FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES ACT OF 1934
For the quarterly period ended November 30, 2001
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Commission File Number 0-12305
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REPRO-MED SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
New York 13-3044880
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24 Carpenter Road, Chester, NY 10918
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (845) 469-2042
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at Nov. 30, 2001
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Common stock, $.01 par value 23,504,000 shares
Repro-Med Systems, Inc.
Table of Contents
Part I PAGE
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Item 1. Financial Statements
Balance Sheet - November 30, 2001 ................................ 3
Statements of Income - for the three-months and
nine months ending November 30,2001
and November 30, 2000 ............................................ 4
Statements of Cash Flow -
November 30,2001 and 2000 ........................................ 5
Notes to Financial Statements .................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 7
Part II
Item 1. Legal Proceedings ................................................ 10
Item 2. Changes in Securities and Use of Proceeds ........................ 10
Item 3. Defaults Upon Senior Securities .................................. 10
Item 4. Submission of Matters to a Vote of Security Holders .............. 10
Item 5. Other Information ................................................ 10
Item 6. Exhibits and Reports on Form 8-K ................................. 10
2
REPRO-MED SYSTEMS, INC
BALANCE SHEETS
ASSETS 11-30-01
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CURRENT ASSETS
Cash & Cash Equivalents $37,141
Accounts Receivable, net 150,881
Inventory 650,018
Prepaid Expenses & Other Receivables 31,836
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TOTAL CURRENT ASSETS 869,876
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EQUIPMENT & OTHER ASSETS
Total Equipment 1,170,197
Less - Accumulated Depreciation (688,076)
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Net Book Value of Equipment 482,121
Deposits 40,000
Other Assets 50,498
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TOTAL EQUIPMENT & OTHER ASSETS 572,619
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TOTAL ASSETS $1,442,495
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LIABILITIES & STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Accounts Payable $169,434
Accrued Expenses 160,699
Current Portion Capital Gain 22,481
Current Portion of Leases Payable 21,646
Bank Line of Credit Payable 200,000
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Total Current Liabilities 574,260
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OTHER LIABILITIES
Customer Deposits 346
Deferred Capital Gain Income 365,315
Long-Term Portion of Leases Payable 58,716
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TOTAL LIABILITIES 998,637
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STOCKHOLDERS' EQUITY
Preferred Stock, 8% Cumulative $.01
Par Value Authorized 2,000,000 Issued &
Outstanding 10,000 Shares 100
Common Stock, $.01 Par Value,
Authorized 50,000,000 Shares, Issued &
Outstanding 23,504,000
Respectively 235,040
Additional Paid-in Capital 2,211,631
Unearned Compensation (10,250)
Accumulated Deficit (1,850,663)
Treasury Stock at Cost (142,000)
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TOTAL STOCKHOLDERS' EQUITY 443,858
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,442,495
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3
REPRO-MED SYSTEMS, INC
STATEMENTS OF INCOME
FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED
Nov 30, 2001 Nov 30, 2000 Nov 30,2001 Nov 30, 2000
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SALES
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Net Sales of Products $426,393 $435,978 $1,301,956 $1,529,336
COST AND EXPENSES
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Cost of Goods Sold 323,571 273,096 953,740 954,347
Selling, General & Administrative Expenses 155,313 151,713 485,119 458,672
Research and Development 11,660 5,747 34,611 32,886
Equity Based Compensation 10,250 0 30,750 0
Depreciation and Amortization 21,387 23,081 63,164 65,911
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TOTAL COST AND EXPENSES 522,181 453,638 1,567,384 1,511,816
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INCOME (LOSS) FROM OPERATIONS (95,788) (17,660) (265,428) 17,520
Non-Operating Income (Expense)
Interest (Expense) (5,400) (2,451) (13,465) (2,503)
Interest & Other Income 400 2,050 6,122 2,669
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(5,000) (401) (7,343) 166
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INCOME (LOSS) BEFORE INCOME TAXES (100,788) (18,061) (272,770) 17,686
Provision for Income Taxes (161) 0 (572) 0
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NET INCOME (LOSS) AFTER TAXES (100,949) (18,061) (273,342) 17,686
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Preferred Dividends 0 0 8,000 4,000
NET INCOME (LOSS) AVAILABLE TO (100,949) (18,061) (281,342) 13,686
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COMMON SHAREHOLDERS
EARNINGS (LOSS) PER COMMON SHARE
Primary ($0.00) ($0.00) ($0.01) $0.00
Fully Diluted ($0.00) ($0.00) ($0.01) $0.00
4
REPRO-MED SYSTEMS, INC
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
NOVEMBER 30, 2001 NOVEMBER 30, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income ($273,342) $17,686
Adjustments to reconcile net (loss) income to cash
provided by (used) in operating activities:
Equity Based Compensation 30,750 0
Depreciation and Amortization 63,164 65,911
Deferred Gross Profit - Building Lease (16,861) (16,860)
Accounts Receivable 56,707 35,342
Inventory (63,152) (85,513)
Prepaid Expenses and Other Receivables 19,751 (2,743)
Other Assets (422) 3,052
Accounts Payable 67,296 78,585
Leases Payable 43,332 38,881
Other Liabilities 25,840 (256,274)
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NET CASH PROVIDED IN OPERATIONS (46,937) (121,933)
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CASH FLOWS USED BY INVESTING ACTIVITIES
Capital Expenditures (73,388) (69,883)
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NET CASH USED BY INVESTING ACTIVITIES (73,388) (69,883)
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CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Proceeds from Line of Credit 130,000 50,000
Issuance of Common Stock/Exercise of Options 0 27,000
Preferred Stock Dividend (8,000) (4,000)
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CASH FLOW PROVIDED BY FINANCING ACTIVITIES: 122,000 73,000
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NET INCREASE (DECREASE) IN CASH 1,675 (118,817)
CASH, beginning of period 35,466 167,085
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CASH, end of period $37,141 $48,268
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SUPPLEMENTAL DISCLOSURES
CASH PAYMENTS FOR
Interest 13,465 2,503
Income Taxes 572 801
5
Repro-Med Systems, Inc.
Notes to the Financial Statements
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and disclosures required for annual financial
statements. These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes for the year ended
February 28,2001 included in the Form 10-KSB for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of November 30,2001, and the results of operations for the
three-month and six month periods ended November 30,2001 and 2000 and cash flows
for the periods ended November 30,2001 and 2000 have been included.
The results of operations for the three-month and six-month periods ended
November 30,2001, are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the financial statements
and footnotes thereto included in the Company's Form 10-KSB as filed with the
Securities and Exchange Commission for the year ended February 28,2001.
Reclassification - certain reclassifications have been made to prior year
amounts to conform to current year presentation.
Debt
As of November 30,2001, we have borrowed $200,000 on our bank line of credit.
Although the line agreement matured on June 30,2001, during January 2002, the
bank verbally agreed to extend the line term through June 30,2002.
New Accounting Developments:
In June 2001, the FASB issued SFAS No. 141, "Business Combination", SFAS No.
142, "Goodwill and Other Intangible Assets" and SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interest method of
accounting for business combinations initiated after June 30, 2001. It also
requires that the Company recognize acquired intangible assets apart from
goodwill. SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. SFAS No. 143
establishes accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost,
which will be effective for financial statements issued for fiscal years
beginning after June 15, 2002.
6
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which basically further clarifies SFAS No. 121
and methods of quantifying potential impairments or disposal of assets as well
as the related reporting of such impairments or disposals.
The adoption of SFAS No. 141, SFAS No. 142 and SFAS No. 143 is not expected to
have a material effect on the Company's financial position, results of
operations and cash flows.
Part I Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Quarterly Report on Form 10-QSB contains certain "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
Statements, other than statements of historical facts, included or incorporated
in this report regarding our strategy, future operations, financial position,
future revenues, projected costs, prospects, plans and objectives of management
are forward-looking statements. The words "believes", "anticipates",
"estimates", "plans", "expects", "intends", "may", "projects", "will" and
"would" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. We cannot guarantee that we actually will achieve the plans,
intentions or expectations disclosed in our forward-looking statements and you
should not place undue reliance on our forward-looking statements. Actual
results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make. We have
included important factors in the cautionary statements contained or
incorporated in this report, particularly the matters discussed in the Overview
to Management's Discussion and Analysis of Financial Condition and Results of
Operations in this Quarterly Report. In addition, any forward-looking statements
represent Repro-Med Systems, Inc. estimates only as of the date this Quarterly
Report is first filed with the Securities and Exchange Commission and should not
be relied upon as representing Repro-Med Systems, Inc.'s estimates as of any
subsequent date. We do not assume any obligation to update forward-looking
statements
Three months ended November 30, 2001 vs. 2000
Sales of our key products have significantly increased this quarter. Sales of
the Freedom60 Syringe Infusion System increased by 46% over the prior year's
quarter and sales of our Res-Q-Vac Airway Suction System increased by 25% over
the prior year's quarter. These sales increases were offset by the elimination
of low margin products and recognition of an OEM sale which resulted in overall
sales this quarter decreasing slightly by 2% from $435,978 for the third quarter
ended November 30,2000 to $426,393 for the third quarter ended November 30,2001.
Without the OEM sale recognized in the third quarter 2000, current sales quarter
over quarter actually increased by 18%.
7
Gross profit decreased to 24% of net sales for the quarter ended November 30,
2001 from 37% for the quarter ended November 30, 2000 primarily as a result of
the timing of the recognition of an OEM sale in the third quarter ended November
30,2000 and the inventory reserve in the third quarter ended November 30,2001.
When excluding this OEM sale in the third quarter ended November 30,2000 and the
inventory reserve, the current gross profit percentage is indicative of our
current core business and actually improved by 1% over the previous quarter
ended November 30, 2000.
Selling, general and administrative expense increased 2% for the quarter ended
November 30,2001 versus the quarter ended November 30,2000 which was the net
result of reducing administrative personnel costs and the increase in costs for
attending the Medica Trade Show in Germany during November 2001. Sales resulting
from the show of $26,000 will be recognized in December 2001 and January 2002.
Research and development expenses increased over 100% for the quarter ended
November 30,2001 versus the quarter ended November 30,2000 as a result of the
use of outside R&D/Engineering personnel during November 30,2001.
There was no material change in depreciation and amortization expense during
this period.
Interest expense increased over 100% as a result of an equipment lease that
began at the end of the second quarter of 2000 and three leases that began
during the first nine months of 2001 and due to monthly interest payments on the
outstanding balance of our bank line of credit during 2001.
Nine Months Ended November 30, 2001 vs. 2000
Sales of our core products increased for the nine-month period ended November
30, 2001 versus the nine-month period ended November 30,2000 with our FREEDOM60
sales increasing by 35% over the prior year nine-month period and RES-Q-VAC
sales increasing by 18% over the prior year nine-month period. However net sales
decreased 15% overall for the nine-month period ended November 30,2001 from
$1,529,336 for the nine months ended November 30,2000 to $1,301,956 for the nine
months ended November 30,2001 primarily due to a decrease of sales in product
lines which we are eliminating due to low margins and for the recognition of
revenue in 2000 for one of our OEM customers.
8
Gross profit decreased to 27% of net sales for the nine months ended November
30,2001 from 38 % in the nine-months ended November 30,2000 primarily as a
result of a large sale in 2000 of OEM products with a high profit margin. When
excluding this sale from 2000 from the prior year income statement, the current
gross profit percentage is indicative of our core business and is in line with
the prior year.
Selling, general and administrative expense increased 6% for the nine-month
period ended November 30,2001 versus the nine-month period ended November
30,2000 as a result of increased sales and marketing efforts during the
nine-month period ended November 30,2000.
Research and development expenses increased 5% for the nine-month period ended
November 30,2001 versus the nine-month period ended November 30,2000 as a result
of the use of outside R&D/Engineering personnel during November 30,2001.
Liquidity and Capital Resources
During June 2000, we negotiated a $200,000 line of credit with Premier Bank that
is guaranteed by the President and one of the directors. The line of credit is
intended for material purchases for new orders and tooling. As of November
30,2001 $200,000 has been advanced on the line of credit. Although the line
matured on June 30,2001, during January 2002, the bank verbally extended the
term of the line through June 30,2002.
Although our cash flow remains constricted, the funds available on November 30,
2001 are expected to meet cash requirements as planned under current operating
conditions at least for the next 12 months.
The Company will require additional capital to enable us to significantly
increase marketing efforts of our key products, and to develop and market our
new technology devices such as the "Full Stop Protector" for our Res-Q-Vac among
others. The Company has been discussing with third parties the possibilities of
joint ventures. There is no assurance that these discussions will be successful.
Subsequent Events
During August 2001, we began a trial of the FREEDOM60 at one location of a major
national home healthcare agency. We received our first order, as a result of the
successful trial, in September 2001. A second location completed their trial and
placed their first order in December 2001. We have begun trials at two other
locations of this agency and will be working diligently to begin trials at the
remaining locations within the next six months.
As a direct result of the President's trip to Europe for the Medica Show, during
December 2001, the Company authorized an Italian distributor to obtain the CE
Mark to market the FREEDOM60 in Europe. We have been advised that the
distributor has recently obtained the CE Mark and is expected to market the
FREEDOM60 in Europe within the next 90 days.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is neither a party to any material litigation, nor to the knowledge
of the officers and directors of the Company, is there any material litigation
threatened against the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company during
the quarter ended November 30,2001.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized.
REPRO-MED SYSTEMS, INC.
/s/ Andrew I. Sealfon January 15, 2002
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Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
11