<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
MODERN MEDICAL MODALITIES CORPORATION
(Name of small business issuer as specified in its charter)
------------
<TABLE>
<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>
-----------
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)
----------
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/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<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>
Shares of Common Stock, $.0002 par value 551,194 $2.375 $1,309,085.70 $363.93
Total registration fee $363.93
</TABLE>
(1) Pursuant to Rule 457, estimated solely for the purpose of calculating
the registration fee. 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 September 8, 1999.
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. 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 such state.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1999
MODERN MEDICAL MODALITIES CORPORATION
551,194 SHARES OF COMMON STOCK
All of the shares of common stock, $.0002 par value, of Modern
Medical Modalities Corporation, a New Jersey corporation, offered hereby are
being offered by the selling security holders named in this prospectus under the
caption "Selling Security Holders". 173,694 of such shares to be sold were
directly acquired by the selling securityholders from us in connection with a
private placement offering in July 1999. 377,500 of such shares to be sold were
acquired by the selling securityholders in connection with legal, financial,
consulting and employee services rendered to us. See "Selling Securityholders."
Our common stock is traded on the SmallCap Market under the symbol
"MODM." On September 8, 1999, the last reported sales price of the common stock
was $2.375.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 10, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY............................................................................ 2
THE OFFERING.................................................................................. 3
SUMMARY COMBINED FINANCIAL INFORMATION........................................................ 4
RISK FACTORS.................................................................................. 5
USE OF PROCEEDS............................................................................... 9
CERTAIN MARKET INFORMATION.................................................................... 9
DIVIDEND POLICY............................................................................... 9
SELECTED FINANCIAL DATA....................................................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 11
BUSINESS...................................................................................... 18
MANAGEMENT.................................................................................... 33
PRINCIPAL SHAREHOLDERS........................................................................ 36
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.......................................... 37
DESCRIPTION OF SECURITIES..................................................................... 38
SHARES ELIGIBLE FOR FUTURE SALE............................................................... 40
SELLING SECURITY HOLDERS...................................................................... 41
PLAN OF DISTRIBUTION.......................................................................... 42
LEGAL MATTERS................................................................................. 43
EXPERTS....................................................................................... 43
ADDITIONAL INFORMATION........................................................................ 43
INDEMNIFICATION OF SECURITIES ACT LIABILITIES................................................. 44
FINANCIAL STATEMENTS.......................................................................... F-1
</TABLE>
-----------
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.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS
PROSPECTUS AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO
UNDERSTAND OUR BUSINESS AND THIS OFFERING FULLY, YOU SHOULD READ THIS ENTIRE
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND THE RELATED NOTES BEGINNING
ON PAGE F-1. REFERENCES IN THIS PROSPECTUS TO "WE", "OUR" AND "US" REFER TO
MODERN MEDICAL MODALITIES CORPORATION, A NEW JERSEY CORPORATION.
OUR BUSINESS
We lease magnetic resonance imaging (MRI) and computerized axial
tomography (CT Scan) equipment to hospitals and physicians. Additionally, on a
clerical and administrative level we manage hospital based and physician managed
ambulatory centers for third parties who provide medical imaging services. We,
however, do not perform medical services. We offer a full range of services to
hospitals or physician clients, including the selection and acquisition of
appropriate equipment, the design and supervision of facility construction, the
provision and training of technical and support staff, patient billing and
collection and the provision of overall marketing and management services. We
can provide either a 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 our customers.
We presently lease 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 whereby 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 seek to joint
venture with existing hospitals and physician managed ambulatory centers to
provide imaging services to a high volume of subscribers at reduced rates. We
intend to expand our marketing efforts by obtaining new sources of patient
referrals to our existing centers from sources such as health maintenance
organizations, preferred provider organizations, union contracts and hospital
contracts.
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, and our telephone number is (973) 538-9955.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered..................... 551,194 shares of common stock. See "Description of Securities"
Shares of Common Stock Outstanding ..... 2,446,465
Use of Proceeds.......................... We will not receive any proceeds from the sale of the shares of
common stock by the selling security holders. 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>
3
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ----------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue $10,104 $ 6,415 $ 1,932
Income (loss) from Operations 1,296 (1,782) 196
Net income 123 (2,202) 24
Net income per share 0.06 (0.67) 0.01
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30, (1)
------------ ------------------
1998 1999
------ ------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA
Working capital $ (1,963) ($ 1,105)
Total Assets 12,384 10,115
Long-term debt 3,254 2,817
Total liabilities 9,889 7,362
Shareholders' equity 2,307 2,331
</TABLE>
(1) Does not include net proceeds of approximately $246,210, which the Company
received on July 20, 1999, from the sale of 148,694 shares of its common stock
in a private placement to accredited investors pursuant to Regulation D Rule 506
of the Securities Act of 1933, as amended.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY IS
HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK, AND SHOULD BE MADE ONLY BY
INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE
INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, TOGETHER WITH THE OTHER MATTERS REFERRED TO IN THIS
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL
STATEMENTS. PROSPECTIVE INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF
THEIR ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
WE HAVE EXPERIENCED A SIGNIFICANT DECREASE IN OUR REVENUES.
For the six months ended June 30, 1999, as compared to the six
months ended June 30, 1998, our revenues decreased by $2,087,846 to $1,932,033
from $4,019,879. For the fiscal year ended December 31, 1998, as compared to the
fiscal year ended December 31, 1997, our revenues decreased by $3,688,924 to
$6,414,945 from $10,103,869. The decrease in revenues was directly attributable
to a decrease in patient service revenues. Our revenues may continue to dcrease
in the future, which may have a material adverse affect on our business in the
future.
WE MAY HAVE A CONFLICT OF INTEREST WITH CERTAIN OF OUR OFFICERS AND DIRECTORS.
Roger Findlay our President and one of our Directors, and Gregory
Maccia our Vice President and Secretary and one of our Directors, are
shareholders, officers and directors in other business enterprises in the
medical community. Jan Goldberg our Vice President and one of our Directors has
in the past and may in the future become a shareholder, officer and/or director
in other business enterprises concerning the medical community. In the future
there may be certain business and/or investment opportunities which could come
to the attention of either Mr. Findlay or Mr. Maccia, which might be suitable
for our purposes and which Mr. Findlay and Mr. Maccia have disclaimed any
responsibility to bring any such opportunities to our attention. Mr. Findlay and
Mr. Maccia are involved with business entities which provide services to the
medical profession including certain of the entities owned, operated or serviced
by us. Therefore, there may be additional instances where there are real or
potential conflicts of interest between us and business enterprises in which Mr.
Findlay and/or Mr. Maccia are involved.
THERE MAY BE ADVERSE UTILIZATION TRENDS FOR MRI AND CT SCANNING.
We own and lease MRI and CT scanning equipment which may be
affected by overutilization trends for such equipment. The Federal Government
and the insurance industry have deemed that in some cases MRI and CT Scans are
overutilized by referring physicians and such uses may be medically unnecessary.
As a result, certain insurance carriers including the Federal Government have
been denying payment for these procedures based on the diagnosis and the number
of MRI and CT scans received by the patient. The denial of payment by the
insurance carriers will have a material adverse effect on our business. We may
not be in compliance with all applicable governmental regulations.
Our operations are subject to a variety of governmental and
regulatory requirements. We believes that we are in compliance with all current
laws and regulations. Corporations are legally prohibited from providing, or
holding themselves out as providers of medical care. We do not employ physicians
to practice medicine, nor do we hold ourself out as offering medical services to
the public, and we believe that we do not practice medicine, although we cannot
assure you that the appropriate regulatory authorities will determine otherwise.
In the event that we are found to be engaged in the practice of medicine by
appropriate regulatory authorities, our operations would be materially adversely
affected.
5
<PAGE>
Furthermore, we have not yet conducted business outside of New
York, New Jersey, Maryland and Louisiana and have not determined whether our
operations will comply with the laws of other states. Accordingly, we will not
be able to conduct business in any other states until such time as we determine
that our operations are in compliance with applicable law. We can not be sure
that current laws and regulations will not be changed or interpreted in such a
way as to require us to obtain licenses or approvals to conduct our business or
otherwise restrict its activities.
All client sites are regulated by various State laws with regard to
building and health codes. Currently, we believe that we comply with all
regulations at our sites. Prospective regulations might cause our sites to not
be in compliance. This could possibly result in the closing of clients'
operations that are affected.
Our operations may be adversely effected by existing and/or future
regulations either through additional costs of complying with such regulations,
thereby reducing our profitability or by our inability to do business in certain
states. See "Business."
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY.
The healthcare industry in general, and the market for diagnostic
imaging services in particular, are highly competitive. We compete with leasing
companies, physicians groups and other providers of medical imaging services in
providing equipment and services to hospitals and clinics. Many of these
competitors have substantially greater resources than us. The imaging centers,
which we operate, also compete for patients with hospitals and radiology groups
in their area. See "Business - Competition".
RAPID CHANGES IN THE DEVELOPMENT OF NEW TECHNOLOGIES MAY MATERIALLY ADVERSELY
AFFECT US.
The equipment which we provide has been characterized by rapid
technological advances. Future technological advances could render our existing
imaging equipment obsolete or in need of substantial upgrade. We can not be sure
that we will have sufficient capital resources to replace or upgrade obsolete
equipment. Our inability or failure to replace or upgrade equipment could have a
material adverse effect on the our business. See "Business."
CHANGES IN MEDICAL REIMBURSEMENT PROGRAMS COULD MATERIALLY ADVERSELY EFFECT OUR
BUSINESS.
A substantial portion of our revenues are attributable to payments
made by government-sponsored healthcare programs and other third party payors.
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. 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 our operations. In addition, 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. See "Business --
Licenses, Governmental Reimbursement and Regulations".
CHANGES IN THE NATIONAL HEALTHCARE SYSTEM COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS.
Many aspects of the medical industry in the United States are
presently subject to extensive federal and state governmental regulation,
including reimbursement rates and policies imposed by Medicare and other
third-party reimbursement programs (from which the Company receives a
substantial portion of its receipts). In the 1992 Presidential campaign,
substantial emphasis was placed on the need to reform the nation's healthcare
system, and this is a priority issue of the new administration. Although
6
<PAGE>
healthcare reform may have the beneficial effect of increasing the number of
persons who will have access to services such as those that we provide, such
reform may also entail pressures on the pricing structures applicable to such
services. In particular, there is a possibility that a significant portion of
healthcare services will be rendered and administered through "managed care"
systems, which could have the effect of forcing price concessions and reductions
on the part of service providers such our company. Moreover, healthcare reform
could also entail a greater analysis of each patient's need for diagnostic
testing, with the aim of eliminating unnecessary tests and thereby reducing the
total volume of tests and the overall cost of medical care. Depending on the
nature and extent of any new laws and/or regulations, or possible changes in the
interpretation of existing laws and/or regulations, any such changes may have a
material adverse effect on our company's revenues, operating margins and
profitability.
WE DEPEND UPON OUR EXECUTIVE OFFICERS AND THEIR LOSS OR UNAVAILABLILITY 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 company's business and prospects. We do not
presently have keyman life insurance on the lives of either of Messrs. Findlay,
Goldberg or Maccia and do not intend to obtain such insurance.
WE HAVE NOT, AND DO NOT INTEND TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
To date, we have not paid any cash dividends on our Common Stock
and we do not anticipate the payment of cash or other dividends in the
forseeable future.
POTENTIAL EFFECTS OF THE DELISTING OF OUR COMMON STOCK FROM THE NASDAQ SMALLCAP
MARKET.
Our Common Stock is listed on the Nasdaq SmallCap Market
("Nasdaq"). In order to maintain the listing, we must meet the following
criteria: (i) either at least $2,000,000 in net tangible assets, a $35,000,000
market capitalization or net income of at least $500,000 in two of the three
prior years, (ii) at least 500,000 shares in the public float valued at
$1,000,000 or more, (iii) a minimum Common Stock bid price of $1.00, (iv) at
least two active market makers, and (v) at least 300 shareholders of Common
Stock. If we are unable to satisfy Nasdaq's maintenance criteria, our Common
Stock may be delisted from trading on Nasdaq. In such event, trading in our
Common Stock would be conducted in the over-the-counter market on the NASD's OTC
Bulletin Board or in the National Quotation Bureau's pink sheets. As a
consequence, an investor would most likely find it more difficult to dispose of,
or to obtain prompt and accurate quotations as to the price of our Common Stock,
and may be exposed to a risk of a decline in the market price of our Common
Stock.
In addition, if our Common Stock is delisted from Nasdaq, and we do
not meet any other exceptions to the penny stock regulations, trading in our
Common Stock would be covered by Rule 15g-9 promulgated under the Exchange Act
for non-Nasdaq and non-exchange (national exchange) listed securities. Under
such rule, broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities also are exempt from this
rule if the market or exercise price is at least $5.00 per share.
If our Common Stock becomes subject to the regulations applicable
to penny stocks, in addition to the possible adverse affect on the market
liquidity for our Common Stock, the penny stock regulations could limit the
ability of broker/dealers to sell our Common Stock and thus the ability of
purchasers of our Common Stock to sell their securities in the secondary market.
7
<PAGE>
PENNY STOCK REGULATION.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that has a
market or exercise price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on Nasdaq and any
equity security issued by an issuer that has net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. The penny stock rules
require a broker/dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker/dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and broker/dealer and salesperson
compensation information must be given to the customer orally or in writing
prior to effecting the transaction and must be given in writing before or with
the customer's confirmation. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules,
the broker/dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for securities
that become subject to the penny stock rules. If the our Common Stock becomes
subject to the penny stock rules, the market liquidity for our Common Stock
could be severely affected.
8
<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. All proceeds from the sales
of the shares of common stock owned by the selling securityholders will be for
the account of the selling security holders described below. See "Selling
SecurityHolders."
CERTAIN MARKET INFORMATION
On March 12, 1999, the Company effected a 1 for 2 reverse split of
its authorized and outstanding shares of common stock. As of the date hereof,
the Company has outstanding 2,446,465 shares of its Common Stock $.0002 par
value ("Common Stock"). The Company's Common Stock is traded on the Nasdaq
SmallCap Market ("Nasdaq SmallCap") 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 the Company's 1 for 2
reverse stock split effected on March 12, 1999, have been adjusted to reflect
such reverse stock split.
<TABLE>
<CAPTION>
Common Stock
------------
Fiscal 1997 High Low
- ----------- ---- ---
<S> <C> <C>
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 (through September 8, 1999) 3.25 1.25
</TABLE>
On September 8, 1999, there were 38 holders of record of the Company's
2,446,465 outstanding shares of Common Stock.
On September 8, 1999, the last sale price of the Common Stock as
reported on the Nasdaq SmallCap Market was $2.375.
DIVIDEND POLICY
The Company has never paid or declared dividends on its 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 the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
9
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data is for the period
from January 1, 1997 through June 30, 1999. The selected balance sheet data is
for the period from January 1, 1998 through June 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue $10,104 $ 6,415 $ 1,932
Income (loss) from Operations 1,296 (1,782) 196
Net income 123 (2,202) 24
Net income per share 0.06 (0.67) 0.01
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,(1)
1998 1999
---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA
Working capital $ (1,963) ($ 1,105)
Total Assets 12,384 10,115
Long-term debt 3,254 2,817
Total liabilities 9,889 7,362
Shareholders' equity 2,307 2,331
</TABLE>
(1) Does not include net proceeds of approximately $246,210, which the Company
received on July 20, 1999, from the sale of 148,694 shares of its common stock
in a private placement to accredited investors pursuant to Regulation D Rule 506
of the Securities Act of 1933, as amended.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-KSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result" and "the company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements." The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, each of which
speak only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
In 1994, Modern Medical Modalities Corporation (the "Company") started
Medical Marketing & Management, Inc. which markets not only the sites of the
Company, but for other physician groups and hospitals. In November 1994, the
Company acquired Prime Contracting Corp. ("Prime") in a business combination
accounted for as a pooling of interests. Prime is a full service contractor who
provides turnkey design and construction services for medical facilities
primarily on the east coast of the United States. On December 27, 1995, the
Company entered into an agreement with a related party to sell all of the common
stock of Prime for $1,200,000.
In 1995, the Company purchased Empire State Imaging Associates, Inc.
("Empire State"). On December 27, 1996, the Company sold 65% of the common stock
of Empire State for $250,000 to a related party. The Company commenced
operations during the second, third and fourth quarters of 1995 and the first
quarter of 1996, respectively, at sites located in Passaic and Somerset, New
Jersey; Amherst, New York; and Morristown, New Jersey. During the third quarter
of 1996, the Company, through its wholly-owned subsidiary, West Paterson Medical
Equipment Leasing Corp. ("WPMEL"), entered into a lease and management services
agreement at a site specializing in diagnostic imaging located in West Paterson,
New Jersey. In addition, the Company through its wholly-owned subsidiary Ohio
Medical Equipment Leasing Corporation ("OME") entered into a purchase and
consulting agreement to acquire a 50.2% interest as a general (managing) partner
of a diagnostic imaging center located in Sylvania, Ohio. Many of the
fluctuations on the line items on the balance sheets and the statements of
operations are directly attributable to the acquisition and start-up of these
entities.
In March 1997, the Company entered into a contract for the sale of its
stock in this entity. 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, the Company sold to the KFC Venture LLC, 15% of Open
MRI and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon
execution of the agreement and $25,000 a month for six months. Under the terms
of the agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC
without interest before any profits can be distributed. Until such time, all
distributions shall be divided equally with fifty percent of said distribution
being paid to KFC Ventures, LLC as a return of its initial capital investment up
to the amount of $125,000 and the other fifty percent of said distribution being
distributed to the members in accordance with their percentage interests in the
Company.
On May 7, 1998, the Company entered into an agreement to sell 70% of
its 72% ownership of Open MRI of Morristown, Joint Venture (Open MRI) for
$300,000. The terms required $100,000 payable at
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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. 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 required 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, 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, the Company effectively sold 70% of its interest
in Open MRI for $300,000 and the purchaser's agreement to provide the Company's
creditor, DVI Business Credit, personal guaranties of the principals of
purchaser in an amount not to exceed $150,000. The Company recorded a gain on
this transaction in the amount of $30,171. The Company has retained a 2%
ownership interest in Open MRI.
In September 1998, the management contract with Southern Medical
Consultants LLP was terminated for the management of Open MRI of Metaire.
According to the letter agreement of March 30, 1998, if Southern Medical is not
active in the site nor managing the site through the end of the lease payments,
then no stock transfers will be made. No stock transfers have been made to date.
RESULTS OF OPERATIONS:
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998
Revenue
Operating revenue was $2,223,199 for the three months ended June 30,
1998 and $977,041 for the comparable period in 1999, a decrease of $1,246,158.
Such decrease is directly related to the sale of: (i) Open MRI at Corvas of
$383,139; and (ii) Doctors Imaging Associates of $333,158, and the return of
Ohio Medical Equipment Leasing Corporation to DVI Financial Services of
$349,847. Additionally, there has been a reduction of $180,190 of marketing
contracts which are in the final phases of winding down.
Depreciation and Amortization
Depreciation and amortization expense decreased by $184,421 for the
three months ended June 30, 1999 as compared to June 30, 1998. This reduction is
directly attributable to the sale of Open MRI at Corvas and Doctors Imaging
Associates, and to the return of Ohio Medical Equipment Leasing Corporation in
1998.
Interest Expense
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Interest expense decreased by $243,418 for the three months ended June
30, 1999 as compared to June 30, 1998. The sale of Open MRI at Corvas and
Doctors Imaging Associates and the return of Ohio Medical Equipment Leasing
Corporation resulted in an aggregate decrease of $112,719 for the period. The
remaining decrease of $131,000 is attributable to the refinancing of three of
the Company's sites which was completed in the fourth quarter of 1998.
Selling, General and Administrative
Operating expenses for the three months ended June 30, 1999 were
$511,589 as compared to $1,800,000 for the comparable period in 1998, a decrease
of $1,288,411. Such decrease is attributable to corporate reductions of
approximately $500,000 and the elimination of outside professional services of
approximately $200,000. Additionally, the Company has restructured the method it
uses to service its equipment, resulting in savings of approximately $325,000.
The Company's maintenance expenses decreased by approximately $100,000 as a
result of the reduction in the number of sites the Company operates.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1998
Operating Revenue
For the six months ended June 30, 1999 operating revenue was $1,932,033
as compared to $4,019,879 for the six months ended June 30, 1998. The decrease
in revenues of $2,087,846 was a direct result of the sale of Open MRI at Corvas
of $619,982, the sale of Doctors Imaging Associates of $571,258 and the return
of Ohio Medical Equipment Leasing Corporation to DVI Financial Services of
$774,770.
Depreciation Expense
Depreciation expense for the six months ended June 30, 1999 was
$558,681 as compared to $883,293 for the comparable prior year period, a
reduction of approximately $324,612. This decrease is directly attributable to
the sale of Open MRI at Corvas and Doctors Imaging Associates and the return of
Ohio Medical Equipment Leasing Corporation.
Interest Expense
Interest expense decreased for the six month period ended June 30, 1999
to $321,144 from $623,251 for the comparable prior year period, a decrease of
$302,107. This decrease is attributable to the Company's sale of Open MRI at
Corvas and Doctors Imaging Associates and the return of Ohio Medical Equipment
Leasing Corporation, in the aggregate amount of $185,691, and the remaining
$116,416 is directly attributable to the refinancing of three of the Company's
centers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended
June 30, 1999 were $1,177,560 as compared to $3,773,763 for the comparable
period in 1998, a decrease of approximately $2,600,000. Such decrease is largely
attributable to the sale of sale of various centers of approximately $1,300,000
as well as corporate reductions of approximately $500,000 and the use of outside
professional
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services of approximately $200,000. Additionally, the Company has restructured
the way it services its equipment at its sites which has resulted in savings to
the Company in excess of $325,000.
Accounts Receivable
Substantially, all of the reductions to the current assets and
liabilities when comparing the six months ended June 30, 1999 to the six months
ended June 30, 1998 resulted from the sale of two sites in 1998 and one in 1999.
The decreases in accounts receivable was partially off-set by increased volume
at the remaining sites.
FOR THE YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1997
The Company experienced a loss during the fourth quarter of 1998 of
$263,000. This loss is attributable to the Company's new center in New Orleans
and additional provisions taken at certain sites for collection of accounts
receivable.
Revenues for the Company 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 the Company's various imaging centers of approximately $1,534,000,
the sale of three imaging centers of approximately $1,817,000 and a decrease in
Medical Marketing & Management's revenues of approximately $344,000.
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 of approximately $1,760,000. This savings was substantially offset
by the operating expenses of a new center opened by the Company in New Orleans,
LA of approximately $772,000 and a net increase in operating expenses of
approximately $378,000 at the Company's remaining sites.
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 the Company'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, 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.
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 Subsidiary:
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Effective June 1, 1998, the Company 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.
Restructuring of Note Receivable:
On March 3, 1998, the Company restructured the promissory note
receivable for the sale of Prime Contracting Corp. to a related party as
follows: $200,000 in cash payable over 36 months, plus interest calculated at
prime plus 1% and the 36 month option to purchase 250,000 shares of the related
party stock at $.05 per share. The Company recorded a loss from note receivable
restructuring in the approximate amount of $748,000.
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a working capital deficiency of $1,108,507 at June 30,
1999 as compared to a working capital deficiency of $1,963,000 at December 31,
1998.
In March 1998, the Company 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 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 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 in accordance with their percentage interests in the Company.
On May 7, 1998, the Company entered into an agreement to sell 70% of
its 72% ownership of Open MRI of Morristown, Joint Venture (Open MRI) for
$300,000. The terms required $100,000 payable at signing, and monthly payments
in the amount of $50,000 on May 1, June 1, July 1 and August 1, 1998, all of
which were paid. 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, 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 the Company effectively sold 70% of its interest
in Open MRI for $300,000 and the purchaser's agreement to provide the Company's
creditor, DVI Business Credit, personal guaranties of the principals of
purchaser in an amount not to exceed $150,000. The Company recorded a gain on
this transaction in the amount of $30,171. The Company has retained a 2%
ownership interest in Open MRI.
In September 1998, the management contract with Southern Medical
Consultants LLP was
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terminated for the management of Open MRI of Metaire. According to the letter
agreement of March 30, 1998, if Southern Medical is not active in the site nor
managing the site through the end of the lease payments, then no stock transfers
will be made. No stock transfer has been made.
During 1998, the Company 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, the Company 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 six months
ended June 30, 1999 the outstanding balance has been further reduced to
$543,000. The Company 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.
During 1998, the Company 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 Company employees.
In July 1999, the Company 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. The Company received gross
proceeds of $283,000, before offering expenses of approximately $49,590, which
the Company intends to use for working capital and general corporate purposes.
These are the only trends, commitments, events and/or material
uncertainties known to the Company.
VALUATION OF ACCOUNTS RECEIVABLE:
The Company values its uncollected accounts receivable as part of its
determination of profit. The Company constantly reviews the accounts receivable
valuation. The continuing monthly review, gathering of additional information,
as well as changing reimbursement rate, may cause adjustments to the accounts
receivable valuation.
YEAR 2000 COMPLIANCE:
Many computer systems and software products worldwide and throughout
all industries will not function properly as the year 2000 approaches unless
changed, due to a once-common programming standard that represents years using
two-digits. This is the Year 2000 problem that has received considerable media
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coverage. 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, 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 may be affected.
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BUSINESS
Modern Medical Modalities was incorporated in the State of New Jersey
on December 6, 1989. Modern Modalities Corporation was incorporated in the State
of New Jersey on June 4, 1990. The two companies had common ownership, directors
and officers. In July 1992, the two companies were merged under the laws of the
State of New Jersey, by way of an agreement which accounted for the combination
as a tax-free merger. The surviving corporation is known as Modern Medical
Modalities Corporation.
On March 12, 1999, the Company's effected a 1 for 2 reverse split of
its common stock.
Modern Medical Modalities Corporation leases magnetic resonance imaging
("MRI") and computerized axial tomography ("CT Scan") equipment to hospitals and
physicians. Additionally, the Company on a clerical and administrative level
manages hospital based and physician managed ambulatory centers for third
parties who provide medical imaging services. The Company, however, does not
perform medical services. The Company offers a full range of services to
hospitals or physician clients, including the selection and acquisition of
appropriate equipment, the design and supervision of facility construction, the
provision and training of technical and support staff, patient billing and
collection and the provision of overall marketing and management services. The
Company can provide either its full range of services at medical technology
centers or a more limited range of services at mobile or fixed sites depending
on the needs of its customers.
The Company presently leases equipment and manages 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).
The Company also receives a management fee of 11.25% of gross cash collections
from the site in Union, New Jersey for performing management functions. The
Company's relationship with the joint-ventures range from 2% through 84% equity
interest.
JOINT VENTURES
UNION JOINT VENTURE
In July 1990, the Company entered into a Joint Venture Agreement with
Union Imaging Associates, Inc. (the "Union Joint Venture") for the purpose of
providing magnetic resonance and CT Scan imaging services to radiologists and
other medical professionals, including leasing and financing equipment for use
in such business. The Union Joint Venture shall terminate upon the earliest of
(i) June 30, 2010, (ii) the sale of the subject business or (iii) mutual
agreement of the joint venturers. The Company serves as the managing joint
venturer pursuant to the Union Joint Venture Agreement and as such has
managerial responsibility for the subject business including, placing of
personnel, leasing equipment, budgeting, contracting, billing, paying debts,
making lease payments and making distributions to the joint venturers.
The Company shall continue to serve as managing joint venturer until
the Company's liability under the Union Joint Venture's equipment lease with DVI
Financial is satisfied. Thereafter, the Company shall continue to serve as the
managing joint venturer until the earlier to occur of: (i) the Company's
resignation upon 60 days notice to Union Imaging or (ii) 60 days after receipt
of notice from Union Imaging that the holders of at least 80% of Union Imaging's
stock had voted to terminate the Company as managing joint venturer. For serving
as managing joint venturer the Company receives 11.25% of gross collections for
a management fee as well as a 10% equity position.
PLAINFIELD JOINT VENTURE
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In July 1991, the Company entered into a Joint Venture Agreement with
Plainfield MRI Associates, Inc. (the "Plainfield Joint Venture") for the purpose
of providing magnetic resonance imaging services and equipment to radiologists
and other medical professionals, including leasing and financing equipment for
use in such business. The Plainfield Joint Venture shall terminate upon the
earlier of (i) July 30, 2011; (ii) the sale of the subject business; (iii)
termination of the Agreement dated April 25, 1991 with Muhlenberg Regional
Medical Center, Inc., and the Plainfield Joint Venture being unable to relocate
the subject business to another profitable site; (iv) the subject business being
determined unprofitable for 3 consecutive calendar months at the sole discretion
of the Company; (v) the repossession of equipment pursuant to the Equipment
Lease with DVI Financial dated December 1, 1993; or (vi) mutual consent of the
joint venturers.
The Company serves as the managing joint venturer pursuant to the
Plainfield Joint Venture Agreement and as such has managerial responsibility for
the subject business including, hiring of personnel, leasing equipment,
budgeting, contracting, billing, paying debts, making lease payments and making
distributions to the joint venturers.
The Company shall continue to serve as managing joint venturer until
the Company's liability associated with the subject business to DVI Financial is
satisfied. Thereafter, the Company shall continue to serve as managing joint
venturer until the Company's resignation upon 60 days notice to Plainfield MRI,
Inc.
The interests of the Company and Plainfield MRI, Inc. in the profits
and obligations and liabilities under the Plainfield Joint Venture Agreement are
84% and 16% respectively.
BETH ISRAEL JOINT VENTURE
In June 1995, the Company entered into a Joint Venture Agreement with
Beth Israel MRI Corporation and Advanced Imaging Radiology Associates P.A. to
provide certain non-professional services to an MRI facility which was developed
by the Company, and is located on the campus of Beth Israel Hospital. The term
of the Agreement is for a seven (7) year period with an automatic renewal
provision for successive seven year periods. The Company has a 75% interest in
the profits, obligations and liabilities under the Joint Venture Agreement.
METAIRE MEDICAL EQUIPMENT LEASING
In June 1997, Metaire Medical Equipment Leasing was incorporated in the
state of New Jersey, as a 100% owned subsidiary of the Company. In October 1997,
Metaire Medical Equipment Leasing Corporation was registered as a Corporation
doing business in the State of Louisiana. Under the terms of the venture
agreement the Company will receive 100% of the profits and equity of Open MRI of
Metaire. The site opened for business in February of 1998. There is an agreement
with an unaffiliated group that providing they raise $250,000 and provide other
management consideration, they will receive 34% of the site. To date the
$250,000 has been raised, but the management obligations have not yet been met.
In March 1998, the Company 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.
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<PAGE>
In September 1998, the management contract with Southern Medical
Consultants LLP was terminated for the management of Open MRI and Imaging Center
of Metaire. According to the letter agreement of March 30, 1998, if Southern
Medical is not active in the site nor managing the site through the end of the
lease payments, then no stock transfers will be made. To date no stock transfer
has been made.
SOUTH JERSEY MEDICAL EQUIPMENT LEASING CORPORATION
On October 12, 1994, Modern Medical Modalities Corporation, formed a
New Jersey corporation, South Jersey Medical Equipment Leasing Corp. ("South
Jersey Medical").
On December 29, 1994, South Jersey Medical, which is 100% owned by
Modern Medical Modalities Corporation, purchased for $1,550,000 certain assets
and liabilities of NRM Imaging Associates, Partnership, an entity that leases
MRI and CT equipment. South Jersey Medical will provide space, equipment (MRI
and CT Scanner) and non-professional services, including management and billing
and collection functions to South Jersey Imaging Associates, P.A. located at 55
East Route 70, Marlton, New Jersey.
OPEN MRI OF MORRISTOWN
During February of 1996, the Company under the terms of a joint venture
with RMC Consulting Inc. and one individual developed a MRI facility located in
Morristown, New Jersey. Under the terms of the agreement, dated October 31,
1995, the Company has the responsibility to 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, 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 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 the Company be
replaced by September 30, 1998 as a condition of satisfactory settlement of the
loan. For services rendered between May 7, 1998 and the date of maturity of this
loan, all distributions made to the lending parties by Open MRI will remain the
property of the lending parties.
On September 30, 1998, the Company effectively sold 70% of its interest
in Open MRI for $300,000 and the purchaser's agreement to provide the Company's
creditor, DVI Business Credit personal guaranties of the principals of purchaser
in an amount not to exceed $150,000. The Company recorded a gain on this
transaction in the amount of $30,171.
20
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WEST PATERSON MEDICAL LEASING CORPORATION
In July 1996, the Company, through its wholly-owned subsidiary West
Paterson Medical Equipment Leasing Corporation ("WPMEL"), entered into a lease
and management services agreement (the "Agreement") with Advanced Imaging &
Radiology Associates, P.A. ("M.D."). WPMEL is a medical practice specializing in
diagnostic imaging located in West Paterson, New Jersey. The Agreement provides
that WPMEL will lease office space, fixtures and equipment and will provide
management services to M.D. over an initial term of five years with a five year
renewal option. Under the terms of the Agreement, WPMEL has assumed all debt,
expenses and accounts receivable for the site. Subsequently, in February 1997
the Company ordered a Toshiba CT Scan for the site, for $335,000, financed by
DVI Financial Services. The CT Scan became operational in the middle of March
1997.
MEDICAL IMAGING INDUSTRY
The Company has positioned itself to participate in the expanding
managed health care market. The Company will continue to aggressively seek to
joint venture with hospital and physician managed ambulatory centers. The
Company intends to expand its marketing efforts by establishing new sources of
patient referrals to its existing centers in the next year. These patient
referrals consist of Health Maintenance Organizations (HMO), Preferred Provider
Organizations (PPO), Union Contracts and Hospital Contracts.
The Company has focused on the advanced imaging technologies of MRI and
CT Scan. The use of these technologies has grown significantly in the United
States during the last several years due to increasing physician acceptance of
the value of advanced imaging technologies in the early diagnosis of disease.
Hospitals are facing competitive pressures to provide technology and related
services despite strict budgetary limitations and are increasingly utilizing
third parties, such as the Company, to provide the necessary facility and
related services because of the substantial equipment and personnel costs
involved.
Generally, the centers participate in specific HMO or PPO programs
because the Company finds that many of the physicians who refer to the centers
belong to the HMO or PPO. There are instances when the centers initiate contact
with various third parties to provide services to their membership. This is
usually the case with the larger insurance plans. In the case of unions or
managed care programs contacts are usually made by the benefit managers
representing the various programs. Usually, the centers are recommended by the
physicians in the area.
In most cases the Company is approached by a group of physicians or a
hospital who are looking to install a MRI or CT scanner. The Company first
reviews the location that the equipment is to be placed in and reviews a general
outline or business plan. Information that is presented includes other centers
in the area, patient financial class, patient demographics in the area served,
and potential referring physicians. In the case of a hospital, the Company
requests the number of MRI and CT scanning that the hospital sends to other
facilities. The Company also contacts neighboring sites to determine the waiting
time for scheduling an exam to see if patients are waiting an excessive amount
of time for an exam. The Company contacts potential referring physicians to
determine if they are experiencing problems with existing facilities and if they
would support a new facility. Managed care groups and HMO's are contacted to
determine if contracts for providing service are available and to ascertain the
membership in the catchment area of the potential new sites. If the site is
considered to be positive a request is made to the various equipment
manufacturers for a bid on the equipment the Company deems necessary. After all
information needed by the Company is received, the Company determines the
financial viability of the project. Based on the criteria above, the Company
reviews each site to determine if utilization and proliferation of the equipment
and services is a concern.
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<PAGE>
Medical diagnostic imaging systems facilitate the diagnosis of disease
and disorders at an early stage, often minimizing the amount and cost of care
needed to stabilize or cure the patient and frequently obviating the need for
invasive diagnostic procedures, such as exploratory surgery. Diagnostic imaging
systems are based on the ability of energy waves to penetrate human tissue and
generate images of the body which can be displayed either on film or on a video
monitor. Imaging systems have evolved from conventional x-ray to the advanced
technologies of MRI and CT Scan.
MRI is an advanced imaging system that uses a strong magnetic field and
radiowaves to allow physicians to explore the inner workings of the human body.
The pictures produced by this technology assist the doctor in detecting and
defining the differences between healthy and diseased tissue.
CT is a specialized method of examining various body parts using x-rays
and computer reconstructions to form a cross sectional image. During the exam
the x-ray tube travels completely around the body and the computer reconstructs
the information to form a cross sectional image. A series of these images, or
slices, is taken through the area of interest, providing the physician with a
detailed look at structures not otherwise seen with regular x-rays.
The Company has focused its efforts on leasing and managing fully
equipped MRI and CT centers at hospitals and physicians' offices. The use of
these technologies has grown significantly in the United States during the last
several years due to increasing physician acceptance of the value of advanced
imaging technologies in the early diagnosis of disease, the expanding
applications of CT and MRI and the growing patient base attributable to an aging
population.
In addition, changes in third party reimbursement systems have resulted
in declining profit margins for many hospitals, thus reducing capital available
to hospitals, thereby reducing their traditional incentives to purchase or lease
equipment and pass such costs through to third parties. By leasing equipment and
purchasing services from companies such as the Company, hospitals are able to
conserve their limited capital resources for other purposes and reduce the risks
associated with technical obsolescence and under utilization of equipment and
services.
SERVICES PROVIDED
The Company offers the full range of services discussed below. The
needs of a particular hospital or physician group determine the extent of the
services offered in each instance, which the Company can deliver either on a
more limited basis or through a full service medical technology center. Each
site is staffed by administrative, technical and support personnel. In addition,
a physician and a physician group provide professional services and interpret
MRI or CT scans at each site. The Company does not engage in the practice of
medicine. Such physicians are not employees of the Company. However, the most
significant cost of operating an imaging center is the capital and finance costs
of equipment.
The Company provides equipment and related services, technical and
support staffing, marketing, patient scheduling, billing and collection and
management in all of the Company's sites located throughout New Jersey and at
the Company's new site in New Orleans, Louisiana.
EQUIPMENT AND RELATED SERVICES. The Company consults with its potential
clients and existing clients to identify the equipment best suited to meet the
client's needs on a cost-effective basis. The Company then acquires the
equipment through lease/purchase agreements. In addition, the Company assists
the hospital or physicians and their personnel in complying with licensing and
other regulatory requirements, which consist of all applicable county building
permits and architectural filings as well as filing all necessary equipment
registration forms with the applicable state agencies. The Company supervises
the installation and testing of
22
<PAGE>
the equipment and provides periodic inspection of the equipment at the facility.
The Company undertakes to maintain its clients' equipment and typically enters
into agreements with equipment manufacturers or other third parties for the
delivery of maintenance services.
TECHNICAL AND SUPPORT STAFFING. The Company provides technologists who
operate the equipment at the facility. The Company trains and provides on-going
safety instruction and educational programs for its technologists as well as the
hospital's technologists. The Company also provides clerical personnel to
provide administrative duties such as scheduling and answering phone inquiries.
MARKETING. The Company provides its customers with marketing services,
including the design and formulation of a marketing program for each facility to
inform physicians in the community as to the technology and services available
at the facility. The Company also provides marketing personnel who market
patient referral sources, including HMOs and other health plans.
PATIENT SCHEDULING, BILLING AND COLLECTION. At the medical technology
centers, the Company schedules patient appointments, prepares all patient
billing and is responsible for collection. In providing billing and collection
services, the Company bills the patients directly and, therefore, assumes the
credit risk on such billings and any delays attendant to reimbursement through
governmental programs or third party payors. The Company also is responsible at
the centers for related administrative and recordkeeping functions and all
management information services.
MANAGEMENT. The Company assumes full managerial responsibility and
control over facility operations, including all of the foregoing services, at
medical technology centers.
DELIVERY OF SERVICES
The Company delivers its services to its customers through either
contractual arrangements with hospitals and clinics or medical technology center
arrangements with hospitals or physician groups, as discussed below. The Company
may form imaging centers utilizing a variety of ownership vehicles. Presently,
the Company operates its sites under joint venture agreements. Other structures,
which may be used in a center can be one of the following:
PARTNERSHIP. The Company forms a partnership with another entity such
as a hospital, physician group or the like. The costs associated with the
project can be assumed by the Company or apportioned to each partner. The
Company provides the management and receives a management fee in addition to
having an ownership position.
MEDICAL TECHNOLOGY CENTERS. The Company will establish a medical
technology center within a Hospital Center or with a physician group ("Radiology
Group Center") through which the Company will offer its full range of services.
A Hospital Center involves only the Company and a hospital, whereas a Radiology
Group Center generally involves the Company (as managing general partner), and a
radiology physician group. A Hospital Center is located on a hospital campus, is
affiliated with that hospital and provides both inpatient and outpatient
services; whereas a Radiology Group Center is a free standing center that is not
affiliated with a hospital and engages primarily in outpatient services.
23
<PAGE>
When the Company enters into a joint venture with a Hospital the
provisions of the HHS "Anti-Kickback" rules and the AMA policy on self referral
do not generally apply. (See "Licenses, Governmental Reimbursement and
Regulations"). The Hospital does not receive a percentage of profits for
allowing the Company to operate its equipment at the facility.
FEE-FOR-SERVICE. When a hospital requires the Company's services, but
wishes to maintain overall control of the delivery of such services and of the
service facility, the Company may contract to provide its services on a
fee-for-service basis. Under this arrangement, the Company typically furnishes
the hospital with the appropriate equipment, facility and marketing services and
staffing on an as-needed basis. In a typical fee-for-service arrangement, the
Company bills the hospital only for the number of patient procedures performed
each month. The Company charges the hospital for the Company's services and is
not involved in managing the facility. The Company currently has no
fee-for-service arrangement.
If the Company enters into fee-for-service contracts, these contracts
will typically have a term ranging from two to five years. During the term of
the contract, the hospital will grant to the Company the exclusive right to
provide the particular service at the hospital. The Company does not expect to
have any minimum payment requirements in its fee-for-service contracts. The
Company therefore assumes the risk that revenues generated in respect of its
equipment may not be sufficient to discharge the Company's financial obligations
to lenders and lessors and other costs of operations. The Company typically
finances its acquisition of equipment and matches the amortization period of
such financial obligations to the term of the hospital contract. However, the
amortization period for a specific piece of equipment may extend beyond the term
of the related contract, requiring the Company to finance any resulting negative
cash flow. The Company attempts to manage these risks by reviewing a prospective
hospital's utilization history and prospects and, through its sales force,
remarketing equipment upon termination of contracts.
A hospital requiring part-time service will engage the Company to
schedule its mobile unit to be on location at the hospital at prescribed times.
The Company maintains a mobile unit which is a custom-designed vehicle that is a
totally self-contained facility.
RADIOLOGY GROUP CENTERS. The Company began its medical technology
center operations by establishing free standing, outpatient imaging centers with
groups of radiologists. The Company does not at present utilize services with
the hospitals. Set forth below is a table of the Company's centers, listing
their respective services.
<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
24
<PAGE>
<S> <C> <C> <C>
West Paterson Medical Equipment No No Yes
Leasing Corp.(3)
Metaire Med. Equipment Leasing Yes No No
------------------------------------
MEDICAL TECHNOLOGY 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, the Company, the managing joint
venturer, and Union Imaging Associates Inc. ("UIA"). The Company has a
10% interest and UIA has a 90% interest in the Joint Venture.
(2) This Joint Venture was organized in October 1995 for the purpose of
providing MRI services to Medical professionals. The Joint Venture has
three joint ventures: the Company, RMC Consulting, Inc. and Barbara
Krasnica. In September 1998, the Company sold 70% of its 72% ownership
interest for $300,000 and certain other conditions. See "Certain
Relationships and Related Party Transactions."
(3) In July 1996, the Company through its wholly-owned subsidiary entered
into a lease and management service agreement with Advanced Imaging and
Radiology Services P.A. to provide office space, fixtures and
diagnostic imaging equipment to the P.A. for five years with a renewal
for five years.
(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, the Company, the managing joint-venturer, and Plainfield
MRI Associates, Inc. ("PMA"). The Company has an 84% interest and PMA
has a 16% interest in the joint venture.
(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, the Company, the managing joint-venturer and Beth Israel
MRI Corporation and Advanced Imaging Radiology Associates P.A. ("PBI").
The Company has a 75% interest and PBI has a 25% interest in the joint
venture.
Each of the above agreements involved an initial financial commitment
on the part of the Company ranging between $1 million and $3 million per center,
which includes equipment, installation, facility construction and start-up
working capital. Equipment, which is generally leased, represents the greatest
commitment by the Company. The Company's commitment is offset only by such
revenues as are generated from the utilization of the center.
HOSPITAL CENTERS. The Company had embarked on a program to establish
additional medical technology centers ("Hospital Centers") in conjunction with
hospitals by entering into arrangements to operate full service Hospital Centers
located in or near hospital campuses. The Company's first Hospital Center opened
on June 28, 1991 and the Passaic site on October 14, 1992, both of which were
subsequently closed.
25
<PAGE>
In addition to the equipment and facility services provided in its
arrangements, the Company provides at a medical technology center all technical
and support staffing; expanded marketing services; patient scheduling, billing
and collection services; management information systems; and overall management.
GROWTH STRATEGY AND MARKETING
The Company markets its services to physicians and hospitals through
various methods. These include telemarketing, direct solicitation, direct mail,
sponsorship of in service education programs for physicians and technical staff,
and personal visits to physician offices. The Company also attends many of the
large radiology shows throughout the country.
The Company is pursuing a strategy of seeking new Hospital Centers and
physician managed ambulatory centers. Its target markets also include hospitals
without a diagnostic imaging facility, to which the Company can offer its
part-time mobile units. The Company will engage in intensive marketing in areas
of specialized physician groups, chiropractors, health maintenance organizations
(HMO), preferred provider organizations (PPO), union locals, municipalities and
insurance companies. The Company currently negotiates discounts with large
suppliers of patients as allowed by law. The Company's objective is to respond
to the concerns of spiraling health care costs while maintaining quality of care
to the patient. This is attainable based on the premise that increased volume
results in a reduction of cost per can which is passed along to the Company's
contracted clients.
The Company applies a variety of criteria in evaluating each
prospective hospital customer. These criteria include the extent of the
hospitals' present diagnostic imaging services; its competitive environment; the
size and type of hospital; the number of referring physicians and their
specialties; the patient volume and the nature of the payors (private insurance
programs, government reimbursement programs or other health or medical
organizations).
The Company's plan of operation will be to continue to expand the
equipment use of its current customers during the remainder of this year. The
Company will, with its direct marketing efforts, continue to seek for new
clients, whether through acquisition of sites or startups.
TECHNOLOGY SOURCES
The Company obtains its medical equipment and ancillary supplies from
various manufacturers, including General Electric, Toshiba, Siemens, Philips,
Picker, Hitachi, DuPont and Kodak. The Company is not dependent on any one
supplier and believes that it has good relationships with its suppliers.
Equipment acquisition costs can range dramatically depending upon the
model and peripheral equipment acquired. Currently, MRI equipment ranges from
$1,000,000 to $2,000,000, extremity RI and CT equipment currently ranges from
$300,000 to $800,000.
Installation and maintenance costs on the equipment can be substantial,
particularly with respect to MRI units. Installation costs can range from
$250,000 to $500,000 for an MRI unit depending on the particular installation
circumstances. Maintenance costs on such a unit can be as high as $200,000 per
year.
26
<PAGE>
The Company typically enters into agreements with equipment manufacturers or
other third parties for equipment maintenance.
Equipment is financed by the Company (typically with a five year term)
with lenders and lessors, with equipment serving as security for the loans. The
Company's acquisition methods (purchase or lease) will depend upon the specific
circumstances of each transaction.
SUPPLIES
The Company's equipment and supplies are available from a variety of
sources. The loss of no single supplier would be expected to have a material
adverse effect on the Company.
LICENSES, GOVERNMENTAL REIMBURSEMENT AND REGULATIONS
LICENSES. Since the Company leases MRI and CT equipment as well as
providing clerical and administrative services to hospital based and physician
managed ambulatory centers, its activities are not subject to material
governmental regulation. The Company does not perform medical services. However,
the government regulations do apply to the Company with respect to payment on
third party Medicare and Medicaid reimbursement. The Company is subject to the
"Anti-Kickback" Laws, the "Stark Bill" as well as in New Jersey, the Health Care
Cost Reduction Act which are discussed herein. In the future, however, the
Company may be required to maintain licenses or certificates of need issued by
individual states. A number of states require hospitals to obtain a
Certificate-of-Need ("CON") prior to the acquisition of major medical equipment.
The CON programs vary considerably from state to state, but all attempt to
regulate the acquisition of expensive medical equipment purchases involving
technologies whose capital costs exceed some specified threshold or whose
introduction at the hospital represents a significant change in services. Some
states also regulate the acquisition of diagnostic imaging equipment indirectly
through rate commissions which prescribe hospital rates. To date, the CON laws
and regulations and state rate commissions have not had a material effect on the
Company's business, although there is no assurance that such laws and
regulations will not change or that rate commissions will not take actions that
may adversely affect the Company's business.
To the best of the Company's knowledge, there are no current
regulations in the State of Maryland that adversely affect or are material to
the Company's operations. The State of Maryland has recently passed legislation
that restricts physicians from being investors in imaging centers. There are no
physician investors who will refer patients in the Bowie, Maryland Joint
Venture.
GOVERNMENT REIMBURSEMENT. In major areas of its business, the Company
relies for payment on third party (in large part governmental) reimbursement.
Its charges are predominantly paid either directly by third party payors or by
its clients which in turn receive reimbursement from such sources.
Medicare and Medicaid reimbursement regulations require that purchased
diagnostic services be billed directly by the physician. This regulation allows
a physician to bill and collect directly for services. Medicare regulations call
for predefined fee schedules to be used for all medicare approved patients. The
difference between the amount the Company charges and the limiting charge must
be written off or disallowed. Medicare, for assigned patients, will pay 80% of
the allowed amount, the remaining 20% is the patient's or a co-insurer's
responsibility.
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<PAGE>
The centers that the Company is affiliated with all participate in many
reimbursement programs such as Medicare and Medicaid as well as other private
insurers. Under these arrangements the Center agrees to accept the approved
amount of reimbursement from each individual payor. Monthly statements are only
sent out when allowed by contractual arrangements with the insurers.
REGULATIONS. In order to curb the potential for fraud and abuse under
the Medicare and Medicaid programs, Congress has enacted certain laws (the
"Anti-Kickback Laws") prohibiting the payment or receipt of any remuneration in
return for the referral of patients to a healthcare provider for the furnishing
of medical services or equipment, the payment for which may be made in whole or
in part by the Medicare or Medicaid programs. New Jersey, as well as other
states, have enacted similar state laws. The Anti-Kickback Laws apply to both
sides of the referral relationship: the provider making the referral and the
provider receiving the referral. Violation of the Anti- Kickback Laws is a
criminal felony punishable by fines of up to $25,000 and/or up to five years
imprisonment for each violation. Federal law also permits the Department of
Health and Human Services ("HHS") to assess civil fines against violators of the
Anti-Kickback Laws and to exclude them from participation in the Medicare and
Medicaid programs. These civil sanctions can be imposed in proceedings that do
not involve the same procedural requirements and standards of proof as would be
required in a criminal trial.
The Anti-Kickback Laws are broadly drafted and judicial decisions
rendered thus far, while made in the context of overt payments explicitly in
exchange for referrals, have broadly interpreted the scope of these laws.
Several federal courts considering the issue, including the U.S. Court
of Appeals having jurisdiction over New Jersey, have concluded that the
Anti-Kickback Laws would be violated if "any purpose" of a challenged economic
arrangement is to induce or pay for referrals, no matter how incidental that
purpose may be or how many other legitimate purposes may exist for the
arrangement in question. Accordingly, many types of business relationships
between healthcare providers, including investments in healthcare providers by
physicians, hospitals or others who are in a position to refer patients could be
held to fall within the prohibitions of the Anti-Kickback Laws or similar state
laws.
The American Medical Association (the "AMA") has reaffirmed its
original Guidelines which were issued on May 6, 1992, which stated that
physicians should not refer patients to a health care facility outside their
office in which they do not have an active participation and only a passive
investment interest. These are ethical rules and recommendations of the AMA and
they do not have a binding legal effect.
HHS has adopted regulations specifying "safe harbors" for various
payment practices between providers and their referral sources. If a payment
practice were to come within the safe harbor and were not a "sham" to circumvent
the law's requirements, it would not be treated as an illegal Medicare/Medicaid
kickback or grounds for exclusion from the Medicare/Medicaid programs. While
failure to fall within a safe harbor does not mean that the practice is illegal,
HHS had indicated that it may give such arrangements closer scrutiny. In their
present form, no safe harbor would cover an investment interest in the Company.
The Company cannot predict whether other regulatory or statutory provisions will
be enacted by federal or state authorities which would prohibit or otherwise
regulate referrals by physicians to the Company thereby having a material
adverse effect on the Company's operations.
28
<PAGE>
The federal "Ethics in Patient Referrals Law of 1989", often referred
to as the "Stark Law", prohibited a physician with a "financial relationship"
with an entity that furnishes clinical laboratory services (or a physician with
an "immediate family member" with such a relationship) from making a referral to
that entity for clinical laboratory services for which payment may be made under
that entity for clinical laboratory services for which payment may be made under
Medicare. It also prohibited that entity from billing Medicare, an individual, a
third party payor, or other entity, for an item or service furnished pursuant to
a prohibited referral. It required any entity that collects any amounts as a
result of such a billing to refund those amounts. The law provided certain
exceptions, namely, certain situations that would not constitute referrals, and
certain situations that would not constitute a "financial relationship."
Later amendments to the Stark law extended the original prohibition on
referrals and billing to cover ten additional "designated health services," in
addition to clinical laboratory services, and extended the ban to services
payable under Medicaid, both beginning with referrals made after December 31,
1994.
The "designated health services" are clinical laboratory services;
physical therapy services (including speech language pathology services);
occupational therapy services; radiology services (including any diagnostic test
or treatment using x-rays, ultrasound or other imaging services, CT scan, MRI,
radiation or nuclear medicine, however, excluding invasive radiology where the
imaging modality is used to guide a needle, probe or catheter (such as cardiac
catheterization), and thus is clearly incidental to a separate major procedure;
also excluding screening mamography); radiation therapy services and supplies;
durable medical equipment and supplies; parenteral and enteral nutrients,
equipment and supplies; prosthetics, orthotics, and prosthetic devices and
supplies; home health services provided by a home health agency; outpatient
prescription drugs; inpatient and outpatient hospital services, whether provided
by the hospital or by others under arrangements with the hospital for which by
the hospital or by others under arrangements with the hospital for which the
hospital bills, but not including services provided by the hospital under a
separate license, such as home health care or physical therapy provided by a
hospital-owned home health agency or skilled nursing facility.
In 1991, New Jersey enacted the Health Care Cost Reduction Act, or
so-called "Codey Bill", (N.J.S.A. 45: 9-22.4 et seq.) which provided in part
that a medical practitioner shall not refer a patient, or direct one of its
employees to refer a patient, to a health care service in which the practitioner
and/or the practitioner's immediate family had any beneficial interest. The bill
specifically provided that for beneficial interests which were created prior to
the effective date of the Act, July 31, 1991, the practitioner could continue to
refer patients, or direct an employee to do so, if the practitioner disclosed
such interest to his patients. The disclosure must take the form of a sign
posted in a conspicuous place in the practitioner's office informing the
patients of such interest and stating that a listing of alternative health care
service providers could be found in the telephone directory. All physicians who
refer in the sites in New Jersey and also have a financial interest in those
sites have a sign posted as mandated by the law.
Under the present "Stark Bill", a physician who has a financial
relationship with an entity may not make a referral to the entity for the
furnishing of clinical laboratory services for which payment is made under the
Medicare or Medicaid programs. The Stark Bill, passed with an effective date of
January 1, 1995, will expand the application of the Medicare ban on self-
referrals after December 31, 1994. The Stark Bill also extends the self-referral
ban to physical therapy services, radiology services including MRI and CT Scans,
ultrasound services, radiation therapy services and the furnishing of durable
medical equipment, the furnishing of parenteral and enteral nutrition equipment
and supplies, the furnishing of out-patient prescription drugs, ambulance
services, home infusion therapy services, occupational therapy services and
in-patient and out-patient hospital services (including services furnished in a
psychiatric or rehabilitation
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<PAGE>
hospital). As of the date of this filing, the Company has not experienced any
material adverse effects of limited Medicare and Medicaid referrals.
Presently there is physician investor ownership in two of the sites in
which the Company participates. The Stark Bill provides that a physician who has
a financial relationship with an entity cannot make a referral to the entity for
the furnishing of various radiology services including MRI and CT services.
Under the provision of the Bill, those physicians which invest in the Company's
sites will not be allowed to make referrals of which Medicare and/or Medicaid
payments are made.
For the two sites that the Company participates in, the
Medicare/Medicaid percentage for physician investors for Union Imaging
Associates is approximately 4.8% and Plainfield M.R.I. Associates is
approximately 2%. The third site, Doctors Imaging Associates does not have
physician investors who refer patients. Based upon the low utilization of
Medicare/Medicaid volume of physician investors the Company has no plans to
restructure any of its physician investor sites. Any new sites that the Company
may develop in the future will not have any referring physician investors.
COMPETITION
The Company faces competition from various other companies ranging from
small local companies to those operating on a regional or national scale.
Although these companies may be more experienced or have more financial
resources at their disposal, the Company competes in the marketplace on the
basis of its performance in the industry, its reputation for the quality of its
services and its expertise in tailoring the structure of its contractual
arrangements and services to meet the specific needs of its customers. The
Company believes that few of its competitors provide the Company's range of
services from full service medical technology centers to more limited mobile and
fixed site arrangements. The Company maintains close working relationships with
three major equipment manufacturers. Representatives of these manufacturers have
been introducing the Company to various clients in an effort to arrange joint
ventures and then sell equipment.
The Company's imaging centers compete for patients with other hospitals
and radiology groups in their area. These centers and hospital customers compete
on the basis of efficiency and service.
INSURANCE
The Company carries general liability insurance with coverage of up to
$1,000,000 per claim and a commercial umbrella policy of $10,000,000. The
Company believes that such coverage is adequate. Additionally, the Company
maintains general liability, commercial umbrella and insurance for the
replacement of all leased equipment at each of its facilities.
EMPLOYEES
As of June 30, 1999, the Company 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>
30
<PAGE>
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 JOINT VENTURE SITES
The Company as managing Joint-Venturer has entered into an equipment
lease/purchase agreement with a non-affiliated party, DVI Financial, dated
December 1, 1993 ("Equipment Lease") which provides for the lease/purchase of
one Picker 1.OT mobile MRI unit in a Calumet Coach payable over a 60 month term
with payments each of $36,350 which is being charged as an expense of the
Company. On June 15, 1998, the Company refinanced the lease purchase of the
Picker 1.OT mobile MRI unit, reducing its monthly rental payment to $13,407 per
month for a period of thirty-six (36) months. The Company is current in all its
payments. This leased equipment is presently located at the Muhlenberg Regional
Medical Center in Plainfield, New Jersey.
The Company, as managing Joint-Venturer, has entered into an equipment
lease/purchase agreement with a non-affiliated party, DVI Financial, dated
December 1, 1993 ("Equipment Lease") which provides for the lease/purchase of
MRI and CT equipment payable over a 60-month term with payments each at $44,331
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. The Company
financed an Open MRI in Union, New Jersey in 1996 which is payable over a 60
month term at $23,403 per month. The Company is current in all of its payments.
The Company, as managing Joint-Venturer, has entered into an agreement
with a non-affiliated party Beth Israel MRI Corporation and Advanced Imaging
Radiology Associates P.A. to provide certain non-professional services to a MRI
facility which was developed by the Company and is located on the campus of Beth
Israel Hospital. This agreement is for a 60-month term with payments each of
$38,245. The Company is current in all of its payments.
During the last quarter of 1998, the Company refinanced its lease with
DVI Financial Services for the Beth Israel MRI Center. Under the terms of the
refinancing the Company extended the lease/purchase with DVI for sixty months
for the unpaid balance. The resulting refinance will lower the monthly payments
from $38,245 to $21,159.
During the last quarter of 1998, the Company refinanced its lease with
DVI Financial Services for the South Jersey Equipment Leasing Corporation site
in Marlton, New Jersey. Under the terms of the
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refinancing, the Company extended the lease/purchase with DVI for sixty months
for the unpaid balance. The resulting refinance will lower the monthly payments
from $35,092 to $23,271.
LEGAL PROCEEDINGS
The Company has been named in a legal suit brought by Stephen Findlay,
former President of Prime Contracting, one of the Company's former subsidiaries.
Mr. Findlay alleges that he is due certain monies pursuant to his employment
agreement, under which he was terminated from the present owners of the
subsidiary. The Company believes it has meritorious defenses and will rigorously
defend the suit.
The Company has been named as a defendant in bankruptcy court by the
estate of a former member of Detex Services. The Estate claims that the Company
did not fulfill its obligations under a letter of intent. The Company believes
it has meritorious defenses and intends to rigorously defend its position.
Other than the above, the Company is not a party to any material legal
proceedings.
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MANAGEMENT
The officers and directors of the Company, 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 the Company's shareholders and until a successor is
elected and qualified.
ROGER FINDLAY is a co-founder and has been Chairman of the Board of
Directors of the Company since its inception in June 1990. In March 1999, Mr.
Findlay was appointed President of the Company. 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 the Company until November, 1992. Since November 1992, Mr. Goldberg
has been the Vice President, Treasurer and Director of the Company. From 1989 to
1990, Mr. Goldberg was founder and President of GPM, Inc., a physician billing
organization with offices in Florida and New York. From 1987 to 1988, Mr.
Goldberg was operations manager for Advacare, Inc., a practice management and
physician billing company. From 1984 to 1987, Mr. Goldberg was manager of a
multi-specialty radiology practice, BBS Billing, Inc. an east coast diagnostic
physician group which had contracts with hospitals in New York as well as their
own private offices and outpatient facilities. From 1974 to 1984, Mr. Goldberg
held various positions with Blue Cross as well as with hospitals in the New York
area. Mr. Goldberg was involved in setting up fee-for-service reimbursement
systems and was involved in various aspects of hospital administration.
33
<PAGE>
GREGORY MACCIA is a co-founder of the Company and was Vice
President and Director until November, 1992. Since November 1992, Mr. Maccia has
been the Vice President, Secretary and a Director of the Company. Mr. Maccia has
also been President of Technology Services, Inc., a software design and
facilities management company for medical and commercial accounts since 1989.
From 1986- 1989, Mr. Maccia was Vice President of Advacare, Inc., a national
practice management and physician billing company. Since 1986, Mr. Maccia has
been co-founder of Northern New Jersey Medical Management, Inc. He was
co-founder and Vice President of Medical Accounts Management Services, Inc.
(MAMS) from 1984 to 1986 which developed and sold physician, outpatient and
clinical billing software systems. Mr. Maccia, from 1984 to 1986, was co-founder
and Vice President of Effective Management Services, Inc. (EMS), which provided
custom programming and facilities management with contracts to hospitals and
universities in the tri-state area as well as collection agencies and
non-medical entities. From 1977 to 1984, Mr. Maccia owned and managed his own
consulting company.
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 the Company. 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 a
major modular office company specializing in medical systems throughout the
United States.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation for services
rendered in all capacities to the Company, 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 the Company'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 the Company in March, 1999. Dominic Gugliemi served as the Company's
President from August 1998 to March 1999.
34
<PAGE>
<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 the Company, the cost
of benefits, including premiums for life insurance and any other personal
benefits provided by the Company to such persons in connection with the
Company's business and directors fees.
STOCK OPTION PLAN
In July 1999, the board of directors and shareholders adopted the
1999. Stock Option Plan, pursuant to which 500,000 shares of common stock are
provided for issuance. None of such options have been granted to date.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
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.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of September 8,
1999 with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of Common Stock of the Company, each officer and director of
the Company 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 118,048 4.8%
Jan Goldberg 118,046 4.8%
Gregory Maccia 118,046 4.8%
Fred Mancinelli -0- 0.0%
Carl Gideon -0- 0.0%
All officers and directors 354,140 14.4%
as a group (5 persons)
</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.
36
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company 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 the Company
and any of its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Board of Directors and will continue to be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
Doctors Imaging Associates, a Joint Venture whose financial
statements are consolidated with those of the Company has received net
non-interest bearing advances from Doctors Imaging Associates, Inc., a joint
venture, totaling $225,717 and 240,751 at December 31, 1995 and December 31,
1994, respectively. Doctors Imaging Associates, Inc. is obligated to advance up
to $250,000 from time to time for working capital as the Company deems
necessary. These advances are to be repaid prior to any distribution of profits
to the joint venturers.
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, all of
which were made. The Company 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 the Company's President, 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 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 required 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, 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, the Company effectively sold 70% of its
interest in Open MRI for $300,000 and the purchaser's agreement to provide the
Company's creditor, DVI Business Credit, personal guaranties of the principals
of purchaser in an amount not to exceed $150,000. The Company recorded a gain on
this transaction in the amount of $30,171. The Company has retained a 2%
ownership interest in Open MRI.
37
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock, $.0002 par value per share. As of the date hereof, the
Company has 2,446,465 shares of Common Stock outstanding. All outstanding shares
of capital stock of the Company 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 the Company; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; and (iii)
do not have 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, 2000, unless previously redeemed. The Company 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, 2000, unless previously redeemed. The Company 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 the
Company.
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 the Company.
38
<PAGE>
The Board of Directors of the Company 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 the Company'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.
Upon receipt of duly executed redeemable warrants and payment of the
exercise price, the Company shall issue and cause to be delivered, to or upon
the written order of exercising warrantholders, certificates representing the
number of shares of Common Stock so purchased.
The Company has authorized and will reserve for issuance a number of
shares of Common Stock sufficient to provide for the exercise of all redeemable
warrants.
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.
39
<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, 905,334 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 551,194 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, 354,140 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.
40
<PAGE>
SELLING SECURITYHOLDERS
The table below sets forth certain information regarding the
beneficial ownership of the common stock by the selling securityholders and as
adjusted to give effect to the sale of the shares offered in this prospectus.
In July 1999, we sold 148,694 shares of our common stock pursuant to
Regulation D Rule 506 of the Securities Act of 1933, as amended, to eleven
accredited investors. In connection with the private placement we issued 25,000
shares of common stock to Royal Hutton Securities Corporation for acting as
placement agent.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIAL OWNERSHIP SHARES OF COMMON BENEFICIALLY OWNED
NAME OF SELLING SECURITY OF COMMON STOCK STOCK AFTER THE
HOLDER POSITION HELD PRIOR TO SALE TO BE SOLD 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 M. None 5,254 5,254 0.0%
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 Securities None 25,000 25,000 0.0%
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, L.L.C. None 45,000 45,000 0.0%
- --------------------------------------------------------------------------------------------------------------------
Sephlin Beatong None 30,000 30,000 0.0%
- --------------------------------------------------------------------------------------------------------------------
41
<PAGE>
<S> <C> <C> <C> <C>
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 Employee 12,500 12,500 0.0%
- --------------------------------------------------------------------------------------------------------------------
Jody R. Samuels Legal Counsel 15,000 15,000 0.0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Assumes all of the shares of common stock offered are sold.
In recognition of the fact that the selling securityholders 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 on
one or more exchanges or in the over-the-counter market (including the OTC
Electronic Bulletin Board), in privately negotiated transactions, through the
writing of private options on the shares, or otherwise at market prices then
prevailing or at prices related to the then-current market price, at fixed
prices that may be changed, or at negotiated prices. 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, (a) ordinary brokerage transactions, (b) transactions in which the
broker or dealer solicits purchasers, (c) 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 (d) 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
42
<PAGE>
commissions). The selling security holders and such brokers and dealers who act
in connection with the sale of the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, and
any commission received by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
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. None of the proceeds from
the sale of the shares of common stock by the selling security holders will be
received by us. Modern Medical Modalities Corporation and the selling security
holders, have each agreed to indemnify the other against certain liabilities,
including liabilities arising under the Securities Act of 1933, as amended.
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 the Company 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.
ADDITIONAL INFORMATION
We are subject to the information requirements of the Exchange Act of
1934 for foreign issuers, 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 the Company
may be obtained.
43
<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, it may be permitted to directors, officers
and controlling persons of Modern Medical Modalities Corporation pursuant to the
foregoing provisions, or otherwise, we have 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 us of expenses incurred or
paid by a director, officer or controlling person of 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, we will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
44
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Modern Medical Modalities Corp.
We have reviewed the consolidated balance sheet of Modern Medical Modalities
Corp. and Subsidiaries as at June 30, 1999, and the related consolidated income
statements, and cash flows for the six months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Modern Medical Modalities Corp. and
Subsidiaries as at December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended not
presently herein, and in our report dated March 10, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as at
June 30, 1999 is fairly presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Vincent J. Batyr & Co.
Tarrytown, NY
August 6, 1999
F-1
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,934 $ 56,313
Restricted cash for line of credit repayment 600,000 600,000
Accounts receivable (less contractual allowances of
$ 2,544,424 and $ 2,447,579, respectively) 2,510,331 2,816,356
Account receivable - joint venture 3,849 585,607
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 126,368 126,368
Due from affiliates 54,733 77,600
Other receivables 82,456 82,014
Prepaid expenses -- 11,023
----------- -----------
Total current assets 3,708,900 4,672,288
----------- -----------
Other assets:
Furniture, fixtures, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $4,565,769 and $ 5,742,206, respectively) 5,430,288 6,703,426
Note receivable, net of current portion 113,736 113,736
Organization costs (net of accumulated amortization
of $ 29,340 and $ 25,901, respectively) 67,147 71,797
Investment in joint venture 342,314 290,998
Deposits 25,530 40,446
Deferred tax asset 427,376 484,718
Other long term assets -- 6,381
----------- -----------
Total other assets 6,406,391 7,711,502
----------- -----------
$10,115,291 $12,383,790
=========== ===========
</TABLE>
See Notes to Interim Financial Statements
F-2
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 595,552 $ 595,552
Accounts payable 1,258,325 1,892,755
Accrued expenses 355,705 1,029,677
Loan payable - joint venturer 71,942 71,942
Loans payable - affiliates -- 202,000
Current portion of long term debt 2,237,265 2,789,678
Due to affiliate 291,229 49,466
Due to related party 4,389 4,389
------------ ------------
Total current liabilities 4,814,407 6,635,459
------------ ------------
Other liabilites:
Long-term debt, net of current portion 2,817,655 3,034,863
Due to joint venturer -- 218,717
------------ ------------
Total other liabilities 2,817,655 3,253,580
------------ ------------
Total liabilities 7,632,062 9,889,039
------------ ------------
Minority interest 151,620 187,489
Stockholders' equity:
Common stock, $0.0002 par value,
Authorized - 2,500,000 shares
Issued and outstanding - 1,895,271 shares 379 317
Additional paid-in capital 3,866,389 3,866,389
Retained earnings (deficit) (1,535,159) (1,559,444)
------------ ------------
Total stockholders' equity 2,331,609 2,307,262
------------ ------------
$ 10,115,291 $ 12,383,790
============ ============
</TABLE>
See Notes to Interim Financial Statements
F-3
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
------------------------------ ------------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating income:
Net revenue from services $ 1,932,033 $ 4,019,879 $ 977,041 $ 2,223,199
----------- ----------- ----------- -----------
Total operating income 1,932,033 4,019,879 977,041 2,223,199
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 1,177,560 3,773,763 511,589 1,800,672
Bad debts -- 18,504 -- 12,422
Depreciation and amortization 558,681 883,293 278,209 452,630
----------- ----------- ----------- -----------
Total operating expenses 1,736,241 4,675,560 789,798 2,265,724
----------- ----------- ----------- -----------
Income (loss) from operations 195,792 (655,681) 187,243 (42,525)
----------- ----------- ----------- -----------
Other income (expenses):
Interest income 19,135 40,117 13,668 15,599
Interest expense (321,144) (623,251) (156,129) (399,547)
Miscellaneous income -- 78,500 -- 29,600
Income from joint ventures 75,656 164,837 36,617 113,964
Income from minority owned
subsidiary -- -- -- --
Gain (loss) on sale of subsidiary, net of income
taxes of $43,000 and $319,326, respectively 57,000 (423,293) -- (423,293)
Loss on disposal of subsidiary
net of income taxes of $72,268 -- (95,796) -- (95,796)
Restructuring of note receivable
net of income taxes of $321,490 -- (426,160) -- --
----------- ----------- ----------- -----------
Total other income (expense) (169,353) (1,285,046) (105,844) (759,473)
----------- ----------- ----------- -----------
Income (loss) before income taxes
and minority interest 26,439 (1,940,727) 81,399 (801,998)
Provision for income taxes 14,342 (466,677) 52,302 (123,767)
----------- ----------- ----------- -----------
Income before minority interest 12,097 (1,474,050) 29,097 (678,231)
Minority interest 12,188 (60,929) (11,493) (139,191)
----------- ----------- ----------- -----------
Net income (loss) $ 24,285 $(1,534,979) $ 17,604 $ (817,422)
=========== =========== =========== ===========
Basic earnings per share
Net income (loss) $ 0.01 $ (0.48) $ 0.01 $ (0.26)
=========== =========== =========== ===========
Number of weighted shares outstanding:
Basic 1,818,560 3,168,292 1,759,146 3,168,292
=========== =========== =========== ===========
</TABLE>
See Notes to Interim Financial Statements
F-4
<PAGE>
MODERN MEDICAL MODALITIES CORP. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 24,285 $(1,534,979)
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 558,681 883,293
Contractual allowances 96,845 (306,943)
Bad debts -- 18,504
Income from an unconsolidated joint venture (75,656) (164,837)
Minority interest (12,188) 60,929
Deferred income taxes 57,342 (1,379,761)
Loss on sale of subsidiary 57,000 742,619
Loss on disposal of subsidiary -- 168,064
Restructuring of note receivable -- 747,650
Income from unconsolidated affiliate -- --
Increase (decrease) in cash attributable to
changes in operating assets and liabilities:
Accounts receivable 209,180 1,668,760
Accounts receivable - joint venturer 581,758 (220,445)
Other receivable (442) 47,554
Due from affiliate 22,867 (75,600)
Due from officers -- 94,343
Due from related party -- 300,000
Prepaid expenses 11,023 34,105
Deposits 14,916 51,083
Distributions from a joint venture -- --
Due to affiliate 241,763 (23,594)
Due to related party -- (100,000)
Accounts payable (634,430) 242,574
Accrued expenses (673,972) 262,265
Advances from joint ventures (218,717) --
Advances to unconsolidated affiliate -- --
----------- -----------
Total adjustments 235,970 3,050,563
----------- -----------
Net cash provided (used) by operating activities 260,255 1,515,584
----------- -----------
Cash flow from investing activities:
Fixed asset acquisitions (124,506) (723,941)
Fixed assed dispositions 848,562 1,539,665
Proceeds from loan receivable - affiliate -- (7,500)
Restructuring of note receivable -- --
Proceeds from note receivable 27,778 36,111
Organization costs 1,211 --
Investment in joint venture (51,316) (82,547)
Decrease in minority interest (28,834)
----------- -----------
Net cash provided (used) by investing activities 701,729 761,788
Cash flow from financing activities:
Reduction of goodwill -- 1,419,213
Proceeds from issuance of long-term debt 86,460 --
Issuance of capital stock 62 --
Joint venture advances -- --
Disposal of long term debt (443,417) (2,993,493)
Loans payable - affiliates (202,000) --
Principal payments on long-term debt (417,468) (656,509)
----------- -----------
Net cash provided (used) by financing activities (976,363) (2,230,789)
----------- -----------
Net increase in cash and equivalents (14,379) 46,583
Cash and equivalents, begining of year 656,313 719,217
----------- -----------
Cash and equivalents, end of year $ 641,934 $ 765,800
=========== ===========
</TABLE>
See Notes to Interim Financial Statements
F-5
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS
June 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 six month period ended June
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 June 30, 1999 and the results of its
operations for the six month periods ended June 30, 1999 and 1998 and
statements of cash flows for the six month periods ended June 30, 1999
and 1998. The results for the six month periods ended June 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-6
<PAGE>
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.
NOTE 2 - EARNINGS (LOSS) PER SHARE.
Earnings (loss) per share are computed by dividing net income
(loss) by the weighted average number of common stock and common stock
equivalent shares outstanding during each period. Earnings per share -
diluted for the six months ended June 30, 1999 is not presented in the
consolidated statements of operations since it is not dilutive.
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 $57,000, net of income taxes in the amount of $43,000.
NOTE 4 - PROPERTY AND EQUIPMENT, NET.
Property and equipment, net, consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Medical equipment $ 9,134,306 $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
----------- -----------
9,996,057 12,445,632
Less: Accumulated depreciation
and amortization 4,565,769 5,742,206
----------- -----------
F-7
<PAGE>
$ 5,430,288 $ 6,703,426
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Total Long-term Total Total
Assets Debt Liabilities Capital
<S> <C> <C> <C> <C>
June 30, 1999 4,655,407 1,241,912 1,799,406 2,856,001
December 31, 1998 4,485,673 1,271,846 1,741,863 2,743,810
</TABLE>
<TABLE>
<CAPTION>
(10%)
Gross Net Allocation
Revenues Income Of Income
--------------- ------------- --------------
<S> <C> <C> <C>
For the six months ended
June 30, 1999 2,537,025 691,579 69,158
For the year ended
December 31, 1998 4,141,948 1,492,754 149,275
</TABLE>
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
June 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:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Capitalized lease obligations $4,083,940 $4,758,726
Accounts receivable financing (a) 970,980 1,065,815
---------- ----------
5,054,920 5,824,541
Current portion 2,237,265 2,789,678
---------- ----------
F-8
<PAGE>
Long-term debt, net of current portion $2,817,655 $3,034,863
---------- ----------
</TABLE>
(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.
(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 June 30, 1999, the
amount financed under this agreement totaled $970,980.
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 330,000 shares of its
common stock to Allen Wolfson, as compensation, as required by the
advisor agreement.
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.
NOTE 9 - STOCKHOLDERS' EQUITY
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
F-9
<PAGE>
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 $0.01 per share
NOTE 10 - SUBSEQUENT EVENTS
(a) Private Placement Offering.
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.
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.
(b) Consulting Agreement.
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.
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
F-11
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
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>
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, $0.0001 par value,
Authorized - 5,000,000 shares
Issued and outstanding - 3,518,292 and 3,168,292 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>
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
------------ ------------ ------------
Total operating income 6,414,945 10,103,869 12,074,914
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 6,628,492 6,989,141 8,043,674
Bad debts 23,750 29,793 67,582
Depreciation and amortization 1,544,401 1,788,503 1,761,294
------------ ------------ ------------
Total operating expenses 8,196,643 8,807,437 9,872,550
------------ ------------ ------------
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) --
Gain (loss) on sale of subsidiary
net of income tax benefit of $319,326 (423,293) 252,076 319,326
Gain (loss) on sale of subsidiary
net of income taxes of $12,974 17,197 (36,907) --
Loss on disposal of subsidiary
net of income tax benefit of $72,268 (95,796) -- 72,268
Restructuring of note receivable
net of income tax benefit of $321,490 (426,160) -- 321,490
------------ ------------ ------------
Total other income (expense) (1,458,664) (685,464) (489,509)
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes and
minority interest (3,240,362) 610,968 1,712,855
Provision for income taxes (994,293) 277,990 455,320
------------ ------------ ------------
Income (loss) from continuing operations
before minority interest (2,246,069) 332,978 1,257,535
Minority interest 43,546 (144,424) (294,625)
------------ ------------ ------------
Net income (loss) from continuing operations (2,202,523) 188,554 962,910
Income (loss) from discontinued
operations, net of income tax effect
of $ - , $53,233, and $ - , respectively -- (63,762) --
------------ ------------ ------------
Net income (loss) $ (2,202,523) $ 124,792 $ 962,910
============ ============ ============
Basic earnings per share
Net income (loss) $ (0.67) $ 0.06 $ 0.30
============ ============ ============
Number of shares outstanding:
Basic 3,285,278 3,168,292 3,168,292
============ ============ ============
</TABLE>
F-14
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------------
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(2,202,523) $ 509,987 $ 509,987
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,544,401 1,301,331 1,301,331
Contractual allowances 27,425 376,664 376,664
Bad debts 23,750 21,930 21,930
Income from an unconsolidated joint venture (151,601) (163,699) (163,699)
Minority interest (43,546) 51,763 51,763
Deferred income taxes (1,694,403) 419,000 419,000
Loss on sale of subsidiary 742,619 -- --
Gain on sale of subsidiary (30,171)
Loss on disposal of subsidiary 168,064 -- --
Restructuring of note receivable 747,650 -- --
Income from unconsolidated affiliate -- 8,981 8,981
Loss on sale of property assets -- 26,702 26,702
Increase (decrease) in cash attributable to changes in operating assets and
liabilities:
Accounts receivable 2,103,358 (995,554) (995,554)
Accounts receivable - joint venturer (330,911) (303,775) (303,775)
Other receivable (34,460) 71,599 71,599
Due from affiliate (77,600) -- --
Due from officers (32,025) (84,221) (84,221)
Prepaid expenses 33,976 43,547 43,547
Deposits 111,455 (25,896) (25,896)
Distributions from a joint venture -- 330,966 330,966
Due to affiliate 25,872 (45,890) (45,890)
Accounts payable 429,660 (194,555) (194,555)
Accrued expenses 472,815 57,443 57,443
Advances to unconsolidated affiliate -- (239,055) (239,055)
----------- ----------- -----------
Total adjustments 4,036,328 657,281 657,281
----------- ----------- -----------
Net cash provided (used) by operating activities 1,833,805 1,167,268 1,167,268
----------- ----------- -----------
Cash flow from investing activities:
Organization costs -- (60,840) (60,840)
Fixed asset acquisitions (1,367,360) (1,605,311) (1,605,311)
Fixed assed dispositions 2,492,764 -- --
Proceeds from loan receivable - affiliate (7,500) 125,000 125,000
Proceeds from note receivable 72,222
Issuance of note receivable -- (160,326) (160,326)
Investment in joint venture (31,515) -- --
Note receivable - affiliate -- 18,350 18,350
Increase in minority interest (46,664) -- --
----------- ----------- -----------
Net cash provided (used) by investing activities 1,111,947 (1,683,127) (1,683,127)
Cash flow from financing activities:
Reduction of goodwill 1,419,213 -- --
Proceeds from issuance of long-term debt -- 2,039,632 2,039,632
Payments on affiliates advances -- (156,505) (156,505)
Cash overdraft -- 3,088 3,088
Joint venture advances -- 10,000 10,000
Loan payable - joint venturer (37,595)
Disposal of long term debt (3,717,089) -- --
Principal payments on long-term debt (673,185) (1,220,119) (1,220,119)
----------- ----------- -----------
Net cash provided (used) by financing activities (3,008,656) 676,096 676,096
----------- ----------- -----------
Net increase in cash and equivalents (62,904) 160,237 160,237
Cash and equivalents, begining of year 719,217 42,421 42,421
=========== =========== ===========
Cash and equivalents, end of year $ 656,313 $ 202,658 $ 202,658
=========== =========== ===========
</TABLE>
F-15
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Shares Stock Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,168,292 317 $ 4,086,413 $ 240,806 $ 4,327,536
Write-down of assets relating
to the disposal of
Prime Contracting Corp. -- -- (358,000) -- (358,000)
Adjustment in connection with
the sale of 65% of Empire
State Imaging Associates, Inc. -- -- 137,976 27,655 165,631
Net income for the year ended
December 31, 1996 -- -- -- 249,826 249,826
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 3,168,292 317 3,866,389 518,287 4,384,993
Net income for the year ended
December 31, 1997 -- -- -- 124,792 124,792
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 3,168,292 317 3,866,389 643,079 4,509,785
Issuance of common stock in
connection with Benson Shore
Capital, LLC consulting agreement 350,000 -- -- -- --
Net income for the year ended
December 31, 1998 -- -- -- (2,202,523) (2,202,523)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 3,518,292 317 $ 3,866,389 $(1,559,444) $ 2,307,262
=========== =========== =========== =========== ===========
</TABLE>
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
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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:
Earnings per share have been computed by dividing the net income by
the weighted average number of common stock and common stock equivalent
shares outstanding. Common stock and common stock equivalent shares
outstanding include shares issued within one year of an initial public
offering (IPO), at a price below the IPO price, as outstanding for all
periods presented.
(m) Reclassification:
Certain reclassifications have been made to the 1997 and 1996
financial statements to conform to the 1998 presentation.
F-19
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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.
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.
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.
F-20
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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 August 20, 1998, the Company, ADS Investment Corp. and Oak Knoll
Management Corporation (related party) modified the original agreement
from a sale to a loan. The terms of the new agreement are as follows: a
loan in the amount of $300,000, with interest due and payable at 12% per
annum, secured by 70% of the Company's 72% ownership of Open MRI. The loan
is due and payable on September 30, 1998. The agreement also requires the
personal guarantees made by the lenders to DVI Business Credit Corporation
on behalf of the Company be replaced by September 30, 1998, as a condition
of satisfactory settlement of the loan.
For services rendered between May 7, 1998 and the date of maturity
of this loan, all distributions made to the lending parties by Open MRI
are to remain the property of the lending parties.
On September 30, 1998 the Company effectively sold 70% of its
interest in Open MRI for $300,000 and the purchaser's agreement to provide
the Company's creditor, DVI Business Credit, personal guaranties of the
principals of purchaser in an amount not to exceed $150,000. The Company
recorded a gain on this transaction in the amount of $17,197, net of
income taxes in the amount of $12,974. 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 $426,160, net of income tax benefit in the amount
of $321,490 (see Note 4).
F-21
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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 $423,293 net of
income tax benefit in the amount of $319,326.
During 1996, the Company incorporated two wholly-owned subsidiaries.
Ohio Medical Equipment Leasing Corporation ("OME") was incorporated in the
State of Ohio for the purpose of acquiring a majority interest in Sylvania
Diagnostics. West Paterson Medical Equipment Leasing Corp. ("WPMEL") was
incorporated in the State of New Jersey for the purpose of opening a
diagnostic imaging center in West Paterson.
In July 1996, the Company, through OME, entered into a purchase and
consulting agreement with Medical Advances, Inc. ("Medical") to acquire an
interest as a general (managing) partner of Sylvania Diagnostics
("Sylvania"), an Ohio Limited Partnership, for one dollar. The interest
acquired represents 50.2% of the total units outstanding. Sylvania is a
diagnostic imaging center located in Sylvania, Ohio.
As a result of this acquisition, the Company recorded the difference
between the acquisition price of one dollar and the allocated percentage
of the cumulative deficit as goodwill and the cumulative allocated losses
in excess of basis of the limited partners of Sylvania as an intangible
asset as of July 1, 1996, the date of acquisition. All subsequent losses
are allocated to the Company with future income first applied to the
losses and the remainder against the intangible asset until it is fully
recovered. The Company also entered into an agreement with DVI which
provides for $135,000 of working capital advances which are only to be
used for operating Sylvania. If the Company determines that operating
Sylvania is not profitable, DVI will purchase either Sylvania or OME for
one dollar. In August 1996, Sylvania entered into an agreement with DVI to
refinance equipment and related leasehold improvements in the aggregate
amount of $2,127,366. The amount 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 $95,796 net of income tax benefit
in the amount of $72,268.
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.
F-22
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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 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.
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.
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 $426,160, net of income tax benefit in the
amount of $321,490.
NOTE 5 - FURNITURE, FIXTURES, EQUIPMENT AND LEASHOLD IMPROVEMENTS.
Furniture, fixtures, equipment and leasehold improvements consist of
the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
F-23
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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
</TABLE>
<TABLE>
<CAPTION>
10%
Gross Allocations
Revenues Net Income of Income
---------- ---------- ----------
<S> <C> <C> <C>
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:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
(a) Capitalized Lease Obligations:
The Company entered into certain leases for the rental of equipment,
which have been recorded as capital leases for financial statement
reporting purposes and are included in equipment.
F-24
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<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>
F-25
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - LONG TERM DEBT. (Continued)
(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>
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 $17,500
units including the underwriters' overallotment of 67,500 units at a
selling price of $5.00 per unit. Each unit consisted of one (1) share of
the Company's $0.0001 par value common stock ("Common Stock"), one (1)
Class A Redeemable Common Stock Purchase Warrant ("A Warrant") and one (1)
Class B Redeemable Common Stock Purchase Warrant ("B Warrant). Each A
Warrant entitles the holder to purchase one (1) share of Common Stock for
a period, as extended, ending in August 1997 at a price of $6.50. Each B
Warrant entitles the holder to purchase one (1) share of Common Stock for
a period, as extended, ending in February 2000 at a price of $8.00.
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 350,000 shares of its common stock.
F-26
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - INCOME TAXES.
The Company does not report income, for income tax reporting
purposes, on the consolidated or acrual basis. Deferred income tax asset
(liability) at December 31, 1998 and 1997 of $484,718 and $(1,209,685),
respectively, represent temporary differences arising primarily from the
recognition of income on the cash receipts and cash disbursements basis of
accounting for income tax reporting purposes and 9% for state income tax
purposes, which are expected to be realized in future years, thus, no
valuation allowance has been provided.
The Company has recorded income tax provision (credit) at December
31, 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 which are available to offset future taxable
income through 2011.
The following is a reconciliation for the U.S. federal statutory tax
rate and the apparent tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0% 34.0% 34.0%
State taxes 6.0 6.0 6.0
Goodwill amortization 1.6 1.6
Other 3.9 3.9 3.9
---- ---- ----
Apparent tax rate 43.9% 45.5% 45.5%
==== ==== ====
</TABLE>
NOTE 11 - 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.
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
(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.
F-27
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES. (Continued)
(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.
(d) 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.
F-28
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13 - 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.
F-29
See Independent Auditors' Report and Notes to Consolidated Financial Statments
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION
551,194 Shares of Common Stock
--------------
PROSPECTUS
--------------
September __, 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:
<TABLE>
<S> <C>
SEC Registration Fee.........................................$363.93
Legal Fees and Expenses*..................................$30,000.00
Accounting Fees and Expenses*.....................................$0
Miscellaneous*................................................$3,000
Total............................................$33,363.93
</TABLE>
- -----------
* 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 had adequate information about the
registrant.
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.
<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, because the offers and the sales were made to
sophisticated investors who had access to information about us and were able to
bear the risk of loss of their entire investment.
(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.
<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
*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
on February __, 1994.
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 Actof
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 Ac of 1933, as amended,t 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.
(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
<PAGE>
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.
<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 September 9, 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/ Chairman and President September 9, 1999
- ----------------------------------------
Roger Findlay
/s/ Vice President,
- ---------------------------------------- Principal Accounting September 9, 1999
Jan Goldberg Officer, Treasurer and Director
/s/ Vice President, Secretary
- ---------------------------------------- and Director September 9, 1999
Gregory Maccia
/s/ Director September __, 1999
- ----------------------------------------
Fred Mancinelli
/s/ Director September __, 1999
- ----------------------------------------
Carl Gideon
</TABLE>
<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
*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
on February __, 1994.
<PAGE>
EXHIBIT 3.1
RESTATED AND AMENDED CERTIFICATE OF
INCORPORATION OF MODERN MEDICAL MODALITIES CORPORATION
FEDERAL IDENTIFICATION NO. 22-3059 258
JULY 6, 1999
To: Secretary of State
MODERN MEDICAL MODALITIES CORPORATION (the "Corporation"), a
corporation organized under the laws of the State of New Jersey in 1990, has,
since its formation, amended its certification of Incorporation from time to
time.
Pursuant to N.J.S.A 14A:9-5, Modern Medical Modalities Corporation
hereby (i) restates its Certificate of Incorporation, to embody in one document
its original certificate and all prior amendments, and (ii) amends its
Certificate of Incorporation by adding new Paragraph FOURTH as set forth herein.
The Corporation hereby certifies the following which (i) sets forth in
full its Certificate of Incorporation as of this date, and (ii) supersedes and
replaces its original Certificate of Incorporation and all amendments filed
prior to the date hereof:
FIRST: The name of the Corporation is Modern Medical Modalities
Corporation.
SECOND: The address of the Corporation's current registered office is
1719 Route 10, Suite 117, Parsippany, New Jersey 07054 and the name of its
current registered agent is Roger Findlay.
THIRD: The purpose for which this Corporation is organized is to engage
in any activity within the purpose of which corporations may be organized under
the "New Jersey Business Corporation Act," N.J.S. 14A:1-1 et seq.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 15,000,000 shares, each having a par value of $.0002, and
each having one vote at all meetings of shareholders.
FIFTH: The current Board of Directors consists of 5 persons whose names
and addresses are set forth below:
<TABLE>
<CAPTION>
Name Address
<S> <C>
Roger Findlay c/o Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
Jan Goldberg c/o Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
<PAGE>
<S> <C>
Gregory C. Maccia c/o Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
Fred Mancinelli c/o Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
Carl Gedeon c/o Modern Medical Modalities Corporation
1719 Route 10, Suite 117
Parsippany, New Jersey 07054
</TABLE>
SIXTH: An officer or director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of any duty owed to the Corporation or its stockholders, except for
any breach of duty based upon an act or omission: (i) in breach of such person's
duty of loyalty to the Corporation or its stockholders, (ii) not in good faith
or involving intentional misconduct or a knowing violation of law, or (iii)
resulting in receipt by such person of an improper personal benefit.
IN WITNESS WHEREOF, Modern Medical Modalities Corporation has caused
this Restated and Amended Certificate of Incorporation to be executed on this
6th day of July, 1999, by a duly authorized officer.
MODERN MEDICAL MODALITIES CORPORATION
By: /s/ Roger Findlay
----------------------------
Roger Findlay, President
<PAGE>
EXHIBIT 5.1
September 10, 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-__________, the "Registration Statement") covering
551,194 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>
Exhibit 10.1
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ( the "Agreement") is made this 28th day of
January 1999, by and between Allen Wolfson, an individual ("Advisor") and Modern
Medical Modalities Corporation, a New Jersey corporation (the "Company").
WHEREAS, Advisor has several contacts in the medical industry and has
experience in locating assets, business opportunities and finding joint venture
partners;
WHEREAS, the Company desires to retain Advisor to advise and assist the
Company in locating business opportunities on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Advisor
agree as follows:
1. ENGAGEMENT
The Company hereby retains Advisor, on January 28, 1999 ( the
"Effective Date") and continuing until termination, as provided herein,
to assist the Company in it's effecting the purchase of businesses and
assets relative to its business and growth strategy (the "Services").
The Services are to be provided on a "best efforts" basis directly and
through Advisor ("Advisor"); PROVIDED, HOWEVER, that the Services shall
expressly exclude all legal advice, accounting services or other
services which require licenses or certification which Advisor may not
have.
2. TERM
This Agreement shall have an initial term of six (6) months (the
"Primary Term"), commencing with the Effective Date. At the conclusion
of the Primary Term this Agreement will automatically be extended on an
annual basis ( the "Extension Period") unless Advisor of the Company
shall serve written notice on the other party terminating the
Agreement. Any notice to terminate given hereunder shall be in writing
and shall be delivered at least thirty (30) days prior to the end of
the Primary Term or any subsequent Extension Period.
3. TIME AND EFFORT OF ADVISOR
Advisor shall allocate time as it deems necessary to provide the
Services. The particular amount of time may vary from day to day or
week to week. Except as otherwise agreed, Advisor's monthly statement
identifying, in general, tasks performed for the Company shall be
conclusive evidence that the Services have been performed.
Additionally, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard for the obligations or duties
hereunder Advisor shall be liable to the Company or any of its any
shareholders for any act or omission in the course of or connected with
rendering the Services, including but not limited to losses that may be
sustained in any corporate act in any subsequent Business Opportunity
(as defined herein) undertaken by the Company as a result of advice
provided by Advisor or Advisors's Personnel.
4. COMPENSATION
<PAGE>
The Company agrees to pay Advisor a fee for the Services ("Initial
Fee") by way of the issuance by the Company of Three Hundred Thirty
Thousand (330,000) shares of the Company's common stock following the
Company's closing on the purchase of the initial Business Opportunity (
an initial Business Opportunity shall be defined as any arrangement
whereby the Company enters into any joint venture marketing agreement
or any other agreement whose value to the Company exceeds $75,000).
5. OTHER SERVICES
If, following the Closing by the Company of the initial Business
Opportunity, the Company enters into a merger or exchange securities
with, or purchases the assets or enters into a joint venture with, or
makes an investment in a company introduced by Advisor ( a "Business
Opportunity"), the Company agree's to pay Advisor a fee equal to five
percent ( 5%) of the value of each Business Opportunity introduced by
Advisor and acquired of otherwise participated in by the Company
(collectively referred to herein, in each instance, as the "Transaction
Fee"), which shall be payable immediately following the closing of each
such transaction, in cash or in shares of the Company's common stock.
The Company and Advisor acknowledges that in the event Advisor, as a
result of this agreement, receives shares of the Company's common stock
it may be considered an affiliate subject to Section 16(b) of the
Securities Exchange Act of 1934 (the "34 Act"). In this regard the
Company and Advisor agree , that for the purposes of any "profit"
computation under Section 16(b) of the `34 Act, the price paid for such
shares is equal to the Initial Fee or the Transaction Fee, as the case
may be.
6. REGISTRATION OF SHARES
No later than ten (10) days following the date hereof as to share
issued to satisfy the Initial Fee ( if paid in shares) and as to an
event giving use to the Company's obligation to pay a Transaction Fee,
such shares shall be registered by the Company with the Securities and
Exchange Commission under a Form S-8 or other applicable registration
statement to be remain effective until the earlier of the first
anniversary of the issuance of the most recently issued shares, or the
sale of all such shares by Advisor, whichever is the earlier date. At
Advisor's election, such shares may be issued prior to registration in
reliance on exemptions from registration provided by Section 4(2) of
the Securities Act of 1933 (the "`33 Act"), Regulation D of the "33
Act, and applicable state securities laws. Such issuance or reservation
of shares shall be in reliance on representations and warranties of
Advisor set forth herein. Failing to register such share, or maintain
the effectiveness of the applicable registration statement, the Company
shall satisfy any Initial Fee, or Transaction Fee in cash within ten
(10) days of receipt of Advisor's statement setting out the amount and
type of fee then due and payable.
7. COSTS AND EXPENSES
All third party and out-of-pocket expenses incurred by Advisor in the
performance of the Services shall be paid by the Company, or Advisor
shall be reimbursed if paid by Advisor on behalf of the Company, within
ten (10) days of receipt of written notice by Consultant, provided that
the Company must approve in advance all such expenses in excess of $500
per month.
8. PLACE OF SERVICES
The Services provided by Advisor hereunder will be performed at
Advisor's offices except as otherwise mutually agreed by Advisor and
the Company.
<PAGE>
9. INDEPENDENT CONTRACTOR
Advisor will act as an independent contractor in the performance of its
duties under this Agreement. Accordingly, Advisor will be responsible
for payment of all federal, state, and local taxes on compensation paid
under this Agreement, including income and social security taxes,
unemployment insurance, and any other taxes due relative to Advisor,
and any and all business license fees as may be required. This
Agreement neither expressly NOR impliedly creates a relationship of
principal and agent, or employee and employer, between Advisor and the
Company. Advisor is authorized to enter into any agreements on behalf
of the Company. The Company expressly retains the right to approve, in
its sole discretion, each Business Opportunity introduced by Advisor,
and to make all final decisions with respect to effecting a transaction
on any Business Opportunity.
10. REJECTED BUSINESS OPPORTUNITY
If, during the Primary Term of this Agreement or any Extension Period,
the Company elects not to proceed to acquire, participate or invest in
any Business Opportunity identified and/or selected by Advisor,
notwithstanding the time and expense the Company may have incurred
reviewing such transaction, such Business Opportunity shall revert back
to and become proprietary to Advisor, and Advisor shall be entitled to
acquire or broker the sale or investment in such rejected Business
Opportunity for its own account, or submit such assets or Business
Opportunity elsewhere. In such event, Advisor shall be entitled to any
and all profits or fees resulting from Advisor's purchase, referral or
placement of any such rejected Business Opportunity, or the Company's
subsequent purchase or financing with such Business Opportunity in
circumvention of Advisor
11. NO AGENCY EXPRESS OR IMPLIED
This Agreement neither expressly nor impliedly creates a relationship
of principal and agent between the Company and Advisor.
12. TERMINATION
The Company and Advisor may terminate this Agreement prior to the
expiration of the Primary Term upon thirty (30) days written notice
with mutual written consent. Failing to have mutual consent, without
prejudice to any other remedy to which the terminating party may be
entitled, if any, either party may terminate this Agreement with thirty
(30) days written notice under the following conditions:
(A) BY THE COMPANY.
(i) If during the Primary Term of this Agreement or any
Extension Period, Advisor is unable to provide the
Services as set forth herein for thirty (30)
consecutive business days because of illness,
accident, or other incapacity of Advisor; or,
(ii) If Advisor willfully breaches or neglects the duties
required to be performed hereunder; or,
(B) BY ADVISOR.
(i) If the Company breaches this Agreement or fails to
make any payments or provide information required
hereunder; or,
(ii) If the Company ceases business or, other than in the
Initial Merger, sells a controlling interest to a
third party, or agrees to a consolidation or merger
of itself with or into another corporation, or enters
into such a transaction outside of the
<PAGE>
scope of this Agreement, or sells substantially all
of its assets to another corporation, entity or
individual outside of the scope of this Agreement;
or,
(iii) If the Company has a receiver appointed for its
business or assets, or otherwise becomes insolvent or
unable to timely satisfy its obligations in the
ordinary course of, including but not limited to the
obligation to pay the Initial Fee or the Transaction
fee; or,
(iv) If the Company institutes, makes a general assignment
for the benefit of creditors, has instituted against
it any bankruptcy proceeding for reorganization for
rearrangement of its financial affairs, files a
petition in a court of bankruptcy, or is adjudicated
a bankrupt; or,
(v) If any of the disclosures made herein or subsequent
hereto by the Company to Consultant are determined to
be materially false or misleading.
In the event Advisor elects to terminate without cause or this
Agreement is terminated prior to the expiration of the Primary Term or
any Extension Period by mutual written agreement, or by the Company for
the reasons set forth in A(i) and (ii) above, the Company shall only be
responsible to pay Advisor for unreimbursed expenses Transaction Fee
accrued up to and including the effective date of termination. If this
Agreement is terminated by the Company for any other reason, or by
Advisor for reasons set forth in B(i) through (v) above, Advisor shall
be entitled to any outstanding unpaid portion of reimbursable expenses,
Transaction Fee, if any, for the remainder of the unexpired portion of
the applicable term (Primary Term or Extension Period) of the
Agreement.
13. INDEMNIFICATION
Subject to the provisions herein, the Company and Advisor agree to
indemnify, defend and hold each other harmless from and against all
demands, claims, actions, losses, damages, liabilities, costs and
expenses, including without limitation, interest, penalties and
attorneys' fees and expenses asserted against or imposed or incurred by
either party by reason of or resulting from any action or a breach of
any representation, warranty, covenant, condition, or agreement of the
other party to this Agreement.
14. REMEDIES
Advisor and the Company acknowledge that in the event of a breach of
this Agreement by either party, money damages would be inadequate and
the non-breaching party would have no adequate
remedy at law. Accordingly, in the event of any controversy concerning
the rights or obligations under this Agreement, such rights or
obligations shall be enforceable in a court of equity by a decree of
specific performance. Such remedy, however, shall be cumulative and
non-exclusive and shall be in addition to any other remedy to which the
parties may be entitled.
15. MISCELLANEOUS
(A) SUBSEQUENT EVENTS. Advisor and the Company each agree to
notify the other party if, subsequent to the date of this
Agreement, either party incurs obligations which could
compromise its efforts and obligations under this Agreement.
(B) AMENDMENT. This Agreement may be amended or modified at any
time and in any manner only by an instrument in writing
executed by the parties hereto.
<PAGE>
(C) FURTHER ACTIONS AND ASSURANCES. At any time and from time to
time, each party agrees, at its or their expense, to take
actions and to execute and deliver documents a may be
reasonably necessary to effectuate the purposes of this
Agreement.
(D) WAIVER. Any failure of any party to this Agreement to comply
with any of its obligations, agreements, or conditions
hereunder may be waived in writing by the party to whom such
compliance is owed. The failure of any party to this Agreement
to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such
provision or a waiver of the right of such party thereafter to
enforce each and every such provision. No waiver of any breach
of or non-compliance with this Agreement shall be held to be a
waiver of any other or subsequent breach or non-compliance.
(E) ASSIGNMENT. Neither this Agreement nor any right created by it
shall be assignable by either party without the prior written
consent of the other.
(F) NOTICES. Any notice or other communication required or
permitted by this Agreement must be in writing and shall be
deemed to be properly given when delivered in person to an
officer of the other party, when deposited in the United
States mails for transmittal by certified or registered mail,
postage prepaid, or when deposited with a public telegraph
company for transmittal, or when sent by facsimile
transmission charges prepared, provided that the communication
is addressed:
(i) In the case of the Company:
Modern Medical Modalities Corporation
C/O Jan Goldberg
1719 Route 10 Suite 117
Parsippany, New Jersey 07054
Telephone: (973) 538-9955
Facsimile: (973) 267-7359
(ii) In the case of Advisor:
Allen Z. Wolfson
268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Telephone: (801) 575-8073 Ext 114
Facsimile: (801) 575-8092
or to such other person or address designated in writing by
the Company or Advisor to receive notice.
(G) HEADINGS. The section and subsection headings in this
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this
Agreement.
(H) GOVERNING LAW. This Agreement was negotiated and is being
contracted for in Utah, and shall be governed by the laws of
the State of Utah, and United States of America,
notwithstanding any conflict-of-law provision to the contrary.
<PAGE>
(I) BINDING EFFECT. This Agreement shall be binding upon the
parties hereto and inure to the benefit of the parties, their
respective heirs, administrators, executors, successors, and
assigns.
(J) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto and supersedes any and all prior
agreements, arrangements, or understandings between the
parties relating to the subject matter of this Agreement. No
oral understandings, statements, promises, or inducements
contrary to the terms of this Agreement exist. No
representations, warranties, covenants, or conditions, express
or implied, other than as set forth herein, have been made by
any party.
(K) SEVERABILITY. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in
full force and effect.
(L) COUNTERPARTS. A facsimile, telecopy, or other reproduction of
this Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument, by one or more parties hereto and such executed
copy may be delivered by facsimile of similar instantaneous
electronic transmission device pursuant to which the signature
of or on behalf of such party can be seen. In this event, such
execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party
hereto, all parties agree to execute an original of this
Agreement as well as any facsimile, telecopy or other
reproduction hereof.
(M) TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement and of each and every provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date above written.
"Advisor"
Allen Wolfson
/s/ Allen Wolfson
-------------------------------------
The "Company"
Modern Medical Modalities Corporation
a New Jersey corporation
By:/s/ Jan Goldberg
-------------------------------------
Name: Jan Goldberg
Title: Vice President
By: /s/ Roger Findlay
-------------------------------------
Name: Roger Findlay
Title: President
<PAGE>
Attested:
By: /s/ Gregory Maccia
- -------------------------------------
Name: Gregory Maccia
Title: Secretary
<PAGE>
EXHIBIT 10.2
FINANCIAL CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made effective this 28th day
of January 1999 by and between, Richard Surber ("Consultant") and Modern Medical
Modalities Corporation ("Client"), a New Jersey corporation with respect to the
following:
RECITALS
WHEREAS, Consultant is in the business of providing general business
consulting services to privately held and publicly held corporations; and
WHEREAS, Client desires to retain Consultant to provide advice relative
to structuring any merger, acquisition, asset purchase or joint venture
agreement the Company may enter into over the next six months.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which is expressly acknowledged, Client and Consultant
agree as follows:
1 ENGAGEMENT OF CONSULTANT. Consultant agrees to allocate sufficient
time to assist Client in structuring any potential merger, acquisition, asset
purchase or joint venture agreement in the event Client wishes to have
Consultant evaluate such transactions and/or assist Client in structuring any
such transaction. In addition, Consultant will advise Client and provide
consultation services regarding:
a. Potential strategies for generating new business for the
Company
b. Structuring of potential business opportunities for the
Company
c. General corporate filings as needed
d. Document preparation as needed to accomplish the above
All of the foregoing services collectively are referred to herein as the
"Consulting Services."
2. Term of Agreement, Extensions and Renewals
This Agreement shall have a term of six months (the "Initial Consulting Period")
from the date first appearing herein. This Agreement may be extended on a month
to month basis (the "Extension Period") by mutual agreement of the parties
executed in writing specifying the compensation for the Extension Period. In the
event of early termination, Client shall be obligated for any amounts due under
this agreement. Such notice of either extension or termination shall be in
writing and shall be delivered via U.S. certified mail, when applicable,
effective ten (1 0) days after delivery to the other party.
3. COMPENSATION Client shall compensate Consultant for consulting services
("Consulting Services") rendered pursuant to this Agreement as follows:
a. Client shall pay Consultant a true retainer fee of 20,000 shares of its
common stock to ensure that Consultant will be available to advise Client in the
event
<PAGE>
Client wishes to evaluate a merger, acquisition, asset purchase or joint venture
agreement for the Term of this Agreement.
b. In addition, Client agrees to pay Consultant $175 an hour for services
rendered pursuant to paragraph (1) above. The hourly fee can be paid in shares
of Clients common stock valued at $.20 per shares with 10 days of the Company's
receipt of an invoice setting forth the services provided by Consultant.
c. All shares issued to Consultant pursuant to this Agreement shall be
registered under section S-8 of the Securities and Exchange Act. If Consultant's
shares are deemed restricted under the Act, such shares shall have "piggy back"
registration rights with any registration statement, such statement filed at
such time as Client, in its sole discretion, deems advisable.
4. DUE DILIGENCE
Client shall supply and deliver to Consultant all information as may be
reasonably requested by Consultant to enable Consultant to make an investigation
of the Client and its business prospects, and they shall make available to
Consultant names, addresses, and telephone numbers as Consultant may need to
verify or substantiate any such information provided.
5. BEST EFFORTS BASIS
Consultant agrees that it will at all times faithfully, to the best of its
experience, ability and talents, perform all the duties that may be required of
and from Consultant pursuant to the terms of this Agreement. Consultant does not
guarantee that its efforts will have any impact on the Clients' business or that
any subsequent financial improvement will result from Consultants' efforts.
Client understands and acknowledges that the success or failure of Consultants'
efforts will be predicated on the Clients' assets and operating results.
6. INDEPENDENT LEGAL AND FINANCIAL ADVICE
Consultant is not a law firm; neither is it an accounting firm. Consultant does,
however, employ professionals in those capacities to better enable Consultant to
provide consulting services. Client represent that they have not nor will they
construe any of the Consultants' representations to be statements of law. Each
entity has and will continue to seek the independent advice of legal and
financial counsel regarding all material aspects of the transactions
contemplated by this Agreement, including the review of all documents provided
by Consultant to Client and all opportunities Consultant introduces to Client.
7. MISCELLANEOUS
a. The execution and performance of this Agreement has been duly authorized by
all requisite individual or corporate actions and approvals and is free of
conflict or violation of any other individual or corporate actions and approvals
entered into jointly and severally by the parties hereto. This Agreement
represents the entire Agreement between the parties hereto, and supersedes any
prior agreements with regards to the subject matter hereof. This Agreement may
be executed in any number of facsimile counterparts with the aggregate of the
counterparts
2
<PAGE>
together constituting one and the same instrument. This Agreement constitutes a
valid and binding obligation of the parties hereto and their successors, heirs
and assigns and may only be assigned or amended by written consent from the
other party.
b. No term of this Agreement shall be considered waived and no breach excused by
either party unless made in writing. In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be constructed as if it never contained any such invalid,
illegal or unenforceable provisions. From time to time, each party will execute
additional instruments and take such action as may be reasonably requested by
the other party to confirm or perfect title to any property transferred
hereunder or otherwise to carry out the intent and purposes of this Agreement.
c. The validity, interpretation, and performance of this Agreement shall be
governed by the laws of the State of Utah and any dispute arising out of this
Agreement shall be brought in a court of competent jurisdiction in Salt Lake
County, Utah. If any action is brought to enforce or interpret the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees, court costs, and other costs incurred in proceeding with the
action from the other party.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date herein
RICHARD D. SURBER
/s/ Richard D. Surber
- -------------------------
MODERN MEDICAL MODALITIES CORPORATION
/s/ Jan Goldberg
- -------------------------
Jan Goldberg, Vice President
<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
------------------------------------
September 9, 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 reports dated August 6, 1999 and March 10, 1999, in the Registration
Statement on Form SB-2 and related prospectus of Modern Medical Modalities
Corporation for the registration of 551,194 shares of its common stock.
/s/ Vincent J. Batyr & Co.
- --------------------------
September 10, 1999
