44
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT
For the fiscal year ended February 28, 1998
or Pursuant to Sections 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 0-12305
REPRO-MED SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 13-3044880
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24 Carpenter Road, Chester, NY 10918
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Address of principal executive offices) (Zip Code)
(914) 469-2042
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(Registrant's telephone number, including area code)
Securities registered or to be registered pursuant to Section l2(b) of the Act:
[ None ]
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(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
during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year $2,225,342.
At February 28, 1998, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $1,153,131.
At February 28, 1998, the registrant had outstanding 22,142,000 shares of
Common Stock, $.01 par value.
<PAGE>
PART I
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Item 1. Business
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History of the Company
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Repro-Med Systems, Inc. (the "Company") was incorporated under the laws of
the State of New York on March 24, 1980 by Andrew I. Sealfon and Dr. Adrian
W. Zorgniotti, co-inventors of the Company's initial product, the THDr,
also termed the Testicular Hypothermia Devicer.
The THD is a device for improving semen quality in males with infertility
by producing lower intrascrotal temperature. Following its efforts at
marketing the device, management lowered its original sales expectations
for the THD and directed its main efforts towards other products.
Company Medical Products
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The Company and its subsidiary Gamogen, Inc. ("Gamogen") have designed a
number of medical devices and technologies. Certain of these have been
developed and are currently being marketed. Others of these devices are in
various stages of design or development. Since 1986 Gamogen has pursued
development of various pharmaceutical treatments for Male Impotence the
most significant of which was its Oral Treatment for Male Impotence. In the
fiscal year ended February 1998, Gamogen's Oral Treatment for Male
Impotence was effectively sold to a US biotechnology company (see Gamogen
Impotence Technology section below).
Products Currently Marketed
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Res-Q-Vac Suction System
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The Res-Q-Vac Suction System (the "Res-Q-Vac") provides a complete
emergency suction system for neonates, children, or adults for use in any
location. The Res-Q-Vac was approved for marketing under section 510K of
the FDA in September 1989. The Res-Q-Vac is used to treat patients with
compromised airways or to remove fluids from a patient's airway which could
otherwise lead to further serious complications. The Res-Q-Vac consists of
a hand-held portable suction pump which is connected to various catheters,
depending on the size of the patient. The Res-Q-Vac is non-electric and
single-hand operated making it extremely convenient and usable in any
situation. The disposable features of the Res-Q-Vac reduce the risk to the
health professional of contamination, for example from HIV, when suctioning
a patient or during cleanup of the equipment.
Syringe I.V. Infusion System
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The Company has developed a non-electric, portable I.V. delivery system
("Syringe I.V. Infusion System") which employs standard syringes resulting
in a much lower disposable supply cost. On May 18, 1994 approval
notification was issued by the FDA on this product which allows the Company
to market the Syringe I.V. Infusion System.
The Company's Syringe I.V. Infusion System (trade-named the Freedom60r
Syringe Infusion System) is well positioned for the present medical-
economic environment. The system provides a constant flow of the I.V.
fluid at a cost comparable to the use of minibags. Repro-Med has developed
proprietary disposable replacement tubing (used with each infusion). These
replacement tubing "sets" include calibrated micro-bore tubing and
attachments to connect to standard I.V. infusion ports, lines and
catheters. The Freedom60 Syringe I.V. Infusion System utilizes a standard
syringe provided with the tubing "set".
The Company has completed product engineering, the purchase of production
tooling and component parts inventory, and long-term supply agreements for
the disposable I.V. administration set components. The Company initiated
production of the Freedom60 Syringe Infusion System in April 1997. In May
1997 the Company initiated advertising of the Freedom60 Syringe Infusion
System in US infusion medical journals and promotion of this product at
various US and international trade expositions.
Effective July 1997, the Company entered into an agreement with a large
organization of independent US medical equipment and supply dealers for the
exclusive distribution rights for the Freedom60 System in certain US
medical markets, including hospitals, nursing homes, and home infusion
service providers. No minimum purchase commitments were required under this
agreement, however, the agreement included, as a condition to maintaining
these exclusive distribution rights, minimum dealer purchase volumes of
infusion pumps and disposable syringe/tubing sets, beginning July 1997. Due
to low dealer <PAGE>
purchase volumes, effective May 11, 1998 Repro-Med terminated this
exclusive distribution agreement. Repro-Med has retained certain of these
dealers in certain regions of the US, on either an exclusive or non-
exclusive basis, and is seeking alternative distribution in other areas, in
particular the southeastern US and the state of California. There can be no
guarantee that the dealers retained or new dealers will be successful in
marketing and selling of the Freedom60 Syringe I.V. Infusion System. In
April 1998, the Company hired and appointed a sales manager experienced in
the infusion market to direct and support its US distribution and sales of
its infusion products. The Company is exploring various other options for
marketing and distribution of the Freedom60 Syringe Infusion System but has
not yet finalized its plans. There can be no guarantee, however, that the
Company will be successful in establishing distribution of the Syringe I.V.
Infusion System and that if distribution is established that the Company
will be successful in marketing and selling of the device.
Management believes that the Freedom60 Syringe Infusion System offers both
the alternate site, in particular home infusion, and the hospital
antibiotic I.V. marketplaces significant capital and supply cost savings in
a convenient, safe, and reliable high performance I.V. system.
Home antibiotic I.V. is a growing sector in the US healthcare marketplace.
The following comments are excerpted from a comprehensive study of the US
home I.V. market and were published in the May 1997 issue of the National
Home Infusion Association journal, Infusion,:
"In terms of market growth, here are some projections for
the future of the home I.V. antimicrobial market: 5
- Of the almost $4.5 billion of total revenue generated
from home infusion
companies in 1993, nearly one-third ($1.4 billion) was
due to I.V. antimicrobials.
- In 1982, non-AIDS-related I.V. antimicrobials accounted
for $7 million in
revenues; compared to $275 million in 1989 and $643
million in 1993.
- AIDS-related I.V. antimicrobial revenues rose from $5
million in 1985 to
$728 million in 1993.
- AIDS-related I.V. antimicrobial use is still growing at
a rate of approximately
20 percent per year.
Many large modern countries have been attracted by the significant savings
(versus long-term hospitalization) demonstrated in the US healthcare system
through the use of home medical care. A number of these countries such as
Germany, France, UK, and Japan, have developed, or are in the process of
developing, home medical care systems, including antibiotic I.V. therapy,
closely modeling the US system. The implementation of home antibiotic I.V.
systems in these countries contributes to the overall growth on a worldwide
basis in the home antibiotic I.V. sector.
The antibiotic therapy market is the first marketed application for the
Syringe I.V. Infusion System. The Syringe I.V. Infusion System is also
expected to be advantageous in other medical market applications due to its
performance, portability, reliability, and low cost which can produce a
cost per start comparable to minibags. These other market applications
include oncology, pain control, emergency cardiac. The Company is currently
investigating the feasibility and modification of the Freedom60 design to
accommodate certain of these additional therapies. Additionally, the areas
of radiology, anesthesia, ICU, NICU, and patient transport may offer
opportunities for application of the Syringe I.V. Infusion System.
The Company has secured two US patent filings on the Freedom60 Syringe
Infusion System, and has proceeded with a third, a design patent, and has
additional patents under investigation.
OEM Manufacturing Products
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Repro-Med has provided, since 1990, services for the design, development,
and manufacture of products for OEM customers. The Company's present OEM
products are sold for use in medical products. Management believes the
Company is well positioned in both engineering and manufacturing to provide
additional OEM services and products to other equipment suppliers on
competitive terms.
In the fiscal year ended February 28, 1998, the Company developed a medical
device for an OEM customer, Mission Pharmacal ("Mission"), a San Antonio
based manufacturer of pharmaceuticals and medical devices, based on the
Company's suction technology. The Company's agreement with Mission includes
advance payments to help defer Company expenditures for engineering and
production tooling costs related to the development of the medical suction
device. <PAGE>
As of February 28, 1998 the Company has received advance payments totaling
$93,030. Under the Company's agreement with Mission, the Company will
manufacture and sell this medical suction device to Mission. The Company
initiated production of the OEM medical suction device in September 1997
and shipment of this product to its customer in November 1997. Total sales
in the fiscal year ended February 1998 of the OEM medical suction device
were $122,511. The OEM medical suction device is sold in the impotence
vacuum device market. Due to market conditions including the introduction
of Muse and Viagra (see Marketing and Sales - OEM Products Sales section
below), Mission has lowered its purchase order quantities through February
1999. Based on revised purchase orders received to date, and contingent on
the successful marketing of the device by Mission, the Company anticipates
annual revenues of approximately $550,000 from the sale of this medical
suction device in the fiscal year ended February 1999, an increase of
approximately $427,000 versus the current fiscal year. There can be no
guarantee, however, that Mission will be successful in marketing of the
device. The OEM medical suction device may compete with the Company's other
OEM products.
The Company also manufactures and sells OEM products to Osbon Medical
Systems a division of Imagyn Medical, Inc., formerly Urohealth Systems,
Inc, ("Osbon"). Osbon sells these OEM products in the medical suction
device impotence vacuum device market (see Marketing and Sales - OEM
Products Sales section below).
Gynecological Products
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The Company's gynecological products are owned and marketed by Gyneco,
Inc., a wholly-owned subsidiary of the Company's 58.3% owned subsidiary,
Gamogen, Inc.
The Masterson Endometrial Biopsy System is a time-saving, in office
procedure using a self-contained unit which offers a quick and easy method
of obtaining a surgical specimen. The Masterson Endometrial Biopsy System
manually generates suction and can provide essential tissue samples for
diagnosis of various gynecological disorders.
The Gyneco Thermal Cautery System provides a safe, reliable and effective
surgical method for female sterilization. The Gyneco Thermal Cautery Unit
provides low voltage coagulating power by a rechargeable battery. Research
efforts in the field of female sterilization have focused on methods that
provide not only simplicity, safety and effectiveness but reduction of
unnecessary tubal destruction and the associated trauma to adjacent organs.
The Gyneco Thermal Cautery System seems to meet most of the current
criteria for sterilization.
OTC Vacuum Erection Device and Constriction Rings
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In February 1998, the Company initiated the development of a vacuum
erection device and constriction ring devices for vacuum treatment of
impotence and in April 1998 submitted to the FDA a 510(k) application to
market the devices including marketing for over-the-counter sale ("OTC").
These devices when approved will be targeted at both impotent men and men
seeking to enhance natural or induced erections and sexual performance. It
is estimated that in the US there are 30 million men who suffer impotence
with less than 2 million currently treated by approved prescription
treatments, including vacuum therapy. The Company's devices will offer
convenient, highly effective treatments for impotence and for individuals
seeking sexual improvement from natural or induced erections, and will be
sold on an OTC basis. The Company has initiated the purchase of production
tooling for these devices and anticipates initial production of these
devices by July 1998. The Company is in the process of developing
distribution for these devices, but has not finalized its plans.
Reusable Resuscitator
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In October 1997, the Company submitted to the FDA a 510(k) application to
market a reusable resuscitator. This product, developed by a Taiwanese
medical device and component supplier, will be marketed by the Company
primarily in the US emergency medical (ambulance) and homecare marketplace
and in certain foreign countries. Tradenamed the Plus resuscitator, this
respiratory device combines premium features and materials in a low cost
unit. The Plus resuscitator is used to replace or assist normal breathing
in patients suffering from respiratory arrest or, especially in the home,
as a backup for ventilator assisted patients. The reusable resuscitator
will be sold through many of the same distributors currently marketing the
Company's Res-Q-Vac suction system.
Products In Development:
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The Company has a number of new products at various stages of development
including an OTC Vacuum Erection Device and Constriction Rings, additional
syringe I.V. infusion system products, and reusable resuscitator. In
addition the Company has developed the following technologies and
conceptual designs, however, management has suspended further development
of these products until sufficient capital is available.
<PAGE>
MicroThruster Electronic I.V. System
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Repro-Med Systems has designed an electronic infusion delivery system
(called the "MicroThruster"). The MicroThruster applies digital technology
to the control and monitoring of fluids and is intended by the Company for
use in the electronic control of fluids for intravenous use. This
technology could be used as a stand alone system for the control of gravity
intravenous systems or with the Company's portable I.V. pump. Management
believes that the combination Syringe Pump/MicroThruster would provide the
Company with a broader based product able to service additional markets.
The United States Patent Office has issued Patent # 4,921,480 for "Fixed
Volume Infusion Device" on May 1, 1990 which describes the MicroThruster.
Further development of MicroThruster-based products was previously
suspended due to funding constraints. Management believes the MicroThruster
has application in the design of an advanced commercial Drug Compounder or
as a control device in an I.V. drug delivery system. The Company has
suspended further development of the MicroThruster until sufficient capital
becomes available.
Commercial Compounder
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The Company has also conceptually designed a computerized system to mix
pharmaceuticals in the larger pharmacy environments, as found in the
hospital, using the MicroThruster as a point of departure. This
compounding system will mix drugs electronically and accurately under
computer control. The labor intensive nature of drug mixing in the
pharmacy and the legal risks caused by errors have created a potentially
viable market opportunity. The market appears significant, and the ability
to fill the syringes as used in the Syringe I.V. Infusion System may create
excellent synergism in the marketplace and form the basis of a complete
product line of I.V. products. The first prototype system is estimated to
cost $500,000 and take approximately two years development time. Since the
Company has suspended development of the MicroThruster, it has also
suspended further development of the commercial compounder.
Gamogen Impotence Technology
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During the fiscal year ended February 1986 the Company commenced limited
research and development of certain impotency treatments for men. In
September 1986 the Company's impotence technology was sold to the Company's
majority owned subsidiary, Gamogen, Inc. ("Gamogen"). The Company owns
58.3% of Gamogen. Gamogen developed two treatments for impotence, an
injectable treatment and an oral treatment. Due to the significant
investment required to secure FDA approval, Gamogen has suspended further
work on the Injectable Drug Combination product until a partner is found to
assist in funding this program.
On July 10, 1993 Gamogen acquired the rights to an Oral Treatment for Male
Impotence developed by Dr. Zorgniotti. On April 12, 1994 the Board of
Directors approved and on April 14, 1994 Gamogen signed with Zonagen, a
small US based biotechnology company, an agreement under which Zonagen
acquired all rights to Gamogen's Oral Treatment for Male Impotence
("Impotence Agreement"). In exchange for the above rights Gamogen received
from Zonagen $100,000 in cash and, subject to certain FDA approvals and
Gamogen's agreement not to compete, future payments of $200,000 in
restricted common stock of Zonagen, and royalties on Zonagen's future sales
of the Oral Treatment.
In the year ended February 1995 Gamogen recorded income from the Impotence
Agreement of $47,107 ($100,000 in licensing payments made by Zonagen less
related expenses of $52,893). In the year ended February 1996 no payments
were received by Gamogen under the Impotence Agreement.
On May 28, 1996 a stock payment was received by Gamogen in the form of
19,512 restricted common stock shares of Zonagen in accordance with certain
non-compete terms of the Impotence Agreement. On June 20, 1996 Gamogen sold
the 19,512 restricted shares to a small group of private investors for
$87,800, approximately 50% of the then NASDAQ market price for Zonagen,
Inc. non-restricted common stock.
On January 24, 1997 the Board of Directors approved and signed with Zonagen
a conditional amendment to the Impotence Agreement granting Zonagen the
right ("Option") to amend the Impotence Agreement eliminating the
following:
1) Gamogen's rights to royalties on Zonagen's future sales of the Oral
Treatment;
2) Gamogen's rights to market the Oral Treatment in countries where Zonagen
does not timely obtain regulatory approval for and commence marketing of the
Oral Treatment.
The Option was conditioned on the payment to Gamogen the amount of $750,000
("Option Price") if the Option were exercised by January 24, 1998 less any
Maintenance Payments (see below) received by Gamogen. The Option included
increases in the Option Price for later exercise of the Option through
January 24, 2000.
<PAGE>
Under the conditional amendment Zonagen was granted the option, provided
however, that Zonagen make the following payments ("Maintenance Payments")
in cash to Gamogen: $75,000 upon the execution of the conditional amendment
and $75,000 on each July 24 and January 24 which occurs after the execution
of the conditional amendment and before Zonagen's exercise of the Option.
On January 24, 1997 Gamogen received from Zonagen the initial Maintenance
Payment of $75,000 which Gamogen recorded as licensing income. In July 1997
Gamogen received a second maintenance payment of $75,000 under the
conditional amendment.
In August 1997 Gamogen negotiated with Zonagen for revision to the
Conditional Amendment Number 1 of The Assignment Agreement. In September
1997 the Board of Directors approved and signed with Zonagen a conditional
amendment, Amendment Number 2 to the Assignment Agreement, establishing an
option price of $708,000 if the option were exercised on or before
September 30, 1997. On September 30, 1997 Gamogen received payment from
Zonagen for $558,000 which resulted from the sale of the impotence oral
treatment for $708,000 reduced by credits for maintenance payments
previously received of $150,000. As a result of this payment Zonagen has
exercised the Option and Gamogen has effectively sold its interest in this
product and is not entitled to further payments under the Assignment
Agreement and its amendments.
Expense Sharing Agreement
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The Company's subsidiary Gamogen and its subsidiary Gyneco have agreements
with Repro-Med for the lease of manufacturing, warehouse and office space
at Repro-Med's Chester, NY facility and reimbursement of payroll and other
operating expenses based on actual payroll allocations, occupancy and
equipment utilization.
For the fiscal year ended February 28, 1998, on a combined basis, Gamogen
and it's subsidiary Gyneco paid Repro-Med facility lease payments of
$12,528. Gyneco has an agreement with Repro-Med for the use of certain
tooling owned by Gyneco (see item 12). Under this agreement Repro-Med paid
to Gyneco $33,038 in the fiscal year ended February 1998 versus $62,776 in
the fiscal year ended February 1997. Payments under this arrangement
declined in the current fiscal year due to lower sales of OEM products to
Osbon.
Hourly and management compensation costs are paid by Repro-Med and
allocated to Gamogen and Gyneco based on agreements for the reimbursement
of operating expenses. Salary and payroll related costs are allocated based
on individual employee time-card reporting. Executive salary and payroll
related costs are allocated based on estimates of time spent in the
management of the three companies. For the fiscal year ended February 1998,
on total salary costs of $1,012,820, these allocations averaged as follows:
Repro-Med 82%, Gyneco 16%, and Gamogen 2%. This compares to total salary
costs of $923,196 for the fiscal year ended February 1997 which were
allocated as follows: Repro-Med 74%, Gyneco 24%, and Gamogen 2%.
<PAGE>
Patents and Trademarks
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On March 3, 1981, patent no. 4,253,464 was issued by the United States
Patent and Trademark Office for the THD.
On May 19, 1982, the Company filed for a patent for a "Spring Operated
Liquid Dispensing Device" or Infusion Device, a non-electric method and
device to control a constant flow of fluid. The patent, 4,447,232, was
issued on May 8, 1984. The Company was granted patent, 4,781,689 on
November 1, 1988 relating to improvements in this pump technology.
On May 27, 1987, the Company's subsidiary, Gamogen, purchased certain
rights to a number of United States patents from Lukens Corporation
related to the Gyneco products as follows: Patent Nos. 3,982,742 for
Medical Stirrups and 3,982,542 for Electroresectroscope and Method of
Laparoscopic Tubal Sterilization both issued September 28, 1976, 3,885,590
for a Gas Transmission and Monitoring Device issued May 27, 1975, and
November 22, 1983, and 4,257,425 for Biopsy Specimen Collector issued March
24, 1981.
Gyneco conducted limited research into a device for amniocentesis to
improve the sensitivity of the assay. The device was designed to permit
amniocentesis, a process by which the genetic disposition of a fetus is
determined in utero, to be obtained at a much earlier stage in the
pregnancy. The US Patent Office issued Patent Number 5,000,192 for a
Prenatal Specimen Collection Method on March 19,1991.
On May 3, 1990 the US Patent Office issued Patent # 4,921,480 for "Improved
Fixed Volume Infusion Device" which forms the operating basis for the Micro-
Thruster. The MicroThruster system applies digital technology to the
control and monitoring of fluids and is being developed by the Company for
use in the electronic control of parenteral fluids for intravenous use.
This technology could be used as a stand alone system for the control of
gravity intravenous systems or with the Company's Syringe I.V. Infusion
System. Management believes that this combination would provide the
Company with a broader based product able to service additional vertical
markets.
In 1994 the Company filed and was granted patent number 5,261,882 for a
"Negator Spring-Powered Syringe" which covers an I.V. pump design. In May
1998 the Company was granted a patent, number 5,336,189, for a "Combination
I.V. Pump & Disposable Syringe" which covers a unique syringe to I.V. pump
interface design. There is no assurance that the patents granted apply to
or afford protection for the final design of the Syringe I.V. Infusion
System. The Company has proceeded with a design patent filing on the
Syringe I.V. Infusion System and has additional patents under
investigation.
The patent position of companies such as Repro-Med and Gamogen generally is
highly uncertain and involves complex legal and factual questions.
Accordingly, there can be no assurance that patent applications relating to
the Company's products or technology will result in patents being issued or
that, if issued, the patents will afford protection against competitors
with similar technology. Moreover, some patent licenses held may be
terminated upon the occurrence of certain events or become non-exclusive
after a specified period. There can be no assurance that the Company will
have the financial resources necessary to enforce any patent rights it may
hold.
Government Regulation
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The development, testing, production and marketing of the Company's
products are subject to regulation by the FDA and the New York State
Department of Health, and may be subject to further FDA regulation as
devices under the 1976 Medical Device Amendments to the Federal Food, Drug
and Cosmetic Act. Additionally, the Company's products may be subject to
regulation by similar agencies in other states and foreign countries. All
the Company's currently marketed products have received the necessary FDA
approvals for marketing in the US. The FDA reviews all devices regulated
within its domain, and may require additional testing, clinical trials, or
create other regulatory action which may adversely affect the Company's
ability to market its medical products. One of the Company's gynecological
products, the Thermal Cautery System, was approved by a grandfather
provision of the FDA regulations having been in use prior to the Device Act
of 1976, and therefore may at the FDA's direction require recertification
under the Pre-Market Approval Application ("PMA") to permit continued
marketing. The FDA's PMA process may be costly and may not be cost
effective when applied to products with limited market share.
At present the Company has two 510k product applications filed and pending
with the FDA. These are for a Reusable Resuscitator (filed October 1997)
and an OTC Vacuum Erection Device and Constriction Rings (filed March
1998).
Marketing and Sales
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Marketing of the Res-Q-Vac
- --------------------------------------
Since its introduction in 1990, the Res-Q-Vac has received wide acceptance
in the US Emergency Medical (ambulance services) market. The Res-Q-Vac
suction system provides low cost, portability, and high performance and is
easy to use. Major US Emergency Medical distributors, including Moore
Medical, Dynamed, Armstrong Medical, and Matrx Medical, actively promote
and advertise the Res-Q-Vac. In addition, the Res-Q-Vac device has been
incorporated in the emergency resuscitation kits of two major suppliers to
the doctor office and dentist office markets. The Company promotes the Res-
Q-Vac through journal advertisements in major EMS publications, special
catalog space promotions with larger EMS catalog houses, and attendance at
US and international trade meetings.
Beginning in fiscal 1995, the Company increased its efforts in marketing
the Res-Q-Vac in the export market. The Company employs advertising in the
publication International Hospital Equipment to promote its export sales of
the Res-Q-Vac. The Company hired a marketing representative in September
1994 to market the Res-Q-Vac and Gyneco's products to distributors in
Europe. In fiscal 1998 the Company saw continued sales growth of the Res-Q-
Vac, especially in Europe. The Company has created a UK subsidiary to
facilitate and maintain required CE registration for the Res-Q-Vac in
Europe. The Company is pursuing sales of the Res-Q-Vac in other medical
markets including the US homecare market and primarily outside the US in
the midwifery market. The Res-Q-Vac is well suited to these two markets as
a low cost in-home or travel unit for patients requiring routine suctioning
or for out-of-hospital situations where portability and ease of use is
essential.
OEM Products Sales
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The Company's current OEM products are marketed by Osbon and Mission in the
impotence vacuum device market. The Company's current OEM products face
competition in the impotence vacuum device market from products available
from several manufacturers, including other products sold by Osbon and
Mission. Management believes that the Company's OEM products provide
excellent performance and are competitively priced. Management believes
that Osbon and Mission presently control a substantial portion of the
prescription impotence vacuum device market. In the past year, impotence
vacuum devices have seen increased competition from new pharmaceutical
products, specifically a urethral suppository tradenamed Muse, introduced
in May 1997, and an orally administered pill tradenamed Viagra, introduced
in March 1998. Muse, manufactured and sold by Vivus, Inc, was highly
successful in 1997. Since its introduction in March 1998, Viagra has
supplanted Muse, accounting for an estimated 95% of newly issued
prescriptions for impotence medications. It is too early to predict the
impact of Viagra on the impotence vacuum device market. While Viagra has at
least temporarily substantially reduced sales of the impotence vacuum
devices, it has significantly increased public awareness of impotence
problems in general. Depending on Viagra's clinical effectiveness and
reimbursement policies adopted by healthcare insurers, the introduction of
Viagra may on a longer term basis, stimulate, or at least not interfere
with the market for the Company's OEM impotence vacuum devices.
The Company has developed an OEM vacuum erection device for Mission based
on the Company's suction technology. The Company's agreement with Mission
includes certain advance payments to help defer Company expenditures for
engineering and production tooling costs related to the development of the
medical suction device. In the fiscal year ended February 1998, the Company
received advance payments totaling $93,030. Under the Company's agreement
with Mission, the Company will manufacture and sell this device to Mission.
The Company initiated production of this device in September 1997 and
shipment of this product to its customer in November 1997. Total sales in
the fiscal year ended February 1998 of this device were $122,511. Due to
market conditions including the introduction of Muse and Viagra, Mission as
of May 1998 had significant inventory of the OEM vacuum erection device on
hand. As a result, Mission has negotiated with the Company to lower Mission
purchases of this product through February 1999. Mission has also
requested, and Repro-Med has agreed to bill and temporarily hold, in its
Chester warehouse, Mission monthly product purchases. Based on the revised
purchase quantities negotiated with Mission, which have taken into effect
the anticipated impact of Viagra and Mission's current high inventory
position of this product, and contingent on the successful marketing of the
device by Mission, the Company anticipates revenue of approximately
$550,000 from the sale of this device in the fiscal year ended February
1999, an increase of approximately $427,000 versus the current fiscal year.
There can be no guarantee, however, that Mission will be successful in
marketing of the device or that sales of vacuum erection devices can
recover from the impact of Viagra. The Mission OEM vacuum erection device
may compete with the Company's other OEM products.
In 1996, products were developed for Osbon which compete with the Company's
current OEM products and are manufactured and marketed directly by Osbon.
These new products were introduced by Osbon in direct competition to the
Company's OEM products beginning in June 1996 and are currently sold under
the trade name Esteem ("Esteem products"). As a result the Company has seen
a decline in sales of its OEM products to Osbon. Sales of OEM products to
Osbon. For the fiscal year ended February 1997 sales to Osbon were
$1,468,715, declining 32% versus the year ended February 1996. For the
current fiscal year sales to Osbon declined to $459,667. The sharp decline
in sales to Osbon in the current year was due to three factors: 1)
introduction of the <PAGE>
Esteem products in fiscal 1997, 2) overstocking by Osbon of the OEM
products in fiscal 1997 which impacted sales in the first quarter of fiscal
1998, and 3) an overall decline in Osbon sales in the impotence vacuum
device market in the third and fourth quarters of fiscal 1998. Osbon
reported a decline of over 30% in its total sales of all vacuum devices in
the final two calendar quarters of 1997. As a result Repro-Med did not sell
any OEM products to Osbon from November 1997 through March 1998. The
overall decline in Osbon sales in the impotence vacuum device market in the
third and fourth quarters of fiscal 1998 was due to a decrease in demand
for vacuum devices due to increased competition from new pharmaceutical
products, specifically a urethral suppository tradenamed Muse introduced in
May 1997 and an orally administered pill tradenamed Viagra, introduced in
March 1998. Muse, manufactured and sold by Vivus, Inc, was highly
successful in 1997. Since its introduction in March 1998, Viagra has
supplanted Muse, accounting for an estimated 95% of newly issued
prescriptions for impotence medications. Viagra is manufactured and sold by
Pfizer, Inc. It is too early to predict the impact of Viagra on the
impotence vacuum device market. While Viagra has at least temporarily
substantially reduced sales of the impotence vacuum devices, it has
significantly increased public awareness of impotence problems in general.
Depending on Viagra's clinical effectiveness and reimbursement policies
adopted by healthcare insurers, the introduction of Viagra may on a longer
term basis, stimulate, or at least not interfere with the market for the
Company's OEM impotence vacuum devices. Based on orders to-date and
discussions with Osbon concerning anticipated purchases, and considering
the reduced level of inventory held at Osbon, management estimates that
sales to Osbon in the fiscal year ended February 1998 may be approximately
30% to 40% higher as compared to fiscal 1998. However, due to Osbon's
continuing and projected significant operating losses, high debt level, and
unfavorable credit rating, Repro-Med management is cautious concerning
Osbon's financial viability.
THD Marketing
- -----------------------
The Company's sales of the THD are minimal. Initial promotion of the THD in
the US Urology market was unsuccessful and the Company has directed its
main marketing efforts on its other products. Sales of the THD in fiscal
1998 were $941.
Marketing of the I.V. Products
- ------------------------------------------
The Company's Syringe I.V. Infusion System (trade-named the Freedom60
Syringe Infusion System) is well positioned for the present medical-
economic environment. The system provides a constant flow of the I.V.
fluid at a cost comparable to the use of minibags. Repro-Med has developed
proprietary disposable replacement tubing (required for each infusion).
These replacement tubing "sets" include calibrated micro-bore tubing and
attachments to connect to standard I.V. infusion ports, lines and
catheters. The Freedom60 Syringe I.V. Infusion System utilizes certain a
standard syringe provided with the tubing "set".
On May 18, 1994, Repro-Med received approval notification from the FDA on
the Syringe I.V. Infusion System which allowed the Company to commence
production and marketing of this I.V. delivery system. The Company has
completed product engineering, the purchase of production tooling and
component parts inventory, and long-term supply agreements for the
disposable I.V. administration set components. The Company initiated
production of the Freedom60 Syringe Infusion System in April 1997. In May
1997 the Company initiated advertising of the Freedom60 Syringe Infusion
System in US infusion medical journals and promotion of this product at
various US and international trade expositions.
Effective July 1997, the Company entered into an agreement with a large
organization of independent US medical equipment and supply dealers for the
exclusive distribution rights for the Freedom60 System in certain US
medical markets, including hospitals, nursing homes, and home infusion
service providers. Effective May 11, 1998 Repro-Med terminated this
exclusive distribution agreement. Repro-Med has retained certain of these
dealers in certain regions of the US, on either an exclusive or non-
exclusive basis, and is seeking alternative distribution in other areas, in
particular the southeastern US and the state of California. There can be no
guarantee that the dealers retained or new dealers will be successful in
marketing and selling of the Freedom60 Syringe I.V. Infusion System. In
April 1998, the Company hired and appointed a sales manager experienced in
the infusion market to direct and support its US distribution and sales of
its infusion products. The Company is exploring various other options for
marketing and distribution of the Freedom60 Syringe Infusion System but has
not yet finalized its plans. There can be no guarantee, however, that the
Company will be successful in establishing distribution of the Syringe I.V.
Infusion System and that if distribution is established that the Company
will be successful in marketing and selling of the device.
Management believes that the Freedom60 Syringe Infusion System offers both
the alternate site (i.e. home infusion, nursing homes, etc) and hospital
antibiotic I.V. marketplaces significant capital and supply cost savings in
a convenient, safe, and reliable high performance I.V. system.
<PAGE>
In addition to the administration of antibiotics, management believes that
the Freedom60 design may offer advantages for the administration of pain
control and oncology (chemotherapy) drugs and for emergency cardiac
therapy. The Company is currently investigating the feasibility and
modification of the Freedom60 design to accommodate these additional
therapies. The Company has proceeded with two US patent filings on the
Freedom60 Syringe Infusion System and has additional patents under
investigation.
Marketing of Gynecological Products
- --------------------------------------------------
Sales of the Masterson Biopsy System were $60,373 and decreased $18,984 or
24% in the year due to continued erosion of the market for this device in
the US due to competition from more convenient lower cost devices. Sales of
Thermal Cautery System products were $215,581 and increased $13,674 in the
current fiscal year. Marketing programs for Gyneco's gynecological products
have been investigated and may be implemented as Gyneco financial resources
allow. There can be no guarantee that these programs, if pursued, will
prevent erosion of sales nor increase sales over present levels.
Dependence on Customer
- ------------------------------------
The Osbon Medical Systems division of Imagyn Medical, Inc, formerly
Urohealth Systems, Inc. OEM product purchases represented 21% of the
Company's total sales for the current fiscal year, ending February 1998.
For the prior fiscal year the Osbon corporation's OEM product purchases
represented 61% of the Company's total sales.
Osbon markets the Company's OEM products in the impotence vacuum device
market. Management believes that Osbon presently controls a substantial
portion of the impotence vacuum device market. In 1996 products were
developed for Osbon which compete with the Company's current OEM products
and are manufactured and marketed directly by Osbon. These new products
were introduced by Osbon in direct competition to the Company's OEM
products beginning in June 1996 and are currently sold under the trade name
Esteem ("Esteem products"). As a result the Company has seen a decline in
sales of its OEM products to Osbon. Sales of OEM products to Osbon. For the
fiscal year ended February 1997 sales to Osbon were $1,468,715, declining
32% versus the year ended February 1996. For the current fiscal year sales
to Osbon declined to $459,667. The sharp decline in sales to Osbon in the
current year was due to three factors: 1) introduction of the Esteem
products in fiscal 1997, 2) overstocking by Osbon of the OEM products in
fiscal 1997 which impacted sales in the first quarter of fiscal 1998, and
3) an overall decline in Osbon sales in the impotence vacuum device market
in the third and fourth quarters of fiscal 1998. Osbon reported a decline
of over 30% in its total sales of all vacuum devices in the final two
calendar quarters of 1997. As a result Repro-Med did not sell any OEM
products to Osbon from November 1997 through March 1998. The overall
decline in Osbon sales in the impotence vacuum device market in the third
and fourth quarters of fiscal 1998 was due to a decrease in demand for
vacuum devices due to increased competition from new pharmaceutical
products, specifically a urethral suppository tradenamed Muse introduced in
May 1997 and an orally administered pill tradenamed Viagra, introduced in
March 1998. Muse, manufactured and sold by Vivus, Inc, was highly
successful in 1997. Since its introduction in March 1998, Viagra has
supplanted Muse, accounting for an estimated 95% of newly issued
prescriptions for impotence medications. Viagra is manufactured and sold by
Pfizer, Inc. It is too early to predict the impact of Viagra on the
impotence vacuum device market. While Viagra has at least temporarily
substantially reduced sales of the impotence vacuum devices, it has
significantly increased public awareness of impotence problems in general.
Depending on Viagra's clinical effectiveness and reimbursement policies
adopted by healthcare insurers, the introduction of Viagra may on a longer
term basis, stimulate, or at least not interfere with the market for the
Company's OEM impotence vacuum devices. Based on orders to-date and
discussions with Osbon concerning anticipated purchases, and considering
the reduced level of inventory held at Osbon, management estimates that
sales to Osbon in the fiscal year ended February 1998 may be approximately
30% to 40% higher as compared to fiscal 1998. Due to Osbon's continuing and
projected significant operating losses, high debt level, and unfavorable
credit rating, Repro-Med management is cautious concerning Osbon's
financial viability.
During the twelve month period ended March 1996, the Company, acting in
accordance with its written agreement with Osbon for the manufacture by
Repro-Med of the Esteem products ("Esteem Agreement"), cooperated in and
provided extensive work in testing, validation, design analysis and problem
solving, prototyping and generating and providing information concerning
performance and improvements to the Esteem products design. In furtherance
of the Esteem Agreement Repro-Med provided Osbon related information
concerning Repro-Med's proprietary product design, materials, and
manufacturing processes. Management believes that Repro-Med's assistance
was vital to Osbon's attempts to complete the design and facilitate the
timely manufacture of the Esteem products. Throughout this time period the
Company advised Osbon of numerous engineering design faults related to the
manufacturability, quality, and customer use of the Esteem products which
Repro-Med had discovered through its testing and validation work on the
Esteem products. These faults were primarily the result of either design
specifications provided Osbon by its contract engineers or other items
initiated by Osbon. A number of these faults were significant and resulted
in delays throughout the program. In March 1996 the Company forthrightly
advised Osbon that, based on the Company's current knowledge of the status
of the design, that confirmation of certain production scheduling requested
by Osbon was unrealistic and could not reasonably be achieved, namely the
production and delivery of 7,000 Esteem products by May 15, 1996. In April
1996 Osbon advised that it was withdrawing its
<PAGE>
commitment to Repro-Med for manufacture of the Esteem products and had
secured other options for manufacture of these products. No prior notice
was provided the Company by Osbon. Despite repeated requests to Osbon the
Company has not received an explanation for this action. The Company has
advised Osbon that Repro-Med is due compensation for its work on the Esteem
products and for use of its proprietary design and manufacturing
information. The Company has also advised Osbon that Repro-Med is available
to initiate the manufacture the Esteem products in accordance with its
written agreement. The Company intends to seek to resolve these matters on
an amicable basis with Osbon. To-date no resolution has been agreed to.
Osbon remains a significant customer of Repro-Med.
Manufacturing
- ---------------------
The Company assembles and tests the products at its owned facility in
Chester, NY, occupying approximately 20,000 square feet of the 26,000
square foot facility. The Company purchases the parts required to
manufacture the products from various vendors. The Company believes that
it obtains a better price by purchasing certain parts from a single vendor.
Certain injection molded parts are produced in the US with tooling owned by
the Company, which believes that it could locate an alternate source of
supply by transferring the tooling to one of numerous injection molding
vendors. To economize the Company's costs of tooling and components, the
Company purchases certain of its tooling and molded components from a
vendor in Taiwan. Transfer of tooling from an overseas vendor could be more
difficult, time-consuming, and costly than is the case with a US vendor. As
a contingency the Company maintains higher inventory levels of molded
components from overseas vendors. Raw materials for molding of the
Company's product components are available from multiple sources at
competitive prices. The Company's sterile products are sent to outside
contractors for sterilization.
Due to declining sales, competitive products entering the market, or
product discontinuance, certain of the Company's inventory of the THD, the
Pocket Pump 100 and Gyneco gynecological instruments, paper and belt
products, and other accessories are obsolete. In the fiscal year ended
February 1998 the Company incurred $20,000 in costs related to anticipated
products obsolescence. In the fiscal year ended February 1997 the Company
incurred $4,142 in costs related to products obsolescence.
Product Liability Insurance
- ------------------------------------
The Company and Gyneco could be exposed to possible claims for personal
injury resulting from the sale of allegedly defective products. The
Company and Gyneco have obtained product liability insurance in an amount
customary in the medical device industry for the THD, Res-Q-Vac, OEM and
gynecological products. However, there is no assurance that this insurance
will be sufficient to cover judgments which might be entered against the
Company or Gyneco.
Competition
- -----------------
Res-Q-Vac
- -----------------
There are two other hand-held suction instruments known to the Company that
are similar in concept to the Res-Q-Vac System. The most widely known
device in the US market is V-Vac, a product name of the Laerdal
Corporation, a company with much greater resources than the Company. The V-
Vac device contains a large bore orifice that cannot easily be connected to
small bore catheters for infant suctioning. Many users find the V-Vac's
large handle inconvenient and difficult to activate. The second hand-held
unit, manufactured by Vitalograph in England, is not widely distributed in
the US. The Vitalograph does compete with the Res-Q-Vac in the major
countries in Europe. This device is typically more expensive than the Res-Q-
Vac and does not employ disposable canisters and circuits and hence, must
be cleaned for reuse.
There are other electric operated portable suction pumps which compete with
the Res-Q-Vac and these include: Laerdal compact suction, Gomco portable
suction, Matrx Medical portables, among others. These units are heavier
and not as compact as the Res-Q-Vac, and require battery power to operate,
however they can be used in most emergency situations from pediatric
suction through adult emergencies. The Res-Q-Vac is often sold as an
essential backup to these devices in the event of battery failure or
situations where extreme portability is needed.
OEM Products
- ----------------------
The Company's current OEM products are marketed by Osbon (see Dependence On
Customer section above) and Mission Pharmacal ("Mission") in the impotence
vacuum device market. The Company's current OEM products face competition
in the impotence vacuum device market from products available from several
manufacturers, including products sold by Osbon and Mission. Management
believes that Osbon and Mission presently control a substantial portion of
the impotence device market. In the past year, impotence vacuum devices
have seen increased competition from new pharmaceutical products,
<PAGE>
specifically a urethral suppository tradenamed Muse introduced in May 1997
and an orally administered pill tradenamed Viagra, introduced in March
1998. Muse, manufactured and sold by Vivus, Inc, was highly successful in
1997. Since its introduction in March 1998, Viagra has supplanted Muse,
accounting for an estimated 95% of newly issued prescriptions for impotence
medications. Viagra is manufactured and sold by Pfizer, Inc.
I.V. Devices
- -----------------
The Syringe I.V. Infusion System (trade-named Freedom60 Syringe Infusion
System) is intended to compete with existing traditional products in the
I.V. market as follows:
1) Gravity systems - These consist of standard bags of infusion solutions
combined with standard drip infusion sets and poles. These products are
manufactured and marketed in the US primarily by three large diversified
medical device and supply companies: Baxter Inc., Abbott Labs, and B. Braun
(which acquired McGaw in 1997). Gravity systems are inexpensive and serve
as the mainstay of the I.V. market. On a cost-per-dose basis the Freedom60
Syringe Infusion System is designed to compete favorably with standard
gravity systems. Gravity systems are used in various applications including
antibiotic therapies both in alternate site and hospital markets.
2) Ambulatory Pump systems - These consist of single and multi-therapy
electronic peristaltic pumping devices, some more recently equipped with
remote programming capabilities. These systems require relatively expensive
delivery tubing cassettes for each use and have high pump acquisition and
maintenance costs. These pumps are used in narrow applications (primarily
pain control and high frequency antibiotic infusions), requiring programmed
infusions, primarily in the home setting. These products are manufactured
and marketed by a large number of competing specialty pump companies.
Deltec Inc., division of Smith Industries Ltd., and Sabratek Inc have
significant shares of the ambulatory pump system specialty market.
3) Elastomeric disposable pump systems - These consist of single dose
disposable "balloon" pumping devices used primarily for home antibiotic and
oncology infusions. These systems are simple for a patient to use and offer
extreme portability. Very popular in the home market in the past, these
products have lost significant market share in recent years due to their
high cost-per-dose. These products remain a niche product for antibiotic
patients requiring extreme simplicity or portability and long term infusion
of oncology patients. These products are manufactured and marketed
primarily by I-Flow Corporation and Baxter Inc.
4) Syringe driver pump systems - These consist primarily of single therapy
electronic syringe-pumping devices, some with programming capabilities.
These systems use relatively inexpensive delivery tubing and standard
syringes similar to the Freedom60 Syringe Infusion System. Syringe driver
pump systems have high acquisition and maintenance costs and are not
considered to be portable. Syringe driver systems are manufactured by a
large number of device companies in the US and Europe (i.e., Baxter Inc,
Bard, Baxa, Fresenius, IVAC, Siemens). Syringe driver systems are popular
especially in the hospital marketplace where portability is not a paramount
concern.
In addition to the above there are a number of specialty pump systems (for
example: I-Flow Medisis and Band-It, Baxter Maxx, etc) which compete with
and offer some alternative to the above.
There are other companies engaged in research and development in the
medical field, many of which are well established. One or more of such
companies with greater financial resources than the Company might develop
products similar to the Syringe I.V. Infusion System and be in a position
to market them more successfully than the Company or might develop products
which render the Company's products obsolete or unnecessary.
Gyneco Products
- --------------------------
Endometrial biopsy is a fast, reliable, safe and simple physician-office
based procedure. It is felt to be a cost-effective alternative to dilation
and curettage (D&C) which, although reliable in diagnosing intrauterine
abnormalities, is typically performed in a hospital operating-room setting
utilizing general anesthesia.
Competitors to Gyneco's Masterson Biopsy System for endometrial biopsy
include the following disposable single-patient devices: Pipelle Vacuum
Curette, Vabra Aspirator, and Tis-U-Trap system. Some physicians continue
to use traditional stainless steel biopsy instruments which are available
from a number of manufacturers. Stainless steel biopsy instruments are much
less convenient but can be sterilized and reused many times.
Imported from France, the Pipelle is a very inexpensive device combining a
flexible plastic tube 3mm in diameter with a small port near the tip.
After inserting the device, suction is generated by manually withdrawing a
locking plunger. As the plunger is withdrawn a sample column of tissue is
suctioned into the tube. <PAGE>
The tube is then withdrawn. Due to it's low cost and convenience the
Pipelle is the leading device for use in outpatient endometrial biopsy
procedures. Numerous devices similar to the Pipelle, including the Z-
Sampler, are also available in the marketplace at prices competitive with
the Pipelle.
The Vabra Aspirator and Tis-U-Trap, similar to the Masterson, are ideal
when the physician needs larger specimen samples. Both feature plastic
cannula and a tissue collection chamber but require an external source of
suction, typically a portable electric vacuum pump.
The Gyneco Thermal Cautery System provides a simple, quick, and effective
transection and coagulation of the fallopian tubes. There are three main
surgical device systems which compete with Gyneco's Thermal Cautery System.
The first of these are bipolar cauterization systems, which include a
generator and reusable forceps, and can be acquired from a number of
manufacturers. Bipolar cauterization systems accomplish transection and
electrocoagulation through the use of alternating current arcing to heat
and destroy tissue. These systems are also used in surgery on a routine
basis for the elimination of tissue. The remaining two device systems use
mechanical occlusion to effect a tubal sterilization. Mechanical Occlusion
tubal sterilization involves permanently attaching a number of small
mechanical devices using a specialized forceps-like instrument to occlude
portions of each fallopian tube. The two systems are the Hulka Clip and the
Yoon Falope Ring. The Hulka Clip consists of a plastic clamp and fastening
spring. Use of the Hulka Clip requires specialty forceps called a "clip
applicator" and a number of the single-use Hulka Clips. The Hulka Clip is
marketed by Richard Wolf Medical Devices Corporation, Vernon Hills, IL. The
Yoons Falope Ring method consists of a silicone rubber ring which is
applied to a "loop" formed from the fallopian tube. Similar to the Hulka
Clip, use of the Yoons Falope Ring requires a specialty forceps-like
applicator. The Yoon Falope Ring system is marketed by Cabot Medical
Corporation, Langhorne, PA.
Employee Incentive Stock Option Plan
- ----------------------------------------------------
On March 1, 1995, the Board of Directors approved two incentive stock
option programs for the benefit of key employees, directors, and officers
of the Company. The two plans, termed the 1995 Stock Option Plan and the
1995 Stock Option Plan For Non-employee Directors (the "Option Plans"),
provide options to purchase 5,000,000 and 500,000 shares, respectively, of
Repro-Med common stock. The Company has filed a Registration Statement with
the Securities and Exchange Commission for the Option Plans. The Option
Plans expire March 1, 2005. As described in the Company's registration
statement, the Option Plans were adopted:
"..to provide stock options in order to attract and retain the best
available personnel for positions of substantial responsibility and to provide
additional incentives to employees of the Company and to promote the success of
the Company's business. "
Options granted under the 1995 Stock Option Plan to full time employees of
the Company are intended as "incentive stock options" within the meaning
of Section 422A of the Internal Revenue Code. On March 1, 1995, the Board
of Directors granted options for 3,800,000 shares under the Option Plans as
follows:
<PAGE>
<TABLE>
<CAPTION>
Price No. Shares &
Name Main Position Per Earliest
Share Date of Exercise
- --------- ------- ---------------
- ---------------------- ---- ---------------
----------
<S> <C> <C>
<C>
Granted under the 1995 Stock Option
Plan:
Sealfon, A. President $0.175 1,500,000, 3/1/95
Garringer, J. Executive VP $0.15 1,450,000, 3/1/95
Baker, M. Clinical Consultant $0.15 300,000, 3/1/95
Rombousek, F. Manager, Accounting $0.15 100,000, expired
Conti, B. Regulatory Q/A Mgr, $0.15 50,000, expired
Howarth, M. Manager, Marketing $0.15 50,000, 3/1/95
Lyons, S. Manager, Production $0.15 50,000, 3/1/95
Granted under the 1995 Stock Option Plan for Non-
employee Directors:
Burns, Jr.,R. Director $0.15 20,000, 3/1/96
20,000, 3/1/97
20,000, 3/1/98
20,000, 3/1/99
20,000, 3/1/00
Carlson, J. Director $0.15 20,000, 3/1/96
20,000, 3/1/97
20,000, 3/1/98
20,000, 3/1/99
20,000, 3/1/00
Spagnoli, R. Director $0.15 20,000, 3/1/96
20,000, 3/1/97
20,000, 3/1/98
20,000, 3/1/99
20,000, 3/1/00
</TABLE>
The option price of 15 cents per share is not less than the fair market
value of the common stock on the date of the grant of the option. The
option price of 17.5 cents per share is not less than 110% of the fair
market value of the common stock on the date of the grant of the option. As
of May 15, 1998 no options granted under the Option Plans have been
exercised.
Employees
- ---------------
At February 28, 1998 the Company had 31 full time employees and 5 temporary
employees.
At February 28, 1997 the Company had 28 full time employees and no
temporary employees.
<PAGE>
Item 2. Properties, Mortgage and Loans
- ------------------------------------------------------
On April 18, 1995 Repro-Med executed a formal Contract Of Sale with Key
Bank of New York ("Key Bank") on a facility in Chester, NY ("Chester
facility") for the purpose of housing all operations of Repro-Med, Gamogen,
and Gyneco. The purchase was completed on April 30, 1996. The price for the
facility was $1,030,000. The purchase of the Chester facility was financed
in part by a $900,000 mortgage loan from Key Bank. The mortgage is a 10
year loan with a 20 year amortization rate and interest at a rate of 8.82%
for years 1-5 and for years 6-10 the Key Bank base rate plus 0.5. Effective
December 1997 the Company entered into an interest-swap agreement with Key
Bank which reduced the effective interest rate on the mortgage to a fixed
rate of 8.46% through April 2006. The annual mortgage payment for the
fiscal year ended February 1999 including principal and estimated interest
of $72,000, is approximately $106,500, payable in monthly installments. As
of February 28, 1998 a total of $142,534 in mortgage interest has been
recorded, $78,718 of which was recorded in the current fiscal year. Total
principal payments made as of February 28, 1998 were $28,674, of which
$17,240 was paid in the current fiscal year. A portion of the Chester
facility is leased to Key Bank on a net/net/net rent basis for 20 years at
annual rent of $86,100 for years 1 through 10 and $99,990 for years 11
through 20. As of February 28, 1998 a total of $158,089 in rent, exclusive
of property tax rent allocations have been paid by Key Bank. Rent collected
in the current fiscal year was $86,100. The lease contract required an
$86,100 security deposit from Key Bank and an additional rent allocation to
Key Bank of 35% of all property tax payments. Key Bank intends to maintain
local branch operations in the leased portion of the building. The new
facility has improved Repro-Med and Gyneco manufacturing efficiencies and
provided additional space for expansion of operations. The total cash
expenditure in the fiscal year ended February 1996 for this real estate
purchase was $78,736, which included a $55,000 deposit. The total cash
expenditure, net of the mortgage proceeds of $900,000, in the fiscal year
ended February 1997 for this real estate purchase and certain capital
improvements, and other related legal and engineering costs was $227,643.
Total cash expenditures in the fiscal year ended February 1998 for capital
improvements related to this real estate purchase was $4,467.
In a transaction related to the purchase of the Chester facility on April
30, 1996, the Company secured from Key Bank of New York a line of credit of
$300,000. On December 1, 1997, the Company secured from Key Bank of New
York a $300,000 five-year term loan and a new line of credit of $500,000.
At February 28, 1998 the Company had an outstanding balance of $291,606 on
the 5-year term loan and $360,000 on the line of credit. The proceeds of
the term-loan were used to pay $250,000 of the outstanding balance of the
previous line of credit of $260,000. The interest rate on the term loan is
fixed at an annual rate of 8.43%. Principal payments on the term loan are
monthly beginning January 1, 1998 at a rate of $4,197 per month, plus
accrued interest to date. The interest rate on the line of credit is prime
rate less one-quarter of one percent (currently 8.25% per annum).
The Company's mortgage and bank loans include negative covenants and
cessation of advances and related events of default and financial covenants
(see property section above), certain of which are listed below.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien,
sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, w encumber any of Borrowers assets, or (c) sell with
recourse any of Borrower s accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrowers stock (other than dividends
payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has-occurred and is
continuing or would result from the payment of dividends, if Borrower is
a Subchapter S Corporations (as defined in the Internal Revenue Code of
1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the
shareholders to pay income taxes and make estimated income tax payments
to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d)
purchase or retire any of Borrowers outstanding shares or alter or amend
Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender, (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings,
or is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrowers financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; (d) any Guarantor
seeks. claims or otherwise attempts to limit, modify or revoke such
Guarantors guaranty of the Loan or any other loan with Lender; or (e)
Lender in good faith deems itself insecure, even though no Event of Default
shall have occurred.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrowers property or
Borrowers or any Grantors ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination of Borrowers existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any pad of Borrowers property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment,
or levy on or of any of Borrowers deposit accounts with Lender However
this Event of Default shall not apply if there is a good faith dispute by
Borrower or Grantor, as the case may be, as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written
notice of the Creditor or forfeiture proceeding and furnishes reserves or
a surety bond for the creditor or forfeiture proceeding satisfactory to
Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness. Lender, at its option,
may, but shall not be required to, permit the Guarantor s estate to
assume unconditionally the obligations arising under the guaranty in a
manner satisfactory to Lender, and, in doing so, cure the Event of
Default.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower s financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default: (a) cures the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lenders sole
discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
FINANCIAL COVENANTS (YEARS 2002-2006). The following covenant will be in
effect for years six (the year 2002) through ten of the Loan and will be
tested annually based on fiscal year end financial statements.
Minimum Debt Coverage Ratio (DCR) of 1.50X, defined as
profit before taxes (PBT) plus interest (I) expense plus
depreciation (D) divided by the sum of the current portion of
long term debt (CPLTD) plus interest expense (I):
DCR = PBT + I + D
---------------------
CPLTD + I
The Company anticipates additional borrowing under the line of credit in
the fiscal year ending February 1999. As of May 15, 1998 borrowings under
the line of credit total $360,000, with an additional $130,000 available
under the line.
Item 3. Legal Proceedings
- ----------------------------------
The Company is not a party to any material litigation, nor to the knowledge
of the officers and directors of the Company is there any material
litigation threatened against the Company.
Item 4. Submission of matters to a Vote of Security Holders
- ---------------------------------------------------------------------------
- ----
No matters were submitted to a vote of security holders of the Company
during the fiscal year ended February 28, 1998.
PART II
- -------------
Item 5. Market-for-the-Registrant's-Common-Equity-and-Related Shareholder
Matters
- ---------------------------------------------------------------------------
- ----------------------------------------
The Company is authorized to issue 50,000,000 shares of Common Stock, $.01
par value, of which 22,142,000 shares were issued and outstanding as of
February 28, 1998. At February 28, 1998, the Company's Common Stock was
held by approximately 1400 holders of record.
The Company's Common Stock is traded in the over-the-counter market and was
quoted through the National Daily Quotation Service. The following table
sets forth the high and low closing bid quotations for the Company's Common
Stock as reported by the National Quotation Bureau, Inc. for the periods
indicated. These quotations represent bid prices between dealers, do not
include retail mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions.
High Bid Low Bid
Fiscal Year Ending
February 29,1996:
1st Quarter $0.13 $0.08
2nd Quarter $0.19 $0.08
3rd Quarter $0.16 $0.10
4th Quarter $0.17 $0.11
Fiscal Year Ending
February 28,1997:
1st Quarter $0.14 $0.09
2nd Quarter $0.11 $0.07
3rd Quarter $0.15 $0.08
4th Quarter $0.19 $0.10
Fiscal Year Ending
February 28,1998:
1st Quarter $0.12 $0.09
2nd Quarter $0.13 $0.10
3rd Quarter $0.15 $0.11
4th Quarter $0.12 $0.08
Fiscal Year Ending
February 28,1999:
3/1/98 - 5/15/98 $0.11 $0.09
On February 2, 1993 the Company issued 10,000 shares of 8% Cumulative
Convertible Preferred Stock in a private placement for $100,000. The
Company is obligated to pay semi-annual dividend payments of $4,000 until
conversion by shareholders or redemption by the Company. As of February 28,
1998 these 10,000 shares of Cumulative Convertible Preferred Stock are
convertible to 333,333 shares of Repro-Med common stock at $0.30
per share. These 10,000 shares of Cumulative Convertible Preferred Stock
are convertible based on the following formula :
" ... The holder of any of the shares of Preferred Stock being
issued hereunder shall have the right, at his/her option at any
time, to convert any such shares of Preferred Stock into such number
of fully paid and non-assessable whole shares of Common Stock as is
obtained by multiplying the number of shares of Preferred Stock so
to be converted by $10.00 and dividing the result by the conversion
price of $0.20 per share or by the conversion price as last
adjusted and in effect at the date any share or shares of Preferred
Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to herein as the "Conversion Price").
The Conversion Price shall increase by $.02 for each year that the
Preferred Stock is outstanding. ... "
The Company has not declared or paid any cash dividends on its Common Stock
and does not anticipate that any dividends will be paid in the foreseeable
future. The Company's loan agreement requires the approval of Key Bank of
dividends payments. During the fiscal year ended February 28, 1998,
dividend payments on the Company's 10,000 issued shares of convertible
preferred stock were $8,000.
Item 6. Management's-Discussion-and-Analysis-of-Financial Condition and
Results of Operations
Liquidity and Capital Resources
Cash and equivalents on a consolidated basis were $160,567 at February 28,
1998, as compared to $98,336 at February 28, 1997, an increase of $62,231.
Cash and equivalents includes cash of the Company's subsidiary, Gamogen,
Inc., of $19,228 at February 28, 1998, and $1,368 at February 28, 1997.
Net working capital on a consolidated basis at February 28, 1998 was
$1,076,801, as compared to $1,444,300 at February 28, 1997. Net working
capital included Gamogen, Inc. net working capital of $524,059 at February
28, 1998, and $121,703 February 28, 1997.
The Company's liquidity decreased as reflected in the decrease in its net
working capital of $367,499 versus the balance at February 29, 1997 of
$1,444,300. The decrease in net working capital consists primarily of
increases in short term debt of $426,924 and other current liabilities of
$161,372 offset in part by increases in cash and cash equivalents
(increased $62,231), accounts receivable (increased $86,409) and inventory
(increased $110,142). The decrease in working capital resulted primarily
from the Company's current year net loss of $290,184 (see Results of
Operations below) and $234,908 in capital spending, primarily for
production tooling and equipment for the Freedom60 Syringe Infusion
System and the OEM medical suction device. The decrease in working capital
was limited by an increase in long-term debt of $207,442, due to the
Company's five-year term loan issued for $300,000 in November 1997 (see
comments below).
The Company and Gyneco sell their products to US and foreign distributors,
US hospitals and private physicians, and OEM companies. Sales to US
distributors, hospitals, private physicians, and OEM companies are mainly
on 30 day net payment terms. A variety of payment terms are employed for
export sales including cash prepayments, irrevocable letters of credit,
time drafts and 45 day net payment. As of February 28, 1998 the Company's
consolidated accounts receivable show that 62% of its receivable balance is
current, 3% less than 61 days past due, and, due primarily to delayed
payment by Osbon on $79,956 in receivables, the remaining balance totaling
35% is over 61 days past due. As of May 15, 1998, Osbon has paid all past
due accounts receivable, and currently owes $30,832 which relates to
shipments made April 24, 1998 to April 28, 1998 and is current.
<PAGE>
The Company attempts to maintain sufficient inventory to enable it to
promptly complete customer orders. During the year ended February 1998 the
Company's total inventory increased by $173,025. The increase was due
primarily to purchases of components and increased work-in-process and
finished goods inventory, for the Company's new Syringe Infusion System
product and Mission OEM products.
On July 10, 1993 Gamogen acquired the rights to an Oral Treatment for Male
Impotence developed by Dr. Zorgniotti. On April 12, 1994 the Board of
Directors approved and on April 14, 1994 Gamogen signed with Zonagen, a
small US based biotechnology company, an agreement under which Zonagen
acquired all rights to Gamogen's Oral Treatment for Male Impotence
("Impotence Agreement"). In exchange for the above rights Gamogen received
from Zonagen $100,000 in cash and, subject to certain FDA approvals and
Gamogen's agreement not to compete, future payments of $200,000 in
restricted common stock of Zonagen, and royalties on Zonagen's future sales
of the Oral Treatment.
In the year ended February 1995 Gamogen recorded income from the Impotence
Agreement of $47,107 ($100,000 in licensing payments made by Zonagen less
related expenses of $52,893). In the year ended February 1996 no payments
were received by Gamogen under the Impotence Agreement.
On May 28, 1996 a stock payment was received by Gamogen in the form of
19,512 restricted common stock shares of Zonagen in accordance with certain
non-compete terms of the Impotence Agreement. On June 20, 1996 Gamogen sold
the 19,512 restricted shares to a small group of private investors for
$87,800, approximately 50% of the then NASDAQ market price for Zonagen,
Inc. non-restricted common stock.
On January 24, 1997 the Board of Directors approved and signed with Zonagen
a conditional amendment to the Impotence Agreement granting Zonagen the
right ("Option") to amend the Impotence Agreement eliminating the
following:
1) Gamogen's rights to royalties on Zonagen's future sales of the Oral
Treatment;
2) Gamogen's rights to market the Oral Treatment in countries where Zonagen
does not timely obtain regulatory approval for and commence marketing of the
Oral Treatment.
The Option was conditioned on the payment to Gamogen of the amount of
$750,000 ("Option Price") if the Option were exercised by January 24, 1998
less any Maintenance Payments (see below) received by Gamogen. The Option
included increases in the Option Price for later exercise of the Option
through January 24, 2000.
Under the conditional amendment Zonagen was granted the option, provided
however, that Zonagen make the following payments ("Maintenance Payments")
in cash to Gamogen: $75,000 upon the execution of the conditional amendment
and $75,000 on each July 24 and January 24 which occurs after the execution
of the conditional amendment and before Zonagen's exercise of the Option.
On January 24, 1997 Gamogen received from Zonagen the initial Maintenance
Payment of $75,000 which Gamogen recorded as licensing income. In July 1997
Gamogen received a second maintenance payment of $75,000 under the
conditional amendment.
In November 1997 Gamogen negotiated with Zonagen for revision to the
Conditional Amendment Number 1 of The Assignment Agreement. In November
1997 the Board of Directors approved and signed with Zonagen a conditional
amendment, Amendment Number 2 to the Assignment Agreement, establishing an
option price of $708,000 if the option were exercised on or before
September 30, 1997. On September 30, 1997 Gamogen received payment from
Zonagen for $558,000 which resulted from the sale of the impotence oral
treatment for $708,000 reduced by credits for maintenance payments
previously received of $150,000. As a result of this payment Zonagen has
exercised the Option and Gamogen has effectively sold its interest in this
product and is not entitled to further payments under the Assignment
Agreement and its amendments.
In August 1997 Gamogen recorded general and administrative expenses of
$55,660 for certain administrative costs and other expenses related to the
sale of the impotence oral treatment and the conditional amendments.
On October 31, 1995, the Company redeemed in a private transaction 275,000
shares of common shares at a price of $0.08 per share or a total of
$22,000. On November 10, 1996, the Company redeemed in a private
transaction 2,000,000 shares of common shares at a price of $0.06 per share
or a total of $120,000. The 2,275,000 shares redeemed were previously
restricted in part as to their sale under "Rule 144" of the Securities and
Exchange Act. The 2,000,000 shares redeemed are subject to a ten year
voting agreement dated June 30, 1992 under which Mr. Andrew I. Sealfon,
President and Chairman of Repro-Med has the exclusive right to vote all the
shares covered under the voting agreement. The treasury stock shares while
held by the Company will be voted exclusively by Mr. Sealfon, as required
by the voting trust. Treasury stock shares may be sold at a future time or
held by the Company for corporate use.
On April 18, 1995 Repro-Med executed a formal Contract Of Sale with Key
Bank of New York ("Key Bank") on a facility in Chester, NY ("Chester
<PAGE>
facility") for the purpose of housing all operations of Repro-Med, Gamogen,
and Gyneco. The purchase was completed on April 30, 1996. The price for the
facility was $1,030,000. The purchase of the Chester facility was financed
in part by a $900,000 mortgage loan from Key Bank. The mortgage is a 10
year loan with a 20 year amortization rate and interest at a rate of 8.82%
for years 1-5 and for years 6-10 the Key Bank base rate plus 0.5. Effective
December 1997 the Company entered into an interest-swap agreement with Key
Bank which reduced the effective interest rate on the mortgage to a fixed
rate of 8.46% through April 2006. The annual mortgage payment for the
fiscal year ended February 1999 including principal and estimated interest
of $72,000, is approximately $106,500, payable in monthly installments. As
of February 28, 1998 a total of $142,534 in mortgage interest has been
recorded, $78,718 of which was recorded in the current fiscal year. Total
principal payments made as of February 28, 1998 were $28,674, of which
$17,240 was paid in the current fiscal year. A portion of the Chester
facility is leased to Key Bank on a net/net/net rent basis for 20 years at
annual rent of $86,100 for years 1 through 10 and $99,990 for years 11
through 20. As of February 28, 1998 a total of $158,089 in rent, exclusive
of property tax rent allocations have been paid by Key Bank. Rent collected
in the current fiscal year was $86,100. The lease contract required an
$86,100 security deposit from Key Bank and an additional rent allocation to
Key Bank of 35% of all property tax payments. Key Bank intends to maintain
local branch operations in the leased portion of the building. The new
facility has improved Repro-Med and Gyneco manufacturing efficiencies and
provided additional space for expansion of operations. The total cash
expenditure in the fiscal year ended February 1996 for this real estate
purchase was $78,736, which included a $55,000 deposit. The total cash
expenditure, net of the mortgage proceeds of $900,000, in the fiscal year
ended February 1997 for this real estate purchase and certain capital
improvements, and other related legal and engineering costs was $227,643.
Total cash expenditures in the fiscal year ended February 1998 for capital
improvements related to this real estate purchase was $4,467.
During the year ended February 1996 the Company paid in full its $36,000
bank term loan with The Bank Of New York. In a transaction related to the
purchase of the Chester facility on April 30, 1996, the Company secured
from Key Bank of New York a line of credit of $300,000. At November 7, 1997
the Company had outstanding debt of $260,000 on this line of credit. On
December 1, 1997, the Company secured from Key Bank of New York a $300,000
five-year term loan and a new line of credit of $500,000. At February 28,
1998 the Company had an outstanding balance of $291,606 on the 5-year term
loan and $360,000 on the line of credit. The proceeds of the term-loan were
used to pay $250,000 of the outstanding balance of the previous line of
credit of $260,000. The interest rate on the term loan is fixed at an
annual rate of 8.43%. Principal payments on the term loan are monthly
beginning January 1, 1998 at a rate of $4,197 per month, plus accrued
interest to date. The interest rate on the line of credit is prime rate
less one-quarter of one percent (currently 8.25% per annum).
The Company's mortgage and bank loans include certain negative covenants
and cessation of advances and related events of default and financial
covenants (see property, mortgage and loans section above).
The Company anticipates additional borrowing under the line of credit in
the fiscal year ending February 1999. As of May 1998 borrowings under the
line of credit total $360,000, with an additional $130,000 available under
the line.
Management believes that the Company's revenues will increase primarily due
to growth in sales of the Res-Q-Vac and Syringe I.V. Infusion System, and
also, contingent on the effect of Viagra, Muse, and other new products on
the impotence vacuum device market, increased sales of OEM products to
Osbon and Mission. Management believes that the Company can expand, albeit
at a limited pace, on the basis of currently available funds which include
working capital of $1,076,801, currently available funds under its line of
credit as of May 15, 1998 of $130,000 and cash flow derived from current
operations. Management anticipates that the Company's total cash position
will continue to decline during fiscal 1999, due primarily to increases in
inventory and accounts receivable from increasing sales, and due to new
product related spending. In its efforts to expand its operations to a
level to return the Company to profitability, the Company is continuing to
develop new products. However, cash and other working capital limitations
may inhibit development and marketing of these new products, which also
face risks inherent in bringing a new medical device to market. In
particular, due to the significant inventory investment required, timely
development and marketing of the OTC vacuum erection and constriction ring
devices may be restricted. To conserve cash, the Company plans to limit
production of inventory for the OTC device until firm sales orders are
secured and is investigating other means of increasing cash flow, including
reducing operating costs and deferring non-essential expenditures. In
addition, management is seeking additional sources of capital in order to
enable the Company to complete its product development efforts on an
accelerated basis and market its products more aggressively.
Results of Operations
- ------------------------------
Fiscal 1998 Compared To Fiscal 1997:
- -----------------------------------------------------
In the fiscal year ended February 28, 1998 the Company's loss from
operations was $369,131 as compared to income from operations of $22,164 in
the prior fiscal year. The decrease in operating income resulted primarily
from a decline in product sales of $881,634, due to a $1,009,048 decline in
sales to Osbon (see <PAGE>
comments above), and increases in selling, general, and administrative
expenses and depreciation and amortization. Margins on product sales
declined from 55% of sales in the prior fiscal year to 30% of sales in the
current fiscal year due to lower Osbon sales volume and increased
manufacturing costs, primarily in the quarters ended November 1997 and
August 1997, related to the production startup of both the OEM medical
suction device and the Freedom60 Syringe I.V. Infusion System. The decrease
in operating income was limited in part by revenue from Gamogen's sale of
the impotence oral treatment of $708,000.
In the fiscal year ended February 28, 1998 the loss before taxes and
minority interest was $435,830 as compared to income before taxes of
$238,080 in the prior fiscal year. The loss before taxes, versus the prior
year income, is due primarily to the operating loss of $369,131 in the
current fiscal year, primarily from the decrease in sales to Osbon (see
comments above), coupled with the prior year licensing income of $162,800,
which did not continue in the current fiscal year. Based on orders to-date
and discussions with Osbon concerning anticipated purchases, and
considering the reduced level of inventory held at Osbon, management
estimates that sales to Osbon in the fiscal year ended February 1998 may be
approximately 30% to 40% higher as compared to fiscal 1998, however, due to
Osbon's continuing and projected significant operating losses, high debt
level, and unfavorable credit rating, Repro-Med management is cautious
concerning Osbon's financial viability.
Minority interest in the income of Gamogen for the current fiscal year was
$161,669. Minority interest in the income of Gamogen for the prior fiscal
year was $3,263. The increase is due to increased income at Gamogen
resulting from the sale in the current fiscal year of Gamogen's Impotence
Treatment.
The Company's net loss for the fiscal year ended February 28, 1998 was
$290,184. This compares with net income of $139,503 for the previous fiscal
year. The net loss for the current fiscal year of $290,184 results
primarily from the Company's net loss from operations of $369,131, which is
due primarily to the decline in sales to Osbon. The net loss per common
share for the fiscal year ended February 28, 1998 was $0.01. This compares
with net income per common share of $0.01 for the prior fiscal year.
Fiscal 1997 Compared To Fiscal 1996:
- ----------------------------------------------------
For the year ended February 28, 1997 the Company's sales were $2,398,976.
Sales for the fiscal year ended February 29, 1996 were $3,060,268. Sales
decreased in the current fiscal year by $661,292 or 22% as a result of a
decrease in OEM product sales. Sales of OEM products were $1,468,715, a
decrease in sales of $676,008 versus the prior fiscal year. The decline in
sales was limited by an increase in sales of the Res-Q-Vac. Res-Q-Vac sales
for the year ended February 28, 1997 improved to $653,237 an increase of
$73,561 or 13% versus the previous fiscal year.
Gross profits from sales in fiscal 1997 and 1996 were $1,313,225 and
1,458,362, respectively. The decrease in gross profits of $145,137 or 10%
was attributable to a 22% decrease in sales, primarily OEM products. The
decline in gross profits due to the sales decline was limited by an
increase in selling prices on OEM products effective March 1996. Selling,
general, and administrative expenses for the fiscal year ended February 28,
1997 were $964,478 as compared with a total of $829,749 in the prior fiscal
year. This increase of $134,729 is attributable primarily to increased
sales commission and marketing costs directed at the Res-Q-Vac, initial
maintenance expenses and property taxes on the new Chester, NY facility,
and general increases in wage costs. Research and development costs totaled
$236,086 in the current year as compared to $179,486 in the prior fiscal
year due to increased expenditures for development of the Syringe I.V.
Infusion System and the addition in May 1996 of one senior engineer
position. Depreciation and amortization in the fiscal years ended February
1997 and 1996 were $90,497 and $66,108, respectively. Depreciation and
amortization increased due to depreciation of the Chester, NY facility.
Income from operations was $22,164 in the fiscal year ended February, 1997,
a decrease of $360,855 versus the prior fiscal year. The decrease in income
from operations is attributable primarily to decreased sales of OEM
products and increases in selling, general, and administrative and research
and development costs, increased losses from operations by Gamogen and
increased depreciation expense. Gamogen's loss from operations was $148,794
for the fiscal year ended February 1997 versus $111,800 in the prior fiscal
year.
Non-operating income was $215,916 for the fiscal year ended February 1997
versus $25,573 in the prior fiscal year. The increase in non-operating
income is primarily due to licensing income from the Impotence Agreement of
$162,800 and rental income at the Chester facility of $71,989.
The Company's net income for the fiscal year ended February 1997 was
$139,503 which includes net income of it's subsidiary, Gamogen, Inc., of
$4,562. This compares to net income for the prior fiscal year of $232,416
which included a net loss of Gamogen of $64,875.
For the fiscal year ended February 1997 net income per common share on a
fully diluted basis was $0.01. This compares with net income per common
share for fiscal 1996 of $0.01.
<PAGE>
Fiscal 1996 Compared To Fiscal 1995:
- -----------------------------------------------------
For the year ended February 29, 1996 sales were $3,060,268 an increase of
$544,028 versus sales in the previous fiscal year. Sales for the fiscal
year ended February 28, 1995 were $2,516,240. Sales increased primarily as
a result of increased OEM and Res-Q-Vac sales. Sales of OEM products were
$2,144,723, an increase in sales of $506,795 versus the prior fiscal year.
Sales of the Res-Q-Vac improved to $579,676 for the fiscal year ended
February 29, 1996 as compared to sales in the prior year of $539,246 due
primarily to increased exports.
Gross profits from sales in fiscal 1996 and 1995 were $1,458,362 and
$1,137,722, respectively. The increase in gross profits was attributable
to increased sales of OEM products and the Res-Q-Vac. Selling, general, and
administrative expenses were $829,749 as compared with a total of $748,281
in the prior fiscal year. This increase was attributable to increased
selling costs directed at export marketing and general increases in wage
costs. Research and development costs totaled $179,486 in the 1996 fiscal
year as compared to $97,991 in the prior fiscal year due to increased
expenditures from development of the Syringe I.V. Infusion System and
general increases in wage costs. Depreciation and amortization in the
fiscal years ended February 1996 and 1995 were $66,108 and $54,181,
respectively.
Income from operations was $383,019 in the fiscal year ended February,
1996. This reflects an increase of $145,750 versus the prior fiscal year.
The increase of $145,750 in income from operations is attributable
primarily to increased sales of OEM and Res-Q-Vac products offset in part
by increased research and development costs for development of the Syringe
I.V. Infusion System and increased operating losses by Gamogen. Gamogen's
loss from operations was $111,800 for the fiscal year ended February 1996
versus $43,900 in the prior fiscal year.
Non-operating income was $25,573 for the fiscal year ended February 1996
versus $227,743 in the prior fiscal year. This decrease is primarily due
to an unusual gain recorded in the prior fiscal year of $211,650 on the
termination of the Distribution Agreement. The Company's net income for the
fiscal year ended February 1996 was $232,416 which includes a net loss of
it's subsidiary, Gamogen, Inc., of $64,875. This compares to net income for
the prior fiscal year of $1,201,581 which included a net loss of Gamogen of
$17,914. Net income was higher in the prior fiscal year as a result of the
following items of income recorded in the prior year: 1) proceeds of a
$300,000 insurance death benefit; 2) licensing income of $47,107 from
Gamogen's Impotence Agreement; 3) a gain of $211,650 on termination of the
Distribution Agreement; 4) income of $449,684 from a change in the
valuation of Deferred Taxes.
For the fiscal year ended February 1996 net income per common share before
extraordinary items on a fully diluted basis was $0.01. This compares with
$0.04 net income per common share before extraordinary items for fiscal
1995. For the fiscal year ended February 1996 net income per common share
after extraordinary items on a fully diluted basis was $0.01. This
compares with $0.05 net income per common share after extraordinary items
for fiscal 1995.
Year 2000 Compliance
- ---------------------------
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Certain of these
date code fields may need to accept four digit entries or other
modifications made to distinguish 21st century dates ("Year 2000") from
20th century dates. As a result in less than two years computer systems
and/or software used in many companies may need to be upgraded to comply
with Year 2000 requirements.
The Company is in the process of evaluating its own products for potential
Year 2000 issues. The Company does not currently manufacture, nor has it
completed development of, products with software whose function is date
related. The Company does not believe that there will be significant issues
or costs associated with making their products Year 2000 compliant.
The Company has received confirmation from vendors of certain purchased
software used for internal operations that current releases or upgrades, if
installed, are designed to be Year 2000 compliant. The Company is in the
process of reviewing such upgrades to its current systems and believes that
upgrades, where appropriate, will be completed by December 31, 1999. The
Company uses an outside service bureau for processing of payroll. The
Company has been advised that the software utilized by the service bureau
for processing of the Company's payroll will be Year 2000 compliant by
December 31, 1999.
The Company currently believes that becoming Year 2000 compliant will not
have a significant impact on the financial position or results of
operations of the Company. Although the Company is not aware of any
material operational issues or costs associated with preparing its products
or internal information systems for the year 2000, there can be no
assurances that the Company will not experience significant unanticipated
negative consequences or costs caused by undetected errors or defects in
the technology used in its internal systems, which are composed
predominantly of third party software and hardware, or caused by software
used by its vendors or customers or by government agencies.
Forward Looking Statements
- -----------------------------------------
Any statements which are not historical facts contained in this report are
Forward Looking Statements that involve risks and uncertainties, including
but not limited to those relating to the uncertainty of declines or
increases in purchases of OEM impotence products by Osbon and Mission and
Osbon's ability to meet its credit obligations, other unexpected increases
or decreases in sales of the Company's products, market acceptance and
product demand for the Company's Syringe I.V. Infusion System and OTC
impotence devices, uncertainty related to Food and Drug Administration or
other government regulation, including approval of the 510(k) for the OTC
impotence devices, impotence market factors, specifically the impact on
sales of impotence vacuum devices by Viagra and other new impotence
treatments, compliance with Repro-Med bank loans covenants, and other risks
identified in the Company's Securities and Exchange Commission filings.
<PAGE>
Item 7. Financial Statements and Supplementary Data
- -----------------------------------------------------------------------
The financial statements and supplementary data appear in a separate
section of this report.
<TABLE>
<CAPTION>
SELECTED INCOME STATEMENT DATA:
1994 1995 1996 1997 1998
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SALES..................$ 2,056,469 $2,516,240 $3,060,268 $2,398,976 $2,225,342
COSTS AND 1,823,170 2,278,971 2,677,249 2,376,812 2,594,473
EXPENSES
NON-OPERATING 5,314 227,743 25,573 215,916 (66,699)
INCOME
MINORITY INTEREST IN
(INCOME)LOSS OF
SUBSIDIARY 39,691 12,814 46,403 (3,263) (161,669)
PROVISION (BENEFIT) FOR
INCOME TAXES 17,939 (423,755) 222,579 95,314 (307,315)
EXTRAORDINARY 0 300,000 0 0 0
ITEMS..................
NET 260,365 1,201,581 232,416 139,503 (290,184)
INCOME
NET INCOME
PER COMMON $0.01 $0.05 $0.01 $0.01 $(0.01)
SHARE
SELECTED BALANCE SHEET DATA:
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
-- -- -- --
TOTAL CURRENT ASSETS $1,026,160 $1,964,383 $1,978,201 $1,638,675 $1,880,756
TOTAL ASSETS 1,363,392 2,630,112 2,470,713 3,350,683 4,031,189
TOTAL CURRENT 335,793 522,746 207,334 194,375 803,955
LIABILITIES
TOTAL LIABILITIES 436,793 522,746 207,334 1,064,538 1,881,560
WORKING CAPITAL 690,367 1,441,637 1,770,867 1,444,300 1,076,801
MINORITY INTEREST
IN 174,778 161,964 115,561 118,824 280,493
SUBSIDIARY
STOCKHOLDERS' 751,821 1,945,402 2,147,818 2,167,321 1,869,136
EQUITY
</TABLE>
<PAGE>
Item 8. Changes in and Disagreements with Accountants
- --------------------------------------------------------------------------
Not applicable
PART III
- --------------
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with
Section 16(a) of the Exchange Act.
- ---------------------------------------------------------------------------
- -----------------------------------------
The following table sets forth certain information with respect to the
Executive Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name Age Positions (Held since) Address
---------- ---- ------------------------ -----------
<S> <C> <C> <C>
Andrew I. Sealfon* 52 President (3/80), 23 Allison Drive
Treasurer (5/83), Monroe, NY 10950
Chairman (7/94),
Director (3/80),
Chief Executive Officer
(3/86)
Dr. Paul Mark 48 Director (5/91) 92 Irwin Ave
Baker Middletown, NY
10940
Robert W. Burns, 50 Director (2/95) 36 Tamarack Ave
Jr. Danbury CT 06811
John Carlson 58 Director (2/87) 113 Brookhaven Ct
Palm Beach
Gardens, FL
33418
Jesse A. Garringer 47 Executive VP/GM (9/92), 35 Orchard Hill
Secretary (8/93), Vista
Director (7/94) Florida, NY 10921
Chief Financial Officer
(1/95)
Remo Spagnoli 69 Director (8/93) 27 Slone Road
Newburgh, NY 12550
<FN>
* Mr. Sealfon may be deemed to be a "parent" and "promoter", as those
terms are defined under the Securities Act of 1933, as amended, (the "Act").
</TABLE>
All directors hold office until the next annual meeting of shareholders of
the Company or until their successors are elected and qualified. Executive
Officers hold office for one (1) year and until their successors have been
elected and qualified.
Andrew I. Sealfon has served as President and a Director of the Company
since March 1980, as Treasurer since May 1983, and effective July 1994 as
Chairman of the Board of Directors. Mr. Sealfon is an electrical engineer
and inventor and has been granted numerous United States patents in several
different areas. From 1971 to June 1981, Mr. Sealfon served as a Vice
President of Ceco Systems, Inc., Glen Cove, New York. Prior thereto he was
employed as a member of the research staff of Riverside Research Institute
from 1969 to 1971 and as a member of the technical staff of ITT Federal
Laboratories, Avionics Division from 1967 to 1969. Mr. Sealfon is a
graduate of Lafayette College.
Dr. Paul Mark Baker was appointed to the Board of Directors of Repro-Med
on May 11, 1991. Dr. Baker assisted the Company in the development of the
Res-Q-Vac Suction System. In addition, Dr. Baker has published results of
use of the Res-Q-Vac in a letter to the Lancet, a medical journal. Dr.
Baker was awarded his medical degree from Cornell University Medical
College in 1975, is a practicing pediatrician in Middletown, NY and is
attending at Department of Pediatrics Horton Memorial Hospital and
attending at New York Hospital-Cornell Medical Center in New York City.
<PAGE>
Robert W. Burns, Jr. was appointed to the Board of Directors of Repro-Med
in February 1995. Mr. Burns is Director, Medical Products Development for
Zeon Medical Corporation the medical products division of Nippon Zeon a
large Japan polymer and rubber products company. Mr. Burns is responsible
for all aspects of Zeon Medical's US medical business and is primarily
involved in the development and transfer of US medical technology. Mr.
Burns has held this position since February 1990. Prior to this position,
Mr. Burns has served in various medical business development and medical
marketing positions for the following companies: Cambridge Instruments
(1988-89), Ohmeda, Division of BOC Ltd. (1984-89), Roche Biomedical
Laboratories (1980-84), Nichols Institute (1978-80), Diamond Shamrock
Health Services(1975-78), and New England Nuclear Corporation (1972-75).
Mr. Burns also served on the staff of Baystate Medical Center, Springfield,
MA from 1965 until 1972. Mr. Burns holds an BA in Biology from American
International College, graduated as an Advanced E.M.T. in the State of NY,
and has served on numerous ASTM medical standards committees.
John F. Carlson and was appointed to the Board of Directors of Repro-Med in
July 1987. Mr Carlson is President and Chief Operating Officer of ViCar
Products, Inc, a health and personal care products company. From July 1996
through 1997, John F. Carlson served as Senior Vice President, Chief
Financial Officer, Treasurer and a director of Ocurest Laboratories, Inc.
Mr. Carlson has held management positions in the automotive accessories
industries as President and Chief Executive Officer of Allied Plastics,
Inc. ("Allied") from November 1992 to January 1995 and from June 1995 until
joining Ocurest as General Manager of InterScept Products Corporation. In
April, 1995, Allied filed a petition seeking protection under Chapter 11 of
the Bankruptcy Act. From 1986 to March 1992, Mr. Carlson was the President
and Chief Executive Officer of JWT & Associates, a financial consultant.
Mr. Carlson was a consultant of Rosenkrantz Lyon & Ross Incorporated from
September 1986 to January 1988. From 1964 through 1986, Mr. Carlson held
senior financial positions with Polygram Records, Inc., Viacom
International, Inc., Worldwide Consumer Products Group of American
Cyanamid Co. and The Mennen Company.
Jesse A. Garringer was hired by the Repro-Med in September 1992 to the
position of Executive Vice President and General Manager, appointed
Secretary in August 1993, and appointed to the Board of directors in July
1994. Mr. Garringer is responsible for marketing, financial, and general
management of Repro-Med and Gamogen's subsidiary Gyneco, and assists in the
strategic and financial management of Gamogen. Prior to accepting the
position of Executive Vice President Mr. Garringer served in the position
of Vice President Operations for Matrx Medical, Inc. Mr. Garringer held
this position from July, 1988 until June, 1992. During the period July and
August, 1992, Mr. Garringer was employed completing certain private
consulting projects. Mr. Garringer helped co-found Matrx Medical, Inc. in
a management buyout of two divisions of Ohmeda in July 1988 and was a major
shareholder until its purchase by a large Canadian medical company in
January 1992. Matrx Medical is a leading manufacturer of medical equipment
for the Emergency Medical, Dental and Veterinary anesthesia markets. In
his position, Mr. Garringer was responsible for Matrx's manufacturing,
quality, and distribution operations. Prior to the buyout and
establishment of Matrx Medical, Mr. Garringer held the position of Business
Manager of Emergency Care for Ohmeda and established Ohmeda's position as a
supplier to the Emergency Medical Market. In this position, Mr. Garringer
provided strategic, marketing, product and manufacturing management for the
Ohmeda's Emergency Care division. Mr. Garringer held this position from
March, 1984 until July, 1988. Prior to this position, Mr. Garringer served
in various financial and business planning positions for the following
companies: Ohmeda, Division of BOC Ltd., Carborundum Co. a division of
Standard Oil of Ohio, and Pratt & Lambert, Inc. Mr. Garringer holds an
M.B.A in finance from Canisius College, graduated as an Advanced E.M.T. in
the State of NY, and has served on numerous medical standards committees
and as a delegate to the ISO committee on Medical Suction.
Remo Spagnoli was appointed to the Board of Directors of Repro-Med in
April 1993. Mr. Spagnoli is a principal founder of CRS, Inc., Newburgh, NY,
a manufacturer of proprietary inventory control and point of sale software
and distributor of computer equipment. Mr. Spagnoli previously served as
President and Chairman of CRS, Inc. until his retirement in 1993. Mr.
Spagnoli presently consults for CRS, Inc.
Item 10. Executive Compensation
- ----------------------------------------------
Andrew I. Sealfon, President of the Company, received $171,379 in salary
from the Repro-Med (including amounts attributable to services to Gamogen
and Gyneco) during the fiscal year ended February 28, 1998 and earned an
incentive bonus of $10,400 from Gamogen in fiscal 1998 which is deferred
for payment until Repro-Med cash flow warrants payment. Under an agreement
between Gamogen and Repro-Med for reimbursement of operating expenses and
payroll costs, 25% of Mr. Sealfon's salary is charged to Gamogen and it's
subsidiary. Mr. Sealfon has been granted incentive stock options in Repro-
Med under its 1995 Stock Option Plan.
Jesse A. Garringer, Executive Vice President and Secretary, received
$143,337 in salary from Repro-Med (including an amount attributable to
services to the Company and Gyneco) and earned an incentive bonus of $7,800
from Gamogen in fiscal 1998 which is deferred for payment until Repro-Med
cash flow warrants payment. Mr. Garringer's salary is paid by Repro-Med and
charged to the Gamogen and it's subsidiary on a basis commensurate with a
direct
allocation of time. Mr. Garringer has been granted incentive stock options
in Repro-Med under its 1995 Stock Option Plan.
<PAGE>
Officers of the Company are reimbursed for travel and other expenses
incurred on behalf of the Company. The Company does not have any pension
or profit sharing plan.
<TABLE>
<CAPTION>
Summary Compensation Table: Long-Term Compensation
(all figures are in dollars) Awards Payouts
Name and Principle Position Restrict LTIP
Stock Options All
Awards /SARS Other
FYE Salary Bonus Other Comp
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew I.Sealfon, 1998 171,379 10,400 12,682 0 0 0 0
President 1997 164,219 5,800 11,926 0 0 0 0 0
1996 142,488 10,100 12,060 0 0 0 0
Jesse A.Garringer, 1998 143,337 7,800 6,182 0 0 0 0
Executive VP 1997 138,108 4,350 5,926 0 0 0 0 0
1996 121,863 7,500 6,060 0 0 0 0
<FN>
(1) Includes employee medical insurance premiums paid and $6,000 for
unreimbursed costs of lab facilities maintained by Mr. Sealfon.
Note, under an agreement between Repro-Med and Gamogen (see Item 1),
Executive salaries and all other payroll costs are allocated between Repro-
Med, Gamogen, and Gamogen's subsidiary, Gyneco, on the basis of individual
employee time reporting. The total percentages allocated for the fiscal
year ended February 1998 were as follows: for Gamogen 2%, for Gyneco 16%,
and for Repro-Med 82%. Bonuses were allocated at the following percentages
in each of the fiscal years consistent with earnings of Repro-Med and
Gamogen: 1998 - 100% Gamogen, 1997 - 100% Repro-Med, 1996 - 100% Repro-Med.
</TABLE>
Table of Option Grants in the Fiscal Year Ended February 1998:
<TABLE>
<CAPTION>
Price No. Shares &
Name Main Position Per Earliest
Share Date of Exercise
- ------------- ------------------- ------- ------------------
<S> <C> <C> <C>
Sealfon, A. President na 0
Garringer, J. Executive VP na 0
</TABLE>
Table of Aggregated Option Exercises in the Fiscal Year Ended February 1998
and Option Values at Fiscal Year-end February 1998:
<PAGE>
Table of Aggregated Option Exercises in the Fiscal Year Ended February 1998
and
Option Values at Fiscal Year-end February 1998:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-
Options at Money
Fiscal Year- Options at
Shares end Fiscal Year-
Name of Acquired Value Exercisable/ end (1)
Individual on Realized Unexercisable Exercisable/
Exercise Unexercisable
- --------- --------- --- ----------- ---------
<S> <C> <C> <C> <C>
Andrew I. Sealfon na $ 0
Exercisable 1,500,000 $0
Unexercisable 0 $0
Jesse A.Garringer na $ 0
Exercisable 1,450,000 $0
Unexercisable 0 $0
<FN>
(1) Calculated using the high bid price in the last quarter of the year
ended February 1998 of $0.12 (see Item 5.)
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ---------------------------------------------------------------------------
The following table sets forth, as of February 1998, the number of shares
of Common Stock of the Company beneficially owned by each person owning
more than 5% of the outstanding shares of the Company, by each officer and
director, and by all officers and directors as a group:
<TABLE>
<CAPTION>
Number Percent
Name and Address of Principal Shareholders of of Notes:
and Identity of Group Shares Class
Owned
- ------------------------------------------- --------- ----- ---
<S> <C> <C> <C>
Andrew I. Sealfon* 10,538,750 41% 1,2,5
23 Allison Drive, Monroe, NY 10950
Dr. Paul Mark Baker 1,169,000 5% 5
92 Irwin Ave, Middletown, NY 10940
Robert W. Burns, Jr. 105,000 0 5
36 Tamarack Ave, Danbury CT 06811
John Carlson 60,000 0 5
3 Alston Road, Palm Beach Gardens, FL, 33418
Jesse A. Garringer 1,746,500 7% 5
35 Orchard Hill Vista, Florida, NY 10921
Remo Spagnoli 870,333 3% 3,4,5
27 Slone Road, Newburgh, NY 12550
All Directors and Officers as a Group (6 Pers) 13,596,083 52% 1,2,3,4,5
</TABLE>
<PAGE>
*Andrew I. Sealfon may be deemed a "parent" and a "promoter" of the Company
as those terms are defined under the Securities Act of 1933, as amended.
(1) Does not include 690,000 shares of the Company's common stock owned by
members of Mr. Sealfon's family, as to which Mr. Sealfon disclaims
beneficial ownership.
(2) Under the terms of a voting agreement dated June 30, 1992, Messrs.
Sealfon and Zorgniotti agreed to vote their shares jointly when voting as
stockholders. This agreement which is in effect for 10 years, survives Dr.
Zorgniotti's death and currently effects the 3,571,500 shares previously
owned by the Estate of A. Zorgniotti (2,000,000 shares of which were
purchased by Repro-Med in 1996 and held as treasury stock and 1,571,500 of
which were purchased in a private placement in January 1997 by a number of
individual investors including an officer and three directors of Repro-Med)
and 400,000 shares owned by the estate of J. Zorgniotti (which were
purchased in a private placement in May 1998 by a number of individual
investors including an officer and three directors of Repro-Med). The above
calculations give effect to such 3,971,500 voting agreement shares with Mr.
Sealfon being treated as the owner of shares voted by him.
(3) Includes 477,000 shares of the Company's Common Stock owned by six
family members of Mr. Spagnoli.
(4) Mr. Spagnoli directly owns 10,000 shares of Repro-Med Convertible 8%
Preferred Stock. In fiscal 1998 Mr. Spagnoli received $8,000 in cash
dividends from his preferred stock. As of February 1998 Mr. Spagnoli's
preferred stock can be redeemed for 333,333 shares of Repro-Med common
stock at $0.30 per share. The above calculations give effect to these
333,333 common shares.
(5) On March 1, 1995, the Board of Directors approved two incentive stock
option programs for the benefit of key employees, directors, and officers
of the Company. The two plans, termed the 1995 Stock Option Plan and the
1995 Stock Option Plan For Non-employee Directors (the "Option Plans"),
provide options to purchase 5,000,000 and 500,000 shares, respectively, of
Repro-Med common stock. The Company has filed a Registration Statement with
the Securities and Exchange Commission for the Option Plans. The Option
Plans expire March 1, 2005. Options granted under the 1995 Stock Option
Plan to full time employees of the Company are intended as "incentive
stock options" within the meaning of Section 422A of the Internal Revenue
Code. On March 1, 1995, the Board of Directors granted options for
3,800,000 shares under the Option Plans as follows. Due to subsequent
termination of employment, 150,000 options granted F. Rombousek and B.
Conti expired.
<TABLE>
<CAPTION>
Price No. Shares &
Name Main Position Per Earliest
Share Date of Exercise
- ---------- ------- ---------------
Granted under the 1995 Stock Option Plan:
- ----------------------------------------
<S> <C> <C> <C>
Sealfon, A. President $0.175 1,500,000, 3/1/95
Garringer, J. Executive VP $0.15 1,450,000, 3/1/95
Baker, M. Clinical Consultant $0.15 300,000, 3/1/95
Rombousek, F. Manager, Accounting $0.15 100,000, expired
Conti, B. Manager, $0.15 50,000, expired
Regulatory/QA
Howarth, M. Manager, Marketing $0.15 50,000, 3/1/95
Lyons, S. Manager, Production $0.15 50,000, 3/1/95
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Granted under the 1995 Stock Option Plan for Non-
employee Directors:
- --------- ---------------
<S> <C> <C> <C>
Burns, Jr.,R. Director $0.15 20,000, 3/1/96
20,000, 3/1/97
20,000, 3/1/98
20,000, 3/1/99
20,000, 3/1/00
Carlson, J. Director $0.15 20,000, 3/1/96
20,000, 3/1/97
20,000, 3/1/98
20,000, 3/1/99
20,000, 3/1/00
Spagnoli, R. Director $0.15 20,000, 3/1/96
20,000, 3/1/97
20,000, 3/1/98
20,000, 3/1/99
20,000, 3/1/00
</TABLE>
The above calculations give effect to purchase of shares exercisable within
60 days of February 1998 under the terms of the Option Plans on these
issued options by each officer and director, and by all officers and
directors as a group. As of May 15, 1998 no options under the Option Plans
have been exercised.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------
In April, 1986, Gamogen issued 699,200 shares of Common Stock to Repro-Med
for $41,779.
Repro-Med and Gamogen and its subsidiary Gyneco have an expense sharing
agreement described in item 1.
To economize Company production, Repro-Med has designed some of its needed
components around parts which were used in its Gyneco operations.
Commencing in fiscal 1993, Repro-Med compensated Gyneco for the use of
certain tooling, and parts of its proprietary design patent for those items
using such parts on the following basis: on Repro-Med OEM sales, Gyneco is
compensated with a 3% royalty on those sales employing parts relating to
Gyneco tooling used to create such parts, on Repro-Med sales based on the
Res-Q-Vac items employing such tooling is compensated on the basis of a 4%
royalty to Gyneco. Payments to Gyneco from Repro-Med under this
arrangement totaled $33,038 in the fiscal year ended February 1998 and
$62,776 in the prior fiscal year. Payments under this arrangement declined
in the current fiscal year due to lower sales of OEM products to Osbon.
To economize corporate travel, the Company, since 1982, has maintained and
operated a corporate aircraft. This aircraft is leased from AMI Aviation.
A. Sealfon is a majority shareholder in AMI Aviation. Total lease costs
paid in the current fiscal year for this aircraft were $11,000. This lease
is believed by the Company to be on terms favorable to those that could be
obtained from unaffiliated third parties.
Andrew Sealfon, Dr. Adrian Zorgniotti and Dr. Paul Mark Baker each acquired
375,000 shares (a combined total of 1,125,000 shares) at $.04 per share
pursuant to the Company's private placement in May, 1991 which raised the
needed capital to proceed with the OEM manufacturing effort.
The foregoing transactions are believed by the Company to be on terms
comparable to those that could have been obtained from unaffiliated third
parties.
Messrs. Sealfon and Zorgniotti entered into a ten year voting agreement
dated June 30, 1992 pursuant to which they agreed on their behalf and on
behalf of their successors in interest to vote all the shares of the
Company over which they then had voting control when voting for the
election of directors (or as directors when filling vacancies in the board)
for persons designated jointly by them with one half or a majority (if
there are an odd number of directors) of the designees <PAGE>
to be named by Mr. Sealfon and the remainder by Dr. Zorgniotti. The voting
agreement further provides for either of them to designate all directors or
to determine how all of the shares shall be voted on other matters
requiring the approval of stockholders, in the event of the death of the
other. Dr. Zorgniotti died July 7, 1994, therefore Mr. Sealfon has the
exclusive right to vote all the shares covered under the voting agreement.
PART IV
- --------------
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ---------------------------------------------------------------------------
- -------------------------
(a)
1 and 2
- -----------
The response to this portion is submitted in the index to Item 8 which is
in a separate section following Part IV
3 Exhibits
- --------------
3(1) Articles of Incorporation and By-laws *
3(2) Certificate of Amendment to Articles of Incorporation filed November
26, 1986. **
10 Material Contracts
- ------------------------------
10(3) Voting Agreement for Repro-Med Systems, Inc. Common Stock between
Andrew I. Sealfon and Dr. Adrian Zorgniotti.***
l0(4) Assignment Agreement Among Zonagen, Inc., Gamogen, Inc. And
Dr. Adrian Zorgniotti dated April 13, 1994.****
10(5) 1995 Stock Option Plan.*****
10(6) 1995 Stock Option Plan for Non-employee Directors.*****
10(7) Mortgage and Security Agreement and Promissory Note for $900,000 with
Key Bank Of New York, dated April 30, 1996 ******
22 Subsidiary of Registrant
- -------------------------------------
Gamogen, Inc. a New York corporation (58.3% owned).
Gyneco, Inc., a New York corporation, wholly-owned subsidiary of Gamogen,Inc.
(b) Reports on Form 8-K: No current Report dated on Form 8-K was filed
during the fourth quarter of the fiscal year ended February 1998.
___________________________________________________________________________
* Incorporated by reference from the Regulation a Offering Statement of
Repro-Med Systems, Inc., dated November 12, 1982.
** Incorporated by reference from the Annual Report on Form 10K of Repro-
Med systems, Inc. for the fiscal year ended February 1987.
*** Incorporated by reference from the Annual Report on Form 10K of Repro-
Med systems, Inc. for the fiscal year ended February 1993.
**** Incorporated by reference from the Annual Report on Form 10K of Repro-
Med systems, Inc. for the fiscal year ended February 1994.
***** Incorporated by reference from the Annual Report on Form 10K of Repro-
Med systems, Inc. for the fiscal year ended February 1995.
****** Incorporated by reference from the Annual Report on Form 10K of
Repro-Med systems, Inc. for the fiscal year ended February 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REPRO-MED SYSTEMS, INC.
/s/ Andrew I. Sealfon
- ---------------------
Andrew I. Sealfon, President
Dated: June 10, 1998
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 and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Andrew I. Sealfon June 10, 1998
- -----------------------------
Andrew I. Sealfon, President, Treasurer, Chairman of
the Board, Director, and Chief Executive Officer
/s/ Jesse A. Garringer June 10, 1998
- ----------------------------
Jesse A. Garringer, Executive Vice-President, General
Manager,
Secretary, Director, and Chief Financial Officer
/s/ John F. Carlson June 10, 1998
- --------------------------------
John F. Carlson, Director
/s/ Dr. Paul Mark Baker June 10, 1998
- --------------------------------
Dr. Paul Mark Baker, Director
/s/ Remo Spagnoli June 10, 1998
- -------------------------------
Remo Spagnoli, Director
/s/ Robert W. Burns, Jr. June 10, 1998
- -------------------------------
Robert W. Burns, Jr., Director
</TABLE>
<PAGE>
WEINGAST, ZUCKER & RUTTENBERG, LLP
CERTIFIED PUBLIC ACCOUNTANTS
11 HOLLAND AVENUE
WHITE PLAINS, NEW YORK 10603
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
REPRO-MED SYSTEMS, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of Repro-Med
Systems, Inc. and Subsidiary as of February 28, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended February 28, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Repro-Med Systems, Inc. and Subsidiary as of February 28, 1998
and 1997 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended February 28, 1998, in
conformity with generally accepted accounting principles.
/s/ Weingast, Zucker & Ruttenberg, LLP
- ------------------------------------------------------
White Plains, NY
May 8, 1998
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets Feb 28, 1998 Feb 28, 1997
<S> <C> <C>
Current Assets
Cash and Cash Equivalents (Note 1) $ 160,567 $ 98,336
Short-Term Investments (Note 1) 631,289 635,740
Accounts Receivable (Less Allowance for
Doubtful Accounts
of $2,976 in 1998 and $2,976 in 1997) 232,915 146,506
Inventory (Notes 1 & 2) 634,109 523,967
Prepaid Expenses & Other Receivables 65,876 78,126
Deferred Taxes - Current 156,000 156,000
----------- -------------
Total Current Assets 1,880,756 1,638,675
Property, Equipment And Other Assets
(Notes 1, 3)
Land 290,303 290,303
Property and Equipment, Net 1,432,591 1,324,856
Deferred Taxes - Non-current 358,409 23,659
Other Assets, Net 69,130 73,190
------------- -------------
Total Property, Equipment And Other Assets 2,150,433 1,712,008
- --------------- ------------- -------------
Total Assets $ 4,031,189 $ 3,350,683
========= ========= =========
Liabilities And Stockholders' Equity
Current Liabilities
Accounts Payable $ 140,440 $ 119,156
Current Maturities of Long-term Debt (Note 85,327 18,403
5)
Bank Line of Credit Payable 360,000 0
Other Current Liabilities (Note 4) 218,188 56,816
----------- -----------
Total Current Liabilities 803,955 194,375
Long-term Debt (Note 5) 1,077,605 870,163
------------ -----------
Total Liabilities 1,881,560 1,064,538
- --------------------- ------------ -----------
Minority Interest In Subsidiary 280,493 118,824
- --------------------------------------- ------------ -----------
Stockholder's Equity
Preferred Stock, 8% Cumulative $.01 Par
Value, Authorized 2,000,000 shares, Issued 100 100
& outstanding 10,000 shares (Note 6)
Common Stock, $.01 Par Value, Authorized
50,000,000 Shares, Issued and Outstanding 221,420 221,420
22,142,000 (Note 1)
Warrants Outstanding 140 140
Additional Paid-In Capital 3,040,662 3,040,662
Accumulated (Deficit) (1,251,186) (953,001)
Treasury Stock at Cost (2,275,000 shares) (142,000) (142,000)
(Note 6) -------- ---------
Total Stockholder's Equity 1,869,136 2,167,321
- ---------------------------- --------- ---------
Total Liabilities And Stockholders' Equity $ 4,031,189 $ 3,350,683
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Consolidated Statements Of Income
For The Years Ended
<TABLE>
<CAPTION>
Feb 28,1998 Feb 28,1997 Feb 29,1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales (Notes 1 & 8):
Net Sales of Products $1,517,342 $ 2,398,976 $ 3,060,268
Sale of Impotence Treatment 708,000 0 0
--------- --------- ---------
2,225,342 2,398,976 3,060,268
Costs And Expenses:
Cost of Goods Sold 1,059,535 1,085,751 1,601,906
Selling, General & Administrative 1,161,977 964,478 829,749
Expenses
Research and Development 238,214 236,086 179,486
Depreciation and Amortization
134,747 90,497 66,108
---------- ------------- ----------
2,594,473 2,376,812 2,677,249
----------- ----------- -----------
Income (Loss) From Operations (369,131) 22,164 383,019
- -----------------------------------
Non-Operating Income(Expense):
Licensing Income (75,000) 162,800 0
Rental Income 86,100 71,989 0
Interest (Expense) (112,712) (63,816) 0
Interest & Other Income (Expense) 34,913 44,943 25,573
----------- ----------- -----------
(66,699) 215,916 25,573
----------- ----------- -----------
Income (Loss) Before Minority
Interest (435,830) 238,080 408,592
Share of Operations
- -----------------------------------
Minority Interest In (Income) Loss (161,669) (3,263) 46,403
of Subsidiary
----------- ----------- -----------
Income (Loss) Before Income Taxes (597,499) 234,817 454,995
- -----------------------------------
Provision (Benefit) For Income (307,315) 95,314 222,579
Taxes (Note 11)
----------- ----------- -----------
Net Income (Loss) After Income $(290,184) $ 139,503 $ 232,416
Taxes
============================ ======= ======= ======
Earnings (Loss) Per Common Share
(Notes 1 & 10):
Primary $ (0.01) $ 0.01 $ 0.01
Fully Diluted $ (0.01) $ 0.01 $ 0.01
</TABLE>
See Notes To Financial Statements
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Statements Of Cash Flows
For The Years Ended
<TABLE>
<CAPTION>
Feb 28,1998 Feb 28, 1997 Feb 29,1996
Cash Flows From Operating
Activities
<S> <C> <C> <C>
Net Income (Loss) $ (290,184) $ 139,503 $ 232,416
Adjustments To Reconcile Net
Income To Net Cash
Provided By Operating Activities:
Income (Loss) Of Minority 161,669 3,263 (46,403)
Interests
Depreciation and Amortization 134,747 90,497 66,108
(Increase) Decrease Short-Term 4,451 312,922 (162,743)
Investments
Decrease (Increase) In Accounts (86,409) (59,017) 167,625
Receivable
Decrease (Increase) In Inventory (110,142) 18,898 15,115
Decrease (Increase) In Prepaid
Expenses & 12,250 (12,236) 5,722
Other Receivables
Decrease (Increase) In Deferred (334,750) 77,468 192,557
Taxes
Increase (Decrease) In Accounts 21,284 4,954 (95,242)
Payable
Increase (Decrease) In Other 161,372 (36,316) (184,170)
Current Liabilities
----------- ------------ -----------
Net Cash Provided By Operating
Activities (325,712) 539,936 190,985
----------- ------------ -----------
Cash Flows From Investing
Activities
(Acquisition) of Property and (234,908) (1,376,397) (83,893)
Equipment
(Acquisition) of Other Assets
(3,515) (11,064) (1,555)
Net Cash (Used) by Investing ----------- ------------ -----------
Activities (238,423) (1,387,461) (85,448)
----------- ------------ -----------
Cash Flows From (Used By)
Financing Activities
Proceeds of Mortgage 0 900,000 0
Proceeds From Term Loan 300,000 0 0
Proceeds (Repayment) Line Of 360,000 0 0
Credit
Repayment Of Mortgage (17,240) (11,434) 0
Repayment of Term Loan (8,394) 0 (36,000)
Proceeds From Issuance of Common 0 8,000 0
Stock
Preferred Stock Dividend (8,000) (8,000) (8,000)
(Acquisition) of Treasury Stock
0 (120,000) (22,000)
----------- ------------ -----------
Net Cash Provided (Used) by 626,366 768,566 (66,000)
Financing Activities
----------- ------------ -----------
Net Increase (Decrease) In Cash
and 62,231 (78,959) 39,537
Cash Equivalents
Cash and Cash Equivalents - 98,336 177,295 137,758
Beginning of Year
----------- ------------ -----------
Cash and Cash Equivalents - End of $ 160,567 $ 98,336 $ 177,295
Year
Supplementary Data - Interest Paid $ 112,712 $ 63,816 $ 0
</TABLE>
See Notes To Financial Statements
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Warran
ts and
Preferred Common Stock Additi Treasu
Total Stock .01 Par onal Accumul ry
Equity .01 Par Value Paid- ated Stock
Value Shares In (Defici at
Shares $Amt Capita t) Cost
$ Amt l
------ ---- --- ------ ----- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock $1,945,402 10,000 $100 22,042,000 $220,420$3,033,802 $(1,308,920)$0
Equity
2/95
Changes FYE
2/96:
Payment of
Preferred (8,000) - - - - - (8,000)
Stock
Dividends
Net Income 232,416 - - - - - 232,416 -
Treasury Stock (22,000) - - - - - (22,000)
at Cost (22,000)
Stock $2,147,818 10,000 100 22,042,000 220,420 3,033,802 (1,084,504) (22,000)
Equity 2/96
Changes FYE
2/97:
Issuance of
Common Stock 8,000 - 100,00 1,000 7,000 - -
Payment of
Preferred (8,000) - - - - - (8,000) -
Stock
Dividends
Net Income 139,503 - - - - - 139,503 -
Treasury Stock (120,000) - - - - - (120,000)
at Cost
Stock $2,167,321 10,000 100 22,142,000 221,420 3,040,802 (953,001) (142,000)
Equity 2/97
Changes FYE
2/98:
Payment of
Preferred (8,000) - - - - - (8,000) -
Stock
Dividends
Net Income (290,184) - - - - (290,184) -
(Loss)
Stock $1,869,137 $10,000 $100 22,142,000 $221,420 $3,040,802 $(1,251,186)$(142,
Equity 2/98 ,000)
- ----------- ----- ---- --- ----- --- -- -- ---
</TABLE>
See Notes To Financial Statements
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Notes To Consolidated Financial Statements
Note 1 - Organization And Summary Of Significant Accounting Policies
- ---------------------------------------------------------------------------
- ---------------------
A. Repro-Med Systems, Inc. (the "Company") was incorporated on March 24,
1980. The Company was organized to engage in the research, development,
laboratory and clinical testing, production, and marketing of medical
devices used in the treatment of the human condition.
These consolidated financial statements include the accounts of Repro-Med
Systems, Inc. and Gamogen, Inc. (the majority-owned subsidiary of Repro-
Med). All intercompany balances and transactions have been eliminated in
consolidation.
B. Revenue is recognized when the Company's products are shipped.
C. Costs incurred in obtaining patents have been capitalized and are being
amortized over seventeen years. Costs of goodwill have been capitalized
and are being amortized over thirty-five years.
D. Property and equipment is stated at cost. Property is being
depreciated over forty years and equipment is being depreciated over five
to twelve years utilizing both the straight-line and accelerated methods of
depreciation.
E. Inventory is valued at the lower of cost (first-in, first-out method),
or market.
F. The Consolidated Financial are presented in accordance with SFAS No.
128 "Earnings per share". Basic earnings per share are computed using the
weighted average number of common shares outstanding during the period.
Diluted earnings per share incorporate the shares issuable upon the assumed
exercise of warrants and options.
G. On March 1, 1995, the Board of Directors approved two incentive stock
option programs for the benefit of key employees, directors, and officers
of the Company. The two plans, termed the 1995 Stock Option Plan and the
1995 Stock Option Plan For Non-employee Directors (the "Option Plans"),
provide options to purchase 5,000,000 and 500,000 shares, respectively, of
Repro-Med common stock. The Company has filed a Registration Statement with
the Securities and Exchange Commission for the Option Plans. The Option
Plans expire March 1, 2005. Options granted under the 1995 Stock Option
Plan to full time employees of the Company are intended as "incentive
stock options" within the meaning of Section 422A of the Internal Revenue
Code. On March 1, 1995, the Board of Directors voted to grant options for
3,800,000 shares under the Option Plans. Due to subsequent termination of
employment, 150,000 options granted have expired.
H. On February 28, 1995 the Company changed the valuation allowance for
deferred income taxes to zero from minus $662,519. The valuation allowance
had been previously calculated at the maximum amount which had reduced the
value of the Company's deferred income taxes asset balance to zero. Now
that the Company has shown consistent and significant taxable income, it is
expected that the net operating loss carry forward on federal income taxes,
which as of February 28, 1998 is $1,095,920, will be used by and will
generate a tax benefit to the Company. The amount of the cumulative tax
benefit anticipated as of February 28, 1998 is $427,409 or an effective tax
savings rate of approximately 39% of the remaining net operating loss carry
forward of $1,095,920.
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Notes To Consolidated Financial Statements
Note 1 - Organization And Summary Of Significant Accounting Policies
(continued)
- ---------------------------------------------------------------------------
- ------------------------------------
I. Cash and cash equivalents are comprised of certain highly liquid
investments with maturities of three months or less.
J. Short term investments are investments with maturities greater than
three months and less than one year. Investments are recorded at lower of
cost or market.
K. Use of estimates- the Consolidated Financial Statements are prepared in
conformity with generally accepted accounting principles and, accordingly
include amounts that are based on management's best estimates and
judgments. The actual results could differ from those estimates.
L. Reclassification - certain reclassifications have been made to prior
year amounts to conform with current year
presentation
Note 2 - Inventory
<TABLE>
<CAPTION>
Inventory Consists Of: February 1998 February 1997
- -------------------------- ----------------- -----------------
- ----- --- ---
<S> <C> <C>
Raw Materials $302,647 $ 197,151
Work In Process 133,665 109,207
Finished Goods 197,797 217,609
----------- --------------
Inventory $ 634,109 $ 523,967
Note 3 - Property And Other Assets
This category consists
of:
Property and Equipment: February 1998 February 1997
Building & Building $930,780 $ 916,076
Improvements
Furniture and Equipment 1,104,415 884,212
Less: Accumulated (602,603) (475,432)
Depreciation
--------------- ---------------
Net Property & Equipment $ 1,432,592 $ 1,324,856
Other Assets:
Patent Costs $ 197,088 $ 193,573
Deferred Charges 28,800 28,800
Goodwill 14,137 14,137
Less: Accumulated (170,895) (163,320)
Amortization
--------------- ---------------
Net Other Assets $ 69,130 $ 73,190
</TABLE>
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Notes To Consolidated Financial Statements
Note 4 - Other Current Liabilities
<TABLE>
<CAPTION>
Other Current Liabilities February 1998 February 1997
consist of:
<S> <C> <C>
Taxes Payable $ 3,939 $ 17,216
Rent Received In Advance 7,175 0
Customer Deposit 93,030 0
Accrued Expenses 114,044 39,600
------------ ------------
Other Current Liabilities $ 218,188 $ 56,816
Note 5 - Long-term Debt
Long term debt consists of the following at February 28,
1998 1997
Mortgage payable to bank,
interest at 8.46% through
April 2006. The mortgage $871,326 $888,566
matures April 30, 2006.
Note payable to bank,
interest at 8.43%. The loan 291,606 0
matures November 1, 2002.
Total long-term debt 1,162,932 888,566
Less current maturities 85,327 18,403
Total long-term debt less $1,077,605 $870,163
current maturities
======== =======
</TABLE>
The company also has a $500,000 line of credit. At February 28, 1998,
$490,000 is available for use based on percentages applied to certain
accounts receivable and inventory balances as outlined in the loan
agreement. The line of credit is payable on demand with interest payable
monthly at a rate of prime less 0.25%. The line of credit utilized as of
February 28, 1998 is $360,000.
Fiscal year maturities of long-term debt at February 28, 1998 are as
follows:
<TABLE>
<CAPTION>
Mortgage Note Total
<S> <C> <C> <C>
1999 34,227 51,100 $ 85,327
2000 37,383 55,580 92,963
2001 40,833 60,450 101,283
2002 44,601 65,746 110,347
2003 48,714 58,730 107,444
thereafter 665,568 0 665,568
------------ ------------ ------------
--
$ 871,326 $ 291,606 $ 1,162,932
====== ====== =======
</TABLE>
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Notes To Consolidated Financial Statements
Note 6 - Capitalization And Certain Capital Transactions
- ---------------------------------------------------------------------------
On February 2, 1993, the Company issued and sold 10,000 shares of $.01 par
value Convertible Cumulative Preferred Stock at a price of $10.00 per
share. Dividends are payable semi-annually at an annual a rate of $8,000
or 8% of the original sale price of $100,000. As of February 28, 1998 the
Convertible Cumulative Preferred Stock can be converted to 333,333 shares
of common stock at the conversion price of 30 cents per share.
On October 31, 1995, the Company purchased in a private offering 275,000
shares of common shares at a price of $0.08 per share or a total of
$22,000. On September 10, 1996, the Company purchased in a private offering
2,000,000 shares of common shares at a price of $0.06 per share or a total
of $120,000. The 2,275,000 shares redeemed were previously restricted in
part as to their sale under "Rule 144" of the Securities and Exchange Act.
The 2,000,000 shares redeemed are subject to a ten year voting agreement
dated June 30, 1992 under which Mr. Andrew I. Sealfon, President and
Chairman of Repro-Med has the exclusive right to vote all the shares
covered under the voting agreement. The 2,000,000 shares redeemed on
September 10, 1996 while held by the Company will be voted exclusively by
Mr. Sealfon until June 30, 2002 as required by the voting trust. Treasury
Stock shares may be sold at a future time or held by the Company for
corporate use.
Note 7 - Major Customer
- ---------------------------------
The Company sells a substantial portion of its products to Osbon Medical
Systems a division of Imagyn Medical, Inc., formerly Urohealth Systems,
Inc, ("Osbon"). For the year ended February 1998, sales to Osbon aggregated
$459,667. At February 28, 1998, amounts due from Osbon included in accounts
receivable were $80,843. For the years ended February 1997 and 1996, sales
to Osbon aggregated $1,468,715 and $2,144,723, respectively.
At February 28, 1997 and February 29, 1996, amounts due from Osbon included
in accounts receivable were $72,816 and $0, respectively. A significant
reduction in Company sales to Osbon could materially affect the Company's
liquidity, cash flow, and profitability.
Note 8 - Related Party Transactions
- -----------------------------------------------
During the years ended February 1998, 1997 and 1996, the Company paid to an
affiliate $33,038, $62,776 and $62,793 respectively for use of tooling
equipment. These amounts have been eliminated upon consolidation.
Repro-Med leases office space to its subsidiaries totaling $12,528 as of
February 28, 1998 and 1997. Repro-Med also allocated overhead expenses to
its subsidiaries totaling $387,585, $384,495 and $387,419 as of February
28, 1998, 1997 and 1996 respectively.
The Company leased an aircraft from an officer of the company for $11,000,
$10,500 and $10,000 at
February 28, 1998, 1997 and 1996.
The Company leased office space from an officer of the Company for $6,000
at February 28, 1998, 1997 and 1996
.
<PAGE>
Repro-Med Systems, Inc. And Subsidiary
Notes To Consolidated Financial Statements
Note 9-Earnings Per Share
- ------------------------------------
Primary earnings and losses per share are computed by dividing net earnings
or losses by the weighted average number of shares of Common Stock and
Common Stock Equivalents outstanding during the period (including 2,275,000
shares held as treasury stock). Fully diluted earnings and losses per share
are computed by dividing net earnings or losses by the weighted average
number of shares of Common Stock and Common Stock Equivalents outstanding
during the period period (including 2,275,000 shares held as treasury
stock) as if excercisable options were converted into common stock at the
beginning of the period.
<TABLE>
<CAPTION>
Earnings (Loss) Per Common February 28, February 28, February 29,
Share 1998 1997 1996
- -------------------------- ------------- ------------ -------------
- ----------------------- ----------- ------------ -------------
----
<S> <C> <C> <C>
Primary Earnings (Loss) $ (0.01) $ 0.01 $ 0.01
Per Share
Number of Shares - Primary 22,142,000 22,142,000 22,142,000
Fully Diluted Earnings Per $ (0.01) $ 0.01 $ 0.01
Share
Number of Shares - Fully 25,967,158 25,581,762 25,524,051
Diluted
</TABLE>
Note 10 - Income Taxes
- ---------------------------------
Effective February 28, 1994 the company adopted statement Number 109 of the
Financial Accounting Standards, Accounting for Income Taxes ("FAS 109").
Under the provisions of FAS 109, an entity recognizes deferred tax assets
and liabilities for future tax consequences of events that have been
previously recognized in the Company's financial statements or tax returns.
The measurement of deferred tax assets and liabilities is based on
provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. As of February 28, 1998 Repro-Med has a
net operating loss carry forward ("NOL") of approximately $1,095,920
available to offset its future income tax liabilities. The NOL will begin
to expire in the year 2000 and has been used to offset deferred taxes for
financial purposes.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year-ended: 2/28/98 2/28/97 2/29/96
--------------- ---------- ------------ ------------
<S> <C> <C> <C>
Current Taxes $ 27,435 $ 17,846 $ 30,022
Deferred Taxes (334,750) 77,468 192,557
------------ ---------- ------------
-
Provision for Income Taxes $ (307,315) $ 95,314 $ 222,579
</TABLE>
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax asset.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 160,567
<SECURITIES> 0
<RECEIVABLES> 235,891
<ALLOWANCES> (2,976)
<INVENTORY> 634,109
<CURRENT-ASSETS> 1,880,756
<PP&E> 2,325,497
<DEPRECIATION> (602,603)
<TOTAL-ASSETS> 4,031,189
<CURRENT-LIABILITIES> 803,955
<BONDS> 0
0
100
<COMMON> 221,420
<OTHER-SE> 1,647,616
<TOTAL-LIABILITY-AND-EQUITY> 4,031,189
<SALES> 2,225,342
<TOTAL-REVENUES> 2,225,342
<CGS> 1,059,535
<TOTAL-COSTS> 2,594,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,712
<INCOME-PRETAX> (597,499)
<INCOME-TAX> (307,315)
<INCOME-CONTINUING> (290,184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (290,184)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
