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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 000-20175
Nyer Medical Group, Inc.
(Name of small business issuer in its charter)
FLORIDA 01-0469607
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1292 Hammond Street, Bangor, Maine 04401
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(Address of principal executive offices) (Zip code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Exchange
Title of Each Class on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.0001
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes X No _
Check whether there is no disclosure of delinquent filers in response
to item 405 of Regulation S-B not contained in this form, and no disclosure will
be contained to the best of the registrant's knowledge, in the definitive proxy
or information statement incorporated by reference in Part III of this Form
10-KSB or amendment to Form 10-KSB. [ ]
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State issuer's revenues for its most recent fiscal year.
$33,878,934
The aggregate market value of the Company's voting stock held by
non-affiliates as of March 30, 1998 was approximately $13,990,378 based upon the
closing price. There were 3,407,093 shares of common stock outstanding as of
March 30, 1998.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format:
Yes _ No X
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PART I
ITEM 1. Description Of Business.
General
Nyer Medical Group, Inc. (the "Company") is a holding company
with various interests in the medical products business. It also
distributes equipment, supplies and novelty items to emergency
medical services companies, fire departments and police
departments. The Company owns all of the outstanding capital
stock of ADCO Surgical Supply, Inc. ("ADCO") and ADCO South
Medical Supplies, Inc. ("ADCO South"). The Company also owns
90% of the outstanding stock of Nyle Home Health Supplies, Inc.
("Nyle Home Health"). The remaining 10% of Nyle Home Health is
owned by Dr. Howard Parker, a director of the Company. The Company
owns 80% of the stock of Anton Investments, Inc. ("Anton") and
Conway Associates, Inc. ("Conway"). Mr. Anton owns the remaining
20% of the stock of Anton and Conway. The Company owns 80% of the
outstanding stock of SCBA, Inc. ("SCBA"), with the remaining 20% of
SCBA also being owned by Mr. Michael Anton, a director of the
Company. SCBA repairs closed breathing apparatus equipment used by
fire departments. The Company owns 80% of a retail pharmacy chain,
D.A.W., Inc.(Eaton). The remaining 20% of the stock is owned by
five individuals who are former shareholders of Eaton. The Company
also owns 80% of a franchising company, FMT, Inc.(FMT). The
remaining 20% is owned by the former five shareholders of Eaton.
The Company started a new company in December of 1996, Nyer
Nutritional Systems, Inc. ("Nyer Nutritional"). The Company owns
80% of the outstanding stock of Nyer Nutritional; Mr. Doyle
Boatwright, a director of the Company, owns the remaining 20%.
Nyer Nutritional is currently distributing their patented liquid
nutritional formula for tube feedings. The Company also currently
owns 33.8% of the outstanding stock of Genetic Vectors, Inc.
("Vectors"). The Company is currently treating Vectors as a
discontinued operation on its consolidated financial statements.
Medical Products/Services and Nutritional Businesses
ADCO - ADCO South - Nyle Home Health
ADCO started as a quality distributor of home health, medical, surgical and
laboratory supplies and equipment in Bangor, Maine in 1963. In fiscal year 1997,
ADCO generated net sales of approximately $5.64 million. ADCO supplies all areas
of health care products. ADCO sells to physician offices, clinics, health
centers, nursing homes, visiting nurse associations, individual health care
consumers and specialty equipment to hospitals. The products supplied are
motorized rehabilitative equipment such as stair glides, chair lifts, scooters,
wheelchairs and hospital beds, various kinds of rehabilitative aids, surgical
gloves (whose market is rapidly expanding into non-traditional
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areas), first-aid equipment utilized by persons who are rehabilitating from
operations, serious illnesses and accidents, diagnostic kits, laboratory and
diagnostic equipment and supplies, incontinence supplies, surgical and medical
equipment, both disposable and reusable, disposable medical supplies and various
other products including nursing uniforms and shoes.
ADCO is one of the larger independent wholesale medical distributors
located in New England (excluding national competitors). It has a wholesale
customer base of over 1,500 active customers.
ADCO and ADCO South provide over 5,000 stocked items out of their
respective warehouses and have access to the inventory of over 5,000 of the
industries suppliers. Although the inventories of both companies share common
items, the need for items relative to their geographic regions are accomplished
through the warehouses of both companies. This enables a larger mix of products
to be available from either company through inter-company transfers and benefit
from the synergies available from two combined inventories.
ADCO, pursuant to industry trade practices, is the semi- exclusive
distributor of two different lines of incontinence products and generates over
10% of its annual volume from these companies.
ADCO/ADCO South are members of the Central Independent Dealers Association
(CIDA). This is a nationwide group of over 70 wholesale distributors who join
together for private label "CIDA" branded products and price concessions from
industry suppliers. ADCO enjoys semi-exclusive rights to CIDA products in its
primary market areas.
ADCO is one of Maine's leading suppliers of accessibility equipment. The
need for this equipment continues to grow with the trend towards longer life
spans and the enactment of the ADA (American Disabilities Act).
ADCO also has an in-house service department to service the needs of its
customers. It also maintains an inventory of common types of equipment to meet
the needs of those customers who require loaner equipment while theirs is being
repaired.
ADCO achieves over a 95% plus order fill rate which serves to further
increase customer service and loyalty. ADCO's inventory turns over approximately
four to five times per year due to its high service levels and a large inventory
of specialty home care and rehab equipment.
ADCO derives approximately 85% of its revenues from sales to wholesale
customers, while the balance comes from its retail and home health customers.
ADCO maintains a 23,000 square foot
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facility and has a 3,000 square foot retail showroom located within
its building.
ADCO has opened a small branch office outside of Las Vegas, Nevada and
intends to use it to grow it into a larger independent supplier of medical
supplies and equipment to the growing market area of the Southwest. The
employees of this branch have extensive knowledge of the sales of
pharmaceuticals and are helping ADCO/ADCO South expand their business into the
distribution of pharmaceuticals.
ADCO South began operations in 1992. ADCO South generated approximately
$1.0 million in net sales for 1997. ADCO South's sales are from supplying
equipment and supplies to the physicians and clinics it services in the Palm
Beach and Broward county areas of South Florida. It does virtually no home
health care business. ADCO South operates out of a 6,172 square foot leased
facility.
Marketing
The marketing efforts of the medical products business are headed by ADCO's
vice president of sales and general manager, William Clifford. The Company is
actively marketing group buying programs to solicit the large number of
physicians, long-term care facilities, and clinics that are consolidating
through its national CIDA Group Provider Program. This program enables the
customers to receive the pricing benefits of a large national organization yet
provide customers with the benefits of dealing with independent dealers.
ADCO's sales are achieved through the services of five independent sales
representatives who travel throughout New England contacting existing and
potential customers and through tele- marketing, catalogs and mailing campaigns
for existing customer accounts. ADCO South's selling efforts are also directed
by Mr. Clifford, who is assisted by the three Florida-based salespersons.
Competition
All aspects of the Company's medical products business are subject to
significant competition. The Company's national competitors generally have
substantially greater financial resources and other competitive advantages,
although they traditionally concentrate on hospitals. Nonetheless, ADCO/ADCO
South believe they have certain competitive advantages which enable them to
compete favorably with larger competitors because of their ability to be
flexible and creative for their customers.
Unlike major competitors that concentrate on serving large hospitals, ADCO
derives only limited revenues from hospitals. ADCO serves hospitals on a
specialty basis providing equipment
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and services to physician managed and owned offices. ADCO South does not service
hospitals and has no intention of attempting to serve that market. ADCO
estimates that approximately 30% of its wholesale business is derived from sales
to physicians, 40% to nursing homes, 10% to its home care division, 5% to supply
ADA accessibility equipment, 5% to hospitals, and 10% to various other health
care consumers. 90% of ADCO South's sales are derived from physicians, with 10%
to various other health care consumers. The most important competitive factors
are ADCO/ADCO South's commitment to service and ADCO's ability to repair
rehabilitative and medical equipment throughout its large market area.
The national market for wholesale distribution of medical and home health
care supplies is served in large part by Baxter, Durr- Fillauer, General
Medical, McKesson, PSSI and Owens & Miner. PSSI is the largest national supplier
of supplies to physician offices and clinics. Although hospitals are believed to
constitute most of these company's largest customer group, these companies claim
to serve over 17,000 other customers including physicians and clinics throughout
the United States including the New England area. Despite the presence of large
companies, ADCO/ADCO South believe the distribution of medical products in
physician sites and long-term care facilities are still controlled by many small
local and regional distributors.
Backlog/Seasonality
The Company's medical products business has never had a significant amount
of back orders due in large part to the fact that it fills its orders rapidly
and has a very high in stock-order fill rate.
The Company's medical products/services businesses generally are not
seasonal.
Nyer Nutritional Systems, Inc.
Nyer Nutritional is an 80% owned subsidiary started in December of 1996.
The business is based on five patents designed to promote a line of medical
foods that have unique antimicrobial properties. Medical foods is a category
that is regulated separately by the Food and Drug administration, as opposed to
dietary supplements and grocery type food products. Most medical foods are
prescribed by a physician and used for patients that have special dietary needs
tied into a disease or post-surgical medical condition. Medical foods delivered
to patients through feeding tubes are often subject to bacterial contamination.
In 1997, Nyer Nutritional commenced marketing a single liquid food product
AMTFTM which did not support bacterial growth in plastic feeding bags. Most tube
feeding patients require a plastic feeding bag attached to the feeding tube. The
bags must be
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discarded at least every 24 hours to limit bacterial contamination. AMTFTM
allows the continued use of the bag for one week. This amounts to an 85% minimum
reduction in plastic bags for which Medicare annually spends between $200 and
$300 million dollars a year.
In spite of the economic benefits of its products Nyer Nutritional has
encountered consumer resistance which is reported to be primarily due to the
sale of a single product AMTFTM in a market that has a broad product type
demand. There is a wide variety of specialty medical food products designed for
the specific needs of diabetic, renal, respiratory, pediatric and other specific
disease/condition patients. Nyer Nutritional intends to introduce a
significantly broader product line in 1998 to address this demand including
citrus based oral supplement drinks which also prevent microbial growth. These
new products will be offered at the retail drug and grocery level and through
medical outlets.
To date, Nyer Nutritional has sold its products to one large distributor,
ABCO/Starline Dealers, Inc. ABCO/Starline is a group- purchasing organization
for medical distributors founded in 1953. It is a major national organization
which sells products directly to distributors.
Consistent with its policy of requiring less than wholly-owned subsidiaries
to reimburse the Company for its costs in providing management services, Nyer
Nutritional pays to the Company a monthly management fee equal to the greater of
$2,000 or one percent of net sales for the prior quarter. Additionally, Nyer
Nutritional is required to reimburse the Company for additional legal, auditing
and accounting fees and costs.
EMT, Fire, Police Products/Services Businesses
Anton Investments, Inc. - Conway Associates, Inc - SCBA,Inc.
Anton is a distributor of fire, police and rescue equipment and supplies
that are sold to municipal and industrial accounts throughout most of the New
England area. Anton generated approximately $3.8 million in net sales for 1997.
Prior to the Company purchasing an 80% interest in Anton Investments Inc.
in 1993, (together with Mr. and Mrs. Anton purchasing the other 20%) Anton
(doing business as Anton Enterprises) had been in business since 1980. Anton
conducts approximately 80 percent of its business with municipal and industrial
fire departments, while law enforcement agencies and emergency rescue units
comprise 10 percent each. Anton continues to broaden its market area, with
approximately 60 percent of its sales now taking place in Maine, 25 percent in
New Hampshire, 5
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percent in Vermont, 5 percent in Massachusetts, with the remainder outside of
New England.
Anton divides its activities among four overlapping areas: (1) the
distribution of equipment used by municipal and industrial fire departments,
public law enforcement agencies, emergency medical and rescue units; (2) the
sale of turnout gear, custom uniforms, footwear and other items of apparel worn
by these professions; (3) the sales and services of new and used fire apparatus;
and (4) the exclusive gift shop for the fire, police and rescue personnel and
their families, with merchandise such as badges, insignias decals, helmet
fronts, vehicle markers, flashing warning lights, children and adult t-shirts,
toys, rings and novelty gift items.
Anton continues to represent Ferrara Fire Apparatus, Inc. a prominent
Louisiana-based manufacturer of fire trucks. Many of the leading manufacturers
in the public safety products line have chosen Anton as their exclusive dealer
or master distributor in all or part of the northern New England region.
Anton maintains an extensive inventory of its most popular products at its
various locations, which includes Maine, New Hampshire, Massachusetts, and New
York. Inventory is bought through manufacturers, or purchased from Michael
Anton's inventory (which was purchased prior to the Company's acquisition of
Anton from Mr. Anton). While Anton is generally able to fill orders from its own
inventory on a same day basis, the Anton has established arrangements with most
of its suppliers whereby non-inventoried items and special orders can be
drop-shipped by the manufacturer to the customer with the same degree of
responsive service.
Anton's sales staff consists of two full-time outside sales
representatives, a fire apparatus sales manager, and four inside sales
representatives who handle price quotes, competitive bids and walk-in trade at
the retail store. There is one full-time inside sales manager at Anton's
Massachusetts location.
The Company and Michael Anton and his wife, acquired 80% and 20%,
respectively, of Conway's stock in February 1996. Conway is located in
Massachusetts. Conway's net sales for 1997 were approximately $5.29 million.
The Company has a policy requiring less than wholly-owned subsidiaries to
reimburse the Company for its costs in providing management services. Anton is
required to reimburse the Company a monthly management fee of $1,500. Conway's
monthly management fee is $2,000. Anton and Conway are required to reimburse the
Company for any additional legal, auditing and accounting fees and costs.
Conway conducts about 95% of its business with municipal and industrial
fire departments, with the remainder being emergency
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rescue units throughout New England. Conway has been in business since 1971.
Conway's market area includes approximately 65% of its sales from Massachusetts,
15% in New Hampshire, 10% in Vermont, 8% in Maine, with the remainder outside of
New England.
Anton and Conway distribute mainly to the following types of businesses:
municipal and industrial fire departments, industrial and power supply
companies, and emergency medical and rescue units. Conway sells turnout gear,
footwear and other items of clothing worn by these companies, equipment and
supplies that are used in these industries, and the sales and service of new and
used fire and ambulance apparatus.
Conway represents 3-D Manufacturing, Inc., a Wisconsin-based manufacturer
of fire trucks.
Conway maintains a limited inventory. Conway has access to Anton's
inventory and through its many suppliers, has access to having items
drop-shipped or shipped directly to them within a few days.
The Company and Michael Anton and his wife, acquired 80% and 20%,
respectively, of SCBA's stock in February 1996. SCBA is located in Massachusetts
with Conway. SCBA's net sales for 1997 were approximately $26,500. SCBA services
fire department's and industrial company's self-contained breathing apparatus
gear.
Marketing and Sales
Anton's marketing and sales are headed by Michael Anton, President of Anton
and a director of the Company. Anton markets and sells its products through
direct calls, retail store, and its own catalog with the assistance of the
outside and inside sales force. Sales and marketing are conducted in New
England.
Conway's marketing and sales are headed by Brian Barton, Sales Manager and
Larry Gardella, Controller. Their marketing and sales are achieved through
flyers and direct calls from the inside and outside sales force.
Competition
All areas of the Anton's and Conway's fire, police and rescue products are
subject to competition. Some of this competition is through companies who use
direct mail or via telemarketing efforts. Despite the presence of competition,
Anton and Conway believes its sales force, extensive inventory, and emphasis on
service give them an edge over the competition.
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Backlog/Seasonality
The businesses of Anton, Conway, and SCBA do not experience significant
back orders. The exception would be the sale of fire trucks. The lead time
traditionally is between 150-180 days before delivery.
The businesses of Anton, Conway, and SCBA generally are not seasonal.
Retail Pharmacies Businesses
Eaton Apothecary
In August 1996, the Company acquired 80% of Eaton Apothecary, "Eaton", a
profitable nine store chain of pharmacies operating in the greater Boston area.
During 1997, Eaton acquired two pharmacies and sales grew from $15.2 million in
1996 to $18.0 million in 1997. Comparable store sales (sales from the original
nine stores) grew 12% in 1997.
In addition to a healthy sales growth pattern, Eaton's management achieved
gross profit improvement by renegotiating its purchase contracts with its major
supplier. This achievement was accomplished due to its track record of sales
growth and due to its improved liquidity made possible by the infusion of cash
from the Company. Management expects continued increases in same store sales,
store count, and volume discounts throughout the next several years.
Each of the five minority shareholders (except in one case, the husband of
a shareholder) continue employment under a five year employment contract with
Eaton which commenced in August 1996. Control of the Board of Directors of Eaton
is split between representatives from Nyer and from Eaton. Additionally, one
member of Eaton management occupies a seat on the Company's Board of Directors.
Eaton operates in a highly competitive business environment. Its primary
competition in its markets are the Walgreen and CVS chains and mail order
prescription services. To date, pharmacies in supermarket and deep discount
stores, such as Walmart, have not gained significant market share in communities
served by Eaton. Eaton currently occupies a niche in the market not covered by
the larger chain stores. Average store size is approximately 2,000 square feet
(versus 10,000 to 20,000 for the average chain), with the pharmacy department as
the central focus to the customer. Eaton offers free delivery service of
prescription medication to the local community. This customer benefit gives
Eaton an important competitive advantage for the shut-in customer. Eaton
operates six full-time delivery vehicles with each vehicle averaging 75-100
deliveries per day. The presence of this service
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allows Eaton the ability to reach a broader geographic market and the ability to
locate its stores in neighborhood settings rather than in high traffic, high
cost shopping centers.
Recent "any willing provider" legislation passed in Massachusetts has
enabled Eaton to serve Harvard/Pilgrim HMO as well as many other "locked out"
sectors of the retail pharmacy market. Because of the increased available market
size, management expects sales growth to be strong, but increased pressure on
margins. Because of this trend, management will continue to refocus energies on
cost reductions from suppliers, and cost containment at store level. Management
also expects to invest in technology improvements which should increase
inventory turnover and provide better information to management. Management has
invested in sophisticated, computerized packaging technology to enable it to
capitalize on servicing the growing assisted-living community. Assisted living
facilities are transitory facilities for elderly patients unable to live at home
alone but not brittle enough to require nursing home care. This market segment
is predicted by the U.S.Census to be the largest growing housing sector in the
nation over the next decade. Because these homes do not offer nursing care, yet
cater to residents unable to manage their own medications, Eaton management has
recognized a tremendous opportunity to couple its prescription and delivery
expertise to out-service the chain stores to this new market sector. Eaton's
investment in specialized packaging equipment was with the intent of offering a
"fool-proof" medication management system to assisted living residents.
Eaton anticipates further store acquisitions over the next several years as
many strong independent pharmacy owners reach retirement age and face fewer
potential purchasers for their businesses. In addition, Eaton management
expected to franchise at least one unit to an existing employee during 1998.
Management has also become more involved in an existing buying-group of
independent pharmacies in New England and expects this relationship to
strengthen its purchasing power and its ability to purchase other independents
over the next few years. Management has plans to renovate two stores in 1998,
and to relocate and renovate one store in 1998.
Consistent with its policy of requiring less than wholly-owned subsidiaries
to reimburse the Company for its costs in providing management services, Eaton
has a service agreement with the Company where it will pay to the Company a fee
equal to one-third of 1% of its net sales for the prior fiscal quarter in
exchange for services performed. Additionally, Eaton is required to reimburse
the Company for additional legal, auditing, and accounting fees and costs.
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Forward-Looking Statements
The statements made relating to the anticipated continued increases in
sales, store count and volume discounts of Eaton throughout the next several
years, sales growth, upgrading of its computer systems, acquisitions,
franchising, rapid growth, strengthened purchasing power and renovation of two
of Eaton's stores are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The results anticipated by any and all of these forward-looking
statements may not occur. Important factors that may cause actual results to
differ materially from the forward-looking statements include (1) The revenues
of the pharmacy chain could be affected by increased competition from large
competitors including nationwide and regional discount operations; (2) The
Company and Eaton's ability to provide financing for acquisitions, renovations
and computer upgrades; (3) A downturn in personal finances of the employee who
is expected to franchise a store, affecting his ability to enter into a
franchise agreement; (4) The state of the economy in the local communities in
New England where Eaton does business; (5) The general state of the economy in
the United States and elsewhere; (6) The failure of anticipated orders to
materialize due to budgetary and other factors; (7) The failure of suppliers to
timely deliver products; (8) Factors relating to the health care industry; (9)
The loss of any single large customer; and (10) Future governmental regulation
of pharmaceutical pricing.
Biotechnology Business
Genetic Vectors, Inc.
In March of 1996, the Board of Directors approved the spin-off of Vectors.
Vectors completed its initial public offering ("IPO") in December 1996.
Subsequently, in January 1997, the spin-off shares were distributed. Prior to
December 1996, Vectors was the Company's 80% owned biotechnology business and in
connection with the financing and development of that business, incurred
significant losses. The Company determined that it was unwilling to continue to
report losses as it was required to do on a consolidated basis or finance
Vectors since it had no practical ability to control its operations. In August
1997, the Company's Board of Directors voted to report Vectors as a discontinued
operation in their consolidated financial statements. In connection with the
Vectors spin-off, the Company currently retains 33.8% of Vector's outstanding
stock. However, it did not, and does not to date, have any operational control.
Additionally, for a limited period of time, one member of the Company's board
served as a member of Vector's board; however, he has recently resigned from
Vector's board for the second time.
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The Company has no current information concerning Vectors' operations.
However, as reflected by publicly available information, Vectors has generated
only nominal revenues as a result of limited sales of test kits. Although
Vectors IPO prospectus stated that Vectors expected sales of the modified
version of its initial product to commence in September 1997, to date it still
has not brought its product line to market. Vectors has placed development of
what was expected to be its "flagship" product on hold indefinitely.
Additionally, it appears that based on Vectors' filings with the Securities and
Exchange Commission, Vectors will require additional financing in the fourth
quarter of 1998. The spin-off effectively ended the Company's duty to fund
Vectors and it has no intention to do so in the future.
Employees
The Company believes that its employees represent one of its most valuable
resources. Including its executive officers and outside sales force, the Company
has 110 full-time and 88 part-time employees as of the date of this report. ADCO
employs 30 full-time employees, ADCO South employs 6 full-time and 1 part-time
persons, Anton has 14 full-time employees and 7 part-time employees, Conway
employs 7 full-time and 13 part-time employees, SCBA uses Conway's personnel,
Eaton employs 50 full-time and 66 part-time employees, and Nyer Nutritional
employs 2 full-time and one part-time employees. The Company directly employs
one full-time person. None of the Company's employees are covered by a
collective- bargaining agreement. Management believes that the Company's
relationship with its employees is excellent and that it has a loyal work force.
ITEM 2. Description Of Property.
The Company's executive offices and those of ADCO and Nyle Home Health are
currently located at 1292 Hammond Street, Bangor, Maine where ADCO's warehouse
and retail store are also located in a Company owned 23,000 square foot
facility. ADCO currently leases 1,200 square feet of warehouse space in Nevada
on a month-to-month basis.
ADCO South leases approximately 6,172 square feet of warehouse and office
space located in West Palm Beach, Florida. ADCO South's lease expired May 31,
1997 and is renting on a month-to-month basis. The monthly rental is $2,916. The
monthly rent includes all taxes, sewer fees, water bills and electric bills.
ADCO South is required to maintain public liability insurance, including bodily
injury and property damage insuring both ADCO South and the Lessor. Coverage is
maintained through the Company's master policy.
Anton leases approximately 11,800 square feet of warehouse and office space
located in Scarborough, Maine, from Michael and Paula
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Anton. The monthly rental is $3,500. All sewer fees, water bills
and electric bills are paid separately by Anton.
Anton leases approximately 800 square feet of showroom and office space in
Pembroke, New Hampshire. The monthly rental is $900. Monthly rent includes all
taxes, sewer fees, water bills and electric bills. The lease expires May 31,
1998.
Anton also leases approximately 2,000 square feet of warehouse and office
space located in Wilmington, MA. The monthly rental is $1,500. All sewer fees,
water bills, and electric bills are paid separately by Anton. The lease expired
February 1998. Their lease will continue on a month-to-month basis
Conway leases approximately 11,200 square feet of warehouse and office
space located in Haverhill, Massachusetts. The monthly rental is $3,922. All
sewer fees, water bills, and electric bills are paid separately by Conway. Their
lease expires November 1999.
SCBA occupies approximately 500 square feet of warehouse space in Conway's
building in Haverhill, Massachusetts.
Eaton currently leases 12 stores, averaging approximately 2,000 square feet
each, throughout the suburban Boston area. Their monthly lease payments range
from $1,000 to $6,301. The leases have varying expirations dates with all having
renewable leases.
Nyer Nutritional currently leases on a month-to-month basis approximately
650 square feet of office space in Phoenix, Arizona. The monthly rental is $547.
Monthly rent includes all taxes and utilities.
The Company believes that the premises are adequate for its current
foreseeable needs.
ITEM 3. Legal Proceedings.
The Company is not a party to any material litigation.
ITEM 4. Submission of Matters To A Vote of Security Holders.
The Annual Shareholder's Meeting was held on August 18, 1997, at 10:00
a.m., at the Corporate Headquarters located at 1292 Hammond Street, Bangor,
Maine 04401. A total of 5,295,400 shares were voted.
Dr. Stanley Dudrick and Dr. Gary Parker, Class C directors,
were elected to serve on the board of directors of the Company for
a three-year term, until the annual meeting of shareholders held in
the year 2000, by an affirmative vote of 5,295,400.
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All 5,295,400 shares were voted to ratify Coopers & Lybrand, LLP, as the
Company's independent auditors for the fiscal year ended December 31, 1997.
PART II
ITEM 5. Market For Common Equity And Related Stockholder Matters.
Qualification with NASDAQ
The Company's shares of common stock are listed and traded on
the Nasdaq SmallCap Market under the symbol: NYER.
The continuation of quotations on Nasdaq is subject to certain conditions.
The failure to meet these conditions may prevent the Company's common stock from
continuing to be quoted on Nasdaq and may have an adverse effect on the market
for the Company's common stock.
As of March 30, 1998, there were approximately 1,000 holders of the
Company's shares of common stock. The high and low bid prices for the Company's
common shares for each quarterly period for the last two fiscal years are as
follows:
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1997 1996
Closing Bids Closing Bids
HIGH LOW HIGH LOW
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First Quarter $14.13 $ 4.25 $ 9.50 $ 7.38
Second Quarter 7.56 4.38 31.25 8.50
Third Quarter 8.88 5.31 20.00 12.30
Fourth Quarter 8.88 4.13 18.00 12.00
</TABLE>
Such prices reflect inter-dealer prices and do not reflect retail mark-ups,
mark-downs, or commissions. The Company's shares are traded sporadically, which
may affect such prices.
Although there are no restrictions on the Company's ability to pay
dividends, to date the Company has not declared any cash dividends on any class
of security nor does it anticipate doing so in the foreseeable future.
Recent Sales of Unregistered Securities
During the past three years, the following persons and entities acquired shares
of common stock and other securities from the Company as set forth in the table
below:
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Class of Amount of
Stockholder Date Securities Securities Consideration
Sold
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<S> <C> <C> <C> <C>
Gulf American 7/11/95 Common 130,000 $325,000
Trading Co Stock
- --------------------------------------------------------------------------------
Glen Shelton 9/25/95 Common 20,000 50,000
Stock
- --------------------------------------------------------------------------------
Deborah 9/25/95 Common 20,000 50,000
Buonanno Stock
- --------------------------------------------------------------------------------
John Lory 9/25/95 Common 20,000 50,000
Stock
- --------------------------------------------------------------------------------
Frederick & 10/02/95 Common 50,000 125,000
Company Stock
- --------------------------------------------------------------------------------
Joseph Barrett 11/07/95 Common 10,000 25,000
Stock
- --------------------------------------------------------------------------------
Mead McCabe, 11/27/95 Common 5,000 25,000
Jr. Stock
- --------------------------------------------------------------------------------
M. Hussain 12/12/95 Common 10,000 25,000
Shaikh Stock
- --------------------------------------------------------------------------------
Philip 12/12/95 Common 25,000 125,000
Hoffman Stock
- --------------------------------------------------------------------------------
Aries Peak, 1/26/96 Common 125,000 700,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 2/9/96 Common 26,000 145,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 2/9/96 Common 40,000 224,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 2/12/96 Common 60,000 336,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 2/12/96 Common 6,815 38,164
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 2/21/96 Common 25,000 140,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 2/28/96 Common 10,000 56,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 3/6/96 Common 200,000 1,120,000
Inc. Stock
16
<PAGE>
- --------------------------------------------------------------------------------
Aries Peak, 3/21/96 Common 100,000 560,000
Inc. Stock
- --------------------------------------------------------------------------------
Nesbit Burns 5/15/96 Common 25,500 168,938
Stock
- --------------------------------------------------------------------------------
Privatinvest 5/17/96 Common 30,000 198,750
Bank Stock
- --------------------------------------------------------------------------------
Banque 5/20/96 Common 12,500 82,813
Genevoise Stock
- --------------------------------------------------------------------------------
M Dreher 5/20/96 Common 3,408 22,578
Purvines Stock
- --------------------------------------------------------------------------------
Kuwait 5/21/96 Common 50,000 331,250
Foreign Stock
Trading C
- --------------------------------------------------------------------------------
Arbinter- 5/21/96 Common 20,000 132,500
Omnivalor Stock
- --------------------------------------------------------------------------------
Campbellton 5/23/96 Common 50,000 331,250
Properties Stock
- --------------------------------------------------------------------------------
Angelina 5/23/96 Common 50,000 331,250
Panvini Stock
- --------------------------------------------------------------------------------
Angelina 5/29/96 Common 50,000 331,250
Panvini Stock
- --------------------------------------------------------------------------------
CBG 6/20/96 Common 5,000 33,125
Compagnie Stock
- --------------------------------------------------------------------------------
Aries Peak, 6/20/96 Common 18,070 Exchange for
Inc. Stock 50,000
Warrants
- --------------------------------------------------------------------------------
Aries Peak, 8/7/96 Common 70,834 757,924
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 8/9/96 Common 15,000 160,500
Inc. Stock
- --------------------------------------------------------------------------------
Aries Peak, 8/15/96 Common 30,000 321,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries, Peak, 8/20/96 Common 20,000 214,000
Inc. Stock
- --------------------------------------------------------------------------------
Aries, Peak, 8/23/96 Common 34,166 365,576
Inc. Stock
17
<PAGE>
- --------------------------------------------------------------------------------
Aries Peak, 10/3/96 Common 6,800 Selling
Inc. Stock Commission
- --------------------------------------------------------------------------------
</TABLE>
ITEM 6. Management's Discussion And Analysis or Plan of Operation.
The following discussion which provides information with respect to the
Company's results of operations, liquidity, and capital resources on a
comparative basis for the years ended December 31, 1997 and 1996, should be read
in conjunction with the Consolidated Financial Statements and related notes
appearing elsewhere in this Report.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
<TABLE>
Total sales for 1997 increased by approximately 60.1% from 1996 to
approximately $33.9 million from approximately $21.0 million in 1996. The
following table shows sales by subsidiary for the years 1997 and 1996:
Subsidiary 1997 1996 % increase (decrease)
- ---------- ---- ----
<S> <C> <C> <C>
Eaton $18,050,393 $ 6,568,258 174.8%
Anton 3,803,868 3,232,792 17.7
ADCO 5,649,050 4,811,849 17.4
SCBA 26,486 38,174 (30.6)
ADCO South 1,038,294 1,202,509 (13.7)
Conway 5,294,233 5,229,600 1.2
Nyle Home Health 15,095 10,306 46.5
Nyer Nutritional 1,515 100.0
---------- -----------
$33,878,934 $21,093,488
</TABLE>
The major reason for this increase in sales was due to the Company's pharmacy
chain, Eaton. The Company acquired Eaton in August of 1996. In 1997, the Company
showed twelve months of sales as compared to five months in 1996. Eaton also
acquired two pharmacies in 1997. Anton's sales increased due to the opening a
new location in New Hampshire, moved and expanded Massachusetts division
(located at Conway 1996) and hired a full-time salesman in New York. ADCO's
sales increased due to the continuing success in securing more long-term care
business and the opening of a new division in Nevada in 1997.
18
<PAGE>
The Company's overall gross margins were approximately 22.4% in 1997 as
compared 20.2% in 1996.
The following is a table of gross margins by subsidiary for the years 1997 and
1996:
<TABLE>
Subsidiary 1997 1996
- ---------- ---- ----
<S> <C> <C>
Eaton 21.8% 22.4%
Anton 31.2 15.1
ADCO 25.5 25.7
SCBA 32.8 85.9
ADCO South 27.1 27.5
Conway 14.8 12.6
Nyle Home Health 30.2 28.0
Nyer Nutritional 8.0 -
</TABLE>
Anton's gross margin increased to 31.2% due to a one-time inventory adjustment
related to the purchase of certain inventory items at a discount from Michael
Anton.
Selling, general, and administrative expenses increased approximately 44%
in 1997 to approximately $8.0 million from $4.5 million in 1996. The following
table shows the break down by subsidiary (and corporate expenses) as follows:
<TABLE>
Subsidiary 1997 1996
- ---------- ---- ----
<S> <C> <C>
Eaton $ 3,593,647 $ 1,301,202 (5 mos 1996)
Anton 983,802 624,607
ADCO 1,416,102 1,209,018
SCBA 739 1,740
ADCO South 283,965 334,945
Corporate 384,318 315,000
Conway 819,218 653,041
Nyle Home Health 65,730 1,903
Nyer Nutritional 437,867 35,841
---------- -----------
$ 7,985,388 $ 4,477,297
---------- -----------
</TABLE>
The main increase came from having Eaton's expenses for twelve months as
compared to five months in 1996 and Nyer Nutritional's expenses for twelve
months in 1997 as compared to one month in 1996. Nyer Nutritional is still
incurring start up expenses in the final development costs on its AMTFTM
product. The Company incurred one-time expenses in relation to its spin-off of
shares of Vectors stock. These expenses included lawyer, accountant, and
transfer agent fees. The Company's president salary increased in October 1996,
and the annual expense was reflected in 1997 as compared to three months in
1996.
In total, the Company experienced a net loss of $934,402 in 1997 as
compared to a net loss of $418,811 in 1996. The Company sustained a loss from
continuing operations of $209,390 in 1997
19
<PAGE>
as compared to a loss of $61,226 in 1996. The following table
summarizes the operations by subsidiary and year:
<TABLE>
Subsidiary 1997 1996
- ---------- ---- ----
<S> <C> <C>
Eaton $ 257,135 $ 128,927(5 mos 1996)
Anton 163,365 (129,359)
ADCO 11,314 12,298
SCBA 6,464 18,835
ADCO South (19,470) (24,282)
Corporate (34,256) (22,240)
Conway (51,271) 1,953
Nyle Home Health (61,173) (18,685)
Nyer Nutritional (481,498) (28,673)
---------- ----------
$ (209,390) $ (61,226)
---------- ----------
</TABLE>
The majority of the loss came from its subsidiary, Nyer Nutritional, of which
the Company recognized a loss of $481,498. Nyer Nutritional is still incurring
start up costs and overhead costs associated with its AMTFTM product. Nyle Home
Health had approximately $65,000 of write-offs for accounts receivable and
inventory obsolescence. Conway is raising its selling prices. Corporate had
higher expenses due to increased overhead costs and costs associated with the
Vectors spin-off. Anton had a net income due to increased sales, increased
margins, and a one time inventory adjustment.
The Company recognized a loss from Vectors of $725,012 in 1997 as compared
to a loss of $357,585 in 1996. The Company currently owns 33.8% of outstanding
common stock in Vectors. The Company accounts for 33.8% of Vectors loss on their
consolidated financial statements as a discontinued operation.
The following information is the comparison of 1996 and 1995 information.
Total sales for 1996 increased by approximately 133.4% from 1995 to
approximately $21.0 million from approximately $9.0 million in 1995. Two major
reasons contributing to this increase were the acquisition of two subsidiaries,
Conway and Eaton. Conway had net sales of approximately $5.2 million in 11
months while Eaton contributed approximately $6.6 million in net sales over a
five-month period. ADCO's sales increased by 6% to $4.8 million over $4.5
million in 1995. This increase was due to ADCO's success in securing more
long-term care business. ADCO South's 1996 sales decreased by approximately 4%
to $1.20 million from $1.25 million in 1995. This slight decrease is
attributable to decline in capital equipment sales. Anton's net sales remained
approximately the same as last year at $3.23 million. SCBA had net sales of
$38,000 for 1996 as compared to 0 for 1995.
The Company's overall gross margin was approximately 20.2% in
1996 as compared 23.0% in 1995. The reason for the decline in
20
<PAGE>
margin is attributable to Conway's gross profit margin of 12.6%. The reason for
this reduction is due to the lower margins that are associated with fire truck
sales. Fire truck sales in 1996 were $2.6 million. ADCO's gross margin decreased
to 25.7% as compared to 26.0% in 1995. This slight decrease is due to the
increased business in the nursing home market. ADCO South's gross margin in 1996
increased to 27.5% as compared to 22.8% in 1995. This increase was due to less
capital equipment sales, which have lower margins, and a greater emphasis was
put on increasing margins in 1996. The Company believes that this is within the
South Florida market average. Anton's gross margin was 15.1% for 1996 as
compared to 18.4% in 1995. This is the result of lower than expected gross
profit margins on fire truck and equipment sales. Sales for fire trucks in 1996
were $982,992 as compared to approximately $721,500 for 1995. Eaton had a gross
profit margin of 22.4%.
Selling, general and administrative expenses increased approximately 44% in
1996 to approximately $4.7 million from $2.62 million in 1995. The increases
came from mainly Conway and Eaton. Conway added approximately $653,000 while
Eaton added an additional $1.3 million to selling, general and administrative
expenses. ADCO's overhead remained constant as compared to 1995. ADCO South had
minimal decrease in overhead. Anton had an increase of approximately $26,000, of
which they recognized a one-time accounts receivable write-off of $20,000.
Corporate expenses increased in 1996 as compared to 1995 by $116,793. This
increase was attributable additional consulting, accounting and legal fees for
1996. Nyer Nutritional contributed approximately $36,000 for the year 1996 for
office and general operating expenses.
In total, the Company experienced a net loss of $418,811 in 1996 as
compared to a net loss of $585,269 in 1995. The majority of the loss came from
Vectors of which the Company recognized $357,585. The other components of the
loss are as follows: a loss of approximately $67,797 was experienced by the
medical and surgical, and nutritional supply companies as compared to $204,000
in 1995. Nyer Nutritional is at the start-up phase and experienced a loss of
approximately $36,000 which is included in the medical and surgical, and
nutritional segment; a loss of approximately $107,000 resulted in the emt,
police, and fire equipment and supplies segment as compared to a loss of
approximately $50,000 for the year 1995; income of $128,927 was recognized by
the Company from their newly acquired retail pharmacy chain; and a corporate
loss of approximately $14,429 in 1996 as compared to $192,000 in 1995.
21
<PAGE>
Liquidity and Capital Resources
Net cash used by operating activities was $796,968 for the year ended
December 31, 1997 and $206,278 for the year ended December 31, 1996. The primary
use of cash from operations in 1997 was used to increase inventories and
accounts receivables and fund Nyer Nutritional. In 1997 and 1996, the net cash
used in investing activities was $661,852 and $1,061,712, respectively. Fixed
assets acquired in 1997 totaled $491,354 and was comprised of vehicle additions
and other equipment as compared to $167,707 in 1996. Acquisition of a subsidiary
in 1996 accounted for $808,229 of net cash used in investing activities in 1996.
Net cash used in financing activities was $437,058 in 1997, primarily as a
result of net payments of long-tom debt and net cash provided by financing
activities of $7,398,779 in 1996, primarily as a result of proceeds from
issuance of common stock and exercise of stock warrants.
The Company anticipates its current cash resources are adequate to fund
its operating needs and potential acquisitions for the foreseeable future.
22
<PAGE>
<TABLE>
Selected Financial Data
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Summary of Operations:
<S>
<C> <C> <C> <C> <C>
Sales and other revenues
$33,878,934 $21,093,488 $9,036,902 $8,235,449 $6,635,438
Cost of sales
26,293,426 16,834,712 6,967,075 6,141,751 4,687,943
- ----------- ----------- ---------- ---------- ----------
Gross Margin
7,585,508 4,258,776 2,069,827 2,093,698 1,947,495
Selling,general, and administrative expenses
7,985,921 4,469,988 2,390,157 2,496,127 2,175,478
Operating loss from continuing operations
(400,413) (211,212) (320,330) (402,429) (227,983)
Interest (income) expense, net
(241,064) (147,907) 54,738 53,241 29,295
(Loss) income before minority interest
(159,349) (63,305) (375,068) (455,670) (257,278)
- ----------- ----------- ---------- ---------- ----------
Minority interest
(26,092) 2,079 12,511 8,302 (8,985)
- ----------- ----------- ---------- ---------- ----------
Loss from continuing operations before income taxes
$ (185,441) $ (61,226) $ (362,557) $ (447,368) $ (248,293)
- ----------- ----------- ---------- ========== ----------
Income taxes
23,949
Loss from continuing operations
$ (209,390) $ (61,226) $ (362,557) $ (447,368) $ (248,293)
- ----------- ----------- ---------- ---------- ----------
Loss from operations of discontinued subsidiary-Genetic Vectors
$ (725,012) (357,585) (222,712) (318,928) (226,771)
Net loss
$ (934,402) $ (418,811) $ (585,269) $ (766,296) $ (475,064)
=========== =========== ========== ========== ==========
Per Share Data:
Net(loss) per weighted average of common shares from continuing
operations
$ (.06) $ (.02) $ (.18) $ (.24) $ (.14)
Net(loss) per weighted average of common shares from discontinued
operations
(.21) (.12) (.11) (.17) (.12)
- ----------- ----------- --------- ---------- ----------
Net Loss per weighted average of common shares
$ (.27) $ (.14) $ (.29) $ (.41) $ (.26)
Year-End Position:
Total assets
$16,126,504 $17,141,829 $3,804,987 $3,756,408 $4,236,661
Property, plant, and equipment, net
1,258,675 1,020,799 759,769 827,279 903,953
Net working capital
8,071,515 9,057,883 954,407 705,362 1,342,930
Long-term debt(excluding current portion)
719,453 1,246,843 451,401 454,564 699,411
Minority interest
674,095 648,003 31,372 43,883 52,185
Shareholders' equity
11,024,056 11,935,387 2,366,138 2,080,654 2,378,677
Financial Ratios:
Gross margin % to sales
22.4 20.1 22.9 25.4 29.3
Loss % to sales from continuing operations
(.6) (.3) (4.0) (5.4) (3.7)
Loss % to sales from discontinued operations
(2.6) (1.7) (2.5) (3.9) (3.4)
---- ---- ---- ---- ----
Net loss % to sales
(3.2) (2.0) (6.5) (9.3) (7.1)
Current ratio
3.1 3.7 1.6 1.4 1.9
Other Data:
Weighted average common shares
outstanding
3,406,969 2,974,789 2,021,495 1,858,890 1,789,726
Capital expenditures
491,354 167,707 44,342 8,469 192,748
Depreciation and amortization
363,280 196,557 122,176 192,272 131,841
</TABLE>
23
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants F 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31,
1997 and 1996 F 2-3
Consolidated Statements of Operations for the
years ended December 31, 1997 and 1996 F 4
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1997 and 1996 F 5
Consolidated Statements of Cash Flows for
the years ended December 31, 1997 and 1996 F 6-7
Notes to Consolidated Financial Statements F 8-19
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Nyer Medical Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Nyer Medical
Group, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the years then ended. 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 consolidated financial position of Nyer Medical
Group, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Portland, Maine
March 27, 1998
F-1
25
<PAGE>
NYER MEDICAL GROUP, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
ASSETS
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,497,010 $ 6,392,888
Accounts receivable, less allowance
for doubtful accounts of $159,023 and
$167,502 at December 31, 1997 and 1996,
respectively 2,952,555 2,629,847
Inventories, net 4,187,779 3,161,925
Prepaid expenses 118,559 118,577
Receivables from related parties 18,176 66,242
---------- ----------
Total current assets 11,774,079 12,369,479
---------- ----------
Property, plant and equipment, at cost:
Land 92,800 92,800
Building 638,624 638,624
Leasehold improvements 112,984 121,191
Machinery and equipment 225,994 109,535
Transportation equipment 243,555 213,006
Office furniture, fixtures,
and equipment 613,101 538,133
---------- -----------
1,927,058 1,713,289
Less accumulated depreciation
and amortization (668,383) (692,490)
---------- -----------
1,258,675 1,020,799
Goodwill and other deferred assets,
net of accumulated amortization of
$256,794 and $135,043 at December 31,
1997 and 1996, respectively 919,683 910,030
Advances due from related companies 37,499 42,438
Investment in discontinued operation 1,972,190 2,683,112
Other 145,914 115,971
---------- -----------
3,075,286 3,751,551
Total assets $16,108,040 $17,141,829
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
26
<PAGE>
NYER MEDICAL GROUP, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current liabilities:
Notes payable to related parties $ 658,776 $ 309,372
Current portion of long-term debt 227,527 324,208
Taxes payable 7,743
Accounts payable 2,409,436 2,315,528
Accrued payroll and related taxes 59,095 122,622
Accrued expenses and other
liabilities 339,988 239,866
---------- ----------
Total current liabilities 3,702,565 3,311,596
Long-term debt, net of current
portion 533,991 1,246,843
Minority interest 674,095 648,003
Deferred credits (Note 7) 173,333
Commitments (Note 3 and 7)
Shareholders' equity:
Class A Preferred stock, par value
$.0001, Authorized, issued and
outstanding: 2,000 shares 1 1
Class B Preferred stock, series 1,
par value $.0001, Authorized:
2,500,000; issued and
outstanding: 1,000 shares at
December 31, 1997 and 0 shares
at December 31, 1996
Common stock, par value $.0001
Authorized: 10,000,000 shares;
issued and outstanding:
3,407,093 and 3,400,093 shares
at December 31, 1997 and 1996,
respectively 341 341
Additional paid-in capital 15,337,126 15,314,055
Stock sale receivable (115,500) (115,500)
Accumulated deficit (4,197,912) (3,263,510)
---------- ----------
Total shareholders' equity 11,024,056 11,935,387
---------- ----------
Total liabilities and
shareholders' equity $16,108,040 $17,141,829
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
27
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Net sales $33,878,934 $21,093,488
----------- -----------
Cost and expenses:
Cost of goods sold 26,293,426 16,834,712
Selling and retail 4,836,257 2,352,786
Warehouse and delivery 385,528 362,048
Administrative 2,763,603 1,762,463
---------- ----------
34,278,814 21,312,009
Operating loss (399,880) (218,521)
Other income (expense):
Interest expense (105,922) (76,253)
Interest income 346,986 224,160
Other (533) 7,309
---------- ---------
Total other income 240,531 155,216
---------- ---------
Loss before
minority interest (159,349) (63,305)
Minority interest (26,092) 2,079
---------- ---------
Loss from continuing operations
before income taxes (185,441) (61,226)
Income taxes 23,949
Loss from continuing operations
after income taxes (209,390) (61,226)
---------- ----------
Discontinued operations
Loss from operations of discontinued
subsidiary-Genetic Vectors (725,012) (357,585)
---------- ----------
Net Loss $ (934,402) $ (418,811)
========== ==========
Basic and diluted loss per common
share from continuing operations $ (.06) $ (.02)
Basic and diluted loss per common
share from discontinued operations (.21) (.12)
Basic and diluted loss per common
share $ (.27) $ (.14)
========== ==========
Weighted average common shares
outstanding 3,406,969 2,974,789
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
28
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
Class A Class B
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 2,000 $1 300,000 $30 2,183,000 $218
Proceeds-stock
subscription
receivable
Stock options exercise
receivable 50,000 5
Issuance of common
stock 752,815 75
Exercise of common
stock warrants 376,278 39
Exercise of common
stock options 18,000 2
Purchase of subsidiary 20,000 2
Retirement of
class B preferred
stock (300,000) (30)
Increase in
proportionate
investment in equity
of unconsolidated
subsidiary
Net loss
Balance,
December 31, 1996 2,000 1 0 0 3,400,093 341
Issuance of class
B preferred stock 1,000 0
Exercise of common
stock options 7,000 0
Stock issuance
costs
Net loss
Balance,
December 31, 1997 2,000 $ 1 1,000 0 3,407,093 $341
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. F-5
29
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, continued for the
years ended December 31, 1997 and 1996 <TABLE>
Additional Total
Paid-in Stock Sale Accumulated Shareholders'
Capital Receivable Deficit Equity
------- ---------- ------- ------
<S> <C> <C> <C> <C>
Balance,
December 31, 1995 $4,354,165 $(150,000) $(2,844,699) $ 1,359,715
Proceeds-stock
subscription
receivable 150,000 150,000
Stock options exercise
receivable 115,495 (115,500) 0
Issuance of common
stock 5,339,967 5,340,042
Exercise of common
stock warrants 2,293,670 2,293,709
Exercise of common
stock options 117,698 117,700
Purchase of subsidiary
297,498 297,500
Retirement of
class B preferred
stock 30 0
Increase in
proportionate
investment in equity
of unconsolidated
subsidiary 2,795,532 2,795,532
Net loss (418,811) (418,811)
----------- ---------- ----------- ------------
Balance,
December 31, 1996 15,314,055 (115,500) (3,263,510) 11,935,387
Issuance of class
B preferred stock
Exercise of common
stock options 32,339 32,339
Stock issuance
costs (9,268) (9,268)
Net loss (934,402) (934,402)
Balance,
December 31, 1997 $15,337,126 $ (115,500) $(4,197,912) $11,024,056
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. F-5
30
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
1997 1996
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (934,402) $ (418,811)
Adjustments to reconcile to net cash
used in operating activities
Loss of discontinued
operation 725,012 147,440
Depreciation and amortization 363,280 198,645
Loss on disposal of property,
plant, and equipment 11,949
Compensation expense in connection
with common stock option exercise 35,000
Minority interest 26,092 (2,079)
Increase in deferred credit 173,333
Changes in certain working capital
elements (1,162,232) (166,473)
---------- ----------
Net cash flows used in
operating activities (796,968) (206,278)
Cash flows from investing activities:
Acquisition of subsidiaries, net of
cash acquired (808,229)
Purchase of property, plant and
equipment (491,354) (167,707)
Increase in investment in
subsidiary (14,090)
Net change in advances due from
related companies 4,939 (613)
Increase in other assets, net (161,347) (85,163)
---------- ----------
Net cash used in investing
activities (661,852) (1,061,712)
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 157,400 26,020
Payments of long-term debt (966,933) (316,740)
Net borrowings (repayments) of
notes to related parties 349,404 (176,952)
Proceeds from issuance of common
stock 5,340,042
Stock issuance costs (9,268)
Proceeds from stock subscription
receivable 150,000
Proceeds from exercise of common
stock warrants 2,293,709
Proceeds from exercise of stock
options 32,339 82,700
--------- ---------
Net cash (used in) provided
by financing activities (437,058) 7,398,779
Net increase and cash
equivalents (1,895,878) 6,130,789
Cash and cash equivalents at
beginning of period 6,392,888 262,099
---------- ----------
Cash and cash equivalents at
end of period $4,497,010 $6,392,888
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
31
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Changes in certain working capital elements:
Accounts receivable, net $ (322,708) $ (583,908)
Inventories (1,025,854) (122,547)
Prepaid expenses 18 (14,332)
Receivables from related parties 48,066 (39,214)
Accounts payable 93,908 726,402
Taxes payable 7,743
Accrued payroll and related taxes (63,527) (115,005)
Accrued expenses and other liabilities 100,122 (17,869)
---------- ----------
Net change $(1,162,232) $ (166,473)
=========== ==========
</TABLE>
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 102,539 $ 69,218
========== ==========
The acquisition of subsidiaries in 1996, net of cash acquired, is summarized as
follows:
<TABLE>
<S> <C>
Working capital, other than cash $1,567,283
Property, plant and equipment 267,299
Other assets 349,470
Goodwill 379,550
Long-term debt (934,163)
Minority interests (523,710)
Common stock (297,500)
---------
Cash paid for acquisitions $ 808,229
=========
</TABLE>
Non-cash transactions:
During 1996, an officer of the Company exercised 50,000 stock options for
which the Company received a note receivable for $115,500.
Additionally, the exercise of 50,000 warrants, by an unaffiliated third
party, resulted in a cash less exercised with the equivalent issuance of
24,870 shares of common stock.
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
32
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The Company
Nyer Medical Group, Inc. ("Company") is a holding company with operations in
the medical products distribution, biotechnology, nutritional tube feeding
products, emergency medical services, fire, and police equipment and
supplies businesses. The Company's wholly-owned subsidiaries, ADCO Surgical
Supply, Inc. (ADCO), ADCO South Medical Supplies, Inc. (ADCO South) and 90%
owned Nyle Home Health Supplies, Inc. (Nyle Home Health) are engaged in the
wholesale and retail sale of surgical and medical equipment and supplies
throughout New England and Florida. Anton Investments, Inc., 80% owned by
the Company, is engaged in the wholesale and retail sales of equipment,
supplies, and novelty items to emergency medical services, fire departments
and police departments located throughout most of New England. Conway
Associates, Inc., 80% owned by the Company, is engaged in the wholesale
sales of equipment and supplies to emergency medical services and fire
departments throughout New England. SCBA, Inc. (SCBA), 80% owned by the
Company, is engaged in the servicing of fire department's self-contained
breathing apparatus. D.A.W., Inc.(Eaton Pharmacy),80% owned by the Company,
is a chain of twelve pharmacy drug stores with sales in the suburban Boston
area and its related company, FMT, Inc.(FMT), which is also 80% owned by the
Company, is involved in the franchising of pharmacy retail outlets. Nyer
Nutritional Systems, Inc., (Nyer Nutritional), is also 80% owned by the
Company. The Company owns a 33.8% interest in a biotechnology company,
Genetic Vectors, Inc. (Vectors), accounted for as a discontinued operation
(see note 2).
The Company is a subsidiary of Nyle International Corp. (Nyle).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned and controlled subsidiaries. All intercompany
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments with original maturities of three months
or less when purchased to be cash and cash equivalents.
continued
F-8
33
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued:
Inventories
Inventories, net are stated at the lower of cost (first-in, first-out
method) or market, with the exception of the retail pharmacies which use the
last-in, first-out method (LIFO). Of the total inventories, 37% are on the
LIFO method. The replacement costs of inventory exceeded LIFO cost by
$48,000.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. Leasehold improvements
are capitalized, while repair and maintenance costs are charged to
operations as incurred. When assets are retired or disposed of, the cost and
accumulated depreciation thereon are removed from the accounts, and any
gains or losses are included in operations. Leasehold improvements are
amortized using the straight-line method over the lease term.
For financial reporting purposes, depreciation is computed principally using
the straight-line method over estimated service lives of the related assets
as follows:
Years
Building 15
Leasehold Improvements 10
Machinery and equipment 3 - 10
Transportation equipment 3 - 5
Office furniture, fixtures and equipment 3 - 10
Income Taxes
The Corporation files a consolidated federal income tax return. The Company
uses the asset and liability method of accounting for income taxes. Under
this method deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Fair Value of Financial Instruments
At December 31, 1997, the carrying amounts of the Company's financial
instruments included in current assets and current liabilities approximate
fair value because of the short maturity of those instruments. The carrying
amounts of the Company's long-term debt also approximates their fair value
as of December 31, 1997 based upon the borrowing rates currently available
to the Company for loans with similar terms and maturities.
continued
F-9
34
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued:
Goodwill and other intangible assets
Goodwill, which represents the excess of the costs of companies acquired
over the fair market value of their net assets at dates of acquisition, is
being amortized on the straight line method over various periods, ranging
from 5 to 40 years. Other intangible assets acquired in connection with
acquisitions are being amortized on a straight line basis over periods
ranging from 5 to 6 years. Amortization expense charged to operations for
all deferred charges was $121,751 in 1997 and $63,583 in 1996.
Impairment Accounting
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," (SFAS No. 121) in 1996. The Company reviews the
recoverability of its long-lived assets, including goodwill and other
intangible assets, when events or changes in circumstances occur that
indicate that the carrying value of the asset may not be recoverable. The
measurement of possible impairment is based on the Company's ability to
recover the asset from the expected future pre-tax cash flows (undiscounted
and without interest charges) of the related operations. The measurement of
impairment requires management to make estimates of expected future cash
flows related to long-lived assets. It is at least reasonably possible that
future events or circumstances could cause these estimates to change. The
Company's policy on impairment prior to the adoption of SFAS No. 121 was not
materially different.
Earnings Per Share
In February 1997, FASB issued SFAS No. 128, Earnings per Share. SFAS
provides reporting standards for basic and diluted earnings per share and is
effective for financial statement periods ending after December 15, 1997.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period, which during 1997 and 1996, were 3,406,969 and 2,974,789,
respectively. Diluted earnings per share considers the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The diluted
weighted average number of common shares outstanding equaled basic in 1997
and 1996. All prior period earnings per share data has been restated to
conform to the provisions of this statement.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 will require that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The requirements of
the pronouncement are effective for the Company's fiscal year beginning
after December 15, 1997 and are not expected to have a material effect on
the Company's financial statements.
continued
F-10
35
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements, continued
In June 1997, FASB issued SFAS No. 131, Financial Reporting for Segments of
a Business Enterprise. SFAS No. 131 will require that a public business
enterprise report financial and descriptive information about its reportable
operating segments. The requirements of this pronouncement are effective for
financial statements for the periods beginning after December 15, 1997. The
requirements of this pronouncement are not expected to have a material
effect on the Company's financial statements.
Reclassifications
Certain amounts in 1996 have been reclassified to conform to the 1997
presentation.
2. Discontinued operation:
In March of 1996, the Company announced plans to spin-off 32% of its
investment in Vectors common stock to the shareholders of the Company. In
addition, the Company exchanged 20% of the common stock of Vectors for all
of the Class B Preferred Stock of the Company, which was held by an officer
and related party of Vectors. The Class B stock was then retired. The
Company consolidated the results of Vectors through September 30, 1996 and
recorded a net loss through that period of $210,145 that was attributable to
Vectors. From October 1, 1996 through December 31, 1996, the Company used
the equity method of accounting to account for the results of its investment
in Vectors, which resulted in the Company recording an additional net loss
of $147,440. The Company recognized a total net loss in connection with
Vectors of $357,585. In December 1996, Vectors completed its Initial Public
Offering by selling 575,000 shares of common stock, which resulted in
Vectors receiving net proceeds after offering expenses of approximately
$4,570,000. In accordance with Securities and Exchange Commission rules, the
Company has increased its investment in Vectors for its proportionate share
of the carrying value of Vectors at December 31, 1996. This resulted in an
increase of $2,795,532 to the Company's investment in unconsolidated
subsidiary account on the balance sheet, with a corresponding offset to
additional paid in capital under the stockholders' equity section on the
balance sheet.
In December 1996, the Company completed its spin-off of Vector's common
stock which resulted in 512,071 shares of common stock being distributed as
a dividend to shareholders of Nyer. The Company currently owns 33.8% of
Vectors outstanding common stock.
In August 1997, the Board of Directors approved a plan for the disposal of
its investment in Vectors. This investment is being accounted for as a
discontinued operation, and accordingly, the Company's share of losses of
Vectors is segregated in the consolidated statements of operations. As of
December 31, 1997, the estimated proceeds to be received for the future
disposal of this investment is greater than the carrying value in the
Company's consolidated balance sheet.
continued
F-11
36
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued operation, continued
As of December 31, 1997, the Company owned 790,616 shares of restricted
common stock of Vectors.
The financial position and results of Genetic Vectors, which has been
serviced audited by another accounting firm, as of and for the year ended
December 31, 1997 and 1996, respectively are as follows:
<TABLE>
Unaudited Audited
1997 1996
<S> <C> <C>
Current assets $ 2,064,673 $4,745,208
Non-current assets 685,896 172,596
----------- ----------
$ 2,750,569 $4,917,804
=========== ==========
Current liabilities $ 154,543 $ 170,527
Stockholders' equity 2,596,026 4,747,277
----------- ----------
$ 2,750,569 $4,917,804
=========== ==========
Net sales $ 39,260 $ --
Cost of Goods Sold 34,304
Operating expenses 2,400,446 393,494
Other revenues 250,483
----------- ----------
Net loss $(2,145,007) $ (393,494)
=========== ==========
</TABLE>
3. Related Party Transactions:
<TABLE>
Receivables from related parties consisted of the following at December 31,
1997 and 1996:
1997 1996
---- ----
<S> <C> <C>
Note receivable from officer $ 5,000
Receivable from unconsolidated
subsidiary 44,000
Receivable from related party $ 18,176 16,798
---------- ---------
Total current receivable from
related parties $ 18,176 $ 66,242
========== =========
Advances due from related companies,
non-current $ 37,499 $ 42,438
========== =========
</TABLE>
Note receivable from officer was a loan to the Vice-President of Sales, for
$10,000, with repayments of principal plus interest of 7.5% being made on a
quarterly basis. The balance of $5,000 at December 31, 1996 plus accrued
interest was paid in full on March 31, 1997.
Receivable from unconsolidated subsidiary of $44,000 was repaid January
1997.
The receivable from an affiliate is for products sold to a company which is
owned by an officer and director of the Company. Total sales were $83,613
and $87,350, for 1997 and 1996, respectively.
Advances due from related companies consist of cash advances made to Nyle.
Interest is charged at 9% annually and payments are made periodically.
Notes payable to related parties (an employee and director) were $658,776
and $309,372 at December 31, 1997 and 1996, respectively. This is a non
-interest bearing note.
continued
F-12
37
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Related Party Transactions: continued
The Company has an employment agreement with its Chief Executive Officer, at
a base annual salary of $125,000. This agreement expires October 1, 1999. In
addition, a note receivable for the exercise of 50,000 stock options was due
from this officer for $115,500, with interest payable quarterly with an
annual interest rate of 6.25%, with all unpaid accrued interest and
principal due August of 1999. This receivable has been off-set against the
stockholders' equity section on the balance sheet.
4. Acquisitions and Investments:
In February 1996, the Company acquired 80% of the outstanding common stock
of Conway Associates, Inc. and an affiliated company, SCBA, Inc. The
consideration paid in cash was $431,855. Conway and SCBA, located in
Haverhill, Massachusetts, is engaged in the wholesale and retail sales of
equipment and supplies to emergency medical services and fire departments
throughout New England.
In August 1996, the Company acquired 80% of the common stock D.A.W., Inc.
and an affiliated company, F.M.T., Inc. D.A.W. is an operator of retail
pharmacies in eastern Massachusetts and F.M.T. is involved with the
franchising of retail pharmacies. The consideration paid was $709,198 which
included the issuance of 20,000 shares of common stock of the Company valued
at $297,500, cash payment of $325,000 for a non-compete agreement, and
acquisition costs of $86,698. In addition, the Company contributed working
capital to $1,000,000, for which $200,000 is attributable to the minority
interest. In connection with this transaction, the Company has guaranteed
that the value of the common stock issued to the sellers will be at least
$8.75 per share on the second anniversary of the acquisition date. In event
the value of the common stock is below this amount, the Company is obligated
to either pay cash for the difference in value, issue equivalent amount of
additional shares of common stock, or repurchase the sellers common stock at
the guaranteed value.
The aforementioned acquisitions are being accounted for under the purchase
method of accounting, and accordingly, the results of operations of these
companies are included in the accompanying consolidated financial statements
from their respective dates of acquisition. The purchase prices have been
allocated to assets acquired and liabilities assumed, and is summarized as
follows:
<TABLE>
<S> <C>
Current assets $ 2,843,163
Property, plant and equipment 267,299
Intangible and other assets 349,470
Goodwill 379,550
Current liabilities ( 1,240,556)
Long term liabilities ( 934,163)
Minority interests (523,710)
-----------
$ 1,141,053
</TABLE>
continued
F-13
38
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions and Investments: continued,
The following unaudited pro forma financial information for the Company
gives effect to the DAW, FMT and Conway acquisitions as if they had occurred
on January 1, 1996. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of results of
operations had the acquisitions occurred on the date indicated, or which may
result in the future:
<TABLE>
1996
<S> <C>
Net sales $29,729,138
===========
Net loss $ (498,785)
===========
Net loss per share $ (.17)
===========
</TABLE>
In December 1996, the Company incorporated Nyer Nutritional Systems, Inc.,
in Delaware. This subsidiary was capitalized with cash of $300,000 for 80%
of the common stock of the Company. A minority shareholder also contributed
the rights to patented technology for the remaining 20% of common stock.
This subsidiary has developed a liquid nutritional formula for the medically
supervised feeding of hospital, nursing home, and home care patients.
5. Debt:
Long-term debt at December 31, 1997 and 1996, consisted of the following:
1997 1996
ADCO Surgical Supply, Inc:
Note payable in equal monthly installments of $4,675 including interest at
7%, through July 1996; the interest rate changed to 8 1/4% in August of
1996; collateralized by land and building,
due in March 2008. $ 402,231 427,415
Eaton Pharmacy:
Note payable to the Internal Revenue Service, payable in equal quarterly
installments of $11,007 plus interest at 7%. The note will mature in April
1998. The note is guaranteed by minority shareholders
of Eaton Pharmacy. 19,555 60,384
Note payable to the Commonwealth of Massachusetts, Department of Revenue,
payable in equal monthly installments of $9,286 plus interest at 7%. The
note will mature in August 1998. The note is guaranteed by minority
shareholders of
Eaton Pharmacy. 24,129 58,282
Note payable in monthly installments of
$1,167(without interest). The note will mature
in December 1998 and is collateralized by
certain assets of Eaton Pharmacy. 12,833 26,833
continued
F-14
39
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt: continued,
Note payable in equal monthly payments of
$2,934(without interest). The note will
mature in January 1997, and is collateralized
by certain assets of Eaton Pharmacy. Repaid in
February 1997. 6,934
Note payable to vendor, payable in equal monthly installments of principal
and interest of $2,724. Interest is charged at prime rate (8 1/4% at
December 31, 1996). Repaid in
February 1997. 81,731
Note payable to former shareholder of Eaton Pharmacy, payable in equal
monthly installments of $1,333 plus interest on the unpaid balance at prime
rate(8 1/4% at December 31, 1997). The note will mature in August 2000 and
is collateralized by certain assets of Eaton Pharmacy. 26,667 42,667
Note payable in equal monthly installments of $4,500 plus interest on the
unpaid balance at prime rate (8 1/4% at December 31, 1997). A final balloon
payment of $30,000 will be paid upon maturity in August 2000. The note is
collateralized by certain assets of Eaton Pharmacy. 120,000 174,000
Note payable in equal monthly installments of
$3,693 including interest at 7%. The note will
mature in June 2000 and is collateralized by
certain assets of the Weston Pharmacy. 101,368
Note payable in equal monthly installments of
$1,043 including interest at 7%. The note will
mature in September 1999 and is collateralized
by certain assets of the N. Beverly Pharmacy. 20,564
Note payable to vendor, payable in equal monthly installments of principal
and interest of $5,423. Interest is charged at prime rate (8 1/4% at
December 31, 1996). Repaid in
February 1997. 503,666
Note payable to vendor, payable in equal monthly installments of principal
and interest of $2,083. Interest is charged at prime rate plus 2%(10 1/4% at
December 31, 1996).
Repaid in February 1997. 125,000
continued
F-15
40
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt: continued,
Various notes payable, which were repaid
by March 31, 1997: 14,742
Other Subsidiaries
Notes payable due in various installments
at rates ranging up to 17.5%, collateralized
by certain equipment and vehicles. 34,171 49,397
---------- ----------
761,518 1,571,051
Less current portion 227,527 324,208
---------- ----------
$ 533,991 $1,246,843
========== ==========
The maturities of long term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 227,527
1999 134,399
2000 82,429
2001 33,349
2002 36,206
Thereafter 247,608
----------
$ 761,518
</TABLE>
The long term debt of ADCO and other subsidiaries, is collateralized by the
Company's inventory, accounts receivable and vehicles as well as personal
guarantees of the Company's chairman.
6. Income Taxes:
At December 31, 1997, the Company had a remaining net operating loss
(NOL)carryforwards of approximately $1,031,000 available to offset future
taxable income. The NOL carryforwards will expire in the years 2002 to 2012.
In the event of a change in ownership of the Company, the utilization of the
NOL carryforward may be subject to limitation under certain provisions of
the Internal Revenue Code. In addition, certain provisions dealing with
consolidated returns may limit the utilization of approximately $175,000 of
NOL carryforward by certain members of the consolidated group.
The tax effect of temporary differences that give rise to significant
portions of deferred taxes at December 31, 1997 and 1996 consisted of:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets(liabilities):
Depreciation $ (40,000) $ (54,000)
Reserves 211,000 115,000
Net operating loss carryforwards 412,000 654,000
---------- ----------
Total net deferred tax assets
before valuation reserve 583,000 715,000
Valuation reserve (583,000) (715,000)
---------- ----------
Total net deferred tax
assets $ - $ -
========== ==========
</TABLE>
continued
F-16
41
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes: continued
The Company has recorded a valuation reserve for the total amount of net
deferred tax assets due to the uncertainty of their future realization.
7. Commitments:
Operating Leases
The Company rents office and warehouse space with varying lease expiration
dates through June of 2003. All leases have options to extend the lease
terms. Total rent expense for the years ended December 31, 1997 and 1996,
was $589,282 and $286,084, respectively.
<TABLE>
Future minimum lease payments at December 31, 1997 are as follows:
<S> <C>
1998 $ 585,753
1999 493,862
2000 363,952
2001 192,394
2002 99,442
Thereafter 21,666
----------
$1,757,069
</TABLE>
Purchase Commitment
A subsidiary of the Company has an agreement with a supplier to purchase
$2,600,000 of inventory each quarter through the year 2001. The Company
received $200,000 from the supplier upon signing of the agreement, which is
being amortized over the term of the contract. Additionally, the supplier
has made available a $200,000 line of credit to purchase this inventory.
The line of credit is collateralized by substantially all of the assets of
the subsidiary. No amounts were outstanding under the line of credit at
December 31, 1997.
8. Capital Stock:
Each share of Class A preferred stock has voting rights equal to 1,000
shares of common stock. In March of 1996, the Company exchanged 20% of
Vectors' stock for all of the Class B Preferred Stock of the Company which
was then retired. The Company subsequently spun-off 32% of its holding of
the outstanding stock of Vectors (see note 2).
Each share of Class B Preferred Stock (series 1) has voting rights equal to
2,000 shares of common stock.
In 1996, the Company sold 752,815 shares of common stock under Regulation S
of the Securities Act of 1933, which netted proceeds of $5,340,042. In
connection with this sale, the Company issued 388,908 warrants to purchase
additional common stock at a weighted average exercise price of $7.32 per
share. Subsequently, 346,408 warrants were exercised, for which the Company
issued 321,278 shares of common stock for net proceeds of $1,963,703. The
remaining 42,500 warrants not exercised expired in October 1996. In
addition, in July and October, 1996, 55,000 warrants that were issued in
connection with the Company's 1992 Initial Public Offering, were exercised
with proceeds to the Company of $330,000.
continued
F-17
42
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1997, the Company issued 20,000 warrants to a third party in
connection with services provided. The exercise price for each warrant is
$14.75 and are only exercisable if the stock price exceeds 120% of the
exercise price.
The Company has a Stock Option Plan (Plan) which provides for the awards of
shares of common stock to employees, directors, and consultants of the
Company. The Plan provides for automatic grants of 12,000 non-qualified
options vesting semi-annually over a three-year term to all non-employee
directors. The maximum term of options granted under the Plan is ten years.
In January 1995, the Board of Directors approved an amendment to the Plan
increasing the number of shares from 150,000 to 275,000 shares.
<TABLE>
A summary of changes in common stock options during 1997 and 1996 is:
Weighted average
Shares exercise price
<S> <C> <C>
Outstanding grant at December 31, 1995 174,000 $ 3.43
Granted in 1996 56,000 13.52
Exercised in 1996 (68,000) 2.92
--------
Outstanding grants at December 31, 1996 162,000 7.64
Granted in 1997 89,000 5.33
Exercised in 1997 (7,000) 4.62
Canceled in 1997 (8,000) 16.75
--------
Outstanding grants at December 31, 1997 236,000 6.55
========
Options exercisable at December 31, 1996 92,000 5.42
========
Options exercisable at December 31, 1997 152,000 6.11
========
</TABLE>
The remaining weighted average contractual life of options outstanding at
December 31, 1997 is approximately 8 years.
<TABLE>
At December 31, 1997, exercisable options and price are as follows:
<S> <C>
Options $ per share
30,000 $ 2.31
67,000 4.62
22,000 16.75
24,000 5.00
4,000 6.63
5,000 6.88
-------
152,000
</TABLE>
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation. As permitted by SFAS No. 123, the Company has
chosen to apply APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and related interpretations in accounting for its Plan. Accordingly,
no compensation cost has been recognized for options granted under the Plan.
Had compensation cost for the Company's Plan been determined based upon the
fair value at the grant dates for awards under the Plan consistent with the
method of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below.
continued
F-18
43
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Capital Stock: continued,
<TABLE>
1997 1996
<S> <C> <C>
Net loss: As reported$ (934,402) $ (418,811)
============ ===========
Pro forma $(1,147,078) $ (521,816)
============ ===========
Loss per share: As reported$ (.27) $ (.14)
============ ===========
Pro forma $ (.34) $ (.18)
=============================
</TABLE>
The fair value of stock options in the pro forma accounts for 1997 and 1996
is not necessarily indicative of the future effects on net income and
earnings per share. The fair value of each stock option grant has been
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1997 and 1996: risk-free
interest rate of 6.2%, expected life of three years, volatility of 70%, and
no dividend yield. The weighted average time value of options granted during
1997 and 1996 was $2.70 and $7.43, respectively.
9. Business Segments:
The Company had three active business segments in 1997 and 1996:
(1)wholesale and retail sale of surgical, nutritional, medical equipment and
supplies, (2) wholesale and retail distribution of equipment, supplies, and
novelty items to emergency medical service, fire departments, and police
departments, and (3) retail pharmacy drug store chain. <TABLE>
Summary data for the year ended December 31, 1997 is as follows:
<CAPTION>
Nutritional,
Medical, and EMT, Fire, Police Pharmacy
Surgical Supplies Equip and Supplies Chain Corporate Consolidated
<S> <C> <C> <C> <C> <C>
Net Sales $6,703,954 $9,124,587 $18,050,393 $33,878,934
Operating
(loss)income (567,012) 206,514 344,935 $ (384,317) (399,880)
Identifiable
assets 3,308,535 2,477,876 4,371,623 5,950,009 $16,108,043
Capital
Expenditures 285,921 53,398 150,420 1,615 491,354
Depreciation
and
amortization 117,564 66,243 174,303 5,170 363,280
</TABLE>
<TABLE>
Summary data for the year ended December 31, 1996 is as follows:
<CAPTION>
Nutritional,
Medical, and EMT, Fire, Police Pharmacy
Surgical Supplies Equip and Supplies Chain Corporate Consolidated
<S> <C> <C> <C> <C> <C>
Net Sales $6,024,664 $8,500,565 $ 6,568,259 $21,093,488
Operating
loss (22,273) (88,993) 173,186 $ (280,441) (218,521)
Identifiable
assets 3,037,012 1,908,987 4,518,906 7,676,924 17,141,829
Capital
Expenditures 20,159 82,275 61,092 4,181 167,707
Depreciation
and
amortization 82,664 63,723 43,890 6,281 196,558
</TABLE>
F-19
44
<PAGE>
ITEM 8.
Changes In And Disagreements With Accountants On Accounting And Financial
Disclosure.
None
PART III
ITEM 9. Directors, Executive Officers, Promoters And Control Persons;
Compliance With Section 16 Of The Exchange Act.
Present directors and executive officers of the Company, their ages and
positions held are as follows:
Name Age Position
Samuel Nyer 72 Chairman of the Board,
President, Secretary,
and Director
William J. Clifford, Jr. 47 Vice-President-Sales
and Director
Karen L. Wright 35 Treasurer, Vice-
President-Finance,
Assistant Secretary,
and Director
Michael G. Anton 52 Director
Doyle W. Boatwright 60 Director
Stanley Dudrick, M.D. 62 Director
David P. Dumouchel 36 Director
Donald C. Lewis, Jr. 60 Director
Kenneth L. Nyer, M.D. 39 Director
Howard G. Parker, M.D. 56 Director
The Company's Board of Directors is divided into three classes of
directors, A, B, and C. Class A Directors, Messrs. Nyer, Clifford, Lewis,
and Ms. Wright, will be up for re-election in the year 1999. Class B
Directors, Messrs. Anton, Boatwright, Dumouchel, and Dr. Nyer, will be up
for re-election in the year 1998. Class C Directors, Dr. Stanley Dudrick
and Dr. Gary Parker, will be up for re-election in the year 2000.
Samuel Nyer has been Chairman of the Board, president and secretary of
the Company since December 1991. He served as a director of Genetic
Vectors, Inc. from December 1991 to June 1996. Mr. Nyer also serves
on the board of directors of each of the Company's subsidiaries. Since
1985, Mr. Nyer has been chairman of the board of Nyle, a manufacturer
of drying equipment. Nyle, a publicly held corporation, is the Company's
principal shareholder. Mr. Nyer has interests in a number of small
businesses in the Bangor, Maine area.
45
<PAGE>
William J. Clifford, Jr. has been vice-president of sales and a
director of the Company since December 1991, and vice-president and general
manager of ADCO and ADCO South since 1988 and 1992, respectively. Mr.
Clifford was a director of Vectors from June 1996 through April 30, 1997.
From 1973 to 1988, Mr Clifford was general sales manager of ADCO. Mr.
Clifford has over 25 years experience in the medical supply industry and
possesses substantial experience in medical warehousing, purchasing, sales
and sales management. He has been an employee of ADCO since 1973.
Karen L. Wright has been treasurer of the Company since 1991 and
vice-president of finance and assistant secretary of the Company since
January 1997. She was appointed to the Board in April of 1997. From 1985
though 1987, Ms. Wright was ADCO's assistant comptroller, from 1987 through
the present time Ms. Wright has been ADCO's comptroller and treasurer. Ms.
Wright received her Bachelors of Science Degree in Accounting from Husson
College, Bangor, Maine in 1985.
Michael G. Anton has been a director and an employee of the Company since
September 1993. At that time, the Company acquired his sole propriet-
orship, Anton Enterprises, through its subsidiary, Anton Investments,
Inc. and appointed Mr. Anton president of Anton. The Company owns 80% and
Mr. Anton 20% of Anton. Mr. Anton is also owner of 20% of the Company's
80% owned subsidiaries, Conway Associates, Inc. and SCBA, Inc.. He has
over 26 years experience in the fire and safety industry.
Doyle W. Boatwright has been a director of the Company since December 1996
and is president and director of Nyer Nutritional. The Company owns 80% of
Nyer Nutritional and Mr. Boatwright owns the remaining 20%. From September
1995 through December 1996, Mr Boatwright was president and founder of
Boatwright Laboratories, Inc., which owned the enteral nutritional product
patents now held by Nyer Nutritional. From 1989 through September 1995, Mr.
Boatwright was president and founder of DigniCare, Inc., a company
providing enteral, wound care and urological products to Medicare patients.
Stanley Dudrick, M.D. has been a director of the Company since March
1997. Since November 1994, Dr. Dudrick has been Associate Chairman
for St. Mary's Hospital, Department of Surgery. St. Mary's, which
is located in Waterbury, Connecticut, is affiliated with Yale Medical
School. Since 1982, Dr. Dudrick also has been a Clinical Professor
of Surgery at the University of Texas Health Science Center at Houston.
Dr. Dudrick is nationally known in the field of enteral nutrition and
has received numerous awards and honors, is an editorial consultant
and on the board of numerous medical journals including those special-
izing in nutrition and has published widely on the subject.
David P. Dumouchel has been a director of the Company since August 1996.
Mr. Dumouchel has also been a director of the Company's 80% owned
subsidiary, D.A.W., Inc. d/b/a Eaton Apothecary since August 1996. Mr.
Dumouchel has been vice-president of Eaton since 1988. Mr. Dumouchel
is a registered pharmacist in the State of Massachusetts. Mr. Dumouchel
received his Bachelors of Science Degree in Pharmacy from Purdue
University in 1983, and his Masters of Business Administration from Amos
Tuck School at Dartmouth College in 1986.
Donald C. Lewis, Jr. has been a director of the Company since July 1993.
Mr. Lewis has been president and director of Nyle, the Company's
principal shareholder, since January 1985.
Kenneth L. Nyer, M.D. has been a director of the Company since December
1991. Dr. Nyer is a specialist in internal medicine and has practiced at
46
<PAGE>
the Albert Einstein Hospital, Bronx, New York since 1993. He previously
practiced at North Shore University Hospital, Manhasset, New York from
1987 to 1993. Dr. Nyer held a faculty position at the Cornell
University Medical School since 1987. Dr. Nyer is the son of Mr. Samuel
Nyer.
Howard G. Parker, M.D. has been a director of the Company since December
1991. Dr. Parker has been an orthopedic surgeon in Bangor, Maine since
1978. Dr. Parker acts as a medical advisor, liaison, and consultant to
numerous medical and athletic organizations. Dr. Parker has conducted
research at Harvard Medical School and Massachusetts Institute of
Technology and has published widely on the subject of orthopedics.
Delinquent Filings
To the best of the Company's knowledge, Mr. Michael Anton, an officer and
director of the Company's subsidiary, Anton, failed to file one Form 4,
covering a transaction required to be filed with the Securities and
Exchange Commission. Also, to the best of the Company's knowledge, Mr. Don
Lewis and Dr. Gary Parker, both directors of the Company, failed to file
one Form 4, covering a transaction required to be filed with the Securities
and Exchange Commission. To the best of the Company's knowledge Forms 3 and
5 have been filed, as required.
Limited Liability of Directors
Under Florida law, the Company's directors are protected against personal
liability for monetary damages from breaches of their duty of care. As a
result, the Company's directors will not be liable for monetary damages
from negligence and gross negligence in the performance of their duties.
They remain liable for monetary damages for any breach of their duty of
loyalty to the Company and its stockholders, as well as acts or omissions
not made in good faith or which involve intentional misconduct or a knowing
violation of law and for transactions from which a director derives
improper personal benefit. They also remain liable under another provision
of Florida law which makes directors personally liable for of the Company's
directors under federal or applicable state securities laws is also
unaffected. The Company does not carry any directors' unlawful dividends,
stock repurchases or redemptions and expressly sets forth a negligence
standard with respect to such liability. While the Company's directors have
protection from awards of monetary damages for breaches of the duty of
care, that does not eliminate their duty of care. Equitable remedies, such
as an injunction or rescission based upon a director's breach of the duty
of care, are still available.
ITEM 10. Executive Compensation.
The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company for services rendered
during the fiscal years ended December 31, 1997, 1996 and 1995 to the
Company's chief executive officer. The Company's chief executive officer
received compensation exceeding $100,000 for the fiscal year ended December
31, 1997. No executive officer received compensation exceeding $100,000 for
the fiscal years ended December 31, 1997, 1996, and 1995.
47
<PAGE>
<TABLE>
Annual Compensation Long Term Compensation
Name and Securities
Principal Other Restricted Underlying LTIP
Position Year Salary($)Compensation($)Stock Award(s)($) Options/SARS(#
<S> <C> <C> <C> <C> <C>
Samuel Nyer 1997 $125,000 $4,200 $ 0 40,000 1
Chief 1996 86,538 4,200 0 40,000 2
Executive 1995 75,000 4,200 3 0 90,000 4
<C> <C> <C>
All Other
Year Payouts($) Compensation($)
1997 $ 0 $ 0
1996 0 0
1995 0 0
</TABLE>
The Company has not paid any compensation to any person for serving as a
director.
Employment Agreements
The Company employs its officers and employees pursuant to oral agreements,
with the exception of Mr. Samuel Nyer, Michael Anton, five minority
shareholders of Eaton, and Doyle Boatwright.
The Company entered into a three-year written employment agreement with Mr.
Samuel Nyer at a base annual salary of $125,000 effective October 1, 1996.
Mr. Nyer's employment agreement also provides for use of a car and
automobile insurance at an annual cost of $4,200. The agreement also
provided for the issuance to Mr. Nyer, of 1,000 shares of Series 1 Class B
Preferred Stock. Each share of Preferred Stock carries 2,000 votes on all
matter concerning the vote of common shareholders. The Preferred stock may
be voted but does vest until October 1999, subject to a substantial risk of
forfeiture as provided in Mr. Nyer's employment agreement. The shares were
issued February 18, 1997 after receipt of a fairness opinion from an
independent third party.
The Company entered into a five-year written employment agreement with Mr.
Anton at a base annual salary of $62,500 effective September 16, 1993. Mr.
Anton's employment agreement also provides for a vehicle allowance of an
annual cost of $5,000. He also receives life-insurance coverage of
$1,000,000 with 30% payable to the employees designated beneficiary and 70%
with benefits payable to the Company.
The Company entered into a five-year employment agreement, with a one-year
non-compete, with five minority shareholders of Eaton. The base salary for
each is $65,000 effective August 5, 1996. Each agreement also provides for
full insurance coverage on the Employee's personal vehicle and a vehicle
allowance with an annual cost of $3,600. Each also receive life-insurance
coverage in the aggregate amount of $800,000, including a separate single
policy in the amount of $300,000, which policy the Employee's designee
shall be the owner and beneficiary.
The Company entered into a five-year written employment agreement with Mr.
Boatwright at a base annual salary of $120,000. Mr. Boatwright receives a
vehicle allowance of an annual cost of $7,320. He also receives
life-insurance coverage in the amount of $2,000,000, $400,000 of which
shall be payable to his spouse with the remainder to the Company.
The Company has an oral employment agreement with Mr. William J.
Clifford, Jr. vice president and director, which provides for an
- --------
1 Consists of shares of common stock underlying options granted January 1995,
pursuant to the Company's 1993 Stock Option Plan exercisable at $2.31 of which
30,000 options are vested.
2 Consists of shares of common stock underlying options granted January 1995
pursuant to the Company's 1993 Stock Option Plan exercisable at $2.31 of which
10,000 options are vested.
3 Car and automobile insurance allowance accrued in fiscal 1995 but $1,750 paid
in 1996.
4 Consists of shares of common stock underlying options granted January 1995
pursuant to the Company's 1993 Stock Option Plan exercisable at $2.31 of which
50,000 options are vested.
48
<PAGE>
annual base salary of $65,000 and use of an automobile, including all
expenses associated with it at an annual cost of $7,985. The Company has an
oral employment agreement with Ms. Karen L. Wright, treasurer, which
provides for an annual base salary of $47,000.
Stock Option Plans
In July 1993, the Company established the 1993 Stock Option Plan (the
"Plan") covering 150,000 shares of common stock which was approved by
shareholders at the Company's annual meeting in October 1993. In 1995, the
board of directors and the shareholders approved an amendment to the Plan
by increasing the number of shares from 150,000 to 275,000 shares. The Plan
provides: (a)officers and other employees of the Company and its
subsidiaries opportunities to purchase stock in the Company pursuant to
options granted thereunder which qualify as incentive stock options
("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as
amended and (b) directors, executive officers, employees and consultants of
the Company and its subsidiaries opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Options").
The Plan is administered by the option committee which is comprised of
Donald C. Lewis, Jr., Dr. Kenneth L. Nyer and Dr. Howard Parker, three of
the Company's outside directors. The board of directors has the authority
to (i) determine the employees of the Company and its subsidiaries to whom
ISOs may be granted, and to determine to whom Non-Qualified Options may be
granted; (ii)determine the time or times at which options may be
granted;(iii) determine the exercise price of shares subject to options;
(iv) determine whether options granted shall be ISOs or Non-Qualified
Options; (v) determine the time or times when the options shall become
exercisable, the duration of the exercise period and when the options shall
vest; (vi) determine whether restrictions such as repurchase options are to
be imposed on shares subject to options and the nature of such
restrictions, if any, and (vii) interpret the Plan and promulgate and
rescind rules and regulations relating to it.
Effective in April 1997, under the Plan, all directors automatically
receive a grant of non-Qualified Options which vest semi-annually each June
30th and December 31st over a three-year period. The exercise price of such
options as provided for in the Plan is the closing price of the Company's
common stock on the last business day prior to the grant of options. The
number of options for each director is based on whether such person is
serving a one, two or three year term; for each year of a director's term,
4,000 options are granted. After all directors begin serving a three year
term, each director will receive an initial grant of 12,000 options at the
time of election, appointment or vesting of all prior options.
In January 1995, the Company granted Mr. Sam Nyer, its president,
non-qualified options to purchase 90,000 shares of common stock,
exercisable at $2.31 per share vesting over a five-year period. Of the
90,000 options, 50,000 were exercised in 1996, 30,000 are currently vested,
and the remaining 10,000 vest on June 30, 1998, subject to Mr. Nyer's
continued employment.
49
<PAGE>
ITEM 11. Security Ownership Of Certain Beneficial Owners And Management.
The following table sets forth information as of December 31, 1997, based
on information obtained from the persons named below, with respect to the
beneficial ownership of shares of common stock by (i) each person known by
the Company to be the owner of more than five percent of the outstanding
shares of common stock, (ii) each director, and (iii) all executive
officers and directors as a group. The table includes the Class A preferred
stock which has 2,000,000 votes and Class B preferred stock which has
2,000,000 votes.
Amount and Nature
Name and Address of of Beneficial Percentage of
Class Beneficial Owner Ownership5 Class Owned
Common Stock, Samuel Nyer 4,832,000 6,7,8,9 63.9%
Class A c/o ADCO
Preferred 1292 Hammond Street
Stock, and Bangor, Maine 04401
Class B
Preferred Stock
Common Stock Nyle International Corp. 2,710,000 35.9%
and Class A 72 Center Street
Preferred Brewer, Maine 04412
Stock
Common Stock William J. Clifford, Jr. 16,000 8,9 *
1292 Hammond Street
Bangor, Maine 04401
Common Stock Karen L. Wright 10,000 8,10,11 *
1292 Hammond Street
Bangor, Maine 04401
- --------
5 Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 and includes any options which
vest without 60 days of Record Date. Unless otherwise noted, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially
owned by them.
6 Includes shares owned by Nyle since Mr. Samuel Nyer is chairman of that
corporation.
7 Includes 30,000 shares of common stock underlying vested options granted
pursuant to the Plan.
8 Includes 4,000 shares of common stock underlying vested options held by
Messrs. Sam Nyer, Anton, Clifford, Boatwright, Dumouchel, and Ms. Wright.
9 Includes 12,000 shares of common stock underlying vested options held by
Messrs. Sam Nyer, Anton, Clifford, Lewis, Kenneth Nyer, and Parker pursuant
to the Company's Plan.
10 Includes 1,000 shares of common stock which is held by an ADCO employee
investment club by which Ms. Wright owns 100 shares. The common stock held
in the investment club is considered to be beneficially owned by Ms. Wright
as she has voting and investment power of this stock.
11 Includes 5,000 shares of common stock underlying vested options held by Ms.
Wright.
50
<PAGE>
ITEM 11. Security Ownership Of Certain Beneficial Owners And Management,
continued:
Amount and Nature
Name and Address of of Beneficial Percentage of
Class Beneficial Owner Ownership 5 Class Owned
- ----- ---------------- --------------- -----------
Common Stock Michael G. Anton 49,150 8,9 *
9 Haigis Parkway
Scarborough, Maine 04074
Common Stock Doyle W. Boatwright 4,000 8 *
6829 N. 12th Street
Suite 207
Phoenix, AZ 85014
Common Stock Stanley Dudrick, M.D. 4,000 12 *
c/o St. Mary's Hospital
56 Franklin Street
Waterbury, CT 06706
Common Stock David Dumouchel 8,000 8 *
111 Canal Street
Salem, MA 01970
Common Stock Donald C. Lewis, Jr. 11,000 9,13,14 *
c/o Nyle International Corp.
72 Center Street
Brewer, Maine 04412
Common Stock Kenneth L. Nyer, M.D 18,0009,14 *
48 Old Orchard Road
New Rochelle, New York 10804
Common Stock Howard G. Parker, M.D. 19,0009,14,15 *
360 Broadway
Bangor, Maine 04401
All directors and executive officers 4,971,150 5,6,7,8,9,10, 65.8%
of the Company as a group (ten 11,12,13,14,15
persons)5
* less than 1% of class
- --------
12 Includes 4,000 shares of common stock underlying vested options granted in
March 1997, pursuant to the Plan.
13 Mr. Lewis exercised 7,000 options in January 1998.
14 Includes 6,000 shares of common stock underlying vested options held by
Messrs. Lewis, Kenneth Nyer, and Parker.
15 Mr. Parker exercised 10,000 options in May 1996.
51
<PAGE>
ITEM 12. Certain Relationships and Related Transactions. Prior to 1991, the
Company and Nyle each engaged in inter-company loans. At December 31, 1997,
the Company was owed $37,499 by Nyle. As of March 31, 1998, Nyle owed the
Company $38,331 (the addition being accrued interest). As of March 31,
1997, Nyle owed the Company $41,341. Nyle pays the Company principal and
interest of 9% per annum on an infrequent basis. The Company is currently
subject to a provision of the Florida General Corporation Law which
restricts loans to affiliated parties and therefore the Company has not
lent any further sums to its affiliates.
Mr. Samuel Nyer, president of the Company, is a guarantor of ADCO's
institutional loan. See Notes to "Consolidated Financial Statements".
ADCO employs two relatives of Mr. William Clifford, a director of the
Company and vice president and general manager of ADCO. One relative is
employed as a retail store manager, and the other as a sales
representative. ADCO also employs three relatives of Ms. Karen Wright, the
Company's treasurer and principal accounting and chief financial officer.
One relative is employed as ADCO's assistant comptroller, one as a data
entry clerk and the other is employed in the receiving department. The
Company believes that the compensation paid to these individuals is no
greater than unrelated persons would receive.
In February 1997, as required by his October 1996 employment agreement, the
Company issued 1,000 shares of series 1 class B preferred stock, to Mr.
Samuel Nyer. The shares had been previously authorized subject to a
delivery of a fairness opinion from an independent investment banker, of
which the opinion was received February 1997.
52
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NYER MEDICAL GROUP, INC.
Registrant
By:/s/ Samuel Nyer
Samuel Nyer, President
(Chief Executive Officer)
53
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person(s) on behalf of the
Registrant and in the capacities indicated on the 31th day of March 1998.
Signature Title
/s/ Samuel Nyer Chairman of the Board,
Samuel Nyer President, Director,
and Secretary
/s/ William Clifford, Jr. Vice President of
William Clifford, Jr. Sales, Director
/s/ Karen L. Wright Treasurer, Vice President
Karen L. Wright of Finance, Assistant
Secretary, and Director
/s/ Doyle Boatwright Director
Doyle Boatwright
/s/ Michael Anton Director
Michael Anton
/s/ Stanley Dudrick, M.D. Director
Stanley Dudrick, M.D.
/s/ David Dumouchel Director
David Dumouchel
/s/ Donald Lewis Director
Donald Lewis
/s/ Kenneth Nyer, M.D. Director
Kenneth Nyer, M.D.
/s/ Howard Parker, M.D. Director
Howard Parker, M.D.
54
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
2. Articles of Incorporation of Nyer Medical Group, Inc.,
(1)
2.1 Amendment to Articles of Incorporation of Nyer Medical
Group, Inc.(1)
2.2 Second Amendment to Articles of Incorporation of Nyer
Medical Group, Inc.(1)
2.3 Third Amendment to Articles of Incorporation of Nyer
Medical Group, Inc.
3. Bylaws of Nyer Medical Group, Inc.(1)
4. 1993 Stock Option Plan(2)
4.1 Amendment to 1993 Stock Option Plan(2)
10. Agreement between Nyer Medical Group, Inc. and Dr. and
Mrs. McCabe and Mr. McCabe, Jr.
10.1 Stock Purchase Agreement - Conway Associates, Inc.
10.2 Stock Exchange Agreement and Plan of Reorganization -
Eaton Apothecary(3)
10.3 License Agreement - Nyer Nutritional Systems, Inc.
10.4 Employment Agreement - Samuel Nyer(4)
10.5 Employment Agreement - Doyle Boatwright(4)
(1) Contained in Registration Statement on Form S-18 filed on April 13, 1992.
(2) Contained in Form 10-KSB filed April 1996.
(3) Contained in Form 8-K filed August 1996.
(4) Contained in Form 10-KSB filed April 1997.
55
<PAGE>
THIRD AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
NYER MEDICAL GROUP, INC.
Pursuant to Sections 607.0602 and 607.1002, Florida Statutes, the undersigned
hereby certifies that the following Third Amendment to the Articles of
Incorporation of Nyer Medical Group, Inc. has been adopted:
1. The name of the corporation is Nyer Medical Group, Inc.
2. Article IV is amended by adding a new Section A which reads:
(1) 1,000 shares of Series 1 Class B Preferred Stock (the "Series 1 Stock") may
be issued.
(2) The Series 1 Stock is not convertible into common stock but carries the
right to 2,000 votes per share on all matters requiring a vote of the
common shareholders and preferred shareholders.
(3) In all other respects, the Series 1 Stock shall be treated like common
stock except where otherwise provided by the Florida Statutes.
3. The amendment was adopted on September 30, 1996, subject to filing the
Second Amendment to the Articles of Incorporation.
4. This amendment was adopted by the board of directors.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to the
Articles of Incorporation this 29 day of January 1997.
(CORPORATE SEAL) NYER MEDICAL GROUP, INC.
By:/s/ Samuel Nyer
Samuel Nyer, President
56
<PAGE>
Coopers & Lybrand, L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Nyer Medical Group, Inc. on Form S-8 (File Nos. 333-05635 and 333-05647)
of our report dated March 27, 1998, on our audits of the consolidated
financial statements of Nyer Medical Group, Inc. as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996, and 1995, which
report is included in this Annual Report on Form 10-KSB.
/s/ Coopers & Lybrand, L.L.P.
Portland, Maine
March 30, 1998
57
<PAGE>
[ARTICLE] 5
[CIK] 0000884647
[NAME] NYER MEDICAL GROUP, INC
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] 4,497,010
[SECURITIES] 0
[RECEIVABLES] 3,129,754
[ALLOWANCES] 159,023
[INVENTORY] 4,187,779
[CURRENT-ASSETS] 11,774,079
[PP&E] 1,927,058
[DEPRECIATION] 668,383
[TOTAL-ASSETS] 16,108,040
[CURRENT-LIABILITIES] 3,702,565
[BONDS] 533,991
[PREFERRED-MANDATORY] 0
[PREFERRED] 1
[COMMON] 341
[OTHER-SE] 11,023,716
[TOTAL-LIABILITY-AND-EQUITY] 16,108,040
[SALES] 33,878,934
[TOTAL-REVENUES] 33,878,934
[CGS] 26,293,426
[TOTAL-COSTS] 26,293,426
[OTHER-EXPENSES] 7,638,388
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 105,922
[INCOME-PRETAX] (934,402)
[INCOME-TAX] ( 23,949)
[INCOME-CONTINUING] (209,390)
[DISCONTINUED] (725,012)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (934,402)
[EPS-PRIMARY] (.27)
[EPS-DILUTED] 0
</TABLE>
58
