SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 000-20175
Nyer Medical Group, Inc.
(Name of 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
(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-K or
amendment to Form 10-K. [ ]
State issuer's revenues for its most recent fiscal year:
$37,204,465
The aggregate market value of the Company's voting stock held
by non-affiliates as of April 13, 1999 was approximately
$12,697,683 based upon the closing price. There were 3,396,093
shares of common stock outstanding as of April 13, 1999.
Documents Incorporated by Reference: None
Transitional Business Disclosure Format:
Yes _ No X
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 former director of the Company. The
Company owns 80% of the stock of Anton Investments, Inc. ("Anton")
and Conway Associates, Inc. ("Conway"). Mr. Michael Anton, a
former director, owns the remaining 20% of the stock of Anton and
Conway. The Company owns 80% of the outstanding stock of SCBA,
Inc. ("SCBA"), with the remaining 20% of SCBA also being owned by
Mr. Anton. SCBA repairs closed breathing apparatus equipment used
by fire departments. The Company owns 80% of a retail pharmacy
chain, D.A.W., Inc.(Eaton). The remaining 20% of the stock is
owned by five individuals who are former shareholders of Eaton.
The Company also owns 80% of a franchising company, FMT, Inc.(FMT).
The remaining 20% is owned by the former five shareholders of
Eaton. The Company started a new company in December of 1996, Nyer
Nutritional Systems, Inc. ("Nyer Nutritional"). The Company owns
80% of the outstanding stock of Nyer Nutritional; Mr. Doyle
Boatwright, a director of the Company, owns the remaining 20%.
Nyer Nutritional is currently distributing their patented liquid
nutritional formulas for tube feedings. The Company also currently
owns 31.5% of the outstanding stock of Genetic Vectors, Inc.
("Vectors").
Medical Products/Service
ADCO - ADCO South - Nyle Home Health
ADCO started as a quality distributor of home health, medical,
surgical and laboratory supplies and equipment in Bangor, Maine
in 1963. In fiscal year 1998, ADCO generated net sales of
approximately $5.5 million. ADCO supplies all areas of health care
products. ADCO sells to physician offices, clinics, health
centers, nursing homes, visiting nurse associations, individual
health care consumers and specialty equipment to hospitals. The
products supplied are motorized rehabilitative equipment such as
stair glides, chair lifts, scooters, wheelchairs and hospital beds,
various kinds of rehabilitative aids, surgical gloves (whose market
is rapidly expanding into non-traditional areas), first-aid
equipment utilized by persons who are rehabilitating from
operations, serious illnesses and accidents, diagnostic kits,
laboratory and diagnostic equipment and supplies, incontinence
supplies, surgical and medical equipment, both disposable and
reusable, disposable medical supplies, oxygen and associated
supplies, diabetic supplies, and various other products including
nursing uniforms and shoes.
In August 1998, the Company started a division called Nyer
Diabetic Supplies. This division delivers blood glucose meters,
test strips, lancets and penlets, control solutions and alcohol
prep pads to individual diabetics directly at their homes. This
division had approximately $18,000 in sales in 1998. The Company
believes direct home delivery, especially for the elderly, is
practical and economical because it eliminates the time and money
spent traveling to pick up the diabetic supplies. The Company also
does direct billing to the insurance companies and Medicare. The
Company has done advertising via television and a direct mailing in
Northern and Southern Maine. The Company expects to expand into
New Hampshire and Massachusetts in 1999. Nyer Diabetic Supplies
currently has 210 customers.
In February 1999, ADCO started a respiratory therapy division
within its home care operations. This division specializes in
oxygen and nebulizer supplies and equipment for patients who have
chronic respiratory problems, as well as BIPAP/CPAP equipment for
patients with sleep disorders. The population of respiratory
patients is increasing every day due to smoking and Chronic
Obstructive Pulmonary Disease (COPD), the most common respiratory
disease. Currently, this division has 32 patients and the
Company expects to increase this number with the ADCO name and
the quality of service that is provided. All of ADCO's home
care division customers now have access to a respiratory therapist
or a service technician 24 hours a day. ADCO currently employs
two part-time respiratory therapists.
In April 1999, ADCO started ADCO Coach Therapies (ACT). This
newest division is offering a new concept in health care. ACT
offers the services of respiratory therapists as consultants to
skilled nursing facilities. ACT is staffed by local respiratory
therapists that have strong ties to physicians and the community.
Skilled nursing facilities can now contract out the services of
skilled respiratory therapists on an as needed basis. This
allows the facility to know their costs up front and can plan
accordingly without having to hire full-time therapists. ACT
will also offer a 24 hour on call respiratory therapists for
emergencies and questions. ADCO will not be employing these
respiratory therapist full time but will have a "pool" of
respiratory therapists to use on an as needed basis.
ADCO's management believes with the three new divisions, the
synergy of combining its existing products with its new products
and services, gives ADCO the opportunity to promote one stop
shopping.
ADCO is one of the larger independent wholesale medical
distributors located in New England (excluding national
competitors). It has a wholesale customer base of over 1,425
active customers.
ADCO and ADCO South provide over 5,000 stocked items out of
their respective warehouses and have access to the inventory of
over 5,000 of the industries suppliers. Although the inventories
of both companies share common items, the need for items relative
to their geographic regions are accomplished through the warehouses
of both companies. This enables a larger mix of products to be
available from either company through inter-company transfers and
benefit from the synergies available from two combined inventories.
ADCO, pursuant to industry trade practices, is the semi-
exclusive distributor of two different lines of incontinence
products and generates over 10% of its annual volume from these
companies.
ADCO/ADCO South are members of the Central Independent Dealers
Association (CIDA). This is a nationwide group of over 70
wholesale distributors who join together for private label "CIDA"
branded products and price concessions from industry suppliers.
ADCO enjoys semi-exclusive rights to CIDA products in its primary
market areas. In 1998, CIDA became part of National Distributing
and Contracts (NDC), a coalition of three dealer associations;
ABCO, Starline, and CIDA. The combination of the three groups
positions NDC to compete with the large national distributors.
NDC's dealer network is the largest coalition of independent
dealers in the United States.
ADCO is one of Maine's leading suppliers of accessibility
equipment. The need for this equipment continues to grow with the
trend towards longer life spans and the enactment of the ADA
(American Disabilities Act).
ADCO also has an in-house service department to service the
needs of its customers. It also maintains an inventory of common
types of equipment to meet the needs of those customers who require
loaner equipment while theirs is being repaired.
ADCO achieves over a 95% plus order fill rate which serves to
further increase customer service and loyalty. ADCO's inventory
turns over approximately four to five times per year due to its
high service levels and a large inventory of specialty home care
and rehab equipment.
ADCO derives approximately 85% of its revenues from sales to
wholesale customers, while the balance comes from its retail and
home health customers. ADCO maintains a 23,000 square foot
facility and has a 3,000 square foot retail showroom located within
its building.
In 1997, ADCO opened a small branch office outside of Las
Vegas, Nevada, ADCO Southwest, and intends to use it to grow it
into a larger independent supplier of medical supplies and
equipment to the growing market area of the Southwest. The
employees of this branch have extensive knowledge of the sales of
pharmaceuticals and are helping ADCO/ADCO South expand their
business into the distribution of pharmaceuticals.
ADCO South began operations in 1992. ADCO South generated
approximately $1.1 million in net sales for 1998. ADCO South's
sales are from supplying equipment and supplies to the physicians
and clinics it services in the Palm Beach and Broward county areas
of South Florida. It does virtually no home health care business.
ADCO South operates out of a 6,172 square foot building located in
West Palm Beach, Florida.
Marketing
The marketing efforts of the medical products business are
headed by ADCO's vice president of sales and general manager,
William Clifford. The Company is actively marketing group
buying programs to a large number of physicians, long-term care
facilities, and clinics through its national NDC Group Provider
Program. This program enables the customers to receive the pricing
benefits of a large national organization yet provide customers
with the benefits of dealing with independent dealers.
ADCO's sales are achieved through the services of three
independent sales representatives who travel throughout New England
contacting existing and potential customers and through tele-
marketing, catalogs and mailing campaigns for existing customer
accounts. ADCO South's selling efforts are also directed by
Mr. Clifford, who is assisted by the three Florida-based sales-
persons. ADCO has started a telemarketing sales plan to supplement
traditional sales methods in order to increase sales.
Competition
All aspects of the Company's medical products business are
subject to significant competition. The Company's national
competitors generally have substantially greater financial
resources and other competitive advantages, although they tra-
ditionally concentrate on hospitals. Nonetheless, ADCO/ADCO South
believe they have certain competitive advantages which enable them
to compete favorably with larger competitors because of their
ability to be flexible and creative for their customers.
Unlike major competitors that concentrate on serving large
hospitals, ADCO derives only limited revenues from hospitals.
ADCO serves hospitals on a specialty basis providing equipment
and services to physician managed and owned offices. ADCO South
does not service hospitals and has no intention of attempting to
serve that market. ADCO estimates that approximately 35% of its
wholesale business is derived from sales to physicians, 35% to
nursing homes, 10% to its home care division, 5% to supply ADA
accessibility equipment, 5% to hospitals, and 10% to various other
health care consumers. 90% of ADCO South and ADCO Southwest sales
are derived from physicians, with 10% to various other health care
consumers. The most important competitive factors are ADCO/ADCO
South's commitment to service and ADCO's ability to repair
rehabilitative and medical equipment throughout its large market
area.
The national market for wholesale distribution of medical and
home health care supplies is served in large part by, Durr-
Fillauer, McKesson, PSSI, Cardinal and Owens & Miner. PSSI is the
largest national supplier of supplies to physician offices and
clinics. Although hospitals are believed to constitute most of
these company's largest customer group, these companies claim to
serve over 17,000 other customers including physicians and clinics
throughout the United States including the New England area.
Despite the presence of large companies, ADCO/ADCO South believe
the distribution of medical products in physician sites and long-
term care facilities are still controlled by many small local and
regional distributors.
Backlog/Seasonality
The Company's medical products business has never had a
significant amount of back orders due in large part to the fact
that it fills its orders rapidly and has a very high in stock-order
fill rate.
The Company's medical products/services businesses generally
are not seasonal.
Nutritional Supplies
Nyer Nutritional Systems, Inc.
Nyer Nutritional is an 80% owned subsidiary started in
December of 1996. The business is based on five patents designed
to promote a line of medical foods that have unique antimicrobial
properties. Medical foods is a category that is regulated
separately by the Food and Drug administration, as opposed to
dietary supplements and grocery type food products. Most medical
foods are prescribed by a physician and used for patients that have
special dietary needs tied into a disease or post-surgical medical
condition.
Medical foods are universally subject to bacterial contamina-
tion. A review of medical literature reveals as much as 25% of
unacceptable levels of bacterial contamination in liquid foods
are delivered to patients through feeding tubes. There are in
excess of 200,000 individuals in the United States who consume
their nutritional needs through tubes because of disease or medical
conditions. The industry currently exceeds one billion dollars
annually and is rapidly growing.
In the latter half of 1997, Nyer Nutritional marketed a single
liquid food product AMTFTM which did not support bacterial growth.
Most tube feeding patients require a plastic feeding bag attached
to the feeding tube. The bags, which holds the liquid, must be
discarded at least every 24 hours to limit bacterial contamination.
Many acute care hospitals discard the bag every eight hours. AMTFTM
allows the continued use of the bag for one week. This amounts to
an 85% minimum reduction in plastic bags for which Medicare
annually spends upwards of $200 million a year.
In 1998, Nyer Nutritional responded to consumer demand by
developing additional products for its product line. Many
medical tube feeding products provide specialized needs for
patients with disease specific conditions. Seven new disease
specific products were developed, which accommodate the majority
demand for medical tube feedings. All seven new products are
flavored and can be consumed by mouth as well as tube fed.
Included in the new product line are formulas for diabetes, renal
failure, respiratory disease, trauma, pediatrics, high protein,
and high calorie needs.
In addition, two new formulas, which also have the advantage
of preventing microbial growth, were introduced for non-tube fed
patients who consume nutritional supplements by mouth. Both a
lemon and an orange flavored product will help relieve taste
fatigue often suffered by over-consumption of chocolate, vanilla
and other common flavors. Nyer Nutritional's slightly acidic
formulas lend themselves well to more realistic citrus flavors.
Nyer Nutritional has established a strategic alliance with
National Distribution and Contracting (NDC). NDC is made up of a
group purchasing organization for medical distributors founded in
1953. The dealer owned organization now collectively represents
over $3 billion annually and has over 2,000 products under private
label.
Consistent with its policy of requiring less than wholly-owned
subsidiaries to reimburse the Company for its costs in providing
management services, Nyer Nutritional pays to the Company a monthly
management fee equal to the greater of $2,000 or one percent of net
sales for the prior quarter. Additionally, Nyer Nutritional is
required to reimburse the Company for additional legal, auditing
and accounting fees and costs.
In February 1999, Nyer Nutritional filed a lawsuit in federal
court in Arizona against the contractor it engaged to package its
tube feeding formulas and medical food products, and providing
packing which resulted in contamination of Nyer Nutritional's
patented product line.
EMT, Fire, Police Products/Services Businesses
Anton Investments, Inc. - Conway Associates, Inc - SCBA,Inc.
Anton is a distributor of fire, police and rescue equipment
and supplies that are sold to municipal and industrial accounts
throughout most of the New England area. Anton generated
approximately $3.6 million in net sales for 1998.
Prior to the Company purchasing an 80% interest in Anton
Investments Inc. in 1993, (together with Mr. and Mrs. Anton
purchasing the other 20%) Anton (doing business as Anton
Enterprises) had been in business since 1980. Anton conducts
approximately 80 percent of its business with municipal and
industrial fire departments, while law enforcement agencies and
emergency rescue units comprise 10 percent each. Anton continues
to broaden its market area, with approximately 55 percent of its
sales now taking place in Maine, 25 percent in New Hampshire, 3
percent in Vermont, 15 percent in Massachusetts, with the remaining
2 percent outside of New England.
Anton divides its activities among four overlapping areas: (1)
the distribution of equipment used by municipal and industrial fire
departments, public law enforcement agencies, emergency medical and
rescue units; (2) the sale of turnout gear, custom uniforms,
footwear and other items of apparel worn by these professions; (3)
the sales and services of new and used fire apparatus; and (4) the
exclusive gift shop for the fire, police and rescue personnel and
their families, with merchandise such as badges, insignias decals,
helmet fronts, vehicle markers, flashing warning lights, children
and adult t-shirts, toys, rings and novelty gift items.
Anton maintains an extensive inventory of its most popular
products at its various locations, which includes Maine, New
Hampshire, Massachusetts, and New York. While Anton generally is
able to fill orders from its own inventory on a same day basis, the
Anton has established arrangements with most of its suppliers
whereby non-inventoried items and special orders can be drop-
shipped by the manufacturer to the customer with the same degree of
responsive service.
The Company and Michael Anton and his wife, acquired 80% and
20%, respectively, of Conway's stock in February 1996. Conway is
located in Massachusetts. Conway's net sales for 1998 were
approximately $3.76 million.
The Company has a policy requiring less than wholly-owned
subsidiaries to reimburse the Company for its costs in providing
management services. Anton is required to reimburse the Company
a monthly management fee of $1,500. Conway's monthly management
fee is $2,000. Anton and Conway are required to reimburse the
Company for any additional legal, auditing and accounting fees and
costs.
Conway conducts about 95% of its business with municipal and
industrial fire departments, with the remainder being emergency
rescue units throughout New England. Conway has been in business
since 1971. Conway's market area includes approximately 65% of
its sales from Massachusetts, 15% in New Hampshire, 10% in Vermont,
8% in Maine, with the remainder outside of New England.
Anton and Conway distribute mainly to the following types of
businesses: municipal and industrial fire departments, industrial
and power supply companies, and emergency medical and rescue units.
Conway sells turnout gear, footwear and other items of clothing
worn by these companies, equipment and supplies that are used in
these industries, and the sales and service of new and used fire
and ambulance apparatus.
Conway represents 3-D Manufacturing, Inc., a Wisconsin-based
manufacturer of fire trucks.
Conway maintains a limited inventory. Conway has access to
Anton's inventory and through its many suppliers, has access to
having items drop-shipped or shipped directly to them within a few
days.
The Company and Michael Anton and his wife, acquired 80% and
20%, respectively, of SCBA's stock in February 1996. SCBA is
located in Massachusetts with Conway. SCBA's net sales for 1998
were approximately $45,519. SCBA services fire department's and
industrial company's self-contained breathing apparatus gear.
Marketing and Sales
Anton's marketing and sales are headed by Michael Anton,
President of Anton. Anton markets and sells its products through
direct calls, retail store, and its own catalog with the assistance
of the outside and inside sales force. Sales and marketing are
conducted throughout New England.
Conway's marketing and sales are currently managed by Ross
Wood, Sales Manager. The marketing and sales are achieved through
flyers and direct calls from the inside and outside sales force.
Competition
All of Anton's and Conway's fire, police and rescue products
are subject to competition. Some of this competition is through
companies who use direct mail or via telemarketing efforts.
Despite the presence of competition, Anton and Conway believes its
sales force, extensive inventory, and emphasis on service give them
an edge over the competition.
Backlog/Seasonality
The businesses of Anton, Conway, and SCBA do not experience
significant back orders. The exception would be the sale of fire
trucks. The lead time traditionally is between 150-180 days before
delivery.
The businesses of Anton, Conway, and SCBA generally are not
seasonal.
Retail Pharmacies Businesses
Eaton Apothecary
In August 1996, the Company acquired 80% of Eaton Apothecary,
"Eaton", a chain of pharmacies operating in the greater Boston
area. During 1998, Eaton acquired two stores and sold two stores.
In January 1999, one store was sold. Sales grew from $18.0 million
in 1997 to $22.8 million in 1998. This is an increase of over 26%
over 1997. Each of the five minority shareholders (except in one
case, the husband of a shareholder) continue employment under a
five year employment contract with Eaton which commenced in August
1996. Control of the Board of Directors of Eaton is split between
representatives from Nyer and from Eaton. Additionally, one member
of Eaton management occupies a seat on the Company's Board of
Directors.
Concurrent with management's aim to drive unit profitability,
Eaton began an overhaul of its computer systems in 1998. A
significant capital investment was made to purchase state-of-the-
art pharmacy and point of sale technology which will enable Eaton
to manage its growth in the future. Management believes this
investment to be necessary to have proper controls over all of its
eleven locations as it has transitioned from a loosely related
group of independent stores into a true chain pharmacy company.
Implementation of the computer system and software continues in
1999 and should result in a streamlined accounting system, better
customer service at store level, and much greater per store
prescription filling capacity.
The competitiveness of the retail pharmacy market continues
to intensify with many different channels of retail and non-
retail competition. Because of Eaton's niche in all of its
markets, it has not been adversely affected by its competitors.
All of the stores posted sales increases despite continued
competition from national chain drug stores, supermarket chains,
HMO's, and internet services. Eaton did see its gross profit
margin decline approximately 1% in 1998 due to lower than expected
reimbursement rates. Eaton's management strategy is to move in the
opposite direction from the national chains regarding store size,
merchandise mix, and store locations. Eaton's strategy of
developing its prototype of approximately 2,500 sq. ft., with high
volume prescription departments, in neighborhood locations has
fared well over the past several years. Virtually all of Eaton's
stores compete head-to-head with CVS and Walgreen stores.
Continued expansion of delivery service and specialized pharmacy
services in 1998 has resulted in the development of many new
specialty markets.
Pharmacies in supermarkets and deep discount stores, such as
Walmart, have not gained significant market share in communities
served by Eaton. Eaton currently occupies a niche in the market
not covered by the larger chain stores. Average store size is
approximately 2,000 square feet (versus 10,000 to 20,000 for the
average chain), with the pharmacy department as the central focus
to the customer. Eaton offers free delivery service of prescrip-
tion medication to the local community. This customer benefit
gives Eaton an important competitive advantage for the shut-in
customer. Eaton operates six full-time delivery vehicles with each
vehicle averaging 75-100 deliveries per day. The presence of this
service allows Eaton the ability to reach a broader geographic
market and the ability to locate its stores in neighborhood
settings rather than in high traffic, high cost shopping centers.
Recent "any willing provider" legislation passed in
Massachusetts has enabled Eaton to serve Harvard/Pilgrim HMO as
well as many other "locked out" sectors of the retail pharmacy
market. Because of the increased available market, management
expects sales growth to be positive, but with continuing pressure
on margins. Because of this trend, management continues to
focus energies on cost reductions from suppliers, and cost
containment at store level. Assisted living facilities are
transitory facilities for elderly patients unable to live at home
alone but not brittle enough to require nursing home care. This
market segment is predicted by the U.S.Census to be the largest
growing housing sector in the nation over the next decade. Because
these homes do not offer nursing care, yet cater to residents
unable to manage their own medications, Eaton management has
recognized a tremendous opportunity to couple its prescription and
delivery expertise to out-service the chain stores to this new
market sector. Eaton's investment in specialized packaging equip-
ment was with the intent of offering a "fool-proof" medication
management system to assisted living residents. During 1998,
this sector continued to expand as a percent of Eaton's prescrip-
tion business. Eaton added an additional "Medicine on TimeTM"
packaging system. This licensed packaging system caters to elderly
clients who are unable to manage their medication regimens yet who
are not frail enough for nursing home care. In addition to
tremendous growth in the assisted living and home-bound sectors,
many leads have developed through word of mouth throughout the
visiting nurse and health center communities which have the
possibility to further additional specialized business opportun-
ities.
Eaton anticipates further store acquisitions over the next
several years as competition continues to intensify and marginal
stores, both independent and chain, are sold or closed. Eaton has
committed to opening a pharmacy within the confines of a busy
inner-city health center and is negotiating with a second health
center for a pharmacy there as well.
Consistent with its policy of requiring less than wholly-owned
subsidiaries to reimburse the Company for its costs in providing
management services, Eaton has a service agreement with the Company
where it will pay to the Company a fee equal to one-third of 1% of
its net sales for the prior fiscal quarter in exchange for
services performed. Additionally, Eaton is required to reimburse
the Company for additional legal, auditing, and accounting fees and
costs.
Forward-Looking Statements
The statements made relating to the anticipated continued
increases in sales, store count and volume discounts of Eaton
throughout the next several years, sales growth, acquisitions,
rapid growth, are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The results anticipated by any
and all of these forward-looking statements may not occur.
Important factors that may cause actual results to differ
materially from the forward-looking statements include (1) The
revenues of the pharmacy chain could be affected by increased
competition from large competitors including nationwide and
regional discount operations; (2) The Company and Eaton's ability
to provide financing for acquisitions, renovations and computer
upgrades; (3) The state of the economy in the local communities in
New England where Eaton does business; (4) The general state of the
economy in the United States and elsewhere; (5) The failure of
anticipated orders to materialize due to budgetary and other
factors; (6) The failure of suppliers to timely deliver products;
(7) Factors relating to the health care industry; (8) The loss of
any single large customer; and (9) Future governmental regulation
of pharmaceutical pricing.
Biotechnology Business
Genetic Vectors, Inc.
In December 1998, the Company wrote off its investment in
Vectors. This means going forward, the Company will not
be required to recognize a % of Vectors operating losses under
discontinued operations; contrarily, if Vectors reports income,
the Company will not include that income in their results of
operations. As of the date of this report, the Company owns 739,216
shares of Vectors common stock which the Company intends to sell
from time to time in the over-the counter market. The proceeds
resulting from the sale of these shares, will be reported as
investment income.
Employees
The Company believes that its employees represent one of its
most valuable resources. Including its executive officers and
outside sales force, the Company has 101 full-time and 74 part-time
employees as of the date of this report. ADCO employs 27 full-time
and 4 part-time employees, ADCO South employs 5 full-time and 2
part-time employees, Anton has 12 full-time employees and 5 part-
time employees, Conway employs 7 full-time and 1 part-time
employees, SCBA uses Conway's personnel, Eaton employs 52 full-time
and 57 part-time employees, and Nyer Nutritional employs 2 full-
time employees. The Company directly employs one full-time person.
None of the Company's employees are covered by a collective-
bargaining agreement. Management believes that the Company's
relationship with its employees is excellent and that it has a
loyal work force.
ITEM 2. Description Of Property.
The Company's executive offices and those of ADCO and Nyle
Home Health are currently located at 1292 Hammond Street, Bangor,
Maine where ADCO's warehouse and retail store are also located in
a Company owned 23,000 square foot facility. ADCO currently
leases 2,640 square feet of office and warehouse space located in
Henderson, Nevada. The monthly rental is $2,000. All sewer fees,
water bills, electric bills, and other common areas are paid
separately. The lease expires December 31, 2004.
ADCO South leases approximately 5,372 square feet of warehouse
and office space located in West Palm Beach, Florida. The monthly
rental is $2,916. The monthly rent includes all taxes, sewer fees,
water bills and electric bills. ADCO South is required to maintain
public liability insurance, including bodily injury and property
damage insuring both ADCO South and the Lessor. Coverage is
maintained through the Company's master policy. The lease expires
December 31, 1999.
Anton leases approximately 11,800 square feet of warehouse and
office space located in Scarborough, Maine, from Michael and Paula
Anton. The monthly rental is $3,500. All sewer fees, water bills
and electric bills are paid separately by Anton. The lease expired
in September of 1998. Their lease will continue on a month-to-
month basis.
Anton leases approximately 800 square feet of showroom and
office space in Pembroke, New Hampshire. The monthly rental
is $1,200. Monthly rent includes all taxes, sewer fees, water
bills and electric bills. The lease expired May 31, 1998. Their
lease will continue on a month-to-month basis.
Anton also leases approximately 2,000 square feet of warehouse
and office space located in Wilmington, MA. The monthly rental
is $1,500. All sewer fees, water bills, and electric bills are paid
separately by Anton. The lease expired February 1998. Their lease
is on a month-to-month basis.
Conway leases approximately 11,200 square feet of warehouse
and office space located in Haverhill, Massachusetts. The monthly
rental is $3,996. All sewer fees, water bills, and electric bills
are paid separately by Conway. Their lease expires November 1999.
SCBA occupies approximately 500 square feet of warehouse space
in Conway's building in Haverhill, Massachusetts.
Eaton currently leases 12 stores, averaging approximately
2,000 square feet each, throughout the suburban Boston area. Their
monthly lease payments range from $1,885 to $6,175. The leases
have varying expirations dates with all having renewable leases.
Nyer Nutritional currently leases on a month-to-month basis
approximately 650 square feet of office space in Phoenix, Arizona.
The monthly rental is $547. Monthly rent includes all taxes and
utilities.
The Company believes that the premises are adequate for its
current foreseeable needs.
ITEM 3. Legal Proceedings
The Company is not a party to any material litigation,
however, in February 1999, Nyer Nutritional, the Company's
80% owned subsidiary, filed its Complaint in the United States
District Court for the District of Arizona against Curtis-Burns
Foods, Inc., the independent contractor Nyer Nutritional engaged
to package its tube feeding formulas and medical food products.
Nyer Nutritional has alleged that Curtis-Burns breached its
contract by providing defective and unfit products, was negligent,
breached an express warranty, breached an implied warranty of
merchantability, breached an implied warranty of fitness for
intended purpose and misrepresented the efficacy of its product.
Nyer Nutritional is seeking as yet unspecified damages in excess
of $75,000, plus attorney's fees and costs. The litigation is in
the very early stages and no response has been filed yet by
Curtis-Burns.
ITEM 4. Submission of Matters To A Vote of Security Holders.
The Annual Shareholder's Meeting was held on August 10,
1998, at 10:00 a.m., at the Corporate Headquarters located at
1292 Hammond Street, Bangor, Maine 04401. A total of 6,118,233
shares were voted.
Dr. Ken Nyer, Doyle Boatwright, and David Dumouchel were
Class B directors, were elected to serve on the board of directors
of the Company for a three-year term, until the annual meeting of
shareholders held in the year 2001, by an affirmative vote of
6,054,913.
6,111,413 shares were voted to ratify PricewaterhouseCoopers,
LLP, as the Company's independent auditors for the fiscal year
ended December 31, 1998.
PART II
ITEM 5. Market For Common Equity And Related Stockholder Matters.
Qualification with NASDAQ
The Company's shares of common stock are listed and traded on
the Nasdaq SmallCap Market under the symbol: NYER.
The continuation of quotations on Nasdaq is subject to certain
conditions. The failure to meet these conditions may prevent the
Company's common stock from continuing to be quoted on Nasdaq and
may have an adverse effect on the market for the Company's common
stock.
As of April 13, 1998, there were approximately 1,100 holders
of the Company's shares of common stock. The high and low
bid prices for the Company's common shares for each quarterly
period for the last two fiscal years are as follows:
1998 1997
Closing Bids Closing Bids
HIGH LOW HIGH LOW
First Quarter $ 6.50 $ 4.80 $14.13 $ 4.25
Second Quarter 5.88 3.69 7.56 4.38
Third Quarter 4.88 2.13 8.88 5.31
Fourth Quarter 4.00 2.00 8.88 4.13
Such prices reflect inter-dealer prices and do not reflect
retail mark-ups, mark-downs, or commissions. The Company's shares
are traded sporadically, which may affect such prices.
Although there are no restrictions on the Company's ability to
pay dividends, to date the Company has not declared any cash
dividends on any class of security nor does it anticipate doing so
in the foreseeable future.
Recent Sales of Unregistered Securities
During the past three years, the following persons and entities
acquired shares of common stock and other securities from the
Company as set forth in the table below:
Stockholder
Date Class of
Securities Amount of
Securities
Sold
Consideration
Gulf American
Trading Co 7/11/95 Common
Stock 130,000 $325,000
Glen Shelton 9/25/95 Common
Stock 20,000 50,000
Deborah
Buonanno 9/25/95 Common
Stock 20,000 50,000
John Lory 9/25/95 Common
Stock 20,000 50,000
Frederick &
Company 10/02/95 Common
Stock 50,000 125,000
Joseph Barrett 11/07/95 Common
Stock 10,000 25,000
Mead McCabe,
Jr. 11/27/95
Common
Stock 5,000 25,000
M. Hussain
Shaikh 12/12/95
Common
Stock 10,000 25,000
Philip
Hoffman 12/12/95
Common
Stock 25,000 125,000
Aries Peak,
Inc. 1/26/96
Common
Stock 125,000 700,000
Aries Peak,
Inc. 2/9/96
Common
Stock 26,000 145,000
Aries Peak,
Inc. 2/9/96
Common
Stock 40,000 224,000
Aries Peak,
Inc. 2/12/96
Common
Stock 60,000 336,000
Aries Peak,
Inc. 2/12/96
Common
Stock 6,815 38,164
Aries Peak,
Inc. 2/21/96
Common
Stock 25,000 140,000
Aries Peak,
Inc. 2/28/96
Common
Stock 10,000 56,000
Aries Peak,
Inc. 3/6/96
Common
Stock 200,000 1,120,000
Aries Peak,
Inc. 3/21/96
Common
Stock 100,000 560,000
Nesbit Burns
5/15/96
Common
Stock 25,500 168,938
Privatinvest
Bank 5/17/96
Common
Stock 30,000 198,750
Banque
Genevoise 5/20/96
Common
Stock 12,500 82,813
M Dreher
Purvines 5/20/96
Common
Stock 3,408 22,578
Kuwait
Foreign
Trading C 5/21/96
Common
Stock 50,000 331,250
Arbinter-
Omnivalor 5/21/96
Common
Stock 20,000 132,500
Campbellton
Properties 5/23/96
Common
Stock 50,000 331,250
Angelina
Panvini 5/23/96
Common
Stock 50,000 331,250
Angelina
Panvini 5/29/96
Common
Stock 50,000 331,250
CBG
Compagnie 6/20/96
Common
Stock 5,000 33,125
Aries Peak,
Inc. 6/20/96
Common
Stock 18,070
Exchange for
50,000
Warrants
Aries Peak,
Inc. 8/7/96
Common
Stock 70,834 757,924
Aries Peak,
Inc. 8/9/96
Common
Stock 15,000 160,500
Aries Peak,
Inc. 8/15/96
Common
Stock 30,000 321,000
Aries, Peak,
Inc. 8/20/96
Common
Stock 20,000 214,000
Aries, Peak,
Inc. 8/23/96
Common
Stock 34,166 365,576
Aries Peak,
Inc. 10/3/96
Common
Stock 6,800
Selling
Commission
The sale of all the securities listed above were exempt from registration
pursuant to Regulation S of the Securities Act of 1933. In order to claim
the exemption, the issuer relied upon the fact that the purchasers are not
United States Persons as defined by Regulation S and that when the buy
orders originated, the issuer and any persons acting on its behalf, reasonably
believed that the purchasers were outside the United States.
ITEM 6. Management's Discussion And Analysis or Plan of Operation.
The following discussion provides information with respect to
the Company's results of operations, liquidity, and capital
resources on a comparative basis for the years ended December 31,
1998 and 1997, and for the years ended December 31, 1997 and 1996,
and should be read in conjunction with the Consolidated Financial
Statements and related notes appearing elsewhere in this Report.
Year Ended December 31, 1998 Compared to Year Ended December 31,
1997.
NET SALES. Total sales for 1998 increased by approximately 10%
from 1997 to approximately $37.2 million from approximately $33.9
million in 1997. The following table shows sales by subsidiary for
the years 1998 and 1997:
Subsidiary 1998 1997 % increase (decrease)
Eaton $22,851,707 $18,050,393 26.6%
Anton 3,609,985 3,803,868 (5.1)
ADCO 5,510,540 5,649,050 (2.5)
SCBA 45,519 26,486 71.9
ADCO South 1,136,052 1,038,294 9.4
Conway 3,763,983 5,294,233 (28.9)
Nyle Home Health 15,095 (100.0)
Nyer Diabetic 18,248 100.0
Nyer Nutritional 268,431 1,515 -
$37,204,465 $33,878,934
The reason for this increase in sales is due to the Company's
pharmacy chain, Eaton. In 1998, Eaton acquired two stores
which accounted for the majority of the increase in sales coupled
with the full year impact of the two stores purchased during 1997.
Nyer Nutritional received its first major sales in 1998. Nyer
Nutritional had additional sales of approximately $500,000,
which were reversed in the fourth quarter due to a problem with
the manufactured product necessitating a recall of the product,
approximately $300,000 of the recalled products were originally
recorded as sales in the third quarter of 1998. For additional
information, see Item 3, Legal Proceedings. ADCO had a sales
decrease of approximately $139,000 in 1998 as compared to 1997 due
mainly to $170,000 less of federal government sales. Conway's
decrease in sales was the result of turnover in its sales force
which occurred in July of 1998, which was not fully replaced until
1999.
GROSS PROFIT MARGIN. The Company's overall gross margins were
approximately 21.2% in 1998 as compared 21.8% in 1997.
The following is a table of gross margins by subsidiary for
the years 1998 and 1997:
Subsidiary 1998 1997
Eaton 20.3% 21.8%
Anton 23.8 26.5
ADCO 25.2 25.5
SCBA 53.8 67.3
ADCO South 22.6 27.1
Conway 15.5 14.8
Nyer Diabetic 12.0
Nyle Home Health 30.2
Nyer Nutritional 48.6 -
Eaton's gross margin declined due to lower reimbursements
from insurance companies, medicare and medicaid. They believe
they can off set this decline by increased sales volume. Anton's
gross margin was lower in 1998 as compared to 1997 due to a one-
time inventory adjustment related to the purchase of certain
inventory items at a discount from Michael Anton in 1997. ADCO
South's gross margin declined due to increased competition and
increased equipment sales which generally have lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated
selling, general, and administrative expenses increased
approximately 12.0% in 1998 to approximately $8.7 million from
$7.8 million in 1997. The following table shows the break
down by subsidiary (and corporate expenses) as follows:
Subsidiary 1998 1997
Eaton $ 4,418,141 $ 3,593,647
Anton 806,111 783,802
ADCO 1,416,037 1,416,102
SCBA 6,440 739
ADCO South 260,989 283,965
Corporate 449,567 384,318
Conway 761,385 819,218
Nyer Diabetic 31,594
Nyle Home Health 7,369 65,730
Nyer Nutritional 562,267 437,867
$ 8,719,900 $ 7,785,388
The main increase came from Eaton due to the higher costs
associated with the two stores acquired in 1998 coupled with the
effect of two stores acquired in 1997. Corporate overhead
increased due to the addition of two public relations firms in
1998. The Company wanted to improve its communications within the
investment community as well as with its shareholders and potential
shareholders. As of the date of this report, the Company has one
public relations firm. Conway's decrease in selling, general, and
administrative expenses can be directly associated with its decline
in sales.
NET LOSS. In total, the Company experienced a net loss of
$1,840,191 in 1998 as compared to a net loss of $934,402 in 1997.
The Company sustained a loss from continuing operations of $278,211
in 1998 as compared to a loss of $209,390 in 1997. The following
table summarizes the operations by subsidiary and year.
Subsidiary 1998 1997
Eaton $ 413,956 $ 257,135
Anton 14,712 163,365
ADCO (44,706) 11,314
SCBA 7,236 6,464
ADCO South (22,409) (19,470)
Corporate 1,109 (34,256)
Conway (154,857) (51,271)
Nyer Diabetic (29,398)
Nyle Home Health (8,070) (61,173)
Nyer Nutritional (455,784) (481,498)
$ (278,211) $ (209,390)
The income of Eaton includes a $365,000 gain for the sale of
two stores. Without the sale of the two stores, Eaton only
realized income of approx $48,000 due to the decline in gross
margin. The majority of the loss from continuing operations came
from its subsidiary, Nyer Nutritional, which had a loss of
$455,784. Nyer Nutritional developed 9 new products in 1998
bringing its product line to 10 items. Additional overhead was
incurred to develop these new products. Nyer Nutritional still has
not achieved enough sales to cover its operating costs. Anton's
net income dropped due to a one-time inventory pick up in 1997
related to the purchase of inventory items at a discount from
Michael Anton. ADCO incurred additional overhead costs associated
with its branch located in Nevada. Conway's loss can be attributed
to a turnover of their sales force in mid July of 1998. This
caused a loss of revenues which they are currently rebuilding.
Conway starting rebuilding its sales force in October 1998. It has
taken the Company longer than anticipated to replace its sales
force due to the experience and knowledge needed to sell fire
equipment and supplies. In November 1998, they hired a new sales
manager. Nyer Diabetic losses are the result of expenses
associated with an extensive advertising campaign and start up
costs. Corporate expenses are off set by interest income.
The Company recognized a loss from Vectors of $1,561,980 in
1998 as compared to a loss of $725,012 in 1997. The Company
currently owns 31.5% of outstanding common stock in Vectors. As of
December 31, 1998, the Company has written down its investment in
Vectors to zero due to significant uncertainties regarding the
Company's ability to recover its investment. The write down of the
Company's investment in Vectors resulted in an additional charge to
discontinued operations of $1,206,965.
Liquidity and Capital Resources
Net cash used by operating activities was $375,460 for the
year ended December 31, 1998 and $796,968 for the year ended
December 31, 1997. The primary use of cash from operations in 1998
was used to increase accounts receivables and fund Nyer
Nutritional. In 1998 and 1997, the net cash provided by (used in)
investing activities was $330,095 and ($661,852), respectively.
Fixed assets acquired in 1998 totaled $458,107 and was comprised of
vehicle additions, computer equipment, and other equipment as
compared to $491,354 in 1997. Also, the Company received proceeds
from the sale of securities of $561,904 in 1998 (including
$410,210 from Vectors) as compared to $0 in 1997. The Company also
received proceeds from the sale of two of its pharmacies of
$385,000 in 1998 as compared to $0 in 1997. Net cash used in
financing activities was $314,657 in 1998 as compared to $437,058
in 1997, primarily as a result of repayments of long-term debt
and the purchase of 11,000 shares of treasury stock for $52,249.
As of December 31, 1998, the Company has written down its
investment in Vectors to zero due to significant uncertainties
regarding the Company's ability to recover its investment.
Based on the Company's review of currently available public
information about Vectors, there is substantial doubt about
Vectors ability to continue as a going concern. In addition,
Vectors and its counsel have refused to remove the restrictive
legends from the Vectors' stock certificates which limits the
Company's ability to sell its Vectors stock in the public market
to one percent of Vectors' outstanding common stock (approximately
23,000 shares per quarter). Those restrictions were required to
be removed in January 1998. Even if those restrictions are
removed, the Company still believes that its investment is
impaired due to the illiquid nature of the "bulletin board"
market on which Vector's stock trades. The write down of the
Company's investment in Vectors resulted in an additional charge
to discontinued operations of $1,206,965 which was partially
off set by $298,827 of gains from the sale of a portion of Vectors'
stock.
The Company anticipates its current cash resources are
adequate to fund its operating needs and potential acquisitions
for the foreseeable future.
Year 2000
IMPACT OF YEAR 2000 - Computer Systems Compliance
The "Year 2000 Issue" is the result of the way computer
systems and programs define calendar dates; they could fail or make
miscalculations due to interpreting a date including "00" to mean
the year 1900, not year 2000. Some computer programs were written
using two digits rather than four to define the appropriate year.
This could result in a system failure or miscalculations causing
disruptions in normal business activities.
The Company has substantially analyzed its computer systems,
including embedded chip technology, to determine the potential
technical and economic impact of the "Year 2000 Issue" on the
Company's systems and business operations. In the last two
years, the Company has upgraded its major computer systems and
programs. To date, the Company has identified only one of its
subsidiaries which will have to replace its computer system in
order to be Year 2000 compliant. The Company estimates this cost
will be no greater than $15,000.
The Company is requesting assurances from its outside
suppliers which it relies on for inventory and services and its
customers (which includes 3rd party insurance companies), that
they are Year 2000 Compliant.
The Company does not expect that the costs of addressing the
Year 2000 issues (which are in the Company's control) will have a
material effect on their future operating results or financial
position. The Company's management believes its in-house risks, as
associated with the Y2K problems, are minimal. The Company has
limited or no control over their outside suppliers and its
customers Y2K problems. Any failure of these parties could have
a material adverse effect on continued uninterrupted business
operations of the Company.
At this time, the Company is in the process of developing a
contingency plan for its systems that are not Year 2000 compliant
and intends to have it in place by the second quarter of 1999.
FORWARD-LOOKING STATEMENTS
The statements made above relating to: (1) the anticipated costs to
the Company of complying with the Year 2000 conversion, (2) the
anticipated future impact as a result of outside suppliers not
being Year 2000 compliant on a timely basis are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
The results anticipated by any or all of the forward-looking
statements may not occur.
Year Ended December 31, 1997 Compared to Year Ended December 31,
1996.
NET SALES. Total sales for 1997 increased by approximately 60.1%
from 1996 to approximately $33.9 million from approximately $21.0
million in 1996. The following table shows sales by subsidiary for
the years 1997 and 1996:
Subsidiary 1997 1996 % increase (decrease)
Eaton $18,050,393 $ 6,568,258 174.8%
Anton 3,803,868 3,232,792 17.7
ADCO 5,649,050 4,811,849 17.4
SCBA 26,486 38,174 (30.6)
ADCO South 1,038,294 1,202,509 (13.7)
Conway 5,294,233 5,229,600 1.2
Nyle Home Health 15,095 10,306 46.5
Nyer Nutritional 1,515 100.0
$33,878,934 $21,093,488
The major reason for this increase in sales was due to the
Company's pharmacy chain, Eaton. The Company acquired Eaton in
August of 1996. In 1997, the Company showed twelve months of sales
as compared to five months in 1996. Eaton also acquired two
pharmacies in 1997. Anton's sales increased due to the opening
a new location in New Hampshire, moved and expanded Massachusetts
division (located at Conway 1996) and hired a full-time salesman
in New York. ADCO's sales increased due to the continuing success
in securing more long-term care business and the opening of a new
division in Nevada in 1997.
GROSS PROFIT MARGIN. The Company's overall gross margins were
approximately 21.8% in 1997 as compared 20.2% in 1996.
The following is a table of gross margins by subsidiary for
the years 1997 and 1996:
Subsidiary 1997 1996
Eaton 21.8% 22.4%
Anton 26.5 15.1
ADCO 25.5 25.7
SCBA 32.8 85.9
ADCO South 27.1 27.5
Conway 14.8 12.6
Nyle Home Health 30.2 28.0
Nyer Nutritional - -
Anton's gross margin increased to 26.5% due to a one-time
inventory adjustment related to the purchase of certain inventory
items at a discount from Michael Anton in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated
selling, general, and administrative expenses increased
approximately 73.9% in 1997 to approximately $7.8 million from
$4.5 million in 1996. The following table shows the break
down by subsidiary (and corporate expenses) as follows:
Subsidiary 1997 1996
Eaton $ 3,593,647 $ 1,301,202 (5 mos 1996)
Anton 783,802 624,607
ADCO 1,416,102 1,209,018
SCBA 739 1,740
ADCO South 283,965 334,945
Corporate 384,318 315,000
Conway 819,218 653,041
Nyle Home Health 65,730 1,903
Nyer Nutritional 437,867 35,841
$ 7,785,388 $ 4,477,297
The main increase came from having Eaton's expenses for twelve
months as compared to five months in 1996 and Nyer Nutritional's
expenses for twelve months in 1997 as compared to one month in
1996. Nyer Nutritional is still incurring start up expenses in the
final development costs on its AMTFTM product. The Company incurred
one-time expenses in relation to its spin-off of shares of Vectors
stock. These expenses included lawyer, accountant, and transfer
agent fees. The Company's president salary increased in October
1996, and the annual expense was reflected in 1997 as compared to
three months in 1996.
NET LOSS. In total, the Company experienced a net loss of $934,402
in 1997 as compared to a net loss of $418,811 in 1996. The Company
sustained a loss from continuing operations of $209,390 in 1997
as compared to a loss of $61,226 in 1996.
The following table summarizes the operations by subsidiary and
year.
Subsidiary 1997 1996
Eaton $ 257,135 $ 128,927(5 mos 1996)
Anton 163,365 (129,359)
ADCO 11,314 12,298
SCBA 6,464 18,835
ADCO South (19,470) (24,282)
Corporate (34,256) (22,240)
Conway (51,271) 1,953
Nyle Home Health (61,173) (18,685)
Nyer Nutritional (481,498) (28,673)
$ (209,390) $ (61,226)
The majority of the loss came from its subsidiary, Nyer
Nutritional, of which the Company recognized a loss of $481,498.
Nyer Nutritional is still incurring start up costs and overhead
costs associated with its AMTFTM product. Nyle Home Health had
approximately $65,000 of write-offs for accounts receivable and
inventory obsolescence. Conway is raising its selling prices.
Corporate had higher expenses due to increased overhead costs and
costs associated with the Vectors spin-off. Anton had a net income
due to increased sales, increased margins, and a one time inventory
adjustment.
The Company recognized a loss from Vectors of $725,012 in
1997 as compared to a loss of $357,585 in 1996. The Company
currently owns 33.8% of outstanding common stock in Vectors. The
Company accounts for 33.8% of Vectors loss on their consolidated
financial statements as a discontinued operation.
ITEM 7: Selected Financial Data
Selected Financial Data
1998 1997 1996
Summary of Operations:
Sales and other revenues $37,204,465 $33,878,934 $21,093,488
Cost of sales 29,327,246 26,493,426 16,834,712
Gross Margin 7,877,219 7,385,508 4,258,776
Selling,general, and administrative expenses(1)
8,176,298 7,785,921 4,469,988
Operating loss from continuing operations
(299,079) (400,413) (211,212)
Interest (income) expense, net (146,877) (241,064) (147,907)
(Loss) income before minority interest
(152,202) (159,349) (63,305)
Minority interest (70,262) (26,092) 2,079
Loss from continuing operations before income
taxes (222,464) (185,441) (61,226)
Income taxes 55,747 23,949
Loss from continuing operations (278,211) (209,390) (61,226)
Loss from operations of discontinued
subsidiary-Genetic Vectors (1,561,980) (725,012) (357,585)
Net loss $(1,840,191) $ (934,402) $ (418,811)
(1) Includes other income of $543,602 in 1998
Per Share Data:
Net(loss) per weighted average of common shares from continuing
operations $ (.08) $ (.06) $ (.02)
Net(loss) per weighted average of common shares from discontinued
operations (.46) (.21) (.12)
Net Loss per weighted average of common shares
$ (.54) $ (.27) $ (.14)
Year-End Position:
Total assets $14,412,042 $16,108,040 $17,141,829
Property, plant, and equipment,
net 1,502,978 1,258,675 1,020,799
Net working capital 8,450,421 8,071,515 9,057,883
Long-term debt
(excluding current portion) 1,121,640 719,453 1,246,843
Minority interest 744,357 674,095 648,003
Shareholders' equity 9,032,866 11,024,056 11,935,387
Financial Ratios:
Gross margin % to sales 21.2 22.9 20.1
Loss % to sales from continuing
operations (.8) (.6) (.3)
Loss % to sales from discontinued
operations (4.2) (2.1) (1.7)
Net loss % to sales (5.0) (2.7) (2.0)
Current ratio 3.4 3.1 3.7
Other Data:
Weighted average common shares
outstanding 3,400,389 3,406,969 2,974,789
Capital expenditures 528,107 491,354 167,707
Depreciation and amortization 416,145 363,280 196,558
ITEM 7: Selected Financial Data, continued
Selected Financial Data
1995 1994
Summary of Operations:
Sales and other revenues $9,036,902 $8,235,449
Cost of sales 6,967,075 6,141,751
Gross Margin 2,069,827 2,093,698
Selling,general, and administrative
expenses 2,390,157 2,496,127
Operating loss from continuing
operations (320,330) (402,429)
Interest (income) expense, net 54,738 53,241
(Loss) income before minority
interest (375,068) (455,670)
Minority interest 12,511 8,302
Loss from continuing operations
before income taxes (362,557) (447,368)
Income taxes
Loss from continuing operations (362,557) (447,368)
Loss from operations of discontinued
subsidiary-Genetic Vectors (222,712) (318,928)
Net loss $ (585,269) $ (766,296)
Per Share Data:
Net(loss) per weighted average of common shares from continuing
operations $ (.18) $ (.24)
Net(loss) per weighted average of common shares from discontinued
operations (.11) (.17)
Net Loss per weighted average of common
shares $ (.29) $ (.41)
Year-End Position:
Total assets $3,804,987 $3,756,408
Property, plant, and equipment, net 759,769 827,279
Net working capital 954,407 705,362
Long-term debt
(excluding current portion) 451,401 454,564
Minority interest 31,372 43,883
Shareholders' equity 2,366,138 2,080,654
Financial Ratios:
Gross margin % to sales 22.9 25.4
Loss % to sales from continuing
operations (4.0) (5.4)
Loss % to sales from discontinued
operations (2.5) (3.9)
Net loss % to sales (6.5) (9.3)
Current ratio 1.6 1.4
Other Data:
Weighted average common shares
outstanding 2,021,495 1,858,890
Capital expenditures 44,342 8,469
Depreciation and amortization 122,176 192,272
ITEM 8: Financial Statements and Supplementary Data
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Accountants F 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31,
1998 and 1997 F 2-3
Consolidated Statements of Operations for the
years ended December 31, 1998, 1997 and 1996 F 4
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 F 5-6
Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996 F 7-9
Notes to Consolidated Financial Statements F 10-22
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of
Nyer Medical Group, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
statements of operations, shareholders' equity and cash flows present fairly,
in all material respects, the financial position of Nyer Medical Group, Inc. and
Subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers, LLP
March 30, 1999
F-1
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
Current assets:
Cash and cash equivalents $ 4,136,988 $ 4,497,010
Accounts receivable, less
allowance for doubtful accounts
of $188,076 and $159,023 at
December 31, 1998 and 1997,
respectively 3,560,377 2,952,555
Inventories, net 4,073,051 4,187,779
Prepaid expenses 105,045 118,559
Receivables from related parties 48,139 18,176
Total current assets 11,923,600 11,774,079
Property, plant and equipment, at cost:
Land 92,800 92,800
Building 641,508 638,624
Leasehold improvements 381,702 112,984
Machinery and equipment 223,807 225,994
Transportation equipment 260,285 243,555
Office furniture, fixtures,
and equipment 805,748 613,101
2,405,850 1,927,058
Less accumulated depreciation
and amortization (902,872) (668,383)
1,502,978 1,258,675
Goodwill and other deferred assets,
net of accumulated amortization of
$386,171 and $256,794 at December 31,
1998 and 1997, respectively 802,809 919,683
Advances due from related companies 34,488 37,499
Investment in discontinued operation 1,972,190
Other 148,167 145,914
985,464 3,075,286
Total assets $14,412,042 $16,108,040
The accompanying notes are an integral part
of the consolidated financial statements.
F-2
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997
Current liabilities:
Current portion of notes payable
due related party $ 120,000 $ 658,776
Current portion of long-term debt 236,669 227,527
Accounts payable 2,627,292 2,417,179
Accrued payroll and related taxes 206,465 59,095
Accrued expenses and other
liabilities 322,753 339,988
Total current liabilities 3,513,179 3,702,565
Notes payable due related party,
net of current portion 522,820
Long-term debt, net of current
portion 480,711 533,991
Minority interest 744,357 674,095
Deferred credits 118,109 173,333
Commitments (Notes 3 and 7)
Shareholders' equity:
Class A Preferred stock, par value
$.0001, Authorized, issued and
outstanding: 2,000 shares 1 1
Class B Preferred stock, series 1,
par value $.0001, Authorized:
2,500,000; issued and
outstanding: 1,000 shares at
December 31, 1998 and 1997
Common stock, par value $.0001
Authorized: 10,000,000 shares;
issued: 3,407,093 at December
31, 1998 and 1997 341 341
Additional paid-in capital 15,238,376 15,337,126
Stock sale receivable (115,500) (115,500)
Treasury stock (11,000 shares at
December 31, 1998) (52,249)
Accumulated deficit (6,038,103) (4,197,912)
Total shareholders' equity 9,032,866 11,024,056
Total liabilities and
shareholders' equity $14,412,042 $16,108,040
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997, and 1996
1998 1997 1996
Net sales $37,204,465 $33,878,934 $21,093,488
Cost and expenses:
Cost of goods sold 29,327,246 26,493,426 16,834,712
Selling and retail 4,919,741 4,636,257 2,352,786
Warehouse and delivery 581,022 385,528 362,048
Administrative 3,219,137 2,763,603 1,762,463
38,047,146 34,278,814 21,312,009
Operating loss (842,681) (399,880) (218,521)
Other income (expense):
Interest expense (122,397) (105,922) (76,253)
Interest income 269,274 346,986 224,160
Other 543,602 (533) 7,309
Total other income 690,479 240,531 155,216
Loss before
minority interest (152,202) (159,349) (63,305)
Minority interest (70,262) (26,092) 2,079
Loss from continuing
operations before
income taxes (222,464) (185,441) (61,226)
Income taxes 55,747 23,949
Loss from continuing
operations after
income taxes (278,211) (209,390) (61,226)
Discontinued operations
Loss from operations of
discontinued subsidiary-
Genetic Vectors (653,842) (725,012) (357,585)
Net loss on write down of
investment-Genetic Vectors (908,138)
Net loss from discontinued
subsidiary-Genetic Vectors (1,561,980) (725,012) (357,585)
Net Loss $(1,840,191) $ (934,402) $ (418,811)
Basic and diluted loss per common
share from continuing operations$ (.08) $ (.06) $ (.02)
Basic and diluted loss per common
share from discontinued operations (.46) (.21) (.12)
Basic and diluted loss per common
share $ (.54) $ (.27) $ (.14)
Weighted average common shares
outstanding 3,400,389 3,406,969 2,974,789
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996
Class A Class B
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
Balance,
December 31, 1995 2,000 $1 300,000 $30 2,183,000 $218
Proceeds-stock
subscription
receivable
Stock options exercise
receivable 50,000 5
Issuance of common
stock 752,815 75
Exercise of common
stock warrants 376,278 39
Exercise of common
stock options 18,000 2
Purchase of subsidiary 20,000 2
Retirement of
class B preferred
stock (300,000) (30)
Increase in
proportionate
investment in equity
of unconsolidated
subsidiary
Net loss
Balance,
December 31, 1996 2,000 1 0 0 3,400,093 341
Issuance of class
B preferred stock 1,000 0
Exercise of common
stock options 7,000 0
Stock issuance
costs
Net loss
Balance,
December 31, 1997 2,000 1 1,000 0 3,407,093 341
The accompanying notes are an integral part of the consolidated financial
statements. F-5(1)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996
Additional Treasury Total
Paid-in Stock Sale Stock Accumulated Shareholders'
Capital Receivable Shares Amount Deficit Equity
Balance,
December 31,
1995 $4,354,165 $(150,000) $(2,844,699) $ 1,359,715
Proceeds-stock
subscription
receivable 150,000 150,000
Stock options exercise
receivable 115,495 (115,500) 0
Issuance of common
stock 5,339,967 5,340,042
Exercise of common
stock warrants 2,293,670 2,293,709
Exercise of common
stock options 117,698 117,700
Purchase of subsidiary
297,498 297,500
Retirement of
class B preferred
stock 30 0
Increase in
proportionate
investment in equity
of unconsolidated
subsidiary 2,795,532 2,795,532
Net loss (418,811) (418,811)
Balance,
December 31, 1996 15,314,055 (115,500) (3,263,510) 11,935,387
Issuance of class
B preferred stock
Exercise of common
stock options 32,339 32,339
Stock issuance
costs (9,268) (9,268)
Net loss (934,402) (934,402)
Balance,
December 31, 1997 15,337,126 (115,500) (4,197,912) 11,024,056
The accompanying notes are an integral part of the consolidated financial
statements. F-5(2)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996, continued
Class A Class B
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
Treasury stock
Additional consideration
related to purchase of
subsidiary
Net loss
Balance,
December 31, 1998
2,000 $ 1 1,000 0 3,407,093 $341
The accompanying notes are an integral part of the consolidated financial
statements.
F-6(1)
<PAGE>
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996, continued
Additional Treasury Total
Paid-in Stock Stock Accumulated Shareholders'
Capital Receivable Shares Amount Deficit Equity
Treasury stock (11,000) (52,249) (52,249)
Additional consideration
related to purchase of
subsidiary (98,750) (98,750)
Net loss (1,840,191) (1,840,191)
Balance,
December 31, 1998
$15,238,376 $(115,500) (11,000) $(52,249)$(6,038,103) $9,032,866
The accompanying notes are an integral part of the consolidated financial
statements.
F-6(2)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating
activities:
Net loss $(1,840,191) $ (934,402) $ (418,811)
Adjustments to reconcile to net cash
used in operating activities
Loss of discontinued
operation 653,842 725,012 147,440
Net loss on write-down of investment-
Genetic Vectors 908,138
Depreciation and amortization 416,145 363,280 198,645
Loss on disposal of property,
plant, and equipment 10,869 11,949
Compensation expense in connection
with common stock option exercise 35,000
Gain on sale of other equity securities (75,570)
Gain on sale of pharmacies (365,000)
Minority interest 70,262 26,092 (2,079)
(Decrease) increase in deferred credit (55,224) 173,333
Changes in certain working capital
elements (98,731) (1,162,232) (166,473)
Net cash flows used in operating
activities (375,460) (796,968) (206,278)
Cash flows from investing activities:
Acquisition of subsidiaries, net of
cash acquired (808,229)
Acquisition of stores (100,000)
Purchase of property, plant and
equipment (458,107) (491,354) (167,707)
Purchase of short-term investment (76,124)
Increase in investment in
subsidiary (14,090)
Proceeds from sale of Genetic
Vectors' stock 410,210
Proceeds from sale of other
equity securities 151,694
Proceeds from sale of pharmacies 385,000
Net change in advances due from
related companies 3,011 4,939 (613)
Increase in other assets, net 14,411 (161,347) (85,163)
Net cash provided by (used in)
investing activities 330,095 (661,852)(1,061,712)
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 27,256 157,400 26,020
Payments of long-term debt (273,708) (966,933) (316,740)
Net borrowings (repayments) of
notes to related parties (15,956) 349,404 (176,952)
Proceeds from issuance of common stock 5,340,042
Stock issuance costs (9,268)
Payments for purchase of treasury stock (52,249)
The accompanying notes are an integral part of
the consolidated financial statements.
F-7
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
1998 1997 1996
Proceeds from stock subscription
receivable 150,000
Proceeds from exercise of common
stock warrants 2,293,709
Proceeds from exercise of stock
options 32,339 82,700
Net cash (used in) provided
by financing activities (314,657) (437,058) 7,398,779
Net increase and cash
equivalents (360,022) (1,895,878) 6,130,789
Cash and cash equivalents at
beginning of period 4,497,010 6,392,888 262,099
Cash and cash equivalents at
end of period $ 4,136,988 $4,497,010 $6,392,888
Changes in certain working capital
elements:
Accounts receivable, net $ (384,822) $ (322,708)$ (583,908)
Inventories 81,042 (1,025,854) (122,547)
Prepaid expenses 13,514 18 (14,332)
Receivables from related parties (29,963) 48,066 (39,214)
Accounts payable 210,113 101,651 726,402
Accrued payroll and related taxes 147,370 (63,527) (115,005)
Accrued expenses and other liabilities (135,985) 100,122 (17,869)
Net change $ (98,731) $(1,162,232)$ (166,473)
Supplemental disclosures of cash flow information:
Cash paid during the year for: 1998 1997 1996
Interest $ 117,466 $ 102,539 $ 69,218
The acquisition of pharmacies in 1998, and subsidiaries in 1996, net of cash
acquired, is summarized as follows:
1998 1996
Working capital, other than cash $ 189,314 $1,567,283
Property, plant and equipment 70,000 267,299
Other assets 10,000 349,470
Goodwill 33,000 379,550
Long-term debt (202,314) (934,163)
Minority interests (523,710)
Common stock (297,500)
Cash paid for acquisitions $ 100,000 $ 808,229
Non-cash transactions:
During 1996, an officer of the Company exercised 50,000 stock options for
which the Company received a note receivable for $115,500.
Additionally, the exercise of 50,000 warrants, by an unaffiliated third
party, resulted in a cash less exercised with the equivalent issuance of
24,870 shares of common stock.
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Non-cash transactions, continued
In connection with the acquisition of a pharmacy chain in 1996, the Company
guaranteed that the value of the common stock issued to the sellers would
be at least $8.75 per share on the second anniversary of the acquisition
date. On the anniversary date, the value of the common stock was below this
amount, and the Company was obligated to either pay cash for the difference
in value, issue equivalent amount of additional shares of common stock, or
repurchase the sellers common stock at the guaranteed value. In January
1999, the sellers were paid cash for the difference in value of $98,750.
continued
F-9
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The Company
Nyer Medical Group, Inc. ("Company") is a holding company with operations
in the medical products distribution, biotechnology, nutritional tube
feeding products, emergency medical services, fire, and police equipment
and supplies businesses. The Company's wholly-owned subsidiaries, ADCO
Surgical Supply, Inc. (ADCO), ADCO South Medical Supplies, Inc. (ADCO South)
and 90% owned Nyle Home Health Supplies, Inc. (Nyle Home Health) are engaged
in the wholesale and retail sale of surgical and medical equipment and
supplies throughout New England and Florida. Anton Investments, Inc., 80%
owned by the Company, is engaged in the wholesale and retail sales of
equipment, supplies, and novelty items to emergency medical services, fire
departments and police departments located throughout most of New England.
Conway Associates, Inc., 80% owned by the Company, is engaged in the
wholesale sales of equipment and supplies to emergency medical services and
fire departments throughout New England. SCBA, Inc. (SCBA), 80% owned by
the Company, is engaged in the servicing of fire department's self-contained
breathing apparatus. D.A.W., Inc.(Eaton Pharmacy),80% owned by the Company,
is a chain of twelve pharmacy drug stores with sales in the suburban Boston
area and its related company, FMT, Inc.(FMT), which is also 80% owned by the
Company, is involved in the franchising of pharmacy retail outlets. Nyer
Nutritional Systems, Inc., (Nyer Nutritional), is also 80% owned by the
Company. The Company owns a 31.5% interest in a biotechnology company,
Genetic Vectors, Inc. (Vectors), accounted for as a discontinued
operation (see note 2).
The Company is a subsidiary of Nyle International Corp. (Nyle).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned and controlled subsidiaries. All intercompany
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers investments with original maturities of three months
or less when purchased to be cash and cash equivalents.
continued
F-10
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
Inventories
Inventories, net are stated at the lower of cost (first-in, first-out
method) or market, with the exception of the retail pharmacies which use
the last-in, first-out method (LIFO). Of the total inventories, 60% are
on the LIFO method. The replacement costs of inventory exceeded LIFO
cost by $141,750.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. Leasehold improve-
ments are capitalized, while repair and maintenance costs are charged to
operations as incurred. When assets are retired or disposed of, the cost
and accumulated depreciation thereon are removed from the accounts, and
any gains or losses are included in operations. Leasehold improvements
are amortized using the straight-line method over the lease term.
For financial reporting purposes, depreciation is computed principally
using the straight-line method over estimated service lives of the
related assets as follows:
Years
Building 15
Leasehold Improvements 10
Machinery and equipment 3 - 10
Transportation equipment 3 - 5
Office furniture, fixtures and equipment 3 - 10
Income Taxes
The Corporation files a consolidated federal income tax return. The
Company uses the asset and liability method of accounting for income taxes.
Under this method deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Fair Value of Financial Instruments
At December 31, 1998, the carrying amounts of the Company's financial
instruments included in current assets and current liabilities approximate
fair value because of the short maturity of those instruments. The carrying
amounts of the Company's long-term debt also approximates their fair value
as of December 31, 1998 based upon the borrowing rates currently available
to the Company for loans with similar terms and maturities.
Goodwill and other intangible assets
Goodwill, which represents the excess of the costs of companies acquired
over the fair market value of their net assets at dates of acquisition, is
being amortized on the straight line method over various periods, ranging
continued
F-11
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
Goodwill and other intangible assets, continued
from 5 to 40 years. Other intangible assets acquired in connection with
acquisitions are being amortized on a straight line basis over periods
ranging from 5 to 6 years. Amortization expense charged to operations
for all deferred charges was $143,210 in 1998 and $121,751 in 1997.
Impairment Accounting
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," (SFAS No. 121) in 1996. The Company reviews
the recoverability of its long-lived assets, including goodwill and other
intangible assets, when events or changes in circumstances occur that
indicate that the carrying value of the asset may not be recoverable. The
measurement of possible impairment is based on the Company's ability to
recover the asset from the expected future pre-tax cash flows (undiscounted
and without interest charges) of the related operations. The measurement of
impairment requires management to make estimates of expected future cash
flows related to long-lived assets. It is at least reasonably possible that
future events or circumstances could cause these estimates to change. The
Company's policy on impairment prior to the adoption of SFAS No. 121 was not
materially different.
Earnings Per Share
In February 1997, FASB issued SFAS No. 128, Earnings per Share. SFAS
provides reporting standards for basic and diluted earnings per share and
is effective for financial statement periods ending after December 15,
1997. Basic earnings per share is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period, which during 1998, 1997 and 1996, were 3,400,389
3,406,969, and 2,974,799, respectively. Diluted earnings per share
considers the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. The diluted weighted average number of common
shares outstanding equaled basic in 1998, 1997 and 1996. All prior period
earnings per share data has been restated to conform to the provisions of
this statement.
Reclassifications
Certain amounts in 1997 have been reclassified to conform to the 1998
presentation.
2. Discontinued operation:
In March of 1996, the Company announced plans to spin-off 32% of its
investment in Vectors common stock to the shareholders of the Company. In
addition, the Company exchanged 20% of the common stock of Vectors for all
of the Class B Preferred Stock of the Company, which was held by an officer
continued
F-12
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued operation:
and related party of Vectors. The Class B stock was then retired. The
Company consolidated the results of Vectors through September 30, 1996 and
recorded a net loss through that period of $210,145 that was attributable to
Vectors. From October 1, 1996 through December 31, 1996, the Company used
the equity method of accounting to account for the results of its investment
in Vectors, which resulted in the Company recording an additional net loss
of $147,440. The Company recognized a total net loss in connection with
Vectors of $357,585. In December 1996, Vectors completed its Initial Public
Offering by selling 575,000 shares of common stock, which resulted in
Vectors receiving net proceeds after offering expenses of approximately
$4,570,000. In accordance with Securities and Exchange Commission rules,
the Company has increased its investment in Vectors for its proportionate
share of the carrying value of Vectors at December 31, 1996. This resulted
in an increase of $2,795,532 to the Company's investment in unconsolidated
subsidiary account on the balance sheet, with a corresponding offset to
additional paid in capital under the stockholders' equity section on the
balance sheet.
In December 1996, the Company completed its spin-off of Vector's common
stock which resulted in 512,071 shares of common stock being distributed
as a dividend to shareholders of Nyer. The Company currently owns 31.5%
of Vectors outstanding common stock.
In August 1997, the Board of Directors approved a plan for the disposal
of its investment in Vectors. This investment is being accounted for
as a discontinued operation, and accordingly, the Company's share of
losses of Vectors is segregated in the consolidated statements of
operations.
As of December 31, 1998, the Company has written down its investment in
Vectors to zero due to significant uncertainties regarding the Company's
ability to recover its investment. Based on the Company's review of
currently available public information about Vectors, there is substantial
doubt about Vectors ability to continue as a going concern. In addition,
Vectors and its counsel have refused to remove the restrictive legends from
the Vectors' stock certificates which limits the Company's ability to sell
its Vectors stock in the public market to one percent of Vectors'
outstanding common stock (approximately 23,000 shares per quarter). Those
restrictions were required to be removed in January 1998. Even if those
restrictions are removed, the Company still believes that its investment
is impaired due to the illiquid nature of the "bulletin board" market on
which Vector's stock trades. The write down of the Company's investment
in Vectors resulted in an additional charge to discontinued operations of
$1,206,965.
The Company owned 739,216 shares of restricted common stock of Vectors as of
December 31, 1998 and 790,616 shares as of December 31, 1997.
The financial position and results of Genetic Vectors, which has
been serviced by another accounting firm, as of and for the quarter
ended September 30, 1998, and December 1997 are as follows:
continued
F-13
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued operation, continued
Unaudited Audited
September December
1998 1997
Current assets $ 599,632 $ 2,102,467
Non-current assets 703,535 685,895
$ 1,303,167 $ 2,788,362
Current liabilities $ 129,374 $ 154,542
Stockholders' equity 1,173,793 2,633,820
$ 1,303,167 $ 2,788,362
Net sales $ 7,780 $ 39,260
Cost of Goods Sold 6,791 34,304
Operating expenses 1,600,623 2,400,446
Other revenues 92,107 262,776
Net loss $(1,507,527) $(2,132,714)
3. Related Party Transactions:
Receivables from related parties consisted of the following at December
31, 1998 and 1997:
1998 1997
Note receivable from officer $ 42,664
Receivable from related party $ 5,475 18,176
Total current receivable from
related parties $ 48,139 $ 18,176
Advances due from related companies,
non-current $ 34,488 $ 37,499
The note receivable from officer is a loan made to the president and chief
executive officer of Nyer Nutritional in the amount of $50,000 plus
interest at 8% annually off-set by royalties due to the officer of $8,340.
The receivable from related party is for products sold to a company which is
owned by an officer and director of the Company. Total sales were $15,968
and $83,613, for 1998 and 1997, respectively.
Advances due from related companies consist of cash advances made to Nyle.
Interest is charged at 9% annually and payments are made periodically.
Notes payable to related parties (an employee) were $642,820 and $658,776
at December 31, 1998 and 1997, respectively. Principal payments of $10,000
plus interest at 7% (beginning January 1999) are due monthly.
The Company has an employment agreement with its Chief Executive Officer,
at a base annual salary of $125,000. This agreement expires October 1,
1999. In addition, a note receivable for the exercise of 50,000 stock
options was due from this officer for $115,500, with interest payable
quarterly with an annual interest rate of 6.25%, with all unpaid accrued
interest and principal due August of 1999. This receivable has been
off-set against the stockholders' equity section on the balance sheet.
continued
F-14
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions, and Divestitures:
In February 1996, the Company acquired 80% of the outstanding common stock
of Conway Associates, Inc. and an affiliated company, SCBA, Inc. The
consideration paid in cash was $431,855. Conway and SCBA, located in
Haverhill, Massachusetts, is engaged in the wholesale and retail sales of
equipment and supplies to emergency medical services and fire departments
throughout New England.
In August 1996, the Company acquired 80% of the common stock D.A.W., Inc.
and an affiliated company, F.M.T., Inc. D.A.W. is an operator of retail
pharmacies in eastern Massachusetts and F.M.T. is involved with the
franchising of retail pharmacies. The consideration paid was $709,198
which included the issuance of 20,000 shares of common stock of the Company
valued at $297,500, cash payment of $325,000 for a non-compete agreement,
and acquisition costs of $86,698. In addition, the Company contributed
working capital of $1,000,000, for which $200,000 is attributable to
the minority interest. In connection with this transaction, the Company has
guaranteed that the value of the common stock issued to the sellers will be
at least $8.75 per share on the second anniversary of the acquisition date.
In event the value of the common stock is below this amount, the Company
is obligated to either pay cash for the difference in value, issue equiva-
lent amount of additional shares of common stock, or repurchase the sellers
common stock at the guaranteed value. In January 1999, the sellers were
paid cash for the difference in value, which amounted to $98,750.
The aforementioned acquisitions are being accounted for under the purchase
method of accounting, and accordingly, the results of operations of these
companies are included in the accompanying consolidated financial statements
from their respective dates of acquisition. The purchase prices have been
allocated to assets acquired and liabilities assumed, and is summarized as
follows:
Current assets $ 2,843,163
Property, plant and equipment 267,299
Intangible and other assets 349,470
Goodwill 379,550
Current liabilities ( 1,240,556)
Long term liabilities ( 934,163)
Minority interests (523,710)
$ 1,141,053
The following unaudited pro forma financial information for the Company
gives effect to the DAW, FMT and Conway acquisitions as if they had
occurred on January 1, 1996. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of
results of operations had the acquisitions occurred on the date indicated,
or which may result in the future:
1996
Net sales $29,729,138
Net loss $ (498,785)
Net loss per share $ (.17)
continued
F-15
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions, and Divestitures,continued
In December 1996, the Company incorporated Nyer Nutritional Systems, Inc.,
in Delaware. This subsidiary was capitalized with cash of $300,000 for
80% of the common stock of the Company. A minority shareholder also
contributed the rights to patented technology for the remaining 20% of
common stock. This subsidiary has developed a liquid nutritional formula
for the medically supervised feeding of hospital, nursing home, and home
care patients.
During 1998, the Company purchased the assets of two pharmacies for total
consideration of $302,000, including notes payable to the sellers of
$202,000. The purchase price was allocated to the fair value of the assets
purchased and resulted in goodwill of $33,000.
In December 1998, the Company sold the assets and prescription list of two
pharmacies for approximately $608,000 in cash, of which $223,000 was
received in January 1999. The transaction resulted in a gain of
approximately $365,000 which is recorded in other income.
5. Debt:
Long-term debt at December 31, 1998 and 1997, consisted of the following:
1998 1997
ADCO Surgical Supply, Inc:
Note payable in equal monthly installments
of $4,675 including interest at 7%,
through July 1996; the interest rate
changed to 8 1/4% in August of 1996;
collateralized by land and building,
due in March 2008. $ 373,839 $ 402,231
Eaton Pharmacy:
Note payable to the Internal Revenue
Service, payable in equal quarterly
installments of $11,007 plus interest at 7%.
The note was paid in April 1998. The note is
guaranteed by minority shareholders of
Eaton Pharmacy. 19,555
Note payable to the Commonwealth of Massachusetts,
Department of Revenue, payable in equal monthly
installments of $9,286 plus interest at 7%. The
note was paid in August 1998. The note is
guaranteed by minority shareholders of
Eaton Pharmacy. 24,129
Note payable in monthly installments of
$1,167(without interest). The note was paid
in December 1998 and is collateralized by
certain assets of Eaton Pharmacy. 12,833
continued
F-16
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt: continued,
Note payable to former shareholder of Eaton
Pharmacy, payable in equal monthly installments
of $1,333 plus interest on the unpaid balance
at prime rate(7 3/4% at December 31, 1998 and
8 1/4% at December 31, 1997). The note will
mature in August 2000 and is collateralized by
certain assets of Eaton Pharmacy. 10,667 26,667
Note payable in equal monthly installments of
$4,500 plus interest on the unpaid balance at
prime rate (7 3/4% at December 31, 1998 and
8 1/4% at December 31, 1997). A final balloon
payment of $30,000 will be paid upon maturity
in August 1999. The note is collateralized by
certain assets of Eaton Pharmacy. 66,000 120,000
Note payable in equal monthly installments of
$3,693 including interest at 7%. The note will
mature in June 2000 and is collateralized by
certain assets of the Weston Pharmacy. 62,914 101,368
Note payable in equal monthly installments of
$1,043 including interest at 7%. The note will
mature in September 1999 and is collateralized
by certain assets of the N. Beverly Pharmacy. 9,122 20,564
Note payable in equal monthly installments of
$3,023 including interest at 7%. The note will
mature in May 2001 and is collateralized by
certain assets of Sherborn Apothecary. 80,426
Note payable in equal monthly installments of
$3,287 including interest at 7%. The note will
mature in March 2001 and is collateralized by
certain assets of Three S Pharmacy. 81,887
Other Subsidiaries
Notes payable due in various installments
at rates ranging up to 9 1/4%, collateralized
by certain equipment and vehicles. 32,525 34,171
717,380 761,518
Less current portion 236,669 227,527
$ 480,711 $ 533,991
continued
F-17
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt: continued,
The maturities of long term debt at December 31, 1998 are as follows:
1999 $ 236,669
2000 131,334
2001 66,344
2002 35,690
2003 38,941
Thereafter 208,402
$ 717,380
The long term debt of ADCO and other subsidiaries, is collateralized by
the Company's inventory, accounts receivable and vehicles as well as
personal guarantees of the Company's chairman.
6. Income Taxes:
At December 31, 1998, the Company had a remaining net operating loss
(NOL)carryforwards of approximately $641,000 available to offset future
taxable income. The NOL carryforwards will expire in the years 2002 to
2010. In the event of a change in ownership of the Company, the
utilization of the NOL carryforward may be subject to limitation under
certain provisions of the Internal Revenue Code. In addition, certain
provisions dealing with consolidated returns may limit the utilization of
approximately $175,000 of NOL carryforward by certain members of the
consolidated group.
The tax effect of temporary differences that give rise to significant
portions of deferred taxes at December 31, 1998 and 1997 consisted of:
1998 1997
Deferred tax assets(liabilities):
Depreciation $ 1,000 $ (40,000)
Reserves 255,000 211,000
Net operating loss carryforwards 256,500 412,000
Total net deferred tax assets
before valuation reserve 512,500 583,000
Valuation reserve (512,500) (583,000)
Total net deferred tax
assets $ - $ -
The Company has recorded a valuation reserve for the total amount of
net deferred tax assets due to the uncertainty of their future
realization.
7. Commitments:
Operating Leases
The Company rents office and warehouse space with varying lease expiration
dates through January of 2009. All leases have options to extend the lease
terms. Total rent expense for the years ended December 31, 1998 and 1997,
was $707,388 and $589,282, respectively.
continued
F-18
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments, continued
Operating Leases, continued
Future minimum lease payments at December 31, 1998 are as follows:
1999 $ 621,781
2000 464,934
2001 280,326
2002 148,215
2003 120,482
Thereafter 376,675
$2,012,413
Purchase Commitment
A subsidiary of the Company has an agreement with a supplier to purchase
$2,600,000 of inventory each quarter through the year 2001. The Company
received $200,000 from the supplier upon signing of the agreement, which
is being amortized over the term of the contract. Additionally, the
supplier has made available a $200,000 line of credit to purchase this
inventory. The line of credit is collateralized by substantially all of the
assets of the subsidiary. No amounts were outstanding under the line of
credit at December 31, 1998.
8. Capital Stock:
Each share of Class A preferred stock has voting rights equal to 1,000
shares of common stock. In March of 1996, the Company exchanged 20% of
Vectors' stock for all of the Class B Preferred Stock of the Company which
was then retired. The Company subsequently spun-off 32% of its holding of
the outstanding stock of Vectors (see note 2).
Each share of Class B Preferred Stock (series 1) has voting rights equal
to 2,000 shares of common stock.
In 1998, the Company purchased 11,000 shares of its own common stock from
the open market for a total of $52,249.
In 1996, the Company sold 752,815 shares of common stock under Regulation
S of the Securities Act of 1933, which netted proceeds of $5,340,042.
In connection with this sale, the Company issued 388,908 warrants to
purchase additional common stock at a weighted average exercise price of
$7.32 per share. Subsequently, 346,408 warrants were exercised, for which
the Company issued 321,278 shares of common stock for net proceeds of
$1,963,703. The remaining 42,500 warrants not exercised expired in
October 1996. In addition, in July and October, 1996, 55,000 warrants
that were issued in connection with the Company's 1992 Initial Public
Offering, were exercised with proceeds to the Company of $330,000.
During 1997, the Company issued 20,000 warrants to a third party in
connection with services provided. The exercise price for each warrant is
$14.75 and are only exercisable if the stock price exceeds 120% of the
exercise price. These warrants were not exercised during 1998.
continued
F-19
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Capital Stock, continued
The Company has a Stock Option Plan (Plan) which provides for the awards of
shares of common stock to employees, directors, and consultants of the
Company. The Plan provides for automatic grants of 12,000 non-qualified
options vesting semi-annually over a three-year term to all non-employee
directors. The maximum term of options granted under the Plan is ten years.
In January 1995, the Board of Directors approved an amendment to the Plan
increasing the number of shares from 150,000 to 275,000 shares.
A summary of changes in common stock options during 1998 and 1997 is:
Weighted average
Shares exercise price
Outstanding grants at December 31, 1996 162,000 7.64
Granted in 1997 89,000 5.33
Exercised in 1997 (7,000) 4.62
Canceled in 1997 (8,000) 16.75
Outstanding grants at December 31, 1997 236,000 6.55
Canceled in 1998 (4,000) 16.75
Outstanding grants at December 31, 1998 232,000 6.55
Options exercisable at December 31, 1996 92,000 5.42
Options exercisable at December 31, 1997 152,000 6.11
Options exercisable at December 31, 1998 198,000 6.34
The remaining weighted average contractual life of options outstanding at
December 31, 1998 is approximately 8 years.
At December 31, 1998, exercisable options and price are as follows:
Options $ per share
40,000 $ 2.31
67,000 4.62
32,000 16.75
46,000 5.00
8,000 6.63
5,000 6.88
198,000
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation. As permitted by SFAS No. 123, the Company
has chosen to apply APB Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations in accounting for its
Plan. Accordingly, no compensation cost has been recognized for
options granted under the Plan. Had compensation cost for the Company's
Plan been determined based upon the fair value at the grant dates for
awards under the Plan consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below.
1998 1997 1996
Net loss: As reported $(1,840,191) $ (934,402) $ (418,811)
Pro forma $(2,047,592) $(1,147,078) $ (521,816)
Loss per share: As
reported $ (.54) $ (.27) $ (.14)
Pro forma $ (.59) $ (.34) $ (.18)
continued
F-20
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Capital Stock, continued
The fair value of stock options in the pro forma accounts for 1998, 1997 and
1996 is not necessarily indicative of the future effects on net income and
earnings per share. The fair value of each stock option grant has been
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1998, 1997 and 1996:
risk-free interest rate of 6.2%, expected life of three years, volatility
of 70%, and no dividend yield. No options were granted in 1998. The weighted
average time value of options granted during 1997 and 1996 was $2.70 and
$7.43, respectively.
9. Business Segments:
The Company had four active business segments in 1998, 1997 and 1996:
(1)wholesale and retail sale of surgical, diabetic, medical equipment and
supplies, (2) nutritional supplies (3) wholesale and retail distribution of
equipment, supplies, and novelty items to emergency medical service, fire
departments, and police departments, and (4) retail pharmacy drug store chain.
Business segments are determined based on products or services offered for sale.
Summary data for the year ended December 31, 1998 is as follows:
Diabetic,
Medical, and Nutritional EMT, Fire, Police Pharmacy
Surgical Supplies Supplies Equip and Supplies Chain Corporate
Net Sales $6,664,840 $ 268,431 $7,419,487 $22,851,707
Operating
(loss)income (68,980) (431,801) (104,354) 212,020 $ (449,566)
Total assets 2,738,177 501,027 2,371,877 5,083,585 3,717,376
Capital
Expenditures 43,173 457 46,669 437,808
Depreciation
and
amortization 98,642 55,341 68,642 188,036 5,484
Interest income (11,579) (16) (33,746) (223,933)
Interest
expense 47,961 10,782 63,654
Income tax
expense 55,747
Consolidated
Net Sales $37,204,465
Operating
(loss)income (842,681)
Total assets $14,412,042
Capital
Expenditures 528,107
Depreciation
and
amortization 416,145
Interest income (269,274)
Interest
expense 122,397
Income tax
expense 55,747
continued
F-21
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Business Segments, continued
Summary data for the year ended December 31, 1997 is as follows:
Diabetic,
Medical, and Nutritional EMT, Fire, Police Pharmacy
Surgical Supplies Supplies Equip and Supplies Chain Corporate
Net Sales $6,702,439 $ 1,515 $9,124,587 $18,050,393
Operating
(loss)income (39,708) (527,304) 206,514 344,935 $ (384,317)
Total assets 2,958,025 350,510 2,477,876 4,371,623 5,950,009
Capital
Expenditures 115,853 170,068 53,398 150,420 1,615
Depreciation
and
amortization 97,132 20,432 66,243 174,303 5,170
Interest income (11,564) (1,998) (118,404) (215,020)
Interest
expense 40,642 35 7,316 57,929
Income tax
expense 23,949
Consolidated
Net Sales $33,878,934
Operating
(loss)income (399,880)
Total assets $16,108,043
Capital
Expenditures 491,354
Depreciation
and
amortization 363,280
Interest income (346,986)
Interest
expense 105,922
Income tax
expense 23,949
Summary data for the year ended December 31, 1996 is as follows:
Diabetic,
Medical, and Nutritional EMT, Fire, Police Pharmacy
Surgical Supplies Supplies Equip and Supplies Chain Corporate
Net Sales $6,024,664 $8,500,565 $ 6,568,259
Operating
loss 13,568 (35,841) (88,993) 173,186 $ (280,441)
Total
assets 2,645,911 391,101 1,908,987 4,518,906 7,676,924
Capital
Expenditures 17,077 3,082 82,275 61,092 4,181
Depreciation
and
amortization 82,664 63,723 43,890 6,281
Interest income(3,701) (23,113) (197,346)
Interest
expense 50,138 1,221 18,366 6,528
F-21 (1)
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Business Segments, continued
Summary data for the year ended December 31, 1996 is as follows:
Consolidated
Net Sales $21,093,488
Operating
loss (218,521)
Total assets 17,141,829
Capital
Expenditures 167,707
Depreciation
and
amortization 196,558
Interest income (224,160)
Interest
expense 76,253
F-22
ITEM 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.
None
PART III
ITEM 10. Directors, Executive Officers, Promoters And Control Persons;
Compliance With Section 16 Of The Exchange Act.
Present directors and executive officers of the Company, their ages and
positions held are as follows:
Name Age Position
Samuel Nyer 73 Chairman of the Board,
President, Secretary,
and Director
William J. Clifford, Jr. 49 Vice-President-Sales
and Director
Karen L. Wright 37 Treasurer, Vice-
President-Finance,
Assistant Secretary,
and Director
Doyle W. Boatwright 61 Director
Stanley Dudrick, M.D. 64 Director
David P. Dumouchel 37 Director
Donald C. Lewis, Jr. 61 Director
Kenneth L. Nyer, M.D. 40 Director
The Company's Board of Directors is divided into three classes of
directors, A, B, and C. Class A Directors, Messrs. Nyer, Clifford, Lewis,
and Ms. Wright, will be up for re-election in the year 1999. Class B
Directors, Messrs. Boatwright, Dumouchel, and Dr. Nyer, will be up for
re-election in the year 2001. Class C Director, Dr. Stanley Dudrick
will be up for re-election in the year 2000.
Samuel Nyer has been Chairman of the Board, president and secretary of
the Company since December 1991. He served as a director of Genetic
Vectors, Inc. from December 1991 to June 1996. Mr. Nyer also serves
on the board of directors of each of the Company's subsidiaries. Since
1985, Mr. Nyer has been chairman of the board of Nyle, a manufacturer
of drying equipment. Nyle, a publicly held corporation, is the Company's
principal shareholder. Mr. Nyer has interests in a number of small
businesses in the Bangor, Maine area.
William J. Clifford, Jr. has been vice-president of sales and a
director of the Company since December 1991, and vice-president and
general manager of ADCO and ADCO South since 1988 and 1992, respectively.
Mr. Clifford was a director of Vectors from June 1996 through April 30,
1997. From 1973 to 1988, Mr Clifford was general sales manager of ADCO.
Mr. Clifford has over 26 years experience in the medical supply industry
and possesses substantial experience in medical warehousing, purchasing,
sales and sales management. He has been an employee of ADCO since 1973.
Karen L. Wright has been treasurer of the Company since 1991 and vice-
president of finance and assistant secretary of the Company since January
1997. She was appointed to the Board in April of 1997. She was also
appointed to the Board of Nyle as a Director in 1998. From 1985 through
1987, Ms. Wright was ADCO's assistant comptroller, from 1987 through the
present time Ms. Wright has been ADCO's comptroller and treasurer. Ms.
Wright received her Bachelors of Science Degree in Accounting from Husson
College, Bangor, Maine in 1985.
Doyle W. Boatwright has been a director of the Company since December
1996 and is president and director of Nyer Nutritional. The Company owns
80% of Nyer Nutritional and Mr. Boatwright owns the remaining 20%. From
September 1995 through December 1996, Mr Boatwright was president and
founder of Boatwright Laboratories, Inc., which owned the enteral
nutritional product patents now held by Nyer Nutritional. From 1989
through September 1995, Mr. Boatwright was president and founder of
DigniCare, Inc., a company providing enteral, wound care and urological
products to Medicare patients.
Stanley Dudrick, M.D. has been a director of the Company since March
1997. Since November 1994, Dr. Dudrick has been Associate Chairman
for St. Mary's Hospital, Department of Surgery. St. Mary's, which
is located in Waterbury, Connecticut, is affiliated with Yale Medical
School. Since 1982, Dr. Dudrick also has been a Clinical Professor
of Surgery at the University of Texas Health Science Center at Houston.
Dr. Dudrick is nationally known in the field of enteral nutrition and
has received numerous awards and honors, is an editorial consultant
and on the board of numerous medical journals including those special-
izing in nutrition and has published widely on the subject.
David P. Dumouchel has been a director of the Company since August 1996.
Mr. Dumouchel has also been a director of the Company's 80% owned
subsidiary, D.A.W., Inc. d/b/a Eaton Apothecary since August 1996. Mr.
Dumouchel has been vice-president of Eaton since 1988. Mr. Dumouchel
is a registered pharmacist in the State of Massachusetts. Mr. Dumouchel
received his Bachelors of Science Degree in Pharmacy from Purdue
University in 1983, and his Masters of Business Administration from Amos
Tuck School at Dartmouth College in 1986.
Donald C. Lewis, Jr. has been a director of the Company since July 1993.
Mr. Lewis has been president and director of Nyle, the Company's
principal shareholder, since January 1985.
Kenneth L. Nyer, M.D. has been a director of the Company since December
1991. Dr. Nyer is a specialist in internal medicine and has practiced at
the Albert Einstein Hospital, Bronx, New York since 1993. He previously
practiced at North Shore University Hospital, Manhasset, New York from
1987 to 1993. Dr. Nyer held a faculty position at the Cornell
University Medical School since 1987. Dr. Nyer is the son of Mr. Samuel
Nyer.
Delinquent Filings
To the best of the Company's knowledge, Mr. Michael Anton, an officer and
director of the Company's subsidiary, Anton, failed to timely file one Form
4, covering a transaction required to be filed with the Securities and
Exchange Commission. Also, to the best of the Company's knowledge, Mr.
Don Lewis and Dr. Gary Parker failed to file one Form 4, covering a
transaction required to be filed with the Securities and Exchange
Commission. To the best of the Company's knowledge Forms 3 and 5 have
been filed, as required.
Limited Liability of Directors
Under Florida law, the Company's directors are protected against personal
liability for monetary damages from breaches of their duty of care. As a
result, the Company's directors will not be liable for monetary damages
from negligence and gross negligence in the performance of their duties.
They remain liable for monetary damages for any breach of their duty of
loyalty to the Company and its stockholders, as well as acts or omissions
not made in good faith or which involve intentional misconduct or a
knowing violation of law and for transactions from which a director
derives improper personal benefit. They also remain liable under another
provision of Florida law which makes directors personally liable for
of the Company's directors under federal or applicable state securities
laws is also unaffected. The Company does not carry any directors'
unlawful dividends, stock repurchases or redemptions and expressly sets
forth a negligence standard with respect to such liability. While the
Company's directors have protection from awards of monetary damages for
breaches of the duty of care, that does not eliminate their duty of care.
Equitable remedies, such as an injunction or rescission based upon a
director's breach of the duty of care, are still available.
ITEM 11. Executive Compensation.
The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company for services
rendered during the fiscal years ended December 31, 1998, 1997 and 1996
to the Company's chief executive officer. A subsidiary's president and
chief executive officer received compensation exceeding $100,000 for the
fiscal years ended December 31, 1998 and 1997. No other executive officer
received compensation exceeding $100,000 for the fiscal years ended
December 31, 1998, 1997, or 1996.
Annual Compensation Long Term Compensation
Name and Securities
Principal Other Restricted Underlying LTIP
Position Year Salary($) Compensation($) Options/SARS(#)
Samuel Nyer 1998 $125,000 $4,200 40,000
Chief 1997 125,000 4,200 30,000
Executive 1996 86,538 4,200 90,000
Doyle Boatwright 1998 $121,253 $7,320 0
President and 1997 119,995 7,320 0
Chief executive
of an 80% owned subsidiary
The Company has not paid any compensation to any person for serving as a
director.
Employment Agreements
The Company employs its officers and employees pursuant to oral agree-
ments, with the exception of Mr. Samuel Nyer, five minority shareholders
of Eaton, and Doyle Boatwright.
The Company entered into a three-year written employment agreement with
Mr. Samuel Nyer at a base annual salary of $125,000 effective October
1, 1996. Mr. Nyer's employment agreement also provides for use of a car
and automobile insurance at an annual cost of $4,200. The agreement
also provided for the issuance to Mr. Nyer, of 1,000 shares of Series 1
Class B Preferred Stock. Each share of Preferred Stock carries 2,000
votes on all matter concerning the vote of common shareholders. The
Preferred stock may be voted but does vest until October 1999, subject
to a substantial risk of forfeiture as provided in Mr. Nyer's employment
agreement. The shares were issued February 18, 1997 after receipt of
a fairness opinion from an independent third party.
The Company entered into a five-year employment agreement, with a one-
year non-compete, with five minority shareholders of Eaton. The base
salary for each is $65,000 effective August 5, 1996. In August 1998,
this was amended to a base salary for each of $78,000. Each agreement also
provides for full insurance coverage on the Employee's personal vehicle
and a vehicle allowance with an annual cost of $3,600. Each also receive
life-insurance coverage in the aggregate amount of $800,000, including a
separate single policy in the amount of $300,000, which the Employee's
designee shall be the owner and beneficiary.
In December 1996, the Company entered into a five-year written employment
agreement with Mr. Boatwright at a base annual salary of $120,000. Mr.
Boatwright receives a vehicle allowance of an annual cost of $7,320.
The Company has an oral employment agreement with Mr. William J.
Clifford, Jr. vice president and director, which provides for an
annual base salary of $65,640 and use of an automobile, including all
expenses associated with it at an annual cost of $14,440. The Company
has an oral employment agreement with Ms. Karen L. Wright, treasurer,
which provides for an annual base salary of $52,000. The Company also
has an oral agreement with Michael Anton, president of Anton and Conway
Associates, which provides for an annual salary of $78,000. Mr. Anton's
is provided a vehicle allowance of an annual cost of $5,000. He also
receives life-insurance coverage of $1,000,000 with 30% payable to the
employees designated beneficiary and 70% with benefits payable to the
Company.
Stock Option Plans
In July 1993, the Company established the 1993 Stock Option Plan (the
"Plan") covering 150,000 shares of common stock which was approved by
shareholders at the Company's annual meeting in October 1993. In 1995,
the board of directors and the shareholders approved an amendment to
the Plan by increasing the number of shares from 150,000 to 275,000
shares. The Plan provides: (a)officers and other employees of the
Company and its subsidiaries opportunities to purchase stock in the
Company pursuant to options granted thereunder which qualify as incen-
tive stock options ("ISOs") under Section 422(b) of the Internal Revenue
Code of 1986, as amended and (b) directors, executive officers, employees
and consultants of the Company and its subsidiaries opportunities to
purchase stock in the Company pursuant to options granted hereunder
which do not qualify as ISOs ("Non-Qualified Options").
The Plan is administered by the option committee which is comprised of
Donald C. Lewis, Jr., and Dr. Kenneth L. Nyer, two of the Company's
outside directors. The board of directors has the authority to (i)
determine the employees of the Company and its subsidiaries to whom ISOs
may be granted, and to determine to whom Non-Qualified Options may be
granted; (ii)determine the time or times at which options may be granted;
(iii) determine the exercise price of shares subject to options; (iv)
determine whether options granted shall be ISOs or Non-Qualified Options;
(v) determine the time or times when the options shall become exercisable,
the duration of the exercise period and when the options shall vest; (vi)
determine whether restrictions such as repurchase options are to be imposed
on shares subject to options and the nature of such restrictions, if any,
and (vii) interpret the Plan and promulgate and rescind rules and
regulations relating to it.
Effective in April 1997, under the Plan, all directors automatically
receive a grant of non-Qualified Options which vest semi-annually each
June 30th and December 31st over a three-year period. The exercise price
of such options as provided for in the Plan is the closing price of the
Company's common stock on the last business day prior to the grant of
options. The number of options for each director is based on whether
such person is serving a one, two or three year term; for each year of a
director's term, 4,000 options are granted. After all directors begin
serving a three year term, each director will receive an initial grant of
12,000 options at the time of election, appointment or vesting of all
prior options.
In January 1995, the Company granted Mr. Sam Nyer, its president, non-
qualified options to purchase 90,000 shares of common stock, exercisable
at $2.31 per share vesting over a five-year period. Of the 90,000
options, 50,000 were exercised in 1996, the remaining 40,000 are vested.
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management.
The following table sets forth information as of December 31, 1998, based
on information obtained from the persons named below, with respect to the
beneficial ownership of shares of common stock by (i) each person known
by the Company to be the owner of more than five percent of the
outstanding shares of common stock, (ii) each director, and (iii) all
executive officers and directors as a group. The table includes the Class
A preferred stock which has 2,000,000 votes and Class B preferred stock
which has 2,000,000 votes.
Amount and Nature
Name and Address of of Beneficial Percentage of
Class Beneficial Owner Ownership Class Owned
Common Stock, Samuel Nyer 4,846,000 ,,,9 63.8%
Class A c/o ADCO
Preferred 1292 Hammond Street
Stock, and Bangor, Maine 04401
Class B
Preferred Stock
Common Stock Nyle International Corp. 2,710,000 35.7%
and Class A 72 Center Street
Preferred Brewer, Maine 04412
Stock
Common Stock William J. Clifford, Jr. 20,000 8, *
1292 Hammond Street
Bangor, Maine 04401
Common Stock Karen L. Wright 14,000 8,, *
1292 Hammond Street
Bangor, Maine 04401
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management,
continued:
Amount and Nature
Name and Address of of Beneficial Percentage of
Class Beneficial Owner Ownership 5 Class Owned
Common Stock Doyle W. Boatwright 8,000 8 *
6829 N. 12th Street
Suite 207
Phoenix, AZ 85014
Common Stock Stanley Dudrick, M.D. 8,000 *
c/o St. Mary's Hospital
56 Franklin Street
Waterbury, CT 06706
Common Stock David Dumouchel 12,000 8 *
111 Canal Street
Salem, MA 01970
Common Stock Donald C. Lewis, Jr. 15,000 9,, *
c/o Nyle International Corp.
72 Center Street
Brewer, Maine 04412
Common Stock Kenneth L. Nyer, M.D 22,0009,14 *
48 Old Orchard Road
New Rochelle, New York 10804
All directors and executive officers 4,945,0005,6,7,8,9,10, 64.3%
of the Company as a group (eight 11,12,13,14
persons)5
* less than 1% of class
ITEM 13. Certain Relationships and Related Transactions.
Prior to 1991, the Company and Nyle each engaged in inter-company
loans. At December 31, 1998, the Company was owed $34,488 by Nyle.
As of March 31, 1999, Nyle owed the Company $35,253 (the addition being
accrued interest). As of March 31, 1998, Nyle owed the Company $38,331.
Nyle pays the Company principal and interest of 9% per annum on an
infrequent basis. The Company is currently subject to a provision of
the Florida General Corporation Law which restricts loans to affiliated
parties and therefore the Company has not lent any further sums to its
affiliates.
Mr. Samuel Nyer, president of the Company, is a guarantor of ADCO's
institutional loan. See Notes to "Consolidated Financial Statements".
ADCO employs two relatives of Mr. William Clifford, a director of the
Company and vice president and general manager of ADCO. One relative is
employed as a retail store manager, and the other as a sales represen-
tative. ADCO also employs three relatives of Ms. Karen Wright, the
Company's treasurer and principal accounting and chief financial officer.
One relative is employed as ADCO's assistant comptroller, one as a data
entry clerk and the other is employed in the receiving department. The
Company believes that the compensation paid to these individuals is no
greater than unrelated persons would receive.
In February 1997, as required by his October 1996 employment
agreement, the Company issued 1,000 shares of series 1 class B preferred
stock, to Mr. Samuel Nyer. The shares had been previously authorized
subject to a delivery of a fairness opinion from an independent
investment banker, of which the opinion was received February 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NYER MEDICAL GROUP, INC.
Registrant
By:// Samuel Nyer
Samuel Nyer, President
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person(s)
on behalf of the Registrant and in the capacities indicated on the
14th day of April 1999.
Signature Title
/s/ Samuel Nyer Chairman of the Board,
Samuel Nyer President, Director,
and Secretary
/s/ William Clifford, Jr. Vice President of
William Clifford, Jr. Sales, Director
/s/ Karen L. Wright Treasurer, Vice President
Karen L. Wright of Finance, Assistant
Secretary, and Director
/s/ Doyle Boatwright Director
Doyle Boatwright
/s/ Stanley Dudrick, M.D. Director
Stanley Dudrick, M.D.
/s/ David Dumouchel Director
David Dumouchel
/s/ Donald Lewis Director
Donald Lewis
/s/ Kenneth Nyer, M.D. Director
Kenneth Nyer, M.D.
EXHIBIT INDEX
Sequential
Exhibit No.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
2. Articles of Incorporation of Nyer Medical Group, Inc.,
(1)
2.1 Amendment to Articles of Incorporation of Nyer Medical
Group, Inc.(1)
2.2 Second Amendment to Articles of Incorporation of Nyer
Medical Group, Inc.(1)
2.3 Third Amendment to Articles of Incorporation of Nyer
Medical Group, Inc.
3. Bylaws of Nyer Medical Group, Inc.(1)
4. 1993 Stock Option Plan(2)
4.1 Amendment to 1993 Stock Option Plan(3)
10. Agreement between Nyer Medical Group, Inc. and Dr. and
Mrs. McCabe and Mr. McCabe, Jr.
10.1 Stock Purchase Agreement - Conway Associates, Inc.
10.2 Stock Exchange Agreement and Plan of Reorganization -
Eaton Apothecary(3)
10.3 License Agreement - Nyer Nutritional Systems, Inc.
10.4 Employment Agreement - Samuel Nyer(4)
10.5 Employment Agreement - Doyle Boatwright(4)
(1) Contained in Registration Statement on Form S-18 filed on
April 13, 1992.
(2) Contained in Form 10-KSB filed April 1996.
(3) Contained in Form 8-K filed August 1996.
(4) Contained in Form 10-KSB filed April 1997.
THIRD AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
NYER MEDICAL GROUP, INC.
Pursuant to Sections 607.0602 and 607.1002, Florida Statutes, the undersigned
hereby certifies that the following Third Amendment to the Articles of
Incorporation of Nyer Medical Group, Inc. has been adopted:
1. The name of the corporation is Nyer Medical Group, Inc.
2. Article IV is amended by adding a new Section A which reads:
(1) 1,000 shares of Series 1 Class B Preferred Stock (the "Series 1 Stock")
may be issued.
(2) The Series 1 Stock is not convertible into common stock but carries the
right to 2,000 votes per share on all matters requiring a vote of the
common shareholders and preferred shareholders.
(3) In all other respects, the Series 1 Stock shall be treated like common
stock except where otherwise provided by the Florida Statutes.
3. The amendment was adopted on September 30, 1996, subject to filing the
Second Amendment to the Articles of Incorporation.
4. This amendment was adopted by the board of directors.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to the
Articles of Incorporation this 29 day of January 1997.
(CORPORATE SEAL) NYER MEDICAL GROUP, INC.
By:// Samuel Nyer
Samuel Nyer, President
PricewaterhouseCoopers, L.L.P.
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement
of Nyer Medical Group, Inc. on Form S-8 (File Nos. 333-05635 and 333-05647)
of our report dated March 30, 1999, on our audits of the consolidated
financial statements of Nyer Medical Group, Inc. as of December 31, 1998,
1997, and 1996, and for the years ended December 31, 1998, 1997, and 1996, which
report is included in the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers, L.L.P.
April 15, 1999
[ARTICLE] 5
[CIK] 0000884647
[NAME] NYER MEDICAL GROUP, INC
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] DEC-31-1998
[CASH] 4,136,988
[SECURITIES] 0
[RECEIVABLES] 3,796,592
[ALLOWANCES] 188,706
[INVENTORY] 4,073,051
[CURRENT-ASSETS] 11,923,600
[PP&E] 2,405,850
[DEPRECIATION] 902,872
[TOTAL-ASSETS] 14,412,042
[CURRENT-LIABILITIES] 3,513,179
[BONDS] 1,121,164
[PREFERRED-MANDATORY] 0
[PREFERRED] 1
[COMMON] 341
[OTHER-SE] 9,032,524
[TOTAL-LIABILITY-AND-EQUITY] 14,412,042
[SALES] 37,204,465
[TOTAL-REVENUES] 37,204,465
[CGS] 29,327,426
[TOTAL-COSTS] 29,327,426
[OTHER-EXPENSES] 7,977,286
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 122,397
[INCOME-PRETAX] (222,464)
[INCOME-TAX] ( 55,747)
[INCOME-CONTINUING] (278,211)
[DISCONTINUED] (1,561,980)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,840,191)
[EPS-PRIMARY] (.54)
[EPS-DILUTED] 0
</TABLE>
