SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MODERN MEDICAL MODALITIES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
New Jersey
(State or Other Jurisdiction of Incorporation or Organization)
22-3318886
(I.R.S. Employer Identification No.)
95 Madison Avenue, Suite 301 Morristown, New Jersey 07960
(Address, including Zip Code, of Principal Executive Offices)
Consulting Agreement with Benson Shore Capital LLC dated June 18, 1998
(Full Title of the Plan)
JAN GOLDBERG
Vice President
MODERN MEDICAL MODALITIES CORPORATION
95 Madison Avenue, Suite 301
Morristown, New Jersey 07960
(Name and Address of Agent For Service)
(973) 538-9955
Telephone Number, Including Area Code, of Agent For Service
Copies To:
JAY M. KAPLOWITZ, ESQ.
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street
New York, New York 10022
(212) 752-9700
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [x]
(i)
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Amount Being Proposed Proposed Amount of
Securities To Registered Maximum Maximum Registration
Be Registered Offering Price Aggregate Fee
Per Security(1)(2) Offering Price
<S> <C> <C> <C> <C>
Common 350,000 $0.50 $175,000 $ 51.63
Stock, par value
$.0001 per
share
======================== ======================= ====================== ======================= ======================
Common Stock, 275,000 $1.00 $275,000 $ 81.13
par value,
$.0001 per
share
======================== ======================= ====================== ======================= ======================
Total $132.76
Registration Fee
======================== ======================= ====================== ======================= ======================
</TABLE>
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(1) The price is estimated in accordance with Rule 457(h)(i) under the
Securities Act of 1933, as amended, solely for the purpose of calculating the
registration fee. The closing price as reported on the Nasdaq Stock Market on
August 17, 1998 (within 5 days prior to the filing of this Registration
Statement).
(2) Pursuant to Rule 457(h), the maximum offering price was calculated
based upon the exercise price of the Options described herein.
(ii)
<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form S-8 relates to the registration
of 625,000 shares of Common Stock issued pursuant to a consulting agreement
dated June 18, 1998 by and between the Company and Benson Shore Capital LLC
("Selling Security Holder"). A Prospectus has been prepared in accordance with
the requirements of Form S-3 pursuant to General Instruction C of Form S-8 with
regard to the resale of the shares of Common Stock by the Selling Security
Holder.
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Pursuant to the Note to Part I of the Form S-8, the information required by
Part I is not filed with the Securities and Exchange Commission.
The Company will provide without charge to each person to whom a copy of a
Section 10(a) Prospectus hereunder is delivered, upon the oral or written
request of such person, a copy of any document incorporated in this Registration
Statement by reference, except exhibits to such documents. Requests for such
information should be directed to Modern Medical Modalities Corporation, 95
Madison Avenue, Suite 301, Morristown, New Jersey 07960, Attention: Corporate
Secretary, telephone number (973) 538-9955.
(iii)
<PAGE>
PROSPECTUS
MODERN MEDICAL MODALITIES CORPORATION
625,000 SHARES OF COMMON STOCK
Par Value, $.0001 Per Share
This Prospectus relates to the issuance of 350,000 shares (the
"Shares") of the common stock $.0001 par value (the "Common Stock"), of Modern
Medical Modalities Corporation (the "Company") and registers an aggregate of
275,000 shares of Common Stock of the Company which may be issued upon exercise
of certain options (the "Option Shares"), as set forth herein, to Benson Shore
Capital, LLC, a consultant to the Company (the "Consultant" or "Selling Security
Holder") pursuant to a written Consulting Agreement dated June 18, 1998 (the
"Consulting Agreement") providing for the issuance of such Shares and such
Option Shares (the "Shares" and the "Option Shares" shall hereinafter be
collectively known as the "Securities"). All of the Securities are being issued
to the Consultant pursuant to the Consulting Agreement. The Company has been
advised by the Selling Security Holder that it may sell all or a portion of the
Securities from time to time in the over-the-counter market, in negotiated
transactions, directly or through brokers or otherwise, and that such Securities
will be sold at market prices prevailing at the time of such sales or at
negotiated prices, and the Company will not receive any proceeds from such
sales.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No dealer, salesman or any other person has been authorized to give
any information or to make any representation other than as contained or
incorporated by reference herein and if given or made, such information or
representation must not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy securities by anyone in any jurisdiction in which such offering may
not lawfully be made. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or the information herein since the
date hereof. See "Risk Factors."
-----------------------------------------------
The date of this Prospectus is August 19, 1998
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information.............................................................................................3
Incorporation of Certain Documents by Reference...................................................................4
The Company.......................................................................................................5
Consulting Agreement with Benson Shore Capital LLC...............................................................25
Risk Factors.....................................................................................................26
Use of Proceeds..................................................................................................32
Selling Security Holder..........................................................................................33
Description of Securities........................................................................................33
Plan of Distribution.............................................................................................35
Indemnification of Officers and Directors........................................................................36
Legal Matters ...................................................................................................36
Experts .........................................................................................................36
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Commission. Such reports, proxy
statements, registration statements and other information can be examined
without charge at the public reference section maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and, upon payment of the fees
prescribed by the Commission, copies may be obtained therefrom and at certain of
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048; 5757 Wilshire Boulevard, Los Angeles, California 90024; and 500 West
Madison Street, Northeastern Atrium Center, Suite 1400, Chicago, Illinois
60661-2511.
The Company's Common Stock is quoted on The Nasdaq SmallCap Market
("NASDAQ"). Reports, proxy statements, information statements, and other
information concerning the Company can be inspected at the office of the
National Association of Securities Dealers, Inc., located at 1735 K Street,
N.W., Washington, DC 20006.
This Prospectus is part of a registration statement on Form S-8
(the "Registration Statement") under the Securities Act of 1933 (the "Securities
Act") which the Company has filed with the Commission for the registration of
the securities offered by this Prospectus. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company,
references is hereby made to such Registration Statement, exhibits and
schedules, which may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the fees prescribed by the Commission.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Modern Medical Modalities
Corporation (the "Company") with the Commission are incorporated herein by
reference:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(2) The Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1998.
In addition to the foregoing, all documents subsequently filed by
the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, prior to the filing of a post-effective amendment
indicating that all of the securities offered hereunder have been sold or
deregistering all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Registration Statement and to be part hereof
from the date of filing of such documents.
Any statement contained in a document incorporated by reference in
this Registration Statement shall be deemed to be modified or superseded for
purposes of this Registration Statement to the extent that a statement contained
herein or in any subsequently filed document that is also incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement. All information appearing
in this Registration Statement is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus is delivered, upon the oral or written
request of such person, a copy of any document incorporated in this Registration
Statement by reference, except exhibits to such documents. Requests for such
information should be directed to Modern Medical Modalities Corporation, 95
Madison Avenue, Suite 301, Morristown, New Jersey 07960, Attention:
Corporate Secretary, telephone number (973) 538-9955.
4
<PAGE>
THE COMPANY
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.
On April 20, 1998, the Company entered into a merger agreement with R.F.
Management Corp. ("R.F.") which provided for the merger of R.F. into the
Company, however due to subsequent events, the Company and R.F. are
re-evaluating the terms of the transaction and there can be no assurance that
the transaction will be consummated. In the event that a modified merger
agreement is entered into, the Company intends to submit the plan of merger to a
vote of its shareholders for approval.
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
5
<PAGE>
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 a 10% equity position.
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.
6
<PAGE>
The interests of the Company and Plainfield MRI, Inc. in the profits and
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 an 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.
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 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 oral
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.
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 initiate 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.
7
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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 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 MRI and CT Scan.
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.
8
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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 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.
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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, 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-Kickback" 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
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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
<TABLE>
<CAPTION>
RADIOLOGY GROUP CENTERS MRI CT SCAN DIAGNOSTIC IMAGING
<S> <C> <C> <C>
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
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 No No Yes
Leading Corp.(5)
Ohio Medical Equipment Leasing Yes Yes Yes
Corp./Sylvania Diag.(6)
Metaire Med. Equipment Leasing Yes No No
MEDICAL TECHNOLOGY CENTERS
Passaic, New Jersey(8) Yes No No
</TABLE>
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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 (which images only legs and arms) that
discontinued operations in 1997.
(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. On June 29, 1998, pursuant to an agreement between
the Company and DVI, the Company exercised its option to sell OME to DVI for one
dollar.
(7) This Joint Venture was organized on July 30, 1991 for the purpose of
providing MRI services to medical professionals. The Joint Venture has 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 a 75% interest and PBI has a 25% interest in the joint venture.
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,
12
<PAGE>
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
in service 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 can 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).
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.
13
<PAGE>
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 RI and CT equipment currently ranges from
$300,000 to $800,000.
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 single 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.
To the best of the Company's knowledge, there are no current regulations in
the State of
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<PAGE>
Maryland that adversely affect or are material to the Company's operations. The
State of Maryland has recently passed legislation that restricts physicians from
being 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.
15
<PAGE>
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 not have a
binding legal effect.
HHS has adopted regulations specifying "safe harbors" for various payment
practices between providers and their referral sources. If a payment practice
were to come within the safe harbor and were not a "sham" to circumvent the
law's requirements, 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 form, no safe harbor would cover an investment interest in the Company.
The Company cannot predict whether 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.
The federal "Ethics in Patient Referrals Law of 1989", often referred to as
the "Stark Law", prohibited a physician with a "financial relationship" with an
entity that furnishes clinical laboratory services (or a physician with an
"immediate family member" with such a relationship) from making a referral to
that entity for clinical laboratory services for which payment may be made under
Medicare. It also prohibited that entity from billing Medicare, an individual, a
third party payor, or other entity, for an item or service furnished pursuant to
a prohibited referral. It required any entity that collects any amounts as a
result of such a billing to refund those amounts. The law provided certain
exceptions, namely, certain situations that would not constitute referrals, and
certain situations that would not constitute a "financial relationship."
Later amendments to the Stark law extended the original prohibition on
referrals and billing to cover ten additional "designated health services," in
addition to clinical laboratory services, and extended the ban to services
payable under Medicaid, both beginning with referrals made after December 31,
1994.
The "designated health services" are clinical laboratory services; physical
therapy services (including speech language pathology services); occupational
therapy services; radiology services (including any diagnostic test or treatment
using xrays, ultrasound or other imaging services, CT scan, MRI, radiation or
nuclear medicine, however, excluding invasive radiology where the imaging
modality is used to guide a needle, probe or catheter (such as cardiac
catheterization), and thus is clearly incidental to a separate major procedure;
also excluding screening mammography); radiation therapy services and supplies;
durable medical equipment and supplies; parenteral and enteral nutrients,
equipment and supplies; prosthetics, orthotics, and prosthetic devices and
supplies; home health services provided by a home health agency; outpatient
prescription drugs; inpatient and outpatient hospital services, whether provided
by the hospital or by others under arrangements with the hospital for which the
hospital bills, but not including services provided by the hospital under a
separate license, such as home health care or physical therapy provided by a
hospital-owned home health agency or skilled nursing facility.
In 1991, New Jersey enacted the Health Care Cost Reduction Act, or
so-called
16
<PAGE>
"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 should 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 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
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<PAGE>
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 June 30, 1998, the Company employs 43 persons on a full-time basis
and 25 persons on a part time basis. The following table reflects the employees
per facility:
<TABLE>
<CAPTION>
TOTAL FULL-TIME PART-TIME
<S> <C> <C> <C>
Modern Medical (Corporate) 13 12 1
Medical Marketing 3 2 1
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
Bowie 7 4 3
- - -
Total: 68 43 25
== == ==
</TABLE>
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")
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<PAGE>
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. On June 15,
1998, the Company refinanced the lease purchase of the Picker 1.OT mobile MRI
unit, reducing its monthly rental payment to $13,407 per month for a period of
thirty-six (36) months. The Company is current on all of its payments. This
leased equipment is presently located in Plainfield, New Jersey.
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.
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 on room
renovations for hospitals and private medical facilities. Prime's 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.
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<PAGE>
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 was payable
in two installments, $600,000 on October 27, 1997 and $400,000 on April 27,
1998. 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.
On March 3, 1998, the Company agreed to restructure the promissory note for
the sale of Prime as follows: $200,000 in cash, payable over thirty-six months,
plus interest calculated at prime plus 1% and a thirty-six month option to
purchase 250,000 of the related party's stock at $.05 per share.
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
20
<PAGE>
Company changed the name of Park Plaza Radiology to South Plainfield Imaging,
Inc.
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%. On
June 1, 1998, the Company sold its remaining 35% interest in Empire State
Imaging Associates, Inc.
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.
In 1997, this operation was discontinued.
OPEN MRI OF MORRISTOWN
During February of 1996, the Company under the terms of a joint venture
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
21
<PAGE>
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 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.
On June 29, 1998, pursuant to an agreement between the Company and DVI, the
Company exercised its option to sell OME to DVI for one dollar.
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
22
<PAGE>
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.
METAIRE MEDICAL EQUIPMENT LEASING CORPORATION
In June 1997, Metaire Medical Equipment Leasing Corporation was
incorporated in the State of New Jersey, as a 100% owned subsidiary of the
Company. In October 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 1998.
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 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, 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 and thereafter 63,500 -0-
----------- -----------
TOTAL $1,748,169 $1,374,000
</TABLE>
23
<PAGE>
LEGAL PROCEEDINGS
On June 25, 1998, the Company was named in an arbitration proceeding
brought by Stephen Findlay, former President of Prime Contracting, one of the
Company's former subsidiaries. Mr. Findlay alleges that he is due certain monies
pursuant to his employment agreement with Prime Contracting, under which he was
terminated. The Company believes it has meritorious defenses and intends to
rigorously defend the arbitration.
Other than the above, the Company is not a party to any legal proceedings.
24
<PAGE>
CONSULTING AGREEMENT
WITH BENSON SHORE CAPITAL, LLC
General
On June 18, 1998, the Company entered into a Consulting Agreement with
Benson Shore Capital LLC, pursuant to which the Company agreed to issue to the
Consultant 350,000 shares of the Company's Common Stock and options to purchase
up to an aggregate of 275,000 shares of the Company's Common Stock in
consideration for consulting services to be provided to the Company over a
twelve (12) month period commencing as of the date of the agreement. Under the
terms of the Consulting Agreement, the Consultant is to render assistance and
consult with the Company by: (a) analyzing and addressing the Company's
management requirements; (b) developing strategic initiatives and related
industry partnerships, including providing assistance with respect to
acquisitions, joint ventures and strategic business alliances; (c) assisting
with the negotiation of contracts between the Company and its suppliers and
customers; (d) analyzing the Company's present and prospective corporate
organizational structure; (e) reviewing the Company's financial position and
budget proposals; and (f) meeting with and advising the Company's board of
directors at the request of the Board.
Compensation
In connection with the Consulting Agreement, the Company has agreed to
issue 350,000 shares of its fully registered Common Stock under the Securities
Act of 1933, as amended, and Options to purchase up to an aggregate of 275,000
shares of Common Stock at a price of $1.00 per share until June 18, 1999, which
upon exercise will be fully registered under the Securities Act of 1933, as
amended.
25
<PAGE>
RISK FACTORS
An investment in the securities offered hereby are highly speculative. Each
prospective investor should carefully consider the following risk factors, as
well as all other information set forth elsewhere in this Prospectus.
Recent Loss and Decrease in Revenues.
For the three months ended March 31, 1998, the Company incurred a net loss
of $717,557. During that period revenues decreased from approximately $2,800,000
for the three months ended March 31, 1997 to $1,800,000. The decrease in
revenues (35.8%) was directly attributable to a decrease in patient service
revenues. There can be no assurance that the Company will increase its revenues
and/or operate profitably in the near future, if at all.
Possible Conflicts of Interest.
Roger Findlay, Chairman, and Gregory Maccia, Vice President, are
shareholders, officers and directors in other business enterprises concerning
the medical community. Jan Goldberg, Vice President, has in the past and may in
the future become a shareholder, officer and/or director in other business
enterprises concerning the medical community. There may be certain business and
investment opportunities in the leasing of imaging equipment which will come to
their attention which might be suitable for the Company. Messrs. Findlay and
Maccia disclaim any responsibility to bring these matters to the Company. In
addition, because of the involvement of Messrs. Findlay and Maccia with business
entities which provide services to the medical profession including certain of
the entities owned, operated or serviced by the Company, there may be instances
where there are potential or real conflicts of interest developing between the
Company and such entities as to such matters as priorities of payment, etc.
Possible Adverse Utilization Trends for MRI and CT Scanning.
The Company's leasing of MRI and CT scanning equipment may be affected by
overutilization trends for such equipment. The Federal Government and the
insurance industry have deemed that in some cases MRI and CT Scans are
overutilized by referring physicians and such uses may be medically unnecessary.
As a result, certain insurance carriers including the Federal Government have
been denying payment for these procedures based on the diagnosis and the number
of MRI and CT scans received by the patient. The denial of payment by the
insurance carriers will have an adverse effect on the Company.
Compliance With Governmental Regulations.
The Company's operations are subject to a variety of governmental and
regulatory requirements. The Company believes that it is in compliance with all
current laws and regulations. Corporations are legally prohibited from
providing, or holding themselves out as a provider of medical care. The Company
does not employ physicians to practice medicine, nor does it hold itself out as
offering medical services to the public, and it believes it does not practice
medicine. In the
26
<PAGE>
event that the Company is found to be engaged in the practice of medicine by
appropriate regulatory authorities, the Company's operations would be materially
adversely affected.
Furthermore, the Company has not yet conducted business outside of New
Jersey , Maryland and Louisiana and has not determined whether its operations
will comply with the laws of other states. Accordingly, the Company will not be
able to conduct business in any other states until such time as it determines
that its operations are in compliance with applicable law. There can be no
assurance that current laws and regulations will not be changed or interpreted
in such a way as to require the Company to obtain licenses or approvals to
conduct its business or otherwise restrict its activities.
All client sites are regulated by various State laws with regard to
building and health codes. Currently, the Company complies with all regulations
at the sites it operates. Prospective regulations might cause the sites that the
Company operates to not be in compliance. This could possibly result in the
closing of clients' operations that are affected.
The Company's operations may be adversely effected by existing and/or
future regulations either through additional costs of complying with such
regulations thereby reducing the Company's profitability or by the inability of
the Company to do business in certain states. See "Business."
Revenue Allowances Affecting the Company's Accounts Receivable.
Since 1991, the Company has made adjustments to revenues and accounts
receivable of approximately 31-35% resulting mainly from contractual allowances.
In order to attract new patients, the physicians with whom the Joint Venturers'
contract will enter into contractual agreements with various third party
insurance carriers. Although the terms of these agreements vary, the physician
agrees to be compensated for these services at a fee which varies from the
published charges. The difference between the amounts received and the published
charge is a contractual allowance. See "Business."
Competition.
The healthcare industry in general, and the market for diagnostic imaging
services in particular, are highly competitive. The Company competes with
leasing companies, physicians groups and other providers of medical imaging
services in providing equipment and services to hospitals and clinics. Many of
these competitors have substantially greater resources than the Company. The
imaging centers, which the Company operates, also compete for patients with
hospitals and radiology groups in their area. See "Business - Competition".
Proposed Expansion.
The Company intends to seek to expand its current level of operations
primarily through increased marketing efforts, although there can be no
assurance that the Company will be able to further expand its operations
successfully.
27
<PAGE>
Technological Obsolescence.
The equipment which the Company provides has been characterized by rapid
technological advances. Future technological advances could render existing
imaging equipment obsolete or in need of substantial upgrade. There can be no
assurance that the Company will have sufficient capital resources to replace or
upgrade obsolete equipment. The failure to replace or upgrade equipment could
have a material adverse effect on the Company's business. See "Business."
Medical Reimbursement Programs.
A substantial portion of the Company's revenues are attributable to
payments made by government-sponsored healthcare 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, int he 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, healthcare reimbursement programs are not uniformly prompt
in making required payments. Extensive payment delays are not uncommon, the
Company's financial resources could be strained while awaiting payment. See
"Business -- Licenses, Governmental Reimbursement and Regulations".
Potential National Healthcare Reform.
Many aspects of the medical industry in the United States are presently
subject to extensive federal and state governmental regulation, including
reimbursement rates and policies imposed by Medicare and other third-party
reimbursement programs (from which the Company receives a substantial portion of
its receipts). In the 1992 Presidential campaign, substantial emphasis was
placed on the need to reform the nation's healthcare system, and this is a
priority issue of the new administration. Although healthcare reform may have
the beneficial effect of increasing the number of persons who will have access
to services such as those provided by the Company, such reform may also entail
pressures on the pricing structures applicable to such services. In particular,
there is a possibility that a significant portion of healthcare services will be
rendered and administered through "managed care" system, which could have the
effect of forcing price concessions and reductions on the part of service
providers such as the Company. Moreover, healthcare reform could also entail a
greater analysis of each patient's need for diagnostic testing, with the aim of
eliminating unnecessary tests and thereby reducing the total volume of tests and
the overall cost of medical care. Depending on the nature and extent of any new
laws and/or regulations, or possible changes in the interpretation of existing
laws and/or regulations, any such changes may have a material adverse effect on
the Company's revenues, operating margins and profitability.
Restrictions on Sale or Change of Control of the Company.
The Company's Certificate of Incorporation and By-laws do not presently
contain provisions that could have the effect of delaying or hindering a change
of control or sale of the Company. As a result, the Company does not presently
have provisions to provide for anti-takeover protections. While the Company can
amend the Certificate of Incorporation and By-laws to incorporate anti-takeover
protections, execute employment agreements with its executive officers
28
<PAGE>
and grant stock options, there is no assurance that such actions by the Company
will be carried out. The Company, as a New Jersey corporation with its
headquarters and principal operations in the state, is also a "resident domestic
corporation" as defined in New Jersey's Shareholder Protection Act. That Act
bars for a period of five years any "business combination" (as defined in the
Act: generally, a merger or other acquisition transaction) with any person who
owns 10% or more of the outstanding voting stock of a resident domestic
corporation, unless the "business combination" both is approved by the board of
directors of the resident domestic corporation prior to the time that other
person acquires 10% or more of the resident domestic corporation's voting stock
and meets certain other statutory criteria.
Dependence on Key Personnel.
The Company's business is largely dependent upon the active participation
of its executive officers. The loss of services or unavailability to the Company
of any of its executive officers, including Roger Findlay, Chairman, Jan
Goldberg, Vice President or Gregory Maccia, Vice President, could have a
material adverse effect on the Company's business and prospects. The Company
does not presently have keyman life insurance on the lives of Messrs. Findlay,
Goldberg or Maccia and does not intend to obtain such insurance.
No Dividends.
To date, the Company has not paid any cash dividends on its Common Stock
and does not anticipate the payment of cash or other dividends in the forseeable
future.
Effect of Issuance of Underwriter's Warrants.
As compensation for its services in offering the Company's Units to the
public in February 1994, the Company issued to The Harriman Group, Inc., in
connection with its initial public offering, warrants to acquire 45,000 Units
consisting of one share of Common Stock, one Class A Warrant and one Class B
Warrant, at an initial exercise price of $6.00 per Unit exercisable until
February 9, 1999. The Company has agreed to file on up to two occasions (once at
the Company's expense) a new registration statement upon the request of The
Harriman Group, Inc. at any time after February 9, 1995 and has granted The
Harriman Group, Inc. certain "piggy" registration rights covering the warrants
and the underlying securities.
During the terms of the above-mentioned warrants, the holders thereof are
given an opportunity to benefit from a rise in the market price of the Company's
Common Stock, with a resultant dilution of the interests of the existing
stockholders. The existence of these options can be expected to deter the
ability of the Company to obtain additional financing while these securities are
outstanding. The holders may be expected to exercise their rights to acquire
Common Stock at a time when the Company would, in all likelihood, be able to
obtain needed capital through a new offering of securities on terms more
favorable than those provided by the warrants.
Possible Delisting and Risks of Low Priced Stocks.
The Common Stock and Class A Warrants are listed on The Nasdaq SmallCap
Market. In order to maintain the listing, the Company must meet the following
criteria: (i) either at
29
<PAGE>
least $2,000,000 in net tangible assets, a $35,000,000 market capitalization or
net income of at least $500,000 in two of the three prior years, (ii) at least
500,000 shares in the public float valued at $1,000,000 or more, (iii) a minimum
Common Stock bid price of $1.00, (iv) at least two active market makers, and (v)
at least 300 shareholders of Common Stock. If the Company is unable to satisfy
Nasdaq's maintenance criteria, the Common Stock and Class A Warrants may be
delisted from trading on Nasdaq. In such event, trading in the Common Stock and
Class A Warrants would be conducted in the over-the-counter market on the NASD's
OTC Bulletin Board or in the National Quotation Bureau's pink sheets. As a
consequence, an investor would most likely find it more difficult to dispose of,
or to obtain prompt and accurate quotations as to the price of the Company's
securities, and may be exposed to a risk of a decline in the market price of the
Common Stock and Class A Warrants.
In addition, if the Company's securities are delisted from Nasdaq, and the
Company does not meet any other exceptions to the penny stock regulations,
trading in the Company's securities would be covered by Rule 15g-9 promulgated
under the Exchange Act for non-Nasdaq and non-exchange (national exchange)
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market or exercise price is at least $5.00 per
share.
If the Company's securities become subject to the regulations applicable to
penny stocks, in addition to the possible adverse affect on the market liquidity
for the Company's securities, the penny stock regulations could limit the
ability of broker/dealers to sell the Company's securities and thus the ability
of purchasers of the Company's securities to sell their securities in the
secondary market.
Penny Stock Regulation.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market or exercise
price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on Nasdaq and any equity security
issued by an issuer that has net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. The penny stock rules require a
broker/dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker/dealer must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker/dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and broker/dealer and salesperson compensation information
must be given to the customer orally or in writing prior to effecting the
transaction and must be given in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the
broker/dealer must
30
<PAGE>
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for securities that become
subject to the penny stock rules. If the Company's securities become subject to
the penny stock rules, the market liquidity for the Company's securities could
be severely affected, thus investors in this Offering may find it more difficult
to sell such securities.
31
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Selling Security
Holder's sale of Securities, although the Company may*/receive proceeds from any
exercise of the Options. Any proceeds from such exercise would be applied to
working capital.
SELLING SECURITY HOLDER
The Selling Security Holder acquired the Securities in connection with the
Consulting Agreement.
The following table sets forth (a) the name of the Selling Security Holder,
(b) the number of Securities beneficially owned by the Selling Security Holder
as of July 31, 1998; (c) the number of Securities being offered by the Selling
Security Holder, and (d) the number of Securities outstanding to be beneficially
owned by the Selling Security Holders following this Offering, assuming the sale
pursuant to this Offering or otherwise of all of the Securities that are the
subject of the Registration Statement of which this Prospectus forms a part.
There can be no assurance, however, that the Selling Security Holder will sell
any or all of the Securities offered hereunder.
<TABLE>
<CAPTION>
Selling Beneficial Securities Securities Owned
Security Holder Ownership(1) Offered Hereby(1) After Offering
--------------- ------------ ----------------- --------------
<S> <C> <C> <C>
Benson Shore 625,000 625,000 0
Capital, LLC
</TABLE>
(1) Includes options to purchase up to an aggregate of 275,000 shares of the
Company's Common Stock at an exercise price of $1.00 per share,
exercisable for a period of twelve (12) months from the date of the
Consulting Agreement.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 5,000,000 shares of its Common Stock,
$.0001 par value per share, of which 3,168,292 are currently issued and
outstanding. Each share of Common Stock entitles the holder thereof to one
non-cumulative vote, either in person or by proxy, on all matters that may be
voted upon by the owners thereof at a meeting of stockholders. The holders of
Common Stock (i) have equal ratable rights to dividends from funds legally
available therefore, when and if declared by the Board of Directors of the
Company; (ii) are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock upon liquidation,
dissolution or winding up of the affairs of the Company; and (iii) do not have
pre-emptive, subscriptive or conversion rights, or redemption of sinking fund
provisions applicable thereto. All of the shares of Common Stock currently
outstanding are fully paid and non-assessable, with no personal liability
attaching to the ownership thereof.
Class A Warrants
The Company currently has 517,500 Class A Warrants outstanding. Each Class
A Warrant entitles the registered holder thereof to purchase one share of the
Company's Common
32
<PAGE>
Stock at an exercise price of $3.00, at any time until 5:00 p.m., New York City
time on 12/31/99. The Class A Warrants are redeemable by the Company upon at
least 30 days prior written notice at a price of $0.01 per Class A Warrant,
provided the Common Stock exceeds $9.10 per share, for the twenty (20)
consecutive trading days ending within three (3) days prior to the notice of
redemption.
Class B Warrants
The Company currently has 517,500 Class B Warrants outstanding. Each Class
B Warrant entitles the registered holder thereof to purchase one share of the
Company's Common Stock at an exercise price of $8.00, at any time until 5:00
p.m., New York City time on February 9, 1999. The Class B Warrants are
redeemable by the Company upon at least 30 days prior written notice at a price
of $0.01 per Class B Warrant, provided the Common Stock exceeds $11.20 per
share, for the twenty (20) consecutive trading days ending within three (3) days
prior to the notice of redemption.
North American Transfer Company, 147 W. Merrick Road, Freeport, New York
11520, serves as the Company's Transfer Agent for the Common Stock and the
Warrants.
33
<PAGE>
PLAN OF DISTRIBUTION
The Securities offered hereby are being sold by the Selling Security Holder
acting as a principal for its own account. The distribution of the Securities by
the Selling Security Holder may be effected from time to time in ordinary
brokerage transactions in the over-the-counter market at market prices
prevailing at the time of sale or in one or more negotiated transactions at
prices acceptable to the Selling Security Holder. The brokers or dealers through
or to whom the Securities may be sold may be deemed underwriters of the
Securities within the meaning of the Securities Act, in which event all
brokerage commissions or discounts and other compensation received by such
brokers or dealers may be deemed to be underwriting compensation. The Company
will bear all expenses of the offering, except that the Selling Security Holder
will pay any applicable brokerage fees or commissions and transfer taxes. In
order to comply with the securities laws of certain states, if applicable, the
Securities will be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the Securities may not be sold unless they have
been registered or qualified for sale in such state or an exemption from such
registration or qualification requirement is available and is complied with.
34
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company shall, to the fullest extent permitted by the New Jersey
Business Corporation Act, as the same may be amended and supplemented, indemnify
under said section from and against any and all expenses, liabilities or other
matters referred in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person. The Company will have the power to purchase and maintain officers' and
directors' liability insurance in order to insure against the liabilities for
which such officers and directors are indemnified pursuant to Article 6.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISION, OR OTHERWISE, THE COMPANY HAS BEEN
INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS
THEREFORE UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST
SUCH LIABILITIES OTHER THAN THE PAYMENT BY THE COMPANY OR EXPENSES INCURRED OR
PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE
SECURITIES BEING REGISTERED, THE COMPANY WILL, UNLESS IN THE OPINION OF ITS
COUNSEL THE MATTER HAD BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT
OF APPROPRIATE JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND WILL BE COVERED BY THE FINAL
ADJUDICATION OF SUCH ISSUE.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the
Securities being offered hereby are being passed upon for the Company by
Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York,
New York 10022, special counsel to the Company.
EXPERTS
The financial statements incorporated by reference into this registration
statement have been audited by Vincent J. Batyr & Co., independent certified
public accountants, to the extent and for the periods set forth in their reports
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
35
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference
The following documents filed by Modern Medical Modalities Corporation (the
"Company") with the Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(2) The Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1998.
In addition to the foregoing, all documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, prior to the filing of a post-effective amendment
indicating that all of the securities offered hereunder have been sold or
deregistering all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Registration Statement and to be part hereof
from the date of filing of such documents.
Any statement contained in a document incorporated by reference in this
Registration Statement shall be deemed to be modified or superseded for purposes
of this Registration Statement to the extent that a statement contained herein
or in any subsequently filed document that is also incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Registration Statement. All information appearing in
this Registration Statement is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
The Company will provide without charge to each person to whom a copy of
a Section 10(a) Prospectus hereunder is delivered, upon the oral or written
request of such person, a copy of any document incorporated in this Registration
Statement by reference, except exhibits to such documents. Requests for such
information should be directed to Modern Medical Modalities Corporation, 95
Madison Avenue, Suite 301, Morristown, New Jersey 07960, Attention: Corporate
Secretary, telephone number (973) 538-9955.
Item 4. Description of Securities
The Common Stock of the Company is registered under Section 12 of the
Securities Exchange Act of 1934.
Item 5. Interests of Named Experts and Counsel
Certain legal matters, including the legality of the issuance of the
Securities are being passed
II-1
<PAGE>
upon for the Company by Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East
52nd Street, New York, New York 10022, special counsel to the Company.
The financial statements included in this Prospectus have been audited by
Vincent J. Batyr & Co., independent certified public accountants, to the extent
and for the periods set forth in their reports appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
Item 6. Indemnification of Directors and Officers
The Company shall, to the fullest extent permitted by the New Jersey
Business Corporation Act, as the same may be amended and supplemented, indemnify
under said section from and against any and all expenses, liabilities or other
matters referred in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person. The Company will have the power to purchase and maintain officers' and
directors' liability insurance in order to insure against the liabilities for
which such officers and directors are indemnified pursuant to Article 6.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 7. Exemption from Registration Claimed
Shares.
Not applicable to the Shares registered hereunder.
Options.
Inasmuch as the Consultant who received the Options of the Registrant was
knowledgeable, sophisticated and had access to comprehensive information
relevant to the Registrant, such transaction was undertaken in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended. As a condition precedent to such grant, the Consultant was
required to express an investment intent and consent to the imprinting of a
II-2
<PAGE>
restrictive legend on each stock certificate to be received from the Registrant
except upon sale of the underlying shares of common stock pursuant to a
registration statement.
Item 8. Exhibits
<TABLE>
<CAPTION>
<S> <C>
5 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP.
10.1 Consulting Agreement dated as of June 18, 1998 by and between the Company and
Benson Shore Capital, LLC.
23.1 Consent of Vincent J. Batyr & Co.
23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (included in Exhibit 5).
</TABLE>
Item 9. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.
provided, however, that paragraphs 9(a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the small business
issuer pursuant to Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
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<PAGE>
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to any charter provision,
by-law, contract, arrangement, statute, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Morristown, State of New Jersey on the 14th day of
August, 1998.
MODERN MEDICAL MODALITIES
CORPORATION
By:/s/ Roger Findlay
Roger Findlay
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Signature Title Date
/s/ Roger Findlay Chairman of the Board August 14, 1998
Roger Findlay
/s/ Bruce Phillips Chief Financial Officer and August 14, 1998
Bruce Phillips Principal Accounting Officer
/s/ Jan Goldberg Vice President, Treasurer August 14, 1998
Jan Goldberg and Director
/s/ Gregory Maccia Vice President, Secretary August 14, 1998
Gregory Maccia and Director
/s/ Elli Pittas Vice President of Operations August 14, 1998
Elli Pittas and Director
/s/ Fred Mancinelli Director August 14, 1998
Fred Mancinelli
/s/ Carl J. Gedeon Director August 14, 1998
Carl J. Gedeon
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
5 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP.
10.1 Consulting Agreement dated as of June 18, 1998 by and between the Company and
Benson Shore Capital, LLC.
23.1 Consent of Vincent Batyr & Co.
23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP(included in Exhibit 5).
</TABLE>
j:\modern medical\form s-8.wpd
II-6
Exhibit 10.1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") has been entered
into by and between Modern Medical Modalities Corporation, a New York
corporation with its principal place of business at 95 Madison Avenue, Suite
301, Morristown, New Jersey 07960 (the "Company") and Benson Shore Capital, LLC,
a New York Limited Liability Company with its principal place of business at 67
Wall Street, Suite 2411, New York, New York 10005 ("Consultant").
WHEREAS, Consultant possesses significant expertise in
analyzing and addressing management requirements, identifying strategic
alliances, negotiating contracts, strategic planning and analyzing
organizational structures of companies;
WHEREAS, the Company desires to avail itself of the services
of Consultant, and Consultant desires to provide to the Company the benefit of
such services; and
WHEREAS, the Company and Consultant expect to benefit from the
carrying out of the subject matter of this Agreement.
NOW THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Consultant hereby
agree as follows:
1. Engagement. The Company hereby engages Consultant and
Consultant accepts such engagement and agrees to use its best efforts in a good
and businesslike manner to provide services to the Company in accordance with
the terms of this Agreement.
2. Nature of Services. Upon the request of the Company,
Consultant shall render assistance to the Company by (a) analyzing and
addressing the Company's management requirements; (b) developing strategic
initiatives and related industry partnerships, including providing assistance
with respect to acquisitions, joint ventures, and strategic business alliances;
(c) assisting with the negotiation of contracts between the Company and its
suppliers and customers; (d) analyzing the Company's present and prospective
corporate organizational structure; (e) reviewing the Company's financial
position and budget proposals; and (f) meeting with and advising the Company's
board of directors at the request of the Board.
3. Term. The term of this Agreement shall commence as of the
date hereof, and continue for a period of twelve (12) months.
4. Remuneration. The consideration to be paid by the Company
to Consultant for services to be rendered hereunder shall be as follows:
(a) Common Stock. The Company shall issue to Consultant
350,000 shares of its common stock ("Shares").
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<PAGE>
(b) Stock Options. The Company shall issue to
Consultant options to acquire up to an aggregate of Two
Hundred Seventy-Five Thousand (275,000) shares of its Common
Stock ("Options") exercisable at $1.00 per share, for a
period of twelve (12) months from the date hereof.
The Shares and the shares of common stock issuable upon
exercise of the Options referred to in this Section 4 shall collectively be
referred to as the "Consultant Shares."
(c) Form S-8 registration. The Company agrees to
prepare and file an S-8 registration statement under the
Securities Act covering the issuance of the Consultant
Shares, at its expense, and will use its best efforts to
cause such registration statement to be filed as soon as
practicable after the date of this Agreement.
5. Status of Consultant. The services of Consultant provided
pursuant to this Agreement shall be performed for the benefit of the Company by
Consultant in the capacity of an independent contractor. Consultant shall not be
considered, at any time that this Agreement is in force, to be an employee of
the Company. Consultant understands and acknowledges that this Agreement does
not create or imply any agency relationship between the parties, and Consultant
will not commit Company in any manner except when a commitment has been
specifically authorized in writing by the Company.
6. Confidentiality. Consultant will not at any time disclose
or use for its own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise other than the Company and any of
its subsidiaries or affiliates, any trade secrets, information, data or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, financing methods, plans, or the business and affairs of the
Company generally, or of any subsidiary or affiliate of the Company; provided,
however, that the foregoing shall not apply to information that is not unique to
the Company or that is or becomes through no fault of Consultant in generally
known to the industry or the public. All files and records relating to the
Company compiled by Consultant shall be the property of the Company and shall be
returned to the Company upon termination of this Agreement.
7. Investment Information to be Provided to Consultant. The
Company represents and warrants that it has provided Consultant with access to
all information available to the Company concerning the Company's condition,
financial and otherwise, its management, its management, its business and its
prospects. The Company represents that it has provided Consultant with all
copies of the Company's filings, for the prior twelve (12) months, made under
the rules and regulations promulgated under the Securities Act of 1933, as
amended, or the Securities and Exchange Act of 1934, as amended, if any (the
"Disclosure Documents"). Consultant acknowledges that the acquisition of any
shares of common stock upon exercise of any Options involves a high
2
<PAGE>
degree of risk. Consultant represents that it and its advisors have been
afforded the opportunity to discuss the Company with its management. The Company
represents that it has provided, and will continue to provide, Consultant with
any information or documentation necessary to verify the accuracy of the
information contained in the Disclosure Documents, and will promptly notify
Consultant upon the filing of any registration statement or other periodic
reporting documents filed pursuant to the Act or the Exchange Act.
8. Assignment. This Agreement may not be assigned by either
party hereto without the written consent of the other, but shall be binding upon
the successors of the parties.
9. Waiver of Rights. The failure of either party to insist, in
one or more instances, upon the performance of any of the terms, covenants,
agreements, or conditions of this Agreement, or to exercise any rights
hereunder, shall not be construed as a waiver or relinquishment of such party's
right to insist upon the future performance of such term, covenant, agreement,
or condition, or to the future exercise of any such right, and the obligations
of the other party with respect to such future performance shall continue in
full force and effect.
10. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby and shall remain in
full force and effect as if the invalidated provision had not been included
herein.
11. Notices. Any notice required or desired to be given
pursuant to this Agreement shall be in writing and shall be deemed given when
delivered by facsimile transmission or three (3) days after it is deposited in
the mail to the addresses set forth below, or at such subsequent address
provided by the parties:
If to Consultant:
Benson Shore Capital
67 Wall Street, Suite 2411
New York, New York 10005
Attn: David Lefkowitz, Managing Member
If to the Company:
Modern Medical Modalities Corporation
95 Madison Avenue, Suite 301
Morristown, New Jersey 07960
Attn: Jan Goldberg, Vice President
12. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
13. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties regarding services to be
furnished to the Company by Consultant, and any and all prior agreements and/or
understandings relating thereto are superseded in their
3
<PAGE>
entirety by this Agreement.
14. Counterparts. This Agreement may be executed in counter-
parts, each of which shall be deemed an original, but all of which together
shall constitute one and the same agreement.
15. Binding Effect. The provisions of this Agreement shall be
binding upon the parties, their successors and assigns.
IN WITNESS WHEREOF, the Company and Consultant have executed
this Agreement as of the date and year written below.
Dated: June 18, 1998 MODERN MEDICAL MODALITIES
CORPORATION
/s/ Jan Goldberg
By: Jan Goldberg
Title: Vice President
Dated: June 18, 1998 BENSON SHORE CAPITAL, LLC
/s/ David Lefkowitz
By: David Lefkowitz
Title: Managing Member
Exhibit 23.1
Consent of Independent Certified Public Accountant
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated April 17, 1998, which appears on page
F-1 of the 1997 Annual Report on Form 10-K of Modern Medical Modalities
Corporation. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ Vincent J. Batyr & Co.
Vincent J. Batyr & Co.
August 18, 1998
Exhibit 5.0
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street
New York, New York 10022
August 18, 1998
Modern Medical Modalities Corporation
95 Madison Avenue, Suite 301
Morristown, New Jersey 07960
Gentlemen:
You have requested our opinion, as counsel for Modern Medical Modalities
Corporation, a New Jersey corporation (the "Company"), in connection with the
registration statement on Form S-8 (the "Registration Statement"), under the
Securities Act of 1933 (the "Act"), being filed by the Company with the
Securities and Exchange Commission.
The Registration Statement relates to an offering of 350,000 shares of
common stock, par value $.0001 ("Common Stock") and 275,000 shares of Common
Stock underlying options (the "Selling Securityholder Shares"), issued pursuant
to the Consulting agreement between the Company and Benson Shore Capital LLC.
We have examined such records and documents and made such examinations of
law as we have deemed relevant in connection with this opinion. It is our
opinion that the Selling Securityholder Shares have been fully paid, validly
issued and nonassessable.
No opinion is expressed herein as to any laws other than the laws of the
state of New York, of the United States and the corporate laws of the state of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
of the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Gersten, Savage, Kaplowitz & Fredericks, LLP
Gersten, Savage, Kaplowitz & Fredericks, LLP
