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, 2002 --------------- 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, 2002 ----- ---------------------------- Common stock, $.01 par value 23,504,000 shares Repro-Med Systems, Inc. Table of Contents Part I PAGE ---- Item 1. Financial Statements Balance Sheet (Unaudited) - August 31, 2002 ..........................3 Statements of Operations (Unaudited) - for the three-months and six months ending August 31, 2002 and August 31, 2001 ............4 Statements of Cash Flow (Unaudited) - for the six months ending August 31, 2002 and 2001 ......................................5 Notes to Unaudited Financial Statements ..............................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. .......................7 PART II Item 1. Legal Proceedings ....................................................9 Item 2. Changes in Securities ................................................9 Item 3. Defaults Upon Senior Securities ......................................9 Item 4. Submission of Matters to a Vote of Security Holders ..................9 Item 5. Other Information ...................................................10 Item 6. Exhibits and Reports on Form 8-K ....................................10 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET UNAUDITED ASSETS August 31,2002 CURRENT ASSETS -------------- Cash & Cash Equivalents .................................... $ 88,784 Accounts Receivable, net ................................... 131,434 Inventory .................................................. 543,616 Prepaid Expenses & Other Receivables ....................... 29,993 ----------- TOTAL CURRENT ASSETS ........................................... 793,826 ----------- EQUIPMENT & OTHER ASSETS Total Equipment ............................................ 1,198,272 Less - Accumulated Depreciation ............................ (746,951) ----------- Net Book Value of Equipment ................................ 451,321 Deposits ................................................... 52,000 Other Assets ............................................... 47,602 ----------- TOTAL EQUIPMENT & OTHER ASSETS ................................. 550,923 ----------- TOTAL ASSETS ................................................... $ 1,344,749 =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ........................................... $ 224,710 Demand loan from President ................................. 84,000 Accrued Expenses ........................................... 118,497 Bank Line of Credit Payable ................................ 200,000 Current Portion of Leases Payable .......................... 25,346 Current Portion Capital Gain ............................... 22,481 ----------- Total Current Liabilities .................................. 675,034 ----------- OTHER LIABILITIES Long-Term Portion of Leases Payable ........................ 55,944 Deferred Capital Gain Income ............................... 348,455 ----------- TOTAL LIABILITIES .............................................. 1,079,433 ----------- STOCKHOLDERS' EQUITY Preferred Stock, 8% Cumulative $.01 Par Value Authorized 2,000,000 Issued & Outstanding 10,000 Shares (liquidation value $100,000) .......................................... 100 Common Stock, $.01 Par Value, Authorized 50,000,000 Shares, Issued & Outstanding 23,504,000(Includes 2,275,000 in Treasury Shares) Respectively ......................... 235,040 Additional Paid-in Capital ................................. 2,211,631 Accumulated Deficit ........................................ (2,039,456) Treasury Stock at Cost ..................................... (142,000) ----------- TOTAL STOCKHOLDERS' EQUITY ..................................... 265,315 ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ....................... $ 1,344,749 =========== See Accompanying Notes to Unaudited Financial Statements 3
REPRO-MED SYSTEMS, INC STATEMENTS OF OPERATIONS UNAUDITED FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED Aug 31, 2002 Aug 31, 2001 Aug 31,2002 Aug 31, 2001 ------------ ------------ ----------- ------------ SALES - ----- Net Sales of Products ...................... $ 451,840 $ 448,150 $ 887,082 $ 875,563 COST AND EXPENSES - ----------------- Cost of Goods Sold ....................... 303,953 311,009 621,218 630,169 Selling, General & Administrative Expenses 134,509 156,211 273,071 329,806 Research and Development ................. 5,378 11,518 10,791 22,951 Equity Based Compensation ................ 0 10,250 0 20,500 Depreciation and Amortization ............ 19,913 21,489 41,501 41,778 ----------- ----------- ----------- ----------- TOTAL COST AND EXPENSES .................... 463,753 510,477 946,580 1,045,203 ----------- ----------- ----------- ----------- (LOSS) FROM OPERATIONS ..................... (11,913) (62,327) (59,499) (169,640) Non-Operating Income (Expense) Interest (Expense) ....................... (6,329) (4,323) (13,321) (8,065) Interest & Other Income .................. 358 2,726 5,461 5,722 ----------- ----------- ----------- ----------- (5,971) (1,597) (7,860) (2,342) ----------- ----------- ----------- ----------- (LOSS) BEFORE INCOME TAXES ................. (17,885) (63,924) (67,359) (171,983) Provision for Income Taxes ............. 0 0 (702) (411) ----------- ----------- ----------- ----------- NET (LOSS) AFTER TAXES ..................... (17,885) (63,924) (68,061) (172,394) ----------- ----------- ----------- ----------- Preferred Dividends ........................ 2,000 4,000 4,000 8,000 NET (LOSS) AVAILABLE TO COMMON SHAREHOLDERS (19,885) (67,924) (72,061) (180,394) =========== =========== =========== =========== (LOSS) PER COMMON SHARE Primary .................................. ($ 0.00) ($ 0.00) ($ 0.00) ($ 0.01) Fully Diluted ............................ ($ 0.00) ($ 0.00) ($ 0.00) ($ 0.01) See Accompanying Notes to Unaudited Financial Statements 4
REPRO-MED SYSTEMS, INC STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED UNAUDITED AUGUST 31, AUGUST 31, 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ................................. ($ 68,061) ($172,394) Adjustments to reconcile net (loss) to cash (used) in operating activities: Equity Based Compensation ................ 0 20,500 Depreciation and Amortization ............ 41,501 41,778 Deferred Gross Profit - Building Lease ... (11,241) (11,241) Accounts Receivable ...................... 59,505 28,069 Inventory ................................ 57,019 (56,647) Prepaid Expenses and Other Receivables ... (17,086) 21,997 Other Assets ............................. (1,405) (1,328) Demand Loan to President ................. 15,000 0 Accounts Payable ......................... 35,599 29,601 Leases Payable ........................... 4,546 25,967 Other Liabilities ........................ (26,295) 23,629 --------- --------- NET CASH PROVIDED IN (USED BY) OPERATIONS .. 89,082 (50,070) --------- --------- CASH FLOWS USED BY INVESTING ACTIVITIES Capital Expenditures ..................... (21,968) (44,850) --------- --------- NET CASH USED BY INVESTING ACTIVITIES ..... (21,968) (44,850) --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES: Proceeds from Line of Credit ............. 0 130,000 Preferred Stock Dividend ................. (4,000) (8,000) --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES: (4,000) 122,000 --------- --------- NET INCREASE (IN CASH ...................... 63,115 27,081 CASH, beginning of period ................ 25,670 35,466 --------- --------- CASH, end of period ...................... $ 88,784 $ 62,546 ========= ========= SUPPLEMENTAL DISCLOSURES CASH PAYMENTS FOR Interest ................................. 13,321 8,065 Income Taxes ............................. 702 411 See Accompanying Notes to Unaudited 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 consolidated financial statements and related footnotes for the year ended February 28,2002 included in the Form 10-KSB for the year then ended. As shown in the accompanying interim financial statements, the Company incurred a net loss of $68,061 during the six-months ended August 31,2002. The Company intends to raise additional capital or financing, to improve their liquidity. These factors create substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the financial statements that might be necessary should the Company be unable to continue as a going concern. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of August 31,2002, and the results of operations for the three-month and six month periods ended August 31,2002 and 2001 and cash flows for the periods ended August 31,2002 and 2001 have been included. The results of operations for the three-month and six-month periods ended August 31,2002, are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-KSB as filed with the Securities and Exchange Commission for the year ended February 28,2002. Reclassification - certain reclassifications have been made to prior year amounts to conform to current year presentation. Debt As of August 31,2002, we have an outstanding balance of $200,000 on our bank line of credit. The line agreement officially ended on June 30,2001 but was verbally renewed by the bank through February 2003. New Accounting Developments In June 2002, the Financial Accounting Standards Board issued SFAS No. 146 on "Accounting for Costs Associated with Exit or Disposal Activities". 6 The Company is reviewing the requirements and implications of adopting such standards by December 31, 2002. This Statement addresses financial and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The Company currently does not believe adopting such standards will have a material effect on the presentation of the financial statements. Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-QSB contains certain "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to us that are based on the beliefs of the management, as well as assumptions made by and information currently available. Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as, recent operating losses, uncertainties associated with future operating results, unpredictability related to Food and Drug Administration regulations, introduction of competitive products, limited liquidity, reimbursement related risks, government regulation of the home health care industry, success of the research and development effort, market acceptance of FREEDOM60, availability of sufficient capital to continue operations and dependence on key personnel. When used in this report, the words "estimate," "project," "believe," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect current views with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. These statements involve risks and uncertainties with respect to the ability to raise capital to develop and market new products, acceptance in the market place of new and existing products, ability to penetrate new markets, our success in enforcing and obtaining patents, obtaining required Government approvals and attracting and maintaining key personnel that could cause the actual results to differ materially. Repro-Med does not undertake any obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Three months ended August 31, 2002 vs. 2001 Sales of our core products increased quarter over quarter ended August 31, 2002 with our Freedom60 sales increasing by 29% and Res-Q-Vac sales increasing by 17%. Net sales increased 1% overall from $448,150 (2001) to 7 $451,840 (2002) for the quarter despite the loss in sales of approximately $63,000 from a major OEM customer for the second quarter 2002 and reduced sales for a low margin product line that we have been phasing out over the last year. Gross profit increased to 33% of net sales in 2002 from 31% in 2001 primarily resulting from cost containment reductions. Selling, general and administrative expense decreased 14% from 2001 to 2002 as a result of the reduction of sales and administrative personnel, and decreased marketing and show expenses. Research and development expenses decreased 53% quarter over quarter due to the fact that we enlisted outside engineering help in the second quarter 2001 but not in the second quarter 2002. There was no material change in depreciation and amortization expense during this period. Interest expense increased 46% as a result of the addition of tooling leases during the second quarter of 2001 and the addition of a tooling lease at the end of Fiscal year 2002. Six Months Ended August 31, 2002 vs. 2001 Sales of our core products increased for the six-months ended August 31, 2002 vs. the six-months ended August 31,2001, with our Freedom60 sales increasing by 30% and Res-Q-Vac sales increasing by 26%. Net sales increased 1% overall from $875,563 (2001) to $887,082 (2002) for the quarter despite the loss in sales of approximately $149,000 from a major OEM customer for the six-months ended August 31,2002 and reduced sales for a low margin product line that we have been phasing out over the last year. Gross profit increased to 30% of net sales in 2002 from 28% in 2001 primarily resulting from cost containment reductions and reductions in material costs. Selling, general and administrative expense decreased 17% from 2001 to 2002 as a result of the reduction of sales and administrative personnel, and decreased marketing and show expenses. Research and development expenses decreased 53% due to the fact that we enlisted outside engineering help during the six-months ended August 31, 2001 but not during the six-months ended August 31,2002. 8 Liquidity and Capital Resources During June 2000, we negotiated a $200,000 line of credit with M&T Bank that is guaranteed by the President and one of the directors. The line of credit was intended for material purchases for new orders and tooling. As of August 31, 2002, $200,000 has been advanced on the line of credit. Although the line expired on June 30,2001, the bank verbally renewed the line through February 2003. We are attempting to achieve and maintain positive cash flow by continuing to increase sales for the FREEDOM60 and RES-Q-VAC, decreasing material costs and by pursuing capital investment through debt or equity. The Company is working with outside distributors to increase market share in the European markets for the RES-Q-VAC, and to introduce the FREEDOM60 into the European market. Currently, our distributor for the FREEDOM60 in Italy is marketing the product and has received an initial order. We are in the process of validating new lower-cost and more efficient vendors for our raw materials, which will assist us in continuing to improve our margins on our current products. The Company has sufficient capital for our ongoing needs based on anticipated sales growth in the next six months and maintaining careful control of expenses. The funds available on August 31, 2002 are expected to meet cash requirements as planned under current operating conditions at least for the next 12 months. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is neither a party to any material litigation, nor to the knowledge of the officers and directors of the Company, is there any material litigation threatened against the Company. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders of the Company during the quarter ended August 31, 2002. 9 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K 99.1 Certification Pursuant to the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized. REPRO-MED SYSTEMS, INC. /s/ Andrew I. Sealfon October 10, 2002 Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 10