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FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended FEBRUARY 29, 2000
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)
Registrant's telephone number, including area code (845) 469-2042
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, $.01 Par Value Over the Counter Bulletin Board
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[ ]
Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B, is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-KSB. [X]
Based on the closing sales price of February 29, 2000, the aggregate
market value of the voting and nonvoting common equity held by non-affiliates of
the registrant was $2,525,919.
The number of issued outstanding of the registrant's common stock, $.01
par value was 22,904,000 at February 29, 2000.
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Repro-Med Systems, Inc.
Table of Contents
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PART I Page
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Item 1. Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7. Financial Statements 18
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 28
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the
Exchange Act 29
Item 10. Executive Compensation 30
Item 11. Security Ownership of Certain Beneficial Owners
and Management 31
Item 12. Certain Relationships and Related Transactions 33
PART IV
Item 13. Exhibits and Reports on Form 8-K. 34
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PART I
ITEM 1. BUSINESS
THE COMPANY
Repro-Med Systems, Inc. went public in 1982 (OTC - symbol REPR). We
design and manufacture medical devices directing resources to the global markets
for emergency medical products and infusion therapy. We maintain a presence in
the US markets for impotency treatments and gynecological instruments. These
products are regulated by the FDA.
Repro-Med Systems, Inc. was incorporated under the laws of the State of
New York, March 1980. The corporate offices are located at 24 Carpenter Road,
Chester, New York 10918. The telephone number is 845-469-2042, fax is
845-469-5518 and the Internet site is www.repro-med.com
PRODUCTS
The primary growth strategy is to develop unique, proprietary medical
devices. These devices are intended to save money for the user and create a
repetitive demand for replacement of the disposable component -"razor - blade
model". This strategy led to our development of products for the ambulatory
infusion systems and emergency medical equipment markets. Contract manufacturing
sales continue to be a source of revenue for us. Male infertility and impotency
treatments were the first markets entered in the early 1980's and we continue to
maintain a presence. Gyneco, the gynecological instruments subsidiary, was
acquired in 1986 and sales continue primarily through telemarketing techniques.
The table below presents the product mix for the last two fiscal years.
2000 1999
% of Sales % of sales
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Infusion Therapy 6% 5%
Emergency Medical 57% 50%
Contract Manufacturing 24% 31%
Gynecological Instruments 11% 13%
Male Impotency Treatments 2% 1%
We have also been developing other new proprietary medical devices,
which would be viewed as state-of-the-art and as fixed asset devices. These
products include a device for female incontinence and a device that can be used
to detect certain cancers non-invasively using special imaging techniques. Thus,
we have products currently on the market, new short-term products about to be
marketed, and long range products to support and enhance future growth.
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AMBULATORY INFUSION SYSTEMS
The FREEDOM60 Syringe Infusion Pump was designed for ambulatory
infusions. Ambulatory infusion pumps are most prevalent in the home care market.
With insurance reimbursement in a severe decline, there is a tremendous need for
a low-cost, effective alternative to electronic and expensive disposable IV
administration devices for the home care and nursing home market.
The FREEDOM60 provides a high-quality delivery to the patient at costs
similar to gravity and is targeted for the home health care industry, patient
emergency transportation, and for any time a low-cost infusion is required.
For the home care patient, FREEDOM60 is an easy-to-use lightweight
mechanical pump acting on a 60cc syringe, completely portable, cost effective
and maintenance free--no batteries to replace, no cumbersome IV pole. For the
infusion professional, FREEDOM60 delivers precise infusion rates and uniform
flow profiles providing consistent transfer of medication. A Form 510(k)
Premarket Notification for initial design of the FREEDOM60 as a Class II device
was approved by the FDA in May 1994.
We recently developed a new version of the pump called the FREEDOM60-FM
containing an electronic flow monitor system (occlusion and end of infusion
alarm) which has opened excellent marketing avenues in nursing homes, hospitals
and pediatric ambulatory applications where alarms are generally required for
nursing acceptance. Nurses also appreciate being able to visualize the drug
volume by reading the scale on the syringe.
We have signed a group purchasing agreement in December 1999, with
Child Health Corporation of America (CHCA) for the FREEDOM60 Syringe Infusion
System. CHCA is a cooperative and business alliance of 38 children's hospitals
and home care facilities which represents $4.5 billion in annual revenues, has
over 61,000 hospital employees and 19,000 pediatricians and pediatric
specialists. The agreement calls for CHCA to assist us to market the FREEDOM60
to its members through December 2002. Currently six of the hospitals are
actively using the system, and we expect additional hospitals to enjoy the
benefits of the FREEDOM60's performance and low-cost.
Repro-Med Systems' objective is to build a product franchise with
FREEDOM60 and the sale of patented disposable tubing sets. FREEDOM60 uses
rate-controlled tubing with standard slide clamp and luer-lock connector. The
PATENTED SYRINGE DISC CONNECTOR insures that only FREEDOM60 tubing sets sold by
us will function within the pump. Non-conforming tubing sets without the
patented disc connector are ejected from the pump and prevent an overdose or
runaway pump from injuring the patient.
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THE MARKET FOR PUMPS & DISPOSABLES
The ambulatory market has been rapidly changing due to reimbursement
issues. Insurance reimbursement has been drastically reduced providing
opportunity for FREEDOM60. The market share of high-end electronic type delivery
systems is on the decline as well as high-cost disposable non-electric devices.
Market pressures have forced patients to go on low-cost gravity systems or IV
push where the drug is pushed into the vein directly from a syringe. This is a
low-cost option but has been associated with complications and considered by
many to be a high-risk procedure. Thus, the overall trend has been towards
syringe pumps due to the low-cost of disposables. FREEDOM60-FM addresses the
largest market segments with the lowest cost alarm syringe pump system.
The chart below summarizes the market trends of devices.
METHOD OF MARKET
ADMINISTRATION TREND
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Ambulatory Pump Flat/Declining
Gravity Infusion Increasing
Pole Mounted Pump Declining
Elastomeric Declining
Syringe Increasing
Implant Increasing
IV Push Increasing
ECONOMIC BENEFITS OF FREEDOM60 DISPOSABLE SALES
The tubing sets currently have a list price of $3.00. The pump has a
list price of $125.00 and may be used 4,000 times resulting in a cost per dose
of less than $0.04 ($.03125). Initial experience suggests that each pump will
use 12 sets per month, as most providers re-use tubing over a 24-hour period.
This monthly rate amounts to annual usage of 144 sets producing gross revenues
to the distributor of $432 per pump. Installed bases for various levels of pumps
produce the following sales:
PUMPS IN ANNUAL SALES
MARKET OF DISPOSABLE
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5000 $2,160,000
10000 $4,320,000
50000 $21,600,000
100000 $43,200,000
We have a combination of direct sales and sales through distributors.
Distributors typically receive discounts from list price depending upon volumes
of up to 35%.
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COMPETITION FOR THE FREEDOM60
FREEDOM60 competes in the United States infusion pump market based on
price, service and product performance. Some of the competitors have
significantly greater resources for research and development, manufacturing and
marketing, and as a result may be better prepared to compete for market share
even in areas in which FREEDOM60 products may be superior. The industry is
subject to technological changes and there can be no assurance that we will be
able to maintain any existing technological lead long enough to establish our
products and to sustain profitability.
The number of competitors and products distributed in the two market
segments in which we participate are listed below.
# of # of
Companies Products
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Ambulatory Infusion Pumps 12 50
Syringe Infusion Pumps 9 1
Source: "Infusion" Volume 5, Number 9, June 1999, published by the National Home
Infusion Association
EMERGENCY MEDICAL PRODUCTS
Emergency medical products consists of two lines; RES-Q-VAC hand
powered emergency suction pump and PLUS Reusable Silicone Resuscitators.
RES-Q-VAC provides a complete emergency suction system for neonates,
children and adults for use in any location, as it is non-electric. RES-Q-VAC
removes fluids from a patient's airway. RES-Q-VAC consists of a hand-held,
portable suction pump that can be connected to various sized sterile or
non-sterile catheters. The one-hand operation makes it extremely effective
particularly in emergencies. The disposable features of the RES-Q-VAC reduce the
risk of contaminating the technician for example, from HIV when suctioning a
patient or during post treatment cleanup. All the parts that connect to the pump
are disposable. RES-Q-VAC was introduced in 1990 and is now sold in thirty-one
countries. The product is generally found in emergency vehicles, hospitals and
as backup support for powered suction systems.
PLUS Reusable Silicone Resuscitators are 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. PLUS was introduced and
positioned as a companion product to RES-Q-VAC in September 1998. PLUS is also
found in emergency vehicles and in hospitals.
PLUS line consists of four models covering adult, child and infant
sizes that fit all patients. The product features include mask, patient valve,
relief valve, silicone bag, inlet valve and reservoir; and, meets national and
international standards for safety and performance set by FDA, ASTM, and ISO.
PLUS is imported fully assembled and is tested, packaged and
distributed from
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Chester, NY. We have initiated and filed the Form 510(k) for PLUS with the FDA.
Consequently, we are responsible for all compliance and reporting for PLUS with
the FDA.
RES-Q-VAC and PLUS are sold domestically and internationally by
emergency medical device distributors. These distributors generally advertise
these products in their catalogs. We also manufacture and private label
RES-Q-VAC under agreements requiring certain levels of sales performance.
IMPOTENCY TREATMENTS
We market the RESTORE Kit for the treatment of impotency. RESTORE uses
vacuum therapy to naturally induce blood flow to enable an erection. The kit
includes Pro-Long constriction rings that make it possible to trap the blood and
maintain the erection.
The US market for impotency treatments is estimated at 30 million men.
Pfizer reports that Viagra will not work for 30%-40% of impotent men.
Consequently, the potential market for the RESTORE Kit in the US is
approximately 10 million men. We have been compelled by limited resources to
rely heavily on the web site to generate interest and sales for the RESTORE Kit.
We signed a joint venture agreement in February 2000 with CNPC of
Philadelphia, PA to market impotence products on the Internet. The joint venture
is seeking to change the name of the product to "Achieve" and, when funding
becomes available, plans to introduce a female system to improve sexual
function. The joint venture is also seeking a line of credit or capital to
develop the new products.
GYNECOLOGICAL INSTRUMENTS
We purchased the Gyneco product line in 1986. Products included the
Masterson Endometrial Biopsy Kit for in-office biopsy sampling procedures and
the Thermal Cautery System used for tubal ligation procedures.
Masterson Endometrial Biopsy Kit is a self-contained unit that offers a
quick and easy procedure for in-office tissue sampling. The powerful vacuum pump
is easily operated with one hand. The pump is supplied with sterile disposable
curettes and specimen containers presented in a kit.
The Thermal Cautery System is designed to provide a safe, reliable and
effective method of female sterilization. The unit is small, compact and
portable. A rechargeable battery supplies power. The unit uses disposable
components that include the cautery hook assembly, cannula and Trocar stylette.
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CONTRACT MANUFACTURING
We have used OEM profits to partially fund internal product development
that has resulted in RES-Q-VAC and FREEDOM60. Historically, OEM sales have been
as high as 70% of sales (1996). In 1999 and 2000, contract manufacturing for two
customers amounted to 31% and 24% of sales, respectively. In late 1998, one
customer substantially reduced marketing support for its product and
consequently requested postponement of shipments, we await further notice. We
continue to manufacture a portable, hand-operated suction pump for sale to the
remaining active customers and have received non-binding purchase orders through
the second fiscal quarter. There are no current contractual commitments with
these customers.
We do not fund a defined marketing effort to solicit
contract-manufacturing business, but do respond to request for bids and quotes.
Consequently, OEM sales continue on a reduced level as we are committed to the
development and sale of our proprietary products.
We signed an agreement with International Milk Sciences (IMS) on April
15, 2000 for the use of the FREEDOM60 technology for infant feeding. The
agreement specifies certain sales levels to be achieved to maintain the
exclusivity part of the agreement. IMS is preparing the documents for FDA
approval for the new application of this technology.
SALES AND DISTRIBUTION
Distribution channels for the products are those generally common to
their respective markets. Emergency medical products are sold through a wide
network of domestic and international distributors in 31 overseas countries.
Ambulatory infusion systems are sold through both direct sales efforts
concentrated on large national accounts and a network of medical device
distributors. Gynecological instruments are sold from the corporate offices
primarily through telemarketing efforts. Male impotency treatment products are
marketed primarily through the web site and a limited number of distributors of
personal care items.
We executed an exclusive global distribution agreement in July 1999 for
the sale of FREEDOM60 products. As it became evident that specific minimum
performance targets would not be achieved, that agreement was terminated in
December 1999. Upon termination we expanded our direct sales and marketing
efforts towards direct sales to national accounts and selecting new distribution
channels.
We signed a group purchasing agreement in November 1999 that
facilitates sales presentations to approximately 38 allied members of the Child
Health Corporation of America.
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MANUFACTURING AND EMPLOYEES
Electromechanical assembly, calibration, pre and post assembly quality
control inspection and testing, and final packaging for all products have been
performed historically at the facility by employees. Products are assembled
using molded plastic parts acquired from one supplier located in Taipei, Taiwan
and several U.S. vendors. The availability of parts has not been a problem. The
cost and time required to fabricate molds to manufacture parts can slow the
development of new products. Our policy has been to have multiple vendors as
suppliers that also offer mold building capabilities as a service.
In February 2000, we employed 27 employees, 22 were assigned to
manufacturing operations, 4 to administrative functions and one executive
officer.
REGULATIONS GOVERNING THE MANUFACTURING OPERATIONS
The Food, Drug and Cosmetic Act governs the development and
manufacturing of all medical products. The Act requires us to register the
facility, list devices, file notice of intent to market new products, track the
locations of certain products and to report any incidents of death or serious
injury relating to the products with the FDA. We are subject to civil and
criminal penalties and/or recall seizure or injunctions if we fail to comply
with regulations of the FDA.
We have passed all previous regulatory inspections and believe that we
are currently complying with all requirements of the Act in all material
respects.
The most recent Form 510(k) filings with the FDA were for the
resuscitator and the vacuum erection device and constriction rings, both
approved in 1998.
We are required to comply with federal, state and local environmental
laws, however, there is no significant effect of compliance on capital
expenditures, earnings or competitive position. We do not use significant
amounts of hazardous materials in the assembly of these products.
PATENTS AND TRADEMARKS
We have filed and received U.S. protection for many of our products and
in some cases, where it was no longer deemed economically beneficial, we have
allowed certain patent protections to lapse. The RES-Q-VAC, an emergency medical
product, is susceptible in the international market to imitation. We have been
made aware that a competitor is in the process of introducing a competitive
product to the RES-Q-VAC. We are responding with the introduction of new
innovative features for the RES-Q-VAC which enhances the product and makes it
more competitive. The most recent patent granted to us was # 5,336,189 for a
"Combination IV Pump & Disposable Syringe" which confers a unique syringe to IV
pump interface design. This patent is for the
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FREEDOM60 Infusion System, an infusion therapy product. The cost of filing and
maintaining applications has deterred pursuing international patents.
The patent position of small companies is highly uncertain and involves
complex legal and factual questions. Consequently, there can be no assurance
that patent applications relating to products or technology will result in
patents being granted or that, if issued, the patents will afford protection
against competitors with similar technology. Furthermore, 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 we will
have the financial resources necessary to enforce any patent rights we may hold.
Our product names are registered trademarks. There can be no assurance
that patents or trademarks will provide competitive advantages for the products
covered or that they will not be challenged or circumvented by competitors.
ITEM 2. DESCRIPTION OF PROPERTY
In February 1999, we executed a sale-leaseback for our masonry and
steel frame building erected on 3.27 acres of land located at 24 Carpenter Road,
Chester, New York 10918. The facility is the only location and is used for our
headquarters and manufacturing operations.
Under terms of the contract of sale, we have the option to re-purchase
the building, beginning on the second anniversary of the sale and ending on the
eighth anniversary. We are required to give 12 months prior notice of the intent
to re-purchase the building. The agreed upon amount for re-purchase is as
follows:
Year Three $2,100,000 Year Four $2,205,000
Year Five $2,315,250 Year Six $2,431,013
Year Seven $2,552,563
The property is currently subject to a 20-year lease. We are
responsible for repairs, maintenance and upkeep of the space we occupy. The
terms of the lease call for monthly lease payments of $10,000 per month and 65%
of the annual property taxes that amounted to $41,052 in the current fiscal year
2-29-00. Our monthly rent is $10,000 for the first 10 years of the lease and
$11,042 thereafter.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material litigation, nor to the knowledge of
the officers and directors, is there any material litigation threatened against
us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal year ended February 29, 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
We are authorized to issue 50,000,000 shares of Common Stock, $.01 par
value. As of February 29, 2000, 22,904,000 shares were issued and outstanding
and there were approximately 1,219 holders of record.
Our Common Stock is traded in the over-the-counter market and is quoted
through the National Daily Quotation Service. The following table sets forth the
high and low closing bid quotations for the Common Stock as reported by the
National Quotation Bureau, Inc. for the periods indicated. These quotations
represent interdealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions.
High Bid Low Bid
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Year Ended February 28, 1999:
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1st Quarter $0.085 $0.080
2nd Quarter $0.080 $0.060
3rd Quarter $0.060 $0.045
4th Quarter $0.045 $0.032
Year Ended February 29, 2000
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1st Quarter $0.063 $0.032
2nd Quarter $0.125 $0.040
3rd Quarter $0.098 $0.067
4th Quarter $0.560 $0.085
On February 2, 1993 we issued 10,000 shares of 8% Cumulative
Convertible Preferred Stock in a private placement for $100,000. We are
obligated to pay semi-annual dividend payments of $4,000 until conversion by
shareholders or redemption by us. The 10,000 shares of Cumulative Convertible
Preferred Stock are convertible to 294,117 shares of Repro-Med common stock at
$0.34 per share. The 10,000 shares of Cumulative Convertible Preferred Stock are
convertible based on the following formula: multiply the number of shares of
Preferred Stock to be converted by $10.00, divide the result by the conversion
price of $0.20 per share (or by the conversion price as last
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adjusted and in effect at the date any shares are surrendered for conversion).
The Conversion Price shall increase by $.02 for each year that the Preferred
Stock is outstanding. The current conversion price is $.34.
We have not declared or paid any cash dividends on our Common Stock and
do not anticipate that any dividends will be paid in the foreseeable future.
During the fiscal year ended February 29, 2000, dividend payments on the
Convertible Preferred Stock amounted to $8,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-KSB contains certain "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as: recent operating losses,
uncertainties associated with future operating results; unpredictability related
to Food and Drug Administration regulations, introduction of competitive
products, limited liquidity; reimbursement related risks; government regulation
of the home health care industry; success of the research and development
effort, market acceptance of FREEDOM60, availability of sufficient capital to
continue operations and dependence on key personnel. When used in this report,
the words "estimate," "project," "believe," "anticipate," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements reflect current views with respect to future events based on
currently available information and are subject to risks and uncertainties that
could cause actual results to differ materially from those contemplated in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
Repro-Med does not undertake any obligation to release publicly any revision to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
2000 VS 1999
For the year ended February 29, 2000 we showed a profit of $250,300 as
compared to a loss for the previous year of $1,324,469. This improvement was
created by a combination of improved sales, lower costs, the sale of a
subsidiary, and a favorable debt settlement of a line a credit. We expect sales
to continue to increase, and have hired a Vice President of Operations to
further reduce manufacturing costs and bring certain manufacturing processes
in-house. Management anticipates further sales increases during the new year and
is optimistic that the profitability will continue.
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Total sales increased 19.7% to $2,065,400 from $1,725,035 as a result
of continued increases in RES-Q-VAC sales which were up 16% to $963,341 in 2000
from $827,629 in 1999, Resuscitators improved 239% to $233,336 from $68,842, the
FREEDOM60 product line also increased 78% to $125,021 from $70,284, Impotency
sales also increased this year 393% to $30,483 from $6,185, OEM sales decreased
slightly this year 8% from $536,532 to $493,378, and Gyneco sales, now fully
consolidated decreased slightly to $219,851 in 2000 from $220,538 in 1999.
RES-Q-VAC sales continued to improve this year with an aggressive sales
campaign designed to take advantage of the Year 2000 concerns for reliable
suction devices during potential power outages. Management is seeking funds to
design a new improved suction device and expand the market substantially,
although there is no assurance that such funding can be obtained, or obtained at
terms acceptable to us, or that if funded, the markets would develop as
expected. We are also planning to further promote the RES-Q-VAC in the home care
market, for which the RES-Q-VAC is ideally suited due to its low cost,
portability and convenience.
Sales of the FREEDOM60 Syringe Infusion System continued to improve as
well in spite of the cancellation of the Exclusive Distribution Agreement with
McKinley Medical, which was terminated for failure to adequately market the
products and meet agreed payment terms. We have been marketing FREEDOM60
directly to national providers, other distributors, and regional home care
agencies. Sales of FREEDOM60 are expected to continue to improve, as we are
negotiating with a national distributor, which would additionally improve sales
potential for the line.
The RES-Q-VAC is under consideration by the U.S. Military for inclusion
in medical kits to respond to chemical or biological agents. We have met with
representatives of the armed forces to present and demonstrate the advantages of
the RES-Q-VAC System. Typically, the consideration and approval process for the
armed services is a long process, which we intend to continue until a decision
is rendered.
Cost of Goods Sold (COGS) decreased 5% to $1,125,552 from $1,186,555 -
even with the increase in sales of 19.7% due to improved manufacturing
processes, aggressive purchasing, and other production efficiencies.
Selling, General & Administrative Expenses (SG&A) decreased year over
year 17% primarily as a result of decreased payroll due to reductions in
management staff and a voluntary reduction in salary for Andrew Sealfon. This
decrease was partially offset in YE 2000 by an increase in rent of $97,519 as a
result of the sale-leaseback of the premises completed in 1999. Thus the SG&A
with the addition of rent were still reduced by 8% or $84,915 to $1,008,446 from
$1,093,361 (see Page 10 - Sale-Leaseback).
Research and development decreased 56% to $80,994 from $185,637.
Factors in this decrease were due to a salary reduction, the departure of a
senior engineer, and
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a planned decrease in new products until we experience an improvement in
available capital. We have placed development and research on hold pending the
infusion of new investment capital for such programs.
Net loss for operations decreased 72% to $237,337 from $862,314 which
was primarily the result of improved sales, improved efficiencies, and decreased
payroll for the period.
Non-operating income increased significantly to $370,745 from $40,576
primarily resulting from the sale of the Gamogen subsidiary and the joint
venture for Restore. The previous year's non-operating income primarily resulted
from interest and rental income offset by mortgage interest.
For the year ending February 29, 2000, there were two customers whose
combined sales were 24% of the total sales, Timm Medical and Mission Pharmacal.
Sales are expected to continue with Timm Medical, however, Mission has advised
us that they have reduced market support of their product and no additional
purchases are anticipated for the fiscal year ending 2001.
There was no charge for an income tax provision for the current year
ended February 29, 2000 as compared to a charge of $494,342 for the previous
year.
LIQUIDITY AND CAPITAL RESOURCES
At the end of fiscal year 2000, we had net working capital of $524,345
a decrease of $322,023 from the previous year. The decrease in working capital
was due to the repayment of all bank debt. Repro-Med Systems, Inc. negotiated a
settlement payment of $350,000 with the lender that was remitted on October 29,
1999. The payment resulted in the recognition of $62,350 in debt forgiveness
that is reflected as an extraordinary item on the Statement of Income. As part
of the agreement, Repro-Med Systems, Inc. signed a promissory note for $66,000
that becomes due through October 2002 only upon the sale of either of our two
major product lines. If neither of the two product lines is sold, the note
payable terminates.
We have -0- bank debt in YE February 2000 as compared to $679,878 for
the previous year.
We are currently operating at a neutral cash flow and have sufficient
capital for our ongoing needs, based on the anticipated continued sales growth
and maintaining careful control of expenses. We have demonstrated our ability to
control costs and believe we will be able to offset any unanticipated decreases
in revenues with additional reductions in overhead, materials, and labor. We are
actively pursuing capital investment and are seeking a line of credit to
facilitate the development of our new technology, as well as to begin an
increase in production required to meet new anticipated demand of our products.
We are in the process of acquiring equipment to begin in-house production of
products, which have previously been acquired through
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non-affiliated vendors. This equipment will open additional avenues of
opportunity for us to improve our margins on the current products as well as
becoming a source to generate additional revenue.
Accounts Receivables increased at February 29, 2000 to $227,871 as
compared to $120,470 for the previous year due to increased sales. Domestic
sales are made primarily on net 30-day payment terms. A variety of terms
continue to be employed for export sales including cash prepayments, irrevocable
letters of credit and net 45 days to allow for increased delays due to
transportation and communications. As of February 29, 2000, 80% of Accounts
Receivable were current, 15% were at 30-59 days and 5% were over 60 days.
Prepaid expenses and other receivables decreased $33,168 from $78,785
to $45,517 through improved cash flow and budget analysis.
Deposits decreased $150,000 from $190,000 to $40,000. The $150,000 was
a cash collateral for bank indebtedness and was applied to debt reduction. The
remaining $40,000 is a rental security deposit on the facility at 24 Carpenter
Rd., Chester, NY.
Capital expenditures in 2000 were $40,967 as compared to $61,666 in
1999, which reflects our overall cost containment efforts. Other assets
decreased $14,072 primarily due to the investment in Gamogen, Inc. which was
sold in 1999.
We concluded the sale of our investment in Gamogen, Inc. on October 31,
1999 effective September 1, 1999. The proceeds from the transaction were
$263,579. The cost basis for the investment was $41,779. Consequently, the sale
resulted in the recognition of a gain of $221,800 that is reflected in the
Statement of Income as "Other Income". As part of the sale, we purchased
income-producing assets and assumed certain liabilities from Gamogen, Inc. and
its subsidiary Gyneco, Inc. This purchase resulted in our retaining control and
obtaining sole ownership of the operations of Gyneco, Inc. We anticipate savings
in accounting and legal fees to meet the reporting requirements associated with
Gamogen, Inc. as well as improved efficiencies internally that had been related
to the additional bookkeeping and clerical efforts.
In February 1999, we executed a sale-leaseback for our masonry and
steel frame building erected on 3.27 acres of land located at 24 Carpenter Road,
Chester, New York 10918. The facility is our only location and is used for our
headquarters and manufacturing operations.
Under terms of the contract of sale, we have the option to re-purchase
the building, beginning on the second anniversary of the sale and ending on the
eighth anniversary. We are required to give 12 months prior notice of the intent
to re-purchase the building. The agreed upon amount for re-purchase is as
follows:
Year Three $2,100,000 Year Four $2,205,000
Year Five $2,315,250 Year Six $2,431,013
Year Seven $2,552,563
15
<PAGE>
The property is currently subject to a 20-year lease. We are
responsible for repairs, maintenance and upkeep of the space occupied. The terms
of the lease call for monthly lease payments of $10,000 per month and 65% of the
annual property taxes that amounted to $41,052 in the current fiscal year
2-29-00. Our monthly rent is $10,000 for the first 10 years of the lease and
$11,042 thereafter.
1999 VS. 1998
Total sales in 1999 declined $500,307 to $1,725,035 as a result of a
one-time sale in 1998 of $708,000 which did not repeat in 1999. The sale, for an
oral treatment for male impotence, was made by a Company affiliate, Gamogen. Our
1999 sales, not including affiliates, were $1,504,497, an additional $220,538 in
sales were made by affiliates bringing total sales to $1,725,035 for the year.
The $1,504,497 of sales, not including affiliates, compares to
$1,241,988 for 1998 which also excludes affiliate sales. This is a 21% or
$262,509 increase for 1999 compared to 1998. The increase in sales is
attributable to the emergency medical products, RES-Q-VAC and Resuscitators.
RES-Q-VAC sales were up 39% or $232,327 in 1999 and Resuscitators added $68,843
in first year sales. Strong demand early in the year for RES-Q-VAC products
included large domestic and international orders from existing customers. The
principal customer for the new Plus Resuscitator product in 1999 was Mada
Medical Products ("Mada"). Sales to Mada accounted for 85.6% or $58,934 of total
Resuscitator sales for 1999.
Total impotency treatment sales were down slightly, 8% or $48,500, in
1999 versus 1998. We sell a substantial portion of our impotence treatment
products to OEM customers. In 1999, we sold 99.5% or $533,678, of our impotency
treatment products to: Mission ($273,790), Osbon a division of Imagyn ($113,072)
and Timm ($146,816). This compares to total impotency treatment sales in 1998 of
$582,178 of which 100% were sold to two customers. Mission 1998 sales were
$122,511 and Osbon were $459,667.
In November 1998, Timm purchased the Osbon business from Imagyn. This
meant, in effect, that we had two primary customers for our impotency treatment
products at any point in time during 1999 as in 1998.
Sales of $273,790 were recorded in 1999 for Mission with another
$246,610 recorded as deposits for products in various stages of raw material and
work-in-progress.
Sales of our infusion therapy products, were $70,284 in 1999 and
$68,988 in 1998.
16
<PAGE>
Cost of goods sold for 1999 decreased 1% from 1998. This is a $127,021
decrease and is attributable to variations in the combination of products sold.
Selling, general and administrative ("SG&A") expenses were down 5.9% or
$68,616. This decrease is the result of expenses, which occurred in 1998 and did
not repeat in 1999. Expense reduction efforts further reduced SG&A expenses in
1999. SG&A expenses of $55,660 in 1998 that did not repeat in 1999, were
associated with the Gamogen's sale of its Oral Treatment for Male Impotence.
Company expense reduction efforts included a 25% reduction effective on June 29,
1998, in executive salaries for Andrew Sealfon, President, and Jesse Garringer,
Executive Vice President. This was a $45,100 reduction including benefits for
the year. Offsetting some of these expense reductions were additional sales and
marketing expenses associated with promoting the FREEDOM60 infusion therapy
product.
Research and development expenses declined 22% in 1999. The two major
factors were a one-time $30,000 payment for expenses from OEM customer, Mission,
for engineering work on their impotency treatment product. Another $19,800 was
saved through Andrew Sealfon's 25% salary reduction which took effect on June
29, 1998. A portion of Mr. Sealfon's salary is allocated to research and
engineering expenses. The payment that offset a portion of Mission's research
and engineering costs was received in fiscal 1998 and recorded as a customer
deposit at fiscal 1998 yearend.
Net loss from operations was $862,314 in 1999 compared to a loss of
$369,131 in 1998. The primary reason for the increased loss was the gross margin
realized in 1998 because of a one-time sale in 1998 of $708,000, which did not
repeat in 1999. The sale, for an oral treatment for male impotence, was made by
a Company affiliate, Gamogen.
Non-operating income was $490,193 in 1999 compared to a loss of $66,699
in 1998. The primary reason for the difference was the $433,207 gain on the sale
of our property in Chester, New York. On February 25, 1999 we executed a
sale-leaseback for our building and land located at 24 Carpenter Road, Chester,
New York 10918 (see Item 2.,Description of Property on Page 10). At the same
time the facility was sold, we entered into a 20-year lease with the new owner,
West 125th. The lease allows us to conduct our manufacturing and other business
processes as usual. Other items affecting non-operating income in 1999 was
$73,530 in other income received from Mission for tooling and services
associated with their OEM vacuum erection device. The rental income from Key
Bank of $86,100 received by us in 1999, did not continue in fiscal 2000 because
the Key Bank lease was part of the building sale.
The Provision for Income Taxes, an expense, which reduced income by
$494,342, resulted from a year-end valuation allowance, which reduced the
deferred tax asset of $514,409 to $0. Establishing this allowance was required
by accounting rules when certain tests determine there is a 50% or less
probability of future realization of the deferred tax asset.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements and Supplementary Data
-----------------------------------------------------------------
Report of Independent Certified Public Accountants 19
Financial Statements:
Balance Sheets, February 29, 2000 & February 28, 1999 20
Statements of Income, February 29, 2000 & February 28, 1999 21
Statements of Changes in Stockholders' Equity,
February 29, 2000 and February 28, 1999 22
Statements of Cash Flows, February 29, 2000 & February 28, 1999 23
Notes to Financial Statements 24
18
<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 29, 2000 and February 28,
1999, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the two years in the period ended February 29, 2000.
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 29, 2000 and February 28,
1999 and the consolidated results of their operations and their cash flows for
each of the two years in the period ended February 29, 2000, in conformity with
generally accepted accounting principles.
/s/ Weingast, Zucker & Ruttenberg, LLP
--------------------------------------
White Plains, NY
May 25, 2000
19
<PAGE>
REPRO-MED SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
CURRENT ASSETS 2-29-00 2-28-99
-------------- ------- -------
Cash & Cash Equivalents $ 167,085 $ 683,321
Short-term Investments 0 81,352
Accounts Receivable, net 227,871 120,470
Inventory 555,882 573,560
Prepaid Expenses & Other Receivables 45,517 78,785
Deposits 40,000 190,000
------ -------
TOTAL CURRENT ASSETS 1,036,355 1,727,488
EQUIPMENT & OTHER ASSETS
------------------------
Equipment-net $ 483,806 $ 522,660
Other Assets 54,412 68,484
------ ------
TOTAL EQUIPMENT & OTHER ASSETS 538,218 591,144
------- -------
TOTAL ASSETS $ 1,574,573 $ 2,318,632
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $59,363 $41,250
Current Portion Long Term Debt 0 55,580
Bank Line of Credit Payable 0 439,372
Accrued Expenses 184,936 75,727
Current Portion Capital Gain 22,481 22,481
Customer Deposits 245,230 246,610
------- -------
TOTAL CURRENT LIABILITIES 512,010 881,020
Deferred Capital Gain 404,655 427,136
Long Term Debt 0 184,926
- -------
TOTAL LIABILITIES 916,665 1,493,082
------- ---------
Minority Interest in Subsidiary 0 288,882
STOCKHOLDERS' EQUITY
Preferred Stock, 8% Cumulative $.01
Par Value Authorized 2,000,000 Issued &
Outstanding 10,000 Shares 100 100
Common Stock, $.01 Par Value,
Authorized 50,000,000 Shares, Issued &
Outstanding 22,904,000 & 22,142,000
Respectively 229,040 221,420
Warrants Outstanding 0 140
Additional Paid-in Capital 2,031,631 3,040,662
Accumulated Deficit (1,460,863) (2,583,654)
Treasury Stock at Cost (142,000) (142,000)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 657,908 536,668
------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,574,573 $ 2,318,632
=========== ===========
*see accompanying notes to financial statements
20
<PAGE>
REPRO-MED SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED
2-29-00 2-28-99
------- -------
SALES
-----
Net Sales of Products $ 2,065,400 $ 1,725,035
COSTS AND EXPENSES:
-------------------
Cost of Goods Sold 1,125,552 1,186,555
Selling, General & Administrative 1,008,446 1,093,361
Research & Development 80,944 185,637
Depreciation & Amortization 87,795 121,796
------ -------
TOTAL COSTS AND EXPENSES 2,302,737 2,587,349
NET OPERATING LOSS (237,337) (862,314)
------------------
NON-OPERATING INCOME (EXPENSE)
------------------------------
Rental Income 0 86,100
Interest Expense (44,104) (135,266)
Interest & Other Income 18,049 89,742
Gain on Sale of Subsidiary 224,788 0
Gain on Termination of Joint Venture 172,012 0
------- ------
TOTAL NON-OPERATING INCOME (EXPENSE) 370,745 40,576
------- ------
INCOME (LOSS) BEFORE TAXES 133,408 (821,738)
(Provision) Benefit for Income Taxes 0 (494,342)
------- --------
NET INCOME (LOSS) BEFORE MINORITY INTEREST &
EXTRAORDINARY ITEM 133,408 (1,316,080)
Extraordinary Item 62,350 0
------ --
Income (Loss) Before Minority Interest 195,758 (1,316,080)
Minority Interest (54,542) 8,389
------- -----
NET INCOME (LOSS) $250,300 ($1,324,469)
======== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
---------------------------------------------
Primary 20,629,000 22,142,000
Fully Diluted 23,123,117 25,303,597
EARNINGS (LOSS) PER COMMON SHARE
--------------------------------
Primary-Before Extraordinary Item $0.01 ($0.060)
Fully Diluted Before Extraordinary Item $0.01 ($0.052)
Primary-Extraordinary Item $0.00 N/A
Fully Diluted-Extraordinary Item $0.00 N/A
*see accompanying notes to financial statements
21
<PAGE>
REPRO-MED SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FEBRUARY 29, 2000 & FEBRUARY 28, 1999
<TABLE>
<CAPTION>
Warrants &
----------
Preferred Common Add'l
--------- ------ -----
Stock Stock Paid-In Accumulated Treasury
----- ----- ------- ----------- --------
Total Equity Shares Amt Shares Amt Capital (Deficit) Stock
------------ ------ --- ------ --- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS'
EQUITY 2/98 $1,869,137 10,000 $100 22,142,000 $221,420 $3,040,802 ($1,251,185) ($142,000)
CHANGES FEB
1999:
Preferred (8,000) (8,000)
Dividend
Net Income (1,324,469)
(Loss) (1,324,469)
Stockholders'
Equity 2/99 $536,668 10,000 $100 22,142,000 $221,420 $3,040,802 $(2,583,654) ($142,000)
======== ====== ==== ========== ======== ========== =========== =========
CHANGES
FEB 2000:
Preferred (8,000) (8,000)
Dividend
Net Income 250,300 250,300
Issuance of 7,620 762,000 7,620
Common Stock
Warrants (140) (140)
Sale of
Subsidiary (128,540) (1,009,031) 880,491
--------------------------------------------------------------------------------------------------------
Stockholders'
Equity 2/00 $657,908 10,000 $100 22,904,000 $229,040 $2,031,631 ($1,460,863) ($142,000)
======== ====== ==== ========== ======== ========== =========== =========
</TABLE>
*see accompanying notes to financial statements
22
<PAGE>
REPRO-MED SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
Feb. 29, 2000 Feb. 28, 1999
------------- -------------
<S> <C> <C>
Cash Flows Provided by Operating Activities
Income (loss) from continuing operations $250,300 ($1,324,469)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and Amortization 87,795 121,796
Deferred income taxes 0 514,409
Deferred gross profit - building lease (22,481) 449,618
Minority Interests (288,882) 8,389
Changes in Assets and Liabilities:
Accounts Receivable (107,401) 112,445
Inventories 17,678 60,549
Prepaid Expenses 33,268 (12,909)
Accounts Payable 18,113 (99,190)
Accrued Expenses 109,209 104,148
Lease Deposit 0 (40,000)
Customers Deposits (1380) 0
Net cash provided by (used in) investing activities 96,219 (105,213)
------ ---------
Cash flow provided by investing activities:
Short term investments 81,352 549,937
Capital Expenditures (48,941) (49,679)
Other Assets 14,072 (11,289)
Sale of property (128,540) 1,140,032
--------- ---------
Net cash provided by (used in) investing activities (82,057) 1,629,021
-------- ---------
Cash flow (used in) financing activities:
Repayment of term loan (240,506) (51,100)
Proceeds line of credit 0 120,000
Repayment line of credit (439,372) (40,628)
Repayment of mortgage 0 (871,326)
Preferred stock dividends 8,000 (8,000)
Issuance of Common Stock 7,620 0
Warrants (140) 0
Cash collateral deposits 150,000 (150,000)
------- ---------
Net cash provided by (used in) financing activities (530,398) (1,001,054)
--------- -----------
Net increase (decrease) in cash (516,236) 522,754
Cash, beginning of period 683,321 160,567
------- -------
Cash, end of period $167,085 $683,321
======== ========
Supplemental disclosures:
Cash payments for:
Interest $48,099 $131,302
Income Taxes 0 (3,419)
</TABLE>
*see accompanying notes to financial statements
23
<PAGE>
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Organization and Summary of Significant Accounting Policies
(A) Repro-Med Systems, Inc. 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.
(B) The balance sheet for the Year ended February 29, 2000 represents Repro-Med
Systems Inc without subsidiary. The Statement of Income includes the
Gamogen subsidiary consolidated through the date of sale. Gamogen was sold
to an unrelated third party as of August 31, 1999.
(C) Revenue is recognized when products are shipped.
(D) 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.
(E) 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.
(F) Inventory is valued at the lower of cost (first-in, first-out method), or
market.
(G) The Financial Statements 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 to be issued assuming
exercise of warrants and options.
(H) 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. We have 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 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. On August 28, 1998 the option price was reduced from $.15 to
$.06 per share. The option price of $.06 per share is not less than the
fair market value of the common stock on the
24
<PAGE>
date the price was reduced. The option price of $.066 cents per share is
not less than 110% of the fair market value of the common stock on the date
the price was reduced. No options granted under the Option Plans have been
exercised as of February 29, 2000.
(I) On February 28, 1999, the Company changed the valuation allowance for
deferred income taxes to $514,409 from $0. The valuation allowance has been
calculated at the maximum amount which had reduced the value of our
deferred income taxes asset balance to zero.
(J) Cash and cash equivalents are comprised of certain highly liquid
investments with maturities of three months or less.
(K) 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.
(L) Use of estimates - the 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 may differ from those estimates.
(M) Reclassification - certain reclassifications have been made to prior year
amounts to conform with current year presentation.
NOTE 2 - Inventory
Inventory Consists of: February 2000 February 1999
------------- -------------
Raw Materials $270,754 $298,881
Work In Process 152,745 83,904
Finished Goods 132,383 190,775
------- -------
Total $555,882 $573,560
======== ========
NOTE 3 - Equipment and Other Assets
February 2000 February 1999
------------- -------------
Furniture and Equipment 1,033,718 $1,166,081
Accumulated Depreciation (549,912) (643,420)
--------- ---------
Net Equipment $483,806 $ 522,661
======== =========
Other Assets:
Patent Costs $90,296 $ 197,088
Deferred Charges 0 19,800
Goodwill 14,137 14,137
NuMedTec 0 6,100
Accumulated Amortization (50,021) (168,641)
-------- ---------
Net Other Assets $54,412 $68,484
======= =======
25
<PAGE>
NOTE 4 - LONG-TERM DEBT
February 2000 February 1999
------------- -------------
Notes payable to bank 0 240,506
-
Less current maturities 0 55,580
- ------
Long-term debt less current maturities 0 $184,926
= ========
The company had a line of credit of $500,000 in fiscal year ended
February 28, 1999. At February 28, 1999, $439,372 was used by the company and
$6,313 was available. During fiscal year ended February 29, 2000, the entire
line of credit was paid off by the company and the line of credit was
terminated.
NOTE 5 - 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 rate of $8,000 or 8% of the
original sale price of $100,000. As of February 29, 2000 the Convertible
Cumulative Preferred Stock can be converted to 294,117 shares of common stock at
the conversion price of 34 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 us
for corporate use.
During fiscal year February 29, 2000, the company issued 450,000 shares
of stock, a portion which was used to pay for various expenses.
NOTE 6 - Related Party Transactions
The Company leases an aircraft from an officer for $19,500 and $19,000
at February 29, 2000 and February 28, 1999.
26
<PAGE>
The Company lease office space from an officer for $6,000 in February
28, 2000 and February 28, 1999.
Repro-Med Systems, Inc. also allocated overhead expenses to its
subsidiaries totaling $240,428 and $156,616 at February 29, 2000 and February
28, 1999 respectively.
The Company had been in a joint venture with its subsidiary, Gamogen,
Inc., to market and sell the Restore product. The joint venture was terminated
in fiscal year February 29, 2000
NOTE 7 - 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 (including 2,275,000 shares held as treasury stock) as if the
excercisable options were converted into common stock at the beginning of the
period.
Earnings (Loss) Per Common Share February 2000 February 1999
------------- -------------
Primary Per Share $0.01 $ (0.060)
Number of Shares Primary 22,629,000 22,142,000
Fully Diluted Per Share 0.01 $ (0.052)
Number of Shares Fully Diluted 23,123,117 25,303,597
NOTE 8 - 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 our 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 29, 2000 Repro-Med has a net operating loss carry forward ("NOL") of
approximately $1,450,000 available to offset its future income tax liabilities.
The NOL will begin to expire in the year 2002 and has been used to offset
deferred taxes for financial purposes
27
<PAGE>
The provision for income taxes consists of the following:
February 29, 2000 February 28,1999
----------------- ----------------
Current Taxes $ 0 ($20,067)
Deferred Taxes 0 0
Valuation Allowance 0 514,409
- -------
Provision for income Taxes $ 0 $ 494,342
=== =========
NOTE 9 - Sale-Leaseback Transaction-Operating Lease
On February 25, 1999, the company entered into a sale-leaseback
arrangement. Under the arrangement, the company sold its land and building at 24
Carpenter Avenue, in Chester, New York and leased it back for a period of 20
Years. The leaseback has been accounted for as an operating lease. The gain of
$449,617 realized in this transaction has been deferred and will be amortized to
income in proportion to rental expense over the term of the lease.
At February 29, 2000 the future minimum rental payments are:
Year Minimum rental payments
---- -----------------------
2001 $120,000
2002 120,000
2003 120,000
2004 120,000
2005 120,000
thereafter $1,805,000
Total $2,405,000
NOTE 10 - Major Customer
In February 29, 2000 there were two customers, Timm Medical and Mission
Pharmacal, that accounted for 24% of the total sales. Management expects sales
with Timm Medical to continue in fiscal year February 28, 2001. However there
has been no indication that Mission Pharmacal will continue to purchase
inventory from Repro-Med Systems, Inc. Mission Pharmacal currently has a deposit
with Repro-Med Systems, Inc. of $228,270 for units which haven't been completed
yet. When the units are completed the deposits will be recorded as sales.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
28
<PAGE>
PART III
ITEM 9. DIRECTORS AND 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:
Name Age Position/Held Since
---- --- -------------------
Andrew I. Sealfon 54 President 1980,
Treasurer 1983,
Chairman 1989,
Director 1980
CEO 1986
Paul Mark Baker 50 Director 1991
John Carlson 60 Director 1987
Remo Spagnoli 71 Director 1993
Mr. Sealfon is deemed a "parent" and "promoter" as those terms are
defined under the Securities Act of 1933 as amended.
All directors hold office until the next annual meeting of shareholders
or until their successors is elected. Executive Officers hold office at the
discretion of the Board of Directors.
Mr. Sealfon Co-founded Repro-Med Systems Inc. in 1980. He is an
electrical engineer and inventor and has been granted numerous United States
patents. Mr. Sealfon is a graduate of Lafayette College.
Dr. Baker earned a medical degree from Cornell University Medical
College. He is a practicing pediatrician and is attending at Department of
Pediatrics Horton Memorial Hospital, Middletown, NY and attending at New York
Hospital-Cornell Medical Center in New York City. Dr. Baker assisted us 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 Lancet, a medical
journal.
Mr. Carlson is an independent financial consultant advising management
in setting strategic direction and counseling daily operations. Mr. Carlson is a
Co-founder and President of ViCar Products, Inc, which has been seeking
acquisitions since its formation in December 1997. From July 1996 through
November 1997, Mr. Carlson served as Senior Vice President, and as a director of
Ocurest Laboratories, Inc. Mr. Carlson was President and Chief Executive Officer
of Allied Plastics, Inc. from November 1992 to January 1995. From June 1995
until joining Ocurest Mr. Carlson was General Manager of InterScept Products
Corporation. Mr. Carlson acted as a
29
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consultant to Repro-Med Systems, Inc from August 1999 through March 2000.
Mr. Spagnoli is a principal founder and past President and Chairman of
CRS, Inc., Newburgh, NY, a manufacturer of proprietary inventory control and
point of sale software and distributor of computer equipment. Mr. Spagnoli
presently consults for CRS, Inc.
ITEM 10. EXECUTIVE COMPENSATION
Andrew I. Sealfon, President, received $129,750 in salary from
Repro-Med (including amounts attributable to services to Repro-Med Systems and
Gyneco) during the fiscal year ended February 29, 2000. Mr. Sealfon has been
granted incentive stock options in Repro-Med under its 1995 Stock Option Plan.
The officers are reimbursed for travel and other expenses incurred on
behalf of Repro-Med Systems Inc. We do not have pension or profit sharing plans.
Summary Compensation
--------------------
Name & Position Year Salary Other*
--------------- ---- ------ ------
Andrew I. Sealfon,
President 2000 $129,750 $8,949
1999 $146,144 $11,895
1998 $171,379 $13,160
* Other compensation includes car allowance and $6,000 for
non-reimbursed cost of lab facilities.
We did not grant any stock options in the fiscal year ended February
29, 2000.
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Table of aggregated options exercised in the fiscal year and option
values at year-end February 2000:
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options
Acquired Year-end at Year-end
Name of On Value Exercisable/ Exercisable/
Individual Exercise Realized Unexercisable Unexercisable
---------- -------- -------- ------------- -------------
A. I. Sealfon
Exercisable 0 0 1,500,000 $225,000
Unexercisable 0 0 0 $0
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 2000 the number of
shares of Common Stock beneficially owned by each person owning more than 5% of
the outstanding shares, by each officer and director, and by all officers and
directors as a group:
Name of Principal Shareholders Number of Percent
and Identity of Group Shares Owned of Class Notes:
------------------------------ ------------ -------- ------
Andrew I. Sealfon* 10,538,750 46% 1,2,5
Dr. Paul Mark Baker 1,254,000 5% 5
John Carlson 80,000 0 5
Remo Spagnoli 1,101,950 4% 3,4,5
Repro-Med Systems Inc 2,275,000 10% 6
All Directors and Officers as a
Group (4 Persons) 15,249,700 67%
* Andrew I. Sealfon is deemed a "parent" and a "promoter" of Repro-Med
Systems Inc. as those terms are defined under the Securities Act of 1933,
as amended.
(1) Does not include 690,000 shares of common stock owned by members of
Mr. Sealfon's family, as to which Mr. Sealfon disclaims beneficial
ownership.
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<PAGE>
(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
represents 3,571,500 shares previously owned by the Estate of A.
Zorgniotti. In 1996, 2,000,000 shares were purchased by Repro-Med,
Inc., January 1997, 1,571,500 were purchased in a private transaction
by a number of individual investors including at that time an officer
and three directors of Repro-Med. This same group purchased 400,000
shares from the estate of A. Zorgniotti in May 1998. These
transactions were subject to the voting agreement and results in
3,971,500 shares being classified as owned by Mr. Sealfon.
(3) Includes 477,000 shares of Common Stock owned by six members of Mr.
Spagnoli's family.
(4) Mr. Spagnoli directly owns 10,000 shares of Repro-Med Convertible 8%
Preferred Stock. In fiscal 1999, Mr. Spagnoli received $8,000 in
preferred stock dividends. The preferred stock can be redeemed for
294,117 shares of Repro-Med common stock at $0.34 per share.
Consequently, 294,117 shares are deemed beneficially owned by Mr.
Spagnoli and included above.
(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 Repro-Med Systems Inc. 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. We 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 and 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. On
August 28, 1998 the option price was reduced from $.15 to $.06 per
share. The option price of $.06 per share was not less than the fair
market value of the common stock on the date the price was reduced.
The option price of $.066 cents per share was not less than 110% of
the fair market value of the common stock on the date the price was
reduced. As of March 2000, no options granted under the Option Plans
were exercised.
(6) Treasury stock acquired by Repro-Med Systems Inc. total cost as
reflected on balance sheet for 2,275,000 shares of Common Stock is
$142,000.
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<TABLE>
<CAPTION>
Price No. Shares & Earliest
Name Main Position Per Share Date of Exercise
---- ------------- --------- ----------------
<S> <C> <C> <C>
Sealfon, A President $0.066 1,500,000, 3/1/95
Baker, M. Clinical Consultant $0.060 300,000, 3/1/95
Howarth* Vice President - Sales $0.060 50,000, 3/1/95
150,000, 1/1/99
1995 Stock Option Plan for Non-employee Directors:
--------------------------------------------------
Carlson, J Director $0.06 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 $0.06 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 2000 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.
* M. Howarth has temporarily left the Company as of April 30, 2000 and
has exercised her 200,000 options in May, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1986, Gamogen issued 699,200 shares of Common Stock to
Repro-Med for $41,779. On September 1, 1999, Repro-Med sold the investment and
purchased the operation of Gamogen and its subsidiary Gyneco, Inc. This ended
the affiliation with Gamogen. For the first six months of the fiscal year,
however, the operations of Gamogen were consolidated with Repro-Med.
In 1993, Repro-Med designed some of its components around parts that
were used in its Gyneco operations. Commencing in fiscal 1993, Repro-Med
compensated Gyneco for the use of certain tooling, and for use of the design
patent. Gyneco was compensated with a 3% royalty on those OEM sales employing
parts relating to its tooling. For the RES-Q-VAC items using Gyneco tooling a 4%
royalty was paid.
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Payments to Gyneco from Repro-Med under this arrangement totaled $11,728 in the
fiscal year ended February 2000 and $27,308 in 1999. With the acquisition of
Gyneco's operations this payments ceased.
To reduce corporate travel expenses, we maintain and operate a
corporate aircraft. Since 1992, the aircraft has been leased from AMI Aviation.
Mr. Sealfon is a majority shareholder in AMI Aviation. The lease expenses paid
in 2000 were $19,500 versus $19,000 paid in 1999. We believe the AMI lease is on
terms competitive with those that could be obtained from unaffiliated third
parties.
Messrs. Sealfon and Zorgniotti entered into a ten year voting agreement
June 30, 1992 pursuant to which they agreed on their behalf and on behalf of
their successors in interest to vote all the shares 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 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) EXHIBITS
(3) Articles of Incorporation and By-Laws
3(a) - Articles of Incorporation(1)
3(b) - By-Laws(2)
(10) Material Contracts:
10(c) Voting Agreement for Repro-Med Systems, Inc.
Common Stock between Andrew I. Sealfon and
Dr. Adrian Zorgniotto(3)
10(e) 1995 Stock Option Plan(5)
10(f) 1995 Stock Option Plan for Non-employee Directors(5)
10(h) Sales Representative Agreement(7)
10(i) Termination Agreement(7)
(21) Subsidiary of Registrant:
NONE
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(b) REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed by the Registrant during the
last fiscal year the period covered by this report.
----------
(1) Incorporated by reference from the Registration and Offering Statement of
Repro-Med Systems, Inc., dated November 12, 1982.
(2) Incorporated by reference from the Form 10-KSB Report of Repro-Med Systems,
Inc., dated February 28, 1987.
(3) Incorporated by reference from Form 10-KSB Report of Repro-Med Systems,
Inc., dated February 29, 1993.
(5) Incorporated by reference from Form 10-KSB Report of Repro-Med Systems,
Inc., dated February 28, 1995.
(7) Incorporated by reference from Form 10-QSB Report of Repro-Med Systems,
Inc., dated November 30, 1998.
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<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 06, 2000
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.
/s/ Andrew I. Sealfon June 6, 2000
-----------------------------
Andrew I. Sealfon, President, Treasurer, Chairman of
the Board, Director, and Chief Executive Officer,
Chief Financial Officer
/s/ John F. Carlson June 6, 2000
-----------------------------
John F. Carlson, Director
/s/ Dr. Paul Mark Baker June 6, 2000
-----------------------------
Dr. Paul Mark Baker, Director
/s/ Remo Spagnoli June 6, 2000
-----------------------------
Remo Spagnoli, Director
36
