<PAGE>
FORM 10-Q/A
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 Quarter Ended
June 30, 1996
( ) 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
0-23416
MODERN MEDICAL MODALITIES CORPORATION
-------------------------------------
(exact name of registrant as specified in its charter)
NEW JERSEY # 22-3059258
- ------------------------------- --------------------------
(state or other jurisdiction of (I.R.S. Employer I.D.#)
incorporation or organization)
95 MADISON AVENUE, SUITE 301 MORRISTOWN, N.J. 07960
- ------------------------------------------------------------------------------
(address of principal executive offices) (zip code)
(201) 538-9955
- ------------------------------------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----------- ----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the most recent practicable date.
COMMON STOCK - PAR VALUE $.0001 3,168,292
- ------------------------------- -------------------------
Class Outstanding Shares At
August 9, 1996
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
Table of Contents
PAGE
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Report of Independent Accountants 3
Consolidated Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995 4 - 5
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1996 and 1995 (unaudited) 6 - 7
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 (unaudited) 8 - 9
Notes to Interim Consolidated Financial Statements
(unaudited) 10 - 13
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 18
PART II. OTHER INFORMATION 19
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES 20
EXHIBIT 11.1 21
EXHIBIT 27.1 22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Modern Medical Modalities Corporation
We have made a review of the consolidated balance sheet of Modern Medical
Modalities Corporation and Subsidiaries as of June 30, 1996, the related
consolidated statements of operations for the three and six month periods ended
June 30, 1996 and 1995, and the related consolidated statements of cash flows
for the six month periods ended June 30, 1996 and 1995, in accordance with
standards established 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 Modern Medical Modalities
Corporation and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended not presented herein; and in our report dated March 8, 1996
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1995, is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
New York, New York
August 2, 1996
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 618,810 $ 984,326
Accounts receivable (less contractual
allowances of $2,101,620 and $1,556,114,
respectively) 3,920,821 2,695,096
Note receivable - affiliate - 100,000
Due from affiliate 202,947 243,556
Prepaid expenses 94,657 77,294
--------- ---------
Total current assets 4,837,235 4,100,272
--------- ---------
Other assets
Furniture, fixtures, equipment and leasehold
improvements (net of accumulated
depreciation and amortization of
$3,354,185 and $2,569,209, respectively) 11,325,450 11,051,593
Note receivable - affiliate 1,000,000 1,000,000
Deposits 185,743 181,678
Organization costs (net of accumulated
amortization of $12,169 and $7,939,
respectively) 36,698 40,928
Investment in a joint venture 81,881 164,320
---------- ----------
Total other assets 12,629,772 12,438,519
---------- ----------
TOTAL ASSETS $17,467,007 $16,538,791
----------- -----------
----------- -----------
See Notes to Consolidated Financial Statements.
4
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit $ 644,750 $ 496,750
Current portion of long-term debt 2,844,536 1,917,813
Accounts payable 849,381 583,355
Accrued expenses 272,941 347,180
Due to affiliates 227,743 109,170
---------- ----------
Total current liabilities 4,839,351 3,454,268
---------- ----------
Other liabilities
Long-term debt, net of current portion 7,610,325 7,843,911
Deferred income taxes 538,628 531,669
Due to joint venturer 216,975 225,717
---------- ----------
Total other liabilities 8,365,928 8,601,297
---------- ----------
TOTAL LIABILITIES 13,205,279 12,055,565
---------- ----------
Minority interest 268,899 155,690
---------- ----------
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value,
5,000,000 shares authorized,
3,168,292 shares issued and outstanding 317 317
Additional paid-in capital 3,728,411 4,086,413
Retained earnings 264,101 240,806
----------- -----------
TOTAL STOCKHOLDERS'
EQUITY 3,992,829 4,327,536
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $17,467,007 $16,538,791
----------- -----------
----------- -----------
See Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months
ended June 30, ended June 30,
------------------------ ----------------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Operating income
Net revenue from services $2,260,630 $1,592,082 $4,170,379 $2,556,047
Management fees 95,341 127,263 219,098 214,409
Marketing revenues 152,308 113,159 247,827 209,432
--------- --------- --------- ---------
Total operating income 2,508,279 1,832,504 4,637,304 2,979,888
--------- --------- --------- ---------
Operating expenses
Selling, general and administrative
expenses 1,506,669 970,978 2,683,330 1,797,711
Expenses associated with
management fee income 93,776 127,500 177,011 243,725
Expenses associated with marketing
revenues 218,902 132,380 379,520 249,114
Bad debts 28,282 23,140 47,610 42,888
Depreciation and amortization 416,309 304,814 784,545 488,737
--------- --------- ---------- ---------
Total operating expenses 2,263,938 1,558,812 4,072,016 2,822,175
--------- --------- ---------- ---------
Income from operations 244,341 273,692 565,288 157,713
--------- --------- ---------- ---------
Other income and (expenses)
Interest income 9,481 17,348 20,429 39,787
Interest expense (371,835) (184,824) (705,113) (337,369)
Miscellaneous income 165,872 2,644 231,954 23,499
Income from a joint venture 6,761 27,504 43,310 49,041
--------- --------- ---------- ---------
(189,721) (137,328) (409,420) (225,042)
--------- --------- ---------- ---------
Income (loss) from continuing
operations before income taxes
(benefit), and minority interest 54,620 136,364 155,868 (67,329)
Income taxes (benefit) 2,750 48,707 8,805 (27,642)
--------- --------- ---------- ---------
Income (loss) from continuing
operations before minority
interest 51,870 87,657 147,063 (39,687)
Minority interest 42,663 19,563 123,768 14,144
--------- --------- ---------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 9,207 68,094 23,295 (53,831)
Income (loss) from discontinued
operations, net of income tax effect
of $25,666 and ($12,358), respectively - 45,561 - (19,370)
--------- --------- ---------- ---------
NET INCOME (LOSS) $9,207 $113,655 $23,295 $(73,201)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
(Unaudited)
Three Months Six Months
ended June 30, ended June 30,
--------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(Restated) (Restated)
Number of shares outstanding
<S> <C> <C> <C> <C>
Primary 3,168,292 3,088,292 3,168,292 3,088,292
Fully diluted 4,203,292 4,123,292 4,203,292 4,123,292
Stock to be issued - 80,000 - 80,000
Weighted average shares outstanding
Primary 3,168,292 3,116,137 3,168,292 3,116,137
Fully diluted 4,203,292 4,123,292 4,203,292 4,123,292
Earnings per share - primary
Income (loss) from
continuing operations $ - $ 0.02 $ 0.01 $ (0.02)
Income (loss) from
discontinued operations - 0.02 - -
NET INCOME (LOSS) $- Nil - $ 0.04 $ 0.01 $ (0.02)
Earnings per share - fully diluted
Income (loss) from
continuing operations $ - $ 0.02 $ 0.01 $(0.02)
Income (loss) from
discontinued operations - 0.01 - -
NET INCOME (LOSS) $- Nil - $ 0.03 $ 0.01 $(0.02)
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
---- ----
(RESTATED)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 23,295 $(73,201)
Adjustments to reconcile net income (loss) to net cash
provided by(used in) operating activities
Depreciation and amortization 784,545 488,737
Contractual allowances 875,624 90,538
Bad debts 47,610 42,888
Income from an unconsolidated joint venture (43,310) (49,041)
Minority interest 113,209 545
Deferred income taxes 6,959 140,934
Increase (decrease) in cash attributable to changes in
operating assets and liabilities
Accounts receivable (2,506,961) (563,189)
Management fee receivable - (224,217)
Deferred charges - (127,484)
Due from affiliate 40,609 (551,790)
Other receivable - (60,753)
Prepaid expenses (17,363) (106,184)
Due to affiliate 118,573 -
Accounts payable 266,026 302,496
Accrued expenses (74,239) 116,241
Income taxes payable - (200)
--------- ----------
Net cash used in operating activities (365,423) (573,680)
---------- ----------
Cash flows from investing activities
Payments for acquisition of furniture, fixtures,
equipment and leasehold improvements (177,712) (545,199)
Purchase of short-term investments - (600,000)
Note receivable - affiliate 100,000 -
Deposits (4,065) 278,625
Distributions from a joint venture 125,750 60,221
Net assets of discontinued subsidiary - 19,370
---------- ----------
Net cash provided by (used in) investing activities 43,973 (786,983)
---------- ----------
Cash flows from financing activities
Lines of credit 148,000 281,750
Proceeds from long-term debt 595,412 -
Due to joint venturer (8,742) (10,034)
Due to/from managing agent - 153,227
Payments on capitalized lease obligations and long-term debt (778,736) (477,977)
---------- ----------
Net cash used in financing activities (44,066) (53,034)
---------- ----------
Net decrease in cash and cash equivalents (365,516) (1,413,697)
Cash and cash equivalents at beginning of period 984,326 2,006,836
---------- ----------
Cash and cash equivalents at end of period $ 618,810 $ 593,139
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Six Months ended June 30,
-------------------------
1996 1995
---- ----
(Restated)
Supplemental disclosures of cash flow information
<S> <C> <C>
Cash paid during the period
Interest $532,771 $ 337,369
Income taxes $ 1,847 $ 525
Non-cash transactions
Capital lease obligation in connection with the acquisition
of certain assets and the assumption of certain liabilities
of Central Imaging Partners, Limited Partnership $ - $2,738,834
Common stock to be issued in connection with acquisition of
assets of Central Imaging Partners, Limited Partnership $ - $ 200,000
Capital lease obligation in connection with the
construction of MRI Imaging Center at Passaic
Beth Israel and the acquisition of medical equipment $ - $2,006,860
Capital lease obligation in connection with acquisition
of medical equipment for Open MRI of Morristown $876,461 $ -
Accounts receivable due from Prime Contracting Corp.
charged against additional paid-in capital $358,002 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
1 - ORGANIZATION AND BASIS OF PRESENTATION
Modern Medical Modalities Corporation (the "Company") was incorporated in
the State of New Jersey on December 6, 1989. The Company provides high
technology medical equipment and management services to hospitals and
physicians.
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, Medical Marketing & Management, Inc.,
Somerset Imaging Corporation, South Plainfield Imaging, Inc., Medi Corp,
USA, South Jersey Medical Equipment Leasing Corporation, Empire State
Imaging Associates, Inc., Detex Medical Services, Inc., Amherst Medical
Equipment Leasing Corporation, and its majority owned joint ventures,
Plainfield MRI Associates, Joint Venture, MRI Imaging Center at PBI, Open
MRI of Morristown, Inc. and Doctors Imaging Associates, Joint Venture. The
Company has an 84%, 75%, 72% and 50% interest, respectively, in the joint
ventures, by contract manages the joint ventures and has unilateral
control. Investment in an unconsolidated joint venture, Union Imaging
Associates, Joint Venture, in which the Company has a 10% interest and
significant influence, is accounted for on the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated balance sheet as of June 30, 1996 and the consolidated
statements of operations for the three and six month periods ended June 30,
1996 and 1995 and the consolidated statements of cash flows for the six
month periods ended June 30, 1996 and 1995 have been prepared by the
Company 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 December 31, 1995, which is
incorporated herein by reference. Specific reference is made to this
report for a description of the Company's securities and the notes to
financial statements included therein.
The carrying amounts of cash, accounts receivable, short-term notes
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 notes receivable
and 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 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 results of operations for the three and six month periods ended June
30, 1996 and 1995 are not necessarily indicative of the results to be
expected for the full year.
Certain items in the 1995 financial statements have been reclassified to
conform with the 1996 presentation. These reclassifications had no effect
on the financial position, net income (loss) or changes in stockholders'
equity for the periods presented.
2 - EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of common stock and common stock equivalent shares
outstanding during each period.
10
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
3 - ACQUISITIONS AND DISPOSAL OF SUBSIDIARY
ACQUISITION
On November 1, 1994, the Company acquired Prime Contracting Corp. ("Prime")
in a business combination accounted for as a pooling of interests. Prime
is a full service contractor who provides turnkey design and construction
services and became a wholly-owned subsidiary of the Company, through the
exchange of 112,457 shares of the Company's common stock (market value of
$650,000) for all of the shares of the outstanding stock of Prime. The
accompanying consolidated financial statements are based on the assumption
that the companies were combined for the full year, and financial
statements of prior years have been retroactively restated to give effect
to the combination.
RESTATEMENT
The financial statements as of and for the six months ended June 30, 1995
had previously treated the acquisition under the purchase method. The
financial statements have been restated to correct this error. The effect
of the restatement was to decrease the net loss by approximately $3,600 and
$600, respectively, for the six and three months ended June 30, 1995.
DISPOSAL
On December 27, 1995, the Company entered into an agreement, as modified in
March 1996, with a related party to sell all of the common stock of Prime
for $1,200,000, payable as follows: $100,000 upon execution, $100,000 at
closing and a promissory note bearing interest at prime plus one percent.
The note is payable in two installments, $600,000 on October 27, 1997, and
$400,000 on April 27, 1998. If Prime's gross annual revenue for the
calendar year 1996 falls below $3,000,000, then the final payment of
$400,000 shall be forfeited.
The Company has recorded an increase of $987,554, in December 1995, to
additional paid-in capital which represents the excess of the sale price
over the net assets of Prime. In conjunction with the modified agreement,
the Company's accounts receivable due from Prime of approximately $358,000
has been charged against additional paid-in capital.
4 - PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at June 30, 1996
(unaudited) and December 31, 1995:
June 30, December 31,
1996 1995
-------- ---------
(unaudited)
Medical equipment $13,079,812 $ 12,047,375
Buildings 310,860 310,860
Furniture and fixtures 105,457 100,956
Automobiles 22,860 22,860
Leasehold improvements 1,160,646 1,138,751
----------- -----------
Total 14,679,635 13,620,802
Less: Accumulated depreciation and amortization 3,354,185 2,569,209
----------- -----------
Property and equipment, net $11,325,450 $11,051,593
----------- -----------
----------- -----------
11
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
5 - INVESTMENT IN AN UNCONSOLIDATED JOINT VENTURE
Summarized financial information of the unconsolidated joint venture, Union
Imaging Associates, Joint Venture, in which the Company has a 10% minority
interest is as follows:
Total Long-Term Total Total
Assets Debt Liabilities Capital
---------- ------ ------------ ---------
June 30, 1996
(unaudited) $3,260,082 $1,334,058 $2,503,241 $756,841
December 31, 1995 3,251,821 1,550,917 1,679,846 1,571,975
(10%)
Gross Net Allocation
Revenues Income of Income
--------- ------- ----------
Six months ended
June 30, 1996 (unaudited) $2,161,275 $433,095 $43,310
Year ended December 31, 1995 3,127,608 543,317 54,332
6 - LINES OF CREDIT
In April 1995, the Company secured a one year line of credit with Summit
Bank of New Jersey for $600,000 at the bank's prime rate for commercial
borrowers. The line was renewed for an additional year in April 1996. As
of June 30, 1996, the amount of the liability under the line of credit was
$599,750. The line of credit is secured by a certificate of deposit in the
amount of $600,000.
In April 1996, the Company obtained an unsecured line of credit with
Republic National Bank for $100,000 at the bank's prime rate for commercial
borrowers plus one percent. As of June 30, 1996, the amount of liability
under the line of credit was $45,000.
7 - LONG TERM DEBT
Long-term debt at June 30, 1996 (unaudited) and December 31, 1995 consists
of the following:
June 30, December 31,
1996 1995
---------- ----------
(unaudited)
Construction financing $ 288,889 $ 290,332
Accounts receivable financing 595,412 -
Capital lease obligations 9,570,560 9,471,392
---------- ----------
Total 10,454,861 9,761,724
Less: Amounts due in one year 2,844,536 1,917,813
---------- ----------
Total long-term debt $7,610,325 $7,843,911
---------- ----------
---------- ----------
continued . . .
12
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
7 - LONG TERM DEBT (CONTINUED)
NEW SITE FINANCING - OPEN MRI OF MORRISTOWN PROJECT
In October 1995, the Company entered into a joint venture agreement with
RMC Consulting, Inc. and two individuals to develop a MRI facility located
in Morristown, New Jersey. In December 1995, Open MRI of Morristown, Inc.
(Open MRI), a majority owned joint venture was formed. Open MRI accepted
delivery of a new Picker Outlook Whole Body MRI System from Picker
International and opened in February 1996. The Company had entered into an
agreement with DVI Financial Services, Inc. (DVI) to provide permanent
financing aggregating $1,187,786 on this new site. This amount is payable
over 63 months at monthly payments of $11,158 for the first three months
and $25,598 per month for the next 60 months.
ACCOUNTS RECEIVABLE FINANCING
The Company has entered into an agreement with an affiliated company to
finance its receivable from the Company's unconsolidated joint venture.
Advances would bear interest at the prime rate plus five percent. At June
30, 1996, there were no advances outstanding.
The Company has entered into two separate agreements with DVI Business
Credit to finance up to $1,000,000 and $750,000 of the accounts receivable
balances from the Company's unconsolidated joint venture and from two of
the Company's joint ventures and one of its subsidiaries. The agreements
extend to March 1998 and June 1998, respectively, with consecutive one year
renewal terms. The agreements are non-cancelable, except in the event of a
default by the Company. At June 30, 1996, the amounts financed under these
agreements totalled $864,852 and $595,412, respectively, with interest
payable monthly at the prime rate plus four percent.
CAPITAL LEASE OBLIGATIONS
Capital lease obligations are collateralized by property and equipment
having an approximate original cost of $13,067,000 and an approximate net
book value of $10,168,000 at June 30, 1996.
8 - SUBSEQUENT EVENTS
In July 1996, the Company, through its wholly-owned subsidiary West
Paterson Medical Equipment Leasing Corporation ("WPMEL"), entered into a
lease and management services agreement with Advanced Imaging & Radiology
Associates, P.A. ("M.D."). The agreement provides that WPMEL will lease
office space, fixtures and equipment and will provide management services
to M.D. over an initial term of five years with a five year renewal
option. The site, located in West Paterson, N.J., is a medical practice
specializing in diagnostic imaging.
In July 1996, the Company, through its wholly-owned subsidiary Ohio Medical
Equipment Leasing Corporation ("OME"), entered into a purchase and
consulting agreement with Medical Advances, Inc. ("Medical") to acquire an
interest as a general (managing) partner of Sylvania Diagnostics
("Sylvania"), an Ohio Limited Partnership, for one dollar. The interest
acquired represents 50.2% of the total units outstanding. Sylvania is a
diagnostic imaging center located in Sylvania, Ohio.
The Company also entered into an agreement with DVI which provides for
$135,000 of working capital advances which are only to be used for
operating Sylvania. If the Company determines that operating Sylvania is
not profitable, DVI will purchase either Sylvania or OME for one dollar.
13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the financial statements and notes thereto included
elsewhere herein.
In 1994, Modern Medical Modalities Corporation (the "Company") started Medical
Marketing & Management, Inc. which markets the sites of the Company, and sites
for other physician groups and hospitals. In November 1994, the Company
acquired Prime Contracting Corp. ("Prime") in a business combination accounted
for as a pooling of interests. Prime is a full service contractor who provides
turnkey design and construction services for medical facilities primarily on the
east coast of the United States. On December 27, 1995, the Company entered into
an agreement with a related party to sell all of the common stock of Prime for
$1,200,000.
In addition, the Company during 1995 purchased an imaging center located in
Yonkers, New York (Empire State Imaging Associates, Inc.) ("Empire State"). The
Company commenced operations during the second, third and fourth quarters of
1995 and the first quarter of 1996, respectively, at sites located in Passaic
and Somerset, New Jersey, Amherst, New York and Morristown, New Jersey. Many of
the fluctuations on the line items on the balance sheets and the statements of
operations are directly attributable to the acquisition and start-up of these
entities.
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1995:
Operating revenues for Modern Medical Modalities Corporation and subsidiaries
aggregated approximately $4,637,000 in 1996 as compared to approximately
$2,980,000 in 1995. The increase in revenue is directly attributable to an
increase in the patient service revenue for the Company's various MRI sites in
the amount of $1,614,000.
Operating expenses for 1996 aggregated approximately $4,072,000 as compared to
$2,822,000 in 1995. This increase of approximately $1,250,000 is primarily the
result of an increase in depreciation and amortization expense of approximately
$296,000 resulting from the increase in fixed assets and the increase in the
following:
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
This category of expenses has increased by approximately $885,000 when comparing
1996 to 1995. Approximate increases attributable to sites that were not in 1995
expenses or in 1995 for only a portion of the six months are as follows:
Empire State $ 414,000 Payroll, Rent, Supplies, Office Expenses
Amherst 96,000 Payroll, Rent, Office Expenses
Open MRI of Morristown 134,000 Payroll, Supplies, Office Expenses
----------
Total $ 644,000
----------
----------
EXPENSES ASSOCIATED WITH MARKETING REVENUE
Expenses associated with marketing revenues increased by approximately $130,000
when comparing 1996 and 1995. This increase is due to the additional employees
and expenses related to the operation (travel, trade shows, etc.) needed by
Medical Marketing & Management, Inc. to market the increased number of Company
sites and increased number of marketing contracts with outside physician groups.
14
<PAGE>
INTEREST EXPENSE
Interest expense has increased by approximately $368,000 when comparing 1996 and
1995. This increase is attributable primarily to the financing of equipment at
Empire State, MRI Imaging Center at PBI, Somerset Imaging Corporation, Amherst
Medical Equipment Leasing Corporation, Open MRI of Morristown, as well as
interest on the lines of credit with Summit Bank of New Jersey, Republic
National Bank, and financing with DVI Business Credit.
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1995:
Operating revenues for Modern Medical Modalities Corporation and subsidiaries
aggregated approximately $2,508,000 in 1996 as compared to approximately
$1,833,000 in 1995. The increase in revenue is directly attributable to an
increase in the patient service revenue for the Company's various MRI sites in
the amount of $669,000.
Operating expenses for 1996 aggregated approximately $2,264,000 as compared to
$1,559,000 in 1995. This increase of approximately $705,000 is primarily the
result of an increase in depreciation and amortization expense of approximately
$112,000 resulting from the increase in fixed assets and the increase in the
following:
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
This category of expenses has increased by approximately $536,000 when comparing
1996 to 1995. Approximate increases attributable to sites that were not in 1995
expenses are as follows:
Empire State $ 255,000 Payroll, Rent, Supplies, Office Expenses
Amherst 35,000 Payroll, Rent, Office Expenses
Open MRI of Morristown 115,000 Payroll, Supplies, Office Expenses
----------
Total $ 405,000
----------
----------
EXPENSES ASSOCIATED WITH MARKETING REVENUE
Expenses associated with marketing revenues increased by approximately $87,000
when comparing 1996 and 1995. This increase is due to the additional employees
and expenses related to the operation (travel, trade shows, etc.) needed by
Medical Marketing & Management, Inc. to market the increased number of Company
sites and increased number of marketing contracts with outside physician groups.
INTEREST EXPENSE
Interest expense has increased by approximately $187,000 when comparing 1996 and
1995. This increase is attributable primarily to the financing of equipment at
Empire State, MRI Imaging Center at PBI, Somerset Imaging Corporation, Amherst
Medical Equipment Leasing Corporation, Open MRI of Morristown, as well as
interest on the lines of credit with Summit Bank of New Jersey, Republic
National Bank and financing with DVI Business Credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a commitment from the minority-owned joint venturer in Doctors
Imaging Associates, Joint Venture, to provide up to $250,000 from time to time,
for working capital purposes, as the Company deems necessary. Advances from
this joint venturer totaled $216,975 as of June 30, 1996 and $225,717 as of
December 31, 1995.
The Company has a working capital deficit of $2,116 at June 30, 1996 as compared
to a working capital surplus of $646,004 at December 31, 1995. This decrease is
primarily attributable to the $358,000 of accounts receivable from Prime which
has been charged against additional paid-in capital and start-up costs for the
new sites which commenced operations in 1996.
continued . . .
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued)
During 1995, the Company secured a line of credit with Summit Bank of New Jersey
("Summit Bank") in the amount of $600,000. Under the terms of the agreement,
the rate on the line is at the prevailing prime rate. To secure the line, the
Company opened a certificate of deposit at Summit Bank.
In April 1996, the Company obtained a $100,000 line of credit with Republic
National Bank for the Empire State location. The rate on the line is prime plus
one percent.
In March 1996, the Company entered into an agreement with DVI Business Credit to
finance up to $750,000 of the accounts receivable balances at three of its
subsidiaries. Advances bear interest at the prime rate plus four percent. At
June 30, 1996, the total outstanding advances is $595,412.
These are the only trends, commitments, events and/or material uncertainties
known to the Company.
The Company reassigned $10,000 of a deposit with Picker International, for the
Open MRI of Morristown site, which commenced operations in February 1996.
Additionally, the Company has purchased from Advance Healthcare Resources Inc.
the rights to a Varian linear accelerator for $20,000. The accelerator, which
is manufactured by Varian, Inc. is not subject to newly enacted New Jersey laws
requiring a Certificate of Need (CON) for the installation of such equipment.
In November 1994, the Company, pursuant to a written Agreement, acquired
Prime Contracting Corp. ("Prime") of Union, New Jersey in a business combination
accounted for as a pooling of interests. The Company purchased all of the
issued and outstanding shares of Prime's common stock in exchange for 112,457
shares of the Company's common stock. Prime became a subsidiary of the Company,
effective as of November 1, 1994. Prime is a full service contractor that has
provided turnkey design and construction services. Prime builds free standing
structures and renovates existing facilities with an emphasis in room
renovations for hospitals and private medical facilities.
On December 27, 1995, the Company entered into an agreement, as modified in
March 1996, with a related party to sell all of the common stock of Prime for
$1,200,000 payable as follows: $100,000 upon execution, $100,000 at closing and
a promissory note bearing interest at prime plus one percent. The note is
payable in two installments, $600,000 on October 27, 1997 and $400,000 on April
27, 1998. If Prime's gross annual revenue for the calendar year 1996 falls
below $3,000,000, then the final payment of $400,000 shall be forfeited.
The Company recorded an increase of $987,554, in December 1995, to shareholders'
equity which represents the excess of the sale price over the net assets of
Prime. In conjunction with the modified agreement in March 1996, the Company's
accounts receivable due from Prime of approximately $358,000 has been charged
against additional paid-in capital.
In April 1995, the Company formed a New York corporation, Empire State Imaging
Associates, Inc. ("Empire State"). On April 28, 1995, Empire State, which is
100% owned by the Company, purchased for $750,000 in cash and $200,000 of the
Company's stock, assets and certain liabilities of Central Imaging Associates,
Limited Partnership ("Central Imaging"), an entity that leases MRI, CT and
various diagnostic imaging equipment. Empire State will provide space,
equipment (MRI, CT, Mammography, Ultrasound and Diagnostic Imaging) and
nonprofessional services, including management and billing and collection
functions to Central Imaging located in Yonkers, New York.
Empire State, has entered into a Loan and Security Agreement ("Loan Lease") with
a non-affiliated party, DVI Financial Services, Inc., dated May 5, 1995, which
provides for the purchase of MRI, CT and diagnostic imaging equipment payable
over a 60 month term with payments each of $61,350 (the "Basic Rent"), which is
being charged as an expense of the business. This equipment is located in
Yonkers, New York.
continued . . .
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued)
In April 1995, Amherst Medical Equipment Leasing Corporation, a wholly-owned
subsidiary, of the Company, was formed. The site, located in Amherst New York,
commenced operations in January 1996.
In June 1995, the MRI at the Passaic site began operation. The site is a joint
venture between Passaic Beth Israel Hospital and the Company.
In February 1996, Open MRI of Morristown (Open MRI), a majority owned Joint
venture, commenced operations. The site, located in Morristown, New Jersey, is
a joint venture between a large medical group and Open MRI.
In July 1996, the Company, through its wholly-owned subsidiary West Paterson
Medical Equipment Leasing Corporation ("WPMEL"), entered into a lease and
management services agreement with Advanced Imaging & Radiology Associates, P.A.
("M.D."). The agreement provides that WPMEL will lease office space, fixtures
and equipment and will provide management services to M.D. over an initial term
of five years with a five year renewal option. The site, located in West
Paterson, N.J., is a medical practice specializing in diagnostic imaging.
In July 1996, the Company, through its wholly-owned subsidiary Ohio Medical
Equipment Leasing Corporation ("OME"), entered into a purchase and consulting
agreement with Medical Advances, Inc. ("Medical") to acquire an interest as a
general (managing) partner of Sylvania Diagnostics, an Ohio Limited Partnership
("Sylvania") for one dollar. The interest acquired represents 50.2% of the
total units outstanding. Sylvania is a diagnostic imaging center located in
Sylvania, Ohio.
The Company also entered into an agreement with DVI which provides for $135,000
of working capital advances which are only to be used for operating Sylvania.
If the Company determines that operating Sylvania is not profitable, DVI will
purchase either Sylvania or OME for one dollar.
VALUATION OF ACCOUNTS RECEIVABLE
The Company values its uncollected accounts receivable as part of its
determination of profit. The Company constantly reviews the accounts receivable
valuation. The continuing monthly review, gathering of additional information,
as well as changing reimbursement rates, may cause adjustments to the accounts
receivable valuation.
HEALTHCARE SYSTEM
The healthcare system is in a state of change and will continue so for the next
several years. Small medical group practices are referring patients to free
standing centers as an alternative to costly hospital care. The cost of this
medical equipment and the patient volume needed to justify the expenditure is
not practical for individual and small group practices. Providing MRI and CT
scans for these physicians in these free standing centers offers an attractive
method to protect eroding income, offer state-of-the-art technology and maintain
patient loyalty.
LEGISLATION
Legislation has been passed in some states that will restrict the physicians in
joining joint ventures such as those of the Company. In New Jersey, any site
already in existence has been excluded from this legislation. This legislation
was enacted in July 1991.
Federal guidelines also known as "Safe Harbor" guidelines have been established
that will limit physicians to the number of Medicare patients they can refer to
an outpatient facility in which they have a financial interest.
A commission has been appointed by the Federal government to review the delivery
of healthcare on a national level. Although many alternatives have been
discussed, it is impossible to determine at this time what changes will be
enacted or the affect on the Company's business.
continued . . .
17
<PAGE>
LEGISLATION (Continued)
In order to curb the potential for fraud and abuse under the Medicare and
Medicaid programs, Congress has enacted certain laws (the Anti-Kickback Laws")
prohibiting the payment or receipt of any remuneration in return for the
referral of patients to a healthcare provider for the furnishing of medical
services of equipment, the payment for which may be made in whole or in part by
the Medicare or Medicaid programs. It should be noted that the Anti-Kickback
Laws apply to both sides of the referral relationship: the provider making the
referral and the provider receiving the referral.
Violation of the Anti-Kickback Laws is a criminal felony punishable by fines of
up to $25,000 and/or up to five years imprisonment for each violation. Federal
law also permits the Department of Health and Human Services ("HHS") to assess
civil fines against violators of the Anti-Kickback Laws and to exclude them from
participation in the Medicare and Medicaid programs. These civil sanctions can
be imposed in proceedings that do not involve the same procedural requirements
and standards of proof as would be required in a criminal trial. Even though
the Joint Ventures have physician investors, the Anti-Kickback laws will not
have an effect on the Company's operations because the Company does not bill
Medicare and Medicaid for medical services as it only leases equipment.
HHS has proposed regulations specifying "safe harbors" for various payment
practices between healthcare providers and their referral sources. If a payment
practice were to come within the safe harbor, it would not be treated as an
illegal Medicare/Medicaid kickback which is a ground for exclusion from the
Medicare/Medicaid programs. While failure to fall within a safe harbor does not
mean that the practice is illegal, HHS had indicated that it may give such
arrangements closer scrutiny. In their present proposed form, no safe harbor
would cover an investment interest in the Company. It is likely that this bill
will be reintroduced in future sessions. The Company cannot predict whether
these regulatory or statutory provisions will be enacted by federal or state
authorities which would prohibit or otherwise regulate referrals by physicians
to the Company thereby having a material adverse effect on the Company's
operations.
The "Stark Bill" extends the prohibition against physician self-referral, which
had previously been applicable only to clinical\laboratory services, to several
additional services, but also sets forth several exceptions to the ban, which
the following outlines: In general, the Bill provides that a physician with an
ownership or investment interest in or a compensation agreement with an entity
is prohibited from making referrals to that entity for the furnishing of
designated health services for which Medicare payment would otherwise be made.
Designated health services under the Bill include (1) clinical laboratory
services; (2) physical therapy services; (3) occupational therapy services; (4)
radiology or other diagnostic services; (5) radiology therapy services; (6) the
furnishing of durable medical equipment; (7) parental and enteral nutrients,
equipment and supplies; (8) prosthetics, orthotics and prosthetic devices (9)
home health services; (10) outpatient prescription drugs; and (11) inpatient and
outpatient hospital services. This bill is effective for referrals made on or
after January 1,1992, for clinical laboratory services; and effective for
referrals made after December 31, 1994, in the case of other designated health
services. While this bill has not affected the Company at this time, it may
have an adverse effect limiting Medicare and Medicaid referrals by physicians
who are investors in the Joint Venture.
In 1991, New Jersey enacted the Health Care Cost Reduction Act, or so-called
"Codey Bill", (N.J.S.A. 45: 9-22.4 et seq.) which provided in part that a
medical practitioner shall not refer a patient, or direct one of its employees
to refer a patient, to a health care service in which the practitioner and/or
the practitioner's immediate family had any beneficial interest. The bill
specifically provided that for beneficial interests which were created prior to
the effective date of the Act, July 31, 1991, the practitioner could continue to
refer patients, or direct an employee to do so, if the practitioner disclosed
such interest to his patients. The disclosure must take the form of a sign
posted in a conspicuous place in the practitioner's office informing the
patients of such interest and stating that a listing of alternative health care
service providers could be found in the telephone directory. All physicians who
refer to the Company's sites in New Jersey and also have a financial interest in
those sites have a sign posted as mandated by the law.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11. See notes to interim consolidated financial statements, Note 2,
regarding computation of per share earnings.
11.1 Computation of per share earnings
27.1 Financial data schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
quarterly period ended June 30, 1996.
19
<PAGE>
CONFORMED
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MODERN MEDICAL MODALITIES CORPORATION
-------------------------------------
(Registrant)
Date: November 27, 1996 /s/Patrick O'Connor
-------------------------------------
Patrick O'Connor
Acting President
Date: November 27, 1996 /s/Gregory Maccia
-------------------------------------
Gregory Maccia
Vice President and Secretary
Date: November 27, 1996 /s/Jan Goldberg
-------------------------------------
Jan Goldberg
Vice President and Treasurer
20
<PAGE>
Exhibit 11.1
<TABLE>
<CAPTION>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three Months Six Months
ended June 30, ended June 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Restated) (Restated)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 9,207 $ 113,655 $ 23,295 $(73,201)
--------- ---------- --------- ---------
--------- ---------- --------- ---------
PRIMARY
Weighted average shares 3,168,292 3,088,292 3,168,292 3,088,292
Assumed conversions
A warrants and B warrants - 27,845 - 27,845
--------- ---------- --------- ---------
Total weighted average
shares outstanding 3,168,292 3,116,137 3,168,292 3,116,137
--------- ---------- --------- ---------
Income (loss) from
continuing operations $ - $ 0.02 $ 0.01 $ (0.02)
Income (loss) from
discontinued operations - 0.02 - -
--------- --------- --------- ---------
Net income (loss) per share $- Nil - $ 0.04 $ 0.01 $ (0.02)
---------- --------- --------- ---------
---------- --------- --------- ---------
FULLY DILUTED
Weighted average shares 3,168,292 3,088,292 3,168,292 3,088,292
Assumed conversions
A warrants and B warrants 1,035,000 1,035,000 1,035,000 1,035,000
--------- --------- --------- ---------
Total weighted average
shares outstanding 4,203,292 4,123,292 4,203,292 4,123,292
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) from
continuing operations $ - $ 0.02 $ 0.01 $ 0.02
Income (loss) from
discontinued operations - 0.01 - -
---------- --------- --------- ---------
Net income (loss) per share $- Nil - $ 0.03 $ 0.01 $ (0.02)
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, AND CONSOLIDATED STATEMENTS OF INCOME OF THE COMPANY IN THE
COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996 JUN-30-1995
<CASH> 618,810 0 0
<SECURITIES> 0 0 0
<RECEIVABLES> 6,022,441 0 0
<ALLOWANCES> (2,101,620) 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 4,837,235 0 0
<PP&E> 14,679,635 0 0
<DEPRECIATION> 3,354,185 0 0
<TOTAL-ASSETS> 17,467,007 0 0
<CURRENT-LIABILITIES> 4,839,351 0 0
<BONDS> 7,610,325 0 0
0 0 0
0 0 0
<COMMON> 317 0 0
<OTHER-SE> 4,092,512 0 0
<TOTAL-LIABILITY-AND-EQUITY> 17,467,007 0 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 4,637,304 2,979,888
<CGS> 0 0 0
<TOTAL-COSTS> 0 4,072,016 2,822,175
<OTHER-EXPENSES> 0 409,420 225,042
<LOSS-PROVISION> 0 47,610 42,888
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 0 155,868 (67,329)
<INCOME-TAX> 0 8,805 (27,642)
<INCOME-CONTINUING> 0 23,295 (53,831)
<DISCONTINUED> 0 0 (19,370)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 0 23,295 (73,201)
<EPS-PRIMARY> 0 0.01 (0.02)
<EPS-DILUTED> 0 0.01 (0.02)
</TABLE>
