SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR I5(d) OF THE SECURITIES ACT OF
1934 for the fiscal year end September 30, 2001
-------------------
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 5544 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 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 $1,050,000 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, 2001.
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 21, 2001
----- --------------------------------
Common Stock, $.01 par value 3,740,000
2001 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 12
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.
Subsequently, 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. During fiscal
2001, the Company actively entertained a proposal to acquire the packaging and
material subsidiary of Paper Pak Products, Inc. After considerable evaluation,
site visits and financial analysis the Company was not satisfied that there was
sufficient organizational cohesion or proprietary product differentiation. Also
during the year management evaluated and rejected an opportunity to acquire a
major interest in a regional finance company. This business specializes in high
yield consumer automobile loans in the Mid-Atlantic region. Management decided
there was excessive risk of credit quality deterioration and rejected this
opportunity. Finally, the Company considered and rejected a proposal for a
reverse merger made by an Australian marketing organization.
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
shareholders. 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 2001 the average
nominal value of the Company's exposure to derivatives was not significant.
-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 58 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 5544, Parsippany, New Jersey
07054. The Company also has an address at 1810 24th Street, N.W., Washington,
D.C.
Item 3- Legal Proceedings
At September 30, 2001, there were no active or pending 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 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 2000.
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
--------------- ----------
High Low
---- ---
2000
----
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
High Low
---- ---
2001
----
December 15, 2000 (First Quarter) 1 1/4 1 1/2
March 31, 2001 (Second Quarter) l 1/2 1 31/32
June 30, 2001 (Third Quarter) 1 7/16 1 3/4
September 30, 2001 (Fourth Quarter) 1 7/16 1
High Low
---- ---
2002
----
December 15, 2001 (First Quarter) 1 7/16 1
(b) Holders
As of December 15, 2001, there were approximately 420 record holders of
the Company's Common Stock.
(c) Dividends
The Company has paid no cash dividend 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.
-3-
Item 6 - Selected Financial Data
(In thousands except per share amounts)
Year Ended September 30
OPERATING RESULTS 2001 2000 1999 1998 1997
----------------- ---- ---- ---- ---- ----
Investment Income (Loss) $ 1,649 $ 633 $ 484 ($ 30) $ 1,007
General and Administrative Expense 1,339 636 263 185 954
Net Income (Loss) 255 (3) 221 (215) 53
Per Share Data:
Net Income (Loss)-Basic and Diluted .07 .00 .05 (.04) .01
Average Number of Shares Outstanding:
Basic 3,740 4,032 4,080 4,807 5,050
Diluted 3,776 4,032 4,080 4,807 5,050
FINANCIAL POSITION
------------------
Working Capital $ 6,294 $ 6,039 $ 6,501 $ 6,145 $ 7,555
Total Assets $ 6,365 $ 6,083 $ 6,589 $ 6,279 $ 7,785
Accumulated Deficit (1) ($ 5,657) ($ 5,912) ($ 5,909) ($ 6,130) ($ 5,915)
Total Stockholder's Equity $ 6,294 $ 6,039 $ 6,501 $ 6,145 $ 7,555
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, 2001, the Company had a cash and equivalents balance
of $3,806,000, which represents a $2,276,000 decrease from the $6,082,000
balance at September 30, 2000. This $2,276,000 decrease results entirely from
cash flow from operations, which includes net income of $255,000 coupled with
changes in operating assets and liabilities of $21,000 consisting primarily of
accrued liabilities offset by purchases of trading securities for $1,575,000 and
a receivable from broker of $977,000. The Company's working capital position at
September 30, 2001 was $6,294,000 as compared to a September 30, 2000 balance of
$6,039,000.
-4-
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. During fiscal 2001, the Company
actively entertained a proposal to acquire the packaging and material subsidiary
of Paper Pak Products, Inc. After considerable evaluation, site visits and
financial analysis the Company was not satisfied that there was sufficient
organizational cohesion or proprietary product differentiation. Also during the
year management evaluated and rejected an opportunity to acquire a major
interest in a regional finance company. This business specializes in high yield
consumer automobile loans in the Mid-Atlantic region. Management decided there
was excessive risk of credit quality deterioration and rejected this
opportunity. Finally, the Company considered and rejected a proposal for a
reverse merger made by an Australian marketing organization.
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
shareholders. 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 2001 the average
nominal value of the Company's exposure to derivatives was not significant.
Results of Operations
Fiscal Year 2001 Compared to 2000
Net income (loss) consists of interest and trading gains and losses and
general and administrative expenses and provision for income taxes. The Company
realized net income of $255,000 in the current year versus a loss of $3,000 in
the prior year. Interest income decreased $33,000 to $292,000 primarily due to
lower interest rates. Trading gains of $1,357,000 were achieved in the current
year as compared to gains of $308,000 in the prior year. General and
administrative expenses of $1,339,000 were $703,000 higher than the prior year
period due primarily to a higher level of compensation paid to President John H.
Michael of which a significant portion was related to the increased level of
trading profits achieved in the current year. During the current year the
Company recorded an income tax provision of $55,000 as its' tax loss
carryforwards were not available to offset investment type income. During the
prior year the Company did not record an income tax benefit because tax losses
could not be utilized.
-5-
Fiscal Year 2000 Compared to 1999
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, increased professional fees 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.
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-l.
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.
Item 11 - Executive Compensation
The following table sets forth a summary for the fiscal years ended
September 30, 2001, 2000 and 1999 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. 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. On January 12, 2001, the Company modified Mr. Michael's
Employment Agreement to provide for annual performance compensation of no more
than 75% of net trading profits in addition to his other compensation. 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.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Name and Fiscal Salary Options All
Principal Position Year Paid Deferred Bonus (#of Shares) Compensation
---- ---- -------- ----- ------------ -------------
John H. Michael, 2001 $175,000 $987,500 (3)
Chairman, Chief
Executive Officer 2000 $175,000 $285,000 (2) 300,000 $475,000
President and
Treasurer 1999 $ 40,000(1)
(1) During fiscal 1999 Mr. Michael elected to accept total cash compensation
of $40,000. The balance of $135,000 was waived.
(2) 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.
(3) During Fiscal 2001 the $987,500 bonus paid to Mr. Michael was attributed
to net trading profits during the fiscal year.
-7-
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors determined the compensation paid to
the sole executive officer during fiscal 2001. Mr. Michael is the Chairman of
the Board of Directors, Chief Executive Officer, President, Treasurer and
Secretary of the Company.
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 ("NSADAQ 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, 1996, for purposes of preparing this graph.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[LINE GRAPH]
1996 1997 1998 1999 2000 2001
----- ----- ----- ----- ----- -----
Personal Diagnostics, Incorporated 100.0 110.3 122.5 115.8 146.1 146.1
NASDAQ Stock Market (U.S. Companies) 100.0 129.2 143.2 179.3 241.4 92.3
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted 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 $100.00 on September 30,
1996.
-8-
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.
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 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 terminated in the year 2000, and authorized 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 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 Common
Shares were exercised June 6, 1998. On January 4, 2000, the Company granted to
President John H. Michael nonqualified stock options to purchase 300,000 common
shares 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 Shares. Any
monies received by the Company from the exercise of options will be used for
working capital.
-9-
AGGREGATE OPTION EXERCISE IN LAST YEAR
AND
FISCAL YEAR-END OPTION VALUES
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 $21,000
(1) No options were exercised during fiscal 2001. 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 at a $1.37 per share. At
September 2001 nonqualified options to purchase 300,000 shares at a $1.37 per
share were outstanding.
Eligibility
Any person who is employed by the Company shall be eligible to receive
incentive stock options under the Plans. The Plans permit non-qualified stock
options to be granted to directors and consultants, as well as employees. Any
employee who already owns 10 percent or more of the total combined voting power
of all classes of the Company's stock shall be eligible to receive incentive
stock options only under certain limited circumstances.
Exercise Price of Options
Options granted pursuant to the Plans must have an exercise price no less
than the fair market value of the Company's Common Shares at the time the option
is granted, except that in the case of an incentive stock option the price shall
be at least 110 percent of the fair market value when the option is granted to
an employee who owns more than 10 percent of the combined voting power of all
classes of the Company's voting stock at the date of grant. Under the terms of
the Plans, the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable for the first time by such individual
during any calendar year shall not exceed $100,000.
Amended 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. During fiscal 2001 no options were granted and
no options were available to grant.
-10-
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, 2000.
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 which Mr. Michael may purchase at $1.37 per share
pursuant to outstanding stock options.
Item 13 - Certain Relationships
During fiscal 2000 the Company repurchased 340,000 shares 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.
-11-
PART IV
Item 14 - Exhibits. Financial Statement Schedules and Reports on Form 8-K
(a)(l) 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
------- ---------
3.1.1 Articles of Incorporation Filed Form S-1 October 7, 1983
File No. 2-86991
3.2 Bylaws of the Corporation Filed Form S-l 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
-12-
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 21, 2001
--------------------------
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.
-13-
PERSONAL DIAGNOSTICS, INCORPORATED
FINANCIAL REPORT
SEPTEMBER 30, 2001
PERSONAL DIAGNOSTICS, INCORPORATED
INDEX
Page
Independent Auditors' Report F-2
Balance Sheets as of September 30, 2001 and 2000 F-3
Statements of Operations for the Years Ended
September 30, 2001, 2000 and 1999 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 2001, 2000 and 1999 F-5
Statements of Cash Flows for the Years Ended
September 30, 2001, 2000 and 1999 F-6
Notes to Financial Statements F-7 - F-11
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, 2001 and 2000 and for each of the three years in the period
ended September 30, 2001 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
2001 in conformity with accounting principles generally accepted in the United
States of America.
WISS & COMPANY, LLP
Livingston, New Jersey
December 13, 2001
F-2
PERSONAL DIAGNOSTICS, INCORPORATED
BALANCE SHEETS
September 30,
------------------------------
ASSETS 2001 2000
---- ----
CURRENT ASSETS:
Cash and equivalents $ 3,806,000 $ 6,082,000
Due from brokers 977,000 --
Trading securities 1,575,000 --
Other current assets 7,000 1,000
------------ ------------
$ 6,365,000 $ 6,083,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 56,000 $ 44,000
Income taxes payable 15,000 --
------------ ------------
Total Current Liabilities 71,000 44,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 25,000,000
shares; issued 3,740,000 and 4,864,000, respectively 37,000 48,000
Capital in excess of par value 11,914,000 13,302,000
Accumulated deficit (5,657,000) (5,912,000)
------------ ------------
6,294,000 7,438,000
Less: Treasury stock 1,124,000 shares, at cost -- (1,399,000)
------------ ------------
Total Stockholders' Equity 6,294,000 6,039,000
------------ ------------
$ 6,365,000 $ 6,083,000
============ ============
See accompanying notes to financial statements.
F-3
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF OPERATIONS
Year Ended September 30,
----------------------------------------------------------
2001 2000 1999
---- ---- ----
INCOME:
Interest $ 292,000 $ 325,000 $ 242,000
Trading gains 1,357,000 308,000 242,000
----------- ----------- -----------
1,649,000 633,000 484,000
EXPENSES -
General and administrative 1,339,000 636,000 263,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 310,000 (3,000) 221,000
INCOME TAXES 55,000 -- --
----------- ----------- -----------
NET INCOME (LOSS) $ 255,000 $ (3,000) $ 221,000
=========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -
Basic 3,740,000 4,032,000 4,080,000
=========== =========== ===========
Diluted 3,776,000 4,032,000 4,080,000
=========== =========== ===========
NET INCOME PER SHARE -
Basic and Diluted $ 0.07 $ -- $ 0.05
=========== =========== ===========
See accompanying notes to financial statements.
F-4
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 2001, 2000 AND 1999
Common Stock Capital in
--------------------------- Excess of Treasury Accumulated
Shares Par Value Par Value Stock Deficit
------ --------- --------- ----- -------
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)
YEAR ENDED SEPTEMBER 30, 2001:
Retirement of treasury stock (1,124,000) (11,000) (1,388,000) 1,399,000 --
Net income -- -- -- -- 255,000
------------ ------------ ------------ ------------ ------------
BALANCES, SEPTEMBER 30, 2001 3,740,000 $ 37,000 $ 11,914,000 $ -- $ (5,657,000)
============ ============ ============ ============ ============
See accompanying notes to financial statements.
F-5
PERSONAL DIAGNOSTICS, INCORPORATED
STATEMENTS OF CASH FLOWS
Year Ended September 30,
------------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 255,000 $ (3,000) $ 221,000
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:
Due from brokers (977,000) -- --
Trading securities (1,575,000) -- --
Property held for development and sale -- 893,000 --
Other current assets (6,000) 1,000 (2,000)
Accounts payable and accrued liabilities 27,000 (44,000) (46,000)
----------- ----------- -----------
Net cash flows from operating activities (2,276,000) 847,000 308,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Sale/(purchase) of investment securities -- 596,000 (596,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Purchase of treasury stock -- (459,000) --
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2,276,000) 984,000 (288,000)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 6,082,000 5,098,000 5,386,000
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 3,806,000 $ 6,082,000 $ 5,098,000
=========== =========== ===========
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.
Trading Securities - The Company's investments in securities are
classified as trading securities and are held principally with the intention of
selling them in the near term. Unrealized holding gains and losses are included
in earnings.
Net Income (Loss) Per Share - Basic earnings per common share have been
computed by dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share have been computed by dividing net
income by the weighted average number of common shares outstanding, including
the dilutive effects of stock options.
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 accounting principles generally accepted in the United States
of America 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, 2001 or 1999 and accordingly, no proforma disclosure
has been provided for those years.
F-7
Income Taxes - The Company's income is derived principally from its
investment activity. 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 - TRADING SECURITIES:
The Company's derivative exposure has consisted primarily of
transactions in Standard & Poors 500 futures as well as NASDAQ 100 futures. For
the year ended September 30, 2001, $52,000 of unrealized holding gains on
trading securities were included in income. There were no unrealized holding
gains on trading securities included in income for the years ended September 30,
2000 and 1999.
NOTE 3 - PROPERTY HELD FOR DEVELOPMENT AND SALE:
The Company owned property in Washington D.C. which it acquired with
the intention to improve and sell. The 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.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of:
September 30,
-------------------------
2001 2000
---------- -----------
Legal fees and costs $ 10,000 $ 10,000
Audit fees 25,000 22,000
Annual meeting 9,000 5,000
Other 12,000 7,000
---------- -----------
$ 56,000 $ 44,000
========= =========
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,
-------------------------
2001 2000
---------- --------
Deferred tax assets:
Tax credit carryforwards $238,000 $238,000
Net operating loss carryforwards 415,000 604,000
Other items - 6,000
--------- ---------
653,000 848,000
Valuation allowance (653,000) (848,000)
--------- ---------
Net asset $ - $ -
========= =========
F-8
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Realization of
deferred tax assets is dependent on future earnings, if any, the realization of
which is uncertain. Accordingly, a valuation allowance, in an amount equal to
the deferred tax assets as of September 30, 2001 and 2000, respectively, has
been established to reflect these uncertainties. During fiscal 2001 and 2000 the
valuation allowance decreased $195,000 and increased $7,000, 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:
Year Ended September 30,
------------------------------------------
2001 2000 1999
----------- ----------- ------------
Computed tax at federal statutory rate $105,000 $ (1,000) $ 75,000
Non-deductible officer's compensation waived - - 46,000
State income taxes, net of federal income tax benefit 18,000 - -
Change in valuation allowance (195,000) 7,000 (188,000)
Personal holding company tax 55,000 - -
Net operating loss and tax credits or limitations 72,000 (6,000) 67,000
---------- ----------- ------------
Provision for income taxes $ 55,000 $ - $ -
========= ============ ============
At September 30, 2001, the Company had net operating loss carryforwards
of $1,223,000 and $323,000 for federal and state tax purposes, respectively, and
$1,626,000 for federal 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 federal net operating loss carryforwards expire, if not used, as to $900,000
in 2009, $112,000 in 2011, $91,000 in 2018 and $120,000 in 2020. The state net
operating loss carryforwards expire if not used as to $112,000 in 2003, $91,000
in 2005 and $120,000 in 2007. The research and development credits expire, if
not used, over the period 2002 to 2003. The AMT credits are available for an
indefinite period.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Employment Contract - At September 30, 2001, 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 75% 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.
F-9
NOTE 7 - STOCK OPTIONS:
During September 1990, the Board of Directors adopted the 1990 Stock
Option Plan (the "Plan"). The Plan authorizes the granting of either "incentive
stock options", as defined in Section 422A of the Internal Revenue Code of 1986,
as amended, or "non-qualified stock options" to acquire shares of the Company's
common stock. Under the Company's 1990 Stock Option Plan, incentive stock
options may be granted to employees at prices not less than the fair market
value at the dates of grant. The price shall be 110 percent of the fair market
value when the option is granted to an employee who owned more than ten percent
of the Company's common stock at the date of grant. The exercise price of the
non-qualified options shall be determined at the discretion of the Board of
Directors.
The term of each option is ten years from the date of grant thereof or
such shorter term as may be provided in the stock option agreements. However, in
the case of an incentive stock option granted to an employee who, immediately
before the incentive stock option is granted, owns stock representing more than
ten percent of the voting power of all classes of stock of the Company, the term
of the incentive stock option shall be five years from the date of grant thereof
or such shorter time as may be provided in the stock option agreements.
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
2001 2000 1999
----------- ----------- ---------
Outstanding at October 1 ($1.37 per share) 300,000 - -
Granted ($1.37 per share) - 300,000 -
---------- --------- ---------
Outstanding at September 30 ($1.37 per share) 300,000 300,000 -
========== ========= =========
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:
2000
----
Expected life (years) 10.00
Expected volatility 79.73%
Expected dividend yield 0.00%
Risk-free interest rate 5.50%
Weighted average fair value of the options granted during the year $0.56
F-10
The following summarizes information about stock options outstanding at
September 30, 2001:
Weighted Average
Range of Number Remaining Life Weighted Average
Exercise Prices Outstanding (In years) Exercise Price
--------------- ----------- ---------- --------------
$1.37 300,000 8.3 $1.37
Set forth below are the Company's net income and net income 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 for the year
ended September 30, 2000:
Net loss available for common stockholders:
As reported $ (3,000)
Pro forma (172,000)
Basic and diluted loss per share
As reported $0.00
Pro forma $(0.04)
NOTE 8 - STATEMENTS OF CASH FLOWS:
Fiscal Years Ended In
-----------------------------------
2001 2000 1999
---------- ---------- --------
Supplemental disclosure of
cash flow information
Income taxes paid $40,000 $ 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, 2001 and 1999, the Company retired
1,124,000 and 300,000 shares of common stock, respectively, 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.
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-11