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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-KSB/A
                                  -------------


(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, 2000.

[ ] 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
                      -------------------------------------
             (Exact name of registrant as specified in its charter)

           New Jersey                               22-3059258
           ----------                               ----------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

1719 Route 10, Suite 117, Parsippany, NJ                      07054
----------------------------------------                      ------
(Address of principal executive offices)                    (Zip code)

Registrant's telephone number, including area code:   (973) 538-9955
                                                      --------------

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class                  Name of each Exchange on which Registered
-------------------------------      ------------------------------------------
Not Applicable                                        None

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.0002 Par Value
                         ------------------------------
                                (Title of Class)

                     Class A Common Stock Purchase Warrants
                     --------------------------------------
                                (Title of Class)

                     Class B Common Stock Purchase Warrants
                     --------------------------------------
                                (Title of Class)

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         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  X   No
                                              ---    ---

         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
$3,580,679.

           The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on April 11, 2001 was approximately $46,000.

           As of April 11, 2001 there were 2,506,471 shares of Common Stock, par
value $.0002 per share, outstanding.


           For purposes of this Amendment No. 1 (this "Amendment") to the
Amended Report of Form 10-KSB, for the year ended December 31, 2000 (the "Annual
Report"), and in accordance with Rule 12b-15 under the Securities Exchange Act
of 1933, as amended, Modern Medical Modalities Corporation (the "Company")
hereby amends Item 7 of Part II of the Annual Report by adding additional
information, specifically a copy of the audit report for the year ended December
31, 1999. In order to preserve the nature and character of the disclosures set
forth in the Annual Report, this Amendment does not reflect events occurring
after the filing of the Annual Report, or modify or update those disclosures in
any way, except to amend and add information pursuant to Item 7 of Part II.



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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 four free standing MRI and CT
Scan and Diagnostic Imaging ambulatory centers in Louisiana (1) and New Jersey
(3). 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 85% 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,
the benefit managers representing the various programs usually make contacts.
Typically, the physicians in the area recommend the centers.

         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
Union joint venture agreement and has managerial responsibility for the business
including:

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                  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 debt 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 responsibilities:

                  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.

         METAIRIE MEDICAL EQUIPMENT LEASING

         In June 1997, Metairie Medical Equipment Leasing Corp. was incorporated
in the state of New Jersey, as a 100% owned subsidiary of Modern Medical. In
October 1997, Metairie 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 Metairie, 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 Metairie, 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 Metairie, LLC, in accordance with their percentage interests in Open MRI &
Imaging Center of Metairie, LLC.

         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 an 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
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.

                                       5
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         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.

Our wholly-owned sites:

         BETH ISRAEL JOINT VENTURE

         In June 1995, Modern Medical entered into a joint venture agreement
with Beth Israel MRI Corporation and a physician licensing agreement with
Advanced Imaging and 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.

         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 NMR 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.

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
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.

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         MRI is an advanced imaging system that uses a strong magnetic field and
radio waves 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 reconstruction 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.
Administrative, technical and support personnel staff each site. 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.

         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.

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         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 freestanding, 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 and CT scans that the hospital sends to other
facilities. Modern Medical also contacts neighboring sites to determine the
waiting time for scheduling an exam to see if patients are waiting an excessive
amount of time for an exam. Modern Medical contacts potential referring
physicians to determine if they are experiencing problems with existing
facilities and if they would support a new facility. Managed care groups and
HMO's are contacted to determine if contracts for providing service are
available and to ascertain the membership in their service area of the potential
new sites. If the site is considered to be positive a request is made to the
various equipment manufacturers for a bid on the equipment Modern Medical deems
necessary. Modern Medical then makes a determination as to the financial
viability of the project. Based on the criteria above, Modern Medical reviews
each site to determine whether the site can generate revenues to support the
costs associated with the operation of the site.

                                       8
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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,
and 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.

         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.

         Either Modern Medical or its joint venture finances equipment,
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.

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         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.

         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.

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         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.

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.


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Employees

         As of January 1, 2001, Modern Medical employed 45 persons on a
full-time basis and 15 persons on a part time basis. The following table
reflects the employees per facility:

                                         TOTAL       FULL-TIME      PART-TIME
                                         -----       ---------      ---------

Modern Medical (Corporate)                11            10             1

Marlton, NJ                                6             6             0

JOINT VENTURES

South Plainfield, NJ                       3             2             1

Metairie, LA                               5             5             0

Union, NJ                                 30            19            11

Passaic, NJ                                5             3             2
                                          --            --            --

Total:                                    60            45            15
                                          ==            ==            ==

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 Marconi 1.OT mobile MRI unit in a Calumet
Coach payable over a 60-month term with payments each of $36,350, which was
being charged as an expense of Modern Medical. On June 15, 1998, Modern Medical
refinanced the lease purchase of the Marconi 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 in South Plainfield, New Jersey.

         In December of 2000, Modern Medical Modalities Corporation, acting in
its capacity of managing joint-venturer of Union Imaging Associates JV entered
into a lease purchase agreement with Citicorp North America, Inc. to refinance
$1,102,887 of existing and new Union Imaging Associates, JV debt. The amount was
made up of the following:

         Marconi Open MRI system upgrade                      $    185,500
         Buyout of the balance of the:
             DVI Financial Services equipment debt                  301,517
             DVI Business Credit accounts receivable line           615,870
                                                              -------------
                                            Total               $ 1,102,887
                                                              =============

         The lease commenced December 5, 2000, is a sixty-month financing lease
with a $1.00 buyout option at the end of the lease. The sixty monthly
installments are for $23,631 each. Modern Medical Modalities Corporation was not
required to guarantee the lease.

         Modern Medical, as managing joint-venturer, has entered into an
agreement with Beth Israel MRI Corporation and Advanced Imaging and 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
with a $102,275 balloon payment at the end.

         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 37 months for the unpaid balance. The
resulting refinance lowered the monthly payments from $35,092 to $23,271 with a
$102,275 balloon payment at the end.

                                       12
<PAGE>

         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 Metairie, 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 has
         reached a tentative agreement to settle with KFC Ventures, LLC and is
         presently discussing payment terms.

                  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. 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 Modern Medical as a
         defendant in 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. During
         the first quarter of 2001, a court order was entered instructing
         Stephen Findlay to pay legal fees in the amount of $18,627.00 plus
         lawful judgement interest from the date of the filing of the complaint.

                  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. After some discovery the parties agreed to the
         terms of an out of court settlement where Modern Medical will pay the
         plaintiff a total of $40,000 in ten equal installments over a ten month
         period. Because the plaintiff filed bankruptcy, the bankruptcy trustee
         must be a signatory on the agreement. Although Modern Medical has been
         advised that the trustee has approved the settlement, Modern Medical is
         still awaiting the trustee's signature.

                  Other than the above, Modern Medical is not a party to any
material legal proceedings.

                                       13
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders

         Modern Medical did not submit any matters to a vote of its security
holders during the fourth quarter of 2000.


                                       14
<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 1999 through May 25, 2000. On May 26, 2000, the common stock began
trading on the Pink Sheets. 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 1999                                  High              Low
-----------                                  ----              ---
First                                     $   2.75         $    0.125
Second                                        3.25              2.375
Third                                         3.25              1.250
Fourth                                        3.50              1.500

Fiscal 2000
-----------
First                                     $   2.75         $    1.375
Second                                        1.50              0.350
Third                                         0.35              0.120
Fourth                                        0.07              0.02

Fiscal 2000
-----------
First                                     $   0.02         $    0.01
Second (through April 11, 2001)               0.02              0.02

         On April 11, 2001, there were 49 holders of record of Modern Medical's
2,506,471 outstanding shares of Common Stock.

         On April 11, 2001, the last sale price of the Common Stock as reported
on the Pink Sheets was $0.02.

                                 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.


                                       15
<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 Metairie, LLC for $250,000 payable $100,000 upon
execution of the agreement and $25,000 a month for six months. Under the terms
of the agreement, $125,000 of the $250,000 must be paid back to KFC Venture LLC
without interest before any profits can be distributed. Until such time, all
distributions shall be divided equally with fifty percent of said distribution
being paid to KFC Ventures, LLC as a return of its initial capital investment up
to the amount of $125,000 and the other fifty percent of said distribution being
distributed to the members in accordance with their percentage interests in
Modern Medical.

                                       16
<PAGE>

         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
Metairie. 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, 2000 compared to the year ended December 31,
1999

Net Revenues from Services:

When comparing the year ended December 31, 2000 to the same period in 1999, the
net revenue from services decreased $406,424 from $3,987,103 in 1999 to
$3,580,679 in 2000. Although the Company sold its West Paterson imaging center
in March of 2000, and experienced a reduction of $287,296 for the same period of
1999, most of the Company's other imaging centers experienced gains that offset
this reduction. The resulting reduction is directly related to an increase of
over $400,000 of the provision for Uncollectible Accounts that are a result of a
reduction of third party reimbursement rates.

                                       17
<PAGE>

Cost of Services Provided/Selling, General and Administrative:

Cost of Services Provided/Selling, General and Administrative has decreased
approximately $1,294,407 from 2000 to 1999. This decrease resulted from a
$869,778 expense in 1999 for stock based compensation to various vendors for
performing services including marketing, special projects and additional sources
of capital for the Company. Additionally, the Company experienced a reduction of
salaries corporate wide in the amount of $301,587, the majority of which is
applicable to the sale of its West Paterson imaging center in the amount of
$149,756 and corporate compensation in the amount of $103,878. Additionally,
costs applicable to the West Paterson imaging center were reduced by $157,278
due to the sale of the site in March 2000.

Miscellaneous Income

Miscellaneous Income for the year ended December 31, 2000 was $ 92,991 as
compared to $21,153 for the same period in 1999. The increase of $71,838
reflects an entire year's rental income of the Company's mobile mammography
equipment to outside sources.

Loss on Sale of Subsidiary

On March 13, 2000, the Company sold its West Paterson imaging center to
Advanced Imaging and Radiology Associates P.A. and incurred a loss of $160,208.

Gain on Disposal of Equipment

During the year 2000 the company sold two CT Scanners and recognized a gain of
$187,928.

Liquidity and Capital Resources:


         Modern Medical has a working capital deficiency of $1,424,536 at
December 31, 2000 as compared to a working capital deficiency of $1,320,976 at
December 31, 1999.


         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-months (60). Passaic Beth Israel has thirty-six (36) months, South Jersey
Imaging has twenty-four (24) months and South Plainfield has six (6) months
remaining on the refinanced notes at December 31, 2000.

                                       18
<PAGE>


         In addition, for the year ended December 31, 2000, Modern Medical
reduced the balance of the outstanding accounts receivable working capital line
of credit by approximately $ 47,178 ($477,999 to $(430,821) and for the three
months ended March 31, 2001 the outstanding balance has been further reduced to
$349,401. Modern Medical intends to continue to reduce the outstanding principal
balance on this line of credit at a rate of 15% 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 were 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 December 31, 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 Dr. Bahlia through June 30, 2000 would run Amherst Imaging
Center. 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 closedown cost of approximately $22,000 was established.

         On March 3, 2000, the Company established 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
21, 2001, the line of credit was extended one year to March 21, 2002.

         On March 13, 2000, West Paterson 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 Paterson 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, and 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.

                                       19
<PAGE>

         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 2000 and 1999 financial statements have been presented
on a basis that it is a going concern. Due to significant losses during the
years ended December 31, 2000 and 1999, the accountants' reports have an
explanatory paragraph stating that Modern Medical's continued existence is in
doubt.

         As described above, during 2000, 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.

Item 7.  Financial Statements

         See pages F-1 to F-27.

                                       20
<PAGE>

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure


                  On January 5, 2001, the Company dismissed Lazar, Levine &
Felix LLP, located at 350 Fifth Avenue, Suite 6820, New York, New York 10118,
as its independent accountants. The Company engaged Liebman, Goldberg & Drogin,
LLC., located at 591 Stewart Avenue, Suite 450, Garden City, New York 11530, as
its new independent certified public accountants. In connection with the most
recent fiscal year and subsequent interim periods preceding Lazar, Levine &
Felix LLP's dismissal, there were no disagreements with Lazar, Levine & Felix
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. Lazar, Levine & Felix LLP's report
on the financial statements of Modern Medical contained a going concern opinion.



                                       21
<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          50       Vice President, Acting Principal Accounting
                               Officer, Treasurer and Director

Gregory Maccia        47       Vice President, Secretary and Director

Fred Mancinelli       58       Director

Carl Gedeon           50       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
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.

                                       22
<PAGE>

GREGORY MACCIA is a co-founder of the Company and was Vice President and
Director until November 1992. Since November 1992, Mr. Maccia has been the Vice
President, Secretary and a Director of the Company. Mr. Maccia has also been
President of Technology Services, Inc., a software design and facilities
management company for medical and commercial accounts since 1989. From 1986-
1989, Mr. Maccia was Vice President of Advacare, Inc., a national practice
management and physician billing company. Since 1986, Mr. Maccia has been
co-founder of Northern New Jersey Medical Management, Inc. He was co-founder and
Vice President of Medical Accounts Management Services, Inc. (MAMS) from 1984 to
1986 which developed and sold physician, outpatient and clinical billing
software systems. Mr. Maccia, from 1984 to 1986, was co-founder and Vice
President of Effective Management Services, Inc. (EMS), which provided custom
programming and facilities management with contracts to hospitals and
universities in the tri-state area as well as collection agencies and
non-medical entities. From 1977 to 1984, Mr. Maccia owned and managed his own
consulting company. 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,
Autographic Business Forms, serving as Communications Manager from 1962-1964,
salesman from 1964-1968 and the New Jersey regional sales manager from
1968-1971, employed him.


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. Mr. Gedeon has served as a director of Hamilton MacGregor Inc.
since 1999.


         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
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.

                                       23
<PAGE>

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, 2000
(referred to as "2000" in this table), the year ended December 31, 1999
(referred to as "1999" in this table), paid to the Company's Chief Executive
Officer. Roger Findlay was appointed President of the Company in March 1999.

Summary Compensation Table

Name and Principal                                   All Other
Position                   Year     Salary          Compensation
--------                   ----     ------          ------------

Roger Findlay               2000    $ 90,658            -0-
 Chairman, President
 and CEO                    1999    $148,431         $4,200(1)

------------

(1) Includes a car allowance paid by Modern Medical.

Employment Agreements

         In June 1997, Modern Medical entered into a five-year employment
agreement with Roger Findlay, which expires in June 2002. Pursuant to the
agreement Mr. Findlay receives an annual salary of $120,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.

             In June 1997, Modern Medical entered into a five-year employment
agreement with Jan Goldberg, which expires in June 2002. Pursuant to the
agreement Mr. Goldberg receives an annual salary of $95,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.

             In June 1997, Modern Medical entered into a five-year employment
agreement with Gregory Maccia, which expires In June 2002. Pursuant to the
agreement Mr. Maccia receives an annual salary of $95,000 along with a monthly
car allowance of $350. The agreement does not contain a non-competition
agreement.

Stock Option Plan

           In July 1999, the board of directors and shareholders adopted the
1999 stock option plan. The plan will be administered by the compensation
committee or our board of directors, who will determine among other things,
those individuals who shall receive options, the time period during which the
options may be partially or fully exercised, the number of shares of common
stock issuable upon the exercise of the options and the option exercise price.
The options may be granted as either or both of the following: (a) incentive
stock options, or (b) non-qualified stock options. 500,000 shares may be issued
under this plan. To date, 300,000 options have been granted under the plan.

                                       24
<PAGE>

           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 April 11, 2001
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.

         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. On March 21, 2001, the
line of credit was extended one year to March 21, 2002.

Item 13.         Exhibits, Lists and Reports on Form 8- K

(a) Exhibits

         None.

(b) Reports on Form 8-K.

         There were no reports filed on Form 8-K during the three month period
prior to December 31, 2000.


                                       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/A 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        July 24, 2001
------------------------------------------
Roger Findlay

/s/ JAN GOLDBERG                            Vice President, Principal                  July 24, 2001
------------------------------------------   Accounting Officer, Treasurer
Jan Goldberg                                 and Director

/s/ GREGORY MACCIA                          Vice President, Secretary                  July 24, 2001
------------------------------------------   and Director
Gregory Maccia

                                            Director                                   July 24, 2001
-----------------------------------------
Fred Mancinelli

                                            Director                                   July 24, 2001
-----------------------------------------
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, 2000, 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. The financial statements of
Modern Medical Modalities Corporation and Subsidiaries as of December 31, 1999
were audited by other auditors whose report dated April 11, 2000 (except as to
Note 8 which is dated October 27, 2000) expressed an unqualified opinion on
those statements.

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, 2000, 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/ LIEBMAN GOLDBERG & DROGIN, LLP

Garden City, New York
April 30, 2001

                                       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 of Modern Medical Modalities Corporation
and Subsidiaries for the year ended December 31, 1999. 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 of Modern Medical
Modalities Corporation and Subsidiaries referred to above present fairly, in all
material respects, the results of their 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-2
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2000

<TABLE>
<CAPTION>
                                    ASSETS

<S>                                                                       <C>
Current assets:

        Cash and cash equivalents                                         $    6,891
        Accounts receivable (less contractual allowances of $2,807,812)    1,918,149
        Account receivable - joint venture                                   154,285
        Note receivable from affiliate - current position                    317,332
        Other current assets                                                  29,828
                                                                          ----------
                                 Total current assets                      2,426,485
                                                                          ----------
Property and equipment, net of accumulated depreciation of $5,395,234      2,875,561
                                                                          ----------

Other assets:
        Deferred tax asset                                                   484,718
        Note receivable from affiliate, net of current portion                78,915
        Investment in joint ventures                                          34,377
        Deposits                                                              16,800

                                                                          ----------
                                  Total other assets                         614,810
                                                                          ----------
                                                                          $5,916,856
                                                                          ==========
</TABLE>


                       See notes to financial statements.

                                      F-3
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               December 31, 2000

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<S>                                                                       <C>
Current liabilities:
        Line of credit                                                    $   297,000
        Accounts payable                                                    1,048,981
        Accrued expenses                                                      422,234
        Convertible debt                                                      530,042
        Current portion long term debt                                      1,491,245
        Due to affiliate                                                       61,518
                                                                          -----------
                               Total current liabilities                    3,851,020

Other liabilities:
        Long term debt, net of current portion                              1,570,673
        Loans payable shareholders                                            194,488
                                                                          -----------
                               Total other liabilities                      1,765,161
                                                                          -----------
                               Total liabilities                            5,616,181
                                                                          -----------
Minority interest                                                             (28,355)
                                                                          -----------
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)                                              (4,131,695)
                                                                          -----------
                               Total stockholders' equity                     329,030
                                                                          -----------
                                                                          $ 5,916,856
                                                                          ===========
</TABLE>


                       See notes to financial statements.

                                       F-4
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                                          --------------------------------------
                                                                2000                1999
                                                          ------------------  ------------------
<S>                                                       <C>                 <C>
Operating income:
     Net revenues from services                             $ 3,580,679             $ 3,987,103
     Cost of services provided                                2,537,476               2,995,350
                                                            -----------             -----------
Total operating income                                        1,043,203                 991,753
                                                            -----------             -----------
Operating Expenses:
     Selling, general and administrative                        810,906               1,647,438
     Bad debts                                                  126,702                 108,350
     Depreciation and amortization                            1,205,295               1,148,814
                                                            -----------             -----------
Total operating expenses                                      2,142,903               2,904,602
                                                            -----------             -----------
(Loss) from operations                                       (1,099,700)             (1,912,849)
                                                            -----------             -----------
Other income (expenses):
     Interest income                                             66,941                  35,156
     Interest expense                                          (634,467)               (631,179)
     Miscellaneous income                                        92,991                  21,153
     Income from joint ventures                                  72,588                 114,940
     Gain on disposal of equipment                              187,928                    --
     (Loss) on sale/disposal of subsidiaries                   (160,208)                 26,528
     Net gain on restructuring of debt                             --                    25,550
                                                            -----------             -----------
Total other income(expense)                                    (374,227)               (407,852)
                                                            -----------             -----------
(Loss) before income taxes and minority interest             (1,473,927)             (2,320,701)

Provision/(benefit) for income taxes                               --                      --
                                                            -----------             -----------
(Loss) before minority interest                              (1,473,927)             (2,320,701)

Minority interests                                              226,125                  11,532
                                                            -----------             -----------
Net (loss)                                                  $(1,247,802)            $(2,309,169)
                                                            ===========             ===========
(Loss) per share, basic and diluted                         $     (0.50)            $     (1.09)
                                                            ===========             ===========
Number of weighted average shares outstanding                 2,506,471               2,109,739
                                                            ===========             ===========
</TABLE>


                       See notes to financial statements.

                                       F-5
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999


<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, 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

Net loss for the year ended
     December 31, 2000                   --            --            --      (1,247,802)    (1,247,802)
                                  -----------   -----------   -----------   -----------    -----------
Balance at December 31, 2000        2,506,471   $       502   $ 4,460,223   $(4,131,695)   $   329,030
                                  ===========   ===========   ===========   ===========    ===========
</TABLE>



                       See notes to financial statements


                                      F-6

<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                          For the years Ended December 31,
                                                          -------------------------------
                                                                2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Cash flows from operating activities
       Net (loss)                                           $(1,247,802)   $(2,309,169)
                                                            -----------    -----------
       Adjustments to reconcile net loss to net cash
       provided (used) by operating activities:
              Depreciation and amortization                   1,205,295      1,148,814
              Contractual allowances                            298,267       (223,430)
              Bad debts                                         126,702        108,350
              Income from an unconsolidated joint venture       (72,588)      (114,940)
              Stock-based compensation recognized                  --          869,778
              Minority interest                                (226,125)        11,532
              Gain on sale/disposal of equipment               (187,928)          --
              Loss on sale/disposal of subsidiaries             160,208           --
              (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                                18,261        491,808
              Accounts receivable - joint venturer             (118,952)       550,274
              Affiliate receivables                            (185,938)        87,873
              Deferred financing costs                             --         (227,500)
              Other current assets                               96,656        152,578
              Deposits and other assets                          (8,849)        21,297
              Accounts payable                                 (278,886)      (493,966)
              Accrued expenses                                  131,579       (459,646)
              Affiliate payables                                (48,679)       (25,017)
              Joint venture advances                               --         (218,717)
                                                            -----------    -----------
       Total adjustments                                        909,023      1,627,010
                                                            -----------    -----------
Net cash (used) provided by operating activities               (338,779)      (682,159)
                                                            -----------    -----------
Cash flows from investing activities:
              Organization costs                                   --           97,698
              Fixed asset acquisitions                             --         (309,572)
              Fixed asset dispositions                          787,554        898,562
              Proceeds from note receivable                     133,628        128,750
              Investment in joint venture                          --           61,840
              (Decrease)/Increase in minority interest          (48,710)        43,795
                                                            -----------    -----------
Net cash provided by investing activities                       872,472        921,073
                                                            -----------    -----------
Cash flows from financing activities:
              Proceeds from issuance of capital stock              --               27
              Proceeds from issuance of warrants                   --          160,000
              Proceeds from private placement                      --          204,910
              Proceeds from issuance of convertiable debt          --          500,000
              Proceeds form shareholder loans                   194,487           --
              Line of credit (payments)/advances               (302,750)         4,198
              Net reduction long term debt                   (1,018,539)    (1,146,101)
                                                            -----------    -----------
Net cash (used) by financing activities                      (1,126,802)      (276,966)
                                                            -----------    -----------
Net decrease in cash and cash equivalents                      (593,109)       (38,052)
Cash and equivalents, beginning of year                         600,000        638,052
                                                            -----------    -----------
Cash and equivalents, end of year                           $     6,891    $   600,000
                                                            ===========    ===========
Supplemental cash flow information
       Interest paid                                        $   552,063    $   608,551
                                                            ===========    ===========
       Income taxes paid                                    $      --      $      --
                                                            ===========    ===========
</TABLE>

                       See notes to financial statements.

                                      F-7

<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

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., Metairie Medical Equipment Leasing
         Corp., West Paterson Medical Equipment Leasing Corp., Ohio Medical
         Equipment Leasing Corp., and its majority owned joint ventures,
         Plainfield MRI Associates, Joint Venture, MRI Imaging Center at PBI,
         Open MRI & Imaging Center of Metairie, LLC. The Company has an 84%, 75%
         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 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 inter-company transactions and accounts have
         been eliminated in consolidation.

                                       F-8

<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

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, 2000 AND 1999

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 is 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, 2000 AND 1999

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)      Property and Equipment:

                  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 were
         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, 2000 AND 1999

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)      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, 2000 AND 1999

NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)

         (o)      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, 2000 and 1999, such costs aggregated $137,677
         and $65,407, respectively.

         (p)      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.

         (q)      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 $1,424,536 as of December 31, 2000,
         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, 2000 AND 1999

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. 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 write-down 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, 2000 AND 1999

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 425,000 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 Paterson 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, 2000 AND 1999

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. 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.

                  In June 1997, Metairie Medical Equipment Leasing was
         incorporated in the state of New Jersey, as a 100% owned subsidiary of
         the Company. In October of 1997, Metairie 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 have 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, 2000 AND 1999

NOTE 5 - PROPERTY AND EQUIPMENT.

         Property and equipment are summarized by major classification as
follows:

                                           December 31,
                                              2000
                                           ------------

Medical Equipment                          $7,620,743
Building                                      310,860
Furniture and Fixtures                         46,249
Automobiles                                    28,157
Leasehold improvements                        264,785
                                           ----------
                                            8,270,794
Less:  Accumulated Depreciation
          and Amortization                  5,395,234
                                           ----------
                                           $2,875,561
                                           ==========

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.

                               Total       Long-term      Total        Total
                               Assets        Debt      Liabilities    Capital
                               ------        ----      -----------    -------
         December 31, 2000   $4,578,384   $1,394,010   $2,182,096    $2,396,287
         December 31, 1999    4,638,381    1,103,246    2,043,051     2,595,330

                                                                         10%
                                             Gross                   Allocation
                                           Revenues     Net Income   of Income
                                           --------     ----------   ---------

         December 31, 2000                $4,490,724   $  725,880     $  72,588
         December 31, 1999                 4,369,519    1,028,980       102,898



                                      F-17
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

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:

                                                       Years Ended
                                                  12/31/00      12/31/99
                                                  -----------------------
                                                      (in thousands)
         Revenue Received:
                Management fees                   $  502.3      $  521.9
                Partner cash distributions            83.2         104.2
                                                  --------      --------
                     Total receipts               $  585.5      $  626.1
                                                  ========      ========

                  Income generated from other joint ventures that the Company
         owns an interest in aggregate $9,000 and $12,042 for the years ended
         December 31, 2000 and 1999, 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. 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 21, 2001, this agreement was renewed for one
         year under the same terms.

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. On November 17, 2000, the
         Company agreed to repay the loan at $15,000 per month for up to nine
         months with a balloon payment at the end. As of March 31, 2001, the
         Company is 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, 2000 AND 1999

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
         years ended December 31, 2000 and 1999 is as follows:

                                                              Weighted Average
                                                Options        Exercise Price
                                                -------        --------------

         Outstanding, December 31, 1998              -                 -

         Granted                                300,000            $2.125

         Exercised                                   -                 -

         Canceled                                    -                 -
         -----------------------------------------------------------------------

         Outstanding, December 31, 1999         300,000            $2.125

         Granted                                     -             $2.125

         Exercised                                   -                 -

         Canceled                                    -                 -
         -----------------------------------------------------------------------

         Outstanding, December 31, 2000         300,000            $2.125
                                                =======            ======

                  The weighted-average remaining contractual life of these
         options is approximately 7.5 years. Outstanding options at December 31,
         2000 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:

<TABLE>
<CAPTION>

                                                                 2000            1999
                                                                 ----            ----
<S>                                                          <C>             <C>
                  Net loss:
                           As reported                        ($1,247,802)    ($2,309,169)
                           Pro forma                          ($1,293,102)    ($2,946,669)
                  Basic and diluted loss per share:
                           As reported                             ($0.50)         ($0.89)
                           Pro forma                               ($0.52)         ($1.40)

</TABLE>

                  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 7.5 years.

                                      F-19
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

NOTE 10 - LONG-TERM DEBT.

         Long-term debt consists of the following:

                                                             December 31, 2000
                                                             -----------------

             Capitalized lease obligations    (a)                 $2,631,097
             Accounts receivable financing  (b)                      430,821
                                                               -------------
             Total long-term debt                                  3,061,918

             Current portion                                       1,491,245
                                                               -------------
             Long-term debt, net of current portion               $1,570,673
                                                               =============

         (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, 2000 aggregated $5,247,205. The interest rates on these
         capital leases vary between 10% and 17.19% per annum.

         (b) Accounts Receivable Financing:

                  The Company entered into an agreement with DVI Business Credit
         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. The
         agreements extend for consecutive one year terms. The agreement is
         non-cancelable, except in the event of default by the Company. At
         December 31, 2000, the amount financed under these agreements totaled
         $430,821.

                  The future principal payments for long-term debt are as
         follows:

                                                     December 31, 2000
                                                     -----------------

                           2001                         $1,491,245
                           2002                            650,729
                           2003                            672,926
                           2004                            247,018
                           2005                                  0
                                                      ------------
                                                        $3,061,918
                                                      ============

                                      F-20
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

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, 2002 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, 2000 AND 1999

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>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999

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,
                 2000 and 1999 (See Footnote 9):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Recepient             Alan           Richard            Barry             Jody              Royal           J. Heytt
of shares            Wolfson          Suber             Ellen            Samuels           Hutton


-------------------------------------------------------------------------------------------------------------------------
<S>              <C>             <C>              <C>               <C>               <C>               <C>
Number of        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
common           common          common           common            common            common            common
stock            stock           stock            stock             stock             stock             stock
issued

-------------------------------------------------------------------------------------------------------------------------
Date granted      Jan. 28, 1999   Jan. 28, 1999     Jul. 2, 1999      Jul. 2, 1999      Jul. 2, 1999      Oct. 19, 1999
-------------------------------------------------------------------------------------------------------------------------
Fair                $386,100         $23,400           $26,625           $31,950           $56,425           $78,985
market
value of
compensation
-------------------------------------------------------------------------------------------------------------------------
Basis to         Market          Market           Market            Market            Market            Market
determine        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
value            NASDAQ          NASDAQ           NASDAQ            NASDAQ            NASDAQ            NASDAQ
                 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
                 discount of     discount of      discount of       discount of       discount of       discount of
                 15%             15%              15%               15%               15%               15%
-------------------------------------------------------------------------------------------------------------------------
Classification   Selling,        Selling,         Selling,          Selling,          Selling,          Selling,
on Statement     general and     general and      general and       general and       general and       general and
of Operations    administrative  administrative   administrative    administrative    administrative    administrative
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Recepient              Libra            Hyett          Austinvest         Libra             Esquire
of shares             Finance,         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, 1999    Oct. 19, 1999    Oct. 19, 1999     Oct. 19, 1999     Oct. 19, 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   administrative    administrative
----------------------------------------------------------------------------------------------------------
</TABLE>

        The Company incurred a charge for stock-based compensation in the amount
of $0 and $869,779 for the years ended December 31, 2000 and 1999, respectively.

                                      F-23
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

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,
                                              ------------
                                           2000            1999
                                           ----            ----
               Current:
                  Federal                $      -          $   -
                  State and local               -              -
               Deferred:
                  Federal                       -              -
                  State and local               -              -
                                         ----------        -------
               Net income (loss)         $      -          $   -
                                         ==========        =======

         The following is a reconciliation for the U.S. federal statutory tax
rate and the apparent tax rate:
                                                 2000     1999
                                                 ----     ----

               U.S. Federal statutory rate        -        -
               State taxes                        -        -
                                                 ---      ---
               Effective tax rate                 -        -
                                                 ===      ===





                                      F-24
<PAGE>
             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

NOTE 14 - INCOME TAXES. (Continued)

         The tax effects of temporary differences and carry-forwards which give
         rise to significant portions of deferred tax assets and liabilities are
         as follows:

                                                            Deferred Tax
                                                            ------------
                                                       Asset         Liabilities
                                                       -----         -----------


          Net revenues                              $   174,762      $         0
          Other receivables                                --             89,540
          Operating expenses                        $         0             --
          Depreciation                                   24,287          359,709
          Net operating loss carryforwa               2,944,555             --
                                                    -----------      -----------

          Subtotal                                    3,143,604          449,429
                                                    -----------      -----------

          Net deferred tax asset                      2,694,355             --
          Valuation allowance - 100%                 (2,694,355)            --
                                                    -----------      -----------
          Deferred taxes - subtotal                        --               --

          Capital loss carryforward                     484,718             --
                                                    -----------      -----------
          Total deferred tax asset                  $   484,718      $
                                                    ===========      ===========

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, 2000 AND 1999

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, 2000 AND 1999

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 Metairie, 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 parties have
         reached a tentative settlement whereby the Company will repay the loan
         portion of the original investment to KFC. In anticipation of
         finalizing the tentative settlement the Company has accrued an amount
         equivalent to the tentative settlement in the financial statements of
         Open MRI & Imaging Center of Metairie, LLC.

                  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. During the
         first quarter of 2001, a court order was entered instructing Stephen
         Findlay to pay legal fees in the amount of $18,627.00 plus lawful
         interest from the date of the filing of the complaint.

                  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. After some discovery the parties agreed to the
         terms of an out of court settlement where Modern Medical will pay the
         plaintiff a total of $40,000 in ten equal installments over a ten month
         period. Because the plaintiff filed bankruptcy, the bankruptcy trustee
         must be a signatory on the agreement. Although Modern Medical has been
         advised that the trustee has approved the settlement, Modern Medical is
         still awaiting the trustee's signature.

                                      F-27
<PAGE>

             MODERN MEDICAL MODALITIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

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.

                                      F-28