UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES ACT OF 1934
For the quarterly period ended November 30, 2002
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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
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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 2002
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Common stock, $.01 par value 23,504,000 shares
Repro-Med Systems, Inc.
Table of Contents
Part I PAGE
Item 1.
Financial Statements
Balance Sheet (Unaudited) - November 30, 2002 ...........................3
Statements of Operations (Unaudited) - for the three-months and
six months ending November 30, 2002 and November 30, 2001 ...............4
Statements of Cash Flow (Unaudited) - for the six months
ending November 30 2002 and 2001 .......................................5
Notes to Unaudited Financial Statements .................................6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations. .........................7
PART II
Item 1.
Legal Proceedings .......................................................9
Item 2.
Changes in Securities ...................................................9
Item 3.
Defaults Upon Senior Securities .........................................9
Item 4.
Submission of Matters to a Vote of Security Holders .....................9
Item 5.
Other Information .....................................................10
Item 6.
Exhibits and Reports on Form 8-K ......................................10
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REPRO-MED SYSTEMS, INC.
BALANCE SHEET
UNAUDITED
ASSETS November 30,2002
CURRENT ASSETS
Cash & Cash Equivalents .................................... $ 24,303
Accounts Receivable, net ................................... 182,405
Inventory .................................................. 530,238
Prepaid Expenses & Other Receivables ....................... 35,067
TOTAL CURRENT ASSETS ........................................... 772,551
EQUIPMENT & OTHER ASSETS
Total Equipment ............................................ 1,199,772
Less - Accumulated Depreciation ............................ (765,676)
Net Book Value of Equipment ................................ 434,095
Deposits ................................................... 52,000
Other Assets ............................................... 45,867
TOTAL EQUIPMENT & OTHER ASSETS ................................. 531,962
TOTAL ASSETS ................................................... $ 1,304,513
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ........................................... $ 263,760
Demand loan from President ................................. 84,000
Accrued Expenses ........................................... 84,013
Bank Line of Credit Payable ................................ 200,000
Current Portion of Leases Payable .......................... 25,346
Current Portion Capital Gain ............................... 22,481
Total Current Liabilities .................................. 679,600
OTHER LIABILITIES
Long-Term Portion of Leases Payable ....................... 51,450
Deferred Capital Gain Income .............................. 342,835
TOTAL LIABILITIES .............................................. 1,073,885
STOCKHOLDERS' EQUITY
Preferred Stock, 8% Cumulative $.01
Par Value Authorized 2,000,000 Issued &
Outstanding 10,000 Shares (liquidation value $100,000) ..... 100
Common Stock, $.01 Par Value,
Authorized 50,000,000 Shares, Issued &
Outstanding 23,504,000(Includes 2,275,000
in Treasury Shares) Respectively ........................... 235,040
Additional Paid-in Capital ................................. 2,211,631
Accumulated Deficit ........................................ (2,074,143)
Treasury Stock at Cost ..................................... (142,000)
TOTAL STOCKHOLDERS' EQUITY ..................................... 230,629
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ....................... $ 1,304,513
See Accompanying Notes to Unaudited Financial Statements
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REPRO-MED SYSTEMS, INC
STATEMENTS OF OPERATIONS
UNAUDITED
FOR THE 3 MONTHS ENDED FOR THE 9 MONTHS ENDED
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Nov 30, Nov 30, Nov 30, Nov 30,
2002 2001 2002 2001
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SALES
Net Sales of Products ........$ 381,547 $ 426,393 $ 1,268,628 $ 1,301,956
COST AND EXPENSES
Cost of Goods Sold ......... 260,148 323,571 883,753 953,740
Selling, General &
Administrative Expenses .. 129,584 155,313 406,175 485,119
Research and Development ... 5,482 11,660 16,273 34,611
Equity Based Compensation .. 0 10,250 0 30,750
Depreciation and
Amortization ............. 20,160 21,387 59,757 63,164
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TOTAL COST AND EXPENSES ...... 415,374 522,181 1,365,958 1,567,384
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(LOSS) FROM OPERATIONS ....... (33,827) (95,788) (97,330) (265,428)
Non-Operating Income (Expense)
Interest (Expense) ......... (3,898) (5,400) (17,820) (13,465)
Interest & Other Income .... 8,310 400 12,402 6,122
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(4,412) (5,000) (5,417) (7,343)
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(LOSS) BEFORE INCOME TAXES ... (29,415) (100,788) (102,748) (272,770)
Provision for Income Taxes 0 (161) (0 (572)
NET (LOSS) AFTER TAXES ....... (29,415) (100,949) (102,748) (273,342)
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Preferred Dividends .......... 2,000 0 6,000 8,000
NET (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS .......... (31,415) (100,949) (108,748) (281,342)
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(LOSS) PER COMMON SHARE
Primary ....................($ 0.00) ($ 0.00) ($ 0.00) ($ 0.01)
Fully Diluted ..............($ 0.00) ($ 0.00) ($ 0.00) ($ 0.01)
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REPRO-MED SYSTEMS, INC
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
UNAUDITED
November November
30, 2002 30, 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) ............................................. ($102,748) ($273,342)
Adjustments to reconcile net (loss) to cash
(used) in operating activities:
Equity Based Compensation ............................ 0 30,750
Depreciation and Amortization ........................ 59,757 63,164
Deferred Gross Profit - Building Lease ............... (16,861) (16,861)
Accounts Receivable .................................. 13,896 56,707
Inventory ............................................ 70,397 (63,152)
Prepaid Expenses and Other Receivables ............... (27,260) 19,751
Other Assets ......................................... - (422)
Demand Loan to President ............................. 15,000 -
Accounts Payable ..................................... 74,649 67,296
Leases Payable ....................................... 52 43,332
Other Liabilities .................................... (60,779) 25,840
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NET CASH PROVIDED IN (USED BY) OPERATIONS .............. 26,103 (46,937)
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CASH FLOWS USED BY INVESTING ACTIVITIES
Capital Expenditures ................................. (23,470) (73,388)
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NET CASH USED BY INVESTING ACTIVITIES ................. (23,470) (73,388)
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CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Proceeds from Line of Credit ......................... 0 130,000
Preferred Stock Dividend ............................. (4,000) (8,000)
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CASH FLOW PROVIDED BY FINANCING ACTIVITIES: ............ (4,000) 122,000
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NET INCREASE (IN CASH .................................. (1,367) 1,675
CASH, beginning of period ............................ 25,670 35,466
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CASH, end of period .................................. $ 24,303 $ 37,141
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SUPPLEMENTAL DISCLOSURES
CASH PAYMENTS FOR
Interest ............................................. 13,321 13,465
Income Taxes ......................................... 702 572
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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 28,2002 included in the Form 10-KSB for the year then ended.
As shown in the accompanying interim financial statements, the Company incurred
a net loss of $102,748 during the nine-months ended November 30,2002. The
Company intends to raise additional capital or financing, to improve their
liquidity. These factors create substantial doubt as to the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments to the financial statements that might be necessary should the
Company be unable to continue as a going concern.
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 30,2002, and the results of operations for the
three-month and six month periods ended November 30,2002 and 2001 and cash flows
for the periods ended November 30,2002 and 2001 have been included.
The results of operations for the three-month and six-month periods ended
November 30,2002, 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 28,2002.
Reclassification - certain reclassifications have been made to prior year
amounts to conform to current year presentation.
Debt
As of November 30,2002, we have an outstanding balance of $200,000 on our bank
line of credit. The line agreement officially ended on June 30,2001 but was
verbally renewed by the bank through February 2003.
New Accounting Developments
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146 on
"Accounting for Costs Associated with Exit or Disposal Activities". The
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Company is reviewing the requirements and implications of adopting such
standards by December 31, 2002. This Statement addresses financial and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The Company currently does not
believe adopting such standards will have a material effect on the presentation
of the financial statements.
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 (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as, recent operating losses,
uncertainties associated with future operating results, unpredictability related
to Food and Drug Administration regulations, introduction of competitive
products, limited liquidity, reimbursement related risks, government regulation
of the home health care industry, success of the research and development
effort, market acceptance of FREEDOM60, availability of sufficient capital to
continue operations and dependence on key personnel. When used in this report,
the words "estimate," "project," "believe," "anticipate," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements reflect current views with respect to future events based on
currently available information and are subject to risks and uncertainties that
could cause actual results to differ materially from those contemplated in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. These
statements involve risks and uncertainties with respect to the ability to raise
capital to develop and market new products, acceptance in the market place of
new and existing products, ability to penetrate new markets, our success in
enforcing and obtaining patents, obtaining required Government approvals and
attracting and maintaining key personnel that could cause the actual results to
differ materially. Repro-Med does not undertake any obligation to release
publicly any revision to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Three months ended November 30, 2002 vs. 2001
Sales of our core products increased quarter over quarter ended November 30,
2002 with our Freedom60 sales increasing by 29% and Res-Q-Vac sales increasing
by 17%. Net sales increased 1% overall from $448,150 (2001) to
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$451,840 (2002) for the quarter despite the loss in sales of approximately
$63,000 from a major OEM customer for the second quarter 2002 and reduced sales
for a low margin product line that we have been phasing out over the last year.
Gross profit increased to 33% of net sales in 2002 from 31% in 2001 primarily
resulting from cost containment reductions.
Selling, general and administrative expense decreased 14% from 2001 to 2002 as a
result of the reduction of sales and administrative personnel, and decreased
marketing and show expenses.
Research and development expenses decreased 53% quarter over quarter due to the
fact that we enlisted outside engineering help in the second quarter 2001 but
not in the second quarter 2002.
There was no material change in depreciation and amortization expense during
this period.
Interest expense increased 46% as a result of the addition of tooling leases
during the second quarter of 2001 and the addition of a tooling lease at the end
of Fiscal year 2002.
Nine Months Ended November 30, 2002 vs. 2001
Sales of our core products increased for the six-months ended November 30, 2002
vs. the six-months ended November 30,2001, with our Freedom60 sales increasing
by 30% and Res-Q-Vac sales increasing by 26%. Net sales increased 1% overall
from $875,563 (2001) to $887,082 (2002) for the quarter despite the loss in
sales of approximately $149,000 from a major OEM customer for the six-months
ended November 30,2002 and reduced sales for a low margin product line that we
have been phasing out over the last year.
Gross profit increased to 30% of net sales in 2002 from 28% in 2001 primarily
resulting from cost containment reductions and reductions in material costs.
Selling, general and administrative expense decreased 17% from 2001 to 2002 as a
result of the reduction of sales and administrative personnel, and decreased
marketing and show expenses.
Research and development expenses decreased 53% due to the fact that we enlisted
outside engineering help during the six-months ended November 30, 2001 but not
during the six-months ended November 30,2002.
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Liquidity and Capital Resources
During June 2000, we negotiated a $200,000 line of credit with M&T Bank that is
guaranteed by the President and one of the directors. The line of credit was
intended for material purchases for new orders and tooling. As of August 31,
2002, $200,000 has been advanced on the line of credit. Although the line
expired on June 30,2001, the bank verbally renewed the line through February
2003.
We are attempting to achieve and maintain positive cash flow by continuing to
increase sales for the FREEDOM60 and RES-Q-VAC, decreasing material costs and by
pursuing capital investment through debt or equity. The Company is working with
outside distributors to increase market share in the European markets for the
RES-Q-VAC, and to introduce the FREEDOM60 into the European market. Currently,
our distributor for the FREEDOM60 in Italy is marketing the product and has
received an initial order. We are in the process of validating new lower-cost
and more efficient vendors for our raw materials, which will assist us in
continuing to improve our margins on our current products. The Company has
sufficient capital for our ongoing needs based on anticipated sales growth in
the next six months and maintaining careful control of expenses. The funds
available on August 31, 2002 are expected to meet cash requirements as planned
under current operating conditions at least for the next 12 months.
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, 2002.
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit Description
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99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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 16, 2003
Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
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CERTIFICATION
I, Andrew Sealfon, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Repro-Med Systems,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstance under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows, of the
registrant as of, and for the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities particularly during the period this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which would adversely effect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material; that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 16, 2003
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