<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934 For the fiscal year end September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
Commission File Number: 0-10128
PERSONAL DIAGNOSTICS, INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-23251136
------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 5310, Parsippany, New Jersey 07054
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 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 12(g) of the Act:
Common Stock, par value $.01
----------------------------
(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 (ss.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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,100,000 based upon the average closing bid
and ask price for the Company's Common Stock, $.01 par value, as reported by the
National Association of Securities Dealers OTC Bulletin Board Quotation System
on December 15, 1999.
Indicate the number of shares outstanding of each of the registrants
classes of common stock as of the latest practicable date.
Outstanding at December 15, 1999
--------------------------------
Common Stock, $.01 par value 4,080,000
<PAGE>
1999 Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
Page
----
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 5-6
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 12
Item 13 Certain Relationships and Related Transactions 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 13
<PAGE>
13
PART I
Item 1 - Business
General
- -------
Prior to May 15, 1995, Personal Diagnostics, Inc. (the "Company")
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. 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 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 three years the Company has limited its
activity to the acquisition, improvement and resale of real property and
management will continue to pursue attractive real estate opportunities. The
Company does not preclude the possibility of becoming involved in the future
with additional businesses in other areas. The Company presently owns one
residential property located in Washington, D.C. The Company is improving the
property and the process and is expected to be completed during fiscal 2000. At
September 30, 1999 the Company's total investment in this property was
approximately $893,000 which management believes is approximately equal to net
market 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 a suitable candidate for any such acquisition or
combination could be identified or, if identified, whether such a transaction
could be consummated on terms favorable to the Company.
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
1
<PAGE>
amount of capital controls a large nominal market value thus greatly
exaggerating the exposure to potential losses. The extent to which the Company
may sustain losses is dependent upon management's best judgement. During fiscal
1999 the nominal value of the Company's exposure to financial derivatives
averaged less than $200,000 per month.
During fiscal 1998 the Company repurchased a total of 1,084,000
shares at $1.20 per share for a total of $1,300,800. The purchases were made at
or below the prevailing market price and about 20% below the net asset value per
share. No shares were repurchased during fiscal 1999. The Company may repurchase
additional shares during the coming fiscal year but it has no specific plans to
do so. At September 30, 1999 the Company had a total of 4,080,000 shares
outstanding net of 784,000 Treasury Shares.
At September 30, 1999, approximately 70% of total Company assets
were held in U.S. Government Treasury Bills. The Company had no other trading or
investment positions. It continues to be the intention of management to acquire
or develop an operating business.
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 56 years old and a graduate of Georgetown University
School 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 an address at 1810 24th Street, N.W., Washington,
D.C. 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.
Management believes the suit to be without merit. However, subsequent to fiscal
year-end September 30, 1999, the Company agreed to an arbitrated settlement of
$24,500 to avoid costly litigation and this amount has been accrued in the
financial statements at September 30, 1999.
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable.
2
<PAGE>
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 National Association
of Securities Dealers OTC Bulletin Board System under the symbol "PERS". 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 1998.
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
- --------------- ---------
1998 High Low
- ---- ---- ---
December 31, 1997 (First Quarter) 1-1/8 15/16
March 31, 1998 (Second Quarter) 1-3/16 1
June 30, 1998 (Third Quarter) 1-3/8 1-1/8
September 30, 1998 (Fourth Quarter) 1-5/16 1-1/8
1999 High Low
- ---- ---- ---
December 31, 1998 (First Quarter) 1-3/16 1
March 31, 1999 (Second Quarter) 1-1/16 15/16
June 30, 1999 (Third Quarter) 1-3/16 15/16
September 30, 1999 (Fourth Quarter) 1-1/8 1
2000 High Low
- ---- ---- ---
December 15, 1999 (First Quarter) 1-5/16 1
(b) Holders
As of December 15, 1999 there were approximately 460 record holders
of the Company's Common Stock.
3
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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
<TABLE>
<CAPTION>
(In thousands except per share amounts)
Year Ended September 30,
OPERATING RESULTS 1999 1998 1997 1996 1995
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment Income (Loss) $ 484 ($30) $1,007 $ 308 ($241)
Income (Loss) From Continuing Operations 221 (215) 53 (149) (352)
Income (Loss) From Discontinued Operations --- --- --- --- (751)
Net Income (Loss) 221 (215) 53 (149) (1,103)
Per Share Data:
Income (Loss) From Continuing Operations .05 (.04) .01 (.03) (.07)
Income (Loss) From Discontinued Operations --- --- --- --- (.09)
Loss on Sale of Discontinued Operations --- --- --- --- (.07)
Net Income (Loss) .05 (.04) .01 (.03) (.23)
Average Number of Shares Outstanding 4,080 4,807 5,050 4,866 4,864
FINANCIAL POSITION
- ------------------
Working Capital $6,501 $6,145 $7,555 $7,502 $7,546
Total Assets $6,589 $6,279 $7,785 $7,882 $7,921
Accumulated Deficit (1) ($5,909) ($6,130) ($5,915) ($5,968) ($5,819)
Total Stockholders' Equity $6,501 $6,145 $7,555 $7,502 $7,546
</TABLE>
Notes:
- -----
(1) No dividends have been paid since incorporation.
4
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
At September 30, 1999 the Company had a cash and Treasury bill
balance of $5,694,000 which represented a $308,000 increase from the $5,386,000
at September 30, 1998. This $308,000 increase results entirely from cash flow
from operations. The cash flow from operations results from net income of
$221,000 coupled with the waiver of officers' salary of $135,000 offset by
changes in operating assets and liabilities in the amount of $48,000. The
Company's working capital position at September 30, 1999 was $6,501,000 as
compared to the prior year-end balance of $6,145,000.
During fiscal 1998 the Company repurchased a total of 1,084,000
shares at $1.20 per share for a total of $1,300,000. The purchases were made at
or below prevailing market and about 20% below the net asset value per share. No
shares were repurchased during fiscal 1999. The Company may in the future
repurchase additional shares but at the present time has no specific plans to do
so. At September 30, 1999 the Company had a total of 4,080,000 shares
outstanding.
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 three years the Company
has focused on the acquisition, improvement and resale of real property and
management will continue to pursue attractive real estate opportunities. The
Company does not preclude the possibility of becoming involved in the future
with additional businesses in other areas. The Company presently owns one
residential property located in Washington, D.C. The Company is improving the
property and the process is expected to be completed during fiscal 2000. At
September 30, 1999 the Company's total investment in this property was
approximately $893,000 which management believes is approximately equal to net
market 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. Mi. 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 a market index options and future contracts.
5
<PAGE>
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. The extent to which the
Company may sustain losses is dependent upon management's best judgement. During
fiscal 1999 the nominal value of the Company's exposure to financial derivatives
averaged less than $200,000 per month.
At September 30, 1999, approximately 70% of total Company assets
were held in U.S. Government Treasury Bills. The Company had no other trading or
investment positions. It continues to be the intention of management to acquire
or develop an operating business.
Results of Operation
- --------------------
Fiscal Year 1999 Compared to 1998
Income (Loss) from Continuing Operations
Net income consists of interest and trading gains and losses and
general and administrative expenses. The Company realized income from continuing
operations of $221,000 in the current year versus a loss of $215,000 in the
prior year. Interest income decreased $77,000 to $242,000 primarily due to lower
interest rates. Trading gains of $242,000 were realized versus trading losses of
$349,000 in the prior year. General and administrative expenses of $263,000 were
$78,000 higher than the prior year's period due primarily to increased
compensation recorded to President John H. Michael and higher insurance costs
offset by reduced costs associated with real estate activities. During fiscal
1999, the Company did not record an income tax provision due to available tax
carryforwards.
Fiscal Year 1998 Compared to 1997
Income (Loss) From Continuing Operations
Net income consists of interest and trading gain and losses and
general and administrative expenses. The Company incurred a net loss of $215,000
in the current year versus income of $53,000 in the prior year. Interest income
increased $17,000 to $319,000 primarily due to more invested funds. Trading
losses of $349,000 were realized versus trading gains of $705,000 in the prior
year. General and administrative expenses of $185,000 were $769,000 lower than
the prior year period due primarily to decreased compensation paid to President
John H. Michael, decreased costs and expenses associated with real estate
activities and lower insurance and professional fees. During fiscal 1998, the
Company did not record an income tax benefit because tax losses could not be
utilized.
Inflation
- ---------
The Company believes that inflation does not have a material
adverse effect on the results of its operations at the present time.
Computer Year 2000 Issue ("Y2K")
- -------------------------------
Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
6
<PAGE>
many computer applications could fail or create erroneous results by or at the
year 2000. The Year 2000 issue affects virtually all companies and
organizations. Although the Company feels that the Year 2000 issue will not have
a material impact on its internal operations, there can be no assurance that the
Company's financial service organizations may not be adversely affected by the
Year 200 issue and as a result, there can be no assurance as to the impact of
the Year 2000 issue on the Company. Management believes that the Company and its
important business and professional counter parties have prepared adequately for
this event.
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.
7
<PAGE>
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.
Item 11 - Executive Compensation
The following table sets forth a summary for the fiscal years ended
September 30, 1999, 1998 and 1997 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. 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. During fiscal 1998 Mr. Michael
elected to accept only 75% of the $175,000 annual compensation provided by his
employment agreement. The balance of $43,875 was waived. During fiscal 1999 Mr.
Michael elected to accept total cash compensation of $40,000. The balance of
$135,000 was waived. On September 24, 1999, as provided for in his employment
agreement, Mr. Michael elected to extend the agreement for a period of 3 years
from September 25, 1999 to September 24, 2002.
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
- ------------------ ------ ---- -------- ----- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
John H. Michael, 1999 $40,000(2) ----- ----- ----- -----
Chairman, Chief 1998 $131,250(1) ----- ----- ----- -----
Executive Officer 1997 $175,000 ----- $400,000 ----- -----
President and
Treasurer
</TABLE>
(1) During fiscal 1998 Mr. Michael elected to accept only 75% of the $175,000
annual compensation provided by his employment agreement. The balance of $43,875
was waived.
(2) During fiscal 1999 Mr. Michael elected to accept total cash compensation of
$40,000. The balance of $135,000 was waived.
8
<PAGE>
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, 1994 for purposes of preparing this graph.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
Personal Diagnostics, Incorporated
NASDAQ Stock Market (US Companies)
300 -
250 -
200 -
150 -
100 -
50 -
0 -
1994 1995 1996 1997 1998 1999
Personal Diagnostics, Incorporated
NASDAQ Stock Market (US Companies)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Personal Diagnostics, Incorporated 100.0 120.2 144.3 157.2 177.5 168.9
NASDAQ Stock Market (US Companies) 100.0 135.1 157.9 206.7 229.9 289.1
</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.
9
<PAGE>
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 September 30, 1994.
Savings and Benefit Plans
- -------------------------
Executive officers who qualify are permitted to participate in the
Company's Stock Option plans. Executive officers participate in group life and
medical plans which are available generally to all employees. At December 31,
1995 the Company terminated the 401(k) retirement plans.
Directors
- ---------
The Company's outside Directors, of which there are none at this
time, are reimbursed for their out-of-pocket expenses incurred in connection
with their attendance at each Board meeting. In late fiscal 1997 Director
Alphonso Espinosa died reducing the number of directors serving on the Board to
one, John H. Michael. The Company intends to increase the Board of Directors to
three members including at least one outside director during fiscal 2000.
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 could be granted. Under the 1988 Plan, which
terminated in 1998, options to purchase no more than 450,000 Common Shares could
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 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 September 17, 1990, 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 June 6, 1998. There remain 300,000 options
available for grant under the 1990 Plan. At September 30, 1999 no options were
outstanding under any of the Plans.
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.
10
<PAGE>
Aggregate Option Exercise in Last Fiscal Year and FY-End Option Values
- ----------------------------------------------------------------------
No options were exercised during fiscal 1999. At September 30, 1999
no options were outstanding.
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.
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 Mr. Michael who serves as Chairman of the committee. 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 1999.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Company's Board of Directors determined the compensation paid
to the sole executive officer during fiscal 1999. Mr. Michael is the Chairman of
the Board of Directors, Chief Executive Officer, President, Treasurer and
Secretary of the Company.
11
<PAGE>
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 1999 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, 1999.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent
Beneficial Owner (1) of Beneficial Ownership of Class
- -------------------- ----------------------- --------
<S> <C> <C>
John H. Michael 3,267,543 80.1%
1810 24th Street N.W. Washington, D.C.
All Officers and Directors 3,267,543 80.1%
as a Group
</TABLE>
- ----------------
(1) Unless otherwise indicated each person has sole voting and investment powers
with respect to the shares specified opposite his name.
Item 13 - Certain Relationships
During fiscal 1998, Mr. Michael had a secured loan outstanding in
the amount of $750,000 from Riggs National Bank. The primary security for this
loan was 1,012,500 shares of Personal Diagnostics common stock owned by Mr.
Michael. The Company was a guarantor of this loan. The loan was repaid in full
in fiscal 1998. During fiscal 1998 the Company repurchased a total of 945,789
shares of its common stock at $1.20 per share from Company President John H.
Michael.
12
<PAGE>
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 Incorporation Filed form S- 1 October 7, 1983
File No. 2-86991
3.2 Bylaws of the Corporation Filed Form S- 1 October 7, 1983
File No. 2-86991
10.1 Employment Agreement between Page E-1 1996 Form 10K
John H. Michael and the Company
dated September 25, 1996
(b) Reports on Form 8-K
None
</TABLE>
13
<PAGE>
PERSONAL DIAGNOSTICS, INCORPORATED
INDEX
Page
Independent Auditors' Report F-2
Balance Sheets as of September 30, 1999 and 1998 F-3
Statements of Operations for the Years Ended
September 30, 1999, 1998 and 1997 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1999, 1998 and 1997 F-5
Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997 F-6
Notes to Financial Statements F-7 - F-13
All 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>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Personal Diagnostics, Incorporated
We have audited the financial statements of Personal Diagnostics, Incorporated
at September 30, 1999 and 1998 and for each of the three years in the period
ended September 30, 1999 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Personal Diagnostics,
Incorporated at September 30, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1999 in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
November 17, 1999
F-2
<PAGE>
Personal Diagnostics, Incorporated
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
ASSETS 1999 1998
---------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $5,098,000 $ 5,386,000
Investment securities held-to-maturity 596,000 -
Property held for development and sale 893,000 893,000
Other current assets 2,000 -
--------------- -----------
$6,589,000 $ 6,279,000
=============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 63,000 $ 84,000
Current liabilities of discontinued operations 25,000 50,000
------------- -----------
Total Current Liabilities 88,000 134,000
------------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 25,000,000
shares; issued 4,864,000 and 5,164,000 shares, respectively 48,000 51,000
Capital in excess of par value 13,302,000 13,524,000
Accumulated deficit (5,909,000) (6,130,000)
----------- -----------
7,441,000 7,445,000
Less: Treasury stock 784,000 and 1,084,000 shares,
respectively, at cost (940,000) (1,300,000)
----------- -----------
Total Stockholders' Equity 6,501,000 6,145,000
----------- -----------
$6,589,000 $ 6,279,000
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
Personal Diagnostics, Incorporated
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
INCOME:
Interest $ 242,000 $ 319,000 $ 302,000
Trading gains (losses) 242,000 (349,000) 705,000
----------- ------------ ------------
484,000 (30,000) 1,007,000
EXPENSES:
General and administrative 263,000 185,000 954,000
----------- ------------ ------------
NET INCOME (LOSS) $ 221,000 $ (215,000) $ 53,000
=========== =========== ============
BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE $ .05 $ (.04) $ .01
====== ======= =======
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 4,080,000 4,807,000 5,050,000
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
Personal Diagnostics, Incorporated
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Capital in
--------------------------- Excess of Treasury Accumulated
Shares Par Value Par Value Stock Deficit
--------- ------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, SEPTEMBER 30, 1996
5,014,000 $50,000 $13,420,000 $ - ($5,968,000)
YEAR ENDED SEPTEMBER 30, 1997:
Net income - - - - 53,000
---------- ------------- ----------- -------- -----------
BALANCES, SEPTEMBER 30, 1997
5,014,000 50,000 13,420,000 - (5,915,000)
YEAR ENDED SEPTEMBER 30, 1998:
Purchase of 1,084,000 shares of
treasury stock, at cost - - - (1,300,000)
Exercise of stock options 150,000 1,000 104,000 - -
Net loss - - - - (215,000)
---------- ------------- ----------- -------- ----------
BALANCES, SEPTEMBER 30, 1998
5,164,000 51,000 13,524,000 (1,300,000) (6,130,000)
YEAR ENDED SEPTEMBER 30, 1999:
Officer's compensation waived - - 135,000 - -
Retirement of treasury stock (300,000) (3,000) (357,000) 360,000 -
Net income - - - - 221,000
---------- ------------ ----------- ---------- ----------
BALANCES, SEPTEMBER 30, 1999
4,864,000 $ 48,000 $13,302,000 $(940,000) $(5,909,000)
========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
Personal Diagnostics, Incorporated
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998 1997
-------------- --------------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 221,000 $ (215,000) $ 53,000
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Provision for loss on property held for sale - - 151,000
Waiver of officer's compensation 135,000 - -
Changes in assets and liabilities:
Property held for development and sale - 768,000 (946,000)
Other current assets (2,000) 7,000 (6,000)
Accounts payable and accrued liabilities (46,000) (96,000) (150,000)
----------- ------------ ------------
Net cash flows from operating activities 308,000 464,000 (898,000)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities (596,000) - -
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options - 105,000 105,000
Purchase of treasury of stock - (1,300,000) -
----------- ------------ -------------
Net cash flows from financing activities - (1,195,000) 105,000
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (288,000) (731,000) (793,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 5,386,000 6,117,000 6,910,000
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $5,098.000 $5,386,000 $6,117,000
=========== ============ ============
</TABLE>
F-6
<PAGE>
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.
Cash Equivalents - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Investment Securities - The Company's investments in securities are
classified as held-to-maturity and consist of U.S. Treasury Bills which the
Company has the positive intent and ability to hold to maturity. The investments
are reported at cost, adjusted for amortization of premiums and accretion of
discounts which are recognized in interest income using the interest method over
the period to maturity.
Net Income (Loss) Per Share - The Company calculates earnings per share
in accordance with Statement of Financial Accounting Standard (SFAS) No. 128,
"Earnings per Share" which was issued in February 1997 and is effective for
periods ending after December 15, 1997. SFAS No. 128 replaces the presentation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. The Company uses the weighted-average number of common shares
outstanding during each period to compute basic earnings per common share. When
not anti-dilutive, diluted earnings per share are computed using the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares are additional common shares
assumed to be exercised.
Concentration of Credit and Off-Balance-Sheet Risk - Financial
instruments that are potentially subject to credit risk consist of cash and cash
equivalents and trading securities. Cash and cash 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 cash
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
F-7
<PAGE>
Personal Diagnostics, Incorporated
Notes to Financial Statements
available to management. The use of different market assumptions and/or
estimation methodologies could have an effect on the estimated fair value
amounts.
Stock Compensation - Statement of Financial Accounting Standards
("SFAS) No. 123, "Accounting" for Stock-Based Compensation," requires companies
to measure employee stock compensation plans based on the fair value method of
accounting. However, the statement allows the alternative of continued use of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," with pro forma disclosure of net income and earnings per share
determined as if the fair value based method had been applied in measuring
compensation cost. The Company has determined it will continue to apply APB
Opinion No. 25 in accounting for its stock options plans. No options were
granted during the years ended September 30, 1999, 1998 or 1997 and accordingly,
no proforma disclosure has been provided.
Income Taxes - The Company's income is derived principally from its
investment activity. Accordingly, the Company is taxed as a personal holding
company for federal tax purposes, which requires a tax on undistributed personal
holding company income at an effective rate of 39.6%. Deferred income taxes
result primarily from net operating losses, capital loss carryforwards and
business tax credit carryforwards. As a result of these temporary differences,
the Company has recorded a deferred tax asset with an offsetting valuation
allowance for the same amount.
NOTE 2 - INVESTMENTS:
At September 30, 1999 and 1998, cash and cash equivalents include
approximately $3,988,000 and $5,088,000 respectively of U.S. Treasury Bills
purchased with maturities of three months or less.
The Company's derivative exposure has consisted primarily of short
sales of Standard & Poors 500 futures.
The amortized cost and estimated market value of securities
held-to-maturity are as follows:
September 30, 1999
-----------------------------------------------
Gross Estimated
Amortized Unrealized Fair
Cost Gains (Losses) Value
--------- -------------- ---------
U.S. Treasury Bills $596,000 $ - $596,000
========= ============= =========
F-8
<PAGE>
Personal Diagnostics, Incorporated
Notes to Financial Statements
The amortized cost and estimated market value of investment securities,
at September 30, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties.
Estimated
Amortized Fair
Cost Value
--------- ----------
One year or less $596,000 $596,000
======== ========
NOTE 3 - 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
approximately $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
$893,000 at September 30, 1999 and 1998, has been renovated for sale.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of:
September 30,
---------------------------
1999 1998
------------ --------
Legal fees $33,000 $25,000
Audit fees 20,000 20,000
Annual meeting 5,000 15,000
Other 5,000 24,000
------- -------
$63,000 $84,000
======= =======
Current liabilities of discontinued operations at September 30, 1999
and 1998, consist of the estimated costs for product liability insurance.
F-9
<PAGE>
Personal Diagnostics, Incorporated
Notes to Financial Statements
NOTE 5 - INCOME TAXES:
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,
------------------------------
1999 1998
--------------- -----------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 238,000 $ 290,000
Net operating loss carryforwards 550,000 580,000
Other items 53,000 159,000
------------- -----------
841,000 1,029,000
Valuation allowance (841,000) (1,029,000)
------------- -----------
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, 1999 and 1998. During fiscal 1999 and
1998 the valuation allowance decreased $188,000 and increased $96,000,
respectively.
A reconciliation of the provision for income taxes computed at the
federal statutory rate of 34% and the effective tax rate on income (loss) before
income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1999 1998 1997
-------------- ------------- ---------
<S> <C> <C> <C>
Computed tax at federal
statutory rate $ 75,000 $(73,000) $18,000
Non-deductible officer's
compensation waived 46,000 - -
Net operating loss and tax credits or
limitations (121,000) 73,000 (18,000)
--------- -------- -------
Provision for income taxes $ - $ $ -
========= ======== =======
</TABLE>
F-10
<PAGE>
Personal Diagnostics, Incorporated
Notes to Financial Statements
At September 30, 1999, the Company had net operating loss carryforwards
of approximately $1,364,000 for regular tax purposes and $1,730,000 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
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 $1,161,000 in 2009, $112,000 in 2011
and $91,000 in 2018. The research and development credits expire, if not used,
over the period 2001 to 2002.
The AMT credits are available for an indefinite period.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Employment Contract - At September 30, 1999, the Company has an
employment contract with an officer which provides for an annual salary of not
less than $175,000 until September 24, 2002. The contract also provides
additional annual performance compensation up to 60% of net gains produced by
the President's trading and investment activities on behalf of the Company.
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 7 - STOCK OPTIONS:
During September 1990, the Board of Directors adopted the 1990 Stock
Option Plan (the "Plan"). 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. Under the Company's 1990 Stock Option Plan, incentive stock
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 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 exercise price of the
non-qualified options shall be determined at the discretion of the Board of
Directors.
The term of each option is ten years from the date of grant thereof 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 thereof
or such shorter time as may be provided in the stock option agreements.
F-11
<PAGE>
Personal Diagnostics, Incorporated
Notes to Financial Statements
The Company has made no charge to income in connection with the grant
of options under any plan.
The 1990 Plan provided for a maximum of 300,000 shares, all of which
are available for grant as of September 30, 1999.
Changes in the Company's stock option plans were as follows:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
1999 1998 1997
----------- ----------- -------
<S> <C> <C> <C>
Outstanding at October 1
($.70 per share) - 150,000 150,000
Exercised ($.70 per share) - (150,000) -
----------- ----------- -------
Outstanding at September 30 ($.70 per
share) - - 150,000
=========== =========== =======
</TABLE>
NOTE 8 - STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
Fiscal Years Ended In
-------------------------------------------------
1999 1998 1997
-------------- -------------- ---------
<S> <C> <C> <C>
Supplemental disclosure of
cash flow information
Income taxes (refunded) $ 225 $ - $ (2,000)
============== ============== =========
</TABLE>
Non-cash Investing and Financing Activities - At September 30, 1999,
the president of the Company waived $135,000 due to him per the employment
contract. The transaction resulted in an increase to general and administrative
expense and additional paid-in capital.
During the year ended September 30, 1999, the Company retired 300,000
shares of common stock which were held in the treasury.
NOTE 9 - RELATED PARTY TRANSACTIONS:
In June 1998 and September 1998, the Company purchased from its
President - Principal Stockholder (the President) 598,389 and 347,400 shares
respectively, of its common stock for $1.20 per share.
F-12
<PAGE>
Personal Diagnostics, Incorporated
Notes to Financial Statements
On October 2, 1996, the Company purchased real estate owned by the
President for $818,000.
For the year ended September 30, 1997, the Company leased office space
from the President for $7,500.
The Company had guaranteed a $750,000 personal loan received by the
President from a financial institution. The loan was collateralized by 1,012,500
shares of common stock of the Company owned by the President. This loan was
repaid during fiscal 1998.
NOTE 10 - NEW ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board ("the Board")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities for years beginning after June
15, 1999. Subsequently, the Board deferred the effective date of this
pronouncement through the issuance of SFAS No. 137.
The Company does not expect the previously mentioned pronouncement to
significantly impact its financial statements.
F-13
<PAGE>
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: 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: John H. Michael December 27, 1999
-------------------------------
John H. Michael,
Chairman of the Board,
Chief Executive 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,098
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,509
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,589
<CURRENT-LIABILITIES> 88
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 6,453
<TOTAL-LIABILITY-AND-EQUITY> 6,589
<SALES> 0
<TOTAL-REVENUES> 484
<CGS> 0
<TOTAL-COSTS> 263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 221
<INCOME-TAX> 0
<INCOME-CONTINUING> 221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
