<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
June 30, 1998
-------------------
( ) 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
June 30, 1997, $350,000 is reflected as an investment in joint venture.
On March 20, 1996, the Company formed a wholly-owned subsidiary, R.F.
Management Corp. of Toms River ("RFTR"), a New Jersey corporation, who in
July 1996 entered into a lease and management service agreement with Surgical
Associates, PA. This agreement is to commence upon the completion of the
construction of a one room surgical suite.
On May 30, 1996, the Company entered into a five year lease and management
service agreement with Associates in Otolaryngology of New Jersey, PA. This
agreement is to commence upon the completion of the construction of a one
room surgical suite.
On November 15, 1996, the Company acquired a 75% interest in Mobiletec, Inc.
("Mobiletec"), a newly formed entity incorporated in New Jersey. Mobiletec
provides mobile MRI facilities to doctors, hospitals and medical groups for
which it receives a per-test fee. Mobiletec's results of operations have been
included in the consolidated financial statements.
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.
Nine and three months ended June 30, 1998 to
nine and three months ended June 30, 1997.
RESULTS OF OPERATIONS
Total revenues increased $1,346,218 (17.2%) and decreased $1,278,858 (31.9%)
for the nine and three months ended June 30, 1998, respectively when compared
to the comparable period for 1997.
Total costs and expenses increased $873,133 (10.8%) and decreased $1,647,290
(36.1%) for the nine and three months ended June 30, 1998, respectively when
compared to the comparable period for 1997.
Interest expense increased $161,537 and decreased $155,373 for the nine and
three months ended June 30, 1998, respectively as compared to 1997 as a
result of the Company's ability to obtain financing related to the various
acquisitions. Depreciation and amortization increased $72,070 and decreased
$132,880 for the nine and three months ended June 30, 1998.
Interest income decreased $50,268 and $4,797 for the respective nine and
three month periods.
Loss from operations decreased $373,085 and $388,047 to $830,998 and 167,334
for the nine and three months ended June 30, 1998, respectively.
The Company recognized extraordinary gains from the extinguishment of debt in
the amount of $1,276,410 during the nine months ended June 30, 1998. The
Company also recognized a loss in the amount of $392,245 on the sale of a
subsidiary.
Net loss for the nine months ended June 30, 1998 decreased $220,071 to
$209,790 as a direct result of the aforementioned extraordinary items. Net
loss for the three months ended June 30, 1998 was $399,064 compared to a loss
for the comparable period of $375,415.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a decrease in cash and cash equivalents for the nine
months ended June 30, 1998 totalling $239,308.
The Company presently has a working capital deficit of $905,159 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 June 30, 1998, and the related
consolidated statements of operations, and cash flows for the nine
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 June 30,
1998 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>
June 30, September 30,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 284,464 $ 523,772
Certificates of deposits 700,000 707,073
Accounts receivable 3,457,786 3,923,513
Note receivable - current portion 160,314 39,827
Loans receivable - stockholders and officers 29,924 32,024
Loans receivable 33,367 33,367
Deferred income taxes 116,401 5,650
Other current assets 133,360 107,285
------------- -------------
Total current assets 4,915,616 5,372,511
------------- -------------
Other assets:
Note receivable - net of current portion 301,915 441,152
Equipment (net of accumulated depreciation of
$1,834,560 and $767,375, respectively) 4,047,577 5,835,756
Investment in a limited partnership 12,063 10,250
Investment in joint venture 330,000 350,000
Deferred consulting fee 768,975 810,599
Deposits and other assets 143,229 245,605
Goodwill, net of accumulated amortization of
$164,168 and $149,554, respectively) 917,360 2,865,901
Organization costs (net of accumulated amortization
of $60,394 and $49,696, respectively) 56,213 81,307
------------- -------------
Total other assets 6,577,332 10,640,570
------------- -------------
$11,492,948 $16,013,081
------------- -------------
------------- -------------
</TABLE>
2
See Notes to Consolidated Financial Statements
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Lines of credit................................ $ 400,000 $ 397,000
Accounts payable............................... 2,533,492 2,127,854
Consulting fees payable -- current portion..... 45,591 45,591
Accrued expenses and other current
liabilities.................................. 971,232 905,894
Due to affiliates.............................. 55,243 947,816
Deferred income taxes.......................... 5,476 61,605
Notes payable -- equipment -- current portion.. 1,381,854 2,099,342
Notes payable -- related parties -- current
portion...................................... 427,887 456,917
----------- ----------
Total current liabilities.................. 5,820,775 7,042,019
----------- ----------
Other liabilities:
Notes payable -- equipment -- net of current
portion...................................... 2,662,831 4,756,021
Notes payable -- related parties -- net of
current portion.............................. 172,112 1,546,798
Consulting fees payable -- net of current
portion...................................... 990,808 990,808
----------- ----------
Total other liabilities.................... 3,825,751 7,293,627
----------- -----------
Minority interest in equity of subsidiaries...... 402,752 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 346 346
Additional paid-in capital..................... 4,223,628 4,223,628
Deficit........................................ (2,780,304) (2,570,514)
----------- -----------
Total stockholders' equity................. 1,443,670 1,653,460
---------- ----------
$11,492,948 $16,013,081
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
------------------------- --------------------------
JUNE 30, JUNE 30,
----------------------- ----------------------
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Net service revenue $ 4,547,471 $4,317,735 $1,101,756 $2,073,960
Construction revenue 4,622,507 3,506,025 1,630,827 1,937,481
----------- ---------- ---------- ----------
Total revenues 9,169,978 7,823,760 2,732,583 4,011,441
----------- ---------- ---------- ----------
Costs and expenses
Operating expenses 5,110,039 5,010,236 1,144,655 2,241,125
Construction costs 3,574,395 2,984,940 1,372,927 1,640,291
Interest 747,391 585,854 275,665 431,038
Depreciation and amortization 607,144 535,074 146,836 279,716
Interest income (37,993) (88,261) (20,551) (25,348)
----------- ---------- ---------- ----------
Total costs and expenses 10,000,976 9,027,843 2,919,532 4,566,822
----------- ---------- ---------- ----------
Loss from operations
before Sale of Subsidiary, Income Taxes,
Partnership Income, Minority Interest and
Extraordinary Item (830,998) (1,204,083) (167,334) (555,381)
Gain (loss) on sale of subsidiary (392,245) 489,228 (392,245) --
----------- ---------- ---------- ----------
Loss from operations
before Income Taxes, Partnership Income,
Minority Interest and Extraordinary Item (1,222,243) (714,855) (539,964) (555,381)
Income tax (provision) recovery 105,986 142,601 116,047 130,160
----------- ---------- ---------- ----------
Loss from operations before partnership
income (loss) (1,117,257) (572,254) (423,917) (425,221)
Income (loss) from a limited partnership - 9,834 (292) 10,157 (154)
----------- ---------- ---------- ----------
Loss before Minority Interest and
Extraordinary Item (1,107,423) (572,546) (413,760) (425,375)
Minority interest in loss from subsidiaries (378,777) 142,685 14,696 49,960
----------- ---------- ---------- ----------
Loss before Extraordinary Item (1,486,200) (429,861) (399,064) (375,415)
Extraordinary Item--Gain from Extinguishment
of Debt 503,760 -- -- --
772,650 -- -- --
----------- ---------- ---------- ----------
Net loss $ (209,790) $ (429,861) $ (399,064) $ (375,415)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Primary:
Weighted average shares outstanding 3,460,833 3,400,760 3,460,833 3,408,333
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Loss per share $ (0.06) $ (0.13) $ (0.12) $ (0.11)
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss)................................................................. $ (209,790) $ (429,861)
------------- -------------
Adjustments to reconcile net income (loss) to net cash provided by (used) in
operating activities
Depreciation and amortization................................................... 607,144 535,074
Deferred income taxes........................................................... (166,880) (204,518)
Investment in limited partnership............................................... (1,813) 493
Investment in joint venture..................................................... 20,000 --
Minority interest in (income) loss from subsidiarie............................. 378,777 (142,685)
Consulting fees................................................................. 20,000 322,979
Changes in operating assets and liabilities
Accounts receivable........................................................... 465,727 (3,329,911)
Other current assets.......................................................... (26,075) (529,723)
Accounts payable and accrued expenses......................................... 65,338 2,402,874
Gain from extinguishment of debt.............................................. (1,276,410) --
Loss from sale of subsidiary.................................................. 392,245 --
Organization costs............................................................ 26,169 (104,255)
------------- -------------
504,222 (1,049,672)
Net cash provided by (used in) operating activities......................... 294,432 (1,479,533)
Investing activities
Fixed asset additions............................................................. (1,534,587) (6,650,257)
Fixed asset dispositions.......................................................... 2,255,581 --
Increase in minority interest..................................................... 378,777 305,482
Acquisition of goodwill........................................................... 543,174 (2,471,469)
Investment in a certificate of deposit............................................ 7,073 (319,845)
Deposits and other assets......................................................... 102,376 (263,455)
Increase in loans receivable...................................................... 2,100 (632,176)
Advances from affiliates.......................................................... (892,573) 1,861,263
------------- -------------
Net cash used in investing activities......................................... 396,194 (8,170,457)
------------- -------------
Financing activities:
Repayment to stockholders......................................................... -- 440,543
Increase (decrease) in notes payable.............................................. (932,884) 7,059,461
Advances from line of credit...................................................... 3,000 429,300
------------- -------------
Net cash provided by (used in) financing activities............................. (929,884) 7,929,304
Net increase (decrease) in cash and cash equivalents................................ (239,258) (1,720,686)
Cash and cash equivalents--beginning................................................ 523,722 2,258,333
------------- -------------
Cash and cash equivalents--end...................................................... $ 284,464 $ 537,647
------------- -------------
</TABLE>
GENERAL AND ACCOUNTING POLICIES
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - GENERAL AND ACCOUNTING POLICIES
(a) Summary of Significant Accounting Policies:
The consolidated balance sheet as of June 30, 1998 and the
consolidated statements of operations and cash flows for the
nine months ended March 31, 1998 and 1997 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 nine months
ended June 30, 1998 and 1997 are not necessarily indicative
of the results to be expected for the full year.
NOTE 2 - LOSS PER COMMON SHARE.
6
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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 June 30, 1998 (unaudited) and September 30, 1997:
<TABLE>
<CAPTION>
Total Long-Term Total Total
Assets Debt Liabilities Capital
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
June 30, 1998 (unaudited) $1,155,043 $114,065 $ 99,066 $155,977
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>
June 30, 1998 (unaudited) $ 644,196 $510,847 $885,001 $114,065
September 30, 1997 648,785 525,213 758,234 122,857
</TABLE>
7
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
<TABLE>
<CAPTION>
Net Allocation
Net Income of Income
Revenues (Loss) (Loss)
------------ ----------- ---------------
<S> <C> <C> <C>
For the nine months ended
June 30, 1998 (unaudited) $1,293,640 $(136,930) $(1,369)
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. 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.
NOTE 5 - LOSS ON SALE OF SUBSIDIARY
On December 27, 1996, the Company acquired 65% of the outstanding stock
of Empire Imaging Associates, Inc., a New York corporation, from an
affiliated company for a total of $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.
NOTE 6 - COMMITMENTS AND CONTINGENCIES.
(a) Lease and Management Service Agreements:
8
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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.
NOTE 7 - 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.
9
<PAGE>
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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.
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.
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.
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