10QSB: Optional form for quarterly and transition reports of small business issuers
Published on October 15, 2004
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, 2004
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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 August 31, 2004
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Common stock, $.01 par value 24,931,000 shares
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PART I PAGE
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ITEM 1. Financial Statements
Balance Sheet (Unaudited) - August 31, 2004 and
February 28, 2004 (Audited) ....................................... 3
Statements of Operations (Unaudited) - for the three-months and
six months ending August 31, 2004 and August 31, 2003 ............. 4
Statements of Cash Flow (Unaudited) - for the six months
ending August 31, 2004 and 2003 ................................... 5
Notes to Unaudited Financial Statements ........................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................... 6
PART II
ITEM 1. Legal Proceedings ................................................. 9
ITEM 2. Changes in Securities and Use of Proceeds ......................... 9
ITEM 3. Defaults Upon Senior Securities ................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders ............... 9
ITEM 5. Other Information ................................................. 9
ITEM 6. Exhibits and Reports on Form 8-K .................................. 9
2
REPRO-MED SYSTEMS, INC.
BALANCE SHEET
AUGUST 31, FEBRUARY 29,
2004 2004
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS ----------- -----------
Cash & Cash Equivalents ........................ $ 133,324 $ 219,682
Accounts Receivable, net ....................... 156,406 130,334
Inventory ...................................... 380,932 378,982
Prepaid Expenses ............................... 50,497 25,775
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TOTAL CURRENT ASSETS ............................... 721,159 754,773
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EQUIPMENT & OTHER ASSETS
Total Equipment ................................ 1,231,237 1,216,152
Less - Accumulated Depreciation ................ (896,363) (858,417)
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Net Book Value of Equipment .................... 334,874 357,735
Deposits ....................................... 27,652 27,652
Other Assets ................................... 44,718 48,027
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TOTAL EQUIPMENT & OTHER ASSETS ..................... 407,244 433,414
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TOTAL ASSETS ....................................... $ 1,128,403 $ 1,188,187
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ............................... $ 270,002 $ 325,723
Notes Payable to Related Parties ............... 7,000 7,000
Accrued Expenses ............................... 102,285 99,205
Note Payable to Bank ........................... 198,581 198,581
Current Portion Capital Lease Obligations ...... 15,381 19,079
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TOTAL CURRENT LIABILITIES ...................... 593,249 649,588
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OTHER LIABILITIES
Long-Term Portion of Leases Payable ........... 17,860 24,846
Deferred Capital Gain Income .................. 325,976 337,215
Long-Term Debt - Notes Payable ................ 450,000 350,000
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TOTAL LIABILITIES .................................. 1,387,085 1,361,649
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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, 24,931,000 Shares and
24,531,000 shares issued and outstanding at
August 31, 2004 and February 29, 2004,
respectively ................................. 249,310 245,310
Additional Paid-in Capital ..................... 2,258,711 2,252,711
Accumulated Deficit ............................ (2,624,803) (2,529,583)
Treasury Stock at Cost ......................... (142,000) (142,000)
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TOTAL STOCKHOLDERS' DEFICIENCY ..................... (258,682) (173,462)
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TOTAL LIABILITIES & STOCKHOLDERS' DEFICIENCY ....... $ 1,128,403 $ 1,188,187
=========== ===========
See Accompanying Notes to Financial Statements
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REPRO-MED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
UNAUDITED
AUGUST 31, AUGUST 31,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) ........................................... ($ 91,220) ($100,381)
Adjustments to reconcile net (loss) to cash
(used) in operating activities:
Stock-Based Compensation ........................... 20,000 --
Legal Expenses Charged to Additional Paid-In Capital (10,000) --
Depreciation and Amortization ...................... 41,255 39,811
Capital Gain - Building Lease ...................... (11,239) (11,240)
(Increase) in Accounts Receivable .................. (26,072) (14,063)
(Increase) in Inventory ............................ (1,950) (7,961)
Increase in Prepaid Expenses ....................... (24,722) (5,203)
(Decrease) Increase in Accounts Payable ............ (55,721) 49,876
Increase in Accrued Expenses ....................... 3,080 36,401
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NET CASH (USED IN) OPERATIONS ........................ (156,589) (12,760)
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CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Security Deposit ....................... -- 23,500
Capital Expenditures ............................... (15,085) (10,220)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .. (15,085) 13,280
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CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable - President and Others ............... 100,000 --
Increase in Notes Payable to Related Parties ....... -- 41,000
Preferred Stock Dividend ........................... (4,000) (4,000)
Payments, Increased Obligations on Capitalized
Leases ........................................... (10,684) (15,635)
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NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 85,316 21,365
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NET INCREASE (DECREASE) IN CASH ...................... (86,358) 21,885
Cash and Cash Equivalents, beginning of period ....... 219,682 16,738
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Cash and Cash Equivalents, end of period ............. $ 133,324 $ 38,623
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest ........................................... 26,010 16,378
Income Taxes ....................................... 1,000 831
See Accompanying Notes to Financial Statements
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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
financial statements and related footnotes for the year ended February 29, 2004
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, 2004, and the results of operations and cash flows for
the three-month and six-month periods ended August 31, 2004 and 2003 have been
included.
The results of operations for the six-month period ended August 31, 2004, 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 29, 2004.
STOCKHOLDERS' EQUITY/NOTES PAYABLE
During the quarter ended May 31, 2004, the company executed note agreements for
$100,000. 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 400,000 shares of its
common stock under the agreements. As of August 31, 2004, 185,000 of these
shares have been issued and the remaining 215,000 shares have been reflected as
issued for financial statement purposes.
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
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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, 2004 VS. 2003
Sales in the core RES-Q-VAC and Freedom60 lines increased 9.5% quarter over
quarter ended August 31, 2004. Sales of RES-Q-VAC increased 12% quarter over
quarter, while sales in the Freedom60 line increased 1.2% quarter over quarter.
However, these increases in core product sales were offset by a 53% ($42,800)
decline in sales in the non-core Gyneco, Restore and OEM lines. Overall, as a
result of the decline in the non-core product lines, net sales decreased 3.5% to
$366,475 (2004) from $379,694 (2003) for the quarter.
Gross profit margins increased very slightly to 52.6% of net sales in 2004 from
52.2% in 2003. Selling, general and administrative expense increased by $14,526
in 2004 from $230,503 in 2003 primarily as the result of an increase in sales
and marketing expenditures.
Research and development expenses declined $528 from 2003 to 2004.
Depreciation and amortization expenses increased $634 during this period. This
reflected additional capital equipment purchases during the previous 12 months.
The additional depreciation for new capital equipment was partially offset by
depreciation expense reductions as some older assets reached the end of their
depreciable lives.
Interest expense increased by $6,587, quarter over quarter, primarily as a
result of an increase in loans obtained through the company's promissory note
program.
Other income increased $7,102, quarter over quarter, largely as the result of a
refund of insurance premiums paid in a prior fiscal year and the reduction of an
unpaid expense incurred in a prior fiscal year.
As a result of the decreased revenue and increased expenses, net income
decreased $20,768 from a loss of $71,493 to a loss of $92,261, quarter over
quarter.
SIX MONTHS ENDED AUGUST 31, 2004 VS. 2003
Net sales increased 8.0%, or $64,755, to $873,950 for the six-months ended
August 31, 2004 from $809,195 for the six-months ended August 31, 2003. Sales of
the RES-Q-VAC product line increased 18.9% for the six-months ended August 31,
2004 vs. the six-months ended August 31, 2003. Sales of the other core product
line, Freedom60, increased 19.3% for the same periods. These increases were
partially offset by a $64,520 (45.6%) decline in the non-core Gyneco, Restore
and OEM product lines during the six-month period.
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Gross profit increased to 55% of net sales in 2004 from 53% in 2003 due, in
part, to efficiencies realized at the higher sales volume.
Selling, general and administrative expense increased 3.7% ($16,794) to $469,236
in 2004 from $452,442 in 2003.
Research and development expenses increased $1,235 from 2003 to 2004.
Depreciation and amortization expense increased by $1,444 period over period as
the result of equipment purchases during the past year.
Interest expense increased 58.8% ($9,632) as a result of an increase in loans
obtained through the company's promissory note program.
Other income increased $7,267, quarter over quarter, largely as the result of a
refund of insurance premiums paid in a prior fiscal year and the reduction of an
unpaid expense incurred in a prior fiscal year.
Net loss for the six months ended August 31, 2004, was reduced by 9.1% to a loss
of $91,220 from a loss of $100,381 in 2003.
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, 2004,
$198,581 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.
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 an additional $100,000 under the same program in the first quarter of
fiscal year 2005. Another $25,000 was raised in the first quarter of 2003 under
similar terms.
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.
Effective March, 2004, we engaged the services of a retired United States Air
Force Colonel to guide our RES-Q-VAC military sales efforts. We have met with
the Surgeon General of the US Army and followed up with Army medical staff based
at Fort Sam Houston in San Antonio, Texas. In May, we hired an experienced Vice
President of Sales, based in Florida, to handle sales in the southeastern United
States and manage key accounts elsewhere in the country. In June, we engaged a
marketing consultant with extensive infusion sales experience to assist in
developing additional markets for the FREEDOM60. Finally, in August, 2004, we
engaged the services of a sales representative with a background in nursing to
market our products in the southeastern United States and provide sales
assistance in other key areas.
We have also accelerated marketing efforts at the corporate level with magazine
advertising and targeted direct mail campaign. We have begun marketing the Res-
Q-Vac to nursing homes, sub-acute care, and alternate site for use during power
outages such as recently occurred in Florida during the hurricane season as well
as routine suctioning. For the Freedom60, we recently began mailing to home care
providers who are members of the National Home Infusion Association. Due to the
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cost benefit, safety, and performance of the Freedom60, we anticipate increasing
interest for this technology in this market.
In May, 2004, we signed a distribution agreement with Omni Biomed LLC, based in
Knoxville, Tennessee. Omni Biomed provides distribution and training services to
hospitals, physicians, clinics and others in the home and long-term care
markets. This agreement provides exclusivity for certain territories based on
the performance of their sales.
Our distributor in Europe, Gama Sanitos, is actively engaged in establishing the
Freedom60 as the device of choice for the treatment of post-operative pain
control throughout Europe. We continue to explore the potential of this
application in the domestic market. Gama Sanitos is also jointly developing
several new products with us which will enhance the marketability of the
FREEDOM60. We continue to look at developing an elastomeric pump which can be
used for antibiotics, pain, and KVO (Keep Vein Open) therapy. We believe that
for certain applications requiring more fluid volume than 60ml, and for KVO
therapy combined with the FREEDOM60, an elastomeric pump will broaden our
infusion products line offerings and improve sales.
We continue to pursue capital investment through debt or equity to increase our
marketing and sales efforts, and to enhance our existing products as well as new
line additions.
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, 2004.
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
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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 15, 2004
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Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
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