SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the fiscal year end September 30, 1998
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
Commission File Number: 0-10128
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PERSONAL DIAGNOSTICS, INCORPORATED
----------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-23251136
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 5310, Parsippany, New Jersey 07054
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 952-9000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange
on which registered
NONE NONE
--------------- ---------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,200,000 based upon the average closing bid
and ask price for the Company's Common Stock, $.01 par value, as reported by the
National Association of Securities Dealers OTC Bulletin Board Quotation System
on December 15, 1998.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Class Outstanding at December 15, 1998
----- --------------------------------
Common Stock, $.01 par value 4,080,000
1997 Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
Page
Item 1 Business 1
Item 2 Properties 2
Item 3 Legal Proceedings 2
Item 4 Submission of Matters to a Vote of Security Holders 2
PART II
Item 5 Market for the Registrant's Common Stock and
Related Security Holder Matters 3
Item 6 Selected Financial Data 4
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Item 8 Financial Statements and Supplementary Data 7
Item 9 Disagreements on Accounting and Financial Disclosure 7
PART III
Item 10 Directors and Executive Officers of the Registrant 8
Item 11 Executive Compensation 8
Item 12 Security Ownership of Certain Beneficial Owners
and Management 13
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
ii
PART I
Item 1 - Business
General
Prior to May 15, 1995, Personal Diagnostics operated a contract
manufacturing business primarily devoted to the production of orthopedic
products and the assembly of various medical systems. During early fiscal 1995,
the Company essentially completed its assembly operations and on May 15, 1995,
concluded the sale of its manufacturing plant and equipment to EBI Medical
Systems, Inc. for $4.4 million dollars.
Subsequent to May 15, 1995 the Company retained ownership of
receivables which it collected and other miscellaneous assets which it sold.
Management continued to work diligently to assure that the Company's obligations
to customers, employees and others were honored completely. The Company has
continuing potential product liability exposure for equipment manufactured over
the years. The Company has maintained product liability insurance and knows of
no present or threatened claim of this nature. (See "Legal Proceedings")
Management intends to continue in business and has no intention to
liquidate the Company. The Company has considered various business alternatives
including the possible acquisition of an existing business, but to date has
found possible opportunities unsuitable or excessively priced. The Company is
also considering developing a business itself, believing that start up costs may
be preferable to the premiums required to purchase a going concern. The Company
does not contemplate limiting the scope of its search to any particular
industry. Management has invested considerable time evaluating and eliminating
numerous proposals for possible acquisition or combination developed by
management or presented by investment professionals, the Company's advisors and
others. The Company believes that present valuations of existing entities are
generally inflated partly due to sellers' expectations being impacted by
generally high stock market valuations. The Company continues to consider
possible acquisitions, business combinations, or start up proposals, which could
be advantageous to shareholders. No assurance can be given that any such
project, acquisition or combination will be concluded.
During the past two years the Company has focused on the acquisition,
improvement and resale of real property and management will continue to pursue
attractive real estate opportunities. The Company does not preclude the
possibility of becoming involved in the future with additional businesses in
other areas. On June 13, 1996 the Company purchased a property located in the
Embassy section of Washington, D.C. After limited improvements the property was
sold October 20, 1997 and the Company experienced a loss of $151,000 on this
project. The Company presently owns one residential property located in
Washington, D.C. The Company is improving the property and the process and is
expected to be completed during fiscal 1999. At September 30, 1998 the Company's
total investment in this property was approximately $893,000 which management
believes is approximately equal to net market value.
The Company intends to continue its investing and trading activities
and as a consequence the future financial results of the Company may be subject
to substantial fluctuations. Mr. Michael, the President of the Company is a
graduate of Harvard Business School (MBA). As part of the Company's
1
investment activities the Company may buy and sell a variety of equity, debt or
derivative securities including market index options and futures contracts. Such
investments often involve a high degree of risk and must be considered extremely
speculative. Futures Contracts are particularly risky since a relatively small
amount of capital controls a large nominal market value thus greatly
exaggerating the exposure to potential losses. During fiscal 1998 the nominal
value of the Company's exposure to financial derivatives averaged less than
$150,000 per month.
During fiscal 1998, the Company repurchased a total of 1,084,000 shares
at $1.20 per share for a total of $1,300,800. A total of 138,211 shares were
repurchased from two unrelated parties and 945,789 shares were repurchased from
Company President John H. Michael. The purchases were made at or below the
prevailing market price and about 20% below the net asset value per share. The
Company may repurchase additional shares during the coming fiscal year but it
has no specific plans to do so. At September 30, 1998 the Company had a total of
4,080,000 shares outstanding.
At September 30, 1998, over 75% of total Company assets were held in
U.S. Government Treasury Bills. The Company had no other trading or investment
positions. Since it is the intention of the Company to acquire or develop an
operating business, the Company presently intends to risk no more than 15% of
net worth in trading or investment activities.
Employees
The Company has one full time officer employee. It also utilizes
consultants, specialists and temporary employees as required. At the present
time the Company is heavily dependent on the skills of John H. Michael, the
Company's President, who is 55 years old and a graduate of Georgetown University
School of Foreign Service and Harvard Business School.
Item 2 - Properties
The Company maintains an office in West Milford, New Jersey at a
nominal cost. The Company's address is P.O. Box 5310, Parsippany, New Jersey
07054. The Company also has an address at 1810 24th Street, N.W., Washington,
D.C. The Company owns the Washington, D.C. property and is presently improving
the property with the intention to offer it for sale.
Item 3 - Legal Proceedings
The Company is the defendant in one lawsuit filed in August 1997
claiming $49,000 for the alleged partial non-payment of a supplier in 1992. In
the opinion of management the suit is totally without merit.
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable.
2
PART II
Item 5 - Market for the Registrant's Common Stock and Related Security Holder
Matters
(a) Market Information
The Company's Common Shares are traded on the National Association of
Securities Dealers OTC "Bulletin Board System" under the symbol PERS. The
following table sets forth the high and low bid prices of the Common Shares as
reported for each quarter, as stated below since the beginning of Fiscal 1997.
The quotations represent prices between dealers without adjustment for retail
mark ups, mark downs or commissions and may not represent actual transactions.
Trading Quarter Bid Price
- --------------- ---------
1997 High Low
---- ---- ---
December 31, 1996 (First Quarter) 15/16 25/32
March 31, 1997 (Second Quarter) 15/16 7/8
June 30, 1997 (Third Quarter) 1 7/8
September 30, 1997 (Fourth Quarter) 1 15/16
1998 High Low
---- ---- ---
December 31, 1997 (First Quarter) 1-1/8 15/16
March 31, 1998 (Second Quarter) 1-3/16 1
June 30, 1998 (Third Quarter) 1-3/8 1-1/8
September 30, 1998 (Fourth Quarter) 1-5/16 1-1/8
1999 High Low
---- ---- ---
December 15, 1998 (First Quarter) 1-3/16 1
(b) Holders
As of December 15, 1998 there were approximately 470 record holders of
the Company's Common Stock.
3
(c) Dividends
The Company has paid no cash dividends on its Common Shares and has no
intention of paying cash dividends in the foreseeable future. It is the present
policy of the Board of Directors to retain all earnings to provide for the
growth of the Company. Payment of cash dividends in the future will depend,
among other things, upon future Company earnings and future Company policy.
Item 6 - Selected Financial Data
(In thousands except per share amounts)
Year Ended September 30,
OPERATING RESULTS 1998 1997 1996 1995 1994
- ----------------- ---- ---- ---- ---- ----
Investment Income (Loss) ($30) $1,007 $ 308 ($241) $215
Income (Loss) From Continuing Operations (215) 53 (149) (352) 69
Income (Loss) From Discontinued Operations --- --- --- (751) (1,329)
Net Income (Loss) (215) 53 (149) (1,103) (1,260)
Per Share Data:
Income (Loss) From Continuing Operations (.04) .01 (.03) (.07) .01
Income (Loss) From Discontinued Operations --- --- --- (.09) (.27)
Loss on Sale of Discontinued Operations --- --- --- (.07) ---
Net Income (Loss) (.04) .01 (.03) (.23) (.26)
Average Number of Shares Outstanding 4,807 5,050 4,866 4,864 4,864
FINANCIAL POSITION
- ------------------
Working Capital $6,145 $7,555 $7,502 $7,546 $6,785
Total Assets $6,279 $7,785 $7,882 $7,921 12,738
Long-Term Debt --- --- --- --- 3,104
Accumulated Deficit (1) (6,130) (5,915) (5,968) (5,819) (4,716)
Total Stockholders' Equity 6,145 7,555 7,502 7,546 8,649
Notes:
- ------
(1) No dividends have been paid since incorporation.
4
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At September 30, 1998 the Company had a cash and Treasury bill balance
of $5,386,000 which represented a $731,000 decrease from $6,117,000 at September
30, 1997. This $731,000 decrease results from an increase in cash flow from
operations of $464,000 offset by a decrease of $1,195,000 required for financing
activities. The cash flow from operations results from net proceeds of $768,000
primarily on sale of property held for development and sale offset by a net loss
of $215,000 and changes in operating assets and liabilities in the amount of
$89,000. The funds used for financing activities of $1,195,000 results from the
purchase and retirement of stock for $1,300,800 offset by funds received for
exercise of stock options in the amount of $105,000. The Company's working
capital position at September 30, 1998 was $6,145,000 as compared to the prior
year-end balance of $7,555,000.
During fiscal 1998 the Company repurchased a total of 1,084,000 shares
at $1.20 per share for a total of $1,300,800. A total of 138,211 shares were
repurchased from two unrelated parties and 945,789 shares were repurchased from
Company President John H. Michael. The purchases were made at or below
prevailing market and about 20% below the net asset value per share. At
September 30, 1998 the Company had a total of 4,080,000 shares outstanding.
Management intends to continue in business and has no intention to
liquidate the Company. The Company has considered various business alternatives
including the possible acquisition of an existing business, but to date has
found possible opportunities unsuitable or excessively priced. The Company is
also considering developing a business itself, believing that start up costs may
be preferable to the premiums required to purchase a going concern. The Company
does not contemplate limiting the scope of its search to any particular
industry. Management has considered the risk of possible opportunities as well
as their potential rewards. Management has invested considerable time evaluating
and eliminating numerous proposals for possible acquisition or combination
developed by management or presented by investment professionals, the Company's
advisors and others. The Company believes that present valuations of existing
entities are inflated partly due to sellers' expectations being impacted by
generally high stock market valuations. During the past two years the Company
has focused on the acquisition, improvement and resale of real property and
management will continue to pursue attractive real estate opportunities. The
Company does not preclude the possibility of becoming involved in the future
with additional businesses in other areas.
On June 13, 1996 the Company purchased a property located in the
Embassy section of Washington, D.C. After limited improvements the property was
sold October 20, 1997 and the Company experienced a loss of $151,000 on this
project. The Company presently owns one residential property located in
Washington, D.C. The Company is improving the property and the process is
expected to be completed during fiscal 1999. At September 30, 1998 the Company's
total investment in this property was approximately $893,000 which management
believes is approximately equal to net market value.
The Company continues to consider possible acquisitions, business
combinations, or start up proposals, which could be advantageous to
shareholders. No assurance can be given that any such project, acquisition or
combinations will be concluded.
5
The Company intends to continue its investing and trading activities
and as a consequence the future financial results of the Company may be subject
to substantial fluctuations. Mr. Michael, the President of the Company is a
graduate of Harvard Business School (MBA). As part of the Company's investment
activities the Company may buy and sell a variety of equity, debt or derivative
securities including a market index options and future contracts. Such
investments often involve a high degree of risk and must be considered extremely
speculative. Futures Contracts are particularly risky since a relatively small
amount of capital controls a large nominal market value thus greatly
exaggerating the exposure to potential losses. During fiscal 1998 the nominal
value of the Company's exposure to financial derivatives averaged less than
$150,000 per month.
At September 30, 1998, over 75% of total Company assets were held in
U.S. Government Treasury Bills. The Company had no other trading or investment
positions. Since it is the intention of the Company to acquire or develop an
operating business, the Company presently intends to risk no more than 15% of
net worth in trading or investment activities.
Results of Operations
Fiscal Year 1998 Compared to 1997
Income Loss From Continuing Operations
Net income consists of interest and trading gain and losses and general
and administrative expenses. The Company incurred a net loss of $215,000 in the
current year versus income of $53,000 in the prior year. Interest income
increased $17,000 to $319,000 primarily due to more invested funds. Trading
losses of $349,000 were realized versus trading gains of $705,000 in the prior
year. General and administrative expenses of $185,000 were $769,000 lower than
the prior year period due primarily to decreased compensation paid to President
John H. Michael, decreased costs and expenses associated with real estate
activities and lower insurance and professional fees. During fiscal 1998, the
Company has not recorded an income tax benefit because tax losses can not be
utilized.
Fiscal Year 1997 Compared to 1996
Income (Loss) from Continuing Operations
Income (loss) from continuing operations consists of interest and
trading gains and losses and general and administrative expenses and in 1996 an
income tax credit. The Company realized income from continuing operations of
$53,000 in the current year versus a loss of $149,000 in the prior year.
Interest income declined $88,000 to $302,000 primarily due to less invested
funds. Trading gains of $705,000 were realized versus trading losses of $82,000
in the prior year. General and administrative expenses of $954,000 were $495,000
higher than the prior year period of $459,000 due primarily to increased
compensation paid to President John H. Michael and increased costs and expenses
associated with real estate activities. During fiscal 1997, the Company did not
record an income tax provision due to available tax carry forwards.
6
Inflation
The Company believes that inflation does not have a material adverse
effect on the results of its operations at the present time.
Computer Year 2000 Issue ("Y2K")
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
year 2000. Management believes that the Company and its important business and
professional counterparties have prepared adequately for this event. The Company
expects no material adverse impact from the year 2000 computer issue.
Item 8 - Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this
Report commencing on page F-1.
Item 9 - Disagreements on Accounting and Financial Disclosure
Not applicable.
7
PART III
Item 10 - Directors and Executive Officers of the Registrant
Mr. Michael has served as a director of the Company since 1980. In
1986 he was appointed Chairman of the Board of Directors and Chief Executive
Officer and in 1987 he was named President. Mr. Michael graduated from
Georgetown University School of Foreign Service in 1964 (BSFS) and Harvard
Business School (MBA) in 1969.
Item 11 - Executive Compensation
The following table sets forth a summary for the fiscal years ended
September 30, 1998, 1997 and 1996 of the cash compensation paid by the Company,
as well as certain other compensation paid or accrued for those years, to the
Company's Chief Executive Officer. In January 1997 the Company's Board of
Directors approved a modification to Mr. Michael's Employment Agreement
providing for annual performance compensation equal to no more than 60% of net
trading profits in addition to his salary. During fiscal 1998 Mr. Michael
elected to accept only 75% of the compensation provided by his employment
agreement. The balance of $43,875 was waived.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------- ----------------------------------
Name and Fiscal Salary Options All
Principal Position Year Paid Deferred Bonus (# of Shares) Compensation (1)
- ------------------ ------- ---- -------- ----- ------------- ----------------
John H. Michael, 1998 $131,250(3) --- --- --- ---
Chairman, Chief
Executive Officer
President and
Treasurer
1997 $175,000 --- $400,000 --- ---
1996 $ 138,000 --- $190,000(2) --- $ 4,200
(1) Represents contributions to the Company's 401(k) plan on behalf of Mr.
Michael to match pre-tax elective deferral compensation (included under the
salary column) made to such plan.
(2) Of this amount $105,000 was required to be utilized during January 1997 to
pay for the exercise of 150,000 incentive stock options
(3) During fiscal 1998 Mr. Michael elected to accept only 75% of the
compensation provided by his employment agreement. The balance of $43,875
was waived.
8
Performance Graph
The following graph provides a comparison on a cumulative basis of the
yearly percentage change over the last five fiscal years in (a) the total
shareholder return on the Company's Common Stock with (b) the total return on
the NASDAQ Stock Market of all domestic issues traded on the NASDAQ's NMS and
Small-Cap Market ("NASDAQ Stock Market Index"). Such yearly percentage has been
measured by dividing (i) the sum of (A) the amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the price per share at the end and at the beginning of the measurement
period, by (ii) the price per share at the beginning of the measurement period.
The NASDAQ Stock Market Index has been selected as the required broad equity
market index. Because the Company sold its manufacturing assets in 1995 and is
gradually resuming active operations, no relevant comparison to peer issuers can
be made or shall be contained herein. The price of each investment unit has been
set at $100 on September 30, 1993 for purposes of preparing this graph.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
Personal Diagnostics, Incorporated
NASDAQ Stock Market (US Companies)
350
300
250
x
200 x
150 x
x
100 ox x
50 o o o o o
0 1993 1994 1995 1996 1997 1998
o Personal Diagnostics, Incorporated
x NASDAQ Stock Market (US Companies)
1993 1994 1995 1996 1997 1998
Personal Diagnostics, Incorporated 100.0 36.3 43.7 52.4 57.1 64.8
NASDAQ Stock Market (US Companies) 100.0 101.2 136.3 159.2 208.2 231.6
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighed daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 09/30/93.
9
Savings and Benefit Plans
The Company had a 401k savings/retirement plan under which all the
Company's eligible employees including executive officers were entitled to
benefits. The plan allowed for the employee contributions to be matched by the
Company on a pro rata basis. Contributions made by the Company amounted to
$4,200, $0 and $0 for the fiscal years ended September 30, 1996, 1997 and 1998
respectively. Executive officers who qualified were also permitted to
participate in the Company's Stock Option plans as well as the 401k plan.
Executive officers participate in group life and medical plans, which are
available generally to all employees. At December 31, 1995 the Company
terminated the 401k retirement plans.
Directors
The Company's outside Directors, of which there are none at this time,
are reimbursed for their out-of-pocket expenses incurred in connection with
their attendance at each Board meeting. In late fiscal 1997 Director Alphonso
Espinosa died reducing the Board to one member, John H. Michael. The Company
hopes during fiscal 1999 to increase the Board of Directors to three members
including at least one unaffiliated individual.
Stock Option Plan and Warrants
On April 23, 1986 and April 28, 1988, the Board of Directors adopted
Employee Stock Option Plans which were approved by the Company's shareholders.
Under the 1986 Plan, which terminated in 1996, options to purchase no more than
150,000 Common Shares could be granted. Under the 1988 Plan, which terminated in
1998, options to purchase no more than 450,000 Common Shares could be granted.
On September 17, 1990 the Board of Directors adopted the 1990 Stock Option Plan
which terminates in the year 2000, and authorizes the granting of options to
purchase no more than 300,000 common shares. The 1990 Stock Option Plan was
approved by the Company's shareholders at their annual meeting on September 12,
1991. (Hereinafter the 1986, 1988 and 1990 Plans shall be collectively referred
to as the "Plans".)
The Plans authorized the granting of either "incentive stock options,"
as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options" to acquire the Company's Common Shares. On
September 17, 1990, the Board of Directors amended and restated the Company's
1986 and 1988 Plans such that with the exception of the term of the Plans and
the number of shares that may be granted pursuant to the Plans, the Plans were
then essentially identical. Outstanding options to purchase 150,000 Common
Shares were exercised June 6, 1998. There remain 300,000 options available for
grant under the 1990 Plan.
At September 30, 1998 no options were outstanding under any of the Plans.
Currently, the Company has one employee eligible to participate in the
Plans. The shares available for issuance will be increased or decreased
according to any reclassification, recapitalization, share split, share dividend
or other such subdivision of combination of the Company's Common Shares. Any
moneys received by the Company from the exercise of options will be used for
working capital.
10
AGGREGATE OPTION EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Value of
Shares underlying unexercised
Unexercised in-the-money
options at fiscal options at
year-end fiscal year-end
(#) ($)
Shares Value
acquired on Realized Exercisable Exercisable
Name exercise (#) ($)
John H. Michael (1)(2) 150,000 75,000 None None
(1) Options were exercised on 150,000 shares at an exercise price of $.70 per
share on June 6, 1998. No options are presently outstanding.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the date of exercise, or through a combination of such
methods. The exercise price equals 110% of the fair market value of the
shares of the Company's Common Stock on the date of grant. The above-market
exercise price of the options at the date of grant is required under the
regulations promulgated under Section 422 of the Internal Revenue Code of
1986, as amended for the grant of incentive stock options to an optionee
owning in excess of 10% of the Company's voting stock at the date of grant.
Eligibility
Any person who is employed by the Company shall be eligible to receive
incentive stock options under the Plans. The Plans permit non-qualified stock
options to be granted to directors and consultants, as well as employees. Any
employee who already owns 10 percent or more of the total combined voting power
of all classes of the company's stock shall be eligible to receive incentive
stock options only under certain limited circumstances.
Exercise Price of Options
Options granted pursuant to the Plans must have an exercise price no
less than the fair market value of the Company's Common Shares at the time the
option is granted, except that in the case of an incentive stock option the
price shall be at least 110 percent of the fair market value when the option is
granted to an employee who owns more than 10 percent of the combined voting
power of all classes of the Company's voting stock at the date of grant. Under
the terms of the Plans, the aggregate fair market value of the stock with
respect to which incentive stock options are exercisable for the first time by
such individual during any calendar year shall not exceed $100,000.
12
Amendments and Discontinuance
The Plans can be amended, suspended, or terminated at any time by
actions of the Company's Board of Directors except that no amendment to the
Plans can be made without prior shareholder approval where such amendment would
(i) increase the total number of shares of stock which may be purchased under
the Plans; (ii) materially modify the eligibility requirements of the Plans; or
(iii) materially increase the benefits accruing to the participants under the
Plans.
Administration
The Board of directors has appointed a Stock Option Committee
consisting of John H. Michael. Mr. Michael is Chairman of the Stock Option
Committee. The Committee determines the individuals who will be granted options,
the number of options each individual will receive, the option price and the
exercise period of each option. No grants were made during fiscal year 1998.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors determined the compensation paid to
the sole executive officer during fiscal 1998. Mr. Michael is the Chairman of
the Board of Directors, Chief Executive Officer, President, Treasurer and
Secretary of the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ, copies of which are required by regulation to be furnished to the
Company.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that during fiscal 1998 its officers, directors
and ten percent (10%) beneficial owners complied with all Section 16(a) filing
requirements.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Set forth below is information concerning the beneficial ownership of
the Company's Common Stock by each Director, by all Directors and Officers of
the Company as group and by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of the Company's
Common Stock based upon the number of shares of Common Stock outstanding on
December 15, 1998.
13
Name and Address of Amount and Nature Percent
Beneficial Owner (1) of Beneficial Ownership of Class
- -------------------- ----------------------- --------
John H. Michael 3,060,543 75.0%
1810 24th Street N.W.
Washington, D.C.
All Officers and Directors 3,060,543 75.0%
as a Group
- --------------
(1) Unless otherwise indicated each person has sole voting and investment powers
with respect to the shares specified opposite his name.
Item 13 - Certain Relationships
During fiscal 1998, Mr. Michael had a secured loan outstanding in the
amount of $750,000 from Riggs National Bank. The primary security for this loan
was 1,012,500 shares of Personal Diagnostics common stock owned by Mr. Michael.
The Company was a guarantor of this loan. The loan was repaid in full in fiscal
1998. Also, during fiscal 1998 the Company repurchased a total of 945,789 shares
of its common stock at $1.20 per share from Company President John H. Michael.
14
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The response to this portion of Item 14 is submitted as a separate
section of this Report Commencing on page F-1.
(a)(2) Inapplicable
(a)(3) List of Exhibits
Exhibit Location
------- --------
3.1 Articles of Incorporation Filed Form S-1 October 7, 1983
File No. 2-86991
3.2 Bylaws of the Corporation Filed Form S-1 October 7, 1983
File No. 2-86991
10.1 Employment Agreement between Page E-1 1996 Form 10K
John H. Michael and the Company
dated September 25, 1996
(b) Reports on Form 8-K
Date Filed Transaction Reported
---------- --------------------
September 24, 1998 Company share repurchase
reduces outstanding common
stock to 4,080,000 shares.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERSONAL DIAGNOSTICS, INCORPORATED
By: /s/ John H. Michael
----------------------------------
John H. Michael
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report is signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ John H. Michael December 28, 1998
- -----------------------------------------
John H. Michael, Chief Executive Officer,
Chairman of the Board, President, Treasurer
and Secretary
The Company has not furnished an annual report or proxy materials to
security holders to date, but plans to distribute an Annual Report and Proxy
Statement subsequent to the filing of this Form 10-K and the Company will
furnish copies of such material to the Commission when they are sent to security
holders.
16
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FINANCIAL REPORT
SEPTEMBER 30, 1998
PERSONAL DIAGNOSTICS, INCORPORATED
INDEX
Page
Independent Auditors' Report F-2
Balance Sheets as of September 30, 1998 and 1997 F-3
Statements of Operations for the Years Ended
September 30, 1998, 1997 and 1996 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the Years Ended
September 30, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7 - F-12
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the financial statements and
notes hereto.
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Personal Diagnostics, Incorporated
We have audited the financial statements of Personal Diagnostics, Incorporated
as of September 30, 1998 and 1997 and for each of the three years in the period
ended September 30, 1998 as listed in the accompanying index. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Personal Diagnostics,
Incorporated at September 30, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1998 in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
December 9, 1998
F-2
PERSONAL DIAGNOSTICS, INCORPORATED
BALANCE SHEETS
September 30,
----------------------------------
ASSETS 1998 1997
------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 5,386,000 $ 6,117,000
Property held for development and sale 893,000 1,661,000
Other current assets - 7,000
------------ ------------
Total Current Assets $ 6,279,000 $ 7,785,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,000 $ 12,000
Current liabilities of discontinued operations 50,000 125,000
Other current liabilities 70,000 93,000
------------ ------------
Total Current Liabilities 134,000 230,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized,
25,000,000 shares; issued 5,164,000 shares in fiscal
1998 and 5,014,000 shares in fiscal 1997 51,000 50,000
Capital in excess of par value 13,524,000 13,420,000
Accumulated deficit (6,130,000) (5,915,000)
------------ ------------
7,445,000 7,555,000
Less: Treasury stock 1,084,000 shares in 1998, at cost (1,300,000) -
------------ ------------
Total Stockholders' Equity 6,145,000 7,555,000
------------ ------------
$ 6,279,000 $ 7,785,000
============ ============
See accompanying notes to financial statements.
F-3
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF OPERATIONS
Year Ended September 30,
----------------------------------------------------
1998 1997 1996
----------- ---------- -----------
INCOME:
Interest $ 319,000 $ 302,000 $ 390,000
Trading gains (losses) (349,000) 705,000 (82,000)
----------- ---------- -----------
(30,000) 1,007,000 308,000
EXPENSES:
General and administrative 185,000 954,000 459,000
----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (215,000) 53,000 (151,000)
PROVISION FOR INCOME TAXES (BENEFIT) - - (2,000)
----------- ---------- -----------
NET INCOME (LOSS) $ (215,000) $ 53,000 $ (149,000)
=========== ========== ===========
BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE $ (.04) $ .01 $ (.03)
======= ======= =======
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,807,000 5,050,000 4,866,000
============ =========== ============
See accompanying notes to financial statements.
F-4
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Common Stock Capital in
--------------------------- Excess of Treasury Accumulated
Shares Par Value Par Value Stock Deficit
--------- ---------- ----------- -------- -----------
BALANCES, SEPTEMBER 30, 1995 4,864,000 $ 49,000 $13,316,000 $ - $(5,819,000)
YEAR ENDED SEPTEMBER 30, 1996:
Exercise of stock options 150,000 1,000 104,000 - -
Net loss - - - - (149,000)
--------- -------- ----------- ----------- -----------
BALANCES, SEPTEMBER 30, 1996 5,014,000 50,000 13,420,000 - (5,968,000)
YEAR ENDED SEPTEMBER 30, 1997 -
Net income - - - - 53,000
--------- -------- ----------- ----------- -----------
BALANCES, SEPTEMBER 30, 1997 5,014,000 50,000 13,420,000 - (5,915,000)
YEAR ENDED SEPTEMBER 30, 1998:
Purchase of treasury stock - (1,300,000) -
Exercise of stock options 150,000 1,000 104,000 - -
Net loss - (215,000)
--------- -------- ----------- ----------- -----------
BALANCES, SEPTEMBER 30, 1998 5,164,000 $ 51,000 $13,524,000 $(1,300,000) $(6,130,000)
========= ======== =========== =========== ===========
See accompanying notes to financial statements.
F-5
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CASH FLOWS
Year Ended September 30,
----------------------------------------------------
1998 1997 1996
----------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (215,000) $ 53,000 $ (149,000)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Provision (benefit) for losses on accounts receivable - - (50,000)
Provision for loss on property held for sale - 151,000 -
Changes in assets and liabilities:
Trading securities - - 4,963,000
Property held for development and sale 768,000 (946,000) (866,000)
Accounts receivable - net - - 198,000
Other current assets 7,000 (6,000) 15,000
Accounts payable and accrued liabilities (96,000) (150,000) 5,000
---------- ---------- ----------
Net cash flows from operating activities 464,000 (898,000) 4,116,000
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 105,000 105,000 -
Purchase of treasury of stock (1,300,000) - -
---------- ---------- ----------
Net cash flows from financing activities (1,195,000) 105,000 -
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (731,000) (793,000) 4,116,000
CASH AND EQUIVALENTS, BEGINNING OF YEAR 6,117,000 6,910,000 2,794,000
---------- ---------- ----------
CASH AND EQUIVALENTS, END OF YEAR $5,386,000 $6,117,000 $6,910,000
========== ========== ==========
See accompanying notes to financial statements.
F-6
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
Nature of the Business - Personal Diagnostics, Incorporated
("the Company") is pursuing various business alternatives
including possible acquisition of an existing business. It is
currently engaged in the acquisition, improvement and resale of
real estate.
Cash Equivalents - The Company considers all highly liquid
investments purchased with a maturity of three months or less to
be cash equivalents.
Net Income (Loss) Per Share - The Company calculates earnings
per share in accordance with Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings per Share" which was issued
in February 1997 and is effective for periods ending after
December 15, 1997. SFAS No. 128 replaces the presentation of
primary and fully diluted earnings per share with basic and
diluted earnings per share. The Company uses the
weighted-average number of common shares outstanding during each
period to compute basic earnings per common share. When not
anti-dilutive, diluted earnings per share are computed using the
weighted-average number of common shares and dilutive potential
common shares outstanding. Dilutive potential common shares are
additional common shares assumed to be exercised.
Concentration of Credit and Off-Balance-Sheet Risk - Financial
instruments that are potentially subject to credit risk consist
of cash and equivalents and trading securities. Cash and
equivalents and principally all trading securities are placed
with financial institutions.
Estimates and Uncertainties - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results, as
determined at a later date, could differ from those estimates.
Financial Instruments - Financial instruments include cash and
equivalents, securities, accounts payable and accrued expenses.
The amounts reported for financial instruments are considered to
be reasonable approximations of their fair values, based on
market information available to management. The use of different
market assumptions and/or estimation methodologies could have an
effect on the estimated fair value amounts.
Stock Compensation - Statement of Financial Accounting Standards
("SFAS) No. 123, "Accounting" for Stock-Based Compensation,"
requires companies to measure employee stock compensation plans
based on the fair value method
F-7
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
of accounting. However, the statement allows the alternative of
continued use of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," with pro forma
disclosure of net income and earnings per share determined as if
the fair value based method had been applied in measuring
compensation cost. The Company has determined it will continue
to apply APB Opinion No. 25 in accounting for its stock options
plans. No options were granted during the years ended September
30, 1998, 1997 or 1996 and accordingly, no proforma disclosure
has been provided.
Note 2 - Investments:
At September 30, 1998 and 1997, cash and equivalents include
approximately $5,088,000 and $5,738,000 respectively of U.S.
Treasury Bills purchased with maturities of three months or
less.
The Company periodically enters into futures contracts for
commodities or stock indexes. The Company considers these
investments to be trading securities.
Note 3 - Property Held for Development and Sale:
The Company owned two properties in Washington D.C. which it
acquired with the intention to improve and sell. One property,
carried at a net cost of approximately $810,000 at September 30,
1997, was sold on October 20, 1997. For the year ended September
30, 1997, the Company provided an allowance of $151,000 for loss
on the sale of this property. The other property, carried at a
cost of $893,000 at September 30, 1998, is in the process of
renovation.
Note 4 - Other Current Liabilities:
Other current liabilities consist of:
September 30,
------------------------------
1998 1997
---- ----
Legal fees $ 25,000 $ 25,000
Audit fees 20,000 20,000
Annual meeting 15,000 30,000
Relocation - 10,000
Other 10,000 8,000
---------- -----------
$ 70,000 $ 93,000
========= =========
Current liabilities of discontinued operations at September 30,
1998 and 1997, consist of the estimated costs for product
liability insurance.
F-8
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Note 5 - Income Taxes:
Deferred income taxes reflect the net effects of temporary
differences between the amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Principal items comprising net deferred income tax
assets and liabilities are:
September 30,
--------------------------
1998 1997
---- ----
Deferred tax assets:
Tax credit carryforwards $ 290,000 $ 290,000
Net operating loss carryforwards 580,000 534,000
Other items 159,000 109,000
----------- -----------
1,029,000 933,000
Valuation allowance (1,029,000) (933,000)
----------- -----------
Net asset $ -- $ --
=========== ===========
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company has determined, based on the Company's
recent net losses, that a full valuation allowance is
appropriate at September 30, 1998 and 1997. During fiscal 1998
and 1997 the valuation allowance increased $96,000 and decreased
$19,000, respectively.
A reconciliation of the provision (benefit) for income taxes
computed at the federal statutory rate of 34% and the effective
tax rate on income (loss) before income taxes is as follows:
Year Ended September 30,
---------------------------------
1998 1997 1996
---- ---- ----
Computed tax at federal
statutory rate $(73,000) $ 18,000 $(51,000)
Net operating loss and tax (credits) or
limitations 73,000 (18,000) 49,000
-------- -------- --------
Provision (benefit) for income taxes
$ -- $ -- $ (2,000)
======== ======== ========
At September 30, 1998, the Company had net operating loss
carryforwards of approximately $1,453,000 for regular tax
purposes and $1,809,000 for alternative minimum tax (AMT) which
can be used to offset future taxable income. The Company also
F-9
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
has research and development credits of approximately $168,000,
investment tax credits of approximately $52,000 and AMT credits
of approximately $70,000 which can be used to offset future
income taxes for federal income tax purposes. The net operating
loss carryforwards expire, if not used, as to $1,250,000 in
2009, $112,000 in 2011 and $91,000 in 2018. The research and
development and investment tax credits expire, if not used, over
the period 1999 to 2002.
The AMT credits are available for an indefinite period.
Note 6 - Commitments and Contingencies:
Employment Contract - At September 30, 1998, the Company has an
employment contract with an officer which provides for an annual
salary of not less than $175,000 until September 24, 1999 with
the right of the employee to extend the agreement for an
additional three year term with annual compensation of not less
than $175,000. The contract also provided for a bonus to the
officer of $150,000 that was paid in January 1997.
In January 1997, the Board of Directors approved the
modification of this agreement to provide for additional annual
performance compensation up to 60% of net gains produced by the
President's trading and investment activities on behalf of the
Company. In addition, the Board further modified the agreement
to guarantee up to $750,000 of personal loans obtained by the
President, provided the President provide a minimum of 1,000,000
of his shares in the Company as collateral on such loan. The
loan was repaid during fiscal 1998.
Product Liability - The Company has continuing potential product
liability exposure for equipment manufactured in prior years.
The Company has maintained product liability insurance and knows
of no present or threatened claim.
Note 7 - Stock Options:
During September 1990, the Board of Directors adopted the 1990
Stock Option Plan (the "Plan"). The Plan authorizes the granting
of either "incentive stock options", as defined in Section 422A
of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options" to acquire shares of the Company's
common stock. Under the Company's 1990 Stock Option Plan,
incentive stock options may be granted to employees at prices
not less than the fair market value at the dates of grant. The
price shall be 110 percent of the fair market value when the
option is granted to an employee who owned more than ten percent
of the Company's common stock at the date of grant. The exercise
price of the non-qualified options shall be determined at the
discretion of the Board of Directors.
F-10
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
The term of each option is ten years from the date of grant
thereof or such shorter term as may be provided in the stock
option agreements. However, in the case of an incentive stock
option granted to an employee who, immediately before the
incentive stock option is granted, owns stock representing more
than ten percent of the voting power of all classes of stock of
the Company, the term of the incentive stock option shall be
five years from the date of grant thereof or such shorter time
as may be provided in the stock option agreements.
The Company has made no charge to income in connection with the
grant of options under any plan.
The Plan allows for a maximum of 300,000 shares subject to
options terminating in 2000.
Changes in the Company's stock option plans were as follows:
Number of Shares
---------------------------------
1998 1997 1996
--------- -------- -------
Outstanding at October 1
($.70 per share) 150,000 150,000 300,000
Exercised ($.70 per share) (150,000) -- (150,000)
-------- -------- --------
Outstanding at September 30 ($.70 per share)
-- 150,000 150,000
======== ======== ========
Note 8 - Statements of Cash Flows:
Fiscal Years Ended In
-------------------------------------------
1998 1997 1996
--------- -------- -------
Supplemental disclosure of
cash flow information
Income taxes (refunded) $ $ (2,000) $ (15,000)
=========== ============== =========
Supplemental schedule of non-cash investing
and financing activities:
Issuance of common stock in exchange
for receivable $ -- $ -- $ 105,000
=========== ============== =========
F-11
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Note 9 - Related Party Transactions:
In June 1998 and September 1998, the Company purchased from its
President - Principal Stockholder (the President) 598,389 and
347,400 shares respectively, of its common stock for $1.20 per
share.
On October 2, 1996, the Company purchased real estate owned by
the President for $818,000.
For the years ended September 30, 1997 and 1996, the Company
leased office space on a month to month basis from the President
for $7,500 and $27,500, respectively.
The Company had guaranteed a $750,000 personal loan received by
the President from a financial institution. The loan was
collateralized by 1,012,500 shares of common stock of the
Company owned by the President. This loan was repaid during
fiscal 1998.
During the year ended September 30, 1996 the Company incurred
legal fees approximating $19,000, from a law firm, a partner of
which was also a member of the Company's Board of Directors and
from another member of its Board of Directors.
Note 10 - New Accounting Standards:
New Accounting Pronouncements - In June 1997, the Board issued
SFAS No. 130, Reporting Comprehensive Income, which establishes
standards for reporting and displaying comprehensive income and
its components as part of a full set of financial statements,
and SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. In February 1998, the Board issued SFAS
No. 132, Employers' Disclosures about Pension and Other
Postretirement Benefits. The aforementioned pronouncements were
effective for years beginning after December 15, 1997. In
addition, the Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities in June 1998 for
years beginning after June 15, 1999.
F-12