<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON December 30, 1999
Registration Statement No. 333-86931
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
PRE-EFFECTIVE AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MODERN MEDICAL MODALITIES CORPORATION
(Name of small business issuer as specified in its charter)
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<CAPTION>
<S> <C> <C>
New Jersey 8071 22-3059258
------------------------------- ---------------------------- -----------------------
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code Number)
</TABLE>
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1719 Route 10, Suite 117
Parsippany, New Jersey 07054
(973) 538-9955
(Address and telephone number of principal executive offices
and principal place of business)
-----------
Roger Findlay, President
Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
(973) 538-9955
(973) 267-7359 (fax)
(Name, address and telephone number of agents for service)
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Copies to:
Jay M. Kaplowitz, Esq.
GERSTEN, SAVAGE & KAPLOWITZ, LLP
101 East 52nd Street, 9th floor
New York, New York 10022
(212) 752-9700
(212) 752-9713 (fax)
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A) MAY DETERMINE.
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount Being Offering Price Offering Registration
Securities Being Registered Registered Per Security(1) Price(2) Fee
--------------------------- ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock 3,150,044 $1.75 $5,512,577 $1,532.50
Common Stock Underlying Warrants 2,500,000 $2.0625 5,156,250 1,433.44
Total registration(4) 5,650,044 $2,965.94
</TABLE>
(1) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee.
(2) Based upon the last reported sales price of the registrant's common stock
of the same class as quoted on the Nasdaq SmallCap Market on December 23,
1999.
(3) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such indeterminate number of additional shares of
common stock as may be issuable upon conversion of Modern Medical's
convertible note(s) described herein and pursuant to the provision of the
convertible note(s) regarding determination of the applicable conversion
price.
(4) $363.93 of which has previously been paid.
Information contained herein is subject to completion or amendment. These
securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
<PAGE>
PRELIMINARY PROSPECTUS
Subject to Completion, Dated December 30, 1999
MODERN MEDICAL MODALITIES CORPORATION
5,650,044 Shares of Common Stock
This is an offering of 5,650,044 shares of common stock of Modern
Medical Modalities Corporation. Of the 5,650,044 shares being offered, 2,959,770
may be sold upon the conversion of an outstanding convertible note and upon the
exercise of warrants issued in connection with the note, and 2,139,080 shares
which may be sold upon the conversion of $2,000,000 convertible notes which may
be sold to investors. All of the shares are being offered by the selling
security holders named in this prospectus. We will not receive any of the
proceeds from the sale of the common stock, although we will receive
approximately $5,156,250 if all of the warrants being registered are exercised.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"MODM." On December 23, 1999, the last reported sales price of the common stock
was $1.75.
Please see "Risk Factors" beginning on page 6 to read about factors you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is December __, 1999
<PAGE>
TABLE OF CONTENTS
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Page
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<S> <C>
Prospectus Summary.............................................................................. 3
The Offering.................................................................................... 4
Summary Combined Financial Information.......................................................... 5
Risk Factors.................................................................................... 6
We experienced net losses in 1998 and for the nine months ended September 30, 1999, and may
continue to experience losses............................................................ 6
We have experienced a significant decrease in our revenues which may adversely effect our
future operating results.................................................................. 6
A reduction in physician use of MRI and CT Scan procedures could adversely affect our
revenues.................................................................................. 6
Because we are significantly smaller than our national competitors, we may lack the financial
resources needed to capture increased market share....................................... 6
Rapid changes in the development of new equipment may render our equipment obsolete......... 7
Significant delays in reimbursement from third-parties could limit the amount of our
reimbursements and adversely affect our cash flow........................................ 7
We depend on our executive officers and their loss or unavailability could put us at a
competitive disadvantage................................................................. 7
Special Note Regarding Forward-Looking Statements............................................... 7
Use of Proceeds................................................................................. 8
Certain Market Information...................................................................... 8
Dividend Policy................................................................................. 8
Selected Financial Data......................................................................... 9
Management's Discussion and Analysis of Financial Condition and Results of Operations........... 10
Business........................................................................................ 16
Management...................................................................................... 30
Principal Shareholders.......................................................................... 34
Certain Relationships And Related Party Transactions............................................ 35
Description of Securities....................................................................... 36
Shares Eligible for Future Sale................................................................. 38
Selling Security Holders........................................................................ 39
Plan of Distribution............................................................................ 41
Legal Matters................................................................................... 42
Experts......................................................................................... 42
Additional Information.......................................................................... 42
Financial Statements............................................................................ F-1
</TABLE>
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You should rely only on the information contained in this prospectus. To
understand this offering fully, you should read this entire prospectus
carefully, including the financial statements and notes thereto. We have
included a brief overview of the most significant aspects of the offering itself
in the Prospectus Summary. We have not authorized anyone to provide you with
information different from that contained in this prospectus. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
common stock.
Unless otherwise indicated, all reference to "Modern Medical", "us",
"our" and "we" refer to Modern Medical Modalities Corporation.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and our consolidated
financial statements and the notes accompanying the consolidated financial
statements appearing elsewhere in this prospectus.
Our Business
We provide magnetic resonance imaging (MRI) and computerized axial
tomography (CT Scan) equipment to hospitals and physicians. We also manage
hospital based and physician managed ambulatory centers for third parties who
provide medical imaging services. We offer a full range of services to hospitals
and physician groups, including:
o selection and acquisition of appropriate MRI and CT Scan equipment;
o design and supervision of facility construction;
o training of technical and support staff;
o patient billing and collection; and
o marketing and management services.
We provide all or any part of the services described above based on our
customers needs.
We presently provide equipment and manage one hospital based MRI site
located in Passaic, New Jersey and six free standing MRI and CT Scan ambulatory
centers, five of which are located throughout New Jersey and one in Louisiana.
The relationships with our seven existing sites are joint ventures in which we
own between 2% and 84% of the ventures. We also receive a management fee of
11.25% of gross cash collections from the site in Union, New Jersey for
performing all management functions.
We continue to attempt to position the company to participate in the
expanding managed healthcare market. We intend to continue to enter into joint
venture agreements with hospitals and physician centers to provide imaging
services to a large number of subscribers at reduced rates. In an effort to
obtain new sources of patient referrals to our centers we have hired:
o two additional marketing representatives;
o a marketing company; and
o a telemarketer.
Each will seek new referrals from health maintenance organizations,
preferred provider organizations, union contracts, hospital contracts and
physicians.
We were incorporated in the State of New Jersey on December 6, 1989 and
our executive offices are located at 1719 Route 10, Suite 117, Parsippany, New
Jersey 07054. Our telephone number is (973) 538-9955.
3
<PAGE>
THE OFFERING
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<CAPTION>
<S> <C>
Common Stock Offered....................... 5,650,044 shares of common stock. See "Description of
Securities."
Shares of Common Stock
Outstanding ............................... 2,506,471
Use of Proceeds............................ We will not receive any proceeds from the sale of the shares of
common stock by the selling security holders, although we will
receive approximately $5,156,250 if all of the warrants being
registered are exercised. See "Use of Proceeds."
Common Stock Trading Symbol............... NASDAQ SmallCapMarket: MODM
Risk Factors............................... An investment in our common stock involves a high degree of
risk and should be made only after careful consideration of the
significant risk factors that may affect us. Such risks include
special risks concerning us and our business. See "Risk
Factors."
</TABLE>
4
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
--------------------------- -------------
1997 1998 1999
-------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C>
Statement of Operations Data
Revenue $10,104 $6,415 $3,122
Income (loss) from Operations 1,296 (1,782) 205
Net income 123 (2,202) (65)
Net income per share 0.06 (0.67) (0.03)
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30, (1)
------------ -----------------------
(in thousands except per share data)
<S> <C> <C>
Balance Sheet Data
Working capital $ (1,963) $(1,020)
Total Assets 12,384 10,091
Long-term debt 3,254 2,531
Total liabilities 9,889 7,459
Total stockholders' equity 2,307 2,447
</TABLE>
(1) Does not include the proceeds from a $500,000 convertible note which Modern
Medical issued in October 1999.
5
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. In addition to
other information contained in this prospectus, you should carefully consider
the following risk factors and other information in this prospectus before
investing in our common stock.
We experienced net losses in 1998 and for the nine months ended September 30,
1999, and may continue to experience losses.
We have incurred net losses in the past and may continue to experience
net losses in the future. During 1998, we incurred net losses of approximately
$1.94 million. For the nine months ended September 30, 1999 we experienced a net
loss of $65,230. If we do not increase revenues at our existing sites we may not
be able to operate profitably.
We have experienced a significant decrease in our revenues which may adversely
effect on our future operating results.
Our revenues decreased by approximately 40% during the nine month
period ended September 30, 1999 from the nine month period ended September 30,
1998 and by approximately 37% during the year ended December 31, 1998 from the
year ended December 31, 1997. If our revenues continue to decrease significantly
our future operating results will be materially harmed. The decrease in revenues
is directly attributable to a decrease in patient service revenues, which
occurred as a result of our sale of unprofitable sites, along with increased
competition. Our revenues may continue to decrease in the future, which may have
a material adverse affect on our future operating results.
A reduction in physician use of MRI and CT Scan procedures could adversely
affect our revenues.
We own and lease MRI and CT scanning equipment which may be affected by
a reduction in physician use. The Federal Government and the insurance industry
have deemed that in some cases MRI and CT Scans are medically unnecessary, which
may cause a reduction in physician use of MRI and CT Scan procedures and would
adversely affect our revenues. As a result, insurance carriers and the Federal
Government have denied payment for procedures they deem unnecessary based on the
diagnosis and the number of MRI and CT scans received by the patient. The denial
of payment by insurance carriers will reduce our revenues and have a material
adverse effect on our business.
Because we are significantly smaller than our national competitors, we may lack
the financial resources needed to capture increased market share.
The healthcare industry in general, and the market for diagnostic
imaging services in particular, are highly competitive. We compete with
hospitals, physicians groups and other providers of medical imaging services in
providing equipment and services to healthcare providers. Many of these
competitors have substantially greater resources than us which allows them to
undertake more extensive marketing campaigns and to continually upgrade their
medical equipment, as well as capture increased market share. Our size and
available resources may restrict our ability to increase our revenues and
capture additional market share. See "Business - Competition."
Rapid changes in the development of new technologies may render our equipment
obsolete.
6
<PAGE>
Technological advances could render our existing imaging equipment
obsolete or in need of substantial upgrade. If our equipment becomes obsolete we
can not be sure that we will have sufficient capital resources to replace or
upgrade our equipment. If we cannot replace or upgrade our equipment, physicians
may not refer patients to our centers and our revenues will decrease.
Significant delays in reimbursement from third-parties could limit the amount of
our reimbursements and adversely affect our cash flow.
A substantial portion of our revenues come from payments made by
government-sponsored healthcare programs and other third parties, and any delays
in reimbursement could have a material adverse affect on our cash flow. We
receive these payments either directly, in the case of imaging center revenues
relating to reimbursable direct patient billings, or indirectly, in the case of
technical fee-for-service payments made by hospitals. Healthcare reimbursement
programs are not uniformly prompt in making required payments. Extensive payment
delays are not uncommon, which could materially adversely affect our financial
resources while awaiting payment.
We depend on our executive officers and their loss or unavailability could put
us at a competitive disadvantage.
Our business is largely dependent upon the active participation of our
executive officers. The loss of services or unavailability of any or all of our
executive officers, specifically Roger Findlay, president, Jan Goldberg, vice
president or Gregory Maccia, vice president and secretary, could have a material
adverse effect on our business. Although we have employment agreements with each
of our executive officers, they do not prohibit them from competing with us if
they leave the company. Additionally, we do not have keyman life insurance on
the lives of either of Messrs. Findlay, Goldberg or Maccia and do not intend to
obtain such insurance.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information in this prospectus may contain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. This information may involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements. These
factors include the risks described in "Risk Factors." Forward-looking
statements, which involve assumptions and describe our future plans strategies
and expectations, are generally identifiable by use of the words "may,"
"should," "expect," "anticipate," "estimates," "believe," "intend" or "project"
or the negative of these words or other variations on these words or comparable
terminology.
7
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of
common stock owned by the selling security holders, although we will receive
approximately $5,156,250 if all of the warrants being registered are exercised.
All proceeds from the sales of the shares of common stock owned by the selling
security holders will be for the account of the selling security holders
described below. See "Selling Security Holders."
CERTAIN MARKET INFORMATION
On March 12, 1999, we effected a 1 for 2 reverse split of our
authorized and outstanding shares of common stock. As of December 30, 1999, we
had 2,506,471 shares of common stock outstanding. Our common stock is traded on
the Nasdaq SmallCap Market under the symbol "MODM." The following table sets
forth the high and low bid prices for the common stock as reported on the Nasdaq
SmallCap. The high and low bid prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions. All bid prices for the periods prior to our 1-for-2 reverse stock
split effected on March 12, 1999, have been adjusted to reflect the reverse
stock split.
Common Stock
------------------------------
Fiscal 1997 High Low
- ----------- ---- ---
First $ 7.12 $ 2.80
Second 6.00 3.20
Third 6.32 4.28
Fourth 6.56 4.40
Fiscal 1998
First $ 5.25 $ 3.50
Second 4.00 .8125
Third 1.875 1.00
Fourth .75 .0625
Fiscal 1999
First $ 2.75 $ .125
Second 3.25 2.375
Third 3.25 1.25
Fourth (through December 30, 1999) 3.50 1.50
On December 30, 1999, there were 49 holders of record of Modern
Medical's 2,506,471 outstanding shares of Common Stock.
On December 29, 1999, the last sale price of the Common Stock as
reported on the Nasdaq SmallCap Market was $2.00.
DIVIDEND POLICY
We have never paid or declared dividends on our common stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon our earnings, capital requirements,
financial condition and other relevant factors. We intend to retain future
earnings for use in our business.
8
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data is for the period
from January 1, 1997 through September 30, 1999. The selected balance sheet data
is for the period from January 1, 1998 through September 30, 1999. The statement
of operations and balance sheet data is derived from our financial statements
and the related notes included elsewhere in this prospectus audited by Vincent
J. Batyr & Co. All information should be read in conjunction with our
consolidated financial statements and the notes contained elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Nine Months
ended
Year ended December 31, September 30,
---------------------------- -------------
1997 1998 1999
------ ------ ------
(in thousands except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue $10,104 $6,415 $3,122
Income (loss) from Operations 1,296 (1,782) 205
Net income 123 (2,202) (65)
Net income per share 0.06 (0.67) (0.03)
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months ended
December 31, September 30,(1)
1998 1999
------------ -----------------
(in thousands except per share data)
<S> <C> <C>
Balance Sheet Data:
Working capital $ (1,963) ($1,020)
Total Assets 12,384 10,091
Long-term debt 3,254 2,531
Total liabilities 9,889 7,459
Total stockholders' equity 2,307 2,447
</TABLE>
(1) Does not include the proceeds from a $500,000 convertible note which Modern
Medical issued in October 1999.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
Financial Statements and the accompanying notes thereto appearing elsewhere in
this prospectus.
Overview
In 1994, Modern Medical Modalities Corporation started Medical
Marketing & Management, Inc. which markets not only the sites of Modern Medical,
but for other physician groups and hospitals. In November 1994, Modern Medical
acquired Prime Contracting Corp. in a business combination accounted for as a
pooling of interests. Prime is a full service contractor who provides turnkey
design and construction services for medical facilities primarily on the east
coast of the United States. On December 27, 1995, Modern Medical entered into an
agreement with Hamilton McGregor International Ltd. to sell all of the common
stock of Prime for $1,200,000.
In 1995, Modern Medical purchased Empire State Imaging Associates, Inc.
On December 27, 1996, Modern Medical sold 65% of the common stock of Empire
State for $250,000 to RF Management Inc. Modern Medical commenced operations
during the second, third and fourth quarters of 1995 and the first quarter of
1996, respectively, at sites located in Passaic and Somerset, New Jersey;
Amherst, New York; and Morristown, New Jersey. During the third quarter of 1996,
Modern Medical, through its wholly-owned subsidiary, West Paterson Medical
Equipment Leasing Corp., entered into a lease and management services agreement
at a site specializing in diagnostic imaging located in West Paterson, New
Jersey. In addition, Modern Medical through its wholly-owned subsidiary Ohio
Medical Equipment Leasing Corporation entered into a purchase and consulting
agreement to acquire a 50.2% interest as a general (managing) partner of a
diagnostic imaging center located in Sylvania, Ohio. Many of the fluctuations on
the line items on the balance sheets and the statements of operations are
directly attributable to the acquisition and start-up of these entities.
In March 1997, Modern Medical entered into a contract for the sale of
its stock in Empire State Imaging. Under the terms of the sale, the purchasing
party paid $75,000 in advance, $175,000 at closing and the balance of $750,000
is payable in monthly installments of $25,000 commencing in April 1998.
In March of 1998, Modern Medical sold to the KFC Venture LLC, 15% of
Open MRI and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon
execution of the agreement and $25,000 a month for six months. Under the terms
of the agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC
without interest before any profits can be distributed. Until such time, all
distributions shall be divided equally with fifty percent of said distribution
being paid to KFC Ventures, LLC as a return of its initial capital investment up
to the amount of $125,000 and the other fifty percent of said distribution being
distributed to the members in accordance with their percentage interests in
Modern Medical.
On May 7, 1998, Modern Medical entered into an agreement to sell 97.2%
of its 72% ownership of Open MRI of Morristown, Joint Venture for $300,000. The
terms required $100,000 payable at signing, and monthly payments in the amount
of $50,000 on May 1, June 1, July 1 and August 1, 1998, all of which were made.
Modern Medical retained the option to repurchase from the buyers, ADS Investment
Corp. and Oak Knoll Management Corporation, the interest sold upon payment of
$50,000 plus all prior payments and any additional costs incurred by the buyers.
The option expired on August 31, 1998.
10
<PAGE>
On August 20, 1998, Modern Medical, ADS Investment Corp. and Oak Knoll
Management Corporation modified the original agreement from a sale to a loan.
The terms of the new agreement are as follows: a loan in the amount of $300,000,
with interest due and payable at 12% per annum, secured by 70% of Open MRI. The
loan is due and payable on September 30, 1998. The agreement also required the
personal guarantees made by the lenders to DVI Business Credit Corporation on
behalf of Modern Medical be replaced by September 30, 1998 as a condition of
satisfactory settlement of the loan, which was completed. For services rendered
between May 7, 1998 and the date of maturity of this loan, all distributions
made to the lending parties by Open MRI will remain the property of the lending
parties.
On September 30, 1998, Modern Medical sold all but 2% of its 72%
interest in Open MRI for $300,000 and the purchaser's agreement to provide
Modern Medical's creditor, DVI Business Credit, personal guaranties of the
principals of purchaser in an amount not to exceed $150,000. Modern Medical
recorded a gain on this transaction in the amount of $30,171. Modern Medical has
retained a 2% ownership interest in Open MRI.
In September 1998, Modern Medical terminated the management contract
with Southern Medical Consultants LLP for the management of Open MRI of Metaire.
Accordingly pursuant to the agreement, if Southern Medical is not active in the
site nor managing the site through the end of the lease payments, then no stock
transfers will be made and none have been made to date.
Results of Operations:
For the three months ended September 30, 1999 as compared to the three months
ended September 30, 1998
Revenue
For the three months ended September 30, 1999 revenue was $1,190,394 as
compared to $1,201,081 for the three months ended September 30, 1998. The
decrease in revenues of $10,687 was directly attributable to lower patient
service revenues as a result of the sale of Open MRI at Corvas and Doctors
Imaging Associates and the return of Ohio Medical Equipment Leasing Corporation
to DVI Financial Services, offset by an increase in revenues at Modern Medical's
other sites.
Depreciation expense
Depreciation expense for the three months ended September 30, 1999 was
$266,270 as compared to $323,251 for the comparable prior period, a reduction of
approximately $56,981. This decrease is directly attributable to fewer
depreciable assets as a result of the sale of Open MRI at Corvas and Doctors
Imaging Associates, and the return of Ohio Medical Equipment Leasing
Corporation.
Interest expense
Interest expense for the three months ended September 30, 1999 was
$151,374 as compared to the comparable prior year period of $195,005, a decrease
of $43,631. This decrease is attributable to fewer leased and financed assets as
a result of Modern Medical's sale of Open MRI at Corvas and Doctors Imaging
Associates and the return of Ohio Medical Equipment Leasing Corporation and the
refinancing of three of Modern Medical's centers.
11
<PAGE>
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended
September 30, 1999 were $914,529 as compared to $1,793,080 for the comparable
period in 1998, a decrease of approximately $878,551. This decrease is primarily
attributable to the sale of various sites of approximately $886,000.
For the nine months ended September 30, 1999 as compared to the nine months
ended September 30, 1998
Revenue
For the nine months ended September 30, 1999 revenue was $3,122,427 as
compared to $5,220,960 for the nine months ended September 30, 1998. The sale of
Open MRI at Corvas and Doctors Imaging Associates along with the return of Ohio
Medical Equipment Leasing Corp. to DVI resulted in a significant decrease in
patients serviced. This decrease in patients serviced resulted in a decrease in
revenues for Modern Medical. In the prior period Open MRI at Corvas, Doctors
Imaging Associates and Ohio Medical Equipment Leasing Corp. recognized revenues
of $887,861, $1,874,582 and $818,286, respectively. The reduction in revenues
from these sites have been partially offset by an increase in revenues from
Modern Medical's other sites.
Depreciation expense
Depreciation expense for the nine months ended September 30, 1999 was
$381,593 as compared to $1,206,544 for the comparable prior year period, a
reduction of approximately $824,951. This decrease is directly attributable to
fewer depreciable assets as a result of the sale of Open MRI at Corvas and
Doctors Imaging Associates and the return of Ohio Medical Equipment Leasing
Corporation.
Interest expense
Interest expense for the nine month period ended September 30, 1999 was
$472,518 as compared to the comparable prior year period of $818,256, a decrease
of $345,738. This decrease is attributable to fewer financed and leased assets
as a result of Modern Medical's sale of Open MRI at Corvas and Doctors Imaging
Associates and the return of Ohio Medical Equipment Leasing Corporation, and the
refinancing of three of Modern Medical's centers. Additionally, Modern Medical
has reduced its working capital lines of credit with the DVI Business Group by
approximately $151,000 since December 31, 1998, resulting in a decrease in
interest expense on Modern Medical's outstanding debt.
Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended
September 30, 1999 were $2,092,089 as compared to $5,566,843 for the comparable
period in 1998, a decrease of approximately $3,474,754. This decrease is largely
attributable to the sale of various centers which in the aggregate incurred
expenses of approximately $2,700,000 in the comparable period in 1998, as well
as various corporate reductions of approximately $500,000. Additionally, Modern
Medical restructured its equipment service contracts from flat rate contracts to
hourly rate contracts, and purchased replacement parts for its equipment from
third-party suppliers rather than directly from the equipment manufacturer,
which resulted in a savings of approximately of $36,000, from the comparable
period in 1998.
12
<PAGE>
For the year ended December 31, 1998 as compared to the year ended December 31,
1997
Modern Medical experienced a loss during the fourth quarter of 1998 of
$263,000. This loss is attributable to start-up costs associated with Modern
Medical's site in New Orleans. The loss is also partially attributable to an
increase in additional write-offs of accounts that were deemed uncollectible.
Revenues
Revenues for Modern Medical and its subsidiaries aggregated $6,415,000
in 1998 as compared to $10,104,000 in 1997. The decrease in revenues of
approximately $3,689,000 is attributable to a decrease in patient service
revenues for Modern Medical's various imaging centers of approximately
$1,534,000, the sale of three imaging centers that generated approximately
$1,817,000 in revenues in the prior period and a decrease in Medical Marketing &
Management's revenues of approximately $344,000 generated in the prior period.
Operating expenses
Operating expenses for 1998 were $8,197,000 as compared to $8,807,000
in 1997. This decrease came primarily from the sale of two sites in 1998 and one
site in 1997 that incurred expenses of approximately $1,760,000 in the
comparable period in 1998. This savings was substantially offset by the
operating expenses of a new center opened by Modern Medical in New Orleans, LA
of approximately $772,000 and a net increase in operating expenses of
approximately $378,000 at Modern Medical's remaining sites.
Selling, general and administrative expenses
Selling, general and administrative expenses for 1998 were $6,628,000
as compared to $6,989,000 in 1997 or a reduction of approximately $361,000. This
reduction resulted from the sale of three sites during 1997 and 1998,
approximately $1,500,000, offset by the opening and start-up of a new site in
New Orleans, LA of approximately $704,000 plus a net increase of approximately
$325,000 in the remaining sites. The balance of the change relates to reduced
costs of approximately $95,000 in expenses related to operating Modern Medical's
Medical Marketing Management subsidiary. Selling, general and administrative
expenses, include payroll, facility rent, equipment maintenance costs, site
marketing costs, medical and office supplies, utilities and insurance. The
increase in selling, general and administrative expenses of approximately
$325,000 resulted from increased equipment maintenance costs and additional
marketing costs at those sites.
Interest expense
Interest expense, net of a decrease in interest income of approximately
$78,000, has decreased by approximately $290,000. This reduction in interest
expense resulted primarily from the reduction of debt related to the sale of
three sites in 1998 and 1997 of approximately $260,000 and the retirement of
debt in the normal course of business of approximately $99,000 offset by
increased interest expense at the new site opened in New Orleans, LA in 1998 of
approximately $69,000.
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Depreciation and amortization expense
Depreciation and amortization for 1998 was approximately $1,544,000 as
compared to approximately $1,789,000 in 1997. This reduction of approximately
$245,000 was primarily related to the sale of three sites during 1997 and 1998.
Loss on sale of subsidiaries
On June 1, 1998, Modern Medical sold its 35% interest in Central
Imaging of Yonkers, NY incurring a loss on the sale of $743,000. The loss
consisted of unrecoverable investment in and advances to Central Imaging.
On June 30, 1998, Modern Medical exercised its option to sell Sylvania
Diagnostics to DVI Financial for one dollar. As a result of this disposition,
Modern Medical recorded a loss of $168,064.
Restructuring of note receivable
On March 3, 1998, Modern Medical restructured the promissory note
receivable for the sale of Prime Contracting Corp. as follows: $200,000 in cash
payable over 36 months, plus interest calculated at prime plus 1% and the 36
month option to purchase 250,000 shares of the related party stock at $.05 per
share. Modern Medical recorded a loss from note receivable restructuring in the
approximate amount of $748,000.
Liquidity and Capital Resources
Modern Medical has a working capital deficiency of $1,028,716 at
September 30, 1999 as compared to a working capital deficiency of $1,963,000 at
December 31, 1998.
During 1998, Modern Medical refinanced the following sites:
<TABLE>
<CAPTION>
OLD NEW DECREASE
------- ------- --------
<S> <C> <C> <C>
Passaic Beth Israel MRI $45,255 $24,557 $20,698
South Jersey Imaging 37,267 23,217 14,356
South Plainfield Imaging 36,350 13,207 22,943
--------
Monthly reduction in debt funding $57,997
=======
</TABLE>
On an annual basis the above refinancing results in a cash savings of
$695,694. All of the above refinanced loans are for sixty (60) months.
In addition, for the year ended December 31, 1998, Modern Medical
reduced the balance of the outstanding accounts receivable working capital line
of credit by approximately $635,000 ($1,302,000 to $667,000) and for the nine
months ended September 30, 1999 the outstanding balance has been further reduced
to $515,565. Modern Medical intends to continue to reduce the outstanding
principal balance on this line of credit at a rate of 10% of the cash receipts
of the applicable imaging centers.
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During 1998, Modern Medical reduced personnel salaries by a total of
$443,000, including fringe benefits. The duties of those employees whose jobs
were eliminated were reassigned to other Modern Medical employees.
In July 1999, Modern Medical sold 148,694 shares of its common stock to
accredited investors in a private placement transaction pursuant to Regulation D
Rule 506 of the Securities Act of 1933, as amended. Modern Medical received
gross proceeds of $283,000, before offering expenses of approximately $49,590,
which Modern Medical intends to use for working capital and general corporate
purposes.
In October 1999, Modern Medical sold $500,000 principal amount of its
10% convertible notes due October 2000. The notes are convertible into shares of
Modern Medical's common stock. Modern Medical received net proceeds of $432,500
after the payment of commissions and other expenses. Modern Medical intends to
use the net proceeds for working capital and general corporate purposes. Modern
Medical has the right, subject to conditions, to sell up to an additional
$2,000,000 principal amount of convertible notes to the investors that purchased
the $500,000 note. See "Description of Securities - 10% Convertible Note."
Modern Medical believes that its current operations along with its
current capital resources will provide it adequate working capital for the next
twelve months.
These are the only trends, commitments, events and/or material
uncertainties known to Modern Medical.
Going Concern
Modern Medical's 1998 financial statements have been presented on a
basis that it is a going concern. Due to significant losses during the year
ended December 31, 1998, the accountants report has an explanatory paragraph
stating that Modern Medical's continued existence is in doubt.
As described above, during 1999, Modern Medical reduced its
administrative salaries, refinanced equipment and raised approximately $783,000
through the issuance of equity and debt securities. Management believes that its
current operations along with its current capital resources will provide Modern
Medical sufficient cash resources to support its operations for the next twelve
months.
Valuation of Accounts Receivable
Modern Medical values its uncollected accounts receivable as part of
its determination of profit. Modern Medical constantly reviews the accounts
receivable valuation. The continuing monthly review, gathering of additional
information, as well as changing reimbursement rate, may cause adjustments to
the accounts receivable valuation.
Year 2000 Compliance
Much computer software was originally written using only two digits
rather than four digits to represent the year in a date field, and therefore may
interpret a year ending in "00" to be the year 1900 rather than the year 2000.
This could cause system failure or miscalculations causing the disruption of
operations.
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<PAGE>
We believe that our internal computer hardware and software systems
will function properly with respect to dates in the year 2000 and beyond. Having
assessed the potential consequences to us of the year 2000 issue, we do not
expect that it will cause us to incur significant costs.
We have not investigated whether our embedded systems, such as our
electrical, heating or telephone systems, are year 2000 compliant. We expect,
however, that our business would not experience any significant long-term harm
even if any of these systems were to not be year 2000 compliant.
There is, however, general uncertainty regarding the year 2000 issue
and its effect on the overall business environment. We cannot currently
determine whether the year 2000 issue will disrupt the U.S.
economy or business infrastructure sufficiently to harm our business.
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<PAGE>
BUSINESS
Modern Medical Modalities Corporation provides magnetic resonance
imaging (MRI) and computerized axial tomography (CT Scan) equipment to hospitals
and physicians. Additionally, Modern Medical on a clerical and administrative
level manages hospital based and physician managed ambulatory centers for third
parties who provide medical imaging services. Modern Medical offers a full range
of services to hospitals or physician clients, including:
o selection and acquisition of appropriate equipment;
o design and supervision of facility construction;
o training of technical and support staff;
o patient billing and collection; and
o marketing and management services.
Modern Medical 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.
Modern Medical presently provides equipment and manages one hospital
based MRI site located in Passaic, New Jersey, and six free standing MRI and CT
Scan and Diagnostic Imaging ambulatory centers in Louisiana (1) and New Jersey
(5). Modern Medical also receives a management fee of 11.25% of gross cash
collections from the site in Union, New Jersey for performing management
functions. Modern Medical's relationship with the joint-ventures range from 2%
through 84% equity interest.
Generally, Modern Medical's centers participate in HMO or PPO programs
because many of the physicians who refer patients to the centers belong to the
HMO or PPO. In many instances Modern Medical's centers initiate contact with
various third parties, such as insurance companies, unions or managed care
providers, 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. Typically, the centers are recommended by the physicians in the area.
Modern Medical has positioned itself to participate in the expanding
managed health care market and intends to continue to seek to joint venture with
hospital and physician managed ambulatory centers. Modern Medical has hired
additional marketing representatives, a marketing company and a telemarketer in
an effort to establish new sources of patient referrals, which are generally
referred to Modern Medical's sites through HMO's, PPO's, union contracts and
hospital contracts.
Our joint ventures
UNION JOINT VENTURE
In July 1990, Modern Medical entered into a Joint Venture Agreement
with Union Imaging Associates, Inc. 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 terminates upon the earliest of: (a) June 30,
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2010, (b) the sale of the subject business or (c) mutual agreement of the joint
venturers. Modern Medical serves as the managing joint venturer pursuant to the
Union joint venture agreement and has managerial responsibility for the business
including:
o placing of personnel;
o leasing equipment;
o budgeting;
o contracting;
o billing;
o paying debts;
o making lease payments; and
o making distributions to the joint venturers.
Modern Medical shall continue to serve as managing joint venturer until
Modern Medical's liability under the Union joint venture's equipment lease with
DVI Financial is satisfied. Thereafter, Modern Medical shall continue to serve
as the managing joint venturer until the earlier to occur of: (a) Modern
Medical's resignation upon 60 days notice to Union Imaging or (b) 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 Modern Medical as managing joint
venturer. For serving as managing joint venturer Modern Medical receives 11.25%
of gross collections for a management fee as well as a 10% equity position.
PLAINFIELD JOINT VENTURE
In July 1991, Modern Medical entered into a joint venture agreement
with Plainfield MRI Associates, Inc. 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 (a)
July 30, 2011; (b) the sale of the subject business; (c) 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; (d) the subject business being determined
unprofitable for 3 consecutive calendar months at the sole discretion of Modern
Medical; (e) the repossession of equipment pursuant to the equipment lease with
DVI Financial dated December 1, 1993; or (f) mutual consent of the joint
venturers.
Modern Medical serves as the managing joint venturer pursuant to the
Plainfield joint venture agreement. As managing joint venturer Modern Medical
has the following managerial responsibility:
o hiring of personnel;
o leasing equipment;
o budgeting;
o contracting;
o billing;
o paying debts;
o making lease payments; and
o making distributions to the joint venturers.
Modern Medical shall continue to serve as managing joint venturer until
Modern Medical's liability associated with the subject business to DVI Financial
is satisfied. Thereafter, Modern Medical shall continue to serve as managing
joint venturer until Modern Medical's resignation upon 60 days notice to
Plainfield MRI, Inc.
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The interests of Modern Medical 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, Modern Medical 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 Modern Medical, 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. Modern Medical
has a 75% interest in the profits, obligations and liabilities under the Joint
Venture Agreement.
METAIRE MEDICAL EQUIPMENT LEASING
In June 1997, Metaire Medical Equipment Leasing was incorporated in the
state of New Jersey, as a 100% owned subsidiary of Modern Medical. 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 Modern Medical will receive 100% of the profits and equity of
Open MRI of Metaire. The site opened for business in February of 1998. There is
an agreement with Southern Medical Consultants which provides that if they raise
$250,000 and provide marketing and management services, they will receive 34% of
the site. To date the $250,000 has been raised, but the marketing and management
services have not been performed.
In March 1998, Modern Medical sold to KFC Venture LLC, 15% of Open MRI
and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon execution
of the agreement and $25,000 per month for six months. Under the terms of the
agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC,
without interest. Until such time, all distributions shall be divided equally,
with 50% of said distribution being paid to KFC Ventures LLC as a return of its
initial capital investment up to the amount of $125,000 and the other 50% of
said distribution being distributed to the members of Open MRI of Metaire, in
accordance with their percentage interests in Open MRI of Metaire.
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.
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.
OPEN MRI OF MORRISTOWN
During February of 1996, Modern Medical, under the terms of a joint
venture with RMC Consulting Inc. and Barbara Krasnica, developed a MRI facility
located in Morristown, New Jersey. Under the terms of the agreement, dated
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October 31, 1995, Modern Medical has the responsibility to make all day to day
decisions on behalf of the joint venture "Open MRI of Morristown." The term of
the joint venture shall terminate October 15, 2015 unless the business is sold,
or the joint venture is terminated by mutual consent of the participants. The
term of the joint venture may be extended by mutual written consent of the
participants. Under the terms of the joint venture the profit distribution is as
follows: Modern Medical Modalities Corporation 72%, RMC Consulting Inc. 18% and
Barbara Krasnica 10%.
On May 7, 1998, Modern Medical entered into an agreement to sell 97.2%
of its 72% ownership of Open MRI of Morristown, joint venture (Open MRI) for
$300,000. The terms required $100,000 payable at signing and monthly payments in
the amount of $50,000 on May 1, June 1, July 1 and August 1, 1998. Modern
Medical retained the option to repurchase the interest sold from the buyers, ADS
Investment Corp. and Oak Knoll Management Corporation upon payment of $50,000
plus all prior payments and any additional costs incurred by the buyers. The
option expired on August 31, 1998.
On August 20, 1998, Modern Medical, ADS Investment Corp. and Oak Knoll
Management Corporation modified the original agreement from a sale to a loan.
The terms of the new agreement are as follows: a loan in the amount of $300,000,
with interest due and payable at 12% per annum, secured by 70% of Open MRI. The
loan was due and payable on September 30, 1998. The agreement also requires the
personal guarantees made by the lenders to DVI Business Credit Corporation on
behalf of Modern Medical be replaced by September 30, 1998 as a condition of
satisfactory settlement of the loan. For services rendered between May 7, 1998
and the date of maturity of this loan, all distributions made to the lending
parties by Open MRI will remain the property of the lending parties.
On September 30, 1998, Modern Medical effectively sold all but 2% of
its 72% of its interest in Open MRI for $300,000 and the purchaser's agreement
to provide Modern Medical's creditor, DVI Business Credit personal guaranties of
the principals of purchaser in an amount not to exceed $150,000. Modern Medical
recorded a gain on this transaction in the amount of $30,171.
WEST PATERSON MEDICAL LEASING CORPORATION
In July 1996, Modern Medical, through its wholly-owned subsidiary West
Paterson Medical Equipment Leasing Corporation, entered into a lease and
management services agreement with Advanced Imaging & Radiology Associates, P.A.
West Paterson Medical is a medical practice specializing in diagnostic imaging
located in West Paterson, New Jersey. The agreement provides that West Paterson
Medical will lease office space, fixtures and equipment and will provide
management services to Advanced Imaging over an initial term of five years with
a five year renewal option. Under the terms of the agreement, West Paterson
Medical has assumed all debt, expenses and accounts receivable for the site.
Subsequently, in February 1997 Modern Medical 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.
Medical imaging industry and systems
Modern Medical has focused on the advanced imaging technologies of MRI
and CT Scan. Management believes that the use of these technologies has grown
significantly in the U.S. during the last several years. This growth is
attributable to physicians beliefs that diseases can be detected in their early
stage, in a non-invasive manner, through the use of MRI and CT Scan. Hospitals
are facing competitive pressures to provide technology and related services
despite strict budgetary limitations. Changes in third party reimbursement
20
<PAGE>
systems have resulted in declining profit margins for many hospitals, thus
reducing capital available to hospitals and the traditional incentives to
purchase or lease equipment and pass such costs through to third parties. By
leasing equipment and purchasing services from third parties, hospitals are able
to conserve their limited capital resources for other purposes and reduce the
risks associated with technological obsolescence and under utilization of
equipment and services. As a result hospitals are increasingly utilizing
companies that provide MRI and CT Scan equipment, such as Modern Medical, in
order to decrease their equipment and personnel costs.
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.
Our services
Modern Medical 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 Modern Medical can deliver either on a
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. Modern Medical does not engage in the practice of
medicine. Such physicians are not employees of Modern Medical. However, the most
significant cost of operating an imaging center is the capital and finance costs
of equipment.
Modern Medical provides equipment and related services, technical and
support staffing, marketing, patient scheduling, billing and collection and
management in all of Modern Medical's sites located throughout New Jersey and at
Modern Medical's new site in New Orleans, Louisiana.
Equipment and related services. Modern Medical 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. Modern Medical then acquires
the equipment through lease/purchase agreements. In addition, Modern Medical
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.
Modern Medical supervises the installation and testing of the equipment and
provides periodic inspection of the equipment at the facility. Modern Medical
undertakes to maintain its clients' equipment and typically enters into
agreements with equipment manufacturers or other third parties for the delivery
of maintenance services.
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Technical and support staffing. Modern Medical provides technologists
who operate the equipment at the facility. Modern Medical trains and provides
on-going safety instruction and educational programs for its technologists as
well as the hospital's technologists. Modern Medical also provides clerical
personnel to provide administrative duties such as scheduling and answering
phone inquiries.
Marketing. Modern Medical 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. Modern Medical 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, Modern Medical schedules patient appointments, prepares all patient
billing and is responsible for collection. In providing billing and collection
services, Modern Medical 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. Modern Medical also is responsible
at the centers for related administrative and record-keeping functions and all
management information services.
Management. Modern Medical provides full managerial responsibility and
control over facility operations, including all of the foregoing services, at
medical technology centers.
Delivery of our services
Modern Medical 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. Modern
Medical may form imaging centers utilizing a variety of ownership vehicles.
Presently, Modern Medical operates its sites under joint venture agreements.
Below is a description of Modern Medical's medical technology centers and
radiology group centers:
Medical technology centers. Modern Medical will establish a medical
technology center within a hospital or with a physician group through which
Modern Medical will offer its full range of services. A hospital center is
located on a hospital campus, is affiliated with that hospital and provides both
inpatient and outpatient services. A hospital requiring part-time service will
engage Modern Medical to schedule its mobile unit to be on location at the
hospital at prescribed times. Modern Medical maintains a mobile unit which is a
custom-designed vehicle that is a totally self-contained facility.
In addition to the equipment and facility services provided in its
arrangements, Modern Medical 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.
Radiology group centers. Modern Medical began its medical technology
center operations by establishing free standing, outpatient imaging centers with
groups of radiologists.
In most cases Modern Medical is approached by a group of physicians or
a hospital who are looking to install a MRI or CT scanner. Modern Medical 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, Modern Medical
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requests the number of MRI's and CT scans that the hospital sends to other
facilities. Modern Medical 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. Modern Medical 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 their service 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 Modern Medical deems
necessary. Modern Medical then makes a determination as to the financial
viability of the project. Based on the criteria above, Modern Medical reviews
each site to determine whether the site can generate revenues to support the
costs associated with the operation of the site.
Set forth below is a table of Modern Medical's centers, listing their
respective services.
<TABLE>
<CAPTION>
SERVICES BY TECHNOLOGY
RADIOLOGY GROUP CENTERS MRI CT SCAN DIAGNOSTIC IMAGING
<S> <C> <C> <C>
Union, New Jersey(1) Yes Yes No
South Plainfield, NJ(4) Yes No No
Marlton, New Jersey Yes Yes Yes
Open MRI of Morristown(2) Yes No Yes
West Paterson Medical Equipment No No Yes
Leasing Corp.(3)
Metaire Med. Equipment Leasing Yes No No
HOSPITAL CENTERS
Passaic, New Jersey(5) Yes No No
</TABLE>
- ----------------
(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, Modern Medical, the managing joint venturer, and
Union Imaging Associates Inc. ("UIA"). Modern Medical has a 10% interest
and UIA has a 90% interest in the joint venture.
(2) This joint venture was organized in October 1995 for the purpose of
providing MRI services to Medical professionals. The joint venture has
three joint venturers: Modern Medical, RMC Consulting, Inc. and Barbara
Krasnica. In September 1998, Modern Medical sold 97.2% of its 72% ownership
interest for $300,000 and certain other conditions. See "Certain
Relationships and Related Party Transactions."
(3) In July 1996, Modern Medical 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.
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(4) 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, Modern Medical, the managing joint-venturer, and Plainfield MRI
Associates, Inc. Modern Medical has an 84% interest and Plainfield MRI has
a 16% interest in the joint venture.
(5) This joint venture was organized in June 1995, for the purpose of providing
MRI services to medical professionals. The joint venture has two venturers,
Modern Medical, the managing joint-venturer and Beth Israel MRI Corporation
and Advanced Imaging Radiology Associates P.A.. Modern Medical has a 75%
interest in the joint venture.
Each of the above agreements involved an initial financial commitment
on the part of Modern Medical ranging between $1 million and $3 million per
center, which includes equipment, installation, facility construction and
start-up working capital. Equipment, which is generally leased, represents the
greatest commitment by Modern Medical. Modern Medical's commitment is offset
only by such revenues as are generated from the utilization of the center.
Our growth strategy and marketing plan
Modern Medical markets its services to physicians and hospitals through
various methods. These include telemarketing, direct solicitation, direct mail,
sponsorship of in service education programs for physicians and technical staff,
and personal visits to physician offices. Modern Medical's management also
attends many of the large radiology shows throughout the country.
Modern Medical is pursuing a strategy of seeking new hospital centers
and physician managed ambulatory centers. Its target markets also include
hospitals without a diagnostic imaging facility, to which Modern Medical can
offer its part-time mobile units. Modern Medical 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. Modern Medical currently
negotiates discounts with large suppliers of patients, as allowed by law. Modern
Medical's objective is to respond to the concerns of spiraling health care costs
while maintaining quality of care to the patient. Increased volume results in a
reduction of the cost of each procedure because fixed costs at each facility are
spread over a larger number of procedures. This reduction in cost is passed
along to Modern Medical's contracted clients. In addition, in order to increase
patient volume, Modern Medical has expanded its hours of operations, including
extended hours during the week and weekend scheduling.
Modern Medical applies a variety of criteria in evaluating each
prospective hospital customer. These criteria include: (a) the extent of the
hospitals' present diagnostic imaging services; (b) its competitive environment;
(c) the size and type of hospital; (d) the number of referring physicians and
their specialties; (e) patient volume; and (f) the nature of the payors (private
insurance programs, government reimbursement programs or other health or medical
organizations).
Modern Medical's plan of operation will be to continue to expand the
equipment use of its current customers. Modern Medical will, with its direct
marketing efforts, continue to seek new clients, either through the acquisition
of complementary businesses or the establishment of new centers. Modern Medical
currently does not have any agreements to acquire complementary businesses.
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Equipment and supplies
Modern Medical obtains its medical equipment and ancillary supplies
from various manufacturers, including General Electric, Toshiba, Siemens,
Philips, Picker, Hitachi, DuPont and Kodak. Modern Medical 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, such as excavation costs, electrical problems (i.e. bringing
additional power into the facility), delays in construction and problems
encountered in installing the equipment. Maintenance costs on a unit can be as
high as $150,000 per year. Modern Medical typically enters into agreements with
equipment manufacturers or other third parties for equipment maintenance.
Equipment is financed by either Modern Medical or its joint venture,
typically over a sixty month period, with the lender or leasing company. In each
case the equipment serves as security for the loans and in certain instances the
lessor requires a corporate guarantee for a percentage of the amount being
financed, which is based on the financial projections of the equipment
purchased. Modern Medical's acquisition methods, either purchase or lease,
depends upon the specific circumstances of each transaction.
Modern Medical's equipment and supplies are available from a variety of
sources. The loss of any single supplier would not have a material adverse
effect on Modern Medical.
Governmental reimbursement and regulations of our business
Government reimbursement. In major areas of its business, Modern
Medical relies on third party reimbursement for payment of its services, which
is typically the federal government. Its charges are predominantly paid either
directly by third party payors or by its clients which in turn receive
reimbursement from such sources.
The centers with which Modern Medical is affiliated all participate in
many reimbursement programs including Medicare and Medicaid as well as private
insurers. Under these arrangements the center agrees to accept the approved
amount of reimbursement from each individual payor. In certain cases the amount
billed may exceed the predefined fee schedule, resulting in an amount to be
written off by Modern Medical as disallowed.
Regulations. Congress has enacted certain legislation, referred to as
Anti-Kickback Laws, in order to curb the potential for fraud and abuse under the
Medicare and Medicaid programs. Anti- Kickback Laws prohibit the payment or
receipt for referring patients to a healthcare provider if such payments may be
made in whole or in part by the Medicare or Medicaid programs. New Jersey and
some other states have enacted similar laws.
25
<PAGE>
The Anti-Kickback Laws apply both to the provider making as well as
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 count. Federal law also permits the Department of Health and Human
Services, or HHS, to impose 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 levied under circumstances that do not
involve the more rigorous requirements and standards of proof required in a
criminal trial.
Courts have interpreted the legislation broadly, though decisions
handed down to date have concerned payments made explicitly in exchange for
referrals.
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 an economic arrangement
is to induce or pay for referrals. The fact that the payment may be incidental
to that purpose or that many other legitimate purposes may exist for the
arrangement in question is irrelevant. Accordingly, many types of business
relationships between healthcare providers, including investments in healthcare
providers by physicians, hospitals or others who are in a position to refer
patients could be held to fall within the prohibitions of the Anti-Kickback Laws
or similar state laws.
The American Medical Association, or AMA, has reaffirmed its original
guidelines, 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. The
guidelines are ethical rules and recommendations of the AMA; they do not have a
binding legal effect.
The department of Health and Human Services has adopted regulations
specifying "safe harbors" for various payment practices between providers and
their referral sources. If a payment practice were to fall 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.
No safe harbor currently in existence would cover an investment
interest in Modern Medical. Modern Medical 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 Modern Medical thereby having a material adverse effect on Modern Medical's
operations.
The federal "Ethics in Patient Referrals Law of 1989", often referred
to as the "Stark Law" contained the following provisions:
o it 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 if payment may be made
under Medicare;
o it prohibited a provider of clinical laboratory services from billing
Medicare, an individual, a third party or other entity for an item or
service furnished in relation to a prohibited referral;
o it required any entity that collects any amounts as a result of such a
billing to refund those amounts, and
o provided for certain exceptions, such as situations that would not
constitute referrals or a "financial relationship."
26
<PAGE>
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" consist of the following products and
services:
o clinical laboratory services;
o physical therapy services (including speech language pathology services);
o occupational therapy services;
o radiology services including any diagnostic test or treatment using x-rays,
ultrasound or other imaging services, CT scan, MRI, radiation or nuclear
medicine, but 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, as well as mammographies;
o radiation therapy services and supplies;
o durable medical equipment and supplies;
o parenteral and enteral nutrients, equipment and supplies;
o prosthetics, orthotics, and prosthetic devices and supplies;
o home health services provided by a home health agency;
o outpatient prescription drugs;
o inpatient and outpatient hospital services, whether provided by the
hospital or others under arrangements with the hospital for which the
hospital bills, but excluding 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 "Codey Bill", (N.J.S.A. 45: 9-22.4 et seq.) which provided that:
o 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 has any beneficial
interest;
o 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. It must inform the patients
of the beneficial interest and state that a list of alternative health care
service providers could be found in the telephone directory, and
o all physicians who refer in the sites in New Jersey and also have a
financial interest in those sites must 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 the following
areas:
o physical therapy services;
o radiology services including MRI and CT Scans;
o ultrasound services;
27
<PAGE>
o radiation therapy services;
o furnishing durable medical equipment;
o furnishing parenteral and enteral nutrition equipment and supplies, and
o furnishing 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, Modern Medical has not experienced any
material adverse effects of limited Medicare and Medicaid referrals.
There are currently physician investor ownerships of two of the sites
in which Modern Medical 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 who invest in Modern
Medical's sites will not be allowed to make referrals of which Medicare and/or
Medicaid payments are made.
For the two sites that Modern Medical 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 Modern Medical has no plans to
restructure any of its physician investor sites. Any new sites that Modern
Medical may develop in the future will have no referring physician investors.
Competition
Modern Medical faces competition from various other companies ranging
from small local companies to those operating on a regional or national scale,
such as Medical Resources Inc., U.S. Diagnostic Labs, Inc. and Healthcare
Integrated Services, Inc. Although these companies may be more experienced or
have more financial resources at their disposal, Modern Medical 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. Modern Medical does this by meeting with the hospital or physician to
discuss the specific needs of each site. Thereafter a determination can be made
as to which services Modern Medical will perform at a particular site and
whether the hospital or physician wants to be financially involved in the site.
Modern Medical believes that few of its competitors provide Modern
Medical's range of services from full service medical technology centers to more
limited mobile and fixed site arrangements. Modern Medical maintains close
working relationships with two major equipment manufacturers (Hitachi and
General Electric). Representatives of these manufacturers introduce Modern
Medical to various clients in an effort to arrange joint ventures between Modern
Medical and physician groups or hospitals in an effort to sell their equipment
to the joint venture.
Modern Medical'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.
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<PAGE>
Insurance
Modern Medical carries general liability insurance with coverage of up
to $1,000,000 per claim and a commercial umbrella policy of $10,000,000. Modern
Medical believes that such coverage is adequate. Additionally, Modern Medical
maintains insurance for the replacement of all leased equipment at each of its
facilities.
Employees
As of December 1, 1999, Modern Medical employed 37 persons on a
full-time basis and 21 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
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
Total: 58 37 21
== == ==
</TABLE>
Lease agreements at our joint venture sites
Modern Medical as managing joint-venturer has entered into an equipment
lease/purchase agreement with DVI Financial, dated December 1, 1993 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 which is being
charged as an expense of Modern Medical. On June 15, 1998, Modern Medical
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. Modern Medical is current in all its payments. This leased equipment is
presently located at the Muhlenberg Regional Medical Center in Plainfield, New
Jersey.
Modern Medical, as managing joint-venturer, has entered into an
equipment lease/purchase agreement with DVI Financial, dated December 1, 1993
which provides for the lease/purchase of MRI and CT equipment payable over a
60-month term with payments each at $44,331 which was charged as an expense of
the business and was paid in full in 1998. The leased equipment is presently
located in Union, New Jersey. Modern Medical financed an Open MRI in Union, New
Jersey in 1996 which is payable over a 60 month term at $23,403 per month.
Modern Medical is current in all of its payments.
29
<PAGE>
Modern Medical, as managing joint-venturer, has entered into an
agreement with Beth Israel MRI Corporation and Advanced Imaging Radiology
Associates P.A. under which it provides clerical, billing and marketing services
to an MRI facility which Modern Medical developed and is located on the campus
of Beth Israel Hospital. During the last quarter of 1998, Modern Medical
refinanced its lease with DVI Financial Services for the equipment located at
the Beth Israel MRI Center. Under the terms of the refinancing Modern Medical
extended the lease/purchase with DVI for sixty months for the unpaid balance.
The resulting refinance lowered the monthly payments from $38,245 to $21,159.
During the last quarter of 1998, Modern Medical refinanced its lease
with DVI Financial Services for the South Jersey Equipment Leasing Corporation
site in Marlton, New Jersey. Under the terms of the refinancing, Modern Medical
extended the lease/purchase with DVI for sixty months for the unpaid balance.
The resulting refinance lowered the monthly payments from $35,092 to $23,271.
Management refinanced its equipment as described above in order to take
advantage of lower finance rates, which lowered Modern Medical's monthly
expenses by approximately $42,000 and increased cash flow.
Properties
Modern Medical leases 1,765 square feet located at 1719 Route 10, Suite
117, Parsippany, New Jersey, which is comprised of Modern Medical's executive
offices. Modern Medical is party to a lease covering the facility that expires
on February 28, 2004, and provides for monthly rental payments of $2,721.82.
Modern Medical believes that its facilities are adequate for its current and
future operations.
Legal proceedings
Modern Medical is not a party to any material legal proceedings.
30
<PAGE>
MANAGEMENT
The officers and directors of Modern Medical, and further information
concerning them, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Roger Findlay 51 Chairman of the Board of Directors and
President
Jan Goldberg 48 Vice President, Principal Accounting Officer,
Treasurer and Director
Gregory Maccia 45 Vice President, Secretary and Director
Fred Mancinelli 56 Director
Carl Gedeon 48 Director
</TABLE>
Each of the above officers and directors shall hold office until
the next annual meeting of Modern Medical's shareholders and until a successor
is elected and qualified.
ROGER FINDLAY is a co-founder and has been Chairman of the Board of
Directors of Modern Medical since its inception in June 1990. In March 1999, Mr.
Findlay was appointed President of Modern Medical. Since 1989, Mr. Findlay has
also been co-founder of Technology Services, Inc., a software support company
for medical offices and commercial accounts. Since 1986, he has also been
founder and President of Northern New Jersey Medical Management, a general
partner of a diagnostic imaging center. From 1986 to 1989, Mr. Findlay was
President of Advacare, Inc., a practice management and physician billing
company. He was co-founder and President of Effective Management Services, Inc.,
from 1984 to 1986, which provided facilities management and custom programming
for hospitals, universities and physician groups. Mr. Findlay, from 1984 to
1986, was also co-founder and President of Medical Accounts Management Services,
a software development company. From 1984 to 1986, Mr. Findlay was chief
operating officer of NMR of America, Inc., a publicly traded company engaged in
operating MRI sites. Mr. Findlay, from 1972 to 1986, was President and co-owner
of Medical Billing Services, Inc.
JAN GOLDBERG is a co-founder and was Secretary, Treasurer and
Director of Modern Medical until November, 1992. Since November 1992, Mr.
Goldberg has been the Vice President, Treasurer and Director of Modern Medical.
From 1989 to 1990, Mr. Goldberg was founder and President of GPM, Inc., a
physician billing organization with offices in Florida and New York. From 1987
to 1988, Mr. Goldberg was operations manager for Advacare, Inc., a practice
management and physician billing company. From 1984 to 1987, Mr. Goldberg was
manager of a multi-specialty radiology practice, BBS Billing, Inc. an east coast
diagnostic physician group which had contracts with hospitals in New York as
well as their own private offices and outpatient facilities. From 1974 to 1984,
Mr. Goldberg held various positions with Blue Cross as well as with hospitals in
the New York area. Mr. Goldberg was involved in setting up fee-for-service
reimbursement systems and was involved in various aspects of hospital
administration.
GREGORY MACCIA is a co-founder of Modern Medical and was Vice President
and Director until November, 1992. Since November 1992, Mr. Maccia has been the
Vice President, Secretary and a Director of Modern Medical. Mr. Maccia has also
been President of Technology Services, Inc., a software design and facilities
management company for medical and commercial accounts since 1989.
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<PAGE>
From 1986- 1989, Mr. Maccia was Vice President of Advacare, Inc., a national
practice management and physician billing company. Since 1986, Mr. Maccia has
been co-founder of Northern New Jersey Medical Management, Inc. He was
co-founder and Vice President of Medical Accounts Management Services, Inc.
(MAMS) from 1984 to 1986 which developed and sold physician, outpatient and
clinical billing software systems. Mr. Maccia, from 1984 to 1986, was co-founder
and Vice President of Effective Management Services, Inc. (EMS), which provided
custom programming and facilities management with contracts to hospitals and
universities in the tri-state area as well as collection agencies and
non-medical entities. From 1977 to 1984, Mr. Maccia owned and managed his own
consulting company.
FRED J. MANCINELLI was appointed to the Board of Directors of Modern
Medical Modalities on March 3, 1998. Since 1988 Mr. Mancinelli has been
President of CBS Business Forms and Printing, Inc., a privately owned marketing,
printing and forms corporation located in Cedar Knolls, New Jersey. From 1971 to
1988, Mr. Mancinelli was Vice President of Sales for New Jersey for Computer
Business Supplies, Inc. He purchased the New Jersey Branch office in 1988 and
has concentrated on meeting the total business forms and printing requirements
of over 350 customers. He is responsible for the administrative management,
marketing, cash flow analysis and sales for Modern Medical. From 1962 to 1971,
he was employed by Autographic Business Forms, serving as Communications Manager
from 1962-1964, salesman from 1964-1968 and the New Jersey regional sales
manager from 1968-1971.
CARL GEDEON was appointed to the Board of Directors on March 3, 1998.
Mr. Gedeon has over twenty years of experience in the medical support business,
concentrating on sales with an emphasis on unique design, financing and problem
solving for diagnostic imaging centers. Currently Mr. Gedeon is founder and
president of MedSpace, Inc., a company that specializes in the design and
manufacture of state of the art building systems utilized to house diagnostic
imaging equipment. Previously, Mr. Gedeon was vice president of sales and
business development for Diamond Engineered Space, Inc., a major modular office
company specializing in medical systems throughout the United States, from June
1980 through July 1993.
Executive Compensation
The following table sets forth all cash compensation for services
rendered in all capacities to Modern Medical, for the year ended December 31,
1998 (referred to as "1998" in this table), the year ended December 31, 1997
(referred to as "1997" in this table) and the year ended December 31, 1996
(referred to as "1996" in this table) paid to Modern Medical's Chief Executive
Officer. There were no other executive officer's or other persons whose
compensation at the end of the above 1998, 1997 and 1996 years whose total
compensation exceeded $100,000 per annum. Roger Findlay was appointed President
of Modern Medical in March 1999. Dominic Gugliemi served as Modern Medical's
President from August 1998 to March 1999.
32
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Restricted All Other
Name and Principal Stock Compen-
Position Year Salary Bonus Awards Options/SARs sation(1)
- -------- ---- ------ ----- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Roger Findlay 1998 $118,215 -0- -0- -0- $5,550
Chairman and CEO 1997 $ 38,462 -0- -0- -0- $6,480
1996 $111,538 -0- -0- -0- $5,916
Dominic Gugliemi 1998 $ 20,959 -0- -0- -0- $1,500
President 1997 $ 48,769 -0- -0- -0- $2,700
1996 -0- -0- -0- -0- -0-
</TABLE>
- ------------
(1) Includes the cost of the use of automobiles leased by Modern Medical, the
cost of benefits, including premiums for life insurance and any other
personal benefits provided by Modern Medical to such persons in connection
with Modern Medical's business and directors fees.
Employment Agreements
In June 1997, Modern Medical entered into a five-year employment
agreement with Roger Findlay which expires in June 2002. Pursuant to the
agreement Mr. Findlay receives an annual salary of $120,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.
In June 1997, Modern Medical entered into a five-year employment
agreement with Jan Goldberg which expires in June 2002. Pursuant to the
agreement Mr. Goldberg receives an annual salary of $95,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.
In June 1997, Modern Medical entered into a five-year employment
agreement with Gregory Maccia which expires In June 2002. Pursuant to the
agreement Mr. Maccia receives an annual salary of $95,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.
Stock Option Plan
In July 1999, the board of directors and shareholders adopted the 1999
stock option plan. The plan will be administered by the compensation committee
or our board of directors, who will determine among other things, those
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares of common stock
issuable upon the exercise of the options and the option exercise price. The
options may be granted as either or both of the following: (a) incentive stock
options, or (b) non-qualified stock options. 500,000 shares may be issued under
this plan. To date, 300,000 options have been granted under the plan.
In connection with the plan, the exercise price of each incentive stock
option may not be less than 100% of the fair market value of our common stock on
the date of grant or 110% of fair market value in the case of an employee
holding 10% or more of our outstanding common stock. The aggregate fair market
value of shares of common stock for which incentive stock options granted to any
employee are exercisable for the first time by such employee during any calendar
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<PAGE>
year, pursuant to all of our, or any related corporation's, stock option plan,
may not exceed $100,000. Non-qualified stock options may be granted at a price
determined by our compensation committee, but not at less than 85% of the fair
market value of our common stock. Stock options granted pursuant to our stock
option plan will expire not more than ten years from the date of grant.
The plan is effective for a period of ten years, expiring in 2009.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to us. The
plan is designed to enable our management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the plan may be exercised for up to ten years, and shall be at an
exercise price all as determined by our board. Options are non-transferable
except by the laws of descent and distribution or a change in control of us, as
defined in the plan, and are exercisable only by the participant during his or
her lifetime. Change in control includes (a) the sale of substantially all of
the assets of us and merger or consolidation with another company, or (b) a
majority of the board changes other than by election by the stockholders
pursuant to board solicitation or by vacancies filled by the board caused by
death or resignation of such person.
If a participant ceases affiliation with us by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant three months
to exercise, except for termination for cause which results in immediate
termination of the option.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by us become available again for issuance
under the plan.
The plan may be terminated or amended at any time by our board of
directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the plan may not be
increased without the consent of our stockholders.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of December 30,
1999 with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of common stock of Modern Medical, each officer and director
of Modern Medical and all officers and directors as a group. The table does not
include securities exercisable into common stock that have not yet vested or are
not exercisable within 60 days of the date hereof. Unless otherwise indicated,
the address of each such person or entity is 1719 Route 10, Suite 117,
Parsippany, New Jersey 07054.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of
Of Beneficial Owner Beneficially Owned(1) Common Stock
- ------------------- --------------------- --------------
<S> <C> <C>
Roger Findlay(2) 188,048 7.2%
Jan Goldberg(3) 138,046 5.4%
Gregory Maccia(4) 138,046 5.4%
Fred Mancinelli(5) 20,000 *
Carl Gideon(6) 20,000 *
All officers and directors 504,140 18.0%
as a group (5 persons)(2)-(6)
* Less than one percent
</TABLE>
- -------------
(1) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a right
to acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purposes of computing the percentage ownership of any other person
shown in the table.
(2) Includes: (i) 68,048 shares of common stock; and (ii) options to purchase
120,000 shares which are currently exercisable.
(3) Includes: (i) 68,046 shares of common stock; and (ii) options to purchase
70,000 shares which are currently exercisable.
(4) Includes: (i) 68,046 shares of common stock; and (ii) options to purchase
70,000 shares which are currently exercisable.
(5) Includes options to purchase 20,000 shares of common stock of all which are
currently exercisable.
(6) Includes options to purchase 20,000 shares of common stock all of which are
currently exercisable.
35
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Modern Medical believes that the transactions set forth below were made
on terms no less favorable to it than could have been obtained from unaffiliated
third parties. All future transactions, including any loans between Modern
Medical and any of its officers, directors, principal stockholders and their
affiliates will be approved by a majority of Modern Medical's board of directors
and will continue to be on terms no less favorable to Modern Medical than could
be obtained from unaffiliated third parties.
Doctors Imaging Associates, a joint venture whose financial statements
are consolidated with those of Modern Medical has received net non-interest
bearing advances from Doctors Imaging Associates, Inc., a joint venture,
totaling $225,717 and $240,751 at December 31, 1995 and December 31, 1994,
respectively. Doctors Imaging Associates, Inc. is obligated to advance up to
$250,000 from time to time for working capital as Modern Medical deems
necessary. These advances are to be repaid prior to any distribution of profits
to the joint venturers.
On May 7, 1998, Modern Medical entered into an agreement to sell 97.2%
of its 72% ownership of Open MRI of Morristown, Joint Venture (Open MRI) for
$300,000. The terms required $100,000 payable at signing, and monthly payments
in the amount of $50,000 on May 1, June 1, July 1 and August 1, 1998, all of
which were made. Modern Medical retained the option to repurchase from the
buyers, ADS Investment Corp. and Oak Knoll Management Corporation, which is
owned by Alice Findlay, the wife of Roger Findlay, Modern Medical's President,
the interest sold upon payment of $50,000 plus all prior payments and any
additional costs incurred by the buyers. The option expired on August 31, 1998.
On August 20, 1998, Modern Medical, ADS Investment Corp. and Oak Knoll
Management Corporation modified the original agreement from a sale to a loan.
The terms of the new agreement are as follows: a loan in the amount of $300,000,
with interest due and payable at 12% per annum, secured by 70% of Open MRI. The
loan is due and payable on September 30, 1998. The agreement also required the
personal guarantees made by the lenders to DVI Business Credit Corporation on
behalf of Modern Medical be replaced by September 30, 1998 as a condition of
satisfactory settlement of the loan, which was completed. For services rendered
between May 7, 1998 and the date of maturity of this loan, all distributions
made to the lending parties by Open MRI will remain the property of the lending
parties.
On September 30, 1998, Modern Medical effectively sold all but 2% of
its 72% interest in Open MRI for $300,000 and the purchaser's agreement to
provide Modern Medical's creditor, DVI Business Credit, personal guaranties of
the principals of purchaser in an amount not to exceed $150,000. Modern Medical
recorded a gain on this transaction in the amount of $30,171. Modern Medical has
retained a 2% ownership interest in Open MRI.
36
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of Modern Medical consists of 15,000,000
shares of Common Stock, $.0002 par value per share. As of the date hereof,
Modern Medical has 2,506471 shares of Common Stock outstanding. All outstanding
shares of capital stock of Modern Medical are fully paid and non-assessable.
Common Stock
The holders of Common Stock: (i) have equal rights to dividends from
funds legally available therefore, when and if declared by the Board of
Directors of Modern Medical; (ii) are entitled to share ratably in all of the
assets of Modern Medical available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of Modern Medical;
and (iii) do not have preemptive, subscriptive or conversion rights, or
redemption or sinking fund provisions applicable thereto.
Redeemable Common Stock Purchase Warrants
In September 1999, the Class A and Class B Warrants were amended as
follows:
Class A Common Stock Purchase Warrants
For every two Class A Warrants held by a registered holder, such holder
is entitled to purchase one share of Common Stock at a price of $4.00 per share,
subject to adjustment, at anytime until 5:00 p.m. New York time, on February 5,
2001, unless previously redeemed. Modern Medical may redeem all of the Class A
Warrants at a price of $.05 per Class A Warrant on 30 days prior written notice,
provided the average closing bid price of the Common Stock equals or exceeds
$5.00 per share of Common Stock, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption.
Class B Common Stock Purchase Warrants
For every two Class B Warrants held by a registered holder, such holder
is entitled to purchase one share of Common Stock at a price of $4.00 per share,
subject to adjustment, at anytime until 5:00 p.m. New York time, on February 5,
2001, unless previously redeemed. Modern Medical may redeem all of the Class B
Warrants at a price of $.05 per Class A Warrant on 30 days prior written notice,
provided the average closing bid price of the Common Stock equals or exceeds
$5.00 per share of Common Stock, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption.
Warrantholders are not entitled, by virtue of being Warrantholders, to
receive dividends or to vote at or receive notice of any meeting of stockholders
or to exercise any other rights whatsoever as stockholders of Modern Medical.
The exercise price of the Class A and Class B Warrants and the number
of shares of Common Stock issuable upon exercise thereof are subject to
adjustment in certain events, including stock splits or combinations, stock
dividends, or through a recapitalization resulting from a stock split or
combination. The remaining shares of common stock still subject to the Class A
and Class B Warrants and the respective purchase price thereof will be
appropriately adjusted by Modern Medical.
37
<PAGE>
The board of directors of Modern Medical may, in its discretion, may
amend the terms of the Cass A and Class B Warrants to, among other things,
reduce the exercise price; provided, however, that no amendment adversely
affecting the rights of the holders of either the Class A or Class B Warrants
may be made without the approval of the holders of not less than a majority of
the Class A or Class B Warrants then outstanding.
In order to receive one share of Modern Medical's common stock a
warrantholder must surrender either two Class A or two Class B Warrants,
accompanied by payment of the aggregate exercise price of the redeemable
warrants to be exercised, which payment may be made, at the warrantholder's
election, in cash or by delivery of a cashier's or certified check or any
combination of the foregoing. A current prospectus must be in effect in order
for holders of either the Class A or Class B Warrants to exercise their
warrants.
Upon receipt of duly executed redeemable warrants and payment of the
exercise price, Modern Medical shall issue and cause to be delivered to
warrantholders, certificates representing the number of shares of common stock
so purchased.
Modern Medical has authorized and will reserve for issuance a number of
shares of common stock sufficient to provide for the exercise of all redeemable
warrants.
Warrants
In October 1999, Modern Medical issued 2,500,000 warrants to purchase
shares of common stock at an exercise price of $2.0625, subject to adjustment,
in connection with the issuance of its $500,000 convertible note. The
warrantholders are entitled to purchase the shares at anytime for a period of
three years expiring on October 18, 2002.
10% Convertible Note
In October 1999, Modern Medical issued an aggregate of $500,000
principal amount of it's 10% convertible note to two investors which are due on
October 18, 2000. The note is convertible at anytime while any portion of it is
outstanding into shares of Modern Medical common stock at the lower of: (a)
72.5% of the lowest closing bid price of Modern Medical common stock for the
thirty (30) trading days immediately preceding the date of conversion, or (b)
$2.0625. Modern Medical has the right, subject to conditions, to require the
purchasers of the $500,000 note to purchase up to an additional $2,000,000
principal amount of convertible notes on the same terms and conditions as the
$500,000 note.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock, Class A and
Class B Warrants is North American Transfer Company, Freeport, New York.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future sales
of common stock will have on the market price of the common stock. Of our shares
of common stock currently outstanding, assuming no exercise of warrants or
conversion of convertible notes into shares of our common stock, 815,334 are
"restricted securities" as the term is defined in Rule 144 under the Securities
Act of 1933, as amended, and under certain circumstances may be sold without
registration pursuant to that rule, although 611,194 of such shares are being
registered herein. Subject to the compliance with the notice and manner of sale
requirements of Rule 144 and provided that we are current in our reporting
obligations under the Securities Exchange Act of 1934, a person who beneficially
owns restricted shares of stock for a period of at least one year is entitled to
sell, within any three month period, shares equal to the greater of 1% of the
then outstanding shares of common stock, or if the common stock is quoted on the
Nasdaq System, the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of the required notice of sale on the
Form 144, with the United States Securities and Exchange Commission. As of the
date of this prospectus, 204,140 shares of common stock, held by beneficial
owners, are eligible for sale pursuant to Rule 144. We are unable to predict the
effect that the sales made under Rule 144 otherwise may have on the market price
of the common stock prevailing at the time of any such sales. Nevertheless,
sales of substantial amounts of the restricted shares of common stock in the
public market could adversely effect the then prevailing market for our common
stock and could impair our ability to raise capital through the sale of our
equity securities.
39
<PAGE>
SELLING SECURITY HOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the common stock by the selling security holders and as adjusted to
give effect to the sale of the shares offered in this prospectus.
<TABLE>
<CAPTION>
Position, office
or affiliation Percentage of
with Modern Beneficial Common Stock
Medical during Ownership of Shares of Beneficially
Name of Selling the past Common Stock Common Stock Owned After
Security Holder three years Prior to Sale to be Sold the Offering(1)
--------------- ----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
Theodore S. Eisenman None 5,254 5,254 0.0%
William Eric and None 15,762 15,762 0.0%
Valerie Mary Sponsel
Jagir S. Judge None 14,711 14,711 0.0%
Gary A. Vierling None 10,508 10,508 0.0%
Joe W. Brown III None 15,762 15,762 0.0%
Jack R. Eaton None 5,254 5,254 0.0%
Dennis G. and Cathy None 5,254 5,254 0.0%
M. Louie
Stanley J. Kazwell None 2,627 2,627 0.0%
James G. Punches None 5,254 5,254 0.0%
Thom B. Galusky None 5,254 5,254 0.0%
H.T. Ardinger None 63,054 63,054 0.0%
Royal Hutton None 25,000 25,000 0.0%
Securities Corporation
Richard Serber Financial 20,000 20,000 0.0%
Consultant
A-Z Oil L.L.C. None 90,000 90,000 0.0%
David Michael, L.L.C. None 45,000 45,000 0.0%
Alexander Senkovski, None 45,000 45,000 0.0%
L.L.C.
Sephlin Beatong None 26,450 26,450 0.0%
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Position, office
or affiliation Percentage of
with Modern Beneficial Common Stock
Medical during Ownership of Shares of Beneficially
Name of Selling the past Common Stock Common Stock Owned After
Security Holder three years Prior to Sale to be Sold the Offering(1)
--------------- ----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
Hudson Consulting None 3,550 3,550 0.0%
Group, Inc.
Saundra McFadden None 3,000 3,000 0.0%
Hudson Consulting None 90,000 90,000 0.0%
Group, Inc.
East West Trading None 27,000 27,000 0.0%
Corporation, Ltd.
Barry Ellen Former 12,500 12,500 0.0%
Employee
Jody R. Samuels Legal Counsel 15,000 15,000 0.0%
Austin Anstalt None 1,761,925 1,761,925 0.0%
Balzers(2)(3)
Esquire Trade & None 1,761,925 1,761,925 0.0%
Finance, Inc.(2)(3)
J. Hayut(3) None 225,000 225,000 0.0%
Libra Finance None 1,550,000 1,550,000 0.0%
S.A.(2)(3)
Hyett Capital Ltd.(3) None 25,000 25,000 0.0%
</TABLE>
- -----------------
(1) Assumes all of the shares of common stock offered are sold.
(2) The number of shares of common stock shown as beneficially owned and
offered by the selling security holders represents the number of shares
which we have initially agreed to register. Pursuant to Rule 416 under the
Securities Act, the number of shares of common stock offered by the selling
security holders hereby and included in the registration statement of which
this prospectus is a part also includes an indeterminate number of
additional shares as may be issued on conversion of the currently
outstanding $500,000 convertible note and potentially outstanding
$2,000,000 convertible note and in payment of interest thereon pursuant to
the provisions of the note regarding determination of the applicable
conversion price. Accordingly, the actual number of shares of common stock
issued or issuable upon the conversion of the note(s) and the payment of
interest thereon is subject to adjustment depending upon factors which
cannot be predicted by us at this time, including, among others, the future
market prices of the common stock and the payment of interest on the
note(s) in additional shares of common stock. Pursuant to the terms of the
note(s), the note(s) are convertible by each holder thereof and interest is
payable in common stock only to the extent that the number of shares of
common stock then beneficially owned by such holder and its
41
<PAGE>
related persons (not including shares underlying unconverted portions of
the note(s) or unexercised warrants) would not exceed 4.9% of the then
outstanding shares of common stock as determined in accordance with Section
13 (d) and 16 of the Exchange Act. Accordingly, the number of shares of
common stock set forth for the selling security holder may exceed the
actual number of shares of common stock that the selling security holder
could own beneficially at any given time through its ownership of the
note(s) and the warrants. The above numbers assume that the selling
security holders will exercise all of the outstanding warrants held by
them.
(3) Assumes the purchase of an additional $2,000,000 of Modern Medical's 10%
convertible notes.
In recognition of the fact that the selling security holders may wish
to be legally permitted to sell their shares of common stock when they deem
appropriate, we agreed with the selling security holders to file with the United
States Securities and Exchange Commission, under the Securities Act of 1933, as
amended, a registration statement on Form SB-2, of which this prospectus is a
part, with respect to the resale of the shares of common stock, and have agreed
to prepare and file such amendments and supplements to the registration
statement as may be necessary to keep the registration statement effect until
the shares of common stock are no longer required to be registered for the sale
thereof by the selling security holders.
PLAN OF DISTRIBUTION
The shares of common stock offered hereby by the selling security
holders may be sold from time to time by the selling security holders, or by
pledgees, donees, transferees and other successors in interest. Such pledgees,
donees, transferees and other successors in interest will be deemed "selling
security holders" for the purposes of this prospectus. Such sales may be made:
o on one or more exchanges or in the over-the-counter market
(including the OTC Bulletin Board); or
o in privately negotiated transactions.
The shares of common stock may be sold to or through brokers or
dealers, who may act as agent or principal, or in direct transactions between
the selling security holders and purchasers. In addition, the selling security
holder may, from time to time, sell short the common stock, and in such
instances, this prospectus may be delivered in connection with such short sale
and the shares of common stock offered hereby may be used to cover such short
sale.
Transactions involving brokers or dealers may include, without
limitation, the following:
o ordinary brokerage transactions,
o transactions in which the broker or dealer solicits purchasers,
o block trades in which the broker or dealer will attempt to sell
the shares of common stock as agent but may position and resell a
portion of the block as principal to facilitate the
transaction; and
o purchases by a broker or dealer as a principal and resale by such
broker or dealer for its account.
In effecting sales, brokers and dealers engaged by the selling
security holders or the purchasers of the shares of common stock may arrange for
other brokers or dealers to participate. Such brokers or dealers may receive
discounts, concessions or commissions from the selling security holders and/or
the purchasers of the shares of common stock for whom such broker or dealer may
act as agent or to whom they may sell as principal, or both (which compensation
as to a particular broker or dealer may be in excess of customary commissions).
42
<PAGE>
We are bearing all of the costs relating to the registration of the
shares of common stock other than certain fees and expenses, if any, of counsel
or other advisors to the selling security holders. Any commissions, discounts or
other fees payable to brokers or dealers in connection with any sale of the
shares of common stock will be borne by the selling security holders, the
purchasers participating in such transaction, or both.
Any shares covered by this prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act of 1933, as amended, may be sold under Rule
144 rather than pursuant to this prospectus.
LEGAL MATTERS
Certain legal matters in connection with the offering, including the
validity of the issuance of the shares of common stock offered hereby, will be
passed upon for Modern Medical by Gersten, Savage & Kaplowitz, LLP, New York,
New York.
EXPERTS
The financial statements appearing in this prospectus and
registration statement have been audited by Vincent J. Batyr & Co., as set forth
in their report thereon appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information requirements of the Exchange Act of
1934, and, in accordance therewith will have been filing reports, proxy
statements and other information with the United States Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the United
States Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the
United States Securities and Exchange Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Securities
and Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois upon payment of the prescribed fees. Electronic
registration statements filed through the Electronic Data Gathering, Analysis,
and Retrieval System are publicly available through the United States Securities
and Exchange Commission's web site (http://www.sec.gov). Further information on
public reference rooms available at the United States Securities and Exchange
Commission is available by contacting the United States Securities and Exchange
Commission at 1-(800) SEC-0330. The Nasdaq Stock Market maintains a web site at
(http://www.nasdaq.com) whereby information regarding Modern Medical may be
obtained.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998.........................................................F-1
Consolidated Income Statements For the Three and Nine Months
ended September 30, 1999 and 1998.........................................F-3
Statements of Cash Flows For the Nine Months Ended September 30,
1999 and 1998.............................................................F-4
Notes to Interim Financial Statements.......................................F-5
Independent Auditors Report................................................F-11
Consolidated Balance Sheets - December 31, 1998 and December
31, 1997.................................................................F-12
Consolidated Statements of Operations For the Years ended
December 31, 1998, 1997 and 1996.........................................F-14
Statements of Cash Flows For the Years Ended December 31,
1998, 1997 and 1996......................................................F-15
Consolidated Statements of Stockholders Equity for the Years ended
December 31, 1998, 1997 and 1996.........................................F-16
Notes to Interim Financial Statements......................................F-17
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 140,472 $ 56,313
Restricted cash for line of credit repayment 600,000 600,000
Accounts receivable (less contractual allowances of
$ 2,346,619 and $ 2,447,579, respectively) 2,579,989 2,816,356
Account receivable - joint venture 3,869 585,607
Current portion of note receivable
from affiliate 113,889 141,667
Current portion of note receivable 46,590 46,590
Loan receivable - affiliates 128,750 128,750
Due from officers 153,868 126,368
Due from affiliates 55,877 77,600
Other receivables 85,112 82,014
Prepaid expenses - 11,023
------------- ------------
Total current assets 3,908,416 4,672,288
------------- ------------
Other assets:
Furniture, fixtures, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $4,832,350 and $ 5,742,206, respectively) 5,181,526 6,703,426
Note receivable, net of current portion 113,736 113,736
Organization costs (net of accumulated amortization
of $ 31,665 and $ 25,901, respectively) 64,822 71,797
Investment in joint venture 337,020 290,998
Deposits 25,530 40,446
Deferred tax asset 460,352 484,718
Other long term assets - 6,381
------------- ------------
Total other assets 6,182,986 7,711,502
------------- ------------
$ 10,091,402 $ 12,383,790
------------- ------------
</TABLE>
See Notes to Interim Financial Statements
F-1
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 595,552 $ 595,552
Accounts payable 1,394,443 1,892,755
Accrued expenses 357,245 1,029,677
Loan payable - joint venturer 71,942 71,942
Loans payable - affiliates - 202,000
Current portion of long term debt 2,233,261 2,789,678
Due to affiliate 271,271 49,466
Due to related party 4,389 4,389
------------- ------------
Total current liabilities 4,928,103 6,635,459
------------- ------------
Other liabilites:
Long-term debt, net of current portion 2,531,338 3,034,863
Due to joint venturer - 218,717
------------- ------------
Total other liabilities 2,531,338 3,253,580
------------- ------------
Total liabilities 7,459,441 9,889,039
------------- ------------
Minority interest 185,019 187,489
Stockholders' equity:
Common stock, $0.0002 par value,
Authorized - 2,500,000 shares
Issued and outstanding - 2,426,473 shares 485 317
Additional paid-in capital 4,071,131 3,866,389
Retained earnings (deficit) (1,624,674) (1,559,444)
------------- ------------
Total stockholders' equity 2,446,942 2,307,262
------------- ------------
$ 10,091,402 $ 12,383,790
------------- ------------
</TABLE>
See Notes to Interim Financial Statements
F-2
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating income:
Net revenue from services $ 3,122,427 $ 5,220,960 $ 1,190,394 $ 1,201,081
Cost of services provided 1,493,875 2,691,300 948,050 883,550
----------- ----------- ----------- -----------
Total operating income 1,628,552 2,529,660 242,344 317,531
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 598,214 2,875,543 (33,521) 909,530
Bad debts - 23,750 - 5,246
Depreciation and amortization 824,951 1,206,544 266,270 323,251
----------- ----------- ----------- -----------
Total operating expenses 1,423,165 6,797,137 232,749 2,121,577
----------- ----------- ----------- -----------
Income (loss) from operations 205,387 (1,576,177) 9,595 (920,496)
----------- ----------- ----------- -----------
Other income (expenses):
Interest income 28,392 47,020 9,257 6,903
Interest expense (472,518) (818,256) (151,374) (195,005)
Miscellaneous income - 64,953 - (13,547)
Income from joint ventures 95,405 190,872 19,749 26,035
Gain (loss) on sale of subsidiary 100,000 (742,619) - -
Gain on sale of subsidiary - 30,171 - 30,171
Loss on disposal of subsidiary - (168,064) - -
Restructuring of note receivable - (747,650) - -
----------- ----------- ----------- -----------
Total other income (expense) (248,721) (2,143,573) (122,368) (145,443)
----------- ----------- ----------- -----------
Income (loss) before income taxes
and minority interest (43,334) (3,719,750) (112,773) (1,065,939)
Provision for income taxes 24,366 (2,333,480) 10,024 (427,661)
----------- ----------- ----------- -----------
Income before minority interest (67,700) (2,112,328) (122,797) (638,278)
Minority interest 2,470 172,843 (9,718) 233,772
----------- ----------- ----------- -----------
Net income (loss) $ (65,230) (1,939,485) $ (132,515) $ (404,506)
=========== =========== =========== ===========
Basic earnings per share
Net income (loss) $ (0.03) $ (0.61) $ (0.07) $ (0.13)
=========== =========== =========== ===========
Number of weighted shares outstanding:
Basic 1,980,888 3,168,292 1,818,560 3,168,292
----------- ----------- ----------- -----------
</TABLE>
See Notes to Interim Financial Statements
F-3
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
1999 1998
---------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (65,230) $ (1,939,485)
--------- ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 824,951 1,206,544
Contractual allowances 100,960 221,927
Bad debts - 23,750
Income from an unconsolidated joint venture (95,405) (190,872)
Minority interest (2,470) (172,843)
Deferred income taxes 24,366 (1,607,422)
Loss on sale of subsidiary (100,000) 742,619
Loss on disposal of subsidiary - 168,064
(Gain) on disposal of subsidiary - (30,171)
Restructuring of note receivable - 747,650
Increase (decrease) in cash attributable to changes in operating assets
and liabilities:
Accounts receivable 337,327 2,008,472
Accounts receivable - joint venturer 581,738 (241,238)
Other receivable (3,098) 47,554
Due from affiliate 21,723 (77,600)
Due from officers (27,500) 94,343
Prepaid expenses 11,023 29,850
Deposits 14,916 104,084
Other assets 6,381 -
Due to affiliate 221,805 9,209
Accounts payable (498,312) 472,853
Accrued expenses (672,432) 176,015
Advances from joint ventures (218,717) -
--------- ------------
Total adjustments 527,256 3,732,788
--------- ------------
Net cash provided (used) by operating activities 462,026 1,793,303
--------- ------------
Cash flow from investing activities:
Fixed asset acquisitions (142,325) (300,955)
Fixed assed dispositions 848,562 1,207,496
Proceeds from loan receivable - affiliate - (7,500)
Proceeds from note receivable 27,778 72,222
Organization costs 1,211 -
Investment in joint venture (46,022) (93,394)
Decrease in minority interest - (98,969)
--------- ------------
Net cash provided (used) by investing activities 689,204 778,900
Cash flow from financing activities:
Reduction of goodwill - 1,419,213
Proceeds from issuance of long-term debt 86,460 -
Issuance of capital stock 204,910 -
Disposal of long term debt (443,417) (3,746,095)
Loans payable - affiliates (202,000) -
Principal payments on long-term debt (713,024) (856,602)
--------- ------------
Net cash provided (used) by financing activities (1,067,071) (3,183,484)
--------- ------------
Net increase in cash and equivalents 84,159 (611,281)
Cash and equivalents, begining of year 656,313 719,217
--------- ------------
Cash and equivalents, end of year $ 740,472 $ 107,936
--------- ------------
</TABLE>
See Notes to Interim Financial Statements
F-4
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION.
Modern Medical Modalities Corporation (the "Company") was
incorporated in the State of New Jersey on December 6, 1989. The
Company provides high technology medical equipment and management
services to hospitals and physicians.
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, Medical Marketing and
Management, Inc., Somerset Imaging Corporation, South Plainfield
Imaging, Inc., Medi-Corp., USA, South Jersey Medical Equipment Leasing
Corp., Amherst Medical Equipment Leasing Corp., Open MRI of Morristown,
Inc., West Paterson Medical Equipment Leasing Corp., Ohio Medical
Equipment Leasing Corporation, its majority owned subsidiaries, and
Metairie Medical Equipment Leasing Corp., a 100% owned subsidiary which
was incorporated in June 1997, and its majority owned joint ventures,
Plainfield MRI Associates, Joint Venture, MRI Imaging Center at PBI,
and Open MRI & Imaging Center of Metairie, LLC. The Company has an 84%,
75%, and 85% interest, respectively, in the joint ventures and by
contract manages the joint ventures, in which it is the managing joint
venturer and it has unilateral control. Investments in unconsolidated
joint ventures, Union Imaging Associates, Joint Venture, and Open MRI
of Morristown, Joint Venture, in which the Company has a 10% and 2%,
interest, respectively, and significant influence, are accounted for
under the equity method. All significant intercompany transactions and
accounts have been eliminated in the consolidation.
The accompanying unaudited consolidated financial statements
and footnotes have been condensed and, therefore, do not contain all
required disclosures. Reference should be made to the Company's annual
financial statement filed on Form 10-K for the year ended December 31,
1998.
The financial statements for the nine month period ended
September 30, 1999 and 1998 have not been audited. In the opinion of
management, the unaudited interim consolidated financial statements
reflect all adjustments and accruals, consisting only of normal
recurring adjustments and accruals, necessary to present fairly the
financial position of the Company as at September 30, 1999 and the
results of its operations for the nine month periods ended September
30, 1999 and 1998 and statements of cash flows for the nine month
periods ended September 30, 1999 and 1998. The results for the nine
month periods ended September 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year.
The accounting policies followed by the Company are set forth
in Note 1 to the Company's financial statements included in its Annual
Financial Statement filed on form 10-K for the year ended December 31,
1998, which is incorporated herein by reference. Specific reference is
made to this report for a description of the Company's securities and
the notes to financial statements included therein.
F-5
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)
The carrying amounts of cash, accounts receivable, short-term
notes receivable, accounts payable, and short-term debt approximate
fair value due to the short maturity of the instruments and the
provision for what management believes to be adequate reserves for
potential losses. It was not practical to estimate the fair value of
long-term notes receivable and long-term debt because quoted market
prices do not exist and an estimate could not be made through other
means without incurring excessive costs.
Certain items in the 1998 financial statements have been
reclassified to conform with the 1999 presentation. These
reclassifications had no effect on the financial position, net income
or stockholders' equity for the periods presented.
It has been the Company's policy to capitalize one-time,
incremental out-of-pocket expenses incurred during the start-up phase
of major internal projects and amortize them over future periods.
During 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP)98-5, Reporting on the Costs of Start-up
Activities. This SOP requires that companies expense all star-up costs
as incurred. The Company will adopt the SOP in the fourth quarter of
1999 and its impact will not be material to the consolidated financial
statements.
NOTE 2 - EARNINGS (LOSS) PER SHARE.
Basic per share data has been computed based on the weighted
average number of shares of common stock outstanding.
NOTE 3 - DISPOSAL OF SUBSIDIARY.
In January 1999, the Company sold its 50% interest in Doctors
Imaging Associates, Joint Venture for $100,000. As a result of this
disposition, the Company recorded a gain on sale of subsidiary in the
amount of $100,000.
NOTE 4 - PROPERTY AND EQUIPMENT, NET.
Property and equipment, net, consisted of the following:
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
Medical equipment $ 9,152,125 $11,459,664
Buildings 310,860 310,860
Furniture and fixtures 65,830 65,830
Automobiles 51,017 22,860
Leasehold improvements 434,044 586,418
----------- -----------
10,013,877 12,445,632
Less: Accumulated depreciation
and amortization 4,832,350 5,742,206
----------- -----------
$ 5,181,526 $ 6,703,426
=========== ===========
F-6
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 5 - INVESTMENT IN AN UNCONSOLIDATED JOINT VENTURE.
Summarized (unaudited) financial information of the
unconsolidated joint venture, Union Imaging Associates, Joint Venture,
in which the Company has a 10% minority interest, is as follows:
Total Long-term Total Total
Assets Debt Liabilities Capital
September 30, 1999 4,905,176 1,517,090 2,036,808 2,868,368
December 31, 1998 4,485,673 1,271,846 1,741,863 2,743,810
(10%)
Gross Net Allocation
Revenues Income Of Income
----------- --------- ----------
For the nine months ended
September 30, 1999 3,611,483 859,913 85,991
For the year ended
December 31, 1998 4,141,948 1,492,754 149,275
NOTE 6 - LINE OF CREDIT.
In April 1995, the Company secured a line of credit with Summit
Bank of New Jersey for $600,000 at the bank's prime rate for commercial
borrowers. As of September 30, 1999 the amount of the liability under
the line of credit was $595,552. The Line of credit is secured by a
certificate of deposit in the amount of $600,000.
NOTE 7 - LONG-TERM DEBT.
Long-term debt consists of the following:
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
Capitalized lease obligations $3,830,157 $ 4,758,726
Accounts receivable financing (a) 934,442 1,065,815
---------- -----------
4,764,599 5,824,541
Current portion 2,233,261 2,789,678
---------- -----------
Long-term debt, net of current portion $2,531,338 $3,034,863
---------- -----------
(a) Capital Lease Obligations:
The Company entered into certain leases for the rental of
equipment, which have been recorded as capital leases for financial
statement reporting purposes and are included in equipment.
F-7
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
(a) Accounts Receivable Financing:
The Company entered into an agreement with DVI Business
Credit to finance up to $2,000,000 of the accounts receivable balances
from two of the Company's wholly-owned subsidiaries, a minority-owned
subsidiary, and two of its majority-owned joint ventures. Advances
would bear interest at the prime rate plus 4%. At September 30, 1999,
the amount financed under this agreement totaled $934,442.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(a) Advisory Agreement
In January 1999, the Company entered into an advisory
agreement with Allen Wolfson ("Advisor"), for a period of six
months. The agreement will be automatically extended on an annual
basis. The agreement can be terminated with at least thirty (30)
days written notice prior to the end of the agreement. Advisor
shall assist the Company in its effecting the purchase of
businesses and assets relative to its business and growth
strategy.
On July 19, 1999 the Company issued 330,00 shares of its
common stock to Allen Wolfson, as compensation, as required by the
advisor agreement.
F-8
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
In January 1999, the Company entered into a consulting
agreement with Richard Suber for a period of six months. The
agreement may be extended on a month to month basis. Consultant
shall render services regarding: potential strategies for
generating new business for the Company, structuring of potential
business opportunities for the Company, general corporate filings
as needed, and document preparation as needed to accomplish the
above.
The Company shall pay consultant a retainer fee of 20,000
shares of its common stock.
(b) Year 2000 Readiness
The Year 2000 readiness of the Company's customers and
hardware and software offerings from the Company's suppliers,
subcontractors and business partners may vary. The Year 2000 also
presents a number of other risks and uncertainties that could affect
the Company, including utilities failures, the lack of personnel
skilled in the resolution of Year 2000 issues, and the nature of
government responses to the issues, among others. While the Company
continues to believe that the Year 2000 matters discussed above will
not have a material impact on its business, financial condition or
results of operations, it remains uncertain whether or to what extent
the Company maybe affected.
NOTE 9 - STOCKHOLDERS' EQUITY
On January 28, 1999, the Company entered into a six month
financial consulting agreement with Mr. Richard Surber to provide
consultation services regarding: potential strategies for generating
new business for the Company, structuring of potential business
opportunities for the Company, general corporate filings as needed, and
document preparation as needed to accomplish the aforementioned. The
Company shall pay Mr. Surber a retainer fee of 20,000 shares of its
common stock in addition to an hourly rate for services rendered.
On March 11, 1999, the Company effectuated a one for two reverse stock
split of the Company's issued and outstanding shares of common stock.
The reverse stock split became effective on March 12, 1999. After the
reverse stock split, the Company has 1,759,146 shares of common stock
issued and outstanding and a total of 2,500,000 shares authorized for
issuance.
On April 12, 1999 Benson Shore Capital, LLC, exercised its
option to acquire 136,125 shares (adjusted for the one for two reverse
stock split of the Company's common stock) at $.001 per share
In July, 1999, the Board of Directors of the Company passed a
resolution authorizing the management of the Company to initiate steps
for a private placement of the Company's securities in order to raise
capital. Management was granted authority to prepare a Private
Placement Memorandum pursuant to Regulation D Rules governing the
Limited Offer and Sale of Securities Without Registration Under the
Securities Act of 1933 (as amended) and to register the securities in
any state jurisdiction that management felt was required and
appropriate.
F-9
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
On July 20, 1999, the Company closed $283,000 of its private
placement for an aggregate of 148,702 shares of its common stock. The
number of shares of common stock was determined by taking the average
closing bid price for the five trading days prior to July 20, 1999 and
deducting 30% from such average.
The Company incurred expenses of $49,590 in connection with
the private placement. Additionally, 25,000 shares were issued to
underwriters in connection with the private placement.
On July 19, 1999 the Company issued 330,000 shares of its common
stock to Allen Wolfson, as compensation, as required by the advisor
agreement.
NOTE 10 - STOCK-BASED COMPENSATION.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123. "Accounting
for Stock-Based Compensation". Accordingly, no compensation cost has
been recognized for the stock-based compensation.
NOTE 11 - SUBSEQUENT EVENTS
On October 14, 1999 the Company closed $500,000 of its private
placement for convertible notes. The notes mature on October 14, 2000,
paying a 10% annualized rate of interest payable at conversion or upon
maturity. The Company incurred expenses of $67,500 in connection with
the private placement. Additionally, 60,000 shares, and 2,500,000
warrants were issued to underwriters in connection with this private
placement.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Modern Medical Modalities Corporation
We have audited the accompanying consolidated Balance Sheets of Modern Medical
Modalities Corporation and Subsidiaries as at December 31, 1998, and 1997, and
the related Consolidated Statements of Operations, Stockholders' Equity, and
Cash Flows for the three years ended December 31, 1998, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Modern
Medical Modalities Corporation and Subsidiaries as at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
the years ended December 31, 1998, 1997 and 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Vincent J. Batyr & Co.
Certified Public Accountants
Tarrytown, NY
March 10, 1999, except for Note 14, which is dated March 12, 1999
F-11
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 56,313 $ 119,217
Restricted cash for line of credit repayment 600,000 600,000
Accounts receivable (less contractual allowances of
$2,447,579 and $2,475,004, respectively) 2,816,356 4,919,714
Account receivable - joint venture 585,607 254,696
Current portion of note receivable from affiliate 141,667 972,650
Current portion of note receivable 46,590 46,590
Loan receivable - affiliates 128,750 121,250
Due from officers 126,368 94,343
Due from affiliates 77,600 -
Other receivables 82,014 47,554
Prepaid expenses 11,023 44,999
----------- -----------
Total current assets 4,672,288 7,221,013
----------- -----------
Other assets:
Furniture, fixtures, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $5,742,206 and $ 6,134,831, respectively) 6,703,426 9,445,204
Note receivable, net of current portion 113,736 113,736
Goodwill (net of accumulated amortization of $189,223) - 1,229,990
Organization costs (net of accumulated amortization
of $25,901 and $ 16,601, respectively) 71,797 81,097
Investment in joint venture 290,998 259,483
Investment in and advances to unconsolidated affiliate - 567,737
Deposits 40,446 151,901
Deferred tax asset 484,718 -
Other long term assets 6,381 -
----------- -----------
Total other assets 7,711,502 11,849,148
----------- -----------
$12,383,790 $19,070,161
----------- -----------
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
F-12
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 595,552 $ 599,750
Accounts payable 1,892,755 1,463,096
Accrued expenses 1,029,677 556,862
Loan payable - joint venturer 71,942 110,467
Loans payable - affiliates 202,000 202,000
Current portion of long term debt 2,789,678 3,115,461
Due to affiliate 49,466 23,594
Due to related party 4,389 -
Deferred income taxes - 155,133
----------- -----------
Total current liabilities 6,635,459 6,226,363
----------- -----------
Other liabilites:
Long-term debt, net of current portion 3,034,863 6,920,849
Deferred income taxes - 1,054,552
Due to joint venturer 218,717 217,787
----------- -----------
Total other liabilities 3,253,580 8,193,188
----------- -----------
Total liabilities 9,889,039 14,419,551
----------- -----------
Minority interest 187,489 140,825
Stockholders' equity:
Common stock, $0.0002 par value,
Authorized - 5,000,000 shares
Issued and outstanding - 1,759,146 and
1,584,146 shares, respectively 317 317
Additional paid-in capital 3,866,389 3,866,389
Retained earnings (deficit) (1,559,444) 643,079
----------- -----------
Total stockholders' equity 2,307,262 4,509,785
----------- -----------
$12,383,790 $19,070,161
----------- -----------
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
F-13
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating income:
Net revenue from services $ 6,414,945 $10,103,869 $12,074,914
Cost of services provided: 3,250,800 3,408,625 4,851,175
----------- ----------- -----------
Total operating income 3,164,145 6,695,244 7,223,739
----------- ----------- -----------
Operating expenses:
Selling, general and administrative 3,377,692 3,580,516 3,192,499
Bad debts 23,750 29,793 67,582
Depreciation and amortization 1,544,401 1,788,503 1,761,294
----------- ----------- -----------
Total operating expenses 4,945,843 5,398,812 5,021,375
----------- ----------- -----------
Income (loss) from operations (1,781,698) 1,296,432 2,202,364
----------- ----------- -----------
Other income (expenses):
Interest income 57,218 135,497 37,909
Interest expense (849,998) (1,218,356) (1,344,649)
Miscellaneous income 110,567 - -
Income from joint ventures 151,601 217,909 104,147
Income (loss) from minority owned
subsidiary - (8,981) -
Loss on sale of property assets - (26,702) -
(Loss) on sale of subsidiary (742,619) (36,907)
Gain on sale of subsidiary 30,171 252,076
(Loss) on disposal of subsidiary (168,064) (63,762)
Restructuring of note receivable (747,650)
----------- ----------- -----------
Total other income (expense) (2,158,774) (749,226) (1,202,593)
----------- ----------- -----------
Income (loss)
before income taxes and
minority interest (3,940,472) 547,206 999,771
Provision for income taxes (1,694,403) 277,990 455,320
----------- ----------- -----------
Income (loss)
before minority interest (2,246,069) 269,216 544,451
Minority interest 43,546 (144,424) (294,625)
----------- ----------- -----------
Net income (loss) $(2,202,523) $ 124,792 $ 249,826
============ =========== ===========
Basic earnings per share
Net income (loss) $ (0.67) $ 0.04 $ 0.08
=========== =========== ===========
Number of shares outstanding:
Basic 3,285,278 3,168,292 3,168,292
----------- ----------- -----------
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
F-14
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(2,202,523) $ 124,792 $ 249,826
----------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,544,401 1,788,503 1,761,294
Contractual allowances 27,425 29,880 889,010
Bad debts 23,750 29,793 67,582
Income from an unconsolidated joint venture (151,601) (217,909) (104,147)
Minority interest (43,546) (44,114) 294,625
Deferred income taxes (1,694,403) 224,757 453,259
Loss on sale of subsidiary 742,619 - -
Gain on sale of subsidiary (30,171) -
Loss on disposal of subsidiary 168,064 - -
Restructuring of note receivable 747,650 - -
Increase (decrease) in cash attributable to changes
in operating assets and liabilities:
Accounts receivable 2,103,358 (82,352) (2,703,156)
Accounts receivable - joint venturer (330,911) (254,696) -
Note receivable - 239,674 -
Other receivable (34,460) 267,545 (409,442)
Due from affiliate (77,600) (564,093) -
Due from officers (32,025) - -
Prepaid expenses 33,976 68,837 (36,542)
Deposits 111,455 (22,450) 103,396
Distributions from a joint venture - (23,152) 31,206
Due to affiliate 25,872 (38,099) (56,954)
Accounts payable 429,660 203,752 675,989
Accrued expenses 472,815 (86,321) 296,023
Advances to unconsolidated affiliate - (260,776) -
Undistributed loss of affiliate - 8,981 -
----------- ---------- ----------
Total adjustments 4,036,328 1,267,760 1,262,143
----------- ---------- ----------
Net cash provided (used) by operating activities 1,833,805 1,392,552 1,511,969
----------- ---------- ----------
Cash flow from investing activities:
Organization costs - (75,000) -
Fixed asset acquisitions (1,367,360) (1,628,381) (461,453)
Fixed assed dispositions 2,492,764 945,377 -
Proceeds from loan receivable - affiliate (7,500) - 100,000
Proceeds from note receivable 72,222 -
Investment in joint venture (31,515) - 3,710
Increase in minority interest (46,664) - -
----------- ---------- ----------
Net cash provided (used) by investing activities 1,111,947 (758,004) (357,743)
Cash flow from financing activities:
Reduction of goodwill 1,419,213 - -
Proceeds from issuance of long-term debt - 2,044,904 103,000
Payments on affiliates advances - - 468,571
Joint venture advances - - 93,467
Loan payable - joint venturer (37,595) -
Disposal of long term debt (3,717,089) (644,470) -
Principal payments on long-term debt (673,185) (1,958,186) (2,161,169)
----------- ---------- ----------
Net cash provided (used) by financing activities (3,008,656) (557,752) (1,496,131)
----------- ---------- ----------
Net increase in cash and equivalents (62,904) 76,796 (341,905)
Cash and equivalents, begining of year 719,217 642,421 984,326
----------- ---------- ----------
Cash and equivalents, end of year $ 656,313 $ 719,217 $ 642,421
=========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
F-15
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Additional
Number of Common Paid-In Retained
Shares Stock Capital Earnings Total
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,584,146 317 $4,086,413 $ 240,806 $4,327,536
Write-down of assets relating
to the disposal of
Prime Contracting Corp. - - (358,000) - (358,000)
Adjustment in connection with
the sale of 65% of Empire
State Imaging Associates, Inc. - - 137,976 27,655 165,631
Net income for the year ended
December 31, 1996 - - - 249,826 249,826
--------- ------- ---------- ----------- ----------
Balance at December 31, 1996 1,584,146 317 3,866,389 518,287 4,384,993
Net income for the year ended
December 31, 1997 - - - 124,792 124,792
--------- ------- ---------- ----------- ----------
Balance at December 31, 1997 1,584,146 317 3,866,389 643,079 4,509,785
Issuance of common stock in
connection with Benson Shore
Capital, LLC consulting agreement 175,000 - - - -
Net income for the year ended
December 31, 1998 - - - (2,202,523) (2,202,523)
--------- ------- ---------- ----------- ----------
Balance at December 31, 1998 1,759,146 317 $3,866,389 $(1,559,444) $2,307,262
--------- ------- ---------- ----------- ----------
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
F-16
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLCIES.
(a) Organization and Business:
Modern Medical Modalities Corporation (the "Company") was incorporated
in the State of New Jersey on December 6, 1989. The Company provides high
technology medical equipment and management services to hospitals and
physicians. Modern Modalities Corporation was incorporated in the State of
New Jersey on June 4, 1990, for the same purpose. The two companies had
common ownership, directors and officers. In July 1992, the two companies
were merged under the laws of the State of New Jersey, by way of an
agreement accounted for as a tax-free merger. The surviving corporation is
known as Modern Medical Modalities Corporation.
(b) Basis of Presentation:
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, Medical Marketing and Management,
Inc., Somerset Imaging Corporation, South Plainfield Imaging, Inc.,
Medi-Corp., USA, South Jersey Medical Equipment Leasing Corp., Amherst
Medical Equipment Leasing Corp., Open MRI of Morristown, Inc., West
Paterson Medical Equipment Leasing Corp., Ohio Medical Equipment Leasing
Corporation, its majority owned subsidiary, Sylvania Diagnostics L.P., (in
which the Company had a 50.2% interest until June 30, 1998, see Note 3),
and Metairie Medical Equipment Leasing Corp., a 100% owned subsidiary which
was incorporated in June 1997, and its majority owned joint ventures,
Plainfield MRI Associates, Joint Venture, MRI Imaging Center at PBI, Open
MRI of Morristown, Joint Venture and Doctors Imaging Associates, Joint
Venture. The Company has an 84%, 75%, 72% and 50% interest, respectively,
in the joint ventures, by contract manages the joint ventures, is the
managing joint venture and has unilateral control. Investment in an
unconsolidated minority-owned subsidiary, Empire State Imaging Associates,
Inc., which was sold on June 30, 1998, in which the Company had a 35%
interest and significant influence, was accounted for under the equity
method. The Company sold 70% of its 72% owned subsidiary, Open MRI of
Morristown, on September 30, 1998. Investment in an unconsolidated joint
venture, Union Imaging Associates, Joint Venture in which the Company has a
10% interest and significant influence, is accounted for under the equity
method. All significant intercompany transactions and accounts have been
eliminated in the consolidation.
F-17
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) Operating Revenue:
Revenue from services to physicians are recorded at a percentage of
the physicians' established rates under a contractual agreement between the
Company and the Physicians. Under these agreements, the Company
participates, on the same percentage basis, with adjustments known as
contractual allowances, under third-party reimbursement agreements with the
physicians, deducted to arrive at net revenue from services.
Management fees are generated, through a contractual agreement between
the Company and a joint venture, Union Imaging Associates, Joint Venture
("Union") , in which the Company owns a minority interest, based on a
percentage of cash collections. Under the terms of the joint venture
agreement, the Company receives 11.25% of the joint venture's percentage of
the cash collections in exchange for managing the joint venture. The
Company's responsibilities include the management of all personnel, leasing
of operating facilities and equipment, negotiation of contracts, payments
of debts and obligations and preparation and review of invoices and claims.
(d) The physicians with which the Company contracts, operate under
various payment systems with third-party payers. A substantial portion of
the Company's revenues are attributable to payments made by
government-sponsored health care programs and other third party payers. The
Company receives these payments either directly, in the case of imaging
center revenues relating to reimbursable direct patient billings, or
indirectly, in the case of technical fee-for-service payments made by
hospitals. Any change in reimbursement regulations, or the enactment of
legislation, which would have the effect of placing material limitations on
the amount of reimbursement for imaging services could adversely affect the
operations of the Company. In addition, health care reimbursement programs
are not uniformly prompt in making required payments. Extensive payment
delays are not uncommon, and the Company's financial resources could be
strained while awaiting payment.
(e) Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
(f) Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The Company
places its cash with high credit quality financial institutions which at
times, may be in excess of the FDIC insurance limit.
F-18
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(g) Accounts Receivable:
Accounts receivable is stated net of contractual allowances. Based
upon its past history, the Company estimates the amount of the accounts
receivable it does not expect to receive. The Company values its
uncollected accounts receivable as part of its determination of profit and
constantly reviews the valuation. The continuing review and gathering of
additional information, as well as changing reimbursement rates, may cause
adjustments.
(h) Furniture, Fixtures, Equipment and Leasehold Improvements:
Furniture, fixtures, equipment and leasehold improvements are stated
at cost. Depreciation and amortization are provided for, generally using
the straight-line method over the lease term or the estimated useful lives
of the related asset, five to seven years for office equipment and
furniture and fixtures, and ten years for medical equipment by charges to
income.
(i) Goodwill:
The Company recorded goodwill relating to the acquisition of a
subsidiary which is being amortized over a period of fifteen years.
(j) Revenue and Cost Recognition:
The Company recognizes revenue from services upon performance for
medical, management and marketing services for financial statement
reporting purposes.
(k) Income Taxes:
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes", which provides for income tax accounting under the asset
and liability method and requires adjustment of deferred tax balances for
changes in tax laws and rates. The Company reports income on the cash basis
for income tax reporting purposes. Provision for income taxes includes
federal and state income taxes currently payable and those deferred because
of temporary differences arising primarily from the recognition of income
on the cash basis for tax purposes versus the accrual basis for financial
reporting purposes.
(1) Earnings Per Share:
Basic per share data has been computed based on the weighted average
number of shares of common stock outstanding.
(m) Reclassification:
Certain reclassifications have been made to the 1997 and 1996
financial statements to conform to the 1998 presentation.
F-19
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(n) New Accounting Standards:
The Company has adopted SFAS No. 121, "Accounting for the Impairment
of Long- Lived Assets and for Long-lived Assets to be Disposed of". This
statement established accounting standards for the impairment of long-lived
assets (including goodwill) to be held and used as well as those to be
disposed of. The statement requires management to periodically review these
assets in light of certain events or circumstances which may effect the
recoverability or carrying value of said assets and to adjust the value
downward or to dispose of the asset accordingly. The adoption of this
standard did not have a material effect on the Company's financial position
or its results of operations.
(o) Retirement Plan:
The Company maintains a qualified 401(k) wage deferral plan. Employees
may defer a portion of their salary. The Company does not contribute to the
plan.
(p) Stock-Based Compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 established
financial accounting and reporting standards for stock-based compensation
plans and to transactions in which an entity issued its equity instruments
to acquire goods and services from nonemployees. The new accounting
standards prescribed by SFAS No. 123 are optional, and the Company may
continue to account for its plans under previous accounting standards. The
Company does not expect to adopt the new accounting standards,
consequently, SFAS No. 123 will not have a material impact on the Company's
consolidated results of operations or financial position. However, pro
forma disclosures of net earnings and earnings per share must be made as if
the SFAS No. 123 accounting standards had been adopted.
NOTE 2 - GOING CONCERN.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has a working
capital deficiency of $1,963,171 as of December 31, 1998, and has sustained
continued losses from operations, which raise substantial doubt about the
Company's ability to continue as a going concern.
The Company has begun implementation of a restructuring plan for its
subsidiaries and believes this plan will make the Company profitable in
future periods. This plan includes increasing marketing personnel to
increase patient service revenue, as well as a reduction of administrative
personnel. Duties of those employees whose jobs were eliminated were
reassigned to existing employees.
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS
In October 1995, the Company entered into a joint venture ("Open MRI
of Morristown, Joint Venture") agreement with RMC Consulting, Inc. and two
individuals to develop a MRI facility located in Morristown, New Jersey. In
December 1995, OpenMRI of Morristown, Inc. ("OpenMRI"), a wholly-owned
subsidiary of the Company, was assigned the Company's interest in the joint
venture. OpenMRI accepted delivery of a new magnetic resonance imaging
machine and opened in February 1996. The Company had a 72% interest in the
profit, obligations and liabilities under the joint venture agreement until
September 30, 1998.
F-20
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
On May 7, 1998 the Company entered into an agreement to sell 70% of
its 72% ownership of Open MRI of Morristown, Joint Venture ("Open MRI") for
$300,000. The terms required $100,000 payable at signing, and monthly
payments in the amount of $50,000 on May 1, June 1, July 1 and August 1,
1998. The Company retained the option to repurchase from the buyers, ADS
Investment Corp. and Oak Knoll Management Corporation (related party), the
70% interest upon payment of $50,000 plus all prior payments and any
additional costs incurred by the buyers. The option expired on August 31,
1998.
On August 20, 1998, the Company, ADS Investment Corp. and Oak Knoll
Management Corporation (related party) modified the original agreement from
a sale to a loan. The terms of the new agreement are as follows: a loan in
the amount of $300,000, with interest due and payable at 12% per annum,
secured by 70% of the Company's 72% ownership of Open MRI. The loan is due
and payable on September 30, 1998. The agreement also requires the personal
guarantees made by the lenders to DVI Business Credit Corporation on behalf
of the Company be replaced by September 30, 1998, as a condition of
satisfactory settlement of the loan.
For services rendered between May 7, 1998 and the date of maturity of
this loan, all distributions made to the lending parties by Open MRI are to
remain the property of the lending parties.
On September 30, 1998 the Company sold 70% of its interest in Open MRI
for $300,000 and the purchaser's agreement to provide the Company's
creditor, DVI Business Credit, personal guaranties of the principals of
purchaser in an amount not to exceed $150,000. The Company recorded a gain
on this transaction in the amount of $30,171. The Company has retained a 2%
ownership interest in Open MRI.
On November 1, 1994, the Company acquired Prime Contracting Corp.
("Prime") in a business combination accounted for as a pooling of
interests. Prime is a full service contractor providing turnkey design and
construction services, becoming a wholly-owned subsidiary of the Company,
through the exchange of 112,457 shares of the Company's common stock
(market value of $650,000) for all of the shares of the outstanding stock
of Prime.
On December 27, 1995, the Company entered into an agreement with a
related party to sell all of the common stock of Prime for $1,200,000,
payable as follows: $100,000 upon execution, $100,000 at closing and a
promissory note bearing interest at prime plus one percent. The note was
payable in two installments, $600,000 after six months and $400,000 after
one year of the closing date. The Company in 1995 recorded an increase of
$987,554 to stockholders' equity which represents the excess of the sale
price over the net assets of Prime.
The Agreement was modified in 1996 to extend the note payments of
$600,000 to October 1997 and $400,000 to April 1998. Additionally, the
modified agreement required the Company to charge $358,000 of receivables
from Prime to additional paid-in capital in 1996 as an adjustment to the
sale price. On March 3, 1998, the agreement was restructured, resulting in
a loss in the amount of $747,650 (see Note 4).
F-21
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS.(Continued)
On December 27, 1996, the Company entered into a stock purchase
agreement with a related party to sell 65% of the capital stock of Empire
State Imaging Associates, Inc. ("Empire") for $250,000, payable as follows:
$25,000 at the closing and nine equal monthly installments of $25,000 plus
interest at prime plus one percent. The Company has recorded an increase of
$165,631 to stockholders' equity which represents the excess of the sale
price over the net assets of Empire. At December 31, 1997 and 1996, the
Company's investment in Empire is $61,354 and $60,321, respectively, and
the Company had advances receivable from Empire of $506,383 and $246,640.
On June 30, 1998, the Company and its affiliate sold all the outstanding
stock of Empire to MID Rockland Imaging Partners, Inc., an unrelated party,
for the principal sum of $2,500,000. The Company recorded a loss on this
transaction in the amount of $742,619.
During 1996, the Company incorporated two wholly-owned subsidiaries.
Ohio Medical Equipment Leasing Corporation ("OME") was incorporated in the
State of Ohio for the purpose of acquiring a majority interest in Sylvania
Diagnostics. West Paterson Medical Equipment Leasing Corp. ("WPMEL") was
incorporated in the State of New Jersey for the purpose of opening a
diagnostic imaging center in West Paterson.
In July 1996, the Company, through OME, entered into a purchase and
consulting agreement with Medical Advances, Inc. ("Medical") to acquire an
interest as a general (managing) partner of Sylvania Diagnostics
("Sylvania"), an Ohio Limited Partnership, for one dollar. The interest
acquired represents 50.2% of the total units outstanding. Sylvania is a
diagnostic imaging center located in Sylvania, Ohio.
As a result of this acquisition, the Company recorded the difference
between the acquisition price of one dollar and the allocated percentage of
the cumulative deficit as goodwill and the cumulative allocated losses in
excess of basis of the limited partners of Sylvania as an intangible asset
as of July 1, 1996, the date of acquisition. The Company records its
allocated portion of profits and losses based upon its 50.2% ownership
percentage. The Company also entered into an agreement with DVI which
provides for $135,000 of working capital advances which are only to be used
for operating Sylvania. If the Company determines that operating Sylvania
is not profitable, DVI will purchase either Sylvania or OME for one dollar.
In August 1996, Sylvania entered into an agreement with DVI to refinance
equipment and related leasehold improvements in the aggregate amount of
$2,127,366. The amount was payable in 64 monthly installments commencing in
March 1997 of $20,000 for the first four months and $44,968 over the
remaining 60 months. The Company is indemnified for all prior liabilities
and obligations of the limited partnership by DVI, an equipment finance
company who is the lessor of Sylvania's medical equipment. On June 30,
1998, the Company exercised its option and sold Sylvania back to DVI for
one dollar. As a result of this disposition, the Company recorded a loss in
the amount of $168,064.
In July 1996, the Company, through its wholly-owned subsidiary WPMEL,
entered into a lease and management services agreement with Advanced
Imaging & Radiology Associates, P.A. ("M.D."). The agreement provides that
WPMEL will lease office space, fixtures and equipment and will provide
management services to M.D. over an initial term of five years with a five
year renewal option. The site, located in West Paterson, New Jersey, is a
medical practice specializing in diagnostic imaging.
In February, 1997, the Company acquired a 25% interest in OpenMRI and
Diagnostic Services of Toms River, Inc. In March, 1997, the Company entered
into a contract for the sale of its stock in this entity resulting in a
gain of $252,076. The proceeds are payable as follows: 25% at closing and a
note for 75%, bearing interest at 11% per annum, payable in monthly
installments commencing 90 days after the facility opens for business.
F-22
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
In June of 1997, Metaire Medical Equipment Leasing was incorporated in
the state of New Jersey, as a 100% owned subsidiary of the Company. In
October of 1997, Metaire Medical Equipment Leasing Corporation was
registered as a Corporation doing business in the State of Louisiana. On
April 15, 1998 Open MRI & Imaging Center of Metairie, LLC ("LLC") was
organized in the state of Louisiana. Under terms of the venture agreement,
the Company, through its 100% owned corporation, owns 85% of the LLC. The
15% interest owner, KFC Venture, LLC, made an initial capital contribution
of $250,000. Profits shall be allocated to the interest holders in
proportion to their percentages after such time as KFC Ventures has been
repaid $125,000 of its initial capital contribution without interest. Until
such time, all distributions shall be divided equally with fifty (50%)
percent of said distribution being paid to KFC Ventures, LLC as a return of
its initial capital contribution up to the amount of $125,000 and the other
fifty (50%) percent of said distribution being distributed to the members
in accordance with their percentage interests in the Company.
In October 1997, the Company entered into a contract for the sale of
all leasehold rights, medical equipment, and the assumption of certain
liabilities of Somerset Medical Equipment Leasing Corporation, resulting in
a loss of $36,907.
NOTE 4 - RESTRUCTURING OF NOTE RECEIVABLE
On March 3, 1998 the Company restructured the promissory note
receivable for the sale of Prime Contracting Corp. to a related party as
follows: $ 200,000 in cash payable over 36 months, plus interest calculated
at prime plus 1% and a 36 month option to purchase 250,000 shares of the
related party stock at $ 0.05. The Company recorded a loss from note
receivable restructuring in the amount of $747,650.
NOTE 5 - FURNITURE, FIXTURES, EQUIPMENT AND LEASHOLD IMPROVEMENTS.
Furniture, fixtures, equipment and leasehold improvements consist of
the following:
December 31,
-------------------------------
1998 1997
----------- -----------
Medical Equipment $11,459,664 $14,083,189
Building 310,860 358,066
Furniture and Fixtures 65,830 67,139
Automobiles 22,860 22,860
Leasehold improvements 586,418 1,048,780
----------- -----------
12,445,632 15,580,034
Less: Accumulated Depreciation
and Amortization 5,742,206 6,134,831
----------- -----------
6,703,426 9,445,203
=========== ===========
F-23
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - INVESTMENT IN JOINT VENTURE.
In 1990, the Company acquired a ten percent (10%) interest in Union
Imaging Associates, Joint Venture, which it accounts for using the equity
method of accounting, due to the significant influence it has on the joint
venture as its managing venturer.
The following is a summary of selected financial information from the
financial statements of the joint venture in which the Company has an
investment.
<TABLE>
<CAPTION>
Total Long-Term Total Total
Assets Debt Liabilities Capital
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1998 $4,485,673 $1,271,846 $1,741,863 $2,743,810
December 31, 1997 5,538,114 1,354,524 3,116,550 342,721
December 31, 1996 4,339,575 1,938,137 3,637,025 702,550
10%
Gross Allocations
Revenues Net Income of Income
---------- ---------- -----------
December 31, 1998 $4,141,948 $1,492,754 $149,275
December 31, 1997 5,603,802 2,078,843 207,884
December 31, 1996 4,417,540 1,041,469 104,147
</TABLE>
NOTE 7 - LINE OF CREDIT.
In April 1995, the Company secured a line of credit with Summit Bank
for $600,000 at the bank's prime rate for commercial borrowers. As of
December 31, 1998 and 1997, the amount of the liability under the line of
credit was $595,552 and $599,750, respectively. The line of credit is
secured by a certificate of deposit in the amount of $600,000.
NOTE 8 - LONG-TERM DEBT.
Long-term debt consists of the following:
December 31,
------------------------------
1998 1997
---------- -----------
Capitalized lease obligations (a) $4,758,725 $ 8,691,572
Accounts receivable financing (b) 1,065,815 926,363
Other (c) - 418,375
---------- ----------
5,824,540 10,036,310
Current portion 2,788,475 3,115,461
---------- ----------
Total long-term debt $3,036,053 $ 6,920,849
========== ==========
(a) Capitalized Lease Obligations:
The Company entered into certain leases for the rental of equipment,
which have been recorded as capital leases for financial statement
reporting purposes and are included in equipment.
F-24
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - LONG-TERM DEBT (Continued).
(b) Accounts Receivable Financing:
The Company entered into two separate agreements with DVI to finance
up to $1,500,000 of the accounts receivable balances from two of the
Company's subsidiaries and one of its joint ventures and $1,500,000 of the
accounts receivable balance from the Company's unconsolidated joint
venture. The agreements extend to March and June 1998, respectively, with
consecutive one year renewal terms. The agreements are non-cancelable,
except in the event of default by the Company. At December 31, 1997, the
amounts financed under these agreements totaled $1,065,815 and $926,363,
respectively. The Company has guaranteed the $1,500,000 financing line of
credit of the unconsolidated joint venture. The unconsolidated joint
venture has loaned the Company $110,467 from the proceeds of this line of
credit. At December 31, 1997, the Company is not in compliance with the
terms of the loan agreement. Management is presently negotiating with DVI
to bring the Company into compliance.
(c) Other:
Sylvania Diagnostics limited partnership at December 31, 1997 was
obligated for notes payable incurred prior to the Company's acquiring its
50.2% interest. The Company has an agreement in which DVI indemnifies the
Company for these notes as well as all other pre-acquisition debts of
Sylvania Diagnostics. The Company sold it interest in Sylvania to DVI on
June 30, 1998. The notes payable at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------- ------------
<S> <C> <C>
(i) Note payable to a bank which was due on March 14, 1995. The bank
has not called the note and is negotiating with the Company, Sylvania,
and DVI to schedule repayment terms. The note bears interest at 2.5%
over prime. The note is collateralized by substantially all of the
assets of Sylvania. $ - $249,500
----- --------
(ii) Note payable to a professional corporation in equal monthly
installments of $5,000 including interest at 9.4% through July 2000. - 130,939
----- --------
(iii) Installment note payable to a bank in equal monthly installments
of $1,302 including interest at 2% over prime through August 2000 and a
final payment in September 2000 of the remaining balance. - 37,936
----- --------
$ - $418,375
===== ========
</TABLE>
(c) Other (Continued):
The future principal payments for long-term debt are as follows :
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
---------- -----------
<S> <C> <C>
1998 $ - $ 3,115,461
1999 2,789,678 2,732,447
2000 977,263 2,385,084
2001 1,023,019 1,578,420
2002 598,949 551,898
2003 339,702 -
2004 95,930 -
----------- -----------
5,824,541 $10,363,310
Less current portion 2,789,678 3,115,461
----------- -----------
Non-current portion $3,034,863 $ 7,247,849
========== ===========
</TABLE>
F-25
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - STOCKHOLDERS' EQUITY
In February 1994, the Company completed an initial public offering of
its securities pursuant to the Securities Act of 1993 (as amended) from
which it received proceeds of $1,986,181, net of commissions and expenses
of the offering of $601,319. The offering included the sale of 8,750 units
including the underwriters' overallotment of 33,750 units at a selling
price of $10.00 per unit. Each unit consisted of one (1) share of the
Company's $0.0002 par value common stock ("Common Stock"), one (1) Class A
Redeemable Common Stock Purchase Warrant ("A Warrant") and one (1) Class B
Redeemable Common Stock Purchase Warrant ("B Warrant). Each A Warrant
entitles the holder to purchase one (1) share of Common Stock for a period,
as extended, ending in August 1997 at a price of $13.00. Each B Warrant
entitles the holder to purchase one (1) share of Common Stock for a period,
as extended, ending in February 2000 at a price of $16.00.
On September 18, 1998, the Company entered into a consulting agreement
with Benson Shore Capital, LLC ("Consultant"), for a period of one year.
The agreement required consultant to render assistance to the Company as
follows: developing strategic initiatives and related industry
partnerships, including providing assistance with respect to acquisitions,
joint ventures, and strategic business alliances. The Company compensated
consultant by issuing consultant 175,000 shares of its common stock.
NOTE 10 - STOCK-BASED COMPENSATION.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123. "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for
the stock-based compensation. Had compensation been determined based on the
fair value at the grant dates for awards in 1998 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
1998
-----------
Net (loss) - as reported $(2,202,523)
Net (loss) - pro forma $(2,266,695)
(Loss) per share - as reported $ (0.67)
(Loss) per share - pro forma $ (0.69)
Stock-based compensation was granted on July 18, 1998 as follows:
Common shares 175,000 shares
Options to acquire common shares 136,125 shares
F-26
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCK-BASED COMPENSATION (Continued)
The Company calculated the fair market value at the grant date based
on the market price quoted on the NASDAQ of $0.40625, less a discount of
15%.
<TABLE>
<CAPTION>
Option Number
Price Per Share of Shares
<S> <C> <C>
----------------------------------------------------------------------------------------
Balance at January 1, 1996 $ - -
Granted - -
Exercised - -
Forfeited - -
Cancelled - -
----------------------------------------------------------------------------------
Balance at December 31, 1996 - -
Granted - -
Exercised - -
Forfeited - -
Cancelled - -
----------------------------------------------------------------------------------
Balance at December 31, 1997 - -
Granted 0.001 136,125
Exercised - -
Forfeited - -
Cancelled - -
----------------------------------------------------------------------------------
Balance at December 31, 1998 $0.001 136,125
</TABLE>
NOTE 11 - INCOME TAXES.
The Company recognized deferred tax liabilties and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the differences between
the financial statement carryting amounts and tax basis of assets and
liabilities using enacted reates in effect in the years in which the
differences are expected to reverse. The Company has recorded income tax
provision (credit) at December 31, 1998, 1997 and 1996 of $(1,694,403),
$277,990, and $455,320, respectively. The Company has a net operating loss
carry-forward for federal income tax purposes of approximately $7,300,000,
and a capital loss carryforward approximating $1,600,000 at December 31,
1998 available to offset income taxes through 2013, and 2003, respectively.
Components of income (loss) before income taxes (recovery), and net
income (loss) are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1998 1997 1996
-------------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before (recovery of) income taxes $(3,940,472) $547,206 $999,771
Provision for (recovery of) income taxes (1,694,403) 277,990 455,320
----------- -------- --------
Net income (loss) $(2,246,069) $269,216 $544,451
=========== ======== ========
</TABLE>
F-27
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - INCOME TAXES (Continued)
The following is a reconciliation for the U.S. federal statutory
tax rate and the apparent tax rate:
1998 1997 1996
-------- -------- --------
U.S. Federal statutory rate (34.0%) 34.0% 34.0%
State taxes (6.0) 6.0 6.0
Goodwill amortization 1.6 1.6
Other 3.9 3.9 3.9
-------- -------- --------
Apparent tax rate 43.9% 45.5% 45.5%
======== ======== ========
The tax effects of temporary differences and carryforwards which give rise to
significant portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998
Deferred Tax
Gross --------------------------------
Amount Asset Liabilities
-------------- -------------- --------------
<S> <C> <C>
Net revenues $2,816,356 - $ 1,126,542
Other receivables 827,947 - 331,179
Operating expenses 2,911,409 1,164,564 -
Depreciation 572,548 229,019 -
Net operating loss carryforwards 7,308,966 2,923,586 -
-------------- -------------
Subtotal 4,317,169 1,457,721
-------------- -------------
Net deferred tax asset 2,859,448 -
Valuation allowance - 100% (2,859,448) -
------------ -------------
Deferred taxes - subtotal - -
Capital loss carryforward (1,615,727 x 30%) 484,718 -
------------ -------------
Total deferred taxes $484,718 $ -
============ =============
1997
Deferred Tax
Gross --------------------------------
Amount Asset Liabilities
-------------- -------------- --------------
Net revenues $4,919,714 - $ 1,967,886
Other receivables 462,576 - 185,030
Operating expenses 1,974,959 789,984 -
Depreciation 1,523,688 - 609,467
Net operating loss carryforwards 4,369,105 1,747,642 -
-------------- --------------
Subtotal 2,537,626 2,762,383
Valuation allowances - -
-------------- --------------
Total deferred taxes $2,947,348 $2,947,348
============== ==============
</TABLE>
F-28
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - RELATED PARTY TRANSACTIONS.
Advances to Joint Venturer:
A majority-owned joint venture, Doctors Imaging Associates, Joint
Venture, has received non-interest bearing advances from one of the joint
venturers totaling $218,717 at December 31, 1997 and 1996. The joint
venturer is obligated to advance up to $250,000 from time to time for
working capital as the Company deems necessary. These advances are to be
repaid prior to any distributions of profits to the joint venturers.
(a) Doctors Imaging Associates, Joint Venture:
The joint venture which owns the minority 50% interest in the joint
venture, has a contract to provide professional radiology services on a
percentage basis to the joint venture. In addition, through a separate
company with common ownership, the joint venturer also leases space to the
joint venture.
(b) Muhlenberg Regional Medical Center:
The Company entered into an agreement with Muhlenberg Regional Medical
Center (the "Hospital") which provides for the placement of a mobile
magnetic resonance imaging ("MRI") unit at the Hospital for five (5) years
without rent. In addition, the Company entered into an agreement with an
affiliate of the Hospital for certain management services to be provided to
the Company for a five (5) year term requiring minimum annual management
fees of $50,000. In June 1996, the agreements terminated by their terms.
(c) Services Support Agreements:
One of the Company's majority-owned joint ventures, Doctors Imaging
Associates, Joint Venture, signed two service support agreements with the
equipment manufacturer. The agreements, which commenced January 1, 1993 and
August 1, 1993, respectively, are for a period of forty-eight (48) months
and provide for monthly maintenance charges of $11,640 and $4,667,
respectively.
(d) Amherst Project:
In April 1995, Amherst Medical Equipment Leasing Corporation
("AMHERST"), a wholly-owned subsidiary of the Company, was formed. AMHERST
entered into an agreement with Amherst Imaging Associates, P.A., to provide
certain non-professional services. In accordance with this agreement,
AMHERST has leased space in Amherst, New York, effective July 1, 1995, for
a period of five years at a monthly rent of $1,275. On July 17, 1995, the
Company entered into an agreement with Magna-Lab, Inc. to purchase a
permanent MRI at a cost of approximately $500,000. Financing has been
secured through DVI. The lease in the amount of $327,000 is payable over 60
months at a monthly payment of $7,068 commencing on January 1, 1996.
Magna-Lab has agreed to accept 18% of the operating income on a cash basis
for a five year period to cover the cost of the balance of the machine.
This income sharing is for five years and is not to exceed $200,000. As
part of the agreement, Magna-Lab agreed to pay the monthly space rent until
the MRI is delivered.
F-29
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13 - COMMITMENTS AND CONTINGENCIES. (Contined)
(e) 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.
(f) Year 2000 Readiness
The Year 2000 readiness of the Company's customers and hardware and
software offerings from the Company's suppliers, subcontractors and
business partners may vary. The Year 2000 also presents a number of other
risks and uncertainties that could affect the Company, including utilities
failures, the lack of personnel skilled in the resolution of Year 2000
issues, and the nature of government responses to the issues, among others.
While the Company continues to believe that the Year 2000 matters discussed
above will not have a material impact on its business, financial condition
or results of operations, it remains uncertain whether or to what extent
the Company maybe affected.
NOTE 14 - SUBSEQUENT EVENTS.
In February, 1999, the Company entered into an agreement to sell lits
50% interest in Doctor's Imaging Associates, Joint Venture for $100,000.
Since all terms of the agreement have not been satisfied, the sale has not
been completed at this time.
On March 11, 1999, the Company effectuated a one for two reverse stock
split of the Company's issued and outstanding shares of common stock. The
reverse stock split became effective on March 12, 1999. After the reverse
stock split, the Company has 1,759,146 shares of common stock issued and
outstanding and a total of 2,500,000 shares authorized for issuance. This
reverse stock split is reflected retroactively in these statements.
F-30
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION
5,650,044 Shares of Common Stock
--------------
PROSPECTUS
--------------
December __, 1999
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide any information or to make any representations
other than those contained in this prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by Modern Medical Modalities Corporation. This prospectus does not constitute an
offer or solicitation to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither delivery of this prospectus nor any sale
of the shares of common stock hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of Modern Medical
Modalities Corporation since the date hereof.
-----------
Until , 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We shall, to the fullest extent permitted by the laws of the State of
New Jersey, 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 or her 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. We 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by
Modern Medical Modalities Corporation in connection with the issuance and
distribution of the securities being registered:
SEC Registration Fee........................................$2,965.94
Legal Fees and Expenses*...................................$30,000.00
Accounting Fees and Expenses*.................................$10,000
Miscellaneous*.................................................$3,000
Total.............................................$45,965.94
- -----------
* estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Modern Medical Modalities Corporation has
sold unregistered securities as described below. There were no underwriters
involved in the transactions and there were no underwriting discounts or
commissions paid in connection therewith, except as disclosed below. The
issuances of these securities were considered to be exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. The purchasers of the securities in such
transactions represented their intention to acquire the securities for
investment purposes only and not with a view to or for sales in connection with
any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transactions. The purchasers of
the securities in the transactions below were each sophisticated investors who
were provided information about us and were able to bear the risk of loss of
their entire investment.
All of the following issuances were made pursuant to Section 4(2) of
the Securities Act of 1933, as amended:
(i) Shares of common stock to Benson Shore Capital LLC.
II-1
<PAGE>
On June 18, 1998, we entered into a consulting agreement with Benson
Shore Capital LLC, whereby we issued to them 350,000 shares of common stock, and
options to purchase up to 275,000 shares of our common stock at an exercise
price of $1.00 per share. The offer and sale of the shares of common stock were
exempt from registration under the Securities Act of 1933, as amended, in
reliance on Section 4(2) thereof.
(ii) The July 1999 private placement offering
In July 1999, we issued 173,694 shares of common stock in connection
with a private placement offering to accredited investors. The offer and sale of
the shares of common stock were exempt from registration under the Securities
Act of 1933, as amended, in reliance on Regulation D Rule 506 of the Securities
Act, as amended. Royal Hutton Securities Corporation acted as placement agent in
connection with the issuance of these shares and received a 10% commission and a
3% non-accountable expense allowance, as well as 25,000 shares of our common
stock in connection with its acting as placement agent in connection with this
private placement offering.
(iii) Shares of Common Stock issued pursuant to Advisory Agreement.
In January 1999, we entered into an advisory agreement with Allen
Wolfson, whereby upon his performing certain advisory services to the company he
would be issued 330,000 shares of our common stock. In July 1999, we issued such
shares of common stock pursuant to Section 4(2) of the Securities Act, as
amended.
(iv) Shares of Common Stock issued pursuant to Financial Consulting Agreement.
On January 28, 1999, we entered into a Financial Consulting Agreement
with Richard Surber, whereby we agreed to issue 20,000 shares of our common
stock to Mr. Surber as a retainer fee. In July 1999, we issued such shares of
common stock pursuant to Section 4(2) of the Securities Act, as amended.
(v) Shares of Common Stock issued to former employee.
In July 1999, we issued 12,500 shares of our Common Stock to Barry
Ellen, a former employee, for services previously rendered. Such shares were
issued pursuant to Section 4(2) of the Securities Act, as amended.
(vi) Shares of Common Stock issued in connection to legal services rendered.
In September 1999 we issued 15,000 shares of common stock to Jody R.
Samuels, Esq. for legal services rendered to the Company. Such shares of common
stock were issued pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
(vi) 10% Convertible Note.
In October 1999, we issued a $250,000 principal amount 10% convertible
note to Austinvest Anstalt Balzers and a $250,000 principal amount 10%
convertible note to Esquire Trade & Finance, Inc. In connection with this
transaction we issued 60,000 shares to the following persons: J.Hayut (45,000
shares), Libra Finance, S.A. (10,000 shares) and Hyett Capital Ltd. (5,000
shares), and 2,500,000 common stock purchase warrants to the following persons:
Austinvest Anstalt Balzaers (500,000 warrants), Esquire Trade & Finance, Inc.
(500,000 warrants) and Libra Finance, S.A. (1,500,000 warrants). The offer and
sale of the above securities were made pursuant to Regulation D Rule 506 of the
Securities Act of 1933, as amended. Additionally, each of the purchasers were
accredited investors.
II-2
<PAGE>
ITEM 27. EXHIBITS
***3.1 Restated and Amended Certificate of Incorporation
**3.2 By-laws of the Registrant
*5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
***10.1 Advisory Agreement dated January 28, 1999 between Modern
Medical Modalities Corporation and Allen Wolfsen
***10.2 Financial Consulting Agreement dated January 28, 1999 between
Modern Medical Modalities Corporation and Richard Surber
*10.3 1999 Stock Option Plan
****10.4 Joint Venture Agreement between Modern Medical Modalities
Corporation and Doctors Imaging Associates, Inc. dated April
23, 1991
****10.5 Joint Venture Agreement between Modern Medical Modalities
Corporation and Union Imaging Associates, Inc. dated July 30,
1990
****10.6 Joint Venture Agreement between Modern Medical Modalities
Corporation and Beth Israel MRI Corporation dated March 22,
1994
****10.7 Joint Venture Agreement between Modern Medical Modalities
Corporation and Plainfield MRI Associates, Inc. dated July 30,
1991
*23.1 Consent of Gersten, Savage & Kaplowitz, LLP
*23.2 Consent of Vincent J. Batyr & Co., independent certified
public accountants of the Registrant
- ----
* Filed herewith.
** Incorporated herein by reference to the Registrant's Form SB-2 as filed
in February 1994.
*** Previously filed.
**** To be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to any charter provision, by-law,
contract arrangements, statute, or otherwise, the registrant has been advised
that in the opinion of the United States Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, 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
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
The undersigned small business issuer 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, as
amended; (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 such information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, 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.
(4) For determining any liability under the Securities Act of 1933, as
amended, treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer under Rule 424(b)(1), or
(4) or 497(h), under the Securities Act of 1933, as amended, as part of this
registration statement as of the time the United States Securities and Exchange
Commission declared it effective.
(5) For determining any liability under the Securities Act of 1933, as
amended, treat each post-effective amendment that contains a form of prospectus
as a new registration statement at that time as the initial bona fide offering
of those securities.
II-4
<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 requirement for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the State of New Jersey on December 30, 1999.
MODERN MEDICAL MODALITIES CORPORATION
By: /s/ Roger Findlay
---------------------------------------
Roger Findlay
President and Chairman of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned officers and directors of MODERN MEDICAL MODALITIES
CORPORATION hereby severally constitute and appoint Roger Findlay, our true and
lawful attorney-in-fact and agent with full power of substitution for us and in
our stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and all documents
relating thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith with the United States Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing necessary or advisable
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Roger Findlay Chairman and President December 30, 1999
- -------------------
Roger Findlay
/s/ Jan Goldberg Vice President, December 30, 1999
- ------------------- Principal Accounting
Jan Goldberg Officer, Treasurer and Director
/s/ Gregory Maccia Vice President, Secretary December 30, 1999
- ------------------- and Director
Gregory Maccia
/s/ Director December 30, 1999
- -------------------
Fred Mancinelli
/s/ Director December 30, 1999
- -------------------
Carl Gideon
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
***3.1 Restated and Amended Certificate of Incorporation
**3.2 By-laws of the Registrant
*5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
***10.1 Advisory Agreement dated January 28, 1999 between Modern
Medical Modalities Corporation and Allen Wolfsen
***10.2 Financial Consulting Agreement dated January 28, 1999 between
Modern Medical Modalities Corporation and Richard Surber
*10.3 1999 Stock Option Plan
****10.4 Joint Venture Agreement between Modern Medical Modalities
Corporation and Doctors Imaging Associates, Inc. dated April
23, 1991
****10.5 Joint Venture Agreement between Modern Medical Modalities
Corporation and Union Imaging Associates, Inc. dated July 30,
1990
****10.6 Joint Venture Agreement between Modern Medical Modalities
Corporation and Beth Israel MRI Corporation dated March 22,
1994
****10.7 Joint Venture Agreement between Modern Medical Modalities
Corporation and Plainfield MRI Associates, Inc. dated July 30,
1991
*23.1 Consent of Gersten, Savage & Kaplowitz, LLP
*23.2 Consent of Vincent J. Batyr & Co., independent certified
public accountants of the Registrant
- ----
* Filed herewith.
** Incorporated herein by reference to the Registrant's Form SB-2 as filed
in February 1994.
*** Previously filed.
**** To be filed by amendment.
<PAGE>
Exhibit 5.1
December 30, 1999
Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
Gentlemen:
We have acted as counsel to Modern Medical Modalities Corporation (the
"Company") in connection with its filing of a registration statement on Form
SB-2 (Registration No. 333-86931, the "Registration Statement") covering
5,650,044 shares of common stock $.0002 par value (the "Common Stock") to be
sold by selling security holders ("Selling Security Holders").
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation and By-laws, as amended to date, and the
minutes and other corporate proceedings of the Company.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to us
as conformed or photostatic copies, the authenticity of all documents submitted
to us as originals and the genuineness of all signatures on all documents
submitted to us.
On the basis of the foregoing, we are of the opinion that:
The shares of Common Stock covered by this Registration
Statement have been validly authorized and will when sold as contemplated by the
Registration Statement, be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting the Registration Statement.
Very truly yours,
/s/ GSK
--------------------------------
Gersten, Savage & Kaplowitz, LLP
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION
1999 STOCK OPTION PLAN
As adopted July 6, 1999
<PAGE>
1. PURPOSE OF PLAN; ADMINISTRATION
1.1 Purpose.
The Modern Medical Modalities Corporation 1999 Stock Option Plan
(hereinafter, the "Plan") is hereby established to grant to officers and other
employees of Modern Medical Modalities Corporation (the "Company") or of its
parents or subsidiaries (as defined in Sections 424(e) and (f), respectively, of
the Internal Revenue Code of 1986, as amended (the "Code")), if any
(individually and collectively, the Company"), and to non-employee directors,
consultants and advisors and other persons who may perform significant services
for or on behalf of the Company, a favorable opportunity to acquire common
stock, $.0002 par value ("Common Stock"), of the Company and, thereby, to create
an incentive for such persons to remain in the employ of or provide services to
the Company and to contribute to its success.
The Company may grant under the Plan both incentive stock options
within the meaning of Section 422 of the Code ("Incentive Stock Options") and
stock options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to "options," shall include both incentive Stock Options and
Nonstatutory Options.
1.2 Administration.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), if each member is a "Non-Employee Director" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
or a committee (the "Committee") of two or more directors, each of whom is a
Non-Employee Director. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board. Until such time that the Committee is properly appointed, the
Board shall administer the Plan in accordance with the terms of this Section
1.2.
A majority of the members of the Committee shall constitute a quorum
for the purposes of the Plan. Provided a quorum is present, the Committee may
take action by affirmative vote or consent of a majority of its members present
at a meeting. Meetings may be held telephonically as long as all members are
able to hear one another, and a member of the Committee shall be deemed to be
present for this purpose if he or she is in simultaneous communication by
telephone with the other members who are able to hear one another. In lieu of
action at a meeting, the Committee may act by written consent of a majority of
its members.
Subject to the express provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan and all Stock Option Agreements
(as defined in Section 3.4) entered into pursuant hereto and to define the terms
used therein, to prescribe, adopt, amend and rescind rules and regulations
relating to the administration of the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Committee may delegate nondiscretionary administrative duties to such
employees of the Company as it deems
<PAGE>
proper; and, provided, further, in its absolute discretion, the Board may at any
time and from time to time exercise any and all rights and duties of the
Committee under the Plan. Subject to the express limitations of the Plan, the
Committee shall designate the individuals from among the class of persons
eligible to participate as provided in Section 1.3 who shall receive options,
whether an optionee will receive Incentive Stock Options or Nonstatutory
Options, or both, and the amount, price, restrictions and all other terms and
provisions of such options (which need not be identical).
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. No members of the Committee or Board
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.
1.3 Participation.
Officers and other employees of the Company, non-employee directors,
consultants and advisors and other persons who may perform significant services
on behalf of the Company shall be eligible for selection to participate in the
Plan upon approval by the Committee; provided, however, that only "employees"
(within the meaning of Section 3401(c) of the Code) of the Company shall be
eligible for the grant of Incentive Stock Options. An individual who has been
granted an option may, if otherwise eligible, be granted additional options if
the Committee shall so determine. No person is eligible to participate in the
Plan by matter of right; only those eligible persons who are selected by the
Committee in its discretion shall participate in the Plan.
1.4 Stock Subject to the Plan.
Subject to adjustment as provided in Section 3.5, the stock to be
offered under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. The cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 500,000,
subject to adjustment as set forth in Section 3.5.
If any option granted hereunder shall expire or terminate for any
reason without having been fully exercised, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan. For purposes of
this Section 1.4, where the exercise price of options is paid by means of the
grantee's surrender of previously owned shares of Common Stock, only the net
number of additional shares issued and which remain outstanding in connection
with such exercise shall be deemed "issued" for purposes of the Plan.
<PAGE>
2. STOCK OPTIONS
2.1 Exercise Price; Payment.
(a) The exercise price of each Incentive Stock Option granted under the
Plan shall be determined by the Committee, but shall not be less than 100% of
the "Fair Market Value" (as defined below) of Common Stock on the date of grant.
If an Incentive Stock Option is granted to an employee who at the time such
option is granted owns (within the meaning of section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of capital stock of
the Company, the option exercise price shall be at least 110% of the Fair Market
Value of Common Stock on the date of grant. The exercise price of each
Nonstatutory Option also shall be determined by the Committee, but shall not be
less than 85% of the Fair Market Value of Common Stock on the date of grant. The
status of each option granted under the Plan as either an Incentive Stock Option
or a Nonstatutory Option shall be determined by the Committee at the time the
Committee acts to grant the option, and shall be clearly identified as such in
the Stock Option Agreement relating thereto.
"Fair Market Value" for purposes of the Plan shall mean: (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on the day immediately
preceding the date of grant, or, if shares were not traded on the day preceding
such date of grant, then on the next preceding trading day during which a sale
occurred; or (ii) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, (1) the last sales price (if Common
Stock is then listed on the Nasdaq Stock Market) or (2) the mean between the
closing representative bid and asked price (in all other cases) for Common Stock
on the day prior to the date of grant as reported by Nasdaq or such successor
quotation system; or (iii) if there is no listing or trading of Common Stock
either on a national exchange or over-the-counter, that price determined in good
faith by the Committee to be the fair value per share of Common Stock, based
upon such evidence as it deems necessary or advisable.
(b) In the discretion of the Committee at the time the option is
exercised, the exercise price of any option granted under the Plan shall be paid
in full in cash, by check or by the optionee's interest-bearing promissory note
(subject to any limitations of applicable state corporations law) delivered at
the time of exercise; provided, however, that subject to the timing requirements
of Section 2.7, in the discretion of the Committee and upon receipt of all
regulatory approvals, the person exercising the option may deliver as payment in
whole or in part of such exercise price certificates for Common Stock of the
Company (duly endorsed or with duly executed stock powers attached), which shall
be valued at its Fair Market Value on the day of exercise of the option, or
other property deemed appropriate by the Committee; and, provided further, that,
subject to Section 422 of the Code, so-called cashless exercises as permitted
under applicable rules and regulations of the Securities and Exchange Commission
and the Federal Reserve Board shall be permitted in the discretion of the
Committee. Without limiting the Committee's discretion in this regard,
consecutive book entry stock-for-stock exercises of options (or "pyramiding")
also are permitted in the Committee's discretion.
Irrespective of the form of payment, the delivery of shares issuable
upon the exercise of an option shall be conditioned upon payment by the optionee
to the Company of amounts sufficient to enable the Company to pay all federal,
state, and local withholding taxes resulting, in the Company's
<PAGE>
judgment, from the exercise. In the discretion of the Committee, such payment to
the Company may be effected through (i) the Company's withholding from the
number of shares of Common Stock that would otherwise be delivered to the
optionee by the Company on exercise of the option a number of shares of Common
Stock equal in value (as determined by the Fair Market Value of Common Stock on
the date of exercise) to the aggregate withholding taxes, (ii) payment by the
optionee to the Company of the aggregate withholding taxes in cash, (iii)
withholding by the Company from other amounts contemporaneously owed by the
Company to the optionee, or (iv) any combination of these three methods, as
determined by the Committee in its discretion.
2.2 Option Period.
(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 30
days following a Termination of Employment (as defined in Section 3.2 hereof)
for any reason other than death or disability, or six months following a
Termination of Employment for disability or following an optionee's death.
(b) Outside Date for Exercise. Notwithstanding any provision of this
Section 2.2, in no event shall any option granted under the Plan be exercised
after the expiration date of such option set forth in the applicable Stock
Option Agreement.
2.3 Exercise of Options.
Each option granted under the Plan shall become exercisable and the
total number of shares subject thereto shall be purchasable, in a lump sum or in
such installments, which need not be equal, as the Committee shall determine;
provided, however, that each option shall become exercisable in full no later
than ten years after such option is granted, and each option shall become
exercisable as to at least 10% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted; and provided, further, that
if the holder of an option shall not in any given installment period purchase
all of the shares which such holder is entitled to purchase in such installment
period, such holder's right to purchase any shares not purchased in such
installment period shall continue until the expiration or sooner termination of
such holder's option. The Committee may, at any time after grant of the option
and from time to time, increase the number of shares purchasable in any
installment, subject to the total number of shares subject to the option and the
limitations set forth in Section 2.5. At any time and from time to time prior to
the time when any exercisable option or exercisable portion thereof becomes
unexercisable under the Plan or the applicable Stock Option Agreement, such
option or portion thereof may be exercised in whole or in part; provided,
however, that the Committee may, by the terms of the option, require any partial
exercise to be with respect to a specified minimum number of shares. No option
or installment thereof shall be exercisable except with respect to whole shares.
Fractional share interests shall be disregarded, except that they may be
accumulated as provided above and except that if such a fractional share
interest constitutes the total shares of Common Stock remaining available for
<PAGE>
purchase under an option at the time of exercise, the optionee shall be entitled
to receive on exercise a certified or bank cashier's check in an amount equal to
the Fair Market Value of such fractional share of stock.
2.4 Transferability of Options.
Except as the Committee may determine as aforesaid, an option granted
under the Plan shall, by its terms, be nontransferable by the optionee other
than by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined by the Code), and shall be exercisable
during the optionee's lifetime only by the optionee or by his or her guardian or
legal representative. More particularly, but without limiting the generality of
the immediately preceding sentence, an option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
the Plan and the applicable Stock Option Agreement, and any levy of any
attachment or similar process upon an option, shall be null and void, and
otherwise without effect, and the Committee may, in its sole discretion, upon
the happening of any such event, terminate such option forthwith.
2.5 Limitation on Exercise of Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined on the
date of grant as provided in Section 2.1 above) of the Common Stock with respect
to which Incentive Stock Options granted hereunder (together with all other
Incentive Stock Option plans of the Company) are exercisable for the first time
by an optionee in any calendar year under the Plan exceeds $100,000, such
options granted hereunder shall be treated as Nonstatutory Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking options into account in the order in which
they were granted.
2.6 Disqualifying Dispositions of Incentive Stock Options.
If Common Stock acquired upon exercise of any Incentive Stock Option is
disposed of in a disposition that, under Section 422 of the Code, disqualifies
the option holder from the application of Section 421(a) of the Code, the holder
of the Common Stock immediately before the disposition shall comply with any
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
2.7 Certain Timing Requirements.
At the discretion of the Committee, shares of Common Stock issuable to
the optionee upon exercise of an option may be used to satisfy the option
exercise price or the tax withholding consequences of such exercise, in the case
of persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an
<PAGE>
irrevocable written election by the optionee to use shares of Common Stock
issuable to the optionee upon exercise of the option to pay all or part of the
option price or the withholding taxes made at least six months prior to the
payment of such option price or withholding taxes.
2.8 No Effect on Employment.
Nothing in the Plan or in any Stock Option Agreement hereunder shall
confer upon any optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporation and its Subsidiaries,
which are hereby expressly reserved, to discharge any optionee at any time for
any reason whatsoever, with or without cause.
For purposes of the Plan, "Parent Corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if each
of the corporations other than the Company then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. For purposes of the Plan, "Subsidiary" shall
mean any corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3. OTHER PROVISIONS
3.1 Sick Leave and Leaves of Absence.
Unless otherwise provided in the Stock Option Agreement, and to the
extent permitted by Section 422 of the Code, an optionee's employment shall not
be deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Company if the period of any such leave does not exceed
a period approved by the Company, or, if longer, if the optionee's right to
reemployment by the Company is guaranteed either contractually or by statute. A
Stock Option Agreement may contain such additional or different provisions with
respect to leave of absence as the Committee may approve, either at the time of
grant of an option or at a later time.
<PAGE>
3.2 Termination of Employment.
For purposes of the Plan "Termination of Employment," shall mean the
time when the employee-employer relationship between the optionee and the
Company, any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an optionee by
the Company, any Subsidiary or any Parent Corporation, (ii) at the discretion of
the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company, a Subsidiary or any Parent Corporation
with the former employee. Subject to Section 3.1, the Committee, in its absolute
discretion, shall determine the affect of all matters and questions relating to
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, a leave of absence or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that such leave of absence or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then-applicable regulations
and revenue rulings under said Section.
3.3 Issuance of Stock Certificates.
Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon exercise. Notwithstanding the foregoing, the Committee in its
discretion may require the Company to retain possession of any certificate
evidencing stock acquired upon exercise of an option which remains subject to
repurchase under the provisions of the Stock Option Agreement or any other
agreement signed by the optionee in order to facilitate such repurchase
provisions.
3.4 Terms and Conditions of Options.
Each option granted under the Plan shall be evidenced by a written
Stock Option Agreement ("Stock Option Agreement") between the option holder and
the Company providing that the option is subject to the terms and conditions of
the Plan and to such other terms and conditions not inconsistent therewith as
the Committee may deem appropriate in each case.
3.5 Adjustments Upon Changes in Capitalization; Merger and
Consolidation.
If the outstanding shares of Common Stock are changed into, or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse stock split, stock
dividend, stock consolidation, stock combination, stock reclassification or
similar transaction, an appropriate adjustment shall be made by the Committee in
the number and kind of shares as to which options may be granted. In the event
of such a change or exchange, other than for shares or securities of another
corporation or by reason of reorganization, the Committee shall also make a
corresponding adjustment changing the number or kind of shares and the exercise
price per share
<PAGE>
allocated to unexercised options or portions thereof, which shall have been
granted prior to any such change, shall likewise be made. Any such adjustment,
however, shall be made without change in the total price applicable to the
unexercised portion of the option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices).
In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Common Stock, the Committee in its discretion shall make an
appropriate and equitable adjustment to the exercise prices of options then
outstanding under the Plan.
Where an adjustment under this Section 3.5 of the type described above
is made to an Incentive Stock Option, the adjustment will be made in a manner
which will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.
In connection with the dissolution or liquidation of the Company or a
partial liquidation involving 50% or more of the assets of the Company, a
reorganization of the Company in which another entity is the survivor, a merger
or reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
a security of another entity, a sale of more than 50% of the Company's assets,
or a similar event that the Committee determines, in its discretion, would
materially alter the structure of the Company or its ownership, the Committee,
upon 30 days prior written notice to the option holders, may, in its discretion,
do one or more of the following: (i) shorten the period during which options are
exercisable (provided they remain exercisable for at least 30 days after the
date the notice is given); (ii) accelerate any vesting schedule to which an
option is subject; (iii) arrange to have the surviving or successor entity grant
replacement options with appropriate adjustments in the number and kind of
securities and option prices, or (iv) cancel options upon payment to the option
holders in cash, with respect to each option to the extent then exercisable
(including any options as to which the exercise has been accelerated as
contemplated in clause (ii) above), of any amount that is the equivalent of the
Fair Market Value of the Common Stock (at the effective time of the dissolution,
liquidation, merger, reorganization, sale or other event) or the fair market
value of the option. In the case of a change in corporate control, the Committee
may, in considering the advisability or the terms and conditions of any
acceleration of the exercisability of any option pursuant to this Section 3.5,
take into account the penalties that may result directly or indirectly from such
acceleration to either the Company or the option holder, or both, under Section
280G of the Code, and may decide to limit such acceleration to the extent
necessary to avoid or mitigate such penalties or their effects.
No fractional share of Common Stock shall be issued under the Plan on
account of any adjustment under this Section 3.5.
<PAGE>
3.6 Rights of Participants and Beneficiaries.
The Company shall pay all amounts payable hereunder only to the option
holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall
not be liable for the debts, contracts or engagements of any optionee or his or
her beneficiaries, and rights to cash payments under the Plan may not be taken
in execution by attachment or garnishment, or by any other legal or equitable
proceeding while in the hands of the Company.
3.7 Government Regulations.
The Plan, and the grant and exercise of options and the issuance and
delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
3.8 Amendment and Termination.
The Board or the Committee may at any time suspend, amend or terminate
the Plan and may, with the consent of the option holder, make such modifications
of the terms and conditions of such option holder's option as it shall deem
advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option way be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.
3.9 Time of Grant And Exercise of Option.
An option shall be deemed to be exercised when the Secretary of the
Company receives written notice from an option holder of such exercise, payment
of the exercise price determined pursuant to Section 2.1 of the Plan and set
forth in the Stock Option Agreement, and all representations, indemnifications
and documents reasonably requested by the Committee.
<PAGE>
3.10 Privileges of Stock Ownership; Non-Distributive Intent;
Reports to Option Holders.
A participant in the Plan shall not be entitled to the privilege of
stock ownership as to any shares of Common Stock not actually issued to the
optionee. Upon exercise of an option at a time when there is not in effect under
the Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.
The Company shall furnish to each optionee under the Plan the Company's
annual report and such other periodic reports, if any, as are disseminated by
the Company in the ordinary course to its stockholders.
3.11 Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued
upon exercise of an option granted under the Plan or to which such Common Stock
may be subject, the Committee may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends shall
make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by applicable laws or regulations. If any restriction with respect to
which a legend was placed on any certificate ceases to apply to Common Stock
represented by such certificate, the owner of the Common Stock represented by
such certificate may require the Company to cause the issuance of a new
certificate not bearing the legend.
Additionally, and not by way of limitation, the Committee may impose
such restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange upon which Common Stock is then traded.
3.12 Use of Proceeds.
Proceeds realized pursuant to the exercise of options under the Plan
shall constitute general funds of the Company.
3.13 Changes in Capital Structure; No Impediment to Corporate
Transactions.
The existence of outstanding options under the Plan shall not affect
the Company's right to effect adjustments, recapitalizations, reorganizations or
other changes in its or any other corporation's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock, the dissolution or
liquidation of the Company's or any other corporation's assets or business, or
any other corporate act, whether similar to the events described above or
otherwise.
<PAGE>
3.14 Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
stockholders of the Company within twelve months after the date of the Board's
initial adoption of the Plan. Options may be granted but not exercised prior to
stockholder approval of the Plan. If any options are so granted and stockholder
approval shall not have been obtained within twelve months of the date of
adoption of this Plan by the Board of Directors, such options shall terminate
retroactively as of the date they were granted.
3.15 Termination.
The Plan shall terminate automatically as of the close of business on
the day preceding the tenth anniversary date of its adoption by the Board or
earlier as provided in Section 3.8. Unless otherwise provided herein, the
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination.
3.16 No Effect on Other Plans.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
* * *
<PAGE>
Exhibit 23.1
CONSENT OF GERSTEN, SAVAGE & KAPLOWITZ, LLP
The undersigned, Gersten, Savage & Kaplowitz, LLP, hereby consents to
the use of our name and of our opinion for Modern Medical Modalities Corporation
(the "Company") as filed with its Registration Statement on Form SB-2, and any
amendments thereto.
/s/ Gersten, Savage & Kaplowitz, LLP
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December 30, 1999 Gersten, Savage & Kaplowitz, LLP
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated March 10, 1999, in the Registration Statement on
Form SB-2 and related prospectus of Modern Medical Modalities Corporation for
the registration of 5,650,044 shares of its common stock.
/s/ Vincent J. Batyr & Co.
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Vincent J. Batyr & Co.
Tarrytown, NY
December 30, 1999
