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, 1998
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)
3954 North Hastings Way, Eau Claire, WI 54702
(Address of Principal Offices)
715-831-0280
(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 9,195,958 shares of the Registrant stock $.01 par value common stock
outstanding as of December 31, 1998.
<PAGE>
RMED International, Inc.
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1998
Table of Contents
Form 10-KSB
Item Number
Page
Part I
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to Vote of Security Holders 4
Part II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 4
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 8. Financial Statements 8
Item 9. Changes in and Disagreements on Accounting
and Financial Disclosure 8
Part III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 11
Item 13. Certain Relationships and Related Party Transactions 12
Part IV
Item 14. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
Part I
Item 1. BUSINESS
General
RMED International, Inc. (the "Company") was incorporated under the
laws of the State of Colorado on December 28, 1982, and is in the
business of manufacturing, marketing and selling baby disposable
diapers and related products under its own branded labels and
private branded labels.
Business Strategy
On November 23, 1998, the Company acquired Jettar, Ltd. ("Jettar"),
a privately held diapers manufacturing and distributing company
located in Eau Claire, WI. As a result of the acquisition RMED now
has the capability of manufacturing its own baby diaper products in
addition to manufacturing private label diapers. Various RMED
products are manufactured by outside private label manufacturers
pursuant to Company specifications.
The acquired facility is over 80,000 square feet and is used as a
central distribution point for all RMED products. RMED now has its
own full machine shop and a testing lab in which we can pursue our
goal of improving absorbency with natural materials. The acquired
diaper machine produces up to 400 disposable diapers per minute and
has a value of over two million dollars.
The Company is marketing its products internationally through health
products stores, mainstream supermarkets, the Internet, mail order,
catalogues and in a direct marketing partnership with Earth's Best
Baby Food, a division of H.J. Heinz Company.
Product Description
Tushies(R)-The Alternative Disposable Diaper featuring its patented
natural blend cotton absorbency and cloth-like backsheet is
available in four sizes and sold primarily in health product stores,
mail order, catalogues and the Internet on the ECOMALL and EARTH'S
BEST Baby Food Websites. Earth's Best is the largest certified
organic baby food manufacturer in the United States.
TushiesWipes-Under the TushiesWipes brand, the Company offers
natural formula wipes in Tubs, Refills and TravelPacks. The wipes
contain Aloe Vera, are Hypo-Allergenic and Alcohol-FREE.
TushiesBear T-Shirt-made with 100% organic cotton.
Bibbies(R)-Patented and invented by a pediatrician, the non-toxic,
absorbent and waterproof disposable bibs are sold through our normal
channels.
TenderCare(R) Disposable Diapers-Manufactured by RMED allowing us to
be price and design competitive with the leading national brands.
TenderCare is made without artificial chemical absorbents and is
sold in major supermarkets and health product stores.
Bumpies(R) Disposable Diapers-a mainstream diaper that is sold
through major supermarkets in the Midwest and Mid-Atlantic regions
at a competative price in regular, jumbo, and mega-size packaging.
Rock-A-Bye(R) Disposable Diapers-sold internationally to
distributors and retailers under branded and private labels.
3
<PAGE>
Item 1. BUSINESS cont'd
Patents, Trademarks and Registrations
The Company currently holds patents, registrations, various
trademarks and Internet domain names for its products.
Employees
As of December 31, 1998, the Company had over 50 full and part-time
employees.
Item 2. PROPERTIES
The principal office of the Company is located at 3925 North
Hastings Way, Eau Claire, Wisconsin, 54702 under a lease agreement.
The 10, 000 S.F. Delta, Colorado brick facility, owned by the
Company, is on two and one-half acres in an industrial park. At this
location the Company maintains its mail order and phone operations
and warehouses its products for West Coast distribution.
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, 1998, 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 he
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.
4
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following page contains the Statement of Operations for RMED for
the years ended December 31, 1997 and 1998. More detailed financial
information, with accompanying notes, is presented in Item 8.
5
<PAGE>
RMED International, Inc.
Statement of Operations
Year Ended December 31,
------------------------------
1998 1997
------------ ------------
SALES $ 17,599,885 $ 9,119,122
COST OF GOODS SOLD (10,676,660) (6,314,393)
------------ ------------
GROSS PROFIT 6,923,225 2,804,729
------------ ------------
OPERATING EXPENSES
Sales and marketing 5,985,933 3,366,696
General and administrative 1,354,540 1,174,843
------------ ------------
7,340,473 4,541,539
------------ ------------
OPERATING INCOME (LOSS) (417,248) (1,736,810)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (284,251) (273,162)
Interest income 30,493 47,888
Gain on sale of assets and other 56,602 33,228
------------ ------------
(197,156) (192,046)
------------ ------------
NET INCOME (LOSS) $ (614,404) $(1,928,856)
============ ============
BASIC EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.23)
============ ============
DILUTED EARNINGS PER SHARE $ (0.07) $ (0.23)
============ ============
WEIGHTED AVERAGE SHARES - BASIC 9,194,465 8,391,583
============ ============
WEIGHTED AVERAGE SHARES - DILUTIVE 9,194,465 8,391,583
============ ============
See accompanying notes.
6
<PAGE>
Item 7. MANAGEMENT"S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Material Changes in Financial Position
Total assets of the Company decreased $567,379 from $5,328,481 at
December 31, 1997 to $4,661,102 at December 31, 1998. This decrease
was attributable primarily to losses from operations.
During the twelve month period ended December 31, 1998, net working
capital decreased $1,471,832 due to increases in current maturities
of long term debt, accounts payable and accrued liabilities, and
decreases in accounts receivable, inventory, prepaid and other
assets and note payable to the President.
Total liabilities at December 31, 1998 were $4,808,591 compared to
$4,865,515 at December 31, 1997. The decrease of total liabilities
of $56,924 was primarily due to a decrease in a note payable to the
President.
Total stockholders' equity decreased $610,455 during the
twelve-month period ended December 31, 1998. The decrease was
primarily a result of operating losses.
Material Changes in Results of Operations
Net sales for the year ended December 31, 1998 were $17,599,885
compared to net sales of $9,119,122 in 1997, an increase of 93%. The
increase was due to aggressive sales and marketing campaigns.
Gross profit for the year ended December 31, 1998 was $6,923,225
compared to $2,804,729 in 1997, an increase of 147%, primarily due
to an increase in sales offset by increases in total product costs
and operating expenses, reductions in production and raw material
costs.
Operating expenses for the years ended December 31, 1998 and 1997
were $7,340,473 and $4,541,539, respectively, largely due to
increases in sales and marketing expenses.
The net (loss) for the years 1998 and 1997 were ($614,404) and
($1,928,856), respectively. The decrease in the net loss for 1998 is
due to the factors discussed above.
Liquidity and Capital Resources
On December 31, 1998 the Company's working deficit of ($791,857)
consisted of $2,150,692 in current assets and $2,942,549 in current
liabilities.
As of December 31, 1998 the Company's long term debt was $3,220,448,
consisting of a $141,510 mortgage payable on the Delta, Colorado
facility, which was refinanced January 17, 1996, and a bank line of
credit of $3,052,000.
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.
7
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION cont'd
Except for historical matters contained herein, the matters
discussed are forward-looking and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that these forward-looking statements
may reflect numerous assumptions, especially sales and product mix,
and involve risks and uncertainties which may affect RMED
International, Inc.'s business and prospects and cause actual
results to differ materially from these forward-looking statements.
Year 2000 Issues
The Eau Claire, WI facility is fully Y2K compliant. The Delta,
Colorado facility will be compliant within the next 120 days.
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
8
<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, 1998 and 1997 F-2
Statement of Operations for the years ended
December 31, 1998 and 1997 F-3
Statement of Cash Flows for the years ended
December 31, 1998 and 1997 F-4
Statement of Changes in Stockholders' Equity for
the years ended December 31, 1998 and 1997 F-5
Notes to Financial Statements F-6
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'
March 17, 1999 (except as to Note J
which is as of March 31, 1999)
To the Board of Directors:
RMED International, Inc.
Eau Claire, Wisconsin
We have audited the accompanying balance sheet of RMED International, Inc. (a
Colorado corporation) as of December 31, 1998 and 1997, and the related
statements of operations, cash flows and changes in stockholders' equity
(deficit) 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, 1998 and 1997 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
OATLEY BYSTROM & HANSEN
Greenwood Village, Colorado
F-1
<PAGE>
RMED International, Inc.
Balance Sheet
December 31,
--------------------------
1998 1997
----------- -----------
CURRENT ASSETS
Cash $ 120,504 $ 179,547
Accounts receivable, less allowance for doubtful
accounts of $29,000 and $28,000, respectively 832,898 920,202
Notes receivable, current maturities 25,180 39,928
Inventory 979,770 1,012,125
Prepaid and other 192,340 277,858
----------- -----------
Total current assets 2,150,692 2,429,660
----------- -----------
NOTES RECEIVABLE, less current maturities 47,034 68,782
----------- -----------
PROPERTY AND EQUIPMENT
Land and building 245,000 245,000
Furniture and office equipment 105,116 67,790
Machinery and equipment 2,712,186 2,707,067
----------- -----------
3,062,302 3,019,857
Less accumulated depreciation (642,779) (352,763)
----------- -----------
2,419,523 2,667,094
OTHER ASSETS 43,853 162,945
----------- -----------
$ 4,661,102 $ 5,328,481
=========== ===========
CURRENT LIABILITIES
Long -term debt, current maturities $ 1,354,406 $ 11,274
Note payable to President 71,860 186,790
Bank overdraft -- 286,236
Accounts payable 1,212,689 1,093,199
Accrued liabilities and other 303,594 172,186
----------- -----------
Total current liabilities 2,942,549 1,749,685
----------- -----------
LONG-TERM DEBT, less current maturities 1,866,042 3,115,830
----------- -----------
Total liabilities 4,808,591 4,865,515
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value; 2,500,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 9,195,958 and 9,200,186 shares
issued and outstanding 91,960 92,002
Contributed capital 7,534,712 7,530,721
Accumulated deficit (7,774,161) (7,159,757)
----------- -----------
(147,489) 462,966
----------- -----------
$ 4,661,102 $ 5,328,481
=========== ===========
See accompanying notes.
F-2
<PAGE>
RMED International, Inc.
Statement of Operations
Year Ended December 31,
------------------------------
1998 1997
------------ ------------
SALES $ 17,599,885 $ 9,119,122
COST OF GOODS SOLD (10,676,660) (6,314,393)
------------ ------------
GROSS PROFIT 6,923,225 2,804,729
------------ ------------
OPERATING EXPENSES
Sales and marketing 5,985,933 3,366,696
General and administrative 1,354,540 1,174,843
------------ ------------
7,340,473 4,541,539
------------ ------------
OPERATING INCOME (LOSS) (417,248) (1,736,810)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (284,251) (273,162)
Interest income 30,493 47,888
Gain on sale of assets and other 56,602 33,228
------------ ------------
(197,156) (192,046)
------------ ------------
NET INCOME (LOSS) $ (614,404) $(1,928,856)
============ ============
BASIC EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.23)
============ ============
DILUTED EARNINGS PER SHARE $ (0.07) $ (0.23)
============ ============
WEIGHTED AVERAGE SHARES - BASIC 9,194,465 8,391,583
============ ============
WEIGHTED AVERAGE SHARES - DILUTIVE 9,194,465 8,391,583
============ ============
See accompanying notes.
F-3
<PAGE>
RMED International, Inc.
Statement of Cash Flows
Year Ended December 31,
-------------------------
1998 1997
--------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(614,404) $(1,928,856)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 290,016 286,313
Amortization of deferred compensation 96,684 53,324
Stock issued for services 14,649 --
Changes in current assets and liabilities:
Accounts receivable 87,304 (856,935)
Inventory 32,355 (677,625)
Prepaid and other 85,518 (156,035)
Accounts payable and accrued liabilities 250,898 (1,036,081)
--------- -----------
NET CASH FROM OPERATIONS 243,020 (4,315,895)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments received on notes receivable 36,496 38,466
Collection of note receivable from Chairman -- 212,911
Purchases of equipment (42,445) (146,002)
Increase in other assets 22,408 (40,224)
--------- -----------
NET CASH FROM INVESTING ACTIVITIES 16,459 65,151
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on bank line-of credit, net 104,000 2,948,000
Increase (decrease) in bank overdraft (286,236) 286,236
Increase in note payable to President 42,500 82,852
Payments on note payable to President (157,430) (32,936)
Payments on long-term debt (10,656) (11,282)
Acquisition of common stock (10,700) (112,000)
Proceeds from sale of common stock -- 1,025,000
Dividends paid to stockholders -- (8,466)
--------- -----------
NET CASH FROM (USED FOR) FINANCING ACTIVITIES (318,522) 4,177,404
--------- -----------
NET INCREASE (DECREASE) IN CASH (59,043) (73,340)
CASH, beginning of year 179,547 252,887
--------- -----------
CASH, end of year $ 120,504 $ 179,547
========= ===========
See accompanying notes.
F-4
<PAGE>
RMED International, Inc.
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------- Contributed Accumulated
Shares Amount Capital Deficit
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
January 1, 1997 8,124,611 $ 81,247 $ 6,628,476 $(5,222,435)
Stock issued for cash 1,198,330 11,983 1,013,017 --
Acquisition of stock for cash (122,756) (1,228) (110,772) --
Dividends -- -- -- (8,466)
Net loss -- -- -- (1,928,856)
--------- -------- ------------ -----------
December 31, 1997 9,200,185 92,00# 7,530,721 (7,159,757)
Stock issued for services 25,000 250 14,399 --
Acquisition of stock for cash (29,227) (292) (10,408) --
Net loss -- -- -- (614,404)
--------- -------- ------------ -----------
December 31, 1998 9,195,958 $ 91,960 $ 7,534,712 $(7,774,161)
========= ======== =========== ===========
</TABLE>
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. Based in Eau Claire, Wisconsin, the Company is
engaged in the manufacture of disposable baby diapers for private label
distributors and its own Bumpies(R) and Rock-A-Bye(R) brands as well as
marketing and distribution of its Tushies(R) brand disposable diapers and
related products. The Company's private brand diapers are marketed through
independent commissioned brokers and sold to retail grocery chains in the
Midwest and Mid-Atlantic regions.
Merger with Jettar, Inc.
Effective November 23, 1998, the Company merged with Jettar, Ltd. ("Jettar"), a
privately held diaper manufacturing and distributing company located in Eau
Claire, Wisconsin, by issuing 2.8 million shares of its common stock in exchange
for all the outstanding common stock of Jettar based on a conversion ratio of
approximately 292.275574 shares of RMED common stock for each share of Jettar
common stock. In addition, Jettar stockholders received options to purchase a
total of 810,924 shares of RMED common stock for two years at $1 per share. As a
result of the merger, the separate existence of Jettar ceased. The merger
qualifies as a tax-free reorganization and has been accounted for as a "pooling
of interests." Under this method of accounting, the previously issued financial
statements of RMED have been restated to include the assets, liabilities,
stockholders' equity and results of operations of Jettar for all periods
presented. All share and per share amounts related to the merger are also
reflected for all periods presented. The Company incurred professional fees of
approximately $106,900 directly related to the merger.
For periods preceding 1998, there were no intercompany transactions requiring
elimination from the combined results of operations, and there were no
adjustments necessary to conform the accounting practices of the two companies.
Selected financial information for the combining entities included in the
statement of operations for 1998 and 1997 are as follows:
Year Ended December 31,
-----------------------
1998 1997
Sales:
Jettar $ 15,789,601 $ 7,434,762
RMED 2,322,939 1,684,360
Eliminating entries (512,655) --
------------ -----------
Combined $ 17,599,885 $ 9,119,122
============ ===========
Net income (loss):
Jettar $ (455,207) $(1,757,138)
RMED (156,319) (171,718)
Eliminating entries (2,878) --
------------ -----------
Combined $ (614,404) $(1,928,856)
============ ===========
F-6
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
Major Customers
Sales to major customers as a percentage of annual sales were to two
distributors (20% and 10% of total sales) in 1998 and one distributor (11% of
total sales) in 1997. Accounts receivable from these customers represents
approximately 55% of total accounts receivable at December 31, 1998.
Major Supplier
The Company purchased raw materials and finished products in 1998 and 1997 from
two and four vendors, respectively; totaling approximately $2,882,000 and
$3,350,000 or 28% and 55% of total purchases. Purchases from each vendor ranged
from 13% to 18%. As of December 31, 1998, outstanding accounts payable to these
vendors totaled approximately $298,000.
Summary of Significant Accounting Policies
Revenue Recognition and Concentrations of Credit Risk
Sales are recognized when products are shipped, net of allowances for sales
returns, promotional and trade discounts. Wholesale sales generally are on an
unsecured, open account basis and subject to credit limits that typically
provide a two percent trade discount for timely payment. Home delivery sales
require payment prior to shipment. The Company sells its products
internationally.
Inventory
Inventory is valued at the lower of cost or market. Cost is determined by use of
the first-in, first-out method. Inventories consist of the following at December
31:
1998 1997
---------- ----------
Raw materials $ 387,200 $ 426,819
Finished goods 592,570 585,306
---------- ----------
$ 979,770 $1,012,125
========== ==========
F-7
<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 office equipment, 10 years for manufacturing
equipment to 39 years for buildings. Depreciation expense in 1998 and 1997 was
$290,015 and $277,526, respectively. Amortization of leased property under
capital leases is provided using the straight-line method over the term of
lease.
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 and Slotting Costs
Production costs of advertising (including the cost of coupons) are expensed the
first time the advertising takes place. All other advertising and promotional
costs are expended when incurred. Advertising and coupon costs, which are
included in sales and marketing expenses for 1998 and 1997 amount to $4,273,439
and $1,477,235, respectively. Slotting fees paid retailers for shelf space are
expensed upon first shipment to the retailer and are also included in sales and
marketing expenses. Slotting fees expended in 1998 and 1997 amount to $445,669
and $1,069,424, 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
G).
Long-Lived Assets
The Company reviews for the impairment of long-lived assets, certain
intangibles, and associated goodwill, whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss would be recognized when the estimated future
cash flows is less than the carrying amount of the asset. The Company has not
identified any impairment losses involving the periods presented.
F-8
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
Income Taxes
Deferred income taxes result from temporary differences in the recognition of
revenue and expenses for income tax and financial reporting purposes. These
differences are primarily due to depreciation.
From its inception until merger on November 23, 1998, Jettar was an S
corporation under the provisions of the Internal Revenue Code and, accordingly,
no provision was made for income taxes since all income, deductions, gains,
losses and credits were reported on the income tax returns of the Jettar
stockholders.
Earning Per Share
Basic earnings per share are computed using the weighted average number of
shares outstanding during each period. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding plus the dilutive
effect of outstanding stock options using the "treasury stock" method.
The basic and diluted earnings per share are the same since the Company had a
net loss for 1998 and 1997 and the inclusion of stock options and other
incremental shares (issuable at the election of the Company's President see
Notes E and G) would be antidilutive.
Statement of Cash Flows Information
Cash and cash equivalents include cash and short-term investments with
maturities of three months or less. During 1998 and 1997, respectively, the
Company paid interest of approximately $284,000 and $273,000. Non-cash
transactions include: in 1998, 25,000 shares of common stock issued for legal
services valued at $14,649; in 1997, $42,607 in equipment acquired pursuant to
capital leases.
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-9
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
Note B - Notes Receivable Notes receivable consist of the following:
December 31,
------------
1998 1997
---- ----
10% note receivable (less deferred gain of
$8,261 and $21,646, respectively) from
former officer, monthly payments including
principal and interest of $4,595 through
June 1999, secured by certain assets and
personal guarantee (see Note F). $ 19,602 $ 51,359
10% note receivable (less deferred gain of
$180,599 and $196,864, respectively), from
former officer, monthly payments of $3,766
through December 2005, secured by equipment
(see Note F). 52,612 57,351
-------- --------
Total 72,214 108,710
Less current maturities (25,180) (39,928)
-------- --------
Non-current maturities $ 47,034 $ 68,782
======== ========
Note C - Long-Term Debt and Notes Payable
Long-term debt and notes payable consist of the following:
December 31,
------------
1998 1997
---- ----
Bank line-of credit (see below) $ 3,052,000 $ 2,948,000
Mortgage note payable (see below) 141,510 144,776
Capital leases (see Note F) 26,938 34,328
----------- -----------
Total 3,220,448 3,127,104
Less current maturities (1,354,406) (11,274)
----------- -----------
Non-current maturities $ 1,866,042 $ 3,115,830
=========== ===========
Bank Line-of Credit
November 20, 1998, the Company's bank line-of credit loan agreement was renewed
and extended to June 30, 2000. Interest, which is payable monthly was increased
from 1/2 % to 3/4 % above the bank's prime rate (a combined total of 8 1/2
percent as of December 31, 1998). Borrowings are limited by a percentage of
qualified receivables, inventory, fixed assets and secured by substantially all
Company assets; also, bank approval is required for significant corporate
activities including capital expenditures, sale of stock and payment of
dividends. Future maximum borrowings under the line-of credit are as follows:
January 1, 1999 through January 31, 1999 $3.1 million
February 1, 1999 through February 28, 1999 3.0 million
March 1, 1999 through March 31, 1999 2.9 million
April 1, 1999 through April 30, 1999 2.8 million
May 1, 1999 through May 31, 1999 2.7 million
June 1, 1999 through June 30, 1999 2.56 million
July 1, 1999 through September 30, 1999 2.135 million
October 1, 1999 through December 31, 1999 1.71 million
January 1, 2000 through June 30, 2000 1.3 million
F-10
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
Mortgage Note Payable
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 - 8 3/4 percent at
December 31, 1998), and monthly payments including principal and interest of
$1,409 are payable until January 17, 2001 when the unpaid balance is due. The
note is guaranteed by the Company's President.
Installments due on debt principal, including capital leases mature as follows:
Year ended December 31:
1999 $1,355,834
2000 1,722,651
2001 142,163
----------
$3,220,648
==========
Note Payable to President
The Company owed $71,860 and $186,790 in short-term borrowings including accrued
interest, to its President at December 31, 1998 and 1997, respectively. The note
bears interest at 7%, is collateralized by two notes receivable from a former
officer (see Note B - Notes Receivable) and is due on demand.
Note D - Income Taxes
As of December 31, 1998, the Company has a net operating loss carryforward
totaling approximately $3,840,000 that may be offset against future taxable
income. This loss carryforward expires from 2004 through 2018 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 the carryforward. Accordingly, the approximate tax
benefit of $1,153,000 of the net operating loss carryforward has been offset by
a valuation allowance of the same amount, an increase of $84,000 in 1998.
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 E - Related Party Transactions
Transactions with Chairman of the Board of Directors
In 1989, the Company purchased a New York apartment from its Chairman for
$225,000, the approximate amount originally paid for the apartment by the
Chairman. September 1, 1990, the Company sold the apartment
F-11
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
back to the Chairman for $225,000 for his assumption of the outstanding mortgage
and a note receivable that was repaid in full by the Chairman on December 19,
1997.
Transactions with President
On May 18, 1990, the Company sold a 50% interest in a pending patent on its
Tushies disposable diaper for $225,000 with 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%
patent interest is convertible into 450,000 shares of common or preferred stock
of the Company. 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 patent or other rights through December 31, 1998.
Transaction with Director and Other Officers
In 1998 and 1997, the Company paid a related company $26,894 and $43,824 for
operating supplies, administrative and accounting services, respectively; a
director of the Company is a major stockholder of the related company. Another
officer was paid $30,007 and $29,239 in 1998 and 1997 for legal services,
respectively.
Transactions with a Former 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 to the former officer
and related equipment for $285,000 (see Note B). The sale resulted in a deferred
gain of approximately $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 F - 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
F-12
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
Company the class action representative. Litigation is subject to many
uncertainties and the Company is unable to predict the outcome of this matter.
Royalty Agreements
September 2, 1998, the Company entered into an agreement with a national diaper
manufacturer, wherein it was alleged the Company had infringed on certain patent
rights. The agreement requires payment of royalties to the manufacturer of three
percent of net sales of certain disposable diapers effective August 13, 1998 for
the term of the patents. In 1998, royalty expense related to the agreement was
$54,688.
January 12, 1997, the Company paid a license fee of $10,000 when it entered into
a license agreement with another company. The license grants the Company a
non-exclusive license to manufacture and sell diapers covered by a patent for a
royalty though July 3, 2007. The royalty rate is .11% of applicable sales in
1998 and .10% thereafter. The Company may terminate the agreement upon six
months written notice. In 1998 and 1997, royalty expense pursuant to this
agreement was $12,523 and $8,232, respectively.
Capital Leases
The Company leases a copier and two forklifts. Upon expiration of the leases,
the Company may purchase the leased equipment at fair market value. Since the
leases qualify as capital leases, the $42,607 present value of the minimum lease
payments at the inception of the leases is included in the cost of property and
equipment. Future minimum lease payments are as follows:
Year ending December 31,
1999 $11,577
2000 10,071
2001 9,232
-------
Total payments 30,880
Amount representing interest (3,942)
-------
Present value of future
minimum lease payments $26,938
=======
Remaining capital lease obligations are classified as follows in the
balance sheet:
Current maturities $ 8,671
Long-term 18,267
-------
$26,938
=======
Operating Leases
The Company leases its manufacturing, warehouse and office facility in Eau
Claire, Wisconsin pursuant to an agreement ending December 31, 2001. The annual
base rent of $187,920 is subject to increases in inflation and the Company is
responsible for principally all operating expenses. The agreement provides the
Company
F-13
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
options to renew the lease for two successive five-year terms. Rent for the
facility was $187,920 and $187,920 in 1998 and 1997, respectively.
The Company leases certain telephone equipment with terms ending in 2001, with
combined monthly payments obligations of $572. Minimum annual rentals subsequent
to 1998 for operating leases are as follows:
Year ending December 31,
1999 $193,641
2000 192,035
2001 192,035
--------
$577,711
========
Note G - Stockholders' Equity, Stock Options and Other Stock Rights
May 6, 1998, the Company issued 25,000 shares of common stock to an attorney for
legal services with an estimated value of $14,649 ($.59 per share).
September 17, 1997, five investors paid Jettar $1 million to purchase 1,169,102
shares of common stock ($.86 per share).
June 30, 1997, Jettar hired a chief executive officer that acquired 29,227
shares for $25,000 ($.86 per share) with funds paid him pursuant to an
employment agreement. The officer was terminated March 23, 1998, and the 29,227
shares previously issued were repurchased and cancelled by the Company for
$10,700 ($.37 per share).
March 3, 1997, the Company acquired 122,756 shares of stock from a Jettar
investor for $112,000 ($.91 per share). The sale price included a provision for
interest of $7,000. The purchased shares were canceled in 1998.
April 1, 1996, Jettar issued 222,129 shares to two officers for future services,
which were to vest annually over a three-year period beginning December 31,
1997. Accordingly, the estimated cost of the deferred compensation, $190,000
($.86 per share), was recorded in 1996 and was being amortized to expense over
the vesting period. As a result of the November 23, 1998 merger of RMED and
Jettar, the shares became fully vested and the remaining deferred compensation
was recognized. Compensation expense recorded for the shares in 1998 and 1997
was $96,684 and $53,324, respectively.
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, 1998, no options have been granted.
F-14
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
Stock Appreciation Rights
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 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, 1998, no rights have
been granted.
Non-qualified Options
Outstanding options to purchase common stock at December 31, 1998, are
summarized as follows:
Number Date
of Date Option Exercise
Grantee Shares Granted Expires Price/Share
------- ------ ------- ------- -----------
Chairman 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).
In connection with the November 1998 merger with Jettar, stock options covering
a total of 810,924 shares of common stock were issued to Jettar shareholders.
The options are exercisable for two years at $1 per share.
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:
1998 1997
---- ----
Risk-free interest rate 4.5% 6.1%
Dividend yield None None
Volatility factor 113% 129%
Weighted average expected life 24 months 35.1 months
F-15
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
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 input 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.
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:
1998 1997
---------- -----------
Net Income (Loss) - as reported $(614,404) $(1,928,856)
Net Income (Loss) - pro forma $(692,121) $(2,026,396)
Earnings (Loss) Per Common Share - as reported $(0.07) $(0.23)
Earnings (Loss) Per Common Share - pro forma $(0.08) $(0.24)
Weighted average fair value of options
granted during the year $1.09 $ .29
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 E-Transactions with President). As of
December 31, 1998, the President had not elected to exchange the interest for
stock.
Note H - Employee Benefit Plan
In 1998, Jettar adopted a 401(K) savings plan for employees who are not covered
by any collective bargaining agreement, have attained age 21 and have completed
one year of service. Employee and Company matching contributions are
discretionary. The Company did not make matching contributions in 1998 or 1997.
Note I - Fair Value of Financial Instruments
Disclosures about the fair value of financial instruments are presented below.
The determination of fair value is subjective in nature and involves
uncertainties and significant matters of judgement and do not include income tax
considerations. Therefore, the results cannot be determined with precision and
cannot be substantiated by
F-16
<PAGE>
RMED INTERNATIONAL, INC.
Notes to Financial Statements
comparison to independent market values and may not be realized in actual sale
or settlement of the instruments. Also, there may be inherent weaknesses in any
calculation technique, and changes in the underlying assumptions used could
significantly affect the results. The following table presents a summary of the
Company's financial instruments as of December 31, 1998:
Carrying Estimated
Amount Fair Value
------ ----------
Financial assets:
Cash and cash equivalents $ 120,504 $ 120,504
Notes receivable 72,214 72,214
Financial Liabilities:
Long-term debt 3,220,448 3,220,448
Note payable to president 71,860 71,860
The carrying amounts for cash and cash equivalents, receivables, accounts
payable and accrued expenses approximates fair value because of the short
maturities of these instruments. The fair value of long-term debt and the note
payable to President, including current maturities, approximates fair value
because of the market rate of interest on the debt and the interest rate
implicit in the obligations under capital leases.
Note J - Director Loans Subsequent to December 31, 1998
March 31, 1999, two members of the board of directors loaned the Company
$250,000 (a total of $500,000). The loans bear interest at the rate of 7 1/2%,
payable monthly in arrears beginning May 1, 1999, and unpaid principal and
accrued interest is due December 15, 1999. The loans are unsecured and
subordinate to the bank line-of-credit (see Note C).
F-17
<PAGE>
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, 1998, the close of the Company's last
Fiscal year, or who has served in such capacity since that date.
Age at
Dec. 31,
Name 1998 Position and Period of Service
---- ---- ------------------------------
Edward Reiss 60 Director since April 1988; Chairman of
the Board since December 1988; Co-CEO
since January 1999; Vice President
since September 1990; Secretary since
1990
Brenda Schenk 55 Director since October 1990; President
and CEO since September 1990; Co-CEO
since January 1999; Treasurer since
1990
Todd L. Nelson 40 Vice President Operations since
January 1999
Thomas A. Biebel 58 Director since January 1999
John Harry 52 Director since January 1999
George Reinbacher 71 Director since January 1999
No family relationships exist between any Executive Officer or
Director.
Background of Listed Directors and Executive Officers
EDWARD REISS has been a Director, Chairman of the Board and Officer
of the Company since April 1988. Mr. Reiss directs the Company's
marketing activities and serves as Co-CEO. Mr. Reiss is the owner
and President of an injection molding plastics company.
BRENDA SCHENK has been a Director of the Company since October 1990
and served as President and CEO since September 1990 and Co-CEO
since January 1999. Ms Schenk is the President and owner of Brandy
Enterprises, Ltd., an eqiupment leasing company. Ms Schenk is
co-owner and Vice President of Mr. Reiss's injection molding
plastics company.
TODD L. NELSON was Maufacturing Supervisor at Pope & Talbot from
1977-1992, General Manager at Universal Converter from 1992-1995 and
Vice President & General Manager of Jettar Ltd. from 1996-1998.
THOMAS A. BIEBEL has been the majority owner, President and CEO of
Belson Company, a distributor of paper packaging and industrial
products, since 1987. Mr Biebel was Chairman and President of the
Wisconsin Film and Bag Company from 1988 to 1993 and served as
Chairman of the Board of Jettar, Ltd. from 1997 until 1998.
JOHN O. HARRY has been majority owner, Chairman of the Board,
President and CEO of Corrosion Technologies, Inc. since 1988.
GEORGE REINBACHER was Vice President and General Manager of the
Absorbent Products Division of Pope & Talbot until his
semi-retirement in 1991. Mr Reinbacher serves on the board of
Spectrum Industries, manufacturers of office furniture.
10
<PAGE>
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 1998 $ 99,700
Chairman & Vice President 1997 $ 60,000
Brenda Schenk 1998 $ 87,500
President & CEO 1997 $ 75,000
All Executive Officers 1998 $187,200
as a Group 1997 $135,000
In 1998 the Directors of the Company did not receive fees for
serving as Directors.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENFICIAL 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, 1998, 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(7)
----------------------- ----------------------- ----------
Edward Reiss 837,109(3) 9%
Brenda Schenk 2,650,221(4) 29%
Thomas A. Biebel 1,289,340(5) 14%
John O. Harry 964,764(6) 10%
(1) The addresses of all individuals are
c/o RMED International, Inc.
3954 No. Hastings Way
Eau Claire, WI 54702
(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 hares 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
execisable. 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.
11
<PAGE>
Item 12. SECURITY OWNERSHIP cont'd
(5) Includes 305,535 shares reserved for issuance upon exercise of
options to purchase common stock of the Company held by Mr
Biebel which are presently exercisable.
(6) Includes 192,529 shares reserved for issuance upon exercise of
options to purchase common stock of the Company held by Mr
Harry which are presently exercisable.
(7) Percentage is computed as if all shares listed in column (2)
for the beneficial owners were outstanding.
Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions with the Chairman of the Board
None
Transactions with the President
None
Transactions with a Former Director and Officer
None
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) Form 8K dated December 1, 1998, reporting the acquisition, was
filed by the Company with the Securities Exchange Commission.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 05 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 25, 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 25, 1998 by the following persons on behalf of the
Registrant and in the capacity indicated.
/s/ Edward Reiss 3/25/99
- -------------------------------------------- ---------------
Edward Reiss, Chairman of the Board Date
Co-CEO, Vice President, Secretary
Director
/s/ Brenda Schenk 3/25/99
- -------------------------------------------- ---------------
Brenda Schenk, President Date
Co-CEO, Treasurer
Director
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-03-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 120,504
<SECURITIES> 0
<RECEIVABLES> 832,898
<ALLOWANCES> 29,000
<INVENTORY> 979,770
<CURRENT-ASSETS> 2,150,692
<PP&E> 3,062,302
<DEPRECIATION> 642,779
<TOTAL-ASSETS> 4,661,102
<CURRENT-LIABILITIES> 2,942,549
<BONDS> 1,866,042
0
0
<COMMON> 91,960
<OTHER-SE> (239,449)
<TOTAL-LIABILITY-AND-EQUITY> 4,661,102
<SALES> 17,599,885
<TOTAL-REVENUES> 17,599,885
<CGS> 10,676,660
<TOTAL-COSTS> 7,340,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284,251
<INCOME-PRETAX> (614,404)
<INCOME-TAX> 0
<INCOME-CONTINUING> (614,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614,404)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
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