SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM l0-QSB
QUARTERLY REPORT
Pursuant to sections 13 or 15(d) of The Securities Exchange Act of 1934
FOR THE QUARTER ENDED MAY 31, 1996
Commission File Number 0-12305
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.)
17 Industrial Place, Middletown, New York 10940
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(Address of principle executive offices) (Zip Code)
(914) 343-8499
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
At May 31, 1996 the registrant had outstanding 22,142,000 shares of Common
Stock, $.01 par value.
PART I
Item 1. Financial Statements
Balance Sheets - May 31, 1996, May 31, 1995 and February 29, 1996.
Statements of Income - For the three month periods ended May 31, 1996 and May
31, 1995.
Statements of Cash Flow - May 31, 1996 and May 31, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II
Item 1. Legal Proceedings
None
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
2
PART I, Item 1 - Financial Statements
Repro-Med Systems, Inc And Subsidiary
Consolidated Balance Sheets
May 31,1996 May 31,1995 Feb 29,1996
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Assets
Current Assets
Cash and Cash Equivalents $ 972,804 $ 873,254 $ 1,125,957
Accounts Receivable 303,340 249,571 87,489
Inventory 620,356 553,233 542,865
Prepaid Expenses & Other Receivables 89,881 140,945 65,890
Deferred Taxes - Current 156,000 156,000 156,000
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Total Current Assets 2,142,381 1,973,003 1,978,201
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Land, Property, Equipment And Other Assets
Land 409,500 0 0
Property and Equipment, Net 906,228 363,547 317,874
Deferred Taxes - Non-current 62,535 218,267 101,127
Other Assets, Net 71,093 79,709 73,511
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Total Property, Equipment And Other Assets 1,449,356 661,523 492,512
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Total Assets $ 3,591,737 $ 2,634,526 $ 2,470,713
============ =========== =========== ===========
Liabilities And Stockholders' Equity
Current Liabilities
Accounts Payable $ 157,039 $ 132,035 $ 114,202
Notes Payable - Current Portion Notes Payable 0 27,000 0
Mortgage Payable - Current Portion 14,420 0 0
Other Current Liabilities 126,454 256,616 93,132
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Total Current Liabilities 297,913 415,651 207,334
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Mortgage Payable - Long Term Portion 885,580 0 0
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Total Liabilities 1,183,493 415,651 207,334
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Minority Interest In Subsidiary 139,754 160,838 115,561
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Stockholder's Equity
Preferred Stock, 8% Cumulative $.01 Par Value, 2,000,000
shares authorized, 10,000 issued and outstanding 100 100 100
Common Stock, $.01 Par Value, 50,000,000 shares
authorized, 22,142,000 issued and outstanding 221,420 220,420 220,420
Warrants Outstanding 140 140 140
Additional Paid-In Capital 3,040,662 3,033,662 3,033,662
Accumulated (Deficit) (971,832) (1,196,285) (1,084,504)
Treasury Stock at Cost (275,000 shares) (22,000) 0 (22,000)
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Total Stockholder's Equity 2,268,490 2,058,037 2,147,818
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Total Liabilities And Stockholders' Equity $ 3,591,737 $ 2,634,526 $ 2,470,713
========================================== =========== =========== ===========
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Repro-Med Systems, Inc And Subsidiary
Consolidated Statements Of Income
For The 3 Months Ended
May 31, 1996 May 31, 1995
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Sales $ 718,702 $ 741,474
Costs And Expenses:
Cost of Goods Sold 318,697 348,942
Selling, General & Administrative Expenses 243,337 175,826
Research and Development 56,180 16,320
Depreciation and Amortization 18,648 17,861
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636,862 558,949
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Net Income From Operations 81,840 182,525
Non-Operating Income (Expense):
Licensing Income 87,800 0
Rental Income 7,414 0
Interest (Expense) (6,725) 0
Interest & Other Income 11,582 12,781
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100,071 12,781
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Income Before Minority Interest Share of Operations 181,911 195,306
Minority Interest In (Income) Loss of Subsidiary (24,193) 1,126
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Net Income Before Income Taxes 157,718 196,432
Provision (Benefit) For Income Taxes 45,046 83,797
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Net Income $ 112,672 $ 112,635
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Net Income Per Common Share $ 0.01 $ 0.01
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4
Repro-Med Systems, Inc And Subsidiary
Statements Of Cash Flows
For The 3 Months Ended
May 31, 1996 May 31, 1995
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Cash Flows From Operating Activities
Net Income $ 112,672 $ 112,635
Adjustments To Reconcile Net Income To Net
Cash Provided By Operating Activities:
Income (Loss) Of Minority Interests 24,193 (1,126)
Depreciation and Amortization 18,648 17,861
Decrease (Increase) In Accounts Receivable (215,851) 5,543
Decrease (Increase) In Inventory (77,491) 4,747
Decrease (Increase) In Prepaid Expenses &
Other Receivables (23,991) (69,333)
Decrease (Increase) In Deferred Taxes 38,592 75,417
Increase (Decrease) In Accounts Payable 42,837 (77,409)
Increase (Decrease) In Other Current Liabilities 33,322 (20,686)
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Net Cash Provided By Operating Activities (47,069) 47,649
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Cash Flows From Investing Activities
(Acquisition) of Land, Property and Equipment (1,013,919) (88,647)
(Acquisition) of Other Assets (165) (425)
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Net Cash (Used) by Investing Activities (1,014,084) (89,072)
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Cash Flows From (Used By) Financing Activities
Proceeds From Mortgage 900,000 0
Proceeds From Issuance of Common Stock 8,000 0
Repayment of Note 0 (9,000)
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Net Cash Provided (Used) by Financing Activities 908,000 (9,000)
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Increase (Decrease) In Cash and Cash Equivalents (153,153) (50,423)
Cash and Cash Equivalents - Beginning of Year 1,125,957 923,677
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Cash and Cash Equivalents - March 31 $ 972,804 $ 873,254
==================================== =========== ===========
Supplementary Data - Interest Paid $ 6,725 $ 0
5
Repro-Med Systems, Inc And Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Reference is made to Notes to Financial Statements
included in the Company's Annual Report),
(1) Management's Statement
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-KSB.
6
PART I, Item 2
Repro-Med Systems, Inc And Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations for use with 10-QSB for the Quarter Ended May 31, 1996
Capital Resources and Liquidity
Cash and equivalents on a consolidated basis were $972,804 at May 31, 1996, as
compared to $873,254 at May 31, 1995, an increase of $99,550. Cash and
equivalents includes cash of the Company's subsidiary, Gamogen, Inc, of
$91,138 at May 31, 1996, and $22,198 at May 31, 1995.
Net working capital on a consolidated basis at May 31, 1996 was $1,844,468, as
compared to $1,557,352 at May 31, 1995. Net working capital included Gamogen,
Inc net working capital of $161,580 at May 31, 1996, and $198,250 at May 31,
1995.
The Company's liquidity improved as reflected in the 3 month increase in its
net working capital of $73,601 versus the balance at February 28, 1996 of
$1,770,867. The 3 month increase in net working capital reflected in increased
accounts receivable and inventory and reductions in other current liabilities
results primarily from the Company's net income of $112,672 and the
utilization of $38,592 in tax benefits it derives from accrued net operating
loss credits (NOLs) on federal and state income taxes. Versus the balance at
May 31, 1995 the Company's net working capital increased $287,116.
On May 18, 1994, Repro-Med received approval notification from the FDA on the
Syringe I.V. Infusion System which allows the Company to commence production
and marketing of the Syringe I.V. Infusion System. The Company is presently
proceeding with product engineering, the purchase of production tooling and
parts inventory, and supply agreements for the disposable I.V. administration
set components and anticipates initiating production of the Syringe I.V.
Infusion System in the fiscal year ending February 1997. The Company is
exploring various options for marketing of the Syringe I.V. Infusion System
but has not yet finalized its plans.
As previously reported, on April 12, 1994 the Board of Directors of the
Company's 58.3% owned subsidiary, Gamogen, Inc ("Gamogen"), approved and on
April 14, 1994 Gamogen signed with Zonagen, Inc. ("Zonagen"), a small US based
biotechnology company, an agreement under which Zonagen acquired all rights of
Gamogen to Gamogen's Oral Treatment for Male Impotence ("Impotence
Agreement"). In exchange for the above rights Gamogen received from Zonagen
$100,000 in cash and, subject to certain FDA approvals and Gamogen's agreement
not to compete, future payments of $200,000 in restricted common stock of
Zonagen, valued based on the closing price on the day due, and royalties on
Zonagen's future sales of the Oral Treatment as follows payable in cash to
Gamogen. Future product royalties payable to Gamogen under the Impotence
Agreement are equal the following percentages of net sales of the Oral
Treatment for Male Impotence:
Aggregate Net Sales: % Royalty
First $100,000,000 6%
Second $100,000,000 5%
Third $100,000,000 4%
Excess Over $300,000,000 3%
Under certain terms of the Impotence Agreement the above royalty percentages
may be reduced by two percentage points for sales in countries where patent
protection is unavailable or deemed ineffective. There can
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be no guarantee concerning the Oral Treatment that FDA approvals will be
secured and if secured that Zonagen will be successful in marketing of the
product.
In the year ended February 1995 Gamogen recorded Licensing Income from the
Impotence Agreement of $47,107 ($100,000 in payments made by Zonagen
consisting of $50,000 on April 12 and $50,000 on July 20, 1994, less related
expenses of $52,893. As disclosed in Gamogen's Form 10KSB Annual Report dated
February 29, 1996, on May 28, 1996 a stock payment was received by Gamogen in
the form of 19,512 restricted common stock shares of Zonagen in accordance
with the terms of the Impotence Agreement. The number of shares was computed
by dividing $200,000 by the NASDAQ closing price on April 12, 1996 of $10.25
per share. Gamogen recorded the receipt of these shares in the fiscal quarter
ended May 31, 1996. In accordance with the terms of the Impotence Agreement,
the 19,512 shares are restricted and bear the appropriate legend. Considering
the generally limited market for restricted shares, the Rule 144 holding
period of a minimum of two years, and the historical variance in the market
prices for Zonagen stock, Gamogen initially valued these shares at 50% of the
stock price on April 12, 1996 or $100,000. Gamogen valued these shares
understanding that the future valuation of these shares may be changed to
reflect the length of the holding period, changes in the current market price
of Zonagen common stock, or other factors which in the opinion of management
may affect the value of these securities. On June 10, 1996 Gamogen received an
offer of $4.50 per share, a total of $87,800, on the 19,512 restricted shares
from a small group of private investors. This price was approximately 50% of
the then NASDAQ market price for Zonagen, Inc. common stock. On June 20, 1996
Gamogen sold the 19,512 restricted shares to the group of private investors
for $87,800. As a result of these transactions Gamogen recorded Licensing
Income from the Impotence Agreement of $87,800 in the quarter ended May 31,
1996 and the receipt of $87,800 in cash and cash equivalents as of May 31,
1996.
On June 24, 1996 Zonagen issued a press release concerning its work on FDA and
patent approvals on its Vasomax product (the Oral Treatment) stating the
following:
"The Woodlands, Texas, June 24, 1996 - Zonagen, Inc. (NASDAQ: ZONA;
Pacific ZNG) announced today that it has received notification from
the United States Patent and Trademark Office that the patent covering
the use of VASOMAX(TM) as a treatment for erectile dysfunction
(impotency) has been allowed. The second, more recent application, is
still pending.
Zonagen also announced that it has submitted the IND for VASOMAX(TM)
to the FDA as the first step in its US Phase III development program.
VASOMAX(TM) is currently in a pivotal Phase III trial in Mexico
scheduled to be completed in 1996. The Company has selected
Pharmaco-LSR and Affiliated Research Centers (ARC) for its US clinical
development team and clinical sites. Dr. Irwin Goldstein of Boston
University Medical Center, a renowned researcher in the field of
impotency therapy, has been appointed as Scientific Advisor for the
VASOMAX(TM) program and Dr. David Ferguson, Senior Vice President,
Affiliated Research Centers, will act as special consultant during the
Phase III trials.
`The approval of our US VASOMAX(TM) patent, the VASOMAX(TM) IND
submission and the selection of our Phase III development team are
crucial events in our commercialization strategy," declared Joseph S.
Podolski, President and CEO, Zonagen, Inc. "Zonagen and its clinical
partners have developed a very aggressive timeline for our US clinical
trials. We believe that we will be able to submit our VASOMAX(TM) NDA
to the FDA in June of 1997.'
Zonagen's strategy is to provide a complete line of products and
services for the management of reproductive health."
Based on the above press release by Zonagen, Gamogen does not anticipate any
royalty payments under the Impotence Agreement from Zonagen within the next 12
months, with the exception of possible royalty payments
8
by Zonagen resulting from the sale of the Oral Treatment in Mexico. There can
be no guarantee concerning the Oral Treatment that approvals by the US FDA or
approvals in other countries will be secured and if secured that Zonagen will
be successful in marketing of the product.
Beyond the above items, the Company's ability to increase its revenue and
develop other new products is primarily based on capital it derives from
current operations.
During the quarter ended November 30, 1995 the Company paid in full its bank
term loan which at May 31, 1995 had a balance of $27,000.
On April 18, 1995 Repro-Med executed a formal Contract Of Sale with Key Bank
of New York ("Key Bank") on a facility in Chester, NY ("Chester facility") for
the purpose of housing all operations of Repro-Med, Gamogen, and Gyneco. The
purchase was completed on April 30, 1996. The price for the facility was
$1,030,000. The purchase of the Chester facility was financed in part by a
$900,000 mortgage loan from Key Bank. The mortgage is a 10 year loan with a 20
year amortization rate and annual interest at a rate of 8.82% for years 1-5.
For years 6-10 the interest rate shall be the lesser of either the Key Bank
base rate plus 0.5% or a fixed rate to be negotiated if offered by Key Bank.
The total annual mortgage payment for years 1-5 including principal and
interest, is $95,924, payable in equal monthly installments beginning June 15,
1996. As of May 31, 1996 a total of $6,725 in interest expense due on the
mortgage was recorded. The interest recorded on the mortgage was for the
32-day period from April 30, 1996 to May 31, 1996. No mortgage principal
payments were made as of May 31, 1996. A portion of the Chester facility is
leased to Key Bank on a net/net/net rent basis for 20 years at annual rent of
$86,100 for years 1 through 10 and $99,990 for years 11 through 20. As of May
31, 1996 a total of $7,414 in rent, exclusive of property tax rent allocations
have been paid by Key Bank. The formal lease contract required an $86,100
security deposit from Key Bank and an additional rent allocation to Key Bank
of 35% of all property tax payments. Key Bank intends to maintain local branch
operations in the leased portion of the building. The new facility is expected
to improve Repro-Med and Gyneco manufacturing efficiencies and provide
additional space for expansion of operations.
The Osbon Medical Systems division of Urohealth Systems, Inc. OEM product
purchases represented 70% of the Company's total sales for the fiscal year
ending February 1996. A significant reduction in Company sales to Osbon could
materially affect the Company's liquidity, cash flow, and profitability. As a
result of increases in manufacturing costs and lower volume the Company
implemented an increase in selling prices of certain of its OEM products in
March 1996.
Osbon markets the Company's OEM products in the impotence vacuum device
market. Management believes that Osbon presently controls a substantial
portion of the impotence vacuum device market. Other products have recently
been developed for Osbon which compete with the Company's current OEM products
and are anticipated to be manufactured and marketed directly by Osbon. These
new products, sold under the trade name "Esteem" ("Esteem products"), were
introduced by Osbon in direct competition to the Company's OEM products in
June 1996. As a result Osbon has discontinued purchases of certain Repro-Med
OEM products and its purchases of certain other OEM products are expected to
be substantially reduced. Based on orders to date and discussions with Osbon
concerning anticipated purchases and marketing of the Esteem products,
management estimates sales to Osbon in the fiscal year ended February 1997 may
be approximately 40% to 45% lower as compared to fiscal 1996. These estimates
however are based on the assumption that Osbon can successfully manufacture
and generate significant market acceptance for the Esteem products.
9
During the period March 1995 to March 1996, the Company, acting in accordance
with its written agreement with Osbon for the manufacture by Repro-Med of the
Esteem products ("Esteem Agreement"), cooperated in and provided extensive
work in testing, validation, design analysis and problem solving, prototyping
and generating and providing information concerning performance and
improvements to the Esteem products design. In furtherance of the Esteem
Agreement Repro-Med provided Osbon related information concerning Repro-Med's
proprietary product design, materials, and manufacturing processes. Management
believes that Repro-Med's assistance was vital to Osbon's attempts to complete
the design and facilitate the timely manufacture of the Esteem products.
Throughout this time period the Company advised Osbon of numerous engineering
design faults related to the manufacturability, quality, and customer use of
the Esteem products which Repro-Med had discovered through its testing and
validation work on the Esteem products. These faults were primarily the result
of either design specifications provided Osbon by its contract engineers or
other items initiated by Osbon. A number of these faults were significant and
resulted in delays throughout the program. In March 1996 the Company
forthrightly advised Osbon that, based on the Company's current knowledge of
the status of the design, that confirmation of certain production scheduling
requested by Osbon was unrealistic and could not reasonably be achieved,
namely the production and delivery of 7,000 Esteem products by May 15, 1996.
In April 1996 Osbon advised that it was withdrawing its commitment to
Repro-Med for manufacture of the Esteem products and had secured other options
for manufacture of these products. No prior notice was provided the Company by
Osbon. Despite repeated requests to Osbon the Company has not received an
explanation for this action. The Company has advised Osbon that Repro-Med is
due compensation for its work on the Esteem products and for use of its
proprietary design and manufacturing information. The Company has also advised
Osbon that Repro-Med is available to initiate the manufacture the Esteem
products in accordance with its written agreement. The Company intends to seek
to resolve these matters on an amicable basis with Osbon. To date no
resolution has been agreed to. Osbon remains a significant and important
customer of Repro-Med.
Repro-Med sales of OEM products to Osbon in the quarter ended May 31, 1996
were $489,899, or 68% of sales, and were at the increased selling prices noted
above. Repro-Med sales of OEM products to Osbon in the quarter ended May 31,
1995 were $492,531, or 66% of sales
10
Results of Operations
In the quarter ended May 31, 1996 income from operations was $81,840 as
compared to $182,525 in the same quarter of the prior fiscal year, a decrease
of $100,685. The decrease in operating income resulted primarily from
increases in selling, general, and administrative expenses and increases in
expenditures for research and development offset in part by improved margins
on cost of goods sold. Sales in the current quarter were $718,702 a decrease
of $22,772 or 3% versus sales of $741,474 in the same quarter of the prior
fiscal year. Cost of goods sold decreased $30,245 or 9% as a result of
decreased product sales volume. Margins on sales after cost of goods sold
improved versus the same quarter of the prior fiscal year due to increased
prices on its OEM products (see Capital Resources and Liquidity section above)
and improved product sales mix. Selling, general, and administrative expenses
were $243,337. Selling, general, and administrative expenses increased $67,511
versus the same quarter of the prior year due primarily to general wage
increases, additional expenditures for promotion and export marketing, and
increased property taxes paid on the Chester facility. Research and
development costs totaled $56,180 in the current quarter as compared to
$16,320 in the same quarter of the prior fiscal year. The increase in research
and development costs resulted primarily from expenses for design changes to
the Syringe I.V. Infusion System pump mechanism initiated in November 1995,
general wage increases, and professional placement and relocation expenses for
a staff engineer hired in the current quarter. Depreciation and amortization
were $18,648 in the current quarter, as compared to $17,861 in the same
quarter of the prior fiscal year. The increase in depreciation and
amortization is due primarily to one month's depreciation expense on the
Chester facility in the amount of $1,260.
In the quarter ended May 31, 1996, the Company earned income before taxes of
$157,718 as compared to $196,432 in the quarter ended May 31, 1995, a decline
of $38,718. Income before taxes decreased versus the same quarter of the prior
fiscal year due to the $100,685 decrease in operating income and a $24,193
reduction in income to recognize the minority shareholder portion of Gamogen
income. The decrease in income before taxes was limited by an increase in
non-operating income in the current period of $87,290. Both the reduction in
income to recognize the minority shareholder portion of Gamogen income and the
increase in non-operating income result primarily from Gamogen Licensing
Income from the Impotence Agreement of $87,800 (see Capital Resources and
Liquidity section above). Non-operating income also increased due to rental
income on the Chester facility, however, the majority of this increase was
offset by interest expense related to the mortgage.
The Company earned net income of $112,672 in the quarter ended May 31, 1996,
essentially the same as the net income of $112,635 in the prior year quarter
ended May 31, 1995. The decline in income before taxes, versus the same
quarter of the prior year, was offset by lower income tax expense in the
current quarter. Income tax expense decreased due to the decrease in income
before taxes and the effect of Gamogen NOL tax benefits offsetting federal
income tax expense on its Licensing Income. Net income in the current quarter
included net income after minority interests of Gamogen of $33,823. Net income
in the previous year quarter ended May 31 was reduced by a net loss after
minority interests by Gamogen of $1,575.
Net income per common share $0.01 in the current quarter and $0.01 in the
quarter ended May 31 of the prior fiscal year.
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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 following persons, thereunto duly authorized.
REPRO-MED SYSTEMS, INC
\s\ Andrew I. Sealfon
- -------------------------------------------- July 3, 1996
Andrew I. Sealfon
President, Treasurer, Chairman of the Board,
Director, and Chief Executive Officer
\s\ Jesse A. Garringer
- -------------------------------------------- July 3, 1996
Jesse A. Garringer
Executive Vice-President, Secretary,
Director, and Chief Financial Officer
12