UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2009
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 Number
000-20175
NYER MEDICAL GROUP,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
|
|
Florida
|
|
01-0469607
|
|
|
|
(State
or Other Jurisdiction of Incorporation
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
or
Organization)
|
|
|
|
|
|
|
|
|
|
|
|
13 Water Street, Holliston, Massachusetts
|
|
01746
|
|
|
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
|
(508)
429-8506
(Registrant’s
Telephone Number, Including Area Code)
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such
files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
|
|
|
Non-accelerated
filer
¨
|
Smaller
reporting company
x
|
(do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
The
number of the registrant’s shares of common stock outstanding as of November 13,
2009: 3,978,199.
INDEX
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Page No.
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PART
I – FINANCIAL INFORMATION
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|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
Consolidated
Balance Sheets (unaudited) as of September 30, 2009, and June 30,
2009
|
3
|
|
|
|
Consolidated
Statements of Operations (unaudited) for the three months ended September
30, 2009 and 2008
|
4
|
|
|
|
Consolidated
Statements of Cash Flows (unaudited) for the three months ended September
30, 2009 and 2008
|
5
|
|
|
|
Selected
Notes to Consolidated Financial Statements (unaudited)
|
6
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
|
Item
4T.
|
Controls
and Procedures
|
18
|
|
|
|
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
Signatures
|
20
|
|
PART
I—Financial Information
Item
1. Financial Statements
NYER
MEDICAL GROUP, INC.
Consolidated
Balance Sheets (unaudited)
|
|
|
September
30
|
|
|
June
30
|
|
|
|
|
2009
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
975,691
|
|
|
$
|
62,752
|
|
Accounts
receivable, net of allowance for doubtful accounts
of $18,200 at
September 30, 2009, and June 30, 2009
|
|
|
5,634,856
|
|
|
|
5,348,256
|
|
|
Inventories,
net
|
|
|
6,785,575
|
|
|
|
6,966,107
|
|
|
Prepaid
expenses and other current assets
|
|
|
472,179
|
|
|
|
979,226
|
|
|
Current
portion of deferred tax assets
|
|
|
361,300
|
|
|
|
361,300
|
|
|
Assets
to be disposed of from discontinued operations
|
|
|
105,200
|
|
|
|
219,476
|
|
|
Total
current assets
|
|
|
14,334,801
|
|
|
|
13,937,117
|
|
|
Property
and equipment, net
|
|
|
1,309,843
|
|
|
|
1,393,844
|
|
|
Goodwill
|
|
|
2,593,616
|
|
|
|
2,593,616
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|
|
Other
intangible assets, net
|
|
|
604,004
|
|
|
|
625,959
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|
|
Long-term
portion of deferred tax assets
|
|
|
353,200
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|
|
|
353,200
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|
|
Other
assets
|
|
|
35,042
|
|
|
|
36,067
|
|
|
Total
assets
|
|
$
|
19,230,506
|
|
|
$
|
18,939,803
|
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
106,058
|
|
|
$
|
106,058
|
|
|
Current
portion of long-term debt due related parties
|
|
|
1,580,004
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|
|
|
80,004
|
|
|
Accounts
payable
|
|
|
6,856,629
|
|
|
|
6,495,687
|
|
|
Accrued
expenses and other current liabilities
|
|
|
1,183,973
|
|
|
|
1,128,376
|
|
|
Liabilities
to be disposed of from discontinued operations
|
|
|
5,853
|
|
|
|
310,771
|
|
|
Total
current liabilities
|
|
|
9,732,517
|
|
|
|
8,120,896
|
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
289,362
|
|
|
|
315,876
|
|
|
Long-term
debt, net of current portion, due related parties
|
|
|
193,329
|
|
|
|
1,713,329
|
|
|
Total
liabilities
|
|
|
10,215,208
|
|
|
|
10,150,101
|
|
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Commitments
and contingencies
|
|
|
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|
|
|
|
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|
Shareholders'
equity:
|
|
|
|
|
|
|
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Preferred
stock, Class A, $0.001 par value, 5,000 shares; none
outstanding
|
|
|
-
|
|
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|
-
|
|
|
Preferred
stock, Class B, $0.001 par value, 2,500,000 shares authorized; 2,500
shares designated Series 1 Class B; none outstanding
|
|
|
-
|
|
|
|
-
|
|
|
2,000
shares designated convertible Series 2 Class B; 2,000 shares issued and
outstanding at September 30, 2009, and June 30, 2009
|
|
|
400,000
|
|
|
|
400,000
|
|
|
Common
stock, $0.0001 par value, 25,000,000 shares authorized; 3,978,199 shares
issued and outstanding at September 30, 2009, and June 30,
2009
|
|
|
398
|
|
|
|
398
|
|
|
Additional
paid-in capital
|
|
|
17,828,825
|
|
|
|
17,824,763
|
|
|
Accumulated
deficit
|
|
|
(9,213,925
|
)
|
|
|
(9,435,459
|
)
|
|
Total
shareholders' equity
|
|
|
9,015,298
|
|
|
|
8,789,702
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
19,230,506
|
|
|
$
|
18,939,803
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC.
Consolidated
Statements of Operations (unaudited)
|
|
|
For
the three months ended
|
|
|
|
|
September
30
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net
revenues:
|
|
|
|
|
|
|
|
Sales
|
|
$
|
17,381,357
|
|
|
$
|
16,719,082
|
|
|
Dispensing
fees
|
|
|
1,733,917
|
|
|
|
905,426
|
|
|
Total
net revenues
|
|
|
19,115,274
|
|
|
|
17,624,508
|
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
13,684,255
|
|
|
|
12,974,040
|
|
|
Selling,
general, and administrative expenses
|
|
|
5,534,771
|
|
|
|
4,373,005
|
|
|
Depreciation
and amortization
|
|
|
143,441
|
|
|
|
144,638
|
|
|
Total
costs and expenses
|
|
|
19,362,467
|
|
|
|
17,491,683
|
|
|
(Loss)
income from operations
|
|
|
(247,193
|
)
|
|
|
132,825
|
|
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(45,814
|
)
|
|
|
(47,395
|
)
|
|
Interest
income
|
|
|
3,439
|
|
|
|
3,123
|
|
|
Other
income (expense)
|
|
|
2,066
|
|
|
|
2,119
|
|
|
Total
other income (expense), net
|
|
|
(40,309
|
)
|
|
|
(42,153
|
)
|
|
(Loss)
income from continuing operations before provision for income
taxes
|
|
|
(287,502
|
)
|
|
|
90,672
|
|
|
(Benefit)
provision for income taxes
|
|
|
(114,814
|
)
|
|
|
49,504
|
|
|
(Loss)
income from continuing operations
|
|
|
(172,688
|
)
|
|
|
41,168
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net of
$8,261 income taxes, for
2008
|
|
|
-
|
|
|
|
9,472
|
|
|
Gain
(loss) on disposal, net of $262,814 and ($31,465) income taxes (benefit)
for 2009 and 2008, respectively
|
|
|
394,222
|
|
|
|
(61,078
|
)
|
|
Net
gain (loss) from discontinued operations
|
|
|
394,222
|
|
|
|
(51,606
|
)
|
|
Net
income (loss)
|
|
$
|
221,534
|
|
|
$
|
(10,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share, continuing operations
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
Earnings
(loss) per share, discontinued operations
|
|
|
0.10
|
|
|
|
(0.02
|
)
|
|
Earnings
(loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(unaudited)
|
|
|
For
the three months ended
|
|
|
|
|
September
30
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
221,534
|
|
|
$
|
(10,438
|
)
|
|
(Gain)
loss from discontinued operations
|
|
|
(394,222
|
)
|
|
|
51,606
|
|
|
(Loss)
income from continuing operations
|
|
|
(172,688
|
)
|
|
|
41,168
|
|
|
Adjustments
to reconcile (loss) income from continuing
operations to
|
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
121,486
|
|
|
|
121,749
|
|
|
Amortization
|
|
|
21,955
|
|
|
|
22,889
|
|
|
Stock-based
compensation expense
|
|
|
4,062
|
|
|
|
22,034
|
|
|
Deferred
income taxes
|
|
|
-
|
|
|
|
46,000
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(286,600
|
)
|
|
|
(289,990
|
)
|
|
Inventories
|
|
|
180,532
|
|
|
|
(380,217
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
507,047
|
|
|
|
206,719
|
|
|
Accounts
payable
|
|
|
360,942
|
|
|
|
615,431
|
|
|
Accrued
expenses and other current liabililties
|
|
|
56,622
|
|
|
|
1,373
|
|
|
Cash
provided by operating activities, continuing operations
|
|
|
793,358
|
|
|
|
407,156
|
|
|
Cash
(used in) provided by operating activities, discontinued
operations
|
|
|
(326,420
|
)
|
|
|
91,701
|
|
|
Cash
provided by operating activities
|
|
|
466,938
|
|
|
|
498,857
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(37,485
|
)
|
|
|
(160,151
|
)
|
|
Cash
used in investing activities, continuing operations
|
|
|
(37,485
|
)
|
|
|
(160,151
|
)
|
|
Cash
provided by investing activities, discontinued operations
|
|
|
830,000
|
|
|
|
-
|
|
|
Cash
provided by investing activities
|
|
|
792,515
|
|
|
|
(160,151
|
)
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
Principal
payments on capital lease obligations
|
|
|
(9,013
|
)
|
|
|
-
|
|
|
Payments
on long-term debt
|
|
|
(37,501
|
)
|
|
|
(71,687
|
)
|
|
Cash
used in financing activities, continuing operations
|
|
|
(46,514
|
)
|
|
|
(71,687
|
)
|
|
Cash
used in investing activities, discontinued operations
|
|
|
(300,000
|
)
|
|
|
-
|
|
|
Cash
used in financing activities
|
|
|
(346,514
|
)
|
|
|
(71,687
|
)
|
|
Net
increase in cash
|
|
|
912,939
|
|
|
|
267,019
|
|
|
Cash
at beginning of period
|
|
|
62,752
|
|
|
|
140,688
|
|
|
Cash
at end of period
|
|
$
|
975,691
|
|
|
$
|
407,707
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
54,377
|
|
|
$
|
185,605
|
|
|
Cash
paid (received) for income taxes (refunds), net
|
|
$
|
33,890
|
|
|
$
|
(20,120
|
)
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC.
SELECTED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Basis
of presentation
The
consolidated financial statements included herein have been prepared by Nyer
Medical Group, Inc. (the “Company” or “Nyer”), without audit, in accordance with
generally accepted accounting principles in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not to be misleading. In the opinion of
management, the amounts shown reflect all adjustments necessary to present
fairly the financial position and results of operations for the periods
presented. All such adjustments are of a normal recurring
nature. The consolidated financial statements include the accounts of
the Company and its subsidiaries, and all intercompany transactions have been
eliminated.
The results shown for the interim
period are not necessarily indicative of the results to be obtained for the full
year. These consolidated interim financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company’s Form 10-K for the year ended June 30, 2009.
Reclassifications
Prior
year information is reclassified whenever necessary to conform to current year’s
presentation.
Use
of estimates
The
preparation of financial statements in conformity with GAAP 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.
Fair
value of financial instruments
The
carrying values of accounts receivable, accounts payables, and debt approximate
their fair values. The carrying values and estimated fair values for
long-term debt based on quoted market rates of financial instruments were
approximately the same.
Recent
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles™,
(codified within ASC Topic 105,
Generally Accepted Accounting
Principles),
which establishes the FASB Accounting Standards Codification
(“ASC”) as the single source of authoritative GAAP (the
“Codification”). The Codification supersedes all previous non-SEC
accounting and reporting standards. The Company adopted SFAS No. 168
for its first quarter ended September 30, 2009, and has conformed all references
to accounting literature in the Quarterly Report to the appropriate reference
within the Codification. All new authoritative guidance is issued in
the form of ASC Updates. The Company has provided dual-referencing
for those standards that it adopted prior to the issuance of the
Codification. The adoption of this standard did not have any
impact on the Company’s financial position or results of
operations.
Effective
July 1, 2009, the Company adopted Emerging Issues Task Force Issue No. 07-5,
Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock
,
as codified in ASC Topic 815 (“ASC 815”). ASC 815 provides that an entity
should use a two-step approach to evaluate whether an equity-linked financial
instrument (or embedded feature) is indexed to its own stock, including
evaluating the instrument's contingent exercise and settlement
provisions. The consensus must be applied to outstanding
instruments as of the beginning of the fiscal year in which the consensus is
adopted and should be treated as a cumulative-effect adjustment to the opening
balance of retained earnings. The adoption of ASC 815 did not have a
material impact on the Company’s consolidated financial statements.
Effective
July 1, 2009, the Company adopted FSP FAS No. 142-3,
Determination of the Useful Life of
Intangible Assets
, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible
Assets
, as codified in ASC Topic 350,
Intangibles – Goodwill and Other
(“ASC 350”). The adoption of ASC 350 did not have a material
impact on the Company’s consolidated financial statements.
Effective
July 1, 2009, the Company adopted FSP Accounting Principles Board 14-1,
Accounting for Convertible Debt
Instruments That May be Settled in Cash upon Conversion (Including Partial
Settlement)
, as codified in ASC Topic 470 (“ASC 470”). ASC 470
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer’s nonconvertible debt borrowing rate. The
adoption of ASC 470 did not have a material impact on the Company’s consolidated
financial statements.
Effective
July 1, 2009, the Company adopted FASB SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,
as codified in ASC 815
.
ASC 815 requires
enhanced disclosures regarding an entity’s derivative instruments and related
hedging activities. These enhanced disclosures include information
regarding how and why an entity uses derivative instruments; how derivative
instruments and related hedge items are accounted for under SFAS
No. 133,
Accounting for
Derivative Instruments and Hedging Activities,
and its related
interpretations; and how derivative instruments and related hedge items affect
an entity’s financial position, financial performance, and cash flows. The
adoption of ASC 815 did not have a material impact on the Company’s consolidated
financial statements.
Effective
July 1, 2009, the Company adopted FASB SFAS No. 141(R),
Business Combinations
, as
codified in ASC 805,
Business
Combinations
. ASC Topic 805 (“ASC 805”) broadens the guidance
and, extends its applicability to all transactions and other events in which one
entity obtains control over one or more other businesses. It broadens
the fair value measurement and recognition of assets acquired, liabilities
assumed, and interests transferred as a result of business
combinations. ASC 805 expands on required disclosures to improve the
statement users’ abilities to evaluate the nature and financial effects of
business combinations. The adoption of ASC 805 did not have a material impact on
the Company’s consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05,
Fair Value Measurements and
Disclosures
. ASU 2009-05 amends Subtopic 820-10,
Fair Value Measurements and
Disclosures
, to provide guidance on the fair value measurement of
liabilities. ASU 2009-05 provides clarification for circumstances in which a
quoted price in an active market for the identical liability is not available.
ASU 2009-05 is effective for interim and annual periods beginning after August
26, 2009. The Company is currently assessing the impact that the adoption of ASU
2009-05 will have on the Company’s disclosures, consolidated operating results,
financial position, and cash flows.
2.
Prepaid
expenses and other current assets
Prepaid
expenses and other current assets consisted of the following:
|
|
|
September
30
|
|
|
June
30
|
|
|
|
|
2009
|
|
|
2009
|
|
|
Vendor
rebates receivable
|
|
$
|
387,266
|
|
|
$
|
906,372
|
|
|
Prepaid
other
|
|
|
84,913
|
|
|
|
72,854
|
|
Total
prepaid expenses and other
current
assets
|
|
$
|
472,179
|
|
|
$
|
979,226
|
|
3.
Goodwill
and other intangible assets
Goodwill
Goodwill
represents the amount of consideration paid in connection with business
acquisitions in excess of the fair value of assets acquired and liabilities
assumed. In accordance with ASC Topic 350,
Intangibles-Goodwill and
Other
(formerly SFAS No. 142,
Goodwill and Other Intangible
Assets
), the Company evaluates the balance of the carrying value of
goodwill based on a single reporting unit annually during the fourth quarter and
more frequently if certain indicators are present or changes in circumstances
suggest that impairment may exist.
The first
step of its goodwill impairment test, used to identify potential impairment,
compares the fair value of our reporting unit with its carrying amount,
including goodwill. If the fair value of its reporting unit exceeds
its carrying amount, the goodwill of the reporting unit is considered not
impaired, and the second step of the impairment test, used to measure the amount
of the impairment loss, is unnecessary. If the carrying amount of its
reporting unit exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if
any. The second step of the goodwill impairment test, used to measure
the amount of impairment loss, compares the implied fair value of the reporting
unit goodwill as of the date of the impairment review with the carrying amount
of that goodwill. The implied fair value of goodwill is determined on
the same basis as the amount of goodwill recognized in connection with a
business combination. Specifically, the fair value of a reporting
unit is allocated to all of the assets and liabilities (including any
unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination as of the date of the impairment review and as if the fair
value of the reporting unit was the price paid to acquire the reporting
unit. The excess of the fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill. If the carrying amount of the reporting unit goodwill
exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.
On
September 30, 2009, the carrying value of the Company’s net assets was
$9,015,298; and the market capitalization of the Company’s outstanding shares,
assuming conversion of outstanding preferred shares, was $3,776,579. The Company
calculated the estimated fair value of the Company as of September 30, 2009, as
that amount that would be received to sell the Company as a whole on that date.
It arrived at the estimated fair value by using the December 2008 selling price
of the Company’s Topsfield store and the information in the definitive agreement
with Walgreen Eastern Co., Inc. (“Walgreens”) that the Company signed on October
22, 2009. The Company has concluded that the Company’s fair value exceeds its
carrying value as of September 30, 2009, and that goodwill is not
impaired.
The
Company has concluded that the market value of the Company’s common stock as of
September 30, 2009, is not an indication of the Company’s market value due to
the fact that it is very thinly traded and that the implied fair value test is a
more accurate indication of whether or not there has been an impairment of
goodwill. Inherent in such fair value determinations are certain
judgment and estimates, including the interpretation of economic indicators and
market valuations and assumptions about the Company’s strategic
plans. To the extent that its strategic plans change or that economic
and market conditions worsen, it is possible that its conclusion regarding
goodwill impairment could change and result in a material effect on financial
position and results of operations of the Company. The Company has
determined that no goodwill impairment charges were required for the three
months ended September 30, 2009, and September 30, 2008.
Other
intangible assets
The
following is a summary of other intangible assets:
|
September
30, 2009
|
|
|
June
30, 2009
|
|
|
Gross
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Value
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
$
|
1,011,555
|
|
$
|
(407,551
|
)
|
|
$
|
604,004
|
|
|
$
|
1,011,555
|
|
|
$
|
(385,596
|
)
|
|
$
|
625,959
|
|
Amortization
expense was $21,955 and $22,889 for the three months ended September 30, 2009
and 2008, respectively. Based on the balance of intangible assets as
of September 30, 2009, the remaining amortization expense for the remainder of
fiscal 2010 and each of the succeeding five years is estimated to be as
follows:
|
|
|
Amortization
|
|
|
Year
|
|
Amount
|
|
|
2010
(remaining 9 months)
|
|
|
65,867
|
|
|
2011
|
|
|
87,822
|
|
|
2012
|
|
|
85,716
|
|
|
2013
|
|
|
81,156
|
|
|
2014
|
|
|
81,156
|
|
|
2015
|
|
|
81,156
|
|
|
Thereafter
|
|
|
121,131
|
|
|
Total
|
|
$
|
604,004
|
|
4.
Indebtedness and related
parties
Indebtedness
|
|
|
September
30
|
|
|
June
30
|
|
|
|
|
2009
|
|
|
2009
|
|
|
Related
parties:
|
|
|
|
|
|
|
|
Convertible
notes
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
|
Note
payable, shareholder
|
|
|
273,333
|
|
|
|
293,333
|
|
|
|
|
|
1,773,333
|
|
|
|
1,793,333
|
|
|
Less
current portion of debt due related parties
|
|
|
1,580,004
|
|
|
|
80,004
|
|
|
Long-term
portion of debt due related parties
|
|
$
|
193,329
|
|
|
$
|
1,713,329
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
debt:
|
|
|
|
|
|
|
|
|
|
Note
payable, former shareholder
|
|
$
|
239,167
|
|
|
$
|
256,668
|
|
|
Obligations
under capital leases
|
|
|
156,253
|
|
|
|
165,266
|
|
|
|
|
|
395,420
|
|
|
|
421,934
|
|
|
Less
current portion of debt
|
|
|
106,058
|
|
|
|
106,058
|
|
|
Long-term
portion of debt
|
|
$
|
289,362
|
|
|
$
|
315,876
|
|
The
Company’s discontinued operations, ADCO Surgical Supply, Inc., (“ADCO”) had a
line of credit (the “line”), which was secured by land and a building owned by
ADCO (not sold with the rest of ADCO’s assets) and guaranteed by the
Company. Repayment of the line was in monthly payments of interest
only, with the principal being due at maturity, unless
renewed. Prior to the maturity date, ADCO would have had to
repay the amounts outstanding under the line upon the demand of the
bank. The interest rate was two percentage points over the
Wall Street Journal
Prime
Rate. The building that was used as collateral for the line was sold
on September 21, 2009; and a portion of the proceeds from the sale was used to
pay off the line. The line was terminated as of September 21,
2009.
The
former minority shareholders (the “Minority Shareholders”) of the Company’s now
wholly owned subsidiary, D.A.W., Inc., (“DAW”) can convert all or any portion of
their allocable payment of the convertible notes they own into shares of the
Company’s common stock or they can redeem them for cash. The Minority
Shareholders have indicated that they intend to convert their shares into
815,217 shares of common stock upon shareholder approval and the closing of the
WAG Transaction (as defined in Note 11) and the DAW Stock Transaction (as
defined in Note 11). See Note 11, Subsequent events, for further
information on the WAG Transaction and the DAW Stock Transaction.
Other
related party transactions
The
Company leases a drug store facility owned by the mother of the Company’s
president, chief executive officer, and director and another
director. The Company paid $2,190 and $2,106 for the three months
ended September 30, 2009 and 2008, respectively. The lease expires
July 31, 2011.
5.
Accrued
expenses and other current liabilities
Accrued
expenses and other current liabilities consisted of the following:
|
|
|
September
30
|
|
|
June
30
|
|
|
|
|
2009
|
|
|
2009
|
|
|
Accrued
salaries and wages
|
|
$
|
794,984
|
|
|
$
|
732,989
|
|
|
Accrued
income taxes
|
|
|
323,517
|
|
|
|
198,139
|
|
|
Accrued
other
|
|
|
65,472
|
|
|
|
197,248
|
|
|
Total
accrued expenses and other current liabilities
|
|
$
|
1,183,973
|
|
|
$
|
1,128,376
|
|
6.
Discontinued operations
On
September 21, 2009, ADCO sold its building in Bangor, Maine, to Dovesco, LLC,
for $830,000 and recognized a gain of $657,036 on the
sale.
In
December 2008, the Company sold the inventory and prescription lists of its
Topsfield pharmacy to CVS Pharmacy L.L.C. (“CVS”). In conjunction
with this sale, the Company also entered into a non-compete agreement with CVS,
whereby it has agreed not to compete for three years within a 10-mile radius of
the CVS store located in Danvers, Massachusetts, excluding two currently
operating Eaton Apothecary pharmacies.
In
September 2008, the Company sold certain assets and liabilities of ADCO, a
medical and surgical equipment and supplies company, and recognized a loss on
disposal at September 30, 2008 of $61,078 on the sale. In connection
with this sale, the Company received a $50,000 note receivable that was payable
January 31, 2009. The Company and the buyer are currently in dispute
over certain assets and liabilities that were included in the ADCO
sale, and the note receivable has not been paid. The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.
The
Company’s consolidated financial statements have been reclassified to reflect
these businesses as discontinued operations in accordance with ASC 360-10-45-2,
Impairment or Disposal of
Long-lived Assets
, (formerly SFAS No.144,
Accounting for Disposal or
Impairment of Long-lived Assets).
The following table shows
the assets and liabilities for the discontinued operations:
|
|
|
September
30
|
|
|
June
30
|
|
|
|
|
2009
|
|
|
2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
2,275
|
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
112,001
|
|
|
Current
portion of deferred tax assets
|
|
|
105,200
|
|
|
|
105,200
|
|
|
Total
assets
|
|
$
|
105,200
|
|
|
$
|
219,476
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
-
|
|
|
$
|
300,000
|
|
|
Accrued
expenses and other liabilities
|
|
|
5,853
|
|
|
|
10,771
|
|
|
Total
current liabilities
|
|
$
|
5,853
|
|
|
$
|
310,771
|
|
The
following table shows a summary of revenues and pre-tax operating results from
the discontinued operations:
|
|
|
For
the three months ended
|
|
|
|
|
September
30
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
$
|
-
|
|
|
$
|
1,080,892
|
|
|
Pre-tax
(loss) income from discontinued operations
|
|
$
|
657,036
|
|
|
$
|
(74,810
|
)
|
7.
Shareholders’
equity
Class A preferred
stock
Total
authorized shares are 5,000, par value $.001; no shares are
outstanding. Each share has voting rights equal to 1,000 shares of
common stock.
Class B preferred
stock
Total
authorized shares are 2,500,000, par value $.001; 2,500 shares have been
designated as Series 1 Class B Preferred Stock of which none are
outstanding. Each share has voting rights equal to 2,000 shares of
common stock.
Series 2 Class B preferred
stock
In
February 2008, 2,000 shares of Series 2 Class B Preferred Stock (“Series 2
Stock”), a newly-created series of convertible preferred stock of the Company,
were issued to the Minority Shareholders. Each share has voting
rights equal to 2,000 shares of common stock for an aggregate of 4,000,000
votes. The shares are initially convertible into 218,000 shares of
the Company’s common stock, based upon an initial conversion price of $1.84,
which is subject to adjustment (the “Conversion Price”).
At any
time, the holders of the Series 2 Stock may convert their shares into common
stock upon the Company’s (i) consolidation with or merger into any other person
or (ii) transfer of all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the
Company subject to certain conditions described below, which may be waived by
the holders of at least a majority of the Series 2 Stock then
outstanding.
On
February 4, 2011, or such later date as the following conditions are met in
their entirety, all of the shares of Series 2 Stock will be converted into
common stock: (i) no event of default has occurred and is continuing
beyond any applicable cure periods under the promissory notes issued by the
Company to any of the former Minority Shareholders and (ii) the resale of common
stock issuable upon conversion of the Series 2 Stock is covered by an effective
registration statement.
Subject
to certain exceptions, if the Company issues or sells any shares of common stock
by means of options, convertible securities, or otherwise for a price per share
(the “New Issuance Price”) less than the Conversion Price then in effect, then
immediately after such dilutive issuance, the Conversion Price then in effect
will be reduced to the New Issuance Price. The adjustment to the
Conversion Price made in regard to an option or convertible security will be
made at the time such option or convertible security is issued (and not when
such option or convertible security is exercised or converted). The
Conversion Price is also subject to additional anti-dilution adjustments in the
event of stock splits, dividends, recapitalization, and other
events. In the event of certain mergers, asset sales or
reorganization, the holders of the Series 2 Stock will be entitled to receive
the securities and property they would have received for the shares of common
stock that should have been issued to such holders had they fully converted
their shares of Series 2 Stock prior to such event.
|
8.
|
Warrants and share-based
compensation
|
Stock
option 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 (the “1993 Plan”) was amended in
fiscal year 2003 to, among other things, (a) cease grants under such plan upon
the effectiveness of the 2002 Stock Option Plan of the Company (the “2002 Plan”)
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 10
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 and
non-qualified options, which are not non-discretionary options (as such term is
used in the 1993 Plan), 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 and certain non-qualified options, 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.
Stock options and
warrants
The
Company’s share-based compensation consists of stock option awards, which are
accounted for as compensation expense at the fair value on the grant date, using
the Black-Scholes valuation model. The Company recorded share-based
compensation expense of $4,062 and $22,034 for the three months ended September
30, 2009 and 2008, respectively. The Company did not grant any stock
options for the three months ended September 30, 2009 or 2008.
In April
2005, the Company granted to investors warrants to purchase 53,320 common shares
over a five-year period at an exercise price of $2.60 per share. None
of these have been exercised as of September 30, 2009. In addition,
the Company had 150,000 stock options that were granted in 1999 to a third party
in connection with consulting services that were not exercised and expired in
January 2009.
Below is
reconciliation of weighted average common shares outstanding for purposes of
calculating basic and diluted earnings (loss) per share:
|
|
|
For
the three months ended
|
|
|
|
|
September
30
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator for basic and diluted
earnings per common
share
calculation:
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(172,688
|
)
|
|
$
|
41,168
|
|
|
Income
from discontinued operations, net of income tax (benefit)
|
|
|
394,222
|
|
|
|
(51,606
|
)
|
|
Net
income (loss)
|
|
$
|
221,534
|
|
|
$
|
(10,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and
diluted earnings per common
share
calculation:
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
Income
from discontinued operations
|
|
|
0.10
|
|
|
|
(0.02
|
)
|
|
Net
income (loss)
|
|
$
|
0.06
|
|
|
$
|
(0.01
|
)
|
Due to
their anti-dilutive effect, the following potential common shares have been
excluded from the computation of diluted earnings (loss) per share:
|
|
|
For
the three months ended
|
|
|
|
|
September
30
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Stock
options
|
|
|
1,435,000
|
|
|
|
1,624,000
|
|
|
Warrants
|
|
|
53,320
|
|
|
|
53,320
|
|
|
Convertible
notes
|
|
|
815,217
|
|
|
|
815,217
|
|
|
Convertible
preferred stock
|
|
|
218,000
|
|
|
|
218,000
|
|
|
|
|
|
2,521,537
|
|
|
|
2,710,537
|
|
|
10.
|
Contingencies
Legal
proceedings
|
The
Company and the buyer of ADCO are currently in dispute over certain assets and
liabilities that were included in the ADCO sale. The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.
In
the ordinary course of business, the Company may become involved in litigation
incidental to its business; however, the Company is not aware of any pending
legal proceeding that would have a material effect on its operating
results.
11.
Subsequent
events
Management
has evaluated subsequent events through November 16, 2009, which is the date the
financial statements were issued.
Asset
purchase agreement
On
October 22, 2009, DAW and Nyer entered into an Asset Purchase Agreement (the
“WAG Agreement”) with Walgreens for the sale of a substantial portion of DAW’s
operating assets, including prescription files and inventory of 12 pharmacies
which included the assignment of eight leases (the “Acquired Assets”) for a
purchase price, subject to certain adjustments, of $12,000,000 plus up to
$5,750,000 of qualifying inventory and $1,100,000 of operating equipment (the
“WAG Transaction”). DAW, Nyer, and Walgreens made customary
representations, warranties, and covenants in the WAG Agreement. In
addition, DAW and Nyer agreed that, for a period of three years, they would
refrain (and cause their current controlled affiliates to refrain) from
competing within a certain area of the pharmacies whose assets were included in
the Acquired Assets, with certain exceptions set forth in the WAG
Agreement.
The
parties have agreed to indemnify each other against certain losses, including
losses for breaches of representations, warranties, and
covenants. Each of DAW’s and Nyer’s indemnification
obligations begin at an aggregate of $50,000 and are limited to a total of
$1,200,000 or, with respect to the inaccuracy of certain fundamental
representations, $4,000,000. Further, DAW’s and Nyer’s
indemnification obligations terminate 90 days following the closing date, with
certain exceptions, including an extension of the indemnification period for up
to 12 months for claims related to certain representations and three years for
claims related to noncompetition covenants. Walgreens agrees to
indemnify DAW and Nyer for its breach of the WAG Agreement for a period of 12
months, except in certain circumstances set forth in the WAG Agreement; and its
indemnification obligations are for an unlimited amount. DAW, Nyer,
and Walgreens can terminate the WAG Agreement in certain specified instances, as
provided in the WAG Agreement. If the closing does not occur and Nyer
or DAW enters into an alternative transaction under certain conditions specified
in the WAG Agreement, DAW would owe to Walgreens a breakup fee in the amount of
$300,000 and reimbursement of actual out-of-pocket expenses in an amount up to
$200,000.
The
completion of the WAG Transaction is subject to certain closing conditions set
forth in the WAG Agreement, including the approval of the WAG Transaction at a
special meeting of Nyer’s shareholders (the “Special Meeting”). The
Boards of Directors of Nyer and DAW (the “Boards”) unanimously approved the WAG
Transaction.
Stock
purchase agreement
On
October 23, 2009, Nyer and DAW entered into a Transaction Agreement (the “DAW
Stock Agreement”) with certain management investors named therein (the
“Investors”) for the sale of the stock of DAW, under which Nyer will receive a
benefit of $1,500,000 after giving effect to liabilities to be retained by DAW
(the “DAW Stock Transaction”). DAW and Nyer made customary
representations, warranties, and covenants in the DAW Stock
Agreement. In addition, DAW and Nyer agreed, on the terms set forth
in the DAW Stock Agreement, not to solicit or encourage any alternative sale
transactions. DAW, Nyer, and the Investors can terminate the DAW
Stock Agreement in certain specified instances, as provided in the DAW Stock
Agreement. If the closing does not occur and Nyer and DAW enter into
an alternative transaction under certain conditions specified in the DAW Stock
Agreement, DAW and Nyer would owe to the Investors a breakup fee in the amount
equal to the actual out-of-pocket expenses, including attorneys’ fees, incurred
by the Investors in connection with the DAW Stock Transaction.
The
completion of the DAW Stock Transaction is subject to certain closing conditions
set forth in the DAW Stock Agreement, including the approval of the DAW Stock
Transaction at the Special Meeting and the approval and closing of the WAG
Transaction. The DAW Stock Transaction was reviewed by a special
committee of the Company’s Board of Directors comprised of independent directors
(the “Special Committee”). The DAW Stock Transaction was unanimously
approved by the Special Committee and recommended to the Boards by the Special
Committee. The Boards also unanimously approved the DAW Stock
Transaction (with Messrs. Mark Dumouchel and David Dumouchel abstaining)
recommended to the Boards by the Special Committee.
Liquidation
and dissolution of Nyer
In
conjunction with the WAG Transaction and DAW Stock Transaction, the Board of
Directors of Nyer approved the liquidation and dissolution of the Company
pursuant to a Plan of Dissolution (the “Plan of
Dissolution”). Implementation of the Plan of Dissolution is subject
to obtaining shareholder approval of the WAG Transaction, the DAW Stock
Transaction, and the Plan of Dissolution (the “Transactions”) at the Special
Meeting. Upon shareholder approval of the Transactions and the
closing of the WAG Transaction and the DAW Stock Transaction, the Company
intends to proceed with the orderly wind down and dissolution of Nyer pursuant
to the Plan of Dissolution. The Board of Directors of Nyer has also
authorized the Company’s officers to cause the common stock of the Company to be
delisted from the NASDAQ Stock Market following the closing of the WAG
Transaction.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
This
Quarterly Report on Form 10-Q contains statements which constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and other federal securities laws. Forward looking
information includes statements concerning pharmacy sales trends, the sale of
discontinued operations and demographic trends; as well as those that include or
are preceded by the words “expects,” “estimates,” “believes,” “plans,”
“anticipates,” or similar language. Forward looking statements may
involve risks and uncertainties, known or unknown to us that could cause results
to differ materially from management’s expectations as projected in such
forward-looking statements, including the risk that we may fail to consummate
one of more of the Transactions. You should not place undue reliance
upon on these forward-looking statements or rely upon them as predictions of
future events because we cannot assure you that the events or circumstances
reflected in these statements will be achieved or will occur. The
closing of the Transactions is subject to certain closing conditions set forth
in the documents including the approval of Nyer’s shareholders; these conditions
may be delayed or may not occur, causing the closing to occur at a later date
than expected or not at all. Except as required by law, Nyer
undertakes no obligation to release publicly the result of any revision to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events. These risks and uncertainties are discussed in Item 1A in our
most recent Annual Report on Form 10-K as filed with the SEC as well as our
other filings with the SEC. Unless otherwise required by applicable
securities laws, we assume no obligation to update our forward-looking
statements to reflect subsequent events or circumstances.
The
following discussion provides information with respect to our results of
operations, liquidity, and capital resources on a comparative basis for the
three months ended September 30, 2009 and 2008. The following
discussion should be read in conjunction with our consolidated financial
statements and selected notes thereto for the three months ended September 30,
2009 and 2008, included herein, and our audited consolidated financial
statements and notes thereto contained in our Annual Report on Form 10-K for the
year ended June 30, 2009, as filed with the SEC.
Overview
We
operate a chain of pharmacies and provide pharmacy management services to
various not-for-profit entities. While the long-term outlook for
prescription utilization is strong due in part to the aging population and the
continued development of innovative drugs that improve the quality of life and
control health care costs, the pharmacy industry is highly
competitive. The majority of our business is conducted pursuant to
contracts with pharmacy benefit management companies and the Commonwealth of
Massachusetts Medicaid Department. Each applies consistent downward
pressure on our margins. The current recessionary economic
environment has not significantly adversely affected the number of prescriptions
dispensed at our pharmacies, as our business is generally recession
resistant.
Recent
Developments
Asset
purchase agreement
On
October 22, 2009, DAW and Nyer entered into the WAG Agreement with Walgreens for
the sale of the Acquired Assets for a purchase price, subject to certain
adjustments, of $12,000,000 plus up to $5,750,000 of qualifying inventory and
$1,100,000 of operating equipment. DAW, Nyer, and Walgreens made
customary representations, warranties, and covenants in the WAG
Agreement. In addition, DAW and Nyer agreed that, for a period of
three years, they would refrain (and cause their current controlled affiliates
to refrain) from competing within a certain area of the pharmacies whose assets
were included in the Acquired Assets, with certain exceptions set forth in the
WAG Agreement.
The
parties have agreed to indemnify each other against certain losses, including
losses for breaches of representations, warranties, and
covenants. Each of DAW’s and Nyer’s indemnification
obligations begin at an aggregate of $50,000 and are limited to a total of
$1,200,000 or, with respect to the inaccuracy of certain fundamental
representations, $4,000,000. Further, DAW’s and Nyer’s
indemnification obligations terminate 90 days following the closing date, with
certain exceptions, including an extension of the indemnification period for up
to 12 months for claims related to certain representations and three years for
claims related to noncompetition covenants. Walgreens agrees to
indemnify DAW and Nyer for its breach of the WAG Agreement for a period of 12
months, except in certain circumstances set forth in the WAG Agreement; and its
indemnification obligations are for an unlimited amount. DAW, Nyer,
and Walgreens can terminate the WAG Agreement in certain specified instances, as
provided in the WAG Agreement. If the closing does not occur and Nyer
or DAW enters into an alternative transaction under certain conditions specified
in the WAG Agreement, DAW would owe to Walgreens a breakup fee in the amount of
$300,000 and reimbursement of actual out-of-pocket expenses in an amount up to
$200,000.
The
completion of the WAG Transaction is subject to certain closing conditions set
forth in the WAG Agreement, including the approval of the WAG Transaction at the
Special Meeting. The Boards unanimously approved the WAG
Transaction.
Stock
purchase agreement
On
October 23, 2009, Nyer and DAW entered into the DAW Stock Agreement with the
Investors for the sale of the stock of DAW, under which Nyer will receive a
benefit of $1,500,000 after giving effect to liabilities to be retained by
DAW. DAW and Nyer made customary representations, warranties, and
covenants in the DAW Stock Agreement. In addition, DAW and Nyer
agreed, on the terms set forth in the DAW Stock Agreement, not to solicit or
encourage any alternative sale transactions. DAW, Nyer, and the
Investors can terminate the DAW Stock Agreement in certain specified instances,
as provided in the DAW Stock Agreement. If the closing does not occur
and Nyer and DAW enter into an alternative transaction under certain conditions
specified in the DAW Stock Agreement, DAW and Nyer would owe to the Investors a
breakup fee in the amount equal to the actual out-of-pocket expenses, including
attorneys’ fees, incurred by the Investors in connection with the DAW Stock
Transaction.
The
completion of the DAW Stock Transaction is subject to certain closing conditions
set forth in the DAW Stock Agreement, including the approval of the DAW Stock
Transaction at the Special Meeting and the approval and closing of the WAG
Transaction. The DAW Stock Transaction was reviewed by the Special
Committee. The DAW Stock Transaction was unanimously approved by the
Special Committee and recommended to the Boards by the Special
Committee. The Boards also unanimously approved the DAW Stock
Transaction (with Messrs. Mark and David Dumouchel abstaining) recommended to
the Boards by the Special Committee.
Liquidation
and dissolution of Nyer
In
conjunction with the WAG Transaction and DAW Stock Transaction, the Board of
Directors of Nyer approved the liquidation and dissolution of the Company
pursuant to the Plan of Dissolution. Implementation of the Plan of
Dissolution is subject to obtaining shareholder approval of the WAG Transaction,
the DAW Stock Transaction, and the Plan of Dissolution (the “Transactions”) at
the Special Meeting. Upon shareholder approval of the Transactions
and the closing of the WAG Transaction and the DAW Stock Transaction, we intend
to proceed with the orderly wind down and dissolution of Nyer pursuant to the
Plan of Dissolution. The Board of Directors of Nyer has also
authorized the our officers to cause the common stock of the Company
to be delisted from the NASDAQ Stock Market following the closing of the WAG
Transaction.
Results of
Operations
Net
revenues
. We recognize revenue both from the sale of
prescription medications and other products as well as through dispensing fee
revenue derived through dispensing of prescriptions with inventory owned by
Federally Qualified Health centers (“FQHCs”) pursuant to pharmacy management
services contracts entered into between us and various FQHCs. The
following table sets forth for the periods indicated pharmacy and dispensing
fees revenues from continuing operations and changes between the specified
periods expressed as a percentage increase or decrease:
|
|
|
For
the three months ended
|
|
|
|
|
|
|
|
|
|
|
September
30
|
|
|
Change
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Sales
|
|
$
|
17,381,357
|
|
|
$
|
16,719,082
|
|
|
$
|
662,275
|
|
|
|
4.0
|
%
|
|
Dispensing
fees
|
|
|
1,733,917
|
|
|
|
905,426
|
|
|
|
828,491
|
|
|
|
91.5
|
%
|
|
Total
net revenues
|
|
$
|
19,115,274
|
|
|
$
|
17,624,508
|
|
|
$
|
1,490,766
|
|
|
|
8.5
|
%
|
Total net
revenues increased $1,490,766 to $19,115,274 or 8.5% for the three months ended
September 30, 2009, as compared to $17,624,508 for the three months ended
September 30, 2008. Net revenues increased 4.9% at stores open more
than one year.
The
pharmacy sales (revenues other than dispensing fees) increased $662,275 to
$17,381,357 or 4.0% for the three months ended September 30, 2009, as compared
to $16,719,082 for three months ended September 30, 2008, due to the increase in
prescriptions dispensed.
The total
number of prescriptions dispensed increased 27.9% for the three months ended
September 30, 2009, compared to the comparable period in the prior
year. The number of prescriptions dispensed did not correlate to a
commensurate growth in revenue due to an increased number of generic medications
as a percentage of total number of prescriptions dispensed. Generic
medications typically have a lower selling price than brand name
medications. We attribute the increase in prescription dispensing to
greater drug utilization on the part of an aging population, an overall increase
in market share within certain communities, and an increased utilization of
pharmacy services by patients of FQHCs with whom the pharmacies have contracts
to provide services. The pharmacies manage five pharmacies owned by
FQHCs and additionally have contracts to provide pharmacy services to patients
of five other FQHCs. The pharmacies maintain a segregated inventory
owned by the FQHCs for the purpose of dispensing prescriptions to health center
patients.
Dispensing
fee revenue increased $828,491 to $1,733,917 or 91.5% for the three months ended
September 30, 2009, as compared to $905,426 for the three months ended September
30, 2008. This increase is primarily attributable to the three new
locations added in the prior year. Net revenues increased
22.1% at dispensing locations open more than one year. The
remainder of the increase is primarily due to the expanded number and increased
demand for covered medications effectuated during the quarter by the
Massachusetts Health Safety Net Office, an increased number of prescription
benefit management contracts entered into by the FQHCs contracted with us, and
marketing initiatives targeting the patients of the FQHCs.
Cost of sales.
The
following table sets forth for the periods indicated cost of sales from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
|
For
the three months ended
|
|
|
|
|
|
|
|
|
|
|
September
30
|
|
|
Change
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Cost
of sales
|
|
$
|
13,684,255
|
|
|
$
|
12,974,040
|
|
|
$
|
710,215
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
margin rate
|
|
|
21.3
|
%
|
|
|
22.4
|
%
|
|
|
(1.1
|
)%
|
|
|
|
|
Cost of
sales increased $710,215 to $13,684,255 or 5.5% for the three months ended
September 30, 2009, as compared to $12,974,040 for the three months ended
September 30, 2008, due to increased sales. Cost of goods sold
includes the following: the cost of inventory sold during the period,
net of related vendor rebates, allowances and purchase discounts, costs incurred
to return merchandise to vendors, inventory shrinkage costs, and inbound freight
charges.
Gross profit
margins
. Pharmacy gross profit margins decreased by 1.1% to
21.3% for the three months ended September 30, 2009, as compared to 22.4% for
the three months ended September 30, 2008, primarily due to declining insurance
reimbursement rates. Dispensing fee revenue is excluded from the
calculation as there is no correlating inventory cost associated with the
services provided.
Selling, general, and administrative
expenses (“SG&A”)
. The following table sets forth for the
periods indicated SG&A from continuing operations and changes between the
specified periods expressed as a percentage increase or decrease:
|
|
|
For
the three months ended
|
|
|
|
|
|
|
|
|
|
|
September
30
|
|
|
Change
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
SG&A
expenses
|
|
$
|
5,534,771
|
|
|
$
|
4,373,005
|
|
|
$
|
1,161,766
|
|
|
|
26.6
|
%
|
SG&A
increased $1,161,766 to $5, 534,771 or 26.6% for the three months ended
September 30, 2009, as compared to $4,373,005 for the three months ended
September 30, 2008. The increase was primarily due to increases in
payroll costs of approximately $822,000 and increases in professional fees of
approximately $324,000. The increase in payroll costs was primarily
due to approximately $440,000 of salaries related to the newly opened locations
plus approximately $382,000 at stores open more than one year and is
predominately the result of market pressures on salary and benefit packages for
pharmacists. The increase in the professional fees is due to the
costs incurred with the WAG Agreement and DAW Stock Agreement.
Other income (expense),
net.
The following table sets forth for the periods indicated
the breakdown of other income (expense):
|
|
|
For
the three months ended
|
|
|
|
|
|
|
|
|
|
|
September
30
|
|
|
Change
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
|
%
|
|
|
Interest
expense
|
|
$
|
(45,814
|
)
|
|
$
|
(47,395
|
)
|
|
$
|
1,581
|
|
|
|
(3.3
|
)%
|
|
Interest
income
|
|
|
3,439
|
|
|
|
3,123
|
|
|
|
316
|
|
|
|
10.1
|
%
|
|
Other
income (expense), net
|
|
|
2,066
|
|
|
|
2,119
|
|
|
|
(53
|
)
|
|
|
(2.5
|
)%
|
|
Total
other income (expense), net
|
|
$
|
(40,309
|
)
|
|
$
|
(42,153
|
)
|
|
$
|
1,844
|
|
|
|
(4.4
|
)%
|
Total
other expense, net, decreased $1,844 to $40,309 or 4.4% for the three months
ended September 30, 2009, as compared to $42,153 for the three months ended
September 30, 2008.
Income taxes
. We
recorded an income tax benefit of $114,814 from continuing operations for the
three months ended September 30, 2009, primarily due to the losses from
operations and recorded income tax expense of $262,814 due to the gain on the
sale of the ADCO building. We recorded income tax expense of $49,504
from continuing operations for the three months ended September 30, 2008,
primarily due to the income from operations and recorded income tax benefit of
$31,465 from discontinued operations.
On
September 21, 2009, ADCO sold its building in Bangor, Maine, to Dovesco, LLC,
for $830,000 and recognized a gain of $657,036 (previously preliminarily
reported as $519,199).
In
September 2008, we sold certain assets and liabilities of ADCO, a medical and
surgical equipment and supplies company and recognized a loss on disposal of
$61,078 on the sale. In connection with this sale, we received a
$50,000 note receivable that was payable January 31, 2009. We and the
buyer are currently in dispute over certain assets and liabilities that were
included in the ADCO sale, and the note receivable has not been
paid. We are unable to determine the final outcome of this dispute,
but it may result in an additional charge to the disposal of discontinued
operations.
Liquidity and Capital
Resources
As of
September 30, 2009, we had $975,691 of cash as compared to $62,752 at June 30,
2009, primarily due to the net proceeds from the sale of the ADCO building after
the repayment of ADCO’s line of credit. Our primary source of
liquidity is cash provided by operations, and our principal uses of cash are
operating expenses, acquisitions, capital expenditures, and repayments of
debt.
Net cash provided by operating
activities from continuing operations
. Net cash provided by
operating activities from continuing operations was $793,358 for the three
months ended September 30, 2009, and consisted of our net loss of $172,688,
adjusted for non-cash items of $147,503 (including depreciation of $121,486,
amortization of $21,955, and stock-based compensation expenses of $4,062), and
net cash provided by changes in working capital of $818,543. The net
cash provided by changes in working capital was principally the result of
decreases in inventories and prepaid expenses and increases in accounts payable
and other accrued expenses and other current liabilities, partially offset by an
increase in accounts receivable. The increase in accounts
receivable was due to the increase in sales.
Net cash used in investing activities
from continuing operations.
Net cash used in investing
activities from continuing operations was $37,485 for the three months ended
September 30, 2009, and consisted of the purchase of equipment primarily due to
the new pharmacy locations.
Net cash used in financing activities
from continuing operations.
Net cash used in financing
activities from continuing operations was $46,514 for three months ended
September 30, 2009, and consisted of long-term debt repayments of $37,501 and
principal payments on the capital lease obligation of $9,013.
Asset security
interest
. DAW
has an agreement with its major supplier to purchase
pharmaceuticals. This agreement terminates January 31,
2012. Payment for merchandise delivered is secured by a first primary
interest in all assets of DAW.
Item
4(T). Controls and Procedures
Evaluation
of Disclosure Controls and Procedures.
We
maintain a system of disclosure controls and procedures that are designed for
the purposes of ensuring that information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures. As of the end of the period covered by
this report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended. Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are
effective.
Changes
in Internal Control over Financial Reporting.
There has
been no change in our internal control over financial reporting during the
quarter ended September 30, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II - Other Information
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
On May
12, 2003, we announced that our Board of Directors had authorized the repurchase
of up to 150,000 shares of our 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, of which there remains 148,000 shares
authorized for repurchase. There was no common stock repurchased or
sales of unregistered securities for the first quarter ended September 30,
2009.
Item
6. Exhibits
|
Exhibit
2.1
|
Asset
Purchase Agreement, dated as of October 22, 2009, among Walgreen Eastern
Co., Inc., D.A.W., Inc. and Nyer Medical Group, Inc. (Incorporated by
reference to the Company’s Current Report on Form 8-K filed October 23,
2009.)
|
|
Exhibit
2.2
|
Transaction
Agreement, dated as of October 23, 2009, among, D.A.W., Inc., Nyer Medical
Group, Inc. and certain management investors listed
therein. (Incorporated by reference to the Company’s Current
Report on Form 8-K filed October 23, 2009.)
|
|
Exhibit
2.3
|
Plan
of Dissolution of Nyer Medical Group, Inc. (Incorporated by
reference to Annex C of the Company’s Preliminary Proxy Statement for a
Special Meeting of Shareholders filed November 9,
2009.)
|
|
Exhibit
31.1
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act
of 1934 (filed herewith).
|
|
Exhibit
31.2
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act
of 1934 (filed herewith).
|
|
Exhibit
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350 (furnished
herewith).
|
|
Exhibit
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350 (furnished
herewith).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
NYER
MEDICAL GROUP, INC.
Registrant
|
|
|
Date: November
16, 2009
|
By:
|
/s/
Mark Dumouchel
|
|
|
|
|
|
|
|
Name:
|
Mark
Dumouchel
|
|
|
|
Title:
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
Date: November
16, 2009
|
By:
|
/s/
Sandra M. Zimmerman
|
|
|
|
|
|
|
|
|
Name:
|
Sandra
M. Zimmerman
|
|
|
|
Title:
|
Chief
Financial Officer
(Principal
Financial Officer)
|
|
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