UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 000-20175
Nyer Medical Group, Inc.
(Name of business issuer in its charter)
FLORIDA 01-0469607
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1292 Hammond Street, Bangor, Maine 04401
(Address of principal executive offices) (Zip code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Exchange
Title of Each Class on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.0001
(Title of Class)
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 (? 229.405 of this chapter) 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
or any amendment to this Form 10-K. [ ]
1 of 124
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the Company's common stock held by non-affiliates,
as of December 31, 2003, was approximately $9,297,035 based upon the closing
price.
There were 3,784,962 shares of common stock outstanding as of October 18, 2004.
Documents Incorporated by Reference:
Registration Statement on Form S-18 filed on April 13, 1992.
Form 10-KSB filed April 1996. Form 8-K filed on August 22, 1996. Form 10-K filed
October 2002. Form 10-K filed September 2003.
Each of the foregoing documents incorporated by reference are incorporated by
reference into the Exhibits section of Part IV of this Form 10-K.
2
PART I
Forward-Looking Statements
- --------------------------
Certain statements contained in this report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements can be identified by the use of forward-looking terminology
such as "believes", "expects", "may", "will", "should" or "anticipates", or the
negatives thereof, or comparable terminology, or by discussions of strategy. You
are cautioned that our business and operations are subject to a variety of risks
and uncertainties and, consequently, our actual results may materially differ
from those projected by any forward-looking statements. Certain of such risks
and uncertainties are discussed below within Item 7 under the heading
"Forward-Looking Statements" and other factors are set forth in the section
entitled "Risk Factors" in the Company's most recent Registration Statement.
ITEM 1. Business.
General
Nyer Medical Group, Inc. (Company or Nyer), a Florida corporation
incorporated in 1991, is a holding company with operations in the following
segments:
Pharmacies. D.A.W., Inc. (Eaton or D.A.W.), 80% owned by the Company, is a
chain of pharmacy drug stores located in the suburban Boston, Massachusetts
area.
Medical and surgical equipment and supplies. Three wholly owned
subsidiaries, ADCO Surgical Supply, Inc. (ADCO), ADCO South Medical Supplies,
Inc. (ADCO South) and Nyer Internet Companies, Inc. (Internet) are engaged in
the wholesale and retail sale of medical and surgical equipment and supplies
throughout New England, Florida, Nevada and worldwide through the Internet
sales.
Corporate. Salaries of the officers of the holding company are included in
this segment as well corporate expenses such as reporting costs, accounting and
legal fees. The corporate segment includes discontinued operations of Nyer
Nutritional Systems, Inc., (Nyer Nutritional), for 2002.
Discontinued operations. Fire and police. Anton Investments, Inc. (Anton)
and Conway Associates, Inc. (Conway) which are each 80% owned by the Company,
sold wholesale and retail equipment, supplies and novelty items to emergency
medical services, fire and police departments throughout most of New England.
Nyle International Corp. (Nyle) is the shareholder who owns more common
stock of the Company than any other shareholder of the Company. Mr. Samuel Nyer,
who is Chairman of the Board of Nyle, controls more voting stock in the Company
than any other shareholder of the Company.
We have a policy requiring less than wholly-owned subsidiaries to reimburse
us for costs in providing management services. Eaton has a service agreement
with us wherein they pay a fee of $120,000, annually. The subsidiaries are also
required to reimburse the Company for any additional legal, auditing and
accounting fees.
3
For additional business segment information for the years ended June 30,
2004, 2003 and 2002, see note 17 in the Notes to Consolidated Financial
Statements.
Retail Pharmacies Business - Pharmacy chain
- -------------------------------------------
Eaton Apothecary
In August 1996, we acquired 80% of D.A.W., Inc. d/b/a Eaton Apothecary, a
13 store chain of pharmacies operating in the greater Boston area.
Each of the five minority shareholders (except in one case, the husband of
a shareholder) continue employment under a five-year extension of their original
employment contract. Their original five-year employment contract commenced in
August 1996 and expired August 5, 2001. Control of the Board of Directors of
Eaton is split between representatives from Nyer and the minority shareholders.
Additionally, one member of Eaton's management occupies a seat on our Board of
Directors.
Eaton operates 13 pharmacies within the metro-Boston Massachusetts market
place with net sales of approximately $53 million in fiscal 2004. The majority
of the stores are between 2,000 and 3,000 sq. ft. with the emphasis of opera-
tions on the pharmacy department. Eaton offers free delivery service of pre-
scription medication to customers. In fiscal 2004, prescription sales accounted
for 92% of total sales.
Strategy
Eaton's strategy is to move in the opposite direction from the national
chains regarding store size, merchandise mix and store locations. The market for
prescription medications is growing at an ever-increasing pace as the
baby-boomers age, direct to consumer advertising continues and new and improved
medications continue to enter the market. The strategy of focusing on the core
of the business within a low fixed cost prototype has resulted in its becoming
the least cost producer within the industry. Eaton believes this advantage will
become increasingly important as pharmacy benefit management companies continue
to squeeze margins and the state Medicaid program continues to grapple with
budget constraints and rising manufacturer prices.
Eaton is a leading niche-market pharmacy provider in Massachusetts. In
conjunction with the Lynn Community Health Center, Eaton operates the only
dually licensed pharmacy in the state. Eaton has contracts with three of the
largest PACE (Progressive All-inclusive Care for the Elderly) providers in the
state as well as the Boston HealthCare for the Homeless program. In each of the
instances, we provide pharmacy services consistent with Section 340B of the
Public Health Services Act. Eaton previously solely operated consistent with the
340B replenishment model whereby each federally qualified entity would replenish
prescription inventory dispensed by them. As replenishment can only be
effectuated in full package amounts, there is inherent in the model the
necessity for Eaton to carry significant accounts receivable in partial package
quantities dispensed. In an effort to reduce committed operating capital, Eaton
has moved from the replenishment inventory model to the segregated inventory at
the Lynn location, and is in the process doing the same with the Boston
Healthcare for the Homeless program.
In February, Eaton opened a facility in Peabody, MA with the intention of
moving all of their fragmented group home and quasi-institutional business to a
4
single location. By so doing, Eaton was able to join a buying network whereby
they will be able to avail ourselves of significant manufacturer rebates
effectively improving selling margins. Additionally, Eaton expects to achieve
savings in operating costs in the long run by consolidating all of the
"specialty" business in one location under one method of operation.
Eaton has committed to opening a pharmacy within the Sterling Medical
Center (formerly the Waltham Hospital). The Sterling Medical Center is a 440,000
sq. ft. building dedicated exclusively to medical uses. Eaton anticipates the
operation within the facility will benefit from the significant synergies
represented by the diverse medical operations and as such will provide us with
significant long-term revenues and profits.
Eaton is presently in negotiations with two Federally Qualified Health
Centers (FQHC's) to provide pharmacy management services to the Health Centers
desirous of dispensing prescription medications under the 340B program. The
manner and amount Eaton will be compensated is presently under discussion.
Eaton operates two Medicine-On-time medication management systems. This
licensed packaging system caters to elderly clients who are unable to manage
their medication regimens yet who are not frail enough for nursing homes. The
Medicine-On-Time system is the preferred system of most Assisted Living
Facilities. Assisted living facilities are transitory facilities for elderly
patients unable to live at home alone but not brittle enough to require nursing
home care. The U.S. census predicts this market segment to be the largest
growing housing sector in the nation over the next decade. In addition to growth
in the assisted living and homebound sectors, many new customers have been
gained by word of mouth throughout the visiting nurse and health center
communities. Sales within these niche segments were approximately $9 million in
fiscal 2004. Eaton expects growth within its niche categories to be the fastest
growing segment of its business over the next several years.
Eaton continues to seek acquisition opportunities within contiguous markets
to grow its business. Eaton acquires stores both with the intent of continuing
operations or effectuating consolidations with existing locations. Eaton did not
acquire any stores in fiscal 2004.
Customers and Third-Party Payors
During the year ended June 30, 2004, approximately 83% of the pharmacy
sales were to customers covered by health plan contracts, which typically
contract with a third-party (such as an insurance company, a prescription
benefit management company, a governmental agency, a private employer, a health
maintenance organization or other managed care provider) that agrees to pay for
all or a portion of a customer's eligible prescription purchase in exchange for
reduced prescription rates. During the year ended June 30, 2004, the top five
third-party payors, which provide administrative and payment services for
multiple health plan contracts and customers, accounted for approximately 69% of
our total sales, the largest of which represented 25% of our total sales. During
the year ended June 30, 2003, Medicaid agencies accounted for approximately 25%
of our total sales. Any significant loss of third-party payor business could
have a material adverse effect on Eaton's business and results of operations.
5
Regulation
Eaton's business is subject to various federal and state regulations. For
example, pursuant to Omnibus Budget Reconciliation Act of 1990 ("OBRA") and
Massachusetts regulations, Eaton's pharmacists are required to offer counseling,
without additional charge, to their customers about medication, dosage, delivery
systems, common side effects and other information deemed significant by the
pharmacists and may have a duty to warn customers regarding any potential
adverse effects of a prescription during if the warning could reduce or negate
such effect.
Eaton's pharmacies and pharmacists must be licensed by the Massachusetts
board of pharmacy. Eaton's pharmacies and distribution centers are also
registered with the Federal Drug Enforcement Administration and are subject to
Federal Drug Enforcement Agency regulations relative to Eaton's pharmacy
operations, including purchasing, storing and dispensing of controlled
substances. If Eaton were to violate any applicable statute, rule or regulation,
their licenses and registrations could be suspended or revoked.
Eaton's pharmacies are subject to patient privacy and other obligations,
including corporate pharmacy and associate responsibility imposed by the Health
Insurance Portability and Accountability Act. As a covered entity, Eaton is
required to implement privacy standards, train their associates on the permitted
uses and disclosures of protected health information, provide a notice of
privacy practice to Eaton's pharmacy customers and permit pharmacy customers to
access and amend their records and receive an accounting of disclosures of
protected health information. Failure to properly adhere to these requirements
could result in the imposition of civil as well as criminal penalties.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in the state legislature that would
effect major changes in the healthcare system, either nationally or at the state
level. The legislative initiatives include prescription drug benefit proposals
for Medicare participants. Although Eaton believes they are well positioned to
respond to these developments, they cannot predict the outcome or effect of
legislation resulting from these reform efforts.
Competition
Virtually all of Eaton's stores compete head-to-head with CVS and Walgreen
stores. Pharmacies in supermarkets and deep discount stores, such as Wal-Mart,
have not gained significant market share in the communities served by Eaton.
Medical Products/Service
- ------------------------
ADCO - ADCO South - Nyer Internet
ADCO started as a quality distributor of home health, medical, surgical and
laboratory supplies and equipment in Bangor, Maine in 1963. ADCO supplies all
areas of health care products to physician offices, clinics, health centers,
nursing homes, visiting nurse associations, individual health care consumers and
specialty equipment to hospitals.
ADCO is a wholesale medical distributor located in Bangor, Maine, with a
wholesale customer base of over 925 active customers through out New England.
6
ADCO also operates a small sales office and warehouse located in Henderson,
Nevada, which primarily sells to physicians and clinics.
ADCO derives 90% of its revenues from sales to institutional customers
(primarily nursing homes and physician offices), while the balance comes from
its retail and home health customers. ADCO maintains a 23,000 square foot
facility containing a 3,000 square foot retail showroom located in Bangor,
Maine.
ADCO South began operations in 1992 and is located in West Palm Beach,
Florida. ADCO South's sales are from medical supplies and equipment primarily to
physicians and clinics in the Palm Beach and Broward County areas of South
Florida. It does no home health care business.
ADCO and ADCO South provide over 5,000 combined stock items. We can
purchase additional items we do not stock from our existing vendors. Although
the inventories of both companies share common items, the need for items
relative to their geographic regions is accomplished through warehouse
transfers. This enables a larger mix of products to be available from either
company and both benefit from the synergies available from two combined
inventories.
Nyer Internet began operations in 1999. We started business to business
(b2b) and business to consumer (b2c) e-commerce, with our interactive web site
medicalmailorder.com. The site is used to aid in directing customers through an
on-line medical mall and the appropriate departments to locate specific
equipment and supplies. Our target customers, include home consumers, federal
agencies, military, local and state municipalities, schools and universities.
Combining the growth of the Internet with the resources of our distribution
centers has enabled us to grow our on-line business.
Marketing
Our sales are achieved through the services of independent sales repre-
sentatives who travel throughout New England and South Florida and through sales
personnel who telemarket, send catalogs and do mailing campaigns for existing
customers and the Internet.
Competition
All aspects of the our medical products business are subject to significant
competition. Our national competitors generally have substantially greater
financial resources and other competitive advantages, although they
traditionally concentrate on hospitals. Nonetheless, the Company believes we
have certain competitive advantages which enable us to compete favorably with
larger competitors because of our ability to be flexible and creative for their
customers.
The national market for wholesale distribution of medical and home health
care supplies is served in large part by, McKesson, PSSI, Cardinal and Owens &
Miner. PSSI is the largest national supplier of supplies to physician offices
and clinics. Although hospitals are believed to constitute most of these
company's largest customer group, these companies claim to serve over 17,000
other customers including physicians and clinics throughout the United States,
including the New England area. Despite the presence of larger companies,
ADCO/ADCO South believe the distribution of medical products in physician sites
and long-term care facilities is still controlled by many small local and
7
regional distributors.
Discontinued operations:
- -----------------------
Due to declining sales and continuing losses, Anton Investments, Inc.,
and Conway Associates, Inc., the fire and police segment, were discontinued
in fiscal 2004. Nyer Nutritional Systems, Inc., discontinued its operations
in October 1999.
Fire and Police
- ---------------
Anton Investments, Inc. - Conway Associates, Inc.
Anton and Conway sold fire, police and rescue equipment and supplies that
were sold to municipal and industrial accounts throughout most of the New
England area.
We purchased an 80% interest in Anton Investments Inc. in 1993. Anton
conducted approximately 90% of its business with municipal and industrial fire
departments, while law enforcement agencies and emergency rescue units comprise
10% each.
We purchased an 80% interest in Conway Associates, in 1996.
In August 2003, due to continuing losses, the Company closed its Anton
Massachusetts location. In September 2003, the Company closed its New Hampshire
location. In December 2003, the Company reevaluated the business and determined
to close Anton entirely and discontinue the remaining location because of
continuing decreased sales and an inability to generate sufficient revenues to
cover fixed costs and operating expenses. The Company has sold the remaining
inventory and fixed assets. Anton's operations are accounted for as a
discontinued operation and the results of operations have been excluded from
continuing operations in the consolidated statements of operations for all
periods presented.
In June 2004, due to declining sales and continuing losses, the Company
closed its remaining location in Haverhill, Massachusetts. The Company is in the
process of returning some or all of the its remaining inventory to satisfy
unpaid accounts payable. The operations are accounted for as a discontinued
operation and the results of operations have been excluded from continuing
operations in the consolidated statements of operations for all periods
presented.
Nutritional Supplies
- --------------------
Nyer Nutritional Systems, Inc.
Nyer Nutritional is an 80% owned subsidiary started in December of 1996.
Nyer Nutritional ceased active operations in the fall of 1999.
In May 2002, the Company assigned all of its rights, licenses and interest
in all patents to Nyer Nutritional's minority shareholder. In return, the
minority shareholder released the Company from any and all obligations,
including, without limitation, all royalty payments guaranteed from the 1996
license agreement.
8
Backlogs - Seasonal
None of our Companies have significant backlogs and our businesses are not
seasonal.
Employees
The Company believes our employees represent one of our most valuable
resources. As of the date of this report, including its executive officers, we
have 119 full-time and 122 part-time employees. Eaton employs 85 full-time and
115 part-time employees, ADCO employs 27 full-time employees and 4 part-time
employees, ADCO South employs 3 full-time employees and 2 part-time employees,
Nyer Internet employs 3 full-time employees and one part-time, and the Company
directly employs one full-time person. None of our employees are covered by a
collective-bargaining agreement. Management believes that our relationship with
our employees is excellent and that we have a loyal work force.
ITEM 2. Properties.
Our executive offices, ADCO and Nyer Internet are located at 1292 Hammond
Street, Bangor, Maine, where ADCO's warehouse and retail store are also located.
The pharmacies have 16 leases, averaging approximately 2,200 square feet
each, with one location having approximately 5,400 square feet, throughout the
suburban Boston area. One of the leases is for office space of approximately
2,000 square feet and another is for space in the process of being constructed
to replace an existing lease. Our monthly lease payments range from $562 to
$11,050. Five locations have renewable lease options.
The medical segment owns a 23,000 square foot facility located in Bangor,
Maine, which currently has a mortgage for $75,000 on its building. The monthly
costs, including mortgage payments and taxes (but excluding utilities) is
$6,800. We also lease 11,796 square feet of warehouse space in Bangor, Maine,
2,640 square feet of warehouse and office space in Henderson, Nevada and 6,172
square feet of warehouse and office space in West Palm Beach, Florida.
We believe our current premises are adequate for our current foreseeable
needs.
ITEM 3. Legal Proceedings.
We are not a party to any material litigation.
However, recently, each of the Company, Eaton, Anton and Conway has had
litigation threatened against it with respect to separate matters (i.e., the
Company: a contract claim; Eaton: primarily statutory claims; Anton and Conway:
contract claims). Such entities have not yet determined the likelihood of
success of these potential litigation matters against the Company and/or its
subsidiaries. With respect to the threatened litigation against Eaton, the
potential dollar amount of damages is not readily determinable. The Company does
not believe that the dollar amount of possible damages with respect to any one
of the litigation matters threatened against the Company, Anton and Conway would
exceed ten percent of the current assets of the Company and its subsidiaries on
a consolidated basis. If any of these threatened litigation matters were decided
in a manner adverse to the Company or its subsidiaries, the result would likely
be materially adverse to the Company and its subsidiaries. For further
information with repect to this paragraph, please see notes 9 and 16 in the
Notes to Consolidated Financial Statements.
9
It should be noted that the immediately preceding paragraph describes
litigation which has been threatened but for which no complaint has been filed
against the Company or any of its subsidiaries. It is possible that no suit will
be filed with respect to these matters.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable
PART II
-------
ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Qualification with NASDAQ
Our shares of common stock are listed and traded on the Nasdaq SmallCap
Market under the symbol: NYER.
The continuation of quotations on Nasdaq is subject to certain conditions.
The failure to meet these conditions may prevent our common stock from
continuing to be quoted on Nasdaq and may have an adverse effect on the market
for our common stock.
As of October 8, 2004, there were approximately 745 holders of our shares
of common stock. The high and low bid prices for our common shares for the
calendar quarterly periods are as follows:
2004 2003 2002
Closing Bids Closing Bids Closing Bids
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
First Quarter $3.25 $2.31 $1.25 $1.00 $2.71 $1.95
Second Quarter 2.82 1.81 1.44 .65 2.40 1.82
Third Quarter 2.21 1.62 2.39 1.13 2.08 1.55
Fourth Quarter - - 4.05 1.88 1.79 1.15
Such prices reflect inter-dealer prices and do not reflect retail mark-ups,
markdowns, or commissions. Our shares are traded sporadically, which may affect
the prices.
Although there are no restrictions on our ability to pay dividends, to date
we have not declared any cash dividends on any class of security nor do we
anticipate doing so in the foreseeable future.
10
Issuer Purchases of Equity Securities
The foregoing equity repurchases by the Company during the fiscal quarter
ended June 30, 2004 have been reflected as follows:
ISSUER PURCHASES OF EQUITY SHARES
(d)Maximum Number
(or)Approximate
c) Total Number of DollarValue)of
Shares Purchased as Shares that May
Part of Publicly Yet Be Purchased
For the Period (a)Total Number of (b)Average Price Announced Plans or Under the Plans or
Ended(2004) Shares Purchased Paid Per Share Programs Programs
---------- ---------------- -------------- -------- --------
April 1-April 30 0 $ - 0 148,000
May 1-May 31 0 $ - 0 148,000
June 1-June 30 0 $ - 0 148,000
On May 12, 2003, the Company announced that the Board of Directors of the
Company had authorized the repurchase of up to 150,000 shares of the Company's
outstanding common stock from time-to-time in open market transactions at
prevailing market prices. There was no expiration date established for this
repurchase plan. As of the date of this report, the plan has not been
terminated.
11
ITEM 6: Selected Financial Data
Selected Financial Data
2004* 2003* 2002* 2001** 2000*** 1999***
---- ---- ---- ---- ---- ----
Summary of Operations:
- ---------------------
Sales $61,687,258 $56,972,494 $49,874,462 $21,164,615 $37,190,030 $32,811,645
Gross Margin 13,336,329 12,532,875 10,437,373 4,382,991 7,911,720 6,430,960
Operating
income (loss)
from continuing
operations 224,619 1,001,934 635,416 15,762 (253,685) (1,123,398)
(Loss) income
from continuing
operations (54,626) 746,440 583,894 (5,229) 5,233 (856,065)
Loss from
discontinued
operations (370,594) (247 303) (341,080) (212,532) (643,888) (1,316,580)
Net (loss)
income $ (425,220) $ 499,137 $ 242,814 $ (217,761) $ (638,655)$(2,172,645)
Per Share Data:
- ---------------
Net (loss) income
per weighted
average of common
shares from
continuing
operations $ (.01) $ .20 $ .15 $ - $ - $ (.23)
Net loss per
weighted average
of common shares
from discontinued
operations (.10) (.07) (.09) (.06) (.17) (.35)
Net loss per
weighted
average of
common shares $ (.11) $ .13 $ .06 $ (.06) $ (.17) $ (.58)
Year-End Position:
- ------------------
Total assets $13,852,934 $14,300,445 $13,564,503 $12,603,077 $12,634,831 $13,173,635
Net working
capital 6,516,126 6,882,879 6,289,838 5,841,459 5,854,127 6,831,097
Long-term debt
(excluding
current portion)210,119 418,425 329,367 214,403 244,531 543,658
Long-term debt
(excluding
current portion)
discontinued
operations - - 101,403 244,151 307,371 454,970
Minority
interest 1,432,576 1,232,404 954,213 753,804 673,774
552,377
Shareholders'
equity $ 6,891,743 $ 7,316,962 $ 6,765,549 $ 6,407,235 $ 6,612,316 $ 7,228,971
* For the twelve months ended June 30, 2004, 2003 and 2002 ** For the six months
ended June 30, 2001 *** For the twelve months ended December 31, 2000, and 1999
No cash dividends have been declared in the periods presented.
12
ITEM 7. Management's Discussion And Analysis of Financial Condition
and Results of Operation.
Effective June 30, 2001, we changed our fiscal year end from December 31 to
June 30. Accordingly, the following discussion provides information with respect
to our results of operations, liquidity, and capital resources on a comparative
basis for the years ended June 30, 2004 and 2003 and for the years ended June
30, 2003 as compared June 30, 2002 and should be read in conjunction with the
Consolidated Financial Statements and related notes appearing elsewhere in this
report.
We had two business segments for the years ended June 30, 2004, 2003 and
2002: (1) pharmacy drug store chain ("pharmacies") and (2) wholesale and retail
sales of medical equipment and supplies ("medical"). We have discontinued our
operations of our wholesale and retail distribution of equipment, supplies, and
novelty items to emergency medical service, fire departments, and police
departments ("Fire and police"). Business segments are determined by the
management approach which analyzes results based on products or services offered
for sale.
Year Ended June 30, 2004 Compared to June 30, 2003.
NET SALES. Total sales for the twelve months ended June 30, 2004 increased by
8.3% from June 30, 2004 to $61,687,258 from $56,972,494 in 2003.
The following table shows sales by business segment for the years ended
June 30, 2004 and 2003:
Business Segment 2004 2003 % increase
- ---------------- ---- ---- (decrease)
Pharmacies $53,220,507 $47,778,600 11.4
Medical 8,466,751 9,193,894 (7.9)
----------- ----------- ----
Total for business segments $61,687,258 $56,972,494 8.3
=========== =========== ====
The pharmacies segment's sales increased $5,441,907 to $53,220,507 or 11.0%
for the year ended June 30, 2004 as compared to $47,778,600 for the year ended
June 30, 2003. The increases were due to: increased sales to non-profit
organizations of $981,500; first full year of sales due to the acquisition of
two pharmacies in March 2003 and June 2003 that resulted in an increase of
$2,820,850. The remainder was due to continued increases in volume on
prescription drugs due to increased advertising.
The medical segment's sales decreased $727,143 in 2004 to $8,466,751 or 7.9%
for the year ended June 30, 2004 as compared to $9,193,894 for the year June 30,
2003. Over $300,000 of the sales decline is attributed to Las Vegas operation
which experienced continual turnover of personnel and a lack of on site
management. $125,000 of the decrease was due to increased pressure from regional
and national buying groups which are able to command larger discounts from
manufacturers and off on line purchasing and inventory controls. In addition,
physicians and physician groups are being purchased by hospitals which insist
they purchase from their sources resulting in a decrease of $120,000. The
balance is due to new buying groups offering lower prices to induce customers to
purchase their products.
13
GROSS PROFIT MARGINS. Our overall gross profit margins were 21.6% in 2004 as
compared 22.0% in 2003.
The following is a table of gross profit margin percentages by business
segment for the years ended June 30, 2004 and 2003:
Business Segment 2004 2003
- ---------------- ---- ----
Pharmacies 20.3 20.7
Medical 29.9 28.8
---- ----
21.6 22.0
==== ====
The pharmacies segment's gross profit margins decreased .4% to 20.3% for
the year ended June 30, 2004 as compared to 20.7% for the year ended June 30,
2003. The decrease was due to lower insurance reimbursements which were
partially offset by increased sales and larger discounts from their suppliers
due to our purchasing volume.
The medical segment's gross profit margins had an increase of 1.1% to 29.9%
for the year ended June 30, 2004 as compared to 28.8% for the year ended June
30, 2003. This increase was the result of discontinuing the sale of unprofitable
items and sales from a bulk inventory purchase of approximately $155,000 were
recorded at no cost. The cost of the merchandise was allocated to inventory that
had been previously sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and
administrative expenses ("S,G&A") increased 13.7% in 2004 to $13,111,710 as
compared to $11,530,941 in 2003.
The following table shows the breakdown by business segment for the years
ended June 30, 2004 and 2003:
Business Segment 2004 2003 % Increase
- ---------------- ---- ---- (decrease)
Pharmacies $ 9,586,175 $ 8,202,613 16.9
Medical 2,876,756 2,688,020 7.0
Corporate 648,779 640,308 1.3
----------- ----------- ----
$13,111,710 $11,530,941 13.7
=========== =========== ====
The pharmacies increased S,G & A expenses $1,383,562 to $9,586,175 or 16.9%
for the year ended June 30, 2004 as compared to $8,202,613 for the year ended
June 30, 2003. The increase came from the additional overhead costs associated
with the opening of a pharmacy in Peabody, MA of $129,413, increased labor
costs, including benefits, of approximately $673,000 due to a shortage of
available pharmacists, increased legal fees of $27,000 for negotiations of new
and existing leases, increased rent expense of $91,000 due to a consolidation of
one store in which we operated two leases while we moved and renovated a new
location, rent increases in general, and increased advertising by approximately
$100,000 and overhead expenses that increase with the increase in sales.
The medical segment's S,G&A expenses increased $188,736 or 7.0% to
$2,876,756 for the year June 30, 2004 as compared to $2,688,020 for the year
June 30, 2003 due to increased Internet advertising expense of $49,000; an
increase in personnel costs of approximately $40,000; an increase in its
accounts receivable bad debt expense of $107,000 and a charge of $60,000 for
inventory obsolescence.
14
The Corporate segment's overhead increased by $8,471 or 1.3% to $648,779
for the year June 30, 2004 as compared to $640,308 for the year June 30, 2003.
This was mainly additional accounting and legal expenses due to the passing of
the Sarbanes-Oxley Act of 2002 to set procedures in place to insure the Company
is compliant.
DISCONTINUED OPERATIONS.
Our discontinued operations consist of wholesale and retail distribution
of equipment, supplies, and novelty items to emergency medical service, fire
departments, and police departments ("Fire and police") and Nyer Nutritional
Systems, Inc. (Nyer Nutritional). The entities of the fire and police segment
are Anton Investments, Inc., (Anton) and Conway Associates, Inc., (Conway).
In August 2003, due to continuing losses, the Company closed its Anton
Massachusetts location. In September 2003, the Company closed its New Hampshire
location. In December of 2003, the Company reevaluated the business and
determined to entirely close Anton because of continuing decreased sales and an
inability to generate sufficient revenues to cover fixed costs and operating
expenses. The Company has sold the remaining inventory and fixed assets. In May
of 2004, the Company evaluated its operations of Conway and decided to close
operations by June 30, 2004 due to continuing decreased sales and an inability
to generate sufficient revenues to cover fixed costs and operating expenses.
This entire segment has been accounted for as a dis- continued operation and the
results of operations have been excluded from continuing operations in the
consolidated statements of operations for all periods presented.
On October 25, 1999, the Board of Directors approved a plan for the
disposal of its investment in Nyer Nutritional. Its results have been reported
as discontinued operations for all periods presented to fiscal 2002.
In May 2002, the Company assigned all of its rights, licenses and interest
in patents to Nyer Nutritional's minority shareholder. In return, the minority
shareholder released the Company from any and all obligations.
Nyer Nutritional incurred $0 costs in 2004 and 2003, $50,419 in costs in
2002, including $7,054 in litigation expenses as compared to $230,295 in costs
for the same period in 2001, which included $187,096 of litigation expenses.
The following table shows net sales, gross profit %, and selling, general,
and administration expenses for year June 30, 2004 as compared to June 30, 2003
for the fire and police segment of discontinued operations.
2004 2003 Increase % Increase
---- ---- (decrease) (decrease)
--------- ---------
Net sales $1,424,432 $2,926,823 ($1,502,391) (51.3)
Cost of goods sold $1,214,915 $2,216,175 ($1,001,260) (45.2)
Gross profit margins (%) 14.7 24.3 (9.6) (9.6)
Selling, general and
administrative expenses $ 548,429 $ 955,049 ($406,620) (42.6)
The discontinued operation's sales decreased $1,502,391 to $1,424,432 or
51.3 for the year ended June 30, 2004 as compared to $2,926,823 for the year
ended June 30, 2003. The decrease in sales was due to increased competition from
cut rate competitors.
15
The discontinued operation's gross profit margins decreased 9.6 to 14.7%
for the year ended June 30, 2004 as compared to 24.3% for the year ended June
30, 2003. The decrease was due to increased competition and in order to compete
lowered selling pricing in order to match the cut rate competitors.
The discontinued operation's S,G & A expenses decreased $406,620 to
$548,429 or 42.6% for the year ended June 30, 2004 as compared to $955,049 for
the year ended June 30, 2003. The decrease was due to decreased sales and
related overhead and overhead costs directly associated with the closing of
locations.
INCOME TAXES. The following table shows income taxes by segment for the years
ended June 30, 2004 and 2003. In 2004, the Company had no income, therefore,
no federal income taxes were accrued. A subsidiary, D.A.W., had taxable
income and was required to accrue state income taxes. Due to timing
differences, the Company utilized a portion of its federal income tax asset.
In 2003, the Company had taxable income for federal tax purposes, but
utilized its NOL carryforwards to reduce income taxes. In addition, the
Company reviewed its deferred tax assets and recorded a deferred tax asset
for its NOL amounting to $185,000. The Company's subsidiary, D.A.W., was
profitable and accrued state income taxes for approximately $187,000, for a
net of $2,800.
For more information, see note 11 in the Notes to Consolidated Financial
Statements.
Income taxes (benefit)
- ---------------------- June 30 June 30
2004 2003
---- ----
Pharmacies $ 94,247 $ 460,000
Medical - (20,000)
Discontinued operations - (80,000)
Corporate - (357,200)
----------- -----------
$ 94,247 $ 2,800
=========== ===========
Year Ended June 30, 2003 Compared to June 30, 2002.
NET SALES. Total sales for the twelve months ended June 30, 2003 increased by
14.2% from June 30, 2003 to $56,972,494 from $49,874,462 in 2002.
The following table shows sales by business segment for the years ended
June 30, 2003 and 2002:
Business Segment 2003 2002 % increase
- ---------------- ---- ---- (decrease)
--------
Pharmacies $47,778,600 $40,686,119 17.4
Medical 9,193,894 9,188,343 -
----------- ----------- ----
Total for business segments $56,972,494 $49,874,462 14.2
=========== =========== ====
The pharmacies segment's sales increased $7,092,481 to $47,778,600 or 17.4%
for the year ended June 30, 2003 as compared to $40,686,119 for the year ended
June 30, 2002. The increases were due to: increased sales from non-profit
organizations of $2,035,000; the acquisition of two pharmacies in March 2003 and
June 2003 resulted in an increase of $729,000; the first full year of sales from
16
acquisitions in year 2002 of approximately $2,153,000. The remainder was due to
continued increases in volume on prescription drugs due to increased
advertising.
The medical segment increased $5,551 in 2003 to $9,193,894 or 0% for the
year ended June 30, 2003 as compared to $9,188,343 for the year June 30,2002.
The medical segment's sales did not increase due to their discontinuing of
unprofitable items and increased competition from cut rate competitors.
GROSS PROFIT MARGINS. Our overall gross profit margins were 22.0% in 2003 as
compared to 20.9% in 2002.
The following is a table of gross profit margin percentages by business
segment for the years ended June 30, 2003 and 2002:
Business Segment 2003 2002
- ---------------- ---- ----
Pharmacies 20.7 19.3
Medical 28.8 28.1
---- ----
22.0 20.9
==== ====
The pharmacies segment's gross profit margins increased 1.4% to 20.7% for
the year ended June 30, 2003 as compared to 19.3% for the year ended June 30,
2002. The increase was due to increased sales and larger discounts from their
suppliers.
The medical segment's gross profit margins had an increase of .7% to 28.8%
for the year ended June 30, 2003 as compared to 28.1% for the year ended June
30, 2002. This increase was the result of discontinuing the sale of unprofitable
items. Also, this segment increased its minimum prepaid shipping requirement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and
administrative expenses ("S,G&A") increased 17.6% in 2003 to $11,530,941 as
compared to $9,801,957 in 2002.
The following table shows the breakdown by business segment for the years
ended June 30, 2003 and 2002:
Business Segment 2003 2002 % Increase
- ---------------- ---- ---- (decrease)
--------
Pharmacies $ 8,202,613 $ 6,704,030 22.4
Medical 2,688,020 2,553,515 5.3
Corporate 640,308 544,412 17.6
----------- ----------- ----
$11,530,941 $ 9,801,957 17.6
=========== =========== ====
The pharmacies increased S,G & A expenses $1,498,583 to $8,202,613 or 22.4%
for the year ended June 30, 2003 as compared to $6,704,030 for the year ended
June 30, 2002. The increase came from the additional overhead costs associated
with the acquisition and operation of two additional pharmacies of $187,225, the
first full year of expenses associated with the acquisition of two pharmacies
for the year ended June 2002 of $2,153,407, increased labor costs of
approximately $300,000 due to a shortage of available pharmacists and increased
advertising expense by approximately $198,000.
The medical segment's S,G&A expenses increased $134,505 or 5.3% to
17
$2,688,020 for the year June 30, 2003 as compared to $2,553,515 for the year
June 30, 2002. Advertising expense increased $174,043; an increase in warehouse
rental space and one employee due to the bulk purchase of brand name medical
products of approximately $51,000; an increase in personnel costs of
approximately $50,000; and a decrease in its accounts receivable bad debt
expense of $80,500.
The Corporate segment's overhead increased by $95,896 or 17.6% to $640,308
for the year June 30, 2003 as compared to $544,412 for the year June 30, 2002.
This was mainly due additional accounting, legal and stock related expenses.
DISCONTINUED OPERATIONS.
Our discontinued operations consist of wholesale and retail distribution
of equipment, supplies, and novelty items to emergency medical service, fire
departments, and police departments ("Fire and police") and Nyer Nutritional
Systems, Inc. (Nyer Nutritional). The entities of the fire and police segment
are Anton Investments, Inc., (Anton) and Conway Associates, Inc., (Conway).
In August 2003, due to continuing losses, the Company closed its Anton
Massachusetts location. In September 2003, the Company closed its New Hampshire
location. In December of 2003, the Company reevaluated the business and
determined to entirely close Anton because of continuing decreased sales and an
inability to generate sufficient revenues to cover fixed costs and operating
expenses. The Company has sold the remaining inventory and fixed assets. In May
of 2004, the Company evaluated its operations of Conway and decided to close
operations by June 30, 2004 due to continuing decreased sales and an inability
to generate sufficient revenues to cover fixed costs and operating expenses.
This entire segment has been accounted for as a dis- continued operation and the
results of operations have been excluded from continuing operations in the
consolidated statements of operations for all periods presented.
On October 25, 1999, the Board of Directors approved a plan for the
disposal of its investment in Nyer Nutritional. Its results have been reported
as discontinued operations for all periods presented to fiscal 2002.
In May 2002, the Company assigned all of its rights, licenses and interest
in patents to Nyer Nutritional's minority shareholder. In return, the minority
shareholder released the Company from any and all obligations.
Nyer Nutritional incurred $0 costs in 2003, $50,419 in costs in 2002,
including $7,054 in litigation expenses as compared to $230,295 in costs for the
same period in 2001, which included $187,096 of litigation expenses.
The following table shows net sales, gross profit %, and selling, general,
and administration expenses for year June 30, 2003 as compared to June 30, 2002
for the fire and police segment of discontinued operations.
2003 2002 Increase % Increase
---- ---- (decrease) (decrease)
-------- ---------
Net sales $2,926,823 $4,225,596 ($1,298,773) (30.7)
Cost of goods sold $2,216,175 $3,407,735 ($1,191,560) (35.0)
Gross profit margins (%) 24.3 19.4 4.9 4.9
Selling, general and
administrative expenses $ 955,049 $1,111,464 ($156,415) (14.1)
18
Our discontinued operations sales decreased by $1,298,773 to $2,926,823 or
(30.7%) for the year ended June 30, 2003 as compared to $4,225,596 for the year
ended June 30, 2002. This decline is due to many factors including tighter
municipal budgets through-out the sales territories and the entire country, and
a down turn in the economy resulting in less tax revenues which results in less
available funds for the fire departments. In addition, fire departments have
partially altered the focus of their purchasing to include merchandise that
relates to biological and chemical items and homeland security products, which
this segment does not market. Another reason for this decline is increased
competition from a company owned by a minority shareholder of this segment and
who was the previous 100% owner of one of the companies within the fire and
police segment. This segment is also discontinuing the sale of unprofitable
items.
Discontinued operations had an increase in its gross profit margins of 4.9%
to 24.3% for the year ended June 30, 2003 as compared to 19.4% at June 30, 2002.
This increase was the result of cessation of sales of lower profit margin items.
Discontinued operation's S,G&A expenses decreased by $156,415 or (14.7%) to
$955,049 for the year June 30, 2003 as compared to $1,111,464 for the year June
30, 2002. This decrease was mainly due to expenses directly related to lower
sales and associated costs.
INCOME TAXES. The following table shows income taxes by segment for the years
ended June 30, 2003 and 2002. In prior years the Company has concluded it was
appropriate to establish a full valuation allowance for its net deferred tax
assets because the Company had continuing losses and loss carryforwards to
utilize. However, as a result of a review at June 30, 2003, the Company has
concluded that, because the Company has reached a level of profitability and
because the Company believes the profitability will continue and utilize the
remaining NOL, a deferred tax asset of $185,000 was recorded. The Company's
subsidiary, D.A.W., was profitable and accrued state income taxes for
approximately $187,000 for a net of $2,800. Due to the uncertainty of the
utilization of the timing differences, a full valuation allowance was provided.
For more information, see note 11 in the Notes to Consolidated Financial
Statements.
Income taxes (benefit)
- ----------------------
June 30 June 30
2003 2002
---- ----
Pharmacies $ 460,000 $ 331,000
Medical (20,000) 41,000
Discontinued operations (80,000) (97,000)
Corporate (357,200) (156,000)
----------- -----------
$ 2,800 $ 119,000
=========== ===========
Going Concern and Management's Plans
The Company has guaranteed certain obligations from its discontinued
operations, the Company had a loss in its medical and corporate segments in
recent years and has a cash flow deficiency in these segments for the year ended
June 30, 2004. The continued existence of the Company and specifically, the
medical and corporate segments is dependent upon the medical segment obtaining
profitability, up streaming funds from its Pharmacy segment or raising capital.
The Company's pharmacy subsidiary, D.A.W., Inc., has an operating agreement with
the parent company which includes cash management. The minority shareholders
19
have declined to provide the parent company with sufficient cash to sustain its
present operations and fund the medical segment, if necessary. These factors
raise substantial doubt about the Company's ability to continue as a going
concern.
In order to increase working capital in the medical and corporate segments,
ADCO has, subsequent to year end, negotiated a line of credit from a bank in the
amount of $300,000 collaterized by the property owned by ADCO and such line of
credit is also guaranteed by the Company.
Management's plan to return to profitability includes: 1) revamping
management at the corporate and medical segments, 2) instituting cost cutting
measures to reduce and control general and administrative costs; and 3)
consolidating certain entities to reduce costs.
There is no assurance that management's business plan will be successful or
that the Company will achieve profitability. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
D.A.W. Agreement
In August of 1996, the Company and the shareholders of D.A.W. entered into
a stock exchange Agreement and plan of reorganization whereby the Company
acquired by exchange with the sellers 80% of the issued and outstanding stock of
D.A.W. The Board of Directors of D.A.W. is comprised of five members, two from
the minority shareholders and two from the Company and a fifth director not
affiliated with the minority shareholders or the Company. The fifth seat on the
board is vacant.
As part of this agreement, the Company and the minority shareholders shall
not vote any of their shares in favor of, or consent to any merger of D.A.W.
with another entity or any sale of all or substantially all of the assets of
D.A.W. unless 80% of the D.A.W.'s Board of Directors vote in favor of the
transaction.
The agreement also provides for the operations of the subsidiary, including
cash management, to be managed by the minority shareholders. The minority
shareholders have declined to provide the parent company with sufficient cash to
sustain its present operations and fund the medical segment, if necessary.
Additionally, at such time that the Company has caused any or all of the
minority shareholders of D.A.W. to be no longer employed by D.A.W., the employee
or employees shall have the right to require the Company to purchase all or any
portion of such employee's shares of D.A.W., and such minority shareholders also
possess certain rights of first refusal and co-sale rights with respect to
proposed sales of stock by the Company, according to certain terms and
conditions.
Liquidity and Capital Resources
Net cash provided by operating activities was $587,008 for the year ended
June 30, 2004 as compared to $349,825 for the year ended June 30, 2003 and
$469,549 for the year ended June 30, 2002. The primary use of cash for the year
June 30, 2004 was to fund operations for our medical and corporate opera- tions,
as well as the pharmacies' inventory. For the year June 30, 2003 and 2002 the
primary use was to fund operations for our medical and corporate operations, as
well as accounts receivable and inventory.
The net cash used in investing activities was $448,402 for the year June
30, 2004 as compared to $678,928 for the year ended June 30, 2003 and $361,180
20
net cash provided by investing activities for the year ended June 30, 2002. The
decrease of $448,402 was mainly the purchase of property, plant and equipment.
The decrease for the ended June 30, 2003 was mainly due to the acquisition of
two pharmacies and the purchase of property, plant and equipment. The increase
for the year ended June 30, 2002 was largely due to the proceeds received from
marketable securities. In fiscal 2002, we acquired two pharmacies and remodeled
some existing pharmacy locations.
Net cash used in financing activities was $286,268 for the year ended June
30, 2004 was mainly due to increased repayments of long-term debt as compared to
net cash provided by financing activities of $196,473 and $345,222 for the years
ended June 30, 2003 and 2002. This was due to issuance of long-term debt of
$390,000 and $369,701 for the years June 30, 2003 and June 2002, the repayment
of stock sales receivable of $115,000 for the year June 30, 2002 and increased
repayments of long-term debt notes to related party.
Our primary source of liquidity is cash provided from operations. Our
principal uses of cash are: operations, capital expenditures and repayment of
debt.
Cash - At June 30, 2004 we had approximately $1.3 million in cash as compared to
approximately $1.4 million in cash at June 30, 2003.
Line of credit - In October 2004, the Company's medical segment obtained a
$300,000 line of credit. The Company is not able to draw on the line of credit
without approval of a majority of a three (3) person committee of the board
established for this purpose.
Accounts receivable - At June 30, 2004, we had net accounts receivable of
approximately $4.2 million as compared to approximately $4.2 million at June 30,
2003. Although our sales have increased approximately $4.5 million, our accounts
receivables have remained approximately the same. The reasons for the decrease
are more timely payments and an increase in sales in the pharmacies segment and
a reduction in sales in the medical segment.
Debt - At June 30, 2004, we had $423,642 of debt as compared to $709,910 at June
30, 2003. Our debt decreased due to the pay down of existing debt with no
additional debt at June 30, 2004.
Forward-Looking Statements
- --------------------------
The statement made in Item 1, relating to Eaton's opportunity to serve
assisted living facilities is a forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Act"). Additionally,
words such as "expects", "intends", "believes" and similar words are used to
identify forward-looking statements within the meaning of the Act. The results
anticipated by any and all of these forward-looking statements may not occur.
Important factors that may cause actual results to differ materially from the
forward-looking statements include (1) Eaton could be affected by increased
competition from large competitors including the entrance of Wal-Mart and other
nationwide and regional discount operations; (2) the state of the economy in the
local communities in New England where the Company operates; (3) the general
state of the economy in the United States and elsewhere; (4) the failure of
suppliers to timely deliver products; (5) factors which increase costs in the
health care industry; (6) the loss of any single large customer; and (7) recent
and future governmental regulation of pharmaceutical pricing.
21
Critical Accounting Policies
- ----------------------------
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to allowance for uncollectible receivables, inventory shrinkage,
impairment, and income taxes. We base our estimates on historical experience,
current and anticipated business conditions, the condition of the financial
markets and various other assumptions that are believed to be reasonable under
existing conditions. Actual results may differ from these estimates.
We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Allowance for uncollectible receivables: The majority of our sales are made
to customers that are covered by third party payors, such as insurance
companies, government agencies and employers. We carry receivables that
represent the amount owed to us for sales made to customers or employees of
those payors that have not yet been paid. We maintain a reserve for the amount
of these receivables deemed to be uncollectible. This reserve is calculated
based upon historical collection activity adjusted for current conditions. If
the financial condition of the payors were to deteriorate, resulting in an
inability to make payments, then an additional reserve would be required.
Inventories: Included in our valuation of inventory are estimates of the
losses related to shrinkage, which occurs during periods between physical
inventory counts. When estimating these losses, we considered historical loss
results at specific locations as well as overall loss trends. Should actual
shrink losses differ from the estimates upon which that our reserves were based;
our operating results will be impacted.
Impairment: We evaluate long-lived assets, excluding goodwill, for
impairment annually, or whenever events or changes in circumstances indicate
that the assets may not be recoverable. The impairment is measured by
calculating the estimated future cash flows expected to be generated by the
store, and comparing this amount to the carrying value of the assets.
Goodwill impairment: In connection with the provisions of SFAS No. 142, we
perform an annual impairment test of goodwill. Our tests during the fourth
quarter of fiscal 2004 and 2003 resulted in no impairment being identified.
However, the process of evaluating goodwill for impairment involves the
determination of the fair value of our companies. Inherent in such fair value
determinations are certain judgments and estimates, including the interpretation
of economic indicators and market valuations and assumptions about our strategic
plans. To the extent that our strategic plans change, or that economic and
market conditions worsen, it is possible that our conclusion regarding goodwill
impairment could change and result in a material effect on our financial
position or results of operations.
Income taxes: The Company concluded that it is more likely than not that it
will utilize the carryforwards and certain other deferred tax assets. Based on
available evidence, it is uncertain when the Company will utilize the other
deferred tax assets, principally timing difference relating to allowances,
depreciation and intangible assets; and, therefore it is more likely than not
that the timing difference will not be utilized and a valuation allowance has
been provided.
22
Recent Accounting Pronouncements
- --------------------------------
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities". FIN No. 46 requires the consolidation of entities that
cannot finance their activities without the support of other parties and that
lack certain characteristics of a controlling interest, such as the ability to
make decisions about the entity's activities via voting rights or similar
rights. The entity that consolidates the variable interest entity is the primary
beneficiary of the entity's activities. FIN No. 46 applies immediately to
variable interest entities created after January 31, 2003, and must be applied
in the first period beginning after June 15, 2003 for entities in which an
enterprise holds a variable interest entity that it acquired before February 1,
2003. The Company adopted this Interpretation on July 1, 2003 and did not have
an effect on the consolidated financial statements.
In January 2003, the EITF released Issue No. 00-21, ("EITF 00-21"),
"Revenue Arrangements with Multiple Deliveries", which addressed certain aspects
of the accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. Specifically, EITF 00-21 addresses
whether an arrangement contains more than one unit of accounting and the
measurement and allocation to the separate units of accounting in the
arrangement. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company adopted this standard
on July 1, 2003, and did not have an impact on the Company's consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003.
Adoption of SFAS 133 did not have an effect on the Company's consolidated
financial statements
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash or other
assets. A second type includes put options and forward purchase contracts, which
involves instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets. The third type of instruments that
are liabilities under this Statement is obligations that can be settled with
shares, the monetary value of which is fixed, tied solely or predominantly to a
variable such as a market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of SFAS No. 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. This Statement was effective for financial instruments entered into or
modified after May 31, 2003. The adoption of this statement did not have any
impact on the Company's financial position or the results of its operations.
23
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk.
Cash and cash equivalents. Our cash and cash equivalents are in either a
checking account or money market account.
Investment Securities:
Cash and cash equivalents as of June 30, 2004 were $1,270,082.
** - The Company had approximately $79,600 in a money market account at June
30, 2004. The interest yield rate was less than 1%.
Debt: Our debt is not subject to market risk and fluctuations because all of
the debt has fixed maturity dates and fixed interest rates. The difference
between the Company's carrying amount and fair value of its long-term debt was
immaterial at June 30, 2004, 2003 and 2002.
24
ITEM 8: Financial Statements and Supplementary Data
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Page(s)
Report of Independent Registered Public Accounting Firm F 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2004 and
June 30, 2003 F 2
Consolidated Statements of Operations for the years
ended June 30, 2004, 2003 and 2002 F 4
Consolidated Statements of Changes in Shareholders'
Equity for the years ended June 30, 2004, 2003
and 2002 F 6
Consolidated Statements of Cash Flows for the years
ended June 30, 2004, 2003 and 2002 F 7
Notes to Consolidated Financial Statements F 9
Schedule II Valuation and Qualifying Accounts and Reserves F 28
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Nyer Medical Group, Inc.
We have audited the consolidated balance sheets of Nyer Medical Group, Inc. and
subsidiaries at June 30, 2004 and 2003 and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the years
ended June 30, 2004, 2003 and 2002. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company, as of
June 30, 2004 and 2003 and the results of its operations and its cash flows for
the years ended in the periods June 30, 2004, 2003 and 2002, in conformity with
United States generally accepted accounting principals.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the company has guaranteed certain
obligations from its discontinued operations, and the company had a loss in its
medical and corporate segments in recent years and has a cash flow deficiency in
these segments for the year ended June 30, 2004. The continued existence of the
Company and specifically the medical and corporate segments is dependent upon
the medical segment obtaining profitability, up streaming funds from its
Pharmacy segment or raising capital. These matters raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 6 to the consolidated financial statements, on July 1,
2002, the Company adopted the provisions of Statement of Financial Standards
Board No. 142, "Goodwill and other Intangible Assets".
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Table of
Contents to the Consolidated Financial Statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
September 10, 2004 F-1
26
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 and 2003
ASSETS
2004 2003
---- ----
Current assets:
Cash and cash equivalents $ 1,270,082 $ 1,417,744
Accounts receivable, less
allowance for doubtful
accounts of $461,000
and $318,352, respectively 4,228,977 4,250,185
Inventories, net 5,674,550 5,579,602
Prepaid expenses and other
current assets 349,379 243,581
Deferred tax asset 151,000 185,000
Assets to be disposed of from
discontinued operations 160,634 539,421
----------- -----------
Total current assets 11,834,622 12,215,533
Property, plant and equipment,
net of accumulated depreciation 1,364,776 1,269,310
----------- -----------
Goodwill, net 104,463 104,463
Other intangible assets, net 549,073 666,281
Advances due from related
companies - 44,858
----------- -----------
653,536 815,602
----------- -----------
Total assets $13,852,934 $14,300,445
=========== ===========
The accompanying notes are an integral part of
the consolidated financial statements.
F-2
27
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 and 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
2004 2003
Current liabilities: ---- ----
Current portion of long-
term debt $ 213,523 $ 291,485
Accounts payable 3,819,088 3,658,767
Accrued payroll and related
taxes 424,115 443,694
Accrued expenses and other
liabilities 286,214 234,794
Income taxes payable 20,000 101,753
Liabilities to be disposed of from
discontinued operations 555,556 602,161
----------- ----------
Total current liabilities 5,318,496 5,332,654
----------- ----------
Long-term debt, net of current
portion 210,119 418,425
----------- ----------
Minority interest 1,432,576 1,232,404
----------- ----------
Commitments
Shareholders' equity: (Note 12)
Preferred stock 1 1
Common stock 379 380
Additional paid-in capital 17,691,972 17,746,543
Treasury stock - (54,573)
Accumulated deficit (10,800,609) (10,375,389)
----------- -----------
Total shareholders'
equity 6,891,743 7,316,962
Total liabilities and ----------- -----------
shareholders' equity $13,852,934 $14,300,445
=========== ===========
The accompanying notes are an integral part of
the consolidated financial statements.
F-3
28
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2004, 2003 and 2002
2004 2003 2002
---- ---- ----
Net sales $61,687,258 $56,972,494 $49,874,462
----------- ----------- -----------
Cost and expenses:
Cost of goods sold 48,350,929 44,439,619 39,437,089
Selling and retail 8,868,514 7,755,370 6,425,256
Warehouse and delivery 1,036,612 980,497 770,778
Administrative 3,206,584 2,795,074 2,605,923
----------- ----------- -----------
61,462,639 55,970,560 49,239,046
----------- ----------- -----------
Operating income 224,619 1,001,934 635,416
Other income (expense):
Interest expense (37,859) (41,265) (36,912)
Interest income 45,652 48,636 63,878
Other 7,381 18,126 240,921
----------- ----------- -----------
Total other income 15,174 25,497 267,887
----------- ----------- -----------
Income from continuing operations
before income taxes 239,793 1,027,431 903,303
Provision for income taxes (94,247) (2,800) (119,000)
Minority interest expense
net of income taxes expense (200,172) (278,191) (200,409)
----------- ----------- -----------
(Loss) income from continuing
operations (54,626) 746,440 583,894
----------- ----------- -----------
Discontinued operations:
Loss from operations of
discontinued operations (178,752) (247,303) (341,080)
Loss on disposal of
discontinued operations (191,842) - -
Net loss from discontinued ----------- ----------- -----------
operations (370,594) (247,303) (341,080)
----------- ----------- -----------
Net (loss) income $ (425,220) $ 499,137 $ 242,814
=========== =========== ===========
continued
The accompanying notes are an integral part of
the consolidated financial statements.
F-4
29
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2004, 2003 and 2002,
continued
2004 2003 2002
---- ---- ----
Basic and diluted (loss) income per share:
Continuing operations $ (.01) $ .20 $ .15
Discontinued operations (.10) (.07) (.09)
Basic and diluted (loss) ------- ------- -------
income per share $ (.11) $ .13 $ .06
======= ======= =======
Weighted average common
shares outstanding, basic 3,784,962 3,758,026 3,755,862
Weighted average common ========= ========= ==========
shares outstanding, diluted 3,784,962 3,759,261 3,758,224
========= ========= =========
The accompanying notes are an integral part of
the consolidated financial statements.
F-5
30
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2004, 2003 and 2002
Class A Class B
Preferred Stock Preferred Stock Common Stock Additional Treasury
Paid-in Stock Sale Stock Accumulated
Shares Amount Shares Amount Shares Amount Capital Receivable Shares Amount Deficit
------ ------ ----- ------ ------ ------ ------- ---------- ------ ------ ----------
Balance,
July 1, 2001 2,000 $ 1 1,000 $ - 3,769,062 $377 $17,691,946 $(115,500) (12,100) $(52,249) $(11,117,340)
Payment of ----- ---- ----- ---- --------- ---- ----------- --------- ------- -------- ------------
stock sale
receivable - - - - - - - 115,500 - - -
Net income - - - - - - - - - - 242,814
Balance, ----- ---- ----- ---- --------- ---- ----------- --------- ------- -------- ------------
June 30, 2002 2,000 1 1,000 - 3,769,062 377 17,691,946 - (12,100) (52,249) (10,874,526)
Issuance of ----- ---- ----- ---- --------- ---- ----------- --------- ------- -------- ------------
common
stock - - - - 30,000 3 54,597 - - - -
Treasury
stock - - - - - - - - ( 2,000) ( 2,324) -
Net income - - - - - - - - - - 499,137
----- ---- ----- ---- --------- ---- ----------- --------- ------- ------- -----------
Balance,
June 30, 2003 2,000 1 1,000 - 3,799,062 380 17,746,543 - (14,100) (54,573) (10,375,389)
Treasury ----- ---- ----- ---- --------- ---- ----------- --------- ------- ------- -----------
stock - - - - (14,100) (1) (54,571) - 14,100 54,573 -
Net loss - - - - - - - - - (425,220)
----- ---- ----- ---- --------- ---- ----------- --------- ------- ------- -----------
Balance,
June 30, 2004 2,000 $ 1 1,000 $ - 3,784,962 $379 $17,691,972 - - $ - $(10,800,609)
===== ==== ===== ==== ======== ==== =========== ========= ======= ======== ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
31
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2004, 2003 and 2002
2004 2003 2002
Cash flows from operating activities:
Net income (loss) from continuing
operations $ (54,626) $ 746,440 $ 583,894
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation 393,698 333,342 158,259
Amortization 117,208 73,282 108,431
Gain on sale of respiratory division - - (159,353)
Assets disposed of from settlement of
Litigation - - 187,893
Loss (gain) on disposal of property,
plant, and equipment 4,095 (7,170) -
Deferred income tax 34,000 (185,000) -
Minority interest 200,172 278,191 200,409
Decrease in deferred credit - - (154,420)
Changes in working capital (69,127) (727,439) (631,475)
Net cash flows provided by operating ----------- ----------- ---------
activities from continuing operations 625,420 511,646 293,638
Net cash flows (used in) provided by
discontinued activities (38,412) (161,821) 175,911
Net cash flows provided by operating ----------- ----------- ---------
activities 587,008 349,825 469,549
----------- ----------- ---------
Cash flows from investing activities:
Acquisition of pharmacies - (390,000) (349,637)
Purchase of property, plant and
equipment, net (493,260) (300,803) (399,521)
Proceeds from sale of property,
plant and equipment, net - 15,170 69,147
Proceeds from sale of marketable
securities - - 821,798
Proceeds from sales of respiratory
division - - 222,689
Net change in advances due from
related companies 44,858 (3,295) (3,296)
Net cash (used in) provided by ---------- ----------- ---------
investing activities (448,402) (678,928) 361,180
---------- ----------- ---------
Cash flows from financing activities:
Proceeds from payment of
stock sale receivable - - 115,500
Proceeds from issuance of long-term
debt - 390,000 369,701
Payments on long-term debt (286,268) (191,203) (139,979)
Purchase of treasury stock - (2,324) -
Net cash (used in) provided by ---------- ----------- ---------
financing activities (286,268) 196,473 345,222
---------- ----------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
continued
F-7
32
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
2004 2003 2002
---- ---- ----
Net (decrease) increase in cash and
cash equivalents $ (147,662) $ (132,630) $1,175,951
Cash and cash equivalents, at beginning
of year 1,417,744 1,550,374 374,423
Cash and cash equivalents, at end of ---------- ---------- ----------
year $1,270,082 $1,417,744 $1,550,374
========== ========== ==========
Changes in working capital:
Accounts receivable, net $ 21,208 $ (93,420) $ (449,017)
Inventories, net (94,948) (798,320) (802,490)
Prepaid expenses and other current assets (105,798) 46,436 (30,098)
Receivables from related parties - - (5,866)
Accounts payable 160,321 117,480 278,514
Accrued payroll and related taxes (19,579) 10,507 144,025
Accrued expenses and other liabilities 51,422 (111,875) 233,457
Income tax payable (81,753) 101,753 -
---------- ---------- ----------
Net change $ (69,127) $ (727,439) $ (631,475)
========== ========== ==========
Supplemental disclosures of cash flow information:
2004 2003 2002
Cash paid during the year for: ---- ---- ----
Interest $ 38,969 $ 41,272 $ 36,161
========== ========== ==========
Income taxes $ 160,000 $ 197,764 $ 12,221
========== ========== ==========
Supplemental schedule of non-cash investing and financing activities:
The acquisition of pharmacies in 2003 and 2002, net of cash acquired, is
summarized as follows:
2003 2002
---- ----
Working capital, other than cash $ 390,000 $ 59,637
Property, plant and equipment 10,000 20,000
Prescription lists 390,000 270,000
Long-term debt (390,000) (349,637)
---------- ----------
Cash paid for acquisitions $ 400,000 $ -
========== ==========
Issuance of common stock for liability $ 54,600
==========
The accompanying notes are an integral part of
the consolidated financial statements.
F-8
33
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
--------
Nyer Medical Group, Inc. (Company or Nyer or Parent) a Florida corporation
incorporated in 1991, is a holding company with operations in the following
segments:
The Company is controlled by Nyle International Corp.
Pharmacies. The chain of pharmacies, 80% owned by the Company are located
in the suburban Boston, Massachusetts area.
Medical. The medical segment is engaged in the wholesale and retail sale of
surgical and medical equipment and supplies throughout New England, Florida and
worldwide via the Internet. There are also operations in Henderson, Nevada.
Corporate. Salaries of the officers of the holding company are included in
this segment as well corporate expenses such as reporting costs, accounting and
legal fees. This segment includes discontinued operations. Due to declining
sales and continuing losses, the fire and police segment, was discontinued in
fiscal 2004. Nyer Nutritional Systems, Inc., discontinued its operations in
fiscal 2002.
2. Summary of significant accounting policies
------------------------------------------
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its majority owned and controlled subsidiaries. All inter-company
transactions have been eliminated in consolidation.
Use of estimates
----------------
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 could differ from those
estimates.
Cash and cash equivalents
-------------------------
The Company considers cash and investments with original maturities of
three months or less when purchased to be cash and cash equivalents.
Inventories
-----------
Inventories consist primarily of pharmaceuticals and medical equipment and
supplies. Pharmacy inventories are at last-in, first-out method (LIFO). The
balance of the inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property, plant and equipment
-----------------------------
The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. Leasehold improvements are
amortized using the straight-line method over the lease term. Depreciation is
computed on the straight-line method for financial reporting purposes and on the
accelerated method of income tax purposes.
continued
F-9
34
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies, continued
------------------------------------------
Goodwill and other intangible assets
------------------------------------
Goodwill represents the excess of acquisition cost over the fair value of
the net assets of acquired entities. In accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Intangible Assets", the Company no longer amortizes goodwill. The Company also
has certain finite-lived intangible assets that are amortized over their useful
lives.
Impairment of long-lived assets
-------------------------------
Property, plant, and equipment and amortizable intangible assets are
reviewed for impairment in the fourth quarter and whenever events or
circumstances indicate the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the carrying value of
the related assets or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets. No impairments were recognized in the years ended June 30, 2004, 2003
and 2002.
Fair value of financial instruments
-----------------------------------
The carrying values of cash and cash equivalents, receivables, payables and
debt maturing within one year contained in the consolidated balance sheets
approximate fair value. The carrying values and estimated fair values for
long-term debt, based on quoted market rates of financial instruments were
approximately the same. The difference was immaterial.
Revenue recognition
-------------------
For all pharmacy sales other than third party pharmacy sales and those
described below, the Company recognizes revenue from the sale of merchandise at
the time of the sale. For third party pharmacy sales, revenue is recognized at
the time the prescription is filled. The Company records third-party revenues
and related receivables, net of provisions for contractual and other
adjustments. The Company's estimates of uncollectible amounts are based on its
historical collection experience and current economic and credit conditions.
The Company also recognizes revenue from non-cash transactions wherein the
pharmacy segment dispenses pharmaceuticals provided to non-profit organizations
through certain governmental programs treating needy patients. The Company
receives a dispensing fee, a percentage of the costs of the medication and the
replacement of the pharmaceuticals. Because the cash received is less than 25%
of the transaction, the Company accounts for these transactions as non-monetary
in accordance with Accounting Principals Board Opinion 29. The Company records
the gain on these transactions to the extent that the amount of the monetary
receipt exceeds a proportionate share of the recorded amount of the asset
surrendered. The Company is in the process of changing the method for reporting
revenues for contracts with PACE by moving from a replenishment model to
segregated inventory where fees are recorded as revenues.
For other than pharmacy and third party sales, the Company recognizes
revenue on the sale of its goods and services, net of estimated costs of
returns, allowances and sales incentives, when the products are shipped to
customers. The Company generally
continued
F-10
35
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies, continued
------------------------------------------
Revenue recognition, continued
-------------------
sells its products on open accounts under credit terms customary to the
industry. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral to secure its customers receivables.
Vendor Rebates and Allowances
-----------------------------
Rebates and allowances received from vendors relate to either buying and
merchandising or promoting the product. Buying and merchandising related rebates
and allowances are recorded as a reduction of cost of goods sold as product is
sold. Buying and merchandising rebates and allowances include all types of
vendor programs such as purchase discounts, volume purchase allowances and price
reduction allowances. Product promotion related rebates and allowances,
primarily advertising, are recorded as a reduction in selling, general and
administrative expenses when the advertising commitment has been satisfied.
Shipping and handling costs
---------------------------
The cost of shipping and handling to customers by the Company is classified
as warehouse and delivery expenses. The costs of shipping and handling including
payments to third parties, were approximately $774,500, $701,100 and $542,000
for the years ended June 30, 2004, 2003 and 2002.
Advertising
-----------
Advertising costs are expensed as incurred. Advertising expenses, net of
reimbursements, were approximately $661,000, $503,000 and $161,000 for the years
ended June 30, 2004, 2003 and 2002.
Income taxes
------------
The Company files a consolidated federal income tax return. The Company
utilizes the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109") requires that a
valuation allowance be established when it is more likely than not that all or a
portion of a deferred tax asset will not be realized. A review of all available
positive and negative evidence needs to be considered, including a company's
current and past performance, the market environment in which the company
operates, the utilization of past tax credits, length of carryback and
carryforward periods, existing contracts or sales backlog that will result in
future profits, etc. Deferred tax assets and liabilities are measured using tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Earnings per share
------------------
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
F-11
36
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies, continued
------------------------------------------
Earnings per share, continued
------------------
for the period. Diluted earnings per share considers the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that shared in the earnings of the entity. In 2004, common stock
equivalents were not included in the computation of net loss per share because
the effect of inclusion would be anti-dilutive.
Operating segments
------------------
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", established standards for reporting information about operating
segments in annual financial statements and in interim financial reports issued
to shareholders. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated on a
regular basis by the chief operating decision maker, or decision making group,
in deciding how to allocate resources to an individual segment and in assessing
the performance of the segment.
Recent Accounting Pronouncements
--------------------------------
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities". FIN No. 46 requires the consolidation of entities that
cannot finance their activities without the support of other parties and that
lack certain characteristics of a controlling interest, such as the ability to
make decisions about the entity's activities via voting rights or similar
rights. The entity that consolidates the variable interest entity is the primary
beneficiary of the entity's activities. FIN No. 46 applies immediately to
variable interest entities created after January 31, 2003, and must be applied
in the first period beginning after June 15, 2003 for entities in which an
enterprise holds a variable interest entity that it acquired before February 1,
2003. The Company adopted this Interpretation on July 1, 2003 and did not have
an effect on the consolidated financial statements.
In January 2003, the EITF released Issue No. 00-21, ("EITF 00-21"),
"Revenue Arrangements with Multiple Deliveries", which addressed certain aspects
of the accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. Specifically, EITF 00-21 addresses
whether an arrangement contains more than one unit of accounting and the
measurement and allocation to the separate units of accounting in the
arrangement. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company adopted this standard
on July 1, 2003, and did not have an impact on the Company's consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30,
continued
F-12
37
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies, continued
------------------------------------------
Recent Accounting Pronouncements continued,
--------------------------------
2003. Adoption of SFAS 133 did not have an effect on the Company's consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous pronounce-
ments, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash or other
assets. A second type includes put options and forward purchase contracts, which
involves instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets. The third type of instruments that
are liabilities under this Statement is obligations that can be settled with
shares, the monetary value of which is fixed, tied solely or predominantly to a
variable such as a market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of SFAS No. 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. This Statement was effective for financial instruments entered into or
modified after May 31, 2003. The adoption of this statement did not have any
impact on the Company's financial position or the results of its operations.
3. Going Concern and Management's Plans
------------------------------------
The Company has guaranteed certain obligations from its discontinued
operations, and the Company had a loss in its medical and corporate segments in
recent years and has a cash flow deficiency in these segments for the year ended
June 30, 2004. The continued existence of the Company and specifically, the
medical and corporate segments, is dependent upon the medical segment obtaining
profitability, up streaming funds from its Pharmacy segment or raising capital.
The Company's Pharmacy subsidiary, has an operating agreement with the Parent
which includes cash management. The minority shareholders have declined to
provide the Parent with sufficient cash to sustain its present operations and
fund the medical segment, if necessary. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
In order to increase working capital in the medical and corporate segments,
a Company subsidiary has, subsequent to year end, obtained a line of credit from
a bank in the amount of $300,000, collaterized by the property owned by the
subsidiary and such line of credit is also guaranteed by the Company.
continued
F-13
38
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Going Concern and Management's Plans, continued
------------------------------------
Management's plan to return to profitability includes: 1) revamping
management at the corporate and medical segments, 2) instituting cost cutting
measures to reduce and control general and administrative costs; and 3)
consolidating certain entities to reduce costs.
There is no assurance that management's business plan will be successful or
that the Company will achieve profitability. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
D.A.W. Agreement
In August of 1996, the Company and the shareholders of D.A.W. entered into
a stock exchange Agreement and plan of reorganization whereby the Company
acquired by exchange with the sellers 80% of the issued and outstanding stock of
D.A.W. The Board of Directors of D.A.W. is comprised of five members, two from
the minority shareholders and two from the Company and a fifth director not
affiliated with the minority shareholders or the Company. The fifth seat on the
board is vacant.
As part of this agreement, the Company and the minority shareholders shall
not vote any of their shares in favor of, or consent to any merger of D.A.W.
with another entity or any sale of all or substantially all of the assets of
D.A.W. unless 80% of the D.A.W.'s Board of Directors vote in favor of the
transaction.
The agreement also provides for the operations of the subsidiary, including
cash management, to be managed by the minority shareholders. The minority
shareholders have declined to provide the parent company with sufficient cash to
sustain its present operations and fund the medical segment, if necessary.
Additionally, at such time that the Company has caused any or all of the
minority shareholders of D.A.W. to be no longer employed by D.A.W., the employee
or employees shall have the right to require the Company to purchase all or any
portion of such employee's shares of D.A.W., and such minority shareholders also
possess certain rights of first refusal and co-sale rights with respect to
proposed sales of stock by the Company, according to certain terms and
conditions.
4. Inventories
-----------
Inventories consisted of the following at June 30:
2004 2003
---- ----
Pharmacies $5,614,842 $5,137,934
Medical 762,601 1,016,536
6,377,443 6,154,470
Less LIFO reserves (702,893) (574,868)
---------- ----------
$5,674,550 $5,579,602
========== ==========
continued
F-14
39
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories, continued
-----------
The Company uses the last-in, first-out ("LIFO") method of accounting for
its pharmacy inventories. At June 30, 2004 and 2003, inventories were $702,893
and $574,868, respectively, lower than the amounts that would have been reported
using the first-in, first-out ("FIFO") method. The LIFO charge was $128,025,
$83,353 and $137,158 for the years ended June 30, 2004, 2003 and 2002,
respectively.
The pharmacies have executed an agreement with its major supplier to
purchase pharmaceuticals for a period of five years. Payment for merchandise
delivered is secured by a first priority interest in all of the pharmacy's
assets. The pharmacies have committed to purchase at least $2,000,000 monthly
from this supplier. If the pharmacy's relationship with this supplier was
disrupted, the pharmacies might have difficulty filling prescriptions, which
would negatively impact the business.
5. Property, plant and equipment
-----------------------------
Property, plant and equipment consisted of the following at June 30:
Estimated
2004 2003 lives
---- ---- -----
Land $ 92,800 $ 92,800 -
Building 658,566 646,516 15 years
Leasehold improvements 1,320,633 1,025,591 10 years
Machinery and equipment 43,506 44,225 3-10 years
Transportation equipment 264,498 250,430 3-5 years
Office furniture, fixtures
and equipment 1,087,651 1,013,386 2-10 years
---------- ----------
3,467,654 3,072,948
Less accumulated
depreciation (2,102,878) (1,803,638)
---------- ----------
$1,364,776 $1,269,310
========== ==========
Depreciation expense was $393,698, $333,433 and $342,533 for the years ended
June 30, 2004, 2003 and 2002.
6. Goodwill and other intangibles
------------------------------
FASB Statement 142, "Goodwill and Other Intangible Assets", requires that
goodwill be tested for impairment at least annually. Based on the Company's
annual review in the fourth quarter, no impairment charges have been recorded.
The following tables show the reported net (loss) income and (loss) income per
share for the years ended June 30, 2004, 2003 and 2002, reconciles them to the
adjusted net (loss) income and (loss) income per share had the non-amortization
provisions of Statement 142 been applied in those periods ended June 30:
2004 2003 2002
---- ---- ----
Reported net (loss) income $(425,220) $ 499,137 $ 242,814
Plus goodwill amortization - - 12,000
--------- --------- ---------
As adjusted $(425,220) $ 499,137 $ 254,814
========= ========= =========
continued
F-15
40
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Goodwill and other intangibles, continued
------------------------------
2004 2003 2002
---- ---- ----
Reported (loss) income per
share $ (.11) $ .13 $ .06
Plus goodwill amortization - - .01
--------- --------- ---------
As adjusted $ (.11) $ .13 $ .07
========= ========= =========
The following is a summary of other intangible assets:
Weighted Average
June 30, 2004 Amortization Accumulated
Period (years) Cost Amortization Net
Prescription lists 15 $ 528,000 $189,050 $338,950
Non-compete agreements 3.67 750,100 539,977 210,123
---------- -------- --------
Totals $1,278,100 $729,027 $549,073
========== ======== ========
Weighted Average
June 30, 2003 Amortization Accumulated
Period (years) Cost Amortization Net
Prescription lists 15 $ 528,000 $154,274 $373,726
Non-compete agreements 3.67 750,100 457,545 292,555
---------- -------- --------
Totals $1,278,100 $611,819 $666,281
========== ======== ========
During the year ended June 30, 2003, the Company purchased prescription
lists and non-compete agreements for $390,000. The non-compete agreements are
amortized over 5 years and the prescription lists over 15 years. Amortization
expense of intangible assets was approximately $117,200, $73,300 and $108,400
for the years ended June 30, 2004, 2003 and 2002.
Based on the balance of intangible assets at June 30, 2004, the annual
amortization expense for each of the succeeding five years is estimated to be as
follows:
Year Amortization amount
------------------------
2005 $100,000
2006 83,000
2007 83,000
2008 71,000
2009 35,000
7. Related party transactions
--------------------------
Advances due from related companies consisted of cash advances made to Nyle
Interest is charged at 9% annually. The balance at June 30, 2004 was $0 as
compared to a balance of $44,858 at June 30, 2003. This was paid in full in
March 2004.
continued
F-16
41
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Debt
----
Long-term debt consisted of the following at June 30:
2004 2003
---- ----
Mortgage payable in equal monthly installments
of $4,675 including interest at 8 1/4%
collateralized by land and building, with a
net book value of $265,960, due in March 2008. $ 90,720 $152,284
Note payable in equal monthly installments
of $4,999, including interest at 7%. The note
will mature in July 2004, collateralized by
pharmacy inventory. 4,970 62,405
Note payable in equal monthly install- ments of
$2,778 plus interest on the unpaid balance at 6%.
The note will mature in February 2005, and is
collateralized by pharmacy inventory. 22,223 55,556
Note payable in equal monthly installments of
$2,437 plus interest on the unpaid balance at 6%.
The note will mature in February 2005, and is
collateralized by pharmacy inventory. 19,500 48,749
Note payable in equal monthly installments of
$4,000 plus interest on the unpaid balance at 5%.
The note will mature in April 2008, and is
collateralized by pharmacy inventory. 184,000 232,000
Note payable in equal monthly installments of
$4,167 plus interest on the unpaid balance at 6%.
The note will mature in June 2006, and is
collateralized by pharmacy inventory. 100,000 150,000
Notes payable due in various install-
ments at rates ranging up to 8%,
collateralized by equipment
and vehicles. 2,229 8,916
--------- --------
Total debt 423,642 709,910
Less current portion 213,523 291,485
--------- --------
$ 210,119 $ 418,425
========= =========
continued
F-17
42
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Debt, continued
----
At June 30, 2004, the following are the maturities of long-term debt for
each of the next five years:
2005 $ 213,523
2006 122,119
2007 48,000
2008 40,000
2009 -
----------
$ 423,642
==========
9. Discontinued operations
-----------------------
Our discontinued operations consist of wholesale and retail sale of
equipment and supplies to emergency medical services, fire departments and
police departments (fire and police segment).
During fiscal 2004, the Company reevaluated the declining sales and
continuing losses for this segment and closed all locations. The segment has
been accounted for as discontinued operations and the results of operations have
been excluded from continuing operations in the consolidated statements of
operations for all periods presented.
The results of operations for Nyer Nutritional have been reported as
discontinued operations for all periods presented through fiscal 2002.
The following table shows assets and liabilities for the fire and police
segment of discontinued operations for the years ended June 30:
2004 2003
---- ----
Accounts receivable, net $ 42,914 $188,656
Inventory, net 39,212 299,396
Prepaid expenses and other
current assets 77,598 12,891
Fixed assets, net 910 38,478
-------- ---------
Total assets $160,634 $539,421
======== ========
Current portion, note payable
due to related party $157,543 $196,263
Accounts payable 313,539 347,112
Accrued expenses and other
liabilities 84,474 58,786
-------- --------
Total liabilities $555,556 $602,161
======== ========
The note payable due related party of $157,543 relates to the purchase
of a discontinued subsidiary's inventory. There is a continuing dispute with
the note holder as to the amount owed. The above balance is the Company's
estimate which includes unpaid principal and interest at 7% and payments made
on behalf of the note holder. Subsequent to year end, the note holder has
demanded payment of $233,157, plus accrued interest. The Company intends to
attempt settlement or vigorously litigate this matter.
continued
F-18
43
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Discontinued operations, continued
-----------------------
The following table shows a comparison of sales, gross profit margins,
selling, general and administrative expenses, interest expense, interest
income for the fire and police segment of discontinued operations for the years
ended June 30:
2004 2003 2002
---- ---- ----
Sales $1,424,432 $2,926,823 $4,225,596
Cost of goods sold $1,214,915 $2,216,175 $3,407,735
Selling, general and
administrative expenses $ 548,429 $ 955,049 $1,111,464
Interest expense $ 21,985 $ 10,489 $ 1,340
Interest income $ (562) $ - $ -
In March 2004, one entity sold inventory and fixed assets for $88,500.
The balance at June 30, 2004 was $77,598. The note is secured by the inventory
and fixed assets conveyed in the sale.
10. Employee Benefit Plan
---------------------
The Company has a savings plan that qualifies as a deferred salary
arrangement under Section 401(k) ("Employee Plan") of the Internal Revenue.
Participants may elect to contribute up to 20% of their eligible compensation,
as defined. Also, the Company will make certain matching contributions. The
Company's matching contribution to the 401(k) plan was $139,171, $124,555 and
$96,046 for the years ended June 30, 2004, 2003 and 2002, respectively.
11. Income taxes
------------
The provision for income taxes from continuing operations is as follows
for the years ended June 30:
2004 2003 2002
---- ---- ----
Current tax expense (benefit):
Federal $(34,000) $ 20,000 $ -
State 94,247 167,800 119,000
-------- --------- --------
$ 60,247 $ 187,800 $119,000
-------- --------- --------
Deferred tax (benefit):
Federal $ 34,000 $(185,000) $ -
State - - -
-------- --------- --------
$ 34,000 $(185,000) $ -
-------- --------- --------
$ 94,247 $ 2,800 $119,000
======== ========= ========
A reconciliation of the statutory federal income tax rate and the effective
income tax rate is as follows for the years ended June 30:
2004 2003 2002
---- ---- ----
Statutory federal income tax
rate (34%) 34% 34 %
Increase (decrease) in taxes
resulting from:
State tax, net of federal
tax effect (22%) 7% 6%
Utilization of NOL 34% (41)% (14)%
--- --- ---
Effective income tax rate (22%) - % 26%
==== === ===
continued
F-19
44
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income taxes, continued
------------
The tax effect of temporary differences that gives rise to significant
portions of deferred taxes is as follows for the years ended June 30:
2004 2003 2002
---- ---- ----
Deferred tax assets:
Net operating losses $ 134,000 $ 185,000 $ 565,000
Accounts receivable allowances 157,000 125,000 188,000
Inventory 179,000 173,000 118,000
Depreciation 158,000 86,000 68,000
Intangibles 181,000 224,000 315,000
Other 10,000 - -
819,000 793,000 1,254,000
Less valuation allowance (668,000) (608,000) (1,254,000)
--------- --------- -----------
Net deferred tax assets $ 151,000 $ 185,000 $ -
========= ========= ===========
At June 30, 2004, the Company had remaining net operating loss (NOL)
carryforwards of approximately $393,000 available to offset future taxable
income. The NOL carryforwards will begin to expire in 2019. In addition, the
Company has alternative minimum tax credit carryforwards of $10,812.
At June 30, 2004, the Company concluded that it is more likely than not
that it will utilize the carryforwards and certain other deferred tax assets.
Based on available evidence, it is uncertain when the Company will utilize the
other deferred tax assets, principally timing difference relating to allowances,
depreciation and intangible assets; and, therefore it is more likely than not
that the timing difference will not be utilized and a valuation allowance has
been provided.
12. Shareholders' equity
--------------------
Class A preferred stock
Total authorized and outstanding shares are 2,000, par value $.0001. Each
share has voting rights equal to 1,000 shares of common stock on all matters at
which common shares are entitled to vote. In July 2004, the Company increased
its authorized shares to 5,000.
Class B preferred stock
Total authorized shares are 2,500,000, par value $.0001. There are 1,000
outstanding. Each share has voting rights equal to 2,000 shares of common stock
on all matters requiring a vote of the common and preferred shareholders.
Common stock
Total authorized shares are 10,000,000, par value $.0001. There are
3,784,962 total outstanding shares. In July 2004, the Company increased its
authorized shares to 25,000,000.
In fiscal 2003, the Company issued 30,000 shares of common stock as payment
of a liability. These shares were valued at the market price of $54,600.
continued
F-20
45
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Shareholders' equity, continued
--------------------
Treasury stock
In fiscal 2003, the Company purchased 2,000 shares of its common stock for
$2,324. In 1998, the Company purchased 12,100 shares of its common stock for
$52,249. In May 2004, the Company retired the 14,100 shares of treasury stock.
Stock options and warrants
In 1997, for services provided, the Company issued warrants to a third
party to purchase 20,000 shares of common stock of the Company at an exercise
price of $14.75 per share, which will expire in October, 2004. The warrants have
not been exercised.
In October 1999, the Company issued 150,000 stock options to a third party
in connection with consulting services provided. The consulting agreement
expired September 30, 2001. The Company is currently on a month-to-month
consulting agreement. The Company recorded an expense of $368,750, equal to the
estimated fair market value of the options at the date of grant.
In December 2003, the 150,000 stock options were restructured to include a
ten-year term and a repricing at $1.71 per share. The fair value of the options
in December 2003 was $179,000 and did not require any additional charge to
expense because the value was less than the value of the cancelled options. The
options have registration rights with respect to any shares of common stock
issuable upon exercise of options.
In October 1999, the Company granted its President, 500,000 non-qualified
options to purchase the Company's common stock at an exercise price of $6.437
per share. 250,000 of the options vested in October 1999, with the remaining
having vested in October 2000. None of the options have been exercised. The
non-qualified options expire in October 2009.
13. Stock options plans
-------------------
The Company has two stock option plans under which employees, consultants
and directors have been granted options to purchase shares of the Company's
common stock. The 1993 Stock Option Plan was amended in fiscal 2003 to, among
other things, (a) cease grants under such plan upon the effectiveness of the
2002 Stock Option Plan of the Company and (b) increase the maximum aggregate
number of shares available for award under such plan to 1,000,000. The maximum
aggregate number of shares of common stock available for award under the 2002
plan is 3,000,000, and is subject to adjustment as set forth therein. Under the
2002 plan, automatic options vest semi-annually to all directors and certain
officers and expire in ten years from the date of grant. Except with respect to
certain incentive stock options ("ISOs"), options under the 1993 plan expire 10
years from the date of grant. Under the 1993 plan, except for ISOs, the exercise
price for options is the fair market value of the common stock of the Company at
the date of grant, as such fair market value is determined under the 1993 plan.
Under the 2002 plan, except for certain ISOs, the exercise price is not to be
less than the Market Price (as defined in the 2002 plan) of the common stock of
the Company on the date of the grant.
continued
F-21
46
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Stock option plans, continued
------------------
The Company complies with SFAS No. 123, "Accounting For Stock-Based
Compensation." This statement defines a fair value based method whereby
compensation cost is measured at the grant date based on the fair value of the
award. Under SFAS No. 123, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
The Company accounts for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", but discloses pro
forma net income (loss) as if the Company had applied the SFAS No. 123 method of
accounting. Accordingly, no compensation cost has been recognized for options
granted under the Plan.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". This statement provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based compensation. In addition, this statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures about the method of accounting for stock-based compensation and the
effect of the method used on reported interim and annual results. The Company
has elected to continue accounting for stock-based compensation in accordance
with APB Opinion No. 25. The adoption of SFAS No. 148 had no impact on the
consolidated results of operations or financial position. The Company has
adopted the disclosure requirements of SFAS No. 148. Pro forma information,
assuming the Company had accounted for its employee and director stock options
granted under the fair value method is presented below. The fair value method
for recognizing employee stock-based compensation cost ratably over the vesting
period. The fair value of each option grant is estimated on the date of each
grant using the Black-Scholes option-pricing model.
Had compensation cost for the Company's Plan been determined based upon the
fair value at the grant dates for awards under the Plan consistent with the
method of SFAS No. 123, the Company's net (loss) income and net (loss) or income
per share would have been charged to the pro forma amounts indicated below
for the years ended June 30:
2004 2003 2002
---- ---- ----
Net (loss) income:
As reported $(425,220) $ 499,137 $ 242,814
========= ========= =========
Pro forma $(480,879) $(794,340) $(257,978)
========= ========= =========
Basic and diluted (loss) earnings per share:
As reported $ (.11) $ .13 $ .06
======== ========= =========
Pro forma $ (.13) $ (.21) $ (.07)
======== ========= =========
The weighted average grant date fair market value for options granted was
$2.46, $1.70, and $2.70 for the years ended June 30, 2004, 2003 and 2002.
The fair value of stock options in the pro forma accounts for the years
ended June 30, 2004, 2003 and 2002 is not necessarily indicative of the future
effects on net income and earnings per share. The fair value of each stock
option grant has been estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
2004 2003 2002
---- ---- ----
Risk-free interest 3.6% 2.6% 4.3%
Dividend yield 0% 0% 0%
Expected volatility 112% 111% 110%
Expected life (years) 5 5 5
continued
F-22
47
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Stock option plans, continued
------------------
The following table summarizes stock options outstanding and exercisable
at June 30, 2004:
Outstanding stock options Exercisable stock options
Weighted Weighted
average Weighted average Weighted
Exercise remaining average remaining average
price contractual exercise contractual exercise
range Shares life price Shares life price
$ 1.29-$1.71 770,000 9.5 $ 1.69 756,000 9.5 $ 1.70
$ 2.10-$3.57 84,000 3.9 $ 2.80 76,000 3.9 $ 2.80
$ 4.75 $6.88 638,600 7.8 $ 6.17 638,600 7.8 $ 6.19
$16.75 36,000 4.3 $16.75 36,000 4.3 $16.75
A summary of changes in common stock options for the years ended June 30
is as follows:
2004 2003 2002
Weighted average Weighted average Weighted average
Shares exercise price Shares exercise price Shares exercise price
Outstanding
at the
beginning
of the year 1,569,600 $4.05 783,600 $6.30 809,600 $6.30
Granted 24,000 3.01 794,000 1.69 64,000 2.70
Canceled (65,000) 4.46 (8,000) 3.01 (90,000) 3.70
--------- ----- --------- ----- ------- -----
Outstanding
at the end
of the year 1,528,600 $4.01 1,569,600 $4.05 783,600 $6.30
========= ===== ========= ===== ======= =====
14. Earnings per share
------------------
The following data show the amounts used in computing earnings per share
and the weighted average number of share of diluted potential common stock
for the years ended June 30:
2004 2003 2002
---- ---- ----
Weighted average number of
common shares used in
basic EPS 3,784,962 3,758,026 3,755,862
Stock options - 1,235 2,362
--------- --------- ---------
Weighted average number of
common shares used in
diluted EPS 3,784,962 3,759,261 3,758,224
========= ========= =========
If the Company had net income in 2004, incremental shares attributable to
the exercise of outstanding stock options would have increased diluted shares
outstanding by 214,231 shares.
continued
F-23
48
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Significant concentrations
--------------------------
No single customer or health plan contract accounted for more that 25% of
the Company's total revenues during the years ended June 30, 2004, 2003 and
2002. The Company's pharmacy sales were primarily to customers covered by health
plan contracts, which typically contract with a third-party payor that agrees to
pay for all or a portion of a customer's eligible prescription purchases. During
fiscal 2004, the top five third-party payors accounted for approximately 69% of
the Company's total sales, the largest of which represented 25% of total sales.
Third party payors are entities such as an insurance company, governmental
agency, health maintenance organization or other managed care provider, and
typically represent several health care contracts and customers. Any significant
loss of third-party payor business could have a material adverse effect on the
Company's business and results of operations.
During the year ended June 30, 2004, the pharmacies purchased inventory
from a single supplier, amounting to $36.1 million or 86% of total inventory
purchased, under a contract expiring February 2007. With limited exceptions, the
pharmacies have contracted to purchase all of its branded pharmaceutical
products from this supplier. If the Company's relationship with this supplier
was disrupted, the pharmacies could have temporary difficulty filling
prescriptions, which could negatively impact the business.
During the year ended June 30, 2003, the pharmacies purchased inventory
from a single supplier, amounting to $31.5 million or 80% of total inventory
purchased, under a contract expiring February 2007. During the year ended June
30, 2002, the pharmacies purchased inventory from a single supplier amounting to
$15.4 million or 37% of total inventory purchased.
During the year ended June 30, 2004, the Company maintained cash balances
in excess of the Federally insured limits. The funds are with major money center
banks. Consequently, the Company does not believe that there is a significant
risk in having these balances in excess of the Federally insured limits. The
cash balance at June 30, 2004 was $1,072,275 and $1,158,634 at June 30, 2003.
16. Commitments and Contingencies
-----------------------------
Employment agreements
---------------------
The minority shareholders of D.A.W. have employment agreements expiring in
August 2006. The agreement was extended for an additional five years in 2001.
Effective January 2002, their base annual salary was $120,000. Effective
August 2004, their base annual salary was increased to $140,920.
Each are also provided full insurance coverage on the employee's vehicle
and a vehicle allowance with an annual cost of $6,000 and each also receives
life-insurance coverage in the aggregate amount of $800,000, including a
separate single policy in the amount of $300,000, which the employee's designee
will be the owner and beneficiary. The current employment agreements contain a
six month non-compete provision commencing on the date of termination.
Operating leases
----------------
The Company rents office and warehouse space with varying lease expiration
dates through May of 2010. Generally, the leases have options to extend the
continued
F-24
49
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments and Contingencies, continued
-----------------------------
lease terms. Five of the locations have renewable lease options. Total rent
expense was $966,194, $874,429 and $711,175 for the years ended June 30, 2004,
2003 and 2002.
Future minimum lease payments at June 30 are as follows:
2005 $ 904,631
2006 813,488
2007 611,816
2008 483,032
2009 398,991
Thereafter 124,926
----------
$3,336,884
==========
Legal proceedings
-----------------
The Company is subject to various legal proceedings and threatened legal
proceedings from time to time as part of its business. Currently, the
Company has been threatened with legal proceedings. The Company believes
an adverse outcome of any proceedings, individually or in the aggregate could
have a material effect on its business, financial condition and results of
operations. Any potential litigation, regardless of its merits, could result
in costs to the Company and divert management's attention from operations.
17. Business segments
-----------------
The Company had two business segments for years June 30, 2004, 2003, and
2002: (1) pharmacies and (2) wholesale and retail sales of surgical, medical
equipment and supplies ("medical"). Business segments are determined by the
management approach which analyses segments based on products or services
offered for sale. Corporate assets include assets of discontinued operations.
Summary data for the years ended June 30:
2004 2003 2002
---- ---- ----
Net Sales
Pharmacies $53,220,507 $47,778,600 $40,686,119
Medical 8,466,751 9,193,894 9,188,343
----------- ----------- -----------
$61,687,258 $56,972,494 $49,874,462
=========== =========== ===========
2004 2003 2002
---- ---- ----
Operating (loss) income
Pharmacies $ 1,217,442 $ 1,684,680 $ 1,148,305
Medical (344,043) (42,439) 31,523
Corporate (648,780) (640,307) (544,412)
----------- ----------- -----------
$ 224,619 $ 1,001,934 $ 635,416
=========== =========== ===========
continued
F-25
50
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Business segments, continued
-----------------
2004 2003 2002
---- ---- ----
Identifiable assets
Pharmacies $11,321,180 $10,484,581 $ 8,288,119
Medical 1,996,010 2,534,109 2,926,644
Corporate 535,744 1,281,755 2,349,740
----------- ----------- -----------
$13,852,934 $14,300,445 $13,564,503
=========== =========== ===========
2004 2003 2002
----- ---- ----
Capital expenditures
Pharmacies $ 458,525 $ 247,684 $ 287,916
Medical 26,857 41,221 66,449
Corporate - 1,898 525
----------- ----------- -----------
$ 485,382 $ 290,803 $ 354,890
=========== =========== ===========
2004 2003 2002
---- ---- ----
Depreciation and Amortization
Pharmacies $ 426,479 $ 327,661 $ 296,650
Medical 83,619 77,635 150,182
Corporate 808 1,419 4,132
----------- ----------- -----------
$ 393,698 $ 406,715 $ 450,964
=========== =========== ===========
2004 2003 2002
---- ---- ----
Interest expense
Pharmacies $ 24,919 $ 17,362 $ 15,591
Medical 12,940 23,903 21,321
Corporate - - -
----------- ----------- -----------
$ 37,859 $ 41,265 $ 36,912
=========== =========== ===========
2004 2003 2002
---- ---- ----
Interest income
Pharmacies $ 24,957 $ 18,487 $ 24,306
Medical 19,574 23,282 21,014
Corporate 1,121 6,867 18,558
------------ ----------- ------------
$ 45,652 $ 48,636 $ 63,878
=========== =========== ============
continued
F-26
51
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Selected quarterly data (unaudited):
2004 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $15,241,923 $15,819,684 $15,056,570 $15,569,081
----------- ----------- ----------- -----------
Gross profit $ 3,390,495 $ 3,219,699 $ 3,303,808 $ 3,422,327
=========== =========== =========== ===========
Income (loss) from
continuing operations $ 219,922 $ 49,899 $ (77,397) $ (247,050)
=========== =========== =========== === =======
Net loss from discontinued
operations $ (37,461) $ (27,192) $ (15,343) $ (290,598)
=========== =========== =========== ===========
Net income (loss) $ 182,461 $ 22,707 $ (92,740) $ (537,648)
=========== =========== =========== ===========
Basic and diluted income (loss) per share:
Continuing operations $ .06 $ .01 $ (.02) $ (.06)
=========== =========== =========== ===========
Discontinued operations (.01) (.01) .00 (.08)
=========== =========== =========== ==========
Net income (loss) per share $ .05 $ .00 $ (.02) $ (.14)
=========== =========== =========== ==== =====
2003 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- --------
Net sales $13,622,974 $14,320,495 $14,609,781 $14,419,244
----------- ----------- ----------- -----------
Gross profit $ 2,887,773 $ 3,106,748 $ 2,985,387 $ 3,552,967
Income (loss) from =========== =========== =========== ===========
continuing operations $ 231,618 $ 152,280 $ 14,665 $ 347,877
Net loss from discontinued =========== =========== =========== ===========
operations $ (65,950) $ (68,930) $ (79,734) $ (32,689)
=========== =========== =========== ===========
Net income (loss) $ 165,668 $ 83,350 $ (65,069) $ 315,188
=========== =========== =========== ===========
Basic and diluted income (loss) per share:
Continuing operations $ .06 $ .04 $ .01 $ .09
----------- ----------- ----------- -----------
Discontinued operations (.02) (.02) (.03) .00
----------- ----------- ----------- -----------
Net income (loss) per share $ .04 $ .02 $ (.02) $ .09
=========== =========== =========== ===========
2002 First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $11,461,701 $14,320,495 $12,593,497 $11,498,769
----------- ----------- ----------- -----------
Gross profit $ 2,397,490 $ 2,452,047 $ 2,537,319 $ 3,050,517
=========== =========== =========== ===========
Income (loss) from
continuing operations $ 235,477 $ 225,346 $ 174,375 $ (51,304
=========== =========== =========== ===========
Net loss from discontinued
operations $ (32,042) $ (77,877) $ (119,684) $ (111,477
=========== =========== =========== ===========
Net income (loss) $ 203,435 $ 147,469 $ 54,691 $ (162,781
=========== =========== =========== ===========
Basic and diluted income (loss) per share:
Continuing operations $ .06 $ .06 $ .05 $ (.02)
----------- ----------- ----------- -----------
Discontinued operations (.01) (.02) (.03) (.03)
----------- ----------- ----------- -----------
Net income (loss) per share $ .05 $ .04 $ .02 $ (.05)
=========== =========== =========== ===========
continued
F-27
52
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions Additions
Balance at Charged to Charged to Deductions Balance at
Beginning of Costs and Other for payments End of
Period Expenses Accounts or Write-offs Period
Year ended June 30
2004:
Allowance for
doubtful accounts $ 318,352 $ 146,648 $ - $ (4,000) $ 461,000
========== ========= ======== ========= =========
Allowance for
doubtful accounts-
discontinued
operations $ 50,000 $ - $ - $ (50,000) $ -
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence $ 98,000 $ 188,025 $ - $ $ 286,025
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence-
discontinued
operations $ 220,000 $ 185,000 $ - $(205,000) $ 200,000
========== ========= ======= ========= =========
Year ended June 30
2003:
Allowance for
doubtful accounts $ 409,923 $ 91,745 $ - $(183,316) $ 318,352
========== ========= ======= ========= =========
Allowance for
doubtful accounts-
discontinued
operations $ 60,000 $ - $ - $ (10,000) $ 50,000
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence $ 80,000 $ 18,000 $ - $ $ 98,000
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence-
discontinued
operations $ 215,000 $ 5,000 $ - $ - $ 220,000
========== ========= ======= ========= =========
continued
F-28
53
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
continued,
Additions Additions
Balance at Charged to Charged to Deductions Balance at
Beginning of Costs and Other for payments End of
Period Expenses Accounts or Write-offs Period
Year ended June 30
2002:
Allowance for
doubtful accounts $ 273,339 $ 157,135 $ - $ (20,551) $ 409,923
========== ========= ======= ========= =========
Allowance for
doubtful accounts-
discontinued
operations $ 75,000 $ - $ - $ (15,000) $ 60,000
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence $ 60,000 $ 20,000 $ - $ $ 80,000
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence-
discontinued
operations $ 360,000 $ - $ - $(145,000) $ 215,000
========== ========= ======= ========= =========
Period ended June
30, 2001:
Allowance for
doubtful accounts $ 197,757 $ 78,737 $ - $ (3,155) $ 273,339
========== ========= ======= ========= =========
Allowance for
doubtful accounts-
discontinued
operations $ 40,000 $ 35,000 $ - $ - $ 75,000
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence $ 331,862 $ - $ - $(271,862) $ 60,000
========== ========= ======= ========= =========
Allowance for
inventory
obsolescence-
discontinued
operations $ 356,000 $ 4,000 $ - $ - $ 360,000
========== ========= ======= ========= =========
The FASB 109 Valuation Allowance has been omitted because such information is
disclosed in note 11 to the Consolidated Financial Statements.
continued
F-29
54
ITEM 9B. Other Information.
Not applicable.
ITEM 10. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure.
There were no disagreements with the Accountants.
ITEM 10A. Controls and Procedures.
The Company's management evaluated, with the participation of its principal
executive officer and principal financial officer, the effectiveness of its
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) as of the end of the period covered
by this report. Based on such evaluation, the principal executive officer and
principal financial officer of the Company concluded that its disclosure
controls and procedures are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and regulations of the Securities
and Exchange Commission and is operating in an effective manner.
No change in the Company's internal control over financial reporting (as
defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of
1934) occurred during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, its internal control
over financial reporting.
55
PART III
ITEM 11. Directors and Executive Officers of the Registrant.
Present directors and executive officers of the Company, their ages and
positions held are as follows:
Name Age Position
---- --- --------
Samuel Nyer 79 Chairman of the Board,
Vice-President-Mergers
and Acquisitions and Director
Karen L. Wright 42 President, Treasurer, Vice-
President-Finance,
Vice-President-Operations,
and Assistant Secretary
Mark Dumouchel 44 Director
Donald C. Lewis, Jr. 66 Director
John Milledge 42 Director
Kenneth L. Nyer, M.D. 46 Director
M. Randolph Prince 62 Director
James Schweiger 69 Director
Mr. Samuel Nyer resigned from the position of President and Secretary
effective September 24, 2004 and now holds the positions Chairman of the Board,
Vice-President of Mergers and Acquisitions and Director.
Mr. Stanley Dudrick was not renominated.
Mr. Donald Nicholson filled Mr. Dudrick's vacancy in December 2003. In May
2004, Mr. Nicholson resigned as director due to lack of time and availability
necessary to perform his duties an independent director.
The minority shareholders filled their vacancy on the Board in March of
2004 with Mr. Mark Dumouchel.
The Company's Board of Directors is divided into three classes of
directors. Messrs. Milledge and Dr. Nyer's term expires in 2004, Messrs. Lewis,
Nyer, Prince and Schweiger's term expires in 2005. Mr. Dumouchel's term expires
in 2006. There is one vacancy.
Samuel Nyer has been chairman of the board and a director of the Company
since December 1991. Mr. Nyer resigned as President and Secretary in September
2004. He previously held these positions since December 1991. He also resigned
as director of the board of directors of each of the Company's subsidiaries in
September 2004 with the exception of D.A.W.. Since September 2004, Mr. Nyer has
been Vice-President of Mergers and Acquisitions. Since 1985, Mr. Nyer has been
chairman of the board of Nyle, a manufacturer of drying equipment. Nyle, a
publicly held corporation, is the Company's principal shareholder, which Mr.
Nyer controls. Mr. Nyer has interests in a number of small businesses in the
Bangor, Maine area.
56
Karen L. Wright has been President of the Company and subsidiaries, with
the exception of D.A.W., since September 2004. She has been treasurer of the
Company since 1991 and vice-president of finance and assistant secretary of the
Company since January 1997 and vice-president of operations since 2001. She
served on the Board from April 1997 to September 2001. She has been the
Company's chief operating office since October 2001. She has been a director of
Nyle since 1998. From 1985 through 1987, Ms. Wright was ADCO's assistant
comptroller, from 1987 through the present time, Ms. Wright has been ADCO's
comptroller and treasurer. Ms. Wright received her Bachelors of Science Degree
in Accounting from Husson College, Bangor, Maine in 1985.
Mark Dumouchel has been a director of the Company since March 2004. He has
been President and Director of the Company's 80% owned subsidiary, D.A.W., Inc.,
since 1990. He is a registered pharmacist in the State of Massachusetts and has
over 28 years experience working in and running pharmacies. Mr. Dumouchel
received his Bachelors of Science Degree in Pharmacy from Massachusetts College
in 1982, and his Masters of Business Administration from Babson College in 1984.
Donald C. Lewis, Jr. has been a director of the Company since July 1993.
Mr. Lewis has been president and director of Nyle, the Company's principal
shareholder, since
January 1985.
John Milledge has been a director of the Company since October 2002. Mr.
Milledge is also a member of the Audit Committee. Mr. Milledge practices law in
Florida concentrating in local government law, including land use, contracts,
procurement, personnel, public finance (including TRIM proceedings) and
litigation. Mr. Milledge is a member of the Florida Bar and the U.S. District
Court, Southern District of Florida. Mr. Milledge graduated from Emory
University, Atlanta, Georgia, with a B.A., with honors, and the University
of Florida, College of Law, Gainesville, Florida, with a J.D.
Kenneth L. Nyer, M.D. has been a director of the Company since December
1991. Dr. Nyer is a specialist in internal medicine and has practiced at the
Albert Einstein Hospital, Bronx, New York since 1993. He previously practiced
at North Shore University Hospital, Manhasset, New York from 1987 to 1993. Dr.
Nyer held a faculty position at the Cornell University Medical School from
1987-1993. Currently, Dr. Nyer is assistant clinical professor of medicine at
Albert Einstein College of Medicine. Dr. Nyer is the son of Mr. Samuel Nyer.
M. Randolph Prince has been a director of the Company since January 2002.
Mr. Prince is also a member of the Audit Committee. Mr. Prince has been
self-employed since 1991 as an Attorney/Certified Public Accountant (CPA)
advising high wealth individuals on tax and financial planning matters in the
States of Florida and Tennessee. He is also a consultant for a CPA firm in tax
and financial planning for high wealth businesses and owners. Mr. Prince has
over 35 years experience as an Attorney and CPA in tax and financial matters and
in the practice of tax law. His experience extends into multiple industries,
both privately owned and SEC registrants. Mr. Prince has been an Attorney since
1966, currently admitted to practice in the State of Florida, U.S. District
Court in the District of Columbia, and United States Court of Appeals for the
Federal Circuit in the District of Columbia. He has been a CPA since 1970 and is
currently licensed in the State of Tennessee. Mr. Prince graduated from the
University of Illinois in 1963 with a degree in Accounting and from George
Washington University Law School, Washington, D.C. in 1966.
James J. Schweiger has been a director since January 2002. Mr. Schweiger is
also chairman of the Audit Committee. Mr. Schweiger is currently President and
CEO of James J. Schweiger Financial Consultants, Orlando Florida. From 1969 to
1986, Mr. Schweiger was a Managing Partner in the CPA firm of KPMG Main Hurdman
in charge of the Ft. Lauderdale/Miami Florida office, Northeastern Regional
57
Managing Partner and later served as the Southern Area Director. From 1980 to
1985 he served on the Company's Policy Board and Management Committee. He was
previously a Board member of AICPA on accounting for real estate transactions.
From 1989 to 1992 Mr. Schweiger served as Treasurer/Director on the EASE
Foundation Board (a charitable foundation in Davie Florida). Mr. Schweiger
graduated from Duquesne University, Pittsburgh, Pa in 1961 with a BS degree in
Business Administration.
Delinquent Filings
------------------
No person who, during the fiscal year ended June 30, 2004, was a director,
officer or beneficial owner of more than ten percent of any class of equity
securities of the Company registered under Section 12 of the Securities Exchange
Act of 1934 (the "Exchange Act"), failed to file on a timely basis, reports
required by Section 16 of the Exchange Act during the most recent fiscal year.
Limited Liability of Directors
------------------------------
Under Florida law, the Company's directors are protected against personal
liability for monetary damages from breaches of their duty of care. As a result,
the Company's directors will not be liable for monetary damages from negligence
and gross negligence in the performance of their duties. They remain liable for
monetary damages for any breach of their duty of loyalty to the Company and its
shareholders, as well as acts or omissions not made in good faith or which
involve intentional misconduct or a knowing violation of law and for
transactions from which a director derives improper personal benefit. They also
remain liable under another provision of Florida law which makes directors
personally liable for unlawful dividends, stock repurchases or redemptions and
expressly sets forth a negligence standard with respect to such liability. The
liability of the Company's directors under federal or applicable state
securities laws are also unaffected. The Company carries directors' and
officers' insurance. While the Company's directors have protection from awards
of monetary damages for breaches of the duty of care, that does not eliminate
their duty of care. Equitable remedies, such as an injunction or rescission
based upon a director's breach of the duty of care, are still available.
Audit Committee Financial Experts
---------------------------------
The Company has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934 and Nasdaq requirements. The members of the Audit Committee are
James Schweiger, M. Randolph Prince and John Milledge.
The Board of Directors has determined that the Company has two "audit
committee financial experts" serving on its Audit Committee, as that term is
defined in Item 401 (h)(2) of Regulation S-K, namely James Schweiger and M.
Randolph Prince. All of the members of the Audit Committee, including Messrs.
Schweiger and Prince, are independent, as that term is defined in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.
Code of Ethics
--------------
The Company has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer and
controller, as well as all other employees and the directors of the Company. The
code of ethics, which the Company calls its Code of Conduct and Ethics Policy,
is filed as an exhibit to this annual report on Form 10-K. If the Company makes
any substantive amendments to, or grants a waiver (including an implicit waiver)
from, a provision of its code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, and that relates to any element of the code of ethics definition
enumerated in Item 406(b) of Regulation S-K, the Company will disclose the
58
nature of such amendment or waiver in a current report on Form 8-K.
ITEM 12. Executive Compensation.
The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company for services rendered
during the years ended June 30, 2004, 2003 and 2002 and the six months ended
June 30, 2001. No other executive officer received compensation exceeding
$100,000 during the years ended June 30, 2004, 2003 and 2002 and for the six
months ended June 30, 2001.
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards
(a) (b) (c) (d) (e) (g)
Name and Other Securities
principal annual underlying
position Year Salary($) Bonus($) compensation($) options/SARS(#)
- -------- ---- -------- ------- --------------- ---------------
Samuel Nyer 2004 $140,000 $4,200 0
CEO 2003 140,000 4,200 0
2002 140,000 4,200 0
2001 70,000 2,100 (1) 0
Michael Curry 2004 128,700 $26,000 8,400 0
Vice-President 2003 120,000 28,000 6,000 0
and 20% owner 2002 120,000 13,219 6,000 0
of D.A.W. (Eaton)
David Dumouchel 2004 128,700 26,000 8,400 0
Vice-President 2003 120,000 28,000 6,000 0
and 20% owner 2002 120,000 13,219 6,000 0
of D.A.W. (Eaton)
Mark Dumouchel 2004 128,700 26,000 8,400 0
Director of 2003 120,000 28,000 6,000 0
Company and 2002 120,000 13,219 6,000 0
President and
20% owner of
D.A.W. (Eaton)
Wayne Gunter 2004 128,700 26,000 8,400 0
Vice-President 2003 120,000 28,000 6,000 0
and 20% owner 2002 120,000 13,219 6,000 0
of D.A.W. (Eaton)
Donato Mazzola 2004 128,700 26,000 8,400 0
Vice-President 2003 120,000 28,000 6,000 0
and 20% owner 2002 120,000 13,219 6,000 0
of D.A.W. (Eaton)
(1) This is for six months ended June 30, 2001
In the above table, we have not presented (f) Restricted stock awards ($), (h)
LTIP payouts ($) and (i) All other compensation ($) as they are not applicable.
Messrs. Curry, David Dumouchel, Mark Dumouchel, Gunter, and Mazzola are
minority shareholders of the pharmacy chain D.A.W. (Eaton)(with the exception of
Mr. Curry, whose wife is the minority shareholder). They are all registered
pharmacists and work within the pharmacy chain.
59
The Company has not paid any cash compensation to any person for serving as
a director with the following exceptions: independent directors receive $600 per
telephone meeting of the board of directors or of a committee of the board of
directors; $1,000 per director per each in-person meeting of the board of
directors or in-person meeting of a committee of the board of directors; and
each chairperson of a committee shall receive an additional 50% of the sum which
it is to receive under the respective committees.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(a) (d) (e)
Number of securities underlying Value of unexercised in-the
unexercised options/SARs money options/SARs at
at fy-end fy-end($)(2)
Name exercisable / unexercisable exercisable / unexercisable
---- --------------------------- ---------------------------
Samuel Nyer 500,000 0 $0 $0
(2) based on the difference between the $ per share of the common stock and the
option price.
In the above table, we have not presented (b) Shares acquired on exercise and
(c) Value realized ($)as they are not applicable.
Employment Agreements
---------------------
The Company employs its officers and employees pursuant to oral agreements
except as disclosed in the next paragraph.
In August of 1996, Eaton entered into a five-year employment agreement,
with a one-year non-compete, with four of the five minority shareholders of
Eaton and the husband of the fifth minority shareholder. The agreement has been
extended for an additional five years with a base annual salary of $120,000, for
four of the minority shareholders and the husband of the fifth minority
shareholder, effective January 2002. In August 2004, their base annual salary
was increased to $140,920. Each are also provided full insurance coverage on the
employee's vehicle and a vehicle allowance with an annual cost of $6,000 and
each also receives life-insurance coverage in the aggregate amount of $800,000,
including a separate single policy in the amount of $300,000, which the
employee's designee shall be the owner and beneficiary. The current employment
agreements contain a six month non-compete provision commencing on the date of
termination.
The Company has an oral employment agreement with Mr. Samuel Nyer, Chairman
of the Board, Vice-President of Mergers and Acquisitions and director, which
provides for an annual base salary of $70,000, which was effective October 1,
2004. Mr. Nyer's previous oral agreement provided for an annual base salary of
$140,000 and $4,200 for the use of an automobile. The Company has an oral
employment agreement with its President and Chief Executive Officer,
Vice-President of Finance and Treasurer, which provides for an annual base
salary of $85,000. Each of the oral agreements have provisions customary for
employees who are officers and/or directors of public companies.
Stock Option Plan
-----------------
The Company established the 1993 Stock Option Plan (the "Plan"). The Plan
provides: (a) officers and other employees of the Company and its subsidiaries
opportunities to purchase stock in the Company pursuant to options granted which
qualify as incentive stock options (ISOs) under Section 422(b) of the Internal
Revenue Code of 1986, as amended and (b) directors, executive officers,
employees and consultants of the Company and its subsidiaries opportunities to
purchase stock in the Company pursuant to options granted which do not qualify
as ISOs (Non-Qualified Options). Also, under the Plan, all directors have
60
automatically received a grant of non-qualified options which vest semi-annually
each June 30th and December 31st over a three-year period. The exercise price of
such options, as provided for in the Plan, is the closing price of the Company's
common stock on the last business day prior to the grant of options. For each
year of a director's term, 4,000 options are granted. After all directors begin
serving a three-year term, each director receives an initial grant of 12,000
options at the time of election, appointment or vesting of all prior options.
The board of directors has the authority to (i) determine the employees of
the Company and its subsidiaries to whom ISOs may be granted, and to determine
to whom Non-Qualified Options may be granted; (ii) determine the time or times
at which options may be granted; (iii) determine the exercise price of shares
subject to options; (iv) determine whether options granted shall be ISOs or
Non-Qualified Options; (v) determine the time or times when the options shall
become exercisable, the duration of the exercise period and when the options
shall vest; (vi) determine whether restrictions such as repurchase options are
to be imposed on shares subject to options and the nature of such restrictions,
if any, and (vii) interpret the Plan and promulgate and rescind rules and
regulations relating to it.
On October 4, 2002, the board of directors of the Company approved (a) an
amendment to the 1993 Stock Option Plan to (i) increase the aggregate number of
shares which may be issued under such plan to 1,000,000 and (ii) cease further
grants of options under such plan upon the effectiveness of a new stock option
plan of the Company; (b) a new stock option plan entitled "2002 Stock Option
Plan", under which plan 3,000,000 shares of common stock of the Company will be
available for award, and (c) the grant of options pursuant to the 2002 Stock
Option Plan to all existing directors and an officer of the Company equal to the
number of options currently granted to such persons (and in effect) under the
1993 Stock Option Plan or otherwise, each of which options shall vest
immediately (subject to shareholder approval), has a term of ten years, and an
exercise price equal to the "Market Price" (as such term is defined in the 2002
Stock Option Plan) on the date of the grant. This was approved at the annual
meeting in December 2002 by the shareholders of the Company.
The 2002 Stock Option Plan provides for all directors, whether or not they
are employees or officers, to receive automatic grants upon election or
appointment to the Board of Non-Qualified Options ("Automatic Stock Options").
The Automatic Stock Options expire ten years after the date of grant. The number
of Automatic Stock Options granted shall be 12,000 for a three-year-term board
member, 8,000 for a two-year-term board member or 4,000 for a one-year-term
board member, with 2,000 of such Non-Qualified Options vesting semi-annually
each June 30th and December 31st provided the optionee is still serving as a
director on that date. A similar provision is in place within the 2002 Stock
Option Plan for a certain officer of the Company who is not a director. After
vesting, and upon reelection to the Board, each director will receive a new
automatic grant of non-qualified options on the same terms as above. Except with
respect to certain ISOs, as provided for in the 2002 Stock Option Plan, the
exercise price of the options shall not be less than the Market Price (as
defined in the 2002 Stock Option Plan) of the Company's common stock on the day
of the grant.
61
ITEM 13. Security Ownership Of Certain Beneficial Owners, Management and Related
Stockholder Matters.
The following table sets forth information as of October 18, 2004, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of common stock by (i) each person known by the
Company to be the owner of more than five percent of the outstanding shares of
common stock, (ii) each director, and (iii) all executive officers and directors
as a group. The table includes the Class A preferred stock which has 2,000,000
votes and Class B preferred stock which has 2,000,000 votes.
Amount and nature
Name and address of of beneficial Percentage of
Class beneficial owner ownership (3) class owned
- ----- ---------------- ------------ -----------
Common stock, Samuel Nyer 5,950,400 4,5 ,7 63.0%
Class A c/o ADCO
preferred 1292 Hammond Street
stock and Bangor, Maine 04401
Class B
preferred stock
Common stock Nyle International Corp. 2,781,000 29.5
and Class A 72 Center Street
preferred Brewer, Maine 04412
stock
3) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934 and includes any options which vest within
60 days. Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.
4)Includes shares owned by Nyle since Mr. Samuel Nyer controls that corporation.
5) Includes 568,000 shares of common stock underlying vested options granted
pursuant to the Plans. Also includes 500,000 vested non-qualified options
granted pursuant to Mr. Nyer's employment agreement.
7) Consists of shares of common stock underlying vested options granted pursuant
to the Plans.
62
Common stock Karen L. Wright 71,100 5,7 *
1292 Hammond Street
Bangor, Maine 04401
Common stock Mark Dumouchel 2,000 7 *
c/o Eaton Apothecary
13 Water Street
Holliston, MA 01746
Common stock Donald C. Lewis, Jr. 61,000 7 *
c/o Nyle International Corp.
72 Center Street
Brewer, Maine 04412
Common Stock Kenneth L. Nyer, M.D. 76,000 7 *
48 Old Orchard Road
New Rochelle, New York 10804
Common Stock M. Randolph Prince 22,000 7 *
185 Serral Drive
Greeneville, TN 37745
Common Stock James Schweiger 22,000 7 *
1843 Morning Sky Drive
Winter Garden, FL 34787
Common Stock John Milledge 16,000 7 *
110 S East 6th Street
Ft. Lauderdale, FL 33301
All directors and executive officers 6,220,500 4,5,6,7
of the Company as a group (eight 65.9%
persons)
* less than 1% of class
6) Includes 1,100 shares of common stock which is held by an ADCO employee
investment club by which Ms. Wright owns 220 shares. The common stock held in
the investment club is considered beneficially owned by Ms. Wright as she has
voting and investment power of this stock.
63
Equity Compensation Plan Information.
- ------------------------------------
Number of securities to Weighted average Number of Securities
be issued upon exercise exercise price of remaining available
of outstanding options, outstanding for future issuance
Plan Category warrants and rights options, warrants under equity compensation
- ------------- ------------------- and rights plans (excluding
---------- securities reflected
in first column)
---------------
Equity compensation
plans approved by
security holders (1) 1,028,600 $2.83 2,605,800
Equity compensation
plans not approved
by security holders (2) 670,000 5.63 0
Total 1,698,600 $3.93 2,605,800
(1) Represents stock options granted under Nyer Medical Group, Inc.'s 1993 Stock
Option Plan and 2002 Stock Option Plan.
(2) Represents stock options granted under each of the (a) Business
Development Consulting Agreement, dated October 1, 1999, between Nyer Medical
Group, Inc. and Alliance Capital Resources, Inc., as amended by each of (i) the
Addendum to the Business Development Consulting Agreement, dated October 1,
2000, between the parties to the original document and (ii) the Stock Option
Agreement, dated as of December 6, 2002, between the same such parties
(collectively, the "Business Development Consulting Agreement"), and (b)
Employment Agreement, dated as of October 25, 1999, between Nyer Medical Group,
Inc. and Samuel Nyer, as amended by the Stock Option Agreement, dated as of
December 6, 2002, between the parties to the original document (collectively,
the "Employment Agreement of Samuel Nyer").
Business Development Consulting Agreement
-----------------------------------------
With respect to equity compensation, this agreement provides the Company's
business and public relations consultant, Alliance Capital Resources, Inc., with
150,000 options, for shares of common stock of the Company, which vested on
October 1, 1999, with an exercise price of $1.71 per share. The term of each
such option is ten years and the agreement also provides the consultant with
best effort registration rights with respect to any shares of common stock
issuable upon the exercise of the options.
Employment Agreement of Samuel Nyer
-----------------------------------
With respect to equity compensation, the Employment Agreement of Mr. Samuel
Nyer, president of the Company, granted Mr. Nyer 500,000 non-qualified options
to purchase the Company's common stock at an exercise price of $6.437 per share.
250,000 of the options vested in October 1999, with the remaining having vested
in October 2000. As of the date of this Report, none of the options have been
exercised.
Warrants to Third Party
-----------------------
For services provided, the Company issued to a third party warrants to
purchase 20,000 shares of common stock of the Company at an exercise price of
$14.75 per share, which warrants shall expire at the end of October 2004.
64
ITEM 14. Certain Relationships and Related Transactions.
Prior to 1991, the Company and Nyle each engaged in inter-company loans. At
June 30, 2003, the Company was owed $44,858 by Nyle, this included accrued
interest. Nyle paid the Company $44,858 in March 2004. The Company is currently
subject to a provision of the Florida General Corporation Law which restricts
loans to affiliated parties and therefore the Company has not lent any further
sums to its affiliates.
Mr. Samuel Nyer, chairman of the board, is a guarantor of ADCO's loan. See
ADCO employs two relatives of Ms. Karen Wright, the Company's president,
treasurer, chief executive officer, principal accounting and chief financial
officer and chief operating officer. One relative is employed as ADCO's
assistant comptroller and the other as a data entry clerk. The Company believes
that the compensation paid to these individuals is no greater than unrelated
persons would receive.
ITEM 15. Principal Accountant Fees and Services
Audit Fees
- ----------
We paid Sweeney, Gates and Co. audit fees in the aggregate of $142,885 and
$138,235 for professional services rendered for the audits of our annual
financial statements for the fiscal years ended June 30, 2004 and June 30, 2003,
respectively, and for the review of the financial statements included in our
quarterly reports on Form 10-Q during the last two fiscal years.
Audit-Related Fees
- ------------------
In addition to fees disclosed under "Audit Fees" above, the aggregate fees
for professional services rendered by Sweeney, Gates and Co. for assurance and
related services that are reasonably related to the performance of the audit and
reviews of our financial statements were $3,036 and $0 for the fiscal years
ended June 30, 2004 and June 30, 2003, respectively. Such services were in
connection with a registration statement.
Tax Fees
- --------
The aggregate fees for professional services rendered by Sweeney, Gates
and Co. for tax compliance, tax planning and tax advice were $23,820 and $22,500
for the fiscal years ended June 30, 2004 and June 30, 2003, respectively.
All Other Fees
- --------------
Sweeney, Gates and Co. did not provide Nyer Medical Group, Inc. and its
Subsidiaries with any other services during the fiscal years ended June 30,
2004 and June 30, 2003, respectively.
Audit Committee's Preapproval Policies and Procedures
- -----------------------------------------------------
The Audit Committee of our Board of Directors pre-approves on an annual
basis the audit, review or attest engagements of, and non-audit services to be
provided by our accountants based on historical information and anticipated
requirements for the following fiscal year. The Audit Committee pre-approves
specific types or categories of engagements constituting audit, review or attest
engagements of, and non-audit services as well as the range of fee amounts
corresponding to each such engagement. To the extent that management believes
that a new service or the expansion of a current service provided by our
accountants is necessary or desirable, such new or expanded services are
presented in detail to the Audit Committee for its review and approval prior to
our engagement of its accountants to render such services, and all of such is
done in a manner that does not delegate the responsibilities of the Audit
Committee to management as such concept is understood under the Securities
Exchange Act of 1934.
65
Part IV
ITEM 16. Exhibits and Financial Statement Schedules.
EXHIBIT INDEX
Sequential Exhibit No.
(a). Exhibits
3.1 Articles of Incorporation of Nyer Medical Group, Inc., (1)
3.2 Amendment to Articles of Incorporation of Nyer Medical
Group, Inc.(1)
3.3 Second Amendment to Articles of Incorporation of Nyer Medical
Group, Inc. (3)
3.4 Third Amendment to Articles of Incorporation of Nyer Medical
Group, Inc. (3)
3.5 Fourth Amendment to Articles of Incorporation of Nyer Medical
Group, Inc.
3.6 Bylaws of Nyer Medical Group, Inc.(1)
3.7 Amendment to Bylaws (1993)(3)
3.8 Amendment to Bylaws (1997)(3)
3.9 Amendment to Bylaws (2002)(3)
10.1 1993 Stock Option Plan(2)
10.2 Amendment to 1993 Stock Option Plan(3)
10.3 Second Amendment to 1993 Stock Option Plan (3)
10.4 Business Development Consulting Agreement, dated October 1, 1999,
between Nyer Medical Group, Inc. and Alliance Capital Resources,
Inc. (3)
10.5 Addendum to the Business Development Consulting Agreement, dated
October 1, 2000, between Nyer Medical Group, Inc. and Alliance
Capital Resources, Inc. (3)
10.6 Employment Agreement, dated as of October 25, 1999, between Nyer
Medical Group, Inc. and Mr. Samuel Nyer (3)
10.7 Third Amendment to 1993 Stock Option Plan (4)
10.8 2002 Stock Option Plan (4)
10.9 Stock Option Agreement between Nyer Medical Group, Inc. and Mr.
Samuel Nyer (4)
10.10 Stock Option Agreement between Nyer Medical Group, Inc. and
Alliance Capital Resources, Inc. (4)
10.11 Agreement, dated July 2002, between Gary Parker, M.D. and Nyer
Medical Group, Inc.
10.12 Agreement, dated September 7, 2004, between KeyBank, NA and ADCO
Surgical Supply, Inc.
10.13 Agreement, dated October 6, 2004, between KeyBank, NA and ADCO
Surgical Supply, Inc. - Promissory Note.
10.14 Agreement, dated October 6, 2004, by Nyer Medical Group, Inc.
in favor of KeyBank NA - Commercial Guaranty.
10.15 Agreement, dated October 6, 2004, between KeyBank, NA and ADCO
Surgical Supply, Inc. - Mortgage.
10.16 2004 Addendum to Agreement between Alliance Capital Resources, Inc.
and Nyer Medical Group, Inc. (not written).
10.17 Employment Agreement between Samuel Nyer and Nyer Medical Group,
Inc. (not written).
10.18 Employment Agreement between Karen Wright and Nyer Medical Group,
Inc. (not written).
10.19 Form of Employment Agreement, dated as of August 5, 1996, among
D.A.W., Inc., F.M.T. Franchise Company, Inc., Nyer Medical Group,
Inc. and an (unnamed) employee.(5)
10.20 Shareholders' Agreement, dated as of August 5, 1996, among Nyer
Medical Group, Inc., Mark Dumouchel, David Dumouchel, Lucille
Curry, Michael Curry, Donato Mazzola, Wayne Gunter, D.A.W., Inc.
and F.M.T. Franchise Company, Inc.
10.21 Service Agreement, dated as of August 5, 1996, by and between Nyer
Medical Group, Inc. and D.A.W., Inc. (6)
10.22 Agreement of D.A.W. Supplier.
14 Nyer Medical Group, Inc.'s Code of Conduct and Ethics Policy.
21 Subsidiaries
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of President, Chief Executive Officer and Chief
Financial Officer.
99.1 Amended and Restated Audit Committee Charter.
(1) Contained in Registration Statement on Form S-18 filed on April 13, 1992.
(2) Contained in Form 10-KSB filed April 1996.
(3) Contained in Form 10-K filed October 2002.
(4) Contained in Form 10-K filed September 2003.
66
(5) Contained in Form 8-K (as Exhibit C to Exhibit 2(Stock Exchange
Agreement)) filed on August 22, 1996. This form of employment agreement
was used for each minority shareholder of D.A.W., Inc., who was an
employee of D.A.W., Inc. and the husband of another minority shareholder
(which husband was an employee). The agreements for the employees were
materially the same. In August, 2004, the annual base salary of each
employee was increased to $140,920.
(6) Contained in Form 8-K (as Exhibit B to Exhibit 2(Stock Exchange
Agreement)) filed on August 22, 1996.
(b) Financial Statement Schedules - See Schedule II Valuation and
Qualifying Accounts and Reserves - Page F-29.
(c) Reports on Form 8-K.
On May 3, 2004, the Company filed a report on Form 8-K in order to
have its Code of Conduct and Ethics Policy set forth in a filing under
the Securities Act of 1934 that is electronically accessible and
publicly available.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on October 18, 2004.
NYER MEDICAL GROUP, INC.
Registrant
By:/s/ Karen L. Wright
Karen L. Wright, President,
Principal Executive Officer and
Chief Executive Officer
68
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 18th day of October 2004.
Signature Title
/s/ Samuel Nyer Chairman of the Board,
Samuel Nyer Vice-President of Mergers and
Acquisitions and Director
/s/ Karen L. Wright President, Principal Executive
Karen L. Wright Officer, Treasurer, Vice President
of Finance, Vice President of
Operations, Principal Financial
Officer, Principal Accounting
Officer and Assistant Secretary
/s/ Mark Dumouchel Director
Mark Dumouchel
/s/ Donald Lewis Director
Donald Lewis
/s/ John Milledge Director
John Milledge
/s/ Kenneth Nyer, M.D. Director
Kenneth Nyer, M.D.
/s/ M. Randolph Prince Director
M. Randolph Prince
/s/ James Schweiger Director
James Schweiger
69
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 3.5
Fourth Amendment to the Articles of Incorporation of
Nyer Medical Group, Inc
FOURTH AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF
NYER MEDICAL GROUP, INC.
The undersigned hereby certifies that the following Fourth Amendment to the
Articles of Incorporation, as amended, was approved by the board of
directors(the "Board") of Nyer Medical Group, Inc. (the "Company"), and approved
by a vote of majority of holders of the outstanding voting power of capital
stock of the Company present in person or by proxy and entitled to vote at the
annual meeting of shareholders held on the 6th day of December, 2002.
1. The name of the corporation is Nyer Medical Group, Inc.
Article IV is repealed, and Article IV will now read as follows:
Article IV - Capital Stock
The Company is authorized to issue 25,000,000 shares of common stock,
$.0001 par value.
The Company is authorized to issue 2,505,000 shares of preferred stock,
$.001 par value (the "Preferred Stock").
Of these shares of Preferred Stock, 5,000 shall be designated as Class A
Preferred Stock, each share of which shall have 1,000 votes on all matters at
which shares of common stock are entitled to vote. Class A Preferred Stock shall
have no other rights different than common stock.
The remaining 2,500,000 shares of Preferred Stock shall be designated as
Class B Preferred Stock. All Class B Preferred Stock is subject to issuance by
the Board in one or more series and through the filing a certificate pursuant to
the applicable law of the State of Florida.
Of the Class B Preferred Stock, 2,500 shares of Series 1 Class B Preferred
Stock (the "Series 1 Stock") may be issued. The Series 1 Stock is not
convertible into common stock but carries the right to 2,000 votes per share on
all matters requiring a vote of the common shareholders and preferred share-
holders. In all other respects, the Series 1 Stock shall be treated like common
stock except where otherwise provided by the Florida Statutes.
Except as expressly limited by Chapter 607, Florida Statutes, as amended
from time to time, or its successor legislation, as amended from time to time,
the authority of the Board with respect to each series shall include, but not be
limited to, determination of the following:
(a) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and if so, the terms of such voting rights;
(b) The number of shares constituting that series and the distinctive
designation of that series;
(c) The dividend rate on the shares of that series, whether dividends shall be
cumulative, and if so, from which date or dates, and the relative rights of
priority, if any, are paid on dividends on shares of that series;
(d) Whether that series shall have conversion privileges, and if so, the terms
and conditions of such conversion, including provision for adjustment of the
conversion rate in such events as the Board shall determine;
(e) Whether or not the shares of that series shall be redeemable, and if so, the
terms and conditions of such redemption, including the date or dates upon or
70
after which hey shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or purchase
of shares of that series, and if so, the terms and amount of such sinking fund;
The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
Any other relative rights, preferences and limitations of that series.
3. This amendment was duly adopted by the Board on the 4th day of October, 2002.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to the Articles
of Incorporation this 20th day of July, 2004.
(CORPORATE SEAL) NYER MEDICAL GROUP, INC.
By: /s/ Karen L. Wright
Karen L. Wright,
Vice President - Finance
71
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
EXHIBIT 10.11
Agreement, dated July 2002, between Gary Parker, M.D. and Nyer
Medical Group, Inc.
AGREEMENT
Agreement, dated as of July 2002, between NYER MEDICAL GROUP, INC., a Florida
corporation (with its successors and assigns, hereinafter referred to as the
"Corporation"), and GARY PARKER, M.D. (with his assigns, heirs and personal
representatives, hereinafter referred to as "Parker").
PRELIMINARY STATEMENT
In August, 1990, Parker invested in Nyle Home Health Supplies, Inc., an entity
which was affiliated with the Corporation. At such time the Corporation promised
and agreed (the "Promise") to give significant value to Parker in such case as
his investment should not provide a return to him. Such investment did not
provide a return, and the board of directors of the Corporation has determined,
and Parker has agreed with such determination, that, subject to the terms and
conditions of this Agreement, Parker is to be provided with 30,000 shares of
publicly tradable common stock of the Corporation (the "New Stock") as a
consequence of the Promise.
AGREEMENT
Parker and the Corporation therefore agree as follows:
1. The Corporation hereby issues to Parker the New Stock as a consequence of the
Promise.
2. Subject to the terms of this Agreement, the Corporation shall use its best
efforts to register the New Stock under the Securities Act of 1933, as amended
(the "Securities Act"), on any Securities and Exchange Commission ("SEC") form
(a "Registration Statement") which the Corporation deems appropriate.
3. The Corporation will notify Parker, at any time when a prospectus relating to
the New Stock covered by a Registration Statement of the Corporation is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Corporation will use its best efforts to promptly
amend or supplement the Registration Statement to correct any such untrue
statement or omission.
4. Parker hereby agrees to cooperate with the Corporation in connection with the
preparation and filing of any Registration Statement by the Corporation with
respect to the New Stock. In addition, Parker agrees that, upon receipt of any
notice from the Corporation of the happening of any event of the kind described
in Section 3, Parker will immediately discontinue disposition of the New Stock
pursuant to the Registration Statement covering the New Stock until Parker's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3 and, if so desired by the Corporation, Parker shall deliver to the
Corporation (at the expense of the Corporation) or destroy (and deliver to the
Corporation a certificate of such destruction) all copies, other than the
permanent file copies then in Parker's possession, of the prospectus covering
such New Stock current at the time of receipt of such notice.
Parker hereby represents and warrants to the Corporation as follows:
(a) Parker has been furnished with all materials relating to the
Corporation and its proposed activities which Parker has requested and has been
afforded the opportunity to obtain any additional information necessary with
respect to the New Stock.
(b) The Corporation has answered all inquiries made by Parker concerning
the Corporation and its proposed activities, or any other matters relating to
the Registration Statement and the proposed operations of the Corporation.
72
(c) Parker is an "accredited investor" as such term is defined in the
Federal securities laws. Parker has sufficient available financial resources to
provide adequately for his current needs, including possible personal
contingencies, and can bear the economic risk of a complete loss of the New
Stock without materially affecting his financial condition.
(d) Parker has not been furnished any offering literature other than any
materials and/or information made available to Parker by the Corporation as
described in Section 5(a), and Parker has relied only on such materials and/or
information. Furthermore, other than as set forth in this Agreement, no
representations or warranties have been made to Parker by the Corporation, or by
its directors or officers or employees or other agents with respect to the
intended business of the Corporation, the financial condition, prospects,
profitability, operations and/or potential of the Corporation, and/or the
economic or any other aspects of the consequences of an investment in the New
Stock, and Parker has not relied upon any information concerning the offering,
written or oral, other than information contained in this Agreement or provided
by the Corporation to Parker.
(e) Parker is acquiring the New Stock for which he hereby subscribes for
his own account, as principal, for investment and not with a view to the resale
or distribution of all or any part of the New Stock.
6. All notices and other communications pursuant to this Agreement shall be
in writing, either hand delivered or sent by certified or registered mail with
charges prepaid or by commercial courier guaranteeing next business day
delivery, or sent by facsimile machine, and shall be addressed:
(i) in the case of the Corporation, to the Corporation at its principal
office, 1292 Hammond Street, Bangor, Maine 04401, Attention: Ms. Karen Wright
(Facsimile No. 207-941-9392); and
(ii) in the case of Parker, to Parker (marked "Personal and Confidential)
at his office, 358 Broadway, Bangor, Maine 04401,(Facsimile No. 207-945-2623).
Any notice or other communication pursuant to this Agreement shall be deemed to
have been duly given or made and to have become effective (i) when delivered in
hand to the party to which it was directed, (ii) if sent by facsimile machine
and properly addressed in accordance with the foregoing provisions of this
Section 6, when received by the addressee, (iii) if sent by commercial courier
guaranteeing next business day delivery, on the business day following the date
of delivery to such courier, or (iv) if sent by first-class mail, postage
prepaid, and properly addressed in accordance with the foregoing provisions of
this Section 6, (A) when received by the addressee, or (B) on the third business
day following the day of dispatch thereof, whichever of (A) or (B) shall be the
earlier.
7. This Agreement shall inure to the benefit of and be binding upon Parker
and his assigns, heirs and personal representatives. This Agreement shall inure
to the benefit of and be binding upon the Corporation and its successors and
assigns. Parker's rights and obligations under this Agreement may only be
assigned or delegated if the New Stock is assigned to the same party to which
the rights hereunder are assigned or delegated, and such assignment of New Stock
is not in violation of the Securities Act or any state securities laws as set
forth in the written opinion of counsel to Parker, reasonably satisfactory to
the Corporation. The Corporation's rights and obligations under this Agreement
shall not be assigned or delegated.
8. This Agreement may not be amended or modified except by an instrument in
writing signed by the Corporation and Parker.
9. This agreement shall be governed by and construed in accordance with the
laws of the State of Florida. The headings in this Agreement are for convenience
only and shall not affect the construction hereof.
10. In the event that any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
11. This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. This agreement supersedes all prior
73
agreements and understandings between the parties with respect to the subject
matter contained herein and therein. Parker hereby agrees that upon the
execution, delivery and performance of this Agreement by the Corporation, there
shall be no other obligations whatsoever owed to Parker with respect to the
Promise and that the Corporation, its directors, officers, shareholders,
affiliates, employees and agents and each of their respective successors,
assigns, heirs and personal representatives shall be released from any and all
liability with respect thereto.
12. Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the plural
form of names, defined terms, nouns and pronouns shall include the singular and
vice-versa.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and it shall not be necessary in making proof
of this Agreement to produce or account for more than one such counterpart.
14. (a) Unless registered pursuant to the filing of the Registration
Statement, each certificate representing the New Stock shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under any applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of Parker, the Corporation shall remove the foregoing legend or
issue to such holder a new certificate therefor free of any such legend, if the
Corporation shall have received either an opinion of counsel or a "no-action"
letter of the SEC, in either case reasonably satisfactory in substance to the
Corporation and its counsel, to the effect that such legend is no longer
required.
(b) Notwithstanding anything to the contrary set forth herein and in
addition to the restrictions on transferability set forth herein and
transferability restrictions under applicable law, Parker further covenants and
agrees to the following transfer restrictions with respect to the New Stock.
Parker will not, directly or indirectly, issue, offer, agree or offer to sell,
sell, make short sales of, grant an option for the purchase or sale of,
transfer, pledge, assign, hypothecate, distribute or otherwise encumber or
dispose of (collectively, "Transfer") any shares of New Stock, or any options,
rights, warrants or other securities convertible into, exchangeable or
exercisable for or evidencing any right to purchase or subscribe for such New
Stock, until 180 days after a registration statement covering the resale to the
public of the New Stock and prepared in accordance with the provisions of this
Agreement and the Registration Statement is declared effective by the SEC (the
"Initial Phase"); During the period from the Initial Phase until 180 days
thereafter (the "Release Period"), Parker shall not Transfer more than 5,000
shares of the New Stock in any 30 day period thereof; After the Release Period,
the restrictions on Transfer set forth in this Section 14(b) shall no longer
apply. Notwithstanding the foregoing, there shall be no restrictions on any (x)
Transfer as a gift or gifts, or to trusts for the benefit of family members of
Parker, provided that the transferee agrees in writing to be bound by the
restrictions on Transfer set forth herein, or by will or the laws of descent and
distribution, provided that prior to such Transfer of New Stock the transferee
agrees in writing to be bound by the restrictions on Transfer set forth herein,
or (y) Transfer with the prior written approval of the Corporation.
74
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
NYER MEDICAL GROUP, INC.
By: /s/ Samuel Nyer
Samuel Nyer, President
/s/ Gary Parker, M.D.
GARY PARKER, M.D.
75
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.12
Agreement, dated September 7, 2004, between KeyBank, NA and ADCO Surgical
Supply, Inc.
Commitment Letter - Line of Credit
KeyBank KeyBank National Association
ADCO Surgical Supply, Inc.
1292 Hammond Street
Bangor, ME 04401
September 02, 2004
RE: Working Capital Line of Credit
Dear ADCO Surgical Supply, Inc.:
We are pleased to inform you that KeyBank National Association ("Bank") has
approved your request for financing as set forth in this commitment letter
("Commitment"). Based on representations made by you in your proposal and the
information and assumptions for income and expenses provided, the basic terms of
the proposed financing are set forth as follows:
1. BORROWER: ADCO Surgical Supply, Inc., a Corporation, whose address
is 1292 Hammond Street, Bangor, ME 04401.
2. TERMS:
Loan Amount:
Real Estate Loan in the maximum principal amount of $300,000.00.
Interest Rate:
Variable Interest Rate; Wall Street Journal Prime Rate: The Wall Street Journal
Prime Rate ("Index"). The Wall Street Journal Prime Rate is the "prime rate" as
published each business day in the "Money Rates" column of the Wall Street
Journal. The interest rate will change immediately and correspondingly on the
date of each published change in the Index. The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute Index after
notice to Borrower.
Term:
The Line of Credit will be available until its expiration date of November 30,
2005 and is due upon expiration unless renewed in writing by the Bank. The Bank
will review the Line of Credit prior to expiration upon receipt of required
current financial information and Borrower's request for renewal.
Repayment:
There will be monthly payments of interest only, due at maturity unless renewed.
Fees:
Loan Fee: The loan fee for this transaction is $500 of which is payable at
closing. Additionally, the Borrower is responsible for outside costs such as
legal, appraisal or recording fees. Borrower will be notified of any such fees
prior to closing.
3. LATE CHARGE/DEFAULT RATE:
76
Prior to maturity, for each payment not paid in full within ten (10) days after
its due date, Borrower will pay a fee equal to the greater of 5% of the monthly
payment or $25. A default rate of interest will accrue at a rate of three
percent (3%) over the interest rate provided for by the Note upon an event of
default.
4. PURPOSE OF LOAN AND USE OF PROCEEDS:
To provide for the ongoing working capital needs of the Borrower.
5. PREPAYMENT PENALTY: None
6. GUARANTOR:
Guaranty of Nyer Medical Group, Inc. ("Guaranty").
7. COLLATERAL:
The Loans shall be evidenced by a promissory note ("Note"), a loan agreement
("Loan Agreement"), and the Guaranty, and shall be secured by: a) A second lien
on the fee simple interest in the Land and Improvements known as 1292 Hammond
Street, Bangor, ME 04401 and all existing or subsequently erected buildings,
improvements and fixtures therein, which interest shall be good, marketable, and
free and clear of all defects, liens, encumbrances, restrictions, and easements
which are not acceptable to the Bank. Any such interests of the Borrower shall
not be subject to any transaction or condition whereby ownership would be
adversely affected;
8. COVENANTS:
Borrower shall comply with the following covenants: a) None.
9. VALUATION:
The valuation may be an appraisal or such other form of value acceptable to the
Bank. If an appraisal is required, the appraiser will be selected and directly
engaged by the Bank. The Borrower will pay the cost of the appraisal at the time
it is ordered.
- Loan amount shall not exceed $300,000.00 or 80 % of the valuation less the
outstanding balance on any existing liens.
10. INSURANCE REQUIREMENTS:
a) HAZARD INSURANCE: Evidence of All-Risk-Hazard Insurance covering the
improvements must be in an amount sufficient to cover collateral value (net of
land value) or loan amount, whichever is less, will be required. The insurance
company must be acceptable to the Bank and "KeyBank National Association, its
successors and assigns" shall be named in the mortgagee loss payable clause.
Each policy shall provide that it cannot be canceled, reduced or terminated
without thirty- (30) days prior written notice to Bank.
b) FLOOD INSURANCE:
If the Land is located in a FEMA Special Flood Hazard Zone, the Borrower shall
be required to provide and maintain flood insurance in the maximum amount
available but not in excess of the Loan amount. "KeyBank National Association,
its successors and assigns" shall be named in the mortgagee loss payable. Each
policy shall provide that it cannot be canceled, reduced or terminated without
thirty- (30) days prior written notice to Bank.
c) INSURANCE
MAILING ADDRESS:
All required insurance policies and/or notices shall be mailed to:
KeyBank National Association
OH-01-51-0541 Commercial Loans
4910 Tiedeman P.O. Box 5278
Brooklyn, Ohio 44144 Boise, ID 83705
11. ENVIRONMENTAL REQUIREMENTS:
Any Land to be used as loan collateral must be
free from risk, in Bank's sole judgment, from all hazardous substances, toxic
substances or hazardous waste, as defined by any federal, state or local law or
regulation, and must be free from all other contamination, which even if not so
regulated, is known to pose a health hazard to any person. Also, the Land must
not be "Wetlands" nor contain underground storage tanks or oil or gas wells.
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The Borrower must answer questions on the Bank's Environmental Issues Checklist.
A Phase I Environmental Site Assessment is required for all loans of
$1,000,000.00 or more and for loans of $500,000.00 or more in environmentally
sensitive industries. For all other loans, the Bank may determine, in its sole
judgment, that a Phase I Environmental Site Assessment is required.
12. TITLE INSURANCE AND SURVEY:
An acceptable ALTA mortgagee's policy of title insurance showing the Bank's
interest as a second lien upon the Project may be required. If required it must
be from a title insurance company acceptable to Bank. All real estate taxes and
other municipal charges, which are due, shall be paid current. Title insurance
(when required) will be required to insure the Bank as to all standard
exceptions including mechanics liens and include such endorsements as may be
required by the Bank. Cost of any title insurance will be charged to the
Borrower at settlement. The closing agent for the Loan shall be determined by
the Bank. Surveys will be required as necessary to fulfill the title insurance
company's requirements.
13. REAL ESTATE TAX AND INSURANCE DEPOSITS:
The mortgage/deed of trust will contain a provision requiring the Borrower to
deposit 1/12th of the estimated annual real estate tax and hazard insurance
premium with the Bank on each monthly installment date if and when such deposits
are required by the Bank. Initially, and until further notice, no such deposits
will be required.
14. PRE-CLOSING REQUIREMENTS: Upon acceptance of this Commitment, Borrower shall
provide, no later than thirty (30) days after acceptance, the following in form
acceptable to the Bank: a) Federal Tax I.D. Number of Borrower and Guarantor. b)
Executed copy of Purchase Agreement. (Not required for refinance transactions)
c) A preliminary title commitment acceptable to the Bank; d) Certified copies of
all leases covering the Property; e) A borrowing resolution (as necessary) which
identifies those individuals by name and title who have the proper legal
capacity and authority to enter into the Loan transaction and execute the Loan
Documents; f) Borrower and Guarantor documents as applicable: Corporate
Documents: Prior to closing, Borrower and all corporate Guarantors shall submit
to the Bank a copy of their Articles and Certificate of Incorporation,
Certificate of Continued Existence or Good Standing (if applicable) and Bylaws,
(with amendments to all documents);
- - Limited Liability Company (LLC) Documents: Prior to closing, Borrower and any
LLC Guarantor shall submit to Bank a copy of its Articles of Organization and
Operating Agreement (with amendments to all documents);
- - Partnership Documents: Prior to closing, Borrower and any partnership
Guarantor shall submit to Bank a copy of its Partnership Agreement, and a copy
of its filed Partnership Certificate (with amendments to all documents). If
Borrower or Guarantor is a Limited Partnership, a copy of the Limited
Partnership Certificate and evidence of its filing with the state shall also be
submitted to the Bank;
- - Trust Documents: Prior to closing, Borrower and any trust Guarantor shall
submit to Bank its Trust Agreement (with all amendments) and verify that the
trustee has the power to take all of the actions required by this loan approval.
g) Evidence of All-Risk-Hazard Insurance and flood (if applicable) insurance
with the Bank properly named as a mortgagee loss payee;
h) Other items as listed here:
None.
15. CLOSING COSTS:
Borrower agrees to pay all expenses including, but not limited to, title company
premiums and charges, fees of the Bank's counsel, appraisal, environmental site
assessment (if applicable), recording fees and taxes, property inspection fees,
consultant fees, and all other reasonable expenses in connection with the
preparation, closing and disbursement of the Loan. To the extent incurred, the
foregoing expenses shall be paid by Borrower whether or not the Loan shall close
or be funded.
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16. DOCUMENTS:
The Bank's form of Loan Documents including but not limited to the Note,
Mortgage/Deed of Trust and Guaranties shall be used in this transaction.
17. FINANCIAL STATEMENTS:
Borrower will be required to furnish current financial information and an annual
certification that no adverse condition has occurred that would affect the
credit or security the Bank relied upon in the granting of this loan. Financial
information will be in the form of annual financial statements by a Certified
Public Accountant acceptable to the Bank. Individual Borrower and/or Guarantor's
financial information will require current Personal Financial Statements in Bank
form annually and Individual Internal Revenue Service Tax Returns if requested
by the Bank.
18. LEGAL COUNSEL:
Satisfaction of requirements of the Bank's legal counsel and approval by counsel
of all Loan Documents will be required.
19. COMMITMENT ACCEPTANCE & EXPIRATION:
This commitment letter has been issued in response to Borrower's request and
shall not become effective until such time as the Bank has received Borrower's
unconditional written acceptance thereof. If the commitment letter is not
returned within 14 days of the date of this letter signed by Borrower or
November 31, 2004, whichever is earlier, it shall be of no further force or
effect. This commitment is made to Borrower and is not assignable or
transferable to any other party or entity. The terms and conditions of this
commitment may not be modified, changed, waived, or extended unless agreed to in
writing and executed by all parties. The loan must close on or before November
31, 2004 or it shall be of no further force and effect.
20. MATERIAL ADVERSE CHANGE:
There shall have been no material adverse change and no material inaccuracy in
any information delivered to Bank regarding the Borrower or any Guarantor prior
to the closing of this Loan.
21. NOTICE REQUIRED BY STATE LAW:
MAINE: UNDER MAINE LAW, NO PROMISE, CONTRACT OR AGREEMENT TO LEND MONEY, EXTEND
CREDIT, FORBEAR FROM COLLECTION OF A DEBT OR MAKE ANY OTHER ACCOMMODATION FOR
THE REPAYMENT OF A DEBT FOR MORE THAN $250,000 MAY BE ENFORCED IN COURT AGAINST
LENDER UNLESS THE PROMISE, CONTRACT OR AGREEMENT IS IN WRITING AND SIGNED BY
LENDER. ACCORDINGLY, BORROWER CANNOT ENFORCE ANY ORAL PROMISE UNLESS IT IS
CONTAINED IN A LOAN DOCUMENT SIGNED BY LENDER, NOR CAN ANY CHANGE, FORBEARANCE,
OR OTHER ACCOMMODATION RELATING TO THIS LOAN OR ANY LOAN DOCUMENT BE ENFORCED,
UNLESS IT IS IN WRITING AND SIGNED BY LENDER.
If this Commitment is acceptable, please sign, date and return a copy of this
letter along with your check in the amount of the commitment fee payable to
KeyBank National Association. Your payment of the Commitment Fee will serve as a
non-refundable Commitment deposit and the balance of the Loan Fee will be
collected at the time of closing.
We are pleased to offer this financing and thank you for choosing KeyBank
National Association for this loan and relationship opportunity. We look forward
to working with you and your business.
If you have any questions, please let me know.
Sincerely, /s/ Richard L Fournier, II Richard L Fournier, II Vice President
KeyBank N.A.
79
THE TERMS AND CONDITIONS OF THIS COMMITMENT ARE ACCEPTED AND AGREED TO ON This 7
DAY OF September, 2004.
ADCO Surgical Supply, Inc., Borrower
/s/ Samuel Nyer
By: Samuel Nyer, President
Nyer Medical Group, Inc., Guarantor
/s/ Samuel Nyer
By: Samuel Nyer, CEO
80
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.13
Agreement, dated October 6, 2004, between KeyBank, NA and ADCO Surgical
Supply, Inc. - Promissory Note.
PROMISSORY NOTE
Principal Loan Date Maturity Loan No Call/Coll Acct Officer
$300,000.00 10-06-2004 11001 402/802E85385 RLF19
Borrower: ADCO Surgical Supply, Inc. Lender: KeyBank National
1292 Hammond Street Association
Bangor, ME 04401 ME- MM-Bangor
23 Water St.
Bangor, ME 04401
Principal Amount: $300,000.00 Initial Rate: 4.750% Date of Note: October 6,
2004
PROMISE TO PAY. ADCO Surgical Supply, Inc. ("Borrower") promises to pay to
KeyBank National Association ("Lender"), or order, in lawful money of the
United States of America, on demand, the principal amount of Three Hundred
Thousand & 00/100 Dollars ($300,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan immediately upon Lender's demand. Payment
in full is due immediately upon Lender's demand. Borrower will pay regular
monthly payments of all accrued unpaid interest due as of each payment date,
beginning November 6, 2004, with all subsequent interest payments to be due on
the same day of each month after that. Unless otherwise agreed or required by
applicable law, payments will be applied first to any accrued unpaid interest;
then to principal; then to any unpaid collection costs; and then to any late
charges. The annual interest rate for this Note is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Prime Rate announced by
Lender (the 'Index'). The Index is not necessarily the lowest rate charged by
Lender on its loans and is set by Lender in its sole discretion. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notifying Borrower. Lender will tell Borrower the current
Index rate upon Borrower's request. The interest rate change will not occur more
often than each day that the Index changes. The interest rate will change
automatically and correspondingly on the date of each announced change of the
Index by Lender. Borrower understands that Lender may make loans based on other
rates as well. The Index currently is 4.750% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate equal to
the Index, resulting in an initial rate of 4.750% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, early payments will reduce the principal balance due. Borrower agrees
not to send Lender payments marked "paid in full", "without recourse", or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lender's rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment instrument
that indicates that the payment constitutes "payment in full" of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
81
of a disputed amount must be mailed or delivered to: KeyBank National
Association, ME-MM-Bangor, 23 Water St., Bangor, ME 04401.
LATE CHARGE. If a regularly scheduled interest payment is 10 days or more late,
Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled
payment or $25.00, whichever is greater. If Lender demands payment of this loan,
and Borrower does not pay the loan in full within 10 days after Lender's demand,
Borrower also will be charged either 5.000% of the unpaid portion of the sum of
the unpaid principal plus accrued unpaid interest or $25.00, whichever is
greater.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 3.000 percentage points over
the Index. The interest rate will not exceed the maximum rate permitted by
applicable law.
LENDER'S RIGHTS. Upon Lender's demand, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately due,
and then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), and appeals. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law.
WAIVE JURY. Borrower hereby expressly and voluntarily waives any and all rights,
whether arising under the Maine constitution, and any Rules of Civil Procedure,
common law or otherwise, to demand a trial by jury in any action, suit,
proceeding or counterclaim involving Lender as to any matter, claim or cause of
action whatsoever arising out of or in any way related to any agreement or loan
with Lender or any of the transactions contemplated between the parties.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Maine. This Note has
been accepted by Lender in the State of Maine.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account(. This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by
82
PROMISSORY NOTE
Loan No: 11001 (Continued) Page 2
law. Borrower authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all sums owing on the indebtedness against any and all such
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral.
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following person currently is authorized to request
advances and authorize payments under the line of credit until Lender receives
from Borrower, at Lender's address shown above, written notice of revocation of
his or her authority: Karen Wright, President of ADCO Surgical Supply, Inc.
Borrower agrees to be liable for all sums either: (Al advanced in accordance
with the instructions of an authorized person or (BI credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs.
ANNUAL ADMINISTRATIVE FEE. Borrower will pay an annual administrative fee of
$0.00 on the date of the Note and $750.00 ($0.00 initials R.F. and K.W) each
subsequent anniversary date of the Note. This fee does not constitute the
commitment of Lender to make advances under the Note.
DEMAND LINE OF CREDIT. Borrower understands that Lender is authorized to make an
annual (or more frequent) credit review based upon Borrower's current financial
condition in determining whether to continue the line of credit. Nevertheless,
Lender may, at any time, with or without cause, refuse to advance funds or
extend credit under the line of credit.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
ADCO SURGICAL SUPPLY, INC.
By: /s/ Karen L. Wright
Karen L. Wright, President of ADCO Surgical Supply, Inc.
83
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.14
Agreement, dated October 6, 2004, by Nyer Medical Group, Inc.
in favor of KeyBank NA - Commercial Guaranty.
COMMERCIAL GUARANTY
Principal Loan Date Maturity Loan No Call/Coll Acct Officer
402/802 E85386 RLF19
Borrower: ADCO Surgical Supply, Inc. Lender: KeyBank National
1292 Hammond Street Association
Bangor, ME 04401 ME-MM-Bangor
23 Water St.
Bangor, ME 04401
Guarantor: Nyer Medical Group, Inc.
1292 Hammond Street
Bangor, ME 04401
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including Without
limitation the principal Note amount of Three Hundred Thousand & 00/100 Dollars
($300,000.00).
GUARANTY. For good and valuable consideration, Nyer Medical Group, Inc.
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
KeyBank National Association ("Lender") or its order, on demand, in legal tender
of the United States of America, the Indebtedness (as that term is defined
below) of ADCO Surgical Supply, Inc. ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described herein, plus
all costs and expenses of (A)enforcement of this Guaranty and (B) collection and
sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, Lender's rights under all guaranties shall
be cumulative. This Guaranty shall not (unless specifically provided below to
the contrary) affect or invalidate any such other guaranties. Guarantor's
liability will be Guarantor's aggregate liability under the terms of this
Guaranty and any such other unterminated guaranties.
INDEBTEDNESS GUARANTEED. The Indebtedness guaranteed by this Guaranty includes
the Note, including (a) all principal, (b) all interest, (c) all late charges,
(d) all loan fees and loan charges, and(e) all collection costs and expenses
relating to the Note or to any collateral for the Note. Collection costs and
expenses include without limitation all of Lender's attorneys' fees.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all of Guarantor's other
obligations under this Guaranty shall have been performed in full. Release of
any other guarantor or termination of any other guaranty of the Indebtedness
shall not affect the liability of Guarantor under this Guaranty. A revocation
Lender receives from any one or more Guarantors shall not affect the liability
of any remaining Guarantors under this Guaranty. This Guaranty covers a
revolving line of credit and it is specifically anticipated that fluctuations
will occur in the aggregate amount of Indebtedness owing from Borrower to
Lender. Guarantor specifically acknowledges and agrees that fluctuations in the
amount of Indebtedness, even to zero dollars ($ 0.00), shall not constitute a
termination of this Guaranty. Guarantor's liability under this Guaranty shall
terminate only upon (A) termination in writing by Borrower and Lender of the
line of credit, (B) payment of the Indebtedness in full in legal tender, and(C)
84
payment in full in legal tender of all of Guarantor's other obligations under
this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (A) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (B) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (C) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (D) to release,
substitute, agree not to sue, or deal with any one or more of Borrower's
sureties, endorsers, or other guarantors on any terms or in any manner Lender
may choose; (E) to determine how, when and what application of payments and
credits shall be made on the Indebtedness (F) to apply such security and direct
the order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security agreement or
deed of trust, as Lender in its discretion may determine;(G) to sell, transfer,
assign or grant participations in all or any part of the Indebtedness; and (H)
to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (A) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(B) this Guaranty is executed at Borrower's request and not at the request of
Lender; (C) Guarantor has full power, right and authority to enter into this
Guaranty; (D) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (El Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (F) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present Guarantor's financial condition as of
the dates the financial information is provided; (G) no material adverse change
has occurred in Guarantor's financial condition since the date of the most
recent financial statements provided to Lender and no event has occurred which
may materially adversely affect Guarantor's financial condition; (H) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(I) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (J) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
COMMERCIAL GUARANTY
Loan No: 11001 (Continued) Page 2
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S FINANCIAL STATEMENTS. Guarantor agrees to furnish Lender with the
following:
Annual Statements. As soon as available, but in no event later than one-hundred
- -twenty (120) days after the end of each fiscal year, Guarantor's balance sheet
and income statement for the year ended, prepared by Guarantor.
Interim Statements. As soon as available, but in no event later than one-
hundred-twenty (120) days after the end of each Half-year, Guarantor's balance
85
sheet and profit and loss statement for the period ended, prepared by Guarantor.
Tax Returns. As soon as available, but in no event later than one-hundred-
Twenty (120) days after the applicable filing date for the tax reporting period
ended, Federal and other governmental tax returns, prepared by a certified
public accountant satisfactory to Lender.
All financial reports required to be provided under this Guaranty shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Guarantor as being true and correct.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (A) to continue lending money or to extend other
credit to Borrower; (B) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or non-action on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (C) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (D) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (E) to give
notice of Lender's acceptance of this Guaranty, or of any default by Borrower
under the Indebtedness or any agreement with Lender, or of the terms, time, and
place of any public or private sale of personal property security held by Lender
from Borrower or to comply with any other applicable provisions of the Uniform
Commercial Code; (F) to pursue any other remedy within Lender's power; or (G) to
commit any act or omission of any kind, or at any time, with respect to any
matter whatsoever.
In addition to the waivers set forth herein, if now or hereafter Borrower is or
shall become insolvent and the Indebtedness shall not at all times until paid be
fully secured by collateral pledged by Borrower, Guarantor hereby forever waives
and gives up in favor of Lender and Borrower, and Lender's and Borrower's
respective successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so that
at no time shall Guarantor be or become a "creditor" of Borrower within the
meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal
bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (A)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (B) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without (imitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (C) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (DI any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (E) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced, there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable Statute
of limitations; or (F) any defenses given to guarantors at law or in equity
other than actual payment and performance of the Indebtedness. If payment is
made by Borrower, whether voluntarily or otherwise, or by any third party, on
the Indebtedness and thereafter Lender is forced to remit the amount of that
payment to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of the enforcement of
this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
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GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and Agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Guarantor's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Guarantor holds
jointly with someone else and all accounts Guarantor may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Guarantor authorizes Lender, to the
extent permitted by applicable law, to hold these funds if there is a default,
and Lender may apply the funds in these accounts to pay what Guarantor owes
under the terms of this Guaranty.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be superior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor,
from time to time to file financing statements and continuation statements and
to execute documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Guaranty. No alteration of or amendment to this Guaranty shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand Lender's costs
and expenses, including Lender's attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Guaranty. Lender may hire or
pay someone else to help enforce this Guaranty, and Guarantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy.
COMMERCIAL GUARANTY
Loan No: 11001 (Continued) Page 3
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
Caption Headings. Caption headings in this Guaranty are for convenience purposes
only and are not to be used to interpret or define the provisions of this
Guaranty.
87
Governing Law. This Guaranty will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Maine. This Guaranty
has been accepted by Lender in the State of Maine.
Integration. Guarantor further agrees that Guarantor has read and fully
understands the terms of this Guaranty; Guarantor has had the opportunity to be
advised by Guarantor's attorney with respect to this Guaranty; the Guaranty
fully reflects Guarantor's intentions and parol evidence is not required to
interpret the terms of this Guaranty. Guarantor hereby indemnifies and holds
Lender harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach by
Guarantor of the warranties, Representations and agreements of this paragraph.
Interpretation. In all cases where there is more than one Borrower or Guarantor,
then all words used in this Guaranty in the singular shall be deemed to have
been used in the plural where the context and construction so require; and where
there is more than one Borrower named in this Guaranty or when this Guaranty is
executed by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and transferees
of each of them. If a court finds that any provision of this Guaranty is not
valid or should not be enforced, that fact by itself will not mean that the rest
of this Guaranty will not be valid or enforced. Therefore, a court will enforce
the rest of the provisions of this Guaranty even if a provision of this Guaranty
may be found to be invalid or unenforceable. If any one or more of Borrower or
Guarantor are corporations, partnerships, limited liability companies, or
similar entities, it is not necessary for Lender to inquire into the powers of
Borrower or Guarantor or of the officers, directors, partners, managers, or
other agents acting or purporting to act on their behalf, and any indebtedness
made or created in reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Notices. Any notice required to be given under this Guaranty shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United States mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this Guaranty.
Any party may change its address for notices under this Guaranty by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. For notice purposes, Guarantor agrees
to keep Lender informed at all times of Guarantor's current address. Unless
otherwise provided or required by law, if there is more than one Guarantor, any
notice given by Lender to any Guarantor is deemed to be notice given to all
Guarantors.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver by Lender of a provision of
this Guaranty shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Guaranty. No prior waiver by Lender, nor any course of dealing between
Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of
any of Guarantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Guaranty, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
Successors and Assigns. Subject to any limitations stated in this Guaranty on
transfer of Guarantor's interest, this Guaranty shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
Waive Jury. Guarantor hereby expressly and voluntarily waives any and all
rights, whether arising under the Maine constitution, and any Rules of Civil
Procedure, common law or otherwise, to demand a trial by jury in any action,
suit, proceeding or counterclaim involving Lender as to any matter, claim or
cause of action whatsoever arising out of or in any way related to any agreement
or loan with Lender or any of the transactions contemplated between the parties.
88
ADDITIONAL INDEBTEDNESS GUARANTEED. In addition to the Indebtedness described in
the paragraph herein entitled "Indebtedness Guaranteed", the Indebtedness
guaranteed by this Guaranty includes any and all amounts owing by Borrower to
Lender under any derivative or hedging product, including, without limitation,
interest rate or equity swaps, futures, options, caps, floors, collars, or
forwards entered into by Borrower and Lender in connection with the Note or any
other Indebtedness guaranteed hereunder.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Guaranty. Unless specifically stated to the contrary,
all references to dollar amounts shall mean amounts in lawful money of the
United States of America. Words and terms used in the singular shall include the
plural, and the plural shall include the singular, as the context may require.
Words and terms not otherwise defined in this Guaranty shall have the meanings
attributed to such terms in the Uniform Commercial Code:
Borrower. The word "Borrower" means ADCO Surgical Supply, Inc. and includes all
co-signers and co-makers signing the Note.
GAAP. The word "GAAP" means generally accepted accounting principles.
Guarantor. The word "Guarantor" means each and every person or entity signing
this Guaranty, including without limitation Nyer Medical Group, Inc..
Guaranty. The word 'Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
Indebtedness. The word "Indebtedness" means Borrower's indebtedness to Lender as
more particularly described in this Guaranty.
Lender. The word "Lender" means KeyBank National Association, its successors and
assigns.
Note. The word "Note" means the promissory note dated October 6, 2004, in the
original principal amount of $300,000.00 from Borrower to Lender, together with
all renewals of, extensions of, modifications of, refinancings of,
consolidations of, and substitutions for the promissory note or agreement.
Related Documents. The words "Related Documents" mean all promissory notes.
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
COMMERCIAL GUARANTY
Loan No: 11001 (Continued) Page 4
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY". NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 6, 2004.
GUARANTOR:
NYER MEDICAL GROUP, INC.
By: /s/ Karen Wright
Karen Wright, President Nyer Medical Group, Inc.
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NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.15
Agreement, dated October 6, 2004, between KeyBank, NA and ADCO Surgical
Supply, Inc. - Mortgage.
RECORDATION REQUESTED BY:
KeyBank National Association
ME-MM-Bangor
23 Water St.
Bangor, ME 04401
WHEN RECORDED MAIL TO:
KeyBank National Association
Mail Code: OH-01-51-O544
4910 Tiedeman Road
Brooklyn, OH 44144
SEND TAX NOTICES TO:
ADCO Surgical Supply, Inc.
1292 Hammond Street
Bangor, ME 04401
MORTGAGE
MAXIMUM LIEN. The lien of this Mortgage will not exceed at any one time the
principal amount of $300,000.00, plus interest and other advances Lender makes
which are necessary to protect Lender's security interest.
THIS MORTGAGE dated October 6, 2004, is made and executed between ADCO Surgical
Supply, Inc., a Maine corporation, whose address is 1292 Hammond Street, Bangor,
ME 04401(referred to below as "Grantor") and KeyBank National Association, whose
address is 23 Water St., Bangor, ME 04401 referred to below as "Lender"). This
Mortgage is given primarily for a business, commercial or agricultural purpose.
GRANT OF MORTGAGE. In consideration of the loans secured hereby and for other
valuable consideration, the receipt of which is hereby acknowledged, Grantor
does hereby give, grant, bargain, sell, mortgage and convey to Lender, its
successors and assigns, forever, the following described real property, together
with all existing or subsequently erected or affixed buildings, improvements and
fixtures; all easements, rights of way, and appurtenances; all water, water
rights, watercourses and ditch rights (including stock in utilities with ditch
or irrigation rights); and all other rights, royalties, and profits relating to
the real property, including without limitation all minerals, oil, gas,
geothermal and similar matters, (the "Real Property" located in Penobscot
County, State of Maine:
See Exhibit A, which is attached to this Mortgage and made a part of this
Mortgage as if fully set forth herein. The Real Property or its address is
commonly known as 1292 Hammond Street, Bangor, ME 04401.
CROSS-COLLATERALIZATION. In addition to the Note, this Mortgage secures all
obligations, debts and liabilities, plus interest thereon, of Grantor to Lender,
or any one or more of them, as well as all claims by Lender against Grantor or
any one or more of them, whether now existing or hereafter arising, whether
related or unrelated to the purpose of the Note, whether voluntary or otherwise,
whether due or not due, direct or indirect, determined or undetermined, absolute
or contingent, liquidated or unliquidated whether Grantor may be liable
individually or jointly with others, whether obligated as guarantor, surety,
accommodation party or otherwise, and whether recovery upon such amounts may be
or hereafter may become barred by any statute of limitations, and whether the
obligation to repay such amounts may be or hereafter may become otherwise
unenforceable.
REVOLVING LINE OF CREDIT. This Mortgage secures the Indebtedness including,
without limitation, a revolving line of credit, which obligates Lender to make
90
future advances to Grantor so long as Grantor complies with all the terms of the
Note.
Grantor presently assigns to Lender all of Grantors right, title, and interest
in and to all present and future leases of the Property and all Rents from the
Property. In addition, Grantor grants to Lender a Uniform Commercial Code
security interest in the Personal Property and Rents.
THIS MORTGAGE, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN
THE RENTS AND PERSONAL PROPERTY. IS GIVEN TO SECURE IA) PAYMENT OF THE
INDEBTEDNESS AND (B)PERFORMANCE OF ANY AND ALL OBLIGATIONS UNDER THE NOTE, THE
RELATED DOCUMENTS, AND THIS MORTGAGE. PROVIDED, NEVERTHELESS, that if Grantor
shall pay all Indebtedness secured hereby, including without limitation, all
principal and interest under the terms of the Note, and shall well and truly
perform the obligations contained in this Mortgage, then this Mortgage shall be
null and void, otherwise to remain in full force and effect. THIS MORTGAGE IS
GIVEN AND ACCEPTED ON THE FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Mortgage, Grantor
shall pay to Lender all amounts secured by this
MORTGAGE
Loan No: 11001 (Continued) Page 2
Mortgage as they become due and shall strictly perform all of Grantor's
obligations under this Mortgage.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor agrees that Grantor's
possession and use of the Property shall be governed by the following
provisions:
Possession and Use. Until Default, Grantor may (1) remain in possession and
control of the Property; (2) use, operate or manage the Property; and (3)
collect the Rents from the Property.
Duty to Maintain. Grantor shall maintain the Property in tenantable condition
and promptly perform all repairs, replacements, and maintenance necessary to
preserve its value.
Compliance With Environmental Laws. Grantor represents and warrants to Lender
that: (1) During the period of Grantor's ownership of the Property, there has
been no use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance by any person on, under, about or
from the Property; (2) Grantor has no knowledge of, or reason to believe that
there has been, except as previously disclosed to and acknowledged by Lender in
writing, (a) any breach or violation of any Environmental Laws, (b) any use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substance on, under, about or from the Property by any
prior owners or occupants of the Property, or (C) any actual or threatened
litigation or claims of any kind by any person relating to such matters; and (3)
Except as previously disclosed to and acknowledged by Lender in writing, (a)
neither Grantor nor any tenant, contractor, agent or other authorized user of
the Property shall use, generate, manufacture, store, treat, dispose of or
release any Hazardous Substance on, under, about or from the Property; and (b)
any such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations and ordinances, including without limitation
all Environmental Laws. Grantor authorizes Lender and its agents to enter upon
the Property to make such inspections and tests, at Grantor's expense, as Lender
may deem appropriate to determine compliance of the Property with this section
of the Mortgage. Any inspections or tests made by Lender shall be for Lender's
purposes only and shall not be construed to create any responsibility or
liability on the part of Lender to Grantor or to any other person. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Property for Hazardous Substances. Grantor
hereby(1)releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other costs
under any such laws; and (2) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Mortgage or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
91
occurring prior to Grantor's ownership or interest in the Property, whether or
not the same was or should have been known to Grantor. The provisions of this
section of the Mortgage, including the obligation to indemnify, shall survive
the payment of the Indebtedness and the satisfaction and reconveyance of the
lien of this Mortgage and shall not be affected by Lender's acquisition of any
interest in the Property, whether by foreclosure or otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance nor
commit, permit, or suffer any stripping of or waste on or to the Property or any
portion of the Property. Without limiting the generality of the foregoing,
Grantor will not remove, or grant to any other party the right to remove, any
timber, minerals(including oil and gas), coal, clay, scoria, soil, gravel or
rock products without Lender's prior written consent.
Removal of Improvements. Grantor shall not demolish or remove any Improvements
from the Real Property without Lenders prior written consent, As a condition to
the removal of any Improvements, Lender may require Grantor to make arrangements
satisfactory to Lender to replace such Improvements with Improvements of at
least equal value.
Lender's Right to Enter. Lender and Lender's agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Real Property for purposes of Grantor's compliance
with the terms and conditions of this Mortgage.
Compliance with Governmental Requirements. Grantor shall promptly comply with
all laws, ordinances, and regulations, now or hereafter in effect, of all
governmental authorities applicable to the use or occupancy of the Property,
including without limitation, the Americans With Disabilities Act. Grantor may
contest in good faith any such law, ordinance, or regulation and withhold
compliance during any proceeding, including appropriate appeals, so long as
Grantor has notified Lender in writing prior to doing so and so long as, in
Lender's sole opinion, Lender's interests in the Property are not jeopardized.
Lender may require Grantor to post adequate security or a surety bond,
Reasonably satisfactory to Lender, to protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon or leave unattended the
Property. Grantor shall do all other acts, in addition to those acts set forth
above in this section, which from the character and use of the Property are
reasonably necessary to protect and preserve the Property.
DUE ON SALE - CONSENT BY LENDER. Lender may, at Lender's option, declare
immediately due and payable all sums secured by this Mortgage upon the sale or
transfer, without Lender's prior written consent, of all or any part of the Real
Property, or any interest in the Real Property. A "sale or transfer' means the
conveyance of Real Property or any right, title or interest in the Real
Property; whether legal, beneficial or equitable; whether voluntary or
involuntary; whether by outright sale, deed, installment sale contract, land
contract, contract for deed, leasehold interest with a term greater than three
(3) years, lease-option contract, or by sale, assignment, or transfer of any
beneficial interest in or to any land trust holding title to the Real Property,
or by any other method of conveyance of an interest in the Real Property. If any
Grantor is a corporation, partnership or limited liability company, transfer
also includes any change in ownership of more than twenty-five percent (25%) of
the voting stock, partnership interests or limited liability company interests,
as the case may be, of such Grantor. However, this option shall not be exercised
by Lender if such exercise is prohibited by federal law or by Maine law.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are part of this Mortgage:
Payment. Grantor shall pay when due land in all events prior to delinquency) all
taxes, payroll taxes, special taxes, assessments, water charges and sewer
service charges levied against or on account of the Property, and shall pay when
due all claims for work
MORTGAGE
Loan No: 11001 (Continued)Page 3
92
done on or for services rendered or material furnished to the Property. Grantor
shall maintain the Property free of any liens having priority over or equal to
the interest of Lender under this Mortgage, except for the Existing Indebtedness
referred to in this Mortgage or those liens specifically agreed to in writing by
Lender, and except for the lien of taxes and assessments not due as further
specified in the Right to Contest paragraph.
Right to Contest. Grantor may withhold payment of any tax, assessment, or claim
in connection with a good faith dispute over the obligation to pay, so long as
Lender's interest in the Property is not jeopardized. If a lien arises or is
filed as a result of nonpayment, Grantor shall within fifteen (15) days after
the lien arises or, if a lien is filed, within fifteen (15) days after Grantor
has notice of the filing, secure the discharge of the lien, or if requested by
Lender, deposit with Lender cash or a sufficient corporate surety bond or other
security satisfactory to Lender in an amount sufficient to discharge the lien
plus any costs and attorneys' fees, or other charges that could accrue as a
result of a foreclosure or sale under the lien. In any contest, Grantor shall
defend itself and Lender and shall satisfy any adverse judgment before
enforcement against the Property. Grantor shall name Lender as an additional
obligee under any surety bond furnished in the contest proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender satisfactory
evidence of payment of the taxes or assessments and shall authorize the
appropriate governmental official to deliver to Lender at any time a written
statement of the taxes and assessments against the Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15) days
before any work is commenced, any services are furnished, or any materials are
supplied to the Property, if any mechanic's lien, materialmen's lien, or other
lien could be asserted on account of the work, services, or materials and the
cost exceeds $5,000.00. Grantor will upon request of Lender furnish to Lender
advance assurances satisfactory to Lender that Grantor can and will pay the cost
of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Mortgage:
Maintenance of Insurance. Grantor shall procure and maintain policies of fire
insurance with standard extended coverage endorsements on a replacement basis
for the full insurable value covering all Improvements on the Real Property in
an amount sufficient to avoid application of any coinsurance clause, and with a
standard mortgagee clause in favor of Lender. Grantor shall also procure and
maintain comprehensive general liability insurance in such coverage amounts as
Lender may request with Lender being named as additional insureds in such
liability insurance policies. Additionally, Grantor shall maintain such other
insurance, including but not limited to hazard, business interruption and boiler
insurance as Lender may require. Policies shall be written by such insurance
companies and in such form as may be reasonably acceptable to Lender. Grantor
shall deliver to Lender certificates of coverage from each insurer containing a
stipulation that coverage will not be cancelled or diminished without a minimum
of ten (10) days' prior written notice to Lender and not containing any
disclaimer of the insurer's liability for failure to give such notice. Each
insurance policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. Should the Real Property be located in an area
designated by the Director of the Federal Emergency Management Agency as a
special flood hazard area, Grantor agrees to obtain and maintain Federal Flood
Insurance, if available, within 45 days after notice is given by Lender that the
Property is located in a special flood hazard area, for the full unpaid
principal balance of the loan and any prior liens on the property securing the
loan, up to the maximum policy limits set under the National Flood Insurance
Program, or as otherwise required by Lender, and to maintain such insurance for
the term of the loan.
Application of Proceeds. Grantor shall promptly notify Lender of any loss or
damage to the Property if the estimated cost of repair or replacement exceeds
$500.00. Lender may make proof of loss if Grantor fails to do so within fifteen
(15) days of the casualty. Whether or not Lender's security is impaired, Lender
may, at Lender's election, receive and retain the proceeds of any insurance and
apply the proceeds to the reduction of the Indebtedness, payment of any lien
93
affecting the Property, or the restoration and repair of the Property. If Lender
elects to apply the proceeds to restoration and repair, Grantor shall repair or
replace the damaged or destroyed Improvements in a manner satisfactory to
Lender. Lender shall, upon satisfactory proof of such expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration if Grantor is not in default under this Mortgage. Any proceeds which
have not been disbursed within 180 days after their receipt and which Lender has
not committed to the repair or restoration of the Property shall be used first
to pay any amount owing to Lender under this Mortgage, then to pay accrued
interest, and the remainder, if any, shall be applied to the principal balance
of the Indebtedness. If Lender holds any proceeds after payment in full of the
Indebtedness, such proceeds shall be paid to Grantor as Grantor's interests may
appear.
Compliance with Existing Indebtedness. During the period in which any Existing
Indebtedness described below is in effect, compliance with the insurance
provisions contained in the instrument evidencing such Existing Indebtedness
shall constitute compliance with the insurance provisions under this Mortgage,
to the extent compliance with the terms of this Mortgage would constitute a
duplication of insurance requirement, If any proceeds from the insurance become
payable on loss, the provisions in this Mortgage for division of proceeds shall
apply only to that portion of the proceeds not payable to the holder of the
Existing Indebtedness.
Grantor's Report on Insurance. Upon request of Lender, however not more than
once a year, Grantor shall furnish to Lender a report on each existing policy of
insurance showing: (1) the name of the insurer; 12) the risks insured; (3) the
amount of the policy; (4) the property insured, the then current replacement
value of such property, and the manner of determining that value; and(5) the
expiration date of the policy. Grantor shall, upon request of Lender, have an
independent appraiser satisfactory to Lender determine the cash value
replacement cost of the Property.
TAX AND INSURANCE RESERVES. Subject to any limitations set by applicable law,
Lender may require Grantor to maintain with Lender reserves for payment of
annual taxes, assessments, and insurance premiums, which reserves shall be
created by advance payment or monthly payments of a sum estimated by Lender to
be sufficient to produce, amounts at least equal to the taxes, assessments, and
insurance premiums to be paid. The reserve funds shall be held by Lender as a
general deposit from Grantor, which Lender may satisfy by payment of the taxes,
assessments, and insurance premiums required to be paid by Grantor as they
become due. Lender shall have the
MORTGAGE
Loan No: 11001 (Continued) Page 4
right to draw upon the reserve funds to pay such items, and Lender shall not be
required to determine the validity or accuracy of any item before paying it.
Nothing in the Mortgage shall be construed as requiring Lender to advance other
monies for such purposes, and Lender shall not incur any liability for anything
it may do or omit to do with respect to the reserve account. Subject to any
limitations set by applicable law, if the reserve funds disclose a shortage or
deficiency, Grantor shall pay such shortage or deficiency as required by Lender.
All amounts in the reserve account are hereby pledged to further secure the
Indebtedness, and Lender is hereby authorized to withdraw and apply such amounts
on the Indebtedness upon Default. Lender shall not be required to pay any
interest or earnings on the reserve funds unless required by law or agreed to by
Lender in writing. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not Grantor's agent for payment of the taxes and assessments
required to be paid by Grantor.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Property or if Grantor fails to
comply with any provision of this Mortgage or any Related Documents, including
but not limited to Grantor's failure to comply with any obligation to maintain
Existing Indebtedness in good standing as required below, or to discharge or pay
when due any amounts Grantor is required to discharge or pay under this Mortgage
or any Related Documents, Lender on Grantor's behalf may (but shall not be
obligated to) take any action that Lender deems appropriate, including but not
limited to discharging or paying all taxes, liens, security interests,
encumbrances and other claims, at any time levied or placed on the Property and
paying all costs for insuring, maintaining and preserving the Property. All such
expenditures incurred or paid by Lender for such purposes will then bear
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interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C)
betreated as a balloon payment which will be due and payable at the Note's
maturity. The Mortgage also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon Default.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Mortgage:
Title. Grantor warrants that: (a)Grantor holds good and marketable title of
record to the Property in fee simple, free and clear of all liens and
encumbrances other than those set forth in the Real Property description or in
the Existing Indebtedness section below or in any title insurance policy, title
report, or final title opinion issued in favor of, and accepted by, Lender in
connection with this Mortgage, and (b)Grantor has the full right, power, and
authority to execute and deliver this Mortgage to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the lawful
claims of all persons. In the event any action or proceeding is commenced that
questions Grantor's title or the interest of Lender under this Mortgage, Grantor
shall defend the action at Grantor's expense. Grantor may be the nominal party
in such proceeding, but Lender shall be entitled to participate in the
proceeding and to be represented in the proceeding by counsel of Lender's own
choice, and Grantor will deliver, or cause to be delivered, to Lender such
instruments as Lender may request from time to time to permit such
participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use of
the Property complies with all existing applicable laws, ordinances, and
regulations of governmental authorities.
Survival of Representations and Warranties. All representations, warranties, And
agreements made by Grantor in this Mortgage shall survive the execution and
delivery of this Mortgage, shall be continuing in nature, and shall remain in
full force and effect until such time as Grantor's Indebtedness shall be paid in
full.
EXISTING INDEBTEDNESS. The following provisions concerning Existing Indebtedness
are a part of this Mortgage:
Existing Lien. The lien of this Mortgage securing the Indebtedness may be
secondary and inferior to an existing lien. Grantor expressly covenants and
agrees to pay, or see to the payment of, the Existing Indebtedness and to
prevent any default on such indebtedness, any default under the instruments
evidencing such indebtedness, or any default under any security documents for
such indebtedness.
No Modification. Grantor shall not enter into any agreement with the holder of
any mortgage, deed of trust, or other security agreement which has priority over
this Mortgage by which that agreement is modified, amended, extended, or renewed
without the prior written consent of Lender. Grantor shall neither request nor
accept any future advances under any such security agreement without the prior
written consent of Lender.
CONDEMNATION. The following provisions relating to condemnation proceedings are
a part of this Mortgage:
Proceedings. If any proceeding in condemnation is filed, Grantor shall promptly
notify Lender in writing, and Grantor shall promptly take such steps as may be
necessary to defend the action and obtain the award. Grantor may be the nominal
party in such proceeding, but Lender shall be entitled to participate in the
proceeding and to be represented in the proceeding by counsel of its own choice,
and Grantor will deliver or cause to be delivered to Lender such instruments and
documentation as may be requested by Lender from time to time to permit such
participation.
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Application of Net Proceeds. If all or any part of the Property is condemned by
eminent domain proceedings or by any proceeding or purchase in lieu of
condemnation, Lender may at its election require that all or any portion of the
net proceeds of the award be applied to the Indebtedness or the repair or
restoration of the Property. The net proceeds of the award shall mean the award
after payment of all reasonable costs, expenses, and attorneys' fees incurred by
Lender in connection with the condemnation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Mortgage:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall execute
such documents in addition to this Mortgage and take whatever other action is
requested by Lender to perfect and continue Lender's lien on the Real Property.
Grantor shall reimburse
MORTGAGE
Loan No: 11001 (Continued) Page 5
Lender for all taxes, as described below, together with all expenses incurred in
recording, perfecting or continuing this Mortgage, including without limitation
all taxes, fees, documentary stamps, and other charges for recording or
registering this Mortgage.
Taxes. The following shall constitute taxes to which this section applies: (1) a
specific tax upon this type of Mortgage or upon all or any part of the
Indebtedness secured by this Mortgage; 12) a specific tax on Grantor which
Grantor is authorized or required to deduct from payments on the Indebtedness
secured by this type of Mortgage; 13) a tax on this type of Mortgage chargeable
against the Lender or the holder of the Note; and (4) a specific tax on all or
any portion of the Indebtedness or on payments of principal and interest made by
Grantor.
Subsequent Taxes. If any tax to which this section applies is enacted subsequent
to the date of this Mortgage, this event shall have the same effect as Default,
and Lender may exercise any or all of its available remedies for Default as
provided below unless Grantor either (1) pays the tax before it becomes
delinquent, or (2)contests the tax as provided above in the Taxes and Liens
section and deposits with Lender cash or a sufficient corporate surety bond or
other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Mortgage as a security agreement are a part of this Mortgage:
Security Agreement. This instrument shall constitute a Security Agreement to the
extent any of the Property constitutes fixtures, and Lender shall have all of
the rights of a secured party under the
Uniform Commercial Code as amended from time to time.
Security Interest. Upon request by Lender, Grantor shall take whatever action is
requested by Lender to perfect and continue Lender's security interest in the
Rents and Personal Property. In addition to recording this Mortgage in the real
property records, Lender may, at any time and without further authorization from
Grantor, file executed counterparts, copies or reproductions of this Mortgage as
a financing statement. Grantor shall reimburse Lender for all expenses incurred
in perfecting or continuing this security interest. Upon default, Grantor shall
not remove, sever or detach the Personal Property from the Property. Upon
default, Grantor shall assemble any Personal Property not affixed to the
Property in a manner and at a place reasonably convenient to Grantor and Lender
and make it available to Lender within three (3) days after receipt of written
demand from Lender to the extent permitted by applicable law.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured party)
from which information concerning the security interest granted by this Mortgage
may be obtained leach as required by the Uniform Commercial Code) are as stated
on the first page of this Mortgage.
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FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Mortgage:
Further Assurances. At any time, and from time to time, upon request of Lender,
Grantor will make, execute and deliver, or will cause to be made, executed or
delivered, to Lender or to Lender's designee, and when requested by Lender,
cause to be filed, recorded, refiled, or rerecorded, as the case may be, at such
times and in such offices and places as Lender may deem appropriate, any and all
such mortgages, deeds of trust, security deeds, security agreements, financing
statements, continuation statements, instruments of further assurance,
certificates, and other documents as may, in the sole opinion of Lender, be
necessary or desirable in order to effectuate, complete, perfect, continue, or
preserve (11 Grantor's obligations under the Note, this Mortgage, and the
Related Documents, and 12) the liens and security interests created by this
Mortgage on the Property, whether now owned or hereafter acquired by Grantor.
Unless prohibited by law or Lender agrees to the contrary in writing, Grantor
shall reimburse Lender for all costs and expenses incurred in connection with
the matters referred to in this paragraph.
Attorney-in-Fact. If Grantor fails to do any of the things referred to in the
preceding paragraph, Lender may do so for and in the name of Grantor and at
Grantor's expense. For such purposes, Grantor hereby irrevocably appoints Lender
as Grantor's attorney-in-fact for the purpose of making, executing, delivering,
filing, recording, and doing all other things as may be necessary or desirable,
in Lender's sole opinion, to accomplish the matters referred to in the preceding
paragraph.
DEFAULT. Default will occur if payment in full is not made immediately when due.
RIGHTS AND REMEDIES ON DEFAULT. Upon Default and at any time thereafter, Lender,
at Lender's option, may exercise any one or more of the following rights and
remedies, in addition to any other rights or remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option without
notice to Grantor to declare the entire Indebtedness immediately due and
payable, including any prepayment penalty which Grantor would be required to
pay.
UCC Remedies. With respect to all or any part of the Personal Property, Lender
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor, to take
possession of the Property and, with or without taking possession of the
Property, to collect the Rents, including amounts past due and unpaid, and apply
the net proceeds, over and above Lender's costs, against the Indebtedness. In
furtherance of this right, Lender may require any tenant or other user of the
Property to make payments of rent or use fees directly to Lender. If the Rents
are collected by Lender, then Grantor irrevocably designates Lender as Grantor's
attorney-in-fact to endorse instruments received in payment thereof in the name
of Grantor and to negotiate the same and collect the proceeds. Payments by
tenants or other users to Lender in response to Lender's demand shall satisfy
the obligations for which the payments are made, whether or not any proper
grounds for the demand existed. Lender may exercise its rights under this
subparagraph either in person, by agent, or through a receiver. Lender's receipt
and acceptance of any Rents shall not waive foreclosure nor in any way affect
Lender's rights to collect all amounts secured by this Mortgage nor Lender's
remedies for such collection.
Appoint Receiver. Lender shall have the right to have a receiver appointed to
take possession of all or any part of the Property, with the power to protect
and preserve the Property, to operate the Property preceding foreclosure or
sale, and, with or without taking
MORTGAGE
Loan No: 11001 (Continued) Page 6
possession of the Property to collect the Rents from the Property and apply the
proceeds, over and above the cost of the receivership, against the Indebtedness.
The receiver may serve without bond if permitted by law. Lender's right to the
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appointment of a receiver shall exist whether or not the apparent value of the
Property exceeds the Indebtedness by a substantial amount. Employment by Lender
shall not disqualify a person from serving as a receiver.
Judicial Foreclosure. Lender may obtain a judicial decree foreclosing Grantor's
interest in all or any part of the Property.
Nonjudicial Sale. Lender may foreclose Grantor's interest in all or in any part
of the Real Property by non-judicial sale under a Statutory Power of Sale which
Grantor hereby gives to Lender. Lender may also exercise non-judicial remedies
against the Personal Property.
Deficiency Judgment. If permitted by applicable law, Lender may obtain a
judgment for any deficiency remaining in the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights provided in
this section.
Tenancy at Sufferance. If Grantor remains in possession of the Property after
the Property is sold as provided above or Lender otherwise becomes entitled to
possession of the Property upon default of Grantor, Grantor shall become a
tenant at sufferance of Lender or the purchaser of the Property and shall, at
Lender's option, either(1) pay a reasonable rental for the use of the Property,
or(2) vacate the Property immediately upon the demand of Lender.
Other Remedies. Lender shall have all other rights and remedies provided in this
Mortgage or the Note or available at law or in equity.
Sale of the Property. To the extent permitted by applicable law, Grantor hereby
waives any and all right to have the Property marshalled. In exercising its
rights and remedies, Lender shall be free to sell all or any part of the
Property together or separately, in one sale or by separate sales. Lender shall
be entitled to bid at any public sale on all or any portion of the Property.
Notice of Sale. Lender shall give Grantor reasonable notice of the time and
place of any public sale of the Personal Property or of the time after which any
private sale or other intended disposition of the Personal Property is to be
made. Reasonable notice shall mean notice given at least ten 110) days before
the time of the sale or disposition. Any sale of the Personal Property may be
made in conjunction with any sale of the Real Property.
Election of Remedies. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Grantor under this Mortgage, after Grantor's
failure to perform, shall not affect Lender's right to declare a default and
exercise its remedies. Nothing under this Mortgage or otherwise shall be
construed so as to limit or restrict the rights and remedies available to Lender
following Default, or in any way to limit or restrict the rights and ability of
Lender to proceed directly against Grantor and/or against any other co-maker,
guarantor, surety or endorser and/or to proceed against any other collateral
directly or indirectly securing the Indebtedness.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to enforce
any of the terms of this Mortgage, Lender shall be entitled to recover such sum
as the court may adjudge reasonable as attorneys' fees at trial and upon any
appeal. Whether or not any court action is involved, all reasonable expenses
that Lender incurs, including attorneys' fees, which in Lender's opinion are
necessary at any time for the protection of its interest or the enforcement of
its rights shall become a part of the Indebtedness.
NOTICES. Any notice required to be given under this Mortgage, including without
limitation any notice of default and any notice of sale shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United States mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this Mortgage.
All copies of notices of foreclosure from the holder of any lien which has
priority over this Mortgage shall be sent to Lender's address, as shown near the
beginning of this Mortgage. Any party may change its address for notices under
this Mortgage by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor's
98
current address. Unless otherwise provided or required by law, if there is more
than one Grantor, any notice given by Lender to any Grantor is deemed to be
notice given to all Grantors.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Mortgage:
Amendments. This Mortgage, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Mortgage. No alteration of or amendment to this Mortgage shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
Annual Reports. If the Property is used for purposes other than Grantor's
residence, Grantor shall furnish to Lender, upon request, a certified statement
of net operating income received from the Property during Grantor's previous
fiscal year in such form and detail as Lender shall require. "Net operating
income" shall mean all cash receipts from the Property less all cash
expenditures made in connection with the operation of the Property.
Caption Headings. Caption headings in this Mortgage are for convenience purposes
only and are not to be used to interpret or define the provisions of this
Mortgage.
Governing Law. This Mortgage will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Maine. This Mortgage
has been accepted by Lender in the State of Maine.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under
this Mortgage unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver by Lender of a provision of
this Mortgage shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Mortgage. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights or of
any of Grantor's obligations as to any future transactions. Whenever the consent
of Lender is required under this Mortgage, the granting of such consent by
Lender
MORTGAGE
Loan No: 11001 (Continued) Page 7
in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Severability. If a court of competent jurisdiction finds any provision of this
Mortgage to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other circumstance. If feasible, the offending provision
shall be considered modified so that it becomes legal, valid and enforceable, If
the offending provision cannot be so modified, it shall be considered deleted
from this Mortgage. Unless otherwise required by law, the illegality,
invalidity, or unenforceability of any provision of this Mortgage shall not
affect the legality, validity or enforceability of any other provision of this
Mortgage.
Merger. There shall be no merger of the interest or estate created by this
Mortgage with any other interest or estate in the Property at any time held by
or for the benefit of Lender in any capacity, without the written consent of
Lender.
Successors and Assigns. Subject to any limitations stated in this Mortgage on
transfer of Grantor's interest, this Mortgage shall be binding upon and inure to
the benefit of the parties, their successors and assigns. If ownership of the
Property becomes vested in a person other than Grantor, Lender, without notice
to Grantor, may deal with Grantor's successors with reference to this Mortgage
and the Indebtedness by way of forbearance or extension without releasing
Grantor from the obligations of this Mortgage or liability under the
Indebtedness.
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Time is of the Essence. Time is of the essence in the performance of this
Mortgage.
Waive Jury. Grantor hereby expressly and voluntarily waives any and all rights,
whether arising under the Maine constitution, and any Rules of Civil Procedure,
common law or otherwise, to demand a trial by jury in any action, suit,
proceeding or counterclaim involving Lender as to any matter, claim or cause of
action whatsoever arising out of or in any way related to any agreement or loan
with Lender or any of the transactions contemplated between the parties.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Mortgage. Unless specifically stated to the contrary,
all references to dollar amounts shall mean amounts in lawful money of the
United States of America. Words and terms used in the singular shall include the
plural, and the plural shall include the singular, as the context may require.
Words and terms not otherwise defined in this Mortgage shall have the meanings
attributed to such terms in the Uniform Commercial Code:
Borrower. The word "Borrower" means ADCO Surgical Supply, Inc. and includes all
co-signers and co-makers signing the Note,
Default. The word "Default" means
the Default set forth in this Mortgage in the section titled "Default".
Environmental Laws. The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, at seq. ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, Pub. L. No. 99-499 )"SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, at seq., the Maine
Hazardous Waste Act, the Maine Uncontrolled Substance Site Law, or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.
Existing Indebtedness. The words "Existing Indebtedness" mean the indebtedness
described in the Existing Liens provision of this Mortgage.
Grantor. The word "Grantor" means ADCO Surgical Supply, Inc..
Hazardous Substances. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. The words "Hazardous
Substances" are used in their very broadest sense and include without Limitation
any and all hazardous or toxic substances, materials or waste as defined by or
listed under the Environmental Laws. The term "Hazardous Substances" also
includes, without limitation, petroleum and petroleum by- products or any
fraction thereof and asbestos.
Improvements. The word "Improvements" means all existing and future
improvements, buildings, structures, mobile homes affixed on the Real Property,
facilities, additions, replacements and other construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal, interest, and other
amounts, costs and expenses payable under the Note or Related Documents,
together with all renewals of, extensions of, modifications of, consolidations
of and substitutions for the Note or Related Documents and any amounts expended
or advanced by Lender to discharge Grantor's obligations or expenses incurred by
Lender to enforce Grantor's obligations under this Mortgage, together with
interest on such amounts as provided in this Mortgage. Specifically, without
limitation, Indebtedness includes all amounts that may be indirectly secured by
the Cross-Collateralization provision of this Mortgage.
Lender. The word "Lender" means KeyBank National Association, its successors and
assigns.
Mortgage. The word "Mortgage" means this Mortgage between Grantor and Lender.
100
Note. The word "Note" means the promissory note dated October 6, 2004, in the
original principal amount of $300,000.00 from Grantor to Lender, together with
all renewals of, extensions of, modifications of, refinancings of,
consolidations of, and substitutions for the promissory note or agreement. The
maturity date of this Mortgage is __________________________NOTICE TO GRANTOR:
THE NOTE CONTAINS A VARIABLE INTEREST RATE.
Personal Property. The words "Personal Property" mean all equipment, fixtures,
and other articles of personal property now or hereafter owned by Grantor, and
now or hereafter attached or affixed to the Real Property; together with all
accessions, parts, and
MORTGAGE
Loan No: 11001 (Continued) Page 8
additions to, all replacements of, and all substitutions for, any of such
property; and together with all proceeds (including without limitation all
insurance proceeds and refunds of premiums) from any sale or other disposition
of the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the real property, interests and
rights, as further described in this Mortgage.
Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues, income,
issues, royalties, profits, and other benefits derived from the Property.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS MORTGAGE, AND
GRANTOR AGREES TO ITS TERMS.
GRANTOR:
ADCO SURGICAL SUPPLY, INC.
By: /s/ Karen Wright ADCO Surgical Supply, Inc.
CORPORATE ACKNOWLEDGMENT
STATE OF MAINE)SS
COUNTY OF Penobscot
On this 6th day of October, 2004, before me, the undersigned Notary Public,
personally appeared Karen Wright, President of ADCO Surgical Supply, Inc., and
known to me to be an authorized agent of the corporation that executed the
Mortgage and acknowledged the Mortgage to be the free and voluntary act and deed
of the corporation, by authority of its Bylaws or by resolution of its board of
directors, for the uses and purposes therein mentioned, and on oath stated that
he or she is authorized to execute this Mortgage and in fact executed the
Mortgage on behalf of the corporation.
By_/s/____________________________________ Residing at___Bangor Notary Public in
and for the State of Maine My commission expired 03/04/07
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"EXHIBIT A"
A certain lot or parcel of land, with buildings thereon, in the City of Bangor,
County of Penobscot and State of Maine, situated on the southwesterly side of
Hammond Street and bounded and described as follows: Being Lot W24 as shown on
Final Plan of Paganica Associates Subdivision prepared by Andrew J. Shyka,
November 1, 1977, and recorded in Penobscot County Registry of Deeds at Plan
File C2-78. Said lot measures four hundred ninety-seven and sixty-five one
hundredths (497.65) feet on Hammond Street, is irregular in shape and contains
4.5 acres, more or less.
Being the same premises conveyed in a Quitclaim Deed with Covenant from Key Bank
of Maine to Adco Surgical Supply, Inc. dated December 4, 1992 and recorded In
Book 5224, Page 331, Penobscot County Registry of Deeds.
102
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.16
2004 Addendum to Agreement between Alliance Capital Resources, Inc and
Nyer Medical Group, Inc. (not written).
On September 24, 2004, the registrant and Alliance Capital Resources, Inc., a
consultant to the registrant ("Alliance"), agreed to amend their existing
relationship by reducing the annual fee to be paid to Alliance from $45,000 per
year to $1,000 per year, effective November 1, 2004. The consultant/client
relationship between the registrant and Alliance was memorialized in agreements
which can be found at Exhibits 10.4, 10.5 and 10.10 this report on Form 10-K
(the "Agreements"). Since the term of the agreements found at Exhibits 10.4 and
10.5 of this Form 10-K has expired, the relationship is now month-to-month and
understood between the parties to be as set forth in such exhibits, but pursuant
to a non-written understanding. Earlier this year, Alliance and the registrant
agreed to reduce the annual fee to Alliance from $90,000 per year to $45,000 per
year. Except as set forth above with respect to the fee reduction and the
month-to-month nature of the agreements set forth at Exhibits 10.4 and 10.5 as
noted above, the Agreements remain unchanged and are in full force and effect.
103
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.17
Employment Agreement between Samuel Nyer and Nyer Medical Group, Inc.
(not written).
The Company has an oral employment agreement with Mr. Samuel Nyer, Chairman
of the Board, Vice-President of Mergers and Acquisitions and director, which
provides for an annual base salary of $70,000, which was effective October 1,
2004. This agreement contains provisions customary for employees who are
officers and/or directors of public companies.
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NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.18
Employment Agreement between Karen Wright and Nyer Medical Group, Inc.
(not written).
The Company has an oral employment agreement with Karen Wright, its
President and Chief Executive Officer, Vice-President of Finance and Treasurer,
which provides for an annual base salary of $85,000. This agreement contains
provisions customary for employees who are officers and/or directors of public
companies.
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NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.20
Shareholders' Agreement, dated as of August 5, 1996, among Nyer Medical
Group, Inc., Mark Dumouchel, David Dumouchel, Lucille Curry, Michael
Curry, Donato Mazzola, Wayne Gunter, D.A.W., Inc. and F.M.T. Franchise
Company, Inc.
SHAREHOLDERS' AGREEMENT
THIS AGREEMENT, entered into as of this 5th day of August, 1996, by and between
Nyer Medical Group, Inc. ("Nyer"), Mark A. Dumouchel, David Dumouchel, Lucille
Curry, Michael Curry, Donato Mazzola and Wayne Gunter (collectively the
"Shareholders") and D.A.W., Inc. ("D.A.W.") and F.M.T. Franchise Co., Inc.
("F.M.T") (D.A.W. and F.M.T. collectively the "Companies").
WHEREAS, Nyer entered into a Stock Exchange Agreement and Plan of Reorganization
as of August 5, 1996, by and among Nyer, the Shareholders and the Companies,
whereby Nyer acquired by exchange with the Sellers 80% of the issued and
outstanding Stock of each of D.A.W. and Class A Common Stock of F.M.T. and
acquired by purchase 100% of the Class B Common Stock of F.M.T.; and
WHEREAS, Nyer and the Shareholders wish to provide for continuity of management
and control of F.M.T. and D.A.W. and to set forth the relative rights, duties
and obligations of the parties.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
for other good and valuable consideration, it is agreed as follows:
1. Board of Directors - F.M.T. and D.A.W. Nyer and the Shareholders hereby agree
that for so long as the Shareholders collectively own 5% or more of the issued
and outstanding Common Stock of F.M.T. or D.A.W., the number of members to serve
on the board of directors of that company (either F.M.T. or D.A.W. or both) in
which the Shareholders own at least 5% of the issued and outstanding Common
Stock shall be set at five, and Nyer and the Shareholders further agree that two
board members shall be designated by Nyer and shall be a Nyer employee, officer
or director, two board members shall be designated by the Shareholders, and the
fifth member shall be jointly selected by Nyer and the Shareholders. Nyer and
the Shareholders agree that the fifth board member shall have no affiliation
with either Nyer or the Shareholders. Nyer and the Shareholders agree to vote
all their shares of the Companies (the "Shares") for these purposes at all
annual and special meetings of the shareholders and in any action by written
consent.
2. Board of Directors - Nyer. For so long as the Shareholders' collectively own
5% or more of the Shares of F.M.T. and D.A.W. and Nyer owns any F.M.T. or D.A.W.
Shares, Nyer shall appoint and take all reasonable action to elect one person
designated by the Shareholders to Nyer's board of directors.
3. Term of this Agreement. This Agreement shall commence as of the date of
execution and shall remain in force for so long as any of the Shareholders own
Shares of either D.A.W. or F.M.T.
4. Shares Subject to Agreement. All Shares of F.M.T. and of D.A.W. owned of
record or beneficially or hereafter acquired by Nyer shall be subject to this
Agreement. Except as specifically provided in this Agreement, F.M.T. and D.A.W.
shall have no obligation to recognize the ownership, beneficial or otherwise, of
any such Shares that are sold, assigned or transferred whether voluntarily, by
will, laws of descent and distribution, by court order, by operation of law or
otherwise, unless and until such transferee agrees to be bound by the provisions
of this Agreement.
106
5. Extraordinary Transactions. Nyer and the Shareholders shall not vote any of
their Shares of D.A.W. or of F.M.T. in favor of, nor consent to, (i) any merger
of F.M.T. or D.A.W. unless 80% of the Board of Directors vote for such merger as
the case may be into another entity or a merger of such entity into F.M.T. or
D.A.W., (ii) the sale of all or substantially all of the assets of F.M.T. or
D.A.W. as the case may be unless 80% of the Board of Directors vote for such
sale, or (iii) any other extraordinary transactions including F.M.T. or D.A.W.~
unless 60% of the Board of Directors vote in favor of such extraordinary
transaction.
6. Operations. The day-to-day operations of D.A.W. and F.M.T. shall be managed
by the Shareholders. The Shareholders are hereby irrevocably authorized and
directed to take all actions that they deem appropriate or advisable to manage
the day-to-day operations of D.A.W. and F.M.T. Nyer shall not take any action to
cause, or through its inaction allow, the revocation of such authorization.
Nyer, its successors and assigns, shall not take part in or interfere with the
management of the day-to-day operations of D.A.W. or F.M.T. Notwithstanding the
foregoing, the business and affairs of D.A.W. and F.M.T. shall be managed under
the direction of the board of directors. The policies and powers customarily
exercised by a board of directors shall be exercised by the respective board of
directors of D.A.W. and F.M.T. In addition to those matters customarily reserved
to the board of directors, the respective board of directors of D.A.W. and
F.M.T. shall have the exclusive authority with respect the following matters:
(i) Spending of any portion of the $800,000 received by F.M.T. from Nyer
pursuant to a Stock Exchange Agreement and Plan of Reorganization, for purposes
of acquisition, expansion or improvement of D.A.W.'s or F.M.T.'s businesses
(either existing stores or acquisition or construction of new stores) or similar
purposes;
(ii) The entry of D.A.W. or F.M.T. into any agreement or transaction or related
series of agreements or transactions involving the sum of $10,000 or more except
in the ordinary course of business;
(iii) Any agreement in which D.A.W. or F.M.T. is a party by the terms of which
may last for one year or more except in the ordinary course of business and
except for continuing obligations imposed by existing agreements, attached
hereto as Schedule 6(iii), relating to medical and dental expenses of Paul
Dumouchel and Eileen Dumouchel;
(iv) The organization of any new subsidiaries or the entry into any joint
ventures, partnerships, or other similar relationships with third parties;
(v) All matters relating to the Employment Agreements of the officers of D.A.W.
or F.M.T. including the amendment of such Employment Agreements, and any direct
or indirect transaction between D.A.W. or F.M.T. and officers of D.A.W. or
F.M.T. or their family members. As used in this Agreement, the term "family
members" shall mean the spouses, parents, children, grandchildren, and fathers
- -in- law, mothers-in-law or brothers or sisters-in-law or any entity or
partnership controlled by or under common control with such persons.;
(vi) Any sale of assets of D.A.W. or F.M.T. except in the ordinary course of
business;
(vii) The purchase or sale of securities by D.A.W. or F.M.T.;
(viii) The issuance by D.A.W. or F.M.T. of any promissory notes to banks or any
other parties;
(ix) The opening of any bank and money market accounts for D.A.W. or F.M.T.
Provided, however, the officers of D.A.W. and F.M.T. shall have the exclusive
authority to execute checks and other instruments with regard to the funds of
such bank and money market accounts except for the $800,000 received by F.M.T.
from Nyer which shall require two signatures, one of which shall be of a person
designated by Nyer and one of which shall be of a person designated by the
Shareholders;
107
(x) The issuance of any guarantees by D.A.W. or F.M.T.; and
(xi) The establishment of any committees of the respective board of directors of
D.A.W. or F.M.T.
Additionally, in the event that the Commonwealth of Massachusetts adopts
legislation permitting close corporations to restrict the authority of a board
of directors, such legislation shall not apply to D.A.W. and F.M.T. without the
unanimous consent of the holders of all outstanding Shares. Each of Nyer and the
Shareholders shall cause its designees to D.A.W.'s and F.M.T.'s board of
directors to act in good faith in exercising his authority.
7. Right of First Refusal of Shareholders.
(a) If Nyer intends or proposes to sell, transfer or otherwise dispose of all or
any Shares of D.A.W. or of F.M.T. Shares in which it has any interest to any
person or entity who is not a Shareholder (a "Transfer"), Nyer shall advise
each of the Shareholders by written notice (the "Notification") of such
intention or proposal, not less than 60 days prior to the intended or proposed
date of Transfer. The Notification shall specify all the terms and conditions
of the intended or proposed Transfer, including without limitation, the number
of Shares of D.A.W. and/or of F.M.T. proposed to be Transferred (the "Offered
Shares"), the price per Offered Share, terms of payment, and the name of the
person or entity to whom it intends or proposes to Transfer the Offered Shares
(the "Proposed Purchaser"). The Notification shall constitute an offer to sell
all of the Offered Shares to the Shareholders upon the terms and conditions of
the intended or proposed Transfer.
(b) Each of the Shareholders shall have the right to purchase or otherwise
acquire all (but not less than all) of the Offered Shares, upon the terms and
conditions of the intended or proposed Transfer, by notice (the "Acceptance
Notice") to Nyer and the other Shareholders given within 20 days from the date
of receipt of the Notification. In the event that more than one of the
Shareholders desires to purchase or otherwise acquire the Offered Shares, they
shall purchase or otherwise acquire the Offered Shares pro-rata in accordance
with their percentage interests in each of D.A.W. and F.M.T., or in such other
manner as they may agree in writing, with proportionate rights of over
subscription.
(c) In the event one or more of the Shareholders shall so elect to purchase all
of the Offered Shares, the Acceptance Notice shall, when taken in conjunction
with the Notification, constitute a valid and legally binding purchase and sale
agreement, and payment shall be made upon the terms and conditions of the
intended or proposed Transfer (or on such other terms and conditions as the
parties may otherwise agree upon in writing).
(d) If the Shareholders fail to accept the offer to purchase all of the Offered
Shares within the period specified, Nyer shall be free for a period of 90 days
(or such shorter period as Nyer may specify) to Transfer the Offered Shares to
the Proposed Purchaser upon the terms and conditions of the intended or
proposed Transfer as set forth in the Notification.
(e) If Nyer fails to transfer the Offered Shares within the period and in
accordance with the provisions specified in this Section 7, then, the transfer
of such Offered Shares shall once again be subject to the rights of first
refusal set forth in this Section 7.
8. Co-Sale Rights of the Shareholders. If Nyer receives a bona fide offer, or
acceptance of an offer by Nyer, from a Proposed Purchaser for the sale of all
or any portion of Nyer's Shares of D.A.W. and/or of F.M.T., Nyer shall deliver
written notice thereof to the Shareholders in conjunction with the Notification
delivered pursuant to Section 7 hereof, stating the name of the Proposed
Purchaser and the amount per Share of D.A.W. and/or F.M.T. which the Proposed
Purchaser has offered to pay. Each Shareholder may, within twenty (20) days
108
after receipt of the Notification, deliver to Nyer written notice of its
election to sell up to such Shareholder's Transferable Percentage of its Shares
of D.A.W. and/or of F.M.T. to such Proposed Purchaser on the same terms and
conditions as Nyer (the "Shareholders-.Notice"). Nyer shall not accept any
offer from a Proposed Purchaser unless (i) -such Proposed Purchaser is willing
to purchase Shares of D.A.W. and/or F.M.T. from the Shareholders in such
amounts and on such terms as may be necessary to comply with this Section 8 and
the Shareholders Notice, or (ii) Nyer is willing to purchase Shares of D.A.W.
and/or F.M.T. from the Shareholders in such amounts and on such terms as may be
necessary to comply with this Section 8 and the Shareholders' Notice on behalf
of the Proposed Purchaser in connection with Nyer's sale of Shares of D.A.W.
and/or F.M.T. to the Proposed Purchaser. Provided however, if Nyer shall agree
to sell 50% or more of the Shares of D.A.W. or F.M.T., "Transferable
Percentage" shall mean the number of Shares of D.A.W. or of F.M.T., as the case
may be, representing all or such portion of the Shareholders' interest as the
Shareholder may wish.
9. Shareholders' Put Right. At such time as: (i) Nyer has caused Mark Dumouchel,
David Dumouchel, Michael Curry, Donato Mazzola or Wayne Gunter (the "Employee)
to be no longer employed by D.A.W., (ii) the second term of the Employment
Agreement has expired, or (iii) such Employee has died, then in the event of
the occurrence of any of items (i) through (iii) above, such Employee shall
have the right to require Nyer to purchase all or any portion of such
Employee's Shares of F.M.T. and D.A.W., as follows:
(a) Such Employee shall deliver a notice (a "Put Notice") to D.A.W., F.M.T. and
Nyer stating therein his or her request that Nyer purchase the number of D.A.W.
and F.M.T. Shares stated therein for (i) until the fifth anniversary of the
Employment Agreement between the Companies and each of the Employees, or in the
case of Lucille Curry, Michael Curry, their book value as reflected on the
books and records of D.A.W. and F.M.T.; and (ii) for all other periods, their
fair market value, as determined pursuant to this Section 8.
(b) Such Employee and Nyer shall negotiate in good faith to determine the
purchase price of the D.A.W. and the F.M.T. Shares (the "Agreed Value") and, if
they cannot determine an Agreed Value within 15 days after the date of the Put
Notice, they shall, within 15 days thereafter each appoint a single Qualified
Appraiser (as defined below). Within 10 days after the two Qualified Appraisers
are appointed, the two Qualified Appraisers shall appoint a third Qualified
Appraiser. The three Qualified Appraisers shall, within 10 days following the
date of the last Qualified Appraiser is appointed, appraise each of D.A.W.'s
and F.M.T.'s property and business as a going concern, and thereupon determine
the value of the D.A.W. and F.M.T. Shares to be sold by the Employee, in each
case, by multiplying the value of the appropriate property and business by a
fraction, in which the numerator is the number of D.A.W. or F.M.T. Shares as
applicable, being sold by such Employee, and the denominator is the total
number of D.A.W. or F.M.T. Shares, as applicable, issued and outstanding as of
the date of determination. Such value, when so determined, shall be the
appraised value (the "Appraised Value") of such D.A.W. Shares and F.M.T.
Shares. Each Qualified Appraiser shall have access to such D.A.W. and F.M.T.
books and records as he or she shall request in order to determine the
Appraised Value.
(c) The Put Notice and the applicable valuation of the Agreed Value or the
Appraised Value shall constitute a valid and legally binding purchase and sale
agreement, and payment in immediately available funds and the delivery of
appropriate instruments of transfer shall be made within 30 days following the
determination of the purchase price at the registered office of D.A.W. (or such
other location as the parties shall agree upon).
(d) For purposes of this Section 8, the term "Qualified Appraiser" shall mean an
appraiser who is not in control of, controlled by or under common control with
any Employee regardless as to whether such person still owns any Shares of
D.A.W., F.M.T. or Nyer and is qualified to appraise closely-held entities in
the retail pharmacy business, and who has been actively engaged in the
appraisal of such assets for a period of not less than three years immediately
preceding his or her appointment hereunder.
10. Restrictions on Transfer. Except as provided above in Section 8 and 9, the
109
Shares of F.M.T. and D.A.W. owned by the Shareholders shall not be sold,
hypothecated, pledged or otherwise transferred except by operation of law for a
period of five years from the date of this Agreement. These restrictions shall
be inapplicable to:
(a) Transfers of Shares between a Shareholder and the trustees of a trust
revocable by him alone;
(b) Transfers of Shares between a Shareholder and his spouse or one or more of
his issue;
(c) Transfers of Shares between a Shareholder and his guardian or conservator;
(d) Transfers of Shares of a deceased Shareholder to his executor(s) or
administrator(s) or to trustee(s) under his will; provided that such Shares in
the hands of each such transferee shall remain subject to this Agreement; and
(e) Transfers of any Shares among Shareholders.
11. Legend to be Placed on all Stock Certificates. The parties agree that all
certificates for shares issued by F.M.T. and D.A.W. and any replacement or
re-issuance thereof shall bear the following restrictive legend:
"The shares represented by this stock certificate are subject to the provisions
of a Shareholders' Agreement dated August 5, 1996, a copy of which is maintained
in the Company's offices."
12. Separability of Provisions. If any provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
because of the conflict of such provision with any constitution or statute or
rule of public policy or for any other reason, such circumstance shall not have
the effect of rendering any other provision of this Agreement invalid,
inoperative or unenforceable, but this Agreement shall be reformed and construed
as if such invalid, inoperative or unenforceable provision has never been
contained herein and such provision reformed so that it would be valid,
operative and enforceable to the maximum extent permitted.
13. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument. The execution of this Agreement may be
by actual or facsimile signature.
14. Benefit. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their legal representatives, successors and assigns. All
references to Nyer and its affiliates shall refer to any such parties and all
references to the Shareholders shall refer to any such parties who become bound
by this Agreement as provided in Section 4 hereof.
2.5. Notices and Addresses. All notices, offers, acceptance and any other acts
under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
Shareholders: Mr. Mark A. Dumouchel
Mr. David Dumouchel
c/o D.A.W.,Inc.
264R.Washington Street
Wellesley Hills, MA 02181
Facsimile (617) 237-7278
with a copy to: Gayle Ehrlich, Esq.
Sullivan & Worcester, LLP
One Post Office Square
Boston, MA 02109
Facsimile (617) 338-2880
110
The Buyer: Mr. Samuel Nyer, President
Nyer Medical Group, Inc.
1292 Hammond Street
Bangor, ME 04401
Facsimile (207) 989-1101
with a copy to: Michael D. Harris, Esq.
Cohen, Chernay, Norris,
Weinberger & Harris
712 U.S. Highway One
North Palm Beach, FL 33408
Facsimile (407) 845-0108
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery,
provided such facsimile is concurrently transmitted within an original by
Federal Express or similar receipted delivery. Time shall be counted to, or
from, as the case may be, the delivery in person or by mailing.
16. Attorney's Fees. In the event that there is any controversy or claim arising
out of or relating to this Agreement, or to the interpretation, breach or
enforcement thereof, and any action or proceeding including an arbitration
proceeding is commenced to enforce the provisions of this Agreement, the
prevailing party shall be entitled to an award by the court or arbitrator, as
appropriate, of reasonable attorney's fees, costs and expenses.
17. Oral Evidence. This Agreement constitutes the entire Agreement between the
parties and supersedes all prior oral and written agreements between the parties
hereto with respect to the subject matter hereof. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, except
by a statement in writing signed by the party or parties against which
enforcement or the change, waiver discharge or termination is sought.
18. Governing Law. This Agreement and any dispute, disagreement, or issue of
construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided herein or performance shall be
governed or interpreted according to the internal laws of the Commonwealth of
Massachusetts without regard to choice of law considerations.
19. Section or Paragraph Headings. Section headings herein have been inserted
for reference only and shall not be deemed to limit or otherwise affect, in any
matter or be deemed to interpret in whole or in part any of the terms or
provisions of this Agreement.
20. Arbitration. Any controversy, dispute or claim arising out of or relating to
this Agreement, or its interpretation, application, implementation, breach or
enforcement which the parties are unable to resolve by mutual agreement, shall
be settled by submission by either party of the controversy, claim or dispute to
binding arbitration in Boston, Massachusetts (unless the parties agree in
writing to a different location), before a single arbitrator in accordance with
the rules of the American Arbitration Association then in effect. In any such
arbitration proceeding the parties agree to provide all discovery deemed
necessary by the arbitrator. The decision and award made by the arbitrator shall
be final, binding and conclusive on all parties hereto for all. purposes, and
judgment may be entered thereon in any court having jurisdiction thereof.
21. Cash Management Systems. The business of D.A.W. and F.M.T. shall be operated
pursuant to policies set by their boards of directors. Both D.A.W. and F.M.T.
shall maintain their own cash management systems (which may consolidated
together) separate and apart from any cash management system of Nyer.
111
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
WITNESSES: NYER:
NYER MEDICAL GROUP, INC.
By:_____________________________
Samuel Nyer, President
THE SHAREHOLDERS:
Mark A. Dumouchel
David Dumouchel
Lucille Curry
Michael Curry
Donato Mazzola
Wayne Gunter
D.A.W., INC.
By: Mark A. Dumouchel, President
F.M.T. FRANCHISE CO., INC.
By: ______________________________
David Dumouchel, President
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
WITNESSES: NYER:
NYER MEDICAL GROUP, INC.
By:
Samuel Nyer, President
THE SHAREHOLDERS:
Mark A. Dumouchel
David Dumouchel
Lucille Curry
Michael Curry
Donato Mazzola
Wayne Gunter
D.A.W., INC.
By: ______________________________
Mark A. Dumouchel, President
112
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 10.22
Agreement of D.A.W. Supplier.
The pharmacies have executed an agreement with its major supplier to
purchase pharmaceuticals for a period of five years wherein a payment for
merchandise delivered is secured by a first priority interest in all of the
pharmacy's assets. The pharmacies have committed to purchase at least $2,000,000
monthly from this supplier. The pharmacies agreed to grant the supplier a first
priority security interest in all of its assets as security for the payment of
all of the pharmacies obligations to the supplier.
113
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 14
Nyer Medical Group, Inc.'s Code of Conduct and Ethics Policy
NYER MEDICAL GROUP, INC.
CODE OF CONDUCT AND ETHICS POLICY
1. Introduction
We are committed to maintaining the highest standards of ethical conduct. This
Code of Conduct and Ethics ("Code") reflects the business practices and
principles of behavior that support this commitment. Our Board of Directors is
responsible for setting the standards of conduct contained in this Code and for
updating these standards as appropriate to reflect legal and regulatory
developments. We expect every employee, officer and director to read and
understand this Code and its application to the performance of his or her
business responsibilities. We will hold each of our employees, officers and
directors accountable for adherence to this Code. Those who violate this Code
will be subject to disciplinary action, up to and including termination.
2. Compliance Officer
The Company has designated its Chief Operating Officer as the Compliance Officer
to administer this Code. Employees, officers or directors, at their discretion,
may make any report or complaint provided for in this Code to the Compliance
Officer. The Compliance Officer will refer complaints submitted, as appropriate,
to the Board of Directors or an appropriate Committee of the Board.
3. Compliance With Applicable Laws
All employees, officers and directors of the Company must comply with all of the
laws, rules and regulations of the United States and other countries, as well as
the states, counties, cities and other jurisdictions, applicable to the Company
or its business. This Code does not attempt to summarize all laws, rules and
regulations applicable to the Company or its business. Please consult with the
Compliance Officer if you have questions about laws that you think may be
applicable to the Company or its business.
4. Conflicts Of Interest
A "conflict of interest" may exist whenever the private interests of an
employee, officer or director conflict in any way (or even appear to conflict)
with the interests of the Company. While our employees, officers and directors
should be free to make personal investments and enjoy social relations and
normal business courtesies, they must not have any personal interests that
adversely influence the performance of their job responsibilities. A conflict
situation can arise when an employee, officer or director takes actions or has
interests that may make it difficult to perform his or her Company work
objectively. Conflicts of interest may also arise when an employee, officer or
director, or a member of his or her family, receives improper personal benefits
as a result of his or her position in the Company, whether received from the
Company or a third party. Gifts to, loans to, or guarantees of obligations of,
employees, officers and directors and their respective family members may create
conflicts of interest. Federal law prohibits personal loans from the Company to
directors and executive officers. In addition, in general, it is a conflict of
interest for a Company employee or officer to work simultaneously for a
competitor, customer or supplier absent an express written consent or waiver
from the Company. Conflicts of interest may not always be clear-cut, so if you
have a question, you should consult with the Compliance Officer. Any employee,
officer or director who becomes aware of a conflict or potential conflict should
bring it to the attention of the Compliance Officer.
5. Public Company Reporting
As a public company, it is of critical importance that the Company's filings
with the United States Securities and Exchange Commission be full, fair,
accurate, timely and understandable. Depending on their respective positions
114
with the Company, employees, officers or directors may be called upon to provide
information necessary to assure that the Company's public reports meet these
requirements. The Company expects employees, officers and directors to take this
responsibility very seriously and to provide prompt and accurate answers to
inquiries related to the Company's public disclosure requirements.
6. Reporting Any Illegal Or Unethical Behavior
Employees are encouraged to promptly contact the Compliance Officer if the
Employee believes that the Employee has observed a violation of this Code of
Ethics or any other illegal or unethical behavior by any officer, director or
employee or by anyone purporting to be acting on the Company's behalf, or if the
Employee has any doubt about the best course of action in a particular
situation. Such reports may be made anonymously. Confidentiality will be
protected, subject to applicable law, regulation or legal proceeding.
7. Enforcement
Any violators of this Code will be subject to disciplinary action. The
disciplinary actions will be determined by the Board of Directors or its
designee. The Company intends such disciplinary action to reflect our belief
that all employees, officers and directors should be held accountable to the
standards of conduct set forth herein. Accordingly, such disciplinary action may
include, without limitation, censure by the Board, demotion, reassignment,
suspension or termination, depending on the nature and the severity of the
violation.
8. No Retaliation
The Company complies fully with all applicable whistleblower statutes and will
not permit any unlawful retaliation against anyone who makes a report or
complaint that a violation of this Code or other illegal or unethical conduct
has occurred.
9. Amendment, Modification And Waiver
This Code may be amended or modified from time to time by the Board of
Directors, subject to the disclosure and other provisions of the Securities
Exchange Act of 1934 and the rules thereunder. Any amendment, modification or
waiver of the provisions of this Code for executive officers or directors of the
Company may only be made by the Board of Directors, and must be promptly
disclosed to shareholders, as required by the Securities Exchange Act of 1934
and the rules thereunder.
115
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Doing Business State or Country Percentage Voting
Subsidiary As(DBA) of Incorporation Stock/Interests
Owned________
D.A.W., Inc. Eaton Apothecary Massachusetts 80%
ADCO Surgical
Supply, Inc. ADCO Maine 100%
ADCO South
Medical
Supplies, Inc. ADCO South Florida 100%
Nyer Internet
Companies, Inc. Nyer Internet Delaware 100%
Medicalmailorder.com
Anton
Investments, Inc. Anton Enterprises,
Inc. Florida 80%
Conway Associates,
Inc. Massachusetts 80%
SCBA, Inc. Massachusetts 80%
Nyer Nutritional
Systems, Inc. Delaware 80%
116
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Nyer Medical Group, Inc.
We hereby consent to the incorporation by reference in the Registration
Statement of Nyer Medical Group, Inc. (Form S-3 No. 333-66554), the
Registration Statement of Nyer Medical Group, Inc. (Form S-3 No. 333-106075)
and Registration Statement of Nyer Medical Group, Inc. (Form S-3 No.
333-113357), of our report dated September 10, 2004 relating to the
consolidated financial statements and schedules of Nyer Medical Group, Inc.
included in the Annual Report (Form 10-K) for the year ended June 30, 2004.
/s/ Sweeney, Gates & Co.
Fort Lauderdale, Florida
October 18, 2004
117
NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND SECTION 302 OF THE SARBANES-
OXLEY ACT OF 2002
I, Karen L. Wright, certify that:
1. I have reviewed this annual report on Form 10-K of Nyer Medical Group,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
Information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such Disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: October 18, 2004
/s/ Karen L. Wright
---------------
Karen L. Wright
President
(Principal Executive Officer)
Vice President - Finance
(Principal Financial and Accounting Officer)
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NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Nyer Medical Group, Inc. (the
"Company") on Form 10-K for the fiscal year ended June 30, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Karen L. Wright, President, Chief Executive Officer and Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Karen L. Wright
---------------
Karen L. Wright,
President, Chief Executive Officer
and Chief Financial Officer
October 18, 2004
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NYER MEDICAL GROUP, INC. AND SUBSIDIARIES
2004 Annual Report on Form 10-K
Exhibit 99.1
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
NYER MEDICAL GROUP, INC.
AMENDED AND RESTATED CHARTER, October 2004
I. PURPOSE
The Audit Committee (the "Committee") is established by the Board of
Directors (the "Board") of Nyer Medical Group, Inc. (the "Company") for the
primary purpose of assisting the Board in overseeing the accounting and
financial reporting processes of the Company and audits of the financial
statements of the Company. The Committee shall also review the policies and
procedures adopted by the Company to fulfill its responsibilities regarding the
fair and accurate presentation of financial statements in accordance with
generally accepted accounting principles ("GAAP") and applicable rules and
regulations of the Securities and Exchange Commission (the "SEC") and the
National Association of Securities Dealers (the "NASD") applicable to
Nasdaq-listed issuers.
Consistent with this function, the Committee should encourage
continuous improvement of, and should foster adherence to, the Company's
policies, procedures and practices at all levels. The Committee should also
provide an open avenue of communication among the independent auditor, financial
and senior management, the internal auditing function, if any, and the Board.
The Committee has the authority to obtain advice and assistance from
outside legal, accounting, or other advisors as deemed appropriate to perform
its duties and responsibilities.
The Company shall provide appropriate funding, as determined by the
Committee, for compensation to the independent auditor and to any advisers that
the Committee chooses to engage and for ordinary administrative expenses of the
Committee that are necessary or appropriate in carrying out its duties.
The Committee will primarily fulfill its responsibilities by carrying
out the activities enumerated in Section III of this Charter.
II. COMPOSITION AND MEETINGS
The Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be an independent director (as
defined by all applicable rules and regulations of the SEC and the NASD then in
effect), shall not own or control, directly or indirectly, 20% or more of the
Company's voting securities, or such lower measurement as may be established by
the SEC in rulemaking under Section 301 of the Sarbanes-Oxley Act of 2002, and
shall be free from any relationship (including disallowed compensatory
arrangements) that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. All
members of the Committee shall have a working familiarity with basic finance and
accounting practices and shall be able to read and understand fundamental
financial statements, and at least one member of the Committee shall be a
"financial expert" in compliance with the criteria established by the SEC and
other relevant regulations. The existence of such member(s) shall be disclosed
in periodic filings as required by the SEC. Members of the Committee may enhance
their familiarity with finance and accounting by participating in educational
programs conducted by the Company or an outside consultant.
Members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, members of
the Committee may designate a Chair by majority vote of the full Committee
membership.
The Committee shall meet at least four times annually, in person or by
telephone conference call, or more frequently as circumstances dictate. To the
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extent practical and appropriate, each regularly scheduled meeting should
conclude with an executive session of the Committee absent members of management
and on such terms and conditions as the Committee may elect. As part of its job
to foster open communication, the Committee should, to the extent practical and
appropriate, meet periodically with management, the director of the internal
auditing function, if any, and the independent auditor in separate executive
sessions to discuss any matters that the Committee or each of these groups
believes should be discussed privately.
III. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Committee shall:
Documents/Reports/Accounting Information Review
1. Review this Charter periodically, and no less frequently than annually,
and recommend to the Board any necessary amendments as conditions
dictate.
2. Review and discuss with management the Company's annual financial
statements, including the Management's Discussion and Analysis
proposed to be included in the Company's Annual Report on Form 10-K,
quarterly financial statements, and all internal controls reports (or
summaries thereof), if any. To the extent practical and appropriate,
review other relevant reports or financial information submitted by
the Company to any governmental body, or the public, including
management certifications as required by the Sarbanes-Oxley Act of
2002 (Sections 302 and 906) and relevant reports rendered by the
independent auditor (or summaries thereof).
3. Recommend to the Board whether the financial statements should be
included in the Annual Report on Form 10-K. Review with financial
management and the independent auditor each Quarterly Report on Form
10-Q prior to its filing.
4. Have one or more members of the Committee, in particular if reasonably
available the Chairman of the Committee, review, before release, the
unaudited operating results in the Company's quarterly earnings release
and/or discuss the contents of the Company's quarterly earnings release
with management.
5. Have one or more members of the Committee, in particular if reasonably
available the Chairman of the Committee, review, before release, any
non-GAAP or "pro forma" financial information, guidance or revised
guidance to be included in a press release of the Company.
6. To the extent practical and appropriate, review the regular internal
reports (or summaries thereof) to management prepared by the internal
auditing department, if any, and management's response.
Independent Auditor
7. Appoint (subject to shareholder ratification, if applicable),
compensate, and oversee the work performed by the independent auditor
for the purpose of preparing or issuing an audit report or related
work. Review the performance of the independent auditor and remove the
independent auditor if circumstances warrant. The independent auditor
shall report directly to the Committee and the Committee shall oversee
the resolution of disagreements between management and the independent
auditor in the event that they arise. The Board and Committee are in
place to represent the Company's stockholders. Accordingly, the
independent auditor is ultimately accountable to the Board and
Committee as representatives of the Company's stockholders. Consider
whether the auditor's performance of permissible nonaudit services is
compatible with the auditor's independence.
8. Review with the independent auditor when appropriate any problems or
difficulties and management's response; review the independent
auditor's attestation and report on management's internal control
report; obtain from the independent auditor assurance that it has
complied with Section 10A of the Securities Exchange Act of 1934; and
hold discussions with the independent auditor, at least prior to the
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filing of the independent auditor's audit report with the SEC pursuant
to federal securities laws, regarding the following:
all critical accounting policies and practices to be used;
all alternative treatments within GAAP for policies and practices
related to material items that have been discussed with management,
including ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor;
other material written communications between the independent
auditor and management including, but not limited to, the
management letter and schedule of unadjusted differences;
an analysis of the auditor's judgment as to the quality of the
Company's accounting principles, setting forth significant reporting
issues and judgments made in connection with the preparation of the
financial statements, and the matters required to be discussed by
Statement on Auditing Standards No. 61, as modified or supplemented;
any significant changes required in the independent auditor's
audit plan;
other matters related to the conduct of the audit, which are to be
communicated to the Committee under generally accepted auditing
standards; and
any other relevant reports, including regular internal financial
reports prepared by management of the Company and any internal auditing
department, or other financial information.
9. Review the independence of the independent auditor, including a review
of management consulting services, and related fees, provided by the
independent auditor. The Committee shall require that the independent
auditor at least annually provide a formal written statement
delineating all relationships between the independent auditor and the
Company consistent with the rules of the NASD applicable to
Nasdaq-listed issuers and request information from the independent
auditor and management to determine the presence or absence of a
conflict of interest. The Committee shall actively engage the
independent auditor in a dialogue with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditor. The Committee shall take, or
recommend that the full Board take, appropriate action to oversee the
independence of the independent auditor.
10. Review and preapprove all audit, review or attest engagements of, and
nonaudit services to be provided by, the independent auditor (other
than with respect to the de minimis exception permitted by the
Sarbanes-Oxley Act of 2002 and the SEC rules promulgated thereunder).
Establish and maintain preapproval policies and procedures relating to
the engagement of the independent auditor to render services, provided
the policies and procedures are detailed as to the particular service
and the Committee is informed of each service and such policies and
procedures do not include delegation of the Committee's
responsibilities under the Securities Exchange Act of 1934 to
management. The preapproval duty may be delegated to one or more
designated members of the Committee with any such preapproval reported
to the Committee at its next regularly scheduled meeting. Any such
designated member(s) of the Committee shall also have the authority to
approve nonaudit services, already commenced by the independent
auditor, if (i) the aggregate amount of all such services provided
constitutes no more than five percent (5%) of the total amount of
revenues paid by the Company to the independent auditor during the
fiscal year in which the services are provided, (ii) such services
were not recognized by the Company at the time of the engagement to
be nonaudit services and (iii) such services are promptly brought to
the attention of the Committee and approved by such designated
member(s) prior to the completion of the audit. Approval of nonaudit
services and preapproval policies and procedures shall be disclosed in
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the Company's Annual Report on Form 10-K and annual proxy statement.
Financial Reporting Processes and Accounting Policies
11. In consultation with the independent auditor and the internal auditors,
if any, review the integrity of the organization's financial reporting
processes (both internal and external), and the internal control
structure (including disclosure controls).
12. Review with management the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the financial
statements of the Company.
13. To the extent not otherwise approved by another committee or comparable
body of the Board, review and approve all related party transactions
(consistent with the rules of the NASD applicable to Nasdaq-listed
issuers).
14. Establish and maintain procedures for the receipt, retention, and
treatment of complaints regarding accounting, internal accounting, or
auditing matters.
15. Establish and maintain procedures for the confidential, anonymous
submission by Company employees regarding questionable accounting or
auditing matters.
Internal Audit
16. Determine the scope, responsibilities and reporting requirements of an
internal auditing department and on the appointment, replacement,
reassignment or dismissal of an internal auditing department manager or
director.
Other Responsibilities
17. Review with the independent auditor, the internal auditing department, if
any, and management the extent to which changes or improvements in
financial or accounting practices, as approved by the Committee, have
been implemented (This review should be conducted at an appropriate time
subsequent to implementation of changes or improvements, as decided by
the Committee.)
18. Prepare the report that the SEC requires be included in the Company's
annual proxy statement.
19. To the extent appropriate or necessary, review the rationale for
employing audit firms other than the principal independent auditor and,
where an additional audit firm has been employed, review the coordination
of audit efforts to assure completeness of coverage, reduction of
redundant efforts and the effective use of audit resources.
20. Establish, review and update periodically a code of ethics and ensure
that management has established a system to enforce this code. Ensure
that the code is in compliance with all applicable rules and regulations.
Review management's monitoring of the Company's compliance with the
organization's code of ethics.
21. Perform any other activities consistent with this Charter, the Company's
bylaws and governing law, as the Committee or the Board deems necessary
or appropriate.
IV. QUALIFICATION
While the Committee has the duties and responsibilities set forth in this
charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Similarly, it is not the responsibility of the Committee to resolve
disagreements, if any, between management and the independent auditors or to
ensure that the Company complies with all laws and regulations.
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It is recognized that in fulfilling their responsibilities hereunder,
members of the Committee are not full-time employees of the Company, it is not
the duty or responsibility of the Committee or its members to conduct field work
or other types of auditing or accounting reviews or procedures or to set auditor
independence standards, and each member of the Committee shall be entitled to
rely on (i) the integrity of those persons and organizations within and without
the Company from which it receives information, (ii) the accuracy of the
financial and other information provided to the Committee absent actual
knowledge to the contrary (which shall be promptly reported to the Board) and
(iii) statements made by management or third parties as to any information
technology, internal audit and other non-audit services provided by the auditors
to the Company.
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