<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended
September 30, 1998
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________________ to _________________
Commission File Number
0-23416
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MODERN MEDICAL MODALITIES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3059258
---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
95 Madison Avenue, Suite 301, Morristown, NJ 07960
--------------------------------------------------
(Address principal executive offices) (zip code)
Registrant's telephone number, including area code (973) 538-9955
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities and Exchange act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the most recent practicable date.
Common Stock - Par Value $.0001 3,518,292
------------------------------- -------------------------
Class Outstanding Shares At
September 30, 1998
<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 included in Part 1, Item 1.
RESULTS OF OPERATIONS:
For the three months ended September 30, 1998 as compared to the three
months ended September 30, 1997:
Net revenues from services aggregated $1,201,000 in 1998 as compared to
$2,425,000 in 1997. The decrease in revenues is attributable to a decrease in
patient service revenues of approximately $1,100,000 resulting from the sale of
Somerset Medical Equipment Leasing Corp.($200,000), the sale of Sylvania
Diagnostics, LP ($400,000), increased competition and reduced fee per procedure
($450,000). Marketing fees have decreased approximately $150,000 as a result of
expiring contracts.
Operating expenses for 1998 were $2,122,000 as compared to $2,091,000 in
1997. This increase of approximately $31,000 results from approximately
$400,000 relating to the start-up of Open MRI Center of Metaire, off-set by the
sale of Somerset Medical Equipment Leasing Corp. and Sylvania Diagnostics, LP.
INTEREST EXPENSE:
Interest expense decreased approximately $151,000 when comparing 1998 and
1997. This decrease is attributable to reduction of debt resulting from the sale
of Sylvania Diagnostics, LP and reduction of equipment debt in general.
LOSS ON SALE OF SUBSIDIARY:
Effective June 1, 1998, the Company sold its 35% interest in Central
Imaging of Yonkers, N.Y. incurring a loss on the sale of $743,000. The loss
consisted of unrecoverable investment in and advances to Central Imaging.
LOSS ON DISPOSAL OF SUBSIDIARY:
For the nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997:
Revenues for Modern Medical Modalities Corporation and subsidiaries
aggregated $5,221,000 as compared to $7,940,000 in 1997. The decrease in
revenues of approximately $2,719,000 is attributable to a decrease in patient
service revenues of approximately $2,450,000 primarily resulting from the sale
of Somerset Medical Equipment Leasing Corp. ($1,000,000), Sylvania Diagnostics,
LP ($500,000) and work in process adjustments made by the company and increased
competition ($950,000). Marketing fees decreased by approximately $360,000 as a
result of contracts expiring.
Operating expenses for 1998 were $6,797,137 as compared to $6,502,480 for
1997. This increase of approximately $294,657 resulted from an increase in
operating expenses as a result of the acquisition of start-up of Open MRI of
Metaire in the first quarter of 1998. These costs were partially off-set by
cost reduction during the second and third quarters.
In March of 1998, the Company sold to the KFC Venture LLC, 15% of Open MRI
and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon execution
of the agreement and $25,000 a month for six months. Under the terms of the
agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC without
interest before any profits can be distributed. Until such time, all
<PAGE>
distributions shall be divided equally with fifty percent of said distribution
being paid to KFC Ventures, LLC as a return of its initial capital investment up
to the amount of $125,000 and the other fifty percent of said distribution being
distributed to the members in accordance with their percentage interests in the
Company.
On May 7, 1998, the Company entered into an agreement to sell 70% of its
72% ownership of Open MRI of Morristown, Joint Venture (Open MRI) for $300,000.
The terms required $100,000 payable at signing, and monthly payments in the
amount of $50,000 on May 1, June 1, July 1 and August 1, 1998. The Company
retained the option to repurchase from the buyers, ADS Investment Corp. and Oak
Knoll Management Corporation (related party), the 70% interest upon payment of
$50,000 plus all prior payments and any additional costs incurred by the buyers.
The option expires on August 31, 1998.
In June 1998, the Company exercised its option to return its 50.2% interest
in a diagnostic imaging center located in Sylvania, Ohio. The $168,000
represents unrecoverable working capital advances made to that center.
On August 20, 1998, the Company, ADS Investment Corp. and Oak Knoll
Management Corporation (related party) modified the original agreement from a
sale to a loan. The terms of the new agreement are as follows: a loan in the
amount of $300,000, with interest due and payable at 12% per annum, secured by
70% of the Company's 72% ownership of Open MRI. The loan is due and payable on
September 30, 1998. The agreement also requires the personal guarantees made by
the lenders to DVI Business Credit Corporation on behalf of the Company be
replaced by September 30, 1998 as a condition of satisfactory settlement of the
loan. For services rendered between May 7, 1998 and the date of maturity of
this loan, all distributions made to the lending parties by Open MRI will remain
the property of the lending parties.
On September 30, 1998 the Company effectively sold 70% of its interest in
Open MRI for $300,000 and the purchaser's agreement to provide the Company's
creditor, DVI Business Credit, personal guaranties of the principals of
purchaser in an amount not to exceed $150,000. The Company recorded a gain on
this transaction in the amount of $30,171. The Company has retained a 2%
ownership interest in Open MRI.
In September 1998, the management contract with Southern Medical
Consultants LLP was terminated for the management of Open MRI of Metaire.
According to the letter agreement of March 30, 1998, if Southern Medical is not
active in the site nor managing the site through the end of the lease payments,
then no stock transfers will be made. No stock transfer has been made.
INTEREST EXPENSE:
Interest expense decreased approximately $117,000 when comparing 1998 and
1997. This decrease is attributable to the refinancing of various equipment and
the sale of Sylvania Diagnostics, LP.
RESTRUCTURING OF NOTE RECEIVABLE:
On March 3, 1998, the Company restructured the promissory note receivable
for the sale of Prime Contracting Corp. to a related party as follows: $200,000
in cash payable over 36 months, plus interest calculated at prime plus 1% and
the 36 month option to purchase 250,000 shares of the related party stock at
$.05. The Company recorded a loss from note receivable restructuring in the
approximate amount of $748,000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a working capital deficiency of $805,000 at June 30, 1998
as compared to a working capital surplus of $995,000 at December 31, 1997. The
loss on sale of subsidiary reduced working capital approximately $681,000 and
the restructuring of the note receivable for the sale of Prime Contracting Corp.
reduced working capital by $748,000 through June 30, 1998.
In March of 1998, the Company sold to the KFC Venture LLC, 15% of Open MRI
and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon execution
of the agreement and $25,000 a month for six months. Under the terms of the
agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC without
interest before any profits can be distributed. Until such time, all
distributions shall be divided equally with fifty percent of said distribution
being paid to KFC Ventures, LLC as a return of its initial capital investment up
to the amount of $125,000 and the other fifty percent of said distribution being
distributed to the members in accordance with their percentage interests in the
Company.
On May 7, 1998, the Company entered into an agreement to sell 70% of its
72% ownership of Open MRI of Morristown, Joint Venture (Open MRI) for $300,000.
The terms required $100,000 payable at signing, and monthly payments in the
amount of $50,000 on May 1, June 1, July 1 and August 1, 1998. The Company
retained the option to repurchase from the buyers, ADS Investment Corp. and Oak
Knoll Management Corporation (related party), the 70% interest upon payment of
$50,000 plus all prior payments and any additional costs incurred by the buyers.
The option expires on August 31, 1998.
On August 20, 1998, the Company, ADS Investment Corp. and Oak Knoll
Management Corporation (related party) modified the original agreement from a
sale to a loan. The terms of the new agreement are as follows: a loan in the
amount of $300,000, with interest due and payable at 12% per annum, secured by
70% of the Company's 72% ownership of Open MRI. The loan is due and payable on
September 30, 1998. The agreement also requires the personal guarantees made by
the lenders to DVI Business Credit Corporation on behalf of the Company be
replaced by September 30, 1998 as a condition of satisfactory settlement of the
loan. For services rendered between May 7, 1998 and the date of maturity of
this loan, all distributions made to the lending parties by Open MRI will remain
the property of the lending parties.
On September 30, 1998 the Company effectively sold 70% of its interest in
Open MRI for $300,000 and the purchaser's agreement to provide the Company's
creditor, DVI Business Credit, personal guaranties of the principals of
purchaser in an amount not to exceed $150,000. The Company recorded a gain on
this transaction in the amount of $30,171. The Company has retained a 2%
ownership interest in Open MRI.
In September 1998, the management contract with Southern Medical
Consultants LLP was terminated for the management of Open MRI of Metaire.
According to the letter agreement of March 30, 1998, if Southern Medical is not
active in the site nor managing the site through the end of the lease payments,
then no stock transfers will be made. No stock transfer has been made.
These are the only trends, commitments, events and/or material
uncertainties known to the Company.
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 rate, may cause adjustments to the accounts
receivable valuation.
<PAGE>
HEALTHCARE SYSTEM:
It is management's belief that the United States healthcare is in a state
of change and will continue so for the next several years. Management believes
that small medical group practices are referring and will continue to refer
patients to free standing centers as an alternative to costly hospital care as
the cost of the medical equipment and the patient volume needed to justify the
expenditure is not practical for individual and small group practices. The
companies providing MRI and CT scans for these physicians in these free standing
centers offers, in management's opinion, an attractive method for these
practices to protect eroding income, offer state-of-the-art technology and
maintain patient loyalty.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In December 1997, Modern Medical Modalities Corporation was one of the
named parties in a complaint by Stephen W. Findlay, the former
president of Prime Contracting Corporation, a former subsidiary of the
Company. Mr. Stephen W. Findlay alleges in his complaint that the
defendant, Modern Medical Modalities Corporation, terminated Mr.
Stephen W. Findlay's Employment Agreement without cause. The Company
filed a motion to dismiss itself from this action which is presently
pending in arbitration.
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
On August 25, 1998, The Company had its annual meeting and at that
meeting the Company elected Roger Findlay, Jan Goldberg, Gregory
Maccia, Fred Mancinelli and Carl Gideon as directors of the Company.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Modern Medical Modalities Corp.
We have reviewed the consolidated balance sheet of Modern Medical Modalities
Corp. and Subsidiaries as at September 30, 1998, and the related consolidated
statements of operations, and cash flows for the nine months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Modern Medical Modalities Corp. and
Subsidiaries as at December 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended not
presently herein, and in our report dated April 17, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as at
September 30, 1998 is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Vincent J. Batyr & Co.
Tarrytown, NY
November 5, 1998
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 107,936 $ 119,217
Restricted cash for line of credit repayment 600,000 600,000
Accounts receivable (less contractual allowances of
$2,253,077 and $2,475,004, respectively) 2,911,242 4,919,714
Account receivable - joint venture 495,934 254,696
Current portion of note receivable from affiliate 152,778 972,650
Current portion of note receivable 46,590 46,590
Loan receivable - affiliates 128,750 121,250
Due from officers -- 94,343
Due from affiliates 77,600 --
Other receivables -- 47,554
Prepaid expenses 15,149 44,999
----------- -----------
Total current assets 4,535,979 7,221,013
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Other assets:
Furniture, fixtures, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $5,407,645 and $6,134,831, respectively) 6,668,813 9,445,204
Note receivable, net of current portion 113,736 113,736
Goodwill (net of accumulated amortization of $189,223) -- 1,229,990
Organization costs (net of accumulated amortization
of $22,325 and $16,601, respectively) 75,373 81,097
Investment in joint venture 352,877 259,483
Investment in and advances to unconsolidated affiliate -- 567,737
Deposits 47,817 151,901
Deferred tax asset 397,737 --
Other long term assets -- --
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Total other assets 7,656,353 11,849,148
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$12,193,332 $19,070,161
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</TABLE>
See Notes to Interim Financial Statements
2
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------------- ---------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Line of credit $ 599,750 $ 599,750
Accounts payable 1,935,949 1,463,096
Accrued expenses 732,877 556,862
Loan payable - joint venturer 79,303 110,467
Loans payable - affiliates 202,000 202,000
Current portion of long term debt 2,950,515 3,115,461
Due to affiliate 32,803 23,594
Deferred income taxes -- 155,133
------------ ------------
Total current liabilities 6,533,197 6,226,363
------------ ------------
Other liabilities:
Long-term debt, net of current portion 2,630,324 6,920,849
Deferred income taxes -- 1,054,552
Due to joint venturer 218,717 217,787
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Total other liabilities 2,849,041 8,193,188
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Total liabilities 9,382,238 14,419,551
------------ ------------
Minority interest 239,794 140,825
Stockholders' equity:
Common stock, $0.0001 par value,
Authorized - 15,000,000 shares
Issued and outstanding - 3,518,292 shares 317 317
Additional paid-in capital 3,866,389 3,866,389
Retained earnings (deficit) (1,296,406) 643,079
------------ ------------
Total stockholders' equity 2,570,300 4,509,785
------------ ------------
$ 12,192,332 $ 19,070,161
------------ ------------
------------ ------------
</TABLE>
See Notes to Interim Financial Statements
3
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating income:
Net revenue from services $ 5,220,960 $ 7,939,786 $ 1,201,081 $ 2,425,298
----------- ----------- ----------- -----------
Total operating income 5,220,960 7,939,786 1,201,081 2,425,298
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 5,566,843 5,171,171 1,793,080 1,638,962
Bad debts 23,750 21,930 5,246 8,249
Depreciation and amortization 1,206,544 1,309,379 323,251 444,054
----------- ----------- ----------- -----------
Total operating expenses 6,797,137 6,502,480 2,121,577 2,091,265
----------- ----------- ----------- -----------
Income (loss) from operations (1,576,177) 1,437,306 (920,496) 334,033
----------- ----------- ----------- -----------
Other income (expenses):
Interest income 47,020 103,991 6,903 26,636
Interest expense (818,256) (935,009) (195,005) (345,822)
Miscellaneous income 64,953 106,205 (13,547) 60,255
Income from joint ventures 190,872 163,699 26,035 56,319
Income (loss) from minority owned --
subsidiary -- (8,981) -- (23,362)
Loss on sale of property assets -- (26,702) -- (26,702)
Gain (loss) on sale of subsidiary (742,619) 252,076 -- --
Gain on sale of subsidiary 30,171 -- 30,171 --
Loss on disposal of subsidiary (168,064) -- -- --
Restructuring of note receivable (747,650) -- -- --
----------- ----------- ----------- -----------
Total other income (expense) (2,143,573) (344,721) (145,443) (252,676)
----------- ----------- ----------- -----------
Income (loss) before income taxes
and minority interest (3,719,750) 1,092,585 (1,065,939) 81,357
Provision for income taxes (1,607,422) 493,754 (427,661) 43,644
----------- ----------- ----------- -----------
Income before minority interest (2,112,328) 598,831 (638,278) 37,713
Minority interest 172,843 (88,844) 233,772 18,842
----------- ----------- ----------- -----------
Net income (loss) $(1,939,485) $ 509,987 $ (404,506) $ 56,555
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share
Net income (loss) $ (0.55) $ 0.16 $ (0.11) $ 0.02
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Number of shares outstanding:
Basic 3,518,292 3,168,292 3,518,292 3,168,292
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Interim Financial Statements
4
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,939,485) $ 509,987
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,206,544 1,301,331
Contractual allowances 221,927 376,664
Bud debts 23,750 21,930
Income from an unconsolidated joint venture (190,872) (163,699)
Minority interest (172,843) 51,763
Deferred income taxes (1,607,422) 419,000
Loss on sale of subsidiary 742,619 --
Gain on sale of subsidiary (30,171)
Loss on disposal of subsidiary 168,064 --
Restructuring of note receivable 747,650 --
Income from unconsolidated affiliate -- 8,981
Loss on sale of property assets -- 26,702
Increase (decrease) in cash attributable to changes
in operating assets and liabilities:
Accounts receivable 2,008,472 (995,554)
Accounts receivable - joint venturer (241,238) (303,775)
Other receivable 47,554 71,599
Due from affiliate (77,600) --
Due from officers 94,343 (84,221)
Prepaid expenses 29,850 43,547
Deposits 104,084 (25,896)
Distributions from a joint venture -- 330,966
Due to affiliate 9,209 (45,890)
Accounts payable 472,853 (194,555)
Accrued expenses 176,015 57,443
Advances to unconsolidated affiliate -- (239,055)
------------ -----------
Total adjustments 3,732,788 657,281
------------ -----------
Net cash provided (used) by operating activities 1,793,303 1,167,268
------------ -----------
Cash flow from investing activities:
Organization costs -- (60,840)
Fixed asset acquisitions (300,955) (1,605,311)
Fixed used dispositions 1,207,496 --
Proceeds from loan receivable - affiliate (7,500) 125,000
Proceeds from note receivable 72,222
Issuance of note receivable -- (160,326)
Investment in joint venture (93,394) --
Note receivable - affiliate -- 18,350
Increase in minority interest (98,969) --
------------ -----------
Net cash provided (used) by investing activities 778,900 (1,683,127)
Cash flow from financing activities:
Reduction of goodwill 1,419,213 --
Proceeds from issuance of long-term debt -- 2,039,632
Payments on affiliates advances -- (156,505)
Cash overdraft -- 3,088
Joint venture advances -- 10,000
Disposal of long term debt (3,746,095) --
Principal payments on long-term debt (856,602) (1,220,119)
------------ -----------
Net cash provided (used) by financing activities (3,185,484) 676,096
------------ -----------
Net increase in cash and equivalents (611,281) 160,237
Cash and equivalents, beginning of year 719,217 42,421
------------ -----------
Cash and equivalents, end of year $ 107,936 $ 202,638
------------ -----------
------------ -----------
</TABLE>
See Notes to Interim Financial Statements
5
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 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 and
Management, Inc., Somerset Imaging Corporation, South Plainfield
Imaging, Inc., Medi-Corp., USA, South Jersey Medical Equipment Leasing
Corp., Amherst Medical Equipment Leasing Corp., Open MRI of Morristown,
Inc., West Paterson Medical Equipment Leasing Corp., Ohio Medical
Equipment Leasing Corporation, its majority owned subsidiaries,
Sylvania Diagnostics L.P., (in which the Company had a 50.2% interest
which was disposed of on June 30, 1998) and Metairie Medical Equipment
Leasing Corp., a 100% owned subsidiary which was incorporated in June
1997, and its majority owned joint ventures, Plainfield MRI Associates,
Joint Venture, MRI Imaging Center at PBI, Open MRI of Morristown, Joint
Venture and Doctors Imaging Associates, Joint Venture. The Company has
an 84%, 75%, 72%, and 50% interest, respectively, in the joint ventures
and by contract manages the joint ventures, in which it is the managing
joint venturer and it has unilateral control. Investment in an
unconsolidated minority-owned subsidiary, Empire State Imaging
Associates, Inc., which was sold on June 30, 1998, in which the Company
had a 35% interest and significant influence, was accounted for under
the equity method. The Company sold 70% of its 72% owned subsidiary,
Open MRI of Morristown, Joint Venture, on September 30, 1998.
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 under the equity method. All
significant intercompany transactions and accounts have been eliminated
in the consolidation.
The accompanying unaudited consolidated financial statements
and footnotes have been condensed and, therefore, do not contain all
required disclosures. Reference should be made to the Company's annual
financial statement filed on Form 10-K for the year ended December 31,
1997.
The financial statements for the nine month periods ended
September 30, 1998 and 1997 have not been audited. In the opinion of
management, the unaudited interim consolidated financial statements
reflect all adjustments and accruals, consisting only of normal
recurring adjustments and accruals, necessary to present fairly the
financial position of the Company as at September 30, 1998 and the
results of its operations for the nine month periods ended September
30, 1998 and 1997 and statements of cash flows for the nine month
periods ended September 30, 1998 and 1997. The results for the nine
month periods ended September 30, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
The accounting policies followed by the Company are set forth
in Note 1 to the Company's financial statements included in its Annual
Financial Statement filed on form 10-K for the year ended December 31,
1997, 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.
6
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
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 practical 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.
Certain items in the 1997 financial statements have been
reclassified to conform with the 1998 presentation. These
reclassifications had no effect on the financial position, net income
or stockholders' equity for the periods presented.
NOTE 2 - EARNINGS (LOSS) PER SHARE.
Earnings (loss) per share are computed by dividing net income
(loss) by the weighted average number of common stock and common stock
equivalent shares outstanding during each period.
Common stock and common stock equivalent shares outstanding
include shares issued within one year of an initial public offering
(IPO), at a price below the IPO price, as outstanding for all periods
presented. Earnings per share - diluted for the nine months ended
September 30, 1998 is not presented in the consolidated statements of
operations since it is not dilutive.
NOTE 3 - ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES.
On December 27, 1996, the Company entered into a stock
purchase agreement with a related party to sell 65% of the capital
stock of Empire State Imaging Associates, Inc. ("Empire") for $250,000,
payable as follows: $25,000 at the closing and nine equal monthly
installments of $25,000 plus interest at prime plus 1%. The company has
recorded an increase of $165,631 to stockholders' equity which
represents the excess of the sale price over the net assets of Empire.
On June 30, 1998, the Company and its affiliate sold all the
outstanding stock of Empire 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 $742,619.
In February 1997, the Company acquired a 25% interest in Open
MRI and Diagnostic Services of Toms River, Inc. In March 1997, the
Company entered into a contract for the sale of its stock in this
entity resulting in a gain of $252,076. The proceeds are payable as
follows: 25% at closing and a note for 75%, bearing interest at 11% per
annum, payable in monthly installments commencing 90 days after the
facility opens for business.
On July 1, 1996, the Company through its wholly-owned
subsidiary, Ohio Medical Equipment Leasing Corporation ("OME")
purchased a 50.2% interest in Sylvania Diagnostics, LP ("Sylvania") for
one dollar. If the Company determines that operating Sylvania is not
profitable, DVI will purchase Sylvania for one dollar. On June 30,
1998, the Company exercised its option and sold Sylvania back to DVI
for one dollar. As a result of this disposition, the Company recorded a
loss in the amount of $168,064
7
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 3 - ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES (Continued)
On May 7, 1998 the Company entered into an agreement to sell
70% of its 72% ownership of Open MRI of Morristown, Joint Venture
("Open MRI") for $300,000. The terms required $100,000 payable at
signing, and monthly payments in the amount of $50,000 on May 1, June
1, July 1 and August 1, 1998. The Company retained the option to
repurchase from the buyers, ADS Investment Corp. and Oak Knoll
Management Corporation (related party), the 70% interest upon payment
of $50,000 plus all prior payments and any additional costs incurred by
the buyers. The option expires on August 31, 1998.
On August 20, 1998, the Company, ADS Investment Corp. and Oak
Knoll Management Corporation (related party) modified the original
agreement from a sale to a loan. The terms of the new agreement are as
follows: a loan in the amount of $300,000, with interest due and
payable at 12% per annum, secured by 70% of the Company's 72% ownership
of Open MRI. The loan is due and payable on September 30, 1998. The
agreement also requires the personal guarantees made by the lenders to
DVI Business Credit Corporation on behalf of the Company be replaced by
September 30, 1998, as a condition of satisfactory settlement of the
loan.
For services rendered between May 7, 1998 and the date of
maturity of this loan, all distributions made to the lending parties by
Open MRI are to remain the property of the lending parties.
On September 30, 1998 the Company effectively sold 70% of its
interest in Open MRI for $300,000 and the purchaser's agreement to
provide the Company's creditor, DVI Business Credit, personal
guaranties of the principals of purchaser in an amount not to exceed
$150,000. The Company recorded a gain on this transaction in the amount
of $30,171. The Company has retained a 2% ownership interest in Open
MRI.
NOTE 4 - RESTRUCTURING OF NOTE RECEIVABLE
On March 3, 1998 the Company restructured the promissory note
receivable for the sale of Prime Contracting Corp. to a related party
as follows: $ 200,000 in cash payable over 36 months, plus interest
calculated at prime plus 1% and a 36 month option to purchase 250,000
shares of the related party stock at $ 0.05. The Company recorded a
loss from note receivable restructuring in the amount of $747,650.
8
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 5 - PROPERTY AND EQUIPMENT, NET.
Property and equipment, net, consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Medical equipment $11,063,762 $14,083,189
Buildings 310,860 358,066
Furniture and fixtures 65,828 67,139
Automobiles 49,591 22,860
Leasehold improvements 586,417 1,048,780
------------- ------------
12,076,458 15,580,034
Less: Accumulated depreciation
and amortization 5,407,645 6,134,831
------------- ------------
$ 6,668,813 $ 9,445,204
------------- ------------
------------- ------------
</TABLE>
NOTE 6 - INVESTMENT IN AN UNCONSOLIDATED JOINT VENTURE.
Summarized (unaudited) financial information of the
unconsolidated joint venture, Union Imaging Associates, Joint Venture, in which
the Company has a 10% minority interest, is as follows:
<TABLE>
<CAPTION>
Total Long-term Total Total
Assets Debt Liabilities Capital
<S> <C> <C> <C> <C>
September 30, 1998 4,916,024 1,218,361 2,206,829 2,709,195
December 31, 1997 5,538,114 1,354,524 3,116,550 2,421,564
</TABLE>
<TABLE>
<CAPTION>
(10%)
Gross Net Allocation
Revenues Income Of Income
--------- --------- ----------
<S> <C> <C> <C>
For the nine months ended
September 30, 1998 2,847,500 1,570,832 157,083
For the year ended
December 31, 1997 5,603,802 2,078,843 207,884
</TABLE>
9
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 7 - LINE OF CREDIT.
In April 1995, the In April 1995, the Company secured a line
of credit with Summit Bank of New Jersey for $600,000 at the bank's
prime rate for commercial borrowers. As of September 30, 1998 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.
NOTE 8 - LONG-TERM DEBT.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Capitalized lease obligations $ 4,517,926 $ 8,691,572
Accounts receivable financing (a) 638,177 926,363
Other 424,736 418,375
----------- -----------
5,580,839 10,036,310
Current portion 2,950,515 3,115,461
----------- -----------
Total long-term debt $ 2,630,324 $ 6,920,849
----------- -----------
----------- -----------
</TABLE>
The Company entered into certain leases for the rental of
equipment, which have been recorded as capital leases for financial
statement reporting purposes and are included in equipment.
(a) Accounts Receivable Financing:
The Company entered into an agreement with DVI Business Credit
to finance up to $2,000,000 of the accounts receivable balances from
two of the Company's wholly-owned subsidiaries, a minority-owned
subsidiary, and two of its majority-owned joint ventures. Advances
would bear interest at the prime rate plus 4%. At September 30, 1998,
the amount financed under this agreement totaled $638,177.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
On September 18, 1998, the Company entered into a consulting agreement
with Benson Shore Capital, LLC ("Consultant"), for a period of one year.
Consultant shall render assistance to the Company as follows: developing
strategic initiatives and related industry partnerships, including providing
assistance with respect to acquisitions, joint ventures, and strategic business
alliances. The Company shall compensate consultant for these services as
follows: 350,000 shares of its common stock, options to acquire up to an
aggregate of 275,000 shares of its common stock exercisable at $1.00 per share,
for a period of 12 months.
10
<PAGE>
CONFORMED
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MODERN MEDICAL MODALITIES CORP.
------------------------------------
(Registrant)
Date: November 18, 1998 /s/Roger Findlay
----------------------------------------
Roger Findlay
Chairman of the Board of Directors
Date: November 18, 1998 /s/Jan Goldberg
----------------------------------------
Jan Goldberg
Director and Vice President
Date: November 18, 1998 /s/Gregory Maccia
----------------------------------------
Gregory Maccia
Vice President, Secretary and Director
Date: November 18, 1998 /s/Fred Mancinelli
----------------------------------------
Fred Mancinelli
Director
Date: November 18, 1998 /s/Carl Gideon
----------------------------------------
Carl Gideon
Director
