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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
Commission File Number: 0-10128
PERSONAL DIAGNOSTICS, INCORPORATED
----------------------------------
(Exact name of registrant as specified in its charter
NEW JERSEY 22-23251136
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 5310, Parsippany, New Jersey 07054
--------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 952-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange
on which registered
------------------- ---------------------
NONE NONE
Securities registered pursuant to Section 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 $1,100,000 based upon the average closing bid
and ask price for the Company's Common Stock, $.01 par value as reported by the
National Association of Securities Dealers OTC Bulletin Board Quotation System
on December 15, 2000.
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, 2000
----- --------------------------------
Common Stock, $.01 par value 3,740,000
2000 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 4
Item 8 Financial Statements and Supplementary Data 6
Item 9 Disagreements on Accounting and Financial Disclosure 6
PART III
Item 10 Directors and Executive Officers of the Registrant 7
Item 11 Executive Compensation 7
Item 12 Security Ownership of Certain Beneficial Owners and Management 11
Item 13 Certain Relationships and Related Transactions 11
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 13
ii
PART I
Item 1 - Business
General
Prior to May 15, 1995, Personal Diagnostics, Inc. (the "Company")
operated a contract manufacturing business primarily devoted to the production
of orthopedic products and the assembly of various medical systems. During early
fiscal 1995, the Company essentially completed its assembly operations and on
May 15, 1995, concluded the sale of its manufacturing plant and equipment to EBI
Medical Systems, Inc. for $4.4 million dollars.
Since then 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 substantial time evaluating and considering
numerous proposals for possible acquisition or combination developed by
management or presented by investment professionals, the Company's advisors and
others. During the past four years the Company has limited its activities to
relatively small real estate projects and modest trading and investment
activities. The Company continues to consider acquisitions, business
combinations, or start up proposals, which could be advantageous to
stockholders. No assurance can be given that any such project, acquisition or
combination will be concluded.
The Company intends to continue its investing and trading activities
and as a consequence the future financial results of the Company may be subject
to substantial fluctuations. Mr. Michael, the President of the Company is a
graduate of Harvard Business School (MBA). As part of the Company's investment
activities the Company may buy and sell a variety of equity, debt or derivative
securities including market index options and futures contracts. Such
investments often involve a high degree of risk and must be considered extremely
speculative. Futures contracts are particularly risky since a relatively small
amount of capital controls a large nominal market value thus greatly
exaggerating the exposure to potential losses. During fiscal 2000 the average
nominal value of the Company's exposure to derivatives was not significant.
During fiscal 2000 the Company repurchased a total of 340,000 shares of
its Common Stock at $1.35 per share from Company President John H. Michael at a
total cost of $459,000. The purchases were made at or below the market bid price
and about 15 percent below liquid net asset value per share. The Company may
repurchase additional shares either publicly or privately during the coming
fiscal year, but it has no specific plans to do so. At September 30, 2000, the
Company had a total of 3,740,000 shares outstanding which is net of 1,124,000
Treasury shares.
At September 30, 2000, virtually all Company assets were held in U.S.
Government three (3) month Treasury Bills, Cash or 60 day Prime Commercial
Paper. The Company had no other investment or trading positions. It continues to
be the intention of management to acquire or develop an operating business.
1
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 57 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.
Item 3 - Legal Proceedings
During fiscal 2000 the Company resolved two legal disputes for a total
of $47,000. At September 30, 2000 there were no active or threatened legal
proceedings.
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 Stock is 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 Stock as
reported for each quarter, as stated below since the beginning of Fiscal 1999.
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
- --------------- ---------
1999 High Low
---- ---- ---
December 31, 1998 (First Quarter) 1 3/16 1
March 31, 1999 (Second Quarter) 1 1/16 15/16
June 30, 1999 (Third Quarter) 1 3/16 15/16
September 30, 1999 (Fourth Quarter) 1 1/8 1
2000 High Low
---- ---- ---
December 31, 1999 (First Quarter) 1 1/8 15/16
March 31, 2000 (Second Quarter) 1 1/4 1
June 30, 2000 (Third Quarter) 1 13/16 1 1/4
September 30, 2000 (Fourth Quarter) 1 5/8 1 3/8
2001 High Low
---- ---- ---
December 15, 2000 (First Quarter) 1 7/16 1 7/16
(b) Holders
As of December 15, 2000, there were approximately 440 record holders of
the Company's Common Stock.
(c) Dividends
The Company has paid no cash dividend on its Common Stock 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.
3
Item 6 - Selected Financial Data
(In thousands except per share amounts)
Year Ended September 30
OPERATING RESULTS 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Investment Income (Loss) $ 633 $ 484 ($30) $ 1,007 $ 308
Income (Loss) From Continuing Operations (3) 221 (215) 53 (149)
Net Income (Loss) (3) 221 (215) 53 (149)
Per Share Data:
Income (Loss) From Continuing Operations .00 .05 (.04) .01 (.03)
Net Income (Loss) .00 .05 (.04) .01 (.03)
Weighted Average Number of Shares
Outstanding 4,032 4,080 4,807 5,050 4,866
FINANCIAL POSITION
Working Capital $ 6,039 $ 6,501 $ 6,145 $ 7,555 $ 7,502
Total Assets $ 6,083 $ 6,589 $ 6,279 $ 7,785 $ 7,882
Accumulated Deficit(1) ($5,912) ($5,909) ($6,130) ($5,915) ($5,968)
Total Stockholder's Equity $ 6,039 $ 6,501 $ 6,145 $ 7,555 $ 7,502
Notes:
(1) No dividends have been paid since incorporation.
Item 7 - Management Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At September 30, 2000 the Company had a cash and cash equivalents
balance of $6,082,000 which represented a $984,000 increase from the $5,098,000
at September 30 1999. This $984,000 increase results from $847,000 in cash flow
from operations coupled with $596,000 from the sale of investment securities
offset by $459,000 for the purchase of 340,000 shares of Treasury Stock. The
$847,000 in cash flow from operations results primarily from $893,000 from the
sale of property held for development and sale offset by changes in operating
assets and liabilities of $43,000 and a net loss of $3,000. The Company's
working capital position at September 30, 2000 was $6,039,000 as compared to the
prior year end balance of $6,501,000.
4
During fiscal 2000 the Company repurchased a total of 340,000 shares of
its Common Stock at $1.35 per share from Company President John H. Michael at a
total cost of $459,000. The purchases were made at or below the market bid price
and about 15% below liquid net asset value per share. The Company may repurchase
additional shares either publicly or privately during the coming fiscal year,
but it has no specific plans to do so. At September 30, 2000, the Company had a
total of 3,740,000 shares outstanding which is net of 1,124,000 Treasury shares.
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 substantial time evaluating and considering numerous
proposals for possible acquisition or combination developed by management or
presented by investment professionals, the Company's advisors and others. During
the past four years the Company has limited its activities to relatively small
real estate projects and modest trading and investment activities. The Company
continues to consider acquisitions, business combinations, or start up
proposals, which could be advantageous to stockholders. No assurance can be
given that any such project, acquisition or combination will be concluded.
The Company intends to continue its investing and trading activities
and as a consequence the future financial results of the Company may be subject
to substantial fluctuations. Mr. Michael, the President of the Company is a
graduate of Harvard Business School (MBA). As part of the Company's investment
activities the Company may buy and sell a variety of equity, debt or derivative
securities including 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 2000 the average
nominal value of the Company's exposure to derivatives was not significant.
At September 30, 2000, virtually all Company assets were held in U.S.
Government three (3) month Treasury Bills, Cash or 60 day Prime Commercial
Paper. The Company had no other investment or trading positions. It continues to
be the intention of management to acquire or develop an operating business.
Results of Operations
Fiscal Year 2000 Compared to 1999
Income [Loss] From Continuing Operations
Net income (loss) consists of interest and trading gains and losses and
general and administrative expenses. The Company incurred a net loss of $3,000
in the current year versus income of $221,000 in the prior year. Interest income
increased $83,000 to $325,000 primarily due to more invested funds. Trading
gains of $308,000 were realized versus gains of $242,000 in the prior year.
General and administrative expenses of $636,000 were $373,000 higher than the
prior year period due primarily to increased compensation recorded to President
John H. Michael, and higher expenses related to real estate activity. During
fiscal year 2000 the Company did not record an income tax benefit because tax
losses could not be utilized.
5
Fiscal Year 1999 Compared to Fiscal Year 1998
Income [Loss] From Continuing Operations
Net income consists of interest and trading gains and losses and
general and administrative expenses. The Company realized income from continuing
operations of $221,000 in the current year versus a loss of $215,000 in the
prior year. Interest income decreased $77,000 to $242,000 primarily due to lower
interest rates. Trading gains of $242,000 were realized versus trading losses of
$349,000 in the prior year. General and administrative expenses of $263,000 were
$78,000 higher than the prior year's period due primarily to increased
compensation recorded to President John H. Michael and higher insurance costs
offset by reduced costs associated with real estate activities. During fiscal
1999, the Company did not record an income tax provision due to available tax
carryforwards.
Inflation
The Company believes that inflation does not have a material adverse
effect on the results of its operations at the present time.
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.
6
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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's officers and directors, and persons who
beneficially own more than 10% of a class of equity securities registered
pursuant to Section 12 of the Exchange Act ("Reporting Persons"), to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the principal exchange upon which such securities are traded or
quoted. Reporting Persons are also required to furnish copies of such reports
filed pursuant to Section 16(a) of the Exchange Act with the Company.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that during fiscal 2000 its officers, directors
and ten percent (10%) beneficial owners complied with all Section 16(a) filing
requirements, however, one report regarding one transaction was filed late by
Mr. Michael.
Item 11 - Executive Compensation
The following table sets forth a summary for the fiscal years ended
September 30, 2000, l999 and 1998 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 other compensation. 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. During fiscal 1999 Mr.
Michael elected to accept total cash compensation of $40,000. The balance of
$135,000 was waived. During fiscal 2000 the $285,000 bonus paid to Mr. Michael
and the stock options granted to Mr. Michael to purchase 300,000 shares at $1.37
per share were attributable to trading profits during fiscal 2000 and to Mr.
Michael's willingness to waive certain compensation in previous years. On
September 24, 1999, as provided for in his employment agreement, Mr. Michael
elected to extend the agreement for a period of three (3) years from September
25, 1999 to September 24, 2002. Executive Officers who qualify are entitled to
participate in the Company's Stock Option Plans. Executive Officers participate
in group life and medical plans which are available generally to all employees.
At December 31, 1995 the Company terminated the 401K retirement plans.
7
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation -----------------------
------------------- Options All
Name and Principal Fiscal Salary (#of Other
Position Year Salary Deferred Bonus Shares) Compensation
- ------------------ ---- ------ -------- ----- ------- ------------
John H. Michael, 2000 $175,000 $285,000(3) 300,000
Chairman, Chief
Executive Officer 1999 $40,000(2)
President and
Treasurer 1998 $131,250(1)
(1) During fiscal 1998 Mr. Michael elected to accept only 75% of the $175,000
compensation provided by his employment agreement. The balance of $43,875 was
waived.
(2) During fiscal 1999 Mr. Michael elected to accept total cash
compensation of $40,000. The balance of $135,000 was waived.
(3) During fiscal 2000 the $285,000 bonus paid to Mr. Michael and the stock
options granted to Mr. Michael to purchase 300,000 shares at $1.37 per share
were attributable to trading profits during fiscal 2000 and to Mr. Michael's
willingness to waive certain compensation in previous years.
Savings and Benefit Plans
Executive Officers who qualify are entitled to participate in the
Company's Stock Option Plans. Executive Officers participate in group life and
medical plans which are available generally to all employees. At December 31,
1995 the Company terminated the 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 2001 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 23, 1988, the Board of Directors adopted
Employee Stock Option Plans which were approved by the Company's stockholders.
Under the 1986 Plan, which terminated in 1996, options to purchase no more than
150,000 shares of Common Stock could be granted. Under the 1988 Plan, which
terminated in 1998, options to purchase no more than 450,000 shares of Common
Stock 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 shares of Common Stock. The
1990 Stock Option Plan was approved by the Company's stockholders at their
annual meeting on September 12, 1991. (Hereinafter the 1986, 1988 and 1990 Plans
shall be collectively referred to as the "Plans".)
8
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 Stock. On
September 17, 1990, the Board of Directors amended and restated the Company's
1986 and 1985 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 shares of
Common Stock were exercised June 6, 1998. On January 4, 2000, the Company
granted to President John H. Michael nonqualified stock options to purchase
300,000 shares of Common Stock at an exercise price of $1.37 per share pursuant
to the 1990 Plan. No further options are available to grant under any Company
Plan.
Currently, the Company has one employee eligible to participate in the
Plans. The shares available for issuance will be increased or decreased
according to any reclassification, recapitalization, share split, share dividend
or other such subdivision or combination of the Company Common Stock. Any monies
received by the Company from the exercise of options will be used for working
capital.
OPTION GRANTS IN LAST FISCAL YEAR
(individual grants)
The following table sets forth information with respect to individual
grants of stock options to the Principal Stockholder during fiscal 2000.
- ------------------------------------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SAR
Underlying Granted to
Options/SAR Employees in Exercise or Base
Name of Officer Granted Fiscal Year Price ($/Share) Expiration Date
- ------------------------------------------------------------------------------------------------------------------
John H. Michael 300,000 100% $1.37 1/5/10
- ------------------------------------------------------------------------------------------------------------------
AGGREGATE OPTION EXERCISE IN LAST YEAR
AND
FISCAL YEAR-END OPTION VALUES
--------------------------------------
The following table sets forth information with respect to the
Principal Stockholder concerning the exercise of options during fiscal 2000 and
the number and value of unexercised options held as of the end of fiscal 2000.
Number of Shares Value of
Underlying Unexercised Unexercised
Number of Shares Options at In-the-Money Options
Acquired on Fiscal Year-End at Fiscal Year-End
Name Exercise Value Realized Exercisable Exercisable
- ------------------ ---------------- -------------- ---------------------- ---------------------
John H. Michael (1) N/A N/A 300,000 $15,000
(1) No options were exercised during fiscal 2000. On January 6, 2000, the
Company granted to Mr. Michael pursuant to the Company's 1990 Stock Option Plan
nonqualified options to purchase 300,000 shares of Common Stock at $1.37 per
share. At September 2000 nonqualified options to purchase 300,000 shares of
Common Stock at $1.37 per share were outstanding.
9
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 Common Stock shall be eligib1e 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 Stock 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.
Amendment 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 stockholder 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. During fiscal 2000 nonqualified options to
purchase 300,000 shares of Common Stock at $1.37 per share were granted to
Company President John H. Michael.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors determined the compensation paid to
the sole executive officer during fiscal 2000. Mr. Michael is the Chairman of
the Board of Directors, Chief Executive Officer, President, Treasurer and
Secretary of the Company.
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
stockholder 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
10
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, 1995, for purposes of preparing this graph.
COMPARISION OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[LINE GRAPH]
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Personal Diagnostics, Incorporated 100.0 119.9 131.2 147.1 139.8 177.1
NASDAQ Stock Market (U.S. Companies) 100.0 116.1 150.9 167.4 211.7 283.9
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 proceeding trading day is used.
D. The index level for all series was set to $100.0 on September 30, 1995.
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 a 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, 2000.
11
Name and Address of Amount and Nature Percent
Beneficial Owner (1) of Beneficial Ownership of Class
- -------------------- ----------------------- --------
John H. Michael 3,333,543 (2) 82.5%
1810 24th Street N.W.
Washington, D.C.
All Officers and Directors 3,333,543 (2) 82.5%
as a Group
(1) Unless otherwise indicated each person has sole voting and investment
powers with respect to the shares specified opposite his name.
(2) Includes 300,000 shares of Common Stock which Mr. Michael may purchase at
$1.37 per share pursuant to outstanding stock options.
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 the Company's 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.
During fiscal 2000 the Company repurchased 340,000 shares of Common
Stock at $1.35 per share from Company President John H. Michael. During fiscal
2000 the Company sold to Mr. Michael a residential property in Washington, D.C.
for a net price of $940,000, which equaled its appraised value less, a 6%
commission allowance. The appraisal was conducted by an appraiser designated by
Riggs National Bank. The Company recorded a nominal gain on this transaction.
12
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) Financial Statement Schedules - Inapplicable
(a)(3) List of Exhibits
Exhibit Location
------- --------
3.1.1 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
None
13
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 26, 2000
- -------------------------------------------
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.
14
PERSONAL DIAGNOSTICS, INCORPORATED
FINANCIAL REPORT
SEPTEMBER 30, 2000
PERSONAL DIAGNOSTICS, INCORPORATED
INDEX
Page
Independent Auditors' Report F-2
Balance Sheets as of September 30, 2000 and 1999 F-3
Statements of Operations for the Years Ended
September 30, 2000, 1999 and 1998 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 2000, 1999 and 1998 F-5
Statements of Cash Flows for the Years Ended
September 30, 2000, 1999 and 1998 F-6
Notes to Financial Statements F-7 - F-13
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the financial statements and
notes hereto.
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Personal Diagnostics, Incorporated
We have audited the financial statements of Personal Diagnostics, Incorporated
at September 30, 2000 and 1999 and for each of the three years in the period
ended September 30, 2000 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Personal Diagnostics,
Incorporated at September 30, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
2000 in conformity with generally accepted accounting principles.
WISS & COMPANY, LLP
Livingston, New Jersey
December 13, 2000
F-2
PERSONAL DIAGNOSTICS, INCORPORATED
BALANCE SHEETS
September 30,
----------------------------
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 6,082,000 $ 5,098,000
Investment securities held-to-maturity -- 596,000
Property held for development and sale -- 893,000
Other current assets 1,000 2,000
------------ ------------
$ 6,083,000 $ 6,589,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 44,000 $ 63,000
Current liabilities of discontinued operations -- 25,000
------------ ------------
Total Current Liabilities 44,000 88,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 25,000,000
shares; issued 4,864,000 48,000 48,000
Capital in excess of par value 13,302,000 13,302,000
Accumulated deficit (5,912,000) (5,909,000)
------------ ------------
7,438,000 7,441,000
Less: Treasury stock 1,124,000 and 784,000 shares,
respectively, at cost (1,399,000) (940,000)
------------ ------------
Total Stockholders' Equity 6,039,000 6,501,000
------------ ------------
$ 6,083,000 $ 6,589,000
============ ============
See accompanying notes to financial statements.
F-3
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF OPERATIONS
Year Ended September 30,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
INCOME:
Interest $ 325,000 $ 242,000 $ 319,000
Trading gains (losses) 308,000 242,000 (349,000)
----------- ----------- -----------
633,000 484,000 (30,000)
EXPENSES-
General and administrative 636,000 263,000 185,000
----------- ----------- -----------
NET INCOME (LOSS) $ (3,000) $ 221,000 $ (215,000)
=========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -
Basic and diluted 4,032,000 4,080,000 4,807,000
=========== =========== ===========
NET INCOME (LOSS) PER SHARE -
Basic and diluted $ -- $ 0.05 $ (0.04)
=========== =========== ===========
See accompanying notes to financial statements.
F-4
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 2000, 1999 AND 1998
Common Stock Capital in
--------------------- Excess of Treasury Accumulated
Shares Par Value Par Value Stock Deficit
---------- --------- ------------ ----------- -----------
BALANCES, SEPTEMBER 30, 1997 5,014,000 $ 50,000 $ 13,420,000 $ -- $(5,915,000)
YEAR ENDED SEPTEMBER 30, 1998:
Purchase of 1,084,000 shares of treasury stock, at cost -- -- -- (1,300,000) --
Exercise of stock options 150,000 1,000 104,000 -- --
Net loss -- -- -- -- (215,000)
---------- -------- ------------ ----------- -----------
BALANCES, SEPTEMBER 30, 1998 5,164,000 51,000 13,524,000 (1,300,000) (6,130,000)
YEAR ENDED SEPTEMBER 30, 1999:
Officer's compensation waived -- -- 135,000 -- --
Retirement of treasury stock (300,000) (3,000) (357,000) 360,000 --
Net income -- -- -- -- 221,000
---------- -------- ------------ ----------- -----------
BALANCES, SEPTEMBER 30, 1999 4,864,000 48,000 13,302,000 (940,000) (5,909,000)
YEAR ENDED SEPTEMBER 30, 2000:
Purchase of 340,000 shares of treasury stock, at cost -- -- -- (459,000) --
Net loss -- -- -- -- (3,000)
---------- -------- ------------ ----------- -----------
BALANCES, SEPTEMBER 30, 2000 4,864,000 $ 48,000 $ 13,302,000 $(1,399,000) $(5,912,000)
========== ======== ============ =========== ===========
See accompanying notes to financial statements.
F-5
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CASH FLOWS
Year Ended September 30,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,000) $ 221,000 $ (215,000)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Waiver of officer's compensation -- 135,000 --
Changes in assets and liabilities:
Property held for development and sale 893,000 -- 768,000
Other current assets 1,000 (2,000) 7,000
Accounts payable and accrued liabilities (44,000) (46,000) (96,000)
----------- ----------- -----------
Net cash flows from operating activities 847,000 308,000 464,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Sale/(purchase) of investment securities 596,000 (596,000) --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options -- -- 105,000
Purchase of treasury stock (459,000) -- (1,300,000)
----------- ----------- -----------
Net cash flows from financing activities (459,000) -- (1,195,000)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 984,000 (288,000) (731,000)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 5,098,000 5,386,000 6,117,000
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 6,082,000 $ 5,098,000 $ 5,386,000
=========== =========== ===========
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.
Cash Equivalents - The Company considers all highly liquid investments
purchased with maturity of three months or less to be cash equivalents.
Investment Securities - The Company's investments in securities are
classified as held-to-maturity and consist of U.S. Treasury Bills, which the
Company has the positive intent and ability to hold to maturity. The investments
are reported at cost, adjusted for amortization of premiums and accretion of
discounts, which are recognized in interest income using the interest method
over the period to maturity.
Net Income (Loss) Per Share - The Company calculates earnings per share
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share".
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 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. Options to purchase
300,000 shares were granted during the year ended September 30, 2000. Proforma
disclosure has been provided under Note 7. No options were granted during the
years ended September 30, 1999 or 1998 and accordingly, no proforma disclosure
has been provided.
F-7
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Income Taxes - The Company's income is derived principally from its
investment activity. Accordingly, the Company is taxed as a personal holding
company for federal tax purposes, which requires a tax on undistributed personal
holding company income at an effective rate of 39.6%. Deferred income taxes
result primarily from net operating losses, capital loss carryforwards and
business tax credit carryforwards. As a result of these temporary differences,
the Company has recorded a deferred tax asset with an offsetting valuation
allowance for the same amount.
NOTE 2 - INVESTMENTS:
The Company's derivative exposure has consisted primarily of short
sales of Standard & Poors 500 futures.
The amortized cost and estimated market value of securities
held-to-maturity are as follows:
September 30, 1999
----------------------------------------
Gross Estimated
Amortized Unrealized Fair
Cost Gains (Losses) Value
--------- ------------- ---------
U.S. Treasury Bills $596,000 $ -- $596,000
======== ======= ========
The amortized cost and estimated market value of investment securities,
at September 30, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties.
Estimated
Amortized Fair
Cost Value
--------- ---------
One year or less $596,000 $596,000
======== ========
NOTE 3 - PROPERTY HELD FOR DEVELOPMENT AND SALE:
The Company owned two properties in Washington D.C. which it acquired
with the intention to improve and sell. One property, carried at a net cost of
approximately $810,000 was sold on October 20, 1997 after providing an allowance
of $151,000 for loss on the sale at September 30, 1997. The other property,
carried at a net cost of approximately $939,000, was sold on April 6, 2000 to
the President-Principal Stockholder of the Company, at a gain of $1,000.
F-8
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of:
September 30,
-------------------------
2000 1999
--------- ---------
Legal fees and costs $ 10,000 $ 33,000
Audit fees 22,000 20,000
Annual meeting 5,000 5,000
Other 7,000 5,000
--------- ---------
$ 44,000 $ 63,000
========= =========
Current liabilities of discontinued operations at September 30, 1999
consisted of estimated costs for product liability insurance.
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,
-------------------------
2000 1999
--------- ---------
Deferred tax assets:
Tax credit carryforwards $238,000 $238,000
Net operating loss carryforwards 604,000 550,000
Other items 6,000 53,000
-------- --------
848,000 841,000
Valuation allowance (848,000) (841,000)
-------- --------
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, 2000 and 1999. During fiscal 2000 and
1999 the valuation allowance decreased $7,000 and increased $188,000,
respectively.
A reconciliation of the provision for income taxes computed at the
federal statutory rate of 34% and the effective tax rate on income (loss) before
income taxes is as follows:
F-9
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Year Ended September 30,
---------------------------------
2000 1999 1998
-------- --------- --------
Computed tax at federal
statutory rate $ (1,000) $ 75,000 $(73,000)
Non-deductible officer's compensation waived
-- 46,000 --
Net operating loss and tax credits or
limitations 1,000 (121,000) 73,000
-------- --------- --------
Provision for income taxes $ -- $ -- $ --
======== ========= ========
At September 30, 2000, the Company had net operating loss carryforwards
of $1,484,000 for regular tax purposes and $1,700,000 for alternative minimum
tax (AMT), which can be used to offset future taxable income. The Company also
has research and development credits of approximately $168,000 and AMT credits
of approximately $70,000, which can be used to offset future income taxes for
federal income tax purposes. The net operating loss carryforwards expire, if not
used, as to $1,161,000 in 2009, $112,000 in 2011, $91,000 in 2018 and $120,000
in 2020. The research and development credits expire, if not used, over the
period 2001 to 2002.
The AMT credits are available for an indefinite period.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Employment Contract - At September 30, 2000, the Company has an
employment contract with its President, which provides for an annual salary of
not less than $175,000 until September 24, 2002. The contract also provides
additional annual performance compensation up to 60% of net gains produced by
the President's trading and investment activities on behalf of the Company.
Product Liability - The Company has continuing potential product
liability exposure for equipment manufactured in prior years. The Company has
maintained product liability insurance and knows of no present or threatened
claim.
NOTE 7 - STOCK OPTIONS:
During September 1990, the Board of Directors adopted the 1990 Stock
Option Plan (the "Plan"). The Plan authorizes the granting of either "incentive
stock options", as defined in Section 422A of the Internal Revenue Code of 1986,
as amended, or "non-qualified stock options" to acquire shares of the Company's
common stock. Under the Company's 1990 Stock Option Plan, incentive stock
options may be granted to employees at prices not less than the fair market
value at the dates of grant. The price shall be 110 percent of the fair market
value when the option is granted to an employee who owned more than ten percent
of the Company's common stock at the date of grant. The exercise price of the
non-qualified options shall be determined at the discretion of the Board of
Directors.
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.
Options to purchase 300,000 shares were granted under the 1990 Plan to
the President-Principal Stockholder during the year ended September 30, 2000.
Changes in the Company's stock option plans were as follows:
Number of Shares
----------------------------
2000 1999 1998
------- ------- --------
Outstanding at October 1
($.70 per share) -- -- 150,000
Granted ($1.37 per share) 300,000 --
--------
Exercised ($.70 per share) -- -- (150,000)
------- ------- --------
Outstanding at September 30 ($1.37 per share)
300,000 -- --
======= ======= ========
The fair value of each option granted during 2000 is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
Expected life (years) 10.0
Expected volatility 79.73%
Expected dividend yield 0.0%
Risk-free interest rate 5.50%
Weighted average fair value of the options granted
during the year $ .56
The following summarizes information about stock options outstanding at
September 30, 2000:
Weighted Average Weighted
Range of Number Remaining Life Average
Exercise Prices Outstanding (In years) Exercise Price
- --------------- ----------- ---------- --------------
$1.37 300,000 9.3 $1.37
F-11
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Set forth below are the Company's net loss and net loss per share, presented
both "as reported" and "pro forma," as if compensation cost had been determined
consistent with the fair value provisions of SFAS 123:
Net loss available for common stockholders:
As reported $ (3,000)
Pro forma (172,000)
Basic loss per share
As reported $ 0.00
Pro forma (0.04)
Diluted loss per share
As reported $ 0.00
Pro forma (0.04)
NOTE 8 - STATEMENTS OF CASH FLOWS:
Fiscal Years Ended In
-----------------------------
2000 1999 1998
------ ------ -----
Supplemental disclosure of
cash flow information
Income taxes paid $ 200 $ 225 $ --
====== ====== =====
Non-cash Investing and Financing Activities - At September 30, 1999,
the president of the Company waived $135,000 due to him per the employment
contract. The transaction resulted in an increase to general and administrative
expense and additional paid-in capital.
During the year ended September 30, 1999, the Company retired 300,000
shares of common stock, which were held in the treasury.
NOTE 9 - RELATED PARTY TRANSACTIONS:
Treasury Stock - In July and September of 2000, the Company purchased
from its President - Principal Stockholder 260,000 and 80,000 shares
respectively, of its common stock for $1.35 per share.
In June 1998 and September 1998, the Company purchased from its
President - Principal Stockholder 598,389 and 347,400 shares respectively, of
its common stock for $1.20 per share.
Sale of Property Held for Development and Sale -On April 6, 2000, the
Company sold real estate to its President-Principal Stockholder for $940,000
(Note 3).
F-12
PERSONAL DIAGNOSTICS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Guarantee - The Company had guaranteed a $750,000 personal loan
received by the President from a financial institution. The loan was
collateralized by 1,012,500 shares of common stock of the Company owned by the
President. This loan was repaid during fiscal 1998.
NOTE 10 - NEW ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board (the "Board")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities for years beginning after June
15, 1999. Subsequently, the Board deferred the effective date one year through
the issuance of SFAS No. 137.
The Company does not expect the previously mentioned pronouncement to
significantly impact its financial statements.
F-13