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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number 0-23416
MODERN MEDICAL MODALITIES CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-3059258
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
95 Madison Avenue, Suite 301, Morristown, NJ 07960
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(Address principal executive offices) (zip code)
Registrant's telephone number, including area code (973) 538-9955
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock
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Class A Common Stock Purchase Warrant
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Class B Common Stock Purchase Warrant
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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 .
The number of shares outstanding of Registrant's Common Stock as of
12/31/97: 3,168,292, $.0001 par value.
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PART I
Item 1. BUSINESS
Modern Medical Modalities was incorporated in the State of New Jersey
on December 6, 1989. Modern Modalities Corporation was incorporated in the State
of New Jersey on June 4, 1990. The two companies had common ownership, directors
and officers. In July 1992, the two companies were merged under the laws of the
State of New Jersey, by way of an agreement which accounted for the combination
as a tax-free merger. The surviving corporation is known as Modern Medical
Modalities Corporation.
On November 24, 1992, the Company's common stock was split 5 for 1. The
effect of the stock split is reflected retroactively throughout the Prospectus.
Modern Medical Modalities Corporation leases magnetic resonance imaging
("MRI") and computerized axial tomography ("CT Scan") equipment to hospitals and
physicians. Additionally, the Company on a clerical and administrative level
manages hospital based and physician managed ambulatory centers for third
parties who provide medical imaging services. The Company, however, does not
perform medical services. The Company offers a full range of services to
hospitals or physician clients, including the selection and acquisition of
appropriate equipment, the design and supervision of facility construction, the
provision and training of technical and support staff, patient billing and
collection and the provision of overall marketing and management services. The
Company can provide either its full range of services at medical technology
centers or a more limited range of services at mobile or fixed sites depending
on the needs of its customers.
The Company presently leases equipment and manages two hospital based
MRI sites located in Plainfield, New Jersey and Passaic, New Jersey, and eight
free standing MRI and CT Scan and Diagnostic Imaging ambulatory centers in New
York (2), New Jersey (5) and Maryland (1). The Company also receives a
management fee of 11.25% of gross cash collections from the site in Union, New
Jersey for performing management functions. The Company's relationship with the
joint-ventures range from 10% through 84% equity interest.
Union Joint Venture
In July 1990, the Company entered into a Joint Venture Agreement with
Union Imaging Associates, Inc. (the "Union Joint Venture") for the purpose of
providing magnetic resonance and CT Scan imaging services to radiologists and
other medical professionals, including leasing and financing equipment for use
in such business. The Union Joint Venture shall terminate upon the earliest of
(i) June 30, 2010, (ii) the sale of the subject business or (iii) mutual
agreement of the joint venturers. The Company serves as the managing joint
venturer pursuant to the Union Joint Venture Agreement and as such has
managerial responsibility for the subject business including, hiring of
personnel, leasing equipment, budgeting, contracting, billing, paying debts,
making lease payments and making distributions to the joint venturers.
The Company shall continue to serve as managing joint venturer until
the Company's liability under the Union Joint Venture's equipment lease with DVI
Financial is satisfied. Thereafter, the Company shall continue to serve as the
managing joint venturer until the earlier to occur of: (i) the Company's
resignation upon 60 days notice to Union Imaging or (ii) 60 days after receipt
of notice from Union Imaging that the holders of at least 80% of Union Imaging's
stock had voted to terminate the Company as managing joint venturer. For serving
as managing joint venturer the Company receives 11.25% of gross collections for
a management fee as well as 10% equity position.
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Bowie Joint Venture
In April 1991, the Company entered into a Joint Venture Agreement with
Doctors Imaging Associates, Inc. (the "Bowie Joint Venture") for the purpose of
providing magnetic resonance and CT Scan imaging services to radiologists and
other medical professionals, including leasing and financing equipment necessary
for such a business. The Bowie Joint Venture Agreement shall terminate upon the
earliest of: (i) April 30, 2011, (ii) the sale of the subject business, or (iii)
by mutual consent of the joint venturers. The Company serves as managing joint
venturer pursuant to the Bowie Joint Venture Agreement and as such has
managerial responsibility for the subject business, including the hiring of
personnel, leasing equipment, budgeting, contracting, billing, paying all debts,
making lease payments and making distributions to the joint venturers. The
Company and Doctors Imaging each has a 50% interest in the profits, obligations
and liabilities under the Bowie Joint Venture Agreement.
Plainfield Joint Venture
In July, 1991, the Company entered into a Joint Venture Agreement with
Plainfield MRI Associates, Inc. (the "Plainfield Joint Venture") for the purpose
of providing magnetic resonance imaging services and equipment to radiologists
and other medical professionals, including leasing and financing equipment for
use in such business. The Plainfield Joint Venture shall terminate upon the
earlier of (i) July 30, 2011; (ii) the sale of the subject business; (iii)
termination of the Agreement dated April 25, 1991 with Muhlenberg Regional
Medical Center, Inc., and the Plainfield Joint Venture being unable to relocate
the subject business to another profitable site; (iv) the subject business being
determined unprofitable for 3 consecutive calendar months at the sole discretion
of the Company; (v) the repossession of equipment pursuant to the Equipment
Lease with DVI Financial dated December 1, 1993; or (vi) mutual consent of the
joint venturers.
The Company serves as the managing joint venturer pursuant to the
Plainfield Joint Venture Agreement and as such has managerial responsibility for
the subject business including, hiring of personnel, leasing equipment,
budgeting, contracting, billing, paying debts, making lease payments and making
distributions to the joint venturers.
The Company shall continue to serve as managing joint venturer until
the Company's liability associated with the subject business to DVI Financial is
satisfied. Thereafter, the Company shall continue to serve as managing joint
venturer until the Company's resignation upon 60 days notice to Plainfield MRI,
Inc.
The interests of the Company and Plainfield MRI, Inc. in the profits,
obligations and liabilities under the Plainfield Joint Venture Agreement are 84%
and 16% respectively.
Beth Israel Joint Venture
In June 1995, the Company entered into a Joint Venture Agreement with
Beth Israel MRI Corporation and Advanced Imaging Radiology Associates P.A. to
provide certain non-professional services to a MRI facility which was developed
by the Company, and is located on the campus of Beth Israel Hospital. The term
of the Agreement is for a seven (7) year period with an automatic renewal
provision for successive seven year periods. The Company has a 75% interest in
the profits, obligations and liabilities under the Joint Venture Agreement.
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Metaire Medical Equipment Leasing
In June of 1997, Metaire Medical Equipment Leasing was incorporated in
the state of New Jersey, as a 100% owned subsidiary of the Company. In October
of 1997, Metaire Medical Equipment Leasing Corporation was registered as a
Corporation doing business in the State of Louisiana. Under the terms of the
venture agreement the Company will receive 100% of the profits and equity of
Open MRI of Metaire. The site opened for business in February of 1998. There is
an agreement with an unaffiliated group that providing they raise $250,000 they
will receive 34% of the site.
Medical Imaging Industry
The Company is attempting to position itself to participate in the
expanding managed health care market. The Company will continue to aggressively
seek to joint venture with hospital and physician managed ambulatory centers.
The Company intends to expand its marketing efforts by establishing new sources
of patient referrals to its existing centers in the next year. These patient
referrals consist of Health Maintenance Organizations (HMO), Preferred Provider
Organizations (PPO), Union Contracts and Hospital Contracts, to its existing
centers during the next year. See "Use of Proceeds".
The Company has focused on the advanced imaging technologies of MRI and
CT Scan. The use of these technologies has grown significantly in the United
States during the last several years due to increasing physician acceptance of
the value of advanced imaging technologies in the early diagnosis of disease.
Hospitals are facing competitive pressures to provide technology and related
services despite strict budgetary limitations and are increasingly utilizing
third parties, such as the Company, to provide the necessary facility and
related services because of the substantial equipment and personnel costs
involved.
Generally, the centers participate in specific HMO or PPO programs
because the Company finds that many of the physicians who refer to the centers
belong to the HMO or PPO. There are instances when the centers initiates contact
with various third parties to provide services to their membership. This is
usually the case with the larger insurance plans. In the case of unions or
managed care programs contacts are usually made by the benefit managers
representing the various programs. Usually, the centers are recommended by the
physicians in the area. The costs incurred for obtaining these referrals are
negligible.
In most cases the Company is approached by a group of physicians or a
hospital who are looking to install a MRI or CT scanner. The Company first
reviews the location that the equipment is to be placed in and reviews a general
outline or business plan. Information that is presented includes other centers
in the area, patient financial class, patient demographics in the area served,
and potential referring physicians. In the case of a hospital, the Company
requests the number of MRI and CT scanning that the hospital sends to other
facilities. The Company also contacts neighboring sites to determine the waiting
time for scheduling an exam to see if patients are waiting an excessive amount
of time for an exam. The Company contacts potential referring physicians to
determine if they are experiencing problems with existing facilities and if they
would support a new facility. Managed care groups and HMO's are contacted to
determine if contracts for providing service are available and to ascertain the
membership in the catchment area of the potential new sites. If the site is
considered to be positive a request is made to the various equipment
manufacturers for a bid on the equipment the Company deems necessary. After all
information needed by the Company is received, the Company determines the
financial viability of the project. Based on the criteria above, the Company
reviews each site to determine if
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utilization and proliferation of the equipment and services is a concern.
Medical diagnostic imaging systems facilitate the diagnosis of disease
and disorders at an early stage, often minimizing the amount and cost of care
needed to stabilize or cure the patient and frequently obviating 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 advanced
technologies of magnetic resonance imaging ("MRI")and computed axial tomography
("CT").
MRI is an advanced imaging system that uses a strong magnetic field and
radiowaves to allow physicians to explore the inner workings of the human body.
The pictures produced by this technology assist the doctor in detecting and
defining the differences between healthy and diseased tissue.
CT is a specialized method of examining various body parts using x-rays
and computer reconstructions to form a cross sectional image. During the exam
the x-ray tube travels completely around the body and the computer reconstructs
the information to form a cross sectional image. A series of these images, or
slices, is taken through the area of interest, providing the physician with a
detailed look at structures not otherwise seen with regular x-rays.
The Company has focused its efforts on leasing and managing fully
equipped MRI and CT centers at hospitals and physicians' offices. The use of
these technologies has grown significantly in the United States during the last
several years due to increasing physician acceptance of the value of advanced
imaging technologies in the early diagnosis of disease, the expanding
applications of CT and MRI and the growing patient base attributable to an aging
population.
In addition, changes in third party reimbursement systems have resulted
in declining profit margins for many hospitals, thus reducing capital available
to hospitals, thereby reducing their traditional incentives to purchase or lease
equipment and pass such costs through to third parties. By leasing equipment and
purchasing services from companies such as the Company, hospitals are able to
conserve their limited capital resources for other purposes and reduce the risks
associated with technical obsolescence and under utilization of equipment and
services.
Services Provided
The Company offers the full range of services discussed below. The
needs of a particular hospital or physician group determine the extent of the
services offered in each instance, which the Company can deliver either on a
more limited basis or through a full service medical technology center. Each
site is staffed by administrative, technical and support personnel. In addition,
a physician and a physician group provide professional services and interpret
MRI or CT scans at each site. The Company does not engage in the practice of
medicine. Such physicians are not employees of the Company. However, the most
significant cost of operating an imaging center is the capital and finance costs
of equipment.
The Company provides equipment and related services, technical and
support staffing, marketing, patient scheduling, billing and collection and
management in all of the Company's sites located throughout New York and New
Jersey.
In the Bowie, Maryland site, the Company provides equipment and related
services and management. The technical and support staff and patient
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scheduling, billing and collection are supplied by Doctors Imaging Associates of
which the Company is a 50% joint-venturer.
Equipment and Related Services. The Company consults with its potential
clients and existing clients to identify the equipment best suited to meet the
client's needs on a cost-effective basis. The Company then acquires the
equipment through lease/purchase agreements. In addition, the Company assists
the hospital or physicians and their personnel in complying with licensing and
other regulatory requirements, which consist of all applicable county building
permits and architectural filings as well as filing all necessary equipment
registration forms with the applicable state agencies. 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 its
clients' equipment and typically enters into agreements with equipment
manufacturers or other third parties for the delivery of maintenance services.
Technical and Support Staffing. The Company provides technologists who
operate the equipment at the facility. The Company trains and provides on-going
safety instruction and educational programs for its technologists as well as the
hospital's technologists. The Company also provides clerical personnel to
provide administrative duties such as scheduling and answering phone inquiries.
Marketing. The Company provides its customers with marketing services,
including the design and formulation of a marketing program for each facility to
inform physicians in the community as to the technology and services available
at the facility. The Company also provides marketing personnel who market
patient referral sources, including HMOs and other health plans.
Patient Scheduling, Billing and Collection. At the medical technology
centers, the Company schedules patient appointments, prepares all patient
billing and is responsible for collection. In providing billing and collection
services, the Company bills the patients directly and, therefore, assumes the
credit risk on such billings and any delays attendant to reimbursement through
governmental programs or third party payors. The Company also is responsible at
the centers for related administrative and recordkeeping functions and all
management information services.
Management. The Company assumes full managerial responsibility and
control over facility operations, including all of the foregoing services, at
medical technology centers.
Delivery of Services
The Company delivers its services to its customers through either
contractual arrangements with hospitals and clinics or medical technology center
arrangements with hospitals or physician groups, as discussed below. The Company
may form imaging centers utilizing a variety of ownership vehicles. Presently,
the Company operates its sites under joint venture agreements. Other structures,
which may be used in a center can be one of the following:
Partnership. The Company forms a partnership with another entity such
as a hospital, physician group or the like. The costs associated with the
project can be assumed by the Company or apportioned to each partner. The
Company provides the management and receives a management fee in addition to
having an ownership position.
Medical Technology Centers. The Company will establish a medical
technology center within a Hospital Center or with a physician group ("Radiology
Group Center") through which the Company will offer its full range of services.
A Hospital Center involves only the Company and a hospital,
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whereas a Radiology Group Center generally involves the Company (as managing
general partner), and a radiology physician group. A Hospital Center is located
on a hospital campus, is affiliated with that hospital and provides both
inpatient and outpatient services; whereas a Radiology Group Center is a free
standing center that is not affiliated with a hospital and engages primarily in
outpatient services.
When the Company enters into a joint venture with a Hospital the
provisions of the HHS "anti kick" rules and the AMA policy on self referral do
not generally apply. (See "Licenses, Governmental Reimbursement and
Regulations"). The Hospital does not receive a percentage of profits for
allowing the Company to operate its equipment at the facility.
Fee-for-Service. When a hospital requires the Company's services, but
wishes to maintain overall control of the delivery of such services and of the
service facility, the Company may contract to provide its services on a
fee-for-service basis. Under this arrangement, the Company typically furnishes
the hospital with the appropriate equipment, facility and marketing services and
staffing on an as-needed basis. In a typical fee-for-service arrangement, the
Company bills the hospital only for the number of patient procedures performed
each month. The Company charges the hospital for the Company's services and is
not involved in managing the facility. The Company currently has no
fee-for-service arrangement.
If the Company enters into fee-for-service contracts, these contracts
will typically have a term ranging from two to five years (with the majority
being five years). During the term of the contract, the hospital will grant to
the Company the exclusive right to provide the particular service at the
hospital. The Company does not expect to have any minimum payment requirements
in its fee-for-service contracts. The Company therefore assumes the risk that
revenues generated in respect of its equipment may not be sufficient to
discharge the Company's financial obligations to lenders and lessors and other
costs of operations. The Company typically finances its acquisition of equipment
and matches the amortization period of such financial obligations to the term of
the hospital contract. However, the amortization period for a specific piece of
equipment may extend beyond the term of the related contract, requiring the
Company to finance any resulting negative cash flow. The Company attempts to
manage these risks by reviewing a prospective hospital's utilization history and
prospects and, through its sales force, remarketing equipment upon termination
of contracts.
A hospital requiring part-time service will engage the Company to
schedule its mobile unit to be on location at the hospital at prescribed times.
The Company maintains a mobile unit which is a custom-designed vehicle that is a
totally self-contained facility.
Radiology Group Centers. The Company began its medical technology
center operations by establishing free standing, outpatient imaging centers with
groups of radiologists. The Company does not at present utilize services with
the hospitals. Set forth below is a table of the Company's centers, listing
their respective services.
Services by Technology
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Radiology Group Centers MRI CT Diagnostic Imaging
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Union, New Jersey (1) Yes Yes No
Bowie, Maryland (2) Yes Yes No
Somerset, New Jersey No Yes Yes
South Plainfield, NJ (7) Yes No No
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Marlton, New Jersey Yes Yes Yes
Morristown, New Jersey Yes No No
Edison, New Jersey No No Yes
Yonkers, New York Yes Yes Yes
Amherst, New York (3) Yes No No
Open MRI of Morristown (4) Yes No Yes
West Paterson Medical
Equipment Leading Corp.(5) No No Yes
Ohio Medical Equip. Leasing
Corp./Sylvania Diag.(6) Yes Yes Yes
Metaire Med. Equip.
Leasing (9) Yes
Medical Technology Centers
Passaic, New Jersey (8) Yes No
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(1) This joint venture was organized on June 22, 1990 for the purpose of
providing MRI and CT services to medical professionals. The joint
venture has two joint-venturers, the Company, the managing joint
venturer, and Union Imaging Associates Inc. ("UIA"). The Company has a
10% interest and UIA has a 90% interest in the Joint Venture.
(2) This joint venture was organized on April 23, 1991 for the purpose of
providing MRI and CT services to medical professionals. The joint
venture has two joint venturers the Company, the managing joint-
venturer, and Doctors Imaging Associates, Inc. Each has a 50% interest
in the joint venture.
(3) This is an extremity MRI.
(4) This Joint Venture was organized in October 1995 for the purpose of
providing MRI services to Medical professionals. The Joint Venture has
three joint ventures: the Company, RMC Consulting, Inc. and Barbara
Krasnica.
(5) In July 1996 the Company through its wholly-owned subsidiary entered
into a lease and management service agreement with Advanced Imaging and
Radiology Services P.A. to provide office space, fixtures and
diagnostic imaging equipment to the P.A. for five years with a renewal
for five years.
(6) 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.
(7) This Joint Venture was organized on July 30, 1991 for the purpose of
providing MRI services to medical professionals. The Joint Venture has
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two venturers, the Company, the managing joint-venturer, and Plainfield
MRI Associates, Inc. ("PMA"). The Company has an 84% interest and PMA
has a 16% interest in the joint venture.
(8) This Joint Venture was organized in June, 1995 for the purpose of
providing MRI services to medical professionals. The Joint Venture has
two venturers, the Company, the managing joint-venturer and Beth Israel
MRI Corporation and Advanced Imaging Radiology Associates P.A. ("PBI").
The Company has an 75% interest and PBI has a 25% interest in the joint
venture.
(9) This Venture was organized in October 1997. Under the terms of the
agreement the Company will receive 100% of profits and equity of Open
MRI of Metaire. This site opened for business in February 1998.
Each of the above agreements involved an initial financial commitment
on the part of the Company ranging between $1 million and $3 million per center,
which includes equipment, installation, facility construction and start-up
working capital. Equipment, which is generally leased, represents the greatest
commitment by the Company. The Company's commitment is offset only by such
revenues as are generated from the utilization of the center.
Hospital Centers. The Company has embarked on a program during the last
two years to establish additional medical technology centers ("Hospital
Centers") in conjunction with hospitals by entering into arrangements to operate
full service Hospital Centers located in or near hospital campuses. The
Company's first Hospital Center opened on June 28, 1991 and the Passaic site on
October 14, 1992.
In addition to the equipment and facility services provided in its
arrangements, the Company provides at a medical technology center all technical
and support staffing; expanded marketing services; patient scheduling, billing
and collection services; management information systems; and overall management.
Growth Strategy and Marketing
The Company markets its services to physicians and hospitals through
various methods. These include direct solicitation, direct mail, sponsorship of
inservice education programs for physicians and technical staff, and personal
visits to physician offices. The Company also attends many of the large
radiology shows throughout the country.
The Company is pursuing a strategy of aggressively seeking new Hospital
Centers and physician managed ambulatory centers. Its target markets also
include hospitals without a diagnostic imaging facility, to which the Company
can offer its part-time mobile units. The Company will engage in intensive
marketing in areas of specialized physician groups, chiropractors, health
maintenance organizations (HMO), preferred provider organizations (PPO), union
locals, municipalities and insurance companies. The Company currently negotiates
discounts with large suppliers of patients as allowed by law. The Company's
objective is to respond to the concerns of spiraling health care costs while
maintaining quality of care to the patient. This is attainable based on the
premise that increased volume results in a reduction of cost per scan which is
passed along to the Company's contracted clients.
The Company applies a variety of criteria in evaluating each
prospective hospital customer. These criteria include the extent of the
hospitals' present diagnostic imaging services; its competitive environment; the
size and type of hospital; the number of referring physicians and their
specialties; the patient volume and the nature of the payors (private insurance
programs, government reimbursement programs or other health or medical
organizations).
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The Company's plan of operation will be to continue to expand the
equipment use of its current customers during the remainder of this year. The
Company will, with its direct marketing efforts, continue to seek for new
clients, whether through acquisition of sites or startups. As of the date of
this document, the Company has agreements to provide services at the Somerset
and Beth Israel Hospital (Passaic, New Jersey) location.
Technology Sources
The Company obtains its medical equipment and ancillary supplies from
various manufacturers, including General Electric, Toshiba, Siemens, Philips,
Picker, Hitachi, DuPont and Kodak. The Company is not dependent on any one
supplier and believes that it has good relationships with its suppliers.
Equipment acquisition costs can range dramatically depending upon the
model and peripheral equipment acquired. Currently, MRI equipment ranges from
$1,000,000 to $2,000,000, extremity MRI and CT equipment currently ranges from
$300,000 to $800,000. See "Use of Proceeds".
Installation and maintenance costs on the equipment can be substantial,
particularly with respect to MRI units. Installation costs can range from
$250,000 to $500,000 for an MRI unit depending on the particular installation
circumstances. Maintenance costs on such a unit can be as high as $200,000 per
year. The Company typically enters into agreements with equipment manufacturers
or other third parties for equipment maintenance.
Equipment is financed by the Company (typically with a five year term)
with lenders and lessors, with equipment serving as security for the loans. The
Company's acquisition methods (purchase or lease) will depend upon the specific
circumstances of each transaction.
Supplies
The Company's equipment and supplies are available from a variety of
sources. The loss of no one supplier would be expected to have a material
adverse effect on the Company.
Licenses, Governmental Reimbursement and Regulations
Licenses. Since the Company leases MRI and CT equipment as well as
providing clerical and administrative services to hospital based and physician
managed ambulatory centers, its activities are not subject to material
governmental regulation. The Company does not perform medical services. However,
the government regulations do apply to the Company with respect to payment on
third party Medicare and Medicaid reimbursement. The Company is subject to the
"Anti-Kickback" Laws, the "Stark Bill" as well as in New Jersey, the Health Care
Cost Reduction Act which are discussed herein. In the future, however, the
Company may be required to maintain licenses or certificates of need issued by
individual states. A number of states require hospitals to obtain a
Certificate-of-Need ("CON") prior to the acquisition of major medical equipment.
The CON programs vary considerably from state to state, but all attempt to
regulate the acquisition of expensive medical equipment purchases involving
technologies whose capital costs exceed some specified threshold or whose
introduction at the hospital represents a significant change in services. Some
states also regulate the acquisition of diagnostic imaging equipment indirectly
through rate commissions which prescribe hospital rates. To date, the CON laws
and regulations and state rate commissions have not had a material effect on the
Company's business, although there is no assurance that such laws and
regulations will not change or that rate commissions will not take actions that
may adversely affect the Company's business.
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To the best of the Company's knowledge, there are no current
regulations in the State of Maryland that adversely affect or are material to
the Company's operations. The State of Maryland has recently passed legislation
that restricts physician investors in imaging centers. There are no physician
investors who will refer patients in the Bowie, Maryland Joint Venture.
Government Reimbursement. In major areas of its business, the Company
relies for payment on third party (in large part governmental) reimbursement.
Its charges are predominantly paid either directly by third party payors or by
its clients which in turn receive reimbursement from such sources.
Medicare and Medicaid reimbursement regulations require that purchased
diagnostic services be billed directly by the physician. This regulation allows
a physician to bill and collect directly for services. Medicare regulations call
for predefined fee schedules to be used for all medicare approved patients. The
difference between the amount the Company charges and the limiting charge must
be written off or disallowed. Medicare, for assigned patients, will pay 80% of
the allowed amount, the remaining 20% is the patient's or a co-insurer's
responsibility.
The centers that the Company is affiliated with all 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. 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 or equipment, the payment for which may be made in whole or
in part by the Medicare or Medicaid programs. New Jersey, as well as other
states, have enacted similar state laws. 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.
The Anti-Kickback Laws are broadly drafted and judicial decisions
rendered thus far, while made in the context of overt payments explicitly in
exchange for referrals, have broadly interpreted the scope of these laws.
Several federal courts considering the issue, including the U.S. Court of
Appeals having jurisdiction over New Jersey, have concluded that the Anti-
Kickback Laws would be violated if "any purpose" of a challenged economic
arrangement is to induce or pay for referrals, no matter how incidental that
purpose may be or how many other legitimate purposes may exist for the
arrangement in question. Accordingly, many types of business relationships
between healthcare providers, including investments in healthcare providers by
physicians, hospitals or others who are in a position to refer patients could be
held to fall within the prohibitions of the Anti-Kickback Laws or similar state
laws.
The American Medical Association (the "AMA") has reaffirmed its
original Guidelines which were issued on May 6, 1992, which stated that
physicians should not refer patients to a health care facility outside their
office in which they do not have an active participation and only a passive
investment interest. These are ethical rules and recommendations of the AMA and
they do
11
<PAGE>
not have a binding legal effect.
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 or grounds 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. A bill was introduced, but
not enacted in the 1991-92 session of Congress which would generally prohibit an
entity from furnishing a service to an individual for which payment would be
made by Medicare or Medicaid if the individual's referring physician, or an
immediate family member of such referring physician, had an ownership or other
financial interest in the entity. It is likely that this bill will be
reintroduced in future sessions of Congress. The Company cannot predict whether
this or other 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.
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 in the sites in New Jersey and also have a financial interest in those
sites have a sign posted as mandated by the law.
Under the present "Stark Bill", a physician who has a financial
relationship with an entity may not make a referral to the entity for the
furnishing of clinical laboratory services for which payment is made under the
Medicare or Medicaid programs. The Stark Bill, passed with an effective date of
January 1, 1995, will expand the application of the Medicare ban on self-
referrals after December 31, 1994. The Stark Bill also extends the self-
referral ban to physical therapy services, radiology services including MRI and
CT Scans, ultrasound services, radiation therapy services and the furnishing of
durable medical equipment, the furnishing of parenteral and enteral nutrition
equipment and supplies, the furnishing of out-patient prescription drugs,
ambulance services, home infusion therapy services, occupational therapy
services and in-patient and out-patient hospital services (including services
furnished in a psychiatric or rehabilitation hospital). As of the date of this
filing, the Company has not experienced any material adverse effects of limited
Medicare and Medicaid referrals.
Presently there is physician investor ownership in two of the sites in
which the Company participates. The Stark Bill provides that a physician who has
a financial relationship with an entity cannot make a referral to the entity for
the furnishing of various radiology services including MRI and CT services.
Under the provision of the Bill, those physicians which invest in the Company's
sites will not be allowed to make referrals of which Medicare and/or Medicaid
payments are made.
For the two sites that the Company participates in, the
12
<PAGE>
Medicare/Medicaid percentage for physician investors for Union Imaging
Associates is approximately 4.8% and Plainfield M.R.I. Associates is
approximately 2%. The third site, Doctors Imaging Associates does not have
physician investors who refer patients. Based upon the low utilization of
Medicare/Medicaid volume of physician investors the Company has no plans to
restructure any of its physician investor sites. Any new sites that the Company
may develop in the future will not have any referring physician investors.
Competition
The Company faces competition from various other companies ranging from
small local companies to those operating on a regional or national scale.
Although these companies may be more experienced or have more financial
resources at their disposal, the Company competes in the marketplace on the
basis of its performance in the industry, its reputation for the quality of its
services and its expertise in tailoring the structure of its contractual
arrangements and services to meet the specific needs of its customers. The
Company believes that few of its competitors provide the Company's range of
services from full service medical technology centers to more limited mobile and
fixed site arrangements. The Company maintains close working relationships with
three major equipment manufacturers. Representatives of these manufacturers have
been introducing the Company to various clients in an effort to arrange joint
ventures and then sell equipment. This relationship between the Company and its
manufacturers resulted in the sites located in Bowie, Maryland and Amherst, New
York.
The Company's imaging centers compete for patients with other hospitals
and radiology groups in their area. These centers and hospital customers compete
on the basis of efficiency and service.
Insurance
The Company carries general liability insurance with coverage of up to
$1,000,000 per claim and a commercial umbrella policy of $2,000,000. The Company
believes that such coverage is adequate. Additionally, the Company maintains
general liability, commercial umbrella and insurance for the replacement of all
leased equipment at each of its facilities.
Employees
As of December 31, 1997, the Company employs 54 persons on a full time
basis and 25 persons on a part time basis. The following table reflects the
employees per facility:
<TABLE>
<CAPTION>
Full Part
Total Time Time
----- ----- -----
<S> <C> <C> <C>
Modern Medical (Corporate) 13 12 1
Medical Marketing 3 3 --
Marlton 10 6 4
Morristown 3 2 1
West Paterson 6 2 4
Joint Ventures:
South Plainfield 3 2 1
Union 19 11 8
Passaic 4 2 2
Ohio 11 9 2
Bowie 7 4 3
-- -- --
Total: 79 53 26
== == ==
</TABLE>
13
<PAGE>
Lease Agreements at Joint Venture Sites
The Company as managing Joint-Venturer has entered into an equipment
lease/purchase agreement with a non-affiliated party, DVI Financial, dated
December 1, 1993 ("Equipment Lease") which provides for the lease/purchase of
one Picker 1.OT mobile MRI unit in a Calumet Coach payable over a 60 month term
with payments each of $36,350 (the "basic rent") which is being charged as an
expense of the Company. The Company is current in all its payments. This leased
equipment is presently located at the Muhlenberg Regional Medical Center in
Plainfield, New Jersey.
The Company, as managing Joint-Venturer, has entered into an agreement
with a non-affiliated party Muhlenberg Regional Medical Center (Hospital) which
provides for the placement of the mobile magnetic resonance unit at the Hospital
for five years without rent and an agreement with an affiliate of the Hospital
for a five-year term requiring minimum annual charges of $50,000 for certain
management services which are provided by the hospital. The Company is also
responsible for the transportation of the unit and the mobile magnetic resonance
unit.
The Company, as managing Joint-Venturer, has entered into an equipment
lease/purchase agreement with a non-affiliated party, DVI Financial, dated
December 1, 1993 ("Equipment Lease") which provides for the lease/purchase of
MRI and CT equipment payable over a 60-month term with payments each at $44,331
(the "Basic rent") which is being charged as an expense of the business. The
Company is current in all its payments. This leased equipment is presently
located in Union, New Jersey.
The Company, as managing Joint-Venturer, has entered into an equipment
lease/purchase agreement with a non-affiliated party, DVI Financial, dated
November 15, 1994 ("Equipment Lease") which provides for the lease/purchase of
MRI and CT equipment payable over a 60 month term with payments each of $36,714.
The Company is current in all its payments. This leased equipment is presently
located in Bowie, Maryland.
The Company, as managing Joint-Venturer, has entered into an agreement
with a non-affiliated party Beth Israel MRI Corporation and Advanced Imaging
Radiology Associates P.A. to provide certain non-professional services to a MRI
facility which was developed by the Company and is located on the campus of Beth
Israel Hospital. This agreement is for a 60-month term with payments each of
$38,245. The Company is current is all its payments.
Legal Matters
Legal Proceedings. The Company is not a party to any legal
proceedings.
Submission of Matters to Vote of Security Holders. No matters were
submitted to the vote of security holders during the Fiscal Year 1996.
Prime Contracting Corporation
On November 25, 1994, Modern Medical Modalities Corporation (the
"Company"), pursuant to a written Agreement, purchased Prime Contracting Corp.
("Prime") of Union, New Jersey. Pursuant to the terms of this Agreement, 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 for the past fifteen years 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. Prime's
14
<PAGE>
installations have included the following: Magnetic Resonance Imaging ("MRI"),
Computerized Axial Tomography ("CAT") Scan Suites, Radiography/Fluoroscopy,
Cardiac Catherization Labs, Laser Network Systems, Special Procedures,
Angiography, Mammography, Ultrasound, Linear Accelerator, Lithotripsy,
Cystography Units, Nuclear Medicine, Laboratory Areas and Operating Rooms.
Prime's range of turnkey design/build services include:
Feasibility Studies: Prime provides site analysis and preparation of
budget cost estimates and comparisons.
Architectural Engineering: Prime designs the project to meet and stay
within the customer's budget. Prime's team of architects and engineers offers
processing of all necessary permits, the Certificate of Need (CON), and
preparation of all construction plans and specifications.
Construction Management: Prime's onsite management team has the
technical expertise to manage all of the complexities of a project from start to
finish. Prime relives the customer of the daily worry of overseeing the project
and ensure's that the project is completed according to schedule.
On December 27, 1995, the Company entered into an agreement with a
related party to sell all of the common stock of Prime Contracting Corp. 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 after six months and $400,000 after one
year of the closing date. In the event that gross annual revenue for Prime for
the calendar year 1996 falls below $3,000,000, then the final payment of
$400,000 shall be forfeited.
South Jersey Medical Equipment Leasing Corporation
On October 12, 1994, Modern Medical Modalities Corporation, formed a
New Jersey corporation, South Jersey Medical Equipment Leasing Corp. ("South
Jersey Medical").
On December 29, 1994, South Jersey Medical, which is 100% owned by
Modern Medical Modalities Corporation, purchased for $1,550,000 certain assets
and liabilities of NRM Imaging Associates, Partnership, an entity that leases
MRI and CT equipment. South Jersey Medical will provide space, equipment (MRI
and CT Scanner) and non-professional services, including management and billing
and collection functions to South Jersey Imaging Associates, P.A. located at 55
East Route 70, Marlton, New Jersey.
Medical Marketing and Management, Inc.
On April 13, 1994, Modern Medical Modalities Corporation, formed a New
Jersey corporation, Medical Marketing & Management Inc. ("Medical Marketing").
Medical Marketing, which is 100% owned by Modern Medical Modalities
Corporation, is responsible for negotiating contracts with various health care
providers as well as marketing for Modern Medical Modalities Corporation.
Medical Marketing has contracts to provide services with other facilities.
South Plainfield Imaging, Inc.
In July of 1994, the Company assumed the assets and liabilities of Park
Plaza Radiology, Diagnostic Imaging Center, located in South Plainfield, New
Jersey. In September of 1994, the Company changed the name of Park Plaza
Radiology to South Plainfield Imaging, Inc.
15
<PAGE>
Atrium Imaging
In October of 1994, Medical Marketing and Management, Inc. signed a
contract with Atrium Imaging of Manalapan, New Jersey. Under the terms of this
agreement, Medical Marketing and Management will provide administrative, billing
and marketing services to the operation. Under the terms of the agreement,
Medical Marketing and Management will receive the greater of $4,000 or 8% of
cash collected per month.
Empire State Imaging Associates, Inc.
In April 1995, the Company founded 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 a wholly-owned subsidiary of the Company, 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.
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. 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%.
Amherst Medical Equipment Leasing Corporation
In April 1995, Amherst Medical Equipment Leasing Corporation
("Amherst"), a wholly-owned subsidiary of the Company, was formed. Amherst
entered into an agreement with Amherst Imaging Associates, P.A., to provide
certain non-professional services. In accordance with this agreement, Amherst
has leased space in Amherst, New York, effective July 1, 1995, for a period of
five years at a monthly rent of $1,275. On July 17, 1995, the Company entered
into an agreement with Magna-Lab, Inc. to purchase a permanent MRI at a cost of
approximately $500,000. Financing has been secured through DVI Financing
Services. The lease in the amount of $327,000 is payable over 60 months at a
monthly payment of $7,068 commencing on January 1, 1996. Magna Labs has agreed
to accept 18% of the operating income on a cash basis for a five year period to
cover the cost of the balance of the machine. This income sharing is for five
years and is not to exceed $200,000. As part of the agreement, Magna-Lab agreed
to pay the monthly space rent until the MRI is delivered.
Somerset Imaging Corporation
In July 1995, Somerset Imaging Corp., a wholly-owned subsidiary
commenced operations at a facility located in Somerset, New Jersey providing CT
Scan imaging and Radiology/Fluoroscopy diagnostic services to radiologists and
other medical professionals, including leasing and financing equipment for use
in this business.
Open MRI of Morristown
During February of 1996, the Company under the terms of a joint venture
16
<PAGE>
with RMC Consulting Inc. and one individual developed a MRI facility located in
Morristown, New Jersey. Under the terms of the agreement, dated October 31,
1995, the Company has the responsibility to make all day to day decisions on
behalf of the Joint Venture "Open MRI of Morristown." The term of the Joint
Venture shall terminate October 15, 2015 unless the business is sold, or the
joint venture is terminated by mutual consent of the participants. The term of
the Joint Venture may be extended by mutual written consent of the participants.
Under the terms of the Joint Venture the profit distribution is as follows:
Modern Medical Modalities Corporation 72%, RMC Consulting Inc. 18% and Barbara
Krasnica 10%.
Ohio MRI & Diagnostic Services of Toms River, Inc.
In February 1997, the Company acquired a 25% interest from an
affiliated party in Open MRI & Diagnostic Services of Toms River, Inc.
In March 1997, the Company entered into contract for the sale of its
stock in this entity. Under the terms of 100$ of the sale, the purchasing party,
Advanced Open MRI and Diagnostic Imaging P.A., paid $75,000 in advance, $175,000
at closing and the balance of $750,000 is payable in monthly installments of
$25,000 commencing in April 1998.
Ohio Medical Equipment Leasing Corporation/Sylvania Diagnostics
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 the operating Sylvania is not profitable,
DVI will purchase either Sylvania or OME for one dollar.
As a result of this acquisition, the Company has recorded the
difference between the acquisition price of one dollar and the allocated
percentage of the cumulative deficit as goodwill and the cumulative allocated
losses in excess of basis of the limited partners of Sylvania as an intangible
asset as of July 1, 1996, the date of acquisition. All subsequent losses are
allocated to the Company with future income first applied to the losses and the
remainder against the intangible asset until it is fully recovered.
West Paterson Medical Leasing Corporation
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 (the "Agreement") with Advanced Imaging &
Radiology Associates, P.A. ("M.D."). WPMEL is a medical practice specializing in
diagnostic imaging located in West Paterson, New Jersey. 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. Under the terms of the Agreement, WPMEL has assumed all debt,
expenses and accounts receivable for the site. Subsequently, in February 1997
the Company ordered a Toshiba CT Scan for the site, for $335,000, financed by
DVI Financial Services. The CT Scan became operational in the middle of March
1997.
17
<PAGE>
Metaire Medical Equipment Leasing Corporation
In June of 1997, Metaire Medical Equipment Leasing Corporation was
incorporated in the State of New Jersey, as a 100% owned subsidiary of the
Company. In October of 1997, Metaire Medical Equipment Leasing Corporation was
registered as a Corporation doing business in the State of Louisiana. Under the
terms of the venture agreement, the Company will receive 100% of the profits and
equity of Open MRI of Metaire. The site opened for business in February of 1998.
Item 2. PROPERTIES
Real Estate Leases
One of the Company's majority-owned joint ventures, Doctors Imaging
Associates, Joint Venture, leases a facility under a non-cancelable operating
lease which expires in 2002. The facility is located in Bowie, Maryland and the
lease includes a five-year option to renew, with monthly rental payments of
$4,331, plus utilities.
One of the Company's majority-owned joint ventures, Plainfield MRI
Associates, Inc., Joint Venture, has entered into an agreement with an affiliate
of Muhlenberg Regional Medical Center for five (5) years without rent. However,
for certain management services to be provided to the Company a minimum
management fee of $50,000 must be paid per annum by the Company. This agreement
expires in 1996 and is currently under negotiation to renew.
One of the Company's wholly-owned subsidiaries, Union Imaging
Associates, Inc., leases a facility under a non-cancelable operating lease which
expires in March 2000. The facility is located in Union, New Jersey with monthly
rental payments of $4,425, plus utilities.
The Company leases its main administrative offices, located in
Morristown, New Jersey, under a month-to-month agreement treated as an operating
lease at a monthly rental payment of $6,000 per year. In addition, the Company
is obligated under various leases at the sites of its wholly-owned subsidiaries.
Future minimum lease payments under these leases as of December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
------- -------
<S> <C> <C>
1997 $643,562 $499,100
1998 523,285 412,400
1999 349,522 306,900
2000 168,300 155,600
2001 and thereafter 63,500 -
---------- ----------
Total $1,748,169 $1,374,000
---------- ----------
---------- ----------
</TABLE>
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Modern Medical Modalities Corporations' initial public offering closed
on February 17, 1994. Neither a cash or stock dividend has been paid or issued.
517,500 Units were sold in the public offering. Each unit consisted of
(1) share of Common Stock and one (1) Class A Redeemable Common Stock Purchase
Warrant ("A Warrant") and one (1) Class B Redeemable Common Stock Purchase
Warrant ("B Warrant").
The Company's Common Stock is traded in the NASDAQ over-the-counter
market under the symbol MODM. It's "A Warrant" and "B Warrant" are traded under
the symbols MODMW and MODMZ. 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 December 31, 1997 are as follows:
COMMON STOCK
<TABLE>
<CAPTION>
Date High Low
---- ---- ---
<S> <C> <C>
01/97 3.00 2.24
02/97 3.56 1.40
03/97 2.08 1.48
04/97 2.20 1.60
05/97 3.00 2.20
06/97 3.00 2.08
07/97 2.44 2.24
08/97 3.16 2.24
09/97 3.00 2.44
10/97 3.28 3.00
11/97 3.28 2.28
12/97 2.56 2.20
</TABLE>
A WARRANT
<TABLE>
<CAPTION>
Date High Low
---- ---- ---
<S> <C> <C>
01/97 .24 .24
02/97 .28 .28
03/97 .28 .28
04/97 .28 .28
05/97 .50 .28
06/97 .48 .32
07/97 .48 .40
08/97 1.00 .48
09/97 1.00 .48
10/97 1.00 .60
11/97 1.00 .40
12/97 .44 .32
</TABLE>
19
<PAGE>
B WARRANT
<TABLE>
<CAPTION>
Date High Low
---- ---- ---
<S> <C> <C>
01/97 .06 .06
02/97 .06 .06
03/97 .06 .06
04/97 .06 .06
05/97 .08 .06
06/97 .06 .04
07/97 .06 .04
08/97 .06 .04
09/97 .06 .04
10/97 .04 .04
11/97 .04 .02
12/97 .02 .02
</TABLE>
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years ended December 31, 1997, 1996, 1995, 1994, and 1993. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Selected statement of operating data:
Total operating income $ 9,941,315 $12,074,914 $ 6,268,403 $ 3,656,909 $ 3,185,008
Total operating expenses 8,807,437 9,872,550 6,124,604 3,114,115 2,114,828
Income (loss) from continuing operations 188,554 249,826 (424,530) 222,143 308,109
Income (loss) from discontinued operations (63,762) -- (316,524) 71,180 (63,433)
Net income (loss) 124,792 249,826 (741,054) 405,631 244,676
Per share data:
Income (loss) from continuing operations 0.06 0.08 (0.13) 0.08 0.13
Income (loss) from discontinued operations (0.02) -- (0.10) 0.02 (0.03)
Net income (loss) 0.04 0.08 (0.23) 0.14 0.10
Selected balance sheet data:
Total assets $ 19,070,161 $19,360,231 $ 16,538,791 $10,311,614 $ 6,257,963
Long-term obligations 8,193,188 8,818,552 8,601,297 5,126,863 3,506,903
Total liabilities 14,419,551 14,975,238 12,211,255 6,430,578 4,768,739
Retained earnings 643,079 518,287 240,806 1,059,729 654,098
Stockholders' equity 4,509,785 4,384,993 4,327,536 3,881,036 1,489,224
Working capital (deficit) 994,650 886,194 1,646,004 2,862,871 404,253
</TABLE>
21
<PAGE>
ITEM 7 - 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 not only the sites of the
Company, but 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 1995, the Company purchased Empire State Imaging Associates, Inc.
("Empire State"). On December 27, 1996, the Company sold 65% of the common stock
of Empire State for $250,000 to a related party. 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. During the third quarter
of 1996, the Company, through its wholly-owned subsidiary, West Paterson Medical
Equipment Leasing Corp. ("WPMEL"), entered into a lease and management services
agreement at a site specializing in diagnostic imaging located in West Paterson,
New Jersey. In addition, the Company through its wholly-owned subsidiary Ohio
Medical Equipment Leasing Corporation ("OME") entered into a purchase and
consulting agreement to acquire a 50.2% interest as a general (managing) partner
of a diagnostic imaging center located in Sylvania, Ohio. 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.
In February 1997, the Company acquired a 25% interest from an affiliated
party in Open MRI & Diagnostic Services of Toms River, Inc.
In March 1997, the Company entered into a contract for the sale of its
stock in this entity. Under the terms of 100% of the sale, the purchasing party
paid $75,000 in advance, $175,000 at closing and the balance of $750,000 is
payable in monthly installments of $25,000 commencing in April 1998.
Results of Operations:
For the year ended December 31, 1997 as
compared to the year ended December 31, 1996:
The Company has experienced a loss for the fourth quarter of ($365,000). This
loss is attributable to the following:
<TABLE>
<S> <C>
Closing of Detex Mammography Center 1
in Edison, New Jersey ($117,000)
Loss from operations and disposition of
Somerset Imaging Corporation (239,000)
1997 startup expenses applicable to
Metaire Medical Equipment Leasing Corp. (58,000)
TOTAL ($414,000)
</TABLE>
Revenues for Modern Medical Modalities Corporation and subsidiaries
aggregated $9,941,000 in 1997 as compared to $12,075,000 in 1996. The increase
in revenues is
22
<PAGE>
directly attributable to an increase in patient service revenues for the
Company's various MRI sites of $5,502,000 and an increase in Medical Marketing &
Management's revenues of $399,000.
Operating expenses for 1997 were $8,807,000 (88.6% of operating revenues)
as compared to $$9,873,000 (81.8% of operating revenues) in 1996. This reduction
of $1,134,000 was due to the sale of Somerset Imaging Corporation, the disposal
of Detex Mammography Center, and the sale of 65% of Empire State Imaging
Associates, Inc.
Operating expenses for 1996 were $9,873,000 (81.8% of operating revenues)
as compared to $6,125,000 (97.7% of operating revenues) in 1995. This increase
of $3,748,000 (61.2%) is primarily the result of an increase in depreciation
expense of $706,000 due to the large increase in property assets and the
increase in the following:
Selling, General and Administrative Expenses:
This category of expenses has increased by $2,766,000 when comparing 1996
to 1995. Increases in costs attributable to sites that commenced operations in
1996 or had operations for only a portion of the fiscal 1995 are as follows:
<TABLE>
<S> <C> <C>
Empire State $ 345,000 Payroll, rent, supplies, office expenses
WPMEL 154,000 Payroll, rent, supplies, office expenses
Amherst 194,000 Payroll, rent, office expenses
OME 408,000 Payroll, rent, supplies, office expenses
OpenMRI of Morristown 419,000 Payroll, rent, office expenses
MRI Imaging Center at PBI 399,000 Payroll, rent, supplies, office expenses
Somerset Imaging
Corporation 298,000 Payroll, rent, supplies, office expenses
---------
Total $2,217,000
---------
---------
</TABLE>
Expenses Associated with Marketing Revenue:
Expenses associated with management and marketing revenues decreased by $243,000
(21.5%) to $888,000 in 1997.
Expenses associated with management and marketing revenues increased by $254,000
(51.8%) to $744,000 in 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 as evidenced by the $399,000 (115.8%) increase in marketing revenues in
1996 to $743,000.
Interest Expense:
Interest expense, net of an increase in interest income of $98,000, has
decreased by $224,000 when comparing 1997 and 1996.
Interest expense, net of a decrease in interest income of $30,000, has increased
by $441,000 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, OpenMRI of Morristown, as well as interest on the lines of credit
with Summit Bank of New Jersey, Republic National Bank, and financing with DVI
Financial Services, Inc. ("DVI").
23
<PAGE>
For the year ended December 31, 1995 as
compared to the year ended December 31, 1994:
Revenues for Modern Medical Modalities Corporation aggregated $6,268,000 in 1995
as compared to $3,657,000 in 1994. The $2,611,000 (71.4%) increase in revenues
is directly attributable to an increase of the patient service revenues for the
Company's various MRI sites in the amount of $2,421,000 and an increase in
Medical Marketing & Management's revenues in the amount of $224,000.
Operating expenses for 1995 were $6,125,000 (97.7% of revenues) compared to
$3,114,000 (85.2% of revenues) in 1994. This increase of $3,011,000 (96.7%) is
primarily the result of an increase in depreciation expense of $505,000
resulting from the large increase in property assets and the increase in the
following:
Selling, General and Administrative Expenses:
This category of expenses has increased by $2,099,000 (102.5%) to $4,147,000 in
1995 as compared to the $2,048,000 of such costs incurred in the same period of
1994. Increases are attributable to sites commencing operations in 1995 which
were not operational for all or part of 1994.
<TABLE>
<S> <C> <C>
Empire State $709,000 Payroll, rent, supplies, office expenses
Amherst 26,000 Payroll, rent, office expenses
--------
Total $735,000
--------
--------
</TABLE>
In addition, increases in expenses for facilities that were operational in both
years of $1,304,000 which is attributable to the increased revenues in 1995 are
as follows:
<TABLE>
<S> <C> <C>
MRI Imaging Center
at PBI $ 199,000 Payroll, marketing, supplies
Plainfield MRI Associates 71,000 Office expenses, marketing
South Jersey Medical
Equipment Leasing
Corporation 738,000 Payroll, rent equipment, maintenance,
supplies, marketing, office equipment
Modern Medical Modalities 31,000 Insurance, travel, general operations
South Plainfield
Imaging, Inc. 74,000 Payroll, rent
Somerset Imaging
Corporation 191,000 Payroll, rent supplies, marketing,
---------- office expenses
Total $1,304,000
----------
----------
</TABLE>
Expenses Associated with Management Fee Income:
Expenses associated with management fee income increased by $70,000 when
comparing 1995 and 1994. This increase is due primarily to the increased salary
expenses of administrative support personnel, and the additional employees need
to manage the sites.
Interest Expense:
Interest expense has increased by $617,000 when comparing 1995 and 1994. This
increase is attributable primarily to the financing of equipment at South
Jersey, Empire State, MRI Imaging Center at PBI, Somerset Imaging, as well as
interest on the line of credit with Summit Bank of New Jersey ("Summit Bank").
24
<PAGE>
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 $219,000 and $226,000 as of December 31, 1996 and 1995,
respectively.
The Company has a working capital surplus of $888,000 at December 31, 1996 as
compared to a working capital surplus of $1,646,000 at December 31, 1995.
During 1995, the Company secured a line of credit with 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 the amount of $600,000.
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 to finance up to
$1,500,000 of the accounts receivable balances from one of the Company's
wholly-owned subsidiaries, Empire State and one of its joint ventures. Advances
bear interest at the prime rate plus four percent. At December 31, 1996, the
total outstanding advances is $686,000.
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
OpenMRI 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
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.
On March 3, 1998, the Company agreed to restructure the promissory note for the
sale of Prime to a related party as follows: $200,000 in cash, payable over
thirty-six months, plus interest calculated at prime plus 1% and a 36 month
option to purchase 250,000 shares of the related party's stock at $.05.
The Company recorded an increase of $988,000, 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
25
<PAGE>
Liquidity and Capital Resources: (cont.)
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 was
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 diagnostics imaging equipment. Empire State provides space, equipment
(MRI, CT, Mammography, Ultrasound and Diagnostic Imaging) and nonprofessional
services, including management and billing and collection to Central Imaging
located in Yonkers, New York.
Empire State, entered into a Loan and Security Agreement ("Loan Lease") with a
non-affiliated party, DVI, 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.
On December 27, 1996, the Company sold 65% of the stock of Empire State for
$250,000 payable as follows: $25,000 down and $25,000 per month with interest on
the unpaid principal at prime plus 1%.
In April 1995, Amherst Medical Equipment Leasing Corporation, a wholly-owned
subsidiary, of the Company, was formed. The subsidiary's site, located in
Amherst, New York, commenced operations in January 1996.
In June 1995, the MRI at the Passaic site began operations. The site is a joint
venture between Passaic Beth Israel and the Company.
In February 1996, OpenMRI of Morristown ("OpenMRI"), a majority owned Joint
Venture, commenced operations. The site, located in Morristown, New Jersey, is a
joint venture between a large medical group and OpenMRI.
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.
In February 1997, the Company acquired a 25% interest from an affiliated party
of Open MRI & Diagnostic Services of Toms River, Inc.
In March 1997, the Company entered into a contract for the sale of its stock in
this entity. Under the terms of 100% of the sale, the purchasing party paid
$75,000 in advance ($18,750 due the Company), $175,000 at closing ($43,750 due
the Company) and the balance $750,000 ($187,500 due the Company) payable in
monthly installments of
26
<PAGE>
$25,000 ($65,000 due the Company) for 30 months.
In June of 1997, Metarie Medical Equipment Leasing was incorporated in the State
of New Jersey as a 100% owned subsidiary of the Company. In October of 1997,
Metaire Medical Equipment Leasing was registered as a Corporation doing business
in the State of Louisiana. Under the terms of the venture agreement, the Company
will receive 100% of the profits and equity of Open MRI of Metaire. The site
opened for business in February of 1998.
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.
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 charges will be
enacted or the affect on the Company's business.
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 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 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
27
<PAGE>
Legislation: (cont.)
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 Stark 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 Stark 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 healthcare
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.
28
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MODERN MEDICAL MODALITIES CORPORATION
<TABLE>
<S> <C>
INDEX...........................................................................37
INDEPENDENT AUDITORS' REPORT OF VINCENT J. BATYR & CO...........................F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as at December 31, 1997 and 1996.............................F-2
Consolidated Statements of Operations
For the Years Ended December 31, 1997, 1996, and 1995...........................F-4
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996, and 1995...........................F-5
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997, 1996, and 1995...........................F-6
Notes to Financial Statements.....................................................F-7 - F-17
</TABLE>
29
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On March 7, 1998, the Company dismissed Weinick, Sanders & Co. LLP, located
at 1515 Broadway, New York, New York 10036, as its independent accountant. The
Company has engaged Vincent J. Batyr & Co., located at 27 North Broadway,
Tarrytown, New York 10591, as its new certified public accountants. In
connection with the two most recent fiscal years and subsequent interim period
preceding Weinick, Sanders & Co. LLP's dismissal, there were no disagreements
with Weinick, Sanders & Co. LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
Weinick, Sanders & Co. LLP's report on the financial statements for either of
the past two years did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified.
30
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The officers and directors of the Company, and further information concerning
them, are as follows:
Name Age Position
----- ---- -----------
Roger Findlay 50 Chairman of the Board
of Directors
Dominic Gugliemli* 46 President
Patrick O'Connor 43 Vice President
Jan Goldberg 47 Vice President, Treasurer
and Director
Gregory Maccia 44 Vice President, Secretary,
and Director
Elli Pittas 44 Vice President of
Operations and Director
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 elected and
qualified.
Roger Findlay is a co-founder and has been Chairman of the Board of Directors of
the Company since its inception in June 1990. Since 1989, Mr. Findlay has also
been co-founder of Technology Services, Inc., a software support company for
medical offices and commercial accounts. Since 1986, he has also been founder
and President of Northern New Jersey Medical Management, a general partner of a
diagnostic imaging center. From 1986 to 1989, Mr. Findlay 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. From 1984 to 1986, Mr. Findlay was chief operating officer
of NMR of America, Inc., a publicly traded company engaged in operating MRI
sites. Mr. Findlay, from 1972 to 1986, was President and co-owner of Medical
Billing Services, Inc.
Dominic Gugliemli has been President of the Company since August 1997. Prior to
coming to the Company, he served as President of Business Development for DVI
Financial Services. Prior to that, Mr. Guglielmi served in various positions at
US Concor, a financial leasing company.
*Dominic Gugliemli resigned as President in March of 1998 and his
responsibilities as President have been assumed by the various Board members.
31
<PAGE>
A search committee has been formed to find a new President.
Patrick O'Connor has been President of the Company since January 1, 1996. Mr.
O'Connor has been President and co-founder of Medical Marketing and Management
Inc., a wholly-owned subsidiary of the Company since its inception in October
1994. From October 1994 to December 1995, Mr. O'Connor was Vice President of
sales, marketing and project development for the company. Mr. O'Connor from
August 1982 to October 1994 was an MRI Specialist, Account Executive and Account
Specialist for Picker International.
Jan Goldberg is a co-founder and was Secretary, Treasurer and Director of the
Company until November, 1992. Since November 1992, Mr. Goldberg has been the
Vice President, Treasurer and 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.
Gregory 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.
Elli Pittas has been Vice President of Operations and a Director for the Company
since May 1994. From April 1991 to April 1994, Ms. Pittas was employed with the
Company as Site Manager. Ms. Pittas from 1980 to 1991 was employed as a data
coordinator by Advacare Inc., a national practice management and physician
billing company.
32
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the executive compensation and distribution paid
to each executive officer of the Company during the year ended December 31,
1997.
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------------------------------------------------
Name and Restricted
Principal Fiscal Other Stock Options/ LTIP All other
Other Position Year Salary Bonus Compensation Awards SARSs Payouts Compensation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger Findlay
Chairman of the
Board of Directors 1997 $38,462 -- $ 6,480 -- -- -- --
Dominic Gugliemli 1997 $48,769 -- $ 2,700
President
Patrick O'Connor
President 1997 $51,637 -- $18,539 -- -- -- --
Gregory Maccia
Vice President,
Secretary
and Director 1997 $23,908 -- $ 9,000 -- -- -- --
Jan Goldberg
Vice President,
Treasurer
and Director 1997 $23,954 -- $ 4,644 -- -- -- --
Elli Pittas
Vice President of
Operations and
Director 1997 $38,922 -- $ 0 -- -- -- --
</TABLE>
(1) The above compensation figures include the cost to the Company of the use of
automobiles leased by the Company, the cost of benefits, including premiums for
life insurance and any other personal benefits provided by the Company to such
persons in connection with the Company's business and directors fees.
33
<PAGE>
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 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.
<TABLE>
<CAPTION>
Name Amount
and Address and Nature
of Beneficial of Beneficial
Owner Ownership(1)
---------------- -----------------
<S> <C>
Roger Findlay 236,096
29 Oak Knoll Road
Mendham, New Jersey
Jan Goldberg 236,091
555 North Avenue
Fort Lee, New Jersey
Gregory Maccia 236,091
41 Mount Pleasant Rd.
Morristown, New Jersey
Elli Pittas 0
149 Combs Hollow Road
Randolf, New Jersey
Patrick O'Connor 0
255 Serpentine Drive
Bayville, New Jersey
Officers and Directors 708,278
as a group (5 Persons)
</TABLE>
(1) 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.
Messrs. Findlay, Goldberg, and Maccia may be deemed "Parents" and
"Founders" of the Company as those terms are defined under the Securities Act
of 1933, as amended.
Item 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
On October 15, 1992, the Company initially issued an additional 2,245,000 shares
of common stock. Officers of the Company have received shares, for an aggregate
value of $57,500 as follows: Roger Findlay (589,635 shares), Jan Goldberg
(589,630 shares) and Gregory Maccia (589,630 shares). These shares
34
<PAGE>
were issued pursuant to a recapitalization of the Company.
Doctors Imaging Associates, a Joint Venture whose financial statements are
consolidated with those of the Company has received net non-interest bearing
advances from Doctors Imaging Associates, Inc., a joint venture, totaling
$225,717 and 240,751 at December 31, 1995 and December 31, 1994, respectively.
Doctors Imaging Associates, Inc. is obligated to advance up to $250,000 from
time to time for working capital as the Company deems necessary. These advances
are to be repaid prior to any distribution of profits to the joint venturers.
Messrs. Findlay and Maccia who are officers and directors of the Company are
also general partners in a limited partnership which engages in diagnostic
imaging. This limited partnership concerns only one site, which is located at
Union, New Jersey and provides ultrasound, mammography, fluoroscopy and nuclear
medicine only. However, the limited partnership does not lease MRI and CT
equipment. Therefore, it is managements belief that there is no competition
between the Company and the limited partnership. Moreover, no conflict of
interest exists for Messrs. Findlay and Maccia as officers of the Company and
general partners of the limited partnership. There are no leasing transactions
between the Company and the limited partnership. To date there has been no
transactions between the limited partnership and the Company.
35
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. A list of financial statements is
contained in "Modern Medical Modalities Corporation Index to Financial
Statements" on page 37 hereof.
2. Exhibits. Not Applicable.
(b) Reports on Form 8-K
On March 7, 1998, the Company dismissed Weinick, Sanders & Co. LLP, located at
1515 Broadway, New York, New York 10036, as its independent accountant. The
Company has engaged Vincent J. Batyr & Co., located at 27 North Broadway,
Tarrytown, New York 10591, as its new certified public accountants. In
connection with the two most recent fiscal years and subsequent interim period
preceding Weinick, Sanders & Co. LLP's dismissal, there were no disagreements
with Weinick, Sanders & Co. LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
Weinick, Sanders & Co. LLP's report on the financial statements for either of
the past two years did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified.
(c) Exhibits. Not Applicable.
36
<PAGE>
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.
MODERN MEDICAL MODALITIES CORP.
By /s/ Roger Findlay
-----------------------------------
Roger Findlay
Chairman of the Board of Directors
Date
-----------------------------------
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 /s/ Roger Findlay
----------------------------------
Roger Findlay
Chairman of the Board of Directors
Date
----------------------------------
* * *
By /s/ Dominic Gugliemli
----------------------------------
Dominic Gugliemli
President
Date
----------------------------------
* * *
<PAGE>
By /s/ Patrick O'Connor
----------------------------------
Patrick O'Connor
Vice President
Date
----------------------------------
* * *
By /s/ Jan Goldberg
----------------------------------
Jan Goldberg
Vice President, Treasurer & Director
Date
----------------------------------
* * *
By /s/ Gregory Maccia
----------------------------------
Gregory Maccia
Vice President, Secretary & Director
Date
----------------------------------
* * *
By /s/ Elli Pittas
----------------------------------
Elli Pittas
Vice President of Operations and
Director
Date
----------------------------------
* * *
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Modern Medical Modalities Corporation
We have audited the accompanying consolidated balance sheet of Modern Medical
Modalities Corporation and Subsidiaries as at December 31, 1997, and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the three years ended December 31, 1997, 1996 and 1995. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Modern
Medical Modalities Corporation and Subsidiaries as at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
/s/ Vincent J. Batyr & Co.
- -----------------------------
Vincent J. Batyr & Co.
Certified Public Accountants
New York, NY
April 17, 1998
F-1
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1996 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 119,217 $ 42,421
Restricted cash for line of credit repayment 600,000 600,000
Accounts receivable (less contractual
allowances of $2,475,004 and $2,445,124,
respectively) 4,919,714 4,867,242
Account receivable - joint venture 254,696 --
Current portion of note receivable from affiliate 972,650 600,000
Loan receivable - affiliate 121,250 225,000
Other receivables 47,554 409,442
Due from officer 94,343 --
Prepaid expenses 44,999 113,836
----------- -----------
Total current assets 7,221,013 6,857,941
----------- -----------
Other assets:
Furniture, fixtures, equipment and
leasehold improvements (net of accumulated
depreciation and amortization of $6,134,831
and $4,759,821, respectively) 9,445,204 10,043,862
Note receivable - net of current portion 113,736 400,000
Goodwill (net of accumulated amortization
of $189,233 and $47,307) 1,229,990 1,371,916
Organization costs (net of accumulated
amortization of $16,601 and $9,859,
respectively) 81,097 12,839
Investment in joint ventures 259,483 237,261
Investment in and advances to
unconsolidated affiliate 567,737 306,961
Deposits 151,901 129,451
----------- -----------
Total other assets 11,849,148 12,502,290
----------- -----------
$19,070,161 $19,360,231
----------- -----------
----------- -----------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-2
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: $ 599,750 $ 599,750
Line of credit
Loan payable - joint venturer 110,467 100,467
Loans payable - affiliates 202,000 468,571
Current portion of long-term 3,115,461 2,721,906
Accounts payable 1,463,096 1,259,344
Accrued expenses 556,862 643,183
Due to affiliates 23,594 52,216
Deferred income taxes 155,133 126,310
----------- -----------
Total current liabilities 6,226,363 5,971,747
----------- -----------
Other liabilities:
Long-term debt, net of current portion 6,920,849 7,741,217
Deferred income taxes 1,054,552 858,618
Due to joint venturer 217,787 218,717
----------- -----------
Total other liabilities 8,193,188 8,818,552
----------- -----------
Total liabilities 14,419,551 14,790,299
Minority interest 140,825 184,939
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Common stock - $0.0001 par value,
Authorized - 5,000,000 shares
Issued and outstanding - 3,168,292 shares 317 317
Additional paid-in capital 3,866,389 3,866,389
Retained earnings 643,079 518,287
----------- -----------
Total stockholders' equity 4,509,785 4,384,993
----------- -----------
19,070,161 19,360,231
----------- -----------
----------- -----------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-3
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating income:
Net revenue from services $ 8,643,917 $ 11,048,296 $ 5,546,400
Management fees 408,787 283,263 377,591
Marketing revenues 1,051,165 743,355 344,412
------------ ------------ ------------
Total operating income 10,103,869 12,074,914 6,268,403
------------ ------------ ------------
Operating expenses
Selling, general and administrative 6,100,714 6,912,230 4,146,624
Expenses associated with
management fee income 248,760 387,429 347,275
Expenses associated with
marketing revenue 639,667 744,015 489,683
Bad debts 29,793 67,582 85,978
Depreciation and amortization 1,788,503 1,761,294 1,055,044
------------ ------------ ------------
Total operating expenses 8,807,437 9,872,550 6,124,604
------------ ------------ ------------
Income from operations 1,296,432 2,202,364 143,799
Other income (expenses):
Interest income 135,497 37,909 68,217
Interest expense (1,218,356) (1,344,649) (933,137)
Income from joint ventures 217,909 104,147 54,332
Loss from a minority owned subsidiary (8,981) -- --
Loss on sale of property assets (26,702) -- --
Loss on sale of subsidiary (36,907) -- --
Gain on sale of subsidiary 252,076 -- --
------------ ------------ ------------
Total other income (expenses) (685,464) (1,202,593) (810,588)
------------ ------------ ------------
Income (loss) from continuing operations
before income tax provision and
minority interest 610,968 999,771 (666,789)
Income tax provision (credit) 277,990 455,320 (243,478)
------------ ------------ ------------
Income (loss) from continuing operations
before minority interest 332,978 544,451 (423,311)
Minority interest (144,424) (294,625) (1,219)
------------ ------------ ------------
Income (loss) from continuing operations 188,554 249,826 (424,530)
Income (loss) from discontinued
operations, net of income tax effect
of $53,233, $ - , and ($77,866), respectively (63,762) -- (316,524)
------------ ------------ ------------
Net Income (loss) $ 124,792 $ 249,826 ($ 741,054)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-4
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 124,792 $ 249,826 ($ 741,054)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,788,503 1,761,294 1,055,044
Contractual allowances 29,880 889,010 463,774
Bad debts 29,793 67,582 85,978
Income from an unconsolidated joint venture (217,909) (104,147) (54,332)
Minority interest (44,114) 294,625 (24,838)
Deferred income taxes 224,757 453,259 (190,029)
Increase (decrease) in cash attributable to
changes in operating assets and liablities:
Accounts receivable 82,352 (2,703,156) (1,646,558)
Accounts receivable - joint venture 254,696 --
Note receivable 239,674 --
Due from affiliate (564,093) -- (243,556)
Other receivables 361,888 (409,442) 25,397
Due from officers 94,343 -- --
Prepaid expenses 68,837 (36,542) (37,790)
Security deposits (22,450) 78,396 269,712
Distributions from a joint venture (23,152) 31,206 104,945
Due to affiliate (38,099) (56,954) 109,170
Accounts payable 203,752 675,989 370,086
Accrued expenses (86,321) 296,023 166,537
Income taxes payable -- -- (250)
Advances to unconsolidated affiliate (260,776) -- --
Undistributed loss of affiliate 8,981 -- --
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,392,552 1,486,969 287,764
----------- ----------- -----------
Cash flows from investing activities:
Organization costs (75,000) -- --
Acquisition of property assets (1,628,381) (461,453) (554,112)
Net assets of discontinued subsidiary -- -- 105,670
Note receivable - affiliate -- 100,000 100,000
Deposits -- 25,000 --
Purchase of partnership interest -- 3,710 --
Disposition of property assets 945,377 -- --
----------- ----------- -----------
Net cash used in investing activities (758,004) (332,743) (348,442)
Cash flows from financing activities:
Proceeds from issuance of long term debt 2,044,904 --
Net borrowings on line of credit -- 103,000 496,750
Affiliate advances -- 468,571 (15,034)
Joint venture advances -- 93,467 --
Due to/from managing agent -- -- 252,031
Payments on capitalized lease obligations and long-term debt (1,958,186) (2,161,169) (1,.120,051)
Extinguishment of long term debt (644,470) -- --
----------- ----------- -----------
Net cash provided by financing activities (577,752) (1,496,131) (386,304)
Net increase (decrease) in cash and cash equivalents 76,796 (341,905) (1,022,510)
Cash and cash equivalents at beginning of period 642,421 984,326 2,006,836
Cash and cash equivalents at end of period $ 719,217 $ 642,421 $ 984,326
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-5
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
Additional
Number of Common Paid-In Retained
Shares Stock Capital Earnings Total
--------- ------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3,088,292 309 $ 2,820,998 $ 1,059,729 $ 3,881,036
Adjustment in connection
With the disposal of
Prime Contracting Corp. -- -- 1,065,423 (77,869) 987,554
Issuance of common stock-
Acquisition of certain
Assets and the assumption
Of certain liabilities of
Central Imaging Partners,
Limited Partnership 80,000 8 199,992 -- 200,000
Net loss for the year ended
December 31, 1995 -- -- -- (741,054) (741,054)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 3,168,292 317 4,086,413 240,806 4,327,536
Write-down of assets relating
To the disposal of
Prime Contracting Corp. -- -- (358,000) -- (358,000)
Adjustment in connection with
The sale of 65% of Empire
State Imaging Associates, Inc. -- -- 137,976 27,655 165,631
Net income for the year ended
December 31, 1996 -- -- -- 249,826 249,826
Balance at December 31, 1996 3,168,292 317 3,866,389 518,287 4,384,993
----------- ----------- ----------- ----------- -----------
Net income for the year ended
December 31, 1997 -- -- -- 124,792 124,792
Balance at December 31, 1997 3,168,292 $ 317 3,866,389 $ 643,079 $ 643,079
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-6
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNT POLCIES.
(a) Organization and Business:
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. Modern Modalities Corporation was
incorporated in the State of New Jersey on June 4, 1990, for the same
purpose. The two companies had common ownership, directors and
officers. In July 1992, the two companies were merged under the laws of
the State of New Jersey, by way of an agreement accounted for as a
tax-free merger. The surviving corporation is known as Modern Medical
Modalities Corporation.
(b) Basis of Presentation:
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 subsidiary, Sylvania
Diagnostics L.P., (in which the Company has a 50.2% interest), 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, by contract manages the joint
ventures, is the managing joint venture and has unilateral control. The
Company has a 35% interest and significant influence in an
unconsolidated minority-owned subsidiary, Empire State Imaging
Associates, Inc., which is accounted for under the equity method.
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.
F-7
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, AND 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) Operating Revenue:
Revenue from services to physicians are recorded at a
percentage of the physicians' established rates under a contractual
agreement between the Company and the Physicians. Under these
agreements, the Company participates, on the same percentage basis,
with adjustments known as contractual allowances, under third-party
reimbursement agreements with the physicians, deducted to arrive at net
revenue from services. A schedule of revenue and contractual allowances
is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue from services 10,956,367 13,492,462 5,932,326
Less: Contractual
Allowances 2,475,004 2,444,166 385,926
---------- ---------- ----------
Net revenue from services 8,481,363, 11,048,296 5,546,400
========== ========== ==========
</TABLE>
Management fees are generated, through a contractual agreement
between the Company and a joint venture, Union Imaging Associates,
Joint Venture ("Union") , in which the Company owns a minority
interest, based on a percentage of cash collections. Under the terms of
the joint venture agreement, the Company receives 11.25% of the joint
venture's percentage of the cash collections in exchange for managing
the joint venture. The Company's responsibilities include the
management of all personnel, leasing of operating facilities and
equipment, negotiation of contracts, payments of debts and obligations
and preparation and review of invoices and claims.
(d) The physicians with which the Company contracts, operate under
various payment systems with third-party payors. A substantial portion
of the Company's revenues are attributable to payments made by
government-sponsoree health care programs and other third party payors.
The Company receives these payments either directly, in the case of
imaging center revenues relating to reimbursable direct patient
billings, or indirectly, in the case of technical fee-for-service
payments made by hospitals. Any change in reimbursement regulations, or
the enactment of legislation, which would have the effect of placing
material limitations on the amount of reimbursement for imaging
services could adversely affect the operations of the Company. In
addition, health care reimbursement programs are not uniformly prompt
in making required payments. Extensive payment delays are not uncommon,
and the Company's financial resources could be strained while awaiting
payment.
(e) 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.
(f) 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.
F-8
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(g) 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 adjustments.
(h) Furniture, Fixtures, Equipment and Leasehold Improvements:
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
estimated useful lives of the related asset, five to seven years for
office equipment and furniture and fixtures, and ten years for medical
equipment by charges to income.
(i) Goodwill:
The Company recorded goodwill relating to the acquisition of a
subsidiary which is being amortized over a period of fifteen years.
(j) Revenue and Cost Recognition:
The Company recognizes revenue from services upon performance
for medical, management and marketing services for financial statement
reporting purposes.
(k) Income Taxes:
The Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", which provides for income tax accounting
under the asset and liability method and requires adjustment of
deferred tax balances for changes in tax laws and rates. The Company
reports income on the cash basis for income tax reporting purposes.
Provision for income taxes includes federal and state income taxes
currently payable and those deferred because of temporary differences
arising primarily from the recognition of income on the cash basis for
tax purposes versus the accrual basis for financial reporting purposes.
(1) Earnings Per Share:
Earnings per share have been computed by dividing the net
income by the weighted average number of common stock and common stock
equivalent shares outstanding. 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.
(m) Reclassification:
Certain reclassifications have been made to the 1996 and 1995
financial statements to conform to the 1997 presentation.
F-9
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(n) New Accounting Standards:
The Company has adopted SFAS No. 121, "Accounting for the
Impairment of Long- Lived Assets and for Long-lived Assets to be
Disposed of". This statement established accounting standards for the
impairment of long-lived assets (including goodwill) to be held and
used as well as those to be disposed of. The statement requires
management to periodically review these assets in light of certain
events or circumstances which may effect the recoverability or carrying
value of said assets and to adjust the value downward or to dispose of
the asset accordingly. The adoption of this standard did not have a
material effect on the Company's financial position or its results of
operations.
(o) Retirement Plan:
The Company maintains a qualified 401(k) wage deferral plan.
Employees may defer a portion of their salary. The Company does not
contribute to the plan.
NOTE 2 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS
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,
OpenMRI of Morristown, Inc. ("OpenMRI"), a wholly-owned subsidiary of
the Company, was assigned the Company's interest in the joint venture.
OpenMRI accepted delivery of a new magnetic resonance imaging machine
and opened in February 1996. The joint venture shall terminate upon
earlier of (I) October 31, 2015; (ii) the sale of the business; or
(iii) the mutual consent of the joint ventures. The Company has a 72%
interest in the profit, obligations and liabilities under the joint
venture agreement. The Company and its wholly-owned subsidiary, OpenMRI
of Morristown, Inc., 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.
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 providing turnkey design
and construction services, becoming 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.
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, payable as follows: $100,000 upon execution, $100,000 at
closing and a promissory note bearing interest at prime plus one
percent. The note was payable in two installments, $600,000 after six
months and $400,000 after one year of the closing date. The Company in
1995 recorded an increase of $987,554 to stockh9olders' equity which
represents the excess of the sale price over the net assets of Prime.
The Agreement was modified in 1996 to extend the note payments
of $600,000 to October 1997 and $400,000 to April 1998. Additionally,
the modified agreement required the Company to charge $358,000 of
receivables from Prime to additional paid-in capital in 1996 as an
adjustment to the sale price.
F-10
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 2 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
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 one percent. 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. At December 31, 1997 and 1996, the Company's investment in
Empire is $61,354 and $60,321, respectively, and the Company has
advances receivable from Empire of $506,383 and $246,640.
During 1996, the Company incorporated two wholly-owned
subsidiaries. Ohio Medical Equipment Leasing Corporation ("OME") was
incorporated in the State of Ohio for the purpose of acquiring a
majority interest in Sylvania Diagnostics. West Paterson Medical
Equipment Leasing Corp. ("WPMEL") was incorporated in the State of New
Jersey for the purpose of opening a diagnostic imaging center in West
Paterson.
In July 1996, the Company, through 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.
As a result of this acquisition, the Company recorded the
difference between the acquisition price of one dollar and the
allocated percentage of the cumulative deficit as goodwill and the
cumulative allocated losses in excess of basis of the limited partners
of Sylvania as an intangible asset as of July 1, 1996, the date of
acquisition. All subsequent losses are allocated to the Company with
future income first applied to the losses and the remainder against the
intangible asset until it is fully recovered. 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. In August 1996,
Sylvania entered into an agreement with DVI to refinance equipment and
related leasehold improvements in the aggregate amount of $2,127,366.
The amount is payable in 64 monthly installments commencing in March
1997 of $20,000 for the first four months and $44,968 over the
remaining 60 months. The Company, Sylvania and DVI are presently
discussing amending the repayment terms of this obligation. The Company
is indemnified for all prior liabilities and obligations of the limited
partnership by DVI, an equipment finance company who is the lessor of
Sylvania's medical equipment.
In July 1996, the Company, through its wholly-owned subsidiary
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, New Jersey, is a medical practice specializing in diagnostic
imaging.
In February, 1997, the Company acquired a 25% interest in OpenMRI 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.
F-11
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 2 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
In June of 1997, Metaire Medical Equipment Leasing was incorporated in
the state of New Jersey, as a 100% owned subsidiary of the Company. In
October of 1997, Metaire Medical Equipment Leasing Corporation was
registered as a Corporation doing business in the State of Louisiana.
Under the terms of the venture agreement the Company will receive 100%
of the profits and equity of Open MRI of Metaire. The site opened for
business in February of 1998. There is an agreement with an
unaffiliated group that provided they contribute $250,000 in cash, the
Company's ownership position will be reduced to 51%.
In October 1997, the Company entered into a contract for the sale of
all leasehold rights, medical equipment, and the assumption of certain
liabilities of Somerset Medical Equipment Leasing Corporation,
resulting in a loss of $36,907.
NOTE 3 - FURNITURE, FIXTURES, EQUIPMENT AND LEASHOLD IMPROVEMENTS.
Furniture, fixtures, equipment and leasehold improvements
consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Medical Equipment $14,083,189 $13,355,067
Building 358,066 358,066
Furniture and Fixtures 67,139 69,890
Automobiles 22,860 22,860
Leasehold improvements 1,048,780 997,800
----------- -----------
15,580,034 14,803,683
Less: Accumulated Depreciation
and Amortization 6,134,831 4,759,821
----------- -----------
9,445,203 10,043,862
----------- -----------
----------- -----------
</TABLE>
NOTE 4 - INVESTMENT IN JOINT VENTURE.
In 1990, the Company acquired a ten percent (10%) interest in
Union Imaging Associates, Joint Venture, which it accounts for using
the equity method of accounting, due to the significant influence it
has on the joint venture as its managing venturer.
The following is a summary of selected financial information
from the financial statements of the joint venture in which the Company
has an investment.
<TABLE>
<CAPTION>
Total Long-Term Total Total
Assets Debt Liabilities Capital
------ --------- ----------- -------
<S> <C> <C> <C> <C>
December 31, 1997 $5,538,114 $1,354,524 $3,116,550 $ 342,721
December 31, 1996 4,339,575 1,938,137 3,637,025 702,550
December 31, 1995 3,251,821 1,550,917 1,679,846 1,571,975
</TABLE>
<TABLE>
<CAPTION>
10%
Gross Allocations
Revenues Net Income of Income
-------- ---------- -----------
<S> <C> <C> <C>
December 31, 1997 $5,603,802 $2,078,843 $207,884
December 31, 1996 4,417,540 1,041,469 104,147
December 31, 1995 3,127,608 543,317 54,332
</TABLE>
F-12
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 5 - LINE OF CREDIT.
In April 1995, the Company secured a line of credit with
Summit Bank for $600,000 at the bank's prime rate for commercial
borrowers. As of December 31, 1997 and 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.
NOTE 6 - LONG-TERM DEBT.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
---- ----
<S> <C> <C>
Capitalized lease obligations (a) $ 8,691,572 $ 9,296,467
Accounts receivable financing (b) 926,363 686,173
Other (c) 418,375 480,483
----------- -----------
10,036,310 10,463,123
Current portion 3,115,461 2,721,906
----------- -----------
Total long-term debt $ 6,920,849 $ 7,741,217
----------- -----------
----------- -----------
</TABLE>
(a) Capitalized Lease Obligations:
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
(b) Accounts Receivable Financing:
The Company entered into two separate agreements with DVI to
finance up to $1,500,000 of the accounts receivable balances from two
of the Company's subsidiaries and one of its joint ventures and
$1,500,000 of the accounts receivable balance from the Company's
unconsolidated joint venture. The agreements extend to March and June
1998, respectively, with consecutive one year renewal terms. The
agreements are non-cancelable, except in the event of default by the
Company. At December 31, 1997, the amounts financed under these
agreements totaled $926,363 and $1,084,495, respectively. The Company
has guaranteed the $1,500,000 financing line of credit of the
unconsolidated joint venture. The unconsolidated joint venture has
loaned the Company $110,467 from the proceeds of this line of credit.
At December 31, 1997, the Company is not in compliance with the terms
of the loan agreement. Management is presently negotiating with DVI to
bring the Company into compliance.
(c) Other:
Sylvania Diagnostics limited partnership at December 31, 1997
and 1996 is obligated for notes payable incurred prior to the Company's
acquiring its 50.2% interest. The Company has an agreement in which DVI
indemnifies the Company for these notes as well as all other
pre-acquisition debts of Sylvania Diagnostics. The notes payable at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
---- ----
<S> <C> <C>
(i) Note payable to a bank which was due on March 14, 1995. The bank
has not called the note and is negotiating with the Company,
Sylvania, and DVI to schedule repayment terms. The note bears
interest at 2.5% over prime. The note is collateralized by
substantially all of the
assets of Sylvania $249,500 $249,500
-----------------------------------------------------------------------------------------------
(ii) Note payable to a professional corporation in equal monthly
installments of $5,000 including interest at 9.4% through July 2000 130,939 183,080
-----------------------------------------------------------------------------------------------
(iii) Installment note payable to a bank in equal monthly
installments of $1,302 including interest at 2% over prime through
August 2000 and a final payment in September 2000 of the remaining 37,936 47,903
balance
-----------------------------------------------------------------------------------------------
$418,375 $480,483
-------- --------
-------- --------
</TABLE>
F-13
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 6 - LONG TERM DEBT. (Continued)
(c) Other (Continued):
The following is a schedule by year of future minimum lease
payments under the terms of these leases, together with the
present value of the net future minimum lease payments as of:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
1997 $ 3,212,855 $ 2,906,157
1998 3,122,505 2,869,807
1999 2,722,655 2,433,242
2000 1,740,552 992,331
2001 667,358 --
----------- -----------
Total future minimum lease payments 11,465,925 12,175,102
Less: Amounts representing interest 2,169,458 2,703,710
----------- -----------
Present value of future minimum
Lease payments 9,296,467 9,471,392
Less: current portion 2,026,482 1,866,230
----------- -----------
Non-current portion of future minimum
Lease payments $ 7,269,985 $ 7,605,162
----------- -----------
----------- -----------
</TABLE>
The future principal payments for long-term debt are as
follows :
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
1997 $ 2,721,905 $2,163,008
1998 3,225,816 2,400,921
1999 2,385,084 2,249,020
2000 1,578,420 1,030,962
2001 551,898 --
----------- ----------
$10,463,123 $9,761,724
----------- ----------
----------- ----------
</TABLE>
NOTE 7 - STOCKHOLDERS' EQUITY
In February 1994, the Company completed an initial public
offering of its securities pursuant to the Securities Act of 1993 (as
amended) from which it received proceeds of $1,986,181, net of
commissions and expenses of the offering of $601,319. The offering
included the sale of $17,500 units including the underwriters'
overallotment of 67,500 units at a selling price of $5.00 per unit.
Each unit consisted of one (1) share of the Company's $0.0001 par value
common stock ("Common Stock"), one (1) Class A Redeemable Common Stock
Purchase Warrant ("A Warrant") and one (1) Class B Redeemable Common
Stock Purchase Warrant ("B Warrant). Each a Warrant entitles the holder
to purchase one 91) share of Common Stock for a period, as extended,
ending in August 1997 at a price of $6.50. Each B Warrant entitles the
holder to purchase one 91) share of Common Stock for a period, as
extended, ending in February 1998 at a price of $8.00.
F-14
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 8 - INCOME TAXES.
The Company does not report income, for income tax reporting
purposes, on the consolidated or acrual basis. Deferred income taxes
payable at December 31, 1997 and 1996 of $1,209,685 and $984,928,
respectively, represent temporary differences arising primarily from
the recognition of income on the cash receipts and cash disbursements
basis of accounting for income tax reporting purposes and 9% for state
income tax purposes, which are expected to be realized in future years,
thus, no valuation allowance has been provided.
The Company has recorded income tax provision (credit) at
December 31, 1997, 1996 and 1995 of $277,990, $455,320, and ($243,478),
respectively. The Company has a net operating loss carry-forward for
federal income tax purposes which are available to offset future
taxable income of $3,200,000 through 2011.
The following is a reconciliation for the U.S. federal
statutory tax rate and the apparent tax rate:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0% 34.0% (34.0%)
State taxes 6.0 6.0 (6.0)
Goodwill amortization 1.6 1.6 --
Other 3.9 3.9 3.5
---- ---- ----
Apparent tax rate 45.5% 45.5% (36.5%)
---- ---- ----
---- ---- ----
</TABLE>
The Company has recorded current and deferred income taxes as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State 2,200 2,091 --
-------- -------- ---------
Total $ 2,200 $ 2,091 $ --
-------- -------- ---------
-------- -------- ---------
Deferred:
Federal $238,990 $385,829 ($188,618)
State 41,200 67,400 (54,860)
-------- -------- ---------
Total $280,190 $453,229 ($243,478)
-------- -------- ---------
-------- -------- ---------
</TABLE>
NOTE 9 - RELATED PARTY TRANSACTIONS.
Advances to Joint Venturer:
A majority-owned joint venture, Doctors Imaging Associates,
Joint Venture, has received non-interest bearing advances from one of
the joint venturers totaling $218,717 at December 31, 1997 and 1996.
The joint venturer is obligated to advance up to $250,000 from time to
time for working capital as the Company deems necessary. These advances
are to be repaid prior to any distributions of profits to the joint
venturers.
F-15
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 10 - COMMITMENTS AND CONTINGENCIES.
(a) Real Estate Leases:
One of the Company's majority-owned joint ventures, Doctors
Imaging Associates, Joint Venture, leases a facility under a
non-cancelable lease which expires in 1999. The facility is located in
Bowie, Maryland and the lease includes a three-year option to renew,
with monthly rental payments of $6,187, plus utilities and escalations
based upon increase in the consumer price index (CPI).
The Company also leases its main administrative offices,
located in Morristown, New Jersey, for a related party under a
month-to-month agreement treated as an operating lease for a monthly
rental payment of approximately $6,000. In addition, the Company is
obligated under various other leases for its facilities. The future
minimum lease payments for all locations under their respective leases
as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
1997 $ 643,562 $ 499,100
1998 523,285 412,400
1999 349,522 306,900
2000 168,300 155,600
2001 63,500 --
---------- ----------
Total $1,748,169 $1,871,600
---------- ----------
---------- ----------
</TABLE>
(b) Doctors Imaging Associates, Joint Venture:
The joint venture which owns the minority 50%
interest in the joint venture, has a contract to provide professional radiology
services on a percentage basis to the joint venture. In addition, through a
separate company with common ownership, the joint venturer also leases space to
the joint venture.
(c) Muhlenberg Regional Medical Center:
The Company entered into an agreement with Muhlenber
Regional Medical Center (the "Hospital") which provides for the placement of a
mobile magnetic resonance imaging ("MRI") unit at the Hospital for five (5)
years without rent. In addition, the Company entered into an agreement with an
affiliate of the Hospital for certain management services to be provided to the
Company for a five (5) year term requiring minimum annual management fees of
$50,000. In June 1996, the agreements terminated by their terms.
F-16
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND 1996
NOTE 10 - COMMITMENTS AND CONTINGENCIES.
(d) Services Support Agreements:
One of the Company's majority-owned joint ventures, Doctors
Imaging Associates, Joint Venture, signed two service support
agreements with the equipment manufacturer. The agreements, which
commenced January 1, 1993 and August 1, 1993, respectively, are for a
period of forty-eight (48) months and provide for monthly maintenance
charges of $11,640 and $4,667, respectively.
(f) Empire State Project:
In April 1995, the Company founded a New York corporation,
Empire State Imaging Associates, Inc. On April 28, 1995, Empire, which
is 100% owned by the Company, purchased for $750,000 in cash and
$200,000 of the Company's stock, the assets and certain liabilities of
Central Imaging Associates, Limited Partnership ("Central Imaging"), an
entity that leases MRI, CT and various diagnostic imaging equipment.
Empire will provide space, equipment (MRI, CT, Mammography, Ultrasound
and Diagnostic Imaging) and nonprofessional services, including
management, billing and collection functions to Central Imaging located
in Yonkers, New York.
On December 27, 1996, the Company entered into a stock
purchase agreement with a related party, which is a minority
stockholder of Prime, 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 of $25,000 plus interest
at prime plus one percent. 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. At December 31, 1996, the
Company's investment in Empire is $60,321 and the Company has advances
receivable from Empire of $246,640.
(g) Amherst Project:
In April 1995, Amherst Medical Equipment Leasing Corporation
("AMHERST"), a wholly-owned subsidiary of the Company, was formed.
AMHERST entered into an agreement with Amherst Imaging Associates,
P.A., to provide certain non-professional services. In accordance with
this agreement, AMHERST has leased space in Amherst, New York,
effective July 1, 1995, for a period of five years at a monthly rent of
$1,275. On July 17, 1995, the Company entered into an agreement with
Magna-Lab, Inc. to purchase a permanent MRI at a cost of approximately
$500,000. Financing has been secured through DVI. The lease in the
amount of $327,000 is payable over 60 months at a monthly payment of
$7,068 commencing on January 1, 1996. Magna-Lab has agreed to accept
18% of the operating income on a cash basis for a five year period to
cover the cost of the balance of the machine. This income sharing is
for five years and is not to exceed $200,000. As part of the agreement,
Magna-Lab agreed to pay the monthly space rent until the MRI is
delivered.
NOTE 11 - SUBSEQUENT EVENTS.
In March 1998, the Company agreed to restructure the
promissory note for the sale of Prime Contractor 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.
In March 1998, the Company's management announced its
intention to merge with an affiliated company.
F-17
