Form: 10QSB

Optional form for quarterly and transition reports of small business issuers

October 11, 2001

10QSB: Optional form for quarterly and transition reports of small business issuers

Published on October 11, 2001



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 August 31, 2001
---------------

Commission File Number 0-12305
-------
REPRO-MED SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

New York 13-3044880
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

24 Carpenter Road, Chester, NY 10918
---------------------------------------- --------------
(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 Aug. 31, 2001
---------------------------- ----------------------------

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 - August 31, 2001 3

Statements of Income - for the three-months and
six months ending August 31, 2001 and August 31, 2000 4

Statements of Cash Flow -
August 31, 2001 and 2000 5

Notes to Financial Statements 6

Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 6

PART II

Item 1.
Legal Proceedings 10

Item 2.
Changes in Securities 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 8-31-01
CURRENT ASSETS -----------


Cash & Cash Equivalents $62,546
Accounts Receivable, net 179,519
Inventory 643,513
Prepaid Expenses & Other Receivables 29,590
------------
TOTAL CURRENT ASSETS 915,168
============

EQUIPMENT & OTHER ASSETS
Total Equipment 1,143,089
Less - Accumulated Depreciation (668,120)
------------
Net Book Value of Equipment 474,969
Deposits 40,000
Other Assets 51,404
------------
TOTAL EQUIPMENT & OTHER ASSETS 566,373
------------

TOTAL ASSETS $1,481,541
============

LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $131,738
Accrued Expenses 154,918
Current Portion Capital Gain 22,481
Current Portion of Leases Payable 16,831
Bank Line of Credit Payable 200,000
------------
Total Current Liabilities 525,968
------------

OTHER LIABILITIES
Customer Deposits 3,916
Deferred Capital Gain Income 370,935
Long-Term Portion of Leases Payable 46,165
------------
TOTAL LIABILITIES 946,984
------------

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 (20,500)
Accumulated Deficit (1,749,714)
Treasury Stock at Cost (142,000)
------------
TOTAL STOCKHOLDERS' EQUITY 534,557
------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,481,541
============

3




REPRO-MED SYSTEMS, INC
STATEMENTS OF INCOME



FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED
Aug 31, 2001 Aug 31, 2000 Aug 31,2001 Aug 31, 2000
------------ ------------ ----------- ------------

SALES


Net Sales of Products $448,150 $536,744 $875,563 $1,093,358


COST AND EXPENSES

Cost of Goods Sold 311,009 302,435 630,169 594,889
Selling, General & Administrative Expenses 156,211 173,694 329,806 393,491
Research and Development 11,518 14,022 22,951 26,968
Equity Based Compensation 10,250 0 20,500 0
Depreciation and Amortization 21,489 21,415 41,778 42,830
--------- --------- ----------- -----------
TOTAL COST AND EXPENSES 510,477 511,566 1,045,203 1,058,178
--------- --------- ----------- -----------



INCOME (LOSS) FROM OPERATIONS (62,327) 25,178 (169,640) 35,180

Non-Operating Income (Expense)
Interest (Expense) (4,323) (51) (8,065) (51)
Interest & Other Income 2,726 418 5,722 618
--------- --------- ----------- -----------
(1,597) 367 (2,342) 567
--------- --------- ----------- -----------


INCOME (LOSS) BEFORE INCOME TAXES (63,924) 25,545 (171,983) 35,747

Provision for Income Taxes 0 0 (411) 0
--------- --------- ----------- -----------

NET INCOME (LOSS) AFTER TAXES (63,924) 25,545 (172,394) 35,747


Preferred Dividends 4,000 4,000 8,000 4,000
--------- --------- ----------- -----------

NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS (67,924) 21,545 (180,394) 31,747
========= ========= =========== ===========

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 SIX MONTHS ENDED

AUGUST 31, 2001 AUGUST 31, 2000
--------------- ---------------


CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) Income ($172,394) $35,747
Adjustments to reconcile net (loss) income to cash
provided by (used) in operating activities:
Equity Based Compensation 20,500 0
Depreciation and Amortization 41,778 42,830
Deferred Gross Profit - Building Lease (11,241) (11,240)
Accounts Receivable 28,069 58,959
Inventory (56,647) (90,424)
Prepaid Expenses and Other Receivables 21,997 (1,858)
Other Assets (1,328) 1,613
Accounts Payable 29,601 39,268
Leases Payable 25,967 0
Other Liabilities 23,629 (130,099)
---------- ----------


NET CASH PROVIDED IN OPERATIONS (50,070) (55,204)
---------- ----------

CASH FLOWS USED BY INVESTING ACTIVITIES
Capital Expenditures (44,850) (17,213)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (44,850) (17,213)
---------- ----------


CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Proceeds from Line of Credit 130,000 0
Issuance of Common Stock/Exercise of Options 0 27,000
Preferred Stock Dividend (8,000) (4,000)
---------- ----------

CASH FLOW PROVIDED BY FINANCING ACTIVITIES: 122,000 23,000
---------- ----------

NET INCREASE (DECREASE) IN CASH 27,081 (49,417)
CASH, beginning of period 35,466 167,085
---------- ----------
CASH, end of period $62,546 $117,668
========== ==========

SUPPLEMENTAL DISCLOSURES
CASH PAYMENTS FOR
Interest 8,065 51
Income Taxes 411 801

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 August 31,2001, and the results of operations for the three-month
and six month periods ended August 31,2001 and 2000 and cash flows for the
periods ended August 31,2001 and 2000 have been included.

The results of operations for the three-month and six-month periods ended August
31,2001, 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 August 31,2001, we have borrowed $200,000 on our bank line of credit.
Although the line agreement matured on June 30,2001, the bank has not demanded
payment while we are in the process of applying for a loan that would satisfy
the line of credit and supply us with additional capital necessary to support
expansion. The note remains a demand note during the loan process.

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.

6

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. 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 August 31, 2001 vs. 2000
-------------------------------------------

Sales of our core products increased for the quarter ended August 31,2001 versus
the quarter ended August 31, 2000 with our FREEDOM60 sales increasing by 47% and
RES-Q-VAC sales increasing by 18%.

7

However net sales decreased 17% overall for the quarter ended August 31,2001
from $536,744 for the quarter ended August 31, 2000 to $448,150 for the quarter
ended August 31,2001 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.

Gross profit decreased to 31% of net sales for the quarter ended August 31,2001
from 44 % for the quarter ended August 31,2000 primarily resulting from the
timing of revenue from a large one-time sale in 2000 of OEM products with a high
profit margin. The current gross profit percentage is indicative of our core
business.

Selling, general and administrative expense decreased 10% for the quarter period
ended August 31,2001 versus the quarter ended August 31,2000 as a result of
reducing administrative personnel costs.

Research and development expenses decreased 18% for the quarter ended August 31,
2001 versus the quarter ended August 31,2000 as a result of the resignation of
our R&D engineer during the second quarter 2000 and a reduction in the
development of new products.

There was no material change in depreciation and amortization expense during
this period.

Interest expense increased 100% as a result of an equipment lease that began at
the end of the second quarter of 2000 and two leases that began during the first
half of 2001 and due to monthly interest payments on the outstanding balance of
our bank line of credit during 2001.


Six Months Ended August 31, 2001 vs. 2000
-----------------------------------------

Sales of our core products increased for the six-month period ended August 31,
2001 versus the six month period ended August 31, 2000 with our FREEDOM60 sales
increasing by 30% and RES-Q-VAC sales increasing by 15%. However net sales
decreased 20% overall for the six-month period ended August 31, 2001 from
$1,093,358 for the six months ended August 31,2000 to $875,563 for the six
months ended August 31,2001 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.

Gross profit decreased to 28% of net sales for the six months ended August 31,
2001 from 46 % in the six months ended August 31, 2000 primarily resulting from
a large one-time sale in 2000 of OEM products with a high profit margin. The
current gross profit percentage is indicative of our core business.

8

Selling, general and administrative expense decreased 16% for the six month
period ended August 31,2001 versus the six month period ended August 31, 2000 as
a result of reducing administrative personnel costs.

Research and development expenses decreased 15% for the six month period ended
August 31, 2001 versus the six month period ended August 31, 2000 as a result of
the resignation of our R&D engineer during the second quarter 2000 and a
reduction in the development of new products.


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 August 31,
2001, $200,000 has been advanced on the line of credit. We are currently
working with the bank to secure financing to repay the line of credit and cover
inventory and tooling costs associated with future growth.

During the third quarter we experienced improved cash flow due to increased
sales in July and August and from strong sales to international customers that
pay at the time of product shipment. The funds available on August 31, 2001 are
expected to meet cash requirements as planned under current operating conditions
at least for the next 12 months.

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, we are trying to refinance and
increase our bank line as well as discussing financing with various financial
people who have offered to assist the Company to raise capital. There is no
assurance that the bank will extend or increase our line of credit or that these
financial people will be successful in their efforts or that the cost of the
capital will be favorable to the company.

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. We have begun a trial at another
location of this agency and will be working diligently to begin trials at the
other locations within the next six months.

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 August 31, 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 October 11, 2001
---------------------

Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer


11