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 AUGUST 31, 2005
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Commission File Number 0-12305
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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 October 1, 2005
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Common stock, $.01 par value 27,130,286 shares
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. Financial Statements
Balance Sheet (Unaudited) - August 31, 2005 and
February 28, 2005 (Audited) ....................................... 3
Statements of Operations (Unaudited) - for the three-months
and six months ending August 31, 2005 and August 31, 2004 ......... 4
Statements of Cash Flow (Unaudited) - for the six months
ending August 31, 2005 and 2004 ................................... 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 ................................................. 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 SHEET
AUGUST 31, 2005 FEBRUARY 28, 2005
ASSETS (UNAUDITED) (AUDITED)
- ------ --------------- -----------------
CURRENT ASSETS
- --------------
Cash & Cash Equivalents ........................... $ 27,111 $ 37,330
Accounts Receivable, net .......................... 120,991 125,078
Inventory ......................................... 358,453 371,569
Prepaid Expenses .................................. 22,193 36,531
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TOTAL CURRENT ASSETS .................................. 528,748 570,508
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PROPERTY & EQUIPMENT, NET ............................. 302,619 337,708
OTHER ASSETS
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Deposits .......................................... 27,652 27,652
Other Assets ...................................... 45,673 44,408
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TOTAL OTHER ASSETS .................................... 73,325 72,060
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TOTAL ASSETS .......................................... $ 904,692 $ 980,276
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable .................................. $ 395,894 $ 348,316
Notes Payable to Related Parties .................. 7,000 7,000
Accrued Expenses .................................. 34,548 60,588
Note Payable to Bank .............................. 198,553 198,553
Accrued Payroll and Related Taxes ................. 21,420 33,703
Accrued Interest .................................. 37,469 31,469
Accrued Preferred Stock Dividends ................. 28,000 24,000
Current Portion Capital Lease Obligations ......... 15,381 19,084
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TOTAL CURRENT LIABILITIES ......................... 738,265 722,713
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OTHER LIABILITIES
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Long-Term Portion of Leases Payable ............... 1,768 10,381
Deferred Capital Gain Income ...................... 303,871 314,736
Long-Term Debt - Notes Payable .................... 530,000 450,000
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TOTAL LIABILITIES ..................................... 1,573,904 1,497,830
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STOCKHOLDERS' DEFICIENCY
- ------------------------
Preferred Stock, 8% Cumulative $.01
Par Value Authorized 2,000,000 Shares,
Issued & Outstanding 10,000 Shares
(liquidation value $100,000) .................... 100 100
Common Stock, $.01 Par Value,
Authorized 50,000,000 Shares, 26,877,000
Shares and 26,027,000 shares issued
And outstanding at August 31, 2005 and
February 28, 2005, respectively ................. 268,770 260,270
Additional Paid-in Capital ........................ 2,336,551 2,302,551
Accumulated Deficit ............................... (3,132,633) (2,938,475)
Treasury Stock at Cost ............................ (142,000) (142,000)
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TOTAL STOCKHOLDERS' DEFICIENCY ........................ (669,212) (517,554)
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TOTAL LIABILITIES & STOCKHOLDERS' DEFICIENCY .......... $ 904,692 $ 980,276
=========== ===========
See Accompanying Notes to Financial Statements
3
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
UNAUDITED
FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED
AUG 31, 2005 AUG 31, 2004 AUG 31, 2005 AUG 31, 2004
------------ ------------ ------------ ------------
SALES
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Net Sales of Products ......... $ 419,335 $ 366,475 $ 801,637 $ 873,950
COST AND EXPENSES
- -----------------
Cost of Goods Sold .......... 171,948 173,859 350,605 393,659
Selling, General &
Administrative Expenses ... 243,737 245,029 504,834 469,236
Research and Development .... 7,675 11,229 18,636 21,672
Stock-Based Compensation .... 1,250 - 42,500 20,000
Depreciation and Amortization 20,377 20,711 40,481 41,255
------------ ------------ ------------ ------------
TOTAL COST AND EXPENSES ....... 444,987 450,828 957,056 945,822
------------ ------------ ------------ ------------
(LOSS) FROM OPERATIONS ........ (25,652) (84,353) (155,419) (71,872)
Non-Operating Income (Expense)
Interest (Expense) .......... (19,544) (14,168) (37,317) (26,010)
Interest & Other Income ..... 1,963 7,260 3,578 7,662
------------ ------------ ------------ ------------
(17,581) (6,908) (33,739) (18,348)
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(LOSS) BEFORE INCOME TAXES .... (43,233) (91,261) (189,158) (90,220)
Provision for Income Taxes .. (1,000) (1,000) (1,000) (1,000)
------------ ------------ ------------ ------------
NET (LOSS) AFTER TAXES ........ $ (44,233) $ (92,261) $ (190,158) $ (91,220)
============ ============ ============ ============
(LOSS) PER COMMON SHARE
Primary ..................... $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Fully Diluted ............... $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Average Common Shares
Outstanding ................. 26,427,000 24,849,696
========== ==========
See Accompanying Notes to Financial Statements
4
REPRO-MED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
UNAUDITED
AUGUST 31, 2005 AUGUST 31, 2004
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) ................................................ $(190,158) $ (91,220)
Adjustments to reconcile net (loss) to cash
(used) in operating activities:
Stock-Based Compensation .............................. 42,500 20,000
Legal Expenses Charged to Additional Paid-In Capital .. - (10,000)
Depreciation and Amortization ......................... 40,481 41,255
Capital Gain - Building Lease ......................... (10,865) (11,239)
Decrease (Increase) in Accounts Receivable ............ 4,087 (26,072)
Decrease (Increase) in Inventory ...................... 13,116 (1,950)
Decrease (Increase) in Prepaid Expenses ............... 14,338 (24,722)
(Decrease) Increase in Accounts Payable ............... 47,578 (55,721)
(Decrease) Increase in Accrued Expenses ............... (28,323) 3,080
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NET CASH (USED IN) OPERATIONS ............................. (67,246) (156,589)
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CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Security Deposit ............................ - -
Capital Expenditures .................................... (6,657) (15,085)
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NET CASH (USED IN) INVESTING ACTIVITIES ................... (6,657) (15,085)
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CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable - President and Others .................... 80,000 100,000
Increase in Notes Payable to Related Parties ............ - -
Preferred Stock Dividend ................................ (4,000) (4,000)
Payments, Increased Obligations on Capitalized Leases ... (12,316) (10,684)
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NET CASH PROVIDED BY FINANCING ACTIVITIES ................. 63,684 85,316
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NET DECREASE IN CASH ...................................... (10,219) (86,358)
Cash and Cash Equivalents, beginning of period ............ 37,330 219,682
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Cash and Cash Equivalents, end of period .................. $ 27,111 $ 133,324
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest ................................................ 26,010 26,016
Income Taxes ............................................ 1,000 1,000
See Accompanying Notes to Financial Statements
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
financial statements and related footnotes for the year ended February 28, 2005
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 August 31, 2005, and the results of operations and cash flows for
the three-month and six-month periods ended August 31, 2005 and 2004.
The results of operations for the six-month period ended August 31, 2005, 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, 2005.
STOCKHOLDERS' EQUITY/NOTES PAYABLE
During the quarter ended May 31, 2005, the company executed note agreements for
$80,000. In connection with the execution of those agreements, the Company is
obligated to issue four shares of its common stock each year for each dollar of
principal borrowed. The Company is obligated to issue 425,000 shares of its
common stock under the agreements. As of August 31, 2005, 185,000 of these
shares have been issued and the remaining 240,000 shares have been reflected as
issued for financial statement purposes.
GOING CONCERNS
As shown in the accompanying final statements, the Company has incurred
cumulative losses of $3,132,633 and has negative working capital of
$(209,517.00) at August 31, 2005. The Company is seeking to raise additional
working capital through debt or equity channels and is working with outside
distributors to increase its market share in the European and U.S. markets.
However, even if the Company does raise capital through the debt or equity
channels or increase its sales through new strategies, there can be no
assurances that the net proceeds of the capital raised or the revenue generated
from new marketing strategies will be sufficient to enable it to develop
business to a level when it will generate profits and cash flow from operations.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. However, the accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. These
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.
SUBSEQUENT EVENTS
In September 2005, the Company sold 714,286 shares of its Common Stock at $0.07
per share. Total proceeds realized from this sale were $50,000.
6
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 AUGUST 31, 2005 VS. 2004
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Net sales for the quarter ending August 31, 2005 increased by 14.42% to $419,335
from $366,475 in 2004. Sales in the core RES-Q-VAC and FREEDOM60 lines increased
20.1% quarter over quarter ended August 31, 2004. Sales of RES-Q-VAC increased
16% quarter over quarter led by a strong increase in international RES-Q-VAC
sales, while sales in the Freedom60 line increased 35% quarter over quarter.
These increases in core product sales were slightly offset by a 33.3% ($12,787)
decline in sales in the non-core Gyneco, Restore and OEM lines.
Gross profit margins improved to 59% of net sales in 2005 from 52.6% in 2004.
Selling, general and administrative expense decreased by $1,292 in 2005 from
$245,029 in 2004 despite the higher sales volume primarily as the result of the
implementation of additional cost savings measures.
Research and development expenses declined $3,554 from 2004 to 2005.
Depreciation and amortization expenses declined $334 during this period. This
reflected some older assets reaching the end of their depreciable lives and not
being fully replaced by equivalent capital investment.
7
Interest expense increased by $5,376 quarter over quarter, primarily as a result
of an increase in loans obtained through the company's promissory note program
and an increase in the prime interest rate, to which the promissory note program
is tied.
Other income decreased $5,297, quarter over quarter. Other income in 2004
reflected a refund of insurance premiums paid in a prior fiscal year which did
not recur this year.
Net revenue increased at a higher rate than expenses. As a result, the net
income loss for the current quarter improved $101,692 from the first quarter
loss of $145,925 to $44,233. Year over year improved $48,028 from a loss of
$92,261 for the quarter ending August 31, 2004.
SIX MONTHS ENDED AUGUST 31, 2005 VS. 2004
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Despite a 23% increase in FREEDOM60 sales, net sales for the six-months ended
August 31, 2005, caused by lower sales during the first quarter, declined 8.27%,
to $801,637 from $873,950 for the six-months ended August 31, 2004. Sales of the
other core product line, RES-Q-VAC decreased 16.4% for the six-months ended
August 31, 2005 vs. the six-months ended August 31, 2004. Sales in the non-core
Gyneco, Restore and OEM product lines declined by $5,472 (6.8%) for the
six-months ended August 31, 2005 vs. the six-months ended August 31, 2004.
Gross profit increased to 56% of net sales in 2005 from 55% in 2004.
Selling, general and administrative expense increased 7.5% ($35,598) to $504,834
in 2005 from $469,236 in 2004.
Research and development expenses decreased $3,036 from 2004 to 2005.
Depreciation and amortization expense decreased by $774 period over period as
the result of equipment reaching the end of its depreciable life and not being
fully replaced by equivalent capital investment.
Interest expense increased 43.5% ($11,307) as a result of an increase in loans
obtained through the company's promissory note program and an increase in the
prime interest rate, to which the promissory note program is tied.
Other income decreased $4,084, for the past six months as compared to the same
period last year. Other income in 2004 reflected, in part, a refund of insurance
premiums paid in a prior fiscal year which did not recur this year.
Although the losses decreased in the second quarter over the results of the
first quarter, net loss for the six months ended August 31, 2005, increased
$98,938 to a loss of $190,158 from a loss of $91,220 in 2004.
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. As of August 31, 2005,
$198,553 has been advanced on the line of credit. Although the line expired on
June 30, 2002, the bank verbally extended the line through June 30, 2003. We are
requesting the bank to extend the line for another six months. We have not
received a demand for repayment of the loan and continue to make interest
payments.
8
Commencing in mid-February, 2004, we started raising capital from a promissory
note and stock offering which raised $225,000 by the end of the fiscal year
ended February 29, 2004. This five year promissory note pays 2% over prime plus
four share of common stock per year for every year the loan is in place. We
received $100,000 under the same program in the first quarter of Fiscal Year
2005. An additional $80,000 was received on the same terms in the first quarter
of Fiscal Year 2006. Another $25,000 was raised in the first and second quarters
of 2003 under similar terms.
Our efforts to enter new markets and expand existing sales channels are capital-
intensive. Access to capital markets for these efforts has been important in the
past, and will continue to be vital as we seek to fully implement our marketing
plans and work toward achieving a positive cash-flow position.
We continue to pursue capital investment through debt or equity to increase our
marketing and sales efforts, and to enhance our existing products and add to
product lines.
We continue to work towards improving cash flow and have several opportunities
to improve sales of our key products, RES-Q-VAC and FREEDOM60. We have expanded
our sales efforts in several areas.
Marketing and sales expenditures were constrained due to limited cash flow from
operations and thus we concentrated on our sales efforts on two man products,
FREEDOM60 and RES-Q-VAC. Even with limited resources we managed to add 24 new
Freedom60 customers during the period March 1, 2005 to August 31, 2005 as
compared to six added during the previous half-year ending August 31, 2004.
Moreover, the revenue produced by these new customers increased 490% to $42,665
during the past six months as compared to $7,227 during the same period last
year. New FREEDOM60 customers not only represent the initial sales, but also
through the continuing need to reorder our proprietary tubing sets, these
customers represent a source of anticipated future sales.
FREEDOM60 sales are achieved by a direct selling effort, using leads from trade
shows, mail marketing and telemarketing. Several major centers around the
country have begun using the FREEDOM60 and continue to expand its use.
Subsequent to this quarter, several new accounts have been added, which include
a major infusion company in California, and a large national provider has
completed a trial of the FREEDOM60 and has begun purchasing the product for
immediate use. On October 1st, 2005 we signed a contract with Innovatix, a
national Group Purchasing Organization based in New York City whose primary
market is infusion. Innovatix has over 6,000 members and will assist us in
bringing the FREEDOM60 benefits of safety, cost and reliability to all their
members. While we have signed with other GPO's in the past, Innovatix has the
largest presence in the infusion market as well as including among their members
nursing homes, closed door pharmacies, oncology clinics--all which represent our
target markets.
For RES-Q-VAC, the emergency markets world-wide have softened which we believe
is attributable to weakening economic conditions and potential competition from
imported low cost imitation products. Our marketing has begun penetration into
new markets for the product, which include nursing homes, hospitals, hospice,
dental, and veterinary. Using a direct sales effort into nursing homes, we have
increased the number of new customers this half year from March 1 to August 31st
2005 to 55 from 38 during the same period last year. Revenues from new customers
increased this half year 72% to $67,217 from $39,075 for the first half of last
year. Several national and large regional nursing homes have begun purchasing
the RES-Q-VAC.
9
Subsequent to the quarter ending August 31st, 2005, we received an order for
2,500 RES-Q-VAC kits for use for the victims of Hurricane Katrina which struck
New Orleans and other parts of the South East. The RES-Q-VAC was essential to
treat respiratory patients needing medical suction, especially during long
periods of power outage.
The need for the RES-Q-VAC in hospitals, nursing homes, and home care was
highlighted by the recent hurricanes. RES-Q-VAC is needed by hospitals to meet
new standards of care(EMTALA requirements), prevent the spread of disease such
as HIV, SARS, hepatitis, tuberculosis and other infectious diseases, transport
patients through the facilities, and be able to operate for extended periods
without electric power. Hospitals and nursing homes which had power out during
Katrina lost respiratory patients who were unable to be sustained. RES-Q-VAC is
the only hand held suction system available sterile and with protection from the
spread of disease with our patented FSP filter.
PART II - OTHER INFORMATION
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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 August 31, 2005.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) 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 October 17, 2005
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Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
11