12
<PAGE>
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
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1999
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 (914) 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 May 31, 1999
________________________________ ________________________________
Common stock, $.01 par value 22,142,000
<PAGE>
REPRO-MED SYSTEMS,INC.
Table of Contents
PART I Financial Information
Page
Consolidated balance sheets -
May 31, 1999, February 28, 1999 and May 31, 1998 3
Consolidated statements of income -
three months ended May 31, 1999 and May 31, 1998 4
Consolidated statements of cash flow -
three months ended May 31, 1999 and May 31, 1998 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. Other Information
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 10
Holders
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
-----------------------------------
REPRO-MED SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
May 31,1999 May 31,1998 Feb 28,1999
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents $ 102,126 $ 124,949 $ 683,321
Short-Term Investments 454,692 468,114 81,352
Accounts Receivable (Less Allowance for 315,119 323,026 120,470
Doubtful Accounts of $2,976 in 1999 &
$2,976 in 1998)
Inventory 538,331 709,785 573,560
Prepaid Expenses & Other Receivables 64,369 81,329 78,785
Deferred Taxes - Current 0 156,000 0
Deposits 190,000 0 190,000
--------- --------- ---------
Total Current Assets 1,664,637 1,863,203 1,727,488
Property, Equipment And Other Assets
Land 0 290,303 0
Property and Equipment, Net 508,974 1,423,453 522,660
Deferred Taxes - Non-current 0 358,409 0
Other Assets, Net 66,889 65,995 68,484
--------- --------- ---------
Total Property, Equipment And Other Assets 575,863 2,138,160 591,144
- ------------------------------------------ --------- --------- ---------
Total Assets $2,240,500 $4,001,363 $2,318,632
================= ========= ========= =========
Liabilities And Stockholders' Equity
Current Liabilities
Accounts Payable $ 123,404 $ 83,291 $ 41,250
Current Maturities of Long-term Debt 55,580 85,327 55,580
Bank Line of Credit Payable 372,614 480,000 439,372
Other Current Liabilities 416,843 157,433 344,818
------- ------- --------
Total Current Liabilities 968,441 806,051 881,020
Long-term Debt 162,101 1,052,453 184,926
Other Liabilities, Net 421,516 0 427,136
--------- --------- ---------
Total Liabilities 1,552,058 1,858,504 1,493,082
================= --------- --------- ---------
Minority Interest In Subsidiary 295,495 259,927 288,882
Stockholders' Equity
Preferred Stock, 8% Cumulative $.01 Par 100 100 100
Value, Authorized 2,000,000 shares, Issued
& outstanding 10,000 shares
Common Stock, $.01 Par Value, Authorized
50,000,000 Shares, Issued and Outstanding 221,420 221,420 221,420
22,142,000
Warrants Outstanding 140 140 140
Additional Paid-In Capital 3,040,662 3,040,662 3,040,662
Accumulated (Deficit) (2,727,374) (1,237,390)(2,583,654)
Treasury Stock at Cost (2,275,000 shares) (142,000) (142,000) (142,000)
--------- --------- ---------
Total Stockholders' Equity 392,948 1,882,932 536,668
--------- --------- ---------
Total Liabilities And Stockholders'Equity $ 2,240,500 4,001,363 2,318,632
========= ========= =========
</TABLE>
<PAGE>
REPRO-MED SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
May 31,1999 May 31,1998
----------- -----------
<S> <C> <C>
Sales :
Net Sales of Products $ 527,277 $ 700,318
Sale of Impotence Treatment 0 0
----------- -----------
527,277 700,318
Costs And Expenses:
Cost of Goods Sold 303,447 333,799
Selling, General & Administrative 296,341 283,913
Expenses
Research and Development 33,812 58,676
Depreciation and Amortization 22,976 39,380
----------- -----------
656,576 715,768
----------- -----------
Income (Loss) From Operations (129,300) (15,450)
- -----------------------------------
Non-Operating Income(Expense):
Licensing Income 0 0
Rental Income 0 21,525
Interest (Expense) (10,216) (29,214)
Interest & Other Income (Expense) 3,169 16,869
----------- -----------
(7,047) 9,180
----------- -----------
Income (Loss) Before Minority (136,347) (6,270)
Interest
Share of Operations
- -----------------------------------
Minority Interest In (Income) Loss (6,613) 20,566
of Subsidiary
----------- -----------
Income (Loss) Before Income Taxes (142,960) 14,296
- -----------------------------------
Provision (Benefit) For Income 760 500
Taxes
----------- -----------
Net Income (Loss) After Income $ (143,720) $ 13,796
=================================== =========== ===========
Earnings(Loss) Per Common Share :
Primary $ (0.01) $ 0.00
Fully Diluted $ (0.01) $ 0.00
</TABLE>
<PAGE>
REPRO-MED SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
<S> <C> <C>
Operating Activities:
Income (Loss)from continuing operations $ (143,720) $ 13,796
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 22,976 39,380
Deferred income taxes 0 0
Income (loss) of minority interests 6,613 (20,566)
------------ ------------
(114,131) 32,610
Changes in assets and liabilities: ------------ ------------
Accounts receivable - trade (194,649) (90,111)
Inventories 35,229 (75,676)
Prepaid expenses & other accounts receivable 14,416 (15,453)
Accounts payable 82,154 (57,149)
Accrued expenses 66,405 (60,754)
------------ ------------
3,555 (299,143)
------------ ------------
Net cash provided by (used in) operating (110,576) (266,533)
activities
Investing activities:
Short term investments (373,340) 163,175
Capital expenditures (7,695) (26,863)
Other Assets 0 (245)
------------ ------------
Net cash provided by (used in) investing (381,035) 136,067
activities
Financing activities:
Proceeds term loan 0 0
Repayment of term loan (22,825) (16,788)
Proceeds line of credit 0 120,000
Repayment line of credit (66,758) 0
Repayment of mortgage 0 (8,364)
Preferred stock dividend 0 0
------------ ------------
Net cash provided by (used in) financing (89,583) 94,848
activities
------------ ------------
Net increase (decrease) in cash and cash (581,194) (35,618)
equivalents
Cash and cash equivalents, beginning of period 683,321 160,567
------------ ------------
Cash and cash equivalents, end of period $ 102,126 $ 124,949
============ ============
Supplemental disclosures:
Cash Payments for:
Interest 10,216 29,214
Income taxes 0 0
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- ---------------------------------------------------------------------------
Results of Operations
Three months ending May 31, 1999 vs. May 31, 1998
- -------------------------------------------------
The Company's sales, despite a substantial order for Freedom60
products of $35,204 from McKinley Medical, LLLP, which contributed to a
$40,982 increase in infusion therapy sales for the three month period
ending May 31, 1999 as compared to the same period in 1998, resulted in a
decline of total Company sales of $173,041. The decrease was primarily a
result of reduced impotency treatment sales to the Company's Original
Equipment Manufacturers ("OEM") customers. For the period ending May 31,
1999 OEM sales were $147,512 versus $345,008 for the same period in 1998.
Emergency medical product sales declined $21,454 to $265,860 from $287,314
in the three month periods ending May 31, 1999 and May 31, 1998
respectively. This decrease resulted primarily from the timing of
purchases by certain customers who ordered large quantities of product in
the first three months of the 1998 fiscal year. The Company expects
comparable sales in the current fiscal year but distributed evenly
throughout the year. Included in emergency medical product sales for the
three month period ending May 31, 1999 were $49,211 of PLUS resuscitator
sales for which there were no comparable sales in the three month period
ending May 31, 1998.
Effective July 1, 1999 the Company entered into a Definitive Agreement
with McKinley Medical, LLLP, an international supplier of IV infusion
systems, to market Repro-Med's Freedom60 Infusion System in the U.S. and
international IV therapy markets.
The definitive agreement gives McKinley exclusive worldwide rights to
distribute Repro-Med's current portable, reusable infusion system called
the Freedom60 as well as certain rights to Repro-Med's next generation
intravenous infusion therapy systems including an electronic version
containing a flow alarm presently under development and expected to be
released in the next quarter for the hospital and home care markets. The
Company has been informed by McKinley management that it plans to
aggressively launch the Freedom60 through its network of distribution
partners worldwide. In order to maintain exclusivity, McKinley must
maintain increasing sales performance levels for the three year duration of
the agreement which is renewable for successive twelve month periods unless
either party provides notice of an intention not to renew.
Based on the potential market, and McKinley's focused, knowledgeable
worldwide distribution network, Repro-Med management expects that this
agreement will result in significant sales of the Freedom60 in an aggregate
of over $6 million over the next three years, although there can be no
assurance that that McKinley will be able to develop this market to the
full extent that is envisioned by this agreement, or that other companies
with greater resources than McKinley and Repro-Med will not market
competing devices.
Company sales for the three months ending May 31, 1999 included sales
by affiliates of $56,476 compared to sales by affiliates for the three
months ending May 31, 1998 of $50,236.
Cost of goods sold was 57.5% for the three month period ending May 31,
1999 and 47.7% for the same period in 1998. The difference is primarily
attributable to an adjustment to material cost in the first three months of
1998 which didn't repeat in the three months ending May 31, 1999.
Selling, general and administrative ("SG&A")expenses were $296,341 for
the three months ending May 31, 1999 versus $283,913 for the same period in
1998. This $12,428 increase resulted from increased sales and marketing
expenses to promote the Freedom60 products and to obtain additional
customers and contracts for the Company's infusion and other products. The
effects of on-going cost saving measures will become more apparent as the
fiscal year progresses. The McKinley Medical agreement will further reduce
sales and marketing expenses related to the Freedom60 product line.
<PAGE>
Contributing to the increased SG&A expenses was an increase in
building rental expense of $24,380, $30,000 rent less $5,620 deferred
profit from building sale, which resulted from the sale-leaseback of the
building in February 1999. The sale-leaseback was done to provide a source
of capital for use in the business including promotion of the Company's
products and to provide funds to develop new markets and customers. Part
of the building rental expense is offset by elimination of mortgage
interest expense, the mortgage was paid off in February 1999. Another
significant difference between the periods ending May 31, 1999 and May 31,
1998 was the re-allocation of a portion of salary and benefits to SG&A
expense for Andrew Sealfon, President, from Research and Development
expenses. This allocation reflects the increased effort and focus being
devoted to increasing sales of the Company's products.
Research and development expenses declined $24,864 in the period
ending May 31, 1999. The reduction was primarily the result of the re-
allocation of a portion of Andrew Sealfon's salary from Research and
Development expense to SG&A expense.
Depreciation and Amortization expense was $16,404 lower in the period
ending May 31, 1999 as a result of the sale of the building which occurred
in February of 1999. The removal of the building from capital assets
reduced the amount of depreciation expense.
The loss from operations for the period ending May 31, 1999 was
$129,300 versus a loss of $15,450 for the same three month period in 1998.
The increased loss was primarily the result of a decrease in gross margin
resulting from lower sales for the period.
Non-operating Income/Expense included Rental Income in the three
months ending May 31, 1999 of $0 compared to $21,525 for the three months
ending May 31, 1998. The rental agreement which, in 1998, resulted in the
Company receiving this rental income was sold as a part of the building
sale-leaseback in February 1999. The elimination of rental income is
partially offset by a reduction in interest expense resulting from the
elimination of the building mortgage.
Interest Expense was reduced to $10,216 in the three months ending May
31, 1999 from $29,714 for the same period in 1998. This is a result of the
building sale-leaseback which paid off the building mortgage and eliminated
the monthly mortgage interest charges.
Interest and Other Income/Expense was lower by $10,500 in the period
ending May 31, 1999 as compared to the three month period ending May 31,
1998 due to a one-time billing for technical services to an OEM customer
which did not repeat in 1999.
The Net Loss was $143,720 for the three months ending May 31, 1999
versus a profit of $13,796 in 1998.
Liquidity and Capital Resources
- -------------------------------
For the period ending May 31, 1999, the Company had net working
capital of $696,196 as compared to $846,468 at February 28, 1999 and
$1,057,152 at May 31, 1998. A major source of new funds was the February
25, 1999 sale of the Company's Chester, New York building. The sale
resulted in net cash to the company of $558,437. Additional funds were
made available to the Company through an intercompany loan from an
affiliate, Gamogen. At February 28, 1999 the Company had an intercompany
loan payable to Gamogen for $176,889. Under terms of an agreement with
Gamogen, at the end of each quarter, the Company will pay interest at the
rate of 9% on the balance outstanding for the quarter to its Gamogen
affiliate. These interest payments will continue until the balance due to
Gamogen has been repaid or offset by intercompany receivables for rent,
wages and operating expenses that are paid by the Company and by the
affiliates. The intercompany loan balance at May 31, 1999 was $190,757.
First quarter interest of $3,980 was paid by the Company on July 15, 1999.
The funds available at May 31, 1999 are expected to meet the Company's
cash requirements, under current operating conditions, for fiscal year 2000
which began on March 1, 1999 and ends on February 28, 2000. Additional
funding may be required if the company needs to increase production for new
customers or products which would include inventory <PAGE>
purchases and accounts receivable funding. In anticipation of the need for
increased funding, the Company has submitted for its lender, Key Bank
("Bank"), to be submitted with its annual line of credit renewal, a
proposal for additional funds to handle new business working capital
requirements. Furthermore, the Company, in its negotiations with new
customers or with existing customers for new products, is requesting
payments to support each specific project's initial working capital
requirements. Inability to secure additional funds for working capital
would have an adverse effect on the Company's ability to fulfill new
business requirements.
During conversations with the Bank concerning the building sale-
leaseback, the Bank required a cash collateral account of $150,000 be
established from a portion of the proceeds from the building sale before
the Bank would consent to the Company's proceeding with the sale. The
$150,000 which appears as a deposit on the balance sheet, had been deducted
from the proceeds of the building sale before arriving at the net amount of
$558,437 available to the Company from the sale. The cash collateral
deposit of $150,000 was established under the terms of a Cash Collateral
Agreement (the "Agreement") entered into between the Company and the Bank.
The Agreement was requested by the Bank as part of the building sale to
provide the Bank additional collateral for the line of credit and term loan
remaining after the mortgage loan was paid. The $150,000 deposit is held
by the Bank in an interest bearing account, the Company's operating account
will receive periodic credit for interest earned. The $150,000 will be
released by the Bank for the Company's use when the line of credit of
$500,000 is fully advanced and the Company has sufficient additional
Collateral Base, described as 80% of accounts receivable and 40% of
inventory, to collateralize the amount requested provided the Company is
not in default.
The Company's line of credit with the Bank is up for renewal on July
31, 1999. Typically, the line of credit is renewed for a twelve month
period. The Bank is currently reviewing the Company's results and
projections to determine whether they will be willing to renew the loan(s)
for another 12 month period. They have initially indicated they may be
willing to renew the line for 60 days until September 30, 1999, that
decision is pending. At May 31, 1999 the Company had a term loan of
$217,681 and a line of credit of $372,614 outstanding with the Bank.
Failure of the Bank to renew these loans may impede the Company's ability
to meet its obligations for the fiscal year without locating new sources of
funds. The Company is currently seeking alternate sources of capital.
At May 31, 1999 the Company had $556,818 in cash and cash
equivalents which does not include an additional $150,000 in a cash
collateral deposit with the Bank.
The term loan is a five year note for $300,000 opened on December 1,
1997 for which the
final payment will be paid on November 1, 2002. Monthly payments include
principal and interest. In fiscal year 2000, total principal payments will
be $55,580 or $4,632 on average per month with interest of approximately
$17,000. The interest rate on the term loan is fixed at 8.43% through the
use of an interest rate swap which reduced the interest rate from 8.83% for
the life of the loan. The Company's fixed assets: machinery & equipment,
tooling and furniture & fixtures, are pledged as collateral for the term
loan.
The line of credit has a maximum cash available limit of $500,000
renewable by the Bank on an annual basis. The Company submits a monthly
Borrowing Certificate on which is calculated the line of credit access the
Company has at that point in time. The available amount is based on a
ratio of 80% of accounts receivable and 40% of inventory. Depending on the
calculation, a payment to the Bank may be required or additional money may
be made available to the Company. During the period ending May 31, 1999 the
Company paid down the line of credit by $66,758 to comply with the line of
credit terms. The Company had $372,614 outstanding on the line of credit at
May 31, 1999. Monthly payments are for interest only. Interest paid on the
line of credit in the three months ending May 31, 1999 was $7,376. The
interest rate is variable based on the prime rate less 1/4%, at year end
the rate being paid was 7.5% (7.75% less .25%). The line of credit loan is
secured by accounts receivable and inventory.
2000 Compliance
- -----------------
Company State of Readiness - The Company will be ready for the year
2000 in both
<PAGE>
information technology (IT) and non-IT systems. In terms of IT systems, the
Company has purchased and taken delivery of a software upgrade to make its
primary accounting, sales and manufacturing systems year 2000 compliant.
The upgrade will be installed and validated by the summer of 1999. The
internal network on which the primary business IT software runs, has been
upgraded on schedule.
In regard to non-IT systems, which refers to systems using embedded
technology like microcontrollers, etc., the Company does not currently
manufacture, nor has it completed development of, products which utilize
microprocessors or similar date related functionality.
The Company has surveyed third parties with which it has material
relationships to determine whether there are any known, significant risks
for business interruption, no risk has been identified.
Costs of Year 2000 Issues - The estimated total cost of upgrading the
Company's IT and non-IT systems is under $15,000.
Risks of Year 2000 Issues - The primary risk to the Company in terms
of year 2000 issues, relates to external communication networks in the area
of international telephone systems. This effects a small portion of the
Company's overall business activity in the areas of customers and
suppliers.
Contingency Plans - The Company has the flexibility to temporarily
utilize off-the-shelf, year 2000 compliant software for key portions of
business system applications, should the Company experience an unforeseen
delay or problem with the aforementioned legacy system upgrades.
In regard to the risk of failures in international communications
networks, a contingency plan including provisions for sending and receiving
orders and payments using couriers and other secondary methods of
communication is currently being explored.
The Company believes that becoming Year 2000 compliant will not have a
significant
impact on the financial position or results of operations of the Company.
Although the Company is not aware of any material operational issues or
costs associated with preparing its products or internal information
systems for the year 2000, there can be no assurances that the Company will
not experience significant unanticipated negative consequences or costs
caused by undetected errors or defects in the technology used in its
internal systems, which are composed predominately of third party software
and hardware, or caused by software used by its vendors or customers or by
government agencies.
Forward Looking Statements
The Company has made and will make certain forward-looking statements
in the Quarterly Report relating to market and product development among
others. These forward-looking statements represent challenging goals for
the Company and are based on certain assumptions and estimates including
the worldwide economy, competitive activity, funding availability, product
introductions, governmental action and the development of certain markets.
Some examples of key factors necessary to achieve the Company's goals are:
1.) the ability to
continue successful technological innovation 2.) the avoidance of adverse
cost increases 3.) the ability to achieve projected sales of the Company's
products 4.) uncertainty related to Food and Drug Administration or other
government regulation 5.) introduction by other companies of competitive
products 6.) changes in the Company's relationships with its customers and
distributors 7.) adequate and available sources of funds 8.) the ability
of the Company to secure a definitive agreement from a company with which
it has a letter of intent and sales orders from certain OEM customers. If
the Company's assumptions and estimates are incorrect or do not come to
fruition, or if the Company does not achieve all of these key factors, then
the Company's actual performance could vary materially from the forward-
looking statements made herein.
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- --------------------------
The Company is not 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 last quarter of the fiscal period ended May 31, 1999.
Item 5. Other Information
- -----------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
None
<PAGE>
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
Andrew I. Sealfon, President
Dated: July 16, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Andrew I. Sealfon July 16, 1999
- -----------------------------
Andrew I. Sealfon, President, Treasurer, Chairman of
the Board, Director, and Chief Executive Officer
/s/ Norman E. Rathfelder July 16, 1999
- ----------------------------
Norman E. Rathfelder, Secretary and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-END> MAY-31-1999
<CASH> 102,126
<SECURITIES> 0
<RECEIVABLES> 318,095
<ALLOWANCES> (2,976)
<INVENTORY> 538,331
<CURRENT-ASSETS> 1,664,637
<PP&E> 1,173,775
<DEPRECIATION> 664,801
<TOTAL-ASSETS> 2,240,500
<CURRENT-LIABILITIES> 968,441
<BONDS> 0
0
100
<COMMON> 221,420
<OTHER-SE> 171,428
<TOTAL-LIABILITY-AND-EQUITY> 2,240,500
<SALES> 527,277
<TOTAL-REVENUES> 527,277
<CGS> 303,447
<TOTAL-COSTS> 656,576
<OTHER-EXPENSES> 3,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,216
<INCOME-PRETAX> (142,960)
<INCOME-TAX> 760
<INCOME-CONTINUING> (143,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,720)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
