ITEM 1. BUSINESS
OVERVIEW
Micro Bio-Medics, Inc. (the "Company" or "MBM") is a New York company which was incorporated in 1971. The Company distributes medical supplies to physicians and hospitals in the New York metropolitan area, as well as to health care professionals in the sports medicine, emergency medicine, school health, industrial safety, government and laboratory markets nationwide. The Company depends upon the continued supply of the products it distributes, however, it does not depend upon any single source. The Company has neither encountered nor does it anticipate any difficulty in obtaining the necessary products. No one customer has accounted for more than 10% of the Company's revenues during the fiscal years ended November 30, 1996, November 30, 1995 and November 30, 1994.
RECENT DEVELOPMENTS
On March 7, 1997, MBM entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which HSI Acquisition Corp. ("HSI"), a wholly-owned subsidiary of Henry Schein, Inc. ("Schein"), will merge into MBM and MBM will be the surviving corporation as a subsidiary of Schein. As a result of the transaction, which has been approved by each of the companies' Board of Directors, outstanding shares of MBM's Common Stock will be exchanged at a fixed rate of 0.62 of a share of Schein's Common Stock for each outstanding 1.0 share of MBM. The members of MBM's Board of Directors have granted to Schein a proxy to vote their shares of MBM Common Stock in favor of the Merger and an option, exercisable under certain circumstances, to acquire their shares for the consideration that they would have received in the Merger in respect of those shares.
Schein is a Delaware corporation with its principal executive offices at 135 Duryea Road, Melville, NY 11747 and its telephone number is (516) 843-5500. Schein is a large direct marketer of healthcare products and services to office-based healthcare practitioners including dental practices and laboratories, physician practices and veterinary clinics in the combined North American and European markets.
The completion of the transaction is subject to the following: Hart-Scott-Rodino waiting periods, including no action being instituted by the Department of Justice or the Federal Trade Commission challenging or seeking to adjoin the consummation of the transaction, which action shall have not been withdrawn or terminated; the transaction being treated as a "pooling of interest"; MBM shareholder approval (with dissenters' rights being exercised with respect to no more than 9% of the outstanding Shares of MBM Common Stock); and other customary closing conditions. The transaction is expected to be completed by mid-1997 although no assurances can be given in this regard. For a more complete description of the terms of the Merger Agreement and other related agreements entered into in connection with the Merger Agreement, reference is made to the texts of such agreements, which are filed as Exhibits to this Form 10-K, and the foregoing summary of certain principal terms of such agreements are qualified in their entirety thereby. In addition, Schein intends to file a Registration Statement on Form S-4 with the Securities and Exchange Commission (the "Commission") with respect to the securities to be issued to
MBM shareholders in the Merger. After the Registration Statement has been filed and subsequently declared effective by the Commission, MBM stockholders of record of a date to be determined by its Board of Directors will receive copies of a Proxy Statement/Prospectus which will contain a complete description of the material terms of Merger Agreement and other related agreements and will be entitled to vote in person or by proxy at an upcoming stockholder meeting at a date to be determined by MBM's Board of Directors. See "Item 13."
CALIGOR DIVISION
The Company's Caligor Division is a physician and hospital supplier in the New York metropolitan area, serving over 12,000 physicians and laboratories. It also serves nursing homes and industrial medical departments.
Caligor provides its physicians and hospitals with a comprehensive selection of supplies and related logistical and software services. The division's estimated 50,000 supplies range from bandages and pharmaceuticals to sophisticated diagnostic equipment, while the services range from equipment repair to the complete design and installation of new offices, waiting rooms, exam rooms and laboratories.
The Caligor division's logistical and software services include "stockless" inventory services for hospitals which allow the customer to reduce on-hand inventory by up to ninety percent and significantly reduce operating expenses. Software services include purchase order management systems and materials management systems to be used on the customer's premises to control parts of their business operations
The Caligor division through Caligor Physicians & Hospital Supply Corp., a wholly owned subsidiary of the Company, also operates a pharmacy in Manhattan to serve local physicians and their patients. In addition, the Caligor Division supplies independent clinical labs, hospital labs, and physician in-office labs with diagnostic equipment, test kits, reagents and disposables.
Over the past few years, the Caligor Division has been able to acquire a number of smaller distributors, resulting in significant economies of scale and improved operating efficiencies. Caligor has increased its market share in these new territories with the same combination of sales force support, direct mail, catalogs and telemarketing sales that it uses in existing territories.
Caligor is the Company's largest division in terms of annual sales. Revenues during fiscal 1996 were approximately $129,300,000 or 86% of the Company's total revenues for the same period as compared to approximately $98,300,000 or 82% of total revenues for the comparable period of fiscal 1995, as compared to approximately $101,000,000 or 83% of the total revenues for the comparable period of fiscal 1994. The Company's revenues since 1995 have increased as a result of the Company's acquisition of the business and assets from Stone Medical Supply Corporation, the opening of the Hospital Division's
stockless distribution operation and sales and marketing efforts aimed at the acquired and existing customer base.
MBM DIVISION
The MBM Division distributes sports medicine supplies, school nurse supplies, medical equipment and rehabilitation equipment to over 10,000 schools, colleges, municipalities, emergency medical units and professional sports teams around the country, including many of the major and minor league baseball, basketball, football and hockey teams. Revenues derived from municipalities and school districts are derived from competitive bidding.
Like the Caligor Division, MBM Division serves its customers with a comprehensive line of supplies and services, ranging from the delivery of athletic tape to an NFL team on the road to the complete design, furnishing and stocking of a training room, sports medicine clinic, or school nurse office.
MBM Division markets its product line primarily via three catalogs which it distributes to customers and prospective customers each year. These catalogs are supported by direct mail, telemarketing, professional journal advertising, national and local trade show exhibitions, and an inside sales and customer service staff.
The seasonal buying habits of the Company's school and athletic customers is concentrated between the months of June and September of each year. Although the Company's marketing expenses relating to such customers are incurred throughout the year, the Company has experienced no problem in meeting its cash requirements as a result of its working capital and extension of credit under its Revolving Credit Agreement.
Revenues derived from the MBM Division during fiscal 1996 were approximately $18,100,000 or 12% of the Company's total revenues for the same period as compared with approximately $18,800,000 or 16% of total revenues for fiscal 1995 and approximately $18,100,000 or 15% total revenues for fiscal 1994. Revenues have remained relatively constant for this Division.
HEALER PRODUCTS DIVISION
The Company's Healer Products Division is an assembler and wholesaler of first aid kits and private label medical products. These products, in turn, are marketed by the Company's other divisions, and sold to numerous outside markets through a network of commissioned sales agents. The first aid and medical kits are produced in a variety of forms and sizes, but are generally designed for use in government, industry, schools, emergency medical organizations, hospitals, homes and recreational facilities.
The Healer Products Division also produces specialized kits for volunteer ambulance corps, emergency squads, corporate offices, construction operations, restaurants, retail stores, boats, athletic activities, motor vehicles, and sales promotion
purposes as well as for specific medical problems such as burns, poisoning, insect stings, traumatic accidents, obstetrical emergencies and eye injuries.
Many of the products contained in the kits are generic and are marketed under the Company's private label. The use of private-label generic products permits attractive pricing for the Company and its customers and creates a consistent, positive brand image among customers.
Revenues derived from the Healer Products Division during fiscal year 1996 were approximately $2,700,000 representing 2% of the Company's total revenues as compared with approximately $2,700,000 representing 2% of total revenues for fiscal 1995 and as compared to approximately $2,500,000 representing 2% of total revenues for fiscal 1994. Revenues have remained relatively constant for this Division.
ACQUISITION OF STONE MEDICAL SUPPLY CORPORATION
Pursuant to an Agreement for Merger and Reorganization dated November 2, 1995 among MBM, Diagnostic Leasing Corp. ("DLC"), Stone Medical Supply Corporation ("Stone"), a distributor of physician and podiatry supplies and equipment, and Andrew D. Stone, Stone was merged into DLC with DLC as the surviving corporation on January 18, 1996. The Company issued approximately 280,696 shares of its Common Stock in exchange for the outstanding shares of Stone. Subsequent to the merger, DLC changed its name to Stone Medical Supply Corporation and then merged into MBM.
ACQUISITION OF MID COUNTY MEDICAL SUPPLY CO., INC.
On March 27, 1995, MBM acquired certain assets and customer accounts of Mid County Medical Supply Co., Inc., a distributor of physician and hospital supplies, for approximately $500,000. The purchase price was allocated based upon the fair market value of the assets at the date of acquisition. The operations of Mid County Medical Supply Co., Inc., have been combined into the Caligor Division.
ACQUISITION OF JOSEPH WEINTRAUB, INC.
On June 1, 1994, MBM acquired certain assets and customer accounts of Joseph Weintraub, Inc., a distributor of physician and hospital supplies for approximately $1,100,000. The purchase price was allocated based upon the fair market value of the assets at the date of acquisition. The operations of Joseph Weintraub Inc. have been combined into the Caligor Division.
ACQUISITION OF CLARK SURGICAL CORP.
On November 19, 1993, MBM Hospital Supply Corp., a wholly owned subsidiary of MBM entered into an agreement with Clark Surgical Corp. ("Clark") to acquire from Clark substantially all of the assets and customer accounts subject to certain specific liabilities and obligations arising out of the contracts and personal property leases acquired (the
"Agreement"). This transaction closed on December 1, 1993 and was accounted for as a purchase.
The purchase price for all the assets was approximately $16,500,000. The purchase price was based upon the book value of the inventory, accounts receivable and fixed assets purchased by MBM Hospital plus $1 million for Clark's goodwill as described in the Agreement. MBM also issued to certain persons warrants to purchase an aggregate of 40,000 shares of MBM's Common Stock at a purchase price of $8.00 per share, subject to MBM's right to terminate the unvested portion of the Warrants upon certain conditions at the sole discretion of the Board of Directors. The Warrants vested 20% at closing and the balance was scheduled to vest in four equal annual amounts on the anniversary date of the Closing Date. However, the unvested portion of the Warrants to purchase 32,000 shares have been terminated.
The Agreement also provided for the execution of agreements not to compete with Alfred S. Bretan and Burt Wexler, the sole shareholders of Clark (hereinafter referred to as the "Shareholders"). The agreements not to compete provide for the payment of $2.725 million in cash over a seven year period.
The operations of MBM Hospital Supply Corp. have been combined into the various divisions of MBM.
REVOLVING CREDIT AGREEMENT
MBM has entered into a Credit Agreement with Chase Manhattan Bank N.A. ("Chase") to act as agent of and as a participant in a $25 million secured revolving credit facility for MBM. Fleet Bank of New York ("Fleet") also acted as a participant in the Credit Agreement. Chase's and Fleet's commitment under the Credit Agreement is limited to $15 million and $10 million, respectively. All references to MBM include MBM and its subsidiaries.
The Credit Agreement, as amended, which expires on February 15, 1999, provides for a three year secured revolving credit in an amount which shall not exceed the lesser of (a) $25,000,000 or (b) the borrowing base as defined in the Credit Agreement.
The Credit Agreement provides for MBM to pay interest on loans made under the facility at the rate of 1/4 of 1% over the Banks periodic base rate unless MBM elects to pay based upon an alternative formula at the time of each borrowing. MBM has been borrowing primarily by utilizing Eurodollar loans based on LIBOR. Currently, based on certain financial ratios, the Company's prevailing borrowing rate on the Eurodollar loans is LIBOR plus 1.25%. The prevailing rate varies based upon the term of the LIBOR. Upon request by MBM, the Banks may, at their option, create banker acceptances under the facility. On June 7, 1995, MBM entered into a three year interest rate swap agreement with Chase for $10,000,000. It is Management's intent to match the agreement's terms as to principal amounts and repricing maturities in order to reduce MBM's interest rate risk on its revolving loans. Effectively, the agreement serves to limit the net interest rate
charged on MBM's first $10,000,000 of revolving loans to 8.25%. However, MBM would receive no further interest rate benefit once the applicable interest rate falls below 6.55%.
The Credit Agreement is subject to several conditions and financial covenants such as the following:
- WORKING CAPITAL: MBM shall maintain a Consolidated Working Capital of no less than $10,500,000 as of the end of each fiscal quarter.
- INTEREST COVERAGE RATIO: MBM shall maintain a ratio of Consolidated EBITA (earnings before interest, taxes and amortization) to Consolidated Interest Expense, measured at the end of each fiscal quarter for a period comprised of such fiscal quarter and the three immediately preceding fiscal quarters, of not less than 2.50 to 1.00.
- CURRENT RATIO: MBM shall maintain a ratio of Consolidated Current Assets to Consolidated Current Liabilities of not less than 1.20 to 1.0, calculated at each fiscal quarter end.
- LEVERAGE RATIO: MBM shall maintain a ratio of (a)(i) total liabilities of MBM and its Consolidated Subsidiaries less (ii) Approved Subordinated Debt divided by (b)(i) net worth of MBM and its Consolidated Subsidiaries plus (ii) Approved Subordinated Debt less (iii) intangible assets of MBM and its Consolidated Subsidiaries, as of the end of each fiscal quarter of MBM of not more than 2.75 to 1.00.
- TANGIBLE NET WORTH: MBM shall maintain a Consolidated Tangible Net Worth, calculated at the end of each fiscal year, of no less than $400,000 more than the Consolidated Tangible Net Worth for the respective immediately preceding fiscal year.
The Credit Agreement provides, among other things that, (1) MBM shall not declare or pay any dividends or make any distribution of assets to stockholders, except that MBM may declare dividends and make distributions solely in the Common Stock of MBM, (2) MBM shall not purchase any of its capital stock now or hereafter outstanding which purchase shall, when aggregated with all other such purchases, exceed $250,000 (excluding certain purchases as set forth in the Credit Agreement relating to MBM's shares that were issued in connection with MBM's purchase of Harrisburg Health Care, Inc.), (3) MBM shall not lease, assign, transfer or dispose of assets other than in the ordinary course of business, (4) MBM shall not change its fiscal year, (5) MBM shall not incur any debt other than the following: debt owed to the Banks under the facility; existing debt disclosed to and approved by the Banks; approved subordinated debt; debt between MBM and a subsidiary; accounts payable to trade creditors incurred in the ordinary course of business; commercial letters of credit issued for the account of MBM by other than the Banks in amount not to exceed in the aggregate at any time the principal sum of $500,000; and such other debt as provided for in the Credit Agreement.
REGULATORY REQUIREMENTS
The manufacturers of many products sold by MBM are required to obtain U.S. Food and Drug Administration ("FDA") approval for such products, failing such approval, sales of such products cannot lawfully be made. MBM's assembly, warehousing and distribution procedures are subject to the Good Manufacturing Practices regulation of the FDA. MBM has registered itself with the FDA and has renewed said registration annually. Such registration permits MBM to distribute supplies and medical devices.
The Caligor Division, among its various activities, operates as a wholesaler and retailer of prescription drugs and medical devices in the State of New York. The practice of pharmacy at the wholesale and retail level is regulated by federal, state and local statutes, rules and regulations. MBM is duly licensed to permit its Caligor Division to operate as wholesalers and retailers in prescription drugs and medical devices in the State of New York. In the future, should MBM expand such activities, it will have to comply with all applicable federal, state and local rules.
COMPETITION
MBM, in all phases of its activities, experiences competition from other manufacturers and distributors of products in the same categories as those of MBM, as well as from wholesale and retail pharmacies, selling to the same general markets as those of MBM. Additionally, the Caligor Division's services are subject to competition from similar service organizations. Many of MBM's competitors have far greater resources than MBM and, in addition, many larger and better financed firms not presently in MBM's lines of business may conceivably enter these lines of business in the future. However, most of MBM's markets are serviced by hospital and surgical supply dealers, athletic retailers, pharmacies and equipment repair firms. MBM believes that its purchasing power, quick service including next day delivery where possible, competitive pricing and marketing expertise enable it to compete favorably with such firms although it continues to experience significant competition from other firms which are better established and have substantially greater financial resources than MBM.
EMPLOYEES
At January 31, 1997, MBM employed 299 full-time employees, including 121 sales and customer service persons, 93 warehouse and shipping workers, 53 clerical workers, 10 delivery persons, 6 computer programmers, 2 pharmacists, 7 purchasing agents and 7 senior management officers. MBM usually employs seasonal summer employees during peak sales volume periods. MBM's employees are not covered under any collective bargaining agreements and there have been no work stoppages. Management believes MBM has satisfactory employee relations at all levels.
ITEM 2.

ITEM 2. DESCRIPTION OF PROPERTY.
MBM leases one central location consisting of approximately 88,000 square feet of assembly and storage space and 20,000 square feet of office space in a 31 year old industrial building at 846 Pelham Parkway, Pelham Manor, New York. This location's facilities are leased from a non-affiliated entity and are in good condition and sprinklered. MBM leased these premises pursuant to a lease which expires on July 31, 2007. MBM pays an annual rent of approximately $540,000, with certain additional sums based upon property tax costs.
The Pelham Manor, New York facilities are equipped to house the assembly processing, customer service, warehousing and shipping requirements of all MBM's divisions to the extent located at these facilities. It contains an order picking conveyor system, fork lifts, large numbers of pallet racks and shelving, manually operated material handling equipment, packaging equipment, assembly equipment (tables, benches and conveyers), engraving machinery (for medical equipment), and conventional office equipment, including an electronic data processing system used to facilitate all areas of MBM's business.
MBM leases for its Caligor Division approximately 5,000 square feet of space at 1226 Lexington Avenue, New York, New York, under a lease which expires on April 30, 2000, for which it presently pays an annual rental of approximately $49,000 per annum, together with additional sums for heat, utilities and property tax costs. This location contains a store front facility fully equipped to operate as a wholesale and retail pharmacy, and a basement storage facility.
MBM leases for its MBM division approximately 4,290 square feet of space at 211 Harbor Way, South San Francisco, California under a lease which expires on January 31, 2000 for which it pays an annual rental of approximately $30,000. This location's facilities are in good condition with approximately 1,000 square feet being devoted to office space and the balance to warehouse space.
MBM also leases approximately 3,100 square feet of space in Jacksonville, Florida, under a lease which expires June 30, 1997. The annual rental under the lease is approximately $17,500.
MBM leases for its Caligor Division approximately 120,000 square feet of warehouse space including offices and warehouse dock at 300 Michael Drive, Syosset, New York. The building is fully sprinklered and alarmed. MBM leases these facilities pursuant to a lease which expires April 29, 2001. MBM pays an annual rent of $240,000 with certain additional sums based upon property tax costs, insurance and utilities.
In February 1996, MBM leased for its Caligor Division approximately 82,000 square feet of space in the Bronx, New York, under a lease which expires in January, 2001. The annual rent is approximately $308,000. The space is used by Caligor's Hospital Division
for its stockless distribution operations. The premises are in good condition, sprinklered and alarmed.
All of MBM's facilities are adequate for MBM's present needs. In the event that additional facilities are needed, Management believes that such facilities can be obtained at a reasonable cost.
Stone's executive and sales offices and its storage facilities were located at 2487 North Jerusalem Road, East Meadow, New York 11550, containing approximately 13,800 square feet. Stone purchased the aforesaid premises on July 13, 1984, for the sum of $200,000. A first mortgage was obtained from Citibank, N.A., in the principal amount of $175,000, payable over twenty years at the monthly rate of $730, plus interest on the unpaid balance. On March 15, 1985, the Job Development Authority of the State of New York (the "JDA") made an additional loan on the premises for alterations in the sum of $149,000, replacing temporary financing. All of Stone's operations were assimilated into the Caligor Division's operations. MBM is actively attempting to sell the property.
None of MBM's leases are with related parties. Additionally, MBM now owns 1 automobile and 1 truck and leases 1 station wagon, 8 trucks and 12 automobiles, all of which are utilized for business purposes.
Item 3.

Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5.

ITEM 5. MARKET INFORMATION
The Company's Common Stock is quoted on the National Association of Securities Dealers' Automated Quotation System National Market System ("NASDAQ/NMS") under the symbol "MBMI." As of February 21, 1997 at 4:00 P.M. Eastern Standard Time, the last sale price of the Common Stock in the over-the-counter market was $16.25.
The following table reflects the high and low sales prices for the Company's Common Stock for the periods indicated as reported by the National Association of Securities Dealers, Inc. ("NASD") from its NASDAQ system:
Common Stock ------------
Quarter Ended ---------------------------------------------------------
February 28 May 31 August 31 November 30 High Low High Low High Low High Low - ------------------------------------------------------------------------------- Fiscal Year Ended November 30, 1996 14-3/4 12-1/4 17 13-7/8 21 14-3/8 18-1/4 16-1/8 Fiscal Year Ended November 30, 1995 10 9-7/16 12-5/8 9-5/16 13-7/8 11-1/4 14 12
The over-the-counter market quotations reported above reflects inter-dealer prices, without retail markup, markdown or commission.
Management has been advised by its transfer agent (American Stock Transfer & Trust Company) that the approximate number of record holders of the Company's Common Stock, as of February 21, 1997, the record date, was approximately 690. No cash dividends have been paid by the Company on its Common Stock and no such payment is anticipated in the foreseeable future.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
(*) Includes additional shares assuming conversion of stock options and warrants utilizing the modified treasury stock method.
ITEM 7.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For fiscal 1996, net sales increased 25.3%. The increase in net sales resulted from the Company's increased volume to hospitals, the acquisition of Stone Medical Supply Corporation ("Stone") and our continuing effort to gain market penetration and sales volume to its existing customer base and the addition of new customers.
For fiscal 1995, net sales decreased 1.4%. The decrease in net sales for the fiscal 1995 resulted in MBM's downsizing of unprofitable divisions acquired from Clark Surgical Corp. ("Clark") during the prior year. For fiscal 1994 net sales increased 64.4% as compared with the prior year. This increase in sales resulted from MBM's acquisition of Clark and its continuing effort to increase market penetration and sales volume on the existing customer base and the addition of new customers. During 1996, 1995 and 1994, the introduction of new products, changing prices and inflation had no material impact on MBM's operations.
Net income for fiscal 1996 was 1.2% of net sales versus .9% of net sales in fiscal 1995. The increase for fiscal 1996 versus fiscal 1995 was due to increased sales volume to hospitals, the Company's acquisition of Stone, lower interest expense as a result of using the proceeds from the conversion of outstanding warrants to decrease long-term debt and decreases in the interest rates charged by financial institutions.
Net income for fiscal 1995 was .9% of net sales versus 1.3% of net sales in fiscal 1994. Net income before the cumulative effect of accounting change in 1994 was 1.4% of net sales. The decrease for fiscal 1995 versus fiscal 1994 was due to increased interest rates charged by financial institutions, the downsizing of unprofitable divisions acquired from Clark Surgical Corp. during the prior year, a decrease in the overall consolidated gross profit percentage and an increase in the effective income tax rate for 1995.
GROSS PROFIT/OPERATING EXPENSES
Gross profit for fiscal 1996 was 20.6% of net sales versus 21.3% of net sales in fiscal 1995. The decrease in gross profit was a result of increased sales to hospitals and changes in MBM's product mix. Gross profit for fiscal 1995 was 21.3% of net sales versus 21.9% of net sales in fiscal 1994. The decrease in gross profit was a result of changes in MBM's product mix.
Selling, shipping and warehouse and general and administrative expenses expressed as a percent of net sales decreased .6% for fiscal 1996 as compared to fiscal 1995. Selling, shipping and warehouse and general and administrative expenses expressed as a percent of net sales decreased .2% for fiscal 1995 as compared to fiscal 1994.
INTEREST AND FINANCING COSTS (NET OF INTEREST INCOME)
Interest expense net of interest income expressed as a percent of net sales decreased .6% for fiscal 1996 when compared to the prior year as a result of using the proceeds from the conversion of outstanding warrants to decrease long-term debt and decreases in the interest rates charged by financial institutions. Interest expense net of interest income expressed as a percent of net sales increased .1% for fiscal 1995 when compared to the prior year as a result of increases in the interest rates charged by financial institutions.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, MBM continued to meet its cash needs via cash flow from operations and borrowings. During fiscal 1996, 1995 and 1994, MBM had an average of approximately $14,800,000, $10,500,000 and $11,000,000 respectively, of unused credit lines available each month over its normal operating requirements.
Management believes that its working capital of approximately $28,100,000 at November 30, 1996 provides sufficient liquidity for its short and long-term requirements and that MBM's long-term liquidity is not materially effected by any restrictive covenants contained in MBM's Revolving Credit Agreement. Further, Management believes that MBM should not experience a problem in connection with the maintenance of such covenants and that its $25,000,000 line of credit provides MBM with the resources it reasonably expects to require to meet its cash commitments through fiscal 1997.
For fiscal 1996, MBM generated cash from operating activities. An increase in accounts payable, accrued expenses and prepaid expenses over and above an increase in accounts receivable and inventory contributed to MBM's generation of cash. During fiscal 1996, MBM's financing activities used cash as a result of repayments of the bank loan under its long-term credit agreement exceeding proceeds from the exercise of warrants. For fiscal 1996, MBM used cash in investing activities to make capital expenditures and payments for intangible assets.
For fiscal 1995, MBM generated cash flow from operating activities. Decreases in accounts receivable and inventory over and above a decrease in accounts payable and an increase in prepaid expenses contributed to MBM's generation of cash. During fiscal 1995, MBM's financing activities used cash as a result of repayments of the bank loan under its long-term credit agreement. For fiscal 1995, MBM used cash in investing activities to make capital expenditures and payments for intangible assets.
For fiscal 1994, MBM generated cash flow from operating activities. An increase in accounts payable over and above increases in inventory, accounts receivable and prepaid expenses contributed to MBM's generation of cash. During fiscal 1994, MBM's financing activities used cash as a result of repayments of the bank loan under its long-term credit agreement. For fiscal 1994, MBM used cash in investing activities to make capital expenditures and payments for intangible assets. During fiscal 1994, MBM
acquired the business and certain assets of Clark through an increase in MBM's line-of-credit and the use of same.
Reference is made to "Recent Developments" for a complete description of the terms of the Merger Agreement pursuant to which MBM expects to be acquired by Schein by way of a merger of Schein's wholly-owned subsidiary into MBM in a stock-for-stock transaction.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8, and an index thereto commences on page, which pages follow this page.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
INDEX
FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report
Consolidated Balance Sheets November 30, 1996 and 1995 -
Consolidated Statements of Income Years Ended November 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows Years Ended November 30, 1996, 1995 and 1994 -
Consolidated Statements of Changes in Stockholders' Equity Years Ended November 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements -
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts
Exhibit 11 - Earnings Per Share Calculation
Schedules other than those referred to above have been omitted as the conditions requiring their filing are not presented or the information has been presented elsewhere in the financial statements
Separate financial statements and schedules of Micro Bio-Medics, Inc. (Parent) have been omitted since the conditions for omission have been met
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS MICRO BIO-MEDICS, INC. PELHAM MANOR, NEW YORK
We have audited the accompanying consolidated balance sheets of Micro Bio-Medics, Inc. and Subsidiaries as of November 30, 1996 and 1995, and the related consolidated statements of income, cash flows, and changes in stockholders' equity for each of the three years in the period ended November 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Micro Bio-Medics, Inc. and Subsidiaries as of November 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles.
We have also audited Schedule II and Exhibit 11 for the years ended November 30, 1996, 1995 and 1994 included in the 1996 annual report of Micro Bio-Medics, Inc. and Subsidiaries on Form 10-K. In our opinion, such schedules present fairly the information required to be set forth therein.
MILLER, ELLIN & COMPANY CERTIFIED PUBLIC ACCOUNTANTS New York, New York February 12, 1997, except for Notes 8 and 12 which are dated March 7, 1997
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
NOVEMBER 30, --------------------------- 1996 1995 ---------- ---------- CURRENT ASSETS: Cash $1,513,750 $2,817,285 Accounts receivable, less allowance for doubtful accounts of $686,179 in 1996 and $674,210 in 1995 (Note 5) 31,280,932 25,657,607 Inventory (Note 5) 13,488,244 12,318,756 Prepaid expenses and other current assets 875,451 657,768 Prepaid income taxes 329,918 471,710 Deferred income taxes (Note 6) 781,500 485,500 ----------- -----------
Total current assets 48,269,795 42,408,626
PROPERTY, PLANT AND EQUIPMENT - at cost, net of accumulated depreciation and amortization of $3,433,070 in 1996 and $3,616,134 in 1995 (Notes 2, 3 and 5) 3,758,348 3,477,807
INTANGIBLE ASSETS, net of accumulated amortization of $1,155,260 in 1996 and $1,061,323 in 1995 (Notes 2 and 4) 8,254,087 4,990,073
OTHER ASSETS 161,586 259,206 ----------- ----------- $60,443,816 $51,135,712 =========== ===========
The notes to consolidated financial statements are made a part hereof.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, ----------------------------
1996 1995 ----------- -----------
CURRENT LIABILITIES: Current maturities of long-term debt (Note 5) $ 432,755 $ 479,195 Accounts payable 17,182,644 10,297,403 Accrued expenses and sundry liabilities (Note 7) 2,542,174 1,666,762 ----------- ----------- Total current liabilities 20,157,573 12,443,360
LONG-TERM DEBT, net of current maturities (Note 5) 8,714,567 17,270,062
DEFERRED INCOME TAXES (Note 6) 179,911 358,138 ----------- ----------- Total liabilities 29,052,051 30,071,560 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 5 and 9): Preferred stock $1 par value: Authorized - 1,000,000 shares, no shares issued - - Common stock $.03 par value: Authorized - 20,000,000 shares Issued - 5,062,115 shares in 1996 and 3,878,804 shares in 1995 151,863 116,364 Additional paid-in capital 20,954,536 12,407,257 Retained earnings 10,286,530 8,541,695 Less: Cost of 1,167 shares of common stock in treasury (1,164) (1,164) ------------ ------------ Total stockholders' equity 31,391,765 21,064,152 ------------ ------------ $ 60,443,816 $ 51,135,712 ============ ============
The notes to consolidated financial statements are made a part hereof.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED NOVEMBER 30, -------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- NET SALES $ 150,142,529 $ 119,873,764 $ 121,604,461
COST OF GOODS SOLD 119,205,502 94,307,143 94,923,689 ------------- ------------- -------------
GROSS PROFIT 30,937,027 25,566,621 26,680,772 ------------- ------------- ------------- OPERATING EXPENSES: Selling, shipping and warehouse 17,357,225 14,511,793 14,421,280 General and administrative 9,795,069 7,901,052 8,581,615 Interest and financing costs (net of interest income of approximately $206,400 in 1996, $172,600 in 1995 and $173,000 in 1994) 719,198 1,238,887 1,044,257 ------------- ------------- -------------
Total operating expenses 27,871,492 23,651,732 24,047,152 ------------- ------------- ------------- INCOME BEFORE PROVISION FOR INCOME TAXES 3,065,535 1,914,889 2,633,620
PROVISION FOR INCOME TAXES (Note 6) 1,320,700 806,000 952,000 ------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,744,835 1,108,889 1,681,620
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INCOME TAXES PRIOR TO 1994 - - (60,000) ------------- ------------- -------------
NET INCOME $ 1,744,835 $ 1,108,889 $ 1,621,620 ------------- ------------- ------------- ------------- ------------- -------------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 10) $ .31 $ .25 $ .37
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INCOME TAXES PRIOR TO 1994 - - (.01) ------------- ------------- -------------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ .31 $ .25 $ .36 ------------- ------------- ------------- ------------- ------------- -------------
NUMBER OF SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (Note 10) 5,816,469 5,121,634 4,896,518 ------------- ------------- ------------- ------------- ------------- -------------
DIVIDENDS PER COMMON SHARE NONE NONE NONE ------------- ------------- ------------- ------------- ------------- -------------
The notes to consolidated financial statements are made a part hereof.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, --------------------------------------- 1996 1995 1994 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,744,835 $ 1,108,889 $ 1,621,620 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change - - 60,000 Depreciation and amortization 1,371,283 1,056,365 952,109 Provision for losses on accounts receivable 44,000 24,210 268,551 Deferred income taxes (155,300) 89,000 (96,000) Changes in assets and liabilities, net of effect of asset acquisitions (Note 2): Accounts receivable (4,381,287) 1,098,227 (1,055,450) Inventory (1,198,068) 3,130,709 (2,506,516) Prepaid expenses and other current assets (159,254) 113,258 (265,042) Prepaid income taxes 205,691 (471,710) - Other assets 97,618 (7,622) (15,604) Accounts payable 5,785,344 (3,462,612) 8,441,961 Accrued expenses and sundry liabilities 710,872 85,421 255,913 ----------- ----------- ----------- 2,320,899 1,655,246 6,039,922 ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,065,734 2,764,135 7,661,542 ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from exercise of warrants 3,586,059 300,601 126,409 Net repayments under revolving loan agreements (7,000,000) (150,000) (3,224,695) Net repayments of long-term debt (603,532) (419,952) (380,085) Exercise of employee stock options 371,122 197,606 125,503 ----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (3,646,351) (71,745) (3,352,868) ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES: Payments for certain net assets of businesses acquired - (931,466) (2,718,009) Capital expenditures (664,433) (788,330) (713,484) Payments for intangible assets (1,058,485) (1,488,654) (1,027,851) Note receivable - - 1,000,000 ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,722,918) (3,208,450) (3,459,344) ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (1,303,535) (516,060) 849,330
CASH - beginning of year 2,817,285 3,333,345 2,484,015 ----------- ----------- -----------
CASH - end of year $ 1,513,750 $ 2,817,285 $ 3,333,345 ----------- ----------- ----------- ----------- ----------- -----------
The notes to consolidated financial statements are made a part hereof.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED NOVEMBER 30, ----------------------------------- 1996 1995 1994 --------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 986,000 $ 1,424,000 $ 1,217,000 ----------- ----------- ----------- ----------- ----------- ----------- Income taxes $ 1,150,000 $ 948,000 $ 1,214,000 ----------- ----------- ----------- ----------- ----------- -----------
ASSETS ACQUIRED FOR DEBT - capital leases, which are not reflected in the above statements $ - $ - $ 202,658 ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS OF A BUSINESS ACQUIRED FOR ISSUANCE OF COMMON STOCK which is not reflected in the above statements $ 3,228,004 $ - $ - ----------- ----------- ----------- ----------- ----------- -----------
BUSINESS ACQUIRED FOR ISSUANCE OF LONG-TERM DEBT which is not reflected in the above statements $ - $ - $ 4,217,981 ----------- ----------- ----------- ----------- ----------- ----------- DEBENTURES CONVERTED INTO COMMON STOCK $ 1,400,000 $ 1,390,000 $ - ----------- ----------- ----------- ----------- ----------- -----------
The notes to consolidated financial statements are made a part hereof.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
The notes to consolidated financial statements are made a part hereof.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Micro Bio-Medics, Inc. (the "Company") and its subsidiaries are a United States based distributor. The Company's principal line of business is the distribution, at wholesale, of medical supplies and related products. The principal markets are the New York metropolitan area for physicians and hospitals, and throughout the United States for health care professionals in sports medicine, schools, emergency services, industrial safety and government and laboratory markets. Included in their operations are the assembly and distribution of first aid medical kits and school and athletic medical supplies. The foregoing operations are all considered as one business segment.
CONCENTRATIONS OF CREDIT RISK
CASH
The Company maintains various bank accounts and at times, balances may be in excess of the FDIC insurance limit. At November 30, 1996 and 1995, the amounts in excess of FDIC insurance limits were approximately $1,200,000 and $2,200,000, respectively.
ACCOUNTS RECEIVABLE
Historically, the Company has not experienced significant losses related to receivables from any individual customers or group of customers in any industry or geographic area.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries, which are all wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are being depreciated primarily on the straight-line basis over the estimated useful lives of the individual classes of assets.
INTANGIBLES
Certain computer programming costs are being amortized over five years using the straight-line method.
The excess of the purchase price paid over the net assets of businesses acquired is being amortized over five to forty years using the straight-line method.
The Company evaluates the recoverability of goodwill and other intangible assets and if there is a decline in related profitability it will recognize an impairment of value if appropriate.
DEFERRED INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes," which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements.
REVENUE RECOGNITION
The Company recognizes revenues when its products are shipped.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which will require the determination by the Company of whether the carrying amount of an asset is recoverable and if an impairment loss should be recognized. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995 and management believes that such adoption will not significantly affect the Company's consolidated financial statements since the Company was generally in conformance with this standard.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation", which is effective for fiscal years beginning after December 15, 1995 and is effective for the Company's fiscal year ended November 30, 1997. Under SFAS No. 123, companies can elect but are not required to recognize compensation expense for all stock based awards, using a fair value methodology. The Company expects to implement in 1997 the disclosure only provisions, as permitted by SFAS No. 123.
For the year ended November 30, 1996, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other than Pensions." Such adoption did not significantly affect the Company's consolidated financial statements.
NOTE 2 - ACQUISITIONS
Prior to fiscal year ended November 30, 1993, the Company made several acquisitions.
On December 1, 1993, a subsidiary of the Company purchased certain net assets and customer accounts of Clark Surgical Corp. ("Clark") subject to certain specific liabilities and obligations under existing contracts and leases. Clark was a major distributor of physician, hospital and veterinary supplies in the New York Metropolitan area and Southern Florida. The purchase price as adjusted was approximately $16,500,000 consisting of inventory of approximately $5,000,000, accounts receivable of approximately $10,200,000, property and equipment of approximately $300,000 and goodwill of $1,000,000. The Company borrowed approximately $14,200,000 under its existing bank line of credit to finance this acquisition and made payments during the year ended November 30, 1994 of approximately $1,000,000. The remaining balance of approximately $1,000,000 was paid in November 1995.
In addition, the Company agreed to pay the two former stockholders of Clark an aggregate of $2,725,000 in cash, payable over a seven year period ending December 31, 2000 for their agreement not to compete for a period of twenty years. As part of the acquisition of Clark's assets, which is included above, the Company issued 40,000 warrants at an exercise price of $8.00 to these two stockholders with 20% exercisable immediately and the remainder contingent upon certain conditions being met. Effective November 29, 1994, these warrants were canceled.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 2 - ACQUISITIONS (CONTINUED)
Effective June 1, 1994, the Company acquired certain assets and customer accounts of Joseph Weintraub, Inc., a distributor of physician and hospital supplies for approximately $1,100,000. The purchase price was allocated based upon the fair market value of the assets at the date of acquisition.
Effective January 18, 1996, the Company acquired 100% of Stone Medical Supply Corporation's ("Stone's") $.01 par value common stock outstanding of approximately 3,432,000 shares in exchange for the issuance of 280,696 shares of the Company's $.03 par value common stock (valued at $11.50 per share). This tax-free merger was accounted for as a purchase. The purchase price was approximately $3,200,000, and the excess of cost over the fair values of assets acquired was approximately $2,300,000 which is being amortized over a life of thirty years. In addition, the Company entered into two fifteen year non-competition agreements with two former executives of Stone in the anticipated amount of $1,750,000, of which $916,666 was paid during 1996 with the remainder payable over five years subject to a final determination.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
COST --------------------------- NOVEMBER 30, --------------------------- ESTIMATED 1996 1995 USEFUL LIFE ------------ ------------ ----------- (Years) Land $ 93,552 $ - Building and improvements 343,448 - 40 Furniture, fixtures and equipment (*) 5,457,771 5,716,810 5 - 8 Transportation equipment 140,825 93,419 5 Leasehold improvements 1,155,822 1,283,712 Life of lease ----------- ---------- 7,191,418 7,093,941 Less: Accumulated depreciation and amortization 3,433,070 3,616,134 ----------- ---------- $ 3,758,348 $ 3,477,807 ----------- ---------- ----------- ----------
(*) Equipment held under capital leases amounted to approximately $2,400,000 and $2,249,000 as of November 30, 1996 and 1995, respectively.
Depreciation expense totalled approximately $976,000, $764,000 and $717,000 for the years ended November 30, 1996, 1995 and 1994, respectively.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
NOVEMBER 30, -------------------------- 1996 1995 ----------- ----------- Excess cost of acquisitions over net tangible assets acquired $ 6,668,876 $ 3,997,570 Agreements not to compete (Note 2) 2,455,680 1,607,183 Computer programming costs 284,791 446,643 ----------- ----------- 9,409,347 6,051,396 Less: Accumulated amortization 1,155,260 1,061,323 ----------- -----------
$ 8,254,087 $ 4,990,073 ----------- ----------- ----------- -----------
Amortization expense amounted to approximately $395,000, $292,000 and $235,000 for the years ended November 30, 1996, 1995 and 1994, respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
NOVEMBER 30, -------------------------- 1996 1995 ----------- -----------
Capitalized leases (collateralized by equipment with an aggregate cost of approximately $2,400,000 and $2,249,000) payable in various installments through fiscal 2001; interest at 6.5% to 9.06% or varies with changes in prime rate $ 1,194,240 $ 1,426,384 Bank loans (i) 7,500,000 14,500,000 7% convertible subordinated debentures, due October 30, 2003 (ii) - 1,500,000 Obligations related to acquisitions 453,082 322,873 ----------- ----------- 9,147,322 17,749,257 Less: Current maturities 432,755 479,195 ----------- ----------- $ 8,714,567 $ 17,270,062 ----------- ----------- ----------- -----------
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 5 - LONG-TERM DEBT (CONTINUED)
The approximate non-current portion of long-term debt at November 30, 1996 is payable as follows:
YEAR ENDING NOVEMBER 30, ------------------------ 1998 $ 435,000 1999 7,865,000 2000 278,000 2001 71,000 2002 17,000 Subsequent 49,000 ----------- $ 8,715,000 ----------- -----------
(i) The Company has a $25 million secured revolving loan agreement with Chase Manhattan Bank NA and Fleet Bank of New York. Chase's and Fleet's commitment under the loan agreement is limited to $15,000,000 and $10,000,000, respectively. The loan agreement expires on February 15, 1999. The loan bears interest at the bank's prime rate plus 1/4%, except for Eurodollar loans. As of November 30, 1996, $4,000,000 of the $7,500,000 revolving loan outstanding was utilized for Eurodollar loans at an average interest rate of 6.625%. The debt is collateralized by accounts receivable and inventory. In connection with the loan agreement, the Company has agreed to certain restrictions relating to its indebtedness and liens, and has agreed to maintain specified financial ratios and covenants. The loan agreement prohibits the Company from paying any dividends and restricts capital distributions or redemptions and purchases or retirements of any of the Company's capital stock. There are also restrictions as to investments, acquisitions, capital expenditures and payments to related parties. A commitment fee equal to 1/8% per annum will be charged on the unused portion of the loan. The loan may be repaid at any time.
On June 7, 1995, the Company entered into a zero cost, three year interest rate swap agreement with Chase for $10,000,000. It is management's intent to match the agreement's terms as to principal amounts and repricing maturities in order to reduce the Company's interest rate risk on its revolving loans. As of November 30, 1996, the agreement serves to limit the net interest rate charged on the Company's first $10,000,000 of revolving loans to 8.25%. However, the Company would receive no further interest rate benefit once the applicable interest rate falls below 6.55%.
(ii) In November 1993, the Company completed the private sale and issuance of its 7% convertible subordinated Debentures ("Debentures") due October 30, 2003. Net proceeds from the issuance of the Debentures with a face value of $3,000,000 were approximately $2,700,000. The Debentures were immediately convertible into shares of common stock at the rate of $8.00 per share until October 28, 2003.
On September 28, 1995, $1,500,000 of the Debentures were converted into 187,500 shares of the Company's common stock. As of May 10, 1996, the remaining outstanding Debentures were converted into shares of the Company's common stock.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 6 - INCOME TAXES
The Company and its subsidiaries file consolidated income tax returns.
Provision for income taxes consists of the following:
YEARS ENDED NOVEMBER 30, -------------------------------------- 1996 1995 1994 ------------ ----------- ----------- Currently payable: Federal $ 1,055,000 $ 508,000 $ 745,000 State and local 421,000 209,000 303,000 ----------- --------- --------- 1,476,000 717,000 1,048,000 ----------- --------- --------- Deferred: Federal (124,300) 72,000 (77,000) State and local (31,000) 17,000 (19,000) ----------- --------- --------- (155,300) 89,000 (96,000) ----------- --------- --------- $ 1,320,700 $ 806,000 $ 952,000 ----------- --------- --------- ----------- --------- ---------
The difference between the statutory United States federal income tax rate and the effective income tax rate is as follows:
YEARS ENDED NOVEMBER 30, ------------------------------------- 1996 1995 1994 ----------- --------- ---------
Statutory federal income tax rate 34.0 34.0 34.0 Current year state and local taxes (net of federal tax effect) 6.8 7.9 7.0 Other 2.3 .2 (4.9) ----- ------ ------ 43.1% 42.1% 36.1% ----- ------ ------ ----- ------ ------
The net current and non-current components of deferred income taxes recognized in the balance sheets at November 30, are as follows:
1996 1995 --------- ---------
Net current assets $ 781,500 $ 485,500 Net non-current liabilities 179,911 358,138 --------- ---------
Net asset $ 601,589 $ 127,362 --------- --------- --------- ---------
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 6 - INCOME TAXES (CONTINUED)
The components of the net deferred tax asset as of November 30, are as follows:
1996 1995 --------- ---------
Deferred tax assets: Accounts receivable allowances $ 248,274 $ 283,080 Inventory - uniform capitalization and allowances 533,226 189,420 Net operating loss 262,360 - Other 44,100 13,000 --------- --------- 1,087,960 485,500 Deferred tax liability: Depreciation and amortization 486,371 358,138 --------- ---------
Net deferred tax asset $ 601,589 $ 127,362 --------- --------- --------- ---------
In connection with its acquisition of Stone (Note 2), the Company has recorded a deferred tax asset of $336,927 reflecting the benefit of approximately $800,000 in loss carryforwards which expire in the year 2011. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. However, no valuation allowance has been provided. During the year ended November 30, 1996, $74,567 of this deferred tax asset was realized by the utilization of net operating loss carryforwards.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses and sundry liabilities consist of:
NOVEMBER 30, ------------------------ 1996 1995 ----------- -----------
Compensation $ 1,273,444 $ 660,638 Freight-out 194,222 356,795 Commissions 273,747 166,871 Other 800,761 482,458 ----------- ----------- $ 2,542,174 $ 1,666,762 ----------- ----------- ----------- -----------
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 8 - COMMITMENTS AND CONTINGENCIES
RETIREMENT PLAN
The Company's 401(k) deferred retirement plan is available to all eligible employees and provides for matching contributions by the Company equal to 20% of the amount of the participants' contributions that are not in excess of 5% of compensation. For the years ended November 30, 1996, 1995 and 1994, the Company's matching contributions were approximately $78,000, $62,000 and $30,000, respectively.
DIRECTORS' RETIREMENT PLAN
The 1996 Directors' Retirement Plan to provide certain retirement benefits for the directors of the Company was approved by the stockholders in June 1996. Under the plan, a director must render continuous service to the Company for a period of seven years after the commencement of the plan and shall receive a retirement benefit on the earlier of retirement date, disability or death. The retirement benefit is an annual benefit equal to the aggregate director's fees paid during the twelve month period preceding the payment of benefits. The Plan also provides that in the event of a "change in control" as defined, a director may elect to receive either an actuarial equivalent lump sum of the product of the director's compensation and the director's life expectancy or a lump sum equal to the product of the director's compensation and the number of completed years of service. The total of such payments in a "change in control" would amount to approximately $1,400,000 (See Note 12).
For the year ended November 30, 1996, the adoption of SFAS No. 106, "Employers' Accounting for Post-retirement Benefits Other than Pensions," resulted in a retirement expense which was immaterial to the Company's consolidated financial statements and for which no provision has been made.
EMPLOYMENT/CONSULTING CONTRACTS
The Company has an employment agreement with its Chief Executive Officer and a consulting agreement with a Director, terminating on March 31, 2000 and December 31, 1996, respectively. The current aggregate annual base compensation under these contracts is approximately $340,000. The Chief Executive Officer's contract provides for annual increments plus a bonus based on income before taxes. If the contract is terminated prior to expiration, payments are to be made equal to the greater of $2,000,000 or the sum of five years' salary, based upon the rate of compensation then in effect, plus five times the last annual bonus received (See Note 12).
For the years ended November 30, 1996, 1995 and 1994, bonuses of approximately $299,000, $144,000 and $199,000, respectively, were paid under the employment contract.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
SELF-INSURANCE
The Company acts as a self-insurer for its employees' health insurance up to a maximum of $50,000 per covered individual. The Company is liable up to a maximum of $460,000 for the year. Claims, including estimates for charges incurred but not reported, are charged to operations during the year in which they occur. As of November 30, 1996, 1995 and 1994, the liability for claims incurred but not submitted amounted to $50,000, $75,000 and $75,000, respectively.
LEASES
The approximate aggregate minimum annual rental commitments under long-term operating leases in effect at November 30, 1996 are as follows:
YEAR ENDING OFFICE, WAREHOUSE TRANSPORTATION NOVEMBER 30, AND SALES EQUIPMENT TOTAL ------------ ------------------ --------------- ----------- 1997 $ 1,234,000 $ 149,000 $ 1,383,000 1998 1,266,000 126,000 1,392,000 1999 1,320,000 103,000 1,423,000 2000 1,287,000 75,000 1,362,000 2001 927,000 35,000 962,000 Thereafter 4,647,000 3,000 4,650,000 ----------- --------- ----------- $10,681,000 $ 491,000 $11,172,000 ----------- --------- ----------- ----------- --------- -----------
Certain leases contain escalation clauses which increase the rents for various operating expenses and fluctuations in property taxes.
Rent expense consists of the following:
YEARS ENDED NOVEMBER 30, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Office, warehouse and sales $ 1,552,500 $ 1,141,700 $ 1,392,046 Transportation equipment 111,216 117,417 85,555 ----------- ----------- ----------- $ 1,663,716 $ 1,259,117 $ 1,477,601 ----------- ----------- ----------- ----------- ----------- -----------
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases certain equipment under capital leases. The following is a schedule by years of approximate future minimum lease payments under the capitalized leases together with the present value of the net minimum lease payments at November 30, 1996:
YEAR ENDING NOVEMBER 30, ------------------------
1997 $ 516,000 1998 274,000 1999 263,000 2000 255,000 2001 53,000 ----------- Total minimum lease payments 1,361,000 Less: Amount representing interest at 6.5% to 9% 167,000 ----------- $ 1,194,000 ----------- -----------
NOTE 9 - STOCK OPTIONS AND WARRANTS
OPTIONS
Under various plans, the Company may grant stock options to directors, officers and employees. The options must be granted at exercise prices of not less than fair market value and expire within ten years from the date of grant. Transactions under the various stock option and incentive plans for the periods indicated were as follows:
YEARS ENDED NOVEMBER 30, ------------------------------------------ 1996 1995 1994 --------- ---------- ----------- Outstanding at beginning of year 1,491,568 1,372,368 1,244,767 Add (deduct): Granted 215,000 207,000 180,500 Terminated (15,100) (42,667) (22,000) Exercised (56,049) (45,133) (30,899) --------- ---------- -----------
Outstanding at end of year 1,635,419 1,491,568 1,372,368 --------- ---------- ----------- --------- ---------- -----------
Remaining shares reserved for issuance 687,732 387,632 51,965 --------- ---------- ----------- --------- ---------- -----------
Options outstanding at November 30, 1996, 1995 and 1994 ranged in price from $2.25 to $16.50. Options exercised ranged in price from $2.25 to $10.25 in 1996, 1995 and 1994.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 9 - STOCK OPTIONS AND WARRANTS (CONTINUED)
WARRANTS
The Company's Series 1 warrants expired in June 1996 and almost all were exercised at $6.00 per 1.047 shares. The total net proceeds from the exercise of all warrants from 1992 (inception) through June 1996 were approximately $7,900,000 with approximately 1,400,000 shares of common stock being issued.
NOTE 10 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted average number of common shares and common equivalent shares outstanding during the period. The modified treasury stock method was utilized to calculate the dilutive effect of the options and warrants upon the earnings per share data. Fully diluted earnings per common and common equivalent share were the same as for the primary calculation.
NOTE 11 - FINANCIAL INSTRUMENTS
The amounts at which cash, accounts receivable, accounts payable and other current liabilities are presented in the balance sheets approximate their fair value due to their short maturities. The carrying amount of long-term debt approximates its fair value determined based on discounted cash flow using a market rate of interest at the balance sheet dates as applicable to comparable debt.
NOTE 12 - SUBSEQUENT EVENT
On March 7, 1997, the Company entered into an agreement and plan of merger whereby HSI Acquisition Corp., a wholly-owned subsidiary of Henry Schein, Inc. ("Schein"), will merge into the Company. The Company will be the surviving corporation as a subsidiary of Schein. Schein is a marketer of healthcare products and services to office-based healthcare practitioners including dental practices and laboratories, physician practices and veterinary clinics in the North American and European markets. As a result of the transaction, outstanding shares of the Company's common stock will be exchanged at a rate of .62 shares of Schein's common stock for each outstanding share of the Company. Existing options and warrants will be exchanged for Schein's options and warrants at the same rate. It is intended that the merger shall qualify as a tax free reorganization for income tax purposes and accounted for as a pooling of interests for financial reporting purposes.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
NOTE 12 - SUBSEQUENT EVENT (CONTINUED)
The completion of the transaction is subject to approval by the Company's shareholders and to termination of any waiting period under the Hart-Scott-Rodino Act, and further, all dissenting shares shall not constitute more than 9% of the Company's outstanding common stock immediately prior to the effective date of the merger.
The agreement may be terminated based upon certain conditions as defined in the Plan of Merger including if the merger is not consummated before September 30, 1997. In the event that the merger is not completed due to cause by either party, liquidated damages of $3,000,000 will be payable by such party to the other party. If (i) the Company terminates the Plan of Merger in order to effect an Acquisition Transaction (as defined) with another person, (ii) Schein terminates the Plan of Merger due to the Company's Board of Directors withdrawing or adversely modifying its recommendation that the Company's shareholders approve the Plan of Merger, or (iii) the Plan of Merger terminates under certain other circumstances and the Company effects an Acquisition Transaction or enters into a definitive agreement with respect thereto within six months of such termination, the Company will pay Schein a termination fee of $5,000,000.
In connection with the Merger Agreement, the Chief Executive Officer of the Company entered into an employment agreement, which becomes effective when the merger is completed, to be employed as Executive Vice-President of Schein and President of Schein's medical products group. The existing employment agreement (see Note 8) will be terminated and Schein will cause the Company to pay him $3,000,000 in five equal installments pursuant thereto. The first payment is due on the effective date of the merger and the remaining installments are payable on each January 1st thereafter.
If the merger becomes effective, the Board of Directors of the Company will terminate the 1996 Directors' Retirement Plan (see Note 8) and the directors will not seek to obtain the benefits payable under such plan.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E --------- ----------- ---------- ----------- ---------- BALANCE ADDITIONS BALANCE BEGINNING CHARGED TO END OF OF YEAR OPERATIONS DEDUCTIONS* YEAR ----------- ---------- ----------- --------- DESCRIPTION -----------
Allowance for Doubtful Accounts
Year ended November 30, 1994 $ 600,000 $ 268,551 $ 218,551 $ 650,000
Year ended November 30, 1995 650,000 96,000 71,790 674,210
Year ended November 30, 1996 674,210 44,000 32,031 686,179
* Deductions represent accounts written off, net of recoveries of accounts written off in prior years.
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
YEARS ENDED NOVEMBER 30, ------------------------------------ 1996 1995 1994 ----------- ----------- ---------- PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
EARNINGS
Income before cumulative effect of accounting change $ 1,744,835 $1,108,889 $1,681,620
MODIFIED TREASURY STOCK METHOD
Incremental income after the application of assumed proceeds toward repurchase of 20% of the outstanding common shares at the average market price, the reduction of debt and the balance of funds invested in U.S. government securities, net of applicable income taxes 59,709 191,461 146,222 ----------- ---------- -----------
Adjusted earnings $ 1,804,544 $1,300,350 $1,827,842 ----------- ---------- ----------- ----------- ---------- -----------
SHARES
Weighted average number of common shares outstanding 4,554,046 3,690,092 3,551,732
Additional shares assuming conversion of: Stock options and warrants utilizing the modified treasury stock method 1,262,423 1,431,542 1,344,786 ----------- ---------- -----------
Number of common and common equivalent shares 5,816,469 5,121,634 4,896,518 ----------- ---------- ----------- ----------- ---------- -----------
Earnings per common and common equivalent share before cumulative effect of accounting change $.31 $.25 $.37 ----------- ---------- ----------- ----------- ---------- -----------
Fully diluted earnings per common and common equivalent share were the same.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) IDENTIFICATION OF DIRECTORS
The names, ages and principal occupations of the Company's present directors, and the date on which their term of office commenced and expires, are as follows:
First Term of Became Principal Name Age Office Director Occupation - ---- --- -------- -------- --------------
Bruce J. Haber 44 (1) 1981 President of the Company
Marvin S. Caligor 66 (1) 1982 Consultant
Renee Steinberg 74 (1) 1971 Secretary of the Company
K. Deane Reade, Jr. 55 (1) 1987 President of Bangert, Dawes, Reade, Davis & Thom Incorporated ___________________________ (1) Directors are elected at the annual meeting of stockholders and hold office until the following annual meeting.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS.
Bruce J. Haber is President of the Company and its subsidiaries. Louis Buther, Ernest W. Nelson and Michael Levy are each a Vice-President of the Company. Donald Sabia is Vice President of Operations of the Company. Stuart F. Fleischer is Vice President of Finance and the Principal Financial and Accounting Officer and Gary Butler is Treasurer of the Company. Renee Steinberg is Secretary of the Company.
The terms of all officers expire at the annual meeting of directors following the annual stockholders meeting. Subject to their contract rights to compensation, if any, officers may be removed, either with or without cause, by the Board of Directors, and a successor elected by a majority vote of the Board of Directors, at any time.
(c) BUSINESS EXPERIENCE
Bruce J. Haber is serving as President and a Director of MBM. Mr. Haber was elected to the position of President in December, 1983; has served as a Director of MBM since September, 1981; and, from that date, until his election as President of MBM, served as Executive Vice-President of MBM. Prior to his affiliation with MBM, Mr. Haber served from 1977 to August, 1981 as a Vice-President of Commercial Credit Business Services, Inc., New York. Mr. Haber holds a Bachelor of Science degree from the City College of New York and a Master of Business Administration from Baruch College in New York. Mr. Haber is a full-time employee of MBM.
Louis Buther has been a Vice-President of MBM since December, 1983. He has served as Vice-President of MBM's wholly-owned subsidiary Caligor Physicians and Hospital Supply Corp. since May, 1983 and from March 1, 1982 to April, 1983, served as its Sales Manager. Mr. Buther also served as Sales Manager for the Caligor business from 1980 until its acquisition and prior thereto served it in the capacity of a licensed pharmacist and pharmacist intern. Mr. Buther holds an Associate Arts Science degree in Chemistry from Bronx Community College and a Bachelor of Science degree in Pharmacy from Long Island University. Mr. Buther is a full-time employee of MBM.
Ernest W. Nelson has been a Vice-President of MBM since December, 1983. From January, 1982 until his election as a Vice-President, he was employed by MBM as a Sales Representative and then promoted to the position of National Sales Manager for MBM's MBM division. Prior thereto, Mr. Nelson was employed from June, 1981, to December, 1981, as a Sales Representative for United States Lines and, from July, 1976, to June, 1981, as an Athletic Trainer and Associate Professor at Columbia University, New York City. Mr. Nelson holds a Bachelor of Science degree from Central Connecticut State University and a Master of Arts degree from Columbia University. Mr. Nelson is a full-time employee of MBM.
Donald R. Sabia has been Vice-President of Operations since August of 1996. Prior to his appointment as Vice-President, Donald Sabia has served as Customer Service Manager of the Caligor Division from September 1991 to April of 1995 and Purchasing Director of the Company from April 1995 to his appointment of Vice-President. Mr. Sabia joined MBM in 1990 through the acquisition of his company, Eastern Medical Supply Co., Stamford, CT, in which he was a major shareholder and held the position of Vice-President for 15 years. Mr. Sabia is a full time employee of MBM.
Michael Levy joined MBM in 1990 as Vice President of the Healer Products Division. Prior to joining MBM, Mr. Levy served as a Management Consultant in the women's apparel industry from 1987 to 1990. He was Senior Vice President of Rudco Industries, Inc., a financial forms manufacturer from 1975 to 1987 and held two management positions in the hardware industry from 1960 to 1975. Mr. Levy holds a Bachelor of Science degree from New York University. Mr. Levy is a full-time employee of MBM.
Stuart F. Fleischer has been Vice President of Finance, Principal Financial and Accounting Officer since April 1995. Stuart Fleischer joined the Company in March 1995. From February 1986 through March 1995, Mr. Fleischer served as a Senior Vice President and Chief Financial Officer of Communications Diversified, a promotional marketing entity. From June 1974 through January 1986, he worked on the audit staff at Price Waterhouse. Mr. Fleischer is a Certified Public Accountant and holds a Bachelor of Science degree from Lehigh University. Mr. Fleischer is a full-time employee of MBM.
Gary L. Butler has been Treasurer of MBM and has served at various times as an executive officer in other capacities since December, 1983. From March 1, 1982 until December, 1983, Mr. Butler served as the Controller of MBM's wholly-owned subsidiary, Caligor Physicians and Hospital Supply Corp., and, prior thereto, served in such capacity with the Caligor business from May, 1975 until its acquisition by MBM. From December, 1984 to the present, Mr. Butler has served as Treasurer of Caligor Physicians & Hospital Supply Corp. Mr. Butler holds a Bachelor of Science degree from New York University. Mr. Butler is a full-time employee of MBM.
Marvin S. Caligor, a Director of MBM since March 1, 1982, when Caligor Physicians and Hospital Supply division of Health-Chem Corporation was acquired by MBM. Mr. Caligor also served as Senior Vice-President of MBM from March, 1982 until December, 1987. Since December, 1987, Mr. Caligor has been employed by MBM as a consultant on a part-time basis. From 1969 until its acquisition by MBM, Mr. Caligor was President of the division and an officer and director of Health-Chem Corporation. Mr. Caligor is a licensed pharmacist and holds a Bachelor of Science in Pharmacy from Columbia University.
Renee Steinberg has served as Secretary and a Director of MBM for more than the past 5 years and has not been associated with any firm other than MBM and its subsidiaries during such period. Mrs. Steinberg received a Bachelor of Science degree from Cornell University and is a founder of MBM.
K. Deane Reade, Jr. has been a Director of MBM since July, 1987. Mr. Reade is a General Partner of Gramercy Hills Partners, L.P. Mr. Reade is a founder and, since 1975, has served as President and a director of Bangert, Dawes, Reade, Davis & Thom, Incorporated, a private investment banking firm with offices in New York and San Francisco. Between 1989 and 1996, Mr. Reade served as Managing Director of John Hancock Capital Growth Management, Inc. Mr. Reade is a graduate of Rutgers University. He is a director of American/Elgen, Inc. (Irvington, New Jersey); Myers Industries, Inc. (Lincoln, Illinois); U. S. Souvenir, Inc. (Honolulu, Hawaii) and Trail Blazers Camps, Inc. (New York, N.Y.) a 100 year old social service organization with a year round educational program for disadvantaged children from the Metropolitan New York - New Jersey area.
Directors are elected at the annual meeting of stockholders and hold office until the following annual meeting. The terms of all officers expire at the annual meeting of directors following the annual stockholders meeting. Subject to their contract rights to compensation, if any, officers may be removed, either with or without cause, by the Board
of Directors, and a successor elected by a majority vote of the Board of Directors, at any time.
In October 1987, MBM established an Executive Compensation Committee with Renee Steinberg as Chairman and Bruce Haber and K. Deane Reade as members and an Audit Committee with K. Deane Reade as Chairman and Bruce Haber and Marvin Caligor as members.
The Compensation Committee has the power to review compensation of MBM's executive officers, including salaries, the granting of stock options and other forms of compensation for executive officers whose salaries are within the purview of the Board of Directors. In some cases, the Compensation Committee may make recommendations to the entire Board of Directors for its approval or, itself exercise the powers and authority of the Board of Directors to designate compensation.
The Audit Committee has the power to:(i)select the independent certified public accountant; (ii) satisfy itself on behalf of the Board that the external and internal auditing procedures assure reliable and informative accounting and financial reporting;(iii) have meetings with management, or with the auditors, or with both management and auditors, to review the scope of the auditor's examination, audit reports and the Corporation's internal auditing procedures and reviews;(iv) monitor policies established to prohibit unethical, questionable, or illegal activities by those associated with the Corporation; and (v) review the compensation paid to the auditors through annual audit and non-audit fees and the effect on the independence of the auditors in relation thereto, and it may exercise the powers and authority of the Board of Directors to implement changes in connection with the foregoing or, at its option, may make recommendations to the entire Board of Directors for its approval.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). Officers, directors and greater than ten percent stockholders are required by the Commission's regulations to furnish the Company with copies of all Section 16(a) forms they file. To Management's knowledge, no officer, director or person owning more than 10% of the Company's Common Stock filed any reports late during its fiscal year ended November 30, 1996.
Item 11.

Item 11. EXECUTIVE COMPENSATION
The following table provides a summary compensation table with respect to the compensation of MBM's Chief Executive Officer (CEO) and the executive officers other than the CEO who are serving as executive officers at the end of fiscal 1996 whose total annual salary and bonus, if any, exceeded $100,000.
(1) The restricted stock awards are based upon the dollar value of restricted stock, calculated by multiplying the closing market price of the Registrant's unrestricted stock on the date of grant by the number of shares awarded on that date.
(2) Includes contributions to MBM's 401(K) Plan and in the case of Bruce Haber, all other compensation includes insurance premiums paid for a whole life policy which Mr. Haber is allowed to designate the beneficiary and directors fees.
During the past three fiscal years, MBM has not granted stock appreciation rights. In addition, MBM does not have a defined benefit or actuarial plan. See Section 401(k) or deferred retirement plan regarding the cash or deferred retirement plan pursuant to Section 401(k) of the Code. Directors currently receive $16,000 annual compensation for their services as directors, $4,000 for services on each Audit and Compensation Committee and are eligible to receive stock options.
OPTION GRANTS TABLE
The information provided in the table below provides information with respect to individual grants of stock options during fiscal 1996 of each of the executive officers named in the summary compensation table above. MBM did not grant any stock appreciation rights during 1996.
Option Grants in Last Fiscal Year
- ------------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Individual Grants Rates of Stock Price Appreciation for Option Term (2) - ------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) % of Total Options/ Granted to Options Employees Exercise Expira- Granted in Fiscal Price tion Name (#) Year (1) ($/Sh) Date 5% ($) 10% ($) - ------------------------------------------------------------------------------- Bruce Haber 70,000 32.6% 12.25 2/13/06 539,000 1,366,400 Louis Buther 15,000 7.0% 12.25 2/13/06 115,500 292,800 Ernest Nelson 10,000 4.7% 12.25 2/13/06 77,000 195,200 Stuart Fleischer 10,000 4.7% 12.25 2/13/06 77,000 195,200 Donald Sabia 2,000 0.9% 12.25 2/13/06 15,400 39,040 Donald Sabia 5,000 2.3% 16.50 10/2/06 51,900 131,500 - -------------------------------------------------------------------------------
N/A - Not Applicable.
(1) The percentage of total options granted to employees in fiscal year is based upon options granted to officers, directors and employees.
(2) The potential realizable value of each grant of options assumes that the market price of MBM's Common Stock appreciates in value from the date of grant to the end of the option term at annualized rates of 5% and 10%, respectively, and after subtracting the exercise price from the potential realizable value.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The information provided in the table below provides information with respect to each exercise of stock option during fiscal 1996 by each of the executive officers named in the summary compensation table and the fiscal year end value of unexercised options.
- ------------------------------------------------------------------------------- (a) (b) (c) (d) (e) Value of Number of Unexercised Shares Unexercised In-the-Money Acquired Options at Options on Value FY-End (#) at Fy-End($) Exercise Realized Exercisable/ Exercisable/ Name (#) ($)(1) Unexercisable Unexercisable(1) - ------------------------------------------------------------------------------- Bruce Haber 8,333 113,662 796,667/0 9,700,005/0 Louis Buther 5,333 72,742 160,000/15,800 1,702,743/168,420 Ernest Nelson 5,333 72,742 108,333/15,800 1,084,170/167,700 Stuart Fleischer -0- -0- 20,000/8,000 74,500/68,000 Donald Sabia -0- -0- 20,500/12,700 89,750/77,875 - -------------------------------------------------------------------------------
_______________________ (1) The aggregate dollar values in column (c) and (e) are calculated by determining the difference between the fair market value of the Common Stock underlying the options and the exercise price of the options at exercise or fiscal year end, respectively. In calculating the dollar value realized upon exercise, the value of any payment of the exercise price is not included.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is composed of three board members, namely, Bruce J. Haber, the Company's the Chief Executive Officer ("CEO"), Renee Steinberg, the Company's Secretary, and K. Deane Reade, Jr. This Committee is responsible for reviewing, determining and recommending to the Board the annual salary, bonuses, stock option grants, stock awards and other compensation of the executive officers of the Company.
The report describes the policies and rationales of the Committee in establishing the principal components of executive compensation in 1996. The Committee's review and determination of executive compensation includes consideration of the following factors: (a) compensation surveys of similar size companies, (b) past and future performance contributions of each executive officer, (c) the performance of the Company, both separately and relative to similar size companies, (d) historical compensation levels and (e) recommendations of independent board members with respect to compensation competitiveness.
Under the direction of the Committee, the Company has developed a compensation strategy designed to compensate its executives on a competitive basis relative to performance and comparable to other companies of similar size. The program is intended to (a) reward executives for long-term strategic management and the enhancement of shareholder value, (b) facilitate the Company's short- and long-term planning process and (c) attract and retain key executives critical to the long-term success of the Company.
Compensation for each of the Named Executives consists of a fixed base salary and variable components, including both short- and long-term incentive compensation in the form of bonuses, stock option grants and stock awards. An annual salary and performance incentive plan for each of the Company's executive officers, other than the CEO, based on the above-described considerations and the Company's compensation strategy, has been developed and prepared under the direction of the CEO and approved by the Committee. Subject to the CEO's contractual rights in his employment contract, the Committee reviews and fixes the CEO's compensation based on similar data as well as an assessment of his past and future contributions in leading the Company toward its objectives.
Based on the Company's profitable operations over the past ten years, the Committee believes that the Company's executive management is dedicated to its corporate objectives of achieving significant improvements in long-term financial and operating performance. The executive compensation program outlined below is designed to implement this strategy by rewarding management for achieving these objectives.
BASE SALARY. The Company's base salary is designed to recognize the sustained and cumulative effect on long-term results that its executives have demonstrated. The base salary is a remuneration for services provided and is fixed at levels which are competitive with amounts paid to executives at comparable companies.
SHORT-TERM INCENTIVES. Short-term incentives in the form of annual bonuses are paid to each of the Executives named in the summary compensation table to recognize performance that is related to the achievement of key financial and operating objectives that have been established for a fiscal year. Since short- term incentives should generally reflect one year contributions, the size of the payments may vary considerably from year to year, depending on performance. At the beginning of each year, performance goals for the purposes of determining annual incentive compensation are established in each of the Company's divisions as well as in certain staff departments. These goals are objective, measurable and controllable by the responsible executive.
LONG-TERM INCENTIVES. The Committee recognizes that long-term incentive compensation is a substantial component of the total pay package linking executive pay and corporate performance. At the Company, long-term incentive compensation in the form of equity based compensation is intended to link the interests of its executives with the interests of the Company's shareholders. The payment of stock option grants and stock grant awards are designed to be issued to executives when the Company has
provided the shareholders with an acceptable return on their investment over a prolonged period of time.
CHIEF EXECUTIVE OFFICER'S 1996 COMPENSATION. As more specifically set forth in the Summary of Compensation table, Mr. Haber earned during fiscal 1996, an annual salary of $237,509 (computed at the rate of $240,750 per annum) and an annual bonus of $298,742 equal to 7% of the Company's income before deducting taxes and the amount of his bonus in accordance with his employment contract. In addition, Mr. Haber received options to purchase 70,000 shares of the Company's Common Stock at the then current fair market value at the time of grant.
In determining Mr. Haber's 1996 compensation, the Committee considered the factors applied to the compensation of all executive officers as discussed above. The Committee decided that, based on these criteria, the Company's performance was successful. The Committee decided that Mr. Haber's total 1996 compensation package reflects the Company's overall performance based on the creation of shareholder value, cash flow, and net income and that his annual bonus which was based upon the terms of his employment contract, compares to that paid to CEO's of similar sized companies.
The foregoing report has been approved by all members of the Committee.
Renee Steinberg, Chairperson K. Deane Reade, Jr. Bruce J. Haber
COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present a chart comparing the cumulative total shareholder return on its Common Stock with the cumulative shareholder return of (1) a broad equity market index, and (2) a published industry index or peer group for the past five years. Such chart compares the performance of the Company's Common Stock with (1) the NASDAQ Stock Market Index and (2) a group of public companies each of whom are listed in the peer group machinery, equipment and supplies and assumes an investment of $100 on December 1, 1991 in each of the Company's Common Stock, the stock comprising the NASDAQ Stock Market index and the stocks of the machinery, equipment and supplies.
Comparison of Five Year-Cumulative Total Returns Performance Graph for MICRO BIO-MEDICS, INC.
PREPARED BY THE CENTER FOR RESEARCH IN SECURITY PRICES Produced on 01/27/97 including data to 11/29/96
LEFT BLANK INTENTIONALLY
[INSERT GRAPH OF "5-YEAR CUMULATIVE TOTAL RETURNS"]
LEGEND
Notes: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 11/29/91.
EMPLOYMENT AND CONSULTING AGREEMENTS
MBM has a five year Employment Agreement with Bruce J. Haber subject to an automatic one year extension on April 1st of each year commencing April 1, 1996, unless either party elects not to extend the contract after giving the other party at least 180 days prior written notice. Pursuant to this agreement, Mr. Haber has agreed to devote his full time and efforts to the business of MBM and to serve as MBM's President and Chief Executive Officer. Mr. Haber is currently receiving a base salary of $260,000 per annum which compensation is increased annually by at least $5,000 per annum until the termination of the agreement, subject to additional increases at the discretion of the Board of Directors. Mr. Haber is also entitled to be paid each year an annual bonus for the most recently completed fiscal year equal to no less than 7% of MBM's income before income taxes and Mr. Haber's bonus. Mr. Haber received a whole-life policy covering his life, presently in the sum of $2,000,000 and the use of a Company motor vehicle. In the event Mr. Haber's employment agreement is terminated for any reason other than his willful misconduct, then Mr. Haber shall be entitled, as liquidated damages, to an amount of money equal to the greater of $2,000,000 or the sum of five years compensation. In the event there is a dispute as to the amount of liquidated damages payable to Mr. Haber, then on the termination date MBM shall be required to pay into an interest bearing escrow account, the sum of $4,000,000 less the amount of liquidated damages paid to Mr. Haber which is not in dispute. Mr. Haber will continue to receive his full compensation during the continuation of any dispute.
If there is a substantial change in the management of MBM, wherein any Board of Directors that may be elected becomes opposed to, or acts contrary to, the policy of the Board of Directors now in control of MBM and, as a result thereof, Mr. Haber, in his sole discretion, finds it difficult for him to work harmoniously and effectively with any such Board of Directors of MBM, or the Board of Directors of MBM shall determine that Mr. Haber shall not be the President and Chief Executive Officer of MBM, or Mr. Haber shall not be elected as a member of the Board of Directors of MBM, then, in any of such events, Mr. Haber shall have the absolute right and option to resign upon giving MBM 60 days written notice of his intention to do so. Upon such resignation, Mr. Haber shall be entitled to the liquidated damages and expenses as set forth above in consideration of Mr. Haber's agreement not to compete with MBM for a period of one year following his resignation. Pursuant to Mr. Haber's employment agreement, MBM is obligated to provide to Mr. Haber indemnification for any claim or lawsuit which may be asserted against him when acting in his capacity as an officer and director of MBM provided said indemnification is not in violation of any federal or state law, rule or regulations.
On January 1, 1988, Mr. Caligor commenced serving MBM as a part-time consultant at an annual cash compensation of $100,000. Mr. Caligor's consulting contract which originally provided for a termination date of December 31, 1990 was extended by MBM's Board of Directors and currently terminates on December 31, 1997.
STOCK OPTION PLANS
An Incentive Stock Option Plan (the "1982 Incentive Plan") was adopted by the Board of Directors and stockholders on February 24, 1982 and terminated on February 24, 1992 as to the granting of new options. The 1982 Plan provided that an aggregate of 166,666 shares of MBM's Common Stock were issuable, subject to adjustment in the event of changes in the capital structure of MBM. Employees of MBM were eligible for selection as participants. During fiscal 1996, 1995 and 1994, 26,966 shares, 11,300 shares and 12,666 shares, respectively, of MBM's Common Stock were issued at exercise prices ranging from $2.25 per share to $4.00 per share. As of February 28, 1997, MBM has 62,400 options outstanding under the 1982 Plan at exercise prices ranging from $2.25 per share to $4.00 per share.
On April 14, 1989, the Board of Directors adopted and the shareholders later approved a 1989 Non-qualified Stock Option Plan, (the "1989 Plan"), in order to attract and retain qualified employees, officers and directors. Under the 1989 Plan, options to purchase a maximum of 416,666 shares of Common Stock may be granted to employees, officers and directors of MBM. If any options granted under the 1989 Plan expire or terminate for any reason without having been exercised in full, the unpurchased shares shall become available for further options pursuant to the 1989 Plan. The 1989 Plan also provides that no options may be granted after April 13, 1999. The 1989 Plan is administered by the Board of Directors of MBM or by a Stock Option Committee appointed by the Board which consists of not less than three directors. The maximum term of any option under the Plan is ten years. The Board of Directors or Committee appointed by the Board determines which employee, officer or director shall have options under the 1989 Plan, the number of shares of Common Stock that may be purchased under each option, the option price and all other provisions of the respective option agreements (which need not be identical), including but not limited to provisions concerning the time or times when, and the extent to which, the options may be exercised and any limitations upon the transferability of such shares. Each option granted under the 1989 Plan is non-transferable, may be exercised only if the participant has been continuously a director, consultant or employee of MBM. However, in the case of death, the lawful heirs and/or beneficiaries of a deceased optionee may exercise such options for a period of six months after the optionee's death. As of November 30, 1996, MBM had outstanding options under the 1989 Plan to purchase an aggregate of 398,567 shares of MBM's Common Stock at exercise prices from $2.25 per share to $4.00 per share to various officers and members of the Board of Directors. As of November 30, 1996, substantially all of these options are exercisable. During fiscal 1996, 1995 and 1994, 2,000 shares, 4,333 shares and 4,000 shares, respectively, of MBM's Common Stock were issued at exercise prices ranging from $2.25 to $4.00 per share.
On January 28, 1992, the Board of Directors of MBM adopted a Stock Option Plan (the "1992 Plan") which was approved by stockholders. The 1992 Plan, as amended, covers 1,850,000 shares of Common Stock. The 1992 Plan authorizes the issuance of the options covered thereby as either "Incentive Stock Options" within the meaning of the Internal Revenue Code of 1986, as amended, or as "Non- Statutory Stock Options."
Persons eligible to receive options under the 1992 Plan includes employees, directors, officers, consultants or advisors, provided that bona fide services shall be rendered by consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital raising transaction; however, only employees are eligible to receive an Incentive Option. The 1992 Plan also provides that no options may be granted after January 27, 2002.
The 1992 Plan is administered by MBM's Board of Directors or a stock option committee consisting of three members of the Board which has the authority to determine the persons to whom options shall be granted, whether any particular option shall be an Incentive Option or a Non-Statutory Option, the number of shares to be covered by each option, the time or times at which options will be granted or may be exercised and the other terms and provisions of the Options. An Optionee of a Stock Option who terminates his employment with MBM, other than by reason of his death or disability, may not exercise his Option. The lawful heirs or beneficiaries of a deceased Optionee may exercise Stock Options for a maximum period of six months after the Optionee's death, so long as the Option has otherwise not expired. All Stock Options are non-transferable except by will or the laws of descent and distribution.
The 1992 Plan also provides that: (i) the exercise price of options granted thereunder is not less than 100% (or in the case of an Incentive Option, 110% if the optionee owns 10% or more of the outstanding voting securities of MBM) of the fair market value of such shares on the date of grant, as determined by the Board or Stock Option Committee, and (ii) no option by its terms may be exercised more than ten years (five years in the case of an Incentive Option, where the optionee owns 10% or more of the outstanding voting securities of MBM) after the date of grant. Any options which are canceled or not exercised within the option period become available for future grants.
The 1992 Plan will (a) upon the occurrence of an Acquisition Event (as defined in the 1992 Plan), at the election of an optionee, permit each optionee to exercise all or any portion of such optionee's exercisable Options by borrowing from MBM, and MBM shall be obligated to loan such optionee an amount equal to the aggregate exercise price of such Options intended to be exercised by such optionee. Such optionee shall use the proceeds of such loan to exercise such Options. Such optionee shall issue to MBM a promissory note made by such optionee in a principal amount equal to the amount of such loan. The optionee will pledge to MBM to secure the repayment of such loan all shares of Common Stock issued to the optionee upon exercise of Options pursuant to this paragraph. At the time of such loan, such loan shall have a rate of interest and such loan and pledge shall have such additional terms and conditions all as determined by the Board of a Committee thereof; (b) upon the occurrence of a Change of Control, as defined in the 1992 Plan, which Change of Control is not approved by a vote of at least eighty percent (80%) of the directors that constitute the Board immediately prior to the occurrence of such Change of Control, terminate all Options as of the time immediately prior to the occurrence of such Change of Control and the respective optionees shall surrender all of their unexercised Options for cancellation by MBM and, upon such surrender, the optionee shall receive (1) the cash, securities or other consideration he would have received had he been entitled
to exercise, and had he exercised, such Option or Options immediately prior to such Change of Control and had he disposed of his shares issuable upon such exercise in connection with such Change of Control (subject to required deductions and withholdings), minus (2) an amount of cash or fair market value of securities or other such consideration equal to the exercise price of such Option or Options surrendered. (i) The foregoing shall not apply to all incentive stock options granted prior to the June 23, 1995, the date of stockholder approval of such provisions, (ii) any non-statutory stock option granted prior to June 23, 1995 where a written consent is required to be obtained from the optionee whose rights have been adversely affected and such consent is not obtained from the optionee, or (iii) any Option whatsoever where an event of default would be created under MBM's then-existing institutional loan(s) and such event of default is not waived prior to such occurrence or cured pursuant to the terms of said loan agreements. As of February 28, 1997, MBM has under the 1992 Plan Incentive and Non-Statutory Stock Options outstanding to purchase 1,335,700 shares of MBM's Common Stock at exercise prices ranging from $4.00 per share to $16.25 per share. During fiscal 1996, 22,750 shares of MBM's Common Stock were issued at exercise prices ranging from $4.00 to $10.25 per share.
SECTION 401(K) OR DEFERRED RETIREMENT PLAN
Effective December 1, 1985, MBM initiated a cash or deferred retirement plan pursuant to Section 401(k) of the Code (the "Plan"). All employees are eligible to enroll and to receive benefits under the Plan, beginning February 1, 1986, the commencement date of the plan. Employees can elect to contribute up to 20% of their compensation to the Plan and MBM will make matching contributions in an amount equal to 20% of the amount of the Participant's contribution that is not in excess of 5% of compensation. A Participant shall at all times have a one hundred (100%) percent vested interest in his contribution Account. Any distributions to be made under the Plan to a Participant will begin not later than the 60th day after the latest of the close of the Plan year in which (a) the Participant attains his normal retirement age (i.e. 59-1/2), or (b) the date the Participant terminates his employment with MBM, or (c) such later date pursuant to his written election. Prior to retirement, Plan savings may be payable upon an employee's death (payable to his or her designated beneficiary), disability (as defined in the Plan) or termination by MBM. Plan savings are payable, at the Plan Administrator's option, in either one lump sum or in installments. The Participant may be consulted prior to making such determination. For the fiscal years ended November 30, 1996, 1995 and 1994, MBM's matching contributions amounted to $78,000, $62,200 and $29,985, respectively.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock by all persons known by the Company to be beneficial owners of more than 5% of its Common Stock and all executive officers and directors, both individually and as a group. For purposes of calculating the amount of beneficial ownership and the respective percentages, the number of shares of Common Stock which may be acquired by a person are considered outstanding notwithstanding the vesting schedule, but shall not be deemed to be outstanding for the purpose of computing the percentage of Common Stock owned by any other person.
Amount and Nature Approximate Name and Address of of Beneficial Percent Beneficial Owner (1) Ownership (1) of Class (2) - -------------------- ------------- ------------
Renee Steinberg (3)(12) 20080 Boca West Drive Apt. 458 Boca Raton, FL 33434 145,667 2.9
Bruce J. Haber (4) 973,834 16.4
Louis Buther (5) 191,667 3.7
Marvin S. Caligor (11) 111,083 2.2
Ernest W. Nelson (6) 131,834 2.5
Gary Butler (7) 22,000 *
K. Deane Reade, Jr.(8)(10) 605 Third Avenue New York, NY 10158 229,519 4.4
Michael Levy (12) 8,500 *
Stuart F. Fleischer (13) 30,000 *
Donald R. Sabia (14) 25,500 *
All executive officers and directors as a group (ten persons) (9) 1,869,604 28.4
____________ * Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, all shares are directly owned and investing power is held by the persons named. All addresses, except as otherwise noted, are c/o of Micro Bio-Medics, Inc., 846 Pelham Parkway, Pelham Manor, NY 10803.
(2) Based upon 5,070,248 shares of Common Stock outstanding on February 28, 1997. The foregoing does not include the possible issuance of shares in connection with the exercise of outstanding options.
(3) May be deemed to be a "founder" or "parent" of MBM for purposes of the Securities Act of 1933, as amended. Includes options to purchase 22,000 shares granted to Renee Steinberg.
(4) Includes options to purchase 866,667 shares granted to Mr. Haber. A non- executive officer of MBM has agreed for a period of ten years from January 18, 1996, unless such shares are transferred to an unrelated third party, to vote such shares in accordance with the directions of Bruce J. Haber, or if Mr. Haber dies, becomes disabled or is unable to give such directions, then in accordance with the directions of the board of directors of MBM. The amount of shares included in Mr.Haber's beneficial ownership does not include such non-executive officer's shares. If such non-executive officer's shares are deemed beneficially owned by Mr. Haber, then Mr. Haber may be deemed to beneficially own 1,104,560 shares (16.8%).
(5) Includes options to purchase 175,000 shares granted to Mr. Buther.
(6) Includes options to purchase 118,666 shares granted to Mr. Nelson.
(7) Includes options to purchase 15,666 shares granted to Mr. Butler.
(8) Includes shares owned under certain retirement trusts and profit sharing plans.
(9) Includes options to purchase 1,504,666 shares granted to officers and directors. The amount of shares owned by all executive officers and directors as a group does not include 130,726 shares of Common Stock which may be deemed beneficially owned by Bruce Haber as discussed in footnote 4. In the event that such 130,726 shares were deemed beneficially owned by Mr. Haber, then the amount of shares beneficially owned by all executive officers and directors as a group would be 2,000,330 representing 30.4% of MBM's outstanding shares.
(10) Includes options to purchase 163,333 shares granted to Mr. Reade.
(11) Includes options to purchase 79,667 shares granted to Mr. Caligor.
(12) Includes options to purchase 8,500 shares granted to Mr. Levy.
(13) Includes options to purchase 30,000 shares granted to Mr. Fleischer.
(14) Includes options to purchase 25,500 shares granted to Mr. Sabia.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 18, 1996, MBM issued 280,696 shares in connection with its acquisition of Stone Medical Supply Corporation, 161,452 shares of which are owned by Andrew Stone. During 1996, Mr. Stone sold 30,000 of these shares. Mr. Stone has agreed for a period of ten years from January 18, 1996 to vote his MBM shares in accordance with directions of Bruce J. Haber or if Mr. Haber dies, becomes disabled or unable to give directions, then in accordance with directions of the MBM Board of Directors, until such time as such shares are transferred to an unrelated third party.
Reference is made to "Item 1" under "Recent Developments" for a description of the Merger Agreement pursuant to which MBM would become a wholly owned subsidiary of Schein and the stockholders of MBM would exchange their MBM outstanding shares for shares of Schein Common Stock. The terms of the Merger Agreement were determined following lengthy negotiations between the respective managements of Schein and MBM. The respective managements and Board of Directors of each company are not affiliated or related to one another. The terms of the Merger Agreement are the result of arms' length negotiations. Various agreements have been entered into between Schein and the Company's directors. All of the Company's directors, namely, Bruce J. Haber, K. Deane Reade, Jr., Marvin S. Caligor and Renee Steinberg have entered into an Option and Proxy Agreement dated March 7, 1997 pursuant to which they have agreed to grant Schein their individual proxies to vote all common stock beneficially owned by them (excluding certain shares beneficially owned by Mr. Reade in pension plans and in margin accounts) or which they have the right to vote in favor of the Merger Agreement at an upcoming stockholder meeting to be called for the purpose of adopting and approving the Merger Agreement. Further, the Option and Proxy Agreements provide that in the event of termination of the Merger Agreement, under certain circumstances, Schein has the option to compel all directors to exercise their options to purchase MBM Common Stock and to compel them to exchange all MBM Common Stock beneficially owned by them (excluding certain shares beneficially owned by Mr. Reade in pension plans and in margin accounts) for Schein Common Stock at the conversion ratio of 0.62 of a share of Schein Common Stock for each 1.0 share of MBM Common Stock. Further, Mr. Haber has entered into an employment agreement with Schein and an agreement with Schein to terminate his existing contract with MBM for a termination fee of $3,000,000 to be paid over three and one-half years which becomes effective upon the consummation of the Merger. For complete details of these agreements and other related agreements which will be entered into between Mr Haber and Schein upon the consummation of the Merger, reference is made to the texts of such agreements, which are filed as Exhibits to this Form 10-K, and the foregoing summary of certain principal terms of such agreements are qualified in their entirety.
The Company has entered into an agreement with Bangert, Dawes, Reade, Davis & Thom Incorporated ("BDRDT") pursuant to which it engaged them to perform financial advisory services to MBM in connection with the Merger Agreement with Schein and its subsidiary, HSI. Upon the consummation of the Merger, BDRDT will receive a fee currently estimated to be approximately $1,230,000 and if the Merger is not consummated, BDRDT will receive a fee of $150,000.
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)(2) FINANCIAL STATEMENTS/SCHEDULES. A list of the Financial Statements and Financial Statement Schedules filed as a part of this Report is set forth in Item 8, and appears at Page of this Report; which list is incorporated herein by reference and follows Item 9.
(a)(3) EXHIBITS 3 Articles of Incorporation, as amended (incorporated by reference to the Registrant's Form S-2 Registration Statement File No. 33-46319, Exhibit 3)
3(A) By-Laws (incorporated by reference to the Registrant's Form S-2 Registration Statement File No. 33-46319, Exhibit 3(A))
10 Employment Agreement of Bruce Haber dated February 11, 1992 (incorporated by reference to Exhibit 10(C) included in the Company's Form 10-K for the fiscal year ended November 30, 1991)
10(A) Contract with Marvin Caligor (incorporated by reference to Exhibit 10.2 included in the Company's Form S-18 Registration Statement, File No. 2-89795-NY)
10(B) Amendments to Caligor's Agreement (incorporated by reference to Exhibit 10(D) included in the Company's Form 10-K for the fiscal year ended November 30, 1991)
10(C) New lease for Pelham Manor, New York (incorporated by reference to Exhibit 10(B) included in the Company's Form 10-K for the fiscal year ended November 30, 1991)
10(D) Credit Agreement dated November 18, 1993 among Micro Bio-Medics, Inc., the Bank's signatory thereto, and the Chase Manhattan, N.A. as agent (incorporated by reference to Exhibit 10.1 included in the Company's Form 8-K dated November 19, 1993)
10(E) First Amendment to Credit Agreement dated August 1, 1994 (incorporated by reference to Exhibit 10(a)(1) included in the Company's Form 10-K for the fiscal year ended November 30, 1994)
10(F) Second Amendment to Credit Agreement dated December 1, 1994 (incorporated by reference to Exhibit 10(a)(2) included in the Company's Form 10-K for the fiscal year ended November 30, 1994)
10(F.1) Form of Third Amendment to Credit Agreement dated as of December 1, 1995 (incorporated by reference to Exhibit 10(F.1) included in the Company's Form 10-K for its fiscal year ended November 30, 1995.
10(G) Asset Purchase Agreement dated November 19, 1993 by and between MBM Hospital supply Corp. and Clark Surgical Corp. (incorporated by reference to Exhibit 10.2 included in the Company's Form 8-K dated November 19, 1993)
10(H) Amendments 1-4 to Asset Purchase Agreement dated November 19, 1993 by and between MBM Hospital Supply Corp. and Clark Surgical Corp. (incorporated by reference to Exhibit 10(b)(1) included in the Company's Form 10-K for the fiscal year ended November 30, 1993)
10(I) Lease for the Company's facilities located in Syosset, New York by and between the Company and Lin Pac, Inc. dated December 8, 1994 (incorporated by reference to Exhibit 10(c)(2) included in the Company's Form 10-K for the fiscal year ended November 30, 1994)
10(J) Amendment dated December 23, 1993 to Bruce Haber's Employment Contract (incorporated by reference to Exhibit 10(e) included in the Company's Form 10-K for the fiscal year ended November 30, 1993)
10(K) 1982 Incentive Stock Option Plan of Registrant (incorporated by reference to Exhibit 10.4 included in the Company's Form S-18 Registration Statement, File No. 2-89795-NY)
10(L) 1989 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 28 included in the Company's Form 10-K for the fiscal year ended November 30, 1989)
10(M) 1992 Incentive and Non-Statutory Stock Option Plan (incorporated by reference to Exhibit 28(A) included in the Company's Form 10-K for the fiscal year ended November 30, 1991)
10(N) Subscription Agent Agreement (incorporated by reference to Exhibit 10(m) included in the Registrant's Form S-2 Registration Statement File No. 33-463191, Exhibit M)
10(O) Agreement for Merger and Reorganization dated as of November 2, 1995*
10(P) Noncompetition, Indemnification and Release Agreement of Andrew D. Stone dated as of November 2, 1995 *
10(Q) Noncompetition Agreement of Lyudmila Stone dated as of November 2, 1995*
10(R) Form of Escrow Agreement *
10(S) Employment Agreement of Andrew D. Stone dated as of November 2, 1995*
10(T) Form of Put and Call Agreement *
10(U) Management Agreement dated as of November 2, 1995 *
10(V) Amendment to Bruce Haber Employment Agreement dated as of December 23, 1993 *
10(W) Amendment to Bruce Haber Employment Agreement dated as of April 1, 1995 *
10(X) Amendment to Bruce J. Haber's Employment Agreement dated as of March 12, 1996 **
10(Y) Amendments to 1992 Incentive and Non-Statutory Stock Option Plan *
10(Z) Consent of Chase Manhattan Bank dated as of November 2, 1995 *
10(a)(a) Further Amendment to 1992 Incentive and Non-Statutory Stock Option Plan **
10(b)(b) Agreement and Plan of Merger dated March 7, 1997 by and among Henry Schein, Inc., HSI Acquisition Corp. and the Registrant together with exhibits which include Form of Affiliate Agreement, Form of Option and Proxy Agreement and Form of counsel opinions.**
10(c)(c) Employment Agreement dated March 7, 1997 between Bruce J. Haber and Henry Schein, Inc.**
10(d)(d) Form of Agreement between Bruce J. Haber and Henry Schein, Inc. relating to a change in control of Schein.**
10(e)(e) Termination of MBM Employment Agreement between Bruce J. Haber and Henry Schein, Inc.**
10(f)(f) Form of Restricted Stock Agreement between Bruce J. Haber and Henry Schein, Inc.**
10(g)(g) Agreement between the Registrant and Bangert, Dawes, Reade, Davis & Thom Incorporated**
11 Statements re: computation of per share earnings (included in Notes to Consolidated Financial Statements and Schedules thereto)
21 Subsidiaries of Registrant (Caligor Physicians & Hospital Supply Corp., a wholly-owned New York corporation does business under the name "Caligor Pharmacy")
23 Consent of Accountants **
27 Financial Data Schedule ** ________________ * Incorporated by reference to Exhibits 10(N) through 10(X) and Exhibit 21 filed as Exhibits to the Registrant's Form S-4 Registration Statement, File No. 33-64399.
** Filed herewith
(b) REPORTS ON FORM 8-K
During the three months ended November 30, 1996, a Form 8-K was not filed or required to be filed.
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
MICRO BIO-MEDICS, INC.
By: /s/ Bruce J. Haber ---------------------------------------- Bruce J. Haber, President
Dated: Pelham Manor, N.Y. March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signatures Titles Date ---------- ------ ----
/s/ Bruce J. Haber - ----------------------- Bruce J. Haber President, Principal Executive Officer and Director March 14, 1997
/s/ Marvin S. Caligor - ----------------------- Marvin S. Caligor Director March 14, 1997
/s/ Stuart F. Fleischer - ----------------------- Stuart F. Fleischer Vice President of Finance, Principal Accounting and Financial Officer March 14, 1997
/s/ Renee Steinberg - ----------------------- Renee Steinberg Secretary and Director March 14, 1997
/s/ K. Deane Reade, Jr. - ----------------------- K. Deane Reade, Jr. Director March 14, 1997