SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 0-14696
RMED International, Inc.
(Exact Name of Registrant and Specified in its Charter)
Colorado 84-0898302
(State of Incorporation) (I.R.S. Employer Identification Number)
675 Industrial Boulevard, Delta, CO 81416
(Address of Principal Offices)
(970) 874-7536
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock $.01
par value (Title of
Class
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 3 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
_X_ YES ___ NO
There were 6,370,958 shares of the Registrant stock $.01 par value common stock
outstanding as of December 31, 1997.
<PAGE>
RMED International, Inc.
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
Table of Contents
Form 10-KSB
Item Number Page
Part I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to Vote of Security Holders 6
Part II
Item 5. Market for the Registrant's Common Equity and Related 6
Stockholder Matters
Item 6. Selected Financial 7
Item 7. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 8. Financial Statements 9
Item 9. Changes in and Disagreements on Accounting and Financial 9
Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners 11
and Management
Item 13. Certain Relationships and Related Party Transactions 12
Part IV
Item 14. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
Part I
Item 1. BUSINESS
General
RMED International, Inc. (the "Company", "RMED") was incorporated under
the laws of the State of Colorado on December 28, 1982, and is in the
business of marketing and selling Tushies(R) and new TenderCare(R) brand
baby products. Since July 1993, the Company has been involved in the
product and package design development of Tushies cotton blend disposable
diapers and an extended line of Tushies products.
Business Strategy
The Company is marketing Tushies products throughout the United States and
Canada to natural and health products stores, upscale pharmacies, baby
product stores and specialty supermarkets. Consumers are also being
reached through catalog sales and by direct home delivery.
Tushies Diapers have drawn response from two diverse market segments. The
first and largest segment of the market consists of those consumers who
use disposable diapers with artificial chemical absorbents. The second
market segment consists of those consumers who use cloth diapers.
The Company plans to develop other Tushies products while retaining the
focus on quality natural products. The Company is positioning itself to
share in the large and growing markets of disposable diapers and natural
products.
Tushies patented "GEL-FREE Alternative Diaper" provides consumers with a
disposable diaper that has a cotton blend absorbent padding. Tushies
Diapers do not contain artificial chemical absorbent granules that turn
into gel when they come in contact with moisture. Artificial chemical
absorbents are found in most of the leading national brands of disposable
baby diapers.
In March 1998, RMED introduced TenderCare GEL-FREE Baby Disposable Diapers
at a suggested retail price that is competitive in price to the leading
disposable diapers.
Product Description
The Alternative Diaper, Tushies Cotton Blend GEL-FREE Disposable Baby
Diaper
Tushies is the only cotton blend GEL-FREE disposable diaper made without
artificial chemical absorbents, dyes or perfumes.
In 1995 Tushies changed the inner packaging from a box to a bag. The
diaper now has a cloth-like cover which is softer for the baby.
Tushies Diapers are produced in four sizes: Small, Medium, Large and
Toddler (Extra Large). The diapers are sold by the case, each case
consisting of four inner bags of the same size diapers. The number of
diapers in each inner bag depends on the diaper size. Tushies corrugated
outer diaper box is made in large part from recycled material and is
itself recyclable at facilities which accept corrugated cardboard for
recycling. The graphics and artwork on the inner bag are a storybook
design.
3
<PAGE>
Item 1. Product Description (cont'd)
TushiesWipes
Under the TushiesWipes brand name, the Company offers natural formula
wipes in Tubs, Refills and TravelPacks. The wipes contain Aloe Vera, are
Hypo-Allergenic and Alcohol-Free.
Tushies Diapers and TushiesWipes are good companion products and together
help in name brand recognition.
In 1997 Tushies introduced the 100% Organic TushiesBear T-Shirt.
All Tushies products are made in the USA.
RMED's Marketing and Distribution Strategy
In the multibillion dollar market for disposable diapers and wipes, the
battle for brand dominance and share increase is waged among the leading
brands through national media advertising, trade promotions, pricing, and
product innovation. The Company does not have the financial resources to
compete on this basis with the leading brands.
Furthermore, because RMED is one of the few diaper companies that is not a
manufacturer, and because of the unique diaper composition, the Company
has higher direct unit costs than those comparable costs of major diaper
manufacturers. This higher relative direct cost of product has a direct
impact on the Company's ability to compete on price while maintaining an
adequate gross margin. However, the Company has lower fixed costs
associated with its diapers and wipes, and can operate with greater
flexibility than the leading brands. Most important, the Company has a
unique diaper product.
A unique Alternative Disposable Diaper in an expanding market is the basis
of RMED's marketing plan. To the Company's knowledge, there are no other
companies presently manufacturing a natural blend cotton disposable diaper
without artificial chemical absorbents, dyes or perfumes. Currently, all
leading brands of disposable diapers that are super-absorbent or
ultra-absorbent contain artificial chemical absorbents. The Company
believes it has an opportunity to compete on the features of a cotton
blend disposable diaper without artificial chemical absorbents, dyes or
perfumes.
Health/natural food and specialty store distribution nationwide allows the
Company to build a strong Tushies brand identification. Tushies products
are also marketed nationally to upscale pharmacies, select specialty
supermarkets, baby product stores, diaper delivery services, and direct
home delivery. TenderCare products will also be marketed through these
channels.
Direct delivery capability and through alliances with existing catalogues
and home delivery services permits the Company to build marketing channels
through which other products might be sold. One example of this approach
is the TushiesClub membership. By calling 1-800-34-I'm Dry(1-800-344-6379)
to order home delivery of Tushies products, Tushies customers may join the
Company's free club program and have Tushies products automatically
delivered to their home on a pre-determined schedule. The customer is
billed directly to a credit card at the time of shipment.
4
<PAGE>
Item 1. RMED's Marketing and Distribution Strategy (cont'd)
The dual introduction of Tushies GEL-FREE cotton blend disposable diapers
and TushiesWipes natural formula wipes offers the Company significant
merchandising, promotion, and shelf space opportunities. The marketing
effort devoted to building the Tushies diaper brand results in cross-over
support for the TushiesWipes product. As an added benefit, RMED is able to
build its reputation in the trade as a diversified natural products
company.
The Company believes that the impact of brand awareness created with a
strategically planned advertising campaign will build brand loyalty and a
solid customer base.
Special programs will include reaching hospitals, pediatric offices,
midwives and other pediatric care-givers. The Company participates in a
selected group of regional and national natural product shows.
Production
The Company's inventory of disposable diapers and wipes are purchased from
outside private label manufacturers pursuant to Company specifications.
Patents, Trademarks and Registrations
The Company currently holds patents, registrations, and various trademarks
for Tushies products. On May 18, 1990, the Company exchanged a 50%
interest in a diaper pending patent for $225,000 with an individual who
later became the Company's President. This individual was assigned 1/2
ownership interest in current and subsequent registrations relating to
Tushies products. The 50% interest in the patent is convertible into
$225,000 in value of common or preferred stock of the Company based on
closing bid of the Company's common stock on May 18, 1990, which was $.50,
for a total of 450,000 shares. To date the President has not elected to
exchange the patent interest for stock. The President has also elected to
forgo any interest in Tushies sales with respect to her proprietary
Tushies rights through December 31, 1997.
Inventory
The Company's inventory levels (consisting solely of finished goods
purchased from others pursuant to Company specifications) are in line with
the inventory levels necessary to satisfy customer demands. The Company
attempts to ship within 24 hours of receiving orders.
Employees
As of December 31, 1997, the Company had 7 full and part-time employees.
Item 2. PROPERTIES
The principal office of the Company is located at 675 Industrial Blvd.,
Delta, CO 81416. On February 7, 1994, the Company purchased from its
President and from Brandy Enterprises, Ltd. (a corporation wholly owned by
the President), the Delta facility (consisting of a 10,000 square foot
brick building on a two and one-half acre parcel)..
On January 17, 1996 the Company refinanced the Delta, Colorado facility
with a local bank. The mortgage is secured by the underlying real estate
and is also personally guaranteed by the Company's President.
5
<PAGE>
Item 2. PROPERTIES (cont'd)
The Company leases offices in Westport, CT on a month to month basis at a
monthly rental of $850.
Item 3. LEGAL PROCEEDINGS
In August 1994, the Company commenced an action in the United States
District Court of the Southern District of New York against Sloan's
Supermarkets, Inc. and John A. Catsimatidis to recover damages based on
the defendants' failure to disclose, in its public filings and otherwise,
the existence of an investigation by the Federal Trade Commission ("FTC")
regarding the concentration of supermarkets by entities owned or
controlled by the defendants. The Company purchased approximately 226,000
shares of Sloan's common stock in November and December 1993 in open
market transactions on the American Stock Exchange, without knowledge of
the FTC investigation, and sold a portion of these shares at a loss after
June 2, 1994, when the Company learned of the FTC investigation. The legal
action has been certified as a "class action" with the Company the class
action representative. Litigation is subject to many uncertainties and the
Company is unable to predict the outcome of this matter.
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER'S MATTERS
The Company's common stock is traded on the "Electronic Bulletin Board
System" with the symbol TUSH.
As of December 31, 1997, there were over 1,000 holders of record of the
Company's common stock.
The Company has not paid and does not anticipate the payment of cash
dividends in the foreseeable future. Any future earnings and declaration
of dividends will remain within the discretion of the Company's Board of
Directors. The Board of Directors will review its dividend policy from
time to time, which will depend upon, among other factors, the Company's
earnings and financial requirements, as well as general business
conditions.
Item 6. SELECTED FINANCIAL DATA
The following page contains the Statement of Operations for RMED for the
years ended December 31, 1996 and 1997. More detailed financial
information, with accompanying notes, is presented in Item 8.
6
<PAGE>
RMED International, Inc.
Statement of Operations
Year Ended December 31,
-----------------------------
1997 1996
--------- -----------
SALES $ 1,684,360 $ 1,257,567
COST OF GOODS SOLD (1,091,741) (878,589)
----------- -----------
GROSS PROFIT 592,619 378,978
----------- -----------
OPERATING EXPENSES
General and administrative 472,871 447,159
Sales and marketing 342,609 269,241
----------- -----------
815,480 716,400
----------- -----------
OPERATING INCOME (LOSS) (222,861) (337,422)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 47,532 19,975
Interest expense (27,499) (14,510)
Gain on sale of medical products
line and diaper machine 26,396 23,439
Net gains (losses) on marketable
securities -- (10,003)
Other 4,714 (818)
----------- -----------
51,143 18,083
----------- -----------
NET INCOME (LOSS) $ (171,718) $ (319,339)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE $ (0.03) $ (0.05)
=========== ===========
7
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In January 1994 the Company re-entered the disposable baby diaper business
under the registered brand name of Tushies.
The Company's patented GEL-FREE cotton blend disposables diapers and
natural formula TushiesWipes are manufactured by outside private label
manufacturers pursuant to Company specifications.
Material Changes in Financial Position
Total assets of the Company decreased $61,839 from $838,971 at December
31, 1996 to $777,132 at December 31, 1997. This decrease was attributable
primarily to a decrease in notes receivable and inventory offset by an
increase in cash, accounts receivable, and prepaid assets.
During the twelve month period ended December 31, 1997, net working
capital increased $62,780 due to increases in cash, accounts receivable
and prepaid assets, offset by decreases in notes receivable and inventory
and increases in the note payable to the President, accounts payable and
accrued liabilities. The decrease in notes receivable is attributable
primarily to the repayment of a loan to the Chairman.
Total liabilities at December 31, 1997 were $551,311 compared to $441,432
at December 31, 1996. The increase of total liabilities of $109,879 was
primarily due to a note payable to the President, accounts payable and
accrued liabilities.
Total stockholders' equity decreased $171,718 during the twelve month
period ended December 31, 1997. The decrease was primarily a result of
operating losses ($222,861), offset by other nonoperating income.
Material Changes in Results of Operations
Net sales for the year ended December 31, 1997 were $1,684, 360 compared
to net sales of $1,257,567 in 1996, an increase of 34%. The increase was
due to continued growth of the Tushies product lines since re-entering the
marketplace in July 1993.
Gross profit for the year ended December 31, 1997 was $592,619 compared to
$378,978 in 1996 primarily due to an increase in sales offset by increases
in total product costs, resulting in a gross margin increase of 5.05%.
Operating expenses for the years ended December 31, 1997 and 1996 were
$815,480 and $716,400, respectively, largely due to increases in selling
and marketing expenses. Relative to a percent of sales, there was a
reduction in operating expenses of 8.56%.
The net (loss) for the years 1997 and 1996 were ($171,718) and ($319,339),
respectively. The decrease in the net loss for 1997 is due to the factors
discussed above.
Liquidity and Capital Resources
On December 31, 1997 the Company's working capital of $45,697 consisted of
$455,476 in current assets and $409,779 in current liabilities.
As of December 31, 1997 the Company's long term debt was $141,532,
consisting of a mortgage payable on the Delta, Colorado facility, which
was refinanced January 17, 1996.
8
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION (cont'd)
Impact of Inflation
The impact of inflation on the Company's results of operations is not
readily determinable. However, the Company does not believe the impact
varies materially from that experienced by the national economy as a
whole. As sales increase, it is possible the Company may be able to reduce
costs and thereby minimize the impact of inflation.
Item 8. FINANCIAL STATEMENTS
Financial Statements are included on the following pages numbered F-1
through F-12.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
9
<PAGE>
RMED International, Inc.
Financial Statements
TABLE OF CONTENTS
PAGE
----
Report of Independent Public Accountants' F-1
Financial Statements:
Balance Sheet as of December 31, 1997 and 1996 F-2
Statement of Operations for the years
ended December 31, 1997 and 1996 F-3
Statement of Cash Flows for the years
ended December 31, 1997 and 1996 F-4
Statement of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1996 F-5
Notes to Financial Statements F-6
<PAGE>
Oatley Bystrom & Hansen
A Professional Corporation of CPA's
6061 South Willow Drive, Suite 230
Greenwood Village, Colorado 80111
(303) 770-8383 o Fax (303) 721-6925
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'
February 26, 1998
To the Board of Directors
RMED International, Inc.
Delta, Colorado
We have audited the accompanying balance sheets of RMED International, Inc. (a
Colorado corporation) as of December 31, 1997 and 1996, and the related
statements of operations, cash flows and changes in stockholders' equity for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RMED International, Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred net losses of $171,718 and $319,339 during the years ended
December 31, 1997 and 1996, respectively. As discussed in Note A to the
financial statements, the Company's significant operating losses raise doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Oatley Bystrom & Hansen
F-1
<PAGE>
RMED International, Inc.
Balance Sheet
December 31,
----------------------------
1997 1996
------------ -----------
CURRENT ASSETS
Cash $ 178,754 $ 7,006
Accounts receivable, less allowance
for doubtful accounts of $6,000
in 1997 and 1996 100,082 63,267
Notes receivable, current maturities 39,928 64,195
Inventory 76,604 141,937
Prepaid and other 60,108 3,123
----------- -----------
455,476 279,528
----------- -----------
NOTES RECEIVABLE, less current maturities 68,782 295,892
----------- -----------
PROPERTY AND EQUIPMENT
Land and building 245,000 245,000
Furniture and office equipment 50,255 50,255
Machinery and equipment 15,737 12,875
Vehicles 5,796 5,796
----------- -----------
316,788 313,926
Less accumulated depreciation (80,213) (66,450)
----------- -----------
236,575 247,476
OTHER ASSETS 16,299 16,075
----------- -----------
$ 777,132 $ 838,971
=========== ===========
CURRENT LIABILITIES
Note payable, current maturities $ 3,244 $ 2,958
Note payable to President 186,790 136,874
Accounts payable 184,935 147,763
Accrued liabilities and other 34,810 9,016
----------- -----------
409,779 296,611
----------- -----------
NOTE PAYABLE, less current maturities 141,532 144,821
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
2,500,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 50,000,000
shares authorized 6,370,958 shares
issued and outstanding 63,710 63,710
Contributed capital 5,146,013 5,146,013
Accumulated deficit (4,983,902) (4,812,184)
----------- -----------
225,821 397,539
----------- -----------
$ 777,132 $ 838,971
=========== ===========
See accompanying notes
F-2
<PAGE>
RMED International, Inc.
Statement of Operations
Year Ended December 31,
-----------------------------
1997 1996
--------- -----------
SALES $ 1,684,360 $ 1,257,567
COST OF GOODS SOLD (1,091,741) (878,589)
----------- -----------
GROSS PROFIT 592,619 378,978
----------- -----------
OPERATING EXPENSES
General and administrative 472,871 447,159
Sales and marketing 342,609 269,241
----------- -----------
815,480 716,400
----------- -----------
OPERATING INCOME (LOSS) (222,861) (337,422)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 47,532 19,975
Interest expense (27,499) (14,510)
Gain on sale of medical products
line and diaper machine 26,396 23,439
Net gains (losses) on marketable
securities -- (10,003)
Other 4,714 (818)
----------- -----------
51,143 18,083
----------- -----------
NET INCOME (LOSS) $ (171,718) $ (319,339)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE $ (0.03) $ (0.05)
=========== ===========
See accompanying notes.
F-3
<PAGE>
RMED International, Inc.
Statement of Cash Flows
Year Ended December 31,
-------------------------
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(171,718) $(319,339)
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Depreciation and amortization 13,763 16,725
Loss (gain) on retirement of
equipment -- 1,245
Issuance of stock to settle
trade payable -- 10,929
Changes in current assets and
liabilities:
Accounts receivable (36,815) (39,597)
Inventory 65,333 (76,568)
Prepaid and other (56,985) 285
Marketable securities -- 63,904
Accounts payable and accrued
liabilities 62,966 24,927
Payable to stock investment
company -- (36,908)
--------- ---------
NET CASH FROM OPERATIONS (123,456) (354,397)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of note receivable
from Chairman 212,911 --
Decrease (increase) in note
receivable from Chairman -- (13,571)
Payments received on medical
products line and diaper
machine notes receivable 38,466 64,835
Collection on loan to Engineered
Nonwovens, Inc. -- 126,109
Purchases of equipment (2,862) (1,150)
Increase in other assets (224) (12,171)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES 248,291 164,052
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable to President 82,852 51,059
Payments on note payable to President (32,936) (13,900)
Payments on note payable (3,003) (2,221)
Exercise of common stock options -- 119,405
Proceeds received in refinancing mortgage -- 6,321
--------- ---------
NET CASH FROM (USED FOR) FINANCING ACTIVITIES 46,913 160,664
--------- ---------
NET INCREASE (DECREASE) IN CASH 171,748 (29,681)
CASH, beginning of year 7,006 36,687
--------- ---------
CASH, end of year $ 178,754 $ 7,006
========= =========
F-4
<PAGE>
RMED International, Inc.
Statement of Changes in Stockholders' Equity
Common Stock
--------------------- Contributed Accumulated
Shares Amount Capital Deficit
--------- ------- ----------- ------------
January 1, 1996 5,959,942 $59,599 $5,019,790 $(4,492,845)
Exercise of
stock options 398,016 3,981 115,424 --
Issuance of shares
in partial settlement
of trade payable 13,000 130 10,799 --
Net loss -- -- -- (319,339)
--------- ------- ---------- -----------
December 31, 1996 6,370,958 63,710 5,146,013 (4,812,184)
Net loss -- -- -- (171,718)
--------- ------- ---------- -----------
December 31, 1997 6,370,958 $63,710 $5,146,013 $(4,983,902)
========= ======= ========== ===========
See accompanying notes.
F-5
<PAGE>
RMED International, Inc.
Notes to Financial Statements
Note A - Nature of Business and Summary of Significant Accounting Policies
Nature of Business
RMED International, Inc. (the "Company"), a Colorado corporation, was
incorporated December 28, 1982. The Company is engaged in marketing and
distribution of its Tushies(R) brand disposable diapers and related products.
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing as may be required, and to increase sales to a level
where the Company becomes profitable. Additionally, the Company has experienced
extreme cash liquidity shortfalls from operations.
The Company's continued existence is dependent upon its ability to achieve its
operating plan. Management's plans include the following:
1. Increasing margins on existing products.
2. Obtaining additional equity capital.
If management cannot achieve its operating plan because of sales shortfalls or
other unfavorable events, the Company may find it necessary to dispose of
assets, or undertake other actions as may be appropriate.
Concentration of Credit Risk Arising from Cash Deposits in Excess of Insured
Limits The Company maintains its cash balances in financial institutions located
in Hartford, Connecticut and Delta Colorado. The balances are insured by the
Federal Deposit Insurance Corporation. At December 31, 1997, the Company's
uninsured balances with one of the institutions total $60,177.
Major Customers
Sales to major customers as a percentage of annual sales were to three
distributors (14%, 12% and 10%) in 1997 and three distributors (18%, 10% and
10%) in 1996. Also, of these customers, approximately 51% and 24% of accounts
receivable at December 31, 1997 and 1996, were represented by a single
distributor, respectively.
Major Supplier
The Company's inventory of disposable diapers are purchased pursuant to its
specifications from a single manufacturer.
Summary of Significant Accounting Policies
Revenue Recognition and Concentrations of Credit Risk
Sales are recognized when products are shipped. Wholesale sales generally are on
an unsecured, open account basis and subject to credit limits that may provide a
discount for timely payment. Home delivery sales require payment prior to
shipment. The Company sells its products throughout the United States and
Canada.
Inventory
Inventory, consisting primarily of purchased finished products, is valued at the
lower of cost or market. Cost is determined by use of the first-in, first-out
method.
F-6
<PAGE>
RMED International, Inc.
Notes to Financial Statements
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the assets' estimated useful lives which range
principally from five years for equipment to 39 years for buildings.
Depreciation expense in 1997 and 1996 was $13,497 and $16,481, respectively.
Maintenance and repair costs are charged to expense as incurred, and renewals
and improvements that extend the useful life of the assets are capitalized.
Patents and Trademarks
Costs of patents are capitalized and amortized ratably over the statutory patent
life of 17 years.
Advertising
The Company expenses advertising production costs as they are incurred and
advertising communication costs the first time the advertising takes place.
Advertising expense in 1997 and 1996 was $77,008 and $41,202, respectively.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation, " (see Note
H).
Income Taxes
Deferred income taxes result from temporary differences in the recognition of
revenue and expenses for income tax and financial reporting purposes.
Earning Per Share
Earnings per share of common stock are computed using the weighted average
number of shares outstanding during each period plus common stock equivalent
shares (in periods in which they have a dilutive effect). The number of common
stock equivalents relating to stock options outstanding are computed using the
treasury stock method.
Statement of Cash Flows Information
Cash and cash equivalents include cash and short-term investments with
maturities of three months or less.
During 1997 and 1996, respectively, the Company paid interest of approximately
$27,000 and $15,000.
Non-cash transactions incurred in 1996 include the issuance of 13,000 shares of
common stock, valued at $10,929, to a vendor in partial settlement of a trade
payable.
Estimates
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
RMED International, Inc.
Notes to Financial Statements
Note B - Notes Receivable
December 31,
---------------------------
1997 1996
-------- ---------
5% note receivable from the Chairman of
the Board of Directors,
collateralized by shares in a
cooperative apartment in New York
City. Paid December 19, 1997 (See
Note F). $ - $212,911
10% note receivable (less deferred gain
of $21,646 and $36,434 at December
31, 1997 and 1996, respectively) from
a company owned by a former director
and officer, monthly payments
including principal and interest of
$4,800 for ten years beginning March
1, 1989, collateralized by certain
assets and a personal guarantee.
Effective November 15, 1991, the
monthly payment was reduced to
$4,595. (Subsequently subordinated to
the President - see Note F.) 51,359 86,444
10% note receivable (less deferred gain
of $196,864 and $208,472 at December
31, 1997 and 1996, respectively)
dated December 10, 1994, from a
company owned by a former director
and officer, monthly payments of
interest only for the first year and
$3,766 thereafter for ten years, due
December 10, 2005, collateralized by
security interest in diaper machine
and related equipment. (Subsequently
subordinated to the President - see
Note F). 57,351 60,732
-------- --------
Total 108,710 360,087
Less current maturities 39,928 64,195
-------- --------
Noncurrent maturities $ 68,782 $295,892
======== ========
Note C - Loan to Engineered Nonwovens, Inc.
On September 16, 1993, the Company loaned $300,000 to Engineered Nonwovens, Inc.
("ENI"). During 1995, the Company was notified by ENI of its financial
difficulties and inability to satisfy payments pursuant to the loan agreement.
ENI subsequently filed for bankruptcy and began a general liquidation of assets.
An auction of assets was held in May 1996, resulting in $121,109 proceeds to the
Company against the loan.
Note D - Long-Term Debt and Note Payable to President
Long-term debt consists of a mortgage note payable to a bank dated January 17,
1996, on the Delta, Colorado office and warehouse facilities. Interest on the
note is at the bank's base lending rate (adjustable annually - 9.29% at December
31, 1997), and monthly payments including principal and interest of $1,378 are
payable until January 17, 2001when the unpaid balance is due. The note is
guaranteed by the Company's President.
F-8
<PAGE>
RMED International, Inc.
Notes to Financial Statements
The future payments on the mortgage note payable matures as follows:
Year ended December 31,
1998 $ 3,244
1999 3,558
2000 3,866
2001 134,108
--------
$144,776
========
Note Payable to President
The Company owed $186,790 and $136,874 in short-term borrowings including
accrued interest, to its President at December 31, 1997 and 1996, respectively.
The note bears interest at 7% and is collateralized by two notes receivable from
a former director (see Note B - Notes Receivable) and is due on demand.
Note E - Income Taxes
As of December 31, 1997, the Company has net operating loss carryforwards
totaling approximately $3,562,000 that may be offset against future taxable
income. These loss carryforwards expire from 2004 through 2012 if not used. In
addition, the Company has a capital loss carryforward of approximately $621,000,
which expires in 1999. A tax benefit has not been reported in the accompanying
financial statements, however, because the Company is uncertain as to the
likelihood of utilization of these carryforwards. Accordingly, the approximate
tax benefit of $1,069,000 of the net operating loss carryforwards has been
offset by a valuation allowance of the same amount.
In 1993, the Company's taxable income was offset by operating losses that were
carried over from prior years and provided a federal regular income tax benefit
of approximately $1,223,000. Although the Company did not have a regular income
tax obligation in 1993, it incurred alternative minimum taxable income resulting
in 1993 income taxes payable of $77,821. Alternative minimum taxes paid are
available as a credit to reduce future regular taxes indefinitely. For financial
reporting, the credit has not been recognized as a deferred tax asset due to the
uncertainty of future utilization.
Note F - Related Party Transactions
Transactions with Chairman of the Board of Directors
In 1989, the Company purchased from the Chairman of the Board, and then
President, the shares of a cooperative apartment in New York. The purchase price
was $225,000, of which approximately $93,000 was a down payment with the balance
of approximately $132,000 payable to the Chairman. The cost of $225,000
approximated the amount originally paid for shares of the cooperative apartment
by the Chairman. On September 1, 1990, the Company sold the cooperative shares
of the apartment back to the Chairman for $225,000. Proceeds to the Company
consisted of a note receivable due from the Chairman in the amount of $94,611
(none and $212,911 outstanding at December 31, 1997 and 1996, respectively - see
Note C) and the Chairman's assumption of the related mortgage of $130,389. The
sale resulted in a gain of $17,719 in 1990. The note receivable was increased by
additional net advances, including interest, of $12,242, $38,994, $44,496 and
$86,246 in 1996, 1995, 1994 and 1993, respectively. Effective July 27, 1993, the
rate of interest on the note was reduced from 11% to 5%. On December 19, 1997,
the note receivable was repaid in full.
On January 24, 1996, the Company advanced $7,000 to a company owned by the
Chairman of the Board, which repaid the loan on March 1, 1996.
On January 30, 1996 and on March 4, 1996, the Chairman of the Board exercised
options to purchase 333,333 shares and 64,683 shares of common stock at $.30 per
share, respectively (a total of 398,016 shares and $119,404).
F-9
<PAGE>
RMED International, Inc.
Notes to Financial Statements
Transactions with President
On May 18, 1990, the Company exchanged a 50% interest in a pending patent on its
Tushies disposable diaper for $225,000 with an individual who later became the
Company's President. The patent subsequently issued in 1991, at which time the
Company also assigned the President a 50% interest in related Tushies trademarks
and other rights. The 50% interest in the patent is convertible into $225,000 in
value of common or preferred stock of the Company based on the closing bid price
of the Company's common stock on May 18, 1990, which was $.50 (a total of
450,000 shares). To date the President has not elected to exchange the patent
interest for stock. Gain from this transaction was recognized in December 1991.
The President has also elected to forgo any interest in Tushies sales with
respect to patent or other rights through December 31, 1997.
Transactions with a Former Director and Officer
On March 1, 1989, the Company sold its medical products line to a former
director and officer for approximately $413,000 (see Note B). The sale resulted
in a deferred gain of approximately $117,000 which is accounted for using the
installment method. The Company has subsequently subordinated its collateralized
security interest in the underlying assets to its President.
On December 10, 1994, the Company sold a diaper machine and related equipment
for $285,000 (see Note B and above). Monthly payments of interest only at 7%
commenced for one year beginning January 10, 1995, and thereafter are scheduled
to be increased at a 10% rate of interest with monthly principal and interest
payments of $3,766 for ten years. The sale results in a gain of $220,714, which
is accounted for using the installment method. In 1995, the Company subordinated
its collateralized security interest in the diaper machine to its President.
Note G - Commitments and Contingencies
Legal Proceedings
In August 1994, the Company commenced an action in the United States District
Court for the Southern District of New York against Sloan's Supermarkets, Inc.
and John A. Catsimatidis to recover damages based on the defendants' failure to
disclose, in its public filings and otherwise, the existence of an investigation
by the Federal Trade Commission ("FTC") regarding the concentration of
supermarkets by entities owned or controlled by the defendants. The Company
purchased approximately 226,000 shares of Sloan's common stock in November and
December 1993, in open market transactions on the American Stock Exchange,
without knowledge of the FTC investigation, and sold a portion of these shares
at a loss after June 2, 1994, when the Company learned of the FTC investigation.
The legal action has been certified as a "class action" with the Company the
class action representative. Litigation is subject to many uncertainties and the
Company is unable to predict the outcome of this matter.
Facility Lease
The Company leases its Westport, Connecticut office for $850 per month on a
month-to month basis. Rental expense on the lease for 1997 and 1996 was
approximately $10,200 and $10,500, respectively.
Note H - Stock Options and Other Stock Rights
Incentive Stock Options
In December 1984, the stockholders approved an incentive stock option plan (the
"Plan") for key employees of the Company, reserving 250,000 shares of common
stock. The options are to be granted to employees as determined by a committee
administering the Plan. The exercise price of options granted under the Plan
cannot be less than the fair market value of the common stock on the date of
grant. As of December 31, 1997, there were no outstanding options granted.
The Plan also authorizes Stock Appreciation Rights to be granted, in connection
with incentive stock options, which would permit an employee to receive an
amount equal to the difference between the exercise price of the option and the
fair market value of the Company's common stock upon the exercise date in
paid-up stock of the Company or in
F-10
<PAGE>
RMED International, Inc.
Notes to Financial Statements
cash, depending upon the Company's determination. It is not presently intended
that Stock Appreciation Rights will be granted with options under the Plan. As
of December 31, 1997, there were no outstanding rights granted.
Non-qualified Options
Outstanding options to purchase common stock at December 31, 1997, are
summarized as follows:
Number Date
of Date Option Exercise
Grantee Shares Granted Expires Price/Share
------- ------ ------- ------- -----------
Chairman of Board 1,984 7/12/95 7/11/99 $.30
300,000 1/6/97 1/5/00 .38
President 400,000 12/7/92 12/7/99 .30
100,000 7/10/95 7/9/99 .30
Director 10,000 1/6/97 1/5/00 .38
Consultant 25,000 4/7/97 4/6/99 .50
The market value of the Company's common stock approximated the options'
exercise price on the date of grant. Compensation expense related to stock
option grants was not recorded in 1997 as the option exercise prices were equal
to fair market value on the date of grant (see below).
Pro Forma Stock Based Compensation
Pro forma information regarding net income (loss) and earnings (loss) per common
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1997
----
Risk-free interest rate 6.1%
Dividend yield None
Volatility factor 129%
Weighted average expected life 35.1 months
The Company did not grant any stock options in 1996.
The Black-Scholes valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the inpput of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-11
<PAGE>
RMED International, Inc.
Notes to Financial Statements
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income (loss) and earnings (loss) per common share were as follows:
1997 1996
---------- ----------
Net Income (Loss) - as reported $(171,718) $(319,339)
Net Income (Loss) - pro forma $(269,258) $(319,339)
Earnings (Loss) Per Common Share - as reported $(0.03) $(0.05)
Earnings (Loss) Per Common Share - pro forma $(0.04) $(0.05)
Weighted average fair value of options
granted during the year $ .29 N/A
The pro forma amounts may not be representative of future disclosures since the
estimated fair value of stock options is amortized to expense over the vesting
period and additional options may be granted in future years.
Agreement to Issue Stock for to President for Patent Interest
The Company has an agreement with its President to exchange a patent interest
sold to the President for $225,000 in 1990 into 450,000 shares of common or
preferred stock of the Company (see Note F - Transactions with President). As of
December 31, 1997, the President had not elected to exchange the interest for
stock.
F-12
<PAGE>
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists each person who was a Director or Officer of the
Company at December 31, 1997, the close of the Company's last Fiscal year,
or who has served in such capacity since that date.
Age at
Dec. 31,
Name 1997 Position and Period of Service
---- ---- ------------------------------
Edward Reiss 59 Director since April 1998; Chairman of
the Board since December 1988;
Vice President since September 1990;
various other positions with the Company
between 1998 and 1990.
Brenda Schenk 54 Director since October 1990; President
andChief Executive Officer
since September 1990.
John R. Henrie 47 Director since August 1995.
No family relationships exist between any Executive Officer or Director.
Background of Listed Directors and Executive Officers
EDWARD REISS has been a Director and Officer of the Company since April
1988. Mr. Reiss directs the Company's marketing activities. Since 1975,
Mr. Reiss has been the owner and President of an injection molding
plastics company.
BRENDA SCHENK has served as President of the Company since September 1990
and as a Director since October 1990. Ms. Schenk is the President and
owner of Brandy Enterprises, Ltd., an equipment leasing company.
JOHN R. HENRIE has been a Director of the Company since August 1995. Mr.
Henrie is Controller and Treasurer of a private manufacturing and
international distribution company in the chemical light business.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash
compensation during the last two years of the Company to each of the
Company's executive officers.
Name and Principal Position Year Cash Compensation
--------------------------- ---- -----------------
Edward Reiss 1997 $60,000
Chairman & Vice President 1996 $60,000
Brenda Schenk 1997 $75,000
President & CEO 1996 $67,500
10
<PAGE>
Item 11. EXECUTIVE COMPENSATION (cont'd)
All Executive Officers 1997 $135,000
as a Group 1996 $127,500
The Company has no pension or other retirement fund.
The Directors of the Company do not receive fees for serving as Directors.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Shareholders
The following table sets forth information with respect to those persons
who owned beneficially more than 5% of the $.01 par value common stock of
the Company as of December 31, 1997, as reflected in the stock transfer
records of the Company, copies of filings on schedule 13-D or 13-G, and
otherwise to the Company's knowledge.
Name and Address(1) of Amount of Percent of
Beneficial Owner Beneficial Ownership(2) Common(5)
---------------- ----------------------- ---------
Edward Reiss 837,109(3) 11%
Brenda Schenk 2,770,221(4) 36%
(1) The addresses of all individuals are c/o RMED International, Inc.
PO Box 102
Delta, CO 81416
(2) Unless otherwise indicated, (i) all shares listed are outstanding
and (ii) beneficial owners listed have sole voting and investment
power with respect to such shares.
(3) Includes 301,984 shares reserved for issuance upon the exercise of
options to purchase common stock of the Company held by Mr. Reiss
which are presently exercisable, and includes 3,792 shares held in
trust for Mr. Reiss's daughter, Ilana.
(4) Includes 500,000 shares reserved for issuance upon exercise of
options to purchase common stock of the Company held by Ms. Schenk
which are presently exercisable. Under the terms of the Patent
Agreement dated May 18, 1990, 450,000 shares were reserved against
conversion of the 50% interest in its patent on its Tushies
disposable diaper equal to $225,000 dollars in value of common stock
of the Company based on the closing bid price of the Company's
common stock on May 18, 1990, which was $.50. These reserved shares
are included, as are 337,500 shares owned by Brandy Enterprises,
Ltd., a corporation wholly owned by Ms. Schenk.
(5) Percentage is computed as if all shares listed in column (2) for the
beneficial owners were outstanding.
11
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions with the Chairman of the Board
On March 14, 1989, the Company purchased from the Chairman of the Board,
and then President, the shares of a cooperative apartment in New York. The
purchase price was $225,000, of which approximately $93,000 was a down
payment with the balance of approximately $132,000 payable to the
Chairman. The cost of $225,000 approximated the amount originally paid for
shares of the cooperative apartment by the Chairman. On September 1, 1990,
the Company sold the shares of the apartment back to the Chairman for
$225,000. Proceeds to the Company consisted of a note receivable due from
the Chairman in the amount of $94,611 ($212,991 and $199,340 outstanding
at December 31, 1996 and 1995, respectively), and the Chairman's
assumption of the related mortgage of $130,389. The sale resulted in a
gain for the Company of $17,719 in 1990. The note receivable was increased
by additional net advances, including interest, of $12,242, $38,994, $44,
496 and $86,246 in 1996, 1995, 1994 and 1993, respectively. Effective July
27, 1993, the rate of interest on the note was reduced from 11% to 5%. On
December 19, 1997, the note receivable was repaid in full.
On January 24, 1996, the Company advanced $7,000 to a company owned by the
Chairman of the Board, which repaid the loan on March 1, 1996.
On January 30, 1996 and on March 4, 1996, the Chairman of the Board
exercised options to purchase 333,333 shares and 64,683 shares of common
stock at $.30 per share, respectively (a total of 398,016 shares and
$119,404).
Transactions with the President
On May 18, 1990, the Company exchanged a 50% interest on a pending patent
on its Tushies disposable diaper for $225,000 with an individual who later
became the Company's President. The patent subsequently issued in 1991, at
which time the Company also assigned the President a 50% interest in
related Tushies trademarks and other rights. The 50% interest in the
patent is convertible into $225,000 in value of common or preferred stock
of the Company based on the closing bid price of the Company's common
stock on May 18, 1990, which was $.50 (a total of 450,000 shares). To date
the President has not elected to exchange the patent interest for stock.
Gain from this transaction was recognized in December 1991. The President
has also elected to forgo any interest in Tushies sales with respect to
patent or other rights through December 31, 1997.
Transactions with a Former Director and Officer
On March 1, 1989, the Company sold its medical products line to a former
director and officer for approximately $413,000. The sale resulted in a
deferred gain of approximately $117,000. The Company has subsequently
subordinated its collateralized security interest in the underlying assets
to its President.
On December 10, 1994, the Company sold a diaper machine and related
equipment for $285,000. Monthly payments of interest only at 7% commenced
for one year beginning January 10, 1995, and thereafter increased to a 10%
rate of interest with monthly principal and interest payments of $3,766
for ten years. The sale resulted in a deferred gain of $220,714, which is
accounted for using the installment method. In 1995, the Company
subordinated its collateralized security interest in the diaper machine to
its President.
12
<PAGE>
Part IV
Item 14. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements See Item 8, "Financial Statements".
(b) Exhibits and Reports on Form 8-K
None.
13
<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, thereforunto duly authorized.
Dated: March 30, 1998
RMED International, Inc.
By /s/ Edward Reiss
-------------------------------
Edward Reiss, Chairman of
the Board
In accordance with the Securities Exchange Act of 1934, this report has been
signed below on March 30, 1998 by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ Edward Reiss 3/30/98
- -------------------------------------- --------------------
Edward Reiss, Chairman of the Board Date
Vice President
Director
/s/ Brenda Schenk 3/30/98
- -------------------------------------- --------------------
Brenda Schenk, Chief Executive Officer Date
President
Director
/s/ John R. Henrie 3/30/98
- -------------------------------------- --------------------
John R. Henrie, Director Date
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 178,754
<SECURITIES> 0
<RECEIVABLES> 106,082
<ALLOWANCES> 6,000
<INVENTORY> 76,604
<CURRENT-ASSETS> 455,476
<PP&E> 316,788
<DEPRECIATION> 80,213
<TOTAL-ASSETS> 777,132
<CURRENT-LIABILITIES> 409,779
<BONDS> 141,532
0
0
<COMMON> 63,710
<OTHER-SE> 162,111
<TOTAL-LIABILITY-AND-EQUITY> 777,132
<SALES> 1,684,360
<TOTAL-REVENUES> 1,684,360
<CGS> 1,091,741
<TOTAL-COSTS> 815,480
<OTHER-EXPENSES> (78,642)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,499
<INCOME-PRETAX> (171,718)
<INCOME-TAX> 0
<INCOME-CONTINUING> (171,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,718)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
