Item 1. BUSINESS
R.F. Management Corp. (the "Company"), is engaged in the business of administering and managing free standing outpatient centers owned by radiologists who perform diagnostic services at such Centers. In addition, the Company is engaged in the business of medical construction and mobile MRI services.
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.
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 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.
During the fiscal year ending September 30, 1998, the Company wholly owned or owned a majority of the following companies:
1. Northern NJ Medical Management, Inc. 2. Brady Cancer Centers, Inc. 3. Empire State Imaging Associates, Inc. (The Company no longer has any affiliation with Empire). 4. Atrium Radiology Corp. 5. MobileTec, Inc. 6. Hamilton McGregor International, Inc.
NORTHERN NJ MEDICAL MANAGEMENT, INC.
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, with offices located at 95 Madison Avenue, Morristown, New Jersey 07960 wherein the Company purchased all of the issued and outstanding shares of Common Stock of Northern. The sole officers,
directors and principal shareholders of Northern were Roger Findlay and Gregory Maccia, who are or have been officers, directors and principal shareholders and affiliates of the Company. 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.
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.
The Company is currently in default on the promissory note to Messrs. Findlay and Maccia. The Company has maintained ongoing discussions with Messrs. Findlay and Maccia to correct the default.
Northern's diagnostic center offers several services including X-ray (Radiography), Ultrasonography (Ultra-sound), Mammography and Nuclear Medicine.
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.
BRADY CANCER CENTERS, INC.
On December 1, 1996, the Company acquired assets from Luther W. Brady & Associates, P.C. and Bucks Radiation Oncology, Inc. The assets are used to provide radiation therapy and are located in Voorhers, NJ and Havertown and Langhorne PA. The wholly owned subsidiary, Brady Cancer Centers Inc. was formed in March 1997.
Fiscal year ended September 30, 1998, has shown that the Company has the ability to grow and to prosper.
During the past year, the Company has restructured liabilities and long term debt while at the same time increasing operating revenues for those subsidiaries still owned by the Company.
The operating revenue generated by the Company's subsidiaries: Atrium Radiology Corp., Mobile Tec, Inc. and Northern NJ Medical Management, Inc. show an upward growth trend. This growth is attributable to an increase in patient volume at Atrium and, management fees paid to Northern and new rental agreements that Mobil Tec has in place to rent its Mobile MRI's.
Due to the sale of the Company's subsidiaries Empire State Imaging Associates Inc. and Brady Cancer Centers, Inc. the overall results shows a reduction in revenue. But the company believes that Atrium, MobileTec and Northern will continue to grow. This growth when added to the revenue generated by the medical construction business of Hamilton McGregor has the Company moving in the right direction.
Subsequent to Sept. 30, 1998, the Company has been engaged by Point Pleasant Radiology to develop a free standing MRI center in Wall NJ. This contract is to run for a period of 5 years. This contract will pay an average of $5,000 per month to the Company.
Year 1999 looks brighter as the Company continues to pursue new opportunities such as the Point Pleasant contract and the development of imaging centers where the Company not only earns a management fee but also owns the assets. This potential for growth also with the restructuring of long term debt should make the Company into a viable business now and into the future
ATRIUM RADIOLOGY CORP.
On January 31, 1997 the Company acquired 52% of the outstanding stock of Atrium Radiology Corp.
Atrium Radiology Corp. has a lease and management services agreement with Dr. Howard Kessler, to provide his radiology practice, located in Manalapan NJ, with diagnostic imaging equipment, and staff along with the provision for management and marketing services. Atrium Radiology Corp. provides the following equipment: CAT Scan, Ultrasound, Mammography, X-Ray and MRI. The term of this agreement is for five (5) years and is due to expire in Sept. 1999. For its services and for the lease of the equipment, Atrium is paid 75% of the collections of the site.
MOBILETEC, INC.
MobileTec provides MRI services to hospitals or physicians that do not have the equipment of their own. MobileTec owns and operates two (2) MRI units housed in trailers. These units are rented to the hospital or physician for their use in providing these services to their patients. MobilTec's arrangements are a rental by the day, week or month or MobilTec rents space and provides the necessary staff to provide these services and through the radiologist who uses the equipment, third party payers are billed.
HAMILTON McGREGOR INTERNATIONAL, INC.
On January 1, 1997, the Company acquired 52% of the outstanding capital stock of Hamilton McGregor International, Inc. ("Hamilton") from a related party for $750,000. Hamilton, through a wholly-owned subsidiary, is a general construction contractor engaged primarily in the construction of medical suites for the provision of various outpatient services.
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.
Additionally, the Company manages and markets for diagnostic imaging sites which include the Imaging Center of Scranton and Open MRI of Morris and Essex.
THE IMAGING CENTER OF SCRANTON
In May of 1998, the Company entered into an agreement with the Imaging Center of Scranton located in Scranton, P.A. to provide the center with marketing and management services. The terms call for the Company to be paid 10% of the collections of the center for a period of two (2) years. This contract is renewable.
OPEN MRI of MORRIS and ESSEX
The Company entered into a six (6) month marketing agreement
effective October, 1998 to enroll Open MRI of Morris and Essex with various managed cared companies. The Company receives $4,500.00 per month for this service. This agreement can be renewed.
Range of Services
The Company provides the full range of services discussed below. The needs of a physician group determine 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 physicians 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.
Equipment Sources
The Company obtains its medical equipment and supplies from various manufacturers. The Company is not dependent on any one supplier of equipment.
REGULATION AND GOVERNMENTAL REIMBURSEMENT
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. 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. 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 diagnostic imaging centers other than the administration and management of such centers 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 is 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
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 $1,000,000.00 per claim and a commercial umbrella policy of $2,000,000. The Company believes that such coverage will be adequate.
Employees
As of September, 1998, the Company employed 6 persons on a full-time basis. Of the 6 employees, 4 are in management, 1 is in sales/marketing and 1 is clerical/administrative.
Item 2.
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.
Item 3. LEGAL PROCEEDINGS
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.
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 tortuous 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.
On October 28, 1997, $1.5 million of the "escrow" monies were returned by the attorney defendants to the Company's lender, DVI Financial Services, Inc. In September and November, 1998 an additional $2 million dollars were returned to DVI. The attorney defendants' motion to dismiss certain of RF's malpractice related claims against them was granted in December 1998. Very limited discovery has taken place to date. It is too early at this time to evaluate any eventual outcome of this case.
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.
In June, 1998, "Hamilton", the Company's 52% owned subsidiary, was named as defendant in an arbitration filed by Stephen Findlay under the Employment Arbitration Rules of the American Arbitration Association. The claim alleges termination of Mr. Findlay without cause and breach of an employment contract. The plaintiff seeks compensatory and punitive damages, costs and legal fees. This
matter is in the pleading stage. It is too early at this time to estimate the eventual outcome of this case.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
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.
From September 1997 until April 1998, the Company's Common Stock was traded in the NASDAQ over-the-counter market under the symbol RFMC. Thereafter, the Company was delisted and traded over-the-counter (bulletin board). 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, 1998 are as follows:
COMMON STOCK ------------
Item 7.
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 two 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, 1998, $330,000 is reflected as an investment in joint venture.
On November 15, 1996, the Company acquired a 75% interest in Mobiltec, 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 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 note 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 of 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 the assets acquired from Luther W. Brady & Associates, P.C. and Bucks Radiation Oncology, Inc. to the subsidiary. In October, 1997, $1.5 million dollars of the financed purchase price was returned to the lender. In September and November, 1998, an additional $2 million dollars were returned to the lender. In November, 1998, the Company paid the lender the $300,000 certificate of deposit pledged as collateral for lender. Additionally, the Company entered into a promissory note to pay the balance of debt to lender in the amount of $157,409. The Company recorded a loss on disposal of subsidiary in the amount of $252,176. See notes to consolidated financial statements included in Item 8.
Item 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements of R.F. Management Corp. and Subsidiaries as of September 30, 1996 and 1995 and for the three year period ended September 30, 1996.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10.
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:
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 B. 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 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 has been Vice President, Chief Financial Officer of the Company from 1995 to 1997 and Director of the Company since 1996. 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.
JAN GOLDBERG is a co-founder and was Secretary, Treasurer and Director of the Company until 1996. Since November 1992, Mr. Goldberg has been the Vice President, Treasurer and a Director of the Company. From 1989 to 1990, Mr. Goldberg was founder and President of GPM, Inc., a physician billing organization with offices in Florida and New York. From 1987 to 1988, Mr. Goldberg was operations manager for Advacare, Inc., a practice management and physician billing company. From 1984 to 1987, Mr. Goldberg was manager of a multi-specialty radiology practice, BBS Billing, Inc. an east coast diagnostic physician group which had contracts with hospitals in New York as well as their own private offices and outpatient facilities. From 1974 to 1984, Mr. Goldberg held various positions with Blue Cross as well as with hospitals in the New York area. Mr. Goldberg was involved in setting up fee-for-
service reimbursement systems and was involved in various aspects of hospital administration. Mr. Jan Goldberg is an officer and director of Modern Medical Modalities Corporation, a public company traded on Nasdaq.
GREGORY C. MACCIA is a co-founder of the Company and was Vice President and Director until November, 1992. Since November 1992, Mr. Maccia has been the Vice President, Secretary and a Director of the Company. Mr. Maccia has also been President of Technology Services, Inc., a software design and facilities management company for medical and commercial accounts since 1989. From 1986-1989, Mr. Maccia was Vice President of Advacare, Inc., a national practice management and physician billing company. Since 1986, Mr. Maccia has been co-founder of Northern New Jersey Medical Management, Inc. He was co-founder and Vice President of Medical Accounts Management Services, Inc. (MAMS) from 1984 to 1986 which developed and sold physician, outpatient and clinical billing software systems. Mr. Maccia, from 1984 to 1986, was co-founder and Vice President of Effective Management Services, Inc. (EMS), which provided custom programming and facilities management with contracts to hospitals and universities in the tri-state area as well as collection agencies and non-medical entities. From 1977 to 1984, Mr. Maccia owned and managed his own consulting company. Mr. Maccia is an officer and director of Modern Medical Modalities Corporation, a public company traded on Nasdaq.
ARON SCHARF was appointed Chairman of the Board of Directors of Hamilton McGregor International, Inc. on June 30, 1997. Mr. Scharf is responsible for financial projections and planning, cash- flow analysis and consultation. He was appointed to the Board of Directors of R.F. Management Corp. in 1998. Mr. Scharf received both a B.A. in Business and a B.S. in Industrial Engineering from Rutgers University, New Brunswick, New Jersey. He went on to earn his Masters in Operations Research from Rutgers and an MBA from Fairleigh Dickenson University. From 1974-82 he was employed by Johnson and forecaster and marketing analyst. When he left J&J he opened MicroAge Computers, a retail computer store and founded Sunrise Multi-Marketing, a sale and leasing company specializing in computer equipment. He served as president of Fidelity Telecom Group until his return to Modern Medical Modalities Corporation in 1996. Since 1996, Mr. Scharf has also been employed as a business manager for Modern Medical Modalities Corporation, a public company traded on Nasdaq.
EDWARD ALLING graduated with a B.S. Degree in Accounting from the University of Connecticut in 1962. After graduation, Mr. Alling was commissioned in the United States Army as an officer serving in Germany and Vietnam from 1962 to 1971. After leaving the service, he joined Firestone Plastics Company as the Manager of Accounting in their West Caldwell, New Jersey facility. In 1983, he joined Occidental Petroleum Corporation as a Senior Auditor
before becoming a Controller in their adhesives facilities in New York and New Jersey. Mr Alling has been employed by Fidelity Telecom Group of Highland Park, New Jersey since 1991 and has served as the company Controller.
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, 1998.
Item 12.
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 the 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.
(1) 644,000 shares of Mr. Findlay's 998,000 shares are owned by Oak Knoll Management Corp.Alice Findlay is the sole Stockholder, Officer and Director of Oak Knoll Management Corp Alice Findlay is the wife of Roger Findlay, who is a Principal Stockholder, the President and Chairman of the Board of Directors of the Company. Roger Findlay has no affiliation with Oak Knoll Management Corp. and disclaims beneficial ownership of such shares.
(2) 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.
(3) Includes the shares owned by Oak Knoll Management Corp. Roger Findlay has no affiliation with Oak Knoll Management Corp. and disclaims beneficial ownership of the 644,000 shares.
Mr. Findlay may be deemed a "Parent" and "Founder" of the Company as these terms are defined under the Securities Act of 1933, as amended.
Item 13.
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 August, 1994, the Company issued 560,000 shares of Common Stock (giving effect to the 4-for-1 stock split on December 22, 1994) to Roger Findlay in consideration of Mr. Findlay's payment of $.01 per share. Mr. Findlay subsequently transferred 206,000 shares of Common Stock (giving effect to the 4-for-1 stock split on December 22, 1994) to unaffiliated parties. In August, 1994, the Company also issued an aggregate of 120,000 shares of Common Stock
(giving effect to the 4-for-1 stock split on December 22, 1994) to Jan Goldberg and 120,000 shares to Gregory Maccia, in consideration of payment of $.02 per share. Mr. Findlay, Mr. Goldberg and Mr. Maccia may be deemed "Promoters" as that term is defined under the Securities Act of 1933, as amended. There are no additional transactions between Messrs. Findlay, Goldberg and Maccia, except as delivered below.
In December of 1994, the Company completed an offering of its securities under an exemption pursuant to Regulation D of the Securities Act of 1933. The offering closed on December 15, 1994, with the sale of 350,000 shares of the Company's voting common stock (giving effect to the 4-for-1 stock split on December 22, 1994) at the offering price of $2.00 per share (giving effect to the 4-for-1 stock split on December 22, 1994), that raised an aggregate of $615,995 for the Company.
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.
The Company is currently in default on the promissory note to Messrs. Findlay and Maccia. The Company has maintained ongoing discussions with Messrs. Findlay and Maccia to correct the default.
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 ---------------------------------------------------- Roger Findlay Chairman of the Board of Directors,
Date February 10, 1999 ----------------------------------------------------
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 ---------------------------------------------------- Roger Findlay Chairman of the Board of Directors,
Date February 10, 1999 ----------------------------------------------------
* * *
By ---------------------------------------------------- Wayne P. Miller Director, President
Date February 10, 1999 ----------------------------------------------------
* * *
By ---------------------------------------------------- Aron Scharf Director, Vice President and Treasurer
Date February 10, 1999 ----------------------------------------------------
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By ---------------------------------------------------- Jan Goldberg Director
Date February 10, 1999 ----------------------------------------------------
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By ---------------------------------------------------- Gregory C. Maccia Director
Date February 10, 1999 ----------------------------------------------------
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By ---------------------------------------------------- Lou D'Esposito Director
Date February 10, 1999 ----------------------------------------------------
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By ---------------------------------------------------- Edward Alling Director
Date February 10, 1999 ----------------------------------------------------
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, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1998. 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 $505,926 and $520,373 as of September 30, 1998 and 1997, and total revenues of $346,657, $341,292, and $309,067 for the three year period ended September 30, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 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.
Vincent J. Batyr & Co. Certified Public Accountants Tarrytown, NY December 21, 1998
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, 1997, AND 1996
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.
(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.
(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
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 1--GENERAL AND ACCOUNTING POLICIES (CONTINUED) estimated useful lives of the related asset, 10 years for medical equipment and 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).
(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.
Additional 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.
(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.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 1--GENERAL AND ACCOUNTING POLICIES (CONTINUED) (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.
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 $1,039,016 as of September 30, 1998, 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.
In December, 1997, the Company's $600,000 note payable to a related party was cancelled. The Company recorded the gain from debt cancellation as a goodwill writedown. (See Note 4.)
In March, 1998, the Company's $1,000,000 note payable to a related party was restructured. The Company recorded a gain from note payable restructuring in the amount of $772,650. (See Note 4.)
The Company partially settled the "Brady" matter (see notes 14(e) & 15) in September and November, 1998. The Company's lender, DVI Financial Services, Inc., was repaid $3,500,000 of capital lease obligations.
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, 1998, $330,000 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.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
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.
In October, 1997, $1.5 million of the financed purchase price was returned to the lender. In September and November, 1998, an additional $2 million was returned to the lender. The Company recorded a loss on disposal of this subsidiary in the amount of $252,176 (See notes 14(e) and 15).
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 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 $297,170.
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 $1,350,000. Hamilton's fiscal year ends on June 30. Hamilton's financial position and results of operations as of and for the year ended June 30, 1998, and for the six months ended June 30, 1997 have been included in these consolidated financial statements.
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.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 3--MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (CONTINUED) 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. Using the present value of the note, discounted at 11%, the Company 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.
NOTE 4--EXTRAORDINARY ITEMS
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. ("Hamilton") was canceled. The Company recorded the gain from debt cancellation in the amount of $503,760 as a goodwill writedown. The asset of goodwill was determined to be impaired because of the current financial condition of Hamilton and its inability to generate future operating income without substantial sales volume increases which are uncertain. Furthermore, anticipated future cash flows of Hamilton indicate that the recoverability of the asset is not reasonably assured.
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 ver 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.
In July 1998, the Company agreed to accept the immediate payment of $225,000 to satisfy the note receivable from the sale of Open MRI (see Note 3). The settlement resulted in a loss of $255,979.
NOTE 5--RESTRICTED CASH.
Restricted cash consists of two certificates of deposit in the aggregate principal sum of $700,000, and $707,073 at September 30, 1998 and 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 9). 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. (See Note 14(e)).
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 6--EQUIPMENT
Furniture, fixtures, equipment and leasehold improvements consist of the following:
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
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 7--INVESTMENT IN A LIMITED PARTNERSHIP. (CONTINUED) from the audited financial statements of the limited partnership in which the Company has an investment at September 30, 1998, 1997,1996 and 1995 and December 31, 1994.
Gross profit and income from continuing operations does not differ from net income. The partnership has no redeemable securities or minority interest.
NOTE 8--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 (see Note 5). As of September 30, 1998 and 1997, amounts outstanding under this facility totaled $400,000 and $397,000, respectively.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 9--NOTES PAYABLE.
Notes payable consist of the following:
The annual principal maturities under these notes are as follows:
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 10-- NOTES PAYABLE--RELATED PARTIES.
Notes payable--related parties consists of the following:
The annual principal maturities under these notes are as follows:
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 11-- INCOME TAXES.
The Company does not report income, for income tax reporting purposes, on the accrual basis. As a result of the adoption of SFAS 109, the Company has recorded deferred income taxes payable at September 30, 1998 and 1997 of $94,834 and $61,605, respectively, and has recorded deferred income tax assets at September 30, 1998 and 1997 of $238,845 and $5,650, respectively, which represent temporary differences arising primarily from recognition of income on the cash receipts and cash disbursements basis of accounting for income tax reporting purposes at the statutory rates of 34% for federal income tax purposes and 6% for state income tax purposes, which are expected to be realized in future years.
The Company has recorded total income tax benefit (provision) for the years ended September 30, 1998, 1997 and 1996 of $199,996, ($320,932) and $217,724, respectively. The Company has a net operating loss (NOL) carryforward for federal income tax purposes of approximately $1,202,228 and $1,340,000 at September 30, 1998 and 1997, respectively, available to offset income taxes in future years through the year ended September 30, 2013.
The following is a reconciliation of the U.S. federal statutory tax rate and the apparent tax rate:
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 11-- INCOME TAXES. (CONTINUED) Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities at September 30, 1998 and 1997 are as follows:
NOTE 12-- 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
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 12-- STOCKHOLDERS' EQUITY (CONTINUED) 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.
(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.
NOTE 13-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, 1998, 1997, and 1996 aggregated $65,132, $75,550, and $63,560, respectively. During the year ended September 30, 1996, the Company paid $60,000 for consulting services to an affiliated company. Furthermore, during the years ended September 30, 1998 and 1997, the Company acquired software from another related party at an approximate cost of $30,000 and $35,000, respectively.
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.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 14-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:
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.
(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 $19,500 of rental security deposits.
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.
(d) Year 2000 Compliance:
The Year 2000 readiness of the Company's customers and hardware and software offerings from the Company's suppliers, subcontractors and business partners may vary. The Year 2000 also presents a number of other risks and uncertainties that could affect the Company, including utilities failures, the lack of personnel skilled in the resolution of Year 2000 issues, and the nature of government responses to the issues, among others. While the Company continues to believe that the Year 2000 matters discussed above will not have a material impact on its business, financial condition or results of operations, it remains uncertain whether or to what extent the Company maybe affected.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 14-COMMITMENTS AND CONTINGENCIES. (CONTINUED)
(e) Subsequent Events:
In November, 1998, the Company agreed with its lender, DVI Financial Services, Inc. ("DVI) to settle its remaining liabilities in conjunction with the disposal of the "Brady" assets and liabilities, as described more fully in notes 3 and 17. The Company paid DVI the $300,000 certificate of deposit pledged as collateral for the benefit of DVI (see Note 5). Additionally, the Company entered into a promissory note to pay the balance of debt in the amount of $157,409, with interest at the rate of 10% per annum, payable in 48 equal payments in the amount of $4,027 each, commencing February 1, 1999.
NOTE 15-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.
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 tortuous 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.
On October 28, 1997, $1.5 million of the "escrow" monies were returned by the attorney defendants to the Company's lender, DVI Financial Services, Inc. In September and November, 1998 an additional $2 million dollars were returned to DVI. The attorney defendants' motion to dismiss certain of RF's malpractice related claims against them was granted in December 1998. Very limited discovery has taken place to date. It is too early at this time to evaluate any eventual outcome of this case.
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. It is too early at this time to evaluate any eventual outcome of this case.
R.F. MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998, 1997, AND 1996
NOTE 15-LITIGATION (CONTINUED) In June, 1998, "Hamilton", the Company's 52% owned subsidiary, was named as defendant in an arbitration filed by Stephen Findlay under the Employment Arbitration Rules of the American Arbitration Association. The claim alleges termination of Mr. Findlay without cause and breach of an employment contract. The plaintiff seeks compensatory and punitive damages, costs and legal fees. This matter is in the pleading stage. It is too early at this time to estimate the eventual outcome of this case.