ITEM 1. Description Of Business. General Nyer Medical Group, Inc. (the "Company") is a holding company with various interests in the medical products business. It also distributes equipment, supplies and novelty items to emergency medical services companies, fire departments and police departments. The Company owns all of the outstanding capital stock of ADCO Surgical Supply, Inc. ("ADCO") and ADCO South Medical Supplies, Inc. ("ADCO South"). The Company also owns 90% of the outstanding stock of Nyle Home Health Supplies, Inc. ("Nyle Home Health"). The remaining 10% of Nyle Home Health is owned by Dr. Howard Parker, a former director of the Company. The Company owns 80% of the stock of Anton Investments, Inc. ("Anton") and Conway Associates, Inc. ("Conway"). Mr. Michael Anton, a former director, owns the remaining 20% of the stock of Anton and Conway. The Company owns 80% of the outstanding stock of SCBA, Inc. ("SCBA"), with the remaining 20% of SCBA also being owned by Mr. Anton. SCBA repairs closed breathing apparatus equipment used by fire departments. The Company owns 80% of a retail pharmacy chain, D.A.W., Inc.(Eaton). The remaining 20% of the stock is owned by five individuals who are former shareholders of Eaton. The Company also owns 80% of a franchising company, FMT, Inc.(FMT). The remaining 20% is owned by the former five shareholders of Eaton. The Company started a new company in December of 1996, Nyer Nutritional Systems, Inc. ("Nyer Nutritional"). The Company owns 80% of the outstanding stock of Nyer Nutritional; Mr. Doyle Boatwright, a director of the Company, owns the remaining 20%. Nyer Nutritional is currently distributing their patented liquid nutritional formulas for tube feedings. The Company also currently owns 31.5% of the outstanding stock of Genetic Vectors, Inc. ("Vectors").
Medical Products/Service ADCO - ADCO South - Nyle Home Health ADCO started as a quality distributor of home health, medical, surgical and laboratory supplies and equipment in Bangor, Maine in 1963. In fiscal year 1998, ADCO generated net sales of approximately $5.5 million. ADCO supplies all areas of health care products. ADCO sells to physician offices, clinics, health centers, nursing homes, visiting nurse associations, individual health care consumers and specialty equipment to hospitals. The products supplied are motorized rehabilitative equipment such as stair glides, chair lifts, scooters, wheelchairs and hospital beds, various kinds of rehabilitative aids, surgical gloves (whose market is rapidly expanding into non-traditional areas), first-aid equipment utilized by persons who are rehabilitating from operations, serious illnesses and accidents, diagnostic kits, laboratory and diagnostic equipment and supplies, incontinence supplies, surgical and medical equipment, both disposable and reusable, disposable medical supplies, oxygen and associated supplies, diabetic supplies, and various other products including nursing uniforms and shoes.
In August 1998, the Company started a division called Nyer Diabetic Supplies. This division delivers blood glucose meters, test strips, lancets and penlets, control solutions and alcohol prep pads to individual diabetics directly at their homes. This division had approximately $18,000 in sales in 1998. The Company believes direct home delivery, especially for the elderly, is practical and economical because it eliminates the time and money spent traveling to pick up the diabetic supplies. The Company also does direct billing to the insurance companies and Medicare. The Company has done advertising via television and a direct mailing in Northern and Southern Maine. The Company expects to expand into New Hampshire and Massachusetts in 1999. Nyer Diabetic Supplies currently has 210 customers.
In February 1999, ADCO started a respiratory therapy division within its home care operations. This division specializes in oxygen and nebulizer supplies and equipment for patients who have chronic respiratory problems, as well as BIPAP/CPAP equipment for patients with sleep disorders. The population of respiratory patients is increasing every day due to smoking and Chronic Obstructive Pulmonary Disease (COPD), the most common respiratory disease. Currently, this division has 32 patients and the Company expects to increase this number with the ADCO name and the quality of service that is provided. All of ADCO's home care division customers now have access to a respiratory therapist or a service technician 24 hours a day. ADCO currently employs two part-time respiratory therapists.
In April 1999, ADCO started ADCO Coach Therapies (ACT). This newest division is offering a new concept in health care. ACT offers the services of respiratory therapists as consultants to skilled nursing facilities. ACT is staffed by local respiratory therapists that have strong ties to physicians and the community. Skilled nursing facilities can now contract out the services of skilled respiratory therapists on an as needed basis. This allows the facility to know their costs up front and can plan accordingly without having to hire full-time therapists. ACT will also offer a 24 hour on call respiratory therapists for emergencies and questions. ADCO will not be employing these respiratory therapist full time but will have a "pool" of respiratory therapists to use on an as needed basis.
ADCO's management believes with the three new divisions, the synergy of combining its existing products with its new products
and services, gives ADCO the opportunity to promote one stop shopping.
ADCO is one of the larger independent wholesale medical distributors located in New England (excluding national competitors). It has a wholesale customer base of over 1,425 active customers.
ADCO and ADCO South provide over 5,000 stocked items out of their respective warehouses and have access to the inventory of over 5,000 of the industries suppliers. Although the inventories of both companies share common items, the need for items relative to their geographic regions are accomplished through the warehouses of both companies. This enables a larger mix of products to be available from either company through inter-company transfers and benefit from the synergies available from two combined inventories.
ADCO, pursuant to industry trade practices, is the semi- exclusive distributor of two different lines of incontinence products and generates over 10% of its annual volume from these companies.
ADCO/ADCO South are members of the Central Independent Dealers Association (CIDA). This is a nationwide group of over 70 wholesale distributors who join together for private label "CIDA" branded products and price concessions from industry suppliers. ADCO enjoys semi-exclusive rights to CIDA products in its primary market areas. In 1998, CIDA became part of National Distributing and Contracts (NDC), a coalition of three dealer associations; ABCO, Starline, and CIDA. The combination of the three groups positions NDC to compete with the large national distributors. NDC's dealer network is the largest coalition of independent dealers in the United States.
ADCO is one of Maine's leading suppliers of accessibility equipment. The need for this equipment continues to grow with the trend towards longer life spans and the enactment of the ADA (American Disabilities Act).
ADCO also has an in-house service department to service the needs of its customers. It also maintains an inventory of common types of equipment to meet the needs of those customers who require loaner equipment while theirs is being repaired.
ADCO achieves over a 95% plus order fill rate which serves to further increase customer service and loyalty. ADCO's inventory turns over approximately four to five times per year due to its high service levels and a large inventory of specialty home care and rehab equipment.
ADCO derives approximately 85% of its revenues from sales to wholesale customers, while the balance comes from its retail and home health customers. ADCO maintains a 23,000 square foot facility and has a 3,000 square foot retail showroom located within its building.
In 1997, ADCO opened a small branch office outside of Las Vegas, Nevada, ADCO Southwest, and intends to use it to grow it into a larger independent supplier of medical supplies and equipment to the growing market area of the Southwest. The employees of this branch have extensive knowledge of the sales of pharmaceuticals and are helping ADCO/ADCO South expand their business into the distribution of pharmaceuticals.
ADCO South began operations in 1992. ADCO South generated approximately $1.1 million in net sales for 1998. ADCO South's sales are from supplying equipment and supplies to the physicians and clinics it services in the Palm Beach and Broward county areas of South Florida. It does virtually no home health care business. ADCO South operates out of a 6,172 square foot building located in West Palm Beach, Florida.
Marketing
The marketing efforts of the medical products business are headed by ADCO's vice president of sales and general manager, William Clifford. The Company is actively marketing group buying programs to a large number of physicians, long-term care facilities, and clinics through its national NDC Group Provider Program. This program enables the customers to receive the pricing benefits of a large national organization yet provide customers with the benefits of dealing with independent dealers.
ADCO's sales are achieved through the services of three independent sales representatives who travel throughout New England contacting existing and potential customers and through tele- marketing, catalogs and mailing campaigns for existing customer accounts. ADCO South's selling efforts are also directed by Mr. Clifford, who is assisted by the three Florida-based sales- persons. ADCO has started a telemarketing sales plan to supplement traditional sales methods in order to increase sales.
Competition
All aspects of the Company's medical products business are subject to significant competition. The Company's national competitors generally have substantially greater financial resources and other competitive advantages, although they tra- ditionally concentrate on hospitals. Nonetheless, ADCO/ADCO South believe they have certain competitive advantages which enable them to compete favorably with larger competitors because of their ability to be flexible and creative for their customers.
Unlike major competitors that concentrate on serving large hospitals, ADCO derives only limited revenues from hospitals. ADCO serves hospitals on a specialty basis providing equipment and services to physician managed and owned offices. ADCO South does not service hospitals and has no intention of attempting to serve that market. ADCO estimates that approximately 35% of its wholesale business is derived from sales to physicians, 35% to nursing homes, 10% to its home care division, 5% to supply ADA accessibility equipment, 5% to hospitals, and 10% to various other health care consumers. 90% of ADCO South and ADCO Southwest sales are derived from physicians, with 10% to various other health care consumers. The most important competitive factors are ADCO/ADCO South's commitment to service and ADCO's ability to repair rehabilitative and medical equipment throughout its large market area.
The national market for wholesale distribution of medical and home health care supplies is served in large part by, Durr- Fillauer, McKesson, PSSI, Cardinal and Owens & Miner. PSSI is the largest national supplier of supplies to physician offices and clinics. Although hospitals are believed to constitute most of these company's largest customer group, these companies claim to serve over 17,000 other customers including physicians and clinics throughout the United States including the New England area. Despite the presence of large companies, ADCO/ADCO South believe the distribution of medical products in physician sites and long- term care facilities are still controlled by many small local and regional distributors.
Backlog/Seasonality
The Company's medical products business has never had a significant amount of back orders due in large part to the fact that it fills its orders rapidly and has a very high in stock-order fill rate.
The Company's medical products/services businesses generally are not seasonal.
Nutritional Supplies
Nyer Nutritional Systems, Inc.
Nyer Nutritional is an 80% owned subsidiary started in December of 1996. The business is based on five patents designed to promote a line of medical foods that have unique antimicrobial properties. Medical foods is a category that is regulated separately by the Food and Drug administration, as opposed to dietary supplements and grocery type food products. Most medical foods are prescribed by a physician and used for patients that have special dietary needs tied into a disease or post-surgical medical condition.
Medical foods are universally subject to bacterial contamina- tion. A review of medical literature reveals as much as 25% of unacceptable levels of bacterial contamination in liquid foods are delivered to patients through feeding tubes. There are in excess of 200,000 individuals in the United States who consume their nutritional needs through tubes because of disease or medical conditions. The industry currently exceeds one billion dollars annually and is rapidly growing.
In the latter half of 1997, Nyer Nutritional marketed a single liquid food product AMTFTM which did not support bacterial growth. Most tube feeding patients require a plastic feeding bag attached to the feeding tube. The bags, which holds the liquid, must be discarded at least every 24 hours to limit bacterial contamination. Many acute care hospitals discard the bag every eight hours. AMTFTM allows the continued use of the bag for one week. This amounts to an 85% minimum reduction in plastic bags for which Medicare annually spends upwards of $200 million a year.
In 1998, Nyer Nutritional responded to consumer demand by developing additional products for its product line. Many medical tube feeding products provide specialized needs for patients with disease specific conditions. Seven new disease specific products were developed, which accommodate the majority demand for medical tube feedings. All seven new products are flavored and can be consumed by mouth as well as tube fed. Included in the new product line are formulas for diabetes, renal failure, respiratory disease, trauma, pediatrics, high protein, and high calorie needs.
In addition, two new formulas, which also have the advantage of preventing microbial growth, were introduced for non-tube fed patients who consume nutritional supplements by mouth. Both a lemon and an orange flavored product will help relieve taste fatigue often suffered by over-consumption of chocolate, vanilla and other common flavors. Nyer Nutritional's slightly acidic formulas lend themselves well to more realistic citrus flavors.
Nyer Nutritional has established a strategic alliance with National Distribution and Contracting (NDC). NDC is made up of a group purchasing organization for medical distributors founded in 1953. The dealer owned organization now collectively represents over $3 billion annually and has over 2,000 products under private label.
Consistent with its policy of requiring less than wholly-owned subsidiaries to reimburse the Company for its costs in providing management services, Nyer Nutritional pays to the Company a monthly management fee equal to the greater of $2,000 or one percent of net sales for the prior quarter. Additionally, Nyer Nutritional is required to reimburse the Company for additional legal, auditing and accounting fees and costs.
In February 1999, Nyer Nutritional filed a lawsuit in federal court in Arizona against the contractor it engaged to package its tube feeding formulas and medical food products, and providing packing which resulted in contamination of Nyer Nutritional's patented product line.
EMT, Fire, Police Products/Services Businesses
Anton Investments, Inc. - Conway Associates, Inc - SCBA,Inc.
Anton is a distributor of fire, police and rescue equipment and supplies that are sold to municipal and industrial accounts throughout most of the New England area. Anton generated approximately $3.6 million in net sales for 1998.
Prior to the Company purchasing an 80% interest in Anton Investments Inc. in 1993, (together with Mr. and Mrs. Anton purchasing the other 20%) Anton (doing business as Anton Enterprises) had been in business since 1980. Anton conducts approximately 80 percent of its business with municipal and industrial fire departments, while law enforcement agencies and emergency rescue units comprise 10 percent each. Anton continues to broaden its market area, with approximately 55 percent of its sales now taking place in Maine, 25 percent in New Hampshire, 3 percent in Vermont, 15 percent in Massachusetts, with the remaining 2 percent outside of New England.
Anton divides its activities among four overlapping areas: (1) the distribution of equipment used by municipal and industrial fire departments, public law enforcement agencies, emergency medical and rescue units; (2) the sale of turnout gear, custom uniforms, footwear and other items of apparel worn by these professions; (3) the sales and services of new and used fire apparatus; and (4) the exclusive gift shop for the fire, police and rescue personnel and their families, with merchandise such as badges, insignias decals, helmet fronts, vehicle markers, flashing warning lights, children and adult t-shirts, toys, rings and novelty gift items.
Anton maintains an extensive inventory of its most popular products at its various locations, which includes Maine, New Hampshire, Massachusetts, and New York. While Anton generally is able to fill orders from its own inventory on a same day basis, the Anton has established arrangements with most of its suppliers whereby non-inventoried items and special orders can be drop- shipped by the manufacturer to the customer with the same degree of responsive service.
The Company and Michael Anton and his wife, acquired 80% and 20%, respectively, of Conway's stock in February 1996. Conway is located in Massachusetts. Conway's net sales for 1998 were approximately $3.76 million.
The Company has a policy requiring less than wholly-owned subsidiaries to reimburse the Company for its costs in providing management services. Anton is required to reimburse the Company a monthly management fee of $1,500. Conway's monthly management fee is $2,000. Anton and Conway are required to reimburse the Company for any additional legal, auditing and accounting fees and costs.
Conway conducts about 95% of its business with municipal and industrial fire departments, with the remainder being emergency rescue units throughout New England. Conway has been in business since 1971. Conway's market area includes approximately 65% of its sales from Massachusetts, 15% in New Hampshire, 10% in Vermont, 8% in Maine, with the remainder outside of New England.
Anton and Conway distribute mainly to the following types of businesses: municipal and industrial fire departments, industrial and power supply companies, and emergency medical and rescue units. Conway sells turnout gear, footwear and other items of clothing worn by these companies, equipment and supplies that are used in these industries, and the sales and service of new and used fire and ambulance apparatus.
Conway represents 3-D Manufacturing, Inc., a Wisconsin-based manufacturer of fire trucks.
Conway maintains a limited inventory. Conway has access to Anton's inventory and through its many suppliers, has access to having items drop-shipped or shipped directly to them within a few days.
The Company and Michael Anton and his wife, acquired 80% and 20%, respectively, of SCBA's stock in February 1996. SCBA is located in Massachusetts with Conway. SCBA's net sales for 1998 were approximately $45,519. SCBA services fire department's and industrial company's self-contained breathing apparatus gear.
Marketing and Sales
Anton's marketing and sales are headed by Michael Anton, President of Anton. Anton markets and sells its products through direct calls, retail store, and its own catalog with the assistance of the outside and inside sales force. Sales and marketing are conducted throughout New England.
Conway's marketing and sales are currently managed by Ross Wood, Sales Manager. The marketing and sales are achieved through flyers and direct calls from the inside and outside sales force.
Competition
All of Anton's and Conway's fire, police and rescue products are subject to competition. Some of this competition is through companies who use direct mail or via telemarketing efforts. Despite the presence of competition, Anton and Conway believes its sales force, extensive inventory, and emphasis on service give them an edge over the competition.
Backlog/Seasonality
The businesses of Anton, Conway, and SCBA do not experience significant back orders. The exception would be the sale of fire trucks. The lead time traditionally is between 150-180 days before delivery.
The businesses of Anton, Conway, and SCBA generally are not seasonal.
Retail Pharmacies Businesses
Eaton Apothecary
In August 1996, the Company acquired 80% of Eaton Apothecary, "Eaton", a chain of pharmacies operating in the greater Boston area. During 1998, Eaton acquired two stores and sold two stores. In January 1999, one store was sold. Sales grew from $18.0 million in 1997 to $22.8 million in 1998. This is an increase of over 26% over 1997. Each of the five minority shareholders (except in one case, the husband of a shareholder) continue employment under a five year employment contract with Eaton which commenced in August 1996. Control of the Board of Directors of Eaton is split between representatives from Nyer and from Eaton. Additionally, one member of Eaton management occupies a seat on the Company's Board of Directors.
Concurrent with management's aim to drive unit profitability, Eaton began an overhaul of its computer systems in 1998. A significant capital investment was made to purchase state-of-the- art pharmacy and point of sale technology which will enable Eaton to manage its growth in the future. Management believes this investment to be necessary to have proper controls over all of its eleven locations as it has transitioned from a loosely related group of independent stores into a true chain pharmacy company. Implementation of the computer system and software continues in 1999 and should result in a streamlined accounting system, better customer service at store level, and much greater per store prescription filling capacity.
The competitiveness of the retail pharmacy market continues to intensify with many different channels of retail and non- retail competition. Because of Eaton's niche in all of its markets, it has not been adversely affected by its competitors. All of the stores posted sales increases despite continued competition from national chain drug stores, supermarket chains, HMO's, and internet services. Eaton did see its gross profit margin decline approximately 1% in 1998 due to lower than expected reimbursement rates. Eaton's management strategy is to move in the opposite direction from the national chains regarding store size, merchandise mix, and store locations. Eaton's strategy of developing its prototype of approximately 2,500 sq. ft., with high volume prescription departments, in neighborhood locations has fared well over the past several years. Virtually all of Eaton's stores compete head-to-head with CVS and Walgreen stores. Continued expansion of delivery service and specialized pharmacy services in 1998 has resulted in the development of many new specialty markets.
Pharmacies in supermarkets and deep discount stores, such as Walmart, have not gained significant market share in communities served by Eaton. Eaton currently occupies a niche in the market not covered by the larger chain stores. Average store size is approximately 2,000 square feet (versus 10,000 to 20,000 for the average chain), with the pharmacy department as the central focus to the customer. Eaton offers free delivery service of prescrip- tion medication to the local community. This customer benefit gives Eaton an important competitive advantage for the shut-in customer. Eaton operates six full-time delivery vehicles with each vehicle averaging 75-100 deliveries per day. The presence of this service allows Eaton the ability to reach a broader geographic market and the ability to locate its stores in neighborhood settings rather than in high traffic, high cost shopping centers.
Recent "any willing provider" legislation passed in Massachusetts has enabled Eaton to serve Harvard/Pilgrim HMO as well as many other "locked out" sectors of the retail pharmacy market. Because of the increased available market, management expects sales growth to be positive, but with continuing pressure on margins. Because of this trend, management continues to focus energies on cost reductions from suppliers, and cost containment at store level. Assisted living facilities are transitory facilities for elderly patients unable to live at home alone but not brittle enough to require nursing home care. This market segment is predicted by the U.S.Census to be the largest growing housing sector in the nation over the next decade. Because these homes do not offer nursing care, yet cater to residents unable to manage their own medications, Eaton management has recognized a tremendous opportunity to couple its prescription and delivery expertise to out-service the chain stores to this new market sector. Eaton's investment in specialized packaging equip- ment was with the intent of offering a "fool-proof" medication management system to assisted living residents. During 1998, this sector continued to expand as a percent of Eaton's prescrip- tion business. Eaton added an additional "Medicine on TimeTM" packaging system. This licensed packaging system caters to elderly clients who are unable to manage their medication regimens yet who are not frail enough for nursing home care. In addition to tremendous growth in the assisted living and home-bound sectors, many leads have developed through word of mouth throughout the visiting nurse and health center communities which have the possibility to further additional specialized business opportun- ities.
Eaton anticipates further store acquisitions over the next several years as competition continues to intensify and marginal stores, both independent and chain, are sold or closed. Eaton has committed to opening a pharmacy within the confines of a busy inner-city health center and is negotiating with a second health center for a pharmacy there as well.
Consistent with its policy of requiring less than wholly-owned subsidiaries to reimburse the Company for its costs in providing management services, Eaton has a service agreement with the Company where it will pay to the Company a fee equal to one-third of 1% of its net sales for the prior fiscal quarter in exchange for services performed. Additionally, Eaton is required to reimburse the Company for additional legal, auditing, and accounting fees and costs.
Forward-Looking Statements
The statements made relating to the anticipated continued increases in sales, store count and volume discounts of Eaton throughout the next several years, sales growth, acquisitions, rapid growth, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The results anticipated by any and all of these forward-looking statements may not occur. Important factors that may cause actual results to differ materially from the forward-looking statements include (1) The revenues of the pharmacy chain could be affected by increased competition from large competitors including nationwide and regional discount operations; (2) The Company and Eaton's ability to provide financing for acquisitions, renovations and computer upgrades; (3) The state of the economy in the local communities in New England where Eaton does business; (4) The general state of the economy in the United States and elsewhere; (5) The failure of anticipated orders to materialize due to budgetary and other factors; (6) The failure of suppliers to timely deliver products; (7) Factors relating to the health care industry; (8) The loss of any single large customer; and (9) Future governmental regulation of pharmaceutical pricing.
Biotechnology Business
Genetic Vectors, Inc.
In December 1998, the Company wrote off its investment in Vectors. This means going forward, the Company will not be required to recognize a % of Vectors operating losses under discontinued operations; contrarily, if Vectors reports income, the Company will not include that income in their results of operations. As of the date of this report, the Company owns 739,216 shares of Vectors common stock which the Company intends to sell from time to time in the over-the counter market. The proceeds resulting from the sale of these shares, will be reported as investment income.
Employees
The Company believes that its employees represent one of its most valuable resources. Including its executive officers and outside sales force, the Company has 101 full-time and 74 part-time employees as of the date of this report. ADCO employs 27 full-time and 4 part-time employees, ADCO South employs 5 full-time and 2 part-time employees, Anton has 12 full-time employees and 5 part- time employees, Conway employs 7 full-time and 1 part-time employees, SCBA uses Conway's personnel, Eaton employs 52 full-time and 57 part-time employees, and Nyer Nutritional employs 2 full- time employees. The Company directly employs one full-time person. None of the Company's employees are covered by a collective- bargaining agreement. Management believes that the Company's relationship with its employees is excellent and that it has a loyal work force.
ITEM 2.
ITEM 2. Description Of Property.
The Company's executive offices and those of ADCO and Nyle Home Health are currently located at 1292 Hammond Street, Bangor, Maine where ADCO's warehouse and retail store are also located in a Company owned 23,000 square foot facility. ADCO currently leases 2,640 square feet of office and warehouse space located in Henderson, Nevada. The monthly rental is $2,000. All sewer fees, water bills, electric bills, and other common areas are paid separately. The lease expires December 31, 2004.
ADCO South leases approximately 5,372 square feet of warehouse and office space located in West Palm Beach, Florida. The monthly rental is $2,916. The monthly rent includes all taxes, sewer fees, water bills and electric bills. ADCO South is required to maintain public liability insurance, including bodily injury and property damage insuring both ADCO South and the Lessor. Coverage is maintained through the Company's master policy. The lease expires December 31, 1999.
Anton leases approximately 11,800 square feet of warehouse and office space located in Scarborough, Maine, from Michael and Paula Anton. The monthly rental is $3,500. All sewer fees, water bills and electric bills are paid separately by Anton. The lease expired in September of 1998. Their lease will continue on a month-to- month basis.
Anton leases approximately 800 square feet of showroom and office space in Pembroke, New Hampshire. The monthly rental is $1,200. Monthly rent includes all taxes, sewer fees, water bills and electric bills. The lease expired May 31, 1998. Their lease will continue on a month-to-month basis.
Anton also leases approximately 2,000 square feet of warehouse and office space located in Wilmington, MA. The monthly rental is $1,500. All sewer fees, water bills, and electric bills are paid separately by Anton. The lease expired February 1998. Their lease is on a month-to-month basis.
Conway leases approximately 11,200 square feet of warehouse and office space located in Haverhill, Massachusetts. The monthly rental is $3,996. All sewer fees, water bills, and electric bills are paid separately by Conway. Their lease expires November 1999.
SCBA occupies approximately 500 square feet of warehouse space in Conway's building in Haverhill, Massachusetts.
Eaton currently leases 12 stores, averaging approximately 2,000 square feet each, throughout the suburban Boston area. Their monthly lease payments range from $1,885 to $6,175. The leases have varying expirations dates with all having renewable leases.
Nyer Nutritional currently leases on a month-to-month basis approximately 650 square feet of office space in Phoenix, Arizona. The monthly rental is $547. Monthly rent includes all taxes and utilities.
The Company believes that the premises are adequate for its current foreseeable needs.
ITEM 3.
ITEM 3. Legal Proceedings
The Company is not a party to any material litigation, however, in February 1999, Nyer Nutritional, the Company's 80% owned subsidiary, filed its Complaint in the United States District Court for the District of Arizona against Curtis-Burns Foods, Inc., the independent contractor Nyer Nutritional engaged to package its tube feeding formulas and medical food products. Nyer Nutritional has alleged that Curtis-Burns breached its contract by providing defective and unfit products, was negligent, breached an express warranty, breached an implied warranty of merchantability, breached an implied warranty of fitness for intended purpose and misrepresented the efficacy of its product. Nyer Nutritional is seeking as yet unspecified damages in excess of $75,000, plus attorney's fees and costs. The litigation is in the very early stages and no response has been filed yet by Curtis-Burns.
ITEM 4.
ITEM 4. Submission of Matters To A Vote of Security Holders.
The Annual Shareholder's Meeting was held on August 10, 1998, at 10:00 a.m., at the Corporate Headquarters located at 1292 Hammond Street, Bangor, Maine 04401. A total of 6,118,233 shares were voted.
Dr. Ken Nyer, Doyle Boatwright, and David Dumouchel were Class B directors, were elected to serve on the board of directors of the Company for a three-year term, until the annual meeting of shareholders held in the year 2001, by an affirmative vote of 6,054,913.
6,111,413 shares were voted to ratify PricewaterhouseCoopers, LLP, as the Company's independent auditors for the fiscal year ended December 31, 1998. PART II
ITEM 5.
ITEM 5. Market For Common Equity And Related Stockholder Matters.
Qualification with NASDAQ
The Company's shares of common stock are listed and traded on the Nasdaq SmallCap Market under the symbol: NYER.
The continuation of quotations on Nasdaq is subject to certain conditions. The failure to meet these conditions may prevent the Company's common stock from continuing to be quoted on Nasdaq and may have an adverse effect on the market for the Company's common stock.
As of April 13, 1998, there were approximately 1,100 holders of the Company's shares of common stock. The high and low bid prices for the Company's common shares for each quarterly period for the last two fiscal years are as follows:
1998 1997 Closing Bids Closing Bids HIGH LOW HIGH LOW First Quarter $ 6.50 $ 4.80 $14.13 $ 4.25 Second Quarter 5.88 3.69 7.56 4.38 Third Quarter 4.88 2.13 8.88 5.31 Fourth Quarter 4.00 2.00 8.88 4.13
Such prices reflect inter-dealer prices and do not reflect retail mark-ups, mark-downs, or commissions. The Company's shares are traded sporadically, which may affect such prices.
Although there are no restrictions on the Company's ability to pay dividends, to date the Company has not declared any cash dividends on any class of security nor does it anticipate doing so in the foreseeable future.
Recent Sales of Unregistered Securities
During the past three years, the following persons and entities acquired shares of common stock and other securities from the Company as set forth in the table below:
Stockholder Date Class of Securities Amount of Securities Sold Consideration Gulf American Trading Co 7/11/95 Common Stock 130,000 $325,000
Glen Shelton 9/25/95 Common Stock 20,000 50,000
Deborah Buonanno 9/25/95 Common Stock 20,000 50,000
John Lory 9/25/95 Common Stock 20,000 50,000 Frederick & Company 10/02/95 Common Stock 50,000 125,000
Joseph Barrett 11/07/95 Common Stock 10,000 25,000
Mead McCabe, Jr. 11/27/95 Common Stock 5,000 25,000
M. Hussain Shaikh 12/12/95 Common Stock 10,000 25,000
Philip Hoffman 12/12/95 Common Stock 25,000 125,000
Aries Peak, Inc. 1/26/96 Common Stock 125,000 700,000
Aries Peak, Inc. 2/9/96 Common Stock 26,000 145,000
Aries Peak, Inc. 2/9/96 Common Stock 40,000 224,000
Aries Peak, Inc. 2/12/96 Common Stock 60,000 336,000
Aries Peak, Inc. 2/12/96 Common Stock 6,815 38,164
Aries Peak, Inc. 2/21/96 Common Stock 25,000 140,000
Aries Peak, Inc. 2/28/96 Common Stock 10,000 56,000
Aries Peak, Inc. 3/6/96 Common Stock 200,000 1,120,000
Aries Peak, Inc. 3/21/96 Common Stock 100,000 560,000
Nesbit Burns 5/15/96 Common Stock 25,500 168,938
Privatinvest Bank 5/17/96 Common Stock 30,000 198,750
Banque Genevoise 5/20/96 Common Stock 12,500 82,813
M Dreher Purvines 5/20/96 Common Stock 3,408 22,578
Kuwait Foreign Trading C 5/21/96 Common Stock 50,000 331,250
Arbinter- Omnivalor 5/21/96 Common Stock 20,000 132,500
Campbellton Properties 5/23/96 Common Stock 50,000 331,250
Angelina Panvini 5/23/96 Common Stock 50,000 331,250
Angelina Panvini 5/29/96 Common Stock 50,000 331,250
CBG Compagnie 6/20/96 Common Stock 5,000 33,125
Aries Peak, Inc. 6/20/96 Common Stock 18,070 Exchange for 50,000 Warrants Aries Peak, Inc. 8/7/96 Common Stock 70,834 757,924
Aries Peak, Inc. 8/9/96 Common Stock 15,000 160,500
Aries Peak, Inc. 8/15/96 Common Stock 30,000 321,000
Aries, Peak, Inc. 8/20/96 Common Stock 20,000 214,000
Aries, Peak, Inc. 8/23/96 Common Stock 34,166 365,576
Aries Peak, Inc. 10/3/96 Common Stock 6,800 Selling Commission
The sale of all the securities listed above were exempt from registration pursuant to Regulation S of the Securities Act of 1933. In order to claim the exemption, the issuer relied upon the fact that the purchasers are not United States Persons as defined by Regulation S and that when the buy orders originated, the issuer and any persons acting on its behalf, reasonably believed that the purchasers were outside the United States.
ITEM 6.
ITEM 6. Management's Discussion And Analysis or Plan of Operation.
The following discussion provides information with respect to the Company's results of operations, liquidity, and capital resources on a comparative basis for the years ended December 31, 1998 and 1997, and for the years ended December 31, 1997 and 1996, and should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Report.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
NET SALES. Total sales for 1998 increased by approximately 10% from 1997 to approximately $37.2 million from approximately $33.9 million in 1997. The following table shows sales by subsidiary for the years 1998 and 1997:
Subsidiary 1998 1997 % increase (decrease) Eaton $22,851,707 $18,050,393 26.6% Anton 3,609,985 3,803,868 (5.1) ADCO 5,510,540 5,649,050 (2.5) SCBA 45,519 26,486 71.9 ADCO South 1,136,052 1,038,294 9.4 Conway 3,763,983 5,294,233 (28.9) Nyle Home Health 15,095 (100.0) Nyer Diabetic 18,248 100.0 Nyer Nutritional 268,431 1,515 - $37,204,465 $33,878,934
The reason for this increase in sales is due to the Company's pharmacy chain, Eaton. In 1998, Eaton acquired two stores which accounted for the majority of the increase in sales coupled with the full year impact of the two stores purchased during 1997. Nyer Nutritional received its first major sales in 1998. Nyer Nutritional had additional sales of approximately $500,000, which were reversed in the fourth quarter due to a problem with the manufactured product necessitating a recall of the product, approximately $300,000 of the recalled products were originally recorded as sales in the third quarter of 1998. For additional information, see Item 3, Legal Proceedings. ADCO had a sales decrease of approximately $139,000 in 1998 as compared to 1997 due mainly to $170,000 less of federal government sales. Conway's decrease in sales was the result of turnover in its sales force which occurred in July of 1998, which was not fully replaced until 1999.
GROSS PROFIT MARGIN. The Company's overall gross margins were approximately 21.2% in 1998 as compared 21.8% in 1997.
The following is a table of gross margins by subsidiary for the years 1998 and 1997:
Subsidiary 1998 1997 Eaton 20.3% 21.8% Anton 23.8 26.5 ADCO 25.2 25.5 SCBA 53.8 67.3 ADCO South 22.6 27.1 Conway 15.5 14.8 Nyer Diabetic 12.0 Nyle Home Health 30.2 Nyer Nutritional 48.6 -
Eaton's gross margin declined due to lower reimbursements from insurance companies, medicare and medicaid. They believe they can off set this decline by increased sales volume. Anton's gross margin was lower in 1998 as compared to 1997 due to a one- time inventory adjustment related to the purchase of certain inventory items at a discount from Michael Anton in 1997. ADCO South's gross margin declined due to increased competition and increased equipment sales which generally have lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general, and administrative expenses increased approximately 12.0% in 1998 to approximately $8.7 million from $7.8 million in 1997. The following table shows the break down by subsidiary (and corporate expenses) as follows:
Subsidiary 1998 1997 Eaton $ 4,418,141 $ 3,593,647 Anton 806,111 783,802 ADCO 1,416,037 1,416,102 SCBA 6,440 739 ADCO South 260,989 283,965 Corporate 449,567 384,318 Conway 761,385 819,218 Nyer Diabetic 31,594 Nyle Home Health 7,369 65,730 Nyer Nutritional 562,267 437,867 $ 8,719,900 $ 7,785,388
The main increase came from Eaton due to the higher costs associated with the two stores acquired in 1998 coupled with the effect of two stores acquired in 1997. Corporate overhead increased due to the addition of two public relations firms in 1998. The Company wanted to improve its communications within the investment community as well as with its shareholders and potential shareholders. As of the date of this report, the Company has one public relations firm. Conway's decrease in selling, general, and administrative expenses can be directly associated with its decline in sales.
NET LOSS. In total, the Company experienced a net loss of $1,840,191 in 1998 as compared to a net loss of $934,402 in 1997. The Company sustained a loss from continuing operations of $278,211 in 1998 as compared to a loss of $209,390 in 1997. The following table summarizes the operations by subsidiary and year.
Subsidiary 1998 1997 Eaton $ 413,956 $ 257,135 Anton 14,712 163,365 ADCO (44,706) 11,314 SCBA 7,236 6,464 ADCO South (22,409) (19,470) Corporate 1,109 (34,256) Conway (154,857) (51,271) Nyer Diabetic (29,398) Nyle Home Health (8,070) (61,173) Nyer Nutritional (455,784) (481,498) $ (278,211) $ (209,390)
The income of Eaton includes a $365,000 gain for the sale of two stores. Without the sale of the two stores, Eaton only realized income of approx $48,000 due to the decline in gross margin. The majority of the loss from continuing operations came from its subsidiary, Nyer Nutritional, which had a loss of $455,784. Nyer Nutritional developed 9 new products in 1998 bringing its product line to 10 items. Additional overhead was incurred to develop these new products. Nyer Nutritional still has not achieved enough sales to cover its operating costs. Anton's net income dropped due to a one-time inventory pick up in 1997 related to the purchase of inventory items at a discount from Michael Anton. ADCO incurred additional overhead costs associated with its branch located in Nevada. Conway's loss can be attributed to a turnover of their sales force in mid July of 1998. This caused a loss of revenues which they are currently rebuilding. Conway starting rebuilding its sales force in October 1998. It has taken the Company longer than anticipated to replace its sales force due to the experience and knowledge needed to sell fire equipment and supplies. In November 1998, they hired a new sales manager. Nyer Diabetic losses are the result of expenses associated with an extensive advertising campaign and start up costs. Corporate expenses are off set by interest income.
The Company recognized a loss from Vectors of $1,561,980 in 1998 as compared to a loss of $725,012 in 1997. The Company currently owns 31.5% of outstanding common stock in Vectors. As of December 31, 1998, the Company has written down its investment in Vectors to zero due to significant uncertainties regarding the Company's ability to recover its investment. The write down of the Company's investment in Vectors resulted in an additional charge to discontinued operations of $1,206,965.
Liquidity and Capital Resources
Net cash used by operating activities was $375,460 for the year ended December 31, 1998 and $796,968 for the year ended December 31, 1997. The primary use of cash from operations in 1998 was used to increase accounts receivables and fund Nyer Nutritional. In 1998 and 1997, the net cash provided by (used in) investing activities was $330,095 and ($661,852), respectively. Fixed assets acquired in 1998 totaled $458,107 and was comprised of vehicle additions, computer equipment, and other equipment as compared to $491,354 in 1997. Also, the Company received proceeds from the sale of securities of $561,904 in 1998 (including $410,210 from Vectors) as compared to $0 in 1997. The Company also received proceeds from the sale of two of its pharmacies of $385,000 in 1998 as compared to $0 in 1997. Net cash used in financing activities was $314,657 in 1998 as compared to $437,058 in 1997, primarily as a result of repayments of long-term debt and the purchase of 11,000 shares of treasury stock for $52,249.
As of December 31, 1998, the Company has written down its investment in Vectors to zero due to significant uncertainties regarding the Company's ability to recover its investment. Based on the Company's review of currently available public information about Vectors, there is substantial doubt about Vectors ability to continue as a going concern. In addition, Vectors and its counsel have refused to remove the restrictive legends from the Vectors' stock certificates which limits the Company's ability to sell its Vectors stock in the public market to one percent of Vectors' outstanding common stock (approximately 23,000 shares per quarter). Those restrictions were required to be removed in January 1998. Even if those restrictions are removed, the Company still believes that its investment is impaired due to the illiquid nature of the "bulletin board" market on which Vector's stock trades. The write down of the Company's investment in Vectors resulted in an additional charge to discontinued operations of $1,206,965 which was partially off set by $298,827 of gains from the sale of a portion of Vectors' stock.
The Company anticipates its current cash resources are adequate to fund its operating needs and potential acquisitions for the foreseeable future.
Year 2000
IMPACT OF YEAR 2000 - Computer Systems Compliance
The "Year 2000 Issue" is the result of the way computer systems and programs define calendar dates; they could fail or make miscalculations due to interpreting a date including "00" to mean the year 1900, not year 2000. Some computer programs were written using two digits rather than four to define the appropriate year. This could result in a system failure or miscalculations causing disruptions in normal business activities.
The Company has substantially analyzed its computer systems, including embedded chip technology, to determine the potential technical and economic impact of the "Year 2000 Issue" on the Company's systems and business operations. In the last two years, the Company has upgraded its major computer systems and programs. To date, the Company has identified only one of its subsidiaries which will have to replace its computer system in order to be Year 2000 compliant. The Company estimates this cost will be no greater than $15,000.
The Company is requesting assurances from its outside suppliers which it relies on for inventory and services and its customers (which includes 3rd party insurance companies), that they are Year 2000 Compliant.
The Company does not expect that the costs of addressing the Year 2000 issues (which are in the Company's control) will have a material effect on their future operating results or financial position. The Company's management believes its in-house risks, as associated with the Y2K problems, are minimal. The Company has limited or no control over their outside suppliers and its customers Y2K problems. Any failure of these parties could have a material adverse effect on continued uninterrupted business operations of the Company.
At this time, the Company is in the process of developing a contingency plan for its systems that are not Year 2000 compliant and intends to have it in place by the second quarter of 1999.
FORWARD-LOOKING STATEMENTS
The statements made above relating to: (1) the anticipated costs to the Company of complying with the Year 2000 conversion, (2) the anticipated future impact as a result of outside suppliers not being Year 2000 compliant on a timely basis are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The results anticipated by any or all of the forward-looking statements may not occur.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
NET SALES. Total sales for 1997 increased by approximately 60.1% from 1996 to approximately $33.9 million from approximately $21.0 million in 1996. The following table shows sales by subsidiary for the years 1997 and 1996:
Subsidiary 1997 1996 % increase (decrease) Eaton $18,050,393 $ 6,568,258 174.8% Anton 3,803,868 3,232,792 17.7 ADCO 5,649,050 4,811,849 17.4 SCBA 26,486 38,174 (30.6) ADCO South 1,038,294 1,202,509 (13.7) Conway 5,294,233 5,229,600 1.2 Nyle Home Health 15,095 10,306 46.5 Nyer Nutritional 1,515 100.0 $33,878,934 $21,093,488
The major reason for this increase in sales was due to the Company's pharmacy chain, Eaton. The Company acquired Eaton in August of 1996. In 1997, the Company showed twelve months of sales as compared to five months in 1996. Eaton also acquired two pharmacies in 1997. Anton's sales increased due to the opening a new location in New Hampshire, moved and expanded Massachusetts division (located at Conway 1996) and hired a full-time salesman in New York. ADCO's sales increased due to the continuing success in securing more long-term care business and the opening of a new division in Nevada in 1997.
GROSS PROFIT MARGIN. The Company's overall gross margins were approximately 21.8% in 1997 as compared 20.2% in 1996.
The following is a table of gross margins by subsidiary for the years 1997 and 1996:
Subsidiary 1997 1996 Eaton 21.8% 22.4% Anton 26.5 15.1 ADCO 25.5 25.7 SCBA 32.8 85.9 ADCO South 27.1 27.5 Conway 14.8 12.6 Nyle Home Health 30.2 28.0 Nyer Nutritional - -
Anton's gross margin increased to 26.5% due to a one-time inventory adjustment related to the purchase of certain inventory items at a discount from Michael Anton in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general, and administrative expenses increased approximately 73.9% in 1997 to approximately $7.8 million from $4.5 million in 1996. The following table shows the break down by subsidiary (and corporate expenses) as follows:
Subsidiary 1997 1996 Eaton $ 3,593,647 $ 1,301,202 (5 mos 1996) Anton 783,802 624,607 ADCO 1,416,102 1,209,018 SCBA 739 1,740 ADCO South 283,965 334,945 Corporate 384,318 315,000 Conway 819,218 653,041 Nyle Home Health 65,730 1,903 Nyer Nutritional 437,867 35,841 $ 7,785,388 $ 4,477,297
The main increase came from having Eaton's expenses for twelve months as compared to five months in 1996 and Nyer Nutritional's expenses for twelve months in 1997 as compared to one month in 1996. Nyer Nutritional is still incurring start up expenses in the final development costs on its AMTFTM product. The Company incurred one-time expenses in relation to its spin-off of shares of Vectors stock. These expenses included lawyer, accountant, and transfer agent fees. The Company's president salary increased in October 1996, and the annual expense was reflected in 1997 as compared to three months in 1996.
NET LOSS. In total, the Company experienced a net loss of $934,402 in 1997 as compared to a net loss of $418,811 in 1996. The Company sustained a loss from continuing operations of $209,390 in 1997 as compared to a loss of $61,226 in 1996.
The following table summarizes the operations by subsidiary and year. Subsidiary 1997 1996 Eaton $ 257,135 $ 128,927(5 mos 1996) Anton 163,365 (129,359) ADCO 11,314 12,298 SCBA 6,464 18,835 ADCO South (19,470) (24,282) Corporate (34,256) (22,240) Conway (51,271) 1,953 Nyle Home Health (61,173) (18,685) Nyer Nutritional (481,498) (28,673) $ (209,390) $ (61,226) The majority of the loss came from its subsidiary, Nyer Nutritional, of which the Company recognized a loss of $481,498. Nyer Nutritional is still incurring start up costs and overhead costs associated with its AMTFTM product. Nyle Home Health had approximately $65,000 of write-offs for accounts receivable and inventory obsolescence. Conway is raising its selling prices. Corporate had higher expenses due to increased overhead costs and costs associated with the Vectors spin-off. Anton had a net income due to increased sales, increased margins, and a one time inventory adjustment.
The Company recognized a loss from Vectors of $725,012 in 1997 as compared to a loss of $357,585 in 1996. The Company currently owns 33.8% of outstanding common stock in Vectors. The Company accounts for 33.8% of Vectors loss on their consolidated financial statements as a discontinued operation.
ITEM 7:
ITEM 7: Selected Financial Data Selected Financial Data
1998 1997 1996
Summary of Operations:
Sales and other revenues $37,204,465 $33,878,934 $21,093,488 Cost of sales 29,327,246 26,493,426 16,834,712 Gross Margin 7,877,219 7,385,508 4,258,776 Selling,general, and administrative expenses(1) 8,176,298 7,785,921 4,469,988 Operating loss from continuing operations (299,079) (400,413) (211,212) Interest (income) expense, net (146,877) (241,064) (147,907) (Loss) income before minority interest (152,202) (159,349) (63,305) Minority interest (70,262) (26,092) 2,079 Loss from continuing operations before income taxes (222,464) (185,441) (61,226) Income taxes 55,747 23,949 Loss from continuing operations (278,211) (209,390) (61,226) Loss from operations of discontinued subsidiary-Genetic Vectors (1,561,980) (725,012) (357,585) Net loss $(1,840,191) $ (934,402) $ (418,811) (1) Includes other income of $543,602 in 1998
Per Share Data: Net(loss) per weighted average of common shares from continuing operations $ (.08) $ (.06) $ (.02) Net(loss) per weighted average of common shares from discontinued operations (.46) (.21) (.12) Net Loss per weighted average of common shares $ (.54) $ (.27) $ (.14)
Year-End Position: Total assets $14,412,042 $16,108,040 $17,141,829 Property, plant, and equipment, net 1,502,978 1,258,675 1,020,799 Net working capital 8,450,421 8,071,515 9,057,883 Long-term debt (excluding current portion) 1,121,640 719,453 1,246,843 Minority interest 744,357 674,095 648,003 Shareholders' equity 9,032,866 11,024,056 11,935,387
Financial Ratios: Gross margin % to sales 21.2 22.9 20.1 Loss % to sales from continuing operations (.8) (.6) (.3) Loss % to sales from discontinued operations (4.2) (2.1) (1.7) Net loss % to sales (5.0) (2.7) (2.0) Current ratio 3.4 3.1 3.7
Other Data: Weighted average common shares outstanding 3,400,389 3,406,969 2,974,789 Capital expenditures 528,107 491,354 167,707 Depreciation and amortization 416,145 363,280 196,558
ITEM 7: Selected Financial Data, continued
Selected Financial Data 1995 1994
Summary of Operations:
Sales and other revenues $9,036,902 $8,235,449 Cost of sales 6,967,075 6,141,751 Gross Margin 2,069,827 2,093,698 Selling,general, and administrative expenses 2,390,157 2,496,127 Operating loss from continuing operations (320,330) (402,429) Interest (income) expense, net 54,738 53,241 (Loss) income before minority interest (375,068) (455,670) Minority interest 12,511 8,302 Loss from continuing operations before income taxes (362,557) (447,368) Income taxes Loss from continuing operations (362,557) (447,368) Loss from operations of discontinued subsidiary-Genetic Vectors (222,712) (318,928) Net loss $ (585,269) $ (766,296)
Per Share Data: Net(loss) per weighted average of common shares from continuing operations $ (.18) $ (.24) Net(loss) per weighted average of common shares from discontinued operations (.11) (.17) Net Loss per weighted average of common shares $ (.29) $ (.41)
Year-End Position: Total assets $3,804,987 $3,756,408 Property, plant, and equipment, net 759,769 827,279 Net working capital 954,407 705,362 Long-term debt (excluding current portion) 451,401 454,564 Minority interest 31,372 43,883 Shareholders' equity 2,366,138 2,080,654
Financial Ratios: Gross margin % to sales 22.9 25.4 Loss % to sales from continuing operations (4.0) (5.4) Loss % to sales from discontinued operations (2.5) (3.9) Net loss % to sales (6.5) (9.3) Current ratio 1.6 1.4
Other Data: Weighted average common shares outstanding 2,021,495 1,858,890 Capital expenditures 44,342 8,469 Depreciation and amortization 122,176 192,272
ITEM 8:
ITEM 8: Financial Statements and Supplementary Data NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants F 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997 F 2-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F 4
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 F 5-6
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F 7-9
Notes to Consolidated Financial Statements F 10-22
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of Nyer Medical Group, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Nyer Medical Group, Inc. and Subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers, LLP
March 30, 1999
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
ASSETS
1998 1997 Current assets: Cash and cash equivalents $ 4,136,988 $ 4,497,010 Accounts receivable, less allowance for doubtful accounts of $188,076 and $159,023 at December 31, 1998 and 1997, respectively 3,560,377 2,952,555 Inventories, net 4,073,051 4,187,779 Prepaid expenses 105,045 118,559 Receivables from related parties 48,139 18,176
Total current assets 11,923,600 11,774,079
Property, plant and equipment, at cost: Land 92,800 92,800 Building 641,508 638,624 Leasehold improvements 381,702 112,984 Machinery and equipment 223,807 225,994 Transportation equipment 260,285 243,555 Office furniture, fixtures, and equipment 805,748 613,101 2,405,850 1,927,058 Less accumulated depreciation and amortization (902,872) (668,383)
1,502,978 1,258,675 Goodwill and other deferred assets, net of accumulated amortization of $386,171 and $256,794 at December 31, 1998 and 1997, respectively 802,809 919,683 Advances due from related companies 34,488 37,499 Investment in discontinued operation 1,972,190 Other 148,167 145,914
985,464 3,075,286
Total assets $14,412,042 $16,108,040
The accompanying notes are an integral part of the consolidated financial statements.
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997
Current liabilities: Current portion of notes payable due related party $ 120,000 $ 658,776 Current portion of long-term debt 236,669 227,527 Accounts payable 2,627,292 2,417,179 Accrued payroll and related taxes 206,465 59,095 Accrued expenses and other liabilities 322,753 339,988
Total current liabilities 3,513,179 3,702,565
Notes payable due related party, net of current portion 522,820 Long-term debt, net of current portion 480,711 533,991 Minority interest 744,357 674,095 Deferred credits 118,109 173,333
Commitments (Notes 3 and 7)
Shareholders' equity: Class A Preferred stock, par value $.0001, Authorized, issued and outstanding: 2,000 shares 1 1 Class B Preferred stock, series 1, par value $.0001, Authorized: 2,500,000; issued and outstanding: 1,000 shares at December 31, 1998 and 1997 Common stock, par value $.0001 Authorized: 10,000,000 shares; issued: 3,407,093 at December 31, 1998 and 1997 341 341 Additional paid-in capital 15,238,376 15,337,126 Stock sale receivable (115,500) (115,500) Treasury stock (11,000 shares at December 31, 1998) (52,249) Accumulated deficit (6,038,103) (4,197,912) Total shareholders' equity 9,032,866 11,024,056
Total liabilities and shareholders' equity $14,412,042 $16,108,040
The accompanying notes are an integral part of the consolidated financial statements.
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1998, 1997, and 1996
1998 1997 1996 Net sales $37,204,465 $33,878,934 $21,093,488
Cost and expenses: Cost of goods sold 29,327,246 26,493,426 16,834,712 Selling and retail 4,919,741 4,636,257 2,352,786 Warehouse and delivery 581,022 385,528 362,048 Administrative 3,219,137 2,763,603 1,762,463 38,047,146 34,278,814 21,312,009
Operating loss (842,681) (399,880) (218,521)
Other income (expense): Interest expense (122,397) (105,922) (76,253) Interest income 269,274 346,986 224,160 Other 543,602 (533) 7,309 Total other income 690,479 240,531 155,216
Loss before minority interest (152,202) (159,349) (63,305)
Minority interest (70,262) (26,092) 2,079
Loss from continuing operations before income taxes (222,464) (185,441) (61,226) Income taxes 55,747 23,949
Loss from continuing operations after income taxes (278,211) (209,390) (61,226)
Discontinued operations Loss from operations of discontinued subsidiary- Genetic Vectors (653,842) (725,012) (357,585) Net loss on write down of investment-Genetic Vectors (908,138) Net loss from discontinued subsidiary-Genetic Vectors (1,561,980) (725,012) (357,585)
Net Loss $(1,840,191) $ (934,402) $ (418,811)
Basic and diluted loss per common share from continuing operations$ (.08) $ (.06) $ (.02) Basic and diluted loss per common share from discontinued operations (.46) (.21) (.12) Basic and diluted loss per common share $ (.54) $ (.27) $ (.14) Weighted average common shares outstanding 3,400,389 3,406,969 2,974,789 The accompanying notes are an integral part of the consolidated financial statements.
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996 Class A Class B Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount Balance, December 31, 1995 2,000 $1 300,000 $30 2,183,000 $218 Proceeds-stock subscription receivable Stock options exercise receivable 50,000 5 Issuance of common stock 752,815 75 Exercise of common stock warrants 376,278 39 Exercise of common stock options 18,000 2 Purchase of subsidiary 20,000 2 Retirement of class B preferred stock (300,000) (30) Increase in proportionate investment in equity of unconsolidated subsidiary Net loss Balance, December 31, 1996 2,000 1 0 0 3,400,093 341 Issuance of class B preferred stock 1,000 0 Exercise of common stock options 7,000 0 Stock issuance costs Net loss Balance, December 31, 1997 2,000 1 1,000 0 3,407,093 341 The accompanying notes are an integral part of the consolidated financial statements. (1)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996
Additional Treasury Total Paid-in Stock Sale Stock Accumulated Shareholders' Capital Receivable Shares Amount Deficit Equity Balance, December 31, 1995 $4,354,165 $(150,000) $(2,844,699) $ 1,359,715 Proceeds-stock subscription receivable 150,000 150,000 Stock options exercise receivable 115,495 (115,500) 0 Issuance of common stock 5,339,967 5,340,042 Exercise of common stock warrants 2,293,670 2,293,709 Exercise of common stock options 117,698 117,700 Purchase of subsidiary 297,498 297,500 Retirement of class B preferred stock 30 0 Increase in proportionate investment in equity of unconsolidated subsidiary 2,795,532 2,795,532 Net loss (418,811) (418,811) Balance, December 31, 1996 15,314,055 (115,500) (3,263,510) 11,935,387 Issuance of class B preferred stock Exercise of common stock options 32,339 32,339 Stock issuance costs (9,268) (9,268) Net loss (934,402) (934,402) Balance, December 31, 1997 15,337,126 (115,500) (4,197,912) 11,024,056 The accompanying notes are an integral part of the consolidated financial statements. (2)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996, continued
Class A Class B Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
Treasury stock
Additional consideration related to purchase of subsidiary Net loss Balance, December 31, 1998 2,000 $ 1 1,000 0 3,407,093 $341
The accompanying notes are an integral part of the consolidated financial statements. (1)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended December 31, 1998, 1997 and 1996, continued
Additional Treasury Total Paid-in Stock Stock Accumulated Shareholders' Capital Receivable Shares Amount Deficit Equity
Treasury stock (11,000) (52,249) (52,249)
Additional consideration related to purchase of subsidiary (98,750) (98,750)
Net loss (1,840,191) (1,840,191) Balance, December 31, 1998 $15,238,376 $(115,500) (11,000) $(52,249)$(6,038,103) $9,032,866
The accompanying notes are an integral part of the consolidated financial statements. (2)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1998, 1997 and 1996 1998 1997 1996 Cash flows from operating activities: Net loss $(1,840,191) $ (934,402) $ (418,811) Adjustments to reconcile to net cash used in operating activities Loss of discontinued operation 653,842 725,012 147,440 Net loss on write-down of investment- Genetic Vectors 908,138 Depreciation and amortization 416,145 363,280 198,645 Loss on disposal of property, plant, and equipment 10,869 11,949 Compensation expense in connection with common stock option exercise 35,000 Gain on sale of other equity securities (75,570) Gain on sale of pharmacies (365,000) Minority interest 70,262 26,092 (2,079) (Decrease) increase in deferred credit (55,224) 173,333 Changes in certain working capital elements (98,731) (1,162,232) (166,473) Net cash flows used in operating activities (375,460) (796,968) (206,278) Cash flows from investing activities: Acquisition of subsidiaries, net of cash acquired (808,229) Acquisition of stores (100,000) Purchase of property, plant and equipment (458,107) (491,354) (167,707) Purchase of short-term investment (76,124) Increase in investment in subsidiary (14,090) Proceeds from sale of Genetic Vectors' stock 410,210 Proceeds from sale of other equity securities 151,694 Proceeds from sale of pharmacies 385,000 Net change in advances due from related companies 3,011 4,939 (613) Increase in other assets, net 14,411 (161,347) (85,163) Net cash provided by (used in) investing activities 330,095 (661,852)(1,061,712) Cash flows from financing activities: Proceeds from issuance of long-term debt 27,256 157,400 26,020 Payments of long-term debt (273,708) (966,933) (316,740) Net borrowings (repayments) of notes to related parties (15,956) 349,404 (176,952) Proceeds from issuance of common stock 5,340,042 Stock issuance costs (9,268) Payments for purchase of treasury stock (52,249)
The accompanying notes are an integral part of the consolidated financial statements.
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
1998 1997 1996 Proceeds from stock subscription receivable 150,000 Proceeds from exercise of common stock warrants 2,293,709 Proceeds from exercise of stock options 32,339 82,700 Net cash (used in) provided by financing activities (314,657) (437,058) 7,398,779 Net increase and cash equivalents (360,022) (1,895,878) 6,130,789 Cash and cash equivalents at beginning of period 4,497,010 6,392,888 262,099 Cash and cash equivalents at end of period $ 4,136,988 $4,497,010 $6,392,888
Changes in certain working capital elements: Accounts receivable, net $ (384,822) $ (322,708)$ (583,908) Inventories 81,042 (1,025,854) (122,547) Prepaid expenses 13,514 18 (14,332) Receivables from related parties (29,963) 48,066 (39,214) Accounts payable 210,113 101,651 726,402 Accrued payroll and related taxes 147,370 (63,527) (115,005) Accrued expenses and other liabilities (135,985) 100,122 (17,869) Net change $ (98,731) $(1,162,232)$ (166,473)
Supplemental disclosures of cash flow information: Cash paid during the year for: 1998 1997 1996
Interest $ 117,466 $ 102,539 $ 69,218
The acquisition of pharmacies in 1998, and subsidiaries in 1996, net of cash acquired, is summarized as follows: 1998 1996 Working capital, other than cash $ 189,314 $1,567,283 Property, plant and equipment 70,000 267,299 Other assets 10,000 349,470 Goodwill 33,000 379,550 Long-term debt (202,314) (934,163) Minority interests (523,710) Common stock (297,500) Cash paid for acquisitions $ 100,000 $ 808,229
Non-cash transactions:
During 1996, an officer of the Company exercised 50,000 stock options for which the Company received a note receivable for $115,500.
Additionally, the exercise of 50,000 warrants, by an unaffiliated third party, resulted in a cash less exercised with the equivalent issuance of 24,870 shares of common stock.
The accompanying notes are an integral part of the consolidated financial statements.
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Non-cash transactions, continued
In connection with the acquisition of a pharmacy chain in 1996, the Company guaranteed that the value of the common stock issued to the sellers would be at least $8.75 per share on the second anniversary of the acquisition date. On the anniversary date, the value of the common stock was below this amount, and the Company was obligated to either pay cash for the difference in value, issue equivalent amount of additional shares of common stock, or repurchase the sellers common stock at the guaranteed value. In January 1999, the sellers were paid cash for the difference in value of $98,750.
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The Company
Nyer Medical Group, Inc. ("Company") is a holding company with operations in the medical products distribution, biotechnology, nutritional tube feeding products, emergency medical services, fire, and police equipment and supplies businesses. The Company's wholly-owned subsidiaries, ADCO Surgical Supply, Inc. (ADCO), ADCO South Medical Supplies, Inc. (ADCO South) and 90% owned Nyle Home Health Supplies, Inc. (Nyle Home Health) are engaged in the wholesale and retail sale of surgical and medical equipment and supplies throughout New England and Florida. Anton Investments, Inc., 80% owned by the Company, is engaged in the wholesale and retail sales of equipment, supplies, and novelty items to emergency medical services, fire departments and police departments located throughout most of New England. Conway Associates, Inc., 80% owned by the Company, is engaged in the wholesale sales of equipment and supplies to emergency medical services and fire departments throughout New England. SCBA, Inc. (SCBA), 80% owned by the Company, is engaged in the servicing of fire department's self-contained breathing apparatus. D.A.W., Inc.(Eaton Pharmacy),80% owned by the Company, is a chain of twelve pharmacy drug stores with sales in the suburban Boston area and its related company, FMT, Inc.(FMT), which is also 80% owned by the Company, is involved in the franchising of pharmacy retail outlets. Nyer Nutritional Systems, Inc., (Nyer Nutritional), is also 80% owned by the Company. The Company owns a 31.5% interest in a biotechnology company, Genetic Vectors, Inc. (Vectors), accounted for as a discontinued operation (see note 2).
The Company is a subsidiary of Nyle International Corp. (Nyle).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority owned and controlled subsidiaries. All intercompany transactions have been eliminated in consolidation.
Use of Estimates
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 those estimates.
Cash and Cash Equivalents
The Company considers investments with original maturities of three months or less when purchased to be cash and cash equivalents.
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
Inventories
Inventories, net are stated at the lower of cost (first-in, first-out method) or market, with the exception of the retail pharmacies which use the last-in, first-out method (LIFO). Of the total inventories, 60% are on the LIFO method. The replacement costs of inventory exceeded LIFO cost by $141,750.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. Leasehold improve- ments are capitalized, while repair and maintenance costs are charged to operations as incurred. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed from the accounts, and any gains or losses are included in operations. Leasehold improvements are amortized using the straight-line method over the lease term.
For financial reporting purposes, depreciation is computed principally using the straight-line method over estimated service lives of the related assets as follows: Years Building 15 Leasehold Improvements 10 Machinery and equipment 3 - 10 Transportation equipment 3 - 5 Office furniture, fixtures and equipment 3 - 10
Income Taxes
The Corporation files a consolidated federal income tax return. The Company uses the asset and liability method of accounting for income taxes. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Fair Value of Financial Instruments
At December 31, 1998, the carrying amounts of the Company's financial instruments included in current assets and current liabilities approximate fair value because of the short maturity of those instruments. The carrying amounts of the Company's long-term debt also approximates their fair value as of December 31, 1998 based upon the borrowing rates currently available to the Company for loans with similar terms and maturities.
Goodwill and other intangible assets
Goodwill, which represents the excess of the costs of companies acquired over the fair market value of their net assets at dates of acquisition, is being amortized on the straight line method over various periods, ranging
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
Goodwill and other intangible assets, continued
from 5 to 40 years. Other intangible assets acquired in connection with acquisitions are being amortized on a straight line basis over periods ranging from 5 to 6 years. Amortization expense charged to operations for all deferred charges was $143,210 in 1998 and $121,751 in 1997.
Impairment Accounting
The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," (SFAS No. 121) in 1996. The Company reviews the recoverability of its long-lived assets, including goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The measurement of possible impairment is based on the Company's ability to recover the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. The measurement of impairment requires management to make estimates of expected future cash flows related to long-lived assets. It is at least reasonably possible that future events or circumstances could cause these estimates to change. The Company's policy on impairment prior to the adoption of SFAS No. 121 was not materially different.
Earnings Per Share
In February 1997, FASB issued SFAS No. 128, Earnings per Share. SFAS provides reporting standards for basic and diluted earnings per share and is effective for financial statement periods ending after December 15, 1997. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period, which during 1998, 1997 and 1996, were 3,400,389 3,406,969, and 2,974,799, respectively. Diluted earnings per share considers the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The diluted weighted average number of common shares outstanding equaled basic in 1998, 1997 and 1996. All prior period earnings per share data has been restated to conform to the provisions of this statement.
Reclassifications
Certain amounts in 1997 have been reclassified to conform to the 1998 presentation.
2. Discontinued operation:
In March of 1996, the Company announced plans to spin-off 32% of its investment in Vectors common stock to the shareholders of the Company. In addition, the Company exchanged 20% of the common stock of Vectors for all of the Class B Preferred Stock of the Company, which was held by an officer
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued operation:
and related party of Vectors. The Class B stock was then retired. The Company consolidated the results of Vectors through September 30, 1996 and recorded a net loss through that period of $210,145 that was attributable to Vectors. From October 1, 1996 through December 31, 1996, the Company used the equity method of accounting to account for the results of its investment in Vectors, which resulted in the Company recording an additional net loss of $147,440. The Company recognized a total net loss in connection with Vectors of $357,585. In December 1996, Vectors completed its Initial Public Offering by selling 575,000 shares of common stock, which resulted in Vectors receiving net proceeds after offering expenses of approximately $4,570,000. In accordance with Securities and Exchange Commission rules, the Company has increased its investment in Vectors for its proportionate share of the carrying value of Vectors at December 31, 1996. This resulted in an increase of $2,795,532 to the Company's investment in unconsolidated subsidiary account on the balance sheet, with a corresponding offset to additional paid in capital under the stockholders' equity section on the balance sheet.
In December 1996, the Company completed its spin-off of Vector's common stock which resulted in 512,071 shares of common stock being distributed as a dividend to shareholders of Nyer. The Company currently owns 31.5% of Vectors outstanding common stock.
In August 1997, the Board of Directors approved a plan for the disposal of its investment in Vectors. This investment is being accounted for as a discontinued operation, and accordingly, the Company's share of losses of Vectors is segregated in the consolidated statements of operations.
As of December 31, 1998, the Company has written down its investment in Vectors to zero due to significant uncertainties regarding the Company's ability to recover its investment. Based on the Company's review of currently available public information about Vectors, there is substantial doubt about Vectors ability to continue as a going concern. In addition, Vectors and its counsel have refused to remove the restrictive legends from the Vectors' stock certificates which limits the Company's ability to sell its Vectors stock in the public market to one percent of Vectors' outstanding common stock (approximately 23,000 shares per quarter). Those restrictions were required to be removed in January 1998. Even if those restrictions are removed, the Company still believes that its investment is impaired due to the illiquid nature of the "bulletin board" market on which Vector's stock trades. The write down of the Company's investment in Vectors resulted in an additional charge to discontinued operations of $1,206,965.
The Company owned 739,216 shares of restricted common stock of Vectors as of December 31, 1998 and 790,616 shares as of December 31, 1997.
The financial position and results of Genetic Vectors, which has been serviced by another accounting firm, as of and for the quarter ended September 30, 1998, and December 1997 are as follows:
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued operation, continued
Unaudited Audited September December 1998 1997 Current assets $ 599,632 $ 2,102,467 Non-current assets 703,535 685,895 $ 1,303,167 $ 2,788,362 Current liabilities $ 129,374 $ 154,542 Stockholders' equity 1,173,793 2,633,820 $ 1,303,167 $ 2,788,362 Net sales $ 7,780 $ 39,260 Cost of Goods Sold 6,791 34,304 Operating expenses 1,600,623 2,400,446 Other revenues 92,107 262,776 Net loss $(1,507,527) $(2,132,714)
3. Related Party Transactions:
Receivables from related parties consisted of the following at December 31, 1998 and 1997: 1998 1997 Note receivable from officer $ 42,664 Receivable from related party $ 5,475 18,176 Total current receivable from related parties $ 48,139 $ 18,176 Advances due from related companies, non-current $ 34,488 $ 37,499
The note receivable from officer is a loan made to the president and chief executive officer of Nyer Nutritional in the amount of $50,000 plus interest at 8% annually off-set by royalties due to the officer of $8,340.
The receivable from related party is for products sold to a company which is owned by an officer and director of the Company. Total sales were $15,968 and $83,613, for 1998 and 1997, respectively.
Advances due from related companies consist of cash advances made to Nyle. Interest is charged at 9% annually and payments are made periodically.
Notes payable to related parties (an employee) were $642,820 and $658,776 at December 31, 1998 and 1997, respectively. Principal payments of $10,000 plus interest at 7% (beginning January 1999) are due monthly.
The Company has an employment agreement with its Chief Executive Officer, at a base annual salary of $125,000. This agreement expires October 1, 1999. In addition, a note receivable for the exercise of 50,000 stock options was due from this officer for $115,500, with interest payable quarterly with an annual interest rate of 6.25%, with all unpaid accrued interest and principal due August of 1999. This receivable has been off-set against the stockholders' equity section on the balance sheet.
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions, and Divestitures:
In February 1996, the Company acquired 80% of the outstanding common stock of Conway Associates, Inc. and an affiliated company, SCBA, Inc. The consideration paid in cash was $431,855. Conway and SCBA, located in Haverhill, Massachusetts, is engaged in the wholesale and retail sales of equipment and supplies to emergency medical services and fire departments throughout New England.
In August 1996, the Company acquired 80% of the common stock D.A.W., Inc. and an affiliated company, F.M.T., Inc. D.A.W. is an operator of retail pharmacies in eastern Massachusetts and F.M.T. is involved with the franchising of retail pharmacies. The consideration paid was $709,198 which included the issuance of 20,000 shares of common stock of the Company valued at $297,500, cash payment of $325,000 for a non-compete agreement, and acquisition costs of $86,698. In addition, the Company contributed working capital of $1,000,000, for which $200,000 is attributable to the minority interest. In connection with this transaction, the Company has guaranteed that the value of the common stock issued to the sellers will be at least $8.75 per share on the second anniversary of the acquisition date.
In event the value of the common stock is below this amount, the Company is obligated to either pay cash for the difference in value, issue equiva- lent amount of additional shares of common stock, or repurchase the sellers common stock at the guaranteed value. In January 1999, the sellers were paid cash for the difference in value, which amounted to $98,750.
The aforementioned acquisitions are being accounted for under the purchase method of accounting, and accordingly, the results of operations of these companies are included in the accompanying consolidated financial statements from their respective dates of acquisition. The purchase prices have been allocated to assets acquired and liabilities assumed, and is summarized as follows:
Current assets $ 2,843,163 Property, plant and equipment 267,299 Intangible and other assets 349,470 Goodwill 379,550 Current liabilities ( 1,240,556) Long term liabilities ( 934,163) Minority interests (523,710) $ 1,141,053
The following unaudited pro forma financial information for the Company gives effect to the DAW, FMT and Conway acquisitions as if they had occurred on January 1, 1996. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results of operations had the acquisitions occurred on the date indicated, or which may result in the future: Net sales $29,729,138 Net loss $ (498,785) Net loss per share $ (.17)
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions, and Divestitures,continued
In December 1996, the Company incorporated Nyer Nutritional Systems, Inc., in Delaware. This subsidiary was capitalized with cash of $300,000 for 80% of the common stock of the Company. A minority shareholder also contributed the rights to patented technology for the remaining 20% of common stock. This subsidiary has developed a liquid nutritional formula for the medically supervised feeding of hospital, nursing home, and home care patients.
During 1998, the Company purchased the assets of two pharmacies for total consideration of $302,000, including notes payable to the sellers of $202,000. The purchase price was allocated to the fair value of the assets purchased and resulted in goodwill of $33,000.
In December 1998, the Company sold the assets and prescription list of two pharmacies for approximately $608,000 in cash, of which $223,000 was received in January 1999. The transaction resulted in a gain of approximately $365,000 which is recorded in other income.
5. Debt: Long-term debt at December 31, 1998 and 1997, consisted of the following: 1998 1997 ADCO Surgical Supply, Inc:
Note payable in equal monthly installments of $4,675 including interest at 7%, through July 1996; the interest rate changed to 8 1/4% in August of 1996; collateralized by land and building, due in March 2008. $ 373,839 $ 402,231
Eaton Pharmacy:
Note payable to the Internal Revenue Service, payable in equal quarterly installments of $11,007 plus interest at 7%. The note was paid in April 1998. The note is guaranteed by minority shareholders of Eaton Pharmacy. 19,555
Note payable to the Commonwealth of Massachusetts, Department of Revenue, payable in equal monthly installments of $9,286 plus interest at 7%. The note was paid in August 1998. The note is guaranteed by minority shareholders of Eaton Pharmacy. 24,129
Note payable in monthly installments of $1,167(without interest). The note was paid in December 1998 and is collateralized by certain assets of Eaton Pharmacy. 12,833
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt: continued,
Note payable to former shareholder of Eaton Pharmacy, payable in equal monthly installments of $1,333 plus interest on the unpaid balance at prime rate(7 3/4% at December 31, 1998 and 8 1/4% at December 31, 1997). The note will mature in August 2000 and is collateralized by certain assets of Eaton Pharmacy. 10,667 26,667
Note payable in equal monthly installments of $4,500 plus interest on the unpaid balance at prime rate (7 3/4% at December 31, 1998 and 8 1/4% at December 31, 1997). A final balloon payment of $30,000 will be paid upon maturity in August 1999. The note is collateralized by certain assets of Eaton Pharmacy. 66,000 120,000
Note payable in equal monthly installments of $3,693 including interest at 7%. The note will mature in June 2000 and is collateralized by certain assets of the Weston Pharmacy. 62,914 101,368
Note payable in equal monthly installments of $1,043 including interest at 7%. The note will mature in September 1999 and is collateralized by certain assets of the N. Beverly Pharmacy. 9,122 20,564
Note payable in equal monthly installments of $3,023 including interest at 7%. The note will mature in May 2001 and is collateralized by certain assets of Sherborn Apothecary. 80,426
Note payable in equal monthly installments of $3,287 including interest at 7%. The note will mature in March 2001 and is collateralized by certain assets of Three S Pharmacy. 81,887
Other Subsidiaries
Notes payable due in various installments at rates ranging up to 9 1/4%, collateralized by certain equipment and vehicles. 32,525 34,171 717,380 761,518 Less current portion 236,669 227,527 $ 480,711 $ 533,991
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt: continued,
The maturities of long term debt at December 31, 1998 are as follows:
1999 $ 236,669 2000 131,334 2001 66,344 2002 35,690 2003 38,941 Thereafter 208,402 $ 717,380
The long term debt of ADCO and other subsidiaries, is collateralized by the Company's inventory, accounts receivable and vehicles as well as personal guarantees of the Company's chairman.
6. Income Taxes:
At December 31, 1998, the Company had a remaining net operating loss (NOL)carryforwards of approximately $641,000 available to offset future taxable income. The NOL carryforwards will expire in the years 2002 to 2010. In the event of a change in ownership of the Company, the utilization of the NOL carryforward may be subject to limitation under certain provisions of the Internal Revenue Code. In addition, certain provisions dealing with consolidated returns may limit the utilization of approximately $175,000 of NOL carryforward by certain members of the consolidated group.
The tax effect of temporary differences that give rise to significant portions of deferred taxes at December 31, 1998 and 1997 consisted of:
1998 1997 Deferred tax assets(liabilities): Depreciation $ 1,000 $ (40,000) Reserves 255,000 211,000 Net operating loss carryforwards 256,500 412,000 Total net deferred tax assets before valuation reserve 512,500 583,000 Valuation reserve (512,500) (583,000) Total net deferred tax assets $ - $ -
The Company has recorded a valuation reserve for the total amount of net deferred tax assets due to the uncertainty of their future realization.
7. Commitments:
Operating Leases
The Company rents office and warehouse space with varying lease expiration dates through January of 2009. All leases have options to extend the lease terms. Total rent expense for the years ended December 31, 1998 and 1997, was $707,388 and $589,282, respectively. continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments, continued
Operating Leases, continued
Future minimum lease payments at December 31, 1998 are as follows: 1999 $ 621,781 2000 464,934 2001 280,326 2002 148,215 2003 120,482 Thereafter 376,675 $2,012,413 Purchase Commitment
A subsidiary of the Company has an agreement with a supplier to purchase $2,600,000 of inventory each quarter through the year 2001. The Company received $200,000 from the supplier upon signing of the agreement, which is being amortized over the term of the contract. Additionally, the supplier has made available a $200,000 line of credit to purchase this inventory. The line of credit is collateralized by substantially all of the assets of the subsidiary. No amounts were outstanding under the line of credit at December 31, 1998.
8. Capital Stock:
Each share of Class A preferred stock has voting rights equal to 1,000 shares of common stock. In March of 1996, the Company exchanged 20% of Vectors' stock for all of the Class B Preferred Stock of the Company which was then retired. The Company subsequently spun-off 32% of its holding of the outstanding stock of Vectors (see note 2).
Each share of Class B Preferred Stock (series 1) has voting rights equal to 2,000 shares of common stock.
In 1998, the Company purchased 11,000 shares of its own common stock from the open market for a total of $52,249.
In 1996, the Company sold 752,815 shares of common stock under Regulation S of the Securities Act of 1933, which netted proceeds of $5,340,042. In connection with this sale, the Company issued 388,908 warrants to purchase additional common stock at a weighted average exercise price of $7.32 per share. Subsequently, 346,408 warrants were exercised, for which the Company issued 321,278 shares of common stock for net proceeds of $1,963,703. The remaining 42,500 warrants not exercised expired in October 1996. In addition, in July and October, 1996, 55,000 warrants that were issued in connection with the Company's 1992 Initial Public Offering, were exercised with proceeds to the Company of $330,000.
During 1997, the Company issued 20,000 warrants to a third party in connection with services provided. The exercise price for each warrant is $14.75 and are only exercisable if the stock price exceeds 120% of the exercise price. These warrants were not exercised during 1998.
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Capital Stock, continued
The Company has a Stock Option Plan (Plan) which provides for the awards of shares of common stock to employees, directors, and consultants of the Company. The Plan provides for automatic grants of 12,000 non-qualified options vesting semi-annually over a three-year term to all non-employee directors. The maximum term of options granted under the Plan is ten years. In January 1995, the Board of Directors approved an amendment to the Plan increasing the number of shares from 150,000 to 275,000 shares.
A summary of changes in common stock options during 1998 and 1997 is: Weighted average Shares exercise price Outstanding grants at December 31, 1996 162,000 7.64 Granted in 1997 89,000 5.33 Exercised in 1997 (7,000) 4.62 Canceled in 1997 (8,000) 16.75 Outstanding grants at December 31, 1997 236,000 6.55 Canceled in 1998 (4,000) 16.75 Outstanding grants at December 31, 1998 232,000 6.55 Options exercisable at December 31, 1996 92,000 5.42 Options exercisable at December 31, 1997 152,000 6.11 Options exercisable at December 31, 1998 198,000 6.34
The remaining weighted average contractual life of options outstanding at December 31, 1998 is approximately 8 years.
At December 31, 1998, exercisable options and price are as follows: Options $ per share 40,000 $ 2.31 67,000 4.62 32,000 16.75 46,000 5.00 8,000 6.63 5,000 6.88 198,000
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation. As permitted by SFAS No. 123, the Company has chosen to apply APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its Plan. Accordingly, no compensation cost has been recognized for options granted under the Plan. Had compensation cost for the Company's Plan been determined based upon the fair value at the grant dates for awards under the Plan consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below. 1998 1997 1996 Net loss: As reported $(1,840,191) $ (934,402) $ (418,811) Pro forma $(2,047,592) $(1,147,078) $ (521,816) Loss per share: As reported $ (.54) $ (.27) $ (.14) Pro forma $ (.59) $ (.34) $ (.18)
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Capital Stock, continued
The fair value of stock options in the pro forma accounts for 1998, 1997 and 1996 is not necessarily indicative of the future effects on net income and earnings per share. The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1998, 1997 and 1996: risk-free interest rate of 6.2%, expected life of three years, volatility of 70%, and no dividend yield. No options were granted in 1998. The weighted average time value of options granted during 1997 and 1996 was $2.70 and $7.43, respectively.
9. Business Segments:
The Company had four active business segments in 1998, 1997 and 1996: (1)wholesale and retail sale of surgical, diabetic, medical equipment and supplies, (2) nutritional supplies (3) wholesale and retail distribution of equipment, supplies, and novelty items to emergency medical service, fire departments, and police departments, and (4) retail pharmacy drug store chain. Business segments are determined based on products or services offered for sale.
Summary data for the year ended December 31, 1998 is as follows:
Diabetic, Medical, and Nutritional EMT, Fire, Police Pharmacy Surgical Supplies Supplies Equip and Supplies Chain Corporate Net Sales $6,664,840 $ 268,431 $7,419,487 $22,851,707 Operating (loss)income (68,980) (431,801) (104,354) 212,020 $ (449,566) Total assets 2,738,177 501,027 2,371,877 5,083,585 3,717,376 Capital Expenditures 43,173 457 46,669 437,808 Depreciation and amortization 98,642 55,341 68,642 188,036 5,484 Interest income (11,579) (16) (33,746) (223,933) Interest expense 47,961 10,782 63,654 Income tax expense 55,747
Consolidated Net Sales $37,204,465 Operating (loss)income (842,681) Total assets $14,412,042 Capital Expenditures 528,107 Depreciation and amortization 416,145 Interest income (269,274) Interest expense 122,397 Income tax expense 55,747
continued
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Business Segments, continued
Summary data for the year ended December 31, 1997 is as follows:
Diabetic, Medical, and Nutritional EMT, Fire, Police Pharmacy Surgical Supplies Supplies Equip and Supplies Chain Corporate Net Sales $6,702,439 $ 1,515 $9,124,587 $18,050,393 Operating (loss)income (39,708) (527,304) 206,514 344,935 $ (384,317) Total assets 2,958,025 350,510 2,477,876 4,371,623 5,950,009 Capital Expenditures 115,853 170,068 53,398 150,420 1,615 Depreciation and amortization 97,132 20,432 66,243 174,303 5,170 Interest income (11,564) (1,998) (118,404) (215,020) Interest expense 40,642 35 7,316 57,929 Income tax expense 23,949
Consolidated Net Sales $33,878,934 Operating (loss)income (399,880) Total assets $16,108,043 Capital Expenditures 491,354 Depreciation and amortization 363,280 Interest income (346,986) Interest expense 105,922 Income tax expense 23,949
Summary data for the year ended December 31, 1996 is as follows:
Diabetic, Medical, and Nutritional EMT, Fire, Police Pharmacy Surgical Supplies Supplies Equip and Supplies Chain Corporate Net Sales $6,024,664 $8,500,565 $ 6,568,259 Operating loss 13,568 (35,841) (88,993) 173,186 $ (280,441) Total assets 2,645,911 391,101 1,908,987 4,518,906 7,676,924 Capital Expenditures 17,077 3,082 82,275 61,092 4,181 Depreciation and amortization 82,664 63,723 43,890 6,281 Interest income(3,701) (23,113) (197,346) Interest expense 50,138 1,221 18,366 6,528
(1)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Business Segments, continued
Summary data for the year ended December 31, 1996 is as follows:
Consolidated Net Sales $21,093,488 Operating loss (218,521) Total assets 17,141,829 Capital Expenditures 167,707 Depreciation and amortization 196,558 Interest income (224,160) Interest expense 76,253
ITEM 9.
ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.
None PART III
ITEM 10.
ITEM 10. Directors, Executive Officers, Promoters And Control Persons; Compliance With Section 16 Of The Exchange Act.
Present directors and executive officers of the Company, their ages and positions held are as follows:
Name Age Position
Samuel Nyer 73 Chairman of the Board, President, Secretary, and Director
William J. Clifford, Jr. 49 Vice-President-Sales and Director
Karen L. Wright 37 Treasurer, Vice- President-Finance, Assistant Secretary, and Director
Doyle W. Boatwright 61 Director
Stanley Dudrick, M.D. 64 Director
David P. Dumouchel 37 Director
Donald C. Lewis, Jr. 61 Director
Kenneth L. Nyer, M.D. 40 Director
The Company's Board of Directors is divided into three classes of directors, A, B, and C. Class A Directors, Messrs. Nyer, Clifford, Lewis, and Ms. Wright, will be up for re-election in the year 1999. Class B Directors, Messrs. Boatwright, Dumouchel, and Dr. Nyer, will be up for re-election in the year 2001. Class C Director, Dr. Stanley Dudrick will be up for re-election in the year 2000.
Samuel Nyer has been Chairman of the Board, president and secretary of the Company since December 1991. He served as a director of Genetic Vectors, Inc. from December 1991 to June 1996. Mr. Nyer also serves on the board of directors of each of the Company's subsidiaries. Since 1985, Mr. Nyer has been chairman of the board of Nyle, a manufacturer of drying equipment. Nyle, a publicly held corporation, is the Company's principal shareholder. Mr. Nyer has interests in a number of small businesses in the Bangor, Maine area.
William J. Clifford, Jr. has been vice-president of sales and a director of the Company since December 1991, and vice-president and general manager of ADCO and ADCO South since 1988 and 1992, respectively. Mr. Clifford was a director of Vectors from June 1996 through April 30, 1997. From 1973 to 1988, Mr Clifford was general sales manager of ADCO. Mr. Clifford has over 26 years experience in the medical supply industry
and possesses substantial experience in medical warehousing, purchasing, sales and sales management. He has been an employee of ADCO since 1973.
Karen L. Wright has been treasurer of the Company since 1991 and vice- president of finance and assistant secretary of the Company since January 1997. She was appointed to the Board in April of 1997. She was also appointed to the Board of Nyle as a Director in 1998. From 1985 through 1987, Ms. Wright was ADCO's assistant comptroller, from 1987 through the present time Ms. Wright has been ADCO's comptroller and treasurer. Ms. Wright received her Bachelors of Science Degree in Accounting from Husson College, Bangor, Maine in 1985.
Doyle W. Boatwright has been a director of the Company since December 1996 and is president and director of Nyer Nutritional. The Company owns 80% of Nyer Nutritional and Mr. Boatwright owns the remaining 20%. From September 1995 through December 1996, Mr Boatwright was president and founder of Boatwright Laboratories, Inc., which owned the enteral nutritional product patents now held by Nyer Nutritional. From 1989 through September 1995, Mr. Boatwright was president and founder of DigniCare, Inc., a company providing enteral, wound care and urological products to Medicare patients.
Stanley Dudrick, M.D. has been a director of the Company since March 1997. Since November 1994, Dr. Dudrick has been Associate Chairman for St. Mary's Hospital, Department of Surgery. St. Mary's, which is located in Waterbury, Connecticut, is affiliated with Yale Medical School. Since 1982, Dr. Dudrick also has been a Clinical Professor of Surgery at the University of Texas Health Science Center at Houston. Dr. Dudrick is nationally known in the field of enteral nutrition and has received numerous awards and honors, is an editorial consultant and on the board of numerous medical journals including those special- izing in nutrition and has published widely on the subject.
David P. Dumouchel has been a director of the Company since August 1996. Mr. Dumouchel has also been a director of the Company's 80% owned subsidiary, D.A.W., Inc. d/b/a Eaton Apothecary since August 1996. Mr. Dumouchel has been vice-president of Eaton since 1988. Mr. Dumouchel is a registered pharmacist in the State of Massachusetts. Mr. Dumouchel received his Bachelors of Science Degree in Pharmacy from Purdue University in 1983, and his Masters of Business Administration from Amos Tuck School at Dartmouth College in 1986.
Donald C. Lewis, Jr. has been a director of the Company since July 1993. Mr. Lewis has been president and director of Nyle, the Company's principal shareholder, since January 1985.
Kenneth L. Nyer, M.D. has been a director of the Company since December 1991. Dr. Nyer is a specialist in internal medicine and has practiced at the Albert Einstein Hospital, Bronx, New York since 1993. He previously practiced at North Shore University Hospital, Manhasset, New York from 1987 to 1993. Dr. Nyer held a faculty position at the Cornell University Medical School since 1987. Dr. Nyer is the son of Mr. Samuel Nyer.
Delinquent Filings To the best of the Company's knowledge, Mr. Michael Anton, an officer and director of the Company's subsidiary, Anton, failed to timely file one Form 4, covering a transaction required to be filed with the Securities and Exchange Commission. Also, to the best of the Company's knowledge, Mr. Don Lewis and Dr. Gary Parker failed to file one Form 4, covering a transaction required to be filed with the Securities and Exchange Commission. To the best of the Company's knowledge Forms 3 and 5 have been filed, as required.
Limited Liability of Directors Under Florida law, the Company's directors are protected against personal liability for monetary damages from breaches of their duty of care. As a result, the Company's directors will not be liable for monetary damages from negligence and gross negligence in the performance of their duties. They remain liable for monetary damages for any breach of their duty of loyalty to the Company and its stockholders, as well as acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law and for transactions from which a director derives improper personal benefit. They also remain liable under another provision of Florida law which makes directors personally liable for of the Company's directors under federal or applicable state securities laws is also unaffected. The Company does not carry any directors' unlawful dividends, stock repurchases or redemptions and expressly sets forth a negligence standard with respect to such liability. While the Company's directors have protection from awards of monetary damages for breaches of the duty of care, that does not eliminate their duty of care. Equitable remedies, such as an injunction or rescission based upon a director's breach of the duty of care, are still available.
ITEM 11.
ITEM 11. Executive Compensation.
The following table sets forth certain information with respect to the annual and long-term compensation paid by the Company for services rendered during the fiscal years ended December 31, 1998, 1997 and 1996 to the Company's chief executive officer. A subsidiary's president and chief executive officer received compensation exceeding $100,000 for the fiscal years ended December 31, 1998 and 1997. No other executive officer received compensation exceeding $100,000 for the fiscal years ended December 31, 1998, 1997, or 1996.
Annual Compensation Long Term Compensation Name and Securities Principal Other Restricted Underlying LTIP Position Year Salary($) Compensation($) Options/SARS(#) Samuel Nyer 1998 $125,000 $4,200 40,000 Chief 1997 125,000 4,200 30,000 Executive 1996 86,538 4,200 90,000
Doyle Boatwright 1998 $121,253 $7,320 0 President and 1997 119,995 7,320 0 Chief executive of an 80% owned subsidiary
The Company has not paid any compensation to any person for serving as a director.
Employment Agreements The Company employs its officers and employees pursuant to oral agree- ments, with the exception of Mr. Samuel Nyer, five minority shareholders of Eaton, and Doyle Boatwright.
The Company entered into a three-year written employment agreement with Mr. Samuel Nyer at a base annual salary of $125,000 effective October 1, 1996. Mr. Nyer's employment agreement also provides for use of a car and automobile insurance at an annual cost of $4,200. The agreement also provided for the issuance to Mr. Nyer, of 1,000 shares of Series 1 Class B Preferred Stock. Each share of Preferred Stock carries 2,000 votes on all matter concerning the vote of common shareholders. The Preferred stock may be voted but does vest until October 1999, subject to a substantial risk of forfeiture as provided in Mr. Nyer's employment agreement. The shares were issued February 18, 1997 after receipt of a fairness opinion from an independent third party.
The Company entered into a five-year employment agreement, with a one- year non-compete, with five minority shareholders of Eaton. The base salary for each is $65,000 effective August 5, 1996. In August 1998, this was amended to a base salary for each of $78,000. Each agreement also provides for full insurance coverage on the Employee's personal vehicle and a vehicle allowance with an annual cost of $3,600. Each also receive life-insurance coverage in the aggregate amount of $800,000, including a separate single policy in the amount of $300,000, which the Employee's designee shall be the owner and beneficiary.
In December 1996, the Company entered into a five-year written employment agreement with Mr. Boatwright at a base annual salary of $120,000. Mr. Boatwright receives a vehicle allowance of an annual cost of $7,320.
The Company has an oral employment agreement with Mr. William J. Clifford, Jr. vice president and director, which provides for an annual base salary of $65,640 and use of an automobile, including all expenses associated with it at an annual cost of $14,440. The Company has an oral employment agreement with Ms. Karen L. Wright, treasurer, which provides for an annual base salary of $52,000. The Company also has an oral agreement with Michael Anton, president of Anton and Conway Associates, which provides for an annual salary of $78,000. Mr. Anton's is provided a vehicle allowance of an annual cost of $5,000. He also receives life-insurance coverage of $1,000,000 with 30% payable to the employees designated beneficiary and 70% with benefits payable to the Company.
Stock Option Plans
In July 1993, the Company established the 1993 Stock Option Plan (the "Plan") covering 150,000 shares of common stock which was approved by shareholders at the Company's annual meeting in October 1993. In 1995, the board of directors and the shareholders approved an amendment to the Plan by increasing the number of shares from 150,000 to 275,000 shares. The Plan provides: (a)officers and other employees of the Company and its subsidiaries opportunities to purchase stock in the Company pursuant to options granted thereunder which qualify as incen- tive stock options ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended and (b) directors, executive officers, employees and consultants of the Company and its subsidiaries opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Options"). The Plan is administered by the option committee which is comprised of Donald C. Lewis, Jr., and Dr. Kenneth L. Nyer, two of the Company's outside directors. The board of directors has the authority to (i) determine the employees of the Company and its subsidiaries to whom ISOs may be granted, and to determine to whom Non-Qualified Options may be granted; (ii)determine the time or times at which options may be granted; (iii) determine the exercise price of shares subject to options; (iv) determine whether options granted shall be ISOs or Non-Qualified Options; (v) determine the time or times when the options shall become exercisable, the duration of the exercise period and when the options shall vest; (vi) determine whether restrictions such as repurchase options are to be imposed on shares subject to options and the nature of such restrictions, if any, and (vii) interpret the Plan and promulgate and rescind rules and regulations relating to it.
Effective in April 1997, under the Plan, all directors automatically receive a grant of non-Qualified Options which vest semi-annually each June 30th and December 31st over a three-year period. The exercise price of such options as provided for in the Plan is the closing price of the Company's common stock on the last business day prior to the grant of options. The number of options for each director is based on whether such person is serving a one, two or three year term; for each year of a director's term, 4,000 options are granted. After all directors begin serving a three year term, each director will receive an initial grant of 12,000 options at the time of election, appointment or vesting of all prior options.
In January 1995, the Company granted Mr. Sam Nyer, its president, non- qualified options to purchase 90,000 shares of common stock, exercisable at $2.31 per share vesting over a five-year period. Of the 90,000 options, 50,000 were exercised in 1996, the remaining 40,000 are vested.
ITEM 12.
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management.
The following table sets forth information as of December 31, 1998, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of common stock by (i) each person known by the Company to be the owner of more than five percent of the outstanding shares of common stock, (ii) each director, and (iii) all executive officers and directors as a group. The table includes the Class A preferred stock which has 2,000,000 votes and Class B preferred stock which has 2,000,000 votes. Amount and Nature Name and Address of of Beneficial Percentage of Class Beneficial Owner Ownership Class Owned
Common Stock, Samuel Nyer 4,846,000 ,,,9 63.8% Class A c/o ADCO Preferred 1292 Hammond Street Stock, and Bangor, Maine 04401 Class B Preferred Stock
Common Stock Nyle International Corp. 2,710,000 35.7% and Class A 72 Center Street Preferred Brewer, Maine 04412 Stock
Common Stock William J. Clifford, Jr. 20,000 8, * 1292 Hammond Street Bangor, Maine 04401
Common Stock Karen L. Wright 14,000 8,, * 1292 Hammond Street Bangor, Maine 04401
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management, continued: Amount and Nature Name and Address of of Beneficial Percentage of Class Beneficial Owner Ownership 5 Class Owned
Common Stock Doyle W. Boatwright 8,000 8 * 6829 N. 12th Street Suite 207 Phoenix, AZ 85014
Common Stock Stanley Dudrick, M.D. 8,000 * c/o St. Mary's Hospital 56 Franklin Street Waterbury, CT 06706
Common Stock David Dumouchel 12,000 8 * 111 Canal Street Salem, MA 01970
Common Stock Donald C. Lewis, Jr. 15,000 9,, * c/o Nyle International Corp. 72 Center Street Brewer, Maine 04412
Common Stock Kenneth L. Nyer, M.D 22,0009,14 * 48 Old Orchard Road New Rochelle, New York 10804
All directors and executive officers 4,945,0005,6,7,8,9,10, 64.3% of the Company as a group (eight 11,12,13,14 persons)5 * less than 1% of class
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions.
Prior to 1991, the Company and Nyle each engaged in inter-company loans. At December 31, 1998, the Company was owed $34,488 by Nyle. As of March 31, 1999, Nyle owed the Company $35,253 (the addition being accrued interest). As of March 31, 1998, Nyle owed the Company $38,331. Nyle pays the Company principal and interest of 9% per annum on an infrequent basis. The Company is currently subject to a provision of the Florida General Corporation Law which restricts loans to affiliated parties and therefore the Company has not lent any further sums to its affiliates.
Mr. Samuel Nyer, president of the Company, is a guarantor of ADCO's institutional loan. See Notes to "Consolidated Financial Statements".
ADCO employs two relatives of Mr. William Clifford, a director of the Company and vice president and general manager of ADCO. One relative is employed as a retail store manager, and the other as a sales represen- tative. ADCO also employs three relatives of Ms. Karen Wright, the Company's treasurer and principal accounting and chief financial officer. One relative is employed as ADCO's assistant comptroller, one as a data entry clerk and the other is employed in the receiving department. The Company believes that the compensation paid to these individuals is no greater than unrelated persons would receive.
In February 1997, as required by his October 1996 employment agreement, the Company issued 1,000 shares of series 1 class B preferred stock, to Mr. Samuel Nyer. The shares had been previously authorized subject to a delivery of a fairness opinion from an independent investment banker, of which the opinion was received February 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NYER MEDICAL GROUP, INC. Registrant
By:// Samuel Nyer Samuel Nyer, President (Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person(s) on behalf of the Registrant and in the capacities indicated on the 14th day of April 1999.
Signature Title
/s/ Samuel Nyer Chairman of the Board, Samuel Nyer President, Director, and Secretary
/s/ William Clifford, Jr. Vice President of William Clifford, Jr. Sales, Director
/s/ Karen L. Wright Treasurer, Vice President Karen L. Wright of Finance, Assistant Secretary, and Director
/s/ Doyle Boatwright Director Doyle Boatwright
/s/ Stanley Dudrick, M.D. Director Stanley Dudrick, M.D.
/s/ David Dumouchel Director David Dumouchel
/s/ Donald Lewis Director Donald Lewis
/s/ Kenneth Nyer, M.D. Director Kenneth Nyer, M.D.
EXHIBIT INDEX Sequential Exhibit No.
Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits 2. Articles of Incorporation of Nyer Medical Group, Inc., (1)
2.1 Amendment to Articles of Incorporation of Nyer Medical Group, Inc.(1)
2.2 Second Amendment to Articles of Incorporation of Nyer Medical Group, Inc.(1)
2.3 Third Amendment to Articles of Incorporation of Nyer Medical Group, Inc.
3. Bylaws of Nyer Medical Group, Inc.(1)
4. 1993 Stock Option Plan(2)
4.1 Amendment to 1993 Stock Option Plan(3)
10. Agreement between Nyer Medical Group, Inc. and Dr. and Mrs. McCabe and Mr. McCabe, Jr.
10.1 Stock Purchase Agreement - Conway Associates, Inc.
10.2 Stock Exchange Agreement and Plan of Reorganization - Eaton Apothecary(3)
10.3 License Agreement - Nyer Nutritional Systems, Inc.
10.4 Employment Agreement - Samuel Nyer(4)
10.5 Employment Agreement - Doyle Boatwright(4)
(1) Contained in Registration Statement on Form S-18 filed on April 13, 1992.
(2) Contained in Form 10-KSB filed April 1996.
(3) Contained in Form 8-K filed August 1996.
(4) Contained in Form 10-KSB filed April 1997.
THIRD AMENDMENT TO THE ARTICLES OF INCORPORATION OF NYER MEDICAL GROUP, INC.
Pursuant to Sections 607.0602 and 607.1002, Florida Statutes, the undersigned hereby certifies that the following Third Amendment to the Articles of Incorporation of Nyer Medical Group, Inc. has been adopted:
1. The name of the corporation is Nyer Medical Group, Inc.
2. Article IV is amended by adding a new Section A which reads:
(1) 1,000 shares of Series 1 Class B Preferred Stock (the "Series 1 Stock") may be issued.
(2) The Series 1 Stock is not convertible into common stock but carries the right to 2,000 votes per share on all matters requiring a vote of the common shareholders and preferred shareholders.
(3) In all other respects, the Series 1 Stock shall be treated like common stock except where otherwise provided by the Florida Statutes.
3. The amendment was adopted on September 30, 1996, subject to filing the Second Amendment to the Articles of Incorporation.
4. This amendment was adopted by the board of directors.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to the Articles of Incorporation this 29 day of January 1997.
(CORPORATE SEAL) NYER MEDICAL GROUP, INC.
By:// Samuel Nyer Samuel Nyer, President
PricewaterhouseCoopers, L.L.P.
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of Nyer Medical Group, Inc. on Form S-8 (File Nos. 333-05635 and 333-05647) of our report dated March 30, 1999, on our audits of the consolidated financial statements of Nyer Medical Group, Inc. as of December 31, 1998, 1997, and 1996, and for the years ended December 31, 1998, 1997, and 1996, which report is included in the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers, L.L.P.
April 15, 1999
[ARTICLE] 5 [CIK] 0000884647 [NAME] NYER MEDICAL GROUP, INC