
agreement call for a payment of one hundred-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-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 ( ) reduction (to one hundred thousand dollars
[$100,000] plus interest) in the event that the gross revenues of the
Company fall below two hundred thousand dollars ($200,000) per annum.
Additionally, the agreement calls for the recasting of $46,200 of notes
from the former officers, stockholders and directors to the Company from
stockholder loans to additional paid-in capital.
<PAGE>
Supplement Schedule to Consolidated Financial Statements
For the years ended September 30, 1997, 1996 and 1995
Indebtedness of and to Related Parties - Not Current
R.F. MANAGEMENT CORP.
Balance at Indebtedness of Balance
Name of person Beginning Additions Deductions at End
-------------- --------- --------- ---------- ------
Stockholders
For the year ended
Septebmer 30, 1997 $ 300,000 $1,246,798 $ -- $1,546,798
For the year ended
September 30, 1996 450,000 -- 150,000 300,000
For the year ended
September 30, 1995 61,200 450,000 61,200 450,000
R.F. MANAGEMENT CORP.
COMPUTATION OF PER SHARE EARNINGS
Years Ended September 30,
------------------------------------------
1997 1996 1995
---- ---- ----
NET INCOME (LOSS) $(1,627,720) $ (952,214) $ (50,244)
PRIMARY
Weighted average shares 3,416,388 3,327,500 2,607,802
Assumed conversions
A warrants and B warrants -- -- 515,604
Total weighted average
shares outstanding 3,416,388 3,327,500 3,123,406
Earnings (loss) per share amounts $ (0.48) $ (0.29) $ (0.02)
FULLY DILUTED
Weighted average shares 3,416,388 3,327,500 3,327,500
Assumed conversions
A warrants and B warrants 1,955,000 1,955,000 1,955,000
Total weighted average
shares outstanding 5,371,388 5,282,500 5,282,500
Earnings (loss) per share amounts $ (0.30) $ (0.18) $ (0.01)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations of the
Company in its Annual filing on Form 10K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,230,845
<SECURITIES> 0
<RECEIVABLES> 3,963,340
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,372,511
<PP&E> 7,226,448
<DEPRECIATION> 1,390,692
<TOTAL-ASSETS> 16,013,081
<CURRENT-LIABILITIES> 7,042,019
<BONDS> 0
0
0
<COMMON> 346
<OTHER-SE> 1,653,114
<TOTAL-LIABILITY-AND-EQUITY> 16,013,081
<SALES> 0
<TOTAL-REVENUES> 11,369,924
<CGS> 0
<TOTAL-COSTS> 13,198,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,339,619
<INCOME-TAX> 320,932
<INCOME-CONTINUING> (1,660,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,624,720)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.30)
</TABLE>
