<PAGE>
1994 ANNUAL REPORT
[PHOTO]
MBM
MICRO BIO-MEDICS INC.
<PAGE>
TABLE OF CONTENTS:
----------------------------------------------------------
Illustrating Growth. . . . . . . . . . . . . 1
President's Letter . . . . . . . . . . . . . 2
Operations Review. . . . . . . . . . . . . . 4
Selected Financial Data. . . . . . . . . . . 7
Management's Discussion and Analysis . . . . 8
Consolidated Financial Statements. . . . . . 10
Notes to Consolidated Financial Statements . 15
Independent Accountants' Report. . . . . . . 26
Common Stock Data. . . . . . . . . . . . . . 27
Corporate Information. . . . . . . . . . . . 28
----------------------------------------------------------
<PAGE>
A CONTINUAL TRACK RECORD OF PROGRESS AND GROWTH . . .
Management's efforts towards Micro Bio-Medics' continued growth are reflected in
the following yearly breakdowns for 1989 through 1994:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED NOVEMBER 30,
Net Sales $ 40,291,619 $ 43,392,482 $ 50,739,534 $ 61,629,435 $ 73,951,410 $121,604,461
Net Income 555,007 519,911 668,153 1,222,873 1,202,219 1,621,620
Working Capital 9,814,375 10,099,758 11,793,261 15,819,417 20,965,370 30,141,450
Net Worth 4,581,223 5,116,593 5,822,407 10,461,736 16,193,524 18,067,056
Total Assets 15,507,416 16,460,354 19,488,491 27,934,060 32,784,324 54,461,087
Earnings Per Share 0.32 0.30 0.37 0.41 0.30 0.37
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SALES (MILLIONS $) [GRAPH]
NET INCOME (100,000's $) [GRAPH]
EARNINGS PER SHARE ($) [GRAPH]
1
<PAGE>
PRESIDENT'S LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER:
We are pleased to report 1994 as another record year of growth and progress in a
rapidly changing health care industry. Several years ago we created a strategic
position within our "niche" supply segment, which today will enable MBM to
greatly expand market share.
For the year ended November 30, 1994, sales increased 65% to $121,600,000 from
$73,900,000 in 1993. Net profits increased 35% to $1,621,000 from $1,202,000 in
1993. Net profit was outpaced by revenues due to the costs incurred in the
consolidation of the $50 million Clark Surgical acquisition. Management feels
that the procedural efficiencies implemented during FY 1994 and early 1995 will
result in bottom-line growth in 1995 and beyond.
MARKET POSITION
Managed care has continued to be a force for change in our marketplace. Two
years ago, we correctly anticipated this trend and invested resources to expand
our hospital division in order to provide comprehensive supply capability to
this emerging market. With proven systems now in place, we are poised for rapid
growth in the managed care sector.
Our Caligor division now has three marketing groups: alternate care, corporate
managed care and hospital care, which combined offer an integrated health care
network and seamless (complete supply fulfillment with one order) distribution
of medical supplies to all of our customers' facilities. Significant
opportunities have developed from this capability as hospitals and other managed
care providers accelerate their acquisition of primary care providers.
During 1995, we will be aggressively marketing our seamless distribution concept
to managed care facilities as we seek to benefit from industry changes and
leverage our competitive advantages.
TECHNOLOGY
Both the health care and distribution service industries are changing as a
result of new technologies.
We are proud that MBM has been a leader in bringing technological advancements
to our customers, providing them with better services and increased savings.
During 1994, we completed the development of our new Caligor Echo Purchasing
System for customer inventory management in alternate care facilities.
Its introduction to the market place in the first quarter of 1995 has been a
success, providing MBM with a proprietary tool to bring substantial cost-saving
opportunities to our customers. Importantly, with full implementation, it also
brings MBM overhead savings and increased profit margins as customers transmit
orders electronically to our computer for immediate processing.
The consolidation trends of our customers and distributors validate MBM's
commitment to develop new, more efficient operating techniques. In the first
quarter of 1995, we contracted to implement a new computerized warehouse
management system which will allow MBM to operate both our Pelham and Syosset
warehouses on a paperless real-time basis. This should provide a vast
improvement in efficiency and accuracy while allowing more sophisticated
services to be offered to customers. The system is expected to be in full
operation by the end of the year and will provide MBM with yet another
competitive advantage in our marketplace.
Our sales force will also benefit from our new technology. We have instituted a
test program that allows sales people to be in real-time radio communication
with our central computer system for both order entry and informational
purposes. We anticipate continued expansion of our entire sales force during
1995.
2
<PAGE>
ACQUISITIONS
The changes manifested by managed care and by technology are continuing to force
consolidation of the health care distribution industry. Over the past decade,
MBM has positioned itself to be a consolidator in our marketplace. We feel the
current business climate will continue to present attractive acquisition
opportunities as we seek to expand our geographic coverage in the Northeast
corridor.
Our acquisition philosophy has been to consolidate acquired companies into our
existing infrastructure to take advantage of economies of scale and consolidated
marketing opportunities. It is our belief that this strategy will continue to
provide MBM with a competitive advantage as we streamline operational costs.
During 1994, we completed the integration of Clark Surgical into MBM. We are
now operating the Pelham facility as our alternate care distribution site and
have converted Clark's Syosset warehouse into our hospital distribution center.
In June 1994, we acquired the assets of Weintraub Surgical, which allowed us to
increase our market share in the Bronx, New York. Weintraub's years of
experience in this market will prove valuable to MBM.
In March 1995, we acquired the assets of Mid-County Medical, in Pearl River, New
York. Mid-County serviced the physician market in Rockland County, New York and
further extends our geographic coverage into this new market.
We continue to seek acquisition opportunities in the Northeast corridor and feel
that we are uniquely positioned to take advantage of attractive opportunities as
they are presented to us.
SUMMARY
The rapid changes occurring in the health care distribution business are
providing exceptional opportunities for explosive growth. MBM's strategic
investments in business and technology will allow us to continue and even
accelerate, our profitable growth as industry opportunities unfold.
We are excited with our prospects for 1995 and beyond and we anticipate this
will be another record year. Management is grateful for the efforts and
dedication of our staff. We also appreciate the continued confidence of you,
our shareholders.
Sincerely,
/s/ Bruce J. Haber
Bruce J. Haber
President
3
<PAGE>
OPERATIONS REVIEW
Since 1971, Micro Bio-Medics has been one of the fastest growing distributors of
medical and health care supplies in the industry. This aggressive growth is not
an accident, but comes from the vision and commitment to excellence of its
dedicated team of professionals. Micro Bio-Medics comprises three business
units: the Caligor Division, the MBM Division and the Healer Products Division.
Micro Bio-Medics' focus and the heart of its business opportunities lie within
the primary and alternate care, hospital, sports medicine and school health care
marketplaces. Other areas of opportunity lie within the home health care,
veterinary, emergency medical services, occupational health care, industrial,
marine and medical laboratory arenas.
To address the diverse needs of these target markets, Micro Bio-Medics is
organized in a manner whereby each division has a specialized sales force to
meet the specific needs of the market it calls upon. However, to maximize
operational efficiencies, overhead expenses are shared for a more efficient
organization.
CALIGOR
Caligor, the largest division within Micro Bio-Medics, is composed of several
groups: Alternate Care, Hospital, Veterinary, and Home Care. In total, Caligor
has over 60 outside sales representatives and a rapidly growing market
penetration, firmly establishing it as a leading distributor within the
Northeast.
[PHOTO]
THE ALTERNATE CARE MARKET
Caligor offers physicians over 56,000 different medical and office supplies and
services, helping doctors meet the challenge of providing high-quality health
care while maintaining an efficient and profitable practice.
Our Alternate Care Group is a valuable source for physicians of any specialty,
providing them with the pro-active service, advice and product needed to
maintain a healthy practice, organization or business.
More than just a supplier, Caligor has recognized the need to provide
value-added services to our customers to help physicians improve the cost
efficiencies of their practices. Caligor has responded with Caligor Plus, a
value-added program that offers computerized inventory control programs,
preventive maintenance and repair and other value-added services designed to
develop a long-standing, true partnership with this fast-changing marketplace.
THE HOSPITAL MARKET
A growing presence in the New York metropolitan area, our Hospital Group
utilizes our 100,000-square-foot Syosset facility, a dedicated fleet of supply
trucks and a specialized sales and customer service group to deliver assistance
to this demanding marketplace. The Caligor Hospital Division provides over
40,000 kinds of medical and surgical supplies for use in hospitals and their
off-site facilities.
The Hospital Division also supplies additional services related to the materials
management function of a hospital which help increase inventory and distribution
efficiencies and decrease operational costs. These services include a
computerized materials management system (RSVP) that enables a hospital's
computer to directly relay an electronic order to Caligor's computer. This
program results in more responsive service and improved ordering accuracy while
helping Caligor's customers reduce their inventory investment through
operational efficiencies.
THE VETERINARY MARKET
Caligor sells a wide variety of veterinary products to over 5,000 veterinarians,
animal shelters and humane societies throughout the East Coast under the Clark
Veterinary Division.
THE HOME CARE MARKET
Caligor also supplies medical products to home care providers throughout the
East Coast that provide medical services to patients being treated in their own
homes. Like the other divisions within Caligor, the Home Care Group has its own
specialized sales force and customer service group to help meet this market's
ever-increasing needs.
4
<PAGE>
MBM
The MBM division has developed specialized marketing to distribute a wide range
of medical and health care products to sports medicine, school health care and
emergency medical service professionals from coast to coast.
MBM uses an integrated marketing approach that includes catalogs, direct
marketing, trade shows, trade advertising and telemarketing to increase
awareness and market penetration.
MBM's three strategically situated distribution centers are located in: Pelham
Manor, NY; Jacksonville, FL and South San Francisco, CA. These centers offer
next-day delivery of over 40,000 supply items to virtually any site in the
United States.
SPORTS MEDICINE
[PHOTO]
MBM sells sports medicine and athletic training supplies to professional sports
franchises. College and high school teams, sports medicine clinics, physicians
and physical therapists are also important target markets for MBM. The diverse
selection of products that MBM offers provides athletic trainers, coaches and
athletic directors with the ability to ensure their athletes safe and proper
training, medical treatment, and rehabilitation in the training room or on the
playing field.
SCHOOL HEALTH CARE
[PHOTO]
The primary and secondary school health professional is of growing importance to
MBM. Through many direct marketing tools, MBM has increased its awareness,
market penetration and revenue within the school health care marketplace.
Additionally, MBM aggressively participates in the competitive bidding that is
becoming more common among school systems today.
EMERGENCY MEDICAL SERVICES
[PHOTO]
With its Criti-Care Group, MBM offers a broad selection of products to emergency
medical services, fire and police departments, state and local municipalities,
prisons and other institutional facilities.
HEALER PRODUCTS
The Healer Products Division designs and assembles standard and customized
first-aid kits to meet any type of emergency medical situation. These products
are sold through a nationwide network of sales agents, dealers and distributors.
Healer's first-aid kits are designed to handle common emergency situations in
offices, industrial facilities, construction sites, schools, hospitals and
recreational facilities. Many of these organizations are required by OSHA to
have specific first-aid supplies on-hand and Healer designs its kits to meet
these needs. Private label first-aid kits are also designed for corporate
incentives, premiums and sales promotions.
Many of Healer's kits are designed to handle special emergency situations,
including: burns, poisoning, stings, trauma, eye injuries and obstetrical
emergencies. Healer also makes first-aid kits for the recreational boating and
the commercial marine industries.
5
<PAGE>
OPERATIONS REVIEW (CONT.)
CUSTOMER SERVICE AND DISTRIBUTION
[PHOTO]
Micro Bio-Medics' support services continue to grow and make significant
contributions towards meeting our customers' needs. We have a team of committed
professionals dedicated to maintaining a high level of service and personalized
attention for every account.
CUSTOMER SERVICE
The sales and customer service staffs are the core of Micro Bio-Medics. They
are the direct link between the company and our valued customers. These
departments are trained to anticipate our customers' needs, maintain a service
level that makes our customers' jobs easier and provide high-quality products
within the required budget.
With over 80 sales and customer service representatives, Micro Bio-Medics can
provide the personalized service that is needed to become a true partner to each
customer. Each division has its own sales and customer service staff to stay on
top of specific market trends and meet the individual needs of its many
customers.
RESPONSIVE DISTRIBUTION
In order to remain responsive to our demanding marketplace, Micro Bio-Medics has
several distribution facilities across the country serving Caligor, MBM and
Healer Products customers. Distribution facilities are located in Pelham Manor,
New York City, and Syosset, NY; South San Francisco, CA and Jacksonville, FL.
With our integrated network of distribution centers, we can deliver over 56,000
different supply items anywhere in the United States.
Our major distribution center is located in Pelham Manor, NY and consists of a
110,000-square-foot warehouse. This warehouse is equipped with sophisticated
order entry systems, bar code identification technology and a half-mile-long
conveyer system. Using this technology, we can easily locate any item and move
it quickly to a waiting truck for rapid delivery.
Our distribution centers in Florida, California and Syosset, NY are also
equipped with integrated, computerized "order-to-delivery" systems to provide
responsive service to our regional customers. With our fully integrated
distribution system, we provide a high level of service and prompt delivery to
customers nationwide.
PURCHASING POWER
[PHOTO]
Since the beginning, Micro Bio-Medics has built true partnerships with the
thousands of manufacturers that we represent. With these partnerships, Micro
Bio-Medics and its divisions can offer our customers a complete selection of
products, at the best possible price. We offer the highest quality standards and
can offer a lower cost alternative.
In addition to negotiating pricing on the 56,000 products we offer our
customers, the purchasing department evaluates hundreds of new products for
consideration and tracks emerging technologies that may benefit our customers.
Purchasing department professionals also identify new or revised government
regulations from such agencies as the Occupational Safety and Health
Administration (OSHA) that impact our customers. In addition, purchasing
representatives evaluate any new products that can help our customers comply
with new or changing regulations. This is extremely important to many of the
markets in which we work - sports medicine and school health care in particular.
6
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED OR AT NOVEMBER 30,
NET SALES $121,604,461 $ 73,951,410 $ 61,629,435 $ 50,739,534 $ 43,392,482
COST OF GOODS SOLD 94,923,689 56,347,353 47,287,409 38,561,458 32,489,552
------------------------------------------------------------------------
GROSS PROFIT 26,680,772 17,604,057 14,342,026 12,178,076 10,902,930
------------------------------------------------------------------------
EXPENSES:
Selling, shipping and warehouse 14,421,280 8,521,021 6,852,670 5,760,276 5,256,493
General and administrative 8,581,615 6,525,488 5,015,128 4,303,953 3,844,170
Interest and financing costs - net 1,044,257 502,329 289,355 425,694 606,527
Non-recurring items:
Provision for consolidation
of facilities -- -- -- 483,000 --
Write-down of manufacturing
equipment -- -- -- -- 245,829
------------------------------------------------------------------------
Total expenses 24,047,152 15,548,838 12,157,153 10,972,923 9,953,019
------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,633,620 2,055,219 2,184,873 1,205,153 949,911
PROVISION FOR INCOME TAXES 952,000 853,000 962,000 537,000 430,000
------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,681,620 1,202,219 1,222,873 668,153 519,911
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES
PRIOR TO 1994 (60,000) -- -- -- --
------------ ------------ ------------ ------------ ------------
NET INCOME $ 1,621,620 $ 1,202,219 $ 1,222,873 $ 668,153 $ 519,911
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ .37 $ .30 $ .41 $ .37 $ .30
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES PRIOR
TO 1994 (.01) -- -- -- --
------------------------------------------------------------------------
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ .36 $ .30 $ .41 $ .37 $ .30
------------------------------------------------------------------------
------------------------------------------------------------------------
AVERAGE NUMBER OF SHARES USED
TO COMPUTE EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE 4,896,518* 4,734,746* 3,481,415* 1,784,986 1,761,315
------------------------------------------------------------------------
------------------------------------------------------------------------
DIVIDENDS PAID None None None None None
------------------------------------------------------------------------
------------------------------------------------------------------------
WORKING CAPITAL $ 30,141,450 $ 20,965,370 $ 15,819,417 $ 11,793,261 $ 10,099,758
------------------------------------------------------------------------
------------------------------------------------------------------------
LONG-TERM DEBT
(net of current maturities) $ 19,381,239 $ 9,584,684 $ 9,410,079 $ 8,022,054 $ 6,956,503
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL ASSETS $ 54,461,087 $ 32,784,324 $ 27,934,060 $ 19,488,491 $ 16,460,354
------------------------------------------------------------------------
------------------------------------------------------------------------
STOCKHOLDERS' EQUITY $ 18,067,056 $ 16,193,524 $ 10,461,736 $ 5,822,407 $ 5,116,593
------------------------------------------------------------------------
------------------------------------------------------------------------
STOCKHOLDERS' EQUITY PER SHARE $ 3.69* $ 3.42* $ 3.01* $ 3.26 $ 2.91
------------------------------------------------------------------------
------------------------------------------------------------------------
TANGIBLE BOOK VALUE PER SHARE $ 2.92* $ 3.13* $ 2.72* $ 2.69 $ 2.31
------------------------------------------------------------------------
------------------------------------------------------------------------
<FN>
* Includes additional shares assuming conversion of stock options and
warrants utilizing the modified treasury stock method. For the other years,
outstanding stock options and warrants have not been included since their
effect would be antidilutive or immaterial.
All references to shares and per share data have been restated for all
periods presented due to a reverse stock split on June 28, 1991.
</TABLE>
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For fiscal 1994, net sales increased 64.4% as compared with the prior year.
This increase in sales resulted from the Company's acquisition of Clark Surgical
Corp. and its continuing effort to increase market penetration and sales volume
on the existing customer base while also adding new customers. For fiscal 1993,
net sales increased 20% as compared with the prior year. This increase in sales
resulted from the Company's continuing effort to increase market penetration and
sales volume on the existing customer base while adding new customers. During
the aforesaid periods, the introduction of new products, changing prices, and
inflation had no material impact on the Company's operations.
Net income for fiscal 1994 was 1.3% of net sales versus 1.6% of sales in fiscal
1993. Net income before the cumulative effect of accounting change was 1.4% of
net sales versus 1.6% of net sales in fiscal 1993. Net income for fiscal 1993
was 1.6% of net sales versus 2% of net sales for fiscal 1992. The decrease for
fiscal 1994 vs. fiscal 1993 was due primarily to costs associated with the
acquisition of Clark Surgical Corp., the expansion of the Company's hospital and
physician sales forces and increases in the interest rates charged by financial
institutions. The decrease for fiscal 1993 versus fiscal 1992 was due primarily
to increases in credit losses and costs associated with the expansion of the
Company's hospital sales force. Management believes that future credit losses
will be in line with the Company's prior experiences.
GROSS PROFIT/OPERATING EXPENSES
Gross profit expressed as a percent of net sales was 21.9%, 23.8% and 23.3% for
fiscal 1994, 1993 and 1992, respectively. These variations in gross profit
percentage are a result of changes in the Company's product mix and increased
sales to hospitals. Selling, shipping and warehouse and general and
administrative expenses expressed as a percent of net sales decreased 1.4% for
fiscal 1994 as compared to fiscal 1993. Selling, shipping and warehouse and
general and administrative expenses expressed as a percent of net sales
increased 1% for fiscal 1993 as compared to fiscal 1992.
INTEREST AND FINANCING COSTS
(NET OF INTEREST INCOME)
Interest expense (net of interest income) expressed as a percent of net sales
increased .2% for fiscal 1994 when compared to the prior year as a result of
increases in accounts receivable and in the interest rates charged by financial
institutions. Interest expense (net of interest income) expressed as a percent
of net sales increased .2% for fiscal 1993 as compared to the comparable period
of the prior year as a result of increases in accounts receivable, inventory and
capital expenditures needed to support the Company's continued growth.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that its working capital of approximately $30,000,000 at
November 30, 1994, together with its $25,000,000 line of credit and cash flow
from operations, provide sufficient liquidity for its short- and long-term
requirements and that the Company's long-term liquidity is not to be materially
affected by any restrictive covenants contained in the Company's Revolving
Credit Agreement. Further, Management believes that the Company should not
experience a problem in connection with the maintenance of such covenants.
During the past three fiscal years, the Company continued to meet its cash needs
via cash flow from operations and borrowings. During 1994, 1993 and 1992, the
Company had an average of approximately $11,000,000, $4,000,000 and $3,200,000,
respectively, of unused credit lines available each month over its normal
operating requirements.
For fiscal 1994, the Company generated cash flow from operating activities.
Excluding the net effect of asset acquisitions, an increase in accounts payable
over and above increases in inventory, accounts receivable and prepaid expenses
contributed to the Company's generation of cash. During fiscal 1994, the
Company's financing activities used cash as a result of repayments of the bank
loan under its long-term credit agreement. For fiscal 1994, the Company used
cash in investing activities to make capital expenditures and payments of net
assets. During fiscal 1994, the Company acquired the business and certain assets
of Clark through an increase in the Company's line-of-credit and the use of
same.
8
<PAGE>
For fiscal 1993, the Company used cash for operating activities. An increase in
accounts receivable, inventory and prepaid expenses and a decrease in accrued
expenses and accounts payable contributed to the Company's use of cash. During
fiscal 1993, the Company's financing activities generated cash flow as a result
of the net proceeds from the exercise of Series 1 Warrants and the sale of
Debentures. For fiscal 1993, the Company used cash in investing activities to
make capital expenditures.
For fiscal 1992, the Company used cash for operating activities as a result of
increases in accounts receivable and inventory over and above an increase in
accounts payable and accrued expenses. During fiscal 1992, the Company
generated cash flow as a result of the net proceeds of approximately $3,300,000
received from the completion of a public rights offering and increases in
borrowings under its long-term credit agreement.
Between August and September 1993, the Company received approximately $4,000,000
in gross proceeds from the exercise of Series 1 Warrants. In November 1993,
Micro completed the private sale and issuance of its 7% convertible subordinated
Debentures due October 30, 2003 (the "Debentures"). Net proceeds from the
issuance of the Debentures with a face value of $3 million was approximately
$2.7 million. The Debentures are immediately convertible into shares of Common
Stock at the rate of $8.00 per share until October 28, 2003, subject to
adjustment in certain events. These proceeds, combined with borrowings under
the Company's line-of-credit, were used on December 1, 1993 to purchase the
assets of Clark Surgical Corp. at a purchase price of approximately $16,500,000.
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS NOVEMBER 30, 1994 1993
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,333,345 $ 2,484,015
Accounts receivable, less allowance for doubtful accounts
of $650,000 in 1994 and $600,000 in 1993 (Note 5) 26,780,044 15,592,555
Inventory (Note 5) 15,449,465 8,199,999
Note receivable (Note 2) -- 1,000,000
Deferred income taxes (Note 6) 518,362 188,930
Prepaid expenses and other current assets 771,026 505,984
---------------------------
Total current assets 46,852,242 27,971,483
PROPERTY, PLANT AND EQUIPMENT - at cost,
net of accumulated depreciation and amortization of
$2,852,004 in 1994 and $2,134,646 in 1993 (Notes 2, 3 and 5) 3,453,607 3,086,307
INTANGIBLE ASSETS, net of accumulated amortization
of $769,088 in 1994 and $534,337 in 1993 (Notes 2 and 4) 3,793,654 1,380,554
OTHER ASSETS 361,584 345,980
---------------------------
$ 54,461,087 $ 32,784,324
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY NOVEMBER 30, 1994 1993
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5) $ 437,970 $ 362,631
Accounts payable 13,760,015 5,318,054
Accrued expenses and sundry liabilities (Note 7) 1,581,341 1,325,428
Due to seller (Note 2) 931,466 --
---------------------------
Total current liabilities 16,710,792 7,006,113
LONG-TERM DEBT, net of current maturities (Note 5) 19,381,239 9,584,687
DEFERRED INCOME TAXES (Note 6) 302,000 --
---------------------------
Total liabilities 36,394,031 16,590,800
---------------------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 5 and 9):
Preferred stock $1.00 par value:
Authorized - 1,000,000 shares, no shares issued -- --
Common stock $.03 par value:
Authorized - 7,000,000 shares
Issued - 3,595,409 shares in 1994
- 3,535,452 shares in 1993 107,862 106,063
Capital in excess of par value 10,527,552 10,277,439
Retained earnings 7,432,806 5,811,186
Less: Cost of 1,167 shares of common stock in treasury (1,164) (1,164)
---------------------------
Total stockholders' equity 18,067,056 16,193,524
---------------------------
$ 54,461,087 $ 32,784,324
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to financial statements are made a part hereof.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 121,604,461 $ 73,951,410 $ 61,629,435
COST OF GOODS SOLD 94,923,689 56,347,353 47,287,409
-------------------------------------------
GROSS PROFIT 26,680,772 17,604,057 14,342,026
-------------------------------------------
OPERATING EXPENSES:
Selling, shipping and warehouse 14,421,280 8,521,021 6,852,670
General and administrative 8,581,615 6,525,488 5,015,128
Interest and financing costs (net of
interest income of approximately
$173,000 in 1994, $198,500 in 1993
and $210,000 in 1992) 1,044,257 502,329 289,355
-------------------------------------------
Total operating expenses 24,047,152 15,548,838 12,157,153
-------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,633,620 2,055,219 2,184,873
PROVISION FOR INCOME TAXES (Note 6) 952,000 853,000 962,000
-------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,681,620 1,202,219 1,222,873
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES PRIOR TO 1994 (60,000) -- --
-------------------------------------------
NET INCOME $ 1,621,620 $ 1,202,219 $ 1,222,873
-------------------------------------------
-------------------------------------------
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (Note 10) $ .37 $ .30 $ .41
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR INCOME TAXES PRIOR TO 1994 (.01) -- --
-------------------------------------------
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ .36 $ .30 $ .41
-------------------------------------------
-------------------------------------------
AVERAGE NUMBER OF SHARES USED TO
COMPUTE EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE (Note 10) 4,896,518 4,734,746 3,481,415
-------------------------------------------
-------------------------------------------
DIVIDENDS PAID None None None
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes to financial statements are made a part hereof.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 1,621,620 $ 1,202,219 $ 1,222,873
-----------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Expenses not requiring the use of cash:
Cumulative effect of accounting change 60,000 -- --
Depreciation and amortization 952,109 666,589 390,357
Provision for losses on accounts receivable 268,551 321,526 87,245
Issuance of common stock as compensation -- -- 50,000
Deferred income taxes (96,000) (59,930) 112,000
Changes in assets and liabilities, net of
effect of asset acquisitions (Note 2):
Accounts receivable (1,055,450) (1,000,255) (4,252,199)
Inventory (2,506,516) (310,553) (2,511,330)
Prepaid expenses and other current assets (265,042) (75,031) 81,532
Other assets (15,604) 86,723 (10,959)
Prepaid and deferred income taxes -- -- 434
Accounts payable 8,441,961 (651,390) 2,016,939
Accrued expenses and sundry liabilities 255,913 (25,286) 123,174
Income taxes payable -- (270,284) (47,716)
-----------------------------------------
6,039,922 (1,317,891) (3,960,523)
-----------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 7,661,542 (115,672) (2,737,650)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of warrants 126,409 3,831,104 --
Proceeds from public stock offering -- -- 3,298,002
Net borrowings (repayments) under revolving
loan agreements (3,224,695) (3,350,000) 1,001,000
Net proceeds from issuance of debentures -- 2,725,000 --
Proceeds from long-term debt -- -- --
Repayments of long-term debt (380,085) (623,128) (289,870)
Exercise of employee stock options 125,503 107,975 68,454
-----------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $(3,352,868) $ 2,690,951 $ 4,077,586
-----------------------------------------
-----------------------------------------
</TABLE>
The notes to financial statements are made a part hereof.
12
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for certain net assets of
businesses acquired $ (2,718,009) $ (590,490) $ --
Capital expenditures (1,741,335) (440,878) (1,240,083)
Proceeds from sale and leaseback of equipment -- 425,736 --
Note receivable 1,000,000 (1,000,000) --
-------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,459,344) (1,605,632) (1,240,083)
-------------------------------------------
NET INCREASE IN CASH 849,330 969,647 99,853
CASH - beginning of year 2,484,015 1,514,368 1,414,515
-------------------------------------------
CASH - end of year $ 3,333,345 $ 2,484,015 $ 1,514,368
-------------------------------------------
-------------------------------------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,217,000 $ 700,000 $ 500,000
-------------------------------------------
-------------------------------------------
Income taxes $ 1,214,000 $ 1,157,000 $ 898,000
-------------------------------------------
-------------------------------------------
CHANGES WHICH ARE NOT REFLECTED IN THE
ABOVE STATEMENT:
Assets Acquired for debt - capital leases $ 202,658 $ 489,004 $ 1,017,713
-------------------------------------------
-------------------------------------------
Net assets of a business acquired
for issuance of common stock -- $ 590,490 --
-------------------------------------------
-------------------------------------------
Business Acquired for issuance of
long-term debt $ 14,217,981 -- --
-------------------------------------------
-------------------------------------------
</TABLE>
The notes to financial statements are made a part hereof.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
-------------------------------------------------------------------------------------------------------------------
COMMON STOCK CAPITAL IN
$.03 PAR VALUE EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT NOVEMBER 30, 1991 1,794,185 $ 53,825 $ 2,383,652 $ 3,386,094 $ 1,164
Shares issued to officers
as compensation 25,000 750 49,250 -- --
Shares issued for stock options 23,844 715 67,739 -- --
Shares issued through
public offering 920,930 27,628 3,270,374 -- --
Net income -- -- -- 1,222,873 --
----------------------------------------------------------------------
BALANCES AT NOVEMBER 30, 1992 2,763,959 82,918 5,771,015 4,608,967 1,164
Shares issued for stock options 25,967 779 107,196 -- --
Shares issued for exercise
of warrants 674,297 20,229 3,810,875 -- --
Shares issued for purchase
of net assets (Note 2) 71,229 2,137 588,353 -- --
Net income -- -- -- 1,202,219 --
----------------------------------------------------------------------
BALANCES AT NOVEMBER 30, 1993 3,535,452 106,063 10,277,439 5,811,186 1,164
Shares issued for exercise
of warrants 29,057 872 125,537 -- --
Shares issued for stock options 30,900 927 124,576 -- --
Net income -- -- -- 1,621,620 --
----------------------------------------------------------------------
BALANCES AT NOVEMBER 30, 1994 3,595,409 $ 107,862 $ 10,527,552 $7,432,806 $ 1,164
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
The notes to financial statements are made a part hereof.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1993 AND 1992
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF CREDIT RISK
Micro Bio-Medics, Inc. (the "Company") and its subsidiaries are engaged in the
distribution, at wholesale, of emergency medical service products and the
assembly and distribution of first-aid and medical kits and school and athletic
medical supplies. The Company distributes medical supplies to physicians and
hospitals in the New York metropolitan area, as well as to health care
professionals in sports medicine, industrial safety, and government and
laboratory markets nationwide. The foregoing operations are all considered as
one business segment. Historically, the Company has not experienced significant
losses related to receivables from any individual customers or group of
customers in any industry or geographic area.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, which are all wholly-owned. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CASH
The Company maintains various bank accounts and at times, balances may be in
excess of the FDIC insurance limit. At November 30, 1994 and 1993, the amounts
in excess of FDIC insurance limits were approximately $2,800,000 and $2,000,000,
respectively.
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out method) or market
and consists of finished goods.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are being depreciated primarily on the
straight-line basis over the estimated useful lives of the individual classes of
assets.
INTANGIBLES
Computer programming costs are being amortized over five years using the
straight-line method.
The excess of the purchase price paid over the net assets of businesses acquired
is being amortized over fifteen to forty years using the straight-line method.
DEFERRED INCOME TAXES
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes,"
which requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The resulting deferred tax asset or liability is adjusted
to reflect changes in tax laws as they occur. The Company reported the
cumulative effect of the change in the method of accounting for income taxes in
the 1994 consolidated statement of income.
REVENUE RECOGNITION
The Company recognizes revenues when its products are shipped.
15
<PAGE>
NOTE 2: ACQUISITIONS
Effective March 29, 1993, the Company acquired Harrisburg Surgical Supply, Inc.,
a distributor of physician and nursing home supplies. The consideration paid
consisted of a combination of approximately $600,000 in cash and 71,229 shares
of the Company's common stock for an aggregate purchase price of $1,180,900.
The purchase price was allocated based upon the fair market value of the assets
at the date of acquisition.
On December 1, 1993, a subsidiary of the Company purchased certain net assets
and customer accounts of Clark Surgical Corp. ("Clark") subject to certain
specific liabilities and obligations under existing contracts and leases. Clark
was a major distributor of physician, hospital and veterinary supplies in the
New York Metropolitan area and Southern Florida. In September 1993, Clark
borrowed $1,000,000 from the Company in connection with an asset purchase
agreement which was represented by an interest-bearing collateralized note and
personally guaranteed by the two stockholders of Clark. This note was paid in
full on December 1, 1993, including interest at the rate of 1% over prime. The
purchase price as adjusted was approximately $16,500,000 consisting of inventory
of approximately $5,000,000, accounts receivable of approximately $10,200,000,
property and equipment of approximately $300,000 and goodwill of $1,000,000. The
Company borrowed approximately $14,200,000 under its existing bank line of
credit to finance this acquisition and made payments during the year of
approximately $1,000,000. The remaining $930,000 is being held in reserve
pending final adjustments to be made in December 1995.
In addition, the agreement provides that the Company will pay the two former
stockholders of Clark an aggregate of $3,125,000 in cash, payable over a seven-
year period ending December 31, 2000, for their agreement not to compete for a
period of twenty years. These two shareholders also entered into employment
agreements with the Company for a term of one year on mutually acceptable terms.
As part of the acquisition of Clark's assets, which is included above, the
Company issued 40,000 warrants at an exercise price of $8.00 to these two
stockholders of which 20% are exercisable immediately and the remainder are
contingent upon certain conditions being met. Effective November 29, 1994, these
warrants were canceled.
Effective June 1, 1994, the Company acquired certain assets and customer
accounts of Joseph Weintraub, Inc., a distributor of physician and hospital
supplies for approximately $1,100,000. The purchase price was allocated based
upon the fair market value of the assets at the date of acquisition.
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant and equipment consists of the following:
NOVEMBER 30, ESTIMATED
1994 1993 USEFUL LIFE (YEARS)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture, fixtures and equipment* $ 5,015,883 $ 4,220,318 5 - 7
Transportation equipment 72,026 21,393 5
Leasehold improvements 1,217,701 979,242 Life of lease
----------------------------------------------
6,305,610 5,220,953
Less: Accumulated depreciation and amortization 2,852,003 2,134,646
----------------------------------------------
$ 3,453,607 $ 3,086,307
----------------------------------------------
----------------------------------------------
<FN>
* Equipment held under capital leases as of November 30, 1994 and 1993
amounted to approximately $2,249,000 and $2,046,000, respectively.
</TABLE>
Depreciation expense amounted to approximately $717,000, $584,000 and $328,000
for the years ended November 30, 1994, 1993 and 1992, respectively.
16
<PAGE>
NOTE 4: INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
1994 1993
---------------------------------------------------------------------
<S> <C> <C>
Excess cost of acquisitions over net
tangible assets acquired $ 3,743,840 $ 1,592,554
Agreement not to compete 467,857 --
Deferred computer programming costs 351,045 322,337
--------------------------
4,562,742 1,914,891
Less: Accumulated amortization 769,088 534,337
--------------------------
$ 3,793,654 $ 1,380,554
--------------------------
--------------------------
<FN>
Amortization expense amounted to approximately $235,000, $82,000
and $62,000 for the years ended November 30, 1994, 1993 and 1992,
respectively.
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
NOTE 5: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalized leases (collateralized by equipment
with an aggregate cost of approximately
$2,249,000 and $2,046,000) payable in various
installments through fiscal 2001; interest at 7.5%
to 12.4% or varies with changes in prime rate * $ 1,788,511 $1,947,318
Bank loans (i) 14,650,000 5,000,000
7% convertible subordinated debentures, due
October 30, 2003 (ii) 3,000,000 3,000,000
Obligation related to acquisition (Note 2):
Joseph Weintraub, Inc. - $26,343 payable
quarterly to June 1999; interest at 7% 380,698 --
--------------------------
19,819,209 9,947,318
Less: Current maturities 437,970 362,631
--------------------------
$19,381,239 $9,584,687
--------------------------
--------------------------
<FN>
* Includes equipment loans payable of approximately $69,000 and $159,000 as
of November 30, 1994 and 1993, respectively.
</TABLE>
The non-current portion of long-term debt at November 30, 1995 is
payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30,
----------------------------------------------
<S> <C>
1996 $ 15,123,573
1997 472,152
1998 310,235
1999 253,521
2000 191,559
Subsequent 3,030,199
-------------
$ 19,381,239
-------------
-------------
</TABLE>
17
<PAGE>
NOTE 5: LONG-TERM DEBT (CONT.)
(i) On November 19, 1993, the Company refinanced its $12,500,000 revolving loan
agreement with Chase Manhattan Bank, N.A. and entered into a revolving loan
agreement with Chase Manhattan Bank, N.A. to act as agent of and as a
participant in a $25,000,000 secured credit facility. Fleet Bank of New
York also acted as a participant in the loan agreement. Chase's and Fleet's
commitment under the loan agreement is limited to $15,000,000 and
$10,000,000, respectively. The loan agreement expires on November 18, 1996.
The loan bears interest at the bank's prime rate plus 1/4%, except for
Eurodollar loans. As of November 30, 1994, $12,750,000 of the $14,650,000
revolving loan outstanding was utilized for Eurodollar loans at an average
interest rate of 7%. The debt is collateralized by accounts receivable and
inventory. In connection with the loan agreement, the Company has agreed to
certain restrictions relating to its indebtedness and liens and has agreed
to maintain specified financial ratios and covenants. The loan agreement
prohibits the Company from paying any dividends and restricts capital
distributions or redemptions and purchases or retirements of any of the
Company's capital stock. There are also restrictions as to investments,
acquisitions, capital expenditures and payments to related parties. A
commitment fee equal to 1/8% per annum will be charged on the unused
portion of the loan. The loan may be repaid at any time.
(ii) In November 1993, the Company completed the private sale and issuance of
its 7% convertible subordinated Debentures due October 30, 2003 (the
"Debentures"). Net proceeds from the issuance of the Debentures with a face
value of $3,000,000 were approximately $2,700,000. The offering fees are
being amortized over a life of ten years.
The Debentures are immediately convertible into shares of common stock at
the rate of $8.00 per share until October 28, 2003, subject to adjustment
under certain circumstances. Interest is payable semi-annually on the 30th
day of April and October commencing April 30, 1994. Commencing in November
1995, the Debentures are redeemable at the option of the Company, in whole
and not in part, at the redemption prices set forth below, provided that
the Company is current in filing all required reports pursuant to Federal
Securities Laws. The Debentures are subordinated to all existing and future
indebtedness of the Company for money borrowed from institutional lenders.
The redemption prices of the Debentures for redemption at the option of the
Company (expressed in percentages of principal amount) are as follows for
the indicated twelve month periods commencing two years from the closing
date: year three - 105%, year four - 104%, year five - 103%, year six -
102%, year seven - 101% and thereafter at 100% until the maturity date of
the Debentures.
18
<PAGE>
NOTE 6: INCOME TAXES
Provision for income taxes comprises the following:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $745,000 $654,000 $613,000
State and local 303,000 259,000 237,000
Deferred:
Federal (77,000) (36,000) 68,000
State and local (19,000) (24,000) 44,000
--------------------------------------
$952,000 $853,000 $962,000
--------------------------------------
--------------------------------------
</TABLE>
The difference between the statutory United States federal income tax rate and
the effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Current year state and local taxes
(net of federal tax effect) 7.0 7.6 7.9
Other (4.9) (.1) 2.1
----------------------------------
36.1% 41.5% 44.0%
----------------------------------
----------------------------------
</TABLE>
The net current and non-current components of deferred income taxes recognized
in the balance sheet at November 30, 1994 are as follows:
<TABLE>
<S> <C>
Net current assets $518,362
Net non-current liabilities 302,000
--------
Net asset $216,362
--------
--------
</TABLE>
The components of the net deferred tax asset as of November 30, 1994
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable allowances $269,362
Inventory - uniform capitalization 232,000
Other 17,000
--------
518,362
Deferred tax liability:
Depreciation and amortization 302,000
--------
Net deferred tax asset $216,362
--------
--------
</TABLE>
19
<PAGE>
NOTE 7: ACCRUED EXPENSES
Accrued expenses and sundry liabilities consist of:
<TABLE>
<CAPTION>
NOVEMBER 30,
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Compensation $ 816,875 $ 537,941
Freight-out 128,500 --
Interest 97,366 --
Underwriter fees - warrants -- 200,000
Consolidation of facilities 7,336 127,535
Commissions 86,083 79,481
Insurance 31,069 48,121
Other 414,112 332,350
-------------------------
$1,581,341 $1,325,428
-------------------------
-------------------------
</TABLE>
NOTE 8: COMMITMENTS AND CONTINGENCIES
RETIREMENT PLAN
The Company's 401(k) deferred retirement plan provides for matching
contributions by the Company equal to 20% of the amount of the participants'
contributions that are not in excess of 5% of compensation. For the years ended
November 30, 1994, 1993 and 1992, the Company's matching contributions were
approximately $30,000, $25,000 and $25,000, respectively.
In December 1990, the Financial Accounting Standards Board issued Statement No.
106, "Employers' Accounting for Post Retirement Benefits Other Than Pensions,"
which will require accrual accounting for post retirement health care and life
benefits. In November 1992, the Financial Accounting Standards Board issued
Statement No. 112, "Employers' Accounting for Post-Employment Benefits," which
requires accrual accounting for post-employment benefit obligations other than
pensions or benefits covered by SFAS No. 106. These standards were implemented
effective December 1, 1993 and such adoption had no impact on the Company's
consolidated financial statements.
EMPLOYMENT/CONSULTING CONTRACTS
The Company entered into an employment agreement with its Chief Executive
Officer and a consulting agreement with a director, terminating on February 11,
1998 and December 31, 1995, respectively. The current aggregate annual
compensation under these contracts is approximately $310,000. The Chief
Executive Officer's contract provides for annual increments of $5,000 and, if
terminated prior to expiration, payments equal to the greater of $2,000,000 or
the sum of five years' salary, based upon the rate of compensation then in
effect, plus five times the last annual bonus received.
For the years ended November 30, 1994, 1993 and 1992, bonuses of $199,000,
$155,000 and $219,000, respectively, were paid under the employment contract.
SELF-INSURANCE
The Company acts as a self-insurer for its employees' health insurance up to a
maximum of $15,000 per covered individual. The Company is liable for a maximum
of $260,000 for the year based upon the number of employees covered. Claims,
including estimates for charges incurred but not reported, are charged to
operations during the year in which they occur. As of November 30, 1994, 1993
and 1992, the liability for self-insurance amounted to $75,000, $112,000 and
$82,000, respectively.
20
<PAGE>
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT.)
LEASES
The approximate aggregate minimum annual rental commitments under long-term
operating leases in effect at November 30, 1994 are as follows:
<TABLE>
<CAPTION>
OFFICE, WAREHOUSE TRANSPORTATION
YEAR ENDING NOVEMBER 30, AND SALES EQUIPMENT TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 $ 1,102,000 $ 94,000 $ 1,196,000
1996 986,000 77,000 1,063,000
1997 870,000 69,000 939,000
1998 823,000 42,000 865,000
1999 757,000 34,000 791,000
Thereafter 6,098,000 31,000 6,129,000
-----------------------------------------------
$10,636,000 $347,000 $10,983,000
-----------------------------------------------
-----------------------------------------------
</TABLE>
Certain leases contain escalation clauses which increase the rents for various
operating expenses and fluctuations in property taxes.
Rent expense comprises the following:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Office, warehouse and sales $1,392,046 $1,019,534 $678,130
Transportation equipment 85,555 102,241 125,165
----------------------------------------
$1,477,601 $1,121,775 $803,295
----------------------------------------
----------------------------------------
</TABLE>
The Company leases certain equipment under capital leases. The following is a
schedule by years of approximate future minimum lease payments under the
capitalized leases, together with the present value of the net minimum lease
payments at November 30, 1994:
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30,
<S> <C>
1995 $ 445,000
1996 445,000
1997 445,000
1998 254,000
1999 243,000
Subsequent 231,000
----------
Total minimum lease payments 2,063,000
Less: Amount representing interest at 6.5% to 9% 344,000
----------
$1,719,000
----------
----------
</TABLE>
In December 1992, the Company entered into a sales and leaseback agreement with
regard to its computer equipment. The transaction has been recorded as a sale of
approximately $761,000 with approximately $336,000 of the cash proceeds used to
repay borrowings on this equipment and approximately $425,000 used for working
capital purposes. The Company recorded a gain of approximately $15,000 which
will be amortized over the life of the capital lease of five years. The future
minimum lease payments are included above.
TAX CONTINGENCIES
The Internal Revenue Service has completed an examination of the Company's
consolidated federal income tax returns for the years ended November 30, 1990,
1991 and 1992 which resulted in a tax assessment of no significant effect.
21
<PAGE>
NOTE 9: STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS
ISSUANCES
On January 23, 1992, the board of directors approved the issuance of 25,000
shares of common stock to an officer of the corporation at $2.00 a share as
additional compensation.
On July 29, 1992, the Company completed a public offering of non-transferrable
Rights to purchase 460,465 Units at $9.00 per Unit. Each Unit consisted of two
shares of the Company's common stock and three redeemable Common Stock Purchase
Warrants which are exercisable at $8.00 per share at any time until June 18,
1995. The Company received net proceeds of $3,298,002 from this offering.
STOCK REPURCHASE AGREEMENT
In January 1984, the Company's board of directors granted certain employees the
right to purchase 56,333 shares of common stock at the Company's purchase price.
Each employee will be permitted to borrow from the Company an amount equal to
the purchase price pursuant to a five-year promissory note bearing interest at
the rate of 9% per annum, with interest due and payable annually. As security
for such loans, the shares of the borrowing employee will be endorsed and
deposited with the Company. In the event an employee leaves the Company, the
Company may repurchase such shares at the purchase price in amounts up to 100%
of the stock if prior to the third anniversary; 40% if prior to the fourth
anniversary and 20% if prior to the fifth anniversary of the note.
OPTIONS
1982 PLAN
Pursuant to an incentive stock option plan adopted in February 1982, 166,667
shares of the Company's common stock have been reserved for options to be
granted to officers and employees of the Company. The option price may not be
less than the fair market value of the common stock at the time the options are
granted. No options may be granted which are exercisable for a period in excess
of ten years.
Option transactions are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $2.25 to $4.00 a share) 127,000 147,933 108,517
Add (deduct):
Granted -- -- 57,500
Terminated (3,000) (5,600) (2,916)
Exercised (12,666) (15,333) (15,168)
---------------------------
Outstanding at end of year
(exercisable at a price range
of $2.25 to $4.00 a share) 111,334 127,000 147,933
---------------------------
---------------------------
Remaining shares reserved for issuance 123,000 135,666 150,999
---------------------------
---------------------------
</TABLE>
22
<PAGE>
NOTE 9: STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS (CONT.)
NON-STATUTORY STOCK OPTIONS
On October 7, 1987, the Company's board of directors granted non-qualified stock
options to certain members of the board of directors to purchase 72,000 shares
of the Company's common stock at prices ranging from $3.00 to $3.38 per share.
Option transactions are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $3.00 to $3.38 a share) 64,367 66,667 72,000
Deduct:
Exercised (3,333) (2,300) (5,333)
--------------------------
Outstanding at end of year
(exercisable at a price range
of $3.00 to $3.38 a share) 61,034 64,367 66,667
--------------------------
--------------------------
Remaining shares reserved for issuance 61,034 64,367 66,667
--------------------------
--------------------------
</TABLE>
1989 PLAN
In April 1989, the board of directors of the Company adopted a non-qualified
stock option plan in order to attract and retain qualified employees, officers
and directors. Under the plan, options to purchase a maximum of 416,666 shares
of common stock at a price not less than fair market value at the date of grant
may be granted to April 1999. If any options granted under the plan expire or
terminate for any reason without having been exercised in full, the unpurchased
shares shall become available for further options pursuant to the plan.
Option transactions are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $2.25 to $4.00 a share) 408,900 413,233 53,566
Add (deduct):
Granted -- -- 363,000
Exercised (4,000) (4,333) (3,333)
---------------------------
Outstanding at end of year
(exercisable at a price range
of $2.25 to $4.00 a share) 404,900 408,900 413,233
---------------------------
---------------------------
Remaining shares reserved for issuance 404,900 408,900 413,233
---------------------------
---------------------------
</TABLE>
23
<PAGE>
NOTE 9: STOCK ISSUANCES, REPURCHASES, OPTIONS AND WARRANTS (CONT.)
1992 PLAN
In January 1992, the board of directors adopted an incentive and non-statutory
stock option plan. Under this plan, 850,000 of the Company's authorized but
unissued shares of common stock are reserved for issuance. The board of
directors granted options to purchase 399,000 shares of the Company's common
stock at an exercise price of $4.00 per share (stock options covering 30,000
shares were granted to employees pursuant to a five-year vesting schedule and
the balance of options covering 369,000 shares were granted to officers and
directors which became exercisable on August 1, 1992).
Incentive stock option transactions are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30, 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year
(exercisable at a price range
of $4.00 to $7.50 a share) 244,500 133,000 --
Add (deduct):
Granted 80,500 125,500 133,000
Terminated (19,000) (10,000) --
Exercised (10,900) (4,000) --
---------------------------
Outstanding at end of year
(exercisable at a price range
of $4.00 to $10.25 a share) 295,100 244,500 133,000
---------------------------
---------------------------
Non-statutory stock option transactions are as follows:
Outstanding at beginning of year
(exercisable at a price range
of $4.00 to $7.50 a share) 400,000 342,000 --
Add:
Granted 100,000 58,000 342,000
---------------------------
Outstanding at end of year
(exercisable at a price range
of $4.00 to $10.00 a share) 500,000 400,000 342,000
---------------------------
---------------------------
</TABLE>
WARRANTS
In August 1993, the Company permanently reduced the exercise price of its
1,381,395 outstanding Series 1 Warrants as referred to above to $6.00 per share
from $8.00 per share.
Subsequent to the lowering of the exercise price, 703,354 Series 1 Warrants were
exercised. The net proceeds from the exercise of these warrants was
approximately $3,800,000.
24
<PAGE>
NOTE 10 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted
average number of common shares and common equivalent shares outstanding during
the period. The modified treasury stock method was utilized to calculate the
dilutive effect of the options and warrants upon the earnings per share data.
Fully diluted earnings per common and common equivalent share were the same as
for the primary calculation.
25
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
MICRO BIO-MEDICS, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Micro
Bio-Medics, Inc. and Subsidiaries as at November 30, 1994 and 1993, and the
related consolidated statements of income, cash flows, and changes in
stockholders' equity for each of the three years in the period ended November
30, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Micro Bio-Medics,
Inc. and Subsidiaries as at November 30, 1994 and 1993, and their consolidated
results of operations and cash flows for each of the three years in the period
ended November 30, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective December 1, 1993.
MILLER, ELLIN & COMPANY
Certified Public Accountants
February 10, 1995
26
<PAGE>
COMMON STOCK DATA
Since September 1992, the Company's Common Stock is quoted on the National
Association of Securities Dealers' Automated Quotation System National Market
System ("NASDAQ/NMS") under the symbol "MBMI." Prior to the listing of the
Company's Common Stock on NASDAQ/NMS, the Common Stock was traded under the same
symbol as a NASDAQ small-cap issue. Since August 20, 1992, the Company's Series
1 Warrants may be quoted in the "pink sheets" published by National Quotation
Bureau, Inc. The Company does not intend to qualify the Series 1 Warrants for
trading on NASDAQ. During the period December 1, 1992 to November 30, 1994, the
Company's Series 1 Warrants were unpriced. The over-the-counter market quotation
reported above reflects inter-dealer prices, without retail markup, markdown, or
commission and may not represent actual transactions.
Except as otherwise noted, the following table reflects the high and low sales
prices for the Company's Common Stock for the periods indicated as reported by
the National Association of Securities Dealers, Inc. ("NASD") from its NASDAQ
system:
HIGH AND LOW QUOTATIONS BY QUARTER
High Low
-----------------------------------------------------------------
FISCAL 1991
First Quarter 2 5/8 1 7/8
Second Quarter 3 3/4 2 1/16
Third Quarter 4 1/8 3
Fourth Quarter 4 5/8 3 3/8
FISCAL 1992
First Quarter 4 5/8 3 1/2
Second Quarter 4 3/8 3 5/8
Third Quarter 6 1/8 3 5/8
Fourth Quarter 7 3/8 6 1/2
FISCAL 1993*
First Quarter 8 29/32 6 3/8
Second Quarter 8 1/2 7 1/2
Third Quarter 11 1/4 7 3/4
Fourth Quarter 14 1/8 10 3/4
FISCAL 1994*
First Quarter 13 8
Second Quarter 10 3/4 9 1/8
Third Quarter 10 9 1/2
Fourth Quarter 10 9 1/2
FISCAL 1995*
First Quarter 10 9 7/16
*Prices are high and low sale prices.
[BAR GRAPH]
The over-the-counter market quotation reported reflects inter-dealer prices,
without retail markup, markdown, or commission and in the case of high and low
bid prices, may not represent actual transactions.
Management has been advised by its transfer agent (American Stock Transfer &
Trust Company) that the approximate number of record holders of the Company's
Common Stock, as of February 15, 1995, the record date, was 655.
No cash dividends have been paid by the Company on its Common Stock and no such
payment is anticipated in the foreseeable future.
27
<PAGE>
CORPORATE INFORMATION
DIRECTORS AND EXECUTIVE OFFICERS OFFICES
Bruce J. Haber* President EXECUTIVE OFFICES:
Louis Buther Vice President 846 Pelham Parkway
Ernest W. Nelson Vice President Pelham Manor, NY 10803
Michael J. Levy Vice President 914-738-8400
Gary Butler Treasurer
Renee Steinberg* Secretary MBM, Western Division
K. Deane Reade, Jr.* Managing Director of 211 Harbor Way
John Hancock Capital South San Francisco, CA 94080
Growth Management, Inc. 415-589-6037
Marvin S. Caligor* Consultant
MBM, Southern Division
* Members of the Board of Directors 8930 Western Way, Suite 5
Jacksonville, FL 32256
CORPORATE INFORMATION 904-363-1396
INDEPENDENT ACCOUNTANTS: Caligor Pharmacy
Miller, Ellin & Company 1226 Lexington Avenue
750 Lexington Avenue, 23rd Floor New York, NY 10028
New York, NY 10022 212-369-6000
LEGAL COUNSEL: Healer Products Division
Lester Morse, P.C. 3 Rusciano Boulevard
111 Great Neck Road Pelham Manor, NY 10803
Great Neck, NY 11021 914-738-9300
STOCK LISTING: Caligor Hospital Supply Division
NASDAQ National Market System 300 Michael Drive
Symbol: MBMI Syosset, NY 11791
516-921-1711
TRANSFER AGENT:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
ANNUAL MEETING:
Ramada Plaza Hotel
One Ramada Plaza
New Rochelle, NY 10801
Tentative Date: June 23, 1995
FORM 10-K REPORT:
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING EXHIBITS) FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1994, AS AMENDED AND FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WILL BE PROVIDED FREE OF CHARGE TO ANY SHAREHOLDER UPON
WRITTEN REQUEST TO:
MICRO BIO-MEDICS, INC.
846 PELHAM PARKWAY
PELHAM MANOR, NY 10803
ATTENTION: CORPORATE SECRETARY
<PAGE>
MBM
MICRO BIO-MEDICS INC.
846 Pelham Parkway
Pelham Manor, NY 10803
(914) 738-8400
Fax: (914) 738-9538
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 2,062,817
<SECURITIES> 0
<RECEIVABLES> 24,082,848
<ALLOWANCES> 667,350
<INVENTORY> 15,303,303
<CURRENT-ASSETS> 42,512,238
<PP&E> 6,349,700
<DEPRECIATION> 3,062,003
<TOTAL-ASSETS> 49,821,895
<CURRENT-LIABILITIES> 12,733,147
<BONDS> 18,801,979
<COMMON> 108,817
0
0
<OTHER-SE> 17,875,152
<TOTAL-LIABILITY-AND-EQUITY> 49,821,895
<SALES> 24,868,640
<TOTAL-REVENUES> 24,868,640
<CGS> 19,704,509
<TOTAL-COSTS> 19,704,509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,350
<INTEREST-EXPENSE> 311,871
<INCOME-PRETAX> (383,978)
<INCOME-TAX> (161,300)
<INCOME-CONTINUING> (222,678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,678)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
