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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________to______________
Commission File No. 0-23416
MODERN MEDICAL MODALITIES CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-3059258
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1719 Route 10, Suite 117, Parsippany, NJ 07054
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973) 538-9955
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on which Registered
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Not Applicable None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0002 Par Value
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(Title of Class)
Class A Common Stock Purchase Warrants
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(Title of Class)
Class B Common Stock Purchase Warrants
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter prior that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes___ No _X_
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes___ No _X_
The issuer's net sales for the most recent fiscal year were
$3,987,103.
The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on October 31, 2000 was approximately $460,450.
As of October 31, 2000 there were 2,506,471 shares of Common Stock,
par value $.0002 per share, outstanding.
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PART I
Item 1. Business
Modern Medical Modalities Corporation provides magnetic resonance
imaging (MRI) and computerized axial tomography (CT Scan) equipment to hospitals
and physicians. Additionally, Modern Medical on a clerical and administrative
level manages hospital based and physician managed ambulatory centers for third
parties who provide medical imaging services. Modern Medical offers a full range
of services to hospitals or physician clients, including:
o selection and acquisition of appropriate equipment;
o design and supervision of facility construction;
o training of technical and support staff;
o patient billing and collection; and
o marketing and management services.
Modern Medical can provide either its full range of services at medical
technology centers or a more limited range of services at mobile or fixed sites
depending on the needs of its customers.
Modern Medical presently provides equipment and manages one hospital
based MRI site located in Passaic, New Jersey, and six free standing MRI and CT
Scan and Diagnostic Imaging ambulatory centers in Louisiana (1) and New Jersey
(5). Modern Medical also receives a management fee of 11.25% of gross cash
collections from the site in Union, New Jersey for performing management
functions. Modern Medical's relationship with the joint-ventures range from 2%
through 84% equity interest.
Generally, Modern Medical's centers participate in HMO or PPO programs
because many of the physicians who refer patients to the centers belong to the
HMO or PPO. In many instances Modern Medical's centers initiate contact with
various third parties, such as insurance companies, unions or managed care
providers, to provide services to their membership. This is usually the case
with the larger insurance plans. In the case of unions or managed care programs,
contacts are usually made by the benefit managers representing the various
programs. Typically, the centers are recommended by the physicians in the area.
Modern Medical has positioned itself to participate in the expanding
managed health care market and intends to continue to seek to joint venture with
hospital and physician managed ambulatory centers. Modern Medical has hired
additional marketing representatives, a marketing company and a telemarketer in
an effort to establish new sources of patient referrals, which are generally
referred to Modern Medical's sites through HMO's, PPO's, union contracts and
hospital contracts.
Our joint ventures
UNION JOINT VENTURE
In July 1990, Modern Medical entered into a Joint Venture Agreement
with Union Imaging Associates, Inc. for the purpose of providing magnetic
resonance and CT Scan imaging services to radiologists and other medical
professionals, including leasing and financing equipment for use in such
business. The Union joint venture terminates upon the earliest of: (a) June 30,
2010, (b) the sale of the subject business or (c) mutual agreement of the joint
venturers. Modern Medical serves as the managing joint venturer pursuant to the
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Union joint venture agreement and has managerial responsibility for the business
including:
o hiring of personnel;
o leasing equipment;
o budgeting;
o contracting;
o billing;
o paying debts;
o making lease payments; and
o making distributions to the joint venturers.
Modern Medical shall continue to serve as managing joint venturer until
Modern Medical's liability under the Union joint venture's equipment lease with
DVI Financial is satisfied. Thereafter, Modern Medical shall continue to serve
as the managing joint venturer until the earlier to occur of: (a) Modern
Medical's resignation upon 60 days notice to Union Imaging or (b) 60 days after
receipt of notice from Union Imaging that the holders of at least 80% of Union
Imaging's stock had voted to terminate Modern Medical as managing joint
venturer. For serving as managing joint venturer Modern Medical receives 11.25%
of gross collections for a management fee as well as a 10% equity position.
PLAINFIELD JOINT VENTURE
In July 1991, Modern Medical entered into a joint venture agreement
with Plainfield MRI Associates, Inc. for the purpose of providing magnetic
resonance imaging services and equipment to radiologists and other medical
professionals, including leasing and financing equipment for use in such
business. The Plainfield joint venture shall terminate upon the earlier of (a)
July 30, 2011; (b) the sale of the subject business; (c) termination of the
Agreement dated April 25, 1991 with Muhlenberg Regional Medical Center, Inc.,
and the Plainfield joint venture being unable to relocate the subject business
to another profitable site; (d) the subject business being determined
unprofitable for 3 consecutive calendar months at the sole discretion of Modern
Medical; (e) the repossession of equipment pursuant to the equipment lease with
DVI Financial dated December 1, 1993; or (f) mutual consent of the joint
venturers.
Modern Medical serves as the managing joint venturer pursuant to the
Plainfield joint venture agreement. As managing joint venturer Modern Medical
has the following managerial responsibility:
o hiring of personnel;
o leasing equipment;
o budgeting;
o contracting;
o billing;
o paying debts;
o making lease payments; and
o making distributions to the joint venturers.
Modern Medical shall continue to serve as managing joint venturer until
Modern Medical's liability associated with the subject business to DVI Financial
is satisfied. Thereafter, Modern Medical shall continue to serve as managing
joint venturer until Modern Medical's resignation upon 60 days notice to
Plainfield MRI, Inc.
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The interests of Modern Medical and Plainfield MRI, Inc. in the profits
and obligations and liabilities under the Plainfield joint venture agreement are
84% and 16% respectively.
BETH ISRAEL JOINT VENTURE
In June 1995, Modern Medical entered into a joint venture agreement
with Beth Israel MRI Corporation and Advanced Imaging Radiology Associates P.A.
to provide certain non-professional services to an MRI facility which was
developed by Modern Medical, and is located on the campus of Beth Israel
Hospital. These non-professional services include: patient billing and
collection, marketing, management and clerical services. The term of the
Agreement is for a seven (7) year period with an automatic renewal provision for
successive seven year periods. Modern Medical has a 75% interest in the profits,
obligations and liabilities under the Joint Venture Agreement.
METAIRE MEDICAL EQUIPMENT LEASING
In June 1997, Metaire Medical Equipment Leasing Corp. was incorporated
in the state of New Jersey, as a 100% owned subsidiary of Modern Medical. In
October 1997, Metaire Medical Equipment Leasing Corp. was registered as a
corporation doing business in the State of Louisiana. Under the terms of the
venture agreement Modern Medical will receive 100% of the profits and equity of
Open MRI & Imaging Center of Metaire, LLC. The site opened for business in
February of 1998. There is an agreement with Southern Medical Consultants which
provides that if they raise $250,000 and provide marketing and management
services, they will receive 34% of the site. To date the $250,000 has been
raised, but the marketing and management services have not been performed.
In March 1998, Modern Medical sold to KFC Venture LLC, 15% of Open MRI
and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon execution
of the agreement and $25,000 per month for six months. Under the terms of the
agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC,
without interest. Until such time, all distributions shall be divided equally,
with 50% of said distribution being paid to KFC Ventures LLC as a return of its
initial capital investment up to the amount of $125,000 and the other 50% of
said distribution being distributed to the members of Open MRI & Imaging Center
of Metaire, LLC, in accordance with their percentage interests in Open MRI &
Imaging Center of Metaire, LLC.
SOUTH JERSEY MEDICAL EQUIPMENT LEASING CORPORATION
On October 12, 1994, Modern Medical Modalities Corporation, formed a
New Jersey corporation, South Jersey Medical Equipment Leasing Corp.
On December 29, 1994, South Jersey Medical, which is 100% owned by
Modern Medical Modalities Corporation, purchased for $1,550,000 certain assets
and liabilities of NRM Imaging Associates, Partnership, an entity that leases
MRI and CT equipment. South Jersey Medical will provide space, equipment (MRI
and CT Scanner) and non-professional services, including management and billing
and collection functions to South Jersey Imaging Associates, P.A.
OPEN MRI OF MORRISTOWN
During February of 1996, Modern Medical, under the terms of a joint
venture with RMC Consulting Inc. and Barbara Krasnica, developed a MRI facility
located in Morristown, New Jersey. Under the terms of the agreement, dated
October 31, 1995, Modern Medical has the responsibility to make all day to day
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decisions on behalf of the joint venture "Open MRI of Morristown." The term of
the joint venture shall terminate October 15, 2015 unless the business is sold,
or the joint venture is terminated by mutual consent of the participants. The
term of the joint venture may be extended by mutual written consent of the
participants. Under the terms of the joint venture the profit distribution is as
follows: Modern Medical Modalities Corporation 72%, RMC Consulting Inc. 18% and
Barbara Krasnica 10%.
On May 7, 1998, Modern Medical entered into an agreement to sell 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. Modern
Medical retained the option to repurchase the interest sold from the buyers, ADS
Investment Corp. and Oak Knoll Management Corporation upon payment of $50,000
plus all prior payments and any additional costs incurred by the buyers. The
option expired on August 31, 1998.
On August 20, 1998, Modern Medical, ADS Investment Corp. and Oak Knoll
Management Corporation modified the original agreement from a sale to a loan.
The terms of the new agreement are as follows: a loan in the amount of $300,000,
with interest due and payable at 12% per annum, secured by 70% of Open MRI. The
loan was due and payable on September 30, 1998. The agreement also requires the
personal guarantees made by the lenders to DVI Business Credit Corporation on
behalf of Modern Medical be replaced by September 30, 1998 as a condition of
satisfactory settlement of the loan. For services rendered between May 7, 1998
and the date of maturity of this loan, all distributions made to the lending
parties by Open MRI will remain the property of the lending parties.
On September 30, 1998, Modern Medical effectively sold all but 2 of its
72% interest in Open MRI for $300,000 and the purchaser's agreement to provide
Modern Medical's creditor, DVI Business Credit personal guaranties of the
principals of purchaser in an amount not to exceed $150,000. Modern Medical
recorded a loss on this transaction in the amount of $68,358.
WEST PATERSON MEDICAL LEASING CORPORATION
In July 1996, Modern Medical, through its wholly-owned subsidiary West
Paterson Medical Equipment Leasing Corporation, entered into a lease and
management services agreement with Advanced Imaging & Radiology Associates, P.A.
West Paterson Medical is a medical practice specializing in diagnostic imaging
located in West Paterson, New Jersey. The agreement provides that West Paterson
Medical will lease office space, fixtures and equipment and will provide
management services to Advanced Imaging over an initial term of five years with
a five year renewal option. Under the terms of the agreement, West Paterson
Medical has assumed all debt, expenses and accounts receivable for the site.
Subsequently, in February 1997 Modern Medical ordered a Toshiba CT Scan for the
site, for $335,000, financed by DVI Financial Services. The CT Scan became
operational in the middle of March 1997.
Medical imaging industry and systems
Modern Medical has focused on the advanced imaging technologies of MRI
and CT Scan. Management believes that the use of these technologies has grown
significantly in the U.S. during the last several years. This growth is
attributable to physicians beliefs that diseases can be detected in their early
stage, in a non-invasive manner, through the use of MRI and CT Scan. Hospitals
are facing competitive pressures to provide technology and related services
despite strict budgetary limitations. Changes in third party reimbursement
systems have resulted in declining profit margins for many hospitals, thus
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reducing capital available to hospitals and the traditional incentives to
purchase or lease equipment and pass such costs through to third parties. By
leasing equipment and purchasing services from third parties, hospitals are able
to conserve their limited capital resources for other purposes and reduce the
risks associated with technological obsolescence and under utilization of
equipment and services. As a result hospitals are increasingly utilizing
companies that provide MRI and CT Scan equipment, such as Modern Medical, in
order to decrease their equipment and personnel costs.
Medical diagnostic imaging systems facilitate the diagnosis of disease
and disorders at an early stage, often minimizing the amount and cost of care
needed to stabilize or cure the patient and frequently obviating the need for
invasive diagnostic procedures, such as exploratory surgery. Diagnostic imaging
systems are based on the ability of energy waves to penetrate human tissue and
generate images of the body which can be displayed either on film or on a video
monitor. Imaging systems have evolved from conventional x-ray to the advanced
technologies of MRI and CT Scan.
MRI is an advanced imaging system that uses a strong magnetic field and
radiowaves to allow physicians to explore the inner workings of the human body.
The pictures produced by this technology assist the doctor in detecting and
defining the differences between healthy and diseased tissue.
CT is a specialized method of examining various body parts using x-rays
and computer reconstructions to form a cross sectional image. During the exam
the x-ray tube travels completely around the body and the computer reconstructs
the information to form a cross sectional image. A series of these images, or
slices, is taken through the area of interest, providing the physician with a
detailed look at structures not otherwise seen with regular x-rays.
Our services
Modern Medical offers the full range of services discussed below. The
needs of a particular hospital or physician group determine the extent of the
services offered in each instance, which Modern Medical can deliver either on a
limited basis or through a full service medical technology center. Each site is
staffed by administrative, technical and support personnel. In addition, a
physician and a physician group provide professional services and interpret MRI
or CT scans at each site. Modern Medical does not engage in the practice of
medicine. Such physicians are not employees of Modern Medical. However, the most
significant cost of operating an imaging center is the capital and finance costs
of equipment.
Modern Medical provides equipment and related services, technical and
support staffing, marketing, patient scheduling, billing and collection and
management in all of Modern Medical's sites located throughout New Jersey and at
Modern Medical's new site in New Orleans, Louisiana.
Equipment and related services. Modern Medical consults with its
potential clients and existing clients to identify the equipment best suited to
meet the client's needs on a cost-effective basis. Modern Medical then acquires
the equipment through lease/purchase agreements. In addition, Modern Medical
assists the hospital or physicians and their personnel in complying with
licensing and other regulatory requirements, which consist of all applicable
county building permits and architectural filings as well as filing all
necessary equipment registration forms with the applicable state agencies.
Modern Medical supervises the installation and testing of the equipment and
provides periodic inspection of the equipment at the facility. Modern Medical
undertakes to maintain its clients' equipment and typically enters into
agreements with equipment manufacturers or other third parties for the delivery
of maintenance services.
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Technical and support staffing. Modern Medical provides technologists
who operate the equipment at the facility. Modern Medical trains and provides
on-going safety instruction and educational programs for its technologists as
well as the hospital's technologists. Modern Medical also provides clerical
personnel to provide administrative duties such as scheduling and answering
phone inquiries.
Marketing. Modern Medical provides its customers with marketing
services, including the design and formulation of a marketing program for each
facility to inform physicians in the community as to the technology and services
available at the facility. Modern Medical also provides marketing personnel who
market patient referral sources, including HMOs and other health plans.
Patient scheduling, billing and collection. At the medical technology
centers, Modern Medical schedules patient appointments, prepares all patient
billing and is responsible for collection. In providing billing and collection
services, Modern Medical bills the patients directly and, therefore, assumes the
credit risk on such billings and any delays attendant to reimbursement through
governmental programs or third party payors. Modern Medical also is responsible
at the centers for related administrative and record-keeping functions and all
management information services.
Management. Modern Medical provides full managerial responsibility and
control over facility operations, including all of the foregoing services, at
medical technology centers.
Delivery of our services
Modern Medical delivers its services to its customers through either
contractual arrangements with hospitals and clinics or medical technology center
arrangements with hospitals or physician groups, as discussed below. Modern
Medical may form imaging centers utilizing a variety of ownership vehicles.
Presently, Modern Medical operates its sites under joint venture agreements.
Below is a description of Modern Medical's medical technology centers and
radiology group centers:
Medical technology centers. Modern Medical will establish a medical
technology center within a hospital or with a physician group through which
Modern Medical will offer its full range of services. A hospital center is
located on a hospital campus, is affiliated with that hospital and provides both
inpatient and outpatient services. A hospital requiring part-time service will
engage Modern Medical to schedule its mobile unit to be on location at the
hospital at prescribed times. Modern Medical maintains a mobile unit which is a
custom-designed vehicle that is a totally self-contained facility.
In addition to the equipment and facility services provided in its
arrangements, Modern Medical provides at a medical technology center all
technical and support staffing, expanded marketing services, patient scheduling,
billing and collection services, management information systems, and overall
management.
Radiology group centers. Modern Medical began its medical technology
center operations by establishing free standing, outpatient imaging centers with
groups of radiologists.
In most cases Modern Medical is approached by a group of physicians or
a hospital who are looking to install a MRI or CT scanner. Modern Medical first
reviews the location that the equipment is to be placed in and reviews a general
outline or business plan. Information that is presented includes other centers
in the area, patient financial class, patient demographics in the area served,
and potential referring physicians. In the case of a hospital, Modern Medical
requests the number of MRI's and CT scans that the hospital sends to other
facilities. Modern Medical also contacts neighboring sites to determine the
waiting time for scheduling an exam to see if patients are waiting an excessive
amount of time for an exam. Modern Medical contacts potential referring
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physicians to determine if they are experiencing problems with existing
facilities and if they would support a new facility. Managed care groups and
HMO's are contacted to determine if contracts for providing service are
available and to ascertain the membership in their service area of the potential
new sites. If the site is considered to be positive a request is made to the
various equipment manufacturers for a bid on the equipment Modern Medical deems
necessary. Modern Medical then makes a determination as to the financial
viability of the project. Based on the criteria above, Modern Medical reviews
each site to determine whether the site can generate revenues to support the
costs associated with the operation of the site.
Our growth strategy and marketing plan
Modern Medical markets its services to physicians and hospitals through
various methods. These include telemarketing, direct solicitation, direct mail,
sponsorship of in service education programs for physicians and technical staff,
and personal visits to physician offices. Modern Medical's management also
attends many of the large radiology shows throughout the country.
Modern Medical is pursuing a strategy of seeking new hospital centers
and physician managed ambulatory centers. Its target markets also include
hospitals without a diagnostic imaging facility, to which Modern Medical can
offer its part-time mobile units. Modern Medical will engage in intensive
marketing in areas of specialized physician groups, chiropractors, health
maintenance organizations (HMO), preferred provider organizations (PPO), union
locals, municipalities and insurance companies. Modern Medical currently
negotiates discounts with large suppliers of patients, as allowed by law. Modern
Medical's objective is to respond to the concerns of spiraling health care costs
while maintaining quality of care to the patient. Increased volume results in a
reduction of the cost of each procedure because fixed costs at each facility are
spread over a larger number of procedures. This reduction in cost is passed
along to Modern Medical's contracted clients. In addition, in order to increase
patient volume, Modern Medical has expanded its hours of operations, including
extended hours during the week and weekend scheduling.
Modern Medical applies a variety of criteria in evaluating each
prospective hospital customer. These criteria include: (a) the extent of the
hospitals' present diagnostic imaging services; (b) its competitive environment;
(c) the size and type of hospital; (d) the number of referring physicians and
their specialties; (e) patient volume; and (f) the nature of the payors (private
insurance programs, government reimbursement programs or other health or medical
organizations).
Modern Medical's plan of operation will be to continue to expand the
equipment use of its current customers. Modern Medical will, with its direct
marketing efforts, continue to seek new clients, either through the acquisition
of complementary businesses or the establishment of new centers. Modern Medical
currently does not have any agreements to acquire complementary businesses.
Equipment and supplies
Modern Medical obtains its medical equipment and ancillary supplies
from various manufacturers, including General Electric, Toshiba, Siemens,
Philips, Picker, Hitachi, DuPont and Kodak. Modern Medical is not dependent on
any one supplier and believes that it has good relationships with its suppliers.
Equipment acquisition costs can range dramatically depending upon the
model and peripheral equipment acquired. Currently, MRI equipment ranges from
$1,000,000 to $2,000,000, extremity MRI and CT equipment currently ranges from
$300,000 to $800,000.
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Installation and maintenance costs on the equipment can be substantial,
particularly with respect to MRI units. Installation costs can range from
$250,000 to $500,000 for an MRI unit depending on the particular installation
circumstances, such as excavation costs, electrical problems (i.e. bringing
additional power into the facility), delays in construction and problems
encountered in installing the equipment. Maintenance costs on a unit can be as
high as $150,000 per year. Modern Medical typically enters into agreements with
equipment manufacturers or other third parties for equipment maintenance.
Equipment is financed by either Modern Medical or its joint venture,
typically over a sixty month period, with the lender or leasing company. In each
case the equipment serves as security for the loans and in certain instances the
lessor requires a corporate guarantee for a percentage of the amount being
financed, which is based on the financial projections of the equipment
purchased. Modern Medical leases all of its medical equipment.
Modern Medical's equipment and supplies are available from a variety of
sources. The loss of any single supplier would not have a material adverse
effect on Modern Medical.
Governmental reimbursement and regulations of our business
Government reimbursement. In major areas of its business, Modern
Medical relies on third party reimbursement for payment of its services, which
is typically the federal government. Its charges are predominantly paid either
directly by third party payors or by its clients which in turn receive
reimbursement from such sources. Extensive payment delays are not uncommon and
adversely affect our operations while awaiting payment.
The centers with which Modern Medical is affiliated all participate in
many reimbursement programs including Medicare and Medicaid as well as private
insurers. Under these arrangements the center agrees to accept the approved
amount of reimbursement from each individual payor. In certain cases the amount
billed may exceed the predefined fee schedule, resulting in an amount to be
written off by Modern Medical as disallowed.
Regulations. Congress has enacted certain legislation, referred to as
Anti-Kickback Laws, in order to curb the potential for fraud and abuse under the
Medicare and Medicaid programs. Anti-Kickback Laws prohibit the payment or
receipt for referring patients to a healthcare provider if such payments may be
made in whole or in part by the Medicare or Medicaid programs. New Jersey and
some other states have enacted similar laws.
The Anti-Kickback Laws apply both to the provider making as well as
receiving the referral. Violation of the Anti-Kickback Laws is a criminal felony
punishable by fines of up to $25,000 and/or up to five years imprisonment for
each count. Federal law also permits the Department of Health and Human
Services, or HHS, to impose civil fines against violators of the Anti-Kickback
Laws and to exclude them from participation in the Medicare and Medicaid
programs. These civil sanctions can be levied under circumstances that do not
involve the more rigorous requirements and standards of proof required in a
criminal trial.
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In 1991, New Jersey enacted the Health Care Cost Reduction Act, or
so-called "Codey Bill", (N.J.S.A. 45: 9-22.4 et seq.) which provided that:
o a medical practitioner shall not refer a patient, or direct one of its
employees to refer a patient, to a health care service in which the
practitioner and/or the practitioner's immediate family has any
beneficial interest;
o for beneficial interests which were created prior to the effective date
of the Act, July 31, 1991, the practitioner could continue to refer
patients, or direct an employee to do so, if the practitioner disclosed
such interest to his patients. The disclosure must take the form of a
sign posted in a conspicuous place in the practitioner's office. It
must inform the patients of the beneficial interest and state that a
list of alternative health care service providers could be found in the
telephone directory, and
o all physicians who refer in the sites in New Jersey and also have a
financial interest in those sites must have a sign posted as mandated
by the law.
The federal "Ethics in Patient Referrals Law of 1989", often referred
to as the "Stark Bill", prohibits a physician who has a financial relationship
with an entity from making referrals 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, expands the application of the Medicare ban on self- referrals after
December 31, 1994.
As of the date of this filing, Modern Medical has not experienced any
material adverse effects of limited Medicare and Medicaid referrals and has not
experienced any material adverse effect as a result of the "Codey Bill", the
"Stark Bill" or any other government regulations applicable to our business.
Competition
Modern Medical faces competition from various other companies ranging
from small local companies to those operating on a regional or national scale,
such as Medical Resources Inc., U.S. Diagnostic Labs, Inc. and Healthcare
Integrated Services, Inc. Although these companies may be more experienced or
have more financial resources at their disposal, Modern Medical competes in the
marketplace on the basis of its performance in the industry, its reputation for
the quality of its services and its expertise in tailoring the structure of its
contractual arrangements and services to meet the specific needs of its
customers. Modern Medical does this by meeting with the hospital or physician to
discuss the specific needs of each site. Thereafter a determination can be made
as to which services Modern Medical will perform at a particular site and
whether the hospital or physician wants to be financially involved in the site.
Modern Medical believes that few of its competitors provide Modern
Medical's range of services from full service medical technology centers to more
limited mobile and fixed site arrangements. Modern Medical maintains close
working relationships with two major equipment manufacturers (Hitachi and
General Electric). Representatives of these manufacturers introduce Modern
Medical to various clients in an effort to arrange joint ventures between Modern
Medical and physician groups or hospitals in an effort to sell their equipment
to the joint venture.
Modern Medical's imaging centers compete for patients with other
hospitals and radiology groups in their area. These centers and hospital
customers compete on the basis of efficiency and service.
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Insurance
Modern Medical carries general liability insurance with coverage of up
to $1,000,000 per claim and a commercial umbrella policy of $10,000,000. Modern
Medical believes that such coverage is adequate. Additionally, Modern Medical
maintains insurance for the replacement of all leased equipment at each of its
facilities.
Employees
As of January 1, 2000, Modern Medical employed 37 persons on a
full-time basis and 39 persons on a part time basis. The following table
reflects the employees per facility:
TOTAL FULL-TIME PART-TIME
Modern Medical (Corporate) 12 10 2
Marlton 10 6 4
Morristown 3 2 1
West Paterson 10 3 7
JOINT VENTURES
South Plainfield 5 1 4
Union 29 13 16
Passaic 7 2 5
Total: 76 37 39
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Lease agreements at our joint venture sites
Modern Medical as managing joint-venturer has entered into an equipment
lease/purchase agreement with DVI Financial, dated December 1, 1993 which
provides for the lease/purchase of one Picker 1.OT mobile MRI unit in a Calumet
Coach payable over a 60 month term with payments each of $36,350 which is being
charged as an expense of Modern Medical. On June 15, 1998, Modern Medical
refinanced the lease purchase of the Picker 1.OT mobile MRI unit, reducing its
monthly rental payment to $13,407 per month for a period of thirty-six (36)
months. Modern Medical is current in all its payments. This leased equipment is
presently located at the Muhlenberg Regional Medical Center in Plainfield, New
Jersey.
Modern Medical, as managing joint-venturer, has entered into an
equipment lease/purchase agreement with DVI Financial, dated December 1, 1993
which provides for the lease/purchase of MRI and CT equipment payable over a
60-month term with payments each at $44,331 which was charged as an expense of
the business and was paid in full in 1998. The leased equipment is presently
located in Union, New Jersey. Modern Medical financed an Open MRI in Union, New
Jersey in 1996 which is payable over a 60 month term at $23,403 per month.
Modern Medical is current in all of its payments.
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Modern Medical, as managing joint-venturer, has entered into an
agreement with Beth Israel MRI Corporation and Advanced Imaging Radiology
Associates P.A. under which it provides clerical, billing and marketing services
to an MRI facility which Modern Medical developed and is located on the campus
of Beth Israel Hospital. During the last quarter of 1998, Modern Medical
refinanced its lease with DVI Financial Services for the equipment located at
the Beth Israel MRI Center. Under the terms of the refinancing Modern Medical
extended the lease/purchase with DVI for sixty months for the unpaid balance.
The resulting refinance lowered the monthly payments from $38,245 to $21,159.
During the last quarter of 1998, Modern Medical refinanced its lease
with DVI Financial Services for the South Jersey Equipment Leasing Corporation
site in Marlton, New Jersey. Under the terms of the refinancing, Modern Medical
extended the lease/purchase with DVI for sixty months for the unpaid balance.
The resulting refinance lowered the monthly payments from $35,092 to $23,271.
Management refinanced its equipment as described above in order to take
advantage of lower finance rates, which lowered Modern Medical's monthly
expenses by approximately $42,000 and increased cash flow.
Item 2. Properties
Modern Medical leases 1,765 square feet located at 1719 Route 10, Suite
117, Parsippany, New Jersey, which is comprised of Modern Medical's executive
offices. Modern Medical is party to a lease covering the facility that expires
on February 28, 2004, and provides for monthly rental payments of $2,721.82.
Modern Medical believes that its facilities are adequate for its current and
future operations.
Item 3. Legal Proceedings
In December 1999, KFC Ventures, LLC ("KFC") commenced an action in U.S.
District Court in the Eastern District of Louisiana against Modern Medical
Modalities Corporation, its wholly-owned subsidiary Metairie Medical Equipment
Leasing Corp., and four principals of the Company and /or Metairie Medical
Equipment Leasing Corp in a suit alleging KFC was fraudulently induced to invest
in Open MRI of Metarie, LLC. KFC alleges claims for fraud, federal and state
securities fraud, unfair trade practices, detrimental reliance, intentional
breach of contract, breach of the covenant of good faith and fair dealing, and
breach of fiduciary duty. Modern Medical believes the suit is without merit and
intends to vigorously defend itself.
In 1999, Stephen Findlay, former president of Prime Contracting Corp.,
commenced an action in Morris County Court in the State of New Jersey against
Modern Medical Modalities Corporation making various assertions regarding the
sale of Prime Contracting. Modern Medical intends to rigorously defend itself
with respect to this case.
In a related matter, Stephen Findlay named Modern Medical as a
defendant in an arbitration. The arbitrator ruled that Modern Medical should not
have been named and awarded legal fees to be paid by Stephen Findlay. Modern
Medical has filed an action in the U.S. District Court for the District of New
Jersey to enforce the arbitration award.
In December 1999, Modern Medical was named as a defendant in a lawsuit
filed by Stacey Travaglione, a former employee, in Federal District Court in the
Southern District of New York. The suit alleges violations of the Americans with
Disabilities Act and the New York State Human Rights Law. Modern Medical intends
to rigorously defend itself with respect to this case.
Other than the above, Modern Medical is not a party to any
material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Modern Medical did not submit any matters to a vote of its
securityholders during the fourth quarter of 1999.
13
<PAGE>
PART II
Item 5. Market for Modern Medical's Common Stock
On March 12, 1999, we effected a 1 for 2 reverse split of our
authorized and outstanding shares of common stock. As of March 31, 2000, we had
2,506,471 shares of common stock outstanding. Our common stock is traded on the
Pink Sheets under the symbol "MODM." The following table sets forth the high and
low closing bid prices for the common stock as reported on the Nasdaq SmallCap
during 1998, 1999 and through May 25, 2000. The high and low bid prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions. All bid prices for the periods prior to our
1-for-2 reverse stock split effected on March 12, 1999, have been adjusted to
reflect the reverse stock split.
Common Stock
------------
Fiscal 1998 High Low
----------- -----------------------------
First $ 5.25 $3.50
Second 4.00 .8125
Third 1.875 1.00
Fourth .75 .0625
Fiscal 1999
First $ 2.75 $ .125
Second 3.25 2.375
Third 3.25 1.25
Fourth 3.50 1.50
Fiscal 2000
First $ 2.75 $1.375
Second 1.50 .35
Third .35 .12
Fourth (through October 31, 2000) .07 .02
On October 31, 2000, there were 49 holders of record of Modern
Medical's 2,506,471 outstanding shares of Common Stock.
On October 31, 2000, the last sale price of the Common Stock as
reported on the Pink Sheets was $0.2031.
Dividend Policy
Modern Medical 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 Modern Medical's
earnings, its capital requirements, financial condition and other relevant
factors. Modern Medical intends, for the foreseeable future, to retain future
earnings for use in Modern Medical's business.
14
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements
When used in this Form 10-KSB and in future filings by Modern Medical
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." Modern Medical 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. Modern
Medical 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 started Medical
Marketing & Management, Inc. which markets not only the sites of Modern Medical,
but for other physician groups and hospitals. In November 1994, Modern Medical
acquired Prime Contracting Corp. in a business combination accounted for as a
pooling of interests. Prime is a full service contractor who provides turnkey
design and construction services for medical facilities primarily on the east
coast of the United States. On December 27, 1995, Modern Medical entered into an
agreement with Hamilton McGregor International Ltd., a related party, to sell
all of the common stock of Prime for $1,200,000. Hamilton McGregor is a
majority-owned subsidiary of RF Management Inc. Our Chairman, Roger Findlay,
also serves as chairman of the board of directors of RF Management.
In 1995, Modern Medical purchased Empire State Imaging Associates, Inc.
On December 27, 1996, Modern Medical sold 65% of the common stock of Empire
State for $250,000 to RF Management, a related party. Modern Medical commenced
operations during the second, third and fourth quarters of 1995 and the first
quarter of 1996, respectively, at sites located in Passaic and Somerset, New
Jersey; Amherst, New York; and Morristown, New Jersey. During the third quarter
of 1996, Modern Medical, through its wholly-owned subsidiary, West Paterson
Medical Equipment Leasing Corp., entered into a lease and management services
agreement at a site specializing in diagnostic imaging located in West Paterson,
New Jersey. In addition, Modern Medical through its wholly-owned subsidiary Ohio
Medical Equipment Leasing Corporation entered into a purchase and consulting
agreement to acquire a 50.2% interest as a general (managing) partner of a
diagnostic imaging center located in Sylvania, Ohio. Many of the fluctuations on
the line items on the balance sheets and the statements of operations are
directly attributable to the acquisition and start-up of these entities.
In March 1997, Modern Medical entered into a contract for the sale of
its stock in Empire State Imaging. Under the terms of the sale, the purchasing
party paid $75,000 in advance, $175,000 at closing and the balance of $750,000
is payable in monthly installments of $25,000 commencing in April 1998.
In March of 1998, Modern Medical sold to the KFC Venture LLC, 15% of
Open MRI and Imaging Center of Metaire, LLC for $250,000 payable $100,000 upon
execution of the agreement and $25,000 a month for six months. Under the terms
of the agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC
without interest before any profits can be distributed. Until such time, all
15
<PAGE>
distributions shall be divided equally with fifty percent of said distribution
being paid to KFC Ventures, LLC as a return of its initial capital investment up
to the amount of $125,000 and the other fifty percent of said distribution being
distributed to the members in accordance with their percentage interests in
Modern Medical.
On May 7, 1998, Modern Medical entered into an agreement to sell 97.2%
of its 72% ownership of Open MRI of Morristown, Joint Venture for $300,000. The
terms required $100,000 payable at signing, and monthly payments in the amount
of $50,000 on May 1, June 1, July 1 and August 1, 1998, all of which were made.
Modern Medical retained the option to repurchase from the buyers, ADS Investment
Corp. and Oak Knoll Management Corporation, the interest sold upon payment of
$50,000 plus all prior payments and any additional costs incurred by the buyers.
The option expired on August 31, 1998.
On August 20, 1998, Modern Medical, ADS Investment Corp. and Oak Knoll
Management Corporation modified the original agreement from a sale to a loan.
The terms of the new agreement are as follows: a loan in the amount of $300,000,
with interest due and payable at 12% per annum, secured by 70% of Open MRI. The
loan is due and payable on September 30, 1998. The agreement also required the
personal guarantees made by the lenders to DVI Business Credit Corporation on
behalf of Modern Medical be replaced by September 30, 1998 as a condition of
satisfactory settlement of the loan, which was completed. For services rendered
between May 7, 1998 and the date of maturity of this loan, all distributions
made to the lending parties by Open MRI will remain the property of the lending
parties.
On September 30, 1998, Modern Medical sold all but 2% of its 72%
interest in Open MRI for $300,000 and the purchaser's agreement to provide
Modern Medical's creditor, DVI Business Credit, personal guaranties of the
principals of purchaser in an amount not to exceed $150,000. Modern Medical
recorded a gain on this transaction in the amount of $30,171. Modern Medical has
retained a 2% ownership interest in Open MRI.
In September 1998, Modern Medical terminated the management contract
with Southern Medical Consultants LLP for the management of Open MRI of Metaire.
Accordingly pursuant to the agreement, if Southern Medical is not active in the
site nor managing the site through the end of the lease payments, then no stock
transfers will be made and none have been made to date.
Results of Operations:
For the year ended December 31, 1999 compared to the year ended December 31,
1998
Net Revenues from Services:
When comparing the year ended December 31, 1999 to the same period in 1998, the
net revenue from services decreased $2,427,842 from $6,414,945 in 1998 to
$3,987,103 in 1999. This decrease is attributable to the sale in 1998 of Doctors
Imaging Associates ($1,166,394), Open MRI of Morristown Inc. ($863,556) and the
return of Ohio Medical Equipment Leasing Corporation to DVI Financial Services
($774,768) totaling $2,804,718. This decrease was offset by increase net revenue
from services from the Company's existing sites, specifically The MRI Center at
PBI which increased by approximately $400,000 when comparing 1999 to 1998. This
was offset by small increases at the Companies' other sites.
16
<PAGE>
Cost of Services Provided/Selling, General and Administrative:
Cost of Services Provided/Selling, General and Administrative has decreased from
1998 to 1999 approximately $1,483,000. This decrease resulted from the sale of
three centers; Doctors Imaging - $637,000, Open MRI of Morristown - $372,000,
Sylvania Imaging - $646,000, plus marketing costs throughout the remaining
centers of approximately $185,000 and medical equipment maintenance costs
decreased by approximately $396,000 as a result a change from service contracts
to repairs on a time and materials basis. These decreases were partially offset
by the net increase of approximately $764,000 in stock-based compensation.
Stock Based Compensation
In 1998 the Company contracted with Benson Shore Capital, LLC to perform
marketing services for the Company and was given 175,000 shares of stock in the
Company in lieu of cash compensation. The value given the stock at that time was
$106,953. In 1999 the Company contracted with various vendors (See note 12 to
the financial statements) to perform various services for the Company ranging
from marketing, special projects and seeking sources of capital for the Company.
The value of the stock at the time of the awards in lieu of cash compensation
was $869,778.
Depreciation Expense:
Depreciation Expense has reduced by $390,266 when comparing 1999 of $1,148,814
and 1998 of $1,539,080. The majority of the reduction is applicable to the Sale
of Doctors Imaging Associates in the first quarter of 1999 and the closing of
the Amherst Medical Equipment Leasing Corp. Depreciation expense for Doctors
Imaging Associates in 1998 was $270,000 and for Amherst Medical Equipment
Leasing Corp. was $48,108 totaling $318,828 of expense not included in 1999.
Interest Expense
Interest Expense has reduced by $309,777 when comparing 1999 ($631,179) and 1998
($940,956). The majority of the reduction is due to the refinancing of the
Companies existing sites with DVI Financial (except for Metairie) and the sale
of Doctors Imaging Associates ($97,035) and closing of Amherst Medical Equipment
Leasing Corporation at ($25,496).
Liquidity and Capital Resources:
Modern Medical has a working capital deficiency of $1,320,976 at
December 31, 1999 as compared to a working capital deficiency of $1,066,357 at
December 31, 1998.
17
<PAGE>
During 1998, Modern Medical refinanced the following sites:
OLD NEW DECREASE
Passaic Beth Israel MRI $45,255 $24,557 $20,698
South Jersey Imaging 37,267 23,217 14,050
South Plainfield Imaging 36,350 13,207 23,143
-------
Monthly reduction in debt funding $57,891
=======
On an annual basis the above refinancing results in a cash savings of
$694,692. The above refinanced loans are for between thirty-six (36) and sixty
(60) months. Passaic Beth Israel has 48 months, South Jersey Imaging has
twenty-four (24) months and South Plainfield has eighteen (18) months remaining
on the refinanced notes at December 31, 1999.
In addition, for the year ended December 31, 1999, Modern Medical
reduced the balance of the outstanding accounts receivable working capital line
of credit by approximately $189,000 ($667,000 to $478,000) and for the ten
months ended October 31, 2000 the outstanding balance has been further reduced
to $460,000. Modern Medical intends to continue to reduce the outstanding
principal balance on this line of credit at a rate of 10% of the cash receipts
of the applicable imaging centers.
In July 1999, Modern Medical sold 148,702 shares of its common stock to
accredited investors in a private placement transaction pursuant to Regulation D
Rule 506 of the Securities Act of 1933, as amended. Modern Medical received
gross proceeds of $283,000, before offering expenses of approximately $78,000,
which Modern Medical intends to use for working capital and general corporate
purposes.
In October 1999, Modern Medical issued an aggregate of $500,000
principal amount of its 10% convertible notes to two investors which are due on
October 18, 2000. The notes are convertible at anytime while any portion of the
notes are outstanding into shares of Modern Medical's common stock at the lower
of: (a) 72.5% of the lowest closing bid price of Modern Medical's common stock
for the thirty (30) trading days immediately preceding the date of conversion,
or (b) $2.0625. Modern Medical has the right, subject to conditions, to require
the purchasers of the $500,000 note to purchase up to an additional $2,000,000
principal amount of convertible notes on the same terms and conditions as the
$500,000 note. As of October 27, 2000, the notes were not converted into Modern
Medical's common stock and Modern Medical is currently negotiating the
conversion of this note to a long-term note. See "Note 8 of the Notes to
Consolidated Financial Statements".
In December 1999, the Company entered into a long-term note agreement
with DVI Financial Services whereby it would be obligated to make 24 equal
payments of $2,341.08 commencing December 20, 1999.
During the fourth quarter of 1999, the Company entered into an
agreement whereby Amherst Imaging Center would be run by Dr. Bahlia through June
30, 2000. The Company would not be affiliated with the center beyond the term of
the facility lease and all assets at corresponding to the center were written
down to their net realizable value which was estimated to be zero. The debt to
DVI was written down to $45,000, the rent through July 31, 2000 was accrued and
a close-down cost of approximately $22,000 was established.
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<PAGE>
On March 3, 2000, the Company received a commercial line of credit in
the amount of $300,000 from Bridge View Bank in Englewood, New Jersey. Pursuant
to the terms of the line of credit, Roger Findlay, Gregory Maccia and Jan
Goldberg, each of whom are executive officers and directors of Modern Medical
are guarantors on the loan. The loan is for a one year period and the interest
rate on the loan is based on Bridge View's Base/Prime commercial lending rate
plus one (1) percent floating for the term of the loan.
On March 13, 2000, West Patterson Equipment Leasing Corporation and
Modern Medical entered into an agreement with Advanced Imaging and Radiology
Associates, P.A. pursuant to which all functions of the West Patterson office
will be turned over to Advanced Imaging. Advanced Imaging will be responsible
for all operational expenses, including but not limited to payroll, rent,
medical supplies, marketing materials, maintenance of equipment and lease
payments on the equipment beginning on March 13, 2000. Additionally, both
Advanced Imaging and its principals have guaranteed the remaining twenty-six
payments of $11,858 on the leased equipment. All accounts receivable and
accounts payable will remain with Modern Medical.
During the first quarter of 2000 the Company retired its Line of Credit
with Summit Bank in the amount of $600,000. This line was secured by a
certificate of deposit at Summit which was used to payoff the line.
Modern Medical believes that its current operations along with its
current capital resources will provide it adequate working capital for the next
twelve months.
These are the only trends, commitments, events and/or material
uncertainties known to Modern Medical.
Going Concern
Modern Medical's 1999 and 1998 financial statements have been presented
on a basis that it is a going concern. Due to significant losses during the
years ended December 31, 1999 and 1998, the accountants' reports have an
explanatory paragraph stating that Modern Medical's continued existence is in
doubt.
As described above, during 1999, Modern Medical reduced its
administrative salaries, refinanced equipment and raised approximately $783,000
through the issuance of equity and debt securities. Management believes that its
current operations along with its current capital resources will provide Modern
Medical sufficient cash resources to support its operations for the next twelve
months.
Valuation of Accounts Receivable
Modern Medical values its uncollected accounts receivable as part of
its determination of profit. Modern Medical constantly reviews the accounts
receivable valuation. The continuing monthly review, gathering of additional
information, as well as changing reimbursement rate, may cause adjustments to
the accounts receivable valuation.
We have not investigated whether our embedded systems, such as our
electrical, heating or telephone systems, are year 2000 compliant. We expect,
however, that our business would not experience any significant long-term harm
even if any of these systems were to not be year 2000 compliant.
There is, however, general uncertainty regarding the year 2000 issue
and its effect on the overall business environment. We cannot currently
determine whether the year 2000 issue will disrupt the U.S. economy or business
infrastructure sufficiently to harm our business.
19
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Item 7. Financial Statements
See pages F-1 to F-28.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On March 7, 1998, the Company dismissed Weinick, Sanders & Co. LLP,
located at 1515 Broadway, New York, New York 10036, as its independent
accountants. The Company engaged Vincent J. Batyr & Co., located at 27 North
Broadway, Tarrytown, New York 10591, as its new independent certified public
accountants. In connection with the two most recent fiscal years and subsequent
interim period preceding Weinick, Sanders & Co. LLP's dismissal, there were no
disagreements with Weinick, Sanders & Co. LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. Weinick, Sanders & Co. LLP's report on the financial statements did
not contain an adverse opinion or disclaimer of opinion and was not qualified or
modified.
On March 3, 2000, Vincent J. Batyr & Co. resigned. During the year
ended December 31, 1998 the reports by Batyr on the financial statements of
Modern Medical contained a going concern opinion. During the year ended December
31, 1997 the reports by Batyr on the financial statements of the company did not
contain an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope, or accounting principles. During Modern
Medical's two most recent fiscal years and subsequent period up to March 3,
2000, there were no disagreements with Vincent J. Batyr & Co. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.
On March 1, 2000, upon receipt of approval of its Board of Directors,
Modern Medical engaged Lazar, Levine & Felix LLP to serve as Modern Medical's
independent certified public accountants. During Modern Medical's two most
recent fiscal years prior to the hiring of Lazar, Levine & Felix LLP, and during
any subsequent period through March 3, 2000, Modern Medical did not consult with
Lazar, Levine & Felix LLP on any accounting or auditing issues.
On April 11, 2000, the Company was informed by its previous auditors,
Vincent J. Batyr & Co., that upon completion of their SEC Peer Review they were
informed that they were no longer independent with respect to Modern Medical,
and therefore the Company had to hire the firm of Liebman, Goldberg & Drogin,
LLC to complete a new audit of the 1998 financial statements.
20
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and Control Person
Compliance with Section 16(a) of the Exchange Act
The officers and directors of the Company, and further information concerning
them, are as follows:
Name Age Position
---- --- --------
Roger Findlay 52 Chairman of the Board of Directors
and President
Jan Goldberg 49 Vice President, Principal
Accounting Officer, Treasurer and
Director
Gregory Maccia 46 Vice President, Secretary and
Director
Fred Mancinelli 57 Director
Carl Gedeon 49 Director
Each of the above officers and directors shall hold office until the next annual
meeting of the Company's shareholders and until a successor is elected and
qualified.
ROGER FINDLAY is a co-founder and has been Chairman of the Board of Directors of
the Company since its inception in June 1990. 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. From June 1995 to the present, Mr. Findlay has served as
Chairman of the Board of Directors of RF Management, a publicly-held company.
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
21
<PAGE>
physician billing company. From 1984 to 1987, Mr. Goldberg was manager of a
multi-specialty radiology practice, BBS Billing, Inc. an east coast diagnostic
physician group which had contracts with hospitals in New York as well as their
own private offices and outpatient facilities. From 1974 to 1984, Mr. Goldberg
held various positions with Blue Cross as well as with hospitals in the New York
area. Mr. Goldberg was involved in setting up fee-for-service reimbursement
systems and was involved in various aspects of hospital administration.
GREGORY MACCIA is a co-founder of the Company and was Vice President and
Director until November, 1992. Since November 1992, Mr. Maccia has been the Vice
President, Secretary and a Director of the Company. Mr. Maccia has also been
President of Technology Services, Inc., a software design and facilities
management company for medical and commercial accounts since 1989. From 1986-
1989, Mr. Maccia was Vice President of Advacare, Inc., a national practice
management and physician billing company. Since 1986, Mr. Maccia has been
co-founder of Northern New Jersey Medical Management, Inc. He was co-founder and
Vice President of Medical Accounts Management Services, Inc. (MAMS) from 1984 to
1986 which developed and sold physician, outpatient and clinical billing
software systems. Mr. Maccia, from 1984 to 1986, was co-founder and Vice
President of Effective Management Services, Inc. (EMS), which provided custom
programming and facilities management with contracts to hospitals and
universities in the tri-state area as well as collection agencies and
non-medical entities. From 1977 to 1984, Mr. Maccia owned and managed his own
consulting company. Mr. Maccia currently serves on the Board of Directors of RF
Management, a publicly-held 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 of Modern Medical Modalities
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.
Under the securities laws of the United States, the Company's
directors, its executive (and certain other) officers, and any persons holding
ten percent or more of the Company's Common Stock must report on their ownership
of the Company's Common Stock and any changes in that ownership to the
22
<PAGE>
Securities and Exchange Commission and to the National Association of Securities
Dealers, Inc.'s Automated Quotation System. Specific due dates for these reports
have been established. During the year ended December 31, 1998, the Company
believes all reports required to be filed by Section 16(a) were filed on a
timely basis.
Item 10. 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, 1999
(referred to as "1999" in this table), the year ended December 31, 1998
(referred to as "1998" in this table) and the year ended December 31, 1997
(referred to as "1997" in this table) paid to the Company's Chief Executive
Officer and the two other most highly compensated officers of the Company. 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.
Summary Compensation Table
Name and Principal All Other
Position Year Salary Compensation
-------- ---- ------ ------------
Roger Findlay 1999 $148,431 $4,200(1)
Chairman and CEO 1998 $118,215 $5,550(2)
1997 $38,462 $6,480(2)
Gregory Maccia 1999 $108,046 $4,200(1)
Vice President 1998 $ 76,153 $4,200(1)
1997 $ 27,692 $4,200(1)
Jan Goldberg 1999 $108,046 $4,200(1)
Vice President 1998 $ 76,153 $4,200(1)
1997 $ 27,692 $4,200(1)
Dominic Gugliemi 1999 $ 20,959 $ -0-
Former President 1998 $ 48,769 $1,500(2)
1997 $ 48,769 $2,700(2)
------------
(1) Includes a car allowance paid by Modern Medical.
(2) Includes a car allowance paid by Modern Medical, the cost of benefits,
including premiums for life insurance and any other personal benefits provided
by Modern Medical to such persons in connection with Modern Medical's business
and directors fees.
Employment Agreements
In June 1997, Modern Medical entered into a five-year employment
agreement with Roger Findlay which expires in June 2002. Pursuant to the
agreement Mr. Findlay receives an annual salary of $120,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.
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<PAGE>
In June 1997, Modern Medical entered into a five-year employment
agreement with Jan Goldberg which expires in June 2002. Pursuant to the
agreement Mr. Goldberg receives an annual salary of $95,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.
In June 1997, Modern Medical entered into a five-year employment
agreement with Gregory Maccia which expires In June 2002. Pursuant to the
agreement Mr. Maccia receives an annual salary of $95,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.
Options to Named Executive Officer
The following tables set forth certain information with respect to all
outstanding stock options granted during 1999 to the Company's Named Executive
Officer.
Option Grants
<TABLE>
<CAPTION>
Number Potential Realizable
of Value at Assumed
Securities % of Total Annual Rates of
Underly- Options Stock Price
ing Granted Exercise Expira- Appreciation for
Options to Employees Price tion Option Term
Name of Holder Granted in Fiscal Year ($/Share) Date 5%($) 10%($)
-------------- --------- -------------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roger Findlay 120,000 40.0% $2.125 7/5/09 160,200 406,200
Gregory Maccia 70,000 23.3% $2.125 7/5/09 41,097 237,069
Jan Goldberg 70,000 23.3% $2.125 7/5/09 41,097 237,069
</TABLE>
Option Exercises in Last Fiscal Year and Fiscal Year End Values (1)
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
Shares at FY-End at FY-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ $
Roger Findlay -0- -0- 120,000/-0- -0-/-0-
Gregory Maccia -0- -0- 70,000/-0- -0-/-0-
Jan Goldberg -0- -0- 70,000/-0- -0-/-0-
</TABLE>
(1) The closing bid price of a share of the Company's Common Stock at
December 31, 1999 was $2.063.
Stock Option Plan
In July 1999, the board of directors and shareholders adopted the
1999 stock option plan. The plan will be administered by the compensation
committee or our board of directors, who will determine among other things,
those individuals who shall receive options, the time period during which the
options may be partially or fully exercised, the number of shares of common
stock issuable upon the exercise of the options and the option exercise price.
The options may be granted as either or both of the following:
24
<PAGE>
(a) incentive stock options, or (b) non-qualified stock options. 500,000 shares
may be issued under this plan. To date, 300,000 options have been granted under
the plan.
In connection with the plan, the exercise price of each incentive
stock option may not be less than 100% of the fair market value of our common
stock on the date of grant or 110% of fair market value in the case of an
employee holding 10% or more of our outstanding common stock. The aggregate fair
market value of shares of common stock for which incentive stock options granted
to any employee are exercisable for the first time by such employee during any
calendar year, pursuant to all of our, or any related corporation's, stock
option plan, may not exceed $100,000. Non-qualified stock options may be granted
at a price determined by our compensation committee, but not at less than 85% of
the fair market value of our common stock. Stock options granted pursuant to our
stock option plan will expire not more than ten years from the date of grant.
The plan is effective for a period of ten years, expiring in 2009.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to us. The
plan is designed to enable our management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the plan may be exercised for up to ten years, and shall be at an
exercise price all as determined by our board. Options are non-transferable
except by the laws of descent and distribution or a change in control of us, as
defined in the plan, and are exercisable only by the participant during his or
her lifetime. Change in control includes (a) the sale of substantially all of
the assets of us and merger or consolidation with another company, or (b) a
majority of the board changes other than by election by the stockholders
pursuant to board solicitation or by vacancies filled by the board caused by
death or resignation of such person.
If a participant ceases affiliation with us by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant three months
to exercise, except for termination for cause which results in immediate
termination of the option.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by us become available again for issuance
under the plan.
The plan may be terminated or amended at any time by our board of
directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the plan may not be
increased without the consent of our stockholders.
25
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of October 15,
2000 with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of common stock of Modern Medical, each officer and director
of Modern Medical and all officers and directors as a group. The table does not
include securities exercisable into common stock that have not yet vested or are
not exercisable within 60 days of the date hereof. Unless otherwise indicated,
the address of each such person or entity is 1719 Route 10, Suite 117,
Parsippany, New Jersey 07054.
Name and Address Number of Shares Percentage of
Of Beneficial Owner Beneficially Owned(1) Common Stock
------------------- --------------------- -------------
Roger Findlay(2) 188,048 7.2%
Jan Goldberg(3) 138,046 5.4%
Gregory Maccia(4) 138,046 5.4%
Fred Mancinelli(5) 20,000 *
Carl Gedeon(6) 20,000 *
All officers and directors 504,140 18.0%
as a group (5 persons)(2)-(6)
* Less than one percent
-------------
(1) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a
right to acquire within 60 days pursuant to the exercise of options or
warrants are deemed to be outstanding for the purposes of computing the
percentage ownership of such individual or group, but are not deemed to
be outstanding for the purposes of computing the percentage ownership
of any other person shown in the table.
(2) Includes: (i) 68,048 shares of common stock; and (ii) options to
purchase 120,000 shares which are currently exercisable.
(3) Includes: (i) 68,046 shares of common stock; and (ii) options to
purchase 70,000 shares which are currently exercisable.
(4) Includes: (i) 68,046 shares of common stock; and (ii) options to
purchase 70,000 shares which are currently exercisable.
(5) Includes options to purchase 20,000 shares of common stock of all which
are currently exercisable.
(6) Includes options to purchase 20,000 shares of common stock all of which
are currently exercisable.
26
<PAGE>
Item 12. Certain Relationships and Related Transactions
Modern Medical believes that the transactions set forth below were made
on terms no less favorable to it than could have been obtained from unaffiliated
third parties. All future transactions, including any loans between Modern
Medical and any of its officers, directors, principal stockholders and their
affiliates will be approved by a majority of Modern Medical's board of directors
and will continue to be on terms no less favorable to Modern Medical than could
be obtained from unaffiliated third parties.
Doctors Imaging Associates, a joint venture whose financial statements
are consolidated with those of Modern Medical has received net non-interest
bearing advances from Doctors Imaging Associates, Inc., a joint venture,
totaling $225,717 and $240,751 at December 31, 1995 and December 31, 1994,
respectively. Doctors Imaging Associates, Inc. is obligated to advance up to
$250,000 from time to time for working capital as Modern Medical deems
necessary. These advances are to be repaid prior to any distribution of profits
to the joint venturers.
On May 7, 1998, Modern Medical entered into an agreement to sell 97.2%
of its 72% ownership of Open MRI of Morristown, Joint Venture (Open MRI) for
$300,000. The terms required $100,000 payable at signing, and monthly payments
in the amount of $50,000 on May 1, June 1, July 1 and August 1, 1998, all of
which were made. Modern Medical retained the option to repurchase from the
buyers, ADS Investment Corp. and Oak Knoll Management Corporation, which is
owned by Alice Findlay, the wife of Roger Findlay, Modern Medical's President,
the interest sold upon payment of $50,000 plus all prior payments and any
additional costs incurred by the buyers. The option expired on August 31, 1998.
On August 20, 1998, Modern Medical, ADS Investment Corp. and Oak Knoll
Management Corporation modified the original agreement from a sale to a loan.
The terms of the new agreement are as follows: a loan in the amount of $300,000,
with interest due and payable at 12% per annum, secured by 70% of Open MRI. The
loan is due and payable on September 30, 1998. The agreement also required the
personal guarantees made by the lenders to DVI Business Credit Corporation on
behalf of Modern Medical be replaced by September 30, 1998 as a condition of
satisfactory settlement of the loan, which was completed. For services rendered
between May 7, 1998 and the date of maturity of this loan, all distributions
made to the lending parties by Open MRI will remain the property of the lending
parties.
On September 30, 1998, Modern Medical effectively sold all but 2% of
its 72% interest in Open MRI for $300,000 and the purchaser's agreement to
provide Modern Medical's creditor, DVI Business Credit, personal guaranties of
the principals of purchaser in an amount not to exceed $150,000. Modern Medical
recorded a gain on this transaction in the amount of $30,171. Modern Medical has
retained a 2% ownership interest in Open MRI.
On March 3, 2000, the Company received a commercial line of credit in
the amount of $300,000 from Bridge View Bank in Englewood, New Jersey. Pursuant
to the terms of the line of credit, Roger Findlay, Gregory Maccia and Jan
Goldberg, each of whom are executive officers and directors of Modern Medical
are guarantors on the loan. The loan is for a one year period and the interest
rate on the loan is based on Bridge View's Base/Prime commercial lending rate
plus one (1) percent floating for the term of the loan.
Item 13. Exhibits, Lists and Reports on Form 8- K
(a) Exhibits
27 Financial Data Schedule
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
MODERN MEDICAL MODALITIES CORPORATION
By: /s/ ROGER FINDLAY
---------------------
Roger Findlay, President and Chairman of the Board
In accordance with the Exchange Act, this report has been signed
below by the following persons and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
----------- ----- ----
<S> <C> <C>
/s/ Roger Findlay President and Chairman of the Board November 6, 2000
-------------------------
Roger Findlay
/s/ Jan Goldberg Vice President, Principal November 6, 2000
------------------------- Accounting Officer, Treasurer
Jan Goldberg and Director
/s/ Gregory Maccia Vice President, Secretary November 6, 2000
------------------------- and Director
Gregory Maccia
Director November 6, 2000
-------------------------
Fred Mancinelli
Director November 6, 2000
-------------------------
Carl Gedeon
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Modern Medical Modalities Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Modern Medical
Modalities Corporation and Subsidiaries as of December 31, 1999, and the related
consolidated statement of operations, changes in stockholders' equity, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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 of December 31, 1999, and the
results of operations and their cash flows for the year then ended, 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 a working capital deficiency and has
suffered recurring losses from operations. These factors raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ LAZAR LEVINE & FELIX LLP
New York, New York
April 11, 2000 except as to
Note 8 which is dated
October 27, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Modern Medical Modalities Corporation and Subsidiaries
We have audited the accompanying consolidated statement of operations, changes
in stockholders' equity, and cash flows for the year ended December 31, 1998 of
Modern Medical Modalities Corporation and Subsidiaries. These consolidated
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated statement of operations, changes in
stockholders' equity, and cash flows referred to above present fairly, in all
material respects, the consolidated financial position of Modern Medical
Modalities Corporation and Subsidiaries for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a working capital
deficiency and has suffered recurring losses from operations. These factors
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ LIEBMAN GOLDBERG & DROGIN, LLP
Garden City, New York
October 27, 2000
F-2
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Restricted cash for line of credit repayment $ 600,000
Accounts receivable (less contractual allowances of $2,479,106) 2,234,677
Account receivable - joint venture 35,333
Note receivable from affiliate 131,394
Deferred financing costs 180,000
Other current assets 126,485
-------------
Total current assets 3,307,889
-------------
Other assets:
Furniture, fixtures, equipment and leasehold improvements - net 4,697,223
Investment in joint ventures 439,503
Deposits 25,530
Deferred tax asset 484,718
-------------
Total other assets 5,646,974
-------------
$ 8,954,863
=============
</TABLE>
See Independent Auditors' Report and Notes to Consolidated
Financial Statements
F-3
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Line of credit $ 599,750
Cash overdraft 525,079
Accounts payable 802,788
Accrued expenses 290,655
Loan payable - joint venturer 71,942
Convertible debt 500,000
Current portion long term debt 1,607,813
Due to affiliate 198,306
Due to related party 32,532
-------------
Total current liabilities 4,628,865
Other liabilities:
Long term debt, net of current portion 2,502,686
-------------
Total liabilities 7,131,551
-------------
Minority interest 246,480
-------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.0002 par value, Authorized - 15,000,000 shares
Issued and outstanding - 2,506,471 shares 502
Additional paid-in capital 4,460,223
Accumulated (deficit) (2,883,893)
-------------
Total stockholders' equity 1,576,832
-------------
$ 8,954,863
=============
</TABLE>
See Independent Auditors' Report and Notes to Consolidated
Financial Statements
F-4
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998
------------- ---------------
Operating income:
<S> <C> <C>
Net revenues from services $ 3,987,103 $ 6,414,945
Cost of services provided 2,995,350 3,114,144
------------- ---------------
Total operating income 991,753 3,300,801
------------- ---------------
Operating Expenses:
Selling, general and administrative 1,647,438 3,011,397
Bad debts 108,350 23,750
Depreciation and amortization 1,148,814 1,539,080
------------- ---------------
Total operating expenses 2,904,602 4,574,227
------------- ---------------
(Loss) from operations (1,912,849) (1,273,426)
------------- ---------------
Other income (expenses):
Interest income 35,156 57,218
Interest expense (631,179) (940,956)
Miscellaneous income 21,153 110,567
Income from joint ventures 114,940 151,601
(Loss) on sale/disposal of subsidiaries 26,528 (979,221)
Net gain on restructuring of debt 25,550 -
------------- ---------------
Total other income(expense) (407,852) (1,600,791)
------------- ---------------
(Loss) before income taxes and minority interest (2,320,701) (2,874,217)
Benefit for income taxes - 1,630,273
------------- ---------------
(Loss) before minority interest (2,320,701) (1,243,944)
Minority interests 11,532 122,337
------------- ---------------
Net (loss) $ (2,309,169) $ (1,121,607)
============= ===============
(Loss) per share, basic and diluted $ (1.09) $ (0.68)
============= ===============
Number of weighted average shares outstanding 2,109,739 1,642,639
============= ===============
</TABLE>
See Independent Auditors' Report and Notes to Consolidated
Financial Statements
F-5
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Retained
Number of Common Paid-In Earnings
Shares Stock Capital (Deficit) Total
------------ ----------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997
(as previously reported) 3,168,288 $ 634 $3,866,072 $ 546,883 $4,413,589
Adjustment for reverse stock split
effective March 12, 1999 (1,584,144) (317) 317 - -
------------ ----------- -------------- --------------- --------------
Balance at December 31, 1997 1,584,144 317 3,866,389 546,883 4,413,589
Write-down of note receivable
relating to the sale of
Prime Contracting Corporation - - (747,650) - (747,650)
Issuance of common stock in
connection with Benson Shore
Capital, LLC consulting
agreement 175,000 35 106,918 - 106,953
Net loss for the year ended
December 31, 1998 - - - (1,121,607) (1,121,607)
------------ ----------- -------------- --------------- --------------
Balance at December 31, 1998 1,759,144 352 3,225,657 (574,724) 2,651,285
Option exercise, Benson Shore
Capital, LLC 136,125 27 - - 27
Proceeds from private placement 148,702 30 204,880 - 204,910
Stock issued for services 462,500 93 869,686 - 869,779
Deferred financing costs in
connection with
warrants issued - - 160,000 - 160,000
Net loss for the year ended
December 31, 1999 - - - (2,309,169) (2,309,169)
------------ ----------- -------------- --------------- --------------
Balance at December 31, 1999 2,506,471 $ 502 $4,460,223 $ (2,883,893) $1,576,832
============ =========== ============== =============== ==============
</TABLE>
See Independent Auditors' Report and Notes to Consolidated
Financial Statements
F-6
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (2,309,169) $ (1,121,607)
------------- -------------
Adjustments to reconcile net loss to net cash
provided (used) byoperating activities:
Depreciation and amortization 1,148,814 1,539,080
Contractual allowances (223,430) 227,102
Bad debts 108,350 23,750
Income from an unconsolidated joint venture (114,940) (151,601)
Stock-based compensation recognized 869,778 106,953
Minority interest 11,532 (122,337)
Deferred income taxes - (1,630,273)
Reduction of goodwill - 1,419,213
Loss on sale/disposal of subsidiaries - 979,221
(Gain) on sale of joint venture interest (26,528) -
Net gain on restructuring of debt (25,550) -
Increase (decrease) in cash attributable to changes in
operating assets and liabilities:
Accounts receivable 491,808 2,061,033
Accounts receivable - joint venturer 550,274 (330,911)
Affiliate receivables 87,873 5,733
Deferred financing costs (227,500) -
Other current assets 152,578 64,030
Deposits and other assets 21,297 105,074
Accounts payable (493,966) 358,738
Accrued expenses (459,646) 137,947
Affiliate payables (25,017) 205,143
Joint venture advances (218,717) -
------------- -------------
Total adjustments 1,627,010 4,997,895
------------- -------------
Net cash (used) provided by operating activities (682,159) 3,876,288
------------- -------------
Cash flows from investing activities:
Organization costs 97,698 -
Fixed asset acquisitions (309,572) (1,389,839)
Fixed asset dispositions 898,562 2,460,693
Proceeds from loan receivable - affiliate 128,750 (7,500)
Restructuring of note receivable - (747,650)
Investment in joint venture 61,840 183,116
Increase in minority interest 43,795 (9,790)
------------- -------------
Net cash provided by investing activities 921,073 489,030
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of capital stock 27 35
Proceeds from issuance of warrants 160,000 -
Proceeds from private placement 204,910 -
Proceeds from issuance of convertible debt 500,000 -
Line of credit advances 4,198 (4,198)
Loan payable - joint venturer - (38,525)
Net reduction long term debt (1,146,101) (4,403,795)
------------- -------------
Net cash (used) by financing activities (276,966) (4,446,483)
------------- -------------
Net decrease in cash and cash equivalents (38,052) (81,165)
Cash and equivalents, beginning of year 638,052 719,217
------------- -------------
Cash and equivalents, end of year $ 600,000 $ 638,052
============= =============
Supplemental cash flow information
Interest paid $ 608,551 $ 827,797
============= =============
Income taxes paid $ - $ -
============= =============
</TABLE>
See Independent Auditors' Report and Notes to Consolidated
Financial Statements
F-7
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(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., 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 its majority owned joint ventures,
Plainfield MRI Associates, Joint Venture, MRI Imaging Center at PBI,
Open MRI of Morristown, Joint Venture, Open MRI & Imaging Center of
Metarie, LLC and Doctors Imaging Associates, Joint Venture (in which
the Company had a 50% interest until February, 1999, see Note 3). The
Company has an 84%, 75%, 72% and 85% interest, respectively, in the
joint ventures, by contract manages the joint venture, is the managing
joint venturer 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, Joint Venture, on September 30, 1998.
Investment in an unconsolidated joint venture, Union Imaging
Associates, Joint Venture in which the Company has a 10% interest and
significant influence, is accounted for under the equity method. All
significant intercompany transactions and accounts have been eliminated
in consolidation.
F-8
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) Operating Revenue:
At each of the Company's diagnostic imaging centers, all
medical services are performed exclusively by physician groups (the
"Physician Group" or the "Interpreting Physician(s)"), generally
consisting of radiologists with whom the Company has entered into a
facility service or independent contractor agreements. Pursuant to such
agreements, the Company agrees to provide equipment, premises,
comprehensive management and administration, (typically including
billing and collection of receivables) and technical imaging services,
to the Interpreting Physician(s).
Net revenues from services are reported, when earned, at their
net realizable amounts from third party payers, patients, and others
for services rendered at contractually established billing rates which
generally are at a discount from gross billing rates. Known and
estimated differences between contractually established billing rates
and gross billing rates ("contractual allowances") are recognized in
the determination of net revenues from services at the time services
are rendered. Subject to the foregoing and various state and Federal
regulations, imaging centers operated or managed by the Company
recognize revenue under one of the following two types of agreements
with Interpreting Physicians:
Type I - In accordance with a facility service agreement with
Interpreting Physician(s) or Physician Group, the Company receives
a technical fee for diagnostic imaging procedures performed, the
amount of which is dependent upon the type of procedures performed
at the center. The fee included in revenues is net of estimated
contractual allowances. The Company and the Interpreting
Physician(s) or Physician Group proportionally share in any losses
due to uncollectible amounts from patients and third party payers,
and the Company has established reserves for its share of the
estimated uncollectible amount.
Type II - The Company bills patients and third party payers directly
for services provided and pays the Interpreting Physician(s)
either (i) a fixed percentage of fees collected for services
performed at the center, or (ii) a contractually fixed amount
based upon the specific diagnostic imaging procedures performed.
Revenues are recorded net of contractual allowances and the
Company accrues the Interpreting Physician(s) fees as an expense
on the consolidated Statements of Operations. The Company bears
the risk of loss due to uncollectible amounts from patients and
third party payers, and the Company has established reserves for
such amounts.
F-9
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
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 records management fees from Union as income when
realized. 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) Contractual Allowances:
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 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) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable.
The Company maintains, at times, deposits in federally insured
financial institutions in excess of federally insured limits.
Management attempts to monitor the soundness of the financial
institutions and believes the Company's risk is negligible.
F-10
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
Concentrations with regard to accounts receivable are limited
due to the Company's large customer base.
The carrying amounts of cash, accounts receivable, accounts
payable and accrued expenses approximate fair value due to the
short-term of these items. The carrying amount of long-term debt also
approximates fair value since the interest rates on these instruments
approximate market interest rates.
(g) 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.
(h) 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.
(i) 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, which is five to seven
years for office equipment and furniture and fixtures, and ten years
for medical equipment.
(j) Deferred Financing Costs:
All deferred financing costs incurred by the Company in
conjunction with the issuance of convertible notes and warrants are to
be amortized over a period of twelve months, the term of the debt.
F-11
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(k) Revenue and Cost Recognition:
The Company recognizes revenue from services upon performance of
medical, management and marketing services for financial statement
reporting purposes.
(l) Income Taxes:
The Company utilizes 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.
(m) Earnings Per Share:
Basic earnings (loss) per share of common stock was computed
by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the year in
accordance with SFAS #128.. Average common equivalent shares (stock
options and warrants) outstanding have not been included, as the
computation would be anti-dilutive.
(n) Reclassifications:
Certain reclassifications have been made to the 1998 financial
statements to conform the 1999 presentation.
(o) Stock-based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation",
effective January 1, 1996, requires the Company to either record
compensation expense or to provide additional disclosures with respect
to stock awards and stock option grants made after December 31, 1994.
The accompanying Notes to Consolidated Financial Statements include the
disclosures required by SFAS No. 123. No compensation expense is
recognized pursuant to the Company's stock option plan under SFAS No.
123 which is consistent with prior treatment under APB No. 25.
F-12
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(p) Advertising and Promotion Costs:
Advertising and promotion costs, which are included in general
and administrative expenses, are expensed as incurred. For the two
years ended December 31, 1999 and 1998, such costs aggregated $65,407
and $250,343, respectively.
(q) 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.
(r) Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130 "Reporting Comprehensive Income" ("SFAS 130"), which
prescribes standards for reporting other comprehensive income and its
components. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Since the Company currently does not have any items
of other comprehensive income, a statement of comprehensive income is
not yet required.
NOTE 2 - GOING CONCERN UNCERTAINTY.
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 $1,385,809 as of December 31, 1999,
and has sustained significant losses from operations for the past few
years, which raise substantial doubt about the Company's ability to
continue as a going concern. In view of these matters, realization of
the assets of the Company is dependent upon the Company's ability to
meet its financing requirements and the success of future operations.
The financial statements do not include adjustments relating to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
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
F-13
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - GOING CONCERN UNCERTAINTY. (Continued)
well as a reduction of administrative personnel. Duties of those
employees whose jobs were eliminated were reassigned to existing
employees. Management believes that the steps it is taking will allow
the Company to continue in existence.
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, Open MRI of Morristown,
Inc. ("Open MRI"), a wholly-owned subsidiary of the Company, was
assigned the Company's interest in the joint venture. Open MRI 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 September 30, 1998 the Company sold 70 of its
72% interest in Open MRI of Morristown, Joint Venture 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 loss on this
transaction in the amount of $68,538. The Company has retained a 2%
ownership 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, a full service contractor providing turnkey design
and construction services, became 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, payable in two installments, $600,000 after six
months, and $400,000 after one year. If Prime's gross annual revenue
for the calendar year 1996 falls below $3,000,000, then the final
payment of $400,000 shall be forfeited. 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 writedown of the
receivable from the related party in the amount of $747,650 (see
Note 4).
F-14
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 its'
subsidiary, 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 recorded an increase of $165,631 to stockholders'
equity which represents the excess of the sale price over the net
assets of Empire. On June 30, 1998, the Company and its affiliate sold
all the outstanding stock of Empire to MID Rockland Imaging Partners,
Inc., an unrelated party, for the principal sum of $2,500,000. The
Company recorded a loss on this transaction in the amount of $742,619.
In July 1996, the Company, through Ohio Medical Equipment
Leasing Corporation, ("OME"), entered into a purchase and consulting
agreement with Medical Advances, Inc. ("Medical") to acquire an
interest as a general (managing) partner of Sylvania Diagnostics
("Sylvania"), an Ohio Limited Partnership, for one dollar. The interest
acquired represents 50.2% of the total units outstanding. Sylvania is a
diagnostic imaging center located in Sylvania, Ohio.
As a result of this acquisition, the Company recorded the
difference between the acquisition price of one dollar and the
allocated percentage of the cumulative deficit as goodwill and the
cumulative allocated losses in excess of basis of the limited partners
of Sylvania as an intangible asset as of July 1, 1996, the date of
acquisition. The Company records its allocated portion of profits and
losses based upon its 50.2% ownership percentage. The Company also
entered into an agreement with DVI which provides for $135,000 of
working capital advances which are only to be used for operating
Sylvania. If the Company determines that operating Sylvania is not
profitable, DVI will purchase either Sylvania or OME for one dollar. In
August 1996, Sylvania entered into an agreement with DVI to refinance
equipment and related leasehold improvements in the aggregate amount of
$2,127,366. The amount was payable in 64 monthly installments
commencing in March 1997 of $20,000 for the first four months and
$44,968 over the remaining 60 months. The Company is indemnified for
all prior liabilities and obligations of the limited partnership by
DVI, an equipment finance company who is the lessor of Sylvania medical
equipment. On June 30, 1998, the Company exercised its option and sold
Sylvania back to DVI for one dollar. As a result of this disposition,
the Company recorded a loss in the amount of $168,064.
In July 1996, the Company, through its wholly-owned
subsidiary West Patterson Medical Equipment Leasing Corp. ("WPMEL"),
entered into a lease and management services agreement with Advanced
Imaging & Radiology Associates, P.A.
F-15
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - MERGERS, ACQUISITIONS AND MATERIAL DISPOSALS. (Continued)
("M.D."). The agreement provides that WPMEL will lease office space,
fixtures and equipment and will provide management services to M.D.
over an initial term of five years with a five year renewal option. The
site located in West Paterson, New Jersey, is a medical practice
specializing in diagnostic imaging.
In June 1997, Metaire Medical Equipment Leasing was
incorporated in the state of New Jersey, as a 100% owned subsidiary of
the Company. In October of 1997, Metaire Medical Equipment Leasing
Corporation was registered as a Corporation doing business in the State
of Louisiana. On April 15, 1998, Open MRI & Imaging Center of Metairie,
LLC ("LLC") was organized in the state of Louisiana. Under terms of the
venture agreement, the Company, through its 100% owned corporation,
owns 85% of the LLC. The 15% interest owner, KFC Venture, LLC, made an
initial capital contribution of $250,000. Profits shall be allocated to
the interest holders in proportion to their percentages after such time
as KFC Ventures has been repaid $125,000 of its initial capital
contribution without interest. Until such time, all distributions shall
be divided equally with fifty (50%) percent of said distribution being
paid to KFC Ventures, LLC as a return of its initial capital
contribution up to the amount of $125,000 and the other fifty (50%)
percent of said distribution being distributed to the members in
accordance with their percentage interests in the Company.
In February, 1999, the Company sold its 50% interest in
Doctor's Imaging Associates, Joint Venture to a separate company with
common ownership (an unrelated party) for $100,000, resulting in a gain
of $26,528.
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 per share. The Company
charged capital for the write down of the receivable in the amount of
$747,650.
F-16
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - FURNITURE, FIXTURES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.
Furniture, fixtures, equipment and leasehold improvements consist of
the following:
December 31,
1999
-----------
Medical Equipment $ 8,844,464
Building 310,860
Furniture and Fixtures 60,680
Automobiles 22,860
Leasehold improvements 353,392
-----------
9,592,256
Less: Accumulated Depreciation
and Amortization 4,895,033
-----------
$ 4,697,223
===========
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, 1999 $4,638,381 $1,103,246 $2,043,051 $2,595,330
December 31, 1998 4,485,673 1,271,846 1,741,863 2,743,810
10%
Gross Allocation
Revenues Net Income of Income
--------- ---------- ----------
December 31, 1999 $4,369,519 $1,028,980 $102,898
December 31, 1998 4,141,948 1,492,754 149,275
</TABLE>
F-17
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - INVESTMENT IN JOINT VENTURE. (Continued)
In accordance with the Company's agreement with Union Imaging
Associates, the Company has received management fees and partner cash
distributions as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------------
12/31/99 12/31/98
--------------------------------
(in thousands)
<S> <C> <C>
Revenue Received:
Management fees $521.9 $708.0
Partner cash distributions 104.2 117.1
--------------------------------
Total receipts $626.1 $825.1
=================================
</TABLE>
Income generated from other joint ventures that the Company
owns an interest in aggregate $12,042 and $2,326 for the years ended
December 31, 1999 and 1998, respectively.
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, 1999, the amount of the liability under
the line of credit was $599,750. The line of credit is secured by a
certificate of deposit in the amount of $600,000. During the first
quarter of 2000 the line of credit was retired by redemption of the
certificate of deposit.
NOTE 8 - CONVERTIBLE DEBT
In October 1999, the Company issued an aggregate of $500,000
principal amount of it's 10% convertible notes to two investors which
are due on October 18, 2000. The note is convertible at anytime while
any portion of it is outstanding into shares of the Company's common
stock at the lower of: (a) 72.5% of the lowest closing bid price of the
Company's common stock for the thirty (30) trading days immediately
preceding the date of conversion, or (b) $2,.0625. The Company has the
right, subject to conditions, to require the purchasers of the $500,000
note to purchase up to an additional $2,000,000 principal amount of
convertible notes on the same terms and conditions as the $500,000
note. As of October 27, 2000, the notes were note converted to the
Company's common stock and the Company is currently negotiating the
conversion of this note to a long-term note.
F-18
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - EMPLOYEE STOCK OPTIONS.
Stock options granted to date under the Company's 1999 Stock
Option Plan expire ten years after date of grant and are immediately
exercisable.
A summary of options granted and related information for the
year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
Outstanding, December 31, 1998 - -
Granted 300,000 $2.125
Exercised - -
Canceled - -
------------------------------------------------------------------------------------------
Outstanding, December 31, 1999 300,000 $2.125
======= =======
</TABLE>
The weighted-average remaining contractual life of these
options is approximately 9.5 years. Outstanding options at December 31,
1999 are held by 5 individuals.
The Company applies APB 25 and related Interpretations in
accounting for the Option Plan. Accordingly, no compensation cost has
been recognized for its Option Plan. Had compensation cost for the
Option Plan been determined using the fair value based method, as
defined in SFAS 123, the Company's net loss and loss per share would
have been adjusted to the pro forma amounts indicated below:
1999
----
Net earnings:
As reported ($ 1,878,973)
Pro forma ( 2,516,473)
Basic and diluted earnings per share:
As reported ($0.89)
Pro forma ( 1.19)
The fair value of each option grant was estimated on the date
of the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions for 1999: expected volatility of
50%; risk free interest rate of 6.0%; and expected lives of 4 to 5
years.
F-19
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - LONG-TERM DEBT
Long-term debt consists of the following:
December 31, 1999
-----------------
Capitalized lease obligations (a) $3,636,751
Accounts receivable financing (b) 477,999
----------
Total long-term debt 4,114,750
Current portion 1,607,813
----------
Long-term debt, net of current portion $2,506,937
==========
(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. The assets
and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair market value of
the asset. Accumulated depreciation of assets under capital lease at
December 31, 1999 aggregated $4,510,062. The interest rates on these
capital leases vary between 10% and 17.19% per annum.
(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 for consecutive one
year terms. The agreements are non-cancelable, except in the event of
default by the Company. At December 31, 1999, the amounts financed
under these agreements totaled $477,999. 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.
The future principal payments for long-term debt are as
follows:
December 31, 1999
2000 $1,607,813
2001 1,170,775
2002 690,363
2003 524,978
2004 120,821
----------
$4,114,750
==========
F-20
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - RESTRUCTURING OF LONG-TERM DEBT
In December 1999, the Company restructured a long-term note
agreement with DVI related to the original equipment lease for Amherst
Medical Equipment Leasing as follows: $45,000 payable over 24 months,
plus interest at 11.5%. The Company recorded a gain on restructuring of
debt in the amount of $355,295. The Company wrote-down the related
assets in the amount of $318,745.
NOTE 12 - 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 258,750 units including the underwriters' over
allotment of 33,750 units at a selling price of $10.00 per unit. Each
unit consisted of one (1) share of the Company's $0.0002 par value
common stock ("Common Stock") one (1) Class A Redeemable Common Stock
Purchase Warrant ("A Warrant") and one (1) Class B Redeemable Common
Stock Purchase Warrant ("B Warrant). Each A Warrant entitles the holder
to purchase one (1) share of Common Stock for a period, as extended to
February 5, 2001 at a price of $4.00. Each B Warrant entitles the
holder to purchase one (1) share of Common Stock for a period, as
extended to February 5, 2001 at a price of $4.00.
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 the 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 the consultant by issuing 175,000 shares of its
common stock and options to acquire 136,125 shares of common stock.
On January 28, 1999, the Company entered into a six month
financial consulting agreement with Mr. Richard Surber to provide
consultation services regarding: potential strategies for generating
new business for the Company, structuring of potential business
opportunities for the Company, general corporate filings as needed, and
document preparation as needed to accomplish the aforementioned. The
Company paid Mr. Surber a retainer fee of 20,000 shares of its common
stock in addition to an hourly rate for services rendered.
On March 11, 1999, the Company effectuated a one for two
reverse stock split of the Company's issued and outstanding shares of
common stock. The reverse stock split
F-21
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - STOCKHOLDERS' EQUITY. (Continued)
became effective on March 12, 1999. After the reverse stock split, the
Company had 1,759,144 shares of common stock issued and outstanding and
a total of 2,500,000 shares authorized for issuance.
On April 8, 1999 and July 17, 1999, the Company changed its
common stock stated par value from $.0001 to $.0002 and increased its
authorized shares from 2,500,000 to 15,000,000, respectively.
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 $.0002 per share.
In July 1999, the Board of Directors of the Company passed a
resolution authorizing the management of the Company to initiate steps
for a private placement of the Company's securities in order to raise
capital. Management was granted authority to prepare a Private
Placement Memorandum pursuant to Regulation D Rules governing the
Limited Offer and Sale of Securities Without Registration Under the
Securities Act of 1933 (as amended) and to register the securities in
any state jurisdiction that management felt was required and
appropriate. On July 20, 1999, the Company closed $283,000 ($204,910
after expenses) 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.
Additionally, 25,000 shares were issued to the placement agent in
connection with the private placement.
In January 1999 the Company issued 330,000 shares of its
common stock to Allen Wolfson, as compensation, as required by the
advisor agreement.
In July 1999 the Company issued 37,500 shares of its common
stock to two individuals, as compensation, for services rendered.
In October 1999, the Company issued 2,500,000 warrants to
purchase shares of common stock at an exercise price of $2.0625,
subject to adjustment, in connection with the issuance of its $500,000
convertible note. The warrant holders are entitled to purchase the
shares at anytime for a period of three years, this right expires on
October 18, 2002. In connection with the issuance, the Company issued
60,000 shares of common stock as follows: J. Hyett, 45,000 shares;
Libra Finance, S.A., 10,000 shares; Hyett Capital, LTD, 5,000 shares.
F-22
<PAGE>
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 13 - STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-Based Compensation". The following table
reflects stock-based compensation to non-employees for the years ended December
31, 1999 and 1998 (See Footnote 9):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Recepient Benson Alan Richard Barry Jody Royal J. Heytt
of shares Shore Wolfson Suber Ellen Samuels Hutton
Capital,
LLC
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of 175,000 330,000 20,000 12,500 15,000 25,000 45,000
shares of shares of shares of shares of shares of shares of shares of shares of
common common common common common common common common
stock stock, and stock stock stock stock stock stock
issued options to
acquire
136,125
shares of
common
stock
------------------------------------------------------------------------------------------------------------------------
Date granted Sept. 18, Jan. 28, Jan. 28, Jul. 2, Jul. 2, Jul. 2, Oct. 19,
1998 1999 1999 1999 1999 1999 1999
------------------------------------------------------------------------------------------------------------------------
Fair $106,953 $386,100 $23,400 $26,625 $31,950 $56,425 $78,985
market
value of
compensation
------------------------------------------------------------------------------------------------------------------------
Basis to Market Market Market Market Market Market Market
determine price quoted price quoted price quoted price quoted price quoted price quoted price quoted
fair market on the on the on the on the on the on the on the
value NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ NASDAQ
of $4.625, of $1.375, of $1.375, of $2.50, of $2.50, of $2.625, of $2.0625,
less a less a less a less a less a less a less a
discount of discount of discount of discount of discount of discount of discount of
15% 15% 15% 15% 15% 15% 15%
------------------------------------------------------------------------------------------------------------------------
Classification Selling, Selling, Selling, Selling, Selling, Selling, Selling,
on Statement general and general and general and general and general and general and general and
of Operations administrative administrative administratve administrative administrative administrative administrative
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Recepient Libra Hyett Austinvest Libra Esquire
of shares inance, Capital, Anstalt Finance, Trade and
S.A. LTD Balzers S.A. Finance
Corp.
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of 10,000 5,000 500,000 1,500,000 500,000
shares of shares of shares of warrants warrants warrants
common common common
stock stock stock
issued
------------------------------------------------------------------------------------------
Date granted Oct. 19, Oct. 19, Oct. 19, Oct. 19, Oct. 19,
1999 1999 1999 1999 1999
------------------------------------------------------------------------------------------
Fair $17,529 $8,765 $80,000 $240,000 $80,000
market
value of
compensation
------------------------------------------------------------------------------------------
Basis to Market Market Black- Black- Black-
determine price quoted price quoted Scholes Scholes Scholes
fair market on the on the option- option- option-
value NASDAQ NASDAQ pricing pricing pricing
of $2.0625, of $2.0625, model model model
less a less a
discount of discount of
15% 15%
------------------------------------------------------------------------------------------
Classification Selling, Selling, Selling, Selling, Selling,
on Statement general and general and general and general and general and
of Operations administrative administrative administrative administrativ administrative
------------------------------------------------------------------------------------------
</TABLE>
The Company incurred a charge for stock-based compensation in the
amount of $869,779 and $106,953 for the years ended December 31, 1999 and 1998,
respectively.
F-23
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 14 - INCOME TAXES
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based
on the differences between the financial statement carrying amounts and
tax basis of assets and liabilities using enacted rates in effect in
the years in which the differences are expected to reverse.
The Company has recorded an income tax provision (credit) at
December 31, 1999 and 1998 of $ -, and $(1,630,273) respectively. The
Company has a net operating loss carry-forward for federal income tax
purposes of approximately $5,600,000, and a capital loss carryforward
approximating $1,068,000 at December 31, 1999 available to offset
income taxes through 2014, and 2003, respectively.
The provision (credit) for income taxes is comprised of the following:
December 31,
------------
1999 1998
---- ----
Current:
Federal $ - $ -
State and local - -
Deferred:
Federal - (1,296,775)
State and local - ( 333,458)
-------- -----------
Net income (loss) $ - $(1,630,233)
======== ===========
The following is a reconciliation for the U.S. federal statutory tax
rate and the apparent tax rate:
1999 1998
---- ----
U.S. Federal statutory rate - (34.0%)
State taxes - ( 9.0 )
-------- -----------
Effective tax rate (43.0%)
======== ===========
F-24
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 14 - INCOME TAXES. (Continued)
The tax effects of temporary differences and carryforwards which give
rise to significant portions of deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
Deferred Tax
------------
Asset Liabilities
----- -----------
<S> <C> <C>
Net revenues - $ 960,911
Other receivables - 109,385
Operating expenses $ 485,232 -
Depreciation - 102,959
Net operating loss carryforwards 2,434,973 -
---------- ---------
Subtotal 2,920,205 1,173,255
---------- ---------
Net deferred tax asset 1,746,950 -
Valuation allowance - 100% (1,746,950) -
---------- ---------
Deferred taxes - subtotal - -
Capital loss carryforward 484,718 -
---------- ---------
Total deferred tax asset $ 484,718 $ -
========== =========
</TABLE>
NOTE 15 - RELATED PARTY TRANSACTIONS.
The Company and Atrium Radiology Corp. ("Atrium") are related
parties because the Company's Chairman and President is also the
Chairman of the Company that owns a majority interest in Atrium. For
the past few years, the Company leased a mobile MRI unit to Atrium at a
rate comparable to rates charged to unrelated entities. The Company has
written-off accounts receivable from Atrium in the amount of $54,600
during the year ended December 31, 1999, due to their inability to pay.
NOTE 16 - COMMITMENTS AND CONTINGENCIES.
(a) 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,
F-25
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 16 - COMMITMENTS AND CONTINGENCIES. (Continued)
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
payable over 60 months at a monthly payment of $7,068 commencing on
January 1, 1996. In 1997 Amherst Imaging Associates, P.A. closed their
medical practice. As a result, the site was closed and Amherst
defaulted on the lease payments. As part of the original lease the
Company guaranteed $45,000 of the equipment lease. As of December 31,
1999 the Company has recorded that obligation along with the final
estimated facility rental and abandonment costs.
(b) MRI Imaging Center at PBI:
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 this Joint Venture
Agreement.
(c) Employment Agreements:
In June 1997, the Company entered into a five-year employment
agreement with Roger Findlay, president which expires in June 2002.
Pursuant to the agreement Mr. Findlay receives an annual salary of
$120,000 along with a monthly car allowance of $350. The agreement does
not contain a non-competition agreement.
In June 1997, the Company entered into a five-year employment
agreement with Jan Goldberg, vice president which expires in June 2002.
Pursuant to the agreement Mr. Goldberg receives an annual salary of
$95,000 along with a monthly car allowance of $350. The agreement does
not contain a non-competition agreement.
In June 1997, the Company entered into a five-year employment
agreement with Gregory Maccia, vice president which expires in June
2002. Pursuant to the agreement Mr. Maccia receives an annual salary of
$95,000 along with a monthly car allowance of $350. The agreement does
not contain a non-competition agreement.
F-26
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 16 - COMMITMENTS AND CONTINGENCIES. (Continued)
(d) Properties:
The Company leases 1,765 square feet located at 1719 Route 10
East, Suite 117, Parsippany, New Jersey, which is comprised of the
Company's executive offices. The Company is party to a lease covering
the facility that expires on February 28, 2004, and provides for
monthly rental payments of $2,722. The Company believes that its
facilities are adequate for its current and future operations. Through
two of the Company's consolidated subsidiaries it is also party to two
additional site leases with a combined monthly rental $10,111, both
leases expire by the year 2002 and are renewable for a five year term
at the Company's option.
NOTE 17 - LITIGATION.
In 1999, KFC Ventures, LLC ("KFC") named the Company, its
wholly-owned subsidiary Metairie Medical Equipment Leasing Corp., and
four principals of the Company and /or Metairie Medical Equipment
Leasing Corp in a suit alleging KFC was fraudulently induced to invest
in Open MRI of Metarie, LLC. KFC alleges claims for fraud, federal and
state securities fraud, unfair trade practices, detrimental reliance,
intentional breach of contract, breach of the covenant of good faith
and fair dealing, and breach of fiduciary duty. The suit is presently
in the early stages and, therefore, no determination as to the possible
outcome can be made. The Company believes the suit is without merit and
intends to vigorously defend itself.
In 1999, Stephen Findlay, former president of Prime
Contracting Corp., named the Company in a suit making various
assertions regarding the sale of Prime Contracting. This action is in
the early stages and, therefore, no determination as to the possible
outcome can be made.
In a related matter, Stephen Findlay named the Company as a
defendant in an arbitration. The arbitrator ruled that the Company
should not have been named and awarded legal fees to be paid by Stephen
Findlay. The Company has filed an action in the U.S. District Court for
the District of New Jersey to enforce the arbitration award. It is too
early to determine the possible outcome of this case.
In December 1999, the Company was named as a defendant in a
lawsuit filed by Stacey Travaglione, a former employee, in Federal
District Court in the Southern District of New York. The suit alleges
violations of the Americans with Disabilities Act and the New York
State Human Rights Law. It is too early to determine the possible
outcome of this case.
F-27
<PAGE>
MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 17 - LITIGATION (continued)
The Company is also a "Defendant Provider in Interest," but
not a principal Defendant, in a number of actions brought by various
insurance companies under the New Jersey Insurance Fraud Prevention Act
alleging the staging of certain fraudulent accidents against the
principal Defendants but seeking the cancellation of any claims for
reimbursement and/or the return of any reimbursements paid by insurers.
No allegations of fraud or violation of law are made against the
Company. In all instances to date, the Company has agreed to relinquish
its various claims and be dismissed from the law suits. The amounts in
any single case have not exceeded $7,000.
NOTE 18 - SUBSEQUENT EVENTS.
In March 2000, the Company opened a commercial line of credit
in the amount of $300,000 with Bridge View Bank in Englewood, New
Jersey. Under the terms of the agreement, certain Directors of the
Company are guarantors of the loan. This loan is for one year in
duration and shall carry an interest rate of Prime plus one (1%)
percent.
On March 13, 2000, the Company entered into an agreement with
Advanced Imaging and Radiology Associates, P.A. to sell the operating
assets and related liabilities of its wholly-owned subsidiary, West
Paterson Equipment Leasing Corporation. All accounts payable and
accounts receivable incurred prior to March 13, 2000 shall remain with
the Company.
F-28
