<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended
December 31, 1997
-------------------
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
-------------- ----------------
Commission File Number
0-26488
R.F. MANAGEMENT CORP.
(Exact name of registrant as specified in its charter)
New York 22-3318886
------------- -----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
95 Madison Avenue, Suite 301, Morristown, NJ 07960
--------------------------------------------------
(Address principal executive offices) (zip code)
Registrant's telephone number, including area code (973) 292-2833
--------------
--------------
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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the most recent practicable date.
Common Stock - Par Value $.0001 3,460,833
------------------------------- ---------------
Class Outstanding Shares At
June 30, 1998
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
R.F. Management Corp. (the "Company") was formed in August of 1994, for the
purpose of establishing, administering and managing free-standing outpatient
ambulatory surgery centers. The Company is responsible for the day-to-day
management of the site, including hiring and selection of non-medical employees,
marketing and the responsibility of all computer operations at the site. Medical
professionals employed at the Center provide all medical and diagnostic services
at the site. The Company is not engaged in the practice of medicine.
On May 31, 1995, the Company acquired 100% of the outstanding shares of Northern
New Jersey Medical Management, Inc. ("Northern") in a business combination
accounted for as a pooling of interests. Northern, a New Jersey corporation
formed in 1986, is engaged in the management of a diagnostic imaging center
located in Union, New Jersey. All references to the Company's prior operating
history relates to the operations of Northern.
On December 27, 1995, R.F. Management Corp. acquired 40% of the outstanding
shares of Mobile Medical Services Limited ("Mobile"), a privately held Company
incorporated in Ireland, and a 51% interest in the property owned or leased by
its subsidiaries for $350,000. Mobile Medical Services Limited provides mobile
MRI, CT, Lithotripsy and Cardiac Catheterization services in the Netherlands,
Italy and Germany. The payment terms call for the Company to make payments
directly to designated creditors on behalf of Mobile. As of December 31, 1997,
$350,000 is reflected as an investment in joint venture.
On March 20, 1996, the Company formed a wholly-owned subsidiary, R.F. Management
Corp. of Toms River ("RFTR"), a New Jersey corporation, who in July 1996 entered
into a lease and management service agreement with Surgical Associates, PA. This
agreement is to commence upon the completion of the construction of a one room
surgical suite.
On May 30, 1996, the Company entered into a five year lease and management
service agreement with Associates in Otolaryngology of New Jersey, PA. This
agreement is to commence upon the completion of the construction of a one room
surgical suite.
On November 15, 1996, the Company acquired a 75% interest in Mobiletec, Inc.
("Mobiletec"), a newly formed entity incorporated in New Jersey. Mobiletec
provides mobile MRI facilities to doctors, hospitals and medical groups for
which it receives a per-test fee. Mobiletec's results of operations have been
included in the consolidated financial statements.
On December 1, 1996, the Company acquired certain assets and assumed certain
liabilities from Luther H. Brady & Associates, P.C. and Bucks Radiation
Oncology, Inc. The assets are employed in the operation of three radiation
treatment centers located in Voorhees, New Jersey and Havertown and Langhorne,
Pennsylvania. The Company acquired the assets for $3,700,000 and also assumed
certain liabilities totalling approximately $837,000. The transaction resulted
in the creation of goodwill of approximately $1,257,000.
On December 27, 1996, the Company acquired 65% of the outstanding capital stock
of Empire State Imaging Associates, Inc. ("Empire"), a New York corporation,
from an affiliated company for $250,000. On June 30, 1998, the Company and its
affiliate (which owned the remaining 35%) sold all the outstanding stock to MID
Rockland Imaging Partners, Inc., an unrelated party, for the principal sum of
$2,500,000. The Company recorded a loss on this transaction in the amount of
$392,245.
On January 1, 1997, the Company acquired 52% of the outstanding capital stock of
Hamilton McGregor International, Inc. ("Hamilton") from a related party for
$750,000. Hamilton, through a wholly-owned subsidiary, is a general construction
contractor engaged primarily in the construction of medical suites for the
<PAGE>
provision of various outpatient services. On December 1, 1997, the $600,000
note payable issued to a related party in connection with the purchase of
822,000 shares of Hamilton McGregor International, Inc. was cancelled. The
Company recorded a gain from debt cancellation in the amount of $503,760. In
addition, the Company records a charge to operations of approximately
$328,000 representing the carrying value of goodwill recorded at the date of
issuance of the note.
On March 3, 1998, the Company restructured the promissory note payable for the
acquisition of Prime Contracting Corp. to a related party as follows: $200,000
in cash, payable over 36 months, plus interest calculated at prime plus one
percent 1%) and a 36 month option to purchase 250,000 shares of related party
stock at $0.05. The Company recorded a gain from note payable restructuring in
the amount of $772,650.
On January 31, 1997, the Company acquired 52% of the outstanding capital stock
of Atrium Radiology Corp. ("Atrium") for 133,333 shares of this Company's common
stock, valued at $100,000 and a guarantee that the first $300,000 in net profits
would be paid to the seller. The Company has recorded the purchase in the amount
of $400,000. The transaction resulted in the creation of goodwill of
approximately $521,000. Atrium presently provides radiological services and is
expected to be able to offer MRI scans in the future.
On March 19, 1997, the Company sold its 75% interest in Open MRI and Diagnostic
Services of Toms River, Inc. ("Open MRI"), a New Jersey corporation formed in
February 1997, for $750,000. The gain has been recorded at its present value in
the amount of approximately $489,000.
In March 1997, the Company formed a wholly-owned subsidiary (Brady Cancer
Centers, Inc.) and transferred the assets and liabilities relating to its three
Radiation Oncology Centers to the subsidiary.
Three months ended December 31, 1997 to
three months ended December 31, 1996.
RESULTS OF OPERATIONS
Total revenues increased $4,529,165 for the three months ended December 31,
1997. This increase was a result of the aforementioned acquisition.
Total costs and expenses increased $4,382,589 for the three months ended
December 31, 1997.
Interest expense increased $264,772 for the three months ended December 31,
1997. This increase was a result of the aforementioned acquisitions, as a result
of the Company's ability to obtain financing related to the various
acquisitions. Depreciation and amortization increased $224,066 for the three
months ended December 31, 1997.
Interest income decreased $29,031 for the three month period. This reduction was
the result of investing in the aforementioned acquisitions.
Loss from operations increased $528,182 to $795,912 for the three months ended
December 31, 1997.
The Company recognized extraordinary gains from the extinguishment of debt in
the amount of $503,760 during the three months ended December 31, 1997.
Net loss for the three months ended December 31, 1997 increased $37,796 as a
direct result of the aforementioned extraordinary item.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a decrease in cash and cash equivalents for the three
months ended December 31, 1997 totalling $364,168.
<PAGE>
The Company presently has a working capital deficit of $2,161,475 as compared to
$1,669,508 at September 30, 1997. This decrease and resultant deficit is
attributable to the Company's rapid expansion.There are no other known trends,
demands, commitments or events that will impact the Company's results of
operations, liquidity and/or capital resources.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In April 1998, the Company commenced a lawsuit in New York State Supreme Court
(County of New York) against its former accountants, Weinick Sanders & Co., LLP,
Certified Public Accountants; Weinick Sanders Leventhal & Co., LLP, Certified
Public Accountants; Gregory J. Lavin and Ronald J. Tramazzo ("Weinick Sanders").
The Company has alleged in its complaint that the defendant, Weinick Sanders,
committed professional negligence, breached its agreement of engagement, engaged
in fraudulent inducement and unjust enrichment. The Company is suing the
defendant, Weinick Sanders in the amount of $750,000 plus punitive damages.
Weinick Sanders has answered and counterclaimed for unjust enrichment and breach
of contract in the amount of $119,000.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the registrant.
<PAGE>
CONFORMED
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R.F. MANAGEMENT CORP.
----------------------
(Registrant)
Date: August 14, 1998 /s/Roger Findlay
----------------------------------
Roger Findlay
Chairman of the Board of Directors
Date: August 14, 1998 /s/Wayne Miller
----------------------------------
Wayne Miller
President and Director
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
R.F. Management Corp.
We have reviewed the consolidated balance sheet of R.F. Management Corp. and
Subsidiaries as at December 31, 1997, and the related consolidated statements of
operations, and cash flows for the three months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of R.F. Management Corp and
Subsidiaries as at September 30, 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended not
presently herein, and in our report dated March 6, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as at
December 31, 1997 is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Vincent J. Batyr & Co.
Tarrytown, NY
August 6, 1998
<PAGE>
R.F. MANAGEMENT CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 159,604 $ 523,772
Certificates of deposit 712,997 707,073
Accounts receivable (less contractual allowances
of $2,137,961 and $2,127,220, respectively 3,958,958 3,923,513
Note receivable-current portion 86,239 39,827
Loans receivable-stockholders and officers 29,924 32,024
Loans receivable 33,367 33,367
Deferred income taxes 5,650 5,650
Other current assets 72,311 107,285
----------- -----------
Total current assets $ 5,059,050 $ 5,372,511
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Other assets:
Note receivable-net of current portion $ 394,740 $ 441,152
Equipment (net of accumulated depreciation
of $962,766 and $767,375, respectively) 6,672,010 5,835,756
Investment in a limited partnership 12,373 10,250
Investment in joint venture 350,000 350,000
Deferred consulting fee 768,975 810,599
Deposits and other assets 295,512 245,605
Goodwill (net of accumulated amortization of
$161,393 and $149,554, respectively) 2,525,451 2,865,901
Organization costs (net of accumulated
amortization of $161,393 and $149,554,
respectively) 79,941 81,307
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Total other assets 11,099,002 10,640,570
----------- -----------
$ 16,158,052 $ 16,013,081
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
R.F. MANAGEMENT CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Lines of credit $ 400,000 $ 397,000
Accounts payable 2,470,488 2,127,854
Consulting fees payable-current portion 45,591 45,591
Accrued expenses and other current liabilities 788,722 905,894
Due to affiliates 637,783 947,816
Deferred income taxes 120,368 61,605
Notes payable-equipment-current portion 2,329,685 2,099,342
Notes payable-related parties-current protion 427,888 456,917
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Total current liabilities 7,220,525 7,042,019
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Other liabilities:
Notes payable-equipment-net of current portion 5,602,759 4,756,021
Notes payable-related parties-net of current
portion 944,762 1,546,798
Consulting fees payable-net of current portion 990,808 990,808
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Total other liabilities 7,538,329 7,293,627
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Minority interest in equity of subsidiaries - 23,975
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Commitments and contingencies - -
Stockholders' equity:
Common stock, $0.0001 par value,
Authorized-15,000,000 shares
Issued and outstanding-3,460,883 shares 346 346
Additional paid-in capital 4,223,628 4,223,628
Deficit (2,824,776) (2,570,514)
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Total stockholders' equity 1,399,198 1,653,460
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$16,158,052 $ 16,013,081
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</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
R.F. MANAGEMENT CORP AND SUBIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
---------------------------
1997 1998
------------ ----------
<S> <C> <C>
Revenues:
Net service revenue $ 1,537,485 $ 680,818
Construction revenue 2,991,680 --
------------- -------------
Total revenues 4,529,165 680,818
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Costs and expenses
Operating expenses 2,624,862 963,610
Construction costs 2,201,468 --
Interest 279,871 15,099
Depreciation and amortization 231,094 7,028
Interest income (8,945) (37,976)
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Total costs and expenses 5,328,350 947,761
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Loss from operations
before Income Taxes, Partnership Income,
Minority Interest and Extraordiary Item (799,185) (266,943)
Income tax (provision) recovery 3,273 49,213
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Loss from operations before Partnership (Loss) (795,912) (217,730)
Income (loss) from a limited partnership (630) (519)
------------- -------------
Loss before Minority Interest and Extraordinary Item (796,542) (218,249)
Minority interest in loss from subsidiaries 38,520 (2,217)
------------- -------------
Loss before Extraordinary Item (785,022) (220,466)
Extraordinary Item-Gain from Extinguishment of Debt 503,760 --
------------- -------------
Net loss $ (254,262) $ (220,466)
------------- -------------
------------- -------------
Weighted average shares outstanding 3,460,833 3,327,500
------------- -------------
------------- -------------
------------- -------------
------------- -------------
Basic (loss) per share $ (0.07) $ (0.07)
------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
R.F. MANAGEMENT CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
---------------------------
1997 1996
------------ ----------
<S> <C> <C>
Operating activities:
Net (loss) $ (254,262) $ (220,466)
------------ ------------
Adjustments to reconcile net (loss)
to net cash provided by
(used) in operating activities
Depreciation and amortization 231,094 7,028
Deferred income taxes -- (50,080)
Minority interest in (income) loss from subsidiaries (38,520) 2,217
Consulting fees 41,624 23,707
Changes in operating assets and liabilities
Accounts receivable (35,445) (1,550,271)
Other current assets 34,974 (70,760)
Accounts payable and accrued expenses 225,465 838,916
Organization costs -- (20,263)
------------ ------------
Net cash provided by (used in)
operating activities 204,930 (1,039,972)
------------ ------------
Investing activities
Fixed asset additions (1,263,661) (5,783,309)
Increase in minority interest (23,975) 60,321
Acquisition of goodwill -- (1,040,183)
Investment in a limited partnership (2,123) 877
Investment in a certificate of deposit (5,924) (4,997)
Deposits and other assets (49,907) (56,476)
Increase in loans receivable 2,100 (388,030)
Advances from affiliates 16,168 609,519
------------ ------------
Net cash used in
investing activities (1,327,322) (6,602,278)
------------ ------------
Financing activities:
Increase in notes payable 755,274 6,591,658
Advances from line of credit 3,000 277,300
------------ ------------
Net cash provided by (used in)
financing activities 758,274 6,868,958
Net increase (decrease) in cash and cash equivalents (364,118) (773,292)
Cash and cash equivalents--beginning 523,722 2,258,333
------------ ------------
Cash and cash equivalents--end $ 159,604 $ 1,485,041
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - GENERAL AND ACCOUNTING POLICIES
(a) Summary of Significant Accounting Policies:
The consolidated balance sheet as of December 31, 1997 and the
consolidated statements of operations and cash flows for the
three months ended December 31, 1997 and 1996 have been
prepared by the Company and are presented herein without
audit.
In the opinion of management, the accompanying financial
statements referred to above contain all necessary
adjustments, consisting of normal accruals and recurring
entries only, which are necessary to present fairly the
Company's consolidated results for the interim periods being
presented.
The accounting policies followed by the Company are set forth
in Note 2 to the Company's financial statements included in
its Annual Financial Statement filed on form 10-K for the year
ended September 30, 1997, which is incorporated herein by
reference. Specific reference is made to that report for a
description of the Company's securities and the notes to
financial statements included therein.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and short-term debt approximate
fair value due to the short maturity of the instruments and
the provision for what management believes to be adequate
reserves for potential losses. It was not practicable to
estimate the fair value of long-term debt because quoted
market prices do not exist and an estimate could not be made
through other means without incurring excessive costs.
The results of operations and cash flows for the three months
ended December 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
6
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - LOSS PER COMMON SHARE.
Loss per common share is computed by dividing the net loss by the
weighted average umber of common shares and common equivalent shares
outstanding during each period.
NOTE 3 - 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.
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 December 31, 1997 (unaudited) and September 30,
1997:
<TABLE>
<CAPTION>
Total Long-Term Total Total
Assets Debt Liabilities Capital
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
December 31, 1997 (unaudited) $ 1,126,913 $ 102,981 $ 939,963 $ 186,950
September 30, 1997 1,173,998 122,857 881,091 272,907
</TABLE>
<TABLE>
<CAPTION>
Assets Liabilities
------------------ ---------------------
Non- Non-
Current Current Current Current
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
December 31, 1997 (unaudited) $ 607,538 $ 519,375 $ 836,982 $ 102,981
September 30, 1997 648,785 525,213 758,234 122,857
</TABLE>
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - INVESTMENT IN A LIMITED PARTNERSHIP. (Continued)
<TABLE>
<CAPTION>
Net Allocation
Net Income of Income
Revenues (Loss) (Loss)
------------ ------------ ------------
<S> <C> <C> <C>
For the three months ended
December 31, 1997 (unaudited) $ 361,097 $ (105,957) $ (1,060)
For the year ended September 30, 1997 1,637,445 (87,047) (870)
</TABLE>
Gross profit and income from continuing operations does not differ from
net income. The partnership has no redeemable securities or minority
interest.
NOTE 4 - EXTINGUISHMENT OF DEBT
On December 1, 1997, the $600,000 note payable issued to a related
party in connection with the purchase of 822,000 shares of Hamilton
McGregor International, Inc. was cancelled. The Company recorded a gain
from debt cancellation in the amount of $503,760, resulting in a charge
to operations of approximately $328,000 representing the carrying value
of goodwill recorded at the date of issuance of the note.
NOTE 5 - COMMITMENTS AND CONTINGENCIES.
Lease and Management Service Agreements:
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.
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.
8
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - 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 discovery 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.
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, the Company and Dr. Brady agreed that Dr. Brady would
manage the daily operations and the related cash flows of the three
centers. Dr. Brady submits to the Company a monthly accounting of cash
receipts and disbursements for each of the centers.
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.
9
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - LITIGATION (Continued)
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.
10
