<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year end September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-10128
PERSONAL DIAGNOSTICS, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New Jersey 22-23251136
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
P.O. Box 5310, Parsippany, NJ 07054
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (973) 952-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange
on which registered
NONE NONE
Securities registered pursuant to Section 1(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (*229.405 of this chapter) is not contained herein, and will
not be contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K.
[ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,350,000 based upon the average closing bid and
ask price for the Company's Common Stock, $.01 par value, as reported by the
Bulletin Board Quotation System on December 15, 1997.
Indicate the number of shares outstanding of each of the registrants classes
of common stock as of the latest practicable date.
Class Outstanding at December 15, 1997
Common Stock. $.0l par value 5,014,000
<PAGE> 2
1997 Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1 Business 1
Item 2 Properties 2
Item 3 Legal Proceedings 2
Item 4 Submission of Matters to a Vote of Security Holders 2
PART II
Item 5 Market for the Registrant's Common Stock and Related Security Holder Matters 3
Item 6 Selected Financial Data 4
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 5
Item 8 Financial Statements and Supplementary Data 7
Item 9 Disagreements on Accounting and Financial Disclosure 7
PART III
Item 10 Directors and Executive Officers of the Registrant 8
Item 11 Executive Compensation 8
Item 12 Security Ownership of Certain Beneficial Owners and Management 13
Item 13 Certain Relationships and Related Transactions 13
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
PART I
Item 1 - Business
General
Prior to May 15, 1995, Personal Diagnostics operated a contract
manufacturing business primarily devoted to the production of orthopedic
products and the assembly of various medical systems. During early fiscal 1995,
the Company essentially completed its assembly operations and on May 15, 1995,
concluded the sale of its manufacturing plant and equipment to EBI Medical
Systems, Inc. for $4.4 million dollars.
Subsequent to May 15, 1995 the Company retained ownership of receivables
which it collected and other miscellaneous assets which it sold. Management
continued to work diligently to assure that the Company's obligations to
customers, employees and others were honored completely. The Company has
continuing potential product liability exposure for equipment manufactured over
the years. The Company has maintained product liability insurance and knows of
no present or threatened claim of this nature. (See "Legal Proceedings")
Management intends to continue in business and has no intention to
liquidate the Company. The Company has considered various business alternatives
including the possible acquisition of an existing business, but to date, has
found possible opportunities unsuitable or excessively priced. The Company is
also considering developing a business itself, believing that start up costs may
be preferable to the premiums required to purchase a going concern. The Company
does not contemplate limiting the scope of its search to any particular
industry. Management has considered the risk of possible opportunities as well
as their potential rewards. Management has invested considerable time evaluating
and eliminating numerous proposals for possible acquisition or combination
developed by management or presented by investment professionals, the Company's
advisors and others. The Company believes that present valuations of existing
entities are inflated partly due to sellers' expectations being impacted by
generally high stock market valuations.
During the past year the Company has focused on the acquisition,
improvement and resale of real property. Initial efforts have not been
rewarding; however, Management will continue to pursue attractive real estate
opportunities particularly in the Florida market. The Company does not preclude
the possibility of becoming involved in the future with additional businesses in
other areas.
On June 13, 1996 the Company purchased a property located in the Embassy
section of Washington, D.C. The Company initially intended to significantly
improve and then resell the property. The process became cumbersome, costly and
time consuming. Consequently Management decided to sell this property after
limited improvements. The property was sold October 20, 1997.
The Company presently owns one property located at 1810 24th Street
N.W., Washington, D.C. As noted in the 1996 annual report, on October 2, 1996
the Board of Directors approved the purchase of this property for improvement
and resale. This property was owned by the Company president John H. Michael and
was being utilized as company offices. The purchase price was $817,500 and the
sale finalized on December 20, 1996. The Board carefully considered and
deliberated the issue of potential conflict of interest inherent in this
transaction. The Board secured and reviewed independent appraisals of the
property which were conducted by a designee of Riggs National Bank, J. Lee
Donnelly & Son, and a second appraisal conducted by Sotheby Realty. These
appraisals suggested a fair transfer price of between $840,000 and $900,000.
After weighing all factors, the Board decided the transaction was prudent and
fair to independent shareholders. The improvement process was initiated and is
continuing and is expected to be completed during fiscal 1998. At September 30,
1997 the Company's total investment in this property totaled approximately
$851,000 which management believes is approximately equal to present value.
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<PAGE> 4
The Company continues to consider possible acquisitions, business combinations,
or start up proposals which could be advantageous to shareholders. No assurance
can be given that any such project, acquisition or combination will be
concluded.
The Company intends to continue its investing and trading activities and as a
consequence the future financial results of the Company may be subject to
substantial fluctuations. Mr. Michael, the President of the Company is a
graduate of Harvard Business School (MBA). As part of the Company's investment
activities the Company may buy and sell a variety of equity, debt or derivative
securities including market index options and futures contracts. Such
investments often involve a high degree of risk and must be considered extremely
speculative. Futures Contracts are particularly risky since a relatively small
amount of capital controls a large nominal market value thus greatly
exaggerating the exposure to potential losses.
At September 30, 1997, over 70% of total Company assets were held in U.S.
Government Treasury Bills. The Company had no other trading or investment
positions. Since it is the intention of the Company to acquire or develop an
operating business, the Company presently intends to risk no more than 20% of
net worth in trading or investment activities.
Employees
The Company has one full time officer employee. It also utilizes consultants,
specialists and temporary employees as required. At the present time the Company
is heavily dependent on the skills of John H. Michael, the Company's President,
who is 54 years old and a graduate of Georgetown University of Foreign Service
and Harvard Business School.
Item 2 - Properties
The Company maintains an office in West Milford, New Jersey at a nominal cost.
The Company's address is P.O. Box 5310, Parsippany, New Jersey 07054. The
Company also has addresses at 1810 24th Street, N.W., Washington, D.C. and 320
Peacon Lane, Key West, Florida. The Company owns the Washington, D.C. property
and is presently improving the property with the intention to offer it for sale.
Item 3 - Legal Proceedings
The Company is the defendant in one lawsuit filed in August 1997 claiming
$49,000 for the alleged partial non-payment of a supplier in 1992. In the
opinion of management the suit is totally without merit.
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable.
4
<PAGE> 5
PART II
Item 5 - Market for the Registrant's Common Stock and Related Security Holder
Matters
(a) Market Information
The Company's Common Shares are traded on the "Bulletin Board System"
under the symbol PERS.U. The following table sets forth the high and low bid
prices of the Common Shares as reported for each quarter, as stated below since
the beginning of Fiscal 1996. The quotations represent prices between dealers
without adjustment for retail mark ups, mark downs, or commissions and may not
represent actual transactions.
Trading Quarter Bid Price
---------------
1996 High Low
---- ---- ---
December 31, 1995 (First Quarter) 7/8 3/4
March 31, 1996 (Second Quarter) 1 3/4
June 30, 1996 (Third Quarter) 1 7/8
September 30, 1996 (Fourth Quarter) 31/32 7/8
1997 High Low
---- ---- ---
December 31, 1996 (First Quarter) 15/16 25/32
March 31, 1997 (Second Quarter) 15/16 7/8
June 30, 1997 (Third Quarter) 1 7/8
September 30, 1997 (Fourth Quarter) 1 15/16
1998 High Low
---- ---- ---
December 15, 1997 (First Quarter) 1-1/8 15/16
(b) Holders
As of December 15, 1997 there were approximately 500 record holders of the
Company's Common Stock. Included are shares held in "nominee" or "street name".
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(c) Dividends
The Company has paid no cash dividends on its Common Shares and has no
intention of paying cash dividends in the foreseeable future. It is the present
policy of the Board of Directors to retain all earnings to provide for the
growth of the Company. Payment of cash dividends in the future will depend,
among other things, upon future Company earnings and future Company policy.
Item 6 - Selected Financial Data
(In thousands except per share amounts)
Year Ended September 30,
<TABLE>
<CAPTION>
OPERATING RESULTS 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Income (Loss) $ 1,007 308 $ (241) $ 215 $ 1,268
Income (Loss) From Continuing Operations 53 (149) (352) 69 689
Income (Loss) From Discontinued Operations -- -- (751) (1,329) 45
Net Income (Loss) 53 (149) (1,103) (1,260) 734
Per Share Data:
Income (Loss) From Continuing Operations .01 (.03) (.07) .01 .14
Income (Loss) From Discontinued Operations -- -- (.09) (.27) .01
Loss on Sale of Discontinued Operations -- -- (.07) -- --
Net Income (Loss) .01 (.03) (.23) (.26) .15
Weighted Average Number of Shares Outstanding 5,050 4,866 4,864 4,864 4,941
FINANCIAL POSITION
Working Capital $ 7,555 $ 7,502 $ 7,546 $ 6,785 $ 7,528
Total Assets $ 7,785 $ 7,882 $ 7,921 12,738 15,656
Long-Term Debt -- -- -- 3,104 3,203
Accumulated Deficit (1) (5,915) (5,968) (5,819) (4,716) (3,456)
Total Stockholders' Equity 7,555 7,502 7,546 8,649 9,909
</TABLE>
Notes:
(1) No dividends have been paid since inception.
6
<PAGE> 7
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At September 30, 1997 the Company had a cash and treasury bill balance of
$6,117,000 which represented a $793,000 decrease from the $6,910,000 balance at
September 30, 1996. This $793,000 decrease results from cash flow required for
operations of $898,000 offset by $105,000 from the proceeds from the exercise of
stock options. The cash flow required for operations of $898.000 results from
net income of $53,000 combined with a provision of $151,000 for the loss on
property held for sale offset by a cash outlay of $946,000 for the purchase of
property held for development and sale and capital improvements of such
property, in addition to changes in other operating assets and liabilities of
$156,000. The Company's working capital position at September 30, 1997 was
$7,555,000 as compared to a September 30, 1996 balance of $7,502,000.
Management intends to continue in business and has no intention to
liquidate the Company. The Company has considered various business alternatives
including the possible acquisition of an existing business, but to date, has
found possible opportunities unsuitable or excessively priced. The Company is
also considering developing a business itself, believing that start up costs may
be preferable to the premiums required to purchase a going concern. The Company
does not contemplate limiting the scope of its search to any particular
industry. Management has considered the risk of possible opportunities as well
as their potential rewards. Management has invested considerable time evaluating
and eliminating numerous proposals for possible acquisition or combination
developed by management or presented by investment professionals, the Company's
advisors and others. The Company believes that present valuations of existing
entities are inflated partly due to sellers' expectations being impacted by
generally high stock market valuations. During the past year the Company has
focused on the acquisition, improvement and resale of real property. Initial
efforts have not been rewarding; however, management will continue to pursue
attractive real estate opportunities particularly in the Florida market. The
Company does not preclude the possibility of becoming involved in the future
with additional businesses in other areas.
On June 13, 1996 the Company purchased a property located in the Embassy
section of Washington, D.C. The Company initially intended to significantly
improve and then resell the property. The process became cumbersome, costly and
time consuming. Consequently Management decided to sell this property after
limited improvements. The property was sold October 20, 1997.
The Company presently owns one property located at 1810 24th Street N.W.,
Washington, D.C. As noted in the 1996 annual report, on October 2, 1996 the
Board of Directors approved the purchase of this property for improvement and
resale. This property was owned by the Company president John H. Michael and was
being utilized as company offices. The purchase price was $817,500 and the sale
finalized on December 20, 1996. The Board carefully considered and deliberated
the issue of potential conflict of interest inherent in this transaction. The
Board secured and reviewed independent appraisals of the property which were
conducted by a designee of Riggs National Bank, J. Lee Donnelly & Son, and a
second appraisal conducted by Sotheby Realty. These appraisals suggested a fair
transfer price of between $840,000 and $900,000. After weighing all factors, the
Board decided the transaction was attractive and fair to independent
shareholders. The improvement process was initiated and is continuing and is
expected to be completed during fiscal 1998. At September 30, 1997 the Company's
total investment in this property totaled approximately $851,000 which
management believes is approximately equal to present value.
The Company continues to consider possible acquisitions, business
combinations, or start up proposals which could be advantageous to shareholders.
No assurance can be given that any such project, acquisition or combinations
will be concluded.
The Company intends to continue its investing and trading activities and
as a consequence the future financial results of the Company may be subject to
substantial fluctuations. Mr. Michael, the President of the Company is a
graduate of Harvard Business School (MBA). As part of the Company's investment
activities the Company may buy and sell a variety of equity, debt or derivative
securities including market index options and futures contracts. Such
7
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investments often involve a high degree of risk and must be considered extremely
speculative. Futures contracts are particularly risky since a relatively small
amount of capital controls a large nominal market value, thus greatly
exaggerating the exposure to potential losses.
At September 30, 1997, over 70% of total Company assets were held in U.S.
Government Treasury Bills. The Company had no other trading or investment
positions. Since it is the intention of the Company to acquire or develop an
operating business, the Company presently intends to risk no more than 20% of
net worth in trading or investment activities.
Results of Operations
As a result of the sale of the Company's manufacturing assets, the
financial results of the Company's manufacturing operation has been reported as
"Discontinued Operations" in accordance with Accounting Principles Board Opinion
No. 30. The prior years' results have been restated to conform to the new
reporting format.
Fiscal Year 1997 Compared to 1996
Income (Loss) from Continuing Operations
Income (loss) from continuing operations consists of interest and trading
gains and losses and general and administrative expenses and in 1996 an income
tax credit. The Company realized income from continuing operations of $53,000 in
the current year versus a loss of $149,000 in the prior year. Interest income
declined $88,000 to $302,000 primarily due to less invested funds. Trading gains
of $705,000 were realized versus trading losses of $82,000 in the prior year.
General and administrative expenses of $954,000 were $495,000 higher than the
prior year period of $459,000 due primarily to increased compensation paid to
President John H. Michael and increased costs and expenses associated with real
estate activities. During the current year the Company has not recorded an
income tax provision due to available tax carry forwards.
Discontinued Operations
During 1997 and 1996 there was no activity from discontinued operations.
Fiscal Year 1996 Compared to 1995
Income (Loss) from Continuing Operations
Income (loss) from continuing operations consists of interest and trading
gains and losses, general and administrative expenses and an income tax credit.
The Company incurred a $149,000 loss from continuing operations in the current
year versus a loss of $352,000, in the prior year period. Interest income
increased $73,000 to $390,000 due to more invested funds. The Company
experienced trading losses of $82,000 versus losses of $558,000 in the prior
year which were substantially attributable to Standard & Poor's 500 index
contracts. General and administrative expenses of $459,000 were $334,000 higher
than the prior year period of $125,000 due mainly to higher payroll costs and
the fact that operations in the two years were quite dissimilar. For fiscal year
1996, total compensation to Mr. Michael amounted to approximately $328,000
including $150,000 accrued bonus at September 30, 1996 related to Mr. Michael's
new Employment Agreement. This bonus was paid January 2, 1997 and $105,000 was
immediately returned to the Company in connection with the exercise of existing
incentive stock options.
During fiscal 1996, the Company recorded an income tax benefit of $2,000
related to its remaining loss carrybacks.
Discontinued Operations
During the current year the Company experienced no gain or loss from
discontinued operations versus a loss of $751,000 in the prior year. The loss of
$751,000 in the prior year included a loss on the sale of the Company's
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manufacturing operations of $336,000. See note 2 to the Company's financial
statements for a description of the sale transactions.
Inflation
The Company believes that inflation does not have a material adverse
effect on the results of its operations at the present time.
Year 2000
The Company does not believe it has any significant exposure to the "Year
2000" computer problem, as the Company is not dependent on computers to any
significant degree on its operations.
Item 8 - Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this
Report commencing on page F-1.
Item 9 - Disagreements on Accounting and Financial Disclosure
Not applicable.
9
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PART III
Item 10 - Directors and Executive Officers of the Registrant
Mr. Michael has served as a director of the Company since 1980. In 1986 he
was appointed Chairman of the Board of Directors and Chief Executive Officer and
in 1987 he was named President. Mr. Michael graduated from Georgetown University
School of Foreign Service in 1964 (BSFS) and Harvard Business School (MBA) in
1969.
Dr. Alfonso Espinosa was elected to the Board of Directors May 2, 1996.
Dr. Espinosa was a former Peruvian diplomat who served as Cultural Minister of
Peru to the United States for many years and retired from the Foreign Ministry
with the rank of Ambassador. He was also a respected retired faculty member of
Georgetown University in Washington, D.C. Dr. Espinosa died on July 14, 1997.
Item 11 - Executive Compensation
The following table sets forth a summary for the fiscal years ended
September 30, 1997, 1996 and 1995 of the cash compensation paid by the Company,
as well as certain other compensation paid or accrued for those years, to the
Company's Chief Executive Officer. No disclosure is provided as to the cash
compensation paid by the Company to other executive officers of the Company
since the compensation paid to each such executive officer was less than
$100,000 in the fiscal year ended September 30, 1997. In January 1997 the
Company's Board of Directors approved a modification to Mr. Michael's Employment
Agreement providing for annual performance compensation equal to no more than
60% of net trading profits in addition to his salary.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Name and Fiscal Salary Options All
Principal Position Year Paid Deferred Bonus (# of Shares) Compensation (1)
- ------------------ ---- ---- -------- ----- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John H. Michael, 1997 $175,000 ------ $400,000 ------ ------
Chairman, Chief
Executive Officer
President and
Treasurer
1996 $138,000 ------ $190,000 (3) ------ $4,200
1995 $60,000 $75,000 (2) ------ ------ $1,300
</TABLE>
(1) Represents contributions to the Company's 401(k) plan on behalf of Mr.
Michael to match pre-tax elective deferral compensation (included under the
salary column) made to such plan.
(2) In fiscal 1995 Mr. Michael decided to defer receipt of a portion of his
salary. This deferred portion was paid in fiscal 1996.
(3) Of this amount $105,000 is required to be utilized during January 1997 to
pay for the exercise of 150,000 incentive stock options.
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Performance Graph
The following graph provides a comparison on a cumulative basis of the
yearly percentage change over the last five fiscal years in (a) the total
shareholder return on the Company's Common Stock with (b) the total return on
the NASDAQ Stock Market of all domestic issues traded on the NASDAQ's NMS and
Small-Cap Market ("NASDAQ Stock Market Index"). Such yearly percentage has been
measured by dividing (i) the sum of (A) the amount of dividends for the
measurement period. assuming dividend reinvestment, and (B) the difference
between the price per share at the end and at the beginning of the measurement
period, by (ii) the price per share at the beginning of the measurement period.
The NASDAQ Stock Market Index has been selected as the required broad equity
market index. Because the Company sold its manufacturing assets in 1995 and is
gradually resuming active operations, no relevant comparison to peer issuers can
be made or shall be contained herein. The price of each investment unit has been
set at $100 on September 30, 1992 for purposes of preparing this graph.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[Graph showing relative performance of Company common stock
and NASDAQ National Market Index]
1992 1993 1994 1995 1996 1997
PERSONAL DIAGNOSTICS, INC. - NASDAQ STOCK MARKET (US COMPANIES)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Personal Diagnostics, incorporated 100.0 147.6 52.3 61.2 75.0 82.2
NASDAQ Stock Market (US Companies) 100.0 144.8 145.1 198.1 232.9 305.8
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighed daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 09/30/92.
Employment Agreement
John H. Michael was employed by the Company pursuant to an Employment
Agreement which extended from April 1, 1990 to March 31, 1996. Between April 1,
1996 and September 25, 1996 Mr. Michael was employed without an agreement at a
salary of $150,000 per year.
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On September 25, 1996 the Company and Mr. Michael agreed upon a new three
year employment agreement to September 24, 1999 with the right of the Employee
to extend the Agreement for an additional three years. Pursuant to this
agreement Mr. Michael will serve as the Company's President and Chief Executive
Officer. Mr. Michael's annual base salary is $175,000 subject to increase upon
review by the Board of Directors of the Company. The Agreement does not require
Mr. Michael to devote a minimum amount of time to the affairs of the Company;
however, it is anticipated that Mr. Michael will devote a majority of his
business time and efforts to the Company. Mr. Michael is also restricted from
disclosing, disseminating or using for his personal benefit or the benefit of
others information deemed "Confidential". The Agreement does not restrict Mr.
Michael's ability to work for any other company. The Agreement also provided for
a bonus of $150,000 payable to Mr. Michael on January 2, 1997. $105,000 of this
bonus was immediately returned to the Company to pay for exercised stock
options.
On January 17, 1997, the Board of Directors, with the agreement of Mr.
Michael, modified Mr. Michael's employment agreement dated September 25, 1996.
The Board wished to substantially compensate Mr. Michael for his singular role
in generating securities trading profits for the Company. This modification
provided for additional annual performance compensation to Mr. Michael of no
more than 60% of net gains produced by Mr. Michael's trading and investment
activities on the Company's behalf. Pursuant to this agreement, the Company paid
Mr. Michael $400,000 in performance compensation during fiscal 1997. This
amounted to slightly less than 57% of the $705,000 of net financial trading
profits for the year.
Further the Board, again with Mr. Michael's concurrence, canceled the
provision of Mr. Michael's employment agreement whereby the Company agreed to
lend up to $250,000 directly to Mr. Michael. Instead the Board agreed that the
Company would guarantee up to $750,000 of secured bank loans to Mr. Michael
provided that the primary security for any such loan is a minimum of one million
shares of Personal Diagnostics, Inc. common stock owned by Mr. Michael. Also Mr.
Michael agreed that in the event of default on any loan made pursuant to this
arrangement the shares securing the loan would be immediately delivered by the
lending bank to the Company's transfer agent for cancellation. At December 15,
1997 Mr. Michael had total borrowings of $750,000 outstanding from Riggs
National Bank pursuant to this arrangement. Riggs National Bank holds 1,012,500
shares of Mr. Michael's Personal Diagnostic common stock as security for this
loan. The Company is a guarantor of this loan.
Savings and Benefit Plans
The Company had a 401k savings/retirement plan under which all the
Company's eligible employees including executive officers were entitled to
benefits. The plan allowed for the employee contributions to be matched by the
Company on a pro rata basis. Contributions made by the Company amounted to
$11,000, $4,200 and $0 for the fiscal years ended September 30, 1995, 1996 and
1997 respectively. Executive officers who qualified were also permitted to
participate in the Company's Stock Option plans as well as the 401k plan.
Executive officers participate in group life and medical plans which are
available generally to all employees. At December 31, 1995 the, Company
terminated the 401k retirement plans.
Directors
The Company's outside Directors are reimbursed for their out-of-pocket
expenses incurred in connection with their attendance at each Board meeting.
Stock Option Plan and Warrants
On April 23, 1986 and April 28, 1988, the Board of Directors adopted
Employee Stock Option Plans which were approved by the Company's shareholders.
Under the 1986 Plan, which terminated in 1996, options to purchase no more than
150,000 Common Shares may be granted. Under the 1988 Plan, which terminates in
1998, options to purchase no more than 450,000 Common Shares may be granted. On
September 17, 1990 the Board of Directors adopted the 1990 Stock Option Plan
which terminates in the year 2000, and authorizes the granting of options to
purchase no more than 300,000 common shares. The 1990 Stock Option Plan was
approved by the Company's
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shareholders at their annual meeting on September 12, 1991. (Hereinafter the
1986, 1988 and 1990 Plans shall be collectively referred to as the "Plans".)
The Plans authorized the granting of either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options" to acquire the Company's Common Shares. On April
28, 1988, the Board of Directors amended and restated the Company's 1986 and
1988 Plans such that with the exception of the term of the Plans and the number
of shares that may be granted pursuant to the Plans, the Plans are now
essentially identical. Outstanding options to purchase 150,000 Common Shares
were exercised September 25, 1996. At September 30, 1997 options were
outstanding to purchase 150,000 shares.
Currently, the Company has one employee eligible to participate in the
Plans. The shares available for issuance will be increased or decreased
according to any reclassification, recapitalization, share split, share dividend
or other such subdivision of combination of the Company's Common Shares. Any
moneys received by the Company from the exercise of options will be used for
working capital.
AGGREGATE OPTION EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
TO BE COMPLETED
<TABLE>
<CAPTION>
Number of Value of
Shares underlying unexercised
unexercised in-the-money
options at fiscal options at
year-end fiscal year-end
(#) ($)
Shares Value
acquired on Realized Exercisable Exercisable
Name exercise (#) ($)
<S> <C> <C> <C> <C>
John H. Michael (1) N/A N/A 150,000 $45,000
</TABLE>
(1) On August 8, 1994, 312,500 incentive stock options granted to Mr. Michael
under the Company's 1986 Stock Option Plan and 112,900 incentive stock options
granted to Mr. Michael under the Company's 1988 Stock Option Plan were
surrendered and canceled in exchange for 300,000 incentive stock options granted
under the Company's 1988 Stock Option Plan, each having an exercise price of
$.70 per share. These options are exercisable in 100,000 share increments on
each of September 15, 1994, January 1, 1995 and January 1, 1996. Options were
exercised on 150,000 of these shares on September 25, 1996.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the date of exercise, or through a combination of such
methods. The exercise price equals 110% of the fair market value of the shares
of the Company's Common Stock on the date of grant. The above-market exercise
price of the options at the date of grant is required under the regulations
promulgated under Section 422 of the Internal Revenue Code of 1986, as amended
for the grant of incentive stock options to an optionee owning in excess of IO%
of the Company's voting stock at the date of grant.
Eligibility
Any person who is employed by the Company shall be eligible to receive
incentive stock options under the Plans. The Plans permit non-qualified stock
options to be granted to directors and consultants, as well as employees. Any
employee who already owns 10 percent or more of the total combined voting power
of all classes of the company's stock shall be eligible to receive incentive
stock options only under certain limited circumstances.
13
<PAGE> 14
Exercise Price of Options
Options granted pursuant to the Plans must have an exercise price no less
than the fair market value of the Company's Common Shares at the time the option
is granted, except that in the case of an incentive stock option the price shall
be at least 110 percent of the fair market value when the option is granted to
an employee who owns more than 10 percent of the combined voting power of all
classes of the Company's voting stock at the date of grant. Under the terms of
the Plans, the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable for the first time by such individual
during any calendar year shall not exceed $100,000.
Amendments and Discontinuance
The Plans can be amended, suspended, or terminated at any time by actions
of the Company's Board of Directors except that no amendment to the Plans can be
made without prior shareholder approval where such amendment would (i) increase
the total number of shares of stock which may be purchased under the Plans; (ii)
materially modify the eligibility requirements of the Plans; or (iii) materially
increase the benefits accruing to the participants under the Plans.
Administration
The Board of directors has appointed a Stock Option Committee consisting
of John H. Michael and Dr. Alfonso Espinosa. Mr. Michael is Chairman of the
Stock Option Committee. Dr. Espinosa died in July 1997. The Committee determines
the individuals who will be granted options, the number of options each
individual will receive, the option price and the exercise period of each
option. No grants were made during fiscal year 1997.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors determined the compensation paid to
executive officers during fiscal 1996. Mr. Michael is the Chairman of the Board
of Directors, Chief Executive Officer, President, Treasurer and Secretary of the
Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities. to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ, copies of which are required by regulation to be furnished to the
Company.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that during fiscal 1997 its officers, directors
and ten percent (10%) beneficial owners complied with all Section 16(a) filing
requirements.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Set forth below is information concerning the beneficial ownership of the
Company's Common Stock by each Director, by all Directors and Officers of the
Company as group and by each person known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Company's Common Stock
based upon the number of shares of Common Stock outstanding on December 15,
1997.
14
<PAGE> 15
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent
Beneficial Owner (1) of Beneficial Ownership of Class
- -------------------- ----------------------- --------
<S> <C> <C>
John H. Michael 3,869,432(2) 74.9%
1810 24th Street N.W.
Washington, D.C.
Dr. Alfonso Espinosa -0- -0-
P.O. Box 5310
Parsippany, NJ 07054
</TABLE>
- ----------------------
(1) Unless otherwise indicated each person has sole voting and investment powers
with respect to the shares specified opposite his name.
(2) Includes incentive stock options to purchase 150,000 shares at $.70 per
share which employee has the right to exercise immediately.
Item 13 - Certain Relationships
On December 20, 1996, The Company purchased for $817,500, for the purpose
of development and resale, the property owned by Mr. Michael at 1810 24th
Street, N.W., Washington, D.C.
At December 15, 1997, Mr. Michael had a secured loan outstanding in the
amount of $750,000 from Riggs National Bank. The primary security for this loan
is 1,012,500 shares of Personal Diagnostics common stock owned by Mr. Michael.
The Company is a guarantor of this loan. (See "Employment Agreement").
15
<PAGE> 16
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The response to this portion of Item 14 is submitted as a separate section
of this Report Commencing on page F-1.
(a)(2) Inapplicable
(a)(3) List of Exhibits
<TABLE>
<CAPTION>
Exhibit Location
------- --------
<S> <C> <C>
3.1 Articles of the Corporation Incorporated by reference to
Registration Statement on
Form S-1 filed October 7, 1983
File No. 2-86991
3.2 By-laws of the Corporation Incorporated by reference to
Registration Statement on
Form S-1 filed October 7, 1983
File No. 2-86991
10.1 Employment Agreement between Incorporated by reference to
John H. Michael and the Company 1996 Form 10-K
dated September 25, 1996
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Date Filed Transaction Reported
---------- --------------------
December 4, 1996 Temporary removal of guideline
on percentage of Company assets
which may be at risk to speculative
loss.
December 9, 1996 Close of short position on S&P
Futures Contracts.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERSONAL DIAGNOSTICS, INCORPORATED
By: /s/ John H. Michael
-------------------------
John H. Michael
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ John H. Michael
--------------------
John H. Michael Chairman of the Board, December 22, 1997
Chief Executive Officer,
Chief Financial Officer,
President, Treasurer and
Secretary
The Company has not furnished an annual report or proxy materials to
security holders to date, but plans to distribute an Annual Report and Proxy
Statement subsequent to the filing of this Form 10-K and the Company will
furnish copies of such material to the Commission when they are sent to security
holders.
17
<PAGE> 18
PERSONAL DIAGNOSTICS, INCORPORATED
INDEX
Page
Independent Auditors' Report F-2
Balance Sheets as of September 30, 1997 and 1996 F-3
Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts F-14
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the financial statements and
notes hereto.
F-1
<PAGE> 19
PERSONAL DIAGNOSTICS, INCORPORATED
INDEPENDENT AUDITORS' REPORT
Board of Directors
Personal Diagnostics, Incorporated
We have audited the financial statements of Personal Diagnostics, Incorporated
as of September 30, 1997 and 1996 and for each of the three years in the period
ended September 30, 1997 as listed in the accompanying index. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Personal Diagnostics,
Incorporated at September 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1997 in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
December 10, 1997
F-2
<PAGE> 20
PERSONAL DIAGNOSTICS, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 6,117,000 $ 6,910,000
Property held for development and sale 1,661,000 866,000
Due from stockholder (collected January 2, 1997) -- 105,000
Other current assets 7,000 1,000
------------ ------------
Total Current Assets 7,780,000 7,882,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,000 $ 10,000
Accrued compensation -- 150,000
Current liabilities of discontinued operations 125,000 150,000
Other current liabilities 93,000 70,000
------------ ------------
Total Current Liabilities 230,000 380,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; authorized,
25,000,000 shares; issued and outstanding,
5,014,000 shares 50,000 50,000
Capital in excess of par value 13,420,000 13,420,000
Accumulated deficit (5,915,000) (5,968,000)
------------ ------------
Total Stockholders' Equity 7,555,000 7,502,000
------------ ------------
$ 7,785,000 $ 7,882,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 21
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30
------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INCOME:
Interest $ 302,000 $ 390,000 $ 317,000
Trading gains (losses) 705,000 (82,000) (558,000)
----------- ----------- -----------
1,007,000 308,000 (241,000)
EXPENSES:
General and Administrative 954,000 459,000 125,000
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 53,000 (151,000) (366,000)
PROVISION FOR INCOME TAXES (BENEFIT) -- (2,000) (14,000)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 53,000 (149,000) (352,000)
----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES:
Loss from operations -- -- (415,000)
Loss on sale -- -- (336,000)
----------- ----------- -----------
-- -- (751,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 53,000 $ (149,000) $(1,103,000)
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING $ .01 $ (.03) $ (.07)
Income (loss) from continuing operations -- -- (.09)
Discontinued operations -- -- (.07)
----------- ----------- -----------
Loss on sale
Net income (loss) $ .01 $ (.03) $ (.23)
----------- ----------- -----------
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 5,050,000 4,866,000 4,864,000
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 22
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Capital in
-------------------------- Excess of Accumulated
Shares Par Value Par Value Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES SEPTEMBER 30, 1994 4,864,000 $ 49,000 $13,316,000 $(4,716,000)
YEARS ENDED SEPTEMBER 30, 1995
Net loss -- -- -- (1,103,000)
----------- ----------- ----------- -----------
BALANCES SEPTEMBER 30, 1995 4,864,000 49,000 13,316,000 (5,819,000)
YEARS ENDED SEPTEMBER 30, 1996
Exercise of stock options 150,000 1,000 104,000
Net loss -- -- -- (149,000)
----------- ----------- ----------- -----------
BALANCES SEPTEMBER 30, 1996 5,014,000 50,000 13,420,000 (5,968,000)
YEARS ENDED SEPTEMBER 30, 1997
Net Income -- -- -- 53,000
----------- ----------- ----------- -----------
BALANCES SEPTEMBER 30, 1997 5,014,000 $ 50,000 $13,420,000 $(5,915,000)
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 23
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 53,000 $ (149,000) $(1,103,000)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and amortization -- -- 302,000
Provision (benefit) for losses on accounts
receivable -- (50,000) --
Gain on disposal of property
and equipment -- -- (19,000)
Loss on sale of discontinued operations -- -- 336,000
Provision for loss on property held for sale 151,000 -- --
Changes in assets and liabilities:
Trading securities -- 4,963,000 (3,933,000)
Property held for development and sale (946,000) (866,000) --
Accounts receivable - net -- 198,000 392,000
Inventories -- -- (70,000)
Other current assets (6,000) 15,000 558,000
Accounts payable and accrued liabilities (150,000) 5,000 (168,000)
----------- ----------- -----------
Net cash flows from operating activities (898,000) 4,116,000 (3,705,000)
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from disposal of property
and equipment -- -- 29,000
Net proceeds from sale of discontinued
operations -- -- 4,562,000
----------- ----------- -----------
Net cash flows from investing activities -- -- 4,591,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collection from stockholder for exercise of
stock options in prior year 105,000 -- --
Principal payments on borrowings -- -- (2,451,000)
Principal payments for equipment notes
payable and capital lease obligations -- -- (1,195,000)
----------- ----------- -----------
Net cash flows from financing activities: 105,000 -- (3,646,000)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (793,000) 4,116,000 (2,760,000)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 6,910,000 2,794.000 5,554,000)
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 6,117,000 $ 6,910,000 $ 2,794,000
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 24
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF THE BUSINESS - Personal Diagnostics, Incorporated ("the
Company") is pursuing various business alternatives including possible
acquisition of an existing business. It is currently engaged in the
acquisition, improvement and resale of real estate.
In May 1995, the Company discontinued its former operations which were
the production of orthopedic products and assembly of medical systems.
CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash
equivalents.
NET INCOME (LOSS) PER SHARE OF COMMON STOCK - Net income (loss) per
share of common stock is based on the weighted average number of common
shares and common share equivalents outstanding during each year when
the effect is not anti-dilutive. Common share equivalents consist of
outstanding options and warrants using the treasury stock method.
CONCENTRATION OF CREDIT AND OFF-BALANCE-SHEET RISK - Financial
instruments that are potentially subject to credit risk consist of cash
and equivalents and trading securities. Cash and equivalents and
principally all trading securities are placed with financial
institutions.
ESTIMATES AND UNCERTAINTIES - 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, as determined at a later date, could differ from those
estimates.
FINANCIAL INSTRUMENTS - Financial instruments include cash and
equivalents, securities, accounts payable and accrued expenses. The
amounts reported for financial instruments are considered to be
reasonable approximations of their fair values, based on market
information available to management. The use of different market
assumptions and/or estimation methodologies could have an effect on the
estimated fair value amounts.
NOTE 2 - DISCONTINUED OPERATIONS:
On May 15, 1995, the Company completed the sale of certain assets to EBI
Medical Systems, Inc., a subsidiary of Biomet, Inc. The assets sold
consisted of (i) the land, building and improvements comprising the
Company's executive offices and manufacturing facility located in
Parsippany, New Jersey, (ii) all the Company's manufacturing equipment
and machinery, and (iii) certain office equipment and
manufacturing-relating items (collectively, the "Purchased Assets"). The
purchase price for the Purchase was $4,400,000. Certain additional
items, including miscellaneous inventory, were purchased separately.
F-7
<PAGE> 25
PERSONAL DIAGNOSTICS, INCORPORATED
The sale resulted in a pre-tax loss of $336,000, which included both a
loss on the sale of assets and accruals for other estimated costs
expected to be incurred in connection with the sale. The results of the
Company's manufacturing operations have been reported separately as a
component of discontinued operations in the Statements of Operations.
Summary operating results of the manufacturing operations for the fiscal
year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Net sales $1,907,000
Loss before income taxes (415,000)
Net loss (415,000)
</TABLE>
Current liabilities of discontinued operations at September 30, 1997 and
1996, consist of costs for product liability insurance.
NOTE 3 - INVESTMENTS
At September 30, 1997 and 1996, cash and equivalents include $5,738,000
and $6,324,000, respectively of U.S. Treasury Bills purchased with
maturities of three months or less.
The Company periodically enters into futures contracts for commodities
or stock indexes. The Company considers these investments to be trading
securities.
For the year ended September 30, 1995, the Company included a credit to
earnings of $67,000 representing the change in the net unrealized
holding loss on its trading securities.
NOTE 4 - PROPERTY HELD FOR DEVELOPMENT AND SALE:
The Company owned two properties in Washington D.C. which it acquired
with the intention to improve and sell. One property, carried at a net
cost of $810,000 at September 30, 1997, was sold on October 20, 1997.
For the year ended September 30, 1997, the Company provided an allowance
of $151,000 for loss on the sale of this property. The other property,
carried at a cost of $851,000 at September 30, 1997, is in the process
of substantial renovation.
F-8
<PAGE> 26
PERSONAL DIAGNOSTICS, INCORPORATED
NOTE 5 - OTHER CURRENT LIABILITIES:
Other current liabilities consist of:
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1996
------- -------
<S> <C> <C>
Legal fees $25,000 $13,000
Audit Fees 20,000 15,000
Annual Meeting 30,000 15,000
Relocation 10,000 22,000
Other 8,000 5,000
------- -------
$93,000 $70,000
</TABLE>
NOTE 6 - INCOME TAXES:
The provision for income tax credit for continuing operations consists
of current federal refunds.
Deferred income taxes reflect the net effects of temporary differences
between the amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Principal items
comprising net deferred income tax assets and liabilities are:
<TABLE>
<CAPTION>
September 30,
--------------------------
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 290,000 $290,000
Net operating loss carryforwards 534,000 542,000
Other items 109,000 120,000
--------- --------
933,000 952,000
Valuation allowance (933,000) (952,000)
--------- --------
Net asset $ -- $ -
========= ========
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. The Company
has determined, based on the Company's recent net losses, that a full
valuation allowance is appropriate at September 30, 1997 and 1996.
During 1997 and 1996 the valuation allowance decreased $19,000 and
increased $219,000, respectively.
A reconciliation of the provision (benefit) for income taxes computed at
the federal statutory rate of 34% and the effective tax rate on income
(loss) from continuing operations before income taxes is as follows:
F-9
<PAGE> 27
PERSONAL DIAGNOSTICS, INCORPORATED
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed tax at federal
statutory rate $ 18,000 $ (51,000) $(124,000)
Net operating loss and tax credit
limitations (18,000) 49,000 110,000
---------
Provision (benefit) for income
taxes $ -- $ (2,000) $ (14,000)
========= ========= =========
</TABLE>
At September 30, 1997, the Company had net operating loss carryforwards
of approximately $1,362,000 for regular tax purposes and $1,715,000 for
alternative minimum tax (AMT) which can be used to offset future taxable
income. The Company also has research and development credits of
approximately $168,000, investment tax credits of approximately $52,000
and AMT credits of approximately $70,000 which can be used to offset
future income taxes for federal income tax purposes. The net operating
loss carryforwards expire, if not used, as to $1,250,000 in 2009 and
$112,000 in 2011. The research and development and investment tax
credits expire, if not used, over the period 1999 to 2002.
The AMT credits are available for an indefinite period.
NOTE 7- COMMITMENTS AND CONTINGENCIES:
Employment Contract - At September 30, 1997, the Company has an
employment contract with an officer which calls for an annual salary of
not less than $175,000 until September 24, 1999 with the right of the
employee to extend the agreement for an additional 3 year term with
annual compensation of not less than $175,000. The contract also
provided for a bonus to the officer of $150,000 that was paid in January
1997.
In January 1997, the Board of Directors approved the modification of
this agreement to provide for additional annual performance compensation
up to 60% of net gains produced by the President's trading and
investment activities on behalf of the Company. In addition, the Board
further modified the agreement to guarantee up to $750,000 of personal
loans obtained by the President, provided the President provide a
minimum of 1,000,000 of his shares in the Company as collateral on such
loan.
Product Liability - The Company has continuing potential product
liability exposure for equipment manufactured in prior years. The
Company has maintained product liability insurance and knows of no
present or threatened claim.
NOTE 8 - STOCK OPTIONS:
Under the Company's 1988 Stock Option Plan, options may be granted to
employees at prices not less than the fair market value at the dates of
grant. The price shall be 110 percent of the fair market value
F-10
<PAGE> 28
PERSONAL DIAGNOSTICS, INCORPORATED
when the option is granted to an employee who owned more than ten
percent of the Company's common stock at the date of grant. The Plan
authorizes the granting of either "incentive stock options", as defined
in Section 422A of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options" to acquire shares of the Company's common
stock.
The term of each option is ten years from the date of grant or such
shorter term as may be provided in the stock option agreements. However,
in the case of an incentive stock option granted to an employee who,
immediately before the incentive stock option is granted, owns stock
representing more than ten percent of the voting power of all classes of
stock of the Company, the term of the incentive stock option shall be
five years from the date of grant or such shorter time as may be
provided in the stock option agreements.
During September 1990, the Board of Directors adopted the 1990 Stock
Option Plan. Terms of the 1990 Plan are the same as the 1988 Plan,
except that the exercise price of non-qualified options shall be
determined at the discretion of the Board of Directors.
The Company has made no charge to income in connection with the grant of
options under any plan.
Maximum shares subject to options and plan termination dates are as
follows:
<TABLE>
<CAPTION>
Maximum Shares
Plan Subject to Options Year of Termination
---- ------------------ -------------------
<S> <C> <C>
1988 450,000 1998
1990 300,000 2000
-------
750,000
=======
</TABLE>
Changes in the Company's stock option plans were as follows:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Outstanding at October 1
($.70-$2.00 per share) 150,000 300,000 344,000
Exercised ($.70 per share) -- (150,000) --
Cancelled ($.70-$2.00 per share) -- -- (44,000)
-------- --------
Outstanding at September 30
($.70 per share) 150,000 150,000 300,000
======== ======== ========
</TABLE>
NOTE 9 - EMPLOYEE BENEFIT PLAN:
The Company had a 401(k) savings/retirement plan for all of its eligible
employees. The plan allowed for employee contributions to be matched by
the Company on a pro-rata basis. Contributions made by the Company for
fiscal 1996 and 1995 amounted to $4,200 and $11,000, respectively. At
December 31, 1996, the Company terminated its 401(k) savings/retirement
plan.
F-11
<PAGE> 29
PERSONAL DIAGNOSTICS, INCORPORATED
NOTE 10 - STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
Fiscal Years Ended In
-------------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Supplemental disclosure of
cash flow information -
Interest paid $ -- $ -- $ 210,000
========== ========== =========
Income taxes (refunded) $ (2,000) $ (5,000) $(126,000)
========== ========== =========
Supplemental schedule of non-
cash investing and financing
activities:
Issuance of common stock
in exchange for receivable $ -- $ 105,000 $ --
========== ========== =========
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS:
On October 2, 1996, the Company purchased real estate owned by its
President - Principal Stockholder (the President) for $818,000.
For the years ended September 30, 1997 and 1996, the Company leased
office space from the President for $7,500 and $27,500, respectively.
The Company has guaranteed a $750,000 personal loan to the President
from a financial institution. The loan is collaterized by 1,112,500
shares of common stock of the Company owned by the President.
During the years ended September 30, 1996 and 1995 the Company incurred
legal fees approximating $19,000 and $107,000, respectively, from a law
firm, a partner of which was also a member of the Company's Board of
Directors and from another member of its Board of Directors.
NOTE 12 - NEW ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of
Information about Capital Structure" which must be adopted by fiscal
1998. The Company currently believes that they will not have a material
adverse effect on either its financial condition or results of
operations. In June 1997, the FASB also issued SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosure About Segments of an
Enterprise and Related Information." The Company is evaluating the
requirements of SFAS 130 and SFAS 131 which must be adopted by fiscal
1999. Since these statements primarily relate to disclosure information,
it is management's opinion that they will not have a material adverse
effect on either its financial condition or results of operations.
F-12
<PAGE> 30
PERSONAL DIAGNOSTICS, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Deductions
--------------------------
Additions
Balance at Charged to Written Off
Beginning Costs and Against the Reversed to Balance at
of year Expenses Reserve Income End of year
------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
1997 $ -- $ -- $ -- $ -- $ --
======= ==== ==== ======= =======
1996 $50,000 $ -- $ -- $50,000 $ --
======= ==== ==== ======= =======
1995 $50,000 $ -- $ -- $ -- $50,000
======= ==== ==== ======= =======
</TABLE>
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 6,117,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,785,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,785,000
<CURRENT-LIABILITIES> 230,000
<BONDS> 0
0
0
<COMMON> 50,000
<OTHER-SE> 7,505,000
<TOTAL-LIABILITY-AND-EQUITY> 7,785,000
<SALES> 0
<TOTAL-REVENUES> 1,007,000
<CGS> 0
<TOTAL-COSTS> 954,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 53,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 53,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,000
<EPS-PRIMARY> $.01
<EPS-DILUTED> $.01
</TABLE>
